Q1 2025 Paysafe Ltd Earnings Call
Greetings. Welcome to Paysafe's first quarter 2025 earnings conference call.
At this time, all participants are on a listen only mode. A question and answer session will follow the formal presentation. If anyone requires operator assistance during the conference, please press star zero on your telephone keypad.
As a reminder, this conference is being recorded. [inaudible]
It is now my pleasure to introduce your host, Kirsten Nielsen, head of investor relations. Thank you, please go ahead
Speaker Change: Thank you, and welcome to Paysafe's earnings conference call for the first quarter of 2025.
Speaker Change: Joining me today are Bruce Lowthers, 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 in the company's most recent SEC reports.
Speaker Change: 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.
Speaker Change: You should not place undue reliance on these statements. For looking statements during this call, speak only as of the date of this call, and we undertake no obligation to update them.
Speaker Change: We're roughly flat when normalizing for inorganic impacts.
Speaker Change: In February we closed on the sale of our direct marketing business, which creates some noise in our financial results. So John will take you through those numbers in more detail.
Speaker Change: In terms of new business the enterprise side of our expanded sales organization is ramping up and winning more deals in Q1, we signed over 100 enterprise level contracts, which was broad based across gaming Latin America and broader e-commerce within our core verticals.
Speaker Change: Overall, we're pleased to start the year off on a strong note.
Speaker Change: We are ahead of our expectations.
Speaker Change: As you know, we anticipated a lower growth rate and margin profile during the first half of the year.
Speaker Change: We remain confident that we see acceleration in the second half as we deliver our existing contracts execute on our sales pipeline and drive revenue from product initiatives that are already in market.
Speaker Change: Turning to slide four we.
Speaker Change: We've discussed during prior calls how we've evolved our focus and delivery of the P. C wallet platform.
Speaker Change: Enabling us to unlock geographic expansion and strategically market to new complementary consumer groups.
Speaker Change: Traditionally we've offered single use consumer wallet solutions, which has transitioned into a more unified platform for two primary segments with all users are able to leverage the functionality of the entire platform.
Speaker Change: Collectively these solutions leverage the breadth of our shared capabilities and assets such as L. P. M integration API access and issuing cards supported by a more streamline delivery and go to market approach.
Speaker Change: Today I want to share a few examples starting with our consumer brand in Latin America on slide five.
Speaker Change: In Peru, our Pago affect people brand is already a leading cash and bank transfer payment solution.
Speaker Change: Peru's high growth payments landscape is rapidly evolving with digital wallets and account to account payments projected to become the leading payment methods in the coming years.
Speaker Change: Our new product launch combined since trusted local brand with pace each wallet platform, a natural extension design for a streamlined user friendly experience.
Speaker Change: The pago affect people wallet simplifies payments via E cash and digital wallet peer to peer transfers and is the only digital payment experience in the region to offer instant payouts.
Speaker Change: Turning to slide six I'll highlight our target consumers in the region.
Speaker Change: First is the consumer who enjoys online gambling video gaming and E sports.
Speaker Change: This group already comprises nearly 60% of our cargo effect Tivo user base in Peru.
Speaker Change: This is often a cash base users once it's safe and seamless transition from cash to digital gaming and he places a lot of value on fast access to is women's.
Speaker Change: On slide seven you'll have another example.
Speaker Change: It would be the everyday consumer who wants to participate in e-commerce, ranging from paying bills to PDP payments to entertainment streaming services with a preference for cash or non bank solutions.
Speaker Change: They often send and receive remittance in PDP payments and desire cashed in digital solutions that are simple secure and cost effective.
Speaker Change: The launch of our Pargo effective of wallet demonstrates how we're evolving our payment solutions to resonate with local consumer behavior and market dynamics in the region underpinned by the rise of digital payments and financial inclusion.
Speaker Change: We believe this user group represents an expansion of our addressable market in Peru, where E. Commerce transaction value is expected to grow at 12% CAGR, reaching 29 billion by 2030.
Speaker Change: Let's shift gears with a merchant example on slide eight.
Speaker Change: Here, we're offering merchants sustained benefit of a wallet relationship with their consumers by embedding our wallet platform and enabling seamless pay in and pay out solutions integrated within the merchants customer experience.
Speaker Change: And ideal client profile as a merchant who aims to drive engagement through their own brand and maintain their own front end, while offering payouts and other wallet services delivered by pacings, AP eyes and embedded into their web and mobile applications.
Speaker Change: This is applicable across a number of our core verticals such as gambling video gaming travel more cash intensive business models that require digital solutions to enable payouts.
Speaker Change: I'll wrap up the product discussion here, but we'll continue to share more on our product development and user profiles throughout the year.
Speaker Change: And as we've said before while the average revenue per user will vary across products and user profiles. Our focus on building an expanded wallet platform steer us towards a more scalable model to create value for our merchants and consumers.
Speaker Change: Let's move to slide nine.
Speaker Change: Having invested in the expansion of our sales team and capabilities last year, we're turning our focus to execution and productivity.
Speaker Change: While we're happy with the progress on the enterprise side of the sales organization pipeline.
Speaker Change: Our growth in E. Commerce continues to be very strong at 31% for the first quarter.
Speaker Change: With our processing growth and I gaming up over 50% year over year and all other verticals combined growing in the mid teens importantly, we're seeing improved productivity with a 20% year over year increase in the annual contract value per active rep in the first quarter.
Speaker Change: Additionally, as we continue to expand both our go to market and product capabilities.
Speaker Change: We've opened a new door to when acquiring deals and the payback space. For example in Q1, we signed the deal with wire Bloom, a payment facilitator operating across Europe, and the U K.
Speaker Change: By addressing the specific needs required by the <unk> business model and establishing a partner centered on trust flexibility and risk management.
Speaker Change: We successfully displaced one of their existing acquirers.
Speaker Change: No.
Speaker Change: As our investment in the enterprise side matures, we're seeing that pay off in investment in both growth and rep productivity.
Speaker Change: On the SMB side, we began our investment late in Q1 in 2024, so we're still in the process of optimizing both our direct and partner expansion.
Speaker Change: While we're seeing pockets of productivity improvements such as in our direct telesales area and new partner acquisitions as well as good progress on deal size and quality the ramp up in consistency is not where it needs to be across all the investment and growth has been tempered by the slower ramp in our in <unk>.
Speaker Change: <unk> direct sellers.
Speaker Change: We have more work to do as we continue to rebalance and optimize the SMB team and go to market channels in 2025.
Speaker Change: We have a number of programs underway to improve resource allocation training and lead generation in order to drive higher productivity, along with new tools to support relationship management communication and customer service.
Speaker Change: We're also launching a new partnership to enhance our product offerings and growth in the SMB space.
Speaker Change: That brings me to slide 10.
Speaker Change: You'll hear us talk more about the new partnership agreements throughout the year and we kicked off a couple of exciting collaborations already in Q1.
Speaker Change: First is an expansion of our long term relationship with fiserv, starting with the integration of five Serbs Clover capital solution, providing smbs with improved access to capital to help them scale and grow.
Speaker Change: Our broader plans include several initiatives focused on empowering smbs, while supporting international expansion and product strategies for pay safe and Pfizer.
Speaker Change: And then on the enterprise side in Q1 will be expanded their partnership with til to deliver frictionless payments and pay back solutions to Isps across the U S and Canada.
Speaker Change: Lastly, as an example, with our consumer brands, we're now live with self pays self checkout kiosk, improving the quality and reach of our distribution network in Ireland.
Speaker Change: We've also expanded our online distribution of our eat cash products across several countries through new integrations with video gaming voucher marketplaces, such as start select and scheme.
Speaker Change: We're excited to build upon these relationships in the coming months.
Speaker Change: Our strategy around partnerships. So it's been an area that we haven't fully leaned into and leveraged in the past. So this is great momentum as we revamp our approach and focus on partnering for growth I'll.
Speaker Change: Wrapping up here you can see we're off to a good start we've had a very active quarter and a lot of change and we're excited to deliver on our priorities for 2025.
Speaker Change: With that I will ask John to review the financial results.
John Crawford: Thank you Bruce let's move to slide 12 for a summary of our first quarter results.
John Crawford: On a reported basis revenue declined by 4% to $401 million.
John Crawford: When we exclude the inorganic headwinds from FX interest and the divestiture revenue increased 5% organically.
John Crawford: This was a little better than we originally expected driven by modest outperformance from the ISO sales channel.
John Crawford: Overall organic growth in Q1 reflects continued double digit growth in e-commerce, and 3% organic growth in digital wallets.
John Crawford: This was partly tempered by flat performance in SMB.
John Crawford: Adjusted EBITDA was $95 2 million and adjusted EBITDA margin was 23, 7%, which was also slightly ahead of our expectations due to the timing of certain cost items that fell into Q2.
John Crawford: When we exclude the impact of the divestiture adjusted EBITDA would have been down 3% on a constant currency basis, driven by a 190 basis point decline in gross margin primarily due to two factors.
John Crawford: Lower interest revenue, which accounts for 40 basis points of the decline and business mix, which accounts for 150 basis points.
John Crawford: Specifically on the business mix, we were mainly referring to an unfavorable mix within the merchant solutions segment due to growth in the ISO channel.
John Crawford: To summarize.
John Crawford: The underlying EBITDA was impacted by $17 million of inorganic items.
John Crawford: 70% of which were attributable to the divestiture.
John Crawford: And would have been roughly flat year over year, excluding those impacts with the margin decline reflecting business mix.
John Crawford: Turning to cash flow, we generated 57 million in Unlevered free cash flow for the quarter with a 60% conversion of adjusted EBITDA and relatively in line Q1 of last year, which was 62%.
John Crawford: On an LTM basis, Unlevered free cash flow was 288 million, reflecting 66% conversion and in line with our expected conversion range.
John Crawford: Adjusted net income was $20 9 million or 34 cents per share down from 57 in Q1 of last year. The adjusted effective tax rate increased to 25% compared to 21% in the prior period.
John Crawford: Absent the inclusion of the beat tax provision this period the tax rate would have been 22% roughly in line with last year.
John Crawford: Turning to slide 13 for a breakdown of our Q1 revenue drivers.
John Crawford: Existing customers contributed 13% to our growth and embedded in this category is also the remaining contribution of direct marketing, which was about $5 million and more than offset by the headwind from interest revenue and FX.
John Crawford: As you can see this offset the impact of attrition, which reduced revenue by approximately 12% in the quarter slightly higher than what we expect for the full year.
John Crawford: We also had modest growth from new customers and N P. I contributing 2% to revenue growth, which we expect to accelerate to double digits as the year progresses, given our new sales pipeline recent product launches expanded partnerships and other initiatives.
John Crawford: Turning to slide 14 to discuss the segment results.
John Crawford: Merchant solutions volume increased by 11% to $34 3 billion, reflecting strong growth in e-commerce, resulting in organic revenue growth of 6%.
John Crawford: As a reminder, ecommerce vertical such as North America, I gaming bring a lower take rate profile and this is largely why volume growth outpaced revenue.
John Crawford: Adjusted EBITDA for the segment was $29 4 million with an adjusted EBITDA margin of 13, 5%.
John Crawford: There's a lot of noise here, but looking past the impact of the divestiture. The main driver is the mix headwind due to softer performance in SMB direct channels versus the ISO channel.
John Crawford: Aside from that SG&A for the segment was elevated in Q1 largely explained by the hiring across the sales organization in 2024 as well as some stranded costs related to the divestiture.
John Crawford: Going forward as the sales productivity improves and we lapped the investments we expect the margin to increase throughout the year.
John Crawford: Turning to the digital wallet segment on slide 15.
John Crawford: Volume increased.
John Crawford: By 5% to $5 9 billion and revenue from digital wallets. It was $187 6 million an increase of 3% on an organic basis.
John Crawford: With a stable user base of $7 3 million.
John Crawford: Adjusted EBITDA was $82 5 million down 1% year over year, reflecting a 6 million headwind from interest and FX, while the margin increased slightly to 44%.
John Crawford: Turning to slide 16 for an update on our capital allocation.
John Crawford: At the end of the quarter total debt was just under $2 4 billion, reflecting principal prepayments of 23 million during the quarter.
John Crawford: Net leverage increased slightly to four nine times driven by the divestiture of our direct marketing business as well as the strengthening of the euro at quarter end.
John Crawford: The stronger euro at the end of March impacts, our euro debt balances translated back to U S dollars.
John Crawford: Our average interest rate is just north of 5%, which is 70 basis points below the interest rate at this time last year.
John Crawford: Lastly, we repurchased 613000 shares during the first quarter and an additional 693000 shares in April returning approximately $20 million to shareholders year to date.
John Crawford: That brings me to our 2025 guidance on slide 17.
John Crawford: We are pleased with our first quarter results, which came in slightly ahead of our expectations and growth in April trending largely in line with growth in Q1.
John Crawford: We remain confident in delivering our full year guidance, while also being mindful of macroeconomic dynamics.
John Crawford: We've had some puts and takes since the time of our initial guidance FX.
John Crawford: FX rates have been volatile and while the euro is somewhat stronger than we saw at the beginning of the quarter. This modest potential tailwind is partly offset by a decrease in interest revenue given where the rates have moved and the fact that interest revenue contribution flows straight through to EBITDA.
John Crawford: The attrition in SMB has been slightly higher than our original assumption, but as we drive our initiatives and implement new tools for relationship management and service with Smbs, We expect this to improve.
John Crawford: With that said, we remain confident in our full year guidance, which you'll see on this page is a repeat of what we said on our Q4 call.
John Crawford: Finally, turning to slide 18.
John Crawford: We're providing additional color on what we expect for the rest of the year appreciating that we've already guided to an acceleration for the second half.
John Crawford: Based on our year to date results and what we see for the remainder of the second quarter. We expect the second quarter organic revenue growth to be similar to Q1 with adjusted EBITDA margins in the first half to be around 24%.
John Crawford: So that leads to organic growth in the second half accelerating to the range of 8% to 10% as we said on the Q4 call.
John Crawford: With adjusted EBITDA margins exceeding the guidance range in the second half.
John Crawford: We expect the fourth quarter to be our strongest quarter for reported growth organic growth and margin performance.
John Crawford: So let me walk you through the drivers.
John Crawford: First is the overall growth and operating leverage as we deliver on our existing contracts execute on our sales pipeline and drive revenue from partnership collaborations as well as product initiatives that are already in market as we continue to make progress towards our long term target to generate annual revenue contributions of at least <unk>.
John Crawford: 10% from products released in the last three years.
John Crawford: The second driver would be a slight mix improvement at the segment level, where we expect a stronger contribution from digital wallets in the second half.
John Crawford: The third major driver is margin improvement in merchant solutions with an expectation that our initiatives to improve the growth profile attrition and channel mix will lead to an acceleration of gross margins in the second half.
John Crawford: Finally, we continue to be focused on operating expenses.
John Crawford: Fortunately, we completed our key investments last year and with that behind US we're focused on being very disciplined on the cost side.
John Crawford: With that I will turn it over to Bruce for final remarks.
Bruce Lowthers: Thank you John I want to thank our team for staying focused and executing our strategy while successfully completing the sale of our direct marketing business.
Bruce Lowthers: We remain confident that we will see acceleration in the second half as we deliver on our product and sales pipeline.
Bruce Lowthers: Launched new partnerships and drive greater scale and efficiency throughout the organization.
Bruce Lowthers: Now, let's begin the Q&A session.
Speaker Change: Thank you the floor is now open for questions. If he would like to ask a question. Please press star one on your telephone keypad at this time a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue for participants using speaker equipment, it may be necessary to pick up the handset.
Speaker Change: Before pressing the star Keys again, Thats Star one to register a question at this time.
Speaker Change: Today's first question is coming from Andrew Heart of BTG. Please go ahead.
Speaker Change: Hey, Thanks for the question, it's good to hear how the.
Speaker Change: <unk> pipeline remains strong I think last quarter, you called it right.
Speaker Change: I couldn't levels I guess first can you frame up how much of that pipeline you would consider booked but yes to go a lot yet to go live I guess ultimately how much visibility do you have in that pipeline of actually achieving the second half acceleration and that's embedded in guidance. Thanks.
Speaker Change: Yeah, Andrew good morning, and I'm, a little bit under the weather So bear with me if I cough here, but.
Speaker Change: What it would.
Speaker Change: We have pretty good visibility, we had a really strong quarter as you've heard in the prepared remarks from a sales perspective.
Right now in Q1.
Speaker Change: We had a really strong enterprise sales, even as we looked into.
Speaker Change: April we had the strongest said some b cells that we've had in over a year. So we have really nice visibility as we onboard these merchants.
Speaker Change: And really you start ramping up the production.
Speaker Change: All of those so I think it's.
Speaker Change: A really a nice.
Speaker Change: Chart, the jaw and personally put together talking about.
Speaker Change: The revenue walk in and you can see very clearly.
Speaker Change: Where you had the existing customer base are performing a little better than than anticipated, which is really a good sign for the back half of the year and then you can see the the new customers coming on that obviously will ramp up as the year goes through so we feel very good and have very good visibility so far.
Speaker Change: <unk> a strong pipeline as we had headed into Q2.
Speaker Change: So overall, it's looking very good.
Speaker Change: Thanks, and then John I appreciate the comments about EBITDA margin moving parts throughout the year. Some of it I think segment men mix. The other part you talked about SMB versus the ISO channel can you just maybe share with us your early expectations for <unk> EBITDA margin and kind of where you think it could be exiting the year.
Speaker Change: Based on those different moving parts. Thanks.
Speaker Change: Sure. So I think our expectation is Q2 EBITDA margin is going to look largely as it did in Q1.
Speaker Change: And and then in the second half of the year I think we ramped to levels. Both in Q3 and Q4 that are kind of above our full year guide. So think also think about it as we continue to say, it's a little bit more Q4 weighted than Q3, so our expectation.
Speaker Change: Is Q3, EBITDA margins are going to be a little above our guide in Q4 higher than that so probably closer to 28 to 30 range.
Speaker Change: Thank you.
Speaker Change: And that's maybe you can give a little color there I probably obvious.
Speaker Change: Based on our discussion of the cost structures, but you know we see the elevated costs in the merchant segment. In Q1, you know largely working out in Q2 and Q3.
Speaker Change: So that you know as the gross margin improves that we're talking about that should start to flow through.
Speaker Change: With gross margins in the merchant merchant business going up.
Speaker Change: The low forties into the into the mid Forty's.
Speaker Change: Helpful. Thank you.
Unknown Moderator: Thank you. The next question is coming from Trevor Williams of Jefferies. Please go ahead.
Speaker Change: Great. Thanks, Hey, guys I wanted to ask on e-commerce within merchant if we could just get an update on what the E. Com mix is within the merchant segment today, and then bigger picture clearly you're starting a lot of success within the gaming vertical, but if you could remind us just on how you are primarily coming to market, both within our gaming and kind of.
Speaker Change: More broadly in the key points of differentiation what sets you guys apart. Thanks.
Speaker Change: John do you want to just give up.
Speaker Change: Our revenue mix of the E com.
Speaker Change: Sure.
Bruce Lowthers: Bruce the I'd say, it's about you know about a quarter on a revenue basis in Q1, the merchants of the merchant segment.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Slightly higher than that on a gross profit basis, if that's helpful. But right and then within the E. Commerce just to click down on that you've got high gaming is one of the biggest single vertical yeah, right, probably half ish about E. Comm and then the rest would be really split amongst all of our core verticals.
Speaker Change: Okay terrific.
Speaker Change: And then maybe if we could go back to some of the new distribution partnerships within merchant Bruce maybe if you could frame for US just the significant kind of at the partnership level. If any of those in isolation are expected to be kind of needle moving over the course of the year. Dan. If you could just kind of frame the longer term significance of some of those are clever and Intel.
Speaker Change: Thanks.
Speaker Change: Yeah look I think as we.
Speaker Change: Moved into this.
Speaker Change: This year, we really were focused on a few things one of those were our really our product initiatives, our NPI initiatives, new product initiatives and part of that is the the buildout.
Speaker Change: Build out of our partner organization and trying to drive a more product into our salespeople tends to go help our merchants really be successful. So as we looked at this function, we see things like tilt, which opened up new Tam for us that allow us to go after some of them.
Speaker Change: These pay facts are that a we didn't really have the products for now that we do are we've got great partnerships and expansion and I think probably ever be saw a some of the announcements in recent days with five serve and expanding our capabilities with them and offering there capital product to extend.
Speaker Change: Loans to U S. M. B. So we think that the all of these things are going to contribute as we move forward.
[laughter] excuse me in a in a significant way.
Speaker Change: And very optimistic about our this is part of kind of a Tam expansion as we look at it as things that we have not done historically, but where needed.
Speaker Change: And really part of that long term driver of driving our revenue from products released in the prior three years to north of 10%. So this is really going to be a focus for us as we go forward and something that we view as a critical component of our growth strategy.
Speaker Change: Great. Okay. Thank you guys.
Speaker Change: Thank you. The next question is coming from Darrin Peller of Wolfe Research. Please go ahead.
Speaker Change: Hi, Thank you first maybe we could just go back and hone in a little more on to the SMB side you touched on it just a moment ago with incremental product youre, putting in their hands in the hands of your are your reps, but.
Speaker Change: Thinking about you know.
Speaker Change: What you what the strategy is for the SMB piece of the business now going forward and what you what kind of prospects you see for it.
Speaker Change: And if it has enough product whether its clover capital like you just mentioned what other what other needs do you have to find to really provide the <unk>.
Speaker Change: Best service the best offerings that can compete effectively and what should we expect as investors and analysts in the SMB side of the business in terms of market share going forward.
Speaker Change: Sure. So let me back up and you know when we look at the SMB space traditionally we've historically, we've been a reseller of other solutions, we're very fortunate to have the opportunity to sell Clover Clover does very well.
Speaker Change: For us from a growth profile. We've also talked about the fact that when you look at our SMB portfolio are we are sub scale from a sales perspective, historically and we were really.
Speaker Change: Driving the vast majority of our revenue through the ISO channel and what we were trying to do is rebalance to sell more direct on the SMB side. So.
Speaker Change: So we made an investment last year to really.
Speaker Change: Increase the size, which will still be on the small side in comparison to others, but.
Speaker Change: That small side to really drive a the SMB direct versus the ISO.
Speaker Change: We're trying to move away from the ISO we loved ISO organization, that's doing a great job, we just wanna be more balanced.
Speaker Change: And the reason is that going direct as the margin is much greater for us if we're going direct and then through the ISO channel and so we're really focused on a couple of things one building up that SMB direct side.
Speaker Change: We also if you remember last year, we talked a little bit about when you looked at our SMB direct channel, we were really driving a lot of micro merchants and we started moving upstream a little bit on that and so you can see that our our revenue for a mid has increased.
Speaker Change: And the team is really repurposing or refocusing our sales efforts on channels that are still small businesses, but they're bigger than the micro merchants that we had before another reason for that one obviously the revenue is larger but to that little larger SMB is a.
Speaker Change: A more stable merchant base for us so it doesn't turn over as much. So we feel like we're making some good progress we've tried some things candidly that.
We're very new to us.
Speaker Change: Didn't pan out the way we wanted we've regrouped and made some adjustments to what we were doing as I alluded to earlier or stated earlier, we had a really strong March and April April was the best F&B mid month that we've had in well over a year. So it's it's a lie.
Speaker Change: To see that the actions that we're taking are starting to come.
Speaker Change: Come to fruition. So we feel very good about the SMB space, we have a very small market share, but we have a world class product that Oh, we can go sell and we feel very good about our opportunities to sell in that space.
Speaker Change: Yeah, that's good to hear about April and the strong bookings and sales I guess just to be clear it sounds like what you're saying is you believe you have the product now you need to have good go to market and be as differentiated as you need to be I mean, that's still it sounds like just because we hear more and more about competition or the point of sale with newer Pos systems, obviously global trials.
Speaker Change: <unk> is now, saying, they're going to they're going to allow others to resell. So is <unk> still have what it takes for you guys to be a differentiated asset I guess is my question.
Speaker Change: Are there areas you still need to invest further from a tax standpoint.
Speaker Change: And that piece of business. Thanks again guys.
Speaker Change: Yep again, I'm, a big believer in Clover I think when you look at our the growth profile of Clover is a mid teens kind of growth profile.
Speaker Change: For the midterm.
Speaker Change: We think we can continue to get better at selling that in and expand our footprint. So we feel the clover has got a great product, they're investing a lot into the product we love. The fact that they're adding a surround services, we're adding some surround services and as well and we feel very good with that product.
Speaker Change: Not to say that there are others not everybody's going to want Clover I think that is a differentiator for us is that we have other point of sale systems as well. So it allows us to compete on the Optionality standpoint, but we feel very good about the product sets that we have as we lined up in.
Speaker Change: The SMB space today.
Bruce Lowthers: Thanks Bruce.
Speaker Change: Thank you. The next question is coming from Timothy Chiodo of UBS. Please go ahead.
Timothy Chiodo: Great. Thank you.
Speaker Change: Also wanted to hit on the covered.
Speaker Change: Hey, good morning. Thank you also want to touch a little bit on the cover partnership. So clearly capital is one of the offerings right, but there's also software packages and there's payroll there's their recent partnership with ADP, there's the whole cash flow central offering. So there's a lot more of their took over there just a point of sale and <unk>.
Speaker Change: Now that you're adding the cover capital aspect can you talk about what are the other aspects that I've mentioned are some of those available to merchants that receive covert through through paces are those other software packages available or those on the come that would be that would be really helpful.
Speaker Change: Yeah, Tim Great question, what I would continue to say as we we have a very strong relationship with fiserv, they're wonderful partners, we look to continue to expand our product offerings from them.
Speaker Change: I think just last week, we did a press.
Speaker Change: Announcement about doing a digital wallet for clover customers.
Speaker Change: So you'll start to see us pushing some of our product into the Clover base as well.
Speaker Change: So, but overall I would expect to continue to see that.
Speaker Change: Evolve and strengthen and we will be hopefully a talking about this relationship for a very long time, there just an outstanding partner and we're delighted to have the opportunity to be one of their primary result looks just a global solution.
Speaker Change: It sounds like.
Speaker Change: Okay, Alright, thank you Bruce.
Speaker Change: Follow up is more of a I mean, it's a pacing question, but it's also sort of industry question.
Speaker Change: You talked about direct and indirect and talking about how the margins are much better for you on direct but could you talk about the commission payout slash the unit economics. So on the indirect side I gather there is an upfront down in and there's this kind of residual that gets paid out for some period of time and I don't know if that period is forever. If it's a certain amount of years, but until that merchant.
Speaker Change: Turns or.
Speaker Change: How the time is here.
Speaker Change: He has agreed to there and then how that's different on the direct side, meaning a salesperson that I'm, assuming has a salary and some commissions, but what is the balance of upfront commission versus trailer and how does the timing differences look across direct versus indirect meaning you get one forever you get one for a certain period of time.
Speaker Change: That sort of thing.
Speaker Change: Yeah.
Speaker Change: Excuse me.
Speaker Change: The on the the residuals the ISO channel.
Speaker Change: The I suppose.
Speaker Change: Do have a a payment each one of them is different so it's difficult to say.
Speaker Change: Just to the exact construct of them.
Speaker Change: Probably don't want to go into too much detail to be to be candid with you just everybody has a different spin on how they do it but there is an upfront piece that happens with each deal and there is a residual that goes over an extended period of time on their book of business on.
Speaker Change: On the on the direct side the amount is very different so the residual is usually if there is a residual is very short term. These commissions on the direct side of the house are all paid just as the ISO they're all paid on actual revenue process.
Speaker Change: It's not a.
Speaker Change: So this is just they only get paid a piece of what actually happens with the deals that they sign.
Speaker Change: So.
Speaker Change: Commission structures are very different.
Speaker Change: From ISO structure versus.
Speaker Change: The direct channel.
Speaker Change:
Speaker Change: Largely because the ISO is handling a variety of different functions.
Speaker Change: Around the go to market strategy versus on the.
Speaker Change: Direct channel, we're handling all of those things ourselves. So there's more opportunity for us as we drive that Ah I don't know if John wants to comment.
Speaker Change: Any.
John Crawford: Further on our load commission structures.
Bruce Lowthers: Bruce I would just say, it's probably obvious based on what Bruce said, but to put a math.
Bruce Lowthers: The point on it you know that that Youre going to then see the margin flow through on the direct business accelerates as the commission payouts roll off because those are shorter term than the residual structures on the ISO side. So it's obviously.
Bruce Lowthers: Obviously your commissions will continue to build our sales are growing but over time that should that should benefit margins.
Perfect that was really helpful. Thank you both.
Bruce Lowthers: Thank you. The next question is coming from Matthew Inglis of RBC capital markets. Please go ahead.
Matthew Inglis: Hey, Good morning. This is Matthew endless on for Dan at RBC.
So on the 10% growth for the full year from new customers and products can.
Matthew Inglis: Can you give us a deeper sense and maybe some specific examples for what gives you the most conviction for growth to ramp a spin.
Matthew Inglis: Typically with new products part of that 10%.
Matthew Inglis: Well, yes, so a couple of things I would say one.
Matthew Inglis: We're having a very strong sales.
Matthew Inglis: The start to the year, we had a very strong Q1.
Matthew Inglis: Sales that happened obviously in that call them everything that was really driven off of new sales the product gives us things to go sell.
Matthew Inglis: But it's really all sales driven we have a bigger sales team as imported out we've been more productive with the sales team on the enterprise side. They are producing more per rep and producing more in aggregate so that gives us great visibility.
Matthew Inglis: Do you want to how things are moving forward. We're also adding a lot of new product either through partnerships as we just talked about a little bit on the partnership side.
Matthew Inglis: Things direct one thing that we just launched a is the pago effective of wallet, we feel very excited about the opportunity with our team in Peru are to really expand our product offering down there we see a lot of activity around our wallet platform.
Matthew Inglis: A lot of growth opportunity there as we signing up new customers new opportunities.
Matthew Inglis: Like with fiserv on on the Cobra side.
Matthew Inglis: So we feel very good about the products that we have and the opportunities that are emerging for us as we go into the back half of the year, but I would say that we have very good visibility right now on a kind of a sales and product side.
Matthew Inglis: As we go we're halfway through Q2, so we feel pretty solid about.
Speaker Change: Are the products that we have whats on our roadmap and what's coming.
Matthew Inglis: In Q2, and Q3 to kind of finish up the year from a product standpoint.
Speaker Change: Got it thanks, and and I'm not be at the Pago wallet in Peru can you give us any sort of expected timeline and maybe a magnitude for growth contribution from it and I guess more broadly how much of Latam as part of that 10% expected growth from new customers and products and 425.
Matthew Inglis: Yeah.
Matthew Inglis: No I think Latam has been a nice producer for us in Midtown.
Matthew Inglis: Mid to upper single digits in Q1, I think as we go forward, we're looking at to expand in the kind of low double digits.
Matthew Inglis: Mid teen double digit growth as we go through through the year. So you know overall, that's a nice.
Matthew Inglis: A nice growth business for us, it's doing very well and we're excited about the pago as far as what.
Matthew Inglis: The pago affect people wallet, what that'll that'll add to that dimension.
Matthew Inglis: Down in that market. So as you know we also got a license in Brazil. So the Latam market is one that we're very bullish on we feel like a solid growth opportunities are in the Latam market.
John Crawford: John anything you want to add.
Matthew Inglis: No I think that's it.
Matthew Inglis: Clear.
Matthew Inglis: Got it thanks guys.
Speaker Change: Once again, ladies and gentlemen that star one if you would like to register a question at this time. Our next question is coming from Jamie Friedman of Susquehanna. Please go ahead.
Jamie Friedman: Hi, good morning.
Jamie Friedman: Good morning.
Speaker Change: I'll, let Bruce I'll, let you save your voice chat unless you're a couple of financial ones I wanted to ask about this slide 23, the merchant kpis that you're introducing excluding direct marketing I was just wondering how.
Jamie Friedman: So I I've.
Jamie Friedman: Listen I think there is a new slide is new to me at least so I'm wondering how how're you would've thought to this prior to the direct marketing disposition versus now and maybe if you could just elaborate on a couple of deals like the <unk>.
Jamie Friedman: The billable mids.
Jamie Friedman:
Jamie Friedman: Target and the revenue per merchant.
Jamie Friedman: Oh, Geez, Jamie I'm trying to make sure I'm on the right slide.
Jamie Friedman: But those merchant Kpis Q1, 'twenty 'twenty.
Jamie Friedman: <unk>.
Jamie Friedman:
Jamie Friedman: Yes.
Jamie Friedman: So I think I'm like this is.
Jamie Friedman: What you're seeing is like a couple of a couple of other things that were mentioned in the in the call earlier around where you know where we're doing some work that billable mids number.
Jamie Friedman: In the low single digits down as a number we obviously need to move the other direction and and that's largely driven by the attrition being a little higher than we thought as well as the S.
Bruce Lowthers: S M b sales being a little less than we thought so far those are those are those tend to be big chunk chunk in groups of of merchants and as Bruce mentioned, sometimes on the much smaller end.
Jamie Friedman: We think the.
Jamie Friedman: Net revenue retention level is still very healthy like that that's something that we're looking at as we think about kind of you know each different sub segments of our business.
Jamie Friedman: As a health indicator.
Bruce Lowthers: And then on the revenue per merchant in revenue per new merchant. These are metrics says as Bruce was talking about is trying to go a little bit up market not really up market outside of S. M b, but into a into the into the larger of the small.
Jamie Friedman:
Jamie Friedman: Those are metrics, we're going to be looking at there too.
Jamie Friedman: Okay.
Jamie Friedman: And then <unk>.
Jamie Friedman: Maybe midway through your prepared remarks, it sounded like you had.
Jamie Friedman: Or are introducing some.
Jamie Friedman: Additional incentives or systems to.
Jamie Friedman: The salesforce to to to accelerate production.
Speaker Change: Could you just elaborate on what those are and how the investment that you had made in sales.
Speaker Change: And I think the second half of 'twenty 'twenty. Four is is returning relative to what you had expected.
Speaker Change: Sure. So I think the and I guess I think of it as really the investment for the for the whole the whole of 'twenty four but also including.
Speaker Change: The first quarter, because we had.
Speaker Change: You know that those we had a number of hires in the in Q1 of 2024 as well so as we look at as we look at that.
Bruce Lowthers: Really want to be a little general about the specific things we're doing in that area, but I think as Bruce mentioned, we tried a number of things.
Speaker Change: Late in 'twenty four are.
Speaker Change: On the marketing side lead Gen side, some of those things were going to potentially get us better productivity and lower costs those things didn't work.
Speaker Change: We move back to some.
Speaker Change: Some of the metrics that we know and have worked I think that's shown.
Speaker Change: As Bruce mentioned in April.
Speaker Change: Joan as we got through Q1 as well.
Speaker Change: But those are the kinds of things that tend to have a tail for several months.
Speaker Change: Into the into the beginning of 'twenty five.
Speaker Change: I think we're also.
Speaker Change: To be specific doing some things on the personnel side and the mix over there on the SMB piece and where Theyre deployed how we're hiring that sort of thing so I'm not sure. It's a.
Speaker Change: I'm not sure we should think about it as a change in a major change in comp structure or incentives in the sense that we think our financials are going to be different is really just trying to find the right dials to turn to get those different.
Speaker Change: Sort of sub segments of SMB, performing as well as the as.
Speaker Change: The pieces there because we have several that are performing very well.
Speaker Change: Yeah, John I'd, just add that you know when you look at the the enterprise side from the <unk>.
Speaker Change: Investment in the salespeople are that it's worked wonderfully right. So that is not only are we seeing expansion of our ATB, either where we've signed up but we're seeing expansion of the ACB per rep that we've signed up when you look at our telesales or a direct sales in SMB, we're seeing the same thing.
Speaker Change: We're seeing really nice production out of that group where were seeing expansion within that group, we have an in market group.
Speaker Change: We also invested in that's still work under process, but we have a lot of confidence around.
Speaker Change: What we've been doing how we're redeploying some of the assets where they didn't work in particular markets.
Speaker Change: Into markets that were perhaps better than we anticipated such as Latin America, and some of the enterprise things or or even in the telesales. So I would say as we look at it where probably at expectation, but with the possibility of.
Speaker Change: Outperforming what our expectation was on the return on the investment as we move forward.
Speaker Change: Got it thanks, Bruce Thanks, Jeff I'll drop back in the queue.
Speaker Change: Thank you at this time I'd like to turn the floor back over to Mr. <unk> for closing comments.
Speaker Change: Yeah. Thank you and first of all I just want to thank our team for the wonderful job this quarter.
Speaker Change: Really a lot of distractions whenever you're divesting, a particular asset or business.
Speaker Change: The team did a remarkable job working their way through that and we have really a nice clear path for growth as we're going forward. So a really solid quarter I want to thank everyone and look forward to talking to everyone. Soon thank you very much.
Speaker Change: Ladies and gentlemen. This concludes today's event you may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: [music].