AvidXchange Holdings, Inc.

Good morning, everyone, and thank you for joining us for the Avid Exchange Holdings AIM second quarter 2023 earnings call. Joining us on the call today is Mike Frazier, Avid Exchange co-founder and chief executive officer, Chawal Wilhite, Avid Exchange chief financial officer, and Subhash Kumar, Avid Exchange end of interest relation. Before we begin today's call, management 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 that 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 forward-looking statements. Today's call will also include a discussion of non-GAAP financial measures as that term is defined in Regulation G. NAN-CAA financial measures should then be considered in isolation from financial information presented in compliance with CAA. Accordingly, at the end of today's press release, the company has provided a reconciliation of these NAN-CAA financial measures to financial results preferred in accordance with CAA. With that, I will now turn the call over to Mike Frazier.

Mike, over to you.

Thank you, everyone, for joining us today. Joe Willight and I are excited to discuss Avid Exchange's second quarter 2023 results. But before I do that, I just wanted to thank all of those who participated in our recent Investor Day event on June 1st, held both in person and online. And especially for those of you that visit us in Charlotte, North Carolina for our Investor Day event, you experienced firsthand our performance-based Avid Exchange culture and how we have successfully transitioned to be back in the office three-plus days a week across our multi-office footprint. We are already seeing an impact on productivity, collaboration, and teammate development. With that, I want to now turn to our second quarter results. We delivered another quarter of solid operating results, achieving now eight consecutive quarters of exceeding our financial targets relative to our implied outlook. Revenues exceeded our implied Q2 2023 outlook, while our adjusted EBITDA results were a standout bright spot, driven by healthy revenue performance, continued gross margin expansion, unit cost reduction, along with operating expense leverage. These operating and financial results, coupled with the optionality we believe we have at our disposal, gives us further confidence in our progression towards our medium-term Rule of 40 objective of achieving both 20% organic revenue growth and 20% adjusted EBITDA targets by 2025, which we outlined during our Investor Day. As the macro backdrop remains somewhat volatile, where economic sentiment swings back and forth between hard landing and no landing, Our purpose-built value proposition of accounts payable and payment automation solutions is a proven capability with tangible and rapid ROI for middle market companies. By leveraging the force multiplier of our proprietary two-sided network, buyer and supplier customers reap enormous value benefits that we believe get particularly magnified during volatile economic times. Our buyer customers are able to automate their back office and significantly reduce costs. oftentimes by more than 60%, while enhancing scalability and security of their accounts payable and payment processes. While on the supplier side, our supplier customers get better visibility into their invoice and payments and are able to accelerate their cash flows and working capital while optimizing aspects of their own back office reconciliation functions. A good customer example of the power of our overall Avid Exchange business flywheel And the value we are delivering through our two-sided network is with Chicago, Illinois-based Remedy Medical Properties, the nation's largest private owner of healthcare properties. Remedy exemplifies the power of Avid Exchange's two-sided network. Before adopting Avid Exchange's invoice and pay solutions, Remedy accounts payable and payment processes were time-intensive with many manual processes. According to Senior Accounts Payable Manager David Bennett, several hours a day were spent opening the mail, scanning invoices, filing, and stuffing checks into envelopes. By adopting our API-based Avid Invoice and Avid Pay automation software solutions, which seamlessly integrate into Remedy's Yardi Voyager accounting system, Bennett's team shaved off one whole workday per week by no longer needing to sign checks, stuff envelopes, and file invoices. Without Avid Exchange, Bennett estimates that they would have had to hire up to three to four more people to process the growing volume of invoices and payments over time. As David Bennett stated, keeping track of AP statuses and conversations was challenging, but with Avid Invoice, there is now a central place for updates, notes, and answers, allowing us to work more efficiently and better communicate with property managers and our suppliers. While buyer customers like Remedy and other customers we have referenced over the past quarters highlight the customer value proposition, there are also broader market forces that are influencing the adoption of our solutions across the middle market, or the mighty middle, as I call it. These forces range from the continued mass shift to the cloud for the critical back office applications that support business continuity, along with enabling work from home models. for finance and accounting professionals along with changing demographics and high focus on payment fraud prevention. And speaking of payment fraud prevention, recently the U.S. Postal Service put out an urgent bulletin warning against sending checks through the mail due to a surge in mail theft. Nothing drives human behavior more than loss avoidance. And according to the Association of Financial Professionals, Roughly 70% of payment fraud for organizations occurs with paper checks. However, based on our data, payment fraud relates to checks in the B2B space is even greater at over 90%. While fraud is unfortunate, it adds another layer of uncertainty to our remaining paper check supplier customers while magnifying the value proposition of our various payment modalities. With roughly 55% of our payment mix still being checks, We're extremely well positioned to help our customers mitigate this risk while building on our industry-leading e-payment penetration. Let me now provide a quick summary of our year-over-year second quarter 2023 financial results. We delivered revenues exceeding $91 million, which grew at a rate of over 19% compared to the same period last year. Once again, our second quarter growth was led by double-digit revenue growth dynamics across most of our vertical markets. Non-GAAP gross margins expanded to over 68% in the quarter, up 460 basis points on a year-over-year basis. In addition, we posted an accelerating non-GAAP adjusted EBITDA profit of approximately 3 million in the quarter, which was close to an 8 million positive swing from an adjusted EBITDA loss of 4.7 million in the same period last year. We also ended the quarter with a 9.5% year-over-year increase in our total transaction yield to $4.84, which is now up 79 cents or roughly 20% since our IPO in October of 2021. On today's call, we'll touch on three topics. First, our top-of-funnel activity. Second, discuss innovations to our existing product suite around new payment modalities under Gear 3 of our Avid Exchange Business Flywheel. Quick reminder that Gear 3 incorporates all of our collective strategies to convert paper checks to electronic payments, along with an update of our pending launch of Invoice Accelerator 2.0. And third, explore several of our operational levers designed to accelerate automation that are key steps to driving continued gross margin expansion and accelerating our profitability so on to the first topic from a top of funnel buyer opportunity perspective we ended the first half of 2023 with a healthy growth up 70 percent on year-over-year basis Virtually all verticals saw double-digit growth, including construction, financial services, media, healthcare, our HOA, and educational as examples. Equally, the growth in the top of funnel came with a slightly higher average deal size attachment aided by our three-way PO match product. This healthy top of funnel was further backstopped by a sustained pace of close win rates. The only top of funnel deviation continues to be within the commercial office subsector of our overall real estate vertical. Just to be clear, when we talk about real estate vertical, we are largely talking about real estate commercial operating companies and not residential home builders. Although multifamily, student housing, and industrial subsegments of the real estate vertical remain very strong, commercial office real estate continues to soften. Meanwhile, product and integration partnerships launched over the last 12 months continue to play a solid role in the growth of our top of funnel prospect activity. For example, the launch of our three-way purchase order, or PO offering, in 2022, although off a small base, has seen triple-digit uptake. What's more exciting is how broad the adoption has been, spanning education, real estate, and our HOA Condo Association management verticals. across both vertical and horizontal ERP accounting systems. Furthermore, the average new buyer deal size in our top of funnel related to the three-way match is also larger than what we typically see in those verticals. In the education vertical, for example, we're seeing three-way PO use cases with individual schools and school systems for ordering supplies and managing their inventory. Equally encouraging, we're seeing strong top of funnel activity within our preferred strategic partnership with ResMed in the real estate multifamily subsector, which was launched last year as well. All in all, we are very pleased with the underlying metrics driving our top of funnel sales momentum. This underscores not only the large and unpenetrated 20 billion plus addressable market within the B2B middle market for AP and payments automation solutions, but also the long secular growth opportunities that we see despite some near-term pockets of macroeconomic softness. Topic number two is all about gear three of our Avid Exchange business flywheel, where we continue to accelerate ways to maximize our industry-leading e-payment penetration of converting paper checks to various forms of e-payments across our two-sided network by removing barriers to adoption. As an example of our STP offering, and introducing new payment modalities, which we believe is the secret sauce of our success and one of our biggest competitive advantages. We are excited to highlight new augmented payment modality in conjunction with just launched lean waiver management solution, which delivers critical automation functionality within our construction vertical. Currently, buyers and suppliers in the construction industry have to navigate a series of regulatory rules across various government agencies in order to set up and begin transacting. New and existing buyers in the construction vertical must have account validation and other customer due diligence requirements. While new and existing suppliers numbering in the thousands must also pass numerous bank account validation rules in order to be paid. Our new same-day payment offering for lien waivers compliantly and programmatically send same-day payments from general contractors, our buyers, to subcontractors, our suppliers. With the integration of this new payment modality, the system allows for the programmatic creation of suppliers, payments, and status reporting while incorporating a new specialized payment funding model. This augmented payment modality makes a great use case for the roughly 1,500 base of construction buyer customers. And finally, topic number three is related to optimization of operational levers where we continue to look at the linkages across our operational value chain, specifically around payment processes with the objective of further automating all of our remaining manual payment delivery processes. Currently, when making a virtual card payment, the process and time it takes between a wholesale processor generating a virtual card and getting that virtual card into a supplier's hands to complete the entry of card details into the merchant system typically requires multiple manual steps, translating into approximately two days of delivery time. Through our new virtual card delivery and distribution platform, which we plan to have fully rolled out by Q4, that processing time goes from two days to near real-time delivery of cards to our suppliers. This dramatic overhaul does not only improve the customer experience through faster speed, but it also drives scalability and efficiency for us. With virtual card issuance potentially numbering into the millions on an annual basis, this new capability has the potential of not only generating meaningful savings over time, but also extending the payment automation horizon significantly further beyond our current 80% payment automation level today. In summary, we are pleased with our strong second quarter top line and exceptional bottom line results. We remain focused on delivering on our product roadmap, integration partnerships, and e-payment penetration while leveraging data to drive incremental customer value. On today's call, we provided a progress update on some of those areas and look forward to further such updates around partnerships in the works, in addition to existing and new offerings we've been nurturing. This includes our flagship Invoice Accelerator 2.0 finance offering, which is targeted to be released in the fourth quarter and is just one example of many new innovation products in our product pipeline. Along similar lines, we're also rapidly broadening the use case for products just launched across our other verticals based on demand. Our new lean waiver management offering that we announced last quarter is a great example of this and we look forward to updating you on this offering along with other use cases in future quarters. Of course, none of the success we have achieved to date would be possible without the existing talent and new talent we continue to attract to be part of our team. So it is with great enthusiasm I take this opportunity to announce the promotion of John Feldman to the role of Chief Operating Officer from SVP of Operations. John has leveraged his formidable experience as Chief Operating Officer of Capital One's Retail Bank, Chief Risk Officer, as well as other roles overseeing product management around payments and various financial institutions to great effect at Avid Exchange. Thanks to John and his team, our efforts related to the service transformation strategy are yielding results as roughly 80% of our e-payments have now been automated with significant more gains to come. Also, I'm pleased to formally announce the appointment of Doug Anderson as our Chief Product Officer. Doug brings his forte of building products and other SaaS-based offerings at scale to Avid Exchange. honed from his experience at leading global tech companies such as SAP Concur. We believe these strategic, operational, and talent initiatives, coupled with our strong balance sheet cash, gives us further optionality to accelerate value creation opportunities. Of course, we are mindful of the volatile macroeconomic backdrop and the potential for further short-term impacts on our business. However, we believe we are still in the very early innings of a significant long-term opportunity to drive impactful value for our customers, create future growth opportunities for our team members, and unlock both short-term and long-term value for our shareholders. With that, I'd like to turn the call over to my partner, Joel Wilhite.

Thanks, Mike, and good morning, everyone. I'm pleased to talk to you today about our second quarter 2023 financial results. which reflect continued execution of our growth strategies amid continued macro uncertainty. Overall, we delivered another quarter of healthy year-over-year financial performance. Relative to the implied second quarter 2023 business outlook, second quarter revenues came in better, driven largely by interest revenues. That, together with higher gross margins, driven by unit cost initiatives and yield expansion, coupled with expense control, led to significant adjusted EBITDA outperformance. We believe this adjusted EBITDA outperformance underscores the scope for operating leverage in our financial model. Now turning to year-over-year results, total revenue increased by 19.1% to $91.2 million in Q2 of 2023 over the second quarter of 2022. Roughly two-thirds of the revenue growth was driven by the combination of addition of new buyer invoice and payment transactions coupled with yield expansion. The remaining third of our revenue growth this quarter was driven by higher year-over-year interest revenue, partially offset by a year-over-year decline in political revenues. Our strong revenue growth also resulted in total transaction yield expanding to $4.84 in the quarter, up 9.5% from $4.42 in Q2 of 2022. Of the 9.5% increase, roughly three-quarters of the increase was driven by the aforementioned flux between interest and political revenues, with the remainder driven by mix and yield expansion. Software revenues of $27.2 million, which accounted for 29.9% of our total revenue in the quarter, increased 12.6% in Q2 of 2023 over Q2 of 2022. The increase in software revenues was driven by growth in total transactions of 8.7%, with the balance driven by a combination of price increases and certain subscription-based revenues. Payment revenue of $63.2 million, which accounted for 69.4% of our total revenue in the quarter, increased 22.6% in Q2 of 2023 over Q2 of 2022. Payment revenues reflect the contribution of interest revenues, which were $9.2 million in Q2 of 2023 versus $1.2 million in Q2 of 2022. Recall, year-ago period payment revenues also included contribution from political media revenue. Almost half of the 22.6 percent increase in payment revenues was roughly in line with the increase in total payment volume, which was up 12.6 percent with the remaining portion driven by the aforementioned flux between interest and political revenues. On a GAAP basis, gross profit of $55.6 million increased by 29.6% in Q2 of 2023 over the same period last year, resulting in a 500 basis point improvement in gross margin for the quarter to 61%. Non-GAAP gross margin increased 460 basis points to 68.3 percent in Q2 of 2023 over the same period last year, roughly more than half of which was driven by a combination of unit cost efficiencies, yield expansion and mix, with the remainder driven by higher interest revenue. Now moving on to operating expenses. On a GAAP basis, total operating expenses were $81.4 million, an increase of 18.3% in Q2 of 2023 over Q2 of last year. On a non-GAAP basis, operating expenses excluding depreciation and amortization increased 10.9% or $5.8 million to $59.2 million in the second quarter of 2023 from the comparable prior year period. However, on a percentage of revenue basis, operating expenses excluding depreciation and amortization declined roughly 480 basis points to 65% in the second quarter of 2023, from 69.8% in the comparable period last year. This highlights the operating expense leverage, particularly across G&A, as well as sales and marketing. I'll now talk about each component of the change in operating expenses on a non-GAAP basis. Non-GAAP sales and marketing costs decreased slightly by $0.4 million or 2.2% to $18.7 million in Q2 of 23 over Q2 of last year, which was driven largely by lower marketing costs around event sponsorships. Non-GAAP research and development costs increased by $3.8 million or 21% to $21.7 million in Q2 of 23 over Q2 of last year. The increase was due to continued investment in our products and platform. Non-GAAP general administrative costs increased by $2.5 million, or 14.9%, to $18.9 million in Q2 of 2023 over Q2 of last year, driven by a combination of higher expenses as we transitioned to a public company coupled with higher performance-based bonus accruals and bad debt reserve adjustment. Our GAAP net loss, was $18.8 million for the quarter versus a gap net loss of $25.7 million in the prior year period driven by a combination of strong revenue flow through and expense control leading to lower operating losses coupled with higher interest income and lower interest expense due to reduced borrowing costs and partial debt pay down. Our gap loss reflects $3.6 million of expenses related to the cyber incident in the second quarter of 2023 which includes professional services and legal fees. On a non-GAAP basis, excluding those cyber costs, our net loss in the second quarter of 2023 was $0.5 million, an improvement of $13.2 million compared to the year-ago quarter driven by the aforementioned factors. On a non-GAAP basis, adjusted EBITDA was approximately $3 million in Q2 of 2023, compared to a loss of $4.7 million in Q2 of 2022, largely due to the aforementioned factors. Now, turning to our balance sheet for a moment, I want to touch on a few key items. We ended the quarter with a strong corporate cash position of $438.3 million against an outstanding total debt balance of $82.9 million, including a note payable for $18.7 million. We had $23.9 million on our credit facility undrawn at quarter end. Corporate cash, meanwhile, was split roughly 60% among money market funds, commercial paper, and U.S. treasuries, with the remaining 40% in demand deposit accounts. The weighted average maturity on the corporate cash was roughly 12 days, while the effective interest rate on our corporate cash position for the second quarter was roughly 4.6%. Customer cash at quarter end was approximately $1.2 billion, with an interest rate of roughly 4.2% for the quarter. I'll now provide an update on our full year 2023 guidance. In light of our second quarter 2023 financial outperformance balanced with further volume impacts from macro cross-currents and based on all information currently available, we're raising our 2023 outlook and now expect total revenue for the year to be in the range of 368 to $370 million. Our 2023 revenue outlook reflects approximately $35 million in interest revenue from customer funds versus approximately $11 million earned in 2022. Also, as a reminder, we do not anticipate any political media revenue contribution in 2023 versus having recognized $8.5 million in 2022. Similarly, we expect a higher non-GAAP adjusted EBITDA profit ranging between $7 and $8 million for the year. This adjusted EBITDA outlook reflects approximately $2 million in incremental second half investments in IT security enhancements and associated costs related to the cyber incident. With that, I would now like to turn the call back over to the operator to open up the line for Q&A. Operator?

At this time, I would like to remind everyone in order to ask questions, press star and the number one on your telephone keypad. Also, please limit your question to one per person. We'll pause for just a moment to compile the Q&A roster. Our first question comes from the line of Jamie Friedman from Susquehanna. Jamie, your line is now open.

Hi. Good results here. Thank you for taking my question. I just was hoping you could elaborate on this slide four. It's the financial monetization flywheel. And I know you had talked about this a bit in your prepared remarks, but if you could take a couple of these in particular that you think the model is most leveraged to, like how would you decompose it? Is it, you know, obviously the buyer customers, the transaction yield, Yeah, if you could pull out a couple of these and just talk through how you're thinking about the inputs, that would be very helpful. Thank you.

Thanks, Jamie, and appreciate the question. Why don't I kind of lead off and let Mike add some color? The first thing I would say is just zooming out from the flywheel and the metrics that you're referencing. You know, when we think about that 20% organic growth potential that we have in the early days of this really big opportunity, we think about it in sort of kind of three simple elements to our growth algorithm that kind of do map to that, to the flywheel. And so first of all, when we think about, you know, gear one is attracting and retaining, you know, buyer customers of accounts payable automation. We think about, you know, keeping and expanding organically that volume on our platform. Number two, we're continually focused on adding additional buyers and their volume. And number three, expanding the yield of the volume on that platform. And the yield really comes into gear three and gear four. So just generally setting the table, Mike, I don't know if there's more that you want to sort of map back to the flywheel.

Yeah, so one of the things that the flywheel does, Jamie, is, you know, allows us to really monetize, continue to monetize the same transaction multiple times. And now, you know, we're up to, you know, five to six different monetization events that we can have in a single transaction from, you know, the managing the software for the purchase order, the invoice, the payment. And then we have specialized services that we recently released like Avid Analytics and even one around utility, you know, bill payments. And then on the network side, we certainly have the economics related to e-payments along with then, you know, our invoice accelerator offering related to, you know, supplier financing. So, you know, it allows us to continue to monetize the same transaction multiple times. And where that shows up is in our transaction yield continue to expand. And then the one thing I, you know, like to remind people is, you know, with gear three, which is, at the bottom of the flywheel, that's a really big opportunity for us, as we still have over 50% of our suppliers on paper checks. And just to remind people, when you do that conversion from a paper check supplier to an e-payment supplier, the revenue of the payment network for a check is zero, and we have relatively high costs of about $0.85. When we flip it to be an electronic supplier, you know, the cost goes to pennies and the revenue goes to, you know, $8, $10 on average per transaction. So that's a really big, you know, kind of built-in monetization, you know, kind of opportunity for us, you know, within the existing base before we even add new, you know, you know, buyer customers and supplier customers to the flywheel.

Okay. Your next question comes from the line of Dave Coney from Beard. Dave? Their line is now open.

Yeah. Hey, guys, great job on profitability. And I guess my first question, incremental margins on a year-over-year basis, about 53%. It's the strongest in many years. And I'm wondering if you can kind of disaggregate a little bit. We know interest revenues probably contributed some, you know, cost cuts maybe some. And then, you know, how much is just kind of core revenue? stable cost base in revenue growth just driving good incremental margin? Like maybe just kind of walk through that a little bit and how sustainable this is.

Yeah, great question, Dave. Thanks for the question. So maybe let me just start with kind of talking about gross margin, then I'll make a few other comments all together contributing to the incremental margin you're seeing from an EBITDA perspective. You know, we've talked about the importance of gross margin and the focus that we have on that. We've said before that As we get into that 70% zip code, we begin to see a profitable business, and we've kind of crossed that point, and, you know, kind of not looking back. And so, you know, for the quarter, overall good, you know, overall non-gap gross margin expanded, you know, 460 bps, as I mentioned, the prepared remarks, you know, 100 bps on a sequential basis. And to your point, the float contribution is something that benefits, it's kind of a great feature in our model and benefits gross margin and EBITDA performance. But stripping out both the impact of float and the year-over-year impact of the political media advertising, we're still up about 260 bps year-over-year, 40 bps sequentially. So that really shows the focus that we're taking on just operational efficiency across the board. No one particular lever, but many. that we're focused on. And so we're proud of the gross margin result for the quarter. You know, on the EBITDA side of things, again, we're also, we talked about, you know, beginning to see scale in the model this year. You know, first with kind of GNA as we kind of get through the full load of public company costs in our run rate, and then a focus on, you know, kind of, you know, minimizing that growth. And then also from an R&D perspective, we're really focused on both growth and profitability. And we have a full payload of investments in our products and platform, but also we see and are very focused on harvesting scale from R&D as well. So all told, we're kind of pleased with the quarter, pleased with the progress from a profitability standpoint.

Our next question comes from the line of Nigel from Boldenman. Goldman Sachs. Goldman and Nance, your line is now open.

Hey, guys. I think that was me. Appreciate you taking the question. I was hoping you would spend a little bit more time just kind of unpacking some of the macro impacts that you're seeing in the quarter, trying to think about the expectations for revenue X float in the back half of the year and how that's changed. And, you know, I guess as you look out, you know, we've seen some of these, you know, some of these macro-related impacts on invoice sizes over the past year. Do you have a sense or can you maybe just kind of catalog when you first began to seeing it and when we should start to kind of grow over some of those negative impacts on invoice sizes? Thanks.

Yeah, good question, Will. And I'm happy to take that one. I guess what I would say is, first of all, you know, we're pleased with the quarter, another solid quarter. you know, kind of, you know, exceeding our expectations, but in a time of caution and moderation that has persisted, you know, all year. And I think we talked early in the year about having seen this begin midway through the last, through the fourth quarter of last year. And that choppiness or moderation, whatever you want to call it, has really kind of continued. And so as we sat and thought about, you know, kind of Guiding the second half of the year, obviously we've incorporated kind of the beat that we see and a revised take on what we see from a float revenue standpoint. Apart from that, the back half really contemplates nothing different than what we've sort of been suggesting all along. And so not sure when it turns around. We'll certainly talk about it when it happens, but expecting that the current conditions persist through the better part, through the end of the year.

Yeah, that was well said, Joel, and Will, just maybe a little historical context. In kind of past cycles when we've seen, you know, it turn around, we've noticed that discretionary spend comes back really quickly, you know, across our customer base. So, you know, we certainly look forward to, you know, kind of when that macro turns around as well.

Our next question comes from the line of Ramsey LFL from Barclays.

Hi there. Thanks so much for taking my question today. It's great to see the entire vertical stack, sort of ex-real estate was back to healthy growth this quarter. On real estate, I was wondering how you're looking at that vertical over the longer term. I'm thinking of work from home trends and sort of struggling commercial office markets. Will real estate kind of diminish as we move forward in terms of its longer-term contribution to growth, or are you expecting a rebound back to sort of prior levels?

Yeah. So, Ramsey, this is Mike. So one thing I'd like to clarify is overall the vertical of real estate actually performed fairly well for us. Then my commentary was it's a big vertical related to lots of subsectors within the vertical. And when we look at our customer base, it's really kind of split across five different verticals. led by multi-family apartment operators being one, the second one is student housing and campus housing, third is industrial, the fourth is retail, and the fifth is commercial office. So of the five, commercial office is the one that we saw that still has kind of the headwinds related to the dynamics that you just indicated. Yeah, the reason why the overall vertical was positive for us is because multifamily, student housing and industrial are really performing well. And, you know, if you see a lot of our new kind of partnerships that we've launched in the last couple of years are with companies in the focus in the multifamily sector. So, you know, we, you know, and then maybe kind of the backdrop is, You know, although it's our first vertical we started in 23 years ago, we're still single-digit penetration within the vertical. So lots of runway, you know, in that overall vertical.

Your next question comes from the line of Craig Moore from FT Partners. Craig, your line is now open.

Yeah, hi. Thanks, guys.

Two questions. First, Could you unpack the increase in revenue guide a little bit and differentiate between what was driven by an increase in float revenue versus what the change was in core revenue guidance? And secondly, if you think back to prior cycles, can you perhaps try to size what you think the impact from political revenue will be in 2024 considering the election cycle? Thanks.

Thanks, Craig. I'll take the first part of the question. Yeah, so look, we were pleased, again, with the quarterly results. Again, a beat on top and bottom. And so we factored in, obviously now raising the range for the year, factored that into the equation. And really, I think it would be, if I were to split that out, it's really what we continue to see is that moderation and spending across the middle market, that's baked in and a little bit of a tick up in that float revenue contribution, but feel good about the outlook for the rest of the year.

Mike? Yeah, and on the political side, so in the last cycle, we, you know, controlled or processed roughly 30% of the political spend payments of the industry. And if we look forward to, you know, what's estimated for, you know, the 2024 political cycle, they estimate to be the first $10 billion spend cycle for political advertising. And, you know, that's, you know, roughly, I believe the last cycle was roughly $7.8 billion. So certainly some growth there in 2024. And the one thing that, you know, was a learning for me was everyone kind of assumes that you're exclusively for the candidates. And that's actually not the case. It's a kind of mixed split between both candidate, you know, advertising as well as the main issues. So the issues drive a lot of the spend as well. So that probably maybe gives you a little bit of context.

So reminding to everyone, please submit your questions once and only. Thank you. Our next question comes from Delano Jansen from Morgan Stanley. James, your line is now open.

Yeah, sure. I wanted to talk a little bit about competition. And we've seen news recently from other players in the market, including Brex and Ramp yesterday. And, you know, how are you seeing, what are you seeing out in the market in terms of competition? And how would you frame the distinction in business model that are out there in strategy compared to your own right now?

Yeah, so that's a good question. Certainly, you know, we saw those announcements as well. It's kind of interesting, you know, in terms of, you know, actually what we see happening in the market is really no different than what we have seen historically. related to new competition within the middle market segment. Typically, the new entrants have been focused on small business. There's lots of good reasons for that, mainly driven by all the nuances of the mighty middle, as I call it, the middle market, being roughly 50% of all the companies in the middle market highly align themselves with industry verticals. that require unique business processes, as well as accounting systems to support the verticals. And that translates to a big effort related to product development, related to integrations, as well as accommodating the nuances of the industry. A good example of that is what we talked about with our lean waiver management for the construction vertical, so we can do a good job of executing construction-related payments. And so what you know, we continue to see is really the same players across the, you know, the middle market component, and it's very verticalized. And then you have the horizontal layer where we do see, you know, kind of probably the most competition is in the horizontals related to the NetSuite channel, Microsoft Dynamics, Sage Intact, you know, Acumatica as examples. And the, you know, specifically for BrexRAMP, you know, they've been really on the spend management side versus the AP side. And, you know, we, you know, don't really see them, you know, they don't have significant activity that we see across, you know, our particular verticals within the middle market.

Come from the line of Shenzhen Wang from JP Morgan. And your line is now open.

Hi, thanks. Good morning. I think Dave asked on incremental margins, but maybe I'll ask on gross margins in the second half. Again, just want to make sure if there's any call-outs for the second half as we model that out.

Yeah, great question, Tenjin. And I think it's, you know, again, I won't repeat, obviously, my comments in response to Dave's question, but we were pleased with our kind of margin expansion. Again, $460,000 even close to 300 stripping out political. One of the things specifically to your question about, I would go back to some comments I've made previously about just cautioning some moderation in those gross margins going forward. Again, we're super focused on gross margins. We expect to continue to see that edge up over time, but not in linear fashion. And so I would sort of say that we think about overall year expansion in the kind of 200 BIPs range and maybe, you know, 100 or so stripping out float on a full year basis.

Your next question comes from the line from Tom from Wolf Research. Aaron, your line is now open.

Guys, thanks. You know, just revisiting the, you know, the algorithm around EBITDA 20% targets. I know gross margin is a big part of that. We're seeing the success of that now, but If you guys don't mind reminding us just of the path and the building blocks and the timing that we can think about for all those factors playing out and how much is reliant on incremental, well, I guess I'd say both incremental products and offerings that are high incremental margin as well as macro to some degree.

Yeah, I mean, maybe I'll, let me make a brief comment and then Mike add some color. I think that, you know, obviously we're focused on, you know, getting to that kind of, you know, rule of 40 profile with a, you know, kind of organic 20% revenue growth as you move out into kind of 25 and even improving upon that, you know, beyond. I think the pattern, again, I would go back to not necessarily linear, but sort of steady continued expansion in gross margins and scale really beginning to see now and for the next year plus in our operating expenses. Mike, anything to add to that?

Yeah, so I got to go back to maybe it was a little bit of the first question that we had today on the flywheel. I kind of think of that kind of overall growth algorithm today as really kind of five, six different components. The first is, remember, we have these multiple five, six down monetization events on a single transaction. And that's obviously growing. We still have the big bucket of paper check suppliers, the 50% of paper check suppliers. That's a great both revenue as well as gross margin driver. We're super excited about this year's going to be one of our biggest years in terms of customer-facing product innovation, certainly led by Invoice Accelerator coming up over the second half of this year. And then, you know, we have the strong top of funnel activity, continue adding, you know, kind of new buyers. And then, you know, the last thing is, you know, I think the macro certainly will, you know, turn around at some point. And I think as Joel indicated, you know, we're not expecting that to be, you know, anytime soon, but certainly in the future that will, you know, kind of correct itself as we've seen in past cycles as well.

Our next question comes from the line of Alex Margraf from KBank Capital Markets. Alex, your line is now open.

Hey, guys. Thanks for taking the question. Maybe first one, just kind of on a similar topic around product and top of funnel activity. Mike, I think you mentioned the three-way purchase order module helping with deal size. Just wondering if you could maybe clarify or even quantify some of that tailwind and then just more broadly how you're thinking about you know, the product roadmap and kind of impact on deal sizes going forward, kind of in the near term?

Yeah, that's a great question related to, you know, some of the innovation that we've rolled out to customers. And, you know, last year, you know, late last year, we talked about our, you know, kind of next generation purchase order procurement related, you know, kind of functionality that we've been rolling out to customers. And one of those was kind of a three-way match capability. The result is what we were kind of hoping would happen, and that is we, you know, are starting to attract more of the upper middle market, some bigger customers. And that's kind of had an impact on our overall, you know, kind of average deal size, you know, increasing, you know, roughly about 20%. So I'll give you context. You know, historically, it's been roughly in the $50,000 range, and now it's kind of migrated towards the $60,000 range. So it's had a really positive impact related to, you know, kind of the types of buyer customers, you know, that we're attracting, you know, across the middle market.

Your next question comes from the line from Kian from the Shoe Bank. Kian, your line is now open.

Maybe next question.

Okay, your next your next question comes from the line from Brent Rosamin from Piper Center. Brent, your line is now open.

Thank you. Good morning. I think, Mike, you talked about 55% of the payment mix being tied to check today. What could that check mix like over the next two to three years, and what are the things in your control that you can drive that mix lower? Thanks.

Yeah, so I like this question, Brent. It may be a gold star question because it's a One of the things that I spent a lot of time thinking about, and certainly a lot of our growth strategies relate to, you know, chipping away at this big installed base of paper check. So, you know, so first of all, you know, I think we believe, you know, kind of long-term, you know, that that number can go into 70% type range. And the kind of the strategies to get there, you know, are exactly the types of things that were, you know, that I talked about, you know, this quarter that we're rolling out to customers. and that is continue to look at different types of payment modalities with different value propositions, different price points, with different elements of data wrapped into it that we can deliver in an automated way or a straight-through process way to our supplier customers. And the one we talked about this quarter was related to kind of the same-day payment execution for construction customers to satisfy their lien waiver requirements, which is a unique business process within the construction vertical. And so that new payment offering that we're rolling out is another good example of a new payment modality specifically for the construction vertical. And there's a great analogy here because we learned about the impact of that type of payment modality maybe a year or so ago when we rolled out a similar payment modality in the media vertical for same day, you know, satisfaction of political payments, which has a very sensitive timeline within the political media, you know, industry. And so those are all good examples of us continuing to add new payment modalities that we look at, you know, how do we target, you know, different sectors of this remaining paper check base with unique value proposition, both incorporating price points as well as you know, data delivery.

Your last question comes from the line of Kian from the Shave Bank. Kian, your line is now open.

Hey, guys. I think that's me. I'm guessing it's Brian Kian. I guess two questions. Mike, can you just help us on sales cycles when you talk about top of the funnel activity? I know they were pushed out a few weeks, maybe even a month. I'm just curious, is that still the case? And then, Joel, any call-outs between third and fourth quarter as we set our models just to make sure we think about the right growth rates to put in there? Thanks.

Yeah, maybe I'll start, Brian. And so I'm glad we got your question in here. So as it relates to kind of sales cycles, It's remained consistent with what we've been seeing for the last year I think we kind of referenced that we saw, you know kind of a slight You know kind of extension, you know, we're roughly ten days You know from what we've historically have seen and that's remained consistent, you know the past in this past quarter as well and Brian just to wrap up your last part of your question just as when you think about the second half couple comments that I could add first on a revenue and

side of things. The way I would think about it, we don't guide necessarily the next quarter, but I would think about revenue as more like a 49-51 split, more or less, a little bit of ramp as you get to the end of the year. And then secondly, from an EBITDA perspective, we are really pleased with the quarterly results. The things that I would suggest, again, we're proud to be a profitable business, continue to focus on doing that, not looking back. Keep in mind, I did mention Some investments we're making to pull forward, you know, some investments in our information security profile. And so those will be, you know, beginning to ramp between now and the end of the year. And we also continue to, you know, make the investments, whether it's Invoice Accelerator or other products. That said, we're, you know, focused on continuing to be a profitable business going forward. So thanks for the question.

The next question comes from the lineup team with Lee Chiodo from Credit Suisse.

Great. Thank you for taking the question.

A follow-up on the check mix question. So if you could just lay out what a time series might have looked like. I know the business has been operating for many years. What was that check mix like 10 years ago? Were there any kind of step functions ever when you introduced new products? You gave the example with the construction vertical one that might have helped with adoption of kind of eliminating some of those checks. And then to the extent that some of that check mix will start to go away at a more accelerated path over the coming years, other products could help with that.

Yeah. So, um, so good question. Um, so a little bit of that kind of the history lesson, and we launched the AvaPay network in 2012. Um, and, uh, I think, um, you know, that, that first year we were, you know, 95% check. Um, you know, we, uh, you know, certainly the, um, As we got smarter about virtual card delivery, those percentages went up. One of the biggest step function changes was when we launched our Avid Pay Direct, which is our ACH plus type payment offering where we can configure different interchange or fee-based rates. We settled through the ACH process. And then we wrap kind of a data layer around that transaction we delivered to the supplier for reconciliation. And when we delivered and we came up with the AvaPage REC, that was probably a stuff function change. And that, you know, kind of now has contributed, you know, roughly 10 percentage points of that, you know, of that monetization. So, you know, when I look back, you know, maybe five years ago, we were probably in, you know, kind of 25% range. And that's now, you know, ticked off to roughly 40% of transactions we're settling through ePayments. So, you know, we have noticed a kind of a progression. One of the things that, you know, hurts that number a little bit, you know, when you look at it on a gross basis is that, you know, we're adding large volumes of new customers that are bringing, you know, large volumes of suppliers with them. And especially in, you know, as we add new verticals and our emerging verticals, where we don't have as deep a penetration rate of converting those suppliers as we do in some of our earlier sub-verticals. We see larger amounts of paper check suppliers that we're adding to the overall pool. But certainly we're converting thousands of suppliers on a weekly basis to e-payments and have a pretty strong sales force that's dedicated exclusively to the supplier side of the equation.

Last question comes from the line from Will Nance from Goldman Sachs. Will, the line is now open.

Hey, guys. Appreciate you squeezing me in for a follow-up. Figured I wouldn't let the last three minutes go to waste here, but maybe just a follow-up on a similar vein of, I think, Tim's question just now. When we look at sort of the take rate trajectory, we've kind of been in this roughly 30 basis point range for a while now, and I know a big part of the long-term targets is seeing increased electronic payment adoption and presumably higher take rates over time. Just wondering if you would kind of talk about kind of near-term drivers of an acceleration in that electronic payment adoption, and I guess maybe just more specifically a modeling question. When we think about that year over year headwind that you guys are facing in the, uh, political advertising vertical, like, was that a higher electronic penetration? Like, in other words, like is the 40% number that seems like it's been relatively flat over the past year, that being weighed down by, you know, the, the, the lack of the political ad spending this year.

Yeah.

Um, Good question, Will. So the last part of your question, so the answer is yes. There's a little bit of enhancement by the presence of political from any payment and sort of TPV yield. So yes is the answer to that question. I think your general question is what near-term drivers to acceleration might exist. Again, we're not you know, sort of predicting when we exit this kind of macro environment, it's possible that that, you know, has some positive impact. But again, we're, you know, we're pretty proud of the TPV yield we've got to start with just from an industry leading perspective. Moreover, you know, in this environment, and certainly there's a lot of leverage over the medium and longer term through gear three, as Mike talked about, to take checks out of the system and drive that up.

I know for questions at this time, I would like to turn the call back to Mike. Mike, over to you.

Thanks. So first of all, thank you for everyone joining our Q2 earnings call. We're looking forward to continue to update you on our continued progress of our operating and financial performance, along with our product innovations. With that, operator, you may end the call.

This concludes today's conference call. You may now disconnect. Amen. Thank you. you music music Thank you.

Good morning, everyone, and thank you for joining us for the Avid Exchange Holdings AIM second quarter 2023 earnings call. Joining us on the call today is Mike Frazier, Avid Exchange co-founder and chief executive officer, Chawal Wilhite, Avid Exchange chief financial officer, and Subhash Kumar, Avid Exchange end of interest relation. Before we begin today's call, management 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 that 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 forward-looking statements. Today's call will also include a discussion of non-GAAP financial measures as that term is defined in Regulation G. Non-CAAF financial measures should then be considered in isolation from or associated for financial information presented in compliance with CAAF. Accordingly, at the end of today's press release, the company has provided a reconciliation of these non-CAAF financial measures to financial results preferred in accordance with CAAF. With that, I will now turn the call over to Mike Parker.

Mike, over to you.

Thank you, everyone, for joining us today. Joel Willight and I are excited to discuss Avid Exchange's second quarter 2023 results. But before I do that, I just wanted to thank all of those who participated in our recent Investor Day event on June 1st, held both in person and online. And especially for those of you that visit us in Charlotte, North Carolina for our Investor Day event, you experienced firsthand our performance-based Avid Exchange culture and how we have successfully transitioned to be back in the office three-plus days a week across our multi-office footprint. We are already seeing an impact on productivity, collaboration, and teammate development. With that, I want to now turn to our second quarter results. We delivered another quarter of solid operating results, achieving now eight consecutive quarters of exceeding our financial targets relative to our applied outlook. Revenues exceeded our implied Q2 2023 outlook, while our adjusted EBITDA results were a standout bright spot, driven by healthy revenue performance, continued gross margin expansion, unit cost reduction, along with operating expense leverage. These operating and financial results, coupled with the optionality we believe we have at our disposal, gives us further confidence in our progression towards our medium-term Rule of 40 objective of achieving both 20% organic revenue growth and 20% adjusted EBITDA targets by 2025, which we outlined during our Investor Day. As the macro backdrop remains somewhat volatile, where economic sentiment swings back and forth between hard landing and no landing, Our purpose-built value proposition of accounts payable and payment automation solutions is a proven capability with tangible and rapid ROI for middle market companies. By leveraging the force multiplier of our proprietary two-sided network, buyer and supplier customers reap enormous value benefits that we believe get particularly magnified during volatile economic times. Our buyer customers are able to automate their back office and significantly reduce costs. oftentimes by more than 60%, while enhancing scalability and security of their accounts payable and payment processes. While on the supplier side, our supplier customers get better visibility into their invoice and payments and are able to accelerate their cash flows and working capital while optimizing aspects of their own back office reconciliation functions. A good customer example of the power of our overall Avid Exchange business flywheel And the value we are delivering through our two-sided network is with Chicago, Illinois-based Remedy Medical Properties, the nation's largest private owner of healthcare properties. Remedy exemplifies the power of Avid Exchange's two-sided network. Before adopting Avid Exchange's invoice and pay solutions, Remedy accounts payable and payment processes were time-intensive with many manual processes. According to Senior Accounts Payable Manager David Bennett, several hours a day were spent opening the mail, scanning invoices, filing, and stuffing checks into envelopes. By adopting our API-based Avid Invoice and Avid Pay automation software solutions, we seamlessly integrate into Remedy's Yardi Voyager accounting system. Bennett's team shaved off one whole workday per week by no longer needing to sign checks, stuff envelopes, and file invoices. Without Avid Exchange, Bennett estimates that they would have had to hire up to three to four more people to process the growing volume of invoices and payments over time. As David Bennett stated, keeping track of AP statuses and conversations was challenging, but with Avid Invoice, there is now a central place for updates, notes, and answers, allowing us to work more efficiently and better communicate with property managers and our suppliers. While buyer customers like Remedy and other customers we have referenced over the past quarters highlight the customer value proposition, there are also broader market forces that are influencing the adoption of our solutions across the middle market, or the mighty middle, as I call it. These forces range from the continued mass shift to the cloud for the critical back office applications that support business continuity, along with enabling work-from-home models. for finance and accounting professionals along with changing demographics and high focus on payment fraud prevention. And speaking of payment fraud prevention, recently the U.S. Postal Service put out an urgent bulletin warning against sending checks through the mail due to a surge in mail theft. Nothing drives human behavior more than loss avoidance. And according to the Association of Financial Professionals, Roughly 70% of payment fraud for organizations occurs with paper checks. However, based on our data, payment fraud relates to checks in the B2B space is even greater at over 90%. While fraud is unfortunate, it adds another layer of uncertainty to our remaining paper check supplier customers while magnifying the value proposition of our various payment modalities. With roughly 55% of our payment mix still being checks, We're extremely well positioned to help our customers mitigate this risk while building on our industry-leading e-payment penetration. Let me now provide a quick summary of our year-over-year second quarter 2023 financial results. We delivered revenues exceeding $91 million, which grew at a rate of over 19% compared to the same period last year. Once again, our second quarter growth was led by double-digit revenue growth dynamics across most of our vertical markets. Non-GAAP gross margins expanded to over 68% in the quarter, up 460 basis points on a year-over-year basis. In addition, we posted an accelerating non-GAAP adjusted EBITDA profit of approximately 3 million in the quarter, which was close to an 8 million positive swing from an adjusted EBITDA loss of 4.7 million in the same period last year. We also ended the quarter with a 9.5% year over year increase in our total transaction yield to $4.84, which is now up 79 cents or roughly 20% since our IPO in October of 2021. On today's call, we'll touch on three topics. First, our top of funnel activity. Second, discuss innovations to our existing product suite around new payment modalities under Gear 3 of our Avid Exchange Business Flywheel. Quick reminder that Gear 3 incorporates all of our collective strategies to convert paper checks to electronic payments, along with an update of our pending launch of Invoice Accelerator 2.0. And third, explore several of our operational levers designed to accelerate automation that are key steps to driving continued gross margin expansion and accelerating our profitability. So onto the first topic, from a top of funnel buyer opportunity perspective, we ended the first half of 2023 with a healthy growth up 70% on year over year basis. Virtually all verticals saw double-digit growth, including construction, financial services, media, healthcare, our HOA, and educational as examples. Equally, the growth in the top of funnel came with a slightly higher average deal size attachment aided by our three-way PO match product. This healthy top of funnel was further backstopped by a sustained pace of close win rates. The only top of funnel deviation continues to be within the commercial office subsector of our overall real estate vertical. Just to be clear, when we talk about real estate vertical, we are largely talking about real estate commercial operating companies and not residential home builders. Although multifamily, student housing, and industrial subsegments of the real estate vertical remain very strong, commercial office real estate continues to soften. Meanwhile, product and integration partnerships launched over the last 12 months continue to play a solid role in the growth of our top of funnel prospect activity. For example, the launch of our three-way purchase order, or PO offering, in 2022, although off a small base, has seen triple-digit uptake. What's more exciting is how broad the adoption has been, spanning education, real estate, and our HOA Condo Association management verticals. across both vertical and horizontal ERP accounting systems. Furthermore, the average new buyer deal size in our top of funnel related to the three-way match is also larger than what we typically see in those verticals. In the education vertical, for example, we're seeing three-way PO use cases with individual schools and school systems for ordering supplies and managing their inventory. Equally encouraging, we're seeing strong top of funnel activity within our preferred strategic partnership with ResMed in the real estate multifamily subsector, which was launched last year as well. All in all, we are very pleased with the underlying metrics driving our top of funnel sales momentum. This underscores not only the large and unpenetrated 20 billion plus addressable market within the B2B middle market for AP and payments automation solutions, but also the long secular growth opportunities that we see despite some near-term pockets of macroeconomic softness. Topic number two is all about gear three of our Avid Exchange business flywheel, where we continue to accelerate ways to maximize our industry-leading e-payment penetration of converting paper checks to various forms of e-payments across our two-sided network by removing barriers to adoption. As an example of our STP offering, and introducing new payment modalities, which we believe is the secret sauce of our success and one of our biggest competitive advantages. We are excited to highlight new augmented payment modality in conjunction with just launched Lean Waiver Management Solution, which delivers critical automation functionality within our construction vertical. Currently, buyers and suppliers in the construction industry have to navigate a series of regulatory rules across various government agencies in order to set up and begin transacting. New and existing buyers in the construction vertical must have account validation and other customer due diligence requirements. While new and existing suppliers numbering in the thousands must also pass numerous bank account validation rules in order to be paid. Our new same-day payment offering for lien waivers compliantly and programmatically send same-day payments from general contractors, our buyers, to subcontractors, our suppliers. With the integration of this new payment modality, the system allows for the programmatic creation of suppliers, payments, and status reporting while incorporating a new specialized payment funding model. This augmented payment modality makes a great use case for the roughly 1,500 base of construction buyer customers. And finally, topic number three is related to optimization of operational levers where we continue to look at the linkages across our operational value chain, specifically around payment processes with the objective of further automating all of our remaining manual payment delivery processes. Currently, when making a virtual card payment, the process and time it takes between a wholesale processor generating a virtual card and getting that virtual card into a supplier's hands to complete the entry of card details into the merchant system typically requires multiple manual steps, translating into approximately two days of delivery time. Through our new virtual card delivery and distribution platform, which we plan to have fully rolled out by Q4, that processing time goes from two days to near real-time delivery of cards to our suppliers. This dramatic overhaul does not only improve the customer experience through faster speed, but it also drives scalability and efficiency for us. With virtual card issuance potentially numbering into the millions on an annual basis, this new capability has the potential of not only generating meaningful savings over time, but also extending the payment automation horizon significantly further beyond our current 80% payment automation level today. In summary, we are pleased with our strong second quarter top line and exceptional bottom line results. We remain focused on delivering on our product roadmap, integration partnerships, and e-payment penetration while leveraging data to drive incremental customer value. On today's call, we provided a progress update on some of those areas and look forward to further such updates around partnerships in the works, in addition to existing and new offerings we've been nurturing. This includes our flagship Invoice Accelerator 2.0 finance offering, which is targeted to be released in the fourth quarter and is just one example of many new innovation products in our product pipeline. Along similar lines, we're also rapidly broadening the use case for products just launched across our other verticals based on demand. Our new lien waiver management offering that we announced last quarter is a great example of this and we look forward to updating you on this offering along with other use cases in future quarters. Of course, none of the success we have achieved to date would be possible without the existing talent and new talent we continue to attract to be part of our team. So it is with great enthusiasm I take this opportunity to announce the promotion of John Feldman to the role of Chief Operating Officer from SVP of Operations. John has leveraged his formidable experience as Chief Operating Officer of Capital One's Retail Bank, Chief Risk Officer, as well as other roles overseeing product management around payments and various financial institutions to great effect at Avid Exchange. Thanks to John and his team, our efforts related to the service transformation strategy are yielding results as roughly 80% of our e-payments have now been automated with significant more gains to come. Also, I'm pleased to formally announce the appointment of Doug Anderson as our Chief Product Officer. Doug brings his forte of building products and other SaaS-based offerings at scale to Avid Exchange. honed from his experience at leading global tech companies such as SAP Concur. We believe these strategic, operational, and talent initiatives coupled with our strong balance sheet cash gives us further optionality to accelerate value creation opportunities. Of course, we are mindful of the volatile macroeconomic backdrop and the potential for further short-term impacts on our business. However, we believe we are still in the very early innings of a significant long-term opportunity to drive impactful value for our customers, create future growth opportunities for our team members, and unlock both short-term and long-term value for our shareholders. With that, I'd like to turn the call over to my partner, Joel Wilhite.

Thanks, Mike, and good morning, everyone. I'm pleased to talk to you today about our second quarter 2023 financial results. which reflect continued execution of our growth strategies amid continued macro uncertainty. Overall, we delivered another quarter of healthy year-over-year financial performance. Relative to the implied second quarter 2023 business outlook, second quarter revenues came in better, driven largely by interest revenues. That, together with higher gross margins, driven by unit cost initiatives and yield expansion, coupled with expense control, led to significant adjusted EBITDA outperformance. We believe this adjusted EBITDA outperformance underscores the scope for operating leverage in our financial model. Now turning to year-over-year results, total revenue increased by 19.1% to $91.2 million in Q2 of 2023 over the second quarter of 2022. Roughly two-thirds of the revenue growth was driven by the combination of addition of new buyer invoice and payment transactions coupled with yield expansion. The remaining third of our revenue growth this quarter was driven by higher year-over-year interest revenue, partially offset by a year-over-year decline in political revenues. Our strong revenue growth also resulted in total transaction yield expanding to $4.84 in the quarter, up 9.5% from $4.42 in Q2 of 2022. Of the 9.5% increase, roughly three-quarters of the increase was driven by the aforementioned flux between interest and political revenues, with the remainder driven by mix and yield expansion. Software revenues of $27.2 million, which accounted for 29.9% of our total revenue in the quarter, increased 12.6% in Q2 of 2023 over Q2 of 2022. The increase in software revenues was driven by growth in total transactions of 8.7%, with the balance driven by a combination of price increases and certain subscription-based revenues. Payment revenue of $63.2 million, which accounted for 69.4% of our total revenue in the quarter, increased 22.6% in Q2 of 2023 over Q2 of 2022. Payment revenues reflect the contribution of interest revenues, which were $9.2 million in Q2 of 2023 versus $1.2 million in Q2 of 2022. Recall, year-ago period payment revenues also included contribution from political media revenue. Almost half of the 22.6 percent increase in payment revenues was roughly in line with the increase in total payment volume, which was up 12.6 percent with the remaining portion driven by the aforementioned flux between interest and political revenues. On a GAAP basis, gross profit of $55.6 million increased by 29.6% in Q2 of 2023 over the same period last year, resulting in a 500 basis point improvement in gross margin for the quarter to 61%. Non-GAAP gross margin increased 460 basis points to 68.3 percent in Q2 of 2023 over the same period last year, roughly more than half of which was driven by a combination of unit cost efficiencies, yield expansion and mix, with the remainder driven by higher interest revenue. Now moving on to operating expenses. On a GAAP basis, total operating expenses were $81.4 million, an increase of 18.3% in Q2 of 2023 over Q2 of last year. On a non-GAAP basis, operating expenses excluding depreciation and amortization increased 10.9% or $5.8 million to $59.2 million in the second quarter of 2023 from the comparable prior year period. However, on a percentage of revenue basis, operating expenses excluding depreciation and amortization declined roughly 480 basis points to 65% in the second quarter of 2023, from 69.8% in the comparable period last year. This highlights the operating expense leverage, particularly across G&A as well as sales and marketing. I'll now talk about each component of the change in operating expenses on a non-GAAP basis. Non-GAAP sales and marketing costs decreased slightly by $0.4 million, or 2.2%, to $18.7 million in Q2 of 23 over Q2 of last year, which was driven largely by lower marketing costs around event sponsorships. Non-GAAP research and development costs increased by $3.8 million, or 21%, to $21.7 million in Q2 of 23 over Q2 of last year. The increase was due to continued investment in our products and platform. Non-GAAP general administrative costs increased by $2.5 million or 14.9% to $18.9 million in Q2 of 2023 over Q2 of last year, driven by a combination of higher expenses as we transitioned to a public company coupled with higher performance-based bonus accruals and bad debt reserve adjustment. Our GAAP net loss, was $18.8 million for the quarter versus a gap net loss of $25.7 million in the prior year period, driven by a combination of strong revenue flow through and expense control leading to lower operating losses, coupled with higher interest income and lower interest expense due to reduced borrowing costs and partial debt pay down. Our gap loss reflects $3.6 million of expenses related to the cyber incident in the second quarter of 2023 which includes professional services and legal fees. On a non-GAAP basis, excluding those cyber costs, our net loss in the second quarter of 2023 was $.5 million, an improvement of $13.2 million compared to the year-ago quarter driven by the aforementioned factors. On a non-GAAP basis, adjusted EBITDA was approximately $3 million in Q2 of 2023, compared to a loss of $4.7 million in Q2 of 2022, largely due to the aforementioned factors. Now, turning to our balance sheet for a moment, I want to touch on a few key items. We ended the quarter with a strong corporate cash position of $438.3 million against an outstanding total debt balance of $82.9 million, including a note payable for $18.7 million. We had $23.9 million on our credit facility undrawn at quarter end, Corporate cash, meanwhile, was split roughly 60% among money market funds, commercial paper, and U.S. treasuries, with the remaining 40% in demand deposit accounts. The weighted average maturity on the corporate cash was roughly 12 days, while the effective interest rate on our corporate cash position for the second quarter was roughly 4.6%. Customer cash at quarter end was approximately $1.2 billion, with an interest rate of roughly 4.2% for the quarter. I'll now provide an update on our full year 2023 guidance. In light of our second quarter 2023 financial outperformance balanced with further volume impacts from macro crosscurrents and based on all information currently available, we're raising our 2023 outlook and now expect total revenue for the year to be in the range of 368 to $370 million. Our 2023 revenue outlook reflects approximately $35 million in interest revenue from customer funds versus approximately 11 million earned in 2022. Also, as a reminder, we do not anticipate any political media revenue contribution in 2023 versus having recognized $8.5 million in 2022. Similarly, we expect a higher non-GAAP adjusted EBITDA profit ranging between $7 and $8 million for the year. This adjusted EBITDA outlook reflects approximately $2 million in incremental second half investments in IT security enhancements and associated costs related to the cyber incident. With that, I would now like to turn the call back over to the operator to open up the line for Q&A. Operator?

At this time, I would like to remind everyone in order to ask questions, press star and the number one on your telephone keypad. Also, please limit your question to one per person. We'll pause for just a moment to compile the Q&A roster. Our first question comes from the line of Jamie Friedman from Susquehanna. Jamie, your line is now open.

Hi. Good results here. Thank you for taking my question. I just was hoping you could elaborate on this slide four. It's the financial monetization flywheel. And I know you had talked about this a bit in your prepared remarks, but if you could take a couple of these in particular that you think the model is most leveraged to, like, how would you decompose it? Is it, you know, obviously the buyer customers, the transaction yield? Yeah, if you could pull out a couple of these and just talk through how you're thinking about the inputs, that would be very helpful. Thank you.

Thanks, Jamie, and appreciate the question. Why don't I kind of lead off and let Mike add some color? The first thing I would say is just zooming out from the flywheel and the metrics that you're referencing. You know, when we think about that 20% organic growth potential that we have in the early days of this really big opportunity, we think about it in sort of kind of three simple elements to our growth algorithm that kind of do map to that, to the flywheel. And so first of all, when we think about, you know, gear one is attracting and retaining, you know, buyer customers of accounts payable automation. We think about, you know, keeping and expanding organically that volume on our platform. Number two, we're continually focused on adding additional buyers and their volume. And number three, expanding the yield of the volume on that platform. And the yield really comes into gear three and gear four. So just generally setting the table, Mike, I don't know if there's more that you want to sort of map back to the flywheel.

Yeah. So one of the things that the flywheel does, Jamie, is, you know, allows us to really monetize, continue to monetize the same transaction multiple times. And now, you know, we're up to, you know, five to six different monetization events that we can have in a single transaction from, you know, the managing the software for the purchase order, the invoice, the payment. And then we have specialized services that we recently released like Avid Analytics and even one around utility, you know, bill payments And then on the network side, we certainly have the economics related to e-payments along with them, you know, our invoice accelerator offering related to, you know, supplier financing. So, you know, it allows us to continue to monetize the same transaction multiple times. And where that shows up is in our transaction yield continuing to expand. And then the one thing I, you know, like to remind people is, you know, with GEAR 3, which is, at the bottom of the flywheel, that's a really big opportunity for us, as we still have over 50% of our suppliers on paper checks. And just to remind people, when you do that conversion from a paper check supplier to an e-payment supplier, the revenue of the payment network for a check is zero, and we have relatively high costs of about $0.85. When we flip it to be an electronic supplier, you know, the cost goes to pennies and the revenue goes to, you know, $8, $10 on average per transaction. So that's a really big, you know, kind of built-in monetization, you know, kind of opportunity for us, you know, within the existing base before we even add new, you know, you know, buyer customers and supplier customers to the flywheel.

Okay. Your next question comes from the line of Dave Coney from Beard. Dave? Their line is now open.

Yeah. Hey, guys, great job on profitability. And I guess my first question, incremental margins on a year-over-year basis, about 53%. It's the strongest in many years. And I'm wondering if you can kind of disaggregate a little bit. We know interest revenues probably contributed some, you know, cost cuts maybe some. And then, you know, how much is just kind of core revenue? stable cost base in revenue growth just driving good incremental margin? Maybe just kind of walk through that a little bit and how sustainable this is.

Yeah, great question, Dave. Thanks for the question. So maybe let me just start with kind of talking about gross margin, then I'll make a few other comments all together contributing to the incremental margin you're seeing from an EBITDA perspective. We've talked about the importance of gross margin and the focus that we have on that. We've said before that As we get into that 70% zip code, we begin to see a profitable business, and we've kind of crossed that point, and, you know, kind of not looking back. And so, you know, for the quarter, overall good, you know, overall non-gap gross margin expanded, you know, 460 bps, as I mentioned, the prepared remarks, you know, 100 bps on a sequential basis. And to your point, you know, the float contribution is something that, you know, benefits, it's kind of a great feature in our model and benefits, you know, gross margin and EBITDA performance. But stripping out both the impact of float and the year-over-year impact of the political media advertising, we're still up about 260 bps year-over-year, 40 bps sequentially. So that really shows the focus that we're taking on just operational efficiency across the board. No one particular lever, but many. that we're focused on. And so we're proud of the gross margin result for the quarter. You know, on the EBITDA side of things, again, we're also, we talked about, you know, beginning to see scale in the model this year. You know, first with kind of GNA as we kind of get through the full load of public company costs in our run rate, and then a focus on, you know, kind of, you know, minimizing that growth. And then also from an R&D perspective, we're really focused on both growth and profitability. And we have, you know, a full payload of investments in our products and platform, but also we see and are very focused on harvesting scale from R&D as well. So all told, we're kind of pleased with the quarter, pleased with the progress from a profitability standpoint.

Our next question comes from the line of Nigel from Boldenman. Goldman Sachs. Goldman and Nance, your line is now open.

Hey, guys. I think that was me. Appreciate you taking the question. I was hoping you would spend a little bit more time just kind of unpacking some of the macro impacts that you're seeing in the quarter, trying to think about the expectations for revenue X float in the back half of the year and how that's changed. And, you know, I guess as you look out, you know, we've seen some of these, you know, some of these macro-related impacts on invoice sizes over the past year. Do you have a sense or can you maybe just kind of catalog when you first began to seeing it and when we should start to kind of grow over some of those negative impacts on invoice sizes? Thanks.

Yeah, good question, Will. And I'm happy to take that one. I guess what I would say is, first of all, you know, we're pleased with the quarter, another solid quarter. you know, kind of, you know, exceeding our expectations, but in a time of caution and moderation that has persisted, you know, all year. And I think we talked early in the year about having seen this begin midway through the last, through the fourth quarter of last year. And that choppiness or moderation, whatever you want to call it, has really kind of continued. And so as we sat and thought about, you know, kind of Guiding the second half of the year, obviously we've incorporated kind of the beat that we see and a revised take on what we see from a float revenue standpoint. Apart from that, the back half really contemplates nothing different than what we've sort of been suggesting all along. And so not sure when it turns around. We'll certainly talk about it when it happens, but expecting that the current conditions persist through the better part, through the end of the year.

Yeah, that was well said, Joel, and Will, just maybe a little historical context. In kind of past cycles when we've seen, you know, it turn around, we've noticed that discretionary spec comes back really quickly, you know, across our customer base. So, you know, we certainly look forward to, you know, kind of when that macro turns around as well.

Our next question comes from the line of Brown CLFL from Barclays. Hi there.

Thanks so much for taking my question today. It's great to see the entire vertical stack, sort of ex-real estate was back to healthy growth this quarter. On real estate, I was wondering how you're looking at that vertical over the longer term. I'm thinking of work from home trends and sort of struggling commercial office markets. Will real estate kind of diminish as we move forward in terms of its longer term contribution to growth or are you expecting a rebound back to sort of prior levels?

Yeah, so Ramsey, this is Mike. So one thing I'd like to clarify is overall the vertical of real estate actually performed fairly well for us. Then my commentary was it's a big vertical related to lots of subsectors within the vertical. And when we look at our customer base, it's really kind of split across five different verticals. led by multi-family apartment operators being one, the second one is student housing and campus housing, third is industrial, the fourth is retail, and the fifth is commercial office. So of the five, commercial office is the one that we saw that still has kind of the headwinds related to the dynamics that you just indicated. Yeah, the reason why the overall vertical was positive for us is because multifamily, student housing, and industrial are really performing well. And, you know, if you see a lot of our new kind of partnerships that we've launched in the last couple of years are with companies in the focus in the multifamily sector. So, you know, we, you know, and then maybe kind of the backdrop is You know, although it's our first vertical we started in 23 years ago, we're still single-digit penetration within the vertical. So lots of runway, you know, in that overall vertical.

Your next question comes from the line of Craig Moorer from FT Partners. Craig, your line is now open.

Yeah, hi. Thanks, guys.

Two questions. First, Could you unpack the increase in revenue guide a little bit and differentiate between what was driven by an increase in float revenue versus what the change was in core revenue guidance? And secondly, if you think back to prior cycles, can you perhaps try to size what you think the impact from political revenue will be in 2024 considering the election cycle? Thanks.

Thanks, Craig. I'll take the first part of the question. Yeah, so look, we were pleased, again, with the quarterly results. Again, a beat on top and bottom. And so we factored in, obviously now raising the range for the year, factored that into the equation. And really, I think it would be, if I were to split that out, it's really what we continue to see is that moderation and spending across the middle market, that's baked in and a little bit of a tick up in that float revenue contribution, but feel good about the outlook for the rest of the year.

Mike? Yeah, and on the political side, so in the last cycle, we, you know, controlled or processed roughly 30% of the political spend payments of the industry. And if we look forward to, you know, what's estimated for, you know, the 2024 political cycle, they estimate to be the first $10 billion spend cycle for political advertising. And, you know, that's, you know, roughly, I believe the last cycle was roughly $7.8 billion. So certainly some growth there in 2024. And the one thing that, you know, was a learning for me was everyone kind of assumes that you're exclusively for the candidates. And that's actually not the case. It's a kind of mixed split between both candidate, you know, advertising as well as the main issues. So the issues drive a lot of the spend as well. So that maybe gives you a little bit of context.

So reminding to everyone, please submit your questions. One person only. Thank you. Our next question comes from the line of chances from Morgan. James, your line is now open.

Yeah, sure. Wanted to talk a little bit about competition and we've seen news recently from other players in the market, including Brex and ramp yesterday. And, and, you know, how are you seeing, what are you seeing out in the market in terms of competition and, and how would you frame the distinction in business model and, better out there in strategy compared to your own right now?

Yeah, so that's a good question. Certainly, you know, we saw those announcements as well. It's kind of interesting, you know, in terms of, you know, actually what we see happening in the market is really no different than what we have seen historically. related to new competition within the middle market segment. Typically, the new entrants have been focused on small business. There's lots of good reasons for that, mainly driven by all the nuances of the mighty middle, as I call it, the middle market, being roughly 50% of all the companies in the middle market highly align themselves with industry verticals. that require unique business processes, as well as accounting systems to support the verticals. And that translates to a big effort related to product development, related to integrations, as well as accommodating the nuances of the industry. A good example of that is what we talked about with our lead waiver management for the construction vertical, so we can do a good job of executing construction-related payments. And so what you know, we continue to see is really the same players across the, you know, the middle market component, and it's very verticalized. And then you have the horizontal layer where we do see, you know, kind of probably the most competition is in the horizontals related to the NetSuite channel, Microsoft Dynamics, Sage Intact, you know, Acumatica as examples. And the, you know, specifically for BrexRAMP, you know, they've been really on the spend management side versus the AP side. And, you know, we, you know, don't really see them, you know, they don't have significant activity that we see across, you know, our particular verticals within the middle market.

Come from the line of Shenzhen Wang from JP Morgan. And your line is now open.

Hi, thanks. Good morning. I think Dave asked on incremental margins, but maybe I'll ask on gross margins in the second half. Again, just want to make sure if there's any call-outs for the second half as we model that out.

Yeah, great question, Tenjin. And I think it's, you know, again, I won't repeat, obviously, my comments in response to Dave's question, but we were pleased with our kind of margin expansion. Again, $460,000 even close to 300 stripping out political. One of the things specifically to your question about, I would go back to some comments I've made previously about just cautioning some moderation in those gross margins going forward. Again, we're super focused on gross margins. We expect to continue to see that edge up over time, but not in linear fashion. And so I would sort of say that we think about overall year expansion in the kind of 200 BIPs range and maybe, you know, 100 or so stripping out float on a full year basis.

Your next question comes from the line from Tom from Wolf Research. Aaron, your line is now open.

Guys, thanks. You know, just revisiting the, you know, the algorithm around EBITDA 20% targets. I know gross margin is a big part of that. We're seeing the success of that now, but If you guys don't mind reminding us just of the path and the building blocks and the timing that we can think about for all those factors playing out and how much is reliant on incremental, well, I guess I'd say both incremental products and offerings that are high incremental margin as well as macro to some degree.

Yeah, I mean, maybe I'll, let me make a brief comment and then Mike add some color. I think that, you know, obviously we're focused on, you know, getting to that kind of, you know, rule of 40 profile with a, you know, kind of organic 20% revenue growth as you move out into kind of 25 and even improving upon that, you know, beyond. I think the pattern, again, I would go back to not necessarily linear, but sort of steady continued expansion in gross margins and scale really beginning to see now and for the next year plus in our operating expenses. Mike, anything to add to that?

Yeah, so I got to go back to maybe it was a little bit of the first question that we had today on the flywheel. I kind of think of that kind of overall growth algorithm today as really kind of five, six different components. The first is, remember, we have these multiple five, six down monetization events on a single transaction. And that's obviously growing. We still have the big bucket of paper check suppliers, the 50% of paper check suppliers. That's a great both revenue as well as gross margin driver. We're super excited about this year's going to be one of our biggest years in terms of customer-facing product innovation, certainly led by Invoice Accelerator coming up over the second half of this year. And then, you know, we have the strong top of funnel activity, continue adding, you know, kind of new buyers. And then, you know, the last thing is, you know, I think the macro certainly will, you know, turn around at some point. And I think as Joel indicated, you know, we're not expecting that to be, you know, anytime soon, but certainly in the future that will, you know, kind of correct itself as we've seen in past cycles as well.

Our next question comes from the line of Alex Margraf from KBank Capital Markets. Alex, your line is now open.

Hey, guys. Thanks for taking the question. Maybe first one, just kind of on a similar topic around product and top of funnel activity. Mike, I think you mentioned the three-way purchase order module helping with deal size. Just wondering if you could maybe clarify or even quantify some of that tailwind and then just more broadly how you're thinking about you know, the product roadmap and kind of impact on deal sizes going forward, kind of in the near term?

Yeah, that's a great question related to, you know, some of the innovation that we've rolled out to customers. And, you know, last year, you know, late last year, we talked about our, you know, kind of next generation purchase order, procurement related, you know, kind of functionality that we've been rolling out to customers. And one of those was kind of a three-way match capability. The result is what we were kind of hoping would happen, and that is we, you know, are starting to attract more of the upper middle market, some bigger customers. And that's kind of had an impact on our overall, you know, kind of average deal size, you know, increasing, you know, roughly about 20%. So I'll give you context. You know, historically, it's been roughly in the $50,000 range, and now it's kind of migrated towards the $60,000 range. So it's had a really positive impact related to, you know, kind of the types of buyer customers, you know, that we're attracting, you know, across the middle market.

Your next question comes from the line from Kian from the Shoe Bank. Kian, your line is now open.

Maybe the next question.

OK, your next question comes from the line from . Her line is now open.

Thank you. Good morning. I think, Mike, you talked about 55% of the payment mix being tied to check today. What could that check mix like over the next two to three years, and what are the things in your control that you can drive that mix lower? Thanks.

Yeah, so I like this question, Brent. It may be a gold star question because it's a One of the things that I spent a lot of time thinking about, and certainly a lot of our growth strategies relate to, you know, chipping away at this big installed base of paper check. So, you know, so first of all, you know, I think we believe, you know, kind of long-term, you know, that that number can go into 70% type range. And the kind of strategies to get there, you know, are exactly the types of things that were, you know, that I talked about, you know, this quarter that we're rolling out to customers. And that is continue to look at different types of payment modalities with different value propositions, different price points, with different elements of data wrapped into it that we can deliver in an automated way or a straight-through process way to our supplier customers. And the one that we talked about this quarter was related to kind of the same-day payment execution for construction customers to satisfy their lien waiver requirements, which is a unique business process within the construction vertical. And so that new payment offering that we're rolling out is another good example of a new payment modality specifically for the construction vertical. And there's a great analogy here because we learned about the impact of that type of payment modality maybe a year or so ago when we rolled out a similar payment modality in the media vertical for same-day satisfaction of political payments, which has a very sensitive timeline within the political media industry. And so those are all good examples of us continuing to add new payment modalities that we look at how do we target different sectors of this remaining paper check base with unique value proposition, both incorporating price points as well as, you know, data delivery.

Our last question comes from the line of Kian from Zsuzsanna. Kian, your line is now open.

Hey, guys. I think that's me. I'm guessing it's Brian Keane. I guess two questions. Mike, can you just help us on sales cycles when you talk about top of the funnel activity? I know they were pushed out a few weeks, maybe even a month. I'm just curious, is that still the case? And then, Joel, any call-outs between third and fourth quarter as we set our models just to make sure we think about the right growth rates to put in there? Thanks.

Yeah, maybe I'll start, Brian. And so I'm glad we got your question in here. So as it relates to kind of sales cycles, It's remained consistent with what we've been seeing for the last year I think we kind of referenced that we saw, you know kind of a slight You know kind of extension, you know, we're roughly ten days You know from what we've historically have seen and that's remained consistent, you know the past in this past quarter as well and Brian just to wrap up your last part of your question just as when you think about the second half couple comments that I could add first on a revenue and

side of things. The way I would think about it, we don't guide necessarily the next quarter, but I would think about revenue as more like a 49-51 split, more or less, a little bit of ramp as you get to the end of the year. And then secondly, from an EBITDA perspective, we are really pleased with the quarterly results. The things that I would suggest, again, we're proud to be a profitable business, continue to focus on doing that, not looking back. Keep in mind, I did mention Some investments we're making to pull forward, you know, some investments in our information security profile. And so those will be, you know, beginning to ramp between now and the end of the year. And we also continue to, you know, make the investments, whether it's Invoice Accelerator or other products. That said, we're, you know, focused on continuing to be a profitable business going forward. So thanks for the question.

The next question comes from the lineup team with Lee Shoto from Credit Suisse.

Great. Thank you for taking the question.

A follow-up on the check mix question. So if you could just lay out what a time series might have looked like. I know the business has been operating for many years. What was that check mix like 10 years ago? Were there any kind of step functions ever when you introduced new products? You gave the example with the construction vertical one that might have helped with adoption of kind of eliminating some of those checks. And then to the extent that some of that check mix will start to go away at a more accelerated path over the coming years, other products could help with that.

Yeah. So, um, so good question. Um, so a little bit of that kind of the history lesson, and we launched the advocate network in 2012. Um, and, uh, I think, um, you know, that, that first year we were, you know, 95% check. Um, you know, we, uh, you know, certainly the, um, As we got smarter about, you know, virtual card delivery, that, you know, those percentages went up. One of the biggest step function changes was when we launched our Avid Pay Direct, which is our ACH, you know, plus type payment offering where we can configure different, you know, interchange or fee-based rates. We settled through the ACH process. And then we wrap kind of a data layer around that transaction we delivered to the supplier for reconciliation. And when we delivered and we came up with the AvaPage REC, that was probably a stuff function change. And that, you know, kind of now has contributed, you know, roughly 10 percentage points of that, you know, of that monetization. So, you know, when I look back, you know, maybe five years ago, we were probably in, you know, kind of 25% range. And that's now, you know, ticked off to roughly 40% of transactions we're settling through ePayments. So, you know, we have noticed a kind of a progression. One of the things that, you know, hurts that number a little bit, you know, when you look at it on a gross basis is that, you know, we're adding large volumes of new customers that are bringing, you know, large volumes of suppliers with them. And especially in, you know, as we add new verticals and our emerging verticals, where we don't have as deep a penetration rate of converting those suppliers as we do in some of our earlier sub-verticals. We see larger amounts of paper check suppliers that we're adding to the overall pool. But certainly, we're converting thousands of suppliers on a weekly basis to e-payments and have a pretty strong sales force that's dedicated exclusively to the supplier side of the equation.

Last question comes from the line from Will Nance from Goldman Sachs. Will, the line is now open.

Hey, guys. Appreciate you squeezing me in for a follow-up. Figured I wouldn't let the last three minutes go to waste here, but maybe just a follow-up on a similar vein of, I think, Tim's question just now. When we look at sort of the take rate trajectory, we've kind of been in this roughly 30 basis point range for a while now, and I know a big part of the long-term targets is seeing increased electronic payment adoption and presumably higher take rates over time. Just wondering if you would kind of talk about kind of near-term drivers of an acceleration in that electronic payment adoption, and I guess maybe just more specifically a modeling question. When we think about that year-over-year headwind that you guys are facing in the political advertising vertical. Was that a higher electronic penetration? In other words, is the 40% number that seems like it's been relatively flat over the past year, is that being weighed down by the lack of the political ad spending this year?

Yeah.

Good question, Will. So the last part of your question, so the answer is yes. There's a little bit of enhancement by the presence of political from any payment and sort of TPV yield. So yes is the answer to that question. I think your general question is what near-term drivers to acceleration might exist. Again, we're not you know, sort of predicting when we exit this kind of macro environment, it's possible that that, you know, has some positive impact. But again, we're, you know, we're pretty proud of the TPV yield we've got to start with, just from an industry-leading perspective. Moreover, you know, in this environment, and certainly there's a lot of leverage over the medium and longer term through gear three, as Mike talked about, to take checks out of the system and drive that up.

I know for questions at this time, I would like to turn the call back to Mike. Mike, over to you.

Thanks. So first of all, thank you for everyone joining our Q2 earnings call. We're looking forward to continue to update you on our continued progress of our operating and financial performance, along with our product innovations. With that, operator, you may end the call.

This concludes today's conference call. You may now disconnect.