Sanjay Kalra: Darrin, I would say that you saw that the growth this year was 6.8% full year and next year while we don’t guide for OpEx as such, but you can, I think model it out looking at the guidance we are giving for the other three metrics. You will see that the OpEx is currently expected to grow in May teens. That’s what you come I would think looking at what we provided
Darrin Peller: Yes.
Sanjay Kalra: We are actually taking a prudent, conservative approach in terms of what we need to do. And as I mentioned earlier, we don’t really need to spend OpEx. Majority of the OpEx is not needed to be spent for this year’s growth. This year’s growth is coming from bookings we did last year. We are planning to spend more in terms of what we need to book for outer years growth. So in terms of your main question, where will the spend be? Majority of the spend will be in sales and marketing. I think R&D and G&A will marginally go up but not significantly, the growth will – OpEx growth will mainly be in sales and marketing. That said, I also want to highlight one thing. Majority of the spend is discretionary in nature and we manage our business very carefully.
In fact, there is a regular review of how the OpEx is trending and we can dial up and down based on how the CP is trending. So operating leverage is strong. As you saw last year, like we dropped 70% plus to the bottom line of incremental CP dollars. It can happen again, but we are not planning to do that by choice. So I think we can manage it the way business is progressing, but we are glad to be in a position of operating leverage the way we are.
Darrin Peller: Understood. Great. Thanks guys.
Operator: Thank you. The next question is from Andrew Bauch with Wells Fargo. Your line is now open.
Andrew Bauch: Hey, thanks for taking the question. Just wanted to put a finer point on the hiring plans, particularly in sales and marketing that you highlighted. Sanjay, I know you mentioned in your prepared remarks that it was a function of converting the backlog, but then you also said just now that extending the growth in the out [ph] years is a priority. So I guess qualitatively, like how do you kind of anticipate these sales and marketing investments as they come on to augment your go-to-market strategy? And then if we could just put a finer point on quantitatively, like what should we ultimately be kind of expecting based on your current plans for sales and marketing expense growth in 2024?
Sanjay Kalra: Yes. Andrew, as I said, from the modeling perspective, you would come at around 15%, I think, at the midpoint of growth of OpEx. And to put a finer point quantitatively, I would say can give a percentage specifically here, but I would say bigger piece is, or material piece is for sales and marketing and the remaining piece for R&D and G&A. And a piece also depends on G&A in terms of how the few things come up, D&O insurance renewal, for example, a couple of renewals, we got a good benefit last year. And we don’t know if the market trends of those costs, which are significant costs, where do they go this year? Are they going to stay flat or go up? But I would think they will marginally go up, not significantly.
So take it that biggest piece of the increase in sales and marketing and remaining on these two. Now within sales and marketing, if I have to think about how much we’ll go for growth of pipeline for outer years versus the backlog implementation, I would say in these two things as well, the material portion would go for generating additional pipeline for outer years and the smaller piece or a modest piece for backlog implementation.
Andrew Bauch: And then the qualitative piece, is there anything changing in the go-to-market strategy?
Sanjay Kalra: Well, our basic go-to-market strategy is not significantly changing. One thing which we are continually looking at are there more verticals where we need to get into or can get into? We’ve made a significant progress, I would say, in the last two years in diversifying more into newer verticals, and we are seeing good progress there and good traction there. So our pace to accelerate diverging into new verticals would continue. But other than that, there is no change in our strategy overall.
Andrew Bauch: Got it. Makes sense. And then my follow-up was, Sanjay, you mentioned that the contribution guide was slightly wider than the revenue guide that you gave. You called out the uncertainty around macro and a lot of the mixed dynamics. Are you seeing anything thus far into 2024, be it around amount, type, biller, or the network fees, that would lead you to inform us all on that wider range for contribution profit.
Sanjay Kalra: So Andrew, that’s a very interesting question. Interestingly, we are not aware of any specific change here. What we’ve learned among, I would say, in the last two quarters, when we look at all the contribution profits for all the quarters and try to analyze all the trends, what we’ve noted is that the degree of visibility at any given point in time for the current quarter is much better than the full year. And that’s where we are. We look at our Q1 guidance versus full year. We are taking a broader approach just because the quarterly variability exists. For example, you’ll see Q1 2024 growth exceeds the revenue growth. I mean, Q1 2024 CP growth exceeds revenue growth and Q4 2023 was similar revenue growth, but it changes in other quarters.
So quarterly variability exists and it’s one of the most difficult metric to forecast. But that said, the variability on CP does not impact our bottom line EBITDA, and we can calibrate the OpEx to manage our profitability depending upon how the CP is trending. So as a result, I would say that the utility of CP or contribution profit as a key metric is diminishing over time. Hence we also call it a secondary metric where the utility is limited and we mainly use it to calculate Rule of 40. Hence we thought it’s prudent to take that approach rather than taking a narrow range as there are so many factors. And ultimately we can manage to our bottom line target by dialing up the OpEx up or down. Maybe this was a mouthful; maybe this was more than you asked for but hope it provides some perspective and insight into how we think about this metric.
Andrew Bauch: No, it’s helpful.
Dushyant Sharma: And also, if I may add what Sanjay mentioned earlier was that to deliver 2024 growth, OpEx actually even though everyone knows that we work in the non-discretionary, we service the non-discretionary industry, but our own internal OpEx in the context of 2024 is actually rather discretionary. So we are able to turn the dial up and down because of the operating leverage we have. So we feel good about the top and the bottom end of the guidance despite the variability in the CP, and that’s essentially the message we want to communicate. We know the trends in the business; we are feeling good about how we are capturing the market share and how we are able to profitably grow the business all of that is moving in the right direction.
Andrew Bauch: Now loud and clear. Thanks, Dushyant.
Dushyant Sharma: Thank you.
Operator: Thank you. The next question is from the line of Tien-Tsin Huang with JPMorgan. You may proceed.
Tien-Tsin Huang: Hey, good afternoon. Good results here. And just a couple of clarifications, did you share the NRR [ph] for the year and how they came together and how fiscal 2024 might be different? And also did you disclose the bookings or backlog growth in 2023 versus the prior year? Just curious on the magnitude of benefit there it engine.
Dushyant Sharma: Hi, Tien-Tsin. No, we have not disclosed the numbers for the things you asked for.
Tien-Tsin Huang: Okay. Anything qualitative to share then just on the bookings or backlog front?
Dushyant Sharma: Qualitatively I can share.
Tien-Tsin Huang: Yes.
Dushyant Sharma: Yes, sorry. Quantitatively I would say our NRR as well as bookings and pipeline, they are going at a very decent pace, I would say, and that’s giving us all the confidence to not only exceed our Q4 expectations, we delivered a strong quarter. We are very proud of that and at the same time, Q1 also we are marching in a very good way, and I think we are headed for the, I would say in the right direction for the whole year, given that we exited with a very strong backlog. So I think all these metrics, qualitatively are providing us a lot of encouragement and confidence.
Sanjay Kalra: And Tien-Tsin if I may add to that was that one of the key reasons I wanted to point out the point that we exited 2023 with enough in the bag that we could actually deliver the top end of the guide for all of the three matrices the two primary and one secondary being CP. That’s primarily based on the strength of the backlog, and that is growing year-over-year and we are feeling good about 2024 as well.
Tien-Tsin Huang: Yes, no, it sounds that way. That’s why I thought I’d ask the question. Just my quick follow-up then on the drop through or incremental margin around EBITDA was quite strong in 2023. It’s running around, what, 50% at fiscal 2024 looking at my simple math. So just to make sure it sounds like there is some hiring that will come through that you called out. I know you’ll adjust OpEx depending on where contribution profit lands, but is that the primary difference in thinking about drop through or incremental margin in 2024 versus 2023?
Dushyant Sharma: That’s right.
Tien-Tsin Huang: Thank you.
Operator: Thank you. The next question is from the line of Rebecca Lu with Citi. You may proceed.
Rebecca Lu: Thank you. Hi, guys. Can you give us an update on the JPMorgan partnership? I think a year or two ago we expected that partnership to have a pretty meaningful contribution in 2024. What do we think now?
Dushyant Sharma: Thank you, Rebecca for the question. We are very proud with our part, very proud for our partnership with JPMorgan Chase. They’re a great partner, great organization, and it’s going extremely well in all areas. And we are looking forward to a great 2024 with JPMorgan Chase. We also have a very strong partnership ecosystem and we are looking forward to, and frankly, as you can think about our go-to-market strategy, as Sanjay was also mentioning earlier, that increasingly partnerships become a big factor for us, so JPMorgan Chase is a strong partner for us but also we have other partners, software vendors, fintech providers and so on.
Rebecca Lu: Okay. And I want to ask about the contribution profit in a slightly different way. The profit margin has been – declined last year because we had some negative impacts from inflation. And if we’re looking at the 2024 outlook, even at the top end of the range, we’re also assuming a decline as well. Is it just conservatism or are there anything else that we might not be thinking about?
Sanjay Kalra: So Rebecca, there are two pieces, there are two answers to this. I’ll share individually. Number one, as we are onboarding larger customers, enterprise customers, enterprise customers pricing definitely is different than smaller or midsized customers due to the volume discounts they get because they’ve got bigger transactions or, sorry, much larger transaction base. So I think as a result of that, our contribution profit margin is getting softer a little bit, but that’s totally fine given our strong operating leverage and hence we call contribution profit or contribution margin as our secondary matrices because they don’t really matter as much to our long-term growth model, which are purely dependent on the revenue growth and EBITDA dollars growth.
So it’s a good question to analyze that, how the CP margin is going. But at the end of the day that can easily be managed by adjusting, dialing up or down over OpEx. So it doesn’t really matter to our bottom line. I think there could be situations, you will see that if CP [ph] percent is getting softer; our EBITDA could still get better because we can manage our expense better. And in our current long term model, which we have talked about, i.e. 20% top line growth and 20% to 30% bottom line adjusted EBITDA dollars growth annually. I would think if CP margin gets better, which is also a probability depending upon what kind of customers we get, I would think there’s an upside to EBITDA, although we are not planning to get there right now, I think we are applying a prudent approach.
But what I’m just trying to say is contribution profit and contribution margin are really secondary. And over analysis of that might not produce an optimum result to understand the company.
Dushyant Sharma: And if I may also say one more thing, as Sanjay has alluded to, as your biller mix changes and the larger biller comes to play, imagine a scenario where we sign a large deal where we are going to have a contribution profit of, say a million dollars. That changes. We are less concerned at that point exactly what each transaction is. Contribution profit for each transaction is. We are more concerned about how quickly and how efficiently can we serve that customer and what will be the net operating margin from that biller is once they live on our platform, which ends up being very good based on the operating leverage we’ve been talking about.
Rebecca Lu: Great. Thank you.
Operator: Thank you. There are no further questions in queue. I’d like to turn the call back over to Dushyant Sharma for concluding remarks.
Dushyant Sharma: Well, thank you, everyone for joining the call today. I really appreciate the time. Have a great day. Thank you.
Operator: That concludes today’s conference call. Thank you for your participation. You may now disconnect your lines.
