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

Good stuff. Rene, wanted to talk about the main components of the platform here and how it compares versus competition. You guys have a platform of very significant scale. You mentioned 103,000 customers. I think over 2.5 million members was the last stat that I -- I'm actually digging up here. Can you help walk us through 2 issues? I guess, number one, the main components of the platform as you see it, the AP side, the AR side, the payments, the value added services? And secondarily, through that lens, how [ E1 ] compares versus the most significant competitors or alternatives available to customers, that would be helpful.

Sure. Yes. As a fourth generation entrepreneur growing up with my parents and grandparents at the dinner table talking about, hey, cash is king, stretch out the payables, pull on the receivables. When I was 12 years old, I heard that. Fast forward 20 years, I started my first company, and I'm trying to do that like every business in America is trying to, especially in COVID. Everybody's finding to stretch out their payables and manage their expenses, right, while they figure how to collect on the receivables faster. Anyways, this was back in 2000, and I'm trying to do that, and I realized that my process was no different than my grandfather's 50 years older. And that process was papered. That is the main competitor. 90% of businesses today rely on paper as the primary form of payment. And so paper is a great control mechanism. It allows you to make sure that nothing gets paid without you signing a check. But it also is the dominant form of how people file their documents. It is how invoices come in, people walk around the office, they puts sticky notes here and there. And that doesn't work in today's world. And so our platform is built to say, how do we automate all that? How do we digitize and transform the back office? How do we take that paper and whatever other type of documents are out there and put that into one platform so it becomes the back office in the back pocket? And what we've done is we allow you to have all the documents come in. They can be an e-mail version of an invoice or it could be a piece of paper that you got through the mail that you can take a picture with your phone. We then do AI across the documents that come in. We read the information off of it. We understand who the vendor is, what the amount is, what the invoice number is. If we paid that vendor for you before, we now know what workflow would be for that. So now we have automated workflow. And all of that is eliminating that paper process, that competitor that is, like I said, 90% is relying on paper. Then once it's approved, we can execute a payment. And again, the platform does that better than what paper would do because we integrate all the treasury management services that a bank would have. That helps protect against fraud. It helps enable electronic payments. It helps reconciliation. It helps you understand the timing when your payments were made or received. All that information is just part of the platform. And so that ability to kind of have a broad platform that takes the mess, that paper-based world out there, which is, like I said, 90% of our customers tell us -- businesses tell us that they use paper as the primary form of payment. That's something that needs to change. And so what we've been able to do on the AP side is to automate the docket management, automate the workflow, automate the payment side and expiration. And on the AR side, we've been able to automate the invoice serving, if you will, as well as the collection of the funds through a portal that we have. And you referenced all those connections between the AR and AP lead to 2.5 million members on the network. And that is people that are transacting across our platform. The money that we move on an annual basis is north of $100 billion a year. That money goes through our platform and back out to the members or comes in from the members. And so that's the beauty of having a platform that's meant to do both AP and AR. We have a way to kind of connect both sides.

Got you. Super helpful. Maybe if you can touch on some of the other monetization opportunities, call it, on a 1- to 3-year time frame. Clearly, there's a lot you can do with both the data and the funds that are flowing through your system. But how should we think about future growth opportunities? And what are the most material, if you think about transaction revenue growth and how we get there?

Yes. The thing that we've been really focused on, obviously, is increasing our reach and getting from the 100,000-plus customers into the 6 million businesses across the country. But at the same time, we've been able to work on monetization. And so when we look at the platform and extensions, we're going to do things that do both, right? We're going to want to make sure we add features and functionality that bring more customers in. And we're going to want to add features and functionality that actually monetize the platform better. And so things that we think about are spend and expense management. We have an AP management platform. It's very adjacent to those 2 categories. And so to add that capability in so somebody can manage their expense reports or somebody can manage their spending on a purchasing card through the platform Bill.com, that would be great. We also think that the AR capabilities, there's still a lot more automation that can be done there. And so we're going to continue to think about things that we could extend there. And then ultimately, we are thinking about financial processes of all types, and HR and payroll will come into view as well. So lots of ways to extend the platform. I would say, first, we'll think about the spend and expense management and the AR capabilities. And over time, then we'll start thinking about international capabilities as well. And so lots of opportunity for us to continue to add variable-based products. One of the ones that we have talked about recently that I don't think we've talked about yet on this call is real-time payments. So we have a product called Instant Transfer that enables suppliers who are paid -- who are scheduled a payment today to get their money right now versus waiting whatever time frame is going to take. If there's a weekend involved, that can be 3 or 4 days. And sometimes, businesses want that new volume to pay to have that cash today. And so that's an opportunity for us to continue to serve our customers and their suppliers better by enabling real-time payments. So lots of things to continue to add on to the platform and something that we will always be looking to do.

Great. In the time we have left, I want to move on a little bit to some of the competitive dynamics of the industry. You talked a little bit about AP and AR and the combination there and how that helps to differentiate. You also talked about some new products in terms of RTP and also touched on a little bit scale in terms of 100,000-plus customers. Maybe you could talk a little bit more around the importance of scale but also the broader topic of competitive dynamics, some of the other differentiating aspects of your platform.

Scale is critical. I mean, any business, obviously, is better at scale. And when you're in the payments business, that's especially true. So some of the examples of why it matters is we're licensed to move money in all 50 states. So we're regulated by all these different entities. But as we scale, we're able to obviously learn more and do that more efficiently than when we were smaller. Other areas of scale, when you think about it, is just the ability to build more services into the platform. That really makes a difference. And then the reach of the network, right? So when a customer signs up today, the ability for that customer to be able to connect with other members in our network is greater today at 2.5 million than when it was at 1 million. And obviously, as you have more and more scale, that creates more efficiencies and more simplicity for our customers to be able to connect with their buyers and suppliers. And I think the other advantage of scale is just having the ability to -- when you think about the $100-plus billion that we move and manage, having the ability for us to learn from a risk perspective about how to manage all of that money. And that helps us get smarter and better about thinking and doing all the things to protect our customers' funds and to move the business forward in a positive way. So scale has a tremendous amount of leverage for any business. But I think, in particular, with a platform that is connecting with lots of different distribution parties and moves lots of money, scale is a real advantage for us.

Excellent. Thank you. Again, I'll pass it back to my colleague, Yao.

John, maybe moving this over to you for a bit. I guess what metrics should investors unfamiliar with Bill.com's narrative look towards? When we think about operating efficiency of the business, I guess, is there a medium- or long-term financial model you've put out there? Are there LTV/CAC metrics you want investors to focus on? Obviously, very different for the SMB world. But what are the biggest levers to get us from point A to point B?

Sure. Great question. Yes. I'd say, first, to reiterate, we're in growth mode now. We're investing in order to drive additional penetration in the market and grow revenue over the long term. So some of the key measures that we look at to evaluate that is, in addition to our core revenue growth, is our dollar-based net retention rate, which has been at 121% recently. We've seen a significant expansion over the last 2 years from 106% and 110%. And that just reflects the engagement and usage of our platform by customers, and it grows over time as they add new users and do more transactions and adopt new products. And they do that in a self-service way, so different than an enterprise-focused company where they might apply sales and marketing to that expansion. We're able to do it in a self-service way, and that drives significant efficiencies. We have a strong annual customer retention rate of 82%. So that's an important metric. And then finally, we feel good about being able to deploy capital efficiently. And we have about a 5-quarter payback period of our customer acquisition costs. So those are some of the growth-oriented metrics. In terms of operating efficiency and margins, we focus, first and foremost, on our non-GAAP gross margin as a key metric of being able to drive scale and efficiency over time. We're operating in the last quarter at 77%. That's in our range of 75% to 77% that we talked about externally and reflecting strong software margins in addition to some investments we're making to continue to scale the business over time. In terms of the operating expenses in the business, you'll see comparing us to other software companies. We're very efficient from a sales and marketing standpoint if you look at percentage of revenue. And we invest heavily in our product as evidenced in our R&D spend. The other component for us is our G&A as a percentage of revenue tends to be a little bit higher than other software companies. And that's a reflection of our investments in risk regulatory and compliance associated with money transmitter licenses. And as Rene mentioned, those are actually key competitive differentiating capabilities that we have. So over time, we know that we'll create efficiency and scale as we grow. We haven't established or talked externally about the long-term model and timing for reaching profitability or cash flow breakeven. But we are committed to invest responsibly and ultimately transition to be a very profitable business over the long term.

Got it. Got it. And if we think about the business today, how does it look different in terms of either unit economics? You mentioned the net retention rate ticking up, which certainly is extraordinary for an SMB-focused business. How should we think about that and the evolution, as you have more in your portfolio or your channel, your customer mix changes over time? What's the implication on that for unit economics?

Yes. I mean we're confident that we're going to be able to continue to be very efficient in not only acquiring customers but retaining them and growing our relationship over time. We are starting to see slightly larger customers, leverage the platform, and we're making more investments behind those businesses versus the very small, call it, micro customers that have much lower ARPUs or revenue per customer and higher attrition rates. So I think we're confident we're going to be able to continue the strong unit economics that we have as we start to focus on slightly larger businesses going forward.

We only have another minute or so here, unfortunately, but let's see if we can try and squeeze in this last question. Rene, you touched on it a little bit earlier. Maybe we could just dig into it for another minute or so on geographic reach in terms of expansion into potentially other markets. What might be different in those markets? And then also on a somewhat related note, cross-border payments, which you also mentioned has been something launched onto your platform.

Yes. The -- first and foremost, we're focused on the domestic market, like we said, 103,000 businesses out of 6 million. But when you look across the globe, there's about 20 million SMEs that we think have enough complexity that would need our product and service like ours. And our strategy has been, let's nail it in the U.S. and let's -- by nailing it in the U.S., we're going to offer cross-border payments. And the cross-border payments will allow us to learn and understand more about the markets in other countries. And so we launched cross-border payments about 2 years ago. We've been growing and expanding that business. It's doing well for us. And we're starting to understand more about the other markets. And so over time, we will think about and decide how to go to market in other countries. Likely, given that America does business with lots of English-speaking countries, it's likely that it will probably be that direction first. But nothing to commit to at this point. We're just focused on building the cross-border payment capabilities so we can continue to learn and use that as a beachhead when we go into the international markets.

Excellent. Thank you for getting us in there under time. Well done. So Rene and John, on behalf of Yao and Crédit Suisse as a whole, I just want to say thank you for taking your time for being with us today and also hope you have a great day at meetings.

Thank you. take care.

Thank you very much.