Payoneer Global Inc. — Q1 2023 Form 10-Q
Business context and period: Payoneer provides cross-border payments and related services to businesses, professionals and marketplaces. This unaudited report covers the three months ended March 31, 2023; comparisons are with Q1 2022 unless stated otherwise. Amounts below are in U.S. dollars.
Financial results and position
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Revenue | $192.0 million | $137.0 million; up 40% |
| Operating income (loss) | $15.0 million; 7.8% margin | $(6.3) million; (4.6)% margin |
| Net income | $7.9 million; diluted EPS $0.02 | $20.2 million; diluted EPS $0.06 |
| Adjusted EBITDA (non-GAAP) | $38.8 million | $10.4 million |
| Net cash from operating activities | $3.9 million | $2.4 million |
| Cash and cash equivalents at March 31 | $544.5 million | $543.3 million at December 31, 2022 |
| Related-party debt at March 31 | $17.1 million | $16.1 million at December 31, 2022 |
| Stock-based compensation expense | $16.9 million | $12.9 million |
Revenue from contracts with customers was $142.0 million, versus $136.1 million; revenue from other sources, consisting of interest income, was $50.1 million, versus $0.9 million. Transaction volume rose 8% to $15.7 billion. Customer funds were $5.467 billion and were substantially matched by $5.467 billion in outstanding operating balances; these funds should not be treated as freely available corporate liquidity. Total current assets were $6.119 billion and current liabilities $5.586 billion, both including those customer-related balances.
Material changes and drivers
- Revenue rose $55.1 million, principally because interest income increased $49.2 million, reflecting higher customer balances and interest rates; customer growth, regional growth and adoption of higher-value services also contributed.
- Operating results improved to income from a prior-year operating loss. Operating expenses increased 24% to $177.0 million, including sales and marketing up 39% and general and administrative up 47%.
- Net income declined 61% despite improved operating income. Q1 2022 included a $31.2 million non-cash gain from warrant revaluation; Q1 2023 recorded a $0.3 million warrant loss. The effective tax rate increased to 54% from 9%.
- Adjusted EBITDA increased to $38.8 million from $10.4 million. This non-GAAP measure excludes items including stock compensation and warrant revaluation; stock compensation is a recurring expense.
- Cash, cash equivalents, restricted cash and customer funds decreased $417.1 million during the quarter. Financing cash outflow was $364.5 million, mainly reflecting a decline in outstanding operating balances; investing cash outflow was $57.0 million, including customer funds in transit.
Outlook, risks and unusual items
- Management said cash and cash equivalents and operating cash flows should be sufficient for operating working capital and capital expenditure needs for at least the next 12 months. The filing provides no numerical revenue or earnings guidance.
- Management cited elevated interest rates, inflation, the Ukraine war and banking-sector uncertainty as factors that may affect results. Higher rates can support interest revenue, but may weigh on economic activity and platform volumes. A hypothetical 1% rate change or 10% currency-rate change could materially affect results.
- Ukraine and Belarus together contributed less than 10% of revenue in Q1 2023; Belarus contributed less than 1%. Payoneer had ceased service to Russian customers and was reducing services to Belarus customers.
- The company reported $17.1 million outstanding under a related-party warehouse facility, secured by eligible capital-advance receivables; it said it complied with the facility covenants. The facility’s interest rate is capped at 10.5% per year.
- Payoneer reserved $2.25 million for funds inaccessible at a Mexican banking entity whose license was revoked; recovery of the remaining funds through liquidation is unknown. The filing also describes ordinary-course legal and regulatory exposures and reserves for uncertain tax positions of $23.9 million.
- In January 2023, Payoneer acquired the remaining interests in a China joint venture, accounting for the transaction as an asset acquisition. It impaired $293,000 of acquired intangible assets and wrote off $59,000 of tax receivables.
- After quarter-end, on May 7, the board authorized repurchases of up to $80 million of common stock over 24 months. Repurchases are discretionary and depend on business and market conditions.
Key facts for investors to verify
- How much of the 40% revenue growth is sustainable as interest rates and customer balances change, versus growth in transaction activity and services.
- The quality and comparability of adjusted EBITDA, including the treatment of recurring stock-based compensation, and the impact of the 54% effective tax rate.
- Liquidity excluding customer funds and operating balances, and the cash-flow effects of changes in those balances and funds in transit.
- Capital-advance receivables and loss allowance: net receivables were $42.1 million, with a $5.4 million allowance at March 31.
- Potential outcomes and financial exposure from the Mexican bank liquidation, regulatory matters and uncertain tax positions.
- The effect of the authorized share repurchases alongside equity compensation and dilution; shares outstanding increased during the quarter.