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Paysafe Reports Second Quarter 2022 Results

·15 min read

Updates Full Year Outlook

LONDON, August 10, 2022--(BUSINESS WIRE)--Paysafe Limited ("Paysafe" or the "Company") (NYSE: PSFE) (PSFE.WS), a leading specialized payments platform, today announced its financial results for the second quarter of 2022.

Second Quarter 2022 Financial Highlights
(Metrics compared to second quarter of 2021)

  • Total Payment Volume of $33.4 billion*, increased 3%

  • Revenue of $378.9 million, decreased 1%; Revenue increased 3% on a constant currency basis

  • Net loss attributable to the Company of $631.5 million, compared to net income attributable to the Company of $6.6 million, and inclusive of a non-cash impairment charge of $676.5 million

  • Adjusted net income of $37.5 million, compared to adjusted net income of $66.4 million

  • Adjusted EBITDA of $103.0 million, decreased 13%; Adjusted EBITDA decreased 9% on a constant currency basis

Bruce Lowthers, CEO of Paysafe, commented: "Through the first half of the year, Paysafe has delivered financial results in line with our overall expectations, marked by double-digit growth in the US SMB market. I remain very excited to be at the helm of Paysafe as we drive transformational change to unlock our full growth potential with a laser focus on accelerating sales, innovative product delivery and operating at speed. While strong execution has enabled us to absorb headwinds from foreign exchange rates and a soft European gambling market, at this time we believe it is prudent to adjust our outlook to reflect the current macroeconomic environment."

Recent Strategic and Operational Highlights

  • Announced Rob Gatto as chief revenue officer to transform Paysafe's sales engine and ensure exceptional client experiences

  • Continued strong growth from US Acquiring – Q2 revenue increased 14%

  • Launched with additional iGaming operators in Ontario’s new private market – Paysafe is now live with or onboarding 14 operators

  • Won ‘Payment Innovation’ Award at SBC Awards North America, recognized for Skrill USA upgrades to support instant funding of deposits and payouts plus VIP player program

  • Entered Arkansas iGaming market with BetSaracen

  • Integrated Mastercard Send into Paysafe's platform, enhancing payout capabilities in the UK and EU

Impairment of Goodwill

Due to a sustained decline in Paysafe’s market capitalization, as well as current market and macroeconomic conditions, Paysafe recognized a $676.5 million impairment of goodwill during the second quarter. The non-cash impairment charge will not have any impact on the Company’s compliance with its debt covenants, cash flows or liquidity. Additional information about the results of the goodwill impairment test and related disclosures will be available in the Company's interim financial report on Form 6-K to be filed with the SEC.

* Volumes exclude embedded finance related volumes of $13.5 billion.

Second Quarter 2022 Summary of Consolidated Results

Three Months Ended

Six Months Ended

June 30,

June 30,

($ in thousands) (unaudited)

2022

2021

2022

2021

Revenue

$

378,913

$

384,343

$

746,581

$

761,767

Gross Profit (excluding depreciation and amortization)

$

219,926

$

228,565

$

440,491

$

454,952

Net (loss) / income attributable to the Company

$

(631,521

)

$

6,597

$

(1,802,704

)

$

(54,050

)

Adjusted EBITDA

$

102,953

$

118,804

$

206,920

$

232,034

Adjusted EBITDA margin

27.2

%

30.9

%

27.7

%

30.5

%

Adjusted net income attributable to the Company

$

37,541

$

66,372

$

74,802

$

110,016

Total revenue for the second quarter of 2022 was $378.9 million, a decrease of 1%, compared to $384.3 million in the prior year period. Excluding a $18.3 million unfavorable impact from changes in foreign exchange rates, revenue increased 3% compared to the prior year period. Strong growth from US Acquiring, which increased 14%, was offset by declines in Digital Commerce. Excluding the aforementioned foreign currency impact, Digital Commerce revenue decreased 4%, primarily reflecting market headwinds related to gambling regulations in Europe as well as the Russia-Ukraine war. Additionally, in the prior year period, Paysafe’s eCash solutions benefited from comparably strong volumes associated with COVID-19 lockdowns in Europe. These impacts were partially offset by growth from acquisitions completed in the last twelve months as well as growth from new products.

Net loss attributable to the Company for the second quarter was $631.5 million, compared to net income of $6.6 million in the prior year period, largely reflecting the aforementioned impairment charge.

Adjusted EBITDA for the second quarter was $103.0 million, a decrease of 13%, compared to $118.8 million in the prior year period. Excluding a $5.1 million unfavorable impact from changes in foreign exchange rates, Adjusted EBITDA decreased 9% compared to the prior year period. Adjusted EBITDA margin decreased to 27.2%, compared to 30.9% in the prior year period, primarily reflecting business mix.

Adjusted net income for the second quarter was $37.5 million, compared to adjusted net income of $66.4 million in the prior year period. The change in adjusted net income was largely attributable to the same factors impacting Adjusted EBITDA as well as an increase in depreciation and amortization expense, excluding the amortization of acquired intangibles, and higher interest expense, excluding the impact of the acceleration of deferred debt financing expense.

Second quarter net cash inflow from operating activities was $875.6 million, compared to $7.7 million net outflow in the prior year period. Free cash flow was $39.7 million, compared to $54.6 million in the prior year period.

Summary of Segment Results

Three Months Ended

Six Months Ended

June 30,

YoY

June 30,

YoY

($ in thousands) (unaudited)

2022

2021

change

2022

2021

change

Revenue:

US Acquiring

$

187,150

$

164,642

13.7

%

$

356,294

$

317,983

12.0

%

Digital Commerce

$

191,763

$

219,701

-12.7

%

$

390,287

$

443,784

-12.1

%

Total Revenue

$

378,913

$

384,343

-1.4

%

$

746,581

$

761,767

-2.0

%

Adjusted EBITDA:

US Acquiring

$

53,036

$

40,660

30.4

%

$

100,278

$

79,916

25.5

%

Digital Commerce

$

71,722

$

95,064

-24.6

%

$

147,517

$

186,579

-20.9

%

Unallocated Corporate

$

(21,805

)

$

(16,920

)

28.9

%

$

(40,875

)

$

(34,461

)

18.6

%

Total Adjusted EBITDA

$

102,953

$

118,804

-13.3

%

$

206,920

$

232,034

-10.8

%

Adjusted EBITDA margin:

US Acquiring

28.3

%

24.7

%

360 bps

28.1

%

25.1

%

300 bps

Digital Commerce

37.4

%

43.3

%

-590 bps

37.8

%

42.0

%

-420 bps

Total Adjusted EBITDA margin

27.2

%

30.9

%

-370 bps

27.7

%

30.5

%

-280 bps

Revenue Disaggregation

Three Months Ended

Six Months Ended

June 30,

YoY

June 30,

YoY

($ in thousands) (unaudited)

2022

2021

change

2022

2021

change

Revenue:

US Acquiring

$

187,150

$

164,643

13.7

%

$

356,294

$

317,983

12.0

%

eCash (1)

$

95,717

$

103,877

-7.9

%

$

196,829

$

216,793

-9.2

%

Digital Wallets (1)

$

78,818

$

97,269

-19.0

%

$

161,005

$

192,193

-16.2

%

Integrated & Ecommerce Solutions (IES) (1)

$

25,620

$

26,587

-3.6

%

$

48,821

$

50,149

-2.6

%

Intracompany (1)

$

(8,392

)

$

(8,033

)

4.5

%

$

(16,368

)

$

(15,351

)

6.6

%

Total Revenue

$

378,913

$

384,343

-1.4

%

$

746,581

$

761,767

-2.0

%

(1) These business lines are part of the Digital Commerce segment.

Financial Guidance

For full year 2022, Paysafe is now anticipating revenue and adjusted EBITDA to be in the ranges provided below. These revised expectations reflect the impact of foreign currency as well as macroeconomic uncertainty. Excluding the impact of movement in foreign exchange rates, Paysafe anticipates mid single-digit revenue growth for full year 2022.

($ in millions) (unaudited)

Q3 2022

Full Year 2022 - prior

Full Year 2022 - updated

Revenue

$350 - $365

$1,530 - $1,580

$1,470 - $1,490

Adjusted EBITDA

$90 - $95

$440 - $460

$400 - $415

Webcast and Conference Call

Paysafe will host a live webcast to discuss the results today at 8:30 a.m. (ET). The webcast and supplemental information can be accessed on the investor relations section of the Paysafe website at ir.paysafe.com. An archive will be available after the conclusion of the live event and will remain available via the same link for one year.

Time

Wednesday, August 10, 2022, at 8:30 a.m. ET

Webcast

Go to the Investor Relations section of the Paysafe website to listen and view slides

Dial in

877-407-3037 (U.S. toll-free); 215-268-9852 (International)

Reorganization and Recapitalization (the "Transaction")

On March 30, 2021, Paysafe completed the previously announced transaction with FTAC, a special purpose acquisition company, which resulted in Paysafe Limited acquiring, and becoming the successor to, the Accounting Predecessor. Simultaneously, it completed the merger with FTAC with an exchange of the shares and warrants issued by Paysafe Limited for those of FTAC. The acquisition was accounted for as a capital reorganization followed by the merger with FTAC, which was treated as a recapitalization. Following the transaction, both the Accounting Predecessor and FTAC are indirect wholly owned subsidiaries of Paysafe Limited. Upon completion of the Transaction, the common stock and warrants began trading on the New York Stock Exchange under the ticker symbols "PSFE" and "PSFE WS," respectively, on March 31, 2021.

Basis of Presentation

The financial information for the three and six months ended June 30, 2021 included in this press release reflect, and is based upon, information of Paysafe Limited after giving effect to the transaction with Foley Trasimene Acquisition Corporation II ("FTAC") completed on March 30, 2021.

About Paysafe

Paysafe Limited ("Paysafe") (NYSE: PSFE) (PSFE.WS) is a leading specialized payments platform. Its core purpose is to enable businesses and consumers to connect and transact seamlessly through industry-leading capabilities in payment processing, digital wallet, and online cash solutions. With over 20 years of online payment experience, an annualized transactional volume of over US $120 billion in 2021, and approximately 3,500 employees located in 12+ global locations, Paysafe connects businesses and consumers across 100 payment types in over 40 currencies around the world. Delivered through an integrated platform, Paysafe solutions are geared toward mobile-initiated transactions, real-time analytics and the convergence between brick-and-mortar and online payments. Further information is available at www.paysafe.com.

Forward-looking Statements

This press release includes "forward-looking statements" within the meaning of the "safe harbor" provisions of the United States Private Securities Litigation Reform Act of 1995. These forward-looking statements are provided for illustrative purposes only and are not intended to serve as, and must not be relied on by any investor as, a guarantee, an assurance, a prediction or a definitive statement of fact or probability. Paysafe Limited’s ("Paysafe," "PSFE" or the "Company") actual results may differ from their expectations, estimates, and projections and, consequently, you should not rely on these forward-looking statements as predictions of future events. Words such as "anticipate," "appear," "approximate," "believe," "budget," "continue," "could," "estimate," "expect," "forecast," "foresee," "guidance," "intends," "may," "might," "plan," "possible," "potential," "predict," "project," "seek," "should," "would" and variations of such words and similar expressions (or the negative version of such words or expressions) may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. These forward-looking statements include, without limitation, Paysafe’s expectations with respect to future performance.

These forward-looking statements involve significant risks and uncertainties that could cause the actual results to differ materially, and potentially adversely, from those expressed or implied in the forward-looking statements. While the Company believes its assumptions concerning future events are reasonable, a number of factors could cause actual results to differ materially from those projected, including, but not limited to: cyberattacks and security vulnerabilities; complying with and changes in money laundering regulations, financial services regulations, cryptocurrency regulations, consumer and business privacy and data use regulations or other regulations in Bermuda, the UK, Ireland, Switzerland, the United States, Canada and elsewhere; geopolitical events, including acts of war and terrorism, including the conflict in Ukraine, the economic and other impacts of such conflict and the responses of governments around the world thereto; changes in our relationships with banks, payment card networks, issuers and financial institutions; risk related to processing online payments for merchants and customers engaged in the online gambling and foreign exchange trading sectors; risks related to our focus on specialized and high-risk verticals; risks related to becoming an unwitting party to fraud or be deemed to be handling proceeds of crimes being committed by customers; the effects of chargebacks, merchant insolvency and consumer deposit settlement risk; changes to our continued financial institution sponsorships; failure to hold, safeguard or account accurately for merchant or customer funds; risks related to the availability, integrity and security of internal and external IT transaction processing systems and services; our ability to manage regulatory and litigation risks, and the outcome of legal and regulatory proceedings; failure of third parties to comply with contractual obligations; changes and compliance with payment card network operating rules; substantial and increasingly intense competition worldwide in the global payments industry; the effect of the COVID-19 pandemic on our business; the effects of global economic uncertainties, including inflationary pressure and rising interest rates, on consumer and business spending; risks associated with foreign currency exchange rate fluctuations; risks related to developing and maintaining effective internal controls over financial reporting; managing our growth effectively, including growing our revenue pipeline; any difficulties maintaining a strong and trusted brand; keeping pace with rapid technological developments; risks associated with the significant influence of our principal shareholders; terrorism; and other factors included in the "Risk Factors" in our Form 20-F and in other filings we make with the SEC, which are available at https://www.sec.gov. Readers are cautioned not to place undue reliance upon any forward-looking statements, which speak only as of the date made. The Company expressly disclaims any obligations or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in their expectations with respect thereto or any change in events, conditions, or circumstances on which any statement is based, except as required by law.

Paysafe Limited Condensed Consolidated Balance Sheets (unaudited)

($ in thousands)

June 30, 2022

December 31, 2021

Assets

Current assets

Cash and cash equivalents

$

243,533

$

313,439

Customer accounts and other restricted cash, net of allowance for credit losses of $595 and $673, respectively

2,467,780

1,658,279

Accounts receivable, net of allowance for credit losses of $12,152 and $8,642, respectively

150,508

147,780

Settlement receivables, net of allowance for credit losses of $3,388 and $4,049, respectively

110,883

149,852

Prepaid expenses and other current assets

95,100

64,497

Related party receivables – current

3,984

6,492

Contingent consideration receivable – current

2,842

Total current assets

3,071,788

2,343,181

Deferred tax assets

24,961

21,926

Property, plant and equipment, net

12,852

14,907

Operating lease right-of-use assets

24,384

33,118

Derivative Assets

8,788

Intangible assets, net

1,334,529

1,202,204

Goodwill

1,993,451

3,650,037

Other assets – noncurrent

2,283

1,856

Total non-current assets

3,401,248

4,924,048

Total assets

$

6,473,036

$

7,267,229

Liabilities and equity

Current liabilities

Accounts payable and other liabilities

$

222,677

$

211,841

Short-term debt

10,190

10,190

Funds payable and amounts due to customers

2,539,762

1,400,057

Operating lease liabilities – current

6,877

8,845

Income taxes payable

11,041

Contingent and deferred consideration payable – current

12,454

13,673

Liability for share-based compensation – current

7,565

3,360

Total current liabilities

2,799,525

1,659,007

Non-current debt

2,657,188

2,748,178

Operating lease liabilities – non-current

20,293

28,008

Deferred tax liabilities

57,864

64,886

Warrant liabilities

14,521

35,575

Liability for share-based compensation – non-current

4,745

6,664

Accounts payable and other liabilities - non-current

150

Contingent and deferred consideration payable – non-current

12,687

17,142

Total non-current liabilities

2,767,448

2,900,453

Total liabilities

5,566,973

4,559,460

Commitments and contingent liabilities

Shareholders' equity in the Company

805,982

2,569,764

Non-controlling interest

100,081

138,005

Total shareholders' equity

906,063

2,707,769

Total liabilities and shareholders' equity

$

6,473,036

$

7,267,229

Paysafe Limited Condensed Consolidated Statements of Operations (unaudited)

Three Months Ended

Six Months Ended

June 30,

June 30,

($ in thousands)

2022

2021

2022

2021

Revenue

$

378,913

$

384,343

$

746,581

$

761,767

Cost of services (excluding depreciation and amortization)

158,987

155,778

306,090

306,815

Selling, general and administrative

134,709

113,037

265,277

307,035

Depreciation and amortization

69,585

70,114

133,008

135,576

Impairment expense on goodwill and intangible assets

676,456

1,357

1,882,187

1,935

Restructuring and other costs

7,999

4,518

20,590

7,488

Loss / (gain) on disposal of subsidiary and other assets, net

660

(28

)

660

(28

)

Operating income / (loss)

(669,483

)

39,567

(1,861,231

)

2,946

Other income, net

56,155

46,558

59,633

79,083

Interest expense, net

(28,426

)

(62,650

)

(54,382

)

(125,019

)

(Loss) / income before taxes

(641,754

)

23,475

(1,855,980

)

(42,990

)

Income tax (benefit) / expense

(10,233

)

16,690

(53,647

)

10,754

Net (loss) / income

$

(631,521

)

$

6,785

$

(1,802,333

)

$

(53,744

)

Less: net income attributable to non-controlling interest

188

371

306

Net (loss) / income attributable to the Company

$

(631,521

)

$

6,597

$

(1,802,704

)

$

(54,050

)

Net (loss) / income per share attributable to the Company – basic

$

(0.87

)

$

0.01

$

(2.49

)

$

(0.07

)

Net loss per share attributable to the Company – diluted

$

(0.87

)

$

(0.04

)

$

(2.49

)

$

(0.07

)

Net (loss) / income

$

(631,521

)

$

6,785

$

(1,802,333

)

$

(53,744

)

Other comprehensive income / (loss), net of tax of $0:

(Loss) / gain on foreign currency translation

(36,771

)

12,956

(22,375

)

4,458

Total comprehensive (loss) / gain

$

(668,292

)

$

19,741

$

(1,824,708

)

$

(49,286

)

Less: comprehensive income attributable to non-controlling interest

188

371

306

Total comprehensive (loss) / gain attributable to the Company