Q2 2022 Avidxchange Holdings Inc Earnings Call

August 3, 2022

Good evening, everyone and thank you for joining us for the avid Exchange Holdings, Inc. Second quarter 2020 earnings call joining us on the call today is Mike Prager avid exchange co founder and Chief Executive Officer, Joe Wilhite avid exchanged chief financial Officer and to pass Kumar I haven't exchange head of Investor Relations.

Before we begin todays call management has asked me to relay the forward looking statements.

Maybe that is included at the end of today's press release. This disclaimer emphasizes the major uncertainties and risks inherent in the forward looking statements. The company will make this afternoon.

Please keep these uncertainties and risks in mind as the company discusses future strategic initiatives potential market opportunities operational outlook and financial guidance. During today's call. Also please note that the company undertakes no duty to update or revise forward looking statements. Today's call will include the discussion of non-GAAP .

Measures as that term is defined in regulation G. non-GAAP financial measures should not be considered in isolation for them from or as a substitute for financial information presented in compliance with GAAP. Accordingly at the end of today's press release. The company has provided a reconciliation of these non-GAAP financial measures to financials.

In accordance with GAAP.

With that I would now like to turn the conference over to Mike Prager. Please go ahead.

Thank you everyone for joining us today, Joe Wilhite and I are excited discuss avid exchanges second quarter 2022 results and the continued momentum we are experiencing across our business driven by our middle market focus and the board throughout the years of our avid exchange business flywheel that drives our business over.

We're all we once again delivered on another standout quarter of both operational and financial performance results came in better than our expectations. This is now the fourth consecutive quarter of over 20% organic revenue growth. These positive results reflect the middle market steady demand for avid exchanges value proposition of industry leading.

And differentiated business the business accounts payable automation software and payment solutions that are purpose built for middle market companies.

Our solid customer transaction retention rate supported by our middle market spending trends survey that we recently published provides further validation and highlights why our value proposition takes on even greater significance as our customers look to avid exchange in assisting them in driving improved productivity and efficiency across their opt.

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Let me now provide a high level financial recap of the quarter, we experienced strong revenue performance of over $76 million, which was up over 30% over the same period last year, coupled with increased operational efficiencies as evidenced by our higher non-GAAP gross margin approaching 64%, which led to a lower adjusted.

EBITDA loss of just $4 7 million in the quarter. As a result, we are raising our full year revenue outlook, while lowering our adjusted EBITDA losses relative to our previous guidance by the Q2 outperformance, which Joel will discuss later in today's call.

Let's take a moment to discuss the general business conditions as we look at our business from the top of funnel perspective, we continue to have good line of sight into the underlying trends based on all the leading indicators, we track opportunities deal size close rates et cetera relative to our demand engine that generates new buyer.

Supplier sales opportunities, we are very encouraged by what we're seeing to date.

Which leaves us cautiously optimistic heading into the second half of this year and beyond.

Typically we're seeing broad based growth in terms of opportunity creation and opportunities closed across the real estate and HOA vertical as well as our horizontal channels.

We have not seen any significant changes the deal size or slippage and close rates when measured on key markers of 30, 60 or 90 days.

Similarly, Onboarding go lives and our 90 day certification rates on invoice volume remain essentially right on target in short we're highly encouraged by the good visibility, we're seeing into the underlying trends driving our business.

Our story on the operational front is one we're also making the right strategic moves with our team doing a nice job of executing our playbook. We are clearly delivering strong margin performance and cost leverage in Q2, one major milestone achieved was the migration of our infrastructure and hosting from the avid exchange private cloud.

To Microsoft Azure public cloud.

It is an undertaking that kicked off in June 2021, the migration to Azure, which is now complete is expected to provide us with numerous benefits, including world class security and conjunction with on demand scalability across our operational value chain, including invoice intake payment delivery customer success et cetera.

We're employing various strategies to drive value realization through workflow standardization sourcing digitization and process automation, which should drive significant medium and long term benefits.

In terms of cost speed quality and risk mitigation within our operations and similarly, we are closely managing our expenses by better leveraging our opex spend and experienced the early evidence of this in our second quarter 2022 results.

All of these efforts provide us with a glide path to continue on our gross margin trajectory both in the near term and in the long term to achieve adjusted EBITDA breakeven, which we have accelerated and are now projecting for the full calendar year 2024 versus our earlier expectations around exiting 2002.

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Now as we've done in the past I will use the four years of our Abbott exchange flywheel to provide an update on some of our initiatives and metrics that we are excited to highlight for you.

And given number one which is delivering great accounts payable and payment automation software experience to our buyer customers, we announced the launch of our next generation procurement and purchase order management tools, which also includes a three way invoice matching capability in the first quarter of 2022.

Excited to report back that this offering is already off to a very strong start and is exceeding our expectations.

We launched with a dozen clients in the later part of the second quarter and have already seen close to a three fold increase in our demand pipeline. What is really impressive about the launch is that over 85% of the clients that went live were net new customers a major validation of the growing number of middle market customers looking for.

These type of expense controls to better manage their purchasing.

California based a bond a restaurant solutions is one of the many new early adopter customers, who has embraced our <unk> solution.

As a provider of equipment design and kitchen solutions to the foodservice industry across the U S and Canada Avant they've worked with a large network of suppliers, who provide everything from metal parts ice machines to walk in freezers and the ventilation systems.

With multiple job orders being filled avanti needed to ensure information and amounts for orders were accurate with our <unk> solution that can now take the purchase order and make sure. It matches not only invoice, but also matches the payment to the vendor.

This has reduced the manual work saving them time, and most importantly allowed them to focus on what they do best which is helping their customers build their foodservice operations.

With customer references such as the bonds. They are product launches set to build on an already strong customer close rates with key strategic referral and reseller partners, who have also seen increased customer demand for this type of functionality across their middle market customer basis.

Now turning to gear number two the combination of delivering a great accounts payable and payment automation experience along with built inside integrations as a positive catalyst for new buyer customer acquisition, which drives new suppliers, joining our platform, which in turn maximizes the number of transactions on our platform is because of your number one.

The positive customer experiences, we create that we were able to land new buyer customers through our direct sales strategy, which represents around three quarters of our buyer customer acquisition channel mix.

It is also because of the sheer number one that we are able to build on our already robust referral and reseller partnership ecosystem further diversifying our efforts to win new buyer customers.

An example of this that we've highlighted during our last earnings call was with a major preferred strategic partner agreement and the real estate vertical with resident and industry, leading and rapidly growing multifamily real estate property management and accounting systems software company with a base of over 700 real estate customers.

And this quarter, we're happy to report that K IRI, a multi state multi location full service real estate company based out of Ohio that uses resident's property management software and was exploring accounts payable automation of payment solutions has selected avid exchange over our competitors offering as a result of the companys trusted.

Our relationship with our business.

As founder and President and Ken <unk> said, we wanted to go with a premier accounts payable player in the real estate space and we chose avid exchange because of the feature set of its offering deep domain knowledge of our sector and overall industry leadership.

Additionally, in light of our outstanding partnership efforts I am pleased to announce that in the quarter, we executed several new and notable relationships with key players in the market, including <unk>, a leading fast growing horizontal cloud enterprise resource planning or ERP software provider <unk> of both more than 8000 customer spending.

A large total addressable market base.

With this partnership we are positioned well to not only deepen our penetration in existing verticals, but also establish beachheads across other industries that <unk>, which includes high tech business services retail and manufacturing companies. We also announced a referral partnership with member driven technologies or MDT.

To extend our leadership position into the credit Union vertical market.

Under gear number three of our avid exchange business flywheel, which is focused on maximizing the conversion of paper checks to electronic payments with our suppliers.

In the quarter, we grew electronic payments by around 20% faster than the growth of our overall supplier network. This highlights the power of our two sided network and our value proposition around the supplier customers I wanted to also underscore how our straight through process supplier offering or STP as we call. It effort has progressed.

We recently launched our STP offering.

And in fact shortly after the launch we doubled the number of suppliers on STP. The same time the number of monthly payments and spent facilitated by STP is also double we are working on some big initiatives around STP and look forward to sharing the success of those initiatives with you in the future.

As we said during our last earnings call SDP scalability and reliability is almost transformational for our suppliers and should serve as a powerful catalyst for further conversion of paper check suppliers to become E payment acceptance.

And finally, our gear and number four is leveraging our vast spending and payment data to drive increased value across our networks.

The key to driving success here is listening to our customers.

For the launch of our avid pay network in 2012 to cash flow manager to invoice accelerator and most recently with avid analytics. The voice of our customer has been an important ingredient in fostering targeted innovation. We recently held our annual customer Advisory Board meeting in Charlotte with our most influential customers are first.

In person can meeting since 2019 due to Covid brings.

Bringing together customers across our vertical markets together with senior leadership and our product teams. This is a very important and special occasion for us to have these customers on site as they represent the top decile of our customer base provide great references and do a nice job of evangelizing the impact of Abbott exchange across the middle market.

Our key verticals.

We heard during these two days is worth sharing with you.

These customers, we're absolutely excited about the launch of our STP offering for virtual car transactions, which allows them a faster and more secure way to pay their suppliers with our various forms of virtual card offerings. Another area was on our protocol product roadmap, including all the initiatives that we've discussed on this call and in prior calls.

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What was particularly powerful and heartening was that so many of our customers view avid exchange as an extension of their brands within the markets that they serve.

As we have a value proposition that makes our two sided network a powerful for us and high impact solutions for both our buyer and supplier customers.

In closing we delivered another set of solid across the board financial results driven by the power of the avid exchange business flywheel I want to thank our team members for their hard work and dedication in driving these results.

We are a mission and performance based culture, which enables high employee engagement retention and focused execution.

It is also a reason why we're able to attract talent and avid exchange was recently certified by great place to work, which is a global authority on workplace culture employee experience and leadership behaviors taken together with our solid balance sheet and a large total addressable market exceeding $40 billion just in the U S alone.

We are excited about our outlook as we exit the year and are well positioned to sustain our operating momentum given the pace of innovation across our platform and the strength of our product suite as evidenced by the four years of our avid exchange business flywheel.

With that I'd like to turn the call over to my partner Joel Wilhite Joel.

Thanks, Mike and good evening, everyone I'm excited to talk to you today about our strong second quarter 2022 financial results, which reflect continued execution of our growth strategies, leading now to two consecutive quarters of positively revised 2022 guidance.

Overall, we delivered another quarter of solid financial performance, our second quarter 2022 revenues came in better than our forecast driven by higher total payment volumes.

That together with better operational efficiencies and lower expenses contributed to a lower than expected adjusted EBITDA loss in the second quarter of 2022.

Total revenue increased by 33% to $76 6 million in Q2 over the second quarter of 2021.

Organic revenue growth, which excludes the contribution of our fast pay and pay clearly acquisitions, which closed in July 2021, and January 2022, respectively was 22, 4% organic growth was primarily driven by the addition of new buyer invoice and payment transactions, which increased.

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A quick call out related to fast pay and pay clearly many of you who are new to the avid exchange story, particularly those overseas have asked is how to model. These businesses as a reminder, both fast pay and pay clearly our media advertising books of business, but are disproportionately weighted toward both the midterm and presidential.

<unk> cycles in the U S. While we are not guiding to 2023 numbers. It's worth noting that 2023 has neither the U S. Mid term nor presidential election benefit we believe that our transparency on organic revenue growth should better inform you on the strength of the underlying business.

Back to Q2 'twenty two financial results are strong revenue growth also resulted in total transaction yield expanding to $4 42 in the quarter up 15, 1% from $3 84 in Q2 2021 over half of the increase was associated with <unk>.

Mix and payments yield expansion with the remaining half being inorganic contribution.

Software revenues of $24 2 million, which accounted for 31, 6% of our total revenue in the quarter increased 11, 8% in Q2 of 'twenty two over Q2 of last year software revenues include approximately $100000 of contribution from fast pay the increase in software.

Revenues was driven primarily by the growth in total transactions of roughly 13, 2% in the second quarter.

Payment revenue of $51 6 million, which accounted for 67, 4% of our total revenue in the quarter increased 41, 5% in Q2 of 'twenty two over Q2 of last year, excluding fast pay and pay clearly, which together contributed $4 $5 million in the quarter.

Organic payment revenue growth was 29% the increase in payment revenues was driven by the growth in total payment volume was 36% and 39% excluding fast pay and pay clearly.

On a GAAP basis gross profit of $42 $9 million increased by 37, 6% in Q2 of 'twenty two over the same period last year, resulting in a 300 basis point improvement in gross margin for the quarter to 56% non-GAAP gross margin increased 270 basis.

Points to 63, 7% in Q2 of 'twenty two over the same period last year driven by a combination of increased total transaction yield in the quarter continued operational efficiencies and the contribution of previously discussed acquisitions.

Moving onto our operating expenses.

On a GAAP basis total operating expenses were $68 8 million an increase of 33, 4% in Q2 of 'twenty two over Q2 of last year, driven by head count additions to support our growth initiatives increased expenses in our transition to become a public company and the recognition of noncash stock.

Based compensation costs.

On a non-GAAP basis operating expenses, excluding depreciation and amortization increased 28, 9% or $12 million to $53 4 million in the second quarter of 'twenty two from the comparable period last year I'll now talk about each component of the change in operating expenses on a non-GAAP basis.

non-GAAP sales and marketing cost increased by $4 7 million to $19 1 million in Q2 of 2022 over Q2 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 fast pay and <unk>.

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non-GAAP research and development costs increased by $4 5 million to $17 9 million in Q2 of 2022 over Q2 of last year.

The increase was due to continued investment in our products and platform along with the inclusion of fast pay and pay clearly.

non-GAAP general and administrative costs increased by $2 8 million to $16 4 million in Q2 of 'twenty two over Q2 of last year, driven largely by expenses associated with our transition to become a public company along with the inclusion of fast pay and pay clearly.

Our GAAP net loss was $25 $7 million for the quarter versus a GAAP net GAAP net loss of $22 million in the prior year period with the comparable increase primarily driven by the recognition of noncash stock based compensation costs, resulting from our transition from a private to a publicly traded company.

On a non-GAAP basis, our net loss in the second quarter of 2022 was $13 $7 million.

Down $1 2 million compared to the year ago quarter on solid organic revenue growth combined with ongoing operational efficiencies and expense leverage.

On a non-GAAP basis, adjusted EBITDA was a loss of $4 $7 million in the quarter of 2022 compared to a loss of $5 6 million in Q2 of 2021 due to the aforementioned factors.

Turning to our balance sheet for a moment I want to touch on a few key items. We ended the quarter with a cash position of $511 1 million. The cash is split between cash and equivalents of $363 $3 million, which is in a combination of demand deposit accounts and money market funds.

The remaining $147 $8 million isn't a basket of financial instruments, including Treasury bills in commercial paper with a weighted average maturity of roughly 75 days the weighted average interest rate on our corporate cash position is roughly 60 basis points, our outstanding debt balance at quarter end was one one.

Third $27 $7 million out of our $133 $5 million credit facility.

I'll now move on to our updated full year 2022 guidance in light of Mikes cautiously optimistic commentary about the opportunities and initiatives, we continue to see and execute across our business. We now expect total revenue for the year to be above what we previously provided and in a range of 308 to 310 million.

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We are also adjusting our non-GAAP adjusted EBITDA expectations lower to a loss between 27 and $29 million.

In summary, we delivered strong second quarter, 2022 financial and operating results and our momentum to date is very encouraging, particularly our accelerated path to adjusted EBITDA breakeven.

Now I'd like to turn the call back over to the operator to open up the line for Q&A.

Operator.

Thank you we will now begin the question and answer session.

To ask a question you May Press Star then one on your Touchtone phone.

If youre using a speakerphone please pick up your handset before pressing the keys.

To withdraw your question. Please press Star then two manner.

Management has asked that each participant kindly limit his or her initial question to one and at this time, we will pause momentarily to assemble the roster.

And our first question today will come from Dave Koning with Baird. Please go ahead.

Yes, hey, guys, great great quarter.

And maybe I'll kick it off yeah, yeah, sure and maybe I'll kick it off with just the payment revenue accelerated so much.

And just kind of wondering the yield on volume looked like that really kicked up a lot too and maybe can you talk a little bit about just the sustainability of the strong payment growth and then the <unk>.

Yields looked like it was up 2% sequentially, maybe talk to why that is too.

Yes, maybe ill.

And just start that off so Dave I think you are.

On the on the payment volume again, 36% overall total payment volume growth in the quarter.

Really a part of the overall, 30% growth we were pleased with that again like Mike said.

In his remarks, four quarters in beating and raising and a couple of quarters increasing.

Increasing our expectations for 'twenty two.

Yes.

Part of that obviously is driven by the payment volume growth and yield also.

Slightly better again, we've said before I think we're a basis point out.

And what we would say is that really is industry, leading monetization overall and really where there is a huge opportunity for us going forward. So we're pleased with the basis point out, but really wouldn't read a lot into basis points, plus or minus quarter to quarter, but but definitely happy with the outcome in a really powerful revenue driver for us.

Alright, Thank you and maybe just a quick follow up just you made a comment about the political spending driving the acquisition I think you said acquisition contribution and $4 6 million in the quarter, maybe could you parse out like how much of that is sort of nonrecurring year to year from.

Political just so we can kind of get a sense of how much of that $4 million to $5 million a quarter kind of goes away next year.

Yes, So let me answer let me answer it this way so in the first half I think Q1 Q2 were about $8 million in total inorganic.

And we did talk about in my remarks, just sort of managing expectations that.

Fast data that they clearly.

Acquisitions resulted in media books of business, a portion of which.

Is tied to political cycle of that $8 million in the first half about $3 million is associated with political revenue in particular, and we would expect that to tick up in the back half of the year again, the thing that I would sort of add.

As I wrap up that answer is.

This is a new business for us.

We're kind of getting.

Being careful and prudent in how we manage expectations around the political cycle. This will be the first one owning the SaaS DSA clearly business, but hopefully that gives you a little bit of color.

Yeah, that's great and great job.

Thanks, Dave.

And our next question will come from Ramsey El <unk> with Barclays. Please go ahead.

Hi, gentlemen, thanks for taking my question.

I wanted to ask about gross margin it came in quite a bit better than our model I think you might've mentioned operational efficiencies as a driver in your prepared remarks, Mike but.

Could you comment on whether there were any sort of onetime items in there or if that's the level, we should kind of use as the baseline from here.

Yes, maybe let me just make a comment again, we've pointed to gross margin that's just.

Really important metric that we see moving over time on our path to EBITDA breakeven.

Did kind of exceed our own expectations again, one of the things that I would point to.

We've talked about being really focused on those operational efficiencies and really focused on those unit costs. We also were clear as we entered the year that we had a really important data center migration to make which we successfully completed and really really.

I'm happy to see that in our rearview mirror and ended up with just.

De minimis kind of duplicative cost debt that we thought we might incur and so little bit of upside there, but we're pleased with the margin result, and feel like we're well on our way to our path to that 70% ZIP code at the breakeven point.

Alright, great. Thank you.

And our next question will come from Andrew <unk> with <unk> Nikko. Please go ahead.

Andrew are you there.

Perhaps youre right.

Yes.

Yes. Thanks for taking the question just wanted to touch upon the comments around EBITDA and the outperformance in the quarter.

How much of what.

You be relative to the street expectations were.

Things that are sustainable for the longer term if I heard you correctly.

You said that you would be turning EBITDA positive sooner than we originally.

Anticipated is that in part due to the outperformance in gross margins because I know a lot of that stuff falls to the bottom line.

Yes, So let me just kind of.

I think I'm tracking, but let me just orient back to kind of the last time, we spoke about our path to profitability we talked about.

Exit 24 in the first quarter and what we've done is revised that now to be the full year calendar 2024 year and remember we described it the way we get there would be really across all of the.

Sort of revenue and expense line, so continuing to grow revenue expand that yield on revenue and then as well seeing gross margin expansion between where we are now into sort of mid to low <unk> on the way to that 70% ZIP code I think we also talked about seeing scale in the G&A line followed by.

Kind of R&D and what I would say is that we're continuing to focus on the investments that we're making in the business for growth all around the flywheel, both for buyers and suppliers, but we're also really focused on expense discipline and just being careful there and so we're certainly seeing the benefit of that flow through to EBITDA gives us confidence in that.

Breakeven guidance that we revised forward.

Yeah.

Yes, Andrew this is Mike in the bigger with Joel said is I would say there is.

Certainly renewed mindset that we're having in the current environment related to just raising the bar unrelated to R.

Roy on every investment that we're making.

Being laser focused on.

Those initiatives that matter in terms of our growth levers for the future.

As well as on the people side to make sure. We're prioritizing those important people to drive our business.

Understood Congrats on a solid quarter.

Thanks.

And our next question will come from will Nance with Goldman Sachs. Please go ahead.

Hey, guys. Good evening I appreciate you taking all my questions.

Yeah, Brian the topline at 30%, Mike I know you've talked about closer to 20% longer term a lot of that's coming from payments and.

It seems to be kind of right in monetization and payment volume.

Rather than kind of core customer growth. So I'm just wondering when you talk about sustaining the operational momentum that you guys have.

How much room is there to go.

What kind of gives you the confidence to say you can kind of sustain at more elevated levels and should we think about something like 30% as more reasonable in the near term.

Yes so.

I think I'll provide maybe a little context to the kind of.

Inorganic versus organic kind of growth rates, but I would say is that we're really seeing the kind of the.

The early stages of the flywheel really working.

And it starts by the retention numbers that we have related to retaining those transactions on the network and then it goes to the new customer by your customer adds.

And that's where we're seeing some really encouraging top of funnel activity, probably the strongest you know top of funnel since 2019.

And then the third element is that conversion rate from paper to electronic.

We had an all time record quarter this past quarter in terms of.

New monetize suppliers that we added to the network.

And then kind of the.

The fourth year is around how we continue to monetize these transactions through our invoice accelerator offering which is still in its very early stages. So when you look at kind of our flywheel I would say that we have lots of room in all four years of our flywheel.

And really highlighted by still that big opportunity of 55% of our payment transactions are still paper checks and the opportunity to convert those electronic and then certainly in was accelerators.

Still kind of startup stage.

Anxious to get out of the garage and we're excited to.

Really see that offering take hold next year and into the future.

Got it Super helpful and just on the last one on payment monetization I was wondering if you could give us kind of an update of what the penetration rates look like for virtual card and avid pay direct in the payment volume in the quarter.

Yes, I think.

Youll still consistent.

We're monetizing about 40% of the transactions that go through the network.

Roughly two thirds of those are through virtual card about a third through.

Our Abbott pay direct offering.

And I would say that's consistent and we're seeing we are seeing some growth there.

But also we continue to add <unk>.

A large number of new buyer customers, which bring suppliers with them. So we continue to add to the backlog of paper check suppliers with every new.

Then we add.

But as I indicated.

I think the end of the prior questions.

Had an all time record quarter related to suppliers being added to the network in terms of monetize suppliers being bolt on virtual card and Apple pay direct.

Got it I appreciate all the color.

No happy to.

And our next question will come from Bryan Keane with Deutsche Bank. Please go ahead.

Hey, guys. Thanks for taking the question I just had two clarifications I noticed software revenue growth.

Slowed a little bit from last quarter.

And then secondly on the adjusted EBITDA beat it was it was well above expectations at $4 6 million loss. If I just multiply that by four you're going to get to about $19 million loss for the year you guys are still guiding 27% to <unk> 29 loss. So.

Is there some cadence in there that there would be.

Wouldn't stay on the same trajectory that it maybe the loss would be greater in the second quarter or just trying to figure out the cadence of that thanks, Yeah. Thanks, Brian Let me take your questions in reverse order. So just on the EBITDA again, we were sub $5 million EBITDA loss on $76 million that was we were really pleased with that outcome.

I feel like that's the result of.

We're continuing to expand the transaction yield.

Yield we're continuing to take sort.

Sort of unit cost out and just being Super disciplined while also investing all around the flywheel I think what I would say is.

In the guide relative to the math Youre doing one thing to keep in mind as we are meaningfully ahead, both top and bottom line relative to kind of some incentive structure. So baked into the back half of the year guide, there's separately inbox associated with getting that accruals squared away.

And otherwise we do have that kind of political book of business, we're being cautious about kind of how we think about the back half, but otherwise well on our way to that path to EBITDA breakeven.

Maybe the first question you asked was kind of software revenue growth again.

Pleased with the outcome, 30% overall revenue growth year over year, I wouldn't read a lot into the sort of quarter to quarter sequential movement. Some variability based on kind of non usage software revenue remember in a couple of our acquisitions.

And then there is potentially some channel mix at play there as well where for example, some really big opportunities we have through the bank channel and otherwise there is there is a sort of a.

Per unit rate arbitrage there. So pleased with the overall result feel like we're really on track again, Mike talked about the strength of the top of funnel coming back.

Pre COVID-19 sort of excited about the results and confident in the guidance.

Great helpful. Thanks for taking my questions.

You bet.

And our next question will come from Brad Sills with Bank of America. Please go ahead.

Oh, great. Thanks, guys for taking my question just one clarification and then just one one question on the business.

What was the organic TPB growth rate this quarter and last quarter. I think you said, 29% organic this quarter, if I heard right I'm curious what that was last quarter and then my real question is just on the resilience of TPB heading into the macro slowdown.

What are the puts and takes we should be thinking about of just customer spend volume.

As we go through some choppy quarters ahead.

Okay got you. So let me let me take a crack at your first couple and then.

Maybe Mike will double team with me here. So I think your question leading off was the organic either TPB or transaction growth I can give you those details for this quarter, yes, it's about 39, so right at 31% of that 36% is.

It's purely organic I think you also asked for the what was it last quarter, maybe it will get to that.

Well, while I pull it up maybe Mike you want to take the second question yes.

The second one really is around kind of but I would say the resiliency right.

Continued results.

Perhaps heading into more kind of choppy or economic times and.

Obviously this is something that we.

Turning to look really closely at.

We've recently.

<unk> are middle market spend report, which is designed to get at.

You don't make public trends that we're seeing and I would say that consistently with across the middle market.

Seeing pretty healthy dynamics.

Typically the middle market has been more resilient than say the small business segment.

And we typically see 80% plus of our customers grow with us each year.

I think if you would ask.

In the Chop your times, where would we see kind of tailwind is maybe as well as headwinds and I think in the past when we were a software company.

This is our first economic cycle with the payment network.

Down in the cycle with a payment network, but as a software company, we actually benefited.

In recessionary times from an increased demand for automation.

Of their AP and payment processes.

And we believe that we will also see an acceleration of supplier adoption in terms of that conversion from check to electronic payments, mainly because small business suppliers want to get paid faster.

On the headwinds I think where we would see it.

Potential headwinds first would be.

Payment volume and average payment sizes.

Again, historically the software company, we've seen relative consistency invoice volumes.

Yeah.

In past cycles, but we do have the benefit of having some great leading indicators.

And thats on a purchase order and invoice volumes, which typically become payments in 30 to 60 days. So we have some great leading indicators.

Together, they can advance insight if we should see some.

Headwinds facing the business, which today, we have not seen any today and.

And Brad just to circle back on the Q1 organic.

PV growth that was 35, 6% of our 45 last quarter.

Thanks, So much Joe Thanks, Michael.

You bet.

Okay.

And our next question will come from Brent <unk> with Piper Sandler. Please go ahead.

Thank you for taking the question good afternoon, Mike.

Trying to square the feedback from the customer Advisory Board, where you talked about virtual cards kind of standing out to them, particularly given just.

Overall mix of check is still very high so.

I guess two part question one was the yield tailwind this quarter, primarily driven by mix shift to virtual cards and then too.

Part two was what.

What's stimulating interest now in virtual cards and some of those customer conversations you had and are there.

Near term catalysts that could accelerate.

Further further tailwind on the yield side. Thanks.

Yes so.

So maybe kind of the first part of your question.

Did we see kind of an increase in kind of virtual card acceptance.

I would say.

That.

Yes.

There's nothing that stands out as being any kind of anomaly, it's been pretty consistent.

In fact, our avid pay direct payment offering continues to be kind of the highest growth.

Modality, we have.

But of virtual card continues to be really strong.

The interest on the customer Advisory Board is interesting one in that is.

Up until the release of our STP, our straight through processing offering two suppliers.

We didn't really have any tools that gives us supplier to make their life easier it was mainly.

Avid exchange and our buyer customers trying to allocate and evangelize.

To the suppliers that it's a smart thing for them to take hard they get paid faster.

And it would be the preference of the buyer.

But other than the.

They asked because there wasn't a tool that they could actually use to mid to late easier with straight through processing now for the first time that we actually keep a tool that they can take the labor out of the supplier side of the equation.

I don't have to do double or triple data entry.

And they can see the funds flow directly through their merchant account or into the merchant account and the data flow as well right into there.

Either building or their accounting system, So I think.

The exciting part is now there is actually a value proposition an increased value proposition that we can provide to that supplier.

And actually make the suppliers life easier.

Other than just.

Continue to elegantly.

Asked them to take a virtual card payment from us.

Got it so it sounds like there is some of those new features are starting to resonate both on the buyer and supplier side. Thank you.

Yes.

And our next question will come from James Faucette with Morgan Stanley . Please go ahead.

Hi, Thanks, This is sandy on for James.

Just a high level question to start.

Do you most differentiate your product versus competition. So is that software related payments related to the size of the network.

How are you thinking about that and I guess the natural follow on are there any groups in particular.

That <unk> been seeing competitively in recent months of recent quarters that are worth calling out.

Yes, So I love. This question. So this might be a goldstar question.

So first of all related to the.

The competitive landscape, where we differentiate ourselves.

It's clearly in.

Two areas one is around our software being purpose built for middle market companies, specifically with the vertical flavor of nuance that's required in the eight verticals that we're in today.

And so for somebody that has a horizontal solution.

They cannot it very effectively compete just from the software.

Business process standpoint within the eight verticals that we're in.

So we're very.

Nuance that kind of purpose built.

Helping those companies.

That are in those eight different verticals.

The second kind of piece of it is the <unk>.

Payment network, where our secret sauce is that we get.

Industry, leading monetization and conversion rates there is no one else.

See thats anywhere close to.

Monetizing 40% of the payment transactions that they have and.

And that's really been our secret sauce for a long time and it really drives kind of our.

Competitive advantage within the marketplace when we do compete.

And so I'd say it continues to be kind of the software feature set that's very purpose built for the middle market and specifically the verticals combined with the payout with the payment network.

Related to the competition.

That landscape.

It really hasnt changed in a long time it continues to be the number one.

Competitor, we have is a status quo paper based process.

Still today.

95% plus of our new buyer customers are doing this for the first time.

Moving from paper process to electronic and so that's our our number one competitor.

And I would say related to other.

Kind of third party companies maybe.

Maybe if anything.

The competition side has gotten better from the standpoint of.

Recent acquisitions.

Like a mid <unk> as an example, we've seen them leave our core middle market.

We believe his move into more of them.

Upper small business market, but.

But we don't see them.

Within our core market like we used to and we really haven't seen any new entrants in a very long time within the middle market.

Got it and then just a quick follow on balancing margin expansion and then obviously a solid organic growth trajectory can you just give us a sense as to how youre thinking about the trade offs between profitability and then internal investments how youre thinking about that.

And then maybe anything attractive to call out or that comes to mind just on on investments internally and what <unk> been looking at.

Yes, so I mean, I would say the theme is around efficient growth.

And.

And that is how do we continue.

Continue to.

Grow as efficiently as we can.

Which I think youre seeing playing out in the numbers.

Accelerating both gross margin and overall EBITDA margin.

And while we're doing that we're making continue to make very focused.

Investments in the key growth levers.

That we feel.

Really going to continue our growth far into the future.

Areas like invoice accelerator.

Integrations platform to continue to accelerate the number of new integrations that we're delivering every quarter.

And then continue to expand our payment platform capabilities in terms of payment with <unk>, how we deliver data be able to execute offerings like straight through process.

So those are the areas that we continue to be laser focused in investing in some very targeted investments and innovation.

That's led by voice of customer.

And I think that overall led to.

What I call, a more efficient way to grow the business and efficient growth for us.

Got it thanks guys.

Thank you.

And our next question will come from Darrin Peller with Wolfe Research. Please go ahead.

Hey, guys.

Hey, nice job on the quarter.

I just wanted to maybe revisit I know, it's been discussed, but if you can just touch a little more on the macro themes again.

Just any comment on behavior desire to spend youre seeing changing insights on transactions or volumes per customer during the quarter and then if you can give us any update on what youre seeing so far in July or what you saw in July versus June from a behavioral perspective.

No.

Yeah.

So there it's almost like Youre sitting here inside the business with us because we're looking at the same things and asking the same questions that you just asked.

I would say is.

Starting with.

There's two things that we look at in the business. One is what are all the kind of.

Transactional trends, both on invoice as well as on.

Payments.

And what does that look like and I would say that continues to look really healthy.

Haven't seen any.

Either leading indications or.

Or any existing trends.

0.2 any.

Erosion of the volumes that we have.

And then the second piece that we look at is kind of what I would say, it's a leading indicators and that is top of funnel activity and sales activity and.

And that's the part that's actually the most encouraging.

As were our top of funnel activity is the best it's been since pre Covid since 2019.

And.

Not a big surprise, but.

Don.

Kind of channels like.

Our Tradeshow user conference channels of all raging back.

With big demand.

There's a lot of pent up energy from CFO that have not yet invested in these automation initiatives been sitting on the sidelines for the last two years during Covid and now they are feeling like they are kind of behind and they're trying to get caught off.

And then the second one is around the var reseller channel.

And the last year, we went from 120 to 180.

New var reseller partners and during Covid I would say that channel overall.

<unk> focus was just retaining their customers they work.

Putting lot of energy in trying to sell net new things too.

Through the var channel they were starting to retain a customer and now that we're coming out the other side. They are laser focused on how they can now sell more solutions to their customers and so we're seeing that channel really performed well and so those are some examples of.

That top of funnel activity, that's maybe more of a middle market.

Nuanced.

Trends that we're seeing.

And it's relating to.

The sales activity.

Following the top of funnel activity that we're seeing and so maybe I don't know Joel does any other flavor that you would have for Darren I think you said, we look at two things, we look at lots and lots of things and everything that we're seeing suggests that.

Yes, no no no no kind of headwinds at the moment, we're cautiously optimistic I think and being watchful of what might be ahead of us, but so far so good.

Guys I may have missed it before but I didn't hear if you commented on the progress of invoice accelerator. If you don't mind just a quick.

A quick update there yeah.

<unk>.

I think we continue to.

The message is the same as it really has been for last quarter.

We're currently.

Operating with we call it was accelerator one.

<unk>.

And we're in development with our two dot our next generation Ciudadano invoicing software offering.

Of which.

We're targeted to.

Have out in the market sometime early next year.

And really believe that that will allow us then to really kind of open up our more of our supplier base to that offering and.

If you ask me today.

Where we are excitement wise, we're just as excited or even more excited in terms of the future of that product.

Okay, great to hear alright, thanks, guys.

And our next question will come from Tim Chiodo with Credit Suisse. Please go ahead.

Great. Thank you for taking the question I wanted to touch real quickly on avid pay network cross border capabilities. So I wanted to talk a little bit about the portion of your customers payables that you think are addressable is it sort of in the mid to high single digits of volumes and then if you could just add a little bit of context or recapping the monetization there whether it's.

Transaction fees basis point, FX conversion fees et cetera.

Yes, so good question.

The prior questioner with Darrin.

You asked whether it was accelerator.

It's very similar answer to <unk>.

Ross border offerings. This is one that is going to be released this year and so the second half of the year youre going to see some announcements from us that we're super excited about.

The one thing I will caution you with us.

It's not like we're sitting on a pile of cross border transactions today with our customers that we're not monetizing if.

If you look at it.

Tim if you look at across our.

Different vertical markets theyre, not really markets that lend themselves to cross border international payments.

We really see the opportunity is in opportunities that we're currently operating out of because we don't have a good product fit and that's more on the horizontal markets working with the nets, We channel Microsoft dynamics. This agent to act as good examples where.

We believe that we're going to be.

Unable to compete.

Very successfully and many more both customer opportunities as well as get pulled into different new verticals that we historically have not yet.

<unk> been focused on and that's really a combination of not only the.

Cross border product, but when you combine the cross border product with our.

Advanced a purchase order.

Procurement tools that.

That we released last quarter it really becomes.

Powerful tool to move into.

Different verticals that maybe lend themselves to more international Linc manufacturing as an example, and so what we're really excited about.

What it is going to do in terms of new customer acquisition.

Where the real opportunity is versus monetizing existing customer transactions.

Excellent. Thank you and then in terms of the mechanics, there in terms of the FX conversion fees or transaction fees or basis points any context, you could provide there.

Not yet announced.

The pricing structure with our customers, but I would say it could be fairly consistent with others in industry are doing it.

Okay excellent. Thank you for all those updates I appreciate it.

Thank you.

And our next question will come from Josh Beck with Keybanc. Please go ahead.

Thanks for taking the question Yeah, I wanted to ask a little bit about this.

Next generation.

Procurement appealed management product that you got out of the market. It sounds like the reception has been good I guess, one thing that stood out to me as you mentioned.

85% of the adoption was net new so was there anything in.

Particular, driving the net new interest if there was maybe a feature that they were looking for.

Dressed very squarely.

But what was behind that.

So what I would say I think.

There was a historically kind of pool of customers, who really wanted to work with avid exchange because of our payment network and payment monetization capabilities.

And.

Certainly.

Like the aspect of the payment network along with our.

<unk> automation feature set but they had a purchase order procurement requirement of which we didn't have we didn't have one that met their needs and so.

I think kind of going back to that group of customers who.

Basically set out exchange, we'd love to work with you.

If you had the right feature set that supports our business and we were able to go back to them now and really check the box with that that purchase order procurement feature set that they need to run their business and then the rest of our feature set was really gravy for them and so I think.

That's a good example, where there has been a part of the market and customers we go to who.

Not yet have really adopted solutions because they are waiting on the right feature set.

Before they adopt.

Good to hear.

Just wanted to kind of.

Approach the macro question as well, obviously, you've touched a little bit.

Some of the broader trends that you're seeing we've talked about a few of the verticals.

I'm kind of curious within realistic.

Obviously, that's a broad term and I think you have some pretty diverse exposure there across construction HOA and just help us.

I think through what type of exposure that you have.

Have there and what type of trends youre customers ABC.

Yes.

So what's interesting is.

When we look at kind of the top.

You know kind of three areas that we're seeing the greatest top of funnel growth and it's real estate, it's our HOA in.

Our construction and then our horizontal market and so.

What's interesting about that is our top four areas of growth and top of funnel. It includes both real estate and construction.

When you Peel back real estate, it's interesting because it's a segment that's really made up of lots of sub segments and so.

Within the real estate, we're seeing multifamily.

Multifamily housing.

And industrial and.

Actually retail performing extremely well.

And.

The one segment that currently is not performing as well as commercial office.

Not a big surprise, but it is a great example of our diversity.

That we have across our customer base, because not only do we have a different overall verticals, but even within real estate vertical the vertical itself is way up over last year because of the diversity within the vertical and so I think that's a good example of construction.

Is.

It is also an interesting one from the standpoint of.

That there was.

Again.

We're looking at top of funnel, new construction companies looking to automate their process and I think they're looking at and saying Hey, as we move into more choppy waters, what do we need to do to become more efficient and to run our business better and.

And the same thing there with our new titanium offering that we have within construction.

We're seeing really.

The growth trajectory, that's exceeding our expectations.

Very helpful. Thanks, Mike.

Yes.

And this will conclude our question and answer session I would like to turn the conference back over to Mike Reger for any closing remarks.

Yeah. So this is all I appreciate the.

At the time that everyone took today and certainly want to thank everybody.

So you can see super passionate about helping our middle market customers every day and we're excited to have the.

The momentum that we see so far and looking forward to talking to you next quarter about our continued progress in executing the year and so on.

With that operator, you can end the call. Thank you everybody.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.

Okay.

[music].

Good evening, everyone and thank you for joining us for the avid Exchange Holdings, Inc. Second quarter 2022 earnings call joining us on the call today is Mike breaker avid exchange co founder and Chief Executive Officer, Joe Wilhite Avid exchange, Chief Financial Officer, and soup harsh Kumar I haven't exchange head of Investor.

Patients 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 discusses future strategic initiatives potential market opportunities operational outlook and financial guidance. During today's call. Also please note that the company undertakes no duty to update the or revise forward looking statements. Today's call will include the discussion of non-GAAP .

Results in accordance with GAAP.

With that I would now like to turn the conference over to Mike Berger. Please go ahead.

Thank you everyone for joining us today, Joe Wilhite and I are excited to discuss avid X gene in the second quarter 2022 results and the continued momentum we are experiencing across our business driven by our middle market focus and the four throughout the years of our avid exchange business flywheel that drives our business.

Overall, we once again delivered on another standout quarter.

Both operational and financial performance results came in better than our expectations. This is now the fourth consecutive quarter of over 20% organic revenue growth. These positive results reflect the middle market steady demand for avid exchanges value proposition of industry, leading and differentiated business to business accounts payable automation software.

In payment solutions that are purpose built for middle market companies.

<unk> as they battle, the twin forces of a potentially slowing economy and inflation let.

Supplier sales opportunities, we are very encouraged by what we're seeing to date.

Which leaves us cautiously optimistic heading into the second half of this year and beyond.

Typically we're seeing broad based growth in terms of opportunity creation and opportunities closed across the real estate and HOA vertical as well as our horizontal channels.

We have not seen any significant changes the deal size or slippage and close rates when measured on key markers of 30, 60 or 90 days.

Similarly, Onboarding go lives and our 90 day certification rates on invoice volume remain essentially right on target in short we're highly encouraged by the good visibility we are seeing into the underlying trends driving our business.

To Microsoft Azure public cloud.

Is an undertaking that kicked off in June 2021, the migration to Azure, which is now complete is expected to provide us with numerous benefits, including world class security and conjunction with on demand scalability across our operational value chain, including invoice intake payment delivery customer success et cetera.

All of these efforts provide us with the glide path to continue on our gross margin trajectory both in the near term and in the long term to achieve adjusted EBITDA breakeven, which we have accelerated and are now projecting for the full calendar year 2024 versus our earlier expectations around exiting 2002.

94.

Now as we've done in the past I will use the four years of our Abbott exchange flywheel to provide an update on some of our initiatives and metrics that we are excited to highlight for you.

Thank you and number one which is delivering great accounts payable and payment automation software experience to our buyer customers, we announced the launch of our next generation procurement and purchase order management tools, which also includes a three way invoice matching capability in the first quarter of 2022.

Excited to report back that this offering is already off to a very strong start and is exceeding our expectations.

We launched with a dozen clients in the later part of the second quarter and have already seen close to a threefold increase in our demand pipeline. What is really impressive about the launch is that over 85% of the clients that went live were net new customers a major validation of the growing number of middle market customers looking for.

These types of expense controls to better manage their purchasing.

California based upon a restaurant solutions is one of the many new early adopter customers, who has embraced our solution.

As a provider of equipment design and kitchen solutions that foodservice industry across the U S and Canada Avant they've worked with a large network of suppliers, who provide everything from metal parts ice machines to walk in freezers and the ventilation systems.

This has reduced the manual work saving them time, and most importantly allowed them to focus on what they do best which is helping their customers build their foodservice operations.

With customer references such as advancing our product launch is set to build on an already strong customer close rates with key strategic referral and reseller partners, who have also seen increased customer demand for this type of functionality across their middle market customer basis.

The positive customer experiences, we create that we were able to land new by our customers through our direct sales strategy, which represents around three quarters of our buyer customer acquisition channel mix.

It is also because of the sheer number one that we are able to build on our already robust referral and reseller partnership ecosystem further diversifying our efforts to win new buyer customers.

An example of this that we've highlighted during our last earnings call was with a major preferred strategic partner agreement and the real estate vertical with residents and industry, leading and rapidly growing multifamily real estate property management and accounting system software company with a base of over 700 real estate customers.

And this quarter, we're happy to report that K IRI multi state multi location full service real estate company based out of Ohio that uses resident's property management software and was exploring accounts payable automation of payment solutions has selected avid exchanged over our competitors offering as a result of the companys trusted.

Our relationship with our business.

A large total addressable market base.

Through this partnership we are positioned well to not only deepen our penetration in existing verticals, but also establish beachheads across other industries that <unk>, which includes high tech business services retail and manufacturing companies. We also announced a referral partnership with member driven technologies or MDT.

To extend our leadership position into the credit Union vertical market.

Under gear number three of our avid exchange business flywheel, which is focused on maximizing the conversion of paper checks to electronic payments with our suppliers in.

We recently launched our STP offering.

And in fact shortly after the launch we doubled the number of suppliers on STP. The same time, the number of monthly payments and spent facilitated by STP has also doubled.

We are working on some big initiatives around STP and look forward to sharing the success of those initiatives with you in the future.

And finally, our gear and number four is leveraging our vast spending and payment data to drive increased value across our networks.

The key to driving success here is listening to our customers for.

In person cab meeting since 2019 due to Covid brings.

Bring together customers across our vertical markets together with senior leadership and our product teams. This is a very important and special occasion for us to have these customers onsite as they represent the top decile of our customer base provide great references and do a nice job of evangelizing the impact of Abbott exchange across the middle market.

Our key verticals.

What we heard during these two days is worth sharing with you.

These customers, we're absolutely excited about the launch of our STP offering for virtual card transactions, which allows them a faster and more secure way to pay their suppliers with our various forms of virtual card offerings. Another area was on our protocol product roadmap, including all of the initiatives that we've discussed on this call and in prior.

Calls.

What was particularly powerful and heartening was that so many of our customers view avid exchange as an extension of their brands within the markets that they serve.

As we have a value proposition that makes our two sided network a powerful for us and high impact solutions for both our buyer and supplier customers.

We are a mission and performance based culture, which enables high employee engagement retention and focused execution.

With that I'd like to turn the call over to my partner Joel Wilhite Joel.

Thanks, Mike and good evening, everyone I'm excited to talk to you today about our strong second quarter 2022 financial results, which reflect continued execution of our growth strategies, leading now had two consecutive quarters of positively revised 2022 guidance.

Overall, we delivered another quarter of solid financial performance, our second quarter 2022 revenues came in better than our forecast driven by higher total payment volumes.

That together with better operational efficiencies and lower expenses contributed to a lower than expected adjusted EBITDA loss in the second quarter of 2022.

Total revenue increased by 33% to $76 $6 million in Q2 over the second quarter of 2021.

East E payments to suppliers.

A quick call out related to fast pay and pay clearly many of you who are new to the avid exchange story, particularly those overseas have asked us how to model. These businesses as a reminder, both fast pay and pay clearly our media advertising books of business, but are disproportionately weighted towards both the midterm and presidential.

<unk> and payments yield expansion with the remaining half being inorganic contribution.

Software revenues of $24 $2 million, which accounted for 31, 6% of our total revenue in the quarter increased 11, 8% in Q2 of 'twenty two over Q2 of last year software revenues include approximately $100000 of contribution from fast pay the increase in software.

Revenues was driven primarily by the growth in total transactions of roughly 13, 2% in the second quarter.

Organic payment revenue growth was 29% the increase in payment revenues was driven by the growth in total payment volume was 36% and 39% excluding fast pay and pay clearly.

On a GAAP basis gross profit of $42 9 million increased by 37, 6% in Q2 of 'twenty two over the same period last year, resulting in a 300 basis point improvement in gross margin for the quarter to 56% non-GAAP gross margin increased 270 basis.

Moving onto our operating expenses.

Compensation costs.

Clearly results non-GAAP research and development costs increased by $4 5 million to $17 9 million in Q2 of 2022 over Q2 of last year.

The increase was due to continued investment in our products and platform along with the inclusion of fast pay and pay clearly.

Our GAAP net loss was $25 7 million for the quarter versus a GAAP net GAAP net loss of $22 million in the prior year period with the comparable increase primarily driven by the recognition of noncash stock based compensation costs, resulting from our transition from a private to a publicly traded company.

On a non-GAAP basis, our net loss in the second quarter of 2022 was $13 7 million down $1 2 million compared to the year ago quarter on solid organic revenue growth combined with ongoing operational efficiencies and expense leverage.

On a non-GAAP basis, adjusted EBITDA was a loss of $4 $7 million in the quarter of 2022 compared to a loss of $5 6 million in Q2 of 2021 due to the aforementioned factors.

Turning to our balance sheet for a moment I want to touch on a few key items. We ended the quarter with a cash position of $511 1 million. The cash is split between cash and equivalents of $363 3 million, which is a combination of demand deposit accounts and money market funds.

Third $27 $7 million out of our $133 $5 million credit facility.

<unk>.

We are also adjusting our non-GAAP adjusted EBITDA expectations lower to a loss between 27 and $29 million.

In summary, we delivered strong second quarter, 2022 financial and operating results and our momentum to date is very encouraging, particularly our accelerated path to adjusted EBITDA breakeven.

Now I'd like to turn the call back over to the operator to open up the line for Q&A.

Operator.

Thank you we will.

Now begin the question and answer session.

To ask a question you May Press Star then one on your Touchtone phone.

If youre using a speakerphone please pick up your handset before pressing the keys.

To withdraw your question. Please press Star then two.

Management has asked that each participant kindly limit his or her initial question to one and at this time, we will pause momentarily to assemble the roster.

And our first question today will come from Dave Koning with Baird. Please go ahead.

Yes, hey, guys, great great quarter.

And maybe I'll kick it off yeah, yeah, sure and maybe I'll kick it off with just the payment revenue accelerated so much.

And just kind of wondering the yield on volume looked like that really kicked up a lot too and maybe can you talk a little bit about just the sustainability of the strong payment growth and then.

Yield looked like it was up 2% sequentially, maybe talk to why that is too.

Yes, maybe.

Just start that off so Dave I think you are.

On the on the payment volume again, 36% overall total payment volume growth in the quarter.

Really a part of the overall, 30% growth we were pleased with that again like Mike said.

In his remarks, four quarters in beating and raising and a couple of quarters.

Creasing, our expectations for 'twenty two.

Yes.

That obviously is driven by the payment volume growth and yield also slightly.

Slightly better again, we've said before I think we're a basis point out.

And what we would say is that really is industry, leading monetization overall and really where there is a huge opportunity for us going forward. So we're pleased with the basis point out, but really wouldn't read a lot into basis points, plus or minus quarter to quarter, but definitely happy with the outcome and that really powerful revenue driver for us.

Alright, Thank you and maybe just a quick follow up just you made a comment about the political spending driving the acquisitions. I think you said acquisition contribution $4 6 million in the quarter, maybe could you parse out like how much of that is sort of nonrecurring year to year from <unk>.

Political just so we can kind of get a sense of how much of that $4 million to $5 million a quarter kind of goes away next year.

Yes, So let me ask let me answer it this way so in the first half I think Q1 Q2 were about $8 million in total inorganic.

And we did talk about in my remarks, just sort of managing expectations that the.

So fast they would pay clearly.

Acquisitions resulted in media books of business, a portion of which is tied to political.

Political cycles of that $8 million in the first half about $3 million is associated with political revenue in particular, and we would expect that to tick up in the back half of the year again, the thing that I would sort of add.

As I wrap up that answer is.

This is a new business for us.

Kind of getting.

Being careful and sort of prudent in how we manage expectations around the political cycle. This will be the first one owning the SaaS A&P clearly business, but hopefully that gives you a little bit of color.

Yeah, that's great and great job.

Thanks, Dave.

And our next question will come from Ramsey El <unk> with Barclays. Please go ahead.

Hi, gentlemen, thanks for taking my question.

I wanted to ask about gross margin it came in quite a bit better than our model I think you might've mentioned operational efficiencies as a driver in your prepared remarks, Mike but.

Could you comment on whether there were any sort of one time items are in there. If that's the level, we should kind of use as a baseline from here.

Yes, maybe let me just make a comment again, we've pointed to gross margin. That's just a really important metric that we see moving over time on our path to EBITDA breakeven.

Did kind of exceed our own expectations again, one of the things that I would point to.

Im happy to see that in our rearview mirror and ended up with just.

Alright, great. Thank you.

And our next question will come from Andrew Berg with NBC Nikko. Please go ahead.

Andrew are you there.

Perhaps you're wrong you did it.

Yes. Thanks for taking the question just wanted to touch upon the comments around EBITDA and the outperformance in the quarter.

How much of what.

You beat relative to the street expectations were.

Things that are sustainable for the longer term if I heard you correctly I think you said that you would be turning EBITDA positive sooner than we originally.

We anticipate is that in part due to the outperformance in gross margin because I know a lot of that stuff falls to the bottom line.

Yes, So let me just kind of.

I think I'm tracking, but let me just orient back to kind of the last time, we spoke about our path to profitability, we talked about eggs.

Exit 24 in the first quarter and what we've done is revised that now to be the full year calendar 2024 year and remember we described it the way we get there would be really across all of the.

R&D and what I would say is that we're continuing to focus on the investments that we're making in the business for growth all around the flywheel, both for buyers and suppliers, but we're also really focused on expense discipline and just being careful there and so we're certainly seeing the benefit of that flow through to EBITDA gives us confidence in that break.

Even guidance that we revised forward.

Yeah.

Yes, Andrew this is Mike in the bigger with Joel said is I would say there is.

Certainly renewed mindset that we're having in the current environment related to just raising the bar unrelated to our.

ROI on every investment that we're making.

Being laser focused on.

Those initiatives that matter in terms of our growth levers for the future.

As well as on the people side to make sure. We're prioritizing those important people to drive our business.

Understood Congrats on a solid quarter.

Thanks.

And our next question will come from will Nance with Goldman Sachs. Please go ahead.

Hey, guys. Good evening I appreciate you taking all my questions.

Thank you, Brian the topline at a 30% Mike I know you've talked about closer to 20% longer term a lot of thats coming from payments and.

It seems to be kind of right in monetization and payment volume.

Rather than kind of core customer growth. So just wondering when you talk about sustaining the operational momentum that you guys have.

How much room is there to go.

What kind of gives you the confidence to say you can kind of sustain at more elevated levels and should we think about something like 30% as more reasonable in the near term.

Yes, so I.

I think I'll provide maybe a little context to the kind of.

Inorganic versus organic kind of growth rates, but I would say is that we're really seeing the kind of the.

<unk>.

Early stages of the flywheel really working.

And it starts by the retention numbers that we have related to retaining those transactions on the network and then it goes to the new customer by your customer adds and that's where we're seeing some really encouraging top of funnel activity, probably the strongest top of funnel since 2019.

And then the third element is that conversion rate from paper checks to electronic in.

We had an all time record quarter this past quarter in terms of.

New monetize suppliers that we added to the network.

And then kind of the.

And really highlighted by still that big opportunity of 55% of our payment transactions are still paper checks and the opportunity to convert those electronic and then certainly in was accelerators.

Kind of.

Startup stage.

Inches to get out of the garage and we're excited to.

Really see that offering take hold next year and into the future.

Yes, I think.

Youll still consistent.

We're monetizing about 40% of the transactions that go through the network.

Roughly two thirds of those are through virtual card about a third through.

Our Abbott pay direct offering.

And I would say that's consistent and we're seeing we are seeing some growth there.

But also we continue to add.

A large number of new buyer customers, which bring suppliers with them. So we continue to add to the backlog of paper check suppliers with every new buyer that we add.

But as I indicated I.

I think the end of the prior questions.

Had an all time record quarter related to suppliers being added to the network in terms of monetize suppliers being both a virtual card and Apple pay direct.

Got it I appreciate all the color.

No happy to.

And our next question will come from Bryan Keane with Deutsche Bank. Please go ahead.

Hey, guys. Thanks for taking the question I just had two clarifications I noticed software revenue growth.

Slowed a little bit from last quarter.

Then secondly on the adjusted EBITDA beat it was it was well above expectations at $4 6 million loss, if I just multiply that by four you're going to get to about a $19 million loss for the year. You guys are still guiding 27% to <unk> 29 loss. So is there.

There are some cadence in there that there would be we wouldn't stay on the same trajectory that it maybe the loss would be greater in the second quarter or just trying to figure out the cadence of that thanks.

Yes, Thanks, Brian Let me take your questions in reverse order. So just on the EBITDA again, we were sub $5 million EBITDA loss on $76 million that was we were really pleased with that outcome and feel like Thats. The result of.

We're continuing to expand the transaction yield we're continuing to take.

Sort of unit cost out and just being Super disciplined while also investing all around the flywheel I think what I would say is.

In the guide relative to the math you are doing one thing to keep in mind as we are meaningfully ahead, both top and bottom line relative to kind of some incentive structure. So baked into the back half of the year guide, there's separately inbox associated with getting that accruals squared away.

And otherwise we do have that.

Political book of business, we're being cautious about kind of how we think about the back half, but otherwise well on our way to.

That path to EBITDA breakeven.

Maybe the first question you asked was kind of software revenue growth again, we're pleased with the outcome, 30% overall revenue growth year over year I wouldn't read a lot into the sort of quarter to quarter sequential movement. Some variability based on kind of non usage software revenue remember in a couple.

Our acquisitions.

And then there is potentially some channel mix at play there as well where for example, some really big opportunity we have through the bank channel and otherwise there is there is a sort of.

Per unit rate arbitrage there. So pleased with the overall result feel like we're really on track again, Mike talked about the strength of the top of funnel coming back.

Pre COVID-19, so excited about the results and confident in the guidance.

Great helpful. Thanks for taking my questions.

You bet.

And our next question will come from Brad Sills with Bank of America. Please go ahead.

Oh, great. Thanks, guys for taking my questions. Just one clarification and then just one one question on the business.

What are the puts and takes we should be thinking about of just customer spend volume is.

As we go through some choppy quarters ahead.

Okay got you. So let me let me take a crack at your first couple and then.

Maybe Mike will double team with me here. So I think your question leading off was the organic either TPB or transaction growth I can give you those details for this quarter yes.

39, so right at 31% of that 36%.

Purely organic I think you also asked for the what was it last quarter, maybe we will get to that.

Well, while I pull it up maybe Mike you want to take the second question, yes. So.

The second one really is around kind of what I would say the resiliency right.

Continued results.

Perhaps heading into more kind of choppy or economic times and.

Obviously this is something that we continue.

Continue to look really closely at we recently released our middle market spend report, which is designed to get at.

Make public trends that we're seeing and I would say that consistently with across the middle market.

We're seeing pretty healthy dynamics.

Typically the middle market has been more resilient than say the small business segment, and we typically see 80% plus of our customers grow with us each year.

I think if you would ask.

In the Chop your times, where would we see kind of tailwind is maybe as well as headwinds and I think in the past when we're a software company again. This is our first economic cycle with the payment network.

Down in the cycle of the payment network, but as a software company, we actually benefited.

In recessionary times from an increased demand for automation.

Of their AP and payment processes.

On the headwinds I think where we would see potential.

Winds first would be.

Payment volume and average payment sizes.

Again, historically the sort.

Software company, we've seen relative consistency invoice volumes.

Yeah.

In past cycles, but we do have the benefit of having some great leading indicators.

And thats on a purchase order and invoice volumes, which typically become payments in 30 to 60 days. So we have some great leading indicators.

Together, they can advance insight if we should see some.

Headwinds facing the business, which today, we have not seen any today and.

And Brad just to circle back on the Q1 organic.

PV growth that was 35, 6% of our 45 last quarter.

Thanks, So much Joe and thanks, Michael.

Okay.

And our next question will come from Brent <unk> with Piper Sandler. Please go ahead.

Thank you for taking the question good afternoon, Mike.

Trying to square the feedback from the customer Advisory Board, where you talked about virtual cards kind of standing out to them, particularly given just the overall mix of check is still very high so.

I guess two part question one.

Was the yield tailwind this quarter, primarily driven by mix shift to virtual cards and then too.

Part two was what.

What stimulating interest now in virtual cards and some of those customer conversations you had and are there.

Near term catalysts that could accelerate.

Create a further further tailwind on the yield side. Thanks.

Yes so.

So maybe kind of the first part of your question.

Did we see kind of an increase in kind of virtual card acceptance.

I would say.

That.

There is nothing that stands out as being any kind of anomaly, it's been pretty consistent.

In fact, our avid pay direct.

Payment offering continues to be kind of the highest growth.

Payment modality, we have.

But virtual card continues to be really strong.

The interest on the customer Advisory Board is interesting one in that is.

Up until the release of our STP, our straight through processing offering two suppliers.

We didn't really have any tools that gives us supplier to make their life easier it was mainly.

Avid exchange and our buyer customers trying to allocate and evangelize.

To the suppliers that it's a smart thing for them to take card they get paid faster.

And it would be the preference of the buyer.

But other than the.

They asked because there wasn't a tool that they could actually used mid to late easier with straight through processing now for the first time that we actually keep a tool that they can take the labor out of the supplier side of the equation. They don't have to do double or triple data entry.

And they can see the funds flow directly through their merchant account or into the merchant account and the data flow as well right into there.

Either billing or their accounting system, So I think.

The exciting part is now there's actually a value proposition and increase value proposition that we can provide to that supplier.

And actually make the suppliers life easier.

Other than just <unk>.

Continue to elegantly.

Asked them to take a virtual card payment from us.

Got it so it sounds like there is some of those new features are starting to resonate both on the buyer and supplier side. Thank you.

Yes.

And our next question will come from James Faucette with Morgan Stanley . Please go ahead.

Hi, Thanks, This is sandy on for James.

Just a high level question to start where do you most.

Differentiate your product versus competition, so is that software related payments related to the size of the network.

How are you thinking about that and I guess the natural follow on are there any groups in particular.

That you've been seeing competitively in recent months in recent quarters that are worth calling out.

Yes, So I love. This question. So this might be a goldstar question.

So first of all related to.

The competitive landscape, where we differentiate ourselves.

It's clearly.

Two areas one is around our software being purpose built for middle market companies, specifically with the vertical flavor of nuance that's required in the eight verticals that we're in today.

And so for somebody that has a horizontal solution they cannot it very effectively compete just from the software.

<unk> process standpoint within the eight verticals that we're in so we're very nuanced kind of purpose built.

Helping those companies.

That are in those eight different verticals.

The second piece of it is the <unk>.

Payment network were our secret sauce is that we get.

Industry, leading monetization and conversion rates there is no one else that we see thats anywhere close to them.

Monetizing 40% of the payment transactions that they have and.

And that's really better secret sauce for a long time and it really drives kind of our core.

Competitive advantage within the marketplace when we do compete.

And so I'd say it continues to be kind of the software feature set that's very purpose built for the middle market and specifically the verticals combined with the payout with the payment network.

Related to the competition.

That landscape.

It really hasnt changed in a long time it continues to be the number one.

A competitor we have is a status quo paper based process.

Still today.

95% plus of our new buyer customers that do this for the first time.

Moving from paper process to electronic and so that's our.

Our number one competitor.

And I would say related to other.

Kind of third party companies.

Maybe if anything.

Competition side has gotten better from the standpoint of with some recent acquisitions.

Like a mid <unk> as an example, we've seen them leave our core middle market and what we believe is move into more of the.

Upper small business market, but.

But we don't see them.

Within our core market like we used to and we really haven't seen any new entrants in a very long time within the middle market.

And then maybe anything attractive to call out or that comes to mind just on on investments internally and what <unk> been looking at.

Yes, so I mean, I would say the theme is around efficient growth.

And.

And that is how do we continue.

Continue to.

Grow as efficiently as we can.

Which I think youre seeing playing out in the numbers.

Accelerating both gross margin and overall EBITDA margin.

And while we're doing that we're making continue to make very focused.

Investments in the key growth levers.

That we feel.

Really going to continue our growth far into the future.

Areas like invoice accelerator.

Integrations platform to continue to accelerate the number of new integrations that we're delivering every quarter.

And then continue to expand our <unk> platform capabilities in terms of payment went <unk>, how we deliver data be able to execute offerings like straight through process.

So those are the areas that we continue to be laser focused in investing in some very targeted investments and innovation.

That's led by voice of customer.

And I think that overall led to.

What I call, a more efficient kind of way to grow the business and efficient growth for us.

Got it thanks guys.

Thank you.

And our next question will come from Darrin Peller with Wolfe Research. Please go ahead.

Hey, guys.

Hey, nice job on the quarter.

I just wanted to maybe revisit I know, it's been discussed, but if you can just touch a little more on the macro themes again.

No.

Yeah.

So there it's almost like Youre sitting here inside the business with us because we're looking at the same things and asking the same questions that you just asked and up.

I would say is.

Starting with.

There's two things that we look at in the business. One is what are all the cutoff.

Transactional trends, both on invoice as well as on.

Payments.

And what does that look like and I would say that continues to look really healthy.

Haven't seen any.

Either leading indications or.

Or any existing trends.

0.2 any era.

Erosion of the volumes that we have.

And then the second piece that we look at is kind of what I'd say is a leading indicators and that is top of funnel activity and sales activity and that's the part that's actually the most encouraging.

As were our top of funnel activity is the best it's been since pre Covid since 2019.

And.

Not a big surprise, but.

<unk>.

Kind of channels like.

Our trade show user conference channels of all.

Raging back.

Big demand.

And then the second one is around the var reseller channel.

And the last year, we went from 120 to 180.

New var reseller partners and during Covid I would say that channel overall they are number one focus was just retaining their customers they work.

Putting lot of energy in trying to sell net new things to.

Through the var channel. They were just trying to retain a customer and now that we're coming out the other side. They are laser focused on how they can now sell more solutions to their customers and so we're seeing that channel really performed well and so those are some examples of.

That top of funnel activity, that's maybe more of a middle market.

Nuanced.

No trends that we're seeing.

And it's relating to.

The sales activity.

Following the top of funnel activity that we're seeing and so maybe I don't know Joel does any other flavor that you would add for Darren.

You said, we look at two things, we look at lots and lots of things and everything that we're seeing suggests that.

No no no.

No kind of headwind at the moment, we're cautiously optimistic I think being watchful of what might be ahead of us, but so far so good.

Guys I may have missed it before but I didn't hear if you commented on the progress of invoice accelerator. If you don't mind, just a quick quick.

A quick update there yes.

Yes.

I think we continue to.

The message is the same as it really has been for last quarter.

We're currently.

Operating with we call it was accelerators.

When donohoe.

And we're in development with our two dot our next generation Ciudadano invoicing software offering.

We're targeted to.

Have out in the market sometime early next year.

I really believe that that will allow us then to really kind of open up our more of our supplier base to that offering and.

If you asked me today if.

Where we are excitement wise, we're just as excited or even more excited in terms of the future of that product.

Okay, Great alright, thanks, guys.

And our next question will come from Tim <unk> with Credit Suisse. Please go ahead.

Transaction fees basis point, FX conversion fees et cetera.

Yes, so good question.

The prior questioner with Darrin.

You asked whether it was accelerator.

It's very similar answer to <unk>.

<unk> border offerings. This is one that is going to be released this year.

And so the second half of the year Youre going to see some announcements from us that we're super excited about.

The one thing I will caution you with us.

It's not like we're sitting on a pile of cross border transactions today with our customers that we're not monetizing if.

If you look at.

Tim if you look at across our.

Different vertical markets theyre, not really markets that lend themselves to cross border international payments, but we really see the opportunity is in opportunities that we're currently opting out of because we don't have a good product fit and that's more on the horizontal markets working with.

And Thats, we channel Microsoft dynamics this agent to act as good examples where.

We believe that we're going to be.

Unable to compete.

Very successfully and in many more both customer opportunities as well as get pulled into different new verticals that we historically have not yet.

<unk> been focused on and that's really a combination of not only the.

Cross border product, but when you combine the cross border product with our.

Advanced purchase order.

Procurement tools that.

That we released last quarter it really becomes.

Powerful tool to move into.

Different verticals that maybe lend themselves to more international like manufacturing as an example, and so what we're really excited about.

What it's going to do in terms of new customer acquisition.

Where the real opportunity is versus monetizing existing construct transactions.

Excellent. Thank you and then in terms of the mechanics, there in terms of the FX conversion fees or transaction fees or basis points any context, you could provide there.

Oh.

We have not yet announced.

Kind of the pricing structure with our customers, but I would say, it's going to be fairly consistent with others in the industry are doing it.

Okay excellent. Thank you for all of those updates I appreciate it.

Thank you.

And our next question will come from Josh Beck with Keybanc. Please go ahead.

Thanks for taking the question Yeah, I wanted to ask a little bit about this.

Next generation.

Procurement appealed management product that you got out of the market. It sounds like the reception has been good I guess one of the things that stood out to me as you mentioned.

85% of the adoption was net new so was there anything in particular driving the net new interest. If there was maybe a feature that they were looking for and it addressed very squarely.

But what was behind that.

So what I would say I think.

There was a historically kind of pool of customers, who really wanted to work with avid exchange because of our payment network and payment monetization capabilities.

And.

Certainly.

Like the aspect of the payment network, along with our <unk>.

<unk> automation feature set but they had a purchase order procurement requirement of which we didn't have or we didn't have one that met their needs and so.

I think kind of going back to that group of customers who.

Basically said avid exchange, we'd love to work with you.

If you had the right feature set that supports our business and we're able to go back to them now and really check the box with that that purchase order procurement feature set that they need to run their business and then the rest of our feature set was really gravy for them and so I think.

That's a good example, where.

There has been a part of the market and customers we go to who.

Not yet have really adopted solutions because they are waiting on the right feature set.

Before they adopt.

Okay.

Good to hear.

Just wanted to kind of.

Approach the macro question as well, obviously, you've touched a little bit.

Some of the broader trends that you're seeing we've talked about a few of the verticals.

I'm kind of curious within realistic obviously, that's a broad term and I think you have some pretty diverse exposure there across construction HOA just help us.

Think through what type of exposure.

Have there and what type of trends youre customers BBC.

Yes.

So what's interesting is.

When we look at kind of the top.

You know kind of three areas that we're seeing the greatest top of funnel growth in it.

It's real estate, it's our HOA in.

Our construction and then our horizontal market and so.

What's interesting about that is our top four areas of growth and top of funnel. It includes both real estate and construction.

When you Peel back real estate, it's interesting because it's a segment that's really made up of lots of sub segments and so.

Within the real estate, we're seeing multifamily.

Multifamily housing.

And industrial and actually retail performing extremely well.

And.

The one segment that currently is not performing as well as commercial office.

Not a big surprise, but it's a great example of our diversity.

I think that's a good example, construction.

Is.

It is also an interesting one from the standpoint of.

That there was.

Again.

And the same thing there with our new titanium offering that we have within construction.

We're seeing really.

The growth trajectory, that's exceeding our expectations.

Very helpful. Thanks, Mike.

Yes.

And this will conclude our question and answer session I would like to turn the conference back over to Mike Reger for any closing remarks.

Yeah. So this is all I appreciate the help.

At the time that everyone took today and certainly want to thank everybody.

We are as you can see super passionate about helping our middle market customers every day and we're excited to have the momentum that we see so far and looking forward to talking to you next quarter about our continued progress in executing the year.

So with that operator, you can end the call. Thank you everybody.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.

Q2 2022 Avidxchange Holdings Inc Earnings Call

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