Bryan Keane: Hi, guys. Good morning. Just was thinking about how to model this out in terms of cadence by quarter? Anything to think about Joel? And then any high-level comments also just on the key metrics on transactions or yield or volume how to model that out for the year? Any puts and takes or any direction you can give us?
Joel Wilhite: Yes, Bryan, I can tell you what our typical guidance cadence is just to provide annual guidance and update that quarterly. But certainly we’re seeing some different trends in knowing the political and float dynamics. What I thought I would share on this call is that we sort of see a range in Q1. I’ll go ahead and sort of talk about our revenue expectation for Q1, kind of, between $81 million and $83 million within that overall guidance. And there’s a few things to remember when you’re thinking about those quarters. One there’s no political in Q1 when there was roughly $1 million last year. And there was about $3 million in the fourth quarter, right? So, if you think about the quarterly cadence. The other thing that I’d point out is book revenue first quarter last year was about $1.2 million and in the fourth quarter that we’re reporting now is about $5.8 million. So, hopefully that gives you a little bit of color to think about the quarter.
Bryan Keane: No, that’s helpful. And Mike just on the M&A front, obviously, curious if there’s any movement there since that’s been a little bit stagnant as you mentioned for the last 18 months?
Mike Praeger: Yes. Well, it’s one of the — what I’d say kind of the internally at AvidXchange, there’s lots of activity in terms of our conversations that we’re having with lots of, kind of, players in the market, especially those that are in smaller players and different industry verticals that we’re targeting. I would say that we are — our expectation is that we’re going to start seeing greater activity related to those type of providers looking at evaluating sale opportunities during probably the second half of this year going into next year. A lot of them were benefited from raising capital over the last two years. So they’re not yet in a position of having to go back to the markets to raise capital. We think that will be the natural catalyst for them then evaluating whether they want to go down that path or actually pursue a sale.
So our current corporate debt activity is to stay in touch and have lots of conversations. So we have a really good sense of the market when those opportunities arise.
Operator: And the next question is from Josh Beck from KeyBanc. Please go ahead.
Josh Beck: Yes. Thanks so much for taking the question team. I wanted to double-click a little bit. I think it was Mike’s comments around discretionary spend. So, yes, I think what we’ve heard from some other companies in the B2B and general back office space has been customers have pulled back on advertising. They pulled back on P&E. I’m just curious like are those the types of discretionary elements that you may be seeing a little bit of a pullback within? And does that really encompass all of your verticals, or is it maybe more so certain ones? You obviously called out financial services. Some color there would be great.
Mike Praeger: Yes. So first of all I would say, we’re seeing it kind of broad-based across all verticals some of that discretionary spend pull back. And we kind of think of it as — what we’ve been able to ascertain is really falling into kind of three buckets; number one being kind of advertising in media and marketing-related spend; the second one being, kind of professional services consulting administrative type services; and the third being, some kind of tenant improvement build-out projects for expansion. And the last one is probably geared towards more construction real estate, but really broad-based — impact that we’ve seen across all the verticals. But again, what I would say though, we’re not seeing any dramatic falloff of any particular spend. It’s really slowing of these categories on a nominal basis, which is consistent with what we’ve seen in past economic cycles across the middle market.
Josh Beck: Okay. Yes. Certainly, it seems like a little bit of belt tightening if you will, which is a pretty consistent theme — that we’ve heard. The other question was, with respect to the funnel it does sound like the top of the funnel activity has been encouraging. I guess, I’m curious to hear about the conversion from the top of the funnel, the middle of the pipe to the later stages of the pipe how is that progressing?
Mike Praeger: Yes. So really good question, Josh. So when we think of — one of the things important to recognize top of funnel activity is just as its design at the top of the funnel, but a lot of things have to happen before it turns into revenue. So if you go through a sales cycle and then an implementation configuration cycle and then once a customer is live and adoption cycle, but on the sales cycle side kind of the two metrics that we kind of focus on are one is any changes to close rates and then b, would be the timing — the sales cycle timing. And so the — we’ve seen no changes to overall close rates. Those are consistent to what we’ve seen historically. And then the second one is related to timing. This is where we have seen €“ what we historically saw is a 60- to 90-day sales cycle across the different verticals. We’re seeing that being extended by maybe five to 10 days in terms of overall sales cycles. So that’s where we are seeing some impact.
Josh Beck: Thanks for the color, Mike.
Mike Praeger: Thanks, Josh.
Operator: And the next question is from James Faucette from Morgan Stanley. Please go ahead.
James Faucette: Thanks very much. Thanks for all the detail today. I wanted to go back quickly to your gross margin and the incremental margin that you’re having there. And I’m wondering if you can help strip out at least some of how we should think about like float benefit versus just natural leverage? And I guess as importantly, is there any type of rule of thumb you can share with us about how that float could move around and at least in terms our planning €“ in terms of your planning operations in the event that interest rates move around like if we move interest rates move 50 basis points or whatever metric you want to use?
Joel Wilhite: Yes. Got you, James. Okay. So good question. Let me €“ I made a couple of comments on gross margin but I’ll unpack it a little bit further. Again, I think I mentioned already good expansion year-over-year. Again this is the sort of the march we’re on to sort of steadily improve gross margin to the point of that long-term target of 75% and sort of what we see ahead of us is getting into that 70% ZIP code. So 320 bps year-over-year for the quarter or for the year 64%, up from 60.8%. And then on the quarter a little less 270 bps. We did see flow benefit which is a positive feature of the model. But if I then let’s take a look at gross margin and just sort of pull out the impact of both float and political advertising because we recognize that you’ve got some puts and takes.
So just to give you a sense of the impact there, I would say that the political €“ the inclusion of the political business added about 100 bps on in 2022 for the year and for the fourth quarter. And then float added about 100 bps to gross margin for the year and about 200 bps for the quarter as rates continue to ramp. And so taking out both you’re up about 160 bps for the year. And again, on improved yield, mix and efficiencies that steady progression of gross margin expansion. But then for the quarter, we were down about 40 bps. And so we’ve talked before about as we’ve managed expectations going into Q3 and then going into Q4 about our cloud cost ramp including some incremental headcount associated with getting fully in the Azure public cloud, you see a little bit of that impact there along with this spend softening that we called out separately in Q4.
And so looking forward stripping both float and political out, we see good margin expansion continue on our way to that profit that we’re calling in guidance. And then your final question just around rule of thumb. I think what we’ve talked about is you should think about our float revenue as roughly 120 bps off of Fed fund rate on a lag. And our €“ as I mentioned in our prepared remarks, our guidance calls for about $30 million of float revenue for 2023.
James Faucette: Got it. And then just €“ I really appreciate that. And just as a quick follow-up to finish out that. You guys have the benefit of having run this business for quite a while. As rates increase, do you see a change in your customers and those that are participating in the networks behavior in terms of how they pay or other things that would affect the underlying deposit amount effectively?
Mike Praeger: Yes. So, as part of our business model is that we — in terms of kind of how we manage the flow of funds that’s consistent in any scenario, regardless of what kind of rates are related to deposits. And what I would say is that across the board in the middle market, our customers are trying to solve for a more efficient automated process, number one. And I think the — probably what you’re getting in terms of kind of managing flow of cash flow, things of that nature monetization of float is probably more of an enterprise focus of companies. Our customers are just trying to get their suppliers paid in an efficient way, reduce kind of the manual process and the paper process that they’re going through today. And so we don’t typically see that dynamic.
And again, our characteristics are, in terms of how we manage the money movement, customers when they send a file directly from their underlying accounting system and now we’re up to over 225 different systems that were integrated to that triggers the flow of funds immediately into our platform as well. So the customers still control the timing when they pay their bills.
James Faucette: Right. No, that’s great and great setup. I appreciate all that detail.
