Business context and reporting period
Payoneer Global Inc. provides cross-border payments and related services to businesses, marketplaces and professionals in more than 190 countries. This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2021, compared with the same 2020 periods. The June 25, 2021 business combination was accounted for as a reverse recapitalization, with Legacy Payoneer as the accounting acquirer; historical results therefore reflect Legacy Payoneer’s operations.
Key financial results
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $122.7 million | $90.5 million | $334.2 million | $250.9 million |
| Operating income (loss) | ($6.5 million) | $0.9 million | ($26.0 million) | ($7.9 million) |
| Net income (loss) | $0.8 million | $1.6 million | ($15.1 million) | ($12.5 million) |
| Adjusted EBITDA | $6.1 million | $2.6 million | $14.6 million | $7.2 million |
| Platform volume | $13.6 billion | $11.7 billion | $40.5 billion | $30.5 billion |
Revenue increased 35% in Q3 and 33% year to date, primarily from higher transaction volumes and growth in value-added services. Transaction costs were nearly flat year over year despite volume growth, reflecting improved commercial terms, platform efficiencies and volume-related benefits. Revenue less transaction costs was approximately 80% of revenue in Q3 2021, versus 73% in Q3 2020; this is a simple contribution proxy, not a reported gross margin.
Operating expenses rose 44% in Q3 and 39% year to date. Higher staffing, technology, contractor and marketing costs contributed; year-to-date general and administrative expense also included $5.1 million of reorganization-related costs. Q3 net income included an $11.3 million gain from the change in warrant fair value, so reported profitability should be viewed in light of this non-operating, non-cash item.
For the first nine months, operating cash flow was $10.8 million, compared with $18.9 million in 2020. Investing cash use was $4.5 million, versus $45.9 million, which included the 2020 Optile acquisition. Financing provided $686.9 million, including proceeds from the business combination and PIPE financing, partly offset by preferred-stock redemption and debt repayment.
Financial position and liquidity
- At September 30, 2021, cash and cash equivalents were $449.0 million; customer funds were $3.707 billion and are matched by outstanding operating balances, so they should not be treated as freely available corporate liquidity.
- Total assets were $4.360 billion and shareholders’ equity was $491.9 million. The company had no outstanding borrowings at quarter-end; it repaid $40.0 million of debt during the first nine months and terminated its prior loan facility in September.
- Management stated that cash and expected operating cash flows should be sufficient for working-capital and capital-expenditure needs for at least the next 12 months. It noted that growth in its working-capital offering may increase liquidity needs and that additional funding may not be available on favorable terms or at all.
- After quarter-end, on October 28, the company entered a receivables-backed revolving facility with related-party lenders. Initial commitment is $25 million, potentially increasing to $100 million at lenders’ discretion; the initial rate is LIBOR plus 9%, with financial covenants and eligible capital advance receivables as collateral.
Material changes, outlook and risks
- Revenue growth reflected continued expansion in digital commerce, customer acquisition and marketplace partnerships. Management plans continued investment in its platform, product development, regulatory footprint, automation, sales and marketing, and acquisitions.
- COVID-19 accelerated e-commerce and supported digital transaction activity, while travel restrictions hurt travel-related customers and very low interest rates reduced interest income. The company said it would continue assessing the pandemic’s effects; no quantitative revenue or earnings guidance is provided in the filing.
- Capital advance receivables were $47.3 million net at quarter-end, with a $5.2 million loss allowance, up from $1.6 million at year-end 2020. The filing cites higher-risk advances as a driver of year-to-date capital advance costs.
- A Mexican banking institution used by the company lost its license in September. Payoneer could not withdraw its funds, reserved $2.25 million for potential losses and is seeking deposit-insurance reimbursement; recovery of any remaining funds is uncertain.
- The filing describes ongoing exposure to regulatory, legal, tax and compliance risks across jurisdictions. It also notes that a hypothetical 10% foreign-exchange movement could materially affect results. The company settled an OFAC matter for $1.4 million, paid before September 30, 2021.
- Warrants were recorded as a liability of $48.3 million at quarter-end, with fair-value changes affecting earnings. The company had 25.2 million warrants outstanding, exercisable at $11.50 per share, as well as substantial employee options and restricted stock units that may contribute to dilution.
- Management concluded disclosure controls and procedures were effective as of September 30, 2021, and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- How much of revenue growth is sustained transaction-volume growth versus pricing, product mix and non-volume-based services.
- Whether operating expenses continue to grow faster than revenue, and how reported results compare with Adjusted EBITDA after its specified exclusions.
- The unrestricted cash available after separating customer funds, and the liquidity impact, pricing, related-party terms and covenants of the post-quarter receivables facility.
- Recovery prospects for the inaccessible Mexican bank funds and the development of capital-advance delinquencies, charge-offs and loss reserves.
- Potential dilution from warrants, options, RSUs and contingent earn-out shares, and the effect of warrant fair-value changes on reported earnings.