Q2 2023 Payoneer Global Inc Earnings Call
[music].
Good morning, Thank you for standing by.
Welcome to you paid a second quarter 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 Wang Pioneer.
Brian is VP of Investor Relations.
Thank you operator with me on today's call are <unk>, Chief Executive Officer, John Kaplan, <unk>, Chief Financial Officer, Bobby or Don yet 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 risks and uncertainties, including those set forth in our filings with.
The SEC, which are available in the Investor Relations section of <unk> Dot com actual results may differ materially from any forward looking statements. We make today. These forward looking statements speak only as of today and the company does not assume any obligation or intent to update them, except as required by law. In addition, todays call may include non-GAAP .
Measures. These measures should be considered in addition to and not instead of GAAP financial measures reconciliations to the nearest GAAP financial can be found in today's earnings press release, which is available on our website. Additionally.
Additionally, please note we have posted an earnings presentation supplement alongside our earnings press release on Investor Dot <unk> Dot com with that I'd like to turn the call over to John to begin.
Good morning, and thank you all for joining us today to discuss our second quarter 2023 results.
Today's call I will discuss our business results, including a progress report on our strategic priorities.
He will then cover our second quarter financial results and updated 2023 guidance.
Global Commerce, the export of goods and services is more prevalent digital and border list than ever.
Recent survey of thousands of global Smbs, we learned that they expect that by 2025, they will double the rate of revenue growth with nearly two thirds of those revenues coming from outside their domestic market.
At the same time, they plan for nearly half of their vendors to be abroad as well.
These businesses must manage accounts receivable and payable flows across multiple countries currencies and jurisdiction.
Only paying your offers them the ability to do so in one centrally managed account that enables them to transact globally.
<unk> generated 40% year over year revenue growth in the second quarter.
We diversified toward higher take rate geographies.
Acquired more ICP is increased our revenue from non ICP and earned interest income from customer balances held on our network.
Adjusted EBITDA of $56 million.
Nearly quadrupled year over year and represented a 27% adjusted EBITDA margin.
We once again grew revenue in each of our six regions by 25% or greater year over year.
In China, we generated over 50% year over year revenue growth in Q2.
Driven by net customer growth.
Increasing <unk> and improving trend with large e-commerce marketplaces.
China remains a large market for us and while we are focused on capturing the enormous promise of other emerging fast growing markets. We anticipate that China will continue to be a major contributor to our business for the long term.
China is the world's largest exporter and second largest importer behind the U S. We intend to maintain and expand our strong position in that market.
That is why we announced this morning that we have signed an agreement to acquire a licensed China based payment service provider. The acquisition is subject to regulatory approval and customary closing condition.
Once closed we expect it will strengthen our regulatory infrastructure and position us to better serve our customers with enhanced and localized products and services and acquire a new customer segments that we are not serving today.
Look forward to working with our stakeholders in China to facilitate the closing of the transaction over the next few quarters.
While our BTB payments volume declined 2% year over year.
<unk> volume grew 12% year over year, excluding the proactive customer terminations, we made last year.
We have strong traction for our <unk> business in service oriented markets, such as APAC, EMEA and Latin America.
We are driving the fastest customer growth in these regions and in total across the three <unk> volumes grew by 29% year over year.
We are excited about the growth opportunities within <unk> for example.
We generated 45% year over year volume growth in Samira.
We are successfully acquiring customers in the programming and services sector.
Both is driven by India, and the UAE and is due to both increasing wallet share with customers and early momentum acquiring larger customers.
We're also supporting new industry verticals in <unk> for example, within Europe . We recently began serving agricultural exporters, representing $30 billion of potential annual volume.
We continue to invest and focus our product roadmap to better serve the more complex needs of this customer segment and to position pain here to win and b to be over the long term.
Let's turn now to our progress in acquiring our ideal customer profiles.
<unk> grew total active ICP by 6% year over year in the second quarter by region, we saw 13% growth in each of APAC EMEA and Latin America.
Total ICP growth was 12%, excluding Europe , where we continue to see the impact of the war on in Ukraine on year over year growth rates.
We grew our largest ICP.
Those who do more than $10000 a month on average in volume by 18% once again.
This segment represents approximately 10% of our overall ICP and it contributes to over 50% of total <unk> revenues.
In addition to ICP acquisition with experiments underway to increase ICP ARPA near.
Near term, we continue to drive strong adoption of our virtual commercial card.
As a roughly two 5% take rate.
4% of our customers use their pain near virtual commercial card in the second quarter up 100% versus a year ago.
We are also adjusting pricing across different customer segments and Rex and.
And we continue to grow and scale, our working capital business.
We increased originations from first time users by 80% in Q2, as we expanded our coverage of eligible customers.
Longer term <unk> will be driven by increased product penetration and an overall mix shift towards our larger customers.
We continue to make progress on our multi year platform transformation, we remain focused on developing our scale cloud based platform, including our new Onboarding functionality.
In the last 90 days I am pleased that we are accelerating our launch of new product features as we make it even easier and faster for our customers to send and receive payments.
We have improved functionality around scheduling payments, we are now providing our USB to be customers with real time availability of funds via open banking integration.
For our commercial card, we have increased functionality around spending limit and monitoring this will make it easier for customers who issue multiple cards within their organization to track their expenses and we believe will lead to greater usage and increased customer penetration over time.
More broadly for.
Our working capital business, we announced last week the acquisition of spot a real time data platform.
We will use its technology to enhance our underwriting capabilities to reduce risk and drive origination volumes.
And in our merchant services business.
We released a new merchant of record service for an initial group of good selling ICP.
This functionality delivers material uplift and acceptance rates for our customers selling goods cross border.
While capturing significant greater yield and therefore economics on volumes processed for pioneer.
The pioneer team is focused.
We're executing against the strategic priorities, we articulated at the beginning of the year.
We are enhancing our customer value proposition and accelerating core growth we.
We are investing in strategic long term initiatives that we believe will deliver durable profitable growth I'll now hand, it over to be to discuss financial results and forward guidance in more detail.
Thank you John and thank you to everyone for joining us in the second quarter payment delivered strong topline growth and record quarterly revenue, we significantly expanded profitability and delivered a 27% adjusted EBITDA margin. We are executing on our strategy and are confident in our ability to deliver.
Going forward.
Q2 revenue increased 40% year over year to $207 million, we drove increased adoption of higher margin product improved monetization of certain customer segments and delivered impressive growth in key BTB region.
We also continue to acquire ICP and earned interest income from customer funds entrusted with us.
Revenue and ICP growth continues to be impacted by a pleasure payments into Russia at the end of 2022.
<unk> volume increased 8% year over year to $15 8 billion.
Growth was led by continued strong growth in travel spend and improving trends with our largest e-commerce marketplace.
Our Q2 take rate was 131 basis points up 30 basis points compared to 101 basis point in the second quarter of last year and 122 basis points in Q1.
Rove take rate expansion by increasing adoption of commercial cart and checkout products, earning higher interest income on customer funds and improving monetization of certain customer segments.
Customer funds held by paying an increased 8% year over year to five 5 billion.
Sequentially customer funds increased 1%.
Customer balances are growing broadly in line with volume and in line with our seasonal and other expectations.
As we have noted our customers keep balances with us because they value the ability to manage that foreign currency needs hold balances in USD and paid local and overseas vendors from a single account.
85% of our customers hold on our network more than one month's worth of average usage and over a third of our customers help more than three months left thereafter with usage.
Over 80% of customer funds continued to be an interest bearing accounts and we earned $55 million of interest income from customer fund balances in the second quarter.
We continue to evaluate ways to manage the duration of our portfolio in a risk appropriate manner to ensure greater consistency of interest income through different interest rate cycles.
We're exploring investing a portion of our customer funds and U S treasuries with up to a three year maturity and currently anticipate having this new program in place by the end of 2023.
Our outlook anticipates the interest rates in the U S where more than 75% of our balances are held will remain relatively elevated.
Our expectation consistent with consensus fees is that normalized medium to long term interest rates will be in the range of 2% to 3%.
In that context, we anticipate the interest income will continue to be a meaningful contributor to our core revenue in the next several years.
We are utilizing revenues from interest to come to make investments to drive future growth. While also returning capital to investors via our stock repurchase plan.
For 2023, we are anticipating that approximately 25% of interest income and will be used to fund investments in our platform and infrastructure.
Our investments position us to deliver additional features more quickly while longer term, we expect our investments will unlock greater efficiency and scale.
We are well positioned to continue to utilize this revenue streams and make additional investments in our platform in future years.
For 2023, we expect to utilize approximately 25% of revenues generated from interest income to return capital to shareholders via stock repurchase plan.
This will substantially offset dilution from our stock based equity compensation program.
As we have noted interest income and will drive a meaningful and in our view enduring uplift to adjusted EBITDA in 2023 and beyond.
Transaction costs were $28 million and increased 9% year over year. This represented 13, 8% of revenue a significant improvement from 17, 7% in the prior year period.
Transaction cost as a percentage of revenue Aloha pizza higher interest income as well as our ongoing focus on driving operational efficiencies.
We have recognized over $3 million in savings year to date by leveraging our scale with existing bank providers and Onboarding new providers.
Q2 revenue less transaction costs increased 46% year over year to 178 million.
Our total operating expenses, including transaction costs of $173 million were up 15% or $23 million year over year, primarily due to higher sales and marketing costs.
We continue to invest in our go to market assets on a year over year basis sales and marketing expenses increased nearly $12 million representing half of the increase in total operating expenses.
Higher sales and marketing costs reflected increasing partner commissions and higher labor costs related to hiring over the past 12 months.
It also included growth in direct marketing spend related to driving increased penetration of our card offering.
As we announced last quarter, we are taking a disciplined approach to operating our business in order to drive greater efficiency, while ensuring we continue to invest to drive long term and sustainable revenue growth.
Operating expenses, excluding transaction costs were down 3% sequentially, primarily from lower expense related to recent headcount reduction.
Streamlining the organization will enable us to increase the speed of decision, making and execution, while we continue to allocate resources and invest in strategic growth areas.
Q2, adjusted EBITDA was $56 million compared to roughly $15 million in the second quarter of last year and $39 million in the first quarter of this year.
This represents a 27% adjusted EBITDA margin up from 10% a year ago.
Q2, net income was 46 million compared to net income of $4 million in the second quarter of last year.
Q2 basic and diluted earnings per share was <unk> 12.
Net income for the quarter included a 14 million gain from change in fair value of our public warrants and an $11 million benefit to our provision for income taxes.
In Q2, we concluded that the valuation allowance on our deferred tax assets in the U S is no longer necessary and as a result recognized the benefit of those deferred tax assets on our balance sheet and in our tax provision.
We ended the quarter with cash and cash equivalents of $581 million up $89 million or 18% year over year.
Our business continues to generate positive free cash flows and our free cash flow conversion is well above 100% year to date.
As John discussed earlier, we recently announced agreements to acquire and licensed China based payment service provider and an Israeli based real time data platform.
They are aligned with our strategy to serve customers locally and to accelerate our product roadmap via M&A.
We anticipate the China based company acquisition will close in 2024 subject to the receipt of local regulatory approvals.
We expect that the China based company transaction will be funded with cash on hand.
The data platform acquisition was completed at announcement last week and was funded with cash on hand.
We anticipate that the pro forma impact of the acquisitions will not be material to our ongoing financial results.
We have been actively returning capital to shareholders since the inception of our share buyback program in May we have repurchased approximately $20 million of pay initiatives at a weighted average cost of $4 68 a share.
Turning to our outlook, we are once again, raising our revenue and adjusted EBITDA guidance for 2023 for the full year, we expect revenues to be between 820 and $830 million transaction cost as a percentage of revenue to be approximately 15, 5%.
And adjusted EBITDA to be between 160 and $170 million.
Revenue trends improved throughout the second quarter, we saw stronger exit rate dynamics with our largest E. Commerce marketplaces expect a further ramp up of various monetization initiatives underway and expect $210 million of interest income for the full year.
In <unk>, we expect growth to Reaccelerate in the second half of 2023.
As John mentioned earlier, we are seeing solid customer acquisition trends and are excited about continuing to capture market share in key high growth service oriented market.
In APAC, EMEA, and Latin America, <unk> business has compelling product market fit and strong and sustained customer acquisition volume and revenue growth.
These three regions make up over 40% of total <unk> volume on over half of <unk> revenues.
In these critical high growth regions. The number of transactions per customer have remained stable year over year, while the average invoice size increased mid single digits on a year over year basis.
We continue to focus on operating efficiency in order to maximize resources available for high growth areas of our business and for opportunities to deepen our competitive mode.
We expect cash opex less transaction costs to be $525 million to $535 million for 2023.
Cash opex represents our guidance for revenue and less adjusted EBITDA.
Is $15 million lower than our prior guidance, reflecting the impact of recent head count reductions and a greater degree of operating discipline.
We expect most of this benefit to be recognized in our sales and marketing and other operating expense line items.
As we mentioned at the beginning of the year, we incur significant onboarding and support costs relating to customers, who do not ultimately meet our ideal customer profile.
We continue to work on and rollout initiatives to drive these costs down and to improve the economic profile as these non ICP and are seeing encouraging results.
We are experimenting with pricing strategies for non ICP in the second quarter, we began rolling out fees to increase our monetization and expect these initiatives to continue through the back half of the year.
Last quarter, we launched a machine learning model to better fill trout Africans, who will likely never become ICP based.
Based on initial test population, we have already seen the model reject approximately 10% of applications that we would otherwise have processed.
We will continue to refine and expand rollout in the months ahead.
Our latest guidance for 2023, adjusted EBITDA is between 160 and $170 million. This guidance reflects a more than threefold increase in adjusted EBITDA versus 2022, and 20% adjusted EBITDA margin for 2023.
In conclusion payments second quarter results demonstrate steady execution against our strategic priorities and we're pleased to see that our focus on operating efficiency is paying off with higher adjusted EBITDA margin.
We're excited to welcome you to our first Investor Day in New York City on September 21st where we will dive deeper into our business and reintroduce pioneer to the investment community. We are now happy to answer any questions you might have operator, please open the line.
Thank you if you would like to ask a question. Please Christophe will go on your telephone keypad now.
Do you mind please christoph.
And we're preparing to ask a question. Please ensure that your phone is on mute locally.
First question today is from the line of Darren kind of Wolfe Research. Your line is open.
Hey, guys, thanks, and nice quarter.
Just start off a bit of a financial question just driving the core take rate it looks like if you.
Try to back out the float side the float income side the.
Yield did improve by about five or six basis points or so.
If you could just help us understand the value thats, great, but how.
How much of it is really just the pricing power you are putting forward.
Business, but we've touched on before commercial card adoption or any anything else you can help us understand the bridge.
Yes. Thanks for the question John Yes, as you noted over the long term, we do expect take rates to trend upwards from increased adoption of our high value products in the quarter, specifically suddenly pricing, we talked a little bit during the prepared remarks, some of the fees, we launched around non <unk>.
CP customers improved monetization and <unk> for that segment, we've also driven card adoption.
<unk> been directing some of our direct marketing spend to that and to that effort. So we saw a nice uptake overall and adoption in cob and overall in some of our other areas <unk> is certainly growing from a from a revenue perspective and that growth is outpacing core growth. So that's also factored into the into that.
<unk> take rate expansion.
Okay, so sustainably and sustain it.
Ability wise it seems like Theres nothing about it that sort of onetime in nature.
No look I think we've highlighted in our prepared remarks, let's see some pricing strategy more generally it's something that we're focused on and we would expect to see and have plans to rollout additional fees and changes in pricing through the back half of the year really again focused on that non ICP cohort and in general as we.
Say look while we might see quarter to quarter fluctuations as we drive more adoption within our high value products for working capital.
Check out business, our <unk> business and Reaccelerate that growth in <unk> in the back half of the year and beyond we would expect uplift.
That take rate overall.
John Thats really great John does very quickly when we think about.
On trends in the business around and really just what youre doing the transformed the culture around operating efficiencies.
Be more mortgages leaner broadly, which you're obviously showing in the numbers. However response been internally driven.
A cultural standpoint in terms of keeping powder dry compelling or anything changing on that front or is it just maybe you could touch on that and.
Well, we'll leave it there thanks guys.
Yes.
Darrin, it's a great question.
Team opinion here is extraordinary and global and working hard to deliver strong results and improved and increasing velocity of product and technical releases to serve our customers.
I am proud and encouraged by the work our organization is doing.
It is never easy to two.
Part with colleagues that are hardworking and care about the organization and I think our team handled that.
Well and we are.
Proving the speed of decision, making and the pace of our operation globally and Im Super encouraged by the progress the team is making.
Okay.
Thanks.
Yeah.
Our next question today is from the line of Omar <unk>.
The molecule along with you if you'd like to proceed with your question.
Yes, good morning.
Nice quarter.
If you could talk a little bit about what remains in terms of the pieces of the strategic plan that still need to be implemented.
What's the timeframe.
As with regard to that implementation and how should we think about.
The timing of the full impact of those initiatives.
Yeah, I think hey, Mark John here, Thanks for the question.
The pay in your organization is intensely focused on durable profitable growth and providing delivering the suite of financial services to our emerging market Smbs for all of their cross border needs and what our research.
<unk> that we did around Smbs.
3500, F&B service saw that there is an intense focus on growing exports among smbs in emerging markets as well as growing international vendors to optimize their expenses. So we are very focused first on ICP growth.
Both retention and engagement and acquisition of ICP and high value ICP is you saw the 18% growth.
Our ICP is doing over $10000 a month.
I'm encouraged about the second quarter in a row.
Strong revenue growth among ICP is and we've talked about that the tech modernization effort.
That's underway is picking up steam and we're excited about the progress we're making there in terms of the long term multi quarter evolution of pain here. There is a significant global opportunity for our financial operating account for our customers and we are penetrating them with both the services we have to offer.
Today, and developing new services that we believe can capture even greater percentage of their total accounts receivable and their total accounts payable. So we are.
We're making great progress and I am excited about the future.
Future in front of us.
Thank you Anne.
Just one more question.
The upcoming Investor Day on September 21.
Seems to be.
Of greater note than the typical companies Investor day, just given.
The extent of the transformation.
You were seeking to execute can you.
Give us a bit of a preview in terms of what that day will.
Evolve.
And ultimately seeking to accomplish with it thank.
Thank you.
So, yes, I'll start and then I'll pass it to be.
We're really excited about September 'twenty, one welcoming.
Current shareholders and new spend for new and potential shareholders to be introduced to the exciting things happening at pioneer exciting strategic opportunities, we see market developments, we see Adam Cohen and our go to market momentum Asaf Ronan.
And the platform modernization a lot has evolved at paid in euro since our IPO in June of 2021, and P&I and our executive team are excited to share, but anything you'd like to add.
Look I think your covenant Jamba certainly excited we think that it's a great opportunity for us to introduce slashed reintroduced the <unk> story to the investment community.
Holding this strategy as John has described with Super excited about the opportunity ahead of us.
We have a lot of new members are not people, who are excited to share that vision from a go to market perspective from a platform perspective, So we view it as a great opportunity to sort of reset and reintroduce the story introduce our exact frankly simplify the story a little bit.
Sure sort of where we see the business going over the next several years.
Thank you.
Okay.
Our next question is from the line of <unk> Goldman Sachs.
Your line is open. Please go ahead.
Hey, guys. Appreciate you taking the questions I'll Echo the other comments on a very nice quarter.
Look I think you guys commented on some of the ramp like shine on some of the commerce marketplaces on the platform I think that Jive with what we've heard from some other E. Commerce players I wanted to actually ask about one of the more kind of opaque vertical that you guys have which is sort of a non marketplace cross border e-commerce types of platforms that <unk>.
Serve.
We kind of know what the trends RMB to be on the marketplace side.
What are you guys seeing outside in more of the.
Of the kind of cross border F&B commerce types of merchants, how volumes trended there and then kind of what are your expectations going forward.
Yeah. Thanks for the question well I'll look to address that look at in terms of what we're seeing which are the same informs our guidance and the assumptions that underpin that look overall in our business. What we're assuming on what we're seeing is high single digit aggregate volume growth with higher volume growth in some of those.
Regions, where we're seeing an accelerated pace of growth as you've noted he comments has rebounded pretty nicely.
A month.
And so we are assuming and indeed seeing high single to low double digit growth from an E comm volume perspective.
In other parts of our business that are sort of Leslie com focus potentially something we've highlighted and we're expecting a beta be acceleration in the back half of the year in part from sort of the new verticals that we're launching our focus on the service oriented region also had the lapping of those terminations that we've talked about we're assuming again.
Strong and increased growth in travel spend not a huge part of the volume pie for us overall, but driving significant uplift.
Other areas look from a freelance platform perspective, we're assuming seeing on assuming which aligns and is consistent with those public companies as well as low to mid single digit volume growth from those freelance platforms.
And that probably sort of coverage the pie kind of from a volume and vertical perspective, but overall like I say.
Sort of baking in pretty strong volumes dynamics, we saw nice revenue trends in Q2 in terms of the acceleration pretty decent exit dynamics in April our revenue was roughly flat in may it was up mid single digits and we exited with June revenue up about 10%. So that's all baked into <unk>.
All of our assumptions for how we see the rest of the year panning out.
Got it that's super helpful and maybe just to double click on that last point that you made I mean, we were calculating the guidance, implying roughly 10% revenue ex slow growth in the back half of the year that doesn't sound too far off from some of those high single digit volume metrics, but you're calling out a lot of pricing benefits I guess I'm just curious.
The degree to which further pricing actions are incorporated in the back half of the year guide and kind of maybe the delta between revenue and volume that Youre expecting.
Yes.
Your math is spot on roughly 10% revenue growth in the back half of the year, a few things get us that one I've already noted we are assuming a broad acceleration in <unk> volumes as we lap those tougher Q3 comp and accelerate in some of the exciting new verticals that John talked about.
Revenue growth in <unk> has been strong it's outpacing core growth.
We're seeing a strong exit dynamics as I said, we're seeing the strong e-commerce and travel we are and we've highlighted that we're implementing additional measures to drive improved monetization.
And then I think the final leg as sort of continuing to drive we've seen good results, thus far continuing to drive penetration in our card offering in the back half of the year continued growth in our checkout merchant services business, that's really what bridges us from the strong exit dynamics that we saw from Q2 into the back half.
Yes.
Got it Super helpful. I appreciate you taking my questions.
Our next question today is from the line of Trevor Williams with Jefferies. Your line is open. Please proceed.
Okay.
Great. Thanks, a lot John I wanted to go back to the acquisition in China. It sounds like there is now a pretty firm commitment to China's staying an important region for you guys, but based on the comments you made maybe it sounds like the hope is to shift the composition of that customer base. It looks like over time. So if you could elaborate a bit on that.
And then maybe how you would expect the mix of business in China to evolve over the medium term. Thanks, so much.
Sure.
Thanks for the question as you know China is a large market for pioneer and this transaction really reinforces our long term commitment to our customers in that country.
We made the strategic decision to transition from operating as a foreign entity in China to becoming a local financial service provider. The advantages we anticipate to operating this way as a local licensed entity, we will expand our service capabilities to provide outbound money flows such as those for the travel industry and to support.
Art RMB globalization, we will be able to serve customers locally on the ground operations technology, and R&D as well as partnerships and integrations with more local tools.
Fundamentally improve our cost structure and improve FX.
FX margins and I think from a broader strategic framework.
Fits into our broader strategy to continue to invest in our regulatory licensing framework and operate even more locally around the globe, where now we're adding China to the other major jurisdictions, including the U S. Europe , U K, Australia, Japan, and Hong Kong and as we've shared we.
<unk> received a major payment institution license from the monetary authority in Singapore and earlier this year received our electric money institution license in the UK I think all of this plays into our deep.
Focus to continue to capture opportunities for emerging market SMB, then as it relates to China, specifically in the mix of customers.
We are not focused on the beta be in China near term right as the decision we made and we've articulated we're very focused in the high growth opportunities in semi in APAC and Latam and saw 29% growth in those markets. We continue to see a significant and big e-commerce opportunity in China.
And as the largest ex quarter.
A third of global exports are coming cross border E. Commerce exports are coming from China. We are a leader there and we will continue to be a leader there.
Got it okay. Thanks, and then maybe to put a finer point on the expectation for the <unk> volume to accelerate in the back half comps get much easier just with what you're lapping in <unk>, but any way you could dimensionalize how much of the acceleration is just comp driven and lapping the merchant.
And up versus some kind of underlying acceleration with some of the other initiatives you guys have talked about thanks.
Yes, I'm happy to take that look I think it is helpful. As we think about the dynamics in that business to disaggregate, a little bit as John sort of just.
Highlighted between China and rest of World just to give sort of some sense, China volume as a percentage of <unk> to be in Q2 was roughly 20% that sort of reflects sort of a shift in emphasis.
Towards those higher growth regions, where we see really compelling product market fit to sub service oriented business in what I'll call sort of that rest of world bucket, which is primarily although not exclusively sort of a service oriented business.
So while we will get the benefit of lapping those Q3 2022 terminations. We are seeing really strong growth in those other regions. John just highlighted APAC EMEA Latam, we saw 29%.
Volume growth year over year in those regions in Europe , we're seeing sort of fairly stable growth Ukraine is an important market for us remarkably resilient local community we've seen some headwinds, but we're also seeing sort of pickup in those new verticals. We've highlighted so overall, we're really excited in that sort of 80%.
Is the business that makes up the non China business to be able to continue to build on those strong volume trends and a strong exit dynamic.
Great. Thanks, a lot.
Our next question today is from the line of Bob Napoli with William Blair.
Your line is open. Please go ahead.
Alright, thank you.
Good morning.
Just on the acquisitions on it.
The license in China.
Spot I guess underwriting Israel technology, just any more color on what you expect to.
That to contribute.
It sounds like little revenue.
But the underwriting technology for working capital are we going to see an acceleration in working capital. So just any comments around those acquisitions and what you expect what we should expect to see from us.
And economic standpoint.
Sure. Thanks for the question Bob look as we noted in our prepared remarks on a pro forma basis, we don't expect.
Other acquisitions and materially impacts our financial statements and specific to the spot acquisition, which is the working capital look we continue to believe lending is a super interesting opportunities for us one way, we really do have sort of the opportunity to provide capital much more efficiently and why we see that the SMB.
We serve a poorly frankly, an underserved by traditional players. So we continue to explore ways to meaningfully grow that we've seen nice trends in our working capital business originations are up roughly 18%.
The <unk> acquisition is part of the overall acceleration strategy, it's basically a data platform that harvest the wide range of both.
Proprietary as well as publicly available data points and appliance machine learning tools to help us drive better underwriting what should that be to the business look it allows us to better manage risk and the losses associated with that underwriting risk and it should provide us a better way of targeting customers and then in.
<unk> provide an uplift to the amount of origination that we can drive. So look we're excited we think it's a long term opportunity for paying that and this is a part of that strategy and in line with what we've talked about which is to use M&A to really accelerate our product roadmap.
Great and then.
Icp's can you remind us what.
The economics of an ICP are versus non ICP.
What's your expectations are for growth of <unk>.
Sure Bob.
Good question here, so an ICP is defined as a customer that had $500 or more of average volume.
For each of the prior 12 months or $6000 in total volume. The ICP population, we saw really strong growth in.
In the quarter up.
APAC, 13% EMEA, 13% Latam, 13%.
This ICP globally over $10000 up 18%.
So we are seeing really good and healthy ICP growth, we would expect to see fluctuations quarter over quarter dependent on specific geographic or other factors, but we are focused on both growing the number of ICP is year on year as well as the quality and volume of each ICP.
Thank you.
Our next question today is from the line of Sanjay Sacramento Keyw's Sanjay. Please go ahead your line's open.
Yes.
Thanks, Good morning.
Thank you you answered a lot of questions about the second half outlook and your expectations, but I'm curious if we take a step back and think about the 20% revenue growth expectations.
Can you just talk about how we get there over the next several years, perhaps you can disaggregate some of the drivers of that.
And I know you talked about float income being a material contributor for the next few years could you just talk about how that plays into that.
Sure Sanjay thanks.
Thanks for the question.
We said, we viewed float income as core revenue in our core sort of result, if you like of the utility and value we provide to customers.
But we tell me sort of understand and we do kind of disaggregate as we look at the various levers of the business look as we've said the back half of this year the guidance assumes roughly 10% growth in tons of our coal revenue and we're looking to continue to drive that.
Acceleration of growth if you like within that kind of quote unquote core revenue through some of the things and initiatives that John has touched on so driving more ICP acquisition, our focus from a go to market perspective on ICP acquisition in that 10-K, plus which is a significant driver of revenue growth from across the total Rev.
The new pie and a broad reacceleration of our <unk> business.
In the back half of the year and going into <unk>.
'twenty 'twenty four as well so the other aspect again is ICP is one sort of aspect of that formula. The other one is <unk>, which we've also touched on it in our prepared remarks, and really driving more kind of adoption and cross selling in both high value products that we've talked about including checkout, which gives us.
We've talked about in past calls another avenue to bring.
And other volume into the network, which we can then monetize in other ways. So that's how we're thinking of sort of the drivers and levers that begin to reaccelerate our growth in our quote unquote sort of core revenue from an interest income perspective look at again as we've said and our peers have made similar comments in the market it seems clear.
The U S economy at least.
All commentary would indicate can support higher interest rates for the medium to longer term than perhaps we would have anticipated a few short years ago. So our outlook cannot sort of prognosis. If you like is that interest rates will stay in that 2% to 3% range for the medium to long term and given our continued balanced.
<unk>.
Given the continued utility that we build into our product we highlighted some really interesting customer customer behavior kind of metrics around the usage.
The customers make upon that what the whole balance that we think that interest income is going to continue to be a very meaningful <unk>.
Driver of revenue for us in the long term.
Okay great.
John obviously, you've done some deals here that are complementary and additive to what you're already doing.
Curious what the pipeline looks like here and should we expect more deals going forward or do you think we digest, what we have right now.
Yes.
Thank you for the question, we continue to evaluate potential M&A opportunities, specifically product extensions, where we can leverage our existing reach and customer base to continue to drive our proven engagement among our customers to deepen our regional footprint and our highest growth markets.
And where appropriate to extend our existing licensing framework.
As you know we have over $500 million of corporate cash on the balance sheet and we believe we can optimize the use of that capital to accelerate our revenue growth going forward to continue to deliver long term value to our shareholders.
So the M&A activity is active but nothing to report in addition to what we've shared already.
Alright, thank you.
Our next question today is from the line of Josh Shanker.
Fitzgerald Josh. Please go ahead your line Sir.
Yeah, Hi, Thanks for taking my question and good morning, Congrats on the strong execution this quarter.
I would like to start by diving, a little deeper into the strong customer acquisition, specifically the ICP is I'm curious what gives you confidence that this trend will continue in the back half of 'twenty three.
Yeah.
Yeah, Matt Thanks for the question, Josh I think the key part about.
IPP execution is one.
We have a great product, we have a terrific team and are focused.
Go to market effort and a series of exceptional partnerships and relationships.
Globally.
That enable us to continue to provide unique value to emerging market high growth small businesses that where exports are a critical part of their.
Revenue growth and we're global vet.
Vendors are essential for them to optimize the margins in their business. So our execution strong work, we're really focused.
On specific countries territories and opportunities and the team's executing well.
I suspect there will be fluctuations quarter to quarter.
It won't be a straight line up.
Although I would certainly like it to be I think it's reasonable that there will be.
Fluctuations, but the team is exceptionally focused and we have a great product and we're out there communicating with people.
Got it. Thank you John I appreciate that and then focusing on geographies.
We talked a little bit about China, but I'm curious if you can elaborate a little more on what some of the main BW headwinds were in some of your other core markets such as North America and Europe , How do you expect those trends to play out throughout the rest of the year and what would really result in a reversal or that <unk> service side in those geographies.
Yes, thanks for the question John .
Sorry, Josh.
As we said outside of China, we actually saw strong year over year volume growth suddenly we see some headwinds to the growth. We still grew in absolute terms from Europe , Ukraine is an important part of that market as I noted, it's been a remarkably resilient market for us and we continue to gain traction there one of them <unk>.
<unk>, we launched is actually specific to Ukraine, well targeted to Ukraine.
But overall outside of China really we've continued to show strong acquisition relatively strong retention as well and good volume growth year over year, and we expect those trends to continue through the back half of the year.
Understood. Thank you.
Thank you as a reminder, if you would like to ask a question. Please dial star one on your telephone keypad now.
And our next question is from the line of Ashwin <unk> of Citi Group. Please go ahead.
Thank you.
Good quarter here.
Let me go back to.
Adjusted EBITDA margins longer term expectation you have.
20% plus goal.
The app.
Probably just assume mid points.
Well, it's great expectations for this year for.
Adjusted EBITDA and revenues.
<unk>.
So the question is sustainability, how tight can you manage.
Radius cost lines in the longer term and.
With the.
With the radius.
Changes that youre, making and how you operate and so on.
Should we expect.
That's correct.
Sort of sustainably crossed over into the 20% plus range here.
Sure. Thanks for the question look we've delivered in Q2 meaningful expansion in our EBITDA.
From expense discipline and also from growing our top line as well we also delivered.
EBITDA profitability, albeit fractionally ex interest income as I noted so I wont repeat we do expect obviously that flow income will be a sustainable part of the coal revenue going forward as we look through the back half of the year and beyond liquid our guidance does assume an uptick in the back half of the year in terms of Opex that.
Flex continued hiring in our R&D organization, we've highlighted that we're going to continue to invest in the business invest in our go to market assets to invest in our platform. We still expect as we said in Q1 to exit this year with lower head count than we entered the year coming out of 2022 and as you noted look looks better.
<unk> on driving greater expense discipline, it's reflected in the higher guidance that we delivered today in terms of.
In terms of our EBITDA guidance. So we have continued to focus on what we can control and driving ICP acquisition on increasing up while at the same time investing in our platform and infrastructure to drive overall operating efficiency within that within the business, where we see significant leverage that we can drive.
From a technology automation and some of the other initiatives that are in flight in our organization.
Understood and then.
I can.
Get some input with regards to sort of the partnerships that you have in the.
The desire to keep expanding expanding your ecosystem of partnerships.
What are some of the right.
Quantifying tractors capabilities and so on that you look for as you as you do that they're going to.
For the most part stick with wallet partnerships local bank partnerships or is it is it.
Greater than that if you can sort of delve deeper into that would be really helpful.
Yeah, I'll start and then maybe I'll pass over to you I think there is the ecosystem that we participate in includes areas, where our customers are distributing their goods or services around the globe. So the big market, the big goods and services marketplaces, where we.
Our preferred.
Solution for our customers to receive their accounts receivable.
An exceptional set of ecosystem relationships with local banks and digital and local but neo banks as you as you referred to Additionally, we continue to penetrate and develop relationships with.
ERP and accounting and software providers.
We've announced and shared some of those in the past darn encouraged by the progress we make as a preferred.
Partner to those people in the F&B ecosystem globally recognized that Smbs wants to use the pay in your account for their accounts receivable and accounts payable activity and therefore, we represent in the easy to work with collaborative partner to engage with but see if there's anything you'd like to add capacity now and look I think you've cut.
Well specific to sort of the reference to banks look at we've built over many years and infrastructure relationships with close to or more than 100 banks and other partners and that's what allows us to support cross border movement of value across literally thousands of routes. So it's a complex and.
Restructure we think its a competitive moat for us we work very hard at it we evaluate it we add providers as we scale and we've been able to very successfully drive down costs and improve service as a result, so its a key part as John noted a because it's.
Thank you.
Thanks.
Okay.
Thank you we have no further time for any questions today, so would be my pleasure to hand back to you John .
Closing remarks.
Okay.
Thank you everybody. Thank you for your questions. Thank you to our global customers, our global employees and global shareholders for joining the call. This morning, I am incredibly excited about painters opportunity.
The world Doers grow their businesses and tap into the opportunities of the global economy. We appreciate our shareholders continued support and thank you for joining us this morning.
Thank you everyone. This concludes <unk> second quarter 2023 earnings conference call.
May now disconnect your lines.
Thank you for joining us this morning.