Paymentus Holdings, Inc. Q2 FY2025 Earnings Call

Good day, and welcome to the Second Quarter 2025 Paymentus Earnings Conference Call. This call is being recorded. At this time, I will now turn the call over to David Hanover with Investor Relations. Go ahead.

Thank you, operator. Good afternoon. Welcome, and thank you for joining the webcast to review our second quarter 2025 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 reference during this webcast. This webcast is being recorded. I hope everyone's 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 second quarter and our guidance. Following our prepared remarks, we'll take questions. Let me 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 on both the SEC's and our websites. Information about non-GAAP financial measures, including reconciliations to U.S. 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. Paymentus delivered another strong quarter with results that exceeded our expectations in all key areas of our business. We ended the quarter with substantial bookings and a strong backlog, giving us strong visibility and further confidence for the balance of 2025. I also want to take a moment to provide an early insight into 2026. Based on the strength of our bookings with increasing frequency of large enterprise wins and the corresponding backlog that we are busy onboarding, we have greater visibility that is already extending beyond 2025. As a result, we are feeling very good about 2026. With this level of unmatched visibility, which allows the management team to focus on creating long-term shareholder value by combining innovation together with a steadfast execution, I believe we are building something very special here. As an example, since our revenue run rate exceeds $1 billion in 2025 and we have early visibility into 2026, we can focus on the next question that is likely on investor's mind: how do we feel about achieving the next significant level of top line revenue growth from here on out. Based on the bookings, backlog, pipeline and the customer trends we are seeing today, along with our expectation that these trends will continue and our proven ability to execute our business strategies, we are feeling good about our potential to become a multibillion-dollar revenue company in the coming years. And I'm talking primarily about organic growth here, and this is without any meaningful M&A activity. And there are three key reasons why I believe that to be the case. First, with the advent of agentic AI, the broader technology world, and not just bill payments, is moving in our direction. The field is now getting wide open for Paymentus. We already do a lot through our world-class platform and have tremendous capabilities, all of which will be fundamental as the world moves beyond software solutions and becomes more agentic. Let me elaborate. We have the ability to securely handle client data at scale, manage complex workflows, and provide intelligent actionable insights to clients about their business with deep integrations. We securely handle all interactions and resulting transactions across all interaction channels. And we do all this and more 24/7 and only get paid when someone uses our platform. Said differently, we are already used to a pay-per-use business model, which is likely the future with agentic AI. As a result of our platform capabilities, our pay-per-use business model, and a highly profitable public profile, we are ready and have set a perfect foundation for Paymentus to be a force for disruption for years to come. With these strong tailwinds, I believe now is our time. Second, we believe we have everything we need to scale significantly from here on out. We have tens of millions of users, household and businesses interacting with our platform. We process hundreds of billions of dollars and handle hundreds of millions of payments. And when you combine our current asset base with the market moving in our direction, we are as excited as ever to take the company to the next level. And third, we are beginning to feel more and more confident about our ability to replace broad-based legacy infrastructure within an enterprise and not just legacy providers as we move up market, enabling expansion of our service offerings. We believe that no company is too large, no workflow is too complex, and no project is too big for us to undertake given our already innovative platform and capabilities. So these are exciting times indeed for our business. We are looking forward to achieving the next big milestone. With that, let's review our second quarter results. Revenue was $280.1 million, an increase of 41.9% year-over-year, largely driven by an increased number of billers and higher transactions. Contribution profit was $93.5 million, up 22.3% year-over-year. And adjusted EBITDA, which continues to be a primary financial metric for us, was $31.7 million, a 40.7% year-over-year increase and representing a 33.9% adjusted EBITDA margin. Once again, the majority of our year-over-year growth in contribution profit fell to our bottom line. And once again, we exceeded the Rule of 40 for the quarter coming in at 56. This reflects our team's solid execution and our focus on delivering high-quality earnings together with solid revenue growth. Now I'll review our second quarter business highlights accomplishments. Regarding bookings, this was a very strong quarter, and we are pleased with the pace of bookings we have seen year-to-date. In the second quarter, we saw particular strength in the large enterprise segment of the market, which spread across a broad vertical base. We continue to show the diversity and wide appeal of our platform by signing clients in several industry verticals, including utilities, government agencies, telecommunications, banking and credit unions, insurance, and educational institutions among others. Additionally, our partnership ecosystem continues to be a significant complement to our direct go-to-market strategy. We have a very efficient and productive partnership portfolio. This quarter, we added additional new channel partners in the financial services and telecommunications industries. Simultaneously, we remain focused on onboarding our sizable backlog. Our onboarding enhancements, incremental investments as well as improving face-to-face client engagement are driving these efforts. During the second quarter, we onboarded clients throughout multiple verticals, including telecommunications, utilities, government agencies, banking and credit unions, property management, healthcare, insurance, and financial services. With that, 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. As David mentioned earlier, our Q2 press release and earnings presentation includes reconciliations of the non-GAAP financial measures discussed on this call to their corresponding GAAP measures. Both of these are available on our website. Turning to Slide 6. For the second quarter of 2025, we delivered another quarter of financial results that exceeded the top end of our guidance. We believe our continued ability to deliver such results demonstrates the inherent strength and durability of our business model. Highlights of our second quarter results include revenue of $280.1 million, up 41.9% year-over-year; contribution profit of $93.5 million, which was up 22.3%; and adjusted EBITDA of $31.7 million, up 40.7%. We continue to experience strong customer activity and demand in the second quarter, which drove very strong bookings. We had exceptional bookings this quarter, which enabled us to end the period with a very significant backlog and solid visibility both for the remainder of 2025 and into 2026. We saw particular strength in the large enterprise segment of the market spread across a broad vertical base. Based on our strong quarterly performance, the positive business trends Dushyant mentioned earlier, and our expectations for the remainder of 2025, we are raising our full year 2025 guidance for revenue, contribution profit, and adjusted EBITDA, which I'll discuss shortly. Now let's review our second quarter financials in more detail. As mentioned, Q2 revenue was $280.1 million. This 41.9% year-over-year growth, which was ahead of our original expectations, was driven by increased transactions across all aspects of our business, which includes the launch of new billers, same-store sales from existing billers, and higher activity on our Instant Payment Network or IPN. The number of transactions we processed grew to 175.8 million in the second quarter, up 25.2% year-over-year. Our average price per transaction increased from $1.41 to $1.59 during the same period. This was mainly due to the biller mix or more specifically, the large enterprise billers that we launched during the third quarter of 2024 with higher average payment amounts. This is now the third complete quarter where we are realizing the benefits of these large enterprise customers, although the second quarter guidance we provided earlier did reflect some of the potential upside from these larger customers. But as you can see, performance still exceeded our expectations. Second quarter 2025 contribution profit increased to $93.5 million, up 22.3% year-over-year. This contribution profit increase was also higher than expected and reflects the launch of new billers, the mix of billers launched, and the increase in transactions from existing billers. Contribution margin was 33.4% for the second quarter compared to 38.7% in the prior year period as we continue to add larger, higher-volume enterprise billers to our customer base. This change in contribution margin was offset substantially by a year-over-year reduction in operating expense margin, which resulted in an adjusted EBITDA margin of 33.9%. This is consistent with our continued focus on profitability, which I will elaborate on shortly. Contribution profit per transaction for the quarter was $0.53, which was relatively flat compared to $0.54 in the prior year, demonstrating our ability to expand market share without sacrificing comparable contribution profit per transaction. Also, as we have 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 substantially affect contribution profit on a quarterly basis. And therefore, we treat this as a secondary metric, while our gross revenue and adjusted EBITDA remain primary metrics and focus areas on how we execute our business strategies. Second quarter adjusted gross profit was $77.9 million, up 21.7% year-over-year. As we anticipated, second quarter 2025 non-GAAP operating expenses increased year-over-year to $49 million. This 11.3% increase, which we had budgeted for, was primarily due to higher research and development as well as planned sales and marketing expenses. Again, these increases were anticipated and mainly driven by increased hiring and agency fees for business from our resellers and partners in order to enhance our technical strengths and convert our strong pipeline into bookings. We expect to make similar investments throughout the remainder of the year as we continue to execute our go-to-market strategy. These assumptions are already incorporated into our guidance, which I will review shortly. Second quarter non-GAAP net income was $19.3 million or $0.15 per share compared to $13.4 million or $0.10 per share in the prior year period, an increase of 50%. Second quarter adjusted EBITDA was $31.7 million, up 40.7% compared to $22.5 million in the prior year. Adjusted EBITDA also represented 33.9% of contribution profit for the quarter compared to 29.5% in the prior year. Our 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 this stronger adjusted EBITDA margin demonstrates the innate operating leverage we have in the business and our sustained ability to adapt to ever-changing market conditions while we still continue to grow. Interest income from our bank deposits was $2.3 million during the second quarter compared to $2.2 million in the prior year period. Related to our performance, we once again exceeded the Rule of 40 for the quarter, coming in at approximately 56, relatively in line with 58 in the prior year period. Now I'll discuss our balance sheet and liquidity position on Slide 7. We ended the second quarter with total cash and cash equivalents of $270 million compared to $249.6 million at the end of first quarter of 2025. The $20.4 million sequential increase was primarily comprised of $31.5 million of cash generated from operations offset by $11.2 million cash used in investing and financing activities, mainly capitalized software of $8.9 million. We do not have any debt. Free cash flow generated during the quarter was $22.5 million, primarily driven by strong adjusted EBITDA in the quarter. Driving organic growth continues to be our primary focus. Having said that, our strong cash position enables us to maintain financial flexibility to allow for working capital investments as we scale. In addition to this, our ample liquidity allows us to explore attractive M&A opportunities that may arise in order to expand our growth strategies. Our days sales outstanding at the end of the second quarter was 31 compared to 33 at the end of the prior quarter, better than our expected range. Working capital at the end of the second quarter was approximately $297.4 million, an increase of approximately 6% sequentially. We had 129 million diluted shares outstanding during the second quarter, relatively in line with 128.8 million diluted shares outstanding during the prior quarter. Before I discuss guidance, I would like to provide some additional color on our recent bookings and backlog trends. Over the past two years, we have seen increasing momentum from large enterprise customers. In fact, as I mentioned earlier, this past quarter, we saw particular strength in this customer segment across multiple verticals. Adding to this, throughout the past four quarters in a row, we have experienced very strong bookings resulting in robust year-over-year growth in exit backlog for the quarter. This significant backlog growth is not only in terms of total backlog dollars but also in the number of total customers and large enterprise customers within our backlog. This provides us much greater visibility for the rest of this year as well as into 2026. Now I'll turn to our non-GAAP guidance for the third quarter and full year 2025 on Slide 8. I want to emphasize that we are continuing to follow the same prudent approach to guidance that we have followed in the past. For the third quarter 2025, we expect revenues to be in the range of $278 million to $282 million, representing 20.9% year-over-year growth at the midpoint and 21.8% at the high end; contribution profit to range from $92 million to $94 million, which is 16.3% year-over-year growth at the midpoint and 17.5% at the high end; adjusted EBITDA of $30 million to $32 million, representing a growth of 26% year-over-year at the midpoint and 30.1% at the high end. This represents a 33.3% margin at midpoint and 34% at the high end. Along with our guidance, I also want to reiterate some key points related to our outlook for contribution profit growth rates and adjusted EBITDA margin. As our business grows, and as I mentioned on prior calls, we are receiving greater inbound interest from larger enterprise customers. Not unexpectedly, these large customers often request volume discounts, which we are open to where the deal economics support it. In addition, our tremendous operating leverage allows us to attract and book these large customers. Said differently, volume discounts for larger customers are typically more than offset by strong incremental adjusted EBITDA. This increases our efficiency as our onboarding time per pillar is declining while average customer size is simultaneously increasing. Furthermore, we have the ability to recalibrate OpEx spending relative to contribution profit in order to reach a desired adjusted EBITDA. To demonstrate this phenomenon for the second quarter of 2025 results, I want to share two key data points: first, our incremental adjusted EBITDA margin was 53.8% relative to the adjusted EBITDA margin of 33.9%; and second, while the contribution profit can fluctuate quarter-to-quarter and operating expense recalibration opportunities exist in our business, our incremental adjusted EBITDA margin has improved by 470 basis points year-over-year and adjusted EBITDA margin has improved by 440 basis points year-over-year despite any temporary softening of our contribution profit growth rates on a year-over-year basis. Based on our results and progress we have made in the first half of 2025 and our expectations for the remainder of the year, for the full year 2025, we now expect revenue in the range of $1.123 billion to $1.132 billion. This reflects a raise of approximately $45 million or approximately 4.2% from the midpoint of our previous guidance. This updated guidance now represents 29.3% annual growth at midpoint and 29.9% at high end. Contribution profit in the range of $369 million to $373 million. This reflects a raise of approximately $5 million or 1.4% at midpoint versus prior guidance. This updated guidance now represents 18.9% annual growth at midpoint and 19.6% at the high end. Adjusted EBITDA to range from $123 million to $127 million, representing a raise of approximately $5 million or approximately 4.2% increase at the midpoint versus our previous guidance. The updated guidance now represents a 32.7% annual growth at the midpoint and 34.8% annual growth at the high end. This represents a 33.7% margin on the contribution profit at midpoint and 34% at the high end. We expect a non-GAAP tax rate of 25%. This annual guidance implies a Rule of 40 scale range of 52 to 54.

Thanks, Sanjay. In summary, our second quarter was another period where we achieved results that surpassed our expectations, including revenue and adjusted EBITDA that were both up over 40%. We exited the quarter with strong bookings and backlog to give us solid visibility and confidence in our outlook for the rest of 2025 and into 2026. We believe the stability and durability of growth algorithm allow for a fertile ground for disruptive innovation for long-term value creation. I'm also confident about our future success due to a number of factors including our business model with its proven ability to generate sustainable growth, expanded profitability and its innate operating leverage, our durability to withstand and even thrive in difficult economic environments, the large nondiscretionary and growing bill payment market that we serve, our novel and differentiated technology and platform and ecosystem, our broad and growing customer base, and our strong balance sheet with $270 million of cash and cash equivalents and no debt. As always, I want to thank our entire team for all their efforts and dedication to our business. And that concludes our prepared remarks. I'll now open up the line for questions.

The first question is from Dave Koning with Baird.

And I guess my first question, just looking at the historical seasonality. Historically, Q2 for many years in a row now has been the slowest sequential growth from a seasonal perspective. This year, you're only guiding Q3 to pretty flattish sequential. Usually, it's up a lot. And maybe, a, review the seasonality a little bit and b, maybe, is there any reason Q3 wouldn't follow the normal trend for faster growth in Q2?

Thank you for the question, Dave. I would say that our seasonality is evolving as we capture more market share and experience significant revenue growth. We are noticing a shift, particularly with large government customers, which could indicate a change in seasonal trends. Overall, our business is on an upward trajectory, and we have raised our guidance for the full year regarding both top-line and bottom-line results. Our EBITDA percentage is improving, with an incremental EBITDA margin of 53.8%. Seasonality will still fluctuate quarter-over-quarter and from year to year, so past trends may not always apply as we grow our market share. To address this year's numbers, particularly for Q3, we anticipate relatively flat revenue based on two factors: the seasonal trends you mentioned and our incomplete data from the large enterprise billers that launched in Q3. They did not launch at the beginning of Q3 last year, which could affect our results. Additionally, some same-store sales will counterbalance this. Overall, this is the guidance we have established through careful methodology. As our business progresses and results come in, we'll provide further updates. However, we feel optimistic about our performance in Q3, Q4, and for the full year.

Yes. Okay. And then secondly, one thing on just quality of earnings, that was kind of remarkable. Historically, you've had almost no bad debt expense. The last couple of quarters, it's been around $1.5 million or so. If you didn't have that, it would be 200 basis points higher adjusted EBITDA margin. Is there something about the mix of business with the enterprise clients that you want to add a little bit more conservatism around just collections? Or maybe why was the bad debt expense a little higher?

The bad debt expense is relatively small in relation to our overall business and revenues. It's not significant; we are just writing off some old amounts prudently. In our opinion, it is entirely insignificant.

Congratulations on another strong quarter. I want to begin by emphasizing your optimism and excitement regarding bookings and backlog, which was evident during the call. Could you elaborate on the verticals where you're experiencing success beyond utilities, particularly in the expansion verticals? What is the current status and where are you seeing the highest demand? Additionally, I'd like to know more about the enterprise side and what factors are contributing to your success in that area. It seems there is a lot of backlog and promising trends ahead.

Thank you, Darrin. This is Dushyant. I believe what we have developed over the years in our platform is coming together effectively with our ecosystem. We've observed that there was a time when parts of the market viewed third-party systems unfavorably, believing they could handle everything in-house without the need to outsource. However, we took a different approach compared to industry trends, which focused on integrated software solutions that merely required APIs for connection. We aimed to build a platform and an ecosystem that offers unique capabilities. We anticipate a point where many large companies will recognize that replicating what Paymentus has created is quite challenging due to the inherent capabilities and ecosystem reach. We also identified that large enterprises face significant challenges, primarily their desire for control, flexibility, and functionality. We designed a platform that gives them considerable control over their processes while allowing them to influence the platform's design, consumer interactions, and overall customer experience without lengthy and costly custom developments that were typical in the past. We've invested significant effort into ensuring our clients can easily configure the platform to meet their needs. Additionally, our public statements over the years emphasize our improved implementation speed and success in onboarding large enterprise clients, which alleviates client concerns. As a result, clients are increasingly confident in the Paymentus platform, appreciating the control, flexibility, and functionality it offers, along with reliable onboarding. Our utility sector remains robust, and we expect continued success in that vertical, knowing that excelling there enables us to perform well in other industries. We're now successfully engaging with various government agencies and insurance companies, adapting to their diverse business requirements. We see success across all verticals and have a strategy to persistently grow our business in these areas. Does that help?

It's great to hear that. I have a quick follow-up regarding your ability to grow your overall business while managing expenses. You've demonstrated significant operating leverage, and I'm interested in whether you believe this can be maintained as you continue to grow your top line and attract new customers, including in the enterprise sector. Do you anticipate that the operating leverage you've shown will remain sustainable moving forward, or will you need to expand your infrastructure?

Darrin, the operating leverage in the business is very strong. Let me provide a few examples that are clear from our recent Q2 results. We're already raising our guidance for the full year for CP, which exceeds what we achieved in Q2. Additionally, we are increasing our guidance for adjusted EBITDA, surpassing our previous estimates. When analyzing the Q2 results, our contribution profit rose by $3 million, and adjusted EBITDA increased by $2.7 million. This means that 90% of the incremental margin is reflected here. While we are carefully managing our spending due to the high operating leverage, we recognize the significant market potential ahead. Our pipeline remains robust and continuously expands as we progress through the quarters. We intend to allocate funds to convert that pipeline into bookings, which has been a key strength for us. We are willing to invest money for the right reasons, as this is the right approach for our growth. Beyond having ample cash reserves, we view this as a crucial investment in our organic growth, which has been beneficial. Nevertheless, we still anticipate considerable operating leverage, which continues to rise. I want to emphasize that the guidance we've provided for Q3 and the implied guidance for Q4 indicate that both quarters are expected to have better incremental EBITDA margins than what we delivered last year in Q3 and Q4. For the full year, based on our guidance, the incremental EBITDA margin at the midpoint is 51.6%, compared to 50.8% last year. In this current quarter, our incremental EBITDA margin is 470 basis points better than last year, compared to the total EBITDA margin of 440 basis points. What I'm trying to convey is that the operating leverage in our business is high and can be viewed from various angles, and we are on the right track. Our aim is to grow profitably, not just grow for growth's sake. We want to ensure that we balance both elements, and we have a fantastic opportunity ahead. I hope this clarifies our position.

Dushyant, I want to circle back to some of your opening remarks. You talked about becoming a multibillion revenue business in the next few years. That would imply, call it, mid-20s revenue growth, obviously, a little bit slower than you're growing now but ahead of the 20% plus growth that you've kind of outlined for the medium term. So is it going too far to think that, given the backlog, you have incremental confidence in kind of maybe mid-20s growth versus 20% before? Just kind of any thoughts there would be helpful.

Thank you, John. From a CAGR model perspective, we remain committed to our goal of 20% top-line growth and 20% to 30% adjusted EBITDA growth. I believe this is an exciting time for the company as we see the market shifting in our favor. We couldn't be more enthusiastic than we are today, which is as excited as we have ever been. With the rise of agentic AI and various developments in the world, not just in bill payments, we think our years of preparation will be very beneficial for our shareholders moving forward. We believe we could become a multibillion-dollar company in the coming years, based on the strong KPIs we are observing. However, we intend to remain disciplined regarding our CAGR model, and that is our current focus.

No, fair enough. And then, Sanjay, there are certainly many positive aspects to discuss today, but one thing that hasn't received much attention is the strong year-to-date free cash flow, which was also impressive in the second quarter. The conversion rate is over 150% of adjusted net income for the first half of the year. Could you share any insights on the full-year free cash flow or how we should approach it in terms of adjusted EBITDA or adjusted net income for the second half, as well as any potential one-time items from Q2?

Cash flow is crucial for us, and it's quite challenging to predict. However, we did generate $64 million over the past six months, including $22.5 million this quarter and $40 million in the first quarter, which gives us confidence in our cash generation. I can offer a model for forecasting free cash flow. To start, our adjusted EBITDA margin can account for a tax outflow of approximately 25%, as we indicated. There's also a cap software cash outflow running at about $9 million. You can factor in around $2.2 million from interest income based on current rates. The working capital component is more unpredictable, as it can vary from quarter to quarter. If the business expands significantly, we may require additional cash for working capital. However, this too is hard to forecast and may depend on Days Sales Outstanding, which currently ranges from 30 to 40 days. We're pleased to report a DSO of 31 days this quarter, which is favorable. You can use this model to estimate free cash flow, but overall, the business is undoubtedly cash-generating, as evidenced over the past few quarters. Excluding any potential working capital needs, we consider this to be a cash-generating profitable business.

And the next question is from Andrew Polkowitz with JPMorgan.

Congrats on the quarter. I wanted to start off my questions by asking about the comments you gave on AI and agentic AI payments. I was curious if you could provide any color on what conversations are like with your existing customers or even prospects as far as what Paymentus can provide for them in kind of agentic payments future.

Thank you for the question, Andrew. As we evaluate the entire opportunity in the landscape, one of the essential components for a successful AI implementation is our ability to manage complex workflows and large data lakes while effectively separating individual customer data at scale. Combining these capabilities with a pay-per-use model and continuous interaction management positions us well. I believe we are more prepared than any other company to take advantage of this. The opportunities we are seeing are still in the early stages. Looking towards the long term, we see AI not just as a productivity tool for Paymentus's internal use but as a way to enhance our clients' operations. We can improve their customer experiences, lower their service costs by streamlining processes, and facilitate both incoming and outgoing payments. We view this as a multifaceted opportunity, and we are excited about laying the groundwork for AI to potentially become a revenue source for us and to add value to our current offerings.

Great. That's super helpful. And then for my follow-up, you mentioned in the prepared remarks here, head count plans, kind of hiring to meet the demand. I was curious if there was any way you could disaggregate for us hiring plans across sale force versus the implementation and onboarding side?

Andrew, we are carefully executing our hiring plans that we outlined at the beginning of the year, assessing them on a quarterly basis. We adjust our operational spending in relation to the revenue opportunities. For instance, this quarter we chose to invest a bit more than initially planned due to higher than expected revenue. However, we want to prioritize spending on converting our pipeline into bookings, which provides the best return on investment, while also strengthening our engineering and implementation capabilities. We aim to strike a balance between long-term growth needs and maintaining our strengths while seizing conversion opportunities. Although we have a plan, our decisions remain adaptable to meet real demands and opportunities. At a high level, our current focus is primarily on sales to enhance our bookings and ensure solid growth, supporting our compound annual growth rate model.

I just want to follow up and ask on the incremental EBITDA margin. So first, I appreciate that the implied 2H margin, incremental margins are better on a year-over-year basis. but there is a step down in the second half of the year versus the first half of the year. So I guess first question is just is there anything specific driving that to call out.

The only thing I want to highlight is that focusing on any single metric by looking at past trends and future guidance can provide a misleading perspective. It's crucial to consider the overall trends. We utilize a very careful approach to guidance, ensuring that we don't overestimate our potential. We're aware of both the opportunities and the risks we face, and we acknowledge both fairly. Fortunately, we've been able to reflect more of the potential upsides in our guidance rather than emphasizing the risks. Therefore, we do not anticipate a decline in incremental EBITDA margins. Our goal remains to deliver strong returns, particularly regarding EBITDA margins. We have consistently upheld a Rule of 40 framework. As such, I can assert that the incremental growth you're observing is still associated with positive incremental margins. However, we do maintain a cautious perspective overall.

Got it. No, I appreciate that. And just as a follow-up on that point, so the incremental margins are in the low 50s for the full year. Is there any reason to think that that's not sustainable over the long term and we should eventually expect the adjusted EBITDA margin to converge with that? Or do you think that this is an elevated level? Just anything higher level in terms of longer-term opportunity on the margin side?

So the longer-term opportunity, I would say, is this company has a very strong operating leverage, and we have been able to demonstrate that many quarters in a row. And based on the opportunities in front of us for growth, and given I'm talking about long term here and not in the very short term, especially not for the guidance period, we expect longer-term incremental EBITDA margins or even the EBITDA margins of the company to get better. This is not the peak at all if that is the question. We are seeing good growth, and this should be getting better over time in the outer periods.

There are no further questions waiting at this time. I would now like to pass the conference back to management for any closing remarks.

Thank you, everyone. Have a great day.

Thank you. Bye-bye.

That concludes today's call. Thank you for your participation, and enjoy the rest of your day.