Paya Holdings Inc.

Good morning, ladies and gentlemen, and welcome to Paya Holdings, Inc. Third Quarter Earnings Conference Call. At this time, all participants are on a listen-only mode. If anyone should require operator assistance, please press star and then zero on your telephone. A question and answer session will follow the formal presentation. As a reminder, this conference call is being recorded, and today's discussion will contain forward-looking statements based on our current assumptions, expectations, and beliefs, including financial guidance, the growth of Paya's business, our objectives, and business strategies, as well as other forward-looking statements. Please refer to disclosure at the end of the company's earnings press release and form 8K filed with the SEC for information about forward-looking statements that will be made or discussed on the 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 learn more about the specific risk factors that could Calls are actual results of different material from today's discussion in the risk factor session in the company's form 10-K filed with the SEC March 2022. And in subsequent periodic reports that the company's filed with the SEC. Also during the call, we discussed certain non-GAAP measures of our performance, GAAP to non-GAAP financial reconciliation, and supplemental financial information are provided in the earnings press release and the 8-K file with SEC. This call is also available via webcast. You can find all information I have just described in the investor relations section of Paya's webcast. Please note we'll also post a supplemental third quarter 2022 presentation to the investor relations section of the Paya webcast. Now joining us on the call today are Paya CEO Jeff Hack and CFO Glenn Rizzoli. Following the prepared remarks, we will open the call to your questions. With that, I will now turn the call over to Jeff.

Thank you, Operator, and good morning, everyone.

Thanks for joining us today as we review PIA's third quarter 2022 financial results and the efforts underway to further accelerate our growth. At the conclusion of my remarks, Glenn will cover our detailed financial results, and then we'll take questions. PIA reported another quarter of strong financial results 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 payment agnostic software-led commerce, represented nearly 80% of total PIA revenue. In the third quarter, payment volume grew 14% to $12.6 billion. Total revenue grew 13% to $71.4 million, and adjusted EBITDA grew 14% to $18.6 million. Our third quarter results reflect the momentum we continue to see in our high growth under-penetrated and less cyclical end markets, coupled with our continued investments in the business. As a reminder, in any given quarter, the vast majority of our revenue growth comes from the continued penetration of our exceptional partners in durable end markets, principally B2B, not-for-profit, healthcare, and government. This quarter was no exception, with growth primarily driven by partners in each of these verticals and bolstered by continued strong retention, which itself is a testament to the value of powerful integrated solutions and Paya's great customer support in high quality end markets. I'm also pleased to highlight selected new customer wins in the quarter, each of which contributes to Paya's future growth trajectory. We are proud to now include Feeding America as a PIA customer. Feeding America is the nation's largest domestic hunger relief organization, serving 40 million people, including 12 million children and 7 million seniors. Feeding America chose PIA due to integrations with Feeding America's business platform, as well as PIA's differentiated features, support, and reporting capabilities. Paya is proud to support Feeding America's phenomenal mission to advance change in America by ensuring equitable access to food. Another great example is our recent win of California-based international shoe and apparel company K-Swiss Global Brands. Paya was chosen for our robust ACH payment solutions that integrates into their existing ERP systems enabling a seamless experience for their B2B corporate customers to pay invoices online while also providing lower cost ACH, which is often appropriate for larger transactions. Innovation continues to be a key growth lever at Paya, and we remain on track to deliver on our 2022 technology investments, enriching our B2B AR solutions continued enhancement of our partner portal and reporting UX UI, as well as key enhancements to our proprietary ECH platform. These investments help accelerate growth in key areas, which allow us to continue to capture a strong share of a multi-trillion dollar fast growing TAM. Specifically in the quarter, we launched our new citizen portal, which is the next innovation for Pai is offering in the municipal government sector. The launch of this portal geared towards bill paying citizens and employees at Pius Municipal clients was created to make it easier for citizens to view bills and make payments, as well as improving the transactional relationships between municipalities and their citizens through next generation citizen engagement functionality. This new software will help drive electronic adoption, including auto pay recurrence, increase the win rate of our direct sales force, and help drive engagement with ISV partners in this vertical. In PayaGov, we are also seeing implementation times continue to trend down and Paya's ability to implement quickly is an increasingly important decision factor in our new wins in the government vertical. This trend is expected to continue to accelerate with the launch of the new citizen portal. More broadly, the pace of innovation at Paya has never been faster and is complemented by past and present investments in technology infrastructure, as well as Pai's well-tuned technical and operational support. I would also like to take a moment to update you on an exciting change we recently made. As Pai has continued to grow and thrive, we've been increasingly dedicating and aligning resources to three of the fastest-growing end markets within our integrated solutions business, which are B2B, government, and strategic verticals. which includes nonprofit, healthcare, and insurance. Each of these end markets now have dedicated leadership and teams working across sales, marketing, product, and customer success. To a large extent, this simply formalizes our commercial operating model by ensuring that Paya Talent is organized around our client end markets for innovation, domain depth, quality, and speed of execution, all of which help maximize Paya's growth potential. We, of course, continue to gain terrific operating leverage across PIA in areas such as technology, infrastructure, back office, finance, and people operations. On capital allocation, our priorities haven't changed. We remain focused on organic growth through the continued and ongoing investment in our people and solutions in order to extend our market leadership while expanding our addressable market. M&A also remains a key focus area for us, and complements the organic growth profile of the business. We continue to work an active pipeline of M&A opportunities and remain both disciplined and enthusiastic to execute strategic and accretive acquisitions. Before turning it over to Glenn, a few words about driving a great growth company amid heightened uncertain macro. The combination of Pi's exceptional and more durable end markets along with strong profitability, cash flow duration, and balance sheet, provide excellent conditions to remain laser focused on quality top and bottom line growth for the medium term, while also delivering solid short-term results along the way. 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. I have delivered strong financial results in the third quarter. Total payment volume in the third quarter was $12.6 billion, an increase of 14% year-over-year. Integrated Solutions and ACH were the larger drivers of volume growth this quarter. Third quarter total revenue was $71.4 million, growing 13% versus last year. Integrated Solutions revenue was $45.7 million, up 15%, led by the strength in B2B and, more specifically, continued strength with our ERP partners. Payment services revenue was $25.6 million, up 10% year-over-year, with ACH revenue growing 19%. We continue to see solid attached rates of our proprietary ACH offerings with our new software partnerships. Non-GAAP gross profit in the third quarter was $35.9 million, up 10% with gross margin of 50.3%, down versus the prior year driven by impressive growth with some of our larger integrated partners. Integrated Solutions gross profit of $21.9 million was up 9%, while Payment Services gross profit was $14 million, up 13%. Adjusted operating expenses were $17.3 million in the quarter, up approximately $1 million year-over-year as we ramped our growth investments to enhance our go-to-market strategies and product innovation, while also realizing cost efficiencies in other areas of our business. Adjusted EBITDA in the quarter was $18.6 million of 14% versus the prior year. Gap net income for the quarter was $1.3 million versus a loss of $3 million in the prior year with earnings per share of $0.01. Adjusted net income for the quarter was $11.3 million with adjusted EPS of $0.09 per share. Net cash provided by operating activities was $28 million over the first three quarters of the year. Our share count at the end of the third quarter was 127 million diluted shares outstanding. You can reference an illustrative walkthrough of our share count in our earnings presentation. Regarding our balance sheet, we had 156 million in cash and 247 million of gross debt with a net leverage ratio below 1.3 times on a trailing basis. Turning to our full year guidance, we are raising the low end of our revenue guidance to reflect our strong performance to date along with our outlook for the remainder of the year. We expect that revenue will fall within a range of $280 to $283 million, gross profit margin to be approximately 51%, and adjusted EBITDA in a range of $73 to $74 million. That concludes my prepared remarks this morning. I'll turn the call back over to Jeff to close out. Jeff.

Thank you, Glenn. Paya has reported another strong quarter, which I see as a direct result of our very focused and compelling strategy in great end markets, coupled with excellent execution by the amazing talent we have at Paya. So I close out this call with a heartfelt thanks to everyone at Paya who continues to execute so well in the present while also building an even greater growth company for the future. With that, Operator, we're ready to take questions.

Thank you. Ladies and gentlemen, if you'd like to ask a question, please press star 1-1 on your touch-tone telephone. Again, to ask a question, please press star 1-1. One moment, please. Our first question comes from Robert Napoli of William Blair. Your line is open.

Good morning, Jeff and Glenn. Nice quarter. I guess the first question would be, Jeff, you highlight looking to accelerate, further accelerate growth, if you would. Can you maybe quantify that or do some color around that? How do you think about growth with this? How are you being affected by the macro as we think about 2023?

Good morning, Bob. Thanks for the question. A couple things. I think there's two different points in there. First, in terms of macro, as we've said before, B2B, Gov, nonprofit, healthcare obviously have great characteristics relative to some of the more volatile consumer sectors, so that serves us well and I think shows through in our results and, importantly, the predictability of our results. To your other question, you know, we defined medium-term growth objectives, you know, which you are familiar with, which is, you know, low double-digit top line, much larger bottom line growth over the medium term. And the investments we're making today are there to ensure that we can meet and or exceed those objectives.

Great. Thank you. Then maybe just to follow up on gross margin, the EBITDA margin stable, gross margin, a little bit of pressure on gross margin. What is driving the gross margin pressure? And how do you think about gross profit margin and adjusted EBITDA margins as you think about growing that EBITDA much faster than revenues?

Yeah, so I'll start and then go.

Go ahead, Glenn. Hey, Bob. Yeah, this is Glenn. Yeah, you know, similar story to last quarter, right? We've seen really solid growth in our B2B partners, you know, specifically some of the ERP relationships that we have, and those just come at a slightly, you know, less favorable revenue share compared to our blended share. So with that, you know, we really like that growth. We love those partnerships. We love that end market, right, or those end markets in B2B. And so, yeah, we're comfortable with that growth and that slight decline on the gross margin side. And, you know, from a quarter sequential perspective, you know, not a ton different, you know, a little bit lower versus Q2, but, you know, we don't see this as a, It's something of a concern, and you kind of referenced why, because we still think we have great scalability on the bottom line with our EBITDA. And you saw a little bit of that this quarter with a slight expansion, and we still feel good about bottom line EBITDA expansion moving forward.

Great. Hey, Bob, it's Jeff. Let me just add two quick things to what Glenn said. First of all, you know, we have been consistent with all of you that we don't manage to gross margin percentage. We want all our partners to exhibit healthy growth. And if that number moves around a little bit due to mix, so be it. Gross margin dollar growth, more of a focus. And to the question, you know, on bottom line growth, I think your question is, you know, the gradual expanding of margins. And I would simply observe the following. The majority of our operating expenses is from the business, which in general does not need to go grow as quickly. Obviously, there's discretionary investment in there as well. But the fundamental underpinnings of our cost structure provide for margin expansion over time, and we feel confident in that looking ahead.

Thank you.

Thank you. One moment, please. Thank you. Our next question comes from the line of James Foster to Morgan Stanley. Your line is open.

Thank you very much. Just looking at your really strong balance sheet and cash generation ability, how do you think about priorities right now around your capital allocation and maybe more specifically on acquisitions and any updated perspectives on current valuations and what those are looking like as you look at potential acquisitions?

Good morning, James. It's Jeff. First and foremost, capital allocation priorities at PIA haven't changed. So just to reiterate, investments in our organic growth profile always come first, complemented by strategic and accretive M&A. To the second part of your question about the environment, I think, you know, we're all observing the same characteristics, you know, more broadly in terms of Perhaps we'll see gradual adjustments to valuation expectations. So the punchline is we are enthusiastic. We are also disciplined and look forward to the right deals at the right time that add to the growth profile of Paya. And the pipeline is solid.

Got it. Got it. And then I want to dig in quickly on your payment volume. any trends that you can call out sequentially between ACH and card and maybe going back even over the last few quarters and how you're thinking about that going forward? I mean, cause to us, it looks like card volume has been relatively flat in recent quarters while ACH has been really a solid driver for you guys, but just what do you think is happening there and how are you thinking about that trajectory?

Yeah. Happy to take that team. This is a Glenn. Um, look, sequentially Q3 is always kind of a, you know, typically a flattish type volume quarter for us from Q2. Um, so, you know, that's not surprising that our card volumes, uh, pretty similar, uh, as last quarter. Uh, and you can see it kind of in last year's numbers too. Um, so yeah, look, I think we're looking at, uh, the same things. A lot of people are looking at year over year growth and into the quarter and, and everything. And yeah, certainly, you know, there's, there's going to be, um, you know, there's, there's been a little bit of a, slowdown in the level of growth, right? Still nice growth, as you see in the quarter. But, you know, as we look out, you know, we're certainly going to see some level of slowdown, we think. You know, but for us, we haven't seen too much ourselves yet. And even into the first month of the quarter for Q4 here, you know, the growth is still good. You know, we're waiting for something to happen. I think everyone's very, you know, conscious of the external environment. But for us, I think some of it's really going back to our strong end markets and where we play. Some of them are just less volatile, and that's another area of why you might not see sequential big changes on a quarter-to-quarter basis. When you think about B2B, solid player, has some cyclicality, but our end markets tend to be pretty solid there. And then not-for-profit, healthcare, and government, very solid, stable markets. So some of it, again, just circles back to those end markets and the stability. And I think that helps us when, you know, things slow down a little bit and, you know, we just don't get as much upside volatility sometimes as well.

Got it. Thanks for that, Glenn. Thanks, Joe.

Thank you. Our next question comes from the line of Joseph Jaffe of Canaccord. Your line is open.

Hey, guys. Good morning. Nice results. Just a higher level question here on your verticals and where you're focused. All solid markets, but B2B is so much larger and the growth characteristics and perhaps even the green field on the B2B side are quite, quite large. I was wondering if you could kind of, you know, lay out for us some of your vision and, you know, how much perhaps more focused you are in B2B versus the other verticals and, you know, how you see that payment volume in that vertical potentially moving over time relative to your other verticals. Now the follow-up.

Good morning, Joe. It's Jeff. Great question. So two things. First of all, we love all of our vertical end markets. and we manage and invest in each of them apropos of the opportunities we see. So there isn't much trading off between them, but we're maximizing the potential of each one. To the first part of your question, of course, the B2B TAM is massive. It is the foundation of how this company was built, and we have never decked more talent against more ERP integrations, more sales and partner support, and obviously what has been operational customer excellence, support excellence for a long, long time. So we share your view there and really have never felt better about the potential that that provides. And one other thing I would add, Joe, and we mentioned this before, is when we acquired Veloce IT earlier in the year, that is a great example of how you can step function, expand your opportunity, whether it's very specific popular integrations, domain expertise, intellectual property, et cetera. So I think you can hear from me. We share your enthusiasm and see tons of tailwind and accelerated growth over time.

That's great. Thanks, Jeff. And then just, you know, given the macro and, you know, you know, in real time, you know, we are seeing a lot of companies kind of dial back a tad on investments and the like, just wondering a, what you're, you may be thinking about in this environment. And then two, how are your partners or what you're seeing from your partners in terms of, you know, keeping up the momentum in, um, in driving payments into their customer base, which is obviously your customer base too. And, you know, the resources they're continuing to devote to helping you penetrate the customer. Thanks a lot.

Great. Thanks, Joe. It's Jeff. So firstly, in your question about macro, and I'll tie this to one of Glenn's earlier comments, one of the great things about running a company like Paya is and the durability of these end markets and obviously the stability of performance is if you stay disciplined and well managed along the way, you don't need to be going through those gyrations where you're hiring and then firing, starting projects and stopping projects. So in general, you know, as Glenn said, we keep a close eye on an uncertain environment as everybody should do, of course. Even though we don't see much of an impact on our business in our end markets, it's just responsible to be mindful of. But as a general matter, we see this environment as a great opportunity for Paya to stay focused on our growth investments to attract incredible talent and push growth even further. To the second part of your question around partners, one of the great things about our partner roster is there is a lot of embedded growth in terms of penetrating their existing base. Some of our best partners are also significant acquirers of companies themselves, which bring us chunkier growth opportunities. And to your point, and we've messaged this earlier throughout the year, we have increased our investments in helping our partners penetrate the base. Principally, this is marketing programs, our insight in terms of what works, sales support, sales training, and we continue to tune this. So not only do we add to it, but we tune it and as a result, get more partner uptake and frankly, share of mind at those companies to drive that opportunity even further.

Great. Thanks a lot, Jeff. Congrats on the course.

Thank you. One moment, please. Our next question comes from the line of One moment. Our next question comes from the line of Josh Siegler of Cancer. Your line is open. Mr. Siegler is open. One moment. Please make sure your phone isn't on mute.

Yes. Hi. Good morning. Thanks for taking my question. Can you give us some color on the recent growth initiatives, specifically around payback timings? Do you expect them to start incrementally contributing to growth in 2023?

Yeah, good morning, Josh. It's Jeff. I'll start, and Glenn can pick it up. So, in terms of timeline, first of all, the ROIs on our investments are all very compelling. The speed with which they manifest in the P&L vary. Fastest ROIs would be investments in sales and marketing support around partner penetration that I was just referring to, for sure. Obviously, new product solutions and innovations, such as the new GOV solution that we announced this quarter, enhanced and streamlined B2B solutions and ERP integrations, put that, you know, at the longer end, and then in the middle, sales resources, sales effectiveness. So they really run the gamut, and I emphasize the point that we manage this company for the medium term. So we will be patient where we should be patient, and we will set high expectations for quicker results where that's appropriate as well. So it all blends together. I know that doesn't quite get to the heart of your question, But that is our reality, and we do measure the ROI of everything we do so that we can learn and continue to be smarter, know where to double down, and where to lighten up as we look ahead.

Got it. That's a very helpful color. Thank you. I know we've spoken a lot today about the demand environment, specifically in regards to the current macro uncertainty. However, I'd be curious what you're hearing from new partnerships and if you think the macro environment is impacting your ability to win new business. Thank you.

Yeah, Josh, that's a great question. What I would tell you is that our pipeline of new opportunities, both through our partners and where we sell directly is we don't see a shift. I would say we do not see an acceleration in those efforts. We do not see a deceleration in those efforts relative to the macroclimate. Remember, these partnerships, when they're stood up, last for five, ten years, even longer. So these are really fundamental business choices about how you'll manage the business and really are not tied so much to the environment of the moment. So we feel good about that level of engagement and adoption. And as I mentioned in the prepared remarks, very importantly, we also continue to be very focused on anything we can do at PIA to help speed up implementation times and speed to revenue.

Thank you very much. Appreciate the call.

Thanks, Josh.

Thank you. Our next question comes from the line of Andrew Jeffrey. Of course, your line is open.

Hi, good morning. I appreciate you taking the questions and all the questions on growth and return on investment, I think, are definitely top of mind for a lot of investors. Also, good, Jeff, to hear you talk about some of these wins like K-Swiss and the Citizen Portal. Maybe what I'll ask you about specifically is your comment on implementation times. I know that's an area where you've been investing. And perhaps that's one thing we could point to and think about as we look out to 23 and try to build our models in terms of how that government vertical might actually accelerate. Can you just elaborate a little bit on what you're doing there and whether or not that is maybe driving some tangible share gains and new wins that we're going to hear about over the next few quarters in addition to the ones you called out today?

Yeah, Andrew, thanks. That's a great question. It's Jeff. So, you know, first of all, I want to set the context and remind folks that the vast majority of our new revenue at any given point in time is through the penetration of our existing partners, i.e. already implemented, right? So that's very important to understand. In terms of bringing implementation timelines down, of course, it is helpful. And more importantly, it fosters great partnerships. It fosters attention and support. So earlier comments about partners and the sell-through momentum. So it benefits in a bunch of different ways. I wouldn't isolate it as a principal driver of short-term growth. because while it's significant, it's not as significant as the other levers in the short term. Obviously, over time, it's beneficial. It's also, by the way, more efficient, right? It's more efficient for Paya. It's more efficient for our partners. If you streamline the tasks, if you've simplified the integrations, the training and support that comes with it, you actually save money as well.

Okay, so multiple benefits, I guess. So I guess, is it right to kind of think that the new business wins you called out today and or the citizen portal, which I know is an expansion of current capabilities, are really just sort of part of the overall growth algorithm rather than being incremental? I think we're, again, just all trying to gauge what you know, what the benefits of some of the spending that you're doing this year will have on next year as we look out into 24.

Yeah, Andrew, it's Jeff again. I think you're thinking about it the right way. You know, I want to emphasize a point, and we'll use the GovCitizen and municipal portal as a great example of that. You know, that is two things. First of all, products and solutions should never be static. There's always opportunity to improve the UX UI and therefore increase adoption, satisfaction, and so on. So we feel strongly that in our core vertical end markets, we should always be innovating. And whether that innovation is to defend an existing growth rate or accelerate it further, obviously the answer is you want both. But we don't view it as anything other than running a good quality business for the medium term and being as good as we possibly can be in each of those core vertical end markets. And I think, Andrew, just to close out on that, I think that is the key point that folks should understand about separating winners and losers is these businesses integrated, vertically focused, payment solutions require end-to-end excellence in each of your core vertical end markets. So for us, B2B, of course, Gov, as we were just talking about, nonprofit, healthcare, and so on, is that's what drives winning, is that focus and tailoring those solutions end-to-end for each of those end markets.

Okay. Appreciate that. Thanks.

Thank you. Again, ladies and gentlemen, if you'd like to ask a question, please press star 1-1 on your touch-tone telephone. Again, to ask a question, please press star 1-1. Our next question comes from the line of David Toggett of Evercore. Your line is open.

Thank you. Good morning. In the past year, you decided to step up some investment spending to capture higher organic growth and did trade off margin expansion, which is, I think, a real strength of your model. to kind of increase spending. There have been a few questions on this, but trying to tie it together for 2023, how should we think about growth in your kind of OPEX, non-transaction OPEX in 2023 in terms of bracketing what operating leverage might be in the year ahead?

Yeah, so David, I'll start and then Glenn. Oh, go ahead, Glenn. No, go ahead, Jeff. So, David, I'll make a macro point, and then I'll let Glenn follow up. So, first of all, we, like all companies, are in our planning cycle now to evaluate each investment opportunity and its merits. So, we don't have a declarative statement, of course, to make at this time, which is as you would expect. What I would say is what we have always said. and that is we are managing this company for maximum top and bottom line growth over the medium term. We will continue, and having a great balance sheet and having great cash flow provides you the latitude to make whatever level of investments you think are appropriate. Having said that, and as mentioned earlier on this call, the inherent operating leverage in our business is clearly there and has been demonstrated by the performance of this company over the past several years. So regardless of any given moment in time, we feel good about that margin expansion over time. But to your point, we will also make investments selectively when we believe strongly that they're the right thing to do for the medium term.

Understood. Just as a follow-up, as we look at your investment spending this year, are there any areas of investment spending that you brought forward into this year that might otherwise have occurred next year in terms of, you know, framing how investment spending might evolve in the year ahead, understanding that at this juncture, you're not yet quantifying.

David, it's Jeff again.

I guess, you know, I'll say one thing and then Glenn, you should add on to this. It's, So we did increase investments modestly. And as Glenn mentioned earlier on the call, by the way, we realized efficiency is another part of the business. So the gross amount of investment in the future is actually higher than the expense growth rate in and of itself. I think that's an important point that sometimes gets lost. But I wouldn't look at it orders of magnitude as I did an extra project in 22, and therefore I will do one less project in 23. We see lots of opportunity for growth in our core end markets, and again, we evaluate them one by one. Back to the ROI conversation earlier.

Understood. Thank you.

Thank you. Our next question comes from the line of John Davis of Raymond James. Your line is open. Mr. Davis, your line is open.

Thanks. Good morning, guys. Glenn, maybe just start with, have you given us an idea of what percentage of your transactions are ad valorem price versus kind of a fixed fee per transaction? Just trying to understand how inflation will play through your numbers.

Yeah, look, I think what we spoke about in the past is, you know, ACH tends to be a little bit more per-trans driven. And I think you guys are aware ACH is, you know, somewhere around 15% of our revenue. So it gives you a good indication. You know, we do have some fees on the card side as well, but that 15% number is not a bad indicator of transaction or fee-based revenue versus spread basis point revenue.

Okay, and then I know we've talked a lot about B2B on this call, Jeff, but obviously 35% of revenue. Can you give us a sense of how fast B2B is growing relative to the rest of the company, even if it's just directionally? And then also, just remind us what the largest in-market verticals are within B2B, right? B2B means a lot to a lot of different people, and there's a lot of verticals there. So just as we try and think through your kind of macro exposure as we go into 23.

Yeah, John, great question. Let's try to put a little context around it. You know, so first of all, the B2B label is a very broad and general label. In its broadest version, you know, I can make the argument that serving municipalities is a B2B type business as well. Many aspects of healthcare, our biggest section there is practice management. So, there's even a broader definition of B2B. or maybe you might say B2B2C, but it's really B2B. Specifically, and in terms of the way that we provide information to all of you, the integrated solution segment, think of it this way, and Glenn will correct me if I don't get this exactly right. The integrated solution segment is your proxy. B2B is about half of the integrated solution segment, and then Gov and healthcare, nonprofit, insurance, is the other half of the integrated solution segment. They're all exhibiting strong growth. They all have the same favorable characteristics and they all get investment, you know, specific to their individual opportunities. And sorry, the last part of your question, I realize I didn't answer. Within the B2B 35%, manufacturing, distribution, logistics, supply chain are the kinds of subcategories that probably would resonate with you guys.

Okay, no, that's super helpful. And then as we look, you've talked a lot on this call about some of the internal investments to drive accelerated growth. So as we think about heading into next year, maybe what are the puts and takes from a top line perspective, you guys have a midterm kind of targets out there. I mean, should we think of 23, you know, kind of in that range of your midterm targets or just, I'm not looking for formal guidance, but just kind of any colors or any color puts and takes we can get on 23 would be helpful.

Yeah. So, John, it's Jeff again. Oh, go ahead, Con, please.

Well, I mean, first and foremost, we're going to say the same thing, right? We're not going to really give 23 guidance, right? We're just not going to do that. I appreciate that's not the specific question. But look, I think at the end of the day, the macro is going to be a big item, right? Even though we have really, really strong end markets that we feel good about and less cyclical and you know, resilient, you know, we still, you know, need to be a little closer to where we're entering the year, I think, to be a little more affirmative there. And that's really why we give guidance in February versus, you know, November 4th or whatever. So I think, you know, it's really tough to say at this point until we see where the economy and macros, you know, settling out. But again, we feel, again, good about the verticals and the mix of business and any economic situation still feel good about growth.

Okay. All right. Thanks, guys.

Thank you. Our next question comes from the line of Timothy Chiodo of Credit Suisse. Your line is open.

Great. Thank you. So the end markets, we've talked a lot about that today, and clearly they're much more stable than some of the more volatile end markets that are a little bit more consumer-focused. Given that, they seem to be pretty attractive, not just to you guys, but to other competitors as well. And I know in the past we've talked about that some of the larger players tend not to compete as much in these end markets, whether it be government, municipal, healthcare, not-for-profit, just generally. Could you give us an update in terms of when you do head into RFPs? Is that changing at all? Because it would seem that these would be attractive to others as well. Are you starting to see any of the larger players show up in the RFPs or is it pretty much status quo?

Yeah, thanks, Tim. It's Jeff. Great, great question. So, you know, first of all, broadly speaking, the competitive landscape remains very fragmented, number one. Number two, these are fast growing in markets. So, as we've referred to before, more of a land grab than a share war, which is these are both very attractive qualities broadly. In terms of competitive landscape, it hasn't changed. So typically the largest opportunities are the ones with RFPs. Very often our mid and small size are not RFPs or even formal processes. It doesn't mean you might not have competition, but it's not with the same level of intensity. you know, as you would imagine. And it also varies by end market. So governments by requirement very often have a more formalized procurement process, but a significant new ERP partnership is more likely many months, maybe quarters, maybe even a year of cultivating a relationship, educating them on how it would work. both the technical integration and the sell-through. So it's not the same competitive dynamic as you might see in traditional card-present consumer verticals. So net-net, we feel good about the competitive landscape. I think you asked specifically about larger names. Pretty rare in our market, occasionally for the largest opportunities. And then, by the way, the decision factor is almost always not a price decision. It's the strength of solutions, the strength of support, accessibility of your talent to help partners manage through to success.

Excellent. Appreciate all that industry context. Thank you, Jeff. Thanks, Tim.

Thank you. One moment, please. Our next question comes from the line of Mike Rondo of Northland Capital. Your line is open.

Yeah, hey, Jeff. Just a quick question. When you were going through B2B government and then you got to strategic, you mentioned insurance. Can you just give us a little bit of color what you're doing in that? I'll call it subvertical, I guess.

Yeah, Mike, great question. So, you know, I mentioned a minute or two ago these different definitions of B2B or what I'll call B2B-like businesses. So think about middle market insurance. Think about the agency structure. They look a lot like other B2B markets. Of course, there are areas where you need to tailor your solutions to meet their needs. Maybe it's a compliance module. Maybe it's tied to funding, making sure that a transaction funding aligns with when a policy is bound, as an example. So we have great partners in the insurance vertical who bring, you know, the value-added software that complements Paya's solution perfectly. to drive that end market. But, you know, I think tying it back to the earlier conversation, it is another example of a B2B-like business, great underlying growth. I think you all know the amount of paper invoice, paper check, and insurance. I can't imagine that's higher anywhere. So the opportunity to electronify and integrate those payment streams is quite substantial.

Got it. Got it.

Thank you.

Thank you. One moment, please. Our next question comes from the line of Robert Napoli of William Blair. Your line is open.

Sorry, this is Bob Napoli. Can you hear me?

Yes.

Okay. I didn't hear my name. Sorry. Thank you for the follow-up. I know we kind of beat this to death, but it's really important, the potential for accelerating growth. And I guess as we've gone through this quarter, we've seen some companies talk about delayed decisions. I think companies with better tech stacks haven't complained about delayed decisions as much as some others. With your tech stack, to accelerate growth, companies with the best tech stacks seem to be able to grow at faster rates and B2B is a market where, you know, if you see some companies growing at 80%, uh, there's good growth across the board, uh, in that space. But I mean, if you could take your growth from, you know, low double digit to mid teens, I mean, I think that would really change the perception of your company. What does it take? Is it a tech stack, uh, improvement? Is there a just investing more, uh, And it's kind of a balancing act with your high margins that you may not want to do that. But what does it take? How is your tech stack? What is it going to take to really accelerate growth? I mean, B2B, 35% of your business could grow probably at twice the rate you're growing it today. I'm just not sure of the trade-offs.

Yeah, Bob, that is an excellent question. You know, so first of all, we feel very good about our tech stack. I would tell you pace of delivery, caliber of talent, and very important, by the way, thoughtfulness around the solutioning. Right? You could spend twice as much money and not get good stuff. So, you know, first and foremost, quality and quantity of delivery never been stronger. strength and modernization of our tech stack, you know, is an investment we have been making for years and it pays off dividends in terms of faster deployment and importantly, you know, durability and responsiveness, et cetera. And to your question about where technology investments can further accelerate your growth rate, we agree with you. And that's why we have been investing not just in the infrastructure, but in the talent to deploy these amazing solutions both really well and faster where possible. You mentioned in your question about trading off, we don't manage this company for the short run. That's not a signal about increased investment level. That's not my point there. My point is we have always and will and continue to always manage to the medium-term growth opportunities of the company doing whatever makes sense. And when you have strong cash flow and a pristine balance sheet, you can do those things and not be distracted in terms of your investment programs for an uncertain macro climate of the moment. That is a great luxury of a very durable business like Paya that you don't have to manage for too much for the short term.

No, that makes sense. So that investment in that B2B, can you double the growth and make some increased investment there in such a large market? Can you double the growth of that vertical, if you would? What holds you back from doing that?

Yeah, no, listen, I think ambitions run high. And at the same time, we don't want to set unrealistic expectations in the short term around any one area. What I would tell you is B2B is the core and the foundation of this company. It is our greatest competitive strength in almost everything we do. And we are doing everything you could possibly imagine to maximize the potential growth of that business. And you're right that technology solutions are a big part of that. That means more ERP integrations, better tools and support for the VARs who often are selling in those end markets. wider base of those integrations. And equally important, Bob, the tech is fundamental, of course, but it's also the sales and marketing support that you provide to partners that accelerates growth. And it's also the excellent technical and operational support you provide to people, which drives satisfaction. It drives the great retention you already see at Paya. So if your question is, Are we excited by accelerating the growth in B2B? Unquestionably, yes. Specifics about steepness of that curve and timing, impossible to say. But we share your enthusiasm, and we are investing accordingly.

Thank you.

Thank you. Again, ladies and gentlemen, if you'd like to ask a question, please press star 11 on your touchtone telephone. Again, to ask a question, please press star 11. One moment, please. Thank you. I'm showing no further questions at this time. Let's turn the call back over to Mr. Jeff Hack for any closing remarks.

Great. Thank you, operator. You know, thanks, everybody, for joining us so early this morning. We appreciate the questions, and, you know, we look forward to to continuing to be very candid, transparent, and supportive. And we close out the quarter super proud with continued progress and success in the business. Have a great day.

Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day.