Paymentus Holdings Inc (PAY) 2024 Q1 法說會逐字稿

Good day and welcome to the first quarter 2024 Paymentus earnings conference call.

This call is being recorded

(Operator Instructions)

I would now like to turn the call over to David Hanover, Investor Relations.

Please go ahead.

Thank you.

Good afternoon, and welcome to Paymentus first quarter of 2024 earnings call.

Joining me on the call today is Dushyant Sharma, our Founder and CEO; and Sanjay Kalra, our CFO.

Following our prepared remarks, we'll take questions.

Our press release was issued after the 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 webcast will 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, the impact of and our ability to adjust continued economic and geopolitical uncertainty, our market opportunities, business strategy, implementation, timing, product enhancements, impact of acquisitions and other matters.

The 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 captions Special Note Regarding forward-looking statements and Risk Factors in our annual report on Form 10-K for the year ended December 31, 2023, and our subsequent quarterly reports on Form 10-Q, including our Form 10-Q for the quarter ended March 31, 2024, which we expect to file with the SEC shortly and elsewhere in our other filings with the SEC.

We encourage you to review the detailed forward-looking statements, 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, non-GAAP operating expenses, adjusted EBITDA, adjusted EBITDA margin and non-GAAP net income and earnings per share.

These non-GAAP financial measures, which we believe are useful in measuring our performance and liquidity should be considered in addition to and 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 of the most directly comparable GAAP measures in our earnings press release issued today and the supplemental slides for this webcast, each available on the Investor Relations page of our website.

With that, I'd like to turn the call over to Dushyant Sharma, our Founder and CEO, Dushyant?

Thank you, David.

We are off to a strong start in 2024 with a great first quarter.

We delivered year-over-year growth in revenue, contribution, profit and adjusted EBITDA, all ahead of our long-term target of 20% top line and 20% to 30% adjusted EBITDA growth.

We continue to have substantial momentum in 2024, which gives us added excitement about the remainder of the year and our long-term prospects.

In the first quarter of 2024, Paymentus again delivered results that exceeded our expectations.

First quarter revenue was $184.9 million, up 24.6% year-over-year.

First quarter contribution profit was $69.4 million, up 29.6% year-over-year, our strongest growth in six quarters.

Adjusted EBITDA, which as many of you know, is a significant financial metric for us, was $19.8 million, up 135.5% year-over-year.

In addition to these outstanding results, we also exited the first quarter with strong bookings and a strong implementation backlog that we believe position us quite well for a strong 2024.

In the first quarter 2024, we added $15.9 million in contribution profit over the same period last year.

At the same time, we dropped $11.4 million or 72% of that growth to adjusted EBITDA.

We are pleased that over the past few quarters, we have continued to drop a significant majority of incremental contribution profit dollars to our bottom line.

We believe this demonstrates a key strength of our operating strategy as well as our ability to consistently expand our operating leverage without sacrificing growth or innovation.

Execution of our disciplined strategy has once again allowed us to surpass the Rule of 40 doing so by a wide margin this quarter at

[58].

As we have shared previously at Paymentus, our goal remains to continue delivering high-quality earnings alongside solid top line growth.

We are proud of what we have achieved to date and over the last several quarters, and we expect to continue to execute our strategy and deliver long-term top-line and adjusted EBITDA growth.

Now I'd like to share some of our key first quarter business highlights and accomplishments.

As I mentioned earlier, we finished Q1 2024 with a strong backlog and are very pleased with our year-over-year growth.

Of course, all of this continues to be driven by the strength of our technology platform and our IP and ecosystem, which enables our clients to participate in a broad and diverse network by merely integrating onto our platform.

Turning specifically to client activity, this was a great bookings quarter for Paymentus, both in terms of aggregate annual contract value and the number of clients signed.

During the first quarter, we signed several notable and large new clients in variety of verticals, including utilities, general services, transportation and logistics, government and financial services.

As you can see from these bookings, our omnichannel platform allows us to continue to broaden our customer diversity and gain traction across new industries.

Another area we continue to focus on is the implementation and onboarding of our strong backlog to drive even further growth.

This effort is progressing well, and in order to support this, we continue to make incremental targeted investments in this area in both staffing and technology.

We believe these investments, along with continually improving post-pandemic conditions, allowing for a more in-person collaborative process, provide a good tailwind for us in this regard.

We are realizing the benefits of our focused strategy and these targeted investments, as evidenced by our success in implementing and onboarding new clients during the first quarter, including the launch of several large clients across various verticals, including multiple utilities, insurance, government agencies, and financial institutions.

We expect to make further progress in this area throughout 2024, consistent with our growth plans and internal targets.

In addition to the financial execution of our core business, we continually think about ways to increase long-term shareholder value through what we call a strategic execution.

One such example is our recently awarded patent on artificial intelligence.

As you know, integration is one of our key strengths, and we have done thousands across a number of industries, resulting in deep experience and integration assets.

Well before AI was mainstream buzzword, we conceived and filed a patent for an AI based integration framework, which when combined with our significant experience and assets can bring tremendous operational efficiencies internally while at the same time provide our clients an ability to expand their use of our platform by integrating more of their processes with us.

And the reason we are talking about this is threefold, first, we believe this demonstrates our forward-thinking culture looking ahead with a strategic focus on both defensive and offensive market strategies.

Second, this AI based framework when fully integrated into our mainstream onboarding processes is expected to add additional benefit towards onboarding experience and speed in the outer years.

And third, we believe the prudent deployment of AI generally can play a central part of our strategy, both internally by enhancing internal operating efficiencies and externally by enabling our clients to improve the customer experience and efficiencies.

We believe that this type of strategic execution is possible primarily because Paymentus has the rare trade that usually exists in large tank companies.

Our business has unique in a year of visibility to deliver consistent shareholder returns, but also allows us to execute strategically to create additional long-term shareholder value.

In closing, we are proud to report another period of outstanding results that were ahead of our original expectations.

At the same time, we continue to demonstrate our ability to increase operating leverage without sacrificing revenue growth or innovation.

We also ended the quarter with a strong backlog and solid sales momentum, giving us greater visibility and confidence in our prospects for the balance of the year.

We intend to remain focused and disciplined in onboarding our strong backlog, which we expect to continue to fuel our future growth.

Now let me turn it over to Sanjay to review our financial results in greater detail.

Sanjay?

Thanks, Dushyant, and thank you all for joining us today.

Before I discuss our first quarter results and our second quarter and full year 2024 outlook, I'd like to remind everyone that the financial results I'll be referring to include non-GAAP financial measures.

As David mentioned earlier, our Q1 press release and earnings presentation includes reconciliations of the non-GAAP financial measures discussed on this call to their corresponding GAAP measures.

Both of these are available on our website.

Turning to slide 5.

For the first quarter of 2024, we started off the year with another quarter of very strong financial results, driven by higher transaction activity from both new and existing bidders.

We believe these results continue to demonstrate their resiliency, stability and strength of our business.

Our first quarter results included revenue of $184.9 million, contribution profit of $69.4 million and adjusted EBITDA of $19.8 million.

Our results came in higher than we originally expected, and I'll discuss the drivers of our outperformance and strong business momentum in more detail shortly.

This enabled us to once again exit the quarter with a strong backlog and cash position.

Now let's review our first quarter financials in more detail.

As I mentioned earlier, first quarter 2024 revenue was $184.9 million, up 24.6% year-over-year.

This growth was largely driven by increased transactions from existing billers, the launch of new billers and increased activity from our Instant Payment Network or IPN business.

The number of transactions we processed grew to $135.3 million in the first quarter, up 24.7% year-over-year, largely in line with our revenue growth, largely in line.

Our average revenue per transaction remained flat at $1.37 year-over-year despite the addition of many large billers throughout the past year.

First quarter 2024 contribution profit increased to $69.4 million, up 29.6% year-over-year.

This year-over-year increase in contribution profit reflects higher transactions from existing billers and the launch of new billers.

Contribution profit in the first quarter of 2024 surpassed our expectations.

In fact, it was our highest quarter in terms of year-over-year growth across the past six quarters.

This outperformance during the quarter was primarily driven by higher transaction growth than we had initially expected and reflects growth from three key factors.

First, we saw growth from existing billers who are seasonally strong in the first quarter, primarily due to adoption success.

Second, we saw increased transactions from new billers that were launched in the quarter with incremental transactions driven by seasonality.

And third, we realized the benefit of improved pricing from some billers as a result of our ongoing pricing review.

Contribution profit per transaction for the quarter was [$0.51], which was an improvement from $0.49 in the prior year period, primarily due to repricing efforts and better mix, reflecting that the new implementations during Q1 '24 had improved contribution margins versus the prior year period.

As we have stated in the past, we view contribution profit as a secondary performance metric because it is subject to variables outside of our control, such as an increase in the average payment amount, changes in the payment mix, biller mix, CPI, and card network fees, et cetera, that can significantly influence and diminish the utility of contribution profit on a quarterly and per transaction basis.

Q1 2024 adjusted gross profit was $57.6 million, up 31.9% year-over-year, slightly ahead of contribution profit growth as we have started benefiting from economies of scale.

First quarter 2024 non-GAAP operating expenses increased as expected to $40.3 million, up 7.2% year-over-year.

This increase was primarily due to increased sales and marketing expenses and research and development expenses net of savings realized in general and administrative costs.

We expect further increases in sales and marketing expenses throughout the year as we continue to focus resources on the execution of our go-to-market strategy and increased investments to support conversion of our strong pipeline into bookings and onboarding of a strong backlog.

These expectations are already incorporated in our guidance, which I'll review in more detail shortly.

First Quarter 2024 non-GAAP net income was $12.2 million, or $0.10 per share compared to non-GAAP net income of $5.1 million or $0.04 per share in the prior year period.

First quarter 2024 adjusted EBITDA was $19.8 million, up 135.5% compared to $8.4 million in the prior year.

First quarter '24 adjusted EBITDA represented 28.6% of contribution profit compared to 15.7% of contribution profit in the prior year.

This very strong quarterly performance compared to the guidance we previously provided was primarily driven by strong growth in contribution profit and economies of scale.

Approximately 72% of our year-over-year growth in contribution profit fell to the bottom-line adjusted EBITDA, demonstrating the inherent operating leverage in our business.

Related to this, once again, we also exceeded the Rule of 40 for the quarter, coming in at approximately

[58].

This is a measure we take very seriously, and our team here monitors it very closely.

This is our fourth consecutive quarter exceeding the Rule of 40.

Now I'll discuss our balance sheet and liquidity position on slide 6.

We ended the first quarter with cash and cash equivalents of $184.2 million compared to $183.2 million at the end of last year.

The $1 million increase was primarily comprised of $11 million of cash generated from operations, offset by $9.5 million used in investing activities, primarily internal use capitalized software used to drive growth and innovation.

And $0.5 million for financing activities, primarily for settlement of holdback liability for prior acquisitions.

Note that the cash generated from operations of $11 million is net of $8.6 million invested in working capital, which is a normal seasonal trend as majority of prior year end accruals are paid out during the first quarter.

The company does not currently have any debt.

Our free cash flow generated during the quarter was $1.6 million.

Our days sales outstanding at the end of Q1 was 41 days compared to 43 days at Q4 2023, within our expected range.

Working capital at the end of Q1 was approximately $217 million, an increase of approximately 5% from the end of Q4 2023.

We had 126.9 million diluted shares outstanding for the three months ended March 31, 2024 compared to 126.5 million diluted shares outstanding for the three months ended December 31, 2023.

The increase was largely due to improved average stock price during the quarter and to some extent due to vesting of employee restricted stock units and the excess size of stock options.

Now I'll turn to our revised full year 2024 and Q2 2024 guidance for revenue, contribution profit, adjusted EBITDA on slide 7.

Before discussing full year guidance, I want to mention that we are continuing to follow the same prudent approach to guidance that we followed during 2023 as there is still a degree of uncertainty around the larger macroeconomic and geopolitical environments.

For the full year 2024, we now expect revenue in the range of $737 million to $755 million, up 1.9% from midpoint of previous guidance.

Contribution profit in the range of $281 million to $293 million, up 2.1% from midpoint of our previous guidance.

And finally, adjusted EBITDA in the range of $71 million to $79 million, up 7.1% from midpoint of our previous guidance.

As reflected on the right side of the slide for Q2 '24, we now expect revenues in the range of $178 million to $183 million.

Contribution profit in the range of $68 million to $70 million and adjusted EBITDA in the range of $17 million to $19 million.

During our past few earnings calls, we have provided long-term growth targets for both revenue and adjusted EBITDA over two primary financial metrics.

We stated that our goal was to grow revenue at approximately 20% annually and to grow adjusted EBITDA dollars between 20% to 30% annually.

The guidance we have provided today for the full year 2024 reflects the expected achievement of the long-term targets.

Regarding contribution profit and operating expenses, which we consider secondary financial metrics, we plan to actively manage our operating expenses, dialing them up or down as necessary, depending upon how contribution profit is trending throughout the year to enable us to remain a Rule of 40 company on an annual basis.

We managed this quite well in 2023 and in the first quarter of 2024, and we believe we are well suited to manage this again in the current year given our strong operating leverage.

In summary, we reported exceptional Q1 2024 results.

Throughout the past four quarters, we have consistently demonstrated our ability to generate strong revenue contribution, profit, adjusted EBITDA, cash and bookings growth.

This enabled us to end the first quarter with a substantial backlog.

Based on a solid footing and strong visibility, we continue to believe we are well positioned for 2024.

Thank you, everyone, for your attention today.

And now I'll turn it back to Dushuyant for final remarks before we open up the call for questions.

Thanks, Sanjay.

In closing, we entered 2024 with a solid momentum from last year.

And once again, I'm extremely proud that our team has come together and achieved first quarter results that were significantly ahead of our original expectations.

I believe this performance illustrates the strength of our operating model, our innovative technological platform and the resilience of our business despite the difficult macro and geopolitical environment.

Sanjay just covered our guidance for the full year and the second quarter 2024.

As I shared earlier, we feel very good about this guidance based on our performance to date and the strength of our backlog.

And as I reflect on the overall business, especially as an investor, I feel great about where we are headed.

We believe we have all the pieces necessary for long-term success and that we are just getting started.

In essence, we have built, and we are building something very special here.

On that note, I also want to thank all of my team members for their continued efforts and dedication and that concludes our prepared remarks.

I'll now open up the line for questions.

(Operator Instructions)

John Davis, Raymond James.

Good afternoon, guys.

Dushyant and Sanjay, I wanted to start on EBITDA margins, came and nicely ahead this quarter expanded about 1,300 basis points year-over-year.

Obviously, it cant get tougher throughout the rest of the year, but the guide implies margins were going to be down year-over-year and back three quarters, if you will.

So maybe talk a little bit about some of the stuff you're spending money on.

And I appreciate some of that's conservatism, but just trying to understand the puts and takes on margins through the rest of the year, given the full year guide?

Yeah, John.

I would say that adjusted EBITDA margin, they definitely came very strong in Q1, 28.6%.

And for the full year as well, at the midpoint you'll see we are at 26.1%, that's what the guidance would imply.

This is still an improvement from last year what we delivered for the full year.

I would say during the quarter, things could move around.

And I would say in Q1, while in operating expenses, which is one of the reasons which you will see that is slightly changing.

Q1, we have still not caught up with our operating expense plan, we're up only 7.2% year-over-year.

Last year, for the full year, we were up 6.8% on OpEx year-over-year.

And as we guided earlier just two months ago, operating expenses plan for the whole year was to go [mid-10s] percent up year-over-year.

So we have some catch-up to do in the remaining three quarters.

That said, we are assuming we will be able to catch up for the entire OpEx plan in the year.

We will have to make progress there and we are actively seeking candidates to fill the right positions, which is mainly in sales and marketing.

So that's I would say the biggest piece where you'll see a slight softness compared to Q1 and out of the quarters.

But again, the whole guidance is prudent based on all the macroeconomic factors and the geopolitical climate we all are in.

So it's prudent, I would say.

That said, we are marching on full plan to execute and deliver a strong year.

Okay, great.

Just one other quick kind of guidance modeling question.

So the 300 basis points [de-sell] in the 2Q revenue guide, I think makes sense given kind of your historical practices around revenue guidance, but it also implies a 1,400 basis points de-sell, I think from 30% to 16% and CP growth.

I'm just curious kind of what are the moving pieces there?

Why the contribution profit growth so much slower in 2Q versus the revenue kind of de-sell for the second quarter?

Yeah, John.

I think there are two questions, one on the revenue and one on contribution profit.

Let me take one at a time.

I would say revenue generally, when you look at Q1 and Q2 trends of the past year's, Q1 and Q2 are pretty much similar because Q1, we get benefit due to seasonality.

But in Q2, seasonality is not there, but the pickup due to implementations.

That said, Q1 and Q2 are generally similar on top line i.e. revenue.

This year, what we experienced was our seasonality in Q1 was much better than expected.

And hence, Q2 looks like it's a small few basis points drop, but had that strong seasonality not happened, you would have seen Q2 growing.

That said, Q2 guidance is still up year-over-year at midpoint more than 20%.

And we feel pretty good about how we are going on that and still we are not factoring lot of implementations which are in outer part of the year.

But if things go well, the way it went in Q1, we might see an upside there.

We are following a prudent approach.

Let me go on the second part of the question on contribution profit.

And this stems basically from why we called contribution profit as our secondary metric.

And the reason is John -- and as we've tried to explain earlier, quarter-over-quarter contribution profit could bounce around a little bit due to multiple factors, and that's one of the things which is not totally under our control.

There's increase in average payment amount, changes in payment mix, biller mix, all these -- primarily billing mix, I would say.

This could make it happen that one quarter look stronger, the other quarter does not.

And while I'm on that topic, I'd also like to say in Q1, we saw approximately 30% contribution profit growth year-over-year, which is higher than the revenue growth of 25% approximately.

It has happened in the past as well.

In fact, last year in Q3, it happened and Q1 and Q2 of '22 it happened.

So at times, it could be higher than revenue.

At times, it could be lower.

But to end at topic, I would say for the whole year, revenue and contribution profit both are more than 20% and they both are pretty much closely aligned.

And we are trying to still take a conservative posture in the calculation of contribution profit.

And at midpoint here, we are on the Rule of 40 scale in the mid-40s.

We are

[45 and 45].

I hope that helped.

It does.

And one quick one.

Last one for Dushyant.

The IPN you had called out in prepared remarks is a contributor to growth.

Just curious for kind of a quick update there and just how are you guys willing to share?

What percentage of revenue that is today or it was notable that you had called it out in the prepared remarks has contributed.

Just curious for an update there?

The IPN continues to actually fuel our sales momentum.

As you can see, we have a strong bookings backlog.

We had a strong bookings quarter in Q1 as well, actually a very strong bookings quarter.

And billing community in general wants to participate in the platform and the ecosystem by simply integrating.

The one integration with our platform and having access to it very diverse and broad set of network access points so they can reach the entire customer body.

So that actually contributing toward growth.

IPN itself is growing and growing well and still it is not over 10% of our business, but it's growing well and contributing well to our business.

Great.

Thanks.

Dave Koning, Baird.

I guess my first question, your net revenue per transaction was up nicely year-over-year.

I know it was a pretty easy comp.

But historically, the last few years usually net revenue per transaction has come down as you've grown. what's the reason behind that?

And maybe as part of that network fees have been down, which is nice.

Does that continue and keep helping that net revenue per transaction?

Yeah, Dave, I would say there are two pieces to it.

One is that the new billers we have launched in the quarter which had a good seasonal impact.

There were signed up at better ARPUs or said differently, a better revenue per transaction, which kept the revenue per transaction was flat.

Otherwise, generally, you see that becomes soften as well, given we are signing large transactions.

So that was one contributor.

And the other two, as you correctly pointed out, the network fees was a little low as well, that came a little soft.

And given all the activities we have done in the last one year to manage that better.

So overall, I think both these factors are contributing, which are helping getting the net contribution profit per transaction better year-over-year.

Okay.

Thank you for that.

And then one other thing I just noticed, for several quarters you've had a very low tax rate, and it looked like this quarter, it was about 33% or so.

Is that the number to think through now that you're like really profitable?

Or is there some other rough tax rate we should be using?

Dave, I suggest for modeling purposes, please use 25% of non-GAAP net income as the tax rate going forward.

Got you.

Okay.

Well, thanks, guys.

Great job.

Thank you, Dave.

Darrin Peller, Wolfe Research.

Hey, guys, thanks.

Can we touch a bit even qualitatively on the customer mix and how it's looking today versus this time last year, just given the growth in new verticals and both the SMBs and across SMBs and enterprises?

And maybe just a little more on how implementations with large banks are going?

What's your pulse on the desire for adoption?

I know you touched obviously on the IPN, but maybe some larger partners like JPMorgan and others.

Thanks, guys.

Sure.

Darrin, Great question.

The customer mix itself actually -- before I go there, let me just -- I was alluding to earlier that we are seeing great momentum and demand for our platform and the ecosystem and across the board and across the board even in terms of the industry, the size of the customers.

Utilities remains a very important vertical for us and a key vertical, but we are making progress -- great progress in many, many other verticals, whether it's insurance, government services, consumer finance, banking and so on.

And the customer mix itself, actually, the actual customer size is also increasing.

The type of customers we are able to attract now to the platform would be those many times they never thought they would be outsourcing just because they couldn't find a platform as sophisticated and frankly, as capable as our platform as they review the alternatives.

So we are seeing some of the larger companies as well.

In addition to that, I would say, as we shared in the prepared remarks in this quarter, not only we were excited about the bookings we did in terms of the average or the total contract value or the annual contract value, we also saw the number of clients being pretty robust as well just because the variety of clients who are signing with our services -- for our services.

And in terms our large bank partnerships, they're going really well.

And we are very proud of the partnership.

We have JPMorgan -- JPMorgan Chase.

And in terms of the IPN itself, it continues to remain strong and demand continues to remain strong especially in the mid-tier bank and the credit union markets.

Thanks.

A quick follow-up on the merchant settlement, the MDL.

So regarding interchange, I mean, any flow-through or impact on you guys?

We should just keep in mind that we didn't think it was as much, but if there was anything to call out, it's with that?

I think your assessment is correct.

First of all, let me just say this, that we have great relationship with all card networks, whether it's Visa, whether it's MasterCard, American Express or Discover and frankly, other partners like PayPal.

So we're very fortunate to have those kind of relationships.

In terms of this -- especially the settlement itself.

I think the only thing I would say is anything that actually helps even slightly to improve or interchange rates is beneficial to us, but we haven't quantified anything in that regard.

Thanks, guys.

Appreciate it.

Thank you.

Will Nance, Goldman Sachs.

Hey, guys.

Appreciate you taking the question.

Nice quarter this afternoon.

I just wanted to ask about your thoughts on capital allocation going forward.

And I ask this in the last two quarters, you guys have had pretty strong performance.

You're running well ahead of the Rule of 40, and you've made several comments today about the strength in pipeline.

So just, I know this is a fragmented industry and what are your thoughts on the opportunities for M&A longer term, more broadly?

And I guess more specifically, you've done a little bit of bolt-ons in the past that if you were to go down that route, would they be more focused on complementary type M&A like pay various back in the day?

Or is there an opportunity for a more scale-driven rollout?

Yeah.

Will, I'll start and maybe Dushyant chime in later on.

Capital allocation priorities for us remain unchanged since what we've communicated in the past, very similar.

We have a very good pipeline ahead of us.

We operate in a very strong TAM business.

We believe that our business growth is in investing in our own business, i.e. getting organic growth.

So we want to invest our extra cash or capital allocation in our own business.

So we are spending money in hiring sales and marketing and even working with resellers.

So direct or indirect sales as far as that improves that we think is the right place to spend money and get growth on.

So that is our first priority.

Second point I'd like to make on this is we do not currently have any technological gaps.

So we are not seeking any specific M&A initiative right now.

That said, we get pinged by a lot of investment banks, we get teasers.

And if anything seems interesting as far as that's accretive to the overall business and add shareholder value, we will definitely look at it and reach out to the board and give it a serious thought.

But we're not seeking anything right now.

I think we are heavily focused on executing, and I think that's where our capital allocation strategy lies.

Got it.

Appreciate that.

And then maybe just a question on some of the pipelines that you guys have mentioned several times.

Could you guys maybe dive in a little bit on just the composition of the pipelines in terms of vertical mix and the size of the dollars.

It seems like -- it sounds like vertical mix contributed to maybe slightly better unit economics on the ones that were implemented this quarter.

So just curious on if there's any kind of notable observations you would make about the implementation pipeline that you see today?

Yeah.

Will, that's a very good question.

Our pipeline composition, I would say is very similar to the way we see our backlog composition, and which is very similar to the way we see our revenue composition as well.

Said differently, our largest segment is utilities or vertical and that way, which is still more than 50%.

And the remaining 50% is made up of a bunch of verticals, insurance being one, government being the other.

And we are seeing a lot of this new verticals we are trying to enter into.

And we are very pleased with the diversification of that.

And we are seeing it across the board.

In fact, our pipeline is giving us much more comfort for the outer periods as we think about our long-term plans for the company.

So overall, pipeline is strong, composition is great.

I would say that we are seeing a good diversification on that mix.

And in terms of implementation, I'd like to cover as well.

The implementation pace actually is getting better.

In fact, as you saw in Q1, our revenues came in ahead of what we were expecting.

So implementation pace is doing really well.

I think the COVID fever is behind definitely our business we see.

And we are seeing the tailwinds of that now catching up.

Great.

Also, I appreciate you taking the questions.

Thank you, Will.

Tien-Tsin Huang, JPMorgan.

Yeah, thanks a lot.

It sounds like the repricing strategy is working quite well there.

Is there more repricing across the book going forward.

Have you addressed most of that relative to your plan?

I'm just curious.

I know you commented on revenue per transaction and better rates on ARPU on new billers, but how about the overall book?

Overall, I would say it has now become a part of our regular process.

Repricing, it was discussed pretty much at length when the company was going through inflationary pressures, and we are working with all the billers, and we had to pass those increased costs to them.

So it was a separate process on its own.

And I believe that was a pretty interesting topic in 2023 and even exiting 2022.

But now the process would have streamlined so much that the repricing is now a part of our regular process.

We review pricing, whether it's due to inflation or due to margins or due to many of the factors.

So I think it's a part of regular process.

I would not call that as one of pricing activity anymore.

But I hope that addresses the question.

But at the same time, I say we are kind of caught up in our process.

And as you saw in Q1 itself, we saw some benefit of repricing, which is a part of internal initiatives, nothing to do with inflation.

Right.

So the repricing has been addressed and it's part of your normal course now as your issue renewing and winning deals?

I think I understand.

It's good to know.

My second question was just on the -- I heard and I will ask about composition on your wins.

You talked about strong bookings, substantial backlog.

Was there -- is there any issue or concern around replenishing that pipeline and backlog?

I know, Dushyant, we talked about that in the past.

It sounds like there's a lot of deals to still win.

Just want to make sure that's the case, given where you are in the calendar year?

Yeah.

We are feeling good about our pipeline.

We are feeling good about the long-term prospects of the business.

The demand remains strong, and we are seeing great momentum actually in the market.

Glad to hear it, Dushyant.

Thank you.

Andrew Bauch, Wells Fargo.

Hey, good evening and thanks for taking the question.

So I know it's been hit on in prior questions, but I'm just trying to better understand the interplay here between the execution and you guys delivered four straight quarters, pretty consistent growth with a more stable macro environment, potentially leading to better implementation times and conversations with that replenishing that front book.

So maybe you could just give us a sense on the two to three things that you've done over the last year that's driven this consistent execution.

And maybe if we're able to kind of understand how much of the growth you're seeing now is part of that catch up in demand?

Actually, I would say it is not a catch-up.

Let me take the last part first.

It is more like a still catching up to the type of demand or type of execution we used to see prior to the pandemic.

So after the pandemic, what has transpired is that we are back to the way the business used to be where we were able to send our storytellers in front of our clients to educate the market on how they can improve their cost to serve and improve the customer experience using our platform and the ecosystem.

And that is going well.

As a result of that, we are also -- we are signing clients of various verticals.

In addition to that, our partnership ecosystem has started to produce for us and bring us new deals, new verticals.

And as a result of that, we have a pretty strong -- very strong backlog.

So front book is getting replenished.

We are also implementing a lot of customers, which you also saw that during pandemic, we were somewhat affected.

But now we are seeing that we are back to normalcy.

So I won't think that there is any -- that this is like a short-term success we are seeing.

What we are seeing is a return to our long-term trends which we used to see prior to going public as well as -- and frankly, prior to the pandemic.

And now we are back to what we expect to be in normal cadence here.

In terms of your other question of what two or three things you have done.

I would say, we have been very focused on making sure that we are able to get in front of as many customers as we can, assign as many partnerships as we can.

But that's on the front side.

And then on the back end, implement as many customers as we can and make sure that we listen and learn and understand what the post-pandemic world looks like and how do we need to adjust ourselves and our processes and our toolkits to make sure we can onboard the customers as well.

And basically, being very, very focused on making sure that the financial execution of the business from top line growth as well as the bottom line improving the operating leverage.

We are able to continue to do that very successfully.

So that's what has been the focus.

No, it's very well put.

And so, you threw the AI teaser in your prepared remarks.

So I'll bite.

What kind of efficiencies are you anticipating, albeit you said in the out years that can come from your AI investments and I think that patent really does show that testament?

Thank you, Andrew.

We haven't actually -- I mean, it is still nascent.

The patent was just awarded like a few weeks ago, publicly issued.

So we are -- we plan to integrate those capabilities in our system.

What we were -- the reason we were trying to bring this out was if you are an investor in the business and thinking about investing in our business, you are looking at what is behind -- first of all, what is behind the current financial performance and what's behind -- what's the long-term prospects of the business, what the strategy looks like for the business.

And we just wanted to explain that despite the difficult macro the company was dealing with and the whole world was dealing with, Paymentus was still strategically executing and thinking through what are the different challenges and risks we see, and implementation and integrations was one of them.

And then we were focused on how do we convert that into a great opportunity for us.

And that is AI is one of the key factors there.

So we believe that you will continue to see improving implementation performance from the company and AI will be part of it.

It's great to hear.

Thanks, Dushyant.

Thank you.

Zachary Gunn, FT Partners.

I guess my first question here is around the guide.

Last call you said you were in a position to achieve the top end of the guide without signing any new clients.

So I guess with the new updated guide, can we assume that top end is also achievable with new clients?

Or was that some of the 1Q outperformance driven by new clients?

How to think about that?

And then I have a follow-up.

So Zachery, I would say, short answer is yes.

Our high end of the guidance still does not entail any revenue coming from any bookings happening in 2024.

That said, I will also clarify that in Q1, the increased revenues we saw were from implementations which were anyway scheduled to happen in this year, but in the later part of the year.

They just happened earlier.

So we picked up additional revenue.

Hence, we were comfortable raising the guidance for the year because we have already achieved that in Q1.

And then we also increased the guidance a little more than what we exceeded in Q1.

Got it.

Okay.

Yeah, that makes sense.

And then just on the contribution profit dollars per transaction, I know the revenue per transaction was asked earlier, but I know it came up year-over-year, but it did step down a bit Q-over-Q.

And just looking at 1Q last year, it was the trough in terms of contribution profit per transaction.

So is it fair to think about this quarter as the low watermark and then see that step up through the rest of the year?

Thanks.

Well, Zachery, I would say that the forecasting revenue per transaction or contribution profit per transaction for outer quarters is not really the most effective way to understand our business and we don't do that.

We learn the same way.

And hence, I am sharing this experience because we now see contribution profit or revenue per transaction, anything per transaction is more of a byproduct of the business rather than a driving strategy for us because we are getting so many billers from small size to large size to mega size, I would say that it just becomes hard to put them all into the same framework of per transaction.

Yes, it's a great metric to look at.

And I agree that's the right way on a high level to analyze the business.

But if we get into the granularity of that trend by quarters, I'm not sure it's going to produce an effective result for you to understand the business.

That said, I would still say that overall Q1 is the most soft quarter for us from a contribution margin perspective.

We saw that last year, we saw that this year and years also we've seen.

So Q2, I would expect contribution profit to get better, contribution margins to get better as well.

And as you will see in the guidance, the contribution margin does bounce around from one quarter to the other.

But overall, for the whole year, I think we are in a very decent shape.

So contribution profit dollars, definitely, we expect them to increase in the year, in the coming quarters.

Got it.

Thanks.

Thank you, Zachary.

That concludes our question-and-answer session.

At this time, I would like to pass it back to our management team for any closing remarks.

Thank you, everyone, for your time today and have a great day.

Thank you, all.

That concludes our first quarter 2024 Paymentus earnings conference call.

Thank you for your participation and enjoy the rest of your day.