Payoneer Global Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Amounts are in U.S. dollars; financial statement amounts below are in millions unless stated otherwise. Payoneer completed its business combination and became publicly traded on June 25, 2021. The transaction was accounted for as a reverse recapitalization, with legacy Payoneer as the accounting acquirer; prior-period results therefore reflect legacy Payoneer’s operations.
Business context and operating results
Payoneer provides cross-border payments and related services to businesses and professionals. It reported activity across more than 190 countries and territories and 7,000+ trade corridors. Management identifies transaction volume as a key business driver.
| Metric | Q2 2021 | Q2 2020 | H1 2021 | H1 2020 |
|---|---|---|---|---|
| Revenue | $110.9 | $78.4 | $211.5 | $160.3 |
| Payment volume | $13.6bn | $10.5bn | $26.9bn | $18.8bn |
| Operating loss | $(18.4) | $(5.7) | $(19.5) | $(8.8) |
| Net loss | $(12.4) | $(6.7) | $(15.9) | $(14.1) |
| Adjusted EBITDA (non-GAAP) | $0.7 | $1.4 | $8.5 | $4.6 |
Q2 revenue grew 42% year over year while volume grew 29%; H1 revenue rose 32% and volume 43%. Greater China generated $37.6 million of Q2 revenue, the United States $13.4 million, and all other countries $59.9 million. No customer individually exceeded 10% of revenue.
Profitability, cash flow and liquidity
- Transaction costs were $28.5 million in Q2, up 20%; operating expenses increased 54% to $129.3 million. R&D, sales and marketing, and G&A costs rose with headcount and business investment. Q2 operating margin was approximately negative 16.5%, compared with negative 7.3% a year earlier.
- Q2 net loss included a $12.1 million gain from the fair-value change in warrants; the warrants were recorded as a liability. The Q2 effective tax rate was not stated; H1 effective tax rate was 45%, versus 52% in H1 2020.
- H1 operating cash flow was positive $16.7 million, compared with $11.3 million in H1 2020. Investing cash flow was positive $0.3 million, versus a $38.3 million outflow, principally because the prior-year period included the Optile acquisition. Financing cash flow was positive $652.6 million, including business-combination and PIPE proceeds.
- At June 30, cash and cash equivalents were $498.7 million, versus $103.0 million at year-end 2020. Customer funds of $3.634 billion were matched by outstanding operating balances of the same amount; these customer funds should not be treated as unrestricted corporate liquidity. Restricted cash was $7.7 million.
- No debt was outstanding at quarter-end; the company had repaid approximately $40.0 million of debt during H1 and retained access to a $70 million revolving facility, subject to its terms and covenants. Management said existing cash and operating cash flows were expected to cover working capital and capital expenditure needs for at least 12 months.
Material changes, outlook and risks
- The June 25 combination included $300 million of PIPE proceeds and approximately $575 million of trust-account cash before transaction uses and redemptions. The company paid $398.2 million in cash consideration to legacy Payoneer shareholders. H1 net proceeds from the recapitalization and PIPE were reported as $388.8 million.
- The $39.8 million Series 1 redeemable preferred-stock liability was redeemed in full on July 23, 2021, after quarter-end. The company also recorded $59.6 million of warrant liability at June 30; 25.2 million warrants were outstanding with an $11.50 exercise price.
- Management provided no specific revenue, earnings or other numerical guidance in this filing. It said it intends to invest in platform development, regulatory reach, automation, customer growth and potential acquisitions. It also noted that expansion of its working-capital offering may increase funding needs; external funding may not be available on favorable terms or at all.
- COVID-19 accelerated e-commerce and supported digital-commerce activity, but travel restrictions hurt the travel customer base and near-zero interest rates reduced interest income. Management said the effects would continue to be evaluated.
- Capital advances extended to customers were $194.0 million in H1; the allowance for capital-advance losses rose to $5.8 million from $1.6 million at year-end. Management attributed a Q2 increase in provision to a specific advance with higher collection risk.
- The company reported an OFAC settlement offer of $1.4 million, reserved at June 30. It also described ordinary-course litigation and regulatory inquiries and warned that regulatory action could bring fines, costs, operating restrictions or reputational harm. A prior $24 million card-program collateral balance was returned on June 25, 2021, and the related issuer winddown and collection were described as completed.
- Foreign-exchange movements may affect results; management stated that a hypothetical 10% exchange-rate change could have a material impact. The company reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Reconcile the transaction’s gross cash sources and uses, including the trust-account contribution, shareholder cash consideration, PIPE proceeds, and transaction costs.
- Track operating-expense growth, capital-advance credit losses and collections, and the relationship between transaction volume and revenue growth.
- Distinguish unrestricted cash from customer funds and confirm liquidity needs if the working-capital portfolio expands.
- Confirm the post-quarter preferred-stock redemption payment and assess dilution from options, RSUs, warrants and potential earn-out shares.
- Monitor the OFAC matter, other regulatory or legal proceedings, foreign-exchange exposure, and compliance with revolving-credit covenants.
- Consider the reverse-recapitalization accounting and the filing’s disclosure that results for the interim period are not necessarily indicative of full-year results.