Paysafe Limited 2026 Q2 Earnings Call

Thank you, and welcome to Paysafe's earnings conference call for the second quarter of 2026. Joining me today are Bruce Lowthers, Chief Executive Officer, and John Crawford, Chief Financial Officer. Before we begin, a 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 SEC reports. These statements reflect management's current assumptions and expectations and are subject to factors that may cause actual results to differ materially from those forward-looking statements. You should not place undue reliance on these statements. Forward-looking statements during this call speak only as of the date of this call, and we undertake no obligation to update them. Today's presentation also contains non-GAAP financial measures.

You can find additional information about these 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 in the Investor Relations section of our website. With that, I'll turn the call over to Bruce.

Thank you, and good morning, everyone. If you're following the webcast, let's start on slide 3. The second quarter and first half of 2026 mark an important inflection point for Paysafe. We delivered strong first half revenue growth of 7%, while adjusted EBITDA was essentially flat year-over-year, even as we deliberately increased marketing and IT investment to support the next phase of growth. Just as important, we have now resolved the major inherited matters that have weighed on the company for some time. This summer, we resolved the final legacy overhang from the SPAC through a settlement in principle with the Farzad litigation, which involved legal claims brought by pre-SPAC shareholders. John will take you through the financial implications, but this resolution addresses a significant restructuring expense tied to our indemnification obligations related to this case. We also successfully refinanced a significant portion of our debt.

We believe the trajectory of our net leverage ratio is the most important near-term driver of equity value, and we remain focused on reducing leverage as a meaningful value creation opportunity over the next 24 months. Together, these actions put us in a much stronger position to focus on what matters most from here, consistent execution, sustainable growth, and disciplined deleveraging. In our view, the SPAC era is now behind us. We have returned the company to consistent growth, completed the portfolio rationalization, and made major rebuilds across talent, technology, sales, and product delivery. This is evident through our product vitality index, which is tracking towards 20% for 2026, compared to less than 2% just three years ago. Finally, I want to welcome Naj Atkinson, our new Chief People Officer. Naj brings nearly 30 years of global HR experience, including leadership roles at Hasbro and Dell.

She joins Paysafe at an important time as we continue to strengthen our culture, develop future leaders, and build on our recognition as one of the 2026 top 100 inspiring workplaces in North America. Turning to slide 4, I'll share a few additional highlights on our recent progress. We had another strong quarter with three-month actives at 7.8 million, reflecting five quarters of growth, and we continue to see double-digit user growth in Latin America. While it's still early, the initial results of our incremental marketing spend across priority countries in Europe have shown double-digit growth in consumer acquisitions, which has translated into active user growth in those markets. Across these markets, our World Cup marketing initiatives help drive customer engagement, acquisition growth, and brand awareness. Through brand campaigns, strategic partnerships, influencer activations, and targeted consumer offers, we expanded our reach to new audiences and strengthened our acquisition engine.

These investments are delivering results today while creating a stronger foundation to drive long-term customer value. Our PaysafeWallet solution also continued to gain traction in Europe, where we are now live in 19 countries. The recent launch in Poland demonstrates how we can build on the strong consumer trust and adoption of Paysafecard while extending that relationship into broader wallet experience. By bringing everyday money movement into a single familiar platform, PaysafeWallet increases consumer engagement and expands our opportunity to deepen customer relationships over time. Finally, as a forward-looking highlight, we're pleased to preview our new partnership with Envision Racing, one of Formula E's most successful and innovative teams. This investment reflects our strategy of building brand awareness, reaching new audiences, and fueling long-term customer growth across our priority markets. Formula E is one of the fastest-growing global motorsport platforms with an audience of over 550 million.

They attract highly engaged digital-native fan base at the intersection of sport, gaming, and digital commerce, closely aligning with Paysafe's target audience and existing customer base. Through fan engagement, gaming, rewards, and digital commerce experiences, we see an opportunity to introduce millions of consumers to our brands, strengthen customer acquisition, and deepen engagement across our portfolio. More broadly, the partnership demonstrates how we are bringing our marketing and product strategies closer together to create differentiated customer experiences and support sustainable growth. With that, I will turn it over to John to discuss the financial results and outlook.

Thank you, Bruce. Let's move to slide 6 for a summary of our second quarter results. Revenue for Q2 was $447.4 million, an increase of 4% on both a reported and organic basis, as the FX tailwind in the second quarter was relatively small, and last year's business disposal is no longer relevant to the comparisons since we lapped that in Q1. Our Q2 results also benefited from additional licensing data deals which contributed $12.5 million, as we continue to advance our strategy to commercialize data assets. This brings our first half growth rate to 7% on a reported basis and 6% on an organic basis, with continued traction across our priority markets and products. This is consistent with the 6-K we issued two weeks ago in connection with our refinancing and in line with the expectations we communicated on our last earnings call.

Adjusted EBITDA decreased 2% to $102.8 million in the second quarter, and adjusted EBITDA margin declined to 23%, compared to 24.5% in the prior period. As we previewed with you on our last call, this included an increase in marketing and IT investment of $7 million in Q2 and an incremental $16 million for the first half of 2026. Turning to cash flow, we generated $45 million of unlevered free cash flow, with a 44% conversion of adjusted EBITDA. Q2 is typically a lighter cash flow quarter seasonally, coupled with some timing effects on receivables and capital expenditures. On an LTM basis, unlevered free cash flow was $298 million, an increase of 10% compared to the prior year and reflecting 69% conversion. I do want to point out that we expect to have a cash payment in the second half of $39 million related to the preliminary legal settlement.

As a reminder, on an LTM basis, we had cash outflow of nearly $19 million and significant restructuring expenses of $57 million on the P&L related to our indemnification agreement and the associated legal costs for this case. So this removes a significant drain on cash flow and the GAAP P&L. Adjusted net income for the second quarter was $23.1 million, and adjusted EPS was $0.43, a decrease of 7%, as the benefit of our reduced share count was offset by the decline in adjusted EBITDA and other income, as well as a modest increase in interest expense. Turning to the segment results on slide 7. Starting with digital wallets, volume in Q2 was $6.6 billion, roughly flat year on year. Revenue from digital wallets increased 3% to $206.6 million, with organic growth of 1% when normalizing for currency movement and interest revenue.

Growth for the segment was driven by continued momentum and active user growth from both Latin America and PaysafeWallet in Europe. As we expected for Q2, the strong double-digit growth in these areas was partly offset by a decline from rest-of-world markets in which we're largely not active, coupled with short-term grow-over effects in the certain subverticals, such as sweepstakes and cryptocurrency trading, which were relatively strong in Q2 of last year. Three-month actives increased 8% year over year, again led by strong growth in Latin America and PaysafeWallet in Europe. Transactions per active user was stable year on year, and average revenue per user decreased 5%, with both metrics influenced by the regional and product mix, including the strong growth from LATAM.

Adjusted EBITDA for digital wallets was $74.9 million, down 9% year-over-year, and adjusted EBITDA margin for the segment was 36.2%, reflecting higher investments in consumer marketing, a VAT accrual adjustment related to distributor commissions, and product mix. Without the VAT adjustment, which was approximately $4 million, and the increased marketing investment of $3 million, adjusted EBITDA margin for the segment would have been about 40%. Turning to the merchant segment results, volume increased 5% to $37.3 billion, resulting in revenue of $246.1 million, an increase of 6% driven by iGaming volumes in North America and the benefit of additional data licensing deals. While the SMB business line was flat for the quarter.

Adjusted EBITDA for the segment was $50.6 million, an increase of 28%, and adjusted EBITDA margin for the segment increased 350 basis points to 20.6%, reflecting favorable mix as a result of the licensing deal and the release of a previously recorded accrual that was resolved during the quarter. Normalizing for the accrual release of approximately $6 million, the segment margin would have been around 18% for the quarter. Turning to slide 8 for a summary of debt and leverage. At the end of the quarter, total debt was $2.5 billion, down $106 million versus Q4, mainly reflecting net repayments of $79 million, as well as FX fluctuations, which reduced total debt by $34 million. Our net leverage ratio was 5.3 times at quarter end, compared to 5.5 times at Q4.