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Good day, and welcome to the Second Quarter 2025 Paymentus Earnings Conference Call. This call is being recorded. [Operator Instructions] And at this time, I will now turn the call over to David Hanover with Investor Relations. Go ahead.

Thank you, operator. Good afternoon. Welcome, and thank you for joining the webcast to review our second quarter 2025 results. Our earnings release documents are available on the Investor Relations section of the paymentus.com website. They include the earnings presentation that we'll make reference to during this webcast. This webcast is being recorded. I hope everyone's had a chance to review those documents. Our founder and CEO, Dushyant Sharma, will make some opening comments before Sanjay Kalra, our CFO, discusses the details of the second quarter and our guidance. Following our prepared remarks, we'll take questions. Let me remind you that we may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and we refer to non-GAAP financial measures during the webcast. Forward-looking statements are based on management's current expectations and assumptions that are subject to risks and uncertainties. Factors that may cause our actual results to materially differ from expectations are detailed in our earnings materials and our SEC filings that are available on both the SEC's and our websites. Information about non-GAAP financial measures, including reconciliations to U.S. GAAP, can also be found in our earnings materials that are available on the website. With that, I'd like to turn the webcast over to Dushyant Sharma. Dushyant?

Thanks, David. Paymentus delivered another strong quarter with results that exceeded our expectations in all key areas of our business. We ended the quarter with substantial bookings and a strong backlog, giving us strong visibility and further confidence for the balance of 2025. I also want to take a moment to provide an early insight into 2026. Based on the strength of our bookings with increasing frequency of large enterprise wins and the corresponding backlog that we are busy onboarding, we have greater visibility that is already extending beyond 2025. As a result, we are feeling very good about 2026. With this level of unmatched visibility, which allows the management team to focus on creating long-term shareholder value by combining innovation together with a steadfast execution, I believe we are building something very special here. As an example, since our revenue run rate exceeds $1 billion in 2025 and we have early visibility into 2026, we can focus on the next question that is likely on investor's mind, how do we feel about achieving the next significant level of top line revenue growth from here on out. Based on the bookings, backlog, pipeline and the customer trends we are seeing today, along with our expectation that these trends will continue, and our proven ability to execute our business strategies, we are feeling good about our potential to become a multibillion-dollar revenue company in coming years. And I'm talking primarily about organic growth here, and this is without any meaningful M&A activity. And there are 3 key reasons why I believe that to be the case. First, with the advent of agentic AI, the broader technology world and not just bill payments is moving in our direction. The field is now getting wide open for Paymentus. We already do a lot through our world-class platform and have tremendous capabilities, all of which will be fundamental as the world moves beyond software solutions and becomes more agentic. Let me elaborate. We have the ability to securely handle client data at a scale, manage complex workflows and provide intelligent actionable insights to clients about their business with deep integrations. We securely handle all interactions and resulting transactions across all interaction channels. And we do all this and more 24/7 and only get paid when someone uses our platform. Said differently, we are already used to a pay-per-use business model, which is likely the future with agentic AI. As a result of our platform capabilities, our pay-per-use business model and a highly profitable public profile, we are ready and have set a perfect foundation for Paymentus to be a force for disruption for years to come. With these strong tailwinds, I believe now is our time. Second, we believe we have everything we need to scale significantly from here on out. We have tens of millions of users, household and businesses interacting with our platform. We process hundreds of billions of dollars and handle hundreds of millions of payments. And when you combine our current asset base with the market moving in our direction, we are as excited as ever to take the company to the next level. And third, we are beginning to feel more and more confident about our ability to replace broad-based legacy infrastructure within an enterprise and not just legacy providers as we move up market, enabling expansion of our service offerings. We believe that no company is too large, no workflow is too complex, and no project is too big for us to undertake given our already innovative platform and capabilities. So these are exciting times indeed for our business. We are looking forward to achieving the next big milestone. With that, let's review our second quarter results. Revenue was $280.1 million, an increase of 41.9% year-over-year, largely driven by increased number of billers and higher transactions. Contribution profit was $93.5 million, up 22.3% year-over-year. And adjusted EBITDA, which continues to be a primary financial metric for us was $31.7 million, a 40.7% year-over-year increase and representing a 33.9% adjusted EBITDA margin. Once again, the majority of our year-over-year growth in contribution profit fell to our bottom line. And once again, we exceeded the Rule of 40 for the quarter coming in at 56. This reflects our team's solid execution and our focus on delivering high-quality earnings together with solid revenue growth. Now I'll review our second quarter business highlights accomplishments. Regarding bookings, this was a very strong quarter, and we are pleased with the pace of bookings we have seen year-to-date. In the second quarter, we saw particular strength in the large enterprise segment of the market, is spread across a broad vertical base. We continue to show the diversity and wide appeal of our platform by signing clients in several industry verticals, including utilities, government agencies, telecommunications, banking and credit unions, insurance, and educational institutions among others. Additionally, our partnership ecosystem continues to be a significant complement to our direct go-to-market strategy. We have a very efficient and productive partnership portfolio. This quarter, we added additional new channel partners in the financial services and telecommunications industries. Simultaneously, we remain focused on onboarding our sizable backlog. Our onboarding enhancements, incremental investments as well as improving face-to-face client engagement are driving these efforts. During the second quarter, we onboarded clients throughout multiple verticals, including telecommunications, utilities, government agencies, banking and credit unions, property management, health care, insurance, and financial services. With that, let me turn it over to Sanjay to review our financial results in greater detail.

Thanks, Dushyant, and thank you all for joining us today. Before I discuss our quarterly results and outlook, I'd like to remind everyone that the financial results I'll be referring to include non-GAAP financial measures. As David mentioned earlier, our Q2 press release and earnings presentation includes reconciliations of the non-GAAP financial measures discussed on this call to their corresponding GAAP measures. Both of these are available on our website. Turning to Slide 6. For the second quarter of 2025, we delivered another quarter of financial results that exceeded the top end of our guidance. We believe our continued ability to deliver such results demonstrates the inherent strength and durability of our business model. Highlights of our second quarter results include revenue of $280.1 million, up 41.9% year-over-year; contribution profit of $93.5 million, which was up 22.3%; and adjusted EBITDA of $31.7 million, up 40.7%. We continue to experience strong customer activity and demand in the second quarter, which drove very strong bookings. We had exceptional bookings this quarter, which enabled us to end the period with a very significant backlog and solid visibility both for the remainder of 2025 and into 2026. We saw particular strength in the large enterprise segment of the market spread across a broad vertical base. Based on our strong quarterly performance, the positive business trends Dushyant mentioned earlier and our expectations for the remainder of 2025, we are raising our full year 2025 guidance for revenue, contribution profit and adjusted EBITDA, which I'll discuss shortly. Now let's review our second quarter financials in more detail. As mentioned, Q2 revenue was $280.1 million. This 41.9% year-over- year growth, which was ahead of our original expectations, was driven by increased transactions across all aspects of our business, which includes the launch of new billers, same-store sales from existing billers and higher activity on our Instant Payment Network or IPN. The number of transactions we processed grew to 175.8 million in the second quarter, up 25.2% year-over-year. Our average price per transaction increased from $1.41 to $1.59 during the same period. This was mainly due to the biller mix or more specifically, the large enterprise billers that we launched during the third quarter of 2024 with higher average payment amounts. This is now the third complete quarter where we are realizing the benefits of these large enterprise customers, although the second quarter guidance we provided earlier did reflect some of the potential upside from these larger customers. But as you can see, performance still exceeded our expectations. Second quarter 2025 contribution profit increased to $93.5 million, up 22.3% year-over-year. This contribution profit increase was also higher than expected and reflects the launch of new billers, the mix of billers launched and the increase in transactions from existing billers. Contribution margin was 33.4% for the second quarter compared to 38.7% in the prior year period as we continue to add larger, higher-volume enterprise billers to our customer base. This change in contribution margin was offset substantially by a year-over-year reduction in operating expense margin, which resulted in an adjusted EBITDA margin of 33.9%. This is consistent with our continued focus on profitability, which I will elaborate on shortly. Contribution profit per transaction for the quarter was $0.53, which was relatively flat compared to $0.54 in the prior year and demonstrating our ability to expand market share without sacrificing comparable contribution profit per transaction. Also, as we have noted in the past, variables that are outside our control, such as an increase in the average payment amount or changes in payment mix, can substantially affect contribution profit on a quarterly basis. And therefore, we treat this as a secondary metric, while our gross revenue and adjusted EBITDA remain primary metrics and focus areas on how we execute our business strategies. Second quarter adjusted gross profit was $77.9 million, up 21.7% year-over-year. As we anticipated, second quarter 2025 non-GAAP operating expenses increased year-over-year to $49 million. This 11.3% increase, which we had budgeted for, was primarily due to higher research and development as well as planned sales and marketing expenses. Again, these increases were anticipated and mainly driven by increased hiring and agency fee for business from our resellers and partners in order to enhance our technical strengths and convert our strong pipeline into bookings. We expect to make similar investments throughout the remainder of the year as we continue to execute our go-to-market strategy. These assumptions are already incorporated into our guidance, which I will review shortly. Second quarter non-GAAP net income was $19.3 million or $0.15 per share compared to $13.4 million or $0.10 per share in the prior year period, an increase of 50%. Second quarter adjusted EBITDA was $31.7 million, up 40.7% compared to $22.5 million in the prior year. Adjusted EBITDA also represented 33.9% of contribution profit for the quarter compared to 29.5% in the prior year. Our strong adjusted EBITDA performance was due to the same combination of positive factors I talked about earlier, all of which came together in the quarter. We believe this stronger adjusted EBITDA margin demonstrates the innate operating leverage we have in the business and our sustained ability to adapt to ever-changing market conditions while we still continue to grow. Interest income from our bank deposits was $2.3 million during the second quarter compared to $2.2 million in the prior year period. Related to our performance, we once again exceeded the Rule of 40 for the quarter, coming in at approximately 56, relatively in line with 58 in the prior year period. Now I'll discuss our balance sheet and liquidity position on Slide 7. We ended the second quarter with total cash and cash equivalents of $270 million compared to $249.6 million at the end of first quarter of 2025. The $20.4 million sequential increase was primarily comprised of $31.5 million of cash generated from operations offset by $11.2 million cash used in investing and financing activities, mainly capitalized software of $8.9 million. We do not have any debt. Free cash flow generated during the quarter was $22.5 million, primarily driven by a strong adjusted EBITDA in the quarter. Driving organic growth continues to be our primary focus. Having said that, our strong cash position enables us to maintain financial flexibility to allow for working capital investments as we scale. In addition to this, our ample liquidity allows us to explore attractive M&A opportunities that may arise in order to expand our growth strategies. Our days sales outstanding at the end of second quarter was 31 compared to 33 at the end of prior quarter, better than our expected range. Working capital at the end of second quarter was approximately $297.4 million, an increase of approximately 6% sequentially. We had 129 million diluted shares outstanding during the second quarter, relatively in line with 128.8 million diluted shares outstanding during the prior quarter. Before I discuss guidance, I would like to provide some additional color on our recent bookings and backlog trends. Over the past 2 years, we have seen increasing momentum from large enterprise customers. In fact, as I mentioned earlier, this past quarter, we saw particular strength in this customer segment across multiple verticals. Adding to this, throughout the past 4 quarters in a row, we have experienced very strong bookings resulting in a robust year-over-year growth in exit backlog for the quarter. This significant backlog growth is not only in terms of total backlog dollars but also in the number of total customers and large enterprise customers within our backlog. This provides us much greater visibility for the rest of this year as well as into 2026. Now I'll turn to our non-GAAP guidance for the third quarter and full year 2025 on Slide 8. I want to emphasize that we are continuing to follow the same prudent approach to guidance that we have followed in the past. For the third quarter 2025, we expect revenues to be in the range of $278 million to $282 million, representing 20.9% year-over-year growth at the midpoint and 21.8% at the high end; contribution profit to range from $92 million to $94 million, which is 16.3% year-over-year growth at the midpoint and 17.5% at the high end; adjusted EBITDA of $30 million to $32 million, representing a growth of 26% year-over-year at the midpoint and 30.1% at the high end. This represents a 33.3% margin at midpoint and 34% at the high end. Along with our guidance, I also want to reiterate some key points related to our outlook for contribution profit growth rates and adjusted EBITDA margin. As our business grows and as I mentioned on prior calls, we are receiving greater inbound interest from larger enterprise customers. Not unexpectedly, these large customers often request volume discounts, which we are open to where the deal economics support it. In addition, our tremendous operating leverage allows us to attract and book these large customers. Said differently, volume discounts for larger customers are typically more than offset by strong incremental adjusted EBITDA. This increases our efficiency as our onboarding time per pillar is declining, while average customer size is simultaneously increasing. Furthermore, we have the ability to recalibrate OpEx spending relative to contribution profit in order to reach a desired adjusted EBITDA. To demonstrate this phenomenon for the second quarter of 2025 results, I want to share 2 key data points: first, our incremental adjusted EBITDA margin was 53.8% relative to the adjusted EBITDA margin of 33.9%; and second, while the contribution profit can fluctuate quarter-to-quarter and operating expense recalibration opportunities exist in our business, our incremental adjusted EBITDA margin has improved by 470 basis points year-over-year and adjusted EBITDA margin has improved by 440 basis points year-over- year despite any temporary softening of our contribution profit growth rates on a year-over-year basis. Based on our results and progress we have made in the first half of 2025 and our expectations for the remainder of the year, for the full year 2025, we now expect revenue in the range of $1.123 billion to $1.132 billion. This reflects a raise of approximately $45 million or approximately 4.2% from the midpoint of our previous guidance. This updated guidance now represents 29.3% annual growth at midpoint and 29.9% at high end. Contribution profit in the range of $369 million to $373 million. This reflects a raise of approximately $5 million or 1.4% at midpoint versus prior guidance. This updated guidance now represents 18.9% annual growth at midpoint and 19.6% at the high end. Adjusted EBITDA to range from $123 million to $127 million, representing a raise of approximately $5 million or approximately 4.2% increase at the midpoint versus our previous guidance. The updated guidance now represents a 32.7% annual growth at the midpoint and 34.8% annual growth at high end. This represents a 33.7% margin on the contribution profit at midpoint and 34% at the high end. We expect a non-GAAP tax rate of 25%. This annual guidance implies a Rule of 40 scale range of 52 to 54. Thank you, everyone, for your attention today. And now I will turn back to Dushyant for final remarks before we open up the call for questions.

Thanks, Sanjay. In summary, our second quarter was another period where we achieved results that surpassed our expectations, including revenue and adjusted EBITDA that were both up over 40%. We exited the quarter with strong bookings and backlog to give us solid visibility and confidence in our outlook for the rest of 2025 and into 2026. We believe the stability and durability of growth algorithm allow for a fertile ground for disruptive innovation for long-term value creation. I'm also confident about our future success due to a number of factors, including our business model with its proven ability to generate sustainable growth, expanded profitability and its innate operating leverage, our durability to withstand and even thrive in difficult economic environments, the large nondiscretionary and growing bill payment market that we serve, our novel and differentiated technology and platform and ecosystem, our broad and growing customer base and our strong balance sheet with $270 million of cash and cash equivalents and no debt. As always, I want to thank our entire team for all their efforts and dedication to our business. And that concludes our prepared remarks. I'll now open up the line for questions.

[Operator Instructions]. The first question is from the line of Dave Koning with Baird.

And I guess my first question, just look at the historical seasonality. And historically, Q2 for many years in a row now has been the slowest sequential growth from a seasonal perspective. This year, you're only guiding Q3 to pretty flattish sequential. Usually, it's up a lot. And maybe, a, review the seasonality a little bit and b, maybe, is there any reason Q3 wouldn't follow the normal trend for faster growth in Q2?

Dave, thanks for the question. The seasonality, I would say, as we are capturing more and more market share and the pace of growth we have seen in our revenues especially, we are seeing that there is a shift happening a little bit on the seasonality. Especially if we get the large government customers, we could see that shift. So overall, the business is growing. Overall, if you see we also raised the guidance for the full year in terms of top line as well, bottom line as well. I think overall, it's marching in the right path. And EBITDA as a percentage is getting better. Our incremental EBITDA margin is 53.8% as well. Seasonality quarter-over-quarter would exist and could move in between years and not necessarily the past trends could be followed as we are on a significant scale of capturing market share. But to be more precise on this year's numbers, especially for Q2, there is one more -- sorry, for Q3, you will see a flattish revenue, at least in terms of guidance because there are 2 facts: one is seasonality, which you mentioned; the second is we have not seen complete full 4 quarters of the large enterprise billers, which were launched in Q3. They were not launched on first day of Q3 last year, right? And they were large, so they could have some impact. So that's the piece of it. And then there are some same-store sales, which offset it. So overall, it's -- that's the guidance we have come up with following our prudent guidance methodology. And as the business delivers and as the results come in, we will be able to update you more. But overall, we feel very good about where we are in Q3 as well as Q4 and for the full year.

Yes. Okay. And then secondly, one thing on just quality of earnings, that was kind of remarkable. Historically, you've had almost no bad debt expense. The last couple of quarters, it's been around $1.5 million or so. If you didn't have that, it would be 200 basis points higher adjusted EBITDA margin. Is there something about the mix of business with the enterprise clients that you want to add a little bit more conservatism around just collections? Or maybe why was the bad debt expense a little higher?

Well, on the bad debt expense, this is a pretty small amount, I think, overall compared to our business and revenues. I think -- I don't think it's anything significant. It's just some old amounts, which we write off prudently. It's totally insignificant in our view.

The next question is from the line of Darrin Peller with Wolfe Research.

Congrats on a strong quarter again. I just -- I want to start with, again, you said your optimism and conviction and really just excitement about bookings and backlog is very -- was pretty clear on the call. And so maybe just diving in a little deeper on that in terms of the verticals you're winning that are incrementally showing success above and beyond utilities but really the expansion verticals. How is it going? Where are you seeing the most demand? And then maybe also add on to with the enterprise side and really, what is it about the business that's allowing you to have the right to win there as much as you have. It sounds like there's a lot of backlog and strong trends ahead of us there, too.

Thank you, Darrin. This is Dushyant. So I think it's a culmination of what we have actually built over the years in our platform. So that -- and combine that with our ecosystem. So one of the things, what we have noticed over the years is that there was a time that there was a segment of the market, which used to always think about third-party systems as sort of pariahs, that they're not going to be outsourcing. But they don't need to outsource and a lot of the capability they could do themselves. And that was the time I think we took a little bit different tact compared to where the industry was going. Industry was thinking it is sort of like a integrated software play, where we -- all you need to do is to provide APIs and you can connect with the software systems, and that's it. In our view, we were building a platform and an ecosystem. We believe at some point an inflection point will occur where a lot of the large companies will start to realize that, look, it's just not easy to replicate what Paymentus has built because of the capabilities into the platform itself and the reach through the ecosystem. So what that has transpired into now is -- almost like one of the other thesis we had was what can we do to allow or overcome the biggest challenge these large enterprises have, which is they want control. They want flexibility and functionality, but they also want control. So we felt that we can create a platform that allows them to have relative control over the processes and also have a say into what goes into their platform and how the platform looks, how it is perceived, how the consumers interact with it and what the look and feel is like and what the customer experience is like and what the rules of engagement are for their customers, if all of those could be incorporated within Paymentus platform without having for Paymentus to go on a multiyear custom development, which used to be the traditional approach. Instead, we have taken a tact -- we did a lot of hard work there, put a lot of hard work into the platform that clients should be able to configure the platform that they wanted without having to spend a lot of time and money. And then if you combine that with our public statements over the years, which has been that, in the last couple of years, we've been talking about, house in the -- during the -- after the post-COVID, our implementation speed has gone up and including our success we are seeing in the large enterprise space and being able to onboard the clients. That is another fear factor for the clients. So when you put all of this together, clients are becoming increasingly more comfortable with Paymentus platform, the capabilities, the control they get but also the flexibility and the functionality they get along with the reach. And on top of that, the onboarding certainty, which comes with Paymentus' public execution, is very well received. Now as a result, what's happening is we are actually -- utility remains a very strong vertical for us. We are doing great. And we will continue to -- we expect to continue to do great in the utility vertical. We love the vertical. In fact, it's the hardest vertical to succeed at a scale, and we knew that if we could do well there, we would be able to do well in other industries. And that theory is proving out. Now we have government agencies, which are myriad of agencies, all with different permutation, combination of business rules. We are able to handle that. And then you have insurance companies, which have all different segments of their divisions, which are able to onboard successfully on our platform. And then you go down the line. So we are seeing success in all of the verticals, and [ it's our ] decided strategy to continue to work on all of these verticals and continue to grow our business in all of those areas. Does that help?

That does help. It's exciting to hear. I guess just one quick follow-up would be when I think about the ability to do all of these while growing your overall business, I mean, your expense growth has been much more -- there's been a lot of operating leverage in the business, which I just want to make sure we can still see given how much you're growing top line and adding new types of customers, including enterprise. Do you expect sustainability to the operating leverage you've been able to show so far going forward? Or do you have to build out more infrastructure?

So Darrin, the operating leverage on the business is anyway very good. And let me give you a couple of examples, which are pretty much apparent from the results of our most recent quarter Q2. If you look at -- we are raising our guidance already for the full year for CP, and that is much more than what we already beat in Q2. And then we are also raising our guidance of adjusted EBITDA, which is also more than what we guided earlier. Now if you look at the Q2 results from the midpoint, our contribution profit was up by $3 million and adjusted EBITDA dollars was up by $2.7 million. So that's like 90% of incremental margin is right over there. And while we are spending very cautiously as operating leverage on the business is very high, but we are also very cognizant that we have a huge market in front of us. Our pipeline is very good, and it keeps on growing as we pass through quarters. And we would like to spend the money to convert that pipeline into bookings. That has been our backbone and has been serving us really well. So we will not be shy of spending the money for the right reasons as that's the right investment for us. Not only we have a significant cash on the balance sheet, but that we believe is the right investment of organic growth, which is serving us. Despite of all that, we are still expecting a significant operating leverage. It keeps on growing. I would highlight that the guidance today we have provided for Q3 and in fact, an implied guidance of Q4, which can also be derived from the numbers we gave, both these quarters, the incremental EBITDA margins are better than what we delivered last year in Q3 and Q4. And for the full year as well, based on the guidance, the incremental EBITDA margin at midpoint is 51.6% compared to 50.8% last year. And as you already see in this current quarter, our incremental EBITDA margin is 470 points better than last year compared to total EBITDA margin of 440 basis points. So what I'm trying to get to is that the operating leverage in the business is high, you can look at from many perspectives, and we are marching on the right path. Our goal is to grow profitably and not just grow. So we want to make sure we balance both the equations and -- but we have a great opportunity in front of us. I hope that helps to understand where we are.

The next question is from the line of John Davis with Raymond James.

Dushyant, I want to circle back to some of your opening remarks. You talked about becoming a multibillion revenue business in the next few years. That would imply, call it, mid-20s revenue growth, obviously, a little bit slower than you're growing now but ahead of the 20% plus growth that you've kind of outlined for the medium term. So is it going too far to think that, given the backlog, you have incremental confidence in kind of maybe mid-20s growth versus 20% before? Just kind of any thoughts there would be helpful.

Thank you, John. I think from a CAGR model perspective, we are still committed to the same CAGR model of 20% top line growth and 20% to 30% adjusted EBITDA dollar growth. What I was referring to is that this is an exciting time for the company, and we are seeing the market is moving in our direction. And frankly, we, as a company, couldn't be more excited today or we are as excited as we have been at any point. The -- with the advent of agentic AI and all of those -- the things which are taking place in the world, not just in bill payments, we are -- we believe that our preparedness over the years is actually going to prove to be very fruitful for our shareholders as we go forward. So what I was talking about is that we believe that we could be a multibillion-dollar company in coming years based on all of the strength of the KPIs we are seeing. However, we want to remain very disciplined on our CAGR model, and that's where we are right now.

No, fair enough. And then, Sanjay, I think obviously lots of positive things to talk about today, but maybe one thing hasn't gotten a ton of play was free cash flow year-to-date really strong and again, really good in the second quarter. I think conversion is over 150% of adjusted net income for the first half of the year. So any comments on full year free cash flow or how should we think about it either in terms of adjusted -- percent of adjusted EBITDA or percent of adjusted net income for the back half or any kind of onetime-ish things in 2Q?

John, so cash flow is very important to us, and the interesting part about cash flow is it's very difficult to forecast. One thing is for certain, looking at our trends, especially for this year. We are -- we generated $64-ish million in the 6 months, $22.5 million in this quarter and $40-ish million in the first quarter. So we feel very good about the cash generation. To be helpful, I can provide a model of how to come up with a forecast for free cash flow. At the outset, I would say our adjusted EBITDA margin can be adjusted for tax outflow, income taxes, which is approximately 25% as we guided. There's a cap software cash outflow, which is approximately at the run rate of $9 million. You can use -- you can add interest income, which is approximately $2.2-ish million based on the interest rates. And then the unknown piece is the working capital, and that is something, which could fluctuate quarter-over-quarter. And that's very difficult to forecast. I would say if the business is scaling significantly, we might be needing some cash to put in the working capital. But at the same time, that's very difficult to forecast, as I said, and it could depend on DSO. DSO range is somewhere 30 to 40 days. We are glad that we are coming at the best range at 31 days this quarter, so that's the piece which is unknown. You can use this model, hopefully, to come up with free cash flow forecast. But I would say, overall, the business is definitely cash generating, we have seen over the past many quarters; or the right way to interpret this would be excluding working capital needs, if they may arise, this is a cash generating profitable business.

[Operator Instructions]. And the next question is from the line of Andrew Polkowitz with JPMorgan.

Congrats on the quarter. I wanted to start off my questions by asking about the comments you gave on AI and agentic AI payments. I was curious if you could provide any color on what conversations are like with your existing customers or even prospects as far as what Paymentus can provide for them in kind of agentic payments future.

Yes. I think we -- first of all, thank you for the question, Andrew. What -- the way we are synthesizing as we analyze the entire opportunity in the landscape, if you think about -- one of the key ingredients that is needed for a very successful AI implementation is the -- all of the aspects I talked about, where can you handle very complex workflows, can you handle data lakes at scale, can you separate one customer's data at the scale from thousands more you have, so all of those type of things, combined with running a pay- per-use model at a scale with 24/7 interaction channels management across the spectrum. So when I factor -- when I look at all of that, it appears to me that we couldn't be more ready than any other company in terms of being able to capitalize on it. So the type of opportunities we are seeing is it is early days. The first thing I would say is we made a decision, and we are thinking about it as we go forward from here on out and years. I'm just giving you a longer-term view here, not necessarily immediate future, is that we believe that the AI not only going to be a productivity tool for Paymentus, for our internal purposes. But with our ability to already be a central nervous system for our clients, customer interactions and collections and revenues, we believe we will be able to help our clients across all areas whether it's improving their customer experience, whether it is reducing their cost to serve by helping them taking a lot of the cost and unwieldy processes out, whether it is related to receiving payments or sending payments out. So we think of this as a multidimensional play, and we are excited about -- of setting foundation for being -- AI could be a potential revenue center for us or at least will be -- could be additive to what we are doing here right now.

Great. That's super helpful. And then for my follow-up, you mentioned in the prepared remarks here, head count plans, kind of hiring to meet the demand. I was curious if there was any way you could disaggregate for us hiring plans across sales force versus the implementation and onboarding side?

Andrew, the hiring plans, which we said at the beginning of the year, we are on the path to executing them very carefully by each quarter. As you know, we calibrate our OpEx spending based on how the CP is coming. For example, this quarter, we took an opportunity to spend a little more than what we planned because the CP came in a little more. But in terms of exactly how much is on sales force versus, say, implementation or versus other engineering needs, we want to spend majority of our focus on converting the pipeline to bookings, which is our real return on investment and while leaving no stone unturned to update our technical strengths in engineering and implementation as well. So we are maintaining a fine balance between what the company needs to grow longer term, keeping our strengths, the priority as well but not missing out any opportunity on conversion. So these decisions are kind of flexible, although we set a plan, but we always make an attempt to be very much -- addressing what are the real demands compared to the opportunities we have in front of us. So it will be hard to lay out where it is more, but on a high level, if you want to get a sense of where the more focus is, I would say the focus is more on sales as we want to get more and more bookings to maintain and deliver a good growth and get our CAGR model delivered.

The next question is from the line of

I just want to follow up and ask on the incremental EBITDA margin. So first, I appreciate that the implied 2H margin, incremental margins are better on a year-over-year basis. but there is a step down in the second half of the year versus the first half of the year. So I guess first question is just is there anything specific driving that to call out.

Well, that -- I would say the only thing I'd like to call out is that looking any one particular metric using a trend of actuals in the past and guidance in the future may give you a misleading view. I think it's important to see the trends. And I would say, first of all, we follow a very prudent guidance methodology. We do not like to count our chickens before they hatch. So we are cognizant of what are the opportunities, at the same time, the risks in front of us, and we give them a fair share. We've been fortunate enough to address more of the upsides in our guidance methodologies rather than the risks. So we do not expect that the incremental EBITDA margins will go down. We are very focused on delivering good returns, especially on EBITDA margins. We've been a Rule of 40 company for a long time. So at this point, I would say that the incremental growth you are seeing, based on that, the incremental margins are still positive. But overall, I think the trends would indicate we take a cautious view here.

Got it. No, I appreciate that. And just as a follow-up on that point, so the incremental margins are in the low 50s for the full year. Is there any reason to think that that's not sustainable over the long term and we should eventually expect the adjusted EBITDA margin to converge with that? Or do you think that this is an elevated level? Just anything higher level in terms of longer-term opportunity on the margin side?

So the longer-term opportunity, I would say, is this company has a very strong operating leverage, and we have been able to demonstrate that many quarters in a row. And based on the opportunities in front of us for growth, and given I'm talking about long term here and not in the very short term, especially not for the guidance period, we expect longer-term incremental EBITDA margins or even the EBITDA margins of the company to get better. This is not the peak at all if that is the question. We are seeing good growth, and this should be getting better over time in the outer periods.

There are no further questions waiting at this time. I would now like to pass the conference back to management for any closing remarks.

Thank you, everyone. Have a great day.

Thank you. Bye-bye.