PAYO - NASDAQ

Good morning. Thank you for standing by. Welcome to Payoneer’s Second Quarter 2023 Earnings Conference Call. At this time, all lines have been placed on mute to prevent any background noise. Following the speakers’ remarks, we will open the lines for your questions. As a reminder, this conference call is being recorded. I would now like to turn the call over to Michelle Wang, Payoneer’s VP of Investor Relations.

Thank you, operator. With me on today’s call are Payoneer’s Chief Executive Officer, John Caplan; and Payoneer’s Chief Financial Officer, Bea Ordonez. Before we begin, I’d like to remind you that today’s call may contain forward-looking statements. These forward-looking statements are subject to risks and uncertainties, including those set forth in 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 them, except as required by law. In addition, today’s call may include non-GAAP measures. These measures should be considered in addition to and not instead of GAAP financial measures. Reconciliation to the nearest GAAP measure can be found in today’s earnings press release, which is available on our website. Additionally, please note we have posted an earnings presentation supplement alongside our earnings press release on investor.payoneer.com. With that, I’d like to turn the call over to John to begin.

Good morning, and thank you all for joining us today to discuss our second quarter 2023 results. On today’s call, I will discuss our business results, including a progress report on our strategic priorities. Bea will then cover our second quarter financial results and updated 2023 guidance. Global commerce, the export of goods and services is more prevalent, digital, and borderless than ever. In a recent survey of thousands of global SMBs, we learned that they expect that by 2025, they will double their rate of revenue growth with nearly two-thirds of those revenues coming from outside their domestic market. At the same time, they plan for nearly half of their vendors to be a broad as well. These businesses must manage accounts receivable and payable flows across multiple countries, currencies and jurisdictions only Payoneer offers them the ability to do so in one centrally managed account that enables them to transact globally. Payoneer generated 40% year-over-year revenue growth in the second quarter. We diversified toward higher take rate geographies, acquired more ICPs, increased our revenue from non-ICPs and earned interest income from customer balances held on our network. Adjusted EBITDA of $56 million nearly quadrupled year-over-year and represented a 27% adjusted EBITDA margin. We once again grew revenue in each of our six regions by 25% or greater year-over-year. In China, we generated over 50% year-over-year revenue growth in Q2, driven by net customer growth, increasing ARPU and improving trends with large e-commerce marketplaces. China remains a large market for us, and while we are focused on capturing the enormous promise of other emerging fast growing markets, we anticipate that China will continue to be a major contributor to our business for the long-term. China is the world’s largest exporter and second largest importer behind the U.S. We intend to maintain and expand our strong position in that market. That is why we announced this morning that we have signed an agreement to acquire a licensed China-based payment service provider. The acquisition is subject to regulatory approval and customary closing conditions. Once closed, we expect it will strengthen our regulatory infrastructure and position us to better serve our customers with enhanced and localized products and services and acquire new customer segments that we are not serving today. We look forward to working with our stakeholders in China to facilitate the closing of the transaction over the next few quarters. While our B2B payments volume decline 2% year-over-year B2B volume grew 12% year-over-year excluding the proactive customer terminations we made last year. We have strong traction for our B2B business in service oriented markets such as APAC, SAMEA, and Latin America. We are driving the fastest customer growth in these regions. And in total across the three B2B volumes grew by 29% year-over-year, we are excited about the growth opportunities within B2B. For example, we generated 45% year-over-year volume growth in SAMEA. We are successfully acquiring customers in the IT programming and services sector. Growth is driven by India and the UAE and is due to both increasing wallet share with customers and early momentum acquiring larger customers. We are also supporting new industry verticals in B2B. For example, within Europe, we recently began serving agricultural exporters representing $30 billion of potential annual volume. We continue to invest and focus our product roadmap to better serve the more complex needs of this customer segment and to position Payoneer to win in B2B over the long-term. Let’s turn now to our progress in acquiring our ideal customer profiles. Payoneer group total active ICPs by 6% year-over-year in the second quarter by region, we saw 13% growth in each of APAC, SAMEA and Latin America. Total ICP growth was 12%, excluding Europe, where we continue to see the impact of the war on in Ukraine on year-over-year growth rates. We grew our largest ICPs or those who do more than $10,000 a month on average in volume by 18% once again. This segment represents approximately 10% of our overall ICPs and it contributes to over 50% of total Payoneer revenues. In addition to ICP acquisition, we have experiments underway to increase ICP ARPU, near-term, we continue to drive strong adoption of our virtual commercial card, which is a roughly 2.5% take rate. 4% of our customers use their Payoneer virtual commercial card in the second quarter up 100% versus a year ago. We are also adjusting pricing across different customer segments and routes, and we continue to grow and scale our working capital business. We increased originations from first time users by 80% in Q2 as we expanded our coverage of eligible customers. Longer-term ARPU will be driven by increased product penetration and an overall mix shift towards our larger customers. We continue to make progress on our multi-year platform transformation. We remain focused on developing our scale cloud-based platform, including our new onboarding functionality. In the last 90 days, I’m pleased that we are accelerating our launch of new product features as we make it even easier and faster for our customers to send and receive payments. We have improved functionality around scheduling payments. We are now providing our U.S. B2B customers with real time availability of funds via open banking integration. For our commercial card, we have increased functionality around spending limits and monitoring. This will make it easier for customers who issue multiple cards within their organization to track their expenses and we believe will lead to greater usage and increase customer penetration over time. More broadly, for our working capital business, we announced last week the acquisition of Spott, a real time data platform. We will use its technology to enhance our underwriting capabilities to reduce risk and drive origination volumes. And in our merchant services business, we released a new merchant of record service for initial group of goods selling ICPs. This functionality delivers material uplift in acceptance rates for our customers selling goods cross-border, while capturing significant greater yield and therefore economics on volumes processed for Payoneer. The Payoneer team is focused. We are executing against the strategic priorities we articulated at the beginning of the year. We are enhancing our customer value proposition and accelerating core growth. We are investing in strategic long-term initiatives that we believe will deliver durable, profitable growth. I’ll now hand it over to Bea to discuss financial results and forward guidance in more detail.

Thank you, John, and thank you to everyone for joining us. In the second quarter, Payoneer delivered strong top line growth and record quarterly revenue. We significantly expanded profitability and delivered a 27% adjusted EBITDA margin. We are executing on our strategy and are confident in our ability to deliver going forward. Q2 revenue increased 40% year-over-year to $207 million. We drove increased adoption of higher margin products, improved monetization of certain customer segments, and delivered impressive growth in key B2B regions. We also continue to acquire ICPs and earned interest income from customer funds entrusted with us. Revenue and ICP growth continue to be impacted by our closure of payments into Russia at the end of 2022. Q2 volume increased 8% year-over-year to $15.8 billion. Volume growth was led by continued strong growth in travel spend and improving trends with our largest e-commerce marketplaces. Our Q2 take rate was 131 basis points up 30 basis points compared to 101 basis points in the second quarter of last year and 122 basis points in Q1. We drove take rate expansion by increasing adoption of commercial card and checkout products, earning higher interest income on customer funds, and improving monetization of certain customer segments. Customer funds held by Payoneer increased 8% year-over-year to $5.5 billion. Sequentially, customer funds increased 1%. Customer balances are growing broadly in line with volume and in line with our seasonal and other expectations. As we have noted, our customers keep balances with us, because they value the ability to manage their foreign currency needs, hold balances in USD and pay local and overseas vendors from a single account. 85% of our customers hold on our network more than one month’s worth of average usage, and over a third of our customers hold more than three months worth of their average usage. Over 80% of customer funds continue to be in interest bearing accounts and we earned $55 million of interest income from customer fund balances in the second quarter. We continue to evaluate ways to manage the duration of our portfolio in a risk appropriate manner to ensure greater consistency of interest income through different interest rate cycles. We’re exploring investing a portion of our customer funds in U.S. treasuries with up to a three-year maturity, and currently anticipate having this new program in place by the end of 2023. Our outlook anticipates that interest rates in the U.S. where more than 75% of our balances are held will remain relatively elevated. Our expectation consistent with consensus views is that normalized medium to long-term interest rates will be in the range of 2% to 3%. In that context, we anticipate that interest income will continue to be a meaningful contributor to our core revenue in the next several years. We are utilizing revenues from interest income to make investments to drive future growth, while also returning capital to investors via our stock repurchase plan. For 2023, we are anticipating that approximately 25% of interest income earned will be used to fund investments in our platform and infrastructure. Our investments position us to deliver additional features more quickly, while longer term we expect our investments will unlock greater efficiency and scale. We are well positioned to continue to utilize this revenue stream to make additional investments in our platform in future years. For 2023, we expect to utilize approximately 25% of revenues generated from interest income to return capital to shareholders via our stock repurchase plan. This will substantially offset dilution from our stock-based equity compensation program. As we have noted, interest income earned will drive a meaningful and in our view, enduring uplift to adjusted EBITDA in 2023 and beyond. Q2 transaction costs were $28 million and increased 9% year-over-year. This represented 13.8% of revenue, a significant improvement from 17.7% in the prior year period. Transaction cost as a percentage of revenue are lower due to higher interest income, as well as our ongoing focus on driving operational efficiencies. We have recognized over $3 million in savings year-to-date by leveraging our scale with existing bank providers and onboarding new providers. Q2 revenue less transaction costs increased 46% year-over-year to $178 million. Our total operating expenses, including transaction costs of $173 million were up 15% or $23 million year-over-year, primarily due to higher sales and marketing costs. We continue to invest in our go-to-market efforts. On a year-over-year basis, sales and marketing expenses increased nearly $12 million, representing half of the increase in total operating expenses. Higher sales and marketing costs reflected increasing partner commissions and higher labor costs related to hiring over the past 12 months. It also included growth in direct marketing spend related to driving increased penetration of our card offering. As we announced last quarter, we are taking a disciplined approach to operating our business in order to drive greater efficiency, while ensuring we continue to invest to drive long-term and sustainable revenue growth. Operating expenses, excluding transaction costs were down 3% sequentially, primarily from lower expense related to recent headcount reduction. Streamlining the organization will enable us to increase the speed of decision making and execution while we continue to allocate resources and invest in strategic growth areas. Q2 adjusted EB was $56 million compared to roughly $15 million in the second quarter of last year, and $39 million in the first quarter of this year. This represents a 27% adjusted EBITDA margin up from 10% a year ago. Q2 net income was $46 million compared to net income of $4 million in the second quarter of last year. Q2 basic and diluted earnings per share was $0.12. Net income for the quarter included a $14 million gain from change in fair value of our public warrants and an $11 million benefit to our provision for income taxes. In Q2, we concluded that the valuation allowance on our deferred tax assets in the U.S. is no longer necessary, and as a result, recognize the benefit of those deferred tax assets on our balance sheet and in our tax provision. We ended the quarter with cash and cash equivalents of $581 million, up $89 million or 18% year-over-year. Our business continues to generate positive free cash flows and our free cash flow conversion is well above 100% year-to-date. As John discussed earlier, we recently announced agreements to acquire a licensed China-based payment service provider and an Israeli-based real-time data platform. Both are aligned with our strategy to serve customers locally and to accelerate our product roadmap via M&A. We anticipate the China-based company acquisition will close in 2024 subject to the receipt of local regulatory approvals. We expect that the China-based company transaction will be funded with cash on hand. The data platform acquisition was completed at announcement last week and was funded with cash on hand. We anticipate that the pro forma impact of the acquisitions will not be material to our ongoing financial results. We have been actively returning capital to shareholders since the inception of our share buyback program in May, we have repurchased approximately $20 million of Payoneer shares at a weighted average cost of $4.68 per share. Turning to our outlook. We are once again raising our revenue and adjusted EBITDA guidance for 2023. For the full year, we expect revenues to be between $820 million and $830 million. Transaction costs as a percentage of revenue to be approximately 15.5% and adjusted EBITDA to be between $160 million and $170 million. Revenue trends improved throughout the second quarter, we saw stronger exit rate dynamics with our largest e-commerce marketplaces expect a further ramp up of various monetization initiatives underway and expect $210 million of interest income for the full year. In B2B, we expect growth to re-accelerate in the second half of 2023. As John mentioned earlier, we are seeing solid customer acquisition trends and are excited about continuing to capture market share in key high growth service oriented markets. In APAC, SAMEA and Latin America, our B2B business has compelling product market fit and strong and sustained customer acquisition volume and revenue growth. These three regions make up over 40% of total B2B volume, and over half of B2B revenues. In these critical high growth regions, the number of transactions per customer have remained stable year-over-year while the average invoice size increase mid single digits on a year-over-year basis. We continue to focus on operating efficiency in order to maximize resources available for high growth areas of our business and for opportunities to deepen our competitive mode. We expect cash OpEx less transaction costs to be $525 million to $535 million for 2023. Cash OpEx represents our guidance for revenue less adjusted EBITDA. This is $15 million lower than our prior guidance, reflecting the impact of recent headcount reductions and a greater degree of operating discipline. We expect most of this benefit to be recognized in our sales and marketing and other operating expense line items. As we mentioned at the beginning of the year, we incur significant onboarding and support costs relating to customers who do not ultimately meet our ideal customer profile. We continue to work on and roll out initiatives to drive these costs down and to improve the economic profile of these non-ICPs and are seeing encouraging results. We are experimenting with pricing strategies for non-ICPs. In the second quarter, we began rolling out fees to increase our monetization and expect these initiatives to continue through the back half of the year. Last quarter, we launched a machine learning model to better filter out applicants who will likely never become ICPs. Based on an initial test population, we have already seen the model reject approximately 10% of applications that we would otherwise have processed. We will continue to refine and expand rollout in the months ahead. Our latest guidance for 2023 adjusted EBITDA is between $160 million and $170 million. This guidance reflects a more than threefold increase in adjusted EBITDA versus 2022 and a 20% adjusted EBITDA margin for 2023. In conclusion, Payoneer second quarter results demonstrate our steady execution against our strategic priorities and we’re pleased to see that our focus on operating efficiency is paying off with higher adjusted EBITDA margins. We’re excited to welcome you to our first Investor Day in New York City on September 21, where we will dive deeper into our business and reintroduce Payoneer to the investment community. We are now happy to answer any questions you might have. Operator, please open the line.

Thank you. [Operator Instructions] And our first question today is from the line of Darrin Peller, Wolfe Research. Darrin, your line is open.

Hey guys. Thanks. Nice quarter. Maybe just start off a bit of a financial question, just driving the core take rate. It looks like if you try to back out the float side, the float income side, the yield did improve, I think by about 5 or 6 basis points from Q1. So if you could just help us understand the magnitude impact. How much of it is really just the pricing power you’re putting forth in the business that we’ve touched on before commercial card adoption or anything else you can help us understand the bridge?

Yes. Thanks for the question, Darrin. Yes, as you noted, over the long-term, we do expect take rates to trend upwards from increased adoption of our high value products in the quarter specifically, certainly pricing. We talked a little bit during the prepared remarks. Some of the fees we launched around non-ICP customers, improved monetization and ARPU for that segment. We’ve also driven card adoption and been directing some of our direct marketing spend to that and to that effort. So we saw a nice uptake overall in adoption in card and overall in some of our other areas. B2B is certainly growing from a revenue perspective and that growth is outpacing core growth, so that’s also factored into that overall take rate expansion.

Okay, so sustainably, I mean, sustainability wise, it seems like there’s nothing about it that’s sort of one time in nature.

No, look, I think, we’ve highlighted in our prepared remarks that fees and pricing strategy more generally is something that we’re focused on and we would expect to see and have plans to roll out additional fees and changes in pricing through the back half of the year, really, again, focused on that non-ICP cohort. And in general, as we say, look, while we might see quarter-to-quarter fluctuations as we drive more adoption within our high value products, our working capital, our checkout business, our B2B business, and we accelerate that growth in B2B in the back half of the year and beyond, we would expect uplift in that take rate overall.

John – that’s really great. John, just very quickly, when we think about buying trends in the business around and really just what you’re doing to transform the culture around operating efficiencies being more just leaner broadly, which you’re obviously showing in the numbers, how’s the response been internally? So from a cultural standpoint, in terms of keeping talent, attracting talent, anything changing on that front or is it just maybe you could touch on that and I’ll leave it there. Thanks guys.

Yes. Thanks, Darrin. It’s a great question. The team at Payoneer is extraordinary and global and working hard to deliver strong results and improved and increasing velocity of product and technical releases to serve our customers. So I’m proud and encouraged by the work our organization is doing. We – it is never easy to part with colleagues that are hardworking and care about the organization, and I think our team handled that well, and we are improving the speed of decision making and the pace of our operation globally, and I’m super encouraged by the progress the team is making.

Thanks again, guys.

Our next question today is from the line of Mark Palmer, Berenberg. Mark, your line will be open now if you’d like to proceed with your question.

Yes, good morning, and nice quarter. If you could talk a little bit about what remains in terms of the pieces of the strategic plan that still need to be implemented, what the timeframe is with regard to that implementation and how should we think about the timing of the full impact of those initiatives?

Yes, I think – hey, Mark, John here. Thanks for the question. The Payoneer organization is intensely focused on durable profitable growth and providing – delivering the suite of financial services to our emerging market SMBs for all of their cross-border needs. And what our research showed us that we did around SMBs, 3,500 SMB survey saw that there is an intense focus on growing exports among SMBs in emerging markets, as well as growing international vendors to optimize their expenses. So we are very focused first on ICP growth both retention and engagement and acquisition of ICPs and high value ICPs, you saw the 18% growth in our ICPs doing over $10,000 a month. I’m encouraged that that’s the second quarter in a row. We have strong revenue growth among ICPs and we’ve talked about that, the tech modernization effort that’s underway is picking up steam and we’re excited about the progress we’re making there. In terms of the long-term multi quarter evolution of Payoneer, there is a significant global opportunity for our financial operating account for our customers, and we are penetrating them with both the services we have to offer today and developing new services that we believe can capture even greater percentage of their total accounts receivable and their total accounts payable. So we are – we’re making great progress and excited about the future in front of us.

Thank you. And just one more question, the upcoming Investor Day on September 21 seems to be of greater note than the typical company’s Investor Day, just given the extent of the transformation that you were seeking to execute. Can you give us a bit of a preview in terms of what that day will involve, what you’re ultimately seeking to accomplish with it? Thank you.

So yes, I’ll start and then I’ll pass it to Bea, we’re really excited about September 21 welcoming current shareholders and new – and for new and potential shareholders to be introduced to the exciting things happening at Payoneer, exciting strategic opportunities we see, market developments we see, Adam Cohen and our go-to market momentum, Assaf Ronen and the platform modernization. A lot has evolved at Payoneer since our IPO in June of 2021, and Bea and I and our executive team are excited to share, but Bea, anything you’d like to add?

Yes. Look, I think you covered it, John. We’re certainly excited. We think that it’s a great opportunity for us to introduce/reintroduce the Payoneer story to the investment community. We’re evolving the strategy as John has described, we’re super excited about the opportunity ahead of us. We have a lot of new members in our team who are excited to share their vision from a go-to market perspective, from a platform perspective. So we view it as a great opportunity to sort of reset and reintroduce the story, introduce our execs, frankly, simplify the story a little bit and share sort of where we see the business going over the next several years.

Thank you.

Our next question is from the line of Will Nance, Goldman Sachs. Will, your line is open. Please go ahead.

Hey guys appreciate you taking the questions. I’ll echo the other comments on a very nice quarter. Look, I think you guys commented on some of the re-inflection on some of the e-commerce marketplaces on the platform. I think that drives us what we’ve heard from other e-commerce players. I wanted to actually ask about one of the more kind of opaque verticals that you guys have, which is sort of the non-market place, cross-border e-commerce types of platforms that you guys serve. We kind of know what the trends are in B2B and on the marketplace side, what are you guys seeing outside and more of the kind of cross-border SMB e-commerce types of merchants? How are volumes trended there and then kind of what are your expectations going forward?

Yes, thanks for the question, Will. I’ll look to address that, look at in terms of what we’re seeing, which obviously informs our guidance and the assumptions that underpin that. Look, overall in our business, what we’re assuming and what we’re seeing, it’s high single digit aggregate volume growth with higher volume growth in some of those regions where we’re seeing an accelerated pace of growth. As you’ve noted, e-commerce has rebounded pretty nicely over the last several months. And so we’re assuming and indeed seeing high single to low double digit growth from an e-comm volume perspective. In other parts of our business that are sort of less e-comm focused potentially, certainly we’ve highlighted and we’re expecting a B2B acceleration in the back half of the year. In part from sort of the new verticals that we’re launching are focus on those service oriented regions. Also, the lapping of those terminations that we’ve talked about, we’re assuming again, strong and increased growth in travel spend. Not a huge part of the volume pie for us overall, but driving significant uplift. Some of those other areas, look, from a freelance platform perspective, we’re assuming – seeing and assuming which aligns and is consistent with those public companies as well, low to mid single digit volume growth from those freelance platforms. And that probably sort of covers the pie kind of from a volume and vertical perspective. But overall, like I say, we’re sort of baking in pretty strong volume dynamics. We saw nice revenue trends in Q2 in terms of the acceleration, pretty decent exit dynamics. In April, our revenue was roughly flat. In May, it was up mid single digits and we exited with June revenue up about 10%. So that’s all baked into sort of our assumptions for how we see the rest of the year panning out.

Got it. That’s super helpful. And maybe just to double click on that last point that you made. I mean, we were calculating the guidance implying roughly 10%, kind of revenue X float growth in the back half of the year. That doesn’t sound too far off from some of those high single digit volume metrics. But you’re calling out a lot of pricing benefits. I guess I’m just curious the degree to which further pricing actions are incorporated in the back half of the year guide and kind of maybe the delta between revenue and volume that you’re expecting.

Yes. Look, your math is spot on roughly 10% revenue growth in the back half of the year. A few things get us there, one I’ve already noted, we’re assuming a broad acceleration in B2B volumes as we lap those tougher Q3 comps and accelerate in some of the exciting new verticals that John talked about. Our revenue growth in B2B has been strong. It’s outpacing core growth. We’re seeing those strong exit dynamics. As I said, we’re seeing the strong e-comm and travel. We are and we’ve highlighted that we’re implementing additional measures to drive improved monetization in ICP. And then I think the final leg is sort of continuing to drive we’ve seen good results that thus far continuing to drive penetration in our card offering in the back half of the year, continued growth in our checkout merchant services business. That’s really what bridges us from the strong exit dynamics that we saw from Q2 into the back half of the year.

Got it. Super helpful. Appreciate you taking my questions.

Our next question today is from the line of Trevor Williams at Jefferies. Trevor, your line is open, please proceed.

Great. Thanks a lot. John, I wanted to go back to the acquisition in China. It sounds like there’s now a pretty firm commitment to China, staying an important region for you guys. But based on the comments you made, maybe it sounds like the hope is to shift what the composition of that customer base looks like over time. So if you could elaborate a bit on that and then maybe how you’d expect the mix of business in China to evolve over the medium term. Thanks so much.

Sure. Thanks for the question. As you know, China’s a large market for Payoneer, and this transaction really reinforces our long-term commitment to our customers in that country. We made the strategic decision to transition from operating as a foreign entity in China to becoming a local financial service provider. The advantages we anticipate to operating this way as a local licensed entity will expand our service capabilities to provide outbound money flows, such as those for the travel industry and to support R&D globalization, we will be able to serve customers locally via on the ground operations, technology and R&D as well as partnerships and integrations with more local tools and fundamentally improve our cost structure and improve FX margins. And I think from a broader strategic framework, it fits into our broader strategy to continue to invest in our regulatory licensing framework and operate even more locally around the globe. We’re now adding China to the other major jurisdictions, including the U.S., Europe, UK, Australia, Japan, and Hong Kong. And as we’ve shared – we’ve recently received our major payment institution license from the monetary authority in Singapore, and earlier this year received our electric money institution license in the UK. I think all of this plays into our, our deep focus to continue to capture opportunities for emerging market SMBs and as it relates to China, specifically in the mix of customers, we are not focused on the B2B in China near-term, right as the decision we made, and we’ve articulated we’re very focused in the high growth opportunities in SAMEA, APAC and LatAm, and saw 29% growth in those markets. We continue to see a significant and big e-commerce opportunity in China, and as the largest exporter – a third of global exports are coming cross-border e-commerce exports are coming from China. We are a leader there and we’ll continue to be a leader there.

Got it. Okay, thanks. And then maybe to put a finer point on the expectation for the B2B volume to accelerate in the back half, your comps are getting much easier just with what you’re lapping in 3Q. But anyway, you could dimensionalize how much of the acceleration is just comp driven and lapping the merchant cleanup versus some kind of underlying acceleration with some of the other initiatives you guys have talked about? Thanks.

Yes. I’m happy to take that. Look, I think it’s helpful as we think about the dynamics in that business to disaggregate a little bit, as John sort of just highlighted between China and rest of world. Just to give sort of some sense, China volume as a percentage of B2B in Q2 was roughly 20%. That sort of reflects sort of a shift in emphasis towards those higher growth regions where we see really compelling product market fit to serve service oriented business in what I’ll call sort of that rest of world bucket, which is primarily, although not exclusively sort of a service oriented business. So while we will get the benefit of lapping those Q3 2022 terminations, we are seeing really strong growth in those other regions. John just highlighted APAC, SAMEA, LATAM, we saw 29% of volume growth year-over-year in those regions. In Europe, we’re seeing sort of fairly stable growth. Ukraine is an important B2B market for us, remarkably resilient local community. We’re seeing some headwinds, but we’re also seeing sort of pick up in those new verticals we’ve highlighted. So overall, we’re really excited in that sort of 80% of the business that makes up the non-China business to be able to continue to build on those strong volume trends and those strong exit dynamics.

Great. Thanks a lot.

Our next question today is from the line of Bob Napoli of William Blair. Bob, your line is open. Please go ahead.

Thank you, and good morning. Just on the acquisitions on, I mean, at the license in China, the Spott, I guess underwriting Israel technology, just any more color on what you expect to that to contribute. I mean it sounds like little revenue out front, but the underwriting technology for working capital is – are we going to see an acceleration in working capital? So just any comments around those acquisitions and what you expect – what we should expect to see from a – an economic standpoint?

Sure. Thanks for the question, Bob. Look, as we noted in our prepared remarks on a pro forma basis, we don’t expect either acquisitions and materially impact our financial statements. And specific to the Spott acquisition, which is the working capital, look, we continue to believe lending is a super interesting opportunity for us. One way we really do have sort of the opportunity to provide capital much more efficiently and where we see that the SMBs that we serve or poorly served, frankly, and underserved by traditional players. So we continue to explore ways to meaningfully grow that. We’ve seen nice trends in our working capital business. Originations are up roughly 18%. And the Spott acquisition is part of that overall acceleration strategy. It’s basically a data platform that harvests a wide range of both proprietary as well as publicly available data points and applies machine learning tools to help us drive better underwriting. What should that do to the business? Look, it allows us to better manage risk and the losses associated with that underwriting risk. And it should provide us a better way of targeting customers and then in turn, provide an uplift to the amount of origination that we can drive. So look, we’re excited. We think it’s a long-term opportunity for Payoneer, and this is a part of that strategy and in line with what we’ve talked about, which is to use M&A to really accelerate our product roadmap.

Great. And then the ICPs, can you remind us what the economics of an ICP are versus non-ICP and the – what your expectations are for growth of ICPs?

Sure, Bob. Good question here. So an ICP is defined as a customer that’s had $500 or more of average volume for each of the prior 12 months or $6,000 in total volume. The ICP population, we saw really a strong growth in the quarter up in APAC 13%, SAMEA 13% LATAM 13%, the ICPs globally over $10,000, up 18%. So we are seeing really good and healthy ICP growth. We would expect to see fluctuations quarter-over-quarter depending on specific geographic or other factors. But we are focused on both growing the number of ICPs year-on-year, as well as the quality and volume of each ICP.

Thank you.

Our next question today is from the line of Sanjay Sakhrani of KBW. Sanjay, please go ahead. Your line is open.

Thanks. Good morning. I think you’ve answered a lot of questions about the second half outlook and your expectations, but I’m curious if we take a step back and think about the 20% revenue growth expectations. Can you just talk about how we get there over the next several years? Perhaps you can disaggregate some of the drivers of that, and I know Bea you talked about float income being a material contributor for the next few years. Could you just talk about how that plays into that? Thanks.

Sure, Sanjay, and thanks for the question. Look, as we said, we view float income as core revenue and a core sort of result, if you like, of the utility and value we provide to customers. But we totally sort of understand and we do kind of disaggregate as we look at the various levers of the business. Look at, as we’ve said, the back half of this year, the guidance assumes roughly 10% growth in terms of our core revenue, and we’re looking to continue to drive that re-acceleration of growth, if you like, within that kind of “core revenue” to some of the things and initiatives that John has touched on. So driving more ICP acquisition, a focus from a go-to-market perspective on ICP acquisition in that 10,000 plus, which is a significant driver of revenue growth from us or of the total revenue pie and a broad re-acceleration of our B2B business in the back half of the year and going into 2024 as well. So other aspect again is ICP is one sort of aspect of that formula. The other one is ARPU, which we’ve also touched on in our prepared remarks, and really driving more kind of adoption and cross-selling of those high value products that we’ve talked about, including checkout, which gives us a, as we’ve talked about in past calls, another avenue to bring AR and other volume into the network, which we can then monetize in other ways. So that’s how we’re thinking of sort of the drivers and levers that begin to re-accelerate our growth in our “sort of core revenue”. From an interest income perspective, look at, again, as we’ve said and our peers have made similar comments in the market, it seems clear that the U.S. economy, at least all commentary would indicate can support higher interest rates for the medium to longer-term than perhaps we would’ve anticipated a few short years ago. So our outlook and our sort of prognosis, if you like is that interest rates will stay in that 2% to 3% range for the medium to long-term and given our continued balance growth and given the continued utility that we build into our product, we highlighted some really interesting customer behavior kind of metrics around the usage, the customers make of our network to hold balances. We think that interest income is going to continue to be a very meaningful driver of revenue for us in the long-term.

Okay. Great. And John, obviously, you’ve done some deals here that are complementary and additive to what you’re already doing. I’m curious what the pipeline looks like here and should we expect more deals going forward or do you think we digest what we have right now?

Yes. The – thank you for the question. We continue to evaluate potential M&A opportunities, specifically product extensions where we can leverage our existing reach and customer base to continue to drive ARPU and engagement among our customers to deepen our regional footprint in our highest growth markets. And we’re appropriated to extend our existing licensing framework. As you know, we have over $500 million of corporate cash on the balance sheet, and we believe we can optimize the use of that capital to accelerate our revenue growth going forward to continue to deliver long-term value to our shareholders. But so the M&A activity is active but nothing to report in addition to what we’ve shared already.

All right. Thank you.

Our next question today is from the line of Josh Siegler of Cantor Fitzgerald. Josh, please go ahead. Your line is open.

Yes. Hi, thanks for taking my question, and good morning. Congrats on the strong execution this quarter. I would like to start by diving a little deeper into the strong customer acquisition, specifically the ICPs. I’m curious what gives you confidence that this trend will continue in the back half of 2023? Thanks.

Yes. I mean, thanks for the question, Josh. I think the key part about our the ICP execution is one, we have a great product, we have a terrific team and a focused go-to-market effort and a series of exceptional partnerships and relationships globally that enable us to continue to provide unique value to emerging market high growth, small businesses that where exports are a critical part of their revenue growth and where global vendors are essential for them to optimize the margins in their business. So our execution strong, we’re really focused on specific countries, territories, and opportunities, and the teams executing well. So I suspect there will be fluctuations quarter-to-quarter, it won’t be a straight line up although I would certainly like it to be, I think it’s reasonable that there will be fluctuations, but the teams exceptionally focused and we have a great product and we’re out there communicating with people.

Got it. Thank you, John. Appreciate that. And then focusing on geographies I know we talked a little bit about China, but I’m curious if you can elaborate a little more on what some of the main B2B headwinds were in some of your other core markets such as North America and Europe. How do you expect those trends to play out throughout the rest of the year and what would really result in a reversal for the B2B service side in those geographies?

Yes. Thanks for the question, John. Look at – sorry Josh. As we said outside of China, we actually saw strong year-over-year volume growth. Certainly, we see some headwinds to the growth. We still grew in absolute terms from Europe. Ukraine is an important part of that market, as I noted, it’s been a remarkably resilient market for us, and we continue to gain traction there. One of the new verticals we launched is actually specific to Ukraine or targeted to Ukraine. But overall outside of China, really, we’ve continued to show strong acquisition, relatively strong retention as well and good volume growth year-over-year. And we expect those trends to continue through the back half of the year.

Understood. Thank you.

Thank you. [Operator Instructions] And our next question is from the line of Ashwin Shirvaikar of Citi. Ashwin, please go ahead.

Thank you. Good quarter here. I guess let me go back to adjusted EBITDA margins longer-term expectation. You have a 20% plus goal. You’re already at 20% probably just assume mid-point of your expectations for this year for adjusted EBITDA and revenues. So the question is sustainability, I mean, how tight can you manage the various cost lines in the longer-term and with the various changes that you’re making in how you operate and so on. Should we expect that, that you have sort of sustainably crossed over into the 20% plus range here?

Sure. Thanks for the question. Look at, we’ve delivered in Q2 meaningful expansion in our EBITDA from expense discipline and also from growing our top line as well. We also delivered EBITDA profitability, albeit fractionally X interest income as I noted, so I won’t repeat. We do expect, obviously that flow income will be a sustainable part of the core revenue going forward. As we look through the back half of the year and beyond, look what our guidance does assume an uptick in the back half of the year in terms of OpEx that reflects continued hiring in our R&D organization. We’ve highlighted that we’re going to continue to invest in the business, invest in our go-to-market efforts, invest in our platform. We still expect as we said in Q1 to exit this year with lower head count than we entered the year coming out of 2022. And as you noted, look, we’re focused on driving greater expense discipline. It’s reflected in the higher guidance that we deliver today in terms of our EBITDA guidance. So we are continued to focus on what we can control in driving ICP acquisition and increasing ARPU while at the same time investing in our platform and infrastructure to drive overall operating efficiency within that – within the business. What we see significant leverage that, that we can drive from technology, automation, and some of the other initiatives that are in flight in our organization.

Understood. And then if I can get some input with regards to sort of the partnerships that you have and the desire to keep expanding your ecosystem of partnerships, what are some of the qualifying factors, capabilities, and so on that you look for as you do that? Are we going to – for the most part, stick with wallet partnerships, local bank partnerships, or is it greater than that? If you could sort of delve deeper into that would be really helpful.

Yes. I’ll start and then maybe Bea I’ll pass it over to you. I think there’s the ecosystem that we participate in includes areas where our customers are distributing their goods or services around the globe. So the big market – the big goods and services marketplaces where we are preferred solution for our customers to receive their accounts receivable. We have an exceptional set of ecosystem relationships with local banks and digital – and local neobanks as you refer to. Additionally, we continue to penetrate and develop relationships with ERP and accounting and software providers. And we’ve announced and shared some of those in the past. So I’m encouraged by the progress we make as a preferred partner to those people in the SMB ecosystem globally recognize that SMBs want to use the pay in your account for their accounts receivable and accounts payable activity, and therefore, we represent an easy to work with collaborative partner to engage with. But Bea, if there’s anything you’d like to add, I’ll pass it to you.

No, look, I think you’ve covered it well specific to sort of the reference to banks. Look at, we’ve built over many years an infrastructure of relationships with close to or more than 100 banks and other partners. And that’s what allows us to support cross border movement of value across literally thousands of routes. So it’s a complex infrastructure. We think it’s a competitive moat for us. We work very hard at it. We evaluate it. We add providers as we scale, and we’ve been able to very successfully drive down costs and improve services as a result. So it’s a key part, as John noted of the ecosystem.

Thank you. That’s what I was looking for. Thanks.

Thank you. We have no further time for any questions today. So it’d be my pleasure to hand back to John Caplan for any closing remarks.

Thank you, everybody. Thank you for your questions. Thank you to our global customers, our global employees, and global shareholders for joining the call this morning. I’m incredibly excited about Payoneer’s opportunity to help the world’s doers grow their businesses and tap into the opportunities of the global economy. We appreciate our shareholders continued support, and thank you for joining us this morning.