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Presentation

Operator: Greetings, and welcome to the Paysafe Fourth Quarter and Full Year 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the call over to Kirsten Nielsen, Head of Investor Relations. Thank you. You may begin.

Kirsten Nielsen: Thank you, and welcome to Paysafe’s Earnings Conference Call for the Fourth Quarter and Full Year 2022. Before we begin, a reminder that this call will contain forward-looking statements and should be considered in conjunction with cautionary statements contained in our earnings release and the Company’s most recent SEC reports. These statements reflect management’s current assumptions and expectations and are subject to factors that could cause actual results to differ materially from those forward-looking statements. You should not place undue reliance on these statements. Forward-looking statements during this call speak only as of the date of this call, and we undertake no obligation to update them. Today’s presentation also contains non-GAAP financial measures.

You can find additional information about these non-GAAP measures and reconciliations to the most directly comparable GAAP financial measures in today’s press release and in the appendix of this presentation, which are available on the Investor Relations section of our website. Joining me today are Bruce Lowthers, Chief Executive Officer; and Alex Gersh, Chief Financial Officer. After our prepared remarks, we will answer questions received from shareholders through the Say Technologies platform. After that, we will take questions from the analyst community. With that, I’ll turn the call over to Bruce.

Bruce Lowthers: Thanks, Kirsten, and thank you, everyone, for joining us. If you’re following along on our webcast, let’s begin on slide 3. When I joined Paysafe, we said our focus would be on returning to growth in the back half of the year and into 2023, and we’ve done exactly that. In the fourth quarter, revenue of $384 million increased 8% on a constant currency basis, exceeding our most recent guidance, resulting in 9% growth in the second half. Full year revenue was approximately $1.5 billion, an increase of 5% on a constant currency. Adjusted EBITDA of $108 million in Q4 was slightly above the midpoint of guidance, resulting in full year adjusted EBITDA of $410 million. We also delivered solid free cash flow of nearly $300 million in 2022, which translates to 73% conversion of adjusted EBITDA.

Overall, we’re pleased with our results for Q4 and 2022, which was a year of progress against a challenging backdrop. As we’ve discussed on our prior calls, our overall mix has shifted more to North America in 2022, driven by growth from our Merchant Solutions segment, which benefited from strong demand across retail and hospitality and travel and leisure, particularly in the U.S. SMBs. We also saw growth in Latin America, led by our acquisitions of SafetyPay and PagoEfectivo, which grew revenue 18% on a pro forma basis. In Europe, we experienced market headwinds from FX, the Russian-Ukraine war and gambling regulations in our digital wallet business. Despite these impacts, digital wallet growth improved in the second half, recording five consecutive months of sequential growth.

As part of our focus on reinvigorating growth we prioritized recruiting high-caliber talent, simplified and repositioned the organization and rebuilt our sales function. We delivered on these priorities, which is positioning Paysafe to fully leverage our assets and realize the synergy potential across our businesses and capitalize on meaningful opportunities in our core verticals. I’m excited by the momentum that we’re seeing in recent client wins, including multiproduct deals and cross-selling as well as geographical expansion with our existing clients, which demonstrates the strength of our portfolio when we bring holistic value propositions to our merchants. Looking to the year ahead, the progress we are seeing across our sales transformation gives us confidence in our ability to deliver strong organic growth in 2023.

I am more excited today 10 months into the role about the opportunity that we have and believe that Paysafe is a unique — is uniquely positioned with significant runway to grow across our large entertainment TAMs by refocusing and delivering on these priorities. Additionally, we continue to see strong activity in North America iGaming, including strong volume growth during the NFL season and Super Bowl, reflecting growth across both new and existing merchants. Paysafe now supports payments across 25 U.S. states after kicking off 2023 with our entry into the new Ohio online sports betting market, which followed our Q4 launch in Maryland. Turning to slide 4 for an update on digital wallets. This view is focused on our classic digital wallets for additional transparency.

In Q4, we saw continued signs of underlying stabilization in our classic digital wallet business. We recorded constant currency revenue growth versus the prior year of 7% from the classic digital wallets, excluding the impact of the Russian-Ukraine war. We are seeing positive trends in funnel optimization, including improvement in early adoption rates up 2.5 percentage points since the start of the year as well as 1.5 percentage point improvement in our churn rate since the beginning of 2022. Drivers of the improvement include improved KYC processes across both standard and enhanced due diligence, we have virtual assistant and service center UX improvements, and successful VIP and premier customer campaigns. As a result, in Q4, we saw year-over-year increase in underlying deposit volumes of 14% constant currency, excluding Russia and Ukraine war and a one-off impact of Nigeria in Q4 €˜21, as well as a meaningful increase in transactions per active users driving overall ARPU improvement.

Additionally, our initiatives to reduce friction and improve the checkout experience have resulted in a further 8% point increase in our conversion rate at merchant checkout in Q4 versus the prior year. This improvement since last year has driven approximately $10 million in annualized incremental revenue. So, despite active users being lower year-on-year, we’re seeing stability, higher engagement and value from our customers supporting an improvement in ARPU and overall revenue growth throughout the second half of €˜22. We continue to drive forward our customer-focused initiatives and expect to see a return to growth in our active user base into Q2. Turning to slide 5. Looking to 2023, we’re building on the improvements made in 2022 and have several immediate initiatives to improve performance, while creating opportunities to accelerate growth longer term.

First, we’ll continue to focus on client experience. I’m very pleased that Paysafe was recently ranked third and well above the industry standard on the J.D. Power’s merchant services satisfaction survey, a testament to the team’s hard work and focus on the customer. This was the largest single year improvement by a company. On the consumer side, in addition to increasing our investment in the consumer acquisition, we continue to build upon our improvements to the wallet user experience. On our product innovation initiatives, we see immediate opportunities to improve our authorization rates, where we are currently above the benchmarks for our core verticals but we see opportunity to further increase auth rates in 2023 through network tokenization and new fraud management solutions.

On our APM optimization, we’ll begin to make our APMs available enterprise-wide by Q3, connecting merchants to North America, Europe and Latin America through a single integration. On the sales transformation, we’re building out a world-class sales engine focused on existing customers, new account acquisition and business development opportunities with plans to double the team headcount in 2023. While it’s still early days, I’m excited by the strength of our enterprise pipeline, which has already increased meaningfully from when we launched this initiative this past summer and in Q4, we closed more than 20 enterprise deals, including multiproduct wins and cross-selling across products and new geographies. One example, we recently signed a multiproduct deal with Betr, a new innovative online sports betting and fantasy sports company backed by Jake Paul to provide acquiring digital wallet and APM connectivity through our gateway, starting in Ohio, which plans to launch into multiple regulated U.S. states in 2023.

In the financial trading vertical, we recently expanded our relationship with Deriv, a leading online trading platform and a long-standing digital wallet client to provide card acquiring in Europe. Moving to slide 6. As I mentioned at the beginning of the call, we continue to see strength in North American iGaming. In Ontario, we’re building on 10 years of market leadership with provincial lotteries, delivering the full stack of processing with high card approval rates as well as local APMs. We are now live with nine operators in the new Ontario market. As one example, we’re partnering with Rush Street Interactive, a leading online gaming and sports entertainment company focused on markets in the U.S., Canada and Latin America. Paysafe is currently supporting Rush Street in Ontario with traditional payments and APMs through Paysafe’s Gateway.

This win was a result of our long-standing history in Canada as the trusted payments provider for iGaming coupled with our cross-regional capabilities throughout North America and Latin America. Lastly, as a reminder, I’ll encourage everyone to tune in to our upcoming Analyst and Investor Day on March 13th, where our leadership team will share more examples of our recent client wins and the momentum on our transformation. With that, I’ll ask Alex to review the financial results.

Alex Gersh: Thank you, Bruce. Let’s start with slide 8. We are pleased with our financial performance for the fourth quarter, which was slightly above our latest guidance range for revenues and in line with our guidance for adjusted EBITDA. Moving to slide 9 for the summary of our fourth quarter results. Volume was $33.1 billion, an increase of 5% year-over-year, reflecting continued strength in the Americas, where the Merchant Solution business saw resiliency in the U.S. SMB market as well as an improvement in e-commerce, partly offset by FX headwinds in digital wallet, where we saw continued improvement supported by growth initiatives, our Latin American acquisitions and the lapping of regulatory headwinds in European gambling.

Total revenue for the fourth quarter increased 3% to $383.6 million on a reported basis. Excluding the impact from changes in foreign exchange rates as well as the impact from the Russia-Ukraine war, revenue increased 9%, reflecting growth from both segments. Adjusted EBITDA for the fourth quarter was $107.6 million, resulting in adjusted EBITDA margin of 28%, reflecting lower margin in the Merchant Solutions segment due to channel mix, including faster growth of the indirect channel. We expect growth for both e-commerce and our direct channel to support improved mix in the segment going forward. During the quarter, we generated $91 million in free cash flow and an increase of more than 70% over Q4 of the previous year, reflecting an 85% conversion of adjusted EBITDA.

Adjusted net income for the fourth quarter was $33.1 million compared to $52.2 million in the prior year, mainly reflecting higher interest expense. Let’s move to slide 10 for the summary of the full year results. Full year volume increased 6% to $130 billion. Full year revenue was nearly $1.5 billion on a reported basis, an increase of 1% compared to 2021 or 5% on a constant currency basis. Overall, our constant currency growth reflects strong performance from the Merchant Solutions segment and inorganic growth from our Latin American acquisition, which more than offset market headwinds from the Russia-Ukraine war as well as European gambling regulations in the Netherlands and Germany, which impacted digital wallet, particularly in the first half of the year.

The second half, we delivered 9% constant currency year-over-year growth. Adjusted EBITDA for the full year was $410 million, resulting in adjusted EBITDA margin of 27.4% compared to 29.9% in 2021, primarily reflecting segment mix as well as channel mix within Merchant Solutions. Free cash flow before interest payments for 2022 was $298 million or 73% conversion, slightly above our expected range. Adjusted net income for the full year was $137 million compared to adjusted net income of $185.8 million in 2021, largely attributable to lower adjusted EBITDA, higher depreciation and amortization as well as higher interest expense, excluding $62 million expense related to debt refinancing in 2021. Let’s move to slide 11 to discuss the segment results.

Merchant Solutions delivered another quarter of strong growth. Fourth quarter volume increased 7% to $28 billion, leading to full year volume of $110 billion, an increase of 10%. Transactions grew 7% for both Q4 and full year. Revenue for the fourth quarter was $208.5 million, an increase of 10% and a full year revenue of $817.4 million also increased by 10%. Adjusted EBITDA in the fourth quarter was $51 million, reflecting 24.5% margin, down 270 basis points, primarily reflecting our channel mix within the segment. For the full year, adjusted EBITDA increased 7% to $200.3 million, reflecting a margin of 24.5%, down 60 basis points. We expect growth from both e-commerce as well as direct channel to support improved mix in the segment going forward.

Turning to slide 12. The Digital Wallets segment delivered continued improvement this quarter, including nominal sequential revenue growth of 9%, driven by our growth initiatives, as Bruce discussed, as well as seasonality in gambling, including the World Cup. Fourth quarter volume was $5.3 billion and full year volume was $20.6 billion, a decrease of 4% and 11%, respectively. This is not adjusted for the significant FX headwinds. Digital Wallet revenue for the fourth quarter was $177.1 million, an increase of 6% year-over-year, excluding the impact from changes in foreign exchange rate. For the full year, revenue increased 1% on a constant currency basis. Adjusting for the impact of Russia-Ukraine war, constant currency revenue would have increased approximately 9% and 3% for the fourth quarter and the full year, respectively.

Adjusted EBITDA in Digital Wallet segment was $77.1 million in the quarter, with margins consistent with prior year at 43.5%. Full year adjusted EBITDA was $289.4 million and margin decreased 210 basis points, reflecting investments and headwinds from Russia-Ukraine and European gambling operations. Let’s turn to slide 13 for the summary of the balance sheet and leverage. At the end of the year, our total debt was $2.6 billion. We completed debt repayments and repurchases of $18.5 million face value in Q4 and $77 million for the full year. We continue to monitor pricing on both our term debt and notes, and we’ll act opportunistically to take advantage of current trading levels. Our net debt to LTM adjusted EBITDA ratio was 5.8 times at year-end, and we are highly focused on reducing leverage through further debt reductions and EBITDA growth in 2023.

We believe we will be in the range of 5.1 times to 5.3 times by the year-end. Moving to slide 14 to discuss the outlook. For 2023, we currently expect reported revenue to range from $1.58 billion to $1.6 billion, reflecting growth above 6% at the midpoint. This reflects low single-digit growth in the first half and high single-digit growth in the second half of the year, driven by the ramp-up of our sales transformation and other initiatives. We expect adjusted EBITDA to range from $452 million to $462 million, reflecting at least 100 basis points of margin improvements driven by operating leverage. We assume current euro to USD exchange rate for the remainder of the year. The first quarter is expected to be in the range of $375 million to $380 million, an increase of approximately 4% year-over-year on a constant currency basis.

Adjusted EBITDA is expected to be in the range of $105 million to $108 million, reflecting an adjusted EBITDA margin slightly above 28%. Now, I’ll turn the call back to Bruce.

Bruce Lowthers: Thank you, Alex. In closing, I want to thank our team for their hard work during this transition. As I stated 10 months ago, we would drive our return to growth by simplifying the organization, focusing on client experience, sales and product innovation. Our team has done that, and we’re prepared to grow in 2023 after a strong back half of 2022. We have added great talent and placed their talented teammates and roles that will drive better outcomes for us as we move forward. We have stabilized the Company in the back half of the year, and I’m excited about the opportunities that we have as we move forward. Paysafe is a scaled player with $1.5 billion in revenue, $410 million in EBITDA, 70% plus free cash flow conversion and will grow mid-single-digits in 2023. We are looking forward to seeing everyone next week in New York. Now let’s begin with the Q&A session.

A – Kirsten Nielsen: Thank you, Bruce and Alex. We are partnering again with the Say Technologies Q&A Forum, which allows all of our shareholders to submit and upvote questions. After that, we’ll turn to questions from our research analyst community. Our first question is from Devraj, who asked why Paysafe decided to do a reverse stock split? Wouldn’t it be more assuring to bring up the share price organically? Bruce, would you like to address this?

Bruce Lowthers: Sure, Kirsten. So look, thank you for the question, first of all. Look, I think when we go back and talk about where the stock was trading at the time, the Board felt it was the right decision to make the reverse stock split. But to be clear, our focus is to drive shareholder value by delivering stronger growth, expanding our margins. And as you heard in our prepared remarks, we’re delivering on our priorities around client experience, product innovation and sales transformation to enable us to accelerate our organic growth. So, as you can see in the improvement in our guidance range for 2023, which Alex talked about, reflects a 6% to 7% organic revenue growth coupled with at least 100 basis points of EBITDA margin. We think we’re positioning ourselves to do just that and drive shareholder value.

Kirsten Nielsen: Our next question is from Cody who would like to hear about any initiatives to improve brand recognition of our North America operations. Bruce, why don’t you take this one as well?

Bruce Lowthers: Sure. So, look, in North America, as you think about what we do in North America, predominantly our revenue streams from North America are really around our merchant acquiring business. So, we’re the fourth largest nonbank acquirer in the market. And as I pointed out a little bit earlier, we have some strong brand recognition with J.D. Power’s ranking us third for merchant satisfaction. So, we feel that Paysafe has a nice brand in the acquiring market in the U.S. and we’ll continue to focus that over time. I think when you look at the consumer business, which is our digital wallet business, we have great strong brand recognition in Europe and other markets. And North America is an emerging opportunity for us.

So, you’ll see a lot of activity in the consumer side of our business in North America as we move forward with a series of new campaigns and branding as we move forward and into Latin America as well. As I mentioned, it’s growing — Latin America has grown 18%. We have a strong brand with Pago down there on the consumer side, but you’ll start to see us build the Paysafe brand in Latin America as well.

Kirsten Nielsen: Okay. Thanks, Bruce. We’ll take one more question from the Say platform. Dale asks what is the path to profitability? Is it money or new users? Alex, could you take this one?

Alex Gersh: Sure. I would like to first reiterate that we reported adjusted EBITDA of $410 million in 2022 and delivered positive cash flow and positive adjusted net income. Going forward, our guidance points to improved profitability in 2023, including 100 basis points of margin expansion. You heard Bruce discuss our priorities to drive near-term growth. As an example, we expect to deliver growth from cross-selling our products and expanding geographically within our existing merchant base, and we’re seeing that in both our recent wins and in the sales pipeline. We also touched on improvements to Digital Wallet user experience, which we believe will support growth of active users this year. At the same time, we focus on being disciplined with cost management to continue to drive the operating leverage as we grow.

Kirsten Nielsen: Okay. Thanks, Alex. With that, I would now like to turn the call back over to the operator to open up the phone line to take questions. Operator?

Operator: Our first questions come from the line of Dan Perlin with RBC.

Matt Roswell: Yes. Good morning. It’s actually Matt Roswell sitting in for Dan. I have two questions. I guess, first, you mentioned in your prepared remarks the strength in the U.S. SMB market, especially travel and hospitality. I was wondering if you could kind of disaggregate whether that’s coming from the macro environment improving, you all gained share or sort of improved operations.

Bruce Lowthers: I didn’t hear the question. It was kind of choppy. Sorry.

Matt Roswell: Sorry about that. Hopefully, it sounds a little bit better now. Strength in the U.S. SMB especially for — I was wondering if you could disaggregate it into kind of macro conditions improving, share gains or you all executing better.

Bruce Lowthers: Yes. So I think the question is really how do we map off the SMB performance against macro environment? And look, I think our U.S. SMB business, our merchant acquiring business has performed exceptionally well throughout the year. I think it continued to perform well in Q4. We expect it to continue to perform very well as we move into €˜23. So, from our perspective, we believe the message that we have in the Street that we’re out selling the optionality that we provide is really resonating with the SMB marketplace, and it’s a very unique proposition. So, we would say we’re continuing to take share in that vertical. And we expect that to continue as we move forward into €˜23.

Matt Roswell: Okay. And as a follow-up, how should we think about free cash flow conversion in €˜23?

Bruce Lowthers: So on the free cash flow, I think as Alex mentioned earlier, we think we’ll still be very consistent in free cash flow as we go into €˜23. We’ll talk a little bit more in depth about that on Monday at the Analyst Day. And so, that’s part of my plug for Monday to get everybody there, but you’ll see consistency in our free cash flow as we go into €˜23.

Operator: Our next questions come from the line of David Togut with Evercore ISI.

David Togut: You called out a doubling of global sales headcount this year. Could you walk through the distribution of those new adds? Is that primarily going to be North America? What percentage would be Europe? And then, if you could kind of bridge to the adjusted EBITDA margin expansion guidance, kind of how the big headcount expansion in sales impacts adjusted EBITDA. Obviously, likely negative, but then what would be the tailwinds to margin that would show significant expansion?

Bruce Lowthers: Yes. So look, I think, first of all, a lot of the moves that we’ve made have been how I would classify as self-funded. So, we’ve made adjustments within the organization to pay for the changes that we’ve done. So, there has been a lot of movement within the organization where we have repositioned sales product. People are — positions that we thought were lacking. So, we have had a lot of transition in the organization to line up on that. So, I would not expect — I forget the exact word you used, but the significant change in our EBITDA profile because of we’re adding people into the sales organization. That will be self-funding. As Alex alluded to, as we go into €˜23, you’ll see 100 to 150 basis points as our guide margin expansion. So we fully expect to continue to improve our margin as we move into €˜23. Alex, if you want to add any color too.

Alex Gersh: I think one of the things that we said is we’re planning to expand our margin and merchant solution by focusing more on our direct channel sales as well as on our e-commerce expansion. And as I’ve said in the remarks as well, look, we are continuing — now the point here is that our revenue will grow faster than our costs, and we will continue to focus on our cost base, whether it’s headcount, whether it’s facilities, whether it’s automation, all of those things, we will continue to focus on the cost base, the efficiency gains and the efficiency that we’re seeking never stops.

David Togut: Just to clarify, the sales force additions in 2023, what are the distribution of those new adds between your different business segments and geographies?

Bruce Lowthers: Yes, David. So, what I would say is the — everywhere we think are opportunities for growth within our sales organization. We generally view that we’re subscale with sales. So, you’ll see additions being in Rob Gatto’s world, you’ll hear him talk about that on Monday around the enterprise, the account management structure. We’re having a tremendous amount of success early on cross-selling into our existing client base. We feel very optimistic about that, and we need more people in that avenue. We also see tremendous opportunities, as Alex just talked about in e-commerce. And so, you’ll see us continuing to expand in our e-commerce and merchant acquiring spaces. So, those will be the predominant places that we’re expanding our sales organization.

Operator: Our next questions come from the line of Scott Wurtzel with Wolfe Research.

Scott Wurtzel: Maybe first starting off on your guidance, I’m wondering if you can give us color on some of the macro assumptions that are embedded there. And then maybe also how we should think about growth between Merchant Solutions and Digital Wallets? Thanks.

Alex Gersh: Well, I think in terms of macro assumptions, we’ve given you a range, right? So obviously, at the top range, we expect the things to continue to improve and do well. And then we’ve got some regulatory — whether it’s regulatory headwinds or whether it’s some of the assumptions relating to a macroeconomic environment, that’s the bottom of the range. That’s the best we know as of now, and that’s how you would reflect on our assumptions there. Sorry, what was the second part?

Scott Wurtzel: Second part was just how we should think about growth on the top line between Merchant Solutions and Digital Wallets this year?

Alex Gersh: Yes. I mean we expect — for both of those — for both of our units to continue to grow at the average rates that we’re guiding to. So, as we sit here today, both would grow in those single-digit percentages that the guide implies.

Bruce Lowthers: Scott, I would just add just a little color. I think as we looked at — you probably heard me talk about earlier last year that this is really about us — about going out and executing. And I still fundamentally believe that’s the case. We’ve talked about a number of economists over the last few months, trying to get a sense of macro environment. We don’t see any impact at this point, as Alex just said. So this is really about us going out and executing and getting better at what we do every day. And we think that if there is a recession, at least based on the information we have today, it will be mild and really doesn’t impact what we do.

Scott Wurtzel: Got it. That’s helpful. And then maybe just as a follow-up on the U.S. iGaming side of things. Wondering if you can maybe share some color on how some of your relationships with larger operators in the U.S. have been going, specifically maybe with Penn and Barstool, have heard some of your ads on their media there. So just wondering if you can provide an update on how that’s been going since launch?

Bruce Lowthers: Yes. So, a couple of things. We actually have Zak Cutler, who’s going to present Monday at the Investor Day. He’s got a lot of great color that he’s going to provide around that. Overall, what I would say is the Barstool example that you just throw out is in the early stages. So we’re just kind of getting out of the gate with that. It seems like that’s progressing well. We have a great partnership with them, and we’re excited about what Barstool is doing. The industry as a whole is moving along pretty well for us. It’s small right now, but we have great growth in the U.S. marketplace. And we think that we’re in a great position to be a leader as that moves forward. And we’re optimistic about that over the long term.

Operator: Our next questions come from the line of Tim Chiodo with Credit Suisse.

Tim Chiodo: A lot of great highlights on the iGaming business and the Merchant Solutions here in North America. I wanted to see if you could give us an update in terms of percentage of revenue that that business is now within merchant or maybe what a run rate was in terms of the annualized revenue for that business exiting the year? And then, a follow-up is, you mentioned a new win in Ohio. Just as an example, maybe not this one specifically, but in general, your more recent wins within gaming in North America. Are they where you are gateway only? Are they in partnership with Worldpay? Are there anywhere you’re beginning to do the full stack processing, meaning separate from Worldpay?

Bruce Lowthers: Yes. Tim, thanks for the question. Look, I think we’re — feel very good about what we’re doing. We are winning. When we look at the U.S. gaming vertical, it’s broader than wallet for us. It is about e-com gateway and what we’re providing there. So, we are having a lot of success with our e-comm gateway. We are seeing and we’ll have some great examples Monday at Investor Day, where people are buying our full stack. And so, we’re very excited. I think Tim, actually, I mentioned with you in the fall at a conference. One of the things to look for is a signpost as we’re moving forward is us selling multiproduct deals. And I think I shared that that would be what is exciting for me and showing me that we’re moving in the right direction. And we’re going to talk about it on Monday, but we had a fair number of multiproduct deals in Q4 and really has us excited about what the opportunity is as we move forward.

Tim Chiodo: Excellent. If you don’t mind, if I could mix in one more brief follow-up. So during the prepared remarks around margins for Merchant Solutions, I believe I caught it correctly, but there was a comment around margins just being impacted by various channel mix within merchant. If you could just talk about those the various margin profiles of the channels and what the mix was that drove the margin outcome for the quarter?

Bruce Lowthers: Yes. So, that was in Alex’s comments, and I’ll let him jump in here in a second. So, as we look to the U.S. Merchant business, what you see is our indirect channel and our direct channel. Our indirect channel has a little lower margin profile than our direct channel. We had great growth in that in Q4. And so, it impacted the margin slightly as we kind of wrapped up the quarter. So, it was really from a top line growth perspective, acceleration that threw off the margin just a little bit as we look at it in aggregate.

Alex Gersh: Yes. And of course, the only thing to add is, as Bruce has said before, what we expect going forward is more focused on direct channel, but also more focused on e-commerce, which should drive the margins higher, overall.

Operator: Our next questions come from the line of Jamie Friedman with Susquehanna.

Jamie Friedman: Hey. Good morning. And good results here, guys. I had a question about Digital Wallets, and I appreciate this slide — what number is — slide 3 where you go through the wallet disclosed. But I was just curious how are you thinking about active user trends in 2023 in terms of the Digital Wallet?

Bruce Lowthers: Yes. So Jamie, thank you. I appreciate it, and thanks for joining us this morning. So, I think what you saw over the last several months is really the stabilization around the users. We expect our user on the classic Digital Wallet to start accelerating in Q2. And we feel pretty good about that as we sit here in the beginning of March. So, looking for growth numbers on the digital wallet users as we move into Q2. So, as I think we reported that at the end of Q2, you’ll — we’re expecting to see it moving in the right direction. But clearly, we’ve stabilized the wallet over the last five months.

Jamie Friedman: Okay. And then, if I could just ask as a follow-up. In terms of how we should be thinking about the deposit trends this is a pretty substantial increase year-over-year. I’m just curious what is driving that and how we should be thinking about if we should, interest rate dynamics relative to the growth of the deposit-related results?

Bruce Lowthers: Yes. Obviously, we’re having success, getting more people loading into the wallet. I think what Megan and her team have done around the usability of the wallet is really driving a lot of that activity. It’s taken a lot of the friction out of the use of the wallet itself. So, we’re having more success, getting people to load and fund the wallet. So, feel very good about that. And Jamie, as you rightly point out, obviously, we expect a better return on our deposits as we move forward with the interest rates that have accelerated. That hasn’t been much of a story for us historically. But certainly, as rates continue to move, we will do our best to optimize the deposit base that we have.

Operator: Our next questions come from the line of Aditya Buddhavarapu with Bank of America.

Aditya Buddhavarapu: Just a couple from my side. So in iGaming, could you maybe just speak about sort of your competitive position there and how you’re differentiating your offering. I understand it might be something you go into more in the CMD, but if you could just give us a flavor there? And then, second, as you think about the Digital Wallet business, do you see any residual headwinds from some of the regulatory impacts in Europe in €˜23? Or is there anything going on around some incremental regulatory impact to this year?

Kirsten Nielsen: So, the — just to clarify, your second question was about expectations for the regulatory environment for digital wallet, so it’s filling into 2023. And then your first question, we were having a hard time hearing you, it’s a little soft. Would you mind restating the first question?

Aditya Buddhavarapu: Yes. Sorry about that. First question was on iGaming. As you expand or pursue that opportunity in the U.S., could you just talk about your competitive position there and how you’re sort of differentiating your offering for — from the merchants?

Bruce Lowthers: Got it. So look, first, I’ll kind of go in reverse order. But the regulatory environment question on the Digital Wallet vertical, look, I think one of the things I would say we’ve been in this business for 20-something years. We understand the regulatory environment very well. We don’t see anything that we didn’t take into account into our guidance from a regulatory standpoint. We’re in a lot of different marketplaces. So we really don’t have a concentration of credit in any particular country. So we feel like we’re in a good spot with the guidance we gave, incorporating any regulatory potential headwinds that may exist. So, we feel like we’ve got that covered in the guidance that we gave. In regard to the U.S. Gaming business.

Look, we’re having a lot of success landing clients. We look at it both from the wallet perspective and from the gateway e-commerce perspective. This is not a single product for us, this is a vertical that we look to participate in and be active in. And I think what you’ve seen, we’re in 25 different states. We’re having success obviously with — Ohio is a great example of coming into the state with multiple operators line up as clients. We feel we’ve got a very strong position in the market, and we expect to continue to press and be very, very competitive in the U.S. Gaming market as it moves forward.

Operator: Thank you. We have reached the end of our question-and-answer session. I would now like to turn the call back over to Bruce Lowthers for any closing remarks.

Bruce Lowthers: Yes. Thank you very much. First of all, I just want to thank all of the Paysafe team for everything that you’ve done. It was really great to see the progress continue on our transformation. And we’re very excited about the opportunity that’s in front of us and look forward to an exciting 2023. Thank you all for joining us here today. And my last pitch, again, hope to see all of you Monday at the Investor Day in New York. We’ll be at the New York Stock Exchange. And we have great stories to share a lot of success that the team has had, and they’re anxious to tell you. So, look forward to seeing everybody in New York on Monday. Thank you very much.

Operator: Thank you. This does conclude today’s teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.