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

Hello, everyone. Thank you for joining us for Citi's 10th Annual Fintech Conference or Fintech X. My name is Andrew Schmidt, Citi's payments, processors and IT services analyst with a focus on fintech software. I'm excited today to host Bill.com. With us from Bill.com, we have Rene Lacerte, CEO and Founder; and John Rettig, CFO. Bill.com is an exciting story, serving B2B payments for SMBs, a theme that we've talked about throughout the conference as a very, very significant and long-term sort of secular structural growth theme. So we're excited to dig in a little bit further. Rene, John, thank you for joining me.

Thanks for having us, Andrew. Always good to connect.

Great. And just note for the audience. If you want to ask questions, there is a panel on the side of your -- the webcast. So they will come to me, and then I'll work them into the conversation flow.

So Rene, I want to start off with just a high level, just overview question. We do have a lot of international folks joining who may not be familiar with the Bill.com story. Obviously, a lot of things have happened since the IPO as well, and the company is evolving very fast. So could you just give us a high-level overview of the Bill.com story and kind of where you sit in the B2B payments ecosystem? That would be a good place to start.

Sure. The mission for the company, and my mission over the last 20 years, has been to make it simple to connect and do business. And I have that because I grew up in a family of small businesses. My parents and grandparents always taught me that cash is king, stretch out the payables and pull in the receivables. And when I started my first company, an online payroll company, I found it was really hard to do that. It was really difficult to manage and track all of the payments that were coming and going. And so if you think about anybody who has their own personal office, you might see that there's a filing cabinet at home that doesn't really have stuff organized appropriately. And so that hassle, that mess of walking around the office, checking in with the folks that had incurred the expense, ask them whether it was good or not, ask them if they were customers we should invoice again or whatnot, that whole process is not automated. It's manual. And the way I look at it, the way we look at it, is there's 6 million businesses in the U.S. that have enough complexity that they need help. And they don't go into business to actually do this stuff, they go into business to pursue a passion. And our passion is to make their lives easier. And so when there's 6 million businesses out there that -- whose lifeblood is cash, and oxygen is the most important part to the cash flow, that's something that we need to do.

Got it. That's a good high-level overview. And then you recently celebrated a milestone, 100,000 users on the platform. You can probably remember the first 1,000, I would imagine, as a milestone. So what are the key factors? I know it's very hard to sum up. But what are the key factors that got you from there to here today where you are at such a scale?

Yes. The first thing that we did is we built a platform from the beginning to serve SMBs. The way we find SMBs is business is up to $100 million in revenue, and we think there's around 6 million of those in the country. And having a platform that goes end-to-end. So we manage everything from the documents that come in. So that back-office miss, that filing cabinet that nobody knows how to file, that's gone. Writing checks and signing checks, that's gone. 90% of businesses today still use checks as the primary of form of payment, right, in the U.S And so our ability to kind of take that process and get rid of the manual painful, time-consuming activity, us of filing cabinets and checks and reconciliation and integration accounting software. So our ability to have one platform makes a difference. But then on top of that platform, we've got a go-to-market strategy that includes multiple channels. And so I learned early on that when you define a category, you have to have multiple ways of reaching customers. And so we go direct. We go to accounts, which then bring in their clients. And then we go to financial institutions which bring in their clients. And we go to financial institutions which bring in their clients. And we also go to the accounting software partners like Intuit. So lots of ways for us to make that success happen. But getting to 100,000 customers was really a combination of a great go-to-market strategy and a great platform that we built since day 1.

That's super helpful, and we'll get to the go-to-market strategy in a moment. But I want -- a question we often get is, what are the advantages of serving different sized businesses within business payments, business software? So can you talk about why SMB is attractive maybe relative to other segments of the market? I think that would be helpful for folks.

Yes. I mean, the first thing is it is just a personal passion that I have because I grew up in a family of small businesses. My parents had a handful and my grandparents had a handful as well. So just learning that and feeling that and having empathy for the challenges they have, that comes personally. But then the next thing is it's just a massive part of the economy. They are the lifeblood of America, right? This is what drives every business statistic that you see. I mean, half of all the employees come out of the SMB space. And so having that opportunity to kind of serve and be of service to that community is something that was fit with my personal mission and really felt there was an opportunity to do something different. So we look at the broad market as something being quite horizontal, and where there is a way to thread the needle across all of the different needs that a business has, much in the same way that Intuit's done on the accounting software side, right? And so if you look at the financial processes that we're automating, we're threading that needle so that we can serve the broadest cross-section of the economy.

Got it. Okay. And I think, obviously, COVID is a recurring theme throughout the conference. And I think originally, there was a fear that there was going to be a significant sort of impact from attrition in the SMB base related to COVID. Could you talk about just what you've observed? And I think, arguably, in terms of just SMB health, you see funds coming and going. You have a good view of business health. What are you seeing today from just an SMB health perspective? And how does that affect the platform?

Yes. It's a good question, Andrew. And I think we are in a unique position between buyers and suppliers, 100,000 customers and a network of 2.5 million members, to have a sense of the pulse of the market of customers. So we did see a short-term increase sort of in attrition at the beginning of the pandemic. And I think that was really a result of the negative impact of some businesses needing to close, whether it was consumer-facing brick-and-mortar businesses and restaurants and things like that. But what's really interesting is how resilient the whole SMB customer segment has been. So we've seen a return to pre-COVID levels for attrition. We've seen an increase in activity across our customer base kind of on a monthly and quarterly basis over the last couple of quarters. We talked a little bit on our last call about businesses kind of getting back to business, it seems like. And certainly, there's still uncertainty ahead for companies, but we feel really good about the resiliency of the small business market and companies' ability to adapt. And we're a part of that, is given that we help with digital transformation and helping companies work from wherever they have to.

Yes. On that point, that's a really good point, adaptation. And certainly benefit from people having to receive and make payments from anywhere versus the office, and that's a trend that we've seen. A corresponding trend is the electronification of payments. With the mail slowing down, with people -- payments slowing down, in other factors, there seems to be a shift to sort of electronic payment methods. Could you talk about what you're seeing from just a electronification perspective? And maybe talk -- and there are monetization implications. So can you talk about just whether you've seen a significant uptick in payments monetization and whether those trends are sustainable post-COVID?

Yes. I worked at Intuit in the early mid-90s on consumer bill payment. And we all know that consumer bill payment, by the early 2000s, everybody had switched over, and they were just not writing checks at home very often, but that isn't so with businesses. And so the stat I mentioned earlier is 90% of businesses still rely on checks as the primary form of payment. And when those customers come to us, all businesses come to us, they start off with a 5% or 10% other payments being electronic in that first month. But then quickly, it migrates over time into something more electronic. And so I think that roughly where around 60% of our payments are electronic across our platform. And so this shift of the payments being electronic is something that we've been committed to since I started the company in 2006, and we see it happening every day. Now we think COVID has been definitely an accelerant for some types of payments and some people that need to have the payments electronic when they're not coming in. But in general, it is a shift that's been happening for a while. And so we make the ACH payments happen electronically, we make international payments happen electronically, and we do card payments electronically for suppliers that accept card. And so the ability to be able to route the payment in the most efficient way, the most secure way to the supplier and making sure that our customers just don't have to worry about it, which is what happens when you use Bill.com, that's what -- is driving the adoption that you're seeing. That's why the monetization goes up because there's different monetization levels in each of those types of payments.

Got it. That's helpful. And you mentioned cross-border. Could you talk about where you're at with cross-border payment capabilities, maybe the penetration rate and the demand you're seeing on the platform for that? Obviously, it's a little bit tough to tease out with COVID. There's been some cloudy trends, but anything on just cross-border functionality and adoption would be helpful.

Sure. I mean, we launched our cross-border payment product 18, 24 months ago. We've seen good adoption across our customer base. In fact, in the fourth quarter, we disclosed that our cross-border TPV was about 2.4% of our total TPV. And so it represents a significant opportunity. Small businesses, just like large businesses, have global relationships now. And being able to interact with, collaborate with and pay your suppliers all in one platform and not having to go online to your bank or things like that is a pretty significant value proposition. Today, we're -- around 25% of our cross-border payments are actually in local currency. And so we're doing a lot in working directly with suppliers to give them choice about receiving U.S. dollars or local currency. We think over time, it's probably 40% to 50% of cross-border payments end up being local currency. So there's a significant opportunity over the intermediate term for us to continue to drive adoption and increase monetization as local currency becomes a bigger part of the story for cross-border payments.

Okay. That's helpful. And I think one thing you mentioned more recently is that you're bringing supplier enablement in-house. What is the -- and I think this is sort of corresponds to helping payments become more electronified. But what does that give you? And does that lead to more payments monetization, payments penetration? Just any thoughts around the supplier enablement would be helpful.

Yes. Maybe I'll just step back a little bit and explain which type of payment we're talking about. So in our network of people that we pay, and we have 2.5 million that are on our electronic network that we talk about, but there's many more going out via check. And so when we look across all of the vendor/suppliers that we pay, some of those suppliers actually accept credit cards as a form payment. They like it because it's secure, it's fast. They get the money right now reconciled with their same-day processing with their other card transactions, and there's a little bit better reconciliation of information. So what we're doing with supplier enablement is finding those suppliers that actually take and accept card and want to get payments via a card. And to your point on the monetization, when they do that, those suppliers are willing to pay the merchant discount fee, right, which can be anywhere from 2% to 3%, somewhere in that range. And as a result, some of those economics come to us. And so we have an opportunity to increase the monetization. And what we found is that we had this massive long tail of suppliers that we work with, given that we have 100,000-plus businesses on our platform, that the interaction with those suppliers is helpful for us to learn how to actually get more suppliers on board. And so we have a great partnership with Comdata. We've been doing -- and they are obviously helping us as part of this supplier enablement. But we figured that if we were able to talk directly to the supplier, we'd get better learning so we could iterate faster about how to get more suppliers on the platform with card payments. And so we brought it in-house some time in the last quarter and have been working hard to continue to increase the efficiency and the success of those teams.

That's a really good point. I'm glad you mentioned that in terms of having both sides of the network. What -- one thing that is, I was reading, one thing was interesting was the Instant Transfer product. Could you talk a little bit about that? That seems to be like maybe a certainly helpful liquidity product for businesses. Is this part of kind of making the network you have more efficient and rolling out tools more broadly? I guess a little bit about the Instant Transfer product and then more broadly about maximizing both sides of the network.

Yes. Everything that we see is that on the paying outside, businesses like to have control around the process. And on the receiving side, the suppliers like to get paid faster. Everybody wants to get paid faster. Nobody wants to have to wait for a payment. And so there are opportunities using the real-time payment network for us to send payments faster. Now there's also a risk for us there, but we feel confident in our ability to be able to send that and manage that appropriately. And so what we're doing is we're going out to suppliers that would have received a payment from us in the future. And we're saying, "You can get it right now. If you get it -- if you want it right now, here's what the fee structure looks like." Now we're in pilot mode. We haven't determined pricing on this yet. It'll be most likely ad valorem is the way we're thinking about it, much in the same way that a PayPal or a Square goes to market with their instant cash offers, right? But the opportunity is to really help suppliers do what they need to do to run their business, which is to manage their cash and to bring in and accelerate cash flow. And so that's the opportunity on Instant Transfer, and it's something that we're excited about and feel good about the early data that we're seeing from across our network.

That's great. Are there other opportunities on the supplier side to roll out similar products or additional products to kind of create more productivity on that side of the network as well?

We think that there is a lot of opportunity to engage suppliers with what they need, and that's one that values of having a network that has already done that on the ACH side, where we have 2.5 million that are accepting or receiving payments from us. And so that opportunity is always going to be there. In the last few years, John already talked about cross-border payments. We launched that. We launched supplier enablement and part of the V-card process, that -- the virtual card process that we have. And now we've launched Instant Transfer. So I'm sure there will be more innovations in the years to come. But we feel like we have a good pace of innovation going that we can continue to add value for suppliers and really increase the value at both sides of our network.

Understood. That's helpful. I think one thing that Bill.com has done really well. When we think about the SMB segment, one of the challenges is distribution. So could you talk about your strategy in terms of just distribution, whether -- what part is direct versus banks? We'll dig a little bit into the specific partnerships, but just go-to-market strategy at a high level would be helpful.