Good day, and welcome to the Fourth Quarter and Full Year 2024 Paymentus Earnings Conference Call. This call is being recorded. All participants are currently in a listen-only mode. There will be an opportunity to ask questions following the management's prepared remarks. [Operator Instructions] At this time, I will now turn the call over to David Hanover, Investor Relations. Please go ahead.

Thank you, operator. Good afternoon. Welcome, and thank you for joining the webcast to review our fourth quarter and full year 2024 results. Our earnings release documents are available on the Investor Relations section of the paymentus.com website. They include the earnings presentation that we'll make reference to during this webcast. This webcast is being recorded. I hope everyone has had a chance to review those documents. Our Founder and CEO, Dushyant Sharma, will make some opening comments before Sanjay Kalra, our CFO, discusses the details of the fourth quarter and full year and our guidance. Following our prepared remarks, we'll take questions. Let me just remind you that we may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and we refer to non-GAAP financial measures during the webcast. Forward-looking statements are based on management's current expectations and assumptions that are subject to risks and uncertainties. Factors that may cause our actual results to materially differ from expectations are detailed in our earnings materials and our SEC filings that are available both the SEC's and our website. Information about non-GAAP financial measures, including reconciliations to US GAAP, can also be found in our earnings materials that are available on the website. With that, I'd like to turn the webcast over to Dushyant Sharma. Dushyant?

Thanks David. 2024 was an outstanding year for Paymentus, and based on the vast stem of non-discretionary bills and our continued market momentum, we believe our best is yet to come and we are just getting started. As I have shared in the past, we operate our business on a two-year horizon and it is quite satisfying to see how well we have executed over last two years. Likewise, we are just as excited about our next two-year horizon and beyond. And this view is based on five factors: first, our continued sales momentum; second, our strong bookings in 2024; third, our significant exit backlog, net of large client launches in the third quarter; fourth, our continued onboarding success; and fifth, our phenomenal innovation framework that will continue to be disruptive in the broader fintech market. Despite our 2024 outperformance, we remain committed to our CAGR model of 20% top-line and 20% to 30% adjusted EBITDA growth for 2025. And based on our guidance philosophy that has served us very well over the last couple of years, I'm pleased to report that we believe we can deliver the top end of our 2025 guidance, that Sanjay will cover shortly, without signing any new clients, provided, of course, we deliver implementations as planned. With that context, let me now discuss our fourth quarter and full year 2024 results. We ended the year on a strong note with fourth quarter results that exceeded our expectations across all areas of our business. Fourth quarter 2024 revenue was a record $257.9 million, up 56.5% year-over-year. Fourth quarter contribution profit was $86.2 million, up 30% year-over-year. Our adjusted EBITDA, which as many of you know is a significant financial metric for us, was $27.3 million for the quarter, up 36.9% year-over-year. And on a Rule…

Thanks, Dushyant, and thank you all for joining us today. Before I discuss our quarterly results and outlook, I'd like to remind everyone that the financial results I'd be referring to include non-GAAP financial measures. Our earnings press release and presentation includes reconciliations of these non-GAAP financial measures to their corresponding GAAP measures. Both are available on our website. Turning to Slide 5, we ended 2024 with another quarter where we exceeded the top-end of our guidance range across all our key financial metrics. Our fourth quarter results included: record revenue of $257.9 million, up 56.5% year-over-year; contribution profit of $86.2 million, up 30%; and adjusted EBITDA of $27.3 million, up 36.9%. On a Rule of 40 basis, we came in at 62, our highest level to-date and our seventh consecutive quarter of exceeding the Rule of 40. During the quarter, we also continued to experience strong customer activity and demand, consistent with what we experienced throughout 2024. This drove robust bookings and we exited the year with solid momentum and a significant backlog and a greater cash position to support our continued growth strategies in 2025. Now, let's review our fourth quarter financials in more detail. As mentioned earlier, fourth quarter revenue grew 56.5% year-over-year to $257.9 million. This higher-than-anticipated growth was driven by two key factors: first, the successful launch of new billers, including the first full quarter benefit from large enterprise customers that launched during the third quarter; and second, increased same-store sales from existing billers. In the fourth quarter, we derived more revenue from these newly launched large enterprise customers with higher average payment amounts contributing to higher revenues. And while our original fourth quarter guidance contained some upside, we took a prudent approach, because at that time, the precise magnitude of this beneficial impact was…

Thanks, Sanjay. In closing, we are very proud of our fourth quarter and full year 2024 results, which were ahead of our original expectations. We ended the year with a strong backlog, which gives us confidence in our 2025 guidance. And of course, we intend to remain focused and disciplined in onboarding our strong backlog, which we expect to keep fueling our growth. What also gives us confidence is our track record of performance. In the three years since our IPO, we have more than doubled our revenues and more than tripled our adjusted EBITDA. As you may know, our performance even prior to IPO is also very exciting. We believe this performance illustrates the strength of our operating model and the historical resilience of our business and our ability to respond to macroeconomic headwinds and recessionary pressures. On that note, I also want to thank all of my team members for their continued efforts and dedication to Paymentus' success. That concludes our prepared remarks. I'll now open up the line for questions.

Thank you so much. We'll now be moving to our Q&A session. [Operator Instructions] We have a question from Dave Koning of Baird. Your line is now open.

Yeah. Hey, guys. Tremendous results again. And I guess, my first question, when I look -- I guess, I look at Q1 guidance, you're guiding gross revenue down kind of mid-single-digits sequentially. Historically, I think the lowest sequential growth we can see in Q1 was up 6% and more quarters were like up 12% or 10%. And I'm just wondering, was there anything non-recurring in some of the large billers that joined that would create a sequential fall off, or is it just guidance to try to make sure you hit numbers and continue to execute?

Dave, thanks for the question. Appreciate it. Q1, it's interesting. We are in a very similar situation where we were just a quarter ago when we were guiding Q4, because these new large enterprise customers have just newly been onboarded. It's been like just two quarters. They came in the middle of Q3 and Q4 was the first full quarter. So, we still actually have to go through a full cycle -- one-year cycle, I would say, to fully understand your trends before we start baking in the full year or maybe the quarterly guidance. But given Q1 and two months are kind of behind us, although the books don't get closed until after a few days as you would know. So, we've got some visibility into Q1 how they will trend. But we are not being very aggressive in terms of what we saw in Q4, I would say, because that could be just a short period of time to analyze trends. So, we've taken a prudent view in coming up with the guidance for the full year for sure, especially for these large customers. But even for Q1, we've been prudent in terms of how the quarter may shape up. That's the only variability. And other than that, I would say the business is doing great. Our sales momentum is going really well. Our exit backlog is strong. The pipeline is -- the pipeline actually is also pretty strong. And more large customers are also there in the pipeline. So, the trends could vary year-over-year and quarter-over-quarter as we ramp and as we scale. But overall, I would say, gross margin as one metric is not the only one. Whether you count gross margin or contribution profit, they all have to be considered together with the operating leverage we have in the business. And at the end of the day, our adjusted EBITDA should be better year over year. And I'll not go more on this. I think it's a long-winded answer to your question, but we exited the year with 30.2% for the full year adjusted EBITDA margin, and our next year guidance itself is 31.5% at midpoint. So, even in this prudent guidance, we've taken a step ahead on improving the adjusted EBITDA margin.

Yeah. No, that's great. And I guess, secondly, just macro sensitivity, I mean, we're looking at a lot of potential, I guess, volatility in the macro. How resilient is your consumer base? I mean, it seems like utility payments, all the monthly bills, it seems very recurring. Could you -- if we'd go into macro, like, slowdown, could you even benefit if gas prices -- like, basically utility prices came down at the same time as your payment streams were stable, it would actually be a net benefit potentially, but maybe walk through your macro sensitivity.

Yeah, actually, thank you, David. That's one of the reasons why we actually wanted to call out our historical resilience of our business relative to macroeconomic headwinds as well as recessionary pressures. We have been operating the business for quite some time and we have dealt with different headwinds. And frankly, in each of those, even though each macroeconomic environment or event has its own personality, but we have been able to grow the business during each of those primarily because of the non-discretionary nature of the household bills. Every industry we are operating in has non-discretionary part of the household economy involved. In terms of your question, there are certain scenarios where -- your question related to the benefits, there are certain scenarios we could see them benefit. Of course, if consumers start making payments, which are smaller but more frequently, that changes the dynamic for us. But we're not factoring any of that in. We are simply focused on trying to make sure our investors understand that you're investing and you have invested in a business that is dealing with non-discretionary household bills. People still need to have a roof on their -- over their heads, they still need to use electricity, water, gas to prepare food and so on or go to work in the car, et cetera. So, all of that non-discretionary side of the economy still needs to continue on regardless of what's happening in the macroeconomic environment.

Yeah. Thank you, guys. Good job.

Thank you, David.

Thank you. Our next question comes from Tien-Tsin Huang of JPMorgan. Your line is now open.

Thank you so much. Terrific results. I want to ask, for both of you, just thinking about the comment of your confidence to grow without new sales, is that comment more from the strong backlog that you have and confidence in converting the backlog, or are you also seeing higher penetration of on-network e-payments? Is that part of the equation as well? Just trying to better understand what's evolving.

It's combination of both. It's combination of both the same-store sales as well as the backlog. And as we pointed out actually, we are very proud of the year we have had in 2024 because of the foundation it sets not only for what we were able to achieve in 2024, but frankly, our next two-year horizon. So, we are very excited about that. And the strong backlog which was net of the billers which went live in the 3Q also gives us tremendous confidence. So, we just wanted to make sure that we follow the same prudence, same grounded guidance methodology which has served us very well that we want to be able to give the view to our investors that we can deliver the top-end of our guidance without signing a new client. And obviously, provided we implement, we continue to onboard our backlog and so on. Sanjay, do you want to add?

If I may just add together with the backlog and the same-store sales, I would also say our pipeline we see that very strong. And the pace at which we have seen the pipeline converting to backlog over the past one year has been moving at a very, very good pace. And assuming those trends continue, we will be in a good shape. I think we are confident because of all these factors.

Yeah. And just client decision making on the biller side to board in a timely way, I know the stock market is obviously gyrating a lot here, is there any influence? Does it help, hurt? It doesn't sound like you're seeing any change in decision making, but just wanted to check on this on the sensitivity there.

We are not seeing anything in that regard. Sometimes it can be actually these type of uncertain times could be beneficial because people are looking for efficient workflows and modernization to be able to bring about more efficiencies and reduce their cost to serve their customers, while also improving their customer experience.

Thank you, Dushyant. Thank you.

Thank you, Tien-Tsin.

Thank you. Our next question comes from John Davis of Raymond James. Your line is now open.

Hey, good afternoon, guys. Sanjay and Dushyant, it looks like there's been a pretty big step function change in your success with large enterprise billers over the last couple of quarters. So, just curious what you guys think have driven that. Is that an industry change? Is that something you guys are doing? And then, maybe highlight what verticals you're having success on the enterprise side?

Thank you, John. I think the main thing I would say is that what's transpiring right now is that the level of advancements that are taking place or the level of sophistication of the workflows the clients need to automate, what's happening is they're not able to do that in-house. Previously, some part of the biller segment, especially on the larger end, was beyond reach for any third-party service provider. And we used to think about legacy providers as the primary go-get for us. And now, we are looking at actually legacy infrastructure legacy installed base regardless of who it is; it could be in-house, it could be combination of in-house and other providers. And what we are seeing is as a result of that, combining our platform with our IPN ecosystem, it's not easy to create that type of a reach for any company, whether it is a player in similar space to Paymentus or actually our own potential clients, prospective clients. And that's what we are seeing. And other part which is also very important is, as the digital adoption is taking place and is becoming more and more a bigger part of a given client's payment ecosystem, there is a pressing need to look at the entire efficiency, the workflows and the efficiencies on -- throughout those workflows, throughout those organization -- throughout the organization, whether it's inbound, whether it's outbound flows of payments. So, all of that combined gives us a pretty strong leg up actually because we start on the revenue side of the house and then we can also help all of the other workflows. So, that is what is causing the shift in how clients feel that they now have a partner who can deliver cost efficiencies through innovation, but also improve the workflow through innovative framework as well.

Okay. Any color on verticals? Is it broad-based kind of across the board, or is it like one or two specific verticals where you're having success with enterprises?

Across the board, actually. All of our verticals are doing very well. We have been one of the key decision point we made early on as an organization was that we want to design our platform, which can scale to any vertical and any size of the biller. And you're seeing combination of both right now in action where large -- no biller is too large for us, no company is too small and no vertical is too far from our ability to implement them.

Okay, great. And just as a quick follow-up, I think Sanjay mentioned M&A on the prepared remarks. First time in a while I've heard you guys kind of mention M&A, obviously no debt, $200 million-plus of cash on the balance sheet. So, maybe just remind us kind of what would make sense, what would you target from an M&A perspective?

Thank you, John. I think that's one of the things -- the reason we called out M&A in the opening remarks was that there is just lot of activity, lot of books we get to see. And we are in a very fortunate situation that there is no functional gap, there is nothing really we need to go get, there are no gaps per se. And we are also operating with a pretty strong balance sheet and generating cash. So, all of those combination actually gives us the ability to be very selective. And one of the things which we are taking a look at is, are there entities out there, which could where we could be opportunistic and that are accretive both on the top-line or bottom-line or at least one of them, if not immediately, but in a short order. So, those are -- that's what we are looking at.

Okay. Appreciate it. Thanks, guys.

Thank you, John.

Thank you. [Operator Instructions] We'll now be moving on to our next question. Our next question comes from Andrew Bauch of Wells Fargo. Your line is now open.

Hey, guys. Nice set of results, and thanks for taking the question. Sanjay, you kind of teased this with the interchange potentially becoming a revenue center. I was hoping you can kind of just expand upon that a little bit more. Is it -- would that come in the form of new products, new partnerships? Is it a restructuring of how the existing model is organized today? Just want to better understand your bullishness around interchange.

Thank you, Andrew. This is Dushyant. I think the primary reason we wanted to bring this out in the open was we wanted to make sure our investors have a clear view how we are -- what is the strategy behind our business and why we have chosen the top-line and the bottom-line as our two primary metrics, while OpEx and CP are the secondary. In addition to that, I think all of the things you highlighted, the production solutions as we talked about in our opening remarks, we are looking at those -- even though this is a outer year, not immediate opportunity, but we are thinking through what production services and solutions we could be offering that can help monetize interchange. Partnerships is the other angle you talked about, absolutely. And third is the flows of payments, the outbound payments and even for inbound are other opportunities for partnership and frankly product and solutions. So, more to come on that, but that's where we see the opportunity in multiple dimensions.

Great. Thank you. And then, my follow-up question is, I don't know if we've spoken about this before, but does DOGE have any impact on your business? I know that you guys are more exposed on the local level than the federal level, but then again, too, budgets are kind of being shifted around and moved pretty rapidly. So, maybe, is there any kind of risk there or isn't there even maybe an opportunity as Elon and the team kind of find government legacy systems that a lot of these agencies are being run on?

Yeah. First of all, there is no risk to us. We don't deal with -- we don't have any contracts with federal government yet. But obviously, there could be opportunities as they look for modern systems versus the legacy solutions they've been operating with. In terms of the local municipalities and so on, which is where our focus has been, we actually are in a pretty unique situation where we are the source of revenues for all of these agencies. So, we feel very good about which part of the economy we are serving and which part of the workflow we are serving for them. So, we feel good about you still have to pay your bills, so whether it is water bills or property taxes and so on.

Great. Thank you.

Thank you, Andrew.

Thank you. Our next question comes from Matt O'Neill of FT Partners. Your line is now open.

Yeah. Hi. Good afternoon, gentlemen. Just curious to confirm, I believe the sort of methodology and philosophy around guidance is exactly the same as it's been in prior years. Dushyant, you mentioned at the beginning of this call before Sanjay went through the guide just that you'd be confident in your ability to hit the top end of the range without any new signings. I believe that's how you guys have contextualized the guide in prior years. If you could just confirm that first?

Yes, that's absolutely right, Matt. We are following the very similar guidance, same philosophy of coming with quarter and annual guide as we follow in the prior year. We want to be prudent in our approach. We want to remain grounded and execute well. And with the benefit of hindsight, this approach of guidance has served us well. And when we say top end is achievable, which means we don't need any new customer bookings to get there, but definitely we have to continue doing the implementations as planned. So, yeah, we remain committed to our CAGR model and that's the basis.

Understood. Appreciate that. And just two questions around the evolving mix of the business as it goes into larger enterprise and you mentioned in the prepared remarks, larger billers seeking volume-based discounts. We still saw the observable revenue per transaction tick higher. So, is it just that volume-based discounts are being more than offset by a mix of more card funded payments by consumers at newer partners? I just want to unpack kind of those dynamics. Thank you.

Yeah, Matt. So, what's happening is as we are adding these large enterprise customers, their revenue per transaction is higher than what we had before we started onboarding these large customers. So, our average revenue per transaction for the entire company is now increasing. As you saw, it's like $1.55. Our contribution profit per transaction is very similar, $0.52 per transaction as it came in Q4 versus $0.53 per transaction in the prior year same period. So overall, what we are seeing is we are getting the benefit of volume. Our profitability is further helping -- sorry, our profitability is growing because the contribution profit per transaction is very similar. And because we have very good operating leverage, we are able to increase our adjusted EBITDA and margins both. So, the revenue is higher. Maybe you'll see the network fees is also higher, but contribution profit per transaction is coming similar. So, this dynamic could change and shift as we onboard not only large-sized clients, but mid-size and small-sized, because we have a large TAM to capture as Dushyant mentioned in his opening remarks. And on our journey to market capture, we could be getting clients of different sizes, different verticals, and they could change our per transaction dynamics. And although we think per transaction is more of an output of our model rather than an input, our goal still remains that can we deliver good growth and provide a decent profitability. Rule of 40, which came to a record 62, is kind of indicative of our strategy that the contribution profit is not really meaningful in itself unless and until it's combined with the operating leverage. And that's the message we want to bring home. In the past few quarters, we've tried to do that. We want to make sure that's well understood by the entire investor base that our adjusted EBITDA growth and margin is a mix of contribution profit and operating leverage, which all starts from getting higher revenues. Hence, they are our primary metrics.

Understood. Thank you for the commentary. Appreciate it.

Sure.

Thank you. There seem to be no questions waiting at this time. So, I'll now pass it back over to the management team for any closing remarks.

Thank you, everyone. Have a great day. Thanks. Bye-bye.

Thank you. That concludes today's call. Thank you for your participation. You may now disconnect your line.