Payoneer Global Inc.

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to Payoneer's fourth 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. 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 are available in the investor relations section in our website. Actual results may differ materially from any forward-looking statements we make 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 a substitute for GAAP financial measures. Reconciliation to the nearest GAAP measure can be found in today's earnings press release, which is available on the company's website. Hosting today's call are Scott Gallat, Payoneer's Chief Executive Officer, and Michael Levine, Payoneer's Chief Financial Officer. With that, I'd like to turn the call over to Scott to begin.

Good afternoon, and thank you all for joining us today to discuss our fourth quarter 2021 results. Payoneer had a very strong fourth quarter. We delivered revenues and adjusted EBITDA well ahead of our expectations as we continue to drive strong new customer acquisition and increasing adoption of higher value services, especially in faster growing markets around the world. We are building exciting momentum with small businesses, marketplaces, and partners globally who rely on Payoneer to provide them with the growing suite of services they need to pay and get paid, to grow and to manage their digital businesses. The Payoneer brand is an important and growing asset as we see increasing demand among small businesses to participate in the digital economy across a diverse range of vertical markets, including e-commerce, freelancing, social platforms, digital marketing, remote work, travel, and distance learning. Payoneer has emerged as a leading on-ramp to the global digital economy for small businesses worldwide, reinforcing our growing role as the world's go-to partner for digital commerce everywhere. And our growth is truly global and diversified. We had year-over-year growth of over 50% in regions like Latin America, Southeast Asia, and South Asia, the Middle East, and North Africa. We see tremendous untapped potential in developing markets globally, and our go-to-market investments in these exciting markets are delivering strong results as we continue to have a new customer payback period globally of less than 12 months. We also continue to build momentum with the Pay In Your Partner ecosystem. One of our key initiatives is growing our bank partnerships as we collaborate with banks and digital wallets around the world to acquire new customers, and to offer our joint customers a unique, integrated experience. We have banked partnerships live on four continents, and in the fourth quarter, we once again had triple-digit growth with these partners. We have a strong pipeline of additional partner opportunities, and we expect partnerships to be an important contributor to our future growth. We are particularly excited by the progress we're making executing on our strategy to broaden Payoneer's portfolio of higher value services and to increase the number of Payoneer customers using these services. These higher value services collectively represent our efforts to become the financial partner of choice for our customers and to generate higher take rates from our customer relationships. Once again, our global B2B APAR offering was a key contributor to our growth in the fourth quarter. B2B APAR volumes grew over 75% year over year, accelerating sequentially from the third quarter. B2B APAR represented 11% of our volume, up from 7% a year ago. We are still in the very early stages of this multi-trillion dollar addressable market opportunity to help small businesses more efficiently transact with their trading partners worldwide. We are increasing our investment in B2B APAR, hiring more sales resources, and working with our global teams to acquire new customers and upsell B2B APAR to existing Payoneer customers. The majority of our B2B APAR customers are new to Payoneer, which demonstrates the strength of the Payoneer brand and our ability to acquire and grow a new complementary business at scale, all while also pointing to the significant incremental addressable market opportunity we have in B2B APAR. We are also seeing strong customer demand for our Payoneer Commercial MasterCard, which enables our small business customers to use their Payoneer global multi-currency account to pay international suppliers, buy advertising, and make other purchases to support the growth and management of their business. This is a compelling tool for businesses that aren't based in the U.S., but are selling globally. During the fourth quarter, we ramped up our acquisition of customers for our commercial card and also introduced more customers to our cashback rewards programs. together resulting in customer spend more than doubling from the third quarter. The Payoneer Commercial Card is a higher value service that helps our customers better manage their business and drive their growth, that saves our customers money, and then generates a higher than average take rate for Payoneer. While we are still in the relatively early stages of growth for our commercial card, we are optimistic about the unique value proposition we offer and the long runway ahead for this exciting opportunity. Working capital is another important driver of value for our customers and partners. In the fourth quarter, we announced our partnership with Walmart, collaborating to provide Walmart sellers with easier access to the funds they need to grow their businesses. And merchant services. This is one of the largest market opportunities in digital commerce. We continue to gain traction with businesses of all sizes around the world that are choosing Payoneer technology to simplify the complexity of their global consumer payments. This is a great opportunity to upsell existing customers and acquire new customers. We're especially excited about Payoneer Checkout, our offering for small businesses. While it is still very early in our gradual rollout of Payoneer Checkout, we are getting positive customer feedback and we are building momentum for what we expect will be an important growth driver for many years to come. Overall, these new services are core to our strategy to drive an important evolution in our business as Payoneer customers are increasingly using our platform for a broader set of more sophisticated and higher value services. Many small businesses are using Payoneer more as their primary global financial partner than as a payment processor. In aggregate, as of December 31st, 2021, our customers maintained more than $4 billion of balances on the Payoneer platform pending their use of one or more of our services. To help illustrate our customer relationships, I'm going to share a couple of stories of some of our inspiring customers that highlight the exciting opportunity for entrepreneurs around the world and help demonstrate how Payoneer is an important partner supporting and enabling their growth. AutoDS, a dropshipping platform headquartered in Israel, helps over 10,000 merchants throughout the U.S. and Europe to automate their online sales processes. AutoDS relies on Payoneer's B2B APAR services to get paid by its clients while integrating with our API to enable other Payoneer customers to pay AutoDS with their Payoneer account balances. Another example is TrueSooth from Australia, a brand created by women for women delivering breast pain relief products. They use Payoneer to get paid for their sales on e-commerce marketplaces in the U.S., as well as using B2B ATAR to get paid for their B2B transactions with international wholesalers. They use the funds in their Payoneer multi-currency account to pay their suppliers and use the Payoneer commercial MasterCard to pay for online business expenses. In these examples, we have entrepreneurs tapping into the digital economy to grow and Payoneer is helping them achieve their potential. That's why we are making significant investments in two primary areas of our business. First, R&D to broaden our product offering to enable our customers to have more and better tools to help them grow. And second, sales to increase the capacity of our local teams around the world to acquire new customers and serve and upsell services to our existing customers. as we have demonstrated that such investments have a positive ROI. These investments enable us to deliver more value to our customers, to further strengthen our competitive edge, and to improve our ability to monetize the volume on the Payoneer platform while also increasing the level of engagement with our customers. All of this momentum translated into strong results for our fourth quarter. We generated revenues of $139 million, an increase of over 47% compared to prior year results. Adjusted EBITDA was $13.5 million, which highlights the operating leverage in our business model, even while we continue to ramp up investment in the business. As a result of our positive momentum in an increasingly diverse set of geographies and vertical markets, as well as the growth of higher value services, our take rate increased meaningfully, to 86 basis points from 68 basis points in the prior year. Our continued solid financial performance reaffirms our ability to create strong value and monetization, and we remain excited about the long-term market opportunity for digital commerce globally and confident in our multi-year strategy to be the world's go-to partner for digital commerce everywhere. Now let's take a look ahead at 2022. When we went public, we shared that we see a big opportunity to support many more digital businesses around the world with more services and that we are committed to delivering sustainable shareholder value creation over the long term. We laid out our multi-year strategy to drive revenue growth in the short term and sustained 20 plus percent revenue growth and 20 percent plus EBITDA margins over the long term. The strategy called for us to put significant resources towards acquiring more customers with increased investments in developing markets like Latin America, Central and Eastern Europe, and South Asia, the Middle East, and North Africa. To also expand our services to support customers across all digital sales channels and to increase the number of higher value services we bring to our customers through their Payoneer global account. When we went public, We set expectations that we would deliver 25% revenue growth and have negative adjusted EBITDA in 2021 and 2022 while we ramp up investments. I'm thrilled that in 2021, we executed ahead of our expectations on almost all dimensions of our strategy, well exceeding our revenue growth and adjusted EBITDA targets and actually delivering positive adjusted EBITDA even while we have been increasing our investments as planned. In short, We executed very well in 2021 and reinforced our conviction that our multi-year strategy is on target and that we are generating positive returns from our investments. We are really excited for 2022 and we will continue to increase our investments consistent with our multi-year plan. We see great opportunities to invest in several important areas that we expect will drive sustained long-term revenue growth and profitability, including more sales resources, especially in developing markets, increased investment in B2B APAR with more go-to-market and R&D resources, significant investments in R&D overall to expand our platform and develop additional services for customers, especially in merchant services, and continued investments in compliance and risk management to maintain our competitive advantage. Given our strong position, brand, momentum, and large market opportunities, I'm really optimistic about our future. We are building on a solid foundation and really just beginning to explore our potential as a global platform enabling businesses to succeed across all digital sales channels and with the broad range of services that they need. We have a highly resilient business model with a differentiated competitive advantage. We win in the market because of our global brand, our strength in developing markets, our strong ecosystem of partners and marketplaces, the breadth of our offering for our customers, deep risk management and compliance expertise, our amazing team, and our scalable business model. I would like to thank the Payoneer team for their great efforts to deliver real value for our customers, to deliver positive financial results, and to set us up for sustainable long-term success. Our team really is the key to our success. So we're also making meaningful investments in employee compensation, employee experience and employee development. People really are at the heart of everything we do. And we are particularly focused right now on the safety and wellbeing of our employees and customers in Ukraine. And our thoughts are with them during this challenging time. The current conflict is causing some disruption to our business and will likely have some impact on our 2022 business results. Russia and Belarus together represent less than 3% of our revenues, and combined with Ukraine represents slightly less than 10% of our revenues. Altogether, we had projected these countries to generate revenues of approximately $46 million during the remaining 10 months of the year. As the situation in Ukraine is quite new and evolving very quickly, we are analyzing a variety of scenarios and we have not yet updated any of our plans for the year. We remain both concerned for our colleagues and customers in Ukraine and confident in our ability to deliver growth in 2022 and beyond. I'll now hand it over to Michael to discuss financial results and forward guidance in more detail.

Thank you, Scott. And I'm very happy to share more detail on Q4 and discuss the strong exit philosophy that helped us achieve a great overall year in 2021. And more importantly, has positioned us well for 2022 and beyond. In the fourth quarter, revenue increased 47% year over year to 139 million dollars. As Scott mentioned, the strong Q4 performance was driven by new customer ads, continued momentum with marketplace wins and new partnerships, and customer adoption of higher value services such as B2B APAR, working capital, and paying your commercial card. To illustrate the impact of some of these higher value services, fourth quarter volume for B2B APAR grew by over 75% year-over-year and represented approximately 11% of total volume for the quarter compared to 7% of total volume in the fourth quarter of 2020. Keep in mind that B2B APAR has a higher than average take rate because we often collect revenues on funds coming in as well as on funds going out. So the take rate is currently running in the ballpark of approximately one and a half times that of our average take rate. Thus, B2B APAR is already in the mid-teens as a percent of total revenue. The continued growth of higher value services High-growth markets and non-volume-based services helped drive the Q4 take rate to 86 basis points, a significant increase from 68 basis points in Q4 2020. As expected, it was a holiday season mix shift to e-commerce and large sellers with lower pricing, so we saw a slight dip from the 90 basis points we reported in Q3 2021. In the fourth quarter, volume increased 16% year over year to $16 billion. We had good quarter-over-quarter growth in e-commerce during the holiday season, but changes in consumer purchasing behavior and lingering supply chain disruptions that impacted e-commerce businesses weighed on our year-over-year volume growth. Over the last two years, our fourth quarter volume grew at a 34% compounded annual growth rate. Nevertheless, revenue continues to grow faster than volume based on the positive transition in our business to higher value services and customer segments. Thus, volume growth alone is not fully reflective of the overall health of the business. Q4 transaction costs were $28 million, representing 20% of revenues, a significant improvement from 25% in Q4 2020. The improvement is driven by ongoing benefits from operating leverage derived from our unique scale and improved risk management. Q4 revenues less transaction costs. increased 57% year-over-year to $111 million, representing 80% of revenues, an increase of over 500 basis points from the same period one year ago. Q4 total operating expenses, including transaction costs, were $143 million, up 38% from Q4 2020. We made the most significant investments we've ever made in our business in 2021. And as we continue to invest for future scale, particularly in R&D and sales and marketing to drive future growth, excluding stock-based compensation, Q4 total operating expenses increased 28% over Q4 2020. Q4 adjusted EBITDA was $14 million as compared to a loss of $1 million in the fourth quarter of last year. Net loss for Q4 was $19 million, or a loss of six cents per share, based on weighted average basic shares outstanding of $340.6 million. I'd like to note that in the investor section on our website, we have updated our detailed share count, which addresses the current basic shares outstanding, as well as all equity awards, contingent shares, and related restrictions or exercise prices, as the case may be. We ended the quarter with cash and cash equivalents of $466 million. There is an additional $4.4 billion of customer funds on our year-end balance sheet, more than half of which are held in interest-bearing accounts. The interest on these funds is recorded as revenues. While not meaningful in a low-interest rate environment such as we have today, we could see upside if interest rates increased. Full year 2021. This strong quarter capped off a very successful year. Revenue for the full year grew 37% to $473 million. Revenue less transaction costs for the full year 2021 increased 50% to $372 million. And adjusted EBITDA was $28 million, an increase of $22 million over full year 2020. Now, turning to our outlook for 2022. Based on current business trends and the situation in Ukraine, we would like to walk you through the puts and takes of our full year 2022 guidance as follows. Our initial outlook assumed revenue in the range of $576 million to $586 million, which would reflect year-over-year growth of 22 to 24%. However, given the rapidly changing situation and uncertainty in Ukraine, we felt it was important to adjust our guidance to bookend the possible impact to our results. As Scott mentioned, Russia and Belarus combined represent less than 3% of our revenues, and together with Ukraine, are slightly less than 10% of revenues. Altogether, these countries are projected to generate approximately $46 million of revenue during the remaining 10 months of this year. Therefore, we have taken a conservative approach and reduced our guidance range revenues by $46 million, which is 100% of the expected revenue from Ukraine, Russia, and Belarus for the remainder of the year. The result is revenue in the range of $530 million to $540 million, which would reflect year-over-year growth of 12% to 14%. If we exclude Ukraine, Russia, and Belarus, we expect the rest of our global business to grow 22% to 24%. Our initial outlook is modeled based on revenue growth being driven approximately equally by volume growth and take rate improvement over 2021. We anticipate customers' adoption of higher value services such as B2B APAR, Payoneer Commercial Card, and merchant services to support a higher take rate. Our volume expectations include assumptions about the current inflationary pressures, residual supply chain issues, and evolving consumer behavior. We expect transaction costs to be approximately 22% of revenues. We expect cost benefits from the ongoing scaling of the platform, which will be slightly offset by higher borrowing costs for our working capital products, as well as new costs related to our growing merchant services business. Our stellar 2021 results demonstrated our ability to acquire customers at scale and sell new, higher-value services to our existing customer base. As a result of this success, we are continuing with our plan to increase our OpEx investments in 2022. These investments are focused on go-to-market, mainly adding more sales resources in high-growth markets, and R&D, mainly focused on our higher-value services, such as B2B APAR, Payoneer Commercial Card, and Merchant Services, as well as compliance and risk management capabilities to further differentiate our platforms. Our initial outlook, in our initial outlook, we forecasted adjusted EBITDA to be breakeven or slightly positive for the year, reflecting the increased investments that I just mentioned. Our approach has been and will continue to be focused on making the right long-term decisions to build a much larger scale business. While these investments will impact near-term profitability, our demonstrated operating leverage, an efficient customer acquisition model, positions us to achieve our long-term growth and profitability targets. As the situation in Ukraine is fluid and evolving quickly, we have not yet updated any meaningful changes to our investment plans. So the adjusted EBITDA ranges shown in the table assume our current investment plans are unchanged. As such, our adjusted EBITDA guidance is negative $25 million to negative $35 million. in conclusion q4 was a great end to a terrific year for paying near our ability to execute throughout 2021 and perform despite supply chain and lingering pandemic challenges reinforces our confidence in our multi-year growth strategy to invest aggressively to build a much larger platform and to be the go-to partner for the future of digital commerce Despite the very unfortunate situation in Ukraine, our management team is highly experienced and always manages for the long term. We have built a global business with a diverse and resilient set of customers who understand the digital commerce landscape and will adjust as needed over time. Our guidance demonstrates our ability to produce double-digit growth, even in a downside case scenario during this once-in-a-generation event. We have never lost our entrepreneurial spirit nor our confidence in the growth of global commerce. As such, we plan to use a combination of organic, inorganic, and partnering opportunities to drive sustainable and profitable long-term growth. On behalf of Scott and myself and the rest of the Payoneer management team, we thank you all for the continued interest and support. We are now happy to answer any questions you may have. Operator, please open the line.