Payoneer Global Inc.

Good morning. Thank you for standing by. Welcome to Payoneer's third quarter 2024 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 would now like to turn the call over to Michelle Wong, Payoneer's VP of Investor Relations.

Please go ahead. 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.

Good morning, everyone, and thank you for joining us today. Payoneer once again delivered a record-breaking quarter in both volume and revenues. We are systematically building a full-service financial platform for the cross-border needs of small and medium-sized businesses around the globe. We are committed and making significant progress. In 2024, Payoneer has entered a meaningful second curve of profitable growth, as evidenced by our financial performance over the past three quarters. Our momentum is no accident. It's the result of a strong management team, effective strategic capital allocation, and the disciplined execution of our global team, who are all aligned on driving sustainable and profitable growth. In Q3, we delivered exceptional results. ICP growth increased for the fourth consecutive quarter, up 11%, with strength in APAC, LATAM, and China. ARPU, excluding interest income, increased by 20%, marking the fifth straight quarter of accelerating growth. We're onboarding larger customers, cross-selling products like cards, and optimizing our pricing strategy. Total volume growth accelerated for a seventh consecutive quarter to 25%. We drove strong performance across our business, including with our SMBs that sell on marketplaces, B2B, merchant services, and enterprise payouts. Total revenue grew by 19%, and when excluding interest income, revenue rose by 24%, highlighting accelerating momentum versus the first half of the year. Adjusted EBITDA reached $69 million, with a 28% margin, underscoring our operational discipline. Payoneer, is a profitable high growth company. Since the beginning of 2023 and excluding interest income, we have accelerated revenue growth from low single digits to 24% in Q3. We have also turned adjusted EBITDA net of interest income positive for the first three quarters of this year. Our B2B business is the growth engine driving Payoneer forward. as we serve and capture the multi-trillion-dollar cross-border B2B market. In Q3, B2B volume grew by 57%. We have generated 44% B2B growth for the first three quarters of 2024, compared to single-digit growth in 2023. B2B represents nearly a quarter of our Q3 revenue, excluding interest income, and contributed to over 40% of the year-over-year growth in revenue, excluding interest income. Within our B2B business, we're acquiring larger customers and expanding average transaction sizes. B2B volume growth came from our successful acquisition of larger SMBs as we realigned our go-to-market strategy, focused on high-potential clients, and amplified our affiliate and partner network. Let's look at a few examples of how our B2B customers are using Payoneer. A travel management company in Asia operating across multiple countries and currencies relies on Payoneer to streamline treasury functions. This is simplifying their accounts receivable processes, improving efficiency, and reducing costs. A virtual assistant business process outsourcer serving U.S. clients with contractors in the Philippines. They centralized millions of dollars in monthly payments into their Payoneer account, consolidating collections and payouts without the need for local bank accounts. These are just two of the millions of SMBs worldwide that have crossed border financial needs, but traditional and local banks have underserved. Payoneer is stepping in to fill this gap faster, more efficiently, and with greater focus than traditional legacy institutions. we are empowering businesses to manage their global multi-currency payments seamlessly and to scale worldwide. Our customer portfolio continues to evolve, with ICPs now comprising 28% of our overall base, up from 25% at the start of 2023. And within our ICPs, we continue to sharpen our focus on larger customers and those with more complex needs, 10K plus ICPs represent approximately 85% of our SMB volume, and we have grown both volume and revenue from 10K plus ICPs by over 25% in Q3 of this year. We're focused on a critical and underserved part of the payments ecosystem, SMBs, cross-border trade, B2B transactions, and emerging markets. We are positioned to capture this multi-trillion dollar opportunity with our regulatory infrastructure, banking partnerships, brand strength, and strategic alliances, all of which is supported by a strong culture of collaboration, execution, and service. Our success hinges on our relentless daily execution, expansion of our financial stack, modernization of our platform, and focus on our compliance and regulatory moat. We will also work to build, partner with, or acquire the products and services we need to drive acquisition, grow ARPU, and improve stickiness and retention. As we do so, we will continuously review our products and programs to ensure they align with our long-term goals. We expect this will enable us to allocate capital in the most effective way to generate value over the long term for our shareholders. We believe the road ahead holds even greater value creation. Small businesses drive the global economy, creating jobs and enabling innovation. For these businesses, exports are a growth engine. Payoneers helping SMBs, especially in emerging markets, tap into the global economy by simplifying cross-border financial management. We empower these SMBs to reach new markets, reach new customers, engage new suppliers and enable them to expand, thrive and contribute to a growing global economy. At Payoneer, trade is more than just flows of money. It's a catalyst for growth, collaboration, opportunity and prosperity. Payoneer is proud to support SMBs and foster economic growth worldwide. All of this is possible, all of our momentum, is because of our team's relentless energy, disciplined execution, and dedication to our customers. They are the driving force behind our pursuit of the profitable growth opportunities that lie ahead. With that, I'll pass it over to Bea to dive deeper into our specific financial results and increase guidance for 2024. Thank you.

Thank you, John, and thank you to everyone for joining us. We continued our strong momentum in the third quarter and generated record quarterly volume, record quarterly revenue, and strong profitability. We are building the financial stack of choice for SMBs looking to grow globally, and our financial results demonstrate we are winning share in this multi-trillion dollar market. We grew third quarter volume by 25%, which drove revenue excluding interest income growth of 24%. We are delivering top line growth alongside continued expense discipline and achieved a 28% adjusted EBITDA margin. Notably, we delivered another consecutive quarter of positive adjusted EBITDA, even when you exclude interest income. Record quarterly revenue of $248 million was up 19%. Growth was driven by accelerating B2B growth, strong marketplace growth, continued adoption of our card product, the impact of our pricing initiatives, and an 11% increase in our ICPs. Revenue growth also continues to benefit from higher interest income, largely a result of a 13% increase in customer funds held on our platform. Volume growth of 25% reflected broad-based strengths across the platform. 17% growth from SMBs that sell on marketplaces reflected continued robust volume growth from our large Chinese econ sellers, supported by stable macro conditions and consumer spending trends on the large marketplaces our customers sell on. Our B2B business delivered 57% volume growth, accelerating from 40% growth last quarter. As John highlighted, our B2B results were a result of continued strong customer acquisition and benefited from our focus on larger B2B customers. We generated 142% volume growth in merchant services and 29% volume growth in enterprise payouts. Our Q3 take rate of 122 basis points decreased five basis points. primarily due to the impact of slowing interest income growth. Our SMB customer take rate of 109 basis points increased two basis points, driven by accelerating growth in our B2B business, continued penetration of our card offering, and the impact of our pricing initiatives. Customer funds held by Payoneer increased 13% to $6.1 billion. Customers value our multi-currency capabilities, and the ability to hold balances in stable currencies such as the U.S. dollar is a core value proposition. We continue to steadily grow customer funds, which drove an 8% increase in our interest income to $65 million for Q3, even as average interest rates were relatively flat year over year. We are taking active steps to reduce our sensitivity to interest rate movements as the U.S. Federal Reserve begins its rate cutting cycle. We have continued to execute on programs to mitigate our exposure to interest rate volatility. And as of November 1st, we have approximately one-third of our customer funds invested in U.S. Treasury bonds and term bank deposits with a weighted average duration of approximately two years. and an average yield of approximately 4.5%. We have also purchased derivatives on approximately one-third of our customer funds, providing a floor against interest rate declines below 3%. These instruments provide a minimum interest revenue stream on the principal covered, even in the event of a decrease in short-term interest rates below 3% over the next three to five years. As of November 1st, the remaining one-third of customer funds are floating and subject predominantly to prevailing short-term interest rates in the U.S. We will continue to actively and prudently manage this revenue stream and expect to fine-tune our programs based on our ongoing assessment of market conditions. Total operating expenses of $213 million were up 19%, driven primarily by higher transaction costs from the 25% increase in volume in the quarter and increased R&D, depreciation and amortization, and M&A-related expenses. Transaction costs of $38 million increased 25% in line with volume growth. The increase is driven primarily by higher bank and processor fees, which increased 20% and higher chargebacks and operational losses. Transaction costs represented 15.3% of revenue, a 70 basis point increase from the prior year period. Sales and marketing expense increased 4 million or 7%, driven by higher spend primarily related to incentive programs to drive card growth. G&A expense was up $5 million, or 18%, primarily due to higher labor and consulting costs, as well as M&A-related expenses, which are excluded as adjusted results. Other operating expense increased $5 million, or 11%, driven by increased IT costs and regulatory reserves, partially offset by lower labor and consulting expense. R&D expense was up 8 million or 28%, reflecting higher labor-related costs from higher headcount, which is up over 20%. Approximately one-third of the increased headcount is related to our acquisition of SQUAD in August. Adjusted EBITDA of 69 million was up 19% and reflected a 28% adjusted EBITDA margin. Net income was $42 million compared to $13 million in Q3 of last year. The year-over-year increase reflects strong operating results, as well as a $19 million tax benefit largely derived from a deduction under U.S. tax law from income earned from foreign customers and lower foreign tax expense related to stock-based compensation. Q3 basic earnings per share was $0.12, and diluted earnings per share was $0.11. We ended the quarter with cash and cash equivalents of $534 million. Our acquisition of SQuAD represented a use of cash of approximately $61 million in the third quarter. We also repurchased and redeemed our outstanding public warrants for approximately $21 million. And finally, we repurchased 21 million of shares during the quarter, which was lower sequentially as we had to pause share repurchases during the warrant tender period. For the first nine months of 2024, we have repurchased a total of $119 million worth of shares at a weighted average price of $5.16 per share. This is in excess of our target of doubling our share repurchases in 2024 when compared to 2023. As a reminder, we continue to work towards the closing of our acquisition of a licensed Chinese payment service provider, which is subject to regulatory approval and customary closing conditions. We anticipate closing the acquisition in the first half of 2025. Moving now to our 2024 guidance. We are raising our guidance for both revenue and adjusted EBITDA by 30 million to reflect our strong third quarter results and continued momentum heading into the final quarter of the year. For the full year, we expect revenues to be between 950 and 960 million. This includes revenue excluding interest income of 700 to 710 million, and $250 million of interest income for the year. We are raising our expectations for revenue excluding interest income by 20 million, which implies four-year growth of approximately 17% at the midpoint. This is more than triple the growth rate of 2023 and ahead of the mid-teens target we set at our investor day. We continue to expect fourth quarter revenues excluding interest to grow mid-teens and believe this is an appropriate exit run rate as we look to 2025. We remain committed to delivering on our medium-term target of mid-teens growth next year. We are increasing our interest income revenue expectations by $10 million for the year to $250 million. This reflects third quarter outperformance and our latest expectations on interest rates and balance growth. As we look to 2025, we'd expect our interest income to decline year over year. The market currently expects average rates to come down from over 5% in 2024 to approximately 3.7% in 2025. We'd expect to partially offset the impact of lower rates with balanced growth and with our program to extend the duration of our customer funds. We expect transaction costs as a percentage of revenue to be approximately 16% for the year versus our prior expectation of 16.5%. This implies a rate of 18.3% for the fourth quarter, stepping up from the first three quarters of the year due to both seasonality, including related to our merchant services business, as well as the continued mix shift more broadly towards higher take rate, but also higher transaction cost business lines and products. Given these business dynamics, as well as lower interest income expectations for 2025, We'd expect our fourth quarter transaction costs as a percentage of revenue to be an appropriate exit run rate heading into 2025. We are increasing our adjusted EBITDA guidance by $30 million to $255 to $265 million. This represents an adjusted EBITDA margin of approximately 27% at the midpoint for the full year, also ahead of our medium-term targets. Our guidance for cash OPEX plus anticipated transaction costs remains unchanged at approximately $540 million. Cash OPEX represents our guidance for revenue, less adjusted EBITDA. Our third quarter performance demonstrates strong execution of our strategy, which centers on growing and retaining ICPs, boosting adoption of our financial solutions, and investing in our financial stack to drive both top-line growth and improved operational efficiency we remain committed to driving innovation and delivering long-term value for our customers shareholders and employees we are now happy to answer any questions you may have operator please open the line thank you as a reminder if you would like to ask a question today please see so now by pressing start followed by the number one on your telephone keypad

If you change your mind or would like to remove yourself from the queue, you can do so by pressing star and then two. When preparing to ask your question, please ensure that your device and your microphone are unmuted locally. Our first question today comes from the line of Sanjay Sakrani with KBW. Sanjay, please go ahead.

Thanks. Good morning. So the B2B SMB trends continue to show pretty strong trends this year. I know comps are helping at the margins, but You know, what surprised you the most to the upside as we progressed through the year?

Thanks for the question. And, you know, we've had a tremendous performance by the team, really across the company on B2B. If we look at the last five quarters, Q2 of 2023 was a negative year-over-year 2% quarter. Q2 of 2024 was a 40% growth quarter. And Q3 of 2024 was a 57% growth quarter. Every region in the company exceeded our 25% B2B volume growth target in the third quarter. And I think the acceleration really is grounded in the strategic initiatives the company has taken. Targeted acquisition, expansion into new verticals, and improvements in our customer experience across the board. When I look at the product market fit we have for both goods businesses, particularly in China, and services companies worldwide, globally in LATAM, APEX, EMEA, and Europe, we are seeing really solid penetration, particularly of larger ICPs, those even greater than $250,000 a month in average volume. And we're really seeing solid and strong performance across the board. We had guided at the beginning of the year to 25% growth for the B2B business, which was – Let's call it brave at the time we made that statement. We delivered solid growth. We upped that guidance to 30%. And we have confidence that our B2B business will continue to grow faster than the overall business and is a really massive long-term opportunity that we are in the position to capture globally. So we feel confident in where we are, proud of the execution of the team, and believe we're at the beginning of the growth curve of our B2B business.

Thank you. It has been great execution. And I guess I have a follow-up for B, maybe two sort of model questions. You know, you're forecasting a deceleration in 4Q in revenues ex-float. Could you just talk about those underlying assumptions? And then the gross profit outlook implies transaction costs will be higher in 4Q. Maybe you could just talk about what's driving that step up. I know there's some seasonality there, but this seems a little bit more than that. Thanks.

No, thanks for the question, Sanjay. Yeah, look, as you're calling out our guidance for 24, which again implies a 20% year over year normalized core revenue growth at the midpoint does imply a step down or deceleration in Q4 from roughly 22% core revenue growth year to date to mid-teens. Now, look, That's super consistent with everything we've said throughout the year in terms of the exit rate that we were looking to hit and very much in line with the medium term targets that we set at Invest Today back in September of 2023. We think, as we said on the call, that it's an appropriate exit run rate as we head into 2025, again, aligned with those medium targets. But we're going to continue to call out that we think prudence is appropriate as we sit here. There's continued macro uncertainty, including, of course, from the US election, as well as broader geopolitical tensions. And that could drive some softening and consumer spending in the last quarter of the year. And as you called out really in your question around B2B, we do have tougher comps as we head into Q4. You'll recall that in 2023, we saw actually a pretty strong holiday season from an econ perspective. But look, overall, mid-teens were really excited to have outperformed year to date. Mid-teens is a really strong, robust performance in Q4. There is certainly room to outperform if the macro remains stable and robust. as it has today, and October has remained in line, right? So that's sort of how we're seeing the quarter playing out. To your question on the acceleration, look, again, we've been proactively calling out that step up in transaction costs. Certainly, we see a seasonal step up, generally speaking, in Q4 just from business mix shifts. to lower take rate econ business, larger China sellers, the MRS effect or merchant services. So we've been proactively calling out that mixed shift that's going to just pick up those transaction costs. We're also going to see the beginning of the impact from interest income beginning to step down as interest rates come down. And again, we called out in our prepared remarks that we think that is a good run rate heading into 2025.

Thank you. Good results.

The next question comes from Will Nance with Goldman Sachs. Please go ahead, Will.

Hey, I appreciate you guys taking the questions. I wanted to ask on the marketplace payouts business, so that business has performed quite nicely going in the high teens this quarter. And I just wanted to kind of understand how you guys would kind of frame the journey. I know there was a period of time where you had exited some customer relationships and, you know, the overall e-commerce business was growing slower. You know, these numbers seem to very clearly suggest market share gains against, you know, a TAM that's probably more low double digits. So just how do you kind of think about the sustainability of the market share gains that you are putting up? Is there an element of sort of catch-up period from the prior couple of years? And just kind of how long do you think you can kind of sustain kind of growing above the market, Tam, just given, you know, acknowledging that you guys are the market leader there?

Yeah, thanks, Will, for the question. On the e-commerce and marketplace businesses, the team globally has done an exceptional job, both here in the united states working with amazon walmart etsy ebay and others as well as our colleagues uh in china and around the world in providing cross-selling of our cards products to our chinese customers uh taking share from our competitors for for customers that have multiple psp relationships you know the 17 volume growth in q3 really led by broad-based strength in the business across the board. You know, we are winning share in China, both in the acquisition of new e-com sellers, as well as increasing wallet share with the customers that we have. We continue to expand our marketplace ecosystem. And I think that's a very important part of the flywheel at Payoneer is that our marketplace business will grow as our B2B business continues to grow, even into broader, bigger, addressable opportunities. We have a program, as you know, we call it the Green Channel, where we help e-commerce sellers get access to and distribution on multiple marketplaces. That's a the partnership between Payoneer and our customers to help them drive their growth so they can participate in cross-border trade. We are, as you note, focused on adding new marketplace relationships. We believe we're in a strong position to do so and will continue to add. I think Bea spoke nicely about how the consumer has behaved. And as the consumer spends money and is engaged in the fourth quarter in a strong way, Payoneer will outperform on the marketplace line.

So that's great. I appreciate that. And then just maybe another question, obviously just topical today as we're kind of sitting here watching the election. We've gotten some questions on just the exposure to Chinese good sellers. And I know we've spoken about before, but maybe just know with a broader broader audience how do you think about the transition mechanism of of potential u.s tariffs i know you've lived through this before so maybe if you could talk through what the experience was and kind of help people understand you know how that does or doesn't impact the business thanks yeah thanks for the question and i like 78 million other americans voted in the election and anybody listening and hope you do too um our economy is exceptionally resilient um and

Whoever the next administration is, I hope they can put in place policies that support the economy, consumers, and jobs. A strong U.S. economy is good for the world and certainly good for global SMBs. Specific to my experience with tariffs in the past, should that come to pass, an iPhone case that retails for $20 at a store on Main Street in America is manufactured for guessing at $0.14. So a tariff on a 14 cent good generally is absorbed through the supply chain pretty effectively. And in the past, in my experience, when I worked at Alibaba group at alibaba.com, We saw exceptional growth in our exports business at Alibaba, despite, or maybe even because of tariffs that were put in place. So, you know, we are focused on providing value to our SMBs. We're comfortable with our position in the market, our ability to take share in the market. And we are very confident that our diverse business, right? We do business in 190 countries with, Customers in Argentina and Morocco and Turkey and Brazil and India and just about every country or territory any of us could name. And services businesses are driving the growth of our B2B business, as you know. So Payoneer is exceptionally resilient. We're diverse and global. Our customers and SMBs are resilient. And we feel very well positioned. And, you know, for the absence of doubt, I think people know this, but it's important that I mention. our customers we serve are not in verticals related to national security or priorities, precious metals, semiconductors, steel, and other things. We're in the fun part of the economy around iPhone cases and yoga pants, and that's doing just fine in the goods business. And in services, it's the BPOs in the Philippines and the software developers in Latin America. It's the It's the businesses that are really driving globalization and the global economy. Those are people who turn to Payoneer as their trusted global financial services partner. And we're really well positioned. And as I said, I hope folks get out and vote.

That's great, John. Thanks for going through that. Appreciate it. And nice job today. Thanks, Will.

Our next question comes from Mayank Tandon with Needham. Please go ahead. Your line is now open.

Thank you. Good morning. Congrats, John and Bea, on the quarter. I wanted to turn to the investments in sales and marketing, John and Bea, if you could speak to that in terms of where your headcount's at today in terms of sales. And as you target larger ICPs, what is sort of the initiative to ramp up your sales engine and just in general your marketing approach as you go after bigger ICPs?

Thanks, Mike. One of the things that's been exceptional in our execution in go-to-market is we tiered and prioritized countries. First thing our go-to-market team did this year is we set out to prioritize specific countries, we set out to prioritize specific verticals, and we incentivized and compensate our sales organization around the acquisition and retention of high-value ICPs And, you know, a year ago, that was $10,000 plus, then it was $50,000 plus. And as I mentioned earlier, we are adding customers that are $250,000 plus a month of accounts receivable. I think that speaks to the strength of our sales organization, the power of our marketing team, the brand we have built. And to your point about headcount, our headcount and go-to-market has actually been relatively stable year over year. We're adding headcount in high opportunity areas. And we're taking friction out of our system across the organization. We're reducing what I'll think of as middle management layers. So there's more people who are with directly responsible KPIs to drive customer acquisition and cross-sell in our CSM organization. And I think the strength of our cards product demonstrates our cross-sell opportunity. And shareholders will hear us talk in 2025 about the cross-sell effort as it relates to workforce management and the squad acquisition. We are very excited about the opportunity to offer high-value ICPs, not just an AR solution for their direct-to-consumer or B2B marketplace sales, not just an AP solution for their spend management as it relates to buying ads on Facebook or elsewhere, Or inter network payments to other paying near customers, which is a robust part of our business, but actually helping them manage the workforce management and payroll needs of their contractors and employees around the globe. Our customers have multi entities around the world. They have they have employees around the world or contractors. And they're increasingly turning to Painter and Will in 2025 and beyond as the globalization in a box, the one-stop solution for those needs. And our go-to-market engine, our distribution engine, is a superpower of the firm. You know, we have great people, a unique offering, a powerful brand, a regulatory framework that enables an expanding, growing SMB around the world to get the growth they need.

That's a very helpful color. And then if I could just turn back to the model, B, you gave us plenty of framework to think about 2025. But just given the outperformance this year, if you were to outperform your expectations in 2025, where do you think that comes from? Is that going to be driven by continued momentum on B2B? Do you think marketplaces can outperform the way it did this year relative to your initial guidance? Just what are the levers for our performance as we think about 2025?

Yeah, look, I think it's a great question, right? So we called out that we think the mid-teens exit rate is an appropriate run rate, but we've also said consistently both that that's in line with medium-term targets and that we think there's room to outperform. What can drive that outperformance? Look, first and foremost, certainly a robust and stable macro. We're seeing that today. We've seen it through October, but that can certainly help. continued performance in b2b look at as john said in his answer we're executing on the strategy we're seeing really strong acquisition we're seeing improving retention and we're focused on larger customers and that's driving that that outsized performance look at as we go into 2025 obviously as we've called out tougher comps we think 25 volume growth 25 plus for 25 or for 2025 in our B2B business is a good target for us to push against. And that's, again, in line with what we said at Invest Today. And we think it is a strong sort of performance with room to outperform, right, as we continue to execute. In terms of marketplace, as we said, sort of to the e-comm question 2023, we've seen that we are outperforming those underlying marketplaces delivering that strong mid teens growth in volume. That's really ahead of where you would say sort of looking through at the read throughs on some of these e-comm. marketplaces ahead of where they're performing. If we can continue to drive that through the strong acquisition and retention, then we think we can outperform there. So, look, I think there are multiple levers, which is a great place to be, strong fundamentals in the business, and we're looking forward to 2025. Great to hear.

Thank you so much.

The next question comes from Darren Powell with Wolf Research. Please go ahead, Darren.

Hey, thanks, guys. Nice job on the quarter. Maybe we just start off with the pricing roadmap and the opportunities. Just remind us where you guys are in terms of the opportunity to monetize different parts of the business that you've been on a good path around. I guess as a follow-up on that point, though, when do you think we can expect to see the pricing implications start to really benefit revenue? I mean, I know they were, if you take float out of the equation, they were still down, I think, about six bips year over year. So just curious where you see it kind of playing out, where it has more material of an impact on the numbers going forward.

Yeah, thanks, Darren. Thanks for the question. Look, we continue to execute on the pricing strategy that we outlined throughout 2023. As we've called out in the past, 2023 was really about improving monetization on non-ICPs. We've done that very successfully and also done it relative to sort of aspects of the revenue monetization. in terms of our FX products, in terms of how we monetize particular corridors, and in terms of how we look at customers, segments, and corridors to be much more nuanced in how we think about pricing. So we're continuing to execute. We launched our Lite account in late 2023. We've continued to roll that out through our distribution partners throughout 2024. And as we've called out, we expect to generate roughly $45 million of uplifts In 2024 from those pricing initiatives of which 2020Million is incremental in terms of the take rate dynamics and we'll continue to execute on that. We've highlighted that that's a sort of longer term unlock that can drive share of wallet gains, improve penetration as we head into 25. and beyond. In terms of the take rate, look, I think it's one of the many levers that is driving improvement in that take rate. Our SMB take rate year over year is up two basis points. X interest is up more than that. That's a factor of that pricing impact, as well as the mixed shift to those higher take rate businesses and higher take rate products. So overall, we see pricing as an important sort of arrow in the quiver, so to speak, to continue to improve the economics in our business, to drive improved penetration and capture of the market, and to really drive stable and even improving take rate trends.

Okay, that's helpful. And guys, just focusing for a second more on ICPs, it looks like the growth overall on the larger side was about 2%. I think it was 6% last quarter. Overall, obviously, you're continuing to grow the underlying KPI as well, but just if you can give us a little bit more color on maybe the TAM you see to penetrate for large ICPs. What's the long-term customer growth for these large ICPs, whether it's any sense of whether it's mid-single-digit all the way up to low-double? It's hard to really tell where you see the opportunity on that front.

Yeah, it's a great question, Darren. We are very comfortable with our 10K plus ICP growth. When we introduced the ICP framework, it was a blunt force instrument to help people understand and create a rubric for people to understand our business. As you recall, a million and a half customers below the definition, half a million customers fitting the definition. We introduced 500 to 10K and 10K plus. We shared on the call today the 10K represents 80% plus of the volume. We are clearly driving our product strategy, our acquisition strategy, our retention work on those high-value 10K plus ICPs. And we really think the ICP definition has helped crystallize the opportunity for shareholders, employees, partners across the board, just about our focus on who our customer is, the value we can provide for them. As you mentioned, the growth has slowed, you know, the 6% to 2%. But we've accelerated our volume and revenue growth of the 10K plus segment. Volume growth for 10K plus ICP is accelerated from 10% a year ago to 26% in Q3. Revenue growth for 10K plus ICP is from 7% a year ago to 31% in Q3. So when I look ahead, the size of the opportunities, you know, tremendous. There are many, many, many businesses around the globe that need a Payoneer solution. We are in a deliberate and focused way penetrating geographies, industries, networks of ICPs, and you will see that, and as we've talked about that in the past, there are tens of millions of SMBs that need a Payoneer solution. We are less focused, you know, waking up this morning on driving absolute customer counts then making sure we have the volume and revenue dynamics from the customers we have, providing the service to them, and unlocking the growth ahead of us. So I won't give you a number in terms of what I think the growth rate will be looking forward. I am confident it will grow in a strong way, and we have a product set and a team focused on monetizing those customers. So you will see growth in the years ahead.

Very helpful, guys. Thank you.

Next question comes from Mike Grondahl with Northland Security. Mike, please go ahead.

Hey, thanks, guys. On the pricing initiatives, is there a lot left there or a little left there? And then secondly, I think you described your go-to-market and your priorities in the icp area um could you talk a little bit about how you're focused on cross cell and getting you know multiple products into some of your larger icp hands is it the same process or is there a you know kind of a unique process for that

Yeah, I'll take – and thanks for the question. Look, I'll take the pricing. Look, I love the framing. Is there a lot or a little? You know, I think we'll say that it continues to be, in our view, a long-term driver of future performance, right? So, we've called out very explicit numbers in terms of what we generated in 23 and what we've generated in 24. I think that the broader point is around sort of the more customer-based segmentation approach. 1, that is designed to focus on product bundling on driving share of wallet and improved engagement and adoption of the products and using pricing as a lever to do that with all that said, look at that. There's more opportunity for sure. Right? We've launched the light account as we've said that covers predominantly freelancers and gig workers. And we're launching probably early next year what we've called the pro account, which is targeted at larger sort of SMBs and smaller entrepreneurs. And we think that that will generate some meaningful uplift, right? We think we can monetize upgrade fees. We may introduce forms of usage fees. But overall, I think, again, it's a long-term driver of improved monetization. and frankly, improved capture of the market. And that's how we're viewing it.

And I'll just add to Bea's answer. As we think about cross-sell, there's really two separate motions underway. One is what we call the high-touch motion, where we have CSMs globally whose responsibility is to match our product set to the needs of our high-value ICPs. And you're seeing that pull through in the performance of our card, right? Our card's Our card growth in Q3 was north of 40% quarter over quarter. And the four quarters prior growth was between 31% and 33% for the cards product. You'll see the high-touch cross-sell occur with our workforce management products as we introduce the ability to help our customers manage their contractors and employees around the world. But at scale, it's the product itself. And B highlights the bundles, you know, the light account, which is, you know, in distribution as we move, which limits features for sort of the lower end of our customer portfolio. The pro account or platinum account or others will enable bundles of products so that the right product set is in front of each of our customers from when they join or as they log into their Payoneer account and see access to those features. So we feel good about our ability to drive ARPU through the cross-sell motions we have in place.

Got it. Hey, thank you.

The next question comes from Trevor Williams with Jefferies. Trevor, please go ahead.

Great. Thanks a lot. I wanted to go back to the ARPU growth. I think it was up 20% or so in the quarter, John. I think I heard you say. If you could just give us a sense for how much of that ARPU growth is coming from mix, cross-sell, pricing, your view on the sustainability of that level of growth. And I know there's been a few questions on pricing already, but if there's any update you can give specifically on the intranetwork flows and that rollout, it would be great. Thanks.

Yep. So, you know, when we, when we think about R proof performance across the organization, we really have a number of activities underway. One is making, you know, acquiring high value customers that bring a lot of volume into the organization by, by design drives up the R proof for those folks. And when we look at our largest customers, those greater than 20, $250,000 a month in volume, we've seen very strong R proof growth for that cohort. And across the board, seeing that kind of result, both driven by pricing, cross-sell, self-loading, self-funding their accounts so they can, customers can use our AP products, more bespoke, route-specific, fee initiatives. You know, we are on a march, frankly, not just acquire high-value customers, provide them the service they need, but be paid appropriately for the value we provide for them. And that's pulling through pricing, customers, card cross-sell, workforce management cross-sell, and other tuck-in acquisitions that we'll add to expand our product suite to offer more value to our customers.

And just on the internet, what... Yeah, on the internet work question, look, we've continued to run the pilot. It's been a meaningful pilot through our ecosystem really through the back half of of the year and we're doing a B testing across significant corridors again. Look, and we've highlighted in prior calls. There's multiple use cases that are tied to those intranetwork flows from sort of quasi payroll to true AP to sort of internal treasury type functions for larger SMBs. So we felt it was super important and we feel it's super important to really carefully measure the impact of that pricing, look at how flows behave, look at customer behavior. At the end of the day, as we've highlighted, look, we've built in a very real sense a two-sided network. and the 11 to 12 billion of trailing 12 months intranet workflows are a real powerful proof point around that so we continue to believe that the as part of a broader monetization strategy that intranet workflows uh can be a powerful driver to that okay gotcha um

And then on, on float and margins in 25 B I think on the float income, I heard you say down year over year in 25, just based on the curve, if there's anything more specific in terms of order of magnitude, as you sit here today. And then with that in mind, I mean, how you feel about the visibility of the mid-20s EBITDA margins next year? I think I heard the comment on you're already at positive EBITDA contribution from the ex-float revenue, but just any more detail on kind of where you would expect that incremental ex-float margin expansion to come from would be great. Thanks.

Yeah, absolutely. Look, on float income, as we said, stepping down, I don't think that would be any surprise to anyone. We've noted that rate expectations uh look like they stepped down at least based on the curve right now to roughly an average of three and a half three point seven again they've been a bit choppy but that's probably a reasonable number to model we expect to offset a portion of that rate decline with balanced growth we've been able to grow balances on our platform consistently including the 13 uptick in the current quarter. And we provided pretty detailed commentary on the call, of course, around our program to extend duration. We've done that on roughly a third of the portfolio. We've extended duration on a third roughly two years with a weighted average yield of four and a half percent. We've put in place interest rate floors on roughly a surge of that portfolio. So we, we've taken really meaningful steps to reduce our sensitivity to interest rate movements and we'll continue to optimize that program. So, look at a step down based on rates. We'll get partially offset from those from those initiatives to extend duration and so on. As we look to margin in 2025, look, we feel very good about hitting our medium-term adjusted EBITDA margin targets, the ones we talked about at Invest Today at 25%. We're going to drive core revenue growth. As we said, we think an appropriate run rate is in line with our Q4 exit rate. And we'll continue to be disciplined operators. I think we've demonstrated the ability to do that. it's a huge opportunity as we've said we're investing to capture the term we think we can hit our medium-term targets and we're excited by the momentum in the business great thanks again our final question today comes from Chris Kennedy with William Blair Chris please go ahead great thanks for squeezing me in here John

You mentioned or talked about Squad. I just wanted to get a little bit more color on what the opportunity is there and how you're thinking about that as we enter 2025.

Yeah, it's really super exciting, Chris. We were on track with the integration. You know, the team, the Squad team, the Payoneer team are quickly becoming one team. The product integration, the first phase of it is actually completed. You know, we closed the acquisition in early August. I'm excited about the first 90 days and the progress we've made and we are beginning the cross sell activity, focusing on opportunity areas with our existing customers with our existing go to market organization. We're seeing response from our customers as it relates to the sales cycle and learning about the time it takes. to both introduce the product and get to a closed deal with our customers. And we feel very good about Payoneer's opportunity to not just be an infrastructure provider, as we were historically, but more and more branded solution for the full financial needs of cross-border S&Ps. And that opportunity is tremendous. And as Bea said, we are executing very effectively against capturing it.

Got it. And then just quick update on the M&A environment as you continue to add more products to your platform. Thanks for taking the questions.

Yeah. Yeah, it's an important question. We're excited about tuck-in acquisitions to extend our product capability to drive the cross-sell utility for our customers and ARPU for our shareholders. And so the work the team is doing, identifying targets, discussing the fit, culturally product etc is deep and underway we've shared our philosophy which is grow our poo extend our footprint in high important markets drive our licensing um and that is i think key part of the the roadmap ahead is growth via m a and we will do that uh in 2025 and beyond

Thank you. We have no further questions, and so I'll turn the call back to John for closing remarks.

I want to thank everybody for joining us today. I think we had a record turnout here on the call, and it's exciting to share the incredible progress of Payoneer employees in over 28 countries. We are a diverse global organization moving at the pace of global trade to provide value to SMBs that are competing on the global landscape it's been great results for the first three quarters of 2024 and we are focused on continuing our momentum thanks everybody thank you everyone for joining us today this concludes our call and you may now disconnect your lines