Paymentus Holdings, Inc. (PAY) Q1 2022 Earnings Call Transcript

Paymentus Holdings, Inc. (PAY 4.24%)
Q1 2022 Earnings Call
May 04, 2022, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and welcome to Paymentus first quarter 2022 earnings call. This call is being recorded. [Operator instructions]. At this time, I would like to hand the call over to Paul Seamon, VP of finance and strategy for some introductory comments.

Please go ahead.

Paul Seamon -- Vice President of Finance and Strategy

Thank you. Good afternoon, and welcome to Paymentus first quarter 2020 earnings call. Joining me on the call today are Dushyant Sharma, our founder and CEO; and Matt Parson, our CFO. Following our prepared remarks, we'll take questions.

Our press release was issued after closing markets today and was posted on our website where the call is being simultaneously webcast. The webcast replay of the call and the supplemental slides accompanying this presentation will be available on our company's website under the investor relations link at ir.paymentus.com. Statements made on this call include forward- looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements use words such as will, believe, expect, anticipate, and similar phrases, but to no future expectation or intent regarding our financial results and guidance.

Market opportunity, business strategies impact from acquisitions and other matters. These forward-looking statements speak only as of today and we undertake no obligation to update them. The statements are subject to risks, uncertainties, and assumptions that may cause actual results to differ materially from those set forth in such statements, including the risks and uncertainties set forth under the caption special note regarding forward-looking statements. And risk factors in our annual report on Form 10-K for the year ended December 31st, 2021, which we filed with the SEC on March 3, 2022.

Our quarterly report on Form 10-Q for the quarter ended March 31, 2022, which we expect to file with the SEC in early May 2022 and elsewhere with our other filings with the SEC. I encourage you to review the detailed safe harbor and risk factor disclosures. In addition, during today's call, we will discuss certain non-GAAP financial measures, specifically contribution profit, adjusted gross profit, adjusted EBITDA, and adjusted EBITDA margin are non-GAAP financial measures. These non-GAAP financial measures, which we believe are useful in measuring our performance and liquidity, should be considered in addition to not as a substitute for or in isolation from results.

We encourage you to review additional disclosures regarding these non-GAAP measures, including reconciliations with the most directly comparable GAAP measures in our earnings press release issued today and the supplemental slides for this webcast, each available on the investor relations page of our website in our filings with the SEC. If I have, I'd like to turn the call over to Dushyant Sharma, our founder and CEO.

Dushyant Sharma -- Founder and Chief Executive Officer

Thanks, Paul. We started 2022 with a very strong quarter across all KPIs, and saw little to no impact from the geopolitical and economic events that occurred, including the events in Ukraine and inflation. We believe we have a clear view of the business and are optimistic about the outlook for the remainder of 2022, as well as the foundation excerpt for 2023. We believe one great aspect of our business is that it is extremely resilient because consumers and businesses have to pay their bills, essential bills, regardless of world events or whether the economy enters recession or not.

On a personal note, this is our fourth quarterly update since the IPO as we approach our first anniversary. I'm having a lot of fun building the business, so is my team. I know based on where the markets have been, what one would think that we could be distracted, but we are not. We are laser focused on executing our business strategies as we seek to build a long term, successful, and high growth business.

We all understand and remain focused on the effect of long term compounding growth as a new public company and where I sit today. Despite our scale, I view us as a start-up public company and believe we are just getting started. I welcome each and every one of you on our journey and to share in our long term success. Let me now discuss our financial performance, which demonstrates that we are executing and performing well.

In the first quarter, contribution profit grew 35%, driven by a 40.9% increase in transactions. From the sales and booking perspective, we signed over 60 clients in the quarter, which is about 50% more than the same period last year. These sales numbers are inclusive of direct partner and J.P. Morgan migrations, which require some sales support to complete.

Relative to the comparable quarter of 2021. Our sales were more diverse, with less than 40% from the utilities vertical. The largest areas of increase were city services, insurance, and mortgage payments. But we also seen clients as unique as a leading home design company.

We cost an annual run rate of $100 billion in payments volume during the quarter. We believe very few companies in the US are processing at this a scale which is nearly a quarter billion dollars per day on an average. As you said before, the scale creates opportunities to strengthen our network and process our relationships because of the unique value we bring in under-penetrated segments for digital payments. We continue to work to establish additional relationships in our newer segments.

In past quarters, we have talked about the expansion of our telecom partnerships. This quarter, we assigned the healthcare division of one of the top five U.S. banks to expand our footprint in the industry. We expect the partnership to provide us with expanded access to practice management systems.

Adding partners in areas such as healthcare, telecom, and other under-penetrated verticals help our sales efforts and complement our direct selling process. Illustrative of our ability to increase our share of the total addressable market. In the quarter, we went live with one of the largest owners of apartments in the country. Real estate is outside of the core six verticals that we talk about but represents a significant opportunity on their own.

As you can imagine, the rent payments fall in our sweet spot are both non-discretionary and reoccurring. We believe this implementation shows the flexibility and the breadth of our platform, which powers industries as diverse as real estate, B2B logistics, and home security providers. Not to mention our existing core verticals. We are making progress migrating the J.P.

Morgan Chase client base. We completed our first implementations in the quarter, and many more are in flight and scheduled to go live throughout the year. While this added revenue isn't material yet, we expect it to build over time. In addition, the new deal sales channel from J.P.

Morgan Chase continues to build and the relationship continues to be more and more beneficial for both parties. A quick note on our IPN ecosystem. We continue to expand the network and add more and more endpoints, including the BFI. As a reminder, IPN is symbiotic with dealer direct.

IPN helps us win more direct deals and better direct wins, help us add more IPN partners and volume. I'll now turn the call over to Matt to discuss our financial results in more detail.

Matt Parson -- Chief Financial Officer

Thanks, Dushyant. As a reminder, today's discussion includes non-GAAP financial measures. Please refer to the tables in our press release and supplemental slides for a reconciliation of non-GAAP items to the most directly comparable GAAP financial measure. In the first quarter, we processed 87.9 million transactions, which equates to a year-over-year increase of 40.9%.

Transaction volume continues to be driven by strong execution, as well as additional IP and transactions in particular to pay various bank transactions as well as business to business transactions. This transaction growth drove a revenue increase of 26.5% over Q1 of 2021, which resulted in revenue of $116.7 million in the quarter. Q1 contribution profit was $47.4 million, representing a 35% increase over the same period last year. Consistent with the last several quarters, contribution profit grew faster than revenue, primarily due to an increased mix of transactions without interchange, specifically IPN transactions, cash-based payout transactions, and certain B2B transactions.

Contribution profit per transaction was in line with Q4 of 2021 at $0.54, which was consistent with our expectations and previous communications. Contribution profit for the quarter was ahead of expectations due to certain customers going live earlier in the quarter than was anticipated, as well as some favorable mix of payment type. While these items provided a tailwind in Q1, we do not anticipate that tailwind to carry forward in the subsequent quarters. Adjusted EBITDA was $5.4 million for the first quarter, which represents an 11.3% adjusted EBITDA margin.

This was slightly above our internal expectations for the quarter. We only provide guidance for the full year, but we never expected the adjusted EBITDA to be spread evenly throughout the year as we ramped up hiring to end 2021 and had additional fees for completing the 2021 audit. We expected Q1 adjusted EBITDA to be the low point for the year, for these and other reasons, and we are on track to slightly ahead of what we expected. Operating expenses rose $13.5 million dollars to $36.2 million for Q1 of 2022 from the same period last year.

Overall, the increase in operating expenses from last year was driven by investments in staff, as well as additional operating expenses associated with [Inaudible], the amortization of identified intangible assets from the acquisitions, and stock based compensation. Specifically, R&D expense increased $2.7 million or 34.4% from the first quarter and 2021, as we continue to innovate with and for our customers and partners. Sales and marketing expense increased $8 million, driven by [Inaudible] acquisition, continued expansion of the sales team, adding partnerships to capture our sizable market opportunity, and an increase in stock based compensation. Although travel and marketing events continue to ramp up relative to Q1 2021, particularly with the impacts of COVID fading.

We experienced an increase in G&A expense of 43% -- 43.1% or $2.9 million due to our acquisitions. Multifold increases in the cost of corporate insurance, and ongoing investment in public company infrastructure. Our GAAP net income was $1.7 million and EPS for Q1 was $0.01, non-GAAP net income was $3.7 million, and non-GAAP EPS was $0.03 for the quarter. We had a large tax benefit in Q1 driven by our small loss on pre-tax income, as well as a discrete benefit of $2.6 million that we recorded related to excess tax benefits on stock based compensation.

As of March 31, 2022, we had $163.4 million of cash and cash equivalents on our balance sheet. Cash decreased primarily due to the timing of certain customer payments, as well as increased operating expenses due to the acquisitions. At quarter end, we had approximately 121 million shares of common stock outstanding. Now turning to our 2022 full year outlook.

We're increasing our 2022 revenue outlook to a range of $492 million to $497 million, which represents growth between 24.5% and 26% year over year. We are increasing our contribution profit guidance to be between two and $6 million and $208 million for the year, which is approximately 30, 31% growth. Our adjusted EBITDA is in the range of 30 to $33 million, with an adjusted EBITDA margin of 14.5% to 16%. As we've indicated previously, we do not believe the current inflationary environment will have a negative impact on our top line.

Our current guidance reflects some assumptions around continued inflation and potential for increasing wage pressure. However, if inflation continues at higher levels than we have assumed, it could have a higher impact on our margins going forward. As you can see from the updated guidance, the high end of our contribution profit guidance implies growth in the same range as 2021. We believe this level will give us a top decile performance for technology companies based on all of 50 for the past couple of years.

We are not slowing down and remain excited about how the business is performing. Finally, as we said last quarter, we anticipate our full year effective tax rate to be around 30%. However, due to the amortization of intangibles associated with the acquisitions, the closer we are the break even on pre-tax booking.com, the more variation we could see on our tax rate. I'll now turn the call back over to you, Dushyant, for some closing comments.

Dushyant Sharma -- Founder and Chief Executive Officer

Thanks, Matt. To close, I would like to provide a brief reminder of what we believe makes us different, and position us to win a significant share of the massive movement [Inaudible]. Our platform was designed to be flexible and meet the billing and payment needs of virtually any industry. This creates a massive addressable market that's both reoccurring and non-discretionary in the U.S.

and beyond. IT estimates this at nearly 16 billion bill payments transactions annually in the U.S. alone. And we believe we have the ability to address a sizable portion of them.

With our acquisition of Payveris, we also opened up access to bank based payments, and we believe IPN extend our reach to virtually any channel a consumer wants to pay through. Our platform is known for B2C, but also large scale B2B invoicing and payments clients. B2B is outside of the 16 billion number I just mentioned. The platform is known for paying meaningful payments, but can also provide pay outs for insurance companies and other industries that need disbursement capabilities.

Payveris is also incremental to the 16 billion payment number I talked about. This is why I continue to be extremely bullish on the business, and you see us continue to invest in long-term growth rather than dropping incremental dollars to the bottom line. I'd like to thank our 1,000 plus employees for their hard work and dedication that makes all this possible. With that, I'll now turn the call over to the operator for questions.

Questions & Answers:

Operator

Absolutely. [Operator instructions]. Our first question is to Will Nance with Goldman Sachs. Will, your line is open.

Please proceed.

Will Nance -- Goldman Sachs -- Analyst

Hey, guys. Good afternoon. How are you? I'm good. I wanted to follow up on the full year guidance.

I think last quarter you guys signaled that in the back half of the year, you guys could dip below that 30%. And I think it was a combination of of tough comps in the prior year and some conservatism around the pace of onboarding. It sounds like you were a little bit more successful in bringing new clients on board this quarter. I'm wondering, as we've gotten, you know, three months later, have you gotten any incremental line of sight on to the pace of onboarding? And is that still your expectation in the back half of the year? And what would it take -- what would need to happen for that not to occur?

Matt Parson -- Chief Financial Officer

Yeah, thanks. Will, this is Matt, great question. It's early in the year. I would say we still have nothing fundamental has changed in kind of our view with respect to our guidance and modeling and forecast for the year.

We did have a very good result in Q1 and being able to get things live sooner than than we had anticipated modeled. And we're going to continue to work for that as we go through the rest of the year. It's something we've always done and will continue to do. It's a definite focus of Dushyant, I, and the rest of the team, but it's early in the year and I think we're kind of maintaining our view on the rest of the year at this point in time, and we'll continue to work on as we go through the year.

Will Nance -- Goldman Sachs -- Analyst

Got it. That's helpful. And then maybe one for Dushyant. Nice to hear about the the referral agreement with the healthcare vertical at the large bank.

If we take a step back, you guys have done a lot of expansion in your go to market channels since the IPO. And I guess when you put together the J.P. Morgan relationship, Payveris, the new healthcare deal, I mean, how are you thinking about the tailwinds that this could drive to the top line and I guess even higher level? Would you consider these partnerships as being potentially additive to that 30% growth rate that you've talked about in the past?

Dushyant Sharma -- Founder and Chief Executive Officer

Well, that's a good question though. Thank you. I was going to say -- I was smiling because of the last part of your question. The -- look, we are very proud of what we have been able to accomplish here.

Everything we set out to do as a business, we said we're going to build a platform which allows us to scale horizontally to any vertical industry and vertically to any size of the customer. And we have done that. And as a result of a modern age builder direct platform we have created, which not only brings billing companies live in the ecosystem, which is their direct ecosystem, but also through the IPN ecosystem we have created allows them to go to the -- any end point. It is it is allowing us to bring customers on our platform at a faster clip than we have done before.

And in addition to that, we are also seeing tremendous excitement in the partnership ecosystem we have. You named some of the partners and there are many other partners in the mix as well. So we are seeing tremendous progress there and this clearly helps us continue to grow and maintain the momentum. And we're not raising our guidance.

Our guidance is what it is, but not a day goes by when we are not looking at how can we accelerate that even more than what we are already forecasting. So not only the guidance, but at least from a overall perspective, feel good about where our business is headed.

Will Nance -- Goldman Sachs -- Analyst

Got it. I appreciate that. And thank you for taking all my questions.

Matt Parson -- Chief Financial Officer

Of course. Thanks, Will.

Operator

Thank you, Will. Our next question goes to Andrew Bauch with SMBC Nikko Securities. Andrew, your line is open. Please go ahead. 

Andrew Bauch -- Nikko Securities -- Analyst

Hey, guys. Thanks for taking my question and nice set of results here. I guess, first off, Matt, I wonder if you could clarify some of your comments around the first quarter tailwinds around favorable mix and the pace of onboarding. I guess, can you give us a better sense of of what exactly those payment mix types like what drove that benefit and why that will carry forward in subsequent quarters? And is the onboarding dynamic really just kind of a timing element, or because it would assume that if you're accelerating the rate of these onboard, that that those tailwinds should continue?

Matt Parson -- Chief Financial Officer

Yes. Thanks, Andrew. Appreciate the question. So on the implementation onboarding, yes, when we lay out our model for the year, we assume based on all the information that we have from our own team, from the client, a certain go live date for a particular client.

And let's say for the the some of the accelerations we saw in Q1, they were clients that we had slated to go live, say, at the end of Q1, but they went live in the middle of Q1. So that means that we got an extra month and a half of revenue off of them. But when it comes to Q2, we kind of had that revenue in Q2 all along because they were going to go live in our plan at the end of Q1 anyway. So there's no incremental benefit to Q2 from that client going live earlier in Q1.

And that's what I was sort of referencing with with Will's question is at this point in time, early in the year, we don't want to make assumptions that we'll be able to be successful with additional clients during the implementation pipeline and beyond, because every client's different, all the facts and circumstances are different. So it's great for Q1 that we were able to do that. We continue to work on doing that every day going forward and our team is very focused on it, but it's hard to make an assumption that that can continue through depending on different facts and circumstances and different clients. And then on the mix type, really, what I was referring to there is we saw some movement say from credit, higher cost type of payment to more cash based, lower cost type of payment in Q1, through the benefit of additional contribution profit from that.

The main reason we said we're not anticipating that to continue is because Q1 is a little bit of a different animal as we've talked about before in the other quarter. So if you're in that, it's kind of the high point of the year and what we see for our average payment amount, i.e. the bill payment amounts that are getting paid on our platform largely due to utilities payments being higher in Q1 because of the cold winter months. And so this year, that was maybe even fueled a little bit more with some of the macro things we're seeing around energy costs.

And so I think people put a little bit of speculation on my part, but people may have paid more with different types of payment methods because the bills were higher, or they may have split their bills and paid some cash, some credit, etc. So again, we're not making assumptions that that's going to continue because Q1 has a little bit different profile with respect to the amount of payments we see and the behavior we see out of consumers just because those payment amounts are higher.

Dushyant Sharma -- Founder and Chief Executive Officer

And I think, if I may add a little bit to that, the quarterly dynamic Matt describes well is exactly why sometimes it could be misunderstood that what we have when we're guiding to the year, sometimes quarters -- things vary from quarter to quarter for the guidance for the year is what we're focused on as a whole.

Andrew Bauch -- Nikko Securities -- Analyst

Got it. Very helpful. And then I follow up for Dushyant. I mean, if we're heading intoan economic slowdown and and potentially a prolonged recession, I mean, is this changing any of your conversations with billers that are looking for solutions to be able to better capture rate of payment and the like?

Dushyant Sharma -- Founder and Chief Executive Officer

Yes, great question. I can take you back to the last time we saw section of the environment where it was like 2010, 11, 12 and so on. We want the crossfire into accelerating growth for us in some ways, because the business itself, as I talked about at the top of the call, there's a resilience factor in here where I still have to pay my bills as a consumer, improving the businesses. You have to keep the lights on.

You have to pay your insurance, you have to pay your mortgage and so on. And -- but during these tough times, build increased focus on improving the efficiencies while also trying to improve the customer experience so that it's easier to collect money from the customers. And that actually shines even a stronger light on a brighter light on our platform and our capabilities. And as a result, we start to get even more inbound inquiries than we would typically get.

And I'm not saying that a recession is actually beneficiary to it. Somehow there's a benefit to us. But what I'm saying is that the way they have designed our business and the way we approach the market, we -- if there is a recession because of the pricing model that we have created, it actually helps our case even stronger in many cases. I hope that answer the question.

Andrew Bauch -- Nikko Securities -- Analyst

No, it does. And that collection rate definitely comes into greater focus for builders. So thank you for the color.

Matt Parson -- Chief Financial Officer

Thanks, Andrew.

Operator

Thank you, Andrew. Our next question is from Ashwin Shirvaikar with Citi. Ashwin, please go ahead. 

Ashwin Shirvaikar -- Citi -- Analyst

Thank you. A good quarter, guys. I was hoping you could perhaps address sort of what we should expect with regards to cadence through the year. You are obviously raising expectations.

Is that timeline one should expect in terms of just the quarterly lay out? And then let me ask the second question right here as well. The expansion opportunities that you talked about, for example, the entertainment opportunity and so on, so forth. Is there any could you perhaps have size that in the  -- how that sort of flows through your system that we have put?

Matt Parson -- Chief Financial Officer

OK. Thanks, Ashwin. On the first one, I assume what you mean is, does it change anything? Just to clarify for me on the quarterly cadence, does it change? Does the fact that we had to, you know, kind of exceeded expectations in Q1 and raise our guidance, does it change kind of our thinking for the rest of the year and how the quarters play out? Is that what the question was?

Ashwin Shirvaikar -- Citi -- Analyst

Yes. That was what the question was.

Matt Parson -- Chief Financial Officer

OK. Got it. No, not really. I mean, as I said, I think the reason we had  -- well, there were a lot of reasons.

We have a strong one. I would say the reason that we had a stronger than expected Q1 was the timing of certain implementations happening a bit faster, sooner than we expected, as well as some of the makeshift. It's early in the year. We don't -- because of the factors I mentioned.

I think in response to Andrew's question, we're not comfortable sort of carrying that through the rest of the year at this point. So I think the kind of underlying fundamentals for the year are consistent with what we expected and talked about going into Q4. We've got, Dushyant sort of alluded to the second ago, we only provide guidance on any basis. The reason we do that is because there is quarter to quarter variability in our business.

When we get in the back half of the year, we've got some of the tough comparisons with some of the acquisition stuff in Q3 and Q4. But fundamentally, we still believe that we're 30% grower and we obviously -- our guidance reflects that, and I think nothing's going to change that going into 2023. So yes, I think that was the kind of the coming the first one. The second one -- could you just repeat the second question? I'm sorry.

Ashwin Shirvaikar -- Citi -- Analyst

Yes, I was just going to -- obviously it's kind of similar to a previous question, but I wanted -- I was wondering if you could actually size some of these opportunities that you've talked about. Like for example, when you start rolling in rent payments, right. And the overall pie, or was that already included in the overall pie?

Dushyant Sharma -- Founder and Chief Executive Officer

I think -- Great question. Actually, I think this is one of the key advantages of the platform. The we have conceded there will be a built it is that we are able to add -- so the bill payment market, which is just B2C payment receivable market itself is the -- as we talked about it is in trillions of dollars of household expense, which goes through just for bill payments. B2B capabilities, which we talk about is completely outside of that and is significantly larger in many ways just because of the type of amount, the dollar amount which are included in B2B invoicing process, and pay outs is a pretty significant opportunity as well.

So they're both outside of what we are what we are pursuing here. So what we talked about in the 16 billion bill payments, so we feel like this is all of these things we have done the hard work, the reals, the platform, the capabilities we have built, the workflows we have created, this all setting a great foundation for us to continue to grow over the years.

Matt Parson -- Chief Financial Officer

And the thing I would add to that is we've kind of been thinking about it in a little bit of a two-pronged way in the sense of, you know, we talk about kind of being a 30% grower. We obviously were thinking about the bill direct business and the platform that we have and, you know, our six verticals, but also all verticals. Right. We're obviously taking into account kind of all the different types of deals that can be on it.

But what I meant when I said a two-pronged approach is the more we can expand that pie and have more opportunities at different types of clients, that also applies to the the bank network with the various and also applies to some of the IPN stuff, the more kind of certainty you can put around that 30% number because it just gives us more opportunities from which to draw it from. And then if many of them head, then I think it becomes incremental and kind of on top of that 30% number. So it's kind of like we've got a wide net of things that we can draw from to get there. And then if we're successful in many of those different things, then it starts to go up from, if that makes sense.

Ashwin Shirvaikar -- Citi -- Analyst

And [Inaudible] optionality. Yes

Matt Parson -- Chief Financial Officer

You said that much more succinctly than I did. Yes.

Ashwin Shirvaikar -- Citi -- Analyst

Thank you. Thank you very much.

Operator

Thank you, Ashwin. Our next question goes to John Davis from Raymond James. John, your line is open. Please go ahead. 

John Davis -- Raymond James -- Analyst

Hey. Good afternoon. I might have heard you say a couple of times you expect to continue this 30-plus percent contribution profit growth into '23. But our biomass, I would assume a little bit of an organic acceleration given the modest impacts from the acquisitions being done.

So just wanted to just confirm that and just kind of understand what the drivers are to that potential accelerate growth in the 2023.

Matt Parson -- Chief Financial Officer

Yeah. Thanks, John. Well, 2022 is not done yet in the sense of -- Dushyant are gone into our guidance. But we're certainly working every day to try to continue to drive more in 2022.

I mean, that's what we're here for and that's what we're paid for is to go drive. But with your point, based on our current guidance, I definitely understand your point. And I think it's it's a result of all the things that Dushyant talked about that we're working to put in place now. It's the additional partnerships.

It's the expansion of the opportunities around -- outside of our core six core verticals or industries that we're now getting into, like the dividend payments opportunity, it's the B2B, you know, potential that we've started offering and continuing to drive additional clients there. So I think it's really just the bank opportunity with whatever and we still are very excited about what that can bring and what with our inbound interest in conversations are happening on that front. So again, I think really answer the questions we are wrapped up with Ashwin's question, which is we've really widened the net out over the last 12 to 18 months. And so just having more opportunity, more different, whether it's verticals, partners, banks versus direct dealers, on and on.

It just gives us more areas, more opportunities which to drive additional business growth.

Dushyant Sharma -- Founder and Chief Executive Officer

Absolutely. And on top of that, we have a customer base. We have signed customers, we have last several quarters, including this most recent one, 60 deals is 60 deals, nothing to sneeze at. And so all of these contribute to where we could be next year.

And so we're excited about the business. And and like Matt said, that it is not done, but it is also not done from a perspective of adding a lot to the mix to make sure it contributes to the end of the year. 

John Davis -- Raymond James -- Analyst

OK. No, that's super helpful. And then we a lot of questions on inflation and trying to understand and you guys are a relatively new public company, Matt, or just maybe just take a second to explain or expand upon how inflation actually runs through my understanding as basically a paid per bill. But some of your costs could be higher in inflationary environments.

Just really want to understand that you said that inflation is kind of neutral to maybe just kind of a minute or so on explain exactly how inflation [Inaudible]

Dushyant Sharma -- Founder and Chief Executive Officer

So the way we have engineered our business and the way we have engineered our agreements with the clients actually take care of this very issue and has done that for years now. One of the factors is if our clients -- actually I don't want to get too technical because it is a very technical question, because their payment methods involve different payment methods, have different type of fee structures to them. Some of them are flat regardless of the form of payment. Our cost structure is, in some cases, regardless of the payment amount which has been charged deep inflation by the billing company, we still get our fair share when our margins don't get affected, but in some cases there is a change where we are getting a flat fee and while on the back end of it, cost is variable and that's in a small percentage of those transactions.

And there as well, we have ability to raise the pricing. And because it's very understandable by the clients themselves that if they are getting more benefit by -- to the inflation by charging higher for their bills, we want -- the very company which is making that all happen where are able to collect the money. We want to be able to raise the rate as well and we have those capabilities in the agreement already built in. So that -- it doesn't affect us as much as it will appear actually.

John Davis -- Raymond James -- Analyst

OK. That's very helpful. Thanks, guys.

Matt Parson -- Chief Financial Officer

Thanks, John.

Operator

Thank you, John. Our next question goes to Jeff Cantwell with Wells Fargo. Jeff, your line is open. Please go ahead. 

Jeff Cantwell -- Wells Fargo Securities -- Analyst

Hey, thank you for taking my questions, and thanks for that. I'm enjoying these calls. You know, one thing that stood out on the positive side here, and this has been highlighted on this call, is raising the guidance, especially given how many other companies have sounded about the quarter. And I guess, given that you're at the real heart of the economy in many ways, many clients you have now, can you sort of give us your macro view as you see it? And what I'm really trying to get at is what made you confident here to release the guide? Is it the new way? Is it something about the operational momentum this quarter.

I just want to see what you can points to that will help us understand what you're thinking about as far as positives for the remainder of the year. Thanks.

Matt Parson -- Chief Financial Officer

Yes. Thanks, Jeff. This is Matt. Welcome to the fold.

Glad to have you as part of the group here. Yes, so on the macro, I think Dushyant hit on a little bit earlier. Obviously, things have been a bit tough to start the year on multiple fronts in the macro. But because of the space that we're in and we are really focused on non-discretionary essential recurring bill payments, it's a very resilient business.

And we saw kind of at the beginning of COVID when you really the impact on our business at the beginning of COVID was a little bit of a slow down in signing your business and getting customers live because everybody was focused on their own business. But we did not see any slowdown at all to the payments flowing to our platform because people still had to pay their bills. They needed to keep the lights on, they needed to keep their insurance, their mortgages, etc.. And so it is a very resilient model and that's reflected in our results in Q1 and our guidance for the rest of the year that even though the macro may seem a little uncertain, one thing is constant that people need to continue to pay their bills.

I think as far as the raising the guidance for the year, it's it's reflected in that that we have not seen any negative impacts. We don't expect to see any negative impacts from that in addition to, you know, again, just keep going back to all the things that we've added and continue to announce our ability to execute internally on getting clients live and implement. And that's actually -- again, back to the one area of question kind of relief on our ability to continue that through the rest of the year or not. What we saw in Q1 and being able do it faster, there's a huge reliance there on the client.

We can't do it alone. We have to partner with them. It has to be within the bounds of kind of their internal priorities and projects and they've all got a million things going on. And so, you know, if it was completely within our control, I'd be like, you know, full speed ahead.

We're going to be in a more alive tomorrow and figure out how many people we need to hire to do that. But we also have to work within the bounds of our clients. And so it's definitely a partnership aspect of it. But we everything that we kind of see from behavior of people paying their bills, from the things we put in place, we feel good about that the rest of the year.

Dushyant Sharma -- Founder and Chief Executive Officer

And then, if I may add to this -- to your broader economic question and speaking to the investor business broadly, if -- for example, you're a private company today and you were investors in our company and you have 40 other companies in your portfolio, you would look at payments and think about. But this is a company which is in recurring billing [Inaudible] pay the bills you have to pay. These are essential bills. And during turbulent times like these, businesses have even a stronger need to collect money and collect the money efficiently and also improve experience for their customers.

Both of those things, which is what our platform is designed to provide, it actually allows you to sleep a little bit better. And during we had we have gone through a couple of these things and we recovered. We continue to grow as a business. We we have the same thing.

It's -- through the financial crisis. So what I'm trying to say is that if you take the public market side of things aside, which there's a bit of uncertainty, which we have all experienced for, you know, the business inside internally, the business is doing really well.

Jeff Cantwell -- Wells Fargo Securities -- Analyst

OK. That's great color. Thanks very much and congrats on the results.

Dushyant Sharma -- Founder and Chief Executive Officer

Thank you.

Matt Parson -- Chief Financial Officer

Thanks, Jeff.

Operator

Thank you, Jeff. Our next question goes to Tien-Tsin Huang with J.P. Morgan. Tien-Tsin, your line is open.

Please go ahead. 

Tien-Tsin Huang -- J.P. Morgan -- Analyst

Thank you so much. I want to bill on I think John's question and and ask it from a builder perspective just with inflation and whatnot. Are you seeing builders want to promote auto pay as a reason to accelerate or raise a sense of urgency to want to work with you? I'm just trying to understand the builder side of how they're viewing the uncertainty that people have been asking about. It feels like it could be a big help.

Dushyant Sharma -- Founder and Chief Executive Officer

Yes, I think so. If you look at it from the in in situations like like these and frankly, that itself is pretty, pretty decent memory. So the billing companies are faced with situations like, how do we make it easier for customers to collect as well as make it -- make sure that they have ability to pay multiple times in case they have to. The auto pay itself, if you can believe it, is for customers who they are least concerned about from a collectability centers,.

It is the customers who are not on auto pay where they will say, well, how do I reach to the customers at a faster pace than -- or broadly? And could I do it in a way that it doesn't cost me a lot more money than it would have otherwise? So everything our platform is designed for. So for example, if you were the grandma was coming after you in a market like this, my pitch would be, take a look at our platform. It is designed for you do not have to change anything on your end. We will do all the work because we have this advanced integration framework in place and we have hundreds of billing systems we already integrated with, and we can integrate with you while doing that integration.

We can reach all of the customers who are otherwise not being able to reach out to just because of the modern paradigm shifting ecosystem we built. So all of that has an extremely value to the customer and to the billing company, and therefore having multiple payment options, options wherever the customers are, and including -- giving them ability to pay including at the last minute makes it very easy for the customers to pay. And that's why there's a gravitation toward us in times like this.

Tien-Tsin Huang -- J.P. Morgan -- Analyst

Makes sense. Thanks for going through that. Then just make a quick follow up, if you don't mind. Just the reinvestments make sense.

And I know there's a lot of investing in it, establishing partners and verticals. What about just on the product side in general? Are you have you changed your focus on product development given what's happening in the world? Just curious, what's what's new from a product perspective maybe that you weren't thinking about six months ago.

Dushyant Sharma -- Founder and Chief Executive Officer

We continue to make investments in the product. We have -- in some ways, we have set the set the tone for the industry as to how the customer experience should take place and how it platform should really operate and what type of capabilities it should provide to the billing companies, both from a -- for their own teams perspective, the staff of the billing company, but also the customers of the billing company. When you look at it from that perspective, it's a never ending pursuit. We exist for two specific goals how do we improve the customer experience and how do we do it while lowering the cost to collect -- cost to serve the customers? From a billing company standpoint and that -- so all the advancements -- all investments we make are in that area.

The other area we are actually heavily focused on is how do we improve the velocity of onboarding? I'll give you an example. We have almost -- to match point earlier. If we could actually onboard clients and it was entirely in our control, we could onboard them tomorrow. Like 78% of our clients, it is maybe even more could be onboarded without making a single change anywhere in our system.

However, it takes time for the clients to get comfortable and go through the process. What we are making investments in is for the remaining 10, 20% as well to make sure that these complex enterprise type deployments are also able to get done without making too many changes as the workflows -- the complex, sophisticated workflows could be implemented through our platform without coding. So we're making some changes there as well. So you will see more and more about that as we go forward.

Tien-Tsin Huang -- J.P. Morgan -- Analyst

Very good. Thank you for that. 

Dushyant Sharma -- Founder and Chief Executive Officer

Thank you.

Operator

Thank you, Tien-Tsin. Our final question goes to Dave Koning with Baird. Dave, your line is open. Please proceed.

Dave Koning -- Baird -- Analyst

Yeah. Hey, guys. Thanks so much. And I just wanted to review contribution profit per transaction.

And I think you've talked before about as you've gotten bigger clients, you know, that's naturally gone down a little. It actually went down less this quarter a long time. And I guess I'm wondering, a, is the mix is the mix of business as it comes down coming under the different trends, like at different levels, like different verticals create kind of different yields. And then over time, are we at a point where this starts to stabilize?

Matt Parson -- Chief Financial Officer

Yeah. Thanks, Dave. I appreciate the questions. It's Matt.

Yes, I think yes to both questions. You know, the cue for and I can't remember from set it on the call or maybe it was in some of the Q&A afterwards. But I said we saw a pretty good step down in Q4 and there's a lot of questions about it. And I said, we expected to stabilize for 2022 and be pretty consistent with where we saw Q4.

And there were a couple of reasons for that conclusion, and we're seeing them play out. One was -- if you recall, the reason for the step down or a reason for the step down in Q4 was a couple of large clients going live at the end of Q3, early Q4 that had a little bit different profile. One was more B2B, one included some pay outs which were all cash based. And so they had a different pricing profile than, say, our typical build clients have.

We felt very good because they were very large clients, lots transactions, and so we felt good and the overall economic profile of the client, but it calls the step down and we didn't see anything in our implementation pipeline that looked and felt like those two did. And so we expected it to stabilize. But then also there is a kind of a terminal point you get to once you -- again, if you think about the progression of our growth as organization, we kind of purposely started in Horizon one, the small and medium sized clients, and then we moved up to large size in Horizon two and then the network effect in Horizon three. There's a period of time where every new large client you had is pulling down the average just simply because of the nature of size in the total portfolio.

We're kind of reaching that point now where additions of a new, larger client doesn't really have that big an impact on the average. It's going to have stone and but the rate at which it's going down certainly will slow dramatically. And then the other factor is some of the IP and transaction that we've talked about that are -- don't have an interchange associated with them. They are priced in a level that's fairly consistent with sort of what our current contribution profit per transaction level is.

So they're not going to be detracting to that overall point. So that's kind of what's behind the scenes driving it. But we still the comments I made I think in Q4 are still the same. Nothing's changed to change our thinking there, which is the remainder of 2022, we expect to be pretty consistent with Q4 and Q1 and kind of where we are right now.

Dave Koning -- Baird -- Analyst

Got you. Thanks. And maybe just a quick follow up. Sales and marketing the last few quarters is -- has turned it up a lot and it's in correspondence with really, really good revenue growth.

So I get it. But is there a point where it starts to get levered? I read a little bit going forward.

Matt Parson -- Chief Financial Officer

Absolutely. And we're -- I don't want to say we're at that point because we continue to invest in the business. What I will say is between --

Duration: 53 minutes

Call participants:

Paul Seamon -- Vice President of Finance and Strategy

Dushyant Sharma -- Founder and Chief Executive Officer

Matt Parson -- Chief Financial Officer

Will Nance -- Goldman Sachs -- Analyst

Andrew Bauch -- Nikko Securities -- Analyst

Ashwin Shirvaikar -- Citi -- Analyst

John Davis -- Raymond James -- Analyst

Jeff Cantwell -- Wells Fargo Securities -- Analyst

Tien-Tsin Huang -- J.P. Morgan -- Analyst

Dave Koning -- Baird -- Analyst

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