Paysafe Limited Form 6-K Summary
Filing date: August 16, 2021. The filing presents unaudited consolidated results for the three and six months ended June 30, 2021, with comparisons to the corresponding 2020 periods. The March 30, 2021 business combination with FTAC was accounted for as a capital reorganization and recapitalization; therefore, historical comparisons reflect Legacy Paysafe as the accounting predecessor and are not fully comparable to post-transaction capital structure and share data.
Business Context
Paysafe provides global payment solutions through three reporting segments: Integrated Processing, Digital Wallet, and eCash Solutions. Its principal markets are North America and Europe, serving e-commerce, online gambling, online gaming, and other digital commerce channels. The company reported more than 15 million active users and over 250,000 small and medium-sized businesses in its MD&A.
Financial Performance and Key Metrics
| Metric | Three months ended June 30, 2021 | Three months ended June 30, 2020 | Six months ended June 30, 2021 | Six months ended June 30, 2020 |
|---|---|---|---|---|
| Revenue | $384.3 million | $341.0 million | $761.8 million | $700.7 million |
| Operating income/(loss) | $39.6 million | $33.5 million | $2.9 million | $(3.5) million |
| Net income/(loss) | $6.8 million | $(15.8) million | $(53.7) million | $(85.1) million |
| Net income/(loss) attributable to Paysafe | $6.6 million | $(15.9) million | $(54.1) million | $(85.2) million |
| Adjusted EBITDA | $118.8 million | $110.4 million | $232.0 million | $223.1 million |
| Net cash from operating activities | Not separately provided | Not separately provided | $41.0 million | $135.0 million |
Approximate margins were 10.3% operating and 1.8% net for the second quarter, compared with 9.8% operating and negative 4.6% net in the prior-year quarter. For the six-month period, operating margin was approximately 0.4% versus negative 0.5%, net margin was approximately negative 7.1% versus negative 12.1%, and Adjusted EBITDA margin was approximately 30.5% versus 31.8%.
- Revenue growth: Second-quarter revenue increased 12.7%; six-month revenue increased 8.7%.
- Segment performance: Second-quarter revenue increased 7.2% in Integrated Processing, 6.8% in Digital Wallet, and 36.7% in eCash Solutions. Six-month revenue increased 1.0% in Integrated Processing and 49.4% in eCash Solutions, while Digital Wallet declined 3.7%.
- Adjusted EBITDA: Increased 7.6% in the second quarter and 4.0% for the six-month period. Six-month segment Adjusted EBITDA declined in Integrated Processing and Digital Wallet, while eCash Solutions increased 81.6%.
- Interest and taxes: Six-month net interest expense increased to $125.0 million from $80.8 million, partly due to accelerated debt-fee amortization and refinancing-related debt extinguishment costs. Six-month income tax expense was $10.8 million versus a $23.8 million benefit in 2020.
Cash Flow, Debt and Liquidity
| Balance or cash flow | June 30, 2021 | December 31, 2020 |
|---|---|---|
| Cash and cash equivalents | $247.8 million | $387.6 million |
| Customer accounts and other restricted cash | $1.249 billion | $1.376 billion |
| Total cash, cash equivalents and restricted cash | $1.497 billion | Not clearly stated in the balance sheet table |
| Total principal debt | $2.145 billion | $3.332 billion |
| Debt reported on balance sheet | $2.121 billion, excluding short-term debt of $6.3 million | $3.262 billion, excluding short-term debt of $15.4 million |
| Availability under new revolving facility | $270.0 million | Not applicable |
- Operating cash flow declined to $41.0 million from $135.0 million, primarily because funds payable and amounts due to customers decreased by $116.3 million.
- Investing cash outflow increased to $98.9 million, including $23.5 million for the ICS acquisition, $36.7 million for merchant portfolios, and $37.5 million for other intangible assets.
- Financing cash outflow was $168.2 million after debt repayments, refinancing activity, and transaction costs; the period also included $1.168 billion of net cash inflow from reorganization and recapitalization.
- On June 28, 2021, Paysafe refinanced its debt with new term loans, secured notes, and a $305 million revolving credit facility. The new facility had $35 million drawn at June 30, 2021. A separate $50 million line of credit was also outstanding.
- The company reported compliance with its debt covenants. Its first-lien debt ratio under the new senior facilities was 4.26x at June 30, 2021, below the 7.5x covenant threshold applicable under specified utilization conditions.
Material Changes and Unusual Items
- The March 2021 business combination resulted in $2.0 billion of gross PIPE proceeds, new public-company share and warrant instruments, and significant recapitalization activity.
- Six-month selling, general and administrative expense increased 38.4%, primarily because of $84.1 million of share-based compensation, including $71.6 million related to awards that vested upon completion of the transaction.
- Other income included a $64.1 million fair-value gain on warrant liabilities for the six-month period and a $39.3 million gain in the second quarter. These non-cash gains are volatile and may reverse with changes in the share price and warrant valuation.
- Intangible-asset impairment declined to $1.9 million from $79.4 million in the prior-year six-month period, when COVID-19-related deterioration in forecast cash flows and customer attrition contributed to impairments.
- The company acquired International Card Services in March 2021 for estimated consideration of $27.3 million, including earnouts.
Outlook, Risks and Contingencies
The filing does not provide a clear formal revenue, earnings, or Adjusted EBITDA guidance range. Management states that it expects available cash, borrowing capacity, and operating cash flow to fund existing operations and planned requirements for the foreseeable future.
- COVID-19 continues to create uncertainty around merchant demand, consumer spending, sporting events, travel, and the potential reversal of accelerated e-commerce and digital-payment adoption.
- Interest-rate risk is material: a 100-basis-point increase in borrowing rates was estimated to reduce net earnings by approximately $10.6 million as of June 30, 2021.
- Foreign-currency exposure remains significant; a 1% strengthening of the U.S. dollar against relevant currencies was estimated to reduce net assets by approximately $4.8 million.
- The company is exposed to merchant chargebacks, credit losses, counterparty failures, regulatory requirements to safeguard customer funds, and competition and pricing pressure.
- Litigation provisions were $8.3 million at June 30, 2021. Paysafe also had approximately $150.7 million of letters of credit and ordinary-course financial guarantee exposure.
- In July 2021, Paysafe agreed to acquire PagoEfectivo for expected cash consideration of $108.5 million. In August 2021, it agreed to acquire SafetyPay for preliminary cash consideration of $441.0 million and entered into a $450.0 million financing commitment. Closing and final purchase-price amounts remain subject to transaction conditions and adjustments.
Important Facts for Investors to Verify
- Reconcile reported growth and margins to the post-transaction capital structure, given that 2020 comparisons represent the accounting predecessor.
- Assess recurring operating profitability separately from volatile warrant, derivative, foreign-exchange, and contingent-consideration fair-value gains and losses.
- Evaluate cash generation after restricted customer funds, working-capital movements, acquisitions, debt service, and required safeguarding balances.
- Review the refinancing terms, variable-rate exposure, covenant calculations, maturity schedule, and the capacity needed to fund the PagoEfectivo and SafetyPay acquisitions.
- Monitor Digital Wallet recovery, Integrated Processing margin pressure, eCash sustainability after pandemic-related volume changes, and the effects of compliance actions and customer attrition.