Business Overview
Payoneer Global Inc. (NASDAQ:PAYO) is a leading financial technology company that empowers the world's small and medium-sized businesses (SMBs) to transact, do business, and grow globally. The company has built a robust financial stack that removes barriers and simplifies cross-border commerce, enabling millions of SMBs, particularly in emerging markets, to participate and succeed in the increasingly digital global economy.Payoneer was founded in 2005 with the belief that talent is equally distributed, but opportunity is not. The company's mission is to enable any entrepreneur and business anywhere to participate and succeed in an increasingly digital global economy. Payoneer's financial stack provides a full suite of cross-border accounts receivable (AR) and accounts payable (AP) capabilities, including services such as working capital and data-driven insights.
Payoneer's core value proposition is that it removes the complexity and barriers of doing business across borders for its customers. With a multi-currency Payoneer Account, businesses around the world can serve and transact with their overseas customers, suppliers, vendors, and partners as if they were local. The company primarily generates revenues when Payoneer customers use the funds in their Payoneer account to make a payment, make a purchase, or withdraw the funds locally. For its Business to Business (B2B) and Direct to Consumer (DTC) customers, Payoneer also generates revenue on their AR, such as when they invoice a customer or collect payments via their webstore. Additionally, given the high interest rate environment, interest earned on customer funds held on Payoneer's platform has been a significant source of revenue.
Payoneer's long-term strategy is centered on growing the number of customers on its platform who fit its ideal customer profile, namely those who are customers that have on average over $500 a month in volume and were active over the trailing twelve-month period, and on increasing the revenue it earns from each customer. The company believes that successful execution of this strategy will drive revenue growth as (i) adding new customers who meet its ideal customer profile, improving retention, and increasing its product offerings to capture more wallet share will drive greater ad valorem volume of transactions processed through the Payoneer platform; and (ii) introducing new products and services and increasing customer adoption of additional products and services will improve its monetization of customers over time.
Financials
Payoneer reported strong financial results for the full year 2023, with annual net income of $93.3 million, annual revenue of $831.1 million, annual operating cash flow of $159.5 million, and annual free cash flow of $111.7 million.In the first quarter of 2024, the company continued its momentum, reporting a 19% year-over-year increase in revenue to $228.2 million. This growth was driven mainly by a $15.2 million increase in interest income earned on customer balances resulting from rising interest rates and an increase in customer balances held on Payoneer's platform. The remaining increase was driven by a combination of continued adoption of Payoneer's high-value services, certain monetization initiatives, ongoing growth in high-value regions, and growth in the number of customers on the platform.
Payoneer's transaction costs were $34.0 million in the first quarter of 2024, an increase of 25% compared to the prior-year period, which is broadly in line with the 21% increase in volume. Other operating expenses were $40.3 million, an increase of 0.5% compared to the prior-year period, driven by an increase in information technology expenses partially offset by a decrease in employee-related expenses.
Research and development expenses were $32.1 million, an increase of 9% compared to the prior-year period, driven by an increase in employee compensation and information technology expenses, partially offset by an increase in employee compensation costs capitalized as internal use software. Sales and marketing expenses were $49.9 million, an increase of 4% compared to the prior-year period, driven by an increase in marketplace partner commissions, direct marketing spend, and third-party contractor and consulting expenses, offset by a decrease in employee-related expenses.
General and administrative expenses were $24.2 million, a decrease of 9% compared to the prior-year period, driven by a decrease in employee-related expenses, partially offset by an increase in M&A-related legal expenses. Depreciation and amortization expenses were $9.4 million, an increase of 56% compared to the prior-year period, mainly driven by an increase in amortization of internal use of software.
Financial income, net was $4.5 million, an increase of 115% compared to the prior-year period, driven by a $1.8 million gain from the change in the fair value of warrants and an increase in interest income on corporate cash balances, offset by an increase in loss on revaluation of foreign currency balances. Income tax expense was $13.9 million, an increase of 52% compared to the prior-year period, driven by an increase in US taxable income and an increase in uncertain tax positions, partially offset by an increase in US deferred tax benefits.
Liquidity
As of March 31, 2024, Payoneer had $587.2 million of cash and cash equivalents. The company's business continues to generate positive free cash flows, with a free cash flow conversion rate well above 100% year-to-date.Payoneer has a multi-party Receivables Loan and Security Agreement (the "Warehouse Facility") with affiliates of Viola Ventures, which provides access to external financing for its capital advance activity. The Warehouse Facility has a revolving maturity of 36 months from the commencement date with a payback period of an additional 6 months after the revolving maturity date. The initial borrowing commitment is $25 million, subject to increases at Payoneer's request and the lender's discretion up to $100 million.
In addition, Payoneer has a stock repurchase program that provides for the repurchase of up to $250 million of its common stock, including any applicable excise tax. During the first quarter of 2024, the company repurchased 10,533,934 shares of its common stock for approximately $51.2 million.
Outlook
For the full year 2024, Payoneer expects revenues to be between $895 million and $905 million, including $655 million to $665 million of revenue excluding interest income and $240 million of interest income. This represents a 10% growth at the midpoint of the guidance, or 13% year-over-year growth on a normalized basis.The company is also increasing its adjusted EBITDA guidance to be between $200 million and $210 million, representing an adjusted EBITDA margin of approximately 23% at the midpoint. Payoneer's guidance for cash operating expenses less anticipated transaction costs remains unchanged at approximately $540 million.
Geographic Breakdown
Payoneer's revenue is diversified across its global markets, with the company generating strong growth across all its major regions in the first quarter of 2024. Greater China, which includes mainland China, Hong Kong, Macau, and Taiwan, accounted for 35.6% of total revenue, growing 27% year-over-year. Europe and Asia-Pacific regions contributed 19.0% and 14.6% of total revenue, respectively, with growth rates of 12.5% and 31.5%. North America, which includes the United States, generated 10.1% of total revenue, growing 9.7%. The South Asia, Middle East, and North Africa region, as well as Latin America, contributed 10.5% and 10.1% of total revenue, growing 20.0% and 24.2%, respectively.