10-Q: AvidXchange Reports Q2 Loss Amid Merger Costs

AvidXchange Holdings, Inc. reported a net loss for Q2 2025, driven by increased operating expenses including significant merger-related costs, despite revenue growth.

Summary

• Revenues for the three months ended June 30, 2025, increased by 5.2% to $110.57 million from $105.13 million in the prior year period.
• The company reported a net loss of $9.46 million for Q2 2025, a significant decline from a net income of $0.44 million in Q2 2024.
• For the six months ended June 30, 2025, revenues grew 3.7% to $218.51 million, but the net loss widened to $16.78 million from $0.57 million in the same period last year.
• Operating expenses increased substantially, with General and Administrative expenses rising 48% to $33.51 million in Q2 2025, primarily due to $6.45 million in merger-related transaction costs.
• Interest income decreased by $1.5 million in Q2 2025 and $3.9 million for the six-month period, attributed to a lower cash balance and declining interest rates on funds held for customers.
• Transactions processed increased by 1.8% to 20.09 million in Q2 2025, and Total Payment Volume grew 4.1% to $21.46 billion.
• The proposed merger with Arrow Borrower 2025, Inc. (affiliated with TPG Global, LLC and Corpay, Inc.) received early termination of the HSR Act waiting period and EU Merger Regulation clearance, with closing expected in Q4 2025.
• The company had $335.77 million in unrestricted cash and cash equivalents and $71.46 million in marketable securities as of June 30, 2025.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative on operational performance due to the shift to a net loss and increased expenses, primarily driven by merger-related costs and declining interest income. However, the ongoing merger process, with regulatory clearances obtained, provides a clear path to privatization, which is a significant event for shareholders, balancing the negative financial results.

Positives

• Total revenues increased by 5.2% for the three months and 3.7% for the six months ended June 30, 2025, indicating continued top-line growth.
• Software revenue showed strong growth, increasing 10% in Q2 2025 and 7% for the six-month period, driven by increased payment transaction volume and subscription-based revenue.
• Electronic payments on the AvidPay Network increased, contributing to a 3% rise in payment revenue in Q2 2025 and 2% for the six-month period.
• Transactions processed and Total Payment Volume continued to grow, indicating increased adoption and use of the company's solutions.
• Net cash provided by operating activities improved to $30.61 million for the six months ended June 30, 2025, compared to $18.93 million in the prior year, primarily due to working capital changes.
• The company remains in compliance with its financial debt covenants as of June 30, 2025.
• Regulatory clearances for the proposed merger, including early termination of the HSR Act waiting period and EU Merger Regulation clearance, have been received, progressing the transaction towards its expected Q4 2025 close.

Negatives

• The company shifted from a net income of $0.44 million in Q2 2024 to a net loss of $9.46 million in Q2 2025.
• The net loss for the six months ended June 30, 2025, significantly widened to $16.78 million from $0.57 million in the prior year period.
• Operating loss increased to $12.41 million in Q2 2025 from $2.10 million in Q2 2024.
• General and Administrative expenses surged by 48% in Q2 2025, largely due to $6.45 million in transaction and deal costs related to the proposed merger.
• Interest income decreased by $1.5 million in Q2 2025 and $3.9 million for the six-month period, negatively impacting payment revenue due to lower cash balances and declining interest rates on funds held for customers.
• The company expects a decrease in political advertising-related payments in 2025 due to it not being a significant election year, compared to 2024.
• The Federal Reserve is expected to reduce interest rates in the near to mid-term, which would negatively impact payment revenue derived from interest on funds held for customers.

Risks

• The proposed merger is subject to remaining closing conditions, including money transfer approvals and stockholder approval, and may not be completed in a timely manner or at all.
• The merger and its announcement could adversely affect the company's ability to retain buyers, hire and retain key personnel, and maintain relationships with stakeholders.
• The company may be required to pay a termination fee of $78.0 million to Parent if the merger is terminated under certain circumstances.
• Future regulation or changes by card brand payment networks could substantially impact interchange rates and the company's revenue from virtual commercial card (VCC) transactions.
• A substantial portion of the company's revenue is derived from interchange fees from a small number of service providers, with one representing 27% of Q2 2025 revenue and another 18%, posing concentration risk.
• Macroeconomic uncertainty, including inflation and interest rates, may lead to tempered spending by customers, impacting payment volumes, amounts, payment type mix, and sales.
• The company is exposed to interest-rate risk, particularly regarding interest income from buyer funds, which would be negatively impacted by Federal Reserve interest rate cuts.
• Credit risk exists due to cash on deposit exceeding FDIC limits and the practice of remitting buyer funds to suppliers before confirmed funds are collected from buyers.
• The Payment Accelerator product exposes the company to credit risk if advanced invoices are not approved or buyers do not transfer requisite funds.
• A stockholder lawsuit has been filed alleging materially false and misleading statements and omissions in the preliminary proxy statement related to the merger, focusing on legal advisor conflicts of interest and valuation analysis details.

Future Outlook

The proposed merger is expected to close in the fourth quarter of 2025, after which the company's common stock will be delisted from Nasdaq and it will become a privately held entity. Total revenue is anticipated to increase year-over-year, with payment revenue expected to constitute a larger proportion of total revenue as transaction volumes on the AvidPay Network grow. However, a decrease in political advertising-related payments is expected in 2025 due to it being a non-election year. The company anticipates incurring significant additional transaction costs related to the merger. A potential reduction in interest rates by the Federal Reserve in the near to mid-term future is expected to negatively impact payment revenue derived from interest on funds held for customers.

Management Comments

• Michael Praeger, Chief Executive Officer, and Joel Wilhite, Chief Financial Officer, certified that the Quarterly Report on Form 10-Q fully complies with SEC requirements and that the information contained therein fairly presents, in all material respects, the financial condition and results of operations of the company.

Industry Context

The company operates in the accounts payable (AP) automation and B2B payment solutions market for middle-market businesses, a sector experiencing a shift towards electronic payments. The macroeconomic environment, characterized by economic uncertainty, inflation, and fluctuating interest rates, is impacting business confidence and customer purchasing decisions, leading to tempered spending that affects payment volumes and sales. The company's revenue model is sensitive to interest rate changes, with higher rates positively impacting interest income from funds held for buyers, and anticipated rate cuts posing a negative impact. The ongoing consolidation trend in the fintech and payment processing industry is highlighted by the company's proposed merger with a TPG Global, LLC-affiliated fund and Corpay, Inc.

Comparison to Industry Standards

• NA

Management Changes

Corporate Governance

Legal Proceedings

• A stockholder lawsuit, Zappia v. AvidXchange Holdings, Inc., et al., was filed on July 11, 2025, alleging materially false and misleading statements and omissions in the preliminary proxy statement related to the merger, specifically regarding conflicts of interest of legal advisors and details of valuation analyses. The plaintiff voluntarily withdrew their preliminary injunction motion on August 1, 2025.

Related Party Transactions

• The proposed merger involves Arrow Borrower 2025, Inc., a subsidiary of an investment fund affiliated with TPG Global, LLC, and Corpay, Inc. as a direct or indirect investor in Parent. This constitutes a significant transaction with affiliated parties.

Stakeholder Impact

• Shareholders: The proposed merger will result in the company becoming privately held, leading to delisting from Nasdaq. Existing shareholders will receive consideration as per the merger agreement. Potential dilution if future capital raises involve equity. Subject to litigation regarding merger disclosures.
• Employees: The company completed a restructuring plan in Q2 2024 that resulted in workforce reduction. Management is focused on retaining and incentivizing employees, particularly amidst the merger.
• Customers: Continued use of AP automation and payment solutions, with increased transaction volumes. Potential impact from macroeconomic conditions on their spending.
• Suppliers: Benefit from the AvidPay Network and Payment Accelerator product for faster payments, but exposed to company's credit risk for advanced payments.
• Creditors: The company maintains compliance with debt covenants. Future indebtedness could introduce additional restrictive covenants.
• Regulatory Authorities: The merger is subject to money transfer approvals. The company is registered as a money services business and holds money transmitter licenses in required states.

Next Steps

• Completion of the proposed merger, subject to remaining closing conditions including money transfer approvals and stockholder approval.
• Delisting of common stock from Nasdaq and deregistration under the Securities Exchange Act of 1934 upon merger consummation.
• Continued focus on increasing total revenue year over year, driven by increased transactions processed and growth in the AvidPay Network.
• Monitoring and adapting to potential negative impacts on payment revenue from anticipated Federal Reserve interest rate cuts.
• Managing and mitigating risks associated with concentration of revenue from service providers and credit exposures from payment processing and Payment Accelerator product.

Key Dates

Recommendation

The company is in the process of a significant merger that is expected to take it private in Q4 2025. Given the regulatory clearances obtained and the anticipated closing, the stock price is likely to converge towards the acquisition price. For existing shareholders, holding the stock until the merger's completion is the most logical strategy to realize the merger consideration. For new investors, the limited upside potential and impending delisting make it less attractive for a 'buy' recommendation, while the confirmed merger makes a 'sell' recommendation premature unless there's a high risk of the deal falling through, which is not strongly indicated by the filing.

Keywords

Accounts Payable Automation, B2B Payments, Fintech, Payment Solutions, Software as a Service, SaaS, Merger, SEC Filing, 10-Q, Financial Technology, Corporate Payments