Greetings and welcome to the Paysafe 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. If you would like to ask a question, you may do so. 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 Second 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, and expectations, and are subject to factors that could cause actual results to differ materially 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 in 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 will 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 through exciting and complementary acquisitions. Let me begin with the financial highlights. Payment volumes grew 41% to $32 billion in the second quarter. Reported revenues were $384 million, an increase of 16% pro forma when excluding the Pay Later divestiture. On an adjusted basis, excluding the direct marketing business, Paysafe grew an impressive 23% compared to the prior year. Before we move on to the bids update, let me summarize a few highlights upfront. In North America iGaming, we recorded strong volume growth of 72% year-on-year, announced several customer wins, and began piloting our updated Skrill app with 80 merchants. Outside of gaming, 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 of our e-commerce gateway with digital wallets, online banking, and eCash solutions as a true differentiator in the market, and that would continuously be a very strong pipeline for growth. On our transformation program, we delivered $17 million of cost reduction year-to-date against a full-year goal of $30 million for the team continuing to identify new opportunities. Additionally, we're excited about the opportunity of two acquisitions we recently announced. Combined, PagoEfectivo and SafetyPay give us a market leadership position in Open Banking and eCash 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 us from Santander Group, where he was Global Head of Payments, and before that, Head of International Payments at Amazon. Chirag brings over 20 years of industry experience, and we’re 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 first-quarter call, we talked about exiting a discrete set of direct marketing clients at the beginning of the year. And now we’re in a transitional period as the market adjusts to new compliance. While this headwind is immaterial to total volumes, 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 are already seeing signs of a strong recovery and see this business as a tailwind in the first quarter of 2022. With that, let's move on to strategy. Paysafe is a truly unique payments company and is a quick snapshot of how we think about the breadth and depth of our solutions. We offer the complete spectrum of payment solutions, from card processing to digital wallets, eCash, and now especially with the acquisition of PagoEfectivo and SafetyPay, Open Banking solutions as well. We combine this breadth of payment solutions with strong risk management and a focus on 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 the growth pipeline in online gaming, Crypto, travel, digital goods, and financial services. Finally, we continue to execute on the scale of platforms and cost takeout. Also, beginning to execute on our inorganic growth strategy. With that said, let's turn to North America iGaming. Starting with the market backdrop, the U.S. continues to gain traction in mobile sports betting and iGaming legislation while we're also starting to see some strong signs of market opening in Canada. In the U.S, 17 states representing about 27% of the U.S. population have gone live with some form of iGaming, and seven 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 with mobile sports wagering in the coming weeks. We're also eyeing interest in Connecticut and Maryland in the fourth quarter. Collectively, this would bring our total coverage to 20 states, representing 32% of the population by year-end. Additionally, we're paying close attention to the timing around Florida and New York, which are big markets. Turning to Canada, we were 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 has a population of nearly 15 million, is advancing its regulatory framework for competitive gaming and Mobile Sports wagering market with expected market opening sometime in the first half of 2022. Paysafe has a longstanding history in Canada since 2010, where we have the leading position in processing payments for all of Canada's regulated online gambling. Overall, we're seeing positive regulatory momentum and Paysafe is well-positioned as a market leader, serving more than a thousand operators globally and with connections to more than 75% of the operators in the U.S. market. So that's a bit on the market. Let me highlight a few quick points on how we are delivering. It starts with our growth. As stated earlier, we saw North America volumes grow over 70% and revenues grew 48% in the second quarter on the back of continued momentum in new client wins. In May, Paysafe was recognized as a leading payments platform at the Gaming Review's North America Awards. In July, we announced a partnership with Winant, 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 second quarter, and we're looking forward to an additional launch later this year. Also in Michigan, we expanded our partnership with FOX Bet 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 flagship sister brands, Poker Stars, 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're now piloting with 8 brands, including PlayUp, Bet365, FOX Bet, among other major brands. Our product upgrade will make the depositing and payout experience truly frictionless for players, giving the 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 instant deposits and with the feedback from our clients as 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 our gaming, we're seeing strong growth in winning new customers in attractive e-commerce verticals, including digital goods, Crypto, financial services, travel, and integrated verticals. In the second quarter, revenue growth from these verticals was 30%. We continue to see growth in online gaming and further expanded our eCash partnership with Microsoft integrating Paysafe card onto Xbox. In the second quarter, Skrill went live with Riot Games, which is one of the significant online game publishers. We continue to also see Crypto as a major growth driver across our business. Since the first quarter, Digital Wallet added 22 cryptocurrencies available to trade, bringing the total to 37 cryptocurrencies in more than 80 markets. And we're now live on 30 exchanges. Equally, we continue to expand payment processing and capability to Crypto and are now supporting 8 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 and financial services where Paysafe is becoming a meaningful player, including recent partnerships with Extra Finance, Repay, and Intellipay, enabling 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, a leading provider of settlement services for airline transactions for the network of more than 200 airlines. Now turning to transformation, the playbook we implemented with Bill Foley 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 million in cost savings, which is about $45 million annualized. June year-to-date, we've delivered $17 million, so we're well on track. At the same time, we continued to make organic investments to accelerate growth in U.S. iGaming 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 JP Morgan and signed two new banks in Europe to facilitate acquiring and wallet payments for crypto exchanges. Now let me turn to the fourth pillar of our growth strategy, M&A. We've been very active this quarter and announced two acquisitions, PagoEfectivo and SafetyPay, the leading eCash and open banking solutions in Latin America. There are three key messages I want to emphasize here. One, for Paysafe, this establishes a strategic foothold in Latin America, increasing the leading open banking solution for the region. Two, the PagoEfectivo SafetyPay serves 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 see material synergies where we can expand the reach of our eCash business, augment our leading PSP and digital wallets with open banking, and cross-sell across our international merchant base. We also see opportunities to expand from 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 the market adjusts to these new compliance rules. 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're expecting a strong recovery beginning in 2022. In June, net new merchants turned positive. So we're already seeing solid signs of a turnaround. Overall, we continue to 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 offering to support growth in the space. We see this space as a good tailwind starting early next year. With that said, I'll hand it over to Izzy.

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 million, which came in at the high end of our guidance, driven by a strong U.S. recovery and continued momentum in eCash. Adjusted EBITDA of $119 million was also at the high end of our guidance. Gross profit and expenses were right in line. Overall, we're pleased with our performance for the quarter. Turning to Slide 12, volumes of $32 billion were 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 second quarter was $384.3 million, up 13% year-over-year, driven by growth in all segments. Excluding Pay Later, 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 $118.8 million, up 8% versus the prior year. We saw growth and margin expansion in both eCash and Digital Wallets, 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 COVID-related cost reduction in 2020, the decrease in margin compared to the prior year primarily reflects business mix in integrated processing. Lastly, free cash flow was $54.6 million, representing a 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 this vertical. Excluding the Direct Marketing vertical and Pay Later, revenues grew approximately 23% compared to the prior year, while 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 our strong growth and expanding margins. On Slide 14, I will quickly touch on our GAAP results. Net Income for the second quarter was $6.6 million compared to a Net Loss of $15.8 million in the prior year. Net Income benefited from a fair value gain of $39 million on the measurement of the warrant liability at period end, which was offset by an increase in interest expense of $20.2 million reflecting the acceleration of capitalized debt fees, as well as an income tax expense of $16.7 million 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% to $1.4 billion in the second quarter, and revenue increased 37% to $103.9 million, reflecting extended lockdowns in Europe and associated consumer behavior. Adjusted EBITDA was $43 million, an increase of 58%, resulting in an adjusted EBITDA margin of 41%, an increase of 550 basis points year-over-year. Moving to digital wallet in slide 16. Volumes were 4.7 billion, up 3% year-over-year. Revenue in the Digital Wallet segment for the second quarter was $97.3 million, an increase of 7% driven by higher Crypto and trading activity, normalized calendar sporting events, and favorable exchange rates, partially offset by the impact of market exits. Adjusted EBITDA was $46.9 million, an increase of 16% compared to the prior year. The 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 Q2 2019, volumes are up more than 40% as well. Revenue for the second quarter was $191.2 million, an increase of 7% compared to the prior year. On a pro forma basis, revenue increased 13% year-over-year. Adjusted EBITDA was $45.8 million compared to $50.3 million in the prior year. Adjusted EBITDA margin of approximately 24% decreased year-over-year due to the 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 forma 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 their 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 happened 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 Wallet has also steadily increased its take rate as you build out functionality and expand in new markets, such as FX trading and Crypto trading. We anticipate long-term take rates normalizing at 1.8% for Digital Wallet. 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 a 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, which is 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 with steady take rates around 50 basis points. While the U.S. acquiring gross should moderate from these robust levels, we see strong growth continuing in e-commerce, which will further influence take rates in 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 $2.1 billion as of June 30th. And a net debt to last 12 months adjusted EBITDA ratio was 4.3 times 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 million. With our recently announced acquisitions, we expect our pro forma leverage to rise to approximately 5.3 times. We remain comfortable with this temporary increase as the deal synergies and our growth profile will allow us to de-lever quickly and significantly, making progress in 2022 towards our target of 3.5 times 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 $1.53 billion to $1.55 billion, and adjusted EBITDA in the range of $480 million to $495 million, excluding any impact from the two acquisitions. On slide 23, we have provided a supplemental view of our expected 2021 performance. Excluding Pay Later 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 third-quarter outlook on Slide 24. For Q3, we expect revenue of $360 million to $375 million on a reported basis. We expect continued strong growth in our integrated processing segment and a return to normalized post-COVID seasonality, but quieter summer gaming activity in the European markets. We see a moderation of the growth rate in eCash and digital wallets. Gross profit is expected to be between $210 to $220 million and adjusted EBITDA between $95 million to $110 million. We expect to return to double-digit growth in the fourth quarter coupled with strong margin performance as well. This reflects continued strengthening in integrated processing, including the onboarding of several new e-commerce clients in late Q3 and early Q4. Stronger growth in digital wallets, 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 pleased with the strong second quarter. We like the momentum we're seeing in North America iGaming. We're excited about the building pipeline in some of the faster-growing emerging verticals and happy with the discipline and execution of our cost program. We're seeing good signs of recovery and a return to growth in direct marketing, and we are especially excited to welcome SafetyPay and PagoEfectivo to the Paysafe family as we had additional opportunities to grow. Putting all of these pieces together, we continue to execute our strategy in line with the long-term growth outlook for Paysafe. Thank you. Now let's open up the call for Q&A.

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 you're strategical, it's giving you a foothold in Latin America. You had some complimentary verticals and some synergies but in the context of leveraging the Company up a little bit over 5 turns. I just want to make sure I understand maybe a little bit more about that strategy, and what you see playing out from those two, in particular, over the next couple of years? And then maybe if there's anything else you can provide around expectations around synergies that would be great. Thank you.

Thank you, Dan, it's great to connect with you. I want to share a few thoughts on leverage, starting with the fundamentals. I will then touch on what we find appealing about the deal and provide some insights into the synergies involved. When we initiated discussions about Paysafe and outlined our strategy, we emphasized pursuing deals that would increase our leverage, expecting it to eventually return to the mid-3 range, around 3.3 to 3.5. This aligns perfectly with our outlook based on the performance of these businesses and the overall performance of Paysafe. We feel very confident in this aspect. Regarding the deal specifics, SafetyPay was a $441 million all-cash transaction, while the total for PagoEfectivo comes to about $550 million. We anticipate generating approximately $60 million in revenue and $20 million in EBITDA from these two entities next year. Historically, both businesses have experienced a compound annual growth rate of around 55% over the past two years, indicating they are very fast-growing. They enable us to have a presence in 19 markets, including 11 in Latin America, with key markets such as Brazil, Mexico, Peru, Colombia, and Chile. We engage with over 300 merchants, and importantly, we have 90% bank coverage, as these assets mainly focus on open banking with some eCash integration. A single integration allows access to 90% of the networks for open banking solutions. This summarizes the deals. What we appreciate about this, Dan, is that, on their own, these are excellent businesses with very high growth rates and a high demand for alternative payment methods and open banking across Latin America. These trends are substantial, as we regard open banking and the increasing demand for eCash in the region as significant. We are also very pleased with the extensive bank coverage. From a standalone perspective, this looks very good. Additionally, the strength of the management teams reinforces our confidence, especially as they operate within similar sectors, including iGaming, online gaming, travel, and digital goods. Our discussions with clients in the U.S. indicate a keen interest in expanding into both the U.S. and Canada, with many clients also aiming to grow in Latin America. This creates important global connections. Now, regarding the synergies, I see five key areas. First, there is a clear opportunity for cross-selling to merchants, as we have global clients who can connect with Latin America through these relationships, and they have strong clients that can reach North America and Europe. Second, integrating open banking will enhance our payment solutions, creating a competitive way to accept payments through a gateway and manage funds in a wallet. Third, we find value in the synergies between PagoEfectivo and SafetyPay, as combining these two competitors positions us favorably in the market. Lastly, we see good treasury synergies by integrating these companies, and combined with our eCash business, we now have over a million distribution points across 60 countries. I hope this gives you a clearer picture of the deal.

That's great. Thank you very much.

Thank you. Our next question is coming from George Mahola of Cowen.

Hey guys, good morning, and thanks for taking my questions. I guess, firstly, Izzy, I want to make sure I understand the third quarter guide. Can you maybe help us frame what the expected growth rate would be on a normalized basis? Factoring out the direct marketing, and obviously some of the other grow overs. What would that have implied if we didn't have those impacts?

Yeah. Hey, George, good to hear from you. Yeah, let's dig into that. So obviously, we're seeing the recovery in direct marketing as Philip talked about. Once you take 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 prior calls and our conversations, that July and August, it's going to be interesting post-COVID to see what kind of activity we'll see. And we are seeing the seasonal quiet activity, the traditional slate of a lack of sporting events in Europe. We're seeing all focus on vacation. So that’s what we saw, that kind of informs our Q3 guide for the most part. Does that kind of provide a little additional color there, George?

Yeah, that's actually exactly what I was looking for just to kind of get an apples-to-apples comparison. And then if I may just two more questions. I'm curious, like what 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 post Q2, how some of that reopening may be playing in. And then the last question for eCash, should we be assuming that growth is maybe somewhat flattish year-over-year in the third quarter? Appreciate the color, guys. Thank you.

I'll grab a little bit of that, and then maybe Izzy can also grab onto it. So in Europe, a couple of things going on. So we did see kind of a post-COVID reopening, the market's really opened up about. There are much more stringent lockdowns and uncertainty kind of our U.S. comparison. So that's kind of created some softness in the online gambling space in the summer months. In addition to where we can consider regular soft seasonality in the summer as well. So we are seeing that one. Two, on the eCash 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 eCommerce business, our integrated and eCommerce 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. So you have a couple of things happening across Europe and international markets.

And to close that out, as specific on eCash. We're definitely seeing that temper down. We're not going to see 30%+ growth, but we still see a pretty strong growth year-on-year in Q3 in the business. The work that we've been doing, and the teams are doing, in terms of greater engagement with credentialed customers and alike, is still driving our year-over-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-commerce, just in light of the variant? I know there's a lot of interest in terms of what's happening in the recent weeks.

Yes. So we don't have the in-store versus online handy, but we can see like August volumes would seem 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 feel pretty good about that overall.

Yes, we haven't noticed that dip because of the Delta variant coming through. We remained pretty positive on how the U.S. acquiring and SMB 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 to, there's a pretty big ramp implied in Q4 to get to the 32% target for the full year. So I know you rattled off a couple of the dynamics driving that, but can you just drill in a little bit regarding your visibility on that acceleration in the margin in the fourth quarter? Thanks, guys.

Hey, Jason, two good questions in there. So you're right on a reported basis the margin shrinks, but similar to what we did in Q2, we'll provide a look-through on direct marketing and you'll see the continued margin expansion. I think we can look forward to that. So again, for more details, we'll call as part of the Q3 call. In Q4, there are a couple of three major things that we think about, right? That drives that ramp up. And again, recognizing that there is probably good comp out there from a seasonality basis for you guys to work with. But there are three major factors. One is the traditional active gaming activity in Q4, the holiday. So Digital Wallets' growth is pretty solid in Q4. That's one, second direct marketing. Sequentially, the headwinds start to abate. Based on the investments we're making, and the market starting to recover, that we see as well. The third and probably the most meaningful so is the onboarding of a pretty strong pipeline in our integrated, e-commerce business. Right now, we anticipate that we'll continue driving the growth in absolute revenue as well as we head into Q3 and to Q4.

Okay. Well, thanks for the color. Appreciate it.

Thank you. Our next question is coming from David Togut 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 is embedded in your guidance? And more specifically, could you walk through your expectations for digital wallet, eCash, 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?

So David, I have a couple of questions. I was hopeful to discuss this towards the end. We will address 2022 when we have clearer insights, of course, at the appropriate time. Regarding take rates and the impacts you mentioned, if we continue to experience strong growth in the integrated processing segment and integrated e-commerce, we will naturally see the denominator effect lower the take rate. However, the slides showing take rates for each of our individual businesses look solid. It really comes down to the denominator effect related to growth and whether it will drive absolute revenue growth that meets or exceeds our expectations; if so, we would be quite pleased. It’s simply a matter of where we observe increased activity and customer engagement as well as growth. That’s one aspect of take rates. For the outlook for the remainder of the year, once again, growth in Digital Wallets will positively impact take rates, as will Direct Marketing. Additionally, growth in integrated e-commerce and integrated processing should also assist with take rates, as it depends on the dynamics at play. For now, our focus on absolute revenue growth has been quite positive, and that remains our priority.

We provided a lot of detail on the take rates to clarify that aspect. We felt it was important to share. In the different business lines, we are seeing a steady take rate, indicating it is a diverse business. Additionally, as Izzy mentioned, some of the slowdown in eCash and growth in eCommerce are significant factors, but ultimately, the recoveries in direct marketing heading into early next year will positively impact revenue and take rates.

Understood. Would you expect eCash take rates to sustain at the 7.3% level?

No, actually we expect to come down a little bit towards our target of 7%. The last couple of quarters have been higher as we've seen some additional factors come into play. But I think 7% is where we 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. 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 9th Analyst Day guidance on Page 37 out of 3 years? Because that's 2023, are you still comfortable directionally with that?

Directionally, absolutely. Jamie, as we talked about our long-term thesis. And I think it's showing through in our adjusted results as we've taken out Direct Marketing Pay Later, the low teens revenue growth, high teens EBITDA growth. It's definitely coming through as we work with this transitional period with Direct Marketing. So yeah, and that's what our long-term outlook also showed that range. So yes, so far, today we're pretty comfortable with the overall outlook.

In your prepared remarks, you mentioned that Direct Marketing was a bit worse than you expected. Could you clarify what your original expectations were and explain why the results were underwhelming? If you can't provide specific numbers, an overview of your thoughts in comparison to what you had anticipated would be helpful.

Sure, I'll summarize that. In the first quarter, we discussed the impact of exiting a specific group of clients, which resulted in a $10 million effect. We noted that it would take until the first quarter of 2022 to fully resolve this issue, representing 90% of the same challenge. Additionally, we observed some overall market softness, as other companies also adjusted their direct marketing investments in response to market changes. While there has been a slight decline across the market, we are optimistic about the business. We continue to invest and have been in discussions with our direct marketing clients, who are planning to reinvest and increase their market activities. We have strong risk management, extensive banking and CRM partnerships, and solid relationships with Visa and MasterCard, positioning us well for recovery when the market stabilizes and direct marketing campaigns ramp up again.

Got it. Thanks for the color.

Thank you. Our next question is coming from Darrin Peller of Wolfe Research. Please go ahead.

Hey, guys. I want to hone in on the Digital Wallet growth rate potential for a minute. When we started it off with what we're seeing in 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 digitization of eCash as well. But when we think about versus the 7% and bridging that, whether it's anniversary your referral partners or all the new products and Crypto or the U.S. opportunity, to something that I think is better into the double-digits you'd expect sustainably. Can you just walk us through those steps to get from 7% to potentially low-to-mid teens or something along those lines?

Hey, Darrin, a great question as always. Again, in the first quarter, we talked about exiting some of those network accounts in some specific markets. It's about a $20 million headwind in the first quarter is what we 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 negative growth to positive growth. Because of the long-term basis, we really think about three things. One is just that core customer growth as we lap some of these legacy issues and you get back to some good strong and steady growth. Two is obviously the U.S. and Canada are two markets that are opening up, and in fact, that's so in Latin America is an area where gaming is growing, we do have some good positions there, some good customer basis. So we see that 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 Wallet is very well-positioned there as driving sign-ups. So those are really the three big factors when I do the math to get us back to the kind of consistent 15+% growth.

Yeah. And Darrin, I think you'll see it in two other aspects. In Q3, we start seeing that seasonal quieter activity just because there are fewer games. But Q4 is when we're expecting the full good comparison to start showing up where you start seeing double-digit growth in Digital Wallets revenue.

Just timing on that would be what? Next year in your views or in '22?

For that, 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.

Thank you, Philip. Regarding our overall volume guidance for the year, could you clarify how we should interpret the figures considering the various factors at play? You previously mentioned a range of $100-$210 billion for the full year. Additionally, Izzy, could you confirm our guidance for Q3? We are still receiving questions from investors about the various factors influencing it. It appears that with a mid-teens growth rate for the merchant side and possibly high single-digit growth for the digital wallet segment, it is challenging to reconcile those figures with the guidance provided. It seems somewhat conservative unless there are aspects we aren't aware of. Could you please highlight any conservative elements in your outlook that we might be missing? Thank you again, everyone.

Sure. A couple of points to mention. Firstly, regarding our full-year volume expectations, we anticipate it will be significantly higher, likely in the range of $130-$140 billion. This projection is contingent on the pace at which integrated processing grows, but we are confident it's above our earlier estimates for the year. Focusing on eCash, we expect year-on-year growth to be around 8%-10%. For integrated processing, we project a growth of approximately 10%-15%. However, we anticipate that year-on-year performance for Digital Wallets in Q3 will be somewhat weaker due to tough comparisons, as Q3 2020 experienced several sporting events and lockdowns in Europe. This year, Q3 is expected to be quieter seasonally. Consequently, the year-over-year comparisons for Q3 are likely to show a decrease in revenue, making it slightly lower than Q2, leading to a significant new benchmark.

Okay. Thanks, guys.

Thank you. Our next question is coming from Josh Levin of Autonomous Research. Please go ahead.

Good morning. I would like to ask a follow-up question about your expansion in Latin America. A few months ago, when the deal was announced in December and during your analyst presentation in March, I recall that the growth narrative was heavily focused on the U.S. iGaming opportunity. Does the Latin American expansion indicate a change in strategy? Is that correct? If so, what has led to this shift in your perspective on Latin America? Additionally, how would you define Paysafe's competitive advantage in that region? Thank you.

Thanks, Josh. I wouldn't call it a change in strategy at all. We talked very clearly about three buckets. We talked about winning in iGaming. We talked about expanding in deep verticals, either through APMs or through gateways. Those were the buckets of investments we talked about very consistently throughout. We still really like the U.S. iGaming we are investing in there. If we see the right deal for U.S. iGaming, we would be clearly an interested player there. That doesn't change our strategy at all. What we really liked about SafetyPay and PagoEfectivo is what I talked about earlier. One, when I look at the APMs, we do credit and debit card processing. We provide digital wallet sub-grade pay payout capabilities. We offer eCash, 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 as we started to look at the deals, we got close and close. We really started to get more excited about it. It started initially, there's an eCash cross-sell that's a nice play. But more and more, these are verticals therein. 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 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 there. Two, we think Open Banking is a pretty major trend. It's a very attractive payment form factor. And we think expanding that to Latin America into other emerging markets is strategically very important. It definitely complements our iGaming position. It definitely complements our 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 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 2022?

Yeah. Hey, Tim, great question. And you're right. If you recall, we did talk about seeing how July, August, kind of play out, right? In terms of if it's going to be anywhere close to 2020 or seasonally quieter compared to prior years. So this was always kind of where our expectation was that post-COVID recovery comes through. We'll see obviously quieter activity in Europe, which we're seeing, and then a robust rebound in Q4. So relative to how we are planning and thinking about it, historically, how we're seeing this gaming activity. They’re just kind of where we thought it would play out. And to your second point, in terms of an exit rate in Q4, we feel pretty confident about that, granted, there is going to be some seasonality that drives it. But overall, given the recovery, direct marketing, and the really strong pipeline in our integrated e-commerce business gives us a pretty good outlook and pretty good confidence welcoming you to Q4.

Okay, great. Thank you, Izzy. The follow-up is on Slide 20 on the integrated e-commerce segment. The take rate there and 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? Is it things like Gateway mix? I think is a big part of it, but also is there a 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?

Yeah. I'll take that one. I think it's really important to call out, so the U.S. is scale, we're a very scaled U.S. SMB player, right? So we're dealing with a smaller end of merchants with a mix of card-present card-not-present. So 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 is global. It is focused on specialized verticals. These are larger international 100% e-commerce merchants, right? It's 100% digital. There is no card-present business here. So that's the profile of clients. So it's an iGaming client, it's video gaming, it is Crypto trading clients, it's travel. That's the type of sector that we're looking at. We can process in multiple markets. The mix of our gateway with a single API, plugging in eCash and Digital Wallets and other APMs, risk management, that formula is really working. And so what you get is this larger scale e-commerce. So the margins are lower. The take rates are much lower, but because they are international and fairly specialized, you 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, could you give me 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 information available right now, but we can follow up on that specific split. It will be a fairly significant portion that we'll be acquiring. I just don't have the exact breakdown at the moment, so we will follow up with you to provide that information.

Okay. Appreciate that. Thanks for taking those questions.

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. Thanks to everyone for the questions. We look forward to plenty of follow-up calls and conversations. I'll wrap it up with the following. Look, we really like what's happening 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 eCash, 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 just 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 in that 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.

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