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

Hi. Good afternoon. Thank you for joining us today. My name is Samad Samana. I cover software at Jefferies, including Bill.com and [ John Rettig ] Excuse me? All right. I'm not sure what just happened. Sorry. Well, I'm excited to say that with us today, we have René Lacerte, the CEO of Bill.com; and John Rettig, the CFO.

And just due to time, we'll dive right into the questions. René, maybe I think it'd be helpful -- the company went public late last year. We have a large global audience this year due to the virtual nature of the conference. I think it'd be great if you could maybe give a minute or 2 on the Bill.com story for those that may be newer or less familiar with it given the newness to the public markets.

Sure. Thanks for having us, Samad. Always good to connect and catch up. The mission for the business is to make it simple to connect and do business. It's something that I -- having grown up in a family of entrepreneurs, realized that, at a young age, that it was hard to actually manage kind of the back office and the cash flow needs that any business has. And so what we do is we digitally transform how payables and receivables get done. We help businesses automate the processes around the back office. It's the managing of the documents, it's managing workflows, it's managing payments, integration with the accounting system, and it's a real mess. So when you think about it -- let me just use an example from a customer. One of the ones that we highlighted on the earnings call was a customer called Coravin, and it's a wine -- a technology company to help you preserve wine. Anyways, they had a new CFO come on board, and he was stuck managing all these processes. He had to call people to find out if he should pay a bill or not. He had finally canvassed all the files and documents that weren't appropriately filed. He couldn't find the information he need to be able to make decisions when it came to payments. He had payments going in multiple different ways. And again, it was hard to track all of that. And so when he found Bill.com, within a matter of days or weeks, he was able to transform this process. And so what we do is we take that mess that's out there, and there's a lot of mess in the back office. There's a lot of busy work, mundane busy work that a business has to do. We take that. We digitize that. We make it part of a platform that allows you to get back to doing what you do best, which does not have to be finances because we can make the back office work for you. So that's what we do at a high level. We got 98,000 businesses that are on the platform today. We look at the market as being around 6 million employers in the U.S. We do about $100 billion run rate on money movement through the platform. We have 5 of the top 10 banks that rely on our platform to serve their customers, and we have 80 of the top 100 accounting firms that do the same. So lots of good things about the platform the scale that we're at today.

Great. Thanks for -- I think it's a good launching point into several threads that I want to pull on there. I think the first being -- you mentioned the $100 billion type of run rate in terms of TPV. I'm wondering if maybe we can step back and talk about just how you think about the size of the TAM that you're addressing in payment volume terms and customer terms. And just maybe where are we in terms of the adoption? We've heard from some of the other companies in this space throughout the course of this conference. So I'm just curious, from a framing perspective, where you see Bill.com in this market and where it sits in the market.

Yes. Ultimately, kind of the passion I have around the business is all around helping the SMB, right, and the -- everything I grew up, and I mentioned this in the first question, was just -- it was all about SMBs. My parents actually served and had multiple SMBs. Actually, got a great text from my aunt today -- yesterday about an article from my grandfather. And if I were to show you this article, it was 50 years ago in the Tampa Tribune. It was all about him serving SMBs. And so I have a tremendous amount of passion around this. And when you look at SMBs, there's 6 million businesses. And so we have employees. And so we have 98,000 out of the 6 million. There's 30 million across the globe that we think could use our type of platform over time. And we're just very early in the adoption cycle. So we -- with the 98,000, we're doing $100 million run rate in money movement. And we're just at the beginning stages of really making this market unfold. So simplicity is really critical for everything that we're doing. And it's something that when you go from the base that we have to the mass market, you got to really refine that simplicity. That's one of the strategies behind our direct and our accounting and our partner efforts is to just continue to bring in simplicity everywhere we can.

Great. And if we maybe zoom in on some more recent trends, I think early on, when everybody is forced to work from home, there is this concern that customers may be nervous about making changes to the software they're using, and they're maybe less likely to want to change old processes. But I'm curious now, several months with everybody being distributed, if you're seeing a change in customer behavior and accelerating that digitization of the finance function and an increasing need to move from analog to digital payments and modernizing the AP function. And just what you're seeing there in terms of customer behavior and customer conversations.

I mean one thing we know about COVID is we don't know a lot about COVID, right? We don't know a lot about what the recession is and where we're going. And what we did see -- and we can obviously talk historically, what we did see is that there was this immediate need for businesses to -- because of shelter-in-place, and that was kind of what drove the Q4 customer numbers. We also knew and expected that there would be increased attrition. Now the attrition was not as bad as feared. I think a lot of the government programs helped. I think businesses are quite resilient as well. But what we have seen since Q4, what we've referenced is that the transacting volume is still not back to -- it's better than it was but still not back to the pre-COVID. And the reason I bring that context up is that there's still uncertainty going forward for all of us. And that means that, I think, to your point around businesses that are adopting new technology, I think there's still some, if you will, wait and see. And so we see COVID as a tailwind over time. We don't expect it to be -- and we saw it as a onetime bump, but we don't expect it to be a stair-step in customer acquisition, if you will, right? We know that customers want more high-grade capabilities. I mean if you talk to any business, all of us have had to deal with how do you manage employees remotely? How do you manage your environment, your whole business without having to go to the office? And that's going to create a lasting effect. We see it from our partners, right? When you talk to our partners today, the top financial institutions in the country, they're really committed to understanding how do they digitally transform their customers off of paper checks. It's just -- it's time and it's ready. And so that commitment, it doesn't, again, happen overnight, but it just means there's a commitment to make it happen over the next coming years ahead. And so that's what we see from COVID. So we see, obviously, a lot of resiliency in the economy and a lot of resiliency from our customers, and we expect to be able to keep driving that across the platform.

Great. And René, I had this later in my list of questions, but since you mentioned the financial institution partners, I think we were all surprised with how big -- with the deals that were announced by -- with Wells Fargo and another top 3 bank and the KeyBanc partnership that was announced as well, and it was seen in the RPO number. I'm just curious maybe if you could help us understand how well you're pressed against financial institutions today as they press against SMBs. And is it now more about ramping existing FI partnerships? Or are there still plenty of new banks to go out there and work with as well?

So we have 5 of the top 10. So obviously, there's more banks to go get. And within the existing banks, we have more opportunity to go across the platform. One of the things that was really exciting for us in the last quarter was the ability to talk about, not in name, but in what we're going to be doing with this top 3 bank in the country as we've been a partner of theirs on the commercial side for a number of years and to be able to leverage that success and that they know how we work. They understand our capabilities, and they understand the customer benefits. And they know that customers save 50% or more time on their back office. And for them to say, it's time for us to go bring this to the SMB space, that's very powerful. And we think that's going to have a lot of opportunity for us to continue to increase customer adoption over time. It's going to take us time to get that one launched and then we'll need to invest behind that. But what we know is that this is only going to get -- the momentum is only going to continue to get stronger, right? I mean businesses -- 90% of businesses rely on paper as a primary form of payment. Financial institutions and partners, they think of, in AR, the payment vehicle for all of us in this country, and they want to make sure that they're providing the best payment solutions. So we see the 3 deals that we got and we got to talk about and announced as being important as, I guess, mile markers, if you will, about the success and what we have achieved to date. And we also know that partnership is all about doing what's right for the partner over time. And so we need to go deliver on what we just ingested. And it takes time to digest what you ingest, right? And so we got to make sure that we deliver on these partnerships. At the same time, we announced that we were partnering more with QuickBooks Online Advanced. And so a lot for us to make sure that we get right, and that's what we're going to focus on right now.

Great. And John, I think there's a couple of follow-ups there from maybe -- that are more geared toward your perspective. But I think maybe first, on the customer acquisition side, I know the company was running a promo early on. I'm curious if you could just maybe talk about the success of that program both from a conversion perspective. And then as you think philosophically, is there -- are there any plans -- or maybe would you consider extending that as just a permanent customer acquisition vehicle given that it brought new customers into the funnel?

Yes. From a customer acquisition standpoint, we saw similar to the acceleration trend that René mentioned earlier with those -- with the free subscription offer, just -- I think customers were leaning in. They had more intention to close faster, to get users on the platform faster, to get transaction volumes ramp faster versus taking a test-and-learn and evolving their use of the platform over time. So like intent and motivation seem to be a lot quicker than we've seen previously. And we've seen that sustain itself through some of the new customer acquisition over the last few months. The final results aren't in on that particular cohort of customers yet, but we do know that the conversion rate was higher than we typically see. And it is a tool that we're going to be testing on an ongoing basis to potentially fold into our regular customer acquisition programs. And I think it may just be that the time is right now given the dynamic change in the market and what many businesses had to experience when trying to run their financial operations in a remote working environment. They just weren't set up to do it. Their bank couldn't really help them, and they needed a platform. So I think that's a sort of sustained opportunity for us. And the promo will be a part of our tool chest to continue to penetrate the market.

Great. And then maybe one more follow-up on the RPO side. I know that's not typically something that most investors focus on for Bill, but since it was such a big number in terms of the increase, I was wondering if maybe you could just talk to how we should think about that rolling into the model maybe on a go-forward basis. And just some people better understand why it's still good to focus on subscribers and TPV over maybe just getting lost in the RPO number itself.

Yes. The RPO number, it's a little more than $150 million as of the end of June, of which about $13 million is going to be recognized in revenue over the next year and $139 million in future periods. And the reason we sort of highlighted that is it's kind of a shift in the magnitude of the commitments that our financial institution partners are making with Bill.com. And that's kind of a testament to the strong belief that they have that they can offer a differentiated solution to their customers across all segments, small business, commercial, larger businesses with our platform. These agreements are typically 5 years in duration, and they have minimums that ramp over the first 12 or 18 months. So the way to think about that RPO number is it'll flow through the P&L, $13 million of revenue in this next year, and then it will sort of ramp from there before we get to the normalized minimum levels. And to the extent that we're more successful in driving better customer penetration or higher transaction rates from customers, there's upside to those RPO numbers. That's the -- I guess the way to think about it is the RPO is the floor, not the ceiling, and we'll have additional growth opportunities from there.

Very helpful. René, maybe circling back. I know that one of the big initiatives of the company has been -- a big growth driver has been newer payment types, right, not just shifting from checks to digital transactions, but then the type of transaction. And I was wondering if maybe you could talk a little bit more about virtual card and what the value proposition for Bill.com's customers is and what the value proposition is for the suppliers that you're ultimately trying to drive accepting -- acceptance of virtual card.