Paysafe - Earnings Call - Q1 2021

Transcript

Speaker 0

Greetings and welcome to Pacesafe's First Quarter twenty twenty one Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Will Maina, Investor Relations with Paysafe.

Please go ahead.

Speaker 1

Thank you and good morning. Welcome to the Paysafe first quarter twenty twenty one earnings conference call. With me today are Philip McHugh, Chief Executive Officer and Ezzy Dodwood, Chief Financial Officer. Before we begin, I'd like to remind everyone 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 reports. These statements reflect management's current beliefs, assumptions and expectations and are subject to a number of factors that could cause actual results to differ materially from those forward looking statements.

During today's call, management will provide certain information that will constitute non GAAP financial During measures under the company's rules. These reconciliations to GAAP measures and certain information are also included in today's earnings press release and in the supplemental earnings presentation, which are available in the Investor Relations section of our company website. I'll now turn the call over to Philip. Thanks,

Speaker 2

Will. Thanks for that. Well, first of all, and thank you to everyone for joining our first public earnings announcement as Pacesafe. Today, I'm going to cover some of the strategic highlights and key deliverables from our first quarter and then turn it over to Izzy Dawood, our CFO, to review our financial performance. To say the least, it's been an eventful and successful quarter for Pacesafe.

First, we successfully listed on the New York Stock Exchange on March 31, following the successful SPAC with strong return to investors. We raised $2,100,000,000 and successfully de SPAC'd going public one hundred and fourteen days after our initial announcement. We were able to pay down more than $1,000,000,000 of debt, strengthening our balance sheet and our credit rating along the way. We also have a new board in place with Bill Foley as our Chairman and we've already started our implementation of the Foley transformation plan, lots of activity on that front. As a team, we've been able to execute against our strategy, growth and scale across the company and delivering on our key initiatives.

We're starting this new chapter with strong momentum across the business and the markets that we want to win. And from an overall market view, we continue to see lots of strong activity. Online and e commerce volumes continue to remain strong. We're seeing rapid growth and lots of market activity in North America iGaming with the legalization of sports betting in four new states planned in 2021 and several other states not far behind. We're also seeing the emergence of a strong recovery in The U.

S. SMB market, where in the first quarter, we saw 18% increase in volumes year on year in our U. S. Acquiring business, and we're seeing much higher growth in April. Finally, we're also seeing a continued adoption and consumer openness to using new payment methods, which should serve PaySafe well over time.

According to our recent proprietary research, nearly 60% of consumers have tried a new payment method in the last twelve months. Moving on to our strategy. For anyone new to Paysafe and our story, I really encourage you to review our recent Analyst Day presentation. We provided ample detail during that event back in March, which I won't repeat today, but I do think it's important to recap a few points. First, PaySafe is a scaled and truly unique payments company with our goal to be the leading specialized payment platform.

What do I mean by that? We're a company with differentiated products on both the consumer and the merchant side, creating a powerful two sided network. Moreover, our powerful Skrill, NetTeller and PaySafe card brands provide millions of consumers valuable ways to make payments and send money in all forms of digital commerce. We match our products with strong risk management expertise that's very hard to replicate along with scale global technology platforms that allow us to deliver payment solutions in hundreds of markets. Lastly, and very importantly, we like to approach the market focused in deep verticals like iGaming requires knowledge of multiple ATMs, strong risk management and ease of integration.

When that combination is required, we know that Paysafe has the right to win. In terms of how we deploy that strategy, we really focus on four key growth pillars. First, we are positioned to be the true winner in high gaming, which includes online sports betting, casino and poker, fantasy and eSports. In particular, we have a strong position to win the fast emerging U. S.

IGaming market. Second, the strength of our products, including Skrill, NetTeller and our eCast solutions, combined with our strong e commerce capabilities, position us well to win beyond iGaming, including digital goods, trading and financial services, travel and entertainment and some select integrated verticals, With 75% of our revenues coming from online payments and our focus in specific industry verticals, we're exposed to the faster swim lanes of growth in the payments market. The third pillar, which we spoke about in great detail during Analyst Day is our transformation plan, which is well underway and we are already delivering rising operating leverage across all areas of the company. And finally, we see multiple consolidation opportunities in the market to enhance our position in North America iGaming, digital wallet expansion and e commerce verticals. So that's a bit of a summary of what we said during the last Analyst Day in terms of our strategy.

So now let me move on to what we actually did in the first quarter. Let me first start with North American iGaming. At the Analyst Day, we talked a lot about the iGaming market and how PaySafe is the de facto payments partner of choice serving the majority of regulated iGaming industry with more than 1,000 gaming operators who use one or more of our products around the world. We also talked about our strategy to grow the emerging U. S.

Market, where we already have integrations into approximately 75% of all operators. So let me provide some key updates on our activity in the first quarter. Revenues from North America iGaming grew 66% in the first quarter. Paysafe launched in both Michigan and Virginia in the first quarter. Now we are live in 15 states across The U.

S. We also expanded and deepened our presence with a number of exciting wins during the first quarter and early second quarter. Our U. S. Lottery business has enjoyed significant growth buoyed by our expanded partnership with Jack Pocket who recently launched in New York.

In March, we expanded our U. S. Partnerships with PointsBet in Michigan. We're also expanding our relationship with Parks Casinos, leveraging our Playtech integration, where we are live in Michigan with plans to expand in other states. In Virginia, we are going live with WinBet on the back of our relationship with BetBull, which is powering their business.

Additionally, we also expanded our strong presence in Colorado with our launch of PlayUp. And moving on to Canada, we continue to have a dominant position and as announced in a recent press release, we now support Alverta's only regulated online gambling website. In addition to expanding our payments integrations in multiple states, we also talked about making key product enhancements, specifically with our Skrill digital wallet. We focus on driving instant funding in the wallet where we think there is a material gap in the market. The feedback from our product from early discussions with key merchants has been very positive and we're on track for upcoming pilots with several major brands.

Overall, we're incredibly pleased with the traction here, both from an execution and a market perspective. Now let me turn to how we're growing in emerging verticals. We have seen strong growth in trading and financial services as well as in digital goods such as online gaming. Of particular note has been the overall strength of our eCash business growing 60% year on year as it expands into new markets as well as crypto trading in our Skrill wallet. In online gaming, we continue to gain traction.

We're live in 20 countries with Microsoft and we continue to expand that relationship and our presence as an active sponsor of the Esports League continues to drive true user engagement. We've been very active in other emerging markets, particularly making good strides across crypto and trading, supporting neobanks and other financial services. We saw strong Q1 growth in crypto and FX trading volumes within digital wallets. Of particular note, in March, we expanded our partnership with Coinbase to include the ability to trade cryptocurrencies in The U. S.

Market. We are live on 27 crypto sites and exchanges for digital wallets, with seven of those sites also live for processing as well, a good example of the two sided network. In eCash, we're becoming a meaningful player supporting financial services, including partnerships with banks and neobanks. It includes the pilot with TSB and Diebold Nixdorf building on some of our prior announcements including Moniz. Additionally, we continue to see progress in integrated software verticals with Ascend and Campminder as two recent wins.

Now let me move on from the emerging verticals into the transformation proof points. We've also made progress on our transformation initiatives and the Foley playbook to accelerate global scale and unlock value. We are well on track to meet or exceed our target to migrate 70% of our business across Pacesafe to the cloud by year end, effectively having 100% migration by early twenty twenty two. We're seeing improvement across both risk and banking as a service. These actions are lowering our loss rates and bank fees as we improve risk analytics and partner with more Tier one banks.

We've also kicked off a number of initiatives to capture further cost savings across multiple functions. In Q1, our SG and A costs were down approximately 4% versus prior year and we see a continued path to driving positive operating leverage. Now moving on to the last pillar, we remain active in the market regarding deals assessing potential opportunities to enhance iGaming, consolidate digital expand our e commerce footprint. Before we move on, I'll make a quick comment on the financial results and Izzy will take you through the details. While we are seeing growth and strong underlying trends across the business in all the right places, This growth has been somewhat tempered by measures to improve the overall risk reward profile in certain markets and channels.

As we mentioned during the Analyst Day, the majority of these actions took place in 2020 and we expect to truly lap these issues in the second half of this year. As a last point, I want to finally thank my Paysafe team members around the world. Our success to getting this moment is a true testament of the hard work and dedication from everybody. We're really pleased to have given all the employees equity in the company, really instilling an ownership culture across Pacesafe as we start this new chapter as a public company. With that introduction, I'll now turn it over to Izzy.

Speaker 3

Thanks, Philip. Now let's turn to Slide six and start with a brief summary of our performance versus our guidance for the first quarter. Revenue and EBITDA came in at the higher end of our guidance. Gross profit and expenses were right in line. Overall, we delivered solid performance versus our expectations for the quarter.

Now let's turn to Slide seven. Volumes are up 8% year over year driven by Integrated Processing and eCash. Total revenue for the first quarter was $377,400,000 up 5% year over year driven by strong growth in our eCash segment. Excluding the impact of the pay later business, which was divested in July 2020, revenue would have increased approximately 7%. Further adjusting for the actions we have discussed on our Analyst Day and continued risk reward optimization in our business model, our revenue growth would have been in the mid to high teens.

Adjusted EBITDA for the quarter was $113,200,000 essentially flat compared to the prior year, resulting in an adjusted EBITDA margin of 30% compared to 31.4% the prior year. The decrease in margin primarily reflects business mix in integrated processing and digital wallet, partially offset by e cash margin expansion. Lastly, free cash flow was $109,000,000 or 96% conversion on an adjusted EBITDA basis, which included a $45,000,000 benefit from the utilization of bank guarantees at the end of Q1. Next quarter, we expect free cash flow conversion in line with typical levels. Moving to Slide eight, I will quickly touch on a few additional line items including our GAAP results.

Depreciation and amortization was $65,500,000 which is 6% lower than last year. Interest expense was $58,500,000 and 53% higher than last year, driven by the acceleration of deferred debt financing expense as we paid down debt at the end of Q1. For Q1 twenty twenty one, our net loss was also impacted by share based compensation charge relating to the shares that invested on the completion of the transaction. Moving to Slide number nine for a discussion of the segment results, starting with Integrated Processing. Volume growth was strong, up 17% in the processing business led by The U.

S. Market. We saw increased volumes across most of our industry verticals, while travel and hospitality are still subdued relative to Q1 twenty twenty. Revenue for the first quarter was $176,900,000 a decrease of 5% compared to the prior year. Excluding the pay later business, revenue declined 1% as growth from U.

S. Payments processing and iGaming was offset by lower revenue from our direct marketing channel. Adjusted EBITDA was $44,900,000 compared to $55,200,000 in the prior year. Adjusted EBITDA margin of 25.4% decreased due to merchant and channel mix, partially offset by lower credit losses due to a one time event in the prior year. Excluding the impact of pay later and the discrete actions that we have taken to improve our risk reward profile, revenue and integrated processing would have increased approximately 5%.

Now let's turn to eCash on Slide 10. ECash revenue for the first quarter was $112,900,000 an increase of 63% compared to prior year, driven by extended lockdowns in Europe and associated increase in spending more online in all verticals. Adjusted EBITDA was $48,100,000 more than double 2020, resulting in an adjusted EBITDA margin of 42.6%, an increase of nine fifty basis points year over year. Moving to Slide 11, we shift our focus to digital wallets. Revenue in digital wallet segment for the first quarter was $94,900,000 a decrease of 13% compared to the prior year and performance was impacted by the targeted actions and country exits from last year that we have discussed in our prior Analyst Day.

Excluding this impact, digital wallets revenue would have grown approximately 6% driven by higher iGaming and crypto and FX trading activity. Adjusted EBITDA was $37,800,000 compared to $53,700,000 in the prior year. Adjusted EBITDA margin of 39.8% decreased year over year driven by the changes in gross profit margin due to the business mix and increased investment in marketing and operations. Moving on to Slide 12. Total debt outstanding at the end of the quarter was $2,100,000,000 as of March 31 And our net debt to last twelve month adjusted EBITDA ratio was 4.2x, reflecting repayment of approximately $1,200,000,000 of debt post closing of the merger.

In April, Moody's upgraded our corporate and first lien rating to two notches by two notches to B1. S and P also upgraded our rating by two notches to B plus We expect leverage to decrease approximately 2.7x by year end as well. Finally, we continue to evaluate whether our current debt profile can efficiently be refinanced, which will further improve our leverage profile and create additional flexibility. Moving on to Slide 13, we did now discuss our outlook for Q2. For Q2 twenty twenty one, we expect revenue in the range of $365,000,000 to $385,000,000 on a reported basis, with strong growth across all our businesses.

Gross profit is expected to be between $225,000,000 to $235,000,000 and adjusted EBITDA between 110,000,000 to $120,000,000 On Slide 14, we move on to the full year. Our expectations as a whole remain in line with guidance provided at the Analyst Day. For revenue, however, we are lifting the low end of the guidance and now expect revenue in the range of $1,530,000,000 to $1,550,000,000 This reflects year over year growth in the range of 9% to 10%, which excludes pay later from 2020. In the second half of the year, will see our revenue growth reflect the strength of our business model as we lap the legacy issues that impacted our growth in Q1. We continue to expect gross profit of $930,000,000 to $970,000,000 For adjusted EBITDA, we continue to expect $480,000,000 to $495,000,000 With that, I'll now turn the call back over to Philip for closing remarks.

Speaker 2

Thanks, Izzy. In summary, we're executing well against our strategy. We are lapping our key legacy issues. We're winning deals in The U. S.

IGaming market at a rapid pace. We're expanding in high growth emerging verticals across digital wallets, e cash and e commerce. We are seeing strong recovery in our U. S. SMB business.

We're delivering against the transformation plan and we're well positioned for consistent organic and inorganic growth. With that said, I think we can now move to the Q and A section. Thank you very much.

Speaker 0

Thank you, sir. At this time, we'll be conducting a question and answer session. Our first question today comes from Darrin Peller of Wolfe Research. Please proceed with your question.

Speaker 4

All right. Hey, guys. Good morning. Thanks. When we look at your results, I think you called out that revenue growth would have been, I think you said mid to high teens, if you were to back out the impacts from the network partners, the referral partners and the digital side.

And then merchant obviously had a portfolio change to derisk. Can you just touch on is that the normalized growth we should expect as we start to go in the next couple of quarters? Obviously, you have comps that impact a lot. But just remind us on a segment basis perhaps and then overall, what do you guys see this company growing at, again, segment more normalized when you anniversary these changes

Speaker 0

on a

Speaker 4

per segment basis as well as company wide?

Speaker 2

Hey, Darren. So it's good to talk as always. It's good to chat. Yes, look, so in terms of the change, there are basically three components worth calling out that Izzy laid out, right? So one is the disposal of pay later last year and that's a simple kind of pro form a math.

The second one is, as you called out, was on digital wallets where we're very consistently talking about that through the pipe raise and on Analyst Day. We exited segment lift kind of channels and markets, which we didn't think were good for our clients or for us. Those were kind of Q2 and Q3 actions of last year, and we see ourselves starting to lap that in Q2 and Q3 of this year. And then in the direct marketing vertical, we a significant player there. And more recently, at the end of the year, we strategically took a decision to anticipate some upcoming scheme rules and views on that market.

And as a result of that, we wanted to get out ahead and we exited a discrete set of clients. It's a very ring fenced piece. We did that in late December and we worked through that, basically through kind of early Q1. As we stand here today, we're very well positioned in that business. We have one of the broadest sets of capabilities and capacity to manage direct marketing volumes.

Trading in May is strong and going in the right direction, and we'll lap that specific issue in Q3 of this year. So those are the three components. They were all kind of captured. The impacts of those decisions were all broadly in our March 9 guidance. And as you kind of call out, what we've highlighted, we're really happy with the growth trends of the business and in the right places.

So we see ourselves lapping those issues through Q2 and Q3. We won't have the very high PaySafe card growth as well. So that will taper down a little bit on year on year. When that all kind of blends through, we definitely see ourselves in that kind of 11%, 12%, 13% range of growth as a consistent business. But let me turn it over to Izzy, kind of if you want to add anything else to that.

Speaker 3

Sure. Thanks, Philip. So Darren, putting a finer point on Q1 specifically to help you guys kind of do the math and how we get to the mid teens. So specific to some of the scheme changes that Philip talked about, we believe in Q1, that's roughly a $10,000,000 impact year on year. And the network accounts and those channels that we exited year on year is roughly $20,000,000 So if you add the two, it's about $30,000,000 impact year on year.

And if you wanted to adjust for those, that's how you see how we get to the mid teens growth overall for the company. I just want to reiterate, Philip said, these are items we have obviously discussed, talked. We feel comfortable with not comfortable, but we're reaffirming our full year guidance. So these are things we're aware of. And you'll see the real performance kind of start taking shape as you lap these legacy issues in the second half of the year.

Speaker 4

Okay. And so that partly explains the yield compression you're seeing in the integrated side also. We're just getting some questions on the volume Exactly.

Speaker 3

100%, yes.

Speaker 4

When we look at and then just my follow-up is really around the strategy on the digital wallet side and revisiting all the new initiatives you've built out. I mean, it's a lot of what I know investors are excited about with the stock and the story overall. So if you

Speaker 0

could just update us on what kind

Speaker 4

of progress has been made over whether it's the expansion into areas like crypto, how that's going or remittance? And then any progress on partnerships with The U. S. Gaming, specifically to bring the wallet more to The U. S.

Market? Thanks again, guys.

Speaker 2

Yes. I'll make a couple of comments on digital wallets. One is in regards to Skrill and NetTeller. And the other one is to our eCash business too, which has a very strong wallet profile. It's effectively emerging as another wallet business.

Both of those are driving growth and a lot of upside for us going forward. So in terms of initiatives, we've certainly been really pleased with crypto trading. As we said in our announcement, we're live at 27 sites. We get very strong and consistent sign ups now, not just from gambling operators, but from FX and crypto trading sites. With our partnership in Coinbase in March, we expanded our ability to trade crypto in The U.

S. In 27 states. So today, we could do multiple functions, so fiat to crypto, crypto to crypto trading. We could do advanced orders. We could trade 15 currencies in 90 countries now.

So we think we are building a wallet that can really enable crypto trading. And over time, we'll be looking at expanding crypto to merchant capability. On a limited basis, we'll go slower on this is crypto to fund the wallet. But there those will take some changes and some compliance views to build that out. But we have a road map where we think we can be a player, not only in gaming, but in trading that's strong.

Remittance continues to be strong, especially as we move up to Tier one bank relationships. Our cost to serve goes down, and that creates more kind of tailwind for us in that business. And then most importantly in Skrill and NetTeller is The U. S. Market.

We've been really focused on driving instant funding in the wallet. We mean literally on the spot instant funding with a focus on the VIP client base. That's a gap in The U. S. Market.

We've built the product. We have pilots set up with four, five very large brands that we plan to test over the summer in anticipation of the NFL season. So, we're really pleased with that. We're pleased with how we've developed that product. We're very pleased with how partners have reacted to it and reaffirmed the view that a gaming focused wallet focused on their VIP players who drive a large part of the cashier volume is a need in the market and that Paysafe is really uniquely placed as a company to solve that.

So, those are some of the flavors when we think about the wallet and the trajectory. We're working through some of these legacy issues. They are painful. We've spoken about that before. And so we think we're well positioned there.

Also, just to call out on our eCash business, that business, we called this out at Analyst Day as well. We started really moving to the My Paysafe card app, where you can store the funds on an app, right? So it's no longer just a pre or postpaid transactional account, but it's a stored value APM. We're also once we have that done, we'll be expanding an IBAN account and other payment forms into that app. It's effectively a digital wallet.

We've gone from a standing start on that progress to where we'll have 80% of our revenues will go through the My Paysafe card app by the end of this year. So we also see that as one of the drivers of eCash growth, as it becomes another wallet serving more Gen Z and millennial type customers versus the more sophisticated digital traders and gamers on Skrill.

Speaker 4

All right. That's great. Thanks again, guys.

Speaker 2

Thanks, Darren.

Speaker 0

The next question is from Dan Perlin of RBC Capital Markets. Please proceed with your question.

Speaker 5

Thanks and good morning guys. I wanted to just talk a bit about, it looks like within the digital wallets, you just explained a bunch of these things, this might be the reason. But the take rate there versus the integrated place where we saw a little more degradation, here we saw it actually expanding quite substantially. And so I'm wondering a couple of things. One is just making sure we understand how to reconcile that lift on a year over year basis.

And then secondly, is this kind of the run rate that we should be modeling? Is there any cadence as we think about it? I know you talked about the second half of the year, having some So lapping could you just speak to that point first? Thank you.

Speaker 2

Sure. Hey, Dan. Nice to hear from you. So I'll turn it over to Izzy to talk about the take rate mix and what's going on there.

Speaker 3

Yes. So let's start, Dan, with digital wallets. Yes, pretty meaningful we think a meaningful uplift in take rate and the combination of two factors. Again, we love the fact that our users, our consumers use their wallet for multiple things. So first, the exit of the channels we discussed, which impacted revenue, also kind of impacted take rate on a downward basis.

But on the flip side, the increased crypto volume, FX trading volume that we saw combined, we'll call it the crypto FX volume, actually increased take rates for digital wallets because that's a big, big driver. I mean, higher take rates of the general wallet transaction. So that explains kind of the take rate bump versus the revenue decline in digital wallets. So again, just a mix of how our consumers are using the wallet to do their activities. On the integrated processing, it really is pretty simplistic.

The scheme rules and the likes that Philip mentioned earlier, really is our direct marketing business, which have higher take rates. As a matter of fact, if you saw our volumes in integrated processing grew pretty solid year on year, and is primarily e commerce driven with lower take rates. So a combination of the decline in the direct marketing piece and just the general e commerce growth contribute to the take rate difference on the integrated processing side. So overall, as a company, I believe our take rate was impacted by roughly 10 basis actually, it was kind of flat year on year for the most part and kind of balance those two out.

Speaker 5

Okay. No, that's really helpful. And then my follow-up question is on USI Gaming. There's a lot of things that are taking place there. It sounds like you've gone into some additional markets and there's others that are expected to open up.

I'm wondering if you could just kind of help us understand how you're envisioning that playing out throughout the year, the amount of investments that are necessary to truly drive brand awareness. You mentioned kind of some of the things you're doing in Squirrel and Nettoire Wallets. But I'm just trying to make sure I understand the cadence of how that is expected to roll out and then the investments behind that. And then just secondarily on the transformation piece, where do you guys stand? I know we're early in the year, but where do you stand on achieving that?

I think it was $26,000,000 of kind of cost takeout that you were expecting in 2021. Thank you.

Speaker 2

Thanks, Dan. So on the USI Gaming piece, let me break out to two pieces. So one is in terms of what we expect to happen. One, in terms of the market, obviously, anyone that follows could see there's a tremendous amount of activity both from online and casino players, but also from states. So we currently see 10 states with real activity.

We see Arizona, Maryland, New York and Wyoming, all with pretty advanced legislation and plans to go live as early as the second half of this year. But also Florida, Louisiana, Ohio, Connecticut, Massachusetts and Maine, also with active legislation with plans to go live sometime some as early as this year, if not early twenty twenty two. So, we see a path where you can have up to 25 of the 50 states opening up gaming. So, that's a very nice tailwind. Two, the playbook that we consistently talked about is, one, integrate, integrate, integrate now.

You have to integrate with the online gaming players. You have to integrate with the player account management platforms like Scientific Games and Playtech. And you're gaining that ground by servicing the processing side, right? So that's debit and credit card processing plus ACH connectivity. So we're winning in that space, right?

We a large share of the players. As they open up states, we're there. We mentioned parks, which is a big Playtech play. We mentioned WinBet and BetBull. So we and we're live in those states in multiple states.

So we'll be well positioned there. So that's the first part of the formula is drive that and grow. The second part of the formula, which we've seen in other markets, is to really develop the digital wallet play over time. Now that's a second follower. And our view is to attack that VIP segment.

That's why the instant funding capability that we've done, we've got an integration on the back end with Plaid to power that. We pilot through the summer. We start to see pickup on that piece as we go into the fall, and that becomes a second engine of growth on top of the payment processing growth where we really are integrating and leading the market there. So that's a little bit how we see that playing out. In terms of marketing dollars, we will be doing some pieces, but as Skrill takes off and the pilot takes off, you'll see us start to ramp up some of the marketing on the Skrill brand towards the end of the year and into 2022.

So that's a little bit there. We feel really good about that. And then the last part, in terms of the cost takeouts, we have had a strong program. We've also worked with all the kind of Foley family of companies on the kind of transformation projects they have and specific incentives. So we've implemented a lot of pieces to follow the Bill Foley playbook.

We have $30,000,000 of cost of repeatable cost takeout in our kind of guidance numbers for this year. That's about a $45,000,000 exit run rate for next year. And there are several other activities that we're building in the pipe to augment that into 2022. So we do expect EBITDA margins to expand in the back half of the year to continue to have a steady drumbeat going into next year as well. So it's a lot of focus activity there.

Speaker 5

That's great. Thank you so much.

Speaker 0

The next question is from Jamie Friedman of Susquehanna Financial Group. Please proceed with your question.

Speaker 6

Hi, good morning. Let me echo the congratulations. Philip, I wanted to ask in your prepared remarks, you had commented about strength in April, I think. I was wondering if you could elaborate that, either qualitatively or quantitatively?

Speaker 2

Yes. So, no, we're definitely seeing as we look at the early results for April and even some very, very early results in May, we continuously be pleased with where the top line trends are going. We've had some actual record days in e commerce processing, historical records, not just recovery records, but historical records, as we've expanded our ecom into some crypto trading sites. We're seeing travel come back. So we're seeing some really nice proof points across the board.

ECash continues to remain very strong, not only in terms of online adoption, but also the move to the MyPaySafe app as well. I don't know, Izz, if you want to add anything to that.

Speaker 3

Yes. I'll just add. I know numerically, I'd love to say some things, but I'll tell you, April was probably very depressed. April this year has been incredibly solid. So we have, I'll say, pretty significant growth, at least in the month of April in our volumes.

How that will play into May and June, we'll see, fingers crossed, as the world goes through different speeds of COVID recovery, right? And but so far, off April off to a really solid start from all the metrics that we track and see.

Speaker 6

And then as my follow-up, so Philip, again, think in your prepared remarks, you had observed that 75% of the volume is online. Can you dimensionalize the growth of the online versus the offline at least qualitatively again?

Speaker 2

What we've seen is, outside of, of course, the direct marketing vertical, we've seen strong, very strong double digit growth, generally speaking, in our e commerce businesses. Now, obviously the iGaming businesses is an e commerce business, Trigger that's growing at extremely high double digits. But across the board, we're very happy with our e commerce business and we've been investing in sales and capacity on that front. Got it. I'll drop back in the queue.

Thank you. Thanks, Jamie. It's good to hear from you.

Speaker 0

The next question is from Josh Levine of Autonomous Research. Please proceed with your question.

Speaker 7

Hi, good morning. I have two questions. Number one, of the you called out 66% growth in North America iGaming. Can you tell us how much came from processing versus digital wallet versus eCash? And then the active users for digital wallet, 3,500,000, that number looks unchanged from the last report.

Is that a current number? Or is it dated? Or if it is a current number, why has it not changed? Thank you.

Speaker 2

Do you

Speaker 3

want to grab that one? Yes. Hey, Josh, good to hear from you as well. Hey, on the North America iGaming, predominantly all our volume right now is gateway or e commerce related. The wallet really doesn't roll out in full force till the second half of the year.

And this is the comment around the instant instant funding program that we're rolling out with in concert with Plaid supporting us. So pretty much all the growth is in e commerce activity, which kind of pretty much is in line with what kind of what the market would have expected, maybe a little better as well. In terms of 3,500,000 active users, no, it's static. It's unchanged from the

Speaker 2

end

Speaker 3

of Q4. So it's an update number. We we're still as said, we're still lapping through the channel exits and the like. Obviously, the muted in Q1 impact in Q1 twenty twenty one is less, but there's still some impact. And then we'll continue to update that as the quarters go along.

Speaker 2

Thank you.

Speaker 0

Our next question is from Mike DelBasso from Compass Point. Please proceed with your question.

Speaker 8

Good morning. Thanks for taking my question. Question

Speaker 2

on

Speaker 8

the integrated processing volume growth this quarter 17%. I know there was some channel exits in there, but could you kind of help us out as far as some of the other verticals, how those performed relative to your expectations, whether it's SMB or travel or some of the other segments? Thanks.

Speaker 2

Yes. Generally hey, Mike, thanks for the question. So, generally, across the board, what we're seeing is a really robust recovery across our SMB portfolio. That's strong. That tends to be on the smaller side of SMB, which is where we like to operate.

There's a lot of kind of restaurant and retail in that space, which has been very good. Two, we have a Petro business, which also continues to perform extremely well on that front. But across the board, The U. S. SMB recovery is a nice tailwind for us across.

Two, we are seeing some return to travel. We actually had a decent amount of health and wellness, actually camps as well. So those are other sectors which we see continued emerging tailwinds. And then finally, we did mention that while we're available on 27 crypto trading sites with a digital wallet, we're also available we're also processing on seven of those sites. And that's a great story of Paysafe working together.

Really, we've got a client, you get a hook in with a product, and then we're able to introduce the wider relationship. And that's really worked in both FX trading and crypto trading, where we've been working very closely. The teams are working very closely in grabbing not only wallet share, but processing share. And we see that as a really nice growth engine for us that we'll continue to develop. Izzy, I think you want

Speaker 3

add? Yes. Mike, one of the quick things that is interesting, as mentioned as Philip mentioned, really good strength across multiple sectors. The travel and hospitality piece is really interesting because we really start seeing that pick up more in April, right, as some of their state restrictions came down and things started opening up. So that kind of also supports the strong growth in April as retail and restaurants and petrol, health and wellness continue into Q2 as well.

So far, I mean, knock on wood here, but we see really strong green shoots across our integrated processing business, across every vertical.

Speaker 8

Great. And then, I guess my follow-up is on the USI Gaming opportunity. I know you've had a lot of qualitative comments today on it and then you've got the 66% revenue growth in Q1. But just stepping back, as we think about the incremental state legalizations, I think you mentioned 25 of the 50 maybe legalized here in the next twelve to eighteen months. Like how is that how does that compare to your initial presentation last March and

Speaker 3

kind

Speaker 8

of your existing expectations relative to what they were then. Is this upside to kind of the story or

Speaker 2

Yes, it's a good I think there are two ways to answer that. Generally speaking, it's happening better and faster than what we spoke about kind of you look back at kind of Q3 and Q4 or Q4 when we were talking about it initially. So generally, it's going at a strong clip. We did believe that COVID and state budgets might be an accelerating force, and we think we're seeing that happen. New York is a great example of that.

So, overall, that's a positive trend and slightly more optimistic than what we would have said. The only caveat as we go through on a state by state basis, not every state opens up the same way. Some are opening up for multiple operators. Some will open up for lottery first and then sports betting second. Some states like New York will be very specific and only allow a very select few of operators.

So if you're integrated into that operator, that's great. If you're not, you might miss out on more of the chance of that state. So there's a little bit of a nuance, Mike, as you drill down on it. But generally speaking, we are very well integrated across the big important player account management systems. We're very well integrated with all the big names or the majority of the big names.

So that does serve us well as these states open up at a more accelerated pace.

Speaker 8

Great. Helpful color. Thank you.

Speaker 2

Thanks, Mike.

Speaker 0

The next question is from Timothy Chiodo of Credit Suisse. Please proceed with your question.

Speaker 9

Great. Thanks for taking the question this morning. On SMB within Integrated Processing, roughly half or so of the segment revenue, maybe you could just talk about the component there that is the Clover business. I understand you guys are one of the largest resellers of Clover. Maybe just talk about the relationship there, how large that business is for you and how that grew maybe compared to the overall and compared to the rest of the SMB portfolio?

Speaker 2

Thanks, Tim. We've definitely talked in the past that we're definitely one of the larger resellers of Clover smart devices in the country. It's a great relationship with First Data, which we continue to have. So that's been a strength. I don't have to hand the exact cut of Clover terminals and the share.

We could certainly follow-up in a subsequent call and get you that breakdown. Where the real focus for us has been, we've really been focusing on driving scale and operational efficiency, improving auto serve, and we're very focused on having a single boarding capability where you can auto board onto the back end of either TSYS, First Data North or Omaha. That's actually a pretty powerful capability in this market that drives some extra pop. It attracts lots of agents and ISOs there. Two, we're also working closely with our e commerce gateway of integrating that more and more into our SMB offering as well.

So there are a couple of nice developments happening on front beyond the SmartPause sales, but we can follow-up on that.

Speaker 9

Okay, great. And then just related to the yield on the Clover business in general, would you describe that as relative to the overall segment's yield? Would you describe that as roughly in line, slightly higher, slightly lower?

Speaker 2

Tim, I'm sorry. You said the yield on which business? I didn't pick that up. Apologies.

Speaker 9

The Clover portion of the SMB business.

Speaker 2

Is there a higher yield on the Clover portion? We have to double check, but I would suspect there's not a meaningful delta in yield between selling a what's going to really drive the yield is the size of the merchant and the vertical more than the actual pause at the end of the day. So that's certainly the way we've approached from pricing. But we can come back with a confirmation of that.

Speaker 9

Okay, great. Thank you so

Speaker 3

much for taking the questions.

Speaker 2

Thanks, Jim. Good to from you.

Speaker 0

There are no additional questions at this time. I would like to turn the call back to Philip McHugh for closing remarks.

Speaker 2

Thanks. We have a large crowd on the phone, so thank you for everyone for joining. Thanks for the questions. We look up to look forward to some follow-up sessions and to updating on the performance and growth of where we're taking Pacesafe. Thanks everybody.

Speaker 0

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.