Tech Equity Research at Oppenheimer. Today, I'm joined by the Paymentus management team, including CEO Dushyant Sharma and Chief Financial Officer Sanjay Kalra. Dushyant, Sanjay, thanks for joining me today. Thank you, Rayna. Great, great to be with you. Great. So I'm gonna turn over to Dushyant to give a short introduction, and then we're gonna go into Q&A. We do wanna make this as interactive as possible, so if you have any questions for the Paymentus team, feel free to type it into the Q&A dashboard, and I'm happy to read the questions out loud during the session. So Dushyant, over to you. Well, thank you again for having us here. We are a cloud-based technology service provider for billing companies. These are your typical essential household bills, like utilities, insurance, auto finance, mortgage, healthcare, property management. Basically, typical household bills. We operate in a very big market, billions of bills, as we all know, and this industry continues to grow. We have built a platform and a business with tremendous opportunity to continue to grow. Since we have only captured... Despite our scale today, we have only captured a fraction of the market. So huge market opportunity, tremendous operating leverage, and tremendous runway. So, looking forward to this discussion. Wonderful. Why don't we start out with your financial targets and your long-term margin goals? Yeah. We have two primary financial metrics, and they also indicate our targets. One is the revenue, which is the top line growth. We expect our revenue annually to grow 20% plus, and our bottom line, which is Adjusted EBITDA dollars, that's our second primary financial metric, and we expect that to grow between 20%-30% annually as well. If you look at our CAGRs for the last 4 years, we've delivered more than 25% growth on both. And we plan to execute really well in this year. The most recent 2 quarters for this year, we have delivered well, but we are going ahead with our long-term targets of 20% top line and 20%-30% Adjusted EBITDA dollars. And the market is very strong for us, and we are seeing good progress. Excellent. Let's, let's move the discussion over to just the demand. What are you currently seeing... What, what kind of demand are you seeing in the environment, and, you know, given the current, macro environment, you know, how do you think that impacts your business? And, you know, just to further that question, if, if we do enter a recession, just talk about the puts and takes there. Yeah. Let me start with the demand first, and we'll get into the macro of the recession. I think if you take a step back and ask yourself that you know, even as a typical household, the non-discretionary part of... Or let me say it this way, that we service the non-discretionary part of the economy. 60% of a typical household spend is on non-discretionary household bills, and even in difficult times, people still have to pay their bills. And in times like these, which is where we are operating in, our business model, our pricing approach is actually very attractive, or let me say, mitigates to a certain extent the macro enterprise software market we are operating under. We charge for our service through just transaction fees. We don't charge license fees, implementation fees, and so on. So it becomes a pretty interesting model for the billing companies. They can look at us as a potential partner for the long term, who is delivering two most critical parts of the value proposition, which we have. Number one is we are improving their customer experience, and the second is we are lowering their cost to serve. And you know, in times like this, you're always looking to see how you can improve, how you can be more efficient, how you can provide better service, and how you can do it in a way that is not costing you a lot of money. And all of that is able to be achieved through our platform. So that's one of the sort of good things going for us. In addition to that is actually just based on the strength of our platform and the ecosystem we have built, we remain very attractive, even from a perspective when companies look at what they have today, they can consolidate a lot of the disparate systems with one unified approach of Paymentus. And in terms of the recession and how it impacts, I think if you look at recessions themselves, I mean, each recession has its own characteristics and personalities. So it's hard to know exactly what the next recession could look like. But if history is any teacher or guide, we look at our business, which continued to grow during 2008 to 2010, 2012. We continued to grow during pandemic, we continued to grow during inflation as well, and made adjustments to our pricing strategy as well, to and demonstrate to the, to the investors that we can actually bring the relief we needed on the pricing side. So, so we feel like that we have capability. First of all, the market we operate in, which is non-discretionary side of the market, and the second with the platform and the pricing strategy, I think we are well-positioned. Understood. Over the last several quarters, you have experienced strong bookings trends, including with large enterprise billers. Who are you winning business from, and how are you able to gain market share? I think it's frankly it comes down to our basic simple perspective that we are all about simplifying bill payments. In other words, we are bringing simplification through innovation. And what I mean by that is, if you look at it from a billing company's standpoint, they are always under pressure. They are by and large providing services ahead of time, and then they're collecting money after they've already provided the services. And as a result, what that means is they have to be really efficient in communicating the billing information at the right time, and then being able to collect that information, collect the payments at the right time. So from all of their customers, not just the ones who are hitting their website. With our model, with our approach, and our ecosystem play, it is very, very attractive for the billing companies. So that remains a strong tailwind for us, just based on the technology and the platform and the innovative ecosystem we have created. On top of that, the people who we are displacing and who we are winning against, it's everyone. We are sort of... From that perspective, we are indiscriminate, if you will. The legacy providers, we are replacing them, but we also are more increasingly so becoming an attractive alternative to in-house solutions. So even the large companies, which were more prone to doing things in-house, they are now looking at Paymentus as a very attractive alternative, just because the capabilities and the functionality and the ecosystem we have built is not easy to replicate. And second, the business case and the pricing model we have put together becomes very interesting. The ROI is pretty easy to see. And there's not a lot of investment required to early on from the billing companies side to get on our platform. Sanjay, you want to add anything else? No, I think you pretty much covered. But overall, I think one strength of the business, which kind of is highlighted in various aspects of the questions and what we are gonna talk today, is that this business is mainly providing for clients, which are providing non-discretionary services. So whether it comes to recession or whether it comes to the growth, I think bills need to get paid. And we are actually agnostic to any vertical, which actually is the biggest strength we have. Initially, we started in utilities, but we moved on to multiple other verticals, whether it's insurance, financial services, government, telecommunications, healthcare, and I think that piece also is helping the business in various aspects. Understood. Who do you think are your main competitors here, and what do you think differentiates Paymentus from them? Yeah, I think some of the things we talked about is modern technology platform, the unification of all of the different services we provide, from not just payments. We also provide customer engagement capabilities, not just one channel, across all channels, and not just one dimension, across multiple dimensions. For example, on our platform and using our Instant Payment Network, which is proprietary to us, you can make a payment to the billing company directly on their website. You can make a payment using their phone system, which is powered by Paymentus. You can make a payment using mobile phone. You can receive information on your mobile phone. You can walk into a retail store, make a payment using cash. You can go to a bank's website, make a payment, or a fintech app. So we feel like that this is actually a pretty pervasive capability, or a broad capability, which a billing company is not able to get, in our view, anywhere else. Okay, and like, when you, you know, go through an RFP, who do, like, who are the main competitors, that you, you know, typically run into? All the conglomerates you can think of, you know, all the legacy providers in the payment space generally. Like the FIS, Fiserv? Yeah. All of these, all of these folks. Yeah. Got, got it. Okay. How does your overall sales pipeline look today versus a year ago? Well, the pipeline is pretty strong at this point, and in our current pipeline, including actually current backlog for that matter, it includes various sizes of billers, whether they are large, midsize, or small, and it includes multiple verticals as well, you know, whether it's utilities, financial services, insurance, government, and healthcare. And at the same time, we are seeing a good mix of demand from direct, from our direct channel as well as indirect channel, and I think we are going pretty balanced across the board. So pipeline is very strong, and we've seen trends in the since past few quarters of improving trends for pipeline as well as backlog. ... Got it. Okay, you both, both of you touched on this a little bit, but just wanna dive a little deeper. Could we talk about the company's vertical mix, and if you can talk about which areas you think, you know, could produce rapid growth and have the most opportunity here? Yeah, among the various verticals we talked about today, utilities is our largest vertical. That comprises approximately 50% of our business. But we've got other verticals as well, which the bigger ones, I would say, would be insurance, financial services, and then telecommunications and healthcare. And as times are passing by, we are seeing more opportunities for other verticals as well, not just utilities. We are seeing a good growth and balanced growth in all. How have implementation cycles been trending? It sounds like they've been improving. Is onboarding a very heavy cost for you, and are there investments you're making that could improve implementation time from here? Our implementation and onboarding process is getting better, as times pass by. During the COVID time, it was in a situation where it was taking more time to implement, given that not everybody was working from office, and I think that had an impact on our implementation pace at that time. But now we are back on track. In fact, we are back on the pre-IPO and pre-COVID days for implementation, and processes are getting better and better every day. In fact, Q2, the most recent quarter we just closed, had the least number of days in terms of time it takes to implement a particular biller. So overall, we are seeing improvement. And we've developed this area over a few years as well. We made significant process improvements also, in terms of our investment in the technology and, people and processes, and that's all, working out. I think we are at a very good place right now in terms of automation, which we have deployed in the workflows as well, to continue on our implementation process improvements. There are still, some improvements we are working on, and there is an opportunity for us to make it even more better, but at this point, we feel pretty good about the implementation as we are back on pre-IPO, pre-COVID days. Makes sense. For people who are newer to your business, just talk about the key growth drivers to your business, and I'd like to understand if same-store sales is a big contributor here. Yes, you're absolutely right. Same-store sales growth is the biggest contributor, and we've got a large biller base, and we have long-term contracts, so we are seeing growth every year from the existing billers. And that definitely is derived from the digitalization tailwinds, which we are experiencing. And as new generations comes on board and online, they would like to pay more using the latest platforms, using better user interface than the legacy methods or the previous manual methods. So we are seeing same-store sales growth, which is the largest driver for our growth. But then at the same time, the new biller bookings which we get, and they get implemented, that's the second source of our revenue, and that's working very well. As we discussed, the implementation pace is better. So that growth is adding up, together with getting the right mix of billers as well. And we are also actively working on making sure that our prices are the right prices. We are entering into contracts with the billers, and we do regularly review them in terms of are we getting the desired results, which we expected at the beginning of the deal. So if there are variations among them, we do and go work with billers. So pricing strategies is one other area we are looking at, and we work very closely with our billers to make sure we are getting the right prices. So- How long are those biller contracts, and on average, how many years? Well, they range from, I would say, around 5 years is the right average, but they range even higher than 5 years at times, and a little bit less than 5 also. Got it. Okay. So on renewals, you're getting some pricing benefit, you think? Well, we definitely look at pricing at the time of renewal, but during the interim stage also, we can take a look at it, and we can work with our billers if things are moving in that direction. We don't necessarily have to wait for renewals. Got it. Who are your key channel partners, and what's your distribution approach? I would say, our distribution approach is that anyone who's part of the ecosystem for a billing company, we want to figure out a way to partner with them, and hopefully have them participate in making the customer experience better. So what that means is, software vendors which service the billing companies, they are important partners to us across various industries and verticals. Likewise, banks, who also provide services to these clients, our clients, billing clients, they, they're also our partners. Likewise, some other fintech companies who we partner with, who also provide services to them. So we are looking at all across the board. So we have a pretty strong partnership ecosystem today, and frankly, it's working even progressively contributing more and more to our growth, in addition to our direct efforts, which is also very strong. What, what percentage of your business is direct versus partner? I don't think we have disclosed publicly the actual numbers, but they're very encouraging on both sides, as you can see from some of the growth we are experiencing right now. Got it. Okay, shifting gears to, you know, capital allocation. What are your main priorities over the next 12-18 months? Well, let's say the capital allocation priorities have been consistent across, past few quarters, and I would say years as well. Organic growth is our biggest priority. We have a huge pipeline in front of us. We have a very small share of market right now. If you look at last year's data, Paymentus has only 2.7% of market share, and the market is huge, like 16.8 billion bills, in a year. So given the size of opportunity in front of us, organic growth is our number one priority, and that's where we are gonna spend, when time comes. We have a decent cash on the balance sheet, and we have already started taking actions on that. Starting Q2, we've started putting more money on sales and marketing expenses, as that's gonna give us the biggest return on our cash in the outer periods. So that's our number one priority. At the same time, the cash is good we have, and if there a good M&A opportunity comes up, we will take a hard look at it. And we have not been able to do so till now. We are very cognizant of the kind of risks on M&A as well, so we are taking a very conservative posture in terms of what makes sense, and we will take the right decision when a right opportunity strikes. At this point, we don't have any roadblock or any gap in our roadmap for the company for features which we need to look for for any acquisition. So far, we are good. Got it. Going back to my previous question just on verticals. Are there any verticals you're not in that you think you can use your technology to service? Say it again. So any verticals we're not in, Thank you, you think you can enter? Through acquisition or just generally you're talking about? Um, both. Oh, I see. No, we, we're always looking at opportunities. There are some nascent verticals we are working in now. Healthcare is one of them, and there are other verticals as well, we are making investments in. The way we have designed our business and the platform, and frankly, our go-to-market strategy, it's based on the fundamental principle that our platform is designed to be vertical agnostic. We can get into any vertical, and using the same code base. And any change we make to our platform to accommodate for one vertical, it should be available to all verticals, just based on how we have designed our overall platform. The reason for that is actually what you will find, and one of the reasons your earlier question was that, why are we growing and why the demand remains so strong, is because of the way we thought through some of these things early on. And as a result, our platform from ground up has been designed to make sure that we don't have versioning issues, which a lot of companies face. We have a utility version, we have a healthcare version, and then run up and go and buy a company to service a third vertical. And eventually, what that also starts to morph into is your organization as well. Your engineering organization becomes separated, your, how you service your platform is also different. Or maybe a better way to say this would be a very simple perspective, is that you cannot build an efficient organization if you have a myriad of vertical service to a myriad of solutions. You need to have one platform which delivers to all the verticals. And since that is our approach, we are able to actually enter verticals by either through partnerships or through great storytellers who have done it before. There isn't a vertical we are looking at right now, which to Sanjay's point earlier, that which will help us through acquisition or whatever, but I think we'll take an opportunistic view on it. Got it. It's really helpful. We have a question from an investor. I'll read it out loud. You recently spoke about larger enterprises moving away from in-house solutions. Can you talk about what's driving larger enterprises to outsource billing solutions? Yeah. I think one of the key things, if you think about from a large enterprise perspective, the previous mindset used to be that we could do it in-house because we have the technology resources. No one can serve our own customers better than anyone else can. And that was true to a large extent just because the solutions weren't available, which were able to provide a holistic view and a holistic experience to the customers. Since we have taken a very different view, in some ways a harder path, and that's why it took us a while to build a great platform here, is to... We have a platform that in some ways we have built through crowdsourcing. We went to our clients, we are listening to our clients, we are understanding what they needed, what they wanted, and build those capabilities, and stay true to our platform purity mantra, that we are going to build a great platform by actually building capabilities in it... and today where we sit, right now, I mean, it's not easy to get the capabilities that Paymentus has built by any team, in a reasonable period of time. And when you combine that with our IP and ecosystem, the Instant Payment Network ecosystem, it's virtually non-replicable. And as a result, what's happening is when a large enterprise is looking at a partner for next ten years, they are looking at could Paymentus actually address the needs of their customers but then also fit the profile of the type of partner they would want to partner with. Mm ... so that, is reliable and dependable? And when they look at our public company profile and doing as well as we are doing, we are a profitable company, a strong balance sheet. It's all very attractive for the billing companies. So that's why, they're willing to trust us with their customers and their money. Understood. You know, I noticed that your quality of earnings is, it seems, you know, very, very, very high, solid cash flow, limited stock comp. You don't really have many add backs, and that's kind of an anomaly in the payments industry. So why is that? Well, I think the biggest strength of the business is that this platform is the same platform for any vertical. And what that eventually translates into is that the operating leverage on the business is very high. We don't have to spend as much of OpEx every year as some other companies might need to. And in fact, any OpEx we spend is not for the same particular year in which we are spending. It's for outer years. So I think that is one of the biggest reasons why the financial performance is strong, as whatever revenue we generate, that majority of it converts to gross profit or contribution profit, and a big piece of that is reflected to the bottom line. And in the past few quarters, we have also started disclosing the incremental Adjusted EBITDA margin to give a sense of how strong the operating leverage is. In the most recent quarter, we saw our incremental Adjusted EBITDA margin was 49.1%, compared to total Adjusted EBITDA margin of 29.5%. So having a 20 points of buffer is pretty flexible and pretty significant for us to operate and make decisions to spend. And one other aspect of this operating leverage is we can flexibly spend it, and we have that flexibility, which a lot of companies might not have. And that's what has been proven time over time, that we can deliver the desired Adjusted EBITDA by managing our spend, as none of the spend is needed. We interestingly deal with non-discretionary payments, but we have a lot of discretionary spend, and that's what we manage the business to quarter-over-quarter. We calibrate our spend together with the Contribution Profit to deliver the desired Adjusted EBITDA, and that has been helping, and the quality of earnings is better. It's a good cash generation as well. I mean, we have $192 million cash. Last year, we generated a significant amount of cash, and this year also is gonna be a good cash expectation. This quarter, we had around $8.8 million cash generation. As you correctly pointed out, our stock comp expense is fairly limited, and our add backs are fairly limited. We manage all the expenses really well, and that's, that's the benefit we are getting, in a combined effect for all of these. Understood. What is your financial outlook for the remainder of this year, and then, you know, as we exit 2024, how's it looking for 2025? Well, we are very optimistic for how 2024 is gonna close. We have a very strong backlog, a very good implementation base, and our same-store sales growth, what we have seen in the most recent two quarters, have been phenomenal. So we are very confident in terms of how 2024 is gonna look. In fact, we have kind of given a long-term view of the business as well, which could apply to next year also. Our top line growth of 20% and our bottom-line expectation of 20%-30%, that's kind of we have shared, and people could take that as a view of longer term also. And, we feel pretty, pretty good about what we have delivered, and we think that cadence is gonna continue. We've recently, in the last week, in our earnings call, gave the guidance for Q3 and full year, and we think, we will come within our guidance range. We take a very prudent, very thoughtful approach in how we guide, but we feel pretty strong about, overall business and, and what we should expect to see. Understood. You know, you have a very unique technology, and, you know, Dushyant, you... I know you sold your previous business, to Metavante, now, now part of FIS, as we know. Is there an opportunity here for Paymentus to be part of a larger, you know, payments business? Well, I mean- That makes sense here. I mean, that was one of the things I was trying to allude to earlier, that being independent public company is very attractive to large enterprises. As far as we are concerned, I think our goal is to build be the large payment company. So we are a disruptive engine today in the market, and we are having a lot of fun. I mean, and our goal is to continue to grow our not only market share, but also our total addressable market. And as we have talked about it publicly, that we are not just doing payments, we are also doing payouts now. We are doing disbursement, we are doing payout capabilities, and not just doing B2C, we're also doing B2B. So when you start to take a look at that, and combine that with our innovative culture and the platform, I think we feel like that our best future or best shareholder returns would be through an independent, large Paymentus. Got it. Okay, we're getting towards the end of our session, so I have one final question. It's two parts. What are you most excited about in the next 12 to 18 months, and what also worries you the most? I think the... let me start with the worries. I think we, we feel like that we, we are in a decent position relative to the macro environment. We went through a difficult phase with inflation, which was sort of unprecedented inflationary times for the entire industry. And very proud of the team and very proud of our, in some ways, the type of customers we have, who understood what we were doing and what our strategy was, and why we did what we, what we did, and how we were approaching the pricing strategies. And, so we feel very good about where we are. In terms of the excitement, and we're looking forward to, I think we find ourselves in a pretty interesting inflection point. Everything we set out to do, and we were forecasting, it, from a competitive landscape perspective, is actually happening. So we find ourselves in a pretty good position. Huge market, great backlog, huge pipeline, a tremendous TAM, and very excited team, very experienced team, and a tremendous culture of performance. Frankly, in this market, I want to make sure it is heard by the investors, the frugality. Paymentus is a very disciplined, frugal company, yet high growth-centric execution. So when you put it all together, I think there's tremendous excitement, and there's more to come in terms of innovation as well. Excellent. Well, Dushyant, Sanjay, wonderful speaking to both of you today. Really appreciate the time. If anyone has any questions for Paymentus' management team, feel free to email me and I'll circle back. But otherwise, enjoy rest of your meetings and rest of your day. Thank you. Thank you very much. Thanks, Rayna. Appreciate it. Appreciate it. Bye-bye. Bye-bye.