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spk01: As a reminder, this conference call is being recorded. I would now like to turn the call over to Michelle Wang, Payoneer's VP of Investor Relations.
spk02: Thank you, Operator. With me on today's call are Payoneer's Chief Executive Officer, John Kaplan, and Payoneer's Chief Financial Officer, Bea Ordonez. Before we begin, I'd like to remind you that today's call may contain forward-looking statements which are subject to risks and uncertainties. For more information, please refer to our filings with the SEC, which are available in the Investor Relations section of Payoneer.com. 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 in addition to and not instead of GAAP financial measures. Reconciliation to the nearest GAAP measure can be found in today's earnings press release, which is available on our website. Additionally, please note we have posted an earnings presentation supplement alongside our earnings press release on investor.payoneer.com. All comparisons made on today's call are on a year-over-year basis unless otherwise noted. With that, I'd like to turn the call over to John to begin.
spk05: Good morning. Thank you for joining us today. In 2023, we delivered 32% revenue growth and 25% adjusted EBITDA margins. Our strong performance is the direct result of our focus on our ideal customers, interest we earn on the funds our customers hold in their Payoneer accounts, and our disciplined approach to unlocking increased efficiency. As we exit 2023, the key performance indicators of our business are all pointing in the right direction. We have approximately 2 million active customers and 516,000 who meet our ideal customer profile or ICPs. We grew our ICPs by 6% in 2023. We increased ARPU for our 2 million active customers by 36% and by 9% when you exclude interest income. We generated $66 billion of annual volume, up 11%. We grew total take rate by 21 basis points in 2023. We are trusted by our customers, evidenced by over $6 billion of customer funds held in Payoneer accounts. Customer funds were up 9% year over year. 2023 adjusted EBITDA of $205 million, more than quadrupled versus 2022. I'd like to put our results in context. We've discussed before that we primarily serve SMBs directly, although we also have direct relationships with certain enterprise clients. Our SMB customer business represents 75% of our volume and approximately 90% of revenue. SMB customer volume enters the Payoneer account from marketplaces B2B transactions, direct to consumer sales from a customer's web store, and when a customer loads funds from their local bank account. SMB customers use our Payoneer account to hold multi-currency funds and manage their accounts receivable and accounts payable with overseas customers, suppliers, vendors, and partners. Our SMB customers are valuable because we have a branded relationship with them, and are able to cross sell to them more of the Payoneer financial stack over time. We also operate an enterprise business in which large marketplaces use our payment rails to make payouts directly to a payee's local bank account. This is a scaled, lower risk offering and our enterprise clients benefit from our extensive breadth and geographic reach. And because we send payments directly to the recipient's bank account, We don't own the end SMB relationship and have therefore limited opportunity to drive greater monetization or product adoption over time. To grow our business, we are increasing the number of ICPs on our platform, which in turn can drive more volume into paying your accounts. We are also enhancing our AP tools and adding to our financial stack to increase our utility to customers. I became the sole CEO of Payoneer almost exactly one year ago today. Reflecting upon the progress we have made in 2023, some highlights. We bolstered the experience and skills among our executive team and our board of directors. We've become an even more SMB-centric company, and our focus on ICPs, ARPU, and cost to serve is resulting in greater organizational clarity and focus, which we believe will drive long-term profitable growth. We delivered 6% ICP growth in 2023, including faster growth of 13% in our higher take rate regions of APEC, SMEA, and LATAM. We also delivered 15% growth in our larger, higher value ICPs that do more than $10,000 a month in volume. We aligned the market organization to our most valuable customers and biggest opportunity markets. We recruited new leadership to drive the modernization of the Payoneer platform. We are increasing the velocity of which we release new tools and features and are focused on driving improved monetization, faster activation, and increased customer engagement. We announced two acquisitions in 2023, closing a small acquisition in the data space to support our working capital business, and we continue to work towards closing our acquisition of a licensed PSP in China, which is subject to local regulatory approvals and customary closing conditions. We drove our account self-funding to nearly $500 million in 2023 through the strength of our AP solutions. This represents a new source of volume entering Payoneer accounts. We meaningfully reduced the operating losses on non-ICP customers. In 2022, non-ICPs resulted in approximately $25 million of operating losses. We've cut that by a third in 2023 as we increased our monetization of this segment via our pricing initiatives. We lowered the average cost of a customer inquiry by over 40% as of the fourth quarter versus a year ago. We reduced our total employee headcount by 8% year over year. And we initiated Payoneer's first share repurchase program in May of 2023, and in December increased the authorization to up to $250 million. We are proud of the hard work by our team to deliver these strong results. To accelerate our progress, we're working to drive ICP acquisition, increase retention, and improve customer monetization. In our B2B and merchant services businesses, we believe we have a $6 trillion opportunity and are seeing product market fit and strong customer demand, specifically in B2B. Our B2B business drove over $7 billion of volume into Payoneer accounts in 2023, and we expect volumes to grow by 25% in 2024. B2B growth accelerated in the second half of 2023 as we saw improved acquisition in the service-oriented markets we are focused upon. We delivered 28% volume growth in APAC, CMEA, and LATAM in 2023, and these fast-growing, higher take rate regions now make up 42% of B2B volume, up from 35% in 2022. In 2024, we plan to continue focusing our B2B sales efforts on large ICPs in service-oriented markets and further differentiate our service level based on customer size. We also plan to introduce more customer segment specific pricing within the B2B business to drive greater stickiness and expand on product functionality to better cater to the needs of our larger ICPs. We're confident that successful execution of these initiatives will drive accelerating growth in our B2B business. Our merchant services business ended its first full year with volume growth of over 400%. Fourth quarter volume of over $100 million was up 61% sequentially and included record sales during the Black Friday and Cyber Monday weekend. Our customers that sell direct to consumers want to receive this portion of their international AR into their Payoneer account. We believe the $150 billion DTC payments market is a natural extension for Payoneer, given our strong branded relationships with good sellers in these emerging markets. Today, we have over 600 customers in our merchant services business using our checkout product, approximately half of which are net new to Payoneer. As of December, merchant services customers on average receive over $60,000 of monthly volume, significantly larger than our ideal customer profile. As we introduce this product to the market, we anticipate our momentum to continue. We have strong momentum coming into 2024. We are making progress at pace to capture our multi-year opportunity and to more reliably and securely connect the world's 80 million SMBs to the digital global economy. I'll now hand it over to Bea to discuss financial results and our 2024 guidance in more detail.
spk00: Thank you, John, and thank you to everyone for joining us. 2023 was a transformative year for Payoneer. We shifted the company's focus to acquire and better serve ICPs, made meaningful progress in optimizing our ARPU, and delivered improved operating efficiency. We were excited to hold our first Investor Day in September. We reintroduced the company to investors and laid out our strategy for capturing a $6 trillion market opportunity. We initiated Payoneer's first share repurchase program and were pleased to announce in December a refreshed authorization to purchase up to $250 million of common stock through the end of 2025. We focused the company on delivering sustainable, profitable growth, and we delivered. Payoneer generated 32% revenue growth in 2023 and $205 million of adjusted EBITDA, representing a 25% adjusted EBITDA margin. These results are a testament to the unique value proposition we offer to our customers, SMBs looking to capture the opportunities of an increasingly digital and increasingly global economy. Before I turn to our fourth quarter results, I'd like to direct your attention briefly to our earnings supplement presentation, which is available on our website alongside our earnings release. We are committed to continuously enhancing our disclosures and appreciative of the feedback we continue to receive from investors. On page 23 of our supplement, we've included some additional information that breaks out our volume and revenue. We believe this is helpful in showing how the execution of our strategy drives greater volume into the network and delivers improving take rate dynamics. We believe this additional disclosure will enable investors to better model our business going forward. Now turning to our fourth quarter results. Revenue of $224 million was up 22%, driven by interest income on customer funds, continued steady ICP growth, record quarterly card usage, and accelerating growth in our B2B and merchant services business. As a reminder, our Q4 revenue growth rate is impacted by $7.5 million of revenue earned in the prior year period from the provision of onboarding services for an enterprise client. Excluding the impact of this, revenue growth for the fourth quarter would have been 27%. Volume growth at 16% reflected strong year-over-year volume trends with our SMB customers that sell on marketplaces, particularly larger customers that sell on e-commerce marketplaces, as well as accelerating growth in our B2B and merchant services businesses. We also saw continued growth in our enterprise payouts volume, which includes travel-related volumes. Our B2B business delivered 13% volume growth in the fourth quarter versus 3% growth in the first quarter, a 2% decline in volumes in the second, and 1% growth in the third quarter of 2023. We generated volume of over 100 million in our merchant services business, up more than 400% from a year ago and up 61% versus the third quarter. Our fourth quarter take rate of 118 basis points increased six basis points. The expansion was driven by higher levels of interest income, record quarterly card usage, and the benefits of our various pricing initiatives. Sequentially, take rate declined nine basis points, driven by a seasonal mix shift towards e-commerce, and especially towards larger e-commerce sellers. Our customers value the utility that the Payoneer account provides, including the ability to hold balances in multiple currencies and to manage their cross-border AR and AP needs from a single account. Customer funds held by Payoneer increased 9% to $6.4 billion, and we earned $65 million in interest income from these balances in the fourth quarter. Total operating expenses of $199 million were up 3%, driven by higher transaction costs from strong volumes, increased depreciation and amortization, and higher R&D spend related to continued investment in our platform. This was partially offset by decreases in G&A and other operating expense. 2024-2023 operating expenses included $3 million related to our efforts to support employees in Israel, as well as a $1.5 million contribution to the Payoneer Foundation. In line with our continued commitment to driving operating leverage, we ended 2023 with 8% less headcount than we began the year. We continue to operate the business with a focus on streamlining the organization, increasing efficiency, and aligning our cost structure with our highest value customers and growth opportunities. Transaction costs of $36 million increased 20%, driven by higher chargebacks and operational losses, some of them one time, as well as higher network fees from record card usage. Transaction costs represented 16.2% of revenue, a 40 basis point improvement from the prior year period. The decrease is driven primarily by higher interest income, while improved pricing with bank and processing partners and lower capital advance costs also contributed. Sales and marketing expense was roughly flat, with higher partner commissions in the current quarter offset by lower marketing spend. As a reminder, the fourth quarter of 2022 included certain costs related to a one-time brand campaign, while labor expense was flat year-over-year, reflecting lower headcount. Sequentially, sales and marketing expense was up 6%, primarily driven from incentive programs to drive card usage, as well as other largely seasonal in-country marketing activities. G&A expense decreased $3 million, or 10%, primarily due to higher one-time consulting and organizational expense in the prior year period. Other operating expense was down 2 million, or 4%, driven by lower headcount from initiatives undertaken earlier in 2023 to streamline and localize elements of our operations organization. R&D expense increased 2 million, driven by higher compensation expense and IT costs, partially offset by higher capitalization of payroll and third-party costs as internal use software. We continued to invest in our R&D organization and average headcount was up 13% year over year. Adjusted EBITDA was 52 million compared to 11 million in the prior year period. This represents a 23% adjusted EBITDA margin in the quarter. Net income was 27 million compared to a net loss of 10 million in the fourth quarter of last year. Q4 basic earnings per share was $0.08, and diluted earnings per share was $0.07. We ended the quarter with cash and cash equivalents of $617 million, up $74 million, or 14% year over year. Our business continues to generate positive free cash flows, and our free cash flow conversion is well above 100% for the full year. We have been actively returning capital to shareholders in 2023, and since the inception of our share repurchase program in May, we repurchased $57 million of Payoneer shares, including $22 million in the fourth quarter. We have accelerated the pace of our repurchases following our $250 million authorization. in mid-December, and in the first quarter through last Friday, February 23rd, we have repurchased over $30 million of Payoneer shares. Moving now to our 2024 guidance. For the full year 2024, we expect revenues to be between $875 and $885 million. This includes $235 million of interest income for the year and $640 to $650 million of revenue excluding interest income. We expect revenue excluding interest income to grow 7% at the midpoint of our guidance, representing 10% growth when excluding the impact of non-volume enterprise revenues of $15 million in the first half of 2023. We expect revenue growth excluding interest income to accelerate throughout 2024 and to exit the year in the mid-teens in line with our medium-term targets. We expect that acceleration will be driven by continued penetration of the large B2B and direct-to-consumer markets, as well as high single-digit volume growth in marketplace-related volumes. We expect B2B volumes to grow 25% this year and are seeing impressive performance year to date with volume growth of over 30%. Our strategy to focus our product roadmap and acquisition efforts on higher take rate service-oriented markets is working. We saw a 16 basis point take rate improvement in our B2B business in 2023, given strong performance in our higher take rate regions. Take rates are 2 to 3% in LATAM, SEMEA, and APAC versus China B2B take rates, which are approximately 50 basis points. In 2024, we expect China B2B volume to rebound, which will drive some decrease in B2B take rates overall, while we expect that these take rates will remain significantly higher than take rates on our non-B2B business. We expect our merchant services volume to grow north of 100% this year as we continue to see strong adoption among existing sellers, as well as strong demand from new customers in critical markets like China and Vietnam. We grew the number of merchants using our checkout product by more than threefold in 2023. We also intend to continue implementing changes to our pricing to better align to the customer segments we serve, to deliver improved monetization, and to drive improved share of wallet capture. We believe we have further opportunity in our pricing strategy to refine our corridor-based pricing and to better monetize FX. We continue to test various pricing models related to our significant in-network payment volume and believe this represents a meaningful opportunity. We expect to generate $235 million of interest income for the year, which is modeled based on continued growth in customer balances, broadly in line with volumes, and probability-weighted market interest rate expectations. We are taking steps to further manage and optimize this revenue stream through different interest rate cycles by prudently extending the duration of our portfolio and investing in longer-dated assets. As previously discussed, we recently launched a program to begin investing a portion of our customer funds in short-duration U.S. treasuries. A very small portion of customer funds has been invested as of today, but we expect to grow this portfolio and potentially extend to other asset classes over the course of the year and as we further mature the program. We expect transaction costs as a percentage of revenue to be approximately 17.5%, which reflects the impact of shifting our business mix towards higher tape rate, but also higher transaction cost business lines and products like B2B, merchant services, and card. 2024 cash OPEX less anticipated transaction costs is expected to be approximately 540 million, which represents 6% growth over 2023. Cash OPEX represents our guidance for revenue, less adjusted EBITDA. We expect adjusted EBITDA to be between 185 to 195 million, representing an adjusted EBITDA margin of approximately 22% at the midpoint. Our 2023 results demonstrate that our strategy and focus on growing ICPs, optimizing ARPU, and delivering improving leverage is working. We plan to continue enhancing our product offerings to deliver value for our customers, expanding our addressable market, optimizing monetization, and driving improved retention. We believe our unique assets, the scale and breadth of our ecosystem and relationships, position us to further expand our market share and create lasting value for our shareholders. We are now happy to answer any questions you may have. Operator, please open the line.
spk01: Thank you. 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. We do ask that you limit yourself to asking one question and one follow-up. As a reminder, if you're using a speakerphone, please remember to pick up your hands up before asking your question. We will pause here briefly as questions get registered. Our first question comes from the line of Darren Peller with Wolf Research. Your line is now open.
spk03: Hey, thanks. Guys, good morning. Can we just start a little higher level on maybe what might have changed a bit from the timing of your September investor day through today in terms of the expectations really for 2014? I know we expected mid-teens, and I think it's at 6% for revenue growth now, and then maybe the margin's a bit lower. And Bea, I know you mentioned as the year progressed, some of the growth rates getting back to those levels, but maybe just talk about some of the nuances on the year progression also.
spk00: Yeah, thanks for the question, Darren. Look, as we said in the middle of December, and as we're saying today with our guidance and reiterating, that guidance from an ex-interest income revenue perspective reflects a 10% growth rate at the midpoint, again, on a normalized basis. So apples to apples when accounting for the impact on non-volume fees. And as we said, we expect those revenues, as you know in your question, X interest income, to accelerate throughout the year and to be exiting mid-teens at a mid-teens growth rate when we exit 2024, very much in line with those medium-term targets. as two things in our business, two sort of broad trends, I think, as we lap some of the headwinds that we discussed related to 2023. So we're lapping the termination of B2B customers. We've lapped the termination of our exit from Russia. We're lapping the impact of those non-volume fees. We're lapping the take rate impact from very strong growth in our travel sector. So all of those sort of come off Off the table, if you like, as you look at 2024, and much more importantly, as we see that accelerating momentum that we've highlighted related to B2B and merchant services, but especially B2B and our guidance calls for a 25% increase in volume and again, accelerating through the back half of the year. So our guidance for 24 is really very consistent with what we said in December. We're very encouraged overall with the overall momentum of the business. We're seeing increased penetration into that large B2B market, strong and improving take rate dynamics from that B2B growth, stable growth and stable economics in our marketplace business. And overall, many of the indicators that we look for are really showing strong momentum.
spk03: Okay. I guess my follow-up may be just be around ARPU, which was a big part of your story and underlying expectations for growth also. So maybe just it continues. I know you still have quite a few levers on pricing. So just maybe a quick update on where you guys are instituting some of the account fees or lower volume fees or maybe monetizing intranetwork cross-border volumes to help drive some of the similar take rate expansion in the year.
spk00: Yeah, absolutely. Look, as we noted at Invest Today, our pricing strategy is really much more segment-based. and really focused on optimizing ARPU as sort of the second leg of the stool, if you like, growing ICPs, optimizing ARPU. And there's really strong signs that that strategy is working, early signs. We grew ARPU in 2023 overall by 36%. We grew ARPU even excluding interest income by 9% from that acceleration in B2B, driving improved card and working capital, and as you know from pricing, So, yeah, look, our broader pricing strategy, much more segment-focused, much more focused on bundling and corridor-based pricing initiatives, and we've been able to drive improved monetization through that and made really very meaningful progress in 23. As you noted, account fees we talked about last year, we were able to increase ARPU on our 1.5 million ICPs by almost 30% year-over-year. We've introduced more nuanced FX pricing, which drove uplift in 23, and we see additional uplift in 24. We launched our Lite account late last year, which is specifically designed for gig workers and freelancers and offers a different product bundle, which allows us to better manage our cost to serve and differentiated pricing to better monetize that segment. And we're doing additional development to really bundle for more segments as we look into 24. And then finally, you mentioned the significant opportunity around intranetwork fees. We highlighted that at Investor Day. Many, many billions of intranetwork flow that we see annually. Close to half or more than half of that flow is cross-border. And we're launching in Q2 a significant pilot to test intranetwork fees across some of those important routes and see significant opportunity there within our portfolio. So, overall, I think we saw significant success and meaningful progress in 23, but there's more value to unlock here.
spk01: Thank you, Darren. Our next question goes to the line of Will Nance with Goldman Sachs. Your line is now open.
spk04: Hey, guys. I appreciate you taking the questions. Look, I just wanted to ask on the long-term targets of mid-teens, you know, recognizing you're telegraphing ending the year on that basis. You know, I guess could you maybe talk about the gap in the first part of the year between, you know, where you're expecting to grow and that long-term target? And I guess in your mind, what are the two or three things that – I guess, are underperforming relative to that long-term growth framework? And then just how should investors kind of get confidence that that 15% exit rate is sustainable, particularly if there's some pricing benefits in those numbers? How do you see the bridge to a more consistent mid-teens growth rate in the business? Thanks.
spk00: Sure. Look, as we've said, that 10% growth on a normalized basis year over year does imply, and we are assuming, strong trajectory throughout the year and acceleration. We do have certain headwinds that come off only after the second quarter, most notably those non-volume fees that are about a $15 million headwind in terms of those fees that we saw earlier. In early 2023, in terms of the momentum look, as we've highlighted the significant headwinds that impacted us in 23, both from a volume and a take great perspective that are coming off. Our revenue guide for twenty four certainly does account for some potential for modest near term headwinds from more muted consumer and business spending just to account for really some degree of macro and geopolitical uncertainty. But overall, as we look at that guidance and to double click into the components a bit. If we look at the volume from SMB selling on marketplace, a little over 60% of our total volume in 23, we're expecting and have conviction around high single digit volume growth there really underpinned by strong Econ performance over the course of the year. And we've seen an expect stable take rate. We've been very successful. in defending our economics within that portfolio and holding that take rate stable. From a B2B perspective, we really are seeing improving trajectory there, again, lapping those headwinds from terminations. But as we look at the trajectory over the course of 23 and now into 24, in January, we grew volumes by 30%. Our strategy there is working. We focus the organization from a B2B perspective on large ICPs and service-oriented markets. We're driving additional volume, and we were able to expand our take rate in that important segment for us by 16 basis points in 23. Got it.
spk05: I appreciate it.
spk00: You might expect that December, just from a service-oriented flow, might be seasonally a little bit weaker. But overall, again, we want to emphasize that the trajectory is what we think is important, up 3 percent from a volume perspective Q1, down 2 percent Q2, up 1 percent in Q3, and accelerating to 13 percent in Q4. Thirty percent is year to date numbers from a volume perspective. So we're seeing really strong momentum and really strong signs that that business has excellent product market fit in the markets that we are targeting and drives improving dynamics, which was really, you know, the, the,
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