Payoneer Global Inc (PAYO) 2022 Q3 法說會逐字稿

Good afternoon, and thank you for standing by. Welcome to Payoneer's Third Quarter 2022 Earnings Conference Call. (Operator Instructions) And as a reminder, this conference call is being recorded. I would now like to hand the call over to Michelle Wang, Payoneer's VP of Investor Relations.

Thank you, operator. With me on today's call are Payoneer's Co-Chief Executive Officer, Scott Galit and John Kaplan as well as Michael Levine, Payoneer's Chief Financial Officer. 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 numerous risks and uncertainties, including those set forth in our filings with the SEC, which are available in the Investor Relations section of our website.

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 as required by law. In addition, today's call may contain non-GAAP measures. These measures should be considered as a supplement to and not as a substitute for GAAP financial measures. Reconciliation to the nearest GAAP measures can be found in today's earnings press release, which is available on the company's website.

With that, I'd like to turn the call over to John to begin.

Good afternoon, and thank you all for joining us today to discuss our third quarter 2022 results. On today's call, I will discuss the opportunities I see for our business, our outlook for the rest of 2022 and our initial outlook for 2023 EBITDA. Scott will cover third quarter business results, and Michael will discuss third quarter financial results and our updated guidance in more detail. Payoneer delivered a strong quarter of business and financial results. We generated 30% revenue growth and over 100% adjusted EBITDA growth year-over-year. Year-to-date, our revenue is up 33% and adjusted EBITDA is up over 150% year-over-year.

It can be challenging to understand the obstacles that emerging market entrepreneurs face and the limited options they have when growing their businesses. Payoneer helps these entrepreneurs operate globally, which underscores the value of the Payoneer account and Payoneer's role in powering the cross-border economy. Scott and I recently traveled to India to meet our customers face to face. They told us about their challenges as emerging market cross-border SMBs and the way Payoneer's helping them simplify their ability to grow their business. We returned with a deeper appreciation for the scale of the opportunity we have and the capabilities of our local team.

Our revenues for SMBs from India have grown 35% for the first 9 months of 2022 versus a year ago. In a country whose GDP is growing approximately 7% this year, and where we have less than 1% market share. And India is just 1 example of our exciting market opportunity. We do business in 190 countries and territories. And we see similar growth opportunities and dynamics in many other emerging markets around the world. Our customers use their Payoneer account to get paid from their global customers, including large marketplaces, trading partners, corporate buyers and small firms around the globe. They use Payoneer to manage their funds in the currency they want and need, and they ultimately move their money where it needs to go. They can send money to their local bank account, pay for expenses using our commercial Mastercard, make payments through our in-network ecosystem and pay suppliers. They can also access working capital from Payoneer to invest for growth.

Our customer base today represents a fraction of the global cross-border SMBs and freelancers that we can serve. A minority of our customers today utilize the full potential of the Payoneer account, and we aim to provide more services to our existing customers and accelerate our pace of acquiring new, active and profitable customers that can and will benefit from our broad range of services. One key feature of the Payoneer account is our customers' ability to store their funds with Payoneer and pay other Payoneer customers. Our customers are increasingly utilizing these balances to make billions of dollars of in-network and cross-border payments to one another instantly. These payments highlight the network effects of Payoneer and are not currently included in our reported volume metrics as we are not monetizing them directly today.

We believe our engaged and active community of global SMB has the long-term potential to become a meaningful source of low-cost new customer acquisition. In Q3, we made investments to expand our ecosystem, meet our customer needs and maintain long-term 20%-plus revenue growth. We plan to continue our investments in Q4 and 2023 focused in 2 major areas. Number one, we are expanding our go-to-market penetration even as we're decelerating the pace of total company headcount growth. Number two, we are scaling our platform and product suite. In September, we hired Assaf Ronen to be our first Chief Platform Officer. Assaf is leading our technology, product and high-value service teams to deliver two things: one, the Payoneer account suite of products; and two, increasing the efficiency of our operations as we broaden the gap between Payoneer and the physical check ledgers and disconnected software platforms that our customers use.

We expect meaningful investment in 2023 to support these efforts, and we will share more information in the coming months. Our interest income is expected to significantly increase in 2023 relative to 2022. We will invest a portion of this growth in our strategic growth and platform development initiatives. The recent 0 interest rate environment has been a historical anomaly. And as we emerge from this, our business model will benefit from the value our customers attribute to holding a balance in the many currencies we offer.

In our last quarterly update, we communicated our commitment to delivering sustained positive adjusted EBITDA. While it's premature currently to provide formal 2023 guidance, our plan is to moderately increase adjusted EBITDA margins in 2023. There are several factors we are planning for, including the uncertain global economic landscape, the war in Ukraine and the impact of high inflation on consumer spending behavior. Specific to Payoneer, we expect lower non-volume and nonstrategic revenue beginning in the second half of 2023, specifically for onboarding-related services we provide to certain enterprise partners. We will be thoughtful with our spend while further increasing our efficiency in 2023 and beyond.

Our balance sheet is strong, our business is well positioned, our opportunity is significant, and our team is focused. We are confident in our ability to successfully execute on our strategic growth plan and create long-term shareholder value.

With that, I'll turn it over to Scott to discuss our third quarter business results in more detail.

Thank you, John, and thank you, everyone, for joining us today. We had another quarter of strong results, driven by new customer acquisition, adoption of our high-value services and rising interest rate tailwinds. Total revenues grew 30% year-over-year and 7% sequentially, and we delivered another quarter of positive adjusted EBITDA of $13 million. We are seeing momentum in our business and the diversity of our customers and products gives us confidence that Payoneer will continue to execute and generate strong growth through the current macroeconomic challenges and global uncertainties.

We serve a range of industries, including freelance, remote work, e-commerce, travel and social content creators. This diversity drives resilience in our business model and our emerging market focus provides our shareholders access to the higher growth rates these emerging economies deliver. In 2023, the IMF expects growth in emerging markets and developing economies to be more than 3x faster than that of developed economies. And emerging markets are where the majority of Payoneer's customers are located.

Volume in the third quarter increased 11% year-over-year and 3% sequentially as B2B AP/AR and travel had solid growth and e-commerce volumes were stable. Given the uncertainty around economic conditions, we remain cautious about year-over-year volume growth in the near term, although sequentially, volume is expected to increase in the fourth quarter due to e-commerce holiday sales. This holiday season volume growth is typically driven by our largest customers who have a lower take rate. B2B AP/AR continues to grow faster than our overall business and at a higher take rate. This is a big opportunity for Payoneer. B2B AP/AR helps our customers that are doing business across borders, to send a digital invoice and get paid across countries and currencies without needing to open bank accounts around the world or rely on outdated ways to move money such as checks and wires.

B2B AP/AR generates a higher blended take rate because we earn fees on both the money in and from the usage of the Payoneer account compared to our other customer volumes where we primarily monetize when our customers use the funds in their Payoneer account.

B2B AP/AR generated year-over-year volume growth of nearly 40% and represented 12% of our total volumes. We implemented and enhanced risk and compliance measures in the third quarter to position us to consistently generate future growth and scale and to ensure we maintain strong controls. As a result of these enhanced controls, we terminated relationships with certain customers, slowing growth compared to the first half of 2022. Normalizing for these terminated customers, B2B AP/AR volumes for remaining customers grew at over 60% year-over-year. We continue to have strong customer acquisition and customer retention for B2B AP/AR remain consistent with prior periods.

The small number of terminated customers on average generated higher volume and paid a lower take rate. So the revenue impact of their termination wasn't as significant, increasing the blended take rate for the B2B AP/AR business in the third quarter as a result. B2B AP/AR is a massive market opportunity measured in the trillions of dollars of addressable volume. We remain confident about the long-term growth potential for B2B AP/AR and in our ability to successfully execute to capture this opportunity.

Looking ahead, we see early signs that our B2B customers' businesses are facing their own economic headwinds. For us, macro conditions and our enhanced risk and compliance measures may result in slower growth of B2B AP/AR volumes in the near term, particularly as we begin to lap very strong volume growth from a year ago. We expect revenue growth will be faster than volume growth because of continued strong customer growth and momentum globally along with a higher blended take rate.

While our customers are not immune to macroeconomic uncertainty and recession fears, it's especially in these more challenging times that our customers find value in what Payoneer can offer them. Our customer acquisition remains strong and the number of customers using multiple products continues to increase.

Another service that we are excited about is our commercial Mastercard, which is one of our high-value services. Card adoption continues to grow, and the virtual card spend is up more than 100% from a year ago. Most of our customers receive payments in U.S. dollars. And with the dollar appreciating significantly year-to-date, they increasingly want to match their dollar liabilities. As a result, we are seeing more interest for our commercial Mastercard, which allows customers to pay for expenses directly from their Payoneer account balance. We continue to develop our ecosystem of partners and recently announced a partnership with WooCommerce, enabling us to offer WooCommerce SMBs, Payoneer Checkout and the complete Payoneer suite of services. We are in the early stage of the Payoneer Checkout opportunity, which aims to help SMBs expand and grow through direct-to-consumer web store sales globally.

The dedication of all of our employees globally and their successful execution translated to strong results for our third quarter. To all of our employees, thank you from the entire management team for your continued efforts. We are confident about the opportunities ahead of us and our positive cash flow and ample cash on our balance sheet, enable us to invest for long-term revenue growth and future profitability.

I'll now hand it over to Michael to discuss financial results and forward guidance in more detail.

Thank you, Scott, and thank you to everyone for joining us. Payoneer delivered another strong quarter of results, once again exceeding our forecast. Q3 revenue increased 30% year-over-year to $159 million, driven by continued customer acquisition, growth of high-value services and accelerating interest income. We see faster growth in regions such as Southeast Asia, Latin America, South Asia, Middle East and North Africa as SMBs around the world use Payoneer to make and receive payments, manage their finances and grow their businesses.

Payoneer customers are utilizing the multiple benefits of the Payoneer account. Customer funds on our platform remained above $5 billion as of September 30, with the U.S. dollar appreciating 13% versus a basket of other major currencies through September 30, our customers, many of whom are in emerging markets that have been impacted, value the ability to hold U.S. currency and they trust Payoneer to do it. We earned $15 million of interest income from these customer balances in the third quarter, up from less than $1 million compared to the prior year period. Q3 volume increased 11% year-over-year and 3% sequentially to $15.1 billion. Year-over-year volume growth was driven by continued growth of B2B AP/AR, new customer acquisition as well as an acceleration in travel volumes. We are also seeing stability from customers who receive funds from large e-commerce marketplaces as the industry begins to lap tough year-over-year comps.

The Q3 take rate was 105 basis points up compared to 90 basis points in the third quarter of last year and 101 basis points in Q2. Sequentially, the take rate expansion was driven by higher interest income, partially offset by mix shift in to travel, which is a lower take rate vertical and lower nonvolume-related revenue. Q3 transaction costs were $28 million, representing 17.6% of revenue, an improvement from 20.1% in the third quarter of last year and 17.7% versus Q2. Transaction costs grew at a lower rate than revenue due to improved commercial terms, internal platform optimizations and cost structure benefits from increased transaction volumes.

Bank and processor fees, the largest component of transaction costs increased 10% year-over-year, well below Q3 revenue growth. The year-over-year improvement in transaction costs as a percent of revenue also benefited from higher interest income revenue and lower network fees from achieving certain volume-related milestones partially offset by higher working capital costs. Q3 revenue less transaction costs increased 34% year-over-year to $131 million, representing 82.4% of revenue. Q3 total operating expenses, including transaction costs, were up $164 million, up 27% year-over-year. Excluding transaction costs, operating expenses increased 30% year-over-year and 10% sequentially, driven by higher labor costs, marketing investments and a rebound in travel cost as employees returned to offices and connected with each other and customers in person.

2/3 of the year-over-year increase in operating expenses, excluding transaction costs related to employee compensation. This reflected headcount growth, primarily in our R&D and sales and marketing teams as well as base salary increases for employees and higher equity compensation. Compensation expenses increased 9% sequentially, reflecting the full quarter impact of new hires in the first half of 2022. We started to moderate our hiring plans in the third quarter as we announced in our previous earnings call.

Q3 adjusted EBITDA was $13 million compared to $6 million in the third quarter of last year and $15 million in the second quarter. Q3 net loss was $26 million compared to net income of less than $1 million in the third quarter of last year. Net loss for Q3 included $15 million loss from the change in fair value of warrants, Q3 basic and diluted loss per share was $0.08. We continue to generate positive cash flow, and we ended the quarter with cash and cash equivalents of $508 million, a sequential increase of over $15 million.

Turning to our outlook for full year 2022. We are raising our 2022 guidance. Our updated guidance reflects strong year-to-date results and the evolving broader macroeconomic, geopolitical and interest rate environments. We are raising our revenue guidance to be between $605 million and $615 million, reducing transaction costs as a percent of revenue to 18% and increasing our adjusted EBITDA guidance to be between $40 million and $43 million. The midpoint of our latest guidance represents a 29% increase to revenue and 47% increase to adjusted EBITDA year-over-year.

We believe our faster-growing geographies and high-value services, along with interest income and fourth quarter e-commerce holiday sales seasonality will drive revenue growth in the fourth quarter. Regarding the war in Ukraine, while the situation in the region remains fluid, our Ukrainian customers continue to be incredibly resilient. A recent survey we conducted found that 70% of Ukrainian businesses are continuing to operate despite the invasion of their country. Our outlook on our business in Ukraine remained stable at 75% of our original budget.

Sequentially, we expect volume growth to accelerate going into the fourth quarter. Our take rate will be impacted in the fourth quarter by seasonal holiday volumes, which tend to be driven by larger customers who on average pay a lower take rate. This mix shift impact is expected to be partially offset by higher interest income in the fourth quarter as well as continued mix shift towards faster-growing geographies and products.

As Scott discussed, we recently terminated a small number of B2B customers on our platform. We expect our proactive actions to continue to impact the fourth quarter and first half of next year from a volume perspective. We expect revenue growth will likely outpace volume growth. We remain confident in the long-term growth potential of B2B AP/AR. We expect interest income to be in the mid-$20 million range in the fourth quarter based on our third quarter customer funds exit run rate and current anticipated Fed funds interest rate increases. We expect transaction costs over 2022 to be approximately 18% of revenues, an improvement from our previous guidance of 19.5%. This improvement is driven by lower transaction costs as a percentage of revenues year-to-date. We are revising our 2022 adjusted EBITDA guidance to be between $40 million and $43 million. Our raised guidance is due to our strong year-to-date results as well as our confidence in our ability to continue generating positive adjusted EBITDA going forward while investing in our business to drive additional future growth. We expect fourth quarter operating expenses to increase sequentially and include approximately $16 million of noncompensation discretionary investments related to accelerating our market penetration, strengthening our organization and focusing our growth strategy. Nearly 2/3 of this spend is additional market penetration investments in 4 key markets to increase share in 2023 and beyond. We expect to increase travel-related expenses in the fourth quarter to drive more connectivity and collaboration across the organization.

We are investing in our growth, platform and efficiency initiatives with the help of third-party consultants to increase our momentum as we head into 2023. For 2023, we expect to deliver a moderate increase to adjusted EBITDA margins. We plan to invest a portion of the interest income revenues we generate next year back into the business. We will share formal 2023 guidance when we report earnings in February.

In conclusion, Q3 success once again demonstrated our team's ability to deliver strong financial results. We have built a resilient and profitable business, and we see positive and exciting trends for our business going forward. We have confidence in our ability to meet our 2022 financial targets while investing to position Payoneer for many years of future profitable growth. On behalf of John, Scott and myself, and the rest of the senior management team, we thank you for your continued interest and support. We are now happy to answer any questions you may have. Operator, please open the line.

(Operator Instructions)

The first question on the line comes from Will Nance of Goldman Sachs.

Very nice results today. I guess I wanted to hit on one or two topics. I guess the most important, it seems like the windfall of interest income is giving you guys the opportunity to make several kind of changes or kind of investments in the business. You mentioned the $16 million in discretionary investments. It sounds like you've enhanced some of the due diligence or KYC controls around -- plus you're onboarding and B2B. I think you also mentioned some, I think you said non-volume, nonstrategic revenues that you expect to be falling off in the back half of next year. Just -- I guess, on all of these, particularly the latter two, could you kind of drill down a little bit on specifically the changes you've made around the B2B platform and around the types of customers you're taking on in that business? And then for the nonstrategic revenues, is there any way you could kind of quantify the quantum of that either this year or the expected falloff next year? And then what the margin profile looks like on those? Sorry for asking 5 questions there.

I will, it's Scott. Great to talk with you. So first on B2B and as we've talked about, this is a really exciting opportunity for us with everything we do, we focus on the long term, and we really think this is just a massive addressable opportunity for us measured in the trillions of dollars of volume. And so kind of as we've had with every one of our product offerings, what we find as we continue to grow and learn the market and the industries that we serve, is that there are different risk profiles for different vertical markets, different types of trading partners and activities. And so it's ordinary course for us to refine and tune our risk models to recognize that there are certain verticals or types of flows that we are enthusiastic to support and then others that we think exceed our risk appetite. So that was the change that we made there was to prune a select group of customers. It's actually a very small number of customers representing more in volume than in revenues, underlying that really good underlying performance in B2B AP/AR and our views from a long-term perspective remain intact. On the nonstrategic, non-volume revenues, from time to time with some of our larger marketplace partners to help them with ramping up their business and their activities, we might provide a variety of different services that might include certain onboarding or KYC or other services that we might provide. Collectively, all of those together represent less than 5% of our business. And so we just wanted to give a little bit of insight into 2023, really in the back half of next year, starting to see a reduction in some of those that, again, we've provided to certain partners as part of facilitating their ramping up of activity with small businesses around the world, and something that we expect to see decline in the back half of next year.

And Scott -- Will, it's John. I'll add, I think you accurately sort of see what we're doing, which is we are taking a balanced approach to how we're handling the interest revenue. In the short term, focus on EBITDA margin growing for 2023 and EBITDA absolute dollars also growing for 2023, while we make the strategic and important investments in long-term, sustainable, significant revenue growth for the out years. And so we are taking a balanced approach to deliver both short- and long-term value with the interest revenue.

Got it. That makes a ton of sense. I appreciate that. And then just as a follow-up, the trends in volume obviously, they accelerated quarter-over-quarter. And it sounds like that's maybe despite some of the headwinds in e-commerce. You mentioned lapping some of the eBay dynamics last quarter. And then -- so I mean maybe you can just talk broadly about what you're seeing in the e-commerce space? And how you feel about the sustainability of volume growth at current levels? I know you mentioned it will accelerate a bit next quarter.

Will, John here again. So volumes in e-commerce are stable year-over-year. You're right, we are beginning to lap the year-over-year, which are some of the difficult comps. We remain optimistic about the long-term volume growth for our e-commerce customers. And obviously, volume has benefited from travel, which where we saw year-over-year, the lockdown restrictions lifted, and in our largest markets, we saw quarter-over-quarter growth due to seasonality. So although Asia is improving a bit less than Europe did, we think both the volume growth and the stability of e-commerce makeup for our consistent results as it relates to volume.

The next question on the line comes from Sanjay Sakhrani of KBW.

Maybe just to follow up on Will's last question. Some of the larger e-commerce players on your platform have talked about moderating volumes as you sort of move into next quarter. But obviously, your trends don't seem to suggest that. I'm just curious how you kind of see your revenue growth profile being in an e-commerce backdrop that maybe is low single digits next year?

It's Michael. Yes. I think really, it's a diversity in our revenue stream. So we have -- as we've spoken about many times, many drivers. And so e-commerce, as John said, we've seen more stability will get the benefit of the holiday season in Q4. Then going forward, we continue to invest heavily in those markets that are growing fastest. So we talked a number of times about the emerging markets where we see the fastest growth and we're putting continued go-to-market investments, you'll see that sales and marketing were one of our biggest investments in OpEx, and we hope that will continue to drive the ongoing revenue stream among other things.

Okay, because you guys had articulated like -- go ahead.

No, I was going to say, and we're still -- we're very excited about the high-value services. Obviously, that continues to be a major driver, it's still growing faster than the rest of our business and we'll continue to do so.

Got it. Maybe just to follow up on B2B AP/AR. Could you guys just talk about who exactly you're competing with in that space? And as you go to market going forward, is it just going to be cross-selling it? Or is it actually selling it to new customers out there in the marketplace?

One, it's Scott. So B2B AP/AR, I mean, part of what's so exciting is, for the most part, we are competing against the legacy ways that small- and medium-sized businesses do business. So we're really giving them something new that replaces the way they would have potentially asked their customers to send wires or used -- had to go open bank accounts around the world or things like that. So it's really a much more efficient way of managing their business that's much more customer friendly, much more digital and much more local wherever they're doing business around the world. In many ways, it's a little bit like kind of an international version of Bill.com for small- and medium-sized business exporters. So that's the way to think about the B2B AP/AR business.

The next question on the line comes from Josh Siegler with Cantor Fitzgerald.

Congratulations on the results. Given the ongoing macro uncertainty and growth concerns, especially coming out of China recently, how is the business better positioned today to weather a global growth slowdown than say, a year or 2 ago?

Josh, John Caplan here. I'll take that one. There are a number of both business and macro headwinds and tailwinds that we are actively managing, right? The headwinds, which aren't unique to Payoneer, and frankly, nor are we immune to them are slowing global economic growth, the risk of the recession, inflation at 8% in the U.S. and 10% in Europe, the war in Ukraine and other geopolitical issues, as you mentioned, and consumer and business spending. But I think actually what powers us through those is even stronger tailwinds and resulted from our operations. We had 9% quarter-over-quarter growth in customer acquisition. We have strong revenue and volume retention of our customers. We have an increased growth in customers that are using 2 or more of our products and services, which is good for both take rate and customer retention. And as Michael mentioned in his prepared remarks, over $5 billion of customer funds on -- of our customers who trust Payoneer to hold their balances that we are increasingly monetizing with interest. And with over $500 million on our balance sheet up to -- up $15 million this quarter to $508 million, we feel like we are well positioned. We made strong investments in our go-to-market organization in Latin America, in the Middle East, in North Africa, in Southeast Asia. Scott and I were just in India, where I mentioned in my prepared remarks, we have 1% market share. And we are relentlessly focused on our customer and their needs and providing unique value for them. And so we feel like we're well positioned to power through the -- any economic uncertainty we face. And the team here is well experienced going through that and feel like we're prepared and well positioned.

Great. I appreciate the color on that. I was also curious, have travel volumes returned to pre-pandemic levels? Or is there still some more room for travel volume recovery?

Yes. Josh, it's Scott. The travel volumes overall are up from pre-pandemic, but if you just isolate the routes that we had before the pandemic, it actually has not returned to where it was in 2019 for us. So again, that's kind of a Payoneer-specific read that ties into kind of the basket of routes that we've had, which tends to skew more towards kind of more far-flung markets in Asia and in other places around the world. So travel, again, we've increased our share of some portfolios. But on a comparison basis for what we had in 2019, we're not yet back where we were before.

The next question comes from Cris Kennedy of William Blair.

Can you go -- provide a little bit more detail into the platform division and the hiring of the Chief Platform Officer, and kind of what his key initiatives are and how that will impact the business over the long term?

John here. Nice to hear your question. So the -- we made the judgment that we had a significant scale opportunity around our products and services to both combine our high-value services team, our product and technology teams into one unit led by Assaf Ronen who joined us from SoFi where he ran the product and prior to that at Amazon and Microsoft. Our focus is on investing in the next phase of that platform, which will be around the scale of the platform, the efficiency of how we operate and enhancing the product features and capabilities and driving the innovation. One of the hallmarks of our track record has been releasing products and services for emerging market as in cross border -- I think they are better than analog checks and wires and other alternatives. And we are very focused there. It's a complement to our M&A activity and the work we're doing to look at adding additional products and services to sell through our existing distribution channels, which are increasingly well developed and our customer relationships, which are strong.

Very helpful. And then -- because you mentioned that M&A. Can you just kind of talk about what you're seeing out there in the market? Have valuations come down, what the opportunities are?

Sure. So we are evaluating several potential M&A opportunities. We are focused on adding capabilities that enhance our high-value services. And as I mentioned, we can cross-sell and upsell to our engaged customer [base]. Our approach is very straightforward, acquire product capabilities that we think are relevant to our global customer base. We are not focused today on what I would say transformational acquisitions. We are primarily focused on things to add to the portfolio. We have over $500 million of corporate cash on our balance sheet and believe that we can optimize that use of capital to accelerate our revenue growth through strategic M&A. As it relates to valuation, I do believe private company valuations are coming down, and we're seeing that in the market, and we are very disciplined acquirers and so we have passed on acquisitions where we believe they were unrealistic private company CEOs.

The next question comes from Mayank Tandon from Needham.

Congrats, Scott, John and Michael on a strong quarter. I wanted to ask you a few things here. Michael, first on the model. Just -- maybe you already gave this, but how should we think about the margin expansion next year that you mentioned in terms of the -- maybe leverage in the model, any sort of expense efficiencies versus the contribution from the higher interest income. If you could just maybe parse out a little bit, it might be helpful for us to model it next year.

Yes. We don't -- so obviously, we haven't given specifics out for next year. Some of the things to think about is that we will get a benefit in leverage in terms of interest income. But we have a mix of different factors, including growth of B2B AP/AR and certain geos that would have a potentially lower margin to mitigate some of that benefit. But overall, we're not in a position at this point to give guidance for next year yet. We'll have the 2023 forecast or guidance available in February.

Sure. I guess we'll have to be patient to get that. In terms of my follow-up, I wanted to maybe just ask a little bit more about the attach rates on your higher-value products, great granularity on the AP/AR product, great to see the progress there. But could you maybe talk in general about what is the usage across your strategic accounts in terms of the number of products they're using today? And where you see that going over time to give us maybe a better framework for how to think about revenue growth longer term, both from volume growth and from take rate? Hopefully, that question is clear, but I can otherwise repeat it.

I'll start and then maybe, Scott, you could grab it. I think what we're seeing is that the more of our services our customers utilize, the more volumes they do on our platform and the longer they engage. So I think that -- it's sort of a -- at the most basic, the way to think about it is the more tools they use of ours, the longer they stay. It's very early days, and we've only recently started ramping up our -- both the product offering and of the high-value services, card and B2B -- the commercial card and the B2B AP/AR to be able to cross-sell more of those to our customer base. And that's a core focus of the organization.

Yes. And maybe just pulling the thread slightly more, and I realize I didn't answer Sanjay's question fully earlier. So on B2B AP/AR, we actually have had -- we had a lot of success early on in cross-selling it. But we've also mentioned that it's only about 1/3 of our customers there are customers that are existing customers. So that's an example of something that is both a high-value service extension for existing customers as well as a high-value service that attracts new customers to Payoneer. Our commercial card is another example of an area where we're actually seeing success. We mentioned that we had over 100% growth year-over-year. And we continue to see that being an opportunity with a high ceiling and we're still relatively early days in finding ways to actually penetrate that market opportunity. And again, it's a great win-win solution where our customers save money and we actually generate a higher take rate, and it's something that we are still quite keen to grow and see a lot of opportunity ahead.

Right. And then just one housekeeping item. Michael, I think you did give this. What was the interest income in the quarter? I apologize, I missed that. And then in terms of the impact for the fourth quarter, are margins going down or EBITDA dollars are going down in the fourth quarter per your guidance to reflect those incremental investments? Or is there something else that is driving that downtick from 3Q to 4Q despite rates going up in the market?

Yes. So $15 million. It's in the press release, $15 million in terms of the interest income. And we did talk about -- so we are investing meaningfully in Q4, we talked about $16 million of noncompensation discretionary investments. So that's having an impact on EBITDA margin in Q4.

The next question comes from Mike Grondahl with Northland Securities.

Yes. Congratulations, guys. Could you talk a little bit about the customer balances, deposits kind of 2Q to 3Q and maybe anything intra-quarter to think about? And if you can provide any color on kind of rate that you're making, that would be helpful.

Yes. So we were over $5 billion, again, just the second quarter in a row that we were above $5 billion. It went down by a small amount of $100 million quarter-over-quarter. But for the most part, we've seen pretty good stability in customer funds. And then I'm sorry, Mike, what was the second question you had?

Just the rate that you're earning. I think last quarter, you said there's a little bit of lag from Fed hikes. And anything you can call out there?

Yes. So I think, again, our guidance remains consistent. What we had shared historically is that more than half of our customer funds are interest earning. And generally, as a basis, think of the Fed funds rate, and usually, the banks will keep some percentage for themselves. So it's a discount off the Fed funds rate. And often, there's a timing difference between the time the Fed announces and when the banks actually increase their rates. We're working very hard to optimize that. And so we continue to focus on making sure the funds are safe, but trying to optimize the return on those funds.

We have no further questions, so I'll hand back to John for any closing remarks.

Thank you, everybody, for joining us today. Payoneer has had a tremendous growth and lots of growth opportunities in front of us that we intend to capture the full potential of. We've built a resilient business with strong financials and a strong capital position. We will continue to invest in our platform and products so we can serve more customers in increasing ways.

I want to close by thanking all of our employees at Payoneer for their incredible dedication and boundless passion every day for helping our customers. And thank you, most of all, to our shareholders for your support. We look forward to talking again soon.

This concludes today's call. Thank you all for joining. You may now disconnect your lines.