All right, we're ready to go? Terrific, thank you. Paymentus is next up with the session. We'll do a fireside chat with the Paymentus team to talk about bill pay, something that I always love to talk about. Of course, we got Dushyant Sharma, who's back, the CEO, and Sanjay is here as well. You know, my first time shaking his hand. I thought maybe we'd kick it off, Sanjay. Just maybe if you wouldn't mind just giving us a quick intro of yourself and why you joined the firm.
Yeah. Thanks, Tien-Tsin, for having us here.
Sure.
I'm glad to start with Paymentus, being close to three months, getting there. I'm very excited, very intrigued with the opportunity. When the opportunity came to me, I was excited. Once I read the S-1 and read what's happening in the company and what lies ahead for the future, after talking more to Dushyant, it was just very intriguing opportunity. Once I got in the company, it was more exciting than initial stage. I mean, there are a lot of opportunities and the kind of industry we are in, the kind of billers and the partners we have, it's very exciting. It's very encouraging to see the growth. There's a lot to happen in the next few years.
Partnering with Dushyant and Dushyant's vision was one of the main reasons which got me on board. Definitely it's great to work with Dushyant and the team is amazing at Paymentus, so I'm very excited.
Great. Well, welcome. Welcome to the conference, I look forward to working with you of course. Let's get right into it. The bill pay sector, I think, Dushyant, we talked about this, you know, post-earnings, it did feel like it's performing quite well despite all these macro questions that everyone might want us to focus on. I'm curious from your standpoint, given where we are in the cycle, the strategic priority for billers to modernize bill pay, where do you see it?
I think, frankly, in a difficult macro, it becomes even more important for organizations to look at their OpEx more efficient with closer look and frankly, also take a deeper dive into how they can modernize and make it more efficient their operations and also improve customer service, which also leads to efficiencies in OpEx side. since our messaging and our value proposition is very, very simple, that there is no real CapEx required from the billing company's standpoint. The biggest benefit the value proposition we are offering is, we will improve your customer experience by modernizing with our platform. Number two, we will reduce your cost to serve the customers by bringing all of these channels and all these capabilities together in one holistic platform with one integration.
Frankly, delivering value even from a call center efficiency standpoint, the reconciliation standpoint, and so on. It becomes even more interesting in these difficult macro environment. Frankly, ever since I've been in the business, I've seen that that message has resonated well in good times and not so good times as well.
Yeah. Well, the bookings have been doing quite well, right? It started out the year pretty strong. It was in the year pretty strong. Are you primarily replacing in-house solutions, and who are you typically competing against for these deals?
I think it's, you know, when we first started out, it used to be that we were simply either pursuing greenfield or, have legacy, replacement of legacy players.
Right.
Now what has happened is, even the in-house solutions, some of the largest organizations, when they look at their product portfolio when it comes to payment experience for the users as well as how much they spend, to serve the customers, it becomes actually pretty exciting for us when you put the financial model together and the ROI. So the greenfields are, you know, everyone has payments now, so it's mostly replacing, either the legacy platforms or modern companies working in the legacy model.
Even though from a age perspective, they're modern, they're younger, but the platforms are still same legacy disjointed offering and so on. In-house, that's becomes even more paramount because they have bought multiple systems at different times, multiple software, multiple maintenance fees and so on. All of that becomes pretty attractive. For all of those, areas across different verticals is where we are getting, a lot of traction.
Okay. Good. With good bookings, there's always the backlog conversion question. You know, we cover some IT and BPO services companies, we're hearing different things around delays or implementation, you know, surprises to some degree. How much visibility do you have on the conversion of the backlog?
Actually, it has gotten better, frankly. As we were talking about some of the questions we got during the earnings call itself, the pandemic had different impact on different businesses. Since we work in the non-discretionary bill pay environment, our business wasn't affected as much from a usage standpoint. People still have to pay their bills, they were paying their bills, and so on. What did get affected was the things which could only be done in person. Number one would be some of the largest deals. You're not gonna close some of the largest deals on Zoom and some of the largest implementations. It becomes harder to bring everyone together in one room and whiteboard everything on remote calls. It wasn't as easy.
Since most of that is already behind us now, we are seeing in our traction in the bookings, you're seeing the benefit, but also in our conversion of those bookings to implementation dollars or the revenue dollars is also improving, primarily because of the macro improving as well.
Okay. Good. No, I'm glad to hear it. Let's dig into some of the results recently. The first quarter revenue is up 27%. Transaction growth I have here 23%. Contribution profit up 13%. The spread between revenue and gross Contribution profit, can you discuss that trend for us and the per transaction dynamics behind it?
Yeah. I think first of all, very proud of the revenue growth.
For sure.
We were able to deliver. As a reminder, last year as well, I'm just proud of that, so I'm just sharing that. Last year we beat the initial guide we gave to the street and then the revised guidance after Q1, we also beat that number with the top line. I feel like the top line is a very big indicator of how well the business itself is performing. In terms of how much of that is dropping to the contribution profit line item has a lot to do with the macro we are dealing with in inflation. We talked about that inflation has been a factor, not only year-over-year, but also sequentially quarter-over-quarter.
We talked about that we had 400 to 500 basis points of inflation. The way we look at inflation is, it's not like it's a permanent loss of value. It's a temporary impact in the sense, if our cost is going up because the average ticket item for utilities, primarily utilities, is going up.
Our revenue the was flat, the fee was flat. Some of it is from a regulation standpoint, some of it is that we actually like it that way for various reasons, including if the things go back to normal, we get to keep some of those margins if we have raised the price and so on. It's a temporary thing. Our contracts already allow us to change the fee if the average payment amount goes up. We have done that. We are doing some of that.
All you're seeing is revenue's growing, contribution profit is lagging behind a little bit, but with the gap is narrowing as we continue to improve the conversion of the current contracts pricing to better pricing, adjusting for the inflation.
Yeah. What's the learning from this, right? I know you're going through this pricing adjustment with some of your clients. What's the learning from here as you're building future contracts out? Is there a way to buffer against some of these inflation dynamics?
Actually, the biggest learning. Contracts already allow us to do that. Contracts already provide our. There was, if you look at our language, it actually calls out multiple factors under which we can change the pricing. This remains a very important part of our contracts for going back a decade. The biggest learning, however, was that I was somewhat hesitant initially to make the change because I wanted. I didn't want to be the first call to our customers that, "Hey, I'm impacted by inflation. Give me more money."
Because we look at our relationship with clients for decade long relationships, plus many, many of these clients are doing more business with us every year than the year before for same-store sales and so on. I felt that I could actually wait a little bit. There was a little bit of a tensive perspective on the team that should we get a little bit more data, a quarter or two, to show that, hey, this is really impactful to us. We didn't want to get into the discussion whether it's seasonal.
I see.
The learning lesson for me is probably we could have been a little bit faster to act because of the feedback we are seeing from the customers. Some of them even said, "You know, hey, we were expecting a call from you." We are happy about that. Now it is part of our regular cadence when we talk to our clients. Let's see how the profitability is playing out based on the macro environment we are operating in.
Okay. No, thanks for sharing that. Just staying with the pricing and, you know. It's an interesting model, right? You have a fee that you can charge to the billers or a convenience fee that you charge to the consumer. Same thing. From a benchmarking or from a learning standpoint, should we expect any changes in the mix between those two or not necessarily?
Actually, our approach to the market right from the beginning has been that get the customer excited about modernizing and let the fee be decided by the customer, whether they want to absorb it, they want to pass it on 100% to the customer or a hybrid scenario. They absorb some and pass the remaining to the customers. What we have seen, however, is because of the ROI we are able to demonstrate over a period of time, the customers are able to see the benefit of the platform itself and the usage.
As a result, we are able to then convince the customers, the billers, do you really have to pass on the entire fee in its entirety to the customers or can you just absorb it or absorb it all? There are some incentives in place from the card networks if you absorb the fee.
Sure.
You can lower the fee as well. Our cost goes down and the adoption goes up. We have been able to successfully do it. Now having said that, when the platform is adopted, sometimes our platform does so well, many times it does so well that your adoption goes through the roof, and then the cost, it starts to go up even with the lower numbers.
Customers may say that, "Hey, I want to pass on part of the cost to the customers, as well." I would say, the trend remains that we move from convenience fee to absorbed to action.
Okay. No, that makes sense. That makes sense. Let's talk about IPN. I know that's always been an exciting part for me, 'cause thinking about the history of bill payment and how it evolves, it seemed like a very logical strategy. Still under 10% of revenue, right, but growing very, very fast. We know it's dilutive to margin, right? Catch us up and maybe for those that are less familiar with it, the thesis and sort of the receptivity of it.
Sure. Let me actually describe what IPN, why IPN to begin with, those who are new to the concept. When we were starting the company, the main benefit we wanted to explain to the billing companies was, who were used to receiving, their only source of receiving payments was through the banks.
We said that you could receive all of these payments on your own properties using Paymentus platform. Billing companies would be so skeptical, they will say, "Well, I don't know how many people will come to a utilities website to pay their bills," and so on. I used to say that and was many times proven that all of the banks combined will give you less payments than Paymentus will give you in the first 90 days of launching. What happened as a result, that biller direct, which is the Paymentus platform, started to take off and banks started to see decline in volume.
Right.
Billers started to see more and more of this. This became a norm to offer a bill payment platform like Paymentus to the customers. IPN was our answer to saying the reason bank payments were declining is customer experience is totally actually outdated compared to what the experience you get from a biller site. You can make the payment at the last minute, anytime, in real time. You have more options to pay, including credit cards. The banks just didn't offer those options. We said, "Can we take what we have done for billers and expand through a network to banks and other fintechs?" We have done this successfully, and we call that IPN.
The other part which we actually predicted and has played out exactly the way we thought is that we will get access to billers who are not directly on our network right now. Through IPN, if a bank user is making a payment to 10 of their billing companies l et's say four of them are on Paymentus platform or three of them are on Paymentus platform, the remaining seven becomes sales leads for us.
Right.
That's going directly to say, "Hey, we are already sending you payments and that's more inefficient. Why don't you join our network?" That's one part. The second part we have now actually started to observe and got excited about is that we are sending payments to payees who are outside of the electronic network, and most of them happen to be SMBs. The numbers are in 6 figures, like hundreds of thousands of these payees are potential SMBs. That's why we have launched an SMB offering adjacent to IPN to capture those payments. First of all, reduce our costs, rather than having these paper payments go out.
Make it electronic. The second is to, we have taken a smarter approach rather than just doing one transaction conversion from paper to electronic. We are saying we are gonna give you a platform which will be monetizable for us. Since it's all interchange revenue there, or most of it is interchange revenue, it gives us the ability to have no impact of interchange on that as well. Very excited. That's the IPN in a nutshell. In terms of adoption, I think we see tremendous acceptance of it on the banks, credit unions, fintechs, all of them remain. I think this is a in some ways the modern way of integrating with a consolidated view, in the billing system for the customers, using our platform.
Right. No, it's smart to lead with the biller directly and then go into this and like you said, build this flywheel or this network effect, which you mentioned.
Absolutely. Even from a billing company's standpoint, if you were given a pitch that, "Hey, I can give you a platform for web and IVR and mobile," versus another company told you that as a billing company that, "Look, we can give you entire platform, which is industry leading, in many ways. Also we will give you access to the ecosystem where someone walking into a Walmart can make a cash payment, can go to a Green Dot associated store with a CVS, and Walgreens can make a payment to you through cash. The payment will be made in real time.
You can go to PayPal app and make a payment, or to any of the banks who are participating in our network. In essence, what this really means is that we are allowing the billing companies who historically have been completely isolated from the bill paymaker ecosystem to now have, taking their entire bill payment framework and associated customer experience powered by Paymentus to customers wherever they might be.
Right.
Any of the apps of their choice and so on. It actually becomes an accelerant for us in terms of sales acquisition as well, the customer acquisition.
As you were describing in the beginning, right, in the network, you're touching a lot of different endpoints, including SMB, and this whole concept, whatever, netting interchange or zero interchange net effect. Tell us about this, the receptivity of the payables opportunity for you with SMBs. It sounds interesting and compelling, but how do you think about executing that versus everything else you've discussed so far?
Yeah. Actually, this is. Look, first of all, the SMB itself, it's a nascent opportunity.
Sure.
So it's early, i t's not in our numbers and so on, but, except in the expense line item.
Yeah.
That Sanjay will remind me for sure. It's there. What we are our approach is rather simple: prove the business concept that it works, acquire the customer, show the true value, demonstrate the revenue generation, and we are generating revenue. It's very small still. Go to some of the partners we already do business with, whether they are some of the largest banks or the fintechs or other B2B companies we work with, offer this as a way to expand our network. Also through the IP and I talked about the paper payments and so on, leverage that as a way to get more customers. Our strategy is prove out the drag a little bit.
Use the channels to accelerate the growth.
Good. Let me stop here. I have several more questions, happy to take questions from the audience or from the portal. If there are any. Yeah, Adam.
I'm sure all your customers benefit from the efficiency and the lack of CapEx of outsourcing, but I'm guessing it's pretty uneven between how many customers really sort of use this for customer experience and, you know, brand building and cross-selling. Maybe you could spend a little time talking about sort of the best-in-class customers that you have and how they're proactively using, bill payment for, you know, more revenue-generating opportunities?
Great question, actually. It... We serve various industries. The industries, let's say a municipal utility or a utility in general or a government entity, they are not necessarily pursuing the customer acquisition. They are, in their minds, the best gauge for the success is how satisfied the customer body is when they're utilizing the platform. Their requirements are different from our platform. The quality of service, how available it is, how easy it is to make payment, how many options are available to the customers, and how many different places those options are available. All of that works great. There are other customers we have, whether that is telecom, whether that would be insurance companies and so on.
They would look at our platform as a way to have different offerings. Not to say the utilities themselves don't do it. I mean, they will, they'll market hot water heater services in their bills, which we are presenting and so on. The insurance companies, telecom and other areas, the B2B players as well, who are on our platform, in their case, the amount of touch points we offer, if you think about it, we are, we as a team always think about the how respond, the best way we can look at our own business, what our customers are giving us, is basically access to their customers and their money, two of the most, in fact, vital assets of any business.
ive, if you look at how our platform interacts with the customers, you get a text message every month that you. Or you can get an email, sometimes phone calls as well, automated. Email could contain the e-bill information. All of those are marketing opportunities where you're also telling the customers, your customer, what are the other services you offer and sign up for some of those services. All of that is part and parcel of the offering. We become a big conduit, if you will, of customer engagement platform for growing the customer base
As part of that, also electronic utilization of the services which benefits us as well for same-store sales, not just in terms of more customers adopting, but more services being offered by the companies which we are getting paid for, by enabling payments. Does that help?
Yeah. Do they share like KPIs that they get from, you know, the, your best-in-class cross-sellers or?
Yeah. They absolutely do. Not sharing that here, but we obviously see marked improvements in engagement of the customers many times order of magnitude.
Thank you, guys. I wanted to ask a question. I guess it's kind of an IPN versus biller direct model, even just around verticals, I know you've acquired Payveris and Finovera, which were IPN bolt-ons that added exposure to financial services companies. Also, if I recall a couple of quarters ago, you talked about more organically having some strength in the real estate vertical. I just wanted to ask about, you know, what's kind of a BAU motion as far as, you know, diversifying verticals?
Thank you for the question, Andrew. I mean, look, from our standpoint, the way we consider our platform, it was a horizontal offering. There was no vertical that should require. Our philosophy was no vertical should require additional efforts from our side to bring them on. Therefore, we shouldn't be restricting any. As a result, we have done a great job and we started with utilities, the small utilities, then we went to larger utilities, government space, telecom, healthcare, insurance, consumer finance, the banking, the credit union. Now it's ever-expanding. Now SMBs, contractors, we have some contractors using our platform right now. It's, it's a pretty interesting offering. It also, in some ways, the manifestation of that strategy is really in play, that we don't want to be restrictive.
We are seeing, as you're seeing in some of the numbers we talked about in Q1 as well, that our bookings also reflect that we could sign a state agency, we could sign in multiple large insurance companies. We could have property management, which is a big market on its own. Customers are able to enjoy, the billing companies are able to enjoy the benefit equally well across the industry. Their customers love the modernization of the platform as well. Does that help?
Okay.
Thanks, Andrew. Anyone else? Maybe a little bit on Adam's question. Just thinking about as a biller converts and you see success in converting to paperless or electronic payments, what does that journey typically look like? What's the average? What's best in class?
We could. We have customers, we may have signed them up at the time, and everyone, including the customers who are on an incumbent platform, some legacy platform, and they. Say they were getting 100,000 payments a month. It is not uncommon that a few years out, that's 150,000-200,000 payments a month. It just grows based on how our platform ties things together. More options you offer, more easy it is for customers to use the service. It varies. I mean, we used to. Our same-store sales remain very strong. We haven't I think after the IPO, we haven't really given the numbers, but they're strong.
They remain strong, even in difficult markets.
Yeah. I mean, it's what drives that big NRR number that we've observed with the company. Bringing it to profits, I know that inflation has had some impact on things, but generally you are showing a lot of operating leverage. You were always profitable. Just thinking about target margins, I know Rule of 40 has been something that we've also discussed. What's your latest thinking on balancing growth and pro margins?
We fully embrace Rule of 40. I mean, you have seen in all our past slides, we have talked about that.
We have been a Rule of 40 company. This year, due to the inflation, the macro has been rather tough, but not without us thinking through how can we get back to Rule of 40 rather quickly. That will remain the case. The mix of that may change. It may be 20/20 as opposed to 30/10, if you will. We are One of the key thing, Sanjay and I and the rest of the management team, we are very focused on profitability. We want to demonstrate that we have built this business for this specific time where profitability is a very big focus for investors. As we demonstrated in Q1, that 50% of the incremental margins we are able to drop to the adjusted EBITDA line.
We are also looking at, as there were questions on that as well as, "Hey, you're investing a lot of money in software and R&D and so on. What about free cash flow and so on?" We are very focused on that. We believe that we will be. This will remain and will continue, will be a growing profitable company. We'll continue to demonstrate growth and profitability as the years progress from here on out. I'll also say one more thing that while we will do that, while also not sacrificing the innovative DNA of the company. We'll continue to innovate, continue to bring new offerings, making it easier.
Not sacrificing the market for profitability is what I'm saying. We will be using more of our innovative DNA, which we are made up of, to launch new things, attract more customers, and let that be the reason why our profitability is improving.
With R&D and everything you just said there, though, should we expect more product releases here in the next, say, six-12 months? Is it more incremental in your mind in terms of product enhancements?
Actually, you'll see both.
Okay.
You'll see both. We feel like, and I think I'm comfortable and we'll talk more about that in subsequent quarters and so on, but I'm comfortable saying that we feel good about where our spend structure is today, including the R&D and everything else because of so many different things are not yet known to public, but we have been working on it, and we want to bring to market. Would be accretive to our. In the markets we serve, the functionality we offer. Therefore, we are confident, we feel good about we'll be able to deliver more to the bottom line, as we are not, we're not in... You know, you all saw during the IPO.
After the IPO, we started to bump up all our expenses and so on.
The part of the reason is, you know, you take the company public because you want to build a long-term mode for the business. In long term, increasing TAM, long-term growth perspective. We have been hit with a little bit of a difficult macro here last year with inflation and so on. That notwithstanding, nothing has changed with the business. What I would like to say is that once we have completed our drawing, if you will, once we know exactly the painting we were trying to create, then it's time to start selling the painting. starting dropping that to the bottom line. We feel good about where our spend structure is.
With, you know, I know there's been a lot of hype with generative AI, and I'm sure you've gotten questions about it at the conference and other meetings, but it feels like there's opportunity there to, you know, improve customer service, you know, whether it be through chats or texts, as you were talking about, or even, you know, speeding up product development or even being more efficient with your people.
Yeah.
What's your thinking as CEO or, Sanjay, your views on how generative AI might fit for Paymentus?
Let me take it, you're welcome to add afterwards. What I would say is that we think of it as both the opportunity and the risk, and let me start with the risk first. I'm hearing a lot of chatter from peer leaders, is that there are concerns about security breaches and some of the things that these AI tools. More information you provide to them, do they also give you now secret sauce about how to break into this company's systems? Not all of those flowchart they give you will be successful, but even if one of them is successful.
it'd be a problem. Outside of that, I think we're very excited about it because we feel like that we can lower our cost to serve our own internal cost by creating products faster, by using generative AI for coding, as well as for customer service, all of those capabilities. Frankly, bringing more functionality to market. You know?
Perfect. Any final questions? Dushyant, like I always ask you, I know again we've talked about a lot already, your priorities from here, what are you excited about? I know you've laid out the outlook. It's very, you know, clear you're trying to implement some of the backlog and push IPN in the agenda. SMB is early, but what are you incrementally more excited about?
Well, first, I have to say profitability.
Sure.
That we are very focused on profitability.
It's hard work.
Yes. The other aspect is, I think I feel like we're just getting it started, really. This is, it's, my own personal lifelong journey and that of many of my team members. We feel like we're just getting it started because we put all of the pieces in place. We feel like our story or the painting is now getting completed, and we want to, start the next phase of, growth cycle, profitable growth cycle. Accelerating profitable growth cycle like we have seen in the past.
Okay. Terrific. Dushyant, Sanjay, always a pleasure.
Thank you so much.
Thank you for the time. Yeah.
Thank you. Really appreciate it.
Thanks, Dushyant.