Payoneer Global Inc.

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to Payoneer's first quarter 2022 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 available in the investor relations section of 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 as 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 Billitz, 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 first quarter 2022 results. Payoneer had a very strong first quarter. We delivered revenues and adjusted EBITDA well ahead of our expectations as we continued to drive strong new customer acquisition and increasing adoption of higher value services, especially in faster growing markets around the world. The Payoneer brand continues to be an important and growing asset as we see increasing demand among small businesses, marketplaces, and partners around the world eager to participate in the digital economy across a diverse range of vertical markets, including e-commerce, freelancing, content creators, 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 increasingly diversified. We had year-over-year revenue growth of over 50% for our fastest-growing markets, which include regions like Latin America, Southeast Asia and South Asia, the Middle East and North Africa, and excludes the developed markets of North America, Europe, and Greater China. We see tremendous untapped potential in developing markets globally, and our go-to-market investments are delivering strong results as we continue to have a new customer payback period globally of less than 12 months. Partnerships are increasingly important contributors to this growth. and we are excited about the potential to accelerate our momentum with a growing range of partners, including SaaS platforms, banks, and mobile wallets, which help us efficiently acquire new customers and also to offer our joint customers a unique integrated experience. We were excited to launch a new partnership this quarter with Bcash, the largest mobile wallet in Bangladesh. and 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 those services. These higher-value services are key to our effort to become the financial partner of choice for our customers and to generate higher take rates from our customer relationships. Broadly speaking, there are two types of higher-value services – The first is higher-value accounts receivable services for SMBs. Getting paid is the lifeblood of the business, and our primary focus is improving the way SMBs get paid by providing differentiated tools to improve their global sales. The second type of higher-value service is higher-value account services through which we provide SMBs the financial services they need to manage their global business after they have gotten paid. Our global B2B APAR offering is a higher-value accounts receivable service for SMBs, providing small businesses with better ways to get paid from their B2B trading partners. Once again this quarter, B2B APAR was a key contributor to our growth. B2B APAR volumes grew approximately 57% year over year, with a two-year CAGR of over 90%. B2B APAR represented 11% of our volume, up from 8% a year ago. We are still in the very early stages of this multi-trillion dollar addressable market opportunity. We have been increasing our investment in B2B APAR, hiring more sales resources, and working with our global teams to acquire new customers and to upsell B2B APAR to existing Payoneer customers. The majority of our B2B APAR customers are new to Payoneer which demonstrates the strength of the Pioneer brand and our ability to acquire and grow a new complementary business at scale, all while pointing to the significant incremental addressable market opportunity we have in B2B APAR. And merchant services is another higher value accounts receivable service and one of the largest market opportunities in digital commerce as we work to enable businesses around the world to to simplify the complexity of getting paid by consumers globally. We are especially excited about Payoneer Checkout, our offering for small businesses. While it is still in the very beginning of our gradual rollout of Payoneer Checkout, we are getting very positive customer feedback, and we are building momentum with a growing pipeline of new customers and with new partners for what we expect will be an important growth driver for many years to come. Our Payoneer Commercial MasterCard is a good example of a higher-value account service, generating higher value from the Payoneer account after our customers have gotten paid. The Commercial Card enables our small business customers to better manage their business and drive their growth, and also saves our customers money, while generating a higher-than-average take rate for Payoneer. This is a compelling tool for businesses that aren't based in the U.S., but are selling globally. During the first quarter, we continued to increase our penetration of customers for our commercial card and introduced more customers to our cashback rewards programs. We are still in the relatively early stages of growth for our commercial card, and we continue to be optimistic about the long runway ahead for this exciting opportunity. Overall, these higher value services are core to our strategy to drive an important evolution in our business and as Payoneer customers are increasingly using our platform for a broader set of more sophisticated needs. Many small businesses are using Payoneer more as their primary global financial partner than as a payment processor. In aggregate, as of March 31, 2022, 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 this, I'm going to share the stories of a few of our inspiring customers and partners that highlight the exciting opportunity for entrepreneurs around the world and help demonstrate how Payoneer is an important partner supporting their growth. Tata Electronics is a Payoneer customer from Southeast Asia that sells electronic parts to consumers worldwide. Tata is one of our Payoneer checkout customers. and has integrated Payoneer checkout into its web store to process payments from its customers, who are largely based in the United States, Europe, and Australia. Once we settle the funds to their Payoneer account, CADA is then using their Payoneer global account to manage and distribute their funds across multiple entities, countries, and banks around the world. BCash, a leading mobile wallet in Bangladesh with over 50 million registered customers, launched in Q1 as a Payoneer for banks partner. BCash has integrated Payoneer into their mobile wallet to enable freelancers that use Payoneer for their cross-border sales to get real-time settlement from their Payoneer accounts into their BCash accounts. We are excited to collaborate with BCash to drive cost-effective new customer acquisition for Payoneer to improve customer experience for our shared customers, and to support the continued development of the services exports ecosystem in Bangladesh. And Shein is a leader in offering fast fashion for digitally savvy consumers and one of the fastest growing e-commerce businesses in the world. Shein has partnered with Payoneer to support and facilitate Shein's global expansion and to open up new Shein marketplaces. Our first launch together is in Brazil, with Xi'an using Payoneer to pay marketplace sellers. In these examples, we have entrepreneurs tapping into the digital economy to grow globally, and Payoneer is helping them achieve their potential. That's why we are continuing to make significant investments in R&D to broaden our product offering and sales, as we have demonstrated that our go-to-market investments have a very positive ROI. These investments together 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. We also executed very well on our investment plan in the first quarter with hiring generally in line with our expectations. All of this momentum translated into strong financial results for our first quarter. We generated revenues of $137 million, an increase of over 36% compared to prior year results. Adjusted EBITDA was $10 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, and the growth of higher value services, our take rate increased meaningfully to 94 basis points from 75 basis points in the prior year's first quarter. We continue to execute well on our multi-year strategy, and our continued solid financial performance reaffirms our ability to create strong value and monetization. And we remain very excited about the long-term market opportunity for digital commerce globally and very confident in our strategy and to be the world's go-to partner for digital commerce everywhere. We also continue to be focused on the safety and well-being of our employees and customers in Ukraine. People are at the heart of everything we do, and our thoughts are with them in what continues to be a very challenging time. In our last call, the war in Ukraine was in its early stages. Since then, we have been proactively reducing our activity in Russia and Belarus relocating or terminating all of our contractors in those regions, turning off new customer sign-ups at painter.com, and working collaboratively with partners to reduce their activity, all while implementing the sanctions requirements in the region. In addition, we have made donations to humanitarian causes in Ukraine and are working to support Ukrainian refugees. The war is impacting our 2022 business results, though so far only moderately. Russia and Belarus together were expected to represent less than 3% of our revenues, and combined with Ukraine, less than 10% of our revenues. In the first quarter, there was less revenue impact than we initially expected, as our partners are gradually curtailing their activity in Russia, and fortunately, because most of our employees and a number of our Ukrainian customers have found their way to safety and have continued to find ways to work, albeit at reduced levels. The situation continues to be unpredictable and evolving, and we remain concerned for our colleagues and customers in Ukraine. Given our strong financial position, our strong financial performance, our brand momentum, and large market opportunities, I remain very optimistic about our future. We are building on a solid foundation and 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 small businesses, deep risk management and compliance expertise, our amazing team, and our scalable business model. And now with Payoneer Checkout joining B2B APAR as promising higher value accounts receivable services and strong growth in developing markets, our future is bright indeed. 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. I'll now hand it over to Michael to discuss financial results and forward guidance in more detail. Thank you, Scott. Indeed, it was a very strong quarter. Q1 revenue increased 36% year-over-year to $137 million. As Scott mentioned, we attracted many new customers, especially from fast-growing regions such as Latin America, Southeast Asia, and the Middle East, which in general have higher than average take rates. We also benefited from strong customer adoption of our higher value services, such as B2B AP, AR, and commercial card. The Q1 take rate was 94 basis points, a significant increase from 75 basis points in Q1 of 2021 and 86 basis points in Q4 of 2021, primarily driven by continued adoption of higher value services and an increased mix in high growth developing markets with higher take rates along with non-volume-based services. Q1 volume increased 10% year-over-year to $14.6 billion. Solid volume growth across a wide range of verticals and geographies is partially offset by softness in e-commerce, which continues to face headwinds caused by changes in consumer purchasing behavior, inflation, and supply chain disruptions. Q1 B2B APAR volume grew 58% year-over-year. Q1 transaction costs were $25.6 million, representing 18.7% of revenues, an improvement from 20% in Q1 2021. The improvement in transaction costs as percent of revenues is driven by operating leverage derived from our scale, which is reflected in improved pricing from our bank and processor costs. Q1 total operating expenses, including transaction costs, were $143.3 million, up 40.8% from Q1 2021. Excluding stock-based compensation, Q1 total operating expenses increased 34% over Q1 2021. The biggest component of our operating expense is our labor costs. In Q1, we met our hiring expectations and continued to make significant investments particularly in R&D and sales, while also investing in our global technology infrastructure to support onboarding of additional customers, enhancing our regulatory compliance capabilities, and expanding our transactional capacity. Q1 adjusted EBITDA was $10.4 million compared to $7.8 million in the first quarter of last year, an increase of 33%. Q1 net income was $20.2 million compared to a net loss of $3.5 million in the first quarter of last year. The main driver of the increase in net income was a $31 million gain from change in fair value of warrants. Q1 basic earnings per share was success based on 342 million weighted average basic shares outstanding and Q1 diluted earnings per share based on 366 million weighted average diluted shares outstanding. We ended the quarter with cash and cash equivalents of $466 million, relatively flat with the end of 2021. Customer funds grew in Q1 by over $200 million to $4.6 billion. We continue to work on increasing the interest earning potential of our cash balances without changing our risk profile. Turning to our outlook for full year 2022, we're happy to share that we are raising our prior guidance provided in March. Based on our strong first quarter results and our view into April, together with our current assessment of how our business is trending in light of the broader macroeconomic and geopolitical environment, we are raising our revenue guidance to $550 million to $560 million. reducing transaction costs as a percent of revenue to 21.5%, and increasing our adjusted EBITDA guidance to be between negative $10 million to negative $20 million. We believe our go-to-market investments in higher-value services, such as B2B APAR and commercial cards, will continue to generate above-average revenue growth, and we expect to benefit from continued strong growth in developing markets. Although we expect softness in e-commerce trends to continue for some period of time due to pressures in the broader global economy, we believe that growing international travel and increased interest income due to the recent anticipated Federal Reserve rate hikes will help grow overall revenues. Regarding the situation in Ukraine, we had previously shared that we were zeroing out the remaining 10 months of revenues for Ukraine, Russia, and Belarus, which equated to approximately $46 million. As Scott mentioned earlier, while the situation in the region remains fluid, we now believe it is more likely we will retain some of our existing business in Ukraine, while the business in Russia and Belarus will continue to decline. We have now increased our forecast to assume approximately 50% of the original forecasted revenue collectively for all three countries for the remaining three quarters of the year. However, there is still tremendous volatility and a wide range of possible outcomes. Based on our assumptions and the timing of events, we expect total Q2 revenue will be below Q1 revenue as a result of the impact from Ukraine, Russia, and Belarus. We expect continued strong take rate performance in 2022 as our fast-growing developing markets and higher value services increase and mix. compared to the lower take rate e-commerce vertical, which is growing more slowly. We expect transaction costs over 2022 to be approximately 21.5% of revenues, an improvement from our previous guidance of 22%. This improvement comes from reducing our banking costs, slightly offset by higher borrowing costs for our working capital products, as well as new costs related to our growing merchant services business. As previously mentioned, We are also revising our 2022 adjusted EBITDA guidance to do between negative $10 million to negative $20 million. This improved guidance is the result of our revenue growth and lower transaction costs as a percent of revenue. We will continue to pursue our investment strategy, which we believe will not deviate much from our initial plan. In conclusion, our Q1 success once again demonstrated our ability to deliver strong results even as we face the challenging macro environment with the war in Ukraine and e-commerce headwinds. We have built a resilient business model that benefits from a diverse set of revenue drivers, and we see positive trends such as growth in B2B APAR and strong customer adoption of our commercial card offering. We will continue to benefit from increased cross-border travel, interest income, and go-to-market investments in high-growth developing regions. As we increase our investment in these developing markets and launch new products, we believe there are additional short-term and long-term growth opportunities that can add upside to our guidance. On behalf of Scott and myself and the rest of the Painter 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.

Absolutely. If you would like to ask a question, please press star followed by 1 on your telephone keypad. If for any reason you would like to remove that question, please press star followed by 2. Again, to ask a question, press star 1. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. We will call here briefly as questions are registered. The first question comes from Bob Napoli with William Blair. Please proceed.