Good day, and welcome to Paymentus' First Quarter 2022 Earnings Call. This call is being recorded. At this time, I would like to hand the call over to Paul Seamon, VP of Finance and Strategy, for some introductory comments. Please go ahead.

Thank you. Good afternoon, and welcome to Paymentus' First Quarter 2022 Earnings Call. Joining me on the call today are Dushyant Sharma, our Founder and CEO; and Matt Parson, our CFO. Following our prepared remarks, we'll take questions. Our press release was issued after the close of the 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 call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements use words such as will, believe, expect, anticipate, and similar phrases that denote future expectations or intent regarding our financial results and guidance, market opportunity, business strategies, 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 caption, Special Note Regarding Forward-looking Statements, and risk factors in our annual report on Form 10-K for the year ended December 31, 2021, which we filed with the SEC on March 30, 2022; our quarterly report on Form 10-Q for the quarter ended March 31, 2022, which we expect to file with the SEC in early May 2022; and elsewhere with our other filings with the SEC. I encourage you to review these detailed 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, adjusted EBITDA, and adjusted EBITDA margin are non-GAAP financial measures. These non-GAAP financial measures, which we believe are useful in measuring our performance and liquidity, should be considered in addition to, 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 with the most directly comparable GAAP measures in our earnings press release issued today and the supplemental slides for the webcast, each available on the Investor Relations pages of our website and our filings with the SEC. With that, I'd like to turn the call over to Dushyant Sharma, our Founder and CEO.

Thanks, Paul. We started 2022 with a very strong quarter across all KPIs and saw little to no impact from the geopolitical and economic events that occurred, including the events in Ukraine and inflation. We believe we have a clear view of the business and are optimistic about the outlook for the remainder of 2022 as well as the foundation it sets for 2023. We believe one great aspect of our business is that it is extremely resilient because consumers and businesses have to pay their essential bills regardless of world events or whether the economy enters a recession or not. On a quick personal note, this is our fourth quarterly update since the IPO as we approach our first anniversary. I'm having a lot of fun building the business, as is my team. I know based on where the markets have been, one would think that we could be distracted, but we are not. We are laser-focused on executing our business strategies as we seek to build a long-term successful and high-growth business. We all understand and remain focused on the effect of long-term compounding growth. As a new public company, and where I sit today, despite our scale, I view us as a startup public company and believe we are just getting started. I welcome each and every one of you on our journey to share in our long-term success. Let me now discuss our financial performance, which demonstrates that we are executing and performing well. In the first quarter, contribution profit grew 35%, driven by a 40.9% increase in transactions. From the sales booking perspective, we signed over 60 clients in the quarter, which is about 50% more than the same period last year. These sales numbers are inclusive of direct partner and JPMorgan migrations, which require some sales support to complete. Relative to the comparable quarter of 2021, our sales were more diverse with less than 40% from the utilities vertical. The largest areas of increase were city services, insurance, and mortgage payments. But we also signed clients as unique as a leading home design company. We crossed an annual run rate of $100 billion in payment volume during the quarter. We believe very few companies in the U.S. are processing at this scale, which is nearly $0.25 billion per day on average. As we have said before, scale creates opportunities to strengthen our network and process relationships because of the unique value we bring in underpenetrated segments for digital payments. We continue to work to establish additional relationships in our newer segments. In past quarters, we have talked about the expansion of our telecom partnerships. This quarter, we have signed the healthcare division of one of the top five U.S. banks to expand our footprint in the industry. We expect the partnership to provide us with expanded access to practice management systems. Adding partners in areas such as healthcare, telecom, and other underpenetrated verticals help our sales efforts and complement our direct selling process. Illustrative of our ability to increase our share of the total addressable market, in the quarter, we went live with one of the largest owners of apartments in the country. Real estate is outside of the core six verticals that we talk about but represents a significant opportunity on its own. As you can imagine, the rent payments fall within our sweet spot of both nondiscretionary and recurring. We believe this implementation shows the flexibility and breadth of our platform, which powers industries as diverse as real estate, B2B logistics, and home security providers, not to mention our existing core verticals. We are making progress migrating the JPMorgan Chase client base. We completed our first implementations in the quarter, and many more are in flight and scheduled to go live throughout the year. While this added revenue isn't material, we expect it to build over time. In addition, the new deal sales channel from JPMorgan Chase continues to build, and the relationship continues to be more and more beneficial for both parties. A quick note on our IPN ecosystem. We continue to expand the network and add more and more endpoints, including the BFI. As a reminder, IPN is symbiotic with Biller Direct. IPN helps us win more Biller Direct deals, and Biller Direct wins help us add more IPN, partners, and volume. I'll now turn the call over to Matt to discuss our financial results in more detail.

Thanks, Dushyant. As a reminder, today's discussion includes non-GAAP financial measures. Please refer to the tables in our press release and supplemental slides for a reconciliation of non-GAAP items to the most directly comparable GAAP financial measure. In the first quarter, we processed 87.9 million transactions, which equates to a year-over-year increase of 40.9%. Transaction volume continues to be driven by strong execution as well as additional IPN transactions, in particular, the Payveris Bank transaction as well as business-to-business transactions. This transaction growth drove a revenue increase of 26.5% over Q1 of 2021, which resulted in revenue of $116.7 million in the quarter. Q1 contribution profit was $47.4 million, representing a 35% increase over the same period last year. Consistent with the last several quarters, contribution profit grew faster than revenue, primarily due to an increased mix of transactions without interchange, specifically IPN transactions, cash-based payout transactions, and certain B2B transactions. Contribution profit per transaction was in line with Q4 of 2021 at $0.54, which was consistent with our expectations and previous communications. Contribution profit for the quarter was ahead of expectations due to certain customers going live earlier in the quarter than was anticipated as well as some favorable mix of payment types. While these items provided a tailwind in Q1, we do not anticipate that tailwind to carry forward in the subsequent quarters. Adjusted EBITDA was $5.4 million for the first quarter, which represents an 11.3% adjusted EBITDA margin. This was slightly above our internal expectations for the quarter. We only provide guidance for the full year, but we never expected the adjusted EBITDA to be spread evenly throughout the year as we ramped up hiring to end 2021 and had additional fees for completing the 2021 audit. We expected Q1 adjusted EBITDA to be the low point for the year for these and other reasons, and we are on track to be slightly ahead of what we expected. Operating expenses rose $13.5 million to $36.2 million for Q1 of 2022 from the same period last year. Overall, the increase in operating expenses from last year was driven by investments in staff as well as additional operating expenses associated with Payveris and Finovera, the amortization of identified intangible assets from the acquisitions, and stock-based compensation. Specifically, R&D expense increased $2.7 million or 34.4% from the first quarter in 2021 as we continue to innovate with and for our customers and partners. Sales and marketing expense increased $8 million driven by the Payveris acquisition, continued expansion of the sales team, adding partnerships to capture our sizable market opportunity, and an increase in stock-based compensation. Also, travel and marketing events continue to ramp up relative to Q1 2021, particularly with the impact of COVID fading. We experienced an increase in G&A expense of 43.1% or $2.9 million due to our acquisitions, multifold increases in the cost of corporate insurance, and ongoing investment in public company infrastructure. Our GAAP net income was $1.7 million, and EPS for Q1 was $0.01. Non-GAAP net income was $3.7 million, and non-GAAP EPS was $0.03 for the quarter. We had a large tax benefit in Q1, driven by our small loss on pretax income as well as a discrete benefit of $2.6 million that we recorded related to excess tax benefits on stock-based compensation. As of March 31, 2022, we had $163.4 million of cash and cash equivalents on our balance sheet. Cash decreased primarily due to the timing of certain customer payments as well as increased operating expenses due to the acquisitions. At quarter-end, we had approximately 121 million shares of common stock outstanding. Now turning to our 2022 full-year outlook. We're increasing our 2022 revenue outlook to a range of $492 million to $497 million, which represents growth between 24.5% and 26% year-over-year. We are increasing our contribution profit guidance to be between $206 million and $208 million for the year, which is approximately 30% to 31% growth. Our adjusted EBITDA outlook is in the range of $30 million to $33 million with an adjusted EBITDA margin of 14.5% to 16%. As we've indicated previously, we do not believe the current inflationary environment will have a negative impact on our top line. Our current guidance reflects some assumptions around continued inflation and the potential for increasing wage pressure. However, if inflation continues at higher levels than we have assumed, it could have a higher impact on our margins going forward. As you can see from the updated guidance, the high end of our contribution profit guidance implies growth in the same range as 2021. We believe this level will give us a top decile performance for technology companies based on Rule of 50 for the past couple of years. We are not slowing down and remain excited about how the business is performing. Finally, as we said last quarter, we anticipate our full-year effective tax rate to be around 30%. However, due to the amortization of intangibles associated with the acquisition, the closer we are to breakeven on pretax book income, the more variation we could see on our tax rate. I'll now turn the call back over to Dushyant for some closing comments.

Thanks, Matt. To close, I would like to provide a brief reminder of what we believe makes us different and positions us to win a significant share of the massive payment plan. Our platform was designed to be flexible and meet the billing and payment needs of virtually any industry. This creates a massive addressable market that's both recurring and nondiscretionary in the U.S. and beyond. IT estimates based at nearly 16 billion bill payment transactions annually in the U.S. alone, and we believe we have the ability to address a sizable portion of them. With our acquisition of Payveris, we also opened up access to bank-based payments and we believe IPN extends our reach to virtually any channel a consumer wants to pay through. Our platform is known for B2C but also runs large-scale B2B invoicing and payments clients. B2B is outside of the 16 billion number I just mentioned. The platform is known for handling meaningful payments, but can also provide payouts for insurance companies and other industries that need disbursement capabilities. The payout is also incremental to the 16 billion payment number I talked about. This is why we continue to be extremely bullish on the business, and you see us continue to invest in long-term growth rather than dropping incremental dollars to the bottom line. I'd like to thank our 1,000-plus employees for their hard work and dedication that makes all this possible. With that, I'll now turn the call over to the operator for questions.

Our first question is from Will Nance from Goldman Sachs.

I wanted to follow up on the full year guidance. I think last quarter, you guys signaled that in the back half of the year, you could dip below that 30%. And I think it was a combination of tough comps in the prior year and some conservatism around the pace of onboarding. It sounds like you were a little bit more successful in bringing new clients on board this quarter. I'm wondering, as we've gotten three months later, have you gotten any incremental line of sight onto the pace of onboarding? And is that still your expectation in the back half of the year? And what would it take for that not to occur?

Yes, thanks, Will. This is Matt. Great question. It's early in the year. I would say nothing fundamental has changed in our perspective regarding our guidance, modeling, and forecast for the year. We had a strong result in Q1 and were able to launch things earlier than expected. We will continue to strive for that as we progress through the rest of the year. This has always been our approach and will remain our focus, along with Dushyant and the rest of the team. It’s still early in the year, and we are maintaining our outlook for the rest of the year at this time, while continuing to work on it as we move forward.

Got it. That's helpful. And then maybe one for Dushyant. I'd like to hear about the referral agreement with the healthcare vertical of a large bank. If we take a step back, you guys have done a lot of expansion in your go-to-market channel since the IPO. And I guess when you put together the JPMorgan relationship, Payveris, and the new healthcare deal, I mean how are you thinking about the tailwinds that this could drive to the top line? And I guess, at an even higher level, would you consider these partnerships as being potentially additive to that 30% growth rate that you've talked about in the past?

Well, good question, thank you. I was smiling because of the last part of your question. Look, we are very proud of what we have been able to accomplish here. Everything we set out to do as a business, we said we're going to build a platform, which allows us to scale horizontally to any vertical industry and vertically to any size of the customer, and we have done that. And as a result of the modern platform, which not only brings billers live in the ecosystem, which is the direct ecosystem, but also through the IPN ecosystem we have created allows them to go to any endpoint, it is allowing us to bring customers on our platform at a faster clip than we had done before. In addition to that, we are also seeing tremendous excitement in the partnership ecosystem we have. You named some of the partners, and there are many other partners in the mix as well. So we are seeing tremendous progress there. And this clearly helps us continue to grow and maintain the momentum. And while we're not raising our guidance, our guidance is what it is, but not a day goes by when we are not looking at how can we accelerate that even more than what we are already forecasting. So not only the guidance, but from an overall perspective, we feel good about where our business is headed.

Thank you, Will. Our next question goes to Andrew Bauch with SMBC Securities. Andrew, your line is open. Please go ahead.

Thanks for taking my question and nice set of results here. I guess first off, Matt, I wonder if you could clarify some of your comments around the first quarter tailwinds around favorable mix and the pace of onboarding. I guess can you give us a better sense of what exactly those payment mix types are and what drove that benefit and why that wouldn't carry forward in subsequent quarters? And is the onboarding dynamic really just a timing element? Because I would assume that if you're accelerating the rate of these onboardings, that those tailwinds should continue.

Yes. Thanks, Andrew. Appreciate the question. So on the implementation onboarding, when we lay out our model for the year, we assume based on all the information that we have from our own team and the client a certain go-live date for a particular client. And let's say, for some of the acceleration we saw in Q1, they were clients that we had slated to go live at the end of Q1, but they went live in the middle of Q1. So that means that we got an extra month and a half of revenue off of them. But when it comes to Q2, we kind of had that revenue in Q2 all along because they were going to go live in our plan at the end of Q1 anyway. So there's no incremental benefit to Q2 from that client going live earlier in Q1. And that's what I was sort of referencing with Will's question. At this point in time, early in the year, we don't want to make assumptions that we'll be able to be successful with additional clients in the implementation pipeline doing the same thing because every client is different. All the facts and circumstances are different. So it's great for Q1 that we were able to do that. We continue to work on doing that every day going forward, and our team is very focused on it. But it's hard to make an assumption that that can continue through depending on different factors at different clients. Then on the mix side, really what I was referring to there is we saw some movement from credit, higher cost type of payment to more cash-based, lower cost type of payment in Q1. So we got the benefit of additional contribution profit from that. The main reason we said we're not anticipating that to continue is because Q1 is a little bit of a different animal than the other quarters to start the year in that it's kind of a high point of the year in terms of what we see for our average payment amount, i.e., the bill payment amounts that are getting paid on our platform largely due to utility payments being higher in Q1 because of the cold winter months. This year, that was perhaps even more felt with some of the macro things we're seeing around energy costs. So I think people may have put some speculation on my part that people may have paid more with different types of payment methods because the bills were higher. They may have split their bills and paid some with cash, some with credit, etc. So again, we're not making assumptions that that's going to continue because Q1 has a little bit of a different profile with respect to the amount of payments we see and the behavior we see out of consumers just because those payment amounts are higher.

And I think if I may add a little bit to that. The quarterly dynamic that Matt described so well is exactly why sometimes it could be misunderstood that when we're guiding to the year, sometimes quarterly results vary, but the guidance for the year is what we're focused on as a whole.

Got it. Very helpful. And then a follow-up for Dushyant. I mean, if we're heading into an economic slowdown and potentially a prolonged recession, I mean, is this changing any of your conversations with billers that are looking for solutions to be able to better capture the rate of payment and the like?

Yes, great question. I can take you back to the last time we encountered a recession, which was around 2010, '11, and '12. We want to anticipate accelerating growth for us in some ways, because the business itself, as I talked about at the top of the call, has a resilient factor in that people still need to pay their bills whether they are consumers or businesses. You still have to keep your lights on, pay your insurance, mortgage, and so on. During these times, there is an increased focus on improving efficiencies while also trying to enhance customer experience so it's easier to collect money from customers. This actually shines an even stronger light on our platform and our capabilities. As a result, we tend to get more inbound inquiries than we would typically receive. I'm not saying that a recession is beneficial, but the way we have designed our business and approach the market allows us to remain strong even in these circumstances. I hope that answers the question.

Thanks, Andrew.

Thank you, Andrew. Our next question is to Ashwin Shirvaikar with Citi. Ashwin, go ahead.

Thank you. Hey, good quarter, guys. I was hoping you could perhaps address what we should expect regarding cadence through the year. You're obviously raising expectations. Is it a timeline one should expect in terms of just the quarterly layout? And then let me ask the second question as well. The expansion opportunities that you talked about, for example, the entertainment opportunity, is there a way to size that and how that flows through your system? That would be helpful.

Okay. Thanks, Ashwin. On the first one, I assume what you mean is does it change anything? Just to clarify, on the quarterly cadence, does the stronger-than-expected Q1 and raised guidance change our thinking for the rest of the year and how quarters play out? Is that what the question was?

Yes, that was the question.

Got it. No, not really. I mean, as I said, the strong Q1 was due to many factors. We continue to believe that the underlying fundamentals for the year are in line with what we have previously discussed. Dushyant alluded to this a moment ago; we only provide guidance on an annual basis because there is quarter-to-quarter variability in our business. When we get into the back half of the year, we have tough comparisons related to some acquisitions in Q3 and Q4. But fundamentally, we feel we are a 30% grower, and our guidance reflects that. I don't think anything is going to change that going into 2023.

Absolutely. In addition, we have a customer base and have signed new customers over the last several quarters, including the most recent one. Securing 60 deals is significant. All of these factors contribute to our potential for next year. We are enthusiastic about the business. While Matt mentions that the year isn't over yet, we are also actively adding many elements to ensure that 2023 is a strong year.

Good afternoon, guys. Matt, I heard you say a couple of times you expect to continue this 30-plus percent contribution profit growth into '23. But our biomass, I would assume a little bit of an organic acceleration given the modest impact from the acquisitions that you've done. So just wanted to confirm that and understand what the drivers are for that accelerated growth for 2023?

Yes. Thanks, John. Well, 2022 is not done yet. Dushyant reiterated that our guidance is our guidance, but we are working every day to continue to drive growth in 2022. I think it's a result of all the things we've been working on. It's the additional partnerships, expanding opportunities outside of our core six verticals, and the B2B potential. We're excited about what is happening with the bank opportunity through Payveris. We've widened our net over the last 12 to 18 months, and that gives us more opportunities to drive additional business.

Absolutely. We've signed customers in every quarter, including this most recent one. Each deal adds value to what we can achieve next year. It has been an exciting time for us, and we believe we're well-positioned for 2023.

Okay. No, that's super helpful. And then a lot of questions on inflation. I'm trying to understand because you guys are a relatively new public company. Could you explain how inflation affects both your top and bottom line?

Sure. The way we've engineered our business and structured our agreements with clients mitigates these issues effectively. We receive a share of fees which are consistent regardless of inflationary pressures on the billing companies. There are variability aspects in some of the transactions, but we have pricing capabilities built into our agreements. Therefore, inflation does not affect us as much as it might appear.

Thank you for taking my questions and thanks for allowing me to join these calls. One thing that stood out on the positive side here is raising the guidance, especially given how many other companies have sounded negative about the quarter. Can you provide your macro view as you see it? What made you confident to release the guidance?

Yes. Thanks, Jeff. This is Matt, and welcome. On the macro view, while things have been tough at the start of the year on multiple fronts, we remain focused on nondiscretionary essential recurring bill payments, which presents a resilient business model. Our payments continued flowing even during periods of economic uncertainty. We've not seen any negative impact, which gives us confidence in raising our guidance. Our ability to execute internally adds to this confidence.

If we were a private company today, you would view us as a company in a recurring billing market. During turbulent times, businesses have an even stronger need to collect efficiently. The design of our platform enhances our case as billing companies look for solutions that provide more capability with fewer changes.

Thank you so much. I'm building on John's question and asking you from a biller perspective, are you seeing billers want to promote AutoPay due to the current economic climate? And how does this affect your approach?

Yes. During economic uncertainties, billing companies aim to make it easier for customers to pay. AutoPay is essential for clients who are paying on time. Our platform supports billing companies to reach customers efficiently without requiring substantial changes on their end. We deliver flexibility and multiple payment options which attracts interest in our solution.

I wanted to inquire about product development changes given current global circumstances. Have you adjusted your focus on product development?

We continue to invest in our product. Our goal is to enhance both customer experience and reduce costs for billing companies. We are making strides in onboarding efficiencies to help clients integrate seamlessly over time while maintaining our standards. We strive to innovate continually as part of our mission.

Hi guys, thanks so much. I wanted to review contribution profit per transaction. Was the mix of business driving the recent downtrend or is this expected?

Yes, it is. We saw a decline in contribution profit due to larger clients and shifts in payment mix. Moving forward, we expect to stabilize as we've onboarded a range of clients, and the overall economic profile remains strong. Various factors will influence transaction pricing but the general trend should stabilize.

Got it. Thanks. Just a quick follow-up. Sales and marketing have turned up significantly in the last few quarters, but is there a point where you expect to see leverage on this spend?

Absolutely. The level of investment we have recent months is higher than typical, and we expect it to moderate moving forward, creating room for operational leverage that will be evident in subsequent quarters.

Thank you, Dave. There are no further questions registered at this time so this concludes the Paymentus Q1 2022 Earnings Call. Thank you for your participation. You can now disconnect your lines.