Business Overview and History

AvidXchange Holdings, Inc. (AVDX) is a leading provider of accounts payable (AP) automation software and payment solutions for middle market businesses and their suppliers. The company has carved out a significant niche in the burgeoning B2B payments space, leveraging its innovative technology to drive operational efficiencies and enhance financial outcomes for its diverse customer base.

Established in 2000, AvidXchange was founded with the goal of addressing the accounts payable pain points experienced by middle market businesses. The company's founders recognized the inefficiencies and challenges associated with traditional paper-based AP processes and set out to revolutionize the way companies manage their payables. In 2012, responding to customer demand for more efficient payment methods, AvidXchange launched the AvidPay Network, a significant milestone in its evolution.

Since 2012, the company has experienced substantial growth, both organically and through a series of strategic acquisitions, allowing it to expand into new markets. This growth trajectory led to a significant milestone in October 2021 when AvidXchange completed its initial public offering, raising net proceeds of $621.4 million. This influx of capital provided the company with additional resources to fund growth initiatives and strengthen its financial position.

AvidXchange's journey has not been without challenges. In 2023, the company faced a cybersecurity incident that resulted in costs for professional and legal fees. However, demonstrating its resilience, AvidXchange was able to recover a substantial portion of these expenses through insurance claims. Additionally, the company has had to navigate macroeconomic headwinds that have impacted its middle market customers and, at times, affected its growth trajectory.

Today, AvidXchange employs a hybrid go-to-market strategy, selling its solutions through both direct and indirect channels. The company's revenue streams are primarily recurring in nature, derived from software, payments, and services. Over the years, AvidXchange has seen growth in both its software and payments revenue streams as it has expanded its customer base and increased transaction volumes on the AvidPay Network.

Financial Performance and Operational Efficiency

AvidXchange's financial performance has been characterized by consistent growth and operational excellence, even in the face of macroeconomic headwinds. In the latest reported quarter (Q4 2024), the company delivered robust results, with revenue increasing 10.9% year-over-year to $115.4 million. This growth was driven by a combination of higher transaction volumes and improved payment yield.

Notably, AvidXchange has made significant strides in improving its profitability, with non-GAAP gross margins expanding by 350 basis points year-over-year to reach 74.9% in Q4 2024. This margin expansion is a testament to the company's disciplined focus on cost optimization, including strategic sourcing, standardization, and the implementation of advanced automation and AI-powered solutions across its operations.

The company's strong financial performance has also translated to improved cash flow generation, with net cash provided by operating activities increasing more than eight-fold to $71.9 million in 2024. AvidXchange's healthy balance sheet, which included $389.3 million in cash and marketable securities at the end of 2024, provides the company with ample financial flexibility to invest in product innovation, strategic partnerships, and growth initiatives.

Financials

AvidXchange's financial performance has shown consistent growth and improvement. In Q4 2024, the company reported revenue of $115.44 million, representing a 10.9% year-over-year increase. Non-GAAP gross margins expanded to 74.9%, a 350 basis point improvement from the previous year. The company's cash flow generation has also significantly improved, with net cash provided by operating activities reaching $71.9 million in 2024, an eight-fold increase from the previous year.

The company's most recent quarter's financial results are as follows:

• Revenue: $115.44 million
• Net income: $4.67 million
• Operating Cash Flow (OCF): $28.45 million
• Free Cash Flow (FCF): $23.30 million

These results demonstrate AvidXchange's ability to generate positive cash flow and profitability while continuing to grow its revenue base.

Liquidity

As of the end of 2024, AvidXchange maintained a strong liquidity position with $389.3 million in cash and marketable securities. This robust balance sheet provides the company with significant financial flexibility to pursue growth initiatives, invest in product innovation, and explore strategic opportunities.

Additional liquidity metrics include:

• Debt/Equity ratio: 0.11
• Available credit line: $150 million revolving credit facility (undrawn as of the end of the quarter)
• Current ratio: 1.29
• Quick ratio: 1.29

These metrics indicate that AvidXchange has a strong financial position with low leverage and ample liquidity to support its operations and growth initiatives.

Product Innovation and Strategic Partnerships

Recognizing the importance of continuous innovation, AvidXchange has made significant investments in developing new products and enhancing its existing offerings. The company's recent launch of AvidPay 2.0, its next-generation payments platform, is a prime example of its commitment to delivering cutting-edge solutions to its clients.

AvidPay 2.0 is designed to provide greater flexibility and customization options for payment processing, allowing businesses to optimize their payment workflows and improve supplier engagement. Additionally, the company's Payment Accelerator 2.0 offering, which provides suppliers with access to early invoice payments, has seen a surge in adoption, contributing to AvidXchange's growing suite of value-added services.

Complementing its internal product development efforts, AvidXchange has also forged strategic partnerships with leading enterprise resource planning (ERP) providers, such as AppFolio and M3. These integrations enable seamless data sharing and workflow automation, enhancing the overall user experience for AvidXchange's clients.

Navigating Macroeconomic Challenges

Despite the ongoing macroeconomic uncertainties that have impacted many businesses, AvidXchange has demonstrated its resilience and ability to navigate these challenges. The company's diversified customer base, spanning multiple industries, has helped to mitigate the effects of any localized economic disruptions.

Moreover, AvidXchange's focus on operational efficiency and cost optimization has allowed it to maintain strong profitability, even in the face of headwinds. The company's disciplined approach to capital allocation, including the repurchase of $50 million in shares during 2024, underscores its commitment to driving long-term shareholder value.

Looking ahead, AvidXchange remains cautiously optimistic about its growth prospects, as it continues to invest in product innovation, expand its strategic partnerships, and leverage its industry-leading position to capture a greater share of the sizable middle market opportunity.

Product Segments

AvidXchange offers two primary product segments: Software and Payments.

Software Segment:

The Software segment provides accounts payable (AP) automation software solutions for middle-market businesses and their suppliers. These solutions help automate the accounts payable process, from invoice capture and approval to payment execution. Key software offerings include:

• Invoice management: Allows buyers to capture, route, and approve invoices through a cloud-based platform, streamlining the AP process.

• Payment automation: Enables buyers to make payments to their suppliers electronically, eliminating paper checks. This includes features like virtual card payments and enhanced ACH payments.
• Business intelligence tools: Provides analytics and reporting to help buyers gain visibility into their AP processes and spend.

Software revenue is generated through recurring subscription fees based on the number of invoices and payments processed, as well as maintenance and support fees. In the first nine months of 2024, software revenue accounted for $90.27 million, or 27.9% of total revenue, representing an 8.6% increase year-over-year.

Payments Segment:

The Payments segment focuses on providing electronic payment solutions to suppliers through the AvidPay Network. Key payment offerings include:

• Virtual card payments (VCC): Allows buyers to make payments to suppliers using virtual credit cards, generating interchange fee revenue for AvidXchange.

• AvidPay Direct: An enhanced ACH payment product that provides suppliers with more detailed remittance data.
• Payment Accelerator: Enables suppliers to receive advance payments on qualifying invoices, generating transaction fees for AvidXchange.

Payment revenue is derived from interchange fees on virtual card transactions, transaction fees on AvidPay Direct, and fees related to the Payment Accelerator product. In the first nine months of 2024, payment revenue totaled $230.08 million, or 71.1% of total revenue, up 20.5% year-over-year. This growth was driven by increased electronic payments on the AvidPay Network and higher interest income on funds held for customers.

Overall, AvidXchange has experienced strong performance in both its Software and Payments segments, with total revenue increasing 16.9% year-over-year in the first nine months of 2024 to $323.50 million. The company's hybrid go-to-market strategy, combining direct sales and indirect channels, has allowed it to expand its customer base and drive growth across its product offerings.

Guidance and Future Outlook

AvidXchange has demonstrated a track record of meeting and exceeding its financial targets. In Q4 2024, the company surpassed its implied expectations across all core financial metrics, including revenues, gross margin, EBITDA margin, and non-GAAP diluted earnings per share. Notably, AvidXchange achieved its 75% targeted non-GAAP gross margin milestone ahead of its 2025 objective set during the June 2023 Investor Day. The company also reached its almost 23% adjusted EBITDA margin target committed to during the Investor Day.

For 2025, AvidXchange has provided the following guidance:

• Total revenue expected to be in the range of $453 million to $460 million.
• This includes approximately $44 million of interest revenues from customer funds, down from $49.7 million in 2024.
• No political media revenue contribution expected in 2025, compared to $6.6 million in 2024.
• Non-GAAP adjusted EBITDA profit expected to be in the range of $86 million to $91 million.
• Non-GAAP diluted earnings per share expected to be in the range of $0.25 to $0.27, not reflecting any additional share repurchases.

This guidance reflects a cautious but detailed outlook for 2025, taking into account the uncertain macroeconomic environment impacting AvidXchange's middle market customers.

Conclusion

AvidXchange's track record of consistent financial performance, operational excellence, and product innovation positions the company as a compelling investment opportunity in the dynamic B2B payments sector. With a strong balance sheet, a robust product pipeline, and strategic partnerships that enhance its go-to-market capabilities, AvidXchange is well-equipped to navigate the evolving market landscape and deliver sustainable growth for its shareholders.

The company's focus on both software and payment solutions provides diversification and multiple growth avenues. As AvidXchange continues to expand its customer base, increase transaction volumes, and enhance its product offerings, it is well-positioned to capitalize on the growing demand for automated accounts payable and payment solutions in the middle market segment.

While macroeconomic uncertainties persist, AvidXchange's strong liquidity position, efficient operations, and strategic focus on cost optimization provide a solid foundation for navigating potential challenges. The company's cautious yet optimistic guidance for 2025 demonstrates management's commitment to sustainable growth and profitability, even in a challenging economic environment.

Investors should closely monitor AvidXchange's ability to execute on its growth strategy, maintain its technological edge, and continue to expand its market share in the competitive B2B payments landscape. With its strong financial position and innovative product offerings, AvidXchange remains a noteworthy player in the evolving fintech sector.