Paysafe Limited - Ordinary Shares - Class A Stock

Greetings. Welcome to the Paysafe Second Quarter 2026 Earnings Conference Call. [Operator Instructions] 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.

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 on the Investor Relations section of our website.

With that, I'll turn the call over to Bruce.

Thank you, and good morning, everyone. If you're following the webcast, let's start on Slide 3. The second quarter and first half of 2026 marked 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, the SPAC area 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 3 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 4. I'll share a few additional highlights on our recent progress. We had another strong quarter with 3-month actives at 7.8 million, reflecting 5 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 engine. These investments are delivering results today while creating a stronger foundation to drive long-term customer value.

Our PaysafeWallet 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 PaysafeCard while extending that relationship into broader wallet experience. By bringing everyday money movement into a single familiar platform, PaysafeWallet 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 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.

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 2 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 PaysafeWallet 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're largely not active, coupled with short-term grow-over effects in certain subverticals such as sweepstakes and cryptocurrency trading, which were relatively strong in Q2 of last year. 3-month actives increased 8% year-over-year, again, led by strong growth in Latin America and PaysafeWallet in Europe.

Transactions per active user was 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 3-month active users in July. Turning to SG&A. We expect roughly $25 million 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.

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 to 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 Instructions] Our first question is from Matthew Inglis with RBC Capital Markets.

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 I'm just curious if that's still on track.

Yes, Matthew. I'll let John walk you through -- the walk for the back half of the year. But yes, we remain confident in our NPI, our vitality index is tracking as we expected, but I'll let John walk you through the mechanics.

Yes. I think of it as 2 components. The second component is cost. I'll do that second. On the revenue side, think of it as roughly 1/3, 1/3, 1/3 between scheduled launches and ramps. So products that are on launch schedules, customers that are signed and active and ramping. And then 1/3 of pipeline, which is new sales, new execution forward ramp and then 1/3 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 million 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.

And just as a follow-up, on the Digital Wallet side, how much of Digital Wallet 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?

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 the -- I'd say, the overall segment margin. It's lower than the core wallet solutions and much more in line with kind of in between the 2. Some of it looks a little more like eCash, some of it looks, obviously, the PaysafeWallet 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.

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

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 million to $35 million step-up in interest expense going forward? Or am I oversimplifying it?

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 the -- roughly the cash increase in interest costs. So in simplest math, if we did all of the term loans without a stub with a 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.

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

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

And is there anything that's changed in that relative to -- I know the Analyst Day is 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?

I think I would think of it as 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 that's -- I think that's why we're trying to get that messaging really clear externally as well as internally.

[Operator Instructions] Our next question is from Timothy Chiodo with UBS.

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 of the new cohort, particularly with some of the sales efforts, there would 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.

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 NPI 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, I don't -- it doesn't drive a material impact in the quarter.

No problem. And just we didn't talk about Clover too much, but is there any just 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.

Yes. 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 I feel very good about Clover and our relationship with Fiserv.

[Operator Instructions] Our next question is from Leah Rosenstein with Susquehanna.

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

Yes. 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 to almost 2 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 drive a lot of value out of the data infrastructure that we've built. And then about a year ago, we get 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 will 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.

[Operator Instructions] 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.

Thank you. Look, to summarize, we delivered second quarter results in line with expectations 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. The refinancing of our term loans and revolving credit facility extends our maturity profile to 2030 and increases the 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 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.

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

Ladies and gentlemen, greetings, and welcome to the Paysafe First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host for today, Kirsten Nielsen, Head of Investor Relations. Please go ahead.

Thank you, and 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 increase in credit losses while converting to a new risk management platform. We believe these losses were contained over the course of a few weeks beginning 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. But 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 4. On the consumer side, we had a strong quarter with notable strength from Latin America across gaming and e-commerce. Our PaysafeWallet solution continued to see strong adoption across Europe. We're currently live in 18 countries with new countries expected to launch later this year.

Paysafe continues to advance our digital-first support model as a driver of customer experience and operating efficiency, and our virtual assistants play a key role in delivering intelligent always-on support. 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 with 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.

While still early, we see agentic commerce as a meaningful evolution and 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.

Now let's double-click on the growth drivers for the quarter, starting with Latin America on Slide 5. 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.

Lastly, 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 nonbank 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 6. 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 2 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 are 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 7. 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 partnerships 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 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 Cheddr, a popular platform for sports and culture predictions in North America. In the broader entertainment sector, Paysafe has become a headline sponsor for BIG CLAN, 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 Wallets 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 it over to John.

Thank you, Bruce. Let's move to Slide 9 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. So 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 4 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 3-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. And 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 in 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% to 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, omnichannel 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 9 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.

[Operator Instructions] Our first question comes from Jamie Friedman with SIG.

It's Jamie at Susquehanna. So congratulations on the numbers. I wanted to get your perspective on how we should be thinking about the EBITDA margin in 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?

Great. Jamie, I'm going to let John walk you through that. And John, over to you.

Sure. Thank you. So 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, but we expect to be in the upper teens, potentially higher than that by the end of the year. And that's driven, as you mentioned and we mentioned on the call earlier, the mix side with the ISO channel outperforming early this year. And then 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. And then -- 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.

Yes. On the seasonality of the gaming, obviously, Q1 is a big quarter for us with the playoffs, NFL playoffs and Super Bowl. And then 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. So those really have been historically the seasonality of the iGaming. Q2 is kind of muted, but Q1 and Q4 are usually the big quarters on a seasonality basis.

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

This is Matthew Inglis on for Dan Perlin. So 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 of the customer acquisition strategy leading up to the World Cup and I guess, just your expectations.

Yes. So when we look at the World Cup, it's an interesting dynamic. It gets a lot of airtime. For us, when we look at the Digital Wallets segment of the World Cup when we held it last, there wasn't a material impact on the 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 of different dynamics. One, Matthew, you just mentioned is LatAm. We have a much stronger business in LatAm. So not really sure what the real impact is going to be, but we have a very active marketing campaign, both in LatAm and in North America. There is 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.

And our initial campaigns have been very successful, but building around World Cup is something that will be new for us. So we've kind of remained conservative in our forecasting of that. But 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. If you recall, the last time, it was in a time zone that was very difficult. There wasn't a lot of visibility in the U.S. So this is really geared in a better way for us. But as I said, we've been conservative in our modeling because we really haven't experienced it at the size and scale that we are today.

Our next question comes from Darrin Peller with Wolfe Research.

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?

Yes, Paul, great question. We've really taken a very active stance with our marketing team on consumer acquisition there. So I think that for us has really driven quite a bit. We've had really strong campaigns in Spain and France most recently. So as we continue to, one, 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. And that creates a nice onboarding into our ecosystem from PaysafeCard. So I think we have a lot of things that are coming together, creating good opportunities. And 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 we -- for us, it's been a substantial increase as we've kind of looked at it on a historical basis. So we're really being very precise about the way we're doing it. And 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 -- 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 excited as it shows real engagement and activity with the product.

Great. That's really helpful color. And then as a follow-up, it's great to see SMB revenue growth improved to 2% year-over-year. Can you just touch on the drivers here and your expectations for SMB for the remainder of the year? And 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 want to, John, jump in on?

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 going to sort of work its way through the year to a couple of points better than maybe where we were in Q1, but that -- we don't have that penciled in for a significant uplift through the year.

I think the other thing 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. So 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, but we didn't model that in, in our forecasting at this point. So we'll see how Q2 unfolds and move forward with that.

The next question comes from Timothy Chiodo with UBS.

I want to start with an update on Clover. So 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 on how that's going in terms of the incremental sales of those services that are sort of an add-on to the core payments business. And then I'll have a brief follow-up.

Yes. Tim, thanks for the question. 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 consumer -- on the merchant acquisition side of Clover. So 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. So I still feel like it's a great product that is serving us well and serving our merchants well.

Excellent. And the follow-up was, and I apologize juggling a few earnings this morning, but 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? And how common are these or recurring/nonrecurring? Obviously, it's nonrecurring, but maybe these could happen more often?

Yes. I got you.

I don't know what the right word.

Sorry?

I was saying I'm not sure what the right word is recurring, nonrecurring, but kind of once in a while.

Yes. No worries at all, Tim. So look, for us, as I mentioned in the last quarter, this is a business we're building. We feel that this is going to be something that will 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 will be a steady state for us as we move forward. Now it's early, like any new product that comes to market. So it's probably a little bit lumpy here in the beginning, but we expect that there'll be deals throughout the year and have a pipeline that suggests that we'll be able to do that. So we feel very good about this is a new way for us to monetize the investment we've made in our IT infrastructure. So people talk a lot about AI and the things that people are doing there.

We 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. But the data that we sell is anonymized data. So this is not something that is traceable back to a particular merchant or consumer. These things are really being used on fraud modeling and the like. So 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.

And so we've really transformed our foundational data layer, and we think that does a couple of things. One, gives us some revenue opportunities; and 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 can be in our client services. And so, we had 60% of our volume being handled by technology that our data engineers had created for us. So I feel very good about the investment. I think it's been a huge payback for us here early on in our kind of transformation over the last couple of years.

[Operator Instructions] Our next question comes from Andrew Harte with BTIG.

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, but just want to understand if that data licensing deal had any impact. I guess, really getting at how expectations for the back half of the year have potentially changed at all in overall visibility.

Andrew, we had data in our guidance throughout the year. So I think from our standpoint, there's really -- 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, but we had data deals in our model throughout the year. So no real change from our perspective.

Okay. Very helpful. And then in iGaming, I would love to just kind of hear what the early adoption of Pay with Crypto has looked like. Anything you'd highlight with your MoonPay partnership and what adoption has been like since the launch?

I apologize, Andrew, I missed the Pay with Crypto.

Pay with Crypto?

Yes. So 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 5 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 want to spend their money and us providing the mechanism for them to spend the money the way they want to spend their money, and where they want to spend the money.

And so, 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. So there was really a strong interest in it. So, 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 that they can buy their video game or buy their -- place their sports bet, just trying to be there for the way they want to execute their transactions.

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 want to 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, paydown of our debt, really continuing to optimize our leverage free cash flow. And that's the theme for 2026.

So thank you very much for joining us today, and we 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.

Greetings, and welcome to the Paysafe Fourth Quarter 2025 Earnings Conference Call and Webcast. [Operator Instructions] 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 welcome to Paysafe's earnings conference call for the fourth quarter and full year 2025. 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 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 on the Investor Relations section of the website.

With that, I'll turn the call over to Bruce.

Good morning, everyone, and thank you for joining us today. I'll start off with a few key messages. In 2025, we delivered our third consecutive year of organic revenue growth while continuing to sharpen our focus on experience-driven commerce. While our business mix led to a different margin outcome than the original outlook called for, I want to reiterate that we've made incredible progress in 2025. For the last 3 years, we have made deep structural changes modernizing our platform, upgrading our talent and positioning Paysafe for its next phase of growth.

During this time frame, we renewed our focus on product innovation, which is reflected in the progress of our Vitality Index, I'm confident that the positive impact of this work will become increasingly evident through our financial results as we move forward. I'm grateful for the dedication of our 2,800 colleagues worldwide. This resilience has driven us through the challenges and later foundation of accelerated growth and exceptional experiences for both customers and employees.

Let's move to Slide 4. For full year, we reported $1.7 billion in revenue, growth of 6%, excluding the disposition. While we saw softer results in the SMB business, this was offset by double-digit growth from e-commerce including record iGaming volumes across the U.S. football season. We also saw a strong demand for our local payment solutions in Latin America and increasingly consumer engagement from product initiatives across Europe.

Importantly, our digital wallet consumers reached $7.8 million at quarter end, our highest level in 3 years. We generated an impressive $298 million in unlevered free cash flow in 2025 despite divesting a business line that generated $40 million in EBITDA the prior year. This provides us with the flexibility to return more than $90 million to shareholders in 2025 as valuation levels were a compelling opportunity.

As John will discuss later, we expect to continue to return capital through open market purchases by reducing our leverage ratio will be a higher priority in 2026.

Turning to the full year revenue walk on Slide 5. Revenue growth was balanced across the existing client base and our new sales and product initiatives, which contributed 8% and 10% revenue growth, respectively. Revenue attrition ended up at 12%, slightly higher than our original expectation for the full year. We continue to see improvement throughout the year. In Q4, attrition was 11%. When we put all of this together, our performance reflects strong cross-selling and growth with existing clients as well as new clients and new products.

On Slide 6, we've shared our regional performance for the full year. Our largest market, North America grew 5% in 2025, excluding the disposition and Europe grew 7% normalized for FX. Latin America was flat for the year, but after lapping the impact of a large customer renewal, we saw more than 20% growth from the region in Q4 and and continued strength in January. The noncore rest of world region, we saw a decline from our consumer wallets as a function of both the market dynamics and our own actions to trim this exposure over the years. This gives you a sense of our balanced regional profile, which we'll plan to provide on an annual basis going forward.

Slide 7 is a look back on our 2025 priorities. Having shifted our focus to the key growth engines of the company, our aim was to drive more revenue from new products, deliver on our longer-term innovation road map and mature the sales organization bolstering both areas through new partnerships. Despite strong progress, we had a bit more groundwork to complete, including advancement of our wallet platform such as our business wallet and white label wallets and monetizing our pipeline in targeted e-commerce verticals.

Overall, we are confident that the operational and strategic progress that we made in 2025 is already enabling us to improve execution in 2026 by reaching new merchants and consumers and expanding our product and service delivery across our core regions.

Moving to Slide 8. Cross enterprise-level merchants, our growth in e-commerce continues to be strong, reaching 24% in the fourth quarter and 27% for the full year. North America iGaming had a standout year with 50% growth and processing revenue. As we discussed on the last call, total e-commerce growth did moderate compared to the more than 30% growth in the first half and compared to what we planned for the year driven by softer performance across other verticals.

Just to take a step back, we delivered $196 million in e-com revenue for 2025, an impressive 3-year CAGR of 29%. Turning to the enterprise bookings. We increased our total deal count by 38% compared to 2024, along with 10% growth and larger-sized deals. Cross-selling was a strong component overall with 40% of our total bookings from existing clients. We also want to highlight the evolution of our enterprise sales function, which was built over 2023 and 2024 and now generating a meaningful revenue contribution from those cohorts since inception driving nearly $260 million in revenue in 2025.

On the SMB side of the business, we saw a total new mid growth of 6%, driven by 18% year-over-year growth in the second half led by our direct sales channels, along with positive growth in revenue per merchant. SMB revenue growth for the year was a modest 1%, coupled with a margin headwind in due to the ongoing mix shift to our lower margin ISO channel. Throughout 2025, we have focused on retooling and optimizing our SMB portfolio and believe we have a stronger foundation to improve growth in 2026, supported by the expansion of our agent programs and value-added services.

Turning to the consumer snapshot on Slide 9. I mentioned at the start of the call that our digital wallet active views has reached $7.8 million at quarter end, reflecting a growth of 6% year-over-year with notable strength in Latin America across iGaming and broader e-commerce. In Europe, we saw continued growth from product initiatives and expansion of Paysafe's digital banking partnerships.

Other KPIs remained healthy with 6% growth in transactions per user, while ARPU was relatively stable. Additionally, we believe our classic wallet Skrill remains a high-value asset despite not accelerating the level we planned for in 2025. As a stable user base exceeding 900,000 actives for the last 5 quarters, we focused on reducing friction and improving user experience. At the same time, our product initiatives have effectively elevated both new and existing eCash users to our wallet platform.

We continue to believe higher growth and value can be created here as we deliver on our initiatives to deepen consumer engagement coupled with successful rollout of our business wallet and white label solutions.

Turning to Slide 10. One of the clearest measures of our progress is our new product vitality index. This is how we measure the health of our organization and the momentum we have around innovation that directly addresses our customers' evolving needs. In 2025, we reached $270 million of Vitality revenue, representing 16% of the total company revenue. It has fueled mainstream sustainable revenue enabling us to reduce high-risk noncore revenue streams while improving our overall growth profile.

We continue to innovate and launch new solutions. We expect this momentum to carry Paysafe towards industry-leading benchmarks. So let's look at how one recently launched product is contributing to this progress on Slide 11. You may recall us highlighting growth from new products within our eCash business or account and card product, we've recently rebranded as Pasay Wallet. This began as an initiative to cross-sell and shift eCash users towards online account-based distribution.

PaysafeWallet serves as a full-service consumer solution, including a personal bank account, and the debit card, allowing customers to send, receive spend and withdraw money. We first launched in a few European markets to offer cash and store value consumers the benefits of a wallet and later expanding into banking services. What we saw was a strong adoption with sign-up surpassing 500,000 by October 2025, reaching a scale that took some of the leading digital banks nearly 2 years despite their broader offerings and large marketing budgets.

So what's different here and advantageous is that we already have a sizable base of users we can target, which allows us to scale at a much lower cost of acquisition, which is around $21 for Paysafe. Today, we are live in 18 countries and continue to drive functionality and regional expansion. PaysafeWallet is built to deliver innovative and value-added services at each step of the consumer journey ranging from cash solutions to prepaid cards to digital banking and wallet solutions.

On Slide 12, we share the key priorities and outcomes that we're driving in 2026. Starting with consumer business, we will continue to enhance our classic wallet user experience, including loyalty programs and value-added features and services. Our PaysafeWallet and [indiscernible] in Latin America will continue to expand on core capabilities with the goal in both regions focused on building a simple everyday digital banking wallet that customers can rely on to manage their daily spend.

To support user growth, we will scale our marketing strategy, leveraging our expanding wallet portfolio and localized go-to-market plays to drive acquisition, retention and lifetime value.

Turning to our merchant priorities. We are focused on capturing opportunities in existing and target e-commerce verticals supported by enhancements to our gateway and bank network to incrementally offer more flexibility. For both large merchants and SMBs, we will focus on elevating customer experience with faster onboarding and activation with seamless access to value-added services. Success with these top initiatives will support continued growth in our Vitality Index company-wide, which we see as one of the most important markers of our success.

Turning to Slide 13. Before I hand the call over to John, I want to take a moment to reflect on the transformation we've driven over the last few years and how it's positioning Paysafe for the future. I joined nearly 4 years ago, I shared with the team my vision for building a truly modern payments company. It wasn't just about adopting new technologies like AI or eventually Quantum Computing, is about fundamentally reimagining our business processes for scale, adaptability and resilience in a high volume always on payments infrastructure.

We've made meaningful progress. Our go-to-market motion has strengthened. We've launched innovative products, and we've opened new revenue streams in adjacent markets such as our PaysafeWallet, which offers a modern, consumer-friendly solution comparable to what other players like Revolut and Chime have delivered in digital banking and embedded finance. We are a measure of this innovation momentum is our Vitality Index, the percentage of revenue from new product initiatives. We've grown this from less than 2% in 2022 to 16% in 2025.

Looking ahead, our long-term aspiration is to reach over 30%, in line with world-class innovative companies that consistently drive sustained growth through fresh offerings. Every core function has felt this impact. We've stayed disciplined focusing on process improvement first and deploying tools only where there is a clear ROI. Over the last 3 years, we've reduced aggregated FTEs by approximately 20% through automation and efficiency gains.

More importantly, we've reallocated those savings to fuel growth, investing in higher-impact areas. We've upgraded our talent significantly, eliminating about 30% of our senior executive roles from 3 years ago. And of the remaining executive team, roughly 77% are new additions bringing fresh perspectives and expertise. Our capital allocation has shifted dramatically from roughly 90% maintenance focused to now 80% directed towards growth initiatives. This reflects a deliberate move from sustaining the status quo to building for the future.

For me, modernization goes beyond just any single tool like AI. It's about reengineering processes that enable us to operate at scale in a complex 24/7 payments environment while staying agile and cost-effective. That's the foundation that we're building. embedded AI across the enterprise, not as experiments, but this operating system powering how we work. accelerates decision-making, enhancing experiences for merchants and consumers and strengthens our position in sectors like gaming, digital entertainment, travel and e-commerce, were seamless, personalized plus building interactions are increasingly the standard.

In operations, we've automated high-volume workflows and customer support disputes reconciliations in back office functions driving higher productivity and improved service levels. In product development, AI is now end-to-end shortening cycles and enabling smarter adaptive solutions that boost engagement and monetization. We've reduced integration times for new payment methods by approximately 80%, putting us in line with industry leaders. For risk and compliance, AI drives real-time onboarding, monitoring, fraud detection and reporting, auto decisioning on direct applications to around 50%, the cutting false positives by over 20%.

And in our tech stack, modernization has delivered strong results. Over 30% of the code generated via AI in 2025 speeding time to market while maintaining quality. Across the board, we're moving faster deciding with better data, scaling with tighter controls and doing it at a lower cost. This has made intelligent systems foundational to how we compete.

Looking ahead on Slide 14, our AI strategy is structured around 3 clear pillars: product innovation, scaling AI native offerings like our embedded wallet and intelligent tools, modern wallet platform enables merchants to deploy commercially ready, fully brandable embedded wallets delivering white label solutions they own end-to-end for seamless deposits, withdrawals, identity verification and enriched user experiences. [indiscernible] commerce aligning with emerging standards while leveraging protocols like model context protocol, MCP, agent payment product protocol, AP2, and Universal Commercial commerce protocol, UCP, to ensure agent-driven protocols remain secure, compliant and governed by clear financial policies.

AI-driven automation. Continuing to deliver structural efficiency gains while enhancing quality controls and fraud prevention. We see AI and Agentic Commerce as a meaningful expansion of our addressable market and a structural opportunity for platforms that bring together scale, regulatory expertise and orchestration capabilities. That's where Paysafe is differentiated. Stop here and turn it over to John.

Thank you, Bruce. Let's move to Slide 16 for a summary of our fourth quarter results. Revenue for Q4 was $438.4 million, an increase of 4% on both a reported and organic basis as the impact from the business disposal and a modest headwind from interest revenue was offset by favorable FX. Organic performance in the fourth quarter reflects 6% growth from dual wallets led by Latin America, which increased more than 20% and 2% organic growth for Merchant Solutions, driven by continued strong volumes from e-commerce merchants, which offset a decline from SMB.

Relative to the revised expectations we outlined in November, our Q4 performance was in line overall. Adjusted EBITDA declined 1% to $102.1 million in the fourth quarter, and adjusted EBITDA margin declined 130 basis points, mainly due to higher marketing investment and OpEx timing items impacts the margin comparisons throughout the second half compared to 2024. [indiscernible] generated $103 million in unlevered free cash flow in the quarter, bringing our cash flow conversion to 101%, which benefited from the license deal completed in Q3 as well as timing-related working capital flows. This brings our full year cash conversion to 69%, which is at the high end of our targeted range.

Adjusted EPS decreased 4% to $0.46 compared to $0.48 in Q4 of last year, including higher depreciation and amortization expense, fully offset by a reduction in our adjusted tax rate as well as a reduction in share count from our share repurchase activity.

Moving to Slide 17. A quick recap. Our full year reported revenue growth was flat year-over-year at $1.7 billion. Excluding impacts from FX, interest revenue and the disposed business, organic revenue growth was 5%. Adjusted EBITDA declined 5% to $429 million, and adjusted EBITDA margin was 25.2%. Excluding the noise from the business disposal, which was a $41 million headwind, our adjusted EBITDA margin would have declined only 40 basis points. This included a headwind of 120 basis points from gross margin, 2/3 from mix and 1/3 from interest revenue, which was offset by tight cost management and SG&A.

Despite the puts and takes behind the margins here, we believe this full year margin profile to be a sustainable margin for 2026, which we will discuss in a moment. We generated $298 million in unlevered free cash flow for the full year, and it's worth pointing out that we continue to generate this attractive cash flow conversion despite divesting a business line that generated more than $40 million in EBITDA in the prior year.

Finally, adjusted EPS declined 9% to $1.95 per share, predominantly reflecting the adjusted EBITDA loss due to the business disposal, partially offset by the denominator benefit from our share buybacks.

Let's move to Slide 18 to discuss the Merchant Solutions segment. Revenue in the fourth quarter for Merchant Solutions was $222.7 million, resulting in a full year revenue of $904.7 million. This represents organic growth of 2% for the fourth quarter and 5% for the full year. A reminder, the underlying performance was led by e-commerce, which grew 24% in Q4 and 27% for the full year at moderated somewhat from a growth rate north of 30% in the first half of the year. This was partly offset by soft performance from the SMB business, which declined 3% in the fourth quarter and grew modestly at 1% for the full year.

Adjusted EBITDA for the Merchant Solutions segment was $28.8 million for the fourth quarter, reflecting a margin of 12.9%. [indiscernible] full year adjusted EBITDA of $145.7 million with a full year adjusted EBITDA margin of 16.1%. Looking past the impact from the business disposal, adjusted EBITDA margin declined 130 basis points for the full year. The main driver being the channel mix dynamic due to stronger growth within our third-party ISO channel, which outpaced the higher-margin direct sales in Merchant Solutions as we discussed all year.

Additionally, the Q4 margin of 12.9% included the bulk of the higher marketing expense I mentioned earlier and timing-related items in OpEx. Going forward, we expect adjusted EBITDA margin for the segment back into the mid-teens in 2026.

Turning to the Digital Wallets segment on Slide 19. Revenue from digital wallets in the fourth quarter increased 13% to $220.2 million or 6% on an organic basis, leading to full year revenue of $815 million, with 6% reported growth and 4% organic growth for the year. In Q4, adjusted EBITDA grew 4% to $93.1 million, helped by favorable FX and and reflecting a margin of 42.3%. Our full year adjusted EBITDA was $352 million with a margin of 43.2%. Margin declines in the segment were driven by lower interest revenue. $3 million in Q4 and $13 million for the full year as well as the business mix dynamics we've discussed throughout the year, higher growth in eCash products, fourth quarter also reflecting an increase in segment SG&A, mainly due to timing with full year SG&A being favorable as a percent of segment revenue.

Turning to Slide 20 for a summary of debt and leverage. At the end of the year, total debt was $2.6 billion, an increase of $252 million, largely due to fluctuations in the euro, USD exchange rate, which increased total debt by $144 million. along with net withdrawals of $105 million. Net leverage ratio was 5.5x at year-end compared to 4.7x at the end of 2024. At the bottom right of this slide, you can see that this increase was attributable to FX and the business disposal. In 2025, we allocated more than $90 million to share repurchases, we are laser-focused on reducing our net leverage ratio in 2026 and expect to be below 5x by the end of this year.

We repaid $64 million of our revolver in the month of January. And while we continue to think our shares are materially undervalued, we will prioritize debt repayment this year.

Moving to the full year guidance on Slide 21, which is consistent with the preliminary outlook we discussed on our November earnings call. [indiscernible] revenue in the range of $1.79 billion to $1.83 billion, representing 5% to 8% growth. It includes a small full year uplift from FX, mainly in the first half of the year, assuming current FX rates, rounding out to roughly 5% to 7% organic growth. As for the cadence, we expect the first quarter and the first half growth to be in the mid-single digits on an organic basis and the second half to improve towards the higher single digits.

We expect adjusted EBITDA in the range of $449 million to $464 million, reflecting 5% to 8% growth. So the cadence here, we expect first half adjusted EBITDA margins to be around 24% and the second half averaging above 25%, leading to flat adjusted EBITDA margin for the full year compared to 2025. In terms of the year-on-year comparisons and shaping quarterly models, call that we had the $10 million license deal that benefited the third quarter results in 2025.

And finally, we expect adjusted EPS to be in the range of $2.12 per share to $2.32 per share, aiming for double-digit growth versus 2025. Turning to Slide 22. Let me wrap up with a few comments on our current financial position before we open the call for questions. 2025 marks our third consecutive year of positive organic revenue growth, a meaningful step forward considering our flat growth profile 4 years ago. We've achieved this while enhancing the quality of our revenue base, notably derisking our portfolio, including the direct marketing divestiture at the start of 2025.

Although these actions created short-term noise in our results, they position us for a stronger future, and we expect our financials to be much cleaner in 2026. The operational improvements we've made have allowed us to allocate more investment to our growth functions. We're beginning to see the benefits reflected in our financial results and new product delivery. Our outlook is further supported by the strong free cash flow we continue to generate, providing a path to reducing leverage to below 5x by the end of this year.

To close, we're starting 2026 in our healthiest position since going public, which gives us confidence in the business and our ability to deliver on our long-term objectives.

Now let's begin the Q&A session.

[Operator Instructions] Our first question is coming from Dan Perlin from RBC Capital Markets.

First, I was wondering if we could just revisit a little bit the kind of strategic initiatives as you see them to kind of reaccelerate SMB as we think about going into '26? You kind of alluded to it a little bit in the prepared remarks, but anything incremental would be helpful.

So on the SMB side of things, we have been putting a lot of energy around that in 2025 and building momentum into 2026, which we can see already emerging early in Q1. So we feel very good about the product sets that we have seeing a significant lift with our over sales really pretty strong. I think we were north of 30% and new mids year-over-year in Q4 with Clover. So feel very good about that. We've engaged new management. So we have a new team that's leading us in the SMB space. So I think that's going to really pay tremendous dividends, and we're excited about having the team on board.

From a product standpoint, we feel very good about the product set that we have. It really now is just about execution. We've really honed our marketing on the SMB side. We see really strength in the direct channel. So we feel like we're in a pretty good position overall with the new team, strong products, value-added services and increased marketing around merchant acquisition. So overall, we feel like we're coming into '26 in a very good place.

That's great. And then just on the guide for '26. I'm just wondering kind of given the state of the world, what kind of expectations you kind of have baked in, in terms of macro environments. Again, I think you touched a little bit on FX. And then if there's any kind of delineation you can draw between SMB and e-comm, that would be great.

John, do you want to...

I'd say on the macro, I think we're baking in relative stability on the FX side. So that's why we talked about having some FX benefit at the beginning of the year in '26 as folks probably remember, Q1 last year, the euro was much lower and moved a lot at the end of the quarter. I think we don't have dramatic changes other than what's projected in the current curves out there in terms of interest rate changes as well and no significant real change in macroeconomic environment.

Yes. I think as John said in the prepared remarks, the nice thing about '26 is it's a very clean year for us. We don't have a lot of activity. Obviously, the divestitures worked its way through all the growovers have kind of worked their way through. And so it looks like a very clean year for us as we go into '26.

[Operator Instructions] Our next question is coming from Darrin Peller from Wolfe Research.

This is Paul Obrecht on for Darren. Bruce, can you help frame the opportunity with the Paysafe wallet where are you seeing momentum with this product initially? What do consumer engagement trends look like? And then in the deck, you also called out plans to expand into more geos. Just curious where you see the most opportunity?

Thank you for the question. We're very excited about the Paysafe Wallet. Obviously, we've had a lot of momentum with that product over the last 12, 18 months as we've kind of been flying under the radar with it. It's something that we've invested in quite a bit over last year. We're in 18 countries right now, just -- really, as we look at the growth of that product, it's really about just continued execution on the rollout. The product is very solid. We feel very good.

We talked a little bit about the 500,000 registered users for it. When we look at that, it's really on pace with what the others that are in that vertical, embedded finance have done when you go back and look at their initial couple of years, we're tracking right in line with them, which is really great to see. I think the big differential is that -- when we talk about the cost of acquisition because we have roughly $8 million active users out there, we're marketing a lot to our own users and driving those users into the organization or into the Paysafe Wallet.

So feel very good from a feature functionality standpoint, from cost of acquisition right now. And so we're going to invest some marketing behind this and really drive it in 2026. So I think from a geographic footprint, with the pace a wallet for '26, we're going to continue just to focus within Europe and really drive within Europe. So it's not an aggressive geographic expansion outside of Europe. It's we'll do some test and learn in probably a couple of markets, but predominant growth is expected within the Europe region.

Great. That's really helpful. And then you briefly touched on in your prepared remarks, but just curious if you could provide any more detail on how you see Paysafe's role evolving in Agentic Commerce and what steps you're taking today to prepare for eventual consumer adoption down the line?

So for us, we have been really incorporating a foundational change to the organization. And so when we look at Agentic Commerce, it's really about TAM expansion for us. We are going to stay within the entertainment area or the experienced economy is really where we like to play. So you'll see us continue to stay within those verticals. But for us, it gives us the ability to kind of accelerate product into travel and leisure, for example, when we look at our verticals, we have tremendous strength in the gaming space whether that be video gaming or the sports betting, we think Agentic Commerce allows us to step into some of these adjacent verticals that will help really drive an overall experience for us in our market within the experiential economy.

So for us, we think it's a great opportunity. It's something that we've been working with over the last few years. Going back to when the first copilot rolled out a few years ago, we were 1 of the 200 companies to adopt that. We've had our Head of Technology out in the West Coast, working with all the major players in the space on protocols and making sure that we're aligned with how the market is moving. So we feel very good about our level of engagement around this.

Our next question is coming from Andrew Harte from BTIG.

So Bruce, last quarter, we talked about the digital wallet segment still being under construction. But then it feels like in 4Q, the business seems to have really accelerated. So I guess what changed there? And how should we think about it going forward? And is there any one-off benefits we should think about that happened in the fourth quarter?

There was really nothing in one-off context in Q4 around the digital wallet space. I think what -- we have a lot of momentum building. We had -- earlier in '25, we had some issues that we needed to work through as we continue to expand the use cases around our wallet. But I think those are just normal new product launches. You can see our Vitality Index is getting very strong moving from 2% in '22 to 16%, we'll see that accelerate in '26. So we feel very good about the new products that we're bringing to market.

When you look at what we do in the payment space, it's a very complex network or ecosystem that we participate in. There's a lot of moving parts from the networks themselves dealing with them, the back-end processors, the banks that are the bank sponsors. There's just a lot of components, moving components that all have to be aligned, including regulators by country. And so sometimes, there's a little bit of puts starts and stops as you're rolling out this product as each of them are making their own determination as to how it's going to work within their institution or regulatory framework.

So we can have worked our way through that. We feel some good momentum building, and we feel like we're in a pretty good spot for our Vitality Index to continue to accelerate in '26 and ultimately '27. So overall, really good progress in the back half of the year on our product set.

Helpful. And then on the merchant side, I know you called out the expectation for 2026 e-commerce revenue growth in the mid-teens and then SMB to return to growth. But I guess, could you maybe also break that out, how we should think about direct sales versus ISO? Any growth rates we should think about those 2 maybe e-com as well? And then maybe help us with how we should think about the relative margin contributions of each.

Yes. I don't -- we can have Kirsten follow up with you. I don't think we've provided that historically on the direct sales versus ISO segmentation. But overall, we feel very good about SMB returning to positive growth in '26. It will be kind of in line with the overall segment guidance that we've given. And I think we're already seeing a positive coming into Q1. So we've moved in the right direction early here in Q1.

[Operator Instructions] Our next question is coming from Timothy Chiodo from UBS.

Great. Slide 8 had some really good data around the revenue contribution in year from the sales hires. So the number was $257 million for 2025. And I'm assuming that the gross margin on that is relatively high, given generally the direct margins are higher on a gross margin basis. So the question kind of comes to if you could give us a rough sense, even if it's not the exact numbers, but a rough sense of how many productive kind of in-field salespeople were contributing to that number earlier in the year, call it, January 2025? And then how many ended the year? So we can get a sense of just the average number of salespeople that produce that in-year contribution of $257 million in revenue. And then I have a follow-up on Agentic Commerce.

I don't have the number of active enterprise salespeople in front of me. Maybe John, you've got it there. But there hasn't been a tremendous amount of movement in the number of salespeople throughout the year on the enterprise sales team. So it's been relatively consistent through 2025.

I was just going to say the same thing, Bruce. The number at the end of '25 is very similar to the number at the end of '24.

Great. And are you able to share roughly what that number was just as a reminder?

About $132 million.

That's just our enterprise sales team.

Right. Exactly. The ones associated with the $257 million.

Yes, yes.

All right. Perfect. And then the Agentic Commerce topic, clearly topical, and you brought up a few points around some readiness that you're kind of working on Slide 14, specifically. And in your prepared remarks, you talked about getting ready to support ACP, MCP, UCP, the various fees of Mastercard initiatives as well. I was hoping you could just take a moment to bring to life for Paysafe and for merchant acquirers in general, when you say that you're preparing to accept payments in that environment, what does that mean? What do you have to do on the ground to make sure that you can receive that information through that channel, process the payment?

What are some of the additional complexities to consider relative to a traditional e-commerce transaction? Is this something that you think all merchant acquirers will be doing? Or will this be a more select group because of some of this effort that's required that you're taking? I would love to -- if you could just answer that from both an industry perspective and a Paysafe perspective.

Yes, sure. Look, I think this creates an opportunity. I would imagine that most payment organizations get involved with these new standards as we're moving forward. It is extremely complex. So when you think about this new kind of emerging commerce, it's really about elevating the experience for consumers and through that creates tremendous amount of complexity. So it creates personalization, which is options and different sets of data sets that have to be exchanged, interrogated and determine what to do with those.

You have coordination between all kinds of embedded software, not just the schemes, but also with the information you're sharing with sponsored banks with the information you're sharing with additional software providers and consumers themselves. So the biggest things that you hear a lot of people talk about right now is really around liability management and how do we deal with the liability management of Agentic Commerce. Those things are still have a long way to go before they worked out and the governance rules.

And so every organization that's dealing with this has to deal with setting up the right governance framework from a board level, from an operating level. So this is not an easy product that is just going to roll out quickly. This is going to take time to roll out. And I think this is a great opportunity for us to accelerate into new verticals and create great experiences around the experience economy. But I think this is something that everyone is going to find a way to participate in some form or fashion within our industry.

So I wouldn't say that this is going to be a 1 or 2 play or win take all type of thing, this is going to be something that the industry as a whole participates in.

Our next question is coming from Jamie Friedman from Susquehanna International Group.

Just to step back, though, about the sales strategy, Bruce. Without getting into the details of the commission per head or margin characteristics, could you just share with us what you see as the strengths and challenges between a direct and ISO strategy?

Sure. I think -- Jamie, and thank you for the question. So between the ISO and direct one, obviously, the direct is a much higher margin profile, and that's why we've put so much energy behind that side of the sales channel. So we really are focusing on building the infrastructure that drives scale sales. So we feel like we've got now the management team in place for that. We feel we have the product in place.

As I mentioned, we have a variety of products that we sell in the SMB space. But our partnership with Fiserv has really been working in the back half of the year. We've had a lot of success selling Clover. And we feel like that is a great model for us in the SMB space, not only because it provides the merchant acquiring, but the value-added services that SMBs need to be successful, we provide that in a great form factor through Clover.

So not everybody is going to want that. So we have optionality. We have other products that we use for people that aren't looking for such a robust solution, but it is -- I would argue that Clover is probably the best solution in market in the U.S. for SMB today. When you look at the ISO channel, it's a little bit different, right? So it's us trying to help our partners be successful making sure that they're trained on the products that we have, making sure they're creating good second-line support for them and helping them find ways to grow their customer base.

And that's really what we've been focused on with the last year of trying to figure out how do we continue to to reframe that ISO marketplace. I think the last thing I would just say on the SMB space is you've probably seen a lot of energy around the agent space. We've rolled out a new agent program, which we're very excited about. We like the agent program quite a bit. We can see tremendous amount of growth coming from the agent side of the business as well. And that's kind of a hybrid, Jamie, between the margin profile of the ISO and the margin profile of the direct business.

So this is again where I think of it, Jamie, kind of creating a mini franchise program for independent sales agents and providing the support that they need to go out and be successful, the training they need, and that's really what we're focused on overall within the SMB space.

Okay. That's really helpful context. And then let's see I could ask you about the wallet, but I think I'll go more general. You referenced the success in cross sales between products and services on the platform. Could you elaborate on that? And what a good account looks like? Is there any metric you may have shared in the past about how many products each are taking or what you target for the cross-sell opportunity?

Yes, Jamie. Look, I think this is a point of pride for us. We've really seen tremendous growth here on the cross-sell. If you recall, going back a few years, in '22, '23, we had virtually no cross-sell. This was a theory that we had that we would be able to cross-sell to our existing customer base, especially in the gaming -- video gaming and gambling space, we felt that those larger clients of ours had the opportunity to take more than one product. And so we really have focused on that. And so to see 40% of Q4 sales have cross-sell as part of that is really a remarkable task from really 0 just a few years before.

So overall, when we look at it, it's really about focusing in on those enterprise customers, getting the digital wallet customers do acquiring with us. And the other way around, I think the big focus now for us is really through our product organization, bringing more products to market and giving us more products to go back and cross-sell into those existing customers. And that's really what we're focused on as we move into '26, '27, '28 is really continuing to accelerate that Vitality Index with new products and services.

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

Yes. Thank you. Look, just a couple of comments before we head out is we entered '26. We're in a very good position. We feel good about the foundation we've built. We're operating with more discipline, clear priorities, stronger execution across the business. Our outlook is really rooted in what we control, continuing to innovate deepening relationships with our customers, allocating capital in a way that drives sustainable value. And that's really what we're focused on.

I also want to take a moment to welcome our new board members. I think everybody has probably seen, we've added 4 new Board members in the last month. So we're very excited about Rupert [indiscernible], Pete Thompson, [indiscernible] and Edward joining the team. So very excited about that. And I also just want to quickly thank our departing Board members from CVC and congratulate them on their career journeys. And [ Peter Rutland and Matthew Bryan, ] just congratulations we've so proud of them what they've been able to do and wish them all the success in their new roles as they're moving forward, just delighted for each of them.

So it has been a lot of change for us here in the last month, but we're incredibly excited about it as we move forward. And then finally, I just want to thank our employees for their continued commitment and hard work. As we start '26, we're really starting from a position of strength for the for really what feels like the first time we've had really a clean year to start the year and feel very good about that. We're confident in our ability to build momentum that we've created off of Q4, and that's about it. Thank you for joining us today, and look forward to speaking with everyone next quarter.

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

Greetings, and welcome to the Paysafe Third Quarter 2025 Earnings Conference Call and Webcast. [Operator Instructions] 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. Kirsten, please go ahead.

Thank you, and welcome to Paysafe's earnings conference call for the third quarter of 2025. 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 could cause actual results to differ materially from those forward-looking statements. You should not place undue reliance on these statements. Forward-looking statements 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 non-GAAP measures and where relevant, reconciliations to the most directly comparable GAAP measures in today's press release and in the appendix of this presentation, which are available on the Investor Relations section of our website.

Now I'll turn the call over to Bruce.

Good morning, and thank you for joining us today. Paysafe delivered accelerated financial results in the third quarter, including 6% organic revenue growth, 7% adjusted EBITDA growth and 37% adjusted EPS growth. Growth from our existing customers or same-store sales contributed 5% to growth, while contribution from new sales and product accelerated to double digits and the overall attrition level was stable around 11%. We returned another $20 million to shareholders by repurchasing 1.5 million shares during the third quarter, bringing our year-to-date total to $50 million as our shares remain significantly undervalued, and we remain confident in Paysafe's long-term strategy and growth potential.

To that effect, our Board has authorized an additional $70 million to our existing share repurchase program. While we're pleased with our third quarter and year-to-date progress, we continue to see outperformance of our lower-margin product and sales channels. Our updated 2025 outlook reflects our current business dynamics and a longer timeline for the delivery of key product initiatives as we navigate the complex ecosystem required to bring innovative new solutions to the market. We'll discuss both of these areas in more detail throughout the call. So, let's start with our regional performance on Slide 4.

Our largest market, North America, grew 8% in the third quarter, excluding the divestiture. This was driven by approximately 50% growth from iGaming, while SMB grew 4%. Europe is our next largest market, which also grew 8% normalizing for FX. Latin America was roughly flat in Q3, and this was mainly related to a large customer contract renewal in the prior year. As we lap that impact in Q4, we're seeing a normalized growth rate of 10%. In the noncore Rest of World countries, we saw a double-digit decline attributable to our Skrill and Neteller wallets. Here, the market landscape is unfavorable, and this region has come down from 5% of total revenue 3 years ago to 3% of revenue today as a function of both macro dynamics and our own actions to trim this exposure over the years. So, this gives you a sense of the puts and takes from a regional perspective, including a very strong organic growth from our largest core markets that represent about 90% of our revenue.

Turning to Slide 5. I'd like to highlight some of our recent client wins, starting with iGaming. In the third quarter, we signed an agreement with BetMGM to provide payments for their online players in Ontario, where Paysafe already maintains a strong market presence. They were looking for a new partner who could deliver high approval rates with stronger customer support and reliability. What's awesome about this deal is that BetMGM is one of the largest merchants in North America that Paysafe did not have integrated, so we're thrilled to partner with them in Ontario. It's also worth highlighting that Paysafe is very well-positioned in the up-and-coming predictions market, where Paysafe is in active discussions with several key players.

As one example, we're expanding our partnership with Underdog to support their growth in the predictions market across 16 states. This win reflects our strong customer relationship and our ability to support our clients' growth aspirations by launching in new jurisdictions at speed. We also signed agreements with new international iGaming operators such as Stake.com to provide eCash digital wallet solutions and our local APMs across Latin America and Europe for pay-ins and payouts. We are also expanding our relationship with Betano to offer eCash solutions in support of their recent launch in Belgium. Outside of iGaming, we continue to make progress expanding our pipeline and winning deals in other core verticals. For several years, Paysafe has been a trusted partner of CampMinder, a leading ISV whose technology powers thousands of camps and recreational organizations. We are now taking our joint success across borders, expanding with them into Canada.

Lastly, in the fintech space, we signed a new client agreement with Paysagi in Europe. By integrating with Paysafe's acquiring platform, Paysagi can now offer their global online merchants instant access to major payment methods. Collectively, these are great examples of how our operational improvements, sales team investment and product focus is enabling us to expand our TAM and growth opportunities across new and existing clients.

Turning to Slide 6. Across enterprise-level merchants, our growth in e-commerce continues to be very strong, exceeding 20% in the third quarter, driven by iGaming growth of more than 50%. Total e-commerce growth moderated compared to more than 30% in recent quarters due to softer performance across other verticals concentrated within lower-tier merchants, mainly in noncore areas. Importantly, we booked over 100 enterprise-level deals in Q3, an increase of 25% compared to last year, along with double-digit growth in the annual contract value of those bookings. We also continue to see higher quality deals, which supports continued revenue growth, along with the durability and diversity of our merchant base. We believe our e-commerce business remains on track to reach approximately $200 million in revenue this year, reflecting a 3-year CAGR of 29%.

On the SMB side, after driving 6% new mid-growth in Q2, we accelerated new mid-growth to more than 20% in Q3, led by our direct sales channel, along with positive growth in SMB revenue and revenue per merchant. We also saw a strong acceleration with our new mid acquisition for Clover in Q3, up 49% from Q3 2024, a very impressive result with great progress from the team. We're excited to build on this momentum as we look ahead to 2026. Even with the strong execution on the direct side of the business, our overall revenue mix has shifted to the lower-margin ISO business as we continue to deliver double-digit revenue growth from this third-party channel in Q3 and year-to-date. We continue to focus on optimizing our SMB portfolio but given the comparative size and the growth profiles of the portfolios, we expect pressure on the total segment margin as we continue to ramp up our direct efforts.

Let's turn to Slide 7. To take this a step further and discuss our focus areas to optimize the SMB portfolio. As we've shared before, our merchant solutions segment today is comprised of 3 business lines: e-commerce, which serves our larger enterprise merchants, SMB direct sales and SMB sales through ISOs. When you look at the aggregate of our e-com and SMB direct sales, which go to market under the Paysafe brand compared to the third-party ISO channel, the direct revenue streams are not outpacing the stronger ISO growth, which now represents more than 1/3 of the merchant solutions segment, up 5 percentage points from 2 years ago. ISO book has an EBITDA margin profile in the single digits, the direct channels across SMB and e-comm have attractive EBITDA margins in the mid-20s range on average. So, while we were focused on the right things to improve our growth profile of the segment, we were frankly too optimistic in our assumption around shifting this mix dynamic in 2025.

However, as I mentioned on the prior slide, we drove an acceleration in new SMB mid-growth in Q3, up more than 20% from last year, led by the direct channel. We'll build on this momentum in new merchant acquisition and continue to implement the improvement plans underway, including new SMB leadership and the expansion of our agent programs where we have seen an increase in demand from single agents who want to sell under the Paysafe brand.

Finally, we continue to roll out value-added services with plans to bring several new products throughout 2026. This represents the marketplace that Paysafe will support as part of a fully integrated and streamlined onboarding experience for value adds that help our customers manage their businesses.

Shifting gears to digital wallets on Slide 8. To put it simply, the digital wallets remains a work in progress. Starting with the positives, we're seeing strong consumer engagement related to eCash product initiatives as we continue to cross-sell and shift towards online account-based distribution. In October, our account and card product surpassed 500,000 registrations, a major milestone that reflects the team's drive and stronger consumer engagement. In just over 2 years since introducing the product, we've reached a scale that took even some of the leading digital banks nearly 2 years despite their broader offerings and massive marketing budgets. And this was achieved through targeted regions across Europe. So, we still see opportunity for further geographic expansion.

Next, our digital banking partnerships continue to ramp up and deliver growth across Europe, including our recent launch with BBVA to offer their consumers seamless cash solutions to deposit and withdraw to and from their bank accounts at any of our point-of-sale partners locations in Germany. Additionally, we see strong demand for Paysafe's suite of local payment solutions in Latin America, including double-digit volume growth from PagoEfectivo and SafetyPay in Q3 and year-to-date. The rollout of our new PagoEfectivo wallet in Peru is progressing very nicely. And in the third quarter, we launched our iOS app, along with product enhancements that have helped drive onboarding efficiency and build trust across merchants and consumers.

These are the key areas and products collectively driving strong double-digit revenue growth, while classic wallets is not accelerating to the level we have planned for in 2025 as weakness in the rest of the world partly offsets strong progress in Europe. At the same time, some of our new product initiatives, such as our business wallet are taking longer to deliver and gain momentum than we planned. This is a function of a complex ecosystem across the regulatory, risk and banking needs required to develop innovative new products and supporting infrastructure to bring merchants and consumers together in a seamless experience. The inertia across these legacy systems has resulted in some delay in execution of our product road maps. While implementing and integrating these new models is complex, our customer pipeline remains strong, and we identify more and more money movement opportunities where the wallet helps solve the unique challenges and opportunities our clients face.

To wrap up, before I hand the call over to John, I want to reiterate that we delivered strong results in Q3, and our sales team is becoming more productive, driving higher bookings and quality of revenue through our operational transformation, we now have a strong platform to build upon and launch new products and services.

With that, I'll ask John to review the financial results and outlook.

Thank you, Bruce. Let's move to Slide 10 for a summary of our third quarter results. On a reported basis, revenue increased by 2% to $433.8 million. Organic revenue growth was 6% for the quarter, reflecting continued double-digit growth from e-commerce, 4% growth from SMB and 4% organic growth from digital wallets and excludes the impacts from the divestiture, foreign exchange and interest. While this marks an increase in reported and organic revenue growth from the first half, this was slightly below our expectations in terms of the overall revenue performance as well as business mix.

As Bruce mentioned, reflects a moderation of e-commerce growth and lower-than-expected growth in the second half from digital wallets. Adjusted EBITDA increased 7% to $126.6 million. Our third quarter results benefited from a licensing deal, which contributed approximately $10 million to revenue and adjusted EBITDA, offsetting the headwind from ongoing business mix and the divestiture, which has less impact in the second half. As a result, adjusted EBITDA margin was 29.2%, up 160 basis points year-over-year. Given what we're continuing to see at the gross margin level for both segments, we don't expect EBITDA margins to be at this level in Q4. We expect adjusted EBITDA margins closer to 23% in Q4 and about 25% for the full year.

Turning to cash flow. We generated $83.6 million in unlevered free cash flow in the quarter with a 66% conversion of adjusted EBITDA, down from 76% in the prior year, mainly reflecting one-off tax refunds, which benefited the prior year and the timing of a large receivable. Normalizing for this, conversion would have been above 70%. On an LTM basis, unlevered free cash flow was $265 million, reflecting 62% conversion. We expect Q4 to be within or slightly above our targeted range of 65% to 70%. Adjusted net income was $40.3 million or $0.70 per share compared to $0.51 in Q3 of last year, driven by higher adjusted EBITDA, lower interest expense, a lower effective tax rate and a reduction in share count. While lower than the prior year quarter, the third quarter did include a U.S. BEAT tax expense, which drove the tax rate higher in the third quarter relative to the first half of this year and our full year expectation. Current expectation is that the full year effective tax rate will be in the range of 27% to 28%.

GAAP net loss for the third quarter was $87.7 million, reflecting a charge to income tax expense of $81 million due to the recognition of an additional valuation allowance against the company's U.S. deferred tax assets due to the enactment of the One Big Beautiful Bill Act as previewed last quarter. As a reminder, this is a noncash expense that does not impact the company's current or future cash tax payments.

Turning to Slide 11 for a breakdown of our revenue growth drivers year-to-date. Revenue attrition continues to trend in the 11% to 12% range. The growth contribution from existing customers is now 10% year-to-date, which includes client onboarded in 2024, which naturally moderates as the year progresses and we annualize the start dates of client onboards. Contribution from new sales and new product initiatives accelerated to a double-digit growth in Q3, leading to 7% year-to-date.

Moving to Slide 12 to discuss the merchant segment results. Merchant solutions volume increased 9% to $34.9 billion, resulting in organic revenue growth of 7%, led by double-digit growth from e-commerce, including robust processing volumes with the start of the U.S. football season. The second biggest growth driver in the quarter was the license deal. And while we're excited to have proven we can monetize data, underlying growth from processing was just around 5% in the quarter when normalizing for various one-timers in both periods. We expect to see a higher growth rate in Q4, supported by the mid production over the last several months. Adjusted EBITDA for the merchant solutions segment was $47.8 million with an adjusted EBITDA margin of 20.6%. There continues to be some noise here but looking past the impact of the benefit from the licensing deal, adjusted EBITDA margin was stable sequentially with Q2. Again, the main driver this year is the mix dynamic due to the success within our ISO channel, which continues to outpace the growth of higher-margin direct channels in merchant solutions, as Bruce discussed earlier.

Turning to the digital wallet segment on Slide 13. Volume from digital wallets increased 13% to $6.7 billion or 8% on a constant currency basis. Revenue from digital wallets was $205.7 million, an increase of 8% or 4% on an organic basis. Our 3-month actives were 7.1 million, stable compared to last year. Organic growth was supported by increasing consumer engagement related to our eCash product initiatives, expansion of Paysafe's digital banking partnerships across Europe as well as demand for our suite of local payment solutions in Latin America, particularly across iGaming and payment service providers. Adjusted EBITDA for the digital wallet segment was $93.4 million, an increase of 11% compared to last year, reflecting revenue growth and lower SG&A expense. Gross margin for the segment was stable sequentially at roughly 71% and down 120 basis points versus last year due to lower interest revenue, which accounted for 50 basis points as well as business mix reflected by higher relative growth from eCash products.

Turning to Slide 14 for an update on leverage and capital allocation. At the end of the quarter, total debt was $2.5 billion and net leverage improved to 5.2x. Compared to where we started the year, the stronger euro has increased our euro debt balances by more than $140 million when translated back to U.S. dollars. Divestiture has been the other key driver of this temporary increase in our net leverage, but this is the last quarter that we will have that headwind to our LTM adjusted EBITDA metric.

Lastly, while we remain keen to delever, share repurchases have remained very attractive. We repurchased 1.5 million shares during the third quarter at an average price of $13.62 per share, bringing our year-to-date total to 3.6 million shares or $50 million. As Bruce noted earlier, our Board has authorized an additional $70 million for share repurchases.

Finally, turning to Slide 15. Bruce discussed at the start of the call, we're updating our 2025 outlook based on our year-to-date results and our expectations for the remainder of the year. Our reported growth in the second half benefits from the stronger euro and a much smaller impact from the business disposition, we now expect full year organic growth in the range of 5% to 6%. On the left-hand chart, you can see on a rounded basis, the revenue growth drivers are largely consistent with what we shared for our original guidance, reflect a slightly lower contribution across existing clients, new sales and product initiatives. This puts our current expectation of full year revenue at the low end of our prior range or slightly below based on the updated midpoint.

Key areas to point out versus our original expectation are as follows: one, slower growth from the digital wallet segment, particularly our classic wallet; 2, a slower planned rollout of new wallet solutions; and 3, lower-than-expected e-com growth, which saw a moderation in growth in Q3, although still very strong at over 20%. As a reminder, these business lines contribute the highest gross margins, so these relatively small top line changes result in a less favorable business mix across both segments. Final driver is the continued strong performance from our ISO channel in merchant solutions, which has the lowest gross margins. Translating this to EBITDA and margin, you can see the impact is largely a gross margin headwind, while operating expense as a percentage of revenue are lower compared to 2024 as we continue to aggressively manage our cost base. Overall, this is not where we plan to be from a margin perspective, nor does it reflect the potential of our business model and the operating leverage that we can deliver.

You'll see our full year guidance summarized on Slide 16, reflecting 5% to 6% organic growth, adjusted EBITDA growth of 4% to 5%, excluding the business disposition, resulting in adjusted EPS in the range of $1.83 to $1.88. Looking ahead to 2026, on a preliminary basis, we expect organic revenue growth to be in the mid- to high single digits range and adjusted EBITDA to increase high single digits versus 2025. We'll be finalizing our financial planning process over the next few months to refine this outlook further and discuss on our year-end earnings call as usual.

With that, I'll turn it over to Bruce for final remarks.

Thank you, John. To wrap up, I'd like to reiterate that we are on track to deliver a third consecutive year of organic revenue growth. And importantly, with the transformation that we have driven over the last 3 years, we are seeing real improvements in how we operate. While we're not seeing the EBITDA expansion that we initially planned for the year, we remain focused on driving stronger operating leverage and expect to deliver higher adjusted EBITDA growth in 2026 and beyond. I'm more confident than ever that Paysafe is more agile and adaptable business today with higher quality revenue streams well positioned for long-term success.

Now let's begin with the Q&A session.

[Operator Instructions] Our first question is coming from Trevor Williams from Jefferies.

I just want to go back to some of the dynamics within the SMB book. On the direct side, we can see the mid-growth acceleration. It sounds like attrition has been stable. So, Bruce, it would be helpful to hear kind of what else you need for that direct channel growth to get pulled up, whether that's just the time with the mid-growth needing to compound and we'll see that just naturally get pulled up over time? Or anything else initiatives-wise that you would point us to for kind of what the levers are needed to get that growth rate up?

Yes. Trevor, thank you for the question. Look, the SMB, as we've talked about before on the direct side, it's just going to take time. You can see, as you just articulated, nice acceleration of new mid acquisition. We've got the attrition stabilizing, but it just will take time to kind of get that to build. It's a big book. So, each of these SMB mids are very small in a revenue stream, talking about $200 to $300 a month in revenue stream. So, it takes a lot of them. So, it takes some time to build that up. But we feel very good about what we're doing there. We see a nice acceleration of our Clover product that we resell on Fiserv's behalf. So, a nice uptick there. And that really opens the door for ancillary services or value-added services that should help improve even further the attrition rate because once an SMB client has not only processing, but these other services around it like lending, like payroll, these things really increase the stickiness of the client.

So, I think we have what we need. We need to just keep doing what we're doing and keep accelerating the sales team productivity per rep, which I think we've got underway. We've really found a rhythm with the marketing and sales team. And now it's just going to take a little time to build up those billable mids to get the growth rate back up.

And then just on the e-commerce deceleration, it sounds like it was mostly in noncore verticals, but any more detail there would be helpful. And I don't know if you guys could share how the quarter-to-date trends look relative to the 20% growth from Q3.

Yes. So, on the -- you're absolutely right. So, I want to be very clear, the e-com iGaming piece is still rocking along north of 50% growth rate. It's really the noncore piece. And candidly, coming into even the last day of the quarter, we thought we were rocking along pretty well. We had a last-minute client that had to shut down that caused several million-dollar write-down in Q3. So, that business is one that is a little more interesting than the iGaming, the e-com core business. So, this is -- for us, we're in kind of a lower-tier market, a lot of kind of travel or things that are more higher risk MCC codes. And so those things sometimes are a little difficult to bank. Even if you have existing clients that are with the bank as they try to expand, sometimes the banks aren't open to the additional risk and then you've got to find other places for them to bank. And so, we've had a little bit of challenge with that with some of those MCC codes, and we're working our way through that. The nice part is we continue to sell the deals. We've now got to figure out how to keep the deals once they start ramping up.

[Operator Instructions] Our next question is coming from Darrin Peller from Wolfe Research.

This is Paul O'Brecht on for Darrin. Bruce, you talked about the longer timeline for delivery of new products, including the wallet initiatives. Just curious if you could provide a bit more color on really what changed during the quarter relative to your prior expectations.

Yes. So, Paul, thank you. As we looked at the quarter coming in, we felt pretty good. We had -- as we said in the last call, we had sold a number of deals. We thought they were progressing. Sometimes just with these deals, as we're talking about white label wallet solutions, we're kind of going into different markets. And sometimes as we're expanding those markets, these are things that are new to us, getting our regulators, getting our banks kind of aligned on these new risk opportunities. Sometimes it takes a little longer. The analogy we have here is where the fintech ecosystem is this big boulder. And as we move into some of these newer spaces, pushing that boulder uphill takes a little bit longer than we anticipated. So overall, we have good demand for our solutions. The clients are staying with us working through these issues. So, we feel good that ultimately, it will come. It's just coming slower than we anticipated.

And then, John, I know you talked about the stronger euro leading to the increase in the leverage along with the divestiture. I know you're also balancing buybacks, but just curious if you have any updated views on what delevering could look like over the medium to long-term.

Yes. I think that over the medium-term, we're still focused on getting leverage below 4. It's going to take a little longer than we expected, probably obvious based on where we are today, but we expect to finish this year probably around the leverage that we're at today in the low 5s and then continue to delever through both paying back and growing EBITDA in '26 and '27 with the objective to get to 3.5, but it's probably going to be 2027 to get to that 3.5 level.

[Operator Instructions] We reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments.

Thank you. I appreciate everybody dialing in. Again, we felt we had a very good quarter for Q3, continuing to make progress in our transformation. We really like the growth drivers that are emerging. Obviously, e-com continues to be 20% grower. We continue to see on enterprise-wide more value-added services, more products starting to come to market, which we're excited about. Still remain very excited about Account & Card and our geo expansion in LatAm. So, a lot of good things coming to market. So, thank you very much. We appreciate everyone dialing in this morning and thank you to the team for all the work that you're doing to drive transformation.

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