Paymentus Holdings' Q3 2025: Clashing Visions on 2025 Growth Outlook, Macroeconomic Impact, Free Cash Flow, and Partnership-Driven Growth

Date of Call: None provided

Financials Results

• Revenue: $310.7M, up 34.2% YOY
• EPS: $0.17 per diluted share (non-GAAP), compared to $0.12 in the prior year period
• Gross Margin: Contribution margin 31.6%, compared to 34.5% in the prior year
• Operating Margin: Adjusted EBITDA margin 36.5%, compared to 30.7% in the prior year

Guidance:

• Q4 2025: Revenue $307M–$312M; Contribution profit $99M–$101M; Adjusted EBITDA $34M–$36M (approx. 35% margin).
• Full-year 2025: Revenue $1.173B–$1.178B; Contribution profit $378M–$380M; Adjusted EBITDA $132M–$134M (≈35.1% margin at midpoint).
• Company raised prior guidance and cites continued backlog, onboarding progress, and operating leverage supporting outlook.

Business Commentary:

* Revenue and Profitability Growth: - Paymentus reported revenue of $310.7 million for Q3, up 34.2% year-over-year. - The growth was driven by an increased number of billers, higher transaction values, and the successful launch of new billers.

• Adjusted EBITDA and Margin Expansion:
• Adjusted EBITDA was $35.9 million, up 45.9% year-over-year, representing a record 36.5% margin.

• This was primarily due to strong operating leverage and improved contribution profit per transaction.

• Large Enterprise and Vertical Expansion:

• Paymentus saw significant growth in the large enterprise and mid-market segments, contributing to higher contribution profit per transaction.

• The company's ability to enter new verticals and support complex B2B workflows is attractive to clients and supports revenue growth.

• Free Cash Flow and Cash Management:

• Paymentus generated free cash flow conversion of over 140% over the last four quarters.
• This strength is driven by high incremental adjusted EBITDA margin, efficient working capital management, and strong cash inflows.

Sentiment Analysis:

Overall Tone: Positive

• Management: "delivered another strong quarter with the results exceeding our expectations"; revenue $310.7M (+34.2% YOY); "record 36.5% adjusted EBITDA margin" and adjusted EBITDA +45.9% YOY; raised full-year guidance and cited strong bookings/backlog supporting 2025 outlook.

Q&A:

• Question from John Davis (Raymond James): Context on onboarding the new B2B customer in a new vertical, pipeline for more B2B opportunities, and broader comments on the B2B opportunity for Paymentus?
  Response: Paymentus' horizontal, configurable platform lets it enter B2B verticals rapidly; the newly onboarded B2B client is using more services than expected, management sees a sizable pipeline and plans to target the vertical methodically.

• Question from John Davis (Raymond James): What is driving contribution profit per transaction up ~3.8% YOY despite moving up-market?
  Response: Improved pricing realization from the platform and higher-margin new implementations drove higher contribution profit per transaction, though interchange and card mix can cause quarter-to-quarter variability.

• Question from Tin Finn Wang (JP Morgan): How does current visibility into next year compare to the same time last year; is visibility better and how should investors model 2026?
  Response: Visibility remains very high with a strong backlog and pipeline; management suggests modeling next year using similar midpoint/high-end growth rates as the initial 2025 guidance.

• Question from Tin Finn Wang (JP Morgan): Any change in the type of incumbents being replaced in enterprise deals (who are you replacing)?
  Response: Paymentus is winning clients previously using in-house and legacy providers by offering platform control, bespoke workflows, scale, and a partner-oriented approach, allowing them to modernize mixed incumbent environments.

• Question from Craig Mauer (FT Partners): Can you size the four factors driving revenue growth and will these continue into Q4 and early next year?
  Response: Management won't provide a quantitative split but ranks drivers by priority: 1) new biller launches (largest), 2) same-store sales, 3) early large enterprise launches, 4) IPN activity — and expects all four to continue.

• Question from John Davis (Raymond James): Trailing-four-quarter free cash flow conversion >140% — sustainability and drivers?
  Response: High free cash flow is driven by strong operating leverage and improved DSO; to model FCF use adjusted EBITDA less ~25% tax, add interest income (~$2.5–3M/qtr) and subtract capitalized software (~$9M/qtr).

• Question from Will Mintz (Goldman Sachs): How is Paymentus thinking about agentic commerce/AI, technical hurdles, roadmap, and timing to market?
  Response: Paymentus has been investing in AI and views itself as well positioned to play a central role in agentic service commerce over coming years; work is underway but specific market timing was not provided.

Contradiction Point 1

Visibility into Next Year's Growth

It involves the company's expectations for future growth, which are crucial for investor projections and strategic planning.

How does your visibility into next year compare to last year, especially regarding enterprise clients? - Tin Finn Wang (JP Morgan)

2025Q3: Visibility is high, similar to last year. We have a substantial backlog and pipeline. Past implementations show growing clients, improving same-store sales. Enterprise clients are showing interest in modernizing their solutions and moving to our platform. We expect similar growth rates for next year. - Dushyant Sharma(CEO)

Can you explain why Q3 is deviating from the historical seasonality and Q2 growth trend? - David John Koning (Robert W. Baird & Co. Incorporated)

2025Q2: Our visibility on the business remains high. We expect to grow double digits in the second half of the year. For the full-year, we have a high degree of confidence that the full-year adj. EBITDA guidance is achievable. - Sanjay Kalra(CFO)

Contradiction Point 2

Impact of Macroeconomic Uncertainty

It relates to the company's resilience and adaptability during economic uncertainties, which can impact its financial performance and strategic decision-making.

Did these macroeconomic issues play a role in these trends? - Will Mintz (Goldman Sachs)

2025Q1: We are just emerging from the early stages of this transition, and it is quite early to predict the exact pace of this adoption. But I think we're very pleased with the progress we've made in Q1 and we will be -- expect to be getting better visibility as we go to the back half of the year. - Dushyant Sharma(CEO)

Have you observed changes in payment behavior due to macroeconomic conditions? - Matt O'Neill (FT Partners)

2025Q3: We observe encouraging trends across our platform. Payment behaviors remain consistent, and we continue to see strong adoption of our services. - Dushyant Sharma(CEO)

Contradiction Point 3

Free Cash Flow Conversion

It involves the company's financial performance and its ability to generate cash from operations, which is a critical aspect of financial health and investor confidence.

How sustainable is the high free cash flow conversion over the past year? - John Davis (Raymond James)

2025Q1: We observe encouraging trends across our platform. Payment behaviors remain consistent, and we continue to see strong adoption of our services. - Dushyant Sharma(CEO)

What's driving the strong free cash flow conversion relative to adjusted income or EBITDA? - John Davis (Raymond James)

2025Q3: Our cash flow strength is due to our high incremental adjusted EBITDA margin. Forecasting cash flow can be done by excluding working capital, adjusting for taxes, interest income, and capitalized software expenses. We expect continued cash flow generation. - Sanjay Kalra(CFO)

Contradiction Point 4

Visibility and Growth Expectations for Next Year

It involves differing statements on the visibility into next year and expectations for growth rates, which are crucial for investor expectations and strategic planning.

How does your visibility for next year compare to last year, particularly for enterprise clients? - Tin Finn Wang (JP Morgan)

2025Q1: Our cash flow conversion fluctuates quarter to quarter. The strong cash flow is due to efficient working capital management and stable adjusted EBITDA. We expect consistent cash generation throughout the year. - Sanjay Kalra(CFO)

Can you discuss the growth in bill payment volumes and how your platform affects customer engagement? - Tien-Tsin Huang (JPMorgan)

2025Q3: Visibility is high, similar to last year. We expect similar growth rates for next year. - Dushyant Sharma(CEO)

Contradiction Point 5

Impact of New Partnerships on Growth

It highlights differing perspectives on the impact of new partnerships on the company's growth, which is a critical factor for investors to consider.

What is the impact of the four key factors on revenue growth, and will they continue into Q4? - Craig Mauer (FT Partners)

2024Q4: The increase in contribution profit per transaction is due to the value of our platform resonating with clients, especially in verticals like utilities. New implementations in Q3 had higher contribution profit. - Sanjay Kalra(CFO)

What are your growth drivers and how are new partnerships impacting your business? - Dave Koning (Baird)

2025Q3: Four growth factors were successful new biller launches, same-store sales, early enterprise launches, and IPN network performance. These factors have been consistent in driving growth. - Sanjay Kalra(CFO)