Q4 2022 Paymentus Holdings Inc Earnings Call
Believe expect anticipate and similar phrases that denote future expectation or intent.
Regarding our financial results and guidance.
The impact of and our ability to address continued economic uncertainty and inflation.
Our market opportunities business strategies implementation timing product enhancements impact from acquisitions and other matters.
These forward looking statements speak as of today, and we undertake no obligation to update them.
These statements are subject to risks uncertainties and assumptions that may cause actual results to differ materially from those set forth in such statements, including the risks and uncertainties set forth under the captions special note regarding forward looking statements and risk factors.
And our annual report on Form 10-K for the year ended December 31 2021.
Which we filed with the SEC on March 3rd 2022.
In our annual report on Form 10-K for the year ended December 31 2022.
We expect to file with the SEC shortly.
And elsewhere in our other filings with the SEC.
Carriage you to review these detailed safe harbor and risk factor disclosures.
In addition, during today's call, we will discuss certain non-GAAP financial measures specifically contribution profit.
Adjusted gross profit adjusted EBITDA and adjusted EBITDA margin are non-GAAP financial measures.
These non-GAAP financial measures, which we believe are useful in measuring our performance and liquidity.
Should be considered in addition to and not a substitute for or in isolation from GAAP results.
We encourage you to review additional disclosures regarding these non-GAAP measures.
Including reconciliations with the most directly comparable GAAP measures in our earnings press release issued today and the supplemental slides for this webcast.
Each available on the Investor Relations page of our website.
With that I'd like to turn the call over to Vishal Sharma, our founder and CEO .
Thank you Paul.
We had a strong quarter that was successful both financially and strategically.
On the financial front, we exited the year ahead of our initial annual top line expectations.
That would be set at the beginning of 'twenty two.
On the strategic front among other milestones in the quarter, we recently launched a product for small and medium sized businesses, commonly referred to as smbs over IP ecosystem that we expect to expand our Tam.
And enhance our ability to change a portion of our model from interchange being a cost center.
<unk> incentives.
Let me discuss our financial highlights for us.
As you can see on slide three.
<unk> finished strongly competing with.
With a stronger than anticipated results in the fourth quarter.
Our revenue for the quarter was $132 2 million up 22% year over year and contribution profit was $54 1 million up 19, 4% year over year.
We also expanded margins sequentially, our adjusted EBITDA loss of $10 2 million for the quarter.
With a corresponding margin of almost 19%.
On slide four.
The solar performance for full year. Consequently, two our first full year of being public we finished with revenues of $4 $97 million.
Represented growth of almost 26% and was higher than our expectations that we shared with you at the beginning of currently contribute.
Contribution profit was $201 3 million, representing 27% growth, which was within about a ticket range of expectations.
Adjusted EBITDA finished at $28 $6 million with a 14, 2% margin. This.
Which was within our initial range of expectations.
On a full year basis, our dollar volume increased over 70%, which reflects our continued move to serve larger and larger clients and increased scale in payments ecosystem.
In the quarter, we achieved several milestones.
As outlined on slide five.
First we signed a large bank citizens financial group for consumer Bill payment <unk> Center product.
We believe this is a very good sign of things to come for Bill payment sales to financial institutions, as we have larger and larger institutions evaluating other modern product to replace their legacy solutions.
Second in the quarter, we expanded the reach of the instant payment network through our partnership with Green dark to accept cash payments.
Over 90 positive 10 locations across the U S.
We continue to support consumer choice of payment channels and methods.
And are working to add more and more partners to the network to capture additional payments volume.
Over IBM.
Third the partner with a large real estate platform to be one off payments offering for rent payments.
Additionally, we completed the implementation of a loan payment client that was a cross sell of our biller direct platform.
Our bank Bill payment customer base.
We expect to see continued penetration in the banking and credit Union markets for our loan payments offering.
In addition, we also launched a large mortgage services complete towards the end of Q4.
As I mentioned a minute ago. We are also pleased to announce the launch of our SMB platform that combines the features of our current platform with a new product offering and.
And team that we acquired in the quarter.
Our SMB product is a full service financial offering to Smbs.
And offers complete self onboarding with no implementation involved.
It starts with automating business banking and batches to hit our full service SMB operating system that automates payables.
Renewables and expense management using the payments platform.
As I shared last quarter.
We send out millions of payments to over a million base, many of whom are smbs.
All of these are outside of our direct dealer network, yet they participate in all of our ecosystem and receive payments.
We believe this presents a very efficient distribution channel for us, which we plan to leverage to attract such customers.
As you know that our six over 6 million Smbs and millions more small office and home office offices in the U S alone.
In addition to the expansion of our Tam did this offering we seek to change the economic model by genetic interchange revenues.
In other words in contrast to biller direct and this offering interchange is no longer a cost center instead is a revenue center for us.
With that background, let me turn to our 2023 guidance.
On slide seven.
It won't be completely we expect our revenues to be in the range of $575 million to $600 million.
Which is 16% to 21% growth.
We expect contribution profit from $224 million with $37 million or 11% to 18% growth.
We expect adjusted EBITDA of $32 million or $38 million.
And adjusted EBITDA margin range of 14% to 16%.
As you can see we had initially provided a broad range for contribution profit guidance.
Which somewhat diminishes its utility.
In an inflationary environment and given here.
Related dependent on factors outside of our control. We believe initial contribution profit guidance requires some more flexibility.
However, we have a high degree of confidence regarding our ability to deliver on the guidance measures. We are most focused on in 2023.
The top and bottom line much like how we executed in 2022.
Let me now talk briefly about our expectations for the first quarter of <unk> on slide eight.
For the first quarter of contingency three we expect revenues to be between $636 million and $140 million.
Contribution profit to be between 51 million and $52 million and EBITDA to be between 7% and $8 million.
But before I turn the call over to Paul Let me address the guidance itself.
If I knew I'd be wondering is the business slowing down.
Why isn't the growth higher.
And the short answer is no I don't believe the business slowing down.
The best way I can describe the business from my vantage point is that to hit the top end of each of our guidance range.
Provided in 2023.
Believe I believe that we do not need to sign a single additional client and consequently, three and only implement the existing backlog backlog of currently signed clients.
The reason part of our broad ranges is the macroeconomic environment, you're operating in our growth and bookings continues to accelerate.
But the timing of implementation on Onboarding is primarily controlled by the clients which is impacted.
By the macro.
I believe our platform itself is capable of launching engaged client swiftly.
I would also add that my team and I are excited about the future of our business and.
And where we are strategically taking it I believe that great businesses achieve great things during challenging times and use it as an opportunity to innovate and set the stage for future disruptive models as we are doing have been at this.
With that Paul will provide more color on our currently contracted results in each of the guidance numbers.
Thanks, Vishal as a reminder, today's discussion includes GAAP and non-GAAP financial measures. Please refer to the tables in our press release and supplemental slides for reconciliation of the non-GAAP items to the most directly comparable GAAP financial measure.
I am pleased with our fourth quarter results.
The strong performance was highlighted by repricing actions and improved expense management, leading to an adjusted EBITDA nearing 20%.
In the fourth quarter reprocessed, $97 2 million transactions, a 16, 7% increase over the same period last year.
Transaction growth in the quarter faced a difficult compare relative to Q4, 2021, where we experienced over 50% growth due to the implementation of a large high volume client and the continued rollout of our large logistic clients.
For the full year 2022, we processed $366 9 million transactions, an increase of 38% compared to 2021.
Our fourth quarter revenue was $132 2 million, an increase of 22, 3% compared to the same period last year.
Revenue grew faster than the growth in transaction count for the quarter largely driven by the launch of several clients primarily in the telecommunications insurance and government payment verticals or.
Or the earned revenue per transaction is typically higher than average.
The revenue for the full year was 497.0 million.
The increase of 25, 7% compared to 2021.
Contribution profit increased 19, 4% over the fourth quarter of 2021 to $54 $1 million.
Contribution profit for 2022 increased to $201 3 million, an increase of 27.0% over 2021.
Contribution profit per transaction for the quarter was 56 months and for the full year of 55 homes, which was consistent with our expectations.
And we are continuing with the highlighted in prior quarters I have mentioned in the past fluctuations outside of our control such as increases in the average payment amount or unfavorable swings in the payment mix can influence contribution profit quarter by quarter.
Throughout the year, we operated in a highly inflationary environment, particularly in the utility sector.
At the times experienced inflation north of 20% from quantifying through.
In the back half of 'twenty coming through we worked diligently to manage expenses and took on several pricing actions to offset some of the inflationary headwinds we experienced throughout the year.
So im Luisa pricing actions were successfully executed in the fourth quarter of 2022.
For other clients. We're currently actively engaged in re pricing conversations.
Adjusted gross profit increased $8 5 million to 23, 5% compared to the fourth quarter of 2021 to $44 $6 million.
For the full year, adjusted gross profit increased $34 4 million or 27.0% to $161 million.
Adjusted EBITDA was $10 $2 million for the fourth quarter, which represented an 18, 9% adjusted EBITDA margin.
While still at the high point of margin level, we were at before going public. This is a new high watermark of the public company and shows our ability to expand margin.
Adjusted EBITDA for 2022 with $28 6 million.
Representing 14, 2% adjusted EBITDA margin.
Operating expenses rose $6 2 million to $39 6 million.
For the fourth quarter of 2022 from the same period last year and $41 $6 million.
Increased to $153 $7 million for the full year compared to 2021.
Specifically the largest increases were noted in sales and marketing, which increased $5 3 million in the fourth quarter of 2022 for $20 2 million compared to the same period in 2021.
For the full year sales and marketing expenses were up $29 $4 million in 2022.
$703 3 million compared to 2021.
On a year over year basis, the increase was driven by the <unk> acquisition.
Expansion of the sales team, adding partnerships to capture a sizable market opportunity.
Increase in stock based compensation.
We continue to invest in sales and marketing in 2023 to drive topline revenue growth as we target existing and <unk> segments, including IBM and now SNB opportunities.
Our GAAP net income for the fourth quarter 2015 figure was $1 <unk> million.
And for the full year 2022 was a loss of <unk> $5 million gap.
GAAP EPS was a penny.
And zero cents for the fourth quarter of 2022 and full year 2023, respectively.
non-GAAP net income was $3 <unk> for the quarter and $8 1 million for the year.
non-GAAP EPS was <unk> seven for the quarter and year respectively.
As of December 31, 25 to <unk>.
We had $147 $3 million of cash and cash equivalents on our balance sheet.
Cash decreased primarily due to using cash for the small pre revenue F&B product acquisition in the quarter.
At year end, we had approximately 123 million shares of common stock outstanding.
Now turning to our 20, Frank's III full year outlook.
As Vishal said, we expect revenue for the full year 2023 to be between $575 million and $600 million.
Our 2016% to 21% growth year over year.
Contribution profit is anticipated to be between $224 million and $237 million or 11% and 18% growth year over year.
We continue to anticipate high inflation higher than historical norms, which creates a headwind for growth.
Especially contribution profit growth.
Adjusted EBITDA is expected to be between 32% and $38 million, resulting in.
Unexpected EBITDA adjusted EBITDA margin of approximately 14% to 16%.
This range anticipates margin expansion over 2022, while still allowing us to invest in small business and other growth initiatives.
To provide some additional color on the phasing throughout the year, we anticipate that both growth metrics and adjusted EBITDA margin will be at their lowest levels of year in the first quarter 2023, which.
This was partially due to a difficult compare in Q1 of 2022, when we had a 35% with contribution profit growth.
And partially due to the timing of implementations with no large builders going live in the first quarter of 2023.
Revenue growth should accelerate throughout the year, while growth in contribution profit will partially depend on inflationary pressures on other factors.
As such we expect revenue growth in Q1 to be between $136 million and $140 million.
Our 17% 20% growth.
And contribution profit to be between $51 million to $53 million in the range of 8% to 12% growth.
Adjusted EBITDA is expected to between seven and $8 million in the first quarter.
A margin of 13% to 15%.
Which would be a minimum of a 2% increase over the 11% margin in Q1 of 2021.
We expect this margin to expand each quarter throughout the year on a year over year basis. Following a similar cycle that we had last year was magnified this year by changing Megan our employee review and compensation cycle for 2023.
In previous years raises and bonuses were given an employee's anniversary more or less evenly distributed throughout the year. This year, all raises or effective January one.
So we expect a step up unemployed costs earlier than normal suppressing margin earlier in 2023, and helping out in the fourth quarter.
We would believe we believe the company is well positioned for the future.
We have both a strong profitable company with financial flexibility in the balance sheet.
We passed several key milestones and believe we continue to be positioned well to grow for a long time.
I'll now turn the call over to <unk> for closing comments.
Thanks, Paul.
I'm proud that our team came together and delivered on most of our original expectations in 2022.
I believe this illustrates the resilience of our business despite the difficult macro environment.
We are very confident about the long term growth prospects of the business.
Especially given the extending IP ecosystem, we are building.
Which we believe allows us to reach a broader ban and leverages the entire spectrum of interchange from our call centers.
Biller business.
Interchange neutral in IPM business.
The interchange being a revenue source in our SMB offering and beyond.
We remain excited about the demand for our products in all of the industry verticals, we are operating in.
So as Paul mentioned.
We are leaning in and.
And making continued investments in the sales and marketing.
I'll also seeking expanded margins in 2023.
With that I'll open the line for questions.
Thank you.
I would like to ask a question. Please press star followed by one on your telephone keypad, if for any reason and I would like to remove that question. Please press star followed by two again to ask a question press star one at <unk>.
Wonder if you are using a speaker phone. Please remember to pick up your handset before asking your question. We will go with you briefly as questions registered.
The first question is from the line of Ashwin sure of a car with Citi. Your line is now open.
Thank you.
Hi, Paul.
Hey.
Full of questions I guess, the first one is with regards to citizens.
But if you could.
Question is a bit more step back then that you can talk broadly about sort of the.
Good.
Since the bank aggregator models and whether this sort of indicates.
Leaning into.
In into both models now.
As opposed to buy immediately one of them.
Before is that the right way to think of it and then the financing part of the question is why.
Weather.
Something like citizens, which can obviously be a very large client.
Is in your.
<unk> expectations is it already in there.
Okay.
Good question. Good question. Thank you Ashwin.
Aggregate versus biller direct and so as you know as you recall our strategy has been right from the big thing.
Horizon, one and two being centered on mid market enterprise billing company that effectively and horizon three is about trying to bring base.
Basically.
If we remove the chasm that has existed between Fannie one of the aggregator models historically using the paper based paradigm the banks currently employed.
To a more modern paradigm.
IPM offers.
What that means is you're basically taking any bank customer payment and bringing it in real time to the billing companies participating in IPM directly. So that model is actually extremely well received by the banks and what we are really trying to do is we're looking at it from both sides of the house.
All the spectrum of usage, one is the billing companies billing companies want more and more payments more directly more in real time and from all channels and banks being one of them and.
And banks want banks customers want.
Totally different <unk>.
Experience than what they had been receiving.
From the systems that were designed in the 19 eighties. So.
With that we see a greater portion of duty on both sides and Thats exactly what we are pursuing.
Today, we have.
Hundreds of banks and credit unions, who are already on our platform and we are extremely proud to welcome citizens Bank.
As well.
And in terms of the financial part of it I think a very small and modest numbers.
In our 2023.
So.
Most of the growth will come in outer years.
Okay.
Mr.
And if I can shift gears to payment as for Smbs.
Quite a notable.
Expansion there.
I just.
One question I had was.
How much of this is.
Randy currently I mean, I would say the payments engine clearly you have I believe but.
If I look at.
Page six of your presentation there is.
Expense management this business card.
Kind of a fairly broad offering the partnerships already set up.
We need to go.
Is this aspirational at this stage.
This is actually live right now.
Most most of this is live.
Operating and.
<unk>.
What we don't have the lock in our in our model the financial numbers from it but in terms of the productivity ability at this slide this operational and production than we are.
Frankly are quite global.
<unk> segment.
As I shared in my prepared remarks, if you think about it we are sending out payments to sending millions of payments right now and.
Two.
$1 million plus base.
And many of them are smbs.
And we have been working on for quite some time and now we are saying well if they are already part of the IP ecosystem wired inviting them and offering them a single value. So that we can actually bring more of their first of all bring them into our ecosystem more directly participate in that.
IPM and therefore be reachable.
So any other financial institution, who participates in the IP network as well.
On top of that generate revenue and the approach we've taken is.
But we want to monetize interchange here.
And that's what we.
We are doing so it's early days, but we have recently launched it.
Okay.
Got it if I could squeeze a third question.
Are you seeing any change in behavior on.
Humor side with regards to.
In the tendency to pay or a shift in.
What what instrument they use to pay.
Just from a economic or macro standpoint are you seeing any changes.
I'll jump in here.
I was looking at this earlier today as various study in terms of credit debit.
It's mix.
The one thing that stands out more recently in the last couple of quarters of the advance payment methods. The venmo Paypal wallets those kind of things.
We're going to grow.
Not very material portion of a transaction.
Starting to register all over more and more but if youre asking about credit usage on the consumer we arent.
A shift there or anything that you're concerned about in that regard no.
Okay got it thank you.
Thank you for your question.
The next question is from the line of John Davis with Raymond James Your line is now open.
Hi, This is Taylor on for J D and maybe just to start on pricing actions can you help us understand what the pace of the rest of the pricing action implementations will look like throughout the year and into two.
1024.
Look we are having discussions with clients and.
Global discussions have gone well some of the pricing actions have already taken place and.
And we will be.
Will start showing up in our numbers.
<unk>.
Others, we are already having the discussion with clients.
It's going well. So this will continue throughout the year, we are looking at every single.
Instance, every single client every single area wherever we see a pressure.
Building from the inflation macro we are taking action.
And frankly, they're receiving up by and large.
A receptive.
Our client.
Okay, great good to hear and then just on the inflation impact of the business.
Is there a way to help quantify the impact inflation is having on your ability to expand EBITDA margin into 2023.
Well I mean, if if.
Inflation wasn't the factors.
Our EBITDA margin would be.
Several points higher.
Several points.
So.
It is as we shared.
There was the.
End of last year, and I think some of the calls.
Overall, we are seeing a five to eight point impact.
Sure.
Contribution profit in all of that translates into EBITDA. So.
As this gets behind US I think our ability as Paul mentioned, our ability to expand margins.
You saw in Q4.
We did a good job in margins were almost touching.
19%, 20%. So we have the ability to do that and we feel good about that.
Later on as well.
Thank you for your question.
Next question is from the line of Darrin Peller with Wolfe Research. Your line is now open.
Hey, it's Andrew on for Darren. Thanks for the question just a quick one could you just wholesaler count for the full year I believe it was 1700 at year end 'twenty, one so any framework around that would be I appreciate it.
Hi, Darrin, we're still finalizing some of the metrics for the 10-K. So we don't have it quite yet but should have it out next week when we publish.
Final version 11.
Couple thank you Paul.
Thank you for your question.
The next question is from the line of Andrew <unk> with <unk>. Your line is now open.
Hey, guys.
Lamar on for Andrew.
Thanks for taking the question.
Hum.
Last quarter, you had mentioned that you expect to exit.
2022, with a $100 million of new bookings.
Just wanted to see if that was the case and then can you also just provide any initial view on what the implementation pipeline is looking so far two months into the year.
So we did achieve deck, we finished over $100 million stronger than we thought we were going to do so very happy with the bookings performance and we are off to a good start this year as well and.
In terms of the implementation pipeline is up.
I'd refer you back to the prepared remarks, I said that <unk> actually.
Sure.
To deliver the top line of our expectations.
On the top line of the revenue, we don't need to sign any new clients. So that should give you some indication.
Got you and then just to touch back on the point around the drag that inflation is having on gross.
Is there anything here that we should be considering outside of the macro.
Is it just.
Is it just delayed implementations.
On boardings.
I think.
Fact implement.
Implementation is one of them and the other one is the pressure on the.
Contribution profit yourself on the inflation.
So as you know.
Some cases in some specific sector.
Utility client base.
As the.
At the average payment amount gets inflated that affects our contribution profit temporarily and thats. What I was trying to say that the client discussions are going well and we are making adjustments.
And some of that is some of that is already implement theres. Some of that is already in the process.
And some of that will happen throughout the year.
Thanks.
Just one more from me on <unk>.
I think previously you had said that you expect it to grow double.
Double digit share of the overall business is that still the case.
I think we.
Not quite so it's not but it's growing faster than our.
Our our business.
Yes, the core business Youre seeing.
Okay alright, thank you.
Thank you for your question.
The next question is from the line of Pn Huang with Jpmorgan. Your line is now open.
Hey, good afternoon, Duchenne I also wanted to ask for.
For a little bit more color on.
On how you think about the pipeline and the backlog because we've been hearing.
Broadly about bigger deals coming back and enterprises looking to.
To be more careful what's been but also look for opportunities to be more efficient and have better customer engagement. So how do you think that all.
Shakes out for for payment.
And your thoughts on replenishing your backlog in <unk>.
Housing of the pipeline that kind of thing.
Yes, good question Tien tsin so.
So the way to think about this will be and if I may take a step back actually.
Sure.
Yes.
If you recall that we have horizon one bid.
Mid market in Horizon, two which is enterprise during the Covid. What we felt was that the discussions that didn't require ballroom presence, where the multiple executives are involved in making the decision those discussions.
Happening fine and fastest as fastest earlier, including the implementation so signing decline in implementations is fine.
But where did it used to be a high touch customer engagement.
Whether it was related to signing of the client or implementing of such clients. There. We started to see a little bit of slowness during the COVID-19 years, what we have seen is a reversal of the trend.
The second half of last year, and the beginning of the seat as well what we're seeing is they're able to meet the clients.
Both from a prospecting, but also doing implementation process. So.
It is happening at a little bit faster pace than.
Earlier actually is accelerating and as we shared last year.
Great It was.
Significant growth over the year before and this year is off to a great start so.
We see continued acceleration of our bookings.
Especially in the enterprise entered by segment.
As covered is getting behind us and frankly, if I may make a broader statement here.
Some of the Big Tech companies to start to bring people back home in which makes it easier for other technology companies as well as to have a discussion with their employee pool, I think and which further Clos later in June .
Clients, bringing their technology teams back into the offices, we believe that that trend will actually be a positive.
For both in bookings new business, but also.
Bringing customers live at a faster pace.
Great. Thank you for that and just a quick follow up to that like with the implementations.
Have you found more efficiency.
And how you go about dealing with with implementations.
In general how big of a focus.
How big of an improvement have you seen there if any and theres a lot of changes going on the labor side, but just curious if automation and things like that have helped you there could be a better line of sight on implementation cost of delivery.
Yes actually this is a as you can imagine we.
We will be talking about implementation is a factor.
We're in very serious about internally as well and looking at it.
From all angles.
One of the interesting aspect about the implementations is that vast majority of our clients require actually no changes to our platform to go live.
And majority of those vast majority of those are in the mid market segment or the horizon one segment.
These clients that required a lot more handholding in.
Sophisticated and complex workflows.
They tend to be very large clients and thats, where the majority of the revenues in some ways but.
That's where majority of the work ends up being and even there we are actually making lot of investments and try to figure out can be.
Can be technologically.
<unk>.
<unk>.
Sophisticated business rules engines.
Based on all the different trends, you've seen so far and make it even easier without coding.
Bring the customers live.
And we.
<unk> been very successful at that in many cases.
An example of integration with the integration of a large client doesn't take a lot of time for us large or small it is more of the complex business rules, which.
We are now working on so we're seeing continued progression.
And.
And we are getting to a place where once this macro is somewhat behind us I think we would have a pretty good handle on how low we were able to execute against implementation timelines.
Even for larger players.
Alright, that's great. Thank you. Thank you for your thoughts.
Thank you.
Thank you for your question.
There are currently no further questions registered so as a reminder, it is star one on your telephone keypad.
The next question is from the line of Jason Kupferberg with Bank of America. Your line is now open.
Hey, guys. This is Melissa on for Jason.
Just have a question about like revenue per transaction I guess since with the introduction of the new SMB product.
Are you kind of expecting revenue per transaction for 2023 to increase or kind of remain stable versus 2022.
Passenger you product is still early stage and we're not accounting for in 2023 guidance.
I expect no material revenue from it so it's not going to affect revenue per transaction, we will see depending on inflation.
Some pressure on contribution profit per transaction potentially throughout the year, depending on how our pricing actions flow through.
Another thing so.
So stable for most of the points might be.
But we expect a little bit of pressure maybe on the top line revenue per transaction as well as contribution profit per transaction throughout 'twenty Frankfurter.
Okay cool.
Thank you for your question.
There are no additional questions waiting at this time, so I'll pass the conference back to management team for any closing remarks.
Thank you. Thank you everyone for taking the time really appreciate it and have a great year.
Thank you.
That concludes the conference call. Thank you for your participation you may now disconnect your lines.