Paysafe Limited (PSFE) Earnings Call Transcript & Summary

Great. Hi, everyone. Thanks for joining us this afternoon. I'm Greg Mendelson, Managing Director, Global Head of Fintech at JPMorgan. Happy that here with me today, Bruce Lowthers, CEO of Paysafe. So Bruce, thanks for joining us here today in Boston.

Thank you. It's great to be here with you.

Thank you, thank you. So we've got, I think, 35 or 40 minutes and a fair bit to talk about today. So I'll jump right into it. So maybe, Bruce, just for everyone's benefit, just curious if you rewind the clock, when you first heard about the opportunity at Paysafe, what was it that got you excited about this opportunity and really draw you to the company?

Yes. Again, I just want to thank you for inviting us here to participate in the conference. But yes, when I go back, first of all, a year has been a blink. It's really amazing how fast it's kind of gone by. But when I think back to the opportunities, when I decided I was going to depart FIS, I was very fortunate that I had a number of opportunities kind of present themselves. But one of the things that was very enticing for me and why I probably came, ultimately, was I love the payment space. It was something that I have always enjoyed, but I really like the construct of kind of a two-sided ecosystem. And having the ability to have both the consumer and the merchant side was really something that we really wanted to explore. So when I was back at FIS, we had obviously had a two-sided ecosystem with the banks and the merchants. And we had started dabbling in the consumer side, in our incubators. But here, we had real assets that we could play with and really drive something that we weren't doing at Paysafe. We were still very siloed at the time. And so the opportunity to kind of bring those together and have them start feeding off each other and generating kind of a flywheel within our ecosystem was really a compelling thought and so really enjoyed that thesis. And a year in, I would say it's stronger than ever, and I really felt like I've made the right decision.

That's great. Now that you're a year in, Bruce, anything that's surprised you having been there for that much time as you spend time with the customers, the team and gotten deeper on the products?

Yes. What I would say is I knew what I was stepping into. As in where the company was, obviously, we were -- when I came in a year ago, we were really at a point of transition. And so I had good visibility, certainly had the opportunity to know a lot of the people that worked at the company and knew a lot of people involved with the company, and they were a client of mine as well before I came in. So I would say not so much a surprise. But if anything, I would say the surprise would be probably not what people would expect, but how well the Board really functioned. I've really enjoyed working with our Board. I think the Board is really thoughtful about what they're doing, and I think the Board has been a tremendous asset to the company.

That's great. You touched on the two-sided network, which is obviously a big differentiator for Paysafe within the payments market. How do you think about that business today in terms of having -- or the benefits of having both sides of that within the current ecosystem? And maybe just for folks that aren't as familiar with the wallet business, maybe just a little bit more color on what that is and why it's so differentiated in the market.

Sure. So look, I think when we look at our business holistically, we really have two primary businesses that we get very excited about. One, the merchant acquiring business, we're the fourth largest nonbank acquirer in the U.S. We have a full stack that we can compete with and really putting a lot of energy into our e-commerce business as well. And then on the wallet side, the second half of the business, this has been around for 20-plus years. It's been a business that has really been predominant in Europe and focused on a couple of industries, in particular, the social gaming area and the gambling area -- online gambling area. It's a great business. It's been able to really take a stronghold in those two verticals in particular. But as you've seen, when you look at all the different form factors that have emerged in the payment landscape, digital wallets have really become a prominent payment form factor. And so we sit with an asset that has tremendous value. I think one of the things that we look at today is the digital wallet, not so much as Skrill and NETELLER, but digital wallet as a platform. And you really start thinking about what we're capable of doing with that platform. And the revenue opportunities and expansion of that is significant for us. And so this is a wallet that is very similar in construct to ones that you would use that probably are more popular here in the U.S. like an Apple Pay or a PayPal. Ours is predominantly in Europe. It's one of the largest wallets in Europe, as I said, focused on those verticals. But as we think about the platform and we think about geographic expansion, we think about the opportunity to bring it to the States. We've started doing that in the gambling vertical. We had an announcement last year with Barstool Sports. And now as we announced at Investor Day, we're going to take that platform and deliver at the end of the year a merchant wallet, which we're very excited about. And one of the things that a lot of people don't know is with our Skrill product in Europe, we settle our merchants' activities into that Skrill wallet. And so that really was kind of the basis of, hey, we can do this with a couple of hundred thousand merchants we have in the U.S. And so it allows us to create somewhat of a cash app type of application for our merchant customers. And so it gives us great acceleration of the market into the U.S. with our wallet, having small business owners who use the wallet also allow them to push payments out to their employees, so for incidental management or a variety of other things. So it gives us a great platform to build off and accelerate in the U.S. marketplace. But overall, we feel very strongly that the digital wallet is the platform is one that we can build off of. We see lots of use cases, both on a branded basis and an unbranded basis. That white label, we are seeing a lot of interest in that. And it's certainly -- I think that will be something that will drive and accelerate growth as we move into '24 and '25.

That's great, Bruce. Do you see other than maybe PayPal in the States, are there any other competitors you see on the wallet side of the business in North America?

Oh, there's lots of competitors out there, right? I mean it's -- the payment space as a whole is filled with competitors. So having competitors doesn't worry me. What we're focused on predominantly has been certain verticals in places where we think we have an advantage. So offering a wallet to our merchants is a great distinct value proposition that nobody else has, right? So we have a reason to be there. We have a reason to expand. As you noticed, we've started laying out the transactions per user in our wallet, the ARPU per user in our wallet. So it gives us a great base to build into that's a distinct advantage for us. I think when you look at the verticals that we're playing in and the other ideas that are coming to bear here as we move through the year, we play in really 5 verticals that are all large verticals that have strong growth opportunities in front of them: the gambling, online gambling, the social gaming, retail, hospitality, travel and leisure and our digital assets. And -- so we like those verticals. We're going to stay very focused within those verticals, and we see distinct wallet opportunities in each of those verticals. So we don't have any intention of going to just a common app, like Apple Pay or a utility type of wallet. We're really going to try to drive experiences within those verticals and stay very focused to those verticals. And we think that, that really will be a key to the growth as we move forward.

That sounds good, Bruce. As it relates to those verticals and obviously, they're high-growth verticals and they're differentiated compared to many of the competitors or peers, how do you drive go-to market and success within those verticals? Is the sales team going to market by vertical? How are you driving that expertise and domain knowledge that the team has built within those 5 or 6 verticals?

Yes, great question. I think for us, when we came in a year ago, what we saw was the company was very siloed. So we had 5 or 6 different divisions. The sales organizations were split up by those 5 or 6 divisions. And what we found out very quickly was -- so we have 800 customers that are kind of our large customer base, our enterprise customers. And there wasn't one person calling on them for all of the Paysafe product suite. They were calling on them for merchant acquiring or they're calling on them for eCash or they're calling on them for the wallet, but nobody was taking kind of a holistic viewpoint. And so one of the first things that we did, we said, "Okay, we got to fix this. We've got to get account coverage on these so that we can really drive more products into this category." The other thing that we did is we started lining up around the verticals. So what we have -- Zak Cutler was at Investor Day, so I'll use him as just a great illustration. Zak is an expert in the gaming vertical. And so -- and whether he was just selling merchant acquiring didn't make any sense if he wasn't selling wallet and eCash as well. And so now, what our team leads off with when they go into one of these accounts is the thought process and knowledge of that industry and coming in and saying, "We have an offering of a wallet, eCash and merchant acquiring right out of the gate." And that's fundamentally different for us as we've looked at it. We're having a lot of success with that early on. We've got kind of 2 quarters behind us now. We've seen significant improvement in: one, the number of deals closed; two, the pipeline continues to build and accelerate, and Rob Gatto and Zak and the teams are doing really well. We've also brought in Chris Petersen, who's taken on another vertical. So we've got leaders in each of these verticals as we're continuing to build out strength in those verticals. So we just find that having the domain expertise, to be able to talk to people in their natural language about what's going on in their vertical and representing all of our products at one time instead of piecemeal, it really puts us in a distinct advantage when we're out selling.

That's great. The cross-sell that you're talking about, Bruce, is that -- if we were to put analogy of the baseball game, what inning are we in, in terms of that cross-sell opportunity that you just put in place over the last couple of quarters? And is that a substantial opportunity going ahead?

Yes. Look, I think -- and I want to be very clear, right? This was -- this is a turnaround, a transformation that we're executing on. And I would say it's early innings of what we're doing. But what's great so far, just in these early innings, is we're seeing real proof points. We're seeing -- the story was pretty easy. We set out the first 3, 6 months of trying to understand what was going on, getting out, talking to a number of customers, getting out talking to our employees, the former employees, really trying to develop a true understanding of what the challenges were in front of us. And then we laid out a plan. Look, the first year was about stabilizing the company. The second year was about returning to growth and getting growth in the company. Third year was about accelerating growth, all the same things that I've said at Investor Day and other earnings calls. But -- so then, we also said how we're going to do it is focusing on the transformation of our sales organization. We took out a bunch of costs. We reinvested in the sales organization. So while our sales team is getting larger and bringing in better talent, it hasn't cost us on our P&L. We've been able to self-fund that, if you will. And we're seeing real great results out of that. And then we've really focused on client experience. And as you heard me mention at the Investor Day, we've gone from basically last in the J.D. Power report for merchant satisfaction to third behind Bank of American and Stripe. So according to J.D. Power, it's the fastest anyone's accelerated up that list. So we're really focusing on experiences. I think the team has done a tremendous amount from user experience in both sides of the house, both on the wallet side and on the merchant side, and then product innovation and driving products. So this is something that takes a little time to get products going. But as I said, we've got a couple announced already, the merchant wallet being one of the more prominent ones. We've got some in beta out in the market today that we're excited about and seeing positive returns. And we were able to go recruit Nicole Carroll, who's got a great background through Visa and driving innovation at Visa and, more recently, at Experian as Chief Product Officer of Data over there. So I feel very good about our ability to attract talent and drive this transformation. So it's probably a long-winded answer to it, but it's certainly early innings. But we're very excited about the opportunities that are sitting right in front of us.

Good. That's great, Bruce. If we take a step back and just think about your business from a broader perspective and what you're seeing across your business, across payments, across the geographies in which you're located. And investors spending a lot of time at this conference, I've noticed, focused on the macro environment, the impact to the consumer, the impact to the merchant. Just curious, what are you seeing right now across your business, both on the merchant acquiring and the digital side -- or on the wallet side and also across the different geographies? Are you still seeing a healthy consumer? Are you seeing any changes within the cohorts there?

Yes. It's funny as we were talking a little bit earlier. We get this question a lot, and it's -- I think people are looking for this material drop off. And from a macroeconomic perspective, as we reported, we're just not seeing it. We still see solid volumes here as we're halfway through the second quarter. So we feel good about the volumes that we have. We're still seeing strength in the activities within the accounts. So I feel very good about it. I think, as I joke, everybody's got their favorite economist. And you see wide ranges of predictions of what's going to happen. We've read a lot of those. We've participated in a lot of discussions with them. Based on what we can see is that, we would agree here, that there's probably going to be some mild recession that occurs. Probably not long in duration, but that still seems to be the path we're on. I'd like to make the point that we have a lot of our own destiny controlled by what we go do and execute. So yes, we can say that there might be a recession and -- but I don't think that's going to impact us that much. It's really about us going out and executing. We have lots of opportunity to go execute that should offset that headwind. And we'll see how that plays out. But I don't view on the short term that, that will be an issue for us. Keep in mind, we view -- I think if our CFO was here, Alex would be telling you that the gambling vertical is not sensitive to recession and pull back. When you look at our eCash business, our eCash business actually thrives in economic downturns. So we feel like we're fairly balanced in that from a product standpoint.

Great. I'd be remiss if I didn't ask an AI question, so I'll ask the AI question, Bruce. Just as folks think about AI, Generative AI, how do we think about the impact both on the payment sector in general and then on your business and as we think about both opportunities and threats that it might present?

Well, look, everybody is talking about this. It's very interesting. And I had the opportunity to go to the Microsoft CEO conference just a couple of weeks ago. And as you would imagine, it was a significant topic there. Look, my own personal view on AI is that it's going to be something that will help revolutionize the payments industry. And so everyone is going to be driving it to some level. We are as well, which we talked about in the earnings call. But it's not about necessarily the cost savings that you're driving. It's not necessarily about making the one particular function more efficient. It's really about accelerating how quickly you respond to things and how quickly you adapt to things and personalization of the experiences that you're looking to execute. And so for us, I think, obviously having Nicole on board with a lot of data background, it was not haphazard occurrence. We believe that as you look at why digital wallets are so prominent today and why they're one of the fastest-growing payment types today, it's because of the experiences that they provide. Anybody can go execute a transaction. It's about that holistic experience. And when you look at AI, we think that's really going to accelerate those experiences and create wonderful experiences for people. And so for us, we're pretty excited about it. We think there are certainly going to be challenges with AI. There's a lot of challenges with AI. But I think when you think about the opportunities that we have to create better products, to create better experiences, we'll be able to navigate the challenges that AI presents as well.