Q2 2021 Paymentus Holdings Inc Earnings Presentation
Impact from acquisition and other matters.
These statements are subject to risks uncertainties and assumptions and may cause actual results to differ materially from those set forth and such statements <unk>.
Including the risks and uncertainties set for under the caption risk factors and our final perspective filed with the SEC on May 26, 2021, and our quarterly report on form 10-Q for the quarter ended June 32021, which we expect to file with the SEC on August 11, 2021 and elsewhere.
<unk> and our filings with the SEC.
In addition, during today's call, we will discuss non-GAAP financial measures, specifically contribution profit and adjusted gross profit and adjusted EBITDA are non-GAAP financial measures.
These non-GAAP financial measures, which we believe are useful on <unk> performance and liquidity.
Should be considered and addition to not as a substitute for current and isolation from GAAP results.
And we encourage you to review additional disclosures regarding these non-GAAP measures, including.
Reconciliations with comparable GAAP results.
And our earnings press release issued today and available on the Investor Relations page of our website.
With that I'd like to turn the call over to be shot Sharma, our founder and CEO.
Thank you Paul and thank you everyone for joining our call today.
I'm very excited and it's my pleasure to talk to you for our first earnings call as a public company.
I'd like to thank you for your support and Christina and your capital.
I'm also grateful for our clients and partners, who put their faith in US every single day.
I'd also like to thank each of my colleagues at day, Memphis, who work really hard to operate over 24.7 business.
And drive the institutional for our strategy.
And part of you. Thank you.
For Ya.
And I'm very pleased with our second quarter results and <unk>.
Yes, we have made on IP and including the signing of definitive agreement struck likely and various and final data.
And that puts us at the heart of the bill payment ecosystem for.
Financial financial institutions of all sizes.
Before covering our second quarter highlights and.
And talking more about each of these exciting items I would like to provide a summary of our business for those who aren't familiar with momentum.
I found the payment is to follow the net ambition ecosystem for electric.
The payments by simplifying them for both consumers and dealers and.
And for the eye to do the same for financial institutions and consumer platforms.
We took a very deliberate approach silver and strategy.
And 3 different horizons during the first horizon.
Build on next Gen platform and targeted and middle market dealers with it.
And the second horizon.
And we moved up market and expanded the functionality of per product.
With the recent introduction of for instance, payment network and we entered our tight horizon, which allows us to put all the pieces in place to create a modern payment ecosystem.
The IP and Leverages, our builder network and extended outside of those pillars to financial institutions and retailers and technology companies that can excess payments our payments for their customers.
In essence, IP and careers with paradigm shift and the built and the industry and creates a multi sided network effect for our business.
Our objective is to be the central margin H bill payments ecosystem for the entire payments industry, including banks credit unions and other financial institutions.
Does that affect the uptake and a major step towards the strengthening of the IP and presence and the financial institutions and market. This week as we are pleased to announce that we have signed a definitive agreement to acquire <unk>.
Pay various fees and Martin money.
Money movement platform for banks and credit unions.
And what that means is that any customer of the bank on Polaris platform can pay any bills from the bank, including the largest.
2 smallest businesses like there.
Lawyers accountants.
And money to anyone and U S using the person to person and transfer capabilities and move money between their own accounts bank accounts across multiple financial institutions using debt account to account transfer capabilities.
For your various serves over 265 financial institutions.
What this means to pay letters.
And at this transaction needs to pay bonuses that it provides a unique offering for financial institutions when combined with an emphasis unique instant payment network and therefore accelerated statement for various customer acquisition strategy.
And what this means to payment US is that this allows us to accelerate our IP and our strategy for banks by having nearly 3 interconnection institutions join our network.
In addition to that opportunity.
There is another equally exciting opportunity with each of these nearly 300.
It can be direct dealers on our platform, which will add to our existing based on direct dealers.
In addition to agreeing to acquire for various we have also signed an agreement to acquire for novella.
A technology provider that aggregates consumers bills, including fossil statements and 1 place.
This is a platform that is already being utilized by the various and many other financial institutions.
We believe the combination of low novella and favorites.
And with our IP and will solidify what offering for financial institutions as they provide a robust coverage on pillars, whether they are currently utilizing utilizing payment.
Flex on monarch.
This will continue to allow our sales team to prioritize dealer outreach for direct on boarding onto our platform based on the bid volumes.
We anticipate that both of these acquisitions.
And we'll close by end of Q3 and have been considered in the outlook that Mac and will share shortly.
On our core horizon, 1 and horizon 2 strategies, we continue to execute very successfully.
Our second quarter performance was strong revs.
Revenue grew 30% over the same period and 2022.
And to 93 and $93.5 million.
Q2 contribute contribution profit grew 25% to $37.4 million.
Adjusted gross profit in the quarter, Turkey, 1.1 dollars $30.1 million, which was a 24% increase over Q2 of last year.
And the transaction processed grew over 39% year over year.
Metro Makro provide more color on the financials shortly.
We continue to execute on all 3 strategic Horizons I described earlier from the first horizon and small to medium business continued to be a focus of ours and we completed a multitude of implementations and the quarter.
As an example, we implemented and midsized public utility in Arizona, resulting in an improved customer experience and access to new payment methods.
The utility was very pleased with the product and the implementation process and have asked us to implement other departments and hospitals.
And the second quarter. We also continued to build on our more than 350 integrations by adding new partners, including completing and integration with the leading provider of software to mid sized telecommunication companies.
Going forward payment for us will be the preferred provider of payments through deadlines.
And the second horizon, which targets larger more diverse pillars, the implemented several new builders, including the large auto finance company and.
And we also continue to make progress and our partnership with UBS, adding them to our platform and in the U S. This quarter.
The U S is in addition to other countries around the world already live for EPS on our platform.
And we're excited about this partnership.
And how we book UBS and payment for skin opioid and leading experience for business clients.
Beyond new implementations, we also have the opportunity to expand at existing clients.
This growth occurs as clients migrate additional divisions.
Acquired companies and convert them to us all by adding new payment types and features such as auto pay.
Beyond new implementations and we also have the force you to expand at existing clients.
2 examples of expansion on a large utility with over 2 million customers, which added advanced payment methods like Paypal to provide their customers and more choices.
And a top 5 utility, which moved its auto prepayments to pay Memphis to improve its customer experience by combining onetime and recurring payments on debt payments platform.
In addition to new sales.
And the same store sales expansion, we completed several key renewals and putting extending our relationship with a leading provider of insurance to the jewelry industry.
Through the addition of IP and the edit over current horizon with the focus on building out our partner network IP and expands our reach beyond below 2.5 technology partners.
And retailers, who originally of transactions that we process.
Paypal 1 for funding IP and partners continues to focus on introducing enhanced bill payment functionality across our platform.
We're also and excited about IP and across other IP and partners and especially our extended reach to nearly 300 financial institutions.
With the pay various transaction.
In summary, I'm very pleased with the financial results of this quarter.
And the progress we have made through the acquisition of <unk> and for novella to move closer to our original long term vision to be the ecosystem for consumers.
Financial institutions and partners.
And the depth of the debt I will turn the call over to map to growth.
For more about our financial results net.
Thanks for Shaun let.
Let me start by also adding my thanks to our shareholders clients partners and employees knew all of the reason for the strong Q2 financial results that I have the privilege of sharing today.
As a quick reminder, today's discussion includes non-GAAP financial measures. Please refer to the tables on our press release for a reconciliation from non-GAAP items to the most directly comparable GAAP financial measure.
Before I talk about the second quarter's financial results and our outlook for 2021, let me remind you about our business model.
As the chart.
And get paid on our clients get paid so the key indicators to measure the performance of the business is the number of transactions processed.
For the vast majority of our clients transaction fees are the same regardless of the payment amount.
For example, we will receive a $1.50 for utility payment of $50 and the same dollars 50 for a payment of $275.
Interchange fees may vary by bill on the industry and type of payment among other things, but in most cases, we have caps on interchange and payment amounts to help us manage the costs.
These transaction fees can be paid by the biller, the consumer or a combination of both.
And we generally do not charge for implementation of our customers and customization fees for our platform for our professional services revenue is minimal.
Now turning to the quarter, we processed $64.2 million transactions, representing a year over year increase of approximately 39%.
This transaction growth drove a 33% increase in revenue over the same period, and 2020, which resulted in revenue of $93.5 million.
As we've explained before as we see larger as we sign larger and larger builders, we anticipate the mix shift with fees will continue.
Contribution profit for Q2 was 37.4 million a 20% increase over the same period last year.
Adjusted gross profit for the second quarter was $30.1 million and this was an increase of 24% from Q2 of 2020.
Contribution profit growth and adjusted profit growth can vary more than revenue growth due to the changes and the interchange cost.
As a reminder, there are certain external factors and impacts of interchange such as the average payment amount on a particular month or quarter for.
For example, hot summers are cold wearers may increase utility bills, which increases our interchange cost and we also have property tax payments that see large amounts twice per year.
Adjusted EBITDA was $8.3 million, which represents a 22, 2% margin on contribution profit.
The 5% decline and adjusted EBITDA from the second quarter of 2020 is due to cost increases related to being a public company as well as increased investments and R&D and sales and marketing.
The adjusted EBITDA margin for Q2 was higher than anticipated as a result of the higher contribution profit than anticipated for Q2.
And the fact that travel and conferences did not start back as soon as we thought as well as the ongoing tightness and the U S labor market and making hiring more challenging than expected.
Operating expenses rose $7.8 million for $24.8 million for Q2 of 2021.
R&D expense increased $1.9 million or <unk> 42, 4% as we continue to invest and new features and functions and our payments platform and we build out IP and with additional partners.
Over half of the operating expense increase of $4 million was and G&A and was driven by public company costs as well as continuing to build out and public company infrastructure.
Sales and marketing increased $1.9 million or 24, 5% as we ramped up selling activity relative to the same time last year and the middle of the Covid uncertainty.
Our GAAP net income and EPS for Q2 was slightly lower than we anticipated due to onetime discrete tax items that arose as a result of going public.
These 2.1 time tax items totaled approximately $2 million or about $1 million each.
As a result of these 2 discrete onetime items that hit GAAP tax expense and our Q2, our effective tax rate for the quarter was approximately 86%.
Excluding these 2 discrete onetime tax items, our net income for the quarter would have been $2.6 million.
As of June 32021, we had $266.4 million of cash and cash equivalents on our balance sheet.
Now from our Q2 results, let's turn to our 2021 for your outlook.
Inclusive of our pay various and fit of our acquisitions our revenue outlook for 2021, and then the range of $378 million for $382 million, which represents growth between 25% and 27% year over year.
For contribution profit our full year outlook is between $152 million and 150.
Dollars are approximately 26% to 28% growth.
For both revenue and contribution profit, we expect Q4 to see almost all of the benefit due to a full quarter of <unk>.
As you May recall, we typically see the highest average payment amounts of the year and Q3 as a result of the summer heat combined with from semi annual per year tax payments.
In fact, and Q3 of 2020, we actually saw a slight sequential reduction and contribution profit.
While we do not anticipate a sequential reduction this year, we do anticipate similar factors that will influence our Q3 results.
For full year 2021, we also see adjusted EBITDA and the range of $25 million for $28 million with and adjusted EBITDA margin of 16, 5% for 18, 5% on contribution profit.
This margin is a bit higher than we previously anticipated for factors mentioned, including travel accounts does not ramping back as quickly as originally anticipated as well as the ongoing tightness from U S labor market, making hiring more challenging them and the past several quarters.
With respect to taxes, we do not anticipate any further impact from the onetime discrete items or any other 1 time discrete items this year.
However, as a result of the items mentioned for Q2, we expect that our full year effective tax rate for 2021 will be approximately 47% on.
On a normalized basis going forward, we would anticipate that our effective tax rate will be approximately 30%.
Selling no changes to current U S federal tax laws or rates and this is due to the fact that a large majority of our revenues and the U S. So it represents the U S federal statutory rate combined with various state income taxes.
I'll now turn the call back over to Sean for closing comments. Thank.
Thank you Matt.
Look overall, we're very pleased with the financial and strategic progress we have made this quarter.
Especially and the expansion of for IP and ecosystem deeper into the financial institutions market.
Peter to execute across our 3 horizons strategy and drive organic growth.
Display various and for Nova will continue to accelerate the vector for IP and offering.
We'll now open the call to questions.
Okay.
If you would like to ask a question. Please press star followed by 1 on your telephone keypad.
If you move on to withdraw your question. Please press Star followed 19.1.
And then for being to ask a question. Please ensure that you are and.
Locally we will.
Talk to you briefly to allow questions to generate income.
The first question and from the line of.
Sure Becker with payment and you May proceed.
And.
It's ashwin <unk> from Citi.
Okay.
Hi, Matt.
Congratulations.
On the reduction standards on Europe for us.
Public call here.
Islands.
And I was wondering if you could.
Congrats on a kind of a from.
Quantitative standpoint, and sort of PQ vs <unk> cadence.
And.
Matthew <unk>.
Qualitatively address some elements of TQ, but if you could talk about.
Talk about what to expect book.
Growth for Ma.
Top line perspective.
And it's on.
<unk> per se.
Yes, sure academic and thanks for the question Ashwin, So as I said and.
Just to give a little more color on that because of the semi annual tax payments that we have as well as the sometimes seeing cold winters Hot summers Q.
Q1, and Q3 are typically higher average payment amounts versus Q2 and Q4.
And so as a result of what I said on the prepared remarks.
We would anticipate that that will continue this year that will see higher average payment amounts in Q3 and so from a.
Contribution profit perspective, it would be more challenged than say Q2, Q4 would be not bad but definitely of more pressure on the contribution margin contribution profit line item just simply because of the higher average payment amount in Q3.
On the topline revenue basis, we continue to drive additional transactions.
And we're at if you look at the number of transactions that we had in Q2 were over 250 million and transaction run rate.
Annualized for Q2, we certainly expect that growth to continue through some of the same store sales volume that vishal and talked about as well as.
Additional implementations of <unk>, 1 thing 1 other thing I'll point out there.
We did see if you look at the.
And the over performance.
And on both the top line as well as contribution profit.
We had a couple of on same store sales, we saw from expansion faster than we had anticipated as well as from implementations that went live a little bit earlier than we had planned and model for and so that's what drove our.
Over part of what drove our orders in Q2 that doesn't necessarily training for Q3 and Q4, because we just kind of pulled the timing forward on some of those.
Things and so it doesn't necessarily translate into.
Overages in Q3, and Q4, because we will still have that revenue and those periods.
But hopefully that gives you some flavor and certainly happy to go and any more detail you need there.
No understood.
Got that and then.
The second question if I could.
And the 2 acquisitions fish and can talk a little bit about the.
Financial contribution into into the into the outlook.
And specific to thin and there if you could kind of talk about maybe.
Victor.
Thank you for drilling down into the $15000.
These give you.
And I see utilities credit cards wireless on lifted but is that a.
Particular.
And market debt.
If you didn't have before and integrated gives you.
On a good step up income.
Great. Thanks, I'll take the first part and then I'll pass it over to Sean on the second part.
So we are not breaking out any of the financial specifics for the acquisitions neither of them are.
Super material to our overall position as we said we're going to.
We expect to close them by the end of Q3, So we would really only be talking about Q4 impact for this year and it's not material to our full year results. What we expect to see it is really about and.
And you all and they've got some nice business and nice customers, but we're really excited about the strategic aspect and what this drives for our business going forward and so with that I'll turn it over to Sean to talk a little bit more about that thing.
Sure.
Actually from our perspective.
Our clients and build a margin H ecosystem for bill payments and.
And.
And have maintained these acquisitions add for us number 1 starting with the virus.
We get hundreds of financial institutions on.
Sure.
On our platform, we are able to reach.
And all the banks, we didn't have before not only from the perspective of originating the payments for 2 of our IP and but also.
Each of these banks and credit unions could potentially be a direct bill on on our platform.
And it gives us and novella flow that is actually a.
The company that has built a technology platform that aggregates.
Bill data for.
For.
All major builders on most major dealers and the.
And the country that includes credit cards and include banks large telecommunications companies.
And so on utilities et cetera, and.
What this gives us is basically and ability to capture that data for the customers for the pillars, we don't have wildly and and the process of prioritizing our sales process to reach out to those pillars and onboard them on our platform.
So, let's say and sometimes it's a network effect, where youre trying to.
Monetize the transactions for the dollars you don't have value on the process of trying to and create those bullish to move to move to a low direct platform.
For the maintenance credit yes.
Yes, that's right.
Alright, Thanks, Greg appreciate it.
Alright, thanks, guys.
Thank you Ms Fisher for Kurt.
The next question comes from the line of Dave Koning with Baird. You May proceed.
Yes, hey, guys and great job.
Thank you. Thank you. Thank you guys, yeah, Yeah sure and so I guess my first question just.
Think about the growth is obviously tremendous in terms of number of transaction.
Can you just kind of remind us how to think about like how much is just from new signings and then how much is kind of existing client growth and we just look at the 39% transaction growth and maybe how do we see that over the next couple of years.
Yes, great question and so none of that is really from lease signings and the sense that if you recall our business model provides very good short and medium term visibility and so far as we've got the timing of sale with a customer and then we have and implementation time.
Frame and that can take anywhere from a few months of the year, depending on the size and the complexity of the customer and so we've got a lot of visibility of what comes out in the short and medium term and so when we see the results of the transaction growth in Q2.
It's almost extensively driven by <unk>.
Same store sales expansion and.
And implementation go lives with customers that were already contracted several months earlier and in the implementation pipeline.
And our I'll turn it over to Sean to talk a little bit about our sales performance and the quarter, but that really is contributing to where we go next year book.
And you think about the remainder of this year pretty much any growth that we see is going to be coming out of the implementation pipeline and same store sales growth, but majority will talk about our sales performance.
And we by the way, we had a great quarter for on a sales performance standpoint, very pleased that it would be on target for the year and.
And as Matt said.
The results of that sales performance, you will see and coming quarters as opposed to immediately next quarter as we bring debt volume up on our platform and get those customers live.
So and.
Very good performance from a sales perspective.
And I'll just.
Sorry, I Should've said this is the first on on the thing I would add just slightly to add to what I said it was and part of response to Ashland's question.
And.
A contributor to the.
And almost 40% transaction growth that we saw on the quarter was really some of the items as far as same store sales as well as implementations happening sooner than we had.
Kind of model the non anticipated, which is great. Our implementation team is doing a great job. Our customers are excited about working with us and so we've been able to to move well.
And the current quarter that doesn't necessarily mean, we'll continue every implementation is different but.
But we had a great result, this quarter and being able to get customers live.
Great. Thanks, and maybe just a quick follow up it looks like so on the first half for the year EBITDA adjusted EBITDA was 17 and $18 million or so.
And it looks like full year, you're guiding.
And at 25% to 28, which would mean, maybe 10 and the back half why is the back half lower or is that just IPO costs and just sales efforts and all that stuff I, just maybe walk through debt.
Yes, absolutely.
So thats 1.
Variety of things 1 is.
And Q1, we did not have public company calls, we had some legal fees and accounting fees starting to flow through but the bulk of those hit in Q2, along with D&O insurance et cetera.
And then so that's 1 continuing operating as a public company.
We also we think that obviously depends on what happens with debt.
Delta variant et cetera, but we do think that there'll be some pickup and travel and conference has happened and as we get later in the year back to normal if you will on that.
And we continue to look to hire folks and continue to drive hiring as we are very excited by the opportunity and then I think the last thing is.
And in particular and Q4 the results of the 2 acquisitions.
Certainly have an impact on what we think is going to happen on EBITDA for this year.
Gotcha, Thanks, great job.
Thank you thanks, Dave.
Thank you Mr. Carney.
The next question is from the line of Tim Chiang.
Along with Jpmorgan you May proceed.
Thanks, So much good afternoon, congrats on the IPO and the first calls on the great results.
Good questions asked already I wanted to ask Sean on pay versus just.
Is there any way to maybe frame how many users are deposit accounts.
They currently power will have access to amongst our universe and.
And just that the game plan to speed some of these banks on to IP and now that you own. This.
Is there and expedited way to move them on the last question just debt.
Direct biller opportunity for.
And for these banks and.
Idea on how many pills.
And these banks might represent over I'm, sorry to ask several but mostly around just the opportunity around pay vs.
Yes.
First of all and thank you so much for the kind words.
We.
We're not disclosing the numbers.
At this point, but.
But.
And if we can talk to the strategic side of it.
Yes.
As you can imagine these are.
Yes.
But when you combine hundreds of financial institutions.
And that includes credit unions and banks.
Of different sizes, you have a decent scale and.
And the capability to have built in terms of a full service platform for banks.
For all money movement from.
From Bill payments to <unk>.
We feel.
We feel either debt equity helps us get to other other cohort for banks and other quickly now.
Continue to hear the feedback from the banks.
And of.
All sizes, including some of the largest banks that.
The legacy mainframe based systems they have had.
And suppliers have had.
Haven't delivered the innovative.
Especially on looking for we believe the IP and combined with.
Some of the technology for your required here allows us to get after debt market rapidly and in terms of the direct bill on.
Opportunity.
We are.
Each of these financial institutions is actually sizable in terms of the number of payments they receive and that amount. So it's.
It's not insignificant so we feel we feel very good about.
It sounds like a great way to get 1 to many model on to the answer there. Thanks. Thanks for your thoughts.
Yeah.
Thank you.
Thank you Mr. Wang.
There are no additional questions waiting at this time I would now like to pass it back to the management team for any closing remarks.
Well. Thank you so much for taking the time and.
It was a pleasure to walk you through.
The results and performance for the second quarter.
We would like to wish you all the very best for you and your families and please stay safe. Thank you.
Thank you all for joining today's payment this quarter and I hope you enjoy the rest of your day.
Yeah.
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