Paymentus Holdings, Inc. Q4 FY2024 Earnings Call

Good day, and welcome to the Fourth Quarter and Full Year 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 the management's prepared remarks. At this time, I will now turn the call over to David Hanover, Investor Relations. Please go ahead.

Thank you, operator. Good afternoon. Welcome, and thank you for joining the webcast to review our fourth quarter and full year 2024 results. Our earnings release documents are available on the Investor Relations section of the paymentus.com website. They include the earnings presentation that we'll make reference to during this webcast. This webcast is being recorded. I hope everyone has had a chance to review those documents. Our Founder and CEO, Dushyant Sharma, will make some opening comments before Sanjay Kalra, our CFO, discusses the details of the fourth quarter and full year and our guidance. Following our prepared remarks, we'll take questions. Let me just remind you that we may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and we refer to non-GAAP financial measures during the webcast. Forward-looking statements are based on management's current expectations and assumptions that are subject to risks and uncertainties. Factors that may cause our actual results to materially differ from expectations are detailed in our earnings materials and our SEC filings that are available both on the SEC's and our website. Information about non-GAAP financial measures, including reconciliations to US GAAP, can also be found in our earnings materials that are available on the website. With that, I'd like to turn the webcast over to Dushyant Sharma. Dushyant?

Thanks, David. 2024 was an outstanding year for Paymentus, and based on the vast stream of non-discretionary bills and our continued market momentum, we believe our best is yet to come and we are just getting started. As I have shared in the past, we operate our business on a two-year horizon and it is quite satisfying to see how well we have executed over the last two years. Likewise, we are just as excited about our next two-year horizon and beyond. And this view is based on five factors: first, our continued sales momentum; second, our strong bookings in 2024; third, our significant exit backlog, net of large client launches in the third quarter; fourth, our continued onboarding success; and fifth, our phenomenal innovation framework that will continue to be disruptive in the broader fintech market. Despite our 2024 outperformance, we remain committed to our CAGR model of 20% top-line and 20% to 30% adjusted EBITDA growth for 2025. And based on our guidance philosophy that has served us very well over the last couple of years, I'm pleased to report that we believe we can deliver the top end of our 2025 guidance, which Sanjay will cover shortly, without signing any new clients, provided, of course, we deliver implementations as planned. With that context, let me now discuss our fourth quarter and full year 2024 results. We ended the year on a strong note with fourth quarter results that exceeded our expectations across all areas of our business. Fourth quarter 2024 revenue was a record $257.9 million, up 56.5% year-over-year. Fourth quarter contribution profit was $86.2 million, up 30% year-over-year. Our adjusted EBITDA, which as many of you know is a significant financial metric for us, was $27.3 million for the quarter, up 36.9% year-over-year. And on a Rule of 40 scale, we saw a sequential increase in the quarter to 62. For the full year 2024, revenue increased 41.9% over last year to $871.7 million, far exceeding our long-term target of 20% top-line growth. Adjusted EBITDA increased 62.2% for the year to $94.2 million, once again well ahead of our long-term target of 20% to 30% growth. Contribution profit for 2024 was $312.1 million, growing 29.5% annually. We also saw a great year for bookings in 2024. The multi-year commitments under our typical agreements from these bookings gives us a lot of confidence in our ability to achieve our CAGR model. As a reminder, our CAGR model is for our primary metrics of revenue and adjusted EBITDA only and should not be confused with secondary metrics such as contribution profit and OpEx. As we have done very effectively so far, we will continue to use our strong operating leverage to calibrate contribution profit and OpEx as necessary to achieve these targets. In addition to the numbers we reported today, as noted on our last earnings call, there is a specific business strategy in play here. While today interchange only serves as a cost center for us, over time, our strategy is to have the interchange economy and associated life cycle flow through our P&L as we capture more market share. This will increase our scale, which also creates tremendous opportunities for modernization and cost reductions. So, longer-term, we will work to expand our margins by pursuing products and solutions that offer the ability to convert part of interchange from a cost center to a revenue center. Said differently, we think of interchange as a potential new expansion of the total addressable market for our business. Even though this is a long-term play, we wanted to make sure that investors are aware of the strategy behind our execution. Now, I'll review some of our key fourth-quarter business highlights and accomplishments. As I mentioned earlier, we finished 2024 with a strong backlog and solid top-line growth as a result of our technology platform and our IPN ecosystem. During the fourth quarter, we signed clients in various industry verticals, including insurance, government agencies, utilities, banking and credit unions, consumer finance organizations, and educational institutions, among others. We believe this extensive mix of new customers demonstrates the diversity of the businesses and the multiple industry verticals our platform can support. In addition, we signed several new channel partners in various industry verticals to deepen our partner ecosystem. These verticals include government services, utilities, insurance, and healthcare. Our diverse and ever-expanding partner network is an excellent companion to our direct go-to-market strategy. And in addition to this strategy, we continue to focus on onboarding our strong backlog. Our onboarding enhancements, targeted incremental investments, as well as constantly improving face-to-face client engagement continue to be a tailwind for us. As part of this effort, like we have mentioned on past calls, we have continued to ramp up hirings in order to support our continued growth. During the quarter, we onboarded clients across multiple verticals, namely, insurance, property management, government services, utilities, banking and credit unions, and telecommunications. Now, let me turn it over to Sanjay to review our financial results in greater detail.

Thanks, Dushyant, and thank you all for joining us today. Before I discuss our quarterly results and outlook, I'd like to remind everyone that the financial results I'll be referring to include non-GAAP financial measures. Our earnings press release and presentation include reconciliations of these non-GAAP financial measures to their corresponding GAAP measures. Both are available on our website. Turning to Slide 5, we ended 2024 with another quarter where we exceeded the top-end of our guidance range across all our key financial metrics. Our fourth-quarter results included: record revenue of $257.9 million, up 56.5% year-over-year; contribution profit of $86.2 million, up 30%; and adjusted EBITDA of $27.3 million, up 36.9%. On a Rule of 40 basis, we came in at 62, our highest level to-date and our seventh consecutive quarter of exceeding the Rule of 40. During the quarter, we also continued to experience strong customer activity and demand, consistent with what we experienced throughout 2024. This drove robust bookings and we exited the year with solid momentum and a significant backlog and a greater cash position to support our continued growth strategies in 2025. Now, let's review our fourth-quarter financials in more detail. As mentioned earlier, fourth-quarter revenue grew 56.5% year-over-year to $257.9 million. This higher-than-anticipated growth was driven by two key factors: first, the successful launch of new billers, including the first full quarter benefit from large enterprise customers that launched during the third quarter; and second, increased same-store sales from existing billers. In the fourth quarter, we derived more revenue from these newly launched large enterprise customers, with higher average payment amounts contributing to higher revenues. And while our original fourth-quarter guidance contained some upside, we took a prudent approach because at that time, the precise magnitude of this beneficial impact was uncertain. And you can see it was quite substantial. Complementing this, in the fourth quarter, the number of transactions we processed grew to 166 million, up 33% year-over-year. Our average price per transaction increased during the fourth quarter to $1.55, up over 17% from $1.32 in the prior-year period. This was mainly due to the biller mix, or more specifically, the large enterprise billers that launched in the third quarter with higher average payment amounts. Fourth quarter 2024 contribution profit increased 30% year-over-year to $86.2 million. This increase was also higher-than-expected and reflects increased transactions from existing billers, the launch of new billers, and the change in biller mix I mentioned earlier. Contribution margin was 33.4% for the fourth quarter compared to 34.5% last quarter and 40.3% in the prior-year period. The 6.9% contribution margin reduction year-over-year reflects the continued addition of large, high-volume enterprise billers to our growing customer base. This was substantially offset by benefits from the economies of scale and year-over-year reduction in operating expense margin, both of which resulted in an improved adjusted EBITDA margin and a record Rule of 40 at 62. This is consistent with our continued focus on profitability, which I will elaborate on shortly. Contribution profit per transaction for the fourth quarter 2024 was $0.52, similar to $0.53 in the prior-year period, demonstrating our ability to expand market share with comparable contribution profit per transaction. As we've noted in the past, variables that are outside our control, such as an increase in the average payment amount or changes in payment mix, can affect contribution profit on a quarter-to-quarter basis, and therefore, we treat this as a secondary metric, while our gross revenue and adjusted EBITDA remain primary metrics for us. Fourth quarter adjusted gross profit grew 32.4% year-over-year to $71.8 million. We experienced adjusted gross profit growth greater than our contribution profit growth due to the economies of scale we can achieve by reducing other cost of goods sold. Fourth quarter non-GAAP operating expenses were up 28.8% year-over-year to $47.3 million, primarily reflecting higher sales and marketing expenses as well as research and development expenses. These increases were consistent with our expectations and were mainly driven by increased hiring and increased agency fees for businesses from resellers in order for us to convert our strong pipeline into bookings and also to enhance our technical strengths. Regarding taxes, we have determined that a non-GAAP tax rate of 25% for the fourth quarter of 2024 is appropriate based on our current expectation of our long-term projected tax rate. The rate is reflected in our 2025 guidance, which we will cover shortly. For comparative purposes, we have recast our fiscal 2024 and 2023 non-GAAP net income to reflect this tax rate, which is available in the tables included in our earnings release. Please note, this non-GAAP tax rate reflects currently available information and could be subject to change. Fourth quarter non-GAAP net income was $16.3 million or $0.13 per share compared to non-GAAP net income of $11.8 million or $0.09 per share in the prior-year period. Fourth quarter adjusted EBITDA grew 36.9% to $27.3 million compared to $19.9 million in the prior-year period. Adjusted EBITDA also represented 31.6% of contribution profit for the quarter compared to 30% in the prior-year period. The strong adjusted EBITDA performance was due to the same combination of positive factors I talked about earlier, all of which came together in the quarter. We believe the stronger adjusted EBITDA margin demonstrates the inherent operating leverage we have in the business. Interest income from our bank deposits was $2 million in the fourth quarter, consistent with the prior-year period. Related to overperformance, as mentioned earlier, we once again exceeded the Rule of 40 for the quarter, coming in at 62 compared to 61 last quarter and 53 in the prior-year period. Now, turning to Slide 6, I will summarize our full year 2024 financial results, which also came in higher than we originally expected. Revenue for the full year increased 41.9% to $871.7 million, driven by a 30.3% increase in the transactions, primarily from new billers as well as transaction growth from existing billers. Contribution profit increased 29.5% to $312.1 million, primarily due to increased transactions. Lastly, adjusted gross profit increased 30.4% to $259.6 million. Non-GAAP operating expenses increased to $175.9 million, up 17.3% year-over-year, primarily due to higher sales and marketing expenses as we continue to focus resources on the execution of our go-to-market strategy. Non-GAAP net income was $56.2 million or $0.44 per share compared to non-GAAP net income of $32.2 million or $0.26 per share in the prior year. Adjusted EBITDA increased 62.2% to $94.2 million, primarily due to increased adjusted gross profit net of increased non-GAAP operating expenses. We exceeded the Rule of 40 for the full year, coming in at 60 for 2024 compared to 2023 when we ended at 44. We are also proud to report that in fiscal year 2024, $36.1 million of our $71.2 million contribution profit increase flowed through to adjusted EBITDA, representing a 51% incremental adjusted EBITDA margin. Now, I'll discuss our balance sheet and liquidity position on Slide 7. We ended the fourth quarter 2024 with total cash of $209.4 million compared to $190.8 million at the end of last quarter and $183.2 million in the prior-year period. The $18.6 million sequential increase is primarily comprised of $27.9 million of cash generated from operations, offset by $9.1 million cash used in investing activities, primarily for capitalized software. The company does not have any debt. The free cash flow generated during the quarter was $19 million. For the full year 2024, we invested $36 million in capitalized software and $26 million in working capital as we scale the business. We paid $14.4 million in income taxes as we are now profitable and also generated $8.7 million from interest income. In 2025, our cash deployment priorities are unchanged. Driving organic growth remains our primary focus. Our strong cash position enables us to maintain financial flexibility to keep room for working capital investments as we scale. Additionally, our strong balance sheet enables us to explore attractive M&A opportunities that may arise in order to further increase our growth prospects. Our days sales outstanding at the end of the fourth quarter was 43 days compared to 44 days last quarter. We had 128.7 million diluted shares outstanding during the fourth quarter compared to 127.6 million diluted shares outstanding during the third quarter. Now, I'll turn to our non-GAAP guidance for the first quarter and full year 2025 on Slide 8. Before discussing our 2025 guidance in detail, as mentioned on our last earnings call, we are continuing to follow the same prudent approach to first quarter and full year guidance that we followed when we provided our initial 2024 guidance around the same time last year, which I believe has served us quite well. Turning now to details. For the first quarter 2025, we expect revenues to be in the range of $241 million to $249 million, representing a 32.5 year-over-year growth at the midpoint and 34.7% at the high end. This growth rate range is an improvement from the prior year's first quarter growth rate of 24.6%. Contribution profit to range from $84 million to $86 million, which represents 22.5% year-over-year growth at the midpoint and 23.9% at the high end, compared to the prior year's first quarter growth rate of 29.6%. This year-over-year change reflects our expanding market share and a more diversified customer base, which includes a growing number of large enterprise customers. Adjusted EBITDA of $24 million to $26 million representing growth of 26.3% year-over-year at the midpoint and 31.3% at the high end. This represents a 29.4% margin at midpoint and 30.2% margin at the high end, an improvement to the prior year's first quarter adjusted EBITDA margin of 28.6%. On a Rule of 40 basis for the first quarter of 2025, our guidance implies a range of 50 to 54. Before moving to the details for our full year guidance, I want to provide further insight into our outlook for contribution profit growth rates and adjusted EBITDA margin. As our business continues to grow, we are receiving more inbound inquiries from large enterprise customers. As we have mentioned on prior calls, as expected, these customers often request volume discounts. This is standard within our industry and we are open to this where the deal economics support it. Our tremendous operating leverage allows us to do this as volume discounts for larger customers are typically more than offset by strong incremental adjusted EBITDA. We saw this in the second half of 2024. This increases our efficiency as our onboarding time per biller is declining, while our average customer size is simultaneously increasing. Furthermore, our operating model enables us to recalibrate OpEx spending relative to contribution profit in order to reach a desired adjusted EBITDA. For reference, our incremental adjusted EBITDA margin for the fourth quarter 2024 was 37% relative to adjusted EBITDA margin of 31.6%. Turning now to specific details for the full year 2025, we now expect revenue in the range of $1.04 billion to $1.06 billion, which represents 20.4% growth from the prior year at the midpoint and 21.6% growth at the high end. This top-line growth at the midpoint is higher than the initial top-line growth guidance we provided for 2024 around the same time last year. Contribution profit in the range of $358 million to $366 million. This guidance represents 16% year-over-year growth at the midpoint and 17.3% at the high end. It also reflects the same factors I mentioned earlier when discussing our first quarter 2025 guidance such as: the increasing number of large enterprise customers in our client base, favorable deal economics and our substantial operating leverage. Our expected 2025 contribution profit growth at midpoint is consistent with what we initially guided for 2024 contribution profit growth around the same time last year. Adjusted EBITDA to range from $112 million to $116 million. This guidance represents 21% year-over-year growth at the midpoint and 23.2% at the high end, an increase versus the initial adjusted EBITDA growth guidance we provided for 2024 at the midpoint around the same time last year. This guidance also represents a 31.5% margin on contribution profit at midpoint. Our non-GAAP tax rate of 25%. And on a Rule of 40 basis, for the full year 2025, our guidance implies a range of 46 to 49, higher than the implied Rule of 40 initial guide we provided for 2024 around the same time last year. We believe based on the strong exit backlog and solid sales momentum, we have considerable visibility and we are well positioned to deliver solid growth in 2025. Our business continues to run on all cylinders. Lastly, I am pleased to report we significantly improved our internal controls over financial reporting during 2024, resulting in the remediation of the material weaknesses we previously reported in our SEC filings. And I would like to thank the team members that made it possible to accomplish that important objective. Thank you, everyone. And now, I'll turn it back to Dushyant.

Thanks, Sanjay. In closing, we are very proud of our fourth quarter and full year 2024 results, which were ahead of our original expectations. We ended the year with a strong backlog, which gives us confidence in our 2025 guidance. And of course, we intend to remain focused and disciplined in onboarding our strong backlog, which we expect to keep fueling our growth. What also gives us confidence is our track record of performance. In the three years since our IPO, we have more than doubled our revenues and more than tripled our adjusted EBITDA. As you may know, our performance even prior to IPO is also very exciting. We believe this performance illustrates the strength of our operating model and the historical resilience of our business and our ability to respond to macroeconomic headwinds and recessionary pressures. On that note, I also want to thank all of my team members for their continued efforts and dedication to Paymentus' success. That concludes our prepared remarks. I'll now open up the line for questions.

Thank you very much. We will now begin our Q&A session. We have a question from Dave Koning of Baird. Your line is now open.

Yeah. Tremendous results again. My first question is regarding Q1 guidance, which indicates a mid-single-digit decrease in gross revenue compared to the previous quarter. Historically, the lowest sequential growth we've seen in Q1 was a 6% increase, with many quarters seeing increases of around 10% to 12%. I'm curious if there was anything non-recurring about the large billers that joined, leading to a sequential decline, or if this is just cautious guidance to ensure targets are met and operations continue smoothly.

Thanks for your question, Dave. I appreciate it. In Q1, we find ourselves in a situation similar to what we experienced a quarter ago when we provided guidance for Q4. This is primarily due to the onboarding of new large enterprise customers. It's only been a couple of quarters since they joined us; they came in during the latter part of Q3, and Q4 was their first full quarter with us. Therefore, we need to observe a complete one-year cycle to truly understand the trends before we can refine our full-year or quarterly guidance. However, since Q1 is already underway, we have some insights, even though the books won’t close for a few more days. We're cautious in our outlook for Q1 based on what we observed in Q4, as that data may not fully represent the long-term trends. Consequently, we've adopted a careful approach in developing our guidance for the full year and for Q1 specifically. Aside from that, I can confidently say that the business is performing well. Our sales momentum is strong, our exit backlog is solid, and our pipeline looks good with more large customers coming in. Trends may fluctuate from year to year and quarter to quarter as we grow, but when examining metrics like gross margin, we also need to consider our operating leverage. Ultimately, our adjusted EBITDA should show improvement year over year. To wrap up, I'll mention that we closed the year with a 30.2% adjusted EBITDA margin, and for next year, we’re setting a guidance midpoint of 31.5%. Despite being conservative in our guidance, we are taking proactive steps to enhance our adjusted EBITDA margin.

Yeah, that's great. Secondly, regarding macro sensitivity, we're anticipating potential volatility in the market. How robust is your consumer base? Utility payments and monthly bills appear to be very consistent. If we were to experience a slowdown in the economy, could you potentially benefit if gas prices and utility rates decreased while your payment streams remained stable? Please explain your macro sensitivity.

Yeah, actually, thank you, David. That's one of the reasons why we actually wanted to call out our historical resilience of our business relative to macroeconomic headwinds as well as recessionary pressures. We have been operating the business for quite some time and we have dealt with different headwinds. And frankly, in each of those, even though each macroeconomic environment or event has its own personality, but we have been able to grow the business during each of those primarily because of the non-discretionary nature of the household bills. Every industry we are operating in has a non-discretionary part of the household economy involved. In terms of your question, there are certain scenarios, your question related to the benefits. There are certain scenarios we could see them benefit. Of course, if consumers start making payments, which are smaller but more frequently, that changes the dynamic for us. But we're not factoring any of that in. We are simply focused on trying to make sure our investors understand that you're investing and you have invested in a business that is dealing with non-discretionary household bills. People still need to have a roof over their heads, they still need to use electricity, water, gas to prepare food and so on, or go to work in the car, etc. So, all of that non-discretionary side of the economy still needs to continue on regardless of what's happening in the macroeconomic environment.

Yeah. Thank you, guys. Good job.

Thank you, David.

Thank you. Our next question comes from Tien-Tsin Huang of JPMorgan. Your line is now open.

Thank you so much. Terrific results. I want to ask, for both of you, just thinking about the comment of your confidence to grow without new sales, is that comment more from the strong backlog that you have and confidence in converting the backlog, or are you also seeing higher penetration of on-network e-payments? Is that part of the equation as well? Just trying to better understand what's evolving.

It's a combination of both. It's a combination of both the same-store sales as well as the backlog. And as we pointed out, we are very proud of the year we have had in 2024 because of the foundation it sets not only for what we were able to achieve in 2024 but frankly, our next two-year horizon. So, we are very excited about that. And the strong backlog, which was net of the billers that went live in the 3Q, also gives us tremendous confidence. So, we just wanted to make sure that we follow the same prudence, the same grounded guidance methodology which has served us very well that we want to be able to give the view to our investors that we can deliver the top-end of our guidance without signing a new client, and obviously, provided we implement, we continue to onboard our backlog and so on. Sanjay, do you want to add?

If I may just add together with the backlog and the same-store sales, I would also say our pipeline we see that very strong. And the pace at which we have seen the pipeline converting to backlog over the past one year has been moving at a very, very good pace. And assuming those trends continue, we will be in good shape. I think we are confident because of all these factors.

Yeah. And just client decision making on the biller side to board in a timely way, I know the stock market is obviously gyrating a lot here, is there any influence? Does it help, hurt? It doesn't sound like you're seeing any change in decision making, but just wanted to check on this on the sensitivity there.

We are not seeing anything in that regard. Sometimes it can be actually these types of uncertain times could be beneficial because people are looking for efficient workflows and modernization to be able to bring about more efficiencies and reduce their cost to serve their customers while also improving their customer experience.

Thank you, Dushyant. Thank you.

Thank you, Tien-Tsin.

Thank you. Our next question comes from John Davis of Raymond James. Your line is now open.

Hey, good afternoon, guys. Sanjay and Dushyant, it looks like there's been a pretty big step function change in your success with large enterprise billers over the last couple of quarters. So, just curious what you guys think has driven that. Is that an industry change? Is that something you guys are doing? And then, maybe highlight what verticals you're having success on the enterprise side?

Thank you, John. I think the main thing I would say is that what's transpiring right now is that the level of advancements that are taking place or the level of sophistication of the workflows the clients need to automate, what's happening is they're not able to do that in-house. Previously, some parts of the biller segment, especially on the larger end, were beyond reach for any third-party service provider. And we used to think about legacy providers as the primary go-get for us. And now, we are looking at actually legacy infrastructure, legacy installed base, regardless of who it is; it could be in-house, it could be a combination of in-house and other providers. And what we are seeing is as a result of that, combining our platform with our IPN ecosystem, it's not easy to create that type of a reach for any company, whether it is a player in a similar space to Paymentus or actually our own potential clients, prospective clients. And that's what we are seeing. And another part which is also very important is, as the digital adoption is taking place and is becoming more and more a bigger part of a given client's payment ecosystem, there is a pressing need to look at the entire efficiency, the workflows and the efficiencies throughout those workflows, throughout the organization, whether it's inbound or outbound flows of payments. So, all of that combined gives us a pretty strong leg up actually because we start on the revenue side of the house and then we can also help all of the other workflows. So, that is what is causing the shift in how clients feel that they now have a partner who can deliver cost efficiencies through innovation, but also improve the workflow through innovative framework as well.

Okay. Any color on verticals? Is it broad-based, kind of across the board, or is it like one or two specific verticals where you're having success with enterprises?

All of our verticals are performing exceptionally well. One of the key decisions we made early on as an organization was to design our platform to scale for any vertical and any size of biller. We are currently demonstrating that no biller is too large for us, no company is too small, and we have the capability to implement across any vertical.

Okay, great. And just as a quick follow-up, I think Sanjay mentioned M&A in the prepared remarks. First time in a while I've heard you guys kind of mention M&A; obviously no debt, $200 million-plus of cash on the balance sheet. So, maybe just remind us kind of what would make sense, what would you target from an M&A perspective?

Thank you, John. The reason we mentioned M&A in the opening remarks is due to the significant activity we are observing and the numerous opportunities we are able to consider. We are in a fortunate position without any functional gaps that we need to address. Our balance sheet is strong, and we are generating cash, which allows us to be very selective. We are assessing whether there are opportunities to pursue entities that could enhance our business, either by contributing to revenue growth or profitability, or both, potentially in the near future. That is our focus.

Okay. Appreciate it. Thanks, guys.

Thank you, John.

Thank you. We will now move on to our next question. Our next question comes from Andrew Bauch of Wells Fargo. Your line is now open.

Hey, everyone. Great set of results, and I appreciate you taking my question. Sanjay, you hinted at the potential for interchange to become a revenue center. Could you elaborate on that a bit more? Will this be in the form of new products or partnerships, or is it related to restructuring the current model? I just want to gain a clearer understanding of your optimistic view on interchange.

Thank you, Andrew. This is Dushyant. The main reason we wanted to clarify this is to ensure our investors understand our business strategy and why we focus on top-line and bottom-line as our primary metrics, with OpEx and CP being secondary. Additionally, regarding the production solutions we mentioned earlier, we are considering ways to monetize interchange, even though it may not be an immediate opportunity. Partnerships are definitely another area we’re exploring. Furthermore, payment flows, including outbound and inbound payments, present additional partnership and product opportunities. We will provide more updates on this, but we see potential across various dimensions.

Great. Thank you. And then, my follow-up question is, I don't know if we've spoken about this before, but does DOGE have any impact on your business? I know that you guys are more exposed on the local level than the federal level, but then again too, budgets are kind of being shifted around and moved pretty rapidly. So, maybe, is there any kind of risk there or is there even maybe an opportunity as Elon and the team kind of find government legacy systems that a lot of these agencies are being run on?

First of all, there is no risk to us. We don't have any contracts with the federal government yet. However, there may be opportunities as they seek modern systems to replace the legacy solutions they have been using. Regarding local municipalities, which is our primary focus, we are in a unique position as we generate revenue for these agencies. We are confident in the part of the economy we serve and the workflow we support for them. People still need to pay their bills, whether it's water bills, property taxes, and so on.

Great. Thank you.

Thank you, Andrew.

Thank you. Our next question comes from Matt O'Neill of FT Partners. Your line is now open.

Yeah. Hi. Good afternoon, gentlemen. Just curious to confirm, I believe the sort of methodology and philosophy around guidance is exactly the same as it's been in prior years. Dushyant, you mentioned at the beginning of this call before Sanjay went through the guide just that you'd be confident in your ability to hit the top end of the range without any new signings. I believe that's how you guys have contextualized the guide in prior years. If you could just confirm that first?

Yes, that's absolutely right, Matt. We are following the very similar guidance, same philosophy of coming with quarter and annual guide as we follow in the prior year. We want to be prudent in our approach. We want to remain grounded and execute well. And with the benefit of hindsight, this approach to guidance has served us well. And when we say the top end is achievable, it means we don't need any new customer bookings to get there, but definitely we have to continue doing the implementations as planned. So, yeah, we remain committed to our CAGR model and that's the basis.

Understood. Appreciate that. And just two questions around the evolving mix of the business as it goes into larger enterprise and you mentioned in the prepared remarks, larger billers seeking volume-based discounts. We still saw the observable revenue per transaction tick higher. So, is it just that volume-based discounts are being more than offset by a mix of more card-funded payments by consumers at newer partners? I just want to unpack kind of those dynamics. Thank you.

As we onboard large enterprise customers, the revenue per transaction has increased compared to before we started this process. The average revenue per transaction for the company is now $1.55. Our contribution profit per transaction has remained fairly consistent at $0.52 this quarter, compared to $0.53 in the same period last year. Overall, we are benefiting from increased volume, and our profitability is improving because the contribution profit remains stable. Thanks to strong operating leverage, we are also experiencing growth in adjusted EBITDA and margins. While revenue and network fees are higher, the contribution profit per transaction has not changed significantly. This situation may evolve as we bring on board mid-size and small clients, as we have a large total addressable market to capture. As we continue expanding, we expect to work with clients of varying sizes and industries, which could alter our transaction dynamics. Although we view per transaction metrics as a result of our business model rather than a driving factor, our focus remains on achieving solid growth and maintaining good profitability. Our recent Rule of 40 rating of 62 reflects our strategy, highlighting that contribution profit gains are most meaningful when paired with operating leverage. We've made efforts in recent quarters to communicate this clearly to our investors, emphasizing that our adjusted EBITDA growth and margins are driven by both contribution profit and operating leverage, which ultimately stem from increased revenues. Therefore, those are our key metrics to watch.

Understood. Thank you for the commentary. Appreciate it.

Sure.

Thank you. There seem to be no questions waiting at this time. So, I'll now pass it back over to the management team for any closing remarks.

Thank you, everyone. Have a great day. Thanks. Bye-bye.

Thank you. That concludes today's call. Thank you for your participation. You may now disconnect your line.