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

Good morning, and good afternoon to those of you in Europe. My name is Bhavan Suri. I, together with Bob Napoli are the analysts who co-cover Bill.com at William Blair, and you can find the appropriate disclosures on our website at www.williamblair.com. It's a great pleasure to have René, the CEO; and John, the CFO, of Bill.com with us today. Gentlemen, thank you for your support. Thank you for supporting Bob, myself and William Blair. Appreciate you taking the time to join us. We're going to do this as a fireside chat. I'll kick it off, and then I'll turn it to Bob. If you do have questions, please enter them into the chat, and Bob will curate those.

I think maybe, René, just at a high level, while most of our investors are familiar with the story, there are some newer folks here. Maybe just quickly briefly describe what Bill.com does, the problems you solve and the markets you serve.

Cool. Great to be here, Bhavan and Bob. Thanks for having us. As a small business entrepreneur and one that's lived that family life over many generations, what I know is that SMBs have a complicated life. It's really busy. They're constantly trying to do multiple things. And the one thing that they really don't want to focus on is financial operations. And so financial operations for us is accounts payable, accounts receivables, expense management, spend management, things like that. And so when we think about how we can make the SMB's life simpler and give them time back so they can actually focus on what they want to do, we think about those things. So what we do at Bill.com is we automate the financial operations. We take all the mess in the back office, all the paper that's out there, we digitize it. We do AI around it. So we enter the information automatically. We handle the payments. We integrate the accounting software. We create the workflow systems around it. But at our core, what we're doing is just giving them their time back, making it much simpler for them to be able to put the back office in the back pocket. And that means you can run your business from anywhere in the world on your iPhone or your Android phone and be able to actually manage all those relationships with your customers and your suppliers. And that's a superimportant part of what an SMB does every day is managing those relationships through the payables and receivables process.

That's great. That's great. And so let's touch on sort of, as you think about the long-term vision here, how do you define it? You just made an acquisition of Divvy. That's awesome and congratulations. I know Bob will dig into the dynamics and the synergies there. But as you've thought about the Bill.com platform, you've added AP, AR. We've talked about invoicing, purchase orders, et cetera. What's next? At one time, you've mentioned payroll. Would love to understand sort of your longer term, not next quarter, next year, but the 5-, 10-year type vision for Bill.

Yes. It's a great question, Bhavan. And just to give some background to some of the investors that may not know us as well. We're at 115,000-plus customers. We believe there are 6 million SMBs that have employees across the country. And we think that's the market opportunity. And those SMBs need financial operations. They need them automated. They have a number of processes that are manual-based. And so when we look at what the long-term opportunity is, is how do we actually take the 115,000 customer base that we have and extend the automation that we've built on our platform to all of those businesses. And so part of that is through our distribution channels, which we'll talk about that, I'm sure. But having the ability to go direct, to go to accounts, go through partners such as financial institutions, that is an important part of the long-term strategy. And the other part is continuing just to simplify so that we can reach more and more of those businesses. So the examples of simplification that we can talk about is automatically entering all the bills, automatically invoicing your customers, taking things like that, that are manual process today and digitizing that. And so ultimately, what we did with Divvy was saying, we understand AP. We understand AR. And there's this new category that's starting out in spend management, expense management and is digitizing and using the ability to marry, if you will, the smart card capabilities that the card companies have with beautiful, elegant modern software and giving the controls and the mechanisms so that business owners can actually manage their payments, their expenses that are happening real-time with a nice beautiful software solution. So when we think about what we're doing, ultimately, on the AP side, we're handling all the invoices that come into a business. What Divvy is helping us do is handle all the payments that happen right now. This is your time and expense management. It might be a corporate card expense that you're trying to take care of. And so when we think about the long term, it is taking things like we've already done, the AP workflows, the AR workflows, now the spend and expense management workflows, continuing to simplify those and extend that into, like you said, other financial operations, which could be HR. It could be payroll. It could also be working capital. These are all things that our platform is well-suited for. Our platform has been built from the ground up to support and manage businesses, all their documents, all their workflows, all their payments, all the regulatory compliance that a business would have related to all those things. And that infrastructure that we've built is definitely scaling nicely and an opportunity for us to continue to add functionality for businesses.

Yes. No. I think of it almost as you started off saying the small business owner has a tough job. It's almost like letting them focus on the fun stuff, which is product development and customers, and not worrying about all this stuff to make the business run. Totally get it. Let's drill into this.

Let me just say that, it just reminds me of, when my dad would come home and he was excited, it was because he was building product. He never got excited talking about AP or AR. Usually, if he's talking about either one of those, he might have been cursing. So this is what we do. We take that out, and we make it so simple, they can focus on the fun stuff.

Yes. No. Got it. Customer growth, René, has been really strong. I guess as you think about the drivers there, I'd love to unpack that a little bit. Is it the accounting channel? What else is driving that? Is it the financial institutional distribution partnerships with folks like Wells, et cetera? What's driving some of that really, I mean, just best-in-class type of customer growth?

Yes. Well, thank you, Bhavan. There's 3 things that I think of that drive our success. First is the people in the company. We've got a great team. People are very dedicated to each other and our customers. And then we've got this platform that really is making it simple across the entire financial operational needs that a business has. And then the third thing is distribution, which is kind of what you're pointing to right now. The distribution channels that we have are the direct where we drive digital demand gen through digital marketing into an inside sales, high-velocity sales team. Then the accountants where it's kind of a many to many. We have 5,000 firms across the country, 80 of the top 100. And each of those firms has more than one client on the platform. Many of them have, many more than one firm. And then the third is financial institutions, and financial institutions and partners like Intuit. Those partnerships bring us kind of a one to many, many, many, right? It's the millions of businesses potentially they reach, the hundreds of thousands of businesses they can reach. And so when we look at what's driving our success, one of the things I'm very happy with is that we're seeing strength in all of those channels. And to me, one of the important differentiators about our business is that we just don't have one channel that we rely on. We have multiple channels that can support each other and learn from each other. And so we've had quarters where we've emphasized success with the accountants. We've had quarters where we've emphasized success with our financial institution partners. And we have quarters where we emphasize the success on our digital capabilities. So all of this is, I think, something that's superimportant for us is to leverage what we learn in one channel and help the other channels be more successful. And that's kind of the benefits of scale that you end up getting more learning across all these different avenues.

Yes. I'd love it if you could maybe quantify a little bit the value of the network. So you touched on everything but the network, but I think that's a pretty critical part where people see and use Bill, but they're not customers yet, but then they realize how easy it is, and they think about, why do I have to hire another person to go do manual AP, AR, whatever, and bring it on. Just help us understand sort of, if you look at that customer growth, and it's hard to gauge what's driving it, but I'd love to understand a little more the value of how you perceive. We obviously perceive in a high fashion, but how you value that network and how we should think about it.

Yes. So the network is superimportant, and it comes into our direct channel efforts. So when I was thinking about those 3, that's where I think of the network being. So the network is, every one of our customers uses us to pay or get paid by their suppliers and their clients. And so when they're interacting with a supplier for the first time, we'll engage with e-mail or some other fashion to kind of say, would you like to get paid electronically? And that allows us to add an entity into our network. The network today is over 2.5 million members strong. And once we have those entities in our network, we are then able to do in-product messaging as well as outbound and outreach to drive some of those customers to upgrade into our paid solutions. We think it's superimportant that as we continue to grow that network from 2.5 million to something much bigger that we'll be able to continue to tap and drive more of our direct demand gen from that network. And so simplicity in the network is superimportant because if somebody is going to take the time to sign up and receive payment from us or to make a payment to somebody, it has to be easy because this isn't what they signed up for. They're kind of at the effect of somebody else. And so we focus on that, and we believe there continues to be opportunity to enhance. Now one of the things that's important about the network is how easy we make those connections happen. And this is an area where we've been able to leverage the AI capabilities that we've been building over the last few years to really make it so that when a customer comes on, the vision is that we self-identify just based on our data and the data that we get from the sync with their accounting software all the links that are possible across our network. And that's something that we continue to work on and we'll continue to improve for our customers. But you can envision that when we have that really humming, that's going to really help the network create more connectivity and really drive success for the business.

Yes. No. Bob and I are both pretty excited about the longer-term impacts of that network. Let me turn one over to John here. John, transaction growth has been accelerating, 19% last quarter. I guess as you think about it, do you expect transaction growth to grow faster than customer growth over the long term? How should we think about the sort of trajectory of those 2 lines up over, not even a couple of years, but 3 to 5 years?

Sure. Yes. I mean, we're really pleased with 3 quarters in a row of accelerating transaction volume growth. We've seen really a strong recovery in customer activity throughout the pandemic, especially in payment volume, which grew 44% year-over-year in the March quarter, up from 40% in the December quarter. And it kind of says, SMBs are resilient. They're getting back to business. And we're seeing that in the metrics, right? And as we enhance our platform, we add more features and products, we usually see increased customer adoption and more payment activity. And this leads to that transaction growth that you mentioned and payment volume growth. An example is when we launched cross-border payments, that allowed customers to do more in one place inside our platform, and it led to more payment volume and more transactions from the existing customer base. So as we continue to roll out products, it makes sense as we drive adoption of those that we could see enhanced payment volume and transaction growth over and above customer growth.

Yes. No. That's great. I'll just turn a question over to René. As you think about Bill.com, René, you certainly talk about small businesses, but you've also started working with sort of large and mid-market customers. I guess just an update on that. And what investments do you think you need to keep making as a business to be successful as you move upmarket, both on the R&D side and the go-to-market side?

One of the things that's been, I think, superimportant to me as I've built the company is to build the simplest solution across the broadest range of customers. And so when we think about the mid-market, it really has been a pull upmarket because the product already works for them. Now there are features that those customers would like, but the first thing that they really need is simplicity in their financial operations. And we deliver simplicity in financial operations for businesses of all sizes. And so the types of features that our mid-market customers are asking us to do -- and as we scale, we have resources to do this -- are things like the integration with Microsoft Dynamics and Great Plains and Business Central platforms. Other things would be SSO sign-in capabilities, the ability to have HIPAA compliance. These are things that we've rolled out and released. And we'll continue to support those customers as they come to us and there's more opportunity in the market as we have more reach, so to speak, from our general marketing and sales efforts. And so it's something that we will continue to focus on is, first, simplicity and then understanding the features that uniquely make any customer experience better. And there are some, obviously, for the small businesses and there are definitely some for the mid-market customers that we're able to work on.

Got you. Got you. I want to touch on something you mentioned just now. How is the Intuit relationship? And you touched on it earlier. Helped or is this something where we see a switch away from Intuit into something like a Great Plains or a Dynamics or even a NetSuite or other pieces where, again, the mid-market customers might be using a different general ledger kind of system. I'd love to understand sort of how you think about that, then I'll turn it over to Bob.

Yes. So one, it's obviously a really big market. Intuit has a significant share of all accounting software usage in the country. We have been a longtime partner with them and a very strong partner of theirs and vice versa, where we support each other's businesses and with our goals and missions to really kind of go after and simplify the lives of businesses. And so recently, I think it was last July or probably the last August quarter call where Sasan kind of announced that they had 5 big bets. And one of those was their mid-market businesses as well, which we were just talking about. So the partnership with Intuit has shifted to the QuickBooks Online Advanced customers and really helping go after that market. What we see with Intuit in general is that we get customers from all of our channels, and they use Intuit's products. And we're going to always support that sync. And we're going to always support the app store on Intuit. And we're going to support the partnership with Intuit to actually go after their larger customers and support them better. So the addition of the Great Plains sync or the NetSuite or Intacct, that's just us addressing the parts of the market that Intuit doesn't have today.

Got you. Got you. That was awesome. I'll turn it to Bob. Bob?

Thank you. And René, it's been almost 10 years exactly in a few months when we first had dinner in San Francisco. And it's just, there's nothing more rewarding than to see, I mean, the roadblocks that you had then, that was so far away from where we are, and to see the progress over this time is very rewarding. So congratulations on that. And John, great to see you as well. Just I'm getting a number of questions from people. But one of the things, and for John is, that comes up most frequently with investors before Divvy and now Divvy, revenue per transaction literally doubled since 2019. In the last 2 quarters, you've had RPT increase 21% and then 14% sequentially. There are estimates all over the Street on the buy-side from our clients on what that number can be. We actually had yesterday FLEETCOR talking about $28 per virtual card transaction, $38 for cross-border transaction. What can that revenue per transaction go to over time?

Yes. Thanks, Bob. It's a great question. And we've made a lot of progress delivering payment product innovation for our customers. And we've seen as they adopt our new solutions, we've been successful in growing that revenue per transaction, as you've noted, but we think it's tied to the value that we're delivering for customers. And so several of the products that we've introduced in the last, call it, 18 months or so have an ad valorem monetization model. So the revenue is tied to the size of the transaction. And therefore, that monetization rate is much higher than some of the fixed fee transactions that we offer. And customers are increasingly adopting these new payment products as they make that migration to electronic payments. And so we think that there's a lot more we can do in delivering new payment innovations and products to our customers. And we think there's an opportunity to continue to expand our monetization over time. While we don't provide precise guidance on where we think we can get to, we have noted that we're still in the early stages of driving adoption on some of these higher monetizing products like virtual cards where I think that we reported last June, we were at about 1% of TPV penetration rate versus a target of 5% to 10%. And then cross-border payments, we were 2% to 3% versus the 10% to 20% targets that we have. So we're still in the early stages, and we think there's a long way to go.