AvidXchange Holdings, Inc. (NASDAQ:AVDX) has demonstrated its resilience in the face of a challenging macroeconomic environment, delivering solid financial results and achieving a significant milestone - its first-ever GAAP net income profitability. The company's disciplined execution, coupled with strategic investments in product innovation, have positioned it well to navigate the current economic landscape and capitalize on the significant long-term growth opportunities in the middle market.

For the full year 2023, AvidXchange reported annual revenue of $380.72 million, a decrease of 1.5% compared to the prior year. Despite the top-line headwinds, the company's annual net income improved to -$47.33 million, up from -$65.99 million in the previous year. The company's annual operating cash flow stood at $8.45 million, while its annual free cash flow was -$9.85 million.

In the second quarter of 2024, AvidXchange continued to demonstrate its operational prowess, reporting revenue of $105.13 million, up 15.3% year-over-year. The company's GAAP net income for the quarter was $436,000, a significant improvement from the $18.8 million net loss reported in the same period last year. AvidXchange's non-GAAP adjusted EBITDA for the quarter was $17.5 million, compared to $3.0 million in the prior-year period.

Business Overview

AvidXchange was founded in 2000 to serve the accounts payable (AP) automation needs of the middle market. Over the years, the company has expanded its offerings to include electronic payment solutions, leveraging its AvidPay Network to provide buyers and suppliers with a seamless and efficient procure-to-pay process. AvidXchange's solutions are designed to address the unique needs of middle market companies, which often have more complex and industry-specific requirements compared to small businesses or enterprises.

The company's revenue is primarily generated from two sources: software and payments. Software revenue is derived from fees charged to buyers for the use of AvidXchange's AP automation and payment solutions, while payment revenue is generated from the electronic payment transactions processed through the AvidPay Network. The company also generates a smaller portion of its revenue from services.

Navigating Macroeconomic Headwinds

During the first half of 2024, AvidXchange faced continued macroeconomic challenges, including higher interest rates, sustained inflationary pressures, and cautious spending by its middle market customers. These factors have impacted the company's transaction volume and, to a lesser extent, its payment yield.

To address these headwinds, AvidXchange has focused on disciplined execution across three key areas: sales and marketing, gross margin expansion, and overall operating expense management. The company has prioritized its go-to-market strategies, directing investments towards its highest-yielding sales channels, such as its growing partner ecosystem. Additionally, the company's initiatives around automation, artificial intelligence, and sourcing and standardization have continued to drive improvements in its gross margins, which reached 72.6% in the second quarter of 2024, up 430 basis points year-over-year.

Despite the macroeconomic pressures, AvidXchange has maintained a strong focus on operational efficiency, with non-GAAP operating expenses declining 0.6% year-over-year in the second quarter. This disciplined approach has enabled the company to deliver significant adjusted EBITDA expansion, reaching $17.5 million in the second quarter, compared to $3.0 million in the same period last year.

Product Innovation and Strategic Partnerships

Amidst the challenging environment, AvidXchange has continued to invest in product innovation and strategic partnerships to drive future growth and margin expansion. The company recently announced two notable integration partnerships that further strengthen its competitive position.

In the real estate vertical, AvidXchange has deepened its relationship with Buildium, a cloud-based property management software company. This partnership leverages generative AI to compress development cycle times and deliver an enhanced user experience. Additionally, the integration represents a significant payments opportunity, as it has the potential to add billions in new payment volume to the AvidPay Network.

Furthermore, AvidXchange has launched its first invoice automation solution for the media vertical, partnering with Workamajig, a leading project management software provider for marketing and creative agencies. This integration allows Workamajig customers to digitally transform their AP workflows, leveraging AvidXchange's end-to-end capabilities, from AI-powered invoice ingestion to intelligent workflow routing and payment execution.

These strategic partnerships, combined with the company's ongoing investments in payment automation and its new offerings, such as Payment Accelerator 2.0 and Spend Management, position AvidXchange well to drive future growth and margin expansion.

Financials

AvidXchange's financial performance in the second quarter of 2024 demonstrated its ability to navigate the macroeconomic challenges. The company reported revenue of $105.13 million, up 15.3% year-over-year, driven by a combination of increased transaction volume and higher payment yield. The company's non-GAAP gross margin expanded to 72.6%, up 430 basis points compared to the same period last year, reflecting the benefits of its automation and AI initiatives.

On the bottom line, AvidXchange achieved a significant milestone, reporting its first-ever GAAP net income of $436,000 in the second quarter, a substantial improvement from the $18.8 million net loss in the prior-year period. The company's non-GAAP adjusted EBITDA for the quarter was $17.5 million, compared to $3.0 million in the second quarter of 2023.

AvidXchange ended the second quarter with a strong corporate cash position of $465 million, including cash, cash equivalents, and marketable securities. The company also had $30 million in undrawn capacity on its credit facility, providing ample liquidity to fund its growth initiatives and navigate the current macroeconomic environment.

Outlook

For the full year 2024, AvidXchange has updated its revenue guidance to a range of $436 million to $439 million, which includes approximately $49 million in interest revenue from customer funds and $9 million in political media revenue. The company expects its non-GAAP adjusted EBITDA to range between $73 million and $75 million for the year.

Despite the near-term macroeconomic headwinds, AvidXchange remains confident in its long-term growth prospects. The company believes it is still in the early stages of the middle market's digital transformation, with a significant opportunity to capture market share and drive further adoption of its AP automation and payment solutions.

The company's strategic investments in product innovation, such as Payment Accelerator 2.0 and Spend Management, as well as its growing partner ecosystem, including the recent Buildium and Workamajig integrations, are expected to fuel the company's future growth and margin expansion. AvidXchange remains committed to its long-term financial targets, including achieving a Rule of 40 in 2025 and a Rule of 50-plus by 2028.

Conclusion

AvidXchange has demonstrated its resilience and operational excellence in the face of a challenging macroeconomic environment. The company's disciplined execution, strategic investments in product innovation, and growing partner ecosystem have positioned it well to navigate the current headwinds and capitalize on the significant long-term growth opportunities in the middle market. With its first-ever GAAP net income profitability, strong liquidity position, and a robust product roadmap, AvidXchange is poised to continue its trajectory of value creation for its shareholders.