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Screenshot of a breaking news alert e-mail from Q2 2017
Payments services company Paysafe Group Plc (LON:PAYS) issued a fairly rosy Trading Update ahead of the release of full 2016 year results.
Paysafe’s brand portfolio includes NETELLER and Skrill, MeritCard, paysafecard, payolution, Income Access and FANS Entertainment.
Overall, Paysafe expects to surpass the $1 billion annual revenue milestone for FY 2016, with FY revenue and EBITDA expected to be ahead of market consensus.
It will be interesting to see how Paysafe shares react when trading begins later this morning. Paysafe shares took a large hit in early December, following the release of a report by short selling specialist Spotlight Research report on Paysafe’s China-bet365 connection.
According to Spotlight’s report, Paysafe’s largest customer (i.e. online gambling site bet365.com) may represent an estimated ~50%+ of Paysafe earnings, and is operating a business that appears to facilitate and engage in illegal gambling out of China. The Spotlight report sent Paysafe shares tumbling by as much as 38% on December 13, although the shares have more than recovered all that ground since then.
Back to Paysafe’s Trading Update… Paysafe indicated strong momentum during the second-half of 2016, as it focused on building a portfolio of payment-related products and services to meet the evolving needs of businesses and consumers in a rapidly-changing payments industry.
- The Group expects to exceed the $1 billion revenue milestone in FY 16, ahead of the upper end of the guidance range and current market expectations.
- The Group also expects FY 16 adjusted EBITDA to reach $300 million for the first time, with implied adjusted EBITDA as a percentage of revenue marginally ahead of expectations.
- Strong business performance throughout the year led to the Group raising guidance twice in 2016, resulting in a c.$110 million (c.13%) upgrade to revenue expectations over the last 12 months from $868 million to a range of $970-990 million.
- Adjusted EBITDA expectations were also raised by c.$40m (c.15%) from $252 million to a range of $287-293 million. This represented an adjusted EBITDA margin expectation of 29.6%, compared to 24.9% delivered in FY 15.
- In addition to growth in adjusted EBITDA, the Group continues to demonstrate strong cash conversion, enabling it to capitalise on market conditions with an inaugural share buy-back programme announced in December, without compromising the pursuit of bold M&A opportunities.
Current trading and outlook
Given the strong revenue performance in H2 16, management remains confident about the Group’s outlook for FY 17. Management expects to achieve low double-digit organic revenue growth in FY 17 from a base of 2016’s record performance, while expecting to at least maintain adjusted EBITDA margins.
Second-half operational highlights
As a result of the successful completion of the Skrill business integration five months ahead of schedule, the Group has begun integrating its comprehensive product suite into a single, scalable payment platform and ecosystem. This includes new and centralised data, analytics, reconciliation, compliance and risk management tools. New platform functionality will be delivered in a modular approach throughout FY 17, reflecting developing needs of the business and its clients.
The Group launched its new developer portal, making it easier for merchants and developers to access, familiarise and integrate Paysafe products through open APIs and SDKs. This will simplify onboarding and enable Paysafe to share its payments expertise and augment its merchant and consumer base, by creating a vibrant developer-centric community of users.
Paysafe completed the acquisition of Income Access in August 2016, following the acquisition of MeritCard in February 2016. This affiliate technology business further enhances and expands the relevance of Paysafe’s Digital Wallet proposition.
Paysafe has ended the year with enhanced operations, processes, products and technology that position the business strongly for growth in FY 2017 and beyond. More specifically, the Group has already made substantial investments in Know Your Customer infrastructure, as well as risk management and compliance capabilities, underpinning its longstanding ability to adapt and respond quickly and seamlessly to the ongoing development of anti-money laundering regulations worldwide. The Group is confident that new and draft anti-money laundering regulatory changes in Europe will not have any material effect on revenue or adjusted EBITDA margin projections for 2017, with prudent assumptions in relation to additional costs having been built into internal forecasts.
In line with the Group’s strategic pillars, the business continues to pursue bold M&A alongside organic growth, in order to accelerate growth opportunities and fortify its strong position in the payments space.
Paysafe President and Chief Executive Officer Joel Leonoff said:
We have delivered another excellent financial performance and expect to surpass $1 billion in revenue, an impressive milestone of which we are extremely proud. Our ongoing momentum underpins our confidence in our growth prospects for 2017.
We have longstanding expertise in the payments industry, and we have made targeted investments in both our technology and our risk and compliance processes through the year. We are well prepared for the additional levels of customer due diligence expected as part of forthcoming regulatory requirements, including anti-money laundering legislation in Europe. Operating amid regulatory change is simply business as usual for Paysafe.
We continue to execute on our vision to offer feature-rich and relevant payment solutions that address the specific needs of the businesses and industry verticals we operate in and the consumers we serve. We have big ambitions this year as we focus on building a payments business with unrivalled capabilities, reach and relevance to enable us to capitalise on the opportunities ahead.