Greetings, and welcome to Paysafe's First Quarter 2021 Earnings Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Will Maina, Investor Relations with Paysafe. Please go ahead.

Thank you, and good morning. Welcome to the Paysafe first quarter 2021 earnings conference call. With me today are, Philip McHugh, Chief Executive Officer; and Izzy Dawood, Chief Financial Officer. Before we begin, I'd like to remind everyone 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 periodic SEC reports. These statements reflect management's current beliefs, assumptions and expectations and are subject to a number of factors that could cause actual results to differ materially from those forward-looking statements.

Thanks, Will. Thanks for that. Well, first of all, welcome and thank you to everyone for joining our first public earnings announcement as Paysafe. Today, I'm going to cover some of the strategic highlights and key deliverables from our first quarter, and then turn it over to Izzy Dawood, our CFO, to review our financial performance. To say the least it's been an eventful and successful quarter for Paysafe. First, we successfully listed on the New York Stock Exchange on March 31, following the successful SPAC with strong return to investors. We raised $2.1 billion, and successfully de-SPACed going public 114-days after our initial announcement. We were able to pay down more than a $1 billion of debt, strengthening our balance sheet and our credit rating along the way. We also have a new board in place with Bill Foley as our Chairman, and we've already started our implementation, the fully transformation plan, lots of activity on that front. As a team, we've been able to execute against our strategy, driving growth and scale across the company and delivering on our key initiatives. We're starting this new chapter with strong momentum across the business, and the markets that we want to win. From an overall market view, we continue to see lots of strong activity, online and e-commerce volumes continue to remain strong. We're seeing rapid growth and lots of market activity in North America iGaming, with the legalization of sports betting in four new states planned in 2021, and several other states not far behind. We're also seeing the emergence of a strong recovery in the U.S. SMB market. We're in the first quarter, we saw 18% increase in volumes year-on-year in our U.S. acquiring business, and we're seeing much higher growth in April. Finally, we're also seeing a continued adoption in consumer openness to using new payment methods, which has served Paysafe well over time. According to our recent proprietary research, nearly 60% of consumers have tried a new payment method in the last 12-months. Moving on to our strategy, for anyone new to Paysafe and our story, I really encourage you to review our recent Analyst Day Presentation. We provided ample detail during that event back in March, which I won't repeat today, but I do think it's important to recap a few points.

Thanks, Philip. Now let's turn to Slide 6, and start with a brief summary of our performance versus our guidance for the first quarter. Revenue and EBITDA came in at the higher end of our guidance. Gross profit and expenses were right in line. Overall, we delivered solid performance versus our expectations for the quarter.

Thanks, Izzy. In summary, we're executing well against our strategy. We're lapping our key legacy issues. We're winning deals in the U.S. iGaming market at a rapid pace. We're expanding in high growth emerging verticals across digital wallets, eCash and e-commerce. We're seeing strong recovery in our U.S. SMB business. We're delivering against the transformation plan, and we're well-positioned for consistent, organic and inorganic growth. With that said, I think we can now move to the Q&A session. Thank you very much.

Thank you, sir. At this time, we'll be conducting a question-and-answer session. Our first question today comes from Darrin Peller of Wolfe Research. Please proceed with your question.

All right. Hey, guys. Good morning. Thanks. When we look at your results, and you called out that revenue growth would have been, I think you said, mid to high teens, if you were to back out the impacts from the network partners, the referral partners and the digital side, and then merchant obviously had a portfolio change to derisk. Can you just touch on, is that the normalized growth we should expect as we start to grow in the next couple of quarters? Obviously, you have comps that impact a lot. But just remind us, on a segment basis perhaps, and then overall, what do you guys see this company growing at? Again, per segment, more normalized, when you anniversary these changes on a per segment basis as well as company-wide?

Hey, Darrin, it's Philip. Good to talk as always, good chat. Yeah, look, so in terms of the change there are basically three components worth calling out that Izzy laid out. So one is the disposal of Pay Later last year and that's a simple kind of pro forma math. The second one is, as he called out was on digital wallets, where we were very consistently talking about that through the pipe rates on Analysts Day. We exited segments of kind of channels and markets, which we didn't think were good for our clients or for us. Those were kind of Q2 and Q3 actions of last year. And we see ourselves starting to lap that in Q2 and Q3 of this year. And then in the direct marketing vertical, we are a significant player there. And more recently, at the end of the year, we strategically took a decision to anticipate some upcoming scheme rules and views on that market. As a result of that, we wanted to get out ahead and we exited discrete set of clients. It's a very ring-fenced piece. We did that in late December, and we worked through that, basically through kind of early Q1. As we stand here today, we're very well-positioned in that business. We have one of the broadest sets of capabilities and capacity to manage direct marketing volumes. Trading in May is strong and going the right direction. And we'll lap that specific issue in Q3 of this year. So, those are the three components. They were all going to capture the impacts of those decisions were all in our -- broadly in our March 9 guidance. And as you kind of call out what we've highlighted, we're really happy with the growth trends of the business and then the right place. So, we see ourselves lapping those issues through Q2 and Q3. We won't have the very high Paysafe card growth as well. So that will taper down a little bit on year-on-year. When that all kind of blends through, we definitely see ourselves in that kind of 11%, 12%, 13% range of growth as a consistent business. But, let me turn it over to Izzy, if you want to add anything else to that.

Sure. Thanks, Philip. Hey. So, Darrin, putting a finer point on Q1, specifically, to help you guys kind of do the math and how we get to the mid-teens. So specific to some of the scheme changes that Philip talked about, we believe in Q1 that's roughly a $10 million impact year-on-year. And the network accounts and those channels that we exited year-on-year is roughly $20 million. So if you add the two, it's about $30 million impact year-on-year. And if you wanted to adjust for those, that's how you see how we get to the mid-teens growth overall for the company.

Yeah. And I just wanted to reiterate, yes, as folks said, these are items we have obviously discussed, talked. We feel comfortable with -- enough uncomfortable where we're reaffirming our full year guidance. So these are things we're aware of. And you'll see their real performance kind of starts taking shape as we would lap these legacy issues in the second-half of the year.

Okay. So that partly explains the yield compression you're seeing in the integrated side also. We're just getting some questions on the bottom .

Yeah. Exactly.

When we look at -- and then just my follow-up is really around the strategy on the digital wallet side, I mean, revisiting all the new initiatives you build out. I mean, it's a lot of what I know investors are excited about what the stock and the story overall. So if you could just update us on what kind of progress has been made over, whether it's the expansion into areas like crypto? How that's going or remittance? And then, any progress on partnerships with the U.S. gaming, specifically to bring the wallet more to the U.S. market. Thanks again, guys.

Yeah, I'll make a couple of comments on digital wallets. One is, in regards to Skrill and Neteller, and the other ones to our eCash business too, which has a very strong wallet profile, it's effectively emerging as another wallet business. And both those are driving growth and a lot of upside for us going forward. So in terms of initiatives, we've certainly been really pleased with crypto trading. As we said in our announcement, we're live in 27 sites. We get very strong and consistent signups now, not just from gambling operators, but from FX and crypto trading sites. With our partnership in Coinbase, in March, we expanded our ability to trade crypto in the U.S. and 27 states. So today, we could do multiple functions of free up the crypto, crypto to crypto trading, we could do advance orders. We could trade 15 currencies in 90 countries now. So, we think we are building a wall that can really enable crypto trading. And over time, we'll be looking at expanding crypto to merchant capability on a limited basis. We'll go slow on this as your crypto to fund the wallet, but those will take some changes and some for us to build that out. We have a roadmap where we think we can be a player not only in gaming, but in trading that's strong. Remittance continues to be strong, especially as we move up to Tier 1bank relationships. Our cost to serve goes down and that creates more kind of tailwind for us in that business. And then most importantly, in Skrill and Neteller is the U.S. market. We've been really focused on driving instant funding in the wallet. And we mean literally on the spot instant funding with a focus on the VIP client base. That's…

Alright, that's great. Thanks again, guys.

Thanks, Darrin.

The next question is from Dan Perlin of RBC Capital Markets. Please proceed with your question.

Thanks and good morning, guys. I wanted to just talk a bit about, it looks like within the digital wallet, so you just explained a bunch of these things, so this might be the reason. But the take rate there versus the integrated place where we saw little more degradation, here we saw it actually expanding quite substantially. And so, I'm wondering, a couple things. One is, just making sure we understand how to reconcile that lift on a year-over-year basis? And then secondly, is this kind of the run rate that we should be modeling? Is there any cadence as we think about it? I know you talked about the second-half you will having some lapping effects. So could you just speak to that point first? Thank you.

Sure. Hey, Dan, nice to hear from you. So I'll turn it over to Izzy talk about the take rate mix and what's going on there.

Yeah, so let's start Dan, with digital wallets. Yeah, pretty meaningful, we think meaningful, uplift in take rates and the combination of two factors. Again, we love the fact that, our users or consumers use the wallet for multiple things. So first, the exit of the channels we discussed which impacted revenue, also kind of impacted take rate on a downward basis. But on the flip side, the increased crypto volume, FX trading volume that we saw, combined with call it a crypto FX volume, actually increased take rates for digital wallets, because that's a big, big driver. I mean, higher take rates that lead general wallet transaction, so that explains kind of the take rate bump versus the revenue decline in digital wallets. So again, just a mix of how our consumers are using the wallet to do their activities. On the integrated processing, it really is pretty simplistic. The scheme rules and the likes that Philip mentioned earlier, really in our direct marketing business, which have higher cake rates. As a matter of fact, if you saw our volumes and integrated processing group were pretty solid year-on-year, and here's primarily e-commerce driven, with lower take rates. So a combination of the decline and the direct marketing piece add to see general e-commerce growth contribute to the take rate difference on the integrated processing side. So overall, as a company, I believe our take rate was impacted by roughly 10 basis -- actually it was kind of flat year-on-year for the most part and to kind of balance those two out.

Okay. That's really helpful. And then my follow-up question is on U.S. iGaming. There's a lot of things that are taking place there. It sounds like you've gone into some additional markets, and there's others that are expected to open up. I'm wondering, if you could just kind of help us understand how you're envisioning that playing out, throughout the year, the amount of investments that are necessary to truly drive brand awareness. You mentioned, some of the things you're doing in the Skrill and Neteller wallets, but I'm just trying to make sure I understand the cadence of how that is expected to roll out and then the investments behind that. And then just secondarily, on the transformation piece, where do you guys stand? I know, we're early in the year. But where do you stand on achieving that, I think it was $26 million of kind of cost takeout that you were expecting in '21? Thank you.

Thanks, Dan. So on the U.S. iGaming piece, let me break out to two pieces. So one is, in terms of what we expect to happen, when in terms of the market, obviously, anyone that follows can see there's a tremendous amount of activity, both from online and casino players, but also from state. So we currently see 10 states with real activity. We see Arizona, Maryland, New York and Wyoming, all with pretty advanced legislation and plans to go live as early as the second-half of this year. But also Florida, Louisiana, Ohio, Connecticut, Massachusetts and Maine, also with the active legislation with plans to go live at sometimes some as early as this year, if not early 2022. So, we see a path where you can have up to 25 of the 50 states opening up gaming. So that's a very nice tailwind. To the playbook that we consistently talked about, is one, integrate, integrate now. You have to integrate with the online gaming players. You have to integrate with a player account management platforms like Scientific Games and Playtech. And you're gaining that ground by servicing the processing side, so that's debit and credit card processing, plus ACH conductivity. So we're winning in that space, right. We have a large share of the players, as they open up states where there we mentioned Parx, which is a big Playtech play. We mentioned WinBet and BetBall. So we are live in those states in multiple states. So we'll be well-positioned there. So that's the first part of the formula is drive that and grow. The second part of the formula, which we've seen in other markets is to really develop the digital wallet play over time. Now that's a second follower. In our view, to attack that VIP…

That's great. Thank you so much.

The next question is from Jamie Friedman of Susquehanna Financial Group. Please proceed with your question.

Hi, good morning. Let me echo the congratulations. Philip, I wanted to ask, in your prepared remarks you had commented about strength in April, I think I was wondering if you could elaborate that rather qualitatively or quantitatively?

No, we're definitely seeing, as we look at the early results for April, and even some very early results in May. We continuously to be pleased with where the top-line trends are going. We've had some actual record days in e-commerce processing, historical records, not just recovery records, but historical records. As we've expanded our e-com into some crypto trading sites, we're seeing travel come back. So we're seeing some really nice proof points across the board. eCash continues to remain very strong, not only in terms of online adoption, but also the move to the my Paysafe app as well. I don’t know, Izzy, if you want to add anything to that.

Yeah, I'll just add, and then numerically, love to say some things. But, I'll tell you April, last year was probably very depressed. April this year has been incredibly solid. So, we have, I'll say pretty significant growth, at least in the month of April and our volumes. How that will play into May and June? We'll see, fingers crossed, as the world goes through different speeds of COVID recovery. But, so far, April off to a really solid start from all the metrics that we track and see.

Alright. And then as my follow-up. So Phil, in the beginning, I think in your prepared remarks, you had observed that 75% of the volume is online. Can you dimensionalize the growth of the online versus the offline, at least qualitatively again?

What we've seen is outside of the course, the direct marketing vertical, we've seen very strong double digit growth, generally speaking in our e-commerce businesses. Now, obviously, the iGaming business is an e-commerce business sort of us calling it extremely high double digits. But across the board, we're very happy with our e-commerce business, and we've been investing in sales and capacity on that front.

Got it. I'll jump back in the queue. Thank you.

Thanks, Jamie. It's good to hear from you.

The next question is from Josh Levin of Autonomous Research. Please proceed with your question.

Hi, good morning. I have two questions. Number one, you called out 66% growth in North America iGaming. Can you tell us how much came from processing versus digital wallet versus eCash? And then the active users for digital wallet 3.5 million, that number looks unchanged from the last report. Is that a current number? Or is it dated? Or, if it is a current number, why has it not changed? Thank you.

Do you want to grab that one?

Yeah. Hey, Josh, good to hear from you as well. Hey, on the North America iGaming predominantly all the volume right now is gateway or e-commerce related. The wallet really doesn't roll out in full force till the second-half of the year. And this is the common around the instant funding of a program that we're rolling out in concert with Plaid supporting us. So pretty much all the growth is an e-commerce activity, which kind of pretty much is in line about kind of what the market would have expected, maybe a little better as well. In terms of 3.5 million active users, no it's static, it's unchanged from the end of Q4. So it's an updated number as we're still outside, we're still lapping through the channel exits and the like. Obviously, the muted in Q1 -- impact in Q1, '21 is less, but there's still some impact. And then we'll continue to update that as the quarters go along.

Thank you.

Our next question is from Mike Del Grosso of Compass Point. Please proceed with your question.

Good morning. Thanks for taking my question. A question on the integrated processing volume growth this quarter 17%, I know there was some channel exits in there. But, could you kind of help us out as far as some of the other verticals, how those performed relative to your expectations, whether it's SMB or travel or some of the other segments? Thanks.

Hey, Mike, thanks for the question. So, generally across the board, what we're seeing is a really, really robust recovery across our SMB portfolio and that's strong. That tends to be on the smaller side of SMB, which is where we like to operate. There's a lot of kind of a restaurant and retail in that space, which has been very good. Two, we have a Petro business which is also continues to perform extremely well on that front. But across the board, the U.S. SMB recovery is a nice tailwind for us across. Two, we are seeing some return to travel. We actually had a decent amount of health and wellness, actually camps as well. So, those are other sectors which we see continued emerging tailwinds. And then finally, we did mention that while we're available on 27 crypto trading sites with a digital wallet, we're also processing on seven of those sites. And, that's a great story of Paysafe working together, really. We've got a client, you get to hook in with a product and be able to introduce the wider relationship. And that's really worked in both FX trading, and crypto trading, where we've been working very closely, the teams, they're working very closely in grabbing not only wallet share, but processing share. And we see that as a really nice growth engine for us that will continue to develop. Izzy, I think you want to add to that?

Yeah. Mike, one of the quick things that is interesting, as Phillip mentioned, really good strength across multiple sectors. The travel and hospitality piece is really interesting, because we really start seeing that pick up more in April. Some of the state restrictions came down and things start to opening up. So that kind of also supports the strong growth in April as retail and restaurants and petro, health and wellness continue into Q2 as well. So far, I mean, knock on wood here, but we see really strong green shoots across our integrated processing business, almost across everywhere, vertical.

Great. Thanks. And then, I guess my follow-up is on the U.S. iGaming opportunity. I know, you've had a lot of qualitative comments today on it, and then you've got the 66% revenue growth in Q1. But, just stepping back, as we think about the incremental state legalizations, I think you mentioned 25 of the 50 maybe legalized here in the next 12 to 18-months. Like, how does that compare to your initial presentation last March, and kind of your existing expectations relative to what they were then? Is this upside to the story?

I think there are two ways to answer that. Generally speaking, it's happening better and faster than when we spoke about kind of you look back at kind of Q3, and Q4, or Q4, when we were talking about it initially. So, generally, it's going at a strong cliff. We did believe that COVID and state budgets might be an accelerating force. We think we're seeing that happen. New York is a great example of that. So overall, that's a positive trend and slightly more optimistic than what we would have said. The only caveat as we go through on a state by state basis, not every state opens up the same way. Some are opening up for multiple operators, some will open up for lottery first, and then sports betting second. Some states like New York will be very specific and only allow a very select few of operators. So if you're integrated into that operator, that's great. If you're not, you might miss out on more of a chance of that state. So there's a little bit of a nuance, and Mike as you drilled down on it. But generally speaking, we are very well integrated across the big important player account management systems. We're very well integrated with all the big names or the majority of the big names. So, that does serve us well as these states open up at a more accelerated pace.

Great. Helpful color. Thank you.

Thanks, Mike.

The next question is from Timothy Chiodo of Credit Suisse. Please proceed with your question.

Great. Thanks for taking the question this morning. On SMB, within integrated processing, roughly half or so of the segment revenue. Maybe you could just talk about the component there that is the Clover business. I understand you guys are one of the largest resellers of Clover. Maybe just talk about the relationship there? How large that business is for you? And how that grew maybe compared to the overall and compared to the rest of the SMB portfolio?

Thanks, Tim. No, we've definitely talked in the past that we're definitely one of the larger resellers of Clover Smart devices in the country. It's a great relationship with First Data, which we continue to have. So that's been a strength. I don't have to hand the exact cut of Clover terminals and the share. We can certainly follow-up in an assessment call and get you that breakdown. Where the real focus for us has been, we've really been focusing on driving scale and operational efficiency, improving auto serve. And we're very focused on having a single boarding capability, where you can auto board onto the backend of either TCIS, first state of North or Omaha. That's actually a pretty powerful capability in this market, it drives an extra pop. It attracts lots of agents in there. Two, we're also working closely with our e-commerce gateway of integrating that more and more into our SMB offering, as well. So there's a couple of nice developments happening on that front beyond the Smart POS sales, but we can follow up on that.

Okay. Great. And then, just related to the yield on the Clover business, in general, would you describe that as relative to the overall segments yield? Would you describe that as roughly in line, slightly higher, slightly lower?

Tim, I'm sorry, you said the yield on which business? I didn't pick that up. Apologies.

The Clover portion of the SMB business.

Oh, is there a higher yield on the Clover portion? We have to double check. But I would suspect there's not a meaningful delta in yield aside between selling POS . What's going to really drive the yield is the size of the merchant and the vertical more, than the actual POS at the end of the day. So, that's certainly the way we approached from pricing. But, we can come back with a confirmation of that.

Okay. Great. Thanks so much for taking the questions.

Thanks, Time. It's good to hear from you.

There are no additional questions at this time, I would like to turn the call back to Philip McHugh for closing remarks.

Thanks. We have a large crowd on the phone, so thank you for everyone for joining. Thanks for the questions. We look forward for some follow-up sessions and to updating on the performance and growth of where we're taking Paysafe. Thanks, everybody.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.