Good morning. Thank you for standing by. Welcome to Payoneer's First Quarter 2024 Earnings Conference Call. At this time, all lines have been placed on mute to provide any background noise. Following the speakers' remarks, we will open the line 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 VP of Investor Relations.

Thank you, operator. With me on today's call are Payoneer's Chief Executive Officer, John Caplan; and Panera's Chief Financial Officer, Bea 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. Actual results may differ materially from any forward-looking statements we make today. These forward-looking statements speak only as of today, and the company does not assume any obligation or intent to update some 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. Reconciliations 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 otherwise noted. With that, I'd like to turn the call over to John to begin.

Good morning, everyone, and thank you for joining us today. We began 2024 with strong momentum. In Q1, we grew customers who fit our ideal customer profile or ICPs, by 8%. We continue to drive even faster growth among larger ICPs and those in regions with higher take rates. Our volume increased by 21%, marking the highest growth rate in nearly 3 years. We generated strong growth across every channel. We grew in our higher take rate B2B and merchant services businesses as well as in our marketplace and enterprise payout channels. Total revenue grew 19%. Excluding interest income and normalizing for $7.5 million of non-volume fees earned in Q1 of 2023, our revenue was up 21%. We delivered record adjusted EBITDA margin of 29%, fueled by strong revenues and sustained expense discipline. SMB is in 190-plus countries and territories. Payoneer is building the business-grade financial stack for all their cross-border AR and AP needs. Over the past year, we have focused on accelerating growth and increasing profitability. Our efforts are paying off. We are successfully capturing opportunity in the $6 trillion global cross-border B2B market. We achieved 33% volume growth in Q1, more than doubling the 13% growth of the previous quarter. Our momentum comes from a number of strategic initiatives well implemented over the past year. We have focused on our B2B acquisition efforts on service-oriented markets where we have strong product market fit and higher take rates. As a result, we have grown B2B volume from service-oriented markets in APAC, LATAM and CEMEA up over 30% in Q1. We opened new verticals in our support, including agriculture in Ukraine, beauty products in Asia and marketing services firms globally. New verticals launched over the past year have already contributed tens of millions of dollars of incremental B2B volume…

Thank you, John, and thank you to everyone for joining us. We delivered strong performance across the platform in Q1. We grew volume by 21%, representing a fifth straight quarter of accelerating growth. We grew revenue by 19%, growing revenues ex-interest income by 15% or 21% when normalized for non-volume fees earned last year. We achieved a record 29% adjusted EBITDA margin. We continue to return cash to shareholders, repurchasing $51 million worth of shares during the quarter. Turning to our first quarter results. Revenue of $228 million was up 19%. Growth was driven by interest income on customer funds, momentum in our B2B business, strong performance from SMB selling on e-com marketplaces, the benefit of pricing initiatives implemented in 2023 and consistent ICP growth. We grew revenues from our SMB customers by 21% and continue to see positive take rate dynamics within our SMB business. Volume growth of 21% reflected broad-based strength. Our B2B business delivered 33% volume growth in Q1, a significant acceleration compared to 13% growth in Q4 of 2023. We generated over 200% volume growth in our Merchant Services business and continue to grow the number of 10k-plus ITPs using our checkout product. 13% volume growth from SMBs that sell on marketplaces reflected both the residual benefits of a strong holiday season as well as ongoing robust performance in the e-com sector and in our acquisition and retention of large marketplace sellers. Enterprise payouts growth of 34% was driven by continued strong travel volume, including the ramp-up of new routes we won a year ago. Our Q1 take rate of 124 basis points decreased 1 basis point, while on a normalized basis, our take rate increased by 3 basis points. We continue to expand our SMB customer take rate, which increased 4 basis points, driven by…

Thank you [Operator Instructions] Our first question comes from the line of Will Nance with Goldman Sachs.

Really nice to see things falling into place here. I wanted to ask around just sort of the cadence of revenue growth in your expectations. I know you had spoken kind of intra-quarter about sort of a U-shaped revenue growth for the year, and it sounds like with the higher expectations now for 2Q, that might be a slightly more lopsided view, but just any color you have on just cadence? And maybe remind us again what's sort of driving modestly lower growth I guess, in the middle quarters and the acceleration that it sounds like you continue to expect in the fourth quarter?

Look, as your question calls out and as we talked about in March, it's broadly speaking, a U-shape core revenue trajectory over the course of '24. We delivered record Q1 results, really happy to deliver that 21% normalized growth. We expect a strong Q2, roughly high single digits core mid-teens normalized. So a robust performance coming into Q2, benefiting from that really strong momentum in our B2B business. But as your question notes, moderating from Q1, which as we called out, benefited from a really strong e-com quarter and strong performance in that sector in general, moderating again into Q3 where we expect, roughly speaking, high single-digit core growth. By then, as you know, we will have fully lapped those non-volume fees we've talked about. And look, recall that in February when we gave full year guidance, it was based on our estimation that marketplace volumes would grow high single digit. What we've seen in Q1 is that we're hitting mid-teens. We're seeing a very robust marketplace environment, 13% volume growth from our marketplaces. We're not going to run rate out through the back half of the year. So we've raised based on our strong B2B momentum and a strong April. Our Q2 expectations were not run rating out into the back half of the year, keeping our guidance where it's at. We think that's frankly prudent. Given the macro context and some of the signs of consumer distress that I think everyone is seeing, we do think there's room to outperform, obviously, if the macro remains stable. And ultimately, we see really strong fundamentals in our business coming into that second quarter. And John --

I'll just add. Yeah, I think Bea said it really well. What's so exciting inside the company we see is that we're executing on the strategy we laid out a year ago and our new leaders we brought in, accelerating our growth, seeing B2B growth in Q3 of last year at 1% and now at 33% for Q1 and really solid performance for that team. We're excited about the pace of product deployments and advancements and we're confident in our ability to continue executing and delivering on the parts of the business that we directly control, and we benefit from the performance of our partners on their strong execution. So we are making steady progress, big opportunity in front of us, and we feel confident about what we're going to deliver for the full year and how we'll exit the Q4 in a very strong position going into 2025.

Just to level set those numbers, I think you said the mid-single, high singles for the next 2 quarters as a relative to the 21% underlying growth in the slides?

Yeah, high single-digit Q2, mid-teens normalized. Again, we still have one more quarter of those non-volume fees. And in Q3, high single digit. And obviously, there's no normalized impact as we will have fully lapped. And exiting, as we've said consistently since the back half of last year, exiting mid-teens core revenue growth as we round-out the year. So overall, roughly 13% is the midpoint in terms of core growth on a normalized basis year-over-year.

Our next question comes from the line of Mark Palmer with Benchmark.

Looking at the various regions, the regional markets in which Payoneer operates during the quarter, it looks like Greater China had some significant strength. What are you seeing right now in China as it pertains to macro and the extent to which that is impacting your operations there?

So I think the first thing is we generated double-digit growth in each of our major regions, normalizing for the impact of non-volume enterprise fees earned last year and over 20% revenue growth in the higher take rate regions in Q1 of 2024. Specifically, the China, the team there and our brand position there are so strong and the power of our relationships with the world's largest marketplaces, Amazon, Walmart, eBay, Etsy, et cetera, those relationships are strong, and we're picking up customers and cross-selling the full financial stack. We saw great growth in our commercial card product in Q1. And as consumers have kept buying in the West is benefiting our merchants in China and we've begun to step back into the B2B business in China. We're seeing some early positive signs there as well. So we are executing well across the board in that region and proud of the progress we're making, and I feel good about our guidance as it relates to the full year, particularly seeing our local teams on the ground, their relationships with our big customers, the share of wallet we're gathering and the cross-sell of products we're delivering, the Payoneer financial stack is increasingly valuable to our customers in China and around the globe.

Just one follow-up question. Where do you stand right now with regard to capital deployment priorities? You bought back a healthy amount of shares during the quarter. How are you thinking about balancing buybacks versus tack-on M&A and other alternatives at this point?

Sure. I'll start and then Bea and I will sort of answer this one together. I think the first thing is we have ample capital, and we're generating capital. So the business is a healthy one. We have lots of opportunities in front of us in M&A, pursuing tack-ons to drive our cross-sell and upsell of AP products and tools and services for our over 2 million active customers and over 0.5 million ICP customers. So we see real opportunity for tuck-in M&A to extend our financial stack as one area. And as the Board approved the $250 million stock buyback program, we've executed $51 million of that in Q1, and that will continue at pace. But Bea, I'll pass it to you if you want to add.

Yeah. You covered it. And Mark, in your question, you noted a balanced approach. So we're going to deploy that balanced approach. We obviously accelerated our buyback activity coming out of last year as we saw opportunities from a relative price perspective. We bought back in the first quarter, as John noted, $51 million. We would expect to more than offset dilution this year from our stock-based plan and other share events occurring in the year. So we expect roughly, if I was to ballpark it to be buying back roughly double what we would have bought back last year, but we'll be opportunistic in the market as we see that opportunity. As John noted, look, our business benefits from a really strong free cash flow generating engine. We expect that to continue throughout the year. We'll be opportunistic and disciplined in terms of how we look at M&A opportunities and expand our financial stack, and we'll be able to return cash to shareholders as well.

Our next question comes from the line of Cris Kennedy with William Blair.

Can you talk about some of the pricing initiatives and where you are in that journey?

Sure. I'll take that. Look, as we noted in 2023, we really spent 2023 executing on what I would call low-hanging fruit in our business largely to improve monetization around non-ICPs by introducing certain account fees that we waived at minimum thresholds and certain minimum transactional fees. But we also much more strategically began to define a more segment-based pricing strategy, and we've been making active investments and are making investments this year in our product out of our product team in a sophisticated pricing engine and data and testing capabilities that really allow us to deploy that much more, I'll call it, customer persona-based pricing strategy. So at the end of '23, we launched Phase 1 of that segment-based pricing strategy. We called it our light account, which is targeted to freelancers and gig workers that receive from marketplaces and broadly use only with broader bank capabilities, and we were able to much more effectively monetize given the competitive environment, monetize that flow. In 2024, we're continuing to roll-out that segment-based model in the back half of the year. We've talked about and we are launching very shortly significant testing of fees on intra-network flows. So that flows between Payoneer account holders on our platform, many billions of flow. So we are launching a significant pilot to test those. We've spent the last several months understanding the use cases and really developing a new [indiscernible] use case-based approach to how we should monetize that slow. And look, to frame, we've talked in terms of the strategy to frame with more specific numbers. In '23, we generated roughly $25 million of incremental revenue from those various pricing initiatives that we've discussed, what we've called that low-hanging fruit. In 2024, we expect to generate an incremental $20 million or so in uplift from additional changes from corridor and segment-specific pricing for much more sophisticated FX monetization and product offerings and from those intra-network fees. So again, we've highlighted that this is a multiyear strategy that there's real ROI here, and we're investing to capture that. And that we're really looking at that customer persona-based sort of offering strategy, of which pricing and monetization is such a key pass.

Our next question comes from the line of Trevor Williams with Jefferies.

Hi, this is Spencer James on for Trevor Williams. I was wondering if you could maybe share some updated thoughts on expectations for B2B volume growth for the remainder of 2024. I know you've previously shared around 25%, that's looking more conservative given the strong performance in 1Q. I was wondering if you could comment on anything to be mindful of in the back half?

Happy to take it. It's a super exciting part of our business, and we're thrilled with the progress we're making, the product market fit we have, the response from our customers and the network dynamics that are in the B2B business. We've had 3 consecutive quarters of accelerating volume growth in B2B. The third quarter of 2023 was up 1%. Fourth quarter of 2023 was up 13%. And as we just noted, first quarter of 2024, up 33%, positive across all of our global regions, including in China. The accelerating momentum that we see reflects the result of hard work on behalf of our entire organization cross-functionally. We improved our acquisition of ICP customers, expanded into new verticals, accelerated the onboarding time of B2B customers and have had a series of continuous improvements in the customer experience. When we look deep into the specific regions, what's so exciting that we see is CEMEA, 41% year-over-year growth in B2B; APAC, 39% year-over-year growth in B2B. That response from this extraordinary product we have and the big opportunity in the $6 trillion market gives us confidence that the 25% year-over-year volume growth, and we hope to continue to see the strong results throughout the course of the year, so we can beat that handily. Our team is focused on delivering well better than that.

Yeah. The only thing I'd add to that, yes to all of that, right? And we're seeing really strong momentum, and it really is a result of that strong execution, the China rebound, as John called out, strong acquisition, the new lines of business that we support. But look, the business isn't linear, right? There's seasonality, it's not going to be a linear trajectory. We're maintaining the expectation that we baked into our guidance back in February, which was a really healthy 25% year-over-year volume growth. We hit 33% in Q1. That's fantastic, and we're thrilled. We're baking in, as we've called out sort of macro uncertainty. I think that that's a good and prudent thing. That gives us room to outperformance if the macro stays stable, but we're maintaining that expectation around 25% year-over-year volume growth.

And then as a follow-up, I was wondering if you could comment on the delta between the revenue raise to the full year guide and the adjusted EBITDA raise to the full year guide, anywhere to call out you might be investing incrementally?

No. Cash OpEx stayed flat as we called out in the prepared remarks. The delta is really just transaction costs on that core revenue increase.

The next question we will go to the line of Sanjay Sakhrani with KBW.

Obviously, you talked a little bit about pricing, and I'm just looking at the take rate improvement sequentially in the SMB business. Were there other drivers outside of pricing that drove the take rate higher?

Yeah. Look, we're really happy to see that we can continue to execute on expanding take rate within our SMB business, as your question notes. We grew the take rate in our SMB business by 4 basis points. As you noted, some of that is the benefit of pricing including FX, but it's also really effective cross-selling of our stack, especially card into that very, very robust growth in the e-com sector. We grew card usage volumes 34%. That hits the revenue at a roughly 2% take rate. We're growing other high-value services. We generated that really strong B2B. We haven't talked particularly about merchant services, but really strong more than 200% volume growth in that direct-to-consumer or checkout product. So we're sort of firing on all cylinders to continue to drive that take rate expansion, pricing, cross-selling those products growth in B2B and [MRS].

I'd just add, since we have a direct relationship with SMB customers, those SMB customers, 2 million of them, over 0.5 million ICPs want to buy more products from us. We hear from them directly. We engage with them directly. They're excited about our full financial stack road map. We shared in the supplement, the increasing number of customers that are using 3-plus AP products. That growth, I think, inside the business should give shareholders the confidence that our strategy is working. Our team is focused, and we're confident about what we can do and deliver for 2024 and beyond.

And just a follow-up question. I think, John, you mentioned a bunch of different ways you increase the utility of the wallet. And I'm just curious, are there other things in the pipeline that can really help drive more engagement, as you mentioned just now and sort of increase or accelerate the flywheel.

Yeah. We are very excited about the work our platform organization, our product team, our corporate development team as well as our partnerships team is doing to deliver enhanced functionality into the stack. Some of it being products we build on our own, some of it being products we buy and add to the stack, as we talked earlier on the call about small tuck-in acquisitions to extend our AP capability. And then we're working on a group of partnership relationships to bring third-party products into the Payoneer stack over the course of the next many years to increase the utility of the Payoneer application for our customers. We're seeing, as Bea noted, really powerful results with our commercial card product. And I think that indicates that Payoneer customers come to Payoneer for all of their international AR and AP needs. I think, frankly, as shareholders start to recognize, we are a full financial stack for a population of global entrepreneurs that have not had a purpose-built solution, they will begin to recognize just what the potential of this extraordinary team is.

There are no additional questions waiting at this time. So I'll pass the conference back over to John Caplan for closing remarks.

So I'd just like to say thank you for your questions and your participation this morning. We're excited about all of the initiatives underway at Payoneer. We appreciate the continued support of our shareholders. We're proud of our team and the hard work of our team around the globe, and we look forward to our next discussion at the end of next quarter. Thanks, everybody.

That concludes today's conference call. Thank you for your participation. I hope you have a wonderful rest of your day.