Payoneer Global, Inc. Q3 FY2024 earnings call

• Payoneer delivered record-breaking volume and revenue in Q3, with ICP growth up 11% for the fourth consecutive quarter, ARPU excluding interest income up 20% for the fifth straight quarter, and total volume growth accelerating for the seventh consecutive quarter to 25%.
• B2B is the growth engine, with 57% volume growth in Q3, and B2B represents nearly a quarter of Q3 revenue excluding interest income, contributing over 40% to revenue growth excluding interest income. Examples of B2B customers using Payoneer were provided, such as a travel management company and a virtual assistant business process outsourcer.
• Customer portfolio evolved with ICPs comprising 28% of the overall base, up from 25% at the start of 2023, and 10,000 plus ICPs represent 85% of SMB volume, with volume and revenue from these ICPs growing by over 25% in Q3.
• Bea Ordonez discussed financial results, noting record quarterly volume and revenue, strong profitability, 28% adjusted EBITDA margin, customer funds held increasing 13% to $6.1 billion, and details on operating expenses, including transaction costs, sales and marketing, G&A, and R&D expenses.

In Q3, Payoneer delivered exceptional results. Total volume growth accelerated to 25%. Total revenue grew by 19%, and excluding interest income, revenue rose by 24%. Adjusted EBITDA reached $69 million with a 28% margin. B2B volume grew by 57% in Q3, representing nearly a quarter of Q3 revenue excluding interest income and contributing over 40% of the year-over-year growth in revenue excluding interest income. SMBs that sell on marketplaces had 17% growth. Merchant services had 142% volume growth and enterprise payouts had 29% volume growth. Customer funds held by Payoneer increased 13% to $6.1 billion.

• Raised guidance for revenue and adjusted EBITDA by $30 million. Full year revenue expected between $950 million and $960 million, including revenue excluding interest income of $700 million to $710 million and $250 million of interest income. Revenue excluding interest income is raised by $20 million, implying full year growth of approximately 17% at the midpoint.
• Expect fourth quarter revenues excluding interest to grow mid-teens. Interest income revenue expectations increased by $10 million to $250 million for the year.
• Adjusted EBITDA guidance increased to $255 million to $265 million, representing an adjusted EBITDA margin of approximately 27% at the midpoint for the full year.

• Macro uncertainty, including U.S. election and broader geopolitical tensions, which could drive softening in consumer spending in the fourth quarter.
• Tougher comps in Q4 for certain segments, which could impact performance.

Q: The B2B SMB trends continue to show pretty strong trends this year. What surprised you the most to the upside as we progressed through the year?

A: John Caplan said the team had a tremendous performance on B2B, with every region exceeding the 25% B2B volume growth target in Q3, and the acceleration grounded in strategic initiatives like targeted acquisition, expansion into new verticals, and improved customer experience. They were initially brave to guide to 25% growth for B2B and then upped it to 30%, confident B2B will continue to grow faster than the overall business.

Q: You're forecasting a deceleration in 4Q in revenues, ex float. Could you just talk about those underlying assumptions? And the gross profit outlook implies transaction costs will be higher in 4Q. What's driving that step up?

A: Bea Ordonez said the guidance implies a deceleration in Q4 from roughly 22% core revenue growth to mid-teens, consistent with exit rate targets and medium-term goals. Macro uncertainty, including U.S. election and geopolitical tensions, could drive softening in consumer spending. Transaction costs step up due to seasonal mix shift to lower take rate ecom business, larger China sellers, merchant services effect, and beginning impact of interest income stepping down as interest rates come down Q: On the marketplace payouts business, how do you think about the sustainability of the market share gains that you are putting up?

A: John Caplan said the team globally has done an exceptional job winning share in China and expanding the marketplace ecosystem, with 17% volume growth in Q3 led by broad-based strength. They have a program like the green channel to help e-commerce sellers, and are focused on adding new marketplace relationships, confident in their position to continue outperforming as consumers spend strongly in the fourth quarter Q: How do you think about the transition mechanism of potential US tariffs?

A: John Caplan said a strong U.S. economy is good for global SMBs. In past experience with tariffs, they are absorbed through the supply chain effectively, and Payoneer is diverse and global, well-positioned with customers in non-national security related verticals Q: On the investment from sales and marketing, where is your headcount at today in terms of sales and as you target larger ICPs, what is the initiative to ramp up your sales engine?

A: John Caplan said the go-to-market team prioritized countries and verticals, incentivizing sales organization for high value ICPs. Headcount in go-to-market has been relatively stable, adding in high opportunity areas and reducing middle management. They have a program to help e-commerce sellers and are focused on adding marketplace relationships Q: If you were to outperform your expectations in 2025, where do you think that comes from?

A: Bea Ordonez said a robust and stable macro, continued performance in B2B with strong acquisition, retention, and focus on larger customers, and continued strong performance in marketplace with ability to drive growth through acquisition and retention Q: On the pricing roadmap and the opportunities, when do you think we can expect to see the pricing implications start to really benefit revenue yields?

A: Bea Ordonez said they continue to execute on pricing strategy, launched lite account in late 2023, expect $45 million of uplift in 2024 from pricing initiatives, with pricing an important arrow in the quiver to improve economics, penetration, and take rate trends Q: On ICPs, what's the long-term customer growth for these large ICPs?

A: John Caplan said they are focused on high value 10K plus ICPs, with volume and revenue growth accelerating for this segment. The opportunity is tremendous with many SMBs needing Payoneer's solution, and they are focused on penetrating geographies, industries, and networks, confident in strong growth ahead Q: On the pricing initiatives, is there a lot left there or a little left there? And how are you focused on cross sell and getting multiple products into some of your larger ICP hands?

A: Bea Ordonez said pricing is a long-term driver of future performance with more opportunity, including launching pro account early next year. John Caplan said there are high touch and product-based cross sell motions, with CSMs matching product set to high value ICPs, and bundles of products to be offered to customers Q: On the ARPU growth, how much of that is coming from mix, cross sell, pricing, and sustainability?

A: John Caplan said ARPU growth is driven by acquiring high value customers, pricing, cross sell, and tuck-in acquisitions. Bea Ordonez said they've continued to run a pilot on intranetwork flows, doing AB testing across significant corridors, and see it as a powerful driver of monetization Q: On float and margins in 2025, any more specific on order of magnitude? And where you expect incremental ex float margin expansion to come from?

A: Bea Ordonez said float income is expected to step down based on rate expectations, but will be partially offset by balanced growth and duration extension initiatives. They feel good about hitting medium-term adjusted EBITDA margin targets by driving core revenue growth and being disciplined operators Q: You mentioned Skuad. What's the opportunity there and how are you thinking about that as we enter 2025?

A: John Caplan said the Skuad team is integrating with Payoneer, product integration first phase completed, and they are focusing on cross-sell activity with existing customers. Payoneer sees opportunity to be a branded solution for full financial needs of cross-border SMBs, and are executing effectively to capture that opportunity Q: A quick update on the M&A environment as you continue to add more products to your platform?

A: John Caplan said they are excited about tuck-in acquisitions to extend product capability, drive cross-sell utility, and grow ARPU, with work underway to identify targets that fit culturally and product-wise, and will continue growth via M&A in 2025 and beyond