Payoneer Global Inc

NOTE 1 – GENERAL OVERVIEW

Unless otherwise noted herein, “we”, “us”, “our”, “Payoneer”, and the “Company” refer to Payoneer Global Inc.

Payoneer, incorporated in Delaware, empowers global commerce by connecting businesses, professionals, countries and currencies with its diversified cross-border payments platform. Payoneer enables small and medium-sized businesses (“SMB(s)”) around the globe to reach new audiences by reducing the complexity of cross-border trade, and facilitating seamless, cross-border payments. Payoneer offers its customers the flexibility to pay and get paid globally as easily as they do locally. The Company offers a suite of services that includes cross-border payments, physical and virtual Mastercard cards, working capital, risk management and other services. The fully-hosted service includes various payment options with minimal integration required, full back-office functions and customer support offered.

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

a. Principles of consolidation, basis of presentation and accounting principles:

The accompanying condensed consolidated financial statements are prepared in accordance with Generally Accepted Accounting Principles (“GAAP”) in the United States of America (hereafter – U.S. GAAP) and include the accounts of Payoneer Global Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

The consolidated interim financial information herein is unaudited; however, such information reflects all adjustments (consisting of normal, recurring adjustments), which are, in the opinion of management, necessary for a fair statement of results for the interim period. The results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the results to be expected for the full year. The year-end condensed balance sheet data was derived from audited financial statements for the year ended December 31, 2023, but does not include all disclosures required by accounting principles generally accepted in the United States of America. These unaudited financial statements should be read in conjunction with the audited consolidated financial statements and related notes thereto of Payoneer Global Inc. and its subsidiaries.

b. Use of estimates in the preparation of financial statements:

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include, but are not limited to, allowance for capital advance receivables, income taxes, goodwill, revenue recognition, stock-based compensation, contingent consideration associated with M&A, and loss contingencies.

c. Customer funds and investments:

Beginning in February 2024, the Company invested certain customer funds in available-for-sale debt securities. These securities are reported at fair value, net of any unamortized discount or premium, accrued interest, and unrealized gains and losses, within ‘Customer funds’ on the Company’s condensed consolidated balance sheets. Unrealized gains and losses are included as a component of other comprehensive income (loss) (“OCI”), net of related estimated tax provisions or benefits. Interest income, amortization of any discount or premium, and realized gains and losses on these securities are recognized within revenue from other sources. In the period of sale, any unrealized gain or loss previously recognized in accumulated other comprehensive income (“AOCI”) is reversed into net income. Purchases, maturities, and sales of debt securities are classified as investing activities and as such, are excluded from the basis of cash, cash equivalents, restricted deposits, and customer funds on the condensed consolidated statements of cash flows.

The Company accounts for purchases and sales of securities on the trade date and recognizes any related cut-off asset or liability within Other current assets or Other payables, respectively.

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (continued):

Beginning in June 2024, the Company invested certain customer funds in term deposit instruments. These investments are accounted for as restricted cash, given that the Company’s ability to withdraw the balances is restricted during the term of the deposit agreement. Interest income is recognized within revenue from other sources on the condensed consolidated statements of comprehensive income, and the balances are included within customer funds, classified as current assets or non-current assets based on maturity on the condensed consolidated balance sheets. Similar to investments in debt securities described above, purchases and maturities of term deposits are classified as investing activities and as such, are excluded from the basis of cash, cash equivalents, restricted deposits, and customer funds on the condensed consolidated statements of cash flows.

During the quarter ended September 30, 2024, the Company identified an error in its condensed consolidated balance sheet as of June 30, 2024, and in its statements of cash flows for the six months ended June 30, 2024, respectively. Specifically, the Company incorrectly classified $225,000 of customer funds invested in term deposits with maturities greater than one year as current customer funds on the condensed consolidated balance sheet, and included all $300,000 in investments in term deposits in the basis of cash, cash equivalents, restricted deposits, and customer funds on the statement of cash flows, rather than as investing cash flows.

In connection with the Company’s evaluation of these errors during the quarter ended September 30, 2024, management, in accordance SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements”, determined that these adjustments were not material to the previously issued financial statements. In the condensed consolidated balance sheet as of September 30, 2024 and statements of cash flows for the nine months ended September 30, 2024, the Company has correctly presented $225,000 and $300,000 in customer funds invested in term deposits in accordance with the balance sheet and statement of cash flows treatment described in the preceding paragraphs. The Company will revise the statement of cash flows for the six months ended June 30, 2024 in the Form 10-Q filed for the quarter ended June 30, 2025. This error had no impact on the previously issued condensed consolidated statements of comprehensive income or condensed consolidated statements of changes in shareholders’ equity and did not impact any financial liquidity covenants.

Upon the acquisition of Skuad Pte. Ltd. (“Skuad” - see Note 3 for additional information), customer funds also include Skuad customer deposits which are collected upon consummation of customer relationships and held to secure future customer payroll obligations. These deposits are released to customers upon termination.

d. Derivatives and Hedging

The Company is exposed to foreign currency risk due to operating expenses denominated in New Israeli Shekels. To reduce that risk, the Company enters into foreign currency forward contracts and net purchased options to hedge foreign currency risk related to its foreign operations in Israel. The company does not use derivative financial instruments for trading or speculative purposes.

The Company designates derivatives as hedges of forecasted transactions (“cash flow” hedges) or derivatives that do not qualify for hedge accounting. To qualify for hedge accounting treatment, a derivative must be highly effective in mitigating the designated risk of the hedged item. Effectiveness of the hedge is formally assessed at inception and throughout the life of the hedging relationship. The Company evaluates the effectiveness of derivative contracts on a quarterly basis by comparing the critical terms of the derivative instruments with the critical terms of the forecasted cash flows of the hedged item; if the critical terms are the same, the Company concludes the hedge will be perfectly effective. The Company does not exclude any component of the changes in fair value of the derivative instruments from the assessment of hedge effectiveness.

To the extent that derivatives qualify as cash flow hedges, changes in the fair value are recorded, net of applicable taxes, in OCI and subsequently reclassified into the same statement of comprehensive income line item as the hedged exposure when the underlying hedged item is recognized in earnings. The cash flows associated with derivatives designated as cash flow hedges are reported in cash flows from operating activities in the condensed consolidated statements of cash flows.

Derivatives that are not designated hedges are adjusted to fair value into earnings through financial income or expense. The cash flows associated with these derivatives, if any, are reported in cash flows from investing activities.

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (continued):

e. Intangible assets:

As further discussed in Note 3 below, certain customer relationships and developed technology intangibles were acquired in the Skuad acquisition. These assets are amortized over the period of estimated useful life using the straight-line method and have estimated useful lives of 11.4 and 5 years, respectively. No significant residual value is estimated for intangible assets.

f. Recently issued accounting pronouncements:

FASB Standards issued, but not adopted as of September 30, 2024

In 2023, the FASB issued guidance, ASU 2023-09, which modifies the rules on income tax disclosures to require entities to disclose (1) specific categories in the rate reconciliation, (2) the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign) and (3) income tax expense or benefit from continuing operations (separated by federal, state and foreign). It also requires entities to disclose their income tax payments (net of refunds received) to international, federal, state and local jurisdictions, among other changes. The guidance is effective for annual periods beginning after December 15, 2024. The Company is currently evaluating the potential impact of adopting this new guidance on our consolidated financial statements and related disclosures.

In 2023, the FASB issued guidance, ASU 2023-07, that requires entities to report incremental information about significant segment expenses included in a segment’s profit or loss measure as well as the name and title of the chief operating decision maker. The guidance also requires interim disclosures related to reportable segment profit or loss and assets that had previously only been disclosed annually. The amendments also require entities with a single reportable segment to provide all disclosures required by these amendments, and all existing segment disclosures. The new standard is effective for annual periods beginning after December 15, 2023 and interim periods beginning after December 15, 2024 and must be applied retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the potential impact of adopting this new guidance on our consolidated financial statements and related disclosures.

NOTE 3 – BUSINESS COMBINATION

On August 5, 2024, Payoneer acquired 100% of the outstanding equity of Skuad Pte. Ltd. (“Skuad”) and its subsidiaries, a global workforce and payroll management company. The acquisition accelerates Payoneer’s strategy to deliver a comprehensive and integrated financial stack for SMBs that operate globally. The transaction was accounted for in accordance with ASC 805, “Business Combinations”, using the acquisition method of accounting with Payoneer as the acquirer.

The following table summarizes the fair value of the consideration transferred:

Cash transferred was funded with cash on hand.

The contingent consideration was in the form of a $9,709 earn-out subject to meeting certain performance criteria such as revenue and volume for eighteen months post-close, and achievement of certain business goals within twelve months post-close. The fair value of the contingent consideration recognized on the acquisition date of $5,283 was estimated using estimates of probability of each outcome and the Option Pricing Model (“OPM”), except for with respect to the integration plan target, which is not exposed to systemic risk. Refer to Note 7 below for details on changes in the fair value of the contingent consideration since acquisition.

NOTE 3 – BUSINESS COMBINATION (continued):

The consideration transferred included settlement of a receivable on Payoneer's books, related to commercial payments activities that occurred prior to the closing of the business combination with Skuad, which is now an intercompany relationship eliminated in consolidation. No gain or loss was recognized on settlement.

The settlement of unvested acquiree stock-based compensation awards relates to unvested Skuad stock options which were cancelled upon acquisition and either replaced with Payoneer Restricted Stock Units (“RSUs”) or not replaced and settled in cash. Replacement awards included 90,000 RSUs which were measured at fair value based on the grant date share price. Additionally, the Company committed to grant 1,870,577 RSUs valued at $10,364, which are subject to ratable quarterly vesting contingent on future services and continued employment of the Skuad founder and shall be expensed over a remaining service period of up tothree years.

The following table summarizes the recognized amounts of identifiable assets acquired and liabilities assumed:

The excess of the purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill and is primarily attributable to the significant synergies expected to arise from the acquisition, including enhancement of Payoneer’s comprehensive and integrated financial stack. We do not expect goodwill to be deductible for income tax purposes.

Payoneer recognized an indemnification asset in the amount of $1,240 related to uncertain tax positions of the acquiree. Payoneer is fully indemnified by the sellers for the full amount of the position.

Due to Skuad’s insignificant size relative to the Company, Payoneer is not providing supplemental pro forma financial information for the current and prior reporting periods. During the three and nine months ended September 30, 2024, Payoneer incurred acquisition-related costs of $2,940 and $4,693, respectively, which were included in general and administrative expenses on the condensed consolidated statements of comprehensive income.

The allocation of the purchase price for this acquisition has been prepared on a preliminary basis and changes to the allocation to certain assets, liabilities, and tax estimates may occur as additional information becomes available throughout the measurement period, which will not exceed 12 months from the date of the acquisition.

NOTE 4 – CAPITAL ADVANCE (“CA”) RECEIVABLES

The Company enters into transactions with pre-qualified sellers in which the Company purchases a designated amount of future receivables for an upfront cash purchase price.

During the nine months ended September 30, 2024 and 2023, the Company has purchased and collected the following principal amounts associated with CA receivables, including foreign exchange adjustments:

The outstanding gross balance at September 30, 2024 consists of the following current and overdue amounts:

The outstanding gross balance at December 31, 2023 consists of the following current and overdue amounts:

The following are current and overdue balances from above that are segregated into the timing of expected collections at September 30, 2024:

The following are current and overdue balances from above that are segregated into the timing of expected collections at December 31, 2023:

As of September 30, 2024 and December 31, 2023, the Company applied a range of loss rates to the CA portfolio of 1.58% to 1.85% for the allowance for CA losses.

NOTE 4 – CAPITAL ADVANCE (“CA”) RECEIVABLES (continued):

Below is a rollforward for the allowance for CA losses (“ALCAL”):

NOTE 5 – CUSTOMER FUNDS AND INVESTMENTS

The Company has invested certain customer funds in available-for-sale debt securities and term deposits. The following table summarizes the assets underlying customer funds as of September 30, 2024 and December 31, 2023:

As of September 30, 2024, the estimated fair value of the available-for-sale debt securities included $10,311 in unrealized gains, net of tax.

During the period ended September 30, 2024, the Company did not sell any available-for-sale debt securities or incur any realized gains or losses.

As of September 30, 2024, $286,400 of the Company’s available-for-sale debt securities were due to mature within one year or less, and $774,814 were due to mature between one and five years.

NOTE 6 – DERIVATIVES AND HEDGING

The table below summarizes the gross notional amount and fair value of outstanding derivative instruments at September 30, 2024. No derivative instruments were outstanding at December 31, 2023.

During the three and nine months ended September 30, 2024, the Company recognized $793 and $20 in unrealized gains, net of tax, on derivative instruments designated as cash flow hedges in OCI, respectively.

As of September 30, 2024, the Company estimated that $503 of unrealized gains related to cash flow hedges currently included in AOCI are expected to be reclassified into earnings within the next 12 months. As of September 30, 2024, the maximum length of time over which the Company is hedging its exposure to the variability in future cash flows for forecasted transactions is 9 months. During the three and nine months ended September 30, 2024, the Company did not discontinue any cash flow hedges because it was probable that the original forecasted transaction would not occur and as such, did not reclassify any gains or losses to earnings prior to the occurrence of the hedged transaction.

NOTE 7 – FAIR VALUE

The following tables summarize the Company’s financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2024 and December 31, 2023:

NOTE 7 – FAIR VALUE (continued):

The Company’s derivative instruments are valued using pricing models that take into account the contract terms and relevant currency rates.

As of September 30, 2024 and December 31, 2023, the fair values of the Company's cash, cash equivalents, customer funds (other than the portion consisting of available-for-sale debt securities), restricted cash, accounts receivable, capital advance receivables, accounts payable, outstanding operating balances, and short and long-term debt approximated the carrying values of these instruments presented in the Company's consolidated balance sheets because of their nature. The fair value of short and long-term debt, when carrying value does not approximate fair value, is determined using Level 3 unobservable inputs and assumptions by the Company.

In the three months ended September 30, 2024, the Company recognized a liability for contingent consideration related to the Skuad acquisition, and recognized $169 in loss related to the change in the fair value of the liability since the acquisition date, included within General and administrative expenses on the condensed consolidated statements of comprehensive income. Refer to Note 3 above for additional details around valuation.

NOTE 8 - OTHER CURRENT ASSETS

Composition of Other current assets, grouped by major classifications, is as follows:

NOTE 9 – PROPERTY, EQUIPMENT AND SOFTWARE

Composition of property, equipment and software, grouped by major classifications, is as follows:

Depreciation expense for the three months ended September 30, 2024 and 2023 was $2,108 and $1,984, respectively, and $6,314 and $5,960 for the nine months ended September 30, 2024 and 2023, respectively.

During the three and nine months ended September 30, 2024, the Company retired computers, software, and peripheral equipment with a cost of $2,844 and $4,562, respectively, that were fully depreciated. During the three months ended September 30, 2023, the Company retired computers, software, and peripheral equipment with a cost of $2,640 that were fully depreciated.

NOTE 10 – GOODWILL AND INTANGIBLE ASSETS

Goodwill

As discussed in Note 3 above, during the three months ended September 30, 2024, the Company recognized $56,205 in goodwill related to the Skuad acquisition.

NOTE 10 – GOODWILL AND INTANGIBLE ASSETS (continued):

Intangibles

Composition of intangible assets, grouped by major classifications, is as follows:

Amortization expense for the three months ended September 30, 2024 and 2023 was $10,019 and $5,133, respectively, and $25,927 and $12,780 for the nine months ended September 30, 2024 and 2023, respectively.

During the three months ended September 30, 2024, the Company recognized $1,383 in impairment related to abandoned internal use software assets which were fully impaired. In the nine months ended September 30, 2024, the Company recognized $1,389 in impairment, which relates to the impairment described above and an insignificant amount of additional impairment related to other intangible assets. During the nine months ended September 30, 2023, the Company recognized $293 in impairment of intangibles acquired through the acquisition of the remaining interest in a previous joint venture and an insignificant amount of additional impairment related to other intangible assets. The impairment is presented under Depreciation and amortization expenses in the condensed consolidated statements of comprehensive income.

Expected future intangible asset amortization as of September 30, 2024, excluding capitalized internal use software of $20,103 not yet placed in service as of that date, was as follows:

NOTE 11 - OTHER PAYABLES

Composition of Other payables, grouped by major classifications, is as follows:

NOTE 12 – DEBT

On October 28, 2021, Payoneer Early Payments Inc. (“PEPI”), a wholly-owned second tier subsidiary of the Company and its subsidiary (the “Borrower”) entered into a Receivables and Loan Security Agreement (the “Warehouse Facility”) with Viola Credit VI, L.P. (currently known as Viola Credit ALF II, L.P.), Viola Credit Alternative Lending FNX SPV, L.P. (the “Lenders”) and Viola Credit Alternative Lending Management 2018 L.P. (collectively, the “Parties”) for the purpose of external financing of Capital Advance activity. The Company notes that the Lenders are related parties through the Company’s Board of Directors’ chairman’s ownership interest in the Lenders. Refer to Note 21 for further information regarding related party considerations.

In accordance with the Warehouse Facility, the Lenders will make available to the Company an initial committed amount of $25,000, which may be increased at the request of the Company, and with the consent of the Lenders, in $25,000 increments up to $100,000. The associated borrowings will be secured by the assets of the Borrower, which consist primarily of capital advance receivables as well as a pledge of the equity of the Borrower. The recourse under the Warehouse Facility is limited to Borrower's assets, and no other Payoneer entity guarantees repayment by the Borrower.

The Warehouse Facility stipulates a borrowing base calculated at an advance rate of 80% out of the eligible portfolio outstanding receivables balance.

As of July 1, 2023, the Warehouse Facility bears interest at the sum of the Daily Simple SOFR and 0.26161% plus:

Prior to July 1, 2023, interest on the facility was calculated as the greater of 0.25% or LIBOR plus the additional percentage amounts per annum based on commitment amount noted above.

On June 8, 2022, the Warehouse Facility was amended to create a condition that the total interest rate, calculated as the sum per above, shall not exceed 10.5% per annum for all outstanding balances.

The revolving period of the facility is 36 months from the closing date and the maturity date is 42 months from the date the Warehouse Facility was entered into. The Warehouse Facility reached its scheduled revolving period termination date on October 28, 2024, and the Company will repay all outstanding Warehouse Facility borrowings in accordance with the Warehouse Facility by the Facility Maturity Date of April 28, 2025.

The Company recorded expenses, included in transaction costs, in the total amount of $401 and $437 for the three months ended September 30, 2024 and 2023, respectively, and $1,213 and $1,294 for the nine months ended September 30, 2024 and 2023, respectively. As of September 30, 2024, the outstanding associated balance was $13,219, included within short-term debt on the consolidated balance sheets, with $128 of accrued expenses included in Other payables. The outstanding balance was reclassified from long-term to short-term debt during the three months ended June 30, 2024 as the facility and all related borrowings became due within one year as of June 30, 2024. As of December 31, 2023, the outstanding associated balance was $18,411, included within long-term debt on the consolidated balance sheets, with $168 of accrued expenses included in Other payables.

The Warehouse Facility includes certain affirmative and negative covenants that must be maintained by the Company and includes certain financial measures such as minimum tangible equity and minimum unrestricted cash at the Company level. As of September 30, 2024 and December 31, 2023, the Company was in compliance with all applicable covenants.

As of September 30, 2024 and December 31, 2023, the fair value of the debt approximates the book value due to the short time span between initiation and balance sheet date with the outstanding balance classified as Level 3 in the fair value leveling hierarchy as the inputs into the valuation are not observable.

NOTE 13 – OTHER LONG-TERM LIABILITIES

Composition of other long-term liabilities, grouped by major classifications, is as follows:

NOTE 14 – WARRANTS AND SHAREHOLDERS’ EQUITY

Share Repurchase Program and Treasury Stock

On May 7, 2023, the Company’s Board of Directors authorized a stock repurchase program that provides for the repurchase of up to $80,000 of its common stock, including any applicable excise tax. On December 7, 2023, the Board of Directors authorized an amendment to the program to increase the authorized amount of repurchases to an aggregate amount not to exceed $250,000, including the amount that remained available as of December 7, 2023 to repurchase common stock under, but not any prior repurchases effected pursuant to, the previous authorization, and any applicable excise tax. The amended authorization expires on December 31, 2025.

The program is intended to offset the impact of dilution from the issuance of new shares as part of employee compensation programs.

Any share repurchases under this stock repurchase program may be made through open market transactions, privately negotiated transactions or other means including in accordance with Rule 10b-18 and/or Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The timing and total amount of repurchases is subject to business and market conditions and the Company’s discretion.

During the three and nine months ended September 30, 2024, the Company repurchased 3,748,301 and 22,993,198 shares of its common stock for $21,351 and $119,107 at a weighted average cost of $5.67 and $5.16 per share, respectively. During the three and nine months ended September 30, 2023, the Company repurchased 2,738,092 and 6,939,117 shares of its common stock for $15,034 and $34,759 at a weighted average cost of $5.47 and $4.99 per share, respectively. As of September 30, 2024, a total of $121,537 remained available for future repurchases of the Company’s common stock under the program.

Warrants

The Company had publicly traded warrants that were assumed upon the closing of the business combination with FTAC Olympus Acquisition Corp. in June 2021, and were exercisable for shares of the Company’s common stock. Warrants were only exercisable for a whole number of shares at an exercise price of $11.50 and would expire on June 25, 2026, or earlier, if redeemed. In September 2024, the Company completed a tender offer (the “Offer”) to repurchase all outstanding Warrants, at $0.78 per Warrant. Concurrently with the Offer, the Company solicited consents (the “Consent Solicitation”) from holders of its outstanding Warrants to amend the agreement governing the Warrants (the “Warrant Agreement”) to permit the Company to redeem all Warrants that remained outstanding after the completion of the Offer for $0.70 per Warrant in cash, without interest.

NOTE 14 – WARRANTS AND SHAREHOLDERS’ EQUITY (continued):

The Offer expired on September 9, 2024 (the “Expiration Date”), in accordance with its terms.24,030,937 Warrants were validly tendered and not validly withdrawn from the Offer representing approximately 95.5% of the then-outstanding Warrants. These Warrants were repurchased for $0.78 per Warrant, or $18,744 in total, with a $13,217 loss recognized upon repurchase, which is the result of the premium paid above the valuation of the Warrants as of the latest revaluation date of June 30, 2024. On September 10, 2024, the Company issued a notice of redemption to redeem all remaining untendered and outstanding Warrants for $0.70 per Warrant as of September 25, 2024. These Warrants were redeemed for $0.70 per Warrant, or $789 in total, with a $530 loss recognized upon repurchase, which is the result of the premium paid above the valuation of the Warrants as of the latest revaluation date of June 30, 2024. The Company also incurred approximately $1,000 in expenses associated with the transaction, which are included in loss on warrant repurchase/redemption in the condensed consolidated statements of comprehensive income.

The Warrants were accounted for as liabilities in accordance with ASC 815-40,Derivatives and Hedging, and were presented within warrant liabilities on the condensed consolidated balance sheets. The warrant liabilities were measured at fair value at inception and on a recurring basis, with changes in fair value presented within change in fair value of warrant liabilities in the condensed consolidated statements of comprehensive income. The following table presents the changes in the fair value of warrant liabilities (Level 1):

Accumulated Other Comprehensive Income (Loss)

The changes in the balances of each component of accumulated other comprehensive income, net of tax, for the three and nine months ended September 30, 2024 were as follows. There wereno changes in other comprehensive income (loss) in the three or nine months ended September 30, 2023:

NOTE 15 – COMMITMENTS AND CONTINGENCIES

The Company’s business is subject to various laws and regulations in the United States and other countries from where the Company operates. Any regulatory action, tax or legal challenge against the Company for noncompliance with any regulatory or legal requirement could result in significant fines, penalties, or other enforcement actions, increased costs of doing business through adverse judgment or settlement, reputational harm, the diversion of significant amounts of management time and operational resources, and could require changes in compliance requirements or impose limits on the Company’s ability to expand its product offerings, or otherwise harm or have a material adverse effect on the Company’s business. From time to time, the Company incurs insignificant fines and penalties in the ordinary course of business.

On September 28, 2021, the National Banking and Securities Commission (CNBV) and the Bank of Mexico revoked the banking license of a banking entity utilized by the Company due to the banking entity not meeting applicable capital requirements. As a result, the Company is unable to withdraw funds from the banking entity. The Company has reserved $2,250 for potential losses related to those funds above the recovered amount. The Company applied for and recovered the maximum statutory reimbursement through the deposit insurance provided by Mexican Institute for the Protection of Banking Services (IPAB), totaling $140. The Company has filed a claim in liquidation for the remaining funds; however, the percentage of the deposit that will be recovered in liquidation is not known at this time.

On August 7, 2023, Payoneer (Guangzhou) Commerce Services Co., Ltd. (“Payoneer Guangzhou”), a wholly owned subsidiary of the Company, entered into an agreement with a non-bank payments institution (the “Licenseholder”), that offers pay-out and mobile payments solutions to merchants in the People’s Republic of China and holds a Payment Business License issued by the People’s Bank of China (the “PBoC”). Pursuant to the terms of the agreement, Payoneer Guangzhou seeks to purchase the Licenseholder, and placed approximately $4 million in escrow in October 2023, representing a small portion of the agreed upon consideration for the purchase. In the event of termination of the agreement, such escrow amount will be returned to Payoneer Guangzhou, and in the event of a successful transaction, it will be applied to the full purchase price. The closing of the acquisition is subject to customary closing conditions and termination provisions provided for in the agreement, as well as, governmental registrations and approvals, including the approval of the transaction by the PBoC, and timing is uncertain.

From time to time, the Company is involved in other disputes or regulatory inquiries that arise in the ordinary course of business. These may include suits by its customers alleging, among other things, acting unfairly and/or not in conformity regarding pricing, rules or agreements, improper disclosure of the Company’s prices, rules, or policies or that the Company’s practices, prices, rules, policies, or customer agreements violate applicable law.

In addition to these types of disputes and regulatory inquiries, the operations of the Company are also subject to regulatory and/or legal review and/or challenges that tend to reflect the increasing global regulatory focus to which the industry in which the Company operates is subject and, when taken as a whole with other regulatory and legislative action, such actions could result in the imposition of costly new compliance burdens on the Company and may lead to increased costs and decreased transaction volume and revenue. Any claims or regulatory actions against the Company, whether meritorious or not, could be time consuming, result in costly litigation, settlement payments, damage awards (including statutory damages for certain causes of action in certain jurisdictions), fines, penalties, injunctive relief, or increased costs of doing business through adverse judgment or settlement, require the Company to change its business practices, require significant amounts of management time, result in the diversion of operational resources, or otherwise harm the business.

NOTE 16 – REVENUE

The following table presents revenue recognized from contracts with customers as well as revenue from other sources:

Based on the information provided to and reviewed by the Company’s Chief Operating Decision Maker (“CODM”), the Company believes that the nature, amount, timing, and uncertainty of its revenue and cash flows and how they are affected by economic factors are most appropriately depicted through its primary regional markets. The following table presents the Company’s revenue disaggregated by primary regional market, with revenues being attributed to the country (in the region) in which the billing address of the transacting customer is located, with the exception of global bank transfer revenues, where revenues are disaggregated based on the billing address of the transaction funds source.

NOTE 17 - TRANSACTION COSTS

Composition of transaction costs, grouped by major classifications, is as follows:

NOTE 18 – STOCK-BASED COMPENSATION

Stock Options and RSUs

The following table summarizes the options to purchase shares of common stock activity under the Company’s equity incentive plans for the nine months ended September 30, 2024:

The weighted average exercise price of the options outstanding as of September 30, 2024 was $2.67 per share.

The following table summarizes the RSUs activity under the Company’s equity incentive plans as of September 30, 2024:

In the nine months ended September 30, 2024, the Company granted a total of 13,587,835 RSUs, out of which 11,717,258 RSUs were granted under the Company’s Omnibus Stock Incentive Plan.

Additionally,1,870,577 RSUs not granted under the Company’s Omnibus Stock Incentive Plan were granted in connection with the Skuad acquisition in August 2024.

All RSUs granted are subject to time-vesting and continued service conditions.

The Company withholds common stock shares associated with net share settlements to cover tax withholding obligations upon the vesting of restricted stock units under its employee equity incentive plans in the United States. During the three and nine months ended September 30, 2024, the Company withheld 353,158 and 1,501,837 shares for $2,307 and $8,304, respectively. During the three and nine months ended September 30, 2023, the Company withheld 471,314 and 823,274 shares for $2,753 and $4,257, respectively. RSU vesting is shown net of this withholding on the condensed consolidated statements of shareholders’ equity and cash flows.

The Company collects cash from proceeds from certain international employees’ sales of common stock. The amount is held in a Company bank account until it is remitted to the employees. Due to the restrictions on the use of the funds in the bank account, we have classified the amount as short-term restricted cash, and a corresponding liability is included in Other payables in the condensed consolidated balance sheets. As of September 30, 2024, $2,990 of such funds were held.

Employee Stock Purchase Plan

As of September 30, 2024, approximately 4,072,744 shares were reserved for future issuance under the Company’s Employee Stock Purchase Plan (“ESPP”). The fair value attributable to the ESPP was $1,134 as of May 15, 2024, the beginning of the current offering period, and was measured using the Monte Carlo model. The current offering period is expected to close November 15, 2024.

The expense associated with the ESPP recognized during the three and nine months ended September 30, 2024 was $567 and $1,678, respectively.

NOTE 18 – STOCK-BASED COMPENSATION (continued):

Impact on Results of Operations

The impact on the Company’s results of operations of recording stock-based compensation expense under the Company’s equity incentive plans, including the ESPP, were as follows:

Note that $765 and $1,040 in stock-based compensation awards were capitalized as part of internal-use software during the three months ended September 30, 2024 and 2023, respectively, and $2,500 and $2,780 were capitalized during the nine months ended September 30, 2024 and 2023, respectively.

NOTE 19 - INCOME TAXES

The Company’s provision for income taxes in the interim periods is determined using an estimated annual effective tax rate, adjusted for discrete items arising in the period.

The Company had an effective tax rate of 9.1% and 27.3% for the nine months ended September 30, 2024 and 2023, respectively. For the nine months ended September 30, 2024, the difference between the Company’s effective tax rate and the U.S. federal statutory rate of 21% was the result of a benefit under U.S. tax law for income earned from foreign customers, provision to return adjustments, and deductible U.S. and foreign share-based compensation. For the nine months ended September 30, 2023, the difference between the Company’s effective tax rate and the U.S. federal statutory rate of 21% was the result of foreign income taxes and uncertain tax positions.

The Company maintains a valuation allowance in jurisdictions where it is more likely than not that all or a portion of a deferred tax asset may not be realized. In determining whether a valuation allowance is warranted, the Company evaluates factors such as prior earnings history, expected future earnings and the reversal of existing taxable temporary differences. As of September 30, 2024, the Company maintains a full valuation allowance on its deferred tax assets in Germany and maintains its previous conclusion that a valuation allowance on deferred tax assets in the United States and Israel is not necessary.

NOTE 20 – NET EARNINGS PER SHARE

The Company’s basic net earnings per share is calculated by dividing net income attributable to common shareholders by the weighted-average number of shares of common stock outstanding for the period, without consideration of potentially dilutive securities. The diluted net earnings per share is calculated by giving effect to all potentially dilutive securities outstanding for the period using the treasury share method or the if-converted method based on the nature of such securities. Diluted net earnings per share is the same as basic net earnings per share in periods when the effects of potentially dilutive shares of common shares are anti-dilutive.

NOTE 20 – NET EARNINGS PER SHARE (continued):

Basic and diluted net earnings per share attributable to common stockholders were calculated as follows:

Note that for both the three and nine month periods ended September 30, 2024,3,590,000 RSUs with market conditions,15,000,000 Earn-Out Shares (as that term is defined in the Agreement and Plan of Reorganization dated February 3, 2021 (as amended) with FTAC Olympus Acquisition Corp.) and 1,521,963 options to purchase common stock have been excluded from the computation of diluted net earnings per share as their effect was antidilutive, conditions were not met or they were not in the money as of the end of the reporting period. For the three and nine month periods ended September 30, 2024,2,866,158 and 3,913,995 RSUs, respectively, have been excluded for the same reason. In both the three and nine months ended September 30, 2023,25,158,086 public Warrants,4,570,000 RSUs with market conditions,30,000,000 Earn-Out Shares,705,470 options to purchase common stock, and ESPP shares to be issued under the May 15, 2023 offering period were excluded for the same reason.

NOTE 21 – RELATED PARTY TRANSACTIONS

Warehouse Facility

As indicated in Note 12, the Company entered into a Warehouse Facility with Lenders where a member of the Board of Directors has an interest. The Company has evaluated the relationship and determined that the Warehouse Facility represents a related party transaction that has been entered into in the ordinary course of business. As such, the Warehouse Facility was reviewed and approved as a related party transaction in accordance with the related party transaction approval process implemented by the Company. The Company analyzed the terms of the Warehouse Facility and concluded that the terms represent a transaction conducted at arm’s length. The Warehouse Facility reached its scheduled revolving period termination date on October 28, 2024, and the Company will repay all outstanding borrowings in accordance with the Warehouse Facility by the Facility Maturity Date of April 28, 2025.

NOTE 22 – SUBSEQUENT EVENTS

None.