With revenues trending at a quarter of a billion here, a 5 times multiple looks rather modest for a business with 30% growth (or actually a bit more) in the third quarter. Note that the third quarter actually ended before the IPO as shares by now have collapsed to just $9 based on my share count of around 192 million shares ahead of the over-allotment option, as the market value has dropped to just over $1.7 billion, with estimated net cash of around half a billion reducing the operating asset valuation to $1.2 billion. That suggested fourth quarter revenues of around $66 million and an EBITDA loss of $111 million which is disappointing after losses came in at $6 million on this metric in the third quarter.
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The company guides for full year sales at a midpoint of $245 million and an EBITDA loss of $29 million. Operating losses of $16.1 million were better than guided for as well, in line with the loss rate posted in the first half of 2021. In November, AvidXchange posted third quarter sales of $65.2 million, up 37% on the year before, and more than two million ahead of the guidance issued at the time of the IPO, so that looks solid. Ironically enough, this results in fairly modest relative valuations versus some other peers, yet the absolute valuations prevented me from getting anywhere close to being upbeat. Preliminary third quarter sales were even seen at $63 million, as the run rate of $250 million in revenues works down to a 16 times multiple, yet the quarterly operating losses foreseen around $19 million appeared to inch up a bit. Operating losses narrowed to $32 million for the period, down in absolute and relative basis, of course. Revenues were up 33% in the first half of the year and were reported at $114 million, as they trend at $228 million per annum. Revenues rose 24% to $186 million in 2020, gross margins improved to 55%, as operating losses were fairly flattish around $75 million. This valuation was applied to a business which generated $150 million in sales in 2019, yet it posted gross margins of "just" 50% and reported an operating loss of $77 million on that revenue base. The company went public at $25 per share back in October, which granted the company a steep $4.8 billion equity valuation, although that dropped to $4.3 billion if we factor in net cash holdings. The company on average takes a $3.50 cut on these transactions, which looks high for a simple payment processing step, yet there are more steps performed by the business.
The company managed some $145 billion in spending across its platform, spread over 53 million transactions. The company is active across many parts of the economy, pretty much quite a diverse range of verticals. These customers can make use of the company's AP Automation Software, as the AvidPay Networks can actually perform payments, acting as an integrated cash flow manager together with the other services of the business.
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While large businesses can benefit from software and automation solutions, these solutions are not always accessible in the same way to small- and medium-sized businesses, which are defined as business with revenues of at least $5 million, all the way up to a billion. The industry is quite paper-intensive and thus labor and time intensive as well. The company provides these solutions under a SaaS model to some 7,000 businesses (defined as buyers) and some 700,000 suppliers (customers).
The company provides accounts payables, automation software and payment solutions for middle-market businesses and their suppliers. Middle-Market Payment PlayĪvidXchange aims to transform the way in which the middle market transforms receivables, management and payment of bills.
While this makes the set-up quite interesting, I fear the continuation of losses and inferior quality versus other technology names which have been sold-off almost indiscriminately here. That caution served me well during this technology sell-off as the retreat has been both substantial and has taken place in a rapid fashion.
When AvidXchange ( NASDAQ: AVDX) went public in October of last year, I concluded that I was not too compelled, as I feared that investors were too aggressive in pricing growth further into the future.