BILL Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 2, 2024

There are 13 speakers on the call.

Operator

Good afternoon, and welcome to Bill's Third Quarter Fiscal 20 24 Earnings Conference Call. Joining us for today's call are Bill's CEO, Rene Lasert President and CFO, John Retic and VP of Investor Relations, Karen Santosh. With that, I'd like to turn the call over to Karen Sandsock for introductory remarks. Karen?

Speaker 1

Thank you, operator. Welcome to Bill's fiscal Q3 20242024 earnings conference call. We issued our earnings press release a short time ago and furnished the related Form 8 ks to the SEC. The press release can be found on the Investor Relations section of our website at investor. Bill.com.

Speaker 1

With me on the call today are Rene Lasert, Chairman, CEO and Founder of Bill and John Redick, President and CFO. Before we begin, please remember that during the course of this call, we may make forward looking statements about the future operations and results of Bill that involve many assumptions, risks and uncertainties. If any of these risks or uncertainties develop or if any of the assumptions prove incorrect, actual results could differ materially from those expressed or implied by our forward looking statements. For additional discussion, please refer to the text in the company's press release issued today and to our periodic reports filed with the SEC, including our most recent annual report on Form 10 ks and quarterly reports on Form 10 Q. We disclaim any obligation to update any forward looking statements.

Speaker 1

On today's call, we will refer to both GAAP and non GAAP financial measures. Please refer to today's press release for the reconciliation of GAAP to non GAAP financial performance and additional disclosures regarding these measures. Note that at times during this call, we will discuss bill standalone results, which exclude our bill spend and expense management, which was formerly called Divvy Invoice2Go accounts receivable and SynMark Financial Planning Solutions. Now I'll turn the call over to Renee. Renee?

Speaker 2

Thank you, Karen. Good afternoon, everyone. Thanks for joining us today. In Q3, we delivered very strong financial results, continued our rapid pace of innovation and executed with persistent rigor and effectiveness. Across the company, we delivered on the key initiatives to strengthen our core.

Speaker 2

We enhanced our platform, enriched our payment experiences and expanded our ecosystem. Both the market opportunity and our ability to shape that opportunity grows each and every day. There is a significant growth runway ahead for Bill, and we continue to position ourselves to be the essential financial operations Total revenue grew 19% year over year and non GAAP profit growth that were ahead of our expectations. Total revenue grew 19% year over year and non GAAP operating income increased 68% year over year. At Bill, we are energized by the fact that during the quarter, we helped more than 450,000 small businesses automate their financial operations so they could spend more time focused on their mission.

Speaker 2

With our platform and broad set of solutions, these businesses made more than 25,000,000 transactions during the quarter, totaling more than $70,000,000,000 in payment volume. Our performance and scale demonstrate the mission critical nature of our platform, the strength of our ecosystem and outstanding execution. This is the foundation for our growth and penetration of the large market opportunity.

Speaker 3

Bill was a

Speaker 2

leader in innovative financial solutions for SMBs. We created category and continue to define it as we serve a vast greenfield opportunity to automate and transform financial operations for millions of small and midsized businesses. There are more than 6,000,000 SMBs in the U. S. Who have employees and more than 33,000,000 small businesses in total, including sole proprietors.

Speaker 2

These businesses make 1,000,000,000,000 of dollars of B2B payments each year. The vast majority of these businesses are still burdened by paper checks and manual processes. Our track record of innovating and delivering value puts us at the forefront to help millions of small businesses digitize their operations for the first time and drive adoption of e payments. At Bill, we have a passion for serving SMBs and are dedicated to helping them thrive. SMBs create jobs, drive innovation, and are at the heart of their local communities.

Speaker 2

They deserve dedicated attention, care and technology designed specifically for their needs. Bill paved the way for SMBs to move their financial operations from the analog to the digital world. Our platform offers an integrated suite of solutions that automates and digitizes the financial back office, including accounts payable, accounts receivable, spend and expense management, and a variety of payment offerings. Our robust workflows take care of mundane, error prone tasks and are built to handle exceptions. Our suite of payment solutions give businesses choice based on both their needs and their supplier needs, while accelerating payments and simplifying data reconciliation.

Speaker 2

We removed the friction in doing business by weaving together a proprietary two sided network that enables buyers and suppliers to share bank information securely with the ability to collaborate across invoices. The reach and value of our network has attracted more than 5,800,000 members and drives more than 1 third of our build standalone core revenue. Our artificial intelligence engine and large scale help us deliver significant value to our customers. AI is deeply embedded across our platform to connect businesses, automate their operations and accelerate their ability to make payments. Our AI engine has been uniquely trained on our proprietary data assets, including more than 300,000,000 transactions across an array of payment modalities and over half a 1000000000 documents.

Speaker 2

Our large and increasing scale naturally drives faster product development and ecosystem expansion as scale begets scale. The Virtus cycle enables us to learn quickly, move fast and accelerate speed to value our SMBs. With our platform, businesses can save more than 50% of their time on financial processes and gain better insight, visibility and control for running their business. This is why our platform serves as a central nervous system of their daily financial operations, and this is what positions Bill as the category leader with a wide moat and an engaged sticky customer base. A great example of how our platform empowers SMBs is Joe, a marketing automation solution for boutique coffee shops.

Speaker 2

Joe uses our platform and payment offerings to digitize their manual payables grind and pay suppliers overseas. Brendan Martin, co CEO and co founder said, and I quote, we chose Bill because of their best in industry solutions and our shared commitments to level the playing field for small businesses. Joe has a team of 15 employees supporting a customer base of 1500 small coffee shops. It would not be possible to have this scale without Bill modernizing our finished operations. More importantly, we can concentrate more time and mind share on brewing strategies and products to empower more boutique coffee shops.

Speaker 2

Enabling Joe and all SMBs to achieve their goals is what makes our journey especially rewarding. We bring together and serve 100 of 1000 of customers and millions of network members and simplify their lives. With our platform and ecosystem, we consistently drive strong customer adoption and deeper penetration of the market. Each month, we acquire thousands of customers and tens of thousands of new network members. We simplified centralized money movement for SMBs at a tremendous magnitude.

Speaker 2

Since fiscal 2018, our platform has enabled more than $1,000,000,000,000 of SMB payments. This is only possible because of the combination of our payment engine, money transmitter capabilities and strong risk management expertise. And our scale is increasing. Over the past 12 months, we processed nearly 100,000,000 transactions that represented approximately 1% of U. S.

Speaker 2

GDP. Underpinning this accomplishment is our demonstrated track record in creating value for SMBs. A great example of how our platform empowers businesses to scale is Tower 28, a fast growing company that creates beauty and skincare products utilizing clean ingredients to support sensitive skin. Tower 28 uses our accounts payable, accounts receivable, and spending expense solutions, utilizing the power of our integrated platform. Victor Liu, CFO of Tower 28, said, and I quote, A fresh approach to beauty deserves a fresh approach to business financial operations.

Speaker 2

Our company has been scaling fast, and less than 2 years, our business basically tripled. Being able to scale with all the tools, solutions, and services that Bill provides has been phenomenal. Bill saves us 40 hours a week and an entire full time employee by automating our financial back office. It provides us real time updates and strong control on card spend. It also enables us to work on the go.

Speaker 2

We've approved payments from everywhere. With Bill taking care of our financial operations, our team can focus more time and resources on company growth and skin care product development. Every day, we are dedicated to creating more value for our customers, partners and network members. Being a category leader requires an exceptionally strong innovation roadmap that constantly extends our value to SMBs and their account and partners. Innovation is in our DNA and is foundational to our platform, payments and ecosystem.

Speaker 2

We've shared with you our key investment areas for growth, and these include driving adoption of our integrated financial operations platform, expanding our ecosystem by bringing more innovation to our partners and attracting new partners, and enriching our payment experiences and driving penetration of our ad valorem solutions. Our team continues to make very strong progress against these initiatives, which lay the foundation for our next phase of growth. This past quarter, we significantly enriched our integrated platform capabilities. Our platform now includes cash flow insight and forecasting, leveraging the best of breed FP and A capability from our acquisition of Denmark. This powerful tool empowers SMBs to predict future cash flow, easily visualize trends and opportunities, and make better data driven decisions faster.

Speaker 2

They can now optimize, manage and forecast cash flow with a single platform. Bill is uniquely positioned to provide this rich insight as our comprehensive platform can serve all B2B spend and integrates with accounting systems. Given our entrenched role in their day to day routine, the analytics and forecasting layer unlocks outsized and unique value for SMBs and accountants. We recently extended our platform's capabilities into a brand new mobile app for Bill AP and AR that further empowers businesses to manage their operations from anywhere. This new app provides enhanced automation workflows, payment solutions and leverages our mobile first approach to provide a fresh look and easy navigation.

Speaker 2

This experience meets customers where they are and is another extension of driving speed and simplicity in financial operations. The new experience is already driving growth in mobile engagement from both our customers and network members, including more bills created and approved and more demand from our network members for instant transfer and invoice financing. We are continuing to enhance our payment experiences to drive more convenience for SMBs. We have a sophisticated payment infrastructure fueled by continuous enhancements. Our platform has connectivities to 12 payment rails, offers 8 payment modalities, and reaches over 130 countries.

Speaker 2

This level of payment flexibility is extremely complex because the compliance, regulatory, and risk management needs differ by payment type and source of the customer. We hide all these complexities to deliver SMBs as simple and fast payment experience. By making the complex look simple, our customers accelerate their transition to digital payments. Speed and choice of payments are critical to SMBs, and this is particularly true when it comes to commerce with international suppliers. Over the years, we have grown the scale and the sophistication of our international payment offering, and now we are unlocking greater value by leveraging local clearing capabilities to provide faster payment speed.

Speaker 2

Our enhanced offering will reduce delivery times from days to near real time. We introduced this experience in our first country last month and we will roll out these capabilities more broadly throughout 2024. We knew from day 1 that an ecosystem was required to make financial operations for SMBs mainstream. We built our platform with the sensibility in mind, allowing multiple models to integrate and embed with our partners. We partner with nearly 8,000 accounting firms and some of the largest banks in the country who trusts us to manage their clients' operations and payments.

Speaker 2

We have nearly 2 decades of experience in integrating and embedding our functionalities into our partner services. We understand the profound intricacies in creating a cohesive product and go to market experience that works for our partners. Our differentiated set of expertise and competencies is enabling our platform to ripple across our ecosystem. Software and payments are converging, and we are leading the charge. A decade ago, the financial operations automation journey for an SMB would start almost exclusively with consumer based online banking.

Speaker 2

That's why we were pioneers and partner with banks to enable them to do more beyond payments. Fast forward to today, and the front door to an SMB's financial journey can start in many different places. It can and does start with all sorts of different software providers. Our focused dedication to SMBs means that we meet customers where they are regardless of the entry point. The industry recognizes our leadership and inbound interest from software companies is strong.

Speaker 2

Many software companies are looking to us to help address their customers' payment needs. Consistent themes we hear from partners are that they value bill for our workflows, payment expertise, risk and regulatory practices, broad network, vast data set and dedication to SMBs. We are moving fast to capitalize on this emerging trend. We are rapidly evolving our embed technology and making it easy for software companies to plug and play. Our embed strategy is resonating.

Speaker 2

Most recently, Xero, a leading global small business platform, announced they will embed our onboarding workflows and a suite of Avolon offerings into their platform. Once available, Xero's U. S.-based customers can pay bills efficiently and connect with our large member network. We are excited about this partnership and are working closely with Xero to bring this offering to market. In closing, we drove great financial results while executing against our innovation roadmap to provide businesses more automation, control and insights.

Speaker 2

Achieving our leadership and scale did not happen overnight. We will continue to extend our leadership position with careful strategic planning, sustained investments in building capabilities and consistent execution. We are building an enduring company and we aspire to help millions of SMBs automate their operations and more easily make 1,000,000,000,000 of dollars at e payments. At Bill, we have an inspired team that is dedicated to serving SMBs and each other. And this, together with our values and mission, will continue to strengthen our unique competitive advantage that positions us well to serve the large market opportunity we are pursuing.

Speaker 2

I'll now turn the call over to John.

Speaker 4

Thanks, Renee. Today, I'll provide an overview of our fiscal Q3 financial and operating results and discuss our outlook for the fiscal Q4 and full year 2024. We delivered strong results for the quarter that reinforce our conviction in the strength of our business, our execution capabilities and the market opportunity we are pursuing. We are building to strengthen our core while investing with discipline to pave the way for the next phase of accelerated growth. Rigorous execution against our top priorities showed early positive signals in Q3.

Speaker 4

Net new customer adds for both our spend and expense and bill standalone XFI solutions returned to historical levels. The B2B spend environment showed signs of stabilization and our focus on businesses with a higher propensity to spend drove upside in our spending expense business. Bill standalone payment monetization expanded sequentially. All of these factors translated into profitable growth in Q3. Total revenue for Q3 was $323,000,000 an increase of 19% year over year.

Speaker 4

Core revenue, which includes subscription and transaction revenue was $281,000,000 up 17% from a year ago. Non GAAP gross profit in Q3 was $281,000,000 up 19% year over year and non GAAP gross margin was 87%. Our gross profit results in the quarter included approximately $6,000,000 in one time benefits. Our strong business model enables us to consistently deliver a gross margin that is among the best in class for software and FinTech Companies. We also significantly expanded profitability in Q3, reflecting our ongoing commitment to investing with discipline.

Speaker 4

Non GAAP operating income for Q3 was $59,000,000 up 68% year over year. Non GAAP operating margin was 18% and expanded more than 5 percentage points from Q3 last year. Once again, we were non GAAP operating income profitable excluding the benefit of float revenue. In Q3, we expanded ex float profitability by $10,000,000 sequentially, excluding the one time benefits mentioned earlier and demonstrating our ability to drive operating leverage as we scale. Moving on to key business highlights, I'll touch on our spend and expense solution and build standalone solutions.

Speaker 4

The strong growth trends we delivered throughout this fiscal year with our spend and expense solution continued in Q3 and our results in the quarter exceeded our expectations. Spend and expense revenue grew 29% year over year and we added 1800 net new spending businesses. We are prioritizing our sales and marketing resources towards spending businesses with greater financial strength and the opportunity to capture larger wallet share. Spend and expense card payment volume was $4,400,000,000 for the quarter, an increase of 29% year over year. Interchange fees were 261 basis points and rewards expense was 47% of spend and expense revenue.

Speaker 4

As expected with the choppy macro environment, we have seen an increase in credit and fraud loss rates, particularly among our smaller customer cohorts. Our proactive efforts over the last year to diligently manage credit exposure have enabled us to maintain strong margins. For our bill standalone solutions, we delivered solid performance in the quarter. Bill standalone transaction revenue increased 20% year over year, driven by our diverse suite of payment solutions and continued enhancements to our payment products and supplier initiatives. Bill standalone payment volume was $67,000,000,000 an increase of 9% year over year.

Speaker 4

Bill standalone payment monetization in the quarter expanded from Q2, driven mainly by increased adoption of our newer ad valorem products as well as a non recurring increase in transaction fees from migrating TPV between processing providers in the quarter. Bill standalone subscription revenue excluding Financial Institution Partners increased 9% year over year. Overall bill standalone subscription revenue declined 2% from last year, which reflects changes in our FI channel as previously discussed. Our solutions continue to drive value for small businesses and accounting firms and our customer acquisition and retention results are strong. Bill standalone net new customer adds in the direct and accountant channel were 4,100 in Q3, excluding attrition related to the sunset of Intuit's simple bill pay solution.

Speaker 4

Bill standalone customer count in the financial institution or FI channel declined quarter over quarter. Across our partner portfolio, new enrollments continued at a consistent pace, but were offset by the removal of inactive customers, which occurs periodically. A word on float revenue, which increased 26% year over year to $42,000,000 in Q3. Load is enabled by our proprietary payment infrastructure and regulatory licenses and serves as a counterbalance to economic trends. Turning to capital allocation, we generate significant free cash flow and have a strong balance sheet.

Speaker 4

This enables us to fund long term opportunities while delivering profitable growth. We invest with purpose and discipline and are proactive in optimizing our capital structure. In Q3, we repurchased $748,000,000 in aggregate principal amount of our 2025 convertible notes, resulting in cash usage of $711,000,000 and a reduction in non GAAP diluted share count of 900,000 weighted shares. In addition, we unwound a portion of the TAP call instrument due to the repurchase. We repurchased these notes to minimize potential future dilution associated with the conversion event and made the purchases at attractive economics.

Speaker 4

The repurchase of these notes and the unwind of the capped calls resulted in a $34,000,000 net benefit to other income and expense, which is reflected in our GAAP results and excluded from our non GAAP results. Now turning to a quick update on our non GAAP net income presentation. Given the significant non GAAP net income we generated in the past several quarters, we transitioned to include a new non GAAP income tax adjustment beginning in Q3. Previously, non GAAP net income included GAAP taxes, which were minimal. In Q3, our non GAAP provision for income taxes was calculated using a blended tax rate of 20%.

Speaker 4

Note that this change has no impact on actual cash tax payments. You can refer to our press release and quarterly investor presentation for additional information, including a look back of our prior periods to reflect the adoption of the 20% blended tax rate. Comparing our results on an apples to apples basis by incorporating the non GAAP provision for income tax, Non GAAP net income in Q3 was $68,600,000 It increased 42% year over year. Non GAAP net income margin was 21%, an expansion of 4 percentage points year over year. Please note that our previously provided guidance did not include the non GAAP tax presentation.

Speaker 4

Shifting to our outlook, we are raising our fiscal 2024 outlook to reflect our progress in strengthening our core, while continuing to be prudent regarding ongoing macro crosswinds that could negatively impact SMB spending. While there have been signs of the B2B spend environment stabilizing, SMBs continue to be pressured by high inflation and interest rates. For fiscal Q4, we expect total revenue to be in the range of $320,000,000 to $330,000,000 which reflects 8% to 11% year over year growth. We expect float revenue to be $40,000,000 in Q4, which assumes a yield on FBO funds to be approximately 480 basis points. We expect non GAAP gross margin to be approximately 84% in Q4, which reflects a slight shift in payment volume mix and the one time gross margin benefits we recognized in Q3.

Speaker 4

As previously discussed, we expect our non GAAP gross margin to moderate in the low to mid-80s as our payment mix evolves and our float revenue declines with lower interest rates later in this economic cycle. Given our change to apply a non GAAP tax rate to non GAAP net income, we are providing guidance for non GAAP operating income, which we expect to be $40,000,000 to $50,000,000 in Q4. We expect non GAAP net income for Q4 in the range of $46,400,000 to $54,400,000 which includes and assume 20% tax rate for non GAAP purposes. We expect our actual cash tax payments to continue to be fairly minimal in the near term. Non GAAP net income per diluted share is expected to be in the range of $0.41 to $0.49 based on a share count of 112,000,000 diluted weighted average shares outstanding.

Speaker 4

Moving on to full year guidance. For fiscal 2024, we expect total revenue to be in the range of $1,267,000,000 to $1,277,000,000 which represents 20% to 21% year over year growth. We expect float revenue to be $165,000,000 in fiscal 2024 assuming a yield on FBO funds of 4.90 basis points. We expect non GAAP operating income for fiscal 2024 to be $176,000,000 to 186,000,000 which reflects 51% to 59% year over year growth. We expect non GAAP net income for fiscal 2024 in the range of $227,000,000 to $235,000,000 which includes an assumed 20% tax rate and non GAAP net income per diluted share to be $1.96 to 2 point shares outstanding.

Speaker 4

We expect stock based compensation expenses of approximately $255,000,000 for fiscal 2024, which is approximately $45,000,000 lower than the guidance we provided at the start of the fiscal year. In addition, we expect capital expenditures to be approximately 23,000,000 dollars for fiscal 2024. In closing, we delivered a strong quarter with balanced growth and profitability, and we executed vigilantly against our key business initiatives to build the foundation for sustained long term growth. At Bill, we are all in to help SMB succeed and thrive. We lead the financial operations category with our distinct moat, rigorous execution and innovation momentum.

Speaker 4

We stand poised to expand this category and be the de facto financial operations platform for millions of SMBs. Operator, we're now ready to take questions.

Operator

Thank you. Our first question comes from Tien Tsin Huang of JPMorgan. Please go ahead. Your line is open.

Speaker 3

Hi. Thanks for the update and good results here. May I start with just a macro question? I know last quarter you said you'd looking for more consistent signals around TPV. It sounds like you're seeing more stability.

Speaker 3

Is that the ongoing assumption from here, thinking about the Q4 and as we extend into fiscal 2025, any other callouts?

Speaker 2

Thank you for the question, Tien Tsin. It's I would say you've got a good summary of it. We see in general spend neutrality that the stabilization of spend is consistent across their portfolio of customers that we have. We have not yet seen spend expansion. And so that is how we are building our business models.

Speaker 3

Okay. So we'll similarly assume stability. Then I have to ask as my follow-up here, Renee, just on the update on with Bank of America. I know obviously that drove a lot of attention and focus on the last call. Where are we now with those negotiations with Bank of America?

Speaker 2

Thank you. Yes, we are working very closely with the bank. And when we have specifics to share, we will definitely get back to all of you. You. I think it is worth kind of maybe just sharing the broader context of how the bank fits into the overall go to market strategy that we have.

Speaker 2

We have a 3 pronged approach where we focus on both near term and medium and long term initiatives. And on the near term, that's accountants. But the longer term really has been our FI and partner strategy. And when we think about the long term, just as context, right, the long term today is around 2% of the overall revenue of the business, which is what you would expect because this is how we're focusing on building the businesses to be where customers are, to meet them where they are and to actually drive customer acquisition wherever we can. And you saw good expansion in the ecosystem this quarter with the addition of Xero and the overall software platform that they deliver to businesses all over the world, but in particular to businesses in the U.

Speaker 2

S. And so we see the long term opportunity just continuing to increase, and we're excited about what we see happening in the market.

Speaker 3

Yes. That was nice to hear the 0. Thank you for the update, Renee. Good to hear from you.

Speaker 2

Yes. Thank you.

Operator

Our next question comes from Kenneth Zekauski of Autonomous. Your line is open.

Speaker 5

Hey, good afternoon. Thanks for taking the questions. Nice job on the take rate. Maybe I'll start there. I think you said there were some nonrecurring there's a nonrecurring benefit from migrating some of the volumes from across your back end providers.

Speaker 5

So can you just quantify the revenue benefit from that in the quarter? And then separately, can you just give us an update on the progress you're making on some of the initiatives to drive more virtual card adoption? And maybe just remind us of the timing of when we could see that because it sounded like the progress on Take Rate, maybe there was some nonrecurring revenue in that, but it was more it sounded like it was more driven by some of the new ad valorem payments and not much of a benefit from the actions you're taking on the virtual card side?

Speaker 4

Yes. Thanks, Ken. Let me unpack that a little bit for you. First, we feel like we made great progress in the Q3, obviously a significant expansion in monetization. And that was driven both by increased volume on our ad valorem products as well as the one time uptick that we mentioned earlier.

Speaker 4

And that was really the movement of volume between processing providers that resulted in just higher monetization on a small portion of our volume. And the priorities that we talked about last quarter to improve the product experience for customers and suppliers is beginning to show good signals very positive signals, which for us is a good indicator of the foundation we're building to expand monetization on a more consistent basis going forward. Excluding the one time uptick in the quarter, we also expanded monetization. So that was consistent with our expectations. We felt like we have the programs in place to expand from Q2 and we did that.

Speaker 4

We expect our Q4 monetization to be at or above Q1, which is what we said previously. So that's consistent with our expectations. And I'd say in the quarter, in Q3, our virtual card program in particular underwent a number of improvements and we saw stable volume there. By itself, it didn't necessarily drive a significant portion of the expansion that we put up, but we feel like we're setting the table for that to be the case down the road.

Speaker 3

Yes.

Speaker 5

Okay, great. Thanks, John. And then I wanted to ask about the Airwallex partnership that came out recently. Congrats on that. My sense is that this could open up maybe dozens of currency payout options in local currencies versus just the couple that you have today in terms of GBP and Canadian dollar.

Speaker 5

That would obviously come in at lower price points, better speed. So how meaningful could this be to cross border payment adoption in local currency over the next couple of years? And I think you guys are actually rolling that out across new markets like Australia, New Zealand and Europe. So any update there would be really helpful.

Speaker 2

Yes. Thanks, Ken. One of the things that we predicated our entire platform on is payment choice matters. And choice has to be there for both the buyer and the supplier. And what we have heard from international suppliers is they sometimes want and need close to real time payment clearing.

Speaker 2

And the only way to get that is with local clearing. And so the partnership with Aeroballics is to give us the capabilities where we can roll that out across the globe. Like we said, we've started doing that in one country just to test it out and make sure it's working as expected. But we do think it will drive adoption because again it's back to choice. It's why we have 12 payment rails and over 8 different modalities of how we execute payments.

Speaker 2

We're unique in how we do that and we think that choice is what's going to drive success for the platform and not just for the FX, but also for the overall usage of our platform.

Speaker 5

Thanks, Reni. Thank you.

Operator

Our next question comes from Andrew Schmidt of Citigroup. Your line is open.

Speaker 6

Hey, Renee. Hey, John. Good results here. Thanks for taking my questions. I want to dig into the net adds for Bill standalone ex FI.

Speaker 6

I'm wondering if there was any impact there from the residual impact from the bill payroll off and if there was what the organic adds look like? And then just at a higher level, obviously, some mixed singles in terms of software adoption out there. What you're seeing in terms of adoption trends and things like that

Speaker 5

in the market? And if

Speaker 6

there's any sort of distinctions, any differences by channel? Thanks a lot, guys.

Speaker 2

Yes. Well, thank you, Andrew. We had, I think, a very strong team that executes exceptionally well Over the last, I guess a little bit more than the last quarter, we have realigned teams to really focus on a couple of different priorities to drive the adoption that we're seeing. And one of the things that we've done is we wanted to make sure that we met customers where they were and that they wanted to have a standalone spending expense, that would be great. And if they wanted to have the combined package, that would be great.

Speaker 2

If they want a standalone, AP, that would be great. And so the teams are aligned around that. And I think that clarity of ownership inside the company and the clarity of messaging is making a difference. And so we see that the market opportunity in front of us is massive. We have 100 of 1000 businesses where there are millions of businesses that could use a product like ours that need a product like ours.

Speaker 2

I know that firsthand because I am a small business at heart, have always been, always will be. And so that ability to kind of meet them where they are and to deliver the functionality that we do is what drives success that we had. So we feel very good about the capabilities that we've built onto the platform and the go to market skills that we have. So it is nice to see it happen across the board.

Speaker 6

Got it. Thank you for that, Renee. And then maybe I could dig into the embedded strategy a little bit. It was good to hear about the pipeline of software partners. What was the unlock for that?

Speaker 6

Was it strategic? Was it technical? Was it sort of some lanes between Bill and Intuit? What's sort of driving the sort of the uptick in terms of the embedded distribution? Thank you.

Speaker 2

Yes. No, I think some of this is just about being there. Like we've been building this platform over the last 18 years. We have a scale that is unique, over $1,000,000,000,000 in money moved in the last 5 plus, 6 plus years now, A $1,000,000,000 of opportunities, I should say that there's the opportunity for us to kind of drive that type of scale for our partners matters a lot. The regulatory compliance needs, they differ depending on the customer and how you find them.

Speaker 2

Our ability to drive risk efficiency and effectiveness across our platform, it's real. And so when we talk to partners, whether they're software partners across that do accounting or whether they're software partners that serve other parts of the stack for an SMB, What we consistently hear is that the complexity that is required of financial operations when it comes to moving funds is something that is going to be hard for them to take on and they look to our scale to kind of drive that for their business. So I think this is partly just the awareness that financial operations is a real opportunity. The success that we've had is driven awareness for people to see that there's a lot of time to be saved and a lot of opportunity to help your SMB customers. And I think people have the awareness on what scale means, the type of scale that we have, moving 1 percent of GDP over $1,000,000,000,000 since 2018.

Speaker 2

All of this has an impact on building the systems that are required and we've demonstrated that we can do that and do it well.

Speaker 6

Got it. Thank you, Renee. I appreciate the comments.

Speaker 5

Thank you.

Operator

Next in queue, we have Darrin Peller of Wolfe Research. Please go ahead. Your line is open.

Speaker 7

Hey guys, thanks. Maybe we could just touch a little further on the go to market approach you have now going forward and maybe just more color on the customer ad numbers. I know somebody touched on it a second ago, but more detail on, I mean, you had acceleration in your customer ads in Divvy with good volume with it too. And so obviously, it seems like the track strategy there is kicking in a bigger way. And then on the direct side also 3,500, there was a bit of FI churn it looked like on the FI channel.

Speaker 7

Maybe you could just explain that too and the go forward expectations for customer adds more broadly guys? Thanks.

Speaker 4

Yes. Thanks, Darren. I'll start and Renee can add color here. If you recall in February, we discussed a number of priorities to adapt our go to market efforts in light of just changing conditions both externally and with SMBs. And so as Renee said, one of the big areas of focus was being where SFBs are, delivering them the solutions that they want, whether it's individual solutions are unified, narrowing our focus to be more targeted on prospects that are ready to adopt versus are still thinking about the journey, along with a bias towards slightly larger businesses.

Speaker 4

And we saw good progress in the quarter and that was definitely driven by an incredibly talented leadership and teams across our sales and market and entire go to market organization. For Bill specifically, 4,100 ads in the quarter was an uptick from last quarter and I think was a good start to some of our areas of focus that I just mentioned. That number excludes the attrition associated with Intuit Simple Bill Pay, which was quite small in the quarter, 600 customers. So we have retained the vast majority of that initial 12,000 into its Simple Bill Pay customers. And then probably the biggest point of acceleration around the customer adds was with our spend and expense solution, which increased to 1800 in the quarter.

Speaker 4

And that's a function of focusing on both larger businesses along with lower attrition from our smaller business, the smaller business segment and just making progress enhancing the value proposition and the teams focused on scaling. We indicated before, we felt like there were a number of levers within our control to regain momentum in penetrating the market and you saw that play out in both of those areas, bill and spend and expense this quarter. As it relates to the financial institution channel, we saw a decline in the quarter in the customer adds. That was mainly due to the removal of some inactive customers. So we experienced in the quarter an increase in enrollments and our highest ever rate of active customers within the FI channel.

Speaker 4

But at the same time as happens periodically, typically seasonally, some partners will remove inactive customers. And so that impacted the overall optics of the numbers, but we feel good about the level of engagement and activity within our FI customer partners.

Speaker 7

That's great to hear guys. Thank you very much. Nice job.

Speaker 5

Thank you. Thanks.

Operator

Our next question comes from Bryan Keane of Deutsche Bank. Please go ahead.

Speaker 8

Hi, guys. Congrats on these results. Renee, just following up on BofA. Is the BofA relationship likely to continue in some form? Or is it still possible they bring everything in house?

Speaker 8

I'm just trying to get a sense of what are the range of outcomes still out there because I know there is or at least there was some kind of a minimum commitment from BofA. So does that still exist as well?

Speaker 2

Thanks for the question, Brian. So we are actively working with our partners at the bank. And like we said, when we have more to share, we will the opportunity to extend the ecosystem to serve SMBs wherever they are exist across our platform and we think there's an opportunity to do that with the bank.

Speaker 8

Got it. Got it. And then John, just thinking about organic take rate, it sounds like all still holds about getting back to 1st quarter levels. Just some of the drivers in particular that get you back to Q1 levers on organic take rate. Maybe some of those initiatives are starting to take hold, but it sounds like it's all gone to plan so far.

Speaker 8

And then how do we think about as we cross over to next fiscal year? Do we expect a gradual pickup in the take rate organic take rate as we get into fiscal year 2025 as well?

Speaker 4

Yes. Thanks, Brian. So I think you're exactly right on Q4. I mean, we are making progress with the product improvements that we've talked about that, will certainly have a positive impact on the value proposition. And these are things around enhanced data, payment speed, reconciliation, things like that, as well as local clearing on the international payment front that Renee mentioned.

Speaker 4

So we saw an increase in adoption. We also saw growth in some of our newer ad valorem products, which are smaller in size than say our virtual card or international payment products, but are starting to influence the numbers. And I think we're on track for what we said previously in terms of Q4. I'd say we feel really good about the foundation that we're laying to return to sort of consistent expansion always varies quarter to quarter, but nevertheless driving adoption, payment volume adoption across all of our ad valorem products. How that plays out exactly into fiscal 2025?

Speaker 4

I think it's early for us to comment on that. We'll certainly lay out our assumptions for you come August.

Speaker 8

Great. Thanks so much for taking the questions.

Speaker 4

Thank you.

Operator

The next question comes from Keith Weiss of Morgan Stanley. Please go ahead.

Speaker 9

Excellent. Thank you guys for taking the question. I was wondering if we could delve into the enriched integrated platform capabilities. And hopefully you could give us a little bit more color on how you're monetizing some of those capabilities. Is it coming through more payment volume, better customer adds?

Speaker 9

Like how should we think about the benefits extending from that?

Speaker 2

Okay. Thanks, Keith. It's one of the reasons and the primary reason that we integrated the 2 platforms together was to drive simplicity for our SMB customers. It's what we think about every day is how do we simplify their lives. And what we have seen so far and I would still say the early days of an integrated platform is that we've seen great progress in active activations and engagement and just driving more cross sell opportunities.

Speaker 2

And so what we're seeing to date is what we would have expected and what we are building the platform around is to simplify their lives and we are seeing that across the data that we have of customer usage. In addition to just you think about what we've already done with the integrated platform, we did announce that we are rolling in the cash flow insights and forecasting capabilities into the platform. And so the vision that we have for the SMB is that they only have one place they have to turn to kind of manage their financial operations. This is the pain that every SMB has. There are not tools out there until Bill started building them.

Speaker 2

And the opportunity to serve a customer with this broad set of capabilities, we think is unique. And it's one of the things that what we see when we have the integration between the two platforms, when we see the opportunity that customers are engaging at different levels than they were before.

Speaker 9

Got it. Super helpful. Thank you.

Speaker 5

Thank you.

Operator

Our next question comes from William Nance of Goldman Sachs. Your line is open.

Speaker 10

Hey, guys. Appreciate you taking the question. Nice to see some of the acceleration on the SkinnyFit platform today. I at the risk of beating the debt, I just wanted to come back to the take rate dynamics in the quarter. John, I thought you said in the script there was a $6,000,000 benefit to gross profit.

Speaker 10

And if I kind of pull that out of the transaction revenues, it looks like the take rate was a little bit more stable sequentially. And so I feel like I'm missing something given the commentary around take rate expansion. I was wondering if you could help me with that. And then just kind of more broadly, when you talk about getting take rate back to Q1 levels next quarter, I guess, is it a one time step up or a one time benefit to the take rate?

Speaker 4

Yes. Thanks for the question, Will. Just to clarify on the $6,000,000 benefit that we referenced earlier, that's really a positive impact on cost of revenues, cost of sales that improve gross margin. It's not a revenue and monetization impact. So that has no real bearing on our take rate, which is a function of transaction revenues and the appropriate segment of TBB, in this case, bill.

Speaker 4

So we did make progress. We grew. We were at 14.2%, I think last quarter and expanded without including a separate one time step up, which was around some AR volume that transitioned between providers. That volume will continue at a higher rate. But as we look at like seasonality in Q4 and how payment volume falls, we're expecting some of the near term headwinds on some of the higher monetizing products to continue and that serves to kind of mute volume expansion across those products and we know that we'll have expansion seasonally in the quarter associated with checking ACH payments.

Speaker 4

So those are some of the dynamics that are all at play in our expectations for the Q4 monetization. So it will be, as we said previously an improvement by Q4 versus Q1 or at least at the Q1 level with limited opportunity for volume growth in the very short term. And that's how we get to those assumptions.

Speaker 10

Okay. That's super helpful. So the $6,000,000 is not in revenue

Speaker 9

it's in COGS and there's a separate one,

Speaker 10

but that one is going to be an enduring uplift in the take rate?

Speaker 4

That's correct.

Speaker 10

Awesome. Appreciate it. All right. And then just I guess a separate topic on just go to market. I'm just wondering if you could talk around like the net adds that we're seeing across, I guess, really more of the core bill platform.

Speaker 10

What is the mix of sort of channel versus direct these days? I guess more accounting versus kind of not talking about the FI channel. And I guess specifically, how do you kind of envision that changing over time? And is there anything you're doing to kind of get the mix more towards the direct channel in the near term?

Speaker 4

Got it. Yes. We as you know, historically, if you look at our ex FI go to market, the majority of our new customers come from our relationships with the accounting firms. So the accountant channel that continues to be the case. I don't think we've broken out previously specific numbers between the channels.

Speaker 4

So I won't get to that level of detail. But and we are continuing to invest and enhance our presence and build relationships in the accounting channel that we think will provide a long term growth trajectory for continuing to acquire customers. At the same time, we referenced recently a little bit more focus internally on slightly larger businesses. And we've also had those like with a higher propensity to spend, meaning get on the platform, get up and running now. We have the most control over that in our direct channel.

Speaker 4

How we target sales and marketing resources and where we deploy some of the programs that we have. And we're starting to see the early signs of that playing out. And so I would think from maybe a revenue perspective, slightly larger businesses over time in that direct channel and from the accountant channel, all size businesses and continue to be the majority of our customer acquisition.

Speaker 10

Got it. That's super helpful. Appreciate you taking the questions and appreciate the clarification on the take rate.

Speaker 4

Yes. Thank you.

Operator

The next question comes from James Friedman of SIG. Please go ahead.

Speaker 11

Hi. Thank you for taking the question. I wanted to ask about this build standalone TPV XFI. First of all, do you think that that's still the right way to analyze the company? And Renee, in your earlier answer, when you were using that language neutrality, is that what you're referring to?

Speaker 2

Thank you, James. The neutrality I was referring to was just respect to kind of same store sales, right? Just the businesses are kind of managing their spend. They're not decreasing their spend. They're not increasing their spend.

Speaker 2

They're not expanding their spend. And so what that means is that across the platform, we have seen we do not see contraction, if you will, the way we saw in prior quarters. So we haven't seen expansion. We'd like to see expansion, but we haven't seen expansion yet. So that just to clarify my what I meant by spend neutrality versus spend expansion.

Speaker 2

That's where I was leaning there. Overall on the billed TPV, like we feel really good about what we're able to drive. We continue to add more and more capabilities around the payments to actually drive more share of wallet. We continue to add more and more customers across the platform, which we think is super important. And a lot of this, I would just say, is just continued strong execution.

Speaker 2

It's super important of execution. And I've been fortunate enough, I've been building and creating online software solutions that automate financial operations since 1992. And over the years, I've learned that having a vision, while it's super important, it's not nearly as important as the will, the grit, the passion and all of that to execute better and better each day. And that's what we do at Bill. It's what we're made up.

Speaker 2

It's our DNA And it's what we've always done. It's what we're always going to do. And when you combine that vision with that passion, that grit, that will, you have a combo that is unstoppable. And we feel really good about where we're at and the ability to drive the go to market results that we're seeing.

Speaker 11

Okay. Thanks for that. And then if I could just ask maybe for a one liner on the interchange change, is that something you're prepared to comment on yet or you're going to wait for fiscal 'twenty five?

Speaker 4

Yes. I think it's early for us to have any specific commentary on that. From a timing perspective, it appears that would first potentially come into be in our fiscal Q4 2025. So it's a little ways out there yet. We're obviously aware and paying close attention to that.

Speaker 4

But there's a little bit more information needed for I think us to understand exactly the impact is.

Speaker 6

Okay. Thanks. I'll drop back in the queue. Thank you.

Speaker 5

Thank you.

Operator

The next question comes from Brad Sills of Bank of America. Please go ahead. Your line is open.

Speaker 9

Great. Thank you so much. I wanted to ask about the integration, the progress you've made on integrating receivables with payables and the mobile functionality. How significant is this? In other words, could we start to see this kind of add to the flywheel effect of customer acquisition in your business and how so might that play out?

Speaker 2

Thanks, Brad, for the question. We think simplicity is core to the value proposition the businesses need. And so having an integrated mobile app that has all of the AP, the AR and the other capabilities, spend and expense and cash flow insight and forecasting, having one platform that does all of that will be super important for adoption in the short term, medium term and definitely the long term. And what we did share was that the mobile app is also worse obviously for suppliers and we're seeing increased usage from suppliers using it for instant transfer and even creating invoices back to the customers on the Bill platform. So we think it's part of the overall strategy.

Speaker 2

I guess, another thing just to maybe step back is we talked about our scale. The reason we talk about the scale, the amount of money we move and the number of transactions is because we know that scale drives further scale. And so in this case, the ability for us to really drive more simplicity for our customers comes from how we're seeing them using it across the entire network of 100 of 1000 businesses and millions of network members. And I think when we look even broader at scale, how we're able to use that to actually understand the payment products they need, the AI capabilities that we bring into the platform, These are all things that we're fortunate enough that we have the type of scale that we do and that does lead to better product innovation, which is a quarter of our work every day at Bill. Great.

Speaker 6

Thank you, Renee. One more if I

Speaker 9

may please just on the macro. Maybe I'll just ask it a little differently to you John. The TPV per customer metric is one we all kind of follow here as a gauge there. Are there any signs of improvement whether it's in certain categories for that metric to potentially accelerate? I think it grew 1% this quarter, which is kind of similar to last quarter in the core business.

Speaker 9

Thank you.

Speaker 4

Yes. Thanks, Brad. Yes, it was up slightly this quarter. And if you look at historical sort of patterns with the core bill platform, there is a seasonal effect in the March quarter that typically holds. And so we saw that play out as well.

Speaker 4

But we haven't seen any large scale signals across say multiple spend categories that would lead us to believe there's near term expansion per customer. And I think that leads to Renee's earlier comments about it feels like it's a somewhat neutral spend environment in the very short term. Obviously, on the card side with our spend and expense solution, card volume there exceeded our expectations. It was stronger than we were thinking. And there's definitely strength in the T and E category that is visible there and that's not that's consistent with other companies and airlines and whatnot who are reporting similar stats.

Speaker 4

That's not necessarily broad based yet such that we believe there's significant near term expansion, but I think we have a little bit of a ways to go with regards to inflation, interest rates and other conditions that will give small businesses the confidence that now is the time to expand.

Speaker 2

Great. Thank you, John.

Speaker 4

Thank you.

Operator

Thank you. We have time for one more question. Our last question is from Taylor McGinnis at UBS. Please go ahead.

Speaker 12

Yes. Hi. Thanks so much for taking my questions. So it looks like the 4Q core rev growth guide assumes a bit of a deceleration compared to how you guided last quarter. So when we think about where slower growth might be occurring, anything you would flag as we think through our model?

Speaker 12

So for instance, I don't believe you guided to TPV, but is it fair to assume the old guide is 7% to 8% TPV growth this year still holds? It sounds like earlier you were messaging maybe the potential for take rate to be down sequentially. So maybe that is the area. But just any additional color from a modeling perspective you could help us with? Thanks.

Speaker 4

Yes. Thanks, Taylor. Our core revenue guidance implies about 10% year over year growth at the midpoint, which is ahead of what we, I guess, implied last quarter. There's a number of variables, customers and price plans drive subscriptions and transactions, it's TPV and monetization rate. So it's a pretty simple model that we have.

Speaker 4

And our main expectation is the big picture is that we're going to see muted growth across especially the TPV and rate variables in the very short term and that's certainly embedded in our assumptions for the Q4. On spend and expense, we are expecting full year revenue growth to be slightly higher than the high end of our previous expectations, which was 20% to 25%. So we are seeing a little bit more strength in that's just a volume play there. Our interchange is relatively stable. So those are some of the moving parts.

Speaker 12

Great. Thank you so much.

Speaker 4

Thank you.

Operator

Thank you. This concludes the Q and A session. So I'll turn the call back to Rene Lasser for any closing comments.

Speaker 2

Thank you. Thanks everyone for joining us today. As we celebrate Bill's 18th anniversary, we are all proud of the incredible transformational value that our platform provides SMBs. I'd especially like to call out and thank all of our employees who stepped it up this quarter and continue to drive innovation that empowers our customers to thrive. Thank you.

Operator

This concludes today's call. Thank you for joining. You may now disconnect your line.

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Earnings Conference Call
BILL Q3 2024
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