Hello, and welcome to the PaySafe, Third Quarter 2021 Teleconference and webcast. 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.

It's now my pleasure to turn the call over to Kirsten Nielsen, Head of Investor Relations, please go ahead..

Thank you, and good morning. Welcome to PaySafe's Third Quarter 2021 Earnings Conference Call. With me today are Philip McHugh, Chief Executive Officer, and Izzy Dawood, Chief Financial Officer.

Before we begin, a friendly 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 periodic SEC reports.

These statements reflect management's current beliefs, assumptions, 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 information that will constitute non-GAAP financial measures under SEC rules.

You can find additional information about these non-GAAP 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 Philip..

Thanks, Kirsten, and thanks everyone for joining us. On today's call I'll provide an update on the business, and then turn the call over to Izzy, to review the financial results and guidance in more detail.

Starting with a few key messages, our third quarter adjusted EBITDA of $106 million was in line with our expectations, despite revenues of $354 million coming in below our expectations for the quarter, primarily reflecting softer than expected results from digital wallets.

We continue to see strong momentum across our strategic priorities that we set out at a time of going public as we grow with some of the true leading-edge companies in faster-growing segments of the market.

In North America gaining, we announced several customer wins in the third quarter across multiple states, and really like our position's new states and online players come online. Additionally, the Skrill wallet, while still small in the U.S. continues to show good progress.

Outside of iGaming, we continue to position ourselves as a disruptive, specialized games platform with our combination of cards processing, eCash, wallet pay-in and pay-out, and real-time banking solutions. In particular, our pipeline across crypto, digital wallets, and financial services continues to build. The U.S.

acquiring business continues to perform well with solid growth, and our direct marketing vertical now shows strong signs of recovery. Lastly, we're on track to meet or beat all of our cost takeout tech platform milestones. At the same time, we are facing challenges within the digital wallet business, which is performed below our expectations.

We've identified the cause of the headwinds, both Internal and external. And we're taking action to improve the core wallet and to pursue the real growth opportunities in front of us.

However, with the headwinds we're seeing in our markets coupled with the low exit rate in 2021, we believe it's going to take another year to reset the Digital Wallet business and get us back on a path to growth. As a result, we are lowering full year guidance for 2021. In that context, we are also providing a preliminary update on 2022.

While this is disappointing, we have a strong growth plan, exceptional talent under new divisional leaders in Wallets, and the right core assets in place to reposition Digital Wallets for success. And we will combine wallet capabilities with our e-commerce and e-cart solutions. We are winning the deals with the leading players in fast-growth markets.

Turning to Slide 4 of the presentation. While Izzy will provide more detail on financial results and guidance, I want to share some context in what we're seeing today, compared to what we discussed on our last earnings call.

When we reaffirmed the outlook back in August, we expected the return to double-digit growth in strong margin performance in the fourth quarter. At that time, our confidence is supported by 4 main drivers. First with our expectation that the direct marketing headwind would start to improve in the second 1/2.

It is recovering as expected with revenue up sequentially, and continued strong growth of new merchants in the third quarter and early fourth quarter. Next, we expect to continue the execution on cost savings. We've delivered $26 million year-to-date, and expect to deliver $35 million in 2021, 17 % higher than our original target.

Third, we had signed agreements in place on large deals in our e-commerce pipeline. These are still in progress. However, the scope and timing will differ from our initial agreements, meaning volumes will be more spread out versus the ramp we initially expected in the fourth quarter.

Finally, we had an expectation that digital wallets would see a soft third quarter followed by improvements in Q4. As I've mentioned, the performance of digital wallets has been lower than expected in the second half of the third quarter.

And we see this continuing into the fourth quarter, driven by market softness and performance challenges that are being addressed. Turning to digital wallet from Slide 5. I'll start by unpacking the headwinds here, and specifically our current expectations relative to what we last discussed.

Earlier in the year, we saw the fundamentals improving with a stronger firm baseline following our exit of network referral accounts, and solid indications that we were lapping these headwinds as we approached the second half of the year.

Turning to the summer, we are seeing quiet European activity, coinciding with the removal of most lockdown restrictions. This softness, coupled with our expectations for return to normal seasonality, informed our outlook for Q3 as communicated on previous calls.

At that time, we expected improvement in Q4 driven by seasonal growth, as well as uplift from prior marketing incentive programs. However, what we're seeing is continued market softness, particularly due to the regulatory environment year.

Overall, the third quarter came in below our expectations for wallets, and we see extending into the fourth quarter. As an example, in Germany, the adoption to new regulations had a more meaningful impact than we anticipated, with several Operators reducing activity or leaving the market.

Additionally, in the Netherlands, we're seeing a medium-term impact related to local licensing requirements. To put some numbers around this, we characterize the impacts of our headwinds in 2021 as the following; first is the network impact which is 20 million. We are lapping this at the end of the year.

We expect this to be partially offset by growth in the core business has discussed on prior calls. However, since then, our expectations have changed. First, the softest in the European market, including the regulatory impacts which has dampened the uplift we had anticipated in the back half of Q3 and in Q4.

These factors combined with the impact of some counterproductive customer pricing and tearing. It brought us to a lower base business as we sit here today. We are actively driving changes to strengthen our core proposition, particularly more mature markets.

As you recall, we transitioned to new leadership within our digital wallets business in Q3, bringing on T-reg Patel, who brings extensive global payments experienced the PaySafe. Together we're moving quickly to reset the business and respond to the real growth opportunities in firmness. Let's now go to the next level of detail on Slide 6.

First, what are the challenges? One, we had the legacy issue of network counts and we are lapping those items. 2. The core wallet has to be more competitive in terms of customer use experience in terms of pricing in more mature markets. 3. The digital wallets become too complex over time.

We have to simplify the product offering, right-size the organization, and clean up the Balance Sheet. Lastly, we have to deliver on the bigger initiatives in front of us. Moving to the right-hand side of the page, you'll see we're taking immediate short-term and mid-term steps to address these challenges.

First, we've taken action to address customer experience and pricing to be more in line with the market. As an example, we are overpriced in certain deposit forms, which has had some counter-productive outcomes. Equally, we are underpriced in other parts of the lot where we see opportunity.

We have tangible actions underway and are already seeing some positive results. Additionally, we will be streamlining the organization, including rationalizing sub-scale product features. And finally, we are taking on actions to a right-size the division as we focus on the core wallet.

Turning to the mid-term, we have several programs underway, and these absolutely underscore why continue to see digital wallet as a true differentiator with the opportunity to partner with some of the most disruptive players on the market. We have an active program underway to strengthen our relationships with our top merchants.

We've reset and increased our engagement with all our top clients, and are having very constructive discussions around our paying points, ways to collaborate, and ways to drive better conversion and growth we are already seeing positive developments here recently opening several new markets with one of our largest and oldest clients.

In North America, iGaming, we'll continue to grow and deliver on our enhancements to the Skrill Digital Wallet, where the numbers are small today.

But we're really pleased with the early progress including our expansion to 11 brands, strong conversion rates, higher than market average deposit size, and great Proofpoint's in some up and coming operators. We will now capturing double-digit share of their cash year.

Lastly, we will continue to invest in expanding our crypto presence, where we are not only expanding in terms of our ability to trade more crypto currencies within the wallet, but are also seeing very tangible interest from some of the top crypto platforms due to our unique combination of card processing, real-time banking capabilities, and wallet pay-in and pay-out capabilities.

Although these initiatives all drive real value next year, we expect '22 to be a transitional year for digital wallet, followed by strong growth as we reset the division and deliver on initiatives.

To summarize, while we have challenges to address, we have a strong plan, exceptional talent, and the right core assets in place to reset the business and unlock value that exists within our digital wallets. We're a leading provider of a highly functional digital wallet to a large active customer base of gamers and traders.

Additionally, our pay-in and pay-out functionality across the globe continues to create excitement with some large disruptive players. That combination of capabilities continues to drive my personal excitement for our digital wallets as the most unique and highest value asset within PaySafe.

Turning to Slide 7, I'll now quickly touch on direct marketing. As we discussed in our last 2 earnings calls, we exited a discrete set of clients and referral channels as we enter 2021, based on our views of the market and our anticipation of compliance changes. So we've been in a transition period this year as the market adjusted to these new rules.

The recovery is well underway and in-line with our expectations. In June, net new merchants turned positive, and we saw this progress continuing into the third quarter. Additionally, with such a strong fourth quarter, with net new merchants for the month of October, are already exceeding the levels for the entire third quarter.

Overall, we're on track to direct marketing vertical to return to growth. And then, move onto Slide 8, when we look at the rest of our business across eCash, an Integrated Processing, representing 70 % of our revenues. We see continued strong momentum with high-teens growth this year, as well as strong trends relative to pre -pandemic levels.

Looking ahead, we expect continued normalization of the growth rates in eCash, as well as continued double-digit growth in Integrated Processing. Now, let me dive deeper into some of our strategic pillars. Turn to Slide 9, starting with North America iGaming.

We've grown revenues 50 % year-to-date North America, reflecting strong momentum as the market continues to open up. Within this growth, we are expanding relationships with new and existing Operators who trust PaySafe to provide customers with all the ways they want to pay. We're now live in 19 of the 21 legal jurisdictions across the U.S.

Having recently launched Arizona, Wyoming, Connecticut, as well as Louisiana, which is live for deposits ahead of the full launch expected in early 2022. We are also looking forward to upcoming launches in Maryland, Florida, and New York.

We're seeing multiple operators sign up for the full suite of our payment options with several more tier-1 Operators on the way. Turning to Canada, we're building on 10 years of market leadership as exclusive payments provider for regulated online gaming traffic.

We are well-positioned to be the dominant player is the Canadian market opens up to private Operators, specifically on Ontario where we have signed multiple deals with Tier-1 Operators. Do we expect will be the leaders in that market.

To real testament to our deep industry relationships are superior offering including an acceptance rate of more than 90 % and multiple acquiring options. Lastly, as mentioned earlier, we continue to advance our Skrill wallet revamp and add new brands for our pilot in the U.S.

Then mentioned earlier, the volume just small today, we were pleased with the early results for the 11 brands, strong conversion rates, higher average deposits, and achieving double-digit share with some of our earlier operators. Overall, I'm really pleased with our progress.

We have a number of key announcements on the horizon, and we're really happy to have Zak Cutler on board leading this highly focused team dedicated to winning North America at gaming. Turning to our other key digital commerce verticals. In eCash, we continue to see a lot of traction and exciting use cases across financial services.

We are further expanding our network supported financial inclusion, enabling cash consumers to pay bills at more than 4,600 Walmart stores across the U.S. in partnership with income. Building on some of our prior announcements are eCash businesses now partners with the largest Neobanks in Europe, including Monique, bunk, and n26.

In crypto, we continue to add cryptocurrencies available to trade in digital wallets, and we're seeing very compelling pipeline opportunities with crypto operators, interested in our global risk management and pay-in to pay-out capabilities. Lastly, with our partnership with visa, we've launched Visa Direct, further enhancing more payment options.

Now, turning to slide 10, we are on track to meet or beat all of our cost takeout and tech platform milestones, which will set us up to 2022 with a more efficient cost position.

We've been focused on migrating the business to cloud, and we've already achieved our target for '21 with 70 % of our business across PaySafe now on our new Tech SEC, from effectively 0 % 2 years ago.

We've also made strong progress in our cost savings program, taking out $26 million year-to-date, we expect to deliver $35 million for the full year ahead of our initial target.

On our recent acquisitions, we're well on track with integrations, and we're enthusiastic about the interest we're seeing from both existing and prospective new clients, particularly across iGaming and crypto. While it's early days, we already have several cross-sell initiatives underway.

Before I hand the call over to Izzy (ph ), I would reiterate a few points. Our strategy remains intact. We continue to see the unique combination of payment solutions as a real differentiator, particularly in more demanding markets, and with more disruptive clients for alternate payment methods and risk management having true premium.

risk management having true premium. We're winning deals in North America, we really like our pipeline and growth opportunities in emerging verticals like crypto, we're delivering against our cost and tech milestones, and we're very happy with the initial progress on our recent deals.

However, there is work to do in digital wallet, but the combination of our capabilities position us well to win in the right markets with the right players. With that, I'll turn the call over to Izzy..

Thank you, Philip. Let's turn to Slide 12 for a quick summary of our performance versus our guidance. Revenue and gross profit came in lower than our expectations due to market softness and challenges in digital wallets segment as Philip described earlier.

And Integrated Processing, which was also lower than our expectations, reflecting lower activity in our ISO channel. On a positive note, expenses were better than expected, including strong performance on cost savings and adjusted EBITDA was in line with our guidance range.

Turning to slide 13, volume for the third quarter was $31.1 billion up 19 % year-over-year, with growth in integrated processing and eCash, partially offset by decline in digital wallet. Total revenue for the third quarter was $354 million, down 1 % year-over-year with take rate compression reflecting businesses fix.

Excluding the impact of the pay later business, which was divested in October of 2020, revenue would have increased approximately 2 %. Adjusted EBITDA for the quarter was $106.4 million down 1 % versus the prior year, resulting in adjusted EBITDA margin of approximately 30 % consistent with the prior year.

Excluding the impact of pay later, adjusted EBITDA would've been flat last year. Lastly, free cash flow was $70 million or 66 % conversion on an adjusted EBITDA basis. Year-to-date, our free cash flow conversion is approximately 70 %, and we currently expect free cash flow conversion for the full year to end up around 70 % as well.

On Slide 14, we've provided the same supplemental view as we did last quarter, demonstrate growth excluding the divestiture of pay later and the direct marketing verticals. With these adjustments, year-to-date revenue for the rest of PaySafe 's business grew 13 % and adjusted EBITDA grew 16 %.

We provided the same view on the Integrated Processing segment in the appendix as well. On Slide 15, I'll touch on a few additional line items, including our GAAP results.

Interest expense was $19 million for the quarter and we expect interest expense to increase in Q4 to approximately $27 million as a result of the completion of our debt rates in early October. For Q3, our Net loss was $147.2 million, which included an impairment charge of $322 million relating to intangible assets within our digital wallets business.

This was partially offset by a fair value gain, $94 million resulting from the re-measurement of warrant liability at quarter-end.

Our effective tax rate with an income tax benefit for the third quarter was 34.3%, compared to 27 % in the third quarter of last year, due to the tax impact of the impairment charge recognized in the quarter, as well as the impact of deferred tax balances of the increase in the UK statutory rate. Moving to segment results on Slide 16.

Starting with eCash. Volume of $1.3 billion and revenue of $90.2 million, both increased 10 % compared to the prior year, as we see continued strength in the business as we enter a post - COVID environment. Excluding Germany and Netherlands, which have been impacted a by recent regulatory changes, revenue growth was greater than 20 %.

During COVID, many merchants and specialized e-commerce verticals enhanced their cash capabilities. Compared to Q3 2019, our current revenue run rate is approximately 26 % higher under constant currency basis.

Adjusted EBITDA was $36.3 million, an increase of 18 % resulting in adjusted EBITDA margin of 40.3%, an increase of 270 basis points year-over-year. Moving next to additional wallet on Slide 17. Volume for the third quarter was $4 billion, down 70 % year-over-year.

Revenue in additional wallet segment for the third quarter, plus $83.7 million, a decrease of 15 % compared to the prior year. Take rates remained elevated compared to historical levels, yet stable.

The year-over-year decline, which is worse than expected, reflects a combination of regulatory impacts in Europe and performance challenges that we're addressing, including the unfavorable impact from pricing and tearing initiatives from late Q2, 2021. Adjusted EBITDA was $39.9 million compared to $48.1 million in the prior year.

Now, moving to Slide 18 Integrated processing volume of $26 billion was strong, up 28 % led by the U.S. market, and up 39 % versus Q3 2019. Revenue for the third quarter was $186.9 million, an increase of 4 % compared to the prior year. During the pay later divestiture, revenue increased 8 % with growth from our U.S.

acquiring an e-commerce, merchants partially offset by lower revenue from our direct marketing channel. Take rate was roughly 70 basis points, down from Q3 2020 for flat sequentially, which we discussed on our prior call. Adjusted EBITDA was $44.4 million, compared to $48.7 million the prior year.

Adjusted EBITDA margin of 23.8% decreased year-on-year due to merchant and channel mix, in addition to the decline in our direct marketing channel. Excluding the impact of pay later and direct marketing, revenue grew 16 % and adjusted EBITDA 19 % reflecting margin expansion.

Our North America iGaming activities, which is predominantly driven by the Integrated Processing segment today, grew more than 30 % year-over-year and is up approximately 50 % year-to-date. North America iGaming is roughly 1.5% of total Company revenue year-to-date.

Moving next to Slide 19, I will review the components of our consolidated take rate, which continued to be driven by business mix and happen consistent over time within our business segments. eCash continuing to generate a take rate over 7 % in line with long term expectations.

Digital wallet has increased its take rate over time as you build up functionality and access to new markets such as FX trading and crypto trading. We anticipate long term take rates to be around 1.8%.

Finally, the take rate in our processing segment has decreased for the last few quarters to roughly 70 basis points, primarily driven by the business mix within Integrated Processing.

As you can see from the pie chart on the bottom left of the page, the meaningful growth of integrated processing volume as a percent of total is driving the overall take rate lower for the Company. On the bottom right, we dig a little deeper into our integrated processing volumes and take rates. The meaningful increase in volume for U.S.

acquiring and integrated e-commerce continue to impact the overall take rate for integrated processing. Now, let's turn to slide 20 to look at our balance sheet and liquidity. Total debt outstanding was approximately $2.2 billion, as of September 30th. And our net debt to LTM adjusted EBITDA ratio was 4.4 times.

We expect our pro forma leverage to be approximately 5.7 times by year-end, reflecting the additional debt raised and the LTM adjusted EBITDA of the 3 deals, excluding synergies. We were being focus on the levering and moving toward the target of 3.5 times adjusted EBITDA. Let's move to slide 21 to discuss our guidance for Q4 and the full-year.

For Q4, we expect revenue of $355 million to $365 million on a reported basis, with minimal impact from the smaller acquisitions we recently closed PagoEfectivo and Viafintech. We expect mid-to-high single digit growth in Integrated Processing. And a 10 % to 15 % decline in both eCash and digital wallet.

For eCash, I'll point out that Q4 of 2020 was an exceptionally strong period driven by COVID-19 restrictions across Europe. So Q4 is a tough comparable period for that segment. For gross profit, we expect to be between $205 million and $215 million and adjusted EBITDA between $90 million to $100 million.

As a result of our revised outlook for Q4, we expect full-year revenue in the range of $1.47 billion to $1.48 billion, reflecting growth from eCash and Integrated Processing, partially offset by decline from digital wallet. We expect adjusted EBITDA in the range of $425 million to $435 million.

We understand this is a meaningful change from our prior guidance. I'll reiterate why our expectations have changed. In early August, we expected 4 major drivers that gave us confidence in our full-year outlook. First, we expect it to pick up momentum in direct marketing, and we are seeing the recovery in our performance in Q3 and October.

Second, we expect it to continue to drive efficiencies to our cost-savings program, which we are exceeding. Third, we expect that digital wallets to grow double-digits, but clearly, the current and expected performance is lower than we expected.

Finally, we anticipate onboarding meaningful clients in our e-commerce verticals and invested to create the necessary capacity. Expanding further, we have signed agreements in place, which supported our confidence in onboarding the clients in early October.

We remain excited about working with them, but the scope and timing will differ from our initial agreements. Meaning volumes will be more spread out with components going live throughout 2022, instead of the ramp we initially expected in Q4.

Now, turning to Slide 22, while we will provide formal 2022 guidance on our next call, we believe it's important to provide an update on a preliminary expectations for next year, given the meaningful reset of our Q4 and full-year 2021 guidance. For 2022 on a reported basis, we expect revenue in the range of $1.53 to $1.5 billion.

Integrated Processing is expected to grow double-digits, and eCash is expected grow in the mid-teens, including the inorganic contribution our 3 acquisitions. Digital wallets is expected decline in the mid to high as we reset the business.

Adjusted EBITDA is expected to be in the range of $440 million to $460 million, resulting in flat margins year-over-year. At our Q4 call, I will be able to provide additional color on volumes, gross profit, and other variables. We will also provide more detail on the quarterly cadence of revenu e.

At this time, we anticipate Q1 being down year-on-year or roughly flat sequentially, given our current expectation for the Q4 run rate this year. Overall, there is no sugarcoating that our financial results are disappointing and not up to our expectations.

We have a strong plan to get digital wallet back to double-digit growth but we have to go through the necessary transition in 2022. We remain excited about PaySafe outlook as we continue to deliver on our strategy and see strong growth and execution across the majority of our businesses, which continue to exhibit strong momentum.

Now, I will turn the call back to Philip for closing remarks..

Thanks, Izzy. Although we are revising our financial outlook, we have a strong plan to turn around digital wallet. It'll remain very optimistic about our futures a leading specialized platform. To put this in perspective last week I met with my wider global leadership team, we went through our performance in the road ahead.

Despite the revised financial outlook, the level of energy and engagement was just at an all-time high. Next because we see the deals we're winning, we see the pipeline that we're building, we see the combination of our API connectivity, the multiple payment types, and risk management, the real difference maker in the market.

While it will take us longer to accomplish the financial goals that we had planned, the team and I firmly believe that PaySafe 's absolutely positioned to be a winner in the marketplace, partnering with leading edge companies and some incredibly exciting markets. This concludes today's presentation. Now, let's open up the call for questions.

Thank you..

Thank you. We'll now be conducting a question-and-answer session. . Our first question is coming from Jamie Friedman from Susquehanna. Your line is now live..

Hi. Good morning, everyone. Good afternoon. Philip, I was hoping to get your perspective on the why are you still confident in the long-term potential of the digital wallet, despite the reset.

Is it your conversations when you go into the accounts, the strategic position wise? Why do you think digital wallet can turn around?.

1. we've really -- we've run multiple scenarios country-by-country,.

client-by-client to really assure the baseline and clear out our forward view on risk to the business. That's the first thing we've done. The second thing we did, we started making management changes and mid-summer.

GRight joined in September, so we made quite a few changes there and we did that because we certainly felt there was always more to do with the wallet in terms of streamlining it, getting rid of subscale up products and initiatives that were being invested, and frankly re-engaging more proactively with our larger clients.

So where we are right now, is a few things. In terms of quick actions that some of the pricing and tearing campaigns that haven't worked as effectively we have changed those. We're already tracking those and seeing positive outcomes. 2. Some small changes in client customer user experience. 3.

Stopping some non-core pieces, just stripping some complexity out And we will be doing a right sizing of the organization as well. So there's a lot of just get to the basics -- baseline it focus on the core wallet. But the reason for the belief of this business continues to be high-growth, continues to be extremely viable as it go to the next level.

There's really a few things. One, over the past few months, we've really upped our engagement at the C level with all of our top clients, and especially with Shera (ph ) coming on board to introduce into all of our largest clients. And the conversations have been great. It has been recognition that we need to do more.

They liked some of the quick changes we're making, but they like the focus, they like the breadth of payment options within the wallet, they like the multiple markets we can support, they like what we're doing in the U.S. with the wallet.

And one of our largest and oldest clients actually opened up 8 new markets to us in the last month on the back of those conversations. So that's the first piece, is real utility for our clients. They need us, they like us, and we focus on them. They react very positively. The second one while still small, is Skrill U.S. We have 11 operators now.

What we're starting to see is a higher average ticket versus the market. We're able to do very large 1-off bank deposits for high rollers. The conversion rates are now what we consider top tier versus the best payment options there. And with two of our smaller operators in more an up and coming, we have double-digit share of the cash year.

And that was always the view, can we get there? We've got to keep proving this Proofpoint's and then start working with the larger Tier 1 operators to prove to them that this product has that type of cuts through that type of utility for them in the U.S. market.

And it probably the therapy the most interesting to me is we're starting to, not only in terms of selling Skrill but taking the capabilities of the digital wallet platform.

So being able to integrate into our digital wallet platform, leveraging our pay-in pay-out capability, leveraging our KYC and bank network and frankly our EMI licenses in some cases, and really create some really unique solutions, for some pretty fast-growing companies in iGaming, in travel, and especially in crypto.

So we're still working on those deals some are signed and ready to go and then we'll look forward to announcing those in the coming months. Those give me the excitement that we can win deals, we combine our e-commerce, the wallet capabilities, and our eCash. We have a set of solutions that we are winning deals with some great names.

In the disruptive areas where we need to. At the same time, as I described earlier, there's a lot of blocking and tackling for us to do on some of the legacy part of the wallet and that's where we are today..

Okay, that was thorough response. Thank you. I will just drop back in the queue..

Next question today is coming from Dan Perlin from RBC Capital Markets. Your line is now live..

Thanks. Good morning, guys. Tough date up quarter for you. A couple of questions, obviously on digital wallet. So you called out you're seeing issues around the customer experience. So I wanted to dig into that a little bit. To me that sounds like share loss, just to hear.

What you're changing there? Where are these consumers going if there still remains demand in the market. 2. you score the pricing. In particular in more mature markets, which means that someone got that wrong. So what's the reset there? How big is it? And then can you just define what you're talking about when you say your core wallet.

Because I think I've always thought of Europe as being an incredibly strong market for you guys and yet this is where we're seeing all the weakness. So if you can address those, that'd be great. Thank you..

Yeah. Let me unpack, There is a couple of things to unpack on that one. In terms of the share, the UX, and the pricing, I think are all related pieces. Are we losing some share in the mature markets in Europe? The answer is, we've lost some mild share, certainly have. And we see that as both some external pressures, but also internal.

On the external side, we're not losing to other wallets. It's -- the biggest driver is going to be real-time banking or the open banking network, it's creating an attractive option where the digital wallet used to feel that more disproportionate for some of our operators.

So that's probably the biggest external pressure point we have in terms of volumes, in Europe in particular.

The second piece is much more internal, and it goes back to that part about being much more engaged with our clients, working more closely with them on campaigns, working more closely with them on making sure we market and bring the types of customers where it's a win-win for both of us.

And that re-engagement we've been having, we absolutely are seeing dividends from that re-engagement and that was some of the drivers, some of the changes we made starting in mid-summer from the -- at the management level as well. In terms of the pricing in the U.S. in the opening comments, we touched on that.

In certain areas, the team has a good and long history of pricing and tearing. That means you get certain rights to board, the more you use the wallet, the more you deposit in. They had a really good track record over the last few years.

The campaigns that were done in the first half of the year overshot the mark on some deposit costs in, and undershot the markets in other fees where frankly there's more opportunity, in terms of wall-to-wall transfer with withdrawals.

So as we track those campaigns on a campaign-by-campaign basis, we saw that they weren't working as well, and we've reset those. We've reset product, 85 % of them. We have a few more tweaks to do through the quarter.

And we're already seeing the benefit and the positive impact, in terms of actives, in terms of conversion rates, and in terms of deposits incoming into the wallet. So those are the factors there. When I talk about core wallet, what I'm talking about is the following.

It's not a reference to Europe, it's a reference to adding on too many side initiatives. We think about the remittance business, there's initiatives to put in stock trading. There is just -- there are too many small initiatives that we were pushing back on. And when we made the management change.

We've just stripped out a lot of those pieces, and really focus on the core wallet. Fund the wallet in, and make sure that pay and payout experience with a merchant works extremely well, add more APMs and make that as smooth as competitive process as possible, versus adding other new silver bells and whistles on the side.

Did that help explain?.

Yes. That's very helpful. And just on one other quick one. You called out regulatory issues, in particular in a couple of countries. But they sounded like they're pretty onerous, and I have to admit I'm not -- I'm no expert on the regulatory environment there.

So can you just help us understand how stringent some of these are that would cause these Operators to actually leave, which it sounds like market --.

Yeah, you've seen some some Q3. You'll see some Q3 highlights from some Operators that have been recently published in Europe. So you will see some common themes there. So we certainly saw there has been a wave of European regulation coming through.

So we had anticipated some of it, but some of the impacts have certainly have been sharper and bigger than we expected. So the 2 that we're calling out, in Germany, there are 2 changes. There is a cap on how much a single person can bet. So regardless of what they -- it's not on a single operator, it's across all platforms.

So when you -- when we cater to higher-end betters, that cap has a pretty high impact. The other issue has been the tax on many casino and poker games and that have made the games frankly unprofitable for Operators. You've seen a few, I think bet fair recently publicly announced today they're actually outright exiting.

You've seen some other Operators talk about 70 % drops. So there is a big adjustment happening in Germany and that's an extremely large market for us. We do believe this is a point in time. The Operators are all getting locally licensed. They're getting adjusted to these new regulations. They're understanding which payments forms work.

So we do think over the next 6 to 8 months, there'll be an adjustment and a settlement and then get back to growth but it has been an impact.

Then in Holland, which is also a meaningful market for us, they really created a surprisingly small and this is a surprise to the industry not just us, a small amount of operators to be licensed in Holland, and they absolutely outright and limited lots of payment types initially, we're confident that we'll be reversed over the next 4-5 months.

It feels like an unexpected overreach from regulators and there's a lot of activity to reverse that. So just two examples..

Hope that's very helpful. Thank you and good luck..

Thanks, Dan..

Thanks. Next question is coming from David Togut from Evercore. Your line is now live..

Thank you. Good morning. Just on the topic of re-pricing in digital wallets, your take rate was 2.1% in the third quarter. Your long-term guide is 1.8%. Once you go through all of the re-pricing initiatives that you've discussed, what's the timeline to go from 2.1% take rate to 1.8%.

In other words, is 1.8% embedded in your fourth quarter in 2022 guidance for digital wallets..

Hey David, it's Izzy. I'll hop on that one and nice to hear from you. It's not embedded in Q4. We actually our take rates have been stable yet higher.

The pricing elements is more driving volume, but the overall take rates is really being driven by our mix, especially around our crypto business but still is growing very well year-on-year although small, that's part of it. The moderation back to the long-term 1.8 I'll probably spend more time on it -- on our Q4 call.

But we don't see that reversing in like a very near future, it'll probably take a couple of quarters to get there..

Understood. And then, if you could talk about your strategy to reduce that. Your net debt to EBITDA is just over 4 times.

When you look at the revised guidance on EBITDA for this year and 2022, are you more inclined to accelerate the pace of debt pay-down and slow the acquisition pace, just to show up the Balance Sheet?.

Yes. David, clearly obviously with the revisions of our debt to EBITDA ratio does go up and does put pressure on the leverage ratio. Obviously, no impact of any covenants or operations. Our free cash flow conversion is still pretty high. I feel pretty good about that.

As we mentioned before, we will pay down debt as fast as we can with the excess cash flow to bring that down. So obviously our long-term commitment to 3.5 times is still there. It's just going to take us longer to get there..

Understood. Thank you..

Thank you. Your next question is coming from Jason Kupferberg from Bank of America. Your line is now live..

Good morning guys. Just given where we are with digital wallet, it sounds like you're going to have to make a lot more investments there to get back to growth. And you talked about some of the pricing adjustments. I guess I'm just trying to think through with the EBITDA, margin assumptions for that segment should be in 2022.

Like what's baked into that overall EBITDA guide for next year..

Hey, good question there, Jason. Like I mentioned, up probably get to more details on our Q4 call. But when the guide and gigabyte mid-to high-teens decline, I think from an EBITDA margin perspective we're still going to be almost still assume safely in the mid-30s EBITDA for the business..

Okay. Got it. And I guess, just coming back to the regulatory question, because it sounds like that caught you off guard. But what percent of the European digital wallet business is Germany plus Netherlands, just so we have an idea how to draw a box around this..

Good question there. I don't have it at my fingertips, but given Germany's size -- relative size in Europe, it's a pretty large size, pretty large marketplace. Obviously, UK is a big market as well, and other places we operate in. But Jason, we can follow-up offline. I cannot provide any more information on there..

Okay. I appreciate that. Thank you..

The next question today is coming from Timothy Chiodo from Credit Suisse. Your line is now live..

Great. Thanks a lot. 1. on the WorldPay partnership in the U.S. But first I wanted to see if we can just hit on a couple of numbers real quick. The 2021 in Q4, I believe 2 of the 3 acquisitions you do have. You mentioned a minimal revenue impact, but I was hoping you give the dollar amount in Q4.

And then also more importantly, perhaps for the 2022 revenue guide. Are you able to provide the inorganic contribution from the three acquisitions? I know that previously you had mentioned the $60 million figure, which I don't believe included via fintech, which is I understand smaller.

But maybe you could just give the total number for inorganic revenue in 2022..

Yes. So Tim, I think there's 2 questions. On Q4, I think roughly $5 million would be the contribution, right? And going into 2022, the 60 and 20 that I quoted prior basically includes all 3, the Viafintech is a smaller tuck-in. So little bit of impact but not as meaningful..

Great. Okay. And 60 and 20, meaning.

Yes. Correct, yeah..

Great. I really appreciate that. Thank Izzy. The next one is on the WorldPay partnership in North America. Just thought it would be a good topic to revisit. If you could just talk a little bit about. 1.

History of that partnership and then the forward-looking in terms of how long is this partnership? Do you always go to market together for North America Integrated Processing? In other words, is it the entirety of your business? Do you have separate? Do they have separate, those types of mechanics would be really helpful.

Those are common questions we get from investors..

Yes. We do have a long and fruitful partnership with WorldPay and we continue to do great business together. The partnership is not exclusive. And we are currently already a multi acquirer provider. So our gateway locks in about 75 % of the Operators. We do the card processing wallets, cash. We're adding other APMs to be as complete as possible.

We currently acquired with WorldPay. We have some active deals with Fiserv, and we have 1 or 2 other acquiring relationships that we will be expanding over the next 6 months. This is absolutely a demand from the market. Operators want that. They want that resilience, they want that breadth, and it's a priority for us. So we're building that out.

It's still the vast majority of WorldPay and still a great relationship. But we're definitely following the customer here, so we've got the integrations, adding more products, but we're also adding more acquires.

And in Canada it's the same thing, we have multi acquire solution already and that drives kind of best-in-class 90 % conversion rates there..

Excellent. Thank you for taking both of the questions..

Next question today is coming from George Mihalo from Cowen. Your line is now live..

Great. Thanks for taking my questions, guys. I guess first one for me, as it relates to some of the delta is third quarter expectations. I think you guys highlighted some contracts, some was timing, some was scope. I was hoping you can delve a little bit into the scope commentary.

Should we be thinking that maybe the total contract value is a little bit different than what was originally signed?.

Yes, so we obviously can't go into too much detail. We had a few contracts, 2 in particular that we're very sizable -- are sizable. We had signed agreements where them but as we went through with both clients, the timing to ramp up definitely changed.

Then 2 in some cases, the product mix in terms of how much is card processing, how much is bank payments, has changed. What we're seeing, is actually we are building pretty deep integrations with some of these players. We will be looking forward to making some announcement in the coming weeks to give people a sense.

But we do see them as larger clients, we're being more conservative in our outlook in forecasting those until we see them really come to fruition and grow..

Okay, that's helpful. And if I could ask one also on the digital wallet side, you highlighted some of the regulatory changes, I guess in Germany. Curious how you guys are thinking about or how concerned you are about that maybe spreading to some other markets in the future, if you're hearing any rumblings around that.

And then again, related to the wallet, your confidence in the pricing algorithm. You were sort of at a point where you're testing different things and maybe that long-term pricing outlook of 1.8%, maybe that changes as things progress, just trying to get some clarity around that. Thank you, guys..

Yes. So two things. On the regulatory front, Europe definitely have a wave of regulatory change. Some of that's smaller pieces, Italy and the U.K. have also had some items that have restricted, but the Germany and Netherlands certainly are the 2 biggest ones.

So as we cascade across the globe, I'd break it down as a file and we've certainly exited what we consider the very high risk markets which could create a lot of volatility. We've exited US and Canada very clear. They are regulated opening up state and probably you have state-by-state, province by province.

In Europe, as we look forward, we're not seeing any new regulation in any major states and major countries right now. Even early stage regulation that's coming through. So we do see that this wave is pretty much a good base Slide for where we are over the next 6, 7 months, the Operators will adjust.

And we'll get back to kind of a good predictable growth pattern there. When we look around the rest of the world across Latin America, Asia, and Africa, that's a long tail of countries, and of course, those treads just can have ups and downs against gaming regulation. We think it's a tailwind across Latin America.

We think it's mixed across Eastern Europe and in Asia. So as we stand here today, there's probably about $20 million to $30 million of total net exposure if you were to take all of the negatives and add them up on the same time, we certainly would never expect that to happen.

But in our go forward forecast, we are now being more prudent expecting some of that to happen just to be cautious. You had a second question George, I forgot the second question. Apologies..

Your confidence in that long-term 1.8% take rate for the digital wallet?.

Yes. No, I definitely think -- I think deposit options, particularly in Europe, have gotten much more competitive. I think that's an absolute fact and we are reacting to that. So that will be -- that is a downward pressure in the forecast reducing some take rate coming down. At the same time. We are seeing some charges in withdrawals.

We continue to really like the crypto business. These items drive up revenues as well so there's a netting effect. But overall, I think the general trends will be more competitive, much more competitive on the deposit in fees versus where we are today, and we've got that baked into our outlook now.

It also does, underlying by the way, when we bought SafetyPay, the real-time banking capability, it's in 19 markets, including 7 in Europe, and we're absolutely seeing demand for that as well. So it's also -- that's been a welcome addition to our toolkit..

Thank you..

Next question today is coming from Josh Levin from Autonomous. Your line is now live..

Hi, good morning. I have 2 questions. The first is, what role is Bill (ph ) fully playing these days with regards to the Company and the ongoing issues. And then the second, you said that 2022 is a reset year and that you expect growth to come back in 2023 as you right the ship.

But instead of having shareholders wait until 2023 to see if the ship can be righted and you are raising some serious issues that the Company is facing, have you considered that at this juncture the best way to create shareholder value is to potentially explore selling the Company. Thank you..

Yes. Thanks, Josh. So I'll answer on the Bill, and on the same question. So Bill and I -- we speak on a weekly basis. He is engaged. He is aware of all the issues, good and bad. The board is also very active across the board in terms of all the points.

Look, in terms of the conversations, he is clearly disappointed in the performance and the fact of the clean up that we have, that we got more to do. And I have both working very closely on the actions we're taking, the right sizing, the organization, the stripping out of some area. So he's involved in those pieces quite a bit.

He's equally evolved in the upside we get from both the inorganic and the organic deals that we're pushing, and seize the opportunity, the momentum there.

You'll have to speak to him personally, but I think it's definitely not happy with the outlook and performance, but also sees the value of where we are growing, in iGaming, growing in crypto, and growing some of the disruptive areas that, were always the attraction of PaySafe. So that's the conversation with Bill.

We don't have a conversation on selling. We know it, starting for myself to the board, don't see us at this value. We know there are low point, we know there's credibility to rebuild. But as I said in my comments, we see the deals that we are signing, we see the areas that we can fix, and we see that way forward, simple as that..

Thank you..

The next question is coming from Darrin Peller of Wolfe Research. Your line is now live..

Hey guys. I just want to understand what you are -- what you can really do to turn the course in the digital wallet side, especially around the user base customer or consumers side, specifically. Obviously, it sounds like some of this is regulatory, some of this is open banking, trusting, and the like, which maybe a little bit out of your control.

So just wondering from a customer acquisition, consumer-facing standpoint, since this is really a two-sided network, help us understand better what you're specifically tangibly doing. Just give us examples. What you can and what you can't do to actually change that course. Maybe a little more on the timing.

It sounds like you'd expect, I guess '23 to be that change in inflection..

Yeah. Thanks Darrin, that's all the right questions. First of all, the total PaySafe level, the eCash business is growing, at 17%-18 % year-to-date. The Integrated Processing is also going to be at kind of 17%-18 %. We do a lot of good growth engines in the business. But clearly, digital wallets has some areas to clean up.

It does -- look, you touched on a few pieces here. 1. The client engagement there, it's absolutely critical. We've made a lot of money in some of the higher risk areas of the market, and I haven't a pay as much attention as we should have to some of the more mature markets -- more regulated markets, especially in Europe.

So that re-engagement alone is a big part of the form of spending time, plugging in the right APMs, working on co-marketing agreements, and all of those conversations are happening. I personally had it with all of the top 10 -- 20 C-suite clients. And the reactions have been really positive and open. They like Skrill. They like the customer base.

They like the focus. And somehow called out very directly that it's great to see this route regular engagement. And that absolutely drove some of the management change decisions in mid-summer. So that's absolutely 1, and that has been number 1 source of customer sign-ups is from our merchants there. And so that has to be the focus.

2 are some of the pricing in tier that we talked about. The market has gotten more competitive, so we do see that -- we don't see those as complex fixes. A lot of those fixes are already in place and happening and we're already seeing, like I said, some turnaround in terms of sign-ups and conversions. And we will continue to track that very closely.

But that's really the second piece. The third one is really that point about exposing the wallet capabilities to clients versus pushing just a pure Skrill brand, but almost allowing the wallet capabilities to be embedded with some of our clients.

And that's where we're seeing some opportunity as well that could drive lots of volume and customer growth. We think that's very unique. We have a platform that already has two brands on it, Skrill and Neteller. And we're seeing lots of interest in that capability as well..

That's a little more helpful to give just intangible examples. When we think about the percentage of the business that you're offerings account for accurate customers, I guess it's important to remind us, maybe what percentage or how important Skrill is for your customers on the merchant side, now on the operator side.

I think it's a pretty -- the VIP customer base you bring is the value proposition. How much is that still resonating with customers just to put some a floor under this and some degree for investors. And then on the same topic on the digital, just the U.S. we were hoping to see some bigger brand names announced overtime.

Do you still anticipate that for us, the US reach..

Yes. So we in Europe, we it depends on the Operator, but in general, we cover about 7 % to 10 % of the cash year share with the Skrill wallet. So it is an incredibly important part of the proposition. It does tend to skew towards the high roller as well. So that's again, you have having those client-by-client conversations, it absolutely resonates.

It absolutely resonates but I do think our client engagement focus did weaken in Europe. We were making, like I said, lots of money in much less regulated places, and our earning are key in more competitive markets, we lost a little bit of touch there. But the importance in the volumes matter tremendously to these operators.

So there is engagement, there is openness, they see the reach that we have, that works. And you look at the U.S. It has taken time, Darrin, we -- so we're not going to be some big blowout campaign, the LTVs and above-the-line marketing in the U.S. are very high.

We're working on those proofpoint's where we are now getting, what I'd consider a top – decile conversion rates, so beating the market there. The average tickets are higher and we're doing some jumbo tickets now. And with 2 smaller operators, where we're 10 % to 15 % of cash year share.

We really love that data point, because those operators can access any payment products. It's not just us, but we've really focused where them and the way we are approaching the larger operators is we are proving to them the product works, attract the type of customers we need, and we're having active conversations.

But it's going to take time before we get some of the really big ones to push this. But we like the direction is going right now..

And just last one is on the eCash side of the business. The wallet capabilities of that and the digitization of that, how's that thing going still? I mean, I know you guys are -- seem more optimistic on that part of the story. If we stand on an organic standpoint, you can give us a little more color on your expectations and why that's going better.

Thanks..

80 % of the revenues now go through our PaySafe card apps. So we basically moved 12 million customers are active on a stored value adverse effectively a wallet. Obviously a very different profile, more underbanked and younger. We will be adding some banking capabilities of virtual debit accounts, and be able to move money back and forth.

The back-end capabilities of that product are the same as Skrill and Neteller. So when we talked about being a multi-wallet Company that has absolutely great proof point of where it is. So we remain very very positive on that point..

All right. Thank you..

Go ahead..

Go ahead, please..

Go ahead..

Looks like we've reached the end of both question-and-answer session? I want to turn the floor back over to management for any further or closing comments..

Thanks everybody for the questions. Clearly, it's not the result we're looking for. There's stuff to clean up, there's things to fix. But as I said in my closing comments, we had a team meeting with all of my top 80 leaders. We went through this, we went through the adjusted financial outlook.

We went through the road ahead and the -- it's hard to describe the energy and enthusiasm was extremely high, because the team does see the capabilities. They do see the actions we're taking, the changes we've made in the digital wallets team. And frankly, the clients -- and that we're winning and the pipeline that we're building.

So it's going to take us longer. It's not where we wanted to be, but we remain totally focused on delivering the strategy we talked about from the beginning, from winning in iGaming, winning other verticals, driving out those costs, and making the recent transactions really come to life.

So we're going to be -- obviously make ourselves available for everybody for more Q&A and to go deeper than in this first session. Thanks, everybody..

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