Paysafe Ltd. Form 6-K Summary
Filing date: November 17, 2022. The filing presents unaudited condensed consolidated financial statements and MD&A for the three and nine months ended September 30, 2022, with comparisons to the same periods in 2021. Paysafe provides global payment solutions through its US Acquiring and Digital Commerce segments.
Financial Performance and Position
| Metric | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 |
|---|---|---|---|---|
| Revenue | $366.0 million | $353.6 million | $1.113 billion | $1.115 billion |
| Operating income/(loss) | $4.7 million | $(301.2) million | $(1.890) billion | $(298.2) million |
| Net income/(loss) | $1.0 million | $(147.1) million | $(1.829) billion | $(200.9) million |
| Net income/(loss) attributable to Paysafe | $1.0 million | $(147.2) million | $(1.829) billion | $(201.3) million |
| Adjusted EBITDA | $95.5 million | $106.4 million | $302.4 million | $338.4 million |
| Adjusted EBITDA margin | 26.1% | 30.1% | 27.2% | 30.3% |
| Operating cash flow | Not separately provided | Not separately provided | $1.373 billion | $92.6 million |
- Q3 revenue increased 3.5%, while nine-month revenue declined 0.2%. Gross payment volume increased 4.6% to $32.5 billion in Q3 and 6.8% to $97.0 billion for the nine-month period.
- US Acquiring revenue increased 12.4% in Q3 and 12.2% for nine months, supported by higher volumes and inflationary increases in ticket prices. Digital Commerce revenue decreased 4.3% in Q3 and 9.7% for nine months.
- Adjusted EBITDA declined 10.3% in Q3 and 10.7% for nine months, reflecting foreign-exchange pressure, higher credit losses, technology costs, VAT expense and weaker Digital Commerce performance.
- The nine-month operating loss included $1.886 billion of goodwill and intangible-asset impairment, including $948.2 million in US Acquiring and $934.0 million in Digital Commerce. Goodwill declined to $1.945 billion from $3.650 billion at December 31, 2021.
- Cash and cash equivalents were $220.2 million at September 30, 2022, compared with $313.4 million at year-end 2021. Customer accounts and other restricted cash totaled $2.215 billion and should not be treated as unrestricted corporate liquidity.
- Total principal debt was $2.535 billion, compared with $2.794 billion at December 31, 2021. Debt carrying value was $2.516 billion. The company was in compliance with its financial covenants.
- Operating cash flow was heavily influenced by a $1.211 billion increase in funds payable and amounts due to customers. Investing cash outflow was $533.6 million, including $424.7 million for acquisitions, primarily SafetyPay.
Material Changes Versus Prior Comparable Period
- Q3 operating results improved substantially versus 2021 because the prior-year period included a $322.2 million impairment charge; however, operating expenses, interest expense and credit losses increased.
- Nine-month results deteriorated materially because of the $1.886 billion impairment charge and $60.6 million of restructuring and other costs, compared with $324.1 million and $22.3 million, respectively, in 2021.
- Interest expense increased 79.7% in Q3 to $34.6 million, primarily due to higher variable interest rates and additional debt drawn after September 30, 2021. For nine months, interest expense declined 38.3% because 2021 included accelerated debt-fee expense from refinancing and debt repayments.
- Credit-loss expense increased to $24.8 million for nine months from $13.6 million, primarily due to higher US Acquiring volumes, chargebacks and a specific Digital Commerce merchant reserve.
- Other income declined to $38.2 million in Q3 and $97.9 million for nine months, largely because warrant-liability fair-value gains were lower than in 2021.
- The company completed the $449.8 million SafetyPay acquisition in January 2022 and acquired 100% of Skrill USA. It also disposed of Pay Services India, recording a $1.4 million nine-month loss.
Guidance, Outlook, Risks and Unusual Items
- No formal revenue or earnings guidance is provided in the filing. Management states that cash, borrowing capacity and expected operating cash flows are sufficient to fund existing operations and planned requirements for the foreseeable future and the next 12 months.
- Management expects continued exposure to macroeconomic conditions, the Ukraine-related impact on Digital Commerce, foreign-exchange volatility, interest rates, inflation, seasonality and COVID-19-related uncertainty.
- The company uses an interest-rate swap with a $378.4 million notional amount. Management estimates that a 100-basis-point increase in borrowing rates would negatively affect annualized net loss by approximately $16.9 million, before considering other mitigating factors.
- A 1% strengthening of the U.S. dollar against relevant currencies would reduce net assets by approximately $2.7 million, all else equal.
- The company recorded a $33.6 million provision for customer payments following an internal review of foreign-exchange disclosures in its Digital Commerce business. Management does not expect additional liability or ongoing operating impact from this matter.
- A consolidated securities class action alleges misleading statements by the company and certain former executives. Potential losses cannot currently be estimated and could be material. Litigation provisions totaled $10.3 million at September 30, 2022.
- The company continues to face merchant chargeback and credit risk. It also disclosed a previously identified cybersecurity incident potentially affecting approximately 100,000 merchants and agents; management believes the potentially impacted parties have been identified and addressed.
- On November 10, 2022, Paysafe announced a proposed 1-for-12 reverse stock split, subject to shareholder approval at a December 8, 2022 special meeting, with completion expected before year-end if approved. The company also announced intended segment renaming to Merchant Solutions and Digital Wallets.
Important Facts for Investors to Verify
- Assess the sustainability of operating cash flow, particularly because the 2022 increase was substantially driven by customer-related funds payable rather than earnings.
- Review debt maturities, variable-rate exposure, covenant calculations and the availability of the $305 million revolving credit facility.
- Evaluate whether the large 2022 goodwill impairment indicates continuing pressure on business valuations, forecasts or market capitalization.
- Monitor Digital Commerce revenue, foreign-exchange effects, regulatory changes, promotional activity and segment-level Adjusted EBITDA.
- Track credit losses, merchant chargebacks and the specific merchant reserve.
- Follow developments in the securities litigation, customer-payment matter, cybersecurity exposure and related contingencies.
- Confirm shareholder approval and implementation details of the proposed reverse stock split and any resulting impact on share count and trading.