Q2 2022 Paysafe Ltd Earnings Call
[music].
Greetings and welcome to <unk> second quarter 2022 earnings Conference call.
At this time all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
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As a reminder, this conference is being recorded.
I would now like to turn the call over to Kirsten Nielsen head of Investor Relations. Thank you you may begin.
Thank you and good morning, I'm going to pay for the second quarter 2022 earnings conference call.
Today, our British weather, Chief Executive Officer and Izzy.
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 report.
Statements reflect management's current beliefs assumptions and expectations are subject to factors that could cause actual results.
For 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.
Todays presentation also contains information that will constitute non-GAAP financial measures under SEC rules, you can find additional information about these non-GAAP measures and reconciliations to the most directly comparable GAAP financial measures in today's press release and in the appendix of this presentation, which are available in the Investor Relations section of our website.
With that I'll turn the call over to Brad.
Great. Thanks, Kersten and good morning, everyone and thank you for joining US today, it's been an extremely active first three months for me meeting with hundreds of employees customers and shareholders. While I've traveled to all of the major offices around the world.
Our team has been highly engaged and we're already taking some initial steps to simplify and improve the company.
On today's call I'll start with an overview of the quarter then I'll share my early observations on the state of play Safe and then I'll turn it over to easy to reviews, the financial results and guidance.
So with that let's start on slide three.
Our second quarter revenue of $379 million and adjusted EBITDA of $103 million were in line with our guidance range for the quarter, despite greater than expected FX headwinds growth continues to be led by our Americas region, driven by our safety PE and Pago effect Tivo <unk>.
Acquisitions, and U S acquiring which recorded double digit revenue and EBITDA growth in Q2.
At the same time, we are seeing progress across our key areas as we focus on improving our customers' experience and innovation.
Recently, our team one payment innovation of the year at the 2022 SBC awards, recognizing our screwed wallet as a game changer for U S I gaming brands and their players, especially.
Especially VIP customers.
In addition, we continue to rollout user experience improvements in our wallet that are being positively received by our customers such as our new dashboard, which allows customers to personalize their wallet experience.
Solid expansion into Ontario's, new private I gaming market, providing traditional and alternative payments through pay saves gateway, where our card approval rates are greater than 90% and we are now live or onboarding with a total of 14 merchants in the province.
We continue to see robust growth in the U S regulated I gaming market and have processed more than 2 billion in gateway volumes in the first half of 2022.
We are currently live in 22 states and look forward to the upcoming launches in several states and jurisdictions, where recent legislation is passed.
With Ohio being the most noteworthy.
We also remain excited about our upcoming squirrel wallet integration with Penn National's Barstool sports App, which is grills first tier one operator in North America.
During the second quarter, we held our largest merchant partner conference to date.
These channel partners were great to meet and I received very positive feedback on our year over year operational improvements. So a lot of good progress in the quarter.
As for the rest of the year I want to state upfront that we will be updating our 2022 outlook to align with our current expectations, which is he will walk you through in more detail.
When we reiterated our outlook in May we felt comfortable that we could absorb the anticipated impacts from the stronger dollar the Russian and Ukraine War, and the regulatory headwinds impacting the European gambling market.
While we've been able to absorb those headwinds through the first half we now have further FX pressure as.
As well as the added uncertainty related to macroeconomic environment, both in the U S and Europe .
In particular gamba.
Gambling merchants are reporting a weaker consumer environment in Europe .
Due to these factors, we believe it's prudent to revise our guidance I'll touch on the actions we've taken already in my first 90 days in a minute, but I'm confident that the changes we're making over the next few months will set us up for growth in 2023.
Moving to slide four.
It's been over three months since I joined pay safe and I continue to feel excited by the potential I'm seeing in the company.
I first want to thank the team for all of their feedback and engagement, which has been instrumental in the changes we have made and will make going forward.
A particular highlight for me is so far has been visiting our offices around the world and meeting our teams and clients in person to discuss the opportunities ahead.
While we are still in the process of developing our future plan and priorities. We've made great strides in today I'll share my initial views on pay safe and the path forward.
<unk> has a unique position with both acquiring and issuing construct.
When I look at our revenue streams today, we're broadly focused on the right verticals, which have a large market opportunity and high growth rates.
However, we while we have many of our assets to power end to end payments for our target markets. We have a lot of opportunity to improve cross selling and fully leverage our assets to monetize and better serve our merchant and consumer customers.
With a strong history marquee clients and focus on improving in a couple of areas I believe we can be very competitive in these verticals as we move forward.
Yeah.
Turning to slide five for a snapshot of revenue segmentation.
While you look at the markets. We serve we can describe ourselves as largely entertainment focused which we broadly define as recreational or discretionary spend such as I gaming digital asset trading video gaming travel retail and hospitality.
This comprises about 80% of our revenue today.
Overall, we have a good geographical mix balanced across North America and Europe .
And with a small but fast growing presence in Latin America.
So when I think about our focus in who we are as a company we power the safe movement of money or digital assets for this sector around the world.
It's in our DNA as a company and it's where we have great capabilities attractive terms and the right to win as long as we remain focused on helping our customers by delivering a holistic value proposition.
Finally, we need to act as one team with a common goal.
Turning to slide six this is how we look at our addressable markets today.
This isn't particularly new for those of you I've been following pay safe, but I think it's worth reiterating that we like where we play we serve massive terms with attractive tail lines over a long term growing at double digit rates.
So it's not a matter of repositioning pay safe into entirely new verticals, we have plenty of runway to grow in our core markets today, but we must do a better job of executing product innovation and sales to drive growth within these verticals.
With that backdrop, let's move to slide seven.
Pay safe has a unique two sided network that brings consumers and merchants together with many products needed to power the MTN payments of an entertainment.
We have a scaled global offering which serves 250000 merchants and 25 million consumers. Additionally, we have more than a million access points today.
The challenge for our team is not only to improve the value proposition on each side of the network, but to focus on the synergy opportunities that bring the two sides together.
I have had success in my past unlocking value on this two sided networks and I believe those opportunities exist here as well.
Onto slide eight.
Now I'll add some additional observations following my first 90 days here at paces.
I want to recognize that certain areas of the business have performed quite well.
The Americas, we've seen strong growth from Latam U S acquiring as well as our regulated <unk> gaming market.
This region grew 18% in the first half of 'twenty two.
Additionally, when we look across our top accounts are roughly our top 800 merchants, we are generating healthy double digit growth at the end of 2001, and we have the opportunity to do much more with those clients to help them drive their revenue.
Lastly, our average monthly users are also increasing driven by growth in the Americas fueled by our strategic acquisitions, which has more than offset the decline in users in Europe , which has faced challenges from the regulatory environment as well as the Russian and Ukraine War.
We continue to see underlying improvements and positive trends in the funnel optimization conversion rates and pricing optimization and target markets.
On the other hand, there are a few areas that frankly were not working well today.
But this also represents a significant opportunity to drive improvement and ultimately future value for our stakeholders.
First despite the progress in recent years to drive platform consolidation cloud migration and savings. The organization is still too complex and has operated in silos.
Streamlining the business and improving operational efficiency will allow us to fund our sales and product innovation the.
The team has responded quickly and we have already made a number of organizational updates to simplify our structure and improve our go to market model.
User experience is critical for our success and these changes will allow us to improve our focus on employee consumer and merchant experiences and all interactions with our products and our organization.
Second we have a lot of opportunity to enhance our product innovation.
Bluntly, we've lost our way here for example, pay safe was truly a pioneer in the wallet industry.
But our focus has been heavily weighted to the merchant side of the network and less so on the consumer side.
Whats now clear is we need to bring a balance to our product innovation.
From a product side, we have a great opportunity to really help our customers in a time of dynamic change within the verticals as the world of entertainment moves to mixed reality.
It is past time to return to our early entrepreneur old days driving innovation to market developing products that deliver great experience to our users and helping our merchants grow.
Finally, we will also rebuild a strong sales engine focused on existing customers, new account acquisition and business development opportunities.
These rebuilt organizations will get the full support of our business lines and operational teams, reducing the friction in doing business with us.
We will be hiring additional talent in both of these functions as we move forward and establishing metrics for us to drive growth.
Yeah.
Turning to slide nine.
We are making several organizational changes to our leadership team and structure with a focus on driving better client experience and enabling our teams to efficiently go after sales and aligning product direction.
At the same time I've been recruiting new talent and I'm very pleased to welcome Rob Gatto as pay saves Chief revenue Officer.
Rob brings decades of experience driving growth for both private and public businesses of all sizes. His commercial acumen and deep understanding of both market and customer needs will make him invaluable member to the team as we transform our business.
We will continue to add talent in the next couple of months.
We have also centralized operations under ROI, asking who has been appointed to chief operating officer role.
This is a meaningful change and will be something we talk about further next quarter.
Additionally, we're in the creation stage of a project that will drive significant operational efficiency.
We're not ready to announce yet but more to come on that next quarter.
We also plan to provide additional metrics on the transformation and updates in terms of where we are.
Importantly, we're putting in place an expanded and simplified wallets division as we bring together, our digital wallets and eat cash capabilities into one team led by Charade Patel.
To bring our unique customer centric proposition in the market.
<unk>, yes.
It has also taken a broader role leading our global merchant acquiring business. We view that we have tremendous opportunity with our merchant business as we look at our existing customer base and the potential for future growth.
Turning to the path forward on slide 10.
As you can see from the prior slides I believe we're in a position to take advantage of being in great verticals.
We have many things working well and now with a focus on just a couple of areas returning to our roots of product innovation aligned on user experience and sales we are excited about our future.
Acting as one organization operationally will improve efficiency and allow us to reinvest for growth I am convinced that we will return to growth in 2023.
With that I'll turn the call over to <unk> to discuss our results.
Thanks, Bruce let's start with slide 12 for a snapshot of our performance versus guidance.
Revenue came in at the high end of our guidance range driven by strong growth from U S. Acquiring EBITDA was towards the lower end of the range, primarily reflecting business mix and currency.
Moving to slide 13 for a summary of our Q2 results.
Volume was $33 4 billion, an increase of 7% sequentially and an increase of 3% year over year.
Volume growth reflects continued strength in North America, where we saw strong growth from the U S. SMB market as well as continued momentum in the regulated <unk> gaming market.
And Europe as expected, we saw continued weakness across our gaming as well as softer activity in financial markets and crypto trading.
As a reminder, while he does not include our embedded finance solution as a significant portion of the volumes exchange our peer to peer transactions, which are not revenue drivers. Therefore, we have excluded it asked enough skew the overall take rate.
Total revenue for the second quarter was $379 million down 1% year over year, excluding the impact from changes in foreign exchange rates revenue increased 3% as growth from years acquiring more than offset the decline in digital commerce.
Compared to Q2 2021 irregular.
The regulatory changes in Europe , Russia, Ukraine conflict and currency impacted revenue by roughly $35 million to $40 million.
Excluding these headwinds revenue growth would have been roughly 8%.
The recently acquired businesses are performing well and growing more than 30% year to date on a pro forma basis.
Adjusted EBITDA for the quarter was $103 million, resulting in an adjusted EBITDA margin of 27%.
Lower margin primarily reflects business mix.
Lastly, free cash flow was $222 million on a 12 month basis, or 53% conversion, reflecting higher working capital outflows due to the lower utilization of bank guarantees and growth in Latam as.
As well as higher capex spend and taxes paid.
We currently expect our full year free cash flow conversion to be around 60%, which is the lower end of our targeted range.
On slide 14 is a year over year walk for Q2 revenue by geography as Bruce touched on earlier, our performance reflects the ongoing softness in European markets, while the rest of our regions continue to grow in Q2. Our results included an $18 million impact from a stronger dollar.
Turning to slide 15, I'll briefly touch on our GAAP results in Q2, we had a GAAP net loss of $631 5 million.
Similar to Q1, our net loss was driven by an impairment of goodwill due to the sustained decline in our stock price and market capitalization.
As well as current market and macroeconomic conditions. As a reminder, this is a noncash charge, which has no impact on cash flow liquidity or our debt covenants.
Beginning this quarter, we are introducing adjusted net income and adjusted EPS in our reporting which aligns with our peers reporting as well as feedback from the investment community.
You can find additional information on these non-GAAP measures in the appendix of the presentation.
Adjusted net income for Q2 was $37 5 million compared to adjusted net income of $66 4 million in the prior year period.
The change in adjusted net income was largely attributable to the same factors impacting adjusted EBITDA as well as an increase in depreciation and amortization expense and higher interest expense, excluding amortization of acquired intangibles and acceleration of deferred debt financing expense.
Let's move to slide 16 for a discussion on our segment results starting with digital commerce.
Volumes are $111 2 billion, a decline of 5% year over year.
Revenue was $191 8 million, a decrease of 13% compared to the prior year, reflecting FX and soft I gaming activity in Europe .
Which we have also seen in the results some gambling operators, who continue to report declines in the region through the first half.
In addition, the impact of Russia, Ukraine War at softer financial trading activity.
Excluding these impacts from Germany, and Netherlands, Russia, Ukraine revenue would have increased mid single digits in constant currency.
Lastly, as a reminder, the e-cash business faced a tougher comparison of year over year growth relative to the prior year, which benefited from Covid Lockdowns in Europe .
Adjusted EBITDA for the digital Commerce segment was $71 7 million in the second quarter and down 16% on a constant currency basis, reflecting lower revenue business mix and SG&A from recent acquisitions.
On slide 17, we will move to the U S acquiring segment.
Overall results in this segment reflect continued strength in our U S SMB market.
<unk> from direct marketing vertical and operational efficiency.
Q2 volume in U S acquired was $22 1 billion, an increase of 8% year on year.
Consistent with market trends, we've seen continued strong growth in vertical such as restaurants retail and petrol revs.
Revenue for the second quarter was $187 2 million, an increase of 14% compared to the prior year.
Adjusted EBITDA increased 30% to $53 million.
Let's turn to slide 18 to look at our balance sheet and liquidity.
Cash and cash equivalents were $244 million at quarter end net.
Net debt was $2 4 billion and our net debt to LTM adjusted EBITDA ratio was five seven times.
Our primary use of excess cash is to pay down our debt and started moving towards our target of three five times adjusted EBITDA.
Marketing roughly $100 million of debt reduction annually.
In Q2, we completed a voluntary debt repayments and buybacks totaling $22 million and we continue to monitor pricing of both our term debt and notes and well Act opportunistically in the second half to take advantage of current trading levels.
Let's move to slide 19.
When providing our original guidance for 2022, we believe we have taken a conservative approach factoring in the potential for market and regulatory risks, particularly those related to our digital commerce business in Europe .
Whether you reiterated the outlook in May we felt confident that we could absorb the direct impact from the Russia, Ukraine War as well as the stronger dollar against the Euro which have been declined from our original guidance assumption of 107 to a revised assumption in may of 112 for the full year of 2022.
Between the Russia conflict and the stronger U S. Dollar in the first half we've absorbed $35 million in revenue impacts from dose had headwinds year over year.
As we sit here today, we have additional FX pressure as well as uncertainty related to the macro environment and its impact on consumer spending in the U S and internationally.
Particularly we are seeing negative signals from European gambling merchants, reflecting a softer macro environment and an associated reduction customers rate of spend in addition to the expected impact from regulatory headwinds in markets like Germany and Netherlands.
Looking ahead, we also expect FX parity versus the Europe in the second half leading to a 1.5 exchange rate for a full year.
Which is a 10% decline versus our original expectation of 107, and a 5% decline from our expectation in may a roughly $40 million in revenue.
For Q3, we expect revenue in the range of $350 million to $365 million and adjusted EBITDA in the range of $90 million to $95 million.
Collecting a moderation of growth rate from U S acquiring largely offset by a decline in digital commerce driven by adverse FX movements. In addition to the economic uncertainty, including persistent inflation and its impact on consumer behavior. The second half of the year.
Now I'll turn to slide 24.
For the full year on a reported basis, we expect revenue between $1 47 billion and $1 49 billion.
<unk> flat year over year.
We expect U S acquired revenue to grow roughly 10% for the full year.
Digital Commerce is now expected to be down high single digits not adjusted for FX are roughly flat on a constant currency basis.
For the total company adjusted EBITDA is expected to be between $400 million and $415 million, reflecting lower margins year over year, primarily driven by business mix.
To summarize while we continue to expect improvement in the second half our expectations are lower than our prior guidance, reflecting FX and macroeconomic uncertainty.
Which we expect to partly offset with the growth from our acquisition synergy and seasonal activity in Q4.
Now I'll turn the call back to Bruce for closing remarks.
Great. Thank you I'll conclude by reiterating that I continue to feel excited by the potential I'm seeing in the company.
While we are facing an uncertain economic environment and have changes in the business to address I am confident that the changes that we make over the next few months will set us up for growth in 2023.
We're committed to keeping you updated on our progress and we expect to share our financial and strategic update at our Investor Day in Q1 2023.
With that let's open the call for questions operator.
Thank you we will now be conducting a question and answer session.
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Okay.
Yes.
Our first questions come from the line of Jason Kupferberg with Bank of America. Please proceed with your questions.
Good morning, guys. Thanks for taking the question.
On the new revenue guide for the year, obviously, you you highlighted European gaming and some of the emerging softness there, but because the new revenue guide assume softening trend in verticals outside of European gaming and if so if you can just detail that a little bit. Thanks.
Yes, Jason.
Thanks for the question no its predominantly European gaming because thats the majority of our digital commerce revenue.
And we start seeing the weakness in late May into June .
We're assuming it's because of this higher.
Cost of fuel higher cost of food.
Discussing slowdown in discretionary spending.
Predominantly what we see lower activity in the gaming.
Our gaming segment as a whole.
Okay and then.
I was just curious on your interest expense expectations for the year, how those may be changing just given the some of the floating rate debt you have in your stack and where would you tell us to expect leverage to end the year at I think it ticked up a hair hair here in the second quarter.
So just wanted to get a sense of where you think you'll be by the end of this year you pursue the longer term target. Thank you.
Yes, Jason I think ended up in the up by 5556 range.
Don't expect much of a change in <unk> expense, because I think if you look at page 18, we're basically 100% hedged against the European rate change and 70% against USD. So they are effectively at a pretty good position there from a.
Overall, I expect out of the base rate does increase again, well have a little impact, but not meaningful change.
Okay terrific. Thank you for the comments.
Okay.
Thank you. Our next question comes from the line of Darrin Peller with Wolfe Research. Please proceed with your questions.
Yeah.
Hey, guys. Thanks, Bruce I'd love to hear your perspectives after having now been there a few bonds if you will.
Looking at the businesses that you're operating now.
The medium to long term opportunity I know not to front run the investor day too much but.
You know what are your key takeaways in terms of what this business is versus what you may be thought it was coming in you have to go to get a couple more months to look.
Yeah Darrin look.
I would say coming in I had a pretty good bead on what I was stepping into and what the company was doing so.
Over the first 90 days.
It was really kind of going around talking to customers employees trying to get an understanding of where they were in.
In the process, so quite simply look at the business.
We have a merchant acquiring business platform and then we've got.
And issuing platform, where we drive our.
Our wallet business out of so as I look at that construct.
I like I like those spaces I think we're in very good verticals.
I think we have.
Have some issues around <unk>.
Product innovation and sales, which we can address.
<unk> got a lot of success with that in the past and so I think these things are things that we can get back on the right track and so.
Very good.
90 days Inn of had a good pretty good beat of what we are.
What we did as a company I feel like we've got the.
Great brands to build off of.
Excited about our team our employees are very passionate about what we do so.
Feel very good about where we are.
Thanks, Let me ask you a follow up which is a little bit of two parts. One of them is just when we're looking at the.
While the business that was a business that you know when we first looked at the store you thought would be worth.
Quite a bit more and b potentially value valuation wise worth quite a bit more than it seems to be performing a trading yet.
And you're still seeing annual actives that are sequentially, you know, they're not really I think they're down again.
So when we think about what what.
Cause an inflection there I'd be curious to hear your view and then really a bigger picture thought would be if there's anything in the business maybe in the merchant acquiring business in the U S that should be separated out given the potential valuation opportunity in some of those businesses.
When looking at the different parts CDR sum of the parts really very worth more and so they'd be done about that.
Yes, So let me take the first question just around wallet.
Again.
I think we had a pretty good understanding as I was coming into where wallet was and what the impacts were.
So we obviously saw the Russia, Ukraine, or having a significant impact on our revenue stream there.
FX is having an impact on the revenue stream and we also had some regulatory issues, most notably in Netherlands, and Germany, which.
Created some headwinds for the business on the European side.
As I said in the prepared remarks.
My assessment is that we became very much merchant centric with our wallet.
We didnt, we werent balanced in our experience and focusing on the consumers that we are using the product. So I think if we can bring a little more balance to our product innovation around that we can we can get a pretty good run with that.
The wallet as part of our business.
The second part of your question.
Around some of the parts and the valuation I think.
Where we are today.
I think the board is very supportive of.
What we have as an organization and our ability to turn this around and get it to grow and so I think that's we're going to focus on is <unk>.
Focusing on growing our business.
We do see a lot of commonality between the verticals and the consumers that we have on the merchant side and the consumers we have on the on the wallet side. So I think theres a lot of opportunity there for us.
Really.
Exploit the synergy between those two sided.
Markets.
Alright.
Yes.
Thank you our next questions come from the line of Josh <unk> with Autonomous Research. Please proceed with your questions.
Hi, good morning, I have two questions.
You talked about the need to enhance product innovation and rebuild a strong sales engine. How long do you think that will take to do.
Yes, Josh.
Thank you.
Look it's not going to happen in a quarter, but I think we will we'll be back in return too.
Solid growth rate in 'twenty three so.
As we look at the back half of this year, we will have a series of changes, but we'll be we'll come out of the year with the.
A solid growth rate and looking to do.
Not to get too far ahead of ourselves but to have.
23 be a return to growth for the company. So I don't think it's a long term.
Paul.
Okay. The second question with regarding weakness in European gambling.
You talked about it being macro I know last year. There was some increasing competition from account to account players I guess Trust me. It was one of them is any of the weakness in Europe due to increasing competition or changes in the competitive landscape or is it really entirely macro.
Hey, Joshua Christy I'll take that question, yes, what we see is the macro as a matter of fact, a couple of the gambling operators have come out.
Especially in Europe , you can read up on them.
<unk> 30, plus percent declines in Q2, a year over year I mean, we also did decline, but not to that magnitude and they're pointed to just a software or a weakness part of it a regulatory driven but part of it also lower economic activity that impacts.
Gambling capacity for the consumers.
From the best we can see and what we read what we have heard what we talked to it's more of a macro driven event.
Opposed to anything from a pure competitive environment.
Just one mini follow up on that if I might you mentioned regulations. This is just sort of the residual effect of the regulations that went into effect last year. They are also part of what's going on.
Yes, there are a couple of things. So clearly in Q2, we have the Netherlands, and Germany overlapping items, but looking at rest of the year. There is still a fair amount of.
Certainty around Germany in terms of our operators are getting their licenses or relinquishing them and the second one is more recently, we've talked about it but where the UK white paper comes out on affordability as well and as you know both Germany and UK are relatively sizable markets.
Thank you.
Thank you Josh.
Thank you. Our next question is coming from the line of Timothy Chiodo with Credit Suisse. Please proceed with your questions.
Good morning, great. Thanks, a lot for taking the question Hey, good morning on the U S. Acquiring business. So the volumes were up 8% in the quarter I believe the prior guidance for the full year was for mid to high single digits, but with an aim towards more of the high single digits is he I believe in the prepared remarks, you mentioned that maybe there's a little bit of a mall.
The rating of that expectation can you update us on what the expectations are for full year 2022 U S acquiring volumes.
Yes, Tim Thanks for the question, yes, it's probably going to be the high single digits still.
Growth is moderating year on year.
We are being cautious hanging around so still in the high singles, so that would imply exiting the year or call. It in the.
Oh go ahead sorry.
Got it from a revenue perspective, we should be around also at 10% full year on year growth as well.
Okay. Thanks, a lot is hey, I appreciate that I just wanted to clarify that.
That would imply just.
Call. It a Q4 exit rate of maybe approaching the mid single digits or so does that sound about right.
Yes volume is mid.
Mid single digits, probably on the higher end of that mid single digits, but yes that sounds right.
Okay, great. Thanks, a lot and then a final follow up on the U S. Acquiring business granted you've mentioned in the past that you're a large distributor of Clover is there any comment you can make around how the Cobra business is doing and if that is gaining share within your mix of U S SMB volumes.
Yes.
It is.
As far as the Cobra business.
I have listened to <unk> call. It just like everybody else I think it sounded like you is doing pretty well.
But from our perspective of reselling it.
<unk>.
I don't see any.
Real changes in what we've had in Q2 versus what they had prior to so there's not a.
Increased demand or decrease in demand it seems like it's a steady state for us.
Okay excellent. Thank you for taking both of those questions.
Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Our next questions come from the line of Jamie Friedman with Susquehanna. Please proceed with your questions.
Hi.
Thank you.
Good morning.
Good morning.
So.
Bruce in your prepared remarks.
Sure.
You commented on the general progress in the gaming segment, you had some really good proof points there.
Was wondering if you could elaborate on that a bit did you.
Happy to give the growth rate in that segment. This quarter I think it was 40% last quarter.
I don't believe we gave it in the <unk>.
Prepared remarks, as you can probably has the numbers yes.
Year on year, we saw a 25% volume growth in Q2 in our gaming segment. We go just regulated <unk> gaming is probably.
It's probably close to 70% so pretty strong volume growth year on year.
Okay got it and then.
You know you mentioned the 22 states.
Bruce but I think that was the same as last quarter. It's always hard to track I realize you have you're pretty disciplined on what you announced in that segment.
But.
Is there are we closer to the middle or in the beginning or is there a lot more to do in terms of the footprint in the U S.
Oh, I think we're still in the beginning of the game here.
In the U S on gaming so.
I think you've probably read, Massachusetts, just set a positive move with some legislation in the last week.
It's a priority for us is what I would say and we expect to lead.
The U S and the I gaming.
Gaming market.
Okay.
Cutler, who leads that for us is doing a great job.
Yeah.
I. Appreciate these bridges that you guys are doing by the way in the Powerpoint Cesar helpful.
But I wanted to ask about the assumption in digital on page 20.
Did I hear you right that you're.
I don't want to mess it up busy but I thought you said that.
The digital assumption for the year now is flat on a constant currency basis down high singles on an as reported basis I apologize if I heard that wrong.
That's right Jamie.
Jamie you got that spot on exit basically see the currency impact, it's pretty meaningful that run all through particularly digital commerce business.
Got it okay I'll jump back in the queue. Thank you.
Thank you.
Thank you. Our next question will come from the line of Dan Perlin with RBC capital markets. Please proceed with your questions.
Thanks.
How are you good morning.
Wanted to just ask him.
I guess, it's a little bit of a broader question in the context that.
The product innovation, you've been great merchant centric on you need to pivot a little more towards consumer centric. It makes total sense.
But it sounds like a lot of the.
A lot of the headwinds are just very macro centric in Europe .
So I'm wondering as you think about trying to create some kind of non cyclical product innovation that can help our.
Are you leaning more towards you know pivoting away from some of the high frequency users you know some of the some.
Some of the services that you provided.
Historically have tilted towards you know the.
I guess I'd just called the high frequency users typically larger gaming consumers and so I'm wondering is there something about the incremental engineering and innovation that also dovetails into the type of user that you might start to attract that you think could help as a counterbalance some of these macro issues.
Yeah, Dan Great question So no.
We still are going to absolutely have a focus on those VIP users I think what we.
<unk> recognizes there there are a lot of choices out there today for consumers.
Want to make sure that we have a very distinct value proposition to drive velocity to our app and that's really what we're going to focus on is great user experiences to broadened out why people are using that.
Excuse me.
But.
The VIP customer is still.
Important to US we will continue to be very important to us.
We think theres a lot of opportunity to broaden.
The usage and create additional velocity.
Yeah.
Got it.
Offering value to the merchants.
Yes, absolutely.
I wanted to just also ask a question around the.
Top accounts I think you said the top 800 merchants are growing healthy double digits, which made me think.
How should we be thinking.
Should we be thinking about the other merchant and to the extent that those other merchants or are maybe obviously not producing the same level of growth are.
Are they or should they be pruned a bit is there a balance that needs to be set here for the types of merchants that fit into your new strategy. Thank you.
Yes.
Let me start off and I'll, let <unk>.
Add in as well, but.
One I Wouldnt say its very unusual so when you look at our top accounts in the percentage of revenue that.
They drive that's probably not very unusual compared to.
Any other company out there so we are going to have.
Clients are highly engaged highly active.
Have the opportunity to cross sell more products into them.
And so that makes a lot of sense to me.
On the on the other end of the spectrum and we've got 250000 small merchants.
Some of those are not going to be growing anywhere near.
Some of the larger organizations that are really driving growth.
And so that that growth rate by default is going to be a lower growth rate. So I think we're in a good balanced what I would say really my overarching point about it was.
Is that we didn't really have a keen focus on our top accounts. It just kind of happened and now what we're going to do is bring a focus to.
What those accounts need to help them grow and Thats really what were going to really dial in on.
That's great. Thank you so much.
Thank you we have reached the end of the question and answer session I would now like to turn the call back over to Bruce lessons for any closing comments.
Thank you very much.
Look.
Thank you for joining us this morning greatly appreciate it I want to thank the team for pulling everything together for the call here today.
And all of the team at <unk> for all of their efforts in my first 90 days and look forward to building on the momentum. We've started here in the first 90 days. So thank you very much.
Thank you. This does conclude today's teleconference. We appreciate your participation you may disconnect your lines at this time.
Enjoy the rest of your day.