AvidXchange Holdings, Inc. Price & Performance (AVDX)

With that, I will now turn the call over to Mike Prager. Thank you, everyone, for joining us today. To discuss Abbott Exchange's fourth quarter and full year 2024 results. We finished the quarter and the year on the strongest financial footing since we [indiscernible] of delivering industry leading accounts payable automation and payment solutions to our middle market customers twenty five years ago. Our fourth quarter twenty twenty four 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 $25,000,000 worth of Avidxchange shares during the fourth quarter of twenty twenty four. Underscoring the long term confidence we have in our business. This brings the total shares repurchased in 2024 to $50,000,000 The maximum allowed within a calendar year under the $100,000,000 share repurchase program we announced in August of twenty twenty four. 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 margin. This has resulted in another quarter of non GAAP gross adjusted EBITDA margin expansion since our IPO and also achieving our 75% targeted margin milestone outlined during our 06/20/2023 Investor Day. 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 macroeconomic environment which remains mixed. This is particularly the case in the instance of our top of funnel customer engagement and buyer logo growth metrics. On the positive side in 2024, we saw pockets of modest but positive growth three of our largest and many cases strongest 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 macroeconomic 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 8.1% in '23, with a top of funnel that grew in double digits.

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 AppExchange to unlock the opportunity for themselves and their suppliers. This is where Evinexchange shines. As an industry leader, with the best of breed scalable API 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 remarks, 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, is a relatively new formal vertical for us and has been seen healthily growing moment DRM is one of the largest franchisees for Arby's the world's largest second sandwich brand over 3,400 locations worldwide.

Upon joining DRM, CFO, Mark immediately turned his focus to revamping and streamlining their accounts payable process. Given that it's both manual and paper intensive, challenges to DRM's ability to scale their back office, keep up with their overall growth. With NetSuite as its core accounting system, Mike adopted AvidExchange's invoice and payment solution given our deep integration with their NetSuite software. With our solution, DRM was able to support its double digit objectives without any additional accounts payable headcount. Which translates to over $60,000 in annual cost savings and created a great user experience with his team of AP specialists leveraging our built inside NetSuite integration user experience. As Mike Swoop stated, I took a live of faith when I joined the DRM team and asked them to change the way they work by automating accounts payable with AvidXchange. And I couldn't be more pleased with the outcome. Turning now to some of the performance highlights that underscore our value proposition and operational execution in action. Revenue in the fourth quarter was approximately 115,000,000 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 gross margin meanwhile hit a milestone coming in at almost 75% were up three fifty basis points over last year at the top end of our 72% to 75% non GAAP gross margin ahead of our 2025 objective we set over a year ago Our continued focus on automation implementation of AI across significant work streams [indiscernible] 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 [indiscernible] 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 $5.8 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 Abbotxchange business flywheel. With that overview, I'm going to highlight [indiscernible] 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 Avtexchange business file we'll describe in 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 two point zero offering our Pay two point zero platform our new spend management platform. Number three, scaling our various new products to support all 8,500 buyer customers and are roughly 1,400,000 supplier customers in delivering the value proposition they expect And finally, priority number four, continue to elevate the customer experience across AvidExchange's product, suite for both our buyer and supplier customers across our purpose built two sided network.

To build on the resubstess of Gears one, two and three, which are about creating robust customer focused ERP integrations on our platform to drive growth and scale, I am very pleased to provide an update on some of the previous 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 partnerships such as 19,000 product market fit targeted customers went live in early twenty twenty four seen 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 was a product market fit 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 last year. 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 twenty twenty three partnerships alone, 2024 was another productive year for the partnerships across our HOA healthcare, financial service verticals, DSOs, Cadence Bank to name a few. And we anticipate that these partnerships should start to gain traction in a similar way to AppFolio and M3 during the latter part of 2025. And meaningful in 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 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, 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 two point zero payments platform, which serves as the foundation of our AvidPay network. Believe that the capabilities of AvidPay two point zero will enable us to create new payment modality offerings real time configuration, combining pricing terms, speed of settlement, access to REMINDS data, and payment acceptance automation.

Eliminating the need for lengthy software development dependencies Along with supporting our ability to manage numerous new payment modalities, to create a payment acceptance value proposition for our customers that is second to none. With AvidPay two point zero, we anticipate increasing our penetration [indiscernible] 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, remittance and price in real time to drive additional e payments options Finally, with our new AvidPay two point zero platform, we believe we have not only enhanced revenues to expanded buyer and supplier products, greater payment and monetization, and increased share of wallet but also improved our cost structure in both hard and soft operational costs.

Including direct expense of reducing paper check payment. Taken together, these things should create substantial opportunity for us in terms of revenue growth and margin expansion as we can convert their paper check suppliers to accepting one of our many forms of [indiscernible] In addition to Pay two point zero and also under Gear III of our AvidXchange 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 Abbott Pay two point zero in a highly strategic and value In fact, the new efforts could represent a step function change in reducing the number of checks which is represented around 55% of payment transaction mix today. We've entered into a strategic partnership with a large financial technology firm and the various other such partnerships in process within the financial services ecosystem to accelerate the conversion of paper checks with specialty networks of suppliers in 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 is about [indiscernible] maximizing e payment penetration and leveraging innovation and data to create new product offerings plan to significantly scale our flagship Payment Accelerator two point zero supplier financing offering in 2025.

For those new to our story, Payment Accelerator two point zero is our supplier finance product where suppliers can elect to have eligible invoices advanced for immediate payment. We have had version one point zero of our product in the market for the past few years which has generated a lot of learnings and interest across suppliers. Version two point zero, which was launched at the end of twenty twenty three, with enhanced features and functionality that should drive scalability put it in perspective, Payment Accelerator two point zero's target service level agreements compared to its predecessor are compressing the onboarding time to less than twenty four hours from several days previously. [indiscernible] the near future, we expect to be able to compress that timeframe down to mid. What makes this process frictionless is that having both the buyer and supplier on our AbbaPay 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 Underwrite and lower the credit risk as well as providing protective provisions across the invoices.

A particular supplier may have on our network. Along with know 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 suppliers' 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 two point zero to potentially achieve this year. Finally, would like to provide an update on our operational strategy has been instrumental in efficiently scaling the business while lowering unit cost and driving our impressive gross margin expansion. 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 flow and seasonal political revenues, our non GAAP gross margins have been up almost 10 percentage points to almost 70%. 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 by across key operational functions of our business. Recall, there are six ways in which we execute virtual card payments as an example with our [indiscernible] One is via spray through process, second is direct API connections, third is online portals, 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 2020 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, also converting the back book of virtual card transactions as well.

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 macro economic environment we continue to firmly execute on the levers we control in 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 us 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 non for profit.

This builds on the success of partnerships entered into in 2023 such as AppFolio M3, These partnerships coupled with the scaling of our new product offerings including Payment Accelerator two point zero, our new Pay platform two point zero and Spend Management which we expect to roll out in the second half of twenty twenty five with a ramp in 2026 should provide momentum to potentially outrun our 2025 growth [indiscernible] 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 [indiscernible] 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 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. That, I'd like to turn the call over to my partner, [indiscernible] [indiscernible] Thanks, Mike, and good morning, everyone.

I'm pleased to speak to you today about our strong fourth quarter twenty 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 twenty twenty four business outlook and excluding flow 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 we drove stronger adjusted EBITDA outperformance relative to expectations.

It's worth pointing out that this continues our streak of delivering adjusted 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. Total revenue increased by 10.9% to $115,400,000 in Q4 of twenty twenty four, over the fourth quarter of twenty twenty three. 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 invoice and payment transactions. Our revenue growth also resulted in total transaction yield expanding to $5.8 in the quarter, up 6.4% from $5.45 in Q4 twenty twenty three. The increase was driven by software and pay yield, as well as higher payments transaction mix. Software revenue of $30,900,000 which accounted for 26.8% of our total revenue in the quarter increased 6.4% in Q4 of twenty twenty four over Q4 twenty twenty three. The increase in software revenues was largely driven by a growth in total transaction count.

Payment revenue of $83,400,000 which accounted for 72.2% of our total revenue for the quarter increased 12.3% in Q4 twenty twenty four over Q4 of twenty twenty three. Payment revenue reflects the contribution of interest revenues, which were $12,200,000 in Q4 of twenty twenty four versus $13,700,000 in Q4 of twenty twenty three. Political media revenue in the current quarter approximately $2,900,000 and negligible in the same period a year ago. Excluding the impact of float and political provides a more apples to apples comparison payment revenues grew 13.5% driven by a combination of an increase in pay yield Greater payment mix and payment transaction volume increase of 8.3%. On a GAAP basis, gross profit of $78,800,000 increased by 17.1% in Q4 of twenty twenty four over the same period last year, resulting in a 68.2% gross margin for the quarter compared to 64.6% in Q4 twenty twenty three. [indiscernible] Non GAAP gross margin increased three fifty basis points to 74.9% in Q4 of twenty twenty four 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 accruals.

Was now at the top end of the 72% to 75% range targeted for 2025 as projected during the company's June twenty twenty three Investor Day.

Moving on to our operating expenses. On a GAAP basis, total operating expenses were $82,500,000 an increase of 3.7% in Q4 of twenty twenty four over Q4 of last year. On a non GAAP basis, operating expenses excluding depreciation and amortization and stock based compensation increased as well by 2.3% to $60,100,000 in the fourth quarter of twenty twenty four, 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. On a percentage of revenue basis, operating expenses excluding depreciation and amortization and stock based compensation or non GAAP OpEx declined to 52.1% in the fourth I'm equally pleased to say that fourth quarter twenty twenty four 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 three Investor Day. Overall, the decline in non GAAP year over year largely highlights expense discipline and significant R and D even after stripping out the contribution of float I'll now talk about each component of the change in operating expenses on a non GAAP basis.

Non GAAP sales and marketing costs increased by $2,400,000 or 14% to $19,900,000 in Q4 of twenty twenty four, over Q4 of last year with increased investments in sales and marketing Non GAAP research and development costs were essentially flat on a comparable basis at $22,000,000 in Q4 of twenty twenty four and were helped largely by lower annual performance bonus expense. We continue to reinvest across our products, and platform, including spend management, pay offering Non GAAP G and A costs decreased by approximately $1,000,000 or down 5.2% to $18,200,000 in Q4 of twenty twenty four versus Q4 of last year, due largely to lower annual performance bonus expense as a percentage of revenues, G and A costs continue to trend lower as we continue to leverage public company costs across a larger revenue base. Our GAAP net income was $4,700,000 for the fourth quarter twenty twenty four, versus a GAAP net loss of $4,500,000 in the fourth quarter of twenty twenty three with the $9,200,000 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 a positive swing in operating income coupled with higher net interest income due to reduced borrowing costs and partial debt pay down.

GAAP diluted earnings per share for the fourth quarter $0.02 which was a $0.04 positive swing from the same comparable period last year.

On a non GAAP basis, our net income in the fourth quarter of twenty twenty four almost doubled to $17,300,000 versus $9,400,000 in the same year ago period, with non GAAP diluted earnings per share up 60% to $0.08 versus $0.05 diluted earnings per share in the fourth quarter of twenty twenty three, All of the net income performance was driven primarily by the aforementioned factors. On a non GAAP basis, Q4 twenty twenty four adjusted EBITDA was $26,300,000 versus 5023, 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 ended the year with a strong corporate cash position of $389,300,000 of cash and marketable securities against an outstanding note payable for $9,100,000 year end, our credit facility, which consists of $150,000,000 revolver, with $150,000,000 accordion feature, remained undrawn. The quarter, the company utilized $25,000,000 dollars of cash from its balance sheet to purchase approximately 2.3 at a price of $11.1 under our $100,000,000 share repurchase program announced in August 2024. For the year, the company utilized approximately $50,000,000 of its cash, the maximum allowed within a calendar year to purchase 5,400,000.0 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 interests instruments, including money market funds, commercial paper and time deposits time deposit instruments respectively. The weighted average maturity on the corporate cash was roughly thirteen 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 $1,200,000,000 with an interest rate of roughly 4.3% for the quarter. Turning to our 2025 business outlook, we expect total revenue for the year to be in the range of $453,000,000 to four approximately $44,000,000 of interest revenues from customer funds, versus $49,700,000 earned in 2024. Do not anticipate any political media revenue contribution in 2025, versus $6,600,000 in 2024, We expect 2025 revenue distribution between the first half and half of the year to be approximately 4852% respectively, roughly similar to levels in 2024. Similarly, we expect non GAAP adjusted EBITDA profit ranging between $86,000,000 and $91,000,000 for 2025, also expect 2025 non GAAP diluted earnings per share in the range of $0.25 to $0.27 which is not currently reflect the impact of any additional share repurchases in 2025 under our previously authorized share repurchase [indiscernible] With that, I'd now like to turn the call back over to operator and open up the line for Q and A. Operator?

Thank you. We will now begin the question and answer session. And your first question today will come from Will Mantz with Goldman Sachs.

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. Mike, you referenced what has been very strong kind of gross margin expansion and OpEx control that has offset a lot of the macro business 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?

Gross margins now kind of being at that 75% level, OpEx being kind of flat ish for a pretty extended period of time. Are you starting to see the point where costs need to start to grow again? Or Or do you see more room to go particularly on the gross margin side just given where you've laid out the Yes. I mean, great question, Will.

What we think is kind of the long term trajectory of what we're doing is marching towards that 80% targeted gross margin number. And it's a combination of, I kind of putting the three big buckets, continue to be aggressive in our sourcing strategy, standardization across the business, combined with automation led by AI.

And though we're a couple of years into our AI journey, we think there's a lot of runway and the use cases that we're currently working on continue to be really exciting for our team and Trick Rating that increased efficiency. So we see firm on the runway and continue I'll also say it's probably not going to be up a straight line. And we'll see some kind of periods of improvement, but also as we continue to kind of begin to really accelerate the revenue growth out element of the business. We're going to see some scale creep into that number as well. So combination of what I said combined with the scale gives us a lot of confidence that continue to grow that number towards the 80% plus milestone is what we're 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. I was just wondering if you could provide a little bit more context around how that's going to work and what any milestones that we should be looking out for? Thanks.

Yes. So, good question. And one of the things that we've as 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 say classes of suppliers types of transactions And it's like, oh, do we want up to kind of recreate the wheel and 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 is kind of targeted population of certain supplier sets that they're able to others are able to monetize and we're going to tap in to share that monetization. At the same time, 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 kind of an escalating elimination of paper check, which is kind of the common in it.

The enemy and the objective that we have is to continue to move forward and maximize electronic payments We think this is just one of our strategies.

Got it. Appreciate you taking the questions. Yes. Thanks, Will.

And your next question today will come from Robbie Bamberg with Baird.

Yes. 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 store sales growth to be into next year?

Yes. Thanks, Ravi, and great question. Yes, obviously, if you think about $25,000,000 there's a couple of 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 and I think our prepared remarks made it clear that after about a $6,600,000 in 2025. Also from a float revenue standpoint, we did generated about $50,000,000 in 2024 and we expect that to be closer to sort of $44,000,000 in the 2025 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 an eight point of growth.

And your question fundamentally, 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%. We were encouraged in Q3 when we saw for the first time in several quarters that growth rate bounced up to about 5.2% in Q3 but it did turn around slightly to about 4.3% 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-one hundred 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, 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 2025.

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 kind of what's contemplated from a guidance standpoint.

And your next question today will come from Ramsey El Assal with Barclays.

Hi, guys. Thank you so much for taking my question this morning.

I wanted to ask about recent trends and whether the Q4 exit rate look pretty healthy. I'm just curious if you're seeing anything quarter to date that giving you incremental pause in terms of how you're framing up the year? Thanks.

Yes. Thanks, Ramsey. Here's what I would say. Nothing no incremental pause from what we're seeing so far. If I look at January, sort of volumes and transaction growth is really in line with what we expected. So so far sort of in line with those guidance expectations. So what we again, we're obviously moving through a a period of uncertainty and spending across our buyer base, but while navigating that, we're pretty proud of the business that we've built in terms of growth rate profitability, cash flow generation. So obviously, expecting the year where the macro persists, but really believe that before too long we see growth resume.

Yes. Ramsey, this is Mike. And then maybe just to add There is one of the real things that 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 slowdown in Q4 during the election cycle. And that kind of pushed five and we're seeing some really good engagement there. And so we're looking forward to seeing that kind of really pull through through over the course of the year around the new buyer, local accounts continue to scale the buyer side of the business equation. That's a critical element of our growth algorithm.

And your next question today will come from Craig Mauer with FT Partners. Please go ahead.

Yes, thanks. Good morning. I wanted to focus on top of funnel for a second.

Only 500 logos add to the platform. And look, I understand the discussion on macro, but how can you accelerate new logo additions? I mean, should we be worried about TAM saturation or pricing need needs adjusting, like what's holding that back? And secondly, How should we think about really Investor Day targets? I mean, we've been running below that in some respects. And what's the confidence that we should be modeling toward those numbers again Thanks. Yes. So two meaty questions there, Craig.

So let me can try to 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, one of the things that I've been commenting on is we are marching toward it through last year. Going into Q4, we're running slightly ahead on new logo counts through three quarters now. [indiscernible] 60% of our new logos get generated in 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, there's a slowdown in new logo ads during the election cycle. I think it's just [indiscernible] CFOs and senior finance leaders being more cautious and not knowing what to expect in the election. And so they're putting decisions on hold. And so we ended up seeing that somewhat accelerate post election, but not enough We didn't have time left in the year to get back to momentum that we saw kind of leading into the quarter. And so we believe that as we go into the year with a pretty big backlog of pipeline of deals that got 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 confidence related to getting back to kind of 10% new logo growth, 10% plus is kind of our objective there. And so those are kind of the building blocks there. But certainly seeing kind of leveraging the new channel partners we have not only the ones that we've been talking about the AppFolio M3 that are performing extremely well. 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 not to mention, the pipeline that we have around new embedded ERP partner And so I think that's what gives us the confidence related to to kind of the new logo elements, which is kind of the first step of kind of the overall growth algorithm. And I know then 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 Paying Accelerator two point zero, Spend Management, Paytoo platform and some of the impacts that we have against 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 currently facing. Roughly about six percentage points below what we see as a normalized state.

So maybe turn over to Joel related to to kind of that second piece of the question compared to Investor Day.

Yes, Craig. So it's a good question. And here's the way I would sort of think about balance [indiscernible] 'twenty three when we held Investor Day, we've been in a deeper and longer kind of macro impact impacting buyers and their spending across the middle market, certainly across our our buyer base. And so from a growth perspective, we're off. That's pretty straightforward and obvious. But on the other side of that equation, 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 twenty twenty four. So we're pretty proud of the progress we've made 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 in gross margin and EBITDA. Obviously, though we need growth to return, to get back to that kind of rule of 40 trajectory that we also talked about at 40. Target. And then finally, we talked about kind of our e payment mix. We're excited about kind of the progress that we see as we ePayment 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 [indiscernible] And your next question today will come from Andrew Baugh with Wells Fargo. Please go ahead.

Hey, guys. Thanks for taking the question.

I wanted to ask on a vertical specific base [indiscernible] through the course of 'twenty four was that all verticals were generally seeing this kind of subdued activity, but just wonder if there are any kind of diversions you're seeing exiting 'twenty four and what's in '5?

Yes. So, Andrew, good question. And so remind everybody, we go to market in nine different industry verticals plus the horizontal layer. And within the verticals, the ones that we see saw performing at a really strong note kind of during the quarter. With the real estate vertical led by multifamily. Our financial services vertical and media. And I think construction kind of was one that met our expectations. And due to kind of the adoption of our titanium offering there, but we're released earlier last year. And one that was kind of below our expectations with some of the kind of the macro headwinds was HOA condo so [indiscernible] a slowdown in HOA boards authorizing additional purchases, doing capital projects, things like that. The indications are that kind of getting through the election cycle was critical. For a lot of those boards making those spending decisions. And so we're expecting that we see some significant improvement to that vertical throughout this year.

But maybe Joel can comment a little bit on kind of what's implied in the guide. But I think took kind of a conservative approach related to the activity that we're currently seeing across the verticals in terms of those kind of discretionary spending and retention rates. Having that continue throughout the year without any real improvement or or a degradation for that matter. But continue those kind of that trend line based on where we see it today. So that could certainly be upside throughout the year if we see of that macro spending come back within the year.

And your next question today will come from Darren Peller with Wolfe Research. Please go ahead.

Guys, thanks.

Look, it's pretty clear that the the environment around transaction retention is just on certain. And so putting that aside is it's hard to really handicap where that when that goes back in a bigger way. Customer adds are obviously key as you discussed. New innovation obviously is going to be key. The accelerator topic obviously is one I want to [indiscernible] I know you said 500 last year, 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. Are we on that? How's it it does seem like a big opportunity, but I just want to get an update on what progress has been made. Thanks, guys. Darren, 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 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 10% plus range in a healthy environment. But But we don't at the moment, we don't sort of provide endpoint guidance or quarterly updates on that. Mike, do you want to take the rest?

Yes. So related to Payment Accelerator, Darren, I appreciate the comments here.

This is certainly a product that we've been working on for a while to make sure that we get [indiscernible] We think this is falls in the kind of the category of I don't know if company changing, but certainly it's our next $100,000,000 business. And adds a great diversification lens to providing significant value to the supplier side of the equation. And a couple of things that we're seeing here is we were sort of a cautious approach last year as we released our two point zero offering. To make sure that we got all the elements of it correct and we feel really good about that. And now are laser focused on the scaling of the product. And so just earlier this quarter, We crossed the threshold of now we have more suppliers on the two point zero product than we had on the one point zero product.

And so that was a big milestone for us. So we're seeing significant adoption of the two point zero product by new suppliers. The second thing is that we're seeing is kind of although the numbers are so small, revenue growth is it's going out like 100% a year It's numbers are small, but we expect that business to double over the course of the year. And so so we have lots of enthusiasm related to 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.

Hey guys, good morning and thanks for taking the question.

Just a couple of clarifications.

On the volume growth for 2025, I think if you exed out political 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 float expanded again. Obviously, in the second quarter, it went down a little, but it's recovered nicely. How do we think about that trajectory in 2025 in the guide?

Yes. Thanks, Brian.

So just to come back to the first part of your question around what is guidance contemplate. So if you strip out political and float, what we're guiding at the midpoint is right around 8% growth.

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 And then finally, we talked about roughly a point of that growth being attributable to the ramp in Payment Accelerator, as Mike has mentioned, and another point around movement favorable movement in e payment mix. Second part of your question 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. And we've seen both of those yield numbers moving in the right direction these past couple of quarters and really just a function of our kind of continued focus on optimizing the monetization of our payments. And 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 yields again, so the starting point is 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 which to begin to scale payment accelerator feel good about the level of monetization and we feel good about the ability to expand that.

As we move through 2025.

Your next question today will come from Dominic Gabriel with Compass Point. Please go ahead.

Hey, great. Thanks so much.

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 square the mid single digit revenue growth rate I guess I'm just thinking about versus retention And I guess what markers, when you're thinking about this total piece, what are some of the macro markers you guys are looking for to see potential acceleration in retention and new logo wins?

Thanks so much.

Yes.

So I think so first of all, let's break it into two parts here. There's kind of the logos and then there's retention. And so let me take kind of the the new logos first. Yes. And so we ended the year with a really strong pipeline. Related to opportunities. Now one of the things when we talk about top of funnel that relates to lead generation. For us. [indiscernible] be kind of part of lead generation type definitions. And we've noticed a really strong engagement ending the year related to to top of funnel lead gen. And certainly the engagement key channel partners going all the way back to channel partners have been partners for years. For us combined with some of the new the new class of kind of twenty three and twenty four partners led by the Apolios, M3s, Bill Leums, [indiscernible] As examples really strong demand gen lead flow that we're seeing. So I think we have a lot of optimism related to the new sales engine getting back to the growth elements that we expect. The second kind of piece maybe is the separate question and that is the retention. And that our retention number that we focus on is really it's not logos, it's volume.

So just on the logo side, we made commentary that our kind of retention numbers there are kind of the gold standard, mid-ninety percent overall retention across all of our customers. Both buyers and suppliers. But the real focus element that we focus on is the volumes that we retain on our network. And so that number is in a normalized state. We have seen for many years being kind of 104% to 105% range, but we see 4%, five points of same store growth built into our customer base.

And as Joe indicated, that's kind of sub-one hundred currently. So we have about six percentage points of kind of growth element that we expect to happen over time. As the macro economy begins to improve to get back to that normalized state. So what are some of the leading indicators that we look at? Well, we have lots of visibility because typically starts with before a payment occurs, you have an invoice. In some cases, there's a purchase order. So we see insights to what people are spending thirty, sixty days ahead of when that payment occurs. And we're looking kind of changes in some of those discretionary spend categories. Like marketing, professional services, consulting, in the HOA vertical. This is where you have tenant or kind of CapEx and preventive maintenance type of spending activity that occurs. I made kind of comment earlier. That one of the verticals that has that we're disappointed in the performance related to this element in the last year was the HOA condo association where basically HOA and condo association boards we're very cautious about authorizing new spending for preventive maintenance type activity and just spending overall. Until they had certainly been through an election cycle and then having more confidence in the macro economy.

We think that those would be good kind of parameters for us to watch as we go through the year to see if some of those spending elements begin to occur.

So those are sort of things that we're watching for. And as Joel indicated earlier, the guide does not contemplate [indiscernible] is certainly an opportunity an upside opportunity should we see the macro return to get better. Throughout the year.

And your next question today will come from Ken Sine Huang with JPMorgan.

Hey, Mike and Joel. I'll 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 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? [indiscernible] 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 in the payment transactions is what's driving that like 10% TPV growth. 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.

Yes. And maybe just to add that, some of this retention pieces that we've been talking about directly related to the transaction number. So the retention piece is based on transactions. Consistent 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 discretionary spend categories. Show up in that overall transaction [indiscernible] Your next question today will come from James Ratchette with Morgan Stanley. Please go ahead. Great.

Thank you so much. Appreciate all the the commentary today. Wanted to ask have a bigger picture question here on AI. And it's rolling in B2B space.

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. [indiscernible] curious about how you're anticipating this evolving over the next few years. Appreciate all the thoughts.

Thanks.

Yes. So good question. I think when we look at kind of the impact of AI on our business, first of all, it's two big buckets. One, are how we're incorporating AI into our product sets. 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. And so a couple of kind of key areas that we're talking about internally. Within our products. Payment accelerator, one of our newest generation of products, is a great example. It's very AI based in terms of identifying those invoices that are eligible to be advanced combined with just how we go through the process of onboarding and kind of approving a new supplier as an approved payment accelerator type supplier I made some comments there. Kind of the impact of AI has taken that onboarding process down to hours from what used to take days to occur And we believe that actually we get down to minutes. So just game changing. And so that's an example of kind of Just AI just embedded in one of our new products. That's sitting with all of our new product innovation.

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 we're received from suppliers and able to kind of read those invoices efficiently. It started with OCR type technology Then we kind of added machine learning elements to it. Now there's AI elements to that and it just keeps getting better. And so the customer experience in terms of the vast majority kind of 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 kind of the next element is what I would say on payment delivery. This is where we've been having a had some really great success in terms of automating all the different payment delivery forms that we have. On kind of AI. And then kind of just starting the buckets internally, this is where we're super excited about the impact on customer care, overall engineering and the pace of engineering and development and making kind of our engineers as really as productive as possible to move through roadmaps even faster and increase that velocity.

So those are some of the elements internally. And I think in the scheme of things, that's what gives us a lot of confidence related to some of the runway on gross margins. As well as overall profitability of the business as we march forward.

And your final question today will come from Shayan Patil with Susquehanna. How are you? It's Jamie Friedman.

At Susquehanna.

So I just want to go back to the Analyst Day message and slides as well.

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 there 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 outsourcedinsource narrative Where are you in that journey And how much more is there of an opportunity on the operating leverage side to execute Yes.

Great question, Jamie.

And that was an important part.

Of our Investor Day conversation. And we're really proud of being kind of on track if not slightly ahead with those strategy And that's obviously contributed to being ahead from overall OpEx as a percentage of revenue. We exited '24 at about what we targeted for the full year 2025.

I think it's we are in a continual journey 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 journey [indiscernible] Success so far from a profitability perspective.

This is our question and answer session. I would like to turn the conference back to Michael Prager for any closing remarks.

Thank you again everyone for your interest in having AvidXchange. 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 leading ERP integration embedded partnerships that are in progress that I should be that should be able to really propel all four gears our business flywheel and drive long term value creation for our investors.

With that, look forward to sharing our progress on our future earnings calls.

Conference has now concluded. Thank you for attending today's presentation. May now disconnect. [indiscernible]