Q4 2024 Paysafe Ltd Earnings Call
Greetings and welcome to the PSA for fourth quarter 2024 earnings Conference call. At this time, all participants are in listen only mode.
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Speaker Change: It's now my pleasure to turn the call over to Chris Nielsen Head of Investor Relations. Please go ahead.
Speaker Change: Thank you and welcome to pay say earnings conference call for the fourth quarter and full year 'twenty 'twenty four joining me today are Bruce <unk>, Chief Executive Officer, and John Crawford Chief Financial Officer.
Speaker Change: 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 FDIC report. These statements reflect management's current assumptions and expectations and are subject to factors that may cause actual results to differ materially from those forward looking state.
Speaker Change: You should not place undue reliance on these statements forward looking statements. During this call speak only as of the date of this call and we undertake no obligation to update them. Today's presentation. Also contains non-GAAP financial measures you can find additional information about these measures and reconciliations to the most directly comparable GAAP financial measures.
Speaker Change: In today's press release and in the appendix of this presentation, which are available on the Investor Relations section of our website.
Bruce: With that I'll turn the call over to Bruce.
Bruce: Thanks, Kirsten and thank you all for joining us today.
Bruce: We had a very active quarter and released much of the 2020 for results in 2025 guidance last month, So I'll start off with a few simple messages that we'd like for you to take away from the call in 2024, we delivered 7% organic revenue growth supported by all key regions and product lines last.
Bruce: Month, we announced the divestiture of our direct marketing payment processing business, which marks the completion of our portfolio rationalization and sharpens, our focus on Pcs ideal customers and verticals.
Bruce: This represents an important step forward to enhance our financial performance and valuation by eliminating a declining noncore revenue stream and reducing our exposure to higher risk merchants.
Bruce: We continue to reduce net leverage which is four seven times at year end down from five times at the end of 2023.
Bruce: At the same time, we made significant investments, while returning more than $40 million to shareholders through our first ever share repurchase program.
Bruce: We are a few puts and takes across the numbers in Q4, which Jon will take you through in more detail, but I want to reiterate that we've made incredible progress delivering on our priorities and executing our three year growth plan.
Jon: Turning to slide four.
Jon: Our fourth quarter and full year results are consistent with our press release last month. So I'll keep this brief revenue in the fourth quarter increased 1% year over year, resulting in full year revenue of $1 7 billion an increase of 6%.
Jon: When we look at the organic growth excluding impacts from disposed business FX and interest our revenue growth would have been roughly 6% for the fourth quarter and 7% for the full year.
Jon: Adjusted EBITDA was $103 million for the fourth quarter, resulting in $452 million for the full year down 1% compared to last year largely reflected the accelerated merchant exits in Q4 related to the direct marketing business as well as associated incur.
Jon: <unk> and credit losses.
Jon: As a reminder, we also made incremental investments totaling $29 million as part of our 2024 objectives to expand our sales capabilities and optimize the portfolio.
Jon: With the portfolio repositioning now behind us and given that a large portion of these investment expenses or one off in nature, we expect to see meaningful improvement in our adjusted EBITDA growth in 2025.
Jon: We're also generated strong unlevered free cash flow of $300 million in 2024, reflecting a 66% conversion of adjusted EBITDA.
Jon: Lastly for the first year since going public we achieved a positive GAAP net income, which was $22 million for the full year of 2024.
Jon: Compared to a net loss of $20 million last year.
Jon: Yeah.
Jon: Turning to slide five I'll double click on our growth drivers in 2024 aligned with our strategic initiatives.
Jon: The first bucket that you see here is attrition, which includes our voluntary attrition from our relationships, we exited and higher risk sectors such as crypto.
Jon: This also reflects market attrition within SMB, particularly at the micro level, which typically has higher levels of attrition.
Jon: The next pillar is growth from our existing clients or same store sales, which contributed roughly 9% to growth during the year.
Jon: The last pillar is our growth from new client wins as well as the introduction of new products, which together contributed roughly 11%.
Jon: When we put all of this together and look at our organic performance, we see 7% growth in 2024 supported by cross selling and growth with existing clients as well as new logos and new products.
Jon: Turning to slide six I'll close out the discussion of our 2024 objectives.
Jon: We successfully expanded our sales capabilities by welcoming 170, new quota carrying reps to the pace of sales team.
Jon: We continue to see good momentum across our enterprise level accounts, where revenue was up more than 10% for the year include.
Jon: Including double digit growth from e-commerce on the merchant acquiring side and single digit growth from digital wallets on the consumer side.
Jon: The investments in our sales team expansion and portfolio optimization reached $29 million for the year.
Jon: Which generated more than $50 million in in year revenue and we expect this contribution to roughly double in 2025.
Jon: On our consumer acquisition strategy, we made several foundational improvements, which have supported stability in our user base.
Jon: Our classic wallet users surpassed 1 million for the first time in three years.
Jon: Driven by the development of better incentives and promotional programs.
Jon: Cross the broader 7 million user base, we've seen favorable trends from new partner integrations, such as resolute and Deutsche Bank as well as new product introductions. For example revenue from online distribution of our eat cash solutions nearly doubled compared to last year as more users are loading there.
Jon: <unk> digitally versus going into a store.
Jon: We expect consumer acquisition to benefit from continued product initiatives market expansion and improve marketing execution in 2025.
Jon: Finally, while still relatively small numbers or revenue generated from our product initiatives continue to be up significantly compared to last year and reflects 6% of our total revenue in 2024.
Jon: We are focused on driving this higher in 2025 with a goal to reach double digit contribution over the near term.
Jon: Turning to slide seven.
Jon: I'll highlight some of the additional points on the momentum we see across the sales organization today, we have a more balanced growth profile, including double digit growth from our top 20 clients.
Jon: We also saw a 6% increase in the total number of enterprise level merchants in 2024.
Jon: Our growth was relatively broad based across all key regions, including high single digit growth from our top 20 countries.
Jon: When we look at how this compares to the performance of these metrics during the two prior years growth was in the low single digits or even declining. So we've demonstrated a lot of improvement across the board.
Jon: Turning to bookings in 2020 for approximately one third of our new enterprise deals measured by annual contract value or with existing customers, reflecting both territory expansion and product cross selling.
Jon: Additionally, we saw total ACB bookings expand 40% over last year, including strong growth in Latin America.
Our current pipeline and has also grown by more than 40% and we're targeting a 20% increase in our enterprise pipeline per FTE as our sales organization becomes more productive.
Jon: In 2024, we enhanced our training program for new sellers by launching the sales Academy.
Jon: This initiative provides an effective onboarding experience coupled with continuous learning.
Jon: Our goal is to empower our sales teams to approach challenges with confidence enhancing their ability to close deals successfully.
Jon: Overall, we have a much stronger sales motion in place today and it boils down to execution in 2025.
Jon: Moving to slide eight for a supplemental view of growth by business line.
Jon: Yeah.
Jon: In 2022 several of our core products were in decline with growth entirely driven by the SMB business.
Jon: Over the last two years, we've returned to growth across all core products, particularly high value areas, such as E Commerce and wallets, despite a headwind from FX and interest this year.
Jon: SMB growth remains healthy in the mid single digits supported by consumer resilience in the U S as well as our initiatives to optimize the portfolio.
Jon: So again across a number of views you can see the quality of our revenue and the overall balance of our growth profile has improved.
Jon: Turning to slide nine when.
Jon: When you look at the last three years, we've seen an acceleration of organic revenue growth, where we've gone from flat in 2022% to 4% in 2023 and 7% in 2024.
Jon: We believe this view helps you see the underlying growth when we exclude the inorganic puts and takes and going forward into 2025.
Jon: This view will exclude the divested business as well.
Jon: It's also important to highlight that we have delivered this improvement in growth and quality of revenue, while investing significantly in the business rationalizing the portfolio and maintaining solid free cash flow and reducing our leverage.
Jon: Turning to slide 10.
Jon: Our team has a lot to be proud of when we look back at our achievements over the last three years I won't spend much time on this as we've covered most of these topics already but I'll share a couple of additional highlights.
Jon: One area that we haven't discussed as much externally.
Jon: The steps we've taken over the last two years to drive cost savings through centralizing, our service functions and eliminating business units, which allowed us to self fund a portion of our investment needs and redeploy resources to revenue generating functions.
Jon: We now have the right people in the right positions to be more successful and better aligned with our goals.
Jon: And continuing with the topic of efficiency. We've also improved deal execution with faster Onboarding for enterprise merchants.
Jon: In 2024, our average contract launch timeframe was about 60% faster than we were delivering in 2022, driven by continued process improvement system consolidation and the creation of a focused customer success team.
Jon: On the consumer side, we've enhanced customer experience by implementing intelligent self service tools and now 44% of our customer service contacts are resolved through automation.
Jon: These improvements have resulted in lower friction and improved engagement with our digital wallets along with the reduction in the total number of customer service cases.
Jon: Lastly, we've talked about derisking in connection with the disposal of direct marketing.
Jon: Which lowers our revenue volatility and credit loss exposure.
Jon: But we've also enhanced our profile more broadly to minimize and diversify our exposure across our risk compliance and regulatory functions.
Jon: Turning to slide 11.
Jon: We view 2024 is the completion of our turnaround now shifting our focus to the real growth engines of the company.
Jon: On the product side, we are driving more revenue from new products advancing our pace Ebola platform across our branded solutions, including market expansion within Latin America, as well as unbranded solutions, such as our business wallet for Smbs and White label Wallets.
Jon: As our new sales organization continues to ramp up we will focus on enhancing our sales cycle productivity and revenue conversion.
Jon: We also see opportunities to bolster both of these areas through partnerships, which will help us reach new merchants and consumers and expand our product and service delivery across our core regions.
Jon: Lastly, we continue to drive greater scale and interoperability of our products, enabling users to leverage the functionality of the entire <unk> network and create better experiences for our customers and employees.
Jon: With that I'll ask John to review the financial results and outlook.
John: Thank you Bruce let's move to slide 13 for a summary of our fourth quarter performance.
John: The financials presented here include the results of the recently divested direct marketing business.
John: Which was impacted by accelerated merchant exits and associated credit losses as described in our press release.
John: I'll provide some color on those impacts and what our growth would have looked like excluding this business. Additionally in the appendix of this presentation you will find a quarterly summary of its financial contribution for 2023 and 2024.
John: In Q4 revenue increased 1% to $421 million on a reported basis, which included about $16 million of inorganic headwinds from FX interest and the disposed business.
John: So when you look at our performance on an organic basis growth would have been roughly 6% in Q4.
John: Driven by strong double digit growth in ecommerce and low single digit growth from SMB merchants in the digital wallet segment.
John: Adjusted EBITDA declined to $103 3 million compared to $121 7 million in the fourth quarter of last year, reflecting a $15 million increase in credit loss expense largely associated with our portfolio actions and direct marketing.
John: Excluding the impacts of direct marketing adjusted EBITDA margin would have been 26, 9%.
John: We generated $70 5 million in Unlevered free cash flow for the quarter with a 68% conversion of adjusted EBITDA.
John: The decline in free cash flow from Q4 of last year, mainly reflects the lower adjusted EBITDA as well as increased capex.
John: Adjusted net income was $29 6 million or <unk> 48 per share down from 66 in Q4 of last year, reflecting the adjusted EBITDA performance, partially offset by a reduction in interest expense.
John: Moving to slide 14 for a quick recap of the full year.
John: For the full year revenue increased 6% to $1 7 billion in 2024.
John: Excluding impacts from FX interest and the disposed business organic revenue growth would have been 7%.
John: Adjusted EBITDA declined 1% to $452 $1 million with the two key drivers being the planned incremental investments totaling $29 million for the year and a $25 million increase in credit losses year over year.
John: Without the impact from direct marketing adjusted EBITDA margin would have been about 25, 6% down 110 basis points compared to 2023.
John: And recall that the 2023 EBITDA margin benefited from $38 million of growth from interest and FX. While this was a 7 million dollar headwind in 2024, so the underlying margin trajectory remains strong.
John: Given that a large portion of the investment items in 2024 are nonrecurring, we expect to see meaningful improvement in our EBITDA growth as we put this portfolio rationalization behind us.
John: When you couple that with an improvement in the productivity of our sales force.
John: Including the annualized <unk> of client wins in 2024, we expect to show strong improvement in operating leverage in 2025 and beyond.
John: We generated nearly $300 million in Unlevered free cash flow for the full year, reflecting a 66% conversion rate in.
John: In line with our expected range of 65% to 70%.
John: <unk> net income and adjusted EPS declined 8% to $132 5 million or $2 14 per share, reflecting the adjusted EBITDA decline, partially offset by lower interest expense.
John: Let's move to slide 15 to discuss the merchant solutions segment.
John: Revenue in the fourth quarter for merchant solutions increased 1% year over year to $230 1 million, including a five percentage point headwind from direct marketing.
John: And full year revenue increased 9% to $957 6 million, including a one percentage point headwind from direct marketing.
John: The underlying performance was led by double digit growth in E. Commerce with continued momentum in North America, I gaming and mid single digit growth across the SMB space.
John: The disposed direct marketing business and associated credit losses had a significant impact on our results for merchant solutions, particularly unadjusted, EBITDA, which declined 43% in Q4 and 14% for the full year.
John: The EBITDA and margin performance also reflects the incremental investments in our 2024 initiatives.
John: So looking ahead to 2025, we will start to see a better margin profile as a larger percentage of these incremental investments will not recur and credit losses returned to normal levels.
John: Along with better operating leverage as the new sales organization matures.
John: Turning to the digital wallet segment on slide 16.
John: Q4 revenue from digital wallets increased 2% to $194 4 million.
John: Or 3% on a constant currency basis, leading to full year revenue growth of 4%.
Growth was supported by continued strength from new products, which more than offset lower interest revenue on customer deposits, which was a headwind of $3 million for Q4 and $6 million for the full year.
John: Our three months active users were $7 3 million.
John: Up modestly from Q3, reflecting seasonality and stable year over year with revenue growth supported by continued improvement in user experience and engagement.
John: In Q4, adjusted EBITDA grew 8% to $89 2 million or 9% on a constant currency basis.
John: Leading to full year, adjusted EBITDA of $339 million with an adjusted EBITDA margin of 44, 3%.
John: An increase of 90 basis points, reflecting solid operational execution and expense discipline.
John: Turning to slide 17 for a summary of debt and leverage.
John: At the end of the year total debt was under $2 4 billion.
John: Reflecting debt repayments and repurchases of more than $100 million during 2024.
John: We ended the year with a net leverage ratio of four seven times compared to five times at the end of 2023.
John: We expect to further reduce our net leverage ratio to four four times or lower by the end of 2025, and we remain focused on achieving our target of three five times by the end of 2026.
John: During the quarter, we repurchased 969000 shares at an average price of $18 50 per share.
John: For the full year, we repurchased two 6 million shares at an average price of $16 23.
John: In February our board authorized a $70 million increase to our share repurchase program, which brings our remaining authorization to approximately $77 million.
John: Moving to the full year 2025 outlook on slide 18.
John: We expect reported revenue growth to be between flat and 2% in the range of $1 71 billion to $1 73 4 billion.
John: Excluding the disposed business in both 2024 and 2025, we expect revenue to grow between six 5% and 8%.
John: At the segment level, we expect merchant solutions to grow in the high single digit to low double digits range and digital wallets is expected to grow low single digits, including an expected headwind from FX and interest of approximately 3% to four points.
John: Additionally, while we havent typically given quarterly guidance I'd like to highlight that our expectation is for the second half to be stronger than the first as some of our newer initiatives come online.
John: We expect Q1 to be our softest quarter with organic revenue growth of 3% to 4%.
John: And our first half of the year building in the 4% to 6% organic revenue growth range to something more like 8% to 10% in the second half of the year.
John: We expect adjusted EBITDA margin between 27, 1% and 27, 6% with adjusted EBITDA in the range of 463 million to $478 million.
John: Excluding our business disposal. This represents a 150 to 200 basis point increase in margins.
John: Reflecting modest growth of operating expenses in the low single digits, along with lower credit losses, and driving EBITDA growth of 13% to 17% versus prior year.
John: Lastly, we are providing adjusted EPS guidance for the first time.
John: We expect adjusted EPS to be in the range of $2 21 per share to $2 51 per share and we've provided some of our additional assumptions in the appendix to help with modeling.
John: Turning to slide 19, I'll highlight some of the growth drivers behind our outlook.
John: We expect our existing customers, including the annualized <unk> of 2020 for bookings to generate growth in the upper single digits.
John: We also expect the growth contribution around 10% from both product initiatives as well as new client wins as our expanded sales team transitions from the onboarding stage to becoming more productive.
John: When you put that together these growth pillars more than offset the impact of the attrition and the divestiture.
John: Leading to modest low single digit growth on a reported basis and growth north of 7% on an organic basis.
John: As I touched on earlier, when you think about our margin profile.
John: We have the nonrecurring items from 2024 behind us.
John: Specifically, we have about half of the $29 million investment and portfolio optimization that will not repeat this year.
John: Additionally, we had an increase of approximately $25 million in credit losses.
John: And now we expect a return to more typical levels, which when combined with tighter management of operating expenses should show the operating leverage in our business model.
Bruce: With that I'll turn the call back over to Bruce for closing remarks, before we take questions.
Bruce: Thank you John to summarize here, we see significant potential in passive.
Bruce: Increasingly improved our investment thesis.
Bruce: We have proven our ability to accelerate growth, while also making significant investments in completing our portfolio rationalization.
Bruce: With our foundational turnaround now behind US we are looking forward to our third year of growth focusing on <unk> biggest opportunities in the experience economy.
Bruce: This is underpinned by the exceptional talent and strong free cash flow, which allows us to continue to delever and create equity value for our shareholders.
Bruce: I want to thank all of the P safe employees for embracing our need to change I have more.
Bruce: Optimistic today than I was when I joined the company almost three years ago and I'm excited to enter this new chapter alongside the <unk>.
Bruce: Now, let's begin the Q&A session.
Thank you and I will 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.
Bruce: As a reminder, please ask one question and one follow up then return to the Q1 moment. Please what would you poll for questions. Our first question today is coming from Timothy Chiodo from UBS. Your line is now live.
Bruce: Yeah.
Bruce: Hi, This is James on for Ken and Thank you for taking my question I wanted to touch on your SMB channel.
Bruce: Eight eight appreciate the full year growth rate 6%.
Bruce: For 2024 and to update it next year. So for 2025, how should we think about the growth drivers for SMB to potentially see acceleration again and your strategy around your F&B direct channel versus your ICL Buck. Thank you.
Bruce: Yes. Thank you.
Bruce: Good morning, So I think as we look at the 25 SMB channel specifically, there's a couple of things that I would point out.
Bruce: We continue to have solid growth.
Bruce: Low teens growth.
Bruce: With our Culver sales, so we continue to see.
Bruce: <unk> expansion there.
Bruce: One of the things that we focused on was moving upstream within the SMB channel.
Bruce: So getting a little larger SMB clients, we've been able to do that we see.
Bruce: Revenue per merchant up in the upper single digits.
Bruce: Coming into 'twenty five.
Bruce: And then lastly, I would say we've also added quite a bit of sales helped in the SMB channel. So we continue to see solid growth in our ISO part of the book.
Bruce: On the direct basis.
Bruce: We're doing really well selling.
Bruce: Clover, and adding more salespeople and we've had a lot of success.
Bruce: Moving upstream within that SMB channels. So overall, we feel very good about our SMB channel as we move into 'twenty five.
Bruce: Got it appreciate the color and a quick follow up on that.
Bruce: The mechanics for that direct marketing business sell so in the press release is that the consideration for this transaction is largely annual earn out payments over the next five years. So could you. Please touch on the income statement geography, and how that's.
Bruce: Impacted the I assume below the line items.
Bruce: Thank you.
Bruce: Yes so.
Bruce: As far as the geography.
Bruce: Below the line below EBITDA.
Bruce: And as we're moving forward into 'twenty five and beyond.
So I think that was the question.
Bruce: John.
Bruce: Nicole if you guys wanted to with that.
Bruce: I think that's fair.
Bruce: I couldnt be answering the accounting.
Bruce: Yes.
Bruce: But I hope that answers your question.
Bruce: Yeah that makes sense, so just confirming that's in there.
Bruce: Adjusted EPS guide for 2025.
Yes that would be in the adjusted EPS Guide for 'twenty five correct.
Doug: Hey, Doug.
Doug: Not expect its not just to be clear it's a.
Doug: De Minimis number expectation in 2025.
Speaker Change: Gotcha Super helpful. Thank you so much.
Doug: Youre welcome.
Speaker Change: The next question is coming from Andrew <unk> from <unk>. Your line is now live.
Andrew: Hey, Thanks for the question I guess, Bruce just maybe first one here.
Andrew: All questions on the comments in the press release about the takeover interest before and after the Bloomberg report.
Andrew: Incremental you can share with us on potential profiles of the bidders or any details you can share about those conversations.
Speaker Change: Hi, Andrew Good morning, Thanks for the question.
Speaker Change: I think we're going to stick to no real comment there are at this point.
Speaker Change: We've had some unsolicited.
Speaker Change: Proposals come in inquiries come in.
Speaker Change: We feel very good about the business, we feel like we are creating a lot of value with the business but.
Speaker Change: But the board will as we said in the press release the board.
Speaker Change: We'll execute their fiduciary responsibility and take a look at anything that.
Speaker Change: It gets thrown over the over the rail so.
Speaker Change: Right now we're just.
Speaker Change: Executing trying to execute at a high level and those things were working itself out over time I will just add that.
Speaker Change: It was anticipated that as we were having success with the turnaround at those type of opportunities were to arise.
Speaker Change: As we created more value in the company in.
Speaker Change: So I think it was not unexpected.
Speaker Change: But we feel very good about where we are right now.
Speaker Change: That's helpful. Thanks, and then.
Speaker Change: I guess with the portfolio now cleaned up can you just talk about some of the target customers an area of focus is our focus you want to have in 2025 I think one of the comments. His comments you made was the experience economy. In this bridge of the 25 outlook drivers is great. There is 10% growth from new customers. So can you share with us kind of who the target.
Speaker Change: Saar for the refocused sales team and 25.
Speaker Change: Yes, absolutely. So a couple of things you'll you'll notice in the slides. This time, one I think we probably do a better job explicitly commenting on the.
Speaker Change: Cross sell opportunity into our customers. So if you recall when we came in just a couple of years ago. There was virtually no cross sell because of the siloed entity or the <unk>.
Speaker Change: Siloed structure of the entity.
Speaker Change: And now we've got about a third of our.
Speaker Change: Customers are buying multiple products from us so that's a huge transformation in the way the company is.
Speaker Change: Sales motion is operating and we expect that that will continue as we continue to add more and more products in whether it be <unk>.
Speaker Change: L. P M local payment methods or new products as we are moving forward.
Speaker Change: I think what is also probably helpful. In the 25 outlook drivers.
Speaker Change: The personal and John put together is it makes it very simple to see.
Speaker Change:
Speaker Change: We're performing consistently with 24% to 25, we see similar same store growth.
Speaker Change: Moving into 25 with the businesses that we have remaining and we see.
Speaker Change: New customers and new product growth coming onboard at a similar clip. So we feel very good about.
Speaker Change: The sales motion, we feel good about the verticals that we're in the SMB E Com, we see real nice growth in the digital wallet starting to reemerge.
Speaker Change: E cash. So overall there is another slide that depicts the major product lines you can see that there's now growth across the balanced portfolio.
Speaker Change: Which is really what the goal was and it sets us up very well as we move into 'twenty five and into 'twenty six.
I: That's super helpful and if I can just squeeze one more John I. Appreciate the 25 guidance you gave the breakout between expectations for revenue on on merchant versus digital wallet. I guess can you just expand a bit on the merchant segment kind of expectations for gross profit growth and then on the earn out of the of the divested.
I: <unk> I guess my question would be as a follow up to the first one what is the dollar amount of expectation that you could get from the earn out both in 2025 and whats the maximum longer term. Thanks.
I: Yes.
I: I Gotta go reverse order.
I: The divestiture I would expect as I mentioned on the earlier question that the impact in 2025 will be minimal.
I: As the buyer works on ramping that business.
I: And then over the five year period, we can make up to $50 million on that on our earn out.
I: And then on the sorry on the.
I: Back to your prior question.
I: On the gross profit growth for merchant, we expect we expect the merchant business would be growing robustly in.
I: 2025, I think similar to my comments on the call. It is going to be a little bit backend loaded as the merchant business accelerates into 2025 so.
I: We're expecting second half gross profit growth.
I: In that segment to be more robust in the first half but.
I: But growing throughout the year.
Speaker Change: Thank you.
Speaker Change: Thank you. Your next question is coming from Darrin Peller from Wolfe Research Your line, there's not a lot.
Speaker Change: Yeah.
Speaker Change: Hi, Thanks. This is Paulo breakdown for Darren can you provide some more color on the vast capabilities you've talked about as part of your 2024 investment strategy just.
Curious what the merchant adoption and response has been like to those products and if there are any other products in the pipeline that maybe merchants seem to be demanding.
Darren: Yes, Paul Thank you.
Paul: So in regard to the products, we've had a lot of success in <unk> and 'twenty four.
Paul: Driving into 25, with our account and card product our <unk> product in particular are both on the digital wallet side.
Paul: Those have been received exceptionally well, we talked a little bit about.
Paul: <unk>, which really changed the distribution model for our card cash.
Paul: Cash.
Paul: Product line so.
Paul: To see growth, they're expecting that to.
Paul: To continue well into 'twenty five 'twenty six we have some new products that we're very excited about as well.
Paul: I think the overarching theme is we're continuing to try to leverage our white label wallet.
Paul: And.
Paul: So with that.
Paul: What level of wallet platform. It gives us the opportunity to go into Peru for example, where.
Paul: Peru, we have a really strong presence in E com.
Paul: We're going to launch we have already soft launched.
Paul: Pago wallet and so we're very excited about that there'll be.
Paul: A wallet.
Paul: Down there that takes advantage of the market share that we already have.
Paul: Today, we do quite a bit of the pay.
Paul: Pay in part of the business and he calm down in Peru, we have a big brand name on.
In that country, and so we'll be taking advantage of that brand name and now incorporating the payout. So we will have a complete service.
Paul: And we think that's going to be a great product for us since we launched fully in Q2.
Paul: So that's just one example, we also have another product that will be launching.
Paul: Here in March again soft launch has already happened but.
Paul: Launched in a general lease basis.
Paul: Really with our lockable card and this is a product, especially for our video game customers, which is a large portion of our cash business, 42% of our users.
Paul: This will allow them.
Paul: Streaming customers to help manage their subscriptions. We think this is the feedback has been wildly positive. So we're very excited to see that.
Paul: That rollout.
Paul: General lease basis, and see what that product can do so just a couple of examples we can keep going on I think the other focus would really be around the e-commerce side, which youre seeing really solid growth with our E com business.
Paul: North of 30%.
Paul: Year over year growth. So we feel very good about continuing to expand there and we have a great product with clover and the SMB space. So we're we're very excited to continue our partnership.
Paul: With fiserv and we look for big things.
Paul: As we expand that relationship in 2005.
Paul: Okay.
Paul: Got it that's helpful. Thanks, and then excuse me as a follow up can you update us where were at for most sales productivity standpoint, I think in the deck. You said you were targeting a 20% increase in the pipeline per employee. So I'm just curious on the timeline for wrapping these hires that you made in 2024.
Paul: Yes, so in regard to the sales team.
Paul: <unk> had everybody hired as we've mentioned in the Q3 call.
Paul: By the end of Q3, so the team has been ramping up as we're moving into 'twenty five.
Paul: As you saw from some of the metrics that we've put out there.
Paul: Really solid growth numbers when you look at the enterprise sales team approximately 40%.
Paul: On productivity.
Paul: When you look the in year contribution going from <unk>.
Paul: 23% to 24, you see over 100% lift in contribution.
So we feel very good about the people that we're bringing onboard and scaling them up.
Paul: <unk> seen a lot of growth in Latam and so that's been great to see there'll be a double digit growing business for us in 'twenty five.
Paul: So overall I think we're very pleased with.
Paul: The sales hires in the progress, they're making and this year and 25, it will really be about continuing to ramp them up continuing to get.
Paul: The maturity into that organization to drive what we need for 2006 and beyond so overall so far.
Paul: Gone exceptionally well.
Paul: Thank you.
Speaker Change: Thank you. Your next question is coming from <unk> <unk> from Bank of America. Your line is now live.
unknown: Hey, Bruce John Thanks for taking my questions a.
unknown: A couple for me firstly on the Suez Wallets, you said you expect that to grow.
unknown: Low single digits can you just talk about the.
unknown: Moving parts, there and how you think about that business.
unknown: Over the midterm.
unknown: Second you also spoke about.
unknown: Self funding some of your investments are.
unknown: Through.
unknown: And kind of inefficiencies so what see scope for further efficiencies as you go into 'twenty five and beyond.
John: And John.
John: John anything you've noticed I guess since you joined in terms of thinking as we can be more.
John: Efficient from a cost perspective.
John: You want me to jump in.
Speaker Change: Alright, so on the one side.
John: Around the wallet.
John: You see continued growth through transactions when you look at our Tpa I believe it's in the appendix but.
John: If you look at our Tpa transactions per account you see.
John: It really kind of citigroup throughout 'twenty four.
With that.
John: With that in the wallet segment. So that continues to drive really the growth in the driver of that has been.
John: We've made a lot of improvements in the functionality and usability of the digital wallet.
John: And cash products and so that's really what's driving the transactions going up.
John: That's also helping drive up the <unk>. So you have those two great mechanics.
John: I also touched on the digital classic digital wallet.
John: Broke a million users in Q4 first time in several years. So we really have some good momentum finally building in the digital wallet as we look at the new product releases as well with Pago, we should see continued acceleration with the digital wallet side of the business.
John: Yeah, and then to your questions about self funding investments and efficiency opportunities I'd say I think big picture think about it to some extent as a redeployment of a reallocation of spend from.
John: From back of the house to front of the house as we continue to look at driving sales.
John: Sales and marketing to grow the business on a go forward basis.
John: Some of that.
John: I mentioned on the last quarter call and my brief.
John: Remarks about some of my priorities, one of which was some systems migration work and that sort of thing and as those projects continue to deliver over the next few years, we will create additional opportunity that we can then redeploy for growth in the business. So.
John: There's not one big thing to your question, but there are a lot of of medium sized small projects.
John: Alright, that's very clear thank you.
Trevor Williams: Thank you next question is coming from Trevor Williams from Jefferies. Your line is now live.
Spenser James: Hi, This is spenser James on for Trevor Williams. Thank you for taking the question.
Trevor Williams: Maybe just wanted to ask hi.
Speaker Change: Hi, how are you.
Speaker Change: Maybe just to start I wanted to ask about your assumption for attrition in FY 'twenty five it was helpful to get the summary of the expected drivers on slide 19.
Speaker Change: It looks like you expect an 11% headwind in 'twenty, five which is less than the 13% headwind in 'twenty four.
Speaker Change: I was just wondering if you could comment on the strategy for managing that attrition and how the underlying drivers of it may look different this year versus last year.
Speaker Change: Yes.
Jon: Start off and Jon can add color to it.
Jon: So if you think back in play.
Jon: Kind of the earnings calls from 2024, you heard me talk about throughout the year us trying to Delever Derisk the company, sorry, not delever, but derisk the company, but we would delever it as well but.
Jon: De risked the company and so there was a lot of involuntary attrition that we drove.
Jon: In the business, meaning literally we decided to part ways with.
Jon: With customers that.
Jon: It did not meet our risk profile as we're going forward.
Jon: On the new strategy that we've outlined.
Jon: We believe that that is.
Jon: Two to three points of.
Jon: Attrition that we added to the mix.
Jon: In 2004, and so we are expecting attrition to settle back down.
Jon: Kind of a normal rate.
Jon: As we go forward so that's the gist of it.
Jon: Potentially accelerated attrition to rebalance our portfolio, we now believe that Thats done.
Jon: We feel very good about.
Jon: The attrition assumption that we have.
Jon: So the only color I would add to that is.
Debt.
Speaker Change: And that some of that voluntary attrition that Bruce mentioned actually was on the wallet side of the business, So think geographies or specific product areas, where we are.
Jon: Deemphasizing.
Jon: Fair enough I appreciate it.
Jon: And then as a follow up maybe just on credit losses could you give a bit more color on what drove the uptick in Q4 and comments on what gives you confidence that it can normalize this year.
Jon: So in Q4 this was driven by the by the direct marketing business.
Jon: The vast majority of it and Thats.
Jon: But.
Jon: Policies I think we kind of hit it but we were working through.
Jon: Some voluntary attrition and exits of merchants to that period that causes significant disruptions.
Jon: And in this case significant losses in the period.
Jon: So our assumption around normalization is over the last several years. The company has had a fairly stable.
Jon: Loss rate, whether you look at it as a percentage of volume or a percentage of revenue.
Jon: On the merchant side of the business. It has tended to run 2% to 3% of revenue closer to two most of the time.
Jon: And then you saw a large spike in Q4 last year related to the direct marketing business as mentioned.
Jon: Okay.
Jon: Understood. Thank you for taking the questions.
Jon: Sure.
Jon: Yeah.
Speaker Change: Thank you. Our final question today is coming from Jamie Friedman from Susquehanna. Your line is now live.
Jon: Hi.
Jamie Friedman: Good results here.
Year end 2020 for Bruce I wanted to ask.
Jamie Friedman: In terms of slide 10.
Jamie Friedman: Is there any way to we say here at.
Jamie Friedman: New products are now mid single digits as a percentage of revenue versus zero percent in 'twenty two.
Is there any way to unpack at least qualitatively, which of those are the biggest at this point and then a quick follow up.
Jamie Friedman: Yes, Jamie good morning Ann.
Speaker Change: So great question I think we can have Matthew would follow up with you and give you a little more color on that the biggest probably impact from a new product perspective has definitely been the accounting card, which.
Jamie Friedman: Has expanded across Europe in 2004.
Speaker Change: That coupled with <unk> probably of the two.
Jamie Friedman: Biggest drivers for us but.
Speaker Change: We can we can probably funnel some.
Speaker Change: Additional information on the product side, but we continue to expand those as we move into 'twenty five. So we're looking for that to continue to grow as we move into 'twenty five 'twenty six.
Speaker Change: And then in terms of the weight labeled wallets.
Speaker Change: You know that that topic not just for you, but for the industry is kind of evergreen.
Speaker Change: What's the right to win that piece of it how do you see.
Speaker Change: Your competitive advantage what are the conversations like on the client side How's that.
Speaker Change: How's that going in because you sound pretty excited about it but it's never clear at the industry level.
Speaker Change: Uh huh.
Speaker Change: Who wins and why thank you.
Speaker Change: Yes.
Speaker Change: Jamie that's a great question I think.
Speaker Change: Some of the Differentiators that we have is really around our regulatory strength and strength around AML, where we're obviously regulated in Europe.
Speaker Change: We do a tremendous job around the AML issues have put a lot of effort into that.
Speaker Change: And that gives us a tremendous framework for us to leverage with our white label wallets as we move that.
Speaker Change: Across the geographies in and create kind of new affiliate wallets as we're moving forward. So.
Speaker Change: <unk> is really.
Speaker Change: The Pago wallet is really a white label wallet.
Speaker Change: And we're very excited about watching that.
Fully here in Q2.
Speaker Change: <unk> down in Peru, so it should have some good met.
Speaker Change: Metrics around Pago wallet as we're moving through 25.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you we reached end of our question and answer session I'd like to turn the floor back over for any further or closing comments.
Speaker Change: Yes, I just wanted to thank everyone. Obviously the team here for all the preparation that goes into quarterly earnings.
Speaker Change: Also want to thank.
Speaker Change: The employees for just a tremendous year as we bring it close to the transformation of <unk>.
Pacey: Pacey, if and when we now move forward.
Speaker Change: Focused on growth.
Pacey: Just on bringing new product.
Pacey: To our customers.
Pacey: And just very excited about the future. So thank you all for joining us today, and we look forward to talk to them.
Pacey: With you again soon.
Speaker Change: 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.