Executive Summary / Key Takeaways

• AvidXchange is a leading provider of AP automation and payment solutions for the middle market, leveraging a differentiated two-sided network and deep ERP integrations.
• Despite a challenging macroeconomic backdrop impacting transaction volumes, the company has demonstrated exceptional operational discipline, driving significant non-GAAP gross and adjusted EBITDA margin expansion, reaching key targets ahead of schedule.
• Strategic investments in technological innovation, particularly AI-powered automation and new product development like Payment Accelerator 2.0 and the AvidPay 2.0 platform, are enhancing efficiency, expanding the value proposition, and positioning the company for future growth acceleration.
• Key partnerships with major ERP providers (AppFolio (APPF), M3, Buildium) are expected to fuel new buyer acquisition and transaction volume, building momentum for 2026 and beyond.
• The proposed acquisition by TPG (TPG) and Corpay (CPAY) introduces both potential upside ($10.00 cash per share) and significant risks, including potential termination fees and business disruption if the transaction is not consummated.

The Middle Market's Untapped Potential and AvidXchange's Purpose-Built Approach

AvidXchange Holdings, Inc. stands as a prominent player in the accounts payable (AP) automation and business-to-business (B2B) payments landscape, specifically targeting the complex yet underserved middle market. Founded in 2000, the company's journey began with a focus on automating AP processes. A pivotal moment arrived in 2012 with the launch of the AvidPay Network, a strategic move to address customer demand for more efficient payment methods. This network, alongside subsequent organic growth and targeted acquisitions like FastPay in 2021, has shaped AvidXchange into a provider of comprehensive, cloud-based solutions spanning invoice processing, payment execution, and cash flow management.

The middle market, characterized by businesses too complex for simple small business tools but lacking the scale and resources of large enterprises, presents a unique challenge and opportunity. Many middle-market firms still rely on manual, paper-intensive AP processes, leading to inefficiencies, high costs, and limited visibility. AvidXchange's core strategy is built around a purpose-built value proposition tailored to the specific needs and workflows of this segment, often aligning with vertical industries like real estate, financial services, construction, and healthcare. The company employs a hybrid go-to-market strategy, combining a direct sales force with a robust network of indirect channels, including reseller partners and strategic alliances with ERP providers and financial institutions. This approach aims to leverage existing relationships and domain expertise to reach a broad base of potential buyers and suppliers.

At the heart of AvidXchange's competitive positioning is its differentiated two-sided buyer and supplier network. This network effect is crucial; as more buyers adopt the platform, it becomes more attractive to suppliers seeking electronic payment options, and vice versa. This dynamic fosters a virtuous cycle, driving transaction volume and creating a sticky ecosystem that is challenging for competitors to replicate.

Technological Edge and the Pursuit of Operational Excellence

AvidXchange's ability to serve the middle market effectively is underpinned by its technological foundation and a relentless focus on innovation, increasingly powered by Artificial Intelligence (AI). The company's platform automates the entire procure-to-pay cycle, from intelligent invoice capture to workflow routing, approval, and payment execution.

AI is becoming a critical differentiator, integrated across various aspects of the business. In the front end, AI enhances invoice ingestion, improving the accuracy and efficiency of capturing data from diverse invoice formats. In the back end, AI is being deployed to automate payment execution across various modalities. For instance, a new AI-powered IVR payment automation solution is designed to handle virtual card payments through online portals. This technology is self-learning and self-correcting, capable of adapting to changes in IVR systems, a significant improvement over prior bot technology. In Q1 2024, this solution demonstrated a remarkable 2x the productivity of previous bots and over 10x the productivity of humans for this specific function. This capability is particularly impactful for automating payments to low-volume suppliers, where manual or less sophisticated automation methods were previously cost-prohibitive, thereby increasing overall electronic payment penetration rates. Management expects this solution to scale non-linearly with transaction volume growth.

Beyond operational efficiency, AI is also accelerating product development. AvidXchange leveraged generative AI in building its integration with Buildium, compressing development cycle times by 30% to approximately two months. This not only speeds time to market for new partnerships but also aims to deliver a superior end-user experience by leveraging AI to simulate pain points and test use cases.

The company's innovation pipeline extends to significant new product offerings designed to expand the value proposition and unlock new revenue streams. Payment Accelerator 2.0, the next generation of their supplier financing product, allows suppliers frictionless access to accelerated invoice payments. Launched in late 2023 and planned for significant scaling in 2025, this product leverages the network's data for underwriting, aiming to reduce supplier onboarding time from days to minutes. Management views Payment Accelerator as potentially their "next $100 million business," expecting its volume to double over the course of 2025 and potentially achieve revenue parity with the prior version this year.

The new AvidPay 2.0 platform, currently ramping key functionalities, is designed to be the foundation for future payment innovation. It will enable real-time configuration of payment modalities based on pricing, speed, remittance data, and automation levels, aiming to increase penetration of buyer payment files and capture greater transaction economics while improving cost structure. Additionally, the Spend Management platform, slated for rollout in the second half of 2025 and ramping in 2026, targets capturing non-invoice related spend (estimated at up to 50% of a company's total spend), providing customers with enhanced visibility and control over all their expenses.

These technological advancements and product initiatives are not merely features; they are strategic levers designed to deepen AvidXchange's competitive moat, enhance its value proposition for both buyers and suppliers, drive operational efficiency, and fuel future growth.

Financial Performance: Margin Expansion Counters Macro Headwinds

AvidXchange's recent financial performance reflects the impact of its operational discipline and strategic focus, even as it navigates a challenging macroeconomic environment. The company has consistently delivered financial results at or above its expectations, demonstrating resilience.

In the first quarter of 2025, total revenue reached $107.9 million, a modest 2.2% increase year-over-year. This growth was primarily driven by a 4.2% increase in software revenue (to $30.9 million), fueled by increased transaction volume and subscription fees, and a 1.0% increase in payment revenue (to $75.9 million). The growth in payment revenue from increased electronic payments and yield was significantly offset by a decrease in interest income earned on funds held for customers, reflecting lower interest rates compared to the prior year period. Services revenue, a smaller component, saw strong growth of 50.3% to $1.1 million.

Despite the modest top-line growth in Q1 2025, the company's focus on operational efficiency has yielded substantial margin expansion. Non-GAAP gross margins have shown a consistent upward trajectory, reaching 72.4% in Q1 2024, 72.6% in Q2 2024, 74.5% in Q3 2024, and approximately 74.9% in Q4 2024. This achievement of reaching the top end of their 72% to 75% target range ahead of their 2025 objective underscores the effectiveness of their unit cost reduction initiatives through automation, AI, sourcing, and standardization. Cost of revenues, excluding depreciation and amortization, increased in Q1 2025 primarily due to higher transaction processing fees and employee costs, partially offset by efficiency gains.

Operating expenses have also demonstrated discipline and leverage. While total operating expenses increased in Q1 2025, driven by investments in sales and marketing (headcount, stock-based compensation, marketing spend) and general and administrative costs (headcount, stock-based compensation, transaction costs related to the proposed merger), the increase was managed. Adjusted EBITDA margins have expanded significantly, rising from 16%+ in Q1 2024 to approximately 23% in Q4 2024, hitting an Investor Day milestone. The company achieved GAAP net income in Q2, Q3, and Q4 of 2024, a notable milestone since its IPO.

Transaction metrics provide further insight into the operational dynamics. Transactions Processed grew 1.9% year-over-year in Q1 2025 to 19.68 million. Transaction Yield (total revenue per transaction) was $5.48 in Q1 2025, a slight increase from $5.47 in Q1 2024, but notably higher than prior year periods ($4.76 in Q1 2023, $4.84 in Q2 2023, $5.15 in Q3 2023), reflecting the impact of yield expansion strategies offsetting volume pressures. The macroeconomic environment continues to temper overall transaction volume growth and transaction retention (same-store volume growth), which remains below the historical 100%+ levels.

As of March 31, 2025, AvidXchange maintained a solid liquidity position with $307.3 million in unrestricted cash and cash equivalents and $82.0 million in marketable securities. The company also has access to a $150 million revolving credit facility, which was undrawn. Payment service obligations, representing funds held for customers prior to disbursement to suppliers, stood at $1.15 billion, offset by restricted funds held for customers. The company earns interest on these restricted funds, which contributes to payment revenue.

Competitive Landscape and Strategic Positioning

AvidXchange operates in a competitive B2B payments and AP automation market. While direct comparisons with all competitors can be complex, particularly with private entities, key publicly traded players like Bill.com (BILL), Coupa Software (COUP), and SAP (SAP) (via Ariba) offer points of reference, though their primary focus or market segments may differ.

Bill.com is a significant competitor, particularly in the SMB and lower middle market, known for its user-friendly platform and network effects. Coupa Software, while historically focused on the enterprise, has expanded its reach into the upper middle market with its comprehensive procure-to-pay suite. SAP's Ariba is a dominant force in the enterprise space, offering broad functionality but often perceived as less agile or cost-effective for the core middle market.

AvidXchange differentiates itself through its deep vertical expertise, purpose-built solutions for the middle market, and its strong two-sided network. While competitors like BILL also leverage network effects, AvidXchange's long history and focus on specific middle-market verticals have allowed it to build deep integrations with relevant ERP systems (e.g., MRI Software, RealPage, Sage Software (SGPYY), and recent additions like AppFolio and M3) and cultivate relationships within those ecosystems. This vertical-specific approach provides a competitive advantage by tailoring solutions to unique industry workflows, a level of customization that broader platforms may lack.

Financially, AvidXchange's recent performance highlights its operational efficiency. While competitors like SAP demonstrate higher operating margins reflecting their enterprise scale, AvidXchange's rapid gross and adjusted EBITDA margin expansion indicates strong execution on unit economics and cost control, positioning it favorably against less profitable competitors like Coupa Software. AvidXchange's focus on driving yield expansion and converting paper checks to electronic payments is a direct strategy to enhance monetization and improve its financial profile relative to competitors.

The company's strategic partnerships are crucial in this competitive environment. New integrations with AppFolio (19,000 customers, ~9,500 product fit) and M3 (1,000+ hospitality groups) provide access to large, targeted customer bases through trusted ERP providers. The Buildium partnership further strengthens its position in the real estate/HOA vertical. These partnerships are expected to be significant drivers of new buyer acquisition and transaction volume, complementing direct sales efforts and providing a channel advantage against competitors who may not have the same depth of integration or reseller relationships in specific middle-market verticals.

Outlook, Risks, and the Path Forward

AvidXchange's outlook for 2025 reflects a cautious stance on the macroeconomic environment while highlighting the expected benefits of operational execution and strategic investments. The company forecasts total revenue for 2025 in the range of $453 million to $460 million. This guidance incorporates an expectation of approximately $44 million in interest revenue from customer funds, a decrease from $49.7 million in 2024, reflecting anticipated lower interest rates. It also assumes no political media revenue contribution in 2025, down from $6.6 million in 2024.

The guidance assumes the current macroeconomic conditions, characterized by subdued discretionary spending and low single-digit transaction growth with sub-100% retention, will persist without significant improvement or worsening. Despite this, the company expects non-GAAP adjusted EBITDA profit ranging between $86 million and $91 million, demonstrating continued confidence in margin expansion driven by operational efficiencies and leverage. Non-GAAP diluted earnings per share are projected between $0.25 and $0.27.

Looking beyond 2025, management anticipates that the scaling of new product offerings, particularly Payment Accelerator 2.0 and the AvidPay 2.0 platform, coupled with the increasing traction from recent and planned ERP partnerships, will provide momentum for growth acceleration, potentially exceeding 2025 expectations in 2026. The long-term targets of achieving a Rule of 40 objective in 2025 and a Rule of 50+ by 2028 remain aspirational goals tied to a more favorable macro environment and the full realization of strategic initiatives.

However, the investment thesis is currently overshadowed by the proposed acquisition of AvidXchange by TPG in partnership with Corpay for $10.00 per share in cash, valuing the company at $2.2 billion. This transaction, announced on May 6, 2025, is expected to close in the fourth quarter of 2025, subject to customary closing conditions, including stockholder approval and regulatory clearances (antitrust and money transmitter licenses).

This proposed merger introduces significant risks. There is no guarantee that all closing conditions will be met, potentially leading to termination. If the merger is not consummated, AvidXchange would remain a public company but could face material adverse effects, including negative market reactions, reputational damage, significant transaction costs already incurred (approximately $2.1 million in Q1 2025), potential payment of a $78 million termination fee under certain circumstances, restrictions on business activities during the pendency, management distraction, and challenges retaining employees. Litigation challenging the merger could also delay or prevent its completion.

Beyond the merger-specific risks, AvidXchange faces ongoing challenges from the unpredictable macroeconomic environment impacting customer spending and transaction volumes. The concentration of revenue from VCC interchange fees and reliance on a few service providers for processing these transactions pose risks related to potential changes in interchange rates or service provider fees. Credit risk associated with supplier advances in the Payment Accelerator product and concentration of buyer funds at a single financial institution are also factors to consider.

Conclusion

AvidXchange operates in a large, underpenetrated middle-market AP automation and payments sector, armed with a purpose-built platform, a growing two-sided network, and an increasing array of technological differentiators powered by AI. Despite persistent macroeconomic headwinds that have tempered transaction volume growth, the company has demonstrated impressive operational execution, driving significant margin expansion and achieving profitability milestones ahead of schedule. Strategic investments in new products and key ERP partnerships are laying the groundwork for future growth acceleration, particularly as the impact of these initiatives fully materializes in 2026 and beyond.

While the long-term opportunity and the company's operational strengths provide a compelling narrative, the immediate investment focus is dominated by the proposed acquisition. The $10.00 cash offer provides a potential near-term return, but the risks associated with the transaction's completion are material. For investors evaluating AVDX today, the decision hinges on balancing the potential upside of the acquisition price against the risks of termination and the subsequent implications for the standalone business, which, despite macro challenges, has shown a clear path towards improved profitability and future growth driven by its technology and strategic partnerships in the competitive B2B payments landscape.