Paymentus Holdings Inc
For the period ended Sep 30, 2024. Filed Nov 12, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Nov 12, 2024
PAY$33.47+0.3%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-06-30; filed 2024-08-09.
0000950170-24-094238
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-11-12.
0000950170-24-125544
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 91 previous paragraphs and 89 current paragraphs.
62 unchanged; 23 reworded; 4 added; 5 removed; 1 previous and 0 current paragraphs rearranged.
Tables are not compared: 8 previous and 8 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (4)
Current report
Inflationary pressures have moderated, with price increases occurring at a reduced pace, and current expectations indicate further deceleration in inflation. However, economic uncertainty persists and may continue to present challenges to our performance for the remainder of 2024 and into 2025. While inflationary conditions have stabilized, elevated costs, particularly in the utility sector, and higher interchange fees remain impactful. We are proactively adjusting pricing to mitigate these pressures; however, the timing of our adjustments typically lags the inflationary effects experienced by our clients. We will remain vigilant in monitoring the economic landscape and will implement further pricing adjustments as necessary to address ongoing market dynamics.
Current report
For the three months ended September 30, 2024, the Company’s effective tax rate was 0.03%, lower than the 11.41% in the same period of 2023. The primary driver for the lower rate in 2024 was the release of a valuation allowance on U.S. deferred tax assets, while the 2023 rate was influenced by a full valuation allowance. Additionally, in 2024, the Company recognized discrete benefits related to stock-based compensation and finalized research and development credit claims, further lowering the effective tax rate.
Current report
Comparison of the Nine Months Ended September 30, 2024 and 2023
Current report
Gross margin experienced a slight decrease, driven by changes in customer mix resulting primarily from the addition of large, high-volume enterprise billers with lower margins in our biller mix. This decline was partially offset by cost improvement initiatives and the realization of economies of scale.
Removed paragraphs (5)
Previous report
Inflationary pressures continue to be volatile, and although we have experienced a general overall improvement and more normalized inflation in comparison to the trailing annual trends, the economic uncertainty and inflationary conditions continue to remain high and could have an adverse impact on our performance during the remainder of 2024. Inflationary pressure is resulting in higher average bills, particularly in the utility sector, and increased interchange fees. Where appropriate, we seek to adjust our prices to address the inflationary pressures, however our ability to do so typically lags behind the impact of inflation on our clients. While we made several price adjustments as a result of the inflationary impacts on our business, we will continue to monitor and manage the economic environment for the remainder of 2024 by working closely with clients on implementations and further price adjustments as necessary.
Previous report
Comparison of the Six Months Ended June 30, 2024 and 2023
Previous report
Gross margin slightly increased due to lower cost of revenues for other direct costs associated with making our platform available to our billers by certain cost improvement initiatives and economies of scale, offset to some extent by a reduced margins due to the addition of large high volume enterprise billers to our customer base.
Previous report
Early Warning of Possible Valuation Allowance Reversal in Future Periods
Previous report
We recorded a valuation allowance against all of our US deferred tax assets as of June 30, 2024, and December 31, 2023. We intend to continue maintaining a full valuation allowance on our deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. However, given our current earnings and anticipated future earnings, we believe that there is a reasonable possibility that within the next 12 months, sufficient positive evidence may become available to allow us to reach a conclusion that a significant portion of the valuation allowance will no longer be needed. Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded. However, the exact timing and amount of the valuation allowance release are subject to change on the basis of the level of profitability that we are able to actually achieve.
Reworded paragraphs (23)
Previous wording
We define transactions processed as the number of revenue generating payment transactions, such as checks, credit card and debit card transactions, automated clearing house, or ACH, items and emerging payment types, which are initiated and generally processed through our platform during a period. The number of transactions also includes account-to-account and person-to-person transfers. The increase in the number of transactions processed during the three and six months ended June 30, 2024 as compared to the same periods in 2023 was primarily driven by the addition of new billers and financial institutions and increased transactions from our existing billers and financial institutions.
Current wording
We define transactions processed as the number of revenue generating payment transactions, such as checks, credit card and debit card transactions, automated clearing house, or ACH, items and emerging payment types, which are initiated and generally processed through our platform during a period. The number of transactions also includes account-to-account and person-to-person transfers. The increase in the number of transactions processed during the three and nine months ended September 30, 2024 as compared to the same periods in 2023 was primarily driven by the addition of new billers and financial institutions and increased transactions from our existing billers and financial institutions.
Previous wording
We calculate adjusted EBITDA as net income before other income (expense) (which consists of interest income (expense), net, other non-recurring income), depreciation and amortization of acquisition-related intangible assets and capitalized software development costs, and income taxes, adjusted to exclude the effects of net and foreign exchange gain (loss), stock-based compensation expense and certain nonrecurring expenses that management believes are not indicative of ongoing operations.
Current wording
We calculate adjusted EBITDA as net income before interest income, net, other income (expense), depreciation and amortization of acquisition-related intangible assets and capitalized software development costs, and income taxes, adjusted to exclude the effects of foreign exchange gains (losses), stock-based compensation expense and certain nonrecurring expenses that management believes are not indicative of ongoing operations.
Previous wording
In general, contribution profit is driven by the number of transactions we process offset by network fees associated with processing those transactions. The amount of contribution profit per transaction may vary due to a variety of factors substantially outside of our control, including client size, type and industry as well as whether the client is a biller, financial institution or other partner. Contribution profit for the three and six months ended June 30, 2024 increased approximately 28.3%, and 28.9%, respectively, as compared to the same periods in 2023. The increase was primarily driven by growth in transaction count and volume driven by the addition of new billers and financial institutions and increased transactions from our existing billers and financial institutions, together with pricing improvements from customers related to our inflation management and the implementation of certain cost improvement measures.
Current wording
In general, contribution profit is driven by the number of transactions we process offset by network fees associated with processing those transactions. The amount of contribution profit per transaction may vary due to a variety of factors substantially outside of our control, including client size, type and industry as well as whether the client is a biller, financial institution or other partner. Contribution profit for the three and nine months ended September 30, 2024 increased approximately 30.1%, and 29.3%, respectively, as compared to the same periods in 2023. The increase was primarily driven by growth in transaction count and volume driven by the addition of new billers and financial institutions and increased transactions from our existing billers and financial institutions.
Previous wording
Adjusted gross profit for the three and six months ended June 30, 2024 increased 28.1% and 29.9%, respectively, as compared to the same periods in 2023. Adjusted gross profit improved in line with contribution profit. Adjusted gross profit as a percentage of contribution profit was stable for the three months ended June 30, 2024 and as a result of economies of scale, improved for the six months ended June 30, 2024. Adjusted gross profit is driven primarily by the same factors that impact gross profit with the exception of excluding the amortization and stock-based compensation recorded in cost of revenue. The increase in amortization was driven by additional capitalization of software costs.
Current wording
Adjusted gross profit for the three and nine months ended September 30, 2024 increased 29.1% and 29.6%, respectively, as compared to the same periods in 2023. Adjusted gross profit improved in line with contribution profit. Adjusted gross profit as a percentage of contribution profit remained consistent for the three and nine months ended September 30, 2024. Adjusted gross profit is driven primarily by the same factors that impact gross profit with the exception of excluding the amortization and stock-based compensation recorded in cost of revenue. The increase in amortization was driven by additional capitalization of software costs.
Previous wording
Adjusted EBITDA is a measure of profitability and generally is expected to move in line with revenue, contribution profit, gross profit and adjusted gross profit. Adjusted EBITDA increased 58.6% and 87.2% in the three and six months ended June 30, 2024, respectively, as compared to the same periods in 2023. The increase was primarily driven by growth in transaction count and volume driven by the addition of new billers and financial institutions and increased transactions from our existing billers and financial institutions, together with pricing improvements from customers related to our inflation management and the implementation of certain cost improvement measures.
Current wording
Adjusted EBITDA is a measure of profitability and generally is expected to move in line with revenue, contribution profit, gross profit and adjusted gross profit. Adjusted EBITDA increased 58.2% and 75.4% in the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023. The increase was primarily driven by growth in transaction count and volume driven by the addition of new billers and financial institutions and increased transactions from our existing billers and financial institutions and the implementation of certain cost improvement measures.
Previous wording
The decrease in free cash flow for the three and six months ended June 30, 2024, as compared to the same periods in 2023, was primarily as a result of decreases in cash generated from operations.
Current wording
The decrease in free cash flow for the three and nine months ended September 30, 2024, as compared to the same periods in 2023, was primarily due to decreases in cash generated from operations.
Previous wording
(2) Other income (expense) includes of a remeasurement adjustment relating to the purchase price of a prior acquisition.
Current wording
(2) Other income (expense) includes a remeasurement adjustment relating to the purchase price of a prior acquisition.
Previous wording
The increase in revenue was primarily driven by an increase in the number of transactions processed, which was driven by the implementation of new billers, increased transactions from our existing billers and pricing improvements implemented throughout the year.
Current wording
The increase in revenue was primarily driven by an increase in the number of transactions processed, which was driven by the implementation of new billers, the early launch of certain large enterprise billers and increased transactions from our existing billers.
Previous wording
Gross margin decreased due to the addition of large high volume enterprise billers to our customer base.
Current wording
Gross margin decreased due to changes in customer mix resulting primarily from the addition of large high volume enterprise billers with lower margins to our customer base.
Previous wording
The increase in sales and marketing expenses was primarily due to increased employee-related costs as a result of increased hiring, including higher stock-based compensation expenses, reseller commissions including amortization of warrants and increased activity for go to market events and trade shows.
Current wording
The increase in sales and marketing expenses was primarily due to increased employee-related costs as a result of increased hiring, including higher stock-based compensation expenses, and reseller commissions including amortization of warrants.
Previous wording
The marginal increase in general and administrative expenses was primarily due to increases in employee-related costs, legal fees and professional fees, which were offset by lower cost of insurance premiums for our directors and officers and commercial and general liability insurance premiums.
Current wording
The marginal decrease in general and administrative expenses was primarily due to lower cost of insurance premiums of certain business policies and stock-based compensation expenses, which were offset by an increase in legal fees.
Previous wording
The increase in interest income, net was a result of higher cash balances held with banks for the six months ended June 30, 2024 compared to the same period in 2023, together with increases in the Federal Reserve rates.
Current wording
The increase in interest income, net was a result of higher cash balances held with banks for the three months ended September 30, 2024 compared to the same period in 2023.
Previous wording
The increase in sales and marketing expenses was primarily due to increased employee-related costs as a result of increased hiring, including higher stock-based compensation expenses, reseller commissions including amortization of warrants and increased activity for go to market events and trade shows.
Current wording
The increase in sales and marketing expenses was primarily due to increased employee-related costs as a result of increased hiring, including higher stock-based compensation expenses, and reseller commissions including amortization of warrants.
Previous wording
The marginal increase in general and administrative expenses was primarily due to professional fees, legal fees and lease expenses, which were offset by lower cost of insurance premiums for our directors and officers and commercial and general liability insurance premiums.
Current wording
The marginal increase in general and administrative expenses was primarily due to increases in professional fees, legal fees and lease expenses, which were offset by lower cost of insurance premiums of certain business policies.
Previous wording
The increase in interest income, net was a result of higher cash balances held with banks for the three months ended June 30, 2024 compared to the same period in 2023, together with increases in the Federal Reserve rates.
Current wording
The increase in interest income, net was a result of higher cash balances held with banks for the nine months ended September 30, 2024 compared to the same period in 2023, together with increases in the Federal Reserve rates.
Previous wording
The change in provision for income taxes as well as the increase in the Company's effective tax rate, which was 24.9% for the three months ended June 30, 2024 as compared to 7.0% for the same period in the prior year, was primarily due to an increase in income before income taxes as well as the results of permanent differences for disallowed stock-based compensation pursuant to IRC Section 162(m), state taxes and the impact of the full valuation allowance. In 2023, it was primarily the result of near break-even pre-tax income from operations, state taxes and the impact of the full valuation allowance and other permanent adjustments in addition to a return to provision benefit recorded in connection with a change in estimate of costs required to be capitalized under IRC Section 174.
Current wording
The change in provision for income taxes as well as the increase in the Company's effective tax rate, which was 17.6% for the nine months ended September 30, 2024 as compared to 7.2% for the same period in the prior year, was primarily due to an increase in income before income taxes as well as the results of permanent differences for disallowed stock-based compensation pursuant to IRC Section 162(m) and state taxes, offset by the release of the valuation allowance. In 2023, it was primarily the result of near break-even pre-tax income from operations, state taxes, the impact of the full valuation allowance and other permanent adjustments in addition to a return to provision benefit recorded in connection with a change in estimate of costs required to be capitalized under IRC Section 174.
Previous wording
As of June 30, 2024, we had $188.8 million of unrestricted cash and cash equivalents. We believe that existing unrestricted cash and cash equivalents will be sufficient to support our working capital and capital expenditure requirements for at least the next 12 months. Since inception, we have financed operations primarily through the sale of equity securities and revenue from payment transaction fees and subscriptions. Our principal uses of cash are funding operations and capital expenditures.
Current wording
As of September 30, 2024, we had $187.5 million of unrestricted cash and cash equivalents. We believe that existing unrestricted cash and cash equivalents will be sufficient to support our working capital and capital expenditure requirements for at least the next 12 months. Since inception, we have financed operations primarily through the sale of equity securities and revenue from payment transaction fees and subscriptions. Our principal uses of cash are funding operations and capital expenditures.
Previous wording
Our primary source of operating cash is revenue from payment transaction fees. Our primary uses of operating cash are personnel-related costs, payments to third parties to fulfill our payment transactions and payments to sales and marketing partners. Net cash provided by operating activities for the six months ended June 30, 2024 was $29.0 million. Net income was $16.6 million, adjusted for non-cash charges of $26.0 million consisting primarily of depreciation and amortization, stock-based compensation, amortization of contract assets and non-cash lease expense, which contributed positively to cash provided from operating activities. This was decreased by net cash outflows of $13.6 million used by changes in our operating assets and liabilities.
Current wording
Our primary source of operating cash is revenue from payment transaction fees. Our primary uses of operating cash are personnel-related costs, payments to third parties to fulfill our payment transactions and payments to sales and marketing partners. Net cash provided by operating activities for the nine months ended September 30, 2024 was $35.7 million. Net income was $31.0 million, adjusted for non-cash charges of $38.0 million consisting primarily of depreciation and amortization, stock-based compensation, amortization of contract assets and non-cash lease expense, which contributed positively to cash provided from operating activities. This was decreased by net cash outflows of $33.3 million for changes in our operating assets and liabilities.
Previous wording
Net cash provided by operating activities for the six months ended June 30, 2023 was $31.2 million. Net income was $6.5 million, adjusted for non-cash charges of $21.3 million consisting primarily of depreciation and amortization, stock-based compensation, amortization of contract assets and non-cash lease expense, which contributed positively to cash provided from operating activities. This was increased by net cash inflows of $3.4 million provided by changes in our operating assets and liabilities.
Current wording
Net cash provided by operating activities for the nine months ended September 30, 2023 was $44.4 million. Net income was $12.9 million, adjusted for non-cash charges of $32.9 million consisting primarily of depreciation and amortization, stock-based compensation, amortization of contract assets and non-cash lease expense, which contributed positively to cash provided from operating activities. This was decreased by net cash outflows of $1.4 million for changes in our operating assets and liabilities.
Previous wording
Net cash used in investing activities for the six months ended June 30, 2024 consisted of $18.4 million of capitalized software development costs and $0.3 million of purchases of property and equipment, which was offset by $0.1 million of net change in interest-bearing deposits.
Current wording
Net cash used in investing activities for the nine months ended September 30, 2024 consisted of $27.2 million of capitalized software development costs and $0.4 million of purchases of property and equipment.
Previous wording
Net cash used in investing activities for the six months ended June 30, 2023 consisted of $16.6 million of capitalized internal-use software development costs and $0.4 million of purchases of property and equipment.
Current wording
Net cash used in investing activities for the nine months ended September 30, 2023 consisted of $25.3 million of capitalized internal-use software development costs and $0.5 million of purchases of property and equipment.
Previous wording
Net cash used in financing activities for the six months ended June 30, 2024 consisted of $0.5 million of settlement of holdback liability relating to a prior acquisition, which was offset by $0.1 million of proceeds from exercise of stock-based awards by employees.
Current wording
Net cash used in financing activities for the nine months ended September 30, 2024 consisted of $0.6 million of settlement of holdback liability relating to a prior acquisition, which was offset by $0.2 million of proceeds from exercise of stock-based awards by employees.
Previous wording
Net cash used in financing activities for the six months ended June 30, 2023 consisted of $1.7 million of payments on other financing obligations and $0.1 million of payments on finance leases.
Current wording
Net cash used in financing activities for the nine months ended September 30, 2023 consisted of $1.7 million of payments on other financing obligations, $0.1 million of payments on finance leases and $0.4 million of proceeds from exercise of stock-based awards by employees.
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
The change in provision for income taxes as well as the increase in the Company's effective tax rate, which was 28.6% for the six months ended June 30, 2024 as compared to 2.7% for the same period in the prior year, was primarily due to an increase in income before income taxes as well as the results of permanent differences for disallowed stock-based compensation pursuant to IRC Section 162(m), state taxes and the impact of the full valuation allowance. In 2023, it was primarily the result of near break-even pre-tax income from operations, state taxes and the impact of the full valuation allowance and other permanent adjustments in addition to a return to provision benefit recorded in connection with a change in estimate of costs required to be capitalized under IRC Section 174.