Q4 2021 Avidxchange Holdings Inc Earnings Call

March 7, 2022

Good afternoon, everyone and thank you for joining us for the <unk> Exchange Holdings, Inc. Fourth quarter 2021 earnings call.

Joining us on the call today is Mike trigger avid exchanges co founder and Chief Executive Officer, Joel Wilhite, David exchanges, Chief Financial Officer, and <unk> Kumar <unk>.

Exchanges head of Investor Relations before we begin todays 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.

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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. Today's call will also include a discussion of non-GAAP financial measures as that term is differ.

<unk> and regulation G <unk>.

non-GAAP financial measures should not be considered an isolation form.

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 will aid and I are excited to share avid exchanges fourth quarter 2021 results and the continued momentum we are experiencing across our business driven by our middle market focus and the poor growth tiers of our Abbott exchange business flywheel overall, we delivered another solid quarter both.

<unk> and financial performance. Furthermore, we outperformed nearly every key metric we use to measure the progress of our business. Both in Q4 as well as for the full year relative to our previous guidance.

These positive results reflect our middle market steady demand for AD exchanges industry, leading and differentiated business the business accounts payable automation software and payment solutions as we advance our key growth initiatives, we are optimistic and excited about having it seems its future as we enter 2022 with a strong business outlook with that.

I'll begin my formal remarks, and key highlights from the fourth quarter and full year 2021 results.

Our total net revenue for the quarter was over $69 million, an increase of 31% over Q4 of 2020.

And we processed over 16 million transactions for the quarter, an increase of roughly 15% compared to Q4 of 2020.

Total payment volume was up in excess of 37% to over $15 billion in the fourth quarter of 2021 alone over the same comparable periods and our.

Total transaction yield for the fourth quarter of 2021 increased more than 14% to $4 in 'twenty, one versus $3 68 per transaction in the comparable period last year.

Turning to the full year of 2021, our total net revenue for the full year was over $248 million, an increase of approximately 34% from a year ago, and we processed over 62 million transactions during the year, an increase of over 18% from a year ago.

Total payment volume increased approximately 38% to exceed $52 billion in 2021 versus roughly $38 billion in 2020.

In addition, we processed over 180 billion of spend under management during the year, which was an increase of over 24% over 2020 and finally in 2021, we saw solid 13% increase in our total transaction yield of $3 98 versus $3 52 per transaction in the comparable period.

As a beta be accounts payable automation software and payment solutions leader targeting the large middle market segment of over 435000 companies just in the U S market alone our competitive advantage is fueled by a strategic framework encompassing our avid exchange business flywheel.

As a reminder, the first growth of our flywheel outlines our delivery of great AP automation software solutions to our buyer customers proof of our gear wants SaaS can be seen in avon's changes continued dedication to enhancing our industry, leading vertical and horizontal accounting software integrations as well as our referral partnerships in 2021 week.

<unk> number of customer referral partnerships by 50% to have over 180 partners today versus 120 partners a year ago or.

Over the same period, we broadened our accounting software integrations to 220 up from 210 a year ago.

The second year of the business flywheel maximizes the transactions managed on our platform.

In 2021, we reached 180 billion of spend under management, an increase of 24% from 2020. This was primarily due to increase in the number of ads exchange buyer customers, which rose to over 8000 in 2021, which is up from 7000 in 2020 as well as our enrolled supplier customers, which increased the <unk>.

825000 up from 700000, a year ago.

The buyer customer growth was driven by the strength across all eight of our industry verticals highlighted by a strong performance in our real estate and financial services verticals, along with our bank channel partnerships.

We saw the green shoots of recovery in our homeowner association or core HOA management market as we call it.

The third year of our avid exchange business flywheel is focused on further maximizing our industry, leading E payment monetization and converting suppliers to begin acceptance of one of our various forms of electronic payment on the <unk> network in 2021 suppliers using E payments on the <unk> network grew by 18%, which mirrors the growth of the dish.

<unk> of total suppliers on our network. This data highlights the rapid adoption of <unk> payments by suppliers and deepens, our overall value proposition of the <unk> network for our suppliers.

You have to have exchange business flywheel enables us to leverage data to drive increased value proposition of our existing products to both our buyer and supplier customers as well as develop new data driven offerings altogether. Examples include existing products, such as Abbott utility, which further enhances our clients' ESG initiatives to advanced energy <unk>.

Sumption analysis, along with the utilization of data analytics to deliver invoice accelerator and cash flow manage our offerings for our supplier customers. In addition, we are really excited about the launch of our new <unk> network Cross border payment capabilities that we will be releasing over the course of this year.

Now, let me take a step back and give you an idea of how uniquely purpose built value proposition solutions address a significant pain point for our middle market customers I'd like to highlight a few customer case studies from three of our newest vertical markets, which include health care facilities education, and our media vertical markets.

<unk> solutions have positively impacted our customers' accounts payable and payment processes through driving increased efficiencies visibility and cost savings and.

In the health care facilities vertical research dental embraces is a perfect illustration of the power of avid exchanges AP automation software coupled with our avid <unk> network recent dental embraces provides general dentistry and orthodontics for patients at more than 23 locations throughout Arizona, Colorado, Nevada and Texas.

The controller resets historically executed a very manual accounts payable process by printing paper checks are creating PDF pay stubs and the company's accounting software before manually reentering each of these invoiced in ath payments into their banking portal. This cumbersome manual process took the controller and accounts payable special several days to complete.

After implementing avid exchange automate and streamline their AP and payment processes recent was able to cut the time needed to manage its AEP process by over 75%.

In the education vertical we support mountain land apply technology College with an enrollment of over 3000 students located in Orem, Utah.

And land uses avid exchange for their supplier invoice processes and payment execution. The biggest driver for their automation was eliminating their use of paper, which dramatically reduced their paper handling filing and storage costs. In addition, avid exchange address one of the biggest challenges in the post secondary educational space, which is compliance.

The state regulated entity the college was able to follow their purchasing and payment processing policies with chronically through avid exchange, thereby ensuring high compliance and auto.

<unk> standards and.

Finally, <unk> media is a politically focused media agency as a consumption of media by voters continues to evolve the challenge for <unk> media was determining which media advertisements actually ran on air with reconciling payments after the election was over.

Which historically was a very tedious manual and time consuming process.

The solution <unk> mediate turned two was fast pay and have an exchange offering designed specifically for the media vertical to help pave the way for the 2022 political season FASB political plus was built specifically for political media agencies to better manage the reconciliation and refund process, providing enhanced ECH are ath plus.

Payment solution and driving significant operational efficiencies by addressing the manual and time consuming payment processes, which can significantly slow down the operations of running a political campaign and making timely payments.

I would now like to discuss our long term growth margin expansion and future profitability of our business before I turn it over to Joel <unk>.

Just on the size growth market leadership and long term profit opportunities, we see in the middle market segment. We believe we can compound our topline growth organically at a rate of 20% plus over the next several years.

With less than 1% share of the total addressable market of around <unk> 40 billion served by Abbott exchange today, we're still in the early innings of tapping the overall market opportunity.

Accelerating our market penetration will require we continue to build out our horizontal software solutions and continued release of new integrations as well as we develop new industry verticals and international expansion.

In addition, we plan to complement this organic gross sales strategy with the selective use of strategic acquisitions.

As we have been successful in doing in the past.

Moving in lockstep with our investments we're highly confident in our gross margin expansion levers along with our path to profitability. We believe that we will achieve profitability by continuing to advance our invoice payment automation initiatives as well as continue to convert thousands of paper checks suppliers. The E payment accepting suppliers on the <unk> network.

This will further be complemented by revenue scale and operating expense leverage resulting steadily improving our EBITDA as we move towards our long term EBITDA margin of over 25%.

Starting with gross margin, we expect our non-GAAP gross margins to steadily improve from the low 60% range today to over 75% by continued reduction of unit costs through automation and expansion of our revenue yield given the current pace of progress we expect it to be approaching over 70% milestone by the end of two.

24.

Key levers in our unit cost reduction includes the use of AI machine learning and straight through processing to reduce manual efforts and invoice processing and payment execution for.

For example in 2021, we automated 75% of the delivery of E payments, which was up from 60% in 2020 and have high confidence in our continued automation initiatives.

Moving onto our operating expenses increased economies of scale will drive EBITDA margin expansion towards our targeted level of 25%.

After 2022, our first full year as a public company. We also expect meaningful leverage on the G&A expense line, our significant investments in R&D for future growth and product initiatives.

Development will also taper off as a percentage of revenue as we enter 2024.

And wrapping up my prepared comments 2021 was an extraordinary year for Abbott exchange apart from solid financial and operating results. We completed our transition to be a public company, along with bringing a sniff modest strategic capital to fuel our future growth.

Also completed a strategic acquisition that expanded our market coverage to include the media vertical while winning several different industry awards for our EP and payment solutions.

<unk> 2021 also continue our path of progress with strategic partnerships, we forged a new strategic commercial virtual card processing relationship with works to provide us with what we believe is best in class pricing and execution for virtual card processing. This relationship will enable our teams to collaborate together and driving overall E payment adoption and.

Deployment of dynamic payment offerings to increase supplier acceptance of the payments.

Also noteworthy we renewed our existing relationship with fleet Corp subsidiary and Comdata has been a processing partner for us since 2013.

Additionally, we formed several new partnerships, which provides significant benefit to have an exchange, including our strategic customer distribution relationship with bank of America, which is now marketing our branded avid exchange AP automation and payment solution to their middle market customers.

Lastly, our avid exchange culture continues to be a key competitive advantage for us in attracting and retaining the talent, we need across the business to execute our growth and innovation priorities.

This includes the executive team leaders, such as Joel Fox, Our new Chief product Officer, who we recruited in Q4 to lead our overall product strategy. In addition, we added 20 other senior leaders to our businesses to be an enduring our business in 2021, as we prepare to become a successful public growth company.

We believe this combination of talent market opportunity and our balance sheet capital will further deepen our leadership position in delivering innovative accounts payable and payment automation solutions, the middle market companies not only in 2022, but for many years to come.

As always I look forward to updating you on our progress during future earnings calls.

I will now turn the call over to Joel to provide more detail on our financial performance key metrics and our full year 2022 guidance Joel.

Thanks, Mike and good evening, everyone I'm excited to talk to you today about our strong Q4 financial results, which reflect continued execution of our growth strategies and to provide guidance for the full year 2022.

Before I discuss Q4 versus last year, let me go over Q4, 'twenty, one actuals versus our guidance midpoint of our implied revenue guidance for fourth quarter 2021 was $65 $9 million. We came in at $69 3 million, beating our guidance midpoint by $3 4 million or about five.

Percent.

We also exceeded the top end of the implied revenue guidance range higher total payment volumes and higher transactions contributed to revenue outperformance relative to our implied guidance.

The higher than expected revenue growth largely fell through contributing to a lower than anticipated EBITDA loss in the fourth quarter of 'twenty, one versus our implied guidance.

Now turning to Q4 2021 versus Q4 2020 financial results.

Total revenue increased by 31% to $69 3 million in Q4 of 2021 over the fourth quarter of 2020 organic revenue growth, which excludes the contribution of our core associates and fast pay acquisitions, which closed in December 2020 in August 2021, respectively was 25.

Percent organic growth was primarily driven by the addition of new buyer invoice and payment transactions, which increased E payments to suppliers.

Our strong revenue growth also resulted in total transaction yield expanding to $4 21 in the quarter up 14, 4% from $3 68.

In Q4 2020.

Roughly half of the increase was associated with improvements in each of software and payments yields and to a lesser extent a mix shift towards pay with the remaining half being inorganic software revenues of $23 $5 million, which accounted for 33, 9% of our total revenue in the quarter.

<unk> 31, 3% in Q4 of 2021 over Q4 of 2020 core associates contributed $2 $5 million of revenue to the quarter or close to half the software revenue growth rate.

The increase in software revenues was driven primarily by the growth in total transactions of roughly 15% in Q4 of 2021.

Payment revenue of $45 1 million, which accounted for 65, 2% of our total revenue in the quarter increased 33, 4% in Q4 of 'twenty. One over Q4 of 2020 of which fast pay represented nine two points of growth or $3 1 million increase.

Containment revenues was driven by the growth in total payment volume of 37% or 33% excluding fast pay.

On a GAAP basis gross profit of $35 $2 million increased by 32, 8% in Q4 of 'twenty one over the same period last year, resulting in a 60 basis point improvement in gross margin for the quarter to 58% non.

non-GAAP gross margin increased 400 basis points to 62, 2% in Q4 of 'twenty one over the same period last year with two thirds of the increase driven by increased total transaction yield in the quarter and continued operational efficiencies. The remaining third was margin contribution from the previously discussed.

<unk>.

Moving onto our operating expenses.

On a GAAP basis total operating expenses increased by 76, 6% in Q4 of 'twenty. One over Q4 of last year, primarily driven by the impact of recognition of non cash stock based compensation costs, resulting from completing our IPO in Q4 2021 on a non-GAAP basis operating expenses.

<unk> increased 35, 5% or $13 4 million to $51 2 million in the fourth quarter of 2021 from the comparable period.

I will now talk about each component of the change in operating expenses on a non-GAAP basis.

non-GAAP sales and marketing costs increased by $3 8 million to $16 2 million in Q4 of 2021 over Q4 of last year with the increase driven by the continued investment in our direct and channel strategies to acquire new buyers and suppliers as well as the consolidation of core associates and SaaS.

Pain results.

non-GAAP research and development costs increased by $5 5 million to $17 7 million in Q4 of 2021 over Q4 of the prior year. The increase was due to continued investment in our products and platform along with the inclusion of core and fast pay.

non-GAAP general administrative cost increased by $4 1 million to $17 3 million in Q4 of 2020 wind over Q4 of the prior year driven largely by expenses in preparation and transition to become a public company along with the inclusion of core and fast pay.

Our GAAP net loss was $72 $1 million for the quarter versus a GAAP net loss of $32 6 million in the prior year period and was driven by a combination of the recognition of noncash stock based compensation and deal costs associated with completing our IPO in Q4 2020.

One together with a mark to market adjustment for our convertible common stock liability prior to conversion upon the IPO.

And the previously discussed investments and inclusion of core and fast day.

On a non-GAAP basis, our net loss in the fourth quarter of 2021 was $17 $7 million.

Up only one $5 million compared to the year ago quarter on solid organic revenue growth.

On a non-GAAP basis, adjusted EBITDA was a loss of $8 2 million in Q4 of 'twenty, one compared to a loss of $7 million in Q4 2020.

While we expanded our transaction yield and the non-GAAP gross margins our investment in our growth and platform initiatives continued.

We ended the quarter with cash and cash equivalents of $562 8 million.

I'll now move on to guidance as we mentioned in our press release, we are providing the following guidance for the full year 2022.

Total revenue for the year is expected to be in the range of $296 5 million to 301 $5 million at the midpoint. This would represent a growth of over 20% on a year over year basis.

non-GAAP adjusted EBITDA loss in the range of 42 million to $48 million, we expect roughly 47% of 2022 revenues in the first half with the remaining 53% in the second half.

We expect almost 55% of EBITDA losses to occur in the first half versus second half of the year skewed by the factors Mike stated.

In summary, we delivered strong fourth quarter 2021 financial and operating results and our momentum heading into 2022 is very encouraging I would now like to turn the call back over to the operator to open up the line for Q&A.

Operator.

Thank you too as a reminder to ask a question you will need to press star one on your telephone again Thats Star one on your telephone to ask a question to withdraw your question press. The pound key we ask that you. Please limit yourself to one question and one follow up.

These standby, while we compile the Q&A roster.

Our first question comes from the line of Ramsey.

Ramsey Elissalde Barclays. Your line is open hi.

Thanks, So much for taking my question Tonight.

I wanted to ask about profitability profitability came in better in the quarter. The EBITDA guidance also exceeded our expectations give us your updated thoughts on the path to profitability do you think given how things are stacking up you could get there sooner than you anticipated.

Maybe I'll start off and.

Mike feel free to jump in Ramsey hopefully you can hear me, Okay. Just real quick audio check yes, I can hear you just fine.

Perfect.

Yes, Great question, and we were happy we're happy with the quarter from a profitability standpoint, I think in Mikes comments, we sharpened up kind of the outlook. So that it's understood that as we kind of exit 2024, we're flipping that EBITDA breakeven point.

And I think the key factors driving that includes our sort of steady consistent expansion of gross margins.

And the scale that we expect to see in G&A after the 22 year.

And then R&D on a go forward basis as well so altogether, we feel good about that path.

In this past quarter was a good indication of our ability to deliver that.

Got it okay and a follow up from me is what is there any contribution or can you kind of characterize the contribution from newly launched products that you have baked into your fiscal 'twenty two guidance I'm trying to get a.

From a better opinion about whether that would represent sort of upside the those products kind of ramping faster than anticipated or how much is in there.

Yes, I'll start it really the 22 year for US is based on.

Products, we have in the bag today and so.

And you know our power revenue model works.

But we are sort of sold as we finished the year of 'twenty, one really constitutes that revenue.

Growth in 'twenty two so we feel like we've got good line of sight highly recurring revenue model and in terms of new products work investing around the flywheel, but in terms of revenue dependency in 'twenty, two that would be sort of de minimis.

Got it. Thank you so much appreciate it.

Thank you. Our next question comes from will Nance of Goldman Sachs. Your question. Please.

Hey, guys good afternoon.

I wanted to ask a question on payment volume continued to kind of exceed our expectations I think last quarter, you talked about inflationary impacts.

<unk> payment volume beyond your expectations I'm, just wondering if you could talk about the drivers you've seen more recently and have you continued to see higher average order values.

As it relates to the 2022 guidance how much of an upside bias could that put on your numbers. If you were to kind of continue to see continuation of Israel.

Yes, So let me kick it off.

And Mike feel free to sort of come behind me, but overall so you are right.

TPG for us.

Good grower in the fourth quarter, 37%.

Last quarter, we also had really strong <unk> growth.

There's a number of variability sort of drivers in that we did we pointed to a little bit of a creep up in average payment size in Q3, and what I would say is as we've kind of looked at looked at the data there's a wide range of mix drivers across verticals.

Sort of.

The mix of of payments as a percentage of that total.

Sort of payment payment or the actual payment mode within there.

Finally, there is a mix shift as payments grew as a percentage of total so.

<unk>.

I wouldn't rule out the possibility of inflation in certain in certain pockets here and there but.

Sort of only a few months into this wouldn't really call. It a trend and wouldn't really call that we've meaningfully changed our estimates around.

Average payment size as it goes forward into 'twenty, two so I really wouldn't point too.

A sandbag per se right or purposeful conservatism, we really have pretty predictable model based on the trends that we see in the business and we've used those those trends to project 22, So I'm not sure it might be if you wanted to add anything to that.

Yes, maybe.

Down a little bit more color will.

To get through Jones thinking about the mix.

We saw a different mix shift across the different verticals and one of those be.

Media vertical which is as you know the new vertical for us.

And some of the <unk>.

Recent payment side is really the juice of the political spending.

That we've been seeing so that would be an example.

A little bit of a change in mix shift across the different verticals and so.

It's hard to tell exactly how much of that is your inflationary based versus just Jim mix across different industry verticals on behalf.

We're certainly watching it closely.

Got it Super helpful. And then just as a follow up on the new questions I think that that previous to this idea of.

New products question that was asked previously as it relates to invoice accelerating I think you guys were in the market with a roughly 10% of the suppliers how do you see that pilot progressing in.

What sort of contribution do you think that could drive to the results overtime.

Yes, maybe I'll start and then Dino Joel probably Brian to add some context to it.

So.

It's one of our fastest growing parts of our business, but it's still small.

A small piece of the business.

As it relates to kind of growing the number of suppliers.

There's a couple of things that we're working on one is overall.

Just.

What I'll say is.

Doug.

We're getting across the different years of our flywheel to look at kind of the.

Scalability as well as how we're using the data across all the different ways that we.

Generation wages to really get good at.

The data science.

Analytics related to.

How we determine eligibility of invoices.

And so that is continues to be kind of a work in process that were.

We're testing on different pockets of suppliers that we will increase.

Increasing that.

Across.

Over the course of the year.

Other element that we're just really excited about the impact of the bounce pay acquisition from a talent perspective of bringing more talent.

Related to <unk>.

D&A related to.

Factoring lending based on the historic capacity business.

And we're really excited to have the outlet malls teammates.

Floyd in our business and think they're going to be value added to.

Thinking about how we grow it was accelerate over time.

And I appreciate you taking my questions.

Thank you. Our next question comes from Brad Sills of Bank of America Securities. Your line is open.

Oh, great. Thanks, guys for taking my question.

I wanted to ask about the upsell motion I know that bank talent core associates for software only.

Businesses with an opportunity to upsell digital payments, how is that effort going.

Over the course of the year.

And then just how would you classify that in kind of go forward basis is that still an opportunity.

Yes, yes.

Maybe I'll just comment briefly and then pass it to Mike.

Remember that.

There is an opportunity for us not just from the sort.

Sort of.

Software only customers that come to us via acquisition, but also those legacy.

Software customers.

That were acquired in the years before <unk> was introduced in 2012 2013. So so good opportunity for us and steady progression. So we're kind of pleased with the ability to continue to sell back to that base. So Mike anything you want to add to that.

Yes, and I think just in the last quarter, we saw a really good.

Growth related to some of those upsell opportunities across both raw and continue to see real estate as well.

Within the financial services vertical.

And I think one of the.

The green shoots as we referred to it from a recovery perspective.

We're going to see the acceleration of the HOA vertical which really has been.

One of the ones of our political is probably the number one vertical impacted during COVID-19 .

And now see.

Mobile end of across that vertical and we expect that.

It continues from 2022.

Great to hear thanks, Mike and Joe one more if I may please.

We're calculating a take rate here.

<unk>.

Around 30 basis points, which is right around where you've been tracking.

Recently with the introduction of cross border coming should that change that or could that change that could we see the take rate go up just any any.

Color you can provide on what cross border could do to do that take rate over time. Thanks again.

Yes.

I think thats.

Great question Brad.

One of the things just to remind everybody in the us.

Today.

The only change business and our <unk> verticals, we don't have large pockets of cross border demand.

Within our existing customer base and so this is really positioning us.

Future international expansion as well as other verticals and attracting customers that do.

That cross border need going forward.

So it's not like we're sitting on.

Large stack of transactions that we're not monetizing today.

We expect that there will be some of that but not a meaningful number so it's really about our future.

Vertical expansion strategies, we will see the benefit of having a cross border product offering.

And so.

What I would say is that we expect to see continue to be kind of a.

A slow buildup driver to our overall grow overtime.

But I would not expect the kind of.

Kind of a onetime kind of monetization once we release the product.

Not expecting that.

Understood Super helpful. Thanks, again, Mike.

Okay.

Thank you. Our next question comes from Darrin Peller of Wolfe Research. Please go ahead.

Hey, Thanks, guys.

Congrats on finishing up your first year as a public company.

Mike I wanted to touch on the customer adds going from 7002 <unk>.

8000 number and just maybe you can help us first of all be clear on what was organic versus inorganic contribution of that.

And then really the driving force between last year and this year and what we can expect going forward in customer adds.

What's embedded in your guidance and what are the biggest drivers in your mind.

<unk> proposition that youre seeing the most traction with in terms of customers.

Hey, Dan it's Joe.

Some of those numbers questions and then kick it to Mike. So so yes, we did publish our update which we plan to do on an annual basis our.

Total counts of fire customers increased from 7000 last year to 8000.

At the end of this year and again when we look back over the year, we saw strength in real estate financial services also our bank channel and beginning to see kind of green shoots in the HOA vertical.

As we kind of get on the other side of some of the caution exercised across the middle market given the pandemic.

Your question about inorganic organic contribution to core buyer count was included in the starting point and the fast pay just given the nature of the size of the customers added I think is like less than 10% of that increase attributable to fast okay.

Mike anything else you want to add to that.

Okay.

Yes, so I think in terms of kind of drivers.

One of the things that we're just really excited about is.

Historically.

About 60% of our Nu.

Prospect demand Gen was driven by kind of in person ballots.

Pre COVID-19 .

These big industry trade conference user conferences and things like that.

And then obviously during COVID-19 it moved to 100% digital.

But we.

Do know that across the middle market.

The cfos have been.

<unk>.

Probably more slowly than the small business market to adopt new transformative.

<unk> technologies reported.

The back office and we are excited about seeing the returns in person events.

Again this year.

Pretty much every one of the accounting systems that we're deeply embedded with.

It is planned to have a new person beds. This year and so those are really positive for us in terms of.

That demand Gen focus.

So, although we had a great year in terms of the customer and we think that.

Dynamic demand Gen of getting back to more of a normal cycle.

<unk> between kind of in person and digital demand Gen is going to pay dividends for us as we come out of the corporate site.

Alright, Thats helpful. Mike guys I, just wanted to follow up with the algorithm thats embedded in your outlook. When we think about the forecast for your 20% revenue growth rate the building blocks, including again going back to customer adds and maybe what's your where you were thinking about from that perspective versus where you are now on payment monetization versus where there.

That can be by the end of the year.

Or any other major drivers anything worth calling out.

Yes.

They are now.

Start off in micro feel free to mop up but I mean, so the.

Question about the growth algorithm, so we've talked about.

Fairly consistently we feel like this is a good solid 20 plus percent grower over time, we have a number of levers available to us this past quarter, we expanded our revenue.

Our revenue yield in addition to adding meaningful volume year over year.

Keep in mind I think we laid the groundwork when we gave guidance.

That Q4 was a little bit more of a tough compare in the year ago period, because of kind of the COVID-19 recovery. So if you are comparing kind of under underlying growth rates were you using for 'twenty two versus what we saw in the in the fourth quarter, but I would just step back and say, we've got great revenue visibility when we enter the year most of that.

<unk> already.

Sandoz volume characteristics and feel really good about about the guidance we've put out.

Yes, I think when we think of kind of the weak euro.

The metrics that we're driving in the business.

It starts with you.

Continue to increase that.

Transactional yield number that John referenced.

And then combined with.

His focus on total spend on the management side, it's a combination of both.

New buyer customers branding as well as the new supplier customers that we're adding to kind of make up that number.

And then probably the last one is just.

Kind of that net retention number.

And to become 107% and how.

How do we continue to increase that number.

As we move forward. So those are the three big.

Big metric drivers that we're focused on internally in terms of driving that growth up.

And it's a mix among them I guess, Bryan it's pretty balanced.

Yeah.

Thanks, guys.

Thank you. Our next question comes from Andrew Boss of SMB <unk> Co. Your line is open.

Hey, guys. Thanks for taking my question I just wanted to check in on some of the underlying health of the verticals that you operate in.

Where are the verticals that you serve obviously theres clearly some supply chain dynamics that they are probably facing so anything youre hearing from your customers on the ground as far as as economic trends as we enter a pretty uncertain period for inflation and the like.

Yes.

Yes, So let me just make sure I.

Got the question so just.

What's going on in our verticals what conditions do we find here and how might that impact.

Our business as we move into 'twenty two.

I think if anything.

One thing that comes to mind is sort of the.

The.

To the extent that inflation is playing a role in these verticals and the need to kind of find ROI and efficiency in the back office that.

That could be a catalyst but.

Apart from that Mike anything vertical specific that you would comment on.

Yes.

I think.

Each vertical has its own little.

Kind of cycle, but they operate in but kind of going back up our four most mature verticals and real estate each way construction financial services.

We expect really solid contributors and then.

Really excited about media.

It's a new vertical for us to discuss the acquisition and one of the unknowns.

For us this year is the impact of kind of the political cycle.

And the impact that may have within that media vertical.

Which could be one that we're going to watch closely and then our other three.

Emerging verticals that are new in the last.

Call. It 12 to 18 months being healthcare facilities, social services and education.

I think.

We are.

We're certainly seeing some.

Good growth opportunities, but they are the emerging verticals and they're new so I think we have a healthy balance of.

Going deeper within our mature verticals, along with the opportunities that you see in the emerging verticals.

Probably the most interesting one is going to be watching what happens in our media vertical.

Impact of the political cycle.

The media spending.

Yes.

Great. Thank you and then one more question on.

Operating in the middle market, obviously requires a different level of sophistication than than the SMB or customization for for larger customers could you speak to how you guys are differentiate within those verticals and are able to help deliver a more robust and complete solution to clients that may need.

Additional type of features.

Yes so.

I kind of think of it is that were purpose built for the middle market.

And what is purpose built for the middle market need is kind of affirm I kind of think of it as kind of by buckets. The first is our feature set.

I think the feature set is different for middle market than for small business, our enterprise related to.

And then kind of approval workflow support for more sophisticated cost center allocations Geo coding.

Most of our customers operate with multiple accounting systems as an example, so the feature set related to.

The product itself is different and in many cases, it's somewhat new ones for the different verticals of the middle market.

Second Big one is the integrations right now.

You guys, probably heard me say this before but.

I would like to turn around at different industry conferences with.

Both bill Dot com and the Cooper team because they really haven't easy from the standpoint of small business really have been agreed to quickbooks enterprise has been a great Oracle and SAP.

Maybe some JD Edwards workday.

And Meanwhile, in the middle market, we're supporting over 220 different accounting system integration and.

And growing.

Focus on the different verticals.

The third one would be the payment network.

And so the payment networks.

<unk> is again.

Very focused in the middle market of supporting really.

Supporting the buyer customers aluminum market and the suppliers they use.

Again, it's kind of custom.

Purpose built for the Middle market and then you have kind of the mindset and go to market strategies.

And.

Within the middle market.

CFO is want to understand how.

Works for their particular business process within their industry vertical.

Historically intended user conferences and industry trade conferences to kind of interact with <unk>.

Others, such as ourselves and.

So that's a very different dynamic.

So you're a small business where.

Yes.

Actually a 100% digital process now our demand Gen.

Digitally in most of our sales process virtually.

Inside model, but you typically have.

More and more.

The demo solution consulting type of sales process.

And then the last one is just around the setup and configuration all the different dynamic workflow processes testing all of the integration or basis things of that nature that are very different so.

I think John .

One of the best kind of stats or metrics that I think that the complexion between the different markets is just average revenue per customer.

Within the middle market, we see an average of over 50000, <unk> revenue per customer and I think.

Bill would say that number to them is about 1500 and certainly for the enterprise side.

<unk> of the World, It's probably north of 500 pounds. So I think that gives that some of those differences between either the midmarket segment versus small business and enterprise.

Thanks, Mike I appreciate the color.

Thank you. Our next question comes from Tien Tsin Huang of Jpmorgan. Your question. Please.

Hey, Thanks, so much good afternoon, just listening to your your answers everything has been really helpful. I was just curious thinking about the outlook client growth that kind of thing with inflation here, how does that or how might that change the buying decision for.

For some of your prospects could it.

Just thinking about sales cycles in the sense of urgency for for these mid market.

That is to automate with avid does it change the storyline at all in your mind, Mike just curious.

And I think that's a great question and when we talk about internally.

I think it actually helps our process from the standpoint of it.

It puts more pressure on companies.

Thinking about where they are adding people.

If they can.

Eliminate future ads through automation.

That is a positive driver.

We believe that.

But the expense controls and things of that nature, specifically even comes with.

In a more inflationary environment, we think it can be helpful. In terms of band lies in our story.

Doing more with less and you're one of the biggest characteristics that we have across our entire client base now.

And our customers is that they are able to grow without adding back office staff and so that message is one that we're certainly.

Evangelizing the marketplace, yes.

Mix makes great sense I appreciate that just my quick follow up and just thinking about your own expenses in your thinking around.

Investing here I noticed that the EBITDA loss that youre projecting is a little bit wider than revenue are you contemplating some discretionary investing here what puts you on the high or low end of that based on what you can control. Thanks Tien.

And maybe I'll, just add a little bit of color to what youre seeing in our guidance.

And again, we were pleased to deliver better than expected EBITDA results in the fourth quarter.

We do have a little bit of a widening loss better than what we had previously anticipated and really what we have in our first full year as a public company as a couple of dynamics, one sort of that full first load of sort of public company readiness costs, whether it's the FCC reporting side compliance side, a number of other things that were sort of kind of put in place late in late.

Midway through 'twenty one.

Where theres really meaningful scale as you sort of leave 22 and the other thing that I would say is we really have a number of important investments.

<unk> been building from an R&D perspective back to investing all around a flywheel for the buyer and the supplier our platform readiness for invoice accelerator in things that drive down operating cost or unit cost in support of that expanding margin. So hopefully that gives you a little bit of sense of.

The investments we have on tap for 'twenty two.

Thank you both for the thoughts.

Net.

Thank you. Our next question comes from Bryan Keane of Deutsche Bank. Please go ahead.

Hey, guys.

Just wanted to ask on transaction yield Joel when we look at it for the first three quarters of the year it accelerated.

Really actually last at least the last four quarters, just looking at the slide and then this quarter.

Gross sequentially didn't grow as much it just moderated slightly and I'm thinking about next year as we build our models how much can we expect what's a more normalized kind of growth rate for transaction yield and any puts and takes when we look at it sequentially that moved the numbers around especially when we went from Q3 to Q4.

Sure, Brian Let me let.

Let me kind of take a crack at that question from a couple of different angles. So.

We were we were pleased for Q4 to your point sequentially. We saw a nice uptick in that yield is about 15 or 16 pennies in the sequential period. Most of that was based on just continued steady improved organic.

Sort of yield on the software and the payments side, so call it 10 or 11 of those pennies.

And then a smaller contribution through the combination of overall mix and then an inorganic.

Contribution as well so that's kind of the sequential on a year over year basis. We did have about 53 points of expansion about half of that being.

Mix and pay yield some of that is a little bit of recovery from the COVID-19 year keep in mind as you're thinking about the outlook.

For 2002, the other half of that would be inorganic contribution. So again, what we would guide is sort of steady.

Transaction yield expansion over time, just keep in mind, a portion of our expansion this year, a little bit of Covid benefit in the full year year over year, and then some inorganic but good steady.

Organic expansion both on the software and on the payment side hopefully that helps.

Yes.

Great and just as a follow up I noticed that the suppliers jumped paid via the network I think it's 825000.

I think the last time, we saw that number was 700000 plus so.

Just thinking about.

How much of that is organic and then and then growing that going forward is that still something that can scale up the kind of rate we've just seen.

825000.

Yes so.

Brian Good question I'm glad you asked that question because I didn't have a chance to comment on that earlier.

It's all 100% of inorganic so one is higher growth is all organic.

And I think it's a real testament to our strategies that we're using to how do we continue to penetrate.

The pool will paper check.

Suppliers into.

Accelerated that conversion too.

Have them, beginning something with chronic payment methods.

And so one of the things that we are.

We're really working to do this year.

A benefit of some of the new partnerships that we put in place.

<unk> Keybanc.

On data as it relates to giving us more flexibility.

Great.

Payment types.

As well as.

Configurations are different forms of say virtual card as well as our <unk>.

<unk> unique value proposition that maybe particular too.

A subset of suppliers that we.

We can continue to.

Dynamically manage.

So we're very focused on whats the right value proposition.

Along with the right price point.

Allowance.

Flyers to make that move from paper checks to Medtronic.

And I think we're certainly seeing the impact of that in the growth of our supplier base.

So we expect that we're going to have more tools in our arsenal going forward.

As part of these new partnerships.

No that's great congrats on the execution.

Thanks.

Thank you. Our next question comes from Josh Beck of Keybank. Your question. Please.

Yes. Thank you so much for taking the question I wanted to ask a little bit about sales cycles, and what Youre seeing there. Mike earlier, you mentioned that as you go back to in person that's been a really important lead gen.

In prior years pre COVID-19 . So I'm just kind of curious if that could help that sales cycle. If you could bring in more leads just what could be some of the tailwind from from seeing more in person.

So maybe I'll answer it in kind of the.

Two buckets one is.

When somebody raises our hand.

The sales process that would exchange.

That has remained.

Remarkably consistent across really all our verticals that typically a 60 to 90 days sales process.

Is that we have seen.

We executed and that's been fairly consistent.

The big opportunity is that we see going forward is.

Getting back onto the <unk>.

The lead originally comes from and having it.

More towards the balance of <unk>.

Person bounce.

Compared to being a 100% digital.

I think we delivered the results that we did last year.

100% digital.

Environment for most part and.

For example, pre Covid.

We attended about 100 versus bounce on an annual basis.

During COVID-19 that went too close to zero.

And.

This year the team anticipates up covering about 80 of those type of events, so that return too.

Kind of more of an in person balance we think is going to pay dividends in terms of accelerating the comparable bundle and increasing our.

Our demand Gen efforts by.

By having a nice balance between digital and these in person events.

Really really good to hear about the calendar for this year.

I wanted to maybe a follow up question for Joel.

Just thinking about the 24 breakeven it doesn't sound like this year has a lot of newer product contribution. If you will when we think about invoice accelerator in cross border I think once we start to look out further perhaps that's a bigger factor. So should we be thinking about those types of products is additive to the contribution.

Margins given that it's probably already an existing customer.

Any color you can offer us.

On those points.

So.

Here's the way I would here's the way I would sort of take a crack at answering that Josh we pointed to kind of exiting 'twenty four on an EBITDA breakeven basis. We also have talked about.

22, largely good visibility and not meaningfully dependent on new products, but as we move from here through the next few years, we expect to see continued <unk>.

Revenue yield and unit cost improvement as we move from kind of lower <unk> to upper <unk> approaching that 70% gross profit and some of that is driven by investments, we're making around the flywheel. So for example, we do expect to continue to add value to both buyers and suppliers, we expect that payment.

Payment mix to continue sort of step up I think over the sort of multiyear view we think.

Sort of a steady growth in that TPB yield.

Reasonable things like IAA to your point small today, but we expect growing in the next few years, so those things to add.

Continue to support revenue growth, but also add.

<unk> kind of gross margin expansion as well.

And those new products that you referenced play a more meaningful role as.

As you get into 'twenty, three and 'twenty four.

Very helpful. Thanks, guys.

Thank you. Our next question comes from Brent Price Lynn Piper Sandler. Please go ahead.

Thank you for taking question. Good afternoon evening, I guess, Joe will start with you here relative to the 20% growth outlook for the coming year, how should we think about the growth trajectory across payments versus software.

Yes, because I think software grew faster than payments in 2020 payments grew faster than software in 2021, and so what are you kind of baking into the guide it looks like slightly tougher comps on payments in the coming year head, but would love.

Any color you can give us as you think about.

What of what grows faster in 2022, just given that.

Two different trends, we saw in 2020 , one you bet yes.

Fair call out and it's safe to say that we do expect to see.

Payments growth to slightly outpace that that software growth again number of opportunities to drive that including some of the.

The important partnerships that drove that shift.

Whether sort of.

<unk> concur and otherwise and so we sort of see that continued.

Sort of payment growth being slightly ahead of on the software side.

Super helpful. There and then Mike as a follow up you talked a little bit about one of the levers being this conversion from paper based checks to digital payments.

What are the levers that you're thinking about that could accelerate to conversion I know in the past you talked about the mid market customer actually using the paper check as part of the workflow part of the business process and those are hard things to change but was just curious.

Thinking about the levers there to potentially help customers accelerate that conversion from paper to digital and any thoughts there would be helpful. Thanks.

Yes no.

Great question, Brian and so so first of all.

Within kind of our prop.

Product investment area and kind of.

Or are.

We couldnt cash flow management tools that are being released this year and with that.

An increase in the value proposition for the supplier customers.

And so that incorporates.

Tools by better visibility to their.

Invoice payment status as well as.

Access to invoice accelerator when so that'll be a continued focus for us.

The probably the biggest component is going to be us.

We continue to create new different types of payment modalities.

Both in virtual card as well as our MH ranch, where we.

Different types of delivery.

Data and formats of suppliers looking for at different price points.

I think you have that combination of increased number of payment modalities.

Focused on finding that right mix of value proposition, so kind of a combination of those factors.

What we are excited about what we're seeing in kind of the impact on growing the number of suppliers that we have on the network.

It sounds good great to hear thanks for answering my questions.

Great. Thank you. Thank you. Our next question comes from Timothy Chiodo of Credit Suisse. Your line is open.

Great. Thank you everyone I wanted to touch on something you've mentioned this a few other times it might relate to some of the strong supplier growth that you've seen you talked about with Mastercard your relationship with them and the ability to create more custom or more flexible interchange structures. I was hoping you could just talk around the mechanics of that how does that come up is it.

Certain vertical of suppliers that maybe have really high ticket sizes, what does the discussion it sounded like and then of course I am assuming the result is more electronic payments volumes for you more willingness to accept the interchange rate from the supplier and it's sort of a win win all around.

Yes, I think on.

You've got the punch line right.

Kind of the tactics are looking at.

What would be.

Yes.

The characteristics in which.

The supplier would move from kind of a paper check exemptions to electronic payments that they can pay for.

That would be offset with a value proposition and.

And one example is that we just recently worked with large.

For a company who historically.

The $2 52 to.

260 basis point.

We ended the interchanged and work through their cost structure.

But we were able to agree on a 140 basis points to <unk>.

Create a straight through process that it was 100% kind of auto reconciled through our strategy process. It didn't require any human intervention on their end to accept the payment and for that efficiency. They agreed to pay 140 basis points for it.

That is a perfect example, on how we are working to configure different interchange levels along with.

Our value proposition in terms of how suppliers.

Receive their electronic data to create an efficient process on their side.

And.

And we're seeing great examples of bag across different segments of suppliers in late it's going to be one of those levers that we use to continue to drive.

Today, we're roughly at 40% of all the transactions that go through them repeat network, where we monetize and how do we continue to drive that upwards over time.

Okay excellent thanks, Mike and if I could squeeze in just one last one I know this topic came up numerous times.

Around inflation and I just wondered did you guys put a finer point on just around your inflation assumptions for the fiscal 2022 guide or should we just assume that it's not much in it to continue to see inflation than.

Perhaps there is a degree of conservatism baked in.

I would.

Tim I would say the latter maybe to the exclusion of that Fray.

So like.

Again, we do see some variability in the average payment sizes and we have seen some very recently.

A number of drivers Mike mentioned, the inclusion of a SaaS given the media segment with higher payments.

And some shift around payment modes et cetera. So.

To some degree it may be at play in to that degree it would be factored in our aggressions that give us the projections for volumes for next year. So it's.

Just wouldn't pointed out that it is meaningfully significant at this point.

Okay very helpful. Thanks, a lot.

Thank you and at this time I would like to turn the call back over to Mike Prager for any closing remarks, Sir.

Thank you I just wanted to say thanks to.

Our our analyst community.

Great questions.

We're excited to you.

Complete not only our second earnings call as a public company, but also our first full year.

And looking forward to 2022, as we move out of the.

The Covid overhang.

Starting back to more normalized business environment for our middle market customers and excited to spend time with you on a quarterly basis going forward so with that.

Operator, I think we're ready to close the call.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

Goodbye.

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Yes.

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Okay.

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Okay.

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Good afternoon, everyone and thank you for joining us for the <unk> Exchange Holdings, Inc. Fourth quarter 2021 earnings call.

Joining us on the call today is Mike Prager avid exchanges co founder and Chief Executive Officer, Joe Wilhite.

Exchanges, Chief Financial Officer, and <unk> Kumar avid exchanges head of Investor Relations before we begin todays 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 discuss future strategic initiatives potential market opportunities.

Operational outlook and financial guidance during today's call. 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 an isolation form.

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.

That I will now turn the call over to Mike Prager.

Thank you everyone for joining us today, Joe will Ed and I are excited to share avid exchange's fourth quarter 2021 results and the continued momentum we are experiencing across our business driven by our middle market focus and the four growth tiers of our Abbott exchange business flywheel overall, we delivered another solid quarter both.

So in financial performance. Furthermore, we outperformed nearly every key metric we use to measure the progress of our business. Both in Q4 as well as for the full year relative to our previous guidance.

These positive results reflect our middle market steady demand for <unk> is industry, leading and differentiate business to business accounts payable automation software and payment solutions as we advance our key growth initiatives, we are optimistic and excited about avid exchanges future as we enter 2022 with a strong business outlook with that.

I'll begin my formal remarks, and key highlights from the fourth quarter and full year of 2021 results.

Our total net revenue for the quarter was over $69 million, an increase of 31% over Q4 of 2020.

And we processed over 16 million transactions for the quarter, an increase of roughly 15% compared to Q4 of 2020.

Total payment volume was up in excess of 37% to over $15 billion in the fourth quarter of 2021 alone over the same comparable period and our.

Total transaction yield for the fourth quarter of 2021 increased more than 14% to $4 21 versus $3 68 per transaction in the comparable period last year.

Total payment volume increased approximately 38% to exceed $52 billion in 2021 versus roughly 38 billion in 2020.

At $3 52 per transaction in the comparable period.

As a beta be accounts payable automation software and payment solutions leader targeting the large middle market segment of over 435000 companies just in the U S market alone our competitive advantages fueled by a strategic framework encompassing our avid exchange business flywheel.

As a reminder, the first growth you've a flywheel outlines our delivery of great AP automation software solutions to our by our customers.

Our gear wants SaaS can be seen in avid exchanges continued dedication to enhancing our industry, leading vertical and horizontal accounting software integrations as well as our referral partnerships in 2021, we increased the number of customer referral partnerships by 50% to have over 180 partners today versus 120 partners.

A year ago.

Over the same period, we broadened our accounting software integrations to 220 up from 210 a year ago.

The second year of the business flywheel maximizes the transactions managed on our platform.

In 2021, we reached 180 billion of spend under management, an increase of 24% from 2020. This was primarily due to increase in the number of AD exchange buyer customers, which rose to over 8000 in 2021, which is up from 7000 in 2020 as well as our enroll supplier customers, which increased it.

825000 up from 700000, a year ago.

While we saw the green shoots of recovery in our homeowner association or or HOA management market as we call it.

<unk> of total suppliers on our network. This data highlights the rapid adoption of <unk> payments by suppliers and deepens, our overall value proposition of the <unk> network for our suppliers.

The fourth year of that exchange business firewall enables us to leverage data to drive increased value proposition of our existing products to both our buyer and supplier customers as well as develop new data driven offerings altogether. Examples include existing products, such as Abbott utility, which further enhances our clients' ESG initiatives through advanced energy.

Consumption analysis, along with the utilization of data analytics to deliver invoice accelerator and cash flow manager offerings for our supplier customers. In addition, we're really excited about the launch of our new avid pay network cross border payment capabilities that we will be releasing over the course of this year.

Solutions have positively impacted our customers' accounts payable and payment processes through driving increased efficiencies visibility and cost savings.

In the health care facilities vertical recent dental embraces is a perfect illustration of the power of avid exchanges AP automation software coupled with our <unk> network recent dental embraces provides general dentistry and orthodontics for patients at more than 23 locations throughout Arizona, Colorado, Nevada and Texas.

Controller resets historically executed a very manual accounts payable process by printing paper checks are creating PDF pay stops and the company's accounting software before manually reentering each of these invoiced and ACTH payments into their banking portal. This cumbersome manual process took the controller and accounts payable specials several days to complete.

After implementing avid exchange automate and streamline their APM payment processes recent was able to cut the time needed to manage its AEP process by over 75%.

In the education vertical we support mountain land apply technology College with an enrollment of over 3000 students located in Orem, Utah.

With the land users avid exchange for their supplier invoice processes and payment execution. The biggest driver for their automation was eliminating the use of paper, which dramatically reduced their paper handling filing and storage costs. In addition, avid exchange address one of the biggest challenges in the post secondary educational space, which is compliance as a.

State regulated entity the college was able to follow their purchasing and payment processing policies with chronically through avid exchange, thereby ensuring high compliance and auto.

<unk> standards.

And finally <unk> media is a politically focused media agency as the consumption of media by voters continues to evolve the challenge with <unk> media was determining which media advertisements actually ran on air with reconciling payments after the election was over.

Which historically was a very tedious manual and time consuming process.

The solution <unk> media turned two was fast pay an avid exchange offering designed specifically for the media vertical to help pave the way for the 2022 political season fast pay political plus was built specifically for political media agencies to better manage the reconciliation and refund process, providing enhanced ECH are ath plus.

I would now like to discuss our long term growth margin expansion and future profitability of our business before I turn it over to Joel <unk>.

Based on our size growth market leadership and long term profit opportunities, we see in the middle market segment. We believe we can compound our topline growth organically at a rate of 20% plus over the next several years.

With less than 1% share of the total addressable market of around $40 billion served by Abbott exchange today, we're still in the early innings of tapping the overall market opportunity.

In addition, we plan to complement this organic gross sales strategy with the selective use of strategic acquisitions and we've been as we've been successful in doing in the past.

Moving in lockstep with our investments we are highly confident in our gross margin expansion levers along our path to profitability. We believe that we will achieve profitability by continued advance our invoice payment automation initiatives as well as continue to convert thousands of paper checks suppliers. The E payment accepting suppliers on the other pay network.

This will further be complemented by revenue scale and operating expense leverage resulting in steadily improving our EBITDA as we move towards our long term EBITDA margin of over 25%.

2024.

Key levers in our unit cost reduction includes the use of AI machine learning and straight through processing to reduce manual efforts and invoice processing and payment execution for.

For example in 2021, we automated 75% of the delivery of E payments, which was up from 60% in 2020 and have high confidence in our continued automation initiatives.

Moving onto our operating expenses increased economies of scale will drive EBITDA margin expansion towards our targeted level of 25%.

After 2022, our first full year as a public company. We also expect meaningful leverage on the G&A expense line, our significant investments in R&D for future growth and product initiatives.

Development will also taper off as a percentage of revenue as we enter 2024.

And wrapping up my prepared comments 2021 was an extraordinary year for Abbott exchange apart from solid financial and operating results, we completed our transition to being a public company, along with bringing the sniff amount of strategic capital to fuel our future growth.

Also completed a strategic acquisition that expanded our market coverage to include the media vertical while winning several different industry awards for our <unk> and payment solutions.

<unk> 2021 also continue our path of progress with strategic partnerships, we forged a new strategic commercial virtual card processing relationship with wax to provide us with what we believe is best in class pricing and execution for virtual card processing. This relationship will enable our teams to collaborate together and driving overall E payment adoption and.

Deployment of dynamic payment offerings to increase supplier acceptance of the payments.

Noteworthy we renewed our existing relationship with fleet Corp subsidiary Comdata has been a processing partner for us in 2013.

Additionally, we formed several new partnerships, which provide significant benefit to Abbott exchange, including our strategic customer distribution relationship with bank of America, which now marketing our branded Abbott exchange AP automation and payment solution to their middle market customers.

This includes executive team leaders, such as Joel Fox, Our new Chief product Officer, who we recruited in Q4 to lead our overall product strategy. In addition, we added two other senior leaders to our businesses to grow our business in 2021, as we prepare to become a successful public growth company.

As always I look forward to updating you on our progress during future earnings calls.

I will now turn the call over to Joel to provide more detail on our financial performance key metrics and our full year 2022 guidance Joel.

Before I discuss Q4 versus last year, let me go over Q4, 'twenty, one actuals versus our guidance the midpoint of our implied revenue guidance for fourth quarter 2021 was $65 $9 million. We came in at $69 3 million, beating our guidance midpoint by $3 $4 million of about five.

Percent.

We also exceeded the top end of the implied revenue guidance range higher total payment volumes and higher transactions contributed to revenue outperformance relative to our implied guidance the.

The higher than expected revenue growth largely fell through contributing to a lower than anticipated EBITDA loss in the fourth quarter of <unk> 21 versus our implied guidance.

Now turning to Q4 2021 versus Q4 2020 financial results.

Total revenue increased by 31% to $69 $3 million in Q4 of 2021 over the fourth quarter of 2020 organic revenue growth, which excludes the contribution of our core associates and fast pay acquisitions, which closed in December 2020 in August 2021, respectively was 25.

Percent organic growth was primarily driven by the addition of new buyer invoice and payment transactions, which increased E payments to suppliers.

Our strong revenue growth also resulted in total transaction yield expanding to $4 21 in the quarter up 14, 4% from $3 68.

In Q4 2020.

<unk> 31, 3% in Q4 of 2021 over Q4 of 2020.

Core associates contributed $2 $5 million of revenue to the quarter or close to half the software revenue growth rate.

The increase in software revenues was driven primarily by the growth in total transactions of roughly 15% in Q4 of 2021.

Payment revenue of $45 $1 million, which accounted for 65, 2% of our total revenue in the quarter increased 33, 4% in Q4 of 'twenty. One over Q4 of 2020 of which fast pay represented nine two points of growth or $3 1 million the increase.

And payment revenues was driven by the growth in total payment volume of 37% or 33% excluding fast pay.

On a GAAP basis gross profit of $35 $2 million increased by 32, 8% in Q4 of 'twenty one over the same period last year, resulting in a 60 basis points improvement in gross margin for the quarter to 58% now.

Acquisitions.

Moving on to our operating expenses.

On a GAAP basis total operating expenses increased by 76, 6% in Q4 of 'twenty. One over Q4 of last year, primarily driven by the impact of recognition of non cash stock based compensation cost, resulting from completing our IPO in Q4 2021 on a non-GAAP basis operating expenses.

<unk> increased 35, 5% or $13 4 million to $51 2 million in the fourth quarter of 2021 from the comparable period.

I will now talk about each component of the change in operating expenses on a non-GAAP basis.

<unk> results.

non-GAAP general administrative cost increased by $4 1 million to $17 3 million in Q4 of 2021 over Q4 of the prior year driven largely by expenses in preparation and transitioned to become a public company along with the inclusion of core and fast pay.

Our GAAP net loss was $72 1 million for the quarter versus a GAAP net loss of $32 6 million in the prior year period and was driven by a combination of the recognition of noncash stock based compensation and deal costs associated with completing our IPO in Q4 2020.

One together with a mark to market adjustment for convertible common stock liability prior to conversion upon the IPO.

And the previously discussed investments and inclusion of core and fast pay.

On a non-GAAP basis, our net loss in the fourth quarter of 2021 was $17 $7 million.

Up only one 5 million compared to the year ago quarter on solid organic revenue growth.

On a non-GAAP basis, adjusted EBITDA was a loss of $8 2 million in Q4 of 'twenty, one compared to a loss of $7 million in Q4 2020.

While we expanded our transaction yield and the non-GAAP gross margins our investment in our growth and platform initiatives continued.

We ended the quarter with cash and cash equivalents of $562 $8 million.

I'll now move on to guidance as we mentioned in our press release, we are providing the following guidance for the full year 2022.

Total revenue for the year is expected to be in the range of $296 5 million to $301 $5 million at the midpoint. This would represent a growth of over 20% on a year over year basis.

non-GAAP adjusted EBITDA loss in the range of $42 million to $48 million, we expect roughly 47% of 2022 revenues in the first half with the remaining 53% in the second half.

We expect almost 55% of EBITDA losses to occur in the first half versus second half of the year skewed by the factors Mike stated.

Operator.

They roster.

Our first question comes from the line.

Ramsey Lasalle Barclays. Your line is open.

Alright, thanks, so much for taking my question Tonight.

Maybe I'll start off and.

Mike feel free to jump in Ramsey hopefully you can hear me. Okay. I just do a quick audio Jack Yes, I can hear you just fine.

Perfect.

Yes, Great question, and we were happy we're happy with the quarter from a profitability standpoint.

In Mikes comments, we sharpened up kind of the outlook. So that it's understood that as we kind of exit <unk>.

24, we're flipping that EBITDA breakeven point.

The key factors driving that includes our sort of steady consistent expansion of gross margins.

And the scale that we expect to see in G&A after the 22 year.

And then R&D on a go forward basis as well so altogether, we feel good about that path.

In this past quarter was a good indication of our ability to sort of deliver that.

From a better opinion about whether that would represent sort of upside the those products kind of ramping faster than anticipated or how much is in there.

Yes, I'll start it really the 22 year for US is based on.

Products, we have in the bag today and so.

And you know our revenue model works, what we've what we've sort of sold as we finished the year of 'twenty, one really constitutes that revenue growth.

Growth in 'twenty two so we feel like we've got good line of sight highly recurring revenue model and in terms of new products were at work investing around the flywheel, but in terms of revenue dependency in 'twenty, two that would be sort of de minimis.

Got it. Thank you so much appreciate it.

Thank you. Our next question comes from will Nance of Goldman Sachs. Your question. Please.

Hey, guys good afternoon.

I wanted to ask a question on payment volume continued to kind of exceeded our expectations I think last quarter, you talked about inflationary impacts.

Giving up payment volume beyond your expectations I'm, just wondering if you could talk about the drivers you've seen more recently and have you continued to see higher average order values.

As it relates to the 2022 guidance how much of an upside bias could that put on your numbers. If you were to kind of continue to see continuation of nature.

Yes, So let me kick it off.

And Mike feel free to sort of come behind me, but overall, so youre right.

TPG for us.

Good grower in the fourth quarter, 37%.

Last last quarter, we also had really strong <unk> growth.

Sort of.

The mix of of payments as a percentage of that total.

Sort of payment payment.

The actual payment mode within there.

Finally.

There is a mix shift as payments grew as a percentage of total so the.

Wouldn't rule out the possibility of inflation in certain in certain pockets here and there but.

We're sort of only a few months into this wouldn't really call. It a trend and wouldn't really call that we've meaningfully changed our estimates around.

Average payment size as it goes forward into 'twenty, two so I really wouldn't point too.

<unk>.

A sandbag per se right or purposeful conservatism, we really have a pretty predictable model based on the trends that we see in the business and we've used those those trends to project 22, So I'm not sure. If you wanted to add anything to that.

Yes, maybe.

Down a little bit more color will.

To get through Joe's, saying about the mix.

We saw a different mix shift across the different verticals and one of those being the media vertical which is as you know the new vertical for us and.

And some of the.

Increase in payment size related to some of the political spending that.

We did see.

That'd be an example.

A little bit of a change in mix shift across the different verticals and so.

It's hard to tell exactly how much of that is your inflationary based versus just Jim mix across different industry verticals on behalf.

Certainly watching it closely.

Got it Super helpful. And then just as a follow up on the new questions. I think it was asked previously sorry, the new products question that was asked previously.

As it relates to invoice accelerator I think you guys were in the market with a roughly 10% of the suppliers.

Do you see that pilot progressing in.

What sort of contribution do you think that could drive.

The results over time.

Yes, maybe I'll start and then Joe probably Brian to add some context to it.

So.

It's one of our fastest growing parts of our business, but still a small piece of the business.

As it relates to kind of growing the number of suppliers.

There is a couple of things that we're working on one is overall.

<unk>.

What I'll say is.

Doug.

We're getting across the different years of our flywheel to look at kind of the.

The scalability as well as how we're using the data across all the different ways that we.

Generate invoices to really get good at.

The data science.

Analytics related to how.

How we determine eligibility of invoices and so that is continues to be kind of a work in process that were.

We're testing on different pockets and suppliers, so we will dissipate increasing that.

Over the course of the year. The other element that we're just really excited about is the impact of the vast acquisition from a talent perspective of bringing us more talent.

Related to the DNA related to.

Actor and lending based on the historic capacity business.

And we're really excited to have the outlet malls teammates.

Floyd in our business I think they're going to be value added to.

Thinking about how we grow it was accelerate over time.

And I appreciate you taking my questions.

Thank you. Our next question comes from Brad Sills of Bank of America Securities. Your line is open.

Oh, great. Thanks, guys for taking my question.

Just wanted to ask about the upsell motion I know that bank talent core associates for software only.

Businesses with an opportunity to upsell digital payments.

That effort going.

Over the course of the year.

And then just how would you classify that in kind of go forward basis is that still an opportunity.

Yes, yes.

Maybe I'll just comment briefly and then pass it to Mike.

Remember that the <unk>.

There is an opportunity for us not just from the sort.

Sort of the software.

Software only customers that come to us via acquisition, but also does legacy.

Software customers.

Were acquired in the years before <unk> was introduced in 2012 2013, so so good opportunity for us and steady progression. So we're kind of pleased with the ability to continue to sell back to that base. So Mike anything you want to add to that.

Yes, and I think just in the last quarter, we saw a really good.

Growth related to some of those upsell opportunities across both raw and continue to see real estate as well as.

Within the financial services vertical.

And I think one of the.

The green shoots as we referred to it from a recovery perspective is starting to see the acceleration of the HOA vertical which really has been.

One of our political is probably the number one vertical impacted during COVID-19 .

And now see.

More wisdom across that vertical and we expect that the continued strong 2022.

Great to hear thanks, Mike and Joe one more if I may please.

We're calculating a take rate here.

<unk>.

Around 30 basis points, which is right around where you've been tracking recently.

Recently with the introduction of cross border coming should that change that or could that change that could we see the take rate go up just any any.

Color you can provide on what cross border could do to do that take rate over time. Thanks again.

Yes.

I think thats.

Great question, Brad So one of the things just to remind everybody in.

As today.

The LNG business and our <unk> verticals, we don't have large pockets of cross border demand.

Within our existing customer base and so this is really positioning us.

Future international expansion as well as other verticals and attracting customers that do.

That cross border need going forward.

So it's not like we're sitting on a.

A large stack of transactions that we're not monetizing today.

We expect that there will be some of that but not a meaningful number so it's really about our future.

Vertical expansion strategies, we will see the benefit of having a cross border product offering.

And so.

What I would say is that we expect to see continue to be kind of a.

Sure.

A slow buildup driver to our overall grow overtime, but.

But I would not expect the kind of sniffing.

Significant kind of one time.

Monetization once we release the product we're not expecting that.

Understood Super helpful. Thanks, again, Mike.

Okay.

Thank you. Our next question comes from Darrin Peller of Wolfe Research. Please go ahead.

Hey, Thanks, guys.

Congrats on finishing up your first year as a public company.

Mike I wanted to touch on the customer adds going from 7000 to the 8000 number and just maybe you can help us first of all I'll be clear on what was organic versus inorganic contribution of that.

And then really the driving force between last year and this year and what we can expect going forward in customer adds.

Whats embedded in your guidance and what are the biggest drivers in your mind and the value proposition that youre seeing the most traction with in terms of customers.

Joe maybe I can recall.

Some of those numbers questions and then kick it to Mike. So so yes, we did publish our update which we plan to do on an annual basis our.

Total counts of fire customers increase from 7000 last year to 8000.

At the end of this year and again when we look back over the year, we saw strength in real estate financial services also our bank channel and beginning to see kind of green shoots in the HOA.

Vertical.

As we kind of get on the other side of some of the caution exercised across the middle market given the pandemic.

Your question about inorganic organic contribution to core buyer count was included in the starting point and <unk>.

Fast pay just given the nature of the size of the customers added I think it was like less than 10%.

Of that increase attributable to faster.

Mike anything else you want to add to that.

Yes, so I think in terms of kind of drivers one of the things that were just.

Really excited about.

Historically.

About 60% of our new prospect demand Gen was driven by.

Person bounce.

Pre COVID-19 and.

The industry trade conferences user conferences and things like that.

And then obviously during COVID-19 it moved to 100% digital.

But we.

Do know that across the middle market.

The CFO is have been.

Probably more slowly than the small business market to adopt new transformative.

Allergies further back office and we.

We are excited about the return to in person events.

Again this year.

Pretty much every one of the accounting systems that we're deeply embedded with.

We plan to have an in person event. This year and so those are really positive for us in terms of.

That demand Gen focus.

So, although we had a great year in terms of the customer and we think that.

Dynamic demand Gen of getting back to more of a normal cycle of Bam.

Balanced between kind of in person and digital demand Gen is going to pay dividends for us as we come out of the corporate site.

Alright, Thats helpful guys I just wanted to follow up with the algorithm thats embedded in your outlook. When we think about the forecast for your 20% revenue growth rate the building blocks, including again going back to customer adds and maybe what's your where you are thinking about from that perspective versus where you are now on payment monetization versus.

Where that can be by the end of the year.

Or any other major drivers anything worth calling out.

Yes.

They are now.

I'll start off and Mike feel free to mop up but I mean so.

The question about the growth algorithm, so we've talked about.

Fairly consistent we feel like this is a good solid 20 plus percent grower over time, we have a number of levers available to us this past quarter, we expanded our.

Our revenue yield in addition to adding meaningful volume year over year.

Keep in mind I think we laid the groundwork when we gave guidance.

That Q4 was a little bit more of a tough compare in the year ago period, because of kind of the COVID-19 recovery. So if you are comparing kind of.

Under underlying growth rates, we're using for 'twenty two versus what we saw in the in the fourth quarter.

But I would just step back and say, we've got great revenue visibility when we enter the year most of that business is already understand those volume characteristics and feel really good about about the guidance we've put out.

Yes, I think when we think of kind of the lease.

You are the metrics that we're driving in the business.

Starts with you'll continue to see an increase that.

Transactional yield number that John referenced.

And then combined with just focus on total spend under management. So that was a combination of both.

New buyer customers, we're adding as well as the new supplier customers that we're adding to kind of make up that number.

And then probably the last one is just.

Kind of that net retention number.

And the big 107% and.

How do we can do to increase that number.

As we move forward. So those are the three.

Big metric drivers that we're focused on internally in terms of driving that growth up.

And it's a mix among them I guess, Bryan it's pretty balanced.

Thanks, guys.

Thank you. Our next question comes from Andrew Boss.

Smbs <unk> co. Your line is open.

Hey, guys. Thanks for taking my question I just wanted to check in on some of the underlying health of the verticals that you operate in.

Where are the verticals that you serve obviously there is clearly some supply chain dynamics that they are probably facing so anything you are hearing from your customers on the ground as far as as economic trends as we enter a pretty uncertain period for inflation and the like.

<unk>.

Yes, So let me just make sure I.

We got the question so just.

Whats going on in our vertical what conditions do we find here and how might that impact.

Our business as we move into 'twenty two.

I think if anything.

One thing that comes to mind is sort of the.

The.

To the extent that inflation is playing a role in these verticals and the need to kind of find ROI and efficiency in the back office that we think that could be a catalyst but.

Apart from that Mike anything vertical specific that you can comment on.

Yes.

I think.

Each vertical has its own little.

Kind of cycle that they operate in.

Going back up our four most mature vertical has been real estate each way construction financial services.

We expect really solid contributors and then.

Really excited about media.

And.

It's a new vertical for US is best acquisition and one of the unknowns.

For us this year is the impact of kind of the political cycle.

And the impact that may have within that media vertical.

Which is one that we're going to watch closely and then our other three.

Emerging verticals that are new in the last.

Call It 12 to 18 months.

Healthcare facilities, social services and education.

I think.

We are.

We're certainly seeing some.

Good growth opportunities, but they are the emerging verticals and they're new so I think we have a healthy balance of.

Going deeper within our mature verticals, along with the opportunities that we see in the emerging verticals.

And probably the most interesting one is going to be watching what happens in our media vertical.

The impact of the political cycle.

<unk>.

The media spending.

Steve.

Yes.

Great. Thank you and then one more question opt.

Additional types of features.

Yes so.

I kind of think of it is that were purpose built for the middle market.

And what is the purpose built for the middle market need is kind of a firm I kind of think of it as kind of five buckets. The first is our feature set.

I think the feature set is different for middle market than for small business or enterprise related to.

And then kind of approval workflow support for more sophisticated call center applications Geo coding.

Most of our customers operate with multiple accounting system. As an example, so the feature set related to.

The product itself is different and in many cases, it's somewhat new loans for the different verticals of the middle market.

Second big one.

Integrations right now.

You guys, probably heard me say this before but.

I'd like to turn around at different industry conferences with.

Both bill Dot com and the Cooper team because they really haven't easy from the standpoint of small business really integrates our quickbooks enterprise as they integrate the Oracle and SAP.

Maybe some JD Edwards workday.

And Meanwhile, in the middle market, we're supporting over 220 different accounting system integration and.

And growing.

Focus on the different verticals.

The third one would be the payment networks.

And so the payment networks.

<unk> is again.

Very focused in the middle market of supporting really.

Supporting the buyer customers aluminum market and the suppliers. They use so again, it's kind of a custom.

Purpose built for the Middle market and then you have kind of the go to market strategies.

And.

Within the middle market.

CFO is want to understand how.

Works for their particular business process within their industry vertical.

Historically intended user conferences and industry trade conferences to kind of interact with.

Partners, such as ourselves and and so that's a very different dynamic than say, a small business where.

Yes.

Actually a 100% digital process now our demand Gen.

Digitally in most of our sales process virtually.

Inside model, but you typically have.

More about.

Of a demo.

Solution consulting type of sales process.

And then the last one is just around incentive configuration.

The different dynamic workflow processes testing, all the integration or basis things of that nature that are very different so.

I think.

One of the best kind of stats or metrics.

They get that the complexion between the different markets is just average revenue per customer and so within the middle market. We see an average of over 50000 average revenue per customer.

Bill would say that number from them is about 500 and certainly for the enterprise side.

Because of the world, it's probably north of 500 pounds. So I think that gives that some of those differences between either the midmarket segment versus small business and enterprise.

Thanks, Mike I appreciate the color.

Thank you. Our next question comes from Tien Tsin Huang of Jpmorgan. Your question. Please.

For some of your prospects could it.

Just thinking about sales cycles in the sense of urgency for for these mid market companies to automate with avid does it change the storyline at all in your mind, Mike just curious.

The.

I think that's a great question and when we can.

Talk about that internally.

I think it actually helps our process from the standpoint of.

Yes.

It puts more pressure on companies.

Thinking about where they're adding people.

If they can.

Eliminate future ads through automation.

That is a positive driver.

We believe that.

But the expense controls and things of that nature. So typically even comes with.

Even more inflationary environment, we think it can be helpful. In terms of bank lines in our story.

Doing more with less.

One of the biggest characteristics that we have across our entire client base.

Customers is that they're able to grow without adding back office staff and so that message is one that we're certainly.

Evangelizing the marketplace, yes.

Mix makes great sense I appreciate that just my quick follow up and just thinking about your own expenses in your thinking around.

And again, we were pleased to deliver better than expected EBITDA results in the in the fourth quarter.

We do have a little bit of a widening loss no better than what we had previously anticipated and really what we have in our first full year as a public company as a couple of dynamics, one sort of that full first load of sort of public company readiness cost whether it's the SEC reporting side compliance side, a number of other things that were sort of kind of put in place late in late.

And midway through 'twenty one.

Where theres really meaningful scale as you sort of leaves <unk> 22, and the other thing that I would say is we really have a number of important investments.

<unk> been building from an R&D perspective back to investing all around a flywheel for the buyer and the supplier our platform readiness.

Great voice accelerator in things that drive down operating costs, our unit costs in support of that expanding margin. So hopefully that gives you a little bit of sense of kind of the investments we have on tap for 'twenty two.

Thank you both for the thoughts.

Yes.

Thank you. Our next question comes from Bryan Keane of Deutsche Bank. Please go ahead.

Hey, guys.

Just wanted to ask on transaction yield Joel when we look at it for the first three quarters of the year it accelerated.

Really actually the last at least the last four quarters, just looking at the slide and then this quarter.

Growth sequentially didn't grow as much as just moderated slightly and I'm thinking about next year as we build our models how much can we expect a more normalized kind of growth rate for transaction yield and any puts and takes when we look at it sequentially that moved the numbers around especially when we went from Q3 to Q4.

Sure, Brian Let me let.

Let me kind of take a crack at that question from a couple of different angles. So.

Yes, we were we were pleased for Q4 to your point sequentially. We saw a nice uptick in that yield is about 15 or 16 pennies in the sequential period. Most of that was based on just continued steady improved organic.

Sort of yield on the software and the payments side, so call it 10 or 11 of those pennies.

And then a smaller contribution through the combination of overall mix and then an inorganic.

Contribution as well so that's kind of the sequential on a year over year basis. We did have about 53 points of expansion about half of that being.

Mix and pay yield some of that is a little bit of recovery from the COVID-19 year keep in mind as you're thinking about the outlook.

For 'twenty two the other half of that would be inorganic contribution. So again, what we would guide is sort of steady.

Transaction yield expansion over time, just keep in mind, a portion of our expansion this year little bit of Covid benefit in the full year year over year, and then some inorganic but good steady.

Organic expansion both on the software and on the payment side hopefully that helps.

That's good.

Great and just as a follow up I noticed that the suppliers jumped paid via network I think it's 825000.

The last time, we saw that number was 700000 plus so.

Just thinking about.

How much of that is organic and then and then growing that going forward is that still something that can scale up the kind of rate we've just seen.

825000.

Yes so.

Brian Good question I'm glad you asked that question because I didn't have a chance to comment on that earlier.

It's all 100% of our inorganic so one is higher growth is all organic.

And I think it's a real testament to our strategy.

<unk> that we're using to how do we continue to penetrate.

The approval will pay for Jack.

Suppliers into.

Accelerated that conversion to.

Have them, beginning something were trying and payment methods.

And so one of the things that we are.

Really working to do this year.

A benefit of some of these new partnerships that we've put in place.

<unk> Keybanc.

Data as it relates to giving us more flexibility.

Great.

Payment types.

As well as.

Configurations are different forms of a virtual card as well as our <unk>.

Our unique value proposition that maybe particular too.

Subset of suppliers that.

That we can continue to do.

Dynamically manage.

So we're very focused on whats the right value proposition.

Along with the right price point.

<unk> allow suppliers to make that move from paper to electronic.

And I think we're certainly seeing the impact of that in the growth of our supplier base.

So we expect that we're going to have more tools in our arsenal going forward.

These new partnerships.

No that's great congrats on the execution.

Thanks.

Thank you. Our next question comes from Josh Beck of Keybank. Your question. Please.

Yes. Thank you so much for taking the question I wanted to ask a little bit.

<unk> sales cycles, and what Youre seeing there Mike earlier, you mentioned that as you go back to in person that's been a really important lead gen.

Prior year's pre Covid. So I was just kind of curious if.

That could help the sales cycle, if you could bring in more leads just what could be some of the tailwind from from seeing more in person.

So maybe I'll answer it.

Two buckets one is.

When somebody raises our hand.

The sales process that would exchange.

That has remained.

Remarkably consistent.

Across really all of our verticals, that's typically a 60 to 90 days sales process.

Is that we've seen.

We executed and that's been fairly consistent.

The big opportunity is that we see going forward is.

Getting back to the <unk>.

The lead originally comes from and having it.

Move more towards the balance of <unk>.

Person advance.

Compared to being 100% digital.

I think we delivered the results that we did last year.

100% digital.

Environment through most part and.

For example, pre Covid.

We attended about 100% bounce on an annual basis.

During COVID-19 that went too close to zero.

And this year the team anticipates up covering about 80 of those type of events, so that return too.

Kind of more of an in person balance we think is going to pay dividends in terms of accelerating the top of the funnel and increasing.

Our demand Gen efforts by <unk>.

Having a nice balance between digital and.

These in person events.

Really good to hear about the calendar for this year.

I wanted to maybe a follow up question for Joel just just thinking about the 24 breakeven it doesn't sound like this year has a lot of.

Newer product contribution if you will when we think about invoice accelerator in cross border I think once we start to look out further perhaps that's a bigger factor.

Should we be thinking about those types of products is additive to the contribution margins given that it is probably already an existing customer.

Any color you could offer us.

On those points.

So.

Here's the way I would here's the way I would sort of take a crack at answering that Josh we pointed to kind of exiting 'twenty four on an EBIT breakeven basis, we also talked about.

22, largely good visibility and not meaningfully dependent on new products, but as we move from here through the <unk>.

Next few years, we expect to see continued.

Revenue yield.

And unit cost improvement as we move from kind of lower <unk> upper <unk> approaching that 70% gross profit and some of that is driven by investments, we're making around the flywheel. So for example, we do expect to continue to add value to both buyers and suppliers, we expect that payment.

Payment mix to continue sort of step up I think over the sort of multiyear view we think.

Sort of a steady growth in that TPB yield.

As reasonable things like IAA to your point small today, but we expect growing in the next few years, so those things to add.

Continue to support revenue growth, but also add.

Kind of gross margin expansion as well.

And those new products that you referenced play a more meaningful role as you get into 'twenty, three and 'twenty four.

Very helpful. Thanks, guys.

Thank you. Our next question comes from Brent Price Lynn Piper Sandler. Please go ahead.

Software in 2021, and so what are you kind of baking into the guide it looks like slightly tougher comps on payments in the coming year ahead, but would love any color you can give us as you think about.

What of what grows faster in 2022, just given that.

The two different trends, we saw in 2020 one.

You bet, yes.

A fair call out and it's safe to say that we do expect to see.

Payments growth to slightly outpace that that software growth again number of opportunities to drive that including some of the.

The important partnerships that drove that shift.

Whether sort of.

Rio page concur, and otherwise and so we sort of see that continued.

Sort of payment growth being slightly ahead of on the software side.

Super helpful. There and then Mike as a follow up you talked a little bit about one of the levers being this conversion from paper based checks to digital payments.

What are the levers that you're thinking about that could accelerate the conversion I know in the past you talked about the mid market customer actually using the paper check as part of the workflow part of the business process and those are hard things to change but was just curious.

Are you thinking about the levers there to potentially help customers accelerate that conversion from paper to digital and any thoughts there would be helpful. Thanks.

Yes no.

It's a great question Brandon So so first of all.

Within kind of our product.

Product investment area.

Our view, we call cash flow measure of tools that are being released this year and with that.

Focus on increasing the value proposition.

Our customers.

And so that incorporates.

Tools might have better visibility to their.

Invoice and payment status as well as.

Access to invoice accelerator, so that'll be a continued focus for us.

But probably the biggest component is going to be.

<unk> continued to create new different types of payment modalities both.

And virtual cards wells around page ranch, where we.

Different types of delivery.

Women's data informatics that suppliers are looking for at different price points.

And I think that combination of increased number of payment modalities.

Is focused on finding that right mix of value proposition. So kind of a combination of those factors is what we are excited about what we're seeing kind of the impact on growing the number of suppliers that we have on that one.

It sounds good great to hear thanks for answering my questions.

Great. Thank you. Thank you. Our next question comes from Timothy Chiodo of Credit Suisse. Your line is open.

Great. Thank you everyone I wanted to touch on something you've mentioned as a few other times it might relate to some of the strong supplier growth that you've seen you talked about with Mastercard your relationship with them and the ability to create more custom or more flexible interchange structures. I was hoping you could just talk around the mechanics of that how does that come up is it a certain.

Vertical of suppliers that maybe have really high ticket sizes, what are the discussions sound like and then of course I'm. Assuming the result is more electronic payments volumes for you more willingness to accept the interchange rate from the supplier and it's sort of a win win all around.

Yes, I think.

You've got the punch line right.

The tactics are looking at what would be.

Yes.

The characteristics in which.

The supplier would move from paper checks to electronic payments that they would pay for.

And have it be offset with the value proposition.

And.

One example is that we just recently worked with large fruit.

<unk> company, who historically.

The $2 52.

260 basis point.

We ended the interchanged and worked through their cost structure.

But we were able to agree on a 140 basis points too.

Create a straight through process that it was 100% kind of on a reconciled through our strategy process have been required.

Human intervention on their end to accept the payment and for that efficiency.

We had to pay 140 basis points for that.

As a perfect example of how we're working to configure different interchange levels along with them.

New proposition in terms of how suppliers either.

They are trying to convince data to create an efficient process on their side.

And.

We're seeing great examples of that across different segments of suppliers in late it's going to be one of those levers that we use to continue to drive.

Today, we're roughly at 40% of all the transactions that go through the MLP network, where we monetize and how do we continue to drive that upwards over time.

Okay excellent thanks, Mike and if I could squeeze in this one last one I know this topic came up numerous times.

Around inflation I'm, just wondering did you guys put a finer point on just around your inflation assumptions for the fiscal 2022 guide or should we just assume that it's not much and if you continue to see inflation then.

Perhaps there is a degree of conservatism baked in.

I would.

Tim I would say the latter maybe to the exclusion of that Fray.

So like.

Again, we do see some variability in the average payment sizes and we have seen some very recently.

A number of drivers Mike mentioned, the inclusion of a SaaS given the media segment with higher payments.

And some shift around payment modes et cetera. So.

To some degree it may be at play in to that degree it would be factored in our aggressions that give us the projections for volumes for next year. So it's.

I just would point out that it is meaningfully significant at this point.

Okay very helpful. Thanks, a lot.

Thank you and at this time I would like to turn the call back over to Mike Prager for any closing remarks, Sir.

Thank you I just wanted to say thanks to.

Our our analyst community.

Great questions.

We're excited to you.

Complete not only our second earnings call as a public company, but also our first full year.

<unk> 2022, as we move out of the.

The Covid overhang and starting back to you more about.

Normalized business environment for our middle market customers and excited to spend time with you on a quarterly basis going forward so with that.

Later, I think we're ready to close the call.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating.

May now disconnect.

Q4 2021 Avidxchange Holdings Inc Earnings Call

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