Paysafe Ltd. Form 20-F Summary
Business context and reporting period
This filing is a shell company report related to Paysafe Limited’s business combination with Foley Trasimene Acquisition Corp. II, completed on March 30, 2021. Paysafe’s common shares and warrants began trading on the NYSE on March 31, 2021 under PSFE and PSFE.WS. The historical financial statements are those of Pi Jersey Holdco 1.5 Limited, the accounting predecessor, for the years ended December 31, 2020, 2019 and 2018, prepared under U.S. GAAP.
Paysafe provides digital payment services through three segments: Integrated Processing, Digital Wallet, and eCash Solutions. It served more than 15 million active users in over 120 countries and more than 250,000 small and medium-sized businesses in 2020.
Key financial metrics
| U.S. dollars in millions, except percentages | 2020 | 2019 | Change |
|---|---|---|---|
| Revenue | 1,426.5 | 1,418.1 | 0.6% |
| Operating income | 19.7 | 51.8 | (62.0%) |
| Net loss | (126.7) | (110.1) | Loss increased 15.1% |
| Adjusted EBITDA | 425.8 | 466.3 | (8.7%) |
| Net cash from operating activities | 409.1 | 289.0 | Increase of 120.1 |
| Gross payment volume | 92.1 billion | 98.7 billion | (6.6%) |
| Take rate | 1.5% | 1.4% | Increase of 0.1 percentage point |
Calculated 2020 margins were approximately 1.4% operating margin, negative 8.9% net margin and 29.9% Adjusted EBITDA margin. Adjusted EBITDA is a non-GAAP measure and is not presented as a liquidity or cash-flow measure.
Segment performance
| 2020 | Revenue | Adjusted EBITDA | Year-over-year revenue change | Year-over-year EBITDA change |
|---|---|---|---|---|
| Integrated Processing | 720.0 million | 203.7 million | (2.1%) | (8.1%) |
| Digital Wallet | 394.5 million | 178.7 million | (7.9%) | (16.0%) |
| eCash Solutions | 332.9 million | 115.9 million | 22.1% | 25.6% |
eCash Solutions benefited from increased online poker activity and the shift toward online and cash-enabled digital commerce during COVID-19. Integrated Processing and Digital Wallet were adversely affected by lower merchant activity, travel and events disruption, and weaker sports-betting volumes.
Cash flow, liquidity and debt
- Cash and cash equivalents were $387.6 million at December 31, 2020, compared with $234.6 million at December 31, 2019.
- Customer accounts and other restricted cash were $1.376 billion, with corresponding funds payable and amounts due to customers of $1.552 billion. Restricted customer funds should not be treated as freely available corporate liquidity.
- Cash flow from investing activities was an outflow of $51.2 million, compared with $160.6 million in 2019. Financing activities produced an outflow of $75.5 million.
- Total external debt principal was $3.332 billion at December 31, 2020, including first-lien and second-lien term loans and a $50.0 million line of credit. The $225.0 million revolving credit facility was undrawn at year-end.
- Debt maturities were concentrated in 2025, when approximately $2.711 billion of principal was scheduled to mature. Total contractual obligations, including debt, estimated interest and operating leases, were approximately $4.016 billion.
- The reported first-lien net leverage ratio was 5.74x at December 31, 2020, below the 9.0x covenant threshold applicable under specified revolving-credit usage conditions. The Company reported compliance with its debt covenants.
- Pro forma debt after the Business Combination was approximately $2.1 billion. Pro forma cash and cash equivalents were approximately $1.966 billion, based on the unaudited pro forma balance sheet.
Material changes versus prior comparable period
- Revenue was essentially flat because eCash growth of $60.2 million offset declines of $33.6 million in Digital Wallet and $15.5 million in Integrated Processing.
- Operating income declined by $32.1 million, primarily reflecting higher cost of services, higher selling, general and administrative expense, increased intangible-asset impairment and higher other expense.
- Intangible-asset impairment expense increased to $130.4 million from $88.8 million, driven by deterioration in forecast cash flows, merchant attrition, COVID-19 effects and accelerated retirement of a legacy platform.
- Adjusted EBITDA declined by $40.6 million, with declines in Integrated Processing and Digital Wallet partly offset by eCash growth.
- Operating cash flow increased by $120.1 million, substantially influenced by a $135.0 million increase in funds payable and amounts due to customers and other working-capital movements.
- The Company adopted the current expected credit loss standard in 2020 and recorded $54.2 million of credit-loss expense. COVID-19 contributed to increased credit losses.
- In March 2021, Paysafe acquired International Card Services, LLC for $23.5 million in cash, with preliminary total expected consideration of $28.6 million including contingent earnouts.
- The Business Combination generated significant transaction effects, including $1.966 billion of PIPE proceeds, $1.466 billion released from FTAC’s trust account, $1.176 billion of debt repayment and $2.449 billion of cash consideration paid to the Accounting Predecessor’s shareholders.
Outlook, commentary, risks and unusual items
Management expects long-term opportunities from continued migration to digital commerce, digital wallets, alternative payment methods, eCash, integrated commerce and U.S. iGaming. The filing does not provide a clear formal revenue or EBITDA guidance range.
- COVID-19 created weaker demand in travel, events, retail and sports betting, while accelerating e-commerce, digital payments and eCash adoption. The Company states that the duration and financial effects remain uncertain.
- Approximately 74% of 2020 revenue came from iGaming and other emerging or specialized markets. Approximately 36% of revenue was directly or indirectly related to online gambling, increasing exposure to regulatory, reputational, chargeback and banking-partner risks.
- A November 2020 cybersecurity incident potentially affected approximately 100,000 merchants and agents. The Company closed the affected website, reported the incident to authorities and provided credit monitoring and identity-protection services. Litigation and regulatory exposure remain possible.
- The Company depends on sponsor banks, payment networks, processors, distributors and cloud and data-center providers. Loss of a sponsor bank or payment-network access could materially impair operations.
- Regulatory risks include licensing, anti-money-laundering, consumer protection, privacy, safeguarding of customer funds, online gambling and cryptocurrency requirements across multiple jurisdictions.
- The Company identified material weaknesses in internal control over financial reporting relating to accounting judgments, capitalized development costs, purchase price allocations and data inputs used in key controls. Remediation was in progress, but management stated that the weaknesses had not yet been fully remediated.
- The Company carried $3.482 billion of goodwill and $1.525 billion of net intangible assets at December 31, 2020. Future impairment charges remain a risk if forecasts, merchant retention, growth or valuation assumptions deteriorate.
- Variable-rate debt exposes the Company to interest-rate and LIBOR-transition risk. A 100-basis-point increase in borrowing rates was estimated to adversely affect annual net loss by approximately $32.8 million, before considering other effects.
- The Company had no current plans to pay cash dividends. Principal shareholders collectively owned approximately 49.5% of the common shares and retained significant governance and voting influence.
Investor verification checklist
- Reconcile the post-combination cash balance, debt repayment, PIPE proceeds, trust-account proceeds and transaction expenses to the final consolidated balance sheet.
- Verify current debt maturities, interest rates, covenant calculations, revolving-credit availability and the effect of LIBOR replacement.
- Assess whether the remediation of the disclosed material weaknesses has been completed and independently tested.
- Review developments from the November 2020 cybersecurity incident, including litigation, regulatory inquiries, remediation costs and potential customer claims.
- Monitor revenue and payment volume exposure to online gambling, foreign exchange, cryptocurrency and other regulated or high-risk verticals.
- Evaluate recurring operating cash flow excluding movements in customer funds and funds payable, since these balances can materially affect reported cash flow.
- Track goodwill and intangible-asset impairment sensitivity, merchant attrition, credit losses and chargeback trends.
- Confirm the effect of the International Card Services acquisition, subsequent merchant-portfolio commitments and any contingent consideration payments.