All right, I think we're going to go ahead and get started this morning, so welcome to the 2024 edition of Raymond James TMT and Consumer Conference. My name is John Davis. I lead the FinTech and Payments Research effort here at RayJay. We're excited to have Paymentus founder and CEO, Dushyant Sharma, and CFO, Sanjay Kalra, with us this morning, so Dushyant, we're going to have to start. Two years ago, we sat on the stage. Stock's up 275% since then, 100% year to date. What's gone right? What's gone better? How do you think about the last two years?
First of all, John, thank you so much for having us here. Thank you for the kind words. It is quite humbling, actually, that investors are now recognizing the durability of our Cagle model. That all emanates from the perspective that we have a pretty strong strategic and execution DNA in the company, focused on basically capturing the huge dam we have ahead of us and our competitive moat, which is also being appreciated by the performance as well as the investors, both in terms of our platform, but also the ecosystem, which leads to and has led to the last couple of years and continues to be as good on the sales momentum side as well as our onboarding momentum. We feel good about where our competitive position is.
We feel good about how one of the key points I actually do want to make to our investors is it's not what happens to you. Essentially, we all know how you react to it, and you want management teams who know how to think clearly when things are not going well, and they are still able to create the strategic, maintain the strategic position of the company, and do the right thing, listen to the investors, and do the right things, buy the business, and we feel like we have done that. We focused on hunkering down, knowing full well at that time, two years ago, that fundamentals of the business were solid. We just need to make sure that we continue to execute, continue to demonstrate success through the platform and the ecosystem we had created, so I think that was very important.
I want to make sure that investors know that you have hired a good management team to run your business for you, and we are doing everything the way we are running the business the way you would want us to run.
Yeah, so maybe one for you, Sanjay. If we look at 2024, you're going to end up with top-line growth in the mid-30s, which is a nice acceleration. Maybe what are the main drivers of that acceleration on a year-over-year basis?
Yeah, I think the year-over-year growth mainly comes from, I would say, three key vectors. Number one, I would say the same-store sales has been very good, and the new bookings, which actually got implemented, which is a second vector, that has been very good as well, and third is a mix of billers. We are getting large-sized billers overall and getting into diverse verticals. All these, in a combination, are helping us get into a good growth. In the order I laid out, there's an order of respective significance they have in the contribution to the growth, but overall, I would say everything is working in the right direction for the company's growth, and not only the 30% which you're seeing, actually revenue, like in Q3, we delivered more than 50% top-line growth. Eventually, it translates into good contribution profit and great Adjusted EBITDA dollars.
Our focus is Adjusted EBITDA dollars. At the end of the day, that's what pays the bills. At the end of the day, that's the money we get into the bank. So our focus is on Adjusted EBITDA. And I think that growth is significant, directly coming from all these growth vectors.
Okay. And Dushyant, I want to touch on something that Sanjay just said, and success with larger billers. We've seen that you called that out on the third-quarter earnings call. Maybe a little bit more about what's driving success there. Is there a particular vertical where you're having more success with larger billers? Because I think that was something that really stood out on the third-quarter call.
Yeah, I think what's happening is, frankly, our super sophisticated platform we have created is being recognized at all levels of the industry in all verticals. And one of the cohorts which we are getting very excited about is even the large end of the billing companies that usually wouldn't even outsource, primarily because they wanted control. And they believe that their workflows were very sophisticated and not easy to be handled by any platform on an ongoing basis. And because of the platform moat we have created, and frankly, the ability to demonstrate time after time, industry after industry, client after client, to explain how easily we can accommodate their sophisticated workflows, not only at the time when we are onboarding them, but also on an ongoing basis.
And not only for the divisions we may have been going live with immediately, but as they acquire more businesses or they grow themselves, they can see our platform evolves with it. As a result, we are seeing tremendous success. And I think that goes across all verticals. It's not just any specific vertical. That's what is exciting about our business. We are not a one-trick pony. We are basically a company that has thought through how to design a platform that scales across all verticals and scales across all sizes of the client base.
Okay. And Dushyant, I want to touch a little bit on the competitive landscape. You mentioned a little bit there. But how has you seen it shift over the last handful of years, or specifically even since the IPO three years ago? Are you seeing some of the legacy guys get more aggressive, or are they kind of letting their business die off? Where are you taking share the most?
I think that's a very good question. Because what's happening is over I think the market has moved more in our direction. And the reason is we were always focused on a strategy. And our strategy was create a best-in-class platform combined with a proprietary network ecosystem, which is our Instant Payment Network. And if both of those things come together, it will create a scenario where no client actually can replicate that themselves. And it's not easy to be replicated unless you're willing to spend another 20 years like Paymentus to do the same for competitors. So we see that legacy providers, even legacy, I would just call it legacy install base, not just legacy providers. People have homegrown systems. People have a myriad of service providers all in one large organization. And they all need to be replaced with a more modern platform like Paymentus.
So we think from that context, it almost looks like a green field to us. Competitors, I mean, when we started Paymentus at that time, these competitors were pretty large. And I think in the last 10 years, Paymentus has grown maybe 30-40-fold. And all of that business has come from legacy providers, but legacy install base, not just legacy providers. Even modern companies who are built on the legacy model of payment processing and are not able to compete effectively against the way we have created our platform and the ecosystem.
I did want to dive into IPN for a minute. I'm not sure all investors are familiar. So maybe just spend a minute kind of explaining what IPN is and kind of how that fits within the business model.
Sure. So Instant Payment Network, IPN is, think of it, let me take a step back and explain the problem we are trying to solve with IPN. A billing company, when they sign up with Paymentus, as great as our platform is, as omnichannel as it is, we still only capture a minority of the payments. Because the majority of the payments are still happening in a sort of non-digital manner. Let me just say it this way. Outside the biller ecosystem, that is a very exciting opportunity for Paymentus because we can grow multi-fold and still not capture the entirety of the customer, entirety of the users of our own clients. So there's a huge opportunity there. So to achieve that, what we are trying to say to our billing clients is, let's take the ecosystem we have designed for you to where your customers are.
So if your customers are paying at the banks, let's take them there. If they're using a FinTech app, let's go there. If they're walking into a retailer store and making a payment, let's go there. So we have basically created this pervasive platform, which allows the 100% of the customers at least the ability to interact with Paymentus' platform, even though they may not be going directly to the billing company's website. And as a result, both sides, the originating side, which is the banks and so on, and FinTech companies, they're excited about leveraging what we have already built over the years and thousands of billing companies we currently serve. And the billing companies are excited because they just can't get that type of access in real time through any other capability, including their own. Regardless of how many floors of programmers they have.
Right. And Sanjay, the 4Q guide calls for pretty material deceleration in revenue off of a fantastic third quarter. Just any thoughts in the last month or so? Any surprises, kind of quarter-to-date update from you guys? Anything that has been surprising in the month or so since you reported?
No. The short answer is no, no surprises. We are marching on the path of what we had as a business, but overall, I won't call it decel. Of course, when you look at the numbers, that's kind of the view you get, but our guidance approach is pretty disciplined, and I think we've delivered good results. The business is running strong. I mean, if you look at the trends of past many quarters, I would say, whether you look at bookings, you look at implementation pace, you look at the diversity of verticals, you look at the size of the customers we are getting into, you look at the transactions we are getting into, all these trends indicate things are going really well, so I won't focus on any one particular quarter as such, and I won't conclude just on one quarter or maybe two quarters.
But overall, I think we look at the business on a CAGR basis longer term. And from that perspective, the business is going really well.
Right. And I think you made some comments on the third-quarter call just about 2025, kind of reminding us of your midterm outlook and kind of where you started the guide this year. And for those that are less familiar, they've guided midterm of 20% plus top line with 20% to 30% EBITDA growth. But just maybe talk a little bit about some puts and takes in 25. You're going to grow mid-30s this year. And just as you kind of frame out next year, some things that we should keep in mind.
Yeah, that's a great question, John. And we are contemplating right now. We are in the middle of our budget cycle. And we don't really have a very fine hold on what the 2025 guidance will look like. But in terms of giving a broader color of how 2025 may shape out, it's reasonable or prudent, I would say, for modeling purposes to use exactly the same growth, which we say guided at the beginning of 2024 for 2024, compared to 2023. If you use the same growth rates for all the three key metrics, revenue, contribution, profit, and Adjusted EBITDA, again, at the midpoint of 2024 guidance, which we have given as of now, I think that's a reasonable way to think about it for the short term, given we have this is not the precise guidance.
But overall, I would like to remind everyone that these are, again, short-term goals or modeling for modeling purposes. But we, again, believe on the long-term CAGR model, which is 20% top line and 20%-30% on Adjusted EBITDA dollars. If you look at the history of CAGR for the last four years, all these three metrics are 25% plus. But that said, we are very disciplined in how we think about the business. And we've seen cycles where being disciplined is more reasonable because a lot of things could go out of hand. We've seen implementations at times. We've seen certain things happening, which could happen in the business. And variability exists. We have seasonal business. We are getting into other verticals. So certain trends we ourselves don't know for the new customers we are getting into. And we take reasonable assumptions when we model.
So quarterly, variability will always exist. But I think overall, the general trends of the business are very good.
Yeah. And Dushyant, the 20%-30% EBITDA growth obviously implies margin expansion. You have pretty healthy, roughly 30% adjusted EBITDA margins in 2024. At least that's what you've guided to. Help me think about where you think that can go long term. You guys, incremental margins are 50% plus, depending on the quarter. Is this something that over the next 10 years, we could see a 40% margin business? Just how do you think about this? And then in the same breath, how do you think about balancing EBITDA margin growth with reinvesting in the business and making sure to keep that 20% top line growth?
Great question. I think this is from our perspective, and speaking directly to the investors, I would say we are thinking through how do we create and continue to execute on our strategy of building a durable compounding growth engine, ideally a perpetual growth engine, and that is our focus, and one of the ways to do that is for you to allow us to build that type of a growth engine, you need to see returns and a healthy margin profile business, so one of the key goals we had last couple of years was to be able to just demonstrate how great the operating leverage of the business is. We can deliver the top line growth as we have delivered. We have actually, since the IPO, based on the midpoint of our guidance, we are more than doubling the business.
But we are doing that while also expanding margins. So as we scale the business, obviously, there is going to be economies of scale. But at the same time, we have to balance out with the growth. So it's hard to say exactly where the numbers could be, whether it would be 40% or 50%. You always want margins to be higher. But right now, our main focus is to continue to build a long-term compounding growth engine while also delivering healthy margins. Sanjay, you want to add?
Yeah. I would say our long-term model still remains unchanged. We've said always 20%-30% long-term Cagle model for Adjusted EBITDA dollars growth, and our market is huge, and as Dushyant said, we've got a great pipeline also, and we could see a big opportunity in front of us to make investments to convert that pipeline into bookings. So we would make the spending decisions based on how we see the market in front of us and pipeline in front of us, but that would be for the benefit of the long-term Cagle model. In the short term, it might look we are spending more, but I think overall, it will be the right business decision for our Cagle model, but it's not easy to put a fine line on the number, but I think overall, the operating leverage of the business speaks to itself.
And the growth should happen as economies of scale happen.
And I just want to unpack the 20% growth. How do you think about it? Do you guys think about it as an NRR plus new wins, same-store sales? Just maybe help investors kind of get comfortable with, and how do you think about getting to that 20% growth annually?
Yeah. So the 20% growth model, that's a very interesting question, John. I would say the first vector of that is the same-store sales. The kind of customers we have been onboarding, I would say, especially in the last, say, two years, what we have seen is that the same-store sales is getting better and better. And one of the reasons for that is that the new customers which we are onboarding, they are large clients. They themselves are growing at a good pace. And we are the inherent beneficiary of their growth as well. So we are seeing their transactions growth, which eventually are helping us. So our same-store sales is getting better. That's one of the largest vectors for our growth. And the second vector is as new onboardings happen, as new bookings can get converted to implementation, we are seeing that that's an incremental revenue to us.
Some of those onboardings happen over a period of time. For example, we would onboard a customer, and that customer will do another acquisition. They will do another acquisition, and another divisions will come online. So we are seeing multiple vectors of growth within our customers, which eventually are helping us also. So that's one of the things. And I would say then there's a secondary part of it. The primary was same-store sales is a secondary. And third is the mix of customers. And we do a lot of repricing as well with the customers, depending upon what situation it is. So our pricing mechanisms are also in play. It's a part of a regular process of the company. That also has a role to play, which helps. That's a part of this 20%.
OK. Now, actually, I did want to dive into the pricing dynamics.
If I may just add one more point to that. That is, for all investors, I think the way I would like you to think about it is that don't box us in. Don't think from the perspective of this company only focuses on utilities, for example. We have demonstrated. Now we have expanded into different verticals, very sizable customer wins in many, many of those verticals. Our growth algorithm is centered, or we are able to deliver that kind of growth algorithm for the long term based on the innovative DNA of the company, so we are always looking at how we can continue to deliver top line growth while also expanding margins. Said differently, there is a lot of innovation that takes place in the company around thinking through what more markets we can capture, and verticals is one of them.
We continue to get excited about it more and more as we execute our strategy there.
And maybe just touch on some of the newer verticals that you've gone into, maybe list off, maybe size relative or opportunity. Which ones are you most excited about?
Absolutely. So as you know, our roots are in utilities. And the primary reason was we believe that if we can tackle the utility vertical, which was the hardest one to crack in the bill payment area, if we can do that, we can do well in a lot of the other verticals. We have done that now in government services. We have done that in insurance. We have done that in telecom, property management. We have done it in consumer finance, auto, mortgage. We have health care, education. We obviously are doing extremely well in the banking and credit union, even the loan repayment world there. So there's a continued progression of our platform and the ecosystem becoming more and more pervasive. And you might be using our platform without realizing in different verticals than you think you're using our platform in.
OK. And I did want to touch on the pricing environment. If we go back a couple of years, you guys made some pricing changes. I think you made some comments on the third-quarter call that some of these larger billers are still able to extract a pretty healthy take rate or price per bill. But maybe just talk a little bit about what you see, how it's changed. Sanjay mentioned pricing as part of the growth algo. And just generally speaking, what you're seeing.
Yeah. So one of the things what we want to clarify is that right from the beginning of almost all of our contracts, we had the ability to change the pricing if the underlying cost variables change, for example, average payment amount due to inflation and so on. We were very surgical and methodical because we wanted to preserve the long-term relationship with our clients. Our clients appreciate that as well. They want a great partner. If they're going to be with a company for the next 10, 15 years, they want to make sure the company has a long-term view like they do. And that's the way we operated the business. But now one of the things we have seen the success, and I would say empathetic execution on the pricing side from Paymentus towards the clients has given us a lot of confidence.
So we have incorporated now as part of our ongoing review with our clients. And clients expect that as well. They say, hey, how is the pricing working for you? Because if you think of Paymentus, we are one of the central pieces of collecting the revenues for our customers. It's very important to them that we as a company continue to do well. It's not something like we're just a printing company and delivering photocopier. We are a central part of their revenue collection strategy. For them to continue to do well, they have to see Paymentus doing well. So they want to make sure that we are able to provide the same quality of service.
Yeah, and I want to touch on a comment you made on the third-quarter call that you had several large billers go live early. That's something we generally don't hear. Usually, you hear about delayed implementations, customers not ready, and you talked about quicker onboarding times, so maybe talk a little bit about maybe investments you've made and what's the changes you've made to drive those improvement and onboarding.
I think that is one of the things I would say has gone well in addition to several other things we talked about in the last couple of years. During the pandemic, what transpired was that we lost contact with the boardrooms of our clients, especially the ones we have signed. There was some impact to our ability to sign some of the largest clients just because the boardrooms are closed. They were not open, and Zoom can only go so far. That has changed. In addition to that, we took it on the chin, and we said we had a couple of delays. Let's retool our processes and the technology toolkit. We made investments there, and we continue to do so. It's a never-ending pursuit. If you think about it, the more upstream you go, the more different verticals you get into, the more workflows you learn.
You want to make sure your platform is able to capture all of those workflows with ease, without a lot of cost, without a lot of timelines. A lot of those learnings we have continued to have and also additional resources. All of that combined is leading to it. It's an ongoing process. We'll continue to refine our onboarding process. We are feeling very good about where we are. It's a never-ending pursuit.
Yeah. Maybe I'll just move on to the balance sheet. Profitable, free cash flow positive, $200 million of cash on the balance sheet. So maybe talk a little bit about capital deployment and how you guys think about.
Yeah. So our priorities in terms of spending cash, I would say, remain unchanged. We want to spend more on the organic growth as we are growing. And there's a huge market for us to capture. So our first priority of investment is in sales and marketing for organic growth. And at the same time, when we think about the capital allocation, I would say, especially on cash generation also. On cash generation, today, we are spending more on working capital just because we are growing significantly. For example, we spent approximately $20 million in working capital just last quarter. So you see a negative $2 million cash. But think about it. If $20 million is going in working capital, that itself is a big investment. And that's all going to convert to cash eventually. So right now, we are not focused on a very short-term cash generation objective.
But overall, it's going to convert into good cash because right now, we are putting in working capital. And it's going to flip around. For example, Q4 could be much better compared to Q3. And it's cyclical. Every quarter or the other, you'll see. But again, longer term, and you'll see the cash generation will be better. And when we think of capital allocation at this point, the cash is reasonable on the balance sheet. We have $190 million cash. And even if it converts to, say, $200 million or $210 million, I don't think we're going to get any significant benefit of it. Right now, the benefit for us is to use that in working capital so we can make our operations more efficient and cost-effective, which eventually helps our EBITDA. So that's the strategy we have today on cash.
OK. Dushyant, you did a couple of small acquisitions a couple of years ago, but maybe talk a little bit about if you do M&A, how do you think about it and what's your M&A philosophy?
I think, first of all, we have made a lot of investments in the product and technology on our side. We feel like that we don't really need any new product capability per se to continue to deliver our growth CAGR model, the growth algorithm. However, as markets have changed, we are seeing there are opportunities now. Unfortunately, we are not finding things which are accretive on both the top line and the bottom line. As we are learning more and more about what's available and what's out there, we start to like our business, to Sanjay's point, a little bit more. It's not easy to grow at the levels we are growing and then also deliver the bottom line results.
So if we find something which is accretive both strategically as well as fiscally so that we can look into the eyes of our investors and say, we did the right thing by doing this acquisition, we are not trying to take something away from our growth algorithm or the margins and so on, we would definitely take a look at that.
OK. We just have a couple of minutes left. Any?
I've got two questions. I am fairly new to what you guys are doing, but it looks very interesting. What % of your payments are automated? And then if the transaction is through credit card, who's paying those transaction fees?
So we haven't gone to the specific channel. But I would just say the minority of our payments are automated, meaning they still require, they're all digital, but they still require customers coming in and taking an action. Because what we are seeing is customers want control, and a typical household doesn't have time management issues as much as they have cash management issues. So that's the first one. The second one, who pays the credit card fees, all depends on what type of contract arrangement we have. We have all the way from where customers are paying that to customers are sharing in that to Paymentus is taking on because we are charging a flat fee to the customer.
And then one other question. You say you're about 2.7% penetrated of your market. I believe that was from your last presentation. With any individual customer, what would you say your penetration is? Or what is your highest penetration within the customer?
I mean, it varies. Penetration varies. But I would just say what we have shared publicly in the past is we can more than double our business. Sitting here right now, we could be a $multi-billion-dollar company on a top line basis and still not capture 100% of the customer's entire payment volume. That's why this is a very exciting opportunity. That's what is exciting for us. That's why it was very important for us to do the right thing with our customers. Because we don't see what we are getting today. We see what the relationship will look like years out.
All right, and Dushyant, maybe just to wrap up, what do you want investors to take away from this conversation? How should they think about Paymentus going forward?
I think we are a very strategic investment. You should think about the investor pool today of the company, whether it's internal or external, is pretty strategic. I think we are a very strategic investment. We are building a long-term compounding growth business with demonstrated operating leverage with high margin. We are an innovative company. We will not be boxed in. We are not boxed in in any way. We continue to look at the fabric of all the capabilities we have and where else we can leverage the same capabilities to get more revenues and where else we can help our customers.
So if you wanted an asset which is going to give you a long-term return and has a management team that has gone through ups and downs and knows how to thoughtfully execute the business in both good times and not so great times, I think we are the company.
All right. We'll wrap it there.
One last question. Your revenue growth was 51% last quarter, transaction volume 35% or so. Why was there a discrepancy?
There was a discrepancy because this quarter, we onboarded some large customers, large enterprise customers, for which the average selling price is much higher, but the number of transactions are not equal.