Paya Holdings Inc. (NASDAQ:PAYA) Q3 2022 Earnings Conference Call November 4, 2022 8:30 AM ET
Company Participants
Jeff Hack – Chief Executive Officer
Glenn Renzulli – Chief Financial Officer
Conference Call Participants
Robert Napoli – William Blair
James Faucette – Morgan Stanley
Joseph Vafi – Canaccord
Josh Siegler – Cantor
Andrew Jeffrey – Truist
David Togut – Evercore
John Davis – Raymond James
Timothy Chiodo – Credit Suisse
Mike Grondahl – Northland Capital
Operator
Good morning, ladies and gentlemen, and welcome to the Paya Holdings Inc. Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] A question-and-answer session will follow the formal presentation. As a reminder, this conference call is being recorded and today’s discussion will contain forward-looking statements, based on our current assumptions, expectations and beliefs, including financial guidance, the growth of Paya’s business, our objectives and business strategies, as well as other forward-looking statements.
Please refer to the disclosure at the end of the company’s earnings press release and Form 8-K filed with the SEC for information about forward-looking statements that will be made or discussed on this call. All statements made today reflect our current expectations only and we undertake no obligation to update any statements to reflect the events that will occur after this call.
You can learn more about the specific risk factors that could cause our actual results to differ materially from today’s discussion in the Risk Factors section in the company’s Form 10-K filed with the SEC in March 2022 and the subsequent periodic reports that the company files with the SEC.
Also during this call, we will be discussing certain non-GAAP measures of our performance. GAAP to non-GAAP financial reconciliations and supplemental financial information are provided in the earnings press release and the 8-K filed with the SEC. This call is also available via webcast. You can find all the information I have just described in the Investor Relations section of Paya’s website. Please note we’ll also posted a supplemental third quarter 2022 presentation to the Investor Relations section of the Paya website.
Now joining us on this call today are Paya’s CEO, Jeff Hack; and CFO, Glenn Renzulli. Following their prepared remarks, we will open the call to your questions.
With that, I’ll now turn the call over to Jeff.
Jeff Hack
Thank you, operator, and good morning, everyone. Thanks for joining us today as we review Paya’s third quarter 2022 financial results and the efforts underway to further accelerate our growth. At the conclusion of my remarks, Glenn will cover our detailed financial results and then we’ll take questions.
Paya reported another quarter of strong financial results led by our Integrated Solutions segment and our proprietary ACH offerings. These two growth engines, which continue to capitalize on the secular shift in our markets towards payment agnostic software led commerce, represented nearly 80% of total Paya revenue.
In the third quarter payment volume grew 14% to $12.6 billion. Total revenue grew 13% to $71.4 million, and adjusted EBITDA grew 14% to $18.6 million. Our third quarter results reflect the momentum we continue to see in our high growth underpenetrated and less cyclical end markets coupled with our continued investments in the business.
As a reminder, in any given quarter, the vast majority of our revenue growth comes from the continued penetration of our exceptional partners in durable end markets, principally B2B, not for profit, healthcare and government. This quarter was no exception with growth primarily driven by partners in each of these verticals and bolstered by continued strong retention, which itself is a testament to the value of powerful integrated solutions and Paya’s great customer support in high quality end markets.
I’m also pleased to highlight selected new customer wins in the quarter, each of which contributes to Paya’s future growth trajectory. We are proud to now include Feeding America as a Paya customer. Feeding America is the nation’s largest domestic hunger relief organization serving 40 million people, including 12 million children and 7 million seniors.
Feeding America chose Paya due to integrations with Feeding America’s business platform, as well as Paya’s differentiated features, support and reporting capabilities. Paya is proud to support Feeding America’s phenomenal mission to advance change in America by ensuring equitable access to food.
Another great example is our recent win of California based international shoe and apparel company [indiscernible] Global Brands. Paya was chosen for our robust ACH payment solutions that integrates into their existing ERP systems enabling a seamless experience for their B2B corporate customers to pay invoices online while also providing lower cost ACH, which is often appropriate for larger transactions.
Innovation continues to be a key growth lever at Paya and we remain on track to deliver on our 2022 technology investments enriching our B2B AR solutions, continued enhancement of our partner portal and reporting Ux/Ui, as well as key enhancements to our proprietary ACH platform.
These investments help accelerate growth in key areas, which allows to continue to capture a strong share of a multi-trillion dollar fast growing TAM. Specifically in the quarter, we launched our new citizen portal, which is the next innovation for Paya’s offering in the municipal government sector. The launch of this portal geared towards bill paying citizens and employees at Paya’s municipal clients was created to make it easier for citizens to view bills and make payments, as well as improving the transactional relationships between municipalities and their citizens through next generation citizen engagement functionality.
This new software will help drive electronic adoption, including auto pay recurrence, increase the win rate of our direct sales force, and help drive engagement with ISP partners in this vertical. In PayaGov, we are also seeing implementation times continue to trend down and Paya’s ability to implement quickly is an increasingly important decision factor in our new wins in the government vertical. This trend is expected to continue to accelerate with the launch of the new citizen portal.
More broadly, the pace of innovation at Paya has never been faster and is complimented by past and present investments in technology infrastructure, as well as Paya’s well tuned technical and operational support. I would also like to take a moment to update you on an exciting change we recently made. As Paya has continued to grow and thrive, we’ve been increasingly dedicating and aligning resources to three of the fastest growing end markets within our integrated solutions business, which are B2B, government and strategic verticals, which includes non-profit healthcare and insurance. Each of these end markets now have dedicated leadership and teams working across sales, marketing, product and customer success.
To a large extent, this simply formalizes our commercial operating model by ensuring that Paya talent is organized around our client end markets for innovation, domain depth, quality and speed of execution, all of which help maximize Paya’s growth potential. We, of course, continue to gain terrific operating leverage across Paya in areas such as technology infrastructure, back office, finance, and people operations.
On capital allocation, our priorities haven’t changed. We remain focused on organic growth through the continued and ongoing investment in our people and solutions in order to extend our market leadership while expanding our addressable market. M&A also remains a key focus area for us and compliments the organic growth profile of the business. We continue to work in active pipeline of M&A opportunities and remain both disciplined and enthusiastic to execute strategic and accretive acquisitions.
Before turning it over to Glenn, a few words about driving a great growth company amid heightened of certain macro. The combination of Paya is exceptional and more durable end markets along with strong profitability, cash flow duration and balance sheet provide excellent conditions to remain laser focused on quality top and bottom line growth for the medium-term, while also delivering solid short-term results along the way.
With that, I’ll turn it over to Glenn to walk you through the financials in a bit more detail. Glenn?
Glenn Renzulli
Thanks, Jeff, and good morning, everyone. Paya delivered strong financial results in the third quarter. Total payment volume in the third quarter was $12.6 billion, an increase of 14% year-over-year. Integrated solutions and ACH were the larger drivers of volume growth this quarter. Third quarter total revenue was $71.4 million, growing 13% versus last year. Integrated solution revenue was $45.7 million, up 15% led by the strength in B2B and more specifically continued strength with our ERP partners.
Payment services revenue is $25.6 million, up 10% year-over-year with ACH revenue growing 19%. We continue to see solid attach rates for proprietary ACH offerings with our new software partnerships. Non-GAAP gross profit in the third quarter was $35.9 million, up 10% with gross margin of 50.3% down versus the prior year driven by impressive growth with some of our larger integrated partners. Integrated solutions gross profit of $21.9 million was up 9% while payment services gross profit was $14 million, up 13%.
Adjusted operating expenses were $17.3 million in the quarter, up approximately $1 million year-over-year as we ramped our growth investments to enhance our go-to-market strategies and product innovation, while also realizing cost efficiencies and other areas of our business. Adjusted EBITDA in the quarter was $18.6 million, up 14% versus the prior year.
GAAP net income for the quarter was $1.3 million versus a loss of $3 million in the prior year with earnings per share of $0.01. Adjusted net income for the quarter was $11.3 million with adjusted EPS of $0.09 per share. Net cash provided by operating activities was $28 million over the first three quarters of the year. Our share count at the end of the third quarter was 127 million diluted shares outstanding. You can reference an illustrative walk through of our share count in our earnings presentation. Regarding our balance sheet, we have $156 million in cash and $247 million of gross debt with a net leverage ratio below 1.3 times on a trailing basis.
Turning to our full year guidance. We are raising the low end of our revenue guidance to reflect our strong performance to date, along with our outlook for the remainder of the year. We expect that revenue will fall within a range of $280 million to $283 million, gross profit margin to be approximately 51%, and adjusted EBITDA in a range of $73 million to $74 million.
That concludes my prepared remarks this morning. I’ll turn in the call back over to Jeff to close out. Jeff?
Jeff Hack
Thank you, Glenn. Paya has reported another strong quarter, which I see as a direct result of our very focused and compelling strategy in great end markets, coupled with excellent execution by the amazing talent we have at Paya. So I close out this call with a heartfelt thanks to everyone at Paya who continues to execute so well in the present while also building an even greater growth company for the future.
With that operator, we’re ready to take questions.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] Our first question comes from Robert Napoli of William Blair. Your line of open.
Robert Napoli
Good morning, Jeff and Glenn. Nice quarter. I guess, first question would be, I mean, Jeff, you highlight looking to accelerate – further accelerate growth if you would, what are you – can you maybe quantify that or do some color around that. And how do you think about growth with this? How are you being affected by the macro as we think about 2023?
Jeff Hack
Good morning, Bob. Thanks for the question. Couple things. I think there’s two different points in there. So first, in terms of macro, as we’ve said before, B2B, gov, non-profit healthcare obviously have great characteristics relative to some of the more volatile consumer sectors. So that serves us well. And I think shows through in our results and importantly the predictability of our results. To your other question, we define medium-term growth objectives, which you are familiar with which is low double digit top line, much larger bottom line growth over the medium term. And the investments we’re making today are there to ensure that we can meet and/or exceed those objectives.
Robert Napoli
Great. Thank you. Then maybe just to follow-up on gross margin, the – EBITDA margin, stable gross margin, little bit of pressure on gross margin. How do – what is driving the gross margin pressure and how do you think about gross profit margin and adjusted EBITDA margins as you think about growing that EBITDA much faster than revenue?
Jeff Hack
Yes. So I’ll start and then – go ahead, Glenn.
Glenn Renzulli
Hey, Bob. This is Glenn. The – similar story to last quarter, right, we’ve seen really solid growth in our B2B partners, specifically some of the ERP relationships that we have, and those just come at us slightly less favorable revenue share compared to our blended. So with that, we really like that growth. We love those partnerships. We love that end market, right. Are those end markets in B2B? And so, yes, we’re comfortable with that growth and that slight decline on the gross margin side. And east from a quarter sequential perspective, not a ton different a little bit lower versus Q2, but we don’t see this as something of a concern and you kind of reference why, because we still think we have great scalability on the bottom line and with our EBITDA. And you saw a little bit of that this quarter with a slight expansion and we still feel good about bottom line EBITDA expansion moving forward.
Robert Napoli
Great. Thank you.
Jeff Hack
Hey, Bob. It’s Jeff. Let me just add two quick things to what Glenn said. First of all, we have been consistent with all of you that we don’t manage to gross margin percentage. We want all our partners to exhibit healthy growth, and if that number moves around a little bit due to mix, so be it gross margin dollar growth more of a focus. And to the question on bottom line growth, I think your question is, the gradual expanding of margins, and I would simply observe the following. The majority of our operating expenses is from the business, which in general does not need to grow as quickly. Obviously, there’s discretionary investment in there as well, but the fundamental underpinnings of our cost structure provide for margin expansion over time, and we feel confident in that looking ahead.
Robert Napoli
Thank you.
Operator
Thank you. [Operator Instructions] Thank you. Our next question comes from the line of James Faucette with Morgan Stanley. Your line is open.
James Faucette
Thank you very much. Just looking at your really strong balance sheet and cash generation ability, how do you think about priorities right now around your capital allocation? And maybe more specifically on acquisitions and any updated perspectives on current valuations and what those are looking like as you look at potential acquisitions?
Jeff Hack
Yes. Good morning. James, it’s Jeff. First and foremost, capital allocation priorities at Paya haven’t changed. So just to reiterate, investments in our organic growth profile always come first, complimented by strategic and accretive M&A. To your – the second part of your question about the environment, I think we’re all observing the same characteristics more broadly in terms of perhaps we’ll say gradual adjustments to valuation expectations. So punch line is, we are enthusiastic, we are also disciplined and look forward to the right deals at the right time that add to the growth profile of Paya and the pipeline is solid.
James Faucette
Got it. Got it. And then on – I want to dig in quickly on your payment volume. Any trends that you can call out sequentially between ACH and card and maybe going back even over the last few quarters and how you’re thinking about that going forward. I mean, because to us, it looks like card volume has been relatively flat in recent quarters, while ACH has been really a solid driver for you guys. But just – what do you think is happening there and how are you thinking about that trajectory for.
Glenn Renzulli
Yes. Happy to take that, James. This is Glenn. Look, sequentially, Q3 is always kind of a – typically a flattish type volume quarter for us from Q2. So that’s not surprising that our card volume is pretty similar as last quarter. And you can see it kind of in last year’s numbers too. So yes, look, I think we’re looking at the same things, a lot of people are looking at year-over-year growth and into the quarter and everything. And certainly, there’s going to be – there’s been a little bit of a slowdown in the level of growth, right? Still nice growth as you see in the quarter. But as we look out, we’re certainly going to see some level of slowdown we think, but for us, we haven’t seen too much ourselves yet.
And even into the first month of the quarter for Q4 here, the growth is still good. We’re waiting for something to happen. I think everyone’s very conscious of the external environment. But for us, I think some of it’s really going back to our strong end markets and where we play, some of them are just less volatile and that’s another area of why you might not see sequential big changes on a quarter-to-quarter basis. When you think about B2B, solid player has some cyclicality, but our end markets tend to be pretty solid there. And then not for profit healthcare and government very solid stable markets. So some of it again just circles back to those end markets and the stability. And I think that helps us when things slow down a little bit and we just don’t get as much upside volatility sometimes as well.
James Faucette
Got it. Thanks for that, Glenn. Thanks, Jeff.
Operator
Thank you. Our next question comes from the line of Joseph Vafi of Canaccord. Your line is open.
Joseph Vafi
Hey guys. Good morning. Nice results. Just a higher level question here on your verticals and where you’re focused, all solid markets, but B2B just kind of – it’s just – it’s so much larger and the growth characteristics and perhaps even the greenfield on the B2B side are quite large. I was wondering if you could kind of lay out for us some of your vision and how much perhaps more focused you are in B2B versus the other verticals and how you see that payment volume in that vertical potentially moving over time relative to your other verticals. And I have a follow-up?
Jeff Hack
Good morning, Joe. It’s Jeff. Great question. So two things. First of all, we love all of our vertical end market and we manage and invest in each of them have proposed the opportunities we see. So there isn’t much trading off between them, but more maximizing the potential of each one. To the first part of your question, of course, the B2B TAM is massive. It is the foundation of how this company was built and we have never decked more talent against more ERP integrations, more sales and partner support, and obviously what has been operational customer excellence – support excellence for a long, long time.
So we share your view there and really have never felt better about the potential that provides. And one other thing I would add, Joe, we mentioned this before, is when we acquired VelocIT earlier in the year, that is a great example of how you can step function expand your opportunity, whether it’s very specific popular integrations, domain expertise, intellectual property, et cetera. So I think you can hear from me, we share your enthusiasm and see tons of tailwind and accelerated growth over time.
Joseph Vafi
That’s great. Thanks, Jeff. And then just given the macro and in real time, we are seeing a lot of companies kind of dial back at had on investments and the like. Just wondering a what you’re – you may be thinking about in this environment. And then two, how are your partners or what you’re seeing from your partners in terms of keeping up the momentum in driving payments into their customer base, which is obviously your customer base too. And the resources there continuing to devote to helping you penetrate the customer. Thanks a lot.
Jeff Hack
Great. Thanks, Joe. It’s Jeff. So firstly in your question about macro, and I’ll tie this to one of Glenn’s earlier comments. One of the great things about running a company like Paya and the durability of these end markets and obviously the stability of performance is if you stay disciplined and well managed along the way, you don’t need to be going through those gyrations where you’re hiring and then firing, starting projects and stopping projects. So in general, as Glenn said, we keep a close eye on an uncertain environment as everybody should do, of course, even though we don’t see much of an impact on our business and our end markets, it’s just responsible to be mindful of. But as a general matter, we see this environment is a great opportunity for Paya to stay focused on our growth investments to attract incredible talent and push growth even further.
So the second part of your question around partners, one of the great things about these – our partner roster is there is a lot of embedded growth in terms of penetrating their existing base, some of our best partners are also significant acquirers of companies themselves, which bring us chunkier growth opportunities. And to your point, and we’ve messaged this earlier throughout the year, we have increased our investments in helping our partners penetrate the base. Principally, this is marketing programs, our insight in terms of what works, sales support, sales training and we continue to tune this. So not only do we add to it, but we tune it and as a result, get more partner uptake, and frankly, share of mind at those companies to drive that opportunity even further.
Joseph Vafi
Great. Thanks a lot, Jeff. Congrats on the quarter.
Operator
Thank you. [Operator Instructions] Our next question comes from the line of – our next question comes from the line of Josh Siegler of Cantor. Your line is open. Mr. Siegler, your line is open. One moment. Please make sure your phone isn’t on mute.
Josh Siegler
Yes. Hi, good morning. Thanks for taking my question. Can you give us some color on the recent growth initiatives, specifically around payback timing? Do you expect them to start incrementally contributing to growth in 2023?
Jeff Hack
Yes. Good morning, Josh. It’s Jeff. I’ll start and Glenn can pick it up. So in terms of time wise – first of all, the ROIs on our investments are all very compelling. The speed with which they manifest in the P&L vary. So fastest ROIs with the investments in sales and marketing support around partner penetration that I was just referring to, for sure, obviously, new product solutions and innovation such as the new gov solutions that we announced this quarter enhanced and streamlined B2B solutions and ERP integrations put that at the longer end and then in the middle sales resources, sales effectiveness.
So they really run the gamut, and I emphasize the point that we manage this company for the medium term, so we will be patient where we should be patient, and we will set high expectations for quicker results where that’s appropriate as well. So it all blends together. I know that’s doesn’t quite get to the heart of your question, but that is our reality and we do measure the ROI of everything we do, so that we can learn and continue to be smarter and know where to double down and where to lighten up as we look ahead.
Josh Siegler
Got it. That’s very helpful color. Thank you. I know we’ve spoken a lot today about the demand environment specifically in regards to the current macro uncertainty. However, I’d be curious what you’re hearing from new partnerships and if you think the macro environment is impacting your ability to win new business. Thank you.
Jeff Hack
Yes. Josh, that’s a great question. What I would tell you is that our pipeline of new opportunities, both through our partners and where we sell directly is we don’t see a shift, I would say, we do not see an acceleration in those efforts. We do not see a deceleration in those efforts relative to the macro climate. Remember, these partnerships when they’re stood up last for five, 10 years even longer. So these are really fundamental business choices about how you’ll manage the business and really are not tied so much to the environment of the moment. So we feel good about that level of engagement and adoption and as I mentioned in the prepared remarks very importantly, we also continue to be very focused on anything we can do at Paya to help speed up implementation times and speed to revenue.
Josh Siegler
Great. Thank you very much. Appreciate the color.
Jeff Hack
Thanks, Josh.
Operator
Thank you. Our next question comes from the line of Andrew Jeffrey of Truist. Your line is open.
Andrew Jeffrey
Hi, good morning. I appreciate you taking the questions and all the sort of questions on growth and return on investment I think are definitely top of mind for a lot of investors. Also good, Jeff, to hear you talk about some of these wins like [indiscernible] and the citizen portal. Maybe what I’ll ask you about specifically, is your comment on implementation times I know that’s an area where you’ve been investing. And perhaps that’s one thing we could point to and think about as we look out to 2023 and try to build our models in terms of how that government vertical might actually accelerate. Can you just elaborate a little bit on what you’re doing there and whether or not that is maybe driving some tangible share gains and new wins that we’re going to hear about over the next few quarters in addition to the ones you called out today?
Jeff Hack
Yes. Andrew, thanks. That’s a great question. It’s Jeff. So first of all, I want to set the contact and remind folks that the vast majority of our new revenue at any given point in time is through the penetration of our existing partners, i.e., already implemented, right? So that’s very important to understand. In terms of bringing implementation timelines down, of course, it is helpful. And more importantly, it fosters great partnerships. It fosters attention and support. So earlier comments about partners and the sell through momentum.
So it benefits in a bunch of different ways. I wouldn’t isolate it as a principle driver of short-term growth because it – while it’s significant, it’s not as significant as the other levers in the short-term. Obviously, over time it’s beneficial. It’s also, by the way, more efficient, right? It’s more efficient for Paya, it’s more efficient for our partners. If you’ve streamlined the tasks, if you’ve simplified the integrations, train – the training and support that comes with it you actually save money as well.
Andrew Jeffrey
Okay. So multiple benefits, I guess. So I guess is it right to kind of think that the new business wins you called out today and/or the citizen portal, which I know is an expansion of current capabilities or really just sort of part of the overall growth algorithm rather than being incremental. I think we’re, again, just all trying to gauge what the benefits of some of the spending that you’re doing this year will have on next year and as we look out into 2024.
Jeff Hack
Yes. Andrew, it’s Jeff again. I think you’re thinking about it the right way. I want to emphasize a point and we’ll use the gov citizen in municipal portal as a great example of that. That is two things. First of all, products and solutions should never be static. There’s always opportunity to improve the UX/UI and therefore increase adoption satisfaction and so on. So we feel strongly that in our core vertical end markets, we should always be innovating and whether that innovation is to defend an existing growth rate or accelerate it further obviously the answer is you want both, but we don’t view it as anything other than running a good quality business for the medium-term and being as good as we possibly can be in each of those core vertical end markets.
And I think, Andrew, just to close out on that, I think that is the key point that folks should understand about separating winners and losers is these businesses integrated, vertically focused payment solutions require end-to-end excellence in each of your core vertical end markets. So for us, B2B, of course, gov as we were just talking about non-profit healthcare and so on, is that’s what drives winning, is that focus and tailoring those solutions end-to-end for each of those end markets.
Andrew Jeffrey
Okay. Appreciate that. Thanks.
Operator
Thank you. [Operator Instructions] Our next question comes from the line of David Togut of Evercore. Your line is open.
David Togut
Thank you. Good morning. In the past year, you decided to step up some investment spending to capture a higher organic growth and did trade-off margin expansion, which is I think of a real strength of your model to kind of increase spending. There have been a few questions on this, but trying to tie it together for 2023, how should we think about growth in your kind of OpEx, non-transactional OpEx in 2023 in terms of bracketing what operating leverage might be in the year ahead?
Jeff Hack
Yes, so David, I’ll start and then Glenn – go ahead, Glenn.
Glenn Renzulli
No, go ahead, Jeff.
Jeff Hack
So David, I’ll just – I’ll make a macro point and then I’ll let Glenn follow-up. So first of all, we like all companies are in our planning cycle now to evaluate each investment opportunity in its merits. So we don’t have a declarative statement of course to make at this time which is, as you would expect.
What I would say is what we have always said and that is we are managing this company for maximum top and bottom line growth over the medium-term. We will continue and having a great balance sheet and having great cash flow provides you the latitude to make whatever level of investments you think are appropriate.
Having said that, and as mentioned earlier on this call, the inherent operating leverage in our business is clearly there and has been demonstrated by the performance of this company over the past several years. So regardless of any given moment in time, we feel good about that margin expansion over time. But to your point, we will also make investments selectively when we believe strongly that they’re the right thing to do for the medium-term.
David Togut
Understood. Just as a follow-up, you know, as we look at your investment spending this year, are there any areas of investment spending that you brought forward into this year that might otherwise have occurred next year in terms of framing how investments then might evolve in the year head understanding that at this juncture you’re not yet quantifying?
Jeff Hack
David, it’s Jeff again. I guess I’ll say one thing and then Glenn, you should add on to this. It’s – so we did increase investments modestly, and as Glenn mentioned earlier on the call, by the way, we realized efficiencies in other part of the business. So the gross amount of investment in the future is actually higher than the expense growth rate in and of itself.
I think that’s an important point that sometimes gets lost, but I wouldn’t look at it orders of magnitude as I did an extra project in 2023 – in 2022, sorry. And therefore I will do one less project in 2023. We see lots of opportunity for growth in our core end markets, and again, we evaluate them one by one back to the ROI conversation earlier.
David Togut
Understood. Thank you.
Operator
Thank you. Our next question comes from the line of John Davis of Raymond James. Your line is open. Mr. Davis, your line is open.
John Davis
Thanks. Good morning, guys. Glenn, maybe just start with, do you guys – have you given us an idea of what percentage of your transactions are [indiscernible] price versus kind of a fixed fee for transaction? Just trying to understand how inflation will play through your numbers.
Glenn Renzulli
Yes, look, I think what we’ve spoke about in the past is, ACH tends to be a little bit more per tran [ph] driven. And I think you guys are aware ACH is somewhere around 15% of our revenue. So it gives you a good indication. We do have some fees on the card side as well, but that 15% numbers not a bad indicator of transaction or fee based revenue versus spread basis point revenue.
John Davis
Okay. And then I know we’ve talked a lot about B2B on this call, Jeff, but obviously 35% of revenue. Can you give us a sense of how fast B2B is growing relative to the rest of the company? Even if it’s just directionally, and then also just remind us what the largest end-market verticals are within B2B, right? B2B means a lot to a lot of different people, and there’s a lot of verticals there. So just as we try and think through your kind of macro exposure as we go into 2023.
Jeff Hack
Yes, John, great question. Let’s try to put a little context around it. So first of all, the B2B label is a very broad and general label in its broadest version, I could make the argument that serving municipalities is a B2B type business as well, many aspects of healthcare, our biggest section there is all practice management.
So there’s even a broader definition of B2B or maybe you might say B2B2C, but it’s really B2B, specifically and in terms of the way that we provide information to all of you, the integrated solution segment, think of it this way and Glenn will correct me if I don’t get this exactly right. The Integrated Solutions segment is your proxy. B2B is about half of the Integrated Solutions segment, and then gov and healthcare, non-profit insurance is the other half of the Integrated Solutions segment.
They’re all exhibiting strong growth. They all have the same favorable characteristics and they all get investment, specific to their individual opportunities. And sorry, the last part of your question, I realize I didn’t answer within the B2B 35% manufacturing, distribution, logistics, supply chain are the kinds of subcategories that probably would resonate with you guys.
John Davis
Okay. That’s super helpful. And then as we look, you’ve talked a lot on this call about some of internal investments to drive accelerated growth. So as we think about heading into next year, maybe what are the puts and takes from a top line perspective, you guys have a mid-term kind of targets out there. I mean, should we think of 2023 kind of in that range of your mid-term targets or just, I’m not looking for formal guidance, but just kind of any colors or any color puts and takes we can get on 2023 that would be helpful.
Jeff Hack
Yes, so John…
Glenn Renzulli
John, I’ll take that.
Jeff Hack
Oh, go ahead, Glenn, please.
Glenn Renzulli
Well, I mean, first and foremost, we’re going to say the same thing, right? We’re not going to really give 2023 guidance, right? We’re just not going to do that. I appreciate that’s not the specific question, but look, I think at the end of the day, it’s the macro is going to be a big item, right? Even though we have really, really strong end markets that we feel good about and less cyclical and resilient, we still need to be a little closer to where we’re entering the year, I think to be a little more affirmative there. And that’s really why we give guidance in February versus November 4 or whatever.
So I think it’s really tough to say at this point until we see where the economy and macro is settling out. But again, we feel again good about the verticals and the mix of business and any economic situation still feel good about growth.
John Davis
Okay. All right. Thanks, guys.
Operator
Thank you. Our next question comes from line of Timothy Chiodo of Credit Suisse. Your line is open.
Timothy Chiodo
Great. Thank you. So the end markets, we’ve talked a lot about that today, and clearly they’re much more stable than some of the more volatile end markets that are a little bit more consumer focused, given that they seem to be pretty attractive, not just to you guys, but to other competitors as well.
And I know in the past we’ve talked about that some of the larger players tend not to compete as much in these end markets, whether it be government, municipal, right, healthcare, not for profit. Just could you give us an update in terms of when you do head into RFPs, is that changing at all? Because it would seem that these would be attractive to others as well. Are you starting to see any of the larger players show up in the RFPs, or is it pretty much status quo?
Jeff Hack
Yes, thanks, Tim. It’s Jeff. Great question. So first of all, broadly speaking, the competitive landscape remains very fragmented, number one. Number two, these are fast growing end markets. So as we’ve referred to before, more of a land grab than a share war, which is these are both very attractive qualities broadly.
In terms of competitive landscape, it hasn’t changed. So typically the largest opportunities are the ones with RFPs very often are mid and small size are not RFPs or even formal processes. It doesn’t mean you might not have competition but it’s not with the same level of intensity, as you would imagine.
And it also varies by end market. So governments by requirement very often have a more formalized procurement process, but a significant new ERP partnership is more likely many months, maybe quarters, maybe even a year of cultivating a relationship, educating them on how it would work but both the technical integration and the sell through.
So it’s not the same competitive dynamic as you might see in traditional card present consumer verticals. So net-net, we feel good about the competitive landscape. I think you asked specifically about larger names pretty rare in our market, occasionally for the largest opportunities. And then by the way, the decision factor is almost always not a price decision. It’s the strength of solutions, the strength of support, accessibility of your talent to help partners manage through to success.
Timothy Chiodo
Excellent. Appreciate all that industry context. Thank you, Jeff.
Jeff Hack
Thanks, Tim.
Operator
Thank you. [Operator Instructions] Our next question comes from the line of Mike Grondahl of Northland Capital. Your line is open.
Mike Grondahl
Yes. Hey, Jeff, just a quick question. When you were going through B2B government and then you got to strategic, you mentioned insurance, can you just give us a little bit of color what you’re doing in that, I’ll call it sub-vertical, I guess.
Jeff Hack
Yes, Mike. Great question. So I mentioned a minute or two ago these different definitions of B2B or what I’ll call B2B like businesses. So think about middle market insurance, think about the agency structure, they look a lot like other B2B markets. Of course, there are areas where you need to tailor your solutions to meet their needs. Maybe it’s a compliance module, maybe it’s tied to funding.
Making sure that a transaction funding aligns with when a policy is bound, as an example. So we have great partners in the insurance vertical who bring the value-added software that compliments Paya solution to drive that end market. But I think tying it back to the earlier conversation, it is another example of a B2B like business a great underlying growth. I think you all know the amount of paper invoice, paper check and insurance. I can’t imagine that it’s higher anywhere. So the opportunity to electronify and integrate those payment streams is quite substantial.
Mike Grondahl
Got it, got it. Thank you.
Operator
Thank you. [Operator Instructions] Our next question comes from the line of Robert Napoli of William Blair. Your line is open.
Robert Napoli
Sorry. This is Bob Napoli. Can you hear me?
Jeff Hack
Yes.
Robert Napoli
Okay. I didn’t hear my name. Sorry. This – thank you for the follow-up opportunity. I know we kind of beat this to death, but it’s really important to – the potential for accelerating growth. And I guess as we’ve gone through this quarter, we’ve seen some companies talk about delayed decisions.
I think companies with better tech stacks haven’t complained about the delayed decisions as much as some others with your tech stack and how to accelerate growth, companies with the best tech stacks seem to be able to grow at faster rates, and B2B is a market where if you see some companies growing at 80%, there’s good growth across the Board in that space.
But I mean, if you could take your growth from low-double digit to mid-teens, I mean I think that would really change the perception of your company. What does it take? Is it a tech stack improvement? Is there just investing more? And it’s kind of a balancing act with your high margins that you may not want to do that, but what does it take? How is your tech stack? What is it going to take to really accelerate growth? I mean, B2B, 35% of your business could grow probably at twice the rate you’re growing it today. I’m just not sure of the trade-offs.
Jeff Hack
Yes, Bob, that is an excellent question. So first of all, we feel very good about our tech stack. I would tell you, pace of delivery, caliber of talent, and very important, by the way, thoughtfulness around the solutioning, right? You could spend twice as much money and not get good stuff. So first and foremost, quality and quantity of delivery never been stronger, strength and modernization of our tech stack that was an investment we have been making for years, and it pays off dividends in terms of faster deployment and importantly durability and responsiveness, et cetera.
And to your question about where technology investments can further accelerate your growth rate, we agree with you and that’s why we have been investing not just in the infrastructure, but in the talent to deploy these amazing solutions both really well and faster where possible. You mentioned in your question about trading off, we don’t manage this company for the short run.
That’s not a signal about increased investment level. That’s not my point there. My point is, we have always and will – and continue to always manage to the medium-term growth opportunities of the company doing whatever makes sense. And when you have strong cash flow and a pristine balance sheet, you can do those things and not be distracted in terms of your investment programs for an uncertain macro climate of the moment. That is a great luxury of a very durable business like Paya that you don’t have to manage for too much for the short-term.
Robert Napoli
No, that makes sense. Is – and is that – so that investment in that like B2B, can you like double the growth and I mean, takes – make some increased investment there in such a large market? Can you like double the growth of that vertical, if you would? Or what holds you back to doing that?
Jeff Hack
Yes, no, listen, I think ambitions run high. And at the same time, we don’t want to set unrealistic expectations in the short-term around any one area. What I would tell you is B2B is the core and the foundation of this company. It is our greatest competitive strength in almost everything we do.
And we are doing everything you could possibly imagine to maximize the potential growth of that business. And you’re right that technology solutions are a big part of that. That means more ERP integrations, better tools and support for the VARs who often are selling in those end markets, wider base of those integrations.
And equally important, Bob, the tech is fundamental of course, but it’s also the sales and marketing support that you provide to partners that accelerates growth. And it’s also the excellent technical and operational support you provide to people, which drives satisfaction. It drives the great retention you already see at Paya. So if your question is do – are we excited by accelerating the growth in B2B, unquestionably yes, specifics about steepness of that curve and timing impossible to say, but we share your enthusiasm and we are investing accordingly.
Robert Napoli
Thank you.
Operator
Thank you. [Operator Instructions] Thank you. I’m showing no further questions at this time. I’d like to turn the call back over to Mr. Jeff Hack for any closing remarks.
Jeff Hack
Great. Thank you, operator. Thanks everybody for joining us so early this morning. We appreciate the questions. And we look forward to continuing to be very candid, transparent, and supportive. And we close out the quarter are super proud with continued progress and success in the business.
Operator
Ladies and gentlemen, this does conclude today’s conference. Thank you all for participating. You may now disconnect. Have a great day.
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