Paymentus Holdings, Inc. (NYSE:PAY) Q1 2024 Earnings Call Transcript

Paymentus Holdings, Inc. (NYSE:PAY) Q1 2024 Earnings Call Transcript May 6, 2024

Paymentus Holdings, Inc. misses on earnings expectations. Reported EPS is $0.05693 EPS, expectations were $0.08. PAY isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day, and welcome to First Quarter 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 management’s prepared remarks At this time, I will now turn the call over to David Hanover, Investor Relations. Please go ahead.

David Hanover: Thank you. Good afternoon, and welcome to Paymentus’ first quarter 2023 earnings call. Joining me today on the call 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 includes 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 address continued economic uncertainty, our market opportunities, business strategies, implementation timing, product enhancements, impact from acquisitions and other matters.

These 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, and our Form 10-K for the year ended December 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 these 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?

Dushyant Sharma: 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 targets 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 a 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 IPN 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 focus 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 a mainstream buzzword, we conceived and filed a patent for an AI based integration framework, which when combined with our significant experience in 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 their customer experience and efficiencies. We believe that this type of strategic execution is possible primarily because Paymentus has the rare trait that usually exists in large tech companies. Our business has unique in 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?

Sanjay Kalra: 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’d 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 five 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 billers. We believe these results continue to demonstrate the 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 discussed 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 IPM 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.

Our average revenue per transaction remained flat at $1.37 year-over-year, despite the addition of many large bidders throughout the past year, first quarter 2024 contribution profit increased to $69.4 million, up 29.6% year-over-year. This year-over-year, increases 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 you 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, etcetera, that can significantly influence and diminish the utility of contribution profit on a quarterly and per transaction basis.

First quarter 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 increase investments to support conversion of our strong pipeline into bookings and onboarding our 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 six. 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 internally capitalized software used to drive growth and innovation, and $0.5 million for financing activities, primarily for settlement of hold back 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 first quarter was 41 days compared to 43 days at Q4 2023. Within our expected range, working capital at the end of first quarter 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 exercise of stock options. Now I’ll turn to our revised full year 2024 and Q2 2024 guidance for revenue contribution, profit and adjusted EBITDA on slide seven. 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 these 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 first quarter 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 this 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 Dushyat for final remarks before we open up the call for questions.

Dushyant Sharma: 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 are 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.

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Q&A Session

Operator: We will now begin our question-and-answer session. [Operator instructions]. Our first question comes from John Davis with company Raymond James. John, your lines are open.

John Davis: Hey, good afternoon, guys. This is Sean. Sanjay, I wanted to start on EBITDA. Margins came in nicely ahead this quarter, expanded about 1300 basis points year-over-year. I understand comps get tougher throughout the rest of the year, but the guide implies margins will be down year-over-year and kind of the 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 this conservatism, but just trying to understand kind of the puts and takes on margins through the rest of the year, given the full year guide?

Sanjay Kalra: Yes, John, I would say that the margin, they definitely came very strong in Q 128.6%. and for the full year as well. You know, 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 it’s slightly changing. Q1, we have still not catch, caught up with the operating expense plan. We are 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 teens percent up year-over-year.

So we have some catch up to doing 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 which you where you see a slight softness compared to Q1 in the outer three 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, so it’s prudent, I would say. That said, we are marching on full plan to execute and deliver a strong year.

John Davis: Okay, great. Sanjay, just one other quick kind of guidance modeling question. So the 300 basis point de-sell and the 2Q revenue guide I think makes sense given kind of your historical practices around revenue guidance. But it also implies about a 1400 basis point de-sell, I think from 30% to 16% in CP growth. And just curious, kind of what are the moving pieces there? Or why is the contribution profit growth so much slower in 2Q versus the revenue kind of decel for the second quarter?

Sanjay Kalra: Yes, John, I think there are 2Questions, 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 years, Q1 and Q2 are pretty much similar because Q1, we are, we get benefit due to seasonality, but in Q2, seasonality is not there, but we pick up due to implementations. That said, Q1 and Q2 are generally similar on top-line, that is 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 a 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’re following a prudent approach. Let me go on the second part of the question on contribution profit, and this stems basically from why we call 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, you know, 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 Biller mix.

I would say this could make it happen that one quarter looks stronger, the other quarter does not. And while I’m on the 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. This has happened in the past as well. In fact, last year in Q3, it happened in 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 the 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.

Dushyant Sharma: And at midpoint we are on the Rule of 40 scale, in the mid forties.

Sanjay Kalra: We are 45 at 45. Yes, I hope that helps.

John Davis: Yes, no, it does. And one quick, one last one for shot, the IPN, you guys called out in prepared remarks, contributor growth. Just curious for kind of a quick update there? And Dushyant, are you guys willing to share what percentage of the revenue that is today or. It was just, it was noticeable that you guys called it out in the prepared remarks as a contributor. So just curious for an update there?

Dushyant Sharma: Yes, the IPN continues to actually fuel up 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, doing one integration with our platform and having access to a very diverse and broad set of network access points so they can reach their entire customer body. So that actually contributing to growth, IP in itself is growing and growing well and still is not over 10% of our business, but is growing well and contributing well to our business.

Operator: Our next question comes from Dave Koning with the company Baird. Dave, your line is now open.

Dave Koning: I guess my first question, your net revenue per transaction was up nicely year-over-year. I know it was a pretty easy cop, but historically last few years usually net revenue per transactions come down as you’ve grown. What’s the reason behind that? And maybe is part of that network fees have been down, which is nice. Does that continue and keep helping that net revenue per transaction?

Sanjay Kalra: Yes, 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, they were signed up at better ARPU or set differently, a better revenue per transaction which kept the revenue per transaction also flat. Otherwise generally you see that becomes softens 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.

Dave Koning: Gotcha. 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 kind of the number to think through now that you’re really profitable, or is there some other rough tax rate we should be using? I suggest for modeling purposes, please use our 25% of non-GAAP net income as the tax rate going forward

Operator: Our next question comes from Darrin Peller with the company Wolfe Research. Darren, your line is now open

Darrin Peller: 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, then 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 APN, but maybe some larger partners like JPMorgan and others. Thanks guys.

Dushyant Sharma: Sure. Hey Darrin, great question from the customer makes itself. Actually, before I go there, let me just, I was alluding to earlier that we are seeing great momentum in our demand for our platform and the ecosystem. And across the board. And across the board, even in terms of the industries, the size of the customers, utilities remains a very important vertical for us, and a key vertical. But we are making progress and 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 a times they never thought that 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 of our large bank partnerships, they’re going really well. And we are very proud of the partnership. We have a JP Morgan and the JP Morgan Chase, and in terms of the ITN itself, it continues to remain strong and the demand continues to remain strong and especially in the mid tier bank and the credit union markets.

Darrin Peller: All right, that’s helpful. Thanks. Dushyant, real quickly, quick follow up on the merchant settlement, the MdL. Just regarding interchange, I mean, any flow through or impact on you guys, we should just keep in mind, we didn’t think it was as much, but if there was any to call it, it’s worth asking?

Dushyant Sharma: 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 are very fortunate to have those kind of relationships. In terms of this specific settlement itself, I think the only thing I would say is anything that actually helps, even slightly, to improve our interchange rates is beneficial to us, but we haven’t quantified anything in that regard.

Operator: Our next question comes from Will Nance with the company Goldman Sachs. Will, your line is now open.

Will Nance: 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, you know, I asked for 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. And if you were to go down that route, would they be more focused on sort of complimentary type M&A, like pay various back in the day, or is there an opportunity for more scale driven rollout?

Sanjay Kalra: Yes, well, I’ll start. And maybe Dushyant to 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, that is 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’s where 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 gap, 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 are not seeking anything right now.I think we are heavily focused on executing and I think that’s where our capital allocation strategy lies.

Will Nance: Got it. Appreciate that. And then maybe just a question on some of those 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 bellairs? 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?

Dushyant Sharma: Yes, well, 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 which is still more than 50% and the remaining 50% is made up of bunch of verticals, insurance being one, government being the other. And we are seeing a lot of these 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 we 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 tailwind of that now. Catching up.

Operator: Our next question comes from Tien-Tsin Huang with the company JPMorgan. Tien-Tsin, your line is now open.

Tien-Tsin Huang: Yes, 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 or ARPU on new pillars, but how about the overall book?

Dushyant Sharma: Well, 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 were working with all the billers and we had to pass those increased costs to them. So it was kind of a separate process on its own. And I believe that was a pretty interesting topic in 2023 and even exiting 2022. But now the processes 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 other factors. So I think it’s a part of regular process. I would not call that as one off pricing activity anymore, but I hope that addresses the question. But at the same time, I’ll 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.

Tien-Tsin Huang: Right, right. So the repricing has been addressed, and it’s part of your normal course now as you’re renewing and winning deals. I think I understand. It’s good to know. My second question was just on the. I heard. I know will asked about composition on your wins. You talked about strong bookings, substantial backlog. Is there any issue or concern around replenishing that pipeline and backlog? I know, Dushyant, you 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?

Dushyant Sharma: Yes, 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.

Operator: Our next question comes from Andrew Bauch with the company Wells Fargo. Andrew, your line is now open.

Andrew Bauch: Hey, good evening and thanks for taking the question. I know it’s been hit on in prior questions, but I’m just trying to better understand the interplay here between, you know, the execution, you guys delivered, you know, four straight quarters of 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 can 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?

Dushyant Sharma: Actually, I would say it is. It is not a catch up. Let me take the last part first. It is more like we are 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 their customer experience using our platform and the ecosystem. And that is going well. As a result of that, we are also, you know, we are signing clients off 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 frontbook 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 wouldn’t think that there is any, that this is like a short term success we are seeing. What we are seeing is 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 normal cadence here. And in terms of your other question, what two or three things we 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, sign 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 of the operating leverage, we are able to continue to do that very successfully. So that’s what has been the focus.

Andrew Bauch: 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, you know, are you anticipating, albeit you said in the out years that can come from your AI investments? And I think that patent really does kind of show that testament.

Dushyant Sharma: No. Thank you. Thank you, Andrew. We haven’t actually, I mean, is it still nascent? The patent was just awarded like weeks, a few weeks ago, publicly issued. So we plan to integrate those capabilities in our system. The reason we were trying to bring this out was if you’re an investor in the business or thinking about investing in our business, you are looking at 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 payment, us 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.

Operator: Our next question comes from Zachary Gunn with the company FT partners. Zachary, your line is now open.

Zachary Gunn: My question, 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 that top end is also achievable in no new clients? Or was that some of the 1Q outperformance driven by new clients? Just how to think about that. And then I just have a follow up.

Dushyant Sharma: So 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 little more than what we exceeded in Q1.

Zachary Gunn: Got it. Okay. Yes, 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 one q of last year, it was the trial 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.

Dushyant Sharma: Well, exactly. I would say that 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. We learned 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 pillars from, 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 would 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.

Operator: 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.

Dushyant Sharma: Thank you everyone for your time today. Have a great day. Thank you.

Operator: That concludes today’s conference call. Thank you for your participation. You may now disconnect your lines.