Payoneer Global Inc. Q1 2023 Earnings Call
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Good morning, Thank you for standing by welcome to pay in its first quarter of 2023 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 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 one paying is VP of Investor Relations.
Thank you operator with me on today's call are <unk>, Chief Executive Officer, Jon Caplan opinion, Chief Financial Officer before we begin I would like to remind you that today's call may contain forward looking statements.
These forward looking statements are subject to numerous risks and uncertainties, including those set forth in our filings with the SEC.
<unk> in the Investor Relations section of our website.
Actual results may differ materially from any forward looking statements we make today.
All 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, todays call may include non-GAAP measures.
Should be considered as a supplement to and not us.
Substitute for GAAP financial measures reconciliation to the nearest GAAP measure can be found in today's earnings press release, which is available on the company's website.
Additionally in line with our commitment to enhancing investors' understanding of our business. Please note we have posted a new earnings presentation supplement alongside our earnings press release on Investor Dot Pandora Dot com with that I'd like to turn the call over to John can begin.
Good morning, and thank you all for joining us today to discuss our first quarter 2023 results.
On today's call I will discuss our business momentum and provide a progress update on the priorities we outlined in February .
He will then cover first quarter financial results and our increased 2023 guidance in more detail.
Hey, Amir is helping smbs in the fastest growing emerging markets to compete in the global economy.
We enable customers in over 190 countries and territories to pay and get.
Get paid and manage their funds and scale their businesses.
Our opportunity is significant there are hundreds of millions of emerging market businesses, who need a modern global financial operations partner and pay and here is the best positioned company globally to serve them with our trusted financial platform scalable net.
Work and infrastructure.
In February we articulated three core strategic priorities number one deliver strong and sustainable revenue growth.
<unk>.
Focus our acquisition product roadmap and service model, an ideal customer profiles or ICP and three build our next generation technology platform.
Taken together this work is positioning our company for step function growth in future years, our team is making strong progress at a good pace.
And you started 2023 with strong financial and business results, we generated 40% revenue growth year over year in the first quarter, driven by new customer acquisition and adoption of our high value services diversification toward higher take rate geographies and interest.
Income from increasing customer balances held on our network.
Adjusted EBITDA increased $28 million year over year to $39 million.
Representing a 20% adjusted EBITDA margin.
We generated over 25% year over year revenue growth in each of our six regions, including over 70% growth in Latin America.
We drove over 50% year over year growth in key countries, including Vietnam, Argentina, Mexico, Colombia, and UAE pioneer.
<unk> revenue is more diverse geographically than ever before.
We are focused on this and we will continue to drive our revenue diversification in.
In line with that strategy, we are now providing revenue by geography, and our quarterly reporting.
Senior continues to lay the foundation for a multiyear growth. There are a few specific highlights that I'd like to share we extended our global partnership with Airbnb for another three years and expanded the number of routes that we serve we extended our relationship with upward for another three years.
And expect our business to continue to benefit from the global shift towards remote and outsourced work.
We added new marketplace relationships across the globe, including Miracle in the U S on Bai in UK and PK fair in China, We launched a collaboration with Zillow to provide payment solutions to Smbs and freelancers working globally in India, Australia.
In New Zealand, the UK and the Philippines.
<unk> customers are now able to leverage an integrated solution to invoice their customers via the <unk> platform. We expect over time this will increase both our AP and <unk> volumes.
We established a new go to market team on the ground in Poland and underserved high growth large potential market for us to penetrate and lastly, we are incorporating AI and our onboarding processes. We expect this will drive increased efficiency lower our CAC and reduce the tie.
It takes to onboard icp's.
Led by our newly hired Chief growth Officer, we are taking a rigorous data driven approach to evaluating our sales and marketing resource allocation.
With a view towards optimizing for growth and ROI, we are actively evaluating and adjusting how we allocate resources across the emerging markets we serve.
This includes assessing our spend related to certain acquisition channels that we have determined deliver customers that do not meet our ideal customer profiles.
Additionally, we are assessing how we can further bundle our suite of services to grow share of wallet to drive retention and most importantly increase our approved.
I'd like to Dimensionalize, the scale of our cross sell opportunity.
Today, nearly two thirds of our customers.
Get paid into their paying your account from only one source of accounts receivable and they utilize only or withdraw the bank feature.
While the impact will not be immediate.
We are working to drive more R&D, each customer's account to increase the adoption of our commercial Mastercard rethink, how we market and price our capital solutions.
Introduced pricing frameworks that incent adoption of multiple products and most importantly.
Simplify the bundles of products, we sell depending upon industry geography and size.
We're strongly encouraged that a greater percentage of our b to b customers use multiple products and they generate a 50% higher effective take rate versus non <unk> customers.
B to B APR volumes increased 23% year over year on an apples to apples basis.
Which adjust for the impact of customer terminations in Q3 of 2022 overall <unk> volumes increased 2% year over year.
It is important to note that the size of the average receivables are down approximately 11% for our <unk> customer portfolio likely reflecting external macroeconomic factors, while volume growth is below our expectations, we exited the quarter with strong customer acquisition.
Momentum.
It requires focus and time to build strong scalable processes.
For a new business line like <unk>, we have demonstrated momentum in our <unk> business and we believe these long term investments will drive growth and serve as a competitive advantage in the over five trillion dollar cross border <unk> market.
We continue to see strong adoption of our commercial card and checkout product.
The penetration for each is in the low single digits again, highlighting the opportunity to deliver enhanced value for our customers and increase our approved.
Virtual commercial card, we increased usage by over 50% and more than doubled penetration year over year, and we see a lot of exciting growth and runway ahead.
Today, our card is used by only two 7% of our customers.
We continue to enhance this product for example, we recently enabled customers to self serve onboard to our cashback program via Theyre paying ear account. This will enable them to receive rewards monthly and enabled <unk> to increase card usage and maximize customer.
Acquisition and retention.
Pioneer checkout continues to generate positive early results and we have increased the number of merchants using checkout by over 50% quarter over quarter, we continue to monitor progress and traction closely and remain optimistic about the long term potential of our merchant service.
Yes.
Lastly.
We continue to evaluate product driven M&A opportunities that are core to our strategy and will help us deliver continued revenue growth and grow the moat around our emerging markets infrastructure.
We believe M&A will play a meaningful role in our growth strategy and are actively evaluating opportunities.
As we shared in February .
Approximately a quarter of our customers generate most of our volume and revenue today, we have approximately 500000 of these customers that fit our ideal customer profile or ICP and beginning in 2023, we are actively shifting the way we acquire.
Engage and manage our business to focus on this cohort that is why we're sharing as a new disclosure the number of active ICP and we believe this will be a useful metric going forward in measuring our progress.
In the first quarter, we grew active icp's by 9% year over year, 50% faster than overall customer growth I am encouraged that the number of the largest of these active ICP is those with greater than a $120000 of trailing 12.
<unk> month activity grew twice as fast at 18% year over year, and reflecting our continued investment in high potential region in the first quarter. We grew the number of active ICP by approximately 20% year over year in Latin America and EMEA.
One note it is important for investors to understand that our strategic shift and focus on ICP is new and as a global organization. This is an early step towards driving profitable growth for paint here as we drive increased monetization and efficiency.
Our definition of what constitutes an ICP will evolve with time with many variables considered as we adjust improve and scale our business.
In addition to focusing on ICP is we are also actively experimenting with pricing strategies, including annual account fees for specific cohorts as we work to more effectively monetize.
All of our customer cohort as.
As we shared in February we believe pricing will be a multi quarter transformation that will drive improved monetization and reduce our CAC.
To more efficiently capture the opportunity from the extraordinary inbound interest we get from prospective customers I remind shareholders that over 400000 SMB apply for a payer account every month.
We have begun rolling out new machine learning models to predict registrants potential profitability. When these are fully rolled out this will enable more scalable and efficient operation, we will be able to quickly filter application identify the highest value potential customers.
And reduce our cost to process.
We continue to make progress on our multi year platform transformation led by our Chief platform Officer, we're focusing in 2023 I'm building a scaled cloud base Onboarding platform, we expect to roll out our best in class New Onboarding platform in select countries towards the end of <unk>.
123 in line with our original expectation and to fully launch globally in 2024 to sum up we are in the early innings of unlocking our full potential.
We believe we have the global scale.
And regulatory infrastructure trusted brand and strong and aligned team to successfully execute.
We are confident about our ability to drive long term revenue growth and future profitability, reflecting.
Reflecting our conviction in our ongoing strategy our board of directors recently approved a share re purchase authorization, which <unk> will discuss shortly.
I'll now hand, it over to her to discuss financial results and forward guidance in more detail.
Thank you John and thank you to everyone for joining us paying it delivered another strong quarter of results with continued top line revenue growth and significant EBITDA margin expansion.
The eighth consecutive quarter since going public we are again, raising our revenue and EBITDA guidance.
Additionally in line with our commitment to enhancing investors' understanding of our business. We have made several disclosure updates this quarter.
We believe the incremental data points provided will be useful in measuring our business momentum going forward.
Q1 revenue increased 40% year over year to $192 million driven by net customer acquisition the growth of high value services growth in certain key markets and accelerating interest income from rising interest rates and growing customer fund balances.
Note that revenue in ICP growth were partially offset by a 2% impact in each case from the closure of payments into Russia at the end of 2022.
Q1 volume increased 8% year over year to $15 7 billion.
Volume growth year over year was driven by a recovery in travel and mid single digit growth from large E Commerce marketplaces.
As John discussed versus the prior year quarter beat at the volume growth has slowed due to the impact of customer terminations in Q3 of last year as well as declines in average invoice sizes likely related to macro concerns driving a pullback in spending.
With that said <unk> revenue growth continues to significantly outpace volume growth driven by mix shift into higher take rate customer types and geographies.
Our Q1 take rate was 122 basis points compared to 94 basis points in the first quarter of last year and up sequentially versus 109 basis points in Q4.
The year over year take rate expansion, primarily benefited from higher interest income as well as from take rate expansion from our <unk> business.
Customer funds held by Pan increased $837 million or 18% year over year to $5 5 billion.
Sequentially customer funds declined 6%, reflecting a normalization from seasonally elevated levels at year end, something which we called out during our February call.
Against the backdrop of extreme volatility in the U S banking sector the stability in the customer funds held in our network highlights the trust our customers have in panic and underscores the fundamental utility we deliver to our customers via our operating account offering.
We've grown customer fund balances on our platform at nearly twice the rate of volume over the past three years.
Most of our customer funds are held at global systemically important banks and over 80% of customer funds continue to be in interest bearing accounts.
We earned $50 million of interest income from customer fund balances in the first quarter.
From less than $1 million in the prior year period and $36 million in the fourth quarter of 2022.
We continue to explore opportunities to reduce our sensitivity to changes in interest rates and to optimize our ability to monetize customer funds held on our platform.
Q1 transaction costs were $27 million and increased 6% year over year.
This represented 14, 1% of revenue an improvement from 18, 7% in the prior year period.
<unk> from higher interest income as well as our ongoing focus on driving operational efficiencies and our ability to leverage our scale to drive down costs.
Banking process of fees, the largest component of transaction costs increased 1% year over year with higher transaction costs associated with high value services driving that increase.
This was partially offset by mix shift into lower take rate geographies and the impact of improved pricing with our partners.
Q1 revenue less transaction costs increased 48% year over year to $165 million.
Q1, total operating expenses, including transaction costs were $177 million up.
24% year over year.
Excluding transaction costs operating expenses of $150 million increased 27% year over year.
Excluding the $16 million of discretionary investments in the fourth quarter operating expenses, excluding transaction costs were relatively flat sequentially.
Flex in a more disciplined approach to spending in our business.
Our sales and marketing costs in the first quarter increased $13 million of 39% year over year, representing approximately half of the total year over year increase in Q1 operating expenses excluding transaction cost.
Higher sales and marketing costs were primarily related to higher head count and our go to market organization from hiring in 2022 and reflects our ongoing focus on driving acquisition of Icp's and high value partners.
Q1, adjusted EBITDA was $39 million compared to $10 million in the first quarter of last year and $11 million in the fourth quarter.
Q1, net income was $8 million compared to net income of $20 million in the first quarter of last year, which included a gain of over $30 million from the change in fair value of warrants.
Q1 basic and diluted earnings per share was <unk>, we ended the quarter with cash and cash equivalents of $545 million of $79 million increase year over year.
We continue to actively evaluate and adjust our capital allocation strategy to ensure that we continue to invest to drive organic revenue growth, including in our platform and in executing on our product roadmap.
We also remain intently focused on M&A opportunities.
In 2022, we saw public company valuations of Fintech companies dropped significantly while a similar correction in the private market has lagged the public market.
However, beginning to see signs of downward pressure on private company valuations with the shift accelerating following the collapse of SBB we.
We have seen an uptick in inbound opportunity and are actively evaluating several potential targets we have.
Growing our capabilities in this area and further refining our strategy and roadmap.
At the same time and as part of an investor focused data driven and balanced capital allocation approach, we announced today that our board of directors has approved an $80 million share repurchase authorization.
Turning to our outlook, we are raising our guidance for the eighth consecutive quarter since going public as a reminder, we do not provide quarterly guidance at this time.
For full year 2023, we expect revenues to be between 810 and $820 million transaction cost as a percent of revenue to be approximately 15, 5% and adjusted EBITDA to be between 140 and $150 million.
We expect revenue growth to be driven by continued ICP acquisition growth in our <unk> business and other high value services and from interest earned on our customer balances.
Our revenue growth expectations, excluding interest income a slightly softer relative to our prior guidance, reflecting a slight deceleration in volume growth in the first four months of the year and ongoing macro headwinds that could constrain consumer and business spending.
We expect interest income to be approximately 200 million for 2023 based on exit balances at the end of the first quarter moderate balanced growth in line with volumes for the remainder of the year and current anticipated fed funds interest rate changes.
In line with market expectations, we anticipate interest rates will begin to decrease in the back half of the year.
Assuming flat balances, we expect this would drive a $20 million revenue headwind in 2024 as compared to 2023.
Based on our stated guidance, we expect cash opex less transaction costs to be $540 million to $550 million for 2023.
This is $10 million lower than our prior guidance, reflecting a greater degree of operating discipline and one which we believe is appropriate given the current environment.
We believe <unk> has near and longer term opportunities to optimize operating efficiency.
Is underway to assess how spending across every function and category, including head count third party vendor costs unrelated to our real estate footprint.
We continue to evaluate our long term hiring needs, including in the context of the macro climate and as of May 1st we have restricted our hiring plans across the organization.
We expect this will generate approximately $5 million of savings in 2023.
We will continue to ramp up our R&D team to support our ongoing platform transformation.
We are also actively evaluating further head count efficiencies as we look to delayer, our organization and streamline our operations and reduce redundant roles.
We expect to exit the year with head count modestly lower versus the prior year.
Finally, we continue to localize our operational support with service centers in Latin America, Eastern Europe , and Southeast Asia that will better serve our customers, while driving additional operational efficiencies.
Our latest guidance for 2023, adjusted EBITDA is between 140 and $150 million.
This guidance reflects a nearly threefold increase in adjusted EBITDA versus 2022.
In conclusion pain as first quarter results underscore our ability to consistently deliver strong financial results.
We have built a broad diversified and resilient business and we continue to see significant customer demand for our financial operating solution, we have confidence in our ability to meet our updated 2023 financial targets, while we remain focused on investing to position <unk> for long term profits.
<unk> growth.
Lastly, I'm excited to announce that payment will be hosting its first investor day on September 21, 2023 in New York City, We look forward to seeing many of you in person in the fall.
We are now happy to answer any questions. You may have operator, please open the line.
Thank you as a reminder, please press star one on your telephone keypad to register a question, we'll probably start to withdraw your question.
Our first question today comes from Darrin Peller from Wolfe Research. Please go ahead.
Okay.
Hey, guys.
Good morning, and nice job on these results, maybe we start off with the focus on <unk> and the growth.
What are your thoughts on the ability to grow that base the way you've been growing it during different macro environment, just given how many applications youre getting you obviously have quite a bit of opportunity. It's just more of a decision on risk I imagine.
So help us understand what your goals are around that and what kind of opportunity. There and then I have a more detailed follow up on all the potential and pricing if you don't mind.
So thanks for the question Darren I'll take the ICP one so look as we discussed last quarter, we've really begun to manage our business based on an approach that is more focused on acquiring in serving those customers who meet that target or is what's happening at ideal customer profile and today, we're determining that.
That profile based on the average monthly amount of transaction volume that a particular customer does on our network and the reason for that is.
Based on the data analysis that we've done we found that in general customers, who do at least $500 and volume monthly a profitable. There are exceptions of course, we see customers who do less.
Can be profitable customers, who do more of that might not be it very much depends on product usage adoption cargoes subs and so on but we think it's an important measure and in line with the enhanced disclosure that we've committed to making we're disclosing that metric is an important sort of strategic focus for the company. So we.
When we last reported earnings for Q4 is that approximately 25% of our customers drive the vast majority of our volumes on our revenues and our profitability and that's that 25% is really the roughly 500000 customers that we're talking about today in our release.
<unk> finance ICP. So look again, we're pivoting our approach from an acquisition perspective, we're very much focus from an acquisition perspective across the organization and driving this.
We are at the early innings as John likes to say really realizing that but we're encouraged by the early momentum. We flagged today that we were able year over year to grow icp's by 9% versus 6% growth in active customers overall year over year and also we were able to grow some of the larger customers within the overall cohort.
Does that do more than 10000 per month, we were able to grow that by 18%.
Overtime, we are going to drive efficiency in our operating model and be able to generate sort of more of that acquisition.
Frankly pushed down the ideal customer profile. So that we can we can generate profitability across a broader cohort of customers.
But today, we're focused with that kind of bear in mind in pivoting. The organization. We are encouraged by early momentum and we're going to stop setting setting those targets as we move through the process.
Alright, Thats helpful guys, John just a follow up in a bit of a follow up on monetization of different kinds of customers. I mean, you talked a lot about <unk> opportunities on the call I think pricing on some of the some of the volume intra network pay Peter to pay and your customers has always been an opportunity we wondered about.
But other products the commercial card you talked about.
Check out can you give us a sense. If you were to sort of give us either a rank order of which are the most exciting opportunities for incremental arb or maybe the magnitude and how material. These can be.
Relative to how you generate revenues today.
Hi, Darren Great question. So we're seeing I think positive progress on working across.
Experiments around pricing, we're experimenting with account fees and looking at specific car doors to optimize our pricing because some corridors. We think we have some pretty interesting opportunities there.
Share it on the call are <unk> business monetize is at 50% greater than the marketplace payouts space and so we are more mature in our monitor monetization of b to b of the card and less mature around working capital and merchant services, which are earlier in their lifecycle as I.
Think about pricing I think theirs.
Real opportunity for us as we drive more accounts receivable into paying your account holders accounts, and then cross sell and upsell, but commercial Mastercard, which is underpenetrated from our perspective, we saw 50% growth year over year and there is deep and intense focus on driving the penetration of that product.
And I mentioned, just a moment ago the opportunity to drive.
More monetization on working capital and merchant services. So we believe that.
With two thirds of our customers today, only getting paid from one source and directly withdrawing their funds, we see a real opportunity to add cross sell and upsell, particularly around accounts payable we have nearly doubled payable.
Payable product usage in the last two years and so we continue to see the right momentum there and we will focus on that.
Alright, that's great guys. Thank you.
Our next question is from Trevor Williams at Jefferies. Please go ahead.
Thanks, Good morning, John the shift to focus on Icp's I think makes us a lot of sense I'm just wondering how we should think of that.
And how it is going to come through in terms of the change in your geographic mix over.
Over time, I'm, assuming that means the mix tied to China starts to come down even faster, but if we're just thinking about the next couple of years kind of how we should see that evolution come through in terms of kind of underlying geographic country mix. Thanks.
Yes, yes, it's a great question Trevor so were an early mover in the highest growth emerging markets around the globe as we shared on the call 25% growth in all of our regions, which I think highlights the diversity of industries, we serve size.
Size of companies, we serve the potential of our global platform I am personally Super excited about Latin America, EMEA and APAC and we are investing heavily to further penetrate these markets.
50% growth in Vietnam, Argentina, Mexico, Colombia, and UAE speaks to the productivity of our go to market organization in the product market fit that we have.
There are <unk> in every region of the globe and it's early days for us thinking about how icp's translate to specific countries and geographies.
But we are very committed to building and expanding.
The transparency the focus on ICP, so that our shareholders can understand the breadth and depth of our service and the potential of our business. There are 300 million potential customers globally for paying you are to serve and we have just got gotten started as b. We're saying we are in the earliest.
Early innings here and this kind of focus is extraordinary and we have our teams around the globe employees in 28 countries. All focused on ICP is and I think thats the magic and that is the 18% year over year growth. We saw in the in the largest of those icp's those doing over 120.
Dollars a year in trailing 12 month volume.
Potential of where we are and we're just getting started on it.
Got it Okay, and then along those lines are there any geographies in particular that maybe paying your hasn't had as big of a presence in historically that maybe now that you've been in the seat for that.
That's starting to become more aggressive in I don't know if India is one potentially.
Comes to mind, that's a Poland was called out in the press release, but anything else you want to call out in terms of countries that might become more of a focus thanks.
Yes, so and I.
Sure I think with you in the past.
Where I visited generally has a pretty good indication of our focus and I've spent time on the ground in India time on the ground in Argentina.
EMEA and APAC are getting tremendous focus that does not is not to under cut the momentum in power and leadership position, we have in the in the greater China region. It just speaks to the extraordinary opportunity we have globally, but I am very excited about Latin America and the momentum we.
Have there to continue to penetrate that market significantly.
Great. Thanks, a lot.
Our next question is from will Nance Goldman Sachs. Please go ahead.
Hey, guys. Good morning, Nice results. This morning, I wanted to maybe double click on some of the ICP disclosures I guess when you look at the vertical mix of the ICP is maybe just using the verticals on slide seven so e-commerce freelance content creation et cetera are there any of these verticals that are kind of more or less.
Yes.
Rich and high value customers that you guys are thinking about emphasizing more going forward after kind of refocusing the business.
Well, that's a great great question and it's too early for us to give sort of additional disclosure on that I can say for September 21, Investor day, we're excited to share more information about both geographies ICP is and the business.
Industries that are customer service, we've talked in the past about the <unk>.
Good seller in China, the PPO in India in India, the freelancer in Argentina. The Ukrainian engineer, we are we serve such a breadth of customers and it's too soon and too early for us to comment more specifically on the mix is by either by geography or size.
Understood makes sense look forward to hearing more about that in September .
Maybe just a follow up question more on the details on the on the take rate dynamics. This quarter. So I think the take rate was down a little bit sequentially. If you back out interest income I'm just.
As you think about fourth quarter is being kind of seasonally lower given the e-commerce mix, but it does sound like you guys have been growing among larger client cohorts I'm. Just wondering if you could kind of unpack a little bit what's going on in the take rate and what drove the take rate down a little bit sequentially.
Sure. Thanks, so yeah, the take rate year over year, it's up roughly 28 basis points and that's largely a factor of interest income driving on the total revenue sequentially. As you noted I'll take rate, it's up about 13 basis points again with interest income.
Little bit of higher usage, which seasonally we typically expect coming into Q1, we see higher volume coming into the platform in Q4 and proportionately higher usage in Q1, typically speaking, which will drive up revenues. Some of the puts and takes that we generally sort of see around take rates. Its first product mix obviously.
As we said in the past as we mix shift into higher take rate products like Hep b to B business like.
<unk> commercial card offering we see that take rate tick up as we shift from a geography perspective into <unk>.
Different kind of regions with different levels of maturity, we will see that take rate shift as while Q1 as an example, a good amount of volume.
Volume growth was based on what came out of more mature regions like China and larger E. Commerce sellers those will tend to deliver a lower take rate dynamics as we see shift into other kind of higher value regions that we've been focusing on we will see that shift.
Puts and takes related really to the product mix and also to the Geo mix that will shift over time.
I appreciate you taking my questions and you actually do see the core take rate up sequentially, so apologize for that.
Okay.
Our next question comes from Ashwin <unk> from Citi. Please go ahead.
Thank you.
Congratulations on the good quarter.
Let me start with the question on ICP in terms of just sort of the.
It's a great idea, but what's the thought process behind the parameters that initially.
Determining what who is your idea of a customer and what happens to the customers that don't initially we meet the criteria is it a process of.
Providing them incentives to kind of get into that.
<unk> space, if you will.
Alright.
Does that present.
Sort of a.
Over time.
Headwind in terms of.
Account growth and so on.
Thanks, Ashwin, that's a great question. So look as we as we highlighted the bar that we have set for an ICP today right is that they do 500 or more in monthly average volume because today given our current operating environment.
A pretty decent indicated based on all of the sort of unit economics analysis that we've done that a customer will deliver profitability. So we think thats a good bottom measure and as we shift the company's focus to acquiring more of those customers were using that metric today to really sort of drive that go to market motion.
Incent, our sales force and through our other acquisition channels to really focus on that cohort of customers. The reason I'm emphasizing today and it goes to your question, which is a really good one is that over time as we look at some of those monetization assets that John has highlighted be it pricing a more nuanced approach in general so the spin.
<unk> pricing Thats designed to address the long tail of customers as well as other kind of cross selling initiatives that will drive up after we would expect that definition to shift right. If we drive a positive if we drive up monetization and adoption of our higher take rate products, we will be able to be profitable at a lower volume level.
Similarly, as we drive we talked a lot during the last call around driving efficiency in our operating model around investing in our platform to make our operations more scalable more efficient we would expect those assets as they come to fruition from an onboarding perspective from a cost perspective to allow us to more <unk>.
Profitability serve a greater proportion of those customers. So look while today, we can profitably serve roughly 25%.
We think we can meaningfully increase that we think we can do that through increased monetization and cross sell we think we can do it through pricing and we're doing it through investment in our platform and our capabilities.
Understood it's very helpful.
And in terms of customer funds.
It was down sequentially roughly $10 million.
The seasonality was there some element of maybe.
Think turmoil driving some of that.
Maybe the ICP side, just kind of hard to get into the reason for that and what should we expect in the in the next quarter.
So it's a good question look yes, as you called out we saw a sequential decline year over year, we were up significantly and we've continued to outperform volume growth in terms of the balances.
Network, we typically see a seasonal decline in Q1, because we're coming off a very elevated exit balances because of just holiday spending.
Our E Commerce e-commerce channels in terms of sort of banking turmoil in general look we monitor it very carefully.
In the aftermath of the SBB collapse, we were monitoring pretty much in real time for signs of outflow will changes in customer behavior, we really didn't see that we proactively communicated with our customers. We've seen no significant change in behavior and so overall, we're actually really pleased and think that the <unk>.
And straights, the trust that our customers place with us in an environment of massive volatility in large banks in the U S seeing significant outflows, we haven't seen that we'd seen expected outflows.
We're pleased we think it demonstrates the utility we provide the trust our customers place in us.
And we'll continue to monitor that customer behavior and look to expand the way, we monetize those balances and the offerings, we provide to customers to be able to grow.
Thank you.
Appreciate it.
Our next question is from <unk> Tandon from Needham. Please go ahead.
Thank you and good morning, and congrats on the quarter.
John is B you guys gave some good information on the cross sell opportunity, but could you give us a sense of what the.
Customers today are using multiple products, maybe in terms of percentage and where do you see that going over time and the related question would be if theyre not using your products. These higher value higher ticket products what are the alternatives in the market that they could be using instead that you could potentially displace with your own into higher value products.
Sure.
Good to hear from you and thanks for the question we shared on the call that.
A significant number of customers have yet to.
Use multiple paying ear products, and we view that as a intense focus area for our product organization and our go to market organization. Both in the products. We introduced the flows the experienced inflows our customers feel when they log into their accounts and what products. They see and are easy to onboard into.
Our <unk> customers the customers that our invoicing or using our accounts payable or accounts receivable solutions are more likely to use more products and but we have low single digit penetration of our highest value services and are very focused on.
Driving that growth both because that utility is essential for the success of our customers and the monetization increase is powerful for our P&L.
What do we need we need more accounts receivable solutions and we're working on both homegrown building them as well as buying them we need improved.
Working capital and lending solutions for folks that are.
Need access to capital that otherwise don't have it at the right price to get it quickly and more accounts payable solutions, our commercial Mastercard.
The ability for our customers pay outside of the pay in your network with Theyre paying your balances.
Darrin asked earlier about the utility of customers using the network itself to pay other paying your customers. We think really across the board. There is a suite of improved services and broader services, we can build ourselves, which is underway and or buy.
And so I won't name specific companies or products or features that we have our eye on but rest assured the team is very focused on.
Expanding the suite of cross sell products, we offer a.
A dynamic that I think it's important for shareholders to consider the customer in Argentina, she or they may have different needs and our customer in Poland or our customer in.
Vietnam and so the solutions the accounts payable solutions in one market that.
That are purpose built for a segment or industry may or may not be directly relevant globally. What's powerful about pioneer is our ability to provide global solutions that then are.
How do I say sorry.
Purpose built for the industries or geographies that we serve and I think over the coming five years this product led growth and <unk>.
Product led M&A will be a really important dynamic of the expansion of the pain in your franchise.
Okay.
Very helpful. John and then just a quick follow up question B in terms of the trajectory.
Revenue and adjusted EBITDA for the year could you give any color given seasonality and your expectations on the flow through interest income as we move through the year.
Sure.
Expect in general the Cordis to performance they have done historically in terms of seasonality said generally speaking higher revenues on the back end of the year from a seasonal perspective and also from our efforts to drive acquisition over the course of the year as we flagged when.
When we released initial guidance for 2023, we would also expect the operating expenses cash base would increase.
Over the back half of the year as well as we continue to ramp up hiring vis vis our platform investment. We obviously discussed today on the call that we have paused hiring which is a big driver of at least a portion of that increase roughly 70% of all.
Of our cash based Opex is labor related so we have paused hiring given sort of some of the softness that we highlighted.
Some of our core revenues.
So that should see some benefit in the back half of the yes, not a meaningful impact to 2023, we called out the $5 million, but a more meaningful impact as we sort of constrained some of that spending as we look into the 2020 full run rate. So look overall, we remain confident on delivering the revenue targets that we set out moderately.
Rising revenue through the back half of the year from seasonal impacts rising expenses from from investment, but looking to evaluate all of those and look we're really pleased to be able to continue to deliver a good portion of the interest income uplift back to investors and to deliver meaningful.
<unk> EBIT expansion year over year at more than three X is what our guidance.
Would imply for 2023 versus last year.
That's great color. Thank you so much.
Our next question is from Bob Napoli of William Blair. Please go ahead.
Alright, Thank you and good morning. Thank you for the additional disclosures are really helpful.
So just I mean, the regional market disclosure that you gave in the growth rates by.
By market like Super impressive.
Hi.
I mean are those growth rates.
Generally sustainable and how should we think about those growth rates relative to the growth of payment volume and the growth of payment volume is there.
There seems to be below some of those well.
Well because some of the growth rates by markets is that what is the just any color you can give on the growth rates that we saw this that sustainability and how that translates into the payment volume.
And then obviously to revenue.
Hey, Bob John Here, I'll start and if there's something you want to add please do our quarterly and annual growth rates will fluctuate by country by region overtime and the focus on ICP is and the renewed focus on penetrating deep into the highest opportunity markets.
I think we will see.
How would I say it the right way I think we will see.
It grow and change and evolve and it'll take us a couple of quarters to see what the pattern. How the patterns emerge are we are intensely focused on penetrating Latin America, EMEA and APAC and we are seeing the kind of results that indicate we are just at the beginning a pretty powerful momentum.
And so I don't want to I don't want to call it yet, but it is early innings, but lots of momentum.
Yes, the only thing I'd add to that Bob.
We grew volumes, 8% year over year, and that's a factor of adding customers. We're seeing great early momentum as we've said as.
As well as high single digit growth from our larger E Commerce partners and a significant rebound in travel that doesn't all flow through to revenues in Q1, and partly thats a mix shift to those larger lower take rate.
Commerce players as we called out in response to one of the other questions. The travel volume is great. We love to see that rebound, but its relatively lower margin business and we did call out flooring growth cannot be to be business right. It is largely a result of the macro environment. We believe we are seeing great acquisition that we think we have good product market fit but.
We're seeing sort of a decrease in spending on average by roughly 11%, which we think is sort of uncertainty driving.
Driving and depressing that spending in the short term. We did also call out the exit from Russia, which acts as a headwind we called that out coming into the year and we're seeing the impacts of that all of which is to say look we're pleased with 8% volume growth. It's in line with peers. It's in line with the trends, we're seeing the revenue didn't quite flushed through for the <unk>.
<unk>, but we view those as short term headwinds to our ability to grow revenue and overall, but we're excited in a macro uncertainty notwithstanding we're excited about the long term trajectory and our ability to deliver volume and revenue for us.
Thank you and then a follow up you obviously have a very strong balance sheet that is very under leveraged.
And you mentioned your focus on on M&A and the importance of that I was wondering if you could give some.
Some color on the types of businesses do you feel would add the most value to.
The pay in your franchise.
So in a perfect world what are you what types of businesses.
Would you like to would you like to add.
Yes, so just quickly on that Bob we are actively evaluating M&A opportunities really through the lens of product extensions, where we can leverage our existing reach and customer base. The earlier question about cross sell and upsell opportunities I think is particularly relevant.
Deepen our regional footprint in those higher growth markets and we talked a lot about that on this call and then extend our existing licensing framework and the moat around the business the infrastructure, we've built our brand our licenses.
Our relationships with banks to continue to grow that mode. So those are the three specific areas, we're looking at and nothing to announce.
On any deals today, but we are active.
On all fronts.
Great. Thank you I appreciate it.
The next question is from Sanjay <unk> from <unk>. Please go ahead.
<unk>.
Thanks, Good morning.
I guess many of my questions have been answered, but I wanted to parse apart just the updated guidance because I know theres a lot of things that have changed in some ways like that.
Lower.
Volumes and such and also the float income I think it has moved up a little bit but could you just go through sort of what.
What's baked into the guide now and sort of what what drove what was fundamentally driven to the upside.
What worked against it.
Yes, thanks for the question Sanjay.
We sort of flagged in common with our peers and some of the sort of adjacent E. Commerce focused businesses, you can't always get a read through right, but that seems to have been.
A common theme, which was a relatively strong January and February and flattening.
Consumer business spending trends in March and into April we've seen similar trends in our business right. So the slightly softer revenue growth trajectory that we're calling out in our guidance reflects that as we see it today right again, we view that as a short term macro headwinds, but we're reflecting that in the guidance.
The uptick in the revenue comes from the float income, where we remain bullish about our ability to grow those customer funds, we think because I've said that we performed well through some very volatile times in the banking sector and that we can continue to effectively monetize.
Monetize those balances so thats the revenue we walked down transaction costs. Our guide in terms of where we think we'll land thats a factor and part of the benefit from float income, but also increasing efficiency in our banking infrastructure and then the final element was just a walk down.
Our operating expenses, our cash based operating expenses, which again, we think is a prudent prudent adjustment to the macro climate in which we're operating and what we see short term and frankly also longer term.
Profitability or leverage capability in terms of optimizing how we run the business from short term sort of impacts as well as longer term invest an investment that will allow us to scale.
Okay, perfect and then.
Those long term extended relationship that you mentioned with Airbnb and upward.
How should we think about like the economics of that I mean should we assume that nothing materially changed there because you mentioned some of the headwinds from improved pricing I'm just curious.
How should we how we should factor that in on a go forward basis.
Yes, so just to put it in it.
Text.
For the majority we've called this out before but for the majority of our marketplace relationships. We don't receive revenue directly from that marketplace right. Our relationship as we pulled out is with the sellers will be underlying smbs in global markets. We acquired those smbs often directly the marketplaces are helpful.
Channels as well and we earn revenues from those smbs directly when they use our services.
In certain cases, we do have as we've called out contractual arrangements with our marketplace, where we provide cross border payout services.
Basically provide them with the cross border capabilities that allow them to pay the sellers that operate on that platform and we win this business and have won this business for many years because of the breadth of the countries that we serve and the scale and resilience of our infrastructure that we have proved over many years.
So with a very limited number of marketplace. We marketplaces, we unlike non volume fees for additional services, we provide them again, we called out one such marketplace in Q2, but as I said generally speaking our revenues are not dependent or reliant on a particular contractual relationship.
The Amazon for example, we represent one of a number of choices the SMB tap when they fell on that platform. We do of course value. The partnerships, we called out these new partnerships because we.
We felt it was important to show how we're winning in grabbing this kind of market share and we view those partnerships really is a critical part of the infrastructure that we've built a critical way of acquiring customers in a critical way of growing AAR and swap platform. So look overall, we're excited about the recently announced partnerships.
Medical is a great example of the kind of platform that we can effectively serve them well.
Looking to sort of expand that ecosystem to really drive volume for us.
Thank you.
Yeah.
Our last question comes from Josh Siegel from Cantor Fitzgerald. Please go ahead.
Yes, hi, good morning, Thanks for taking my question and congratulations on the strong Brent. So can you provide us with some color on your investment spend that you continue to upgrade your technology platform and do you expect the subsequent acceleration ICP growth as the new Onboarding platform is rolled out.
And again, what we called this out and thanks. Thanks for the question Josh we called this out when we reported Q4, we're going to make significant investments in product innovation, including in our B to B business, where we think we've been able to demonstrate real progress as well as in our checkout capabilities.
We're continuing to invest in our core offering as an example in Q1, we launched enhanced role management capabilities, We announced a partnership with an accounting ERP. These are all sort of step change improvements in the functionality that we can deliver to our clients and as we discussed in February we are committed to making meaningful investments.
<unk> in our platform and starting with our on boarding capabilities.
Think that.
It's the place to start because it is an important part of the engine that drives our growth we regularly see up to half a million customers showing up at our door.
Three months and we incurred significant costs onboarding those customers. So we're starting that because we want to give those customers a better customer experience that should allow us to acquire more effectively we want to reduce the cost to acquire those customers and bring them through our doors and we also want to be frankly, a little more nuanced in how we bring.
Through the funnel so as John called out we've launched some predictive modeling tools that will allow us to better assess when a target customer hits, a funnel and move them through the process more efficiently look again early innings.
Doing a lot of work here and we're going to make a meaningful investment this year and expect to go live by the end of this year.
The impact of these investments will be felt in 2020 full but we feel good that they're going to both drive our acquisition capabilities and make us more effective as well as drive down our cost to acquire and our cost to serve our customers.
Great. Thank you and then I'm curious about the demographic of the emerging that are most impacted by this curtailed spending in volume due to the uncertain macro environment.
Merchant most impacted by the macro more.
Strains or is there a geography or perhaps differentiated by volume cohort.
Are you referencing the b to B the call out we made around constrained spending in b to B business.
Correct.
Yes.
We really didn't sort of drill into all over not sort of discussing the drill down in terms of specific customers, but we really wanted to call out is that in common with peers that are in that <unk> space. We're seeing good acquisition metrics. Good forward momentum in terms of the clients that we onboard but in terms of customers on our platform.
Who are super sticky and as John called out use a broader range of products, we did see a decline.
In the amount of spend we think that thats a macro outlook.
Issue, that's depressing spend.
So we will continue to monitor that but we felt it was worth calling out.
Okay. Thank you for taking my question.
It's Josh this concludes the Q&A session I will now hand, the floor back to John for closing remarks.
Thank you all for your questions and for joining US. This morning, and thank you to my opinion your colleagues around the globe, who are tuning in for your hard work dedication and focus on our customers.
We are moving forward at pace and I'm proud of our progress.
Credibly excited about <unk> growth trajectory and the significant and sizeable opportunity we have to help even more of the world's smbs do business globally. We're just beginning our next leg of our exceptional growth and appreciate our shareholders continued support thank you all.
This concludes today's conference call. Thank you very much for joining you may now disconnect.
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