Okay. Good morning, everyone. We're glad to be hosting the session this morning with the CEO of Paysafe. We have Bruce Lowthers here with us today. Thank you for being with us, Bruce.
Good morning. It's great to be here.
We also have Kirsten Nielsen from the IR team here in Arizona, so thank you for joining us, Kirsten. All right, great! We'll get started with some questions. First, we'll kick it off with the sales force. So you redid the sales teams to be more focused on a vertical approach, and the results seem to be coming through in a way that, you know, you would've hoped for and expected. And maybe you could give us a little bit more context on that approach that you took and also what you've been doing with the headcount within your enterprise sales teams.
All right. Thanks, Tim. Yeah, so we're very excited about the progress of the sales organization. So if you recall, a year ago, we talked about that the organization was really structured by business line, and there wasn't a team that was really focused on our enterprise accounts, which are approximately 800 accounts. We reorganized, we've revamped the team under a gentleman named Rob Gatto, and he's really created a lot of positive momentum. So, as you saw in the Q3 earnings, you can continue to see the enterprise accounts continue to build quarter to quarter sequentially, so we feel very good about that. The nice part of that, which I don't know that everybody's kinda translating into, is that drives a lot of revenue growth for us in 2024.
So when you look at the calendarization of those deals coming online and producing for a full year, that's a tremendous amount of revenue lift for us as we go into 2024, so we're very excited about that. The back half of your question, so on that enterprise team, we've actually doubled the number of people there, so we feel very good about that. The other thing that we're doing is we've centralized not only just that enterprise sales organization under Rob, we've also now taken the SMB sales organizations and the eCash sales organizations and put those under Rob as well.
And so we now have completely, I know it's taken us a year to do it, but completely, we have all of the sales organization all residing under our Chief Revenue Officer and all driving, very much in a holistic way. So we're very excited about the opportunity that that brings. As we look into 2024, we'll really start expanding that sales organization. Again, the way we're doing it is we're paying for it ourselves. We're taking costs out of the organization through efficiency gains, and then we're using those, funds to bring on more salespeople, to expand that sales organization.
Bruce, thank you for that overview. Let's hit on some of those verticals. So gaming, digital assets, travel, retail, and hospitality. Maybe just talk a little bit about some of the success you're seeing or maybe some good examples across any of those verticals that you'd like to highlight.
Well, I think those five verticals we got very locked in on. We went through when we first came in and started saying, "Okay, where is our revenue streams coming from?" Feel very good about those verticals, big TAMs, strong growth rates as we move forward. We're seeing a lot of success with Rob's organizations. And so we, in the gaming space, the gambling space, and last quarter, we talked about Fanatics coming on board, obviously, Penn National. So we continue to see a lot of success driving multi-products in that iGaming space, and we'll anticipate that to continue as we're moving forward. So feel very good about that space. We feel very good about the video gaming space.
Continuing to have a lot of success there, continue to see consumer expansion and adoption, using their products there in the gaming space, so feel very good about that. When you look at the SMB channels, we have very solid growth. We had about 10% growth in our SMB ISO channel, so feel good about that. Then we've really got to focus on the SMB direct piece, which has some different issues with it, but we'll get those corrected here in the next few months, and get that moving forward. So overall, the channels are acting as we expected. We've gotten our high-value products turned around with our e-commerce product and our digital wallet product.
you know, just as a reminder, those were declining businesses. We've now got them growing double digits. Now we're focusing in on some of the other components that will get our overall targeted growth rate to where we thought it would be.
Excellent. Thank you, Bruce, and I think it was a great place to start. We talked about your sales team transformation and the vertical approach because it really cuts across both of the two big segments of the company, so the merchant business and the digital wallets business. Let's now focus a little bit more on merchant solutions. You alluded to this, which is our next question, in which you mentioned that the SMB ISO channel is doing quite well for you, but there's been some challenges more on the SMB direct side. You mentioned, just now, and also on your earnings call, that this will be an area of focus, let's call it, in 2024, to make some improvements on SMB direct. Maybe just talk about what the challenge is and then what the plan is for the improvement.
Yeah. So on SMB direct, there's a couple things going on with that business. We're actually doing very well on the sales side of that business. So our team is selling, they're being very productive, being very efficient in the sales acquiring. Onboarding is very good. The challenge with that SMB direct business is that we compete more with Square in that business. So the merchant size, when you look at that SMB direct channel, is about 25% of the merchant that we sign in our ISO channel. And so we're subscale. We need a lot more volume to really be successful in that space if we're gonna continue in that space. So we do very well there, but it's just too small, and so we get a lot of churn.
Those customers churn over a little bit more than the traditional SMB clients. And so we're very focused on adjusting our direct channel up a little bit in the marketplace to be more compatible with the size of the merchant that our ISO channels sell. So we're not going upmarket per se. We're still in the SMB market, we're just going to a little bigger merchant. So we feel that'll definitely help a lot in that business. The other piece that we have in that book, candidly, is the direct marketing piece. And so the direct marketing piece is one that has a lot of churn in it as well. They're short-duration programs, and so we're focused on expanding outside of just those direct marketing pieces. There's natural growth prohibitors there just because of the business.
There's only so much of that book you can actually grow, and that's kind of the challenge with that business. So trying to expand outside of that, go for a little bit different merchant, still SMB, still e-com centric, and that's where we're, we're making those adjustments to that, to that book.
Great. Thank you, Bruce. And maybe just for the audience that you just alluded to, you mentioned it's maybe a little bit harder to, to grow in some of those verticals, the direct marketing. Can you just talk about the reasons why, just from... more from a payments industry perspective, not even specifically to Paysafe? I think it would be helpful for folks.
Sure. The challenge with that business really is because it's all e-com centric, there's a higher number of chargebacks. And so as anybody in the space would quickly realize, that creates a lot of tensions in the entire ecosystem. So Visa, Mastercard has parameters on what the chargebacks can be. The sponsor banks will have parameters on what the chargebacks can be, and so that kind of flows through the whole ecosystem. And so when your chargebacks for that BIN or for that portfolio start to grow, it puts a lot of tension between all the ecosystem partners within the transaction. So that's really what the challenge is, navigating those chargebacks in that space.
Excellent. Thank you, Bruce. Before we move on to the merchant onboarding success that you've recently had, let me just get one last one in around just SMB in general. So Paysafe is a reseller of Clover, which is clearly a product that's been resonating in the market, and it's surely benefited your business as well. Maybe just talk a little bit about your relationship in terms of being a Clover reseller and, and how that's worked for you.
Yeah, look, we've been a partner with Fiserv for a very long time. And for us, as we talked about in the earnings call, that the Clover's been a great seller in the market. It's doing exceptionally well. We had north of 20% growth in our year-over-year Clover sales, so very strong sales organization. The product is being well received, so it's really going exceptionally well. We expect that that will continue. We don't see any slowdown with that business or that product line. And I know they're adding new features, new functionality, and so all those things, I think, will resonate very well in the SMB marketplace. So we're very excited to be partners with Fiserv, and like I said, we expect that we'll continue to do so.
All right. That's a great update. Thank you. As I mentioned, merchant onboarding—you've had some great progress. You talked about a 10-day faster contract-to-launch timeframe over just a 4-month period. Maybe just expand upon you... It sounds like you identified this as an issue, and you clearly have made progress to solve it. Maybe just tell us a little bit more about that and why it's so important to your business.
So I think it's probably a broader topic. What we really try to focus on is, since I came in, was operational excellence. How do we get better executing eliminating the... Everything's a sports analogy, but eliminating the foot faults, the unforced errors that we make on a weekly, monthly, quarterly basis. And so our drive is to get better at everything that we're doing. One of the things that came out right at the beginning, we talked about it early on in our earnings calls, was on our enterprise accounts we were trying to figure out why it was taking so much time from the time the sales organization sold an account to we started seeing revenue. And through the processes, it was almost a 9-month install to get those enterprise accounts up and running.
So you can imagine how difficult it is to have an impact on your current year if it's taking 9 months on average to get an a- account up and running and integrated. So the team really came together, focused on that. Within 60 days, they had that down from 270 days down to, like 58 days. So a tremendous amount of improvement, just by focusing in on that. We continue to focus on it. You'll see incremental improvements... as we move forward.
But more holistically, what I would say is our focus is about revisiting all the assumptions that the business has, going back, looking at the processes, executing better, eliminating the issues that we've had historically, so we can get clean run rates, clean experiences for our customers, and I think we're well on our way to do that. Still a lot of work, but very excited about what the team's been able to pull together.
Thank you, Bruce. Let's stick with merchant here a few more before we move to digital wallets. Let's talk a little bit about gross margins or gross profit growth. So as you mentioned, the volumes and revenues have held up quite well, but there's been some under the hood, varying growth rates of different businesses with different margin profiles, which has resulted in a little bit slower gross profit growth. Could you talk a little bit about those varying businesses that have created that situation?
Well, I think as Alex has talked about this quite a bit, the challenge is our ISO business has really been outpacing our direct business. We have much higher margins in our direct business. I think anyone that follows the industry understands what the issues are around the ISO books, that the margins on those are compressed compared to the other books of business that we have. Both direct and our e-com business have much bigger margins. So, where that's been growing over the last year at an accelerated rate versus the direct book, has really caused some margin pressure on that. So now what you see in the last couple of quarters, you've seen a return to growth in our e-com book. And so we're seeing double-digit growth there.
Hopefully, as we continue to progress forward, we'll get that rebalancing of the margin as that e-com book starts to grow, and we start getting that direct book kind of back in line with what we think it'll be producing at.
Great. Thank you. In terms of the ISO portion, clearly you're alluding to the commission, the payaway, that goes-
Yeah
... through the ISO channel, which is a part of the industry. But also in the direct book, there's still a commission aspect that goes to your internal direct team. Can you just talk about the relative differences there? Maybe whether it's income statement geography or just relative level of commission or payaway.
Yeah, look, I think the industry has really paid a premium for top-line growth, and so the ISO books across the industry as a whole really started going up over the last decade and quite a bit. So, you just don't. It's easy to get that top-line growth there. It just doesn't come with a margin, so you've always got to kinda balance the portfolio. And for us, our direct business is a little bit subscale compared to the ISO business, and so we're really trying to beef up that direct book.
I think probably the other thing, candidly, that we haven't done is we have not done a lot of residual buyout in 2023, which you'll see, you know, across the industry, a lot of people do a lot of that, and we have cut that down quite substantially from what we did in 2021.
Okay. Why is that? If you don't mind.
Just returns. I think the pricing had gotten really crazy.
Mm.
You know, so economically, it didn't make as much sense to do those. You know, the value of that top-line growth just wasn't there.
Okay. Okay, let's move on to another area of growth within the merchant business, which is North America iGaming, where you have a very prominent position. We, and I think investors as well, really liked one of the slides that you had at your recent Investor Day around the iGaming cashier share. So you showed card acquiring, which you had some of the other competitors in there, whether it be Nuvei, Braintree, Fiserv, and others. Can you just talk about the competition in that business, specifically in North America? Are those the players you're mostly seeing in RFPs? How is the competitive environment shaping up?
Yeah, look, I think in our business, both in the digital wallet and the acquiring business, it's highly competitive. It's a very, very competitive landscape. There's not a lot of new people, I would say, that are appearing on the radar. These are companies that have been around for years and are traditional players. So we run into Amex, we run into PayPal, we run into Nuvei, we run into, you know, pick your... You know, Worldpay. Don't wanna leave anybody out. But the... So it's just a very highly competitive landscape. I think we have a great differentiator being in the space. As I've said before, our goal is not to be the largest fintech provider in the world.
Our goal is to be the best in the verticals that we play in, and that's really what we're focused on, and building out the value propositions around those particular verticals and really owning those verticals. And I think we're off to a very good start.
Right. But fair to say, also, less competition in a vertical-specific niche like iGaming in North America, relative to SMB, in-store, retail, or apparel, or something along those lines.
Yeah, look, again, in each of those, we have our own differentiator, right? So when you're talking about the iGaming, the gambling part of the business in North America, we have 20+ years of being in that space, doing business in over 100 countries. So we have a tremendous degree of regulatory and risk strength that brings real value to the gaming operators. When you look at the SMB market, our value proposition is very strong because we go in, and we'll go into Tim's bookstore, and we'll say, "Tim, what application would you like to run your POS on? Would you like to be Verifone, or would you like to be Clover?
Would you like to be Ingenico? Whereas the other guys will come in and just sell theirs, we give you the option of whatever it is that you want, and that resonates very well with the small business.
Thank you, Bruce. Okay, we have a little more than 10 minutes remaining here on the clock. Why don't we move to digital wallets, and we'll also make sure that we allow some time for the audience if anyone would like to chime in with a question, either through the mobile app or through a microphone that we have here in the audience. So active users for the digital wallet. So there were some good signs this past quarter. There was a little bit of a year-over-year growth, and you mentioned you expected to continue to accelerate into Q4. To the extent you could update us on how that's looking quarter to date or just generally comment around the active users within digital wallets, that would be appreciated.
Yeah. I think, a couple quarters ago, you had asked the question on one of the earnings calls about, growth, that three-month active users. So what we really tried to do is put out metrics out there with, transactions, with ARPU, with the three-month actives, so everybody can kinda see the progress. I think one of the big challenges that we had were, kind of how the products were working. We've cleaned those up a little bit, so you're seeing our transaction counts come up. You're seeing our conversion rates come up. So the people that are using the application are being much more efficient, and, and they're enjoying it, and they're using it more, so we love seeing that. The next focus was really more the top of the funnel. I talked a lot about that from the minute I came in.
It was all about the top of the funnel. We've got to figure out the top of the funnel. We've consolidated our marketing organization, brought all those groups together. Keep in mind, they were all disparate across the organization. It was really inefficient. The team has, have done just a really nice job of digging in, figuring out what our cost of acquisition is, who the demographic is that we're going after, and they're starting to see early on results coming out, which we had the opportunity to announce in the Q3 call, that we had our first positive movement with that three-month active of 3% growth. So felt good that it was moving.
I think I actually had told you in the earnings call before that it probably wouldn't be till the end of the year, so we got a little bit of movement in Q3. Right, last week, we had an update that we continue to see progress there as we move into Q4. So, no final number yet for the quarter. Obviously, we still got a month and change to go, but, you know, feel good about the progress the team is making. Keep in mind, though, we also have a lot of moving parts about building that number, so marketing is just one piece of it. We're also launching our business wallet this quarter, so that will add more users to the program as well. So we feel very good about that.
We're also having new customers with our white label wallet . Those will add three-month active users to that, so we have some good activity building on that front. Feel very good about that coming into Q1. And we have a geographic expansion as we look into 2024, launching a wallet in Peru, so feel very good about our opportunities to really grow and accelerate our number of actives in the wallet.
Excellent, Bruce. Thank you. That's encouraging. On the eCash business related to digital wallet segment, that one has been a little bit more of a growth drag for the segment. Maybe but you've talked about some changes that you're making, and it's a focus area for next year. Maybe you could just talk a little bit about what the drag has been associated with and some of the maybe new features that you're or changes that you're making to help turn that business around.
Yeah. So look, I think when we came in, we got very focused in on our high-value products, right? So we locked in and said, "Okay, our digital wallet product is declining. We need to figure out how to get that turned around." That was a lot of the questions that we got right away is: Can the digital wallet turn around? Can you get some positive activity with the digital wallet? We've been able to do that. We took it from a double-digit declining business to a double-digit growing business. We did the same on e-com. We focused on that, and it was a declining business. We got that turned around to a double-digit growing business.
Now, as we kind of clicked down and said, "Okay, let's focus on what else isn't kind of working to the profile that we thought we should have," when we look at the eCash business, we thought that that was a mid-single-digit kind of growth profile. We started breaking down into that group and saying, "Okay, what's working? What isn't working?" Our sales channel really wasn't working. The marketing organization, consumer acquisition, that top of funnel that I talked about, wasn't working, so we've changed those things. We've moved all the sales organization under Rob Gatto. We've consolidated all of the marketing organization.
Mm-hmm.
We've got new leaders driving that. We're seeing a good response already. We got some new product innovations in there, bringing our IBAN accounts, making those available, really driving registered users and graduating them into our programs. So we feel good about the opportunities we have in 2024 to get that eCash business really growing back at the mid-single-digit growth profile that we expect. And we are expecting still big things out of Latam, which is part of that business. And you know, we're expecting good double-digit growth out of that Latam book.
... Thank you, Bruce. We're starting to get low on time. I wanna make sure we hit two more topics. First, on some of the regulatory headwinds, and then also a little bit on the medium-term revenue and revenue outlook and the margin expansion targets. So briefly, on the regulatory headwinds, can you just recap for the audience what have these headwinds been? Which countries have they been contained within? And then maybe more importantly, when would we begin to start to lap some of these and start to see some of the improvement as we get past these headwinds?
Yeah, I... Look, I think the regulatory headwinds that have impacted us over the prior couple of years largely have been lapped. So what you had a couple of years ago, you had a lot of changes in specifically Germany. Germany, Germany was such a big market for us that created a tremendous amount of headwind with the regulatory changes. That's kind of worked its way through. Germany is now growing again, and we're back on a good path there. Keep in mind, not necessarily regulatory, but we were also impacted by the Russian war, so Russian-Ukrainian war. So those are two markets that we had to pull out of. So again, just maybe not regulatory headwind, but still kind of macroeconomic headwind that impacted that side of the house in particular.
Look, we're in 100 countries, there's always gonna be a regulatory headwind or tailwind by country. But it is something that's just part of the business. Again, it can just as likely be a tailwind as a headwind. We continually adjust and adapt, and you know, we feel pretty good about where we are. We don't see any regulatory headwinds that really are insurmountable at this point.
All right. Thank you. Let's try and wrap it up then with... Let's bring it home with the numbers. So the medium term, high single digit to low double-digit revenue growth outlook and the 75-100 basis points of adjusted EBITDA margin expansion. Maybe just talk a little bit around the context, the timing, and any other comments you'd like to make around how investors should think about the growth of Paysafe ahead.
Yeah, look, I think as I look at it, we're very pleased with kind of the progress that we had. So, you know, you look back on year-over-year growth, you go, you know, from 2020, you're at 1% growth, 2021, you're at 4% growth, 2022, you're at 1% growth. This year, three quarters in, we're at 7% growth. So feel very good about the progress that the company is making. It's been, you know, over 5 years since we've had a 7% growth kind of year profile. It wasn't about doing it once. I've talked about from the first time we started talking is, this is about sustainable growth. How do we continue to build?
How do we continue to build to 2025, where we've got that high single-digit, low double-digit kind of growth profile as an organization? That's clearly what we're trying to drive towards. We've done a lot of things this year to get us ready for 2024. We feel we're in a pretty good position to continue to execute that sustainable growth model, driving towards that high single-digit, low double-digit growth profile in 2025.
Excellent. Thank you, Bruce. I think that's probably a good place for us to end it. Again, I wanna thank Bruce and Kirsten for making the trip here to join us in Arizona. Thank you for being on stage with us, Bruce.
Well, thank you. It's great to be here.