BILL Holdings, Inc. (BILL) Earnings Call Transcript & Summary

Okay. Well, thank you, everybody, for joining. We are pushing along in the mid-afternoon, and we're really happy to have René from Bill.com join us. So we want to make this interactive. [Operator Instructions] But I think I'll just really start with René, hand it over to him. Let us just understand a little bit about the mission, your vision for the company and kind of where you're headed.

Sure. Well, thanks for having us, Josh. Thanks, everybody, for coming to learn more. So for me, I'm a fourth-generation entrepreneur. So my parents and grandparents had half a dozen businesses each. And I've learned a lot as a kid just kind of watching them grow their businesses. And one of the dinner table conversations often was around cash is king, stretch out the payables, pull in the receivables. And so, for me, when I started my first company, which was an online payroll company called PayCycle in '99, I was trying to do all the things that my parents and grandparents have talked about that I'd help on the weekends going in and manage the payables, other receivables. And I found that I was doing it the same way that my grandfather and dad had done it decades earlier. And it was perplexing to me because I had worked at Intuit and actually worked with Eric and actually helped launch the consumer bill payment asset Intuit launched. And those products were very successful. In a short period of time, we got 200,000 customers to adopt consumer bill payment in the first 90 days, essentially. So it was like, why is it working for consumers but not for business? And I just started nibbling that problem. And it came down to that businesses, they actually like to connect with the transaction, with the document, with their customer, with their vendor, with their employees before they make a payment decision. And so our mission, what I really got focused on is, well, it just needs to be simple. So let's make it simple to connect and do business. And that's ultimately what the mission is for the company. We started the company 14 years ago. And it's been building a platform that allows for that connectivity across the entire end-to-end view of that transaction. And I think that was the secret sauce, if you will, is just having worked enough in payments, enough in software, I was able to see what the platform needed to be able to do and then was able to take the time to build that platform. So that's kind of the mission, make it simple to connect to new business. We got 86,000 customers today that are on the platform. SMBs, for us, are businesses less than $100 million in revenue. We've got 1.8 million interactions on our network with those 86,000 customers moving about $100 billion on an annual basis. So it kind of gives you a sense of the scale that we're at, and all that is just the beginning of the game. As I say, it's early innings still.

Great. Maybe just building on that last comment, the, back office, I don't think, is well understood. Certainly, we've seen the cloud in the front office and CRM and HCM and pretty well understood. I think once you get into the back office, it's not an ecosystem that investors are really exposed to or understand. So maybe just help us understand what some of the issues are and what was really the big hurdle that you had to overcome to get the cloud into the back office.

Yes. I think the -- from a transaction perspective, accounting software, which, like I said, I worked at Intuit and got a chance to work on all of their products, accounting software does a great job of recording a transaction. So you have a transaction, it's an expense or it's an income item, and it's a record of that transaction. But before it becomes a record, there is the need to actually store the document to, obviously, execute a payment. And so our platform was designed to actually help all of that, right? So the back-office mess, if you will, for me, when I was running PayCycle, was every Friday, I'd go in and I would have a stack of checks with invoices attached sometimes, not all the time, because we didn't always have the best filing system, and I didn't have all the information handy to be able to make that decision. And it was walking around the office asking people, were they happy with the work that had been incurred? Do they want to do more work? And the reason that was important is when you are -- and this is what I learned from my dad, was when you're paying somebody or billing somebody, that's your chance to assess, is there an opportunity to do more business with that customer or that supplier? That's when you're asking, is there more value? Like why do I just pay that graphic artist $10,000? Well, did they do great work? So we'd do more of them? That customer that's getting ready to pay me $5,000, do they really like it? Can I sell them more, right? That's the opportunity for me to talk to people. And that was the back office of kind of just saying, "Well, what's the process that a business has?" And it always starts with the document, right? So every transaction starts with a contract or an invoice or a bill and then works its way through. There's obviously data entry around that ticker document. There's collaboration around that document. The collaboration can be internal and external. It might be your accountant. It might be your customer. It might be your vendor. And all of that mess is what I was doing going around the office on Fridays for a couple of hours trying to find out how to make the payment decisions I need to make. And that's what I felt. And so 90% of businesses rely on paper checks as a primary form of payment. And so 90%, you think about that, I mean, if I ask this room, how many of you rely on checks as your primary form of consumer payment, it would not be 90%. Probably very, very few that rely on it. They might still use checks, but that's not the relying mechanism. So for us, that would be aha, like this process is because businesses want to connect with the transaction, they want to understand it before they execute it. If you think about a consumer payment, consumers have -- let's say, on average, the consumer has 5 to 10 bills a month. So any of us can kind of keep track of those 5 or 10 bills. I could say, what's your PG needle? What's your Comcast? I could ask for your bills. And you would know roughly what they are. But a business gets to 20 or 30 pretty quickly, and now there's no chance that they can remember what all those are because some of them are stagnant, but most of them aren't. And that's where you have a process. And that's the mess that we automate. We take all of that process and digitize it so that from your phone, anywhere in the world, you can actually interact with your employees, with your customers, with your suppliers and you execute your payments.

Okay. Great. How should we think about just the tech stack and how SMBs consumes. Certainly, enterprise, it's absolutely best-of-breed. I think SMB, it tends to be more of a really package that they like to purchase and work with as few vendors as possible. So just what's the mindset? And what's the importance of marrying together payables and invoicing? And how strategic is that for your customer set?

Yes. I think the -- when you're going after SMBs, and so we define the S as less than $10 million in revenue and the M as $10 million to $100 million in revenue. When you're going after the SMB market, you have to have simplicity at the core of the experience. And so our customers, what they need is a broad solution that's really easy to get going. So the example is our customers can be up and running in less than 15 minutes. So they don't have to schedule implementation plan for 90 days from now to add some enterprise-level software. And yet the capabilities that we have make sure that our customers don't need to integrate with their banking systems and send files back and forth or integrate their accounting systems other than through our same capabilities. So that simplicity is the critical driver of how we think going to market's going to be the thing that makes us win. And so it's the breadth of the solution that we've -- the needle that we've threaded is how do you have a solution that serves 86,000 businesses today no matter what their size is, because we go up to $100 million revenue, or their industry or their accounting software? And that's been our focus, and that's what businesses ask for. They don't want to think twice about anything. They want to be able to make a decision and go. So we don't care where you bank. We don't care what your accounting software is. You can be up and running in, like I said, less than 15 minutes. It doesn't matter how your documents come to you. We'll handle that. We'll make it easy for you to transition that to a digital document that -- all of that takes place in a simple process as we can. And there's plenty of opportunity for us to continue to simplify.

Great. So you mentioned 86,000 customers. You mentioned the prevalence of cash and check. Just help us understand how big the greenfield is within this market? How addressable is the entire segment, and then just maybe how you fit in versus some of the other players? Certainly, there's mid-market and enterprise-focused players, I think, really attacking the same problem, but it's really different swim lanes. So maybe just kind of help us understand where you fit in.

Yes. Our approach really does stay with that experience that enables us to connect easily for customers and make, obviously, make a transaction happen. So part of our platform is the network. So we have 1.8 million network entities that we help our customers, 86,000, connect with either pay or get paid by those customers. And so the opportunity for us has been creating this simple experience, and that's the $100 billion on an annual basis that we help customers move that money through our bank account to wherever it's going. And that ability to be able to do that efficiently and securely and quickly is unique. And so when I think about the broad market and how early it is, right, 86,000 customers today, and there's 6 million employers in the U.S. So one of the ways that we focus is like, well, I don't know if there's going to be 6 million on our platform, but it's a hell a lot more than 86,000. I mean businesses need this. And if you think about payroll, the last company I started, right, PayCycle, payroll, there's probably 50% of businesses in the U.S. that are using some type of payroll provider. And so that's, I think, the type of innovation that we're trying to bring is to say, "Here's this new way of managing payables and receivables." And we're here for the long haul. We've built a platform that can actually scale and support the broadest segment of the customers. And so -- and that's because of the simplicity in getting signed up, connecting with suppliers and customers, making it easy to pay and get paid and having a platform that means we can move all that money through our platform and manage the risk associated with that money movement. That's one of the things that we think differentiates us compared to others is the way that we move money, and we make it easy for customers. So when I look at the broader market, let's say, the north of $10 million in revenue, there are definitely other people on the AP side that are doing things, but we don't see -- competitively, we just don't see a lot of competition in any of our markets. We have a three-pronged approach for customer acquisition. We have direct, we have accountants and we have financial institution partners that white label our solution. And on the accountants, we don't see any competition. On financial institution partners that white label solutions, we don't see competition. So it's just an opportunity for us to keep creating the awareness and creating the simplicity that any of our partners, any of our accountants, any of our direct customers can get on-boarded quickly and effectively eliminate all the hassle that comes with the mess that they have. So our customers will say 50% to 75% of the time it takes when they start using our platform. So if you can give people back that much time and if you're a small business, that's really meaningful. If you're a medium-sized business, that's quite meaningful as well.

Yes. That's pretty consistent with the message that we've heard today in this market. It's just lots of greenfield. It seems to really be inflecting, and it seems like a really good -- in a really good spot. Maybe I'll just stop there and see if there are any questions. And I have one here.

[indiscernible]

Yes. I mean, obviously, you have to ask them, too, what their strategies are that they're not disclosing. But I can tell you, 3 years ago, they looked at the success that we were having just through the app store that Intuit has. And the amount of customers that were slinking back and forth was quite high. And the way they looked at the data was there was more connectivity between our app at the time and any other apps that Intuit had. Like we were really showing that there was a lot of value back and forth because they saw the same data and like, wow, customers really must like what it is that you're doing. And then they went and looked at the app store reviews, and they saw that there was some very, very high ratings there. So they asked us to embed our application inside of QuickBooks Online for those customers that are, let's say, north of 5 or 10 payments a month. So they have -- Intuit has a broad strategy to have SE, which would not be customers in that segment. You have the Advanced, which we serve Advanced customers directly, and there's lots of opportunity. But at the time and what Intuit has consistently said is that, what you do with payables is not something that we want to do today. But obviously, it's a company that have lots of things that they probably can go execute on. But...

How long [indiscernible]?

What -- I'm sorry.

[indiscernible]?

So the question, though, is...

Are you doing payroll?

We do not do payroll. So my last company, PayCycle, did do payroll, and Intuit bought that in 2009. So there is -- they have a great payroll platform that tries to be a part of their business. So I think the ultimate opportunity is because of the breadth of the platform we have and it's -- we've -- somebody once said to me, as a computer finance program or from HP, he said I've forgotten more languages than you'll ever know. And it was probably 20 years ago. But when I think about what we've done with payments and how we move money effectively, efficiently, securely, it's really hard. And it's just something that I don't think anybody is going to jump in saying, "Hey, I want to go do that," and not have plenty of risks that they have to think about. So...

Any other questions? Just kind of dovetailing on that point, one of the things that really stood out to me about this business, which you talked about a little bit, is some of the network effects. When you think about a couple of million suppliers, almost 100,000 buyers, how difficult would that be for somebody to replicate? And maybe what are some of the inherent benefits that you are getting from that type of scale?

I think the -- one of the inherent benefits we have is we've built a platform that goes after the broad market. And so 86,000 businesses means that we have a long tail of businesses that they interact with. So we know this when we look at the virtual card business that we now have and from talking to the partners that we looked at to help support that part of the business. They looked at the tail suppliers, and they were kind of quite gaga and excited about how many different ways we connected all these different suppliers that they didn't see because it wasn't a vertical approach. So I think what's difficult about what we have is that we've built a solution that's really simple for customers to engage their suppliers or their customers on the platform. And that means we get the broadest cross-section of the economy. And so as that density increases, there's more value for customers that join our business or platform, right? So if you started Bill.com today, the number of vendors and customers that you can automatically connect with in the network and automatically send electronic payments or receive electronic payments is greater today than it was yesterday, was than 3 years ago, right, and will be greater in the future. And that scale -- this is part of the, I think, your question, that scale has advantages. And one of the advantages we see is that north of 50% of our customers come from word-of-mouth. That word-of-mouth might be because they used a set a prior company, they're adding new company. It could be that they got paid by us, and maybe this is interesting. It could be that they pay to a customer theirs that way. And so all those things create more awareness and more density over time. And that's our position. Our job is to stay in front because we are in front now. And now we have to make sure that nobody else catches us. So...

Great. Any other -- another one over here.

You mentioned $100 billion through the [indiscernible]. Do you have any point of view that Bill.com take any risk to offset or improve? Or is there any legacy that may actually -- that might be [indiscernible]?

Yes. So the question -- I was suggested I should repeat the question because not everybody has a mic, right? So the question was on the $100 billion that we move on an annualized run rate basis, that was the number we announced at the earnings call last quarter, what is the risk that we essentially take with those funds? So in order to make it really simple for businesses to be able to get signed up in 15 minutes or less, we do take risk. And so the money goes through our bank account and then goes out, and we decide the rate at which it goes out. But 90% of the payments are able to go very quickly, and a smaller set that we kind of take a little bit more time on, right? So the opportunity for us and what we've done that's unique is all that fund flow is built into our platform. And we have lots of ways to assess and trigger different concerns that we might have and slow down payments, if you think that payment's going to be a risky payment. And so last fiscal year, which ends in June, we did $70 billion of money movement. And what we disclosed in the S-1 is that we had less than $1 million in losses on that $70 billion. So we think it's a competitive advantage, the way we move money and the risk management platform that we have as part of our core underlying foundation.

[indiscernible]

Well, the way we move money, you -- nobody else does it. So Experian doesn't do that. I mean they might give you a credit score.

Do you see that [indiscernible]? Is that something that you do or [indiscernible]?

We have a lot of different tools that we use to assess the risk built into the platform. So some of the stuff that only we have, there's data that we have that nobody else has. You think about the network that we have, the number of businesses paying other businesses, we have data that nobody else has, and that enables us to get more confident as time goes on. But we do leverage plenty of tools to assess any particular entity's risk profile. So...

In terms of determining the rate of [indiscernible] risk around the transaction, does it factor? Or do you have other items going [indiscernible]?

The way we make decisions about moving the funds is what's best for the customer. The customer wants their vendors to be paid as quickly as possible. It depends on if the customer is paying the vendor via a check because it's not yet enabled them to be an electronic payee by sending an e-mail invite, which is really not that hard. That has different risk profile because we have time. The latency in the check model gives us time. And as an ACH, it probably depends on the dollar amount. And so it's a complicated process that all of that's automated into the platform to make the payments go as fast as possible. And that's the goal.

Another one.

René is sort of a KeyBanc Capital Markets loyalist. You guys have been well-known for a long time coming to our conferences. But since the IPO, which has been super successful, your profile rate's dramatically higher. Have you gotten a lot of inbound small businesses contacting you domestically, but also I'm interested internationally? Or are you getting more companies or channel partners who say [indiscernible]?

I think the general awareness from the IPO has actually probably been more readily identifiable with partners. So part of the success of the IPO has a lot of people saying, "As people think that's something that's interesting that maybe I should take more attention to see there's more I can do with Bill.com." So we've seen that from our existing partners. We see it from prospective partners that there has been more awareness generated from the IPO. In the direct customer acquisition, it's kind of hard to say because we already get lots of customers every month, and we were already growing. So it's harder for us to say, "Well, did we get a lift from that or not?" So -- but internationally, we've had a few inbounds. But we're going to stay focused on the 86,000 growing to whatever it needs to be in the U.S. first.

Maybe -- oh, we have another one. Go ahead.

Can you talk a little about how you guys approach the vendor ecosystem and how you go about trying buying out the vendors, particularly on the low end of your SMB scale, whether you might not have other [indiscernible]? And how you get that more potentially sign off on -- getting on to Bill.com platform? And is there going to be any kind of conflict with having multiple platforms or a Coupa or somebody like that kind with kind of vendor fatigue from signing up for all these different payment platforms?

So I think the general question is, how do we enable the suppliers or the customers to join our platform? And is there any potential fatigue from that? So what we do is we make it as easy as possible to enable vendors and supplier to customers to be able to pay and get paid electronically. And the way we do that is, it sounds really simple, but there's a lot more complexity in it. So we get the e-mail address of the entity you're trying to do business with. And then we basically promote to them, you can get paid via check or you can, obviously, get paid electronically. What would you rather do? And so the business will go and they look and they see who we are and they understand what we're doing. And that conversion rate is actually relatively high for us if we get our customer to give us the e-mail address of their supplier or their customer. People do want to transact electronically. And there isn't -- we've not seen fatigue. And it's back to one of the supporting parts of our business is that this long tail of serving every SMB out there or being able to serve the SMB means that people like doing business with us because it's just a lot simpler. And they will get payments from lots of people they couldn't otherwise get payments from. So...

We are getting close on time, so I'm going to give you an optional question. You can either wrap it up with the growth vectors you're most excited about and/or your bold prediction that you think everyone's missing or both. So however you'd like to close.

Yes. So for us, the growth vectors, right, we have 5 that we identify in the S-1. So it's obviously getting more customers. It's enabling more activity with those customers. It's expanding the network. It's monetizing and doing more usage across customers and then internationally. So if we look at the growth vectors, we have a lot of different initiatives across the first 4 that we're constantly focused on. So new customers, it could be the partnerships we have. It could be the account channel, where we have a very unique position there with 70 of the top 104,000 firms across the country, or it could be our direct business. And so that's always going to be a focus for us. And I would say the biggest focus on that one's probably around simplicity across our customer experience. So we know that our product is great for people today, but we know it could be a lot better. And so simplicity is really hard. And I think anybody who's built something that simple, you know how hard it is. And that's something that we're constantly trying to reinvent how we make it simpler for the customer. So that one I'm excited about. And then I would say the other one, we talked about the networks. The -- getting more usage on the platform, what we did with international payments, what we did with card payments, that's also something that we see lots of opportunity for us to continue growing. So I think all of that has me pretty bullish about the business. And when you ask kind of the bold prediction, it's -- we're doing a lot more with AI just because of the data that we have. So if you think about it, there's millions of documents that come into our platform every month. And these are source documents. And we have people actually doing data entry across those documents and then paying and executing. So we know more about a document and can use AI to interpret that document better. And so I think that that's just one example. The bold prediction will be that AI is not going to eliminate jobs like everybody thinks. It's actually going to make people more competitive. It's going to help SMBs grow faster because they can compete with large enterprise companies that would have had schools of people doing the stuff that we're able to do for them. And so we start to see, I guess, 50% to 75% of the time. So if you don't have to think about your back-office process and you've never had any desire to think about your back-office process, and what you really want to do is to be a baker, but now you get to go bake cookies more, right? And that's awesome. And that means you can be more competitive with the local grocery store or whatever and figure out a way to grow your business better. And so I think AI is going to create more opportunities across the SMB space. And we'll continue to see to SMBs drive more job growth than anyplace else.

You're the first person that weaved AI into baking cookies. So it was a nice closing, but...

I like cookies. So...

Yes, I think everybody does. Well, thank you so much for your time, René.

Thank you, Josh.

Thank you, everyone, for joining us.

Thank you.

I really appreciate it. Thank you.