Q2 2024 Payoneer Global Inc Earnings Call

Good morning, thank you for standing by. Welcome to Payoneer's second quarter 2024 earnings conference call. At this time, all lines have been placed on mute to prevent any background noise. Following the speaker's remarks, we will open the lines for your questions.

Operator: At this time, all lines have been placed on mute to prevent any background noise. Following the speaker's remarks, we will open the lines for your questions. As a reminder, this conference call is being recorded. I would now like to turn the call over to Michelle Wang, Payoneer's Vice President of Investor Relations. Please go ahead.

As a reminder, this conference call is being recorded. I would now like to turn the call over to Michelle Wang, Payoneer's Vice President of Investor Relations. Please go ahead. Thank you.

Michelle Wang: Thank you, Operator. With me on today's call are Payoneer's Chief Executive Officer, John Caplan, and Payoneer's Chief Financial Officer, Beat Ordonez. Before we begin, I'd like to remind you that today's call may contain forward-looking statements, which are subject to risks and uncertainties. For more information, please refer to our filings with the SEC, which are available in the Investor Relations section of Payoneer.com. However, actual results may differ materially from any forward-looking statements we make today.

Additionally, please note we have posted an earnings presentation supplement alongside our earnings press release on Investor.Payoneer.com. All comparisons made on today's call are on a year-over-year basis, unless noted otherwise. With that, I'd like to turn the call over to John to begin.

Michelle Wang: These forward-looking statements speak only as of today, and the company does not assume any obligation or intent to update them except as required by law. In addition, today's call may include non-GAAP measures. These measures should be considered in addition to and not instead of GAAP financial measures. Reconciliation to the nearest GAAP measure can be found in today's earnings press release, which is available on our website. Additionally, please note we have posted an earnings presentation supplement alongside our earnings press release on investor.payoneer.com. All comparisons made on today's call are on a year-over-year basis unless noted otherwise. With that, I'd like to turn the call over to John to begin. Good morning, everyone.

John Caplan: Good morning, everyone, and thank you for joining us today. In September 2023, at our first Investor Day, we outlined our strategy to build the business-grade financial stack for global cross-border SMBs. We are committed to long-term, durable revenue growth, expense discipline, and expanding profitability. I'm proud to say that our plan is working. We are pursuing a significant opportunity, and our record financial results for the first half of 2024 validate that we have both the right team and the right strategy to achieve our ambitious goals.

John: Good morning, everyone, and thank you for joining us today.

John: In September 2023, at our first Investor Day, we outlined our strategy to build the business-grade financial stack for global cross-border S&Bs. We committed to long-term, durable revenue growth, expense discipline, and expanding profitability.

John: I'm proud to say that our plan is working.

John: We are pursuing a significant opportunity, and our record financial results for the first half of 2024 validate that we have both the right team and the right strategy to achieve our ambitious goals.

John Caplan: In Q2, our strong execution drove momentum across our key business metrics. ICP growth accelerated to 10%, driven by higher take-rate regions such as APEC, SEMEA, and Latin America, and double-digit growth in China. ARPU increased 27%, with a notable acceleration in ARPU growth excluding interest income.

John: In Q2, our strong execution drove momentum across our key business metrics.

John: ICP growth accelerated to 10% driven by higher take rate regions such as APEC, SEMEA, and Latin America and double-digit growth in China.

John Caplan: Over the past four quarters, year over year, our food growth x interest income climbed from 2% in Q3 2023 to 9% to 13% in Q1 of this year and now to 18% in Q2 of 2024. Volume growth accelerated for a sixth consecutive quarter to 22%. B2B volume growth accelerated for a fourth consecutive quarter to 40%. Total revenue grew 16%, excluding interest income and normalizing for $7.5 million of non-volume fees earned in Q2 of 2023. Our Q2 of 2024 revenue was up 21%, consistent with Q1 results. We generated a record adjusted EBITDA of $73 million.

John: Over the past four quarters, year-over-year ARPU growth, X interest income, climbed from 2% in Q3 2023 to 9%, to 13% in Q1 of this year, and now to 18% in Q2 of 2024.

John: Volume growth accelerated for a sixth consecutive quarter to 22 percent. B2B volume growth accelerated for a fourth consecutive quarter to 40 percent.

John: Total revenue grew 16%.

John Caplan: Delivering a 30% margin, fueled by strong revenue and sustained expense discipline, Payoneer is the steadfast ally to cross-border F&Bs because we're local in the markets they operate in and deeply understand their challenges and their opportunities. Additional cross-border payments, particularly into and out of emerging and developing markets, are complex, expensive, and time-consuming. Unlike Payoneer, emerging market local banking capabilities are not designed for modern global S&Bs operating across multiple geographies.

John: Additional cross-border payments, particularly into and out of emerging and developing markets, are complex.

John Caplan: I'd like to share some insights from our recent S&B Ambition survey on the businesses that our target customers own and operate. Approximately 50% of cross-border SMBs have customers in six or more countries and need to pay employees and vendors in six or more countries as well. Two-thirds of these SMBs have at least one non-local entity, and a third have two or more. However, 60% don't have cross-border financial management capabilities, such as real-time currency conversion, the ability to accept payments on their website, payroll solutions for multiple countries, or multi-currency cards to pay for goods and services.

Speaker Change: I'd like to share some insights from our recent S&B Ambition survey on the businesses that our target customers own and operate.

Speaker Change: And 60% don't have cross-border financial management capabilities, such as real-time currency conversion, the ability to accept payments on their website, payroll solutions for multiple countries, or multi-currency cards to pay for goods and services.

John Caplan: The Payoneer Financial Stack is purpose-built to solve these challenges. We have the scaled payment, regulatory, and compliance infrastructure and a localized experience built upon a strong and trusted brand. This enables us to be the global business grade financial partner for SMBs and help them succeed, and is what is powering our momentum. We are not done.

Speaker Change: This enables us to be the global business grade financial partner for SMBs and help them succeed and is what is powering our momentum.

John Caplan: We are continuously innovating to serve larger SMBs with more products and to serve smaller customers at scale in a cost-effective way. For example, within our ICPs today, we see twice the product adoption from ICPs who receive more than $250,000 per month in recurring revenue compared to those whose AR is more than $10,000 a month. Some recent examples of our product enhancements include launching integrations with accounting ERPs. This enables customers to track their spend on paying their cards directly within their preferred accounting solution.

Speaker Change: Within our ICPs today, we see twice the product adoption from ICPs who receive more than $250,000 per month in AR volume, compared to those whose AR is more than $10,000 a month.

Speaker Change: Some recent examples of our product enhancements include launching integrations with accounting ERPs. This enables customers to track their spend on paying their cards directly within their preferred accounting solution.

John Caplan: Improving our multi-entity and multi-user role management capabilities. This makes it easier for global SMBs to manage their business in one place, advancing our FX capabilities. For example, we recently launched features so customers can automate their withdrawals at a specific exchange rate that they set. This makes it easier for them to manage currency fluctuations. We are rolling out our lite account for freelance customers who get paid via Marketplace. We anticipate that most new customers from these marketplaces will be onboarded into our light account by the end of 2024.

Speaker Change: We anticipate most new customers from these marketplaces will be onboarded into our Lite account by the end of 2024. This will increase monetization, reduce costs and risks, and better align our service model to our diverse customer segment.

John Caplan: This will increase monetization, reduce costs, and risk, and better align our service model to our diverse customer segment. We are improving our activation speed. For our ICPs, we've reduced the time from account approval to transaction from seven days a year ago to two days now.

John Caplan: Our ecosystem is a strength. We are now integrated with QuickBooks, Zoho, and Xero, some of the largest global accounting platforms for SMBs. Our integrations enable a seamless reconciliation process for our customers' multi-currency transactions. We see opportunities to deliver a one-stop solution for our customers. We are extending the capabilities of our financial stack because managing global AP is a primary challenge for cross-border SMBs. Within AP, nothing is more important than workforce and payroll management. The process of paying employees must be timely, accurate, and comply with local regulations.

Speaker Change: Our ecosystem is a strength. We are now integrated with QuickBooks, Zoho, and Xero, some of the largest global accounting platforms for SMBs. Our integrations enable a seamless reconciliation process for our customers' multi-currency transactions.

Speaker Change: to deliver the one-stop solution for our customers.

Speaker Change: The process of paying people must be timely, accurate, and comply with local regulations.

John Caplan: When we surveyed our B2B customers, nearly 25% wanted cross-border payroll capabilities, with many existing customers already configuring our platform to address this need. This morning, we announced the acquisition of Squad, a mission-driven company that helps SMBs automate their hiring, onboarding, taxes, and payments for international employees and contractors. We intend to integrate S.Q.U.A.D. capabilities into our existing customer base. We believe it will increase our market presence and enable us to better serve SMBs as they manage their talent across borders. The S.Q.U.A.D.

Speaker Change: When we surveyed our B2B customers, nearly 25% wanted cross-border payroll capabilities, with many existing customers already configuring our platform to address this need.

John Caplan: acquisition, our accelerating momentum, and record-adjusted EBITDA margin are the direct result of our well-planned steps to deliver the sustained revenue growth and profitability targets we have communicated. In doing so, we believe we will unlock significant long-term value for our shareholders. We're proud of our global team for their tireless efforts and dedication to our customers. They are the core driver of our accelerating momentum. We are at the beginning of capturing the opportunity ahead of us, and this team is disciplined and long-term oriented. I'll now hand it over to Bea to discuss financial results and our increased guidance going forward.

Speaker Change: The S.Q.U.A.D. acquisition, our accelerating momentum, and record-adjusted EBITDA margin are the direct result of our well-planned steps to deliver the sustained revenue growth and profitability targets we have communicated.

Speaker Change: We're proud of our global team for their tireless effort and dedication to our customers. They are the core driver of our accelerating momentum.

Beatrice Ordonez: Thank you, John, and thank you to everyone for joining us. We continued our strong momentum in Q2 and delivered record financial results. We grew volume by 22%, which drove normalized revenue growth, excluding interest income, of 21%. Our ongoing expense discipline delivered a record 30% adjusted EBITDA margin, and we continue to return cash to shareholders, repurchasing $47 million worth of shares during the quarter. Record quarterly revenue of $240 million was up 1

Speaker Change: Thank you, John , and thank you to everyone for joining us. We continued our strong momentum in Q2 and delivered record financial results. We grew volume by 22 percent, which drove normalized revenue growth, excluding interest income of 21 percent.

Beatrice Ordonez: Growth was driven by a 10% increase in our ICPs, faster growth in higher-take rate services and regions, the continued benefit of our pricing initiatives, and higher interest income earned on customer funds held in Payoneer accounts. Volume growth of 22% reflected broad-based strengths across the platform. Our B2B business delivered 40% volume growth in Q2, accelerating from 33% growth in Q1. Our strong momentum in B2B is the result of our strategic focus and disciplined execution over the past 18 months.

Speaker Change: Record quarterly revenue of $240 million was up 16%.

Speaker Change: Our strong momentum in B2B is the result of our strategic focus and disciplined execution over the past 18 months.

Beatrice Ordonez: The customer cohorts we added since the beginning of 2023 are delivering significant growth, and we continue to see strong acquisition of B2B customers. Robust acquisition of large customers in China and continued strengths from large e-commerce platforms drove a 15% increase in volume from SMBs that sell on marketplaces. We are also seeing strong volume growth from emerging marketplaces with our existing China and U.S. based e-com sellers who are accessing demand on these newer platforms and consolidating the volume from these sales channels into their Payoneer accounts. While this makes up a small portion of our overall volume from SMBs that sell on marketplaces today, it's an area that is growing quickly, and we are exploring deeper strategic partnerships with these marketplaces.

Speaker Change: We are also seeing strong volume growth from emerging marketplaces, with our existing China and US-based e-comm sellers who are accessing demand on these newer platforms and consolidating the volume from these sales channels into their Payoneer accounts.

Beatrice Ordonez: We also generated nearly 200% volume growth in merchant services and 31% volume growth in enterprise payout. Our Q2 take rate of 128 basis points decreased seven basis points due to non-volume fees earned last year and continued growth in our enterprise payouts this year. Meanwhile, our S&B customer take rate continues to expand, increasing by one basis point, driven by significantly faster growth in our higher take rate B2B business and the benefit of ongoing pricing initiatives. Customer funds held by Payoneer increased 9% to $6 billion.

Beatrice Ordonez: Our ability to steadily grow customer funds drove a 19% increase in our interest income to $66 million for Q2, while average interest rates were up by just 5% and contributed modestly. We continue to prudently extend the duration of our portfolio, and as of June 30, we have invested nearly $1 billion of customer funds into U.S. Treasuries and term-based deposits. We are still ramping this program and intend to invest up to 30% of the portfolio in the coming months. We believe this will reduce our interest rate sensitivity and drive greater interest income consistency as rates begin to decline.

Speaker Change: We continue to prudently extend the duration on our portfolio, and as of June 30, we have invested nearly $1 billion of customer funds into U.S. Treasuries and term-based deposits.

Beatrice Ordonez: Total operating expenses of $193 million were up 11%, driven primarily by higher transaction costs, as well as higher depreciation and amortization, IT-related costs, and increased marketing spend. Transaction costs of $37 million increased 30% primarily due to strong volume growth, continued mix shift into our fast growing B2B and merchant services businesses, sustained growth in our card product, and an increase in chargebacks and operational losses. This was partially offset by improved commercial terms with banking providers, internal platform optimization, and cost structure benefits from increased scale. However, transaction costs represented 15.4% of revenue, a 160 basis point increase from the prior year period. Sales and marketing expense increased $2 million, or 5%, driven by higher marketing spend related to card incentive programs.

Speaker Change: Total operating expenses of $193 million were up 11%, driven primarily by higher transaction costs, as well as higher depreciation and amortization, IT-related costs, and increased marketing spend.

Speaker Change: primarily due to strong volume growth, continued mixed shift into our fast growing B2B and merchant services businesses, sustained growth in our card product, and an increase in chargebacks and operational losses.

Speaker Change: This was partially offset by improved commercial terms with banking providers, internal platform optimizations, and cost structure benefits from increased scale.

Beatrice Ordonez: Our initiatives have driven four consecutive quarters of more than 30% year-over-year growth in card usage, including 33% growth in Q2 of 2024. We continue to drive greater efficiency within our sales organization and have kept labor-related costs flat year over year, even as we have accelerated our ICP volume and revenue growth. G&A expense increased $4 million primarily due to higher M&A-related expenses, which we exclude from adjusted EBITDA. Other operating expenses of $1 million, or 2%; higher IT-related costs were partially offset by lower labor and consulting expenses. R&D expense was roughly flat, with higher labor costs offset by higher capitalization.

Speaker Change: Our initiatives have driven four consecutive quarters of more than 30% year-over-year growth in card usage, including 33% growth in Q2 of 2024.

Speaker Change: We continue to drive greater efficiency within our sales organization and have kept labor-related costs flat year-over-year, even as we have accelerated our ICP, volume, and revenue growth.

Speaker Change: G&A expense increased $4 million primarily due to higher M&A related expenses, which we exclude from adjusted EBITDA.

Speaker Change: Other operating expense was up 1 million or 2%. Higher IT related costs were partially offset by lower labor and consulting expense.

Speaker Change: R&D expense was roughly flat, with higher labor costs offset by higher capitalization.

Beatrice Ordonez: We have increased our average R&D headcount by 12% year-over-year and intend to continue strengthening our product and engineering teams to support our long-term strategy. Record adjusted EBITDA of $73 million was up $17 million, or 30%. This represents a record 30% adjusted EBITDA margin in the current quarter. Net income was $32 million compared to $46 million in the second quarter of last year, which benefited from $18 million of non-operating gains, primarily related to the revaluation of our public warrants. Q2 basic and diluted earnings per share was $0.09.

Speaker Change: We have increased our average R&D headcount by 12% year-over-year and intend to continue strengthening our product and engineering teams to support our long-term strategy.

Speaker Change: Record adjusted EBITDA of $73 million was up $17 million or 30%. This represents a record 30% adjusted EBITDA margin in the current quarter.

Beatrice Ordonez: We continue to actively return capital to shareholders, and we purchased $47 million worth of shares in the second quarter. We ended the quarter with cash and cash equivalents of $576 million, and note that our acquisition of S.Q.U.A.D. will represent a use of cash for the third quarter. Moving to our 2024 guidance. We are raising our guidance for revenue by 25 million and guidance for adjusted EBITDA by 25 million to reflect our strong results and continued momentum heading into the third quarter. Our guidance also includes the partial year impact of S.Q.U.A.D. which we closed on August 5th and which we do not expect to be material to our 2024 financial results.

Speaker Change: Moving to our 2024 guidance. We are raising our guidance for revenue by $25 million and guidance for adjusted EBITDA by $25 million to reflect our strong results and continued momentum heading into the third quarter.

Speaker Change: Our guidance includes the partial year impact of S.Q.U.A.D., which we closed on August 5th, and which we do not expect to be material to our 2024 financial results.

Beatrice Ordonez: For the full year, we expect revenues to be between $920 and $930 million. Our increased guidance is driven entirely by higher revenue excluding interest income of $680 to $690 million, while we continue to expect $240 million of interest income for the year. We now expect 2024 revenue growth, excluding interest income and normalizing for $15 million of non-volume fees earned in the first half of 2023, to be approximately 17 percent. That is nearly double the growth rate of 2023 and in excess of the mid-teens target we set at Invest Today.

Speaker Change: $240 million of interest income for the year.

Speaker Change: We now expect 2024 revenue growth excluding interest income and normalizing for $15 million of non-volume fees earned in the first half of 2023 to be approximately 17%.

Beatrice Ordonez: We are raising our expectations for revenue excluding interest income by $25 million to reflect our strong performance in the second quarter and increased expectations for the third quarter. We have made no changes to our expectations for the fourth quarter relative to our expectations in February. We continue to expect the fourth quarter revenue x interest income to grow mid-team. This reflects our expectations for balanced growth, the latest market views on interest rates, and the in-year impact of our program to extend the duration of our customer fund.

Speaker Change: We are raising our expectations for revenue excluding interest income by $25 million to reflect our strong performance in the second quarter and increased expectations for the third quarter.

Speaker Change: We now expect third-quarter revenues excluding interest to be up low to mid-teens year-over-year versus our previous expectation of high single-digit growth.

Speaker Change: We have made no changes to our expectations for the fourth quarter relative to our expectations in February . We continue to expect the fourth quarter revenue x interest income to grow mid-teens.

Speaker Change: We are holding our interest income revenue expectations at $240 million for the year.

Speaker Change: This reflects our expectations for balanced growth, latest market views on interest rates, and the in-year impact of our program to extend the duration of our customer funds.

Speaker Change: We expect transaction costs as a percentage of revenue to be approximately 16.5% versus our prior expectation of 17.5%.

Beatrice Ordonez: We expect this percentage to ramp in the second half of 2024 as we continue to make shifts towards higher take rates but also higher transaction cost business lines and products like B2B, merchant services, and cards. Our guidance for cash OPEX less anticipated transaction costs remains unchanged at approximately 540 million. Cash OPEX represents our guidance for revenue less adjusted EBITDA. We remain dedicated to driving innovation and delivering value for customers, employees, and shareholders over the long term. We are now happy to answer any questions you may have. Operator, please open up the line.

Speaker Change: We expect this percentage to ramp in the second half of 2024 as we continue to make shifts towards higher take rates, but also higher transaction cost business lines and products like B2B, merchant services, and card.

Speaker Change: We are increasing our adjusted EBITDA guidance by $25 million to be between $225 to $235 million, representing an adjusted EBITDA margin of approximately 25% at the midpoint for the full year.

Speaker Change: Our guidance for Cash OPEX less anticipated transaction costs remains unchanged at approximately $540 million. Cash OPEX represents our guidance for revenue less adjusted EBITDA.

Speaker Change: Our second quarter results demonstrate that our strategy and focus on growing and retaining ICPs, increasing adoption of our financial stack, optimizing ARPU, and delivering improving operating leverage is working.

Speaker Change: We remain dedicated to driving innovation and delivering value for customers, employees, and shareholders over the long term. We are now happy to answer any questions you may have. Operator, please open up the line.

Operator: Thank you. If you would like to ask a question today, please do so now by pressing star followed by the number one on your telephone keypad. If you change your mind and wish to be removed from the queue, you can do so by pressing star and then two. Please go ahead.

Speaker Change: Our first question today comes from the line of Darrin Peller with Wolf Research. Please go ahead.

unknown: especially on whether

Unknown Executive: Yeah, sure. Thank you, Darren, for the question. Look, I mean, everything we're seeing from a pricing perspective is very much in line with what we've talked about on prior calls, right? We started to define that segment-based approach. And, as John said in his prepared remarks, we launched our Lite account.

Speaker Change: Yeah, sure. Thank you, Darrin, for the question. Look, I mean, everything we're seeing from a pricing perspective is very much in line with what we've talked about in prior calls, right? We started to define that segment-based approach.

Unknown Executive: That launch will continue throughout the year, and that drives improved monetization for freelancers and gig workers. We're seeing a nice uplift from our FX Revenue Pricing Initiative, and we're continuing what we've termed, and is for us, a multi-quarter journey to really augment and make more nuanced our pricing strategy. So we're working on what we've called our Pro offering for services and goods verticals, which we think will drive, again, improved market monetization there. It could include usage and subscription fees, maybe perhaps a SaaS component, upgrade fees, and so on.

Unknown Executive: So overall, we're performing exactly as we sort of highlighted, nothing to add to the $20 million number that we referenced last year in terms of expected uplift in our 2024 guide from those pricing initiatives. And we continue to feel really optimistic and good about the strategy and how we can continue to drive uplift in the coming years. Specific to intra-network flows, as we said last time, we've continued to test. We think that that's a meaningful opportunity, again, as part of that broader pricing strategy.

Speaker Change: So overall, we're performing exactly as we sort of highlighted, nothing to add to the $20 million number that we referenced last year in terms of expected uplift in our 2024 guide

Speaker Change: Specific to intra-network flows, as we said last time, we've continued to test. We think that that's a meaningful opportunity, again, as part of that broader pricing strategy.

Speaker Change: That's great to hear. So it sounds like it's still relatively early days.

Speaker Change: John , maybe just one quick follow-up would be just the strategy of the business in terms of how much you've been investing in different categories to cross-sell, and I guess there's a part of that question.

John: In North America, 23% normalizing for non-volume fees, our focus on the high-value ICP, cross-selling card, introducing our B2B product, and now we're very excited about what we can do with payroll. You know, we've talked to our customers, and what they say is the number one AP challenge they have cross-border is contractors and employees. By adding SQuAD into our financial stack, not only will we grow our pool from those customers, extend the reach of our contractor solution, but we'll increase the stickiness of the financial stack itself.

Speaker Change: So, when we look at the accelerating product roadmap inside of the organization, our integrations into the ecosystem, as I referenced in my prepared remarks.

Speaker Change: and our multi-entity features, which make it easier.

Operator: Our next question comes from Mark Palmer with The Benchmark Company. Please go ahead.

Speaker Change: Yep.

Unknown Executive: Yes, thank you, and congratulations on the strong performance this quarter. It would be great if you could comment on what you are seeing from a macro perspective across the various regions you serve. And in particular, we saw strength in China, Asia-Pacific, and LATAM during the quarter. You just attributed that, in part, to various initiatives that the company has undertaken. But what are you seeing in the macro and what are your expectations for the rest of the year in that regard? How's that reflected in the guidance?

Speaker Change: It would be great if you could comment on what you are seeing

Speaker Change: Strengths in China, Asia-Pac, LATAM during the quarter.

Speaker Change: You just attributed that in part to...

John Caplan: Yeah, so I'll start and then, B, why don't you grab the... I just referenced the growth we've had in China, APAC, and for me in Latin America, really strong B2B performance across the board, strong card growth, the impact of our pricing initiatives, 30% growth in India, Argentina, and Japan, 40% plus growth in Pakistan, the Philippines, Brazil, and South Korea. The organization is really executing very well at driving growth. I think the macro environment was stable in Q2 compared to Q1 and broadly supportive of the strategy we've put in place.

Speaker Change: You know, the organization is really executing very well at driving the growth. You know, I think the macro environment was stable in Q2 versus Q1 and broadly supportive of the strategy we've put in place.

John Caplan: When we look out into the future, I'll pass it to B to talk a little bit about how we view the guidance for the second half of the year and the trends in both marketplace and B2B. Sure, and thank you, Mark.

Speaker Change: You know, when we look out into the future, I'll pass it to Bea to talk a little bit about how we view the guidance for the second half of the year and the trends in both marketplace and B2B.

Bea: And consistent with what we said after Q1, we're continuing to model in some macro softness in the back half of the year.

Bea: So, our guide implies a softening of growth there in those marketplace volumes to high single digits, which compares...

Bea: to the mid-teens growth that we saw in the front half of the year. In our B2B business, our guide implies at the midpoint roughly 25% year-over-year growth in our B2B business in the back half of the year. That continues to deliver outperformance versus our original four-year targets.

Bea: So we're expecting 30% year-over-year growth versus 25% when we issued that guidance in February .

Bea: So overall, look, the fundamentals are really strong, especially in our B2B biz. We model in some softness because we think that's prudent. There's certainly room to outperform if the macro remains as robust as it's been thus far. And I would call out that July was a really strong month.

Bea: John , you had previously talked about payroll as an area that you would potentially focus on with regard to...

John: Bolton, M&A. Now with the

John: Edition of S.Q.U.A.D., what else remains on your wish list in terms of building out the product suite?

Speaker Change: The approach to serving SMBs who are doing business cross-border. You know, we've announced three acquisitions since I took over as CEO , Spot.

Speaker Change: A Bit and Acquisition in China, which is yet to close, and Will, and Squad, when we look at our M&A philosophy, we're focused on product acquisitions and extensions where we can leverage our existing customer base and our reach to cross-sell financial stack solutions and drive our proof growth. That's sort of the primary objective. Secondarily, deepen our...

Speaker Change: Regional footprint in the high-growth markets where we have a priority, you'll note that SQUAD is headquartered in Singapore with teams in Singapore and in India, as well as extending our license

Speaker Change: and licensing framework. There are lots of opportunities in the market and we are a prudent and disciplined buyer and deep into the diligence of the opportunities and we will continue to

Speaker Change: I'll add to our capabilities through tuck-in M&A.

Speaker Change: The next question comes from Trevor Williams with Jeffreys.

Operator: Please go ahead.

unknown: Great, thanks. Good morning.

Speaker Change: Please go ahead.

Trevor Williams: And then any update on timing if you think this could be a potential second half impact or if this is more maybe a 2025 broader rollout. Thanks.

Speaker Change: Thanks, Trevor. Yeah, look, the rollout is in line with what we talked about at the end of Q1, and in line with sort of our plans in general, and that segment-based pricing strategy and offering strategy that we've outlined. Look, we continue to work.

Speaker Change: on defining those customer personas, aligning our product bundling and pricing to those personas, and really thinking it in a very sort of holistic and broad way around how we drive more engagement, capture more share of wallets.

Speaker Change: improve monetization and really crucially as well, reduce our complexity and cost to serve by aligning the product bundling to the needs of that customer. So this is a multi-quarter journey as we've called out. We're very much in line with where we wanted to be. We still continue to expect roughly $20 million or more in uplift in 2024 in terms of revenue uplift from those initiatives and we see a lot more opportunity to come there as we continue to launch and think through that strategy.

Speaker Change: Specific to the pilot, it's going well. We launched it. We're being really rigorous in understanding sort of the customer reaction and results.

Speaker Change: It's not a meaningful driver and it's not meaningful to our guidance in 24. We think it can be somewhat more meaningful in 25, again, as part of a broader pricing strategy.

Speaker Change: Okay, that's great.

Speaker Change: If we compare that to where you were this quarter on the core X interest income up in the low 20 percentage, there's still a pretty good deceleration that's embedded.

Speaker Change: in Q3. Maybe if you could just kind of parse out the moving pieces within that, how much of that is just embedded conservatism around the macro, and if you could give us a sense for how July trended relative to that 21% growth in Q2. Thanks.

Speaker Change: 25 million in total, as we called out, that captures the outperformance in Q2, and we've increased our expectations for Q3 versus prior year guidance.

Speaker Change: to, as you noted, low- to mid-teens growth from high single digits.

Speaker Change: How does that break out as between the sort of various components of our business?

Speaker Change: Right, so where we initially guided to high single-digit grossing volumes from marketplaces.

Speaker Change: In Q1 and Q2, we actually saw high teens.

Speaker Change: Thank you.

Speaker Change: The next question comes from Will Nance with Goldman Sachs.

unknown: Yeah, I wanted to ask about pricing. I don't know if you guys could give us an update on. I think last quarter, you talked about being in a pilot program for some of the intranetwork flows. If you could just give us an update on how that pilot program is progressing, and then any update on timing if you think this could be a potential second half impact or if this is more maybe a 2025 broader rollout. Thanks.

Speaker Change: Please go ahead.

unknown: Hey guys, good morning.

Will Nance: Hey guys, good morning, nice results this morning. I wanted to ask on the really strong performance on the marketplace volume side, I think

John Caplan: Nice results this morning. I wanted to ask about the really strong performance on the marketplace volume side. I think, you know, for most of the time I've been following you, like, the volumes have tracked pretty closely with kind of broader e-commerce trends across kind of a lot of the marketplaces, which are – I mean, most of them are publicly traded. And, you know, this quarter, it seemed to really kind of gap out.

John Caplan: And I'm just wondering if you could kind of comment on where you're seeing that outperformance. There were some comments about new customer acquisition in China. I'd love to hear more about that and the opportunity in, you know, marketplaces in emerging markets. Thanks.

Operator: You bet, Will. Thanks for the question. You know, we're proud of the results the team that focuses on the marketplace relationships has achieved. And as you and I have talked in the past, that team is global, right? So we have folks on the ground in the US and folks on the ground in China and around the world. So it's a strategy that involves both acquiring ICPs on the ground that are exporters, S&Bs that sell on marketplaces, so work that happens inside of China and other regions around the world.

Will Nance: Thanks.

Speaker Change: acquiring ICPs on the ground that are exporters, SMBs that sell on marketplaces, so work that happens inside of China and other regions around the world. And we saw really strong performance and the e-comm results benefit from

Operator: And we saw really strong performance, and the e-com results benefited from, you know, the consumer spend and the strong performance by the Payoneer team. You know, we are, I think, at the beginning of our opportunity to extend our relationship with the innovative new marketplaces that are entering the consumer landscape, TikTok, Shein, Temus, and others, and we continue to work to develop those relationships to extend our franchise in the marketplace arena, which I think, over the next several quarters, will continue to be as strong as it can be. You know, we are at the beginning of that journey, which is interesting to think about. We're excited about it and pursuing it aggressively.

Speaker Change: I think, at the beginning of our opportunity to extend our relationship with the innovative new marketplaces that are entering the consumer landscape, the TikTok, Shein, Taemooz, and others, and we continue to work

Speaker Change: to develop those relationships to extend our franchise in the marketplace arena, which I think over the next several quarters will continue to be as strong as it can be. You know, we are...

Speaker Change: Great, sounds exciting. And then maybe just a follow-up for B, just how are you thinking about incremental margins over the next year? You know, largely, I guess, stripping out the interest income part of the equation. Obviously, rate expectations have been a bit volatile recently, but if we think about just incremental margins in the core business, excluding sort of the macro impacts on the float, how would you position that? And, you know, how would you maybe characterize some of the levers you have to manage the incremental margins over the next year or so, maybe including some of the potential headwinds we might see from float? Thanks.

Speaker Change: In the back half of the year, we've actually outperformed our expectations there. We lowered our guidance for transaction costs as a percentage of revenue from $17.5 to $16.5.

Speaker Change: from optimizing our platform and capabilities from a routing perspective and from pricing initiatives, particularly in our MRS business more broadly. So again, we see the opportunity to continue to drive sustainable growth in revenues, less transaction costs.

unknown: The next question comes from Chris Kennedy with William Blair.

Speaker Change: The next question comes from Chris Kennedy with William Blair. Please go ahead.

unknown: Great, thanks for taking the questions. I know you talked about it, but can you give a little bit more details on extended?

Unknown Executive: Yeah, thanks for the question, Chris. Yeah, as we've called out, we've been extending the duration. We started that program this year, and we anticipate expanding it somewhere in the region of 30%, perhaps a little more. We're obviously balancing, you know, liquidity, but perhaps 30% or more of that portfolio over the course of the next several months. As of the end of July, we had already extended roughly $1.2 billion. We called it out, and we've done that through Treasury bills, again, highly liquid instruments, and through term deposits.

Speaker Change: Yeah, thanks for the question, Chris. Yeah, as we've called out, we've been extending the duration. We started that program this year.

Unknown Executive: The weighted average duration of that portfolio right now is, give or take two years. The weighted average yield is just under 5%. So, look, to your point, the ability to do that, obviously, prudently will reduce our interest rate sensitivity as we begin to sort of come down the other side of this tightening cycle, so to speak, and deliver greater earnings consistency. We're also looking at derivatives that can provide interest rate floors and similar instruments that can provide additional benefits, always, of course, prioritizing safety, not looking to time the market perfectly, and just continuing to hedge to So, we feel good about it. We think we're handling it sort of the right way and properly balancing that, and that we can continue to drive really sustainable float income in the coming years.

Speaker Change: The weighted average duration of that portfolio right now is, give or take two years. The weighted average yield is just under 5%.

Speaker Change: So look, to your point, the ability to do that, obviously prudently, will reduce our interest rate sensitivity as we begin to sort of come down the other side of this tightening cycle, so to speak, and deliver greater earnings consistency. We're also looking at derivatives that can provide interest rate floors and similar instruments.

Speaker Change: that can provide additional benefits, always of course prioritizing safety, not looking to time the market perfectly, and just continuing to hedge to reduce that overall sensitivity as much as we can. So we feel good about it. We think we're handling it sort of the right way and properly balancing that.

Speaker Change: and that we can continue to drive really sustainable flow income in the coming years.

Speaker Change: Great, thanks for that. And then as a follow-up, you've made a lot of investment in your tech stack and your platform. Can you just talk about kind of where you are in that journey?

Speaker Change: The results that the platform organization have delivered have been terrific, and we're proud of what they're doing and are focused on accelerating their impact as we serve more and more global ICPs who need the support of the organization.

John Caplan: Yeah, the only thing I'd add to that, John, is that we continue on a roadmap that's very consistent with what we've outlined. So roughly a third of our platform investment goes to growth-driven initiatives, so the kind of things that we talk about on this call, right, improving the UX, improving online engagement, elements of our B2B product roadmap, our pricing and offering strategy and capabilities, and so on. Roughly a third is going to enablement and other platform capabilities, so data is super important, as you would imagine, really driving improved customer insights, AI-based tools to allow us to utilize that data, you know, really focusing on the data that's going to allow us to improve retention in our portfolio, so areas that improve the customer experience from payment friction to self-serve capabilities, and then the final element is what I'll call platform modernization, So that's really kind of the roadmap we've laid out and how we think about the various investment pillars, if you like.

John Caplan: Yeah, the only thing I'd add to that, John, is

Speaker Change: You know, really a focus on the data that's going to allow us to improve retention in our portfolio. So, areas that improve sort of the customer experience from payment friction to self-serve.

Speaker Change: And then the final element is what I'll call platform modernization, which is a needed part of the investment in any sort of company that's operating a diverse and complex financial stack the way we are. So that's really kind of the roadmap we've laid out and how we think about the various investment pillars, if you like.

Speaker Change: Great, thanks for taking the questions.

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

Speaker Change: We have no further questions and so I'll turn the call back to John Caplan for closing remarks.

John Caplan: Thank you, everybody. Thank you for your questions and your participation this morning. Thank you to the Global Payoneer organization for your incredible hard work and dedication to our customers. We're all excited about the initiative underway and our momentum and traction, and we appreciate the continued support of our shareholders. We look forward to our next discussion at the end of next quarter. Speak to you soon.

John Caplan: Thank you everybody. Thank you for your questions and your participation this morning. Thank you to the Global Payoneer Organization for your incredible hard work and dedication to our customers.

John Caplan: We're all excited about the initiative underway and our momentum and traction, and we appreciate the continued support of our shareholders. We look forward to our next discussion at the end of next quarter. Speak to you soon.

Operator: Thank you everyone for joining us today. This concludes our call, and you may now disconnect your lines.

John Caplan: Thank you everyone for joining us today. This concludes our call and you may now disconnect your lines.