Good morning, everyone and thank you for joining us for the AvidXchange Holdings Inc's First Quarter 2023 Earnings Call. Joining us on the call today is Mike Praeger, AvidXchange's Co-Founder and Chief Executive Officer; Joel Wilhite, AvidXchange's Chief Financial Officer; and Subhaash Kumar, AvidXchange's Head of Investor Relations.

Before we begin today's call, management has asked me to relay the forward-looking statements disclaimer that is included at the end of today's press release. This disclaimer emphasizes the major uncertainties and risks inherent in the forward-looking statements the company will make this afternoon.

Please keep these uncertainties and risks in mind as the company discusses future strategic initiatives, potential market opportunities, operational outlook and financial guidance during today's call. Also, please note that the company undertakes no duty to update or revise forward-looking statements.

Today's call will also include the discussion of non-GAAP financial measures. As that term is defined in Regulation G, non-GAAP financial measures should not be considered in isolation from or as a substitute for financial information presented in compliance with GAAP.

Accordingly, at the end of today's press release, the company has provided a reconciliation of these non-GAAP financial measures to financial results prepared in accordance with GAAP. Please also note today's event is being recorded. With that, I will now turn the call over to Mike Praeger. Please go ahead..

Thank you everyone for joining us today. Joe Wilhite and I are excited to discuss AvidXchange's first quarter 2023 results. We delivered another solid quarter of year-over-year financial results backed by healthy underlying metrics.

Best of all, I'm excited to report that we delivered our first profit on an adjusted EBITDA basis since our IPO on October 13, 2021, and two years ahead of plan at the time of our IPO.

Relative to our first quarter 2023 business outlook expectations, which Joel will discuss in his prepared remarks, our first quarter 2023 results also came in better than expected. As we stated in our March earnings call, we continue to see strong top of funnel activity with leading economic indicators moderating amid continued macro volatility.

Our value proposition of accounts payable automation and payment solutions feel by our two-sided network is a powerful lever for resource constrained middle market companies to gain significant cost structure advantages and savings by automating their accounts payable and disbursement processes.

As evidenced by our continued strong top of funnel activity up roughly 20% year-over-year in Q1, in what is a large and unpenetrated addressable market, is extremely encouraging. This current quarter is no exception as we are on track for another strong double-digit top of final growth quarter.

Moreover, this growth remains largely broad-based across our eight verticals driven by partnerships, integrations, product and feature launches in 2022 and year to date this year.

This gives us further confidence that our value proposition and product portfolio aligns with our customers' needs even more deeply as we help them navigate an increasingly challenging macroeconomic backdrop.

In summary, I believe our strong Q1 results were driven by the following three themes; one, the resiliency of middle market companies as evidenced by our continuous drop strong year-over-year top of funnel growth; two, our biggest competitive advantage in leading the middle market continues to be our ability to monetize payments through the AvidPay Network at a two to three times advantage over our competitors and is a key ingredient in driving revenue growth and payment yield results; and third, the pace of new integrations, strategic partnerships, new product functionality and features along with vertical market expansion leaves us cautiously optimistic for 2023 while we're looking forward to a robust 2024.

Let me now provide a quick summary of our year-over-year first quarter 2023 financial results. We delivered revenues of over 86 million which grew at a rate of 22% compared to the same period last year. This now marks seven consecutive quarters of exceeding our internal financial targets and delivering 20% plus comparable organic revenue growth.

Non-GAAP gross margins expanded to 67.3% in the quarter, up 500 basis points on a year-over-year basis. We posted a non-GAAP adjusted EBITDA profit of approximately $400,000 in the quarter versus an adjusted EBITDA loss of 5.6 million last year, and we ended the quarter with 2.5% year-over-year increase in our total transaction yield to $4.76.

On today's call, I want to highlight our execution on three key areas of strategic growth and innovation across our AvidXchange business flywheel. First, we're going to highlight the formal addition of an exciting new industry vertical. Second, we are excited to discuss new marquee partnership in the support of this new vertical.

And third, we're discussing new integrations as well as innovation in our existing product suite. All three areas will discuss as part of our broader strategic and execution framework, we committed to at the time of our IPO and we are delivering on all these commitments and more.

Today, we're excited to announce our formal entry into the hospitality vertical under gear one of our AvidXchange business flywheel. This expansion brings total number of verticals we addressed to nine overall industry verticals where penetration rates are still largely in single-digits.

Our approach to vertical market expansion is a function of marketplaces push-and-pull dynamics.

While the push dynamic is wholly bottoms up and targeted, the pull dynamic is more customer led, initially a function of the networking effects driven by CFOs, controllers and finance professionals who have championed our product leadership over their careers.

As these internal champions target new industries, they become our brand and product ambassadors, creating industry awareness and building a critical mass of users within our various vertical and horizontal markets.

Overlaying our marketing engine on top of the user cluster and gleaning insights for various factors such as market fit, product fit, partnership and competitive landscape as well as testing and learnings.

This enables us to stand up a new vertical where our position of strength leads to a deeper integration from leading ERPs and go to market partnerships focused on a particular industry vertical. The hospitality vertical ecosystem boasts roughly 10,000 middle market customers including subsegments such as recreation and country clubs.

Already, we have amassed over 50 customers organically, which is similar to customer levels when we acquired our way into the media vertical as an example. And our top of funnel is seeing a very healthy level of activity and interest already.

Our excitement in entering the hospitality vertical is centered on our M3 partnership, a marquee strategic ERP partnership that we recently won and we believe will further accelerate our momentum in the hospitality vertical.

To illustrate the power of our value proposition and the traction we've already gotten in the hospitality vertical, I'd like to provide a case study of Island Hospitality management. Managing over 170 hotel properties across the United States, West Palm Beach based Island Hospitality is one of the largest independent hotel operators.

The company's vendor base consists of thousands of suppliers from those with national reach to local operators.

Under Brian Murphy, Director of JD Edwards Business Services at Island Hospitality, Island Hospitality adopted our invoice and pay solution and was able to completely transform its accounts payable department by cutting invoice processing time by over 80%.

Whereas it would take an average of 18 days to historically approve and process a paper invoice, our AvidXchange system reduced their 18-day invoice approval process by over 80% down to averaging only three days.

As a result, Island Hospitality was able to reduce and reallocate their accounts payable headcount to more strategic positions while voiding financial penalties on various nondiscretionary payables, including utility invoices and payments.

Furthermore, the company was also able to have real-time visibility into an electronic audit trail for their invoices and payments that were easily digestible for their outside auditors. Brian Murphy said it's best by stating, "Overall it was really a no brainer for us.

My advice to anyone is to take a look into automation and see if it will help your organization the way it transformed ours." This brings us to our new partnership under years two and three of the AvidXchange business flywheel.

As part of our strategy in targeting leading ERPs in new verticals, we are excited to announce a new strategic partnership with M3 to embed our AvidPay Network inside of their ERP functionality to drive M3 customer payment, transaction volume and monetization across our AvidPay Network.

As a reminder, our strategy around API partnerships and integration playbook is to be deeply embedded with each accounting system and ERP provider who has a vertical leading market share of a cut of customers across our existing and new targeted verticals, where there's an opportunity for significant transaction volume to be monetized.

M3 is the hospitality market leader in cloud-based accounting solutions and data management platform custom tailored specifically for the hospitality industry. Today, M3 has a customer base exceeding 1,000 management groups and owner operators including 50% of the top U.S. hotel managers and operators in the United States.

M3's accounting solutions work seamlessly with other critical back-office hospitality systems and productivity tools for hotels of all sizes.

This strategic partnership which we expect to go live over the next two quarters underscores the leadership of our payment and invoice solutions including our industry leading e-payment adoption levels which lead our industry for B2B electronic payment monetization coupled with our robust accounts payable automation software solutions.

Similar partnerships in the past have yielded penetrations upwards of 50% of an accounting partner's customer base. We believe this opportunity is size for similar levels of penetration over the next three to five years. We continue to innovate through these new integrations and deeper product functionality.

On the integration front, we redoubled our penetration efforts into the nonprofit vertical with MIP under gears one and two of our AvidXchange business flywheel. MIP is a major cloud and on premise-based ERP focused on nonprofits. In addition, we've already have integrations and partnership in the nonprofit vertical market with Blackbaud.

Our solid track record in reputation with Blackbaud has been a catalyst to create networking effects by stimulating the market demand and driving non-Blackbaud customers using MIP towards our solution.

Through our robust invoice to pay API integrations built on our Avid connect platform, MIP's 6,000 strong customers will see significant cost savings by digitizing their back office while enabling them to leverage our payment network to pay their suppliers.

Embedding and integrating new industry leading functionality into our existing vertically focused accounts payable automation solutions continues to be one of the building blocks for year one of our AvidXchange business flywheels. We are also pleased to announce the introduction of a lien waiver management for the construction vertical.

Our construction vertical products features our timber scan and titanium suite of flagship accounts payable processing and content management software, which are so mission critical to our customer operations that one customer recently proclaimed that they would actually to, "Crash and burn without AvidXchange." We believe the integration of lien waiver management takes our construction product suite to the next level of being critical application that construction customers depend on to run their business.

Lien laws are state laws that ensures a subcontractor or a supplier is paid for the agreed upon service and or materials that they provide to a project or job. And if not, they're allowed to file a lien on the property.

Simply put, a lien waiver is a legally binding document that assures an owner or lender that a subcontractor or supplier has received payment for the agreed upon service or materials and therefore waives any rights to file a lien on the property.

On any given construction project, there can be anywhere between hundreds and thousands of these lien waivers being processed monthly. Currently, this is a highly manual process and the functionality around lien waivers exist as a standalone offering.

We believe our solution is a game changer for customers that is embedded, integrated and automated into our purchase to pay software workflow. Currently slated for general availability this quarter, our version 1.0 of our lien waiver management products starts with creating a lien waiver register.

It then intakes and images the executed lien waiver, feeding the lien waiver data into a dashboard that tracks the status of the lien waiver while closing the loop with reporting capabilities.

With a quarter of roughly 1,500 invoice only existing buyer customers, we believe our lien waiver functionality will provide visibility and control within the entire purchase they process on one single platform for our construction customers.

Thereby, increasing transaction volume across our AvidPay Network and accelerating the pace of our payment adoption within the construction vertical cohort, in turn, driving both gears two and three of our AvidXchange business flywheel.

In summary, we are off to a strong start in the year with a solid set of first quarter 2023 financial results highlighted by delivering adjusted EBITDA profitability ahead of expectations. As stated earlier, these results were driven by the following three themes.

First, the resiliency of middle market companies as evidenced by our continued strong year-over-year top of funnel growth.

Second, the biggest competitive advantage in leading the middle market continues to be our ability to monetize transactions through our AvidPay Network at a two to three times advantage over our competitors and is a key ingredient in driving our revenue growth and payment yield results.

And third, the pace of new integrations, strategic partnerships, new product functionality and features along with vertical market expansion leaves us cautiously optimistic for 2023 while looking forward to a robust 2024.

These achievements combined with our expected accelerated path to adjusted EBITDA profitability for 2023 along with our strong balance sheet positions as well to continue deepening our competitive mode as we have the financial wherewithal to reinvest in our core business to drive future growth.

Of course, we are mindful the volatile macroeconomic backdrop as it is manifested in some underlying volume headwinds with discretionary spending impacting middle market companies across our various vertical markets.

As always, we continue to run strategic and operational scenarios and are prepared to continuously adjust if any key trends and leading indicators meaningfully change direction.

Ultimately, we believe our standing as a public company coupled with our large balance sheet will enable us to capitalize on some of the macro volatility given the risk aversion among some clients to engage with smaller bootstrapped or venture backed competitors as evidenced by our strong top of funnel growth.

We are also beginning to see increased activity inorganically through our M&A funnel as funding markets for venture backed companies has become more constrained.

The bottom line is that the execution of each gear of our AvidXchange business flywheel further reinforces our leadership status across the middle market, which we believe will unlock value for our shareholders.

Before I turn over to Joel, I wanted to mention that we are looking forward to seeing you at our upcoming Investor Day event on May 31st and June 1st, where we will be providing greater insights into our business. You can register to attend our Investor Day directly on our AvidXchange Web site.

With that, I'd like to turn the call over to my partner, Joel Wilhite..

Thanks, Mike, and good morning everyone. I'm excited to talk to you today about our first quarter 2023 financial results, which reflect continued execution of our growth strategies amid continued macro uncertainty. Overall, we delivered another quarter of solid year-over-year financial performance.

Relative to the implied first quarter 2023 business outlook, first quarter revenues came in better driven largely by higher transaction volumes. That together with higher gross margins driven by yield expansion coupled with expense control led to our first profit on an EBITDA basis since our IPO.

This Adjusted EBITDA performance underscores the scope for operating leverage and resilience in our financial model. Total revenue increased by 21.9% to $86.8 million in Q1 of 2023 over the first quarter of 2022.

Roughly two thirds of the revenue growth was driven by the combination of the addition of new buyer invoice and payment transactions, which reflect increased e-payments to suppliers. The remaining third of our revenue growth this quarter is from contribution of interest revenues.

Our strong revenue growth also resulted in total transaction yield expanding to $4.76 in the quarter, up 12.5% from $4.23 in Q1 2022. Of the 12.5% increase, roughly half of the increase was driven by yield improvement and the remainder driven by interest revenue.

Software revenues of $27 million, which accounted for 31.1% of our total revenue in the quarter increased 12.8% in Q1 of 2023 over Q1 of 2022. The increase in software revenues was driven by growth in total transactions of 8.3% with the balance driven by price.

Payment revenue of $59.2 million which accounted for 68.2% of our total revenue in the quarter increased 27.4% in Q1 2023 over Q1 of 2022. Payment revenues reflect the contribution of interest revenues, which were $7.1 million in Q1 of 2023 versus $1.2 million in Q1 of 2022.

More than half of the 27.4% increase in payment revenues was driven by total payment volume, which was up 16.7% and the remaining portion driven by interest revenues.

On a GAAP basis, gross profit of $52.1 million increased by 33.4% in Q1 2023 over the same period last year resulting in 510 basis points improvement in gross margin for the quarter to 60%. Non-GAAP gross margin increased 500 basis points to 67.3% in Q1 2023 over the same period last year.

Roughly half of which was driven by a combination of yield expansion and efficiency with the remainder driven by higher interest revenue. Now, moving on to our operating expenses, on a GAAP basis, total operating expenses were $74.5 million, an increase of 16.9% in Q1 of 2023 over Q1 of last year.

On a non-GAAP basis, operating expenses excluding depreciation and amortization increased 16.1% or $8 million to $58 million in the first quarter of 2023 from the comparable prior year period.

However, on a percentage of revenue basis, operating expenses excluding depreciation and amortization declined roughly 340 basis points to 66.8% in the first quarter of 2023 from 70.2% in the comparable period last year. This highlights the operating expense leverage across sales and marketing R&D and G&A.

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 $2.6 million or 16.1% to $18.9 million in Q1 of 2023 over Q1 of last year with the increase driven by the continued investment in our direct and channel strategies to acquire new buyers and supplier customers.

Non-GAAP research and development cost increased by $2.6 million or 14% to $20.8 million in Q1 of 2023 over Q1 of last year. The increase was due to continued investment in our products and our platform.

Non-GAAP G&A cost increased by $2.9 million or 18.7% to $18.3 million in Q1 of 2023 over Q1 of last year, driven by a combination of higher expenses as we transition to become a public company.

Our GAAP net loss was $16 million for the quarter versus a GAAP net loss of $25.1 million in the prior year period driven by the combination of strong revenue flow through and expense control leading to lower operating losses coupled with higher interest income and lower interest expense due to reduced borrowing costs and partial debt pay down.

On a non-GAAP basis, our net loss in the first quarter was - in 2023 was $3.4 million and improvement of $11.1 million compared to the year ago quarter driven by the aforementioned factors.

On a non-GAAP basis, adjusted EBITDA was approximately $400,000 in Q1 of 2023 compared to a loss of $5.6 million in Q1 of '22 largely due to the aforementioned factors. Turning to our balance sheet for a moment, I want to touch on a few key items.

We ended the quarter with a strong corporate cash position of $431.7 million against an outstanding total debt balance of $83.3 million, including a note payable for $18.7 million. We had approximately $24 million on our credit facility undrawn at quarter end.

Corporate cash meanwhile was split roughly 60% among money market funds, commercial paper and U.S. treasuries with the remaining 40% in demand deposit accounts. The weighted average maturity on the corporate cash was roughly 10 days while the effective interest rate on our corporate cash position for the first quarter was roughly 4%.

Customer cash at quarter end was approximately $1.1 billion with an interest rate of roughly 3.2% for the quarter. We expect interest rate levels on customer cash in excess of 4% fully reflected starting in the second quarter absent any further increases in the Fed funds rate for the remainder of the year.

I'll now provide an update on our full-year 2023 guidance. In light of our first quarter 2023 financial outperformance balanced with further volume impacts from macro crosscurrents.

And based on all information currently available, we are raising our 2023 outlook and now expect total revenue for the year to be in the range of $363 million to $368 million. Our 2023 revenue outlook still reflects approximately $30 million of interest revenues from customer funds versus approximately $11 million earned in 2022.

As a reminder, we do not anticipate any political media revenue contribution in 2023 versus having recognized $8.5 million in 2022. We expect roughly 48% of the projected 2023 revenues to occur in the first-half with the remaining 52% in the second-half.

Similarly, we expect a higher non-GAAP adjusted EBITDA profit ranging between $2 million and $4 million for the year. With that, I'd now like to turn the call back over to the operator to open up the line for Q&A. Operator..

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And today's first question comes from Dave Koning with Baird. Please go ahead..

Yes. Good morning, guys, great job..

Hey, thanks, Dave..

Thanks, Dave..

Yes. And I guess a couple of questions. The first one in the payment segment, the yield was up both year-over-year and sequentially, but I wanted to focus on the sequential progression, which was really good because interest revenue drove maybe a little bit of it but sequentially interest revenue didn't go up that much.

So, it seemed like there was some core progression, I don't know if it's from political ad, maybe being low yielding coming off or what that was, but just really nice progression.

What was that?.

Yes, great question, Dave. Just to summarize the question a little bit, we've consistently maintained in that 30-bit zip code in terms of TPV yield overall and given the choppy environment, we're really pleased to see that stable and even inch up a little bit.

Overall year-over-year for the quarter, we were up 2.8 bits, and sequentially up a bit even removing like you say any impact from float. And so, again, we were encouraged that it was steady during this environment, but wouldn't read too much into a bit plus or minus quarter to quarter. So, pleased with the outcome..

Got you. Okay. And then, just my second question. One thing investors have been a little bit concerned that the guidance for the year I think up 19 million of interest revenue and then EBITDA guidance also up in that same ballpark and so some say there's not a lot of core improvement.

Maybe just talk about that a little bit what maybe the puts and takes within in the core part of it are..

Yes, no, great question. And just coming back to look - we were super pleased with the outcome in the first quarter, another beat on the top line, first quarter of EBITDA profitability in a period of time where we see buyers moderating spend.

And so, given the choppy environment and looking at the trends that we've seen which again started part way through Q4, we're just led to be a little cautious in that outlook, and so we've baked in the trends that we're seeing. So, we have a modest raise but maybe not to the full extent of the beat in light of current conditions.

So, the last thing I would say is we have a lot of optionality as Mike mentioned in his remarks initially and we're really focused on continuing to focus on growth and driving more efficiency in the business and delivering a profitable year..

Got you. Thanks. Great job..

Thank you..

Thanks, Dave..

Ladies and gentlemen, as a brief reminder, we do ask you please limit yourself to one question to allow more parties to ask. Our next question today comes from Ramsey El-Assal with Barclays. Please go ahead..

Hi, guys. Thanks for taking my question this morning. I wanted to ask about the hospitality vertical, congratulations on launching that or launching it soon. I was wondering if you could comment on the eventual revenue impact from adding that vertical.

And also, just how should we think about the ramp after you guys, I think you said you were launching over the next two quarters.

How does that ramp at that point? Is it somewhat steeper, is it a very gradual build?.

Yes. So, great question. We're obviously excited about formerly declaring hospitality is a new vertical for us and typically how these you know verticals get started is as we see a progression of existing customers that we have in the Avid platform, developing beachheads of customers.

And we've saw the hospitality customer base continue to grow and once it gets to 50 plus approaching 100 customers is when we typically start to really take notice. It doesn't mean it makes sense to create a specialized sales force with deep domain knowledge to attack to go to market in a particular vertical.

And so, that is very consistent with how we created past verticals. With hospitality, one of the things that we think is a great formula for what I'd say accelerating growth is with key partnerships. And so, the M3 partnership is certainly highly strategic related to the hospitality vertical.

And typically, with any new partnership I would say there's a certainly learnings as we go through the education and training process with the M3, Salesforce as well as how our team supports their team as part of this. And so, I would say it's a gradual approach.

And typically, we find that the second year of a relationship is always more robust than the first year as you have some of those learnings as you launch the vertical. But overall, we think it has a lot of formulas for success especially in terms of how we're thinking about having a highly built inside embedded payment offering for their ERP system.

So, lots of excitement by our sales and go to market teams as relates to the new vertical..

Got it. Thanks so much..

Thank you. And our next question today comes from Will Nance at Goldman Sachs. Please go ahead..

Hey guys, I appreciate you taking my question. So, I guess for my one question I will ask on the macro impacts on spending that you guys have been talking about now for since last quarter, I guess you had a couple more months to get your arms around and observe the spending trends.

Anything changed in your expectations about or just any notable observations that you would point out in terms of the spending behavior of your customer base. And if there are any numbers that you can share around that or any color around where those pull backs are most acute, that'd be helpful. Appreciate it..

Yes, thanks, Will. I'll take that. Look, again, just going back to we're proud of the quarter we had in a time of caution and spending across our buyers. And I'd go back and largely repeat the way we described it in our last call.

We're seeing that fairly broadly across all of our verticals, so no real vertical to call out, that's been fairly consistent. And again, the types of spending is these discretionary buckets we talked about advertising, marketing, professional services type spending, tenant improvements that construction related spending.

And so, that is consistent with the quarter having rounded out. And so, I would really just reaffirm the language we used and the way we characterize the environment in our previous call..

Got it, sounds good. It sounds consistent. Appreciate you taking the question and nice results today..

Thanks..

Thanks, Will..

And our next question today comes from Josh Beck from KeyBanc. Please go ahead..

Thanks for taking the question with the macro one off the table which was very helpful. Yes. Maybe I have a little bit more of a higher-level market question just given that Fed now will be launching in a few months here.

Just curious on your high-level views on real time payments and what the puts and takes there are for your business and then kind of B2B in general..

Yes, great question, Josh. And certainly, from a overall industry perspective, it's something that we pay close attention to.

One of the things that we believe is core to our success is our ability to utilize multiple payment modalities, whether it be across the electronic payment spectrum, whether it be various form of virtual card, various form of our AvidPay direct which is our closed loop network.

As well as leaning into what I would say some of the new real-time rails whether it be RTP or the Fed now. And so, we expected those continue to be - that we will lean in and related to certain use cases as we've done in the past.

The one thing that I will say is that all these new payment modalities as we've seen take much longer in terms of adoption cycles is probably people think on the front end and we've been in this business a long time. And so, it takes a while for the one bank infrastructure and then be the acceptance.

But where we really lean into and the value that we provide across any of these new payment methods is the ability to get the reconciliation data that suppliers need to make these transactions really efficient to them in an integrated way so they can use it to auto reconcile.

And so, I think that's one of the biggest value propositions that we deliver and control across our network of now approaching a million suppliers on the AvidPay Network is our ability to get them the reconciliation date and the format that they need..

Super helpful. Thanks, Mike..

Yes. Thanks, Josh..

Thank you. And our next question today comes from Craig Maurer with FT Partners. Please go ahead..

Yes. Hi. Thanks for taking the questions. Two questions, one, are you seeing any lengthening in the contract process that is typical when you're going into a questionable macro backdrop? And second, the yield on TPV was up nicely year on year.

Can you talk about if there's any shift in the proportionality of payments going over individual rails that might have helped that? Thanks..

Yes, great thing, Craig. Appreciate the question. So, first of all, relates to the macro on what I'd say the sales/contracting process. As we've talked about it in our strong top of funnel, we're seeing pretty really robust engagement across really all now nine of our verticals plus the horizontal segment.

We are seeing consistent behavior as we referenced last quarter that sales cycles have been extended a couple weeks over what they've been historically, and that stayed consistent this quarter as well.

So, taking a two- or three-month sales cycle and adding a couple weeks to it is what we've seen over the last couple quarters related to that contract process. As it relates to your second question around changes in mix related to TPV, it's been very consistent.

We continue to lean into, continue to increase the different forms of payment modalities whether it be a different form of virtual card at different price points related to suppliers as well as our closed network.

And one of the things that continues to surprise us a little bit is that it's really the number one driver of acceptance is relates to what their process is on the receiving side and how they can get the data electronically to process a transaction electronically and supporting their existing business process.

And so, that's been consistent that we've seen continue. So, the mix between virtual card, AvidPay direct various forms of other electronic payments whether it be ACH or other real-time combined with paper check has really stayed consistent that we saw in the past quarter as well..

Thanks, Mike..

Thank you. And our next question comes from Brian Kean with Deutsche Bank. Please go ahead..

Hi, guys. Congrats on the solid results here. Just two high level guidance questions, Joe, it sounds like 48% revenue in the first-half, 52 in the second. If I do the quick math on that, it looks like a little stronger growth than consents is expected for second quarter and then it may be a little softer growth in the back half.

Just want to think about the cadence there of first-half or second-half. And then, Mike, when you talk about a robust 2024, are you talking about the potential for an economic recovery there? Are you also talking about new launches, fundamental business catalysts that give you the confidence for robust 24? Thanks..

Yes. Brian, let me let me jump in on that. So, first, just the guidance cadence, so, we in the in the first quarter, our practice has been to every quarter update our annual guidance but not to provide next quarter guidance.

We did in the Q&A in the first quarter do so given the proximity to the end of the quarter and in light of the choppiness that we were talking about. And so, while we haven't given guidance specifically for Q2, we did characterize the front half, back half.

And I would just say using backing in, using the math that you described, what you're probably seeing is a reflection of our fundamental assumption that's unsupports our guidance forecast which ultimately is consistent unevenness and choppiness.

And so, we haven't made an assumption that it gets meaningfully better or meaningfully worse, but we're excited with a good quarter behind us on this path to profitability that we saw for the year.

And then, the last thing maybe I'll let Mike jump in, obviously at this point given the conditions that we're in now, we're not providing guidance for 2024 and we're not necessarily operating the business assuming that conditions would be much different than what we see today..

And I think my robust comments really relate to doing the things that we know contribute to strong customer growth as we continue to see in top of funnel activity.

And it's really driven by our continued vertical market expansion certainly as we go into next year seeing the hospitality vertical and some of our other sub verticals to continue to progress is exciting along with the new partnerships that support it.

And then, lastly, the new features and offerings, whether it be the ones that we talked about on this call with lien waiver management and new integrations, but we also are getting ready for our new invoice accelerator 2.0 offering to release the second-half of the year.

And so, certainly that will have an impact related to continue to add new customers both in the buyer and supplier side as we go to 24 helpful..

Helpful. Thanks so much..

Thank you. And our next question comes from Timothy Fung with J.P. Morgan. Please go ahead..

Hey, thanks. Appreciate a good update here. Just a clarification on the question, I think Craig asked it, but just with the top of funnel activity, I think like you mentioned double digit on track in this quarter, so I think it was 25% this in Q1. So, I'm just curious if we should expect a little bit of slow down if I'm interpreting that correctly.

And then, my question for Joel on gross margin considerations for the rest of the year, because that did come in quite strong in the first quarter given some of the yield dynamics and float, so, any thoughts on Q2, the second-half? Thank you..

Yes. Good questions, Tim. So, I'll take the first one. And I think my comments related to top of funnel, so certainly we've continue to see really strong top of funnel as I talked about and to north of 20% plus on average over a year ago, and what we're seeing, obviously, we're just into the second quarter.

But we're seeing activity that's very consistent with what we've seen and what we saw in Q1, but have one month of data, but we expect to have consistent top of funnel. So, I wouldn't characterize any slowdown related to top of funnel activity..

Contingent, maybe I'll take the second part of your question just on gross margins. Again, we've said that our path to profitability tracks the consistent gross margin improvement. We're pleased with the outcome in the quarter at 67%. And even removing the impact of float and political as we've done in the past over 300 bits.

So, we feel good about the results. We feel like we're on track on that path to profitability. Even amidst, a choppy environment as we've said, I would hold with - and we're not meaningfully change the guidance that we provided in the last call around the expectation that we see a couple 100 basis points overall margin expansion.

Again, that obviously factors in some uncertainty about the rest of the year, but feel like we're making good progress and on track..

Thank you for clarifying. Thank you..

Thank you. And our next question comes from James Fawcett with Morgan Stanley. Please go ahead..

Great. Thank you very much and thanks for all the color this morning. Maybe I want to talk a little bit about the accelerated path, the profitability that we've seen. Can you talk about the biggest drivers that you've been able to find from an OpEx and scaling perspective that allowed you to get there ahead of time.

And how can we be thinking about cents for incremental leverage on a go forward basis? Thanks..

Thanks, James, great question. And basically, the way I would respond is, we're seeing it where we expect it to see it. We've been intentional about this focus on continue to make investments in growth and you're seeing us do that but also to be very intentional about the efficiency in our business.

And it starts with that gross margin expansion, on its way to the 70% zip code. We've talked about that being the results of improved revenue yield and also operating efficiencies, we're seeing both of those occur. Obviously, the float revenue dynamic has helped expand that yield and so that's benefit us.

But in addition to that, we're seeing efficiencies like we said we would in G&A as we round out the post first year after being a public company having built that infrastructure along with - where we will continue to see it from an R&D perspective.

So, I'd say we're seeing it as we expected, and really ahead of schedule on a couple of those dimensions as well..

Yes.

And just so we may add a little bit cover to take what Joel said and relate it back to a product feature type perspective of what we've launched in the last year is that we've talked about in the past our intelligent data capture IDC initiatives in terms of handling the front-end process related to invoice more efficiently as well as our straight through process STP processes for virtual card.

All those are components of continue to build that gross margin as well..

That's great. Thanks..

You bet..

Thank you. And our next question today comes from Tim Chiodo with Credit Suisse. Please go ahead..

Great. Thank you. Good morning and appreciate you taking the question. I want to follow up on a topic that came up earlier in the call and I believe this came up on the Jack Henry call this morning as well around that now. So, the question is, you mentioned that there's an issue sometimes around adoption acceptance.

You mentioned reconciliation and that's a lot of the advantage that I would pay directs can provide.

Could we just see more of a mix shift of instead of using traditional ACH that you could slot in RTP Fed now into AvidPay Direct? And essentially, I guess what I'm getting at is can you reduce costs for the system overall by doing that but at the same time maintaining your own unity economics?.

Yes. So, Tim, I would say that falls in the category of a gold star question. So, this is a passion of ours is we believe that the Fed now and other RTP gives us an opportunity to not only grow our different payment modalities but also do so at unique price points around the timing and delivery of good funds to a supplier.

And so, we absolutely expect to leverage the different payment modalities that have timing to create different offerings at different price points. And we think that's an overall formula to acceptance and the reason why we have the big two, three X advantage in the marketplace today in monetization..

Excellent. Thank you, Michael..

And our next question today comes from Brent Bracelin with Piper Sandler. Please go ahead..

Good morning. I actually wanted to drill down into technology if I could here. Just as we think about how you're leaning into automation AI. You've talked about some things you're doing with Microsoft on IDC with leveraging Azure AI and OCR.

Can you talk a little bit more where you're at on those processes? How much cost savings are you seeing so far and how much more is there to come? Thanks..

Yes. So, that's a big bucket as it relates to how we're thinking about could I'd say deploying AI type technology. We already have leaned into it already with some of the products that we talked about in the past with Microsoft, developing our intelligent data capture product, lots of really new technology it's incorporated into that offering.

And certainly, the preparation of ChatGPT is a good example where we actually had a recently a dedicated offsite meeting with our executive team in which to talk about all the different use cases and strategies across every function of our business.

And so, certainly, historically, there's been key areas in operations that we've been focused on how do we drive more efficiency through or gross margin. And I think the exciting part with some of the new IA opportunities or just say AI opportunities are really - they impact every functional team, and I think that's the part that makes it exciting.

And so, we're very focused on really every team developing stay the top three use cases and doing a lot of testing and learning as yearend falls to really incorporate those into more of our efficiency strategies going forward..

Thank you. And our next question today comes from Darrin Peller with Wolfe Research. Please go ahead..

Hey guys, it's Andrew on for Darrin.

Just a quick one on the payment revenues, relative to internal expectations, would you tribute the quarters out performance to more function of higher payment penetration and engagement or more function of greater volumes? And if the former, just curious what growth is coming from, again, the higher engagement with prior existing customers versus maybe new buyers that ramped intra quarter? Thanks..

Hey, Andrew. I'll take that one. Yes. So, I'd really attribute the beat in the quarter to the volume. We pointed out the choppiness. We pointed out the assumptions that we made and it has been uneven. We had some unevenness in the front end of the corner and then a strong finish in March. And so, that's really the key driver there..

Great, thanks, Will..

And ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to the management team for any closing remarks..

Yes, thanks everybody. Again, we believe we delivered a strong Q1 and are cautiously optimistic for the remainder of the year. Also, a reminder, we look forward to seeing all of you at our upcoming Investor Day event, May 31 and June 1, where we will again provide greater insights into our business. And with that, we will close today's call..

Thank you, sir. Today's conference has now concluded, and we thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day..