AvidXchange Holdings, Inc.

Good morning, everyone, and thank you for joining us for the Avid Exchange Holdings, Inc., second quarter 2024 earnings call. Joining us on the call today is Mike Prager, Avid Exchange's co-founder and chief executive officer, Joel Wilhite, Avid Exchange's chief financial officer, and Subhash Kumar, Avid Exchange's head of investor relations. Before we begin today's call, management has asked me to relay the forward-looking statements disclaimer that is included at the end of today's press release. This disclaimer emphasizes the major uncertainties and risks inherent in the forward-looking statements the company will make this afternoon. Please keep these uncertainties and risks in mind as the company discusses future strategic initiatives, potential market opportunities, operational outlook, and financial guidance during today's call. Also, please note that the company undertakes no duty to update or revise 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-GAAP financial measures should not be considered in isolation from or as a substitute for financial information presented in compliance with GAAP. Accordingly, at the end of today's press release, the company has provided a reconciliation of these non-GAAP financial measures to financial results prepared in accordance with GAAP. With that, I will now turn the call over to Mike Prager.

Thank you, everyone, for joining us today. Joe Wille and I are excited to discuss Avid Exchange's second quarter 2024 results. This particular quarter marks a milestone as we achieved our first-ever GAAP net income ahead of our third anniversary as a publicly traded company, while already having delivered four quarters of positive free cash flow. Just as we accelerated our path to adjusted EBITDA breakeven and profitability meaningfully ahead of our expectations, we have now delivered GAAP and non-GAAP net income profitability in short order, highlighting the speed of our execution, the power of our new innovation delivery, our growing value proposition for both buyers and suppliers, along with the strength of our Avid Exchange culture that has fueled our success and has been a key factor in attracting and retaining the critical talent required to execute our dynamic business. Without a doubt, the choppy macroeconomic backdrop continues to test us all. It has created near-term volume headwinds driven by reductions in discretionary spending across the middle market, impacting to some degree all of our various vertical and horizontal channels. However, we remain focused on capitalizing on the current environment by leveraging our financial strength to advance our new AI-based customer and internal-facing product offerings, executing continuous unit cost improvements and operating leverage, as well as enhancing customer growth across our addressable market of middle market buyers and their suppliers. We believe we are still in the very early innings in the drive to digitally transform what is still today for the majority of middle market companies highly manual, paper-intensive, and inefficient back-office procure-to-pay process. With over two decades of institutional knowledge, building features and domain functionality around our AP automation and payment network, no one better than Avid Exchange appreciates the opportunity and the dynamic business processes inherent to middle-market companies, which are complex, unlike the small business market, and unique across the various middle-market industry verticals, unlike the enterprise segment. Our purpose-built value proposition, which has leveraged that institutional knowledge and has increasingly embedded artificial intelligence throughout the product development lifecycle, from our front-end intelligent invoice capture functionality to our back-end payment execution capabilities and all the workflows in between, is extending our lead and strengthening our competitive position across our differentiated two-sided buyer and supplier network. As such, we believe we are well positioned through our investments to advance our future growth and fuel our profit potential by delivering rapid, material, and quantifiable value in both current cost efficiency and future scalability of our customers' back office transformational initiatives. NAI Earl Furman is one of the many such customer success stories that highlight the power of our transformational value propositions. As a middle market commercial real estate brokerage and property management firm based in Greenville, South Carolina, NAI Earl Furman has been in business for over 30 years with multiple regional offices in upstate South Carolina and North Carolina's Piedmont Triad area, as well as partners worldwide. Having grown through acquisitions, the company's back office processes around accounts payable and payment became very cumbersome and paper-intensive. Specifically before automation, controller Robbie Smith's team would print out invoices and create separate books of invoice supporting document information for each property manager to review, assign the proper accounting codes, and approve with a signature. That book would then go back to the AP team who would then manually data enter and code the invoices into their MRI accounting software before cutting checks for the approved invoices and completing the PO matching process. Since automation, Smith's team has seen a step function change in its invoice and payment processes with MRI vendor pay powered by Avid Exchange. As Mr. Smith put it, it is like night and day. Our old process took a week or so. Now the whole process is completed in less than two days. This type of productivity transformation of NAI's invoice to pay underscores the power of our value proposition. Shifting our focus to our financial scorecard, We delivered healthy financial results while navigating an ongoing macro choppiness. The overriding theme impacting results for this past quarter was our focus on disciplined execution of our business in three areas. First, beginning with our sales and marketing prioritized go-to-market strategies and focusing on our highest yielding channels. Second, is our positive gross margin expansion driven by our automation aided by the impact of AI and continue to reduce our invoice and payment unit costs. And finally, third, is our continued overall operating expense rigor combined with the ROI decision-making process across every functional business group. Joe will go into more detail later in today's call, but here are some of our second quarter highlights. Revenue growth in the quarter was over 105 million. up over 15% year over year. The growth in the quarter was led by a combination of transactional volume and transactional yield growth. Non-GAF gross margins, meanwhile, continued their upward trajectory, coming in at 72.6% or up 430 basis points and crossing the lower band of our 72% to 75% non-GAF gross margin target ahead of our 2025 gross margin expectations that we set over a year ago during our investor day. Our initiatives around automation, artificial intelligence, sourcing, and standardization, which are still somewhat in the early stages, continue to bear fruit. Along with solid operating expense discipline, our adjusted EBITDA margin in the quarter was 16.6%. Transactional yield, meanwhile, which is a metric that we focus on across our leadership team as it demonstrates the power and effectiveness of our Avid Exchange business flywheel, was up more than 10% to reach $5.33 per transaction. With that overview on today's call, I'm excited to cover three topics that will shed insights into our various initiatives that will drive our future growth and margin expansion. First, our top-of-funnel activity, and other key sales metrics, which provides insights into the sales setup for 2025. Second, discussing two new strategic software integration partnerships, which will further drive both Gears 1, 2, and 3 of our Avid Exchange business flywheel. And third, highlight innovation around strategies to automate the execution of electronic payments. Starting with our customer obsession metrics, I wanted to update you on our top of funnel and other underlying indicators driving our go-to-market motion. For the six months ended June 2024, the overall top of funnel was down around 4% compared to the same period last year. However, various key underlying indicators improved, which adds a nice plot twist to the top of funnel narrative and highlights our strong sales execution against a choppy macro backdrop. Before I discuss those, I'd like to call out areas of strength and weakness within the top of funnel. On the positive side, we saw our real estate, media, education, and non-for-profit verticals, which comprise almost half of our new opportunities, grow anywhere from high single to mid-double digits on a comparable basis. HOA, construction, financial services, meanwhile, were down high double digits. The net decrease in our top of funnel was largely due to a more targeted approach we called out last quarter around our go-to-market motion, in addition to increasing our investment and focus on our various partner channels to drive new highly qualified sales opportunities versus a historically larger focus on electronic demand gen programs, which we have seen softening over the last quarter and producing less qualified opportunities. As I referenced earlier, amid these puts and takes in our top of funnel, there have been some promising trends and other sales-related indicators that are trending positive year-to-date with the potential to continue for the remainder of this year. First, sales cycle time on average for the six months of 2024 versus 2023 on a comparative basis shortened by roughly one-third. Second, close rates for the six months ended June 2024 on a comparative basis remained strong. Both sales cycle time and close rates reflect a higher quality pipeline with interest levels that are actionable, which are the fruits of our more disciplined and targeted go-to-market motion. And finally, our buyer-customer new logo customer count, a metric we furnished annually for the six months of 2024, outpaced levels comparable for 2023, leaving us optimistic on the potential for higher net new logo ads for 2024 relative to 2023. Now I'd like to talk about the four gears of our business flywheel. We recently signed some notable new integration partnerships, which advanced gears one, two, and three of our out-of-exchange business flywheel. Starting with the real estate vertical, we deepen our competitive advantage further with Buildium. This AP integration partnership with Buildium extends our relationship with RealPage, one of our biggest ERP partners. As a cloud-based property management software company, Buildium targets various verticals such as condo association management and real estate, including sub-verticals such as multifamily, student housing, affordable housing, etc. With approximately 15,000 customers, roughly 3,500 of which are in our product fit sweet spot. What is just as significant about the Buildium partnership is that we leverage generative AI in building out the integrations. As a result, we are not only able to compress development cycle times by 30% to around two months, we believe that the end user experience will prove to be substantially better, given that we're able to train the AI inherent within our existing library of integrations to simulate pain points and test various use cases, including edge cases that deliver the best user experience. This referral partnership, which is slated to go live in the third quarter of 2024, initially starts out with our AP automation invoice solutions. Additionally, it also represents a significant payments opportunity by potentially adding billions of new payment volume, driving the third gear of our Avid Exchange business flywheel, which is the monetization of payment transactions and eliminating paper checks. We believe this partnership highlights not only the large total addressable market, but also how much runway for growth that still exists in just the real estate vertical alone. the initial vertical segment that we launched our business in in 2000. And whereas the industry leader, our penetration rate is still in the single digits. Another ERP partnership of note showcases our first invoice solution for the media vertical under gears one and two of the flywheel. This integration highlights how we are extending our strategic advantage and success in media-related payments within the media vertical, which we launched through the FastPay acquisition into media AP automation. This AP automation solution leverages our existing tech stack and is built on our cloud invoice automation platform. Our target customer profiles are agencies that process several hundred invoices per month and the first integration partners we have identified to go live with is Workamajig. Founded more than three decades ago, Workamajig is a leader in the project management software that space designed specifically for marketing teams and creative agencies. Spanning a portfolio of over 3,500 customers, Workamajig is a dominant leader in the marketplace targeting those traditional agencies. Through our invoice automation solution, Workamajig's customers will be able to digitally transform their AP workflow with our robust end-to-end capabilities. These range from our AI-centric invoice ingestion in the front end to intelligent workflow routing and approval engine to resolve invoice discrepancies, as well as leverage our broad payment modalities and our media payment network on the back end. This integration partnership went live and became generally available in the second quarter. Our end-to-end invoice and payment solutions, we believe, not only differentiate our market positioning, but also solidify our advantage in selling our payment platform to these targeted media agencies. Turning now to our operations, We continue to make strides on our automation initiatives by leveraging artificial intelligence as a way to further optimize existing automation processes with human agents in the loop. One area in which our success is very tangible and serves as an early win is around payment automation of virtual card payments. To name just many lanes of process automation initiatives we've embarked on. This is important as we position ourselves to deliver on our near-term gross margin target of 75%. and set our sights on our long-term margin exceeding 75% as outlined during our 2023 Investor Day. The latest initiative around payment automation is executing virtual card payments through online portals. There are six ways which we execute virtual card payments today for our suppliers. By a straight-through process, direct API connections, online portals, IVR systems, email, and over the phone. Just as with email, where virtual card information is sent automatically to a supplier when a payment is created, there are many supplier customers, such as plumbers, roofers, landscapers, etc., that have stood up online payment portals through their relationship with various merchant acquirers or third-party website developers to take in these payments. The challenge has been to automate the delivery and application of these virtual card payments to the numerous supplier-specific online portals at scale, given the explosion of these online portals along with unique user interfaces that are costly and labor-intensive to scale. Currently, we are doing over a million of these online portal payments, approximately 80% of which executed through humans and the remainder being RPA bots. We believe we're at a tipping point where we could transform this process through artificial intelligence and deliver virtually all these online payments without manual intervention, taking our current levels of overall electronic payment automation of around 85% today to well over 90%. What this should enable is not only lower unit costs as we lower headcount growth and lower overall software license fees, but better leverage around future costs as we grow our business, driving gross margins. But equally impactful, we believe, is the control, visibility, and certainty over virtual card payment execution this provides as we test this capability through the remainder of this year and look to scale it further in 2025. In closing, we are proud to deliver our first-ever GAAP net income profitability driven by our continued gross margin expansion along with disciplined execution across the operations of our business. However, we are even more excited about the future. We believe the innovation investments we have made across our product portfolio, coupled with the large and marquee integration partnerships we have executed, position us well to accelerate our growth, build on our margin expansion, momentum, and achieve our Rule 40 objective in 2025 and our Rule 50-plus targeted by 2028. We recognize the choppy macro backdrop and believe the upcoming election certainly is not helping in the near term. However, those two shall pass, as we work towards a significant long-term growth opportunity in front of us across the middle market. Furthermore, while overall top of funnel saw some softness, some of which was a function of our long-term strategic trade-offs, our stronger buyer-customer logo cadence year-to-date, 2024, compared to the same timeframe last year, leaves us encouraged around the sales and revenue trends for 2025. Meanwhile, we remain laser-focused on our operational rigor and execution. controlling those elements of our business model that we can directly control as evidenced by our ongoing unit cost reduction and operating leverage. Furthermore, with our new payment platform, Payment Accelerator 2.0, and our spend management offerings being sequenced for rollout over the next 6 to 18 months as our new accounting system and ERP partnerships begin to gain traction, We believe we're set up for a nice growth directory for 2025 and beyond as we strive for a strong close in 2024. I want to provide a special thanks to all of our AvidX team members for their hard work, dedication, and relentless focus on executing our operational and strategic priorities that drive value for our customers, create scope for their professional growth, and unlock significant 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 2024 financial results, which reflect disciplined execution of our growth strategies amid continued macro choppiness. Overall, we delivered another quarter of healthy year-over-year financial performance across the board. I will expand on that in a moment, but let's see how we tracked relative to implied expectations. Relative to the implied second quarter 2024 business outlook and excluding the float and political revenue contribution, revenues came in a touch below our expectations with slightly better total transaction volume tempered by slightly lower transaction yield. Gross margin performance remained strong due largely to ongoing progress on unit cost initiatives coupled with software yield expansion. Coupling that with sustained operating expense leverage, we drove significant adjusted EBITDA out performance relative to expectations. It's worth pointing out that this continues our streak of delivering adjusted EBITDA profit expansion, excluding float and even political contribution. Most notably, as Mike mentioned, we achieved a significant milestone as we delivered our first ever GAAP net income since going public in 2021. Now turning to year-over-year results. Total revenue increased by 15.3% to $105.1 million in Q2 of 2024 over the second quarter of 2023. Most of the revenue growth was driven by the combination of the addition of new buyer invoice and payment transactions, coupled with software and pay yield expansion. The remaining revenue growth for this quarter was driven by higher year-over-year float and political revenues. Our strong revenue growth also resulted in total transaction yield expanding to $5.33 in the quarter, up 10.1% from $4.84 in Q2, 2023. Most of the increase was driven by pay and software yield, coupled with transaction mix skewed toward payments with the remainder due to float and political revenues. Software revenue of $29.9 million, which accounted for 28.5% of our total revenue in the quarter, increased 9.8% in Q2 of 24, over Q2 of 2023. The increase in software revenues of 9.8% was driven by growth in total transactions of 4.8%, which continues to be impacted by macro choppiness, with the balance driven by growth in certain subscription-based revenues. Payment revenue of $74.2 million, which accounted for 70.6% of our total revenue in the quarter, increased 17.3% in Q2 of 2024 over Q2 of 23. Payment revenue reflects the contribution of interest revenues, which were $11.8 million in Q2 of 24 versus $9.2 million in Q2 of 2023. Political media revenue in the current quarter was approximately $800,000 and negligible in the same period a year ago. excluding the impact of float and political revenues from both comparable periods, payment revenues grew 14.6% with most of that increase driven by a combination of an increase in pay yield, greater payment mix, and payment transaction volume increase of 8.6%. On a GAAP basis, gross profit of $68.7 million increased by 23.6% in Q2 of 24 over the same period last year, resulting in a 65.3% gross margin for the quarter compared to 61% in Q2 2023. Non-GAAP gross margin increased 430 basis points to 72.6% in Q2 of 24 over the same period last year, with the lion's share of the increase driven mostly by unit cost efficiencies and yield expansion. Now moving on to operating expenses. On a GAAP basis, total operating expenses were $76.8 million, a decrease of 5.7% in Q2 of 2024 over Q2 of last year. On a non-GAAP basis, operating expenses excluding depreciation and amortization and stock-based compensation decreased as well by 0.6% to $58.9 million in the second quarter of 24 from the comparable prior year period, which was helped by the timing of headcount additions and certain third-party expenses across R&D and sales and marketing expense categories. On a percentage of revenue basis, operating expenses excluding depreciation and amortization and stock-based compensation declined to 56% in the second quarter of 2024 from 65% in the comparable period last year. Overall, absent certain timing factors, the year-over-year percent decline largely highlights expense discipline and significant operating expense leverage across G&A, sales and marketing, as well as R&D to an extent, even after stripping out the contribution of float and political revenues. I will 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 $184,000, or 1%, to $18.5 million in Q2 of 24 over Q2 of last year, which, absent the aforementioned timing benefits, reflects ongoing yet targeted investments in sales and marketing spend to support our continued growth. Non-GAAP research and development costs increased slightly by $291,000, or 1.3%, to $22 million in Q2 of 24 over Q2 of last year. The increase, which was also helped by timing factors, was due to continued reinvestment in our products and platform, including spend management, our pay offering, and payment accelerators. Non-GAAP general and administrative costs decreased slightly by $455,000, or 2.4%, to $18.4 million in Q2 of 2024 versus Q2 of last year due to leveraging public company costs across a larger revenue base. These expenses continue their annualized downward progression as a percentage of revenue, as we indicated during our investor day. Our gap net income was $436,000 for the second quarter of 2024 versus a gap net loss of $18.8 million in the second quarter of 2023. With the reduction in losses driven by a combination of strong revenue flow through, solid gross profit increase, expense control and timing of certain expenses leading to lower operating losses, coupled with higher interest income, and lower interest expense due to reduced borrowing costs and partial debt pay down. On a non-GAAP basis, our net income in the second quarter of 2024 was $10.7 million versus a net loss of $500,000 in the same year-ago period. Approximately $11.2 million positive swing from the year-ago period driven by the aforementioned factors. On a non-GAAP basis, Q2 2024 adjusted EBITDA was $17.5 million versus $3 million in Q2 of 2023, largely due to the aforementioned factors. 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 $465 million of cash and marketable securities against an outstanding total debt balance of $76.5 million including a no payable for $13.9 million. We had $30 million on our credit facility undrawn at quarter end. Corporate cash, meanwhile, was split roughly two-thirds among money market funds, commercial paper, and time deposit instruments, with the remaining third in deposit accounts. The weighted average maturity on the corporate cash was roughly 22 days, while the effective interest rate on our corporate cash position for the second quarter was roughly 5.2%. Customer cash at quarter end remained unchanged sequentially at approximately $1.2 billion with an interest rate of roughly 5% for the quarter. Turning to our updated 2024 business outlook, we now expect total revenue for the year to be in the range of $436 million to $439 million. Our 2024 revenue outlook reflects approximately $49 million of interest revenues from customer funds a $4 million increase from our previous 2024 outlook, versus roughly $41 million earned in 2023. Also, we anticipate political media revenue contribution of approximately $9 million, given that this is our first presidential cycle under FastPay. Recall we acquired FastPay in 2021, and for context, in 2022, during the midterm election cycle, the political arm of FastPay generated roughly $8.5 million in revenues. Similarly, we expect non-GAAP adjusted EBITDA profit ranging between $73 and $75 million for the year. With that, I'd now like to turn the call back over to the operator to open up a line for Q&A. Operator?

We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and two. In the interest of time, please limit yourself to one question. At this time, we will pause momentarily to assemble our roster. The first question today comes from Dave Coney with Baird. Please go ahead.

Hey, guys. Thank you. And maybe just to kick off, so the guidance for the back half is about 5% lower. The revenue guidance is about 5% lower than before. And it seems like two components. You know, you called out macro headwinds, and then you talked a little bit about yield headwinds. in payments missing Q2. So are there some dynamics there at play too? Maybe talk about those two components and how that's affecting your guidance this year and then if those should have any impact on next year as well.

Yeah, thanks Dave. Great question. And you're reading it right. I think what we're pointing to in our guidance for the back half of the year is at a high level is essentially, you know, projecting forward what we experienced in the second quarter. So we're guiding what we're seeing. And what we're seeing is a continuation, even maybe a tick worse on the overall total transaction volume. You know, that was a 4.8% grower in Q2, down a little from that 5.8% in Q1. So really kind of continuing that forward and an incremental additional element that I point to, Dave, this quarter is was something that we're seeing in our yield dynamic. So again, overall continued really strong TPV yield, certainly relative to the industry. And down a basis point, if you think about the progression from Q1 to Q2, but I'd offer up a couple dynamics that we did begin to see and stand out for us in this quarter. And let me just go through them real quick to get it out there. So really three things I'd point to, first off, we have seen some larger payments with existing suppliers shift away from the higher monetized rates. Number two, we've seen a mixed shift with new suppliers as we're continually adding suppliers to the Avid Pay network through new buyers or new suppliers that show up in payment files. And we're seeing a shift to other payment modalities with variable take rates below kind of the full range. rack rate interchange. And number three, and finally, and I think I mentioned this in the first quarter a little bit, is we are seeing greater monetization of smaller payment sizes, driven by the continued sourcing, automation, and standardization. We're able to monetize incrementally smaller payments to monetize, but on a weighted basis, and taken all together, we are seeing a little lighter overall TPV yield, and we've extended both that volume and the TPP yield assumptions forward through the end of the year while we're navigating this macro environment. We're not expecting that to get meaningfully better or meaningfully worse this year.

Gotcha. Thanks, guys. And great EBITDA progress, too, by the way. Thanks, Dave.

The next question comes from Ramsey L. Assel with Barclays. Please go ahead.

Hi, guys. Thank you for taking my question. I wanted to ask you to kind of give us your updated thoughts on revenue visibility in this environment. I guess it's another way of asking the question about the degree to which you have confidence that your guidance is sort of sufficiently risk-adjusted here, maybe accounting for a range of macro outcomes. Is that something that you're confident you can kind of see at this point?

Yeah, again, I would just reinforce what I've said before. What we're guiding is kind of what we're seeing now. I think we We are, you know, kind of running the same, you know, high-discipline, high-rigor process we do when we forecast our business. And we have a, you know, meaningfully consistent, you know, sort of recurring visibility in our overall total transactions. And so, great question, Ramsey, one that I spend time thinking about. We feel good about the guidance that we've provided.

All right. Fantastic. Thanks.

The next question comes from Sanjay Sakrani with KVW. Please go ahead.

Hey, this is Dr. Steven Kwok filling in for Sanjay. Thanks for taking my question. I guess I just want to drill down around the revenue slowdown. Could you just talk about the sequential change that was seen within the quarters? Was there any noticeable difference between when you started the second quarter to the end of the second quarter? And also, any color around, like, was it from discretionary versus non-discretionary? Thank you.

Yeah, great question. I would just point you back to kind of on the volume side, certainly whether year-over-year or sequential, we're seeing just continued pressure from a discretionary standpoint. We're still maintaining consistent and really high kind of overall retention of our buyers and our suppliers, but we just see the continued sort of caution and moderation on the part of buyers in their spending, and it is still limited in we see limited to discretionary spend types, things like advertising, professional services, travel, you know, significant, you know, kind of capital projects and improvements. And it hasn't really widened outside of that discretionary bucket, maybe just gone a little bit deeper relative to what we've seen in the past few quarters.

Got it. And then just touching around some of the key initiatives, such as payment accelerator and the spend management side, could you talk about, like, the progress around that, you know, how much are they expected to contribute this year and how fast they can spool up in 2025 and beyond? Thanks.

Yeah, this is Mike, and I can certainly comment on that. So, first of all, Payment Accelerator 2.0 is kind of the new version of our historic Invoice Accelerator offering. I'm really excited about the progress of that offering. As we indicated, this year we're taking it slow to prove out all the different functionality of the product that we've improved on over the prior version. We continue to scale it prudently, but certainly 2025 will be the year that we're seeing the real scale take hold in that product as we make it available to all 1.2 million suppliers, of which, remember, of that number that we estimate, about 60% of that 1.2 million fall in the category of small business suppliers, of which we think the product is a perfect fit for. Turning to kind of spend management, spend management is a year or so behind kind of that payment accelerator. We expect to introduce it to our first customers at the end of this year timeframe, later in Q4. And again, we expect to initially have an opportunity to make that product available to our existing customers throughout 2025 as we also introduce it into new customers. The focus on pay to spend management is really to capture the payment volume and transactions that we don't see today that fall outside of an invoice. So today we do a really good job of capturing all transactions that have an underlying invoice related to them, because typically we're the system of record for all our customers in terms of all expenses that have an invoice as we feed their general ledger. But what we see is that transactions that don't have an invoice many times fall outside our system, and that number could be up to like 15% of a company's spend. So spend management is really designed to, you know, how do we get all the spend that a customer has related to their expenses in our platform so they can have better reporting, visibility to expense, cash flow management, all those type of things as part of our platform of which they're asking us to do. So there's a little bit of commentary around both payment accelerator and spend management.

Great. Thanks for taking my question.

The next question comes from Jamie Friedman with Susquehanna.

Please go ahead.

Hi. Good morning, guys. A lot of hard work here. I just want to ask one for Joel and one for Mike. Are you still comfortable with the 20% plus revenue CAGR through 2025 and the, I think, 20% plus EBITDA margin? Joel. And then, Mike, maybe if you could talk about the rule of 40 or 50 long-term that you'd articulated at the Analyst Day. Thank you.

Yeah, great questions, Jamie. I'll start off. I guess the first way I would sort of answer that question is we still feel like we're in the early days of a really big opportunity, and we've got a lot of levers, both to grow revenue and to be a more efficient business, and the evidence is in the gross margin expansion, the profitability, etc., I would say that in the short run, you know, we need the macro to turn around. You know, back to that kind of whether you're talking about 20% or rule of 40, we're operating in a sort of environment of caution and moderation on the part of buyers. And so I would temper short-term expectations, but I'd say that long-term opportunity is certainly still there.

Yeah, maybe to kind of pick up on what Joel said, Jamie, related to kind of that, you know, rule 40, rule 50. As Joe indicated, certainly we didn't expect that the discretionary spend from customers will rebound at some point in time. We're hopeful that once we get past the election cycle and customers just have more clarity on policies, including kind of the rate environment, that we'll start seeing some return of their discretionary spend, preventive maintenance projects, things of that nature, as we've seen in other cycles. But the other, you know, kind of there's three other things that give us a lot of confidence related to, you know, not only kind of returning to kind of that 20% growth number, but also, you know, kind of delivering on the Rule 40. And that's the innovation, you know, products we have driving future growth being, you know, the payment accelerator, adoption, and then release and spend management that I just commented on. But that combined with our new, you know, kind of buyer sales channels, in terms of the partnerships that we've added over the last year. Certainly, Folio is a big piece of that with their 20,000 customers, which we expect roughly half of those fit within our product market fit. M3, and then most recently, Buildium. So the new sales channels we're really excited about in terms of driving new buyer sales. And then the last lever is around that conversion to paper checks to electronic as we've been kind of commenting on that we believe that our ability to manage multiple payment modalities across our platform that combine combinations of speed of payment, price of payment, levels of remittance data, along with levels of automation are kind of the key in terms of continue to drive that conversion from paper check to electronic. And so those are kind of the building blocks for that 20% kind of growth mantra that we have. And then as it relates to Group 40, we continue to have kind of those levers, as Joel indicated. Certainly, AIs had a nice impact and will continue as we drive gross margin in our various other automation strategies, continue to build our gross margin. And then I think we've been able to demonstrate that we have kind of strong and disciplined execution of the business. and especially around the expense discipline that we have and how we run the business to, you know, achieve that objective of Roll 40 and then, you know, longer-term Roll 50.

Got it. Thank you both.

Thanks, Jamie.

The next question comes from Andrew Bosh with Wells Fargo. Please go ahead.

Hey, good morning. Thanks for taking the questions. just want to dig into the dynamics around the suppliers being more discerning around the higher monetized payment offerings. This is something that was called out by one of your closest peers, I think in like the middle of last year, and they basically chalked it up to the macro, but said that when macro turns, those higher monetized payment methods should see greater adoption. And so my question to you is, are you kind of expecting the same thing? And what's the risk that we should be thinking about that each quarter that goes by where they're electing for lower monetized payment methods, that those behaviors become more sticky?

Yeah, great question. Let me start, and Mike might add a little context. But what I would point to, maybe it's a little bit of a difference than the example that you referenced, is we've always been focused on suppliers as customers, and there's a value proposition there. and sort of remember the speed, data, automation, and then kind of the notion of price depends on that level of speed, data, and automation. So what I pointed to when we were talking about those yield dynamics is some mixed shifts for sure, but not a wholesale kind of retreat from monetized payments, just continuing to seek the speed and the data and the automation, but at some different price points. So we're encouraged about our yield today. Again, 30 bets on approaching $100 billion of TPV. We believe we have an industry-leading yield, and we'll continue to see that. But we'll also continue to meet suppliers where they are and deliver the value that they're seeking at different prices. So, Mike, you want to add anything to that?

Yeah, just to kind of reinforce, the key element is thinking of the suppliers as a core customer. and building a value proposition around them. So one of the things that we're seeing is that, you know, we don't have suppliers, you know, leaving our network. We have super high, you know, retention rates and high 90% range related to our supplier customers. But what we do see, especially around you continue to go, you know, deeper to convert those paper check suppliers to electronic is that, you know, at the different price points, that we have, it's a value proposition that kind of meets, you know, what they're looking for to make that conversion. And so, you know, we continue to see, you know, high volume of new suppliers being added to the network. However, we think the key is, and how we drive this over time, you know, to get to our, you know, kind of next milestone of 50% of monetized payments and and greater over time, is that continued delivery of new payment modalities that combine speed, price, remittance data, along with automation.

Makes sense. Thank you, guys.

Thank you.

The next question comes from Darren Peller with Wolf Research. Please go ahead.

Guys, hey. I think there's a couple of things that we just want to dive into a little bit. One of them is just the transaction growth rates versus the overall volume growth rate, just on a more technical matter. If any way you can help us guide around what you expect there in transaction size. But more than that, I really want to understand a little bit more around what you're seeing in terms of the dynamic of top of funnel, customer ads. Mike, last quarter we talked about different strategy on conferences. So maybe just give us a little more update on what you're seeing in terms of net new additions. and your strategy, and is it market, or the market's coming to you with how proactive you're being in different ways?

Thanks, Darren. Got it. I'm going to take the front end of your question, and then Michael takes the back part. So just to add a little context, and I think your question is help us understand kind of growth rates in overall total transactions, and then overall total payment volume. Remember that our total transactions are metric is the sum of all the transactions on the platform. That's all the invoices and all the payments. And the subset of the transactions that are payments is a smaller but incrementally faster growing. And I would just say that we still see pretty direct correlation between the growth in payments and the growth in overall total payment volume. And I wouldn't point to anything meaningfully different in terms of overall you know, average payment sizes across our verticals. And so, finally, I would just say, you know, we're continuing to see that, you know, caution exercised by buyers. You know, we talk about overall total transaction retention rate as a number that we provide annually last year. You know, in the 103 range, normally it's in the 104, 105. In this season, we're in we're right around the 100 zip code, even plus minus. And so we're optimistic that as we get through this economic season that that returns, but that overall total transaction growth rate is indicative of what we're experiencing.

Yeah, and Darren, maybe you turn it to your question on top of funnel activity. Yeah. So I think there's kind of two elements. One is, as I talked about last quarter, a more disciplined approach around our investments in the highest ROI marketing initiatives. And this has certainly been put as practice and put in place with how we think about all the trade show, conference, user conference type activity around all our partners. Make sure we're focused on the highest ROI initiatives. The second thing, which was probably more of in this quarter, is around also a change of mix in terms of how we think about historically maybe more investment in electronic demand gen versus supporting our partners and certainly move that mix to our partner channels. Certainly, you know, the new partnerships that we've added like at Folio, M3, Buildium are good examples where we wanted to increase our investment as we're seeing really high qualified, you know, leads coming from these channels versus maybe, you know, higher volume but lower qualified coming from the historical, you know, demand gen, you know, routes. And so we're, you know, and we think that strategy is actually playing off as we see, you know, overall results. Our, you know, new logo growth is up over last year combined with strong close rates. But one of the things, you know, we did see, which is really encouraging, our, you know, average sales cycle has been, you know, cut by a third. So seeing nice improvement and faster close cycles combined with, you know, maintaining strong close rates. So I think that demonstrates that. you know, by executing these two strategies that we're seeing, you know, higher qualified leads coming through the top of funnel, even though the overall volume may be slightly lower.

So you're saying when you're adding at a rate that's faster for a new logo growth, that's overall new customer ads. In other words, the rate of growth of additions of new customers this year versus last?

Exactly. Exactly. Kind of, you know, new logo growth, you know, halfway through the year compared to last year, we're up over last year.

All right, that's good to hear. Thanks, guys.

Thank you.

The next question comes from James Boston with Morgan Stanley.

Please go ahead.

Great. Thank you so much. I wanted to kind of continue to work on the P&L. And given some of the top-line softness, it was definitely constructive to see you flex OPEX down year over year in order to get to your projected adjusted EBITDA to protect that. How are you thinking about the right level of OpEx growth for the business over the near to medium term to the extent that revenue growth is a bit more muted?

Yeah, James, good question. And I just go back to some of the things that Mike talked about in his prepared remarks and reinforcing it in his commentary. We're really focused on running a disciplined business. We're also very focused on kind of the growth opportunities ahead of us at the same time. So we continue to balance that. What I would say is that you'd likely, baked into our guidance, there is a little bit of an incremental investment that we're contemplating in our OpEx. And again, that's focused on finishing strong and getting launch, payment accelerator, spend management, our overall pay platform, et cetera. So again, I don't know that there's an optimal number to give you, but we're very focused on profitability. You can see that in the gross margin expansion that continues. I'll tell you that even in kind of the, you know, the shift in our guidance in the back half, we're still, you know, really focused on the gross margin that's contemplated there. You know, maybe the rate of expansion moderates a bit, but we don't expect to go backwards. And so we're continuing to focus on investing in growth and running a disciplined business.

Got it. And then from a business development standpoint as, you know, kind of the choppy economic environment continues to persist, are there incremental opportunities to further expand the reach and abilities of AVID through acquisition or looking at adjacencies? How should we be thinking about what the right approach to investment is strategically in the current environment for you?

Yeah, I think that's a really good question. Certainly the kind of inorganic and providing tuck-in acquisitions has been kind of part of our historical kind of growth as we've added new vertical channels, and many of them have happened through acquisitions. We believe that that's going to continue to be part of our future strategy. We've had a couple years of not having any activity on the M&A side. I think that's really a combination of, number one, not really seeing anything that we felt was super strategic that could really, you know, move the needle for us strategically in terms of that growth. And the second thing is I think, you know, the valuation kind of spectrum of, you know, kind of private companies versus public has been a little bit challenging. But I think, you know, those elements, you know, or that element we're going to see, you know, kind of We are seeing it kind of change, and we're seeing more activity than we've seen in recent years in terms of opportunities to continue to do tuck-in acquisitions, move into adjacencies like you referenced, which is what we've done historically and have a really developed playbook on how we execute these effectively. So I expect that we will kind of get back to having a routine cadence around some tuck-in acquisitions as we go forward.

Great, thanks.

As a reminder, please limit yourself to one question.

The next question comes from Craig Moore with FT Partners. Please go ahead.

Yeah, hi. Thanks for taking the questions. First, over the long term, is perhaps your new origination volume shifts toward partners and away from self-generated leads or that mix shifts. How should we expect that to impact the yield as I assume you're sharing economics there? And second, you know, I'm a little perplexed by the maintained guide on political revenue at 9 million, which was effectively what you did in 2022 during the midterms. I mean, all fundraising and activity points to a massive upswing in spend from certainly that midterm number. So I'm curious if you're forecasting share loss or yield compression or something that's keeping that guidance flat. Thanks.

Thanks, Craig. I'm going to take the political question, and then I'll have Mike take care of the first part. Great question, and I think, you know, let me kind of reset the table around political. We're sort of reaffirming the $9 million that we've talked about since the beginning of the year. You know, we are seeing consistent patterns with the presidential election. Now, granted, we didn't own FastPay back in 2020, but when we look at the first half, second half distribution, you know, we're very consistent. I'd also sort of repeat, you know, we don't have a lot of visibility there. It's meaningfully back-ended spend. And so if there was an area that, you know, surprised us to the good, it could possibly be, you know, this political number. And so that said, we're also seeing the same, you know, kind of dynamics that we're seeing across the business in our traditional media and political media business as it relates to, you know, volume and rates. So degree of uncertainty, not the same visibility we have in our normal business. and hoping we're on the conservative side and we really see it move in the back half, but we're not calling that in our guidance.

Yeah, maybe to continue on what Joel says, remember we expect to see the majority of all activity happen after Labor Day, so it makes it harder to have visibility to what may happen. Certainly we're encouraged with some of the forecasts and spend levels for not only the presidential cycle, but all the ballot initiatives and the state-run elections. But Craig, I wanted to kind of come back to you. I think your first question was related to kind of long-term impact to some of the makeshift of leveraging, having greater leverage within our partner channels. The way we think about it is we think the net contribution is consistent in terms of our direct sales efforts. Certainly, The majority of partnerships that we have are more referral partnerships where our direct sales force still leverages those partners. Although we're, you know, sharing some of that revenue, we kind of look at it as it's kind of an investment, you know, similar to what we make in marketing-related expense to drive our internal leads. So we, you know, kind of our models, you know, show that it's really kind of a net-net, you know, kind of equal type of opportunity in terms of overall net impact. And we think it's really kind of the beauty of our demand gen funnels is we have lots of different sources that make it up. And so as we're seeing softness, for example, in electronic demand gen and really high kind of activity through our partner channels, we can make these type of adjustments. And I think from an execution perspective, We're happy to be working on, you know, high-quality leads that are having the impact that they have, and the net result is, you know, our net logo growth is up over last year, and our team is working on higher-quality leads through that change in strategy. Okay.

Thank you, Mike. Thanks, Joe. Yep. Cool. You bet.

The next question comes from Timothy Chiodo with UBS. Please go ahead.

Great. Thank you for taking the question. I want to talk a little bit about credit interchange rates in the industry. So the recently rejected settlement, the original agreement was seven basis points on a blended and four basis points for essentially every category. Clearly, that is in the process of being reworked. But I was hoping you could touch on what you think the implications could possibly be for, number one, commercial interchange rates in general for the industry. And then maybe more specifically, any of the more custom interchange rates that AVID has on the commercial side?

Yeah, Tim, good question. And I think, you know, I think it was a quarter or two ago, you know, fielded a number of questions on this topic. So how we think about it, so first of all, I think, you know, the biggest impact is certainly going to be on the consumer side, where you typically have, you know, kind of, you know, standardized, you know, interchange rates. One of the things that the dynamic on the business-to-business side, and we've been kind of leading the charge here, which we reflected in our industry-leading electronic payment adoption rates, is creating multiple payment modalities. In fact, even on virtual card today, we go to market with a dozen different virtual card-type offerings that can find, again, different interchange price points with different levels of remittance data, different levels of automation and speed of payment. So, you know, when we look at kind of, you know, our avid pay network, we're actually very proactive in terms of providing kind of the right, you know, structure to price product offering or payment modality, you know, to what suppliers are looking for in terms of that value proposition. And the second element is, I think, you know, in our case, you know, MasterCard is our primary exclusive provider for execution of virtual card payments. You know, with their different data rates, we've been on the forefront of supporting our supplier customers with all the remittance data they need so they can take advantage of the different data rates. And so we've already been, you know, on the forefront of, you know, helping our suppliers, you know, get the best economics they can get by, you know, providing them the data, making transactions more secure, less fraud, all those type of things. And we think long-term that, you know, adds to a sticky customer, and it certainly shows up in our, you know, industry-leading retention rates that we have for suppliers. So we kind of, you know, view on the commercial side that, you know, we've already been, you know, kind of proactive in terms of how do we, you know, get the right price product for our suppliers to be, you know, electronic acceptance on the long term.

Excellent. Thank you, Mike.

The next question comes from Alex Markgraf with KeyBank Capital Markets. Please go ahead.

Hey, guys. Thanks for taking my question. Mike, maybe one for you first, just to expand on the top of funnel comments. I mean, I understand sort of some of the comps you provided there. It sounds like some benefits, too, from a sales cycle standpoint, maybe a win rate standpoint as well. Just kind of curious, like, what the net effect of all of this is versus what your expectations were prior to some of this resource reallocation? I mean, I'm assuming it's better, and I hear you on the net ads expectation for 24. So maybe just from like a new customer revenue contribution standpoint, how does that compare to what you were expecting prior to this resource allocation?

Yeah, so I think, so first of all, the objective of Top of Funnel is to hit our sales plan and our new customer ad kind of objectives for the year. So I think from that perspective, halfway through the year, we feel that we're on pace to, we're running ahead of last year related to adding new customers. And so we're treading towards that overall sales plan objective. But at the same time, we're not spending less on top of funnel. Our investment has stayed the same. It's just a different allocation. And so I think the beauty of having multiple dynamics of our top of funnel that are driven by many different types of sources, as we see the strength and weakness of different sources, we can adjust our spend accordingly. And so, you know, one of the adjustments that we made this last quarter is, you know, moving away from, you know, typically some of that electronic demand gen that produces, you know, lots of leads but lower quality. And we've seen this kind of softness in that particular channel is to, you know, move to where we're seeing strength, which is around supporting our growing number of partners and the higher quality leads that partners are generating for us. Again, these are existing customers of our typically accounting system and ERP partners. So there's an existing customer relationship and they're raising their hand and they want to automate this business process in partnership with their ERP accounting system partner. And so those are really high qualified leads and we're seeing it show up in terms of shorter sales cycles while we maintain really strong close rates. So I think overall, I think we're being more efficient And certainly, you know, we pay close attention to all the different lead sources we have, and we'll continue over time to make adjustments where we're seeing, you know, strength and weakness across, you know, kind of that overall spectrum.

Thanks, and if I could just squeeze one more in on yield.

I wanted to get a bit more color. The dynamic that you're seeing, is it occurring really across the entire supplier base? Is it more narrow in scope with certain suppliers or certain verticals? Any color there would be helpful.

Yeah, you bet. I think it's fairly broad across the vertical. I wouldn't call out anything specific there, Alex.

Okay. Thanks, Joel. Thanks, Mike.

The next question comes from Rufus Holm with BMO Capital Markets. Please go ahead.

Hey, good morning, guys. Thanks. Sorry if this is maybe covered on an earlier question. I joined a little bit late, but I wanted to ask about the full-year revenue guide. How much of the reduction is this macro getting tougher? And I don't know, any kind of related incremental changes you're seeing in customer behavior? How much of the reduction in the guide was due to that? And then also, how much of the reduction was from incremental lead generation headwinds that you're seeing? I don't know if you can break it up into those buckets.

Thanks. Yeah, let me tackle those, Rufus, one at a time. So the first question, I think I alluded to it, but I'll just revisit. Our guidance contemplates in the back half what we saw in the second quarter, both from an overall total transaction volume that continues to be impacted by moderation and our customers' spending, and also the yield dynamic that we pointed to on this call and that we began experiencing in Q2. And so that Think of it as roughly 50-50 balance in terms of what's driving it. It's those two dynamics that are driving the shift in revenue. And then from an overall sales top of funnel perspective, I think your last question, I would just say that we're selling for next year and the future. So not so much an impact on what we sell this year and this year's revenue. That would impact next year and going forward.

Yeah, when we get to kind of the second half of the year, really our new buyer sales activity drives next year, in this case, 2025 results. So we have pretty good, I think, visibility to kind of the activity of our existing customers, but certainly some of the macro discretionary spend has been some of the headwinds that we've seen.

Got it. Thanks. Thanks.

The next question comes from Clark Jeffries with Piper Sandler.

Please go ahead.

Hello. Thank you for taking the question. I wanted to ask about the raise to float revenue, and I suspect that's related to the customer preference on payment modality, but I wanted to clarify that and ask that. To say it another way, you're not expecting a change in the float yield or the volume as much as a change in the balance. of those funds through the year. Thank you.

Yeah, good question. Here's the way I would frame the change in the float. And so just to recap, the last time we gave guidance for full-year float revenues in the around $45 million, we've increased that to $49 million. And the things that I would point to are, you know, previously we did have factored in rate reductions in the back half of the year. We've reduced the impact of that. I think we have one late year quarter point, and so there's an incremental lift there. We also have seen somewhat, you know, marginally higher customer balances, and we've experienced that throughout the year. We've just made an assumption in our projections that we would continue to experience that. Again, nothing underlying different in the customer experience and the operational fund flow, but just slightly higher customer balances are contemplated in the back half.

Thank you very much. Thank you.

Thanks, Clark.

The next question comes from with Jakey Morgan. Please go ahead.

Hi, thanks. Good morning to you guys. I know it's been asked a lot, but I just want to understand or get your view here on the payment monetization of suppliers. choosing on the acceptance side to lower cost for solutions, is that more cyclical or secular? Do you think that as the cycle shifts that you'll see a shift back or are the suppliers just smarter around cost optimization?

Yeah, I think it's a good question. I don't think it's really cyclical. I think it's really around a value proposition. And typically, when they make a decision on a particular payment modality, we see really strong retention of that payment modality for the life of that supplier. Now, certainly the big opportunity that we have is that roughly 50% of our overall suppliers are still pay-per-check acceptors. So we're really working, contingent on providing a value proposition that's appropriate for that 50%. And again, combining speed of payment, the price, the remit state, and the level of automation And what we're seeing is certainly to get certain suppliers to move off a paper-checked electronic, sometimes the price is an element of it. And so especially we believe that, again, with a strong value proposition at the right price point, we get that supplier to be an electronic acceptor and be on our network for a long period. And so I think that's part of our overall strategy. that we'll continue to see is as we grow that percentage of 40% of monetized payments to 45% to 50% plus over time, it's going to happen at different price points.

Got it.

Thanks, Mike. Appreciate your thoughts on that.

This concludes our question and answer session.

I would like to turn the conference back over to Mike Prager for any closing remarks.

Thanks everyone for your interest in Avid Exchange. Amid the current macro choppiness, I'm proud of our disciplined execution and healthy financial performance, along with strong profitability results. As I said before, I'm particularly excited about the future given the pipeline of product innovations and the industry-leading ERP integration partnerships in progress that should propel all four gears of our business flywheel and drive long-term value creation for our investors. With that, I look forward to sharing our progress with you on our next earnings call. Operator, you can close the call.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect. Music. Thank you. Thank you.

Thank you. Thank you.

Good morning, everyone, and thank you for joining us for the Avid Exchange Holdings, Inc. second quarter 2024 earnings call. Joining us on the call today is Mike Prager, Avid Exchange's co-founder and chief executive officer, Joel Wilhite, Avid Exchange's chief financial officer, and Subhash Kumar, Avid Exchange's head of investor relations. Before we begin today's call, management has asked me to relay the forward-looking statements 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 statement 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-GAAP financial measures should not be considered in isolation from or as a substitute for financial information presented in compliance with GAAP. Accordingly, at the end of today's press release, The company has provided a reconciliation of these non-GAAP financial measures to financial results prepared in accordance with GAAP. With that, I will now turn the call over to Mike Prager.

Thank you, everyone, for joining us today. Joe Wille and I are excited to discuss Avid Exchange's second quarter 2024 results. This particular quarter marks a milestone as we achieved our first-ever GAAP net income ahead of our third anniversary as a publicly traded company, while already having delivered four quarters of positive free cash flow. Just as we accelerated our path to adjusted EBITDA breakeven and profitability meaningfully ahead of our expectations, we have now delivered GAAP and non-GAAP net income profitability in short order, highlighting the speed of our execution, the power of our new innovation delivery, our growing value proposition for both buyers and suppliers, along with the strength of our Avid Exchange culture that has fueled our success and has been a key factor in attracting and retaining the critical talent required to execute our dynamic business. Without a doubt, the choppy macroeconomic backdrop continues to test us all. It has created near-term volume headwinds driven by reductions in discretionary spending across the middle market, impacting to some degree all of our various vertical and horizontal channels. However, we remain focused on capitalizing on the current environment by leveraging our financial strength to advance our new AI-based customer and internal-facing product offerings, executing continuous unit cost improvements and operating leverage, as well as enhancing customer growth across our addressable market of middle market buyers and their suppliers. We believe we are still in the very early innings in the drive to digitally transform what is still today for the majority of middle market companies highly manual, paper-intensive, and inefficient back-office procure-to-pay process. With over two decades of institutional knowledge, building features and domain functionality around our AP automation and payment network, no one better than Avid Exchange appreciates the opportunity and the dynamic business processes inherent to middle-market companies, which are complex, unlike the small business market, and unique across the various middle-market industry verticals, unlike the enterprise segment. Our purpose-built value proposition, which has leveraged that institutional knowledge and has increasingly embedded artificial intelligence throughout the product development lifecycle, from our front-end intelligent invoice capture functionality to our back-end payment execution capabilities and all the workflows in between, is extending our lead and strengthening our competitive position across our differentiated two-sided buyer and supplier network. As such, we believe we are well positioned through our investments to advance our future growth and fuel our profit potential by delivering rapid, material, and quantifiable value in both current cost efficiency and future scalability of our customers' back office transformational initiatives. NAI Earl Furman is one of the many such customer success stories that highlights the power of our transformational value propositions. As a middle market commercial real estate brokerage and property management firm based in Greenville, South Carolina, NAI Earl Furman has been in business for over 30 years with multiple regional offices in upstate South Carolina and North Carolina's Piedmont Triad area, as well as partners worldwide. Having grown through acquisitions, the company's back office processes around accounts payable and payment became very cumbersome and paper-intensive. Specifically before automation, controller Robbie Smith's team would print out invoices and create separate books of invoice supporting document information for each property manager to review, assign the proper accounting codes, and approve with a signature. That book would then go back to the AP team who would then manually data enter and code the invoices into their MRI accounting software before cutting checks for the approved invoices and completing the PO matching process. Since automation, Smith's team has seen a step function change in its invoice and payment processes with MRI vendor pay powered by Avid Exchange. As Mr. Smith put it, it is like night and day. Our old process took a week or so. Now the whole process is completed in less than two days. This type of productivity transformation of NAI's invoice to pay underscores the power of our value proposition. Shifting our focus to our financial scorecard, we delivered healthy financial results while navigating an ongoing macro choppiness. The overriding theme impacting results for this past quarter was our focus on disciplined execution of our business in three areas. First, beginning with our sales and marketing prioritized go-to-market strategies and focusing on our highest yielding channels. Second, is our positive gross margin expansion driven by our automation aided by the impact of AI and continue to reduce our invoice and payment unit costs. And finally, third, is our continued overall operating expense rigor combined with the ROI decision-making process across every functional business group. Joe will go into more detail later in today's call, but here are some of our second quarter highlights. Revenue growth in the quarter was over 105 million. up over 15% year over year. The growth in the quarter was led by a combination of transactional volume and transactional yield growth. Non-GAF gross margins, meanwhile, continued their upward trajectory, coming in at 72.6% or up 430 basis points and crossing the lower band of our 72% to 75% non-GAF gross margin target ahead of our 2025 gross margin expectations that we set over a year ago during our investor day. Our initiatives around automation, artificial intelligence, sourcing, and standardization, which are still somewhat in the early stages, continue to bear fruit. Along with solid operating expense discipline, our adjusted EBITDA margin in the quarter was 16.6%. Transactional yield, meanwhile, which is a metric that we focus on across our leadership team as it demonstrates the power and effectiveness of our Avid Exchange business flywheel, was up more than 10% to reach $5.33 per transaction. With that overview on today's call, I'm excited to cover three topics that will shed insights into our various initiatives that will drive our future growth and margin expansion. First, our top of funnel activity, and other key sales metrics, which provides insights into the sales setup for 2025. Second, discussing two new strategic software integration partnerships, which will further drive both gears one, two, and three of our Avid Exchange business flywheel. And third, highlight innovation around strategies to automate the execution of electronic payments. Starting with our customer obsession metrics, I wanted to update you on our top of funnel and other underlying indicators driving our go-to-market motion. For the six months ended June 2024, the overall top of funnel was down around 4% compared to the same period last year. However, various key underlying indicators improved, which adds a nice plot twist to the top of funnel narrative and highlights our strong sales execution against a choppy macro backdrop. Before I discuss those, I'd like to call out areas of strength and weakness within the top of funnel. On the positive side, we saw our real estate, media, education, and non-for-profit verticals, which comprise almost half of our new opportunities, grow anywhere from high single to mid double digits on a comparable basis. HOA, construction, financial services, meanwhile, were down high double digits. The net decrease in our top of funnel was largely due to a more targeted approach we called out last quarter around our go-to-market motion, in addition to increasing our investment and focus on our various partner channels to drive new highly qualified sales opportunities versus a historically larger focus on electronic demand gen programs, which we have seen softening over the last quarter and producing less qualified opportunities. As I referenced earlier, amid these puts and takes in our top of funnel, There have been some promising trends in other sales-related indicators that are trending positive year-to-date with the potential to continue for the remainder of this year. First, sales cycle time on average for the six months of 2024 versus 2023 on a comparative basis shortened by roughly one-third. Second, close rates for the six months ended June 2024 on a comparative basis remained strong. Both sales cycle time and close rates reflect a higher quality pipeline with interest levels that are actionable, which are the fruits of our more disciplined and targeted go-to-market motion. And finally, our buyer-customer new logo customer count, a metric we furnish annually for the six months of 2024, outpaced levels comparable for 2023, leaving us optimistic on the potential for higher net new logo ads for 2024 relative to 2023. Now I'd like to talk about the four gears of our business flywheel. We recently signed some notable new integration partnerships, which advanced gears one, two, and three of our out-of-exchange business flywheel. Starting with the real estate vertical, we deepen our competitive advantage further with Buildium. This AP integration partnership with Buildium extends our relationship with RealPage, one of our biggest ERP partners. As a cloud-based property management software company, Buildium targets various verticals such as condo association management and real estate, including sub-verticals such as multifamily, student housing, affordable housing, etc. With approximately 15,000 customers, roughly 3,500 of which are in our product fit sweet spot. What is just as significant about the Buildium partnership is that we leverage generative AI in building out the integrations. As a result, we are not only able to compress development cycle times by 30% to around two months, we believe that the end user experience will prove to be substantially better, given that we're able to train the AI inherent within our existing library of integrations to simulate pain points and test various use cases, including edge cases that deliver the best user experience. This referral partnership, which is slated to go live in the third quarter of 2024, is initially starts out with our AP automation invoice solutions. Additionally, it also represents a significant payments opportunity by potentially adding billions of new payment volume, driving the third gear of our Avid Exchange business flywheel, which is the monetization of payment transactions and eliminating paper checks. We believe this partnership highlights not only the large total addressable market, but also how much runway for growth that still exists in just the real estate vertical alone. the initial vertical segment that we launched our business in in 2000. And whereas the industry leader, our penetration rate is still in the single digits. Another ERP partnership of note showcases our first invoice solution for the media vertical under gears one and two of the flywheel. This integration highlights how we are extending our strategic advantage and success in media-related payments within the media vertical, which we launched through the FastPay acquisition into media AP automation. This AP automation solution leverages our existing tech stack and is built on our cloud invoice automation platform. Our target customer profiles are agencies that process several hundred invoices per month and the first integration partners we have identified to go live with is Workamajig. Founded more than three decades ago, Workamajig is a leader in the project management software that space designed specifically for marketing teams and creative agencies. Spanning a portfolio of over 3,500 customers, Workamajig is a dominant leader in the marketplace targeting those traditional agencies. Through our invoice automation solution, Workamajig's customers will be able to digitally transform their AP workflow with our robust end-to-end capabilities. These range from our AI-centric invoice ingestion in the front end to intelligent workflow routing and approval engine to resolve invoice discrepancies, as well as leverage our broad payment modalities and our media payment network on the back end. This integration partnership went live and became generally available in the second quarter. Our end-to-end invoice and payment solutions, we believe, not only differentiate our market positioning but also solidify our advantage in selling our payment platform to these targeted media agencies. Turning now to our operations, We continue to make strides on our automation initiatives by leveraging artificial intelligence as a way to further optimize existing automation processes with human agents in the loop. One area in which our success is very tangible and serves as an early win is around payment automation of virtual card payments. To name just many lanes of process automation initiatives we've embarked on. This is important as we position ourselves to deliver on our near-term gross margin target of 75%. and set our sights on our long-term margin exceeding 75% as outlined during our 2023 Investor Day. The latest initiative around payment automation is executing virtual card payments through online portals. There are six ways which we execute virtual card payments today for our suppliers. By a straight-through process, direct API connections, online portals, IVR systems, email, and over the phone. Just as with email, where virtual card information is sent automatically to a supplier when a payment is created, there are many supplier customers, such as plumbers, roofers, landscapers, etc., that have stood up online payment portals through their relationship with various merchant acquirers or third-party website developers to take in these payments. The challenge has been to automate the delivery and application of these virtual card payments to the numerous supplier-specific online portals at scale, given the explosion of these online portals along with unique user interfaces that are costly and labor-intensive to scale. Currently, we are doing over a million of these online portal payments, approximately 80% of which executed through humans and the remainder being RPA bots. We believe we're at a tipping point where we could transform this process through artificial intelligence and deliver virtually all these online payments without manual intervention, taking our current levels of overall electronic payment automation of around 85% today to well over 90%. What this should enable is not only lower unit costs as we lower headcount growth and lower overall software license fees, but better leverage around future costs as we grow our business, driving gross margins. But equally impactful, we believe, is the control, visibility, and certainty over virtual card payment execution this provides as we test this capability through the remainder of this year and look to scale it further in 2025. In closing, we are proud to deliver our first-ever GAAP net income profitability driven by our continued gross margin expansion along with disciplined execution across the operations of our business. However, we are even more excited about the future. We believe the innovation investments we have made across our product portfolio, coupled with the large and marquee integration partnerships we have executed, position us well to accelerate our growth, build on our margin expansion, momentum, and achieve our Rule 40 objective in 2025 and our Rule 50-plus targeted by 2028. We recognize the choppy macro backdrop and believe the upcoming election certainly is not helping in the near term. However, those two shall pass, as we work towards a significant long-term growth opportunity in front of us across the middle market. Furthermore, while overall top of funnel saw some softness, some of which was a function of our long-term strategic trade-offs, our stronger buyer-customer logo cadence year-to-date, 2024, compared to the same timeframe last year, leaves us encouraged around the sales and revenue trends for 2025. Meanwhile, we remain laser-focused on our operational rigor and execution. controlling those elements of our business model that we can directly control as evidenced by our ongoing unit cost reduction and operating leverage. Furthermore, with our new payment platform, Payment Accelerator 2.0, and our spend management offerings being sequenced for rollout over the next 6 to 18 months as our new accounting system and ERP partnerships begin to gain traction, We believe we're set up for a nice growth directory for 2025 and beyond as we strive for a strong close in 2024. I want to provide a special thanks to all of our AvidX team members for their hard work, dedication, and relentless focus on executing our operational and strategic priorities that drive value for our customers, create scope for their professional growth, and unlock significant 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 2024 financial results, which reflect disciplined execution of our growth strategies amid continued macro choppiness. Overall, we delivered another quarter of healthy year-over-year financial performance across the board. I will expand on that in a moment, but let's see how we tracked relative to implied expectations. Relative to the implied second quarter 2024 business outlook and excluding the float and political revenue contribution, revenues came in a touch below our expectations with slightly better total transaction volume tempered by slightly lower transaction yield. Gross margin performance remained strong due largely to ongoing progress on unit cost initiatives coupled with software yield expansion. Coupling that with sustained operating expense leverage, we drove significant adjusted EBITDA out performance relative to expectations. It's worth pointing out that this continues our streak of delivering adjusted EBITDA profit expansion, excluding float and even political contribution. Most notably, as Mike mentioned, we achieved a significant milestone as we delivered our first ever GAAP net income since going public in 2021. Now turning to year-over-year results. Total revenue increased by 15.3% to $105.1 million in Q2 of 2024 over the second quarter of 2023. Most of the revenue growth was driven by the combination of the addition of new buyer invoice and payment transactions, coupled with software and pay yield expansion. The remaining revenue growth for this quarter was driven by higher year-over-year float and political revenues. Our strong revenue growth also resulted in total transaction yield expanding to $5.33 in the quarter, up 10.1% from $4.84 in Q2, 2023. Most of the increase was driven by pay and software yield, coupled with transaction mix skewed toward payments with the remainder due to float and political revenues. Software revenue of $29.9 million, which accounted for 28.5% of our total revenue in the quarter, increased 9.8% in Q2 of 24, over Q2 of 2023. The increase in software revenues of 9.8% was driven by growth in total transactions of 4.8%, which continues to be impacted by macro choppiness with the balance driven by growth in certain subscription-based revenues. Payment revenue of $74.2 million, which accounted for 70.6% of our total revenue in the quarter, increased 17.3% in Q2 of 2024 over Q2 of 23. Payment revenue reflects the contribution of interest revenues, which were $11.8 million in Q2 of 24 versus $9.2 million in Q2 of 2023. Political media revenue in the current quarter was approximately $800,000 and negligible in the same period a year ago. excluding the impact of float and political revenues from both comparable periods, payment revenues grew 14.6% with most of that increase driven by a combination of an increase in pay yield, greater payment mix, and payment transaction volume increase of 8.6%. On a GAAP basis, gross profit of $68.7 million increased by 23.6% in Q2 of 24 over the same period last year, resulting in a 65.3% gross margin for the quarter compared to 61% in Q2 2023. Non-GAAP gross margin increased 430 basis points to 72.6% in Q2 of 24 over the same period last year, with the lion's share of the increase driven mostly by unit cost efficiencies and yield expansion. Now moving on to operating expenses. On a GAAP basis, total operating expenses were $76.8 million, a decrease of 5.7% in Q2 of 2024 over Q2 of last year. On a non-GAAP basis, operating expenses excluding depreciation and amortization and stock-based compensation decreased as well by 0.6% to $58.9 million in the second quarter of 24 from the comparable prior year period which was helped by the timing of headcount additions and certain third-party expenses across R&D and sales and marketing expense categories. On a percentage of revenue basis, operating expenses excluding depreciation and amortization and stock-based compensation declined to 56% in the second quarter of 2024 from 65% in the comparable period last year. Overall, absent certain timing factors, the year-over-year percent decline largely highlights expense discipline and significant operating expense leverage across G&A, sales and marketing, as well as R&D to an extent, even after stripping out the contribution of float and political revenues. I will 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 $184,000, or 1%, to $18.5 million in Q2 of 24 over Q2 of last year, which, absent the aforementioned timing benefits, reflects ongoing yet targeted investments in sales and marketing spend to support our continued growth. Non-GAAP research and development costs increased slightly by $291,000, or 1.3%, to $22 million in Q2 of 24 over Q2 of last year. The increase, which was also helped by timing factors, was due to continued reinvestment in our products and platform, including spend management, our pay offering, and payment accelerators. Non-GAAP general and administrative costs decreased slightly by $455,000, or 2.4%, to $18.4 million in Q2 of 2024 versus Q2 of last year due to leveraging public company costs across a larger revenue base. These expenses continue their annualized downward progression as a percentage of revenue, as we indicated during our investor day. Our gap net income was $436,000 for the second quarter of 2024 versus a gap net loss of $18.8 million in the second quarter of 2023. With the reduction in losses driven by a combination of strong revenue flow through, solid gross profit increase, expense control and timing of certain expenses leading to lower operating losses, coupled with higher interest income, and lower interest expense due to reduced borrowing costs and partial debt pay down. On a non-GAAP basis, our net income in the second quarter of 2024 was $10.7 million versus a net loss of $500,000 in the same year-ago period. Approximately $11.2 million positive swing from the year-ago period driven by the aforementioned factors. On a non-GAAP basis, Q2 2024 adjusted EBITDA was $17.5 million versus $3 million in Q2 of 2023, largely due to the aforementioned factors. Turning to our balance sheet for a moment, I want to touch on a few key items. We entered the quarter with a strong corporate cash position of $465 million of cash and marketable securities against an outstanding total debt balance of $76.5 million including a no payable for $13.9 million. We had $30 million on our credit facility undrawn at quarter end. Corporate cash, meanwhile, was split roughly two-thirds among money market funds, commercial paper, and time deposit instruments with the remaining third in deposit accounts. The weighted average maturity on the corporate cash was roughly 22 days, while the effective interest rate on our corporate cash position for the second quarter was roughly 5.2%. Customer cash at quarter end remained unchanged sequentially at approximately $1.2 billion with an interest rate of roughly 5% for the quarter. Turning to our updated 2024 business outlook, we now expect total revenue for the year to be in the range of $436 million to $439 million. Our 2024 revenue outlook reflects approximately $49 million of interest revenues from customer funds, a $4 million increase from our previous 2024 outlook, versus roughly $41 million earned in 2023. Also, we anticipate political media revenue contribution of approximately $9 million, given that this is our first presidential cycle under FastPay. Recall we acquired FastPay in 2021, and for context, in 2022, during the midterm election cycle, the political arm of FastPay generated roughly $8.5 million in revenues. Similarly, we expect non-GAAP adjusted EBITDA profit ranging between $73 and $75 million for the year. With that, I'd now like to turn the call back over to the operator to open up the line for Q&A. Operator?

We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and two. In the interest of time, please limit yourself to one question. At this time, we will pause momentarily to assemble our roster. The first question today comes from Dave Coney with Baird. Please go ahead.

Hey, guys. Thank you. And maybe just to kick off, so the guidance for the back half is about 5% lower. The revenue guidance is about 5% lower than before. And it seems like two components. You know, you called out macro headwinds, and then you talked a little bit about yield patterns. in payments missing Q2. So are there some dynamics there at play too? Maybe talk about those two components and how that's affecting your guidance this year and then if those should have any impact on next year as well.

Yeah, thanks Dave. Great question. And you're reading it right. I think what we're pointing to in our guidance for the back half of the year is at a high level is essentially, you know, projecting forward what we experienced in the second quarter. So we're guiding what we're seeing. And what we're seeing is a continuation, even maybe a tick worse on the overall total transaction volume. You know, that was a 4.8% grower in Q2, down a little from that 5.8% in Q1. So really kind of continuing that forward and an incremental additional element that I point to, Dave, this quarter was something that we're seeing in our yield dynamic. So again, overall continued really strong TPV yield, certainly relative to the industry. And down a basis point, if you think about the progression from Q1 to Q2, but I'd offer up a couple dynamics that we did begin to see and stand out for us in this quarter. And let me just go through them real quick to get it out there. So really three things I'd point to. First off, we have seen some larger payments with existing suppliers shift away from the higher monetized rates. Number two, we've seen a mixed shift with new suppliers as we're continually adding suppliers to the Avid Pay network through new buyers or new suppliers that show up in payment files. And we're seeing a shift to other payment modalities with variable take rates below kind of the full range. rack rate interchange. And number three, and finally, and I think I mentioned this in the first quarter a little bit, is we are seeing greater monetization of smaller payment sizes, driven by the continued sourcing, automation, and standardization. We're able to monetize incrementally smaller payments to monetize, but on a weighted basis, and taken all together, we are seeing a little lighter overall TPV yield, and we've extended both that volume and the TPV yield assumptions forward through the end of the year while we're navigating this macro environment. We're not expecting that to get meaningfully better or meaningfully worse this year.

Gotcha. Thanks, guys. And great EBITDA progress, too, by the way. Thanks, Dave.

The next question comes from Ramsey L. Assel with Barclays. Please go ahead.

Hi, guys. Thank you for taking my question. I wanted to ask you to kind of give us your updated thoughts on revenue visibility in this environment. I guess it's another way of asking the question about the degree to which you have confidence that your guidance is sort of sufficiently risk-adjusted here, maybe accounting for a range of macro outcomes. Is that something that you're confident you can kind of see at this point?

Yeah, again, I would just reinforce what I've said before. What we're guiding is kind of what we're seeing now. I think we We are, you know, kind of running the same, you know, high-discipline, high-rigor process we do when we forecast our business. And we have a, you know, meaningfully consistent, you know, sort of recurring visibility in our overall total transactions. And so, great question, Ramsey, one that I spend time thinking about. We feel good about the guidance that we provide.

All right. Fantastic. Thanks.

The next question comes from Sanjay Sakrani with KVW. Please go ahead.

Hey, this is Dr. Stephen Kwok filling in for Sanjay. Thanks for taking my question. I guess I just want to drill down around the revenue slowdown. Could you just talk about the sequential change that was seen within the quarters? Was there any noticeable difference between when you started the second quarter to the end of the second quarter? And also, any color around, like, was it from discretionary versus non-discretionary? Thank you.

Yeah, great question. I would just point you back to kind of on the volume side, certainly whether year-over-year or sequential, we're seeing just continued pressure from a discretionary standpoint. We're still maintaining consistent and really high kind of overall retention of our buyers and our suppliers, but we just see the continued sort of caution and moderation on the part of buyers in their spending, and it is still limited significantly. we see limited to discretionary spend types, things like advertising, professional services, travel, you know, significant, you know, kind of capital projects and improvements. And it hasn't really widened outside of that discretionary bucket, maybe just gone a little bit deeper relative to what we've seen in the past few quarters.

Got it. And then just touching around some of the key initiatives, such as payment accelerator and the spend management side, could you talk about, like, the progress around that, how much are they expected to contribute this year, and how fast they can spool up in 2025 and beyond? Thanks.

Yeah, this is Mike, and I can certainly comment on that. So, first of all, Payment Accelerator 2.0 is kind of the new version of our historic Invoice Accelerator offering. I'm really excited about the progress of that offering. As we indicated, this year we're taking it slow to prove out all the different functionality of the product that we've improved on over the prior version. We continue to scale it prudently, but certainly 2025 will be the year that we're seeing the real scale take hold in that product as we make it available to all 1.2 million suppliers, of which, remember, of that number that we estimate, about 60% of that 1.2 million fall in the category of small business suppliers, of which we think the product is a perfect fit for. Turning to kind of spend management, spend management is a year or so behind kind of that payment accelerator. We expect to introduce it to our first customers at the end of this year timeframe, later in Q4. And again, we expect to initially have an opportunity to make that product available to our existing customers throughout 2025 as we also introduce it into new customers. The focus on pay to spend management is really to capture the payment volume and transactions that we don't see today that fall outside of an invoice. So today we do a really good job of capturing all transactions that have an underlying invoice related to them. That's typically where the system of record for all our customers in terms of all expenses that have an invoice as we feed their general ledger. But what we see is that transactions that don't have an invoice many times fall outside our system, and that number could be up to like 15% of a company's spend. So spend management is really designed to, you know, how do we get all the spend that a customer has related to their expenses in our platform so they can have better reporting, visibility to expense, cash flow management, all those type of things as part of our platform of which they're asking us to do. So there's a little bit of commentary around both payment accelerator and spend management.

Great. Thanks for taking my question.

The next question comes from Jamie Friedman with Susquehanna.

Please go ahead.

Hi. Good morning, guys. A lot of hard work here. I just want to ask one for Joel and one for Mike. Are you still comfortable with the 20% plus revenue CAGR through 2025 and the, I think, 20% plus EBITDA margin? Joel, and then Mike, maybe if you could talk about the rule of 40 or 50 long-term that you'd articulated at the analyst day. Thank you.

Yeah, great questions, Jamie. I'll start off. I guess the first way I would sort of answer that question is we still feel like we're in the early days of a really big opportunity, and we've got a lot of levers both to grow revenue and to be a more efficient business, and the evidence is in the gross margin expansion, the profitability, et cetera. I would say that in the short run, you know, we need the macro to turn around. You know, back to that kind of whether you're talking about 20% or rule of 40, we're operating in a sort of environment of caution and moderation on the part of buyers. And so I would temper short-term expectations, but I'd say that long-term opportunity is certainly still there.

Yeah, maybe to kind of pick up on what Joel said, Jamie, related to kind of that, you know, you know, rule 40, rule 50. As Joe indicated, certainly, you know, we didn't expect that the discretionary spend from customers would rebound at some point in time. We're hopeful that once we get past, you know, the election cycle and customers just have more clarity on policies, including, you know, kind of the rate environment, that we'll start seeing some return of their discretionary spend, preventive maintenance projects, things of that nature, you know, as we've seen in other cycles. But the other, you know, kind of there's three other things that give us a lot of confidence related to, you know, not only kind of returning to kind of that 20% growth number, but also, you know, kind of delivering on the Rule 40. And that's the innovation, you know, products we have driving future growth being, you know, the payment accelerator, adoption, and then release and spend management that I just commented on. But that combined with our new, you know, kind of buyer sales channels, in terms of the partnerships that we've added over the last year. Certainly, Folio is a big piece of that with their 20,000 customers, which we expect roughly half of those fit within our product market fit. M3, and then most recently, Buildium. So the new sales channels we're really excited about in terms of driving new buyer sales. And then the last lever is around that conversion to paper checks to electronics. as we've been kind of commenting on that we believe that our ability to manage multiple payment modalities across our platform that combine combinations of speed of payment, price of payment, levels of revenge data, along with levels of automation are kind of the key in terms of continue to drive that conversion from paper check to electronic. And so those are kind of the building blocks for that 20% kind of growth mantra that we have. And then as it relates to Group 40, we continue to have kind of those levers, as Joel indicated. Certainly, AIs had a nice impact and will continue as we drive gross margin in our various other automation strategies, continue to build our gross margin. And then I think we've been able to demonstrate that we have kind of strong and disciplined execution of the business. and especially around the expense discipline that we have and how we run the business to, you know, achieve that objective of Roll 40 and then, you know, longer-term Roll 50.

Got it. Thank you both.

Thanks, Jamie.

The next question comes from Andrew Bosh with Wells Fargo. Please go ahead.

Hey, good morning. Thanks for taking the questions. just want to dig into the dynamics around the suppliers being more discerning around the higher monetized payment offerings. This is something that was called out by one of your closest peers, I think in like the middle of last year, and they basically chalked it up to the macro, but said that when macro turns, you know, those higher monetized payment methods should see greater adoption. And so my question to you is, are you kind of expecting the same thing? And what's the risk that we should be thinking about that each quarter that goes by where they're electing for lower monetized payment methods, that those behaviors become more sticky?

Yeah, great question. Let me start, and Mike might add a little context. But what I would point to maybe is a little bit of a difference than the example that you referenced is we've always been focused on suppliers as customers, and there's a value proposition and sort of remember the speed, data, automation, and then kind of the notion of price depends on that level of speed, data, and automation. So what I pointed to when we were talking about those yield dynamics is some mixed shifts for sure, but not a wholesale kind of retreat from monetized payments, just continuing to seek the speed and the data and the automation, but at you know, some different price points. So we're encouraged about our yield today. Again, 30 bets on approaching $100 billion of TPV. We believe we have an industry-leading yield, and we'll continue to see that. But we'll also continue to meet suppliers where they are and deliver the value that they're seeking at different prices. So, Mike, you want to add anything to that?

Yeah, just, you know, kind of reinforce, you know, the key element is thinking of the suppliers as a core customer. and building a value proposition around them. So one of the things that we're seeing is that, you know, we don't have suppliers, you know, leaving our network. We have super high, you know, retention rates and high 90% range related to our supplier customers. But what we do see, especially around you continue to go, you know, deeper to convert those paper check suppliers to electronic, is that, you know, at the different price points, that we have, it's a value proposition that kind of meets what they're looking for to make that conversion. And so we continue to see high volume of new suppliers being added to the network. However, we think the key is, and how we drive this over time, to get to our kind of next milestone of 50% of monetized payments and greater over time, is that continued delivery of new payment modalities that combine speed, price, remittance data, along with automation.

Makes sense. Thank you, guys.

Thank you.

The next question comes from Darren Peller with Wolf Research. Please go ahead.

Guys, hey. You know, I think there's a couple of things that we just want to dive into a little bit. One of them is just the transaction growth rates versus the overall volume growth rate, just on a more technical matter. If any way you can help us guide around what you expect there in transaction size. But more than that, I really want to understand a little bit more around, you know, what you're seeing in terms of the dynamic of top of funnel customer ads. Mike, you know, last quarter we talked about different strategy on conferences. So maybe just give us a little more update on what you're seeing in terms of net new additions. and your strategy, and is it market, or the market's coming to you with how proactive you're being in different ways?

Thanks, Darren. Got it. I'm going to take the front end of your question, and then Michael takes the back part. So just to add a little context, and I think your question is help us understand kind of growth rates in overall total transactions, and then overall total payment volume. Remember that our total transactions are metric is the sum of all the transactions on the platform. That's all the invoices and all the payments. And the subset of the transactions that are payments is a smaller but incrementally faster growing. And I would just say that we still see pretty direct correlation between the growth in payments and the growth in overall total payment volume. And I wouldn't point to anything meaningfully different in terms of overall you know, average payment sizes across our verticals. And so, finally, I would just say, you know, we're continuing to see that, you know, caution exercised by buyers. You know, we talk about overall total transaction retention rate as a number that we provide annually last year. You know, in the 103 range, normally it's in the 104, 105. In this season, we're in we're right around the 100 zip code, even plus minus. And so we're optimistic that as we get through this economic season that that returns, but that overall total transaction growth rate is indicative of what we're experiencing.

Yeah, and Darren, maybe you turn it to your question on top of funnel activity. Yeah. So I think, you know, there's kind of, you know, two elements. One is, as I talked about last quarter, a more disciplined approach around, you know, our investments in the highest ROI marketing initiatives. And this has certainly been put as practice and put in place with, you know, how we think about, you know, all the trade show conference, user conference type activity around all our partners, making sure we're focused on, you know, the highest ROI initiatives. The second thing, which was, Probably more of in this quarter is around also a change of mix in terms of how we think about historically maybe more investment in electronic demand gen versus supporting our partners and certainly move that mix to our partner channels. Certainly, you know, the new partnerships that we've added like at Folio, M3, Buildium are good examples where we wanted to increase our investment as we're seeing really high qualified, you know, leads coming from these channels versus maybe, you know, higher volume but lower qualified coming from the historical, you know, demand gen, you know, roots. And so we're, you know, and we think that strategy is actually playing off as we see You know, overall results are, you know, new logo growth is up over last year combined with strong close rates. But one of the things, you know, we did see, which is really encouraging, are, you know, average sales cycles been, you know, cut by a third. So seeing nice improvement and faster close cycles combined with, you know, maintaining strong close rates. So I think that demonstrates that. you know, by executing these two strategies that we're seeing, you know, higher qualified leads coming through the top of funnel, even though the overall volume may be slightly lower.

So you're saying when you're adding at a rate that's faster for a new logo growth, that's overall new customer ads. In other words, the rate of growth of additions of new customers this year versus last?

Exactly. Exactly. Kind of, you know, new logo growth, you know, halfway through the year compared to last year, we're up over last year.

All right, that's good to hear. Thanks, guys.

Thank you.

The next question comes from James Boston with Morgan Stanley.

Please go ahead.

Great. Thank you so much. I wanted to kind of continue to work on the P&L. And given some of the top-line softness, it was definitely constructive to see you flex OpEx down year over year in order to get your projected adjusted EBITDA to protect that. How are you thinking about the right level of OPEX growth for the business over the near to medium term to the extent that revenue growth is a bit more muted?

Yeah, James, good question. And I just go back to some of the things that Mike talked about in his prepared remarks and reinforcing it in his commentary. We're really focused on running a disciplined business. We're also very focused on kind of the growth opportunities ahead of us at the same time. So we continue to balance that. What I would say is that you'd likely, baked into our guidance, there is a little bit of an incremental investment that we're contemplating in our OpEx. And again, that's focused on finishing strong and getting launch, payment accelerator, spend management, our overall pay platform, et cetera. So again, I don't know that there's an optimal number to give you, but we're very focused on profitability. You can see that in the gross margin expansion that continues. I'll tell you that even in kind of the, you know, the shift in our guidance in the back half, we're still, you know, really focused on the gross margin that's contemplated there. You know, maybe the rate of expansion moderates a bit, but we don't expect to go backwards. And so we're continuing to focus on investing in growth and running a disciplined business.

Got it. And then from a business development standpoint as, you know, kind of the choppy economic environment continues to persist, are there incremental opportunities to further expand the reach and abilities of AVID through acquisition or looking at adjacencies? How should we be thinking about what the right approach to investment is strategically in the current environment for you?

Yeah, I think that's a really good question. Certainly the kind of inorganic and providing tuck-in acquisitions has been kind of part of our historical kind of growth as we've added new vertical channels, and many of them have happened through acquisitions. We believe that that's going to continue to be part of our future strategy. We've had a couple years of not having any activity on the M&A side. I think that's really a combination of, number one, not really seeing anything that we felt was super strategic that could really, you know, move the needle for us strategically in terms of that growth. And the second thing is, I think, you know, the valuation kind of spectrum of, you know, kind of private companies versus public has been a little bit challenging. But I think, you know, those elements, you know, or that element, we're going to see, you know, kind of, we are seeing it kind of change and we're seeing, you know, more activity than we've seen in recent years in terms of, you know, opportunities to continue to do, you know, tuck-in acquisitions, move into adjacencies, you know, like you referenced, which is, you know, what we've done historically and have a really developed playbook on how we execute these effectively. So I expect that we will, you know, kind of get back to, you know, having routine cadence around some tuck-in acquisitions as we go forward.

Great. Thanks.

As a reminder, please limit yourself to one question.

The next question comes from Craig Moore with FT Partners. Please go ahead.

Yeah, hi, thanks for taking the questions. First, over the long term is perhaps your new origination volume shifts toward partners and away from self-generated leads. or that mix shifts, how should we expect that to impact the yield as I assume you're sharing economics there? And second, you know, I'm a little perplexed by the maintained guide on political revenue at 9 million, which was effectively what you did in 2022 during the midterms. I mean, all fundraising and activity points to a massive upswing in spend from the certainly that midterm number. So I'm curious if you're forecasting share loss or yield compression or something that's keeping that guidance flat. Thanks.

Thanks, Craig. I'm going to take the political question and then I'll have Mike take care of the first part. Great question. And I think, you know, let me kind of reset the table around political. We're sort of reaffirming the $9 million that we've talked about since the beginning of the year. you know, we are seeing consistent patterns with the presidential election. Now, granted, we didn't own fast pay back in 2020, but when we look at the first half, second half distribution, you know, that, we're very consistent. I'd also sort of repeat, you know, we don't have a lot of visibility there. It's meaningfully back-ended spend. And so, if there was an area that, you know, surprised us to the good, it could possibly be, you know, this political number. And so, That said, we're also seeing the same, you know, kind of dynamics that we're seeing across the business in our traditional media and political media business as it relates to, you know, volume and rates. So degree of uncertainty, not the same visibility we have in our normal business, and, you know, hoping we're on the conservative side and we really see it move in the back half, but we're not calling that in our guidance.

Yeah, maybe to continue on, you know, what Joel says, remember, you know, kind of a you know, we expect to see the majority of all activity happen after Labor Day. So it makes it, you know, harder to have visibility to, you know, what may happen. Certainly we're encouraged with some of the, you know, forecasts and spend levels, you know, for not only the presidential cycle, but all the, you know, ballot initiatives and the state-run elections. But, Craig, I wanted to kind of come back to you. I think your first question was related to, you know, kind of long-term impact and some of the makeshift of leveraging, having greater leverage within our partner channels. The way we think about it is we think the net contribution is consistent in terms of our direct sales efforts. Certainly, the majority of partnerships that we have are more referral partnerships where our direct sales force still leverages those partners, although we're sharing some of that revenue. we kind of look at it as it's kind of an investment, you know, similar to what we make in marketing-related expense to drive our internal leads. So we, you know, kind of our models, you know, show that it's really kind of a net-net, you know, kind of equal type of opportunity in terms of overall net impact. And we think it's really kind of a you know, the beauty of our demand gen funnels is we have, you know, lots of different, you know, sources that make it up. And so as we're seeing softness, for example, in electronic demand gen and really high, you know, kind of activity through our partner channels, you know, we can make these type of adjustments. And I think from an execution perspective, We're happy to be working on, you know, high-quality leads that are having the impact that they have, and the net result is, you know, our net logo growth is up over last year, and our team is working on higher-quality leads through that change in strategy. Okay.

Thank you, Mike. Thanks, John. Cool. You bet.

The next question comes from Timothy Chiodo with UBS. Please go ahead.

Great. Thank you for taking the question. I want to talk a little bit about credit interchange rates in the industry. So the recently rejected settlement, the original agreement was seven basis points on a blended and four basis points for essentially every category. Clearly, that is in the process of being reworked. But I was hoping you could touch on what you think the implications could possibly be for, number one, commercial interchange rates in general for the industry. And then maybe more specifically, any of the more custom interchange rates that Avid has on the commercial side?

Yeah, Tim, good question. And I think, you know, I think it was a quarter or two ago, you know, fielded a number of questions on this topic. So how we think about it, so first of all, I think, you know, the biggest impact is certainly going to be on the consumer side where you typically have, you know, kind of, you know, standardized, you know, interchange rates. One of the things that the dynamic on the business-to-business side, and we've been kind of leading, you know, the charge here, which we reflected in our, you know, industry-leading, you know, electronic payment adoption rates, is, you know, creating multiple payment modalities. In fact, even on virtual card today, we go to market with a dozen different virtual card type offerings that combine, again, you know, different interchange price points with different levels of remittance data, different levels of automation and speed of payment. So, you know, when we look at kind of, you know, our avid pay network, we're actually very proactive in terms of providing kind of the right, you know, structure to price product offering or payment modality, you know, to what suppliers are looking for in terms of that value proposition. And the second element is, I think, you know, in our case, you know, MasterCard is our primary exclusive provider for execution of virtual card payments. You know, with their different data rates, we've been on the forefront of supporting our supplier customers with all the remains data they need so they can take advantage of the different data rates. And so we've already been, you know, on the forefront of, you know, helping our suppliers, you know, get the best economics they can get by, you know, providing them the data, making transactions more secure, less fraud, all those type of things. And we think long-term that, you know, adds to a sticky customer, and it certainly shows up in our, you know, industry-leading retention rates that we have for suppliers. So we kind of, you know, view on the commercial side that, you know, we've already been, you know, kind of proactive in terms of how do we, you know, get the right price product for our suppliers to be, you know, electronic acceptance on the long term.

Excellent.

Thank you, Mike.

The next question comes from Alex Markgraf with KeyBank Capital Markets. Please go ahead.

Hey, guys. Thanks for taking my question. Mike, maybe one for you first, just to expand on the top of funnel comments. I mean, I understand sort of some of the comps you provided there. It sounds like some benefits, too, from a sales cycle standpoint, maybe a win-rate standpoint as well. Just kind of curious, like, what the net effect of all of this is versus what your expectations were prior to some of this resource reallocation? I mean, I'm assuming it's better, and I hear you on the net ads expectation for 24, so maybe just from like a new customer revenue contribution standpoint, how does that compare to what you were expecting prior to this resource allocation?

Yeah, so I think, so first of all, the objective of top of funnel is to, you know, hit our, you know, our sales plan and our, you know, you know, new customer ad, you know, kind of objectives for the year. So I think from that perspective, you know, halfway through the year, we feel that, you know, we're on pace to, you know, we're running ahead of last year related to, you know, adding new customers. And so we're trending towards, you know, that, you know, overall sales plan objective. But at the same time, we're not spending less on top of funnel. Our, you know, kind of investment has stayed the same. It's just a different allocation. And so I think the beauty of having multiple dynamics of our top of funnel that are driven by many different types of sources, as we see the strength and weakness of different sources, we can adjust our spend accordingly. And so, you know, one of the adjustments that we made this last quarter is, you know, moving away from, you know, typically some of that electronic demand gen that produces, you know, lots of leads but lower quality. And we've seen this kind of softness in that particular channel is to, you know, move to where we're seeing strength, which is around supporting our growing number of partners and the higher quality leads that partners are generating for us. Again, these are existing customers of our typically accounting system and ERP partners. So there's an existing customer relationship and they're raising their hand and they want to automate this business process in partnership with their ERP accounting system partner. And so those are really high qualified leads and we're seeing it show up in terms of shorter sales cycles while we maintain really strong close rates. So I think overall, I think we're being more efficient and certainly, you know, we pay close attention to all the different lead sources we have, and we'll continue over time to make adjustments where we're seeing, you know, strength and weakness across, you know, kind of that overall spectrum.

Thanks, and if I could just squeeze one more in on yield.

Just wanted to get a bit more color. The dynamic that you're seeing, is it sort of, is it occurring really across the entire supplier base? Is it more narrow in scope with certain suppliers or certain verticals? Any color there would be helpful.

Yeah, you bet. I think it's just fairly broad across the vertical. I wouldn't call out anything specific there, Alex.

Okay. Thanks, Joel. Thanks, Mike.

The next question comes from Rufus Holm with BMO Capital Markets. Please go ahead.

Hey, good morning, guys. Thanks. Sorry if this is maybe covered on an earlier question. I joined a little bit late, but I wanted to ask about the full-year revenue guide. How much of the reduction is this macro getting tougher? And I don't know, any kind of related incremental changes you're seeing in customer behavior? How much of the reduction in the guide was due to that? And then also, how much of the reduction was from incremental lead generation headwinds that you're seeing? I don't know if you can break it up into those buckets. Yeah.

Thanks. Yeah, let me tackle those, Rufus, one at a time. So the first question, I think I alluded to it, but I'll just revisit. Our guidance contemplates in the back half what we saw in the second quarter, both from an overall total transaction volume that continues to be impacted by moderation and our customers' spending, and also the yield dynamic that we pointed to on this call and that we began experiencing in Q2. And so that Think of it as roughly 50-50 balance in terms of what's driving it. It's those two dynamics that are driving the shift in revenue. And then from an overall sales top of funnel perspective, I think your last question, I would just say that we're selling for next year and the future. So not so much an impact on what we sell this year and this year's revenue. That would impact next year and going forward.

Yeah, when we get to kind of the second half of the year, really our new buyer sales activity drives next year, in this case, 2025 results. So we have pretty good, I think, visibility to kind of the activity of our existing customers, but certainly some of the macro discretionary spend has been some of the headwinds that we've seen.

Got it. Thanks.

The next question comes from Clark Jeffrey with Piper Sandler.

Please go ahead.

Hello. Thank you for taking the question. I wanted to ask about the raise to float revenue, and I suspect that's related to the customer preference on payment modality, but I wanted to clarify that and ask that. To say it another way, you're not expecting a change in the float yield or the volume as much as a change in the balance. of those funds through the year? Thank you.

Yeah, good question. Here's the way I would frame the change in the float. And so just to recap, the last time we gave guidance for full-year float revenues in the around $45 million, we've increased that to $49 million. And the things that I would point to are, you know, previously we did have factored in rate reductions in the back half of the year. We've reduced the impact of that. I think we have one late year quarter point, and so there's an incremental lift there. We also have seen somewhat marginally higher customer balances, and we've experienced that throughout the year. We've just made an assumption in our projections that we would continue to experience that. Again, nothing underlying different in the customer experience and the operational fund flow, but just slightly higher customer balances are contemplated in the back half.

Thank you very much.

Thank you. Thanks, Clark.

The next question comes from Kim Jin Wong with Jakey Morgan. Please go ahead.

Hi, thanks. Hey, good morning to you guys. I know it's been asked a lot, but I just want to understand or get your view here on the payment monetization of suppliers. choosing on the acceptance side to lower cost for solutions, is that more cyclical or secular? Do you think that as the cycle shifts that you'll see a shift back or are the suppliers just smarter around cost optimization?

Yeah, I think it's a good question. I don't think it's really cyclical. I think it's really around a value proposition. And typically, when they make a decision on a particular payment modality, we see really strong retention of that payment modality for the life of that supplier. Now, certainly the big opportunity that we have is that roughly 50% of our overall suppliers are still pay-per-check acceptors. So we're really working, contingent on providing a value proposition that's appropriate for that 50%. And again, combining speed of payment, the price, the remit state, and the level of automation And what we're seeing is certainly to get certain suppliers to move off a paper-checked electronic, sometimes the price is an element of it. And so especially we believe that, again, with a strong value proposition at the right price point, we get that supplier to be an electronic acceptor and be on our network for a long period. And so I think that's part of our overall strategy that we'll continue to see is as we grow that percentage of 40% of monetized payments to 45% to 50% plus over time, it's going to happen at different price points.

Got it. Thanks, Mike. Appreciate your thoughts on that.

This concludes our question and answer session.

I would like to turn the conference back over to Mike Prager for any closing remarks.

Thanks everyone for your interest in Avid Exchange. Amid the current macro choppiness, I'm proud of our disciplined execution and healthy financial performance, along with strong profitability results. As I said before, I'm particularly excited about the future given the pipeline of product innovations and the industry-leading ERP integration partnerships in progress that should propel all four gears of our business flywheel and drive long-term value creation for our investors. With that I look forward to sharing our progress with you on our next earnings call. Operator you can close the call.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.