Earnings Call: Q2 2021

Aug 16, 2021

Greetings, and welcome to the Paysate Second 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. It is now my pleasure to introduce your host, Kirsten Nielsen, Head of Investor Relations. Thank you. Please go ahead. Thank you, and good morning. Welcome to PaySafe's 2nd quarter 2021 earnings conference call. With me today are Philip McHugh, Chief Executive Officer and Izzy Dawood, Chief Financial Officer. Before we begin, a friendly reminder that this call will contain forward looking statements and should be considered in conjunction with cautionary statements contained in our earnings release and the company's most recent periodic SEC report. These statements reflect management's current beliefs, assumptions, expectations and are subject to factors that could cause actual results to differ and securely from those forward looking statements. Today's presentation also contains certain information that will constitute non GAAP financial measures under SEC rules. You can find additional information about these non GAAP measures and reconciliations to the most directly comparable GAAP financial measures and today's press release and in the appendix of this presentation, which are available on the Investor Relations section of our website. With that, I'll turn the call over to Philip. Thanks, Kirsten, and thanks to everyone for joining us. After another successful quarter, we are pleased to announce a Strong set of financial results, several key strategic wins, continued progress on our cost transformation They're 2 exciting and complementary acquisitions. Let me begin with the financial highlights. Payment volumes grew 41% to $32,000,000,000 in the 2nd quarter. Reported revenues were $384,000,000 an increase of 16% pro form a when excluding the PayLater divestiture. On an adjusted basis, excluding the direct marketing business, PaySafe grew at impressive 23% compared to the prior year. Before we move on to the business update, let me summarize a few highlights upfront. In North America iGaming, we recorded strong volume growth of 72 Outside of iGaming, we won multiple deals in fast growing digital commerce verticals. Across digital goods, Crypto, financial services and travel. We saw revenue growth of 30% in the second quarter. We continue to see the combination Our e commerce gateway with digital wallets, online banking and e cash solutions is a true differentiator in the market We continue to see a very strong pipeline for growth. On our transformation program, we delivered $17,000,000 of cost reduction year to date I guess a full year goal of $30,000,000 so the team continues to identify new opportunities. Additionally, we're really excited about 2 acquisitions we recently announced. Combined, Agofectivo and SafetyPay gives a market leadership position in Open Banking And e cash solutions in the fast growing Latin American market. These transactions are expected to be accretive to 2022 And further enhance our long term growth as we drive multiple cross selling opportunities across all Paysafe business units. We also announced that Chirag Patel will join Paysafe next month to lead the digital wallet business. Chirag joined his consent center group for his Global Head of Payments And prior to that, as international payments at Amazon, Chirag brings over 20 years of industry experience, and we're really excited to welcome him on board next month. On a final note, I mentioned a 23% adjusted revenue growth. To put this growth into context, during our Q1 call, we talked about exiting a discrete set of direct marketing clients at the beginning of the year, and now we are in a transitional period as the market adjusts to their compliance. While the 10th win is immaterial to total volume, it impacts revenue and margins given the relatively high take rate of the business. So we think it's helpful to provide this color. We'll cover this later in the presentation, but we're already seeing signs of a strong recovery and see this business as a tailwind in the Q1 of 2022. With that, let's move on to the strategy. Paysafe is a truly unique payments company and just a quick snapshot of how we think about the breadth In-depth our solutions. We offer the complete spectrum of payment solutions from card processing to digital wallets, e cash And now especially with the acquisition of Cyber Protect Team and SafetyPay Open Banking solutions as well. We combined this threat to payment solution with strong risk management And a focus in deep verticals. It starts with our position as a global leader in iGaming with a focus on winning the fast growing U. S. And now Canadian market. However, we are seeing the combination of our payment capability driving a growth pipeline in online gaming, Crypto, travel, digital goods and financial services. Finally, we continue to execute on scalable platforms and cost takeout, We're also beginning to execute on our inorganic growth strategy. With that said, let's turn to the North America iGaming. Starting with the market backdrop. The U. S. Continues to gain traction in mobile sports betting and high gaming legislation, while we also started See some strong signs of market opening in Canada. In the United States, 17 states, representing about 27% of the U. S. Population, We've gone live with some form of iGaming and 7 additional states are expected to go live over the next 12 months, Collectively representing about 45% of the population. PaySafe is live in 15 states today. We expect to be live in Wyoming, Arizona and Louisiana And with mobile sports wagers in the coming weeks, we're also eyeing interest in Connecticut and Maryland in the Q4. Collectively, this would bring our total coverage to 20 states, Representing 32 in population by year end. Additionally, we're paying close attention to the timing around Florida and New York, which are obviously big markets. Turning to Canada, we are pleased to see that single event sports betting has been legalized, paving the way for provinces to license and regulate Single event wagering online. At the provincial level, Ontario, which is a population of nearly 15,000,000, Advancing its regulatory framework for competitive iGaming and mobile sports wagering market with expected marketing opening sometime in the first half of twenty twenty two. Paysafe has a long standing history in Canada since 2010, where we have the leading position processing payments for all of Overall, we're seeing positive regulatory momentum, and PaySafe is clearly well positioned as the market leader, Serving more than 1,000 operators globally and with connections to more than 75% of the operators in the U. S. Market. That's a bit on the market. Let me highlight a few key points on how we're delivering. It starts with our growth. As stated earlier, we saw North America And revenues grew 48% in the 2nd quarter on the back of continued momentum and new client wins. In May, PaySafe was recognized as a leading payments platform at the eGamingReviews North America Awards. In July, we announced a partnership with WinBet integrating our payment gateway across 4 U. S. States. We continue to expand our presence in Michigan where we went live with Golden Nugget in the Q2, and we're looking forward to additional launches later this year. Also in Michigan, we expanded our partnership with Fox Debt, where we have integrated Skrill Digital Wallet and PaySafe Card. Fox Bet is operated by Flutter Entertainment, one of the biggest global gambling operators, and PaySafe has been supporting Fox Bet's flagship sister brands, PokerStars and Betfair globally for more than a decade. Turning to Skrill product enhancements. We previewed on our last call the initiative to Expand the Skrill digital wallet with a focus on VIP players and instant funding capabilities. We are now piloting with 8 brands, including PlayUp, betwildwood.com, bet365, FOX Pet and PokerStars among other major brands. Our product will make the depositing and payout experience truly frictionless for players, giving operators a competitive edge when it comes to customer acquisition and retention. While it's still early days and this is just the first of several planned initiatives, I'm pleased with the progress we've made implementing income deposits And with the feedback from our clients that we build products focused on their needs. Lastly, we continue to strengthen our organizational focus and commitment to North America iGaming. We'll be announcing some exciting talent hires from the industry in the coming weeks. Outside of iGaming, we're seeing Strong growth in winning new customers in attractive ecommerce verticals, including digital goods, crypto, financial services, travel and integrated verticals. In the Q2, revenue growth in these verticals grew 30%. We continue to see growth in online gaming and further expanded our eCash partnership with Microsoft, Integrating PaySafe Card onto XBox. In the Q2, Squirrel went live with Riot Games, which was one of the significant online game publishers. We continue to also see crypto as a major growth driver across our business. Since the Q1, Digital Wallet added 22 cryptocurrencies Available for trade, bringing the total to 37 cryptocurrencies in more than 80 markets, and we are now live on 30 exchanges. Equally, we continue to expand payment processing capabilities in crypto and are now supporting paid exchanges with strong growth in our crypto pipeline. Finally, we're expanding our banking partnerships to further enhance our position as a global specialist acquirer to understand these market needs. In eCash, we continue to win new customers in financial services where PaySafe is becoming a meaningful player, including recent partnerships with Extra Finance, Repay and Intellipay enabled merchants to accept cash payments at over 60,000 retail partner locations across the U. S. Lastly, we continue to see good traction in travel. PaySafe is uniquely positioned to meet the specific needs of travel businesses with our safeguarding solution, Providing more flexible funding and lower overall payment risk to the industry, we're seeing a strong response already, including our recently announced partnership with ARC, And leading provider of settlement service for airline transactions with a network of more than 200 airlines. Now turning to transformation. The playbook we implemented to build fully continues to make good progress driving cost savings and accelerating key initiatives such as our tech migration and banking as a service. This year, we are targeting around $30,000,000 of cost savings, which is about $45,000,000 annualized. June year to date, we delivered $17,000,000 so we're well on track. At the same time, we continue to make organic investments to accelerate growth in USI Gaming and Emerging Verticals and further enhance our risk and regulatory platforms. In banking as a service, we announced our core digital banking platform, Bankable, on which we will further build out banking solutions for our consumers and merchants. We also went live with JPMorgan and signed 2 new banks in Europe to facilitate acquiring and wallet payments for crypto exchanges. Now let me turn to the 4th pillar of our growth strategy, M and A. We've been very active this quarter and announced 2 acquisitions, Tadalupexivil It's SafetyPay, the leading e cash and open banking solutions in Latin America. There are really 3 key messages I want to emphasize here. 1, for Paysafe, This establishes a strategic foothold in Latin America and creates the leading open banking solution for the region. 2, both Aga15 Hood Safety Pay So verticals that are complementary to Paysafe in the areas where we want to grow, including iGaming, digital goods, financial services, travel and e commerce. Lastly, while these businesses are growing rapidly in their own right, we've seen material synergies where we can expand the reach of our e cash business, augment our leading PSP and digital wallets with open banking and cross sell across our international merchant base. We all see opportunities to expand upon their open banking rails into other emerging markets. We look forward to welcoming these companies to the PaySafe family. Before I hand it over to Izzy, I'll make a few comments on direct marketing. As we noted last quarter, we exited a discrete set of clients and referral channels as we entered 2021 based on our views of the market and our anticipation of some upcoming compliance changes. So we're in a transition period this year as we're working to adjust to these new compliance While we're seeing some improvement in the second half of the year, the market pullback is somewhat deeper and wider than we had anticipated. Izzy will take you through the financials, but we are expecting a strong recovery beginning in 2022. In June, Net new merchants turned positive, so we are already seeing solid signs of a turnaround. Overall, we continue to really like this business. It's specialized. It requires strong bank relationships and data monitoring. It's not easy to do, and we continue to invest in this business despite the market pullback, Developing the strongest office to support growth in the space, we see this business as a good tailwind starting early next year. With that said, I'll hand it over to Aze. Thank you, Philip. Let's turn to Slide 11 for a quick summary of our Q2 financial performance Compared to our guidance, revenue was $384,000,000 which came in at the high end of our guidance, driven by a strong U. S. Recovery and continued momentum in e cash. Adjusted EBITDA of $119,000,000 Also at the high end of our guidance. Gross profit and expenses are right in line. Overall, we are pleased with our performance for the quarter. Turning to Slide 12. Volumes were $32,000,000,000 up 41% compared to last year, with growth across all three segments. And we saw sequential growth in both integrated processing and digital wallets. Total revenue for the Q2 was $384,300,000 Up 13% year over year, driven by growth in all segments. Excluding PayLater, which was divested in October Of 2020, revenue growth was 16%. As Philip mentioned, excluding the divested Pay Later business And adjusting for the direct marketing vertical, revenue growth was 23% compared to the prior year, and I will provide further details later in the presentation. Adjusted EBITDA for the quarter was $118,800,000 up 8% versus the prior year. We saw growth and margin expansion in both e cash And Digital Wallet, resulting in an adjusted EBITDA margin of 31% for the quarter. While there is noise in the year over year margin comparison, Including the temporary code related cost reductions in 2020, the decrease in margin compared to prior year primarily reflects Business mix and integrated processing. Lastly, free cash flow was $54,600,000 And 46% conversion on an adjusted EBITDA basis. The lower conversion ratio this quarter was driven by significant tax payments, part of which we expect to be refunded in 2022. Year to date, our free cash flow conversion is approximately 70%, consistent with our expectation of approximately 70% to 80% for the full year. Turning over to Slide 13 for additional details on how we look at the underlying growth for the quarter. As our direct marketing business goes through a transitional year, we believe it's helpful to look through the results Excluding direct marketing vertical and PayLater, revenues grew approximately 23% compared to the prior year, Adjusted EBITDA grew 29%, reflecting over 140 basis points of margin expansion. This performance is consistent with the long term growth thesis of the company and of strong growth and expanding margins. On Slide 14, I will quickly touch on our GAAP results. Net income for the Q2 was $6,600,000 Compared to a net loss of $15,800,000 in the prior year. Net income benefited from a fair value gain of $39,000,000 on the measurement of the warrant liability at period end. This was offset by an increase in interest expense of $20,200,000 reflecting the acceleration of capitalized debt fees as well as income tax expense of $16,700,000 for the quarter. Going forward, we expect an effective tax rate of 25% to 28%. Let's move to Slide 15 for a discussion on our segment results, Starting with eCash. Volumes increased 35 percent to $1,400,000,000 in the 2nd quarter and revenue increased 37% $103,900,000 reflecting extended lockdowns in Europe and associated consumer behavior. Adjusted EBITDA was $43,000,000 an increase of 58%, resulting in adjusted EBITDA margin of 41%, An increase of 5.50 basis points year over year. Moving to digital walls on Slide 16. Volumes were $4,700,000,000 up 3 percent year over year. Revenue in the Digital Wallet segment for the Q2 was $97,300,000 An increase of 7% during the higher crypto and trading activity, normalized calendar sporting events and favorable exchange rates and partially offset by the impact of market exits. Adjusted EBITDA was $46,900,000 an increase of 16% compared to the prior year. Adjusted EBITDA margin of 48% increased 400 basis points year over year. Turning to Slide 17. Integrated processing volume growth was strong, up 54%, reflecting Continued economic improvement led by the U. S. Market and growth across most of our industry verticals. Compared to Q3 2019, Volumes were up more than 40% as well. Revenue for the Q2 was $191,200,000 an increase of 7% compared to the prior year. On a pro form a basis, revenue increased 13% year over year. Adjusted EBITDA was $45,800,000 compared to $50,300,000 in the prior year. Adjusted EBITDA margin of approximately 24% decreased year over year due to merchant and channel mix, including the decline in our direct marketing channel. On Slide 18, we can review our strong performance as you look through the discrete items that impacted growth in the Integrated Processing segment for the quarter. On a pro form a basis and excluding the direct marketing vertical, revenue growth is approximately 28% compared to the prior year. The direct marketing headwind meaningfully impacted margins given the relatively high take rate of the business. Adjusted EBITDA would have increased more than 30%, Reflecting strong operational performance for the segment. Moving to Slide 19, I'd like to take a moment to discuss the take rates across our segments to help address some of the questions we have received from investors and analysts. Here you can see how our take rates by segment have trended over the last few years. Given the consistent Paysafe average of 1.4%, the recent take rate compression has been entirely driven by business mix. Starting from top to bottom. ECash continues to generate a take rate slightly higher than our long term expectation of 7%. Digital wallets has also steadily increased its take rate as we build out functionality and expand to new markets such as FX trading and crypto trading. We anticipate long term take rates to normalize around 1.8 percent for digital wallets. Finally, the take rate in our integrated processing segment Has decreased over the last few quarters from 1% last year to 70 basis points this quarter, driven primarily by business mix within the segment. The pie charts at the bottom of the page show the meaningful shift in volume this quarter to integrated processing, which is driving the overall take rate lower. Turning to Slide 20, we're able to dig deeper into integrated processing. We're seeing robust volume growth from our U. S. Acquiring business, Up 68% year over year, fueled by the macroeconomic recovery, albeit at a lower take rate compared to the prior year. Integrated e commerce has been strong as well, growing at 48% year over year, a steady take rate to around 50 basis points. While U. S. Acquiring growth should moderate from these robust levels, we see strong growth continuing in e commerce, which will further influence take rates and integrated processing. Overall, we're pleased by the momentum across the segment, which is driving absolute growth in revenue and EBITDA for Integrated Processing and the company. Now let's shift our focus to the balance sheet and liquidity on Slide 21. Total debt outstanding was $2,100,000,000 as of June 30, And our net debt to last 12 months adjusted EBITDA ratio was 4.3x, in line with Q1. In June, we successfully refinanced our existing debt by accessing the long term loan market and added the high yield market As a new source of liquidity for future needs, we also increased the size of our revolving credit facility to $305,000,000 With our recently announced acquisitions, we expect our pro form a leverage to rise to approximately 5.3x. We remain comfortable with this temporary increase as the deal synergies in our growth profile will allow us to delever quickly and meaningfully make progress in 2022 towards our target of 3.5x adjusted EBITDA. Now transition to guidance starting with the full year on Slide 22. We are reaffirming our guidance for the full year. We continue to expect revenue in the range of $1,530,000,000 to 1,550,000,000 dollars and adjusted EBITDA in the range of $480,000,000 to $495,000,000 excluding any impact from the 2 acquisitions. On Slide 23, we have provided a supplemental view on our expected 2021 performance. Excluding PayLater and direct marketing And using the midpoint of our full year guidance, revenue growth is expected to be roughly 14% with adjusted EBITDA growth over 20%, Reflecting strong margin expansion. These growth metrics and margin expansion are in line with the long term growth thesis. Now turning to the Q3 outlook on Slide 24. For Q3, we expect revenue of $360,000,000 to $375,000,000 on a reported basis. We expect continued strong growth in our Integrated Processing segment and a return to normalized post COVID seasonality With quieter summer gaming activity in the European markets, we see a moderation in the growth rate in eCash and digital wallets. Gross profit is expected to be between $210,000,000 to $220,000,000 and adjusted EBITDA between $95,000,000 to $110,000,000 We expect to return to double digit growth in the 4th quarter coupled with strong margin performance as well. This reflects continued strength in integrated processing, including the onboarding of several new e commerce clients in late Q3 and early Q4, stronger growth in digital wallet, as well as sequential improvement in direct marketing. I will now turn the call back over to Philip for closing remarks. Thanks, Izzy. In conclusion, we are really pleased with a strong second quarter. We really like the momentum we are seeing in North America iGaming. We're excited about the building pipeline in some of the faster growing emerging verticals and happy with the disciplined execution on our cost program. We see good signs of recovery and a return to growth in direct marketing. And we're especially excited to welcome SafetyPay and Tagafetiva to the Paysafe family And we had additional opportunities for growth. Putting all of these pieces together, we continue to execute on our strategy Thank you. Ladies and gentlemen, the floor is now open for questions. Our first question is coming from Dan Perlin of RBC Capital Markets. Please go ahead. Thanks. Good morning, everyone. I wanted to dive in a little bit more on the acquisitions if we could. I know, Bill, you mentioned strategically it's given you kind of a Foothold in the Latin America, you had some complementary verticals and some synergies. But in the context of kind of levering the company up a little bit Over 5 turns. I just want to make sure I understand kind of maybe a little bit more about that strategy and what you see kind of playing out From those 2 in particular over the next couple of years? And then maybe if there's anything else you can provide around expectation during synergies, that would be great. Thank you. Thanks, Dan. It's great to hear from you. Yes, let me give you a couple on I'll give you our view on leverage. I'll talk about the deal basics, I can talk a bit about what we really like about the deal and give color on this synergy. So when we kicked off Paysafe and we started talking about strategy. We talked about doing deals that we would see leverage go up and then we'd see it go back down into that kind of mid-three Got a 3.3%, 3.5% range, and that's 100% our plan, our outlook when we see the performance of those businesses and the Almost at PaySafe overall. So we feel really comfortable on that front. In terms of the deal basics, SafetyPay was $441,000,000 all cash transaction. With PagoFECTIVO, it's about $550,000,000 in total. We expect about $60,000,000 of revenue and $20,000,000 of EBITDA next This year from those two pieces. Historically, the two businesses have had a kind of CAGR the past 2 years About a 55 percent top line growth rate. So they're very fast growing businesses. It gives us In 19 markets, including 11 Latin America markets, principal markets include Brazil, Mexico, Peru, Colombia and Chile, in terms of markets of notes, over 300 merchants and most importantly, 90% bank coverage. So These businesses are predominantly open banking with some e cash in them. And with a single integration, you can access 90% Of the networks for Open Banking Solutions. So that's kind of a snapshot of the deals. What do you like about this, Dan? 1, on a stand alone basis, these are great businesses. They're very, very high growth businesses. They're very successful with a very high demand APM and Open Banking in Latin America. And we see these as big trends. We see open banking as a major trend. We see e cash as a growing demand in Latin America, and we love the bank coverage. So On a stand alone snapshot, we like it. 2, aside from incredibly strong management, We really like that they're in the same sectors. They're growing in iGaming. They're growing in online and video gaming, travel and digital goods. And As we talk to our clients in the U. S, as an example in iGaming, they want to expand obviously in the U. S, they want to expand in Canada, I'd say the majority of our clients have plans to expand in Latin America as well. So this is this does connect globally in an order way. And then on a synergy basis, I really think about it in kind of 4 or 5 key synergies. 1, there's Clearly an obvious merchant cross sell. We have global clients where we can plug Latin America Into those relationships and vice versa. They have some strong clients that can plug into North America and Europe. 2, augmenting our wallet and our gateway. When you Plug in open banking, you create a really, really effective way to pay, to accept payments in a gateway, to fund and pay in and pay out on a wallet Very competitive. 3, we really like the Pago, Effectivo and SafetyFam Synergies amongst those two brands as well. So There are 2 competitors in the market, and this gives us a really good scaled position there. And then just two last points. There's some nice Treasury synergies, we put these companies together. And we also like the fact that combined with our e cash business, We have over 1,000,000 distribution points in 60 countries now. So that's that hopefully gives a better context of color on the deal. That's great. Thank you very much. Thank you. Our next question is coming from George Moholyov of Cowen. Please go ahead. Hey, guys. Good morning and thanks for taking my questions. I guess firstly, Izzy, I want to make sure I understand sort of the Q3 guide. Can you maybe help us What the expected growth rate would be on a normalized basis, sort of factoring out the direct marketing and obviously some of the other rollovers? What would that have implied if we didn't have those impacts? Yes. George, good to hear from you. Yes, let's dig into that. So obviously, we're seeing the recovery in direct marketing as Philip talked about. Once I got once you've taken to the impact of direct marketing in Q3, you're roughly about 10% to 12%, 10% to 13% Year on year growth in revenue. Again, as I've mentioned in the entire call as part of our conversations that July, August is going to be interesting Post COVID to see what kind of activity we see. And we are seeing the seasonal quiet activity. There's a positional slate of A lack of like sporting events in Europe. We're seeing all folks on vacation. So that's what we saw, and that's kind of what informs our Q3 guide For the most part. Does that kind of provide a little additional color there, George? Yes. That's actually exactly What I was looking for is just to kind of get an apples to apples comparison. And then if I may, just two more questions. I'm curious, I think the U. S. Volumes being up 68%, so nice to see the strength there. I'm curious if you can talk a little bit about what you're seeing In Europe, maybe kind of post 2Q, how some of that reopening may be sort of playing in? And then last question for e cash. Should we be assuming that growth is maybe somewhat flattish year over year in the Q3. Appreciate the color, guys. Thank you. So I'll grab a little bit of that and then maybe you also So in Europe, a couple of things going. So we did see kind of a post COVID reopening. The markets really opened up after a much more stringent lockdown and certainly kind of our U. S. Comparison. Yes. That's kind of create some softness in the kind of online gambling space in the summer months, in addition to what we Consider regular soft seasonality in the summer as well. So we are seeing that, 1. 2, on the ECAS side, it's been an incredibly strong story. We do see that tempering down and we've been very consistent about that. So we are starting to see signs of that slowing down. On the flip side, our e commerce business, our integrated e commerce business is seeing an extremely strong pipeline of growth as we expand and build up a pipeline of new clients. So that's also creating some nice outlook for us as well. So you have a couple of things happening across Europe and kind of international markets. Yes. And just to kind of close that out, just specific on e cash. Yes, definitely seeing that temper down. We're not going to see 30 plus percent growth, but we still see a pretty strong growth year on year in Q3 In the business, the work that Udo has been doing and the team has been doing in terms of greater engagement with credentialized Our customers alike is still driving our year on year growth, at least in Q3. Very helpful. Thank you. Thank you. Our next question is coming from Jason Kupferberg of Bank of America. Please go ahead. Thanks, guys. Good morning. Maybe just to build on one of George's questions a little bit more, can you maybe call out some specifics around quarter to date Underlying acquiring volumes that you're seeing, whether it's kind of in store versus e comm, just in light of the variant? I know there's a lot Interest in terms of what's happening in recent weeks? Yes. So we don't have the in store versus online handy, but we You can say like, OX volumes received pretty consistent with July. I mean, it's slightly up to flat. So we're seeing the momentum continue For the Integrated Processing business, and we feel pretty good about that overall. Yes. We haven't noticed the dip because of the delta variant coming We remain pretty positive on how the U. S. Acquiring and SMD is performing. Okay. That's good to hear. So on the EBITDA margins, I think, for Q3, it looks like at the midpoint, you'd be around 28%. And as you alluded There's a pretty big ramp implied in Q4 to get to the 32% target for the full year. So I know you've dialed off a couple of the dynamics Driving that, but can you just drill in a little bit regarding your visibility on that acceleration in margin in the 4th quarter? Thanks, guys. Yes. Jason, I had two good questions in there. So you're right. On a reported basis, the margin shrinks, but similar to what we did in Q2, I will provide a look through on direct marketing, and you'll see the continued margin expansion. I think you can look forward to that. So again, more details will come as part of Q3 call. On Q4, there are a couple of the like three major things that we think about, right, that drive that ramp up. And again, recognizing that there was probably good comp out there from a seasonality basis for you guys to work with. But there are 3 major factors. 1 is The traditional active gaming activity in Q4, the holidays, so digital wallets growth is pretty solid in Q4. That's one. 2nd, direct marketing sequentially, the headwinds start to abate based on the investments we were making and the market starting to The third, if I could tell you, is most meaningful also is the onboarding of a pretty strong pipeline In our integrated e commerce business, right? We anticipate that we'll continue to drive the growth in absolute revenue as well As we had in Q3 to Q4. Okay. Well, thanks for the color. I appreciate it. Thank you. Our next question is coming from David Sabat of Evercore ISI. Please go ahead. Thank you. Good morning. Could you unpack your take rate expectations for Q3 and Q4 of this year that are embedded in your guidance? And more specifically, Could you walk through your expectations for digital wallet, e cash and integrated processing? And then once we get beyond year end, when should we start to see take rate on average begin to expand again if that in fact is part of your outlook for 2022. Great. So David, a couple of questions, I'm sure, I hope we'll add in towards the end. So we'll talk about 2022 when we have greater clarity, obviously, when the time is right. But we're going to take rate, what do you call, And Pat, if we continue to see really strong growth in the Integrated Processing segment and Integrated E Commerce, Naturally, we'll see the denominator effect lower the cake rate. But as we showed in the slides, the cake rate by Each of our individual businesses are sitting pretty solid, right? So it really becomes more of a denominator effect when the growth is. And If it's going to drive absolute revenue growth at or higher than our expectations, I think we'll be pretty happy about that, right? It's just a matter of where We see more activity or more basically more stickiness with our customers and growth as well. So that's one aspect on take rates. In terms of the outlook for the rest of the year, again, digital wallets growth will help take rates, Direct marketing will help take great and then integrated e commerce and integrate process and growth will hurt take great. It's just a matter of the dynamics, Right. And by the way, right now, the growth towards or the focus on absolute revenue growth has been kind of pretty good for us, and that's kind of where we're staying focused. Yes. I think we gave a lot of detail on the take rates. Trudy unpacked that. We said we felt that was important to share going. And In the individual business lines, we're seeing consistent take rates. So it is a mixed business. And as Izzy said, some of that e cash slowdown, E commerce growth, those are big mix issues that are ultimately the direct marketing recovery as we go into early next year, That will be a tailwind on revenue but also on take rate. Understood. Would you expect e cash take rates To sustain at the 7.3% level? No. Actually, we expect it to come down a little bit towards we plan to achieve the target of 7%. The last couple of quarters have been higher as we've just seen some additional fees come through. But David, I think 7% is kind of where we kind of want to plan for on a medium to long term basis. Understood. Thank you very much. Thank you. Our next question is coming from Jamie Friedman of Susquehanna. Please go ahead. Hi. So good job with these slides and with the discussion. I really like Slide 20 and Slide 23. I just wanted to ask though, generally, are you comfortable with the March 9, Analyst Day guidance on Page 37, out 3 years, Is that 2023? Are you still comfortable directionally with that? Directionally, absolutely. Jamie, as we talked about a long term thesis, Right. And I think it's showing through in our kind of adjusted results as we've taken out direct marketing Pay Later Yes. Mid to low teens revenue growth, high teens EBITDA growth, it's definitely coming through as we work through this Transitional to direct marketing. So yes, and that's what our long term outlook also showed, that range. So yes, so far to date, we're pretty comfortable with the overall outlook. And then, Phil, in your prepared remarks, and I don't have it exactly, I apologize, but You said something to the effect that direct marketing was, correct me if I'm wrong, a little bit worse than you had thought. So can you just give us a sense of what you had thought and why it's worse? And if you can't quantify it, just like what if you can unpack that a little bit relative to what you thought, That would be helpful. Yes. Hi, listen. I'll take that one, Jamie. Yes, just to recap the issue. So in Q1, we did spend some time on the call talking about how we exited discrete client set in the Q1. We talked about a $10,000,000 impact in the Q1, and we said that it would take some Q1 2022 To lap the issue, right? So that should give you a sense of size and scope here. That is 90% The same issue. The marginal comment is, as we've seen the changes in the market, which we anticipated, we have seen some market Softness in general as other players have also adjusted. So there's been some slight pullback in direct marketing investments As the market kind of adjusts back. So that's what we're seeing. So we're seeing just slightly some slight pull down across the market, not just for us. But why we we talked about why we really like this business. We continue to invest in this business. We are seeing a recovery. We've been in lots of conversations with our direct marketing clients, and they are focusing on Reinvesting and go back into the market. There's talk about programs coming back on it at a much higher volume. And look, we have we've got the strongest risk management, very wide set of bank partners, CRM partners, Very strong relations with Visa and Mastercard on this. So it puts us in a really strong position to be that partner when So that's what we're seeing is that we had that discrete set and that's got to work its way through the numbers. Markets Pulled back a little bit because of all the changes, but we see that coming back as the market stabilize and people start to reinvest in direct marketing campaigns. Got it. Thanks for the color. Thank you. Our next question is coming from Dalen Peller of Wolfe Research. Please go ahead. Hey, guys. I want to hone in on the digital wallet growth rate potential, Terminate. When we set off with what we're The quarter at 7%. I know a big part of the thesis on the story is the opportunity on digital wallet long term. And that encompasses both the digital wallet side and the The utilization of e cash as well. But when we think about versus the 7% and bridging that, whether it's anniversarying the referral partners or all the new Products in crypto or the U. S. Opportunity to something that I think is more well into the double digits you'd expect sustainably. Can you just walk us through that Those steps to get from 7% to potentially low to mid teens or something along those lines. Hey, Darren. Great question as always. So yes, obviously, again, in the Q1, we talked about exiting some of those network accounts in some specific markets. It's about $20,000,000 headwind in the Q1 is what we kind of talked about. We're still seeing some of those impacts in the second, third quarter, albeit at a lower level, and that's why it's turned from kind of a negative growth to a positive growth. But when they because the long term thesis, we really think about Three things. One is just the core customer growth as we lap some of these legacy issues and you get back to Some good strong and steady growth. 2, it's obviously U. S. And Canada are 2 markets that are opening up. And in fact, Latin America is an area where high gaming is growing. We do have some good positions there, Some good customer bases. So we see the geographic pieces creating some nice lift. And the third one is really crypto. We really do like this business. We see it more and more as becoming a major payment rail over time. We see it very similar to where iGaming was, let's say, 10 years ago. And so we like that positioning. The digital wallets is very well positioned there as driving sign ups. So those are really the 3 big factors. When I do the math, it goes back to kind of consist of 50 plus percent growth. Yes. And Darren, I think you'll see it on 2 other aspects. Yes. In Q3, we start seeing that seasonal quieter activity just because there are fewer gains. But Q4 is where now we're expecting the full kind of good Comparisons start showing up, but we start seeing the double digit growth in digital wallets revenue. And just timing on that would be what, next year in your views or in 'twenty two? For the we'll start to See a good Q4 with some initial double digit. And then in 2022, we'll start to see some more consistent growth. Okay. And then just quickly on the overall guidance, just how should we think about volume guidance for the year, just given the moving parts All the different puts and takes. I think you had previously said about $100,000,000,000 to $110,000,000,000 for the full year. And then just to if we could just finalize on the Guidance for Q3. We're still getting investor questions on the puts and takes there in terms of just making sure we had it straight because it seems like if you incorporate kind of Somewhat around mid teens growth in terms of merchant or even high single digit in the wallet side, the digital side. It's hard to get to numbers Where you're guiding, it just seems pretty conservative unless we're missing something. So just maybe remind us of all the any element of conservatism The outlook that you're putting in there, just how if we're missing anything. Sure. So a couple of things. One is on the volume side for I'll just tell it's full year. Yes, our volumes are going to come in meaningfully higher. We think probably closer to Yes, dollars 130,000,000 to $140,000,000,000 actually for the full year. But again, that's just depending on how quickly or how Fast and integrated processing really grows, but it's definitely higher than what we thought earlier in the year. That's one. Regardless of puts and takes on Q3, I'm just digging into that, Darren, a little bit more. E cash, obviously, we expect in the, I would say about 8% to 10% year on year. We see integrated processing also, and this Includes everything about I mean, it was 10% to 15% on integrated processing. Digital wallets Year on year in Q3 will be a little weaker. Again, it's just a challenging comp because Q3 2020 really had a Sponsored sporting events and lockdowns in Europe and Q3 this year is effectively going to be Very quiet, seasonally and as expected. So Q3 year over year comps basically is a decrease likely in revenue, Yes, effectively, just slightly lower than Q2. That might be the nuance. Okay. Thanks, guys. Thank you. Our next question is coming from Josh Levin of Autonomous Research. Please go ahead. Hi, good morning. I'd like to ask a follow-up question on your Latin American expansion. A few months ago, I guess back when the deal was announced in December At your analyst presentation back in March, I remember the growth story here really being about seizing the U. S. IGaming opportunity. So the LATAM expansion strikes me as a bit of a change in strategy. Is that accurate? And if so, what has caused your thinking on LATAM to evolve? And I guess the follow-up would be what how would you describe or what would be PaySafe's competitive advantage in Latin America? Thank you. Thanks, Josh. I wouldn't call it a change of strategy at all. We thought very clearly about 3 buckets, right? We talked about winning in iGaming. We talked about expanding in deep verticals either through APMs Through gateways, those are kind of the buckets of investments we talked about very consistently throughout. We still really like the USI Gaming. We are investing there. If we see the right deal for USI Gaming, we would be Clearly an interested player there. So that doesn't change our strategy at all. What we really like about safety, pay of PagoFictivo is kind of what I talked about earlier. One, when I look at the APMs, we do credit and debit card processing. We provide digital wallets, have great pay in, payout capabilities. We offer e cash, and more and more we see open banking and crypto as incredibly important payment rails. And when you do this, You're really completing all of the payment options for a merchant to grow. We see this in iGaming. We see this in a lot of our emerging verticals. So So as we started to look at the deals, we got closer and closer. We really started to get more excited about it. It's sort of initially, there's an e cash cross sell. That's a nice play. But more and more, the verticals they're in, they're in iGaming. The clients that I have in Europe, that we have in the U. S, they have LatAm strategies. We can provide that now. So a single integration It can get you a much broader set of payments across more and more markets. So it is driven by our client needs and there's lots of common overlap 2, we think open banking is a pretty major trend. It's a very attractive Payment form factor and we think expanding that Latin America into other emerging markets It's strategically very important. It definitely complements our iGaming position. It definitely complements our Kind of emerging vertical position as well. So those are the real drivers that we really like from a strategic point of view. Thank you. Thank you. Our next question is coming from Timothy Chiodo of Credit Suisse. Please go ahead. Thanks a lot. And echo Jamie's comments there on the slide. Slide 20 is pretty helpful. I appreciate that. I'll come back to a follow-up on that one, but quickly on the guidance. And I know we kind of hit on this earlier. I just want to drill in a little bit more. Relative to when you last reiterated the full year guidance at the last earnings call, how has your Take on the mix between Q3 and Q4 shifted. In other words, is this roughly the seasonality that you would have expected? Or Are there some things that are happening under the hood that are positive that are giving you more confidence in what would seem to be a slightly implied higher Q4 exit rate heading into 20 Yes. Tim, great question. And you're right, if you recall, we did talk about seeing how July, August kind of play out, In terms of it's going to be anywhere close to 2020 or seasonally quieter Compared to prior years, so this is always kind of what our expectation was if COVID post COVID recovery comes through. We'll see, obviously, quieter activity in Europe, Which you're seeing, and then a robust rebound in Q4. So relative to how we're planning and thinking about it, Historically, how we've seen the gaming activity, this is kind of where we thought it would play out. And to your second point in terms of an exit rate in Q4, Yes. We feel pretty confident about that. Granted, there is some going to be some seasonality that drives it. But overall, given the recovery in direct marketing And the real strong pipeline in our integrated e commerce business gives us a pretty good confidence walking into Q4. Okay, great. Thank you, Izzy. The follow-up is on Slide 20 on the integrated e commerce segment, the Take rate there in the 50 to 60 basis points range. Could you just recap for us again the reasons why that it's a little bit lower than U. S. Acquiring? And is it things like gateway mix, I think, is a big part of it, but also is there large merchant mix? Is there something with the verticals? Just a little more context on why that e commerce take rate is a little bit lower than U. S. Acquiring? Yes. I'll take that one. I think it's really important to call out. So the U. S. Is a scaled very scaled U. S. SMB player, So we're dealing with the smaller end of merchants with a mix of card present, card not present. So that The take rates you see there are very much in line with where the industry sits in the U. S. Market. Our e commerce business, it is global. It is focused on specialized verticals. These are larger international 100% E commerce Merchant, right, so 100 percent digital. There is no card presence business here. So that's the profile of clients. It's iGaming clients. It's video gaming. It is crypto trading clients. It's travel. That's the type of sectors that we're looking at. We can process in multiple markets the mix of our gateway with single API, plugging in e cash and digital wallets and other APMs, Risk management, that formula is really, really working. And so what you get is this is larger scale e commerce, so the margins are lower, like the take rates are much Lower, but because they're international and fairly specialized, you kind of land more in the 50 to 60 basis points versus, let's say, the 30 to 40 basis points for an e retailer, if you will. So that's the profile of that business. And we do see Continued growth, very strong growth in that channel. We like what's happening there. Thank you, Philip. As a quick follow-up though, within that though, is there could you give a rough sense of what portion of that is gateway only versus The portion that's taking acquiring risk? It's a good question. I don't have that to hand. We can follow-up with you on that exact split. It's going to be a fairly significant portion we'll have acquired on it, but I don't have the exact Split, Tahan. So we can follow-up with you to give you that breakdown. Okay. Appreciate that. Thanks for taking those questions. Thank you. Unfortunately, we have run out of time for questions today. I would like to turn the floor back over to Mr. McHugh for closing comments. Thanks. Look, thanks everyone for the questions. We look forward to plenty of follow-up calls and conversations. I'll wrap it up with a follow-up. Look, we really like what's happened in Q2 and the execution of the numbers. We're particularly excited about delivering in iGaming and being the de facto winner in the U. S. Market. We really like the pipeline and the growth We're seeing in our emerging verticals. When you combine our e commerce, you combine our digital wallets, you combine our e cash And now Open Banking. We think we have a mix and a formula that is winning in some very, very valuable areas. We don't like the direct marketing noise does to our numbers, but we really like the business and we see that as a tailwind coming in next year. But overall, when we look at the pipeline and the direction, we feel very confident on the direction. We feel very confident on the long term thesis as well and look forward to continuing to tell that story. Thanks, everybody. Ladies and gentlemen, thank you for your participation. You may disconnect your lines or log off the webcast at this time and have a wonderful day.