PSFE

Ladies and gentlemen, greetings and welcome to the Paysafe first quarter 2026 earnings conference call. At this time, all participants are in the listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone requires operator assistance during the conference, please signal the operator by pressing star zero on your telephone. Of Investor Relations. Please go ahead.

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

You can find additional information about these measures and reconciliations to the most directly comparable GAAP financial measures in today's press release and in the appendix of this presentation, which are available in the Investor Relations section of our website. With that, I'll turn the call over to Bruce.

Thank you and good morning, everyone. Thank you for joining us today. We started off 2026 with a strong revenue growth of 10%, adjusted EBITDA growth of 4%, and 21% growth in adjusted EPS. We generated $67 million in unlevered free cash flow in the first quarter, an increase of 17% while improving our net leverage ratio to 5.2x. Our strong top-line performance included strong sports betting growth during the NFL playoffs, some outperformance of the consumer business where active users reached 7.9 million, an increase of 9% year-over-year. Growth also benefited from favorable FX and another licensing deal to monetize our data. In Q1, our operating expenses grew 6% versus the prior year, excluding bad debt, largely due to FX.

We also increased our investment in data infrastructure to support our AI initiatives and data business, as well as increased our marketing investment to accelerate growth. Additionally, we had in March and shouldn't have an impact on the business going forward as our models continue to mature. Later, John will discuss the revenue cadence and margin considerations for the year. Overall, we're pleased to start off on such a strong note. Our internal model for the year remains intact, supporting our confidence to reaffirm our growth outlook for 2026. I would also like to add another key indicator for the year for shareholders to focus on is our net leverage ratio, which should have a meaningful impact on our valuation over the next 24 months. First, I'll share a few highlights on our strategic progress for the quarter, starting with slide four.

On the consumer side, we had a strong quarter with notable strength, live in 18 countries, with new countries expected to launch later this year. Paysafe continues to advance our digital-first support model. In Q1, nearly 60% of all consumer contacts were resolved through digital assistance channels, representing a 25% increase compared to Q1 of 2025. Turning to the merchant side, e-commerce growth was 17% in the first quarter, led by iGaming, which grew 28%. The SMB business grew 2% in Q1, reflecting a modest improvement in attrition. Lastly, we continue to position Paysafe to support new AI-native commerce channels from conversational interfaces to autonomous purchasing. In Q1, we partnered with one of our enterprise clients, Norwegian Air, to demonstrate end-to-end agentic payment capabilities aligned at emerging industry protocols from partners Visa and Mastercard.

With one integration, Paysafe can enable merchants to offer AI-powered commerce across ChatGPT, Claude, and Gemini, along with their own portal and apps. The merchant stays in control, plugging in through standard SDK while Paysafe handles the payment infrastructure. Any AI assistant can use it. Built on open standard MCP and Google's AP2 protocol. Still early, we see agentic commerce as a meaningful evolution in how transactions originate, and we are positioning Paysafe to participate at scale. It's also worth highlighting that our revenue per FTE increased 13% from a year ago, normalized for FX. This is a strong testament to the hard work we've already done around productivity, resource allocation, and building foundational intelligent systems. Let's double-click on the growth drivers for the quarter, starting with Latin America on slide five. Paysafe offers a comprehensive network of alternative and local payment methods in Latin America.

As the region's traditional cash culture rapidly evolves, digital wallets and account-to-account payments are becoming increasingly popular. Our refreshed consumer strategy is fueling user engagement, strengthened by targeted marketing and collaborative programs with key merchants. Our product strategy also continues to evolve with the unique needs of local consumers, with ongoing enhancements to our product lineup, including PagoEfectivo wallet, which launched last year, bringing together our trusted local brand and Paysafe's wallet platform to deliver a streamlined, user-friendly experience. Our enterprise sales initiatives have been highly successful in driving strong cross-selling in the region. Our typical consumer in Latin America enjoys online gambling, video gaming, and esports. They need fast, secure, and affordable cash-to-digital solutions along with quick access to their winnings. We also serve everyday consumers involved in e-commerce, from paying bills to enjoying entertainment services, many of whom prefer cash or non-bank payment options.

Additionally, a large portion of our customers regularly send and receive remittances and engage in peer-to-peer transactions. While Q1 benefited from a favorable comparison to the previous year, we anticipate strong double-digit growth throughout 2026 as we continue to build momentum with our product innovations and go-to-market strategies. Moving to slide six. Paysafe has a rich 30-year history built through acquisitions, but our story as a unified brand truly commenced in early 2024. Over the past two years, we have executed a multidimensional transformation, clarifying who we are and the value we deliver to our customers. This was a deliberate shift from a fragmented, siloed approach to a focused, intentional model, aligning our brand, product, and go-to-market around a cohesive narrative. Today, the alignment of our marketing and product strategy is delivering measurable commercial outcomes, particularly in our growth markets.

In regions where we are making targeted investments, we are seeing strong performance across consumers, campaigns, and countries. We're building a repeatable, scalable model that positions us to accelerate growth even further across our priority markets. We are seeing this in Latin America, where active users reached 3.3 million in Q1, the highest level to date. This combination of local relevance, clear positioning, and targeted consumer activation is driving engagement reinforced through co-marketing programs with merchants. We're seeing it with our core wallet and cash solutions in high-potential regions such as Spain and France, where our brand and product and customer position align most strongly. That same approach extends to PaysafeWallet, which has had its strongest month on record in March. We believe this momentum represents the early stages of a much larger growth opportunity across the experience economy.

AI is also a key driver of change in our marketing model, enabling us to scale through automated segmentation, smarter targeting, and a more personalized customer experiences while increasing execution speed. Turning to slide seven. iGaming continued to be a significant growth driver this quarter, with global revenue increasing 20% year-over-year, with strong growth across both segments in our core regions. We experienced robust activity during the NFL playoffs with outstanding operational performance during the Super Bowl and March Madness. Additionally, we announced a new partnership with MoonPay, enabling players to seamlessly deposit stablecoins and cryptocurrencies with iGaming and daily fantasy sports brands in the U.S. Five operator pilots are currently underway, positioning us to meet evolving market demand. We also achieved a strong quarter for new bookings, securing agreements with both new and existing merchants.

We extended our partnerships with U.S. clients such as Hard Rock and Golden Nugget to support their expansion into Canada, and we signed a new agreement with Cheddar, a popular platform for sports and culture predictions in North America. In the broader entertainment sector, Paysafe has become a headline sponsor for BIG, Germany's largest esports organization, and will also sponsor Red Bull's Fortnite and EA Sports FC tournaments in 2026. These high-profile events and partnership attract top content creators and elite competitive players supporting premium brand visibility for Paysafe's digital wallet solutions at the forefront of entertainment. I will wrap up here. As you can see, we've had a very active quarter with a strong start to 2026, with impressive growth across revenue, cash flow, and EPS. We're making good progress with our product initiatives, supported by our maturing sales motion and marketing investments.

With that, I will turn over to John.

Thank you, Bruce. Let's move to slide nine for a summary of our first quarter results. Revenue for Q1 was $442.7 million, an increase of 10% on a reported basis, with organic growth of 8% as the remaining impact from last year's business disposal was more than offset by a tailwind from FX. Our first quarter results also benefited from another licensing data deal, which contributed $7 million. The underlying organic growth was approximately 6% normalizing for that. Across our top 20 countries, we saw growth of 13% in the first quarter, and we've consistently seen growth ranging from high single-digits to low double-digits over the past four quarters across these core markets. Adjusted EBITDA increased 4% to $99.2 million in the first quarter, and adjusted EBITDA margin declined 130 basis points.

This reflects an increase in marketing and IT investment of $6 million, as well as an increase in credit loss expense of $10 million, which was partly offset by the benefit of the data deal. Turning to cash flow, we generated $67 million in unlevered free cash flow in Q1, an increase of 17% year-over-year, with a 67% conversion of adjusted EBITDA, in line with our target range and a solid improvement versus the prior year quarter. On an LTM basis, unlevered free cash flow was $307 million, reflecting 71% conversion. Adjusted net income for the first quarter was $21 million, and adjusted EPS was $0.41, an increase of 21% reflecting our reduced share count. Overall, relative to our expectations for the quarter, the top line came in ahead and adjusted EBITDA was in line but at a lower margin.

Turning to the segment results on slide 10. Starting with digital wallets, volume in Q1 was $7.1 billion, an increase of 19% or 9% constant currency. Revenue from digital wallets increased 15% to $216.3 million, with organic growth of 7% as three-month actives increased 9% year-over-year, led by strong growth in Latin America. Transactions per active user was flat year-on-year, and average revenue per user increased 6%, helped by FX, with both metrics influenced by the regional and product mix, including the strong growth from LatAm. Adjusted EBITDA for digital wallets was $94.9 million, up 15% year-over-year, with 4% constant currency growth. Adjusted EBITDA margin for the segment was 43.9%, down only 10 basis points despite higher investments in consumer marketing.

Turning to the merchant segment results, volume increased 9% to $37.2 billion, resulting in organic revenue growth of 9% or approximately 5% excluding the data deal. Normalizing for the benefit of the data deal, we saw a decline in the underlying gross margin in merchant solutions due to business mix, reflecting stronger growth from the low-margin ISO channel. Given these puts and takes, the adjusted EBITDA for the segment was $28.1 million, down from $29.4 million in Q1 of last year. Turning to slide 11 for a summary of debt and leverage. At the end of the quarter, total debt was just under $2.5 billion, down $122 million versus Q4 as we repaid more than $100 million during the quarter and saw a modest benefit from FX.

Our net leverage ratio was 5.2x at quarter end compared to 5.5x at Q4. We repurchased 588,000 shares in January, which was a rollover from a December order. While we continue to think our shares are undervalued, reducing leverage is our priority this year, supported by our expected growth in adjusted EBITDA and strong cash flow generation. Turning now to our full-year outlook on slide 12. We are reaffirming 2026 guidance for revenue growth, adjusted EBITDA, and adjusted earnings per share. As for the cadence, in the second quarter, we currently expect growth to be moderately below our full-year guidance range to approximately 4%. Considering in Q1, we had the licensing deal, a strong tailwind from FX, and seasonally high volumes from the NFL postseason and March Madness. This brings our first half growth expectation to 7%.

We expect a seasonally strong Q4 in both segments, further supported by the investments we're making in marketing on the consumer side. We expect operating expenses to be weighted to the first half, including an increase of $14 million year-over-year related to marketing and IT investments. Given the $10 million increase in credit losses experienced in Q1, we expect adjusted EBITDA generated in the first half to be roughly flat year-over-year, while our second half expectation remains ahead of consensus. Putting that together, for the full year, we continue to expect revenue and adjusted EBITDA to grow in the range of 5%-8% while driving double-digit growth in adjusted EPS. Now I'll turn the call back to Bruce for closing remarks.

Thank you, John. We're pleased with our start to 2026 and are building on that with clear priorities to sharpen execution, drive product momentum through our Vitality Index, and further reduce leverage. Before we begin our Q&A, I'd like to welcome Ignacio Caride to our board. Ignacio brings decades of experience in digital platforms, omni-channel retail, and payments, along with a deep knowledge of Latin America. We're excited to partner with him as we move forward, and a sincere thank you to Eli Nagler, who has transitioned to a board observer position. We've been very fortunate to have Eli's support and leadership during his many years of service to Paysafe. As you may have seen, we've announced several board changes this year. As a result, the board now includes nine independent directors out of 12 total.

While CVC and Blackstone remain significant shareholders and continue to support our strategic direction, we see this progression to greater independence as a step toward a governance structure more typical for a U.S. public company.

Now let's begin the Q&A session.

Ladies and gentlemen, we will now begin the question-and-answer session. To ask a question, please press star and one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. Up your handset before pressing the star keys. We will now wait for a moment while we poll for questions. Our first question comes from Jamie Friedman with SIG. Please state your question.

Hi, good morning. Thinking about the EBITDA margin and merchant solutions. I know you articulated some of this on the call, but how we should be thinking about mix and the impact on margins, and then how we should be thinking about the merchant segment margins cadence for the rest of the year.

Right. Good morning, Jamie. I'm going to let John walk you through that. John, over to you.

Sure. Thank you. I think we expect the margins to be slowly improving through the year, and by slowly I really mean in Q3 and Q4. Q2 is most likely going to look similar to Q1. We expect to be in the upper mid-teens, potentially higher than that, by the end of the year. That's driven, as you mentioned and we mentioned on the call earlier, the mix side with the ISO channel outperforming early this year. As we get the our various pieces of the direct channel on better track in the second half, that should drive the margins up.

Okay. No, that makes sense. In terms of the iGaming, I realize you called out that it's seasonally strong, especially in the fourth quarter. Is it super seasonal even though? Because there's seemingly a lot of gaming that others are talking about like Visa coming in the second half.

Yeah. On the seasonality of the gaming, obviously, Q1 is a big quarter for us with the playoffs, NFL playoffs and Super Bowl. Really at Q4, you look at the back half of the year, there's just a tremendous amount of sporting activities as you're rolling into Q4. Those really have been historically the seasonality of the iGaming. Q2 is kind of muted. Q1 and Q4 are usually the big quarters on a seasonality basis.

Great. Thanks, Bruce.

Yep.

I'll drop back in the queue. Thank you.

Thank you, Jamie. Yep.

Our next question comes from Matthew Inglis with RBC Capital Markets. Please state your question.

Hey, good morning. This is Matthew Inglis on for Dan Perlin at RB-

Good morning.

For the LatAm business, the World Cup is obviously a huge opportunity to acquire customers. I know you mentioned increased marketing spend and co-marketing with your merchant partners, but wondering if you can unpack a little more the customer acquisition strategy leading up to the World Cup and I guess just your expectations.

When we look at the World Cup, it's an interesting dynamic. It gets a little digital wallet side. This time through, we've been relatively conservative in our forecasting of the impact of the digital wallet. We have a couple different dynamics. One, Matthew, you just mentioned is LatAm. We have a much stronger business in LatAm. Not really sure what the real impact is gonna be, but we have a very active marketing campaign both in LatAm and in North America. There's a campaign that we're doing really for the very first time that we're hoping to build off of the popularity of World Cup on our consumer acquisition.

Our initial campaigns have been very successful, but building around World Cup is something that'll be new for us, so we've kind of remained conservative in our forecasting of that. I think for us, as we look at it, we'll have a little bit of probably pop there in LatAm, and certainly on our merchant acquiring side in North America because such a big component this time is in the U.S., we may have some opportunity there as well. Conservative in our modeling because we really haven't experienced it at the size and scale that we are today.

Got it. Super helpful. Thank you.

Our next question comes from Darrin Peller with Wolfe Research. Please state your question.

Hi. Thanks. This is Paul Obrecht on for Darrin. Bruce, can you provide a bit more color on the momentum you're seeing with PaysafeWallet in Europe? I mean, what's really resonating with consumers there, and how are they engaging with it?

Yeah, Paul, great question. you know, we've really taken a very active stance with our marketing team on consumer acquisition there. I think that for us is really driven quite a bit. We've had really strong campaigns in Spain and France most recently. As we continue to get more sophisticated in our marketing campaigns. For example, on a lead generation basis, we're very active in using bots to drive leads. We have thousands of bots a day out optimizing our lead generation. We've really transformed the way we go after consumer acquisition. I would also say that the PaysafeWallet is providing a great vehicle for us. We see really nice double-digit growth with the PaysafeWallet.

That creates a nice onboarding into our ecosystem from paysafecard. I think we have a lot of things that are coming together, creating good opportunities. Probably the big historical difference for us is really the active engagement of our marketing team on consumer acquisition. We are much more aggressive about consumer acquisition today than we ever have been, but we're doing it in a very calculated and methodical way to make sure that we're maximizing the impact of the dollars that we spend. I think when you look at our marketing spend versus others, our marketing spend on a consumer basis is still well below the average as a percentage of revenue. But for us, it's been a substantial increase as we've kinda looked at it on a historical basis.

We're really being very precise about the way we're doing it. So far, our marketing team has really had a lot of success getting this turned around for us.

The one thing I would add too in terms of engagement, we're pleased so far to see, you know, even though the business is relatively small compared to our core wallets business, the transactions per active user actually are very similar to the Skrill and NETELLER users, which we're, you know, which we're excited as it shows, you know, real engagement and activity with the product.

Great. That's really helpful color. Then as a follow-up, it's great to see SMB revenue growth improve to 2% year-over-year. Can you just touch on the drivers here and your expectations for SMB for the remainder of the year? Then, John, I think in a previous question you noted your expectation for better performance on the direct side in the second half. What's really needed to achieve this?

Do you wanna, John, jump in?

I'll start with the numbers piece first. I think, Paul, we're not expecting significant contribution from the SMB piece through the year. Our expectations of that business are better than Q1, but not dramatically better. We think it's gonna, you know, sort of work its way through the year to a couple points better than maybe where we were in Q1. You know, that we don't have that penciled in for a significant uplift for the year.

I think the other thing that we just point out is we did have better than expected or lower than expected attrition in our book. We have not really modeled that in for a full year. You know, we're very optimistic that we've made a lot of changes about trying to mitigate the attrition that we've had. And hopefully this is an ongoing rate that we can kind of hang around. We didn't model that in our forecasting at this point. We'll see how Q2 unfolds and move forward with that.

The next question comes from Timothy Chiodo with UBS. Please state your question.

Great. Thank you. I wanted to start with an update on Clover. It was about a year ago or so that you announced an expanded partnership around value-added services and Clover Capital. It's been some time, and I was hoping you could just give us a status update.

Yeah. Good morning, Tim, thanks for the question. You know, we still see really strength with our Clover offering. We feel that it's a very strong offering in the marketplace. For us, it's something that we've poured a lot of energy into in the last year. We still see double-digit growth on the merchant acquisition side of Clover. We feel very good about the product offering. I think it's getting honed a little bit more. Obviously it does very well in the restaurant vertical and now in the services verticals, we're starting to see a lot of success there with it as well. Still feel like it's a great product that is serving us well and serving our merchants well.

Excellent. Thank you, Bruce. The follow-up was, I apologize, I'm juggling a few earnings this morning, did you give any additional context or just the mechanics around the large data sale? In other words, what type of customer would be purchasing data in that manner? How common are these and/or recurring/non-recurring? Obviously it's non-recurring, maybe these could happen more often.

I'm with you. Yeah, yeah.

I don't know what the right word is. Episodic?

As I said, Oh, sorry.

I was saying I'm not sure what the right word is, recurring, non-recurring.

Yeah.

Kind of, you know, once in a while.

Yeah. No, no worries at all, Tim. Look, for us, as I mentioned in the last quarter, this is a business we're building. We feel that this is gonna be something that we'll continue to build quarter-to-quarter. We expect sales throughout the year. We've modeled that for ourselves. As our pipeline continues to build, we think it'll be a steady state for us as we move forward. Now, for us to monetize the investment we've made in our IT infrastructure. People talk a lot about AI and the things that people are doing there. We've really, over the last couple of years, have invested heavily in our data infrastructure. This has allowed us, one, to monetize through sales of data, and there are all kinds of uses for that.

The data that we sell is anonymized data, so this is not something that is traceable back to when we look at our IT infrastructure around data today. When you look at our organization, we have over 150 data engineers that we didn't have just a couple of years ago. We've really transformed our foundational data layer. We think that does a couple things. One, gives us some revenue opportunities. Two, it's driving a tremendous amount of efficiencies for us, whether it be on the marketing side about lead generation, whether it be in our attrition management and the algorithms we use now to predict merchants as they're moving forward. It could be in our client services.

We had 60% of our volume being handled by early on in our kind of transformation over the last couple of years.

Excellent. Thank you for bringing that to life. I appreciate, Bruce.

Yeah.

A reminder to all participants, to ask a question, please press star and one on your telephone keypad. Our next question comes from Andrew Harte with BTIG. Please state your question.

Hey, thanks for the question. Bruce, that was really helpful color on the data licensing deal. I guess just a quick follow-up on that. Was that win included in full year guidance at the beginning of the year? I know we reiterated guidance, just wanna understand if that data licensing deal had any impacts. I guess really getting at how expectations for the back half of the year have potentially changed at all and overall visibility. Thanks.

Andrew, we had data in our guidance throughout the year. I think from our standpoint, the way we looked at it, there was nothing new here. We had data incorporated in. If anything, I would say it was probably just a little bit bigger than we anticipated in Q1. We had data deals in our model throughout the year. No real change from our perspective.

Okay, very helpful. In iGaming, would love to just kinda hear what the early adoption of pay with cryptos looked like? Anything you'd highlight with your MoonPay partnership and what adoption's been like since the launch?

I apologize, Andrew, I missed the beginning. Crypto.

Pay with crypto.

Oh, pay with crypto. Yeah. Look, the pay with crypto, we feel very bullish about it. It's really kind of in a pilot mode at this point. We've got about five merchants that we're really working with right now. We expect to be able to roll that out throughout the year. I think the key here on the crypto piece is really just being aware of what our consumers want to do and how they wanna spend their money and us providing them a mechanism for them to spend the money the way they want to spend their money, and where they want to spend the money. When you look at the survey that we did, there was really an interest in paying with crypto.

I think it was 83% of our survey respondents had expressed interest in it, there was really a strong interest in it. For us, we look at it as really just another LPM that we're providing, that consumers want, and now connecting it up to our merchants so they can buy their video game or buy their place their sports bet. Just trying to be there for the way they wanna execute their transactions.

Thanks, Bruce. Nice results.

Ladies and gentlemen, this concludes the question-and-answer session. I would now like to hand the conference over to Bruce Lowthers, Chief Executive Officer, for closing comments.

Thank you very much. I just wanna thank the team at Paysafe for all the work for the quarter. Overall, I think the theme, really strong quarter for us to start the year, which has us feeling optimistic about the year. We're very focused on executing the year. Biggest priorities, obviously our continued execution, pay down of our debt, really continuing to optimize our leverage free cash flow and that's the theme for 2026. Thank you very much for joining us today and we'll look forward to connecting again soon.

Ladies and gentlemen, the conference call of Paysafe has now concluded. Thank you for your participation. You may now disconnect your lines.