All right, so good morning. For those not familiar, we have with us on stage, Dushyant, the founder and CEO of Paymentus, as well as Sanjay, the CFO with us. My name is Andrew. I work on behalf of Darrin Peller at Wolfe, and this will be a fireside chat on the topic of bill payments and Paymentus. I thought it'd be interesting before we get started on a conversation about the financials and the business, you know, the stock has really been on a tear lately and grabbing a lot of investor attention. Any one or two, you know, line comments on your thoughts on the latest, you know, degree of volume volatility and maybe what's been just resonating with investors?
Yeah, sure. I'd say, we are pleased to see the stock performance. I think the story of Paymentus is getting well understood by the market, and I think the business has delivered great results consistently since some period of time. And also, I think the story is resonating really well. Given the business has very strong fundamentals, you know, the technical analysis, if you look at the company, is really strong. The bookings are great. It's a cash-generating business. It's a recurring revenue business. The margins are very good. We are growing +20% annually, and our EBITDA margins are growing more than 20%-30% annually as well.
I think if you look at all the dynamics in the numbers as well as the bookings growth, we feel pretty good about it, and I think the story resonating with the street is kind of happening. That's what we see right now.
Great. Okay. So with that, Dushyant, maybe just kick off with a quick timeline of the business. I think we were just saying you founded it in 2004. You know, nearly 20 years later, what were the key milestones, and what's the core operation of it today?
Yeah. If I may just add one more point to what Sanjay just mentioned, the predictability also is resonating with the investors. We are actually a non-discretionary... We operate in the non-discretionary world, where folks still have to pay their bills. And the second thing is our guidance philosophy, where we are already communicating to the street that we can deliver our guidance range without signing a new client. I think that is also very well received. In terms of the timelines themselves, I would say we exist to simplify bill payments. As a cloud-based service provider, we are automating bill payments for billing companies, whether it's utilities, insurance, government services, mortgage industry.
In terms of the timelines, actually, our roots are we started first in the utilities area, small to mid-size utilities, and eventually branched out into larger end of the market, and then diversified into various verticals, utilities to then government services, to insurance companies, mortgage, auto payments, and consumer finance. Now, with our Instant Payment Network and the ecosystem, we also serve banks and credit unions. So very, very proud of where we are, and the type of growth prospects we have for the business.
Have you disclosed a vertical, a vertical mix recently in the past to help kind of frame, you know, where some concentration might be more than another?
We haven't given specific numbers, but utilities is one of our largest vertical, which is more than 50% of the total business we have, but we are seeing traction in a lot of other verticals we are getting into. Utilities still remains the largest, though.
Okay. Well, I guess, staying with you, Sanjay, I mean, you've been with the company for nearly a year plus now, you know, what have been your kind of key achievements, milestones, initiatives so far?
Yeah, you know, Andrew, it's been a year. I just had my first anniversary here. It's been great to be at Paymentus. The business is really strong in terms of lot of aspects. It's a cash-generating business to begin with, and in this economy, when the business is dependent on non-discretionary payments, it is very. It's a great thing to see. At the same time, the operating leverage in the business is great. You know, you don't really need to spend a lot on the OpEx. Yeah, I think the contribution profit or the gross profit, you get, a big piece of that falls to the bottom line, and it's all primarily in cash. So it's a very good financial model of the company. And since last one year, I've seen great bookings happening, diverging into different verticals.
It's just expanding the capability of our platform and seeing all that traction, and resonating well with the street is great to see.
Yeah. I guess, sticking on the financial side, can you just remind us how the numbers looked exiting 2023 and, you know, frame how the guidance is set for 2024?
Yeah. Our guidance methodology has been kind of consistent. First of all, given the economy in which we are, prudence prevails on our thinking, and, despite of what we have seen, what happened with the stock, I would say, a year or two ago, we've learned a lot and, hence the prudence prevails. But guiding a 20% top line and a 20%-30% adjusted EBITDA dollars is pretty much our model going forward for a couple of years from here, here on out, and that's entailed in our guidance as well. So I think that's, that's the driving principle.
On that note, I guess, can you provide some context on how to think about gross versus net revenue and, you know, where investors should really focus and that plays out?
That's a great question, Andrew. The focus of investors, I would request, should be on the top line. The top-line growth is indicative of the market share we are taking, and that eventually is what drives whether it's contribution profit or other subs-- or other secondary metrics, as well as a big piece of it is falling to the bottom line. I think that's what it matters at the end of the day, and how we get there is more secondary in nature. For example, contribution profit, yes, it's an important metric to help us understand the Rule of 40 and how that's, we measure ourselves as well, but that's still secondary in my view. We can calibrate our OpEx in case the contribution profit is lower, we can reduce our OpEx.
In case it's higher, we can increase our OpEx as far as we get to the Rule of 40. Hence, we call contribution profit as secondary. So I would suggest the analyst community to look at our top line and our bottom line as EBITDA's two primary drivers and indicative of the performance and growth of the company.
I guess on that point, do you mind elaborating on kinda how you can calibrate the OpEx, given it's been such a strong year for really cost management for you guys?
Yeah, and all that drives from the fact that majority of our OpEx is discretionary. Unlike all our payments, which we receive, are non-discretionary from the customers. So, you know, having that flexibility comes mainly from the fact that our implementation timelines of our bookings range from, say, 9-12 months on an average, which tells us that the revenue for next one year is not really dependent on the bookings for that particular year. Hence, we say that in our guidance, even to meet the top end of the range, we don't really need any new bookings from this year. What that also helps us is to see that operating leverage is better, and if we have to spend, we will have to spend for outer years, not for the current year.
At the same time, it also entails a very important aspect of the company's model, which is if you have a very strong bookings in one particular year or one particular quarter, you don't really need to spend that much on hiring the sales people again, so that, you know, you don't need really to build in that OpEx, in the current year as well. So I think all that comes from the fact that operating leverage of the business is strong.
You mentioned implementations. How would you kind of, you know, frame the timelines right now, and how volatile can kinda customer behavior be around this topic?
Well, implementation timelines could vary depending upon the vertical and biller size. And at times it could be six months if it's a small or mid-sized client. At times it could be one year or slightly more than a year if it's a large client. And it's not due to the complexity of the integration. It involves a lot of coordination and the timing of the billers as well. So implementation itself does not involve any customizations as such, but it's just the process, the way the data is exchanged between the two teams to get the implementation done. So it's all dependent on the biller size, and normally, the scale we use is 9-12 months, and that gives us a lot of flexibility to model the business as well.
Great. And then, you know, Dushyant or Sanjay, I guess, how should we think about just the sensitivity to the macro in general right now, and despite the degree of kind of non-discretionary focus?
I would say that what we've experienced in the last one and a half years or so, going through the macro and going through the changing energy prices and the CPI index, has given us a lot of experience in terms of the sensitivity and how to model and manage that in the business. First thing I will start by saying is that we have a lot of leverage, I would say. The way our contracts works with billers are that in case there is a significant change in the CPI index or energy prices, we could go back to our billers and request for price increases. That's baked into the contracts.
That said, that doesn't mean as soon as that happens, we immediately knock the doors of our billers and say that, "Guys, we need increase in pricing." I think we are a very customer-friendly, business-oriented company. We want to wait for a while before things start becoming a part of the process, and then we go and knock their doors and ask for price increases, and that's what we did exactly last year. We reached out to all our billers that this is now hurting us, not only financially, but it's being reflected in our stock price as well. Hence, we reached out, and we improved our pricing. We covered almost all of our biller contracts, and we got it there. And today, the sensitivity is less than what it was, given that we have obtained those price increases.
But that has given us an experience that if this thing happens again, we can again do that, although we don't anticipate this thing to happening, to happen, given how interest rates are changing and how the energy prices are behaving since last few months, I would say. So I think we are well prepared for next year, but what has happened has given us confidence that in case this repeats itself, we could do that again.
And if I may add, to this point, that from our perspective, our operating strategy and operating philosophy was customer-centric first, as Sanjay just mentioned. We want to demonstrate to our clients that even in a difficult macro environment, they can rely on us to make the right decision and also think of themselves from a very long-term partnership standpoint. And that actually resonated with our clients extremely well and resulted into our ability to maintain the relationship and obviously recover the margin losses we were facing because of the inflation. But as a reminder to everyone, our contracts already allow us to change the pricing. So it was all based on customer service approach, and that was the primary driving force for us.
I feel like that's a good segue into just the industry broadly. I mean, are—what are you replacing? Are these in-house solutions? Can you just talk a bit about the competitive landscape?
I think what we are actually seeing now is previously it used to be that we would replace the legacy providers with our modern platform. But now, what's changing is that even the industries, even the clients, even the largest clients in the industry who used to have a combination of in-house solutions or had a bias towards in-house solutions are now looking at the innovation framework Paymentus has built and the, frankly, in some ways, the universality of our adoption into various verticals and seeing how well we have delivered. Even those type of clients are looking at Paymentus as the platform of choice. So, we are seeing that being a tailwind as well. So as far as we are concerned right now, we would look at a given enterprise and take the...
And evaluate what their current customer service framework looks like, customer experience framework looks like, what type of the cost they have, they incur to serve their customers. And since those are our guiding principles in terms of how we our value proposition of our service, where we exist to simply improve the customer experience while lowering the cost to serve, that allows us to actually provide our pricing as well as our platform and replaces pretty much everything the enterprise might have, in-house solutions, legacy providers, and so on.
Is there any additional comments you might have on just the customer service model of Paymentus and what, you know, really drives it and, you know, kinda leads it?
I would say the one of the things which we the culture, the fabric we have built in the company is very much customer-centric. Every aspect of the organization is focused on: How can we improve the customer experience? And frankly, that notion keeps us at our toes. We are never able to get to a place where we will say, "Well, we have arrived," because next conversation you have with the customer, and they will remind you that, "Hey, these are some of the other things you could do better." And they don't have to be necessarily related to our service; they could be related to some of the other gaps the clients themselves are seeing in how they service their customers.
So that goes back into our innovation framework, and continue to progress, make the progress toward our platform improvements and the ecosystem improvement.
Great. Okay. On the topic of just vertical mix, you know... You know, is it, does it, does the demand really outbound or inbound? And kinda what verticals are seeing the most, I guess, innovation or relative growth?
I think in all of the verticals, one of the key value proposition that our platform offers is that from the ground up, it was designed to be vertical agnostic. We don't care what workflow, what industry you are operating in, our platform can actually help you improve your customer experience. The second part is the size is also. The way we have designed it, our platform, is this, we are also agnostic to the size. We can have some of the largest companies on the same platform on the code base as the smaller, the mid-sized companies can. And as a result of that, I think our demand generation is or demand is actually remains very strong and in some ways accelerating as well.
So we feel very good about where we are headed.
Great, okay. You touched on pricing earlier, I guess. How do... You know, how should we just think about the pricing, you know, kind of top-of-mind themes in the industry right now, and how much pricing power, you know, Paymentus has or kinda needs going forward in the future?
I think if I may take a step back and make a quick point here, that if you reflect on Paymentus's business, we are actually allowing a given client to receive their revenues through our platform while engaging with their customers, two of the most important assets for any given business. The type of industries we deal with, they have a very large cohort of customers, and any minor change as it relates to inefficiencies there, could be detrimental to the OpEx for a given business. So as a result, we are a very central piece to revenue collections and customer engagement for any of the clients we serve. But the way we look at it is we always want to be a fair price provider.
We, we always want to look at the long-term relationship we have with our clients. Since each client, by and large, does more business with us in year two than they do in year one, and likewise in year three versus year two. So same-store sales is a big factor for us, so we want to always look at our relationship with the customer with a very long-term lens, and as a result, we price our contracts; many, most of them, if not all of them, are long-term contract, three to five years, leaning more towards five. We, we are always pricing our agreements fairly to the client, which we, we believe that it going to generate tremendous ROI for the customers.
I would just add that the enterprise customers are more... we have seen more recently being added to the mix of billers, versus, mid-size or small-size customers. And the size of the customer also matters on the pricing. I mean, the larger the customer, of course, you would expect them to get volume discounts and pay a softer price, but with large volume. So we'll get more dollars, I would say, with EBITDA and EBITDA with the enterprise customers. It might soften the percentages a little bit, but overall, it's a great mix and great bottom line. So I think we have pricing flexibility, pricing power, but at the same time, being very fair to the size of the customer as well.
Understood. I guess, how should we think about product release and just R&D investment over time? I feel like there's a lot more underneath the hood than probably appreciated at Paymentus, besides just, you know, a modern bill pay platform.
Well, we are a very innovative technological platform company. We've got teams who are totally dedicated to innovate and build features for R&D, and I think that's one of the reasons why the product is very sticky, and we've got strong retention rates. So I think our investment in R&D is the backbone of our success, and that continues to, continues to be a major focus for us. That said, we are in a great spot that, you know, year over year, we don't see a, a big increase there. I think we have a very strong team and very strong leadership on that aspect of the company.
But on the other hand, if we have to go and invest as we are seeing cash increasing in our balance sheet, we are taking a segue to invest right into our growth, which is more sales and marketing rather than R&D.
Excellent. Do you mind, I guess, just providing a high-level view of the balance sheet, I guess, for context?
Yeah, balance sheet, we have a very strong balance sheet. We have our cash of $183 million ended December, most recent quarter, and we expect to see cash increasing not only year-over-year, but I would expect quarter-over-quarter as well. That said, we don't have debt on our balance sheet, which is great thing in today's economy. A lot of companies who have debt are, of course, working on refinancing and whatnot, so we are, we are not in that zone. Balance sheet overall is strong, given the working capital is very strong. Our DSO is in a very good shape. You know, we are not running to collect receivables for long term. Billers get their payments, and we get our fees right away.
So having a very reasonable DSO, a strong working capital, I think our balance sheet is very good in the current economic environment.
And if I may add to that, actually, from a demand perspective and a customer acquisition standpoint, if you think about the large enterprise customers, what are they looking for in addition to the innovative platform and the proprietary ecosystem of Paymentus? What they also want is a partner for the long term who has the type of characteristics Sanjay just described, very strong balance sheet. We also don't have any debt, profitable company, and growing, has size and scale. All of those things lead to customers feeling very comfortable despite the macro environment or the changes in macro environment to partner with a company like Paymentus.
Yes. On, on that note, do you mind just, I guess, providing a reminder of some of the acquisitions over the last few years that have been made and where those stand today?
Yeah, actually, the primary or the main acquisition we have made in the last couple of years or few years is a platform we acquired, the company we acquired called Payveris, along with a smaller platform called Finovera. Both of those combined were actually adding to our IPN network. The goal being is we wanted to make sure that we have... We're not only just modernizing the bill payments for billing companies, we are also modernizing for credit unions and financial institutions, big and small.
And as many of you may know, that our platform has been one of the key reasons why banks stopped getting the type of payment they used to get from their customers, as customers started to move to Paymentus platform to pay the billing companies directly. And as a result of that, banks have become increasingly more focused on trying to retain that volume just because that has been a pain point for them. And that customer base, which uses banks for bill payments, is a very attractive customer base to banks. So now they're looking at Paymentus to modernize that as well. So those acquisitions are doing well for us. They fit right in the center part of the strategy we have.
As we shared earlier, that Paymentus is becoming increasingly the central hub for the entire bill payment ecosystem as a result.
You mentioned IPN a few times. I feel like it'd be helpful to just remind people what it is and what people should focus on as they think about it, 'cause I feel like it's had a lot of steps in its evolution.
Sure. I think one of the key benefits of IPN, or the way I would like everyone to think about IPN, would be in the context of a given billing company. IPN actually gives the billing company an ability to get all of their, all of their customers and all of their payments in one ecosystem with one integration with Paymentus. So, for example, if you are a customer who wants to make a phone call to make a payment, Paymentus provides that. You want to make a payment using a mobile app, Paymentus provides that. You want to make a payment using web, Paymentus provides that. But also, at the same time, if you wanted to go to a bank and make a payment through IPN, you can do that in real time.
If you wanted to go to a retailer store and make a payment, you can do that. So that's sort of the IPN from a biller context. From a bank's context or the originator context, who are originating payments to send to the billing companies, it is... You're able to modernize your customer experience of bill payment, the legacy bill payments you have had since '80s and so on, by having real-time payments, using Paymentus. As a shareholder, as an investor, if you look at it, that value proposition, you're looking at a company that is building a, for lack of a better example, would be a cell phone network. It's a cell phone tower.
Each billing company ends up being a cell phone tower, gives you access to the customers or the network you didn't have before, and that itself is a very valuable aspect. And as a result, we are able to reach the customers we otherwise won't be able to reach and have a perpetual growing pipeline of customers who we are not doing business with, but we are receiving payments for, and we are able to call them.
Are there any key partners you care to kind of reference or call out as part of that model?
... We actually have several hundred financial institutions on our network, so not specifically calling out any specific partner. But we have several hundred financial institutions originating payments on our platform. We have, as we have shared, we are close to 2,200 companies we do business with. Majority of them are billing companies, so it's a growing network.
Any questions from the audience?
Just two questions. Like, one, can you just kind of remind us the TAM you're going after? Like, obviously, you have good transaction growth, but just kind of remind us, like, what, maybe in the States, like how much is the total volume of bills and therefore what your market share is? And then just secondly, if you could touch on the JPMorgan partnership as well. Obviously, when you kind of signed that deal, just kind of remind, like, obviously, JPMorgan, being a big organization, probably was selling a lot of bill payment systems. Can you just remind us, like, are you the sole bill payment system they're selling, or they have their own solutions or others? Like, how you kind of fit in that ecosystem?
So, the TAM actually is pretty large and growing. Trillions of dollars we are talking about, and despite being a leader in the space, we've still got a long way to go. You can think of us as a typical household spends 60% of their expenses on bills, and that's the one we are servicing. To put it in context, all the e-commerce and all the retail spend a typical household makes is the 40%, so all of the industry you see. And we find ourselves in a very fortunate situation that we are a leading enabler in that vertical. So TAM is big, TAM is growing.
In terms of our partnership ecosystem, we're in terms of our partnership with JPMorgan Chase specifically, we are very, very fortunate and proud to be their partner. JPMC is one of the finest institutions, as you all know. Very focused on customers, very focused on providing highest quality of service, and making sure they look at the long-term view, whenever they're looking at the customers. And we fit that bill. We follow exactly the same principles. So we are working together, and I think it's, in some ways, disruptive to the treasury industry itself as a whole, what JPMC and Paymentus are doing together.
I think there was another question in the back.
So in terms of your competitors, outside of, like, the legacy systems that you're displacing, like, I think of, like, ACIW maybe as a competitor in this, in this bill segment. How do you win against them, and who are the other large competitors that you're competing against?
I think all the legacy providers you can think of, think of them. I think the typical trend which has been in the industry is that a large company who's serving the financial institutions and so on, whether it is ACIW you talked about, or any other company, they acquire companies. They acquire businesses, multiple of them, trying to see if they can find the answer to providing a modern-age platform. Our approach to market has been very different. Our approach has been very focused on from the ground up creating a platform that is infinitely scalable, both horizontally to any size of the billers or vertically to any size of any industry verticals.
So from that perspective, I think it's very, it is challenging to compete, especially when you have proprietary Instant Payment Network as well as part of our platform. So we are enjoying the benefit of that. Combined with the core, one of our core tenet for our platform has been a single code base across all the verticals we service. So in some ways, if I could summarize it in this way, that we are actually crowdsourcing the innovation framework for our platform. So as more and more clients get on our platform, they coach us on how the platform should function. And since all of that is going into the core platform, the, it becomes a very difficult for any company to start competing against that platform, which has so many different use cases, so many different workflows.
It can accommodate of all sizes and complexity and verticals. So increasingly, it becomes more interesting for customer cohorts to look at a company that can actually use the learnings from all verticals and bring to bear to a specific customer situation, as opposed to very specifically focused on just one vertical.
We have time for maybe one more. Paul?
I guess just putting enterprise aside, potentially the opportunity in SMB and how you're targeting clients there.
Maybe thoughts on international potential too-
Yeah.
... if you've ever considered.
On international, let me start there first. We process payments in tens of countries today. I mean, we are accepting payments from tens of countries right now. But, we remain opportunistic there. Our partner ecosystem, actually, whether it's, bank partnerships we have or, the fintech partnerships, they're, pretty robust, and software partnerships as well. They have globally, global platforms, global, customer base. So we will, we will take a look at that, opportunistically, because we are very busy domestically. I mean, we have, pretty exciting, prospects here itself. In terms of the SMB, I would say, we, we, we are bringing a lot of innovation there, and, we will be a disruptive, platform in that space.
If you reflect on it, when a payment is originating from a bank from a customer, and they're making 12 payments, some of those are going to utilities we may already have business. We do business with. Some of them are not. Some of them are going to insurance and other large companies, but some of them are also going to SMBs. When we are receiving payments on our platform for a given utility or insurance company, some of the payments are coming from consumers, some of them are coming from SMBs, some of them are coming from large enterprises. So if you take a step back and take a look at our go-to-market strategy there, it is...
The first question we are asking ourselves is: How many SMBs that exist in the entire United States may already be doing business with Paymentus in some way, shape, or form? And is this enough? Can Paymentus do what other SMB players have struggled to do? Can we efficiently distribute to that customer base and do follow the same platform, same business platform philosophy as we have always followed, which is, can we profitably serve? Can we grow the business but also remain profitable even in that vertical? So that's sort of our go-to-market. But we'll provide more color on that as we make further inroads.
Great. Exciting. I think we'll, we'll stop there. So Dushyant, Sanjay, thank you.
Thank you.
Thank you.
Thank you for having us. Thank you.
Thank you. The next panel is a B2B one with Ramp, Repay, and-