Good to go? Cool. All right, well, good morning, everyone. Thank you for joining us here at the Wolfe Fintech Forum. My name is Scott Wurtzel, I work on the fintech team here at Wolfe. Happy to have Bruce Lowthers, CEO of Paysafe, here with me, for another year. Thank you for joining us, Bruce. Maybe, you know, just to start off, there could be some people in the room who are unfamiliar with Paysafe, maybe just start off by giving the audience a quick overview of the business.
Yeah, thank you again, for the invite to be here. It's great to be here, again. Paysafe is a 25-, 26-year-old company. We are really, one of the largest, merchant acquirers in the U.S. 55% of our business comes from merchant acquiring. Then, we also have a wonderful, digital wallet business as well , that business really consists of two components. One is a actual digital wallet, a classic digital wallet of Skrill and Neteller brand, that has been in the market for a very long time. Then we have a eCash product, which is one of the largest, cash networks across Europe.
Think of that as much like a conversion of cash to digital currency, which then they can go purchase video game gear, or place a bet, or buy something in a store. G reat business, we ended up 2023 $1.6 billion in revenue with 7% growth year-over-year. We had nice margin expansion in 2023. I think it overall was a great transition year for us. We were allowed to really execute at a high level in our transformation.
P robably from a street perspective, it was really important for us to meet or beat the major financial metrics that we put in place at the beginning of the year, we were happy to be able to deliver on those for 2023. O verall, a very solid year. Very proud of the team working through a tremendous amount of change and really positioning us for growth in 2024.
Gotcha. You know, speaking of 24 and just thinking about strategic priorities, can you talk a little bit about kind of where you're spending most of your time right now and sort of the top priorities for the company over the next 12 months here?
Yeah, I think as we walked through in the call just a week ago, you know, we really were focused in 2023 on a couple of things. We talked about our sales transformation quite a bit. We talked about bringing our product organization together. We really spent a lot of energy around operational metrics Trying to drive efficiency across the organization and get better at the operational components of what we do. I think we had a lot of success there, a lot of green shoots on positive developments throughout 2023 that allow us to now focus on scaling. When you look at kind of the growth profile from a top line perspective, we really were at, in 2021, a 4% growth. We talked about 2022 being a 1% growth.
We went to 7% growth, kind of on a gross basis in 2023. Some of that obviously fueled by interest income and FX, still a 4% growth profile for us in aggregate when we look at that business. An acceleration from 1% to 4%, really good, good progress. Focusing in on the first couple of things, right? When I came in, there was lots of questions about the classic digital wallet, the Skrill and Neteller product, were those still relevant? Were they going to be able to grow? They had been coming through a couple of years of no growth, returned those to growth in 2023. I heard a lot of questions about our e-commerce The merchant side. It had been declining double digits for two years in a row.
Were we going to be able to get that going? Were we going to be able to have success in the marketplace? A s you saw in the earnings call, we did get that turned around. We had 29% growth in our e-com business in 2023, we expect that to continue as we go into 2024. As we lined up on 2024, we said: Okay, we got some good things going nowWe focused on the classic digital wallet The e-com piece because those were really, like, our high flyers, right? Those were the high-margin businesses that we needed to really have growing to have the growth profile as a company that we wanted. Then we could focus in on some of the smaller things, things we know we can fix, right?
W e had some growth that we needed in our SMB direct portfolio, we needed to fix the growth in our eCash business. t hose are the things that we're really kind of focused in on from a business line perspective as we go into 2024. Obviously, we'll still continue to put a lot of energy around the classic digital wallet in our e-com book. Our ISO or third-party channel SMB book, as we talked about just last week, growing very well, growing at 11%. It's very solid. We're running there right with everybody else in the marketplace, really good performance out of that team. It's now just isolating down on the SMB direct and isolating down on the eCash piece.
Gotcha. To kind of dig in a little bit to that further, I mean, you talked about an incremental $25 million in investments, and, you know, on the call, you alluded to talking about hiring more people on the sales side, also talked about some interesting and, you know, pretty quick payback periods on that. I'm wondering if you can maybe dig into those investments a little bit more, where they're going to be going, also just the timing on the payback periods there.
Yeah, I, I think it's important. We, we made a conscious decision to, to invest the $25 million. I think our guidance, if we didn't make that investment, would've been north of what kind of the, the street had as the consensus for 2024 on the bottom line. Obviously, our revenue guidance was, was kind of in line with what, you and your peers had, had lined out. I t was really about the EBITDA piece, That $25 million was a conscious decision for us because we believe that it positions us in 2025 to really accelerate growth. That $25 million is going to generate a $100 million in 2025 for us, in revenue and profitable growth for us. We're very bullish on the spend. We think it's a very quick payback.
I think the other part that we probably need to really emphasize is it truly is a one-time spend. So, when we look at our margins for 2025, we expect to be at or above where we told you we were gonna be two years ago or March of last year at our Investor day. We believe that those margins will be right there in that 29%-30% as we're coming into the year, 'cause this is truly a one-time spend that has a significant revenue uplift for us as we move forward.
Gotcha. That's helpfulI guess now kind of moving more into sort of the growth drivers of the business, and, you know, I feel like we talk about it every year, t he North America iGaming and online sports betting opportunity, you know, we continue to see states and provinces across the U.S. and Canada continue to, you know, go through the legalization process. There's other states where legislation is in their respective, you know, houses and senatesMaybe can you just talk about how much kind of white space there is still remaining on the North America iGaming opportunity? And, you know, how Paysafe specifically is helping merchants and consumers in that vertical.
Yeah, look, this is an exciting vertical for us, right? As gambling has come mainstream, it's really early innings still. A s you said, we're in 30 states slash territories. You know, you can see another 20 obviously will come online at some point in the future. E ven within those 30 states, they're all just starting.
Yeah.
Like, this is just starting to go. I mean, we had really a great success in the Super Bowl, and seeing that volume tick up in the Super Bowl was really fun to seeIt creates new challenges for us, right? Because we're dealing with different things. I was just talking about this earlier, is we're not dealing with things that are broken or why things didn't work. We're starting to deal with more of success problems, scale problems, volume growing 10x from what we thought it was going to be, in our Super Bowl weekend. H ow do we deal with that capacity planning? How do we deal with our platforms? These are the things now that we're starting to deal with.
How are we dealing with Rob's team, generating more leads and driving more into our onboarding process Those type of things? So, very excited about the gaming space. Very, very early innings. Lots of headroom in front of us, we feel very good about what we're doing there. We offer a great broad array of access to payments. We have deep knowledge in the space. We're kind of the go-to guys you think of.
Yeah.
We've got 20+ years driving online gambling activity because of our lineage in Europe.
Yeah.
W hen all of these big guys are moving into the States, they already have an existing relationship with us, we're a natural place for them to land.
Gotcha. And, you know, just a little bit kind of building off on that, I mean, you know, what do merchants and consumers in the gaming space really value when it comes to whether on the merchant side, you know, a payment processor, or the consumer side, someone who's providing a mechanism to put money in and money out? What are merchants and consumers sort of really looking for in that space? 'Cause I know it's a little bit different than, you know, maybe regular e-commerce or other verticals that, you know, either you or peers may play in.
Yeah, I, I think there's a couple things. When you look at the, the gaming space in whole, as in aggregate, what you're really looking for is someone that truly understands the space. I think when you look at the travel industry as well, what you're looking for is a provider that truly understands the, the intricacies of travel. When you're looking at the gaming space, you're looking for those same things, people who are really proficient at global regulatory environments and, and how to manage really complex AML issues that are evolve. We fit that bill, the other thing that the operators are looking for, they candidly look at us in many ways as a consumer acquisition strategy. How do we drive more consumers to their platform?
That's what really Skrill and Neteller and paysafecard, SafetyPay, that's what they do, is they, help facilitate that channel for them. So, I think when you look holistically from, the acquiring side and our consumer businesses, we fit kind of what they're looking for in single APIs that allow access to broad sets, of payment types and access to consumers.
Gotcha.
I think the consumers have a little bit different and maybe a conflicting mindset, right?
So, when I listen to my son play or others play, what they are looking for is ease of use of moving money from one game to another game. Like, he doesn't just play Fortnite. He'll play Roblox, and he'll play a whole series of games, and him and his guys are moving from game to game. Our gambling folks are doing the same thing. What they want is ease of use into maybe placing a bet at one operator on one day, maybe they're in Florida, The only place they can place a bet in Florida is with Hard Rock, they need to be able to move money over there, we help facilitate that.
Gotcha. That's helpful. Y eah, speaking of sort of the consumer side of the business, I mean, on the classic digital wallet, you know, you've continued to make progress in terms of, you know, sort of turning around the business. We've seen engagement, transactions per active user continue to increase. And, you know, can you just talk about, you know, what you've sort of done over the last 12-18 months to really increase engagement on the wallet and drive, you know, more transactions per user there?
Y eah, I, I think we've really had great progress over the last 12, 18 months on that, on that wallet, right? I think what we've been able to show is, there's still a real relevance around that product, and our focus on user experience has really paid off. As you just said, we've had lift in every material metric around that digital wallet. The number of transactions are up, the ARPU is up, the satisfaction scores are up. R eally a lot of progress around usability of that product. As we look into 2024, the things that we're launching in there, right, are messaging through our app that we're now communicating directly with the end consumer, which is pretty cool.
We have a sports corner, where now in the app, you'll be able to see, like, the bet of the day or what's going on in the sporting world on that given day. We've got a new loyalty program that's been refreshed and upgraded and driving by market, distinct loyalty programs by geographic market. N obody's really done that before. It's not a just one-size-fits-all. It's relevant for Germany, it's relevant for Peru.
It's a very unique offering that we're putting a lot of energy behind to continue to drive that new customer acquisition, and we want to be the default go-to place for that market.
yeahIf we think about that new customer acquisition and kind of the next leg in terms of really seeing that user, that active user base inflect higher, I mean, can you talk about maybe some of the, you know, ways you're looking to do that? You've talked about some new marketing initiatives on the last print, and also maybe some of the new use cases for the wallet and ways to distribute it as well.
Yeah. So, I think we talked in last year quite a bit of how we were centralizing a lot, right? When we came in 18 months ago, the organization was very much a decentralized organization. We really started bringing things together. Marketing is no different. We saw that we were really siloed in our marketing approach. We've decided to bring that together and really start driving metrics behind that, our cost of acquisition, what our LTV is. We've really kind of overhauled that entire marketing program, and we're seeing early results. As we talked about, in the call, we had some new things that we did. We sponsored our first e-sports tournament, That was great. It was 100,000 people had the opportunity to participate in that.
The winners, as they got to the finals, got to compete against one of the very popular influencers. That was pretty cool, and it was a great experienceWe're connecting more with the people who are really interested in using our product. We're moving away from kind of the old-school search engine optimization strategies that we had used that have kind of died. We just didn't move away from them over time. We have a new leader who's really driving a much more creative consumer acquisition model and a merchant acquisition model. I think the other thing is we're getting very dialed in on who the demographic is that we're going after. How we're reaching them is very specific versus historically, a much more general approach to kind of the marketing efforts.
Y eah, the first real campaigns at the end of Q4, we had a 7% lift in our three-month actives, really related to going into a couple of our European markets, and driving some very specific activities that we hadn't done before, we got a lot of success and results out of that. We're very optimistic about kind of what's already happening in Q1. I won't get ahead of myself, w e're very excited about the progress that-
Gotcha.
T hat we've made there.
gotchamaybe now if we kind of shift to the merchant side of the business, also staying on the wallet, you know, you've talked about the SMB wallet, and, you know, we think it could be a pretty sort of exciting opportunity for the company. And, you know, maybe just give a little bit of an overview of the product, you know, what capabilities can it bring to merchants? A lso just talk a little bit about the timeline of the rollout, the go-to-market approach, and how, you know, merchants can, you know, benefit from the SMB wallet here.
Yeah, I think a couple things before I, You know, we also talked a lot about the white label wallet.
On earnings day, Xsolla came out and announced their white label wallet-
Yeah.
Which is a payments platform for the video gaming space. It was great to partner with them and help power that wallet as they're moving forward. We see lots of use cases like that. We have a very robust pipeline around the white label wallet, w e're very enthusiastic about continuing to see that wallet expand. On the SMB wallet, the SMB wallet has been launched. It really started in Europe, bringing it to the United States. We've got good, solid growth in Europe on the wallet. Obviously, some of it is more mechanical of just settling your acquiring activity into the wallet. T hen it's around building features around that wallet. You can think of it in a construct of a Clover on a wallet-
Yeah.
W here you can do lots of different things to help manage your business. Access to working capital, or incidental management, or a variety of different things that are helping you operate your SMB in a very efficient manner. Y ou know, all the test cases that we've done have been very well-received. A lot of excitement around it. We've done the soft launch of it. You know, I don't expect any material revenue from it as we go through the year-
I t'll be ramping up as we're moving through the year in the U.S. There's material revenue from the European side as that continues to build, the U.S. business will take a little time to get that rolled out. T he idea is that every one of our merchants, the 300,000 merchants, will all have the wallet. They'll all be able to use it for their respective businesses. That's the goal, That's what we're trying to drive towards.
Gotcha. Gotcha, that's helpfulmaybe sticking to SMBs here, I mean, earlier, you talked about wanting to drive more growth on sort of the SMB direct channel and making some investments around that. C an you maybe kind of compare your presence in sort of the direct and indirect channels, types of merchants that you serve there, and how, you know, sort of driving growth in the direct channel can, you know, help the model specifically really on margins?
Yeah, so, when you look at the two businesses, or our sales channels is probably a better way to say it. When you look at the two sales channels of our direct business and our indirect business, you really see different profiles. When you look at the direct business, we really compete more with Square there than anybody else. As you and I have talked about before, that's a much smaller demographic profile for that merchant. It's about a fourth of the size of the revenue that we get from a channel merchant. What we're really trying to do is shift our focus a little bit. We still want all of those.
We still wanna pile up as many of those influencers as we can, or small businesses as we can, we wanna just shift to what our third-party channel is. That portfolio, as I said, is, it's about a 4x lift on the revenue per merchant.
Yeah.
It's still a small merchant. This is still a sandwich shop or a restaurant, a flower shop. We're just adjusting kind of who we are going after with the direct channel. Our direct channel's selling very well. We have really strong double-digit growth with our sales team on a direct basis, they're very competent at selling through there. It's really just about the turnover of the different types of clients in the two. That's really what we're adjusting for. We're gonna load up. That direct side is a little subscale, if we can get that group a little bigger, we feel like we're gonna be able to really execute and get that business growing on par with our third-party channel. Keep in mind, our third-party channel's growing 11%.
Yeah.
Right? W e're doing exceptionally well in that space. It's now just getting aligned, and bringing... I think the other thing that we've talked about is, when you look at most companies, the direct channel is bigger than the indirect channel.
We're kind of inverse, and we need to bring that in parity. That does another great thing for us. Our margin is also 4x bigger on the direct side-
Yep
F rom our indirect. As we get that right-sized and rebalanced, our gross margin profile changes and gets back in line with, you know, the thoughts that you guys talk about.
Yeah, That's really on the indirect side because of, like, the residuals that are-
That's correct.
Got it. Got it.
That's across the industry.
Yeah.
Everybody that has an indirect channel has that same challenge with their residual book.
M akes sense. Then just on the enterprise side, I mean, you've made a lot of progress in terms of increasing the number of enterprise wins on the company's platform, and I know that was a big focus, you know, coming out of the Investor Day in terms of the, you know, sales approach and organization. C an you maybe just talk about, over the last 12 months, some of those changes you've made to sort of the sales org The strategy, and how that's really, you know, played out since we had the Investor Day last March?
Yeah, look, I love what the team's done. It's, we have real proof points of growth and progress with that team. When we came in, we didn't really have an account management, you know, w e had 800 of our top clients. There wasn't a real strong account management structure around that. When you look at a same store sales on those top 800, they were declining when we came in. Now, after 2023, what you've been able to see is the same store sales have gone up, and we're, you know, retaining 100% or a click above that. The account management structure around the top 800 enterprise accounts has really yielded results for us in that same store sales.
The growth of the team, you'll recall we came in, we said, "Well, we're gonna double the size of that enterprise team.
Yeah.
It was still a small team, right?
W e were gonna grow it from 30 to 60, or I think we're end of the year at 71. We, we've had good growth in that enterprise team, more importantly, what we saw as we were coming into 2022, or leaving 2022, coming into 2023, the contribution from our enterprise sales team was very low. It was, you know, just over $20 million feeding into the 2023 annual revenue stream. When you look at our team coming out of 2023, and you look at the growth profile for 2024-
T hat team is contributing close to $100 million going into 2024. That is a fundamental shift in what we've been able to do, That's why we're so excited when we start talking about, "Hey, we just weren't getting enough at-bats." We can compete and win in with anybody, and we did that in 2023. Now, as we get the team on board, or we get them trained up, and we can see that in six months from hiring, these guys are coming in, They're being productive, we feel very good about what's gonna happen in 2024, and more importantly, as we're driving to 2025, and we're really talking about adding another doubling of that enterprise team, as we're driving into 2025.
Yeah.
It has us pretty excited about 2025 and where we're going.
That's great, that's great. M aybe kind of we can shift a little bit on some of the other verticals that you operate in. We talked about gaming, I know you have a presence in travel. You talked about a little bit financial services as well. C an you maybe just talk about some of the trends you've been seeing in those verticals over, you know, last six to 12 months from same-store sales, new merchant wins, and all that?
Yeah. I think, we've made a lot of progress in those verticals. We've had some nice wins in both the travel industry, the video gaming industry, the FX industry, the... We've had wins there. I think we've had some product issues, candidly, that had really slowed the acceleration of it. We had some auth rate issues as we started to get outside of our main vertical. We've now addressed that, and we've got a team that's driving auth rate improvement, and we've had significant auth rate improvement as we were coming into 2024. We expect that to continue as we're moving forward. That's gonna open up a lot of doors for us. We went and hired seasoned people.
These are people that have had excellent careers, you know, in our industry, that understand it. We've really changed the profile of who we've hired, we've got some really heavy hitters. Now we're lining up product with them that they can go sell and compete, and we feel very good about competing in those verticals.
Gotcha. Gotcha. Now, if we kind of take a step back and kind of go a little bit more bigger picture here. O n the margin side of the business, you talked about the investments The paybacks that those are gonna lead toWhen we sort of and I know that's gonna create a little bit of, you know, maybe choppiness on the margin as we head through this year. A s we sort of think about the medium term, I mean, you know, what's the operating leverage in the business to really drive margin expansion? Is it really centered around, you know, these initiatives on the making more SMB direct versus indirect? There's also obviously the digital wallet The eCash element to, you know, to the business.
Just wondering how, you know, you can kind of paint a picture of the building blocks of margin expansion over the medium term here.
Yeah, I, I think when you look back historically, coming out of 2022 into 2023, we did have a lot of challenges because our high-growth, high-margin businesses-
Mm-hmm
W ere all the ones that were struggling.
Yeah.
Right? W e've kind of rectified a lot of that. We still have more to go. A s we get that S&P portfolio rebalanced, that helps our margin considerably, right? As you see the e-com piece continue to grow, that helps our margin. As we continue to expThe digital classic digital wallet, that will help. Don't forget, e-cash is a huge business for us.
Yeah.
That's got a great margin profile. That has kinda stalled out. We need to get that back growing, and it doesn't have to grow double digits. If we can just get it growing back into single digit, it really adjusts the margin profile of the organization quite a bit. We will focus a lot on bringing new products, as you look out long term, the margin may not stay where it is because we're gonna be introducing a lot of new products. When we go back to, like, 2022, 2021, 2020, when you look over that time period, we had less than 1% of our revenue coming from products that we had released in that time period.
That number needs to get to 14%, and when you're introducing new product, that margin profile is gonna change a little bitWe need the original products to be operating at the level that they're supposed to, and we took a material step forward in 2023 to do that, and we're very bullish on our ability to correct the ones in 2024.
Got it, got itIf we move to capital allocation, I mean, obviously there's a focus on, you know, paying down debt and reducing the leverage ratio right now, the company does have pretty strong free cash, you know-
Mm-hmm
G enerative profile. When we think about just the overall capital allocation strategies, does it really continue to be centered around, paying down debt, or are you starting to look more at the M&A market here as well?
Well, no, for us, paying down debt is still the primary focus for us. You know, M&A is probably not a something that is a realistic thing for us.
Yeah.
If there's something that is, you know, absolutely picture perfect, you know, we might nibble, it, it's, would have to be small. We have very, real constraints of where we are. You know, and, and I don't know that there's a lot of, makes a lot of sense to do unicorn hunting.
Yeah.
We need to just focus on what we're doing, continue to expand our cash flow, pay down our debt, The faster we pay down the debt, the faster it allows us to kind of get back in the game with the other things.
Mm-hmm.
I t remains a focus. We're committed to driving towards the midterm guidance we gave last March of a 3.5 leverage ratio, net leverage ratio. I think, you know, if Alex was here, he would tell you that that's still our top priority, and we'll continue to focus on that.
Gotcha. Then maybe one more before we take questions from the audience. I mean, let's say we fast-forward to December 31, 2024, day end, you say, "Wow, that was a great year." What you know, what would really constitute that in your mind from, you know, for Paysafe?
Well, I think it's just constant improvement. Actually, my team just asked the same exact question on an all-hands call yesterday. The focus for us is to get better. We're not driving to a 6% number or a 7% number or a 9%. We're striving to be the best that we can be. We wanna be kind of the gold standard in our vertical. A s I look at the end of 2024, we will have hit all of our financial commitments that we stated we would go execute on, or beat those. We will have operationally improved that we're capable of scaling to what we believe 2025 and 2026 will be.
We'll continue to add people that believe in what we're doing and are excited about the journey that Paysafe is on.
Mm-hmm. Great to hear. Great to hear. Do we have any questions from the audience in the last few minutes?
Can you just provide some color on the cross-sell capabilities to enterprise merchants and how it's going? Sure. So, when I came in in 2022, one of the things we realized was we didn't have strong account management over our enterprise accounts, it was a little bit worse in that we were very siloed with our sales organization. While we had operators that were buying whatever, Digital Wallet or eCash, our sales team that was the acquiring was never really calling on them, The people that were talking to only sold those one product. There wasn't really any. There was less than 1% of our client, the enterprise client base, that we had multiple products in. It was really a something that we had to change.
We believed that when we looked at the profile of those customers, every one of them could have been an acquiring customer. Every one of them could have been a Digital Wallet customer or eCash customer. We just had gotten in our own way and weren't executing. A t the end of 2023, I believe we had tremendous success moving that. We had 19% of those 800 we cross-sold into, really strong movement with that. We just had a great win in Europe, again, probably getting ahead of myself, which is a major operator that's buying acquiring from us. We're very excited about that The ability now to start going back and forth between the verticals and geographies.
So, still a lot of work to do, I think, Rob and his team and Zak Cutler and Chris Peterson, those guys are really doing an excellent job of digging into those large accounts, trying to understand how to make them successful, and bringing our value forward for them to make that decision. Cool. Anyone else?