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Paymentus Readies U.S. IPO Plan

May 17, 2021 1:43 PM ET Paymentus Holdings, Inc. (PAY)

Summary

  • Paymentus has filed to raise investment capital in an IPO and concurrent private placement.
    The firm provides SaaS-based billing software to financial institutions and other billers.
    PAY has grown impressively and is producing earnings and free cash flow, so the IPO is worth a close look.


  •  

 

Woman Doing Finances at Home on Smart Phone

 

Quick Take

Paymentus Holdings (PAY) has filed to raise $200 million in an IPO of its Class A common stock plus $50 million in a concurrent private placement, according to an S-1/A registration statement.

The firm provides bill payment software to companies and their customers worldwide.

PAY is growing impressively while producing earnings and free cash flow, so the IPO is worth a close look.

 

Company & Technology

Redmond, Washington-based Paymentus was founded to develop a cloud-delivered payment technology stack for financial institutions and other businesses to provide omni-channel payment services with customers.

Management is headed by founder, Chairman and CEO Dushyant Sharma, who was previously co-founder of Derivion, a SaaS electronic billing company.

 

The company’s primary offering features include:

IPN - Instant Payment Network

Engagement

Presentment

Empowerment

Payment

Intelligence

Paymentus has received at least $30 million in equity investment from investors including Accel-KKR and Ashigrace LLC.

Customer/User Acquisition

The firm seeks relationships with billers via a direct sales and marketing model and with no development or implementation fees required.

In 2020, the firm's platform generated more than 195 million transactions from a network of over 1,300 billers representing 16 million customers.

Sales and Marketing expenses as a percentage of total revenue have dropped as revenues have increased, as the figures below indicate:

Sales and Marketing

Expenses vs. Revenue

Period

Percentage

Three Mos. Ended March 31, 2021

8.9%

2020

10.6%

2019

11.9%

(Source)

The Sales and Marketing efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of Sales and Marketing spend, has increased to 2.8x in the most recent reporting period, as shown in the table below:

Sales and Marketing

Efficiency Rate

Period

Multiple

Three Mos. Ended March 31, 2021

2.8

2020

2.1

(Source)

The Rule of 40 is a software industry rule of thumb that says that as long as the combined revenue growth rate and EBITDA percentage rate equal or exceed 40%, the firm is on an acceptable growth/EBITDA trajectory.

PAY’s most recent calculation was 38% as of March 31, 2021, so the firm is close to meeting this metric, per the table below:

Rule of 40

Calculation

Recent Rev. Growth %

33%

EBITDA %

5%

Total

38%

(Source)

Management reported that its net dollar revenue retention rate for both 2019 and 2020 was greater than 117%.

A figure of over 100% indicates the company is generating additional revenue from the same cohort of customers, showing strong product/market fit and an efficient sales & marketing process, so Paymentus has performed well in this regard.

Market & Competition

According to a 2021 market research report by Grand View Research, the global market for digital payments (as a proxy) was an estimated $58.3 billion in 2020 and is expected to reach $241 billion in 2028.

This represents a forecast very strong CAGR of 19.4% from 2021 to 2028.

The main drivers for this expected growth are continued high adoption of smartphones, growth in e-commerce and rising internet penetration and adoption of online payment technologies.

 

Also, the chart below shows the historical and projected U.S. digital payments market by solution type, from 2016 to 2028:

Major competitive or other industry participants by type include:

Legacy solution providers

Internal financial institution systems

Phone-based payments

Financial Performance

Paymentus’ recent financial results can be summarized as follows:

Growing topline revenue, at an accelerating rate of growth

Increasing gross profit but reduced gross margin

Growing operating profit and net income

Uneven but upwardly trending cash flow from operations

Below are relevant financial results derived from the firm’s registration statement:

Total Revenue

   

Period

Total Revenue

% Variance vs. Prior

Three Mos. Ended March 31, 2021

$ 92,222,000

32.5%

2020

$ 301,767,000

28.0%

2019

$ 235,778,000

 
     

Gross Profit (Loss)

   

Period

Gross Profit (Loss)

% Variance vs. Prior

Three Mos. Ended March 31, 2021

$ 27,547,000

32.6%

2020

$ 92,627,000

24.4%

2019

$ 74,434,000

 
     

Gross Margin

   

Period

Gross Margin

 

Three Mos. Ended March 31, 2021

29.87%

 

2020

30.69%

 

2019

31.57%

 
     

Operating Profit (Loss)

   

Period

Operating Profit (Loss)

Operating Margin

Three Mos. Ended March 31, 2021

$ 4,853,000

5.3%

2020

$ 18,428,000

6.1%

2019

$ 18,371,000

7.8%

     

Net Income (Loss)

   

Period

Net Income (Loss)

 

Three Mos. Ended March 31, 2021

$ 2,278,000

 

2020

$ 8,525,000

 

2019

$ 9,000,000

 
     

Cash Flow From Operations

   

Period

Cash Flow From Operations

 

Three Mos. Ended March 31, 2021

$ 7,177,000

 

2020

$ 35,620,000

 

2019

$ 17,511,000

 
     

(Glossary Of Terms)

   

(Source)

As of March 31, 2021, Paymentus had $49.6 million in cash and $45.4 million in total liabilities.

Free cash flow during the twelve months ended March 31, 2021, was $22.3 million.

IPO Details

Paymentus intends to raise $200 million in gross proceeds from an IPO of its Class A common stock, offering 10 million shares at a proposed midpoint price of $20.00 per share.

Investors have indicated a non-binding interest to purchase up to $60 million of Class A shares in the IPO.

Existing investor Accel-KKR has agreed to purchase $50 million of Class A shares in a concurrent private placement and at the same price as the IPO.

Class A common stockholders will be entitled to one vote per share and Class B shareholders will receive ten votes per share.

The S&P 500 Index no longer admits firms with multiple classes of stock into its index.

Assuming a successful IPO, the company’s enterprise value at IPO would approximate $2.3 billion, excluding the effects of underwriter over-allotment options.

 

Excluding effects of underwriter options and private placement shares or restricted stock, if any, the float to outstanding shares ratio will be approximately 8.62%.

Management says it will use the net proceeds from the IPO as follows:

We intend to use approximately $57.4 million of the net proceeds from this offering to redeem all of our issued and outstanding shares of Series A preferred stock (including accrued dividends), substantially all of which are held by AKKR and our founder and chief executive officer. We intend to use the remainder of the net proceeds from this offering and the concurrent private placement for general corporate purposes, including working capital, operating expenses and capital expenditures. Additionally, we may use a portion of the net proceeds to acquire or invest in businesses, products, services or technologies. (Source)

Management’s presentation of the company roadshow is available here.

Listed bookrunners of the IPO are Goldman Sachs, J.P. Morgan, BofA Securities, Citigroup, Baird, Nomura, Raymond James, Wells Fargo Securities, Fifth Third Securities, PNC Capital Markets, AmeriVet Securities and C.L. King & Associates.

Valuation Metrics

Below is a table of relevant capitalization and valuation figures for the company:

Measure [TTM]

Amount

Market Capitalization at IPO

$2,319,584,740

Enterprise Value

$2,269,945,740

Price / Sales

7.15

EV / Revenue

7.00

EV / EBITDA

115.98

Earnings Per Share

$0.08

Float To Outstanding Shares Ratio

8.62%

Proposed IPO Midpoint Price per Share

$20.00

Net Free Cash Flow

$22,255,000

Free Cash Flow Yield Per Share

0.96%

Revenue Growth Rate

32.52%

(Glossary Of Terms)

 

(Source)

As a reference, a potential partial public comparable to PAY would be Fiserv (FISV); below is a comparison of their primary valuation metrics:

Metric

Fiserv (FISV)

Paymentus (PAY)

Variance

Price / Sales

5.16

7.15

38.6%

EV / Revenue

6.58

7.00

6.3%

EV / EBITDA

19.46

115.98

496.0%

Earnings Per Share

$1.28

$0.08

-93.8%

Revenue Growth Rate

19.1%

32.52%

69.89%

(Glossary Of Terms)

     

 

Commentary

Paymentus is seeking public investment to redeem its Series A preferred stock and for its corporate expansion plans

The firm’s financials indicate increasing topline revenue and at an accelerating rate and growing operating and net profits.

Free cash flow for the twelve months ended March 31, 2021 was a reasonable $22.3 million.

Sales and Marketing expenses as a percentage of total revenue dropped as revenue has increased; its Sales and Marketing efficiency rate rose to 2.8x.

Additionally, the company’s Rule of 40 metric performance nearly cleared this hurdle and its dollar-based net retention rate was an impressive 117%, for both 2019 and 2020.

The market opportunity for providing legacy financial billers with modern software solutions is significant and the firm should enjoy very positive industry dynamics in its favor, especially after the COVID-19 pandemic and its effects on increasing consumer adoption of digital technologies.

Goldman Sachs is the lead left underwriter and IPOs led by the firm over the last 12-month period have generated an average return of 25.8% since their IPO. This is a mid-tier performance for all major underwriters during the period.

 

One risk to the company’s outlook is that it relies on U.S. Bank and JPMorgan Chase along with a payroll solutions provider (among others) to refer new billers to its platform, so if any of these referral relationships were to end, it may negatively impact the firm’s growth trajectory.

As for valuation, compared to much larger and diversified Fiserv, the IPO appears reasonably valued, as FISV is growing revenue more slowly although producing higher EPS.

Paymentus appears to be growing impressively due to its focus on modernizing the biller space while producing earnings and free cash flow, so the IPO is worth consideration.

Expected IPO Pricing Date: May 25, 2021




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PAY News: Paymentus to Release Second Quarter 2021 Earnings Results on August 10, 2021 07/14/2021 04:30:00 PM
PAY News: Paymentus stock rallies to post-IPO high as fintech firm gains 45%+ in just three sessions 05/28/2021 06:30:58 PM
PAY News: SaaS-based billing platform Paymentus prices IPO at $21, top of its estimated range 05/26/2021 05:51:03 AM
PAY News: Paymentus Announces Pricing of Initial Public Offering 05/25/2021 10:56:00 PM
PostSubject
#133   Paymentus stock rallies to post-IPO high as fintech JohnCM 07/10/21 01:34:05 AM
#132   https://www.stockscores.com/chart.asp?TickerSymbol=PAY&TimeRange=180&Interv JohnCM 07/10/21 01:30:22 AM
#131   03/31/2021 quarterly JohnCM 06/27/21 01:55:23 AM
#130   https://www.stockscores.com/chart.asp?TickerSymbol=PAY&TimeRange=180&Interv JohnCM 06/27/21 01:47:38 AM
#129   Paymentus is a leading provider of cloud-based bill JohnCM 06/27/21 01:46:34 AM
#128   WE ARE PASSIONATE ABOUT OUR MISSION TO ENHANCE JohnCM 06/27/21 01:45:28 AM
#127   Will be taking over this board. JohnCM 06/27/21 01:43:45 AM
#126   Reliable source $SQ in negotiations to buy taxi RealRichSam 06/26/17 09:02:43 PM
#125   PAY buy option 17.30 stocktrademan 05/18/17 01:59:22 PM
#124   They did not cross my pinhead brain till jones99 05/15/17 06:02:33 AM
#123   That's the discount I'm looking for. AJ331 02/17/17 01:11:13 AM
#122   PAY is trading at a 25% discount to ValueInvestor15 12/09/16 04:45:33 PM
#121   More red today $15 coming even when the ClarkKant 09/06/16 09:41:24 AM
#120   Dead cat bounce off of $16.07 LOD to ClarkKant 09/02/16 10:00:48 AM
#119   ; Fibanotch 08/11/16 01:46:15 PM
#118   Nice Jumpinjackas 08/10/16 06:24:46 PM
#117   waitng to buy the bounce...off 15 or 16,! Fibanotch 06/27/16 09:40:37 AM
#116   Don't know...This might take some time , before Fibanotch 06/16/16 09:55:36 AM
#115   You thinking msft will buy this? Jumpinjackas 06/16/16 09:42:56 AM
#114   M-s0ft...75 next year Fibanotch 06/14/16 09:55:37 AM
#113   nailed it on the big down day! Riding Fibanotch 06/14/16 09:54:51 AM
#112   I hope I'm wrong for your sake Jumpinjackas 06/14/16 09:54:17 AM
#111   we shall c Fibanotch 06/14/16 09:53:34 AM
#110   Once it finds a bottom. Are you getting rtq? Jumpinjackas 06/14/16 09:53:29 AM
#109   22 next stop Fibanotch 06/14/16 09:52:56 AM
#108   No. I took a loss. I will buy Jumpinjackas 06/14/16 09:52:36 AM
#107   bounce Fibanotch 06/14/16 09:51:25 AM
#106   Looks l like it took a big hit Jumpinjackas 06/12/16 08:41:29 AM
#105   will not be down for long! Fibanotch 06/08/16 09:36:00 AM
#104   jumping in today! Fibanotch 06/08/16 09:35:31 AM
#103   PAY Beats Uber to the IPO! PAY debuts RealRichSam 09/11/15 03:16:40 PM
#102   Ride Charge has agreed to terms with PAY RealRichSam 06/23/15 10:34:31 AM
#101   $PAY DD Notes ~ http://www.ddnotesmaker.com/PAY stocktrademan 12/28/14 12:43:51 PM
#100   But do they hold the patent? Like MYECHECK Cpickens723 09/06/14 07:10:48 PM
#99   Just curious I have not done not one Cpickens723 09/06/14 02:14:59 PM
#98   Curious if Verifone are running with $MYEC Cpickens723 09/06/14 02:09:35 PM
#97   Great from 16.00 mkinhaw 03/27/14 04:14:35 PM
#96   Love to see PAY at 35.00 on Penny Masters 03/14/14 11:40:32 AM
#95   32.80 after hours! Ike 03/11/14 09:11:47 PM
#94   29.83 hod mkinhaw 01/14/14 09:33:22 AM
#93   Almost to the point for me to get BearGator56 01/11/14 11:11:21 AM
#92   27.40 weee mkinhaw 01/10/14 03:15:11 PM
#91   26.60 now mkinhaw 12/31/13 01:35:38 PM
#90   25.40 hodfrom 16.00s mkinhaw 11/22/13 03:44:23 PM
#89   24.80 keep going mkinhaw 11/12/13 03:10:23 PM
#88   Great ! mkinhaw 10/02/13 03:40:44 PM
#87   Yup, it's in my long term account but Flobewan 10/02/13 03:38:11 PM
#86   Hit 24.0 today mkinhaw 10/02/13 03:37:07 PM
#85   I sold Jan $27 covered calls on it Flobewan 09/06/13 03:17:35 PM
#84   Yes, but battle of analysts mkinhaw 09/06/13 03:14:58 PM
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