Payoneer Global Inc. (PAYO) Earnings Call Transcript & Summary

Good morning, everybody. It is really terrific to be here, and thank you, Nick, for welcoming us. We're excited to be at Credit Suisse today and share the Payoneer story. In today's presentation, what we want to do is help you understand how exciting Payoneer is today and how much momentum we have going into the future. I'll give you a brief overview of the Payoneer platform, the value that we provide to our customers and why we are confident about our ability to deliver long-term growth and substantial value for our customers and our shareholders and our employees. So first, an introduction to Payoneer. Payoneer helps emerging market entrepreneurs grow and scale their business. By doing so, we are capturing market share in 2 significant and fast-growing areas. The first, our core customers are SMBs, and SMBs are, excuse me. Our core customers are SMBs, and there are over 300 million SMBs globally, and they represent 90% of all businesses on the planet. They are, in fact, the backbone of most economies around the world and, frankly, often do not have the same tools, technology and options that large corporations do to help them run their business. We aim to solve that problem. Our customers are primarily in emerging markets. Emerging markets account for over half of global GDP and 2/3 of global GDP growth in the past decade. Emerging markets are home to over 4 billion people and a very important statistic, the median age is 34 years old. When you think about the growth rates, the internet penetration, the rise of digital technology and entrepreneurship, Payoneer sits at the intersection of these very exciting trends. It can be difficult for folks to understand the challenges, the specific challenges, that our customers face. It's very difficult to operate a global cross-border business if you're a small business. For most, they don't have enough demand in their local market, so they actually have to sell cross-border in order to scale, grow and capture their opportunity. Typically, one of the biggest challenges, let's say, for any business that's doing business cross-border is the challenge of opening local bank accounts in various countries around the world. If you're a freelancer in India or a goods manufacturer in Bangladesh or an entrepreneur in Ukraine, having bank accounts around the globe can be time-consuming, expensive and complicated. It can be a drain on your resources and on your time. Payoneer makes it substantially easier for SMBs to pay, get paid, manage their funds, send the money that they have where they need it to go so that they can focus on growing and scaling their business. Payoneer today has a global network of customers, customers in 190 countries and billions of dollars of funds moving between Payoneer customers every year. We have local teams on the ground all over the world, providing a high-tech, high-touch service to enable our customers to thrive and grow. Candidly, the local banks don't do what we do. The neo banks can't do what we do, and remittance companies don't do what we do. So let me introduce the Payoneer account to everybody. So here's how Payoneer works, and it's very straightforward. Money comes into the Payoneer account from a number of sources for the SMBs that are our customers. Our customers get paid by large marketplaces, folks like eBay or Fiverr or Upwork or Amazon. They get paid by their trading partners, the folks they do business with around the globe, their corporate buyers, small firms or their own web store when they use our merchant services and checkout products. They collect their payments as if they were local in the market where their customer is. This is a substantial benefit to our customers. All the money that comes into the Payoneer account represents what we call volume. These are the funds entering the Payoneer account. Roughly in the last 9 months, that's $44 billion of volume into Payoneer accounts for our customers around the globe. But then the exciting part starts. The money in the Payoneer account is how customers manage their funds in the currencies they want or need. If you're paid in dollars, but you work in Vietnam, for example, they can make and receive payments in the same currency or any other currency that they'd like. They can use the Payoneer account to make in-network payments to other Payoneer account holders. These in-network payments between an account holder in Vietnam and an account holder in Argentina are not counted in that $44 billion volume number I referenced a moment ago. We also provide working capital services for our customers, and we earn interest, we pay near earn interest on the funds that are on in the Payoneer account. The volume in the Payoneer account in the last quarter was just north of $5 billion. When money leaves the Payoneer account, most of our revenue is generated as it's leaving the platform. Customers like to move the money into their local bank account and withdraw to their bank. Alternatively, other customers will use our commercial MasterCard product, which is a very useful tool for managing their expenses and the payments they need to make to vendors. The vendor could be Facebook for advertising. It could be a vendor in Asia who is a manufacturer of goods. They use the Payoneer commercial card for the funds that are leaving the Payoneer account. What's super exciting about the Payoneer platform today is how global and diverse the business is. We have customers in 190 countries. Our go-to-market sales teams are around the globe. We have people in all the markets where our customers are, not all the markets, excuse me. We have people in many markets where our customers are, and our local support is, in fact, a big differentiator in both our customer acquisition and our retention as we begin to cross-sell and upsell the full benefit of the Payoneer account. I'll share later in the slides, but there are over 300,000 folks who come to Payoneer.com to start the process as prospects every month to set up Payoneer accounts. Our brand, our team, our capabilities make us a unique solution for customers around the globe. So, what I wanted to do was introduce you to 2 of our customers. There we go. The first, let's dive into a couple that are based in India, that started their business right before the pandemic. D'Moksha is an e-commerce good seller of eco-friendly home decor. They grew their business from just the 2 of them to 45 people over the last couple of years. And they joined Payoneer because they actually needed to solve a specific problem. They were selling their home goods on marketplaces and they needed to get paid, and they've started to use a bank before they worked with Payoneer, and they found the process cumbersome, slow and expensive. So they joined Payoneer. Today, they're selling on Amazon, Walmart, Wayfair, and doing over $50,000 a month in volume coming from those platforms specifically. The other customer, I'm highlighting, Agile Engine, a software development firm based in the Ukraine. Their business has over 1,000 contractors around the world that they work with. When the war broke out, many of their contractors were displaced, but they were still working with Agile Engine, and they needed an easy, scalable way to get paid and to pay their contractors. We offer them a specific solution to do that. The volume has grown from $60,000 a month to over $1 million a month of volume in the Payoneer platform. I think what's really important to think about, about these 2 customers, particularly, is they are just 2 customers in 2 countries around the world, and we are very optimistic about both of their businesses and our opportunity to capture more market share. D'Moksha is one of millions of SMBs in India. Our revenues and customers in India are growing 35% this year in a country whose GDP is growing at 7% and where we estimate we have only or less than 1% market share. Ukraine, on the other hand, is about 7% of our revenue. As we've seen the remarkable resilience despite the war, we recently conducted a survey in Ukraine of SMBs and 70% of Ukrainian businesses are continuing to operate despite the invasion into their country. 1/3 of the businesses there intend to hire more people. India and Ukraine are just 2 of the 190 countries where we do business, we see similar substantial opportunities around the globe to work with fast-growing entrepreneurs to make it easier for them to grow and scale their businesses. So, how do we do it? How do we pull it off? We engage with our customers face-to-face and in person, we have a strong brand, a high-tech, high-touch business model. We have people who understand the nuances of the local dynamics in the emerging markets, and we host, for example, customer events. Here's a photo of a recent event that we did, I think, 10 days ago or so in India. I think we had 7 or so events, over 1,000 people attending them to learn about cross-border trade, to network with one another, to engage in the Payoneer platform as they view us as a catalyst for their own growth. All of this drives substantial shareholder value. The reason it does that is it drives low customer acquisition cost for Payoneer and increases the stickiness of our customers and the community of customers we've built around the globe. Payoneer continues to deliver. The value proposition we offer our customers is substantial. The challenges we are solving for them are not just a nuisance. It's actually the difference between success and failure for them. A partner like Payoneer helps change the trajectory of our customers' results. Our utility and value is translating into strong financial results and performance over time. Based on our latest guidance, we will deliver north of $600 million of revenue in 2022, a 30% compound annual growth rate over the last 2 years. Adjusted EBITDA at Payoneer has increased meaningfully as well. We are already well above what we delivered last year in just the first 9 months of 2022. It's important to note we have been adjusted EBITDA positive since 2012. We are responsible, disciplined stewards of capital. We plan to continue to deliver positive adjusted EBITDA going forward and as we moderately expand our adjusted EBITDA margins as we invest and continue to scale the business. I want to talk now a little bit just for a moment about our high-value services. What's so unique about the Payoneer platform and team is how customer-centric we are. The platform was built to make it easier for SMBs to do business. By listening to our SMBs, we heard them talk about that they have customers around the globe that they need help invoicing. So we launched the B2B AP/AR business, which is effectively a better way for SMBs to invoice their customers and collect from those customers around the globe, not just get paid by a marketplace by way of example. So that investment began about 4 years ago. Today, it represents 12% of our volume and 17% of our revenue. Volumes for the B2B AP/AR part of our business have, in the first 9 months of the year, have already exceeded the full year 2021 volumes. So if you think about it, the ability to help send a digital invoice, get paid across countries and currencies without needing to open a bank account around the world or rely on outdated ways to move money, like checks or wires. That's a big benefit for those 34-year-old and younger emerging market entrepreneurial SMBs who don't remember a pass book going into the bank when they were young. Another dynamic of our B2B AP/AR business. We monetize the volume when it comes into the platform and when it leaves the platform. Frequently, customers who use the B2B AP/AR product will also use the Payoneer commercial card, which has a higher take rate than generally than our withdraw bank products. It's important to note the volumes in the slide here in the B2B AP/AR are just on the money coming into the account. As you can see on the slide, this is money into the Payoneer platform. I'd like to also note, we shared at the end of Q3 that as part of our regular and normal course of business risk and compliance measures, we terminated a handful of accounts. Those terminations were done mid-Q3, which means we only saw a partial quarter of impact on those terminations. When we think about the B2B AP/AR business, it should be measured in the trillions of dollars of addressable opportunity. We've seen data recently that suggests it's north of $5 trillion, primarily dominated by local banks around the world, and those are the folks whose share we are taking. I'd like to now talk about the future of Payoneer. We are well set for substantial growth. We are confident in our ability to deliver growth in the future, both revenue and EBITDA growth. We will leverage our substantial competitive advantage to continue to penetrate global markets, driving more customer acquisition, the number of customers, as well as upselling and cross-selling the full suite of Payoneer solutions around the Payoneer account for more of our customers. If you take a look at the slide, I think it's important to think through the strength of our global platform, the breadth of the solutions that we offer our customers, the significant and leading compliance and regulatory infrastructure we have in place, the global brand where we see hundreds of thousands of prospect customers apply every month, the network effects, SMBs around the world using the Payoneer account to connect with one another, pay one another and get paid and a business model that is efficient and scaling. We have over $500 million on our balance sheet. We have very little debt, and we are generating positive free cash flow. Our focus and priorities for the capital we have first is to maintain a strong balance sheet. It's critical in this market, in this climate that we do so. Our organic growth is substantial, and we see the opportunity for acquisitions and inorganic investment to continue to accelerate the scale of the Payoneer platform. We are disciplined acquirers and being, I think, thoughtful about our targets and how we approach them. Long term, we've made a commitment to deliver north of 20% revenue growth as well as 20% adjusted EBITDA margins. I shared on a slide earlier, the steady, consistent strong growth on both revenue and EBITDA. We can reaffirm that guidance here today. So thank you, everybody. It's been terrific sharing a bit about the Payoneer story, and we'll now take a break and some questions.

There's no questions from the audience. We have a few prepared just to work through. Yes. So first, it would be good just to get a sense of what Payoneer's primary distribution channels are just from our perspective, effectively competing in the SMB space distribution is key.

Yes, this is a fantastic question. If you think for competing to get SMBs in the west, super expensive, competitive, lots of people fighting over, frankly, a small number, right, 30 million SMBs in the United States. There are 300 million SMBs globally. Our customers are primarily in emerging markets. Most of our customers come prompted by us. They come in the front door in some ways, as part of their journey to be a cross-border entrepreneur. So our customer acquisition costs are incredibly low. I shared on the slide the events we do, the sort of teaching we do and the community we're building around the Payoneer account. I think the other point that's important, every time an SMB sends an invoice to another SMB and another SMB and another SMB, what ends up happening is our brand grows virally. We're seeing that happen increasingly as the web of global entrepreneurship is increasingly migrating online. Our competitors are analog solutions that, frankly, don't hold a candle to what Payoneer offers. So our customers are coming to us because our product is better, our brand is stronger and our service is superior.

Got it. Then so you guys must have a strong brand driving down your customer acquisition costs. So next, I mean, you guys have launched a number of products a lot more than a lot of the companies we cover. Yes, it would be good just to get a sense of where we are in the cross-sell journey. What's the average product per customer?

Yes. So, we haven't released which products of the Payoneer platform, how many products are the Payoneer platform each customer is utilizing? What I can share with you is that we do see correlation around some of our high-value services. I mentioned it before. If you're using our B2B AP/AR product, you're increasingly using our commercial MasterCard. We shared at the end of Q3, we saw over 100% year-over-year growth in the commercial MasterCard penetration. I think that's largely because of the team's focus around cross-selling the full suite of products to our customers increasingly. I think we will see more of that. I know we'll see more of that in the future as the team focuses on bundling the Payoneer value prop for customers.

Understood. So you guys have had a high degree of success scaling your B2B AP/AR and commercial card products. When you're looking at the growth of those, how much of that is coming from existing Payoneer customers versus them just becoming like a new hook?

Yes, I think this is a great question because when the product started, it was solving current customers' pain because we have such intimacy with our customers, we're always working with them to help them grow their businesses. The product today, I estimate about 70% of the customers are net new to Payoneer because the solution is so broad that if you're a goods manufacturer, a services company, a stock photo agency, fill the blank, just about any kind of firm around the globe that is invoicing customers, that product works for them and draws folks into the Payoneer account. Latin America, for example, where we're seeing 60% plus year-over-year growth, the B2B AP/AR product is the tip of the spear for us in Latin America and really helping us accelerate our growth in Latin America.

Understood. So one of the products I wanted just to get a little more color on is Payoneer checkout. I know it's in the earlier stages. I believe you guys launched it about a year ago. If you could just give us an update on how the rollout is going across your markets and the early feedback that you're getting.

So, what's amazing about the Payoneer Checkout is it's the same story as the B2B AP/AR, talking to our customers, recognizing that if you're an emerging market SMB and you're a good seller and you're selling to the west, the acceptance rates on credit cards in the west were south of 50%. So our customers, before they use Payoneer Checkout, couldn't actually make the ROI work for them. So we built Payoneer Checkout and accepting rates are generally double or better what they were getting before. So we're seeing strong early traction. We're in the warm up. We're not even in the first inning yet. So this is the beginning of the beginning. The early data is exciting. The team will deliver and we will continue to support it as it does.

Excellent. So pivoting to growth investments, I know you detailed a number of areas where you're looking to increase market share across your 4 key markets. If you could just give us a sense of what those investments look like.

Yes. So what we shared at the end of Q3 is that we decided to make an opportunistic discretionary set of Q4 investments based on the strength of our team's performance and the results in the business in Brazil, India, UAE and the Philippines to work on accelerating our penetration in those regions. Those regions were interesting for us because there are different types of customers at different stages of their development. While the programs are in flight, the early data looks encouraging, and we will certainly share those results when we meet with investors early next year.

Great. Well, it looks like we're running out of time here. Is there anything you want to leave the audience with?

Yes. I think the final thought is doing business globally is complex for emerging market SMBs and the utility and solution that we've built at Payoneer is valuable to our customers and driving the viral growth that we have in our business, and we're just getting started.

Great. Well, thanks so much for being here with us. John.

Thanks for having me.