Q3 2024 Payoneer Global Inc Earnings Call
Speaker Change: Good morning, thank you for standing by. Welcome to Payniff, first quarter 2020-24 earnings conference call. At this time, all lines have been placed on me to prevent any background noise. Following the stickers remarks, we will open the lines for your questions.
Speaker Change: As a reminder that this conference call is being reported. Over now, let's turn the call over to Michelle Wang will pay an FTP of Investigation. Please go ahead.
Michelle Wang: Thank you, Operator. With me on today's call, our Painors Chief Executive Officer, John Caplan and Painors Chief Financial Officer B. Or Villainess.
Michelle Wang: Before we begin, I'd like to remind you that today's call may contain forward-looking statements, which are subject to risks and uncertainty.
The more information, please refer to our Files with the SCC which are available in the investor relations section of pannear.com.
Michelle Wang: Actual results may differ materially from any sports looking statements we make today.
and the company does not assume any obligation or intent to update them except that required by law. In addition, today's call may include my gap measures. These measures should be considered in addition to and not instead of gap financial measures.
Michelle Wang: Reconciliation to the near-thgap measure can be found in today's earnings press release, which is available on our website.
Michelle Wang: Additionally, please note we have posted an earnings presentation supplement along side our earnings press release on investors.painyear.com.
Michelle Wang: All comparisons made on today's call are on a year over year basis unless otherwise noted. With that, I'd let the call over to John to beat him.
John Caplan: Good morning everyone and thank you for joining us today.
John Caplan: Paymeer once again delivered a record-breaking quarter in both volume and revenue.
Michelle Wang: We are systematically building a full service financial platform for the cross-border needs of small and medium-sized businesses around the globe. We are committed and making significant progress.
Michelle Wang: In 2024, Paine here has entered a meaningful second curve of profitable growth, as evidenced by our financial performance over the past three quarters.
Michelle Wang: Armamentum is no accident. It's the result of a strong management team, a sector's strategic capital allocation, and the discipline to execution of our global team, who are all aligned on driving sustainable and profitable growth.
Michelle Wang: and Q3, we delivered exceptional results.
Michelle Wang: ICP growth increased for the fourth consecutive quarter of 11 percent with strength in APEC, Latam, and China.
Michelle Wang: R Food, excluding interest income, increased by 20%, marking the fifth straight quarter of accelerating growth.
Michelle Wang: We're onboarding larger customers, cross-selling products like cards and optimizing our pricing strategy.
Michelle Wang: Total volume growth accelerated for a seventh consecutive quarter to 25%.
Michelle Wang: We drove strong performance across our business, including with our SMBs that tell on marketplaces, B2B merchant services, and enterprise payouts.
Michelle Wang: Total revenue grew by 19% and when excluding interest income, revenue grows by 24% Highlighting Accelerating Momentum versus the first half of the year.
Michelle Wang: and Justice Ibadour reached $69 million, with a 28% margin. Underscoring our operational discipline.
Michelle Wang: Pay in here is a profitable I-growth company.
Michelle Wang: Since the beginning of 2023, an excluding interest income.
Michelle Wang: We have accelerated revenue growth from the most single digits to 24% in Q3. We have also turned adjusted EBITDA native interest income positive for the first 3-4 of this year.
Michelle Wang: Our B2B business is the growth engine driving pain-ear-forward as we serve and capture the multi-triolient dollar cross-border B2B market.
Michelle Wang: and Q3, B2B volume grew by 57%.
Michelle Wang: We have generated 44% B2B growth for the first three quarters of 2024. Compared to single-digit growth in 2023.
Michelle Wang: B2B represents nearly a quarter of our QC revenue, excluding interest income, and contributed to over 40% of the year-over-year growth in revenue, excluding interest income.
Michelle Wang: Within our B2B business, we're acquiring larger customers and expanding average transaction sizes.
Michelle Wang: B2B volume growth came from our successful acquisition of larger SMBs as we realigned our go-to-market strategy focused on high potential clients and amplified our affiliate and partner network.
Michelle Wang: Let's look at a few examples of how our beat-of-be customers are using panier.
Michelle Wang: A travel management company in Asia operating across multiple countries and currencies will live on paying near to streamlined treasury function.
Michelle Wang: This is simplifying the accounts receivable processes, improving efficiency and reducing cost.
Michelle Wang: A virtual assistant business process outsourcer serving U.S. clients with contractors in the Philippines. They sent them millions of dollars in monthly payments into their paying your account, consolidating collections and payouts without the need for local bank accounts.
Michelle Wang: These are just two of the millions of SMB's worldwide that have crossed water financial needs, but traditional and local banks have underserved.
Michelle Wang: Pain year is stepping into field escape faster, more efficiently and with greater focus than traditional legacy institutions.
Michelle Wang: We are empowering businesses to manage their global, multi-currency payments seamlessly and to scale worldwide.
Michelle Wang: Our customer portfolio continues to evolve. With ICPs now comprising 28% of our overall base, up from 25% of the start of 2023.
Michelle Wang: and within our ICPs, we continue to sharpen our focus on larger customers and those with more complex needs.
Michelle Wang: 10K plus ICP is represent approximately 85% of our SMB volume and we have grown both volume and revenue from 10K plus ICP by over 25% in Q3 of this year.
Michelle Wang: We're focused on a critical and underserved part of the Payment Seeker System, SMB's, Cross-Board or Trade, B2B Transaction and Emerging Markets.
Michelle Wang: We are positioned to capture this multi-trily-and-dollar opportunity with our regulatory infrastructure, banking partnerships, brand strength, and strategic alliances.
Michelle Wang: All of which you supported by a strong culture of collaboration, execution, and service.
Michelle Wang: Our success hinders on our relentless daily execution, expansion of our financial stack, modernization of our platform, and focus on our compliance and regulatory mode.
Michelle Wang: We will also work to build, partner with, or acquire the products and services we need to drive acquisition, grow our food, and improve stickiness and retention.
Michelle Wang: As we do so, we will continuously review our products and programs to ensure they align with our long-term goals.
Michelle Wang: We expect this will enable a valetate capital in the most effective way to generate value over the long term for our shareholders. We believe the road ahead holds even greater value creation.
Speaker Change: Small businesses drive the global economy, creating jobs and enabling innovation. For these businesses, exports are a growth engine.
Michelle Wang: Painors helping SMBs, especially in emerging markets, tap into the global economy by simplifying cross-border financial management. We empower these SMBs to reach new markets.
Michelle Wang: We shoot customers, engage new suppliers, and enable them to expand, thrive and contribute to a growing global economy.
Michelle Wang: That day in here.
Michelle Wang: Trade is more than just flows of money. It's a catalyst for growth, collaboration, opportunity, and prosperity.
Michelle Wang: Painors, proud to support FNBs and foster economic growth worldwide.
Michelle Wang: All of this is possible. All of our momentum is because of our team's relentless energy, disciplined execution, and dedication to our customers.
Speaker Change: They are the driving force behind our pursuit of the profitable growth opportunities that lie ahead with that I'll pass over to be to dive deeper into our specific financial results and increased guidance for 2024 thank you
Michelle Wang: Please see the complete disclaimer at https://sites.google.com
Speaker Change: Thank you, John, and thank you to everyone for joining us.
Speaker Change: We continued our strong momentum in the third quarter and generated record quarterly volume, record quarterly revenue, and strong profitability. We are building the financial stack of choice for SMBs looking to grow globally, and our financial results demonstrate we are winning share in this multi-trillion dollar market.
Speaker Change: We grew third quarter volume by 25%, which drove revenue excluding interest income growth of 24%.
Speaker Change: We are delivering top-line growth alongside continued expense discipline and achieved a 28% adjusted EBITDA margin. Notably, we delivered another consecutive quarter of positive adjusted EBITDA even when you exclude interest income.
Speaker Change: Record quarterly revenue of $248 million was up 19%. Gross was driven by accelerating B2B gross, strong marketplace gross, continued adoption of our card product, the impact of our pricing initiative, and an 11% increase in our ICPs.
Speaker Change: Revenue growth also continues to benefit from higher interest income, largely a result of a 13% increase in customer funds held on our platform.
Speaker Change: Volume growth of 25% reflected broad-based strengths across the platform.
Speaker Change: 17% growth from SMBs that sell on marketplaces.
Speaker Change: reflected continued robust volume growth from our large Chinese econ sellers.
Speaker Change: Supported by stable macro conditions and consumer spending trends on the large marketplaces our customers sell on.
Speaker Change: Our B2B business delivered 57% volume growth, accelerating from 40% growth last quarter.
Speaker Change: As John highlighted, our B2B results were a result of continued strong customer acquisition and benefited from our focus on larger B2B customers.
Speaker Change: We generated 142% volume growth in merchant services and 29% volume growth in enterprise payouts.
Speaker Change: Our Q3 take rate of 122 basis points decreased 5 basis points, primarily due to the impact of slowing interest income growth.
Speaker Change: RSMB customer take rate of 109 basis points increased two basis points driven by accelerating growth in our B2B business, continued penetration of our card offering, and the impact of our pricing initiatives.
Speaker Change: Customer funds held by Payoneer increased 13% to $6.1 billion. Customers value our multi-currency capabilities and the ability to hold balances in stable currencies such as the U.S. dollar is a core value proposition.
Speaker Change: We continue to steadily grow customer funds, which drove an 8% increase in our interest income to $65 million for Q3, even as average interest rates were relatively flat year-over-year.
Speaker Change: We are taking active steps to reduce our sensitivity to interest rate movements as the US Federal Reserve begins its rate-cutting cycle.
Speaker Change: We have continued to execute on programs to mitigate our exposure to interest rate volatility, and as of November 1st,
Speaker Change: We have approximately one-third of our customer funds invested in U.S. Treasury bonds and term bank deposits, with a weighted average duration of approximately two years and an average yield of approximately 4.5%.
Speaker Change: We have also purchased derivatives on approximately one-third of our customer funds, providing a floor against interest rate declines below 3%.
Speaker Change: These instruments provide a minimum interest revenue stream on the principal covered even in the event of a decrease in short-term interest rates below 3% over the next 3 to 5 years.
Speaker Change: As of November 1st, the remaining one-third of customer funds are floating and subject predominantly to prevailing short-term interest rates in the U.S.
Speaker Change: We will continue to actively and prudently manage this revenue stream and expect to fine-tune our programs based on our ongoing assessment of market conditions.
Speaker Change: Total operating expenses of $213 million were up 19%, driven primarily by higher transaction costs from the 25% increase in volume in the quarter and increased R&D, depreciation and amortization, and M&A related expenses.
Speaker Change: Transaction costs of $38 million increased 25% in line with volume growth. The increase is driven primarily by higher bank and processor fees, which increased 20% and higher chargebacks and operational losses.
Speaker Change: Transaction costs represented 15.3% of revenue, a 70 basis point increase from the prior year period.
Speaker Change: Sales and marketing expense increased four million or seven percent, driven by higher spend primarily related to incentive programs to drive card growth.
Speaker Change: G&A expense was up 5 million or 18 percent primarily due to higher labor and consulting costs as well as M&A related expenses which are excluded from our as adjusted results.
Speaker Change: Other operating expense increased $5 million or 11%, driven by increased IT costs and regulatory reserves, partially offset by lower labor and consulting expense.
Speaker Change: R&D expense was up 8 million or 28%, reflecting higher labor-related costs from higher headcount, which is up over 20%. Approximately one-third of the increased headcount is related to our acquisition of SQuAD in August.
Speaker Change: Adjusted EBITDA of $69 million was up 19% and reflected a 28% adjusted EBITDA margin.
Speaker Change: Net income was $42 million compared to $13 million in Q3 of last year.
Speaker Change: The year-over-year increase reflects strong operating results.
Speaker Change: Q3 basic earnings per share was $0.12 and diluted earnings per share was $0.11.
Speaker Change: We ended the quarter with cash and cash equivalents of $534 million. Our acquisition of Squad represented a use of cash of approximately $61 million in the third quarter.
Speaker Change: We also repurchased and redeemed our outstanding public warrants for approximately 21 million.
Speaker Change: And finally, we repurchased 21 million of shares during the quarter, which was lower sequentially as we had to pause share repurchases during the warrant tender period.
Speaker Change: For the first nine months of 2024, we have repurchased a total of $119 million worth of shares at a weighted average price of $5.16 per share. This is in excess of our target of doubling our share repurchases in 2024 when compared to 2023.
Speaker Change: As a reminder, we continue to work towards the closing of our acquisition of a licensed Chinese payment service provider, which is subject to regulatory approval and customary closing conditions. We anticipate closing the acquisition in the first half of 2025.
Speaker Change: Moving now to our 2024 guidance. We are raising our guidance for both revenue and adjusted EBITDA by 30 million to reflect our strong third quarter results and continued momentum heading into the final quarter of the year.
Speaker Change: For the full year, we expect revenues to be between $950 and $960 million. This includes revenue excluding interest income of $700 to $710 million and $250 million of interest income for the year.
Speaker Change: We are raising our expectations for revenue excluding interest income by $20 million, which implies full year growth of approximately 17% at the midpoint.
Speaker Change: This is more than triple the growth rate of 2023 and ahead of the mid-teens target we set at our investor day.
Speaker Change: We continue to expect fourth quarter revenues excluding interest to grow mid-teens and believe this is an appropriate exit run rate as we look to 2025.
Speaker Change: We remain committed to delivering on our medium-term target of mint team growth next year.
Speaker Change: We are increasing our interest income revenue expectations by $10 million for the year to $250 million.
Speaker Change: This reflects third quarter outperformance and our latest expectations on interest rates and balance growth.
Speaker Change: As we look to 2025, we'd expect our interest income to decline year over year. The market currently expects average rates to come down from over 5% in 2024 to approximately 3.7% in 2025.
Speaker Change: We'd expect to partially offset the impact of lower rates with balanced growth and with 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% for the year versus our prior expectation of 16.5%.
Speaker Change: This implies a rate of 18.3% for the fourth quarter.
Speaker Change: Stepping up from the first three quarters of the year due to both seasonality, including related to our Merchant Services business,
Speaker Change: as well as the continued makeshift more broadly towards higher take rate but also higher transaction cost business lines and products.
Speaker Change: Given these business dynamics, as well as lower interest income expectations for 2025, we'd expect our fourth quarter transaction costs as a percentage of revenue to be an appropriate exit run rate heading into 2025.
Speaker Change: We are increasing our adjusted EBITDA guidance by $30 million to $255 to $265 million.
Speaker Change: This represents an adjusted EBITDA margin of approximately 27% at the midpoint for the full year, also ahead of our medium-term targets.
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 third quarter performance demonstrates strong execution of our strategy which centers on growing and retaining ICPs, boosting adoption of our financial solutions, and investing in our financial stack to drive both top-line growth and improved operational efficiency.
Speaker Change: We remain committed to driving innovation and delivering long-term value for our customers, shareholders, and employees.
Speaker Change: We are now happy to answer any questions you may have. Operator, please open the line.
Speaker Change: Thank you. As a reminder, 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 or would like to remove yourself from the queue, you can do so by pressing star and then two. When preparing to ask your question, please ensure that your device and your microphone are unmuted locally.
Speaker Change: Our first question today comes from the line of Sanjay Sakrani with KBW. Sanjay, please go ahead.
Sanjay Sakrani: Thanks, good morning. So the B2B SMB trends continue to show pretty strong trends this year. I know comps are helping at the margins, but you know what surprised you the most to the upside as we progress through the year?
Speaker Change: Thank you.
Speaker Change: Q2 of 2024 was a 40% growth quarter, and Q3 of 2024 was a 57% growth quarter. Every region in the company exceeded our 25% B2B volume growth target in the third quarter. And I think the acceleration really is grounded in
Speaker Change: are the strategic initiatives the company has taken. Targeted acquisition, expansion into new verticals, and improvements in our customer experience across the board.
Speaker Change: When I look at the product market fit we have for both goods businesses, particularly in China, and services companies globally in LATAM, APEC, SEMEA, and Europe,
Speaker Change: We are seeing really solid penetration, particularly of larger ICPs, those even greater than
Speaker Change: $250,000 a month in average volume. And we're really seeing solid and strong performance across the board. We had guided at the beginning of the year to 25% growth for the B2B business, which was
Speaker Change: Let's call it brave at the time we made that statement.
Speaker Change: We delivered solid growth. We upped that guidance to 30%.
Speaker Change: And we have confidence that our B2B business will continue to grow faster than the overall business and is a really massive long-term opportunity that we are in the position to capture globally. So we feel confident in where we are, proud of the execution of the team, and believe we're at the beginning of the growth curve of our B2B business.
Speaker Change: Thank you. It has been great execution. And I guess I have a follow up for B, maybe two sort of model questions.
Speaker Change: You know, you're forecasting a deceleration in Q in revenues, X float.
Speaker Change: Could you just talk about those underlying assumptions? And then the gross profit outlook implies transaction costs will be higher in 4Q. Maybe you could just talk about what's driving that step up. I know there's some seasonality there, but this seems a little bit more than that. Thanks.
Speaker Change: No, thanks for the question, Sanjay. Yeah, look, as you're calling out, our guidance for 2024, which again implies a 20% year-over-year normalized core revenue growth at the midpoint, does imply a step down or deceleration in Q4 from roughly 22% core revenue growth year-to-date to mid-teens. Now, look, that's super consistent with everything we've said throughout the year in terms of the exit rate that we were looking to hit, and very much in line with the medium-term targets.
Speaker Change: that we set at Invest Today back in September of 2023.
Speaker Change: really strong, robust performance in Q4. There is certainly room to outperform if the macro remains stable and robust as it has today. And October has remained in line. So that's sort of how we're seeing the quarter playing out.
Speaker Change: Thank you.
Speaker Change: To your question on the acceleration, look, again, we've been proactively calling out that step up in transaction costs. Certainly, we see a seasonal step up, generally speaking, in Q4, just from business mix shifts.
Speaker Change: to lower take rate econ business, larger China sellers, the MRS effect on merchant services.
Speaker Change: So we've been proactively calling out that makeshift.
Speaker Change: that's going to just pick up those transaction costs. We're also going to see the beginning of the impact from interest income beginning to step down as interest rates come down. And again, we called out in our prepared remarks.
Speaker Change: that we think that is a good run rate heading into 2025.
Speaker Change: Thank you. Good results.
Speaker Change: The next question comes from Will Nance with Goldman Sachs. Please go ahead Will.
Will Nance: Hey, appreciate you guys taking the questions. I wanted to ask on the the marketplace payouts business so that businesses perform
Will Nance: quite nicely going in the high teens this quarter. And I just wanted to kind of understand how you guys would kind of frame the journey. I know there was a period of time where you had exited some customer relationships and the overall e-commerce business was growing slower. These numbers seem to very clearly suggest market share gains against a TAM that's probably more low double digits.
Speaker Change: So just how do you kind of think about the sustainability of the market share gains that you are putting up? Is there an element of sort of catch-up period from the prior couple of years? And just kind of how long do you think you can kind of sustain kind of growing above the market TAM, just given, you know, acknowledging that you guys are the market leader there?
Speaker Change: Yeah, thanks, Will, for the question.
Speaker Change: e-commerce and marketplace businesses the team globally has done an exceptional job both
Speaker Change: here in the United States working with Amazon, Walmart, Etsy, eBay, and others, as well as our colleagues.
Speaker Change: in China and around the world in providing cross-selling of our cards products to our Chinese customers, taking share from our competitors for customers that have multiple PSP relationships.
Speaker Change: You know, the 17% volume growth in Q3 really led...
Speaker Change: by broad-based strength in the business across the board. You know, we are winning share in China, both in the acquisition of new e-com sellers, as well as increasing wallet share with the customers that we have.
Speaker Change: We continue to expand.
Speaker Change: our marketplace ecosystem, and I think that's a very important part of
Speaker Change: on multiple marketplaces. That's a...
Speaker Change: The partnership between Payoneer and our customers to help them drive their growth so they can participate in cross-border trade.
Speaker Change: We are, as you note, focused on adding new marketplace relationships. We believe we're in a strong position to do so, and we'll continue to add. I think Bea spoke nicely about
Speaker Change: how the consumer has behaved, you know, and as the consumer spends money and is engaged in the fourth quarter in a strong way, Payoneer will outperform on the marketplace line.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: So that's great. I appreciate that. And then just maybe another question, obviously just topical today as we're kind of sitting here watching the election. But, you know, we've gotten some questions on just the exposure to Chinese good sellers. And I know we've spoken about before, but maybe just
Speaker Change: with a broader audience. How do you think about the transition mechanism of potential US tariffs? I know you've lived through this before, so maybe if you could talk through what the experience was and kind of help people understand how that does or doesn't impact the business. Thanks.
Speaker Change: Thanks for the question, and I, like 78 million other Americans, voted in the election, and anybody listening, I hope you do too. Our economy is exceptionally resilient, and whoever the next administration is, I hope they can put in place policies.
Speaker Change: that support the economy, consumers, and jobs.
Speaker Change: A strong U.S. economy is good for the world and certainly good for global S&Bs. Specific to my experience with tariffs in the past, should that come to pass,
Speaker Change: You know, an iPhone case that retails for $20 at a store on Main Street in America is manufactured for $40.
Speaker Change: for guessing at 14 cents.
Speaker Change: So a tariff on a 14-cent good generally is absorbed
Speaker Change: in my experience when I worked at Alibaba Group at Alibaba.com.
Speaker Change: We saw exceptional growth in our exports business at Alibaba, despite or maybe even because of tariffs that were put in place.
Speaker Change: customers in Argentina and Morocco and Turkey and Brazil and India and just about every country or territory any of us
Speaker Change: could name, and services businesses.
Speaker Change: are driving the growth of our B2B business, as you know. So, Payoneer is exceptionally resilient. We're diverse and global. Our customers and SMBs are resilient, and we feel very well positioned. And, you know, for the absence of doubt,
Speaker Change: I think people know this, but it's important that I mention.
Speaker Change: We are
Speaker Change: Our customers we serve are not in verticals related to national security or priorities.
Speaker Change: precious metals, semiconductors, steel, and other things.
Speaker Change: We're in the fun part of the economy around iPhone cases and yoga pants, and that's doing just fine in the goods business. And in services, it's the BPOs in the Philippines and the software developers in Latin America.
Speaker Change: It's the businesses that are really driving globalization and the global economy. Those are people who turn to Payoneer as their trusted global financial services partner, and we're really well-positioned. And as I said, I hope folks get out and vote.
Speaker Change: That's great, John. Thanks for going through that. Appreciate it and nice job today.
John Caplan: Thanks, Will.
Sanjay Sakrani: Our next question comes from Mayank turned on with Needham. Please go ahead, your line is now open.
Speaker Change: Thank you, everyone.
Mayank: Thank you, good morning, and congrats to John and Bea on the quarter.
Mayank: I wanted to turn to the investments in sales and marketing, John, and Bea, if you could speak to that in terms of where your headcount's at today in terms of sales, and as you target larger ICPs, you know, what is sort of the initiative to ramp up your sales engine and
Speaker Change: just in general your marketing approach as you go after bigger ICPs.
Speaker Change: Thanks, Mike. One of the things that's been exceptional in our execution and go-to-market is
Speaker Change: We tiered and prioritized countries. First thing our go-to-market team did this year is we set out to prioritize specific countries.
Speaker Change: We set out to prioritize specific verticals, and we incentivize and compensate our sales organization around the acquisition and retention of high-value ICPs. And, you know, a year ago, that was $10,000-plus.
Speaker Change: Then it was $50,000 plus, and as I mentioned earlier, we are adding customers that are $250,000 plus a month of accounts receivable. I think that speaks to the strength of our sales organization, the power of our marketing team, the brand we have built.
Speaker Change: And to your point about headcount, our headcount in go-to-market has actually been relatively stable year over year.
Speaker Change: We're adding headcount in high-opportunity areas.
Speaker Change: And we're taking friction out of our system across the organization. We're reducing what I'll think of as middle management layers. So, there's more people who are with directly responsible KPIs to drive customer acquisition and cross-sell in our CSM organization. And I think the strength of our Cards product demonstrates our cross-sell opportunity. And shareholders will hear us talk in 2025 about the cross-sell effort as it relates to workforce management and the squad acquisition. We are very excited about the opportunity to offer high-value ICPs.
Speaker Change: not just an AR solution for their direct-to-consumer or B2B.
Speaker Change: Marketplace sales
Speaker Change: not just an AP solution for their spend management as it relates to buying ads on Facebook or elsewhere.
Speaker Change: or inter-network payments to other Payoneer customers, which is a robust part of our business, but actually helping them manage the workforce management and payroll needs of their contractors and employees around the globe.
Speaker Change: Our customers have...
Speaker Change: Employees around the world are contractors, and they're increasingly turning to Payoneer and Will in 2025 and beyond as the globalization in a box, the one-stop solution for those needs. And our go-to-market engine, our distribution engine, is a superpower of the firm. You know, we have great people, a unique offering, a powerful brand, a regulatory framework that enables a
Speaker Change: and expanding growing S&V around the world to get the growth they need.
Speaker Change: That's a very helpful color. And then if I could just turn back to the model, B, you gave us plenty of...
Speaker Change: Where do you think that comes from? Is that going to be driven by continued momentum on B2B? Do you think marketplaces can outperform the way it did this year relative to your initial guidance? Just what are the levers for outperformance as we think about 2025?
Speaker Change: Yeah, look, I think it's a great question, right? So we called out that we think the mid-teens exit rate is an appropriate run rate, but we've also said consistently, both of that's in line with medium-term targets and that we think there's room to outperform. What can drive that outperformance? Look, first and foremost, certainly a robust and stable macro. We're seeing that today. We've seen it through October, but that can certainly help. Continued performance in B2B. Look, as John said in his answer, we're executing on the strategy, we're seeing really strong acquisition, we're seeing improving retention, and we're focused on larger customers, and that's driving that outsized performance. Look, as we go into 2025, obviously, as we call
Speaker Change: about tougher comps.
Speaker Change: We think 25% volume growth, 25% plus.
Speaker Change: for 2025 in our B2B business is a good target for us to push against?
Speaker Change: And that's, again, in line with what we said at Investor Day, and we think it is a strong sort of performance with room to outperform, right, as we continue to execute.
Speaker Change: In terms of marketplace, as we said, sort of to the e-comm question, 2023, we've seen that we are outperforming those underlying marketplaces, delivering that strong mid-teens growth in volume. That's really ahead of where you would say, sort of looking through at the read-throughs on some of these e-comm marketplaces, ahead of where they're performing. If we can continue to drive that through the strong acquisition and retention, then we think we can outperform there. So look, I think there are multiple levers, which is a great place to be.
Speaker Change: strong fundamentals in the business and we're looking forward to 2025.
Speaker Change: Great to hear it. Thank you so much.
Speaker Change: Thank you.
Speaker Change: The next question comes from Darren Peller with Wolfe Research. Please go ahead Darren.
Darren Peller: Thank you very much.
Darren Peller: Hey, thanks, guys. Nice job on the quarter. Maybe we just start off with the pricing roadmap and the opportunities, you know, just remind us where you guys are in terms of the opportunity to monetize different parts of the business that you've been on a good path around.
Darren Peller: And I guess as a follow-up on that point, though, I mean, when do you think we can expect to see the pricing implications start to really benefit revenue yield?
Darren Peller: I mean, I know they were, if you take float out of the equation, they were still down I think about six bips year over year. So just curious where you see it kind of playing out where it has more material of an impact on the numbers going forward.
Speaker Change: Yeah, thanks, Darren. Thanks for the question. Look, you know, we continue to execute on the pricing strategy that we outlined throughout 2023. As we called out in the past, 2023 was really about improving monetization on non-ICPs. We've done that very successfully and also done it relative to sort of aspects of the revenue monetization.
Speaker Change: in how we think about pricing. So we're continuing to execute. We launched our Lite account in late 2023. We've continued to roll that out through our distribution partners throughout 2024. And as we've called out, we expect to generate roughly $45 million of uplift.
Speaker Change: in 2024 from those pricing initiatives, of which $20 million is incremental. In terms of the take rate dynamics, and we'll continue to execute on that, we've highlighted that that's a sort of longer term unlock that can drive share of wallet gains, improve penetration as we head into 2025.
Speaker Change: and beyond. In terms of the take rate, look, I think it's one of the many levers that is driving improvement in that take rate. Our SMB take rate year over year is up two basis points. X interest is up more than that. That's a factor of that pricing impact as well as the mix shift to those higher take rate businesses and higher take rate products.
Speaker Change: So overall, we see pricing as an important sort of arrow in the quiver, so to speak, to continue to improve the economics in our business, to drive improved penetration and capture of the market, and to really drive stable and even improving take rate trends.
Speaker Change: Okay, that's helpful. And guys, just...
Speaker Change: Focusing for a second more on ICPs, it looks like the growth overall on the larger side was about 2%, I think it was 6% last quarter.
Speaker Change: Overall, obviously, you're continuing to grow the underlying KPI as well, but just you can give us a little bit more color on maybe the TAM you see to penetrate for large ICPs, you know, what's the long-term customer growth for these large ICPs, whether it's
Speaker Change: Any sense of whether it's mid-single, digit, all the way up to low-double, it's hard to really tell where you see the opportunity on that front.
Speaker Change: Yeah, it's a great question, Darren. We are very comfortable with our 10k plus ICP growth.
Speaker Change: When we introduced the ICP framework it was you know a blunt force instrument to help people understand and create a rubric for people to understand our business.
Speaker Change: As you recall, a million and a half customers. Below the definition, half a million customers. Fitting the definition, we introduced $500,000 to $10,000 and $10,000 plus. We shared on the call today the $10,000 represents.
Speaker Change: 80% plus of the volume.
Speaker Change: We are clearly driving our product strategy, our acquisition strategy, our retention work.
Speaker Change: on those high-value 10K-plus ICPs.
Speaker Change: and we really think the the ICP definition has helped.
Speaker Change: crystallize the opportunity for shareholders, employees, you know, across partners, across the board, just about our focus on who our customer is, the value we can provide for them. As you mentioned, the growth has slowed, you know, the six to two percent.
Speaker Change: But we've accelerated our volume and revenue growth of the 10k plus segment. Volume growth for 10k plus ICP is accelerating from 10% a year ago.
Speaker Change: to 26% in Q3. Revenue growth for 10k plus ICPs from 7% a year ago to 31% in Q3. So when I look ahead...
Speaker Change: The size of the opportunity is tremendous. There are many, many, many businesses around the globe that need a pioneer solution. We are in a deliberate and focused way penetrating geographies, industries.
Speaker Change: networks of ICPs and you will see that as we've talked about that in the in the past there are tens of millions of SMBs
Speaker Change: that need a pay-in-the-ear solution. We are less focused, you know, waking up this morning on driving absolute customer count than making sure we have the volume and revenue dynamics from the customers we have.
Speaker Change: providing the service to them and unlocking the growth ahead of us. So, I won't give you a number in terms of what I think the growth rate will be looking forward. I am confident it will grow in a strong way, and we have a product set and a team focused on monetizing those customers. So, you will see growth in the years ahead.
Speaker Change: Very helpful, guys. Thank you.
Speaker Change: Thank you.
Speaker Change: The next question comes from Mike Gondar with Northland Security. Mike, please go ahead.
Mike Gondar: Hey, thanks guys.
Mike Gondar: On the pricing initiatives,
Mike Gondar: Is there a lot left there or a little left there?
Speaker Change: And then secondly, I think you described your go-to-market and your priorities in the ICP area.
Mike Gondar: Could you talk a little bit about how you're focused on cross-sell and getting multiple products into some of your larger ICP hands? Is it the same process, or is there kind of a unique process for that?
Mike Gondar: Thank you.
Speaker Change: I'll take them. Thanks for the question. Look, I'll take the pricing. Look, I love the framing. Is there a lot or a little? But, you know, I think we'll say that it continues to be, in our view, a long-term driver of future performance, right? So we've called out very explicit numbers in terms of what we generated in 23 and what we've generated in 24. I think that the broader point is around sort of the more customer-based
Speaker Change: segmentation approach, one that is designed to focus on product bundling,
Speaker Change: on Driving Share of Wallet and Improved Engagement and Adoption of the Products, and using pricing
Speaker Change: as a lever to do that. With all that said, look, there's more opportunity for sure, right? We've launched the light account, as we've said, that covers predominantly freelancers and gig workers, and we're launching probably early next year what we've called the pro account, which is targeted at larger sort of SMBs and smaller entrepreneurs.
Speaker Change: And we think that that will generate some meaningful uplift, right? We think we can monetize upgrade fees. We may introduce forms of usage fees. But overall, I think, again, it's a long-term driver of improved monetization and, frankly, improved capture of the market. And that's how we're viewing it.
Speaker Change: And I'll just add to Bea's answer, as we think about cross-cell.
Speaker Change: There's really two separate motions underway. One is...
Speaker Change: what we call the high-touch motion where we have
Speaker Change: CSMs globally whose responsibility is to match our product set to the needs of our high-value ICPs. And you're seeing that pull through in the performance of our card.
Speaker Change: Right, our card growth in...
Speaker Change: Q3 was north of 40%.
Speaker Change: quarter over quarter, and the four quarters prior growth was between 31% and 33% for the CARDS product. You'll see the high-touch cross-sell occur with our workforce management products as we introduce the ability to help our customers manage their contractors.
Speaker Change: But at scale, it's the product itself and B highlights the bundles, you know, the light account, which is, you know, in distribution as we move, which limits features for sort of the lower end of our customer portfolio, the pro account or platinum account or others will enable bundles of products.
Speaker Change: so that the right product set is in front of each of our customers from when they join or as they log into their Payoneer account and see access to those features. So we feel good about our ability to drive ARPU through the cross-sell motions we have in place.
Speaker Change: Thank you very much.
Speaker Change: Got it. Hey, thank you.
Speaker Change: The next question comes from Trevor Williams with Jefferies.
Speaker Change: Trevor, please go ahead.
Trevor Williams: Great. Thanks a lot. I want to go back to the ARPU growth. I think it was up 20% or so in the quarter, John. I think I heard you say. If you could just give us a sense for how much of that ARPU growth is coming from mix, cross-sell, pricing, your view on the sustainability of that level of growth.
Speaker Change: And I know there's been a few questions on pricing already, but if there's any update you can give Specifically on the intranetwork flows and that rollout would be great. Thanks
John Caplan: When we think about ARPU performance across the organization, we really have a number of activities underway. One is acquiring high-value customers that bring a lot of volume into the organization by design drives up the ARPU for those folks. And when we look at our largest customers, those greater than $20,000, $250,000 a month.
John Caplan: in volume, we've seen very strong, our approved growth for that cohort. And across the board,
Speaker Change: seeing that kind of result, both driven by pricing, cross-sell, self-loading, self-funding their accounts so they can, customers can use our AP products, more bespoke route-specific fee initiatives.
Speaker Change: You know, we are on a march, frankly, not just acquire high-value customers, provide them the service they need, but be paid appropriately for the value we provide for them. And that's going through pricing.
Speaker Change: larger customers, card cross-sell, workforce management cross-sell and other tuck-in acquisitions that we'll add to expand our product suite to offer more value to our customers.
Speaker Change: and just on the intranet, what...
Speaker Change: Thank you for your time. Thank you.
Speaker Change: So we felt it was super important and we feel it's super important to really carefully measure the impact of that pricing, look at how flows behave, look at customer behavior. At the end of the day, as we've highlighted, look what we've built in a very real sense, a two-sided network.
Speaker Change: and the $11-12 billion of trailing 12-month intra-network flows are a real powerful proof point around that. So we continue to believe that as part of a broader monetization strategy that intra-network flows can be a powerful driver to that.
Speaker Change: Thank you for watching!
Speaker Change: Okay, gotcha.
Speaker Change: and then on on float and margins in 25b I think on the float income I heard you say down year-over-year in 25 just based on the curve if there's anything more specific in terms of order of magnitude as you sit here today
Speaker Change: And then with that in mind, I mean, how you feel about the visibility of the mid-twenties EBITDA margins?
Speaker Change: Next year, I think I heard the comment on, you're already at positive EBITDA contribution from the Xfloat revenue, but just any more detail on kind of where you would expect that incremental Xfloat margin expansion to come from would be great. Thanks.
Speaker Change: look like they stepped down, at least based on the curve right now, to roughly an average of 3.5, 3.7. Again, they've been a bit choppy, but that's probably a reasonable number to model. We expect to offset a portion of that rate decline with balanced growth. We've been able to grow balances.
Speaker Change: on our platform consistently, including the 13% uptick.
Speaker Change: in the current quarter. And we provided pretty detailed commentary on the call, of course, around our program to extend duration. We've done that on roughly a third of the portfolio. We've extended duration.
Speaker Change: from those initiatives to extend duration and so on. As we look to margin in 2025, look, we feel very good about hitting our medium-term adjusted EBITDA margin targets, the ones we talked about at Investor Day at 25%. We're going to drive core revenue growth. As we said, we think an appropriate run rate.
Speaker Change: is in line with our Q4 exit rate and will continue to be disciplined operators. I think we've demonstrated the ability to do that. So overall, it's a huge opportunity. As we've said, we're investing to capture the TAM. We think we can hit our medium-term targets and we're excited by the momentum in the business.
Speaker Change: Great. Thanks again.
Speaker Change: Thank you.
Speaker Change: Our final question today comes from Chris Kennedy with William Blair. Chris, please go ahead.
Chris Kennedy: Great, thanks for squeezing me in here. John, you mentioned or talked about S.Q.U.A.D., I just wanted to get a little bit more color on what the opportunity is there and how you're thinking about that as we enter 2025.
John Caplan: Yeah, it's really super exciting, Chris. We were on track with the integration, you know, the team, the
Speaker Change: The squad team, the pioneer team are quickly becoming one team. The product integration, the first phase of it is actually completed.
Speaker Change: You know, we closed the acquisition in early August. I'm excited about the first 90 days and the progress we've made.
Speaker Change: And we are beginning the cross-sell activity, focusing on opportunity areas with our existing customers, with our existing go-to-market organization. We're seeing response from our customers as it relates to the sales cycle and learning about the time it takes to both introduce the product and get to a closed deal with our customers. And we feel very good about Payoneer's opportunity.
Speaker Change: to not just be an infrastructure provider as we were historically, but more and more branded solution for the full financial needs of cross-border SMBs. And that opportunity is tremendous. And as Bea said, we are executing very effectively against capturing it.
Speaker Change: Got it. And then just a quick update on the M&A environment as you continue to add more products to your platform. Thanks for taking the questions.
Speaker Change: Yeah, it's an important question. We are excited about tuck-in acquisitions to extend our product capability to drive the cross-sell utility for our customers and ARPU for our shareholders. And so the work the team is doing identifying targets
Speaker Change: extend our footprint in high important markets, drive our licensing, and that is I think key part of the the roadmap ahead is growth via M&A and we will do that in 2025 and beyond.
Speaker Change: Thank you we have no further questions and so I'll turn the call back to John for closing remarks.
John Caplan: Thank you.
John Caplan: I want to thank everybody for joining us today. I think we had a record turnout here on the call and it's exciting to share the incredible progress of
Speaker Change: Payoneer employees in over 28 countries. We are a diverse global organization moving at the pace of global trade to provide value to SMBs that are competing.
Speaker Change: on the global landscape. It's been great results for the first three quarters of 2024, and we are focused on continuing our momentum. Thanks, everybody.
Speaker Change: Thank you.
Speaker Change: Thank you everyone for joining us today. This concludes our call and you may now disconnect your lines.