Paya Holdings Inc.

Good morning, ladies and gentlemen, and welcome to the Paya Holdings Incorporated Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. If anyone should require operator assistance, please press star, then zero on your touchtone telephone. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. Before we begin, let me remind everyone that today's discussion will contain forward-looking statements based on our current assumptions, expectations, and beliefs, including financial guidance, the growth of Pius business, our objectives, and business strategies, as well as other forward-looking statements. Please refer to the disclosure at the end of the company's earning press release and form 8K filed with the SEC for information about forward-looking statements that may be made or discussed on this call. All statements made today reflect our current expectations only, and we undertake no obligation to update any statements to reflect the events that will occur after this call. You can read more about the specific risk factors that could cause our actual results to differ materially from today's discussion in the risk factor section of the company's form 10-K filed with the SEC in March of 2022 and the subsequent periodic reports that the company files with the SEC. Also during this call, we will be discussing certain non-GAAP measures of our performance. GAAP to non-GAAP financial reconciliations and supplemental financial information are provided in the earnings press release and the 8-K filed with the SEC. This call is available via webcast. You can find all the information I have described, including a supplemental second quarter 2022 presentation on the investor relations section of the PIAS website. Now joining us on this call today are PIA's CEO, Jeff Hack, and CFO, Glenn Renzulli. Following their prepared remarks, we will open the call for your questions. With that, now I'll turn the call over to Jeff.

Thank you, operator, and good morning, everyone. Thanks for joining us today as we review PIA's second quarter 2022 financial results and efforts underway to further accelerate our growth. At the conclusion of my remarks, Glenn will cover detailed financial results, and then we'll take questions. Paya reported strong financial results again this quarter, led by our integrated solution segment and our proprietary ACH offerings. These two growth engines, which continue to capitalize on the secular shift in our markets towards payments agnostic software-led commerce, represented nearly 80% of total Paya revenue in the quarter. In the second quarter, payment volume grew 15% to over $12 billion, driven by card volume growth of 7% and ACH volume growth of 27%. Total revenue grew over 13% to $72.5 million, and adjusted EBITDA grew 14% to $19.2 million. Better than our expectations, and these results also reflect the previously discussed incremental investment in our go-to-market and innovation efforts. Before I expand on our 2022 growth drivers and outlook, I will recap our strong competitive positioning and the secular tailwinds that drive growth in our business. Paya is a leading independent integrated payments platform serving software partners in attractive middle market verticals such as B2B goods and services, healthcare, government, and nonprofit. These verticals are all high growth and underpenetrated for integrated payments. Our strong quarterly volume trends clearly demonstrate the powerful combination of software and payments in very attractive verticals that have also proven resilient during periods of macroeconomic uncertainty. We have demonstrated exceptional capabilities by providing an end-to-end commerce experience to our software partners from order management to invoicing to receipt of goods to payment and then post back to business management and accounting systems. All of these solutions enrich the value of the entire software suite, generating very material incremental economics for our software partners, while improving cash flow and providing expense savings for end customers. In particular, the pandemic has highlighted the importance of automation and omni-channel integrated payments as a mission critical value proposition, supporting work from home and hybrid workforce models. Turning to the highlights for the first half of 2022, We significantly expanded our marketing efforts, which has led to a solid increase in our sales pipeline for more qualified and larger opportunities. We have also added considerable support to our hunters through additional technical sales and customer success resources, and have added resources to capitalize on the massive penetration opportunity within our existing partners. In the second quarter, we signed a new partnership I'm particularly proud of. Promise is a SaaS-based government solutions company which enables government agencies to provide payment accessibility and flexibility to citizens who are unable to pay their bills in full. I see this partnership as a great example of doing good business and doing good at the same time. We also signed a new partnership with OfficeAlly, a leading U.S. provider of electronic clearinghouse services, revenue cycle management, and healthcare software solutions. Key selection criteria included Paya's fast and frictionless boarding, streamlined recurring billing and text-to-pay functionality, as well as our reputation for excellent partner and end customer support. In the second half of 2022, we expect strong growth to continue in our integrated solutions business, led by our valuable ISV partners, including those that came to Paya via our Paragon acquisition in the spring of 2021. We expect strong growth in ACH to continue, driven by the secular trend of paper checks converting to electronic payments. We are also on track to deliver on our 2022 technology investments, enriching our B2B solutions, enhanced citizen and muni facing solutions for our government vertical, continued enhancements of our partner portal UX UI, as well as key enhancements to our proprietary ACH platform. which continues to be a strong growth lever for Paya. The launching of Paya Payables this year significantly expands our addressable market by incorporating accounts payable solutions. We believe we are well positioned to drive cross-sell here due to our deep integrations with existing clients on the accounts receivable side. We are leveraging these investments to accelerate growth in key areas, which will allow us to continue to capture a strong share of a multi-trillion dollar fast-growing TAM. M&A remains a key focus area for us as we see a diverse pipeline of targets, and we have started to see more moderated valuation expectations from some sellers. We continue to target businesses of all sizes that extend our distribution and solution suite, both in core verticals and in attractive adjacencies. We remain both enthusiastic and disciplined in our evaluation of inorganic opportunities. Before turning it over to Glenn, I want to reiterate a key point I have shared on previous calls. We entered 2022 in a great position to deliver strong top and bottom line growth, both of which we have continued to achieve, while at the same time making incremental investments to support our growth trajectory next year and beyond. With that, I'll turn it over to Glenn to walk you through the financials in a bit more detail. Glenn? Thanks, Jeff, and good morning, everyone.

Pi delivered strong financial results in the second quarter. Total payment volume was $12.3 billion, an increase of 15% year-over-year, led by card volume growth of 7% and ACH volume growth of 27%. Integrated solutions and ACH were the larger drivers of volume growth this quarter. Second quarter revenue was $72.5 million, growing over 13.5% versus last year. Integrated solution revenue was $46.6 million, up 18%, led by the strength in B2B and growth from Paragon, which we acquired in April of last year. Payment services revenue was $25.9 million, up 6% year-over-year, with ACH revenue growing 18%. We continue to see strong attach rates for proprietary ACH offerings with our new software partnerships. Gross profit in the second quarter was $36.7 million, up 9%, with gross margin of 50.6%. Gross margin was down versus the prior year, driven by strong growth from some of our larger integrated partners, partially offset by gross margin expansion in our payment services segment. Integrated Solutions gross profit of $23.1 million was up 9%, with gross margin of 49.6%, down versus the previous year, primarily driven by the growth of certain large ISV partners and Paragon. Payment services gross profit was $13.6 million, up 8%, with gross margin of 52.6%, with ACH continuing to drive year-over-year gross margin expansion in this segment. Adjusted operating expenses were $17.5 million in the quarter, up year-over-year, as expected, as we ramped our growth investments to expand and enhance our go-to-market efforts. Adjusted EBITDA in the quarter was $19.2 million, up 14% versus the prior year. Gap in net income for the quarter is $1.7 million versus a loss of $3.1 million in the prior year, with earnings per share of $0.01 in the quarter. Adjusted net income for the quarter was $12.2 million, with adjusted EPS of $0.10 per share. Net cash provided by operating activities was $17 million over the first half of the year. Regarding our balance sheet, we had $147 million in cash and $248 million of gross debt, with a net leverage ratio below 1.5 times on a trailing basis. Our share count at the end of the second quarter was 126.6 million diluted shares outstanding. You can reference an illustrative walkthrough of our share count in our earnings presentation. Turning to our full year guidance. We are raising the low end of our revenue and adjusted EBITDA guidance to reflect the strong first half, along with our outlook for the remainder of the year. We are slightly lowering the range of our gross margin guidance due to the strong growth in our larger integrated partners, as mentioned earlier. We expect that revenue will fall within a range of $279 million to $283 million, gross profit margin in a range of 51% to 51.5%, and adjusted EBITDA in a range of 73 to 74 million. That concludes my prepared remarks. I'll turn the call back over to Jeff to close out.

Thank you, Glenn. Paya is in a very strong position, both commercially and financially, with an impressive and diverse roster of partners across high growth verticals, as well as direct selling and select verticals, all supported by our powerful proprietary software. add in a very strong balance sheet and the ability to deliver on the back of our organic and inorganic investments, you can see why we are excited to continue investing in our growth while delivering strong returns for our shareholders. The results we've delivered, combined with our expectations for the future, serve to further strengthen the excitement we have in our markets and our business. With that, operator, we're ready to take questions.

Certainly. As a reminder to ask a question, if you need to press star 1-1 on your telephone. For any questions, please press star 1-1. And our first question will come from Andrew Dreffery of Truist. Your line is open.

Hi. Good morning, guys. Appreciate you taking the question this morning. I wanted to understand a little bit on the integrated performance. It sounds like you've got some big partners doing very well and I understand how that affects your financials. I wonder if you could elaborate a little bit on which verticals are particularly strong and whether you see that trend sustaining the mix up to some of these bigger partners.

Good morning, Andrew. It's Jeff. So I'll start and then I'll let Glenn follow up. In terms of the sources of the business, I think you know we are very heavily skewed to B2B more broadly. And so that is a main driver of that growth rate with larger partners. In terms of obviously how it continues, some element of macro, you know, will help inform that. But in general, the key point is that these are strong partners growing in their own right, which means their base of business is growing and our joint penetration continues to grow. So overall outlook continues to be very favorable there. Glenn, anything you would add?

No, you nailed it, Jeff.

Okay. So broad-based B2B, I guess, is how we characterize that. And I wanted to ask about also just from a high level, some of the investments you're making. Sounds like it's a lot of go-to-market with some process improvement. Can you talk a little bit about maybe how you see that affecting the LTV to CAC? I mean, is it raising customer acquisition costs, or is this sort of more infrastructure? It does sound like there's a marketing component. I just want to try to understand, one, sort of how you think it affects unit economics, and two, if you think we see accelerating growth next year as a result of the investments you're making now.

Yeah, it's Jeff again, Andrew. Great, great question. So, you know, a couple of things there. So the investments themselves, marketing, sales, sales support, customer success and innovation. So those are the categories that comprise the incremental investments. Obviously, our total investments are higher than that. In terms of the CAC, what I would say to you is Um, I think you guys appreciate how sticky and durable and long live these partnerships are. So, uh, the LTVs are high and therefore the LTV to CAC calculus is pretty straightforward. Um, obviously your investments in marketing and sales need to produce revenue, um, to meet the objective, but as long as they produce the LTV to CAC is very, very good. So and the last reminder that I will give you is those investments work all the way through the sales cycle. So incremental marketing drives more opportunities, which then move into the sales pipeline early and then late stage. And then, of course, closing business and producing new revenue. So they all obviously, if you will, work on their own timelines. We are very pleased with the progress we've made and the results. Some are leading indicators, some come sooner. But overall, those are investments in the future growth of PIA.

All right. Well, look forward to seeing how that all plays out over the next six to nine months. Appreciate it. Thanks.

Thank you, Andrew.

Thank you. And our next question will come from Robert Napoli of William Blair. Your line is open.

I think you called me. This is Bob Napoli from William Blair. Good morning, Jeff and Glenn. So I guess just on the lifetime value of a customer, I guess, or the stickiness of the customer base, has there been any change in the retention rate, the competitiveness for the customers that you currently have, and ramping up, increasing marketing, increasing hunters? Why now?

Good morning, Bob. It's Jeff. Great question. Let me take that in three parts. So first of all, in terms of long term value and stickiness, as you would imagine, we measure retention at a very granular level across all of our markets. Those rates have not moved meaningfully in one direction or the other, which is one of the great qualities of this business. I think you all know that when you have feature rich, deep integrations, Those customers are very sticky to you for many, many years. So I think, Bob, that's the fundamental point. I'll hit two other things. One, you said, why now? What I would say there is that should always be the case as we have built out our capabilities, as we have added talent. the opportunity to deploy high ROI spend. And again, this is, you know, incremental increase. We see those opportunities and the, you know, the decision you face in a business is to balance your current performance and your investments in future performance. So we feel strongly about that calculus and we're in a strong position to do so. And Bob, the one last thing I would say about the core of your question, which is which is stickiness, is I'll share that via an example, which we called out here. And that is, it made a reference to the fact that some of our larger partners have migrated back books to PIA. And you'll all recall that that's something we've talked about before as an opportunity. And I want to clarify that because it gets to the heart of Bob, of your retention question. Backbook migrations usually apply to what were previously unintegrated or minimally integrated payments, like you might see in a first-gen ISV offering, and customers are moving for a more robust offering. So that's the conditions under which backbook migrations occur. Conversely, it's extremely difficult to move deeply integrated backbooks, particularly middleware or native integrations, that are often seen in longstanding ERP offerings. So that gets to your retention question. And finally, when people do move, it is usually for poor service, meaning they need more functional richness or they're not happy with their support rather than being driven by economics because things like price concessions and attrition can offset any headline gains. So wrapping that all together, Paya being 80% deeply integrated card plus proprietary ACH. We see this as a very favorable competitive calculus for us. And as a reminder, the majority of new business is still first time deep integrations in the very large TAM we all know exists in these end markets.

Thank you. And then just a follow up question on the macro and how you view the macro. Have you noticed any shift at the margin or in the confidence of your customers and the activity? We're through, we've gone through the month of July. You've given solid guidance, but I'm just curious if or where, what areas you're seeing any incremental weakness or which areas stand out as being strong?

Hey, Bob, this is Glenn. Look, I think for July so far, we've seen really consistent, similar results to Q2. So really no issues or concerns. And, you know, I think we feel really good about the business in the second half of the year. I think the, you know, obviously with all the macro noise out there, we're just trying to be conservative with our guidance to go along with that. But we have not seen any type of trend change in the most recent data. Thank you.

One moment. And our next question will come from Josh Siegler of Cantor Fitzgerald. Your line is open, Josh.

Hi. Good morning. Thanks for taking my question. To start with, you know, I'd love to get a little additional color on ACH. So ACH revenue experience sequential acceleration quarter over quarter. Can we go a little bit deeper into some of the drivers behind this growth?

Hey, Josh, this is Glenn. Look, I think we really focused on improving our attach rates with our large ISV partners as we look back a few years, and it's working, right? We're seeing great attach rates and are selling to what usually used to be more card-focused sales. It's now really with that ACH offering. You guys know the macro trends and the environment with ACH being a good alternative or good use case for certain industries or verticals that we serve. You know, economics of when a transaction goes over a certain level, ACH just makes more sense. We've also seen the acceleration of check replacement. So, yeah, I think there's a lot of converging factors supporting the ACH growth. And really, you know, one of the main reasons we feel good about it looking forward as well is all those same factors I don't think are going away. So, you know, we continue to be a great part of our business.

Great. Thank you very much. And then I'd be curious to hear how you guys are thinking about the M&A environment right now, especially given that valuations have compressed significantly over the past couple of quarters.

Yeah. Hey, good morning, Josh. It's Jeff. Thanks for the question. You know, it does feel like the environment is moderating, but I would not say that as a widespread statement. So some sellers... you know, are certainly approaching the process more what we would say is realistically. But I would not say everyone. So we do see more activity to explore at, you know, potentially more reasonable prices. You know, and to that point, obviously, we continue to be very enthusiastic about M&A as a core pillar of our strategy. But I'll just remind you, the same three criteria we've always had. It has to be strategic. The quality and security of the technology of the acquired business, if it's relevant, needs to be solid. And it has to meet our valuation and accretion hurdles. So our strong hope is that our patients here will be rewarded, you know, at the right time.

Great. Thank you very much.

Our next question will come from James Fawcett of Morgan Stanley. Your line is open.

hey good morning thanks for taking a few minutes here um just returning back to one of the comments that were made in a prepared comment the in context of your strong balance sheet and and you know pretty good cash generative business can you talk about the outlook and priorities around capital allocations and and specifically looking to follow up on your comment around acquisitions valuations where you may or may not see those coming down and and what you would like to look at, provide the opportunity.

Yeah, good morning, James. It's Jeff. I'll start and then Glenn can jump in as well. Capital allocation between ourselves and our board is an ongoing conversation, as you would expect. And I would observe as follows. You know, the continued investment in the organic growth of this business, supported, frankly, by the cash flow we generate, you know, is clearly front and center. the ability to marry that to strategic and accretive M&A continues to be strong, albeit with the patience to ensure that the accretion portion works. And, you know, I think implied in your question is there are other levers that can be pulled at the right time, if deemed appropriate, to make sure that we are doing the best across capital allocation for our shareholders. And I would remind you that We have always been very intentional and disciplined about capital allocation, you know, managing a balance sheet to ensure we have the flexibility to capitalize on opportunities as part of it, doing things like, you know, the timely refinancing of our debt, keeping debt at a responsible level, et cetera. So I believe we have been very strong and intentional managers of capital allocation in all forms, and you should expect us to continue to do that. over time, you know, as appropriate.

Then on turning to margins, how should we be expecting the cadence of margin expansion, particularly at the operating line to evolve over the medium term, especially, you know, when you look at your operating leverage potential and balancing that with internal investments, you know, what's the right pace that we should be keeping track of?

So, James, it's Jeff again.

I'll start and Glen can chime in. So we have consistently said to folks that our primary objective is to maximize the profitable growth of PIA and that margin is a byproduct of that. And it comes in a couple of forms. Of course, mix can influence your margin. And obviously level of investment that we've talked about before can do that. We continue to feel very good about the consistently demonstrated margin expansion that we produce in this business as we continue to perform. And I think that has been a consistent story. So our medium term outlook, you know, is not different than it was. If at any point it is different, obviously we'll talk about it. but we feel good about steady margin expansion, but again, balanced against the primary calculus of maximizing quality growth.

Yeah, and this is Glenn. I think, yeah, similar to Jeff, I would just add, you know, we made a conscious and deliberate decision this year to invest a little bit more. So what gives me comfort is, you know, you know, we're expanding that bottom line about the same rate as revenue for this quarter, but that was with these conscious decisions to invest in certain areas, meaning, or said another way, like we're not feeling pressure on like, you know, from an inflation or wage side or anything like that. You know, these are very deliberate efforts on our end to put money to work in areas like go-to-market. So that gives us comfort that, you know, we can, you know, pivot that up and down as needed and as we see results. So, you know, to summarize, I think we still feel very good about bottom line margin expansion in the out years.

That's great. Thanks, Jeff. Thanks, Glenn.

Ladies and gentlemen, if you do have a question, please press star 11 on your telephone. Our next question will come from John Davis of Raymond James. Your line is open.

Hey, good morning, Jeff and Glenn. Maybe, Jeff, just Let's spend a minute talking a little bit about the mix of your business as far as what's priced in basis points versus per transaction. Obviously, inflation is pretty rampant. Just curious, are you seeing a benefit there? Just curious how ACH is priced, for example, is it per transaction or is it basis points? Any color there would be helpful.

Yeah, good morning, John. So headline is that for the most part, card business is priced on basis points, ACH based on per tran as is historical convention. It's not as literal as that because even when you're pricing on per tran, you can have steps and tiers by average ticket size and the like. So think of that as a proxy for basis points. So that's, I think, the first part of your question, you know, at the core. In terms of trends, I would say there are two sides to that coin, both reasonably good. And that is when you have high quality, deep, durable, sticky value added integrations, pricing behavior is quite favorable. And as we've said on this call before, we value the pricing lever, but we are determined to use it responsibly. rather than really pushing the limits and having that spike attrition or anything like that. But at its core, if you have deep value prop integrations, then the pricing or spread, if you will, is a very favorable attribute of the business.

OK. And then, Glenn, maybe one for you just on OpEx. Obviously, the implied gross margin is down a little bit, EBITDA margin. it's kind of in line so it implies OpEx is kind of flat even down a little bit despite all the investments that you've talked about so just curious there anything you know going on anything pushed out is it just coming in a little bit better than you thought you know any comments on the OpEx outlook for the year yeah definitely uh so for the quarter OpEx was uh was up year over year so we did you know have that cost carry through on the OpEx slide we were able to have some offsets and some other functions outside of where we're investing this year

So the increase to your point and what you're seeing is right. We're not seeing as high of an OpEx amount as we had projected going into the year. So I think that's favorable that we're still able to make the investments that we said we're going to do, but finding some offsets to help fund those and allowing us to still expand at a good rate on the bottom line there.

um despite you know gm being a little lower so you know i think we feel and you see a little bit in our guidance right we still feel good about the bottom line even though our gm percentage is a little lighter okay um that's helpful and then one last one for you jeff we've talked a lot about m a on this call but i just want to specifically hit your appetite for something larger um you know so far the m a you've done some kind of little tuck-ins would you consider something that's more transformative um Just any comments that would be helpful. Thanks, guys.

Yeah, no, thanks. It's Jeff again, John. Great question. I think, you know, you guys see our balance sheet. You see our leverage. So if you will, the powder to do larger transactions is certainly there from a financing point of view. Answer is yes. We look at deals small, medium, large. Small is, frankly, a higher hurdle. You have to love the tech, love the people, love the installed base of customers and end markets even more. Medium and larger deals, we continue to work on them. And I think that's really more going to be a function of the valuation environment, providing an opportunity to do larger transactions, which is something we are prepared to do. We like our performance and track record in M&A. And we would like to see it play out bigger, predicated, of course, on the opportunities or conditions meeting our criteria. But yes, is the answer.

Okay. And let me squeeze one last one for Glenn. Glenn, what was the inorganic contribution in the quarter?

Yeah, top line.

Yeah, sorry, go ahead.

Yeah, 12% on the top line.

12%. Sorry, Glenn, that's the organic or the inorganic?

Organic, sorry, yeah. Organic growth of 12% year over year for the quarter.

I appreciate it. Thanks, guys.

One moment. Our next question will come from Mike Grindahl of Northwindal Markets. Your line is open.

Is there anything that's sort of new that you're doing for 2023 and future growth that's sort of new that you're doing for 2023 and future growth that isn't kind of a continuation. I guess I'm just trying to get a sense for any sort of new investments or new areas that you're kind of making that specifically for the future that you haven't been kind of ongoing investing in.

Yeah. Good morning, Mike. It's Jeff. Great question. You know what I would say, the answer is yes. There are, you know, investments for the future that do not produce immediately. I'll give you a few of those examples. We've talked before on these calls about the broader B2B suite, which has been a core focus of Paya. And so let me define that. So that is the full continuum of AR automation married to AP. and AP automation. So that is a big investment focus of Paya. We like what we're doing there from an innovation point of view. We've talked before about extending the solutions on full AR automation. Paya payables, obviously an important step towards widening that to the AP side. So that's a clear example. There are others as well. Some of the innovation that we've been driving in our government vertical, very powerful and will pay dividends for years to come. So those are just two examples. But answer yes, Mike. We, you know, within these investments, and I think Glenn described it right, is, you know, incremental investments are not total investments. And by the way, efficiencies that you can get in your day-to-day also fund those investments. And our investment regimen runs the gamut of things that should help move the needle in-year and those that position us for even faster growth next year and beyond. So those are two great examples of that.

Great. And then any update on the Salesforce you're deploying? Any changes there?

Yeah, Mike, it's Jeff again. So as I mentioned on previous call, we do continue to add traditional salespeople, as you would expect, as different markets and opportunities warrant it. But I'll remind everybody, the hunters, if you will, are only one component of sales success at Paya. It's the full continuum from the increased investments in marketing, which produce the at-bats. It's the additions we've made to customer success, which is things like solution engineering and adoption and customer success. So I think very often, you know, if you're talking about a smaller widget business, people just talk about the body count. But at Paya, it's most important that you're getting the mix of those component parts right. So marketing, hunting, solutioning, and customer success. And it's balancing those. And some of our investments are in each of those four categories.

Got it. Thank you.

And our next question will come from Tim Sciato of Credit Suisse. Your line is open.

On inflation, so for example, Visa MasterCard, they talk about on their earnings call that just because the headline inflation number that we all see is 9%, it doesn't mean that all businesses and all categories are seeing the same level of inflation. As we look across some of your categories in healthcare and government and B2B, could you just maybe parse which categories are seeing maybe high levels of inflation that you're seeing in your volumes and maybe some others that are not? And I know it's a really challenging one, but how much of that 9% or so do you think is actually flowing through to your numbers?

Yeah. Hey, Tim, this is Glenn. Good question. And just look, yeah, we certainly get upside from inflation. It's, you know, mostly are the largest pieces in our economy. our B2B part of the business, which, you know, has a pretty heavy index to inflation. But, you know, alternatively or conversely, you have, you know, nonprofit health care and government, which just do not have as volatile of an inflationary impact. You know, it's more over time where those verticals move up, you know, more gradually. So, you know, that's part of the reason we like this business, right, is, you know, it's got a good spread, good mix, good diversity of verticals. that you do get upside on inflation, but at the same time, we're not, you know, just only indexed to inflation when you think about some of our growth rates. So, but, you know, I think that's probably the most, it's always difficult to get the exact amount that's inflation versus macro growth, right? Because we see the volume from a dollar basis, but we don't really get as much into the unit and unit price at a particular merchant. That's more challenging for us to go capture. But certainly a good macro growth environment with inflation is going to benefit us and others in the space, right? And we've seen some of that, again, the B2B being the best example there.

Okay, excellent. So as maybe a fair way to think about a framework for thinking about the benefit would be the headline inflation and then maybe discount that a little bit to account for your end market exposure and then further discount that a little bit to account for your mix of revenue that is based on more of a sense per transaction. I guess on volumes, the answer would be different than revenues, obviously, which is that last, last part there.

Yeah, well, exactly. And the, the ACH side, I think is a variable that gives us good consistent growth, but where you don't have the spread upside as much. Right. Um, so, you know, again, it gives us, I think good confidence in the business in, in either environment. Right. Um, and, um, Yeah, and, you know, at the end of the day, I think it's tough to, you know, inflation is going to move in different sick codes and sub-verticals, right, as well, right, which we all see in the CPI data, right? You can see stuff go up and down within the number. So, it really is dependent on what's moving at that point in time.

And, hey, Tim, it's Jeff. Let me just add one last thing to your calculus because I think you're thinking about it right. inflation in a given category of goods can also be offset by slightly muted demand or supply chain in the same category. So headline inflation is only pure if volumes of goods shift are constant. So there's an offset there as well. I think otherwise you've got the calculus exactly right.

Right, Jeff. I completely agree with that. That's a very good point. My last one here is a minor follow-up around the gross margins due to the mix of the larger ISV partners. Is that a combination of just more volume, more of your business moving towards those larger partners? They get greater revenue shares, and therefore it's that simple. Or is it also that some of those ISV partners themselves are getting better revenue shares as they scale? And if that's a competitive thing or if that's just simply – And I think the answer is the latter, which is it's simply as they scale, they get better revenue shares. And that's just sort of the way the industry works.

Yeah. So, Tim, let me take that in three pieces. That is a great question. The first piece is having large, great growing partners who by definition have better rev shares is something we celebrate. We do not lament that. Great growing partners are great growing partners. That's number one. The second part of your question not much of a phenomena of changing the structure of those deals because when you have these deep durable sticky long-standing partnerships they they hold up well um uh without you know traditional iso price wars and the third point tim that i think you might have been alluding to is for some of our larger partners we built rev share tiers into the agreements So therefore there is no renegotiation. You shouldn't need a renegotiation. You should both be happy that you're breaking through. So some of that is, is by, you know, structural by design. And that's by the way, good for both parties, because, you know, I want to remind you very often you sign a new partner and there are great hopes and dreams and they want a great rep share. And, you know, our view is as the volume produces in line with that ambition, you know, we are very happy. So it also protects Paya on the other side, that if for whatever reason the volume doesn't present, the rev share stays at the lower level. So we are very happy with that construct and what it produces.

Excellent. Completely follow Jeff and totally same page and also agree that certainly add more gross profit dollars with those large fast growing partners, which is definitely a positive. So thank you for taking all the questions and the follow up. I appreciate it.

Thank you, Tim.

And our next question will come from Robert Napoli, our follow-up, and William Blair. Your line is open.

Yeah, thank you. My follow-up questions were asked and answered. Thank you very much.

I will now turn the call back to Jeff for closing remarks.

Great. Thank you, LaTanya. So thrilled to be with you guys again in what is our eighth public quarter. I think you can hear in our voice, we are proud and pleased with our performance, very pleased with the progress to continue to advance the growth trajectory of this company and feel very good and excited by the opportunities to continue to present themselves to Paya in what is fundamentally some really attractive high growth and markets. So with that, thanks to everybody for your time and we'll talk to you soon. Ladies and gentlemen, this concludes today's conference. Thank you for your participation.

You may now disconnect.