Paymentus Holdings Inc - Ordinary Shares - Class A Aktie

Good day, and welcome to the Paymentus Third Quarter 2026 Earnings Conference Call. This call is being recorded. [Operator Instructions] Thank you.

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 today's webcast to review our third quarter 2026 results. 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 third quarter and our guidance. Following our prepared remarks, we'll take questions.

Let me just remind you that our remarks today may include forward-looking statements within the meaning of federal securities laws and the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and beliefs and involve a number of risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. For a detailed discussion of these risk factors, please refer to our most recent Form 10-K and 10-Q filings with the Securities and Exchange Commission.

We will also refer to non-GAAP financial measures during the webcast. Information about non-GAAP financial measures, including reconciliations to U.S. GAAP, can also be found in the earnings materials that are available on our website.

Finally, the company assumes no obligation to update any forward-looking statements made today, whether as a result of new information, future events or otherwise.

With that, I'd like to turn the webcast over to Dushyant Sharma. Dushyant?

Thanks, David. Paymentus delivered another strong quarter. We posted record revenue of $372.2 million, representing 19.8% year-over-year growth. This drove contribution profit of $118.5 million, up 20.6% year-over-year and adjusted EBITDA of $49.7 million, up 38.6% year-over-year, both also record figures for the company.

As our adjusted EBITDA approaches $50 million for the third quarter, meaning an annual run rate approaching $200 million, I'm reminded that this represents an increase of almost 800% over where we were just 5 years ago. In the same quarter 5 years ago, we also exited with $100 million of quarterly revenue for the first time. And as you can see, this past quarter, our revenue was 270% higher over that amount.

I also prefer to look at the business in terms of how many turns of growth over how many years. With the business very well positioned for the future, I'm excited to see what the next 5 years will look like and what we need to do to grow in a similar fashion. And I'm not trying to provide a long-term guidance here, but this is how I think and this is the type of thought process and potential upside that motivates me and my team to make big things happen beyond a specific quarter or a given calendar year. On that note, in my view, the future is very bright.

And as we completed the last year as a $1 billion revenue company for the first time, the natural question is how far away we are to the $2 billion number? And as we are not giving any guidance for 2027 and 2028 on this call, but if I were to model the business out and simply add 4 components together: first, our current revenue; second, our current backlog; third, our future backlog using historical conversion rates from our pipeline to bookings; and fourth, our growth within our existing customer base using historical rates, it's quite possible that in the next 18 to 24 months from today, we have the potential to reach approximately $2 billion of revenue and backlog combined.

Of course, we still have to make things happen between now and then, and as always, there's an execution risk. But it sure feels good to think about getting to a $2 billion number in coming years, while it was just last year when for the first time we achieved $1 billion top line after being in business for years.

And the reason $2 billion is also interesting is because it provides a meaningful TAM for interchange monetization. So if we were to be able to solve for interchange monetization using our patented BillWallet and Billeo between now and then and further monetize our network, then we have the opportunity to grow our earnings and contribution profit at a faster pace. The reason I bring this all up is to show how exciting our business is, and I suspect it is comforting for the investors to know that the opportunities for earnings growth are multidimensional.

On that note, let me share 2 updates on our continued journey and the steps we are taking towards interchange monetization. First, we are pleased to report that this quarter's bookings include a sizable interchange monetization agreement that will use our Instant Payment Network capabilities. This agreement provides us an opportunity to participate in interchange economy as transactions take place. I will provide more updates on this in future calls as it is too early to talk about the nature and impact. But for those who are not very familiar, the interchange monetization road map has the opportunity to convert our largest cost center into a profit center.

Second, BillWallet. The opportunity here is rather exciting, especially in the context of interchange TAM that comes along with the $2 billion number. What if BillWallet becomes a household name? And I mentioned this possibility because we have continued to see outstanding progress here as we have now doubled the BillWallet user base to over 200,000 users. In the grand scheme of things, 200,000 users is not a very big number. but it becomes rather interesting if you double-click on it and think of the groundwork being laid out for the target state.

Let me provide additional context. We have only just started and exposed BillWallet to a very small fraction of our user base and are already outpacing all legacy digital wallets within that customer cohort with new marketing. Next, let's review the pervasive nature of BillWallet currently. There are about 40,000 active ZIP codes in the United States. And we today have a BillWallet user in almost 1/3 of those ZIP codes. This speaks to the power of our ecosystem we have already built. And as I shared earlier, we are just getting started.

To put a bow on this point, let me provide some other important data points. Almost 1 in 3 households and businesses currently use Paymentus's platform to pay their bills. And this is even though we do not yet have anywhere near 100% of the clients' users using Paymentus to pay their bills, meaning the number of potential end users might be almost double of this. Furthermore, as you can see -- now see, based on how the market is evolving with Agentic AI systems, we believe Paymentus with its innovative and patented capabilities stands out as an industry leader, and we believe our model will continue to prove out to be the way Service Commerce is conducted using our capabilities.

Our head start on creating secure, compliant AI infrastructure for the Service Commerce space, including data sovereignty, identity and reconciliation, is exactly the kind of durable rail we believe will matter more, not less, as Agentic Commerce continues to scale. This industry-wide transition is still in its early stages, and we see the current market discussion less as a new risk and more as validation of the strategic direction we committed to and began building years ago.

There is a great opportunity here, and we believe to the extent Agentic AI increases digital payments, we should benefit as well, similar to how we have been able to in the past. And this is precisely why we invested in BillWallet and Billeo well ahead of this moment. And as a reminder, BillWallet preserves service provider and customer identity along with payment credentials, allowing all interactions to be secure, along with Billeo, which powers intelligent customer interactions. Both of these innovations vastly improve the customer journey and payment experience while bringing billers and service providers closer to their customers, all while reducing the fear of disintermediation.

In addition to the very strong customer feedback we received, we also continued to receive industry recognition from a technological standpoint. Datos just completed an industry-wide analysis and once again awarded Paymentus as the Best in Class platform in the Electronic Bill Presentment and Payment market. Paymentus was recognized for having one of the largest and most established client base among purpose-built providers, supported by strong client retention and sustained enterprise growth. We are proud of this award, and I think it reinforces the factors that I mentioned earlier.

So this is why when you look at Paymentus, you should look at us as a multidimensional grower to deliver shareholder returns, meaning our growth algorithm is not just based on a single dimensional play as signing customers, onboarding revenues and generating margins. With our current scale and possibility of us reaching $2 billion of revenue and backlog combined in coming years, we are a multidimensional growth algorithm company.

In other words, we are much more than an industry-leading bill payment platform. We are also a network ecosystem that will continue to power operating leverage and multidimensional earnings growth for years to come, like we have done over the last 5 years, where our revenue grew by 270%, while at the same time, our EBITDA grew by 800%.

With that, let me provide more context around our financial results for the third quarter. The third quarter revenue growth is especially important because it came on top of the third quarter last year, which included a very strong cohort of new customer implementations. So even with that tough comp, we reported strong year-over-year growth across our key financial metrics. And complementing this, our bookings, pipeline and backlog, were all very strong at quarter end. And considering our year-to-date results, we continue to believe we are well on track to meet our 2026 financial goals.

And as we have stated before, we operate on a 2-year fiscal horizon. So while year-over-year growth rates may fluctuate from quarter-to-quarter, this does not change our confidence in the underlying trajectory for the business. Combined with our strong backlog and bookings, we continue to feel very good about the balance of 2026 and into 2027.

Now let's turn to our business results on Slide 6. In addition to our outstanding financial results, our business momentum continued during the third quarter with sizable bookings, and we exited the quarter with a strong backlog and pipeline. We also continue to expand and diversify our customer base by signing new clients across several industry verticals, including Utilities, Insurance, Government, Property Management, Telecommunications, Banking and Education. In complementing this, we signed additional channel partners across several verticals, including Utilities and Mortgage.

Onboarding of our substantial backlog remains a top priority. And during the third quarter, we continued to onboard clients across Utilities, Insurance, Government, Property Management, Telecommunications, Banking and Healthcare. This, in turn, will drive further profitable, sustainable revenue growth for Paymentus.

And with that, I will now turn it over to Sanjay to review our financial results in more 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 Q3 press release and earnings presentation include reconciliations of these non-GAAP financial measures to their corresponding GAAP measures. Both of these are available on our website.

Turning to Slide 7. Building on our momentum in the first half of this year, our third quarter 2026 results once again exceeded the top end of our guidance range for all 3 of our key financial metrics. These results reinforce the strength and flexibility of our business model and our proven ability to meet and exceed our own expectations.

Our third quarter results included revenue of $372.2 million, up 19.8% year-over-year; contribution profit of $118.5 million, which was up 20.6% and adjusted EBITDA of $49.7 million, which increased 38.6%. We also continued to experience strong customer activity and demand, which fueled bookings and allowed us to exit the quarter with a considerable backlog. Based on our year-to-date results, our expectations for the remainder of 2026 and our strong forward visibility, we are once again raising our full year 2026 revenue, contribution profit and adjusted EBITDA guidance, which I will review shortly.

Now let's look at our third quarter financials in more detail on Slide 8. As mentioned, Q3 revenue grew 19.8% to reach $372.2 million. This growth was twofold. First, the successful launch of new billers as anticipated; and second, the continued growth in same-store sales from our existing billers. Additionally, the number of transactions we processed this quarter increased to $219 million, up 20.1% year-over-year.

Our average price per transaction was $1.70 during the third quarter, which was consistent with the prior year. Third quarter 2026 contribution profit increased to $118.5 million, up 20.6% year-over-year at a pace that modestly exceeded our transaction growth, mainly due to biller mix. Contribution profit per transaction for the quarter was $0.54, relatively flat year-over-year. We believe this highlights our ability to capture market share, while maintaining our profitable operating profile.

Contribution margin was 31.8% for the third quarter, a modest improvement compared to 31.6% in the prior year. We generated a record adjusted EBITDA margin of 41.9%, a 540 basis point improvement year-over-year, primarily due to higher operating leverage. Furthermore, we also generated an incremental adjusted EBITDA margin of 68.4%. These results are consistent with our overall strategy of focusing on profitable growth, which I will elaborate on shortly.

As we continue to grow and diversify our client base and as we add more larger clients to the mix, we expect pricing and contribution profit to vary quarter-to-quarter. It's important to note these larger clients are paying a similar or even increased average selling prices than they are accustomed to with other providers. We believe they value the quality of our services and the solutions we provide, which ultimately saves them money and enables them to provide better service to their customers. Again, as we said before, variables that are outside our control, such as an increase in the average payment amount or changes in the payment mix, can substantially affect contribution profit on a quarter-to-quarter basis.

Moving down the P&L. Third quarter adjusted gross profit was $99.8 million, up 23.1% year-over-year, ahead of our contribution profit growth as a result of economies of scale. As anticipated, third quarter non-GAAP operating expenses were modestly soft on a sequential basis, increasing 10.2% year-over-year to $53 million. This was primarily due to increased hiring and agency fees for business from our resellers and partners in order to convert our strong pipeline into bookings as well as an increase in research and development expenses to enhance our technical strengths.

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'll review shortly. And again, this increase was consistent with our expectations.

Third quarter non-GAAP net income was $33.1 million or $0.25 per share compared to non-GAAP net income of $22.6 million or $0.17 per share in the prior year period. Third quarter adjusted EBITDA was $49.7 million, up 38.6% compared to $35.9 million in the same period last year. Adjusted EBITDA also represented 41.9% of contribution profit for the quarter compared to 36.5% last year. This record adjusted EBITDA performance was driven by the same combination of positive factors I talked about earlier. We believe the stronger adjusted EBITDA margin demonstrates the innate leverage in our operating model and its ability to adapt to changing market conditions as we continue to grow.

As I mentioned previously, incremental adjusted EBITDA margin was 68.4% in the quarter. Interest income from our bank deposits was $3.2 million during the third quarter compared to $2.6 million in the prior year period. This year-over-year improvement was the result of an increased average cash balance and effective cash management. Related to our performance, we once again exceeded the Rule of 40 for the quarter, coming in at 62 compared to 68 last quarter and 59 in the prior year period.

Now I'll discuss our balance sheet and liquidity position on the next slide. We ended the third quarter 2026 with a total cash of $409.6 million compared to $379.7 million at the end of last quarter. The $29.9 million increase is primarily comprised of $43.7 million of cash generated from operations, offset by $9.7 million cash used in investing activities, primarily for capitalized software and $4 million spent in the net settlement of employee RSUs.

Days sales outstanding at the end of third quarter was 27, consistent with last quarter. It is noteworthy that while third quarter revenues increased 19.8%, our DSO has remained flat sequentially and declined by approximately 13% year-over-year, which we believe implies further improvement in our working capital cycle. Working capital at the end of third quarter was approximately $423.2 million, an increase of approximately 7.6% from the end of the second quarter. Diluted shares for the third quarter was 130.3 million, a modest increase from 129 million diluted shares from the second quarter.

Now I'll turn to our non-GAAP guidance for the fourth quarter and full year 2026 on Slide 10. Before discussing guidance, I want to mention that we are continuing to follow the same prudent approach to guidance that we have followed over the past 2-plus years.

For the fourth quarter 2026, we expect revenues to be in the range of $373 million to $378 million, representing 13.6% year-over-year growth at the midpoint. Contribution profit to range from $120 million to $122 million, which represents 13.2% year-over-year growth at the midpoint. Adjusted EBITDA of $45 million to $50 million, representing 19% growth year-over-year at the midpoint.

As a reminder, our fourth quarter guidance has been raised from the implied guidance we gave during our last earnings call by approximately $2 million on revenue and $1 million on adjusted EBITDA.

Based on our results and the progress we have already made year-to-date in 2026 and our expectations for the remainder of the year, for the full year 2026, we now expect revenue in the range of $1.464 billion to $1.469 billion, up 1.1% from the midpoint of our previous guidance. The updated guidance now represents 22.6% annual growth at the midpoint. Contribution profit in the range of $466 million to $468 million, up 1% at the midpoint versus previous guidance.

This updated guidance now represents 20.9% annual growth at the midpoint and adjusted EBITDA to range from $186 million to $191 million, representing a 4.7% increase at the midpoint versus our previous guidance. The updated guidance now represents 37.2% annual growth at the midpoint, which reflects a 40.4% margin on contribution profit at midpoint, an improvement from 35.6% margin in the prior year. On the Rule of 40 scale, this annual guidance implies a score in the range of 61 to 62.

In closing, we reported another quarter of excellent results despite a tough year-over-year comparison. In the third quarter 2026, we continued to build on our solid momentum from the first half of the year. This resulted in strong revenue growth, record adjusted EBITDA, solid bookings, a broader pipeline and a sizable backlog. Due to all of this, we have considerable visibility and believe we are well positioned for the rest of 2026 as well as for 2027.

Thank you, everyone, for your attention today. And now I'll turn it back to Dushyant for final remarks before we open up the call for questions.

Thanks, Sanjay. As I mentioned earlier, we are very excited about the multidimensional nature of our growth algorithm at Paymentus. Other key factors we believe that will fuel our growth include: first, continued expansion and growth within verticals to grow our customers and revenue; two, our ability to sign and potentially grow BillWallet user base; three, continued adoption of Billeo to power Agentic Service Commerce; four, interchange monetization that could help us unlock additional opportunities for earnings growth; five, B2B payouts, disbursements and other verticals; six, our ability to serve consumers, small businesses, mid and large businesses along with the large enterprises; and seven, our unique business model and our proven track record of meeting or exceeding our long-term CAGR model on which we are executing years ahead of schedule.

I'd like to add one final note on that point. Although our CAGR model is for the long-term, it is interesting to see how well this year is shaping up. We are currently pacing well ahead of our original CAGR model targets for 2026. Specifically, the top end of our revised guidance now implies a 22.8% growth over 2025, which itself is already 14% ahead of 20% CAGR model.

Likewise, the top end of our adjusted EBITDA guidance now implies 38.9% growth over 2025, which is already 56% ahead of our adjusted EBITDA CAGR model midpoint of 25%. And this is rather remarkable because 2025 was also an excellent year where we delivered 37.3% revenue and 45.9% adjusted EBITDA growth. Said differently, the midpoint of our 2026 revenue guidance is now over 68% higher than 2024 revenue and midpoint of our 2026 adjusted EBITDA guidance is now 100% higher than our 2024 adjusted EBITDA, far outpacing any of the indexes and most premium and best-in-class software and SaaS companies. And all this occurred despite quarterly and annual variability and at times, second guessing of our prudence in guidance methodology.

And as we all know that what really matters in the end is the steadfast execution with the long-term strategy in mind. And that's why, as I look to the next 5 years, I would love to see similar results to what we have already achieved as we continue executing against our vision. The path to get there will not be any easier than it has been or it was during the last 5 years, but we believe we have set a great foundation here for the next 5 years and beyond.

With that, I want to thank all of my team members for their hard work and dedication, and let me open the line up for questions.

[Operator Instructions] Your first question comes from the line of Madison Suhr with Raymond James.

I just wanted to start on the potential path to $2 billion in combined revenue and backlog within the next 18 to 24 months. I appreciate the color around how you're thinking about the moving parts there. But maybe for Sanjay, do you anticipate any changes to the level of organic investment needed to achieve that goal? Or do you think you can scale the business to that $2 billion number with a similar level of incremental margin and cash generation that you've demonstrated in the past here?

Thanks, Madison. A great question. First of all, I'd like to clarify, this is in no shape or fashion any guidance of any particular year. I think Dushyant shared in his prepared remarks the vision he has, the way he's built up the company. I mean, overall, looking at the business in a more longer term perspective rather than this quarter-to-quarter and year-to-year, I think a 2-year vision is perfect, and we have seen the execution. And that's one of the reasons today in the call we shared numbers of 5 years growth as well as 2-year growth as well as -- I can also share 3 years growth as well. I think in the longer term, it makes more sense.

But to answer specifically your question, does it need more investment? Our pipeline which we have, which currently our sales team is working on executing, we have a massive pipeline in front of us. We could make a right decision at a given point in time to spend more if needed. That is one of the benefits, in fact, I would say, flexibility we have generated over time with ample cash sitting on the balance sheet and demonstrated a massive operating leverage in the last 3 years.

I mean if I just recall, full 3 annual years we have increased our revenue, not only at the pace we have disclosed, but think about the adjusted EBITDA margins which have been improving 500 basis points every year. For example, this year, we're ending approximately 40%. Last year, we ended by 35% and the year prior was 30% and year prior was 25%. So we have made the right investments to get to the situation where we are and scale the business.

Short answer is, investments may be needed. We will not be shy of spending the investments when they are needed. We will always be cognizant of delivering a profitable growth to our investors and perform a thoughtful execution before we spend any additional dollars. We're very cognizant of that. And -- but that pipeline is massive, and we will not be behind if we need to spend the money. We will calibrate our contribution profit dollars with our OpEx in the right fashion as and when needed, as and when the quarter is going and we see opportunities we would calibrate to our best of our ability. We'll be very thoughtful.

Okay. That's helpful and a good segue into my following question. You've highlighted the first sizable interchange agreement, BillWallet continues to see user adoption. So just, as these new products and monetization opportunities scale, do you anticipate structural tailwinds for contribution profit per transaction over the medium term? And how long do you think it takes to start to recognize some of the benefits of these new products?

Thank you, Madison. Let me -- these are all longer term opportunities, but we have laid out -- I think the reason, as we were reflecting on where we are taking the business over the next 2 years, I think -- and frankly, we wanted to transparently share the $2 billion number because I think it gives us enough opportunity in terms -- or enough interchange TAM to start to, for lack of a better word, eat into it and convert that into a profitable opportunity for us from cost center. So I think it's still a couple of years out, but -- and -- but there's a lot of groundwork being laid out between now and then.

Your next question comes from the line of Jeff Cantwell with Seaport Research.

Strong results this quarter. I wanted to ask if we can dive in on the backlog. Can you maybe give some color in terms of how big is the signed but not live backlog today versus a year ago? And how much of it goes live in the next 2 to 4 quarters? I guess find the $2 billion in combined revenue and backlog path. The question is how does that figure split between revenue versus backlog? Appreciate any color there.

Thanks for the question, Jeff. Our backlog is very solid. We've had -- we continue to have a solid backlog over the past many quarters, and it's needed to deliver future revenue for sure and to demonstrate a decent growth as well. The backlog is doing really well. We generally never quantitatively compare. But as our business is expanding and diversifying, the color I can share on our backlog is, the backlog has many large customers, many household names. At the same time, it's in many, many verticals, very diversified, different sizes of customers, large, small, medium sized. I think it's a very, very diverse in every respect, and the backlog is very good. That's one of the basis of our confidence for future and the delivery of revenue growth we have demonstrated over the past many years primarily comes from backlog. So we feel very good about it.

Got it. And maybe just to drill down on the Q4 guidance, can you talk more about how we should be thinking about contribution profit, contribution margin and adjusted EBITDA? Is Q3 the right comp for Q4? Or should we be looking back to Q4 of last year? The reason I'm asking is because there's typically quarter-to-quarter seasonality for us to be aware of. But at the same time, there's ongoing mix shift as well. So I was hoping you might be able to provide more thoughts on Q4. And do you mind talking about what are the main call-outs to be aware of for the upcoming quarter?

Jeff, I would say for Q4, we already shared the guidance today. I think if you use that guidance, that will be the right way to model, if this is purely a modeling question. But I would say we are focused more on durability of the revenue growth versus just delivering a growth in 1 quarter. I mean, setting a longer term vision of $2 billion entails not only just 1 quarter, as you would appreciate, it's a work to generate longer term growth. So -- and that to profitable growth. So as I talked about expansion of EBITDA margins over time, our desire or aspiration would be to continue that kind of a trend, but also reflecting on Madison's earlier question, as and when investments will be needed, that needs to be seen. So I would not go -- and not be able to help out on this call beyond Q4 which we have guided, but we feel very good about performance and execution of the business.

Your next question comes from the line of Will Nance with Goldman Sachs.

I also wanted to come back to the interchange deal mentioned earlier. And I was wondering if you could maybe just take a step back and talk mechanically how these deals tend to work? And like what is the transaction flow that is involved in these transactions, that kind of turns you into an earner of issuer economics? And just how do we think about using a mental model for blueprints for future deals?

Great question. Well, I think the way to think about it would be that we have always thought of interchange as a cost center, not as a toll of the -- on the -- on a highway or a postage type of a cost. The reason that is important is that we think of this as a vendor cost. So we think of it as a opportunity to go and discuss where the sources are, the biggest costs are and are there opportunities to strike deals with the issuers where the interchange could be monetized.

So without going into the details related to this specific deal, but going forward, the goal would be to -- or the way to think about it, it would be that if a company has cards that they want to use and there is a way for us to promote those cards within our network, we would like to get compensated for that in some ways, especially if it is benefiting our clients as well, our billing clients. So as long as every -- all parties win, we feel very good about it and making it easier for the end customers in the end. So that's the -- that's sort of the high-level blueprint there for the deals.

Got it. All right. That's helpful. And then maybe just a big picture question. I realize you're not giving any commentary on '27 just yet. Qualitatively, can you just talk about the degree of outperformance that you've had versus medium-term outlook and maybe talk about the sustainability of that as we look into next year and maybe how your visibility into next year compares to the same time a year ago?

Well, we are having a great run here. We are on our top form. I think the business is firing on all cylinders. We feel very good about whether we talk about bookings, whether we talk about backlog, especially the pipeline, the business is doing really well. We actually did an experiment last year on our Q3 call, exactly if we just go back a year at this time, and we provided some commentary or earlier color, preliminary color on the next year's expectations. And honestly, we did not get any benefit out of it. So we will be glad to talk about 2027 guidance with full color using the same prudent guidance methodology we followed in February 2027 call.

Your next question comes from the line of Jacob Haggarty with Baird.

Great results. So my first question here is just on Agentic Commerce. It's accelerated somewhat in the last few months. And previously, you had talked about BillWallet being accessible through a personal agent. So I guess like where are we on that? And why is an agent going to choose to use BillWallet as opposed to a stablecoin wallet, a credit card linked to a different wallet, et cetera?

For simplicity and purpose-built design. So BillWallet actually is designed really to connect the biller and the customer in a very tight ecosystem and in close proximity to each other like never before was possible. So BillWallet not only just memorizes your payment credentials, so it could have a stablecoin as well. It's not -- we are not opposed to that. It could also have credit cards, not opposed to that as well. But it will also have the merchant customer credentials.

The number one fear and the concern we are hearing from our customers today, which we actually -- we are very fortunate that we foresaw years ago was that eventually as these agentic systems will become prevalent, number one concerns for our clients, our billing clients, the service providers would be the disintermediation risk. It is not the same way as Google was or the search engines was. Search engines draw box to find you the place you're going to. And then once you found the place, search engines are out of the picture.

The Agentic, the -- especially the retail commerce agents, they're proposing to be doing a lot more for you, so try to keep you there and try to get you to buy things and so on. So there's always opportunity for disintermediation. It is fine in the retail commerce world and a fair game. From our perspective, the way we think about it, we thought about it years ago, was the service providers who have worked years and years to build a long-term relationship with their customer, they will want to just let it go to the highest bidder just in the process of understanding the bill and making the payments and understanding the invoice and so on. So that's why we launched BillWallet, which encapsulates all of those capabilities within the context of the relationship between the customer and their service provider. So as a result of it, it becomes the fastest way to transact and the most secure way to transact because if -- you can't steal what was never exchanged in the transmission layer, if you will.

So if I as a customer, when I'm making a payment, I'm inquiring about the bill and information about why my bill is higher or lower and what type of products I'm using, all of that information, when that is actually taking place out of band, if you will, no agent in the middle is able to snoop on it, snoop into that information, it makes the whole interaction a lot more secure. So that's where -- that's why we believe BillWallet will stand on a class of its own and not the least of which is the patent protections and everything else. But at the same time, we are fully aware and we are expecting a dog fight in the retail -- commoditized retail market.

No, that definitely makes sense. And then just kind of touching on your channel partnerships. Curious on how many of these, your client relationships, do you own all of the digital channels by which a customer can pay and that it doesn't matter if they're using their bank or using your platform or doing it through e-mail, et cetera, or whatever the case may be, it's going to direct the transaction through Paymentus platform?

Almost every client, every partner we have, regardless of where the transaction is being originated is all going through Paymentus platform. And we have different levels of integrations with our partners and our clients, and it varies based on the channel as well. So that is part of the platform we have created where customers can choose exactly how they want to integrate. But ultimately, we are sort of very actively participating in the transaction process end-to-end.

Your next question comes from the line of Tien-Tsin Huang with JPMorgan.

Dushyant, and just to build on the Agentic question before, just thinking about BillWallet, should we expect you to have native integrations with some of these personal AI assistants? Or is that not necessarily the intent? Just thinking about your last response there.

Yes. I mean, we don't think of this as either/or scenario. We are thinking BillWallet would be a wallet on its own, and it could be accessed from any of the personal agents. But we are also not ignoring the fact that we actually have a pretty unique ability and opportunity of our own when 1/3 of the United States is actually making a payment on our platform. We don't want to sit on the sidelines and keep watching as a passive player. So my point being is we want to have our own agentic experience for our own customers so that we can guarantee the Paymentus ecosystem, which is what customers have selected us for. And they recognize that Paymentus will always take care of the relationship between our client and their end customers. So that's a very important facet of our offering.

So in that vein, we want to make sure that we are offering capabilities to our own clients and the end users to be able to have Billeo as their agent for Service Commerce. Having said all that, we are pretty aware that regardless of how we do it, just like we have done in the non-agentic world, I, as a customer who have put my kids to bed and late at night, I don't want to fire up my laptop. I want to just dial 800 number. So Paymentus should be able to provide that 800 number to do that. Or for one particular bill I want to be able to do AutoPay, the other bills I want to be able to go to the website and make a payment once a month.

So we are a flexible company, will -- always will be. So we'll give all of the options available to our customers. So if someone wants to use their personal agent to use BillWallet to make a payment, no problem at all for us from that perspective. But I want our investors to appreciate that Paymentus is not taking a passive approach to this. Historically, what a payment company will do, will try to act as a Switzerland world, if you will, that, hey, anyone -- we're just an API provider, use our APIs and you can do whatever you want, you can access it from wherever you want. That gives too much control away from our clients to the end. It is -- like I said, it's not like a Google scenario where you're searching and you found this site and you go there. Our clients are expecting us to find the answer to the nondisintermediation or the risk of disintermediation. So we want to actively participate and use our patented technology to be able to help them. Now that would also mean allowing other -- these models to participate in our platform. And whether we do native integration or MCP or whatever, not a problem.

Yes. Makes sense. You're going to intermediate or advocate for the bill or so. That makes sense. My follow-up or my second question, just looking at the fourth quarter guidance again here, you have sequential growth in revenue and contribution profit, which is encouraging. It looks like EBITDA, though, you do have it sequentially down, which is a little bit different than history, is there incremental spending in the fourth quarter that is outsized and unusual? I know that was addressed a little bit, Sanjay, but I just wanted to clarify that.

Yes, Tien-Tsin. So our guidance methodology is very similar principles-based, as it has been in the past, I'll start with that. On the other hand, I think this year has been another banner year consistent with the past too, delivering a 40% EBITDA margin coming out with a great scale already. I think we should leave some room to actually spend more and convert our pipeline to bookings for outer years. We've kept decent provisions for that as well. But overall, I think quarter-to-quarter variability can occur. I think 1 quarter or 2 quarters stuff doesn't indicate any trend in our view. I think we are building a long-term business. And at times, we might want to spend. But overall, I think Q4 is pretty decent as well.

And one more thing, as we are ramping up our large billers, and as I pointed out in the past as well, we are very cautious about new billers when they launch and like do we have that full experience of 1 year? And that always plays in our mind when we come for guidance. So we keep some provisions for that. We've been fortunate and things have worked really well. Our estimates of quarterly profiles and cost quarterly growth have proven out to be correct, but we still want to stay a little bit cautious as we guide for Q4.

I will now turn the call back over to Dushyant Sharma for closing remarks.

Well, thank you, everyone. I appreciate your time. Have a great day.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

All right. So we're going to get started with the next session. Next up, we have Dushyant Sharma, Founder and CEO of Paymentus; and Sanjay Kalra, CFO. Thank you both for joining us. Really looking forward to the conversation.

Thank you for having us.

So Paymentus has been public for almost exactly 5 years now. The company has compounded revenue at a very large clip. Bill presentment is a bit of an underappreciated part of the payments ecosystem. For those who are less familiar with the story, could you talk about the market opportunity that you're going after and really why Paymentus is taking so much share as one of the largest players in that space?

Well, the bill payment is a big market. And the way to think about it is a typical household spent 60% of their -- 60% of their spend is towards the bills. It's trillions of dollars in the spend just on the consumer side. If you add B2B, it gets even crazier than that. And if you factor in about 16 billion, 17 billion bills are paid on -- just on the consumer side annually, and we have only captured like 4% or 5% of that, it's a huge opportunity ahead of us.

And in terms of why we are winning the market share, I think it comes down to, number one, the technology platform we have built. But the technology platform we have built and the ecosystem, our instant payment network and the entire partnership ecosystem, but it comes down to the way we visualize the market.

We never thought that bill payment was just about the payment, taking money from point A, kind of like what you see in typical customer experiences, you're buying a shirt, you enter your card, it goes to Visa or Mastercard, you get the approval and the payment is made, that whole thing.

Bill payment is more about, to your point, bills, bill presentment, the data, the workflows, the technology aspect of it, what internal workflows the billing company has to do to take care of all of the billing and payments and then posting the information and getting that information in the right hands.

So we have done a great job in building a platform, and we took it very seriously. And we didn't think it was a sort of a private equity player that you just keep acquiring companies, have -- and then hopefully, it will -- the only integration is at the bottom line. We didn't think that was the play. The play was a pure platform play that -- and we believe that longer term, even the larger end of the market would actually want to switch if they could find an alternative, they would. And that's what we are seeing. So that's the reason why we are gaining market share.

And when you look at that market, I mean, it must be fragmented. You're only 5%. I think you're the largest in Biller Direct. So what is the state of the end market? Where is all that volume today?

It's very fragmented. I mean if you think about when we started out, majority of the payments -- digital payments used to be at the bank's website. Remaining were all just checks and walk-in and cash and some of those type of options. We have made tremendous inroads, meaning now banks are a significant smaller portion of the digital bill payments. Most of the payments are happening -- the digital payments are happening on the billing company's websites or the billing company ecosystem powered by Paymentus.

But the remaining payments are still check, walk-in, cash and so on. And one of the things which I would urge everyone listening to this to think about it is that we -- when we all have bills and we all have our own bill payment customer experience -- bill payment experiences and so on.

One of the things I would like everyone to be reminded of is that majority of the households are not as privileged as some who are listening to this call. Most people are not as fortunate to be able to say, well, I just take my money from my bank account and just go ahead and make the payment. They're having to make a decision which bill they're going to pay this month and from which account. There's a lot of complexity involved for a typical household. So that's why some of the fragmentation occurs as well.

So part of our job as Paymentus is and working with our clients is to make sure we continuously make it easier for our clients so that they can continue to reduce their cost to serve, so make it more affordable for the customers, but also continue to provide better customer experience. And it's not just about better UI, it's all about all the options and get all the questions answered for the customers so that they can make the decisions to make a payment.

When you look at this business, what do you think the market gets wrong about the business and the end market? What do you feel is underappreciated about the market opportunity?

I think I will start first with the fact that all of us -- like I said, all of us are consumers. So we think of bill payment -- when someone looks at payment, we think, so you make a payment, why can't other people do the same thing?

What I would like everyone to think about it is think about it from the billing company's standpoint, not just a small township or a small municipality. Think about one of the largest organizations in the country. And say the average bill amount is $100 you're billing and you're billing 5 million customers each month, it's the mega operation to be able to talk to the customers, just if 100% of those customers made a call to you, you have no margins left in the business.

So to send out billing information in a way that you can understand it so that -- and it answers all of your questions so that you can actually make a decision to pay, and then giving you all the options so that you can make a payment, including clarifying to you what are the penalties if you don't make a payment of certain -- if it is not made up until a certain time.

And then reminding you probably at different times in a cost-effective manner, it's a huge operation. And then when it comes back to how do you reduce the number of calls coming to your call center because they're very expensive as well.

So Paymentus, actually, what I would like everyone to think about it is we are categorized into -- in a fintech world, which may be fair, but think of us as more of the tech of the fintech. We have no revenues coming in from float income. We are not using our clients' money to make money. We are actually providing technology infrastructure to our clients so that they can improve customer experience and lower their cost to serve. So that's what we -- so it's a technology play.

And frankly, as the markets have evolved and become more sophisticated, the buyers have become more sophisticated, our technology platform, which is doing more and more of that technological -- handling more of the workflows for our clients is actually shining. That's what the key reasons are.

Yes. So one thing I think is underappreciated is just the level of visibility. I mean I know at the beginning of the year, I've got 12 power bills, 12 gas bills, 12 water bills. Sanjay, when you start the year, how do you think about visibility building up to the forecast? And how do you feel about durability of the model?

Yes. Visibility is actually getting better and better as we scale the company, as the business is scaling, as all the verticals are expanding and as we enter into more verticals as well. And as we improve our go-to-market strategy as well, our visibility is getting better. When we analyze the trends, we see more and more accuracy as well to the visibility.

In fact, in the most recent earnings call, we didn't only raise the guidance for 2026, but we also made some comments about 2027. So making those comments early in the year, I think that's very good for our visibility.

So overall, I think things are headed in the right direction. And that stems from the fact that our customers are large customers and the renewal rates are very high. It's a recurring stream of revenue. So the visibility is better.

Can you talk about pipelines and maybe reiterate some of that commentary on '27?

Yes. The pipeline is very good. In fact, the pipeline is getting better over time. And the pace at which our revenue is growing and our profitability is growing together with the visibility growth, the overall pipeline has to catch up, pipeline has to be better so that the pipeline to conversion ratios match with the expectations of the forecast. The short answer is the pipeline is better than at least if I say a year ago, where we were.

Okay. I want to hit on competitive dynamics. I would observe there's been several data points on the bill pay space that maybe speak to Paymentus' strength. You've got competitors, at least market rumors that they're shopping their bill pay segments. There's been the notable underperformance in several of the bank channel competitors that you have and sort of the bank-owned bill pay centers. What are the competitive dynamics like today and how those changed over the last 5 years?

I would say the top of the mind for me, and I've shared it publicly as well is that I think, for us, we believe the market is moving in the right direction. And the reason we say that is that some of the things we thought would actually come to pass, are coming to pass.

For example, starting with number one, we didn't think it was a financial play. We thought the bill payment was a technology play. It has panned out exactly the way we thought about it. We thought about that if we can actually build one code base, one platform, one solution for different verticals, we will be able to go into different verticals with ease.

We will have great storytellers, and the story is Paymentus and customers of all walks of life -- all industries, all sizes will actually like the fact because if you think about it from a consumer standpoint or even a business standpoint, all bills need to be paid, and you don't care whether it's an insurance bill or a utility bill or a telecom bill. To you, the experience better be similar.

So they like the fact that there is a company out there who has built a platform that unifies and has all these complex business rules simplified in one platform. So from that perspective, I think things have come together.

Another critical example I will give you is actually rather top of mind for the entire industry is the AI. If you think about it right now, AI is -- and we love the technology, and we love where it's headed. But the fact is 5 years ago, 6 years ago, we were filing patents on the capabilities we believe are going to be very useful to continue to create a sustained growth algorithm for Paymentus. So that is another factor. And if you look at some of the reasons why some of these assets are becoming available, I think it's a further testament to the fact that we have been very successful.

Some of these assets used to be -- they were purchased with the intent for them to be very strategic to the businesses that bought them. And Paymentus used to be a small company then and was also, in my opinion, somewhat underappreciated in the market, which we loved. We didn't want to be notifying everyone that we have big plans.

We just felt that our -- as long as we can communicate that to our customers and our prospects, that's good enough. And that's what we were doing. And so we feel that the market actually is sort of has played out the way -- we are very fortunate that the way we visualize it and the way we are executing against the strategy we laid out. So we feel good about our competitive positioning.

So you've been forward-looking in the product strategy. AI, yet again, a topic of conversation. But I think agentic commerce in general has been a bigger topic over the last couple of weeks, even given some of the recent release of new agentic products for consumers.

When you think about what that means for bill pay, how does the product set need to evolve? And maybe you could tie in some of the recent product launches you've had, Billeo and BillWallet. Talk about how those products work and how you see them scaling over time?

Sure. So I think this is a pretty interesting -- and I'd like to take a moment or 2 extra on this, but this is a very interesting dynamic here. What's happening is whenever you are hearing agentic commerce, you would have to add a word to it, which is retail -- agentic retail commerce. All this is making it easy for you to shop.

So for example, if you're buying a shirt, could it be easier for you to simply say, hey, I want a small shirt and this is the color I want. Maybe even this is the brand I want. Can you find me the lowest price one and tell me what it is? And if it is under $70, go ahead and pay. That's a great experience.

I would just say that technology is just 25 years too late. We already did that 25 years ago. You can tell me how much money you want to pay for the bill which is due every month and which day you want to pay? Do you want to pay it on the due date or 15th of every month? And give me your bank account information, I'll take the money out. And if you want to take a rule that, hey, if it is over $100, don't pay. If it is under $100, go ahead and pay. We can do all of that. So AutoPay has been around for years.

So it's not like we can somehow -- so for me, from a shopping perspective, I love the agentic part. And from a shopper's standpoint, it's viewed as additional channel like Google would be. So you just have an additional channel, but from a service commerce context, if you are telling an insurance company that I can enable all of your customer information, make it available to a personal agent.

And oh, by the way, that personal agent can then snoop into all of the information, can see exactly which car you're driving, what was the model, which year it was and how much you are paying for that, and I can sell that information to the highest bidder, so that could be the last interaction you will have through that agentic channel with that particular customer because for $60, they could be signed up with another insurance company. There you go, you lose a customer.

So what we are hearing from our customers is that agentic commerce, agentic retail commerce is -- has a lot of challenges. It needs to be solved and shoppers can always use more channels. But to the service commerce side, there is a requirement for a paradigm shift, which is what Paymentus is building through Billeo.

We are saying we are already handling the data and the payments and your customer relationships in a secure manner. We have the data related to billing and payment. Could we not give you that capability so that now when you are interacting in the agentic world with your customers, your relation -- number one, your relationship is preserved. Second, the information is secure. Third, any of the rules which already exist on the billing side can all be incorporated. And last but not the least, your identity and the payment information is protected for the customer.

So we can all do that. So that's sort of our view of the world. And we believe that we have -- because of the patent portfolio we have built on the AI side, and we are very fortunate again that several years ago, we thought about all these things. We are well positioned. And the other thing I would also like to make a point about, if you think about the shopping experience in the agent world, then there is a question, who's the merchant, who is paying for it, and merchants don't care as long as they get paid.

In case of the utility insurance company, and so on, and I was actually joking with one of the investors today, that I'm longing for all of these AI companies to go ahead and identify the entire payments so that Paymentus could immediately -- we have like 25%, 30% of the typical biller's customer base paying bills, get the remaining 75%. And so that tomorrow morning, Paymentus could be a $6 billion company as opposed to $1.4 billion, $1.5 billion.

Just go ahead and do it because I'm still the provider of the technology to my billing clients and you'll still have to go through me to make those payments. So please come one, come all. But I think our clients will have a thing or 2 to say about that, the disintermediation risk and Billeo and BillWallet set up a greater stage for us there.

Yes. That's great. Maybe sticking with the theme of AI, what are the areas of the business maybe more internally where it's had the biggest impact so far? I mean you talked a lot about how your clients are often the limiting factor and how quickly implementations can proceed. But maybe aside from that, where have you been able to make the organization move quicker, design products and processes faster with the tools that we have now?

All aspects. I think every function in the company is using AI, like is involved in it, trying to make use of it. Engineering side, we are very much involved. One of the things Paymentus has made a decision on is that Paymentus, since our pursuit is to have our own platform, agentic platform. We want to have our own platform, which is Billeo.

So one of the things we are doing is, can we build Billeo agents, which could be used by our own team. So we actually have contests going on who can build what type of capabilities and what type of agents on Billeo platform internally and how we can utilize them internally itself.

So think of Paymentus as a typical organization but who's very familiar with AI now getting sort of increasingly more comfortable with AI technology. But the main difference for us would be that we think of us as AI as a source of revenue, not just of efficiencies. So whatever we are driving efficiencies, we want to get our clients to also use using our technology. So that's why we are creating the platform.

Got it. Makes sense. One of the things that's evolved since the IPO is just the mix of different verticals that you serve, you referencing insurance companies. I think at the time of the IPO was much more energy utilities and things of that nature. So can you talk a little bit more about that?

How has the company had to adapt to serving new verticals, new client types? And if you were to maybe circle the 1 or 2 verticals where the company has seen the most success since the time of the IPO?

I think this is one of the key aspects we feel that we got it right because we have the -- in some ways, we have good fortune of building the company with a next-generation platform. Part of it was some of the mistakes that needed to be made. I fortunately made them in my prior venture when I started the company.

And part of the first-generation platforms you're seeing, I was one of those who built them. So I think -- so we learned a lot during that. But one of the key lessons I learned was you just cannot build a scaled business in bill payments by focusing on one vertical or having bespoke solutions for one vertical or one particular set of client.

So we made a decision early on that platform itself need to be built in a way that could be one code base regardless of the size of the customer or the type of industry you're going after. So that part, we got it right.

Where we had to make the change was that different verticals require different vernacular when you're speaking to them. So therefore, we need to make sure that our team gets it. And the type of support they need throughout the process, the type of regulations and the compliance infrastructure that needs to be in place for different verticals, we got that. We need to make sure that those changes occurred.

And to your last part of your question, we are seeing actually -- as you rightly pointed out, that we started out with utility as the primary focus. We love the utility vertical. We believe the utilities was the biggest vertical that got the bill payment efficiencies right. And we felt that if we can get it right there, we will be able to succeed in other verticals. And that is proving out now.

We remain very excited about our utility vertical. We remain excited about all of our verticals, they're all growing, but government vertical is great. Insurance is great. What we're also seeing is B2B is an evolving market for us. It's an emerging market. We are seeing that we can actually handle payments on both sides.

We have been doing disbursements for years, but now we are also saying, why can't we use our disbursement engine and the other technology we have so that we can -- and the workflows we have built so that we can also handle payouts? So all of that, we are excited about. So we feel good about our positioning, both from B2C as well as B2B, both for pay-ins as well as payouts.

And if I may just add that our operating leverage of the business is very high as in the most recent quarter, we delivered around 70% of incremental EBITDA margins. One of the reasons for that kind of performance and incremental EBITDA margins is how agnostic our platform is.

We don't have to recreate the wheel when we have to come up with a new vertical or we are supporting new kind of customer, which we have never supported before. So that was well thought of years ago. And today, we are reaping the benefits of that effort.

Got it. That makes a lot of sense. On this topic, just are there any verticals today where you're not a big player? And do you see any major low-hanging fruit to go after to kind of build on the scalability of the platform that you have?

I think we feel good about the scalability of the platform we have built. The investments we're making on the R&D side of the platform, we'll continue to do that. It's a constant pursuit. As you -- we are signing some of the largest companies you can think of in the country.

And to continue to make sure that the CIOs, CTOs, CISOs and the CFOs and the other executives, the customer experience executives of those organizations continue to trust us for handling their 2 most valuable assets any business can have, which is their customers as well as their revenues, or the monies coming in.

We are doing -- we need to always be on our toes. And we live in a 24/7 world, which -- and the platform, that needs to be always available. So therefore, you need to make sure the security infrastructure and so on is always a top focus. So scalability, security remains on top of mind.

Got it. I want to talk about the go-to-market strategy. Could you just provide an overview, what's the current makeup of your go-to-market organization? And when you think about investing and expanding go-to-market, how are you allocating investments across the different channels?

Our go-to-market is a confluence of a lot of factors. I mean a lot of things we do. We've got a direct sales team, and we've got direct sales team also verticalized. At the same time, we have a lot of resellers, sort of business partners.

JPMC is one of them, as we've talked publicly about. And we've got a lot of banks, a lot of partnerships there. So we have seen a lot of verticals, in fact, expansion of a lot of verticals and a lot of different size of customers coming in from all these sources.

So direct as well as indirect, both. Got it. Okay. Are you leaning more into direct versus indirect these days?

Definitely, we are signing both customers from both the channels every quarter. So I think it's a consistent effort on both sides.

Got it. Maybe just shifting to customer priorities. You cover a lot of critical infrastructure, power, utilities, financial services. How has the broader discussion around AI and cybersecurity impacted customer conversations? And how has it impacted customers' investment priorities?

Let me start with cybersecurity first. I think the way we think about our business is it has to be always on, except if it is not secure. You don't want unsecured platform to be any time available. If it is not secure, any -- if you have any second it is available, it's generating liability, not assets. So security is of paramount importance.

And I think our clients love the fact that we put that much priority on security part of the business. And no one is 100% perfect, but you always try to see that can you at least make it harder for anyone to use so they can focus on other lower or easier targets. So you're always trying to focus on that. So cybersecurity remains a top priority.

And what we are seeing is our clients are very concerned about when it comes to security, and then as you venture into the AI world, security is of paramount importance. The privacy is very important, and the fear of disintermediation is real.

So our clients are actually asking us questions about, okay, we don't want you to use AI tools on our data unless we can get some confirmation as to how it is going to be used, where it will be used, for the fear of disintermediation. And that's why we believe that BillWallet and Billeo actually provide that answer to the question.

So as soon as we start talking about both of those capabilities, the temperature starts to drop a little bit. You start to get more comfort. And then the fact that Paymentus is actually pursuing AI initiatives itself, it also is very comforting for the billers because they start to say, well, all of our AI investments, potentially, or some of them, if not all of them, could then be handled by the company that we already trust for handling our customer relationships and our financial information and money.

So we let Paymentus handle that. So we are feeling good about that. But cybersecurity comes before AI, and we feel that we have positioned ourselves well with Billeo and BillWallet for that.

And have you seen any evidence of people reprioritizing work streams in order to focus on things like cybersecurity, delaying implementations or delaying kind of RFP processes and things like that?

Actually, we have seen the reverse. What we're seeing is that because cybersecurity is very important, some of the -- and compliance infrastructure, the regulatory framework, the clients, even the larger end of the market is saying, Paymentus, you can handle some of those things for me. Can we actually get there a little bit sooner?

And that's why we are making it a point to notify when we are doing our public discourse, notifying not just our investors, but also our clients, that we are -- we recognize how important it is to get your data secure, move you away from some of the unwieldy processes you had, which are more exposed to security risks to our platform, which is PCI compliance, SOC 1, SOC 2 and so on.

Got it. Makes sense. Maybe we can talk about pricing. I mean you have this kind of gross net revenue model. What is your philosophy around pricing, both defensive as it relates to things like changing energy prices. So we've talked about that in the past, but also more strategically, how does pricing fit into the overall algorithm of the company?

Yes. So that's a very important aspect of our business. I mean we price our deals based on what we believe makes sense to the company. And definitely, we have to be profitable. Our goal is to be profitable on every new deal we sign. We generally look at the top line, and we know overall it's going to get better.

And we have experienced that overall, our pricing, resulting net profitability of every deal gets better as time passes by, not only because of the operating leverage of the business, but overall, we've got a lot of levers in our contract as well, where if the deals don't turn out as anticipated, we can make changes to get the right pricing.

So overall, our long-term business model is 20% top line growth on a CAGR basis and bottom line, 20% to 30% growth as well on adjusted EBITDA. We keep that in mind in terms of how we price the deals and how the business is flowing and eventually, what economies will be generated by any new transaction.

We don't focus too much on net because that does fluctuate overall, and that does go into -- at times, it depends on various factors, product, the mix of the cards and whatnot. But -- and it could also fluctuate quarter-by-quarter depending on seasonality.

Our North Star still remains the top line. But yes, as you see, if you look at the trends of the past many quarters, there is a convergence happening between the top line as well as the contribution profit, if I say net from that perspective. And that could change over time. But over a longer period of time, North Star still remains the top line growth.

And when it comes to the energy prices, which you touched upon as well during your question, for energy prices, when the company was much smaller size, if you go a few years ago, that would impact the company if the energy prices would increase significantly, but not anymore.

I mean we have reached a very good scale at this point, and that has become really insignificant to us. And as the company has evolved and scaled, we've made a lot of changes in terms of our pricing strategies as well, which has made the energy price index impact immaterial to us.

Got it. That's great. Maybe just on the point, 20% revenue growth, 30% adjusted EBITDA growth, embeds a healthy amount of margin expansion. How are you thinking about generating that operating leverage from year-to-year? How are you thinking about reinvestment within that algorithm? And where do you see margins heading to longer term in this business?

Well, let me answer the last part first. We have seen expansion of our not only EBITDA margins, but incremental EBITDA margins as well over time. And we do calibrate our spend every quarter, definitely every year in terms of how much contribution profit is being generated. So we manage it really well, and we plan to manage it really well going forward as well.

Short answer is, overall, we would expect expansion of the margins. And that -- biggest reason for that is that the platform was built with an objective of having a very high operating leverage at scale, and we are reaping those benefits. But at the same time, overall, the business is doing well, and we expect the margin expansion and profitability to continue.

Yes. So maybe we'll close out on this question. The capital allocation, the company is growing fast, profitable, strong levels of free cash flow. You mentioned not going the route of kind of rolling a bunch of separate platforms and kind of tying them all together.

It's a single platform, single code base. That said, it does seem like it's a fragmented market. It does seem like there's assets for sale. Do you think Paymentus is a natural consolidator for this market? And if so, why or why not?

That's a great question. And from our perspective, we are seeing all the assets, and we have seen others as well. Like we have seen some assets where even at 5x EBITDA, they didn't make sense to us. We -- the reason for that is, we believe we have something special here. We have built something special, and the pursuit we have is to build a very large business.

And it may sound maybe too bullish right now to -- if I say like, hey, we are going to be a $10 billion company, and we are 15% of the way there. But it would have been as preposterous if I was saying 5 years ago, we're going to be a $1.5 billion company when we're a $300 million company.

But again, future is always uncertain. So we are trying to build a bigger business, and we will do whatever we need to do to get there. Right now, we think the organic growth is the best path forward. However, we are -- we will remain open to opportunities. If we see something interesting, we will take a look at it. Right now, organic growth remains a big focus for us.

Very clear. All right. Well, thank you for joining us all the time we have, but really appreciate the conversation today.

Thank you so much. I appreciate it.

Thanks a lot.

Good day, and welcome to the Second Quarter 2026 Paymentus Earnings Conference Call. This call is being recorded. [Operator Instructions]

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 second quarter 2026 results. Our earnings results 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'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 our remarks today may include forward-looking statements within the meaning of federal securities laws and the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and beliefs and involve a number of risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. For a detailed discussion of these risk factors, please refer to our most recent Form 10-K and Form 10-Q filings with the Securities and Exchange Commission.

We will also refer to non-GAAP financial measures during the webcast. Information about non-GAAP financial measures, including reconciliations to U.S. GAAP, can also be found in our earnings materials that are available on our website. Finally, the company assumes no obligation to update any forward-looking statements made today, whether as a result of new information, future events or otherwise.

With that, I'd like to turn the webcast over to Dushyant Sharma. Dushyant?

Thanks, David. Paymentus delivered another strong quarter. We posted record revenue, representing 28.8% year-over-year growth. This in turn drove 26.3% growth in contribution profit and a phenomenal growth of 54% in adjusted EBITDA. Considering our year-to-date results, our exceptional Q2 bookings and substantial backlog, we believe we are well on track to meet our 2026 financial goals and our longer-term targets.

And if you take a step back and look at our performance over 5 years or more, we are well ahead of our previously discussed long-term CAGR model of 20% top line and 25% adjusted EBITDA growth at midpoint of our range. In fact, we are so far ahead of our CAGR model that if we apply to our 2020 revenue and adjusted EBITDA as the starting point of this decade, the projected results for 2029, meaning end of this decade, would be approximately the same as our current revised guidance for 2026 that Sanjay will cover shortly. meaning we have achieved a decade's worth of 20% compounded annual growth as a scale public company 3 years ahead of schedule. Isn't that amazing? -- very proud of the team.

This excellent fiscal outperformance has been achieved despite macroeconomic challenges, unprecedented inflation, quarterly variability, diversification of customer segments, including enterprise, expanding verticals, including in B2B, onboarding billions of dollars of total contract value, while at the same time, bringing patented products to market and redefining the future of Service commerce. And as exciting as this feat is, what is even more exciting is that we are strategically better positioned now with bigger TAM and a market that is moving in our direction than we were even a few years ago.

And the groundwork for the success we are experiencing was actually laid out years earlier. Likewise, the foundation we are setting now will pay dividends for years to come. In sum, we believe we are building a long-term compounded growth business. And it's an important context to share because despite our size, scale and phenomenal success to date, I believe we are just getting started. And I'm just as excited, if not more now about the next 5 years as I was a few years ago when we announced our CAGR model. This is in part due to what we announced last quarter regarding our place in the AI economy.

With Billeo, our native AI native service Commerce suite announcement, we have set a foundation for Paymentus to become a premium AI and software company in addition to a premium sophisticated billing and payment company. Let me elaborate further. With the growth of AI, we see billers and businesses in the service economy becoming increasingly concerned with AI disintermediation risk. This is something we anticipated over 5 years ago. We believe that clients will start relying on Paymentus for more of their AI infrastructure and service application needs beyond the customer engagement, billing and payments alone.

Due to our patented BillWallet, Billeo and other AI patents, our product capabilities, leading technology platform, years of experience in dealing with sensitive data while managing client-based data sovereignty, we believe clients will want Paymentus to manage their AI workflows and data security needs. And as a result, we have been building these capabilities, including our Billeo AI infrastructure and Commerce Suite.

Let me elaborate with a few examples. Our Billeo AI 360 intelligence engine will replace our internal used third-party BI tool as we love the level of sophistication and simplicity it offers. We are already receiving positive feedback from clients and prospects on this. Second, we will be augmenting our human service center with Billeo Agentic Service Suite using Paymentus' own AI cloud infrastructure while maintaining client data sovereignty. Third, we have created intelligent data vault using Billeo AI 360 pipeline for clients to store data that can be used by Billeo to build agentic workflows.

Fourth, we have built one of the world's finest and most configurable transactional billing and reconciliation engine as part of the Billeo Commerce Suite. All of these are a subset of examples that are part of Billeo Commerce Suite. This also shows our preparation to date for the future, and we believe clients and prospects alike will continue to reward Paymentus' foresight and innovation, while at the same time benefiting from the elimination of the disintermediation risk with BillWallet and Billeo.

And as a reminder, BillWallet is a unique instrument preserving service provider and customer identity along with payment credentials to allow all interactions to be secure along with Billeo that powers intelligent interactions. Both of these innovations vastly improve the customer journey and payment experience while bringing billers and service providers closer to their customers without the fear of disintermediation. Along these lines, we recently participated in a study with Payments Intelligence. regarding the importance to customers of the billing and payment experience from their service providers and billers.

The study revealed the chasm that we already knew existed between the service providers and their customers. One of the key findings of this study was that customers in today's service economy largely consider billing experience as the new brand experience. Customers' billing and payment experiences greatly impact the strength and length of their provider relationships and also help to determine critical payment behaviors. The study also revealed that a majority of consumers judge overall service quality through their billing experience. Therefore, the customer experience and payment journey is an extremely important factor for billers in terms of brand appeal and loyalty in addition to affecting their cash flows.

And aside from customer loyalty, the study also projected that hundreds of billions of dollars in annual recurring revenue is exposed to payment delays. And that's because customers who are dissatisfied with the billing experience or find the process too difficult, simply choose to delay their payments. So overdue payments aren't actually just an affordability issue. They are a customer satisfaction issue as well. And the study also revealed that the most dissatisfied customer cohort is the fastest-growing segment of the service economy, specifically the youngest customers.

And this is a key point and why service provider need to care about this because this segment is not just the youngest or the fastest growing, it will also potentially have the longest tenure with the provider. And what these customers experience now will shape their provider loyalty and payment patterns for decades. Paymentus' mission is to close the satisfaction gap. Our customers realize that the providers who close the gap first will obtain a loyalty advantage that compounds over a lengthy period of time. Our results show how successful we have been in doing this and that this momentum is continuing. In other words, we believe the market continues to move in our direction.

Now let me review our second quarter results in more detail. Second quarter revenue was a record $360.7 million, an increase of 28.8% year-over-year. At the same time, contribution profit was $118.1 million, up 26.3% year-over-year. Adjusted EBITDA was $48.8 million in the quarter, representing 54% growth year-over-year and a 41.3% margin. Once again, a majority of our year-over-year growth in contribution profit fell to our bottom line. We exceeded the Rule of 40 for the quarter, coming in at 68 compared to 56% in Q2 of last year and 64% last quarter. This reflects our team's solid execution and our focus on delivering consistent revenue growth alongside high-quality earnings. As we have stated before, we operate on a 2-year fiscal horizon. So this outperformance is not just about 1 quarter. It actually gives us confidence and additional visibility for the rest of the year and when combined with our backlog and bookings, we continue to feel very good about 2027.

Let's turn to our business results on Slide 4. Our strong momentum continued in the second quarter with, as previously mentioned, robust bookings and a very substantial pipeline. We also continue to expand and diversify our customer base by signing new clients in several industry verticals, including utilities, government agencies, telecommunications, property management, insurance, banking, education, B2B and consumer finance.

Complementing this, we signed additional channel partners in telecommunications and insurance verticals. Likewise, onboarding this substantial backlog remains a priority for us. We continue to see better-than-expected seasonal performance in the second quarter, largely due to the large cohort of new customers that we added in the second half of last year. In addition, during the second quarter, we onboarded clients across multiple verticals, including utilities, government agencies, insurance, banking, telecommunications, health care, property management, B2B and consumer finance.

And with that, I will now turn it over to Sanjay to review our financial results in more 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. For the second quarter of 2026, 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.

Turning to Slide 5. Highlights of our second quarter results include record revenue of $360.7 million, up 28.8% year-over-year, contribution profit of $118.1 million, up 26.3% and adjusted EBITDA of $48.8 million, up 54% year-over-year and a record adjusted EBITDA margin of 41.3%. We generated $39 million in free cash flow while delivering a record Rule of 40 scale coming in at 68. We continue to experience strong customer activity and demand in the second quarter. This drove bookings, which enabled us to end the period with a significant backlog and what we believe is solid visibility, both for the remainder of 2026 and well into 2027.

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 just mentioned and our expectations for the remainder of 2026, we are raising our full year 2026 guidance for revenue, contribution profit and adjusted EBITDA, which I will discuss shortly. Now turning to Slide 6.

Let's review our second quarter financials in more detail. As mentioned, Q2 revenue was $360.7 million. This 28.8% year-over-year growth, which was ahead of our original expectations, was driven primarily by increased transactions across all aspects of our business, which includes the launch of new billers, same-store sales from existing billers and to a lesser extent, improvement in average price per transaction. The number of transactions we processed in the second quarter grew to $213.4 million, up 21.4% year-over-year.

Our average price per transaction increased from $1.59 to $1.69 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 2025 with higher average payment amounts. This is now the third complete quarter where we are realizing the full benefits of these large enterprise customers. Although the second quarter guidance we provided did reflect some of the potential upside from these large customers, but as you can see, performance still exceeded our expectations.

Second quarter 2026 contribution profit increased to $118.1 million, up 26.3% year-over-year. This contribution profit increase was also higher than expected and reflects the launch of new billers, the mix of billers launched as well as increased transactions from existing billers. Contribution margin was 32.7% for the second quarter compared to 33.4% 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 41.3% and incremental adjusted EBITDA margin of 69.6%.

This is consistent with our continued focus on profitability, which I will elaborate on shortly. Contribution profit per transaction for the quarter was $0.55, an improvement compared to $0.53 in the prior year period, which we believe demonstrates both our ability to expand market share together with improving contribution profit per transaction. Also, as we've noted in the past, variables that are outside of our control, such as an increase in the average payment amount or changes in the payment mix can substantially 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 and focus areas by which we measure our business strategies and their execution.

Second quarter adjusted gross profit was $100.2 million, up 28.6% year-over-year, better than our contribution profit growth as economies of scale kick in. As we anticipated, second quarter 2026 non-GAAP operating expenses increased year-over-year to $54.2 million. This 10.5% increase was primarily due to higher sales and marketing expenses. These increases were mainly driven by increased hiring in sales and marketing and agency fees for business from our resellers and partners to convert our strong pipeline into bookings.

Second quarter non-GAAP net income was $32.4 million or $0.25 per share compared to $19.3 million or $0.15 per share in the prior year period, an increase of 66.7%. Second quarter adjusted EBITDA was $48.8 million, up 54% compared to $31.7 million in the prior year. Adjusted EBITDA also represented 41.3% of contribution profit for the quarter compared to 33.9% in the prior year, a notable 740 basis points improvement over last 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 the 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 continue to grow. Interest income from our bank deposits was $3 million during the second quarter compared to $2.3 million in the prior year period. Related to our performance, once again, we exceeded the Rule of 40 for the quarter, coming in at approximately 68, significantly better than 56% in the prior year period.

Now I will discuss our balance sheet and liquidity position on Slide 7. We ended the second quarter with total cash and cash equivalents of $379.7 million compared to $342.1 million at the end of first quarter of 2026. The $37.6 million sequential increase was primarily comprised of $48.9 million of cash generated from operations, offset by $11.2 million cash used in investing and financing activities, mainly capitalized software of $9.7 million. We do not have any debt. Free cash flow generated during the quarter was $39 million, primarily driven by a 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 second quarter was 27 compared to 29 days at the end of the prior quarter, better than our expected range. Working capital at the end of second quarter was approximately $393.3 million, an increase of approximately 7.6% sequentially. We had 129 million diluted shares outstanding during the second quarter, relatively in line with 129.3 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 2 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. Complementing this, during the second quarter, we have experienced especially strong bookings in the large enterprise customer markets, resulting in a substantial exit backlog at the end of the quarter. This significant backlog is not only in terms of total backlog dollars, but also in the number of total customers and a mix of small, midsized and large enterprise customers and diverse verticals within our backlog. These factors provide us much greater visibility for the rest of the year as well as into 2027.

Now I'll turn to our non-GAAP guidance for the third quarter and full year 2026 on Slide 8. I want to emphasize that we are continuing to follow our prudent and disciplined approach to guidance that we have consistently followed in the past. For the third quarter 2026, we expect revenues to be in the range of $353 million to $363 million, representing 15.2% year-over-year growth at the midpoint and 16.8% at the high end. Contribution profit to range from $112 million to $115 million, which is 15.5% year-over-year growth at the midpoint and 17% at the high end.

Adjusted EBITDA of $40 million to $45 million, representing a growth of 18.5% year-over-year growth at the midpoint and 25.5% at the high end. This represents a 37.4% margin at the midpoint and 39.1% 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 we continue to receive greater inbound interest from large enterprise customers as we scale.

Not unexpectedly, these larger customers often see 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 large customers is typically more than offset by strong incremental adjusted EBITDA. This increases our efficiency as our onboarding time per biller 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. Based on our results and progress we have already made in the first half of 2026 and our expectations for the remainder of the year, for the full year 2026, we now expect revenue in the range of $1.443 billion to $1.458 billion. This reflects a raise of approximately $18 million or approximately 1.3% from the midpoint of our previous guidance. The updated guidance now represents 21.2% annual growth at the midpoint and 21.9% at the high end.

Contribution profit in the range of $460 million to $465 million. This reflects a raise of approximately $9 million or 2% at the midpoint versus prior guidance. This updated guidance now represents 19.7% annual growth at the midpoint and 20.4% at the high end. Adjusted EBITDA to range from $175 million to $185 million, representing a raise of approximately $11.5 million or approximately 6.8% increase at the midpoint versus our previous guidance. The updated guidance now represents a 31% annual growth at the midpoint and 34.6% annual growth at the high end. This also implies a 38.9% margin on the contribution profit at the midpoint and 39.8% margin at the high end. We are using a non-GAAP tax rate of 25%. This annual guidance implies a rule of 40 scale range of 59% to 60% at the midpoint and high end, respectively.

Before I conclude my remarks, I'd like to provide some helpful context for understanding our guidance philosophy. Our guidance reflects what we can deliver with a high degree of confidence based on current visibility. This is a consistent approach we have followed for many, many quarters, regardless of the macro environment. We manage the business and execute to maximize long-term shareholder value.

We believe our most recent execution in the second quarter, together with the current state of business today, inclusive of extremely strong pipeline, phenomenal bookings and very healthy backlog we currently enjoy, reinforces our confidence in how strong this year is shaping up and the execution of our long-term CAGR framework. More importantly, it demonstrates not only the resilience of our business over time, but also the durability of our growth trajectory looking forward.

With that, I'll turn it back to Dushyant for final remarks.

Thanks, Sanjay. I remain confident in Paymentus' continued success due to following factors that I've noted in the past, including our growing technology footprint and our ecosystem, our large, diversified and increasing customer base, the vast nondiscretionary and still relatively untapped bill payment and service commerce market that we serve, the continued expansion of our innovation footprint and our unique business model and our proven track record of meeting or exceeding our long-term CAGR model on which we are executing years ahead of schedule.

I would like to add one final note on that point. Although our CAGR model is for the long term, it's interesting to see how well this year is shaping up. We are currently pacing well ahead of our original CAGR model targets for 2026. Specifically, the top end of our revised guidance now implies a 21.9% growth over 2025, which itself is already 9.5% ahead of the 20% CAGR model.

Likewise, the top end of our adjusted EBITDA guidance now implies 34.6% growth over 2025, which is already 38.4% ahead of our adjusted EBITDA CAGR model midpoint of 25%. This is rather remarkable because 2025 was also an excellent year, where we delivered 37.3% revenue and 45.9% adjusted EBITDA growth. Said differently, the midpoint of our 2026 revenue guidance is now over 65% higher than 2024 revenue and midpoint of our 2026 adjusted EBITDA guidance is now over 90% higher than our 2024 adjusted EBITDA, far outpacing any of the indexes and most premium and best-in-class software and SaaS companies.

With that, I also want to recognize and thank everyone on my team at Paymentus who have helped to make all of our success possible. That concludes our prepared remarks. I'll now open up the line for questions.

[Operator Instructions] Our first question comes from Madison Suhr with Raymond James.

I wanted to start on the contribution profit dollar growth in the quarter. It accelerated for the fourth consecutive quarter now. Can you just provide maybe a little bit more color and double-click on some of the key drivers that's driven that acceleration? Is it simply a few large customers? Is it really broad-based? And then also any specific verticals that you would call out as being particularly strong that's driven this acceleration?

Sure, Madison. The contribution profit dollar growth, which we are really proud of, actually, it's showing exactly the way we envisioned when we set our CAGR models. And this quarter is a phenomenal quarter where you see a very good growth. In fact, you will also see the revenue and contribution profit are more converging as we also envisioned years ago.

But to specifically answer your question, it's broad-based. It's not limited to just the large enterprise customers. Definitely, large enterprise customers do contribute and they contribute significantly, but that was anticipated. But the entire biller base is contributing to our growth of contribution profit dollars. It's large customers, small customers, midsized customers, and it's not focused or concentrated on any particular vertical as well.

Verticals, I think every vertical is growing and every vertical is contributing. In fact, one thing which we have realized or noted in the past quarter, Madison I would highlight is -- the bookings, which we did say in the past 3 or 4 quarters for which we are seeing a full quarter run rate, which have leveled up to a good run rate. These are wonderful bookings we have had, phenomenal bookings, household names, customers which value our platform and technology, and we are able to get good pricing from them.

They are highly profitable. And that's what we are seeing the growth in contribution profit. In fact, the contribution margins itself got improved sequentially. If you note in the past 4 quarters, I believe the uptick there as well. So we feel very good about contribution profit growth. And the short answer is all broad-based and every biller is contributing there.

Okay. Awesome. And then I want to follow up on the AI product suite. Hoping you can maybe just touch on how user enrollment is progressing? And any thoughts as to the timing of when this can start to really impact revenue? And then also as it relates to the AI product suite, do you foresee any meaningful investment ramp as this product scales? Or do you think you can continue to deliver these strong incremental margins we've seen over the medium term despite the rollout of these products?

Thank you for the question. I think we are seeing -- after the announcement last quarter, we are seeing very positive reaction from our clients and prospective clients and partners. There is -- as we talked about in the study we have conducted, there is clear need in the marketplace. is in the service economy, it's not just about the billing and payments. As we have highlighted in the prepared remarks that these experiences are actually directly tied to the brand experiences as far as the customers are concerned.

So it has far-reaching impact on the billing companies and the service providers. So it is whether it's your website, how you enroll someone into the services, how you onboard them, how you build them, how you service them, how do you answer questions, what type of questions you can answer, how easy is that information available, how many options and what the payment journey looks like. So all of those things get factored into the entire service commerce spectrum.

And what we are talking about here is basically the platform, the capabilities we have built is directly addressing that entire spectrum. which payments is -- the payment operating system is the foundation of it. But on top of that, all of the AI capabilities we are building. So whether it is your data intelligence, is storing data securely. And then from there, maintaining data sovereignty and making sure that the data is not leaving Paymentus cloud, Paymentus infrastructure, if you will. So all of those capabilities are receiving very positive feedback.

And in terms of your other question related to BillWallet itself, which is how the traction is, it's going well. The number of users are higher. We will provide more update once annually probably on that. But the -- in terms of your question on the investment, I think we -- our goal remains to be a very prudent operator of the business. We want to make sure that we are able to consistently deliver growth while also delivering incremental margins. But at the same time, if we see opportunities where we are seeing tremendous growth opportunity, we'll be happy to bring it.

But right now, part of the innovation framework Paymentus has laid out is how can we use the network, the fact that we have already created as a way to distribute the products and services and innovations we are bringing to market in a way that it is actually additive, not subtractive to the margins or to the revenue growth.

So -- and the last part of your question, when do we see the results in the P&L? First of all, I'm very proud of one fact, which is that we have been building all these things, and you can't see on the expense side of the P&L as much here because we have been making investments, but we have also been delivering great results, as you saw our success for the entire 6 or 7 years for this decade. And then in terms of the top end of the top line, we see next few years, you will start to see results from these.

I know I snuck in a multipart there so I appreciate all the details.

Our next question comes from David Koning with Baird.

Great job again. And I guess -- yes, my question, historically, sequential growth in transactions, Q2 was the low point and average for many, many years, averaged right around 2% sequential growth. This quarter, Q2 was up 5% sequentially, the strongest we have since, I think, 2019. So it seems like either momentum is somehow accelerating or there's something a little bit changed in the sequential pattern, I guess, the seasonal pattern of transaction growth. I'm just trying to figure out why it was so good sequentially.

Thanks, Dave, for the question. I'll say we are ourselves trying to understand where these new large customers and diversification of verticals take us to the trends. Historical trends were mainly driven by a few verticals. Now I think as the diversification has happened, it's a great question, and we are also trying to see what the season trends would be. Short answer is we are very pleased with the growth of the business overall. Will the past trends continue from a seasonality perspective? Maybe, maybe not because the pace of our growth is so significant that actually it's hard to keep up with the similar trends, and they definitely would change.

So we are pleased to see the second quarter growth of transactions. It actually transactions grew 21%. And I think seeing them in 20s again rebuilds our future forecasting of these new customers. So Short answer is we don't know how the trends will continue. I think the right way to model, if I can be helpful for your modeling purposes, is use our guidance, I would say, be at midpoint and use the revenue per transaction as an average of what we have delivered in the past 2 quarters, that would give you the transactions for Q3 and maybe from an implied Q4 guidance, you can add as well. That's the minimum you could do, but the trends definitely are evolving, and we are learning as our customers of different sizes are coming on board.

Yes. Great answer. And then I guess my follow-up, the network fee growth as a percent of gross revenue was the smallest it's been in a long time, I think, over 2 years. And that's despite fuel prices going up. I don't know how exactly that hits all the utility bills, but maybe describe that and if that -- it sounds like that's going to converge, not meaning contribution profit and gross revenue numbers and growth are going to converge, but maybe just describe that dynamic.

Well, short answer, Dave, is the customer mix, which we highlight on every earnings call and in every discussions we have because customer mix drives the contribution margins and they evolve over time, although the seasonality impact is maybe getting a little bit muted because the customers and the scale we are seeing is overtaking the seasonality in my view. So I think customer mix is the short answer and good pricing, better platform, good customers with who see a lot of value in the product, I think that's the short answer here.

Our next question comes from Steven Wahrhaftig with Wedbush Securities.

Congrats on the quarter. It was really impressive to see some of the numbers that you've been putting up. I want to talk a little bit more about the bookings composition just because you mentioned that it was phenomenal bookings and it was very diversified across multiple industries and some smaller and larger players. Can you break down how much of that bookings and that backlog growth was tied to new and expansion deals? And then can you break down the average deal size moving upwards? Is this because of the fact that we're seeing a lot more large billers there? And then last thing, just on the bookings, can you talk about if the large billers are actually seeing a faster deployment time lines? Or is it consistent with prior quarters?

Well, Stephen, it's a loaded question, and we don't disclose the details of bookings, and we don't quantify those, but let me see if I can be helpful here and provide you some additional color. The bookings are broad-based. We've got many verticals. I'll start. We've got utilities, insurance, telecom, property management, mortgage. We've got many, many verticals, and all of them are doing well. The bookings we had in the quarter were not concentrated on any 1 or 2 verticals.

In fact, Dushyant highlighted the verticals where the more concentration was. So that's where the bookings came from. Of course, they are all new customers. They are not -- in our bookings, we don't count expansion of existing customers. So we feel very good about the total bookings, which came in and exiting the quarter with a very solid backlog. In fact, we've also seen a good visibility for 2027 based on the bookings. So it's all diversified.

In terms of time line, the time lines are improving. In fact, time lines have been improving as a trend since past many, many quarters as our processes become more efficient, our implementation teams processes are very efficient. And we've got economies of scale as well. So efficiencies are coming in from every direction, I would say. So time line is improving. Large customers or small, all of them are getting implemented faster than what we envisioned when we booked a customer.

In fact, last 2 years, if I may remind, we had strong results. One of the reasons was that our implementation pace was faster than what we originally anticipated. So that trend continues. And I think we have great backlog ahead and teams are busy implementing on time or even before the scheduled time.

Our next question comes from Darrin Peller with Wolfe Research.

This is [ Josie ] on for Darrin Peller. First question, just on -- so rev per transaction seemed while showed growth again year-over-year, seemed to decline quarter-over-quarter, while contribution profit per transaction did increase. And then in terms of the back half guidance, it seems that contribution profit growth is meant to outpace revenue growth. So just wondering if you guys could provide any color on maybe what's driving the strength in contribution profit and maybe not as much in revenue?

Well, let me take a step back. I think there are 3 things which you're asking. So revenue per transaction, definitely per transaction metric is more of an output of the business rather than being an input to the business. So at the end of the month or at the end of the quarter when we close, then we actually find out what was the revenue per transaction. It is never our go-to when we are booking a customer or what revenue per transaction are we trying to drive.

So our North Star remains the CAGR model that Dushyant shared earlier. Revenue per transaction is just a resulting output. But at the same time, the variability quarter-over-quarter will always continue on revenue per transaction and same will continue in GP per transaction. So I think quarterly, you can see that. But overall, the business is heading in the right direction with the kind of scale and growth we have.

In terms of contribution profit per transaction, which actually is like $0.55 this quarter, I think that comes mainly from the mix of the billers and that's getting better, I would say. So if that mix has given us a better contribution profit, eventually falls down more to our EBITDA. And this quarter was a phenomenal quarter where approximately 70% is the incremental EBITDA margin. So whether one particular KPI, revenue per transaction or CP per transaction moves a bit here or there, I don't think that's distracting the long-term model. In fact, long-term model remains intact with incremental margin touching almost 70%.

And I think on your last question regarding the guidance, I just -- I think it's important to understand that any implication could come out from the current guidance we have given. However, that would not be the right takeaway of the business. I would like to take a step back and explain a bigger picture on how to interpret the guidance. First of all, look at the annual growth. The top line is already 21.9% on revenue and 34.6% on EBITDA -- adjusted EBITDA. We are already ahead of our CAGR model, which is 20% top line and 25% for adjusted EBITDA, just within 1 year and only 6 months are behind us. Remaining 6 months are still yet to go. And I also want to make sure I explain that there is a separation of the execution of the business philosophy and our guidance philosophy.

When it comes to execution, the business is doing exceptionally well. Bookings are strong, backlog is strong, pipeline is strong. Our CAGRs are far ahead. So there is a momentum in the business. In fact, Q2 results are -- a lot of record KPIs were delivered. But when it comes to guidance, we follow a very disciplined approach to guidance. Our guidance reflects what we can deliver with a very high level of confidence based on the current visibility we have on the date we are giving the guidance. And this is a consistent approach regardless of the macro. And as you know, we've historically demonstrated, we prefer to run credibility through our consistent execution rather than embedding any assumptions in our guidance, which have not materialized yet.

So it's a long way of saying, but short answer is the guidance is very disciplined and followed consistently. Overreading the guidance for 1 quarter would not give you the right conclusion. And that's what I would encourage all the investors not to read too much into any one particular quarter's guidance in isolation. Look at our guidance philosophy over time and see the results we have delivered.

[Operator Instructions] Our next question comes from Tien-Tsin Huang with JPMorgan.

Great results. Good execution as usual here. Dushyant, on the enterprise momentum, my question was just maybe giving us a little bit more detail on the momentum itself. Any change in how, for example, the business is being sourced? Is there a shift in inbound versus outbound sales effort? Are your win rates improving? Is your mix of sole sourced going up? I know -- I'll let you answer however you'd like, but just a little bit more detail maybe on the enterprise momentum.

Sure. I think what has transpired over the last several years is that our years of hard work is sort of starting to pay off, which is building a great franchise, great platform, having a tremendous fiscal discipline, which is -- and having the public profile, including seeing how well we treat our customers during great times and not so great times with macro and so on as we saw several years ago. So all of that is now -- is all out in the open. And what enterprise customers have started to recognize is that what used to be and it still is, to a large extent, the old legacy model, which is payment companies, not Paymentus, but payment companies in general are basically just a processing company.

They're basically -- the goal is to take an API call from one place and then send it to another place and then the money is settled into the customer's account. That used to be the history of payment companies. And that has a place and obviously is an important function, but not sufficient as far as the new enterprise segment of the market is concerned. There are a lot of sophisticated workflows. There are a lot of custom logic. all of that business rules, all of those have to be factored in before a decision could be made to think about what more -- how much of the workflows of a given organization or enterprise can Paymentus platform take over.

So when that question comes in, Paymentus shines phenomenally well because the way we have designed our platform, we recognize that payment is one part of the function and especially how we get paid, but the platform itself handles tremendous workflows, a lot of data, a lot of intelligence layer, a lot of workflows, business rules, then all of that is put in front of the executive team of an enterprise what used to occur, the CIOs and CTOs used to be on the opposite side of the table to us years and years ago are now on the same side of the table and saying, Paymentus actually does a lot more than what meets the eye. It's not just a payment company.

Payment is what they do and get paid for, but there's a lot more workflow that could be included in Paymentus platform. And as a result, what happens is some of these discussions take place in many different ways. So some is you're reaching out to clients and explaining to them based on some of these are household names, national accounts, you're looking at them as, hey, we already know how your systems work and what the capabilities are and how many myriad of applications you are hosting and Paymentus can eliminate all of them with one platform with one integration. So that could be our outreach. That outreach could result into inbound calls to us as well from other players.

And then as you can imagine, as we reported last year, we have almost 53 million unique users who transacted in December last year. Since then, obviously, it is higher. The -- you're approaching a sizable portion of United States households as well as businesses. And if you think about a buyer psychology here, you might be a customer of Paymentus in one area while you might be a CFO of a large company in your work. And you are seeing that Paymentus has taken care of a lot of stuff which you would like your team to take care of. So you may have an outreach to Paymentus. And then we have built an amazing partnership ecosystem, which is increasingly more sophisticated list of partners and well-known names.

So all of that combined is actually leading to inroads into enterprise. But the front and topmost, I would put is the capability of Paymentus platform, which is far more than what has ever been built before by a company that had payment in its name.

This concludes the question-and-answer session. I would now like to turn it back to Dushyant Sharma for closing remarks.

Well thank you, everyone. Have a great day. I appreciate everyone's time. Thank you. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.

All right. Let's get started. I'm Tien-Tsin Huang. I'm the payments analyst at JPMorgan and always grateful and happy to have the Paymentus team with us. Dushyant Sharma, the CEO; Sanjay Kalra, the CFO. I put together a list of questions from the investment community, but also happy to take questions from the audience and from the portal. But thank you both for being with us. It means a lot to me.

Thank you. Thank you so much for having us here.

Yes. No, Paymentus has been doing some really great things and putting up results quietly and been impressed. I thought we'd start with that, right? The quarter itself, I don't want to call it typical, right, because we've been spoiled with a lot of upside in terms of the quarter and everything else. But it's been a long sort of repeat performance of doing better. So maybe anything different in terms of what's driving the strong performance in the first quarter and how that informs your opinion on the rest of the year? Just to start with the quarter.

I'll say that Q1 was really strong, great start to the year 2026. And the growth stems from the fact that we had -- we exited the last year with a very strong backlog. We had a very strong pipeline, a lot of diversification happening in the verticals we are in. And same thing continues even in Q1 as well. But overarching thing to understand is that the business is growing not just because of the payments piece of it. I think the biggest contribution to our growth is the technology behind it. The technology, the platform we have, the -- any vertical can be connected with our platform and platform being agnostic without needing any significant massive customizations for any business or any vertical or any biller, I think that differentiates us. And the entire customer experience, right from start till the end, which also entails payment as a piece, I think that's something which is contributing to the growth massive bookings we're having.

Yes. It's probably something I underappreciated just in terms of how quickly things can be onboarded and how quickly the tech platform resonates with enterprise. I think that's been a big positive surprise. I think, Dushyant, you mentioned the two fiscal year horizon. And I think you talked quite a bit about visibility being quite good and referenced 2027 quite a bit. Can you just elaborate on what informs that opinion as you're thinking about it in the two-year phasing?

Actually, all markers of the business from our bookings, the backlog, the same-store sales, and the existing customer cohort we have with digitization tailwinds we are seeing. So all of that puts us more in a frame of mind. And we have always operated the business in a two-year horizon, to be candid. Because within the year, let's say, right now, we are executing in 2026, primarily based on how strong our 2025 was, even though to the investor community, it appears that 2025 is sort of in the back or in the rearview mirror.

To us, it's not because we are -- we were doing a lot of hard work in 2025, which was manifesting itself into 2025 results, but also setting a great foundation for 2026. And we are doing something similar now for 2027. So we feel good about it. Still a lot of execution risk exists. We still have to perform. But we thought that investors in this broader macro environment would actually like a company to be able to at least say that we are feeling good about 2027 based on bookings, backlog and all the things which are going on in the pipeline, of course.

Yes. No, it stood out to me. So if you were to characterize the demand environment then and close rates, sales cycles, however you want to word it, how would you characterize that today versus the prior year or even back to 2004, let's say.

A lot is stronger now. Actually, in 2004 or early part of Paymentus' journey, we were sort of the new company trying to prove ourselves a lot of fear uncertainty doubt in the customers who are actually choosing Paymentus. But then as they started to realize the benefits of the platform and how simple we made everything and how reliable it was even as they grew -- as the needs grew, Paymentus was able to accommodate them.

And then seeing the transition going to larger and larger customers and now a lot more of the enterprise clients who are historically not even outsourcing to -- they never really outsourced to anyone. We were the first system they ever trusted. So that gives us a lot more confidence that we are not just replacing the legacy providers, but we are displacing the legacy infrastructure all together. So demand environment is a lot more -- a lot stronger. It has gone beyond utilities. As you know, it's not just utilities, you've got insurance and all of the other verticals. We are literally just taking a household bill and then typical business bills and going through what are the key bills they have and going into each of those verticals.

Yes. So maybe just to go deeper on that, moving beyond utilities, moving upsize and clients. So what verticals are hot? Like where do you see specific demand?

Actually, it sounds somewhat like a cliche, but all of the verticals are feeling great about, because the way our team is organized, the way our business we are organizing it, we felt that platform has always been great. We just need great storytellers. And as the story is being told with the vernacular of that specific vertical, I think the platform continues to resonate extremely well. So you're seeing we are signing deals in education vertical, which is very nascent to us, health care vertical and insurance, telecommunications, property management.

But we're just going down the line. We're saying, well, we have three or four bills covered with utilities. Insurance, we got another couple of them. Then consumer finance, we got a couple of more and then keep going down. We're trying to capture all the 12 to 15 bills.

Yes. So what do you think is the -- or what is changing the sense of urgency for these billers to work with you? One side I know is tech and whatnot, but are there other forces that are driving this decision process to maybe be a little bit faster to say, "Hey, we need to update or automate or even outsource our bill payments."

Yes. I think what has transpired is bill payment has gone mainstream, the digital bill payment has gone mainstream, and it has become an imperative. Previously, it used to be that you have 3% or 4% of your payments coming digitally, rest of them are coming manually, meaning paper checks and cash and money orders and so on. Now when you start to get to like 20%, 25%, 30%, it's a very big channel. A one hour of unavailability means your entire organization is brought to your knees.

And one hour doesn't sound like a lot when you're talking about in a year, in the context of a year, but it's happening on the 1st of the month, for example, which typically could happen when -- if your platform is not scaling well, you have let the entire customer body down. And if you think about if you are an in-house solution provider and you are having to ask millions of dollars of investment and resources and then you have compliance and security to the CFOs of the organization, the natural question is, is there no alternative?

And then previously, it used -- the answer used to be no really. Now with Paymentus because of what we have built and the infrastructure we have created and actually, we are very fortunate to be the size we are in right now, we are approaching $1.5 billion and profitable, strong balance sheet. So customers can see that we are a dealworthy company along with a technology platform, solving the true fundamental principles we set out to solve, how do we reduce the cost to serve while improving the customer experience. and both of that comes together. So I think almost everyone wants our platform. It's just a matter of when can they get out of the contracts they have and then -- and how -- where does it sit with some of the other priorities that might be going on at that particular time.

Okay. That's helpful to hear it. So before we move on to some of the other fun parts of the business, just thinking about the predictability of the business. I think you've been very careful around setting the guidance because you want to learn how the behavior of payers, payees, perform.

And I didn't appreciate the seasonality as you shift into insurance and education, right? These are bigger tickets that have different payments at different times that might have different payment types. So just walk us through that. Like do you have visibility into that at this point? Because it's hard for us to appreciate, right, how some of this new flow is coming in and how the seasonality changes.

Yes, I'm glad Tien-Tsin, you asked that. As we are navigating our way through capturing the market share and getting into more verticals and even diversifying into more bigger size of the billers compared to smaller size within the same vertical, we are learning a lot. And as the quarters pass by and once we have full 1-year experience, we are more knowledgeable about how to forecast the trends because some seasonality might be into play, but we are not aware of it unless 1-year is passed.

So we are baking a lot of that into as we guide, because we never want to get ahead of ourselves. We will not count our chickens before they hatch. And that has been our policy of prudence, you call it, and that's what we've followed and that has helped and that has been an important part of our success as well. We don't want to chase a number and then fall behind. That's not our goal. Our goal is to be very prudent, cautiously come up with a guidance, but actually deliver a good result. And once the full knowledge is obtained, then you start baking into the guidance. And I think as we are scaling the company at such a pace at which we are, prudence becomes more and more important.

And the diversification is causing us to do it. And I think for the right reasons, but seasonality could play into roles. For example, utility bills you pay every month, but still you use more in summers and winters compared to other months. So Q1 and Q3 are different than Q2 and Q4, for example. But at the same time, insurance, for example, has seasonality. You might have -- you might be paying your premiums once a year for your cars versus some people will pay monthly, some people will pay quarterly.

So all that comes into play and does seasonality and bring seasonality into the play. So in some cases, you will see that as we are scaling, you might see it dissipating over time because the scale is there. At the same time, in some quarters, you may not. But we are committed to our model for top line growth and bottom line growth, which we talk about 20% top line and 20% to 30% bottom line. That's the long-term CAGR model. We are committed to that. So that may entail quarterly variability. But overall, we are marching to the right path.

So with the -- I'm just trying to think back in terms of you learning, right, which is really important in adapting the business. The energy business or exposure to high energy prices, you address that, right, by adjusting your pricing. So walk us through how that evolved and why that's maybe applicable to some of the new business that you're bringing on or not. I mean I don't know if there's a way to smooth out some of this seasonality given how you price, but how did that happen? What can we learn from?

So energy prices were more relevant to us during COVID days. I think that's behind us many years ago, and we learned our lesson at that time and utilities was a much bigger piece of business at that time. Now what has happened is over the time, first of all, the company has scaled. We are -- like we guided to $1.44 billion top line revenue. During COVID days, it was much less revenue. We've scaled massively. Secondly, utilities is not the most important piece of the business today. And even within utilities, a very small subsegment of that has some correlation to it. What we have done over time is this diversification has helped. Secondly, we have evolved over -- in terms of our pricing strategies. Any impacts, any significant impacts are right away recovered from the bidders, if I say in simple terms.

Our impact is insignificant and I think in case there is a misconception out there that energy prices are kind of directly related to our performance, I think that's the wrong belief. So I want to straight away clarify that, that's not the case at all. In fact, Q1 is a very good example. I believe the inflation in energy was still not double digit, was 6% or 7% year-over-year, but the impact was miniscule. In fact, our growth of CP was 25.2% and revenue was 30%. So it was immaterial, I would say. The short answer is diversification has helped, scale has helped and pricing strategies have evolved. We are not as directly impacted.

So as we look ahead, then naturally, we should expect revenue and contribution profit probably to converge a little bit more? Is that a fair...

I think longer-term conversion should happen of revenue growth and CP growth. But there could be periods as we grow and as we scale, there would be periods and quarters where the revenue -- the gap will be more. For example, in the past year, you saw there was more gap because we were launching new enterprise customers. But as we have now built a cadence, you see that they are converging more.

Okay. Good. So before I move to Billeo and BillWallet, I had a lot of questions around that. Any other questions from people on the base business and the financials?If not I'll keep going, unless I miss something you want to highlight?

No, I think you covered it all.

I was just going to say about the CP and revenue. The convergence is one phenomena, but I won't be surprised that it has happened the past that CP could outgrow revenue as well. So we'll see how that all plays out.

Yes. I mean there's dynamics in terms of consumer pay versus payment method and mix and channel.

Exactly. Exactly.

But it doesn't, yes, it feels more likely for that is things to converge rather than tolerate.

Yes. Yes. Yes.

Okay. Good. So let's do Billeo and BillWallet. I think the way I phrased the question, maybe to kick it off is just, Dushyant, you mentioned this new category. I like the phrasing of it, AI-native service commerce. We're still focused on retail e-com and consumer person to merchant, whatever, like that, that's obviously a big market. But you're right, the service commerce side of it is a little less addressed. Can you define that, elaborate on what you mean by it and what you're building, right, to attack it?

Sure. So I think I was thinking about what is the best way I can explain. So if I can -- if we look at our own experiences, it has become very easy to buy things. So all the commerce advancements have been towards checkout, quick checkout. So sitting here, you can buy anything. You could buy a shirt, you can buy a nice bag. And frankly, if you are so inclined, you can also buy a car, right? All of that could happen here from your phone.

And there are tools available to you to be able to do that. So you can go to the website, you can see the product, you can see exactly all the benefits of it. You can also get the checkout assistance. You can get payment digital wallets. You can check out with Apple Pay, Google Pay, Venmo, PayPal. So you don't even have to remember your card numbers and so on. So you can do that.

However, let's take an example. You got now the car and now next morning, you get a fender-bender, unfortunately, what do you do? Who do you call? How do you call? And if you even get the insurance on the car you just bought, what does that experience looks like? You moved into a brand-new house. You have air conditioning, all new things and now the air conditioning is not working. The hot water is not working for whatever reason.

What is that experience like? Doesn't look like that you're an alternative universe, one where you can buy anything you want very quickly and everyone is set up to get you to buy something very quickly. But when it comes to service, so on selling has become easier, servicing continues to be lagging behind. And Paymentus has been doing our part for years. We have been trying to modernize customer experience and so on. And everyone starts to take a look at Paymentus more and more -- part of it is just because of a name and just because of the way we get paid, the Paymentus is basically just payments.

And what your take rate is kind of like how you will look at a traditional credit card processor and so on. Service commerce is all about making that part, which is the servicing of the customer, making it easy. It's starting with all of aspects of customer journey, whether it is -- if I can make one more point about service commerce, it would be getting a product -- the service commerce actually starts where product commerce finishes, meaning checkout is just the beginning.

After that or opening a bank account is the easier part, getting people -- customers to stay with the bank, getting customers to invest in the bank or use other services of the bank, requires you to continue to have a great customer service, quality of service. Same is true for service providers. Paymentus has visualized that we could actually -- we are already going pretty far in that process. But maybe to go far enough, we need to actually -- and we will need the help of AI. And we are thinking this in 2020, 2019, 2021. So we started to file all these patents. So you can take a look at some of these patents were filed in those time frames.

So we said, well, first, we will need a digital wallet, but not a typical old school purchase-friendly digital wallet, but a wallet that allows you to interact with your service provider and say, "Hey, I had a fender-bender and tell me what I need to do." And the app tells you, take the picture and send it to us. You don't have to identify yourself. You don't have to tell them your policy number. BillWallet already knows that and will take care of all of that stuff. you. So my hot water heater is not working. We already know who your hot water heater is with.

We will take care of everything else. And hey, I'm available at 8:30 a.m. on Wednesday. We will schedule all of that stuff for you. So that is sort of the journey we thought about. So that was one part of the patent. The other part was, wouldn't it be nice that all these documents themselves, whether it's your statement or your bill, your invoice, all of them themselves bring -- come to life. So you can ask any question to the document, you can interact with it, you can then make a payment to it, but have all of the questions. You don't have to call someone to have question. So we filed a patent, we call it Billeo.

And the other part was all of this would require integrations in the back-end systems. Wouldn't it be nice that AI itself has integration framework that systems can talk to each other without a whole bunch of manual intervention. So we filed a patent on that one as well. So that's sort of what we created and then the visualization, which is AI360 part of the integration framework. So we felt that this is what we could -- if we could achieve that, we would be able to create the alternative universe and make the change there.

So other part then we realized, well, for consumer side of the, this product commerce, you Shopify, the websites and so on. Well, why don't Paymentus create this website engine that can be personalized for you and that can be multimodal. So it talks to you from the phone, it can talk to you -- talk to you from your Meta glasses, it can talk to you from your car. It can talk to you or interact with you exactly the same way and including all the billing information, et cetera.

So we are basically saying the entire stack of the product commerce can be hosted by Paymentus. And 80%, 90% of that we already do with all the stuff we have been building over the years, all the multichannel communications and so on. Now it's a matter of having BillWallet and Billeo being available. So that's the -- a little bit of a mouthful, but that's the way.

It's good to have the analogies or the examples that you went through with the water heater. But just thinking about what you described, this is less about the payment itself. It's more around the workflow around...

Exactly.

The payments. So can you explain to us or me really the logic, right? Because you're already doing a lot with the consumer in terms of authenticating and validating and then you understand their preferences, but you also can read the invoice and you know how to interface with the service operations side of the way they want to engage, right? And you can do it, like you said, multichannel. But just there's a lot of complexity there. But -- so how did you solve around all of those things? Is it just a byproduct of you having all those connection points? I'm just trying to understand the workflow, how you solve that.

Yes. So a lot of this is basically taking a step further, realizing that at some point, AI itself will be integrating systems. We want to make sure that let's get that patented first, and let's make sure we address that. Identity, we do, do the identity today. There are billions of times identities are verified every year between consumers and the service providers and we felt that if that process itself could be encapsulated into one identity between the user and their BillWallet and that BillWallet already has all of the identity allocated to each of the service providers.

Based on the rule set by the service provider, we would be able to provide the unified interaction. So that's what sort of what triggered. And as a result, rather than having a 5-minute call waiting for 30 minutes, can we create a TSAP check line equivalent that you just dial the BillWallet number or you don't even have to dial, you start typing on your phone, and we will do the rest.

So we will identify who you are, with your policy, with your bill and all of that. And then if you -- for example, example of having a hot water heater or HVAC or what have you, if the fee was $85, even that could be paid through BillWallet. So we wanted to make sure that happens. But all that is happening in seconds as opposed to right now, all of our experience are any of these calls are like 5, 10 minutes to authenticate yourself and then you have another 10 minutes, 20 minutes to just wait on the line.

And frankly, because it's so expensive to talk to anyone, no one wants to talk to you with all of these service providers. So we feel that to broaden the scope of -- to be able -- for Paymentus to be able to serve the entire service economy and become a tens of billions of dollars of revenue company as opposed to in the single digits, we need to broaden the scope of all those who we can serve and all those will require different technology components from us, including the integrations -- ease of integrations and so on.

So we have solved all of that. So that's what this is about, creating basically, in my mind, Paymentus is creating a universe beside the product retail universe. You have digital -- the website providers, search engine optimization, then you have digital wallet and your payment processing companies, all of that. We are just creating a parallel universe to that for the service economy, which is larger than the retail economy.

The more complex.

More complex.

Yes. No, I think I appreciate it. So you talked about how you've piloted this and tested it. You haven't marketed it, but you've had some positive signals so far. What can you share detail-wise?

Yes. So we basically said that can we just launch BillWallet and prove to us that we can -- our theory is that we have about 40% of U.S. households. Can we launch it to a very small fraction of that and see what our conversion will look like to BillWallet from that. And when people start using BillWallet to make a payment, how does that compare to the legacy digital. So that was the thesis. So we launched it to a very small fraction, and we were blown away with the number of customers we started to see sign up.

So we announced that we have signed close to 100,000 users or 100,000 users. And the number of times BillWallet is being used compared to some of the other payment methods in the...

You can see all of that.

Yes, we can see all of that. So we are already ahead of all of them. In fact, maybe all of them combined. So I don't want to go that forward just yet, but I will just say that we believe that we have solved the need. I want you to think about as from an investment community, I want you to look at Billeo, BillWallet and all of these AI360, all these tools, but also the service commerce. I don't want you to think about the Paymentus is creating new products and new categories for the sake of it. That's not Paymentus. We have seen the need and the problem, and we have basically solved it. We are not geniuses in any way. We are basically just problem solvers. We are saying customers have hired us to solve problems, learn from their experiences, understand where the pressure points are, where the frustration points are of the customers. Why does it take 30 minutes to get a call answered? Can Paymentus solve that problem?

And can we make it easier for customers? We believe we have done that with this. So the success we are seeing that now with 100,000 users, we believe in coming years, if this starts to get to millions of users. Think about our acceleration of our growth from the perspective of you're going to a billing company and saying, look, I have a customer cohort that can make this percentage of your payments will already be in seconds and your calls will drop from 4.5 minutes to 30 seconds to take a payment or any interaction.

And a lot of those interactions, the best call is the one which never took place. You will not even need to have the calls because our Agentic commerce framework will take care of all of that. Everything you can do for your customer on the phone, you can do it through BillWallet and Billeo. So I think this is -- so in our minds, we believe that customers who are beyond Paymentus' reach and the customers you think we won't ever touch will become likely our customers. So as a strategy engineer or whatever you want to call it, business engineer, my job is to see what can I do for next? So the company 10 years from now looks just as attractive as it is today as an investment, and that's the foundation we are setting.

So that's good. So you have IPN and you have some partners in the past. We've talked about Walmart and PayPal and these consumer service providers in general. How do you think they will play a role in the evolution of this? Because I know -- I hear you, you're solving it from an engineering perspective. You don't want to be a consumer-facing company direct-to-consumer, that's not where -- I don't think that's where you're taking this. But how do you think those players will come along in the journey?

They'll remain great partners. I mean, from a face-to-face perspective, transaction will take place very quickly. You don't need user authentication. You just need to do...

You're doing that already in a way.

Yes, BillWallet IDE and your payment could be made. And the other thing I would say is from -- PayPal remains a great partner of ours and probably could participate in BillWallet itself. So we are working through some other mechanics. So we feel like that we're taking our partners along with us and reminding them that all your investments have solved a problem that was in a different universe. The majority of the universe, which is the majority of the economy is the service economy, you haven't been able to solve and Paymentus is actually uniquely positioned. We are already running systems for who's who in America. Some of the largest household companies are using us. So we feel great about our chances to be able to be actually to this change of simplicity, simplify bill payments, simplify service interactions, all of them for you.

I think our journey would be -- I would love to see a day where someone in their house when they put their kids to bed and realize that they -- something is not working in the house, they just say to their BillWallet app and it gets taken care of. I mean that's what this is all about. And you don't no longer have to stand in line or you don't have to call anyone. It's all taken care of. We are doing the work for you, so to speak.

Right. Because you've automated the workflow into your systems. Any questions on this before I keep going? Happy to take them.

So looking ahead, I think you were very clear, both of you were very clear to say, right, this is the vision, you're thinking 10 years out as the CEO. I think your willingness to fund it, the guardrails and place to right, to not get too ahead. I'm curious how are you balancing that in terms of the opportunity and being first here versus respecting and honoring the objectives that you've set financially for investors?

Yes. The CAGR model remains intact. I think we are basically -- we have been investing in these things while we were delivering our CAGR model sort of exceeding for the last couple of years as well. That's why it was very important to call out that this has been in the works for the past. So we remain committed to that. Sanjay you want...

Yes. I mean we haven't spent anything on sales and marketing on this till late. We did spend in R&D though, in the past years, we've been spending a decent amount on technology, and this was a part of that also. But I think this was a point that we had to bring it up at this point, given the vision needs to be clear, and we are marching on that path and I think having a good milestone with us for 100,000 customers or users was a good landmark for us to open this up. But we remain committed to our financial performance, which we've been very good in the past as well, and we remain committed to these numbers.

And this is about making the financial performance better and not...

So quickly, just to hit a few subjects. We have to ask you an AI question. You talked about it. I know it's the foundation of a lot of what Billeo and BillWallets about. But just at the core bill payment, the core business today, thinking about AI, any interesting observations? What's moving very, very quickly for you, whether in your conversations with billers as well as with the consumer service providers?

I think for us, the AI remains a very -- it's a central theme internally and externally. So internally, we are already working on a lot of advancement with how we support our customers without losing the human touch, but we are still supporting our customers through the -- to improve our own processes and so on, engineering side, becoming more efficient there. But externally, we're also excited about having -- becoming an AI player for our clients. So we feel good about that.

So when you're deploying AI internally then, Dushyant, what are you most excited about? Is it more on the product velocity front? Is it productivity? Is it customer support, operations? Where do you see the most impact in the short term internally.

All of those, I mean, from an operations perspective, support, we already are using tools for AI tools there, engineering-wise as well, pretty robust tool. So we are excited about all of those components. Because it's -- again, without sounding like a cliche here, but we have been thinking about some of this stuff for a while now. So it is just we are able to talk a little bit more openly and publicly now, but we were thinking about a lot of that earlier.

As we read about -- and we've had a couple of sessions earlier and all this talk about Agentic commerce and the impact on traditional e-commerce, the bill payment part doesn't quite come up. Sometimes we hear a little bit about subscription management. But do you see it having real momentum in terms of use cases today or even the next three to five months, do you think that we'll see more sort of a Agentic-driven payments from the consumers? Is there a demand for that?

I think we do see that it's just like any other technology adoption curve, there will be innovators, early adopters and then before they become mainstream. So I think it's still -- we are far before the mainstream adoption occurs. But I do want to make one quick point, actually, which you asked on the call as well in the public call, which was who owns and how the security and the liability of the tokens and so on. And I was reflecting on how can I best provide the answer to that. The simple point is the question is, can -- who owns the relationship, who owns the tokens, who owns the chargebacks and all of that.

And my answer to that is, if I may, that it's entirely this product commerce universe framework paradigm. We have shifted that paradigm. We -- in Paymentus, that's not applicable because in our case, we have the security and privacy of the merchant's relationship with their customer and no agent or AI in the middle is the foundation of BillWallet. So when you are talking to your agent, whether -- wherever it resides and you are saying, open BillWallet and call my utility company, entirety of that interaction is happening out of band from that agent because we got all the information.

We don't need you to tell us what your date of birth is. We don't need you to tell your card numbers and all that. And we are doing it based on whatever client the billing company would want us to do. Each billing company is different. So that's the way we are doing it. So it's a different paradigm, and that's why we thought the best way it could be that you call it AI native agent to commerce -- service commerce so that folks can start to differentiate between the product and the service and stay connected with us.

Okay. Makes sense. Look, I think we sometimes focus too much on the retail the service side.

Well, we haven't done our part. We are not a $20 billion company yet.

We should still pay attention to import. Thank you both. I know we're out of time, but I appreciate the discussion.

Thank you so much.

Thank you.

Good day, and welcome to the First Quarter 2026 Paymentus Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. David Hanover, Investor Relations. Please go ahead.

Thank you, operator. Good afternoon. Welcome, and thank you for joining the webcast to review our First Quarter 2026 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's had a chance to review those documents. Our Founder and CEO, Dushyant Sharma, will make some opening remarks before Sanjay Kalra, our CFO, discusses the details of the first quarter and our guidance. Following our prepared remarks, we'll take questions.

Let me just remind you that we will 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 this 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 differ materially from expectations are detailed in our earnings materials and in our SEC filings that are available on both the SEC and our website. Information about non-GAAP financials, 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. We had a tremendous start of 2026 with record revenue and strong growth, exceeding our CAGR model across all key metrics. We believe these results underscore the durability and long-term growth potential of our business model. That strength is driven by our platform, our ecosystem, our expertise and scale, our quality of service with support, security, availability and compliance frameworks, along with a broad and continuously evolving innovation framework. In addition to our very strong financial results, we also announced an important product launch today that we believe will transform how service providers interact with their customers.

Today's agenda will proceed as follows. First, I'll provide a brief overview of our results. Sanjay will then provide a detailed financial review and discuss our outlook. And I'll then come back and discuss the strategic product announcement we have made today. We'll then answer any questions.

Let me start with financial highlights as shown on Slide 3. First quarter revenue was a record $358.4 million, an increase of 30.2% year-over-year. At the same time, contribution profit was $109.7 million, up 25.2% year-over-year. Adjusted EBITDA was a record $42.4 million in the quarter, representing 41.5% growth year-over-year and a 38.7% margin. Once again, a majority of our year-over-year growth in contribution profit fell to our bottom line. And we exceeded the Rule of 40 for the quarter again, coming in at 64% versus 61% in Q4. This reflects our team's solid execution and our focus on delivering consistent revenue growth alongside high-quality earnings. These results are exciting for multiple reasons.

Let me speak to 2 that will likely be on top of mind. First, they speak to the vertical diversification and our enhanced pricing strategy over the years, whereby the impact of elevated energy price index on our numbers has been materially reduced. Second, as we have shared in the past, we operate on a true fiscal year horizon. Therefore, this outperformance is not just about 1 quarter. It actually gives us confidence and additional visibility for the rest of the year. And when combined with our backlog and bookings, we are also feeling good about 2027 with our additional visibility.

Now on to our business results on Slide 4. We continued our strong momentum in the first quarter with robust bookings and a very substantial pipeline. We also continue to expand and diversify our customer base by signing new clients in several industry verticals, including utilities, insurance, telecommunications, government agencies, property management, consumer finance, banking, education and health care. Complementing this, we signed channel partners in education and telecommunications verticals. And likewise, onboarding of our substantial backlog remains a priority for us. Our team continues to demonstrate solid execution when it comes to onboarding activities. We also saw better-than-expected seasonal performance in the first quarter, largely from the large cohort of new customers that we added in the second half of last year. In addition, during the first quarter, we onboarded clients throughout multiple verticals, including utilities, consumer finance, government agencies, telecommunications, banking, insurance and education.

With that, I'll turn it over to Sanjay to review our financial results in more detail.

Thanks, Dushyant, and thank you all for joining us today. Before I discuss our first quarter results and outlook, I'd like to remind everyone that the financial results I'll be referring to include non-GAAP financial measures. Our Q1 press release and earnings presentation includes reconciliations of these non-GAAP financial measures to their corresponding GAAP measures. Both of these are available on our website.

Turning to Slide 5. We delivered a strong start to the year with the first quarter results that came in much stronger than we had anticipated, driven by higher transaction activity from both new and existing billers. This helped drive strong double-digit growth for revenue, contribution profit and adjusted EBITDA. This, combined with our strong bookings, sizable backlog and strong pipeline at quarter end supports our positive outlook for 2026.

Our first quarter 2026 results included revenue of $358.4 million, contribution profit of $109.7 million and adjusted EBITDA of $42.4 million. On a Rule of 40 basis, we came in at 64, which we consider a solid result and a record for the company. We are encouraged by this achievement, especially given the macro backdrop we are operating in. I'd like to also call out that we saw a sequential acceleration in the year-over-year growth rate for the number of transactions, revenue and contribution profit despite tough year-over-year comps and a challenging macroeconomic environment.

Moreover, the sequential growth rate we saw for all of these 3 metrics in Q1 was greater than the sequential growth rate we saw during the same period last year. Simply put, both our annual and sequential growth rates accelerated in Q1 2026, boosting our confidence for the full year 2026 outlook. I'll discuss the drivers of our outperformance and strong business momentum behind them shortly. These strong results also enabled us to once again exit the quarter with a much stronger cash position and gave us the flexibility to allocate capital with a continuous focus on longer-term growth, which also contributed to robust bookings.

Now let's review our first quarter financials in more detail. As I mentioned earlier, first quarter 2026 revenue was $358.4 million, up 30.2% year-over-year. This growth was largely driven by the launch of new billers over the past year as well as increased same-store sales from existing billers. We also processed a higher number of transactions during the first quarter, reaching $203.4 million, up 17.4% year-over-year. Our average revenue per transaction increased by approximately 11% to $1.76 in the first quarter compared to $1.59 in the prior year period, continuing our robust trend of double-digit annual growth rate of revenue per transaction over the past 7 quarters. This was mainly due to the biller mix or more specifically the large enterprise billers that we launched during the second half of 2025 with higher average payment amounts.

The first quarter guidance we previously provided did consider some of the anticipated upside from large enterprise accounts. But as you can see, it still exceeded our expectations. First quarter 2026 contribution profit increased to $109.7 million, up 25.2% year-over-year. This increase also reflected the launch of new billers and higher transactions from existing billers. Contribution margin was 30.6% for the first quarter compared to 31.8% in the prior year period. The year-over-year reduction reflects the increased mix of large, high-volume enterprise billers in our growing customer base. This change in contribution margin was largely offset by a year-over-year reduction in operating expense margin, which resulted in a record adjusted EBITDA margin of 38.7%. This is consistent with our continued focus on profitability.

Contribution profit per transaction for the quarter was $0.54, an improvement from $0.51 from prior year period, demonstrating our ability to expand market share without sacrificing comparable contribution profit per transaction. As we have noted before, variables that are outside of our control, such as an increase in average payment amount or changes in the 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.

First quarter 2026 adjusted gross profit was $92.4 million, up 27.3% year-over-year and ahead of our contribution profit growth rate as we achieve operational economies of scale. As we anticipated, the first quarter 2026 non-GAAP operating expenses increased 16.3% year-over-year to $53 million. This increase was primarily due to higher sales and marketing expenses. You may notice our OpEx year-over-year growth rate increased this past quarter. This is a positive leading indicator for our business as it means we are aggressively converting our substantial pipeline to bookings. We expect to make similar investments throughout the year as we continue to execute our go-to-market strategy, calibrate operating expenses with contribution profit expansion and deploy our growing cash balance to support further organic growth. These expectations are already incorporated into our guidance, which I'll review in more detail shortly.

First quarter 2026 non-GAAP net income was $26.9 million or $0.21 per share compared to non-GAAP net income of $17.6 million or $0.14 per share in the prior year period, reflecting an annual EPS growth rate of 50%. This EPS incorporates a non-GAAP tax rate of 25%, which is based on our current expectation of our long-term projected tax rate and is also reflected in our 2026 guidance.

First quarter 2026 adjusted EBITDA increased 41.5% to $42.4 million compared to $30 million in the prior year period. Adjusted EBITDA also represented a record 38.7% of contribution profit, an annual improvement of 450 basis points compared to 34.2% in the prior year period. We believe the stronger adjusted EBITDA margin demonstrates the inherent operating leverage we have in the business. Please note, our incremental adjusted EBITDA margin was approximately 56%. Related to this, once again, we also exceeded the Rule of 40 for the quarter, coming in at 64, a record.

Now I'll discuss our balance sheet and liquidity position on Slide 6. We ended the first quarter with total cash and cash equivalents of $342.1 million compared to $324.5 million at the end of 2025. The $17.6 million sequential increase was primarily comprised of $30.5 million of cash generated from operations, partially offset by $9.4 million used in investing activities, primarily for capitalized software and $3.3 million spent in net settlement of employee [ RSUs ]. The company does not have any debt.

Free cash flow generated during the quarter was $20.9 million. This was primarily driven by strong adjusted EBITDA in the quarter, offset by investments in working capital, primarily in accounts receivable. Driving organic growth continues to be our primary focus. Having said that, our strong cash position enables us to maintain financial flexibility to keep room for working capital investments as we scale. In addition, our ample liquidity allows us to explore attractive M&A opportunities that may arise in order to expand our growth prospects. Our days sales outstanding at the end of the first quarter was 29, comparable to 28 days at the end of the prior quarter and much better than our expected range. Working capital at the end of the first quarter was approximately $365.4 million, an increase of approximately 6.7% sequentially. We had 129.3 million diluted shares outstanding during the first quarter, pretty much comparable to the prior quarter.

Now I'll turn to Slide 7 to discuss our second quarter and full year 2026 raised guidance for revenue, contribution profit and adjusted EBITDA. Before discussing full year guidance, I want to mention that we are continuing to follow the same prudent approach to guidance that we have followed for the past 3 years, which has proven to be successful for us. As shown on the slide, for Q2 '26, we expect revenues in the range of $340 million to $350 million, contribution profit in the range of $108 million to $111 million and adjusted EBITDA in the range of $38 million to $40 million. On a Rule of 40 basis for the second quarter of 2026, our guidance implies a range of 51 to 55. For the full year 2026, we now expect revenue in the range of $1.425 billion to $1.440 billion, an increase of 2.3% from midpoint of our previous guidance. This guidance now represents a 19.7% annual growth at midpoint and 20.4% annual growth at the high end.

Contribution profit in the range of $450 million to $457 million, up 1.5% from midpoint of our previous guidance and now representing 17.4% annual growth at midpoint and 18.3% annual growth at the high end. Adjusted EBITDA in the range of $165 million to $172 million, up 4% from midpoint of our previous guidance and now representing 22.6% annual growth at the midpoint and 25.2% annual growth at the high end and a non-GAAP tax rate of [ 25% ]. On a Rule of 40 basis, our guidance implies a range of 53 to 56 for the full year 2026.

During our past few earnings calls, we provided long-term growth targets for both revenue and adjusted EBITDA, our 2 primary financial metrics. We stated that our goal was to grow revenue at approximately 20% and grow adjusted EBITDA between 20% to 30%. The full year updated 2026 guidance range we have provided today reflects the expected achievement of these long-term targets.

In summary, we are very pleased with our strong start to 2026, reflecting the continued momentum we've shown across the past several quarters. During this time, we have consistently demonstrated our ability to generate profitable growth. This enabled us to end the first quarter with a substantial backlog and pipeline. Given our solid footing and strong visibility, we continue to believe we are well positioned for further growth in 2026 and beyond.

Thank you, everyone, for your attention today. And now I'll turn it back to Dushyant for final remarks before we open up the call for questions.

Thanks, Sanjay. After seeing the impact of our state-of-the-art platform and the ecosystem on the broader service economy, we find ourselves at an exciting juncture similar to what we experienced at our inception. As we looked at the economy broadly, we realized that almost all investments in commerce have gone towards product or retail commerce with a focus on how to sell more to customers and having them check out quickly. This product commerce paradigm is also retrofitted in service commerce, which at its core is not transactional, but instead relational. This mismatched paradigm has led service commerce to lag behind as enterprises spend millions of dollars on a myriad of mismatched components and tools.

At Paymentus, we realized that to truly solve the issue, we needed to bring about a paradigm shift with a full stack purpose-built AI native platform with service native components. Even before our IPO, employing our proactive thinking, we wanted to make sure that we not only build a platform with full stack components, but also we incorporated AI, which we even knew then would become mainstream. Additionally, we also knew that we would need to seek patent protection on all major components, thereby creating a long-term moat and ecosystem. In line with all what I've just talked about, today, we announced that we are establishing a new category, AI native service commerce, where every service interaction becomes intelligent, secure and outcome-driven.

And as you can see from Slide 9, there are 3 key gaps in service commerce. First, there is no native payment method that preserves the service provider customer relationship and identity. Second, static service and transactional documents must become intelligent and interactive. Third, there is a lack of intelligent orchestration across fragmented systems. To address all these 3 pain points, as you can see on Slide 10, we have created a new paradigm called Billeo that has 4 key components, all of which have been patented.

First is BillWallet, a purpose-built digital wallet designed specifically for bill and service payments. Unlike traditional retail wallets that store cards for onetime purchases, BillWallet establishes a persistent, secure relationship identity between the customer and service provider, linking accounts, service relationships and payment credentials into a unified layer. BillWallet is designed to reduce time to complete a payment by approximately 75% and to work across all dimensions, agentic, digital, social, physical and vocal.

Second, Billeo, which transforms static bills, invoices and statements into intelligent interactive experiences. BillWallet enables consumers to understand charges, resolve issues and take actions directly within the document itself. And third, AI360, an AI-based integration orchestration and data intelligence framework that powers both Billeo and BillWallet and enables systems to automatically interpret, connect and operate across disparate data sources. AI360 also provides data visualization and business intelligence capabilities, replacing third-party BI tools. Fourth, all interactions are secured through Paymentus's patented PCI-compliant secure service framework, which we believe will ensure end-to-end protection trust and compliance across every single -- every service interaction and payment flow.

Putting this all in context, in the past, we have mentioned the exciting opportunity to monetize interchange in the outer years. By design, the interchange cost we incur today is big and getting bigger as we scale. To us, that represents an incremental untapped TAM, total addressable market. Additionally, we have also shared that with the advent of generative and Agentic AI, the industry is predictably moving in our direction and has opened up opportunities far beyond bill payments with our existing and prospective clients, users of our platform and in all of our current and prospective verticals.

Let me discuss both in detail. BillWallet is an IPN native wallet, purpose-built for bill payments and service commerce. As a result of BillWallet, a customer visiting their insurance company's website can complete their premium payment in seconds rather than minutes with their BillWallet ID. We believe that BillWallet will also significantly improve security and reduce fraud, whether the interaction takes place through an agent in a self-driven card, wearable technology or any other traditional self-service or assisted channels. It's also intended to work well in a physical context. For example, at a government or utility walk-in center, a customer can pay their bill simply by providing the BillWallet ID. No card swipe, no manual entry, no POS terminals. This establishes a new paradigm for service commerce away from the retail commerce paradigm. We believe that this will result in a massive improvement in convenience, speed and security and also create a more direct link between service providers and their customers.

As BillWallet scales in the next several years, we also intend for it to include native funding capabilities. enabling us to participate in interchange economics while increasing transaction frequency and depth of engagement for our clients. And BillWallet works in all aspects of the service economy, B2C and B2B.

Let me now discuss early success. As you know, we reported that in December 2025, users on our platform numbered 53 million, which we believe represents approximately 40% of U.S. households and possibly businesses. Out of that customer base, we have made BillWallet available to a mere fraction of our end user base, but across various cities. Early BillWallet results are very impressive. Within a few quarters, we have already enrolled 100,000 users across more than 1,000 cities with a very high conversion rate and no marketing spend. I mean not a single dollar of marketing from Paymentus. We believe that these results speak to the pervasive nature of our platform, the power of the network effect and the ease of use, unlocking an additional dimension to the durability and profitability of our longer-term growth algorithm. After seeing this early success, we are getting increasingly excited about exploring how BillWallet can be fully rolled out over the next several years.

In addition, we recognized years ago that with the advent of AI, actual service documents like policies, bills, invoices and other transactional documents such as bank, credit card, loyalty or mutual fund statements themselves must evolve to become more intelligent. As a result, we patented our technology called Billeo that transforms traditional bills, invoices and statements into AI-powered interactive experiences. With Billeo, a utility customer can simply ask Billeo, why is my water bill higher this month? Or a customer can interact with any other BillWallet and Billeo-powered enabled service provider, such as a plumbing or HVAC service provider and automatically schedule a visit and pay for it in advance based on rules set by the user or a customer can interact with their video-powered mutual fund statement and ask why their portfolio returns are trending lower than the indexes.

Billeo is designed to answer, resolve and execute, eliminating friction, driving faster payments and reducing support costs for billers and other service providers. Billeo is also a full stack service commerce platform. And with the help of the wallet, it has the potential to transform legacy websites into multimodal Billeo sites, potentially ending the era of retail paradigm-based old school portals and replacing them with secure, interactive and agentic video sites. Once a customer is recognized using BillWallet, the entire Billeo-enabled website is hyper-personalized and the payment can be made, but more importantly, many questions can be asked and answered whether the interaction is from your car, your personal agent, wearable technology or any other traditional mainstream channels such as your computer or mobile phone.

These are not just patents, but rather families of patents. All patent families referenced have granted patents in the U.S. and some international jurisdictions with additional patent applications pending in domestic and many major international markets. And as exciting as the depth and breadth of our further expanded moat is with our patent families, we want investors to know that this success is not an accident. We have a carefully crafted business strategy executed over the past several years, emanating from our mindset that the proverbial technological puck will be at a specific place in the future, and we want to take full advantage of it. We believe this strategy will augment our already very strong growth algorithm, further helping Paymentus attain its goal of becoming a multibillion-dollar business and ensuring that our efforts are patent protected so that our customers, our partners, our employees and, of course, our investors are able to enjoy the benefit of their trust in Paymentus.

That concludes our prepared remarks. I'll now open up the line for questions.

[Operator Instructions] And our first question will come from the line of Madison Suhr with Raymond James.

I wanted to start on the new AI product announcements. I really appreciate all the color around the technology, but I was hoping you could also provide a little more details on the economics. Do you expect any differences in gross or contribution dollars per transaction in the near term? And then longer term, does this open up Paymentus to other revenue opportunities kind of outside of the traditional per transaction model?

The revenue opportunities, yes, let me start with that, but not necessarily outside the transaction model. So as we have shared previously, our pay-per-use pricing and success-based pricing model actually has withstood the test of time. And in our view, it is further validated with the advent of AI as the world moves towards pay-per-use models. So our approach here remains the same, where we want to offer more to our clients and as they achieve success in reducing their cost to serve and improve their end user experience, we participate in those economies and as a result, get the benefit. And we plan to still remain in consumption-based model. I think our clients love that model. They can clearly understand exactly how -- where the success is and exactly what the success KPIs are and how Paymentus will get paid.

But it does open up opportunities with tremendous -- if you think about the combination of -- our approach to this is we are offering -- we're changing the paradigm of service economy. So if we were successful in getting the scale the way we expect to, hopefully, in the years to come, Paymentus will not only be able to provide overall service total service platform, I'm just trying to think about exactly how I can describe quickly.

So if you think about -- in my examples I gave, if I'm using -- if my BillWallet Billeo app, I should be able to do almost anything with it related to my service providers. For example, a schedule -- ask a question and say, hey, my hot water heater is not working. Can you schedule someone to come in and take a look at it? And that could include a payment transaction as well. If that -- all of those things could be factored in using our model. But in terms of the gross and net, long term, our -- the direct strategy here at play is to be able to convert the interchange expense into interchange revenue. And we believe BillWallet and Billeo will play a big role in that.

And if I may just add, Madison, I think the question also wanted to cover any near-term impacts. I would say, in the near term, we remain committed to our CAGR model, which you have described, which means top line to grow 20% annually and bottom line between 20% and 30% and throughout a progression throughout the quarters in the year.

As you've seen from our past performance, we remain committed to deliver not only this CAR model, but deliver better results and the operating leverage on the business shines and has been shining since the past few quarters. We remain committed in the near term, there should be no significant impacts here. But especially over the longer term, as Dushyant described, we are going to get better -- much better than where we are today.

Okay. Awesome. And then, Sanjay, just a quick follow-up on free cash flow. Obviously, it was down a little bit year-over-year. I understand the dynamics with working capital. But when do you expect some of that to kind of normalize? And maybe any color that you're willing to share on free cash flow expectations for the full year?

Sure, Madison. In Q1, actually, working capital is down compared to last year in the same -- in Q1, and that's primarily working capital, as you correctly pointed out. If you look at our accounts receivable balance itself, we put in around $15 million into working capital. Last year, in Q1, we actually extracted around $19 million or $20 million from working capital. So that flip itself is like $35 million. So apples-to-apples, if the working capital position was exactly the same, I think our free cash flow will be more than $50 million in the quarter.

But that said, working capital is very much temporary, as you know. So it could come back either in Q2 or Q3, but definitely within the year. We are navigating our way to capture the market at a very good pace, and we do get customers. At times, they get implemented more later towards the later part of the quarter versus the beginning part of the quarter, and that just creates a temporary difference, which dissipates over time and definitely over 1 or 2 quarters.

So we feel very good about where the business is progressing. All the working capital is in very good shape. I would rather say, instead of focusing on free cash flow, the right way to understand our business, given the pace of March is at a very high pace, look at what the total working capital is increasing. And I pointed in the prepared remarks that working capital is up, I think, more than 6% year-over-year. Cash is just -- either it's in cash or accounts receivable, both are very good. In fact, a DSO of 29 days or 28 days is pretty awesome. It's much better than our model, which actually dictates 32 days or so. We feel very good, not at all concerned. In fact, we feel very bullish about the free cash flow for the full year. Last year, we generated around $125 million. This year, while we don't guide for cash flow ever. But I think as we are marching on the same path, except for working capital adjustments, which could be temporarily here or there, I think we are on the same path or better than last year.

One moment for our next question. And that will come from the line of David Koning with Baird.

Great job. And I guess my first question, the economics of the wallet, I think it's kind of the payment is trifecta here because if I load $1,000 every month, first of all, you get float revenue, now you're sitting on a nice customer balance. Secondly, if I make payments out of that, you get to keep the to the debit interchange instead of paying it out, as you mentioned. And then thirdly, I think you would get the, what, nonregulated debit interchange because you're not an issue earlier, a sub-$10 billion issuer. So there's 3 kind of nice combinations of economics, it seems in my view. Am I getting that right?

Yes. I think that's part of the strategy, but not immediate, but that's where we are marching towards. There are other options as well. Recall, we may also have -- as we said, the BillWallet is an IP native instrument. So we will also open it up potentially for -- to be as a network player in this. And also, there are fees coming from our clients for the services we are providing them. So BillWallet becomes part of that.

Yes. No, that's great to hear. And then -- and I guess, secondly, when I just look at the cadence of revenue through the year, Q2 typically is up sequentially in contribution profit. This year, you're guiding to flat. Is that related to fuel? And maybe talk a little bit about fuel prices, et cetera, and how that's impacting numbers?

Yes, sure. David, I think there are 2 pieces here. Let me first talk about the Q2 guidance, and then I'll go to the energy prices. In terms of Q2 guidance, there's seasonality in the business, as you would have observed in the past few years. So the seasonality of government billers effects. So in Q2, generally, we guide a little lower than Q1 because we don't know how the seasonality will play shape, although it could be similar to Q1 revenue or maybe slightly higher as well if all things come to -- come in the right path. But at the same time, we have just onboarded a lot of large enterprise customers recently, some in Q1 as well and some in the past few quarters or said in second half of last year. We really want to have a full year's history to forecast it accurately. So we take a prudent approach when we come up with our forecast or which helps us come up with the guidance for next quarter.

So I think prudence prevails on our thought process when we think about our future. So that's one reason where you see a modest softness coming in Q2 compared to Q1. And at the same time, that falls through to the bottom line as well. So that's one part of it.

And going back to the energy prices, I think delivering a 25% growth in Q1 itself when energy prices are in news every day, I think it's pretty interesting to see. One thing is that as we have marched on our market capture more since past many years at a very good pace, we have seen a vertical diversification. And our enhanced pricing strategy over the years has really helped us reduce the impact of the elevated energy price index into our numbers. So overall, even though energy prices impact only our utility business, but that too only a subsector or a very small segment of our utility business. So it has just -- I won't say it has fully dissipated over time. But as we have scaled, it has definitely lost its relevance and materiality to us. I think it has just faded over time in our view.

So even though it's only like, what, 6%, I think CPI index improved in Q1 year-over-year. But in the past years, during COVID days, I think we took a pill for that problem. And I think we have kind of solved it, not fully, but solved it to the extent that even a significant impact on energy prices has a modest impact on our business and our prudent guidance methodology already captures it. So we have not been surprised by this at all since last many quarters, and we hope we will not be given the prudence, given the modest impact it has, the diversification we had and enhanced pricing strategies we are adopting with our builders.

One moment for our next question. And that will come from the line of [ Stephen Worrste ] with Wedbush Securities.

On the great quarter. I have 2 questions, if I may. First, I just wanted to get a little bit more color on the AI native service commerce platform that you guys launched. A lot of color around the pricing of the strategy. But can you talk a little bit about what's specifically in the pipeline for this product in the year? Can you talk about if there's any inclusion of revenue coming from this cohort in 2026? Or is it strictly in 2027 and beyond? And can you talk about the ramp of this AI-driven cohort moving forward?

Yes. As I mentioned that this is -- it will again be a transactional model, and our goal remains primarily to capture as many of the transactions for a given customer. And this will be applicable to all of our existing and prospective customers as well. The goal here really is to continue to build momentum using the patented technology we have created here by getting our customers to move away from the retail commerce-based paradigm to the service native paradigm. So that will take time because there's still a lot of installed base. What we are actually going to see is, which we are already seeing the continued momentum in market capture. So that's what the strategy is about.

So if you think about -- if I could summarize the strategy in 2 phases or 2 parallel streams, stream number one is get -- evangelize the marketplace with new paradigm so that more and more customers can sign up with Paymentus. And the second right behind that is monetize the transactions differently than they have been historically monetized. And that was very -- that's why it was very important for us to have actually patent protection on all this because we knew that after analyzing billions of transactions and frankly, in some ways, as we were preparing for IPO, I was very focused and the team was very focused on making sure that we are able to create value -- shareholder value for our public shareholders as well as we were ramping up to be a public company.

So these are some of the things we were working on at that time. And we are very thankful that the market has moved in our direction. So this is a long-term play for us. We are not counting anything in 2026 from it other than the fact that our momentum -- market momentum will continue to be validated. And we are feeling good about 2027 in some ways as a result of the momentum we have in the market and the bookings we have had.

All right. Got it. And Sanjay, just one for you, specifically tied to the full year guidance, specifically for revenue. I mean you basically had a $20 million beat in Q1, but basically raising the midpoint of the full year guidance by about $30 million. So it really is implying a stronger back half of the year. and that includes the strong bookings and backlog. What's really holding you back from going after a larger full year '26 guidance raise? Is it just the fact that you're being a little more conservative? Or is there something tied to onboarding time lines? And then also the same thing for the Rule of 40 profile because you came in at about 65% this quarter and you're guiding for about 51% to 55% next -- or for full year '26. Can you just break that down for me a little bit?

Yes, Stephen, I'll say that in the past 3 years, we are following a consistent methodology for guidance, which definitely is dominated by prudence and you answered the question in your question itself. Yes, the prudent prevails, and we remain very cautious in terms of what's coming. We want to deliver. We don't want to count the chickens before they hatch, and that has been consistent how we have delivered as well as how we have guided. So the business is very good. I would say the pipeline is very encouraging. We are enthused by the bookings we are having, the diversified portfolio, the diversified verticals we are operating in and the kind of household names we are getting into our biller base.

We've got a lot of Fortune 500 companies as well. So we feel very good about where the business is not only going to be in '26, but even outer years. And the comment we made regarding 2027 at the beginning of 2026 stems from the fact that our renewal rates are very strong. our customer contracts are for longer periods of time. It is now actually giving us visibility more for 2027 as well. Said differently, previously, we had visibility of, say, 5 quarters, now I think we have it for 6 quarters or so. So I think we are feeling very good about '26 and definitely a big part of '27 as well.

And if I may also actually just add a quick point there. The reason we are prudent in our guidance principles is actually for the purpose of creating long-term shareholder value. because you can erode value faster than you can build it by being somewhat irresponsible in guidance.

So you have to make sure that you're paving a smooth road for successful execution of a very thoughtful strategy by having guidance principles, and it takes a lot of discipline to be candid. I mean, just like every other company, we would love to be able to pound our chest going in, but that's easier -- far easier to do than to deliver good numbers. So we believe that our interest is to create long-term shareholder value by creating a smooth road for execution, by having a guidance philosophy which is prudent, but very aggressive execution behind it and not create a noisy environment where folks cannot figure out exactly how to think about the company or the management team or the philosophy of where the business is headed. So we think this approach works better for the long-term shareholder value creation.

One moment for our next question. And that will come from the line of Darrin Peller with Wolfe Research.

This is [ Josephina Rigeri ] on for Darrin Peller. So just quickly I wanted to ask on your new products, Billeo and BillWallet, do these products change who you compete against? Are there any incumbents that we should think about? And then overall, have you noticed any changes in the competitive landscape recently?

Sorry, you broke up. I just need to clarify about the question. So no, I think we are excited about where we are headed. We are -- the market is moving in our direction. As you can see that we were actually prepared and it's years in the making. It was not -- we woke up one morning and we saw a lot of press releases on AI. So Paymentus is going to go ahead and put ours in the mix as well. That's not Paymentus. That's not who we are. It has taken us years to get to this point. We wanted to create a long-term value and long-term competitive moat for the -- for our investors, but more importantly, for our customers so that they can see that this is an innovative company, a champion who is willing to take the industry status quo after disrupting.

If I may say it this way, after disrupting the bill payment world, when we started, banks used to have majority, maybe 75%, 80% of the payments, and they are down to now 20%, 25% of that, primarily because of the model we have championed here. And we believe under pressure, the trends accelerate and as the trends are accelerating in some ways in our favor, you will see a little bit more momentum here as the time goes by. And we have got our company ready for this. We want our investors, our partners, our customers and our employees to benefit from the thoughtful and innovative execution from -- up to this point and from here on out.

And then one quick follow-up. So when we think about your go-forward focus verticals, does utilities kind of still remain on the top of that list? Or what do you think are going to contribute to this kind of new AI-centric model?

Utilities will remain a key vertical for us, of course. It's the most complex, most sophisticated vertical, especially at the large scale because of how much efficiencies utilities were forced to drive out of the paper process. So it was not easy to be able to drive more value for utilities customers. So we had to be really good to be able to do that. But now as you can see from our prepared remarks, we are signing customers in all of the verticals. And our goal really is to go through a household and a business bills and take a look at all the bills they have and start making markets in each of those but then make sure that in each of those markets we are in, we are capturing more and more of the transactions using the new paradigm of service commerce using Billeo.

Our next question will come from the line of Tien-Tsin Huang with JPMorgan.

Hope you can hear me. Good results. I hope this is a redundant question. Dushyant, I wanted to ask also on Billeo and BillWallet. Just to clarify, will you be managing the BillWallet ID and is the idea to distribute it through consumer service providers? I know subscription payments is really important. And I'm asking because I'm thinking about in an agent world, who would wear the risk? I know there's a big debate on the agent side. And I think subscription payments could be a big part of that, if you follow my question.

Yes. So our approach, Tien-Tsin, is actually here. We are of the opinion that any technology, any service that is distancing the customers away from their own customers. So any service provider getting disintermediated from their own customers is not going to last too long. It's not going to work out. So Paymentus' approach to B Wallet is regardless of the channel, the mode of communication or interaction and so on, the BillWallet will allow the customers -- the service providers to have direct relationship with their end user customers. So that is part of our goal, and that is what we have done.

And part of the benefit of BillWallet approach is not the way traditional -- may I say this traditional retail-centric wallets have been created. Here, the approach we have taken is that the billers themselves, the service providers themselves set the rules for identity, how they identify their own customers is set by the billers themselves. And that's how they authenticate the user. BillWallet enables that in all of the channels, whether you are using your intelligent glasses or you're using your card, whatever the mode of communication is interaction is, you are using it through BillWallet.

Understood. So yes, so the wearing of the risk then, just in the agent example I gave, Dushyant, that would be borne then by Paymentus given how you just described it?

Actually, it would be -- in some ways, yes. In some ways, it would be actually between us and the -- and our clients.

Right in terms of who you're working with. I'm sure that will be a range. Okay. More to talk about it. It's interesting. I think it's ambitious and it makes a lot of sense given the network you built. Can I just ask one quick follow-up? I know it's the third question. Just on the -- Sanjay, you mentioned seasonal impact in terms of the upside for the quarter. Can you just clarify that? I heard the answer on the energy prices, but just thinking about the quarter itself and what the seasonal impact was, if any, that surprised you?

Well, the impact is modest. I think if you look at our guidance on the high end for Q2, it's approximately 2% or so soft. But -- and that's primarily, as I said, prudence prevails, but at the same time, seasonality of government billers is a part of it. And we need to experience the full year turnaround of new large billers, which are implemented in second half of 2025. So all these 3 factors in a combination as of now is giving a small modest softness in Q2 compared to Q1.

One moment for our next question, and that will come from the line of Will Nance with Goldman Sachs.

If I could just follow up on the wallet product. I was wondering if you could just talk about distribution there and how to incentivize adoption by consumers over time? Like how do you think about like the marketing required to incentivize consumers to adopt the new wallet partnership given the competitive nature of the wallet landscape?

Yes. So I think from our perspective, I think the simplicity of how much time saving and the simplicity brings about to the end customers. What we have observed with a very small fraction of our customer base we launched it to that our conversion rate was pretty high. We didn't have to spend a lot of money in marketing and in fact, any money in marketing. So we think that is the scale and the system and the platform and the ecosystem we have built at this stage is pretty pervasive at this point. So that itself would play a big role. But we will continue -- right now, our focus is the technological advantage as the key reason for customers to sign up. I don't want to remember how to log in and where do I go and how do I find my information if I'm talking to a service provider, can I just use BillWallet ID to do that? So I think it's that. So that's why patent was important, and that's why we wanted to make sure that, that would remain one of the key themes. But we will create other incentives within the wallet itself for repeated use, of course.

Got it. I appreciate that. If I could just go back to the commentary around energy prices. I was wondering if you could just remind us again, what's fundamentally changed about the enhanced approach to pricing that you guys adopted several years ago. Are -- do you have contracts that automatically reprice in the face of higher energy costs and larger ticket sizes? And what is the actual mechanism that has reduced the exposure within the utilities vertical? And then secondarily, I was wondering if you could just give us maybe a sense high level, like how much the utilities vertical has declined as a percentage of total over the last 3 or 4 years?

Yes. So let me start with the pricing strategy. I think you rightly called it out that in some cases, it's auto priced based on -- as the average payment amount due to inflation is changing, and so is the pricing. Our pricing is changing with that. That is one part. But we have also been able to move customers to different pricing models which are actually favorable to customers, favorable to us as well. So without going to the specifics of any of that, but I would just say it also was factoring in exactly the same situation which we were dealing with several years ago, where we did have the ability to change the pricing, but it was a little bit more later in the process than it is now. So those are the pricing model changes.

But then also on top of that, in the last remaining cohort where there is still some -- as Sanjay mentioned, that there's a little bit -- some immaterial impact, where there, we have regular meetings with the clients to discuss all of the impact there and readjust pricing. So we're just a proactive company now than we used to be. And then as I said, the pricing models themselves have been adjusted. Sanjay?

I think it's one part of the question, Will, was how is utilities as a percentage of revenue. So traditionally, it has been higher than 50%, but we are like close to a little -- modestly less than 50%. So still a substantial piece of our revenues. But I think overall, as the pricing models have evolved, we are not seeing any impact of energy prices. So I would not -- so even though utilities is 50% of our business, but I would not equate that in any way, shape or form, the 50% of the revenues of Paymentus is at risk with the energy pricing. That is not the type of business we are running or I would want to run. So we are not -- that's not the case. What's happening instead is a very much smaller percentage.

Yes, exactly. As I said earlier, I think in one of the questions, a small subset of Utility's business is the one where there might be a modest impact. But overall, it's immaterial for us now.

Our next question will come from the line of Craig Maurer with FT Partners.

I just wanted to quickly get your take on the acquisition of [ CUBRA ] by [ REPAY ] and how you think that might change the competitive dynamics in the space?

We -- actually, [ CUBRA ] has been around for a long period of time. We know [ CUBRA ] for a long period of time. We know [ REPAY ] as well. From our perspective, as we have shared, the market has been moving in our direction, and we are excited about it. We believe the customers and the prospects, they finally know where the innovations are coming from in this and who's taking the approach very seriously. And I think we're very excited about our business. So no concerns or anything from that perspective. But we wish them very well, just like any other competitor, we wish everyone the best.

I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. Sharma for any closing remarks.

Well, thank you so much, everyone. I really appreciate the opportunity to speak with you. Have a great day. Thank you.

This concludes today's program. Thank you all for participating. You may now disconnect.

Okay. Good morning, everybody. My name is Madison Suhr. I'm the payments and fintech analyst here at Raymond James. I'm happy to be joined by Paymentus Founder and CEO, Dushyant Sharma; and CFO, Sanjay Kalra. Great to be here, guys. Thank you.

Thank you for having us.

So I wanted to kick things off for those in the audience that are less familiar with Paymentus, can you just give a high-level overview of the business, what you guys do and the customers you serve?

Sure, sure. So we are a cloud-based bill payment service provider for nondiscretionary essential household billing service providers like utilities, government entities, insurance, telecommunications and others. So basically, you can think of all the bills you have to pay, you're going to go down the line. We service those companies who provide -- send those bills to you. We started the company a couple of decades ago now actually. And at the time when we were starting the business, majority of the bills used to be paid from the bank sites.

So you'll go to your bank and make the payment from the bank and the banks will send the money to the billers. And we saw a great opportunity that, that is highly inefficient model. And now sitting here right now, that model has been disrupted. What used to be 75% of those payments being at the bank now is happening on the biller side directly. And since we are a leading provider of the services to the billing companies, we had a lot to do with it. So we -- as a result of the disruption we have caused in the industry, we have grown rapidly over the years.

At the time of IPO, we were a $300 million company in 2020, and we have quadrupled the business in the last 5 years. And despite our success in doing $1.2 billion of revenue last year, we have only captured a fraction of the market share. So it's a multibillion dollar -- multitrillion dollar spend, and we have only captured a fraction of that. So we are very excited about the future. Our CAGR model is 20% top line growth and 20% to 30% adjusted EBITDA dollar growth. And we believe this is a very attractive investment.

Okay. Yes. And you kind of hinted on it, but the financial profile has been quite impressive here. You just wrapped up 2025 with a 37% increase in gross revenue, 46% adjusted EBITDA growth. Can you just highlight what's been driving the really strong momentum in the business and what's translated to such strong financial results?

Sure. I think the fundamental principle behind our success is our value proposition to our clients. It is fundamentally based on 2 principles. How can we make the customer experience better for our clients' customers, billing companies' customers? And how do we do it in such a way that it is making it easier and more efficient for our clients to serve their customers at a lower cost. There are so many unwieldy and inefficient processes that exist in the process of creating bills and then receiving payments and so on. And as it -- Sorry, is it good? Okay. Thank you. So basically -- I lost my...

On the financial profile and the momentum.

Yes, yes. So basically, the value proposition, the twofold. And as a result, customers find Paymentus platform, which is holistic, comprehensive -- with one integration with Paymentus platform, you're able to serve all of your customer body, whether they're making physical payments to you or they're making digital payments to you, whether they're making vocal payments, they're calling you or doing automated systems. So with one integration, Paymentus is able to handle it all. And we have multi-thousand billing companies on our platform, and we feel like we're just getting started.

Okay. That's great. And I wanted to transition a little bit to AI. It's obviously the kind of hottest topic here at not only the conference, but in the market. I think you had a really interesting quote last quarter, you called Paymentus the central nervous system for revenue collection. Can you just elaborate on that a little bit? And then just as we -- as you think about AI, what are some of the risks you're assessing, but also what are the opportunities?

Yes. I mean if you think about it, if you're a large billing company billing -- sending out multimillion bills a month and you need to collect those payments, you have to assess all the payment channels you're receiving those payments from. 5, 10, 15, 20 years ago, your own website, your own phone systems were a very small minority. So the billing companies will think of that as an alternative system. The majority of the payments were and unfortunately, still are coming through checks and manual payments and so on and coming from banks. What has transpired over the years is -- because of Paymentus platform, billing companies have been able to take a lot of the inefficiencies out and also redeploy the resources.

They no longer need to serve so many customer calls. They -- and what used to be a few percentage points of payments coming in through the digital channels is now a significant portion of their payments are coming to Paymentus platform. And as a result, we are sort of the central nervous system for the billing companies, and we are the -- for the revenue collection. So if you are sitting in that particular seat, you have opportunity to be able to serve other areas because of all the different executives you deal with on a regular basis in the company.

So we get exposed to a lot of opportunities. And what we are seeing is our platform, which already serves not only inbound payments, but outbound payment, not only serves consumers but also serves businesses and have B2B workflows built in allows us to look at all of those capabilities. So AI actually makes it a lot easier for us to get into all of those areas. On top of that, we believe because Paymentus has been AI-centric company for a long period of time, we have always looked at AI as a technology, which will be very helpful.

So we are already using that internally for our efficiencies, whether it's customer engagement, whether it is our own engineering talent and so on, using it in an assisted manner. We are also seeing opportunities where Paymentus could be the AI platform for the customers we serve. So we are very excited about the future.

Okay. And then I want to transition here to kind of the market opportunity. I mean, utilities is a big part. But maybe just help investors understand kind of the breakdown of revenue by vertical. I know utilities is the largest, but what other areas are you serve?

Well, utilities is approximately 50% of our revenue and the remaining 50% is comprised of multiple other verticals. Health care is one, insurance being one. Telecom is there, public sector there, B2B, taxes, government, consumer finance. So -- and we are actually entering into more and more verticals, which we were not present earlier. We are seeing a lot of opportunities. In fact, multiple verticals we have not even explored yet, but now we are seeing opportunities to touch them and get into it more. So as of now, we have not distributed a split quantitatively other than utilities 50%, but I think the breadth is enormous for where the company can go.

Okay. That's great. And then you guys have touched on it briefly, but you've taken a tremendous amount of share over the last few years. I mean, can you just touch on how your specific market share has evolved within bill pay over the last few years? And just who are you winning the share against? And how much room is there to kind of sustain that 20% CAGR top line growth you talked about?

So if you think about in the -- from the outset, we actually -- what we believe has proven out to be a great strategy actually in terms of our go-to-market. We initially said we're going to go after mid-market, which is largely underserved, but it was also another reason for that. People -- it's very hard to make money in a smaller customer on a per unit basis unless you have it all your entire act together. So we felt that if we can actually serve that customer community, especially in the utilities market, especially in the lower end of the market, if we can make money there, it would be very difficult for Paymentus to be displaced in the long term. We will actually build a very sustainable growth engine.

And that theory has been proven out over the years. So we were able to go from utilities to the larger end of the utilities. We were able to go to the government sector, multi-division -- government sector and multi-division insurance companies, large enterprises now. And as a result, what we are seeing is that the entirety of the consumer bill payment segment is available to us. We can service the entire market. The primary reason I say that is we didn't think that in-house enterprise solutions would be replaced by Paymentus as quickly as we are doing them now.

What has happened over the years is the platform itself, which is crowdsourced by our clients, telling us exactly all the capabilities they need in our platform. The platform itself has become so powerful that no organization can actually replicate it. So as a result, even the largest organizations, which have in-house solutions and floors of programmers, it's not easy to rebuild all of the capabilities we have. And it's not about the software program and the algorithm. It's about all the capabilities, all the functional footprint we have, all the rails we have created. So it's a very large footprint.

And as a result, what we are seeing is that we are able to get to an entirety of that market segment, even the larger in-house solutions. And lately, what we are seeing is that even the verticals we thought like B2B is a different segment altogether. We don't even count it in our TAM right now. But we have clients running. We have clients -- B2B clients running. We serve -- they collect billions of dollars on our platform. So it's a big opportunity for Paymentus, and we believe that as we have done in the past, we have grown, as I shared on the public call, the last 10 years, we grew 25x. Last 5 years, 4x. I think we can sustain the momentum of our CAGR model for a long period of time.

Okay. And maybe touch on the competitive set. I mean, who are you typically displacing? Is there a lot of those in-house solutions? And then within different verticals, are you seeing different competitors? And has this evolved at all? Or has it generally been kind of the same competitive set over the last several years?

What I would say is actually, there are 2 types of -- maybe 3 types of competitors. One is competitive solutions, if you will. One is in-house, which is -- we are excited about that, no question. Then the second one is legacy service providers who have date of birth older than us. So these service providers nothing wrong with them. The challenge is they have stayed the same and their platforms have become dated, and it's not easy to go ahead and tell your customers that I'm going to buy a company and I'm going to replace your solutions when they already know Paymentus is a better solution out there. So it's a very difficult situation for them.

The third set of competitor would be a service provider that has data birth younger than us, but has a very similar model, where they bought companies and they're struggling to piece them together. platform purity was not important to them. it wasn't like how Payment does has built the platform. We built the platform ground up with the thesis that our customers need to crowdsource the functionality and all of the capability could be serviced in one platform, one code base.

It's very hard to do to maintain that platform purity over the period we have done. But now you can see we have scaled the business. Over the last several years, we have scaled the business as well as we have, but our employee count has not changed and our cost structure has not changed proportional to that.

Okay. And then you've hinted out a little bit here on enterprise. It's been an area you guys have seen a lot of strength. You've called it out several quarters as driving upside relative to what you guys thought. What's enabling such strong success in this move upmarket for you guys?

I think it's, frankly, the platform and the ecosystem we have created, which allows the organizations to take a look at Well, previously, what used to happen is the CIOs, CTOs and CISOs of the large enterprises will be sitting on the other side of the table. Now they're sitting on the same side of the table with us because they have plenty of other issues to deal with, which is happening through disruption in their own markets. And if they can get the platform Paymentus has created, which used to be viewed as outsourced third-party service provider is now more like because of the capabilities we have built, you have all the control.

It's not like you're giving the control up by outsourcing your payment capabilities and your customer engagement capabilities to Paymentus. You actually have more capabilities, more control than you have from your own internal IT teams and you're able to do that more cost effectively. I think it's a no-brainer in most cases. So we are very excited about that opportunity, and that's what is driving the success. We are sitting on the same side of the table with the technology executives of these large organizations.

Okay. And is there any big differences in the financial aspects, whether you're signing a smaller type customer versus moving up to enterprise? Anything investors should keep in mind as that mix shift kind of continues to shift to enterprise?

Well, it varies customer by customer, I would say. Definitely, as you would expect, the larger the customer, they would expect better pricing. But at the same time, the company is growing at a pace that the scale we have achieved, we've got a lot of operating leverage. So we take the right advantage of it, and we calibrate our business well. We want to make sure whichever new customer we are acquiring and getting them launched, that would be financially accretive to the company, not only the top line, definitely the bottom line because of the operating leverage. So we calibrate and we see what makes sense for the longer term.

Okay. And then we touched on it about moving into different verticals. You mentioned utilities is 50% roughly of revenue. But as we think about a lot of those other verticals, is there 1 or 2 that really excites you where you feel like you can go in and capture a lot of incremental share here?

I think, frankly, we did this analysis recently, all of our verticals are doing well, including our core utilities and insurance and so on. So all of the verticals are doing well. And the way we are organized, each of the team, which is working on a given vertical, their performance is measured based on the success of that particular vertical, not anything else. So I think the way they set up is conducive to all verticals doing well.

Okay. And then I did want to ask on B2B. It can mean a lot of different things to a lot of different people. It's obviously a huge category here. And you've seen success there as well. You called out some signings and ramps that are maybe going a little bit quicker than you thought. Can you just help investors understand what exactly you're doing within B2B and why you see it as such an attractive market?

Yes. I think -- so we are tackling B2B in a very similar way we tackled all of the other verticals. So in our minds, we take a look at where the inefficiencies are and where the biggest cost structure is. A lot of these B2B legacy providers, they have a lot of manual processes. Even though they are selling technology services, it's no different than what the banks were doing. Banks were selling to the customers way back when, when we were starting out that you're making digital payment. But in the back, they were writing checks, sending checks.

They had -- their service providers would have scores of CSRs who are asking phone, where is my payment, and they still do. The B2B is very similar. It appears to the customer that they're signing with a B2B company, they're taking care of all the technology and so on, but there's still a lot of manual processes, check process and so on. We are coming at it from a total different world where we -- on a per bill basis, let's say, if your utility base is $100 and you're having 5 million bills you're sending out, we just don't have a opportunity to have a lot of manual processes in the way.

We just can't make money that way. So as a result, we -- when we are approaching customers who are billing thousands of dollars or tens of thousands of dollars, our model doesn't change because our focus is the same of efficiencies, and we didn't have the luxury of being inefficient. So that's why we believe that we will be successful. Having said that, B2B is just another vertical. It's not like we are saying to our investors, well, we'll take our EBITDA and we'll lower it and we are going to invest in B2B, and we'll tell you a few years later how did it work out. That's not the way we are operating the business.

Okay. Great. And before we get into more of the financial questions, I did want to ask on IPN briefly. Can you just give an overview of what IPN is and then just how that business is performing?

Sure. So IPN is instant payment network. We believe that -- in the old adage, regardless of how good you are, you're not going to get them all. Meaning regardless of how good the payment platform is, not every customer is going to make a payment coming to the website or the billing company, regardless of how good the customer experience is. They may still go with their coffee in their hands and go to the utilities' office and have the conversation and then make the payment.

They may still are shopping at a retailer store and make a payment there. We felt that for Paymentus to be long-term successful service provider to our clients, billing clients, we need to offer them an ability with one integration, all channels, all access points, all customer cohorts are covered regardless of what the technology know-how is. And that's what we have created, what we call this Instant Payment Network.

It is so ingrained as part of our system at this point that a lot of the billing companies, they look at that and say, well, regardless of how many years we spend, we won't be able to build that let on the platform. So that's why Paymentus is the choice. But if you now put the counters on the bank side of it, the old legacy model I described, now banks themselves can now have access to real-time payments to the thousands of billing companies we have already built using IPN.

So we've become a very attractive solution to the banks who are consistently losing market share to somehow stabilize, giving Paymentus in the process an opportunity to have economies on both sides of the transaction. So we are very, very excited about that.

Okay. Great. And then moving on to some of the financial stuff here. You guys have a target out there for a roughly 20% gross revenue CAGR model. I mean, can you just help investors unpack that growth algorithm to get to that 20%? How much is NRR versus new signings? And within NRR, is it expansion with existing customers, pricing? Just what are the kind of key components to getting there?

Yes, we haven't quantified that breakup. But at the same time, we've shared the sequence from order of priority, if I say. The biggest growth vector we have is the new implementations, which happen every year. Given our bookings are very strong and our pipeline is very big, and we are seeing a lot of good traction in getting more and more clients, especially more enterprise clients more recently. We are seeing the new implementations is #1 growth vector. And the second would be the same-store sales, which is existing billers, how they are ramping up and how their subscribers are ramping up. If they are being successful, we inherently are being successful.

So at the same time, the tailwinds, which are coming, converting a lot of manual invoicing to digital, I think that's also happening. So that's the second. And third and fourth, there are like IPN, we discussed IPN is not actually a separate segment for us or a separate vector. It's ingrained into our entire business now. So IPN is also helping overall. And then yes, pricing and other things do become a part of the business and do they also contribute.

Okay. And then with the existing customers, I think you guys have talked about you could essentially double the size of the business just with your existing customers. So can you just double-click on that? How do you continue to improve your wallet share with your existing customers over time here?

I think since we are the digital service provider for the billing companies we serve, majority of the growth would be by converting a lot of the payments which are happening through paper means, converting them to digital. And that's what we are doing, and we are -- we have actually set up a CaaS team, what we call as customer adoption success team, which is focused on delivering more from our existing customers. We are pleased with what we are seeing in that, but there's more to come there.

But it's a big focus of ours. The reason we make that statement is for investors to know that this is a phenomenal business. And I say that not because I started it or I'm running the company right now and so on. I say it because we look at so many different companies with our success, and we get hit with almost every single book, you can imagine. And it's not easy to find a company like Paymentus.

It's very tough to -- and if I may take a little segue there. If you think about our guidance philosophy, which Sanjay can describe even more in detail, where we are saying we can sign -- we can deliver the top end of the guidance without signing any new clients. Why do we do that? The reason we do that is I actually -- if I may say a little bit more plainly, I feel bad for the investors in the public markets because you're chasing every single trend, every single story.

And I see that if you basically didn't have the sell button and you only had buy button, you might make more money in the long term. And how -- what can I tell as an operator to the investor -- investment community that, hey, your investment is generally okay with Paymentus because to the extent I can control it from the operational aspect of it, that I can deliver this kind of revenue without signing any new client. So have a better sleep from Paymentus point of view, you might have other investments and so on. But that's the primary reason for it. It doesn't mean that's all we will do as our CAGR model has been higher over the years.

Yes, that's helpful color. I think that philosophy has really served you guys well. I did want to transition to the 2026 guide. Obviously, you could provide some color on your guidance philosophy as well. But I would say if there was one thing investors are maybe picking out a little bit after last quarter, it's the gross revenue outlook. 17%, obviously, very strong, but a little bit below that 20% CAGR model. Just any color on kind of why you're starting it out slightly below? And obviously, you can also touch on the guidance philosophy as well.

Sure, sure. I'll start by saying that as we are capturing our market share and actually disrupting the market and the pace at which we are disrupting is very good. We could experience some periods where you will see this kind of a growth rate. It might appear that we're coming from 37% growth and now we're going to 17%. So hey, is this revenue slowing down? It could be a perception looking at the math and the numbers. However, first of all, I'll start by saying that CAGR model, which we have of 20%, that inherently incorporates situations like this. CAGR model means at times, you could be less than 20%. At times you could be more. If you look at past periods over trends, we are far ahead of 20%. But let me elaborate more. We are entering enterprise customers and launching them and implementing them, and they are all not getting launched on January 1, okay?

They are getting launched intra-year. And those -- they are so massive because the growth is so massive doing a comparison for a full year, when some of them are launched in Q3, some launched in Q2, some in Q4, it may throw us into a situation that the volatility appears a little tough the way it's appearing right now. However, at the same time, what Dushyant just mentioned, the top end of the guidance does not incorporate any new customers which could be win and go live.

That further amplifies this math, especially at the beginning of the year. So I think as time passes by and as the customers go live and as the same-store sales go up and as we see this progress, I think over time, these things should dissipate. And overall, you will see a very good CAGR. In quarter-to-quarter, things could definitely change. At the beginning of the year, things could look a little different. But overall, I think if you look at the history and the trends, we've executed really well. And I will end this question by actually saying that at the end of 2025, the momentum is no different than the way we ended 2024. Backlog is very strong.

Backlog is too much -- much diverse actually than before. And as we are saying, we're entering into more verticals. The pipeline is also very strong. But we always have a prudent view. We don't count the eggs before they hatch, and we want to be successful rather than being chasing for numbers.

Okay. That's very helpful. And I know we're getting close.

Yes. I may actually just add one quick point to that. That looking at the year philosophy, I was mentioning to Sanjay actually last night that in a lighter moment that it would be great for a retail store that how many customers showed up this morning, how many people, how many this month? Is the company going up or down?

In a situation like where we are signing multiyear contracts with customers, which are going to be growing over a period of time, you just can't look at annual calendar as the way because if the number would have been -- some of the customers instead of going live sooner as they did, they went a little bit later. Our eyes will make us feel that company actually has a relatively stable growth rate versus now it looks like going down. Your eyes are deceiving you in that way.

And then I did want to touch briefly just on capital allocation here. Very strong balance sheet. You have about $320 million of cash, no debt, generating ample free cash flow. I mean, how are you guys thinking about capital allocation?

Well, we remain committed to the growth organically, and we've got a huge TAM, a huge pipeline, and we want to chase that and convert that to bookings and enjoy our own success at this point in time. So we want to keep ample cash for spending in sales and marketing, ample cash for using in working capital, if needed. And I would say as a secondary objective, we could also look for alternatives which are available in the market like M&A, but that's definitely not on the top of the mind. If something comes across the table, which makes sense and has a good ROI, we could use that for that as well.

Okay. Sounds good. We'll leave it there. Thank you so much for being here.

Thank you so much for having us here.

Good day and welcome to the Fourth Quarter and Full Year 2025 Paymentus Earnings Conference Call. This call is being recorded. [Operator Instructions]. 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 2025 results. Our earnings release documents are available on the Investor Relations section of the paymentus.com website. They include the earnings presentation that will make reference to 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 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 differ materially from expectations are detailed in our earnings materials and our SEC filings that are available on both the SEC 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. We had a phenomenal fourth quarter and full year 2025. We are looking forward to a great 2026 and feeling even better about our business beyond that based on the durability of our growth algorithm and the broad spectrum of our innovation framework.

Now that we have been public for about 5 years, I will provide additional color on how we are feeling about the next 5. 2025 was a significant milestone year for us, where for the first time, we delivered top line revenue exceeding $1 billion. I think that's particularly inspiring because if you recall, we exited 2023 with just over $600 million of top line revenue. And if you look back just 5 years ago to our IPO, we had a little over $300 million of revenue for 2020. So that would imply 100% revenue growth over 3 years.

And if you then put our 2025 top line of $1.2 billion against our 2023 revenue, that's another instance of 100% revenue growth, but this time in just 2 years. This was done despite the backdrop of unprecedented inflation and other macroeconomic factors. In other words, we quadrupled our business in the last 5 years, far ahead of our long-term CAGR model of 20% top line growth. And if I go back 10 years, we have grown the business 25x.

The reason I'm sharing this context is because I believe this type of growth is possible due to our innovative DNA and thoughtful execution of a long-term business strategy. In the process of achieving this scale and strategic position, I want to point out the level of disruption already caused by Paymentus to the status quo of legacy infrastructure through our ever-growing innovation footprint.

At our inception, the vast majority of all digital bill payments occurred through all school banks bill pay. And today, Vintage Bank BillPay represents a fraction of the overall bill payment volume. At the same time, what is now deemed as the legacy infrastructure of in-house and third-party biller-direct solutions used to be considered large and thriving bill payment solutions. This change is not an accident. This was a result of a carefully crafted long-term business strategy, executed with focus on long-term shareholder value creation, by first creating customer value through an ever-growing customer value proposition.

So as you're now observing some discomfort with the broader fintech landscape, where increasingly more sophisticated buyers are rejecting strategic complacence of their service providers are not accepting niche business models. Paymentus on the other hand, is getting even more excited as that is not a surprise to us. We see this as a great opportunity for further disruption just as we saw at our inception.

Compounding our excitement is the advent of GenAI that is further challenging the old-school software business models. We believe the world is moving more towards us. As a result, despite being a large-scale billion-dollar company, it is my distinct belief that we are still just getting started and the larger value will be created from here on out. I believe we are strategically better positioned now than we were even just a few years ago.

We have a state-of-the-art platform, innovative DNA and a broad-based innovation footprint. We have a diverse, large existing and growing client base. We serve a large portion of U.S. households and businesses using our platform, which is becoming increasingly more pervasive.

Furthermore, the industry appears right for further disruption. And as a result, I believe we have a big market opportunity and our best is yet to come. But of course, as we all know, the talk is cheap. We will still have to keep our heads down, execute and perform as we have done in the past. With that backdrop, I'm also looking forward to this year.

Our initial revenue guidance of 2026, which Sanjay will cover shortly, is over $1.4 billion in revenue at the top end, which we believe we can deliver without signing any new clients. And our story is not complete without talking about profitability and margin expansion. At the same time as we are delivering this top line growth. For example, we generated $125 million of free cash flow in 2025 and exited with over $320 million of cash without any debt.

In addition, for 2026, we are expecting adjusted EBITDA of $167 million at top end of our guidance, which also implies a non-GAAP net income of over $100 million, which is exciting in itself.

With that, let me go into our quarterly business update. Paymentus reported both fourth quarter and full year 2025 results that surpassed our expectations. Furthermore, Paymentus ended the year with a strong bookings and backlog, which gives us a strong visibility as we head into 2026. What makes me even more excited is that we were able to achieve this year-over-year growth even with the strong results we reported in the fourth quarter of 2024.

Our team continues to demonstrate solid execution when it comes to onboarding activities. Additionally, while we expected to see growth from the rising portion of large enterprise customers, the beneficial impact we saw in Q4 was even greater than we had originally anticipated.

Also, as our customer mix is shifting more towards enterprise and large and mid-market clients, our revenue and contribution profit per transaction has continued to grow substantially. I'm also pleased with the growth in our adjusted EBITDA, which was 46.3% year-over-year. I think these results display the tremendous operating leverage we have in our business. They also show how we understand the economics and profitability of each piece of new business we bring in, including the large enterprise billers we signed up in the second half of 2025.

In addition, our results clearly highlight our capacity to manage and calibrate our business to meet or exceed our long-term CAGR model. We have consistently shown our ability to achieve this even if we experience variability and noise of our secondary metrics from quarter-to-quarter.

Now let's briefly recap our fourth quarter and full year 2025 results. Fourth quarter revenue was a record $330.5 million, an increase of 28.1% year-over-year. At the same time, contribution profit was $106.9 million, up 24% year-over-year. Adjusted EBITDA was a record $39.9 million for the quarter, representing a 37.3% margin and 46.3% growth year-over-year.

Similar to the past quarters, 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 61% versus 59% last quarter. This reflects our team's solid execution and our focus on delivering consistent revenue growth alongside high-quality earnings.

For the full year 2025, revenue increased 37.3% year-over-year to reach $1.2 billion. Contribution profit for the full year was $386.3 million, a year-over-year increase of 23.8%. Adjusted EBITDA was $137.4 million, representing a 35.6% margin and a 45.9% growth year-over-year.

Now I'll review our fourth quarter business highlights and accomplishments. In terms of bookings, we had a very strong quarter and finished the year with a significant backlog. As I mentioned earlier, during the quarter, we saw particular strength in the large enterprise segment of the market. These large enterprise customers continue to represent a growing component of our client base. We also continue to expand and diversify our customer base by signing clients in several industry verticals, including utilities, telecommunications, government agencies, educational institutions, banking, property management, health care and insurance, among others.

As a reminder, we handle both consumer and business payments for our clients. and serve B2C and B2B clients and handle both inbound and outbound payment workflows based on the sophisticated platform we have created. Complementing this, we signed additional channel partners in various industry verticals to deepen our partner ecosystem. These verticals include consumer finance and utilities.

In addition, onboarding of our substantial backlog remains a priority for us. During the fourth quarter, we onboarded several large enterprises. We also onboarded clients throughout multiple verticals, including insurance, utilities, government agencies, telecommunications and health care.

Now I'll turn it over to Sanjay to review our financial results in more detail.

Thanks, Dushyant, and thank you all for joining us today. Before I discuss our quarterly and full year 2025 results as well as our outlook for 2026, I'd like to remind everyone that the financial results I'll be referring to include non-GAAP financial measures.

Turning to Slide 5. We ended 2025 with fourth quarter and full year results that again surpassed the top end of our guidance range across our key financial metrics. Our fourth quarter results included record revenue of $330.5 million, up 28.1% year-over-year. Contribution profit of $106.9 million, up 24%, and adjusted EBITDA of $39.9 million, up 46.3%.

On the Rule of 40 basis, for Q4, we came in at $61 million. During the quarter, we also continued to experience strong customer activity and demand, consistent with what we experienced throughout 2025. This solid momentum drove strong bookings and we exited the year with a significant backlog and strong free cash flow generation to support our continued growth strategies in 2026.

Now let's review our fourth quarter financials in more detail. As mentioned earlier, fourth quarter revenue grew 28.1% year-over-year to $330.5 million. This higher-than-anticipated growth was driven by 2 key factors: first, the successful launch of new billers -- the fourth quarter was the first full quarter where we realized the benefits from large enterprise customers that launched in the prior 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. While our original fourth quarter guidance did contain some upside, we took a prudent approach because it was still a bit early to gauge the precise magnitude of this beneficial effect. As you can see, it was quite substantial.

Complementing this, in the fourth quarter, the number of transactions we processed grew to $192.7 million, up 16.1% year-over-year. Our average price per transaction also increased during the fourth quarter to $1.72, up over 11% from $1.55 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 2025 contribution profit increased 24% year-over-year to $106.9 million. This growth exceeded transaction expansion as the large enterprise billers I discussed earlier, generated a higher contribution profit per transaction. Contribution profit per transaction for the fourth quarter was $0.55, an up sequentially from $0.54 in the prior quarter and also up from $0.52 in the prior year period, demonstrating our ability to capture market share while improving overall profitability.

Contribution margin was 32.3% for the fourth quarter compared to 31.6% last quarter and 33.4% in the prior year period, reflecting the continued addition of large high-volume enterprise customers during the past year with healthy margins. We generated a record adjusted EBITDA margin of 37.3% as both our contribution profit per transaction and operating expense margin improved year-over-year by 5.8% and 2.4%, respectively.

Furthermore, our improved contribution profit per transaction Together with our strong operating leverage, generated an incremental adjusted EBITDA margin of 61.1%. As we continue to grow and diversify our client base, and add large clients to the mix, we expect to see some quarterly variability in pricing and contribution profit. As we have noted in the past, variables that are outside of our control, such as an increase in the average payment amount, or changes in the payment mix can affect contribution profit on a quarter-to-quarter basis.

And therefore, we treat this as a secondary metric while our total revenue and adjusted EBITDA remain primary metrics for us. Fourth quarter adjusted gross profit grew 25% year-over-year to $89.8 million. We experienced adjusted gross profit growth that was greater than our contribution profit growth, reflecting the increased economies of scale. Fourth quarter non-GAAP operating expenses were up 11.4% year-over-year to $52.7 million, primarily reflecting higher sales and marketing as well as research and development expenses.

These increases were consistent with our expectations and mainly driven by increased hiring and higher agency fees for business from resellers and partners. This enabled us to convert our strong pipeline into bookings as evidenced by our results and also to enhance our technical strengths. Using a non-GAAP tax rate of 25%, our fourth quarter non-GAAP net income was $25.4 million or $0.20 per share compared to non-GAAP net income of $16.3 million or $0.13 per share in the prior year period.

Fourth quarter adjusted EBITDA grew 46.3% to $39.9 million compared to $27.3 million in the prior year period. Adjusted EBITDA also represented a record 37.3% of contribution profit for the quarter compared to 31.6% in the prior year period. This 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. As I mentioned previously, incremental adjusted EBITDA margin was 61.1% in the quarter.

Interest income from our bank deposits was $2.5 million in the fourth quarter, improved from $2 million in the prior year period as a result of our increased average cash balance and effective cash management. Related to our performance, as mentioned earlier, we once again exceeded the Rule of 40 for the quarter, coming in at 61% compared to 59% last quarter and 62 in the prior year period.

Now turning to Slide 6. I will summarize the highlights of our full year 2025 results, which also came in higher than we projected. Revenue for the full year increased 37.3% to $1.2 billion, driven by a 21.3% increase in transactions, primarily from new builders as well as transaction growth from existing billers. Contribution profit increased 23.8% to $386.3 million, mainly from increased transactions.

Non-GAAP operating expenses increased to $195.4 million, up 11.1% year-over-year due to higher sales and marketing and research and development expenses, as we continue to focus resources on executing our go-to-market strategy. Non-GAAP net income increased 51.2% to $84.9 million and diluted EPS increased 50% to $0.66 per share compared to the prior year.

Full year adjusted EBITDA increased 45.9% to $137.4 million. We exceeded the rule of 40 for the full year coming in at 59% for 2025, pretty much comparable to 2024 when we ended at 60%.

We are also proud to report that in fiscal year 2025, $43.2 million out of $74.2 million contribution profit increase flowed through to adjusted EBITDA, representing a 58.2% incremental adjusted EBITDA margin.

Now I'll discuss our quarter end balance sheet and quarterly liquidity improvement highlights on Slide 7. We ended 2025 with total cash of $324.5 million compared to $291.5 million at the end of the third quarter. The $33 million sequential increase is primarily comprised of $45.1 million of cash generated from operations. offset by $8.7 million used in investing activities primarily for capitalized software and $3.5 million spent in the net settlement of employee RSUs.

Free cash flow generated during the fourth quarter was $35.7 million, and the company does not have any debt. Our days sales outstanding at the end of the fourth quarter was 28 days compared to 31 days last quarter. The sequential improvement is due to overall improvement in payment terms from our billers.

Now I'll discuss our year-end balance sheet and annual liquidity improvement highlights on Slide 8. I -- for the full year 2025, $324.5 million of total cash reflects an annual increase of $115.1 million. Free cash flow generated during the year was $125 million, representing a growth over 360% year-over-year. Our day sales outstanding at the end of the fourth quarter was 28 days compared to 43 days last year. This annual improvement in DSO is primarily due to increase in the mix from large enterprise customers with favorable payment terms.

It is noteworthy that while revenues have increased 37.3% this year, our DSO has declined 35% year-over-year, which we believe implies that our working capital cycle, which is already operating efficiently has significantly improved. We paid $14.9 million in income taxes during 2025 and also generated $9.5 million from interest income.

In 2026, our cash deployment priorities are unchanged. Driving organic growth remains our primary focus. Our strong cash position gives us considerable financial flexibility 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. That concludes my financial review.

Now I'll turn to our non-GAAP guidance for the first quarter and full year 2026 on Slide 9. Before discussing our 2026 guidance in detail, as mentioned on our last earnings call, we are continuing to follow the same prudent approach to our first quarter and full year 2026 guidance that we followed throughout 2025, which I believe has served us well.

Now to details. For the first quarter 2026, we expect revenues to be in the range of $330 million to $340 million. representing approximately 22% year-over-year growth at the midpoint and approximately 24% at the high end.

Contribution profit to range from $103 million to $105 million, which represents approximately 19% year-over-year growth at the midpoint and approximately 20% at the high end. Adjusted EBITDA of $36 million to $38 million representing approximately 23% year-over-year growth at the midpoint and approximately 27% at the high end. This also represents a 35.6% margin at the midpoint. And a 36.2% margin at the high end.

On the Rule of 40 basis, for the first quarter of 2026, our guidance implies a range of $52 to $56 million ahead of the implied Rule of 40 initial guide we provided for the first quarter of 2025 around the same time last year.

Now on specific details starting for the full year 2026, we expect revenue in the range of $1.39 billion to $1.41 billion, which represents 17% growth from the prior year at the midpoint and 17.8% growth at the high end. This reflects our increasing market share and diversifying customer base at scale. And as a reminder of Dushyant's earlier remarks, we can deliver the top end of this guidance without signing any new clients.

Contribution profit in the range of $442 million to $452 million. This guidance represents 15.7% year-over-year growth at the midpoint and 17% at the high end. Our expected 2026 contribution profit growth at the midpoint and high end is very similar to the initial guidance we provided for 2025 contribution profit growth around the same time last year.

Adjusted EBITDA to range from $157 million to $167 million. This guidance represents approximately 17.9% year-over-year growth at the midpoint and 21.5% at the high end. This also represents a 36.2% margin at the midpoint and a 36.9% margin at the high end. A non-GAAP tax rate of 25% and on a Rule of 40 basis for the full year 2026, our guidance implies a range of 50% to 54%, significantly higher than the implied Rule of the 40 initial guide we provided for 2025 around the same time last year.

Once again, we are quite pleased with our 2025 results. Importantly, based on the strength of these results, our substantial bookings sizable backlog and strong free cash flow generation, we believe we are well placed to once again deliver solid growth in this year. We are entering 2026 with considerable momentum in our business. and we intend to continue this during the course of the year.

Thank you, everyone, and now I'll turn it back to Dushyant.

Thanks, Sanjay. In closing, we ended 2025 with another quarter of outsized performance that exceeded our expectations. We ended the year with a substantial backlog, giving us considerable visibility as we look forward to 2026 and beyond.

In addition to our results, I remain confident in Paymentus continued success due to a number of factors, including our strong business model, which has repeatedly shown our ability to meet or exceed our long-term CAGR model of 20% top line growth and 20% to 30% adjusted EBITDA dollar growth. Our unique and ever-growing technology footprint and our ecosystem, our large, diversified and growing customer base, and the vast nondiscretionary and is still relatively untapped bill payment market that we serve.

With that, I want to recognize and thank all of my team at Paymentus who have helped to make all of our success possible. That concludes our prepared remarks. I'll now open up the line for questions.

[Operator Instructions]. The first question comes from the line of Madison Suhr with Raymond James.

I just wanted to start at a high level around AI, given the market dynamics. Can you just touch on where you see potential opportunity for AI, but then also where you see potential risks related to AI.

Thank you, Madison. Great question, by the way. And I think given all what's transpiring in the market, I think it's good to talk about it. We feel great about what AI represents for Paymentus. We actually believe if we are going to be the ultimate beneficiary of the AI revolution in some -- in our space anyway. The key factors are very simple.

Our business is designed -- our business model is designed in a way where we offer a world-class platform to our clients, which handles all their security compliance 24/7 state-of-the-art necessity of being a central nervous system for revenue collection for our clients where they are putting very high premium on making sure that they are not trying to save pennies to lose dollars. And we provide all this platform at no cost to our clients.

On top of that, right from the very beginning, we also -- our -- we designed our business model in some ways for this day actually, where a client can use the entire use of the entirety of our platform and get the full benefit of it in their existing infrastructure as it is present today aligning Paymentus platform to their entire existing workflows in a way that they don't have to change anything on their end, the entirety of the work is done at Paymentus, and we don't charge anything for it.

So in some ways, since a company doesn't have any revenues associated with software or software components, there's no hourly income we are generating from our clients, we are only getting paid for consumption of our platform -- we feel very good about where this is headed. In fact, in some ways, we believe the world is moving more towards us, where the old-school software and SaaS models were, in some ways, if I may say it this way, are companies who were relying on the fact that they can charge a lot of subscription fees to the customers and hope customers never use it so that their margins look even better than they actually are, will pay a bigger price for it.

The companies like Paymentus who actually designed its entire operating stack and expense structure in a way that it comes into picture when someone uses this platform and only get paid when someone is consuming our services to our clients, whether it was AI, whether Paymentus was using AI or other Norco platforms, or whatever Paymentus was doing is entirely up to Paymentus. But as far as our clients were concerned, they were getting the full benefit of our platform without paying anything for it other than what is in terms of the transactions what we get paid.

Now to the opportunities, so this is a defensibility part. But the opportunity for us is phenomenal. Where AI has, in some ways, they opened the floodgates of opportunity for Paymentus. Every where we look, we are seeing opportunities. We are, after all, a technology company. We have been making investments in no core platforms and have a great software stack and have been very focused on AI for a long period of time. I've shared this publicly, actually, we almost attempted to buy an AI company. It didn't work out many, many years ago.

So for us, AI has been on top of our minds. So we see AI bringing a lot more opportunities as we have thousands of clients, and we are serving them and serving their needs of running as a central nervous system for their revenue collections, we see a lot more opportunities for us. And AI will play a big role in that. So we are feeling great about where this is all headed. And in some ways, we like our chances as AI becomes -- the world becomes more agenetic and AI becomes a little bit more pervasive.

Okay. That's awesome. I appreciate all the details there. Just a quick follow-up on numbers. The 2026 guide implies an incremental margin of just over 40% at the midpoint. You guys just said 61% in the quarter, 58% for the year. Totally appreciate the conservative outlook. But just anything to call out in terms of incremental investments? Or why you think incremental margins would kind of decelerate from here?

So Madison, I'll point out 2 things. Number one, in Q3, we launched large enterprise customers, and we had experience of half a quarter approximately for Q3 and full quarter for Q4. We have kind of 1.5 quarters of experience with these large billers, and we follow a prudent approach that not to make the same run rate for 1.5 quarters for the next full year. We want to see seasonality.

We want to see how the trends move. We really need an experience for 4 full quarters before we can bake into our guidance and forecast properly. And as you know, from historical trends, we don't count eggs before they hatch. So we need proper experience. Hence, our guidance is prudent. At the same time, at the high end, which we have guided today that can be achieved without booking any new customer.

I understand your question is mainly on the incremental agented EBITDA margins, we also are factoring in decent operating expense for sales and marketing at this point in time because the opportunity in front of us is massive. The pipeline is massive for us. We are diversifying into more verticals than we were. In fact, there are a couple more new verticals, which we have not named yet, but we have seen an entry into that in this quarter. So we want to expand our horizons there as well and see how more how quickly we can scale.

We are already disrupting the market at a very decent pace. In fact, achieving 37.3% growth annually in top line, despite of improving margins. I think that's remarkable. But we want to see if we can continue this trend. So on the guidance side, we remain prudent. Although at the same time, we have raised the guidance from what we proactively provided in the previous call, especially on adjusted EBITDA margin. But we stay grounded when it comes to guidance.

Second thing I said was operating expense, we are also prudent in planning for more because we want to expand our horizons and few on the vertical. Otherwise, we remain committed to deliver great results and maintain the momentum, what our trends indicate.

Next question comes from the line of Darrin Peller with Wolfe Research.

Congrats on good year. I guess I want to follow up for a minute on guidance because I know you always try to be somewhat conservative around it just the way you -- the nature of your guide. But just given the recurring revenue nature of your business and the magnitude of how much you see every exiting the year, especially on the bookings front, I'd love to hear a little bit more on just where you've embedded some conservatism? Is it around transaction growth, enterprise ramp timing perhaps or payment mix or margin -- and then obviously, on the other side of that, what would need to go right operationally or commercially for you to outperform the guide as the year progresses. We'll just start there, and then I have a follow-up on the enterprise side, that's okay.

Yes, Darrin. So it entails a lot of things. I would say it's a confluence of multiple factors on why we are prudent and why we feel bullish at the same time on how the business is. I'll start with bookings. The bookings are very good. In fact, the composition of bookings is more intriguing to us because we are diversifying into multiple verticals. That is helpful. At the same time, the pipeline is also very big. And you already know we operate in a very large TAM.

And we have around 4.3% market share at the end of 2025. So a pretty small share and a large market to capture and the pace at which we are, I think things are looking very good. The visibility is very high. But we remain grounded as I said to earlier question from Madison. But at the same time, I think delivering good results is our goal.

And at the end of the day, the free cash flow generation we have, which we have seen especially in the last quarter and last year has given us a further boost to stay grounded and execute, and that's where this confidence is coming from.

Okay. Understood. Can I follow up on -- in the past, you've outlined, I think it's really about 4 different growth vectors. When we think about new builder launches, same-store sales, enterprise go-lives and then the -- would you just maybe rank order the contributors you're seeing this quarter? And then which of those do you expect to be the primary drivers going forward to '26, especially those that you exited the year with the most momentum around.

Yes. So new implementations is generally the largest vector and will continue to remain the same. I would say the second vector would be same-store sales, which actually is doing really well. And in fact, as we have launched the new large enterprise billers since past few quarters, we are analyzing their trends as well. And that also the same-store sales continues to be very strong.

And early implementations is one thing which could provide an upside. At the same time, any new customer bookings if they happen. And if they get long, the timing works in a way, that could provide an upside. But at the same time, IPN continues to be a strong vector as well. We have actually done really well in the past few years on IPN, and that also is a very important vector. So upsides could are possible, but we keep fingers crossed, and we don't count the ex before the hedge, as I said.

Next question comes from the line of Tien-Tsin Huang with JPMorgan.

Great results. Just following up on Darrin's question with same-store sales, maybe on the penetration side. I'm curious how much more room is there left for say AutoPay amongst your larger billers that are in the -- more in the back book than the recent additions. It sounds like there's still a lot more to go, but I just wanted to get an update there.

Yes. Actually, thank you, Tien, for the question. We see tremendous opportunity there. In fact, as we have shared publicly, we could more than double our business in our existing customer base and is still not be done 100%. There's a lot of opportunities still left. So same-store sales remains a big focus for us, continued adoption. So if you think about it from the way to look at it is, we have only recognized 4.3% of the revenues from the customers we have -- of the total TAM, but there is a lot more temp to be captured even in our existing customer base as we go from here.

So that, combined with all of the open opportunities in the wide open market as the way we think of it. And frankly, in some ways, the ever growing TAM based on all the areas you're expanding into, it gives us a lot of confidence that our best is very much ahead of us.

Great. And just my follow-up, just on the -- I know I always ask about the pipeline, but I'm just curious about where that stands today versus this time last year. I know large enterprise has been a big contributor to growth. How does that look today versus last year when you qualify the pipeline?

We feel a great pipeline is looking great. Backlog is strong. I think all of the aspects you would want to see in a business which is doing well and growing and it's all moving in the right direction. We are feeling great..

The next question comes from the line of Will Nance with Goldman Sachs.

I wanted to follow up on a couple of comments you made around the large enterprise billers. I think at several points, you talked about that being one of the drivers between the increased revenue per transaction. And I was hoping you could impact that. I think when most people think about more enterprise in that market, they think about kind of revenue compression. But I think the way you're characterizing it, you're speaking more about, I don't know, higher larger transaction sizes, driving higher revenues.

So I was wondering if you could maybe unpack that a bit. What is driving that? -- are maybe contributing to the growth that's causing the average transaction size to increase? And just how do you think about the mix shift embedded in kind of outlook or pipelines today from like a vertical perspective?

Yes. Well, I'll start with -- we are -- we feel really good about how the revenue per transaction is trending, achieving an 11% growth year-over-year is very interesting to us. And actually, that's reflective of the disruption we are causing in the marketplace by increasing our market share and gaining large enterprise customers.

Some of them are household names. The average price per transaction for some of them is actually high, as you alluded to in your question, and that's also contributing to increase in revenue price -- revenue per transaction. And that's boiling down to contribution profit also per transaction, which, as you noted, that's also improved year-over-year by 5.8%. So all headed in the right direction.

In terms of breakup, as many verticals, I would say, definitely, utility is our backbone. Utility is there. Insurance is there. So there are a few verticals, which actually in a combination get to this revenue per transaction improvement.

Got it. That's helpful. And just maybe following up on the AI discussion. I think -- you did a nice job addressing some of the concerns out there from a software perspective. Just from a payments perspective, I was hoping you could talk a little bit about how you guys see Agent payments. It would seem that bill pay could be a good candidate for more agent transactions over time. They're fairly low risk. They're highly recurring in nature. So just how have you guys engaged with the Googles, the stripes and the other kind of sponsorships of sort of a genetic protocols? And how do you -- how far off do you think we are from seeing more agentic penetration in the bill.

I think we see agentic AI playing a big role in bill payments for all the reasons you talked about. Our approach is going to be very much customer-centric. It will be about innovating around customer experience and providing customers a totally unique and differentiated experience using the help of -- so we'll have more to come more to say on that later on. But I think we -- the key message I could just simply provide here is our approach is not frankly, brochure wear or press releases or putting a bunch of stuff on the website for the names sake.

Our approach has always been very substantive improvements to customer experience and value creation there by improving the customer experience itself and through innovation. So we believe bill payments, representing a majority of a typical household spend will be a big factor when it comes to improving the lives of customers and frankly, even businesses as well. As I shared in my opening remarks, we serve tens of millions of -- a big portion of actually a substantial portion of U.S. households and businesses. They're already interacting on our platform. So it's top of our mind, and we will -- we are making progress in that area. We'll talk more about that in the future.

Next question comes from the line of Craig Maurer with FT Partners.

Just a quick modeling question. was a little higher than we had expected, and you mentioned that was consistent with spending to convert the pipeline. So I was just hoping you could help us with thinking about cadence for the year. in terms of how you expect that spending to progress through 26.

Sure, Greg. I would say if you look at the trends of the past quarters, say, 24 and 25. And I think using that particular trend will be useful to draw a line, if you want kind of the quarterly trend, I'm understanding for 2026, how does the OpEx growth from Q1 to Q4 I think if you make a gradual improvement over the quarters, that would be reasonable. We definitely always analyze how the pipeline is at any end of particular end of the month and where we want to deploy the resources of sales and marketing. So that could fluctuate, but that kind of petition, I think, is reasonable. But at this point in time, at the beginning of the year, it's fair to use the past trends to analyze the quarterly growth.

There are currently no questions registered. [Operator Instructions] There are no further questions waiting at this time. I would now like to pass the conference back for any closing remarks.

Well, thank you, everyone. I appreciate your time. Have a great day. Thank you.

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

Good morning. Welcome to Citi's 14th Annual Fintech Conference. My name is Pete Christiansen. I'm on Citi's research team covering digital assets, some LendTech and some import services as well and really pleased to be hosting Paymentus with us today. We have Paymentus CEO and Founder, Dushyant. And also Paymentus CFO, Sanjay. Thank you, gentlemen. Welcome to have you.

Thank you for having us.

Of course. Of course, now I remember Paymentus not too long ago coming to the public markets, certainly with our previous teams doing a lot of work on the name. And since your IPO in '21, now you're a $1 billion company, you're generating cash. Maybe for those who are less familiar, can you just provide us with a brief overview of your company, why you set up Paymentus? And why is bill payment exciting?

Okay. That's a great question. In a time, bill payment doesn't get the excitement nerves going for folks. It's a very exciting business, primarily because if you think about majority of the U.S. household spend is towards nondiscretionary bills, and that's due towards nondiscretionary bills. So just to be able to put water, electricity, gas. And then they're in a home, which most of us are in a partner at home, we either have a mortgage or rent and then you have insurance policies related to all of that.

So once you start building those blocks up of a typical household, you realize that a nondiscretionary part spend and serving that economy is very, very important in all times, whether economy is doing great or economy is not doing great. We have gone through multiple cycles and continue to grow our business. So from that, I think we saw an opportunity where the providers to the banks -- bill payment service providers to the bank, were actually letting the bank down and has proven out now in reality where banks continue to lose their market share. They used to have 70%, 80%, 90% of share of bill payments is now down to 20%.

And all of that is, in some ways, from a bank's perspective loss or from a billing company perspective gain through a platform like Paymentus, where we said, why don't we give billing companies the entirety of the control of their own destiny. They are the ones who are issuing the bills to their customers. They are the ones responsible for the money -- collection of the money. And they are the ones who are actually then paying the price if the customers don't pay in time or dealing with the rest of the customers if they have already paid to the bank and then several days later, the bank tells the billing company that they have not received the money.

So why not give them a platform which is holistic, comprehensive, takes care of all aspects of customer engagement and payments related to billing and all customer inquiries and engagement across all channels. And that thesis actually proved out to be very successful, that we would go to a billing company initially and say, we will deliver more payments to you in 90 days through Paymentus platform than all banks combined in the United States. And we were -- time and time again, we were able to prove that out.

And we also realized that if we can build a successful business, profitable with great unit economics in utilities, starting with utilities, which is the most complex and most efficient part of the sector, we would have an ability to expand into different verticals. So whether it is government services, whether it is insurance, whether it is property management, telecom and others. So if you look at it from where we were to where we are, even since our IPO, we now have -- utilities remains a very big vertical for us, electricity, gas, water and waste and so on.

But we also have a -- significant piece of our business is now other verticals, that is government services, insurance and others and very sizable, still growing rapidly. And more recently, what we've also observed the last several years is we are able to get into companies which were typically out of reach for -- not only for us, to anyone because they are used to in-sourcing, building everything in-house.

Paymentus built a platform now with the scale and the size and the ecosystem. It's sort of irreplaceable. It's not easy to create for any organization regardless of how many flows of programs you have. So we are seeing tremendous traction there as well. As a result, we are able to provide our CAGR model of 20% top line growth, turning to 30% adjusted EBITDA growth in dollars and with great operating leverage, delivering great operating incremental margins. So investors are liking it. Investors are liking the stability of nondiscretionary part of the business, but also high growth algorithm and high profitability.

And super sticky, I imagine. But what sounds, I think, initially interesting to me is the ability to scale as you counter kind of like one vertical. You're able to port some of that success into other verticals, so on and so forth. Maybe if you could discuss that. And also, how should we think about you finance this on a partnership front, not only perspective but also maybe on the FI side?

Absolutely. I think in the part which is -- was very important for us and that's why we were -- there's a joke in programming and engineering terms, but they say the sooner you start coding, the later you finish. So if you don't start -- you don't think first, and you start coding, you will probably finish later and the person will spend more time thinking about what they're coding and what they're solving the problem for. We realize that even though Paymentus may actually not be in early 2005, '06, '07, '08 and all those years, which were very formative founding years, we were trying to build a platform for the future.

We were saying there will be a time where a lot of these billing companies will have exact same problems. It's not going to be restricted to a specific vertical. So the main point for us was, can we actually deliver a top quality product in a small to midsize utilities, which was totally underserved market, but one where they were already way down the path of taking all the efficiencies out of the paper process. And we felt that we can actually solve that problem and profitably serve them, then attacking the larger utilities will be easier. And then from there, you can branch out to other verticals.

So that played very well. But then we realized that banks who have been largely underserved by legacy providers by literally -- if you can think of it from a bank's point of view, regardless of how many times we play golf with them, with the legacy providers, they're still not going to be able to serve the customers unless the customers themselves are getting a better service.

So what we felt that eventually, banks will become lot aware that their service providers have not served them well because there's no real-time connectivity to the billing company. And we felt that more and more billing companies we create, which becomes eventually on our instant payment network like cellphone towers. So more cell phone towers you have, the bigger opportunity for us to attract bank. So we have the created instant payment network of the billing companies we have on our platform as well as all the other payers in the U.S. and go to the bank and say, "Hey, you can now use Paymentus platform to start distributing your bills." So we are trying to bring a little bit of the control back to the bank and we have been successful at it.

I would imagine it's really crucial table stakes for the bank, right?

Correct. Because if you think about it from a bank's perspective, the most important customer base is the one who has primary checking account with them. They make 3 to 4x more from that customer base than the one who doesn't have a primary checking account. And bill payments is a very important piece to it from being able to -- many of us can -- who use banks for bill payments, you can realize if you -- once you have set up all your pays and so on, in fact, I've met various folks who have been decades out of the college and they're still using the same bank they had in the college because they have set up some mutual pays and so on. So --

It's been a long time for me.

So that part -- you are a very important customer to the bank. So banks -- it is very important to the bank to get now finally instant payment network connectivity, so they can provide better service to the customers.

Let's tie this down to some of the financial performance that Paymentus has seen since its IPO. Maybe we could talk things in the context of the go-to-market. In what ways does being payments and vertical agnostic serve the top line? And maybe more broadly, have the drivers of revenue growth changed since perhaps maybe the time of IPO?

I'll say the drivers of revenue growth are -- there are 2 points. One is the new implementation. We have very good bookings continuing since IPO. Every quarter, we got very good bookings. We are, in fact, moving into large-sized customers now. Since last year, we started highlighting more on the enterprise customers. So larger-sized customers are now becoming a bigger part of our overall customer base. So more the bookings and -- but they get implemented on time.

In fact, they are getting implemented sooner compared to the implementation phase at the time of IPO. It has evolved over time our processes have become much more effective and efficient and the customers are going live at a better pace now. So those early implementations are also helping us accelerate our revenue growth.

So both the 2 building blocks, I will say, new implementations. And the second block is the same store base, which is the growth of existing customers. We have these digitalization tailwinds which are helping us as well. So overall, the platform is agnostic. We got a lot of many verticals, around 10 or 12 verticals we operate in, utilities being the largest one. Approximately 50% of whole revenue come from utilities. And then there are insurance, health care, telecom, and there are many of the verticals which we are entering into. Some nascent verticals, but we are seeing progress in all. So we've seen a lot of traction. And the biggest reason for that is that our platform is now resonating more and more. It is our platform, but we are being agnostic.

At the same time, it has a lot of features, which are not probably present in a lot of other competitors as well. So we are serving our customers well. We're providing them a good quality service at a very reasonable price. So our product is resonating with the customers, end customers who are actually on a platform on a daily basis, making the payments, bill payments and at the same time, with our billers, or our customers with whom we have contracts as they are able to provide a very good quality of service to your end customers. So we are serving this vast community of billers and end customers, and we are seeing significant growth.

I want to go back a little bit just a couple quick on -- I think you talked about the pipeline conversion is getting better. It's accelerating. Is that monetization unit economics that's driving that? Like talk about what maybe some of the elements there. And then I don't know, maybe qualitatively, what the pipeline looks like today versus [indiscernible]?

Well, our pipeline looks very good at this point in time and the pipeline over the past few years, if we compare that's getting better and so is our backlog, and so is our implementation pace, and so is our revenue. The entire machinery right from identifying an opportunity and recording in a pipeline, still it converts to revenue in our P&L. I think the entire machinery or the subprocess they're all working. So I think it's hard to say like which process is getting better just because everything is getting better. So we are very fortunate to see this kind of progress on our platform and the traction we are getting with all sorts of customers and verticals.

Systems coming together. Benefit onto itself.

Correct. But if I may also add one more thing on the vertical strategy. If you think about if a company is focused on just one specific vertical, then let's take an example. If we are in property management and property management only as a company, then you get one consumer at only one time for that particular brand. And that's it because you're not living in apartments at the same time, by and large.

So we felt that at some point in time, it will become very important to the buyers of our service that what percentage of a typical household you already deal with. And as a result, where do we fit in a typical household spend. So take an example, if Paymentus handles 3 to 4 bills just in utilities alone in a given household.

And then you add insurance, you have car insurance, you have home insurance, your renters insurance, a few of those, you have a couple of bills there. You have telecom, another bill, at least another bill there. And you keep adding property management or mortgage, the loans, the car loans, mortgages, you start to build up on it. It becomes very interesting from a long-term perspective.

If you were to say 5 years out, 10 years out, what does Paymentus look like? You can start to see how big an opportunity we are talking about here. Sometimes all that gets lost because we, as a company, are very focused on making sure our investors don't get confused that there is a certain level of humility in how we execute on our business. But there is also a very important aspect of our investor communication strategy, which is we don't want our numbers to be ever confusing.

We want -- and we want to tell the story behind the numbers so that the numbers themselves stand on their own. So investors can say, "Okay, I can listen to the rest of your story, but at least the numbers are holding where they are." And -- but in that pursuit, sometimes you don't look at the 5 years or 10 years. So what is Paymentus really building? So you can take a look at it.

If you are serving a big percentage of a U.S. household and big swath of the customer, on the other hand, as a result, you also have a lot of billing companies. There is a tremendous network effect, which will be a lot more disruptive than what means BI right now.

That's interesting. Maybe this might be a good point to help investors understand the biller direct versus the bank-based payment side of the business? And how is Paymentus kind of enabling both ends at the end, serving the end user, the client, that sort of thing. But how do you think the -- obviously, you're helping bill collection improve and things like that. But what overall utility are you driving still in just bill payments generally by playing in both?

So I think -- if you think about it from a billing company standpoint, billing company doesn't care where the money is coming from and when they get the money. So we felt that our strategy has to be all encompassing. It's -- when we're going to a billing company, we have to be able to say that everyone of your customers who wants to engage digitally with you regardless of where they are, they should be able to engage with you and get a similar experience.

For example, if I'm a retailer store, I want to make a cash payment versus taking time off away from my work next day to line up in a utilities counter or an insurance counter, and then make a payment. I want to be able to do it while I'm shopping in the evening. And I want the payment to be affected in real time and get posted to the ERP system of the billing company, even though the billing company is closed, but the retailer store is open.

But -- and cash was never exchanged at the billing company, but the billing company wants to receive that money maybe next day. If we could achieve that, it was a repeatable value proposition for our billing company. And we were able to achieve that through our instant payment network from the billers' point of view.

If you extend the same to the bank and say to the -- to your customer who wants to send money to anyone in the U.S., whether it is to a small business or to the largest company, we have them all on our network. Some of them are directly on our network and increasingly so as they're growing rapidly, we will continue to have those real-time rails built.

But those who we don't have real-time rails, we will send them electronic payments, will take a day or 2, et cetera. So that becomes very attractive for the banks. But if you think about the central from an investor perspective, that strategy then is you are having both ends of the candle where you have, on one side, you're signing more billers. As a result you're getting more consumers involved with the business on the platform. On the other side, you're bringing more banks, we're also bringing more consumers also participating in the same ecosystem.

So that's why in our public communications, you will always see us say you can look at our scripts. We'll always talk about that we have a platform and an ecosystem, which is what is driving. So if you think from that perspective, it's not easy. It has only taken us 20 years to get here. It's not easy to create these things again and again. So at the scale, we become a hopefully an essential and invaluable part of the essential side of the U.S. service commerce and service.

But I would imagine, at least competitively, just by the sheer size of your network that you have right now, you're a must-have, you're a must-have.

Exactly. I mean that's what -- that's where it is building towards and more and more. And if you also think about it from another perspective, from a billing company point of view, simple perspective. If you were a billing company in this room right now and you are saying, "Look, I am looking for the platform, which is going to act as a central nervous system for my revenue collection which will be my primary revenue collection channel. Not all of the revenue will come from it but primarily because of -- and the fastest-growing channel. What company do I want to partner with?"

Do I -- do I even want to take a chance that company will not have the best platform because this is a revenue collection? This is not about vendor payments. This is about handling your customers and your money, both of those, the most valued assets any business has.

So when you look at it from that point of view, we -- you can see from our expanding margins and even you saw in the last quarter, even expanding revenue per transaction and contribution profit per transaction. All of that is coming in, although they move around from quarter-to-quarter, but that notwithstanding, the point is that customers see Paymentus as an essential part, which is your point, essential part of the revenue collection chain.

And increasingly so, it will become more and more important in terms of -- we have tens millions of households right now and users as well as businesses on our platform today. As that reach expands, including this year as we are onboarding more and more customers, we become a very important part of the U.S. service economy.

Mission-critical.

Mission critical. I think that's what the pursuit is. And we're very pleased during pandemic, for example, we were even deemed as a -- in most jurisdictions we were deemed as an essential service organization because we are providing service to the essential businesses.

That's a good time to pivot into helping us understand the competitive landscape. I think more importantly, I'm sure we're going to touch on what we just spoke about a little bit before, but what's on the checklist of your prospects when they're evaluating Paymentus and their solution set? Maybe where does pricing fit into that?

I think -- so that's what I've actually, to be honest with you, that's what I was trying to get to that particular point, which is the world has changed totally. There was a time when digital payments was a -- used to be called as alternative payment channel because almost all payments used to come from the physical means. Digital payments was a nice thing to have. It was a luxury. I also put a link on my website, and I can get the payment. Not the case anymore.

All the efficiencies one organize can drive because of digitalization tailwinds have already been realized. All the customer service representatives have been moved to different functions. All the branch staff has been redeployed in other areas. If you digital platform is not accepting payment, you are essentially in a deadlock.

You cannot function as an organization, especially when you have millions of these payments coming in, millions of users, hundreds of thousands of users, regardless of the size of the organization, even 50,000 user subscriber organization, you are in a deadlock immediately if you don't have it in your system.

So after going through various situations of selecting different legacy providers and seeing all the challenges and platform scaling, the billing companies have gone away from trying to save pennies and have the potential to lose dollars are now saying, okay, we're going to choose the right partner who has the right ecosystem, biggest coverage, biggest cell phone coverage, but also the most reliable platform. And if it charges a bit more, so be it. But we want our revenue collection to take place efficiently, quickly, accurately and continuously.

Why don't we talk about the ecosystem of products that you do have profit by Paymentus, instant payment network, bill wallet, intelligent payments platform. Why or maybe you can talk about some of these features and how the system kind of comes together, why do you see this combination winning in the market place right now?

Yes. I think the main thing that billing companies are looking for is the platform, some of these decisions are multiyear decisions, right? Our typical contracts are multiyear contracts. And the reason for that is it's not always driven from us, even though we prefer long-term contracts, of course. But customers also want surety of service.

If you think about it from a client point of view, they have just moved away from a legacy system to payment. Last thing they want to do is a year later, they have to do the same thing all over again. They're not interested in that. So they are looking for long-term partners as well.

Then they are looking for a long-term partner, one of the key things they are looking for is how do I continue to get more benefit from the platform I've chosen? And how do I define that is -- can I evolve -- can my requirements continue to evolve as the -- can the platform evolve with my business requirements? And as my business rules change, can the platform change with it? As the technology evolves, can the platform change with it? As AI takes the newer technology revolution right now, can Paymentus continue to provide with that capability?

Once they see all of those, they end up choosing Paymentus because instant payment network is proprietary to Paymentus and our platform, which we actually -- we were very fortunate to take the approach. And I don't want to come across that we were smarter than the next guy. We just had the benefit of doing for the second time.

I built a company in the old style before, which was acquired by FIS and so on. And so from my point of view, I have the luxury of quickly starting again, and in some ways, learning from my mistakes. And one of the key mistakes was you cannot build bespoke solutions in the bespoke software and hope that 10 years later you'll be able to scale the business.

You have to build a platform, which is one code base, cloud source the functionality from your clients in such a way that each of them can see themselves in your platform and teach you how to be that platform. But in some ways, they have bespoke experience, but not your platform to the functionality of the platform, but not the platform version.

You have one version, one code base and that is serving all verticals, all industries, all sizes of customers, all types of customers, all business rules and magic happens as a result of that. Operating leverage start to take place.

No, these are the ingredients, I think that go behind any best-of-breed product strategy approach. It sounds like prospects and potential wins out there are shifting from these platform providers that do a multitude of functions that is now shifting or focusing more on best-of-breed table for that. Is that an accurate read?

Absolutely. Absolutely.

Yes. That sounds interesting. I do want to talk a little bit about partnerships. How should we think about your multifaceted partnership like with PayPal? And how does that differ from some of your own relationships including some of your banking partners, e-commerce partners and other ...

Sure. So for us, I think one of the other things we have learned over the years is that having a go-to-market strategy, which is centered around a perfect combination of the balance between direct go-to-market as well as the partnership ecosystem. And both of those entities learning from each other, those go-to-market dimensions, learning from each other becomes a central part of our strategy going forward.

Partnerships are becoming increasingly more important to us. So our partnership with a partner like JPMorgan Chase, where you have -- we are partnering with them on the treasury services. They are large scale treasury clients when they are looking to -- Yes. Yes. We will welcome Citibank anytime. Whenever Citibank wants to choose the best platform, we are here. We are in this office. I can get my team to send the contract right now and we can sign.

So we -- the large skilled strategy clients can actually get deeper engagement with the bank and make more money actually along the way and our platform becomes catalyst. PayPal similar relationship whereas PayPal is looking into more complex large enterprise deals in their pipeline or their customer base, and they want to monetize it better, Paymentus comes in handy. Likewise, our software vendor partners.

We have partners with a large scale ERP system. So think of us as a company that has -- sorry, a company that has realized that you want your direct story tellers to have the deep understanding of how easy it is to onboard any type of customer with any size and any vertical onto our platform with any workflows, combine that with a great partnership to where there's a warmer relationship possible.

And the partners realize that if Paymentus can actually help unlock the opportunity with their existing customer base, it sort of, in some ways the management may happen. So we feel very fortunate that we have a great partnership ecosystem, including the Citibank, hopefully.

Sanjay, Paymentus has 2,200 clients in North America, and it seems like we're starting to see the shift maybe towards upmarket kind of solution. Just wondering if you could speak to that. Is that intentional? Or is that just a function of having cases forming? And maybe you could discuss some of the products that resonating with some of your market?

I would say it's mainly the function that our platform is more and more with all sorts of verticals, all sorts of customers, large, small and midsized. And I think the diversity is giving us an opportunity to enter into more verticals. For example, we talked about B2B in our most recent earnings call. And it's providing us more opportunities which we did not think of earlier.

So I think the platform, the ability of the platform, the feature of the platform and the convenience to the end customers at the same time as the customers, our billers -- they both are working in a right manner to give us the benefits of scale as well and eventually, it's all translating financially.

Definitely, you can see the numbers. It's highly cash-generating business with a very high profitability. But incrementally, EBITDA margin this quarter was record 61.7%. So we feel good about the way the entire processes are working to get us to different kinds of customers. All that and the value process ...

Okay. We have 2, 3 minutes left. Dushyant, why don't we cap it off with some of your midterm, longer-term kind of priorities, where are you investing, where you're spending your time? And maybe to take a little bit of a picture for investors where do you think Paymentus is in 10 years.

Yes, absolutely. So I think we're going to be a sizable business in 5, 10 years out and just as an attractive band as we are now just because the mission for the company from investment point of view is to build a perpetual business. And we believe that we are in the process of achieving that with all the different components in play.

In terms of from an investment thesis perspective, you want a management team who have done it before, knows how to scale the business, but also how to profitably scale the business, knows how the competitive waters are, have muscle memory and all of that. We are very fortunate to have assembled one of the best themes ever assembled in, I would say any -- our management team over any other payment companies, let alone the bill payment. Some of the best and the brightest have joined us.

And then if you look at from that, you look at our customer base, we have customers in almost all verticals you can think of. So for a given household, if there are 12 to 15 bills we might be already touching almost all of them or a vast majority of them. And then you layer in, there are 130 million or so households in the U.S. and tens of millions of them are already using our platform right now that has 5 million or 6 million of SMBs.

If you think about a small utility, even a small utility, which is serving a locality, both consumers and businesses pay their bills to the same utility. So we are very fortunate from that perspective of our strategy is working out to create a long-term moat for the business while delivering value today to our shareholders. So I thank our shareholders or investors to participate in our journey as well.

Well, thank you both, Sanjay, Dushyant. Very compelling story here.

Thank you.

And we must have you back to track your progress on a lot of these initiatives. But thank you both for coming, and great to have you. I appreciate it.

Thank you. Take care. Thank you. Appreciate it.

Good day, and welcome to the Third Quarter 2025 Paymentus Earnings Conference Call. This call is being recorded. [Operator Instructions] 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 third 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 make reference to 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 third 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 differ materially from expectations are detailed in our earnings materials and our SEC filings that are available both on the SEC and our website. 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 call over to Dushyant Sharma. Dushyant?

Thanks, David. I'm excited to report that Paymentus delivered another strong quarter with the results exceeding our expectations in all key areas of our business and delivering exceptional year-over-year growth. This outperformance is especially satisfying given the backdrop of our strong performance in the third quarter of last year. In addition, we had a phenomenal quarter of onboarding activities, and we ended the quarter with substantial bookings and a strong backlog, giving us visibility and further confidence not only for the balance of 2025, but also for 2026.

As I mentioned in the past, this high level of visibility enables our management team to focus on creating long-term shareholder value by combining innovation with our steadfast execution. We believe this quarter's results are a great illustration of how we are still able to manage and calibrate our business to meet or exceed our long-term CAGR model of 20% top line growth and 20% to 30% adjusted EBITDA dollar growth despite variability of secondary metrics from quarter-to-quarter. For example, during the third quarter, as our customer mix is shifting more towards enterprise and larger mid-market clients, our revenue and contribution profit per transaction grew significantly.

This also helps demonstrate our vertical expansion strategy that led to higher incremental revenue and contribution profit per transaction. And when you combine this with the tremendous operating leverage we enjoy in the business, in Q3, we were able to achieve a strong top line growth and a record quarterly adjusted EBITDA margin along with an incremental adjusted EBITDA margin in excess of 60%. Related to this, it's also important to remember that we remain in market capture mode as we increase our market penetration and enter new verticals because we see a tremendous opportunity to gain share in what is an enormous TAM.

We also find ourselves in a very fortunate situation where some of the trends in the industry that we were anticipating are actually coming together. For example, we recently onboarded a large B2B client, and this B2B use case is in a vertical that was new to us. On our platform, they're performing very well. Even though it is early in the full year cycle, we are already seeing significant outperformance beyond our internal modeling. Our go-to-market strategy of being vertical agnostic matched by our vertical-agnostic platform engineering is proving to be very sound. Likewise, our approach of supporting bidirectional payment rails is also proving to be a good decision and is delivering results.

Our clients are choosing us for outbound payments in addition to implementing us as the central nervous system for revenue receipts. Therefore, this opens up further TAM for Paymentus with existing and prospective clients. And as I've also shared previously, even the AI and agent in commerce progress is moving the industry in our direction. The platform capabilities we have been building over the years are going to catalyze even further opportunities for TAM expansion in existing and prospective client base in coming years.

Another exciting and high potential area of our business is the opportunity to monetize interchange in outer years. Interchange cost we incur today is big and is getting bigger as we scale. To us, that represents an incremental untapped total addressable market and a powerful lever to drive meaningful adjusted EBITDA and EPS expansion in outer years. In other words, as I look ahead at the next 5 years, we are feeling great about the foundation we have built and continue to build for an exciting future.

With that, let's review our third quarter results. Revenue was $310.7 million, an increase of 34.2% year-over-year, largely driven by increased number of billers and higher transaction values. Contribution profit was $98.3 million, up 22.8% year-over-year. Adjusted EBITDA, which continues to be a primary financial metric for us, was $35.9 million, a 45.9% year-over-year increase and representing a record 36.5% adjusted EBITDA margin. Once again, the majority of our year-over-year growth in contribution profit fell to our bottom line.

Also, we exceeded the Rule of 40 for the quarter, coming in at 59%. This reflects our team's solid execution and our focus on delivering high-quality earnings together with sustained revenue growth. Now I'll review our third quarter business highlights and accomplishments. Regarding bookings, we continue to be pleased with the pace of bookings we have achieved year-to-date. Similar to previous quarters, in Q3, we once again saw particular strength in the large enterprise and larger end of mid-market segment. It's spread across a broad vertical base.

We also continue to show the diversity and wide appeal of our platform by signing clients in several industry verticals, including insurance, government agencies, utilities, telecom, property management, consumer finance, banking, credit unions and educational institutions, among others. Complementing our direct go-to-market strategy during the quarter, we continue to leverage our partnership ecosystem. This quarter, we added new channel partners to our portfolio, including government agencies, telecommunications and property management industries.

At the same time, during the quarter, we onboarded several large enterprises. Onboarding our substantial backlog remains a key priority for us. And our onboarding enhancements, incremental investments as well as improving face-to-face client engagement are driving these successful efforts. In the third quarter, we onboarded clients throughout multiple verticals, including insurance, government agencies, utilities, banking, credit unions, telecommunications, financial services, property management, education and health care.

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. As David mentioned earlier, our Q3 press release and earnings presentation includes reconciliations of these non-GAAP financial measures to their corresponding GAAP measures. Both of these are available on our website.

Turning to Slide 5. Building on our momentum in the first half of the year, our third quarter 2025 results once again exceeded the top end of our guidance range for all 3 of our key financial metrics. These results continue to highlight the overall strength of our business model and our team's proven ability to consistently meet and exceed our expectations. Our third quarter results included revenue of $310.7 million, up 34.2% year-over-year, contribution profit of $98.3 million, up 22.8% and adjusted EBITDA of $35.9 million, up 45.9%.

We also continue to experience strong customer activity and demand, which fueled bookings and allowed us to exit the quarter with a considerable backlog. Based on our year-to-date results, our expectations for the remainder of 2025 and strong forward visibility, we are once again raising our full year 2025 revenue, contribution profit and adjusted EBITDA guidance, which I'll discuss in more detail shortly.

Now let's review our third quarter financials in more detail. As mentioned, Q3 revenue was $310.7 million, a 34.2% increase. This growth was driven by 4 key factors: first, the successful launch of new billers as anticipated; second, increased same-store sales from existing billers; third, the early launch of several large enterprise customers during the third quarter of 2025, which we had originally expected to launch in early 2026. These early launches were a result of our continued focus and improvement in implementation pace due mainly to our team's hard work and strong client engagement. And fourth, higher activity on our Instant Payment Network, or IPM. Additionally, the number of transactions we processed increased to $182.3 million this quarter, up 17.4% year-over-year.

Our average price per transaction increased to $1.70 during the third quarter, up from $1.49 in the same period last year. This 14.1% increase was mainly due to the biller mix and the launch of new billers in the quarter. Third quarter 2025 contribution profit increased to $98.3 million, up 22.8% year-over-year. This growth exceeded the transaction growth as the new billers launched in the quarter generated a higher contribution profit per transaction. Contribution profit per transaction for the quarter was $0.54, a 3.8% improvement from $0.52 in the prior year period.

We believe this highlights our ability to capture market share with improving overall profitability. Contribution margin was 31.6% for the third quarter, a 2.9% reduction compared to 34.5% in the prior year period, reflecting the continued addition of large, high-volume enterprise customers. In spite of that, we generated record adjusted EBITDA margins of 36.5% as both our contribution profit per transaction and operating expense margin year-over-year improved by 3.8% and 3.6%, respectively.

Furthermore, our improved contribution profit per transaction, together with our strong operating leverage, also generated a record incremental adjusted EBITDA margin of 61.7%. These results are consistent with our overall growth strategy focusing on profitability, which I will elaborate on shortly. As we continue to grow and diversify our client base and add more of these large clients to the mix, we expect pricing and contribution profit to vary quarter-to-quarter.

It's important to note these larger clients are paying a similar or even increased average selling prices than they are accustomed to with other providers. We believe they value the quality of our services and the solutions we provide, which ultimately saves them money and enables them to provide better services to their customers. Given the growth areas Dushyant highlighted earlier, we believe longer term, the growth rates of both revenue and contribution profit will converge to a closer range. Also taking into account the inherent operating leverage we have in our business model.

As we have discussed in the past, variables that are outside our control, such as an increase in the average payment amount or changes in the payment mix can substantially affect the contribution profit on a quarter-to-quarter basis. That is why we treat this as a secondary metric, while our gross revenue and adjusted EBITDA remain primary metrics and focus areas on how we drive our business strategies.

Moving down to P&L. Third quarter adjusted gross profit was $81.1 million, up 22.5% year-over-year. Third quarter non-GAAP operating expenses were relatively flat on a sequential basis and increased 8.6% year-over-year to $48.1 million. The increase was primarily due to increased hiring and agency fees of business from our resellers and partners in order to convert our strong pipeline into bookings and an increase in the research and development expenses to enhance our technical strength. 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'll review shortly. This year-over-year expense increase was consistent with our expectations. Third quarter non-GAAP net income was $22.6 million or $0.17 per share compared to non-GAAP net income of $14.7 million or $0.12 per share in the prior year period. Third quarter adjusted EBITDA was $35.9 million, up 45.9% compared to $24.6 million in the prior year period. Adjusted EBITDA also represented 36.5% of contribution profit for the quarter compared to 30.7% last year.

This record adjusted EBITDA performance was driven by the same combination of positive factors I talked about earlier. We believe the stronger adjusted EBITDA margin demonstrates the inherent operating leverage we have in the business and our proven ability to adapt to changing market conditions as we continue to grow. As I mentioned previously, record incremental adjusted EBITDA margin was 61.7% in the quarter.

Interest income from our bank deposits was $2.6 million during the third quarter compared to $2.3 million in the prior year period. This year-over-year improvement was a result of an increased average cash balance and effective cash management. Related to our performance, we once again exceeded the Rule of 40 for the quarter, coming in at 59% compared to 56% last quarter and 61% in the prior year period. This marks our 10th consecutive quarter exceeding the Rule of 40.

Now I'll discuss our balance sheet and liquidity on Slide 6. We ended the third quarter 2025 with a total cash of $291.5 million compared to $270 million at the end of last quarter. The $21.5 million increase is primarily comprised of the $35.1 million of cash used cash generated from operations, offset by $10.1 million used in the investing activities primarily for capitalized software and $3.4 million spent in the net settlement of employee RSUs.

Our day sales outstanding at the end of third quarter was 31 days consistent with last quarter. It is noteworthy that while revenues have increased 34.2% this year, our DSO has remained flat sequentially and declined by approximately 30% year-over-year which we believe implies that our working capital cycle, which is already operating efficiently has further improved.

Working capital at the end of third quarter was approximately $321.4 million. an increase of approximately 8.1% from the end of the second quarter. We had 129.2 million diluted shares outstanding during the third quarter, essentially flat from 129 million diluted shares outstanding during the second quarter.

Now I'll turn to our non-GAAP guidance for the fourth quarter and full year 2025 on Slide 7. Before discussing guidance, I want to mention that we are continuing to follow the same prudent approach to guidance that we have followed over the past 2-plus years. For the fourth quarter 2025, we expect revenues to be in the range of $307 million to $312 million. representing 20% year-over-year growth at the midpoint and 21% at the high end.

Contribution profit to range from $99 million to $101 million, which represents 16% year-over-year growth at the midpoint and 17.2% at the high end. Adjusted EBITDA of $34 million to $36 million, representing growth of 28.2% year-over-year at the midpoint and 31.9% at the high end. This represents a 35% margin at the midpoint and 35.6% margin at the high end.

As a reminder, our fourth quarter guidance is raised from the implied guidance we gave during our last earnings call by approximately $17 million on revenue and $3 million each on contribution profit and adjusted EBITDA. Along with our guidance, I also want to reiterate some items I have noted on past calls related to our outlook for contribution profit growth rates and adjusted EBITDA margin.

As our business grows, we are receiving greater inbound interest from larger enterprise customers. Not surprisingly, these customers often request volume discounts, which we are open to where the deal economics support it. Additionally, our substantial operating leverage allows us to attract and book these larger customers. Said differently, volume discounts for large customers are typically more than offset by strong incremental adjusted EBITDA as we saw in the third quarter. This increases our efficiency as our onboarding time for biller is declining while our 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. For reference, our incremental adjusted EBITDA margin for the third quarter 2025 was 61.7% relative to adjusted EBITDA margin of 36.5%.

Based on our results and progress we have already made year-to-date in 2025 and our expectations for the remainder of the year. For the full year 2025, we now expect revenues in the range of $1.173 billion to $1.178 billion, up 4.8% from the midpoint of our previous guidance. The updated guidance now represents a 34.9% annual growth at the midpoint. Contribution profit in the range of $378 million to $380 million, up 2.2% at midpoint versus prior guidance. This updated guidance now represents 21.5% annual growth at the midpoint.

Adjusted EBITDA to range from $132 million to $134 million, representing a 6.4% increase at the midpoint versus our previous guidance. The updated guidance now represents a 41.2% annual growth at the midpoint. This represents a 35.1% marginal contribution profit at midpoint, an improvement from 30.2% in the prior year. On the Rule of 40 scale, this annual guidance implies a score in the range of 56% to 57%.

In closing, we reported another quarter of excellent results despite a tough comparable. In the third quarter, 2025, we continue to build on our solid momentum from the first half of the year, resulting in strong revenue, record adjusted EBITDA, solid bookings and a sizable backlog. Due to all of this, we have considerable visibility and believe we are well positioned for the rest of 2025 as well as for 2026.

Thank you, everyone, for your attention today. And now I'll turn it back to Dushyant for final remarks before we open up the call for questions.

Thanks, Sanjay. In summary, our third quarter was another period where we achieved results that exceeded our expectations, including a strong durable revenue and adjusted EBITDA growth despite a tough year-over-year comp. We exited the quarter with strong bookings and backlog, which gives us great visibility and confidence in our outlook, not only for the rest of 2025 but we are also feeling good about our prospects for 2026 and beyond.

As I shared earlier, when we factor in our current scale of installed base of 2,000-plus clients, including some of the household names, tens of millions of users, including businesses who pay their bills using our platform, our innovative DNA, along with our ever-growing platform footprint and ecosystem, we feel good about our long-term moat, especially as we champion the change of capitalizing conversion of legacy infrastructure, both in-house and outsourced to Paymentus.

With that, I want to thank our entire team for all their efforts and dedication to our success. That concludes our prepared remarks. I'll now open the line up for questions.

[Operator Instructions] The first question comes from John Davis with the company, Raymond James.

Dushyant, I wanted to start with the comments around onboarding a new B2B customer in a new vertical. Obviously, the B2B market is huge. Just some context about how this relationship and kind of ultimate signing developed? Do you have many more B2B opportunities in the pipe and just maybe some broader comments about that opportunity for Paymentus?

Yes. Thank you, John. So B2B is a area of -- or functional area we had developed some time ago on our platform. And as we have shared in the past, we support lot of complex workflows for a lot of clients. And all of our clients, almost all of our clients who are on our business, they serve consumers as well as businesses. So by default, almost every business we have on our platform is -- we are receiving payments from both of those cohorts.

With B2B specifically, we felt that if we can extend the capability and add some more workflows to our platform, this could be very attractive just for the B2B segment specifically. Those clients are only dealing with B2B. And this is one of many other opportunities we have on our platform. This one specifically was in a vertical we were not targeting, but the client showed interest in our platform.

And the reason I wanted to highlight this was, this is exactly the reason why we are taking a very horizontal approach to our platform, the way we have engineered that we are able to get into different verticals by just having great storytellers who can explain the simplicity that can be gained by moving to our platform. So this is a sizable opportunity. And as we onboarded them on our platform, one of the trends we started to see was that the customers were using more of the services than even we were anticipating. And now it's even a larger client than we were thinking about.

So we are excited about this opportunity, and we feel like that we can do better in that vertical as well and actually methodically target that as opposed to sporadically. So that's where the excitement is coming in as well. So in [ summary ] my point was that we are -- the way we have designed our platform and the strategy, but also the thoughts we had or the vision we had about our business and where the industry will go. Rather than very niche, if you will, it will become to be -- it will start to move towards the horizontal platforms, and is coming to fruition.

Okay. Great. And this is a follow-up. Sanjay, I appreciate your comments around volume discounts. But I think one of the most surprising things to me is you're clearly having success moving up market and moving into new verticals. And yes, that comes with higher card mix, higher kind of gross revenue per transaction but what's more interesting is even contribution profit per transaction is up I think, about 4% year-over-year despite moving upmarket. Just want to understand what's driving that? Or maybe move in some verticals that maybe have a little bit better pricing as you kind of mix away from utilities? Or are you adding kind of more bells and whistles, products and services that are driving a higher kind of contribution profit per transaction. Just would love to get some more commentary on that.

Thanks, John. This is a very interesting question. We are very excited about the contribution profit per transaction, getting up higher year-over-year around 3.8%. The biggest reason if I have to point out, number one is, our platform and the value of our platform is resonating. The success which we have had, while marching upwards on a market share gain every year, that's resonating really well. And resonating well not only with the verticals where we really have a strong success like utilities, for example. And as you know, utilities is 50% of our revenue.

But all the other verticals, we are now taking the step into a higher level or I would say, a different level or different segment of customers within those verticals. And that's giving us an edge of better pricing and we are fortunate enough to generate better contribution profit as well. And as you rightly pointed out, the revenue per transaction could be higher, but it also depends on the interchange costs or the mix of the card payments for the new customers we acquire, and that's one of the reasons for variability quarter-over-quarter.

But at the same time, contribution profit per transaction growing up actually indicates that the new implementations, which went live in the third quarter were at a materially higher contribution profit per transaction. And that is a great encouragement for our team, for our sales team who are marching on the path to convert the large pipeline we have in front of us to convert the bookings. And as you know, once you get as Dushyant pointed out, we have some household names as well. You have one, then you have second and then when you have the second, you have third and fourth and so on.

And we are seeing that kind of traction and success in almost every vertical where we are penetrating. So we are very proud of the accomplishment on contribution profit per transaction. And in the end answer is the value of our platform is just resonating with everyone we go and demonstrate our product.

Our next question comes from Tien-Tsin Huang with the company, JPMorgan.

Great results. I wanted to ask around visibility, if that's okay. Just your visibility stay looking ahead to next year. How would you compare it to the same time last year when you were looking ahead? If I recall, there were a lot of questions around enterprise and how those would board and flow through in payment mix. Do you feel like your visibility is better and how is it different?

Tien-Tsin, thanks for the question. We find ourselves in the exact situation at this time of this year as we were last year same time. So visibility is very high. We've got a great backlog in front of us, which our implementation team is busy executing. We've got a great pipeline in front of us, which our sales team is busy converting to bookings. And what we have also seen is the past implementations in the last 4 quarters, which we have delivered the kind of the quality customers we are having now, they themselves are growing and that helping us achieve a better execution or better growth i.e., the good same-store sales we are seeing.

So overall, in all directions, the trends have been very positive. Our visibility is very high. At the same time, if I just may digress into, we are not guiding at this time for 2026. But at the same time, I understand there might be a desire to understand how should we model the next year. I would say, to model the next year, it will be reasonable to use the similar growth rates at midpoint and high end what we gave during the initial guidance we gave for 2025, using '24 basis, you could use the same midpoint of '25 we gave and apply similar growth rates at midpoint and high end. I think that will be a similar approach and will be reasonable, which kind of indicates the visibility we have for our business and the growth prospects.

Perfect. Very reasonable. Great. So let me ask on just my quick follow-up, just on the enterprise pipeline. Both of you expressed that as being very strong. Any change in the type of or who you might be replacing? And what systems the incumbents might be looking to be replaced by -- with Paymentus. I'm just curious if there's any shift in pattern there. So who are you replacing potentially with these deals?

Thank you, Tien-Tsin. Actually, we -- what's driving a lot of excitement for us is that there was a time we thought that -- and all of us in the industry thought, including all the legacy providers that it is -- there is some segment of the market, which is totally out of reach just because they're too large. And the reason for that was, this cohort of clients, they are looking for, number one, they're looking for control, and they also are looking for very specific bespoke configurations and workflows which they believe that only they can develop. It's not easy to develop on a third-party platform.

And I would say the third would be the scale. As Paymentus has started to reach a decent size of scale, if I may say it that way. And we are a $1 billion company at this point, and generating cash. We are a profitable company, strong balance sheet. All of those things are important to a large company, combined the fact that these clients are able to take a look at. Previously, we used to sit in someways, the opposite side of the table to their technology leadership team CIOs, CTOs, who now think of us as a partner in solving key business issues related to payment and customer experiences.

So from that perspective, that cohort is very exciting to us because some of these in-house solutions are now finding a great home in Paymentus. Number one, they believe that they could -- this is a type of platform they cannot build themselves regardless of how many floors of programmers they have. On top of that, the type of business configurations and the business rules and the complexity they desire for our platform to be able to configure, we already do support. Third, the type of control they're looking for, we have built our platform with those capabilities as well.

So as well, that cohort is actually very exciting, along with, I would say, the legacy service provider. There's no specific one who we are targeting. Our goal is how do we modernize whatever is out there. And we are getting into clients where they have a combination of many solutions, some of them in-house and some of them from third parties, in many cases, multiple.

Well done.

[Operator Instructions] Our next question comes from Craig Maurer with company FT Partners.

You listed 4 key factors earlier in the call that drove the increase in revenue. Can you provide perhaps some sizing in terms of the impact each of these had? And do you expect these benefits to continue into fourth quarter and perhaps early parts of next year?

Yes. We don't generally provide a quantitative breakup of the 4 factors. Historically, we haven't done. What we can do is we can help you prioritize and they were listed in the order of priority, I would say. The first one was a successful launch of new billers. That's the largest component of the growth. And the second component of growth comes from the same-store sales. And third component is the early launch of large enterprise customers during the third quarter. And fourth is our IPN network, which is doing really well. So in -- these 4 categories will be the ones and in the order of priority, I would say.

And to your second part of the question, yes, we expect all these 4 to continue in Q4 as well as in the outer year also in 2026. And these 4 are actually our growth vectors since the past few quarters, and they have been performing really well, and all 4 of them have done well quarter-over-quarter as well as sequentially. So there could be times when seasonality plays a role and a second factor may become third or the third may become fourth. But overall, that has been our trend, and we are glad it's continuing in the same way, and we feel very good about it.

Our next question comes from John Davis with the company, Raymond James.

Dushyant and Sanjay, just one quick follow-up. It looks like free cash flow conversion over a trailing 4 quarters is a little over 140%. Sanjay, maybe just the sustainability of that and what's driving that pretty incredible free cash flow conversion over the last year?

Yes. Thanks, John. Cash flow has been really the strength of the business and it actually stems from the fact that our incremental adjusted EBITDA margin is very high. And that's just a reflection of that in our cash flow. And you're right, in the last 4 quarters, it has been more than 100% cumulatively. We are very glad that in Q3 itself, it came very similar to what we saw in Q2. So the one way to -- like how to forecast it going forward will be, if you exclude the working capital piece, which could be plus or minus a couple of million dollars a quarter, and which is always temporary, as you know, if it goes in, it comes out in a couple of quarters.

So if you exclude the working capital, I can give you a model on how to forecast over cash flows. You can start with adjusted EBITDA dollars, adjust that for income taxes. We have provided 25% non-GAAP tax rate for taxes. And then adjust that for interest income. That's approximately $2.5 million a quarter or $3 million a quarter, depending on the interest rates. And adjust that for the cap software expense, which is approximately trending at $9 million a quarter as well. So using those trends, you can expect the free cash flow and maybe you make your model of free cash flow more accurate than using a percentage of the last 4 quarters.

And overall, we expect free cash flow to be generated every quarter. And overall, for the whole last year, if we go back 12 months, we have generated $100 million plus cash in the last 4 quarters. So we feel very good. It's a cash-rich business, and it stems from the fact that operating leverage on the business is very high, and majority of the contribution profit dollars fall to the bottom line. And at the same time, I would have 1 key factor, which has held in the last few quarters. I would say at least last 2 quarters is our improvement of DSO, which has given us more cash. we are getting very high-quality billers or customers in our customer base. There are not a lot of follow-ups are needed, but the invoice and the cash comes in on time.

So that's one more advantage we are seeing of our business running not only smoothly in terms of revenues and profitability, but also getting the quality of the customers, which helps improve our balance sheet and gives us the ability to have significant cash, which opens a lot of opportunities for us to make right investments for the investors. So we feel very good about the free cash flow generation. And I think that's one of the strengths of our company today.

Our next question comes from Will Nance with the company Goldman Sachs.

Maybe just one here on the topic of agentic commerce. I know a lot of the value prop of Paymentus revolves around kind of meeting the consumer where they're at, when they're ready to make that payment and making it as easy as possible. Obviously agentic commerce has been getting a lot of attention from investors recently. I know you guys have always been close to the Braintree and PayPal that got this new partnership with OpenAI. So just wondering how you guys are thinking about just the technical hurdles of making it easier for consumers to pay their bills potentially in a more agentic way? And just where you think that -- where are you on the road map? And how long do you think that extends to sort of hit the market and the reality for consumers?

Thank you for the question, Bill. I think we have been -- AI has been a big piece of our strategy for many years, and we have been actually working towards this day in some ways. And part of the commentary in my prepared remarks was around the very same point that we find ourselves in a very fortunate situation that we believe that this day will come, and we are preparing the company for it, making a lot of investments towards that model. And I think we will play a big role in AI, and agentic world, in not only in bill payments, but overall service commerce.

And what I mean by service commerce is taking this opportunity to just explain that, if you think about retail commerce is, which is getting highly commoditized as you can see, everyone is focused on trying to get the check out and as quickly as possible so that the sale is made. The service world is very different. The work actually starts after a sale is made. Imagine a scenario where utility gets a customer, well -- or the insurance company gets a customer. The work starts after that. So getting the customer is the beginning of the relationship. But then the pursuit is to never lose that customer, continue to provide good quality service to the customer, being responsive to the customer.

Being always improving or removing all the unwieldy processes in such a way that you can actually service those customers at a high quality without incurring a lot of cost. All of those things actually come together in a way that we believe the Paymentus will play and actually is uniquely positioned to play a big and central role in creating, in some ways, the paradigm shift in the world of service commerce using bill payment platform we have already created, which is actually designed to be a service commerce platform. In the long run in coming years, you will see increasing adoption of our platform in broader workflows, and agentic service commerce will be a key part of it. So that's all I could share right now, but we'll talk more about it in subsequent quarters.

Nice results.

At this time, I'd like to pass the conference back over to Dushyant for closing remarks.

Well, thank you so much, everyone. Really appreciate your time. Have a great day. Thank you.

Thank you. Bye-bye.

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