Paymentus Holdings, Inc.

Good day and welcome to Paymentus' first quarter 2022 earnings call. This call is being recorded. All participants are currently in a listen-only mode. There will be an opportunity for your questions following management's prepared remarks. To ask a question, please press star 1 on your telephone keypad. At this time, I would like to hand the call over to Paul Seaman, VP of Finance and Strategy, for some introductory comments. Please go ahead.

Thank you. Good afternoon and welcome to Paymentus' first quarter 2022 earnings call. Joining me on the call today are Dushant Sharma, our founder and CEO, and Matt Parson, our CFO. Following our prepared remarks, we'll take questions. Our press release is issued after close of market today and is posted on our website where this call is being simultaneously webcast. The webcast replay of this call and the supplemental slides accompanying this presentation will be available on our company's website under the investor relations link at ir.paymentus.com. Statements made on this call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements use words such as will, believe, expect, anticipate, and similar phrases that denote future expectation or intent regarding our financial results and guidance, market opportunity, business strategies, impact from acquisitions, and other matters. These forward-looking statements speak as of today and we undertake no obligation to update them. These statements are subject to risks, uncertainties, and assumptions that may cause actual results to differ materially from those set forth in such statements, including the risks and uncertainties set forth under the caption, special note regarding forward-looking statements, and risk factors in our annual report on Form 10-K for the year ended December 31st, 2021, which we filed with the SEC on March 3rd, 2022. our quarterly report on Form 10-Q for the quarter ended March 31st, 2022, which we expect to file with the SEC in early May 2022, and elsewhere with our other filings with the SEC. We encourage you to review these detailed safe harbor and risk factor disclosures. In addition, during today's call, we will discuss certain non-GAAP financial measures, specifically contribution profit, adjusted gross profit, adjusted EBITDA and adjusted EBITDA margin, are non-GAAP financial measures. These non-GAAP financial measures, which we believe are useful in measuring our performance and liquidity, should be considered in addition to, not as a substitute for, or in isolation from GAAP results. We encourage you to review additional disclosures regarding these non-GAAP measures, including reconciliations with the most directly comparable GAAP measures. In our earnings press release issued today and the supplemental slides for the forecast, each available on the investor relations page of our website and our filings at the SEC. With that, I'd like to turn the call over to Dushan Sharma, our founder and CEO. Thanks, Paul.

We started 2022 with a very strong quarter across all KPIs and saw little to no impact from the geopolitical and economic events that occurred, including the events in Ukraine and inflation. We believe we have a clear view of the business and are optimistic about the outlook for the remainder of 2022 as well as the foundation it sets for 2023. We believe one great aspect of our business is that it is extremely resilient because consumers and businesses have to pay their bills, essential bills, regardless of world events or whether the economy enters a recession or not. On a quick personal note, This is our fourth quarterly update since the IPO as we approach our first anniversary. I'm having a lot of fun building the business. So is my team. I know based on where the markets have been, one would think that we could be distracted, but we are not. We are laser focused on executing our business strategies as we seek to build a long-term successful and high-growth business. We all understand and remain focused on the effect of long-term compounding growth. As a new public company and where I sit today, despite our scale, I view us as a startup public company and believe we are just getting started. I welcome each and every one of you on our journey and to share in our long-term success. Let me now discuss our financial performance, which demonstrates that we are executing and performing well. In the first quarter, contribution profit grew 35%. driven by a 40.9% increase in transactions. From the sales booking perspective, we signed over 60 clients in the quarter, which is about 50% more than the same period last year. These sales numbers are inclusive of direct, partner, and JPMorgan migrations, which require some sales support to complete. Relative to the comparable quarter of 2021, our sales were more diverse, with less than 40% from the utilities vertical. The largest areas of increase were city services, insurance, and mortgage payments. But we also signed clients as unique as a leading home design company. We crossed an annual run rate of $100 billion in payments volume during the quarter. We believe very few companies in the U.S. are processing at this scale, which is nearly a quarter billion dollars per day on an average. As we have said before, the scale creates opportunities to strengthen our network and process our relationships because of the unique value we bring in under-penetrated segments for digital payments. We continue to work to establish additional relationships in our newer segments. In past quarters, we have talked about the expansion of our telecom partnerships. This quarter, we have signed the healthcare division of one of the top five U.S. banks to expand our footprint in the industry. We expect the partnership to provide us with expanded access to practice management systems. Adding partners in areas such as healthcare, telecom, and other under-penetrated verticals help our sales efforts and complements our direct selling process. Illustrative for our ability to increase our share of the total addressable market, in the quarter, we went live with one of the largest owners of apartments in the country. Real estate is outside of the core six verticals that we talk about, but represents a significant opportunity on its own. As you can imagine, rent payments fall in our sweet spot of both non-discretionary and reoccurring. We believe this implementation shows the flexibility and the breadth of our platform, which powers industries as diverse as real estate, B2B logistics, and home security providers not to mention our existing core verticals. We are making progress migrating the JPMorgan Chase client base. We completed our first implementations in the quarter, and many more are in flight and scheduled to go live throughout the year. While this added revenue isn't mature yet, we expect it to build over time. In addition, the new deal sales channel from JPMorgan Chase continues to build, and the relationship continues to be more and more beneficial for both parties. A quick note on our IPN ecosystem. We continue to expand the network and add more and more endpoints, including the FIs. As a reminder, IPN is symbiotic with Biller Direct. IPN helps us win more Biller Direct deals, and Biller Direct wins because help us add more IP and partners in volume. I'll now turn the call over to Matt to discuss our financial results in more detail.

Thanks, Deshaun. As a reminder, today's discussion includes non-GAAP financial measures. Please refer to the tables in our press release and supplemental slides for reconciliation of non-GAAP items to the most directly comparable GAAP financial measure. In the first quarter, we processed 87.9 million transactions, which equates to a year-over-year increase of 40.9%. Transaction volume continues to be driven by strong execution as well as additional IPN transactions, in particular the pay-various bank transactions as well as business-to-business transactions. This transaction growth drove a revenue increase of 26.5% over Q1 of 2021, which resulted in revenue of $116.7 million in the quarter. Q1 contribution profit was $47.4 million, representing a 35% increase over the same period last year. Consistent with the last several quarters, contribution profit grew faster than revenue, primarily due to an increased mix of transactions without interchange, specifically IPN transactions, cash-based payout transactions, and certain B2B transactions. Contribution profit per transaction was in line with Q4 of 2021 at 54 cents, which was consistent with our expectations in previous communications. Contribution profit for the quarter was ahead of expectations due to certain customers going live earlier in the quarter than was anticipated, as well as some favorable mix of payment type. While these items provided a tailwind in Q1, we do not anticipate that tailwind to carry forward in the subsequent quarters. Adjusted EBITDA was $5.4 million for the first quarter, which represents an 11.3% adjusted EBITDA margin. This was slightly above our internal expectations for the quarter. We only provide guidance for the full year, but we never expected the adjusted EBITDA to be spread evenly throughout the year as we ramped up hiring to end 2021 and had additional fees for completing the 2021 audit. We expected Q1 adjusted EBITDA to be the low point for the year for these and other reasons, and we are on track to slightly ahead of what we expected. Operating expenses rose $13.5 million to $36.2 million for Q1 of 2022 from the same period last year. Overall, the increase in operating expenses from last year was driven by investments in staff, as well as additional operating expenses associated with Pegaris and Fenevera, the amortization of identified intangible assets from the acquisitions, and stock-based compensation. Specifically, R&D expense increased $2.7 million or 34.4% from the first quarter in 2021 as we continue to innovate with and for our customers and partners. Sales and marketing expense increased $8 million driven by the Payveris acquisition, continued expansion of the sales team, adding partnerships to capture our sizable market opportunity, and an increase in stock-based compensation. Also, travel and marketing events continue to ramp up relative to Q1 2021, particularly with the impact of COVID fading. We experienced an increase in GMA expense of 43.1% or $2.9 million due to our acquisitions, multifold increases in the cost of corporate insurance, and ongoing investment in public company infrastructure. Our GAAP net income was $1.7 million and EPS for Q1 was one cent. Non-GAAP net income was $3.7 million and non-GAAP EPS was three cents for the quarter. We had a large tax benefit in Q1 driven by our small loss on pre-tax income as well as a discreet benefit of $2.6 million that we recorded related to excess tax benefits on stock-based compensation. As of March 31, 2022, we had $163.4 million of cash and cash equivalents on our balance sheet. Cash decreased primarily due to the timing of certain customer payments, as well as increased operating expenses due to the acquisitions. At quarter end, we had approximately 121 million shares of common stock outstanding. Now, turning to our 2022 full-year outlooks. We're increasing our 2022 revenue outlook to a range of $492 million to $497 million, which represents growth between 24.5% and 26% year-over-year. We are increasing our contribution profit guidance to be between $206 million and $208 million for the year, which is approximately 30% to 31% growth. Our adjusted EBITDA outlook is in the range of $30 to $33 million, with an adjusted EBITDA margin of 14.5% to 16%. As we've indicated previously, we do not believe the current inflationary environment will have a negative impact on our top line. Our current guidance reflects some assumptions around continued inflation and potential for increasing wage pressure. However, if inflation continues at higher levels than we have assumed, it could have a higher impact on our margins going forward. As you can see from the updated guidance, the high end of our contribution profit guidance implies growth in the same range as 2021. We believe this level would give us a top decile performance for technology companies based on Rule of 50 for the past couple of years. We are not slowing down and remain excited about how the business is performing. Finally, as we said last quarter, we anticipate our full-year effective tax rate to be around 30%. However, due to the amortization of intangibles associated with the acquisitions, the closer we are to break even on pre-tax book income, the more variation we could see on our tax rate. I'll now turn the call back over to Yushan for some closing comments.

Thanks, Matt. To close, I would like to provide a brief reminder that of what we believe makes us different and positions us to win a significant share of the massive bill payment plan. Our platform was designed to be flexible and meet the billing and payment needs of virtually any industry. This creates a massive addressable market that's both reoccurring and non-discretionary in the U.S. and beyond. IT estimates this at nearly 16 billion bill payment transactions annually in the U.S. alone, and we believe we have the ability to address a sizable portion of them. With our acquisition of Payveris, we also opened up access to bank-based payments, and we believe IPN extends our reach to virtually any channel a consumer wants to pay through. Our platform is known for B2C, but also runs large-scale B2B invoicing and payment clients. B2B is outside of the $16 billion number I just mentioned. The platform is known for pay-ins, meaning bill payments, but can also provide payouts for insurance companies and other industries that need disbursement capabilities. Payouts is also incremental to the $16 billion payment number I talked about. This is why I continue to be extremely bullish on the business and UCS continue to invest in long-term growth rather than dropping incremental dollars to the bottom line. I'd like to thank our 1,000-plus employees for their hard work and dedication that makes all this possible. With that, I'll now turn the call over to the operator for questions.

Absolutely. If you would like to ask a question, please press star followed by 1 on your telephone keypad. If for any reason you would like to remove that question, please press star followed by 2. Again, to ask a question, press star 1. As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking your question. Excuse me, our first question goes to Will Mance with Goldman Sachs. Will, your line is open. Please proceed.

Hey, guys. Good afternoon. How are you? I'm good. I wanted to follow up on the full-year guidance. I think last quarter, you guys signaled that in the back half of the year, you guys could dip below that 30%. I think it was a combination of tough comps in the prior year and some conservatism around the pace of onboarding. It sounds like you were a little bit more successful in bringing new clients onboard this quarter. I'm wondering, as we've gotten, you know, three months later, have you gotten any incremental line of sight onto the pace of onboarding? And is that still your expectation in the back half of the year? And what would it take, you know, what would need to happen for that not to occur?

Yeah, thanks, Will. This is Matt. Great question. It's early in the year. I would say we still have nothing fundamental has changed in kind of our view with respect to our guidance and modeling and forecast for the year. We did have a very good result in Q1 in being able to get things live sooner than we had anticipated and modeled. and we're going to continue to work for that as we go through the rest of the year. It's something we've always done and will continue to do. It's a definite focus of Deshaun, I, and the rest of the team. But it's early in the year, and I think we're kind of maintaining our view on the rest of the year at this point in time, and we'll continue to work on it as we go through the year.

Got it. That's helpful. Maybe one for Dushan. It's nice to hear about the referral agreement with the healthcare vertical at the large bank. If we take a step back, you guys have done a lot of expansion in your go-to-market channel since the IPO. When you put together the JPMorgan relationship, Payveris, the new healthcare deal, how are you thinking about the tailwinds that this could drive to the top line and even higher level? Would you consider these partnerships as being potentially additive to that 30% growth rate that you've talked about in the past?

Well, good question, Will. Thank you. I was going to say – I was smiling because of the last part of your question. Look, we are very proud of what we have been able to accomplish here. Everything we set out to do as a business, we said we're going to build a platform which allows us to scale horizontally to – any vertical industry and vertically to any size of the customer. And we have done that. And as a result of the modern age biller direct platform we have created, which not only brings billing companies live in the ecosystem, which is their direct ecosystem, but also through the IP and ecosystem we have created allows them to go to any endpoint. It is allowing us to bring customers on our platform at a faster clip than we have done before. And in addition to that, we are also seeing tremendous excitement in the partnership ecosystem we have. You named some of the partners, and there are many other partners in the mix as well. So we are seeing tremendous progress there. And this clearly helps us continue to grow and maintain the momentum and And, you know, we're not raising our guidance. Our guidance is what it is, but not a day goes by when we are not looking at how can we accelerate that even more than what we are already forecasting. So not changing the guidance, but at least from an overall perspective, feel good about where our business is headed.

Got it. I appreciate that, and thank you for taking all my questions.

Of course. Thanks a lot. Thank you, Will. Our next question goes to Andrew Bout with SMBC Niko Securities. Andrew, your line is open. Please go ahead.

Hey, guys. Thanks for taking my question and a nice set of results here. I guess first off, Matt, I wonder if you could clarify some of your comments around the first quarter tailwinds around favorable mix and the pace of onboarding. I guess can you give us a better sense of of what exactly those payment mix types, like what drove that benefit and why that wouldn't carry forward in subsequent quarters. And is the onboarding dynamic really just kind of a timing element? Because it would assume that if you're accelerating the rate of these onboards that those tailwinds should continue.

Yeah, thanks, Andrew. Appreciate the question. So on the implementation onboarding, When we lay out our model for the year, we assume, based on all the information that we have from our own team, from the client, a certain go-live date for a particular client. And let's say for some of the accelerations we saw in Q1, they were clients that we had slated to go live, say, at the end of Q1, but they went live at the middle of Q1. So that means that we got an extra month and a half of revenue off of them. But when it comes to Q2, we kind of had that revenue in Q2 all along because they were going to go live in our plan at the end of Q1 anyway. So there's no incremental benefit to Q2 from that client going live earlier in Q1. And that's what I was sort of referencing with – With Will's question is, at this point in time, early in the year, we don't want to make assumptions that we'll be able to be successful with additional clients that are in the implementation pipeline being able to do that same thing, because every client's different. All the facts and circumstances are different. So it's great for Q1 that we were able to do that. We continue to work on doing that. every day going forward, and our team is very focused on it, but it's hard to make an assumption that that can continue through depending on different facts and circumstances with different clients. Then on the mixed type, really what I was referring to there is we saw some movement, say, from credit, higher cost type of payment to more cash-based, lower cost type of payment, in Q1, so we got the benefit of additional contribution profit from that. The main reason we said we're not anticipating that to continue is because Q1 is a little bit of a different animal, as we've talked about before, than the other quarter throughout the year in that it's kind of the high point of the year in what we see for our average payment amount, i.e., the bill payment amounts that are getting paid. on our platform, largely due to utilities payments being higher in Q1 because of the cold winter months. And so this year, that was maybe even fueled a little bit more with some of the macro things we're seeing around energy costs. And so I think people, a little bit of speculation on my part, but people may have paid more with different types of payment methods because the bills were higher. They may have split their bills and paid some with cash, some with credit, et cetera. So, again, we're not making assumptions that that's going to continue because Q1 has a little bit different profile with respect to the amounts of payments we see and the behavior we see out of consumers just because those payment amounts are higher.

And I think if I may add a little bit to that, the quarterly dynamic Matt described so well is exactly why sometimes it can be misunderstood that when we are guiding through the year, sometimes things vary quarter to quarter. But the guidance for the year is what we are focused on as a whole.

Got it. Very helpful. And then my follow-up for Deshaun, I mean, If we're heading into, you know, an economic slowdown and potentially a prolonged recession, I mean, is this changing any of your conversations with billers that are looking for solutions to be able to, you know, better capture rate of payment and the like?

Yeah, great question. I can take you back to the last time we saw recessionary environment where it was like 2010, 11, 12, and so on, what that transpired into accelerating growth for us in some ways because the business itself, as I talked about at the top of the call, there's a resilience factor in here where I still have to pay my bills as a consumer, including the businesses. You have to keep your lights on, you have to pay your insurance, you have to pay your mortgage, and so on. But during these type of times, there is increased focus on improving the efficiencies while also trying to improve the customer experience so that it's easier to collect money from the customers. And that actually shines even a stronger light or a brighter light on our platform and our capabilities. And as a result, we start to get even more inbound inquiries than we would typically get. And I'm not saying that recession is actually beneficiary to somehow there's a benefit to us. But what I'm saying is that the way we have designed our business and the way we approach the market, if there is a recession, because of the pricing model which we have created, it actually helps our case even stronger in many cases. I hope that answers the question.

No, it does. And that collection rate definitely comes into greater focus for billers. So thank you for the caller.

Thanks, Andrew.

Thank you, Andrew. Our next question goes to Ashwin Shirvikar with Citi. Ashwin, please go ahead.

Thank you. Hey, good quarter, guys. I was hoping you could perhaps address So what we should expect with regards to cadence through the year? You know, you're obviously raising expectations. Is there a timeline one should expect in terms of just the quarterly layout? And then let me ask the second question right here as well. You know, the expansion opportunity that you talked about, for example, the rent payment opportunity and so on and so forth, Could you perhaps help size that and how that sort of flows through your system? That would be helpful. Thanks.

Okay. Thanks, Ashwin. On the first one, I assume what you mean is does it change anything? Just to clarify for me on the quarterly cadence, does the fact that we – had to kind of exceed expectations in Q1 and raise our guidance. Does it change kind of our thinking for the rest of the year and how the quarters play out? Is that what the question was? Yeah, that was what the question was. Okay. Got it. No, not really. I mean, as I said, I think – There were a lot of reasons we had a strong Q1. I would say the reason that we had a stronger than expected Q1 was the timing of certain implementations happening a bit faster, sooner than we expected, as well as some of the makeshift. It's early in the year. We don't, you know, because of the factors I mentioned, I think, in response to Andrew's question, we're not comfortable sort of carrying that through to the rest of the year at this point. So I think the kind of underlying fundamentals for the year are consistent with what we expected and talked about going into Q4. You know, we've got, you know, as Deshaun sort of alluded to a second ago, we only provide guidance on an annual basis. The reason we do that is because there is quarter-to-quarter variability in our business. You know, when we get in the back half of the year, we've got, you know, some of the tough comparisons with some of the acquisition stuff in Q3 and Q4. But fundamentally, we still I believe that we're a 30% grower and obviously our guidance reflects that. And yeah, I think nothing's going to change that going into 2023. So yeah, I think that was kind of covering the first one. The second one, could you just repeat the second question? I'm sorry.

Yeah, I was just going to, you know, obviously it's kind of similar to a previous question, but I wanted, I was wondering if you could actually cite some of these opportunities that you talked about, like, for example, when you start rolling in rent payments, right? How does that add to the overall pie, or was that already included in the overall pie? I think – great question, Ashwin. I mean, this is one of the key advantages of the platform, the way we have conceived it, the way we have built it, is that we are able to add – The bill payment market, which is just B2C payment receivable market itself, as we talked about it, it's in trillions of dollars of household expense, which goes through just for bill payments. B2B capabilities, which we talk about, is completely outside of that and is significantly larger in many ways just because of the type of amounts, the dollar amounts which are included in B2B invoicing process. And payouts is a pretty significant opportunity as well. So they're both outside of what we are pursuing here. So what we talked about in the $16 billion bill payments. So we feel like all of these things we have done, the hard work, the rails, the platform, the capabilities we have built, the workflows we have created, it's all setting a great foundation for us to continue to grow in the outer years.

The thing I would add to that, and I totally agree with all that, the thing I would add to that is we've kind of been thinking about it in a little bit of a two-pronged way in the sense of, you know, when we talk about kind of being a 30% grower, we obviously were thinking about the bill direct business and the platform that we have and, you know, our six verticals, but also all verticals, right? We're obviously taking into account verticals. kind of all the different types of bills that can be on it. But what I meant when I said a two-pronged approach is the more we can expand that pie and have more opportunities at different types of clients, that also applies to the bank network with Bavaris. It also applies to some of the IPM stuff. kind of certainty you can put around that 30% number because it just gives us more opportunities from which to draw it from. And then if many of them hit, then I think it becomes incremental and kind of on top of that 30% number. So it's kind of like we've got a wide net of things that we can draw from to get there. And then if we're successful in many of those different things, then it starts to go up from there, if that makes sense. Well, yeah, positive optionality.

Yeah.

You said that much more succinctly than I did. Yes. Thank you.

Thank you very much.

Thank you, Ashwin. Our next question goes to John Davis with Raymond James. John, your line is open. Please go ahead.

Hey, good afternoon, guys. Matt, I've heard you say a couple of times you expect to continue this 30 plus percent contribution profit growth into 23. But our biomass, I would assume a little bit of an organic acceleration given the modest impacts from from the acquisitions that you've done. So just wanted to just confirm that and just kind of understand what the drivers are to that potential accelerated growth to 2023.

Yeah, thanks, John. Well, 2022 is not done yet in the sense of, you know, like Deshaun said earlier, our guidance is our guidance, but we're certainly working every day to try to, you know, continue to drive more in 2022. I mean, that's what we're here for and that's what we're paid for is to continue to try to drive more here. But with your point, based on our current guidance, I definitely understand your point. And I think it's, It's a result of all the things that we're, you know, Deshaun talked about that we're working to put in place now. It's the, you know, additional partnerships. It's the expansion of the opportunities around outside of our core, six core verticals industries that we're now getting into, like the rent payments opportunity. It's the B2B, you know, potential that we've started off in and continuing to drive additional opportunities. clients there. So I think it's really just, you know, the bank opportunity with Payveris. We still, you know, are very excited about what that can bring and what inbound, you know, interesting conversations are happening on that front. So, again, I think really the answer to the question is the way I wrapped up with Ashlyn's question, which is, you know, we've really widened the net out over the last, you know, 12 to 18 months. And so just having more opportunities at more different, whether it's verticals, partners, banks versus direct billers, you know, on and on, it just gives us more areas and more opportunities in which to drive additional business through.

Absolutely. And on top of that, you know, we have a customer base. We have signed customers. We had, you know, lost several quarters, including this most recent one. 60 deals for 60 deals is nothing to sneeze at. And so all of these contribute to where we could be next year. And so we're excited about the business. And like Matt said, the year is not done, but the year is also not done from a perspective of adding a lot to the mix to make sure 2023 is a great year.

Okay, that's super helpful. And then we had a lot of questions on inflation and trying to understand, and you guys are a relatively new public company. Matt or Nishant, maybe just take a second to explain or expand upon how inflation actually runs through. My understanding is you guys basically get paid per bill, but some of your costs could be higher. you know, higher inflationary environments. You just really want to understand, I think, Matt, you said that inflation is kind of neutral to maybe just kind of give us a minute or so on explaining exactly how inflation flows through your P&L.

Sure. So the way we have engineered our business and the way we have engineered our agreements with the clients actually take care of this very issue and has done that for years now. One of the factors is if our clients – actually, I don't want to get too technical because it is a very technical question because there are payment methods involved. Different payment methods have different type of fee structures to them. Some of them are flat regardless of the form of payment, our cost structure is. In some cases, regardless of the payment amount which is being charged due to inflation by the billing company, we still get our fair share or our margins don't get affected. But in some cases, there is a change where we are getting a flat fee and while on the back end our cost is variable, and that's in a small percentage of those transactions. And there as well we have ability to raise the pricing because it's very understandable by the clients themselves that if they are getting more benefit through the inflation by charging higher for the bills. We want the very company which is making that all happen where they're able to collect the money, we want to be able to raise the rate as well, and we have those capabilities in the agreement already built in. So that doesn't affect us as much as it will appear, actually.

Okay. That's super helpful. Thanks, guys.

Thanks, John. Thank you, John. Our next question goes to Jeff Cantwell with Wells Fargo. Jeff, your line is open. Please go ahead.

Hey, thank you for taking my questions, and thanks for allowing me to join these calls. One thing that stood out on the positive side here, and this is being highlighted on this call, is raising the guidance, especially given how many other companies have sounded about the quarter. even though you're at the real heart of the economy in many ways, given how many clients you have now, can you sort of give us your macro view as you see it? And what I'm really trying to get at is what made you confident here to raise the guide? Is it the new wins? Is it something about the operational momentum discord? I just want to see what you can point us to that will help us understand what you're thinking about as far as positives for the remainder of the year. Thanks.

Yeah, thanks, Jeff. This is Matt, and welcome to the fold. Glad to have you as part of the group here. Yeah, so on the macro, you know, I think Deshaun hit on a little bit earlier. You know, obviously things have been a bit tough to start the year on multiple fronts in the macro, but because of the space that we're in and, you know, really focused on non-discretionary essential services recurring bill payments, it's a very resilient business. And, you know, we saw it kind of at the beginning of COVID when really the impact to our business at the beginning of COVID was a little bit of a slowdown in signing new business and getting customers live because everybody was focused on their own business. But we did not see any slowdown at all to the payments flowing to our platform because people still had to pay their bills. They needed to keep the lights on. They needed to keep their insurance and mortgages, et cetera. And so, you know, it is a very resilient model, and that's reflected in our results in Q1 and our guidance for the rest of the year that Even though the macro may seem a little uncertain, one thing is constant, that people need to continue to pay their bills. I think as far as the raising the guidance for the year, it's reflected in that, that we have not seen any negative impacts. We don't expect to see any negative impacts from that. In addition to you know, again, just keep pointing back to all the things that we've added and continue to announce our ability to execute internally on getting clients live and implemented. And that's actually, you know, again, back to one of the earlier questions kind of relates on our ability to continue that through the rest of the year or not, what we saw in Q1 and being able to do it faster. There's a huge reliance there on the client. We can't do it alone. We have to partner with them. It has to be within the bounds of kind of their internal priorities and projects, and they've all got a million things going on. And so, you know, if it was completely within our control, I'd be like, you know, full speed ahead. We're going to get them all live tomorrow and figure out how many people we need to hire to do that. But we also have to work within the bounds of our clients. And so, you know, it's definitely a partnership aspect of it. But we, you know, everything that we kind of see from, you know, behavior of people paying their bills, from the things we put in place, you know, we feel good about the rest of the year.

And if I may add to this, to your broader economic question and speaking to the investor base broadly, If, for example, you were a private company today and you were investors in our company and you had 40 other companies in your portfolio, you will look at Paymentus and think about, boy, this is a company which is in recurring bill payment space. These are essential bills. And during turbulent times like these, businesses have even a stronger need to collect money and collect the money efficiently and also improve experience for the customers. Both of those things are what our platform is designed to provide. It actually allows you to sleep a little bit better. And, you know, during we have gone through a couple of these things. I mean, during COVID, we continued to grow as a business. We had the same thing, you know, through the financial crisis. So what I'm trying to really say is that if you take the public market side of things aside, which there's a little bit of uncertainty, which we have all experienced, you know, the business inside, internally, the business is doing really well.

Okay, that's great, Keller. Thanks very much, and congrats on the results. Thank you. Thanks, Jeff.

Thank you, Jeff. Our next question goes to Tien-Tien Wong with J.P. Morgan. Tien-Tien, your line is open. Please go ahead.

Thank you so much. I want to build on, I think, John's question and ask it from a biller perspective, just with inflation and whatnot. Are you seeing billers want to promote auto pay as a reason to accelerate or raise a sense of urgency to want to work with you? I'm just trying to understand the biller side of how they're viewing the uncertainty that people have been asking about. It feels like it could be a big help.

Yes. I think, so if you look at it from the, in situations like these, and frankly, COVID itself is a pretty recent memory. So the billing companies are faced with situations like, you know, how do we make it easier for customers to collect information? as well as make it, you know, make sure that they have ability to pay multiple times in case they have to. The auto pay itself, if you can believe it, is for customers who they are least concerned about from a collectability standpoint. It is the customers who are not on auto pay where they will say, you know, how do I reach to the customers at a faster pace than or broadly? And could I do it in a way that it doesn't cost me a lot more money than it would have otherwise? So everything our platform is designed for. So, for example, if you were the builder and I was coming to you in a market like this, my pitch would be that take a look at our platform. It is designed for you to not have to change anything on your end. We will do all the work because we have this advanced integration framework in place and we have hundreds of billing systems you're already integrated with, and we can integrate with you while doing that integration, we can reach all of the customers you're otherwise not being able to reach out to just because of the modern paradigm-shifting ecosystem we have built. So all of that resonates extremely well to the customer and to the billing company, and And therefore, with multiple payment options, options wherever the customers are, and including giving them ability to pay, including at the last minute, makes it very easy for the customers to pay. And that's why there's a gravitation towards us in times like this.

Makes sense. Thanks for going through that. Then just my quick follow-up, if you don't mind, just the reinvestments make sense. And I know there's a lot of investing in establishing partners and verticals. What about just on the product side in general? Have you changed your focus on product development given what's happening in the world? Just curious what's new from a product perspective maybe that you weren't thinking about six months ago.

You know, we continue to make investments in the product. We have, in some ways, we have set the tone for the industry as to how customer experience should take place and how a platform should really operate and what type of capabilities it should provide to the billing companies, both from a, for their own team's perspective, the staff of the billing company, but also the customers of the billing company. When you look at it from that perspective, it's a never-ending pursuit. We exist for two specific goals. How do we improve the customer experience, and how do we do it while lowering the cost to collect or cost to serve the customers from a billing company standpoint? So all the investments we make are in that area. The other area we are actually heavily focused on is how do we improve the velocity of – I'll give you an example. You know, we have almost, to Matt's point earlier, if we could actually onboard clients and it was entirely in our control, we could onboard them tomorrow. Like 70%, 80% of our clients, maybe even more, could be onboarded without making a single change anywhere in our system. However, it takes time for the clients to get comfortable and go through the process. What we are making investments in is for the remaining 10%, 20% as well to make sure that these complex enterprise-type deployments are also able to get done without making too many changes as the workflows, the complex, sophisticated workflows could be implemented through our platform without coding. So we're making some changes there as well. So you will hear more and more about that as we go forward. Very good.

Thank you for the update.

Thank you. Thank you, Tenshin. Our final question goes to Dave Koning with Baird. Dave, your line is open. Please proceed.

Yeah. Hey, guys. Thanks so much. And I just wanted to review contribution profit per transaction. And I think you've talked before about as you've gotten bigger clients, You know, that's naturally gone down a little. It actually went down less this quarter than in a long time. And I guess I'm wondering, A, is the mix of business as it comes down coming out at a different trend, like at different levels, like different verticals create kind of different yields? And then over time, are we at a point where this starts to stabilize?

Yeah, thanks, Dave. Appreciate the questions, Matt. Yes, I think yes to both questions. You know, with the Q4, and I can't remember if we said it on the call or maybe it was in some of the Q&A afterwards. But, you know, I said we saw a pretty good step down into Q4, and there was a lot of questions about it. And I said, you know, we expected to stabilize for 2022 and be pretty consistent with where we saw Q4. And there were a couple of reasons for that conclusion, and we're seeing them play out. One was, if you recall, the reason for the step down or a reason for the step down in Q4 was a couple of large clients going live at the end of Q3, early Q4. that had a little bit different profile. One was more B2B. One included some payouts, which were all cash-based. And so they had a different pricing profile than, say, our typical bill or direct clients have. We felt very good because they were very large clients and lots of transactions, and so we felt good in the overall economic profile of the client, but it caused a step down, and we didn't see anything in our clients implementation pipeline that looked or felt like those two did, and so we expected it to stabilize. But then also there is kind of a terminal point you get to once you, you know, again, if you think about the progression of our growth as an organization, we kind of purposely started in Horizon 1 with small and medium-sized clients, and then we moved up to large size in Horizon 2, and then the network effect in Horizon 3. there's a period of time where every new large client you add is pulling down the average just simply because of the nature of size in the total portfolio. You know, we're kind of reaching that point now where addition of a new larger client doesn't really have that big of an impact on the average. It's going to have some, but the rate at which it's going down certainly will slow dramatically. And then the other factor is some of the IPN transactions that we've talked about that don't have any interchange associated with them they are priced in a level that's fairly consistent with sort of what our current contribution profit per transaction level is. So they're not going to be detracting to that overall point. So that's kind of what's behind the scenes driving it. But we still, the comments I made, I think, in Q4 are still the same. Nothing's changed to change our thinking there, which is, The remainder of 2022, we expect to be pretty consistent with Q4 and Q1 and kind of where we are right now.

Gotcha. Thanks. And maybe just a quick follow-up. Sales and marketing the last few quarters has trended up a lot, and it's in correspondence with really, really good revenue growth. So I get it. But is there a point where it starts to get levered a little bit going forward?

Absolutely. And we're, you know, I don't want to say we're at that point because, you know, we continue to invest in the business. What I will say is between taking on, you know, some of the sales and marketing costs of PayBarris in particular, as well as we kind of purposely put some investment at the end of 2021 into sales and marketing, and you're seeing kind of the first full quarter of that in Q1. It was higher than what I would say our ongoing level of investment is going to be. It was kind of a purposeful push of spend there. So I expect from this point forward you will definitely start to see it moderate out and get more leverage over kind of what we saw the last couple of quarters.

Gotcha. Awesome. Thanks, guys.

Thank you. Thanks, Dave.

Thank you, Dave. There are no further questions registered at this time, so this concludes the Paymentus Q1 2022 earnings call. Thank you for your participation. You can now disconnect your line.