Good day, and welcome to Paymentus' Third Quarter 2022 Earnings Call. This call is being recorded. All participants are currently in a listen-only mode. There will be opportunity for questions following management's prepared remarks. At this time, I would like to hand the call over to Paul Seamon, Interim Chief Financial Officer for some introductory comments. Please go ahead.

Thank you. Good afternoon, and welcome to Paymentus' third quarter 2022 earnings call. Joining me on the call today are Dushyant Sharma, our Founder and CEO. 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 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 expectation or intent regarding our financial results and guidance. The impact of and our ability to address continued economic uncertainty on inflation, 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 take 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, 2021, which we filed with the SEC on March 3rd, 2022. Our quarterly report on Form 10-Q for the quarter ended September 30, 2022, 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 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 or 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 and not as a substitute for foreign 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 supplemental slides for the 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.

Thank you, Paul. We are pleased with our solid performance in the third quarter. In the quarter, we booked over $30 million of new annualized recurring revenue and expect total new bookings for the year to exceed $100 million, which is about 30% higher than the previous year. Based on our current pipeline, we also expect our bookings momentum to continue well into 2023 and beyond. As a reminder, our contract terms generally average four to five years, and assuming the continuation of our historically high retention rates, we expect this revenue to grow organically for a long time. Our contribution profit increased over 25% to $51.1 million, driven by a 31% increase in transactions compared to the same period last year. Our adjusted EBITDA margin grew over five percentage points from 10.3% in Q2 to 15.7% in Q3, notwithstanding our continued investments in the emerging areas of our business, namely IPN and other related products, which includes our bank bill payment and base bill payment. During the quarter, we completed the implementations of several significant clients, including a large municipal utility, a timeshare vacation club, and a real estate company, which continue to show the breadth of our platform functionality, vertical reach, and an expanding addressable market. We also launched a city-wide deployment with the city of Baltimore, as publicly announced. This implementation was completed within a couple of quarters, which shows that our large client enterprise-wide deployments can be completed and implemented relatively quickly with strong client engagement. We continue to work to motivate clients to accelerate timelines to match our pace. Additionally, in the quarter, we expanded the payment acceptance capability of a large utility that joined us over IPN for expanded coverage of newer payment methods and channels. We are seeing more and more demand for these newer payment methods and channels enabled by IPN, which is bringing additional consumer adoption and accompanying transactions. One of the most important aspects of our IPN is our ever-increasing reach. I'm happy to report that our IPN has crossed over 1 million payees, including SMB businesses, which we believe is a great foundation for Paymentus to continue to offer innovative services to these payees who are receiving payments but not fully utilizing our platform yet. During the quarter, we completed the implementation of a credit union with $3 billion in assets on our new flagship product, Bill Center, which we believe is attracting interest from other companies and generating larger opportunities. As a result, our IPN Bill Center bank bookings are up significantly over last year, and we expect that trend to continue into 2023. As a reminder, there is currently no interchange associated with any IPN and Bill Center originated transactions. I'm proud of our results for the quarter and continue to be excited about our ability to deliver long-term profitable growth. Just over two years ago, for context, in 2020, we were a $300 million revenue run-rate company prior to us going public. In spite of the COVID economic downturn, higher interest rates, and the inflationary challenges we have faced over the last two years since 2020, we have added about $200 million of revenue, and we have now crossed a run rate of $500 million of revenue. As I said earlier, we expect to close out 2022 with over $100 million in new sales, which was fully implemented as anticipated, which is expected to bring our revenue run rate to over $600 million, thereby doubling our business in a relatively short period of time. We are working to build a significantly larger business, and we'll share more details about our strategy in 2023.

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 reconciliation of non-GAAP items to the most directly comparable GAAP financial measures. In the third quarter, we processed 92.3 million transactions, a 30.6% increase over the same period last year. Revenue was $128.2 million, an increase of 26.0% in the quarter. Contribution profit increased 25.8% over Q3 of last year to $51.1 million, which was a little stronger than we anticipated. Contribution profit per transaction was $0.55, which was consistent with the past three quarters in our expectations. We continue to experience inflation on our average purchase amounts but are starting to see some of the benefits of the pricing actions and other expense management measures we've implemented in the quarter. Adjusted gross profit increased $8.5 million or 26.0% in the quarter to $41.0 million. Adjusted EBITDA was $8.0 million for the third quarter, which represented a 15.7% adjusted EBITDA margin. Our EBITDA from our Biller Direct business is materially higher than reported here. Due to our focus on long-term growth, we continue to invest in IPN and related initiatives, which puts pressure on current margins. We believe this is a worthwhile trade-off to fuel growth for the long term as we expand our ecosystem and total addressable market. Operating expenses rose $8.7 million to $38.8 million for Q3 of 2022 from the same period last year. Overall, the increase in operating expenses from last year was driven by investments in staffing as well as additional operating expenses associated with our 2021 acquisitions. The amortization of identified intangible assets from the acquisition and stock-based compensation. Specifically, R&D expense increased $1.5 million from the third quarter of 2021 to $10.3 million. Sales and marketing increased $7.7 million driven by the Payveris acquisition, continued expansion in the sales team, adding partnerships to capture our sizable market opportunity, and an increase in stock-based compensation. We experienced a decrease in G&A expense of $0.5 million due to continued efforts to control costs related to corporate insurance and employee hiring. Our GAAP net loss was $700,000 and EPS for Q3 was a negative $0.01. Non-GAAP net income was $1.8 million, and non-GAAP EPS was $0.01 for the quarter. As of September 30, 2020, we had $148.3 million in 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 123 million shares of common stock outstanding. Now turning to our 2022 full-year outlook. We are reiterating our 2022 revenue outlook with a range of $485 million to $492 million. Our contribution profit guidance has maintained between $200 million and $204 million for the year, which is approximately 26% to 29% growth. Our adjusted EBITDA outlook continues to be in the range of $25 million to $28.5 million, with an adjusted EBITDA margin of 13% to 14%. Our current guidance reflects our assumptions around continued inflation as well as ongoing wage pressure. Finally, as we said last quarter, we would anticipate our full-year effective tax rate to be around 30%. However, due to the amortization of intangibles associated with the acquisitions, the closer we are to break-even on a pre-tax book income, the more variation we could see on our tax rate. In addition, the permanent tax benefit from stock-based compensation continues to impact the rate. I'll now turn the call over to Dushyant for closing comments.

Thanks, Paul. To close, we're very excited about the continued acceleration of demand for our products and services, exemplified by our expectation of over $100 million of bookings in 2022 and accelerating growth in IPN. Also, the fact that our set of IPN related investments, our EBITDA is already materially higher. I hope this provides you the context of why this gives us confidence in our growth and profitability for years to come, especially when you consider the fact that we have almost doubled our business on a fully implemented run-rate basis in just two years. It is very exciting, and we are just getting started. With that, I would like to thank our team who tirelessly worked very hard to serve our clients. And I'll now turn the call over to the operator for questions.

Thank you. The first question is from John Davis with Raymond James. Your line is now open.

Hey, afternoon. Thanks, guys. Just shot impressive margins. This quarter, you kind of called out expense control and really focusing on profitability. Maybe just help us kind of understand how you think about the longer-term margin ramp. And how you think about getting back or getting to that 25% to 30% longer-term margins that you guys have talked about?

Thank you, John. Our focus remains strong on this matter. We wanted to emphasize that our core business is already more profitable, although our reported EBITDA is somewhat subdued due to our investments in IPN and other products. In reality, our profitability is significantly higher than what is being reported. We are confident that as these investments start to yield financial returns, we will return to the margin levels we have previously discussed. We are also diligently managing expenses and being very careful with our investments during this challenging market. We believe we will achieve our goals over time and will provide more updates in our next quarterly call.

Okay. And then, nice to see the upside this quarter. Just reiterated the guide, any kind of timing shifts that fell in this quarter? Or should we just view the fourth quarter guide as conservative?

I think our range for the fourth quarter is still broad, and the main reasons are three factors: implementation, the pricing adjustment due to inflation, and inflation itself. If things go well, we could be at the mid to high end of the range. If some factors don't work out, we will be at the low to mid part of the range. Therefore, I wouldn't view that guidance as conservative; it's the range we are aiming for based on these factors.

Okay. And the last one for me quickly. Any help in sizing IPN? Or maybe if you can't talk about when you think it could be material to the top and bottom line. I know it's growing nicely, but just curious if you can help us with sizing there, that'd be helpful?

We will provide our guidance next year, but it is growing. We expect 2023 IPN to grow much faster than our overall growth rate as noted. IPN and some related products are creating a headwind for our EBITDA margin, but I believe we will be able to overcome that as our investments start to yield greater returns than they are currently doing.

Okay. Appreciate the color. Thanks, guys.

Thank you.

Thank you for your question. The next question is from the line of Dave Koning with Baird. Your line is now open.

Yes. Hey, guys. Thanks. Yes, and good quarter too. And I guess my first question, I guess it's a little like John's in terms of like gross revenue guidance. Even the top end implies a sequential fall-off a little bit in Q4. And is there something seasonal about Q4 that would cause that right? Because I would normally think that the billers just keep adding on to each other and naturally just get sequential progression through the year?

Well, I mean, there are, first of all, different factors. I think Q4 on its own has, believe it or not, a lot of bills are still paid during the working hours and the weekdays, and Q4 tends to have a lot more holidays than some of the other quarters of the year, which plays a role in this. But the other factors are based on how the implementations are going and how many of them are able to produce for us during the quarter. So, and a couple of the other points I talked about, the inflation itself and the pricing that relates to the inflation.

Okay. And then, one nice trend, I mean, your contribution profit all through the year has grown at least as fast as your gross revenue, even with the inflation kind of in the market. Do you see going forward now? If inflation continues, can you continue to have that pattern, especially as the IPN comes out? And I guess network fees get leveraged basically?

Yes, IPN offers a unique advantage since it is not impacted by interchange, meaning there is no effect from inflation in that regard. We can adjust our pricing based on inflation, and we already do this on the IPN side, which is a net benefit for us. Additionally, as IPN becomes a significant part of our business, the rise in interchange costs will matter less. In 2023, Paul and I will provide more details on IPN’s growth. We now have access to a million payees, many of which are small and medium-sized businesses. We view IPN as a network effect, allowing us to offer these payees products and services that we couldn't otherwise. Consequently, IPN represents more than just one revenue source; it enables us to monetize a wider array of products and services than what is currently visible. To address your question, as IPN becomes a larger aspect of our business, interchange concerns will become less significant.

Yes. Got you. Great. Thanks, guys.

Thank you for your question. There are currently no further questions registered. There are no additional questions waiting at this time. I'll now turn the call back to the management team for any closing remarks.

Well, thank you for your time. I really appreciate it, and look forward to speaking to you later. Thank you.

That concludes the conference call. Thank you for your participation. You may now disconnect your lines.