Paysafe (NYSE:PSFE) held its second-quarter earnings conference call on Thursday. Below is the complete transcript from the call.

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Summary

Paysafe Ltd reported a 7% increase in first half revenue for 2026, with Q2 revenue at $447.4 million, up 4% year-over-year.

The company resolved significant legacy legal issues, including the Farzad litigation, and successfully refinanced a portion of its debt, focusing on reducing its net leverage ratio.

Paysafe's Product Vitality Index is projected to reach 20% in 2026, reflecting strong growth initiatives, particularly in Latin America and Europe.

The company saw strong growth in its active user base, with significant contributions from Latin America, and positive results from marketing investments in Europe, including World Cup campaigns.

Adjusted EBITDA was down 2% to $102.8 million, with a margin decline to 23%, largely due to increased marketing and IT investments.

Paysafe reaffirmed full-year guidance for revenue and adjusted EBITDA while updating EPS guidance to account for refinancing impacts.

The Merchant segment reported a 5% increase in volume, driven by iGaming volumes in North America and data licensing deals.

Management emphasized a focus on sustainable growth, disciplined execution, and deleveraging as key strategies moving forward.

Full Transcript

OPERATOR

The question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star 0 on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Kirsten Nielsen, Head of Investor Relations. Thank you, Kirsten. You may begin.

Kirsten Nielsen, Head of Investor Relations

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.

Bruce Lowthers, Chief Executive Officer

Thank you and good morning everyone. If you're following the webcast, let's start on slide three. 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, this 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 four, 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 helped 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 engineering. These investments are delivering results today while creating a stronger foundation to drive long-term customer value. Our Paysafe Wallet 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 Paysafe Card while extending that relationship into a broader wallet experience.

By bringing everyday money movement into a single familiar platform, Paysafe Wallet 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 a 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.

John Crawford, Chief Financial Officer

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 Paysafe Wallet 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 are largely not active, coupled with short-term grow-over effects in certain sub-verticals 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 Paysafe Wallet in Europe. Transactions per active user were 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 5.3x at quarter end compared to 5.5x at Q4, and now factoring in the preliminary legal settlement and the debt refinancing fees, we expect to end the year with net leverage in the range of 5.1x to 5.2x.

Lastly, on the right-hand side of this slide, we've included a supplemental cash walk in response to investor interest in better understanding our own cash balance. This separates Paysafe's own cash from customer accounts and other restricted cash, which is not available for general corporate use, making Own Cash the relevant measure for tracking net debt and leverage. Additional details for this walk are included in the appendix. Let's turn to Slide 9 to cover the refinancing.

We are very pleased to have completed this transaction which underscores our prudent approach to managing the balance sheet and liquidity. The refinancing extends our debt maturity profile, refinances a significant portion of our capital structure, and upsizes our revolver while supporting our priorities to invest in the business and reduce leverage over time. We were also pleased with the reception in the market. Beyond the strong support from our existing lenders, we attracted a number of new bank and lender relationships as part of this transaction, pointing to confidence in the business from the debt community.

Turning now to our full-year outlook on Slide 10, we are reaffirming 2026 guidance for revenue and adjusted EBITDA while updating adjusted EPS to account for the refinancing, including the incremental interest expense in the second half. I will also note that next year, on a cash basis, the incremental interest expense is largely offset by the removal of the lawsuit indemnification costs I spoke about earlier. As for cadence in the second half, we expect revenue growth to be supported by continued traction across our priority markets, growth from recent client wins, and continued delivery on our product priorities.

We expect Q4 to be our strongest quarter of the year, consistent with the seasonality of the business and key sporting events, coupled with the benefit of the targeted marketing investments we have made on the consumer side. The business trends over the course of June and our early read on July's data support this outlook, including higher growth in iGaming from Merchant Solutions, continued strength in Latin America on the consumer side, and double-digit growth in three-month active users in July.

Turning to SG&A, we expect roughly $25 to $30 million of reduction in operating expenses in the second half compared to the first half. This reflects the elevated credit losses in Q1, the front-loaded marketing and IT investments, as well as some additional operational efficiencies. Putting that together, our full-year outlook is intact and we're focused on strong execution in the second half to build momentum for 2027. Now I'll turn the call back to Bruce for closing remarks.

Bruce Lowthers, Chief Executive Officer

Thank you, John. To wrap up on Slide 11, the message is straightforward. With the refinancing complete and the significant litigation matters resolved, we are entering the next phase of Paysafe's evolution from a stronger position. Sustainable growth and continued operating excellence remain essential. They generate the free cash flow that funds deleveraging, which should ultimately support a higher valuation multiple. A simple illustration: We believe every $200 million reduction in net debt, holding all else equal, equals roughly $3 to $4 per share without multiple expansion.

But for shareholders today, we believe the pace of deleverage is the primary value driver. Our capital allocation priority is therefore clear: generate strong free cash flow and direct the substantial majority of it to debt reduction, while continuing to invest in the high-return initiatives that support growth and product vitality. With that, John and I are happy to take your questions.

OPERATOR

We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please, while we poll for questions.

Our first question is from Matthew Inglis with RBC Capital Markets. Please proceed with your question.

Matthew Inglis, Analyst at RBC Capital Markets

Hey, good morning, this is Matthew Inglis on for Dan Perlin at RBC. Can you just walk us through some of the factors that give you confidence in the second half adjusted EBITDA ramp? In the past you've talked about a portion of that second half ramp coming from new products being rolled out in the back half of the year. So just curious if that's still on track.

Bruce Lowthers, Chief Executive Officer

Yeah, Matthew, I'll let John walk you through the walk to the back half of the year. But yes, we remain confident in our MPI. Our Vitality Index is tracking as we expected. But I'll let John walk you through the mechanics.

John Crawford, Chief Financial Officer

Yeah, I would think of it as two components. The second component is cost; I'll do that second. On the revenue side, think of it as roughly a third, a third, a third between scheduled launches and ramps — so products that are on launch schedules, customers that are signed and active and ramping — and then a third a pipeline, which is new sales, new execution, forward ramp, and then a third of current trends, which is the things we're seeing that we highlighted from July: continued strength in LATAM, continued robust consumer active growth, and so forth that are ahead of what we expected.

And then the other piece is on the cost side. So we had some substantial fraud losses in Q1 and front-loaded marketing and IT investments. Those combined to about $26 million, and that's roughly how we get to our $25 to $30 million of SG&A-related improvement in the back half of the year. Q4 should be the largest beneficiary if you're thinking about the shape of that SG&A, where we'll be coming out of the year in Q4 at a run rate that's substantially below the full-year SG&A number and probably below 2025's SG&A number on a run-rate basis.

Matthew Inglis, Analyst at RBC Capital Markets

Excellent. Super helpful. And just as a follow-up, on the digital wallet side, how much of Digital Wallet's growth is now actually coming from LATAM at this point? And as that LATAM portion of the digital wallet business increases, what does that mix do to the margin profile?

John Crawford, Chief Financial Officer

Hold one sec. It's a meaningful piece. But LATAM is still — remember, it's still relatively small. So even with LATAM growing north of 30%, you're talking about a P&L that's north of $100 million against a multi-hundred-million-dollar overall P&L. So it's impacting, but it's not the only source. The second comment is the gross profit profile in LATAM is very much in line with, I'd say, the overall segment margin. It's lower than the core wallet solutions and much more in line with, you know, kind of in between the two.

Some of it looks a little more like eCash. Some of it looks — obviously the Paysafe Wallet solution as it ramps and gets to scale ought to look and feel more like the core wallet businesses. But I'd say today it's in between the eCash and core wallet business from a gross margin standpoint.

OPERATOR

Our next question is from Jamie Friedman with Susquehanna International Group. Please proceed with your question.

Jamie Friedman, Analyst at Susquehanna International Group

Hi, good morning everyone. And I appreciate the incremental disclosures and these slides are really helpful like this cash walk on slide 8. But John, if you could just walk us through what the interest expense obligations look like going forward versus what they were previously. Am I reading this right that there's a $30 to $35 million step-up in interest expense going forward, or am I oversimplifying it?

John Crawford, Chief Financial Officer

You are reading it correctly. Thank you. And that number—probably obvious—but that number includes some amortization of upfront costs and that sort of thing. And so that's why we also, on slide 9, tried to clarify roughly the cash increase in interest cost. So, in simplest math, if we did all of the term loans without a stub with a, you know, plus or minus a 200 basis point increase in spread, we would have been looking at about $30 million all-in.

We've got a stub that's going to continue to run here at the lower rates, and so that's how we get to the roughly $25 million of incremental.

Jamie Friedman, Analyst at Susquehanna International Group

Okay. And then, you know, your math, Bruce, is interesting on the equity, the value that accrues to equity from the debt reduction. Do you have long-term objectives in terms of that 5.1x net leverage ratio that you're targeting for year-end?

Bruce Lowthers, Chief Executive Officer

Oh, thank you for asking that. So it was a question that came up often during the lender process. Our midterm goal is 3.5 times net leverage.

Jamie Friedman, Analyst at Susquehanna International Group

Okay. And is there anything that's changed in that relative to—I don't think, analyst, a long time ago—but relative to, I mean, is that up or down from any other previous message that you might have articulated, or is this the same?

John Crawford, Chief Financial Officer

I think I would think of it as it's about the same. I think the difference, Jamie, is we're really focused on a few other things now than that, and I think that's the messaging we're trying to make clear. I think with Bruce's algorithm, at the end of the call, we think, and certainly at today's stock price, there's a lot of value we can drive without multiple expansion, just paying down debt and growing EBITDA by about the same amount that we're trying to grow EBITDA this year and without doing anything fancy.

So I think that's why we're trying to get that messaging really clear externally as well as internally.

Jamie Friedman, Analyst at Susquehanna International Group

Okay, great. Thanks, guys. I'll drop back in the queue. Thank you very much.

OPERATOR

Thank you, Jamie. Once again, if you would like to ask a question, please press star-one on your telephone keypad. Our next question is from Timothy Chiodo with UBS. Please proceed with your question.

Timothy Chiodo, Analyst at UBS

Thank you. I was hoping we could take a little bit of a deeper dive into the 5% Merchant Solutions volume growth and break down some of the components, broadly speaking—so the contribution coming from newer customer additions and a new cohort, particularly with some of the sales efforts. There'd be a same-store sales component and then, of course, a churn component. And then for this quarter in particular, particularly at the latter part of the quarter, there was the iGaming bump from the World Cup, and I was hoping you could just quantify what that might have contributed to the 5% alongside those components.

Thanks a lot.

Bruce Lowthers, Chief Executive Officer

Thank you, Tim. So we have a—I don't know if we put a walk in the slides, but we have that general walk, Tim, that we've used before. So you saw on the SMB side a slight improvement in attrition. You see a little bit of a slowdown in the existing-customer same-store sales category, and then you're still seeing strong growth in the new sales and MPI initiatives. So really kind of in line generally with what we had forecasted previously and consistent with what our expectations have been in that space.

So no real changes there. I think in regard to the World Cup, World Cup was successful—exceeded what we had from an expectation perspective in Q2 and, candidly, into Q3. I think, for us, that is just a small piece of our total revenue stream. When you look at sports betting as a whole, it's just a small component of what we do. So while it exceeded our expectations, it doesn't drive a material impact in the quarter.

Timothy Chiodo, Analyst at UBS

Okay. All right, no problem. Thank you. And just—we didn't talk about Clover too much—but is there any broader update you could give on your Clover trends, or if there's anything changing there from either a pricing or competitive aspect, or potentially any comments around Clover Capital traction? Any kind of a broader update around the Clover portion of your business would be appreciated.

Bruce Lowthers, Chief Executive Officer

Yeah, for us, Clover is still doing exceptionally well. It's a great product, does very well in the marketplace. We're not seeing any pricing pressure. Candidly, our Clover revenue is really up double digits, so we feel very strongly about the continued success of Clover, leaning into that. I think one of the questions that did come up in the lending process was just pressure around pricing of the point of sale. We don't see that, as Tim, you know, we buy in bulk, so that kind of offsets probably any current pricing narratives.

But right now we feel very good about Clover and what it's doing. We also see some nice lift from the value-added services, so especially the lending product has done exceptionally well. So feel very good about Clover and our relationship with Fiserv.

Timothy Chiodo, Analyst at UBS

All right, excellent. Thank you.

Bruce Lowthers, Chief Executive Officer

Thanks, Tim.

OPERATOR

Once again, if you would like to ask a question, please press star-one on your telephone keypad. Our next question is from Leah Rosenstein with Susquehanna. Please proceed with your question.

Leah Rosenstein, Analyst at Susquehanna International Group

Thank you. So my question is, could you guys maybe quantify the licensing revenue I discussed, and by that I mean what was that from? And do you expect these to recur?

Bruce Lowthers, Chief Executive Officer

Yeah, so I think we've covered that. So in the past we have started a variety of new product initiatives which we categorize under a vitality index. Data is one of them. We have access to a tremendous amount of data, both on the merchant and consumer side, and we began about 18 months—almost two years now—ago building out a data foundation layer that allows us to monetize the data in a variety of ways. One, internally we use it for algorithms on attrition and fraud, customer engagement, and so we can derive a lot of value out of the data infrastructure that we've built.

And then about a year ago we got to the point where we could start monetizing it as a product. As I've said before, we anticipate this is going to be a revenue stream for us going forward and, over time, as we build this new product, we think it'll be north of a $50 million kind of annual run-rate product for us is probably our initial thoughts on it—maybe a little bit more as we get into it and really start uncovering what the true values are around the consumer side of the data.

Hopefully that helps you.

Leah Rosenstein, Analyst at Susquehanna International Group

Yes. Thank you very much.

OPERATOR

Once again, if you would like to ask a question, please press star-one on your telephone keypad. We have reached the end of the question-and-answer session. I would like to turn the floor back over to Bruce Lowthers for closing comments.

Bruce Lowthers, Chief Executive Officer

Thank you. Look, to summarize, we delivered second quarter results in line with expectation, and first half growth of 7% continues to reflect solid progress across our priority markets and products. We've also taken important steps to strengthen the balance sheet. Refinancing of our term loans and revolving credit facility extends our maturity profile to 2030 and increases our financial flexibility, while preliminary resolution of our major legacy litigation removes significant overhang.

These actions leave us with a more resilient capital structure and clear strategic foundation. We remain focused on disciplined execution, continued deleveraging, and durable growth opportunities as we look ahead. I want to thank the team for their work with the refinancing and also with the litigation resolution. It's been a really busy second quarter, to say the least, and I truly appreciate everyone here at Paysafe and the work that they put in to get us to this point.

Closing out our SPAC era. So thank you very much for joining the call today.

OPERATOR

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

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