Paymentus Holdings, Inc. (PAY) Earnings Call Transcript & Summary

All right. Terrific. We're here for the Paymentus fireside chat. My name is Tien-Tsin Huang. I follow the Payments and IT services sector. Very excited to have the team from Paymentus here, Dushyant Sharma, CEO; Sanjay Kalra, CFO. We'll do a few questions on my side, then we'll open it up to questions from the audience. And I think we have an iPad here. We can take questions from the virtual portal as well. Thank you, both, for being here.

Thank you. Thank you for having us here.

I think, Dushyant, I usually start with learning from -- I always enjoy conversations with you, always try to learn from you and your experience having been in this space for quite some time. Can you, for the benefit of the audience that are newer to the name, just give a quick commercial on Paymentus and how your prior experience help shape what you do today with Paymentus and how you go to market?

Sure. Well, first of all, thank you so much for the kind words, Tien-Tsin. We started Paymentus to simplify bill payments. As you know, bill payments is still -- could be [indiscernible] and not as straightforward as it could be, and we thought that we could cause disruption through simplification. And what I mean by that is create a SaaS-based, cloud-based platform, omnichannel platform that allows billing companies to modernize their customer experience and lower their cost to serve their customers and layer on top of that our multidimensional framework of reaching -- taking the biller ecosystem to everywhere their customers are, whether they're making a cash payment, they're going to a bank and making a payment. So all of that comes together. And as a result, we felt that if we could actually -- such a big TAM, the bill payment itself is billions of bills, more like $15 billion, $16 billion, $17 billion. And we felt even if you could capture 5% of the market, it could be a $1 billion company. So where we sit today, we feel very good about the fact that we are serving the nondiscretionary side of the market and feel good about our long-term targets given 20% top line growth and 20% to 30% bottom line EBITDA dollar growth based on the TAM and based on our market positioning.

All right. Great. So we're -- at this conference, we're very fortunate to have a lot of companies here. And you've heard uneven results around demand, some good, some bad. Bill pay has been performing quite well. Why do you think that is -- why is the demand environment for your services in a good place in your mind?

Actually, a good question. If you think about it from a billing company's standpoint, bill payments is how they get paid. I mean, they are trying to bring revenue in the door. They've already provided services in most cases, and they are trying to collect the money. So how you collect the money, how fast you collect the money, how much you spend to collect the money is very important. And we feel that our model, which is we get paid per transaction, and our value proposition is very simple, how do we lower the cost to serve and how do we improve your customer experience and therefore, improve your collections continues to serve very well. And the way we model our business and the platform that we started out initially with the utilities and got into different verticals, utilities, insurance, telecom, health care, auto, mortgage, education as well now. So we are focused on so many different verticals. And as a result, what we're finding is, regardless of who we are talking to, the challenges are similar and applicability of our platform is almost identical. So that's what is driving the demand and the growth.

Okay. And I know your bookings have performed quite well. I get this question a lot. Dushyant and Sanjay, just who are you taking share from? Is it taking away from legacy in-house solutions? Are you competing with other incumbents? Who are you taking share from with these bookings that you're securing?

If I may actually draw a comparison, if you recall, when salesforce.com started, they were sort of like little company for the little guys. That was the mindset. Eventually, it became clearer to the market that the platform itself, the CRM platform itself is powerful enough that regardless of which company, which size and whatever their continuum was, whether they want it to be in-house or outside, they just couldn't replicate the platform. We find ourselves in a very fortunate situation that right now, our competition primarily is whatever the legacy processes the billing companies may have, it may be a combination of in-house, some third parties involved, multiple vendors involved, and we are able to literally go in and explain the value proposition I just described earlier. And as a result, the -- we are taking market share from in-house as well as the legacy providers or companies that might be newer from a data birth perspective relative to us, but they are still pursuing the old model. They haven't taken time to build the way we have built our platform. We see a clear air from that perspective as well. So similar type of effect, I would say, as somewhat Salesforce enjoyed.

Okay. That's a good analogy. So you mentioned that yourself there that a lot of different systems, a lot of legacy that's out there. So I would imagine the implementation, the conversions can be very challenging and perhaps not templated. So share with us how you go through implementations and how has that been automated? Do you run into challenges or cost overruns? Describe that for us.

Actually, if I may take a second to describe the implementation and onboarding experience has been one of our key actual success factors over the years. What has happened, however, is as more and more level of sophistication in terms of the workflows we are onboarding on our platform, we had to continue to make investments into our platform, our processes as well as our resources to make sure we are able to provide a similar type of framework. I'm proud to say that majority of our implementations even today with this level of sophistication require no changes to our platform. In fact, oftentimes, you have to pinch yourself in some ways that you go in and you sign a $0.5 million, $1 million client, which is going to be a multimillion dollar TCV, but you didn't have to make any investment in your platform to onboard them. That notwithstanding is still the actual process of implementing a billing company requires you to onboard the data, migrate the data, make sure there is proper training. We are touching all aspects of a billing company's ecosystem, whether it is their customer experience, their billing experience folks, their treasury, their finance, you name it, all across the board. So we want to make sure that all of that is properly handled. So on the day of go-live, everything goes smoothly. You want to add something?

I'd just add new implementations is one of the biggest vectors of our growth every year. And we pay a lot of attention on how best we can not only improve the implementation speed but do it more cost effectively because we've got a strong operating leverage in the business. We want to grow the business every year, but we want to grow it profitably. That's our theme. That's how we model our business. That's how we project, that's how we forecast. In fact, implementation is key to a lot of things in the company. And if I may just touch a little bit as we are on implementation. When we guide for the full year or the quarter, we have a range and from the low end to high end, the way we think about it is low end is something that we might have a flat tire, which is completely out of our control. For example, macro could be affecting not us, but one of our billers who is supposed to go live. And if that doesn't happen, hence, low end we take very conservative posture. At high end, we presume that implementation pace will be exactly what we saw in the last quarter. We do not make further improvements even in our high end that implementation pace gets better, that would be an upside. But overall, we take a conservative position given the whole macro is, but implementation is the key theme of driving our growth, and we take it very seriously.

Okay. Good. So no customizations on the platform, that's great. Is there still room for improvement on the implementation side, given what you've been investing in?

There, of course, is, and we even -- last earnings call, we announced a patent related to AI-based integration framework, which basically -- our pursuit is that since we are -- we have so much expertise in how systems get integrated with each other, especially related to our core business, billing and payments, and we have done it thousands of times across various industries and complexities of workflows. We feel like eventually, we will be able to train machines to be able to integrate our software with other software without any human intervention. So it's a constant pursuit. We want to get there at some point. And when we are talking about integration, we're talking about sophisticated workflows and data layer of integration data conversion. So from that perspective, we feel like they will continue to improve, continue to improve the onboarding speed in the process. But at the same time, the type of customers we are attracting right now are large and sophisticated as well. So it's a constant process.

Okay. Good. And how would you -- last one on this. Just how would you characterize the pipeline for biller today versus last year or 2 years or even maybe pre-pandemic?

So if I take us back to pre-pandemic, Paymentus was actually in the early stages of attracting the larger end of the market. And one of the -- frankly, the benefits of being public and having a great financial footprint in front of the all public companies who are our potential customers as well. So they can see the company is growing, how many employees the customer company has. It's strong balance sheet, no debt, continually growing that adds to the actual credibility of being able to attract the large customers, combine that with our partnership ecosystem with various large software vendors, fintech providers, banking service providers. As a result of that, actually, we are finding that our current pipeline, current backlog is a combination of a lot of large sophisticated clients in addition to mid-market and smaller and medium-sized enterprises as well.

Okay. Good. So let's -- I know I give this question a lot, so I'll go ahead and ask it maybe for Sanjay, for you on the modeling side. Just with first quarter revenue and transaction growth were on top of each other, 25%, but I know contribution profit was up more. So just help us understand the spread between revenue and contribution profit. What drives that?

Yes. So revenue and contribution profit growth, I would say, on an annual basis and even in the long term would be very closely aligned. The range would be very thin, I would say or -- but when you look at it quarter-over-quarter, the growth rates of revenue and contribution profit could jump maybe 400 to 500 basis points. At times, CP growth could be better than revenue. At times, revenue growth could be better than CP growth. And we have seen that. We saw that in Q1 itself. As you highlighted, we were approximately 30% up on CP, but approximately 25% on revenue. So we had a 500 basis point difference. That said, prior years, we've seen other things as like opposite fluctuations as well. And that happens due to multiple factors, I would say. One is, if you -- comparing year-over-year, definitely seasonality does not play an impact. But quarter-over-quarter, you will see seasonality plays a big role in that. But in the year-over-year comparison, one other differentiating factor is implementations going live at different points in time, there is no way that can be compared in the same quarter because large customers could go live, which have, say, a mix of biller, which are paying more through, say, credit cards or a different payment mix versus other billers who are growing on their own with a good same-store sales growth with a different percentage. Short answer is biller mix, payment mix, CPI index and there are a lot of other factors which go in, which could make this fluctuation more tricky to analyze quarter-over-quarter basis. But once the whole year is done or in the longer term, when we see how the biller is performing for the company, you will see that they are pretty closely aligned. And we do that analysis internally by biller to see, hey, over the last 2 years or so, how close they are, and they're pretty close. In fact, this year's guidance, if we look at the most recent guidance we gave, the revenue at high end is approximately 23% and CP is approximately 22%. And at midpoint, I think revenue growth is around 22% and CP is around 19%. So they are more closely aligned, but quarters, as I said, could vary.

Okay. No, that's helpful to go through. So I think one of the learnings from us -- for us was that to combat inflation, you did reprice and quite successful in the repricing strategy here. Can you walk us through the thinking on how you reprice and what did you learn from that? And is there a change perhaps in your pricing philosophy from here?

Let me take the customer side first. I think one of the most important thing for us as a company was, regardless of the challenges we were dealing with inflation-wise, which were affecting our margins temporarily, we want to make sure that we are a long-term great partner to our clients. We think of our clients as a long-term valuable partners, our clients enjoy a long-term relationship with us and we do the same. So we wanted to make sure that they knew that they're dealing with a great partner in good times as well as in not so great times. As a result of that, when we wanted to make the changes, we wanted to make the changes in such a way that they were not temporary. So we were very fortunate we were able to do that, but clients will be understanding of that. The biggest learning we had as a result of that was that I think as part of our quarterly business reviews and with our clients, or as frequently as we do with many other clients, we just want to bring pricing as a part of the regular discussion point that how the pricing of the mutual relationship is. Because if you think about it, from our clients' perspective, they want Paymentus to be a successful business as well because we are a 24/7 customer engagement and bill payment and revenue collection platform for our clients. They want to make sure that we are secure. We are available. We are a high-quality service provider. And as a result, we are also successful in our financial footprint. So that is actually very comforting that going forward, a similar challenge, we would -- if we were to deal with a similar challenge, we might be able to -- we may not have as many apprehensions as we had going into it last time.

Okay. Good. No, that's a good learning...

And I would just add that majority of our price increases due to inflation piece, which was a topic more, I would say, more relevant a year ago, is kind of done. It's all behind us. Now we have baked into pricing as a part of our regular customer review. So pricing changes could happen not just because of inflation, I would say, it could be happening due to various reasons, the payment mix could be coming very different versus what we envision when we sign the customer. Number of transactions could be very different what we envision when we signed the customer. So we analyze all these metrics what at the time, I say, after a few months versus when we signed the customer? And if any changes are needed, we reach out to the customers and we make the pricing work. So what I'm trying to say is it's more of an inherent process inbuilt into the company rather than just attacking the inflation management.

Okay. No, it's a new muscle for the company, which is good. We've been asking all the companies. I know it's hard to answer. You mentioned credit card and mix, of course, matters. We've been asking all the different companies here today, tomorrow, Wednesday, around the Visa, MasterCard settlement and the reduction in interchange and some changes in surcharging rules, what's your early thinking on impact of Paymentus?

First, if I may actually say this were that we enjoy a great partnership and great relationship with all card networks, Visa, MasterCard, American Express, Discover, PayPal, we have great relationships. And in terms of, I would say, broadly speaking, any time there is a reduction of interchange for any reasons. It's actually a benefit to the company. This settlement itself isn't very material in terms of the amount that is being reduced for the merchants. But it's nonetheless, it is going to be a benefit to us. In terms of the other part, which is surcharge and so on, we believe our approach, which has been right from our inception, which is being a consultative organization to our clients, how should they organize their customer engagement? And frankly, how they should collect money and what are the best ways to do that? And what are the most cost-effective ways to collect money? We are -- that continues to factor in even with the surcharge. So we believe that with our consultative approach, we will continue to have those type of discussions with our clients that how they could organize around new surcharge relaxed rules.

Good. Perfect. Right at the 15-minute mark, hopefully, as designed, but probably more lucky. Questions from the audience. I have plenty more questions, but let's take some questions if you have any or any on the portal? Yes, Andrew, you have one?