AvidXchange Holdings, Inc.

Good evening, everyone, and thank you for joining us for the Avid Exchange Holdings Inc. first quarter 2022 earnings call. Joining us on the call today is Mike Prager, Avid Exchange's co-founder and chief executive officer, Joel Wilhite, Avid Exchange's chief financial officer, and Subhash Kumar, Avid Exchange's head of investor relations. Before we begin today's call, management has asked me to relay the forward-looking statement disclaimer that is included at the end of today's press release. This disclaimer emphasizes the major uncertainties and risks inherent in the forward-looking statements the company will make this afternoon. Please keep these uncertainties and risks in mind as the company discusses future strategic initiatives, potential market opportunities, operational outlook, and financial guidance during today's call. Also, please note that the company undertakes no duty to update or revise any forward-looking statements. Today's call will also include a discussion of non-GAAP financial measures. As that term is defined in Regulation G, a non-GAAP financial measure should not be considered in isolation from or as a substitute for financial information presented in compliance with GAAP. Accordingly, at the end of today's press release, the company has provided a reconciliation of these non-GAAP financial measures to financial results prepared in accordance with GAAP. With that, I'll now turn the call over to Mike Prager. Please go ahead.

Thank you, everyone, for joining us today. Joel and I are excited to discuss Avid Exchange's first quarter 2022 results and the continued momentum we are experiencing across our business, driven by our middle market focus and the four growth gears of our Avid Exchange business flywheel that drives our business. Overall, we once again delivered a solid quarter, of both operational and financial performance, with results coming in better than our forecast. This is the third consecutive quarter of over 20% organic revenue growth. These positive results reflect the middle market's steady demand for Avid Exchange's industry-leading and differentiated business-to-business accounts payable automation software and our payment solutions that are purpose-built for middle market companies. We experienced a strong revenue performance of over $71 million, which was up 29% over the same period last year in higher non-GAAP gross margin exceeding 62%, together with lower expenses, which led to a reduced EBITDA loss of $5.6 million in the quarter. As a result, we are raising our full-year revenue outlook while lowering our adjusted EBITDA losses relative to our previous guidance, which Joel will discuss later in today's call. Our first quarter 2022 results were very much a continuation of the trends we highlighted on our first earnings call back in November of last year. We're seeing our buyer customer demand be broad-based across the various vertical markets we operate in. The homeowner association management market, or HOA as we call it, which we highlighted in our last earnings call in March, continues to recover nicely. We also saw healthy overall growth in both our buyer and supplier customer counts. Separately, we made a small tuck-in acquisition of new customers in the first quarter from Pay Clearly for a total cash consideration of $7 million. Pay Clearly operates in the media vertical with a focus on political segment and had a roster of over 40 politically focused media customers, which we acquired. This acquisition, coupled with FastPay in July 2021, cements our leadership in the media vertical. Continuing with our results during the first quarter, we experiencing strong transaction volume growth, totaling 16.9 million, which was up almost 16%, with a total payment volume increasing by 41% to 15.2 billion this past quarter. Our new homeowner association management customer, Worth Ross Management, is a great example of what is driving our growth. As a leader in the luxury high rise and homeowner association management segment, With over 100 associations under management, Dallas-based Worth Management was drowning in heavy paper invoice approval and coding processes, being responsible for the timely processing of thousands of monthly invoices and payments. Avid Exchange's purpose-built AP automation software and payment solutions streamline their manual and paper-intensive AP process by eliminating their paper invoices and their paper checks. enabling their AP specialists to be more value-added in providing business insights and analysis to their association property managers. The WorthRoss example is also significant in another way, as they are also a strategic cornerstone customer, given how influential they are in the HOA market. To build on our momentum in the HOA vertical, we also announced the hiring of HOA industry veteran, Michael Pazetko, as vice president of our HOA business. Another powerful example of what is fueling our growth continues to be our strategic channel partnerships. We are excited to have just signed another major preferred strategic partner agreement in the real estate vertical with Resmin, an industry-leading and rapidly growing multifamily property management and accounting system software company. Resmin targets middle market residential multifamily property owners that manage a portfolio of real estate ranging anywhere from 500 to 5,000 rental units ResMed today has a base of over 700 buyer real estate customers utilizing their property management and accounting system features and views Avid Exchange as a high impact strategic relationship, which will enable ResMed to further move up market with more robust accounts payable and payment tools to help their highest value customers manage their dynamic business rules for invoice approvals and payments more effectively. With this high-profile ResMed strategic partnership, we are now deeply embedded with five of the top seven real estate accounting system providers in the industry. In short, our operating and financial results demonstrate a strong execution against our long-range business plan of being the de facto standard for accounts payable and payment automation across the middle market. It further validates the investments we have outlined and have made since our IPO. With that, let me provide you with an update on how we are executing against our investment objectives set at our IPO last October, impacting each year of our Avid Exchange business flywheel. In year one, which is delivering a great AP and payment automation software experience to our buyer customers, we are excited to announce the launch of our next generation procurement and purchase order management tools, which now includes three-way invoice matching capabilities. Let me provide some context to why this enhanced functionality for our next generation purchase order management tools are both strategic to us as well as being high impact to customers. We estimate that a significant portion of the middle market businesses, particularly in the upper end of the segment, have some form of purchase order, or PO as we refer to it, business process already in place today. And many times, this is a paper-based process. In the real estate vertical alone, One of the largest industry verticals, for example, there is an upstream need to better control decentralized spending related to repairs and maintenance through a streamlined purchasing and invoice process. Our next-generation purchase order tools are a strategic advancement and an appealing feature set for both new and existing customers while enabling us to penetrate the horizontal ERP providers further and target new vertical industries such as the middle market manufacturing segments. This offering, we believe, will further support the tailwinds for customer adoption in achieving our long-term growth objectives. Lastly, the benefit of this offering shall still increase already strong customer close rates with key strategic partners who've also seen strong customer demand for this type of functionality across their middle market customer base. Now turning to the second gear of our flywheel, which is focused on maximizing overall transactions on our platform. A key aspect of our strategy is continue to expand and improve upon our integrations to accounting systems, especially those with large market share or those in key verticals. Remember that if we're not highly integrated with a customer's core accounting system and provide them a seamless user experience, it's very difficult to demonstrate the efficiency impact of a fully automated process. In combination with our recently released next generation purchasing tools, along with our built inside integrations, With our top four highly strategic horizontal accounting systems and ERP partners, which include NetSuite, Microsoft Dynamics, Sage Intac, and QuickBooks Enterprise, these next-generation built-inside integrations provide us the ability to ensure our systems are synchronized real-time with our customers' accounting and general ledger systems, along with providing a seamless user experience. We believe that the combination of these Gear 1 and Gear 2 enhancements positioned us well to expand it to new verticals while giving us a broad beachhead to leverage with our future international expansion strategy, where these horizontal ERP systems have significant market share across the middle market. Under gear three of our Avid Exchange business flywheel, which is focused on maximizing the conversion of paper checks to electronic payments with our suppliers, we're excited to recently launch our straight-through processing offering, or STP as we call it, STP is a method of automating virtual card payment acceptance along with its detailed remit data by integrating the payments directly to the supplier's merchant processor and being able to deposit the virtual card funds directly into the supplier's merchant account. In 2020, a survey conducted by the Avid Exchange research team asked if adding automatic processing capabilities to our MasterCard virtual card process would increase their acceptance. The result was that approximately 75% of those suppliers surveyed found additional value in a straight-through process, which would eliminate the need for any manual process on the supplier side for the processing of a virtual card payment and the receipt of their funds. In addition, 67% of suppliers stated that the only way to make virtual card acceptance more efficient is by eliminating the manual touchpoints and labor previously required to process card-based payments and helping to streamline their reconciliation process. In particular, our existing supplier customers who receive over 25 monthly payments today from the AvidPay network but presently do not accommodate receiving virtual card payments due to the need for this manual intervention saw the greatest value. This kind of supplier customer profile also represents over 20% of our check-based payment volume on the AvidPay network today. Of the numerous supplier testimonials that sum up the benefits of STP to best, is probably Bryce Clark of Capital Lock, which he previously was receiving more than 25 checks a month. He stated, I've enjoyed the time-saving benefits so much that I'm willing to pay the regular merchant account rate on those payments. I wouldn't want to go back to manual check processing now that I've seen the benefits that STP provides. So our new STP offering, in short, provides an efficient and approved supplier experience along with unrivaled scalability and reliability to drive further adoption of e-payment acceptance from our suppliers and is another tool to increase the conversion of paper check suppliers to e-payment acceptors. And finally, our gear four is leveraging our vast spending and payment data to drive value across our networks. In the first quarter, we launched to a select number of early adopter customers new functionality that we call Avid Analytics. Avid Analytics helps our buyer customers with ways to better manage and optimize their existing purchasing spend, along with driving additional operational efficiencies around the speed and quality of their dynamic invoice and payment approval workflows that support their business. Through our Avid Exchange Customer Advisory Board, which spans across our vertical markets, We've gained intelligent and actual insights into what kind of data is valuable within each of our vertical markets to deliver increased value and improve business outcomes for our customers. In the real estate industry, for example, in just one use case is with a multifamily buyer customer operating in multiple states and regions, now utilizing our Avid Analytics payment dashboard to identify which properties take the longest, or shortest time to approve and clear payments based on actuals relative to contractual terms, thereby positively impacting either supplier relationships or increasing their working capital. This new information rich and interactive analytics tool is built in an easily configured and customer managed user interface driven by business intelligence capabilities which creates a dashboard enabling various data filters, which allows our buyer customers to gain valuable insights to better understand their data, spending trends, and real-time measure their business benchmarks and KPIs. In closing, we delivered another set of solid across-the-board quarterly financial results and Avid Exchange flywheel metrics, while continuing to see strong customer transaction retention. These strong results further reinforce our conviction and plan to achieve adjusted EBITDA breakeven as we exit 2024, if not before, while we continue to take advantage of the significant middle market opportunity in front of us. We maintained a solid balance sheet as we exited the quarter and are well positioned to sustain our operating momentum given the pace of innovation across our platform and the strength of our product suite as evidenced by the four gears of our Avid Exchange Business Flywheel. Overall, We're pleased with the results and ongoing progress and look forward to updating you on future earnings calls. With that, I'd like to turn the call over to Joel Wilhite, our Chief Financial Officer. Joel?

Thanks, Mike, and good evening, everyone. I'm excited to talk to you today about our strong first quarter 2022 financial results, which reflect continued execution of our growth strategies as well as our upward guidance revision for full year 2022. Overall, we had a solid first quarter of financial performance. Our first quarter 2022 revenues came in better than our forecast driven by higher total payment volumes and higher transactions. That together with better operational efficiencies and lower expenses contributed to a lower than consensus adjusted EBITDA loss in the first quarter of 2022. Total revenue increased by 29% to 71.2 million in Q1 2022 over the first quarter of 2021. Organic revenue growth, which excludes the contribution of our Fast Pay and Pay Clearly acquisitions, which closed in August 2021 and January 2022, respectively, was 22.6%. Organic growth is primarily driven by the addition of new buyer invoice and payment transactions, which increased e-payments to suppliers. It's worth pointing out to those that are new to the story that both Fast Pay and Pay Clearly, which are media advertising books of business, are more weighted towards both the midterm and presidential election cycles in the U.S. Our strong revenue growth also resulted in total transaction yield expanding to $4.23 in the quarter, up 11.6% from $3.79 in Q1 2021. Roughly half of the increase was associated with improvements in each of software and payments yields, with the remaining half being inorganic. Software revenues of $23.9 million, which accounted for 33.6 percent of our total revenue in the quarter, increased 17.1 percent in Q1 of 2022 over Q1 of 2021. Software revenues include a $100,000 contribution from FastPay. The increase in software revenues was primarily by the growth of total transactions of roughly 15.6% in Q1 2022. Payment revenue of $46.5 million, which accounted for 65.3% of our total revenue in the quarter, increased 36% in Q1 of 2022 over Q1 2021. Excluding FastPay and PayClearly, which together contributed $3.4 million in the quarter, organic payment revenue growth was 26%. The increase in payment revenues was driven by the growth in total payment volume of 40.5% and 35.6% excluding fast pay and pay clearly. On a gap basis, gross profit of $39.1 million increased by 38.9% in Q1 of 2022 over the same period last year, resulting in 390 basis points improvement in gross margin for the quarter to 54.9%. Non-GAAP gross margin increased 300 basis points to 62.3% in Q1 of 2022 over the same period last year, with half of the increase driven by increased total transaction yield in the quarter, the other half from the previously discussed acquisitions. Moving on to our operating expenses. On a GAAP basis, total operating expenses were $63.7 million, an increase of 30.8% in Q1 of 2022, over Q1 of last year, driven by headcount additions to support our growth initiatives, increased expenses in preparation of our transition to become a public company, and the recognition of non-cash stock-based compensation costs. On a non-GAAP basis, operating expenses excluding depreciation and amortization increased 27.5% or $10.8 million to $50 million in the first quarter of 2022 from the comparable period prior year. I'll now talk about each component of the change in operating expenses on a non-GAAP basis. Non-GAAP sales and marketing costs increased by $2.9 million to $16.3 million in Q1 of 22 over Q1 of last year, with the increase driven by the continued investment in our direct and channel strategies to acquire new buyers and suppliers, as well as the consolidation of FastPay and PayClearly results. Research and development costs increased by $4.4 million to $18.2 million in Q1 of 2022 over Q1 of last year. The increase was due to continued investment in our products and platform along with the inclusion of FastPay and PayClearly. Non-GAAP general administrative costs increased by $3.4 million to $15.4 million in Q1 of 2022 over Q1 of last year driven largely by expenses in preparation for our transition to become a public company, along with the inclusion of fast pay and pay clearly. Our gap net loss was $25.1 million for the quarter versus the gap net loss of $70 million in the prior year period, with the comparable reduction in losses primarily a function of expense associated with the amended FT partners agreement impacting our prior year period results. On a non-GAAP basis, our net loss in the first quarter of 2022 was $14.5 million, down $1.2 million compared to the year-ago quarter. On a non-GAAP basis, adjusted EBITDA was a loss of $5.6 million in Q1 of 2022 compared to a loss of $6.5 million in Q1 of 2021, both driven by solid organic revenue growth. Turning to our balance sheet for a moment. I want to touch on a few key items. We ended the quarter with cash position of $523.6 million. The cash is split between cash and investments of $294.9 million, which is mostly in demand deposit accounts. The remaining $228.7 million is in a basket of financial instruments, including treasury bills, money market funds, and commercial paper, with a weighted average maturity of roughly 100 days. The weighted average interest rate on our corporate cash position is roughly 30 basis points. Our outstanding debt balance at quarter end was $121.4 million out of our $133.5 million credit facility. And finally, restricted funds held for customers saw a drawdown of $310 million from the end of 2021 to the end of the first quarter of 2022. This reflects normal seasonality between year-end and Q1 ending balances where year-end holidays and seasonal mail disruption can delay some suppliers from processing payments. We think this dynamic was exacerbated somewhat by the further impacts on mail and time away from work caused by the Omicron variant around the year end. I'll now move on to our updated full-year 2022 guidance. We now expect total revenue for the year to be above what we previously provided and in the range of $303 million to $307 million for the year. We are also adjusting our non-GAAP adjusted EBITDA expectations lower to a loss between $35 million and $39 million. We still expect roughly 47% of 2022 revenues in the first half, with the remaining 53% in the second half of the year. We expect around 50% of our EBITDA losses to occur in the first half versus second half of 2022. In summary, we delivered strong first quarter 2022 financial and operating results, And our momentum today is very encouraging. I'd now like to turn the call back over to the operator to open up the line for Q&A.