AvidXchange Holdings, Inc.

Good morning, everyone, and thank you for joining us for the AVID Exchange Holdings, Inc. fourth quarter and full year 2024 earnings call. Joining us on the call today is Mike Prager, AVID Exchange's co-founder and chief executive officer, Joel Wilhite, AVID Exchange's chief financial officer, and Subash Kumar, AVID Exchange's head of investor relations. 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. 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, 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. Accordingly, at the end of today's press release, the company has provided a reconciliation of these non-GAAP financial measures to financial results prepared in accordance with GAAP. With that, I will now turn the call over to Mike Prager. Please go ahead.

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. Our fourth quarter 2024 results exceeded implied expectations across all of our core financial metrics. 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. 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. This brings the total shares we purchased 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. 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. 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. 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. And 2024 was no exception in which we saw more than four percentage points of gross margin expansion over 2023 alone and greater than 10 percentage points of EBITDA margin expansion over 2023. What has overshadowed the strong execution on margins is the macro economic environment which remains mixed. This is particularly the case in the instance of our top of funnel customer engagement in buyer logo growth metrics. On the positive side in 2024, we saw pockets of modest but positive growth in the top of funnel across three of our largest and 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. While the overall top of funnel opportunities were down roughly 2%, some of which was due to changes in our go to market motion over the 2023 and 2024 period, and some due to the macro economic environment, the growth in the buyer customer logo count for 2024 was better on a relative basis up over 6% driven by higher quality opportunity lead generation across our ERP partner related channels. This compared to buyer customer logo count growth of .1% in 2023 with a top of funnel that grew in double digits. Given the impact of the macro economic 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 mode around the middle market for many years to come. Middle market finance leaders remain focused on productivity and profitability and they are looking for business process domain experts with scalable solutions such as AVID exchange to unlock the opportunity for themselves and their suppliers. This is where AVID exchange shines. As an industry leader with the best of breed scalable AP automation and payment solutions to address the large opportunity set, recently signed and highly strategic ERP integration and reseller partnerships of which I will provide an update later in my prepared marks should underscore our confidence in the future organic growth trajectory of our business. 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. DRM is a major player in the hospitality industry which is a relatively new formal vertical for us and has been seen healthily growing in momentum. DRM is one of the largest franchises for ARBs, 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. Given that 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. With NetSuite as its core accounting system, Mike adopted AVID exchange's invoice and payment solution given our deep integration with their NetSuite software. With our solution, DRM was able to support its double digit growth objectives without any additional accounts payable headcount which translated to over $60,000 in annual cost savings and created a great user experience with this team of AP specialists leveraging our built inside NetSuite integration and user experience. As Mike Swoop 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. Turning now to some of the performance highlights and metrics from the fourth quarter of 2024 that underscore our value proposition and operational execution in action. 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. Non-GAAP growth margin hit a milestone coming in at almost 75%. We're up 350 basis points over last year at the top of the end of our 72% to 75% non-GAAP growth margin target ahead of our 2025 objective we set over a year ago during our last investor day. 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. Along with solid operating expense discipline adjusted EBITDA margins on the quarter reaching almost 23% once again hitting the milestone we committed to during our investor day. Our important transaction yield metric which is the total revenues over total transactions was up more than 6% to reach $5.80 per transaction. 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 ABIT exchange business flywheel. 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. I will use the four years of the AB exchange business flywheel 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. Number one continue building the foundation of future growth through ERP integrations and embedded partnerships along with continued vertical market expansion. 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 scaling our 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 ABIT exchange. And finally priority number four continue to elevate the customer experience across ABIT exchanges product suite for both our buyer and supplier customers across our purpose-built two-sided network. To build on the resuccess of gears one, two, and three which are about creating robust customer focused ERP integrations as well as maximizing transactions and monetization on our platform to drive growth and scale. I am very pleased to provide an update on some of the previously announced and notable ERP integrations and our embedded pay partnerships. 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. For instance recently announced a notable large software integration partnership such as Appfolio and M3 spanning the real estate HOA and hospitality verticals are beginning to gain steam. Our Appfolio 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. M3 on the other hand with a product market fit target customer base of roughly a thousand is progressing even faster with lead flow tripling to hundreds with close rates up almost 4x in last year. 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. While these two highlights are just part of the class of 2023 partnerships alone 2024 was another productive year for the partnerships across our HOA, healthcare, financial service verticals that included building DSOs, Cadence Bank to name a few. And we anticipate that these partnerships should start to gain traction in a similar way to that Folio and M3 during the latter part of 2025 and meaningful in the 2026. 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. Now I'd like to provide an update on the new products that are in the foundation of our future growth and should drive gears three and four of our business flywheel. Under gear three of our business flywheel which is all about monetizing payment volume and maximizing e-payment penetration by leveraging the new payment modality 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 at the foundation of our AvidPay network. We believe that the capabilities of AvidPay 2.0 will enable us to create new payment modality offerings through real-time configuration combining pricing terms, speed of settlement, access to reminiscence data, and payment acceptance automation, eliminating the need for lengthy software development dependencies. 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. With AvidPay 2.0 we anticipate increasing our penetration and share of our buyers customers payment files in several ways while capturing greater transaction economics. 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. Second by expanding our payment network solutions we aim to increase e-payment adoption 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. Third our enhanced ability to customize product payment modalities speed remins and price in real time should drive additional e-payment adoption for buyers and their suppliers. Finally with our new AvidPay 2.0 platform we believe that we have not only enhanced revenues to expanded buyer and supplier products greater payment monetization 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. Taken together these things should create substantial opportunity for us in terms of revenue growth and margin expansion as we convert our paper check suppliers to accepting one of our many forms of e-payment. In addition to Pay 2.0 and also under gear three of our Avid exchange flywheel we've launched initiatives to fast track existing new check conversion into electronic payments dubbed the extended network payments. These efforts go hand in hand with new offerings being rolled out as part of AvidPay 2.0 and highly strategic in value. In fact the new efforts could represent a stuff function change in reducing the number of checks which is represented around 55 percent of payment transaction makes today. We've entered into a strategic partnership with a large financial technology firm and a various other such partnerships in process within the financial services ecosystem to accelerate the conversion of paper checks with specialty networks of suppliers and electronic payments which should bear fruit in 2025. We look forward to discussing this in greater detail as the year unfolds. Also under gears three and four 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. 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. We have had version 1.0 of our product in the market for the past few years which has generated a lot of learnings and interest across suppliers but version 2.0 which was launched the end of 2023 marks a stuff function change in the product. This 2.0 product is the next generation in terms of user experience with enhanced features and functionality that should drive scalability. To put into 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. In the near future we expect to be able to compress that time frame down to minutes. 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. 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. 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 your customer and know your business compliance regulations. Real-time as a supplier validates an online questionnaire of legal entity data and beneficial ownership information. Once onboarded a supplier is presented with multiple acceleration offers with transparent pricing and various time-based funding options including real-time payments. 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. The rolling three months 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. 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. We've made tremendous strides in increasing our non-GAAP gross margins and we expect there's more to come. Since our IPO in 2021 even stripping out the contribution from float and seasonal political revenues our non-GAAP gross margins have been up almost 10 percentage points to almost 70 percent. We believe that the success on the gross margin front is all due to disciplined 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. Recall there are six ways in which we execute virtual card payments as an example with our suppliers. 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. 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. 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 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. 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. In closing we're proud of our operating performance amid continued macroeconomic headwinds impacting our middle market customers. 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. With our four operating priorities interlocking with the four gears of our business flywheel we continue to strengthen our competitive advantage further by building out new strategic and integration partnerships as well as driving scalable innovation across our payment platform through new products leveraging AI which we believe position as well for the future. In 2024 we entered into strategic and integration partnerships across various verticals including real estate, hospitality, HOA, healthcare, financial services, along with media and -for-profit. This builds on the success the partnerships entered into in 2023 such as a folio m3 etc. These partnerships coupled with the scaling of our new product offerings including payment accelerator 2.0 our new pay platform 2.0 and spend management which we expect to roll out in the second half of 2025 with a ramp in 2026 should provide momentum to potentially outrun our 2025 growth expectations in 2026. 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. 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 market's untapped opportunity. I want to provide a special thanks to all of our AvidEx 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. With that I'd like to turn the call over to my partner Joel Willhite. Joel?

Thanks Mike and good morning everyone. I'm pleased to you today about our strong fourth quarter 2024 financial results which reflect disciplined operational execution amid continued macro headwinds. Overall we delivered a strong quarter of year over year financial performance across the board. I'll expand on that in a moment but let's see how we track relative to implied expectations. 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. Gross margin performance remained strong due to ongoing progress on unit cost initiatives and yield expansion. Coupling that with sustained operating expense leverage driven by a combination of expense discipline and lower performance bonus accruals, we drove stronger adjusted EBITDA out performance relative to expectations. 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 gap net income quarter since going public in 2021. Now turning to year over year results, total revenue increased by .9% to 115.4 million dollars in Q4 of 2024 over the fourth quarter of 2023. Stripping out the impact of float and political revenues on a comparable basis which provides a more apples to apples comparison of underlying growth trends. The revenue growth was driven by a combination of pay yield expansion and the addition of new buyer invoice and payment transactions. Our revenue growth also resulted in total transaction yield expanding to $5.80 cents in the quarter up .4% from $5.45 in Q4 2023. The increase was driven by software and pay yield as well as higher payments transaction mix. Software revenue of 30.9 million dollars which accounted for .8% of our total revenue in the quarter increased .4% in Q4 of 2024 over Q4 of 2023. The increase in software revenues was largely driven by a growth in total transaction count. Payment revenue of $83.4 million dollars which accounted for .2% of our total revenue for the quarter increased .3% in Q4 of 2024 over Q4 of 2023. Payment revenue reflects the contribution of interest revenues which were $12.2 million dollars in Q4 of 2024 versus $13.7 million dollars in Q4 of 2023. Political media revenue in the current quarter was approximately $2.9 million and negligible in the same period a year ago. Excluding the impact of float and political revenues from both comparable periods which provides a more apples to apples comparison, payment revenues grew .5% driven by a combination of an increase in pay yield, greater payment mix, and payment transaction volume increase of 8.3%. On a gap basis, gross profit of $78.8 million dollars increased by .1% in Q4 of 2024 over the same period last year resulting in a .2% gross margin for the quarter compared to .6% in Q4 of 2023. Non-gap gross margin increased 350 basis points to .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 equals. I'm pleased to say that the fourth quarter 2024 non-gap gross margin was now at the top end of the 72 to 75% range targeted for 2025 as projected during the company's June 2023 investor day. Moving on to our operating expenses. On a gap basis, total operating expenses were $82.5 million dollars and increased to .7% in Q4 of 2024 over Q4 of last year. On a non-gap basis, operating expenses excluding depreciation and amortization and stock-based compensation increased as well by .3% to $60.1 million dollars in the fourth quarter of 2024 from the comparable prior year and with the increase driven primarily by sales and marketing initiatives partially offset by lower annual performance bonus expense. On a percentage of revenue basis operating expenses excluding depreciation and amortization and stock-based compensation or non-gap OPEX declined to .1% in the fourth quarter of 2024 from .5% in the comparable period last year. I'm equally pleased to say that fourth quarter 2024 non-gap 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. Overall, the decline in non-gap OPEX as a percentage of revenues year over year largely highlights expense discipline and significant operating expense across G&A, R&D, even after stripping out the contribution of float and political revenues. I'll now talk about each component of the change in operating expenses on a non-gap basis. Non-gap sales and marketing costs increased by 2.4 million dollars or 14% to $19.9 million dollars in Q4 of 2024 over Q4 of last year with increased investments in sales and marketing spend to support continued growth partially offset by lower annual performance bonus expense. Non-gap research and development costs were essentially flat on a comparable basis at $22 million dollars in Q4 of 2024 and were helped largely by lower annual performance bonus expense. We continue to reinvest across our products and platform including spend management, pay offering, and payment accelerator. Non-gap G&A costs decreased by approximately $1 million dollars or down .2% to $18.2 million dollars in Q4 of 2024 versus Q4 of last year 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. Our gap net income was $4.7 million dollars for the fourth quarter 2024 versus a gap net loss of $4.5 million dollars 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, 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. Gap diluted earnings per share for the fourth quarter was two cents which was a four cent positive swing from the same comparable period last year. On a non-gap basis our net income in the fourth quarter of 2024 almost doubled to $17.3 million versus $9.4 million in the same year ago period with non-gap diluted earnings per share up 60% to eight cents versus five cents diluted earnings per share in the fourth quarter of 2023. All of the net income performance was driven primarily by the aforementioned factors. On a non-gap basis Q4 2024 adjusted EBITDA was $26.3 million versus $15.6 million dollars in Q4 of 2023 with the favorable delta split mostly between expense leverage driven by higher comparable revenues and lower annual performance bonus expense. Turning to our balance sheet for a moment I want to touch on a few key items. We introduced the end of the year with a strong corporate cash position of $389.3 million dollars of cash and marketable securities against an outstanding note payable for $9.1 million dollars. At year end our credit facility which consists of a $150 million dollar revolver with a $150 million dollar accordion feature remained undrawn. During the quarter the company utilized $25 million dollars of cash from its balance sheet to purchase approximately $2.3 million dollars of its own shares at a price of $11.10 under our $100 million dollar share repurchase program announced in August 2024. For the year the company utilized approximately $50 million dollars of its cash the maximum allowed within a calendar year to purchase $5.4 million shares at a price of $9.33 per share. Corporate cash meanwhile was split roughly three quarters 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. 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 percent. Customer cash at quarter end was approximately $1.2 billion dollars with an interest rate of roughly 4.3 percent for the quarter. Turning to our 2025 business outlook we expect total revenue for the year to be in the range of $453 million dollars to $460 million dollars. Our 2025 revenue outlook reflects approximately $44 million dollars of interest revenues from customer funds versus $49.7 million dollars earned in 2024. We do not anticipate any political media revenue contribution in 2025 versus $6.6 million dollars in 2024. We expect 2025 revenue distribution between the first half and second half of the year to be approximately 48 percent and 52 percent respectively, roughly similar to levels in 2024. Similarly, we expect non-GAAP adjusted EBITDA profit ranging between $86 million dollars and $91 million dollars for 2025. We also expect 2025 non-GAAP diluted earnings per share 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. With that I'd now like to turn the call back over to the operator and open up the line for Q&A. Operator.

Thank you. We will now begin the question and answer session. To ask a question you may press star then one on your touchtone phone. If you are using a speaker phone 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 rust. And your first question today will

come from Will Manse with Goldman Sachs. Please go ahead.

Hi guys. Good morning and thank you for taking the question. I wanted to follow up on some of the comments and prepared remarks. You know Mike you know you've referenced what has been very strong kind of growth 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 an update on kind of your view of where we stand on the runway for that to continue. Growth margins now being at that 75 percent level. OPEX being kind of flat ish for a pretty extended period of time. Are you starting to see the point where your costs need to start to grow again or do you see more room to go particularly on the gross margin side just given where you've laid out the targets?

Yeah I mean great question Will. What we think is kind of the long-term directory of what we're doing is you know margin towards that 80 percent you know targeted gross margin number. And it's a combination of I kind of you know putting the three big buckets so continue to you know be aggressive in our sources strategy standardization across the business combined with automation led by AI. And you know though we're you know a couple years into our AI journey we think there's a lot of runway and the use cases that we're currently working on you know continue to be really exciting for our team and trick rating you know that increased efficiency. So we see a fair amount of runway you know and continue. 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 you know kind of you know periods of improvement but also as we continue to you know kind of you know begin to really accelerate the revenue growth element of the business we're going to see some scale creep into that number as well. So combination what I said combined with the scale you know gives us a lot of confidence that continue to grow that number towards the 80 percent plus you know milestone is what we're

targeting. Got it 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 sounded interesting and sort of incremental just wanted to provide a little bit more context around and how that's going to work and you know what you know any milestones that we should be looking out for.

Thanks. Yeah so good question and one of the things that we've you know as we 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 they'll also build those specialty networks or do we want to kind of partner and leverage the networks that they've built. And so these are good examples where there's you know kind of targeted you know population of certain you know supplier sets that you know they're able to others are able to monetize and we're going to tap in to share that monetization. At the same time you know we're doing something similar with our network 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

networks.

And so I think the direct reflect is going to be is we're going to see you know kind of an escalating elimination of paper check which is kind of the common enemy and the objective that we have is to continue 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. And your next question today will come from Robbie Bamberger with Barrett. Please go ahead.

Yeah thanks for taking my question. Maybe just thinking about what's embedded in the 2025 revenue guide how much you know macro headwind should we expect there to be in 2025 and I guess what do you expect you know same service sale growth to be into next year.

Yeah thanks Robbie and great question. Yeah obviously if you if you you know think about 25 there's a couple things to keep in mind first of all obviously you know if you think about the float dynamic and the political dynamic you have to consider that you know and I think our prepared remarks made it clear that after about a 6.6 million dollar political year in 24 that revenue will be negligible in 25. Also from a float revenue standpoint we generated about 50 million dollars in 24 and we expect that to be closer to sort of 44 in the 25 year. So that's the first thing I'd say so if you strip those out and you think about what our kind of guidance is at the midpoint roughly at roughly an eight eight points of growth and your question fundamentally you know we've been tracking the macro impact through the overall total transaction growth in the business and we've commented around our fundamental transaction retention being below 100 percent. We were encouraged in Q3 when we saw for the first time in several quarters that growth rate bounced up to about 5.2 percent in Q3 but it did turn around slightly and to about 4.3 percent in Q4. Suffice it to say that we feel like we're kind of bouncing around the bottom and our guidance contemplates that we don't see meaningful improvement or worsening from there so fairly consistent low single digit overall total transaction growth and sub 100 retention. Maybe the final point I'll make is when you think about that eight percent growth a couple things we're excited about as we exit 2025 include and Mike referenced this in his prepared remarks the acceleration we're beginning to see in payment accelerator making a meaningful contribution say about a point of that growth in the back part of attributable to that ramp in the back part of 25. Also some success works 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 of kind of what's contemplated from a guidance standpoint.

And your next question today will come from Ramsey Alisal with Barclays. Please go ahead.

Hi guys 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 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. Yeah

thanks

Ramsey. Here's what I would say nothing no incremental pause from what we're seeing so far. If I look at January the 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 you know a period of uncertainty in spending across our our buyer base but but you know while navigating that we're pretty proud of the business that we've built in terms of growth rate profitability cash flow generation. So so obviously you know expecting a year where the macro persists

but but really believe that before too long we see growth resume. Yeah

Ramsey is Mike and maybe just to add on there is one of the real you know things that you know gets us excited 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 you know slow down in Q4 you know during the election cycle and that you know kind of pushed a lot of activity into 25 and we're seeing you know some really good engagement there and so we're looking forward to you know seeing that kind of really pull through throughout the course of the year around you know the new you know buyer logo counts and continuous scale the buyer you know side of the business equation and that's a

critical element of our growth algorithm.

And your next question today will come from Craig Maurer with FT Partners. Please go ahead. 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 or should we be worried about TAM saturation or pricing needs adjusting? Like what's holding that back? You know and secondly how should we think about 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.

Yeah so two meaty questions there Craig so let me be I can try to you know start by tackling kind of the new logo question and we'll work into the second half of your question there. So first of all you know one of the things that you know I've been comments on is you know we are marching toward it through last year. You know going into Q4 we're slightly ahead on new logo counts through three quarters. Now remind everybody about you know 60% of our new logos get generated during the second half of the year and the majority of those are in the fourth quarter 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 you know 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 you know seeing that somewhat accelerate post-election but not enough. We didn't have time left in the year to you know get back to the momentum that we saw you know kind of moving into the quarter and so we you know believe that you know as we go into the year with a pretty big backlog a pipeline of deals you know pushed from Q4 into the new year combined with the momentum that we're seeing around our new channel partnerships is what gives us that you know confidence related to you know getting back to you know kind of 10% you know new logo growth 10% plus is kind of our our objective there and so those are kind of the building blocks there but certainly seeing you know kind of talking about the folio m3 that are performing extremely well you know m3 like 3x the activity that we saw a year ago folio 2x the activity that we saw a year ago and so those are really positive elements for us not to mention you know the pipeline that we have around new embedded erp partnerships that will be announcing and you know the quarters to come 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 and you know you know maybe I'll just list the other two and turn it over to Joel to provide context you know new buyer you know customer growth is kind of critical the second one is our you know innovation that drives the yield and expansion that's you know payment accelerator 2.0 spend management our pay to your platform and some of the impacts that we have against all our ai initiatives and then the third is that retention element 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 over to Joel related to you know kind of that second piece of the question compared to investor day

yeah craig so it's a good question and here's the way I would sort of think about balancing the equation for you obviously since you know summer of of 23 when we held investor day we've been in a deeper and longer kind of macro impact you know impacting buyers and their spending across the middle market certainly across our our buyer base and so from a growth perspective you know we're off it's that's pretty pretty forward and obvious but on the other side of that equation we're ahead of schedule on gross margin finishing at almost 75 percent 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 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 and even obviously though we need growth 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 op-ex scale and gross margin expansion but we do need to see ourselves back to kind of a double digit growth rate and at that moment i think we're we're sort of back on track as you think about sort of the rule of 40 target and then finally we talked about you know kind of our e-payment mix we're excited about kind of the progress that we see as we exit the year and moving that e-payment mix as a percentage of our total payments moving that forward based on the investments we've been making and expect to see the result of through

the pay platform investments and payment accelerator so

again please limit yourself to one question and your next question today will come from Andrew with Wells Fargo please go ahead

hey guys thanks for giving the question i wanted to ask on a vertical specific basis i think that the commentary that we've heard through the course of 24 was that you know all verticals were generally seeing this this kind of subdued activity but just wonder if there are any kind of divergences in the growth rate of the you're seeing exiting 24 and what's informing your guide for 25

yeah so um

andrew good good question and so you know remind everybody we go to market in nine different industry verticals verticals plus the horizontal layer and within the verticals uh you know the ones that we see uh saw performing you know at a really strong note you know kind of during the quarter with a real estate vertical led by multifamily our financial services vertical and media and i think construction you know kind of is one that met our expectations and you know due to you know kind of the adoption of our titanium offering there that we released earlier last year and one that was kind of below our expectations it was some of the kind of the macro headwinds was hoa condo association kind of vertical where we definitely saw you know 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 was 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 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 you know a conservative approach related to the activity that we're currently seeing across the verticals in terms of those you know kind of discretionary spending and retention rates you know having that you know continues throughout the year without you know any real improvement or um or degration for that 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 from that backhoe spending come back within the year

and your next question today will come from Darren Peller with Wolf Research please go ahead

guys thanks um look it's pretty clear that the the environment around transaction retention is just uncertain and so putting that aside is it's hard to really handicap where that when that goes back in a bigger way um customer ads are obviously key as you discussed and new innovation obviously is going to be key the accelerator topic obviously is one i want to focus on so 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 10 is your aspiration per year uh and then really just maybe can go a little deeper on why you expect there to be as much progress as as you expect to contribute to growth from the accelerator initiatives where are we on that how's it you know it does seem like a big opportunity but i just want to get an update on what what progress has been made thanks guys

there maybe i'll maybe i'll go first just to answer one very specific question that you asked and then i'll let mike respond to the rest but in terms of we didn't and and we don't really pinpoint the sort of the new logo expectation that's baked into our guidance but you're right we believe that that's a a meaningful part of our growth algorithm and we think should be at the you know 10 plus range in a healthy environment um but but 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 um so related to payment accelerator um 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 into kind of the category of uh i don't know if company changing but certainly it's our next hundred million dollar business and adds a great diversification lens to um you know providing significant value to the supplier side of the equation um and a couple things that we're saying here is um you know we uh we're you know it's like a cautious approach last year as we uh you know released our 2.0 operate 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 um and so uh just you know earlier you know this quarter uh you know across the threshold of now we have more suppliers on the 2.0 product than we had on the 1.0 product um 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 um the second thing is that we're seeing is uh you know kind of you know although the numbers are so small uh you know revenue growth is uh you know it's going at like you know 100 percent a year it's uh it's numbers are small but you know we expect that business to double over the course of the year um and so um you know we have um you know lots of uh enthusiasm related to you know kind of the impact of that product especially long term in the business

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 um just a couple of clarifications on the volume growth for 2025 I think if you X'd out political uh Joel maybe you can just help us and 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 um as a percentage of tpv x float expanded again you know obviously in the second quarter went down a little it's kind of recovered nicely how do we think about that trajectory in 2025 in the guide section

Yeah thanks Brian um so

just to come back to the first part of your question around what what is guidance contemplate so if you strip out political and float what we're guiding at the midpoint is right around eight percent growth okay and I think I mentioned in a previous response to a question that we do uh the mix of that is roughly 48 52 from a first half second half and then finally we talked about roughly a point of that growth being attributable to the ramp and payment accelerator as mike has mentioned uh and another point around uh movement you know variable movement and e payment

uh

mix

second part of your question is is is just sort of what we're seeing from an overall yield standpoint again we look at both overall total transaction yield and particularly x float and political we also look at tpv yield uh and we've seen both of those yield numbers moving in the right direction these past couple quarters and and really just a a function of our kind of continued focus on optimizing uh the monetization of our payments and in our you know pricing strategies and making sure that we're you know uh paying suppliers the way they want to be paid I would say that you know we still expect yields again so the starting point is you know something like 32 bits 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

your next question today will come from dominic abrielle with compass point please go ahead

hey great thanks so much um you know if the new logos were pushed out in the fourth quarter wouldn't that have wouldn't that put upward opportunity on the top of funnel in 2025 versus 2024 so maybe just help us uh square the -single-digit revenue growth rate um I guess I'm just thinking about versus you know retention and I guess what 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 a new logo wins thanks so much

yeah so I think uh so well let's break it into two parts here there's a kind of new logos and then there's retention and um and so let me take kind of the you know the new logos first um yeah and so we um you know end of the year was a really strong pipeline related to um you know opportunities now one of the things when we talk about top of funnel uh that relates to um regeneration uh for us um so that you know consistent deals would be kind of part of the regeneration type definitions and we've noticed a really strong engagement you know ending the year related to you know top of funnel legion and certainly the engagement across our key channel partners um 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 you know led by the a folios m3s bill liam's uh katus bank as examples a really strong um you know demand gen reclosed that we're seeing um so I think we um have you know a lot of optimism related to uh the new sales the sales engine um you know getting back to the growth elements that we expect um the second kind of piece maybe is a separate question and that is the retention and that our retention number that we focus on is really it's not um logos at the volume so you know just you know on the logo side you know we made commentary that that um our kind of retention numbers there are kind of the you know the gold standard mid-90 percent you know retention across all of our customers both buyers and suppliers but the real element that we focus on is the volumes that we retain on our network um and so that number you know is in a normalized state we have seen for many years being no kind of 104 to 105 percentage where we see four or five percentage points of same-star growth built into our customer base um and you know as joe indicated you know that's you know kind of sub 100 currently um 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 macro economy begins to improve to get back to that normalized state um so what are some leading indicators that we look at well we have lots of visibility because uh typically starts with you know before a payment occurs you have an invoice in some cases there's a purchase order so we see um you know insights to you know what people are spending you know uh you know 30 60 days ahead of you know when that payment occurs um and we're looking for you know kind of changes in some of those discretionary spend categories uh like marketing uh professional services consulting um in the hla vertical this is you have kind of you know capex and um preventive maintenance type of you know spending activity that occurs i made kind of comment earlier that you know one of the verticals that you know has that were disappointed in the performance related to this element in the last year was the hla condo association where basically you know hla condo association boards um were very cautious about authorizing new spending for preventive maintenance uh type activity and just spending overall um you know until they had you know certainly getting through the election cycle and then you're having more confidence in the macro economy we think that you know those would be good you know kind of parameters for us to watch as we go through the year to see if there's some of those spending elements begin to recur so those are the things that we're watching for um and you know joe indicated earlier you know the guide does not contemplate you know improvement in 25 so that would certainly uh you know an opportunity uh an upside opportunity should we see the macro you know uh you know return to get better uh throughout the

year and your next question today will come from ten sincwing with jp morgan please go ahead

hey mike and joe i'll ask a little bit of a different question maybe just on the on some of the kpis here i noticed the spread between transactions and volume seem to be widening um 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

yeah

good good question good 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 is what's driving that like 10 tpv growth um and uh there is some separation obviously if you think about payments revenue stripping out float and political is a 13 and a half percent grower that correlates to that 10 tpv and that's just the incremental yield that we're seeing in the business hopefully that helps

yeah maybe just to add that you know some of this retention pieces that we've been talking about um directly um related to the transaction number so the retention piece is is based on transactions since then 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

your next question today will come from james vachette with morgan stanley please go ahead

great thank you so much appreciate all the the commentaries today wanted to ask a kind of a bigger picture question here on ai and it's rolling in b2b space i saw 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

yeah so uh so good question

um i think you know when we look at you know kind of the impact they add our business uh first of all is two um you know two big buckets one are you know how we're bringing ai into our product sets to impact customers and then the second kind of element is how we're using it internally just to make our you know business and our product and service delivery more efficient 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 news generation of products is a great example it's very ai based in terms of identifying those you know invoices that are eligible to be advanced combined with 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 you know i've made some comments there you know kind of the impact of ai has taken that onboarding process down to you know hours from what used to take days to occur and we believe that actually we get down to minutes so just game changing um and um and so that's an example of you know kind of uh you know just you know ai just embedded in one of our new products that's sitting with all the new product innovation ai is just a cornerstone piece of it some of the other big buckets uh james on the front end in terms of the invoice creation side all the different forms of invoices that were received from suppliers able to you know kind of read those invoices efficiently it started with ocr type technology and then we kind of added machine learning elements to it now there's ai elements to that and just keeps getting better and so the customer experience in terms of you know uh the vast majority you know kind of you know 90 plus of their invoices coming in that they can be automatically kind of read and just immediately incorporated into their workflow the second element of the um 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 delivery forms that we have on kind of ai um and um and then kind of just turning the buckets internally um this is where we're super excited about the impact on customer care um you know overall engineering and the pace of engineering and uh in development um and making you know kind of our engineers as really as productive as possible smooth through roadmaps even faster um and increase that velocity and so those are some of the elements internally and i think you know in the scheme of things uh 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

and your final question today will come from a Cheyenne Patil with Susquehanna please go ahead

oh uh how are you it's Jamie Freeman at Susquehanna um how are you guys uh so um i just want to go back to uh the analyst date message and slides as well um apropos of the operating leverage that you had articulated at that time i think it was your coo's presentation there was an element in 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 at the on the outsource in-source narrative where are you in that journey um and how much more there of an opportunity on the operating leverage side to execute thank you

yep great question Jamie um and that's uh that was an important part of our investor day um conversation and we're really proud of of being kind of on track if not slightly ahead with with those strategies and and that's obviously contributed to being ahead from an overall op-ex as a percentage of we exited 24 at about what we targeted for the full year 25 i think it's we are in a continual journey as as john Feldman sort of laid out in that investor day conversation of standardizing automating and outsourcing or offshoring operations across the business across the the journey from our invoice receipt all the way through to payment and then payment execution as well um so we're really proud of that progress and it's a big part of our

success so far from a profitability perspective who is our question

and answer session i would like to turn the conference back over to michael prager for any closing remarks

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 as i said before i'm particularly excited about the future given the pipeline of product innovations and industry-leaded erp integration embedded partnerships that are in progress that i should be that should be able to really propel all four gears of our business flywheel and drive long-term value creation for our investors

with

that we look forward to sharing our

progress on our future earnings calls

conference is now concluded thank you for attending today's presentation you may now disconnect