Good day, and welcome to the Third Quarter 2025 Paymentus Earnings Conference Call. This call is being recorded. [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 third quarter 2025 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's 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 third quarter and our guidance. Following our prepared remarks, we'll take questions. Let me 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 differ materially from expectations are detailed in our earnings materials and our SEC filings that are available both on the SEC and our website. Information about non-GAAP financial measures, including reconciliations to U.S. GAAP, can also be found in our earnings materials that are available on the website. With that, I'd like to turn the call over to Dushyant Sharma. Dushyant?

Thanks, David. I'm excited to report that Paymentus delivered another strong quarter with the results exceeding our expectations in all key areas of our business and delivering exceptional year-over-year growth. This outperformance is especially satisfying given the backdrop of our strong performance in the third quarter of last year. In addition, we had a phenomenal quarter of onboarding activities, and we ended the quarter with substantial bookings and a strong backlog, giving us visibility and further confidence not only for the balance of 2025, but also for 2026. As I mentioned in the past, this high level of visibility enables our management team to focus on creating long-term shareholder value by combining innovation with our steadfast execution. We believe this quarter's results are a great illustration of how we are still able to manage and calibrate our business to meet or exceed our long-term CAGR model of 20% top line growth and 20% to 30% adjusted EBITDA dollar growth despite variability of secondary metrics from quarter-to-quarter. For example, during the third quarter, as our customer mix is shifting more towards enterprise and larger mid-market clients, our revenue and contribution profit per transaction grew significantly. This also helps demonstrate our vertical expansion strategy that led to higher incremental revenue and contribution profit per transaction. And when you combine this with the tremendous operating leverage we enjoy in the business, in Q3, we were able to achieve a strong top line growth and a record quarterly adjusted EBITDA margin along with an incremental adjusted EBITDA margin in excess of 60%. Related to this, it's also important to remember that we remain in market capture mode as we increase our market penetration and enter new verticals because we see a tremendous opportunity to gain share in what is an enormous TAM. We also…

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'll be referring to include non-GAAP financial measures. As David mentioned earlier, our Q3 press release and earnings presentation includes reconciliations of these non-GAAP financial measures to their corresponding GAAP measures. Both of these are available on our website. Turning to Slide 5. Building on our momentum in the first half of the year, our third quarter 2025 results once again exceeded the top end of our guidance range for all 3 of our key financial metrics. These results continue to highlight the overall strength of our business model and our team's proven ability to consistently meet and exceed our expectations. Our third quarter results included revenue of $310.7 million, up 34.2% year-over-year, contribution profit of $98.3 million, up 22.8% and adjusted EBITDA of $35.9 million, up 45.9%. We also continue to experience strong customer activity and demand, which fueled bookings and allowed us to exit the quarter with a considerable backlog. Based on our year-to-date results, our expectations for the remainder of 2025 and strong forward visibility, we are once again raising our full year 2025 revenue, contribution profit and adjusted EBITDA guidance, which I'll discuss in more detail shortly. Now let's review our third quarter financials in more detail. As mentioned, Q3 revenue was $310.7 million, a 34.2% increase. This growth was driven by 4 key factors: first, the successful launch of new billers as anticipated; second, increased same-store sales from existing billers; third, the early launch of several large enterprise customers during the third quarter of 2025, which we had originally expected to launch in early 2026. These early launches were a result of our continued focus and improvement in…

Thanks, Sanjay. In summary, our third quarter was another period where we achieved results that exceeded our expectations, including a strong durable revenue and adjusted EBITDA growth despite a tough year-over-year comp. We exited the quarter with strong bookings and backlog, which gives us great visibility and confidence in our outlook, not only for the rest of 2025 but we are also feeling good about our prospects for 2026 and beyond. As I shared earlier, when we factor in our current scale of installed base of 2,000-plus clients, including some of the household names, tens of millions of users, including businesses who pay their bills using our platform, our innovative DNA, along with our ever-growing platform footprint and ecosystem, we feel good about our long-term moat, especially as we champion the change of capitalizing conversion of legacy infrastructure, both in-house and outsourced to Paymentus. With that, I want to thank our entire team for all their efforts and dedication to our success. That concludes our prepared remarks. I'll now open the line up for questions.

[Operator Instructions] The first question comes from John Davis with the company, Raymond James.

Dushyant, I wanted to start with the comments around onboarding a new B2B customer in a new vertical. Obviously, the B2B market is huge. Just some context about how this relationship and kind of ultimate signing developed? Do you have many more B2B opportunities in the pipe and just maybe some broader comments about that opportunity for Paymentus?

Yes. Thank you, John. So B2B is a area of -- or functional area we had developed some time ago on our platform. And as we have shared in the past, we support lot of complex workflows for a lot of clients. And all of our clients, almost all of our clients who are on our business, they serve consumers as well as businesses. So by default, almost every business we have on our platform is -- we are receiving payments from both of those cohorts. With B2B specifically, we felt that if we can extend the capability and add some more workflows to our platform, this could be very attractive just for the B2B segment specifically. Those clients are only dealing with B2B. And this is one of many other opportunities we have on our platform. This one specifically was in a vertical we were not targeting, but the client showed interest in our platform. And the reason I wanted to highlight this was, this is exactly the reason why we are taking a very horizontal approach to our platform, the way we have engineered that we are able to get into different verticals by just having great storytellers who can explain the simplicity that can be gained by moving to our platform. So this is a sizable opportunity. And as we onboarded them on our platform, one of the trends we started to see was that the customers were using more of the services than even we were anticipating. And now it's even a larger client than we were thinking about. So we are excited about this opportunity, and we feel like that we can do better in that vertical as well and actually methodically target that as opposed to sporadically. So that's where the excitement is coming in as well. So in [ summary ] my point was that we are -- the way we have designed our platform and the strategy, but also the thoughts we had or the vision we had about our business and where the industry will go. Rather than very niche, if you will, it will become to be -- it will start to move towards the horizontal platforms, and is coming to fruition.

Okay. Great. And this is a follow-up. Sanjay, I appreciate your comments around volume discounts. But I think one of the most surprising things to me is you're clearly having success moving up market and moving into new verticals. And yes, that comes with higher card mix, higher kind of gross revenue per transaction but what's more interesting is even contribution profit per transaction is up I think, about 4% year-over-year despite moving upmarket. Just want to understand what's driving that? Or maybe move in some verticals that maybe have a little bit better pricing as you kind of mix away from utilities? Or are you adding kind of more bells and whistles, products and services that are driving a higher kind of contribution profit per transaction. Just would love to get some more commentary on that.

Thanks, John. This is a very interesting question. We are very excited about the contribution profit per transaction, getting up higher year-over-year around 3.8%. The biggest reason if I have to point out, number one is, our platform and the value of our platform is resonating. The success which we have had, while marching upwards on a market share gain every year, that's resonating really well. And resonating well not only with the verticals where we really have a strong success like utilities, for example. And as you know, utilities is 50% of our revenue. But all the other verticals, we are now taking the step into a higher level or I would say, a different level or different segment of customers within those verticals. And that's giving us an edge of better pricing and we are fortunate enough to generate better contribution profit as well. And as you rightly pointed out, the revenue per transaction could be higher, but it also depends on the interchange costs or the mix of the card payments for the new customers we acquire, and that's one of the reasons for variability quarter-over-quarter. But at the same time, contribution profit per transaction growing up actually indicates that the new implementations, which went live in the third quarter were at a materially higher contribution profit per transaction. And that is a great encouragement for our team, for our sales team who are marching on the path to convert the large pipeline we have in front of us to convert the bookings. And as you know, once you get as Dushyant pointed out, we have some household names as well. You have one, then you have second and then when you have the second, you have third and fourth and so on. And we are seeing that kind of traction and success in almost every vertical where we are penetrating. So we are very proud of the accomplishment on contribution profit per transaction. And in the end answer is the value of our platform is just resonating with everyone we go and demonstrate our product.

Our next question comes from Tien-Tsin Huang with the company, JPMorgan.

Great results. I wanted to ask around visibility, if that's okay. Just your visibility stay looking ahead to next year. How would you compare it to the same time last year when you were looking ahead? If I recall, there were a lot of questions around enterprise and how those would board and flow through in payment mix. Do you feel like your visibility is better and how is it different?

Tien-Tsin, thanks for the question. We find ourselves in the exact situation at this time of this year as we were last year same time. So visibility is very high. We've got a great backlog in front of us, which our implementation team is busy executing. We've got a great pipeline in front of us, which our sales team is busy converting to bookings. And what we have also seen is the past implementations in the last 4 quarters, which we have delivered the kind of the quality customers we are having now, they themselves are growing and that helping us achieve a better execution or better growth i.e., the good same-store sales we are seeing. So overall, in all directions, the trends have been very positive. Our visibility is very high. At the same time, if I just may digress into, we are not guiding at this time for 2026. But at the same time, I understand there might be a desire to understand how should we model the next year. I would say, to model the next year, it will be reasonable to use the similar growth rates at midpoint and high end what we gave during the initial guidance we gave for 2025, using '24 basis, you could use the same midpoint of '25 we gave and apply similar growth rates at midpoint and high end. I think that will be a similar approach and will be reasonable, which kind of indicates the visibility we have for our business and the growth prospects.

Perfect. Very reasonable. Great. So let me ask on just my quick follow-up, just on the enterprise pipeline. Both of you expressed that as being very strong. Any change in the type of or who you might be replacing? And what systems the incumbents might be looking to be replaced by -- with Paymentus. I'm just curious if there's any shift in pattern there. So who are you replacing potentially with these deals?

Thank you, Tien-Tsin. Actually, we -- what's driving a lot of excitement for us is that there was a time we thought that -- and all of us in the industry thought, including all the legacy providers that it is -- there is some segment of the market, which is totally out of reach just because they're too large. And the reason for that was, this cohort of clients, they are looking for, number one, they're looking for control, and they also are looking for very specific bespoke configurations and workflows which they believe that only they can develop. It's not easy to develop on a third-party platform. And I would say the third would be the scale. As Paymentus has started to reach a decent size of scale, if I may say it that way. And we are a $1 billion company at this point, and generating cash. We are a profitable company, strong balance sheet. All of those things are important to a large company, combined the fact that these clients are able to take a look at. Previously, we used to sit in someways, the opposite side of the table to their technology leadership team CIOs, CTOs, who now think of us as a partner in solving key business issues related to payment and customer experiences. So from that perspective, that cohort is very exciting to us because some of these in-house solutions are now finding a great home in Paymentus. Number one, they believe that they could -- this is a type of platform they cannot build themselves regardless of how many floors of programmers they have. On top of that, the type of business configurations and the business rules and the complexity they desire for our platform to be able to configure, we already do support. Third, the type of control they're looking for, we have built our platform with those capabilities as well. So as well, that cohort is actually very exciting, along with, I would say, the legacy service provider. There's no specific one who we are targeting. Our goal is how do we modernize whatever is out there. And we are getting into clients where they have a combination of many solutions, some of them in-house and some of them from third parties, in many cases, multiple.

Well done.

[Operator Instructions] Our next question comes from Craig Maurer with company FT Partners.

You listed 4 key factors earlier in the call that drove the increase in revenue. Can you provide perhaps some sizing in terms of the impact each of these had? And do you expect these benefits to continue into fourth quarter and perhaps early parts of next year?

Yes. We don't generally provide a quantitative breakup of the 4 factors. Historically, we haven't done. What we can do is we can help you prioritize and they were listed in the order of priority, I would say. The first one was a successful launch of new billers. That's the largest component of the growth. And the second component of growth comes from the same-store sales. And third component is the early launch of large enterprise customers during the third quarter. And fourth is our IPN network, which is doing really well. So in -- these 4 categories will be the ones and in the order of priority, I would say. And to your second part of the question, yes, we expect all these 4 to continue in Q4 as well as in the outer year also in 2026. And these 4 are actually our growth vectors since the past few quarters, and they have been performing really well, and all 4 of them have done well quarter-over-quarter as well as sequentially. So there could be times when seasonality plays a role and a second factor may become third or the third may become fourth. But overall, that has been our trend, and we are glad it's continuing in the same way, and we feel very good about it.

Our next question comes from John Davis with the company, Raymond James.

Dushyant and Sanjay, just one quick follow-up. It looks like free cash flow conversion over a trailing 4 quarters is a little over 140%. Sanjay, maybe just the sustainability of that and what's driving that pretty incredible free cash flow conversion over the last year?

Yes. Thanks, John. Cash flow has been really the strength of the business and it actually stems from the fact that our incremental adjusted EBITDA margin is very high. And that's just a reflection of that in our cash flow. And you're right, in the last 4 quarters, it has been more than 100% cumulatively. We are very glad that in Q3 itself, it came very similar to what we saw in Q2. So the one way to -- like how to forecast it going forward will be, if you exclude the working capital piece, which could be plus or minus a couple of million dollars a quarter, and which is always temporary, as you know, if it goes in, it comes out in a couple of quarters. So if you exclude the working capital, I can give you a model on how to forecast over cash flows. You can start with adjusted EBITDA dollars, adjust that for income taxes. We have provided 25% non-GAAP tax rate for taxes. And then adjust that for interest income. That's approximately $2.5 million a quarter or $3 million a quarter, depending on the interest rates. And adjust that for the cap software expense, which is approximately trending at $9 million a quarter as well. So using those trends, you can expect the free cash flow and maybe you make your model of free cash flow more accurate than using a percentage of the last 4 quarters. And overall, we expect free cash flow to be generated every quarter. And overall, for the whole last year, if we go back 12 months, we have generated $100 million plus cash in the last 4 quarters. So we feel very good. It's a cash-rich business, and it stems from the fact that operating leverage on the business is very high, and majority of the contribution profit dollars fall to the bottom line. And at the same time, I would have 1 key factor, which has held in the last few quarters. I would say at least last 2 quarters is our improvement of DSO, which has given us more cash. we are getting very high-quality billers or customers in our customer base. There are not a lot of follow-ups are needed, but the invoice and the cash comes in on time. So that's one more advantage we are seeing of our business running not only smoothly in terms of revenues and profitability, but also getting the quality of the customers, which helps improve our balance sheet and gives us the ability to have significant cash, which opens a lot of opportunities for us to make right investments for the investors. So we feel very good about the free cash flow generation. And I think that's one of the strengths of our company today.

Our next question comes from Will Nance with the company Goldman Sachs.

Maybe just one here on the topic of agentic commerce. I know a lot of the value prop of Paymentus revolves around kind of meeting the consumer where they're at, when they're ready to make that payment and making it as easy as possible. Obviously agentic commerce has been getting a lot of attention from investors recently. I know you guys have always been close to the Braintree and PayPal that got this new partnership with OpenAI. So just wondering how you guys are thinking about just the technical hurdles of making it easier for consumers to pay their bills potentially in a more agentic way? And just where you think that -- where are you on the road map? And how long do you think that extends to sort of hit the market and the reality for consumers?

Thank you for the question, Bill. I think we have been -- AI has been a big piece of our strategy for many years, and we have been actually working towards this day in some ways. And part of the commentary in my prepared remarks was around the very same point that we find ourselves in a very fortunate situation that we believe that this day will come, and we are preparing the company for it, making a lot of investments towards that model. And I think we will play a big role in AI, and agentic world, in not only in bill payments, but overall service commerce. And what I mean by service commerce is taking this opportunity to just explain that, if you think about retail commerce is, which is getting highly commoditized as you can see, everyone is focused on trying to get the check out and as quickly as possible so that the sale is made. The service world is very different. The work actually starts after a sale is made. Imagine a scenario where utility gets a customer, well -- or the insurance company gets a customer. The work starts after that. So getting the customer is the beginning of the relationship. But then the pursuit is to never lose that customer, continue to provide good quality service to the customer, being responsive to the customer. Being always improving or removing all the unwieldy processes in such a way that you can actually service those customers at a high quality without incurring a lot of cost. All of those things actually come together in a way that we believe the Paymentus will play and actually is uniquely positioned to play a big and central role in creating, in some ways, the paradigm shift in the world of service commerce using bill payment platform we have already created, which is actually designed to be a service commerce platform. In the long run in coming years, you will see increasing adoption of our platform in broader workflows, and agentic service commerce will be a key part of it. So that's all I could share right now, but we'll talk more about it in subsequent quarters.

Nice results.

At this time, I'd like to pass the conference back over to Dushyant for closing remarks.

Well, thank you so much, everyone. Really appreciate your time. Have a great day. Thank you.

Thank you. Bye-bye.

That will conclude today's conference call. Thank you for your participation, and enjoy the rest of your day.