Q1 2024 Paysafe Ltd Earnings Call

Operator: Hello and welcome to the Paysafe first quarter 2024 earnings conference call. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. You can be placed into the question queue at any time by pressing star 1 on your telephone keypad.

Hello, and welcome to the pay say first quarter 'twenty 'twenty four earnings conference call. If any once you can fire operator assistance. Please press star zero on your telephone keypad, a question and answer session will follow the formal presentation.

Placed in the question queue at any time by pressing star one on your telephone keypad.

Operator: As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Kirsten Nielsen, Investor Relations, Head of Investor Relations. Please go ahead, Kirsten.

As a reminder, this conference is being recorded.

It's now my pleasure to turn the call.

Over to Kirsten Nielsen Investor Relations head of Investor Relations. Please go ahead Tristan.

Kirsten Nielsen: Thank you, and welcome to Paysafe's earnings conference call for the first quarter of 2024. Joining me today are Bruce Lowthers, Chief Executive Officer, and Alex Gersh, Chief Financial Officer.

Thank you and welcome to pay say earnings conference call for the first quarter of 2020 for joining me today are Bruce let others, Chief Executive Officer, and Alex Garcia Chief Financial Officer before we begin a reminder, that this call will contain forward looking statement and should be considered in conjunction with cautionary statement.

Kirsten Nielsen: Before we begin, a reminder that this call will contain forward-looking statements and should be considered in conjunction with cautionary statements contained in our earnings release and the company's most recent SEC report. These statements reflect management's current assumptions and expectations and are subject to factors that could cause actual results to differ materially from those forward-looking statements. You should not place undue reliance on these statements. Forward-looking statements during this call speak only as of the date of this call, and we undertake no obligation to update them.

Contained in our earnings release and the company's most recent SEC reports.

Statements reflect management's current assumptions and expectations and are subject to factors that could cause actual results to differ materially from those forward looking statements.

You should not place undue reliance on these statements forward.

Forward looking statements during this call speak only as of the date of this call and we undertake no obligation to update that today.

Kirsten Nielsen: Today's presentation also contains non-GAAP financial measures. 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 is available on the Investor Relations section of our website. With that, I'll turn the call over to Bruce.

Todays presentation also contains non-GAAP financial measures.

You can find additional information about these non-GAAP measures and reconciliation to the most directly comparable GAAP financial measures in today's press release and in the appendix of this presentation, which are available on the Investor Relations section of our website.

With that I'll turn the call over to Bruce.

Bruce F. Lowthers: Thanks, Kirsten, and good afternoon. Thank you all for joining us today. We kicked off the year with a great start, delivering strong results in the first quarter, reinforcing that our strategy and associated investments are driving momentum in the business and setting us up for long-term success. I'm especially pleased with the progress we've made against our established priorities for 2024, including robust hiring across our sales organization as part of our initiative to double the sales team headcount this year. More on this in a moment.

Bruce: Thanks, Kristen and good afternoon, and thank you all for joining us today.

Bruce: We kicked off the year with great start delivering strong results in the first quarter reinforcing that our strategy and our strategic investments are.

Bruce: Momentum in our business and setting us up for long term success.

Bruce: I'm, especially pleased with the progress we've made against our established priorities for 2024, including robust hiring across our sales organization as part of our initiative to double the sales team headcount this year.

Bruce: More on this.

Bruce F. Lowthers: In the first quarter, revenue increased 8% year-over-year to $418 million. Our growth outlook for this year reflects stronger underlying revenue performance, and we're seeing this in the first quarter anchored by improved operational execution. In the Merchant Solutions segment, revenue increased 11%, and in the Digital Wallet segment, revenue increased 5% or 4% in constant currency. Across the business, we saw a strong revenue contribution from our 2023 new client wins, as well as early progress towards our priorities to expand our sales capabilities, optimize the SMB business, drive consumer acquisition, and advance our product initiative. In the first quarter, our adjusted dividend increased 4% to $112 million, or 3% on a constant currency basis.

Bruce: In the first quarter revenue increased 8% year over year to 408.

Bruce: Yeah.

Bruce: Our growth outlook for this year reflects stronger underlying revenue performance and we're seeing that in the first quarter anchored by improved operational execution.

Bruce: And the merchant solutions segment revenue increased 11% and then the digital wallet segment revenue increased 5% or 4% constant currency.

Bruce: Across the business, we saw a strong revenue contribution from March 2023, new client wins as well as early progress towards our priorities to expand our sales capabilities optimize the SMB business drive consumer acquisition and advance our product initiatives.

Bruce: The first quarter, adjusted EBITDA increased 4% to $112 million or 3% on a constant currency basis.

Bruce F. Lowthers: As expected, margin declined from Q1 of last year, reflecting our planned incremental investments that we previewed with you on our last earnings call, and we also had roughly $3 million of severance expense for the quarter. We recorded positive GAAP net income, as well as growth across GAAP earnings, adjusted earnings, and free cash flow. We further reduced our net leverage ratio and also returned $14 million to our shareholders through our stock repurchase program, which we initiated in March.

Bruce: As expected margin decline from Q1 of last year, reflecting our planned incremental investments and we previewed with you on our last earnings call and we also had roughly $3 million of severance expense for the quarter.

Bruce: We recorded positive GAAP net income as well as gross across GAAP earnings adjusted earnings and free cash flow.

Bruce: We further reduced our net leverage ratio and also returned 14 million to our shareholders through our stock repurchase program, which we initiated in March.

Bruce F. Lowthers: Overall, these are strong results, and we're happy with how the year is evolving. So we're pleased to reaffirm our full-year outlook for 2024. Turning to slide four.

Bruce: Overall these are strong results and we're happy with how the year is evolving so we're pleased to reaffirm our full year outlook for 2024.

Bruce: Turning to slide four.

Bruce F. Lowthers: I'll share an update on our initiatives to expand our sales organization and optimize the portfolio. Starting with S&B, we welcome 29 new hires to the direct sales team, which is a 40% increase from the comparable headcount at the end of 2023. We also established our referral partners, which will drive a more targeted and cost-effective approach to merchant acquisition. As an example, we've entered into a new partnership with Dun & Bradstreet, becoming one of their preferred payment partners to enhance our lead generation efforts, leveraging their extensive subscriber database and marketing capability.

Bruce: I'll share an update on our initiatives to expand our sales organization and optimize the portfolio.

Bruce: Starting with SMB, we welcomed 29, new hires to the direct sales.

Bruce: Which is a 40% decrease from the comparable head count at the end of 2023.

Bruce: We also established a referral partners, which will drive more targeted and cost effective approach to merchant acquisition.

Bruce F. Lowthers: This partnership will provide us with access to over 30,000 new Dun & Bradstreet subscribers each month. Additionally, we continue to deploy value-added services to our existing and new customers, which has helped strengthen our take rates in the merchant solutions segment to 75 bps in the quarter from 73 bps in Q1 of last year. This complements the work being done to hire direct sales personnel to support growth and retention. In Q1, we rolled out a chargeback protection and backup terminals program to help safeguard merchants against downtime so they can better serve their consumers.

Bruce: One example, we've entered into a new partnership with Dun and Bradstreet, becoming one of their preferred payment partners to enhance our lead generation efforts leveraging their extensive subscriber database and marketing capabilities.

Bruce: This partnership will provide us with access to over 30000, new Dun <unk> bradstreet's subscribers each month.

Bruce: Additionally, we continue to deploy value added services to our existing and new customers, which has helped strengthen our take rate and the merchant solutions segment.

Bruce: 75 bps in the quarter from 73 bps in Q1 of last year.

Bruce: This complements the work being done to hire direct sales personnel supporting growth and retention.

Bruce: In Q1, we rolled out a chargeback protection.

Bruce: Terminals program to help safeguard margins against downtime so they can better serve their consumers.

Bruce F. Lowthers: Our key objective within the S&P portfolio is to improve the balance towards our direct channel so that our mix is less influenced by the lower margin third-party business. Going further, there are basically two sub-books within the direct channel of the SMB business. The nutrition challenges that we are experiencing are mostly isolated to one of those portfolios.

Bruce: Our key objective within that some b portfolio is to improve the balance towards our direct channel. So that our mix is less influenced by the lower margin third party business.

Bruce: Driving down further or basically choose some books within the direct channel of the SMB business.

Bruce: The attrition challenges that were experienced are mostly isolated to one of those portfolios.

Bruce F. Lowthers: However, our recruitment efforts and other initiatives to expand our presence across the U.S. and grow upstream to higher-value merchants are starting to pay off. We saw a 10% increase in revenue for new merchants signed in Q1 in this direct business. Additionally, we sign new business across more than 20 states, increasing our state presence by roughly 50% compared to what we typically book. We will continue to build upon this progress to drive growth in our direct SMV channel along with enhanced retention activities. Shifting to our enterprise business, in the first quarter, we had 67 enterprise wins, which were broad-based across our core geographies and verticals.

Bruce: However, our recruitment efforts and other initiatives to expand the presence across the U S and grow upstream to higher value merchants are starting to pay off.

Bruce: We saw a 10% increase in revenue per new merchants signed in Q1 in this direct business. Additionally, we signed new business across more than 20 states, increasing our state presence by roughly 50% compared to what we typically book.

Bruce: We will continue to build upon this progress to drive growth in our direct SMB channel.

Bruce: Long with the enhanced retention activities.

Bruce: Shifting to our enterprise business in the first quarter, we had 67 enterprise wins, which was broad based across our core geographies and verticals.

Bruce F. Lowthers: Roughly 30% of these deals were with existing clients as we continue to focus on opportunities to expand and cross-sell within our existing client base. In summary, we welcomed a total of 55 new team members to the Paysafe sales team in the first quarter across both S&B and Enterprise, which represents nearly a third of our goal to hire 170 people in 2024. And we've continued with a strong hiring pace in the second quarter.

Bruce: Roughly 30% of these deals were with existing clients as we continue to focus on opportunities to expand and cross sell within our existing client base.

Bruce: In summary, we welcomed a total of 55 new team members to the AC sales team in the first quarter across both SMB and enterprise, which represents nearly a third of our goal to hire a 170 people in 2024, and we've continued the strong hiring.

Bruce: Pete in the second quarter.

Bruce F. Lowthers: Our investment spend is tracking with our expectations for the full year, and while the revenue benefit is weighted more to the second half, we are progressing well and are encouraged by the contributions to date. Turning to slide five for a quick update on iGaming, which saw another strong quarter of growth and de-elected, Globally, iGaming represents about 30% of our revenue base, which saw a revenue growth of 6% in Q1. This was led by North America, which continued to grow by more than 50% in Q1. This included 48% growth in our March Madness volumes and more than 60% growth in our Super Bowl volumes compared to 2023. We also expanded to new states in Q1, including Vermont and North Carolina.

Bruce: Our investment spend is tracking with our expectations for the full year and while the revenue benefit is weighted more to the second half we are progressing well and encouraged by the contributions to date.

Bruce: Turning to slide five for a quick update on the I gaming, which saw another strong quarter of growth and deal activity.

Bruce: Globally I gaming represents 30% of our revenue base, which saw revenue growth of 6% in Q1.

Bruce: This was led by North America, which continues to grow by more than 50%. In Q1. This included 48% growth in our March madness volumes and more than 60% growth in our superbowl volumes compared to 2023.

We also expanded to new states in Q1, including Vermont and North Carolina.

Bruce F. Lowthers: We continue to expand our product suite with the launch of our pay-by-bank solution, allowing U.S. online vendors to instantly fund deposits at operators' cashiers directly from their bank accounts. This further enhances the capabilities of Paysafe's gateway, the iGaming payment solution that connects operators to the most comprehensive range of payment methods.

Bruce: We continue to expand our product suite with the launch of our pay by bank solution, allowing U S online vendors instantly fund deposits and operators cashiers directly from their bank account.

Bruce: This further enhances the capabilities of Pcf's gateway.

Bruce: Gaming payment solution that connects operators to the most comprehensive range of payment methods.

Bruce: Turning to slide six.

Bruce F. Lowthers: As an example of our white-label wallet strategy, in Q1, we kicked off our partnership with Exala, a global game commerce company. Through this relationship, we're enabling game creators and influencers to receive payouts directly into their wallets, supporting seamless spending through an Exala-branded prepaid MasterCard, and facilitating a convenient withdrawal into their bank account. The Exala Wallet will be available through a staged rollout across the U.S. and Europe, and will soon be offered to gamers who can top up their wallets with a wide range of payment options or send peer-to-peer payments. We are excited about these types of partnerships and the broader market opportunity, including a near-term pipeline of more than 10 merchants. Let's move to slide seven.

Bruce: As an example of our white label wallet strategy.

Bruce: Q1, we kicked off our partnership with Exalt up a global game Congress Com.

Bruce: Through this relationship we're enabling game creators and influencers to receive payouts directly into their wallets supporting seamless spending through an exalt branded prepaid mastercard and facilitating a convenient withdrawal.

Bruce: Their bank account.

Bruce: The example, wallet will be available through a stage roll out across the U S and Europe and we will soon be offered to gamers, who can top up their wallets with a wide range of payment options, where certain peer to peer payments.

Bruce: We are excited about these types of partnerships and the broader market opportunity, including our near term pipeline of more than 10 merchants.

Bruce: Let's move to slide seven.

Bruce F. Lowthers: This is an overview of how we've evolved our focus and delivery of the Paysafe wallet platform. Traditionally, we've offered single-use consumer wallet solutions, which are now transitioning to a more unified platform for three primary customer segments, with all users able to leverage the functionality of the entire platform. Our branded wallets, historically represented by our Skrill and Neteller consumer digital wallets, are extending to our prepaid or e-cash solutions known as PaysafeCard, now offering these users similar online and account features available to our Skrill and Neteller users.

Bruce: This is an overview of how we've evolved our focus and delivery of P. C. Wallet platform. Traditionally we've offered single use consumer wallet solutions, which is now transitioning to a more unified platform for three primary customer segments.

Bruce: With all of US is able to leverage the functionality of the entire platform.

Bruce: Our branded wallets historically represented by our Scrilla teller consumer digital wallets.

Bruce: Is extending to our prepaid or eat cash solutions known as basic card now offering. These users similar online and account features available to our scrilla net tell or users.

Bruce F. Lowthers: This strategy will continue to create a roadmap for all Paysafe consumer products to transition or graduate into a wallet relationship while reducing complexity and enhancing customer satisfaction. Leveraging the same functional technology, we are offering merchants our white label wallet to provide the same benefit of a wallet relationship to their consumers. Exxon is a key example of this strategy, enabling seamless pay-in and pay-out solutions for its merchants and consumers, powered by Paysafe. Lastly, the Paysafe Business Wallet is now offering and empowering SMBs to receive acquiring settlement and manage their business finances easily in one place.

Bruce: This strategy will continue to create a road map for all PC consumer products to transition our graduate into wallet relationship, while reducing complexity and enhancing customer satisfaction.

Bruce: Leveraging the same functional technology, we are offering merchants are white label wallet to prime the same benefit wallet relationship to their consumers.

Bruce: <unk> is a key example of this strategy, enabling seamless pay in and pay out solutions for their merchants and consumers powered by Pcs.

Bruce: Lastly, the basic business wallet is now offerings empowering smbs to receive barring settlement and manage their business finances easily in one place.

Bruce F. Lowthers: Collectively, these solutions leverage the breadth of our shared capabilities and assets, such as LPM integration, API access, and issuing cards, and will be supported by a more streamlined delivery and global market approach. Turning to slide 8 to provide a little more color on this. As we touched on during the last earnings call, we're driving a more targeted approach to marketing and consumer acquisition, driving our outreach to new channels while delivering more effective localized messages.

Bruce: Collectively these solutions leverage the breadth of our shared capabilities and assets such as L. P. M integration API access and issuing cards and will be supported by a more streamlined delivery and go to market approach.

Bruce: Turning to slide eight to provide a little more color on this as we touched on during the last earnings call, we're driving a more targeted approach to marketing.

Bruce: Consumer acquisition.

Bruce: Driving our outreach to new channels, while delivering more effective localized messaging.

Bruce F. Lowthers: As we broaden our wallet portfolio, this will allow Paysafe to strategically market to its new consumer groups and unlock market expansion. And now that we've established three continuous quarters of growth in our classic digital wallet active users, we feel it's important to transition our metrics to a broader view of the portfolio, consistent with how we're looking at the consumer segment going forward. Here, we're showing consumer acquisitions for the first quarter, which is approximately $1.4 million, comprising new users from all consumer products and revenue streams.

Bruce: As we broaden our wallet portfolio. This will allow Steve to strategically market to its new consumer groups and unlock market expansion.

And now that we've established three continuous quarters of growth in our classic digital wallet active users. We feel it is important to transition our metrics to a broader view of the portfolio consistent with how we're looking at the consumer segment going forward.

Bruce: Here, we're showing the consumer the consumer acquisitions from the first quarter, which is approximately $1 4 million comprising new users from all consumer products and revenue streams.

Bruce F. Lowthers: This led to 7.5 million active users for the quarter. While ARPU will vary across products, our focus on building an expanded wallet platform will steer us towards a stronger, scalable model to drive sustainable growth and value for Paysafe, our merchants, and our consumers. Let's expand upon this on slide nine.

Bruce: This led to seven 5 million active users for the quarter.

Bruce: While our two will vary across products, our focus on building an expanded wallet platforms theosis towards a stronger scalable model to drive sustainable growth and value pace, our merchants and our consumers.

Bruce: Let's expand upon this on slide nine.

Bruce F. Lowthers: Taking a broader view of what we've previously shared, highlighting our progress in wallets, we now represent the entire segment, comprising all revenue and use. This user base of 7.5 million actives was stable year over year. Where we're seeing softness is mainly isolated within the non-account holding users, which is a subset of our users within our prepaid products, who tend to be more one-time in nature and have We're focused on converting more of these non-account holding users to account holding wallet consumers.

Bruce: Taking a broader view of what we previously shared high leading our progress and wallets, we now representing entire segment comprising all revenue and users.

Bruce: This user base of seven 5 million actives was stable year over year.

Bruce: Where we're seeing softness is mainly isolated within the non account holding users.

Bruce: Which is a subset of our uses of our within our prepaid product.

Bruce: We tend to be more onetime in nature and have significantly lower RPM.

Bruce: We're focused on converting more of these non account holding users to account holding wallet consumers, where we're seeing growth of approximately 5% year over year.

Bruce F. Lowthers: We're seeing growth of approximately 5% year-over-year. ARPU for the expanded view of the user base was $26 for the period, which increased 5% year-over-year. This is naturally a lower absolute figure than what we shared previously for the classic wallets, such as Skrill, which reflects a higher value user, such as gamblers and traders, with higher activity and spend levels in a given period. Overall, I would say the message is that we've seen stability in the broader consumer base with improvement in engagement.

Bruce: <unk> expanded view of the user base was $26 for the period, which increased 5% year over year.

Bruce: This is naturally a lower absolute figure than what we shared previously for the classic wallets, such as grill, which reflects our higher value user such as gamblers traders with higher activity and spend levels period.

Bruce: Overall I would say the message is that we've seen stability in the broader consumer base with improved improvement in engagement.

Bruce F. Lowthers: We're sharpening our strategy and enhancing our wallet platform, paving the way for a more scalable model that drives sustainable growth and greater value for merchants and consumers. As we continue throughout the year, we'll provide you with more color on the entire consumer business. With that, I'll ask Alex to review the financial results.

Bruce: Sharpening our strategy and enhancing our wallet platform paving the way for a more scalable model that drives sustainable growth and greater value for merchants and consumers.

Bruce: As we continue throughout the year, we will provide you with more color on the entire consumer businesses.

Bruce: With that I'll ask Alex to review the financial results.

Alexander Gersh: Thank you, Bruce. Now, we move to slide 11 for the summary of our first quarter results. Total volume was over $36 billion, an increase of 7% year-over-year. Total revenue was $417.7 million, an increase of 8% or 7%, excluding favorable impact from FX and interest rates. Revenue came in slightly ahead of our expectations for Q1 and included strong contribution from the ramp-up of clients on board in 2023, and the overall take rate was largely stable at 1.2%.

Alex: Thank you Bruce let's move to slide 11 for a summary of our first quarter results.

Total volume was.

Over 36 billion, an increase of 7% year over year.

Alex: Total revenue was $417 7 million, an increase of 8% or 7%, excluding favorable favorable impact from FX and infrastructure.

Alex: Revenue came in slightly ahead of our expectations for Q1 and included a strong contribution from the ramp up of clients on boarded in 2023 and the overall take rate was largely stable at one 2%.

Alexander Gersh: We continue to have a strong geographical mix, with approximately 55% of revenue coming from North America, where we saw the strongest growth, 35% of revenue coming from Europe, and 10% from Latin America and the rest of the world.

Alex: We continue to have a strong geographical mix with approximately 55% of revenue coming from North America. What are we saw the strongest growth 35% of revenue coming from Europe, and 10% from Latin America.

Alexander Gersh: Adjusted EBITDA was $111.9 million for the first quarter, an increase of 4% year-over-year or 3% constant currency; adjusted EBITDA without margin was 26.8%, a decline of 100 basis points, primarily reflecting our incremental investment in sales and portfolio optimization. As a reminder, the investment in these initiatives is expected to be roughly $25 million in 2024, weighted to the first half of the year, and our spend year-to-date is tracking in line with these expectations. Adjusted without the also included severance expense of $2.9 million. Excluding severance expense, adjusting it without margin would have been 27.5%.

Alex: Adjusted EBITDA was $111 9 billion for the first quarter, an increase of 4% year over year or 3% constant currency.

Alex: Adjusted EBITDA margin was 26, 8% a decline of 100 basis points, primarily reflecting our incremental investment in sales and portfolio optimization.

Alex: As a reminder, the investment in these initiatives is expected to be roughly 25 million in 2024 weighted to the first half of the year and our spend year to date is tracking in line with these expectations.

Alex: Adjusted EBITDA also included severance expense of $2 9 million.

Alex: Excluding severance expense adjusted EBITDA margin would have been 27, 5%.

Alexander Gersh: We expect to have continued severance expense as we optimize the business throughout the year. On an LTM basis, we generate unlevered free cash flow of $345 million, reflecting 75% conversion and growth of 28%, driven by growth in adjusted dividends, as well as the timing of bonus payments and one-off tax hires. Adjusted net income for the quarter increased 7% year-over-year to $35.3 million, and adjusted EPS increased 6% to $0.57 per share, reflecting our growth in adjusted EBITDA, as well as a $2.5 million reduction in interest expense, despite higher interest rates year-over-year, reflecting our progress towards reducing debt.

Alex: We expect to have continued severance expense as we optimize the business throughout the year.

Alex: On a LTM basis, we generate unlevered free cash flow of 345 million, reflecting 75% conversion and growth of 28%.

Alex: And by growth in adjusted EBITDA, as well as the timing of bonus payments and one off tax items.

Alex: Adjusted net income for the quarter increased 7% year over year to $35 3 million and adjusted EPS increased 6% to 57 per share.

Alex: Reflecting our growth in adjusted EBITDA as well as a $2 5 million reduction in interest expense despite higher interest rates.

Alex: <unk> year over year, reflecting our progress.

Alex: Towards reducing debt.

Alexander Gersh: Let's move to slide 12 to discuss the segment results. Starting with Merchant Solutions, volume was $30.8 billion for the first quarter, an increase of 8% year-over-year, and revenue increased 11% to $231.4 million. Growth was driven by strong volume in e-commerce, which saw a revenue increase of 27% year-over-year, reflecting continuous strength and high gains. The remainder of the segment, which is our F&B business, increased revenue by 8% year-over-year, reflecting our strategic initiatives to expand our sales capabilities and optimize the portfolio, as Bruce highlighted earlier. Adjusted EBITDA in Merchant Solutions declined 6% or 5% in constant currency to $49.2 million, with a margin of 21.3% reflecting those incremental investments we have spoken about.

Let's move to slide 12 to discuss the segment results.

Alex: Starting with merchant solutions logging was $30 8 billion for the first quarter, an increase of 8% year over year.

Alex: And revenue increased 11% to 231 for me.

Alex: Growth was driven by strong volume and ecommerce, which saw revenue increase of 27% year over year, reflecting continued strength in hygiene the.

Alex: The remainder of the segment, which is our F&B business increased revenue by 8% year over year.

Alex: Taking our strategic initiatives to expand our sales capabilities and optimize the portfolio as Bruce highlighted earlier.

Alex: Adjusted EBITDA in merchant solutions declined, 6% or 5% constant currency to $49 2 million.

Alex: With a margin of 21, 3%, reflecting those incremental investments we have spoken.

Alex: Yeah.

Alexander Gersh: Turning to the digital wallet segment on slide 13, volume increased 4% to $5.7 billion, and revenue increased 5% to $190.5 million, reflecting 4% growth on a constant currency basis. Performance in the segment largely reflects growth across gambling and ongoing product and engagement initiatives. Adjusted for the digital walls, it was $83.3 million in the first quarter, an increase of 5% or 4% on a constant currency basis, and adjusted for margin for the segment was 43.7%, consistent with Q1 of last year.

Alex: Turning to the digital wallet segment on slide 13 volume increased 4% to $5 7 billion and revenue increased 5% or $195 million, reflecting 4% growth on a constant currency basis.

Alex: Performance in this segment largely reflects growth across gambling and ongoing product and engagement initiatives.

Alex: Adjusted EBITDA for digital was $83 3 million in the first quarter, an increase of 5% or 4% on a constant currency basis and adjusted EBITDA margin for the segment was 43, 7% consistent with Q1 of last year.

Alexander Gersh: Turn to slide 14 for the summary of our capital allocation. At the end of the quarter, total debt was just under $2.5 billion, reflecting debt repayments and repurchases of $15 million during the quarter. Net debt was $2.3 billion, and our leverage ratio was further reduced to 4.9 times compared to 5 times at the end of 2020. Additionally, during the first quarter, we repurchased 989,000 shares for $14 million at an average cost of $14.15 a share, leaving us with $36 million remaining on our repurchase program at the end of Q1.

Alex: Turning to slide 14 for a summary of our capital allocation.

Alex: At the end of the quarter total debt was just under $2 5 billion, reflecting debt repayments and repurchases of $15 million during the quarter.

Alex: Net debt was $2 3 billion.

And our leverage ratio was further reduced to four nine times compared to five times at the end of 2023.

Alex: Additionally, during the first quarter, we repurchased 989000 shares for $14 million.

Alex: Average cost of $14 50, a share, leaving us with a $36 million remaining on our repurchase program at the end of Q1.

Alexander Gersh: We remain confident that with our solid cash flow generation and disciplined approach to capital allocation, we will continue to reduce leverage while investing in the business and returning capital to shareholders. That brings me to our 2024 guidance on slide 15. We are pleased with our first quarter results, which came in ahead of our expectations for revenue. We believe our performance also reinforces that our strategic initiatives and associated investments are working and supporting momentum in the business.

Alex: We remain confident with our solid cash flow generation, a disciplined approach to capital allocation, we will continue to reduce leverage while investing in the business and returning capital to the shareholders.

Alex: That brings me to our 2024 guidance on slide 16.

Alex: We are pleased with our first quarter results, which came in ahead of our expectations on revenue.

Alex: We believe our performance also reinforces that our strategic initiatives and associated investments are working and supporting the momentum in the business.

Alexander Gersh: We remain confident in delivering our full-year guidance, while also being mindful of macroeconomic uncertainty, including the potential for unfavorable movement in FX. We continue to expect revenue to be within the range of $1.688 billion to $1.712 billion and adjusted EBITDA in the range of $473 million to $488 million, reflecting an adjusted EBITDA margin between 28% and 28.5%. We expect the cadence of growth throughout the remainder of the year to follow our normal seasonal patterns, with Q4 expected to be our strongest quarter.

Alex: We remain confident in delivering our full year guidance, while also being mindful microeconomics uncertainty, including the potential for unfavorable movements in FX.

Alex: We continue to expect revenue to be within the range of $1 68, 8 billion to $1 71, 2 billion and adjusted EBITDA in the range of 473 million to 488 million, reflecting the adjusted EBITDA margin between 28% and 25% we.

Alex: We expect the cadence of growth throughout the remainder of the year to follow normal seasonal patterns.

Alex: With Q4 expected to be our strongest quarter.

Alexander Gersh: We continue to expect Adjusted Ebitda margin to be stronger in the second half, with some additional severance expected through the first half, and at the pace of our investment spend, moderate. Now, I will turn the call back to Bruce for closing remarks before we take questions.

Alex: We continue to expect adjusted EBITDAR margins to be stronger in the second half with some additional in February as expected through the first half and at the pace of our investments spend migrates.

Now I will turn the call back to Bruce for closing remarks, before we take questions.

Bruce F. Lowthers: Thank you, Alex. To wrap things up, I'll reiterate that we're off to a solid start this year with these results. We remain confident in our financial outlook, which reflects stronger underlying revenue growth anchored by improved operational execution. We are investing in the business to support long-term growth, positioning us for margin improvement as we exit the year. At the same time, we are also strengthening our balance sheet with leverage now below five times. I want to thank our exceptional employees for their unwavering commitment to delivering great customer experiences every day. Thank you very much.

Bruce: Thank you Alex to wrap things up I'll reiterate that we're off to a solid start this year with these results we remain confident in our financial outlook.

Bruce: Which reflects stronger underlying revenue growth anchored by improved operational execution.

Bruce: We are investing in the business to support long term growth positioning us for margin improvement as we exit the year.

Bruce: At the same time, we are also strengthening our balance sheet with leverage now below five times.

Speaker Change: I want to thank our exceptional employees for their unwavering commitment to delivering great customer experiences every day. Thank you very much.

Operator: All right. Thanks, Bruce and Alex. Operator, we're ready for Q&A.

Speaker Change: Alright, Thanks, Bruce and Alex Operator, we're ready for Q&A.

Operator: Certainly, we'll now be conducting a question and answer session. If you'd like to be placed in the question queue, please press star 1 on your telephone keypad. Once again, that's Star 1 to be placed in the question queue. You may press star 2 if you'd like to remove your question from the queue. One moment, please, while we poll for questions. Our first question is from David Togut from Evercore ISI. Your line is now live.

Speaker Change: Certainly we 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 once again Thats star one to be placed in the question queue. You May press star two if he'd like to live or question from the Q1 moment. Please while we poll for questions.

Speaker Change: Our first question is coming from David <unk> from Evercore ISI. Your line is that life.

David Mark Togut: Thank you. Could you walk through the take rate dynamics that are embedded in your 2024 revenue guidance? Good to see the uptick year-over-year and the stability sequentially, but you know any more thoughts there would be helpful.

David: Thank you could you walk through the take rate dynamics that are embedded in your 2024, our revenue guidance good to see the uptick year over year and this stability sequentially, but you know any more any more thoughts there would be helpful.

Bruce F. Lowthers: Sure. Alex, you want to walk through kind of the tick rate? Obviously, we've had good stability this year as we started out, so kind of right what we thought was happening over the last certainly three, four quarters. We've had a pretty stable run. Alex, anything else you want to add? Yeah.

David: Sure.

David: Alex do you want to walk through kind of the take rate.

David: Obviously, we've had a good stability this year.

Alex: And as we started out.

Alex: So kind of right what we thought was happening over the last certainly three or four quarters.

Alex: We've had a pretty stable garden.

Alex: Alex you want to add yes, I mean, we the overall, let's take rate for the quarter was $1 one 6%.

Alexander Gersh: Yeah, the overall take rate for the quarter was 1.16%, and if you break it out between the two businesses, we said that the merchant solution business is 0.75%, which is improving from 0.73% in the quarter 1 of 2023, and for the digital wallet business, the rate went from 3.33% in Q1 of 2023 to 3.36% in Q1 of 2024, so you can see that the rates are basically stable, and we would expect that stability to continue.

Alex: And then if you look at if you break it out.

Alex: I mean, the two businesses, we said that the merchant solutions business is <unk>, 75%, which is improving from 73% in the quarter one of 2023 and four the digital wallet business.

Alex: The rate went from 333% in Q1 of 2023 233, 6% in Q1 of 2024. So you can see that that rates are basically stable and we would expect that stability to continue.

David Mark Togut: Got it. Thank you for that.

Got it. Thank you for that and then could you just unpack the strategy around sales force expansion. Bruce you mentioned at the beginning you intend to double head count overall can you dimension what that means for revenue growth. Once the sales forces are fully up and running for new hires.

Bruce F. Lowthers: And then, could you just unpack the strategy around Salesforce expansion? Bruce, you mentioned at the beginning you intend to double headcount overall. Can you describe what that means for revenue growth once Salesforce is fully up and running?

Bruce F. Lowthers: Yeah, so look, I think as we talked about in the last quarter, we really looked at our sales organization as being subscale. We went in, 23, we hired some people in 23, and we saw really good metrics around that sales organization and the people that we brought on board. So we felt very confident about doubling the size of the organization as we're moving into 23-24 to set up growth going into 25.

Bruce: Yeah. So look I think as we talked about it last quarter were really looked at our sales organization is.

Bruce: Being sub scale.

Bruce: We went in 2003, we went and hired some people in 'twenty or 'twenty three we saw a really good metrics around.

Bruce: That sales organization and the people that we brought on board. So we felt very confident about.

Bruce: Doubling the size of the organization as we're moving in through 'twenty four to set up growth going into 'twenty five.

Bruce F. Lowthers: And so, you know, I think we'll stick with the guidance today. Obviously, we're feeling confident about the guidance we are at, but we're really looking to set up a great 25 from a growth perspective. I don't necessarily want to give much more metric than that, but we feel very good about the contribution, especially the early contribution of the salespeople that we brought on board. We feel very good about what Rob's doing with that team and very excited to see that team get up to speed quickly and fully for us as we start moving to the back half of 24.

Bruce: So you know I think we will stick with the guidance today, obviously, we're feeling confident about the guidance. We are at but we're really looking to set up a great 25 from a growth perspective.

Bruce F. Lowthers: understood. Thank you.

Bruce: I don't necessarily want to give much more metrics then than that but we feel very good about the contribution, especially early contribution of the salespeople that we brought on board.

Bruce: Feeling very good about what Rob is doing with that team.

Bruce: Very excited to see that seem to get up to speed quickly.

Bruce: Quickly and fully for us as we start moving to the back half of 'twenty four.

Speaker Change: Understood. Thank you.

Operator: Thank you. The next question today is coming from Dan Perlin from RBC Capital Markets. Your line is now live.

Speaker Change: Thank you next question today is coming from Dan Perlin from RBC capital markets. Your line is now a lot.

Daniel Rock Perlin: Hey Dan, thanks. Good evening. Hey, how are you doing?

Daniel Rock Perlin: Hey, Thanks, Good evening, Hey, how are you doing.

Daniel Rock Perlin: Just I wanted to maybe parse it a little bit in terms of the strength that you're continuing to see build in merchant and you talked a lot about it so far but.

Bruce F. Lowthers: Just, I wanted to maybe parse in a little bit in terms of, you know, the strength that you're continuing to see building in merchant. I mean, you've talked a lot about it so far, but I'm trying to understand, you know, net new business that was signed kind of last year versus the sales and go-to-market motion that you're changing. And I know it's both, but how do we think about the kind of early success you're seeing certainly in this quarter? How much would you attribute to kind of either of those, just as we think about building forward throughout the year?

Daniel Rock Perlin: I'm trying to understand you know net new business that was signed and kind of last year versus the sales and go to market motion that you you're changing I don't know.

Daniel Rock Perlin: It's both but how do we think about what kind of the early success, you're seeing certainly in this quarter.

Daniel Rock Perlin: How much would you attribute to kind of either either of those just as we think about building forward throughout the year.

Bruce F. Lowthers: Yeah, so let me start off. I'll give you kind of my view. If Alex has some things he wants to throw in as well, he can certainly jump in as well into the conversation.

Speaker Change: Yeah. So.

Speaker Change: Let me start off I'll give you a kind of my view of Alex said, some things he wants to throw in as well.

Speaker Change: You can certainly jump in as well into the conversation, but we looked at the merchant acquiring business last year, we we really are.

Bruce F. Lowthers: But, you know, we looked at the merchant acquiring business last year. We really made some effort to get things operating in a much better way. You heard us talk about reducing time to onboard, building out a sales organization, really working on kind of the product offerings, and we feel very good about that. So there are really a couple of different components of the business.

Speaker Change: Took some effort to get things operating a much bigger way.

Speaker Change: Just talk about reducing time to onboard a building out a sales organization are really working on kind of the product offerings and and we feel very good about that so we see really a couple of different components of the business on our E. Com side of the business that continues to really perform.

Bruce F. Lowthers: On the economic side of the business, that continues to really perform very well. We're very excited about that business. We continue to grow over 50% in Q1 here year-over-year. You know, we added two more states. But keep in mind that we added seven states, I believe, Kirsten, last year. So those states haven't fully calendarized yet.

Speaker Change: Very well, we're very excited about that.

Speaker Change: Business, we continue to grow at 50% in Q1 here year over year, we added two more states keep in mind that we added seven states I believe Christian last year. So that was those states haven't fully calendarize that so you've got some nice tailwind.

Speaker Change: Tailwind coming with that business. So we're excited about our E comm business.

Bruce F. Lowthers: You've got some nice tailwinds coming with that business. So we're excited about our economics business, both in iGaming and outside of iGaming. We're seeing some good wins with that group.

Speaker Change: Both and I gave me an outside of gaming and we're seeing some good wins with that group when we break down into the SMB space, We see continued strength in our ISO.

Bruce F. Lowthers: When we break down into the SMB space, we see continued strength in our ISO. And, as we mentioned last quarter, we were really trying to focus on the direct team. The reason we wanted to focus on the direct team, quite candidly, is that we get much better margins out of that business. So we're excited about rebalancing that SMB portfolio with the direct organization. We were also going to focus on driving a little larger merchant, still a SMB, just to be very clear. But when we looked at our direct book versus our ISO book, our direct book was a much smaller merchant.

Speaker Change: And as we mentioned last quarter, we were really trying to focus on.

Speaker Change: The direct team. The reason we wanted to focus on the direct team.

Speaker Change: Candidly as we get much better margins out of that business that we're excited about.

Rebalancing that SMB portfolio with a direct organization.

Speaker Change: We were also going to focus on driving a little larger merchant still SMB just to be very clear.

Speaker Change: But when we looked at our direct book versus our ISO book.

Speaker Change: <unk> direct book was a much smaller merchant so we're trying to build that up a little bit. We've had good success with that we also talk about geographic.

Bruce F. Lowthers: So we're trying to build that up a little bit. We've had good success with that. We also talked about geographic expansion within our states, and we made the comment here in Q1 that we saw a nice expansion within that group. So overall, I think from a sales perspective, with Rob's team being able to double the SMB sales team, be able to expand the enterprise team, and drive the e-commerce stuff for us, we feel like we're building a lot of momentum with that sales organization.

Expansion within our states.

Speaker Change: And we made the comment here in Q1 that we saw a nice expansion within within that group. So overall I think from a sales perspective.

Speaker Change: With Rob's team being able to double the SMB sales team being able to expand.

Speaker Change: The enterprise team are driving e-commerce stuff for us we feel like we're building a lot of momentum with that with that sales organization.

Bruce F. Lowthers: That's great. And is there any update that you can give us just, you know, kind of April or early May trends that you're seeing just, you know, in terms of line of sight, that has momentum continued? And are there any specific things to call out about the more recent data? Well, we can say that...

Speaker Change: That's great and is there any update that you can give us just you know kind of April or early may trends that you're seeing just in terms of line of sight.

Speaker Change: Momentum continued and are there any things that you'd call out about the about the more recent data points.

Bruce F. Lowthers: We can say that April has only strengthened our view that we are doing the right thing.

Speaker Change: What we can say that.

Speaker Change: April has only because has only strengthened our I'll review that we're doing the right things.

Daniel Rock Perlin: Fair enough. Thank you.

Speaker Change: Fair enough. Thank you.

Operator: Thank you. Our next question is coming from Aditya Buddhavarapu from Bank of America. Your line is now live.

Speaker Change: Thank you. Our next question is coming from Acadia Boulevard from Bank of America. Your line is now live.

Aditya Buddhavarapu: Hi, thanks for taking my question. There are two from my side.

Acadia Boulevard: Hi, Thanks for taking my question just two from my side.

Acadia Boulevard: Yeah, you spoke a bit about the F&B segment, then you're searching for the code. There can you touch upon what are you doing there and how you're thinking about that for the rest of year.

Acadia Boulevard: And then second.

Acadia Boulevard: Just on the investments you're putting in this year.

Benefits you expect about Kevin how can they grow revenues for the second half what's the I would say the line of sight in the what gives you confidence in delivering those benefits for Twitch.

Acadia Boulevard: Okay.

Bruce F. Lowthers: Yeah, so a couple questions there. So let me take the first one on SMB.

Aditya Buddhavarapu: Firstly, you spoke a bit about the S&B direct segment and your efforts to improve growth there. Can you touch on what you're doing there and how you think about that for the rest of the year? And then second, just on the investments you're putting in this year and the benefits you expect about $50 million in revenues for the second half, what's the, I would say, the line of sight and, you know, what gives you confidence in delivering those benefits for 2018? Yeah, so...

Speaker Change: Yeah. So.

Speaker Change: Questions. There so let me the first one around SMB.

Speaker Change: Look at I think we.

Bruce F. Lowthers: Look, I think we As we talked about last quarter, we had very clear insight as to what we thought was going on with S&B and what we needed to fix. I think we have a very good plan in place. We're executing against that plan, and we're starting to see some return to growth on that direct S&B book in particular. I think we have a little color on that in the earnings materials in the supplemental slides.

Speaker Change: As we talked about last quarter.

Speaker Change: We had we had very clear insight as to what we thought was going on with SMB and what we needed to fix them. I think we are we have a very good plan in place, we're executing against that plan and we're starting to see.

Speaker Change: Some return to growth on that direct SMB book.

In particular I think we.

Speaker Change: We have a little color of that in the.

Speaker Change: The earnings materials.

Speaker Change: A supplemental.

Speaker Change: Slides so.

Bruce F. Lowthers: You're seeing that focus on that group, and we feel very good about the prospects of that as we're moving through the year. We're putting a lot of salespeople in that area, so we're obviously convinced that we're going to get a payoff in that S&B direct area, and that will really help continue to give us strong confidence in our ability to execute in merchant acquiring as we're going forward.

Speaker Change: And you're seeing that focus on that group.

Speaker Change: We feel very good about the prospects of that as we're moving through the year that that will continue we're putting a lot of salespeople in that area. So we were obviously convinced that we're gonna get a pay off.

Speaker Change: In that SMB direct area and that will really help us continue to give us a strong confidence in our ability to execute in.

Speaker Change: Merchant acquiring as well going forward.

Bruce F. Lowthers: I think on the second question, really around visibility in the merchant business and enterprise, in particular, we feel very good about it. We see nice tailwinds. We're seeing the conversion rate of revenue from deals from last year converting at a very high level, so we have a nice tailwind coming out of the deals that we've won, and we feel very good about our opportunity to go out and compete and win in the merchant space.

Speaker Change: I think on the second question really around visibility on.

Speaker Change: The merchant business and enterprise in particular.

Speaker Change:

Speaker Change: Yeah, we feel very good about it we see nice tailwind we're seeing.

Speaker Change: The conversion rate of revenue from deals from last year converting at a very high level. So we have a nice tailwind coming out of the deals that we've won.

Speaker Change: And we feel very good about our opportunity to go out and compete and win in the merchant space and you're seeing that.

Bruce F. Lowthers: And you're seeing that in a couple of different ways, one in the volume of deals that we're up 100% over the number of deals quarter over quarter on the enterprise side, and you're seeing, you know, a lot of good activity from our team in the market on larger deals as well. So we're seeing a nice pipeline of larger deals, deals over a million dollars. So we feel very good about that. And again, just the natural tailwind that we have of the deals that we signed calendarizing through 24, gives us good visibility into what's happening for 24. We feel pretty confident on 24.

Speaker Change: A couple of different ways, one in the volume of deals.

Speaker Change: We're up a 100% over the number of deals you quarter over quarter.

Speaker Change: On the enterprise side and you're also seeing.

Speaker Change: You know a lot of good a lot of good activity.

Speaker Change: From our team in the market on larger deals as well. So we're seeing a nice pipeline of larger deals deals over $1 million. So we feel very good about.

Speaker Change: That in and again, just the natural tailwind that we have of the deals.

Speaker Change: We signed our calendar rising through 'twenty four it gives us good visibility into what's the what's happening for 'twenty four.

Speaker Change: We feel pretty confident on 24.

Speaker Change: Understood. Thank you.

Bruce F. Lowthers: Thank you. As a reminder, that's star number one to be placed into question Q. Our next question is coming from Paul Albrecht from Wolf Research, Rwanda's online.

Speaker Change: Thank you as a reminder, that star one to be placed in the question queue. Our next question is coming from Paul Black from Wolfe Research. Your line is that a lot.

Operator: Hey, Paul. Hi, thanks. This is Paul Obrechton on behalf of Darrin.

Paul Black: Hey, Paul Hi. Thanks. This is Paulo worked on for Darren can you just start by providing some color on the rollout of the merchant wallet domestically I know, it's still early days, but what is the initial customer response been which offer interesting traction.

Operator: Can you start by providing some color on the rollout of the merchant wall domestically? I know it's still early days, but what is the initial customer response been? Which offerings are seeing traction? And, I suppose, based on feedback thus far, what are the future opportunities within the pipeline?

Paul Black: Based on feedback thus far what are the future opportunities within the pipeline.

Paul Black: Okay.

Bruce F. Lowthers: Yeah, so on the merchant wallet side, we have started to roll that out, and feedback has been all positive.

Paulo: Yeah. So on the merchant wallet side, we have started to roll that out feedback has all been positive we shared some of the feedback I believe last quarter as well.

Bruce F. Lowthers: We shared some of the feedback, I believe last quarter as well, that the merchants really seem to like the idea. And so as we're working through that, we're seeing really good strength. I think Nicole Carroll and her team are doing a nice job. The app looks really strong.

Paulo: The the merchants really seem to like the idea.

Paulo: And so as we're working through that.

Paulo: We're seeing really good strength, I think Nicole Carroll and her team.

Paulo: Are doing a nice job.

Paulo: The App looks really strong a they've got.

Paulo: Some really good functionality that are starting to pull together for that that the merchants are excited about being able to manage their business.

Bruce F. Lowthers: They've got some really good functionality that is starting to pull together for that, and merchants are excited about being able to manage their business through this business wallet. So they feel good about the wallet, and we'll continue to see that roll out to the front book here throughout the year, and then begin the back book conversion probably towards the end of the year. So, I feel very good about the business wall and kind of how that's evolving.

Paulo: Through this business wallet so.

Paulo: Feel good about the wallet and we'll continue to see that rollout to the front book.

Paulo: Here throughout the year and then.

Paulo: Beginning the back book conversion probably.

Paulo: Towards the end of the year.

So feel very good about our about the business wall and kind of how that's evolving.

Bruce F. Lowthers: You know, as far as other insights into the pipeline go, our pipeline is probably the strongest that we've had since I've been here. Certainly, our pipeline is up significantly for us from when we came in two years ago. Again, I think Rob and Chris Peterson and Zach Cutler and Micah, they're all doing a great job driving that business.

Paulo: You know as far as other insights into our pipeline our pipeline is probably the strongest that we've had.

Paulo: Since I've been here certainly our pipeline is up significantly.

Paulo: For us.

Paulo: From from when we came in two years ago.

Paulo: Again, I think Rob and.

Chris Peterson, and Zach Cutler and Mike There's all doing.

Paulo: Doing a great job driving that business are we feel very good about.

Bruce F. Lowthers: We feel very good about the opportunities that we have, and certainly, the deal sizes that we have are increasing at that enterprise level. So, we feel very good that we're in deals that we probably wouldn't have been in two years ago. So, we're definitely getting more at bats, and we've got a pretty good close rate. I'd always like it to be higher, but we're hitting a lot of the pitches that are being thrown. So, we feel pretty good about the visibility of 24 and a really strong pipeline as we're looking at the end of Q1.

Paulo: The opportunities that we have and certainly the deal sizes.

Paulo: That we have are increasing at the enterprise level. So we feel very good.

Paulo: In deals that we probably wouldn't have been in 10 years goes where we're definitely.

Getting more at bats, and where you've got a pretty good close rate I'd always like it to be higher but.

Paulo: Hitting a lot of the pitches that are getting thrown so we feel pretty good about.

Paulo: The visibility of 24.

Paulo: And a really strong pipeline as we're looking at the end of Q1.

Bruce F. Lowthers: That's really helpful, thanks. And then, as a follow-up, within digital wallets, you talked about the divergence and activity between the non-account holding users and the broader user base. Can you just touch on what your approach would be going forward to convert these prepaid users into account holders? Yeah, so...

Speaker Change: That's really helpful. Thanks, and then as a follow up within digital wallets, you've talked about the the divergence activity between the non account holding users in the broader user base.

Speaker Change: Touch on what your approach would be going forward to convert these prepaid users into account holders.

Bruce F. Lowthers: Yeah, so, you know, what we We really started looking at it. We've got a lot of energy around these wallet-type features that we're now offering to our unregistered users. So the way we looked at it is that the everyday Paysafe card user that uses it much like a gift card or something like that, we wanted to try to market to them to get them to convert and use the features that are more wallet-like like Skrill and Teller offer. And so that's really what we're doing is we've got a whole new marketing approach around consumer marketing. We're very excited about what we've been able to do here.

Speaker Change: Yeah. So.

Speaker Change: You know what we we.

Speaker Change: It really started looking at it we've got.

Speaker Change: A lot of energy around these wallet type features that we're now offering to our unregistered users. So the way we looked at it is that the the everyday card user that is are.

Speaker Change: He uses it much like a gift card or something like that we wanted to try to market to them to get them to convert and use. The features that were more wallet like lakes grill or not teller offer and so that's where really what we're doing is we've got a whole new marketing approach around consumer marketing, we're very excited.

Speaker Change: Good about what we've been able to do there we're bringing more of the feature functionality from the wallet to those paid safecard users and we're looking at that as a group to really convert them into these higher our pud type of a wallet the wallet platform from the lower <unk>.

Bruce F. Lowthers: We're bringing more of the functionalities of the wallet to those Paysafe card users, and we're looking at that as a group to really convert them into this higher ARPU type of wallet platform from the lower ARPU Paysafe card. So very excited about looking at something we were doing before, which was really trying to get people to use Paysafe card, but using that now as a graduation or an opportunity to bring them into the wallet platform and get them to be long-term customers, recurring users, and driving more transactions, driving a higher ARPU. So that's really been the focus on driving those wallet three-month actives, getting those guys converted.

Speaker Change: P. Save card so very excited about looking at something that we were doing before which was.

Really trying to get people to use basic card, but using that now is a graduation or.

Speaker Change: An opportunity to bring them into the wallet platform and get them to be long term customers recurring users.

Speaker Change: And driving more transactions driving a higher RPM. So that's really been the focus on driving those walk through month actives, it's getting the getting those guys converted him.

Speaker Change: Got it thank you.

Bruce F. Lowthers: Thank you. The next question today is coming from Trevor Williams from Jeffreys. Your line is now.

Speaker Change: Thank you next question today is coming from Trevor Williams from Jefferies. Your line is that life.

Operator: Hi, this is Spencer James. I'm on behalf of Trevor. Thank you for taking the question. Are you guys able to hear me?

Trevor Williams: Hi, This is Trevor on for James Hi, This is spenser Georgetown for Trevor. Thank you for taking my question.

Spenser Georgetown: Or you guys have been through.

Operator: Great. It's good to see the inflection and gross margin in the merchant business. I was wondering if you could talk through some of the drivers behind the inflection to year-over-year growth and any rest of your expectations you have for that one. I think Bruce mentioned some of the value-added services that we've added to the products. I think ultimately that's the idea. What we need to do is make it more valuable and upsell customers on new services. We started doing that, and I think Bruce mentioned it in his remarks, and we'll continue to expand that.

Spenser Georgetown: Great.

Trevor Williams: Good good to see the inflection in gross margin in the merchant business I was wondering if you could talk through some of the drivers behind the inflection to year over year growth and any rest of your expectations you have for that one.

Speaker Change: Alex I think I think Bruce had mentioned some of the value added services that we have at it.

Speaker Change: Q2, the products right. So I think this is the idea that ultimately that's the idea of what we need to do is we need to make it more valuable and upsell customers on new services, we started doing that and I think.

Speaker Change: It was mentioned in his remarks, and we will continue to expand that hopefully that will continue to drive the take rate up and therefore the margin higher.

Bruce F. Lowthers: Hopefully, that will continue to drive the take rate up and, therefore, the margin higher. The big thing that we are, and again Bruce has said that many times, we need to focus on is driving the direct channel acquisitions and the direct channel versus the ISO channel. ISO is still today the largest growing channel for us, but with a focus on the sales force and a focus on the sales team, the second step of this is to drive more direct acquisition. A combination of value-added services and direct acquisition should drive the margin.

Speaker Change: The big the Big thing that we are and again Bruce that said that many times you need to focus on is to drive the direct channel acquisitions in the direct channel versus the ISO channel.

Speaker Change: Still today, the largest growing channel for us, but with a focus on the sales force and our focus on the sales team. That's the second step of business to drive more direct acquisition combination of value added services and direct acquisition should drive the margin.

Bruce F. Lowthers: And look, I don't want to lose sight of, too, that when you look at the wallet side, our margin on the wallet side is a very good margin, and we've got a 70-plus percent margin on that side. And you're now seeing growth returning to that side of the business. So, very excited about that. And that certainly changes a lot of the dynamics that we have within the business. If we can continue to get that growing, we've now had three-quarters in a row of growth on that side of the business, and as we continue to get that business growing, that certainly helps our gross margin profile.

Speaker Change: And look I I don't want to lose sight of too that you know when you look at the wallet side our margin on the <unk> side is very good margin and we've got a 70 plus percent margin on that side.

Speaker Change: You're now seeing.

Speaker Change: Growth returning to that.

Speaker Change: Side of the business, so very excited about that and that certainly changes a lot of the dynamics that we have within the business. If we can continue to get that growing we've now had three quarters in a row of growth.

Speaker Change: There on that side of the business and as we continue to get that business.

Speaker Change: Growing that certainly helps our gross margin gross margin profile.

Bruce F. Lowthers: That's helpful. Thank you. And as a follow-up, it's good to see the continued pace of new states opening. I wanted to ask how far along you think you are in getting up and running in these new states and, or put differently, how far, how much more room do you have to run with getting new states up and running?

Speaker Change: That's helpful. Thank you and as a follow up it's good to see the continued pace of new states opening I wanted to ask how far along you think you are in getting up and running in these new states.

Speaker Change: Or put differently, how far how much more room do you have to run with getting new states up and running.

Bruce F. Lowthers: Well, we're just over 30 states now. We think, over time, every state is going to allow sports betting, and we're excited about that. I think we're, as I've said a number of times over the prior few quarters, we're in the early innings of this whole thing. I think when you're seeing really solid growth, March Madness is a great example. As we're starting to get more and more people online, really solid growth year over year with March Madness, really solid growth with the Super Bowl, everything that we see, we would expect that to continue for quite some time. I think this is really just the early innings of this whole vertical.

Speaker Change: Well look we are.

Speaker Change: We're just over 30 states now we think over time every state is going to allow for sports.

Speaker Change: Sports betting and and we're excited about that I think we're as I've said, a number of times over the prior few quarters. We're in the early innings of this whole thing I think you know when you're you're seeing really solid growth.

Bruce F. Lowthers: Great to hear. Thank you for taking the questions.

Speaker Change: I think March Madness is a great example, as we're starting to get more and more people online.

Speaker Change: You know really solid growth year over year with March madness, really solid growth with the Super Bowl.

Speaker Change: Everything that we see.

Speaker Change: We would expect that to continue for quite some time I think I think this is really just the early innings of this whole vertical.

Speaker Change: Great to hear thank you for taking the questions.

Operator: Thank you. The next question is coming from Timothy Chiodo from UBS. Your line is now live.

Speaker Change: Thank you next question is coming from Timothy Chiodo from UBS. Your line is now live.

Great. Thank you for taking the question I have one that is related to distribution for patients specifically and the second one that is more of an industry question around U S. I gaming so for the pay safe distribution question.

Timothy Edward Chiodo: Great, thank you for taking the questions. I have one that is related to distribution for Paysafe specifically, and the second one that is more of an industry question around US iGaming. So for the Paysafe distribution question, the call out of new referral partners on slide 4, I wanted to see if you could give us some additional context on these referral partners. Are they independent resellers and agents, or ISOs? Are we talking about bank partners here?

Timothy Edward Chiodo: Call out of new referral partners on slide four I wanted to see if you could give us some additional context on these referral partners are they independent resellers and agents I. So are we talking about bank partners.

Timothy Edward Chiodo: And in general what type of revenue shared with some of these partners get and then related to that are they exclusive partnerships. Often are these generally referral partners that are working with multiple different payments companies in and pay safe would be one of their referral partners.

Timothy Edward Chiodo: And in general, what type of revenue share do some of these partners get? And then related to that, are they often exclusive partnerships? Are these generally referral partners that are working with multiple different payments companies, and Paysafe would be one of their referral partners?

Bruce F. Lowthers: Yeah, Tim. Great question. A big question.

Speaker Change: Yeah Tim.

Tim: Great question, a big question, So I'll try to work my way through it.

Bruce F. Lowthers: So, I'll try to work my way through it. Look, I think on the referral partners, Dun & Bradstreet is a great example of a big referral partner. Something that we're really trying to drive is going out to places that we historically had not been looking to increase the span of referrals. So, I think what you'll see, Tim, is us continuing to look for those types of relationships.

Tim: Look I think on the referral partners.

Tim: <unk> Bradstreet is a great example of a big referral partner or something that we're really trying to drive is.

Going out to places that we.

Tim: We historically had not been looking to increase that.

Tim: The span of our referrals.

Tim: I think what Youll see Tim is us continuing to look for those type of relationships certainly we have been building out some of our own agents as well.

Bruce F. Lowthers: Certainly, we have been building out some of our own agents as well, and those, candidly, are very different relationships than what we have – and more beneficial from a margin perspective than our traditional ISOs that we've done before. We've signed a number of ISOs this quarter, so I don't want to give any impression that we're not continuing to sign ISOs. We still signed a large number of ISOs for the quarter. We still signed a significant number – for us, a significant number of ISVs for the quarter.

Tim: And those are candidly are very different relationships.

Tim: Then what we and more beneficial from a margin perspective.

Tim: Two than our traditional isos that we've done before we've signed a number of ISO as this quarter. So I don't want to give any impression that we're not continuing to sign icos.

Tim: We still find a large number of <unk> for the quarter, we still signed a significant number of for US a significant number of Isps for the quarter, but we're just being much more aggressive and going out and finding.

Bruce F. Lowthers: But we're just being much more aggressive in going out and finding partners to drive business to us. And so, I think you'll see us kind of looking around at all places. Even my old banking background, you may see us poke our noses there too.

Tim: Partners to drive business to us and so I think you'll see us.

Tim: I'm kind of looking around at all places.

Tim: Even my old banking background, and you may see as poke poke our nose there too.

Bruce F. Lowthers: Excellent, I really appreciate that context. The other question was around more of an industry question, not exactly specific to Paysafe, but related to the competitive environment. So I understand that when a new state opens up for sports betting, merchant acquirers need to have special licenses to operate in that area of the payments market. How many companies would you say are generally applying for these licenses?

Speaker Change: Excellent I really appreciate that context. The other question was around more of an industry question not exactly specific to pay say, but related to the competitive environment.

Timothy Edward Chiodo: I mean, is it a handful? Is it 10,? Is it 20,? Is it 30,? And clearly, the answer is a much smaller number than the total number of PSPs out there. Only a select portion are applying for these licenses, but I was hoping you could give us a sense of the relative degree of competition in this specific niche and market relative to something like restaurants or retail where essentially every PSP is applied.

Speaker Change: So.

Speaker Change: I gather that when a new state opens up for Sportsnet sports betting right merchant acquirers need to have a special licenses to operate in that area of the payments market.

Speaker Change: How many companies would you say are generally applying for these licenses I mean is it a handful is it 10 is it 20 or 30 and clearly the answer is a much smaller number than the total number of P. S piece out there.

Speaker Change: A portion are applying for these licenses, but was hoping you could give us a sense of the relative degree of competition. In this specific niche end market relative to something like restaurants, or retail where essentially every P. S. P is playing.

Bruce F. Lowthers: Yeah, I think that's a great question. I would say there are not a large number of people applying for those licenses. Obviously, we've been kind of a leader in this vertical, which we have played in for over 20 years. There's just not a lot of folks that have the regulatory framework competence and understanding of risk frameworks to play in the space. So it's a little more limited than your example of restaurants or kind of general retail. Excellent

Speaker Change: Yeah.

Speaker Change: I think that's a great question I would say there is theres not a lot of.

Speaker Change: A large number of people applying for those licenses honestly, we've been kind of a leader in this vertical.

Speaker Change: Vertical we played in for over 20 years are there, there's just not a lot of folks.

Speaker Change: That have the regulatory framework confidence understanding of risk frameworks.

Speaker Change: Played in this space so it's a little more limited.

Speaker Change: Then your example of restaurants or or kind of general retail.

Timothy Edward Chiodo: Excellent. Thank you.

Speaker Change: Excellent. Thank you.

Thank you Tim.

Operator: Thank you. Our final question today is coming from Andrew Harte from BTIJ. Your line is now live.

Tim: Thank you. Our final question today is coming from Andrew Heart from Beecher Junior line, there's not a lot.

Andrew James Harte: Hey, nice quarter. Thanks for the question. I just wanted to follow up on the white label announcement. It was nice to see Zala.

Andrew James Harte: Hey, Hey, nice quarter. Thanks for the question I just wanted to follow up on the White label.

Bruce F. Lowthers: Can you just kind of help us size that up and then talk about the pipeline of 10-plus near-term opportunities? How should we be thinking about when we see some of those wins come through? Are they needle-moving? Are they smaller-sized deals, larger-sized deals? Anything helpful there would be appreciated. Thanks.

Andrew James Harte: It was nice to see dollar can you just kind of help us size that up and then talk about the pipeline of 10, plus near term opportunities how should we be thinking about when we see some of those wins come through.

Andrew James Harte: Are they needle moving or are they.

Andrew James Harte: Smaller sized deal larger size deals anything hopeful there would be appreciated. Thanks.

Bruce F. Lowthers: Yeah, Andrew, look, when you think about us, one of the nice things is we have a lot of diversity within our client base. So, we don't really have any singular client that's over, you know, one and a half percent. So, it's, all of our clients are relatively small in the grand scheme of things.

Speaker Change: Yeah, Andrew look at when you think about one of the nice things is we have a lot of diversity within our client base. So are we.

Speaker Change: We don't really have any singular client that's a.

Speaker Change: Over one 5% so it's.

Speaker Change: All of our clients are relatively small in the Grand scheme of things.

Bruce F. Lowthers: We love the new partnership with Xsolla and are very excited about the opportunity. They have a really strong footprint in the video gaming space. And, you know, I think as that continues to progress, they could certainly be a large customer for us. But, given the context I just gave you, we don't really have any that are significant in relation to the total company. So, it could certainly be a top 100 customer for us. We're very excited about it in that regard, excited about what it can do, and excited about what we can do together with them. So,

Speaker Change: We we loved the new partnership with <unk> that we're very excited about the opportunity they have a really strong footprint in the video gaming space.

Speaker Change: And.

Speaker Change: I think as that continues to progress they could certainly be a large customer for us.

With the given context I just gave you on.

Speaker Change: We don't really have any that are.

Speaker Change: Significant in relation to the total company so it could be certainly a top.

Speaker Change: 100 customer for us, we're very excited about it in that regard.

Speaker Change: I did about what it can do and excited about what we can do together with them. So.

Speaker Change: Great.

Speaker Change: What was the.

Bruce F. Lowthers: And then the other part just on what the pipeline looks like for white label and, I guess, how you see that space for the business over time. Yeah, I think the white-label pipeline...

Speaker Change: And then the other part just on what the pipeline looks like Hum in the White label and I guess, how you see that space for the business over time.

Bruce F. Lowthers: Yeah, I think the white label pipeline for us is strong, probably 10, 12 deals that are, you know, relatively in the short time frame that we're looking at, working through a lot of them on a daily basis. I actually talked about two of them right before I walked into the room today.

Speaker Change: Yeah, I think the white label pipeline for US is as strong we've got.

Speaker Change: Probably a 10 to 12 deals that are.

Speaker Change: You know relatively in the.

Speaker Change: Short timeframe that we're looking at.

Working through a lot of them.

Speaker Change: On a daily basis.

Speaker Change: So you talked about two of them right before I walked in the room today are so a lot of activity. There I think there's a tremendous amount of interest.

Bruce F. Lowthers: So a lot of activity there. I think there's a tremendous amount of interest. What we're trying to do is make sure we pick the right ones, especially here early, to get the programs up and running and running efficiently. So we're being very selective about how we move forward with the White Label wallet. But there's definitely no lack of interest, I will say that.

Speaker Change: We're trying to do is make sure we pick the right ones, especially here really to get.

Speaker Change: The programs up and running and running efficiently.

Speaker Change: We're being very.

Speaker Change: Selective about how we move forward with the white label, a wallet, but there's there's definitely no lack of interest I will say that.

Speaker Change: That's helpful. Thanks again.

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

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

Bruce F. Lowthers: Yeah, thank you very much. Well, look, thank you everyone for your questions and participation in the call today. We feel confident in how we're executing our priorities for 24. We look forward to keeping you updated on our progress. But before I sign off, I'd like to mention that today we also published our first sustainability report, demonstrating continued progress as an organization and formalizing our focus areas and commitments to the sustainability topics that matter most to Paysafe and our stakeholders. You can find a copy of the report in the governance section of our investor relations website.

Speaker Change: Yeah. Thank you very much well look thank you everyone for your questions and participation in the call today, we feel confident in how we're executing our priorities for 'twenty four we look forward to keeping you updated on our progress, but before I sign off I'd like to mention that today. We also published our first sustainability report.

Bruce F. Lowthers: So once again, thank you. We appreciate your continued interest in Paysafe. We'll speak to you again soon. Don't forget, Alex has a conference tomorrow as well. So have a great evening, and thank you very much.

Speaker Change: Demonstrating continued progress as an organization and formalizing our focus areas and commitments to the sustainability topics that matter most to PC and our stakeholders you can find a copy of the report within the governance section of our Investor Relations website.

Speaker Change: So once again. Thank you. We appreciate your continued interest in Bay State will speak to you again soon.

Speaker Change: Forget Alex has got a conference tomorrow as well so have a great evening and thank you very much. Thank you.

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

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