Paysafe Ltd. Form 6-K Summary
Business context and reporting period
Filed May 17, 2023, for the quarter ended March 31, 2023. Paysafe is a global payments provider operating through Merchant Solutions and Digital Wallets, including card processing, digital wallets, eCash and pay-by-bank products. The unaudited interim financial statements are prepared under U.S. GAAP and should be read with the 2022 Form 20-F.
Key financial metrics
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $387.8 million | $367.7 million | Up 5.5% |
| Operating income/(loss) | $35.0 million | $(1,191.7) million | Improved by $1,226.7 million |
| Net loss attributable to Paysafe | $(3.8) million | $(1,171.2) million | Improved by $1,167.4 million |
| Adjusted EBITDA | $107.8 million | $104.0 million | Up 3.7% |
| Operating margin | 9.0% | (324.2)% | Improved |
| Adjusted EBITDA margin | 27.8% | 28.3% | Down approximately 50 basis points |
| Net margin | (1.0)% | (318.5)% | Improved |
| Net cash used in operating activities | $(119.0) million | $503.8 million provided | Down $622.8 million |
Gross payment volume was $33.8 billion, up from $31.2 billion. Merchant Solutions revenue increased 8.4% to $208.5 million, while Digital Wallets revenue increased 2.0% to $181.4 million. Segment Adjusted EBITDA increased 7.8% in Merchant Solutions and 6.3% in Digital Wallets, partly offset by higher corporate costs.
Balance sheet, debt and liquidity
- Cash and cash equivalents were $221.7 million at March 31, 2023, compared with $260.2 million at December 31, 2022.
- Customer accounts and other restricted cash were $1.719 billion, and total cash including restricted cash was $1.940 billion.
- Total principal debt was $2.624 billion, compared with $2.658 billion at year-end 2022. Debt carrying value, net of issuance costs, was $2.611 billion.
- Debt maturities are concentrated in 2028, with $1.647 billion due in that year and $817.2 million due in 2029 and thereafter.
- The $305.0 million revolving credit facility had $36.7 million drawn and approximately $268.3 million available at quarter-end. The company also had a $75.0 million settlement-related line of credit outstanding.
- Paysafe stated that it was in compliance with debt covenants and believed available cash, borrowing capacity and expected operating cash flows were sufficient for the next 12 months.
Material changes versus the prior comparable period
- Revenue and payment volume increased, primarily due to higher Merchant Solutions volumes and growth in selected Digital Wallets verticals, including iGaming and digital assets.
- The prior-year results included a $1.206 billion goodwill impairment charge; Q1 2023 impairment expense was only $0.1 million. This drove most of the improvement in operating loss and net loss.
- Interest expense increased 44.3% to $37.5 million, mainly because of higher variable interest rates, despite debt repurchases.
- Operating cash flow deteriorated to a $119.0 million outflow, principally because funds payable and amounts due to customers decreased by $177.2 million during the quarter. Restricted customer cash is included in the cash flow presentation, while related customer liabilities affect working capital.
- Investing cash outflows declined to $32.5 million from $455.7 million, largely because the prior-year period included $424.7 million for the SafetyPay acquisition.
- Paysafe repurchased approximately $57.4 million of borrowings, including $10.0 million of secured notes and $51.7 million of term-loan debt, recognizing a $4.3 million gain.
- On April 13, 2023, the company amended its U.S. term loan and revolving credit facilities to replace LIBOR with term SOFR. The amendment is treated prospectively as a continuation of the existing contracts.
Guidance, outlook, risks and unusual items
The filing does not provide explicit full-year revenue, EBITDA or cash flow guidance. Management said operating results for the quarter are not necessarily indicative of the full year and stated that it expects sufficient resources to fund operations and execute its business plans over the next 12 months.
- Key risks include global economic conditions, foreign exchange movements, interest rates, credit losses and merchant chargebacks, regulatory requirements, cybersecurity, litigation and seasonal fluctuations.
- A 100-basis-point increase in borrowing rates was estimated to have a $16.9 million unfavorable annualized impact on net loss as of March 31, 2023.
- The company recognized a $3.9 million tax expense despite near-breakeven pre-tax income; management described the quarterly effective tax rate as abnormal because of discrete items. The U.K. statutory tax rate increased from 19% to 25% effective April 1, 2023.
- Goodwill totaled $2.009 billion at quarter-end. Management identified no new impairment indicators, but stated that failure to achieve expected cash flows or a further stock-price decline could cause future impairment.
- A securities class action remains pending, and the company cannot estimate any potential loss or range of loss, which could be material. A $2.3 million litigation provision was recorded at quarter-end.
- An accrual related to customer payments arising from foreign-exchange disclosure issues was $7.5 million at March 31, 2023, down from $18.5 million at year-end; management does not expect additional liability for this matter.
- The filing contains an apparent inconsistency in the segment allocation of the prior-year $1.206 billion goodwill impairment between Merchant Solutions and Digital Wallets. The total impairment is consistent, but investors should verify the segment-level allocation.
Most important facts for investors to verify
- Whether the improvement in GAAP profitability is sustainable after excluding the prior-year goodwill impairment.
- The company’s ability to convert Adjusted EBITDA into positive operating cash flow while managing customer-fund settlement movements.
- Debt refinancing and interest-rate exposure, including the LIBOR-to-SOFR transition and the large 2028 maturity concentration.
- Compliance with leverage and liquidity covenants as borrowing costs and operating conditions change.
- Potential outcomes and financial exposure from the securities litigation, cybersecurity-related claims and other contingencies.
- Whether goodwill and other intangible assets remain recoverable under future cash-flow and market assumptions.