Q2 2021 Payoneer Global Inc Earnings Call
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Good afternoon, ladies and gentlemen. Thank you. Please go ahead and welcome to <unk> second quarter 2021 earnings Conference call. At this time all lines have been placed on mute to prevent any background noise. Following the speakers' remarks, we will open.
And the lines for your questions as a reminder.
This conference call is being recorded I'd now like to turn the call over to Mickey No Joku Vice President of relations to begin.
Thank you before we begin I'd like to remind you that today's call may contain forward looking statements.
These forward looking statements are subject to numerous risks and uncertainties, including those set forth not filings with the SEC and available in the Investor Relations section of our website, which may cause actual results to differ materially from any forward looking statements we make today.
These forward looking statements speak only as of today and the company does not assume any obligation or intent to.
To update them, except as required by law. In addition, todays call may include non-GAAP measures. These measures should be considered as a supplement to and not a substitute for GAAP financial measures in most cases reconciliation to the nearest GAAP measure can be found in today's earnings press release, which is.
Available on the company's website.
In today's call are Scott Galloway, Peneus, Chief Executive Officer, and Michael Levine, <unk>, Chief Financial Officer with that I'd like to turn the call over to Scott to begin.
Thanks Ignatius.
Good evening and thank you all for joining us on our first earnings call.
<unk> transition in June to a public company was a significant milestone as we continue on our journey to be the world's go to partner for digital Commerce everywhere.
I want to thank all of my opinion your colleagues for making this a reality I.
I am so proud of everything we've accomplished and the positive impact we have on the world and I am even more excited to take this next step on our journey together.
For today's call I would like to begin by providing a brief overview of pioneer for those who are not as familiar with our story I will then briefly share some customer highlights and recap our strategy to create long term shareholder value and discuss our second quarter results.
Pioneer is a unique global payment and commerce, enabling platform that powers growth for digital businesses all over the world.
We've built an amazing scale platform that makes global commerce local for millions of customers by leveraging several unique capabilities. We have developed as a market leader over the past 15 plus years.
Our core value proposition, even from the beginning was global coverage and connectivity with localized capabilities connect.
<unk> wants to pay in here and get the whole world.
We are able to move money around the world instantly for our customers and a trusted compliant way mainly.
Making it as easy to pay or get paid globally as it is locally.
Other is the marketplace payments or <unk> accounts payable accounts receivable payments, which we call <unk>.
They are which are payments directly between buyers and suppliers.
They're powerful network effects in our business, we connect marketplaces, and sellers buyers and suppliers, creating a virtuous cycle, where more supplier is bringing more buyers and more buyers bring more suppliers.
We are trusted worldwide by global banks, leading marketplaces in millions of small businesses supporting more than 7000 trained corridors and customers for more than 190 countries.
Our customers and partners range from nine of the 20 largest companies in the world by market cap.
Some of the smallest businesses in the most remote emerging markets.
We are a high tech high touch business with modern API is mobile and machine learning infrastructure, our broad product suite and also a global team that works closely and locally with customers all focused on helping our customers grow.
And we've built on our platform a growing set of services for our customers and partners, who can manage the whole world through a single global multi currency pay in your account, which gives them access to local payments in local currency around the world.
And also access to a broad suite of tools to support their growth.
Like Mastercard virtual commercial cards to pay their suppliers working capital to invest in their business Green channel, which connects them to new sales channels tax solutions and more.
And our compliance capabilities are a real competitive strength and differentiator, we have made significant investments in our compliance and risk infrastructure to ensure that we are a leader in this area and stay compliant with all regulations and the countries in which we operated.
To underscore the strength of our capabilities in compliance and the trust our customers place in US we often win deals because of the strength of our compliance program.
This is all built upon our trusted recognized global brands, which is what connects it all together our.
Our brands create tangible financial value through low cost customer acquisition demonstrated by the more than 300000, new applications, we receive each month and our strong volume retention.
Our platform really comes to life through our customers, both small businesses and marketplace platforms continue to find tremendous value partnering with Titan Europe.
Let me walk you through a few customer stories from the second quarter of 2021 to help illustrate the unique value paying your provides and highlight some of the strong momentum we are building in the market.
On <unk> a provider of E Commerce E mail marketing and SMS automation based in the UK highlights our unique value proposition for small businesses.
To support omni <unk> diverse global collection and accounts payable needs they were working with multiple European banks.
Hanmi switched opinion year to use our global multi currency account and access our superior global payment capabilities, and our broad suite of product offerings, including our new Mastercard virtual commercial cards. They are now able to use pan here to get paid from around the world and also to pay suppliers.
Advertisers and affiliates that are located across various geographies.
TC record based in the UAE is a digital music label and channel on popular music streaming platforms with over 10 million subscribers.
<unk> record is using pay an ear to receive music royalty payments and to pay over 150 artists around the globe.
In addition, they also recently started to use pioneer's, new Mastercard virtual commercial card to purchase advertising across social media platforms. We are excited to continue to provide new value added services to help SEC record grow their global business.
I'm also happy to report that we have recently partnered with Grupo Lepak in Indonesia, based ecommerce senior corn, and leading marketplace with 100 plus million customers and $13.5 million sellers on its platform.
<unk> has raised 1 billion and a half dollars to be the largest IPO in Indonesia.
As their very first mass payout partner pioneer is facilitating buccola Pax international expansion.
Chose us because we are uniquely positioned in the market offering and capabilities to enable seamless and secure payment solutions for their overseas sellers and greater southeast Asia and beyond.
These customers highlight the exciting momentum for digital commerce, all over the world and the unique value pannier is able to bring to our customers as we help them build and grow their global businesses.
And what's most exciting.
Is that we're just getting started really just scratching the surface of our opportunity. We are a compelling growth strategy with four key drivers of long term growth.
First we look to leverage our strong market momentum and scale to grow marketplace ecosystems and <unk>.
We expect marketplace ecosystems to continue to demonstrate robust growth. We believe we are still in the early days of marketplace Commerce, which is estimated to already be 62% of E. Commerce overall is global and growing and we have a strong market position with both marketplaces and marketplace sellers.
<unk>.
And our <unk>.
Our offering has accelerated at scale with volume growing much faster than our business overall, and we see opportunities to continue to grow at a rapid rate for years to come.
<unk> is now big enough that it starts to contribute to our overall growth rate and it has also proven out our ability to upsell our customers and drive scale from new services.
Second we see big opportunities to expand the pay in your platform ecosystem.
As a global platform, we are engaging with a wide range of integrated partners banks mobile wallets SaaS providers and much more our pioneer for banks offering for example has many exciting opportunities that create value for our customers for our bank partners and for pioneer and reinforced the network.
<unk> in our business.
Third we are actively investing in new services merchant services, working capital and our Mastercard virtual commercial card.
Our big market opportunities and we have meaningful structural advantages with our relationships data and global footprint.
These will not be material contributors to growth in the near term in fact, they will consume investment but over the medium to long term, we see opportunities for accelerating growth and scale contribution from these new services.
Which takes us to the fourth growth driver our M&A strategy.
In 2020, we acquired a pile to catalyze the launch of our merchant services business. This was a very strategic acquisition. We went on a global search for a specific type of merchant services platform and a team that we can build around and off hire was the best target, we found and a great fit culturally we've.
See many opportunities to accelerate our ability to deliver more value to existing and new customers and more places by expanding our M&A efforts going forward, we see almost unlimited opportunities to expand our capabilities in E Commerce enablement, BTB payments working capital and global merchant services.
To name a few as well as deepen our presence in emerging markets.
One area that isn't part of our strategy is processing high risk transactions. So I would like to briefly address some questions were hearing related to this we.
We used to support high risk business, which started before Michael and I joined Pan Europe.
We made the decision years ago to exit that business and we no longer supported and haven't for quite some time, we have no plans to get back into it.
Period.
As I think you can tell we're very excited about our business and our future. We believe we are uniquely positioned to accelerate the growth of digital commerce, all over the world for years to come and deliver compelling financial results.
Now, let's turn to our financial results for the second quarter.
This quarter, we delivered a record $111 million in revenue up 42% year over year, and well ahead of our internal targets.
We processed $13.6 billion in volume in the quarter, representing year over year growth of 29%.
When looking at the two year volume growth rate between 2019, and 2021, we achieved a 45% compounded annual growth rate.
<unk> with the two year CAGR from the first quarter.
Our take rate was strong at 82 basis points, an increase from 75 basis points from the second quarter a year ago.
Transaction costs were 26% of revenues an improvement from 30% of revenues in the second quarter of 2020, as we continue to demonstrate the ability to drive increasing efficiency and incremental profitability from our transactions.
We also delivered positive adjusted EBITDA for the second quarter bolstered by our strong revenue growth and improved transaction costs. Despite our increased investments.
This quarter, we continued to execute well across the business as we pursue our huge market opportunity, our strong revenues and momentum reinforces our commitment to our growth strategy and accelerating investments in the business and will drive sustained revenue growth of 20% plus well into the future.
While these investments will impact near term profitability, our scale operating leverage and highly efficient marketing position us to achieve long term profitability and ultimately generate adjusted EBITA margin of 20% plus.
Finally, our strong momentum gives us confidence to raise our full year guidance for revenue and adjusted EBITDA.
Michael will provide further details on our financial guidance in just a few minutes.
Next I want to provide some insight into the macro environment, we are seeing and how it impacts our business.
We executed very well this quarter with record new customer additions, improving take rate and strong profitability metrics and while we still see strong demand and a long road ahead for digitalization trends globally, our volume was lighter than we expected for the second quarter.
As always we operate in a broader market context, and our performance is impacted by market forces and Covid continues to impact short term performance.
First while we are excited about the reopening occurring across the U S and in multiple places around the globe. We are seeing the impact of the shift in consumer buying behavior, causing slowing growth in e-commerce compared to the growth we saw in the peak of the pandemic.
We continue to see strong two year growth trends, indicating the continued momentum of digital commerce, but a number of our partners and customers are experiencing slower growth trends compared to the very tough comps from 2020.
In addition, global logistics is facing challenges with the cost of containers up substantially with longer container turnaround times and intense competition for containers. While this has created some additional near term headwinds can.
We do not expect this will have a meaningful long term impact in.
In Europe, there has been the introduction of new VIP requirements that required to be paid by marketplaces. Prior to this first thing funds to cross border sellers.
In international travel trends also remain soft and we now don't expect this trend to improve through the remainder of 2021.
As a result of these factors we are lowering our volume guidance for the year.
The diversification of our business strong execution and positive take rate trends more than offset the lower volume, enabling us to increase our revenue guidance.
We are monitoring all of these trends and recognize that Covid continues to create short term uncertainty.
Now I'd like to walk through some of the operational highlights for the quarter that demonstrate the strength and momentum we are seeing in the business.
We added a record number of new customers in the quarter. In addition, our customers remain loyal to the Pan Europe platform as we continue to achieve net volume retention of more than 100% and with a payback period of less than 12 months.
Earlier this year, we announced a strategic partnership with ebay, which we started to onboard in the second quarter.
While we are still in the early stages of our relationship our partnership is progressing well as we are ramping the onboarding of ebay sellers on our platform.
Our <unk> service continues to perform ahead of our expectations and is growing well faster than the business overall.
Our new services also all had strong performance with working capital merchant services, and our Mastercard virtual commercial card all exceeding our targets for the first half of the year.
While we are still early we believe these services represent compelling value for our customers and exciting growth opportunities for <unk>.
We are actively investing in our product offering and all of these areas.
I want to highlight a few product introductions from the second quarter, which include introducing a cashback rewards program for our Mastercard virtual commercial card expanding our working capital program to Mexican pesos and Canadian dollars for ecommerce merchants offering new and improved <unk> services for enterprises.
And launching an artificial intelligence based platform to detect fraudulent documents as part of our efforts to improve customer experience by introducing scalable automation.
These are just a few of the exciting new services and enhancements, we recently introduced for our customers.
Finally, we continue to invest in people and we are thrilled to have recently added new leadership talent by Dr. Wang who joined us from Amazon to be Vice President of Enterprise Americas, and Robert Clarkson, who joined US as Chief revenue officer to lead our global go to market activities, bringing relevant industry knowledge.
And leadership experience from leading companies like Paypal and American Express.
To conclude I am incredibly proud of our execution this quarter.
While we see broader market forces impacting volume trends in the short term, we are increasing our guidance for revenues and adjusted EBITDA due to the strength of the pay in your business and we remain focused on the compelling long term growth opportunity in digital commerce globally, which is sized in the tens.
Have trillions of dollars and will enable us to sustain strong revenue growth trends well into the future.
We are leveraging our global brands expanding on our broad ecosystem of small businesses marketplaces and partners and we're going to continue investing in our industry, leading infrastructure and product platform, while further enhancing our deep risk management and compliance capabilities.
We were built for the modern interconnected global digital economy, and our competitive advantages are meaningful.
And this is why we continue to win in the market.
Before I turn the call over to Michael I want to again, thank everyone, who has contributed to our success our customers our partners our investors and our employees we wouldn't be here today without your tireless efforts and dedication. So thank you all very much.
Thank you Scott given this is our first earnings call I want to briefly discuss our financial model before I review, our second quarter results in detail and provide updated guidance for the full year 2021.
Our revenue model is primarily driven by our ability to grow volume and to optimize take rate.
Volume is counted only once when funds arrive on or cash through our platform and take rate is a measurement of revenue as a percent of volume given period.
The majority of our revenue is generated and funds are withdrawn from the platform to customers bank account or when used to send attainment off the platform.
Majority of our revenues are from AD valorem transaction fees, which in most but not all cases are borne by the customer getting paid.
Revenue growth was generated by increasing volumes.
<unk> take rate, where a combination of both.
The number of customer types and product categories with varying take rates and the weighting of each can influence the overall blended take rate.
Adding more services and products that leverage existing volumes, such as working capital products and a mastercard commercial card offerings.
A positive impact on our take rate.
Additionally, we have introduced non volume related offerings, such as value added compliance services for enterprise clients could further enhance our take rate.
Transaction costs, mainly consist of fees paid to banks processors and networks that process payments to and from the pain in your platform.
Over the years, we've built a global banking infrastructure, the scale of which gives us advantage and our ability to reduce our underlying transaction costs.
We manage our business with long term profitable growth in mind continue to acquire customers in an efficient manner. We believe that our customers will need additional products and services as they grow which puts us in a favorable position to leverage our unique platform brand global reach to <unk>.
Support their growth and increase their lifetime value.
We are aggressively investing in our platform to expand our product suite and strengthen our capabilities to be the partner of choice for our customers and partners and digital economy.
With that background, let's take a closer look at our second quarter results.
Scott mentioned, we are very pleased with our performance and our ability to deliver strong financial results for the full year 2021.
Revenues in the second quarter were $110.9 million up 42% year over year, driven by solid volume growth and a higher take rate.
Volume increased 29% year over year to $13.6 billion.
I'm looking at a two year compounded growth rate between second quarter, 2019, and second quarter 2021.
Our volume grew 45% annually consistent with first quarter growth representing stable quarterly growth this year and compared to pre pandemic time periods.
We continued to benefit from secular ecommerce trends and continued growth from new and existing customers, albeit volume in the quarter was lower than our expectation due to the factors. Scott described earlier that have been impacting e-commerce and international travel.
The blended take rate for the quarter was 82 basis points up from 75 basis points in Q1 of this year as well as up from 75 basis points in Q2 of last year.
The increase in take rate was driven by growth in higher to create parts of our business such as B to B APR Mastercard commercial card and working capital.
And slower growth.
Take rate businesses, such as domestic payouts.
Additionally, the growth of non volume based value added services continued to help increase our overall take rate.
Transaction costs were $28.5 million, representing 25, 7% of revenues a significant improvement compared to last year's second quarter of 33%, which reflects the companys ability to benefit.
From improved operating leverage as we scale.
In Q2, we increased our provision for capital advance losses due to increased losses and reserves as a result of market conditions, we're seeing in e-commerce.
As a result of our second quarter revenue growth in the active management of transaction costs.
Revenues less transaction costs improved to $82.4 million, an increase of 51% year over year, representing 74, 3% of revenues.
<unk> 460 basis points from the same period, one year ago.
Turning to the remainder of our operating expenses.
Continue to make investments to expand our platforms capabilities and resiliency build new products functionality accelerate customer acquisition and develop new automation that allows us to scale faster and reduce the need for adding manual labor.
We incurred $12 million in one time costs in the second quarter.
These onetime costs include deal related costs.
QWERTY based compensation adjustments and other nonrecurring adjustments.
We incurred total equity based compensation expenses $11 million in the quarter of <unk>.
Which $5 million or one time adjustments triggered by the transaction with <unk> Olympus.
Labor labor related and consultant expenses were the largest component through the operating expense increase excluding transaction costs.
We hired personnel in our R&D and product teams to grow our platform and expand our product offerings and we continue to grow our global sales and account management teams to support our go to market strategies. Additionally.
Additionally, we have brought on additional support for Onboarding, a record number of new customers.
Total operating expenses, including transaction costs.
$129.3 million up 54% from $84.1 million and a year ago period.
Adjusting for one time expenses total operating expenses were $117.4 million up 40% from one year ago.
Operating loss was $18.4 million as compared to a loss of $5.7 million in the prior year period.
Net loss was $12.4 million or a loss of 63 per share based on weighted average shares outstanding of $66.7 million shares.
Note that the average shares for Q2 will be significantly different from the end of period shares outstanding given the transaction with <unk> Olympus and team here was completed on June 25th.
To calculate fully diluted shares outstanding please visit our industrial website, where we have a slide detailing our share count.
Adjusted EBITDA the calculation of which is detailed in table two of our press release was $674000 as compared to $1.4 million in the second quarter last year.
This reflects the increased investment in Opex and we already discussed.
Turning our attention to the balance sheet.
Cash and cash equivalents were $498.7 million as of the end of Q2, which reflects approximately $389 million of net proceeds from the completion of our transaction with the impact of Olympics.
Paid all of our bank debt and had no outstanding bank debt as of the end of the second quarter.
Lastly, we recognize the series one preferred stock as a liability after we determined we would redeem the shares after the quarter end in.
In July of 2021, we retired the series one shares for approximately $40 million.
Turning now to our guidance gives.
Given our strong first half performance, we are updating our full year 2021 guidance as follows.
We expect revenue in the range of 442% to $448 million representing year over year growth between 28% to 30% up from our original guidance of $432 million, which reflected 25% year over year growth.
We expect volume in the range of 57% to $60 billion $58.5 billion at the midpoint.
Or expected year over year growth between 28% to 35%.
Our volume outlook is based on the following assumptions Scott.
As Scott discussed earlier, we are projecting moderate growth in e-commerce in the third quarter as global supply chain logistics issues will need time to be resolved and the reopening in the U S and Europe has led to changing consumer behavior.
We expect to see improving growth.
Get into the holiday season.
Additionally, we are projecting the travel vertical will not show significant recovery for international travel this year due to the ongoing concerns related to COVID-19.
We project, our take rate will improve to approximately 76 basis points in 2021 at the midpoint.
Appeared to previous guidance of 68 basis points.
Our take rate assumption is based on a continued favorable mix of customers and higher take rate business as well as from revenues from non volume based value added services.
We do expect a dip in take rates in Q4, as a result of annual seasonality related to larger waiting to ecommerce during the holiday season, as ecommerce has a lower take rate than the business overall.
We expect transaction costs to be in the range of $112 million to $113 million approximately 25, 3% revenues and an improvement from previous guidance of $121 million, which was 28% of revenues.
Revenue less transaction costs is expected to be $330 million to $335 million representing growth of approximately 33% to 35% year over year, representing approximately 74, 7% of revenues.
We project adjusted EBITDA in the range of $1 million to $3 million.
Previously shared guidance that we expected to run at an adjusted EBITDA loss in 2021, while investing significantly growing our platform and making other investments as.
As a result of our strong first half performance, we will be able to increase our investments and still generate positive adjusted EBITDA.
While we will not be providing formal quarterly guidance I would remind you that we tend to have some seasonality with stronger growth in the fourth quarter compared to the third quarter.
To summarize we remain incredibly excited about our business and the impact we can make on the world as we continue tailed businesses everywhere and anywhere grow and thrive.
We're also excited to be a public company and to share our story with the market. So that investors can understand the unique positioning of our platform the brand the people and the universe of opportunities in front of us.
We are now happy to answer any questions you may have.
Operator, please open the line.
Okay.
If you would like to ask a question. Please press star followed by one telephone keypad. If you would like to withdraw your question. Please press star followed by team.
Appearing to ask your question please ensure Barclays.
We will pause here briefly to allow questions to generic.
The first question is from.
The line of Sanjay <unk> with King Debbie you May proceed.
Thanks, and congrats on your first quarter out of the gate.
I guess, Scott you went through.
Laundry list of some of the impacts that impact.
Negatively impact you'd view this quarter, maybe you can just talk about which one of those you think might have the potential to come back sooner than the others and then as far as the take rate is concerned.
Maybe you just talk about what the underlying assumptions are that you continue to see the strength in that take rate.
Great. Thanks, so much Sanjay.
So first in terms of.
The trends that we.
We've been seeing that.
Have made us a little bit more cautious on volume.
Really the potential for ecommerce.
To rebound faster at this point and frankly it seems.
More likely.
Then.
Significant surge in international travel for example.
So what we're continuing to see is kind of the changes in evolution of consumer behavior, obviously going into Covid and now.
Wouldn't say, we're out of Covid, but obviously if things evolve we're seeing people spending their time on different types of activities and we've seen reports on that from a variety of different companies in the market.
Better that we work with that have reported earnings so far so I think there.
Again, all of the underlying trends are positive we're seeing more customers.
Sign ups than ever and more new customers than we ever had in the quarter.
We're just seeing again kind of fairly broadly across the board.
A bit of a softening there.
Versus what we saw a year ago with a really strong COVID-19.
Covid trends, so again to your trends are really strong as Michael touched on 45% two year CAGR as we continue to believe that.
Long term digital commerce is really the place to be so we remain really really bullish and enthusiastic.
And among customers and prospects around the world to participate in digital Commerce has never been stronger, but again there is certainly there is a little bit.
More choppiness in the near term.
As we see again some of these kind of unprecedented move in and out of Covid travel again at this point, we our sense is that domestic travel has rebounded.
Quite a bit.
But not surprisingly, that's not really where refocus and travel and international travel has certainly been a laggard.
And again at this point with the trends that we're seeing.
We are steady and cautious on that through the rest of the year and not actually anticipating.
Or guiding to any improvement from what we've been seeing so far.
In terms of the take rate.
I think.
We talked about this about some of the take rate moves that we saw in 2020.
And there really are two important components to take rate.
Change that we're seeing so first is mix.
And some of the we're kind of seeing a little bit of a flip side or some of the mix impact that we saw last year, which we talked about having a meaningful effect on an example of that was in 2020, the rapid growth of some domestic ecommerce volumes as.
At much lower take rates and now we're seeing a little bit of a flip side of that with those growing slower and again the importance of talking about that as mix.
As we've seen good pricing stability for quite some time. So the importance of mixes. We are we have integrity within the pricing in each of our each of the parts of our business.
And so as we see the mix shift it might move the take rate around a bit here or there, but ultimately it's all contributing positively to our growth into a profitability. The second part of take rate, which I think is what gives us more confidence.
Is the kind of a purposeful focus that we have and the execution that we have on take rate accretive parts of our business. So <unk> is growing faster than the rest of the business overall and as we've talked about that as a higher take rate part of the business working capital that we continue to invest and drive incremental.
<unk> take rate and the commercial card that we've been introducing and ramping up is also.
Much higher take rate. So there are investments that we're making in parts of the business that are intended to actually drive incremental value out of the volume coming through the platform.
And we are executing well on those.
Thank you Mr. Jeff Carney.
The next question is from the line of Johns Seigler with Cantor Fitzgerald you May proceed.
Hi, good evening, Thanks for taking my call.
The first one it looks like your concentration in China declined sequentially can you elaborate a little on some of the drivers of this diversification.
Okay.
Yes sure.
Hi, Josh so it's.
In general.
We have had generally we've had trends overall.
With the diversification.
Around the business and growth actually outside of China has been even stronger than the growth in our customer base that comes from China.
And some of that will go along with e-commerce and so when E Commerce is really strong.
You will see.
Potentially a little bit of a tick up there or or less.
Gradual decline.
When in e-commerce.
Is maybe showing a little bit of <unk>.
Weakness the way it did this quarter and what were kind of guidance to looking forward a little bit here. The Apple bad means that other parts of the business are growing faster relative to ecommerce in the battle.
That will skew us away from China in terms of the mix of the business geographically.
Ken.
Thanks, Michael.
Josh It's Michael I'll just add.
If you look at note two youll be able to see the <unk>.
Breakout in 10-Q fitness two will have the obviously the breakout you probably looked at.
You'll see we went from 39% last year down to 34%.
And this quarter.
For China, but U S grew from 8% to 12%.
Part of that and another thing that has helped us.
Continuing to grow in addition to the things that Scott mentioned is that.
We are adding services that are non volume based.
You added services like related to compliance in other areas, where we can help.
Enterprise customers and that has grown.
It's early but.
<unk> has helped.
So that also continues to contribute to the diversification.
From a geographic standpoint.
Got it thank you.
Some helpful color.
Can you also talk a little bit more about the current M&A pipeline. How are you guys feeling about valuations in the market right now.
Everything is cheap.
I mean look it's interesting I mean, we obviously are seeing certain certain areas where.
Price expectations are quite high and we're also seeing other areas.
Where we actually are seeing really good.
<unk>, we have the benefit of having a pretty broad and diverse business in terms of geography and also in terms of.
The services that we either offer looking offer.
And it cuts across a pretty wide spectrum.
Also keep in mind that.
There has been so there've been so many startups that have been funded.
While you are seeing some some breakouts and youre seeing a lot of big funding rounds, where companies that are kind of breaking through there.
There are lots of companies that actually aren't getting the same kind of breakthrough and traction in the same way. So when we are looking we're looking at a range of different companies as targets. Some of them are larger but we're also looking at really strong tuck ins that can bring terrific.
Functionality that we're actually expecting that our global customer base.
And distribution capabilities can really bring a lot of value. So.
On average, we certainly are seeing things be a bit more expensive than they were but were also seeing pockets of opportunity out there and overall I would say.
We are pretty upbeat about the opportunities ahead.
That's great to hear thanks for taking my questions.
Yes. Thank you.
Okay.
Okay.
Thank you Mr Citigroup.
The next question is from the line.
<unk> Tandon with Needham.
Proceed.
Thank you good evening, Congrats Scott and Michael on your first quarter as a public company.
I wanted to start with.
Scott how do you think about growth going forward between new customers versus increased penetration of the existing base with all the additional services that you called out.
What are the trajectory going to look like over time, not near term, but really over a multiyear period between new customer growth and the land and expand if I can call. It.
Great. Thanks, Mark it's great to talk to you again so.
<unk>.
The great thing right now is that we're really kind of firing on all cylinders there.
In a position right now where we're getting.
Really strong new application volumes of customers signing up.
We're seeing as we touched on a record number of new customers.
And so we continue to have strong momentum in the market.
Continuing to see more and more opportunities and at the same time, we're getting more sophisticated in terms of our our global sales teams and our ability to actually engage our customers and grow the portfolio of services that we're offering to our existing customers. So.
In practice as we talked about for a while I mean, we've been around for a while and we've talked about the cohorts that.
We build and how each cohort builds upon the previous models and so.
Those positive volume retention trends and our ability to continue to steepen those those curves.
It certainly gives us a big opportunity to drive a lot of leverage through the existing customer base.
And that will continue to be a really really important driver of growth.
But again right now part of what's exciting is we're just seeing so much interest all over the world and our platform and in digital Commerce.
That we think that we still have a long way to go here.
New customer acquisition as an important driver as well. So so really again, we're executing well on both fronts and I actually expect that that will continue to be an important theme for us over the next couple of few years.
That's helpful and then as a quick follow up Michael you talked about the transaction.
Losses.
Coming down and you have been able to manage that very effectively could you just give us a little bit more detailed into what is driving that how sustainable is that and how should we think about that modeling going forward in terms of transactional losses.
Yes, I think when you take transaction losses Mei transaction costs.
Right, sorry, yes, yes, yes.
Yes.
You bring up a really critical element of our entire business model and something we've spoken about.
That's a core part of thinking about how our model works, which is there.
That.
Basically variable expense.
Is really a key if you look at revenue less that those transaction costs as those transaction costs go up that that inverse of revenue less.
Transaction costs.
<unk> a M.
Metric effectively to look at the variable profitability of the business right. So that cost come down that profitability goes up and what we've always explained is for us. When we look internally that is really the heartbeat of the business and as we're able to consistently keep that margin.
Not only high but.
Keep it in the higher range.
It gives us more flexibility.
To invest in the business or eventually to pull out and profitability. So we.
Look at.
That.
That effect with <unk> API revenue lessee transaction costs as a way to measure the variable profitability of the business SEC.
How were improving over time and so it's been really strong when you adjust out actually and sort of normalize and look at first quarter and second quarter.
In terms of that variable profitability, you would actually see that there was a lot of consistency between first quarter and second quarter.
Because in the first quarter, we had about 400 basis points.
That you'd probably take out of the.
Maybe yes.
The way you would add Wanda disappoints to the transaction costs related to one time benefits, we got from the Mastercard deal.
In this quarter.
Again for.
Our approach to managing risk we increased.
Our reserves for our working capital business and capital advanced business.
And as a result, if you were to adjust that sort of.
A normal level.
You would see that we actually on that normalized basis performed really well.
From that very low profitability analysis so.
Driving is ultimately has continued.
<unk> deficiency.
And business mix.
But.
The two main drivers of that.
I appreciate that thank you so much.
Thank you Mr. Kennedy.
The next question.
Is from the line of Mike Grondahl with Northland Securities You May proceed.
Hey, Thanks, guys.
I guess on the <unk> side or even the service provider vertical can you give us a little bit more.
If their growth rates, just kind of continued kind of how that shook out.
And then maybe just.
With your marketing strategy and kind of customer acquisition.
You tweaked anything there anything new there to call out.
Greg Hi, Mike.
So on <unk> <unk> continues to grow.
Quite a bit faster than the business overall in <unk>.
<unk> to actually perform ahead of.
Even our internal expectations.
And we really just continue to see tremendous opportunities there.
So that continues to be a bright spot in the service provider vertical.
I would say we have seen.
That would be a bit more resilient than e-commerce.
And again part of it gets really interesting is the timing of some of these year over year tough comps actually you start to get into some real real nuance. When you look at what kind of surge to win.
Last year, so maybe not surprisingly.
Some of the e-commerce volume started to grow a bit faster last year than some of the platforms that support remote work or some.
Digital services, which kind of picked up as we went a little bit further into the.
The summer last year or so.
I would say and again if you take a look at some of the other companies that have reported in the services space you get a sense that they are also seeing a little bit of.
Softness as well reporting some of the same kinds of trends.
That's some of the e-commerce platforms are talking about things around people.
As things have been opening up people spending more time out going on vacation and then sitting at home and working and generating.
Income and fees from services, so overall kantar.
Continuing to see strength in the two year growth trends are really strong in.
Again, let me thank the overall.
The growth of more flexible work arrangements and third party service providers in freelancing overall.
We will continue to be very very strong, but even there there continues to be reports and indications.
But there are some just some tough year over year comps.
And some short term trends that are maybe creating again, a little bit a little bit of softness there.
<unk> I think again we.
Right now we are.
At least so far in general continued to grow through some of the logistics issues and other things that are out there.
That have created some headwinds overall.
And again I think we're so small in such a big pool of opportunity there that so far it hasnt impacted at all that much in terms of customer acquisition.
It's really doing more of the same plus a couple of important things I mean, one we have been.
Looking to increase our sales teams in the field as we continue to see more and more opportunities around <unk>.
And with larger customers within that kind of small and medium size business category SEC.
And we are actually seeing a lot of exciting opportunities in our bank partnerships area and we are seeing some accelerating momentum with some partners in some markets.
We've got a good pipeline and we have a lot of things that we're excited about there and what started out as.
Being a little bit more emphasizing kind of additional value add for existing customers, we've actually seen.
Our partners accelerating their investments in driving new customer acquisition.
And that actually it's been really positive as well.
So overall.
Amplifying most of what we were already doing and.
Adding a bit more around partnerships, where we think we can actually drive a lot of incremental opportunities for partners and for us and.
And our customers along the way.
Got it thank you.
Yes, Thanks, Mike.
Thank you Mr. Greenberg.
The next question is from the line of Bob Napoli.
With Goldman <unk> you May proceed.
Hey, Scott Hey, Michael Good afternoon.
So I guess.
Just on the so your volume guidance to 57% to $60 billion is about in line with where we had forecasted I guess in the first half of the year you are at about 2007.
And what would cause you to be at the low end.
Are you expecting based on some of your commentary to be at the low end of that of that range, what would cause you to be at the low end or to.
I missed that range or what would cause you to be at the high end.
Yes so.
I'll start and obviously Microsoft Ken.
Can amplify on some of this but.
On the low end.
Take us seeing.
Kind of.
Increasing softness in ecommerce.
From where we've been.
And.
And really looking at.
Trends essentially.
It's often.
And on the positive side.
It would take one of the.
A few different things just continuing to perform more of the way we expect.
With e-commerce, staying solid not extraordinary or anything.
And continued positive trends in other parts of the business.
The one thing that again we've in.
In General I think we try to be on the more conservative side.
And certainly with travel are trying to make sure that we really have kept that pretty cautious in the way we've looked at the rest of the year.
But outside of that again.
The trends are just down a bit from from what we had actually seen unexpected and.
But overall, we feel good about the range and good about how we're performing in that.
So what is how much of the change.
So, let's say what percentage of E comm HCM business and what was the change in growth rate for E com.
Yes.
Bob.
Okay.
I'm, sorry could you already.
Yeah.
Bob can you hear me yes.
Yes.
Okay.
Yes, hi.
E Com.
We've shared before E comm is directionally about half of the business.
We haven't broken out specific growth rates.
Overall, so thats not something that.
We have shared.
But again given the.
The percentage that represents of the business overall.
You can obviously pretty easy to get a sense of how it if the trends are slowing a bit there how it has a meaningful impact.
On the overall volumes that we report.
And then just does.
You have.
Our guidance out there for 2022 and for topline growth.
20% at least 20% how do you feel about that being able to hit that target that revenue growth targets.
Into 2022.
And you are actually doing better from the profitability side what are you what are.
Your thoughts on investing versus their reporting a little better bottom line results.
But yes.
On the.
Got it.
Yes, I was just going to say.
In general we remain very very upbeat about digital commerce overall.
The big broad macro trends and themes around our business and around our customers around the opportunities.
It Hasnt changed at all I mean, we really are very very upbeat and enthusiastic about that and we are continuing to feel very very positive about those opportunities our specific market position.
The execution that we have in our ability to drive.
Increasing revenue growth and an increasing take rate.
And very much looking for.
Forward to making more investments in helping more businesses around the world actually.
Capitalize on opportunities in digital commerce, So we feel really good about the long term.
Trends in the numbers that we've shared about our long term growth rates and our long term EBITDA targets.
And we're absolutely continuing to invest out of the strength in the business and the strength in the P&L.
The short term.
Volume considerations coming from some of the short term macro trends in the market, we don't think actually.
Impact that at all.
Thank you I appreciate it.
Yes, Bob.
I'll just add that.
Sure.
We had a great first half we're really happy with the results. We think we're in a really strong position no different than when we spoke at the beginning of the year, we think that our platform gives us a distinct advantage and we think now is the time to accelerate our investment.
So we are pressing on the GAAP harder than ever.
We think that.
There is tremendous growth opportunity in the future and we're executing on it now so I think the first half results.
That we've had back to back really strong quarters and.
Again, given some of the things we're flagging in the market, which that youre seeing across with with other companies that are reporting that we're seeing as well.
We're still at this point raising our guidance with confidence that we can increase our revenue growth from what was prior guidance of 25% now raising that to 28% 30% Greg.
After this year and we'll continue to work hard to.
To execute on that.
Great. Thank you I really appreciate the commentary.
Thanks.
Thank you Ms from the police.
There are no additional questions waiting at this time I would like to pass it back to the management team for any closing remarks.
Thank you all for joining in.
For all the good questions and all of your <unk>.
Time and attention. So we really appreciate it and really appreciate the engagement and look forward to continuing our discussions. So thank you all so much and.
We will talk to you sometime soon thanks.
That concludes the <unk> second quarter 2021 earnings conference call.
Enjoy the rest of your day.
Yeah.
Yeah.
[music].
Okay.