Q3 2024 Paymentus Holdings Inc Earnings Call
and Oli Motte. There will be an opportunity to ask questions following the management's prepared remarks. If you would like to queue for a question, please press star 1 on your telephone keypad. At this time, I will now turn the call over to David Hanover, Investor Relations. Please go ahead.
David Hanover: Thank you, Operator. Good afternoon. Welcome and thank you for joining the webcast to review our third quarter 2024 results.
David Hanover: Our earnings release documents are available on the Investor Relations section of the Paymentus.com website. They include the earnings presentation that we'll make reference to during this webcast. This webcast is being recorded.
David Hanover: I hope everyone's had a chance to review those documents. Our founder and CEO, Dushyant Sharma, will make some opening comments before Sanjay Kalra, our CFO, discusses the details of the quarter and our guidance.
Following our prepared remarks, we'll take questions.
David Hanover: Let me just remind you that we may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and we refer to non-GAAP financial measures
David Hanover: during the webcast. Forward-looking statements are based on management's current expectations and assumptions that are subject to risks and uncertainties.
David Hanover: Factors that may cause our actual results to materially differ from expectations are detailed in our earnings materials and our SEC filings that are available on the website. Information about non-GAAP financial measures, including reconciliations to U.S. GAAP, can also be found in our earnings materials that are available on the website.
Speaker Change: With that, I'd like to turn the webcast over to Dushyant Sharma. Dushyant?
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Thanks, David.
We are a phenomenal third quarter.
Speaker Change: and overall, full year 2024 is shaping up to be a great year.
as a result of our substantial progress.
We are raising our full year 2024 guidance.
Speaker Change: And before I go into the details for the quarter and talk about our exciting future, I want to remind you that our long-term CAGR targets
for our primary matrix are
Speaker Change: 20% top-line revenue growth and 20 to 30% adjusted EBITDA growth.
Speaker Change: These targets remain unchanged even accounting for our outperformance during the third quarter.
Going forward, we will refer to these
Speaker Change: Our CADR model is related to our primary matrix only and should not be confused with our secondary matrix.
which are Contribution Profit and OPEX.
as we have done quite effectively in the past.
that is inherent to our business model.
Let me now provide a third quarter financial summary.
in the third quarter
revenue grew 51.9% year-over-year.
At the same time, contribution profit increased by 30.1%.
to $80 million.
Speaker Change: Due to our solid execution in calibrating our secondary matrix of CP and OPEX, our adjusted EBITDA grew 58.2 percent.
to $24.6 million.
and as a result
on a Rule of Forty scale.
Speaker Change: given our third quarter results and expectations for the full year 2024.
Speaker Change: As you can see, our performance is well ahead of our Kager model.
Speaker Change: Our excellent growth rate during the quarter and how 2024 is shaping up is one of the many exciting dimensions of our business.
Another important dimension is the durability of our Kegel model.
which we also feel great about.
Speaker Change: Let me now double click on our business strategy a bit.
As you are looking at our numbers,
Speaker Change: Please note that there is a specific business strategy that is in play here.
Speaker Change: We want to increase and capture more market share and over time we want the interchange economy and associated life cycle to flow through our P&L even though interchange today only serves as a cost center for us.
Speaker Change: This strategy adds to our scale, and with this level of scale, it creates tremendous opportunities for modernization and cost reduction.
Therefore, longer term
Speaker Change: We will work to expand our margins by pursuing products and solutions.
Speaker Change: that offer the ability to convert part of the interchange from a cost center to a revenue center.
In other words,
Speaker Change: We view today's interchange expense as possible time from a margin expansion standpoint.
Speaker Change: To clarify, I'm talking about our longer-term strategy here, as currently we are mainly focused on market capture.
for Market Capture.
Speaker Change: in a responsible manner where new deals are accretive in both the immediate term and the long term.
Speaker Change: And indeed we are capturing market share at a faster pace than ever before as a public company.
Speaker Change: It's even more impressive when you look at our scale and see 50% plus top-line growth.
On to our booking activities now.
Bookings for this quarter and this year are strong.
Speaker Change: Our platform and the IP ecosystem moat combined with an excellent and efficient go-to-market strategy of delivering long-term profitable growth.
Speaker Change: To provide further detail on bookings, we signed several clients across various industries, contributing to our continued momentum.
Speaker Change: These included diverse clients and verticals such as insurance, government services, municipalities
utilities, education, telecommunications
banks, credit unions, and property management, among others.
Speaker Change: These bookings position us quite well for 2025 and beyond due to the multi-year nature of these agreements.
On to our on-boarding of activities now.
Speaker Change: We are onboarding revenue at a faster pace than ever before, as is evident from the top-line growth rate.
Speaker Change: This means we can expect to enjoy the full year benefit from this cohort of go-lives throughout all of 2025 versus only a portion of this contribution which is what we had originally modeled.
Speaker Change: Bringing on this cohort of large clients earlier also brings other strategic benefits to us.
These include
giving us more ammunition for our marketing activities.
is strengthening our IP and ecosystem.
Speaker Change: enabling further economies of scale and longer term increasing our margin expansion opportunity.
We believe this onboarding performance has reduced our risk.
Speaker Change: towards 2025 execution. And therefore, as we initiate budget planning for 2025, we are very pleased to take a bit of a headstart towards achieving our CAGR model.
as we have demonstrated throughout the last seven quarters.
We will continue to methodically calibrate our secondary metrics.
Speaker Change: using our operating leverage to achieve our desired Kager model despite the variability that is inherent to contribution profit from quarter to quarter or even year to year.
Speaker Change: With that, let me turn it over to Sanjay to review our financial results in greater detail. Sanjay.
Thanks, Vishal, and thank you all for joining us today.
Sanjay Kalra: Before I discuss our quarterly results and outlook, I'd like to remind everyone that the financial results I'd be referring to include non-GAAP financial measures.
Sanjay Kalra: As David mentioned earlier, our Q3 press release and earnings presentation includes reconciliations of the non-GAAP financial measures discussed on this call to their corresponding GAAP measures.
Both of these are available on our website.
Turning to slide 5
Sanjay Kalra: Our third quarter 2024 results demonstrate another quarter where we exceeded the top end of our guidance range.
Sanjay Kalra: These results demonstrate the overall strength of our business model and our team's proven ability to execute.
Sanjay Kalra: Our third quarter results included revenue of $231.6 million, up 51.9% year-over-year.
Sanjay Kalra: Contribution profit of $80 million, an increase of 30.1% and adjusted EBITDA of $24.6 million.
up 58.2%.
We also continue to experience strong customer activity and demand.
Sanjay Kalra: which drove robust bookings and allowed us to exit the quarter with a significant backlog.
Sanjay Kalra: Based on our excellent quarterly performance, the positive business trends Dushyant mentioned earlier, our expectations for the remainder of 2024 and forward visibility, we are raising our full year 2024 revenue, contribution profit, and adjusted EBITDA guidance, which I will discuss in more detail shortly.
Now let's review our third quarter financials in more detail.
Sanjay Kalra: As mentioned, Q3 revenue was $231.6 million, up 51.9% year-over-year, this growth which was ahead of our original expectations.
was driven by three key factors.
first
increased same-store sales from existing dealers.
Second, the successful launch of new
Sanjay Kalra: And third, early launch of some large enterprise customers which we originally expected to launch in early 2025.
Sanjay Kalra: due mainly to our team's hard work and strong client engagement.
Sanjay Kalra: Additionally, the number of transactions Paymentus processed grew to 155.3 million in the quarter.
up 34.6% year-over-year.
Sanjay Kalra: Our average price per transaction increased during the third quarter to $1.49.
up from $1.32 last year.
Sanjay Kalra: This was mainly due to the biller mix or more specifically by the early launch of large enterprise billers I mentioned earlier that had a higher average payment amount.
Dushyant Sharma
Sanjay Kalra: Third quarter 2024, contribution profit increased to $80 million, up 30.1% year-over-year. The contribution profit increase was also higher than expected.
Sanjay Kalra: and reflects increased transactions from existing billers, the launch of new billers, and the mix of billers launched.
Thank you all for coming. Thank you. Thank you.
Speaker Change: Contribution margin was 34.5% for the third quarter compared to 40.3% in the prior year period.
Speaker Change: as we continue to add large high-volume enterprise billers to our customer base.
This 5.8% margin reduction was almost entirely offset
Speaker Change: by 5.7% operating expense margin reduction year-over-year and then combined with economies of scale resulted in an improved adjusted EBITDA margin.
Speaker Change: This is consistent with our overall growth strategy focusing on profitability which I will elaborate on shortly.
contribution profit per transaction for the quarter was 52 cents
similar to 53 cents in the prior year period.
Speaker Change: demonstrating our ability to capture market share with comparable contribution profit per transaction.
Speaker Change: In prior quarters, we've seen transaction growth at times closer to revenue growth and at other times closer to contribution profit growth.
Speaker Change: This is because we are capturing more market share and winning larger clients.
Speaker Change: Because we are adding more of these larger clients to our customer base, we expect pricing and contribution profit to vary quarter to quarter as we continue to grow and diversify our client base.
Speaker Change: Please note that as a result of the quality of our services and solutions and client-centric approach, these larger clients are paying a similar or even increased average selling prices than they are accustomed to with other providers.
Speaker Change: Given the growth areas Dushyant highlighted earlier, we believe long term the growth rates for both revenue and contribution profit will converge in a closer range.
Speaker Change: also taking into account the inherent operating leverage as we have in our business model.
Thank you.
Speaker Change: As we noted in the past, variables that are outside of our control, such as an increase in the average payment amount or changes in the payment mix, can substantially affect the contribution profit on a quarter-to-quarter basis.
Speaker Change: And therefore, we treat this as a secondary metric, while our gross revenue and adjusted EBITDA remain primary metrics and focus areas on how we drive our business strategies.
Speaker Change: Third quarter adjusted gross profit was 66.2 million, up 29.1% year-over-year.
Third quarter non-GAAP operating expenses were flat sequentially.
and increased 16.9% year-over-year to 44.3 million.
Speaker Change: The increase was primarily due to higher sales and marketing expenses as well as research and development expenses.
Speaker Change: which we have talked about previously as we enhance our existing technical strengths.
This year-over-year expanse in Greece was consistent with our expectations.
Speaker Change: Third quarter non-GAAP net income was 19.6 million or 15 cents per share compared to non-GAAP net income of 10.9 million dollars or 9 cents per share in the prior year period.
Thank you.
Speaker Change: Third quarter adjusted EBITDA was $24.6 million, up 58.2% compared to $15.5 million in the prior year period.
Speaker Change: and Jessy DeVita also represented 30.7% of contribution profit for the quarter compared to 25.3% last year.
Speaker Change: This strong adjusted beta performance was due to the same combination of positive factors I talked about earlier, all of which came together in the quarter.
Speaker Change: We believe the stronger adjustability, the margin demonstrates the inherent operating leverage we have in the business and our proven ability to adapt to changing market conditions as we continue to grow.
Speaker Change: Interest income from our bank deposits was 2.3 million during the third quarter compared to 1.9 million in the prior year period. This year-over-year improvement was a result of an increased average cash balance and effective cash management.
Speaker Change: Related to our performance, we once again exceeded the rule of 40 for the quarter, coming in at 61 compared to 58 last quarter and 46 in the prior year period.
Speaker Change: This marks our 6th consecutive quarter exceeding the Rule of 40.
Speaker Change: Now I'll discuss our balance sheet and liquidity position on slide 6.
Thank you.
Speaker Change: We ended the third quarter 2024 with total cash of 190.8 million compared to 192.9 million at the end of last quarter.
Speaker Change: The 2.1 million decrees is primarily comprised of 6.7 million of cash generated from operations.
Speaker Change: offset by 8.8 million views in investing activities primarily for capitalized software.
Net of Investments in Working Capital of $19.8 Million
Speaker Change: Our days since outstanding at the end of the third quarter was 44 days compared to 42 days last quarter.
Speaker Change: Working capital in the end of the third quarter was approximately 245.8 million an increase of approximately 16.2 million from the end of the second quarter.
Speaker Change: We had 127.6 million diluted shares outstanding during the third quarter, essentially flat from 127.3 million diluted shares outstanding during the second quarter.
Thank you.
Speaker Change: Now I'll turn to our non-GAAP guidance for the fourth quarter and full year on slide 7.
before discussing the items.
I want to mention
Speaker Change: that we are continuing to follow the same prudent approach to guidance that we have followed since last year.
Speaker Change: For the fourth quarter of 2024, we expect revenues to be in the range of 215 million to 220 million, representing 31.8 percent year-over-year growth at the midpoint and 33.3 percent at the high end.
this growth rate
Speaker Change: is an improvement from prior year's fourth quarter growth rate of 24.7%.
Speaker Change: contribution profit to range from 79 to 81 million dollars which represents twenty point seven percent year-over-year growth at the midpoint
and 22.2% at the high end.
Speaker Change: in line with the prior year's fourth quarter growth rate of 22.7 percent.
Speaker Change: And I just did a bid of 22 to 24 million dollars.
Speaker Change: representing growth of 15.6 percent year-over-year at the midpoint and 20.6 percent at the high end.
Speaker Change: Along with our guidance, I also want to provide further insight related to our Outlook for Contribution Profit Growth Rates and HSDB Demargin.
Speaker Change: As our business grows, we are receiving greater inbound interest from larger enterprise customers.
Speaker Change: Not unexpectedly, these customers often request volume discounts which we are open to where the deal economics support it.
Speaker Change: In addition, our tremendous operating leverage allows us to attract and book these larger customers.
Speaker Change: Said differently, volume discounts for larger customers are typically more than offset by strong incremental adjusted EBITDA, as we just saw in Q3.
Speaker Change: This increases our efficiency as our onboarding time per biller is declining while average customer size is simultaneously increasing.
Speaker Change: Furthermore, we have the ability to recalibrate OPEC spending relative to contribution profit in order to reach a desired adjusted EBITDA.
Speaker Change: Based on our results and progress we have already made in three quarters of 24 and our expectations for the remainder of the year
Speaker Change: For the full year 2024, we now expect revenue in the range of $829 to $834 million.
up 7.3% from midpoint of our previous guidance.
The updated guidance now represents 35.3% growth at the midpoint.
and improvement from the prior year growth rate of 23.6%.
Speaker Change: Contribution profit in the range of 305 to 307 million, up 3.6% at the midpoint versus previous guidance.
Speaker Change: This updated guidance now represents 27% growth at the midpoint and improvement from the prior year growth rate of 19.7%.
Speaker Change: Adjacente Vida to range from 89 to 91 million, representing an 8.4% increase at the midpoint versus our previous guidance.
The updated guidance represents a 54.9% increase at the midpoint.
Speaker Change: This represents a 29.4% margin on contribution profit at midpoint and improvement from 24.1% in the prior year.
Speaker Change: This annual guidance implies a rule, on a rule of 40 scale, 56 to 57 at midpoint and high end respectively. An improvement from the scale of 44 we achieved in 2023.
In closing, we reported another quarter of excellent results.
Speaker Change: In the third quarter of 2024, we continue to build on solid momentum from the second quarter, resulting in strong revenue, adjusted EBITDA, and bookings growth.
Speaker Change: Additionally, we ended the quarter with earlier implementations of larger clients and a sizable backlog.
Speaker Change: Due to all of this, we have considerable visibility and believe we are well positioned for the rest of 2024 as well as for 2025.
Speaker Change: Thank you everyone for your attention today and now I turn it back to Dushyant for final remarks before we open up the call for questions.
Thanks, Sanjay.
Dushyant Sharma: It's indeed humbling to see that our raised full year 2024 guidance
when compared to our results from the full year 2021.
Dushyant Sharma: the year of our IPO, we have more than doubled our business in three years.
and it's quite exciting actually.
Dushyant Sharma: In summary, we reported another quarter of a strong financial results that exceeded our expectations.
Thank you.
Dushyant Sharma: We feel good about the long-term durability of our Kager model.
We serve a large, growing, and non-discretionary market.
Dushyant Sharma: The combination of our platform and the IP ecosystem allows us the benefits of a strong and differentiated competitive mode.
Dushyant Sharma: In addition, we are looking to continue to build on our success to increase our TAM using our innovative DNA.
In short,
We, as investors, own a very special business here.
Dushyant Sharma: I want to take this opportunity to thank my team who worked tirelessly to deliver these great results and create long-term shareholder value.
With that, I will open up the line for questions.
Speaker Change: If you would like to ask a question, please press star followed by 1 on your telephone keypad. If for any reason you would like to remove that question, please press star followed by 2. Again, to ask a question, press star 1. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered.
Speaker Change: The first question is from the line of Dave Koenig with Bayard, your line is now open.
Speaker Change: yeah hey guys congrats this is one of the biggest beats I think I've seen in 20 years so congrats on that
Thank you, David.
Speaker Change: 65.5% of gross revenue so higher than usual obviously gross revenue beat by a ton but maybe talk about that and then why in Q4 I think they're expected to go back down to 63% just maybe talk a little bit about those dynamics
Speaker Change: Dave, thank you very much. A great question. In terms of network fees, what we really saw in Q3 was we onboarded some large enterprise customers as you mentioned.
and those large enterprise customers actually...
Speaker Change: had higher network fees to begin with and they were used to paying that fees.
Speaker Change: to the previous service provider, and when they onboarded, we onboarded them at similar pricing and similar cost structure or better pricing, but the network fees were higher. As a result...
Speaker Change: The contribution margin you see is little softer this quarter, but this is, I think, a perfect quarter to demonstrate that despite of margin going down,
Speaker Change: You end up at a rule of 61 and you end up at a contribution profit growth year-over-year of 30%. And a perfect way to see how we calibrated OPEX and gross margin. But to your specific question, the network fees itself is high for the enterprise customers.
And as David Dushyant mentioned in his prepared remarks,
In our long-term strategy, we have an opportunity.
Thank you very much.
Speaker Change: did not get impacted. As you saw, $0.52 versus $0.53, not at all a big impact given the scale we achieved in this quarter.
Speaker Change: And then to your second question of Q4, I would say it's been seven quarters, I would say, in how we are guiding. We have a very disciplined, a very thoughtful approach to our guidance. We consider all the risks and opportunities, assign them probabilities on what guidance makes sense.
Speaker Change: So, with this approach, we want to remain grounded, we want to consider all the possible risks.
Speaker Change: I think the Q4 is not really as different than you are seeing in Q3, and there's a seasonality aspect as well. So I think we are pretty comfortable in how the year is shaping up, and overall, the entire matrix for the full year is shaping up great as well.
Speaker Change: Thanks, guys. That's helpful. Maybe just a quick follow-up. Really, my second question is going to be around what you mentioned, the TAM, kind of a new TAM of the network fees. I assume almost all the network fees are interchanged.
Speaker Change: You've over doubled those network fees, so the TAM is actually exploding, right, in the last few years. So maybe can you talk a little bit about how you could convert that into revenue?
I think this is a very interesting dynamic actually.
Speaker Change: a payment processing business is the way I would see them and what you would look at them as well. So the way it used to be is that a traditional payment processor would just charge a flat fee for a transaction, whether it's a few pennies or what have you, or a few basis points, and then they will literally pass through the entire interchange to the customer.
Speaker Change: They did not have any control over the behavior of the customer.
Speaker Change: as to which payment modality or form of payment the customer will be using to make a payment.
Speaker Change: Nor did they have the pricing structures which were actually conducive to be able to have
Speaker Change: The Global View of the Overall Transaction Revenue versus the Internal Cost Payment Incurrence in terms of the network fees.
Speaker Change: So, we have been busy thinking about how can we convert the network fees into revenue, and we have some thoughts which we will share in due course. But that's where the exciting part of our business is, where we feel like
Thank you.
Speaker Change: The way more, more opportunities we have in terms of loading, if I may use the word quote-unquote loading on.
Speaker Change: the interchange expense on our platform, the easier it is for us to track exactly what the user behaviors are, how they're making a payment, what type of cards are being used, and what type of opportunities we can create to convert those into more meaningful, profitable instruments for us.
Speaker Change: So, we'll talk more about that, but that's a little bit more on the longer-term side.
Thanks guys, great job.
Thank you.
Speaker Change: Thank you for your question. Next question is from the line of Tingen, along with J.P. Morgan. Your line is now open.
Speaker Change: Thanks, that's a really great quarter, good explanations here. Just thinking about the faster go lives of larger clients, is that a structural change? Are you doing more to improve the onboarding process from a technology standpoint? Just trying to understand that, if this is a new trend to consider.
Speaker Change: Actually, it is a combination of multiple factors. If you recall, we have shared in the past that I think pandemic did impact our ability to onboard and frankly in some ways also.
Speaker Change: bring on new clients, the larger new clients, into our bookings pipeline as well, just because boardrooms were closed.
Speaker Change: and so that combined with our ability to interact with our clients in the live setting but also taking very introspective view of where the breakage points are what what we could do better
Speaker Change: to improve our own onboarding processes, which we were actually excellent at when we were
Speaker Change: before we were onboarding some of the more complicated and sophisticated workflows onto our platform.
Speaker Change: And we follow the same principle of innovating through learning from our customer interactions. And so we are making some changes in that technologically as well. So a combination of...
Speaker Change: in-person interactions, post-pandemic conditions, but also the instrumentation from our perspective, technologically, making advancements there is making a big change.
Okay, good to know that.
Speaker Change: Just thinking about the fourth quarter and the guide, I appreciate the philosophy around guidance, but just want to make sure, fourth quarter contribution profit, you're calling it to be stable. History says it's up quite a bit in the fourth quarter, I think due to seasonality, but
Why might this year be different?
Dushyant Sharma
Speaker Change: So great question. In Q4 what we are seeing is these new large enterprise customers be onboarded in Q3 and again they happen sooner than originally anticipated. They are large to the extent that
Speaker Change: We don't really have a very good handle on the seasonality aspect.
and unless we spend like...
few quarters with them.
Speaker Change: We will have to wait and see how those trends continue. So we did not exactly bake the Q4 continuation in entirety of that cohort of customers, a portion we baked but not all. We have to wait and watch how those trends will play. So we've taken a very prudent approach in how this may play out when we come to Q4 guidance.
Speaker Change: so we want to just stay focused on execution and remain grounded when we come to guidance especially for one quarter. I think the whole year is shaping well but we feel very good about where we are.
Well done. Thank you so much.
Thank you for your attention.
Speaker Change: Thank you for your question. Next question is from the line of John Davis with Raymond James. Your line is now open.
John Davis: Good afternoon guys. Dushyant, I just want to touch a little bit on the
John Davis: revenue growth acceleration this year. I think the midpoint of the guide is about 1200 days of 20 acceleration versus last year. Maybe dimensionalize that for us and how we should think about share gains versus pricing versus same source sales or anything else to call out and anything you would caution us about kind of taking that forward into 2025.
Yeah, uh, uh, uh...
John Davis: I would say I think 2025 we are still in the budgeting process, but that's one of the reasons why I prepared remarks, we wanted to make sure that we talk about.
John Davis: the long-term CAGR model to make sure that that's that's pretty clear that we are not changing the model itself.
John Davis: The pricing, I think pricing was, all those changes are behind us at this point, so this is more about
Gaps in market share
Speaker Change: signing deals which are sophisticated large enterprise clients Implementing them and frankly in some ways earlier than we were anticipating So combination of all of that is what is leading to it. So do you want to add? Yeah, I'll add
Speaker Change: that you know this year has been really a good year right from the start you know starting Q1, Q2, Q3 we've been seeing continuous trends of improvement in implementation, improvement in the bookings
Speaker Change: Our exit backlogs at the end of every quarter are very good, giving us a lot of comfort for not only the next quarter or next two quarters, but I would say four or five quarters out, we got a very good visibility.
Speaker Change: The momentum is very high and that speaks to why the 24 growth has happened in a phenomenal fashion.
Speaker Change: But to your other piece of the question, John, I would say that when it comes to 2025 and if you're seeking any color on modeling...
Speaker Change: The best thing we can provide at this time is that we are currently in the process of setting our 2025 budgets and we are not giving any guidance today for 2025. However, for modeling purposes,
Speaker Change: We recommend assuming that we will follow the same prudent and disciplined approach we have used over the past seven quarters. So that would imply, as a starting point, using similar growth rates we used in our initial 2024 guide, which we gave in March earlier this year, to the prior year numbers.
Speaker Change: I would like to just remind everyone that our business is doing very, very well.
Speaker Change: We have a very good pipeline, the bookings and backlog are very healthy, and we have a very strong balance sheet, a very liquid balance sheet in terms of working capital to deploy cash as and when we need, which we have actually used to our advantage even in the current quarter.
Thank you.
Speaker Change: Okay, great. And then Sanjay, I think you mentioned, you know, roughly 50% incremental margins this quarter, I think.
for the whole year.
Speaker Change: Even our margins will be just shy of 30% based off of
the midpoint of your guide.
Speaker Change: So, how should we think about it? I know it can vary quarter to quarter, year to year.
Speaker Change: How should we think about the long-term margin potential of this business if we were to look out over the next several years? And you've expanded margins very nicely, looks like over 500 basis points this year.
Speaker Change: If you go back, you know, ever since you've gone public, it's been a very nice
and Proven Profitability, we see some payments companies with.
Speaker Change: Yeah John, great question and we think about that as well as we do over models for a couple of quarters or outer periods. I think the right way to think about our business is that business is you know humming in all the directions.
Speaker Change: The momentum is very high and our growth strategy is not just purely growth.
Speaker Change: but has a strong partnership with profitability. So profitable growth is our mode of operation, which is just very clear from the numbers. Like, is there a room for opportunity to grow better? Definitely there is.
Speaker Change: As we grow, as we scale, we should expect economies of scale to help us.
Speaker Change: We should expect the opportunities that Dushyant mentioned in the outer term to help us as well.
Speaker Change: and our pricing and all is working really well. We are in the mode of capturing the market and during that process we could...
Speaker Change: We could have many opportunities which could give us better margins, but at the same time, I just want to be very careful that our long-term expectations and hopes and desires for the business are not confused.
Speaker Change: with the way we should model the business. We want to have a very straight head and remain grounded in how we set the numbers and how we set expectations.
Speaker Change: and again staying disciplined in that fashion has helped us as a company especially in the last year we have seen.
I would not like to distort that model.
Speaker Change: So I would suggest, you know, having a rule of 61 is something which we are really proud of. But is it going to continue? Can I say that for sure? No, I don't think I would like to say that.
Speaker Change: but there are risks and opportunities outside our control and it goes back to how much profitable it be.
Speaker Change: I think longer term seeing that this business can get better is a good expectation but I would not model it that way and take it easy all the time. I think we are doing really well and I would not speak more than this but I think the business is just doing well.
And John, this is Dushyant. If I may actually add.
Speaker Change: Our strategy is truly to create a perpetual growth engine here and from that perspective
Speaker Change: We are always making, as Sanjay talked about, there is tremendous partnership between revenue and profitability, but at the same time, our goal is to deliver long-term shareholder returns by continuing to grow the business. So we will continue to make strategic investments as well.
Okay, thank you, Nikola. Thanks guys.
Thank you.
Speaker Change: Thank you for your question. Next question is from the line of Darren Teller with Wolfe Research, your line is now open.
Guys, thank you
Darren Teller: Nice job on the quarter. I think you touched on how there's incremental larger, you know, incremental larger customers that you see onboarding coming up, not just in addition to the ones you brought on early.
Speaker Change: So maybe just help us understand if there's any type of inflection in demand or more of a recognition of your offering that
Speaker Change: You know, you're seeing resonate even more in a more pronounced manner today than maybe you were, let's call it a year ago, just because the pace of ads and the pace of acceleration was pretty notable as, you know, I know others have called that also. So maybe we'll just start there, guys. Thanks.
Thank you, Devon.
Actually, this is...
Speaker Change: This is part of our, if you recall during the IPO, we talked about horizon one strategy, the horizon two and then horizon three. So some sort of basically a inflection point from going from mid market to higher end customers and so on. What we're realizing now is
Speaker Change: that we are sort of redefining the higher end of the market.
Speaker Change: We used to think that, you know, high-end could be a few million dollar deals. And then you start to see the opportunities to even do better than that.
Speaker Change: Just because the level of complexity that exists from payment inflows and outflows for a given organization.
Speaker Change: That has now outpaced an organization's own ability for their own engineers to handle.
Speaker Change: So, we used to think of this as replacing the legacy providers only because of the advancement of the capabilities the Metas platform and the ecosystem provides.
Now we think of this as a re-engineering of
Speaker Change: the entire customer journey, and frankly, the payment journey for the customers, vendors, and all participants in the ecosystem to become a target for Paymentus.
Speaker Change: So that's what is happening and you are seeing in the verticals we talk about, you will see some nascent verticals, you are seeing success.
Speaker Change: Like, we didn't think that we would be this successful this early in education vertical, for example, and other verticals we talk about as well in our
Speaker Change: in our bookings profile even this quarter. So what we are seeing is that our platform is universally scalable to any vertical. No vertical is too far from us. No customer is too large for us.
Speaker Change: No workflow is too complex for us and no customer is too small for us.
Speaker Change: So we feel like this is a pretty broad opportunity we are setting and that's that's why I keep actually Saying that we got something special here the way the DNA of the company and the way we are building designing our business
Speaker Change: So I'm excited about it and I look forward to sharing more and more as we continue to develop our strategy.
Speaker Change: And guys, I mean, I know the IPNs have been helpful in terms of reselling and just go to market. But maybe just help me understand a really what the latest is with the with your partners on that front. But more importantly, just your overall go to market approach, given how much scale you've had, just how much larger you've become now.
Speaker Change: Especially when you add on these verticals, how we should think about your ability to address each one of them from a go-to-market standpoint.
Thanks again, guys.
Speaker Change: And to your point, now that we are signing billing companies at a faster click, the companies that are large and diverse in the verticals, the IP in itself becomes a very valuable long-term asset.
Speaker Change: for all participants, whether it is for a billing company who wants to reach to all their customers across all dimensions of interactions.
or
Speaker Change: the originating partners who want to reach in a modern way
to any of the payees, if you will.
Speaker Change: on behalf of their customers. So we think our IPM will continue to be a competitive mode for us and since it is our proprietary network designed by us, thought through by us, and managed by us, we believe it is a long-term competitive mode for the company.
Yeah, makes sense. Thank you.
Thank you, David.
Speaker Change: Thank you for your question. Next question is from the line of Matt O'Neill with FT Partners. Your line is now open.
Thank you.
Matt O'Neill: Yeah, hi. Good evening, gentlemen. Thanks for taking my question. I think, you know, I know a lot of different questions have been asked around the outperformance in the quarter, but given the magnitude of it, I think investors, you know, want to understand, you know, where things may be.
Matt O'Neill: sort of recurring in nature and where things may have kind of come through on a more one-time basis. So, you know, given how much visibility you have into the core business, would it be possible to parse in some way, you know, the benefit in the quarter from, you know, things like pricing, sort of sales, implementations coming on faster, and to that last point, I believe last quarter was a record for implementations coming on, and with this quarter, you know, maybe even getting another record. Thank you.
Thank you.
Speaker Change: Matt, great question. Thank you for asking. I say that in the past we have not broken down the vectors
in terms of quantitative aspect.
Speaker Change: I think I would like to stay consistent with that kind of a discussion. I think we like to discuss these things more qualitatively than quantitatively.
Speaker Change: But, I understand that growth is significant in the quarter, and I would like to provide some minimal color. I would say that large implementations, which happen in the quarter, it's a cohort of implementations, so it's not just one or two implementations.
Speaker Change: and they all happened at different points in time in the quarter, some in first month, some in second month, some in third month.
Speaker Change: they were originally planned to happen in 25. So what that does for us is it kind of de-risks the 25 expectation from these customers.
Speaker Change: And in 2024, we got is basically an upside. So if you want to call that as non-recurring, maybe it will fit the definition of non-recurring in Q4. But from our perspective, the recurring revenue from these customers is now secured instead of being at risk for next year.
Speaker Change: The impact on the quarter, definitely I cannot quantify, but I like to quantify that the impact of these cohort of customers going live early is approximately 500 basis points growth on our annual adjusted EBITDA margin dollars growth.
Speaker Change: So, you're seeing around 55 percent, I think, growth year over year for full year, and I would say 500 basis points come from these.
Thank you. Thank you.
Speaker Change: I think that's the relevant information I can share. But at the same time, like same store sales, yes, it's getting better over time. The trends when I look at for the last seven, eight quarters.
Speaker Change: The trends are just getting better for same-store sales and that's primarily because the kind of customers we are getting or booking or Going live are from not only the verticals we are getting focused on but also the kind of customers we are getting they are themselves
Speaker Change: in a growth stage. So we are inherent beneficiary of their growth. So same store sales are getting better. And overall the transaction growth is speaking for our growth in any direction you think of.
I hope that provides some decent perspective for the quarter.
Speaker Change: Yeah, that was extremely helpful. I appreciate it. And I would agree it's not that down recurring by definition, but I appreciate how you articulated those points. Thanks so much.
Sure. Thanks a lot.
Thank you for your question.
Speaker Change: Next question is from the line of Andrew Bach with Wells Fargo. Your line is now open.
Hey, good evening, guys, and thanks for taking the question.
Speaker Change: I just want to drill into, you know, painting a picture on what these larger customers look like. I mean, could you give us a framework?
with how to think about how big they actually are.
Speaker Change: meaning, you know, size of potential TAM relative to, you know, a simple biller or the run-of-the-mill biller on your current base.
Speaker Change: and perhaps like how much of the backlog is comprised by these, this cohort of quote-unquote large, large billers.
Speaker Change: I think I would say as I was trying to refer earlier Andrew that
Speaker Change: From our vantage point, I think we ourselves are getting increasingly more excited about the TAM. The TAM itself is growing beyond, like you said, one of the middle billers.
Speaker Change: Now that we are seeing and we are able to prove in practice, not only by being able to convince a large enterprise, a household name we all would have heard of.
Speaker Change: and won't fit into a traditional biller category, they look at our platform from being able to convince them that Paymentus is the rightful home for them for the long term.
Speaker Change: and then being able to prove that by implementing their complex workflows both inbound and outbound in many cases.
Speaker Change: It is actually quite a remarkable journey. So it is very exciting for us. In terms of the backlog, I think not providing a very detailed color on the backlog, the backlog remains strong and it is mixed off. Just like our current platform is, current onboarded customer basis, it remains very similar, it's a mix off.
Speaker Change: small, large, mid-sized, different vertical customers and so is the pipeline.
Speaker Change: And, Dushyant, I appreciate the comments that, you know, the business has now doubled.
Speaker Change: from the IPO three years ago and, you know, thinking about this business over the next three years, not asking you if we can anticipate another double, but, you know, how would you anticipate?
Speaker Change: The use cases of the platform to evolve, I mean, with the dual-sided nature
Speaker Change: of the business, we always thought that payouts would be a natural extension to what level of service that you could provide to your customers. But any other high level thoughts on maybe the.
Speaker Change: the longer term opportunities that you're investing in today that we may not see in the numbers for a couple of years to come.
Speaker Change: And I would say, that's a great question, Andrew, and I think probably summarizes, in your question there, it summarizes the, in some ways, the DNA and the innovation, innovative framework for the company.
Speaker Change: So, as you said, paying is what we do great, payments, inbound payments, payouts is a natural extension, but payouts not just, you would think from the vendor's perspective, you're talking about all types of payouts.
So, PaymentOS's current platform today allows you...
to have
The
Speaker Change: entire, if I may use the word ensemble, of all workflows.
whether it is between an employee and an employer.
Speaker Change: whether it is between a customer and a billing company, whether it is a bank and a customer, whether it is between an enterprise to a vendor. All of those capabilities we actually have been building on. And so, a few years out,
Speaker Change: They don't show up in the numbers just because of size and scale. I'm knocking on wood here. Size and scale we have built right now, but they will start to show up later on.
Speaker Change: And last but not the least, that is one of the reasons what is exciting for us in being able to eventually long-term monetize the interchange into a revenue center from what appears as a cost center only today.
Pretty exciting. Thank you, Dushyant.
Thank you.
Thank you, Andrew.
Speaker Change: Thank you for your question. There are no additional questions waiting at this time so I'll pass the call back to the management team for any closing remarks.
Speaker Change: Well, thank you. Thank you so much, everyone, for joining today. Have a great day.