Payoneer Global Inc.

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to Payoneer's second quarter 2021 earnings conference call. At this time, all lines have been placed on mute to prevent any background noise. Following the speaker's remarks, we will open the lines for your questions. As a reminder, this conference call is being recorded. I'd now like to turn the call over to Ignatius Nojoku, Vice President of Relations, to begin.

Thank you. Before we begin, I'd like to remind you that today's call may contain forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including those set forth in our filings with the SEC and available in the investor relations section of our website, which may cause actual results to differ materially from any forward-looking statements we made today. These forward-looking statements speak only as of today, and the company does not assume any obligation or intent to update them except as required by law. In addition, today's call may include non-GAAP measures. These measures should be considered as a supplement to and not as substitute for GAAP financial measures. In most cases, reconciliation to the nearest GAAP measure can be found in today's earnings fresh release, which is available on the company's website. Hosting today's call are Scott Gallant, Payne's Chief Executive Officer, and Michael Levine, Payne's Chief Financial Officer. With that, I'd like to turn the call over to Scott to begin.

Thanks, Ignatius. Good evening, and thank you all for joining us on our first earnings call. Payoneer's transition in June to a public company was a significant milestone as we continue on our journey to be the world's go-to partner for digital commerce everywhere. I want to thank all of my Payoneer colleagues for making this a reality. I am so proud of everything we have accomplished and the positive impact we have on the world, and I am even more excited to take this next step on our journey together. For today's call, I would like to begin by providing a brief overview of Payoneer for those who are not as familiar with our story. I will then briefly share some customer highlights, recap our strategy to create long-term shareholder value and discuss our second quarter results. Payoneer is a unique global payment and commerce enabling platform that powers growth for digital businesses all over the world. We've built an amazing scale platform that makes global commerce local for millions of customers by leveraging several unique capabilities we've developed as a market leader over the past 15 plus years. Our core value proposition, even from the beginning, was global coverage and connectivity with localized capabilities. Connect once to Payoneer and get the whole world. we are able to move money around the world instantly for our customers in a trusted, compliant way, making it as easy to pay or get paid globally as it is locally, whether it be marketplace payments or B2B accounts payable, accounts receivable payments, which we call B2B APAR, which are payments directly between buyers and suppliers. There are powerful network effects in our business. We connect marketplaces and sellers, buyers and suppliers, creating a virtuous cycle where more suppliers bring more buyers and more buyers bring more suppliers. We are trusted worldwide by global banks, leading marketplaces and millions of small businesses, supporting more than 7,000 trade corridors and customers from more than 190 countries. Our customers and partners range from nine of the 20 largest companies in the world by market cap to some of the smallest businesses in the most remote emerging markets. We are a high-tech, high-touch business with modern APIs, mobile and machine learning infrastructure, a broad product suite, and also a global team that works closely and locally with customers, all focused on helping our customers grow. And we've built on our platform a growing set of services for our customers and partners who can manage the whole world through a single global multi-currency Payoneer account, which gives them access to local payments and local currency around the world. And also access to a broad suite of tools to support their growth. like MasterCard virtual commercial cards to pay their suppliers, working capital to invest in their business, Green Channel, which connects them to new sales channels, tax solutions, and more. And our compliance capabilities are a real competitive strength and differentiator. We have made significant investments in our compliance and risk infrastructure to ensure that we are a leader in this area and stay compliant with all regulations in the countries in which we operate. To underscore the strength of our capabilities in compliance and the trust our customers place in us, we often win deals because of the strength of our compliance program. This is all built upon our trusted, recognized global brand, which is what connects it all together. Our brand creates tangible financial value through low cost customer acquisition demonstrated by the more than 300,000 new applications we receive each month and our strong volume retention. Our platform really comes to life through our customers. Both small businesses and marketplace platforms continue to find tremendous value partnering with Payoneer. Let me walk you through a few customer stories from the second quarter of 2021. to help illustrate the unique value Payoneer provides and highlight some of the strong momentum we're building in the market. OmniSend, a provider of e-commerce email marketing and SMS automation based in the UK, highlights our unique value proposition for small businesses. To support OmniSend's diverse global collection and accounts payable needs, they were working with multiple European neobanks. OmniSend switched to Payoneer to use our global multi-currency account and access our superior global payment capabilities and our broad suite of product offerings, including our new MasterCard virtual commercial cards. They are now able to use Payoneer to get paid from around the world and also to pay suppliers, advertisers, and affiliates that are located across various geographies. CC Record, based in the UAE, is a digital music label and channel on popular music streaming platforms with over 10 million subscribers. CC Record is using Payoneer to receive music royalty payments and to pay over 150 artists around the globe. In addition, they also recently started to use Payoneer's new MasterCard virtual commercial card to purchase advertising across social media platforms. We are excited to continue to provide new value-added services to help CC Record grow their global business. I'm also happy to report that we have recently partnered with Bukalapak, an Indonesia-based e-commerce unicorn and leading marketplace with 100-plus million customers and 13.5 million sellers on its platform. Bukalapak has raised $1.5 billion to be the largest IPO in Indonesia. As their very first mass payout partner, Payoneer is facilitating Bukalapak's international expansion. They chose us because we're uniquely positioned in the market, offering capabilities to enable seamless and secure payment solutions for their overseas sellers in greater Southeast Asia and beyond. These customers highlight the exciting momentum for digital commerce all over the world and the unique value Payoneer is able to bring to our customers as we help them build and grow their global businesses. And what's most exciting is that we're just getting started, really just scratching the surface of our opportunity. We have a compelling growth strategy with four key drivers of long-term growth. First, we look to leverage our strong market momentum and scale to grow marketplace ecosystems and B2B APAR. We expect marketplace ecosystems to continue to demonstrate robust growth. We believe we are still in the early days of marketplace commerce, which is estimated to already be 62% of e-commerce overall. It is global and growing, and we have a strong market position with both marketplaces and marketplace sellers. And our B2B APAR offering has accelerated at scale with volume growing much faster than our business overall. And we see opportunities to continue to grow at a rapid rate for years to come. B2B APAR is now big enough that it starts to contribute to our overall growth rate. And it has also proven out our ability to upsell our customers and drive scale from new services. Second, we see big opportunities to expand the Payoneer platform ecosystem. As a global platform, we are engaging with a wide range of integrated partners, banks, mobile wallets, SaaS providers, and much more. Our Payoneer for Banks offering, for example, has many exciting opportunities that create value for our customers, for our bank partners, and for Payoneer, and reinforce the network effects in our business. Third, we are actively investing in new services. Merchant services, working capital, and our MasterCard virtual commercial card are big market opportunities, and we have meaningful structural advantages with our relationships, data, and global footprint. These will not be material contributors to growth in the near term. In fact, they will consume investment But over the medium to long term, we see opportunities for accelerating growth and scale contribution from these new services, which takes us to the fourth growth driver, our M&A strategy. In 2020, we acquired Optile to catalyze the launch of our merchant services business. This was a very strategic acquisition. We went on a global search for a specific type of merchant services platform and a team that we could build around and Optile was the best target we found and a great fit culturally. We see many opportunities to accelerate our ability to deliver more value to existing and new customers in more places by expanding our M&A efforts going forward. We see almost unlimited opportunities to expand our capabilities in e-commerce enablement, B2B payments, working capital, and global merchant services, to name a few, as well as deepen our presence in emerging markets. One area that isn't part of our strategy is processing high-risk transactions. So I would like to briefly address some questions we're hearing related to this. We used to support high-risk business, which started before Michael and I joined Payoneer. We made the decision years ago to exit that business and we no longer support it and haven't for quite some time. We have no plans to get back into it, period. As I think you can tell, we're very excited about our business and our future. We believe we are uniquely positioned to accelerate the growth of digital commerce all over the world for years to come and deliver compelling financial results. Now let's turn to our financial results for the second quarter. This quarter, we delivered a record $111 million in revenue, up 42% year over year, and well ahead of our internal targets. We processed $13.6 billion in volume in the quarter, representing year over year growth of 29%. When looking at the two-year volume growth rate between 2019 and 2021, we achieved a 45% compounded annual growth rate, consistent with the two-year CAGR from the first quarter. Our take rate was strong at 82 basis points, an increase from 75 basis points from the second quarter a year ago. Transaction costs were 26% of revenues, an improvement from 30% of revenues in the second quarter of 2020, as we continue to demonstrate the ability to drive increasing efficiency and incremental profitability from our transactions. We also delivered positive adjusted EBITDA for the second quarter, bolstered by our strong revenue growth and improved transaction costs, despite our increased investments. This quarter, we continue to execute well across the business as we pursue our huge market opportunity. Our strong revenues and momentum reinforces our commitment to our growth strategy and accelerating investments in the business and will drive sustained revenue growth of 20% plus well into the future. While these investments will impact near-term profitability, our scale, operating leverage, and highly efficient marketing position us to achieve long-term profitability and ultimately generate adjusted EBITDA margin of 20% plus. Finally, our strong momentum gives us confidence to raise our full-year guidance for revenue and adjusted EBITDA. Michael will provide further details on our financial guidance in just a few minutes. Next, I want to provide some insight into the macro environment we are seeing and how it impacts our business. We executed very well this quarter with record new customer additions, improving take rate, and strong profitability metrics. And while we still see strong demand and a long road ahead for digitalization trends globally, our volume was lighter than we expected for the second quarter. As always, we operate in a broader market context, and our performance is impacted by market forces, and COVID continues to impact short-term performance. First, while we are excited about the reopening occurring across the U.S. and in multiple places around the globe, We have seen the impact of the shift in consumer buying behavior causing slowing growth in e-commerce compared to the growth we saw in the peak of the pandemic. We continue to see strong two-year growth trends indicating the continued momentum of digital commerce, but a number of our partners and customers are experiencing slower growth trends compared to the very tough comps from 2020. In addition, global logistics is facing challenges with the cost of containers up substantially, with longer container turnaround times and intense competition for containers. While this has created some additional near-term headwinds, we do not expect this will have a meaningful long-term impact. In Europe, there has been the introduction of new VAT requirements that require VAT to be paid by marketplaces prior to dispersing funds to cross-border sellers. And international travel trends also remain soft, and we now don't expect this trend to improve through the remainder of 2021. As a result of these factors, we are lowering our volume guidance for the year. The diversification of our business, strong execution and positive take rate trends more than offset the lower volume, enabling us to increase our revenue guidance. We are monitoring all these trends and recognize that COVID continues to create short-term uncertainty. Now I'd like to walk through some of the operational highlights for the quarter that demonstrate the strength and momentum we are seeing in the business. We added a record number of new customers in the quarter. In addition, our customers remain loyal to the Payoneer platform as we continue to achieve net volume retention of more than 100% and with a payback period less than 12 months. Earlier this year, we announced a strategic partnership with eBay, which we started to onboard in the second quarter. While we are still in the early stages of our relationship, our partnership is progressing well as we are ramping the onboarding of eBay sellers on our platform. Our B2B APAR service continues to perform ahead of our expectations and is growing well faster than the business overall. Our newer services also all had strong performance. with working capital, merchant services, and our MasterCard virtual commercial card all exceeding our targets for the first half of the year. While we are still early, we believe these services represent compelling value for our customers and exciting growth opportunities for Payoneer. We are actively investing in our product offering in all of these areas. I want to highlight a few product introductions from the second quarter, which include introducing a cashback rewards program for our MasterCard virtual commercial card, expanding our working capital program to Mexican pesos and Canadian dollars for e-commerce merchants, offering new and improved KYC services for enterprises, and launching an artificial intelligence-based platform to detect fraudulent documents as part of our efforts to improve customer experience by introducing scalable automation. These are just a few of the exciting new services and enhancements we recently introduced for our customers. Finally, we continue to invest in people, and we are thrilled to have recently added new leadership talent like Ya Wen, who joined us from Amazon to be Vice President of Enterprise Americas. and Robert Clarkson, who joined us as Chief Revenue Officer to lead our global go-to-market activities, bringing relevant industry knowledge and leadership experience from leading companies like PayPal and American Express. To conclude, I am incredibly proud of our execution this quarter. While we see broader market forces impacting volume trends in the short term, We are increasing our guidance for revenues and adjusted EBITDA due to the strength of the Payoneer business. And we remain focused on the compelling long-term growth opportunity in digital commerce globally, which is sized in the tens of trillions of dollars and will enable us to sustain strong revenue growth trends well into the future. We are leveraging our global brand, expanding on our broad ecosystem of small businesses marketplaces and partners and we're going to continue investing in our industry-leading infrastructure and product platform while further enhancing our deep risk management and compliance capabilities we were built for the modern interconnected global digital economy and our competitive advantages are meaningful and this is why we continue to win in the market Before I turn the call over to Michael, I want to again thank everyone who has contributed to our success, our customers, our partners, our investors, and our employees. We wouldn't be here today without your tireless efforts and dedication. So thank you all very much.