Payoneer (PAYO) - 2021 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Presents unaudited condensed consolidated financial statements for Q3 and nine months ended September 30, 2021, reflecting the Reverse Recapitalization impact Condensed Consolidated Balance Sheets Balance sheet as of September 30, 2021, shows significant increases in cash, total assets, and shareholders' equity due to the Reverse Recapitalization Balance Sheet Comparison (in thousands) | Metric | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $448,955 | $102,988 | | Total assets | $4,360,204 | $3,669,684 | | Total liabilities | $3,868,280 | $3,479,850 | | Warrant liability | $48,304 | $0 | | Total shareholders' equity | $491,924 | $24,299 | Condensed Consolidated Statements of Income (Loss) Q3 2021 revenues grew 35% to $122.7 million, but net income decreased due to a 44% rise in operating expenses Income Statement Summary (in thousands) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $122,651 | $90,537 | $334,184 | $250,885 | | Operating income (loss) | $(6,506) | $941 | $(26,016) | $(7,871) | | Gain from change in fair value of Warrants | $11,321 | $0 | $23,397 | $0 | | Net income (loss) | $837 | $1,608 | $(15,085) | $(12,531) | Condensed Consolidated Statements of Cash Flows Nine-month cash flow shows decreased operating cash, significant financing inflow from Reverse Recapitalization, and $4.5 million used in investing Cash Flow Summary - Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $10,788 | $18,873 | | Net cash provided by (used in) investing activities | $(4,539) | $(45,880) | | Net cash provided by financing activities | $686,881 | $960,587 | - Net contributions from the Reverse Recapitalization and PIPE financing totaled $388.8 million[41] Notes to the Condensed Consolidated Financial Statements Notes detail significant events like the Reverse Recapitalization, OFAC settlement, and a $2.25 million reserve for funds at a Mexican bank - On June 25, 2021, the company consummated its Reverse Recapitalization with FTOC, becoming a publicly traded company, Payoneer Global Inc. The transaction was accounted for as a reverse recapitalization, with Legacy Payoneer as the accounting acquirer[47][50] - The company reached a final settlement with the U.S. Office of Foreign Assets Control (OFAC) for $1.4 million regarding payments to sanctioned regions, which was paid prior to September 30, 2021[128] - The company reserved $2.25 million for potential losses after a banking partner in Mexico had its license revoked by regulators, rendering funds inaccessible[134] - The company terminated its Loan and Security Agreement on September 14, 2021, and repaid the outstanding balance of $40.0 million during the nine months ended September 30, 2021[124] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 2021 operational performance, highlighting 35% revenue growth, an operating loss due to higher expenses, and strengthened liquidity post-Reverse Recapitalization Results of Operations Q3 2021 revenues increased 35% to $122.7 million, but a 44% rise in operating expenses led to a $6.5 million operating loss Q3 2021 vs Q3 2020 Performance (in thousands) | Metric | Q3 2021 | Q3 2020 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $122,651 | $90,537 | 35% | | Total operating expenses | $129,157 | $89,596 | 44% | | Operating income (loss) | $(6,506) | $941 | (791)% | - Transaction costs remained relatively flat, increasing only 0.6% in Q3 2021 despite a 16% increase in volume, due to improved commercial terms, platform optimizations, and payment network incentives[193] - The increase in operating expenses across R&D, Sales & Marketing, and G&A was primarily driven by higher employee compensation and benefits resulting from increased headcount to support business growth[196][197][198] Liquidity and Capital Resources Liquidity significantly enhanced by $874.5 million from Reverse Recapitalization, resulting in $449 million cash and no debt as of September 30, 2021 - The company raised gross proceeds of $874.5 million from the Reverse Recapitalization and PIPE financing[206] - As of September 30, 2021, the company held $449 million in cash and cash equivalents and had no outstanding borrowings[212] - On October 28, 2021, the company entered into a new Receivables Loan and Security Agreement to provide external financing for its capital advance activities, with an initial borrowing commitment of $25 million[209][211] Key Metrics and Non-GAAP Financial Measures Q3 2021 Volume grew 16% to $13.6 billion, while Adjusted EBITDA more than doubled to $6.1 million from Q3 2020 Volume Growth (in millions) | Period | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Three months ended Sep 30 | $13,615 | $11,716 | 16% | | Nine months ended Sep 30 | $40,535 | $30,531 | 33% | Adjusted EBITDA Reconciliation (in thousands) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net income (loss) | $837 | $1,608 | | Stock based compensation expenses | $8,590 | $3,023 | | Gain from change in fair value of Warrants | $(11,321) | $0 | | Other adjustments | $8,223 | $3,745 | | Adjusted EBITDA | $6,129 | $2,576 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are foreign currency fluctuations and interest rate changes, with a hypothetical 10% exchange rate change potentially having a material impact - The company is exposed to market risks from interest rate changes and foreign currency fluctuations[237] - Foreign currency exposure exists for currencies in which it operates and serves customers. A hypothetical 10% change in exchange rates could materially impact financial results[239] - As an emerging growth company under the JOBS Act, Payoneer can delay the adoption of new or revised accounting standards applicable to public companies[240] Item 4. Controls and Procedures The CEO and CFO concluded that disclosure controls and procedures were effective as of September 30, 2021, with no material changes to internal control over financial reporting - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2021[243] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[244] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is periodically involved in various litigation matters incidental to its business, with further details provided in Note 11 of the financial statements - The company is party to various litigation matters incidental to its business, with further details provided in Note 11 of the financial statements[246] Item 1A. Risk Factors No material changes to the risk factors previously disclosed in the company's Registration Statement dated August 6, 2021, have occurred - As of the filing date, there have been no material changes to the risk factors previously disclosed in the company's Registration Statement[248] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2021, the company issued unregistered securities, including 409,988 restricted stock units/options and 218,798 common shares for the Optile acquisition - A total of 409,988 restricted stock units and options were settled or exercised during the quarter pursuant to the company's equity incentive plans[249] - The company issued 218,798 shares of common stock as deferred consideration related to the Optile acquisition from 2020[251] Other Information Items The company reported no defaults on senior securities, confirmed mine safety disclosures are not applicable, and listed exhibits filed with the report - The company reported no defaults on senior securities[253] - Mine safety disclosures are not applicable to the company[254]