Q1 2023 AvidXchange Holdings Inc Earnings Call

Speaker 1: And coun.

Speaker 2: Pardon me everyone, this is the conference operator. Today's call will begin at 10 to the 2. We ask that you please stay on your line and thank you for your patience. Once again everybody, the call will begin here in about 2 minutes.

Speaker 1: So I to go P.

Speaker 1: And.

Speaker 1: So.

Speaker 2: Good morning, everyone. And thank you for joining us for the Avid Exchange Holdings Inc. first quarter 2023 earnings call.

Speaker 2: Joining us on the call today is Mike Prager, Avid Exchange's co-founder and chief executive officer, Joel Wilhite, Avid Exchange's chief financial officer, and Subash Kumar, Avid Exchange's head of investor relations.

Speaker 2: Before we begin today's call, management has asked me to relay the forward-looking statements disclaimer that is included at the end of today's press release.

Speaker 2: This disclaimer emphasizes the major uncertainties and risks inherent in the forward-looking statements the company will make this afternoon.

Speaker 2: 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.

Speaker 2: Also, please note that the company undertakes no duty to update or revise forward-looking statements.

Speaker 2: Today's call will also include a discussion of non-GAAP financial measures, as that term is defined in Regulation G.

Speaker 2: non-GAAP financial measures should not be considered in isolation from or as a substitute for financial information presented in compliance with GAAP.

Speaker 2: Accordingly, at the end of today's press release, the company has provided a reconciliation of these non-GAAP financial measures, two financial results prepared in accordance with GAAP.

Speaker 2: Please also note, today's event is being recorded.

Speaker 2: With that, I will now turn the call over to Mike Prager.

Speaker 2: I will now turn the call over to Mike Prager. Please go ahead.

Speaker 3: Thank you everyone for joining us today. Joe Willite and I are excited to discuss Abbott Exchange's first quarter of 2023 results. We delivered another solid quarter of year-to-year financial results backed by healthy underlying metrics

Speaker 3: Best of all, I'm excited to report that we've delivered our first profit.

Speaker 3: on an adjusted EBITDA basis since our IPO on October 13, 2021, and two years ahead of plan at the time of our IPO.

Speaker 3: Relative to our first quarter of 2023 business outlook expectations, which Joel will discuss in his prepared remarks, our first quarter of 2023 results also came in better than expected.

Speaker 3: As we stated in our March earnings call, we continue to see strong top of funnel activity with leading economic indicators moderating amid continued macro volatility, our value proposition of accounts payable automation and payment solutions fueled by our two-sided network.

Speaker 3: is a powerful lever for resource constrained middle market companies to gain significant cost structure advantages and savings by automating their accounts payable and disbursement processes.

Speaker 3: As evidenced by our continued strong top of funnel activity, up roughly 20% year over year in Q1 in what is a large and unpenetrated addressable market is extremely encouraging.

Speaker 3: This current quarter is no exception as we are on track for another strong double digit top of our growth quarter.

Speaker 3: Moreover, this growth remains largely broad based across our eight verticals, driven by partnerships, integrations, product and feature launches in 2022 and year-to-date this year.

Speaker 3: This gives us further confidence that our value proposition and product portfolio aligns with our customers' needs even more deeply as we help them navigate an increasingly challenging macroeconomic backdrop. In summary, I believe our strong Q1 results were driven by the following three themes.

Speaker 3: One, the resiliency of middle market companies as evidenced by our continued strong year over year top of funnel growth.

Speaker 3: to

Speaker 3: Our biggest competitive advantage in leading the middle market continues to be our ability to monetize payments through the Avotay network at a two to three times advantage over our competitors and is a key ingredient in driving revenue growth and payment yield results.

Speaker 3: And third, the pace of new integrations, strategic partnerships, new product functionality and features, along with vertical market expansion, leaves us cautiously optimistic for 2023.

Speaker 3: while we're looking forward to a robust 2024.

Speaker 3: Let me now provide a quick summary of our year-over-year, first quarter, 2023 financial results.

Speaker 3: We delivered revenues of over 86 million which grew at a rate of 22 percent compared to the same period last year.

Speaker 3: This now marks seven consecutive quarters of exceeding our internal financial targets and delivering 20% plus comparable organic revenue growth. One gap gross margins expanded to 67.3% in the quarter, up 500 basis points.

Speaker 3: on a year-over-year basis. We boasted a non-GAAP adjusted EBITDA profit of approximately $400,000 in the quarter versus an adjusted EBITDA loss of $5.6 million last year.

Speaker 3: And we ended the quarter with 2.5% year-over-year increase in our total transaction yield to $4.76.

Speaker 3: On today's call, I want to highlight our execution on three key areas of strategic growth and innovation across our Habit Exchange Business Flywheel.

Speaker 3: First, we're going to highlight the formal addition of an exciting new industry vertical.

Speaker 3: Second, we are excited to discuss new Marti partnership in the support of this new vertical. And third, we are discussing new integrations as well as innovation in our existing product suite.

Speaker 3: All three areas will discuss as part of our broader strategic and execution framework we committed to at the time of our IPO and we are delivering on all these commitments and more.

Speaker 3: Today, we're excited to announce our formal entry into the hospitality vertical under gear one of our Abbott Exchange business flywheel.

Speaker 3: This expansion brings the total number of verticals we address to nine overall industry verticals where penetration rates are still largely in single digits.

Speaker 3: Our approach to vertical market expansion is a function of Marketplace's push and pull dynamics.

Speaker 3: While the push dynamic is wholly bottoms up and targeted, the pull dynamic is more customer-led initially, a function of the networking effects driven by CFOs, controllers, and finance professionals who champion our product leadership over their careers.

Speaker 3: As these internal champions target new industries, they become our brand and product ambassadors, creating industry awareness and building a critical mass of users within our various vertical and horizontal markets.

Speaker 3: Overlaying our marketing engine on top of the user cluster and gleaning insights for various factors such as market fit, product fit, partnership, and competitive landscape, as well as testing and learnings. This enables us to stand up a new vertical where our position of strength leads to a deeper integration from leading ERPs.

Speaker 3: and go-to-market partnerships focused on a particular industry vertical.

Speaker 3: The hospitality vertical ecosystem boasts roughly 10,000 middle market customers.

Speaker 3: including sub-signals such as recreation and country clubs. Already we have amassed over 50 customers organically, which is similar to customer levels when we acquired our way into the media vertical as an example.

Speaker 3: And our top of funnel is seeing a very healthy level of activity and interest already.

Speaker 3: Our excitement in entering the hospitality vertical is centered on our M3 partnership.

Speaker 3: a marquee strategic ERP partnership that we recently won, and we believe will further accelerate our momentum in hospitality vertical.

Speaker 3: To illustrate the power of our value proposition and the traction we've already gotten in the hospitality vertical, I'd like to provide a case study of eyelet hospitality management.

Speaker 3: Managing over 170 hotel properties across the United States, West Palm Beach-based Island Hospitality is one of the largest independent hotel operators. The company's vendor base consists of thousands of suppliers from those with national reach to local operators.

Speaker 3: Under Brian Murphy, Director of J.D. Edwards Business Services at Island Hospitality, Island Hospitality adopted our invoice and pay solution and was able to completely transform its accounts payable department by cutting invoice processing time by over 80%.

Speaker 3: Whereas it would take an average of 18 days to historically approve and process a paper invoice, our Abbott Exchange system reduced their 18-day invoice approval process by over 80%, down to averaging only 3 days. As a result, On1 has fatality, was able to reduce and reallocate the

Speaker 3: their accounts payable headcount to more strategic positions while avoiding financial penalties on various non-discretionary payables including utility invoices and payments. Furthermore, the company was also able to have real-time visibility into an electronic audit trail for their invoices and payments that were easily digestible for their outside auditors.

Speaker 3: Brian Murphy said its best by stating, overall, it was really a no brainer for us. My advice to anyone is to take a look into automation and see if it will help your organization the way it transformed ours.

Speaker 3: This brings us to our new partnership under years 2 and 3 of the Avid Exchange Business Flywheel.

Speaker 3: As part of our strategy in targeting leading ERPs in new verticals, we are excited to announce a new strategic partnership with M3 to embed our Avid Pay network inside of their ERP functionality to drive M3 customer payment transaction volume and monetization across our Avid Pay network. And a reminder...

Speaker 3: Our strategy around API partnerships and integration playbook is to be deeply embedded with each accounting system and ERP provider who has a vertical leading market share of customers across our existing and new targeted verticals, where there's an opportunity for significant transaction volume to be monetized.

Speaker 3: M3 is the hospitality market leader in cloud-based accounting solutions and data management platform, custom tailored specifically for the hospitality industry.

Speaker 3: Today, M3 has a customer base exceeding 1,000 management groups and owner operators, including 50% of the top U.S. hotel managers and operators in the United States.

Speaker 3: M3's accounting solutions work seamlessly with other critical back office hospitality systems and productivity tools for hotels of all sizes.

Speaker 3: This strategic partnership, which we expect to go live over the next two quarters, underscores the leadership of our payment and invoice solutions, including our industry-leading e-payment adoption levels, which lead our industry for B2B electronic payment monetization, coupled with our robust accounts payable automation software solutions.

Speaker 3: Similar partnerships in the past have yielded penetrations upwards of 50% of an accounting partner's customer base.

Speaker 3: We believe this opportunity is sized for similar levels of penetration over the next three to five years. We continue to innovate through these new integrations and deeper product functionality.

Speaker 3: On the integration front, we redoubled our penetration efforts into the nonprofit vertical with MIP under Gears 1 and 2 of our Avid Exchange Business Flywheel. MIP is a major cloud and on-premise based ERP focused on nonprofits. In addition, we already have integrations and partnership in the nonprofit vertical market with Blackbot.

Speaker 3: Our solid track record in reputation with Blackboard has been a catalyst to create networking effects by stimulating the market demand and driving non-Blackboard customers using MIP towards our solution.

Speaker 3: Through our robust invoice-to-pay API integrations built on our Avid Connect platform, MIP's 6,000 strong customers will see significant cost savings by digitizing their back office while enabling them to leverage our payment network to pay their suppliers. Embedding and integrating new industry-leading functionality into our...

Speaker 3: Our construction vertical products features our TimberScan and Titanium suite of play-ship accounts payable processing and content management software, which are so mission critical to our customer operations that one customer recently proclaimed that they would actually, to quote, crash and burn without Avid Exchange. We believe the integration of lean waiver management takes our construction product suite to the next level of being...

Speaker 3: Simply put, a lien waiver is a legally binding document that assures an owner or lender that a subcontractor or supplier has received payment for the agreed upon service or materials, and therefore weighs any rights the pile lien on the property.

Speaker 3: On any given construction project, there can be anywhere between hundreds and thousands of these lien waivers being processed monthly.

Speaker 3: Currently, this is a highly manual process and the functionality around loo waivers exists as a stand-alone offering.

Speaker 3: We believe our solution is a game changer for customers that is embedded, integrated and automated into our purchase to pay software workflow.

Speaker 3: Currently slated for general availability this quarter, our version 1.0 of our Lean Waiver management product starts with creating a Lean Waiver register. It then intakes and images the executed Lean Waiver, feeding the Lean Waiver data into a dashboard that tracks the status of the Lean Waiver while closing the loop with reporting capabilities. With a cohort of roughly 1,500 invoice-only existing buyer customers, we have a total

Speaker 3: We believe our Lean Waiver functionality will provide visibility and control within the entire purchase day process on one single platform for our construction customers, thereby increasing transaction volume across our Avid Pay network and accelerating the pace of our payment adoption within the construction vertical cohort.

Speaker 3: in turn, driving both years two and three of our Avid Exchange business flywheel. In summary, we are off to a strong start in the year with a solid set of first quarter 2023 financial results, highlighted by delivering adjusted EBITDA profitability ahead of expectations.

Speaker 3: As stated earlier, these results were driven by the following three themes. First, the resiliency of middle market companies as evidenced by our continued strong year over year top of funnel growth. Second, the biggest competitive advantage in leading the middle market continues to be our ability to monetize transactions through our Avid Pay network at a two to three times advantage over our.

Speaker 3: forward to a robust 2024.

Speaker 3: These achievements, combined with our expected accelerated path to adjusted EBITDA profitability for 2023, along with our strong balance sheet, positions as well to continue deepening our competitive moat as we have the financial wherewithal to reinvest in our core business to drive future growth.

Speaker 3: Of course, we are mindful of the volatile macroeconomic backdrop as it has manifested in some underlying volume headwinds with discretionary spending impacting middle market companies across our various vertical markets.

Speaker 3: As always, we continue to run strategic and operational scenarios and are prepared to continuously adjust if any key trends and leading indicators meaningfully change direction.

Speaker 3: Ultimately, we believe our standing as a public company coupled with our large balance sheet will enable us to capitalize on some of the macro volatility given the risk aversion among some clients to engage with smaller bootstrapped or venture backed competitors as evidenced by our strong top performing growth.

Speaker 3: We are also beginning to see increased activity inorganically through our M&A funnel as funding markets for venture backed companies has become more constrained.

Speaker 3: The bottom line is that the execution of each year of our Abbott Exchange Business Flywheel further reinforces our leadership status across the middle market, which we believe will unlock value for our shareholders.

Speaker 3: Before I turn it over to Joel, I wanted to mention that we are looking forward to seeing you at our upcoming Investor Day event on May 31st and June 1st, where we will be providing greater insights into our business.

Speaker 3: You can register to attend our investor day directly on our Abbott exchange website with that I'd like to turn the call over to my partner Joel will light Thanks, Mike and good morning everyone I'm excited to talk to you today about our first quarter 2023 financial results, which reflect continued execution of our growth

Speaker 3: That together with higher gross margins driven by yield expansion coupled with expense control led to our first profit on an EBITDA basis since our IPO. This adjusted EBITDA performance underscores the scope for operating leverage and resilience in our financial model.

Speaker 3: Roughly two-thirds of the revenue growth was driven by the combination of the addition of new buyer invoice and payment transactions which reflect increased e-payments to suppliers.

Speaker 3: The remaining third of our revenue growth this quarter is from contribution of interest revenues.

Speaker 3: Our strong revenue growth also resulted in total transaction yield expanding to $4.76 in the quarter, up 12.5% from $4.23 in Q1 2022.

Of the 12.5% increase, roughly half of the increase was driven by yield improvement and the remainder driven by interest revenue. Software revenues of $27 million, which accounted for 31.1% of our total revenue in the quarter, increased 12.8% in Q1 of 2023.

over Q1 of 2022. The increase in software revenues was driven by growth in total transactions of 8.3% with the balance driven by price.

Payment revenue of $59.2 million, which accounted for 68.2% of our total revenue in the quarter, increased 27.4% in Q1 2023 over Q1 of 2022.

Payment revenues reflect the contribution of interest revenues, which were $7.1 million in Q1 of 2023 versus $1.2 million in Q1 of 2022.

More than half of the 27.4% increase in payment revenues was driven by total payment volume, which was up 16.7%, and the remaining portion driven by interest revenues. On a GAAP basis, gross profit of $52.1 million increased by 33.4% in Q1 2023.

over the same period last year, roughly half of which was driven by a combination of yield expansion and efficiency with the remainder driven by higher interest revenue.

Now, moving on to our operating expenses.

On a GAAP basis, total operating expenses were $74.5 million, an increase of 16.9% in Q1 of 2023 over Q1 of last year. On a non-GAAP basis, operating expenses excluding depreciation and amortization increased 8 million dollars to 58 million dollars.

from 70.2% in the comparable period last year.

This highlights the operating expense leverage across sales and marketing, R&D, and G&A. I'll now talk about each component of the change in operating expenses on a non-GAAP basis.

non-GAAP sales and marketing costs increased $2.6 million or 16.1% to $18.9 million in Q1 of 2023 over Q1 of last year with the increase driven by the continued investment in our direct and channel strategies.

to acquire new buyers and supplier customers. non-GAAP research and development costs increased by 2.6 million dollars or 14 percent to 20.8 million dollars in Q1 of 2023 over Q1 of last year. The increase was due to continued investment in our products and our platform.

non-GAAP G&A costs increased by $2.9 million or 18.7% to $18.3 million in Q1 of 2023 over Q1 of last year, driven by a combination of higher expenses as we transition to become a public company. learningaway conclusion is not a mystery.

Our gap net loss was $16 million for the quarter versus a gap net loss of $25.1 million in the prior year period, driven by the combination of strong revenue flow through and expense control leading to lower operating losses, coupled with higher interest income and lower interest expense,

due to reduced borrowing costs and partial debt pay down. On a non-GAAP basis, our net loss in the first quarter was, in 2023, was $3.4 million, an improvement of $11.1 million compared to the year-ago quarter driven by the aforementioned factors. On a non-GAAP basis, adjusted EBITDA was approximately $400,000.

against an outstanding total debt balance of $83.3 million, including a note payable for $18.7 million. We had approximately $24 million on our credit facility undrawn at quarter end. Corporate cash, meanwhile, was split roughly 60% among money market funds, commercial paper, and U.S. Treasuries.

$2.1 billion with an interest rate of roughly 3.2% for the quarter. We expect interest rate levels on customer cash in excess of 4% fully reflected starting in the second quarter, absent any further increases in the Fed funds rate for the remainder of the year. The growers will have more than about 2 acres left over per a month on pretty close day up in in the next three to five years.? administrative staff can collect three to eightYeah, all the 6 door

I'll now provide an update on our full year 2023 guidance. In light of our first quarter 2023 financial outperformance, balanced with further volume impacts from macro crosscurrents, and based on all information currently available, we are raising our 2023 outlook and now expect total revenue for the year to be in the range of $365,000.

any political media revenue contribution in 2023 versus having recognized $8.5 million in 2022. We expect roughly 48% of the projected 2023 revenues to occur in the first half with the remaining 52% in the second half.

Similarly, we expect a higher non-GAAP adjusted EBITDA profit, ranging between $2 and $4 million for the year. With that, I'd now like to turn the call back over to the operator to open up the line for Q&A. Operator? Thank you. We will now begin the question and answer session.

To ask a question, you may press star and the one on your touch-tone phone. If you are using a speakerphone, we ask that you please pick up your handset before pressing the keys.

To withdraw your question, please press star then 2. Also, at the request of management, we ask that you please limit your questions to one at a time.

We will pause momentarily to assemble a roster.

And today's first question comes from Dave Konin with Baird. Please go ahead. Yeah, good morning guys. Great job.

This first question comes from Dave Kooning with Baird. Please go ahead. Yeah, good morning guys. Great job. Thanks Dave. Thanks Dave.

Yeah, and I guess a couple of questions. The first one in the payment segment, the yield was up both year over year and sequentially, but I wanted to focus on the sequential progression, which was really good because interest revenue drove maybe a little bit of it, but sequentially interest revenue didn't go up that much. So it seemed like there was some core progression. I don't know if it's from political ad, maybe being low yielding coming off or what, what that was, but just really nice progression.

and even inch up a little bit. Overall, year over year for the quarter, we were up 2.8 bps and sequentially up a bit, even removing, like you say, any impact from kind of float. And so, again, we were encouraged that it was steady during this environment, but wouldn't read too much into kind of a bit.

And then EBITDA guidance also kind of in that same ballpark. And so some say there's not a lot of core improvement. Maybe just talk about that a little bit, what maybe the puts and takes within the core part of it are.

Yeah, no, great question. And just coming back to... Look, we were super pleased with the outcome in the first quarter. Another beat on the top line, first quarter of EBITDA profitability in a period of time where we see buyers kind of moderating spend. And so, given the choppy environment and looking at the trends that we've seen, which again, kind of partway through Q...

You know, the last thing I would say is we have a lot of optionality, as Mike mentioned in his remarks, initially and we're really focused on continuing to focus on growth and driving more efficiency in the business and delivering a profitable year.

Gotcha, thanks. Great job. Thank you. Thanks, Dave. Ladies and gentlemen, as a brief reminder, we do ask that you please limit yourselves to one question to allow more parties to ask. Our next question today comes from Ramsey Elisol with Barclays. Please go ahead.

Hi guys, thanks for taking my question this morning. I wanted to ask about the hospitality vertical. Congratulations on launching that or launching it soon. I was wondering if you could comment on the eventual kind of revenue impact from adding that vertical and also just how should we think about the ramp after you guys, I think you said you were launching over the next two.

of existing customers that we have on the Avid platform, developing beachheads of customers. And we saw kind of the hospitality, customer base continue to grow. And once it gets to kind of 50 plus, approaching 100 customers is when we typically start to really take notice.

knowledge to attack to go to market in a particular vertical. And so that is very consistent with how we've created past verticals. With hospitality, one of the things that we think is kind of a great formula for what I'd say is kind of accelerating growth is with key partnerships. And so the M3 partnership

is certainly highly strategic related to the hospitality vertical. Typically with any kind of new partnership, I would say there's certainly a learning as we go through the education and training process with the M3 sales force, as well as how our team supports.

their team as part of this. And so I would say it's a gradual approach and typically we find that the second year of a relationship is always more robust than the first year as you have some of those learnings as you launch the vertical. But overall we think it has a lot of formulas for success.

especially in terms of how we're thinking about having a highly built inside embedded payment offering for their ERP system. So lots of excitement by our sales and go to market teams as it relates to the new vertical.

Got it, thanks so much. Thank you. Our next question today comes from Will Nance at Goldman Sachs. Please go ahead....

Hey guys, I appreciate you taking my question. So I guess for my one question I will ask, on the macro impacts on spending that you guys have been talking about now since last quarter, I guess you've got a couple more months to sort of get your arms around and observe the spending trends. Anything change in your expectations about, or just any notable observations that you would point out?

buyers and I'd sort of go back and largely repeat the way we described it in our last call. We're seeing that fairly broadly across all of our verticals, so no real kind of vertical to call out. That's been fairly consistent. And again, the types of spending is these discretionary buckets. We talked about advertising, marketing, professional services, type spending.

tenant improvements, that kind of construction related spending. And so that is consistent with the quarter having rounded out. And so I would really just kind of reaffirm the language we used and the way we characterized the environment in our previous call.

Got it. Sounds good. Sounds consistent. Appreciate you taking the question and nice results today. Thanks, Will. Thanks, Will. Thank you. Our next question today comes from Josh Beck with KeyBank. Please go ahead. Thanks for taking the question with the macro one off the table, which was very helpful.

Yeah, maybe I have a little bit more of a higher level market question, just given that FedNow will be launching in a few months here, just kind of curious on your high level views on real-time payments and kind of what the puts and takes there are.

for your business and then kind of B2B in general? Yeah, great question, Josh. And certainly from a kind of overall kind of industry perspective, it's something that we pay close attention to. One of the things that we believe is kind of core to our success.

is our ability to utilize multiple payment modalities, whether it be across the electronic payment spectrum, whether it be various form of virtual card, various form of our Avid PageRect, which is our closed-loop network, as well as leaning into the

what I would say, you know, some of the kind of the new kind of real-time rails whether it be RTP or kind of the FedNow and and so we expected those continue to be you know that we will lean in and related to certain use cases as we've done in the past. You know the one thing that I will say is that you know all these new payment modalities.

and then B, the acceptance. But where we really lean into and the value that we provide, you know, across any of these new payment methods is the ability to get the reconciliation data that suppliers need to make these transactions really efficient to them in an integrated way so they can, you know, use it to auto reconcile. And so I think that's one of the biggest value propositions that we deliver.

and control across our network of now approaching a million suppliers on the AvotPaid network is our ability to get them the reconciliation data in the format that they need.

Super helpful. Thanks, Mike. Thanks, Josh. Thank you. Our next question today comes from Craig Mauer with FT Partners. Please go ahead.

Hi, thanks for taking the questions. Two questions. One, are you seeing any lengthening in the contract process that is typical when you're going into a questionable macro backdrop? Second, are you seeing any lengthening in the contract process that is typical when you're

The yield on TPV was up nicely year on year. Can you talk about if there's any shift in the proportionality of payments going over individual rails that might have helped that? Thanks. Yeah, great thing, Craig. I appreciate the question.

So first of all, it relates to the macro on what I'd say the sales slash contracting process. As we've talked about in our strong top of funnel, we're seeing pretty really robust engagement across really all now nine of our verticals plus the horizontal segment. We are seeing kind of consistent.

behavior as we referenced last quarter, that you know, sales cycles have been extended a couple weeks over kind of what they've been historically. And that stayed consistent, you know, this quarter as well. So, you know, taking a—

a two, three month sales cycle and adding a couple weeks to it is what we've seen over the last couple quarters related to that contract process.

sales cycle and adding a couple weeks to it is what we've seen over the last couple of quarters related to that contract process.

As it relates to the second question around changes in mix related to TPV, it's been very consistent. We continue to lean in to continue to increase the different forms of payment modalities, whether it be a different form of...

virtual card at different price points related to suppliers as well as our closed-loop network. And one of the things that continues to surprise us a little bit is that it's really the number one driver of acceptance relates to what their process is on the receiving side and how they can get the data electronically.

real time combined with paper check has really stayed consistent that we saw in the past quarter as well.

Thanks Mike. Thank you. And our next question comes from Brian Keen with Deutsche Bank. Please go ahead. Hi guys. Congrats on the solid results here. Just kind of two high level guidance kind of questions. So it sounds like...

48% revenue in the first half, 52 in the second. If I do the quick math on that, it looks like a little stronger growth than consensus expected for second quarter, and then it may be a little softer growth in the back half. I just want to think about the cadence there of first half or second half.

And then Mike, when you talk about a robust 2024, are you talking about the potential for an economic recovery there? Are you also talking about new launches, fundamental business catalysts that give you the confidence for a robust 24? Thanks.

Yeah, Brian , let me jump in on that. So first, just kind of the guidance cadence. So we were... In the first quarter, our practice has been to every quarter update our annual guidance, but not to provide next quarter guidance. We did in the Q&A in the first quarter do so, given the proximity to the end of the quarter and in light of the choppiness that we were talking about. And so...

While we haven't given guidance specifically for Q2, we did characterize the front half, back half. And I would just say, you know, backing in, using the math that you described, you know, what you're probably seeing is a reflection of our fundamental assumption that supports our guidance forecast, which ultimately is consistent unevenness and choppiness. And so we haven't made an assumption that it gets meaningfully better or meaningfully worse.

But we're excited with a good quarter behind us on this path to profitability that we saw for the year. And then the last thing, maybe I'll let Mike jump in. Obviously, at this point, given the conditions that we're in now, we're not providing guidance for 2024 and we're not necessarily operating the business assuming that conditions would be much different than what we see today.

And I think my robust comments really relate to doing the things that we know contribute to strong customer growth as we continue to see in top of funnel activity. And it's really driven by our continued vertical market expansion, certainly as we go into next year, seeing the hospitality vertical and some of our other subverticals that continue to progress.

is exciting along with the new partnerships that support it. And then lastly, kind of the new features and offerings, whether it be the ones that we talked about on this call with lean waiver management and kind of new integrations. But we also are getting ready for our new invoice accelerator 2.0 offering.

to release the second half of the year. And so certainly that will have an impact related to continue to add new customers both in the buyer and supplier side as we go to 24.

Helpful, thanks so much. Thank you, and our next question comes from Tien-Hsin Huang with JP Morgan. Please go ahead.

Thanks. Appreciate it. Good update here. Just a clarification on the question. I think Craig asked it, but just with the top of funnel activity, I think you mentioned double digits on track in this quarter.

So I think it was 20% in Q1, so I'm just curious if we should expect a little bit of a slowdown if I'm interpreting that correctly and then my question for Joel on gross margin considerations for for the rest of the year because that did come in quite strong in the first quarter given some of the yield dynamics and float. So any thoughts on QQ for the second half? Thank you.

Yeah, good questions, Tejean. So I'll take the first one. And I think my comments related to top of funnel. So certainly we've continued to see really strong top of funnel as I talked about. And north of 20% plus on average over a year ago.

And what we're seeing, obviously we're just into the second quarter or so, but we're seeing activity that's very consistent with what we've seen and what we saw in Q1, but have kind of one month a day, but we expect to...

to have consistent top of funnel. So I wouldn't characterize any slowdown related to top of funnel activity.

And Tingen, maybe I'll take the second part of your question just on gross margins. Again, we've said that our path to profitability tracks kind of the consistent gross margin improvement. We're pleased with the outcome in the quarter at 67%. And even removing the impact of float and political as we've done in the past, over 300 bits. We'll see what happens to reopened readers at equilibriumandt BDU. Join meeting these concern markches.

So, we feel good about the results. We feel like we're on track on that path to profitability, even amidst a choppy environment, as we've said. I would sort of hold with, and we're not meaningfully change the guidance that we provided in the last call around the expectation that we see a couple hundred basis points.

James Fauset with Morgan Stanley . Please go ahead. Great, thank you very much, and thanks for all the color this morning. Maybe I want to talk a little bit about the accelerated path to profitability that we've seen.

Can you talk a little about the biggest drivers that you've been able to find from an OpEx and scaling perspective that allowed you to get there ahead of time? How can we be thinking about potential for incremental leverage on a go-forward basis? Thanks. Can companies later in the 20th century differentiate the

Thanks James, great question. And basically what I would, the way I would respond is we're seeing it where we expected to see it. We've been intentional about this focus on continue to make investments in growth and you're seeing us do that, but also to be very intentional about the efficiency in our business. And it starts with that gross margin expansion on its way to the 70% zip code. Make sure your Sept & challenging. Go to Canal Heck, threevast.com electrical project, chatter at Metec professional Giant Air, and mantle host, Brock inch crew,aves Houston challenged me in favor. reignite

We've talked about that being the result of improved revenue yield and also operating efficiencies. We're seeing both of those occur. Obviously the float revenue dynamic has helped expand that yield and so that's benefited us. But in addition to that, we're seeing efficiencies like we said we would in G&A as we round out the post first year after being a public company having built that.

infrastructure along with where we will continue to see it from an R&D perspective. So I'd say we're seeing it as we expected and really ahead of schedule on a couple of those dimensions as well. Yeah, and just so we may add a little bit clever to take what Joel said and relate it back to a product feature type perspective of what we're seeing.

and so I've continued to build that gross margin as well.

That's great. Thanks.

You bet. Thank you and our next question today comes from Tim Chiodo with Credit Suisse. Please go ahead.

Great, thank you. Good morning and appreciate you taking the question. I want to follow up on a topic that came up earlier in the call and I believe this came up on the Jack Henry call this morning as well around FedNow. So the question is, you mentioned that there's an issue sometimes around adoption, acceptance, you mentioned reconciliation, and that's a lot of the advantage that Avid PayDirect can provide.

Could we just see more of a mix shift of instead of using traditional ACH that you could slot in RTP FedNow into Avid PayDirect and essentially

I guess what I'm getting at is can you reduce costs for the system overall by doing that, but at the same time maintaining your own unit economics? Yeah. So Tim, I would say that falls in the category of a gold star question. So this is kind of a passion of ours.

We believe that the FedNow and other RTP gives us an opportunity to not only grow our different payment modalities, but also do so at unique price points around the timing and delivery of good funds to a supplier. We absolutely expect to leverage the different payment modalities that have timing.

to create different offerings at different price points. We think that's an overall formula to drive acceptance and the reason why we have the big 2x-3x advantage in the marketplace today in monetization. Excellent, thank you Michael.

Our next question today comes from Brent Bracelen with Piper Sandler. Please go ahead. Good morning. I actually wanted to drill down into technology if I could here just as we think about how you're leaning into automation AI.

You've talked about some things you're doing with Microsoft on IDC with leveraging Azure AI and OCR. Can you talk a little bit more where you're at on those processes? How much cost savings are you seeing so far and how much more is there to come? Thanks. Yeah, so that's a big bucket.

as it relates to how we're thinking about, could I say, deploying AI-type technology. We already have leaned into it already with some of the products that we talked about in the past with Microsoft developing our intelligence data capture product. Lots of really new technology that's incorporated into that offering.

And certainly, kind of the perforation of ChatGPT is a good example where we actually had recently a dedicated offsite meeting with our executive team in which to talk about all the different kind of use cases and strategies across every function of our business. And so certainly historically there's been key areas in operation.

think that's the part that makes it exciting. And so we're very focused on really every team developing the top three use cases and doing a lot of testing and learning as the year unfolds to really incorporate those into more of our efficiency strategies going forward.

Thank you. And our next question today comes from Darren Power with Wolf Research. Please go ahead. Hey guys, it's Andrew on for Darren. Just a quick one on the payment revenues. Relative to internal expectations, would you attribute the quarter top performance to more function of higher payment penetration and engagement?

or more function of greater volumes. And if the former, just curious, you know, what kind of growth is coming from, again, the higher engagement with prior existing customers versus maybe net new buyers that ramped interquarter. Thanks.

Hey Andrew, I'll take that one. I'd really attribute the beat in the quarter to the volume. We pointed out the choppiness, we pointed out the assumptions that we made, and it has been uneven. We had some unevenness in the front end of the corner and then a strong finish in March. That's really the key driver there.

I'll take that one, yeah. I'd really attribute a beat in the quarter to the volume. We pointed out the choppiness, we pointed out the assumptions that we made, and it has been uneven. We had some unevenness in the front end of the corner, and then a strong finish in March. That's really the key driver there. Great. Thanks, y'all.

Ladies and gentlemen, this concludes our question and answer session. I'd like to turn the conference back over to the management team for any closing remarks. Yes, thanks everybody. Again, we believe we delivered a strong Q1 and are cautiously optimistic for the remainder of the year. Also, a reminder, we look forward to seeing all of you at our upcoming investor day event, May 31st and June 1st.

where we will again provide greater insights into our business. And with that, we'll close today's call. Thank you, sir. Today's conference has now concluded, and we thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.