Q4 2024 Avidxchange Holdings Inc Earnings Call
Good morning, everyone, and thank you for joining us for the Avid Exchange Holdings Inc. fourth quarter and full year 2024 earnings call.
Speaker Change: Joining us on the call today is Mike Praeger, Avid Exchange's co-founder and chief executive officer, Joel Wilhite, Avid Exchange's chief financial officer, and Subhash Kumar, Avid Exchange's head of investor relations.
Speaker Change: Before we begin today's call, management has asked me to relay the forward-looking statements disclaimer that is included at the end of today's press release. This disclaimer emphasizes the major uncertainties and risks inherent in the forward-looking statements that the company will make this afternoon.
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.
Also, please note that the company undertakes no update.
Speaker Change: No duty to update or revise forward-looking statements. Today's call will also include a discussion of non-GAAP financial measures. As that term is described in Regulation G, non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP.
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. With that, I will now turn the call over to Mike Praeger. Please go ahead.
Mike Praeger: Thank you everyone for joining us today to discuss Avid Exchange's fourth quarter and full year 2024 results. We finished the quarter and the year on the strongest financial footing since we began our journey of delivering industry-leading accounts payable automation and payment solutions to our middle market customers 25 years ago.
Mike Praeger: Our fourth quarter 2024 results exceeded implied expectations across all of our core financial metrics.
Mike Praeger: This includes better-than-expected revenues, gross margin, EBITDA margin, and non-GAAP diluted earnings per share, despite what has been and remains a challenging macro backdrop impacting our middle market customers.
Mike Praeger: Our better-than-expected fourth quarter financial results were augmented by our strong free cash flow generation and disciplined capital allocation. Notably, we repurchased an additional $25 million worth of AVID Exchange shares during the fourth quarter of 2024, underscoring the long-term confidence we have in our business.
Mike Praeger: This brings the total shares repurchased in 2024 to $50 million, the maximum allowed within a calendar year under the $100 million share repurchase program we announced in August of 2024.
Mike Praeger: The common denominator underlying our strong financial results this past quarter and since our October 2021 IPO, particularly around gross margins, EBITDA margins, and operating cash flow generation, is our operating discipline around the levers within our control.
Mike Praeger: This operating discipline coupled with our multiple innovation work streams, including our AI initiatives within our products and payment delivery, as well as service automation, has enabled us to counter much of the macro headwinds impacting our margins.
Mike Praeger: This has resulted in another quarter of non-GAAP gross and adjusted EBITDA margin expansion since our IPO, and also achieving our 75% targeted margin milestones outlined during our June 20, 2023 Investor Day.
Mike Praeger: What has overshadowed the strong execution on margins is the macroeconomic environment, which remains mixed. This is particularly the case in the instance of our top-of-funnel customer engagement in buyer logo growth metrics.
Mike Praeger: On the positive side in 2024, we saw pockets of modest but positive growth in the top of the funnel across three of our largest and, in many cases, strongest tenured verticals by revenue, transactions, and total payment volume, including our real estate, financial services, and our media verticals.
as well as declines moderating in the HOA vertical.
Mike Praeger: While the overall topple funnel opportunities were down roughly two percent
Mike Praeger: Some of which was due to changes in our go-to-market motion over the 2023 and 2024 period, and some due to the macroeconomic environment. The growth in the buyer-customer logo count for 2024 was better on a relative basis, up over 6%.
Mike Praeger: driven by higher quality opportunity lead generation across our ERP partner-related channels. This compared to buyer-customer logo count growth of 8.1% in 2023, with a top-of-funnel that grew in double digits.
Mike Praeger: Given the impact of the macroeconomic dynamics across the middle market customer base, we are steadfast in the belief of solidifying our growth foundation and the future growth levers of our business remain a key priority to drive our business flywheel and create a durable growth business along with increasing our competitive moat around the middle market for many years to come.
Mike Praeger: Middle market finance leaders remain focused on productivity and profitability and they are looking for business process domain experts with scalable solutions such as Abbot Exchange to unlock the opportunity for themselves and their suppliers.
Mike Praeger: This is where OutExchange shines. As an industry leader, we're the best of breed scalable AP automation and payment solutions to address the large opportunity set.
Mike Praeger: recently signed and highly strategic ERP integration and reseller partnerships of which I will provide an update later my prepared marks should underscore our confidence in the future organic growth trajectory of our business
Mike Praeger: Similarly, customers such as DRM also highlight how we are well positioned across the middle market and are rapidly unlocking tangible benefits and costs and time savings for them.
Mike Praeger: DRM is a major player in the hospitality industry which is a relatively new formal vertical for us and has been seen healthily growing a momentum.
Mike Praeger: DRM is one of the largest franchisees for Arby's, the world's largest second sandwich brand with over 3,400 locations worldwide. Upon joining DRM, CFO Mark Swoop immediately turned his focus to revamping and streamlining their accounts payable process.
Mike Praeger: Given that it is both manual and paper-intensive, with immensely inefficient approval workflows which pose challenges to DRM's ability to scale their back office to keep up with their overall growth.
Speaker Change: With NetSuite as its core accounting system, Mike adopted Avid Exchange's invoice and payment solution given our deep integration with their NetSuite software.
Speaker Change: and created a great user experience with his team of AP specialists leveraging our built-inside NetSuite integration and user experience.
Speaker Change: As Mike Swoops stated, I took a leap of faith when I joined the DRM team and asked them to change the way they work by automating accounts payable with Avid Exchange, and I couldn't be more pleased with the outcome.
Speaker Change: Revenue in the fourth quarter was approximately $115 million, up roughly 11% year-over-year. The growth in the quarter was led by a combination of increased transaction volume and transaction yield growth.
Speaker Change: Non-gap gross margin, meanwhile, hit a milestone, coming in at almost 75%. We're up 350 basis points over last year at the top end of our 72% to 75% non-gap gross margin target, ahead of our 2025 objective we set over a year ago during our last Investor Day.
Speaker Change: Our continued focus on automation, implementation of AI across significant work streams, sourcing, along with standardization, which are in various stages of the maturity curve, continue to bear fruit.
Speaker Change: Our important transaction yield metric, which is the total revenues over total transactions, was up more than 6% to reach $5.80 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 and it demonstrates the power and effectiveness of our AVID Exchange business flywheel.
Speaker Change: With that overview, I'm going to highlight the four operating priorities for 2025, which we believe will help us deliver our long-term growth potential while continuing to expand our margins even further.
Speaker Change: I will use the four years of the OutExchange Business Five-Wheel to describe and highlight some of the initiatives that are in flight that will support these priorities. Our four operating priorities for this year are as follows.
Speaker Change: Number one, continue building the foundation of future growth through ERP integrations and embedded partnerships along with continued vertical market expansion.
Speaker Change: Number two, deliver on key product innovation pipeline highlighted by our Payment Accelerator 2.0 offering, our Pay 2.0 platform, and our new spend management platform.
Number three.
Speaker Change: Scaling are various new products to support all 8,500 buyer customers and our roughly 1.4 million supplier customers in delivering the value proposition they expect from a habit exchange.
Speaker Change: And finally, priority number four, continue to elevate the customer experience across Avid Exchange's product suite for both our buyer and supplier customers across our purpose-built two-sided network.
Speaker Change: To build on the success of Gears 1, 2, and 3, which are about creating robust customer-focused ERP integrations, as well as maximizing transactions amortization on our platform to drive growth and scale.
Speaker Change: I am very pleased to provide an update on some of the previously announced and notable ERP integrations in our embedded pay partnerships.
Speaker Change: As stated in the past, we believe that a large number of our valuable ERP integrations and consequential strategic partnerships coupled with our product innovation pipeline lays the foundation for future growth.
Speaker Change: For instance, recently announced a notable large software integration partnerships such as Appfolio and M3 spanning the real estate, HOA, and hospitality verticals are beginning to gain steam.
Speaker Change: Our affiliate partnership, which has roughly 19,000 product market fit targeted customers, went live in early 2024 and is seeing a doubling in customer engagement lead flow to several hundred with close rates almost doubling in the last year alone.
Speaker Change: M3, on the other hand, with a product market fit target customer base of roughly 1,000, is progressing even faster, with lead flow tripling to hundreds, with close rates up almost 4x in the last year.
Speaker Change: We believe that the momentum of these two partnerships is building because of our partners' continued commitment, which is fueled by the recognition of our industry-leading payment monetization and the rapid and quantifiable ROI for their customers by leveraging our highly dense, purpose-built, two-sided network.
Speaker Change: And we anticipate that these partnerships should start to gain traction in a similar way to Zapfolio and M3 during the latter part of 2025 and meaningful in the 2026.
Speaker Change: All in, we are excited about the momentum building across our business flywheel with these partnerships and look forward to announcing additional ERP and payment embedded partnerships as they progress in the pipeline in the coming quarters.
Speaker Change: Now I'd like to provide an update on the new products that are in the foundation of our future growth and should drive years three and four of our business flywheel.
Speaker Change: Product Innovation to Continue Eliminating Paper Checks 2025 marks a pivotal year as we ramp up the key functionalities of our new AvidPay 2.0 payments platform, which serves as the foundation of our AvidPay network.
Speaker Change: We believe that the capabilities of Avid Pay 2.0 will enable us to create new payment modality offerings through real-time configuration, combining pricing terms, speed of settlement, access to remittance data, and payment acceptance automation, eliminating the need for lengthy software development dependencies.
Speaker Change: Along with supporting our ability to manage numerous new payment modalities that serve to create a payment acceptance value proposition for our customers that is second to none.
Speaker Change: With Avid Pay 2.0 we anticipate increasing our penetration and share of our buyers customers payment files in several ways while capturing greater transaction economics.
Speaker Change: First, improvements in critical-to-pay supplier information, coupled with additional payment mechanisms, we believe will allow us to offer a variety of guaranteed solutions for time-sensitive payments.
Speaker Change: Second, by expanding our payment network solutions, we aim to increase e-payment adoption.
Speaker Change: which will enhance overall payment monetization, reduce mail check volume, and accelerate payment speed along with significantly reducing payment fraud as we estimate that with B2B payments, almost 90% of fraud relates to paper checks.
Speaker Change: Third, our enhanced ability to customize product payment modalities, speed, remittance, and price in real time should drive additional e-payment adoption for both buyers and their suppliers.
Speaker Change: Finally, with our new AvidPay 2.0 platform, we believe that we will not only enhance revenues through expanded buyer and supplier products.
Speaker Change: greater payment penalization, and increased share of wallet, but also improve our cost structure in both hard and soft operational costs, including direct expense of reducing paper check payments.
Speaker Change: Taken together, these things should create substantial opportunity for us in terms of revenue growth and margin expansion as we convert their paper check suppliers to accepting one of our many forms of e-payment.
Speaker Change: In addition to Pay 2.0 and also under Gear 3 of our Avid Exchange Flywheel, we've launched initiatives to fast-track existing new check conversion into electronic payments.
Speaker Change: Dubbed the Extended Network Payments, these efforts go hand-in-hand with new offerings being rolled out as part of AvidPay 2.0 and are highly strategic in value.
Speaker Change: In fact, the new efforts could represent a function change in reducing the number of checks, which is represented around 55% of payment transaction mix today.
Speaker Change: We've entered into a strategic partnership with a large financial technology firm and at various other such partnerships in process within the financial services ecosystem to accelerate the conversion of paper checks with specialty networks of suppliers into electronic payments which should bear fruit in 2025.
Speaker Change: We look forward to discussing this in greater detail as the year unfolds.
Speaker Change: Also under Gears 3 and 4 of our business flywheel, which is about both maximizing e-payment penetration and leveraging innovation and data to create new product offerings, we plan to significantly scale our Flagship Payment Accelerator 2.0 supplier financing offering in 2025.
Speaker Change: For those new to our story, Payment Accelerator 2.0 is our supplier financing product where suppliers can elect to have eligible invoices advanced for immediate payment.
Speaker Change: To put it in perspective, Payment Accelerator 2.0's target service level agreements compared to its predecessor are compressing the onboarding time to less than 24 hours from several days previously.
Speaker Change: In the near future, we expect to be able to compress that time frame down to minutes.
Speaker Change: What makes this process frictionless is that having both the buyer and the supplier on our AvaPay network, we eliminate the need for traditional underwriting processes, which typically requires historical financial statements from a supplier.
Speaker Change: This means leveraging supplier and buyer history and transaction data, as well as real-time visibility into the status and approvals inherent on our two-sided network to underwrite and lower the credit risk, as well as providing protective provisions across the entire flow of invoices.
that a particular supplier may have on our network.
Speaker Change: The rapid onboarding process is also a result of the platform's highly integrated back-end that is designed to simultaneously validate the supplier's bank account information along with know-your-customer and know-your-business compliance regulations.
Speaker Change: Real-time as a supplier validates an online questionnaire of legal entity data and beneficial ownership information.
Speaker Change: Once onboarded, a supplier is presented with multiple acceleration offers with transparent pricing and various time-based funding options, including real-time payments.
Speaker Change: In addition to the payment accelerator offering outlining the eligible supplier invoices available for acceleration, we also provide an auto-fund option where our intelligent decision engine automatically identifies all of the supplier's eligible invoices and funds them automatically, ensuring the fastest access to cash availability every time an eligible invoice is available on our network.
Speaker Change: The rolling three-month volume of dollars accelerated in the number of new Payment Accelerator customer enrollments has already more than doubled, giving us confidence that the ramp targeted for Payment Accelerator 2.0 to potentially achieve revenue parity with 1.0 version this year.
Speaker Change: Finally, I would like to provide an update on our operational strategy that has been instrumental in efficiently scaling the business while lowering unit costs and driving our impressive gross margin expansion.
Speaker Change: We believe that the success on the gross margin front is all due to discipline execution on our strategy around standardization, sourcing, and automation, which has all been about leaning into self-learning and scalable AI solutions across key operational functions of our business.
Speaker Change: Recall, there are six ways in which we execute virtual card payments, as an example, with our suppliers.
Speaker Change: One is via straight through process, second is direct API connections, third is online portals, the fourth is through IVR systems, the fifth is through traditional email, and the sixth is over the phone. As a result of leveraging AI we have now accelerated our virtual card automation strategy.
Speaker Change: To put that in context, the number of virtual card transactions in 2024 over 2023 increased by roughly 600,000, but we automated almost 700,000 more than the total increase of the total number of virtual card transactions.
Speaker Change: In other words, we are rapidly automating not just new virtual card transactions on our network, but also converting the back book of virtual card transactions as well. This is highly synergistic with our new Avid Pay 2.0 platform to convert
Speaker Change: paper checks into electronic payments. This further highlights our scalability of our platform which, thanks to the current AI solutions, we can now automate at a higher speed and lower cost.
Speaker Change: Ultimately our goal is to get over 80% virtual card automation over the next two years, which should continue our gross margin expansion towards 80% as we leverage automation combined with various yield enhancement levers.
Speaker Change: In closing, we're proud of our operating performance amid continued macroeconomic headwinds impacting our middle market customers.
Speaker Change: While the 2025 guidance reflects a cautious approach given the unpredictable macroeconomic environment, we continue to firmly execute on the levers we control and invest in our product roadmap to drive future growth across our business.
Speaker Change: With our four operating priorities interlocking with the four gears of our business flywheel, we continue to strengthen our competitive advantage further by building up new strategic and integration partnerships, as well as driving scalable innovation across our payment platform through new products leveraging AI, which we believe positions well for the future.
Speaker Change: In 2024, we entered into strategic and integration partnerships across various verticals, including real estate, hospitality, HOA, health care, financial services, along with media, and non-for-profit. This builds on the success of partnerships entered into in 2023, such as Folio, M3, etc.
Speaker Change: should provide momentum to potentially outrun our 2025 growth expectations in 2026.
Speaker Change: We strongly believe in our vision of the long runway of growth in the accounts payable and payment automation market across the middle market segment.
Speaker Change: While our growth trajectory has been below our targeted overall the last two years impacted by the macro environment We've demonstrated operating discipline as well as believe in our leadership position and the competitive advantage We are building across the middle markets untapped opportunity
Speaker Change: I want to provide a special thanks to all of our AVIDX team members for their continued hard work, dedication, and relentless focus in executing our operational and strategic priorities that drive value for our customers, creates opportunities for their professional growth, and most importantly, builds long-term value for our shareholders.
Speaker Change: With that, I'd like to turn the call over to my partner, Joe Wilhite. Joe?
Joe Wilhite: Thanks, Mike, and good morning, everyone. I'm pleased to speak to you today about our strong fourth quarter 2024 financial results, which reflect discipline operational execution amid continued macro headwinds.
Speaker Change: Overall we delivered a strong quarter of year-over-year financial performance across the board.
Speaker Change: I'll expand on that in a moment, but let's see how we track relative to implied expectations.
Speaker Change: Relative to the implied fourth quarter 2024 business outlook and excluding float and political revenue contribution, revenues came in above our implied expectations, driven largely by higher total transaction volume.
Speaker Change: Gross margin performance remains strong due to ongoing progress on unit cost initiatives and yield expansion.
Speaker Change: Coupling that with sustained operating expense leverage, driven by a combination of expense discipline and lower performance bonus accruals, we drove stronger adjusted EBITDA outperformance relative to expectations.
Speaker Change: It's worth pointing out that this continues our streak of delivering adjusted EBITDA profit expansion, ex-float, and political. Equally noteworthy, we delivered our third GAAP net income quarter since going public in 2021.
Now turning to year-over-year results.
Speaker Change: Total revenue increased by 10.9% to $115.4 million in Q4 of 2024 over the fourth quarter of 2023.
Speaker Change: Our revenue growth also resulted in total transaction yield expanding to $5.80 in the quarter, up 6.4% from $5.45 in Q4, 2023. The increase was driven by software and pay yield, as well as higher payments transaction mix.
Speaker Change: Software revenue of $30.9 million, which accounted for 26.8% of our total revenue in the quarter, increased 6.4% in Q4 of 2024 over Q4 of 2023.
Speaker Change: The increase in software revenues was largely driven by a growth in total transaction count.
Speaker Change: Payment revenue of $83.4 million, which accounted for 72.2% of our total revenue for the quarter, increased 12.3% in Q4 of 2024 over Q4 of 2023.
Speaker Change: Political media revenue in the current quarter was approximately 2.9 million dollars and negligible in the same period a year ago.
greater payment mix and payment transaction volume increase of 8.3%.
Speaker Change: On a gap basis, gross profit of $78.8 million increased by 17.1% in Q4 of 2024 over the same period last year, resulting in a 68.2% gross margin for the quarter compared to 64.6% in Q4 of 2023.
Speaker Change: Non-GAAP gross margin increased 350 basis points to 74.9% in Q4 of 2024 over the same period last year, with the lion's share of the increase driven mostly by unit cost efficiencies and yield expansion, and to a minor extent by lower annual performance bonus rules.
Speaker Change: I'm pleased to say that the fourth quarter 2024 non-GAAP gross margin was now at the top end of the 72-75% range targeted for 2025 as projected during the company's June 2023 Investor Day.
Moving on to our operating expenses.
Speaker Change: On a gap basis, total operating expenses were $82.5 million, an increase of 3.7% in Q4 of 2024 over Q4 of last year.
Speaker Change: On a non-gap basis, operating expenses, excluding depreciation and amortization and stock-based compensation, increased as well by 2.3 percent to $60.1 million in the fourth quarter of 2024 from the comparable prior year period, and with the increase driven primarily by sales and marketing initiatives, partially offset by lower annual performance bonus expense.
Speaker Change: On a percentage of revenue basis, operating expenses excluding depreciation and amortization and stock-based compensation, or non-GAAP, OPEX
Speaker Change: declined to 52.1% in the fourth quarter of 2024 from 56.5% in the comparable period last year.
Speaker Change: I'm equally pleased to say that fourth quarter 2024 non-GAAP OPEX as a percentage of revenues in the quarter was also at the bottom end of the 50% to 55% range targeted for 2025 as projected during the company's June 2023 Investor Day.
Speaker Change: Overall, the decline in non-GAAP OPEX as a percentage of revenues year over year largely highlights expense discipline and significant operating expense leverage across G&A, R&D, even after stripping out the contribution of float and political revenues.
Speaker Change: I'll now talk about each component of the change in operating expenses on a non-GAAP basis.
Speaker Change: Non-GAAP sales and marketing costs increased by $2.4 million or 14% to $19.9 million in Q4 of 2024.
Speaker Change: over Q4 of last year, with increased investments in sales and marketing spend to support our continued growth, partially offset by lower annual performance bonus expense.
Speaker Change: Non-GAAP research and development costs were essentially flat on a comparable basis at $22 million in Q4 of 2024.
and were helped largely by lower annual performance bonus expense.
Speaker Change: We continue to reinvest across our products and platform, including spend management, pay offering, and payment accelerator.
Speaker Change: Non-GAAP G&A costs decreased by approximately $1 million or down 5.2% to $18.2 million in Q4 of 2024 versus Q4 of last year.
Speaker Change: due largely to lower annual performance bonus expense. As a percentage of revenues, G&A costs continue to trend lower as we continue to leverage public company costs across a larger revenue base.
Speaker Change: Our GAAP net income was $4.7 million for the fourth quarter of 2024 versus a GAAP net loss of $4.5 million in the fourth quarter of 2023. With the $9.2 million positive swing in net income driven largely by a combination of strong revenue flow-through,
Speaker Change: solid gross profit increase and expense control leading to a positive swing in operating income coupled with higher net interest income due to reduced borrowing costs and partial debt pay down.
Speaker Change: which was a 4 cent positive swing from the same comparable period last year.
Speaker Change: diluted earnings per share in the fourth quarter of 2023. All of the net income performance was driven primarily by the aforementioned factors.
Speaker Change: On a non-GAAP basis, Q4 2024 Adjusted EBITDA was $26.3 million versus $15.6 million in Q4 of 2023.
Speaker Change: with the favorable delta split mostly between expense leverage driven by higher comparable revenues and lower annual performance bonus expense.
Speaker Change: At year end, our credit facility, which consists of a $150 million revolver with a $150 million accordion feature, remained undrawn.
Speaker Change: and with one quarter between demand deposit accounts and various other fixed income interest instruments including money market funds, commercial paper, and time deposit instruments respectively.
Speaker Change: The weighted average maturity on the corporate cash was roughly 13 days, while the effective interest rate on our corporate cash position for the fourth quarter was roughly 4.7%. Customer cash at quarter end was approximately $1.2 billion with an interest rate of roughly 4.3% for the quarter.
Speaker Change: Similarly, we expect non-GAAP-adjusted EBITDA profit ranging between $86 million and $91 million for 2025. We also expect 2025 non-GAAP diluted earnings per share.
Speaker Change: in the range of $0.25 to $0.27, which does not currently reflect the impact of any additional share repurchases in 2025 under our previously authorized share repurchase program.
Thank you.
Speaker Change: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touch-tone phone.
Speaker Change: If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then two. In the interest of time, please limit yourself to one question. At this time, we will pause for a brief moment to assemble our roster.
Speaker Change: And your first question today will come from Will Mance with Goldman Sachs. Please go ahead.
Will Mance: Hey guys, good morning and thank you for taking the question. I wanted to follow up on some of the comments in the prepared remarks. You know, Mike, you know, you've referenced what has been very strong kind of gross margin expansion and OPEX control that has offset a lot of the macro weakness that you've seen in the business. And I just wondered if you could kind of give us a update on kind of your view of where we stand on the runway for that to continue. Gross margins now kind of being at that 75% level.
Michael Wilhite, Michael Praeger
Yeah, I mean, great question, Will.
Will Mance: you know, what we think is, you know, kind of the long-term trajectory of what we're doing is, you know, marching towards that 80%, you know, targeted gross, gross margin number.
Will Mance: And it's a combination of, I kind of put it in three big buckets, continue to be aggressive in our sourcing strategies, standardization across the business.
combined with automation led by AI.
Will Mance: I'll also say it's probably not going to be a, you know, a direct, a straight line and, you know, we'll see some...
Will Mance: kind of periods of improvement, but also as we continue to kind of...
and Dave Fletcher.
Got it.
Speaker Change: That's very helpful. And then maybe, Mike, if you could spend a little bit of time on the financial services partner that you added and the initiative around paper checks.
Speaker Change: Sounded interesting and sort of incremental, just wondering if you could provide a little bit more context around how that's going to work, and, you know, what, you know, any milestones that we should be looking out for. Thanks.
Speaker Change: Yeah, so good question. And one of the things that we've, you know, that we've noticed as we're building our own network, there's other people in the ecosystem that have developed specialty networks for certain, you know, say classes of suppliers or types of transactions. And it's like, oh, do we want to, you know, kind of recreate the wheel and also build those specialty networks? Or do we want to kind of partner and leverage the networks that
Speaker Change: And so these are good examples where there's, you know, kind of targeted
Speaker Change: population of certain supplier set that, others are able to monetize and we're going to tap into share that monetization at the same time, you know, we're doing something similar with our network and and we call it kind of an extended network concept of making our network available to others just like
We're tapping into other people's stuff.
Speaker Change: works. And so I think the direct reflect is going to be, is we're going to see kind of an escalating elimination of paper check, which is kind of a common enemy. And the objective that we have is to continue to move forward and maximize electronic payments. And we think this is just one of those strategies.
Got it. Appreciate you taking the questions.
Yeah, thanks, Will.
Speaker Change: And your next question today will come from Robbie Bamberger with Barrett. Please go ahead.
Speaker Change: Yeah, thanks for taking my question. Maybe just thinking about what's embedded in the 2025 Revenue Guide, how much macro headwind should we expect there to be in 2025? And I guess, what do you expect same-serve sale growth to be into next year?
Speaker Change: Yeah, thanks, Robbie, and great question. Yeah, obviously, if you, you know, think about 25, there's a couple things to keep in mind. First of all, obviously,
Speaker Change: If you think about the float dynamic and the political dynamic, you have to consider that...
Speaker Change: And I think our prepared remarks made it clear that after about a $6.6 million political year in 24, that revenue will be negligible in 25. Also from a float revenue standpoint, we generated about $50 million in 24, and we expect that to be closer to sort of 44 in the 25 year. So
Speaker Change: see meaningful improvement or worsening from there. So fairly consistent, low single-digit overall total transaction growth.
and Sub 100.
Mike Praeger: retention. Maybe the final point I'll make is when you think about that 8% growth, a couple of things we're excited about as we exit 2025 include, and Mike referenced this in his prepared remarks,
Mike Praeger: attributable to that ramp in the back part of 25. Also, some success we're expecting in new payment methods, also contributing, let's say, roughly another point as well. So hopefully that gives you a sense of kind of what's contemplated from a guidance standpoint.
Speaker Change: And your next question today will come from Ramsey Elassal with Barclays. Please go ahead.
Ramsey Elassal: Hi, thank you so much for taking my question this morning. I wanted to ask about recent trends and whether, you know, the Q4 exit rate looked pretty healthy. I'm just curious if you're seeing anything quarter to date that's giving you incremental, you know, pause in terms of, you know, how you're framing up the year. Thanks.
Ramsey Elassal: Thanks, Ramsey. Here's what I would say. No incremental pause from what we're seeing so far.
Ramsey Elassal: sort of volumes and transaction growths really in line with what we expected. So, so far, sort of in line with those guidance expectations. So what we, you know, again, we're obviously moving through a
Ramsey Elassal: a period of uncertainty in spending across our buyer base, but while navigating that, we're pretty proud of the business that we built in terms of growth rate, profitability cash flow generation. So obviously, expecting a year.
Ramsey Elassal: where the macro persists but really believes that before too long we see growth resume.
Mike Praeger: Yeah, Ramsey is Mike and maybe just to add on there, one of the real things that gets us excited
Mike Praeger: about the year is the momentum that we're seeing across our new channel partners. Across the board, we're seeing strong momentum. We saw some slowdown in Q4 during the election cycle, and that kind of pushed a lot of activity into 25, and we're seeing some really good engagement there. And so we're looking forward to seeing that kind of really pull through throughout the course of the year around the new buyer logo counts.
Mike Praeger: continue to scale the buyer you know side of the business equation and that's a critical element of our growth algorithm.
Speaker Change: Your next question today will come from Craig Maurer with FT Partners. Please go ahead.
Craig Maurer: Yeah, thanks. Good morning. I wanted to focus on Top of Funnel for a second, you know, only 500 logos add to the platform and you know, look I understand the discussion on macro, but you know, how can you accelerate new logo additions? I mean, should we be worried about
Craig Maurer: Tam saturation or pricing need needs adjusting like what's holding that back you know and secondly how should we think about
Craig Maurer: really Investor Day targets? I mean we've been you know running below that in some respects and what's the confidence that we should be modeling toward those numbers again? Thanks.
Speaker Change: Yeah, so two meaty questions there, Craig. So let me be, I can try to start by tackling kind of the new logo question and we'll work into the second half of your question there.
Speaker Change: So, first of all, you know, one of the things that, you know, I've been comments on is.
Speaker Change: You know, we are marching toward through last year. You know, going into Q4, we're running slightly ahead on new logo counts.
Speaker Change: through three quarters. Now, remind everybody, you know, 60% of our new logos get generated in the second half of the year, and the majority of those are in the fourth quarter.
Speaker Change: And one of the things that we saw is during the fourth quarter is a slowdown in new logo ads during the election cycle. I think it's just a function of...
Speaker Change: CFOs and Senior Finance leaders being more cautious and not knowing what to expect in the election. And so, they were putting decisions on hold. And so we ended up seeing that somewhat accelerate post-election, but not enough within a time left in the year to get back to the momentum that we saw community into the quarter. And so, we believe that as we go into the year with a pretty big backlog of pipeline.
Speaker Change: ≫ Paul, do you want to take it over? ≫ I think the overall overwhelming supply of contract vegetations and beneficial things to do
are objected there.
Speaker Change: And so those are some of the building blocks there, but certainly seeing, you know, kind of leveraging the new channel partners. We have not only, you know, the ones that we've been talking about, they have Folio M3 that are performing extremely well. You know, M3, like 3X, the activity that we saw a year ago, and Folio 2X, the activity that we saw a year ago.
Speaker Change: and so those are real positive elements for us, not to mention, you know, the pipeline that we have around new embedded ERP partnerships that we'll be announcing in, you know, the quarters to come.
Speaker Change: and so I think that's what gives us the confidence related to, you know, kind of the new logo elements.
which is, you know, kind of the first step.
of kind of the overall growth algorithm in and out.
Speaker Change: Maybe I'll just list the other two and turn it over to Joel to provide context. New buyer, customer growth is kind of critical. The second one is our innovation that drives the yield and expansion. That's Payment Accelerator 2.0, Spend Management, our Pay 2.0 platform, and some of the impacts that we have against our AI initiatives.
And then the third is that retention element.
Speaker Change: both some of the customer experience that we control as well as the macro piece that we're you know currently facing you know roughly you know about six percentage points below what we see as a normalized state. So maybe turn it over to Joel related to you know kind of that second piece of the question compared to yesterday.
Joel Wilhite: Yeah, Craig, so it's a good question and here's the way I would sort of think about balancing the equation for you.
The Middle Market, certainly across our
Joel Wilhite: our buyer base. And so from a growth perspective, you know, we're off. That's pretty straightforward and obvious. But on the other side of that equation, we're ahead of schedule on gross margin, finishing at almost 75% for the quarter. That was a target we set for ourselves for 25, not Q4 of 24. So we're pretty proud of the progress we've made.
Joel Wilhite: And to Will's initial question, we think we still have distance we can cover even at moderated growth rates in terms of the continued expansion and gross margin in EBITDA. Obviously, though, we need growth.
Joel Wilhite: to return to get back to that kind of Rule of 40 trajectory that we also talked about at Investor Day. I think we're doing a good job controlling what we can around OPEX scale and gross margin expansion.
Joel Wilhite: But we do need to see ourselves back to kind of a double-digit growth rate. And at that moment, I think we're sort of back on track as you think about sort of the Rule 40 target. And then finally, we talked about, you know, kind of our e-payment mix.
Joel Wilhite: E-payment next as a percentage of our total payments, moving that forward based on the investments we've been making and expect to see the results of through the pay platform investments and payment accelerator.
Speaker Change: Again, please limit yourself to one question. And your next question today will come from Andrew Bao with Wells Fargo. Please go ahead.
Hey guys, thanks for being the question
Speaker Change: I wanted to ask on a vertical specific basis, I think that the commentary that we've heard
Speaker Change: through the course of 24 was that, you know, all verticals were generally seeing this.
Speaker Change: Yeah. So, Andrew, good question. And so, you know, remind everybody, we go to market in nine different industry verticals plus the horizontal layer.
Speaker Change: And within the verticals, you know, the ones that we see performing, you know, at a really strong note, you know, kind of during the quarter, were the real estate, the vertical, led by Multifamily, our financial services vertical, and media.
released earlier last year.
and one that would kind of blow our expectations.
Speaker Change: with some kind of a macro headwinds with HOA, Condor Association, kind of vertical where we definitely saw a slowdown in HOA boards, you know, authorizing additional purchases, doing capital projects, things like that, you know, the indications are that, you know, kind of getting through the election cycle is critical, you know, for a lot of those boards making those spending decisions and so we're, you know, expecting that we see some significant improvement to that vertical, you know, throughout this year.
Speaker Change: But maybe Joel can comment a little bit on kind of what's implied in the guide, but I think we, you know, took a, you know, kind of a
Speaker Change: or degration for that matter, but continue those, you know, kind of that trend line based on where we see it today. So that could certainly be upside throughout the year if we see some of that macro spending come back within the year.
Speaker Change: And your next question today will come from Darren Peller with Wolf Research. Please go ahead.
Darren Peller: Guys, thanks. Look, it's pretty clear that the environment around transaction retention is just uncertain, and so putting that aside, it's hard to...
really handicapped when that goes back in a bigger way.
Darren Peller: Customer ads are obviously key, as you discussed, and new innovation, obviously, is gonna be key. The accelerator topic, obviously, is one I wanna focus on.
Speaker Change: Just first on customer ads, did you disclose or have you discussed what you actually expect in terms of number of new logos? I know you said 500 last year.
Speaker Change: 10% is your aspiration per year, and then really just maybe we can go a little deeper on why you expect there to be as much progress as you expect to contribute to growth from the accelerator initiatives.
Speaker Change: Where are we on that, it does seem like a big opportunity but I just want to get an update on what progress has been made.
Thanks.
Speaker Change: range in a healthy environment. But, you know, we don't at the moment we don't sort of provide pinpoint guidance or quarterly updates on that.
Mike, you want to take the rest?
Yeah
Darren Peller: So, you know, related to payment accelerator, you know, and Darren, I appreciate, you know, the comment here, and this is certainly a product that we've been working on for a while to make sure that we get it right. We think this, you know, is, you know, falls in the kind of the category of, I don't know, company changing, but certainly it's our next hundred million dollar business and adds a great diversification lens to, you know, providing significant value to the supplier side of the equation.
Darren Peller: and a couple things that we're saying here is, you know, we took a cautious approach last year as we, you know, released our 2.0 offering to make sure that we got all the elements of it correct and we feel really good about that and now are, you know, laser focused on the scaling of the product.
Darren Peller: 1.0 product and so that that was a big milestone for us so we've seen significant you know adoption of the 2.0 product by new suppliers.
Darren Peller: You know, we have, you know, lots of enthusiasm related to, you know, kind of the impact of that product, especially long-term in the business.
Speaker Change: Your next question today will come from Brian Keane with Deutsche Bank. Please go ahead.
Hey guys, good morning and thanks for taking the question.
Speaker Change: Just a couple of clarifications on the volume growth for 2025. I think if you x'd out political...
Speaker Change: Joel, maybe you can just help us on how to think about what's the right growth rate, how much macro might be impacting the TPV implied growth rate. And then just a quick one, secondly, payment revenue take rate as a percentage of TPV explode expanded again.
Speaker Change: You know, obviously in the second quarter it went down a little, but it's kind of recovered nicely. How do we think about that trajectory in 2025 in the guide? Thanks.
Yeah, thanks, Brian.
Speaker Change: So, just to come back to the first part of your question around what does Bidens contemplate, so if you strip out political inflow,
Speaker Change: What we're guiding at the midpoint is right around 8% growth.
Speaker Change: Okay, and I think I mentioned in a previous response to a question that we do The mix of that is roughly 48 52 from a first half second half
Speaker Change: And then, finally, we talked about roughly a point of that growth being attributable to the ramp and payment accelerator, as Mike has mentioned, and another point around movement, you know, favorable movement and e-payment mix.
Speaker Change: Overall Total Transaction Yield, and particularly X-Float and Political, we also look at TPV Yield.
Speaker Change: And we've seen both of those yield numbers moving in the right direction these past couple quarters and really just a function of our kind of continued focus on optimizing the monetization of our payments and our pricing strategies and making sure that we're paying suppliers the way they want to be paid. I would say that we still expect...
Again, the starting point is...
Speaker Change: You know, something like 32 bps on overall TPV. So really, industry-leading TPV yield in particular to start with. And we think with all of our strategies that we're leveraging to continue to shift towards e-payment, not to mention on top of which to begin to scale payment accelerator, we feel good about the level of monetization, and we feel good about the ability to expand that as we move through 25.
Speaker Change: Your next question today will come from Dominic Gabrielle with Compass Point. Please go ahead.
Hey, great. Thanks so much.
Speaker Change: And I guess what markers, you know, when you're thinking about this total piece, what are some of the macro markers you guys are looking for to see potential acceleration and retention of new logo wins? Thanks so much.
Speaker Change: Yeah so I think so first of all let's break it into two parts here there's a kind of new logos and then there's retention and so let me take kind of the you know the new logos first
Thank you.
Speaker Change: you know opportunities. Now one of the things when we talk about the top of the funnel that relates to lead generation.
Speaker Change: for us, so that, you know, consistent deals would be kind of part of, you know, lead generation type definitions.
Speaker Change: And we've noticed a really strong engagement, you know, ending the year related to, you know, top of final lead gen, and certainly the engagement across our key channel partners. You know, going all the way back to, you know, channel partners have been partners for years for us, combined with some of the new, the new class of kind of 23 and 24 partners.
led by the Apolios, M3s, Bill Liams.
Speaker Change: Cadis Bank, as examples, really strong, you know, demand-gen reflow that we're seeing. So I think we...
Speaker Change: have, you know, a lot of optimism related to the new sales, the sales engine, you know, getting back to the growth elements that we expect.
Speaker Change: The second kind of piece maybe is a separate question and that is the retention.
Speaker Change: And that, our retention number that we focus on, is really, it's not a logo, it's a volume.
Speaker Change: So, you know, just, you know, on the Largo side, you know, we made commentary that our kind of retention numbers there are kind of the, you know, the gold standard, mid-90 percent, you know, overall retention across all of our customers.
Speaker Change: Douglas Goldstein, CFP®, is the director of Profile Innovation and the host of the Goldstein on Gelt radio show.
Speaker Change: And so that number, you know, is in a normalized state. We have seen for many years being no kind of 104 to 105% range, but we see four or five percentage points of same-star growth built into our customer base.
Speaker Change: and, you know, as Joe indicated, you know, that's, you know, kind of sub-100 currently. So, we have about six percentage points of, kind of, you know, you know, growth element that we expect to happen over time as the macroeconomy begins to improve to get back to that normalized state.
Speaker Change: So we see, you know, insights to, you know, what people are spending, you know, you know, 30, 60 days ahead of, you know, when that payment occurs. And we're looking for, you know, kind of changes in some of those discretionary spend categories.
Speaker Change: that were disappointed in the performance related to this element in the last year was the HOA Condo Association where basically, you know, HOA and Condo Association boards
Speaker Change: were very cautious about authorizing new spending for preventive maintenance type activity and just spending overall, you know, until they had, you know, certainly getting through the election cycle and then having more confidence in the macroeconomy.
Speaker Change: We think that, you know, those would be good, you know, kind of barometers for us to watch.
Speaker Change: as we go through the year to see if some of those spending elements begin to recur.
Joel Wilhite: So those are some of the things that we're watching for, and as Joel indicated earlier, the guide does not contemplate improvement in 2025, so that would be certainly an upside opportunity should we see the macro return and get better throughout the year.
Speaker Change: And your next question today will come from Ten Sinh Hoang with J.P. Morgan. Please go ahead.
Speaker Change: Hey, Mike and Joel. I'll ask a little bit of a different question, maybe just on some of the KPIs here. I noticed the spread between transactions.
and volume seem to be widening.
Speaker Change: versus history. Do you expect that to normalize in 25? Isn't there any learning from from this? I guess I'm mostly curious if you think it's more likely that transactions come down, move up closer to volume or or vice versa.
Speaker Change: Yeah, good question, Cengin. So keep in mind that overall total transaction number is composed of a large base of invoice transactions and a smaller but faster growing base of payment transactions, and the payment transactions is what's driving that like 10% TPV growth.
Speaker Change: And there is some separation, obviously, if you think about payments revenue, stripping out float and political is about a 13.5% grower. That correlates to that 10% TPV, and that's just the incremental yield that we're seeing in the business. Hopefully that helps.
Speaker Change: Yeah, and maybe just to add that, you know, some of this retention piece is that we've been talking about directly related to the transaction number. So the retention piece is based on transactions.
Speaker Change: consent and volume is not factored into that retention. So certainly some of the macro impact that we're seeing on less transactions on our platform by some of those discussions and categories, you know, show up in that overall, you know, transaction number.
Speaker Change: Your next question today will come from James Fauchette with Morgan Stanley. Please go ahead.
James Fauchette: Great, thank you so much. I appreciate all the commentary today. I wanted to have a bigger picture question here on AI and its role in the B2B space.
James Fauchette: I saw some of the commentary about using Microsoft AI tools on invoice data and having that functionality available to the whole customer base by the end of the year, but curious about how you're anticipating this evolving over the next few years. Appreciate all the thoughts. Thanks.
Speaker Change: Yeah, so it's a good question. I think, you know, when we look at, you know, kind of the impact of AI on our business, first of all, it's two, you know, two big buckets. One are, you know, how we're incorporating AI into our product sets.
Speaker Change: to impact customers, and then the second element is how we're using it internally just to make our business and our product and service delivery more efficient.
Speaker Change: And so a couple of kind of key areas that we're talking about internally within our products, you know, payment accelerator, you know, one of our newest generation of products is a great example. It's very AI based in terms of identifying those, you know, invoices that
Speaker Change: you know, just how we, you know, go through the process of onboarding and kind of approving a new supplier as, you know, an approved, you know, payment accelerator type supplier. I've made some comments there, you know, kind of the impact of AI has taken that onboarding process down to, you know, hours.
Speaker Change: from what used to take days to occur and we believe that actually we get down to minutes, so just game-changing.
Speaker Change: And so that's an example of, you know, kind of a, you know, just, you know, AI just embedded in one of our new products. That's sitting with all of our new product innovation.
Speaker Change: AI is just a cornerstone piece of it. Some of the other big buckets, James, on the front end in terms of the invoice creation side of all the different forms of invoices that were received from suppliers and able to, you know, kind of read those invoices efficiently, it started with OCR type technology. And then we kind of added.
Michael Praeger www.microsoft.com
Speaker Change: The second element of the kind of the next element is what I would say on payment delivery and this is where we've had some really great success in terms of automating all the different payment deliveries.
of Reforms that we have on kind of AI.
and then kind of just starting the vodka internally.
and in development.
Speaker Change: and making, you know, kind of our engineers as really as productive as possible to move through roadmaps even faster and increase that velocity. And so those are some of the elements internally and I think, you know, in the scheme of things.
Speaker Change: That's what gives us a lot of confidence related to some of the runway and gross margins as well as overall profitability of the business as we march forward.
Cheyenne Patil: And your final question today will come from Cheyenne Patil with Susquehanna. Please go ahead.
Hey, James. How are you guys?
Cheyenne Patil: I just want to go back to the Analyst Day message and slides as well.
Speaker Change: apropos of the operating leverage that you had articulated at that time I think it was your COO's presentation
Speaker Change: There was an element, and clearly you were ahead of schedule delivering that in the Q4 year ahead of plan like you articulated, Joel. But I wanted to ask, there was an element of that on the outsource, insource narrative.
Where are you in that journey?
Speaker Change: And how much more is there of an opportunity on the operating leverage side to...
Thank you.
Speaker Change: Yep. Great question, Jamie. And that was an important part of our investor day.
Speaker Change: conversation, and we're really proud of being kind of on track.
Speaker Change: If not slightly ahead with those strategies, and that's obviously contributed to being ahead from an overall OPEX as a percentage of revenue. We exited 24 at about what we targeted for the full year 25. I think it's...
Speaker Change: We are in a continual journey as John Feldman sort of laid out in that Investor Day conversation.
Speaker Change: of standardizing, automating, and outsourcing or offshoring operations across the business, across the journey from an invoice receipt all the way through to payment and then payment execution as well.
Speaker Change: So we're really proud of that progress and it's a big part of our success so far from a profitability perspective.
Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to Michael Praeger for any closing remarks.
Speaker Change: Thank you again everyone for your interest in AVID Exchange. Amid the continuing macro headwinds, I'm very proud of our discipline, execution, and strong financial performance.
Speaker Change: As I said before, I'm particularly excited about the future, given the pipeline of project innovations and industry-lead ERP integration embedded partnerships that are a progress that should be able to really propel all four gears of our business flywheel and drive long-term value creation for our investors.
Speaker Change: With that, we look forward to sharing our progress on our future earnings calls.
Speaker Change: Conference is now concluded. Thank you for attending today's presentation. You may now disconnect.