Paysafe Ltd. Form 6-K Summary
Filing date: May 18, 2022. The filing presents unaudited condensed consolidated financial statements and management’s discussion and analysis for the three months ended March 31, 2022, with comparisons to March 31, 2021. Paysafe is a global payments provider operating through US Acquiring and Digital Commerce segments.
Financial Performance and Position
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $367.7 million | $377.4 million | Down 2.6% |
| Adjusted EBITDA | $104.0 million | $113.2 million | Down 8.2% |
| Adjusted EBITDA margin | 28.3% | 30.0% | Down approximately 170 bps |
| Operating loss | $1,191.7 million | $36.6 million | Materially higher loss |
| Net loss attributable to Paysafe | $1,171.2 million | $60.6 million | Materially higher loss |
| Basic and diluted loss per share | $1.62 loss | $0.08 loss | Higher loss per share |
| Net cash provided by operating activities | $503.8 million | $48.7 million | Increase of $455.1 million |
| Cash and cash equivalents | $258.0 million | $313.4 million at Dec. 31, 2021 | Down $55.4 million |
| Total principal debt | $2,748.6 million | $2,794.1 million at Dec. 31, 2021 | Down $45.5 million |
The operating loss and net loss were dominated by a $1,205.7 million goodwill impairment charge, comprising $613.0 million in US Acquiring and $592.7 million in Digital Commerce. Excluding the impairment and other adjustments reflected in management’s non-GAAP reconciliation, Adjusted EBITDA was $104.0 million.
Gross dollar volume increased 13.3% to $31.2 billion from $27.5 billion. The consolidated take rate declined to 1.2% from 1.4%. US Acquiring volume increased to $19.8 billion from $16.4 billion, while Digital Commerce volume increased modestly to $11.3 billion from $11.1 billion.
Operating cash flow benefited substantially from non-cash impairment and a $418.9 million increase in funds payable and amounts due to customers. Investing cash outflows were $455.7 million, including $424.7 million for acquisitions, primarily SafetyPay. Financing cash outflows were $18.7 million.
Cash and cash equivalents were $258.0 million, while customer accounts and other restricted cash totaled $1,712.0 million. Including restricted cash, cash and cash equivalents totaled $1,970.0 million at March 31, 2022; these customer funds are subject to safeguarding and settlement obligations and should not be viewed as unrestricted liquidity.
Segment Results and Material Changes
- US Acquiring: Revenue increased 10.3% to $169.1 million, primarily from higher volumes. Adjusted EBITDA increased 20.3% to $47.2 million.
- Digital Commerce: Revenue decreased 11.4% to $198.5 million due primarily to European regulatory changes, lower promotional activity and unfavorable foreign exchange, partly offset by acquisitions. Adjusted EBITDA decreased 17.2% to $75.8 million.
- Corporate: Adjusted EBITDA loss increased to $19.1 million from $17.5 million, driven primarily by directors’ and officers’ insurance and higher legal and professional fees.
- SG&A declined 32.7% to $130.6 million, largely because the prior-year period included significant share-based compensation from equity awards that vested following the 2021 transaction.
- Interest expense declined 58.4% to $26.0 million following debt refinancing in June 2021 and lower debt balances.
- In January 2022, Paysafe acquired SafetyPay for cash consideration of $449.8 million. The preliminary allocation included $284.2 million of goodwill and $223.3 million of intangible assets; the purchase accounting remains provisional.
- During January 2022, Paysafe acquired the remaining interest in Skrill USA, eliminating the related non-controlling interest as a variable-interest entity.
Debt, Liquidity and Covenants
Total principal debt was $2,748.6 million at March 31, 2022, consisting primarily of USD and EUR term loans and secured notes. Revolving credit facility borrowings were $20.0 million against a $305.0 million facility, leaving approximately $285.0 million available. A separate $50.0 million line of credit used to fund US settlement activity was fully drawn.
Debt facilities include variable-rate borrowings. Management estimated that a 100-basis-point increase in borrowing rates would have an approximately $18.0 million unfavorable annualized impact on net loss as of March 31, 2022. The Company stated that it was in compliance with its financial covenants and believed its cash, borrowing capacity and operating cash flows were sufficient to fund operations and planned requirements for the foreseeable future.
Outlook, Risks and Unusual Items
- The goodwill impairment was triggered by a sustained decline in the share price and market capitalization and broader macroeconomic conditions. Further declines in share price or adverse changes in projected cash flows, discount rates or growth assumptions could result in additional impairment.
- Management identified exposure to foreign exchange, interest rates, credit losses, merchant chargebacks, regulatory requirements, seasonality, inflation and continuing COVID-19 effects.
- Operations in Russia and Ukraine represented approximately 1% of prior-year revenue. The filing states that geopolitical developments and related economic conditions could affect operations and consumer and business spending.
- Digital Commerce remains exposed to regulatory changes in Europe, promotional activity and foreign exchange movements.
- A shareholder class action filed in December 2021, with a related complaint filed in January 2022, alleges materially false or misleading market statements. Paysafe intends to defend the claims but stated that it cannot estimate any potential loss, which could be material.
- Paysafe maintained an $8.6 million litigation provision. The filing also discusses potential exposure from cyber-related claims associated with a November 2020 breach and merchant chargebacks.
- The filing provides no specific financial guidance for full-year 2022.
Investor Verification Items
- Verify whether the goodwill impairment is non-recurring or indicates a sustained deterioration in the underlying businesses, and monitor for additional impairment indicators.
- Assess the sustainability and quality of the $503.8 million operating cash flow, particularly the $418.9 million working-capital benefit from funds payable and amounts due to customers.
- Review unrestricted cash separately from safeguarded customer funds and evaluate liquidity relative to approximately $2.75 billion of principal debt.
- Track Digital Commerce revenue, take rates, regulatory developments and foreign exchange effects.
- Review SafetyPay’s final purchase accounting, contribution to revenue and profitability, and integration performance.
- Monitor debt covenant compliance, variable-rate exposure and the availability of the revolving credit facility.
- Review the shareholder litigation, cyber-breach claims, chargeback exposure and other contingencies for potential material cash outflows.