All right, terrific. We're here for the Paymentus fireside chat. My name is Tien-tsin Huang. I follow the payments and IT services sector. Very excited to have the team from Paymentus here: Dushyant Sharma, CEO; Sanjay Kalra, CFO. We'll do a few questions on my side, then we'll open it up to questions from the audience, and I think we have an iPad here. We can take questions from the virtual portal as well. Thank you both for being here.
Thank you.
Thank you.
Thank you for having us here.
I think, Dushyant, I usually start with the, you know. Always enjoy conversations with you, always, you know, try to learn from you and your experience, having been in this space for quite some time. Can you, for the benefit of the audience that are newer to the name, just give a quick commercial on Paymentus and how your prior experience helped shape what you do today with Paymentus and how you go to market?
Sure, well, first of all, thank you so much for the kind words, Tien-tsin. We started Paymentus to simplify bill payments. As you know, bill payments is still could be kludgy and not as straightforward as it could be, and we thought that we could cause disruption through simplification. And what I mean by that is create a SaaS-based, cloud-based platform, omnichannel platform, that allows billing companies to modernize their customer experience and lower their cost to serve their customers. And layer on top of that our multi-dimensional framework of reaching, taking the biller ecosystem to everywhere their customers are, whether they're making a cash payment, they're going to a bank and making a payment.
So all of that comes together, and as a result, we felt that if we could actually ... You know, such a big TAM, the bill payment itself is billions of bills, more like $15, 16, 17 billion.
Mm-hmm.
We felt if even if we could capture 5% of the market, it could be a billion-dollar company. Where we sit today, we feel very good about the fact that we are serving the non-discretionary side of the market and feel good about our long-term targets. We have given 20% top-line growth and 20%-30% bottom-line EBITDA dollar growth, based on the TAM and based on our market positioning.
All right, great. So, you know, we're at this conference, we're very fortunate to have a lot of companies here, and we've heard uneven results around demand. Some good, some bad. bill pay's been performing quite well. Why, why do you think that is? Why is the demand environment for your services in a good place in your mind?
Actually, a good question. If you think about it from a billing company's standpoint, bill payments is how they get paid. I mean, they are trying to bring revenue in the door. They've already provided services in most cases, and they're trying to collect the money. So how you collect the money, how fast you collect the money, how much you spend to collect the money is very important. And we feel that our model, which is, we get paid per transaction, and our value proposition is very simple: How do we lower the cost to serve, and how do we improve your customer experience and therefore improve your collections, continues to serve very well.
And the way we model our business and the platform, that we started out initially with utilities and got into different verticals, utilities, insurance, telecom, healthcare, auto, mortgage, education as well now. So we are focused on so many different verticals, and as a result, what we're finding is, regardless of who we are talking to, the challenges are similar, and applicability of our platform is almost identical. So that's what is driving the demand and the growth.
Okay. And I know your bookings have performed quite well. I get this question a lot, Dushyant and Sanjay, just who are you taking share from? Is it taking away from legacy in-house solutions? Are you competing with other incumbents? Who are you taking share from with these bookings that you're securing?
If I may actually, draw a comparison, if you recall, when Salesforce.com started, they were sort of like little company for the little guys. That was the mindset. Eventually, it became clear to the market that the platform itself, the CRM platform itself, is powerful enough that regardless of which company, which size, and whatever their continuum was, whether they wanted to be in-house or outside, they just couldn't replicate the platform. We find ourselves in a very fortunate situation that right now our competition primarily is whatever the legacy processes the billing companies may have. It may be a combination of in-house, some third parties involved, multiple vendors involved, and we are able to literally go in and explain the value proposition I just described earlier.
As a result, we are taking market share from in-house, as well as the legacy providers or companies that might be newer from a date of birth perspective, relative to us, but they're still pursuing the old model. They haven't taken time to build the way we have built our platform. We see clear air from that perspective as well. Similar type of effect, I would say, as somewhat Salesforce enjoyed.
Okay. No, that's a good analogy. So, so you mentioned it yourself there, that a lot of different systems, a lot of legacy that's out there, so I would imagine the implementation, the conversions can be very challenging and perhaps not templated. So share with us how you, you go through implementations, and how has that been automated? Do you run into challenges or cost overruns? Describe that for us.
Actually, if I may take a second to describe, the implementation and onboarding experience has been one of our key actual success factors over the years. What has happened, however, is as more and more level of sophistication of the, in terms of the workflows we are onboarding on our platform, we had to continue to make investments into our platform, our processes, as well as our resources, to make sure we are able to provide a similar type of framework. I'm proud to say that majority of our implementations, even today with this level of sophistication, require no changes to our platform.
In fact, oftentimes, you have to pinch yourself in some ways that you go in and you sign a $500,000, a 1 million-dollar client, which is gonna be a multimillion-dollar TCV, but you didn't have to make any investment in your platform to onboard them. That notwithstanding, is still the actual process of implementing a billing company requires you to onboard the data, migrate the data, make sure there is proper training. We are touching all aspects of a billing company's ecosystem, whether it is their customer experience, their billing experience folks, their treasury, their finance, you name it, all across the board. So we want to make sure that all of that is properly handled, so on the day of go live, everything goes smoothly. You want to add something?
I just add, new implementations is one of the biggest vectors of our growth every year, and we pay a lot of attention on how best we can not only improve the implementation speed, but do it more cost-effectively. Because we've got a strong operating leverage in the business. We want to grow the business every year, but we want to grow it profitably. That's our theme. That's how we model our business. That's how we project. That's how we forecast. In fact, implementation is key to a lot of things in the company, and if I may just touch a little bit as we are on implementation-
Mm.
When we guide, you know, for the full year or the quarter, we have a range, and from the low end to high end, the way we think about it is low end is something that we might have a flat tire, which is completely out of our control. For example, macro could be affecting not us, but one of our billers who's supposed to go live.
Mm-hmm.
And if that doesn't happen, hence low end, we take very conservative posture. At high end, we presume that implementation pace will be exactly what we saw in the last quarter. We do not make further improvements even in our high end. And if implementation pace gets better, that would be an upside. But overall, we take a conservative position given the whole macro is, but implementation is the key theme of driving our growth, and we take it very seriously.
Okay, good. So no, no customizations on the platform. That's great. Is there still room for improvement on the implementation side, given what you've been investing in?
Of course there is, and we even last earnings call, we announced a patent related to AI-based integration framework-
Mm
... which basically, our pursuit is that since we have so much expertise in how systems get integrated with each other, especially related to our core business, billing and payments, and we have done it thousands of times across various industries and complexities of workflows, we feel like eventually we will be able to train machines to be able to integrate our software with other software without any human intervention. So it's a constant pursuit. We want to get there at some point. And when we are talking about integration, we are talking about sophisticated workflows, and data layer of integration, data conversion. So from that perspective, we feel like they will continue to improve, continue to improve the onboarding speed and the process.
But at the same time, the type of customers we are attracting right now are large and sophisticated as well, so it's a constant process.
Okay, good. And how would you... Last one on this, just how would you characterize the pipeline for billers today versus, you know, last year or two years, or even maybe pre-pandemic?
So, if I take us back to pre-pandemic, Paymentus was actually in the early stages of attracting the larger end of the market.
Right.
And one of the, frankly, the benefits of being public, and having a great financial footprint in front of all public companies who are our potential customers as well, so they can see the company's growing, how many employees a customer had or a company has, its strong balance sheet, no debt, continually growing. That adds to the actual credibility of being able to attract the large customers. Combine that with our partnership ecosystem with various large software vendors, fintech providers, banking service providers.
Mm-hmm.
As a result of that, actually, we are finding that our current pipeline and backlog is a combination of a lot of large, sophisticated clients, in addition to mid-market and small and medium-sized enterprises as well.
Okay. Good. So let's. I know I get this question a lot, so I'll go ahead and ask it, maybe for Sanjay, for you on the, on the modeling side. Just with first quarter revenue and transaction growth were on top of each other, 25%, but I know contribution profit was up more. So just help us understand the spread between revenue and contribution profit. What drives that?
Yeah, so revenue and contribution profit growth, I would say on an annual basis, and even in the long term, would be very closely aligned.
Yep.
The range would be very thin, I would say. Or, but when you look at it quarter-over-quarter, the growth rates of revenue and contribution profit could jump, maybe 400-500 basis points. At times, CP growth could be better than revenue. At times, revenue growth could be better than CP growth, and we have seen that. We saw that in Q1 itself. As you highlighted, we were approximately 30% up on CP, but approximately 25% on revenue. So we had a 500 basis point difference. That said, prior years, we've seen other things as like opposite fluctuations as well, and that happens due to multiple factors, I would say. One is, if you are comparing year-over-year, definitely seasonality does not play an impact.
But quarter over quarter, you will see seasonality plays a big role in that. But in this year-over-year comparison, one other differentiating factor is implementations going live at different points in time. There is no way that can be compared in the same quarter, because large customers could go live, which have, say, a mix of billers, which are paying more through, say, credit cards or a different payment mix, versus other billers who are growing on their own with a good same-store sales growth with a different percentage. Short answer is biller mix, payment mix, CPI index, and there are a lot of other factors which go in, which could make this fluctuation more tricky to analyze on a quarter-over-quarter basis.
But once the whole year is done, or in the longer term, when we see how the biller is performing for the company, you will see that they are pretty closely aligned. And we do that analysis internally by biller to see, hey, over last two years or so, how close they are, and they are pretty close. In fact, this year's guidance, if we look at the most recent guidance we gave, the revenue at high end is approximately 23%, and CP is approximately 22%. And at midpoint, I think revenue growth is around 22%, and CP is around 19%. So they are more closely aligned, but quarters, as I said, could vary.
Okay. No, that's helpful to go through. So, I think one of the learnings from us, for us, was that to combat inflation, you did reprice and quite successful in the repricing, strategy here. Can you walk us through the thinking on how you repriced, and what did you learn from that? And is there a change, perhaps, in your pricing philosophy from here?
Let me take the customer side first.
Yeah.
I think one of the most important thing for us as a company was, regardless of the challenges we were dealing with inflation-wise, which were affecting our margins temporarily, we wanted to make sure that we are a long-term, great partner to our clients. We think of our clients as a long-term, valuable partners. Our our clients enjoy a long-term relationship with us, and we do the same, so we wanted to make sure that they knew that they're dealing with a great partner, in good times as well as in not so great times. As a result of that, when we wanted to make the changes, we wanted to make the changes in such a way that they were not temporary.
So, we were very fortunate we were able to do that, but clients were very understanding of that. The biggest learning we had as a result of that was that I think as part of our quarterly business reviews and with our clients, or as frequently as we do with many other clients, we just want to bring pricing as a part of the regular discussion point of how the pricing of the mutual relationship is. Because if you think about it from our clients' perspective, they want Paymentus to be successful business as well, because we are a 24/7 customer engagement and bill payment and revenue collection platform for our clients.
They want to make sure that we are secure, we are available, we are high-quality service provider, and as a result, we are also successful in our financial footprint. So, that is actually very comforting, that going forward, a similar challenge, we would, we would. If we were to deal with a similar challenge, we, we might be able to, we, we may not have as many apprehensions as we had going into it last time.
Okay, good. No, that's good learning.
I would just add-
Yeah
... that majority of our price increase is due to inflation piece, which was a topic, more, I would say, more relevant a year ago, is kind of done. It's all behind us. Now, we have baked into pricing as a part of our regular customer review. So pricing changes could happen not just because of inflation, I would say, it could be happening due to various reasons. The payment mix could be becoming very different versus what we envisioned when we signed the customer. Number of transactions could be very different, what we envisioned when we signed the customer. So we analyze all these metrics, at that time, or say after a few months, versus when we signed the customer, and if any changes are needed, we reach out to the customers, and we make the pricing work.
So what I'm trying to say is more of an inherent process inbuilt into the company, rather than just attacking the inflation management.
Okay. No, so it's a new muscle for the company, which is good. We've been asking all the companies, I know it's hard to answer. You mentioned credit card, and mix, of course, matters. We've been asking all the different companies here today, tomorrow, Wednesday, around the Visa, Mastercard settlement, and the reduction in interchange and some changes in surcharging rules. What's your early thinking on impact to Paymentus?
First, if I may actually say this way, that we enjoy a great partnership and great relationship with all card networks: Visa, Mastercard, American Express, Discover, PayPal. We have great relationships, and in terms of, I would say, broadly speaking, anytime there is a reduction of interchange for any reasons, it's actually a benefit to the company.
Mm-hmm.
This settlement itself isn't very material in terms of the amount that is being reduced for the merchants, but it's nonetheless going to be a benefit to us. In terms of the other part, which is surcharge and so on, we believe our approach, which has been right from our inception, which is being a consultative organization to our clients, how should they organize their customer engagement, and frankly, how they should collect money, and what are the best ways to do that, and what are the most cost-effective ways to collect money? That continues to factor in even with the surcharge.
So we believe that with our consultative approach, we will continue to have those type of discussions with our client on how they could organize around the new surcharge relaxed rules.
Good. Perfect. Right at the 15-minute mark, hopefully, as designed, but probably more lucky. Questions from the audience? I have plenty more questions, but let's take some questions if you have any, or any in the portal. Yeah, Andrew, you have one?
So I just wanted to ask a question about kind of the customer life cycle. So obviously, you onboard a client, you see transactions flow in, but as it's more mature, say, year two, year three, you mentioned pricing, but is there any upselling, whether it's around payment types or increasing your wallet share, that you guys typically participate in or target?
Actually, a great question. So, we are always looking at how we can grow our existing wallet share in the customer base. First of all, the digitization tailwinds are already a positive factor for us. More and more of our customers, or most of our customers, if not all, they do more business with us on our platform than the year before, primarily just because there are more transactions, more adoption. But also, the opportunities as our platform is becoming more comprehensive, we are now looking at, can we also help our clients with payables, not just receivables, part of it? Insurance companies, can we help them with their disbursement needs? So that's another avenue.
Are there other channels which the companies, our clients are using some third parties for? Can we actually help with, with that as well? So all of that actually factors in, and, and we enjoy a pretty good same-store sales from that perspective.
Hi, thank you. So you mentioned looking at expanding into different areas, and you know, with technology, AI, and everything growing so quickly, how do you look at... When you're looking at, say, for example, you just said payables versus receivables and others, looking at that kind of build versus buy discussion, I know there's a lot of fintechs trying to address different areas around fraud or, you know, coding or different things. And how do you kind of evaluate whether it makes sense for you to develop that in-house relative to your core product or looking at kind of other startups that are looking to be innovative in that space?
Great question. Actually, from our standpoint, from the beginning, platform purity was important to us. We wanted to make sure that we are able to provide our clients, finally, a platform that grows with them. We are not collecting bunch of acquisitions and making it a platform on brochure, but behind the scenes, there are seams and not very tightly integrated. That said, we are always looking at ways, if payables, for example, if we saw there's an opportunity for us to do. Our first reaction would be: Can we actually make it a little bit easier for our clients to onboard more of their workflows on our platform without doing anything? Meaning, we already have integrations with their backend systems.
Can we just make it a little bit easier for them to do the reverse flow, which is the payouts, as well? But in so doing, if we come across a company, and even though we don't really need, we don't really have a functional gap per se, but if we, with our strong balance sheet and where we sit as without being without having any debts and so on, we feel like that we can be opportunistic, and if we see some accretive opportunities, we'll take a look at them.
Just to build on that, how hard would it be, and either from time or cost standpoint, to do more in the SMB or the payable space, B2B in general? It's a big topic. We had Mastercard speak earlier talking about that opportunity.
We actually, we have designed our platform to be able to do all of that. And if I may take a little bit of a segue here, that the way-
Mm
... I think about is that the fintech industry is not going to be much different than retail industry on the web was. That it's not going to be there are going to be 10,000 winners. There are going to be few really good, well-managed companies who have figured out they took the time to build a great platform, had a great financial model, managed a great business, for the long term, and as a result, they thought through the world from the customer's eyes and kept making, changes without pounding the chest too early on, mostly focused on, "Let's deliver value." And then when they got to a place, they got into a certain vertical, it was very hard to change, their track, and we feel like that we would be one of those, those companies.
If you think about it, we are. We have an IPN, which is our fabric around our ecosystem, what we call the multidimensional capability on top of our omni-channel platform, where we are sending payments to SMBs today, and we now have an SMB platform. We think of this as a great opportunity to attract more SMBs to our platform. If you think about it differently, also, with we processed hundreds of millions of payments last year. A lot of them were from consumers, but a lot of them were also from businesses.
So if you layer that on, you could start to see that Paymentus actually could be a pretty unique business on its own, where not only we are able to profitably serve our customers in the current workflows we operate in, but if you take 10 years out, can this company continue to deliver similar type of growth profile as it's delivering today? Where would the growth come from? And if you look at that from the perspective of the ecosystem we have already built, how many households are making at least one payment on Paymentus Platform? What percentage of businesses are interacting with our platform? You would find that Paymentus is actually on a pretty strong journey. So this is...
That question actually triggered a little bit of a segue, so-
No, it's perfect. I like it. I think thinking about the chessboard, I think that is really important. I know IPN, you mentioned it, Dushyant, is a little bit of that ecosystem approach. So maybe for everyone's benefit, just detail us what IPN is, but what's what do you see here in the, in the short midterm outlook for, for IPN?
Yeah, actually, one of the things I look back and during the IPO process, I think we should have—we could have taken a little bit more time explaining the IPN vision itself.
Mm.
So IPN is not sort of like a separate product on its own. IPN is a way to actually grow our business in more ways than just directly working with the biller. We felt that billing companies, regardless of how good they are, how good a system we have created for them, we are still only capturing part of their customers' payments. A lot of the payments are still happening out of band, and we felt that IPN could be a vehicle for the billing companies to interact with their customers in the same ecosystem, in a similar way, across multiple dimensions, whether they are retail, you're walking in with cash, rather than going to the utilities store, actual office.
You could go to Walmart or a retailer store like CVS and so on, and make a payment there, or you can go to a bank site and make a payment. But we thought that combination of that, allowing banks to originate payments through our platform, and fintechs to do the same, and billers to receive payments, we are creating so many opportunities for the long term, for the company to what I was speaking about. If we just remain focused on making sure that we look at all the different workflows that are taking place on our ecosystem today, and keep addressing the needs of each of those recipients of those payments or originators of the payment, this would be a pretty sizable business. So that's the essence of IPN.
Perfect. Just on the, on the partnership side, you mentioned it earlier in the discussion, the whole go-to-market, working with banks or, or third parties. Do you see any, any room to accelerate that or to get more creative on the partnership side?
We do, actually. Partnership has become a very central theme to our go-to-market strategy now. We used to be direct-centric, now we are actually pretty well-balanced.
Yeah.
We have a great partnership with J PMorgan Chase. Very, very fortunate. We have learned a lot from that partnership as well, by the way. If I may say a couple of words there, that we... For me, personally, it was inspiring to see how focused JPMorgan Chase is towards customer satisfaction, customer care. And we all as an organization learned a lot from that, which was very similar to how Paymentus viewed the world as well. But there's always room for improvement. We can always learn. What we have learned from the partnership ecosystem we have built now is that if you combine Paymentus platform with Paymentus' cultural DNA of creative execution, it actually becomes...
A lot of time, we get feedback from our partners say: "Where were all this growth or the success hiding?" Because it was not so clear that this was really possible. So we, we feel like the partnership ecosystem is a great avenue for us, and we continue to make investments there. More so, and especially as we are entering new verticals, new areas of the economy.
Does it change the way you approach product development then, as you work more with these different partners?
Yes and no. Yes, in the sense that, now you have more stakeholders who are actually coaching you on where the roadmap could be.
Right.
So we are learning a lot from that. But, no, from the perspective that our goal remains to create a flexible platform, which allows us to onboard more workflows for our clients. So more inputs you get, if I may use the AI terminology, in this neural net of Paymentus platform development, you just get better outcome. So from that perspective, it is actually very beneficial to us to have the partnership ecosystem. You learn. We are entering into verticals we weren't in before, and see it is very satisfying to see that our philosophy was, we wanted a platform that could horizontally scale to any industry. Regardless of whether it's utilities or a-
Mm-hmm
... a retail sector and what have you. And as we see with our, through our partnership ecosystem, that treasury relationships could be with any customer, and they all have needs to collect their payments or maybe originate payments to to send out. So all of that works for us. And whether it's software companies, exactly the same from a a partnership perspective.
Got it. One more, and then we open back up. Just where are your R&D dollars going then, Sanjay or Dushyant?
In all of the areas we talked about, from how do we make sure Paymentus remains at the forefront of bringing the change to the market, what we call as, you know, disruption or innovation through simplification, continue to invest in that, improve customer experience for our clients as well as for ourselves internally, onboarding efficiencies, internal efficiencies, making sure that we continue to generate more operating leverage. We increasingly become more profitable as we continue to onboard new new customers. So that's where. And frankly, investing into new workflows so we can get more from our existing ecosystem.
Any final questions? We have three minutes left. Happy to take 'em. So you have a lot of data. Any other questions? All right, so you have, I do want to ask a couple more. You, there's a lot of data on the platform. We've talked about that already. You've mentioned AI, GenAI, a bunch. Is there a lot of opportunity to improve productivity in your mind from a GenAI perspective, or is it more around growth?
Actually, both. We believe that, we're already using some AI capabilities. We have actually been at the, in some ways, so much focused on AI. The pattern was an example of that.
Yes.
But we almost bought an AI company, actually, a couple of years ago. We decided not to do the transaction as we felt comfortable with our own AI framework.
Mm.
We believe that we could, as a company, improve operational efficiencies, whether it's our tech support, whether it's our customer support, any of those areas by, or as well as onboarding through AI. But also we can improve the customer experience for our clients and therefore, improve our growth engine or continue to deliver growth.
Okay, good. So I'll close it out with the Rule of 40 question. I know that you're running way above on the Rule of 40 side. I don't know how it, you know, guides your thinking from an investment and growth standpoint, but tell us your philosophy here around growth and margin expansion, understanding that you're well above the Rule of 40.
Yeah. Rule of 40 is something very important to us. We take it very seriously.
Mm-hmm.
Since IPO, every year, we have been a Rule of 40 on an annual basis. Our growth as well as the profitability both play a significant part, as, as the Rule would indicate. We've been coming really well in the last few quarters, and in fact, you know, with a wide range of margin to the- on the scale. It's Rule of 40, but, like, we delivered 57 on that scale in Q1.
Mm-hmm.
For the full year, we are guiding at 49 at high end and 45 at midpoint. As I said earlier, the guidance we use is conservative, very thoughtful in terms of what we guide, as it's a very important metric for the Street. At the same time, with all the macro and economic pressures, geopolitical environment, it's better to be prudent. In Q1 itself, you saw we came way ahead-
Yeah
... and that gave us the flawless execution we did was, you know, improvements which we are seeing, which are not there in our guidance number, to be honest. And those things, as we continue to see better, I think we should be in good shape, especially in terms of Rule of 40. And Rule of 40 in terms of for Q1, as I said, higher. Q2, Q2 we guided, it's still in forties, but overall, we want to make it as best as we can, either in terms of profitability or in terms of growth. And growth, as we discussed, would come higher from improved implementations, improved efficiencies, and our operating leverage is pretty strong, as we don't need to spend as much of whether it's R&D dollars or sales and marketing dollars to deliver our current, current customers.
If I can get five, few more seconds-
Please.
- to just simply, add to, to that. What we are hearing from our investors is, as we talk about the macro environment, I think one of the key things, as custodian of your capital, part of the job Sanjay and I have, and the rest of the management team have, is to make sure that we are very thoughtful in how we are guiding and managing the guidance process, in this difficult macro environment. So we have done a good job, last several quarters, here, and we plan to do the same. So to Sanjay's point, prudence, has been a prevailing principle. Thoughtful execution as well comes as a result of, since you are prudent in your guidance and, you believe that...
It's freeing for the management team that can you actually do outdo what you have told the Street, and that plays a big role-
Yeah
... in how we execute.
No, you've been executing very, very well, so hats off to you both. Thank you both for being here. I think we're out of time. Thank you for the update.
Well, thank you so much. Thank you for having us here.
Thank you, so much.
Thank you.
Thank you, Sanjay.