Q4 2023 Avidxchange Holdings Inc Earnings Call

Participants

Michael Praeger; Chairman, CEO, & Co-Founder, & Executive Director; Avidxchange Holdings Inc

Joel Wilhite; CFO & SVP; Avidxchange Holdings Inc

Gregg Mollins; Analyst; FT Partners

David Koning; Analyst; Baird

Andrew Bauch; Analyst; Wells Fargo

Darrin Peller; Analyst; Wolfe Research

Jamie Friedman; Analyst; Susquehanna

Bryan Keane; Analyst; Deutsche Bank

James Faucette; Analyst; Morgan Stanley

Tien-Tsin Wang; Analyst; J.P. Morgan

Alex Markgraff; Analyst; KeyBanc Capital Markets

Presentation

Operator

Good morning, everyone, and thank you for joining us for the Avid exchange Holdings, Inc. Fourth quarter 2023 earnings call. (Operator Instructions) Please note this event is being recorded. Joining us on the call today is Michael 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 today. 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 a 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 two financial results prepared in accordance with GAAP.
I would now like to turn the conference over to Michael Kreger. Please go ahead.

Michael Praeger

Thank you, everyone, for joining us today. Joe will highlight and I are excited to discuss Avid exchanges Fourth Quarter 2023 results. This is now marks our 10th consecutive quarter of exceeding our revenue and adjusted EBITDA expectations. This past quarter was also a great reflection of executing the strategies we articulated during our Investor Day this past June.
In terms of balancing our growth and profitability objectives. Consistent with that, I am proud to announce that we delivered our first ever $100 million plus revenue quarter, along with a $15 million plus adjusted EBITDA profit quarter, thereby posting of 36 on our Rule of 40 construct, which combines our revenue growth rate of 21%, along with our adjusted EBITDA margin of 15% for the quarter. Overall, we saw five main themes emerge over this past year. That was certainly magnified in Q4. First, our continued strong customer engagement. Second, our payment yield and supplier monetization strategies, which will continue to be our secret sauce, showing measurable results through our margin expansion and cost efficiency strategies, delivering continued reductions in our unit costs and driving our gross margin expansion and resulting adjusted EBITDA growth for us.
Our continued focus on investment in new innovation continues to drive competitive differentiation, increased value proposition for our customers as well as create the long term pathway to support our 20% plus annual organic growth rate objective.
And lastly, our 15 being the resiliency of our middle market customers continue to show strong customer logo retention metrics exceeding 95% for our combined buyers and suppliers. I want to highlight our continued high level of customer engagement right off the bat because this success has been fueled first and foremost by our customers' success, which in turn has been enabled by our value proposition that our product technology, sales and operation teammates have engineered and executed our buyer and supplier customers have validated this lasting value proposition by viewing us as their trusted partner to drive scale workflow efficiency, along with confidence in managing billions of dollars worth of their invoices and payments over our two network. And we wouldn't be here where we are today and where we're headed in our growth and profit trajectory without them as we seek to scale Abbott exchange to be a $1 billion revenue business in the coming years. It is still vastly underpenetrated, $40 billion addressable market opportunity.
Staying with the customer theme for a moment, let me just highlight the power of our value proposition with one of our buyer customers. Speedway Motorsports founded in 1959 Charlotte base Speedway Motorsports is a leading player in motorsports marketing, promotion and sponsorship specializing in events like mass car and IndyCar races. Similar to many of our clients pre Avid exchange Speedway was weighed down by a siloed yet decentralized paper intensive accounts payable and payments process on its traverse accounting system. Combined with the newly adopted shared services business model, the level of complexity faced by Speedway was overwhelming in adapting our average invoice and Avid pay solutions to streamline and digitize and automate their invoice processing and supplier payments. Speedway was able to reduce monthly Accounts Payable work hours shortened at month end accrual process to approximately 30 minutes from a couple of days previously, while driving an estimated cost savings of over $300,000 annually. Spurred on by the success of invoice and pay solutions. Speedway broaden its lens to other app exchange products such as Avid analytics to review and analyze spending on a company-wide basis Senior Vice President of Finance, Sara Krapfel said it best, you'll be amazed at how Avid analytics streamlines tasks and allows managers to see things in real time. It provides us with the ability to give our staff the reporting mechanisms and matrix as they need on a timely basis. We are continuing to improve who we spend money with looking at our purchasing data and being able to negotiate gives us buying power, we can leverage those savings are then reinvested in other ways to enhance our attract fan experience and empowering the finance team to focus on other business initiatives, the ability to create this type of lasting value for our customers, such as Speedway is at the center of our innovation and product strategies. There's a deep product pipeline for 2024, that further builds on the value proposition. We expect to further cement our leadership position in the marketplace. But before we lay out what new product offerings and platform innovations are in store for 2024 is worth highlighting, reflecting for a moment on 2023, starting with our Avid exchange flywheel metrics during 2023, we increased the total number of buyer customers utilizing our accounts payable and payment automation software, excluding the decommission creative check product offering by 8.1% to 8,000 customers from 7,400 by our customers in the year prior, driven by delivering a great AP automation software experience under gear. One of our ad exchange flywheel Quick note on credit check. This offering was nonstrategic check printing solution utilized by our smallest customers to print paper checks on premise. That was one of the several products acquired approximately 10 years ago by our pure co-payments acquisition and not consistent with our focus on middle market buyer customers, along with our focus on eliminating paper checks. By contrast, we are still in single digit penetration across our nine current verticals within our overall estimated addressable market of 435,000 middle market companies just in the United States alone in addition to our strong buyer customer engagement, our supplier customer count was up 24% in 2023 versus 2022 and continues to be part of our secret sauce and our ability to monetize payments, which was fueled by innovative payment offerings and networking effects of buyers, bringing their suppliers to our two sided Alipay network. The resulting addition of new buyer customers and supplier customers drove increased transactions onto our two-sided network. And our overall spend under management under geared to transaction volumes on our network exceeded $75 million, rising 7.4% for year over year, with our total payment volume increasing by over 11% on a year-over-year basis to almost reaching $76 billion in 2023. This increase in total payment volume largely mirrored growth in our payment transaction count to 7.4% year over year, rise in spend under management to 230 billion tracks, largely in line with the growth in our transaction volume. And given our growing transaction volume, we remain focused on maximizing our industry leading e-payment monetization, which is our secret sauce as we refer to it by converting suppliers to one of our various forms of electronic payment on the Apple Pay network under Tier three, our flywheel in 2023 e-payment monitors a monetized supplier count on the Evoclin network grew by roughly 10% from the year prior, largely in line with our payment transaction growth rates. We believe this underscores the overall value proposition of our Alipay network for our suppliers. Some of execution and growth across our Avid exchange business, flywheel encompassing buyers, suppliers and transaction monetization resulted in nice growth in our all encompassing transaction yield metrics, which was up over 12% to $5.5 per transaction in 2023 compared to $4.51 per transaction in 2022. In addition, in the fourth quarter, we reached a record high transaction yield of $5.45, which is up 13.8% over the same period last year. We also ended the year with our net transaction retention rate at 101%, which has been impacted by the pressure of discretionary spend across the middle market as a result of the current macroeconomic environment, causing middle market companies and their CFOs to be more cautious with their discretionary spend as we bid farewell to 2023.
I want to take a moment to reflect on the financial and strategic accomplishments of the year. 2023 was a year of demonstrate both financial resilience and strategic advancement as we delivered both 20% revenue growth and adjusted EBITDA profitability, driven by the impact of our various efficiency initiatives and scale of our operations from resilience perspective, we delivered a healthy revenue growth, up 20.3% to over $380 million for the year. This in the face of ongoing macro choppiness impacting transaction volume around discretionary spend in the areas of marketing, advertising and professional services, which we are able to effectively counterbalance with continued yield expansion through our various innovation strategies with suppliers.
Meanwhile, the pace of progress on unit cost reduction, continued unabated through actions around standardization, automation and sourcing, including numerous workstreams, utilizing artificial intelligence across all areas of our business. This enabled us to deliver solid execution on our unit cost objectives, driving gross margin expansion of 540 basis points to 69.4% in 2023, and we continue to be excited about the expected long-term impact on these unit cost reduction initiatives.
We also continue to focus to optimize our resources in other functional areas as we heightened our OpEx and investment discipline, which led to a swing of over $45 million in adjusted EBITDA profitability and 2023 over 2022. I'm especially pleased to say that we exited the fourth quarter with our first ever adjusted EBITDA profit, excluding the contributions of float and political related media revenues. And finally, we finished the year with a solid balance sheet, including a net cash position of over $374 million. The combination of our strong balance sheet, combined with our scale and profitability, provides us with significant optionality to continue investing in our targeted strategic initiatives, which we believe will drive shareholder value in years to come.
On the strategic front, we believe we have positioned the business for greater success in 2024. First, we inked a key transformational accounting system, partnership with our folio, our biggest partnership ever with a top provider of solutions focused in the real estate and multifamily vertical with roughly 19,000 customers, potentially half of those that meet our target customer profile.
Also in 2023, we leveraged another accounting system partnership with our cloud-based accounting solutions market leader m.- three as a springboard into our new hospitality vertical with our M. three core select integration, which went live in November of 2023, both of these integration partnerships should begin to contribute starting in the second half of 2024.
Second, our top of funnel buyer sales opportunities increased around 15% in the 12 months of 2023 over 2022, demonstrating strong interest and engagement with buyers.
Third, we advanced our payment product portfolio with several significant innovations, including the launch of our new payment modality, such as our lead waiver payment modality for the construction vertical.
Fourth, we released our much-anticipated digital invoice financing product invoice accelerator 2.0 in October of 2023 now being branded as payment accelerator.
And finally, we continued strengthening our executive talent team with key additions on our revenue and product teams with James Sun as our Chief Revenue Officer, and Doug Anderson as our Chief Product Officer, while elevating Dan Rees and John Feldmann to the roles of President and Chief Operating Officer, respectively.
Overall, I am very pleased with the leadership team that we have built and feel that we're well positioned as we focus on executing the next chapter of our journey to attain our goal of reaching $1 billion in revenues in the coming years.
With those highlights, I want to spend the remainder of my remarks on our product and platform innovation initiatives in 2024, both of which fall under Gears three and four of our Avid exchange business flywheel. We are excited about the development of our new spend management platform. Currently, virtually all of our buyers customers. Invoice base expenses are processed through our platform as we are the system of record for our customers in voice transactions with the remainder of the non invoice based expense transactions being processed outside of our system, either through manual processes or through other third-party software applications. Our new spend management offering will tackle those remaining non invoice expense transactions.
However, our approach to spend management is highly differentiated and purpose-built for the middle market, whereas traditional spend management programs are focused mainly on travel entertainment expenses. Ours will be focused on managing functional team level procurement first, along with managing travel and entertainment expenses for our customers. It will also be managed at the point of purchase with real-time syncing coded and approval status and most importantly, our spend management module will be highly integrated with our core accounts payable invoice suite, leveraging our geocoding and approval workflow capabilities, along with having centralized expense and data reporting for all of our customers' expenses in one platform, both in voice and non-voice transactions, which is extremely important in terms of driving adoption, cross-selling interoperability and user experience.
We expect that our spend management offering should result in high attachment rates and non-linear growth contributed while driving higher TPV yield in future years. There are lots of different use cases for the product. One for instance, could be a property manager employing the card to purchase a faucet and the transaction immediately synchronizes with our AP. solution. This we believe will provide finance leaders a holistic view of virtually all expenses that occurs across the Company, displacing either personal cards without proper controls or petty cash with our offering. This ensures that their spend will be in compliance with each customer's business rules, including budgets and expense categories as we monetize transactions from both virtual and physical card volume.
The platform is planned for initial rollout with select customers in the latter half of 2024 and then scaling in 2025. 2024 is also the year when we plan to ramp key functionality of our new payments platform, which is the foundation of our Avid pay network. This is an effort that has been part of our product road map for the last several years. We believe the new capabilities of our payments platform are transformational in the way our customers experience, managing their payments and the way we operate a critical dependency in our ability to advance e-payment adoption is to create new payment modalities through real-time configuration, combining pricing terms, speed of settlement, access to remittance data and payment acceptance automation as opposed to software development dependencies.
Our new payments platform is designed to unify disparate systems and operational processes within a single platform to deliver the best supplier and buyer customer experiences with our new platform will be able to be well positioned to guarantee delivery of critical payments on time despite potential delays of invoice approval by our buyer customers. Second, we believe that we can expand our payment footprint to non invoice based transactions such as loan leases and various other tax payments. Third, we will create new payment products real-time based on speed means data, pricing, automation, et cetera, and therefore, drive greater e-payment adoption for our buyers and suppliers. And finally, with our new payment platform, we believe will not only be able to enhance revenues through greater yields, share of payments, wallet but also improve the cost structure in both hard and soft operational costs, including the reduction of paper check payments.
In closing, we believe we are well positioned for 2024 with our 2023 building blocks in place. The five themes, which drove our success in 2023, will continue to bear fruit for us in 2024 and beyond coupling our industry leadership with highly differentiated foundation for our strategic and operating road maps in 2024, in particular, assessment continue to achieve and reducing unit costs and leveraging operational expenses. We believe we are setting up for delivering on our Investor Day targets to be sure will be tested along the way, given the macro volatility and remain focused on controlling those elements of our business that we can directly control ourselves. But with the strategy and execution rigor we have set in motion and are delivering on. We believe we're well positioned to drive impactful value for our customers, create future growth opportunities for our team members and unlock significant long-term value for our shareholders.
With that, I'd now like to turn the call over to my partner, Joe Lytle.

Joel Wilhite

Thanks, Mike, and good morning, everyone. I'm pleased to talk to you today about our fourth quarter 2023 financial results, which reflect continued execution of our growth strategies amid continued macro uncertainty. Overall, we delivered another quarter of healthy year-over-year financial performance relative to the implied fourth quarter 2023 business outlook and adjusting for flow and political quarter revenues came in higher due to payment and software yield expansion, driven by ongoing e-pay conversion that together with higher gross margins driven by higher revenues, progress on unit cost initiatives, software and pay yield expansion as well as sustained expense discipline led to significant adjusted EBITDA outperformance. It's worth noting that we delivered our first ever adjusted EBITDA profit, a major milestone even after stripping out flow and political. We believe that by crossing this profit chasm on a core basis underscores not just the power of our business model and disciplined execution, but also our confidence in achieving our Rule of 40 target by 2025.
So now turning to year over year results. Total revenue increased by 20.8% to $104.1 million in Q4 of 2023. Over the fourth quarter of 2022, more than three-quarters of the revenue growth was driven by the combination of the addition of new buyer invoice and payment transactions, coupled with software and pay yield expansion. The remaining revenue growth this quarter was driven by higher year-over-year float revenue net of year-over-year decline in political revenues. Our strong revenue growth also resulted in total transaction yield expanding to $5.45 in the quarter, up 13.8% from $4.79 in Q4 of 2022 of the 13.8% increase. Roughly three-quarters of the increase was driven by pay and software yield, coupled with transaction mix skewed toward payments. The remainder was due to the flux between float and political revenues. Software revenue of $29 million, which accounted for 27.9% of our total revenue in the quarter increased 10.1% in Q4 of 2023 over Q4 of 2022. The increase in software revenues of 10.1% was driven by growth in total transactions of 6.1%, which continued to be impacted by macro conditions with the balance driven by growth in certain subscription-based revenues. Payment revenue of $74.2 million, which accounted for 71.3% of our total revenue in the quarter increased 25.5% in Q4 of 2023 over Q4 of 2022. Payment revenue reflects the contribution of interest revenues, which were $13.7 million in Q4 of 2023 versus $5.8 million in Q4 of 2022. Recall, our year-ago payment revenues also included contribution from political media revenue of the 25.5% increase in payment revenues more than three quarters was driven by a combination of an increase in pay yield expansion and payment transaction volume increase of 9% with the remaining portion driven by the aforementioned flux between interest and political revenues. On a GAAP basis, gross profit of $67.3 million increased by 34.8% in Q4 of 2023 over the same period last year, resulting in a 64.6% gross margin for the quarter compared to 57.9% in Q4 2022. Non-gaap gross margin increased 650 basis points to 71.4% in Q4 of 2023 over the same period last year and was driven mostly by unit cost efficiencies and yield expansion.
Now moving on to our operating expenses. On a GAAP basis, total operating expenses were $79.5 million, an increase of 1% in Q4 2023 over Q4 of last year. On a non-GAAP basis, operating expenses, excluding depreciation and amortization, increased 2.6% to $58.8 million in the fourth quarter of 2023 from the comparable prior year period. On a percentage of revenue basis, operating expenses, excluding depreciation and amortization, declined to 56.5% in the fourth quarter of 2023 from 66.5% in the comparable period last year. The year-over-year percent decline largely highlights the significant operating expense leverage, particularly across G&A, sales and marketing as well as R&D to an extent even after stripping out the contribution of float.
I'll now talk about each component of the change in operating expenses on a non-cash non GAAP basis, non-GAAP sales and marketing costs decreased by $1.1 million or 5.7% to $70.5 million in Q4 of 2023 over Q4 of last year, which was driven by a combination of efficiencies in marketing spend, a decrease in performance based compensation and realignment of resources, coupled with the delay in timing of certain investments.
Non-gaap research and development costs increased by $2.6 million or 13.1% to $22.1 million in Q4 of 2023 over Q4 of last year. The increase was due to continued reinvestment in our products and platform, including Spend Management, pay offering and payment accelerators.
Non-gaap general administrative costs remained unchanged at $19.2 million in Q4 of 2024 versus Q4 of last year due to leveraging public company costs across a larger revenue base. They continue their annualized downward progression as a percentage of revenue. As we indicated during our Investor Day, our GAAP net loss was $4.5 million for the fourth quarter of 2023 versus a GAAP net loss of $25 million in the fourth quarter of 2022, with the reduction in losses driven by a combination of strong revenue flow-through and expense control, leading to lower operating expenses, coupled with higher interest income and lower interest expense due to reduced borrowing costs and partial debt paydown.
On a non-GAAP basis, our net income in the fourth quarter of 2023 was $9.4 million versus a net loss of $7.5 million in the same year ago period. A $16.9 million positive swing from last year, driven by the aforementioned factors. Similarly, on a non-GAAP basis, Q4 2023 adjusted EBITDA was a $16.9 million positive swing from an approximately $1.3 million loss in Q4 of 2022.
Turning to the balance sheet for a moment, I want to touch on a few key items. We ended the year with a strong corporate cash position of $451.6 million of cash and marketable securities against an outstanding total debt balance of $77.3 million, including a note payable for $13.9 million. We had $30 million on our credit facility undrawn at year end. Corporate cash meanwhile was split roughly two thirds among money market funds commercial paper and time deposits. With the remaining third in deposit accounts, the weighted average maturity on corporate cash was roughly 10 days, while the effective interest rate on our corporate cash position for the fourth quarter was roughly 5.25%. Customer cash at quarter end was approximately $1.6 billion with an interest rate of roughly 5% for the quarter. The jump in customer cash was primarily timing related to funds in transit, along with shifts in calendar days between weekdays and weekends, seat and disbursement of that cash.
Turning to our 2024 business outlook. We expect total revenue for the year to be in the range of $441 million to $447 million. Based on a midpoint, we expect approximately 47% of the 2024 revenue distribution to be in the first half versus 53% in the second, our 2024 revenue outlook reflects the revenue impact of decommissioning our on-premise check printing software, creative check the buyer customer base and revenue contribution of which was roughly $1,401 million in 2023, respectively. The outlook also incorporates approximately $44 million of interest revenues from customer funds versus roughly $41 million earned in 2023. Also we anticipate political media revenue contribution of approximately $9 million. Given that this is our first presidential cycle under FAST. Recall, we acquired fast pay in 2021 for context in 2022. During the midterm election cycle, the political arm of Fastec generated roughly $8.5 million in revenues. Similarly, we expect non-GAAP adjusted EBITDA profit ranging between $67 million and $71 million for the year.
With that, I would now like to turn the call back over to the operator to open up the line for Q&A.
Operator?

Question and Answer Session

Operator

Ramsey El-Assal, Barclays.

This is Trey on for Ramsey Thanks for taking my question. I was just wondering if you could comment a bit more on the magnitude of macro pressure that's factored into the guide. Is it contemplating any further deterioration? Or is it more of a steady state?

Joel Wilhite

Yes, great question. And just to be real clear, the sort of the macro dynamic that's causing buyers to sort of limit their spend that subset of discretionary spending has really continued consistently through the year even to now. And our guide contemplates no change. We're hopeful that that turns around and we expect those types of spending can't be put off forever, but our guide contemplates continued macro conditions that we experienced in 23.

Got it. Very helpful. Thanks.

Operator

Gregg Mollins, FT partners.

Gregg Mollins

Yes, hi. Thanks for taking the question. I wanted to ask, you know, if you can characterize your assumption on political spend on you said $9 million in political revenue and 24. In the past, you've said you've outlined that you see 30% to 35% of all political advertising spend and forecasting a $10 billion spend cycle. So I'm trying to understand the level of conservatism built into that number. Thanks.

Joel Wilhite

Yes, great question. We were we are baking $9 million into the guide. We've pointed out that this is our first presidential cycle with fast pay. And so I guess it's possible that there's some upside to that in the back half. It's some it's a little less predictable than our core fundamental recurring business. And so we felt like $9 million was a prudent, a prudent guide.

Michael Praeger

Yes. Hey, Craig. I think it's Mike and I think it's a great question because, as Joel said, is our first presidential cycle ourselves are managing through it. And I think the we've usually take kind of a cautious approach to new things. And this is a good example that you're right. We do control about 35% of all the media related payments in the industry. But one of the things that's inherited industry, though we have the leading market position is there's not a lot of visibility and lead time to when particular advertisers may receive our orders for advertising placement, a lot of the very last minute come in with short lead time. So there's not a lot of visibility we have to it. So that leads us to that dynamic combined with that's our first rodeo through the political cycle, just take more of a cautious approach to it.
Can you perhaps talk about the take rate in political versus the rest of the business.

Joel Wilhite

I think what we've said in the past is it is up slightly, but I wouldn't say meaningfully meaningfully higher. It is a little it is a little higher given a higher mix of digital payment acceptance and one of the just a flavor there. The reason why we have our leading position in political is that we've been on the forefront of that conversion of creating specialized payment types for media related payments in moving from paper to electronic because of the short lead times. So certainly of our innovation focus on on different payment modalities for media has been kind of a key component of our market position there.
Thanks.

Gregg Mollins

I appreciate the color.

Operator

Dave Koning, Baird.

David Koning

Yeah. Hey, guys. Thanks so much. Congrats. And maybe for my main question, your dollars of core payments growth was about the strongest we've ever seen and you mentioned it was driven a lot by yield more e-pay, our shift to e-pay, but with in e-pay, are there certain types that suppliers are asking for more like is VCC just as a percentage like drawing more and more? And if that's the case, maybe what's kind of driving all that?

Michael Praeger

Yes. No, thanks. Great question, Dave, and really strong kind of yield a yield quarter and even more excited about the things we have to come from a yield perspective. But to answer your question, like we're continuing to sort of march down the path of taking checks out of the system moving towards digital. We're also the discipline around operating is creating opportunities through just reducing exceptions, better offshore management of processes, those things we talk about that drive unit cost down also give us a yield opportunities as well.

David Koning

Got it. Thanks. And maybe just a quick follow-up. Interest revenue was up a lot sequentially, 25%, 30% with rates being, I think pretty stable. Was there something to the amount of dollars you're holding in? Is that sustainable?

Joel Wilhite

No, it's a great question. So you'll notice we finished the year with about $1 billion, six of customer funds on the balance sheet. So a nice uptick there. And it was really that that drove the rate in the quarter. So it's about $13.7 million float revenue in the fourth quarter. There's the drivers are really the timing of the funds moving between buyers and suppliers, including things like how much is in transit at a particular whether it's a week day cut off for a weekend cut off. So that's really sort of a an expansion in customer funds as we finish the years, what drove flow and I would suggest and what is historically kind of consistent is that customer funds would level off over the course of the for the fourth of the first quarter and 24.

David Koning

Got it. Thanks, guys. Congrats.

Operator

Andrew Bauch, Wells Fargo.

Andrew Bauch

Hey, guys. Thanks for taking the question. Just looking at the incremental margins ex float, I mean, really impressive. It looks like based on the guide 60% plus and relative to our estimate of, I think 29 mix flow in 2023. So just trying to understand the sustainability of that. And I know you guys have been making efficiency investments in your cost of goods sold line, but trying to weigh that versus what you've seen on the eBay front? Just trying to figure out the magnitude of upside there.

Joel Wilhite

Yes. I mean, let me just kind of remind you I would just take us back to the targets that we set out at Investor Day. We said we would be in the 72% to 75% gross margin range in 2025. And we've had great kind of continued margin expansion by doing the things that we've been talking about consistently since the IPO. And so we said that the way we would get there is a mix of yield and unit cost efficiency yield, call it two-thirds and unit cost, call it a third though not necessarily linear on and we're just kind of continuing to execute that plan. And so if you strip out float in the fourth quarter, that that's a 67% gross margin. And so, you know, six six good solid points up year over year, but there's a ways to go and we've got the levers and the opportunity to do that, both on yield and unit costs.

Michael Praeger

Yes, Andrew, I'd say I can simply look at it. That's really the blended combination of two things that efficiency, as Joe says, driving yield, and that certainly on AI. has been a nice component of that expansion as well as we continue to see that, you know, scaling as we go forward. I think you know, as we've talked about, we have roughly about a dozen different initiatives across the business related AI, both customer facing and kind of focus internally. And then the second piece is on the yields, and that's where all our strategies and innovation related to monetization strategies, new payment modalities on our straight-through process, you know, compute capabilities with suppliers, all those type of things are taking hold. And so I think the combination of those two and up. So we believe worse than in the early days of continuing to drive that overall margin expansion and expected that to continue over time. Yes, the $0.05.

Andrew Bauch

If I can just squeeze one more in the 2020. In the press release, you say the 2024 outlook reflects accelerating revenue growth. You did 20% and 23 in the initial guidance for 17. Can you just clarify what that accelerating revenue growth language means?

Joel Wilhite

Yes, you bet. We're addressing ex float and political.

Andrew Bauch

Great. Thank you.

Operator

Darrin Peller, Wolfe Research.

Darrin Peller

Hey, guys. Maybe we just start off, I just want to ask about the supplier growth. I think it was 24% in 23, which I thought was a great call out. And just if you could remind us how that compares to the change in prior years, the general timing for suppliers to be more monetizing. We do have different methods, whether it's invoice, accelerate or other PIN networks, et cetera.
And then I guess the follow-up to that, I know your goal is potentially going up to 70% monetization of your transactions over time. And I'm assuming that obviously is highly correlated with the supplier network growth in the the implementations of different work there. So maybe help us with the split, if you can, on the kinds of tools on the between Advent Direct or virtual card or other kinds of payment modalities would be great. And thanks again, guys, nice quarter.

Joel Wilhite

Yes, hey, thanks, Darin. Well, that was kind of a multifaceted question. So let me kind of chip away at it. So first of all, the supplier growth question, yes, we're super excited. We broke the $1 million threshold and ended the year at $1 million to suppliers on the network and that is that 24% growth is consistent to what we've seen in past years and so on. So we feel like that we're at and continue to be a nice rhythm in terms of growing the network on the supplier side, on the I'm in, we see kind of a consistent mix of roll suppliers in terms of payment modalities. And so the two big buckets or categories that we have are those that accept a form of virtual card. And I'll come back to that in a second in the second was a form of our Avid pay Direct, which is our ACH Plus offering them back 10 years ago, we had one payment would Tality in each of those buckets today in virtual card, we have about a dozen different payment modalities where we have a of these, partly because of our deep partnership with Mastercard, our ability to manage multiple forms of interchange and the combination what we do is we use the combination of price, which is interchange structure combined with speed of payment combined with the data remittance and reconciliation data.
And then lastly, combined with a level of straight-through process. And so those are like four variables that we have with a payment modality and different levels within those four create different payment modalities across virtual card that will allow suppliers that and maybe don't have acceptance of card from across the industry to be able to, you know, accept the card and say in a straight-through process with high levels of reconciliation data provided directly to them. So that's a non human touch Accounts Receivable function on their side. And those are all examples that we're using to continue to add suppliers to the network.
On the on the flip side, on the Alipay direct, we're doing really the same thing except settling through ACH. But again, combining speed of payment different price points on different levels of remittance data along with different levels of straight-through process on. And so yes, I think you ended with a kind of reference to long term. We expect that we think we can take monetize payments about 70% of transactions. And um, and we still believe that end. But again, it's not going to be on one particular payment modality that kind of saves the day, you know, lots of different pay modalities, combining different levels of those four factors that we continue to believe is the secret cost. I'm a second. Mike, thanks for the color, guys. I'll turn it back to Jeff.

Darrin Peller

Thanks again.

Joel Wilhite

Thanks, Darrin.

Operator

Jamie Friedman, Susquehanna.

Jamie Friedman

Hi, good morning. I wanted to ask Michael about the U.S., the spend and expense management product launch. You had alluded to that I believe last quarter and it seemed like you were pretty optimistic about the opportunity there. So any context on that or timing or SIGNIFICANT would be helpful. Thank you.

Michael Praeger

Yes, thanks, Jamie. I'm glad you asked the question. Certainly in the past, I was always excited to talk about our invoice accelerator now payment accelerator offering and now that that's in the market, um, I'm spending a lot of energy on our on our spend management, you know, upcoming up-and-coming platform. And so yes, we expect it to be released to initial customers later in this year, but really have start having an impact in 25 and beyond. However, none that's the reason for my excitement around it is when you think of all the transactions that we manage today, we do a really good job of managing close to 100% of all the expense transactions that have an invoice for our customers because we're the system of record for all their invoice related expenses and directly are the and the fee to their general ledger get things paid on. However, we think that we're managing overall in terms of the customers expenses, probably in the 85% range of customers expenses relate to an invoice and then you have 15% that kind of falls outside that which occur in to say, travel and entertainment expense or other kind of functional team level of expenses that they need to make in terms of the immediate payments and so on, the mission of our spend management platform is to capture as much of that remaining 15% of the spend that a customer has. They haven't been our platform. But the real thing that makes it unique data exchanges, which I know our customers are really excited about is now having all their financial expense data in one platform for reporting on. So one of the the thorn in the side of lots of the CFOs of our customers, Mike, we have 85% of our expense data. That's great for reporting. But then we have to like piece together the remaining 15%. It's either a manual process or third party or other third party applications that are not as well integrated to our general ledger. And it'd be great just to have one place that we can do go and have our expense reporting to Reno, better run our business. And so that's the mission that we're on. And we think the spend management product is a hell of a deal your long term going to give us that capability and provide just you really a, you know, great increase in the value proposition to our buyer customers.

Jamie Friedman

Great. Thanks for the context, Mike, I'll jump back.

Operator

Bryan Keane, Deutsche Bank.

Bryan Keane

Hi, guys. Congrats on these results. I wanted to go back to the revenue acceleration that you're expecting this year? I know that's ex float and ex political. Can you just talk about a couple of the drivers there? And then what might make this guidance conservative or any risk to the top line number.
And then just lastly on EBITDA, I'm coming well ahead of our expectations and consensus for this year. Any any thoughts on 25%, the 20% plus EBITDA margin, does that also mean that you're maybe running ahead of kind of original targets for 25 on EBITDA?

Joel Wilhite

Thanks, Brian. Yes, let me just kind of take those in order. So a couple of things we're excited about in the guide, particularly in the back half or yield driven acceleration associated with we've talked already about kind of beginning to see that curve and payment accelerator also in terms of the kind of opportunities to offer increasingly more payment methods. And so to accelerate the digital acceptance there. We also remember have in three and at folio that are sort of still ramping and so could could contribute from a volume perspective. So feel good about kind of how things are setting up in the back half of your second question is like if we were surprised to the upside, what would that look like?
I think you know we already touched on the approach we took in guidance for the political cycle. I think the next thing I would point to is is those new pay methods like we're really excited about having invested in those, and those could potentially move the needle for us, not to mention a payment accelerator. All that said, keep in mind the macro backdrop, right? We are continuing to guide and project, assuming no change. And we're hopeful that there's change. But of course, that's not contemplated in the guide.
And then the final question on EBITDA again, really kind of proud of how we finished the year and setting ourselves up to sort of turned the profitability corner and be meaningfully profitable in 24.
Your question about 25. What I would say is that even in a even with the macro backdrop, macro backdrop that exists today, we feel like we've got sort of all the levers available to us as gross margin continues to expand. Again, we see additional yield and unit cost opportunities to do so plus the leverage that you're seeing in operating expenses. So we feel good about that Rule of 40 target for 25.

Bryan Keane

Thank you, guys. Thank you.

Operator

James Faucette, Morgan Stanley.

James Faucette

Great. Thank you very much and I just wanted to ask generally and most of my questions have been answered in terms of where you're at right now, but wanted to ask in terms of M&A, you guys have historically done a good job finding opportunities to add additional either end customers and markets or capabilities to the platform. And so just wondering how you're thinking about that, especially as your profitability improves on, how should we think about capital allocation M&A within that? And are you seeing good opportunities in pipeline?
Maybe first on capital allocation and Mike can mentioned context of what we're seeing in the M&A pipe. I think we are again sort of turning profitable, looking at sort of meaningful free cash flow in our future. I would say from a capital allocation perspective, M&A is really interesting to us and in terms of our balance sheet, kind of looking at all the options that we have available to us, yes, maybe a little bit of pipeline.

Michael Praeger

We think it's long term. It continues to be a part of our overall kind of growth expansion playbook. We think in addition to kind of our 20% kind of growth mantra that we expect the delivery of consistently on a long-term basis that there's an inorganic growth lever that we can add to that, you know, should we find the right opportunities. And so I think we're very focused on and we're talking to lots of participants. Typically, they're smaller companies that are, you know, in the different you know, nine verticals that we're in. We also have some targets in terms of new verticals that we'd look for acquisitions in and um, and we're having lots of conversations of we, I think, are still have not seen the kind of private market valuations reflect those of that are at the public company level yet. And so I think we'll continue to be cautious. And however, when the right opportunities present themselves, certainly with our balance sheet and our capabilities are in a great position to execute these. I think the core playbook, however, is around vertical market expansion. We feel really good about our product capabilities. And so that's that would be kind of a key focus for us and be more continue to grow beachhead of customers within the nine verticals that we're in, as well as use it as an opportunity to expand those verticals even further.

James Faucette

Great. Thank you.

Operator

Tien-Tsin Wang, J.P. Morgan.

Tien-Tsin Wang

Hello, good morning. Really good results here. Just on the on the outlook, I wanted to ask if new product contribution is a meaningful or measurable contributor to fiscal 24 here relative to your past initial guidance, so just new product contribution?

Joel Wilhite

Yes, Tengion, great question. I think probably what I would just add and is on the supplier side, we talked about the payment are opening up new payment modalities on, but otherwise kind of all the products in the bag.

Michael Praeger

Yes, I think we I mean we'd like to have the new products that we have a payment accelerator that's been management, as I alluded to earlier on. Those really are, you know, it really factors in terms of executing this year. They really set us up nicely for 25, 26 and beyond.
Got it. And so really more build up the momentum and then we'll feel more of that in fiscal 25.

Tien-Tsin Wang

Okay. Got it. Just on the just thinking about them, and we got a lot of questions on past pain and visibility. And I'm just curious when will you get closer visibility on that? Is it really going to be in just in that third quarter in terms of how our real are conservative that that outlook that you're setting up will be. I'm just curious how quickly you might see that what the lead time would be based on the past.

Michael Praeger

Yes. And remember of the base in the past is the key word is designed first political cycle. So it's not in or I mean presidential cycle, I should say in the kind of interim cycles that we do have some experience with we saw, you know, a smaller level or lower level of activity occur earlier in the year. And then obviously it builds up in Q three is the is the monster quarter for it. And so I think we're taking a cautious approach and expecting a kind of a similar build to the year as we've seen in the non presidential cycles, they end up, but we're probably as of as anxious to you have to see how everything falls out as you are. We just going to take a cautious approach to it. But we think we've set ourselves up really nicely in terms of market positioning. We've added some really nice political customers since the last cycle. And I really like our industry positioning and being the leader in political payments.

Tien-Tsin Wang

Well, thank you. Thank you, sir.

Operator

Alex Markgraff, KeyBanc Capital Markets.

Alex Markgraff

Hey, guys. Thanks for taking my question. Just one for me quickly on some of these partnerships that Foleo M. three, you mentioned the sort of contribution the second half of 24 are starting to show up. I'm just curious, is that sort of the time to benefit we should start to think of as used as you sign more of these or are there some early learnings from the first couple that might kind of accelerate that time to revenue as you add more partners here?

Michael Praeger

And so first of all, we're super excited about, you know, our overall sales motion, um, you know, I'd say the partnerships is certainly exciting. I'll talk about second, but remember also that arm over the last year, it's been a phenomenal year in terms of building a talent in our go-to-market strategies via the addition of James Sartain as our Chief Revenue Officer earlier last year. And then the addition of Doug Anderson later in the year on as our Chief Product Officer. That combination is really powerful in terms of how we kind of really accelerate that organic growth on kind of formula and then executing on the partnerships is a key piece of that on. So I think unlike some of the new product stuff, we typically have a cautious approach to any new partnership until yet. Really, we begin to see the scaling of it. However, although folio has the characteristics of being our largest partnership ever in terms of the number of customers that they have 90,000 customers, of which roughly 50% we think are right in our sweet spot of core customer profile. And we have lots of learnings from all the other partnerships that we've executed that we are that we're certainly applying to both M. three and the Foleo partnership. So we feel really good about our playbook related executing these partnerships combined with the talent level that we've assembled to at the position. So as Joe indicated, it will certainly, you know, more noticeably bigger impact in the second half of the year. But again, we feel really good about the setup for 25, 26 and the impact of these partnerships long term.

Operator

This concludes our question and answer session. I would now like to turn the conference back over to Michael Praeger for any closing remarks.

Michael Praeger

Thanks again, everybody, for your interest in Abbott exchange as the only publicly traded kind of company with really critical mass in the automation of accounts payable and payment automation for the middle market, we believe we're in a really solid position to capitalize on the secular trend around digital transformation of the back office. And given our disciplined execution in the face of continued kind of macro challenges, along with our financial strength, we believe there's a significant runway for revenue growth, profitability and value creation for investors. With that, we look forward to sharing our progress with you in our next earnings call. Thanks again, everybody.

Operator

The conference has now concluded Thank you for attending today's presentation. You may now disconnect.