Q3 2022 Payoneer Global Inc Earnings Call
I'd like to turn the call over to John to begin.
Good afternoon, and thank you all for joining us today to discuss our third quarter 2022 results.
On today's call I will discuss the opportunities I see for our business our outlook for the rest of 2022 and our initial outlook for 2023, EBITDA Scott will cover third quarter business results and Michael will discuss third quarter financial results and our updated guidance in more detail.
<unk> delivered a strong quarter of business and financial results we.
We generated 30% revenue growth and over 100% adjusted EBITDA growth year over year.
Year to date, our revenue is up 33% and adjusted EBITDA is up over 150% year over year.
It can be challenging to understand the obstacles that emerging market entrepreneur's faith and the limited options they have when growing their businesses.
<unk> helps these entrepreneurs outbreak globally, which underscores the value of the pain in your account and pioneer's role empowering the cross border economy.
Scott and I recently traveled to India to meet our customers face to face.
<unk> told us about their challenges as emerging market cross border Smbs and the ways panniers, helping them simplify their ability to grow their business.
We returned with a deeper appreciation for the scale of the opportunity we have.
And the capabilities of our local team.
Our revenues for SMB from India have grown 35% for the first nine months of 2022 versus a year ago.
In a country, whose GDP is growing approximately 7% this year and where we have less than 1% market share.
And India is just one example of our exciting market opportunity, we do business in 190 countries and territories and we see similar growth opportunities and dynamics in many other emerging markets around the world.
Our customers' units, they're paying your account to get paid from their global customers, including large marketplaces trading partners corporate buyers and small firms around the globe.
They use <unk> to manage their funds in the currency, they want and need and they ultimately move their money where it needs to go.
They can send money to their local bank accounts pay for expenses using our commercial Mastercard make payments through our in network ecosystem and pay suppliers.
You can also access working capital from pioneer to invest for growth.
Our customer base today represents a fraction of the global cross border F&B and freelancers that we can serve.
A minority of our customers today and utilize the full potential of the pay in your account and we aim to provide more services to our existing customers and accelerate our pace of acquiring new active and profitable customers that can and will benefit from our broad range of services.
One key feature of the pioneer accounting is our.
Customers ability to store their funds with pioneer and pay other paying their customers.
Our customers are increasingly utilizing these balances to make billions of dollars of in network and cross border payments to one another instantly. These.
These payments highlight the network effects of tenure and are not currently included in our reported volume metrics as we are not monetizing them directly today.
We believe our engaged and active community of global SMB has the long term potential to become a meaningful source of low cost new customer acquisition.
In Q3, we made investments to expand our ecosystem meet our customer needs and maintain long term, 20% plus revenue growth.
We plan to continue our investments in Q4 and 2023 focus in two major areas.
Number one.
We are expanding our go to market penetration, even as we're decelerating the pace of total company head count growth number two we are scaling our platform and products suite and.
In September we hired a soft ronan to be our first chief platform officer.
<unk> is leading our technology product and high value service teams to deliver two things one the painter account suite of products and to increasing the efficiency of our operations as we broaden the gap between pioneer and the physical check ledgers and <unk>.
Connected software platforms that our customers use.
We expect meaningful investment in 2023 to support these efforts and we will share more information in the coming months.
Our interest income is expected to significantly increase in 2023 relative to 2022.
We will invest a portion of this growth in our strategic growth and platform development initiatives.
The recent zero interest rate environment has been a historical anomaly and as we emerge from this.
Our business model will benefit from the value our customers attribute to holding a balanced and the many currencies we offer.
In our last quarterly update we communicated our commitment to delivering sustained positive adjusted EBITDA.
It's premature currently to provide formal 2023 guidance. Our plan is to moderately increased adjusted EBITDA margins in 2023.
There are several factors, we are planning for it including the uncertain global economic landscape the war in Ukraine, and the impact of high inflation on consumer spending behavior.
Specific to pay them here, we expect lower non volume and non strategic revenue beginning in the second half of 2023, specifically for Onboarding related services, we provide to certain enterprise partners.
We will be thoughtful with our spend while further increasing our efficiency in 2023 and beyond.
Our balance sheet is strong our business is well positioned our opportunity is significant and our team is focused.
We are confident in our ability to successfully execute on our strategic growth plan and create long term shareholder value.
With that I'll turn it over to Scott to discuss our third quarter business results in more detail.
Thank you John and thank you everyone for joining us today.
We had another quarter of strong results driven by new customer acquisition adoption of our high value services and rising interest rate tailwind.
Total revenues grew 30% year over year, and 7% sequentially and we delivered another quarter of positive adjusted EBITDA of $13 million.
We are seeing momentum in our business and the diversity of our customers and products gives us confidence that pioneer will continue to execute and generate strong growth through the current macroeconomic challenges and global uncertainties.
We serve a range of industries, including freelance remote work e-commerce travel and social content creators. This diversity drives resilience in our business model and our emerging market. So guests provides our shareholders access to the higher growth rates. These emerging economies delivered.
In 2023, the IMF expects growth in emerging markets and developing economies to be more than three times faster than that of developed economies and emerging markets are where the majority of <unk> customers are located.
Volume in the third quarter increased 11% year over year, and 3% sequentially as <unk>.
<unk> and travel had solid growth and e-commerce volumes were stable.
Given the uncertainty around economic conditions, we remain cautious about year over year volume growth in the near term although sequentially volume is expected to increase in the fourth quarter due to E Commerce holiday sales.
This holiday season volume growth is typically driven by our largest customers who have a lower take rate.
<unk> continues to grow faster than our overall business and at a higher take rate.
This is a big opportunity for Pannier <unk>.
<unk> helps our customers that are doing business across borders to send the digital invoice and get paid across countries and currencies without needing to open bank accounts around the world or rely on outdated ways to move money such as checks and wires.
<unk> generates a higher blended take rate because we earn fees on both the money in and from the usage of the pain in your account.
<unk> to our other customer volumes, where we primarily monetize when our customers use the funds and they're paying their account.
<unk> generated year over year volume growth of nearly 40% and represented 12% of our total volumes.
We implemented an enhanced risk and compliance measures in the third quarter to position us to consistently generate future growth and scale and to ensure we maintain strong controls as a result of these enhanced controls we terminated relationships with certain customers slowing growth compared to the first half.
2022.
Normalizing for these terminated customers DDB EPA or volumes for remaining customers grew at over 60% year over year. We continued to have strong customer acquisition and customer retention for <unk> remained consistent with prior periods.
The small number of terminated customers on average generated higher volume and paid a lower take rate. So the revenue impact of their termination wasn't as significant increasing the blended take rate for the <unk> business in the third quarter as a result.
<unk> is a massive market opportunity measured in the trillions of dollars of addressable volume.
We remain confident about the long term growth potential for <unk>.
And in our ability to successfully execute to capture this opportunity.
Looking ahead, we see early signs that our BTB customers' businesses are facing their own economic headwinds for us macro conditions and our enhanced risk and compliance measures may result in slower growth of <unk> volumes in the near term, particularly as we begin to lap very.
Strong volume growth from a year ago we.
We expect revenue growth will be faster than volume growth because of continued strong customer growth and momentum globally, along with a higher blended take rate.
While our customers are not immune to macroeconomic uncertainty and recession fears.
Especially in these more challenging times that our customers find value in what <unk> can offer them our customer acquisition remains strong and the number of customers using multiple products continues to increase.
Another service that we are excited about is our commercial Mastercard, which is one of our high value services.
Card adoption continues to grow and the virtual card spend is up more than 100% from a year ago most.
Most of our customers receive payments in U S dollars and with the dollar appreciating significantly year to date, they increasingly want to match their dollar liabilities. As a result, we are seeing more interest for our commercial Mastercard, which allows customers to pay for expenses directly from their paying your account balance.
We continue to develop our ecosystem of partners and recently announced a partnership with wound commerce, enabling us to offer new commerce Smbs paying your checkout and the complete paying your suite of services. We are in the early stage of the Pan your checkout opportunity, which aims to help smbs expand.
And grow through direct to consumer web store sales globally.
The dedication of all of our employees globally and their successful execution translated into strong results for our third quarter.
To all of our employees. Thank you from the entire management team for your continued efforts. We are confident about the opportunities ahead of us and our positive cash flow and ample cash on our balance sheet enable us to invest for long term revenue growth and future profitability I will now hand, it over to Michael to.
Discuss financial results and forward guidance in more detail.
Thank you Scott and thank you to everyone for joining us Pena delivered another strong quarter of results once again exceeding our forecast.
Q3 revenue increased 30% year over year to $159 million driven by continued customer acquisition growth of high value services and accelerating interest income we.
We see faster growth in regions, such as Southeast Asia, Latin America, South Asia, Middle East and North Africa is smbs around the world use EMEA to make and receive payments manage their finances and grow their businesses.
Senior customers is utilizing the multiple benefits of obtain Eric counts custom.
Customer funds on our platform remain above $5 billion as of September 30.
With the U S dollar appreciating 13% versus a basket of other major currencies through September 30, our customers many of whom are in emerging markets that have been impacted value the ability to hold U S currency and they trust team there to do it.
We earned $15 million of interest income from these customer balances in the third quarter up from less than $1 million compared to the prior year period.
<unk> volume increased 11% year over year, and 3% sequentially to $15 1 billion.
Year over year volume growth was driven by continued growth of <unk> to be a new customer acquisition as well as an acceleration in travel volumes.
We are also seeing stability can customers, who receive funds from large e-commerce marketplaces as the industry begins to lap tough year over year comps.
The Q3 peak rate was 105 basis points up compared to 90 basis points from the third quarter of last year and 101 basis points in Q2.
Sequentially the <unk>.
Great expansion was driven by higher interest income, partially offset by mix shifted to travel, which has a lower take rate vertical and lower non volume related revenue.
Q3 transaction costs were $28 million, representing 17, 6% of revenue an improvement from 21% in the third quarter of last year and 17, 7% versus Q2.
Transaction costs grew at a lower rate than revenue due to improved commercial terms internal platform optimization and cost structure benefits from increased transaction volumes.
Bank and processor fees, the largest component of transaction costs increased 10% year over year, well below Q3 revenue growth the year over year improvement in transaction cost as a percent of revenue also benefited from higher interest income revenue and lower network fees from achieving certain volume.
Related milestones, partially offset by higher working capital costs.
Q3 revenue less transaction costs increased 34% year over year to $131 million.
Representing 82, 4% of revenue.
Q3, total operating expenses, including transaction costs were up $164 million of.
27% year over year.
Excluding transaction costs operating expenses increased 30% year over year, and 10% sequentially driven by higher labor costs marketing investments and a rebound in travel cost as employees return to offices and connected with each other and customers in person.
Two thirds of the year over year increase in operating expenses, excluding transaction cost related to employee compensation. This.
This reflected head count growth, primarily in our R&D and sales and marketing teams as well as base salary increases for employees and higher equity compensation Comping.
Compensation expenses increased 9% sequentially, reflecting the full quarter impact of new hires in the first half of 2022.
We started to moderate our hiring plans in the third quarter as we announced in our previous earnings call.
Q3, adjusted EBITDA was $13 million compared to $6 million in the third quarter of last year and $58 million in the second quarter.
Q3, net loss was $26 million compared to net income of less than $1 million in the third quarter of last year net loss for Q3 included $15 million loss from the change in fair value of warrants.
Q3, basic and diluted loss per share was <unk>.
We continued to generate positive cash flow and we ended the quarter with cash and cash equivalents of $508 million a.
A sequential increase of over $15 million.
Turning to our outlook for full year 2022, we are raising our 2022 guidance.
Our updated guidance reflects strong year to date results and the evolving broader macroeconomic geopolitical and interest rate environments.
We are raising our revenue guidance to be between $605 million and $615 million, reducing transaction cost as a percentage of revenue to 18% and increasing our adjusted EBITDA guidance to be between 40 and $43 million the midpoint of our latest guidance represents.
29% increase to revenue and 47% increase to adjusted EBITDA year over year.
We believe our faster growing geographies and high value services, along with interest income and fourth quarter ecommerce holiday sales seasonality will drive revenue growth in the fourth quarter.
Regarding the war in Ukraine.
While the situation in the region remains fluid our Ukrainian customers continue to be incredibly resilient.
A recent survey we conducted found that 70% of Ukrainian businesses are continuing to operate despite the invasion of their country.
Our outlook on our business in Ukraine remained stable at 75% of our original budget.
Sequentially, we expect volume growth to accelerate going into the fourth quarter.
Our take rate will be impacted in the fourth quarter by seasonal holiday volume, which tends to be driven by larger customers. One average a lower take rate.
This mix shift impact is expected to be partially offset by higher interest income in the fourth quarter as well as continued mix shift towards faster growing geographies and products.
As Scott discussed, we recently terminated a small number of <unk> customers on our platform.
We expect our proactive actions.
<unk> impact fourth quarter and first half of next year from a volume perspective.
We expect revenue growth will likely outpace volume growth.
We remain confident in the long term growth potential of BTB AP PR.
We expect interest income to be in the mid $20 million range in the fourth quarter based on our third quarter customer funds the exit run rate and current anticipated fed funds interest rate increases.
We expect transaction costs over 2022 to be approximately 18% of revenues an improvement from our previous guidance of 19, 5%.
This improvement is driven by lower transaction costs as a percentage of revenues year to date.
We are revising our 2022 adjusted EBITDA guidance to be between $40 and $43 million. Our raised guidance is due to our strong year to date results as well as our confidence in our ability to continue generating positive adjusted EBITDA going forward, while investing in our business to drive additional future growth.
We expect fourth quarter operating expenses to increase sequentially and include approximately $16 million of non compensation discretionary investments related to accelerating our market penetration strengthening our organization and focusing our growth strategy.
Nearly two thirds of the spend is additional market penetration of investments in four key markets to increase share in 2023 and beyond.
We expect to increased travel related expenses in the fourth quarter to drive more connectivity and collaboration across the organization.
We are investing in our growth platform and efficiency initiatives with the help of third party consultants to increase our momentum as we head into 2023.
For 2023, we expect to deliver a moderate increase to adjusted EBITDA margins.
We plan to invest a portion of the interest income of revenues, we generate next year back into the business.
We will share formal 2023 guidance when we report earnings in February .
In conclusion Q.
Q3 success once again demonstrated our team's ability to deliver strong financial results we.
We have built a resilient and profitable business and we see positive and exciting trends for our business going forward. They.
We have confidence in our ability to meet our 2022 financial targets, while investing to position premier for many years of future profitable growth.
On behalf of John Scott and myself and the rest of the senior management team. We thank you for your continued interest and support.
We're now happy to answer any questions you may have.
Operator, please open the line.
Of course, if you would like to ask a question. Please press star followed by one on your telephone keypad now.
Sure I'll make yourself into the queue. Please press star followed by key.
Hello, and preparing to speak please ensure that your line is on mute.
This last question on the line comes from will Nance with Goldman Sachs. Please go ahead.
Hey, guys. Good afternoon, very rationale today.
I guess I wanted to hit on one or two topics.
The most important.
It seems like the windfall of interest income is giving you guys the opportunity to make several kind of changes or.
<unk> in the business you mentioned, the $60 million of discretionary investments it sounds like you've enhanced some of the some of the due diligence controls around upper Onboarding and B to B. I think you also mentioned some I think you said non volume.
Non strategic revenue.
That you expect to be falling off in the back half of next year.
I guess on all of these but particularly the latter too could you kind of drill down a little bit on specifically the changes you've made around the <unk> platform.
At around the types of customers you are taking on in that business and then for the nonstrategic revenues is there any way you could kind of quantify that.
Quantum of that either this year or the expected fall off next year and then what the margin profile looks like on those I'm sorry.
Sorry for asking five questions there.
Okay.
I will let Scott grid.
Great to talk with you.
So so first on <unk> and as we've talked about.
This is a really exciting opportunity for us with everything we do and you focus on the long term.
And we really think this is just a massive addressable opportunity for us measured in the trillions of dollars of volume.
So.
As we have had with every one of our product offerings.
What we find is we continue to grow and learn the market and the industry that we serve.
Is that there are different risk profiles for different vertical markets different types of trading partners and activities and so its ordinary course for us.
Refine and tune our risk models to recognize that there are certain.
Verticals or types of flows that we are.
Enthusiastic to support and then others that we think exceed our risk appetite so.
That was the change that we made there was.
To prune.
Select group of customers, it's actually a very small number of customers.
Representing more than volume and revenues underlying that really good underlying performance in <unk> and our views from a long term perspective remain intact.
On.
On the non strategic non.
Non volume revenues from time to time with some of our larger marketplace partners.
To help them with ramping up their business and their activities we.
We might provide a variety of different services that might include certain onboarding or cable IC or other services.
We might provide.
<unk> all of those together represent less than 5% of our business.
So.
We just wanted to give a little bit of insight into 2023 really in the back half of next year starting to.
<unk>.
A reduction in some of those that again, we've provided to certain partners as part of facilitating there.
Ramping up of activity with small businesses around the world.
And something that we expect to see a decline in the back half of next year.
Scott.
It's John <unk>.
Ed I think you accurately sort of see what we're doing which is we are.
Taking a balanced approach to how we're handling the interest rare.
Our revenue in the short term.
Focused on EBITDA margin growing for 2023, and EBITDA absolute dollars also growing for 2023, while we make the strategic and.
Important investments in long term sustainable significant revenue growth for the out years and so we are taking a balanced approach to deliver both short and long term value with the interest revenue.
Got it that makes a ton of sense I appreciate that and then just as a follow up the trends in volume, obviously, the accelerated quarter over quarter and it sounds like that's maybe despite some of the headwinds in E. Commerce, you mentioned lapping some of the ebay dynamics last quarter.
And then.
I mean, maybe you could just talk broadly about what youre seeing in the.
E Commerce space and how you feel about the sustainability of volume growth at current levels. I know you mentioned that it will accelerate a bit next quarter.
Hey will John here again, so volumes in e-commerce are stable year over year.
We are beginning to lap the year over year, which can be difficult.
Difficult comps, we remain optimistic about the long term.
Volume growth for e-commerce customers.
And obviously volume has benefited from travel, which where we saw year over year, the lockdown restrictions lifted and in our largest markets. We saw a quarter over quarter growth due to seasonality. So although asia is improving a bit less.
In Europe did.
We think both the volume growth and the stability of ecommerce make up for.
Our consistent results as it relates to volume.
Understood Alright appreciate you taking all my questions.
Yes.
Thanks, a lot.
The next question on the line comes from Sanjay <unk> of <unk>. Please go ahead. Your line is open.
Thank you maybe just to follow up on <unk> last question.
Some of the larger e-commerce players on your platform have talked about moderating volumes as you sort of move into next quarter, but obviously your trends don't seem to suggest that I'm. Just curious how you kind of see your revenue growth profile being an e-commerce backdrop, but maybe it's low single digits next year.
Hey, Michael how are you.
Got it yeah, I think I think really.
Diversity.
In our revenue stream. So we have as we spoke about many times many many drivers.
And so.
<unk>.
E Commerce as John said, we've seen.
More more stability, we will get the benefit of the holiday season.
In.
Q4, and then going forward, we continue to invest heavily in those markets that are growing fastest so we've talked a number of times about the emerging markets, where we see the fastest growth when we put them continued go to market investments you'll see that.
Sales and marketing, where one of our biggest investments in Opex and we hope that will continue to drive.
The ongoing revenue stream among others.
Okay, because you guys had articulated.
Okay.
Got it.
And we're so we're very excited about the high value services, obviously that continues to be a major driver, it's still growing faster than them.
The rest of our business and we'll continue to do so.
Got it.
Maybe just to follow up on <unk>.
Could you guys just talk about who exactly you are competing with in that space.
As you go to market going forward is it just going to be cross selling it or is it actually selling it to new customers out there in the marketplace.
Hey, Sanjay it's Scott.
So.
<unk> I mean part of what's so exciting is for the most part we are competing against the legacy ways that small and medium sized businesses.
New business, so, we're really giving them something new.
<unk> replaces the way they would've potentially after customers to send wires or used.
To go open bank accounts around the world or things like that so it's really.
A much more efficient way of managing their business.
It's much more customer friendly much more digital.
And much more local wherever theyre doing business around the world in many ways.
A little bit like.
International version of the Bill Dot com for for small and medium size business exporters.
So thats the way to think about the <unk> business.
Okay, great. Thank you.
Okay.
The next question on the line comes from Josh <unk> from Cantor Fitzgerald. Your line is open.
Yes, hi, congratulations on the results and thanks for taking my question given the ongoing macro uncertainty and growth concerns, especially coming out of China recently, how is the business better positioned today to weather global growth slowdown that they a year or two ago. Thank you.
Hey, Josh Jon Caplan here I'll take I'll take that one.
There are a number of.
Both business and macro headwinds and tailwind that we are actively managing.
The headwinds, which arent unique to pay here and frankly, nor are we immune to them are slowing.
Global economic growth.
The risk of the recession inflation at 8% in the U S and 10% in Europe The war in Ukraine, and other geopolitical issues as you mentioned and consumer and business spending.
I think actually what powers us through those.
Even stronger tailwind.
Results from our operations, we had 9% quarter over quarter growth in customer acquisition.
Strong revenue and volume retention of our customers.
We have an increased growth in customers that are using two or more of our products.
In services, which is good for both take rate and customer retention and then as <unk>.
Michael mentioned in his prepared remarks over $5 billion of customer funds on the on our customers who trust <unk> to hold their balances that we are increasingly.
Monetizing with interest and with over $500 million on our balance sheet.
Up to.
Up $15 million this quarter to $508 million.
We feel like we are well positioned we've made strong investments in our go to market organization in Latin America, and the Middle East.
In North Africa.
In Southeast Asia, Scott and I were just in India, where I mentioned on my prepared remarks, we have 1% market share and we are.
Relentlessly focus on our customer and their needs and providing unique value for them and.
And so we feel like we're well positioned to power through the air.
Any economic uncertainty, we face and the team here is well experienced going through that and feel like we're prepared and well positioned.
Great I appreciate the color on that.
I was also curious have travel volumes returned to pre pandemic levels or is there still some more room for travel volume recovery. Thank you.
Yeah.
Yes, Hi, Josh its Scott.
The travel volumes.
Overall, our are up from pre pandemic buys.
If you just isolate the routes that we had before the pandemic. It actually has not returned to where it was in 2019 for us.
So again, that's kind of a pannier specific read tie into kind of the basket of routes that.
We've had which tends to skew more towards kind of more parks long markets.
In Asia and in other places around the world. So.
So travel again, we've increased our share of some portfolios.
But.
On a comparison basis for what we had in 2019 were not yet back to where we were before.
Alright got it thanks, Scott and congratulations once again.
Thank you Josh.
The next question comes from Chris Kennedy with William Blair. Please go ahead. Your line is open.
Good afternoon, and thanks for taking the question can you provide a little bit more detail into the platform division and the hiring of the Chief platform officer and kind of what is key initiatives are and how that will impact the business over the long term.
Hey, Chris John John Here, and nice to hear your question.
We made the judgment that we had a significant scale opportunity.
Around our products and services to both combined our high value services team, our product and technology teams into one unit.
Led by a soft ronen who joined us.
From.
From so far where he ran the product and prior to that at Amazon and Microsoft.
Our focus is on investing in the next phase of that platform, which will be around the scale of the platform. The efficiency of how we operate and enhancing the product features and capabilities and driving the innovation one of the hallmarks of our track record has been releasing products and.
As for emerging market as some cross border SMB that.
Our better than.
Checks and wire and other alternatives and we are very focused there. It's a complement to our M&A activity and the work we're doing to look at adding additional products and services to sell through our existing distribution channels, which are increasingly well developed and our customer relationships, which are strong.
Very helpful. Thank you and then because you mentioned that.
M&A can you just kind of talk about what youre seeing out there in the market have valuations come down and what the opportunities are thanks for taking the questions.
Sure. So we are evaluating several potential M&A opportunities.
We are focused on adding capabilities that enhance our high value services and as I mentioned, we can cross sell and upsell to our engaged customer base.
Our approach is very straightforward acquire product capabilities that we think are relevant to our global customer base.
We are not focused today in what I would call transformational acquisition.
We are.
Primarily focused on things to add to the portfolio, we have over $500 million of corporate cash on our balance sheet and believe that we can optimize that use of capital to accelerate our revenue growth through.
Strategic M&A as it relates to valuation.
I do believe private company valuations are.
Coming down and we're seeing that in the market and we are very disciplined acquirers.
And so we have passed on acquisitions, where we believe they were.
Unrealistic private company Ceos.
Yeah.
Thank you.
The next question comes from <unk> Tandon from Needham. Please go ahead. Your line is open.
Thank you.
So Scott John and Michael on a strong quarter.
Wanted to ask you a few things here Michael first on the model.
Maybe you already gave this but how should we think about the margin expansion next year that you mentioned in terms of the <unk>.
Maybe leveraging the model any sort of expense efficiencies versus the contribution from the higher interest income. If you could just maybe parse out a little bit it might be helpful for us to model. It next year.
Yes.
So obviously, we haven't given specifics for next year.
Some of the things to think about is that we will get benefit.
Leveraged in terms of interest income.
We have.
A mix of different factors, including growth of.
<unk> and <unk>.
Certain geos that.
It would have potentially lower margin to mitigate some of that benefit but overall, we're not in a position at this point to give guidance for next year yet.
The 2023 forecast or guidance available in February .
Sure I guess, we will have to be patient to get that.
In terms of my follow up I wanted to maybe just ask a little bit more about the attach rates on your.
Higher value products, great granularity on the APR products.
The progress there, but could you maybe talk in general about what is the usage across your strategic accounts in terms of the number of products, they're using today and where do you see that going over time to give us maybe a better framework for.
How to think about revenue growth longer term, both from volume growth and from take rate hopefully that question is clear, but I can otherwise repeat it.
I'll start and then maybe Scott you could grab it I think what we're seeing.
Is that the more of our services our customers utilize the more volumes they do on our platform and the longer they engage so I think that it's sort of at or at the most basic way to think about it is the.
The more tools they use of ours the longer they stay it's very early days and we've only recently started ramping up our both the product offering and of the high value services card and BBB, the commercial card and the <unk>.
To be able to cross sell more of those.
Our customer base and that's a core focus of the organization.
Yes, maybe just pulling a thread slightly more.
And I realize I didn't answer Sanjay question fully earlier.
So on <unk>, we actually have had.
We had a lot of success early on in cross selling it but.
We've also mentioned that it only only about a third of our customers there.
Our customers that are existing customers. So that's an example of something that is both a high value service.
Extension for existing customers as well as a high value service that attracts new customers to pioneer our commercial card is another example of an area, where we're actually seeing success, we mentioned that.
We had over 100% growth year over year.
And we continue to see that being.
An opportunity with a high ceiling and we're still relatively early days in <unk>.
Finding ways to actually penetrate.
That market opportunity and again, its a great win win solution, where our customers save money and we actually generate a higher take rate.
And it's something that we are still quite keen to grow and see a lot of opportunity ahead.
Alright, and then just one housekeeping item Michael I think you did give this what was the interest income in the quarter I apologize I missed that and then in terms of the impact for the fourth quarter, our margins going down or EBITDA dollars are going down in the fourth quarter for your guidance to reflect the incremental investments or is there something else that is driving that.
Downtick from <unk> to <unk>, despite rates going up in the market.
Yes, so $15 million.
It's a number that's in the press release that $15 million in terms of the interest income and we did talk about so we are.
Vesting meaningfully in Q4, we talked about $16 million.
Non compensation discretionary investments, so thats, having an impact on EBITDA margin.
In Q4.
Understood well congrats again thanks.
Thank you.
The next question comes from Mike Grondahl from Northland Securities. Please go ahead. Your line is open.
Yes, Congratulations guide could.
Could you talk a little bit about the customer balances deposits kind of to Q3.
Three Q and maybe anything intra quarter to think about and if you can provide any color on kind of rate that you're making that'd be helpful.
Yes.
We were over $5 billion again second quarter in a row that we're above $5 billion. It went down by a small amount about $100 million.
Quarter over quarter, but for the most part we've seen pretty good stability.
In customer funds.
And then I'm sorry, Mike what was the second question yet.
Well the rate that you're earning I think last quarter. You said, there is a little bit of lag from fed hikes in.
Anything you can call out there.
Yes, so I think again our guidance remains consistent what we have shared historically is that.
More than half of our customer funds, our interest, earning and generally as the basis of the fed funds rate and usually the thanks for Keith some percentage for themselves. So it's a discount off the fed funds rate and often there is a timing difference between the time the fed announces.
And when the banks actually increase their rates, we're working very hard.
To optimize that.
We continue to focus on making sure the funds are safe, but trying to optimize the return on those funds.
Great. Okay. Thank you.
We have no further questions. So I'll hand back to John for any closing remarks.
To everybody for joining us today.
<unk> had a tremendous growth.
And lots of growth opportunities in front of us that we intend to capture the full potential of <unk>. We've built a resilient business with strong financial financials, and a strong capital position, we will continue to invest in our platform and products. So we can serve more customers and increasingly.
I want to close by thanking all of our employees at <unk> for their incredible dedication and boundless passion every day.
Helping our customers and thank you most of all to our shareholders for your support we look forward to talking again soon.
Okay.
This concludes today's call. Thank you all for joining you may now disconnect your lines.
Okay.