Paymentus at Raymond James conference

Investment Analysis Clubs Saul’s Investing Discussions
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Paymentus (PAY) was at the Raymond James conference on December 9, and there was some interesting highlights for investors. CEO Dushyant Sharma and CFO Sanjay Kalra talked with the analyst.

My biggest take away was that they are looking to grow adjusted EBITDA ahead of revenue, and revenue is currently growing at 52%. The company has made a point to build profitability into their business model as they scale.

Some notes from the conference include,

  • huge TAM ahead of us
  • same store sales are very good, new bookings, large billers in diverse verticals
  • focus is on adj EBITDA, that’s what pays the bills
  • software and sophisticated platform is getting recognized at all levels in the industry
  • large billing companies originally wanted to keep billing in house, but platform moat got created by Paymentus, can demo how easily they can accommodate sophisticated workflows
  • platform evolves with the business, not a one trick pony
  • market moved in our direction
  • strategy: create a best in class platform combined with a proprietary network ecosystem
  • no client can replicate what Paymentus has built
  • legacy provides and install base all need to be replaced with a more modern platform like Paymentus
  • looks like a green field to us
  • 10 years ago competitors were large, have grown 30-40x in that time, all coming from legacy providers and legacy install base
  • a lot of payments still outside of non-digital form, huge opportunity here for Paymentus to make these payments easier
  • taking ecosystem to where the customers are, examples 1) customers paying at bank 2) fintech apps 3) walking into retailer store
  • may not even be going to the billing company’s website if setup on the end collection part
  • both sides of originators and banks/fintechs are excited about what we have built over the years
  • analyst notes “Q4 calls for a pretty material deceleration in revenue off of a fantastic Q3”, CFO answers wouldn’t call a decel, pretty diciplined
  • CFO continues, look at our implementation pace, diversity of verticals, size of customers, transactions getting into, all of these are going really well
  • long term CAGR model, 20% top line, 20-30% adj EBITDA growth (this is where they plan to grow profitability faster than the bottom line as they scale up)
  • some seasonal business in certain verticals, general trends are very good
  • analyst notes higher EBITDA growth goes to higher margins
  • building a durable compounded growth engine, investors need to see return
  • demonstrating operating leverage, expanding margin, economies of scales, have to balance out the growth
  • market is huge, great pipeline, could see a big opportunity to make investments for converting that pipeline into bookings, in short term may look like spending more
  • 20% growth model is sustainable because of same store sales which keep getting better and better
  • new customers are onboarding large clients
  • 2nd vector new onboarding going to implementation, then that company does acquisitions and brings on the new acquired company to the platform
  • 3rd vector is mix of customers, pricing mechanisms in place to adjust pricing properly
  • “don’t box us in” is advice to investors from CFO
  • have demonstrated lots of verticals for the business to go into
  • innovative DNA of company, leads to 1) top line growth 2) expanding margins
  • newer verticals and most excited about: government services, insurance, telecom property management, consumer finance, auto, mortgage, healthcare and education
  • doing well in banks and credit unions
  • Paymentus contracts have ability to change the pricing
  • central part of business is “revenue collection strategy”
  • analyst notes Q3, “you had several large billers go live early”, “that’s something we generally don’t hear” and adds companies usually talk about why delays on products
  • quicker onboarding times for clients
  • learned during covid when boardrooms closed how to optimize the platform sales, retooled processing and toolkit
  • making operations more cash efficient and cost effective
  • on acquisitions, only looking to do if additive to the business on EBITDA
  • minority of end payments are still not automated, customers want control
  • credit card fees, can go fees on either side of transaction, clients can also be paying a flat fee so lots of ways to setup contract
  • can more than double business on top line and still not capture existing customer’s full payment volume
  • “we will not be boxed in”
  • onboarding of large customers have higher ASPs, but number of transactions are not equal

I like this leadership team quite a lot for Paymentus as they are investor friendly and it seems like every decision they make is through the lens of if it will benefit investors. The valuation of this company seems quite attractive at a 4B market cap, 232M of quarterly revenue and GAAP profitable already.

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This looks like a good company to look at as an option but was wondering why the accounts receivables increased from 13 M to 34 M in the last quarter and I could not find any explain on that jump and one of the reseller accounts for over 10% of this thought not clear what %age is owed byu this 1 reseller.

Rajesh

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I am unsure on where your getting this data? But directly from Paymentus quarterly reports had the accounts receivable for Q3 was 111M and Q2 they had 90M (I removed their Income tax receivable). For Q2 45% of their revenue was in accounts receivable and in Q3 it was 48%. Overall its a similar % and the increase could be accounted to when the revenue was earned in the quarter or various other factor.

Drew

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Check the 10 Q from June /Sept 2024 quarters in thge SEC filings -
Accounts and other receivables, from 90,057 to 111,174 . Plus the Concentration of Credit Risk section in the 10Q.
thanks

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I just netted the quarterly receivable jump hence the 21m jump as quoted.

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After looking into it more I have questions on why their accounts receivable is so high. Why does their current accounts receivable have about 6 weeks of revenue in it. If they don’t earn the money until a customer pays and normally pays directly to Paymentus, where is the money at?

Drew

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The risks section on the accounts receivables in the 10-Q looks like standard boilerplate language to me. It says,

Concentration of Credit Risk

Financial instruments that potentially subject the Company to credit risk primarily consist of cash, cash equivalents and accounts receivable. The Company maintains its cash and cash equivalents with high-quality financial institutions with investment-grade ratings. For accounts receivable, the Company is exposed to credit risk in the event of nonpayment by customers and resellers to the extent of the amounts recorded in the consolidated balance sheets. No customer accounted for more than 10% of revenue for either of the three or nine months ended September 30, 2024 and 2023. As of December 31, 2023 and September 30, 2024 one reseller accounted for more than 10% of accounts receivable.

I am guessing the accounts receivables is high because they had a lot of customers sign up recently, they issue invoices and then await payment.

This seems like standard practice for a SaaS company. Was looking up Datadog’s last 10Q, they also have 487M of accounts receivable this past quarter, and 509M in the prior period. Crowdstrike has 814M of accounts receivable this quarter, and the comparable period last year is 853M.

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I guess I don’t understand Paymentus model. Datadog and Crowdstrike would provide a service and then bill for it, which would allow for large accounts receivable. I thought Paymentus processed a payment and took a fee when they processed it, which would not lead to such a large accounts receivable.

Drew

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