Payoneer Global Inc

NASDAQ:PAYO

Earnings Call Analysis

Revenue Growth and EBITDA Margin Increases

The company announced a significant revenue increase of 31% to $208 million in Q3, driven by increased interest income, business-to-business (B2B), checkout growth, and higher card usage. The adjusted EBITDA margin stood at 28%. Notable achievements include an 11% volume increase to $16.8 billion, and customer funds growth of 7% to $5.4 billion with $60 million in interest income. Key strategies included new pricing, monetization, and customer-centric initiatives. Operating expenses rose 9% primarily due to higher sales and marketing costs. Net income for the quarter was $13 million, with earnings per share of $0.04 (basic) and $0.03 (diluted). For 2023, the company looks at revenues between $820 million and $830 million with a predicted adjusted EBITDA of $195 million to $205 million.

Facing Adversity and Focusing on Growth

During a period marked by conflict in Israel and Gaza, the company has remained resilient, showing empathy for affected colleagues and maintaining robust operations. Despite these challenges, they've made significant strides, with a 5% growth in Independent Contractor Pros ('ICPs') and an impressive 31% revenue growth year-over-year, reaching $208 million this quarter. Their adjusted EBITDA margin stood strong at 28%, reinforcing the company's operational efficiency.

Strategic Monetization and Cost-Effective Operations

The company has effectively monetized its offerings, implementing pricing strategies tailored to their diversified customer base. Initiatives like small transaction fees and account registration charges have been expanded without any noted impact on customer behavior. This strategic shift is paying off with notable volume growth, particularly a remarkable 11% increase to $16.8 billion, indicating strong momentum across e-commerce, travel, and B2B segments.

Investments and Shareholder Returns

Looking ahead, the company is devising a balanced approach to using its income. They plan to reinvest 25% of interest income into the platform and compliance infrastructure, while also earmarking an equivalent percentage to reward shareholders through a repurchase program of approximately $55 million for the year. This strategy reflects a commitment to growth alongside shareholder value.

Operational Expenses and Efficiency

Operational expenses have risen by 9% to $179 million, accompanied by a 9% increase in transaction costs due to business growth in areas with higher associated costs. Nevertheless, the company has improved its cost structure, reducing the average cost of a customer service ticket by 25% since the end of 2022 through process optimizations and AI tools. R&D expenses saw a decrease due to an increase in capitalization, balancing investments with disciplined operational management.

Solid Financial Performance and Increased Guidance

Net income has shown a dramatic recovery from a $26 million net loss last year to a net income of $13 million this quarter. The company concluded the quarter with $591 million in cash and cash equivalents, a 16% increase from the previous year, demonstrating strong free cash flow conversion. Additionally, the company has returned capital to shareholders by repurchasing $35 million of its shares. Furthermore, they have increased their adjusted EBITDA guidance for 2023 to between $195 million and $205 million, indicating fourfold growth compared to 2022 and projecting a 24% adjusted EBITDA margin.

2023 Outlook Amid Global Uncertainty

Despite global geopolitical tension, the company upholds its 2023 revenue guidance while elevating its adjusted EBITDA outlook. Revenues for the year are anticipated to land between $820 and $830 million, with transaction costs around 14.5% of revenue. The updated guidance accounts for $3 million in one-time expenses and considers challenges arising from the ongoing conflict and macroeconomic shifts but remains positive with expectations of interest income at $220 million. This careful but optimistic forecast aligns with the company's strategy to drive consistent, long-term growth across its businesses.

Earnings Call Transcript 2023-Q3

[Operator]

Good morning. Thank you for standing by. Welcome to Payoneer's Third Quarter 2023 Earnings Conference Call. [Operator Instructions] Following the speakers' remarks, we'll open the lines for your questions.As a reminder, this conference call is being recorded.I'd now like to turn this call over to Michelle Wang, Payoneer’s VP of Investor Relations.

[Michelle Wang, executive]

Thank you, operator. With me on today's call are Payoneer’s Chief Executive Officer, John Caplan; and Payoneer’s Chief Financial Officer, Bea Ordonez. 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 risks and uncertainties, including those set forth in our filings with the SEC, which are available in the Investor Relations section of payoneer.com. 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 intend to update them except as required by law. In addition, today's call may include non-GAAP measures. These measures should be considered in addition to and not instead of GAAP financial measures. Reconciliations to the nearest GAAP measures can be found in today's earnings press release, which is available on our website. Additionally, please note we have posted an earnings presentation supplement alongside our earnings press release on investor.payoneer.com.With that, I'd like to turn the call over to John to begin.

[John Caplan, executive]

Good morning, everybody, and thank you for joining us today. Before we begin, I just want to say how deeply saddened we all are about the terrorist attacks in Israel last month and the ongoing war. The violence and loss of innocent lives has been shocking and heartbreaking. Our thoughts go out to all who are suffering. We continue to monitor the situation and are focused on supporting our colleagues and the Payoneer community in the region. We've donated $1 million via the Payoneer Foundation to support humanitarian relief efforts. Bea will provide a more detailed update on our business operations during her remarks, but I would be remiss if I didn't express how deeply and immensely proud I am of the determination and resilience our team has displayed in light of the current circumstances.Now turning to our third quarter earnings. Payoneer delivered 31% revenue growth year-over-year and a 28% adjusted EBITDA margin. We are making progress executing our strategy and are confident about the pace of our efforts. We are diversifying towards higher take rate geographies, acquiring more high-value ideal customer profiles or ICPs, and enhancing our financial stack. As we shared at our Inaugural Investor Day in September, Payoneer makes it easy for small and medium-sized businesses to access the global economy by providing them with the financial tools to compete and win in the markets they want to do business in. We are positioned to capture this $6 trillion opportunity and are laying the foundation for durable, profitable growth. We are focusing on our ICPs, building more products to cross-sell into our base of 2 million customers, and leveraging our scale, technology, and data to operate even more efficiently. Our comprehensive financial stack is a core driver of the opportunity ahead for Payoneer.We are penetrating the B2B and checkout markets and cross-selling our cards. As we highlighted at Investor Day, we remain confident about the long-term potential of our B2B business and continue to gain traction in our prioritized service-oriented market. Third quarter total B2B volume growth accelerated versus the second quarter and increased 1% year-over-year or 6% excluding the impact of the customer terminations we made a year ago. We delivered improving B2B volume growth trends throughout the third quarter and most recently, generated 17% year-over-year volume growth in October. By region, in our priority service-oriented market, we continue to see strong traction. APAC, SAMEA, Latin America B2B volume grew 23% year-over-year and have an overall blended take rate of over 2%.In SAMEA, we've delivered year-over-year B2B volume growth of approximately 40% or greater each quarter of this year. We are penetrating large programming, tech support, and consulting industries in the region. For example, we recently hosted a series of events in India with over 1,000 attendees to discuss the next decade of export growth and how our customers can build a brand as an entrepreneur, looking to capture this full opportunity. In Checkout, we grew volume by 50% quarter-over-quarter. Checkout is emerging as a part of our value proposition to increase ARPU, grow ICPs, and enable our customers to scale. As of the end of September, Checkout was generating over $1 million in daily volume. We expect further momentum as we continue to enhance Checkout's features and capabilities. For example, we launched our Shopify native capabilities for Checkout, which should improve customers' payment conversion rates by providing a more seamless consumer shopping experience.We are also cross-selling our product stack to our existing customer base. Our customers are using Payoneer cards to manage their accounts payable. Card usage was nearly $1 billion in the third quarter, up 31% year-over-year. This represented 6% of total usage, and we believe there is significant room to grow that further.Let's turn now to our ICPs. Payoneer grew total active ICPs by 5% year-over-year in the third quarter. By region, we saw double-digit growth in our higher take rate regions, 13% ICP growth in APAC, 11% in SAMEA, and 10% in Latin America. We grew our largest ICPs for those who do more than $10,000 a month on average in volume by 17% year-over-year. This segment represents approximately 10% of our overall ICPs. And it contributes to over 50% of total Payoneer revenues. We continue to add new marketplace relationships to grow our ICPs. I'm excited to announce that we recently partnered with Etsy to service sellers in emerging markets. Our marketplace relationships are a key differentiator for Payoneer and contribute to the significant scale we've built in our banking infrastructure.The customers we acquire from marketplaces frequently expand to use our full financial stack, underscoring the significant value behind our focus on ICPs. We continue to invest in our platform and product capabilities to drive greater ease, trust, and convenience for all of our customers. I'd like to highlight just a few of the new features we've launched recently, which we believe will drive greater retention, volume, and AP usage. We expanded the ecosystem of integrations of our financial stack and launched bank feed integrations with QuickBooks. This will reduce manual processes and improve AR collection efforts for our customers. We now enable customers to receive funds locally in New Zealand. We offer 10 local collection accounts for our customers, which helps remove the borders and complexities of doing business globally.We are integrating generative AI into our operations to improve our customers' experience and increase efficiency. To accelerate our B2B growth, we are enhancing our AP tools to better meet the needs of large service customers. Our customers can now add funds from their bank to their Payoneer account. This significant enhancement positions us to drive growth in our accounts payable tools independent of a customer's AR flow. We believe this is an important value proposition for customers who have global business expenses and payroll needs. We also enhanced functionality around scheduling recurring payments and sending large groups of batch payments. These are features our largest, most sophisticated customers ask for, and we're pleased that they can now make their workflows even more efficient, leveraging the Payoneer stack.I'm also happy to announce that we have begun the rollout of a Payoneer Lite account for customers who have simple AP and AR needs. For example, those who use Payoneer only for receiving funds from a marketplace and withdrawing those funds to their local bank account. By limiting their eligibility for our full stack, we can reduce our cost to serve and work towards our long-term ambition of profitably serving every entrepreneur and business seeking to tap into the global economy. This is a part of our phased approach to implementing our customer segment-specific service and pricing strategy that we've spoken frequently about.In closing, we are executing against the strategic priorities that we articulated at the beginning of the year and at our recent Investor Day. We are enhancing our customers' value proposition, delivering strong growth and significant profitability, while investing in strategic long-term initiatives. Our strong results are a testament to our global team and their tireless efforts and dedication to our customers and our mission. They inspire me every day, and I'm proud of what Payoneer has achieved so far this year and excited about what's ahead.I'll now hand it over to Bea to discuss financial results and forward guidance in more detail.

[Bea Ordonez, executive]

Thank you, John, and thank you to everyone for joining us. First, I want to echo John's opening remarks. We are all deeply saddened by the ongoing conflict in Israel and Gaza and by the tremendous loss of life. Our thoughts are with our colleagues in Israel and with everyone affected during this extraordinarily challenging time.I'd like now to turn the discussion to our third quarter results. All comparisons are on a year-over-year basis unless otherwise noted. We continue to execute on our strategy. We grew ICPs by 5%, generated 31% revenue growth, and delivered a 28% adjusted EBITDA margin. Third quarter revenue of $208 million was up 31%, driven by interest income earned on customer funds, accelerating growth in our B2B and checkout businesses, higher card usage, and improved monetization from ongoing pricing and other initiatives. Q3 revenue growth also included the impact of a $7.5 million decline in revenues earned from the provision of onboarding services to an enterprise client, something we announced when we provided 2023 guidance. In line with the more customer-centric approach to monetization that we talked about at our Investor Day, we continue to implement changes to our product bundling and pricing strategies.We are expanding the rollout of initiatives we began testing earlier this year. For example, we recently introduced additional fees for small transaction sizes. We are also expanding our testing of account registration fees as well as our potential strategies to monetize our significant cross-border in-network payment bonds. So far, we have not seen any unexpected or unintended changes to customer behavior or retention. We believe there is significant opportunity to drive improved acquisition and retention as well as share of wallet gains from a more nuanced approach to our pricing, bundling, and service model, one that is better aligned to our diversified customer base.Volume increased 11% to $16.8 billion, reflecting strong year-over-year volume trends with our large e-commerce marketplaces, continued strength in travel spend, and growth in B2B volumes. B2B volume growth of 1% accelerated throughout the third quarter with volumes in September 2023 up 5% versus the prior year period. Growth was driven by the services-oriented economy that John spoke about earlier, where our volume per customer has also remained stable year-over-year. We have seen positive momentum with new industry verticals launched earlier this year. Our Q3 take rate of 124 basis points increased 19 basis points. The expansion was driven by higher levels of interest income and the benefits of our various pricing initiatives. Customer funds held by Payoneer increased 7% to $5.4 billion, and we earned $60 million in interest income from these balances in the third quarter.Our financial stack delivers real utility to our customers, the ability to hold balances in multiple currencies and to manage their cross-border AR and AP needs from a single account. The balances our customers hold with us demonstrate the utility we deliver and the trust our customers have in us. Over the past several years, we have seen robust growth in customer funds. We believe that as volumes into our platform grow and as we add more utility and features to the platform, we should see customer balances grow. We continue to expect long-term balance growth to be broadly in line with volumes, while seasonality and macro factors can influence short-term balance performance.For 2023, we expect approximately 25% of interest income earned will be used to fund investments in our platform and infrastructure, including in our compliance infrastructure. We also expect to utilize approximately 25% of revenues generated from interest income to return capital to shareholders via our stock repurchase plan, which is designed to substantially offset dilution from our stock-based equity compensation program. Total operating expenses of $179 million were up 9% or $15 million. Higher sales and marketing expenses represented approximately half of the increase with higher G&A, transaction costs, and other operating expenses driving the balance of the increase. Transaction costs was $30 million and increased 9%. Transaction costs represented 14.6% of revenue, a 300 basis point improvement from the prior year period.The decrease was driven by higher interest income, cost savings impacting our bank and processes fees, and mix shift towards lower-cost markets. This was partially offset by increasing card usage and growth in our B2B and checkout businesses, all of which drive relatively higher transaction costs. As B2B, checkout and card volumes grow faster than our aggregate business, we would expect some upward pressure on transaction costs going forward. Sales and marketing expense increased $8 million, reflecting higher commissions paid to certain enterprise funds. Excluding those partner commissions, sales and marketing expense was broadly flat year-over-year and declined modestly sequentially, a result of our previously announced workforce reductions and in line with continued efforts to streamline our go-to-market organization.G&A expenses increased $3 million primarily driven by M&A and legal expenses. Other operating expenses were up $3 million primarily driven by an increase in third-party consulting expenses related to our ongoing spend to enhance our regulatory and compliance capabilities. These increases were partially offset by the impact earlier this year of various initiatives designed to streamline, regionalize, and outsource aspects of our operations function. These efforts have allowed us to reduce our labor-related operations expense by 5% year-over-year and to meaningfully drive down our cost to serve. For example, we have reduced the average cost of a customer service ticket by 25% since the end of 2022 by optimizing workflow so we can resolve more tickets in a single interaction, by automating processes, and by implementing certain generative AI-based tools.R&D expense declined $3 million as a result of an increase in capitalization due to shifting of resources towards the investments in our platform, partially offset by additional hiring in our platform organization. We continue to take a disciplined approach to operating our business in order to drive greater efficiency while ensuring we invest to drive long-term and sustainable revenue growth. Adjusted EBITDA was $58 million compared to roughly $13 million in the third quarter of last year and $56 million in the second quarter of this year. This represents a 28% adjusted EBITDA margin. Net income was $13 million compared to a net loss of $26 million in the third quarter of last year. Q3 basic earnings per share was $0.04 and diluted earnings per share was $0.03.We ended the quarter with cash and cash equivalents of $591 million, up $83 million or 16% year-over-year. Our business continues to generate positive free cash flow, and our free cash flow conversion rate is well above 100% year-to-date. We have been actively returning capital to shareholders since the inception of our share buyback program in May. We have repurchased approximately $35 million of Payoneer's shares, including $15 million in the third quarter. We expect to repurchase approximately $55 million of shares for the full-year.Turning to our outlook. We are reiterating our 2023 revenue guidance and raising our 2023 adjusted EBITDA guidance. For the full-year, we expect revenues to be between $820 million and $830 million, transaction costs as a percentage of revenue to be approximately 14.5%, and adjusted EBITDA to be between $195 million and $205 million.Before I dive into the drivers of our updated guidance, I'd like to note that our critical business operations have not been impacted by the ongoing war in Israel. And based on the current situation, we don't anticipate any material impact or disruption to our operations or business. This is a testament to the resilience of both our infrastructure and platform and to our incredible teams on the ground. We continue to prioritize the safety, health, and well-being of our employees while ensuring that we continue to serve our customers. Our latest guidance includes approximately $3 million in one-time expenses in the fourth quarter related to our response to the ongoing conflict in Israel, including relocation costs, financial assistance, and programs to support mental and physical well-being.Approximately 50% of our employees are based in Israel, while a majority, approximately 81% of our research and development teams are based there. Today, less than 10% of our Israeli employees have been called into military reserve duty, and we have contingencies in place to cover impacted roles and responsibilities. Our broad geographic footprint and outsourced operations model enable us to continue operating our business and serving our customers. As we have noted, we are reiterating our revenue guidance at this time. We continue to have conviction in our long-term strategy and key growth opportunities. We are generating strong growth in our Checkout business and driving increased adoption and usage of our commercial card products. We see improving trends in our B2B business, where volume growth was 17% in October, and we expect to see the ongoing benefit of our customer-focused monetization strategy.We are increasing our guidance for interest income by $10 million, reflecting current consensus rate forecasts and balanced performance. We now expect interest income to be $220 million for the full-year. We expect this increase in interest income to be offset by near-term headwinds from increasing macroeconomic and geopolitical uncertainty impacting our business as we begin the fourth quarter. As a result, we are reducing our revenue ex-interest income guide by $10 million. This assumes softer revenues from our customers in Israel, where we anticipate economic activity will be impacted in the near term. Revenues from our customers in Israel represent approximately 3% of our total revenue. Additionally, in the immediate aftermath of the conflict, we proactively delayed the implementation of certain monetization initiatives that were scheduled for early October but launched in early November instead.And lastly, in the broader environment, we see increasing macro uncertainty around consumer and business spending from elevated inflation and higher for longer interest in long-term borrowing rates. We expect 2023 cash OpEx less transaction cost to be approximately $505 million. Cash OpEx represents our guidance for revenue less adjusted EBITDA. We continue to focus on operating efficiency in order to maximize resources available for high-growth areas of our business and for opportunities to deepen our competitive moat. We are on track to deliver on our commitment of ending the year with lower headcount than where we started. We expect fourth quarter operating expense to be higher than in the third quarter, primarily reflecting higher R&D spend, seasonal expenses, including seasonally higher marketing spend as well as the impact of the previously mentioned spend related to our response to the conflict in Israel.We are raising our guidance for 2023 adjusted EBITDA to be between $195 million and $205 million. This guidance reflects a fourfold increase in adjusted EBITDA versus 2022 and a 24% adjusted EBITDA margin for 2023. In September, we hosted our first Investor Day, where we had the opportunity to reintroduce Payoneer to the investor community. Since going public in 2021, we've delivered exceptional financial performance, and we plan to continue expanding our product offering, growing in high-growth and high take rate regions, and increasing the number of ICPs on our platform. Our third quarter results underscore our consistent execution against these strategic priorities and our unique value proposition for customers.We're pleased to see that our focus on operating efficiency is driving lower costs and higher adjusted EBITDA margins. We are well-positioned to capture additional market share and to generate long-term value for our shareholders.We are now happy to answer any questions you may have. Operator, please open the line.

[Operator]

[Operator Instructions] Our first question comes from Sanjay Sakhrani of KBW.

[Sanjay Sakhrani, analyst]

Good quarter. I'm just trying to think about the acceleration that happened across the different segments that you've highlighted. Could you just walk us through what the trends were there across those different segments?

[Bea Ordonez, executive]

Yes, look, like you noted, we've seen acceleration both sequentially versus Q2 as well as within Q3. And as we've seen, the fundamentals of the business remain in line to the strategy that we've been executing. We're seeing that we're driving ICP acquisition, we're seeing adoption of our card, and we're seeing really strong acceleration within our B2B business. John highlighted some of those stats. But as you know, we saw in Q2 that we saw some deceleration in volumes. We've reversed that trend in Q3, where we saw 1% growth. And in October, which we highlighted month-to-date, we've actually seen 17% in volume. So we're seeing nice trends and pickup in that B2B growth. And excluding China, we've been disaggregating some of those trends. We're continuing to see really strong growth in those B2B volumes. So look, overall, the fundamentals, as I say, are performing pretty much in line. E-comm volumes are in line to maybe even slightly better than we thought, high single digit to low double-digit.Travel continues to outperform. We've talked about that being lower yield business, but we're seeing really nice volume performance. B2B, we've talked about accelerating and we reached that really important milestone with our Checkout business where we hit $1 million a day in transaction volumes. So we're seeing really strong trends from a volume perspective, as I said, throughout the quarter and into the fourth quarter.

[Sanjay Sakhrani, analyst]

And then just a follow-up on like take rates ex float. Those declined both on a year-over-year basis and a quarter-over-quarter. What were the drivers of that take rate? And how should we think about that on a go-forward basis?

[Bea Ordonez, executive]

Yes, absolutely. Look, top-line inclusive of float, we obviously grew take rate by about 19 basis points. That's interest income driven but also acceleration as we've noted in B2B and card and checkout partially offset by mix shifts in some of that volume to those larger e-commerce buckets that come with lower yield. As we disaggregate that interest out of there, look, we talked at Investor Day about roughly 80% of our revenues being attributable to customers that are active on our platform and that generally speaking, have an account on that platform. And on an apples-to-apples basis, if I look at that 80%, the take rate on that business year-over-year expanded fractionally, but expanded interest rate -- interest income, sorry, by about 1 basis point. The balance of that 20% revenue that we talked about at Investor Day, it includes some account fees for inactive customers, but mostly it relates to services that we provide to enterprises who use our payment rails to facilitate transfers to payees who do not have an account on our platform.So we're not cross-selling into those payees. And the yield on that business is understandably much, much lower, right? So a lot of that travel volume that we've highlighted that has outperformed and grown very meaningfully, it's that kind of volume where those enterprises are using our payment rails. And so the disproportionate growth in that travel volume has really had sort of a negative impact in the aggregate take rate overall. But I think the main message we're driving out here is that core customer-led business, our take rate is expanding. That other business that is important to us, yes, but a smaller part of our overall revenue, there, we're seeing sort of a disproportionate growth, which is impacting the aggregate.

[Operator]

Our next question comes from Mayank Tandon of Needham & Co.

[Sam Salvas, analyst]

This is Sam on for Mayank today. Nice results this quarter. I wanted to start off on revenue in North America, which came in pretty soft this quarter. Could you guys just talk a bit more about what you're seeing here? And what's different than the rest of the markets that you're seeing?

[Bea Ordonez, executive]

Yes. Look, the main impact there is what we highlighted coming into 2023 in our full-year guide. But beginning in the third quarter, we had that headwind from non-volume fees. So these were fees that we earned historically from an enterprise client for certain onboarding services. And those fees, about $7.5 million in the quarter, those came out in Q3, effective Q3. So it's really just disproportionately skewing that North America performance where they were booked.

[Sam Salvas, analyst]

And then just for a quick follow-up, I wanted to see if there was any update on the recent acquisition of Spott and any kind of new developments since you guys announced that.

[Bea Ordonez, executive]

No, look, we closed it, as we said on the last call. We're really sort of happy to be integrating that great team. As we said when we announced the deal, they bring real sort of data expertise that's going to help us really enhance our underwriting and enhance our risk framework. And that's going to allow us to originate more because we'll have a better handle sort of on that overall underwriting and to just to better manage that book of business. But I think it's part of the broader strategy to really sort of integrate real-time data capabilities and real-time data insights into how we manage and grow the business.

[Operator]

Our next question comes from Trevor Williams of Jefferies.

[Trevor Williams, analyst]

I want to go back to B2B for a second. If you could walk us through some of the moving pieces within the volume mix there, the chart, I think it's on Slide 18, that's helpful, and you guys have hit on some of this in both of your prepared remarks. But if you could unpack some of the diverging growth rates you're seeing across the 2 buckets of geographies that you've laid out and how that ultimately feeds into the medium-term volume growth expectations and kind of take rate trajectory potential for B2B?

[Bea Ordonez, executive]

Yes, look, as we've highlighted, I think, look, we're very pleased with the overall acceleration in this business, which is something we've been talking about heading into the back half of the year. We're seeing that acceleration from really strong acquisition metrics from as John noted, stable spend per customer in those service-oriented economies and from the impact of the lapping of the terminations that we talked about in Q3 of 2022. Overall, to sort of level set in the aggregate, in Q2, we saw a contraction in volume. In this quarter, we saw 1% volume growth, 6% ex-terminations and accelerated that volume growth throughout the quarter and saw really strong performance in October, again, up 17%.To your point, Trevor, we're seeing sort of -- if we look at the disaggregation by market, we see very different trajectories. And we've talked about that volume as sort of ex-China and China. China now makes up in the third quarter less than 20% of the total volume. It's about 17%. But we're seeing really strong -- we've been deemphasizing there, and we've talked about that through other calls. We do view it as a long-term opportunity from a B2B perspective but from an acquisition perspective, in the current year, we've been deemphasizing our efforts there and really focusing our efforts on that -- those service-oriented economies that John talked about. And there, we're seeing really strong growth. They make up now close to half of our total B2B volume, and we grew that volume in the quarter by about 23%.And again, as we've highlighted in the past, compared to that China book of business, the take rate dynamics are really favorable. So a blended take rate in those markets, LATAM, APAC, SAMEA, higher than 2% versus in the China book of business in or around 50 basis points. So to your question, as we accelerate growth in those other regions, we're going to see positive take rate dynamics and tailwinds to revenue. China, as I say, long term, it's going to be a good opportunity. Short-term, not a significant driver. And in '24, certainly, it's not going to be a drag to growth in terms of that B2B revenue. So we remain super focused on those service-oriented economies driving ICP acquisition, really good and demonstrated product market set, and great take rate dynamics. So we're excited to be able to continue to grow this book of business. And as we said at Investor Day, we feel good that we can grow this volume next year by 25% or more.

[Trevor Williams, analyst]

And then any more detail you can give on how volume growth has -- how it trended throughout Q3 and then what you're seeing in October month to date? I'm just trying to square. I mean, it sounds like B2B, you're seeing nice acceleration in Q4 versus Q3, but you're taking down kind of the implied Q4 ex-interest income revenue. So I'm curious if you're seeing any pockets of sequential weakness in volumes, at least quarter-to-date that's kind of driving the more cautious outlook for the fourth quarter.

[Bea Ordonez, executive]

No. Look, as you've noted, we're seeing accelerating trends. We saw that throughout the third quarter and into October. So again, third quarter volumes were up 11%. That's accelerating sequentially from the 8% volume growth we saw in Q2. We've highlighted those B2B numbers in October. And the aggregate volumes in October are up about 20%. So we're seeing nice growth. Again, the main drivers have continued to be a really strong performance from the travel sector as well as large e-comm performance. So sort of that Q4 kind of softness that we're talking about, we're really talking about exogenous factors that we highlighted in our prepared remarks. So we're factoring in some softness from revenues from customers in Israel. It's not a big part of our revenue pie. But in the near term, we do expect some softness from those revenues in Q4.We factored in sort of the delays. And again, we did this very proactively in the immediate aftermath of the crisis in Israel. We paused all code releases while we, frankly, got a measure of the situation. And that pushed some of that monetization further out into the future. So we factored that in. And look, we factored in common with many of our peers just a little more macro softness than perhaps we had in our outlook as we head into Q4 as we continue to see pressures sort of emerging in the broader economy and in the geopolitical landscape around consumer and business spending.

[Operator]

Our next question comes from Chris Kennedy of William Blair.

[Cristopher Kennedy, analyst]

Just going back to the Investor Day, you talked about -- I believe you talked about targeting mid-teens revenue growth for 2024. Can you just talk about the expectation for that given some of the macro uncertainties?

[Bea Ordonez, executive]

Yes, sure. Look, we'll obviously give formal '24 guidance in February, which would be consistent with prior years. But as you noted, we said at our Investor Day in September, medium-term targets for revenue growth in the mid-teens and medium-term targets for adjusted EBITDA margin at around 25%. Look, our latest guidance, we have great conviction that our strategy is working and that we're executing on it. And our '23 guidance calls for a significant acceleration, which is in line with what we've seen through the third quarter and into October. We would exit Q4 based on that implied guidance at roughly 19% of organic, I'll say, ex-interest income revenue growth when you take it apples to apples, right? So excluding those non-volume fees, excluding Russia, and it's worth noting, look, we lapped the impact of our exit from Russia at the end of this year.We will fully lap those non-volume fees, again $7.5 million per quarter, at the end of the first half of '24. So with all of that in mind, that acceleration through Q3 and into Q4, the lapping of those significant headwinds that we've highlighted, accelerating volumes in our B2B and our Checkout business, we're very confident over the medium term that we're going to hit those revenue growth targets.

[Cristopher Kennedy, analyst]

And then on the prepared remarks, John talked about the Payoneer Lite account. Is there any way you can frame the potential yield associated with that product?

[John Caplan, executive]

Sure. The Payoneer Lite is in its earliest stage of rollout and I'm thrilled with the work our go-to-market teams, our product teams, our R&D teams, our business analytics teams have put in place. We haven't yet sized that broadly for folks because it is a -- it's in its earliest stages, but you could expect that it's a higher take rate product for -- in higher take rate geographies for smallest -- our smallest customers. And has the benefit of higher take rate customers in higher take rate geographies and reducing our cost to serve, and be highlighted the 25% reduction in our cost per ticket that we've seen year-to-date, we are very focused on our formula around ICP growth, driving our cross-sell into increased ARPU and reducing our cost to serve.Every entrepreneur on the planet that is doing business cross-border, of which we have 2 million customers today, we want them to use and love and enjoy the Payoneer account. And Payoneer Lite is a step towards a product portfolio that enables us to efficiently capture those. As you and I have talked about in the past, we get 6 million applications a year of people who want to use Payoneer. We are organizing ourselves to make it such that we can serve them profitably. And we're on the path to do so.

[Operator]

Our next question comes from Mike Grondahl of Northland Securities.

[Mike Grondahl, analyst]

I wanted to ask about the pricing increases and initiatives that you've been doing. Does the third quarter represent sort of a full quarter of those price increases? And is there any way you can kind of break that out and say what that contributed to revenue? And do you expect further benefit in future quarters?

[Bea Ordonez, executive]

Look, we're not really sort of viewing it as sizing a particular in-quarter impact or not. Certainly, the third quarter has impacted the fourth quarter too. But as John was sort of getting at, we view our pricing strategy and our progress towards that as really a multiphase rollout of just a much more customer-centric and segmented approach, right? And it has a number of prongs. One, it's around sort of bundling products that better serve needs, which has sort of the benefit of driving kind of share of wallet gains and adoption while also potentially reducing our cost to serve because we're not offering customers products they don't need that potentially have higher kind of costs associated with them.It's around kind of driving adoption of some of those higher-value products that we've talked about by bundling and taking a more nuanced approach to pricing. So overall, we view this as a multi-phase rollout, frankly, over many quarters. We've seen tremendous success, I think already. We launched as we talked about in Q2 account fees that we waived at certain volume levels, and they've been very successful in monetizing some of those smaller or long-tail customers. And as we said, we really haven't seen meaningful churn there. We've launched in Q3, as John noted in his prepared remarks, fees for small transactions, which have also been very effective. We're looking at our FX pricing. As an example, we talked a little bit about that customer-specific Lite account offering.So it's part, as I say, a kind of multi-step approach. And we're going to continue to kind of roll out and test sort of different pricing models and bundling models to ensure that what we're doing makes sense for the business that we don't see any unintended friction or impact to customer behavior. So that includes registration fees, which we've been testing. That includes fees for the in-network volumes that we see in our platform. We talked at Investor Day about the almost $10 billion of intranetwork flow that we see coming through our platform and that close to half of that is cross-border today, we don't monetize that. So we're looking at all sorts of aspects and really ensuring that we do that with the customer segment and their needs in mind.

[Operator]

Our final question comes from Joshua Siegler of Cantor Fitzgerald.

[Joshua Siegler, analyst]

First and foremost, with the increased free cash flow flowing into the business, I was wondering if there's any update to how you're thinking about capital allocation moving forward.

[Bea Ordonez, executive]

Sure. Look, I mean, we see a tremendous opportunity in front of us as we outlined at Investor Day to capture and grow in a very significant market opportunity that serves SMBs in the markets in which we operate. So first and foremost, we're going to continue to invest in that opportunity in our go-to-market apparatus in our platform to position us to best capture that organic opportunity. We talked about M&A, and that's certainly part of the long-term trajectory. We think given our distribution, given our unique assets, given our brand, and our positioning in these local markets that there are more services and more products that we can integrate into our financial stack to drive ARPU, to drive revenue overall. And then of course, look, we've allocated 25% this year of our overall interest income to close to $55 million or $60 million to returning capital to investors. That's our target for this year.And I think it's fair to say that over the long term, we would look to, at a minimum, offset dilution from our stock-based comp plan by using that share buyback plan. But overall, look, we're really excited. This is a strong cash flow generating business. We see tremendous opportunity, both to grow organically, drive more leverage, drive more efficiency, and capture more opportunity while being balanced and returning capital to investors as well.

[Joshua Siegler, analyst]

And then, Bea, I think you mentioned that e-commerce volumes performed better than expectations. I was wondering if that tailwind might continue into 4Q, especially given this collaboration with Etsy going live.

[Bea Ordonez, executive]

So just specific to Etsy, we're very excited to have that deal sort of signed and we're looking to onboarding this. There's no material volume or revenue anticipated from Etsy. It takes a while to ramp up these relationships for '23. That's a '24 event. From an overall e-comm perspective, look, we came into this year thinking high single digits was a good number. We see e-comm, I think you would agree as well, outperformed that sort of overall. And I think so far, October is in line with that, and we're seeing outperformance in that e-comm bucket. So at this point, I don't see any reason to expect that, that wouldn't continue. We are though seeing that mix shift into those larger sellers. It's something that I think Amazon kind of talked about in some of their remarks or Q&A around consumers becoming more price-conscious and moving their buying preferences to those larger sellers. So we are seeing that mix shift as well. So the pull-through to revenue isn't as strong as the volume performance overall, but we're excited to see that volume come into the platform.

[Joshua Siegler, analyst]

Congratulations on the execution this quarter.

[Operator]

With that, I'll hand back to John Caplan, Chief Executive Officer, for closing remarks.

[John Caplan, executive]

Thank you, everybody, for your questions and for joining us this morning. I'm confident about Payoneer's opportunity, and we appreciate our shareholders' continued support. We look forward to speaking with all of you again next quarter. And with that, thank you.

[Operator]

Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.