Paysafe - Q3 2023

Transcript

Operator (participant)

Hello, and welcome to the Paysafe Q3 2023 earnings conference call and webcast. If anyone should require operator assistance, please press star zero on your telephone keypad. A question-and-answer session will follow the formal presentation. You may be placed into question queue at any time by pressing star one on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Kirsten Nielsen, Head of Investor Relations. Please go ahead, Kirsten.

Kirsten Nielsen (SVP, Investor Relations)

Thank you, and welcome to Paysafe's earnings conference call for the third quarter of 2023. Joining me today are Bruce Lowthers, Chief Executive Officer, and Alex Gersh, 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 report. These statements reflect management's current assumptions and expectations and are subject to factors that could 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.

Bruce Lowthers (CEO)

Thanks, Kirsten, and thank you all for joining us today. Let's jump right in. This marks our fifth consecutive quarter of year-over-year revenue growth, demonstrating progress on our turnaround and strategic initiatives. Our third quarter performance shows growth across our key metrics, including volume, revenue, Adjusted EBITDA, Adjusted EPS, and last twelve-month Free Cash Flow, building upon a strong first half of the year. Third quarter revenue of $396 million increased 8% year-over-year, or 5% on a Constant Currency basis, with trends consistent with what we discussed in the second quarter. We recorded 6% growth in the Merchant Solutions segment, led by double-digit growth from e-commerce. In the Digital Wallets segment, revenue increased 12% on a reported basis and 5% in Constant Currency, driven by double-digit growth in classic digital wallets, which was partially offset by softer performance in eCash.

Third quarter Adjusted EBITDA of $116 million increased 22% year-over-year and 18% constant currency, reflecting 320 basis points of margin improvement. Our net leverage ratio was 5.1 at the end of the quarter, down from 5.8 at the end of last year, and well ahead of our original target for 2023. Based on our strong progress and financial results to date, we're pleased to reaffirm our full year guidance for 2023. We also announced today that our board has authorized a share repurchase program, giving the company the opportunity to repurchase up to $50 million of common stock. We remain highly focused on investing in our business to support growth while continuing to reduce leverage. I would also like to congratulate our team for receiving several awards during the third quarter.

First, Paysafe won Best Digital Wallet at the Digital Bankers Global Payments Innovation Awards, and we're also highly acclaimed for Best Payments-led Financial Inclusion Initiative. In the iGaming vertical for the third straight year, we were recognized as the Payment Service Provider of the Year at the prestigious American Gambling Awards from Gambling.com Group. We were also recognized on CNBC's list of top fintech companies in the digital payments category. It's always great to see our teams recognized for their dedication to delivering exceptional payment experiences. Turning to slide 4, I'll reiterate that we continue to make progress across our strategic focus areas. Starting with sales transformation. In the third quarter, we closed 45 enterprise deals, which we define as agreements with more than 100,000 each in annual contract value.

As we've discussed previously, our wins with both new and existing clients were supported by our new vertically focused go-to-market structure, which has improved our ability to sell Paysafe as a strategic payments partner. We've also been committed to improving the customer experience for both sides of our ecosystem. On the merchant side, one of our focus areas has been to drive greater deal efficiency, including faster onboarding. As just one highlight, when we look at merchants onboarded in September, our average contract to launch timeframe was 10 days earlier than what we were delivering in Q2, which reflects 14% improvement over the previous quarter. Continued focus on process improvement, system consolidation, and the creation of targeted customer success team is driving the optimization in this area.

On the consumer side, we continue to see ongoing progress in our funnel optimization and improvements to the gateway experience. For example, our merchant checkout conversion is up more than six percentage points year-over-year, reflecting a number of enhancements, such as the optimization of merchant integrations, simplified login and registration flows, better analytics, and better payment method selection. On product innovation, in addition to the improvements to product usability, we've talked about leveraging our wallet platform to drive value for our clients and bring together merchants and consumers. In Q4, we are conducting the initial launch of the Paysafe Business Wallet, a digital wallet for U.S. SMB that uses the digital wallet to collect merchant acquiring settlement.

Over time, the range of money movement capabilities and services will be expanded with a longer-term product vision to combine foundational capabilities, along with addressing the underserved needs of our SMB clients. Ultimately, we're focused on driving the wallet here in the U.S. in a way that adds value for our merchants, while also creating a flywheel effect. Lastly, we recognize the unique opportunity to enhance and broaden our wallet platform for unbranded solutions. Our foremost objectives are to enrich the capabilities of our wallet platform and facilitate the growth and success of our merchant partners. Our focus is on empowering businesses to create customer experiences aligned with their brand by leveraging the advanced features of our platform. We are well-versed in the regulatory landscape and licensing requirements, which our clients and prospective clients appreciate in Paysafe's offering.

We're enthusiastic about advancing these initiatives with a number of key deals in the near-term pipeline. Moving to slide 5. I'll provide some additional color on the progress that we're seeing across the sales initiative. In the third quarter, we saw balanced deal activity across our target verticals with including new merchants, continued strength in cross-selling to our client base, and expanding geographically with our clients. We now have doubled our sales headcount in direct sellers versus the same time last year, and we saw 103% Net Revenue Retention through Q3 year to date, which has been supported by the work we've done to realign our account management resources. As another highlight, we're very pleased to announce a new partnership with Fanatics Betting and Gaming, a major brand here in the U.S.

Paysafe is providing Fanatics with an all-inclusive payment solution implemented through a single streamlined integration, offering sports bettors an unprecedented range of options for making deposits and receiving payouts. Moving to slide 6. We've talked about our unique advantage in the North American iGaming, which is a small but high-growth market for Paysafe. We are very strong in card acquiring and gateway, currently live in 30 states with over 50 operators, in addition to our strong position in Canada. So again, through one integration, an online gambler at a merchant—a gaming merchant, can access to any form of payment for money in and money out. In addition to that, we also have very deep industry relationships and expertise, including high conversion rates and faster state entries, which is also how we attract and retain customers.

Now, with our new sales organization, we're even in better position to replicate this success across other key verticals. Moving to slide 7. For an update on our classic digital wallets, which is again, consistent with the update we provided in our most recent earnings calls. In the third quarter, we saw constant currency revenue growth of 17% from classic wallets, resulting in five quarters of consecutive growth for digital wallets. Much of this revenue growth comes from Paysafe's continued work to improve the customer and checkout experience by reducing friction, while we also focus on expanding the use cases of our unique wallet platform. This stronger engagement has resulted in double-digit growth in both transactions per active user and average revenue per user.

Digital Wallets is seeing ongoing stabilization in our active user base with approximately 900,000 three-month actives, and in this quarter, we can report growth of around 3% from the prior year. Moving to slide 8. As you've seen in our results, we have improved to 7% revenue growth year to date compared to flat performance for the same period last year, as well as a 120 basis point improvement in adjusted EBITDA margin. Here, we've broken out the puts and takes across our year-to-date results. We have seen double-digit revenue growth across the classic digital wallet business, as well as our e-commerce business, our high priority and high-value focus areas as part of the transformation. Additionally, our SMB ISO channel continues to perform, excuse me, continues to perform well, supported by strong demand for our differentiated offering for partners.

While we've made progress in the areas we set out to turn around and continue to execute that playbook, we still have the opportunity to pursue focused growth in other areas. We've seen softer performance this year in from the direct channels in U.S. acquiring, as well as our eCash solutions, which I'll discuss next on slide 9.... As we focus on 2024, we are addressing the softness on the direct side by 1, enhancing our product offering, 2, expanding our acquisition strategy, and 3, adding additional sales headcount, including a focus on moving upmarket in the direct business, which is more consistent with our customer profile of our ISO channel.

In eCash, in addition to enhancements to marketing and customer acquisition, we will focus on unifying our eCash technologies and distribution network while continuing to upgrade our customer experience by integrating our wallet features into the platform for a more engaging relationship to support user engagement and the graduation to our branded wallets. We believe both of these businesses should be roughly mid-single digit growers over the midterm, while we expect our digital wallet and e-com solutions to continue to see relatively stronger growth. With that, I'll ask Alex to review the financial results.

Alex Gersh (CFO)

Thank you, Bruce. Let's move to slide 11 for a summary of our financial results. Volume was $35.1 billion in the third quarter, an increase of 8% year-over-year, and total revenue of $396.4 million also increased 8% or 5% on a constant currency basis. Growth was led by double-digit volume and revenue growth in e-commerce within the Merchant Solution segment, as well as classic digital wallets, including the benefit of interest revenue on consumer deposits. This was largely in line with our expectations for the quarter, with the exception of FX, mainly the weakening of the euro as the rate trended lower during the quarter. This lowered our revenue growth by roughly $1.7 million or roughly 0.5%.

Adjusted EBITDA for the third quarter was $116.1 million, an increase of 22% year over year or 18% constant currency. Adjusted EBITDA margin was 29.3%, an increase of 320 basis points, primarily driven by lower credit losses and continued operating leverage. Our total SG&A was 30.6% of revenue in the third quarter, down from 36.1% of revenue in the prior year quarter. We generated $105 million in free cash flow for the third quarter, reflecting 91% conversion of adjusted EBITDA. On the LTM basis, free cash flow was $362 million, reflecting conversion of 81%. For the full year, we would expect to be in the range of 65%-70%.

Adjusted net income for the third quarter increased 21% year-over-year to $35.3 million, and adjusted EPS increased 19% to $0.57 per share as our growth and margin improvements more than offset increase in depreciation and amortization expense, interest expense, and taxes. Let's move to slide 12 to discuss the segments results, starting with Merchant Solutions. Third quarter volume in Merchant Solutions was $29.6 billion, an increase of 7% year-over-year, and revenue for the third quarter was $216.8 million, an increase of 6%. Performance was led by e-commerce, which continued to see strong momentum in North American iGaming, while also seeing growth from other verticals, including travel and fintech services.

In the SMB market, we saw continued growth in verticals such as eating and drinking places, grocery and petrol, and personal services. Adjusted EBITDA in Merchant Solution increased 26% to $57.5 million, an increase of 410 basis points, reflecting operational improvements, including lower credit losses, which more than offset a margin headwind from the channel mix, as growth in the SMB segment was again, particularly strong in our third-party partner channel. Turning to digital wallet segment on slide 13, third quarter volume in digital wallets was $5.6 billion, 18% increase year-over-year. Digital wallets revenue for the third quarter was $182.9 million, an increase of 12% year-over-year, and a 5% increase on a constant currency basis.

As a modest decline from eCash Solutions was more than offset by double-digit growth from our classic digital wallet. Growth from the digital wallet segment was also supported by the new product features launched in Q2, contributing 1.8% to growth, as well as interest revenue on consumer deposits. Adjusted EBITDA in the digital wallet segment was $79.9 million, an increase of 17% year-over-year or 7% constant currency, and reflecting a 43.7% margin, up 190 basis points. Turning to slide 14 for the summary of debt and leverage. At the end of the third quarter, total debt was $2.5 billion, reflecting debt repayments and repurchases totaling $22 million during the quarter.

Year to date through September, we have repaid approximately $112 million of our debt as we continue to take advantage of the market opportunity to buy back debt at discount to par. Our quarter-end net debt was $2.3 billion, and our leverage ratio was further reduced to 5.1 times compared to 5.8 times at the end of last year. I'll reiterate that we remain highly focused on reducing leverage, and we now believe that our net leverage will be approximately 5 times by the year end, well ahead of our target for this year. As you saw in our earnings release, Paysafe announced today that our board has authorized a $50 million share repurchase program.

With our healthy cash flow generation and consistent progress towards reducing our Net Leverage Ratio over the last several quarters, we believe now is the appropriate time to include share repurchases as part of our capital allocation strategy. We continue to expect the majority of our excess cash flow to be committed to deleveraging, while we also continue to invest in innovation to drive long-term growth. Moving to the full year, full year outlook on slide 15. Based on our strategic progress and results to date, we are maintaining our revenue and Adjusted EBITDA guidance for 2023.

Just to reiterate, our guidance reflects full year reported revenue to be in a range of $1.595 billion-$1.608 billion, and adjusted EBITDA coming in between $454 million-$462 million, reflecting adjusted EBITDA margin between 28.5%-29%. Please note that the euro to USD exchange rate was around 1.1 at the beginning of August and has averaged approximately 1.06 quarter to date in Q4. As a reminder, giving our geographical mix, every 1% weakening of the euro versus US dollar has an unfavorable impact of approximately $7 million on revenue annualized.

So while the business is performing in line with our expectations, if the euro remains at the current level or trends lower through the end of the year, this could put us towards the low end of the range. Now I'll turn the call back to Bruce for closing remarks before we take questions.

Bruce Lowthers (CEO)

Thank you, Alex. In closing, we're on track to achieve stronger growth and meaningful margin improvement in 2023, while reducing leverage, delivering on our strategic initiatives, and preparing for the next phase of our turnaround. Over the last four consecutive quarters, we've created momentum, improving year-over-year EBITDA growth, starting in Q4 2022 at 2%, Q1 2023, 4%, Q2, 10%, and now Q3, 22% growth. This strong progress has us excited about the opportunities ahead, and we are driving towards our midterm outlook of high single-digit to low double-digit revenue growth with further margin expansion. Now, let's begin the Q&A session.

Kirsten Nielsen (SVP, Investor Relations)

Thank you, Bruce. We'll take a couple questions from the Say Technologies platform, which allows shareholders to submit and upvote questions. After that, we'll turn to questions from our research analyst community. As a reminder, we may pass over any questions that we already addressed on this call or in prior recent quarters. We may also group together questions that share a common theme. Okay, our first question is from Mike, who asks: Does Paysafe have good board representation for retail shareholders? The company seems to be doing better, while the stock is trading near lows. Bruce, why don't you take this one?

Bruce Lowthers (CEO)

Thanks, Kirsten. Sure. Mike, great question, and thank you for the question. First, I'll emphasize, I believe that Paysafe has a very strong board of directors, with diverse perspectives and many decades of experience across finance, capital markets, e-com, iGaming, legal and compliance, and overall corporate governance. They're highly engaged and focused on doing the right thing for our shareholders. They do not believe that our current share price reflects the quality of our business or the opportunities ahead, which is why they have authorized a buyback program, which we announced today. So this gives us an opportunity to repurchase up to $50 million worth of our stock while we continue to generate healthy cash flow and prioritize reducing debt and investing in organic growth.

Kirsten Nielsen (SVP, Investor Relations)

All right. Thanks, Bruce. We also received a couple of questions regarding the profitability or financial viability of the company, as well as the competitive dynamics. Philip asks: How do you set yourself apart from the increasingly competitive field and reverse the losses? Bruce, would you like to take this one as well?

Bruce Lowthers (CEO)

Sure. I'll take the question, and thank you, Philip, for the question. I think it's important to correct any misunderstandings about the company's profitability or solvency. Paysafe has a healthy financial position. Our third quarter performance demonstrated growth across our key metrics, including volume, revenue, Adjusted EBITDA margin, Adjusted EPS, and last twelve months Free Cash Flow. When I first joined Paysafe in May of last year, we said that it'd be about a year to stabilize and to start turning around the performance of our higher value assets, such as e-commerce and Digital Wallets.

As we move into kind of year two of my term, we're seeing great results with 7% year-to-date growth, 120 basis point EBITDA margin improvement, and led by double-digit growth in these areas, specifically e-commerce and our classic digital wallet. While we're certainly not done, as we discussed in our prepared remarks, we're moving to the next phase of the turnaround and positioning the company for stronger growth in the future. When we look at the competitive deals we're winning, what our customers appreciate about Paysafe comes down to three key things: customer service, deep expertise across both regulatory and compliance landscape, and breadth of payment solutions, which enables the merchants to reach new customers and markets through a single integration.

We're also very excited about our product innovation initiatives, such as our Paysafe Business Wallet, which is launching in Q4, and we believe that will bring additional value to our customers and to Paysafe while expanding the scale and use cases of our wallet platform.

Kirsten Nielsen (SVP, Investor Relations)

...Okay, thanks, Bruce. Operator, can you please open the line for the analyst Q&A?

Operator (participant)

Certainly. If you'd like to be placed in the question queue, please press star one at this time. One moment, please, while we pull for questions. Our first question is coming from David Togut from Evercore ISI. Your line is now live.

David Togut (Senior Managing Director)

Thank you. Good morning. Looking at slide 9 on actions taken in 2024 plans, you know, which of these actions do you expect to have the biggest impact on 2024 revenue growth? And just to clarify, the midterm growth target you called out for both businesses in the mid-single digit, does that apply to 2024 specifically?

Bruce Lowthers (CEO)

Hey, David. Good morning. So let me start with the slide 9. So what we tried to highlight here is we really focused here in 2023 on the digital wallet and e-com side, two of our businesses that as I came in were really identified as our high-value businesses, really that drove the valuation of the company. When I came in, both of these were struggling, declining businesses. We've been able to focus on those as we've outlined and drive them into double-digit growth. So we expect that to continue as we move forward.

We also have some other businesses that, you know, as we look at those and try to address those in 2024, we've done some things here in the back half of 2023 to put us in position to execute of bringing those businesses, the SMB Direct and the eCash businesses, back in line with what we think they should be performing. And so those businesses, as we said in prepared remarks, are not performing to what we expected and have similar trend lines, where as we came in, they were kind of underperforming, and now we're focusing on getting those back together.

So we have done a number of the things to start moving the ball on those, and we remain optimistic that those will become mid-single digit kind of growth profiles for those two businesses. So I think, you know, as we talk about, you know, midterm, when we did the Investor Day, we were talking more not so much about 2024, but further out, and we were looking at 2025 being a low double-digit growth profile.

David Togut (Senior Managing Director)

Got it. Just as a follow-up, could you talk about expense management initiatives and operating leverage targeted for 2024?

Bruce Lowthers (CEO)

Yeah, I'll let Alex jump in on that.

Alex Gersh (CFO)

Well, I think if you saw what we talked about when we talked about the G&A as a percentage of revenue from 36% to 30%, you see that we continue very much to focus on the expense management. I think one of the things that Bruce has highlighted many times before is that as we bring the disparate businesses, the businesses that operated separately together, that drives a lot of that efficiency, right? So as we create a sales organization, product organization, marketing organization that serve the entire business. So those trends continue, and we would expect to continue to see those operating efficiencies.

In terms of the targets, at the end of the year, when we give you the guidance for 2024, we will talk about the targets at that point.

David Togut (Senior Managing Director)

Understood. Thank you.

Bruce Lowthers (CEO)

Thank you.

Operator (participant)

Thank you. Next question today is coming from Scott Wurtzel from Wolfe Research. Your line is now live.

Scott Wurtzel (SVP and Equity Research)

Great. Good morning, guys. Thanks for taking my questions. First wanted to start off on the wallet user base. You know, it was great to see the transactions per active and the ARPU increasing both sequentially on a year-over-year basis. But just wanted to talk a little bit more about the user base and expectations there, and maybe if you can give some color on sort of how churn versus ads kind of trended in the quarter and how we should be thinking about sort of balancing engagement growth versus active user growth going forward. Thank you.

Bruce Lowthers (CEO)

Yeah, Scott, good morning, and thank you for the question. So look, I think as I said in the earnings call last quarter, we were hoping to see some growth start to emerge in our three-month actives as we moved into the back half of the year. So as we reported in the prepared remarks, we saw a little bit of that growth start to emerge in Q3 with a 3% growth rate. We expect that to continue. I can tell you that about halfway through Q4, we see continued acceleration with the three-month actives. So, you know, what we've done is we, as Alex just mentioned, is we've kind of regrouped with our marketing initiatives under Nicole Carroll, our Chief Growth Officer.

So we're really kind of focused on consumer acquisition. We're excited about going forward into 2024 because, not only did we consolidate our marketing efforts, we do have new wallets coming to market, both with our business wallet and we have some deals in our pipeline that we'll be rolling out in 2024, that are around our non-branded, so white label wallets, that'll be coming. So we, we can see a clear path to 3-month actives continuing to expand as we move into 2024.

Scott Wurtzel (SVP and Equity Research)

Yeah, that's helpful. And just as a follow-up, things in your plans there for 2024. You know, as I think about eCash and going back to sort of the last couple of years, kinda, you know, even as maybe the wallet side was, you know, declining, if we go back to 18-24 months, eCash was still more of a steady grower. So just wondering if kind of, if we do, like, a look back, look forward, what kind of caused the eCash business to decelerate, you know, sort of to this 1% growth rate? And maybe just expand a little bit more on your initiatives there to reaccelerate the growth in that business.

Bruce Lowthers (CEO)

Yeah. So, you know, just to kind of level set the when you had eCash as a business last year in 2022, it had declined three percent from 2021. 2021, if you look back, you know, eCash is, in essence, a prepaid business, which usually does very well in recessionary time frames or time frames, you know, such as COVID, as you were hitting 2020 and 2021. So we had a significant amount of growth in 2021. We knew that that was. Back then, we knew that that kind of growth profile was not a sustainable growth profile. So you saw it pull back in 2022, and you're seeing it improve from kind of a -3% to a 1%, year to date in 2023.

So while we're moving it back in the right direction, those businesses typically, in my experience at least, have really kind of always gravitated around mid-single-digit growth profiles.

Scott Wurtzel (SVP and Equity Research)

Got it. Appreciate it. Thank you.

Operator (participant)

Thank you. Next question is coming from Jamie Friedman from Susquehanna. Your line is now live.

Jamie Friedman (Senior Analyst)

Hi.

Bruce Lowthers (CEO)

Good morning, Jamie.

Jamie Friedman (Senior Analyst)

Good morning. Nice improvement here. I wanted to ask first about your call-out, Bruce, about the acceleration in boarding new merchants. Bear with me. I'm just trying to find the page.

Bruce Lowthers (CEO)

Yep. I think it was page-

Jamie Friedman (Senior Analyst)

Oh, I got it.

Bruce Lowthers (CEO)

Nine.

Jamie Friedman (Senior Analyst)

No, it's page four. So yeah.

Bruce Lowthers (CEO)

Yeah.

Jamie Friedman (Senior Analyst)

When you're saying that the merchant, you expedited 10 days, and that's-

Bruce Lowthers (CEO)

Yeah

Jamie Friedman (Senior Analyst)

- versus May 2023, and that's 14%. What I'm—you know, I'm embarrassed to say I never heard that metric before. It sounds important. I'm just wondering operationally, how it is that you've been able to deliver that and what it may mean in terms of your financial results.

Bruce Lowthers (CEO)

Yeah, Jamie, great question. So one of the things that we've talked a lot about this year is around operational excellence. As Alex mentioned a little bit earlier, when you looked at our company going back a year, what we had was a series of organizations kind of operating independently. Those things created some inefficiency within our organization. And what we've really tried to do here is get after the business processes and the technology stacks that allow us to accelerate our revenue streams. And so, when we look at this 10-day example, it's just another example of how we're focusing on improving the business processes that we have to accelerate our time to revenue. I think we talked about in the earnings...

Sorry, in the Analyst Day that we did, we talked about time to market for our enterprise deals being close to 9 months and trying to drive that down from 270 days down to 58 days, just in a couple of months. So a lot of positive movement on process review and kind of what we're doing.

Jamie Friedman (Senior Analyst)

Okay, great. And then, Bruce, if I could follow up with just a higher level question, which we get.

Bruce Lowthers (CEO)

Sure.

Jamie Friedman (Senior Analyst)

How would you compare the competitive position of Merchant Solutions versus Digital Wallets? I know it's a very hard thing to answer because the denominator, the market environment for both, is different, but it looks like Merchant is at, you know, is doing about, if not better than the market. Wallet, I know, is a very competitive world, but just at a high level, you know, how would you compare the positioning of both those big products for you?

Bruce Lowthers (CEO)

Yeah, look, I think, in the merchant side, we, we've got a very competitive product. We see strong growth in, our SMB space. Certainly, you know, we resell some other products like Clover. We've had strong 20% growth in sales of Clover. Our e-com component of the merchant is also very competitive in the verticals that we're in. So what we're really trying to do is own the spaces that we play in. We're not trying to go upstream and go after e-com for Apple or Amazon. We're trying to stay in the verticals that we play in and that we have a tremendous amount of domain expertise. And so that's really worked for us, and it's allowed us to really reaccelerate the growth engine on merchant acquiring.

I think when you look on the wallet side, we feel very good about what we do with the wallet. Again, I think the platform as itself, as we start moving into the non-branded or White Label Wallet component of the wallet platform, we feel like there's a tremendous amount of opportunity because of the regulatory compliance things, the fraud management that we're exceptional at, we really feel like we compete very well. Again, in our wallet space, we're trying to really focus on owning a couple of verticals that we play exceptionally well in, in the gaming space, the gambling space. What we're not trying to become is just a horizontal wallet that competes necessarily with Apple or some of the other more horizontal brands.

Jamie Friedman (Senior Analyst)

Got it. Thanks for that. I'll drop back in the queue.

Bruce Lowthers (CEO)

Thank you, Jamie.

Operator (participant)

As a reminder, that's star one to be placed into question queue. Our next question is coming from Tim Chiodo from UBS. Your line is now live.

Tim Chiodo (Managing Director,)

Great, thanks a lot. I wanted to ask about the competitive environment in the North American iGaming, e-commerce or online market. Braintree, clearly a large competitor in overall e-commerce merchant acquiring, and Nuvei had made some public comments in the past about seeing them in that space. Are you running into them much? How much of a competitor are they to your online processing or merchant acquiring capabilities in that space?

Bruce Lowthers (CEO)

Sure. Good morning, Tim. So look, this is a highly competitive space. We have lots of competitors in North America, Braintree being one of them. We do run into them and probably most deals that we compete in. But we have a very strong value proposition. We continue to win in this space. Our space, for us, is led by Zak Cutler and his team. They do an exceptional job highlighting what the value proposition for us is, and they've been very successful, as you can see. So it's early days, but we remain very optimistic about our opportunities within iGaming, not just in North America, but globally.

Tim Chiodo (Managing Director,)

Right. Thank you. And part of your approach there is, right, you have the wallets and the processing. Would you say that that is the same for them? In other words, do you see the PayPal wallet or button, if you will, being cross-sold in the same way that you might cross-sell the processing capabilities and your digital wallets? In other words, do you see the button-

Bruce Lowthers (CEO)

Yeah

Tim Chiodo (Managing Director,)

as for PayPal, as much in the online gambling space?

Bruce Lowthers (CEO)

We, we do. So I would say when you look at the competitors in our stack, they're probably the most similar to us in value proposition. I think what distinguishes us versus them is when you really think about our VIP heritage with the wallet, they just simply don't do that. And so we really do stand out. Again, years of experience, years of regulatory experience and fraud experience. So we like our chances of competing.

Tim Chiodo (Managing Director,)

Perfect. If you don't mind, if I can just. It's a very quick numbers one. Just on the SMB Direct portion of the business that you talked about focusing on more in 2024, can you just give us the most recent contribution to that segment's revenue from SMB Direct?

Bruce Lowthers (CEO)

The, uh-

Tim Chiodo (Managing Director,)

In other words, how big is that portion that-

Bruce Lowthers (CEO)

Oh.

Tim Chiodo (Managing Director,)

You're going to focus on?

Bruce Lowthers (CEO)

Kirsten, do you happen to have that rate?

Kirsten Nielsen (SVP, Investor Relations)

Sure. Well, for the total company, it's a little north of 20%, call it 23%. So you can do the math on what that is for Merchant Solutions. I mean, that's gonna give or take a little bit, depending on the mix each quarter, but I would assume a little north of 20%, of the whole company.

Tim Chiodo (Managing Director,)

North of 20 for the full company. Okay. So meaningfully higher for the merchant segment.

Kirsten Nielsen (SVP, Investor Relations)

Right.

Tim Chiodo (Managing Director,)

Okay, thank you.

Bruce Lowthers (CEO)

Thank you, Tim.

Operator (participant)

Thank you. Our next question is from Aditya Puruvarapu from Bank of America. Your line is now live.

Aditya Buddhavarapu (Equity Research Analyst)

Hey, Alex, thanks for taking my questions.

Bruce Lowthers (CEO)

Yeah.

Aditya Buddhavarapu (Equity Research Analyst)

A few from my side. Can you just maybe give us a quick update on what you've seen so far in Q4? I think you touched upon that a bit on the Digital Wallets, sort of user growth, but just more broadly across the business, what you've seen so far, any initial thoughts on 2024? I know you've said you have a few things to, prioritize, but yeah, any initial thoughts on that? That's the first question. I can go over the rest.

Bruce Lowthers (CEO)

Well, I think... Sorry. I think in terms of what we've seen so far, we keep our guidance unchanged, right, for the year. And we've highlighted the FX issue, right, which could take us to the bottom end of the guidance. So that's what we see. We see the business continue to perform to our expectations, but we need to be mindful of FX. And on 2024, at the end of the year, when we give you the results for 2023, we will talk about 2024 and give guidance. At this point, we don't really have anything else to say on 2024.

Aditya Buddhavarapu (Equity Research Analyst)

Great, understood. That's, that's clear. And then just going back to iGaming, so your, your volumes grew 50%. I'm sure some of that is driven by your initiatives, but just trying to understand, is that coming through— You know, how much of that is coming through the market versus, you know, maybe some, maybe you're gaining share from some of the other players there?

Bruce Lowthers (CEO)

Well, look, yeah, I mean, absolutely, we're, you know, we're live in 30 states, you know, up a fair amount from last year. You know, but I would again say we're winning in this market. We're driving great deals. Obviously, adding Fanatics to the portfolio this quarter has been a great win for us. I think the team continues to execute well. But yes, there's some great tailwinds in this space as well. It's certainly in North America. I would again just call out it is it, it's a small part of our business, but it's growing and growing rapidly. E-com overall is growing rapidly. We feel very good about our e-com space.

Aditya Buddhavarapu (Equity Research Analyst)

Great, understood. And then just saying, going back to the midterm guidance, so the bridge to that sort of low double-digit growth, is that something you think you can do, even if, let's say, e-cash or the direct sales and much less SME doesn't really pick up? Or do you think those need to start accelerating as well for you to get to that 25, 26 midterm guide?

Alex Gersh (CFO)

We're talking about midterm guidance now?

Bruce Lowthers (CEO)

Yeah.

Alex Gersh (CFO)

Correct?

Bruce Lowthers (CEO)

Yeah.

Aditya Buddhavarapu (Equity Research Analyst)

Yeah.

Bruce Lowthers (CEO)

It was.

Alex Gersh (CFO)

So we haven't at all moved away from the midterm guidance that we talked about, high single digit, low double digits. We still believe that to be the case. There are lots of irons in the fire. Some things will work better, some things will not work better. But overall, we think that there is—this is still where we are targeting to be.

Bruce Lowthers (CEO)

Yeah, I would just add, I have complete confidence we will be able to get the S&P direct business and eCash business in the right growth profile.

Aditya Buddhavarapu (Equity Research Analyst)

Okay. Okay, that's super clear. Thank you.

Operator (participant)

Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to management for any further closing comments.

Bruce Lowthers (CEO)

Yeah, look, I just wanna thank everyone for joining us today. I wanna thank Kirsten and the team here for all your help pulling this together, yet again, and really appreciate all the efforts that has gone into Q3, and look forward to talking to everybody at the end of the year and the exciting times ahead for 2024. Thank you very much.

Alex Gersh (CFO)

Thank you.

Operator (participant)

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.