Paymentus Holdings, Inc. (PAY) Q2 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call summary reflects strong financial performance with record revenue growth and EBITDA margins. The Q&A section addresses concerns about growth expectations and bad debt but maintains a positive tone, emphasizing strong operating leverage and potential in AI. The company's adherence to its CAGR model and prudent guidance, alongside increased cash reserves, support a positive outlook. Despite some uncertainties, the overall sentiment is optimistic, indicating a likely stock price increase in the 2% to 8% range over the next two weeks.

Key Financial Performance

Revenue $280.1 million, an increase of 41.9% year-over-year, largely driven by increased number of billers and higher transactions.

Contribution Profit $93.5 million, up 22.3% year-over-year, driven by the launch of new billers, the mix of billers launched, and the increase in transactions from existing billers.

Adjusted EBITDA $31.7 million, a 40.7% year-over-year increase, representing a 33.9% adjusted EBITDA margin. This reflects strong execution and focus on profitability.

Number of Transactions Processed 175.8 million, up 25.2% year-over-year, driven by increased activity across all aspects of the business.

Average Price Per Transaction Increased from $1.41 to $1.59 year-over-year, mainly due to the biller mix, particularly large enterprise billers with higher average payment amounts.

Contribution Margin 33.4% for the second quarter compared to 38.7% in the prior year period, reflecting the addition of larger, higher-volume enterprise billers.

Non-GAAP Net Income $19.3 million or $0.15 per share, compared to $13.4 million or $0.10 per share in the prior year period, an increase of 50%.

Adjusted Gross Profit $77.9 million, up 21.7% year-over-year.

Non-GAAP Operating Expenses $49 million, an 11.3% increase year-over-year, primarily due to higher research and development as well as planned sales and marketing expenses.

Free Cash Flow $22.5 million, primarily driven by strong adjusted EBITDA in the quarter.

Cash and Cash Equivalents $270 million at the end of the second quarter, compared to $249.6 million at the end of the first quarter, a $20.4 million sequential increase.

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Operating Highlights

Agentic AI Integration: Paymentus is leveraging agentic AI to enhance its platform capabilities, including secure data handling, complex workflow management, and actionable insights. The company is positioned to disrupt the market with its pay-per-use business model.

Large Enterprise Segment Growth: Strong bookings and backlog growth in the large enterprise segment across multiple verticals, including utilities, government agencies, telecommunications, and financial services.

Partnership Ecosystem Expansion: Added new channel partners in financial services and telecommunications, complementing the direct go-to-market strategy.

Revenue Growth: Achieved $280.1 million in Q2 2025 revenue, a 41.9% year-over-year increase, driven by higher transactions and new billers.

Profitability: Adjusted EBITDA reached $31.7 million, a 40.7% year-over-year increase, with a 33.9% margin.

Operational Efficiency: Improved onboarding processes and client engagement, leading to faster integration of new clients.

Focus on Organic Growth: The company aims to achieve multibillion-dollar revenue primarily through organic growth, without significant M&A activity.

Market Disruption: Positioned to replace legacy infrastructure in enterprises, enabling broader service offerings and market penetration.

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Risk or Challenges

Market Conditions: The company faces potential risks from economic uncertainties and market conditions that could impact customer activity and demand.

Competitive Pressures: The increasing momentum from large enterprise customers and the need to offer volume discounts to attract these customers could pressure margins.

Regulatory Hurdles: No explicit mention of regulatory challenges, but the company operates in a highly regulated financial services sector, which inherently carries compliance risks.

Supply Chain Disruptions: No explicit mention of supply chain issues in the transcript.

Strategic Execution Risks: The company is heavily reliant on onboarding large enterprise customers and expanding its service offerings, which could pose execution challenges.

Economic Uncertainties: The company acknowledges the need to adapt to ever-changing market conditions, which could impact its financial performance.

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Guidance & Outlook

Revenue Expectations: For Q3 2025, revenue is expected to range from $278 million to $282 million, representing 20.9% year-over-year growth at the midpoint. For the full year 2025, revenue is projected to be between $1.123 billion and $1.132 billion, reflecting a 29.3% annual growth at the midpoint.

Contribution Profit: For Q3 2025, contribution profit is expected to range from $92 million to $94 million, representing 16.3% year-over-year growth at the midpoint. For the full year 2025, contribution profit is projected to range from $369 million to $373 million, reflecting an 18.9% annual growth at the midpoint.

Adjusted EBITDA: For Q3 2025, adjusted EBITDA is expected to range from $30 million to $32 million, representing 26% year-over-year growth at the midpoint. For the full year 2025, adjusted EBITDA is projected to range from $123 million to $127 million, reflecting a 32.7% annual growth at the midpoint.

Market Trends and Growth Expectations: The company anticipates becoming a multibillion-dollar revenue company in the coming years, driven primarily by organic growth. This is supported by strong bookings, backlog, and customer trends, as well as the increasing adoption of agentic AI and the company's pay-per-use business model.

Large Enterprise Segment: The company has seen increasing momentum from large enterprise customers, with strong bookings and backlog growth in this segment. This trend is expected to continue, providing greater visibility into 2026.

Operational Efficiency: The company plans to recalibrate operating expenses relative to contribution profit to maintain desired adjusted EBITDA levels. Onboarding time per biller is declining, while average customer size is increasing, enhancing efficiency.

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Shareholder Return Plan

The selected topic was not discussed during the call.

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Key Q&A

Q:Why is Q3 expected to have flattish sequential growth despite historical trends of faster growth?

A:Management explained that the seasonality is shifting as the company captures more market share and grows its business. Additionally, the large enterprise billers launched in Q3 last year were not launched at the beginning of the quarter, which impacts the comparison. Same-store sales also offset some growth. Management emphasized their prudent guidance methodology and expressed confidence in Q3, Q4, and the full year.

Q:Why has bad debt expense increased in recent quarters?

A:Management stated that the bad debt expense, around $1.5 million, is insignificant compared to the overall business and revenues. They attributed it to old amounts being written off prudently and emphasized that it is not a significant issue.

Q:What is driving optimism and success in bookings and backlog, particularly in verticals beyond utilities?

A:Management highlighted the strength of their platform and ecosystem, which provides flexibility, control, and functionality to clients. They emphasized their ability to handle complex workflows and onboard large enterprises efficiently. Success in utilities has paved the way for growth in other verticals like government agencies and insurance companies. They plan to continue expanding across multiple verticals.

Q:Can the company sustain its operating leverage while growing its business and adding new customers?

A:Management stated that the operating leverage is strong, as evidenced by incremental EBITDA margins and contribution profit growth. They are cautious with spending but willing to invest in converting pipeline opportunities into bookings. They expect incremental EBITDA margins to improve year-over-year and emphasized their focus on profitable growth.

Q:Does management have increased confidence in achieving mid-20s revenue growth versus the previously stated 20% CAGR?

A:Management reiterated their commitment to the 20% CAGR model for top-line growth and 20%-30% adjusted EBITDA dollar growth. While they expressed excitement about the company's potential to become a multibillion-dollar business, they emphasized discipline in adhering to their CAGR model.

Q:What are the expectations for free cash flow in the second half of the year?

A:Management provided a model for forecasting free cash flow, factoring in adjusted EBITDA margin, tax outflows (approximately 25%), capital software cash outflow (around $9 million), and interest income (approximately $2.2 million). They noted that working capital needs are difficult to forecast but emphasized the business's strong cash generation.

Q:What is the company's approach to AI and its potential impact on the business?

A:Management believes they are well-prepared to capitalize on AI opportunities due to their platform's ability to handle complex workflows and data at scale. They see AI as both a productivity tool and a potential revenue center, helping clients improve customer experience, reduce costs, and streamline processes. They view AI as a multidimensional play with long-term potential.

Q:What are the company's hiring plans, particularly across sales and implementation teams?

A:Management is focusing on converting pipeline opportunities into bookings, with a priority on sales force expansion. They are also investing in technical strengths in engineering and implementation. Hiring plans are flexible and calibrated based on business needs and opportunities.

Q:Why is there a step down in incremental EBITDA margins in the second half of the year compared to the first half?

A:Management attributed this to their prudent guidance methodology, which accounts for both opportunities and risks. They emphasized that incremental EBITDA margins remain positive and that the company is focused on delivering strong returns and maintaining its Rule of 40 status.

Q:Are the current incremental EBITDA margins sustainable over the long term?

A:Management believes the company's strong operating leverage will lead to improved EBITDA margins over time. They do not view the current margins as the peak and expect them to get better in the long term.

Q:Review of Unclear Management Responses

A:Management avoided providing specific details on the disaggregation of hiring plans across sales and implementation teams, stating that decisions are flexible and based on business needs. Additionally, while they expressed excitement about AI's potential, they did not provide concrete examples or timelines for its implementation.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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The earnings call highlights strong financial performance, with revenue and adjusted gross profit growth, despite a slight dip in contribution margin. The Q&A reveals high visibility and strong market positioning, especially in the B2B segment. The company's cash position and operational efficiency are robust, and the market's response to their platform is positive. While management avoided specific guidance for 2026, the overall sentiment is optimistic, driven by new customer acquisitions and strategic positioning in agentic commerce. Given the market cap, this suggests a positive stock price movement.

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PAY Slides

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Paymentus Q2 2025 slides: 42% revenue growth propels billion-dollar run rate

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PAY Report

Paymentus Holdings, Inc. 10-Q

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2024-05-07

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