Q3 2024 Avidxchange Holdings Inc Earnings Call

Good morning everyone, and thank you for joining us for the Avid Exchange Holdings Inc. 3rd Quarter, 2024 earnings call.

Joining us on the call today is Mike Praeger, Avid Exchange Co-founder and Chief Executive Officer, Joel Wilhite, Avid Exchange Chief Financial Officer and Subash Kumar, Avid Exchange's head of Investor Relations.

Before we begin today's call, Management has asked me to relay the forward-looking statements disclaimer that has included at the end of today's press release. This disclaimer emphasizes the major uncertainties and risks inherent in the forward-looking statements that the company will make this afternoon.

Please keep these uncertainties and risks in mind as the company discusses future strategic initiatives, potential market opportunities, operational outlook and financial guidance during today's call.

Also, please note that the company undertakes no duty to update or revise for looking statements.

Today's call will also include a discussion of non-gap financial measures. As that term is defined in regulation G. Non-gap financial measures should not be considered in isolation from or as a substitute for financial information presented in compliance with GAP.

Accordingly, at the end of today's press release, the company has provided a reconciliation of these non-gap financial measures to financial results prepared in accordance with Gap. With that, I will now turn the call over to Mike Praeger.

Mike Praeger: Hello, everyone.

Mike Praeger: Thank you everyone for joining us today. Joel Wilhite and I are excited to discuss Abbot Exchange's third quarter of 2024 results.

Mike Praeger: A third quarter results were all around solid across all the key metrics including gravity growth, margin expansion, positive gap, net income, free cash flow and a solid balance sheet.

In addition, we made good in our commitment to return cash to shareholders as part of our $100 million share repurchase program.

Mike Praeger: talked more about the quarterly financial results at a moment. But one of the highlights of this quarter was the underlying trend data we are seeing.

Mike Praeger: In particular, we saw our transactions retained at our network, or our transaction retention, as we call it, a key same-store metric in selecting positively from a pattern of deceleration in the past two years over compared to sequential time periods.

Mike Praeger: In addition, we saw our top of Phonolectivity, strongly support our new customer buyer of Logo Additions.

Mike Praeger: I will further expand on these observations later during my prepared remarks.

Mike Praeger: When talking about the large, real-field market opportunity that we believe is ahead of us, it is understandable to sometimes loose perspective given the noise and impact of the current macroeconomic dynamics.

Judging the future trajectory of the business opportunity over the next five-plus years, within the Accounts' Pable and Payments Automation Space.

Mike Praeger: Based on a fixed point of time, we believe under values, the largest strategic value, both our market opportunity and competitive mode. We are building, particularly on the B2B payments automation front for middle market companies.

Mike Praeger: This B2B payments opportunity appears to have reach a pivotal point.

Mike Praeger: In fact, it appears so mission critical that Mastercard, which is a strategic investor and partner of Advantage Exchange, has re-architected its organizational structure across three factors with B2B payments being one of the three directly reporting to their CEO, Michael Maybach.

Mike Praeger: with the younger generation of CFO Treasurers and Confroler's focus on productivity and profitability, especially more so, given that cost.

Mike Praeger: of Capital has revered to more normalized levels. Mastercard bleeds these future generations of finance leaders are looking for tools from domain experts to unlock the opportunity for buyer and supplier customers.

Mike Praeger: Assaults, Mastercard remains bullish and committed to advancing card adoption across the B2B landscape. Two paraphrase Michael Maybach who recently opened on B2B invoice payments at a recent investor conference.

Mike Praeger: As the leading middle market focus, B2B, Accounts Pable Automation and Payments Player in the market. We believe that the average danger is sitting at the epicenter to capitalize on these trends refer to a but mastercard.

Mike Praeger: We do not believe that there is another pure play publicly traded B2B account payable automation and payments company in the industry focused on the middle market segment that has a domain expertise as well as the technology, integration, data, operational and license stack, home over more than two decades.

Mike Praeger: Nor is the European play across the middle market that has the scale of revenues, the breath of industry verticals as well as the breath and library of accounting system integrations as Avid exchange does today.

Mike Praeger: This is due to having exchanges for early mover status in the accounts payable in payments automation space.

Mike Praeger: and the realization early on that the success imperative in the space of building a true two-sided payment network driving industry-leading monetization penetration

Mike Praeger: would necessitate a differentiated value proposition uniquely created for our 8,000 buyer customers and over 1.2 million supplier customers that we have today.

Mike Praeger: Our Advocate Network creates a virtuous cycle of not only buyer customers attracting supplier customers and vice versa but also Accounts Payable Automation customers adopting payment solutions and vice versa.

Mike Praeger: Our talented team is delivering rapid, material, and quantifiable value in both current cost efficiency, productivity, and future scalability of our customers back-office, AP, and payment initiatives, which advances our future growth and fuels our profit potential.

Mike Praeger: I believe the best way to make the narrative around the benefits of accounts payable and payment automation tangible is to continue showcasing customer success stories shared by middle market finance leaders seeking our solution to drive productivity for their organizations.

Mike Praeger: One such is Orthodontic Partners, which is part of an emerging dental sub-vertical within our fast-growing healthcare facilities vertical market.

Mike Praeger: Based in Grand Rapids, Michigan, Orthodontic Partners provides accounting and administrative services to over 30 orthodontic practices across 15 states on its NetSuite accounting platform.

Mike Praeger: allowing their back office staff to focus on their core competencies.

Mike Praeger: Our solution set was perfect fit for their growing set of challenges in processing invoices manually, which numbered in the hundreds on a weekly basis.

Mike Praeger: This created significant downstream challenges for orthodontic partners leading to delays, lost checks, and challenges in routing approvals to remote and traveling approvers.

Mike Praeger: Due to Avid Exchange's deeply embedded accounts payable integration partnership with NetSuite, Ortho90 Partners was able to streamline their invoice and payment processing without leaving the native NetSuite application and user experience.

Mike Praeger: This resulted in increased productivity for orthodontic partners across its procure-to-pay cycle, making thousands of invoices easily available and speeding up the invoice approval workflow across their 30 offices.

Mike Praeger: Matt Sanders, an accounts payable specialist with the Orthodontic Partners, put it best when he said, with Abbott Exchange, we get more critical tasks accomplished, which gives us more time to focus on other strategic business initiatives that normally we wouldn't have the bandwidth for.

Speaker Change: Turning now to some of the performance highlights and metrics from the third quarter of 2024 that underscore our value proposition and demonstrate our continued strong execution.

Mike Praeger: Revenue for the quarter was just under $113 million, or over 14% year-over-year growth. The growth in the quarter was led by a combination of quarterly rebound in transaction volume, aided by transaction retention and transaction yield growth strategies.

Mike Praeger: Non-GAAP gross margins, meanwhile, continue their upward trajectory.

Mike Praeger: AI, sourcing, and standardization, which are still somewhat in the early stages, continue to bear significant fruit.

Mike Praeger: It is worth reminding investors that transaction yield is a metric that we have consistently messaged since our IPO as a primary metric we focus on across our leadership team as it demonstrates the power and effectiveness of our Avid Exchange business flywheel.

Mike Praeger: With that overview, I'm excited to cover key topics in two parts that will shed light into the various initiatives that we believe will fuel our future growth.

Mike Praeger: Number one, the first part being our top of funnel activity and other sales key metrics which provides insights into sales setup for 2025 and beyond.

Mike Praeger: and second, I will discuss strategic partnerships which will further drive years two and three of our AVID Exchange business flywheel.

Mike Praeger: Let's start with our top of funnel and other underlying indicators driving our go-to-market motion.

Mike Praeger: The picture for the comparable nine-month period of 2024 versus 2023 bi-vertical was encouraging as we saw the HOA or Homeowners Association management market, construction, healthcare, etc. show moderate improvements while real estate education and media continued to exhibit strong growth momentum.

Mike Praeger: For instance, we mentioned that we would be more targeted in the selection of trade shows and industry user conferences that we attend, which would result in potentially fewer, but much more highly qualified leads.

Mike Praeger: The same framework was applied to lead and demand generation channels, including reallocating resources to partnerships to drive higher quality and more actionable leads versus broadly spreading our resources across digital marketing channels.

Mike Praeger: The result of this go-to-market adaption has been what we believe is a favorable trade-off between the quantity and quality of comparable top-of-funnel leads, which showed up in improved closer rates, shorter sales cycles, and buyer-customer growth count, encouraging pacing ahead of 2023 levels.

Mike Praeger: Now shifting to the second part of the key topics I'd like to talk about, about the four gears of the Avid Exchange Business Flywheel. We recently signed some additional notable strategic partnerships, which we believe will advance gears two and three of our business flywheel, both of which drive transaction volumes onto our platform to be monetized.

Mike Praeger: highly aligned themselves to vertical industries that have either unique accounting or business process that require them to use vertical specific ERP accounting systems to run their business and financial operations.

Mike Praeger: One of the emerging verticals in which we operate is healthcare facilities, which is around 5% of our buyer-customer base today, and is attractive in high-growth segment of the market.

Mike Praeger: This vertical is comprised of many sub-verticals or sub-domains, including long-term and elderly care centers.

Mike Praeger: dental centers, veterinary centers, and so on. In addition to the elderly care centers, we have been growing our portfolio of dental centers using our accounts payable and payment automation offerings.

Mike Praeger: That effort has just received a major boost with the addition of a formalized referral partnership with one of the leading global distributors of healthcare products and technology solutions, which also happens to house a dental support organization practice, or DSO as it's called in the industry.

Mike Praeger: This large and rapidly growing player selected Avid Exchange due to our marquee client list of DSO providers, proven track record in the DSO market space, and the strength of our purpose-built value proposition.

Mike Praeger: A dental service organization provides back office support function to dental offices ranging from staffing, procurement, and spend management to functions around the office of the CFO.

Mike Praeger: The DSO market is large and fragmented with some estimates putting the number of DSOs at over 3,000 and approximately 135,000 individual dental offices just in the US market alone.

Mike Praeger: Through our accounts payable and payment automation solution, we are positioned to capitalize on this growing DSO market, in which DSO entities currently manage around 30% of the 135,000 dental offices under the DSO structure today.

Mike Praeger: Given our proven track record in the DSO space, which is propelling the referenceable base of DSO clients in our portfolio, we are well positioned to capitalize on this market.

Mike Praeger: As this national DSO provider ramps its sales headcount around its DSO practice, Abbott Exchange will be its preferred referral partner on invoice and payment solutions.

Mike Praeger: Not only do we believe our value proposition has a strong product and market fit for the DSO industry,

Mike Praeger: We believe that DSOs create a fertile ground to pursue other equally attractive opportunities around care adjacencies such as ambulatory surgical centers, veterinary care centers, radiology centers, etc.

Mike Praeger: Also under Gears 2 and 3 of our business flywheel, we recently forged some strong, strategic, significant bank-seller relationships.

Mike Praeger: For context, we have executed channel-led, white-labeled reseller bank partnerships with super regional and money center banks such as KeyBank, Fifth Third, and Bank of America.

Mike Praeger: Leveraging this credibility and standing up these three major bank partnerships over the last decade, we've embarked on a sales strategy to broaden and deepen our bank partnership portfolio, and recently signed three premier diversified regional and independently community banks.

Mike Praeger: and Orange Bank & Trust, two of which we can't announce publicly.

Mike Praeger: These banks with a footprint largely across the northeast and southeast quarters of the U.S. boast a combined total of roughly 50,000 commercial customers across these markets.

Mike Praeger: With the reseller partnerships slated to go live over the next three quarters, we're excited to empower these banks with our suite of accounts payable and payment automation capabilities for their middle market customer base.

Mike Praeger: Success with these new partnerships could be self-replicating by helping us penetrate the thousands of these other regional community banks in the coming years.

Mike Praeger: In closing, we are proud of our strong third quarter operating and financial results, which is leading us to upwardly revise our 2024 business outlook.

Mike Praeger: These results were strong across the board.

Mike Praeger: The discipline we have demonstrated in executing the levers that are within our control are second to none.

Mike Praeger: And having seen an inflection in our transaction retention trends, we are encouraged, granted that it's one quarter's worth of data, and retention trends are still sub-100% versus the 104-105% normalized range we've seen in the past.

Mike Praeger: Our portfolio of new product innovation and enhancements such as Payment Accelerator 2.0, our new Pay Platform, and Spend Management offerings are sequenced for scaling.

Mike Praeger: There are sizable strategic partnerships that we've announced over the last 18 months, including Atfolio, Bildium, and M3.

Mike Praeger: You couple that with the innovation pipeline that we have in leveraging AI across our vast library of integrations to accelerate the creation of ERP integrations as well as employing AI across the operational value chain.

Mike Praeger: We believe we are well positioned to deliver a heavy payload of greater value to our customers and improve growth outcomes for our business.

Mike Praeger: Of course, we are mindful of the macro cross currents and the potential for headwinds to test us.

Mike Praeger: But we also strongly believe that our vision of a long runway of growth opportunity in the accounts payable automation and payments industry, which we consider to be in its infancy of adoption.

Mike Praeger: We remain focused on closing 2024 on a strong note and believe we are set up for a strong trajectory in 2025.

Mike Praeger: I want to provide a special thanks to all of our Avid Exchange team members for their hard work, dedication, and relentless focus in executing our operational and strategic priorities that drive value for our customers.

Mike Praeger: creates opportunities for their professional growth and builds long-term value for all of our shareholders.

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

Joel Wilhite: Thanks, Mike, and good morning, everyone. I'm pleased to talk to you today about our strong third quarter 2024 financial results, which reflect disciplined operational execution, as well as a positive inflection and transaction retention trends, which have been decelerating amid continued macro choppiness.

Joel Wilhite: Overall, we delivered a solid quarter of year-over-year financial performance across the board.

Mike Praeger: I'll expand on that in a moment, but let's see how we track relative to implied expectations.

Mike Praeger: relative to the implied third quarter 2024 business outlook and excluding float and political revenue contribution.

Mike Praeger: Revenues came in above our implied expectations, driven largely by higher total transaction volume, partly helped by better transaction retention trends.

Mike Praeger: Gross margin performance remains strong due mostly to ongoing progress on unit cost initiatives and to a minor extent due to lower performance bonus of rules.

Mike Praeger: That, together with sustained operating expense leverage, aided by slightly lower annual performance bonus accruals, we drove significant adjusted EBITDA outperformance relative to expectations.

Mike Praeger: It's worth pointing out that this continues our streak of delivering adjusted EBITDA profit expansion, excluding the impact of float and political revenues.

Mike Praeger: Equally noteworthy, we delivered our second gap net income quarter since going public in 2021.

Mike Praeger: Before I walk through year-over-year financial performance, I want to point out that in the third quarter of 2023, we had a favorable out-of-period adjustment related to a Deferred Revenue Cleanup.

Mike Praeger: of $1.5 million, which was favorable to third quarter 2023 revenues, gross profit, adjusted EBITDA, and net income.

Mike Praeger: Now, turning to year-over-year results, total revenue increased by 14.3% to $112.8 million in Q3 of 24 over the third quarter of 2023.

Mike Praeger: Adjusting for the out-of-period adjustment, year-over-year third quarter 2024 revenue growth would have been 16.1 percent.

Mike Praeger: More than three-quarters of the revenue growth was driven by a combination of pay-yield expansion and the addition of new buyer invoice and payment transactions. The remaining revenue growth this quarter was driven by higher year-over-year float and political revenues.

Mike Praeger: Our strong revenue growth also resulted in total transaction yield expanding to $5.59 in the quarter, up 8.5% from $5.15 in Q3 of 2023.

Mike Praeger: Without the out-of-period adjustment in the year-ago quarter, total year-over-year transaction yield growth would have been 10.2%. More than three-quarters of the increase was driven by software and pay yield and higher payment transaction mix, with the remainder due to float and political revenues.

Mike Praeger: Software revenue of $30.7 million, which accounted for 27.2% of our total revenue in the quarter, increased 6% in Q3 of 2024 over Q3 of 2023. Without the out-of-period adjustment in the year-ago quarter, software revenue growth would have been 10.4%.

Mike Praeger: The increase in software revenues was driven by a combination of growth in total transactions and certain subscription-based revenues.

Mike Praeger: Payment revenue of $80.7 million, which accounted for 71.6% of our total revenue in the quarter, increased 17.8% in Q3 of 24 over Q3 of 23.

Mike Praeger: Payment revenue reflects the contribution of interest revenues, which were $12.7 million in Q3 of 24, versus $10.6 million in Q3 of 23.

Mike Praeger: Political media revenue in the current quarter was approximately $2 million and negligible in the same period a year ago.

Mike Praeger: excluding the impact of float and political revenues from both comparable periods, payment revenues grew 14.8 percent, driven by a combination of an increase in pay yield, greater payment mix, and payment transaction volume increase of 9.4 percent.

Mike Praeger: On a gap basis, gross profit of $76.4 million increased by 22.5% in Q3 of 2024 over the same period last year resulting in a 67.7% gross margin for the quarter compared to 63.2% in Q3 of 23.

Mike Praeger: Non-GAAP gross margin increased 450 basis points to 74.5% in Q3 of 2024 over the same period last year and 500 basis points increased without the out-of-period adjustment, with the lion's share of the increase driven mostly by unit cost efficiencies and yield expansion and to a minor extent by lower annual performance bonus accruals.

Mike Praeger: targeted for 2025 as projected during the company's June 2023 Investor Day.

Mike Praeger: Moving on to our operating expenses. On a gap basis, total operating expenses were $81.1 million, an increase of 4.6% in Q3 of 2024 over Q3 of last year.

Mike Praeger: increased as well by 5.3% to $60.7 million in the third quarter of 2024 from the comparable prior year period.

Mike Praeger: With the increase driven by a range of investments in product, technology, sales initiatives, and headcount, partially offset by slightly lower annual performance bonus accruals.

Mike Praeger: On a percentage of revenue basis, operating expenses excluding depreciation and amortization and stock-based compensation, or non-GAAP OPEX, declined to 53.8% in the third quarter of 2024 from 58.4% in the comparable prior year period.

Mike Praeger: I'm equally pleased to say that third quarter 2024 non-GAAP OPEX as a percentage of revenues in the quarter was also in the 50-55% range targeted for 2025 as projected during the company's June 2023 Investor Day.

Mike Praeger: Overall, the year-over-year percent of revenue decline largely highlights expense discipline and significant operating leverage across G&A, sales and marketing, as well as R&D, even after stripping out the contribution of float and political revenue.

Mike Praeger: Now I'll talk about each component of the change in operating expenses on a non-GAAP basis.

Mike Praeger: to $19.7 million in Q3 of 2024 over Q3 of last year.

Mike Praeger: with the increased investments in sales and marketing spend to support our continued growth, partially offset by slightly lower bonus accruals.

Mike Praeger: Non-GAAP research and development costs increased slightly by $374,000 or 1.7% to $22.1 million in Q3 of 2004 over Q3 of last year.

Mike Praeger: The increase was due to continued reinvestment in our products and platform, including spend management, pay offering, and payment accelerator, partially offset by slightly lower bonus accruals.

Mike Praeger: Non-GAP-GNA costs increased slightly by $481,000, or 2.6%, to $18.9 million in Q3 of 2024 versus Q3 of last year, net of slightly lower bonus accruals.

Mike Praeger: As a percentage of revenues, G&A costs continue to trend lower as we continue to leverage public company costs across a larger revenue base.

Mike Praeger: Our gap net income was $4 million for the third quarter of 2024 versus a gap net loss of $8.1 million in third quarter of 2023.

Mike Praeger: With the $12.1 million positive swing in net income, driven largely by a combination of strong revenue flow-through, solid gross profit increase, and expense control,

Mike Praeger: leading to a significant positive swing in operating income, coupled with higher net interest income due to reduced borrowing costs and partial debt paydown.

Mike Praeger: a six cent positive swing from the same comparable period last year. Both third quarter 2023 gap net income and earnings per share reflect $1.5 million and approximately one penny, respectively, of previously discussed favorable contribution.

Mike Praeger: On a non-GAAP basis, our net income in the third quarter of 2024 almost tripled to $15.7 million versus $5.8 million in the same year ago period.

Mike Praeger: with non-GAAP earnings per share more than doubling to $0.07 versus $0.03 in the same year-ago third quarter.

Mike Praeger: Both third quarter 2023 non-GAAP net income and non-GAAP earnings per share reflect $1.1 million and approximately one penny, respectively, of previously discussed favorable contribution. All of the net income performance was driven by the aforementioned factors.

Mike Praeger: On a non-GAP basis, Q3 2024 adjusted EBITDA was $23.3 million.

Mike Praeger: versus $11.4 million in Q3 of 2023, largely due to the aforementioned factors. Third quarter of 2023 adjusted EBITDA also included a favorable out-of-period adjustment in the year-ago period related to deferred revenue cleanup of $1.5 million.

Mike Praeger: Now turning to the balance sheet for a moment, I want to touch on a few key items. We ended the quarter with a strong corporate cash position of $394.3 million of cash and marketable securities against an outstanding no payable balance of $13.9 million.

Mike Praeger: At quarter end, our new credit facility, which consists of a $150 million revolver with a $150 million accordion feature, as well, remained undrawn.

Mike Praeger: During the quarter, the company utilized $25.1 million of cash from its balance sheet to purchase 3.1 million of its own shares at an average price of $8.05 under its $100 million share repurchase program.

Mike Praeger: announced August 2024.

Mike Praeger: Corporate cash, meanwhile, was split roughly two-thirds in deposit accounts and one-third among money market funds, commercial paper, and time deposit instruments.

Mike Praeger: The weighted average maturity on the corporate cash was roughly 26 days, while the effective interest rate on our corporate cash position for the third quarter was roughly 5%.

Mike Praeger: Customer cash at quarter end remained unchanged sequentially at approximately 1.2 billion dollars with an interest rate of roughly 4.9% for the quarter.

Mike Praeger: to $439 million. Our 2024 revenue outlook reflects approximately $50 million of interest revenues from customer funds, a $1 million increase from our previous 2024 outlook, and versus $41 million earned in 2023.

Mike Praeger: Also, we now anticipate political media revenue contribution of approximately 6.5 million dollars versus our previous expectations of 9 million dollars.

Mike Praeger: As we've mentioned before, this is our first presidential cycle under FASPAY. Recall, we acquired FASPAY in 2021. And for context, in 2022, during the midterm election cycle, the political arm of FASPAY generated roughly $8.5 million in revenues.

Mike Praeger: Similarly, we now expect non-GAAP adjusted EBITDA profit ranging between $78 million and $79 million for the year, up from our previous range between $73 and $75 million.

Mike Praeger: We also expect 2024 non-GAAP diluted earnings per share in the range of 24 cents to 25 cents.

Mike Praeger: With that, I'd like to turn the call back over to the operator and open up the line for Q&A. Operator?

Speaker Change: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone.

Speaker Change: If you are using a speakerphone, please pick up your handset before pressing the keys.

Speaker Change: If at any time your question has been addressed, and you would like to withdraw your question, please press star then 2.

Speaker Change: In the interest of time, we would ask that you please limit yourselves to one question only. At this time, we will pause for just a moment to assemble our roster.

Speaker Change: And our first question today comes from Dave Conning with Barrett. Please go ahead.

Speaker Change: Yeah, great question Dave, and thanks for that. Look, here's what I would just say, I said before, you know, be careful, you know, reading too much into kind of a BIP up or BIP down and TPV yield. Remember, we're really focused on the North Star metric for us of overall

Speaker Change: Total Transaction Yield, simply total revenues over total transactions. We're comfortable with the monetization strategy and suppliers are going to continue to make decisions around the optimal way to get paid, but we're pleased with the quarter, pleased with the overall yield and revenue results.

Speaker Change: Thanks, guys.

Speaker Change: And our next question today comes from Will Nance with Goldman Sachs. Please go ahead.

Will Nance: Hey, I appreciate you taking the questions. You had some upbeat commentary on some of the trends you're seeing on top of Funnel and some of the verticals that had been seeing some choppier performance. So I was just wondering if you could kind of expand on that and the nature of some of the activity that you're seeing. And then just separately, just commentary on transaction retention. Isn't that nice to see the acceleration in transactions this quarter? What are you kind of seeing kind of under the hood, and what's kind of your latest thinking in terms of where we are and the kind of reset in business spend that we've witnessed over the last year or so?

Speaker Change: Thanks.

Speaker Change: So, yeah, first of all, on the kind of just top of funnel to go under the hood on that one first, I would say, you know, kind of point to, you know, all the strategies that we've been talking about, you know.

Speaker Change: You know, executing over the last couple of quarters related to adjustments and top of funnel, I think we're seeing paying off. And particularly this quarter, I would highlight, you know, kind of five areas of strength. One continued strong momentum in real estate, vertical, financial services, HOA, emerging markets led by kind of healthcare facilities.

Speaker Change: and then the fifth one being existing customers.

Speaker Change: I would say, you know, within, you know, kind of those five areas of strength, you know, the results that we're seeing are paying off in terms of one, you know, being really pleased with new logo growth as that, you know, continues to kind of trend ahead of last year and the shortening of our average sales cycle and, you know, continue strong close rates.

Speaker Change: So that's, I think, the kind of the under the hood related top of funnel and maybe Joel.

Speaker Change: can tackle the second part.

Speaker Change: growth improvement. And we are pleased with that. Both invoice and payment retention levels improved.

Speaker Change: Honestly, for us in the quarter, I just want to be clear, one quarter's...

Speaker Change: Joel Wilhite, CFO Alphabet and Google

Speaker Change: We did see that that improvement was relatively broad-based across the verticals. And just a reminder, we're still sub, you know, 100% overall total transaction retention, but very encouraged with what we saw in the quarter.

Speaker Change: Got it. Appreciate it. Thanks for taking the multi-part question. You bet. You're welcome.

Speaker Change: And our next question today will come from Ramsey Elisal with Barclays. Please go ahead.

Ramsey Elisal: Hi there, thank you for taking my question this morning.

Ramsey Elisal: Can you give us any preliminary thoughts on 25, especially as it pertains to kind of grow overs next year for things like political media, interest revenues, what are the key drivers that we should be thinking through as we try to tighten up our models next year?

Speaker Change: Yeah, great question Ramsey and you know not surprised to take the question But we're certainly focused on finishing the year strong and and we'll provide you know more You know obviously specific guidance when we when we report the year in February What I would say is that we still think like we're in the early days of a really big opportunity the market's large and unpenetrated That remains that remains true a lot of conviction and still see ourselves as a leader in the market with a really strong mode

Speaker Change: But to your point, there's a couple things that we're looking at that would impact 25 growth. We need to see...

Speaker Change: We need to get back to our net transaction expansion, that 104-105% overall total.

Speaker Change: Transaction retention rate needs to be expansion today. It's still sub 100% and then also, you know There's no political contribution next year and with Fed cutting rates, you know We would expect to have headwinds from a float perspective. So a number of puts and takes

Speaker Change: That'll play into 25 growth. We're focused on finishing this year strong and we'll update you in February.

Speaker Change: Got it. Thank you very much.

Speaker Change: And our next question today comes from Sanjay Sakharani with KBW. Please go ahead.

Sanjay Sakharani: Thank you. I just wanted to get a little bit more color on the improving EBITDA margins, sort of, you know, what's driving some of those improved margins and how we should think about that going forward. Thanks.

Speaker Change: Yeah, great question. I'll take that one. You know, we're pleased with, you know, the sort of 20-plus percent.

Speaker Change: You know, EBITDA margins that we're seeing in the business and that to us just reaffirms the opportunity, even in the middle of this macro kind of choppiness that we're seeing impact.

Speaker Change: our overall total transactions and revenue. We're actually ahead of schedule on our gross margin results, you know, in that 75% range. We think this business is a...

Speaker Change: 80% gross margin business with 30% EBITDA margin. So you can see the operating expense leverage in addition to the gross margin expansion and hopefully it's obvious that you see just good, strong operating discipline. That's what we're focused on.

Speaker Change: Andrew, your line is live.

Andrew: that in the past you'd mentioned that, you know, election uncertainty was kind of leading to some pent up demand and some some hesitancy in decision making around AP automation. And how do you kind of anticipate this to play itself out? And if there's a way to kind of frame what has been held back that you think could kind of snap back now that we have this clarity?

Speaker Change: Yeah, good question, Andrew, and you know, you probably have as much of a silver ball on that as I do. But what I would say is that, you know, when I look at, you know, kind of that, you know, number one metric of transactions retained on the network, you know, we talked about, which is kind of the building block of our growth algorithm.

Speaker Change: You know, first of all, it's a general concern about, you know, the general economy. And second of all, what we hear about is just the unknowns related to, you know, the results of the presidential election, what that may, you know, result in terms of policies. The good news is, you know, that one, I think, is resolved. And certainly that, you know, will take...

Speaker Change: You know, some of that risk off the table from the standpoint now people know, you know, where the president's going to be and what, you know, policies may result from that.

Speaker Change: And then the third element is just, you know, the raid environment.

Speaker Change: And I think, you know, we're getting, you know, more and more clarity on what that may look like.

Speaker Change: and certainly Q4 plays out as we go into next year.

Speaker Change: All right. Thank you, Mike.

Speaker Change: And our next question today will come from Brian Keene with Deutsche Bank. Please go ahead.

Brian Keene: Deferred Revenue Cleanup. So I'm just trying to figure out the fourth quarter implied guide to us Looks like nine to eleven percent and just thinking about the the pluses and minuses Going from third quarter to fourth quarter. Maybe you could highlight for us. Thanks

Speaker Change: If you take political and float out, we're really just taking the beat up.

Speaker Change: on a full-year basis at the midpoint, a couple million dollars. And then if you think about Q3 to Q4, I guess what I would just say is keep in mind there's a little bit of seasonality there when you think about that sequential shift from Q3 to Q4. And what you'll see is it's very consistent with what we saw in 22 and 23.

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Speaker Change: And our next question today will come from Craig Maurer with FT Partners. Please go ahead.

Craig Maurer: Yeah, good morning. Thanks for taking the questions. Just wanted to...

Craig Maurer: points to perhaps a stronger environment. You know, on the supplier side, is there been any change in terms of how suppliers are looking to get paid at all, you know we've talked about sort of caps at which suppliers are willing to accept?

Brian Keene: you know, sort of higher take rate payment options last quarter. So, any change to that? And I know this is non-core, but what drove the lower political ad spend assumption for the year, because that seems kind of counterintuitive to what we've seen in the environment. Thanks.

Speaker Change: that we make many different value propositions by creating payment modalities that are particular to either a group of suppliers or even a potential individual enterprise supplier. And a payment modality is a combination of the speed of the payment, the price of the payment, the level of remittance data, and the level of automation.

Speaker Change: The second one, kind of maybe an extension of that, is on the political side. And as we indicated, this was our first political cycle ourselves.

Speaker Change: And so, you know, we, you know, certainly kind of had an extrapolation of what we've seen in the midterm cycle. And I think what we've seen, as you've indicated, is certainly, you know, lots of overall spending activity.

Speaker Change: However, the one thing that is the big driver as it relates to kind of our monetization is the mix of payments.

Speaker Change: So when you think of in the media sector, they're because paper check is really not

Speaker Change: a very viable payment mechanism, you really are left with three main payment mechanisms, virtual card, our AvaPay Direct, you know, offering, and then what we call kind of basic ACH.

Brian Keene: And what we've, you know, seen compared to the, you know, midterm cycle is, you know, differences in mix.

Brian Keene: between those three payment modalities that were slightly different than we, you know, had been, you know, kind of probably expecting based on what we saw, you know, two years ago and four years ago related to the mix.

Speaker Change: and what that, you know, and what that, those changes were were a greater percentage of spend being directed towards digital channels.

Speaker Change: You know, digital channels being, you know, Google, YouTube, you know, Axe, Meta, Facebook, TikTok as examples.

Speaker Change: and those typically fall into more of the non-monetizable basic ACH type category.

Brian Keene: So, and we also saw some examples of, you know, actually increased activity on our, you know, Avid Pager Act or within the media vertical, it's called our Fast Pager Act offering. So just different changes of mix between different, you know, payment types.

Brian Keene: is, I think, is what we, you know, what we see us all playing out in this particular cycle.

Speaker Change: Thank you.

Speaker Change: And our next question today will come from Jamie Friedman with Susquehanna. Please go ahead.

Jamie Friedman: Hi, good morning and let me echo the congratulations. Mike, I was just wondering if you are still comfortable with those very very long-term five-year type

Jamie Friedman: projections that you'd put out in June of 2023 especially the rule of 40, 50 plus.

Brian Keene: and the 30% adjusted margin, and again, this is a very long-term question, nothing about next year. Is there anything structurally that would, at this point, think that you would vary from those long-term objectives? Thank you.

Speaker Change: Great question, Jamie. And what I'm going to do is I'm going to ask Joel to maybe provide the first part of the question, or the answer, I should say, and I can provide some commentary. Yeah, maybe I'll just start. Look, I want to be balanced. We're really proud of the quarter that we had.

Brian Keene: overall total transaction growth.

Brian Keene: Intellectual Property. I'm Joel Wilhite. Thank you.

Speaker Change: You know, the macro environment is an uncertainty, right? And not to mention, you know, kind of the sort of the interest rate dynamic. So we're super focused on operating, you know, this highly profitable, continuing to grow business through a macro environment that generates meaningful cash flow. We still believe that the long-term targets, right? That 80% gross margin, 30% EBITDA. I think the shape and the timing, you know, could play out differently. It just depends on what we see from a macro perspective. And we'll get clearer on that when we give guidance in February.

Speaker Change: Yeah, and maybe it's a good time just to remind everybody of, you know, kind of that growth, you know, as it relates to the growth algorithm. It's really in three buckets, right? The first bucket is getting back to that transactions routine and the network. That's usually a 5%-ish, you know, same-store growth, you know, benefit that we see year in, year out.

Brian Keene: The second one is our continued kind of new buyer sales logo growth that we've, you know, benchmarked and needs to be kind of 10% plus. And then the third one is all our yield enhancements that relate to the investments we're making in new innovation, Payment Accelerator 2.0, Spend Management, our paid platform enhancements and, you know, new marketplace. So and that provides, you know, typically another 5 percentage points of kind of, you know, growth yield enhancements. So those are kind of the building blocks that certainly will play out, you know, over that long-term period.

Speaker Change: Thank you.

Speaker Change: Our next question today will come from Darren Peller with Wolf Research. Please go ahead.

Darren Peller: Guys, thanks. Nice results. Can we just go back to the environment for a minute? I mean, when we think about just TPV and transaction growth trends you're seeing today, if you could just help frame...

Speaker Change: If you think the market is one that's stable, or improving, or maybe healthy but still on pause, you know, Mike, I know we've talked quite a bit about how these customers always need the tech to help, but are you seeing any kinds of inflection in demand right now, first?

Mike Praeger: Yeah, I mean, I would, what I would say certainly we had a, you know, a positive quarter. We're encouraged by, you know, customer engagement activity. I don't know if I would call out any, you know, significant changes in demand that we've seen.

Brian Keene: I think it's been consistent to what we've seen, and remember, you know, kind of our building blocks, you know, as we kind of go through the year, you know, Q4, you know, is always kind of our strongest quarter. And as we, you know, kind of, and a lot of that relates to that, you know, increased demand gen, you know, coming out of the summer.

Brian Keene: and we continue to see that.

Brian Keene: you know, transactions retained in the network, you know, some positive, you know, kind of rebound or, you know,

Brian Keene: the addition of new buyer customers and engagement. You know, and in particular, I've been on the field, you know, significantly over the last couple of weeks in particular, attending both the MRI and the Afolio user conferences, and just really encouraged with just the engagement of customers that we have related to these offerings. And, you know, if you think about it,

Brian Keene: and so what we're seeing is, you know, really pleased with kind of that evolution of Top of Funnel, move more towards, you know, partner-led demand gen and it's created, you know, higher quality, shorter sales cycles, you know, and slightly higher close rates.

Brian Keene: And so we think that's, you know, kind of a positive, you know, kind of evolution to the go-to-market motion that we've had. But I think it's more driven by us than it is maybe the macro economy.

Speaker Change: I guess just one quick follow-up in respect to the one-timers and some of the adjustments and deferred revenue cleanup, maybe just help us with how we should think about what's an appropriate run rate, growth, or yield expansion to consider for fourth quarter 24, and then maybe even into 25 if possible at all, Joel.

Joel Wilhite: Yeah, I mean maybe first of all just to kind of you know clarify a year ago in the third quarter We had a one time one and a half million dollars for revenue benefit, okay? And so it's some of my comments. I kind of removed that benefit in a year-over-year Comparison that's you know not in the run rate. That was a year ago And so and just to be clear there was about a 50 bits last year gross margin impact

Joel Wilhite: to that and about 140 BIPs EBITDA margin impact to that last year. So two benefits last year.

Joel Wilhite: Gross Margin and EBITDA, but just one-time non-recurring. Your question about what can we expect going forward, I would just go back to our long-term targets, right? We're ahead of where we thought we would be, 450, upwards of 450 basis points of year-over-year expansion. We continue to see headroom to continue to, you know, move that forward and closer to 80%, maybe not linearly and maybe not exactly, you know, the same level of expansion that we've seen so far, but continued improvement is what we see ahead of us in both gross margin and EBITDA margin percentages.

Speaker Change: All right, very helpful guys. Thank you.

Speaker Change: Thank you. Thanks, Aaron.

Speaker Change: And our next question today will come from Dominic Gabriel with Compass Point. Please go ahead.

Dominic Gabriel: Hey, thanks so much for taking the question.

Dominic Gabriel: I was just curious if you could talk about the average ticket size growth.

Dominic Gabriel: Also, if you talk about the pent-up demand, did you see that on the, is that potential on the investment for your products or is it more in restocking of inventories? Where would you expect that to play out? Thank you so much.

Speaker Change: Okay, you bet maybe I'll take the first I mean, you know, but overall we were really encouraged in the quarter I wouldn't point to any particular dynamics around ticket size. I mean just you know good inflection in that overall total transaction growth and pretty distributed across the verticals

Speaker Change: And then maybe I'll, Mike, I'll let you take the second part. Yeah, I think it was related to kind of that retention, transactions retained in the network, and that discretionary spend that drives, you know, getting back to that, you know, I think our normalized, you know, target of roughly 105%. What we see, you know, those categories are typically marketing-related expenses, professional services, consulting.

Speaker Change: front of maintenance, you know, capital, you know, capital project.

Speaker Change: And so, I think when getting back to those numbers, it means that, you know, our buyer customers are now kind of increasing that level of spend in those type of categories back to what I, you know, consider both normalized levels.

Speaker Change: And, you know, perhaps there might be a little bit of a catch up in some of the categories related to, say, preventive maintenance, things of that nature. And we've seen examples of that, you know, in historical cycles as well.

Speaker Change: but those are the areas that we expect to kind of see that rebound in terms of those transactions retained in the network. So, these are existing customers that are on our platform today and they're just, you know, over the last, you know,

Speaker Change: year or so, or three, four quarters, have been more aggressively managing discretionary spend. And so that's what we're expecting to come back at some point.

Speaker Change: Great. Thanks so much.

Speaker Change: And our next question today will come from James Fawcett with Morgan Stanley. Please go ahead.

James Fawcett: Great, thank you very much. I want to touch on some of your partnerships and other applications.

James Fawcett: particularly like Appfolio, M3, Bill Benham, etc. How are you thinking about potential growth contribution from them and where we may see those initiatives later this year and next? I mean, I'm just wondering if we could get a point or two of growth upload from these initiatives in 2025 or what kind of timing we should be thinking about.

Speaker Change: Yeah, so good question, James. Related to, you know, kind of that, you know, partner growth...

Speaker Change: and I'll take, you know, kind of a couple of the ones that we've been talking about, you know, over the last few quarters, you know, F-Folio, M3 as examples.

Speaker Change: You know, this is going to...

Speaker Change: you know, directly, you know, targeted solely to our, you know, kind of partner related strategy, driving higher qualified leads through our partner channels. And we, at Folio in particular, you know, really encouraging, because if you think about it, really every one of Folio's main competitors is already a strategic partner of Avid Exchange. And so they put it, this really puts them on par with, you know, on the strategic landscape front. We know that playbook really well and our, you know, new demand gen, you know, lead activity today is, you know, 2X plus what it was a year ago coming from that Folio channel.

Speaker Change: When we take that same lens to M3, we're seeing about 3x the activity on the M3 channel that we saw a year or so ago.

Speaker Change: So those are, you know, great, you know, kind of, you know, barometers related to, you know, the impact of these new.

Speaker Change: you know, partner, you know,

Speaker Change: Now, the one thing is related to, you know, kind of timing and when it impacts, you know, the year and the revenue generation of it, remember, we still have to go through, you know, kind of a typical and average 30 to 60-day setup configuration process.

Speaker Change: And then on the invoice side, there's usually, you know, a two-billing cycle adoption rate for the invoices to get to kind of our targeted 100%.

Speaker Change: And then the payment side, to get to our kind of targeted, kind of full adoption and we see that takes probably another, you know, six months to get to the full adoption period. So when we get to, you know, certainly the second half of any calendar year, we're really building the book for the following calendar year. And so we look forward to, you know, the impact of both FFOLIO and M3, you know, in our 25 year.

Speaker Change: Great, I appreciate that.

Speaker Change: Your next question today will come from Tenzin Huang with JP Morgan. Please go ahead.

Tenzin Huang: Hey thanks, good morning, good results here. I just want to ask on some of the new products. I know you mentioned in the release here, Payment Accelerator 2.0, Payment 2.0 Platform and Spend Management, which we're really interested in. Any change, Mike, in expectation for these products and how they might layer into 25, for example, are they on time, change in excitement, that kind of thing?

Speaker Change: you know, that I, you know, typically reference and, you know, and what I would say is that, you know, kind of, this is more, you know, kind of timing, I'll give you a rank of timing when we see, you know, begin to impact. But Payment Accelerator 2.0 probably leads the pack in terms of overall opportunity. It's in market today. We've been, you know, careful in how we've been scaling it and excited to have it be more of a material part of our, of our financial profile as we go into 25.

Speaker Change: The next one is our pay platform, and this is more of an iterative, you know, kind of process that we continue to advance, and the benefit of it is we continue to be able to add and manage more payment modalities, the combination of

Speaker Change: speed, price, remittance data, and level of automation with different suppliers.

Speaker Change: and that, you know, we expect that to continue to, you know, you know, support our strategies as it relates to continue to add new payment modalities, you know, throughout next year.

Speaker Change: The third one is spend management, and my mental picture for spend management is it's about a year behind the impact that our Payment Accelerator 2.0 product is having. So we're going to begin introducing it to our initial set of customers here, probably over the next 90 days or so, and then use next year to really get some of those initial customer learnings and look for it to begin to have more of a material impact as we go to 26.

Speaker Change: And then right behind that is kind of our Marketplace Strategies Initiatives that were, you know, it's in its early stages that we're considering to work on in terms of how it may impact, you know, the different, you know, types of purchasing that happens across our nine different verticals.

Speaker Change: So that's kind of our, you know, our big innovation, you know, kind of roster related to where we're investing and, you know, kind of the timing of impact that we expect them to have.

Speaker Change: Great, thanks for that.

Speaker Change: And our next question today will come from Rufus Hong with BMO Capital. Please go ahead.

Rufus Hong: I guess, where are you in terms of realizing the benefits from automation and AI that you referenced in the prepared remarks? Are you starting to see those gross margin tailwinds slow at all? Or do you think there are additional levers for you to pull to keep driving down unit costs?

Rufus Hong: Thanks.

Speaker Change: Yeah, no great question Rufus. You know we've talked about the way our formula for you know continuing to see gross margin expansion has is a mix of you know steady continued yield expansion and discipline around unit costs.

Rufus Hong: AI has played a role even before it was, you know, necessarily referred to as AI. So we're sort of making good progress. I think, you know, but we're not done. And I think you can continue to expect continued gross margin expansion. Again, maybe not at the exact same pace and certainly not linearly, but we feel good about those.

Speaker Change: Our next question today will come from Alex Markgraf with KeyBank Capital Markets. Please go ahead.

Alex Markgraf: Hey everyone, thanks for taking my question. Mike, could you maybe touch on cross-border a little bit and some of the progress you've made here in the last couple of years and then maybe just comment on the MasterCard Move commercial cross-border introduction as of recently and just if that creates opportunities for you all.

Speaker Change: Yeah, so it's good. We haven't talked about cross-border in a few quarters.

Speaker Change: and WISE is our kind of integration partner that we had, that we utilize.

Alex Markgraf: related to our cross-border strategy.

Rufus Hong: And what I would say is that, I would say that we're seeing some of the results that we expected to see. One of the things I try to do at the time to remind everybody is, remember we go to market in nine different industry verticals, that if you look at each one of those nine verticals, they're not verticals that really lend themselves to large degrees of cross-border transactions.

Rufus Hong: They're very localized to regional markets, for the most part, as our verticals are.

Rufus Hong: And so, we just don't have the type of, you know, large-scale demand for cross-border that we would have if we had, you know, maybe other types of verticals, maybe manufacturing B1 that would have more of a, you know, a cross-border type demand to it.

Rufus Hong: And so it's not an area that we focus on from a really a growth vector because it's driven really by customer payment demand and where their suppliers are located. And what we see is, you know, on average 95% plus.

Speaker Change: Our next question today will come from Timothy Chiodo with UBS.

Timothy Chiodo: Great, thank you for taking the question. So, Mike, you were talking a little bit about some of the bank partnerships. Obviously, you've had Fifth Third, eBank, Bank of America, and you talked about the three more that you just signed, but given this is such an important distribution channel and that there are 10,000 plus banks in the U.S., I was hoping you could just take a moment to just talk a little bit about the landscape and what the other 10,000 banks are doing.

Mike Praeger: Yeah, so one of the things I just want to make sure I clarify, Tim, when we talk about kind of our, you know, banks, we have two different, you know, kind of, you know, strategies. One is we have banks actually as customers. We now are approaching about 1,500 banks that actually use Avid Exchange to manage their internal, you know, accounts payable and payments for the bank.

Rufus Hong: And I'm going to talk to you about how we engage with customers. And then I'm going to talk about what we do with our customers. So, we have a very high level of experience with our customers. And we want to be high aligned with where a customer may do their banking related to how we engage with those customers. One of the things that we did start out with, you know, back when we started the bank channel was going down a path of more of the white label type of experience.

Rufus Hong: And what we've kind of learned is they're hard. They're hard to execute. It requires a big investment by both our partner bank as well as

Rufus Hong: Joel Wilhite, CFO Alphabet and Google

Rufus Hong: and have a certain level of engagement that's, you know, certainly, you know, similar to the engagement that we see on the accounting system side.

Rufus Hong: So that's why we're kind of excited about it and we've been focused on kind of the ERP partnerships in the last couple quarters. But while that's been going on, we've been making nice progress on the bank partner side and I thought it'd be worth highlighting a few of those recent relationships on today's call.

Speaker Change: Excellent. Thank you, Mike.

Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to Mike Praeger for any closing remarks.

Mike Praeger: Great. Well, thank you again everyone for your interest in Abbott Exchange. Amid the current macro choppiness, I'm very proud of our disciplined execution and strong financial performance with the inflection of transaction retained trends being noteworthy.

Rufus Hong: As I said before, I'm particularly excited about the future.

Rufus Hong: Given the pipeline of product innovations, our industry-leading ERP and accounting system integration partnerships, along with the bank partnerships that we highlighted on this call, that progress should propel all four gears of our business flying wheel and drive long-term value creation for our investors.

Rufus Hong: With that, we look forward to sharing our continued progress on our next earnings call.

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

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Speaker Change: Good morning, everyone, and thank you for joining us for the Avid Exchange Holdings, Inc. Third Quarter 2024 earnings call.

Speaker Change: Joining us on the call today is Mike Praeger, Avid Exchange Co-Founder and Chief Executive Officer, Joel Wilhite, Avid Exchange's Chief Financial Officer, and Subhash Kumar, Avid Exchange's Head of Investor Relations.

Subhash Kumar: 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 Change: This disclaimer emphasizes the major uncertainties and risks inherent in the forward-looking statements that the company will make this afternoon.

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

Speaker Change: Today's call will also include a discussion of non-GAAP financial measures, as that term is defined in Regulation G. Non-GAAP financial measures should not be considered in isolation from or as a substitute for financial information presented in compliance with GAAP.

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

Speaker Change: With that, I will now turn the call over to Mike Praeger.

Mike Praeger: Thank you everyone for joining us today. Joel Wilhite and I are excited to discuss Avid Exchange's third quarter 2024 results.

Mike Praeger: Our third quarter results were all-around solid across all the key metrics, including revenue growth, margin expansion, positive gap, net income, free cash flow, and a solid balance sheet.

Mike Praeger: In addition, we made good on our commitment to return cash to shareholders as part of our $100 million share repurchase program.

Mike Praeger: Joel will talk more about the quarterly financial results in a moment but one of the highlights of the quarter was the underlying trend data we are seeing.

Mike Praeger: In particular, we saw our transactions retained on our network, or our transaction retention as we call it, a key same-store metric inflecting positively from a pattern of deceleration in the past two years over comparative sequential time periods.

Speaker Change: In addition, we saw our Top of Funnel activity strongly support our new Customer Buyer logo additions.

Speaker Change: I will further expand on these observations later during my prepared remarks.

Speaker Change: When talking about the large greenfield market opportunity that we believe is ahead of us, it is understandable to sometimes lose perspective given the noise and impact of the current macroeconomic dynamics.

Speaker Change: Judging the future trajectory of the business opportunity over the next five plus years within the accounts payable and payments automation space, based on a fixed point in time, we believe undervalues the large and strategic value of both our market opportunity and competitive moat we are building, particularly on the B2B payments automation front for middle market companies.

Speaker Change: This B2B payments opportunity appears to have reached a pivotal point. In fact, it appears so mission critical that MasterCard, which is a strategic investor and partner of Avid Exchange, has re-architected its organizational structure across three vectors, with B2B payments being one of the three directly purporting to their CEO, Michael Maynock.

Mike Praeger: with the younger generation of CFOs, Treasurers, and Controllers focused on productivity and profitability, especially more so given the cost

Mike Praeger: While capital has reverted to more normalized levels, MasterCard believes these future generations of finance leaders are looking for tools from domain experts to unlock the opportunity for buyer and supplier customers.

Mike Praeger: As such, MasterCard remains bullish and committed to advancing card adoption across the B2B landscape. To paraphrase Michael Maybach, who recently opined on B2B invoice payments at a recent investor conference.

Mike Praeger: As the leading middle market focused B2B accounts payable automation and payments player in the market, we believe Avid Exchange is sitting at the epicenter to capitalize on these trends referred to by MasterCard.

Mike Praeger: We do not believe that there's another pure play publicly traded B2B accounts payable automation and payments company In the industry focused on the middle market segment that has the domain expertise as well as the technology integration data operational and license stack honed over more than two decades

Speaker Change: Nor is there a pure play across the middle market that has a scale of revenues, the breadth of industry verticals, as well as the breadth and library of accounting system integrations, as Avid Exchange does today.

Speaker Change: Our advocating network creates a virtuous cycle of not only buyer customers attracting supplier customers and vice versa but also accounts payable automation customers adopting payment solutions and vice versa.

Speaker Change: Our talented team is delivering rapid, material, and quantifiable value in both current cost efficiency, productivity, and future scalability of our customers back office, AP, and payment initiatives.

Speaker Change: which advances our future growth and fuels our profit potential.

Speaker Change: I believe the best way to make the narrative around the benefits of accounts payable and payment automation tangible is to continue showcasing customer success stories shared by middle market finance leaders seeking our solution to drive productivity for their organizations.

Speaker Change: One such is Orthodontic Partners, which is part of an emerging dental sub-vertical within our fast-growing healthcare facilities vertical market.

Speaker Change: Based in Grand Rapids, Michigan, Orthodontic Partners provides accounting and administrative services to over 30 orthodontic practices across 15 states on its NetSuite accounting platform.

Speaker Change: allowing their back office staff to focus on their core competencies.

Speaker Change: Our solution set was perfect fit for their growing set of challenges in processing invoices manually.

Speaker Change: which numbered in the hundreds on a weekly basis.

Speaker Change: This created significant downstream challenges for orthodontic partners leading to delays, lost checks, and challenges in routing approvals to remote and traveling approvers.

Speaker Change: This resulted in increased productivity for orthodontic partners across its procure-to-pay cycle, making thousands of invoices easily available and speeding up the invoice approval workflow across their 30 offices.

Speaker Change: Matt Sanders, an accounts payable specialist with the Orthodontic Partners, put it best when he said, with Avid Exchange, we get more critical tasks accomplished, which gives us more time to focus on other strategic business initiatives that normally we wouldn't have the bandwidth for.

Speaker Change: Turning now to some of the performance highlights and metrics from the third quarter of 2024 that underscore our value proposition and demonstrate our continued strong execution.

Speaker Change: Revenue for the quarter was just under $113 million, or over 14% year-over-year growth. The growth in the quarter was led by a combination of quarterly rebound in transaction volume, aided by transaction retention and transaction yield growth strategies.

Speaker Change: Non-GAAP gross margins, meanwhile, continue their upward trajectory, coming in at 74.5% or up 450 basis points to close to the top end of our 72% to 75% non-GAAP gross margin target ahead of our 2025 expectations that we set over a year ago during our last Investor Day.

Speaker Change: AI, sourcing, and standardization, which are still somewhat in the early stages, continue to bear significant fruit.

Speaker Change: Along with solid operating expense discipline, which led to a 100% plus year-over-year increase in adjusted EBITDA profitability, adjusted EBITDA margins for the quarter reached roughly 21%.

Speaker Change: Our important transaction yield metric, which is total revenues over total transactions, was up more than 8% to reach $5.59 per transaction.

Speaker Change: It is worth reminding investors that transaction yield is a metric that we have consistently messaged since our IPO as a primary metric we focus on across our leadership team as it demonstrates the power and effectiveness of our Avid Exchange business flywheel.

Speaker Change: With that overview, I'm excited to cover key topics in two parts that will shed light into the various initiatives that we believe will fuel our future growth.

Speaker Change: Number one, the first part being our top of funnel activity and other sales key metrics which provides insights into sales setup for 2025 and beyond.

Speaker Change: And second, I will discuss strategic partnerships which will further drive years two and three of our AVID Exchange business flywheel.

Speaker Change: Let's start with our top of funnel and other underlying indicators driving our go-to-market motion.

Speaker Change: The picture for the comparable nine-month period of 2024 versus 2023 by vertical was encouraging as we saw the HOA or Homeless Association Management Market, construction, healthcare, etc. show moderate improvements

Speaker Change: While real estate, education, and media continue to exhibit strong growth momentum.

Speaker Change: Recall earlier in the year we highlighted that the strategic changes we have been making in our go-to-market motions, those changes encompass greater discipline around allocation of investment dollars as well as changes in our mix of marketing channels and personnel.

Speaker Change: For instance, we mentioned that we would be more targeted in the selection of trade shows and industry user conferences that we attend.

Speaker Change: which would result in potentially fewer but much more highly qualified leads.

Speaker Change: The same framework was applied to lead and demand generation channels, including reallocating resources to partnerships to drive higher quality and more actionable leads versus broadly spreading our resources across digital marketing channels.

Speaker Change: The result of this go-to-market adaption has been what we believe is a favorable trade-off between the quantity and quality of comparable top-of-funnel leads, which showed up in improved close rates, shorter sales cycles, and buyer-customer growth count, encouraging pacing ahead of 2023 levels.

Speaker Change: Now shifting to the second part of the key topics I'd like to talk about about the four gears of the Avid Exchange business flywheel We recently signed some additional notable strategic partnerships Which we believe will advance gears two and three of our business flywheel both of which drive Transaction volumes onto our platform to be monetized

Speaker Change: highly aligned themselves to vertical industries that have either unique accounting or business process that require them to use vertical specific ERP accounting systems to run their business and financial operations.

Speaker Change: One of the emerging verticals in which we operate is healthcare facilities, which is around 5% of our buyer-customer base today, and is attractive in high-growth segment of the market.

Speaker Change: This vertical is comprised of many sub-verticals or sub-domains, including long-term and elderly care centers.

Speaker Change: dental centers, veterinary centers, and so on. In addition to the elderly care centers, we have been growing our portfolio of dental centers using our accounts payable and payment automation offerings.

Speaker Change: That effort has just received a major boost with the addition of a formalized referral partnership with one of the leading global distributors of healthcare products and technology solutions, which also happens to house a dental support organization practice, or DSO as it's called in the industry.

Speaker Change: This large and rapidly growing player selected Avid Exchange due to our marquee client list of DSO providers, proven track record in the DSO market space, and the strength of our purpose-built value proposition.

Speaker Change: A dental service organization provides back office support function to dental offices ranging from staffing, procurement, and spend management to functions around the office of the CFO.

Speaker Change: The DSO market is large and fragmented with some estimates putting the number of DSOs at over 3,000 and approximately 135,000 individual dental offices just in the US market alone

Speaker Change: Through our accounts payable and payment automation solution, we are positioned to capitalize on this growing DSO market in which DSO entities currently manage around 30% of the 135,000 dental offices under the DSO structure today.

Speaker Change: Given our proven track record in the DSO space, which is propelling the referenceable base of DSO clients in our portfolio, we are well positioned to capitalize on this market.

Speaker Change: As this national DSO provider ramps its sales headcount around its DSO practice, AVID Exchange will be its preferred referral partner on invoice and payment solutions.

Speaker Change: Not only do we believe our value proposition has a strong product and market fit for the DSO industry, we believe that DSOs create a fertile ground to pursue other equally attractive opportunities around care adjacencies such as ambulatory surgical centers, veterinary care centers, radiology centers, etc.

Speaker Change: Also under Gears 2 and 3 of our business flywheel, we recently forged some strong, strategic, significant bank-seller relationships. For context, we've executed channel-led, white-labeled reseller bank partnerships with super-regional and money-center banks such as KeyBank, Fifth Third, and Bank of America.

Speaker Change: Leveraging this credibility and standing up these three major bank partnerships over the last decade, we've embarked on a sales strategy to broaden and deepen our bank partnership portfolio, and recently signed three premier diversified regional and independently community banks.

Speaker Change: including Cadence Bank and Orange Bank & Trust, two of which we can't announce publicly.

Speaker Change: These banks with a footprint largely across the northeast and southeast quarters of the U.S. boast a combined total of roughly 50,000 commercial customers across these markets.

Speaker Change: With the reseller partnerships slated to go live over the next three quarters, we're excited to empower these banks with our suite of accounts payable and payment automation capabilities for their middle market customer base.

Speaker Change: Success with these new partnerships could be self-replicating by helping us penetrate the thousands of these other regional community banks in the coming years.

Speaker Change: In closing, we are proud of our strong third quarter operating and financial results, which is leading us to upwardly revise our 2024 business outlook.

Speaker Change: These results were strong across the board.

Speaker Change: The discipline we have demonstrated in executing the levers that are within our control are second to none.

Speaker Change: Our portfolio of new product innovation and enhancements such as Payment Accelerator 2.0, our new pay platform, and spend management offerings are sequenced for scaling.

Speaker Change: There are sizable strategic partnerships that we've announced over the last 18 months, including Atfolio, Bildium, and M3.

Speaker Change: You couple that with the innovation pipeline that we have in leveraging AI across our vast library of integrations to celebrate the creation of ERP integrations as well as employing AI across the operational value chain.

Speaker Change: We believe we are well positioned to deliver a heavy payload of greater value to our customers and improve growth outcomes for our business.

Speaker Change: Of course, we are mindful of the macro cross currents and the potential for headwinds to test us.

Speaker Change: But we also strongly believe that our vision of a long runway of growth opportunity in the accounts payable automation and payments industry, which we consider to be in its infancy of adoption.