AvidXchange Holdings, Inc.

Good morning, everyone, and thank you for joining us for the Avid Exchange Holdings Inc. fourth quarter and full year 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 that the company will make this afternoon. Please keep these uncertainties and risks in mind as the company discusses future strategic initiatives, potential market opportunities, operational outlook, and financial guidance during today's call. Also, please note that the company undertakes no update 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 described 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. Please go ahead.

Thank you, everyone, for joining us today to discuss Avid Exchange's fourth quarter and full year 2024 results. We finished the quarter and the year on the strongest financial footing since we began our journey of delivering industry-leading accounts payable automation and payment solutions to our middle market customers 25 years ago. Our fourth quarter 2024 results exceeded implied expectations across all of our core financial metrics. This includes better than expected revenues, gross margin, EBITDA margin, and non-GAAP diluted earnings per share, despite what has been and remains a challenging macro backdrop impacting our middle market customers. Our better than expected fourth quarter financial results were augmented by our strong free cash flow generation and disciplined capital allocation. Notably, we repurchased an additional $25 million worth of Avid Exchange shares during the fourth quarter of 2024, underscoring the long-term confidence we have in our business. This brings the total shares repurchased in 2024 to $50 million, the maximum allowed within a calendar year under the $100 million share repurchase program we announced in August of 2024. The common denominator underlying our strong financial results this past quarter and since our October 2021 IPO, particularly around gross margins, EBITDA margins, and operating cash flow generation is our operating discipline around the levers within our control. This operating discipline coupled with our multiple innovation work streams, including our AI initiatives within our products and payment delivery, as well as service automation has enabled us to counter much of the macro headwinds impacting our margins. This has resulted in another quarter of non-GAAP gross and adjusted EBITDA margin expansion since our IPO, and also achieving our 75% targeted margin milestones outlined during our June 2023 investor day. And 2024 was no exception, in which we saw more than 4 percentage points of gross margin expansion over 2023 alone, and greater than 10 percentage points of EBITDA margin expansion over 2023. What has overshadowed the strong execution on margins is the macroeconomic environment, which remains mixed. This is particularly the case in the instance of our top-of-funnel customer engagement in buyer logo growth metrics. On the positive side in 2024, we saw pockets of modest but positive growth in the top-of-funnel across three of our largest and many cases strongest tenured verticals by revenue, transactions, and total payment volume. including our real estate, financial services, and our media verticals, as well as declines moderating in the HOA vertical. While the overall top of funnel opportunities were down roughly 2%, some of which was due to changes in our go-to-market motion over the 2023 and 2024 period, and some due to the macroeconomic environment, the growth in the buyer-customer logo count for 2024 was better on a relative basis, up over 6%. driven by higher quality opportunity lead generation across our ERP partner-related channels. This compared to buyer customer logo count growth of 8.1% in 2023 with a top of funnel that grew in double digits. Given the impact of the macroeconomic dynamics across the middle market customer base, we are steadfast in the belief of solidifying our growth foundation and the future growth levers of our business remain a key priority to drive our business flywheel and create a durable growth business along with increasing our competitive moat around the middle market for many years to come. Middle market finance leaders remain focused on productivity and profitability, and they are looking for business process domain experts with scalable solutions, such as Avid Exchange, to unlock the opportunity for themselves and their suppliers. This is where Avid Exchange shines. As an industry leader with the best of breed scalable AP automation and payment solutions to address the large opportunity set, Recently signed and highly strategic ERP integration and reseller partnerships, of which I will provide an update later in my prepared marks, should underscore our confidence in the future organic growth trajectory of our business. Similarly, customers such as DRM also highlight how we are well positioned across the middle market and are rapidly unlocking tangible benefits and costs and time savings for them. DRM is a major player in the hospitality industry, which is a relatively new formal vertical for us and has been seen healthily growing momentum. DRM is one of the largest franchisees for Arby's, the world's largest second sandwich brand with over 3,400 locations worldwide. Upon joining DRM, CFO Mike Swoop immediately turned his focus to revamping and streamlining their accounts payable process. Given that it's both manual and paper intensive, with immensely inefficient approval workflows, which pose challenges to DRM's ability to scale their back office, to keep up with their overall growth. With NetSuite as its core accounting system, Mike adopted Avid Exchange's invoice and payment solution, given our deep integration with their NetSuite software. With our solution, DRM was able to support its double-digit growth objectives without any additional accounts payable headcount, which translated to over $60,000 in annual cost savings and created a great user experience with his team of AP specialists leveraging our built inside NetSuite integration and user experience. As Mike Swoop stated, I took a leap of faith when I joined the DRM team and asked them to change the way they work by automating accounts payable with Avid Exchange. And I couldn't be more pleased with the outcome. Turning now to some of the performance highlights and metrics from the fourth quarter of 2024 that underscore our value proposition and operational execution in action. Revenue in the fourth quarter was approximately $115 million, up roughly 11% year-over-year. The growth in the quarter was led by a combination of increased transaction volume and transaction yield growth. Non-GAAP gross margin, meanwhile, hit a milestone, coming in at almost 75%. We're up 350 basis points over last year at the top end of our 72% to 75% non-GAAP gross margin target. ahead of our 2025 objective we set over a year ago during our last investor day. Our continued focus on automation, implementation of AI across significant work streams, sourcing, along with standardization, which are in various stages of the maturity curve, continue to bear fruit. Along with solid operating expense discipline, adjusted EBITDA margins on the quarter, reaching almost 23%, once again hitting the milestone we committed to during our investor day. Our important transaction yield metric, which is the total revenues over total transactions, was up more than 6% to reach $5.80 per transaction. It is worth reminding investors that transaction yield is a metric that we have consistently messaged since our IPO as a primary metric we focus on across our leadership team, and it demonstrates the power and effectiveness of our Avid Exchange business flywheel. With that overview, I'm going to highlight the four operating priorities for 2025, which we believe will help us deliver our long-term growth potential while continuing to expand our margins even further. I will use the four years of the Ad Exchange Business Firewheel to describe and highlight some of the initiatives that are in flight that will support these priorities. Our four operating priorities for this year are as follows. Number one, continue building the foundation of future growth through ERP integrations and embedded partnerships along with continued vertical market expansion. Number two, deliver on key product innovation pipeline highlighted by our payment accelerator 2.0 offering, our pay 2.0 platform, and our new spend management platform. Number three, Scaling our various new products to support all 8,500 buyer customers and our roughly 1.4 million supplier customers in delivering the value proposition they expect from Avid Exchange. And finally, priority number four, continue to elevate the customer experience across Avid Exchange's product suite for both our buyer and supplier customers across our purpose-built two-sided network. To build on the success of Gears 1, 2, and 3, which are about creating robust customer-focused ERP integrations, as well as maximizing transactions and monetization on our platform to drive growth and scale, I am very pleased to provide an update on some of the previously announced and notable ERP integrations in our embedded pay partnerships. As stated in the past, we believe that a large number of our valuable ERP integrations And consequential strategic partnerships coupled with our product innovation pipeline lays the foundation for future growth. For instance, recently announced a notable large software integration partnership such as Appfolio and M3 spanning the real estate, HOA, and hospitality verticals are beginning to gain steam. Our portfolio partnership, which has roughly 19,000 product market fit targeted customers, went live in early 2024 and is seeing a doubling in customer engagement lead flow to several hundred with close rates almost doubling in the last year alone. M3, on the other hand, with a product market fit target customer base of roughly 1,000, is progressing even faster with lead flow tripling to hundreds with close rates up almost 4x in the last year. We believe that the momentum of these two partnerships is building because of our partners' continued commitment, which is fueled by the recognition of our industry-leading payment monetization and the rapid and quantifiable ROI for their customers by leveraging our highly dense, purpose-built, two-sided network. While these two highlights are just part of the class of 2023 partnerships alone. 2024 was another productive year for the partnerships across our HOA, healthcare, financial service verticals that included Buildium, DSOs, Cadence Bank, to name a few. And we anticipate that these partnerships should start to gain traction in a similar way to that folio M3 during the latter part of 2025 and meaningful in the 2026. All in, we are excited about the momentum building across our business flywheel with these partnerships and look forward to announcing additional ERP and payment embedded partnerships as they progress in the pipeline in the coming quarters. Now, I'd like to provide an update on the new products that are in the foundation of our future growth and should drive gears three and four of our business flywheels. Under gear three of our business flywheel, which is all about monetizing payment volume and maximizing e-payment penetration by leveraging the new payment modality product innovation to continue eliminating paper checks, 2025 marks a pivotal year as we ramp up the key functionalities of our new AvidPay 2.0 payments platform, which serves as the foundation of our AvidPay network. We believe that the capabilities of Avid Pay 2.0 will enable us to create new payment modality offerings through real-time configuration, combining pricing terms, speed of settlement, access to remits data, and payment acceptance automation, eliminating the need for lengthy software development dependencies. Along with supporting our ability to manage numerous new payment modalities that serve to create a payment acceptance value proposition for our customers that is second to none. With Avid Pay 2.0, we anticipate increasing our penetration and share of our buyers' and customers' payment files in several ways while capturing greater transaction economics. First, improvements in critical-to-pay supplier information coupled with additional payment mechanisms we believe will allow us to offer a variety of guaranteed solutions for time-sensitive payments. Second, by expanding our payment network solutions, we aim to increase e-payment adoption which will enhance overall payment monetization, reduce mail check volume, and accelerate payment speed, along with significantly reducing payment fraud as we estimate that with B2B payments, almost 90% of fraud relates to paper checks. Third, our enhanced ability to customize product payment modality, speed, remit, and price in real time should drive additional e-payment adoption for both buyers and their suppliers. Finally, with our new AvidPay 2.0 platform, we believe that we have not only enhanced revenues to expanded buyer and supplier products, greater payment and monetization, and increased share of wallet, but also improve our cost structure in both hard and soft operational costs, including direct expense of reducing paper check payments. Taken together, these things should create substantial opportunity for us in terms of revenue growth and margin expansion as we convert their paper check suppliers to accepting one of our many forms of e-payment. In addition to Pay 2.0 and also under Gear 3 of our Avid Exchange Flywheel, we've launched initiatives to fast-track existing new check conversion into electronic payments. Dubbed the Extended Network Payments, these efforts go hand-in-hand with new offerings being rolled out as part of Avid Pay 2.0 and are highly strategic in value. In fact, the new efforts could represent a function change in reducing the number of checks, which is represented around 55% of payment transaction mix today. We've entered into a strategic partnership with a large financial technology firm and the various other such partnerships in process within the financial services ecosystem to accelerate the conversion of paper checks with specialty networks of suppliers into electronic payments, which should bear fruit in 2025. We look forward to discussing this in greater detail as the year unfolds. Also under gears three and four of our business flywheel, which is about both maximizing e-payment penetration and leveraging innovation and data to create new product offerings, we plan to significantly scale our flagship payment accelerator 2.0 supplier financing offering in 2025. For those new to our story, Payment Accelerator 2.0 is our supplier financing product where suppliers can elect to have eligible invoices advance for immediate payment. We have had version 1.0 of our product in the market for the past few years, which has generated a lot of learnings and interest across suppliers. But version 2.0, which was launched at the end of 2023, marks a step function change in the product. This 2.0 product is the next generation in terms of user experience, with enhanced features and functionality that should drive scalability. To put it in perspective, Payment Accelerator 2.0's target service level agreements, compared to its predecessor, are compressing the onboarding time to less than 24 hours from several days previously. In the near future, we expect to be able to compress that time frame down to minutes. What makes this process frictionless is that having both the buyer and supplier on our AvaPay network, we eliminate the need for traditional underwriting processes which typically requires historical financial statements from a supplier. This means leveraging supplier and buyer history and transaction data, as well as real-time visibility into the status and approvals inherent on our two-sided network to underwrite and lower the credit risk, as well as providing protective provisions across the entire flow of invoices that a particular supplier may have on our network. The rapid onboarding process is also a result of the platform's highly integrated back-end that is designed to simultaneously validate the supplier's bank account information along with know your customer and know your business compliance regulations. Real-time as a supplier validates an online questionnaire of legal entity data and beneficial ownership information. Once onboarded, a supplier is presented with multiple acceleration offers with transparent pricing and various time-based funding options, including real-time payments. In addition, to the payment accelerator offering outlining the eligible supplier invoices available for acceleration, we also provide an auto fund option where our intelligent decision engine automatically identifies all of the supplier's eligible invoices and funds them automatically, ensuring the fastest access to cash availability every time an eligible invoice is available on our network. The rolling three-month volume of dollars accelerated in the number of new payment accelerator customer enrollments has already more than doubled, giving us confidence that the ramp targeted for Payment Accelerator 2.0 to potentially achieve revenue parity with 1.0 version this year. Finally, I would like to provide an update on our operational strategy that has been instrumental in efficiently scaling the business while lowering unit costs and driving our impressive gross margin expansion. We've made tremendous strides in increasing our non-GAAP gross margins, and we expect there's more to come. Since our IPO in 2021, even stripping out the contribution from float and seasonal political revenues, our non-GAAP gross margins have been up almost 10 percentage points to almost 70%. We believe that the success on the gross margin front is all due to disciplined execution on our strategy around standardization, sourcing, and automation, which has all been about leaning into self-learning, and scalable AI solutions across key operational functions of our business. Recall, there are six ways in which we execute virtual card payments, as an example, with our suppliers. One is via straight through process. Second is direct API connections. Third is online portals. The fourth is through IVR systems. The fifth is through traditional email. And the sixth is over the phone. As a result of leveraging AI, we have now accelerated our virtual card automation strategies. To put that in context, the number of virtual card transactions in 2024 over 2023 increased by roughly 600,000, but we automated almost 700,000 more than the total increase of the total number of virtual card transactions. In other words, we are rapidly automating not just new virtual card transactions on our network, but also converting the back book of virtual card transactions as well. This is highly synergistic with our new Avid Pay 2.0 platform to convert paper checks into electronic payments. This further highlights our scalability of our platform, which thanks to the current AI solutions, we can now automate at a higher speed and lower cost. Ultimately, our goal is to get over 80% virtual card automation over the next two years, which should continue our gross margin expansion towards 80% as we leverage automation combined with various yield enhancement levers. In closing, we're proud of our operating performance amid continued macroeconomic headwinds impacting our middle market customers. While the 2025 guidance reflects a cautious approach given the unpredictable macroeconomic environment, we continue to firmly execute on the levers we control and invest in our product roadmap to drive future growth across our business. With our four operating priorities interlocking with the four gears of our business flywheel, we continue to strengthen our competitive advantage further, by building out new strategic and integration partnerships, as well as driving scalable innovation across our payment platform through new products leveraging AI, which we believe positions well for the future. In 2024, we entered into strategic and integration partnerships across various verticals, including real estate, hospitality, HOA, healthcare, financial services, along with media and non-for-profit. This builds on the success of partnerships entered into in 2023, such as Affolio, M3, et cetera. These partnerships, coupled with the scaling of our new product offerings, including Payment Accelerator 2.0, our new Pay Platform 2.0, and Spend Management, which we expect to roll out in the second half of 2025 with a ramp in 2026, should provide momentum to potentially outrun our 2025 growth expectations in 2026. We strongly believe in our vision of the long runway of growth in the accounts payable and payment automation market across the middle market segment. While our growth trajectory has been below our targeted overall the last two years impacted by the macro environment, we've demonstrated operating discipline as well as believe in our leadership position and the competitive advantage we are building across the middle market's untapped opportunity. I want to provide a special thanks to all of our AvidX team members for their continued hard work dedication, and relentless focus in executing our operational and strategic priorities that drive value for our customers, creates opportunities for their professional growth, and most importantly, builds long-term value for our shareholders. With that, I'd like to turn the call over to my partner, Joel Wilhite. Joel?

Thanks, Mike, and good morning, everyone. I'm pleased to speak to you today about our strong fourth quarter 2024 financial results. which reflect discipline operational execution amid continued macro headwinds. Overall, we delivered a strong quarter of year-over-year financial performance across the board. I'll expand on that in a moment, but let's see how we tracked relative to implied expectations. Relative to the implied fourth quarter 2024 business outlook and excluding float and political revenue contribution, revenues came in above our implied expectations driven largely by higher total transaction volume. Gross margin performance remained strong due to ongoing progress on unit cost initiatives and yield expansion. Coupling that with sustained operating expense leverage, driven by a combination of expense discipline and lower performance bonus accruals, we drove stronger adjusted EBITDA outperformance relative to expectations. It's worth pointing out that this continues our streak of delivering adjusted EBITDA profit expansion, ex-float and political expansion. Equally noteworthy, we delivered our third GAAP net income quarter since going public in 2021. Now, turning to year-over-year results, total revenue increased by 10.9% to $115.4 million in Q4 of 2024 over the fourth quarter of 2023. Stripping out the impact of float and political revenues on a comparable basis, which provides a more apples-to-apples comparison of underlying growth trends, The revenue growth was driven by a combination of pay yield expansion and the addition of new buyer invoice and payment transactions. Our revenue growth also resulted in total transaction yield expanding to $5.80 in the quarter, up 6.4% from $5.45 in Q4 2023. The increase was driven by software and pay yield, as well as higher payments transaction mix. Software revenue of $30.9 million, which accounted for 26.8% of our total revenue in the quarter increased 6.4% in Q4 of 2024 over Q4 of 2023. The increase in software revenues was largely driven by a growth in total transaction count. Payment revenue of $83.4 million, which accounted for 72.2% of our total revenue for the quarter increased 12.3% in Q4 of 2024 over Q4 of 2023. Payment revenue reflects the contribution of interest revenues, which were $12.2 million in Q4 of 2024 versus $13.7 million in Q4 of 2023. Political media revenue in the current quarter was approximately $2.9 million and negligible in the same period a year ago. Excluding the impact of float and political revenues from both comparable periods, which provides a more apples-to-apples comparison, payment revenues grew 13.5%, driven by a combination of an increase in pay yield, greater payment mix, and payment transaction volume increase of 8.3%. On a GAAP basis, gross profit of $78.8 million increased by 17.1% in Q4 of 2024 over the same period last year, resulting in a 68.2% gross margin for the quarter compared to 64.6% in Q4 of 2023. Non-GAAP gross margin increased 350 basis points to 74.9% in Q4 of 2024 over the same period last year, with the lion's share of the increase driven mostly by unit cost efficiencies and yield expansion and to a minor extent by lower annual performance bonus rules. I'm pleased to say that the fourth quarter 2024 non-GAAP gross margin was now at the top end of the 72 to 75 percent range targeted for 2025 as projected during the company's June 2023 investor day. Moving on to our operating expenses. On a gap basis, total operating expenses were $82.5 million, an increase of 3.7% in Q4 of 2024 over Q4 of last year. On a non-gap basis, operating expenses excluding depreciation and amortization and stock-based compensation increased as well by 2.3% to $60.1 million in the fourth quarter of 2024 from the comparable prior year period, and with the increase driven primarily by sales and marketing initiatives partially offset by lower annual performance bonus expense. On a percentage of revenue basis, operating expenses excluding depreciation and amortization and stock-based compensation, or non-GAAP OPEX, declined to 52.1% in the fourth quarter of 2024 from 56.5% in the comparable period last year. I'm equally pleased to say that fourth quarter 2024 non-GAAP OPEX as a percentage of revenues in the quarter was also at the bottom end of the 50% to 55% range targeted for 2025 as projected during the company's June 2023 investor day. Overall, the decline in non-GAAP OPEX as a percentage of revenues year over year largely highlights expense discipline and significant operating expense leverage across G&A R&D, even after stripping out the contribution of float and political revenues. I'll now talk about each component of the change in operating expenses on a non-GAAP basis. Non-GAAP sales and marketing costs increased by $2.4 million, or 14%, to $19.9 million in Q4 of 2024 over Q4 of last year, with increased investments in sales and marketing spend to support our continued growth, partially offset by lower annual performance bonus expense. Non-GAAP research and development costs were essentially flat on a comparable basis at $22 million in Q4 of 2024, and were helped largely by lower annual performance bonus expense. We continue to reinvest across our products and platform, including spend management, pay offering, and payment accelerator. Non-GAAP G&A costs decreased by approximately $1 million or down 5.2% to $18.2 million in Q4 of 2024 versus Q4 of last year due largely to lower annual performance bonus expense. As a percentage of revenues, G&A costs continue to trend lower as we continue to leverage public company costs across a larger revenue base. Our gap net income was $4.7 million for the fourth quarter of 2024 versus a gap net loss of $4.5 million in the fourth quarter of 2023. With the $9.2 million positive swing in net income driven largely by a combination of strong revenue flow through, solid gross profit increase, and expense control leading to a positive swing in operating income coupled with higher net interest income due to reduced borrowing costs and partial debt paydowns. Gap diluted earnings per share for the fourth quarter was two cents, which was a four cent positive swing from the same comparable period last year. On a non-gap basis, our net income in the fourth quarter of 2024 almost doubled to $17.3 million versus $9.4 million in the same year ago period, with non-gap diluted earnings per share up 60% to eight cents versus five cents diluted earnings per share in the fourth quarter of 2023. All of the net income performance was driven primarily by the aforementioned factors. On a non-GAAP basis, Q4 2024 adjusted EBITDA was $26.3 million versus $15.6 million in Q4 of 2023, with the favorable delta split mostly between expense leverage driven by higher comparable revenues and lower annual performance bonus expense. Turning to our balance sheet for a moment, I want to touch on a few key items. We ended the year with a strong corporate cash position of $389.3 million of cash and marketable securities against an outstanding note payable for $9.1 million. At year end, our credit facility, which consists of $150 million revolver with $150 million accordion feature, remained undrawn. During the quarter, the company utilized $25 million of cash from its balance sheet to purchase approximately $2.3 million of its own shares at a price of $11.10 under our $100 million share repurchase program announced in August 2024. For the year, the company utilized approximately $50 million of its cash, the maximum allowed within a calendar year, to purchase 5.4 million shares at a price of $9.33 per share. Corporate cash, meanwhile, was split roughly three quarters and with one quarter between demand deposit accounts and various other fixed income interest instruments, including money market funds, commercial paper, and time deposit instruments, respectively. The weighted average maturity on the corporate cash was roughly 13 days, while the effective interest rate on our corporate cash position for the fourth quarter was roughly 4.7%. Customer cash at quarter end was approximately $1.2 billion with an interest rate of roughly 4.3% for the quarter. Turning to our 2025 business outlook, we expect total revenue for the year to be in the range of $453 million to $460 million. Our 2025 revenue outlook reflects approximately $44 million of interest revenues from customer funds versus $49.7 million earned in 2024. We do not anticipate any political media revenue contribution in 2025 versus $6.6 million in 2024. We expect 2025 revenue distribution between the first half and second half of the year to be approximately 48% and 52% respectively, roughly similar to levels in 2024. Similarly, we expect non-GAAP adjusted EBITDA profit ranging between $86 million and $91 million for 2025. We also expect 2025 non-GAAP diluted earnings per share in the range of 25 to 27 cents, which does not currently reflect the impact of any additional share repurchases in 2025 under our previously authorized share repurchase program. With that, I'd now like to turn the call back over to the operator and open up the line for Q&A. Operator?

Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 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 then two. In the interest of time, please limit yourself to one question. At this time, we will pause for a brief moment to assemble our roster.

And your first question today will come from Will Mance with Goldman Sachs.

Please go ahead.

Hey, guys. Good morning, and thank you for taking the question. I wanted to follow up on some of the comments and prepared remarks. Mike, you referenced what has been very strong kind of gross margin expansion and OpEx control that has offset a lot of the macro weakness that you've seen in the business. And I just wondered if you could kind of give us an update on kind of your view of where we stand on the runway for that to continue. Gross margins now kind of being at that 75% level. OpEx being kind of flat-ish for a pretty extended period of time, are you starting to see the point where costs need to start to grow again? Or do you see more room to go, particularly on the gross margin side, just given where you've laid out the targets?

Yeah, I mean, great question, Will. You know, what we think is kind of the long-term trajectory of what we're doing is marching towards that 80% targeted gross margin number. And it's a combination of putting the three big buckets, continue to be aggressive in our sourcing strategy, standardization across the business, combined with automation led by AI. And though we're a couple years into our AI journey, we think there's a lot of runway in the use cases that we're currently working on, you know, continue to be really exciting for our team and creating, you know, that increased efficiency. So, we see a firm on the runway, you know, and continue. I'll also say it's probably not going to be, you know, a direct, a straight line. And, you know, we'll see some, you know, kind of periods of improvement. But also, as we continue to, you know, kind of, you know, begin to really accelerate the revenue growth element of the business, we're going to see some scale creep into that number as well. So a combination of what I said combined with the scale, you know, gives us a lot of confidence to continue to grow that number towards the 80% plus, you know, milestone is what we're targeting.

Got it. That's very helpful. And then maybe, Mike, if you could spend a little bit of time on the financial services partner that you added and the initiative around paper checks. sounded interesting and sort of incremental. Just wondering if you could provide a little bit more context around how that's going to work and, you know, what, you know, any milestones that we should be looking out for. Thanks.

Yeah. So, good question. And one of the things that we've, you know, that we've noticed as we're building our own network, there's other people in the ecosystem that have developed specialty networks for certain, you know, say classes of suppliers or types of transactions. And it's like, oh, do we want to kind of recreate the wheel and also build those specialty networks, or do we want to kind of partner and leverage the networks that they've built? And so these are good examples where there's kind of targeted population of certain supplier sets that others are able to monetize, and we're going to tap in to share that monetization. At the same time, we're doing something similar with our network. and we call it kind of an extended network concept of making our network available to others, just like we're tapping into other people's networks. And so I think the direct reflect is going to be is we're going to see kind of an escalating elimination of paper check, which is kind of the common enemy, and the objective that we have is to continue to move forward and maximize electronic payments, and we think this is just one of those strategies.

Got it. Appreciate you taking the questions.

Yeah, thanks, Will. And your next question today will come from Robbie Bamberger with Barrett. Please go ahead.

Yeah, thanks for taking my question. Maybe just thinking about what's embedded in the 2025 revenue guide, how much macro headwind should we expect there to be in 2025? And I guess, what do you expect same-serve sale growth to be into next year?

Yeah, thanks, Robbie, and great question. Yeah, obviously, if you think about 25, there's a couple things to keep in mind. First of all, obviously, if you think about the float dynamic and the political dynamic, you have to consider that, and I think our prepared remarks made it clear that after about a $6.6 million political year in 24, that revenue will be negligible in 25. Also, from a float revenue standpoint, We generated about $50 million in 24 and we expect that to be closer to sort of 44 in the 25 year. So that's the first thing I'd say. So, so if you strip those out and you think about what our kind of guidance is at the midpoint, roughly at roughly an eight, eight points, uh, of growth. And, um, your question fundamentally, you know, we we've, we've been tracking the macro impact through the overall total transaction growth in the business. and we've commented around our fundamental transaction retention being below 100%. We were encouraged in Q3 when we saw for the first time in several quarters that growth rate bounce up to about 5.2% in Q3, but then it did turn around slightly to about 4.3% in Q4. Suffice it to say that we feel like we're kind of bouncing around the bottom, and our guidance contemplates that we don't see meaningful improvements or worsening from there. So fairly consistent, low single-digit overall total transaction growth and sub-100 retention. Maybe the final point I'll make is when you think about that 8% growth, a couple things we're excited about as we exit 2025 include, and Mike referenced this in his prepared remarks, the acceleration we're beginning to see in payment accelerator, making a meaningful contribution, say, about a point of that growth in the back part of attributable to that ramp in the back part of 25. Also, some success we're expecting in new payment methods, also contributing, let's say, roughly another point as well. So, hopefully that gives you a sense of kind of what's contemplated from a guidance standpoint.

And your next question today will come from Ramsey, LSL, with Barclays. Please go ahead.

Hi, guys. Thank you so much for taking my question this morning. I wanted to ask about recent trends and whether the Q4 exit rate looked pretty healthy. I'm just curious if you're seeing anything quarter to date that's giving you incremental pause in terms of how you're framing up the year. Thanks.

Yeah, thanks, Ramsey. Here's what I would say. No incremental pause from what we're seeing so far. If I look at January, the sort of volumes and transaction growth is really in line with what we expected. so far sort of in line with those guidance expectations. So what we, you know, again, we're obviously moving through a period of uncertainty in spending across our buyer base, but, you know, while navigating that, we're pretty proud of the business that we've built in terms of growth rate, profitability, cash flow generation. So obviously, you know, expecting a year where the macro persists, but really believe that before too long we see growth resume.

Yeah, Ramsey is Mike, and maybe just to add on there is one of the real things that gets us excited about the year is the momentum that we're seeing across our new channel partners. Across the board, we're seeing strong momentum. We saw some slowdown in Q4 during the election cycle, and that kind of pushed a lot of activity into 25, and we're seeing some really good engagement there. And so we're looking forward to, you know, seeing that kind of really pull through throughout the course of the year around, you know, the new, you know, buyer logo counts and continue to scale the buyer, you know, side of the business equation.

And that's a critical element of our growth algorithm.

And your next question today will come from Craig Maurer with FT Partners. Please go ahead.

Yeah, thanks. Good morning. I wanted to focus on top of funnel for a second. You know, only 500 logos add to the platform. And, you know, look, I understand the discussion on macro, but, you know, how can you accelerate new logo additions? I mean, should we be worried about TAM saturation or pricing needs adjusting? Like, what's holding that back? You know, and secondly, how should we think about really investor day targets? I mean, we've been, you know, running below that in some respects and what's the confidence that we should be modeling toward those numbers again? Thanks.

Yeah. So two meaty questions there, Craig. So let me be, I can try to start by tackling kind of the new logo question and we'll work into the second half of your question there. So, first of all, one of the things that I've made comments on is we are marching toward through last year. Going into Q4, we're running slightly ahead on new logo counts through three quarters. Now, remind everybody about 60% of our new logos get generated in the second half of the year and the majority of those are in the fourth quarter. And one of the things that we saw is And during the fourth quarter, there's a slowdown in new logo ads during the election cycle. I think it's just a function of, you know, CFOs and senior finance leaders being more cautious and not knowing what to expect in the election. And so they were putting decisions on hold. And so we ended up, you know, seeing that somewhat accelerate post-election, but not enough. We didn't have time left in the year to, you know, get back to the momentum that we saw, you know, kind of heating into the quarter. And so we believe that as we go into the year with a pretty big backlog, a pipeline of deals that got pushed from Q4 into the new year combined with the momentum that we're seeing around our new channel partnerships is what gives us that confidence related to getting back to kind of 10% new logo growth. 10% plus is kind of our objective there. And so those are some of the building blocks there, but certainly seeing, you know, kind of leveraging the new channel partners. We have not only, you know, the ones that we've been talking about, the Appfolio M3 that are performing extremely well, you know, M3, like 3X, the activity that we saw a year ago, Appfolio 2X, the activity that we saw a year ago. And so those are real positive elements for us, not to mention – you know, the pipeline that we have around new embedded ERP partnerships that we'll be announcing in, you know, the quarters to come. And so I think that's what gives us the confidence related to, you know, kind of the new logo elements, which is, you know, kind of the first step of kind of the overall growth algorithm. And, you know, maybe I'll just list the other two and turn it over to Joel to provide context. You know, new buyer, you know, customer growth is kind of critical. The second one is our you know, innovation that drives the yield and expansion. That's, you know, Payment Accelerator 2.0, spend management, a pay-to-you-own platform, and some of the impacts that we have against our AI initiatives. And then the third is that retention element, both some of the customer experience that we control as well as the macro piece that we're, you know, currently facing, you know, roughly about six percentage points below what we see as a normalized state. So maybe turn it over to Joel related to, you know, kind of that second piece of the question compared to investor day.

Yeah, Craig. So it's a good question. And here's the way I would sort of think about balancing the equation for you. Obviously since, you know, summer of 23, when we held investor day, we've been in a deeper and longer kind of macro impact, you know, impacting buyers and their spending across the middle market, certainly across our, our buyer base. And so from a growth perspective, you know, we're off. That's pretty straightforward and obvious. But on the other side of that equation, we're ahead of schedule on gross margin, finishing at almost 75% for the quarter. That was a target we set for ourselves for 25, not Q4 of 24. So we're pretty proud of the progress we've made. And to Will's initial question, we think we still have distance we can cover, even at moderated growth rates in terms of the continued expansion and gross margin and EBITDA. Obviously, though, we need growth to return to get back to that kind of Rule of Forty trajectory that we also talked about at Investor Day. I think we're doing a good job controlling what we can around OPEX scale and gross margin expansion, but we do need to see ourselves back to kind of a double-digit growth rate. And at that moment, I think we're sort of back on track as you think about sort of the Rule of Forty And then finally, we talked about, you know, kind of our e-payment mix. We're excited about kind of the progress that we see as we exit the year and moving that e-payment mix as a percentage of our total payments, moving that forward based on the investments we've been making and expect to see the result of through the pay platform investments and payment accelerator.

Again, please limit yourself to one question. And your next question today will come from Andrew Bao with Wells Fargo. Please go ahead.

Hey, guys. Thanks for taking the question. I wanted to ask on a vertical-specific basis. I think that the commentary that we've heard through the course of 24 was that, you know, all verticals were generally seeing this kind of subdued activity. But I just wonder if there are any kind of divergences you're seeing exiting 24 in what's informing your guide for 25s.

Yeah, so Andrew, good question. So to remind everybody, we go to market in nine different industry verticals plus the horizontal layer. And within the verticals, the ones that we saw performing at a really strong note kind of during the quarter were the real estate vertical led by multifamily, our financial services vertical, and media. And I think construction kind of is one that met our expectations due to kind of the adoption of our titanium offering that we released earlier last year. And one that was kind of below our expectations with some of the macro headwinds was HOA, condor association, kind of vertical, where we definitely saw you know, a slowdown in HOA boards, you know, authorizing additional purchases, doing capital projects, things like that. You know, the indications are that, you know, kind of getting through the election cycle is critical, you know, for a lot of those boards making those spending decisions. And so we're, you know, expecting that we see some significant improvement to that vertical, you know, throughout this year. But maybe Joel can comment a little bit on kind of what's implied in the guide. But I think we – took a conservative approach related to the activity that we're currently seeing across the verticals in terms of those discretionary spending and retention rates, having that continue throughout the year without any real improvement or degradation for that matter, but continue that trend line based on where we see it today. That could certainly be upside throughout the year if we see some of that macro spending come back within the year.

And your next question today will come from Darren Peller with Wolf Research. Please go ahead.

Guys, thanks. Look, it's pretty clear that the environment around transaction retention is just uncertain. And so putting that aside, it's hard to really handicap when that goes back in a bigger way. Um, customer ads are obviously key as you discussed and new innovation obviously is going to be key. The accelerator topic obviously is one I want to focus on. So just first on customer ads, did you disclose or have you discussed what you actually expect in terms of number of new logos? I know you said 500 last year, 10% is your aspiration per year. Uh, and then really just maybe we can go a little deeper on, why you expect there to be as much progress as you expect to contribute to growth from the accelerator initiatives. Where are we on that? How's it, you know, it does seem like a big opportunity, but I just want to get an update on what progress has been made. Thanks, guys.

Darren, maybe I'll go first just to answer one very specific question that you asked, and then I'll let Mike respond to the rest. But in terms of We didn't and we don't really pinpoint the sort of the new logo expectation that's baked into our guidance. But you're right, we believe that that's a meaningful part of our growth algorithm and we think should be at the, you know, 10% plus range in a healthy environment. But, you know, we don't, at the moment, we don't sort of provide pinpoint guidance or quarterly updates on that. Mike, you want to take the rest?

Yeah. So related to payment accelerator, Darren, I appreciate the comment here. This is certainly a product that we've been working on for a while to make sure that we get it right. We think this falls in the category of, I don't know if company changing, but certainly it's our next $100 million business and adds a great diversification lens to providing significant value to the supplier side of the equation. And a couple things that we're seeing here is You know, we took a cautious approach last year as we, you know, released our 2.0 offering to make sure that we got all the elements of it correct, and we feel really good about that, and now are, you know, laser-focused on the scaling of the product. And so just, you know, earlier, you know, this quarter, you know, we – across the threshold of now we have more suppliers on the 2.0 product than we had on the 1.0 product. And so that was a big milestone for us. So we've seen significant, you know, adoption of the 2.0 product by new suppliers. The second thing is that we're seeing is, you know, although the numbers are so small, You know, revenue growth is, you know, it's growing at like, you know, 100% a year. It's numbers are small, but, you know, we expect that business to double over the course of the year. And so, you know, we have, you know, lots of enthusiasm related to, you know, kind of the impact of that product, especially long-term in the business.

Your next question today will come from Brian Keene with Deutsche Bank. Please go ahead.

Hey, guys. Good morning, and thanks for taking the question. Just a couple of clarifications. On the volume growth for 2025, I think if you X'd out political, Joel, maybe you can just help us on how to think about what's the right growth rate, how much macro might be impacting the TPV-implied growth rate. And then just a quick one, secondly, payment revenue take rate as a percentage of TPV X float expanded again.

know obviously in the second quarter went down a little but it's kind of recovered nicely how do we think about that trajectory in 2025 and the god thanks yeah thanks brian um so just to come back to the first part of your question around what what does guidance contemplate so if you strip out political and float what we're guiding at the midpoint is right around eight percent growth okay And I think I mentioned in a previous response to a question that we do, the mix of that is roughly $48.52 from a first half, second half. And then finally, we talked about roughly a point of that growth being attributable to the ramp and payment accelerator, as Mike has mentioned, and another point around movement, you know, favorable movement and e-payment mix. Second part of your question is just sort of what we're seeing from an overall yield standpoint. Again, we look at both overall total transaction yield and particularly ex-float and political. We also look at TPV yield. And we've seen both of those yield numbers moving in the right direction these past couple quarters and really just a function of our kind of continued focus on optimizing the monetization of our payments and our pricing strategies and making sure that we're you know, paying suppliers the way they want to be paid. I would say that, you know, we still expect yields, again, since the starting point is, you know, something like 32 bits on overall TPV. So really industry-leading TPV yield in particular to start with. And we think with all of our strategies that we're leveraging to continue to shift towards e-payment, not to mention on top of which to begin to scale payment accelerators, We feel good about the level of monetization and we feel good about the ability to expand that, uh, as we move through 25.

Your next question today will come from Dominic Gabrielle with compass point. Please go ahead.

Hey, great. Thanks so much. Um, you know, if the new logos were pushed out in the fourth quarter, wouldn't that have one that put upward opportunity on the top of funnel in 2025 versus 2024. So maybe just help us square the mid-single-digit revenue growth rate. I guess I'm just thinking about versus, you know, retention. And I guess what markers, you know, when you're thinking about this total piece, what are some of the macro markers you guys are looking for to see potential acceleration in retention and new logo wins? Thanks so much.

Yeah, so I think, so first of all, let's break it into two parts here. There's kind of new logos, and then there's retention. And so let me take kind of the new logos first. Yeah, and so we ended the year with a really strong pipeline related to opportunities. Now, one of the things when we talk about top of funnel, that relates to lead generation for us. So that kind of existing deals lead generation type definitions. And we've noticed a really strong engagement, you know, ending the year related to, you know, top of funnel, lead gen, and certainly the engagement across our key channel partners. You know, going all the way back to, you know, channel partners have been partners for years for us combined with some of the new class of kind of 23 and 24 partners. led by the FOLIOs, M3s, Bill Liams, Cadice Bank as examples, really strong demand gen lead flow that we're seeing. So I think we have a lot of optimism related to the new sales engine getting back to the growth elements that we expect. The second kind of piece maybe is a separate question and that is the retention. And our retention number that we focus on is really, it's not logos, it's volume. So just on the logo side, we made commentary that our retention numbers there are kind of the gold standard, mid-90% overall retention across all of our customers, both buyers and suppliers. But the real element that we focus on is the volumes that we retain on our network. And so that number, you know, is in a normalized state. We have seen for many years being, you know, kind of 104 to 105% range, but we see four or five percentage points of same-star growth built into our customer base. And, you know, as Joe indicated, you know, that's, you know, kind of sub-100 currently. So we have about six percentage points of kind of, you know, you know, growth element that we expect to happen over time as the macro economy begins to improve to get back to that normalized state. So what are some leading indicators that we look at? Well, we have lots of visibility because it typically starts before a payment occurs. You have an invoice. In some cases, there's a purchase order. So we see insights to what people are spending 30, 60 days ahead of when that payment occurs. And we're looking for, you know, kind of changes in some of those discretionary spend categories like marketing, professional services, consulting. In the HOA vertical, this is where you have kind of, you know, CapEx and preventive maintenance type of, you know, spending activity that occurs. I made kind of comment earlier that, you know, one of the verticals that, you know, has, you that were disappointed in the performance related to this element in the last year was the HOA condo association where basically, you know, HOA and condo association boards were very cautious about authorizing new spending for preventive maintenance type activity and just spending overall, you know, until they had, you know, certainly getting through the election cycle and then having more confidence in the macro economy. We think that, you know, those would be good, you know, kind of barometers for us to watch as we go through the year to see if some of those spending elements begin to recur. So those are some of the things that we're watching for. And, you know, as Joe indicated earlier, you know, the guide does not contemplate, you know, improvement in 25. So that would be certainly, you know, an opportunity, an upside opportunity should we see the macro, you know, return and get better throughout the year.

And your next question today will come from Tenzin Huang with JP Morgan. Please go ahead.

Hey, Mike and Joel. I'll ask a little bit of a different question, maybe just on some of the KPIs here. I noticed the spread between transactions and volume seemed to be widening versus history. Do you expect that to normalize in 25? Isn't there any learning from from this? I guess I'm mostly curious if you think it's more likely that transactions come down, move up closer to volume or vice versa.

Yeah, good question, Sinjin. So keep in mind that overall total transaction number is composed of a large base of invoice transactions and a smaller but faster growing base of payment transactions. And the payment transactions is what's driving that, like, 10% TPV growth. And there is some separation. Obviously, if you think about payments revenue, stripping out float and political is about a 13.5% grower. That correlates to that 10% TPV, and that's just the incremental yield that we're seeing in the business. Hopefully that helps.

Yeah, and maybe just to add that, you know, some of this retention pieces that we've been talking about, directly relate to the transaction number. So the retention piece is based on transactions and volume is not factored into that retention. So certainly some of the macro impact that we're seeing on less transactions on our platform by some of those discretionary spend categories show up in that overall transaction number.

Your next question today will come from James Fochette with Morgan Stanley. Please go ahead.

Great. Thank you so much. Appreciate all the commentary today. Wanted to ask a bigger picture question here on AI and its role in the B2B space. I saw some of the commentary about using Microsoft AI tools on invoice data and having that functionality available to the whole customer base by the end of the year. But curious about how you're anticipating this evolving over the next few years. Appreciate all the thoughts. Thanks.

Yeah, so good question. I think when we look at the impact of AI on our business, first of all, it's two big buckets. One are how we're incorporating AI into our product sets to impact customers. And then the second element is how we're using it internally just to make our business and our product and service delivery more efficient. And so a couple of key areas that we're talking about internally within our products. Payment Accelerator, one of our newest generation of products, is a great example. It's very AI-based in terms of identifying those invoices that are eligible to be advanced combined with just how we go through the process of onboarding and approving a new supplier as an approved payment accelerator type supplier. I made some comments there. Kind of the impact of AI has taken that onboarding process down to hours from what used to take days to occur. And we believe that actually would get down to minutes. So just game changing. And so that's an example of kind of just AI just embedded in one of our new products. That's sitting with all of our new product innovation. AI is just a cornerstone piece of it. Some of the other big buckets, James, on the front end, in terms of the invoice creation side of all the different forms of invoices that were received from suppliers and able to kind of read those invoices efficiently. It started with OCR-type technology, and then we kind of added machine learning elements to it. Now there's AI elements to that. It just keeps getting better. And so the customer experience in terms of the vast majority, 90% plus of their invoices coming in that they can be automatically read and just immediately incorporated into their workflow. The next element is what I would say on payment delivery. And this is where we've had some really great success in terms of automating all the different payment delivery forms that we have on AI. And then kind of just turning the buckets internally. This is where we're super excited about the impact on customer care, you know, overall engineering and the pace of engineering and development and making, you know, kind of our engineers as really as productive as possible to move through roadmaps even faster and increase that velocity. And so those are some of the elements internally. And I think, you know, in the scheme of things, That's what gives us a lot of confidence related to some of the runway and gross margins, as well as overall profitability of the business as we march forward.

And your final question today will come from Cheyenne Patil with Susquehanna. Please go ahead.

Oh, how are you? It's Jamie Friedman at Susquehanna. Hey, Jamie. How are you guys? I just want to go back to the analyst day message and slides as well. Apropos of the operating leverage that you had articulated at that time, I think it was your COO's presentation. There was an element in there, and clearly you were ahead of schedule delivering that in the Q4 year ahead of plan like you articulated, Joel. But I wanted to ask, there was an element of that on the outsource-insource narrative Where are you in that journey? And how much more is there of an opportunity on the operating leverage side to execute? Thank you.

Yep. Great question, Jamie. And that was an important part of our investor day conversation. And we're really proud of being kind of on track, if not slightly ahead with those strategies. And that's obviously contributed to being ahead in From an overall OPEX as a percentage of revenue, we exited 24 at about what we targeted for the full year 25. I think we are in a continual journey, as John Feldman sort of laid out in that Investor Day conversation, of standardizing, automating, and outsourcing or offshoring operations across the business, across the journey from an invoice receipt all the way through to payment and then payment execution as well. So we're really proud of that progress, and it's a big part of our success so far from a profitability perspective.

That concludes our question and answer session.

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

Thank you again, everyone, for your interest in Avid Exchange. Amid the continuing macro headwinds, I'm very proud of our discipline, execution, and strong financial performance. As I said before, I'm particularly excited about the future given the pipeline of product innovations and industry-leading ERP integration embedded partnerships that are in progress that should be able to really propel all four gears of our business flywheel and drive long-term value creation for our investors. With that, we look forward to sharing our progress on our future earnings calls.

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