Paysafe Limited Form 6-K Summary
Business context and reporting period
Filed November 15, 2021, for the month of November 2021. The filing contains unaudited condensed consolidated financial statements and management’s discussion and analysis for the three and nine months ended September 30, 2021, compared with the corresponding 2020 periods.
Paysafe provides payment solutions through Integrated Processing, Digital Wallet and eCash Solutions. The March 30, 2021 SPAC transaction and recapitalization affect comparability: 2021 reflects Paysafe Limited after the transaction, while 2020 comparative information is based on the accounting predecessor.
Financial results and key metrics
| U.S. dollars in thousands | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Revenue | $353,585 | $355,505 | $1,115,352 | $1,056,204 |
| Operating loss | $(301,183) | $(3,865) | $(298,237) | $(7,381) |
| Net loss | $(147,106) | $(38,622) | $(200,850) | $(123,702) |
| Net loss attributable to Paysafe | $(147,200) | $(38,127) | $(201,250) | $(123,320) |
| Adjusted EBITDA | $106,405 | $107,280 | $338,439 | $330,425 |
| Operating cash flow | Not separately provided | Not separately provided | $92,600 | $172,806 |
Q3 revenue declined 0.5%, while nine-month revenue increased 5.6%. Approximate Q3 net margin was negative 41.6% and adjusted EBITDA margin was 30.1%; nine-month net margin was negative 18.0% and adjusted EBITDA margin was 30.3%.
- Q3 segment revenue was $186.9 million for Integrated Processing, $83.7 million for Digital Wallet and $90.2 million for eCash Solutions. Digital Wallet revenue declined 15.1%, while Integrated Processing increased 3.5% and eCash Solutions increased 10.0%.
- Nine-month segment revenue was $555.0 million for Integrated Processing, $275.9 million for Digital Wallet and $307.0 million for eCash Solutions. eCash Solutions grew 35.2%, while Digital Wallet declined 7.5%.
- Nine-month adjusted EBITDA increased 2.4% overall, led by eCash Solutions growth of 57.4%, partly offset by declines of 13.3% in Integrated Processing and 12.3% in Digital Wallet.
- Q3 impairment expense on intangible assets was $322.2 million, primarily relating to Digital Wallet legacy merchant relationships and reduced forecast cash flows. Nine-month impairment expense was $324.1 million versus $123.8 million in 2020.
- Nine-month selling, general and administrative expense increased 24.9% to $418.1 million, primarily due to share-based compensation. Nine-month share-based compensation was $92.8 million, including awards that vested upon completion of the transaction.
- Other income was $96.5 million in Q3 and $175.6 million for nine months, largely due to fair-value gains on warrant liabilities of $94.3 million and $158.5 million, respectively. These gains are non-cash and may be volatile.
- Interest expense was $19.3 million in Q3 and $144.3 million for nine months. The nine-month amount included accelerated amortization and write-off of debt issuance costs associated with debt repayments and refinancing.
Cash, debt and liquidity
- September 30, 2021 cash and cash equivalents were $262.3 million, down from $387.6 million at December 31, 2020.
- Customer accounts and other restricted cash were $1.202 billion; total cash, cash equivalents and restricted cash were $1.464 billion.
- Nine-month operating cash flow was $92.6 million, down from $172.8 million. Investing cash outflow was $229.2 million, including acquisitions, merchant portfolios and capitalized development. Financing cash outflow was $95.6 million.
- Total principal debt was $2.219 billion at September 30, 2021, compared with $3.332 billion at December 31, 2020. Reported debt, net of issuance costs, was $2.197 billion, including $2.191 billion of non-current debt and $6.3 million of short-term debt.
- The June refinancing included new term loans, secured notes and a $305.0 million revolving facility. The company had drawn $135.0 million on the new revolver, leaving $170.0 million available, and had a separate $50.0 million line of credit outstanding.
- The company reported compliance with its debt covenants at September 30, 2021. The first-lien debt ratio was 5.92x against a stated covenant threshold of 7.5x when applicable.
Material changes, outlook and risks
- The company completed acquisitions of ICS and PagoEfectivo during 2021. It completed the Viafintech acquisition in November 2021 after the reporting date and subsequently fully drew the related EUR incremental term loan. A $441.0 million SafetyPay acquisition was expected to close before or during the first quarter of 2022.
- No specific revenue, earnings or cash-flow guidance is provided in the filing. Management stated that existing cash, borrowing capacity and expected operating cash flow should be sufficient to fund operations and planned requirements for the foreseeable future and the next 12 months.
- Management identified continuing risks from COVID-19, changing consumer and merchant behavior, regulatory changes in Europe, network restrictions, merchant attrition, chargebacks, credit losses, foreign exchange, variable interest rates and competition.
- Digital Wallet performance is a significant concern because of lower volumes, wallet-to-wallet revenue and regulatory impacts, as well as the $324.1 million year-to-date intangible impairment. Future impairments remain possible if forecast cash flows, discount rates or other valuation assumptions change.
- Interest-rate sensitivity was estimated at an unfavorable $11.3 million impact on net loss for a 100-basis-point increase in borrowing rates. A 1% strengthening of the U.S. dollar against other currencies would have reduced net assets by approximately $4.1 million, based on the filing’s sensitivity analysis.
- Litigation provisions were $8.3 million at September 30, 2021. The company also disclosed ordinary-course letters of credit of approximately $173.7 million and exposure to merchant chargebacks and financial guarantee losses.
- Walt Macnee resigned as a director effective October 31, 2021, without a dispute or disagreement with the company. The board was reduced to 11 directors.
Important facts for investors to verify
- Whether Digital Wallet revenue and cash-flow trends stabilize after the strategic changes, network restrictions and European regulatory developments.
- The valuation assumptions supporting the remaining intangible assets and goodwill, including forecast cash flows, discount rates and exit multiples.
- The effect of the Viafintech acquisition and related EUR incremental borrowing, and whether the planned SafetyPay acquisition closes on the expected terms and schedule.
- Debt covenant headroom, variable-rate exposure, revolver availability and liquidity after acquisition funding.
- The extent to which adjusted EBITDA excludes recurring or economically significant items such as impairment, share-based compensation, acquisition costs, restructuring costs and warrant fair-value movements.
- Potential volatility from warrant-liability remeasurement, foreign exchange, chargebacks, litigation and other contingencies.