AvidXchange at Wolfe Research Forum: Strategic Growth Plans

On Wednesday, March 12, 2025, AvidXchange Holdings (NASDAQ: AVDX) participated in the Wolfe Research FinTech Forum 2025, outlining its strategic shift from high growth to focusing on profitability and margin expansion. While the company acknowledged macroeconomic uncertainties, it expressed confidence in its long-term growth potential, driven by new product innovations and a strong position in the B2B payment space.

Key Takeaways

• AvidXchange is transitioning from high growth to focusing on improving gross margins and profitability.
• New product innovations, such as Payment Accelerator and Spend Management, are central to growth plans.
• The company aims for a core growth of 8% in 2025, excluding certain revenues, with aspirations for mid-teens growth.
• AvidXchange’s competitive strategy focuses on its unique position in the middle market and integration with ERP systems.
• Management remains optimistic about navigating macroeconomic challenges and achieving sustained growth.

Financial Results

• Core Growth: Projected at 8% for 2025, excluding $44 million in float revenue and over $6 million in political cycle revenue.
• Gross Margin: Achieved 75% in Q4; aiming for 75%+ by focusing on yield expansion and unit cost discipline.
• EBITDA Margin: Targeting 20%+, with potential for expansion as top-line growth returns.
• GAAP Profitability: Currently profitable with expectations for increased profitability; stock-based compensation remains low at 11% of revenue.
• Transaction Growth: Exited Q4 with a 4.3% growth rate, with similar growth expected in 2025.

Operational Updates

• Product Innovation: Payment Accelerator is growing at 100% annually and is projected to become a $100 million business. A spend management product is being launched to address non-invoice expenses.
• Customer Acquisition: Focused on higher quality leads through ERP channel partners, with significant activity increases in hospitality and real estate sectors.
• Vertical Differentiation: Operating across nine industry verticals with integration into 240 accounting systems, creating a competitive moat.
• Supplier Network: Monetizing a network of 1.4 million suppliers, with an average take rate of 290 basis points on Payment Accelerator.

Future Outlook

• Growth Strategy: Emphasizing revenue growth and margin expansion, with a goal of 10-12% new buyer logo additions contributing to 20%+ growth.
• Payment Accelerator: Expected to double, increasing payment monetization from 40% to 50% in the next 12-18 months.
• Macroeconomic Factors: Considered as potential upside, not factored into core growth guidance.

Q&A Highlights

• Supplier Monetization: Focus on electronic payment modalities and potential marketplace offerings to increase transaction revenue.
• Competitive Landscape: Competitors are increasingly adopting ERP integration strategies; AvidXchange maintains a differentiated position.
• Virtual Card Pushback: Offering suppliers the ability to manage high-ticket transactions through business rules.

In conclusion, AvidXchange remains committed to innovation and strategic growth, as detailed in the full conference call transcript available below.

Full transcript - Wolfe Research FinTech Forum 2025:

Unidentified speaker, Analyst: Thanks for being here. Good morning, everybody, and thank you for joining us on day two of the Wolf in Tech Forum. Obviously, the the market’s crazy, but it’s great to have good structural stories with us, like Avid Exchange that, in our view, I mean, we’ve covered for a very long time, both even as a private company, to a degree and then obviously as a public company now for some time now since the IPO as well.

And from our perspective, I mean, it’s clearly a name that has made a huge difference in the B2B payment space from an adoption standpoint, but really helping the mid market small mid market companies understand what they can do better. We have Mike, the CEO. We have Joel, the CFO with us. I’m really happy to have you guys with us today. Thank you for being here.

Mike, CEO, Avid Exchange: Yeah. Thanks for having us. And I think it’s it was like two or three years pre IPO and ever since the IPO. So it’s a Yeah.

Unidentified speaker, Analyst: It’s great. It’s always

Mike, CEO, Avid Exchange: good to be here.

Unidentified speaker, Analyst: I was saying just before we started, I mean, your name, Avid Exchange, came up in the private equity panel yesterday as I think a lot of investors are starting to realize with these new valuation paradigms, like, you know, let’s find and this may be a tough market, may take a, who knows, a few weeks, couple of months for the mark for the dust to settle. I mean, even for us, analyst investors, to realize what we wanna do, but Yeah.

Mike, CEO, Avid Exchange: At the

Unidentified speaker, Analyst: end of the day, I think investors are looking for strong structural stories that are investing in itself. So maybe we just start off there. I mean, last year, you obviously made some progress in a number of your initiatives. And so we kick in with where you know, what you were most proud of in ’24. Yeah.

Some of the accomplishments, how you see the company position now. We’ll go into ’25 as well.

Mike, CEO, Avid Exchange: Yeah. It’s really interesting because we are looking at this as, you know, kind of finishing the year, and you look at kind of all the metric trends and the progress we’ve made, can just put it on a chart. And you’re like, holy cow, look at the progress we’ve made since the IPO. And then, obviously, the stock price is a little different story. But one of the things that we made a conscious effort kind of early in our public company life cycle to do, and this kind of carried over through last year, was really to focus on the margin profile of the business and to get us into, after going through, you know, dozen years or so of pretty rapid 30% plus growth, you know, through the IPO is really focused on gross margin, profitability, and kind of that margin profile as part of, you know, kind of the how the tides turned really, you know, kind of in 2122.

And, and so, you know, just to give you perspective, you know, leading up to the IPO, we were in high fifties, you know, gross margin, losing about 30,000,000 a year in EBIT. And, and then, you know, contrast that today, you know, we’re, you know, about 75% gross margin. So, you know, call it, you know, 15 percentage points gross margin accretion since our IPO. And then obviously, you know, now making about 85,000,000, you know, 20% EBIT, you know, type ZIP code. And so we feel really good about, you know, kind of that progress that we’re making.

Obviously, we’ve had some pressure on kind of the revenue, components, you know, of recent, but feel really good about, you know, kind of, you know, what the long term, you know, kind of durable growth story is, which I’m sure we’ll get into. But yeah. And we continue to make progress in growing, you know, both, you know, both sides of our network, the buyer side, and who uses our software. And then we have the, now our suppliers up to, you know, approximately, you know, almost 1,400,000 suppliers on our network. And that mono that network producing kind of monetization, you know, continues to be best in class, and that’s what really, you know, differentiates us in the market.

Unidentified speaker, Analyst: So putting aside financials for a moment, I mean, in terms of strategy, in terms of aspirations for ’25, what do you wanna see the business do in terms of incremental and opportunity and and some of the investments you’re making?

Mike, CEO, Avid Exchange: Yeah. So the ’25 is is really, what I would say is that that same relentless focus we’ve had on kind of gross margin, appreciate expansion and the profitability side is really do the same thing now back on you know, the accelerating growth side of the equation. Yep. And we’re really excited about what the, you know, what I call kind of the three legs of our new product innovation that really focus on yield. And it’s led by payment accelerator.

We’ve been talking about it for a number of years. That business now is growing about 100% annualized, and it’s still small business, but it’s Yeah. You know, we expect to be our next $100,000,000 business. Really excited about what we’re seeing there. We’re getting ready to release this year our spend management product.

So if you think about it as a spend management for middle market, which is very different than kind of the small business market. I know you had a couple of the folks on spend management, you know, here yesterday, that you focus on what we really think is down market. Our lens of the of the spend management solution for us is for the middle market is our customers, you know, are capturing about, you know, 85, 90 percent of their total expenses through our platform, everything that has an invoice. But they have 15% of their expenses that don’t have invoices, and they want them to get them all in one place, one user experience and how they manage them, and, obviously, leverage, you know, the deep integrations that we have to the underlying accounting systems. And so that’s what we’re solving for, in our product.

Middle market companies don’t need a thirty day credit card, you know, to run their business. They have bank lines, and that’s not the problem they’re solving their problem. They’re they’re solving the business problem, the approval process, and having all the data expense data in one place. And then right along with that, you know, kind of incrementally throughout the year, continue to expand our pay platform. We call it Pay two point o.

We started it about a year or so ago. It’s kind of monthly incremental releases, and that’s what gives us the ability to manage all these different payment modalities. And so today, we’re up to 25 different payment modalities, that we go to market with and giving, our suppliers options. We have about 12 different, offerings that have virtual card, and we have 12 different offerings that have, Avipay direct, where we settle through ACH, but we wrap the remittance data with the transaction Right. And we get a fee for it.

And then the twenty fifth is a good old fashioned paper check. So, we’re gonna be continue to add payment modalities throughout the year. And, and, you know, right now, we’re monetizing about 40% of all the transactions going through our platform and expect that number to, you know, approach, you know, 50%, you know, over the next, you know, twelve to eighteen months.

Unidentified speaker, Analyst: Before I go into spending trends, I mean, just to kinda hit on what you just said. So of all the things you just mentioned, obviously, you know, payment accelerator is one we’re excited about, and we’ve been talking about for some time. I mean, what are the opportunities that you’re most excited about in terms of moving the needle this year? Payment accelerator, I think, should start Yeah. I mean, material.

Right?

Mike, CEO, Avid Exchange: I mean, payment accelerator is gonna you know, as I said, it’s growing about a %, and so it’ll be it’ll double for us. Still small numbers, but, you know, that we’re seeing lots of momentum for. And then this year are the payment modalities. You know, we’re incrementally releasing those, you know, kind of on a monthly basis. And one of the things that we, believe strongly in and and it’s, you know, proven out to why we have our 40% adoption rates today is that in business to business payments, you have to create a value proposition for the supplier on why they wanna be on your network, why they wanna receive electronic payments.

And it’s not just about price Right. At all. And there’s, suppliers of value. There’s four elements that are important to a supplier in selecting which payment modality is best for them. The first is the timing of the payment.

Second is the price. Third is the level of data remittance. And the fourth is level of automation. And so, depending on, you know, the type of supplier, what’s important for them, but what we see is the elements that are really important for them are, number one, remittance data. Usually getting it in an automated way so that if they can have a nonhuman touch receipt process and automatic reconciliation, they’re happy to pay for that.

Right? The most expensive transaction that a supplier has is when they have to have a human touch.

Unidentified speaker, Analyst: Right.

Mike, CEO, Avid Exchange: And then then it goes to $40 plus per transaction. Right? So if they can get it in a nonhuman touch automated way, they’re very focused on that. And then, you know, it’s for certainly small businesses, you know, speed of payment timing is super critical, and that’s why we see actually the, adoption of our payment accelerator offering. Yeah.

We can see. And just what’s really interesting, there is there is a kind of one learning that we’ve had with Pay two point o, where there’s a feature that we incorporated in the new version of payment accelerator two point o. And that is, in the old version, suppliers selected individual invoices to advance. And so we give them, you know, an option you can have auto advance. That means whenever there’s an eligible invoice anywhere in our network, we’ll automatically advance it for next day payment.

And, our, you know, kind of initial kind of modeling and surveying of supplies, we thought that feature would generate, you know, 15%. Last month was 62%. Wow. So that really shows you how important timing is to the small business supplier that’s taking advantage of that program.

Unidentified speaker, Analyst: That’s really something. We’ll go back to pavement accelerator a little bit more, but that’s that sounds like a good start. Talk about spend trends and what you’re seeing in the in the market. A lot of headlines right now in terms of noise and tariffs and concerns. But what are you seeing right now in terms of your current spend trends among your customers?

Mike, CEO, Avid Exchange: I think, you know, one of the things that we, you know, talked about is we kind of, you know, exited the year, and we kind of contemplated as part of, you know, the guide for ’25 is, you know, how we’re gonna think about the kind of the macro return. Right? And, you know, Joel and I and Subhash and team, we kind of debated internally. We kind of took the approach of we’re gonna take macro out. We’re not gonna forecast the return, and we’re just gonna, you know, really guide the core business.

And then anything that happens on, you know, kind of macro acceleration is just, you know, upside to our plan. And but one of the things that we’re seeing is it’s kind of, been, you know, bumping along the way that, you know, the way it’s been for the last few quarters. Right? We haven’t really seen any material changes. Probably one thing

Joel, CFO, Avid Exchange: that I would add to that is just the measure that we use, overall total transaction growth, right? That’s all the invoices and all the payments. That measure in early twenty twenty three was, I think it was 8% growth by quarter, step down in the sixes, step down into fives. And then remember what happened in 2024, it stepped down in the second quarter to something like 4.8 overall total transaction growth. And again, we’ve been talking about seeing the discretionary transactions kind of compressing.

In Q3, that turned around for the first time in two plus years, slightly, right? 4.8 became 5.2, but then turned around again in Q4. So there’s two things we took away from that. One is, is it possible that we’re that that decline is slowing and we’re we’re bouncing along the bottom? Don’t know.

Is there a possibility that it gets worse before it gets better? That’s what happened in Q4 relative to Q3. So to Mike’s point, our guidance contemplates kind of continued status quo level of spending, not worsening and not improving. Yes.

Unidentified speaker, Analyst: What are you hearing from the customers, though? I mean, in terms of a demand for your products, but more you know, once again, I mean, just sentiment on the overall market right now and what they’re willing to do and spend from a discretionary standpoint as well. Yeah.

Mike, CEO, Avid Exchange: So it’s interesting. We certainly, got a lot of feedback, you know, leading into the election cycle last year. And I think a lot of middle market, you know, companies, got more conservative in terms of how they run their business, not knowing what was gonna happen in the election, you know, who is gonna be the president, what policies may, you know, relate to that. And so they’re just a little bit more conservative in in how they ran their business. We you know, and that showed up in discretionary spend, you know, numbers is for sure.

As we, you know, kind of, got past the election cycle, second half of Q4, we did see some acceleration in terms of just customer engagement for new customers. And however, it was late in the quarter, right? And so we’ve continued to see that, you know, engagement be pretty positive as we’ve gone into, you know, so far in Q1. One of the things that in terms of that we’re really excited about for the year in terms of adding new customers is the impact of our new, you know, ERP channel partners. We about a year or so ago, we really pivoted to that ERP being a core strategy of partnering, and we call it, in, you know, kind of enabled payments, software enabled payments within their ERP system.

And, you know, recent, you know, kind of channel partners that we’ve been talking about are companies like AppFolio, and m three in hospitality side as examples. And so far, you know, this year, for M3 in hospitality, we’re seeing, like, three x the activity of a year ago in terms of new customer engagement. With that fully, we’re seeing two x the activity of a year ago. So we so that makes us feel pretty good related to that customer engagement, and adding new customers to the platform, which then obviously there’s a leg effect in terms of when they actually become revenue producing, but it all starts with adding new customers.

Unidentified speaker, Analyst: I guess, why don’t we just keep going on that topic? I mean, in terms of customer ads, you know, there’s been a shift, I think, more towards just higher quality leads, right, and maybe fewer but better and more conversion of those leads. Maybe just first, what drove that decision? What are you actually doing to drive that change?

Mike, CEO, Avid Exchange: Yeah.

Unidentified speaker, Analyst: What kind of impact are you seeing from that? And maybe just remind us the kind of customer numbers you have on the buyer side, how many you added last year? I think it was 800 if I remember.

Mike, CEO, Avid Exchange: Yeah. Yeah. Exactly. So, on the buyer side, we have about 8,500, buyer customers that use our software to manage their accounts payable and automate their payment process. And, you know, we that grew about 6% last year, on a kinda on a net basis.

But one of the things that we talked about, you know, kind of earlier last year was one of the things we were seeing in top of funnel activity. And, we’re seeing, obviously, you know, we always had a big kind of allocation of marketing spend towards digital channels, Google AdWords, things of that nature. Yep. And you get, you know, a a fair amount of volume, but you have to do a lot of work to get to the quality. And then at the same time, we saw new flows coming in from our partner channels, and we’re like, holy cow, the quality of these is, like, really good.

And how it’s showing up is, you know, we’re, you know, through the partner channels, we’re cutting almost thirty days out of a sales cycle. If you think about it, it makes sense. If you have a CFO, say, of a company, a real estate company that’s using AppFolio to run their business, and now they raise their the CFO raises his hand and says, okay, now I wanna extend my AppFolio experience to also automate accounts payable, that’s really quality lead. That’s a much better quality lead than a, you know, random Google AdWords search. Right?

Yeah. So, so we really, you know, you know, dial back some of the, you know, real allocated some of the spend from, you know, the digital channels to focus on, you know, more robust support for the partner channels. And, and we think, you know, what we’re seeing is, you know, again, really, you know, increased quality, higher close rates, and, certainly closer, you know, shorter sales cycles. Right.

Unidentified speaker, Analyst: I mean, but the addressable market is still

Mike, CEO, Avid Exchange: obviously Yeah. I mean large. Yeah. But we, so we’re gonna market as as you know, Darren, across nine different industry verticals. And, we’re still single digit penetration in all nine.

Maybe in financial services, we’re approaching double digit. Financial services, we have now approaching almost 2,000 banks, and credit unions using our platform, to run, you know, their internal accounts payable payment process. So, you know, maybe we’re getting double digit penetration there, but the rest of them are single digits.

Unidentified speaker, Analyst: Yeah. It’s early days. So you wanna see what about 10% customer ads per year.

Mike, CEO, Avid Exchange: Yep. That that that’s our internal objective is to add as part of our growth algorithm is, you know, to be consistently, you know, on a long term basis in the kind of the, you know, high teens, low twenties in terms of growth is, part of that formula is we need to add, you know, 10 to 12% new buyer logos on a consistent basis. So last year, we’re below that target. This year, we think we have the right strategies to be, you know, on that target.

Unidentified speaker, Analyst: For the customer ad side at least. And then whatever spend is, you know, from a customer standpoint, it is based on, to some degree, macro. Right?

Mike, CEO, Avid Exchange: Right. Exactly.

Unidentified speaker, Analyst: Supplemented by your incremental products and, you know, being accelerated. Exactly. That add more growth. So back to the vertical differentiation. I mean, again, you said nine I I think there were nine verticals.

Mike, CEO, Avid Exchange: Yep.

Unidentified speaker, Analyst: You know, just go into that a little bit more because I always think that’s something that differentiates you guys is, again, vertical expertise. Where do you find yourselves having the most opportunity from a vertical standpoint and what opportunities are there to expand into new ones, I think?

Mike, CEO, Avid Exchange: Yeah. So so so first of all, you know, just to highlight the the overall market opportunity and that’s like, you know, up to twenty five years, I’m still so excited about this business, is now, in the middle market, how we define is companies between 5,000,000 and 1,000,000,000 revenue. There’s now 500,000 middle market companies in just The US market. Okay? And we’re considered the de facto leader, and we have 8,500.

Right. Right? So that just, you know, shows you kind of that opportunity we have. So, you know, within our verticals, as we talked about, you know, we’re still signature penetration. But why verticals are so important is of those 500,000 middle market companies, we’ve estimated 50% of them.

So 250,000 highly align themselves to an industry vertical that requires, that has either a specific business process or an accounting process that’s specific to that vertical industry. And you know which verticals these are because they’re supported by vertical accounting systems. Right. And that’s why you have all these different accounting systems out there that support just a very specific vertical market because they’re solving the problems of that particular vertical. And so today, we’re integrated to 240 different accounting systems that support a lot of these vertical markets, you know, and obviously growing.

And so we, you know, so, you know, one of the, you know, the challenges of the middle market, you know, and it’s also the opportunity, is that it’s it’s hard work. You know, you know, I always joke around with the bill.com guys, that are in small business. They they really have it easy. You really have to integrate to QuickBooks. Right?

Unidentified speaker, Analyst: Right.

Mike, CEO, Avid Exchange: And, and the same thing is the enterprise guys, you know, like a Coupa or maybe like a a bottom line, they merely have to integrate to, like, you know, SAP and Oracle, maybe Workday. Yep. Right? Meanwhile, we’re in this middle market, and we’re, like, 240 plus. Right?

Yeah. And so but what that creates is a massive moat around the middle market because we’ve now, and that’s what we’ve seen others, you know, try to, you know, come into our market. You know, it’s you know, the recipe is they come in, they try for about six months, they realize how hard it is going, you know, making progress in the different industry verticals because a lot of the accounting system integration is required.

Unidentified speaker, Analyst: Right.

Mike, CEO, Avid Exchange: And so that’s part of, I think, you know, people ask me, you know, you know, our audience here ask me all the time in our one on one meetings, you know, kind of, what do people, you know, underappreciate. And I think it’s it’s that element. It’s like

Unidentified speaker, Analyst: The moat.

Mike, CEO, Avid Exchange: Yeah. The moat that we’ve building around this middle market, and, and also middle market companies, you know, what we’ve seen in a down market, they don’t go out of business. You know, they get more they cut back in discretionary spending, but they’re still, you know, active customers. And we’ve seen it, you know, in as our you know, that retention number, has come down from, you know, you know, kind of one zero four, one zero five in a normalized state to sub 100 in the current state, the actual attrition of individual customers has stayed the same. You know, that’s been, you know, pretty consistent for the last three years.

Unidentified speaker, Analyst: Mike, I just want to go back to that again because that’s something that we do get asked about. I mean, you know, at the end of the day, the addressable market is big. You guys have a pretty good moat and there’s a real problem you’re solving, right, in terms of just taking companies that are utilizing old legacy cash based systems, check systems and, you know, bringing it out to a much more modern accounts payable offering, which makes sense. I I would think you should be able to add even more customers per year. And I know there’s probably it’s hard with mid market, but explain that because I mean

Mike, CEO, Avid Exchange: Yeah. I mean, yeah. I what you just asked me is what I ask our team every day. Right? And, but, there’s, you know, one of the things that, you I kind of appreciate is, you know, business processes take time to change.

Right. And, I was just, I had a meeting with one of our, with the actually, our NetSuite, you know, sales team that we work with closely in San Francisco. We were talking about, you know, kind of sales challenges and, and and we went back to there’s a handful of people that were back to the, you know, still at NetSuite in the early days when they started in ’98. And, and I got started you know, we built Avtexchange in February. And for our first, like, eight years, our number one sales challenge was that, go to CFOs and controllers, and they’re like, Mike, love what you’re doing, but there’s no way we’re ever gonna put our financial data in the cloud.

You know, it has to run on prem behind in our data center, behind our firewall. There’s no way we’re ever gonna put financial data in the cloud. And that was our number one, you know, sales objective in the first eight years of our existence. And now if you went back to those same, you know, customers and said, guys, good news. You know, we built an on prem version, you know, can run behind your firewall.

They’re like, Mike, nonstarter. It has to be in the cloud. Right? And so but that took, like, you know, fifteen plus years, you know, that transition, right, to get people comfortable. And I think what we’re seeing is, a similar dynamic related to people moving from paper check to electronic.

Mhmm. Certainly, the consumer was kind of is the first mover. And then, you know, small business, you know, to element is the kind of the the, the kind of the the next mover. And then you get to kind of, the, more, you know, middle market enterprise.

Unidentified speaker, Analyst: Right.

Mike, CEO, Avid Exchange: And, and I think, you know, part of it is because you have these such entrenched business processes, that, you know, they get suppliers paid, but they may not be as efficient, cost as much. And, and you have, you know, tenured CFOs and finance professionals who’s they grew up and this is the way it works. You know, they inherited these processes. Right? And so it takes really a digital native somebody who’s saying, hold on a second, isn’t there a better way to do these processes?

And we see those things playing out all the time. And, I personally think that kind of the crossing the chasm moment that we really start going to, you know, kind of 12%, you know, kind of new buyer growth, and that accelerates to 20% plus is when you get the majority of finance, you know, CFO controller leaders that are digital natives.

Unidentified speaker, Analyst: Right. So maybe it’s just time.

Mike, CEO, Avid Exchange: Yeah. And and and we see examples of this happening every day. I just wish it happened faster. Right.

Unidentified speaker, Analyst: Joel, maybe we just shift to you for a minute on the financial side. I mean, just remind us the latest guide for the, the year, and then I I wanna go in a little bit more to the margin side in particular, just given what you guys have talked about and the opportunity there. But maybe just start, if you don’t mind, with the most recent targets you gave us.

Joel, CFO, Avid Exchange: Yes. So when we announced our fourth quarter results, we laid out guidance for ’25 for the first time. The best way to frame it is our core growth at the midpoint is about an 8% grower. So for those who aren’t familiar, we remove I’m removing float revenue, which was $50,000,000 in $24,000,000 moving down to $44,000,000 in our estimate as rates presumably flatten out or turn around. And then the political cycle where we had over $6,000,000 of revenue last year that we have largely none in ’25.

So anyway, removing those, it’s about 8% at the midpoint. And maybe I’ll pause there and just connect it to some things Mike said. That 8% is it’s all far aspiration of we think this business grows mid teens, maybe even approaching 20%. And one of the largest sort of dynamics there just to sort of remind the audience is our overall net transaction retention, which typically is a net expansion of transactions across the platform, you know, in the, say, 104, one hundred and five percent expansion, has been in the has been below 100%. And so we reported 98% and change.

So that’s 4% or five points, but it’s 8% guide at the midpoint on a core basis. We’re speaking of margins, I’ll just sort of go there if we can make that transition. So Mike talked about having created really healthy margins over time. We expanded margins to, I think, 75% in the fourth quarter. So meaningfully ahead of what we had set out to do and just really were focused on things that we can control and that was something that we really focused heavily on.

Even stripping out float and political, that’s about a 71% gross margin. So good progress, but we still have a ways to go. We think that 71% if you remove float and political can be 75% plus meaningfully. It’s really the combination of yield expansion, which you can see in the business all in and in a core basis removing float and political. Okay.

But also unit cost discipline.

Unidentified speaker, Analyst: Right. And so the gross margin has made considerable progress. I mean, we’ve seen that. So number one, just help us understand, first, what’s embedded in your outlook for the year in terms of macro. And I know you talked about basically, I think keeping the transaction rates at about 100%.

We’re basically not approving it.

Mike, CEO, Avid Exchange: I didn’t get it in the

Unidentified speaker, Analyst: guide, but maybe a little more detail on that.

Joel, CFO, Avid Exchange: Sure.

Unidentified speaker, Analyst: And then the margin leverage on the gross margin side first. I mean, what drives that even higher? It has moved really well.

Joel, CFO, Avid Exchange: Fair. Okay. So first on the guide, let me go back to that 8%. So what’s included? How do we think about what we’re assuming?

First off, I would just repeat what I said before. It’s not assuming that overall transaction growth or the spending and the activity on our 8,500 suppliers on the platform. We’re basically presuming that the way we exited the year, remember Q4 was 4.3%, is largely what we’re going to expect in 2025, right? There’s a number of hypotheses and leading indicators that suggest that we should see a turn by the end of twenty twenty five. We’re not contemplating that in sort of core growth.

We are, as Mike mentioned, seeing the beginning of that ramp that we knew was coming on payment accelerator and there’s about a point of growth associated with that back ended, and another roughly point of growth associated with really beginning to more meaningfully move the needle on the conversion from check to digital as a result of the new payment methods coming off of the new pay platform. So a couple points there are included. So your second part of the question is like Gross margin. Gross margin. Yeah, I mean the way we’ll get from the 71% and I’m stripping floating political out, the 71% roughly gross margin profile in the business in Q4 to seventy five plus is largely the way we’ve gotten the gross margin expansion over the past couple of years.

It’s a mix of yield expansion, so steady consistent revenue per transaction growth through the strategies that we’ve talked about, and then increasing discipline on unit cost.

Mike, CEO, Avid Exchange: The one

Joel, CFO, Avid Exchange: thing that I would say is that rate of expansion might moderate now. So we really did take off some low hanging fruit standardization, automation and outsourcing. There’s still room to go.

Mike, CEO, Avid Exchange: But I

Joel, CFO, Avid Exchange: think the speed of that expansion is likely to moderate.

Unidentified speaker, Analyst: So what kind of EBITDA margin expansion are you looking for the next year or even beyond that? I mean, you know, you have operating leverage in the business. I think you have targets of 30% EBITDA margins long term, if I remember correctly. Right?

Joel, CFO, Avid Exchange: Yeah. Yeah. I mean, look, we need growth to return. That’s the headline for, you know, that’ll obviously help meaningfully with gross margin expansion and EBITDA expansion. But even at, you know, kind of the growth rates that we’re putting up 20%, EBITDA is reasonable.

And even with the growth rates that we’re seeing, I think we can expand that beyond the 20% level. But to kind of get to that rule of 40 business, we need to see top line growth return.

Unidentified speaker, Analyst: Okay. And the operating leverage versus investing, I mean, you guys can handle exactly what you need to do from an investment standpoint?

Joel, CFO, Avid Exchange: Absolutely. Like, we’re doing it today. So the investments that we’ve talked about, payment accelerator, the new pay platform, right, we’re investing in those. We’re not constraining those, but at the same time, you’re seeing the leverage in R and D, certainly G and A. So we’re balancing growth and profitability.

We think we can move the needle on profitability while

Mike, CEO, Avid Exchange: we continue to

Unidentified speaker, Analyst: And I know I may put you on the spot a little about this, but from a GAAP profitability standpoint, I know that’s something that we’ve been talking about more all of us, at least, stock comp expense profitability. Right. How do you think about that?

Joel, CFO, Avid Exchange: Yeah. We agree. We’re we’re focused on, you know, GAAP profitability, free cash flow generation. We’re a couple quarters into GAAP profitability. I don’t think we go backwards.

I think we only we only sort of increase and enhance that. You know, stock based compensation was a little bit under 11% for us, last year. It may tick up slightly, but we expect that that will remain sort of low relative to the market, relative to peer. And and and so, you know, you can expect, increased GAAP profitability going forward.

Unidentified speaker, Analyst: Okay. Good. And then, I mean, from a competitive from, like, a well, let’s let’s go to competitive landscape standpoint. I mean, I still think your differentiation is is probably underappreciated just given that the mode is around the mid market much more so than maybe the small Exactly. SMB side.

But we still get the question a lot. I mean, so number one, are you seeing anything different on pricing or Yeah. You know, and maybe you can couple that with macro a little bit. But I guess, you know, any any conversations that have changed given other alternatives out there or, you know, just what does it look like out there right now?

Mike, CEO, Avid Exchange: I think it what’s interesting is the for the most part, you know, kind of the competitive, you know, set of companies has remained consistent. We really don’t see any new entrants. I think the regulatory impact makes it really hard for, you know, new start up companies or earlier stage companies to try to compete with us as well as the kind of existing incumbents in the market are pretty you know, we’ve been at it for a while. And so you have companies that are really well featured. You know, they have years of product features, functionality that we built into the platform.

Right? And so, what you what we what we do see is, so the competitive nature is really kind of remained consistent. We have some, you know, examples of, you know, people getting taken out through M and A. And what’s interesting is the kind of the common experience there is they get, you know, significantly less competitive after getting taken out. And but what we do see is continue to see is, you know, particular competition that’s very vertical market focused.

So, I still don’t we don’t have any examples of competitors that crossover even multiple vertical markets. The ones, they’re very the real estate competition we have you know, is in real estate, and it’s, the hospitality competition we have is in hospitality, you know. So it’s, it’s it’s very vertical focused. One of the things that we do see is, you know, we’ve kind of begin to really, you know, pivot towards, the thinking of the ERP systems as a core, you know, integrated embedded channel. Yeah.

And, we’re seeing others try to follow that, you know, certainly, that strategy. And the same time, on the supplier side of the equation, you know, you know, in my view, the number one reason why we have the outsized monetization that we have in our network is because we think of the supplier as a core customer and work really hard to create a value proposition for that supplier, and now we’re seeing others starting to copy that as well. You know? And so but, you know, we you know, within that middle market segment, it’s been pretty consistent in what we’ve seen is that competitive, you know, dynamic mix. Okay.

Unidentified speaker, Analyst: I’m gonna take a question or two from the audience in a moment. But anything on the payment side that’s changed? I know there was some rhetoric in the market over, you know, pushback on virtual card and

Mike, CEO, Avid Exchange: Yeah. Just in terms of what

Unidentified speaker, Analyst: you’re seeing having the most success versus any kind of change or pushback.

Mike, CEO, Avid Exchange: Yeah. We I mean, this was kind of a, you know, a hot topic. Was it q two of last year? Yeah. Second quarter of last year.

Right? Well, one of your,

Unidentified speaker, Analyst: you know, Bill obviously called it out even before that, but it was Right. Different again, different market.

Mike, CEO, Avid Exchange: And and so one of the things that’s important to realize is of, you know, of our one point roughly 1,400,000 suppliers on our network, the ones that, the the bucket that is the most focused on managing their expense at interchange are the top 3% enterprise suppliers. Okay? Those are the they’re the and they’re the ones that typically have variable interchange cost structures where they actually manage interchange themselves. And what we what we’ve, you know, seen there over the years is this dynamic really started in 02/2019 when Mastercard came out with their data rate structure, you know, data rate one, two, and three, designed to say, okay, enterprise suppliers, the more data you can process with the virtual card transaction, the lower interchange we’ll give you. And what we made a decision back then, which, you know, kind of, in 02/2019, hurt us a little bit of revenue, we said this actually is a great opportunity because we have the data.

So we went to all these enterprise suppliers and said, you know, let us help you process your transactions with the maximum of data so you can move from rack rate interchange down to level three, you know, even, to get the best rate structure possible. Because our our long term view is if they’re dependent on our data for the best rate structure, that terms you know, that’s long term stickiness, right, along with building other, you know, value propositions. And so that dynamic started in 02/2019 and, you know, and and we, you know, kinda called out, you know, some things, almost a year ago Mhmm. About, you know, that same group, you know, now kind of more actively managing what we call high ticket inter you know, transactions, typically transactions over 10,000. Again, we’re the only platform that I know of that gives the suppliers the ability to manage their business rules on our network.

So rather than a supplier, say, a trading because they don’t wanna pay, you know, whatever the rate is, you know, for a high ticket transaction, we give them the opportunity to say, oh, for those high ticket transactions, we want a different, a payment product. We want maybe an AvidPay direct product or a different, you know, kind of interchange. Right? And we give them those opportunities, to manage it. So we the the one thing that we didn’t see is we didn’t see any suppliers are trading.

Unidentified speaker, Analyst: Right.

Mike, CEO, Avid Exchange: We saw suppliers just managing their business rules. And we view that as really healthy long term. Right. Optionally. Right.

And, and so, you know, again, but all that activity is, like, in our top 3%. And, and and so one of the things just, you know, why structurally, maybe the, you know, the the other 97% are as active, you know, in how they manage their interchange is is one is, you know, they have different dynamics around, you know, they wanna get paid faster and things like that. But also, for the most part, they all have fixed rate interchange with their merchant acquire. Right? And so the and so they don’t even see individual interchange.

They just have a fixed rate on whatever that is. Right? So their focus is, like, just, you know, give me all my transactions in a way I can accept them in the most efficient automated way, and they don’t really price, they really don’t care about because they have a fixed rate.

Unidentified speaker, Analyst: Got it. Okay. Guys, any quick questions to the audience? I think we maybe only have time for about one, but

Mike, CEO, Avid Exchange: Yes, go ahead. Can you just discuss more broadly, I guess, the opportunity to monetize the supplier base given it’s so large at more than 1,000,000 versus 8,500 or so payers? Just the size and the timing would be great. Yeah. So, I mean, so so first of all, we think of how we, you know, kind of monetize them is, is in, you know, kind of two buckets.

One is through given payment electronic payment modalities. So moving from paper check, to an electronic payment modality. And just to give you guys a sense of that leverage, although we get software revenue in every transaction on the payment network, a paper check has zero revenue, other than some float revenue, and, it has relatively high expense, about a dollar of execution costs. When we flip the electronic, that zero goes to $7 to $10 of revenue per transaction, and the expense goes, you know, from a buck to maybe 2¢. So high leverage there.

So we’re very focused on, growing that 40% that we have, and increasing that. The next big milestone will be about 50% is our next target milestones. Okay. The second element is, part of value proposition is how they get paid faster, and that’s the payment accelerator offering. And we’re seeing our average take rate on payment accelerator right now is averaging two ninety basis points.

So that gives you shows you kind of what suppliers will pay to get paid faster. And so that’s kind of the second element is providing cash flow kind of tools to get them to accelerate their invoices, and that’s another monetization event. The last one, which our things is kind of further innovation bucket, that suppliers have told us, the last thing they’d love us to do is help them sell more to their customers. And so we’re working on some marketplace examples to kind of help them on the front end of that. So those are really the three areas.

Unidentified speaker, Analyst: Guys, thank you so much for being with us. Next up on stage, we have Payoneer.

Mike, CEO, Avid Exchange: If

Unidentified speaker, Analyst: you can make your way up. At the same time as that, we have Dave

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