Q4 2023 Paymentus Holdings Inc Earnings Call
Good day, and welcome to the fourth quarter and full year 2023 Pimenta.
Mantas earnings Conference call. This call is being recorded all participants are currently in a listen only mode. There will be an opportunity to ask questions. Following management's prepared remarks, if you'd like to queue for a question you can do so by dialing star one on your telephone at.
At this time I will now turn the call over to David Hanover Investor Relations. Please go ahead.
Thank you good afternoon, and welcome to <unk> fourth quarter and full year 2023 earnings call. Joining me today on the call is Deshawn Sharma, our founder and CEO and Sanjay Kalra our CFO.
Following our prepared remarks, we will take questions.
Our press release was issued after the close of market today and is posted on our website, where this call is being simultaneously webcast.
The webcast replay of this call in the supplemental slides accompanying this presentation will be available on our company's web site under the Investor Relations link and I are peninsulas dot com.
Statements made on this webcast includes forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095.
Forward looking statements use words, such as will believe expect anticipate and similar phrases that denote future expectation or intent regarding our financial results and guidance the impact doors and our ability to address continued economic uncertainty.
Opportunities strategy implementation timing product enhancements impact from acquisition 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.
You'll note regarding forward looking statements and risk factors in our annual report on Form 10-K for the year ended December 31.
'twenty two.
And our subsequent quarterly reports on Form 10-Q, and our Form 10-K for the year ended December 31, 2023, which we expect to file with the SEC shortly and elsewhere in our other filings with the SEC.
We encourage you to review these detailed forward looking statements 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 non-GAAP operating expenses adjusted EBITDA adjusted EBITDA margin and non-GAAP net income and earnings per share. These non-GAAP financial measures, which we believe are useful in measuring our performance and liquidity should be considered in.
And to and not as 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 Jim Schott Sharma, our founder and CEO.
Thank you David.
We had a great quarter and a great year.
And we're looking forward to getting a little momentum into 'twenty 'twenty four.
Even more exciting to me is my view that our clinical Tiptree financial performance.
<unk> only a subset of the a portion of these arising out of the innovation framework, we have built over the years.
Therefore, we are excited about our long term future and believe we are just getting started.
Now I'll cover the fourth quarter and the full year can we go to three highlights.
Same thing on millions of dollars using our payout in disbursement platforms.
These pillars businesses banks credit unions, and Smbs, all engage our direct product offerings that uniquely address data specific business and payment workflows.
So if you are an investor like me in this business I hope you're as excited as I am about where the business is headed with ever expanding Tam.
Along with our growth and profitability.
In other words I believe this is a long term sustainable growth business with innovative platform and the company DNA.
In closing we are proud to report another period of results that were ahead of our original expectations.
Both for the fourth quarter and full year 2023.
At the same time, we continue to prove our ability to increase operating leverage without sacrificing revenue growth.
We ended the year with a strong backlog and solid sales momentum going into 2024.
And of course, we intend to remain focused and disciplined and on boarding of a strong backlog, which we expect to fuel growth.
Future growth.
Now, let me turn it over to Sanjay to review our financial results in greater detail.
Thank you shop and.
And thank you all for joining us today.
Before I discuss our quarterly and full year results and our 2020 for outlook.
I'd like to remind everyone that the financial results I'll be referring to include non-GAAP financial measures.
As David mentioned earlier, our Q4 press release and earnings presentation, and global as reconciliations of the non-GAAP financial measures discussed on this call to their corresponding GAAP measures.
Most of these are available on our website.
Turning to slide five for the fourth quarter of 2023, we delivered another quarter of very strong financial results.
We believe these results continue to demonstrate the resiliency stability and strength of our business.
Our fourth quarter results included revenue of $164 8 million contribution profit of $66 3 million.
And adjusted EBITDA of $19 9 million.
Our results came in higher than we originally expected and I'll discuss the drivers of our outperformance in more detail shortly.
We also continue to experience solid business momentum in the fourth quarter. This enabled us to once again exited the quarter with a strong backlog, while further increasing our cash position.
Now lets review of our fourth quarter financials in more detail.
Fourth quarter 2023 revenue was $164 8 million up 24, 7% year over year.
This growth was largely driven by increased transactions from existing builders the launch of new builders and increased activity in our instant payment network or IBM business.
The number of transactions, we processed grew $224 8 million in the fourth quarter up 28, 4% year over year.
Our transaction growth exceeded revenue growth during the quarter, primarily due to better mix.
Fourth quarter 2023 contribution profit increased to $66 3 million.
22, 7% year over year.
This year over year increase in contribution profit reflects higher transactions from existing dealers and the launch of new meters.
Contribution margin was 43% for the fourth quarter, essentially flat compared to 49% in the prior year period, despite adding a number of large size builders to the mix throughout the past year.
Contribution profit in the fourth quarter surpassed our expectations and was actually our best quarter in 2023 in terms of year over year growth.
This outperformance was primarily driven by three key factors.
First we saw higher transaction growth than we had expected initially during the quarter. The growth was driven by increased transactions from newer builders that were launched earlier in the year with the incremental transactions driven by seasonality and adoption success.
Second we saw growth from builders were seasonally strong in the fourth quarter.
And third we realize the benefit of improved pricing from some builders upon renewal of their contracts.
Contribution profit per transaction for the quarter was 53.
Which was modestly down from 56 in the prior year period, primarily due to better mix.
As <unk> stated in the past variables outside of our control such as an increase in the average payment amount January and the payment mix better mix CPI and card network fees etcetera can significantly influence and diminish the utility of contribution profit on a quarterly and per transaction basis.
Fourth quarter 2023, adjusted gross profit was $54 2 million up 21, 5% year over year.
Year over year, adjusted gross profit growth marginally trailed contribution profit growth primarily due to increased employee costs. We recorded during the quarter related to customer support that are nonrecurring.
Fourth quarter 2023, non-GAAP operating expenses increased to $36 7 million.
Marginally up one 1% year over year.
The increase was primarily due to increased sales and marketing expenses and decision element expenses net of savings, we realized in general and administrative costs.
We expect to increase sales and marketing expenses as we continue to focus resources on the execution of our go to market strategy and increase in investments related to converting our strong pipeline to bookings.
And on boarding our strong backlog.
Additionally, we started to see increased hiring in the fourth quarter, including some hiring that we had originally planned for the third quarter of 2023.
Fourth quarter 2023, non-GAAP net income was $13 9 million or <unk> 11 per share compared to non-GAAP net income of $5 1 million or <unk> <unk> per share in the prior year period.
Okay.
Fourth quarter 2023, adjusted EBITDA was $19 9 million.
A record 30% of contribution profit up 95, 4% compared to $10 2 million or 18, 9% of contribution profit in the prior year.
This very strong quarterly performance compared with the guidance. We previously provided was primarily driven by two key factors.
First we benefited from increased contribution profit due to transactions growth and the reasons highlighted earlier.
And second hiring.
<unk> were less than we had expected in the quarter, resulting in lower operating expenses.
Even taking into account these unexpected variables, which benefited us.
We believe our strong adjusted EBITDA margin demonstrates the inherent operating leverage we have in the business and our ability to adapt to changing market conditions as we continue to grow.
Related to this we also exceeded the rule of 40 for the fourth quarter coming in at approximately 53.
This is a measure we take very seriously and our team here monitor it very closely.
This is our third consecutive quarter exceeding the rule of 40.
Turning to slide six.
I will summarize our full year 2023 financial results, which also came in higher than we originally expected.
Revenue for the full year increased 23, 6% to $614 5 million driven by 24, 9% increase in transactions from new builders.
<unk> transactions growth from existing builders.
Contribution profit.
Increased 19, 7% or $249 million, primarily due to increased transactions and re pricing initiatives.
Lastly, adjusted gross profit increased 23, 1% to $199 2 million.
non-GAAP operating expenses increased $150 million up six 8% year over year, primarily due to higher sales and marketing expenses as we continue to focus resources on the execution of our go to market strategy.
non-GAAP net income was $40 1 million or 32 cents per share compared to non-GAAP net income of $14 8 million or <unk> 12 per share in the prior year period.
Adjusted EBITDA increased 103, 1% to $58 1 million, primarily due to increased adjusted gross profit net of increased non-GAAP operating expenses.
We exceeded the rule of 40 for the full year ending at approximately 44.
We are proud to report that $29 5 million of $39 7 million contribution profit increase representing 74% incremental contribution profit in the fiscal year 'twenty three.
<unk> flow through to adjusted EBITDA.
Now I'll discuss our balance sheet and liquidity position on slide seven.
We ended fourth quarter with cash and cash equivalents of $183 2 million.
Compared to $166 9 million at the end of Q3 'twenty three.
The $16 3 million increase was primarily comprised of $24 4 million of cash generated from operations.
Offset by $8 4 million used in investing activities.
Similarly, internal use capitalized software used to drive growth and innovation.
The company does not currently have any debt.
Our free cash flow generated during the quarter was $16 million.
Our days sales outstanding at the end of fourth quarter was 43 days compared to 45 days at Q3 23 within our expected range.
Working capital at the end of the fourth quarter was approximately $208 million an increase of approximately 6% from the end of Q3 2003.
We had $126 5 million diluted shares outstanding as of December 31, 2023, compared to $125 6 million diluted shares outstanding at the end of Q3 2023.
The increase was largely due to improved average stock price during the quarter and to some extent due to divesting of employee restricted stock units and exercises of stock options.
Now I'll turn to our Q1, 'twenty four and full year 2024 guidance for revenue non-GAAP contribution profit and adjusted EBITDA on slide eight.
Taking into account our progress to date for Q1 'twenty four.
Our guidance is revenue in the range of $170 million to $176 million.
Contribution profit in the range of $64 million to $66 million.
And adjusted EBITDA in the range of 15 million to $17 million.
Before discussing full year guidance I want to mention that we are continuing to follow the same prudent approach to guidance that we follow during 2023.
Uncertainty around the macroeconomic environment still exists.
For the full year 2024, we currently expect revenue in the range of $720 to $744 million.
Reflecting growth of 19, 1% at midpoint and 21, 1% at high end.
Contribution profit in the range of $274 million to $288 million.
<unk> up 16, 6% at midpoint and 19, 5% at the high end.
Our growth range for contribution profit is wider than revenue, primarily because as we've said before contribution profit is subject to a number of external factors that are beyond our control.
Accordingly, we are taking a cautious approach on this metric.
And finally, adjusted EBITDA in the range of $65 million to $75 million for the year reps.
Representing 25% increase at the midpoint and 29, 1% at the high end.
Please note this adjusted EBITDA guidance reflect the annual Merit awards for our employees and our expectation that the increased hiring pace. We saw in the fourth quarter will continue to pick up in 2024.
It also takes into consideration the slower operating expense growth we saw in 2023.
This was largely a reflection of the accelerated operating expense growth, we had seen in the prior to fiscal years, primarily as a part of going public.
Now that this period has passed we expect to deliver a more normalized operating expense growth rate in 2024.
During our last earnings call.
We provided long term growth targets for both revenue and adjusted EBITDA.
Our our two primary financial metrics.
We stated our goal to grow revenue at approximately 20% annually and to grow adjusted EBITDA dollars between 20% to 30% annually.
The guidance that we have provided today for the full year 2024 reflects these long term targets.
Regarding contribution profit and operating expenses, which we consider a secondary financial metrics.
We plan to actively manage our operating expenses dialing them up or down as necessary depends.
Depending on how contribution profit is trending throughout the year to enable us to remain a rule of 40 company on an annual basis.
We amended this quite well in 2023, and we believe we can do so again in 2024, given our strong operating leverage.
In summary, we reported exceptional fourth quarter and full year 2023 results.
Throughout 2023, we consistently demonstrated our ability to generate strong revenue contribution profit adjusted EBITDA cash and bookings growth.
This enabled us to end the year with a substantial backlog.
Based on the solid footing and strong visibility we continue to believe we are well positioned for 2024.
Thank you everyone for your attention today and now I'll turn it back to <unk> for final remarks, before we open up the call for questions.
Thanks Andrea.
I am proud that our team came together.
And significantly beat of our original expectations for 2023.
Which we have set out.
Around the same time last year.
I believe this performance illustrates the resilience of our business.
Despite the difficult macro environment, we dealt with.
Cindy just covered over guidance for the full year <unk>.
And the first quarter of 2024.
As I shared earlier, we feel good about the guidance based on the strength of our backlog.
On that note also want to thank all of my team members for their continued efforts and dedication.
That concludes our prepared remarks I'll now open the lineup for questions.
Absolutely we will now begin the Q&A session, if you'd like to queue for a question on today's call you can do so by dialing star one on your telephone keypad if for any reason you'd like to remove sat question. Please dial star two.
Again to ask a question it is star one.
The first question is from the line of John Davis with Raymond James Your line is now open.
Good afternoon, guys. This is Madison on for J D. I appreciate you taking the question.
Wanted to start on the revenue guide, obviously calls for roughly 19% growth year doesn't include any new client wins and I understand the conservatism.
But can you help us understand just how much new clients have contributed to growth in the past I'm, just trying to get a sense for the potential upside and new client growth.
And our plan given the strong backlog and sales trends youre seeing.
That is and I appreciate the question.
The growth of the new clients and the growth of the existing clients. These are the two contributors for our growth agenda the year over year and I would say, we generally do not disclose the breakup of the do I would say that the growth of this year we are seeing.
19, 1% at mid point that is comprised of both these factors as I mentioned and I would say they are in a very similar ratio.
What you saw last year. They are in a pretty close range of those numbers last year as well and the trends are continuing as we expected and I think as we are guiding that high end at 21, 1% and as Sean just mentioned if all over.
<unk> implementations happen on time as planned I think that that should get us to high end, but I would say no new customers are planned.
This year <unk> will have to win this year and implement this year all of our revenue expectation is based on the client meetings, we had in the end of 2023.
Yes.
Gotcha. That's helpful. It's probably worth noting that obviously you outperformed that initial revenue guide from last year by mid single digit percentage wise.
Then just as my follow up here on capital allocation, obviously, you talked about the pristine balance sheet strong cash position no debt generating.
Free cash flow now can you just talk about your capital allocation philosophy, and then just any color you could possibly give on how you guys are thinking about cash flow in 'twenty four would be helpful. Thank you.
Sure Madison, we are we are very glad to be in a great position in the current economy to have a very good balance sheet $183 million on the balance sheet gives us a lot of comfort and opens a lot of avenues for us to think about but our priorities for capital allocation, our cash spending remained unchanged since what we have.
Discussed in the past, we want to grow organically and the biggest opportunity for us to spend cash to prove the best result for us is to invest in hiring the sales and marketing team. So we can build a better pipeline for growth for outer years in fact, I will rather highlight the current year expectations for growth of revenue.
We do not need any additional sales team or additional sales bookings, but we plan to invest in our sales team, which is which we think is the.
Right measure for us to spend money other than this we currently do not have any other plans to spend cash and I think we are heading it headed in the right direction starting from Q4 <unk> sales, we saw that trend happening and we are excited to make that happen more in this year and built a great pipeline.
Okay.
Got it. Thank you I appreciate all the color.
Thank you.
Thank you. The next question is from the line of Dave Koning with Baird. Your line is now open.
Yeah, Hey, guys. Thanks, so much.
This job I guess my first question.
You gave at the end of 'twenty. Two you gave I think a little over 1900 clients. So last year, we can kind of back into like 10% client growth and mid teens revenue per client growth did you give that number at the end of 'twenty three and I don't think I saw it in the presentation, but maybe if you could just give us a little bit of how much clients grew in that how much revenue per client growth.
Yes, David the new number that's an annual number we disclose in our 10-K will be filed shortly and the number will be in there and is 2200.
So it's a 300 million increase from the last number you saw and the increased prior to that was 200. So definitely we are marching at an accelerated pace than we were marching earlier and I think revenue per client is I will say is getting better interestingly the revenue per client I would also highlight David is not really.
Kind of the most optimum metric to look at given the kind of given the size of the clients. We are getting into we are getting large enterprise customers as well as small and medium sized.
<unk> from various verticals, our mix is kind of becoming different than it was a few years ago. So I think looking at revenue per client may not be right metric, but I get it that thats easy metric to look at and see the trends I would say just the growth of bidders itself is more relevant than revenue per biller.
Got you.
That's helpful and I guess, just a follow up question.
You've become quite profitable so quickly in the last few years.
Now we can look at like we can look at earnings as a valuation metric and I'm just wondering.
Do you have like a normalized tax rate or something that we should use when we start thinking about.
About how to think about earnings.
Yes, David.
Thats a great comment thank you for that.
We are profitable and we definitely want to be and we think we will be profitable going forward as well given the strong operating leverage. This business has in terms of tax rate, we are profitable and we kind of exhausted all the Nols. This year, a very small portion is left which will be used next year. So going forward for the long term planning for earnings.
I would suggest you use the rate, which is closer to the statutory tax rate in the U S. Accounting States I think you should use approximately 25% tax rate.
Okay.
Yes that makes sense.
Thank you and great job.
Thank you. Thank you David.
Okay.
The next question is from the line of will Nance with Goldman Sachs. Your line is now open.
Hey, guys. Thanks for taking the question you called out a number of client wins in the quarter across a number of verticals.
Wondering if you could kind of bubble Qualcomm like a mix of incoming client.
Are there any verticals, where you guys are seeing particularly increased traction or.
Where youre getting increasingly optimistic that maybe caught unlock some additional growth ballpark because we haven't played in historically in March.
Yes.
Eight point.
From our perspective.
Yes.
During the IPO Road show, we actually had a comment that wherever there is a.
Bill There is there is a payment and whenever there is a payment there is <unk> and I think thats coming to pass at this point where.
From all of our channels, whether it's direct acquisition of clients or to channel partners of various kinds. What we're observing is that the needs of.
Of the customers is the same that they want to automate the complex payment and business workflows and our platform fits the bill perfectly for that.
So as a result.
We're growing in.
All different verticals utilities remains a strong vertical for us.
Many of the verticals.
As I named we are seeing traction. So we're very excited about the about the future actually in one of the other things which is interesting is as we are entering into some other <unk>.
Articles.
We are noting that it's not just the payments and even payment out so disbursements.
And payouts becomes important.
Important transaction.
Transaction flow that we could acquire automate tour platform. So we're excited about that as well.
Appreciate all that and then just maybe on some of the IGN comments, you kind of mentioned the progress in TMR integration with with Bank Bell pad.
Maybe you could just talk about the opportunity to build long term I think a lot of people will consider payment system companies like that kind of be in opposition to traditional bill pay centers at the banks. So how do you see that kind of playing out over time or are there opportunities to commuting to work more closely with some of the incumbents in the space and how do you kind of see the IP and <unk>.
<unk> finance typically to kind of the bank bill pay market.
Thank you Bill.
I think this is a.
Trusting scenario I think what we what we felt right from the beginning of.
Of the business that each billing company, if I can liken it to the analogy of cell phone network each billing companies like a cell phone type work.
And if you have enough of the billing companies like we do and we continue to.
And we have built a platform in the ecosystem, where we are signing increasingly at a faster pace the billing companies of all sizes and various verticals.
Onto the network.
The cell phone network, if you will.
The pillar network becomes increasingly valuable owner soon.
In addition to the above.
The revenue we generate from the builders themselves. So what what that means is that any bank, who has any desire to attract customers are not are stopped losing the customers or the payment volume they've historically lost to.
<unk>.
If they want to participate and continue to maintain their customer base. They have to use a real time network.
Like IPM.
And since we are the leader in the space or at least we believe we're the leader in this space.
We believe that this is as we bring more and more pillars. This becomes even more valuable.
Four four banks and other third party providers, who want to provide aggregate consumer bill payment. So in some ways that CASM that existed between the <unk>.
Consolidated business, our bill payments to the Biller direct bill payments is being sort of evaporated.
Being reduced or eliminated.
Instant payment network. So very very we are very excited about the future here.
And frankly.
As time progresses.
We will start to become more and more evident.
How and why we are winning the type of customers who are winning.
Super interesting.
Questions on mall.
Yes.
Thank you Phil.
Thank you. The next question is from the line up Darrin Peller with Wolfe Research you May proceed.
Yes.
Got it.
This job on this maybe just touch a little bit more on the landscape for M&A, because I think you I heard you mentioned pricing a couple of times in your prepared remarks.
If you can give us a little more understanding on how receptive clients have been introducing.
Where payment is generally felt leverage to do so.
Maybe add onto it just overall competition. It looks like you guys are obviously, a differentiated yourselves as time goes on more and more.
So maybe just any more color on where if you've seen any incumbents do anything differently.
Perhaps new startups.
Sure.
Great question, Dan I think from our perspective the approach we took during the during the inflation inflationary period or higher inflationary period was.
We wanted to work with our clients, but we wanted to demonstrate that we are a long term partner and we understand the pinpoint that just because inflation has come up rather quickly. It may dissipate quickly as well. So we wanted to give a little bit of time for customers to understand that they are working with a great partner.
In addition to having a great platform like likely support.
We offer.
And that approach actually worked extremely well so we were able to walk the customers through the pinpoint we were suffering publicly.
You all know that.
It would have been called out multiple times about the inflation impact we were facing.
We were able to show that combined with the data obviously the detailed data customers were.
We're privy to.
We're able to review the renewed.
Our renew the pricing update the pricing customers were rather understanding.
So we feel good about wearable contractual arrangements other declined with lower pricing.
Capabilities exist with the strength of the platform and the technology capabilities. We support so should a situation like this were to arise.
In the future it gives us confidence that our approach and methodology of taking a long term view to customer service and then adjusting the pricing could work again well for us.
Maybe just one more on.
On the operating leverage side.
If you can give us a little bit more color on your operating expense plans and the cadence expected for 'twenty four.
I think perhaps a little more color on where you think you need to invest.
I would say that you saw the growth. This year was six 8% full year and next year, while we don't guide for Opex as such but you can I think <unk> modeled it out looking at the guidance, we're giving for the other three metrics you will see that the Opex is currently expected to grow in <unk>.
<unk>, therefore, youll come I would think looking at what we provided.
Yes.
We are actually taking a prudent and conservative approach in terms of what we need to do and as I mentioned earlier, we don't really need to spend.
Opex majority of the Opex is not needed to be spent for this year's growth. This year's growth is coming from bookings. We did last year. We are planning to spend more in terms of what we need to book for outer years growth. So in terms of your main cushion we are able to spend the majority of the spend will be in sales and marketing R&D and G&A.
Marginally go up but not significantly the growth will mean opex growth. Many libyans isn't a marketing that said I also want to highlight one thing.
Majority of the spend is discretionary in nature.
And we manage our business.
Very carefully in fact.
There is a regular review of how the Opex is trending and we can dial up and down based on how the CBS rounding. So operating leverage is strong as you saw last year like we dropped 70% plus of the bottom line of Incrementals EBIT dollars. It can happen again, but we are not planning to do that by choice.
So I think we can manage it the way business is progressing but we are we are glad to be in a position of operating leverage.
<unk>.
Understood great.
Thanks, guys.
Thank you.
Next question is from Andrew Bock with Wells Fargo. Your line is now open.
Hey, Thanks for taking the question just wanted to put a finer point on the hiring plans, particularly in sales and marketing that you highlighted.
I know you mentioned in your prepared remarks that it would be.
A function of converting the backlog, but then you also said just now.
Pending the growth.
In the out years.
Priority so.
And I guess qualitatively, how do you kind of anticipate these sales and marketing investments as they come on to augment your growth.
Go to market strategy and then if you could just put a finer point.
Quantitatively like what should we ultimately be kind of expecting base.
Based on your current plans for sales and marketing expense growth and 24.
Yes, Andrew.
As I said from a modeling perspective, you would come out around 15% I think at the midpoint of growth of Opex and to put a final point quantitatively I will say.
Again give a percentage specifically here, but I would say a bigger piece is our material pieces for sales and marketing and the remaining piece for R&D and G&A.
<unk> also depends on G&A in terms of how the few things come up D&O insurance renewal for example, a couple of renewals we got a good benefit last year and we don't know if there are market trends of those costs, which are significant costs, where do they go. This year are they going to stay flat or go up but I would think that will marginally go.
Not significantly so take the biggest piece of the ingredient sales and marketing and remaining on these two now within sales and marketing if I have to think about how much will go for growth of pipeline for outer years versus the backlog implementation I would say in these two things as well.
The material portion would go for generating additional pipeline for <unk> and the smaller piece automotive speeds for.
Backlog implementation.
And then the qualitative piece, but is there anything changing in the go to market strategy.
Well our basic go to market strategy is not significantly changing our one thing, which we are continually looking at are there more verticals, where we need to get into Oregon get into we've made a significant progress I would say in the last two years in diversifying more into newer verticals and we are seeing good progress there and good traction there so.
Our phase two accelerated diverging into new verticals will continue but other than that there is no change in our <unk>.
And the euro.
Got it makes sense and then my follow up was.
Sandra you mentioned that the contribution guidance slightly wider.
And then the revenue guide that you gave you.
You called out we.
The uncertainty around macro and a lot of the mixed dynamics I mean are you seeing anything thus far.
Into 2024 being around.
Hi, biller or the network fees that would lead you to inform us on that that wider range for contribution profit.
So Andrew that's a very interesting question.
Interestingly, we are not aware of any specific change here, what what we've learned among.
I will say in the last two quarters when we look at all the contribution profit for all of the quarter. Then tried to analyze all the trends. What we've noted is that the degree of visibility at any given point in time for the current quarter is much better than the full year and Thats, where we are.
Look at our Q1 guidance versus full year, we are taking a broader approach just because the quarterly variability exists for example, you'll see Q1 'twenty four growth exceeds revenue growth I mean, Q under Levered CB growth exceeds revenue growth in Q4, 23 was similar revenue growth, but a change in another quarter quarterly variability exists.
As one of the most difficult metric to forecast.
But that said the variability on Seabee does not impact our bottom line EBITDA and we can calibrate the opex to manage over profitability, depending upon how the CPE is trending.
So as a result, I will say that the utility of CB or contribution profit.
As a key as a key metric is diminishing over time and hence they also call it a secondary metric.
It is limited and we mainly used to calculate a rule of 40, hence we thought it prudent to take that approach.
Rather than taking a narrow range as there are so many factors and ultimately we can manage with our bottom line target.
By dialing up the opex up or not.
Maybe this was a mouthful maybe this was more than you asked for but hope it provides some perspective and insight into how we think about this metric.
No.
And also if I may add what Sanjay mentioned earlier was that to deliver productivity for growth.
Opex actually.
Even though everyone knows that we work in the non discretionary we serve as the non discretionary industry, but our own internal opex in the context of 'twenty 'twenty four.
Is actually rather discretionary so we are able to turn the dial up and down because of the operating leverage we have so we feel we feel good about the.
The top and the bottom end of the guidance and the <unk>.
Despite the variability in the CP and Thats it.
Essentially the message we want to communicate that.
We know the trends in the business. So we are feeling.
Good about how we're capturing the market share and how we are able to profitably grow the business.
All of that is moving in the right direction.
Loud and clear thank you Sean.
Thank you.
Thank you.
The next question is from the line of Tien Tsin Huang with Jpmorgan you May proceed.
Hey, good afternoon, and good results here just a couple of clarification just did you share the NR for the year.
It came.
Came together and how fiscal 'twenty four might be different and also did you disclose the bookings or backlog growth and 23 versus the prior year just curious on the magnitude of benefit there.
Hi, Tien tsin, no we have not disclosed the numbers.
For the things you asked for.
Okay anything qualitative to share then just on the bookings or backlog front.
But qualitatively I can share.
Yes.
Yes, sorry, yes.
Generally I would say, our NR as well as bookings and pipeline. They are growing they are going at a very decent base I would say and thats, giving us all the confidence to not only exceed our Q4 expectations. We delivered a strong quarter. We are very proud of that and at the same time Q1 also we are marching in a very good way.
And I think we are headed for the I would say in the right direction for the whole year.
Given that we exited with a very strong backlog. So I think all of these metrics qualitatively, providing us a lot of encouragement and confidence.
In Finjan, if I may add to that was that one of the key reasons I wanted to point out.
The point that we exited 2020 key with enough.
In the bag that we could actually deliver the top end of the guide for any or.
All of the three metrics metrics as the two primary and one secondary.
Being CPE.
It is primarily based on the strength of the backlog and that is growing year over year.
And we are feeling good about <unk> 24 as well.
Yes, no it sounds that way that's why I thought I would ask the question just my quick follow up then on the.
On the drop through or incremental margin around EBITDA was quite strong in 'twenty three running around 50% in fiscal 'twenty forward looking at my my simple math. So just just to make sure. It sounds like there is some hiring that will come through.
But you called out I know, you'll adjust opex, depending on what contribution profit lands, but is that the primary difference.
And thinking about drop through or incremental margin and 24 versus 23.
That's right.
Okay.
Thank you.
The next question is from the line of Rebecca <unk> with Citi. You May proceed.
Thank you.
Hi, guys can you hear.
Good luck and upgrading the J P. Morgan.
Yes.
Expected that partnership to have.
Pretty meaningful contribution in turning for next quarter when do we see now.
Thank you Rebecca for the question.
I'm very proud.
With our partner.
Very proud for our partnership with JP Morgan Chase.
Theyre great partner Great organization.
And.
Excluding extremely well in all areas.
We're looking forward to a great 2024.
With the Jpmorgan Chase, we also swapped.
A very strong partnership ecosystem.
And.
We're looking forward to and frankly as you can think about our go to market strategy is Sandia was also mentioning earlier that.
Increasingly.
Partnerships become a big big factor for us.
So JP Morgan Chase.
As a strong partner for us.
But also we have other partners software vendors fintech providers and so on.
Yes.
Okay.
And I wanted to ask about the contribution profit and a slightly different way the profit margin has been good.
Declines last year, because we have some negative.
And on term inflation.
And if we're looking at trying to underscore outlook, even at the top end of the range. We're offering you may had declining wow.
Everything from Macquarie.
Anything that we might not be thinking about.
So Rebecca there are two pieces there are two answers to this share individually number one as we are onboarding larger customers enterprise customers enterprise customers pricing definitely is different than smaller or mid sized customers due to the volume discounts that get because they've got bigger.
Transactions or sorry, much larger transaction base. So I think as a result of that our contribution profit margin is getting softer a little bit, but that's totally fine given our.
Strong operating leverage and hence the call contribution profit or contribution margin as our secondary matrices because they don't really matter as much to our long term growth model, which are purely dependent on the revenue growth and EBITDA growth. So it's a good question to analyze that Howard the CB margin is good.
But at the end of the day that can easily be managed by adjusting dialing up or down or opex. So it doesn't really matter global bottom line I think they are going to be situations that you wouldn't see that FCB percent is getting softer already built that could still get better because we can manage our expense better and in our current long term.
<unk>, which we have talked about I E, 20% topline growth and 20%, 30% bottom line adjusted EBITDA dollars growth annually I would think if CB margin gets better.
There is also a probability depending upon what kind of customers. We get I would think there is an upside to EBITDA, although we are not planning to.
I'll get there right now I think we are applying a prudent approach, but what I'm just trying to say is contribution profit in contribution margin really secondary and over analysis of that might not produce an optimum result, you understand the company.
And if I may also say one more thing.
Jason alluded to Azure biller mix changes in the larger bill or comes to play.
Imagine a scenario, where we signed a large deal where we're going to have a contribution profit off.
$1 billion.
That changes.
We are less concerned at this point exactly what each transaction is.
Contribution profit for each transaction is we are more concerned about how quickly and how efficiently.
Can we serve the customer and what will be the net operating margin from the biller is what the lives on our platform, which ends up being very good.
Based on the operating leverage we've been talking about.
Great. Thank you.
Okay.
Thank you there are no further questions in queue I would like to turn the call back over to <unk> pharma for concluding remarks.
Well. Thank you everyone for joining our call today really appreciate the time have a great day. Thank you.
That concludes today's conference call. Thank you for your participation you may now disconnect your lines.