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

Hi. Good morning. Thank you, everybody, for joining us. So with me up on stage, I have Rene Lacerte, the CEO of Bill.com, one of the most exciting companies in my coverage. And I know certainly, it's been an exciting few years for you as a public company only to go into a pandemic. And now we're hopefully reemerging from that. So I think maybe, Rene, it would be helpful just maybe level set for those that don't maybe know you particularly as well and even if they know the Bill story, but why don't you give us your background, why you started Bill.com and a high-level overview of what Bill does? Because I think that part of the story really resonated with me even if -- I was thinking about the last time we met in person, and I think it was the analyst dinner before the IPO. And so just thinking about how much the company has changed but always resonated why you started this business, is that a really important part of the story.

Well, thanks. Well, thanks for having me, Samad. Always good to engage in the conversation. Really, this is a personal story. Like I grew up in and around small businesses. I've started a small business called PayCycle, which we sold to Intuit. It did online payroll. And I just felt the pain that businesses have. There's a lot of pain in managing the financial operations. That is not something that businesses have time to figure out. And everything that I've spent during the last 20-plus years is helping automate financial operations for SMBs. And a lot of passion, a lot of energy around how do you help SMBs. SMBs are, I think, the glue of our communities, and they do something very special to drive everything that makes each community unique. And so for me, building an essential platform that manages the financial operations around accounts payable, accounts receivable and spend management is something that I just love doing. So that's why I started the company was to really drive efficiency gains, things like our customers save 50% of the time it takes to manage the financial operations. And that's led to a great business, right? So just at a high level, last quarter, we were growing 74% organically year-over-year, over 180% combined across all the companies. And revenue is now guided to 600 plus -- $625 million for the year, right? So all good and all stuff that we're excited about.

And so I think one of the things that I've been thinking a lot about is how much the company has evolved over the last couple of years, not just to the M&A that you've experienced but in terms of the scale that you've achieved. So I think it would be helpful to think about like what were maybe the top kind of 1 or 2 things that you've experienced over the last couple of years that's allowed Bill.com to scale so rapidly, even in what's been a challenging environment?

Yes. So I think the first thing is that it is a massive opportunity that we're sitting in front of, right? So when you look at the financial operations of businesses, we have around 146,000 businesses on the platform in the U.S. There are 6 million employers. We think there's 70 million businesses across the globe. So we have 146,000, which is less than around 2%, right? So lots of opportunities. That's one of the things that's driving. We just have a massive opportunity in front of us. But then I would say the other thing that's really driven the growth is that we've built this platform that really focuses on a software experience for customers to drive everything leading up to and then the execution of a payment transaction. And so what we've been able to do in the last few years is really to continue to add payment transaction vehicles on top of the platform that we built in the prior 15 years. And so that's allowed us to continue to help businesses support their needs such as doing international payments, such as really helping suppliers collect money faster with the virtual credit cards, such as enabling instant transfer for smaller suppliers to be able to connect. And so all these payment vehicles on top of a software platform we built have really been key to driving success. And you combine that with -- obviously, COVID created an immediate need for hybrid and awareness for working remotely. And that digital transformation that's happening for SMBs is something that we feel that tailwind continuing to develop.

Great. And I know we started more at a high level, but I think an important question that's on everybody in the audience's mind is just what's going on more broadly from a macro perspective. So I'd love to maybe get your view on what your customers are seeing or the feedback that you're getting from the small businesses that you serve, given everything that we're all factoring in from a macro standpoint?

Yes. I think one of the hard things about being an SMB is how do you internalize the external factors that are out there. Those external factors are kind of new for all of us when you think about how vast the geopolitical situation, the money policies at the Fed. All of these things are changing. And so what SMBs are trying to do is understand how does this impact me? And what we've seen and heard directly from customers is that they are thinking about price increases that they're receiving from their suppliers. They're thinking about how to manage wage increases potentially for their employees, which is pretty much the same that everybody is thinking about right now. So what we know is that our product really is a counterbalance to any inflationary pressures that are out there. And so we help businesses do twice as much work with the same number of people, and that actually ends up allowing businesses to think more aggressively about how these grow and scale. And so there are businesses that we've talked with recently that have been able to adapt to the changing environment by managing the cash flow, management capabilities that the platform has so they can actually time their payables and time their receivables in order to be able to make their cash flow work. So all of that is something that we think is going to continue to help us continue to drive the digital transformation that's out there.

Great. And I know you mentioned your background and I think one of the important things is thinking about management teams that have had a lot of experience, right? And you've been serving SMBs for several decades between your time at Intuit and PayCycle and now at Bill.com. And so I think if there's an authority on how to serve small businesses and experience in terms of cycles, you're about as strong of a candidate for that as possible. And so how do you think about helping SMBs facing some of the challenges you just talked about? And what do you think that when you've seen past downturn cycles, what can you as a software company do to help navigate them to help them succeed in this environment?

Yes, that's a great question. One of the reasons I love the market that we serve is all SMBs are different, right? They all have unique needs and unique opportunities. But it all comes together in one type of solution, the way to solve the problem. So the way that happens is you listen. We spend a lot of time listening to customers, and we listen to customers through daily conversations, whether it's through customer support or doing product research or just talking to customers just to understand. And what we have found is that it started with COVID, this need to be able to manage your financial operations, it's real. Businesses need the flexibility to be able to manage everything from their phone. And we're continuing to see the demand for increase across our platform, right? I think when we went public, we were adding somewhere around 4,000 customers a quarter. And in the last quarter, it was 11,000 customers, right? So that digital transformation for SMBs is happening. Creating that efficiency for them is meaningful, and it's something that gives all of us at Bill.com excited to get in every day.

No. And it's -- look, you're seeing it in the -- you just had a record net adds quarter and clearly, the company is seeing very, very strong growth. So I think it -- what the company is doing is definitely resonating with your small business customers. And maybe switching gears a little bit. I was -- as part of preparing for this and thinking about the Q&A, I was looking at Bill's revenue in fiscal '18, it was about $60 million. And now you're talking about well north of $600 million for fiscal '22. So you're talking about 10x in 4 years. And I think that a question that we often get is, how do you maintain maybe the company's culture and build and continue to build at this scale as it happens so rapidly?

That's a super important part of my job is to think about the culture and how do we kind of have it evolve and be more successful. And one of the things that we do is we have foundational values that we really hire against. We don't look for aspirational values. We look for foundational values that we can identify with people day 1. And so building a culture that actually is focused on the passion of serving SMBs, dedication to the SMB, the humility and authenticity and having fun together, that drives a lot of the thinking when we go into hiring. And if you look at what we've been able to do in the last year -- the last 2 years since COVID, right, we've grown from around 500 employees to, I think, over somewhere around 2,000 employees now, right? So all of that is because we've been able to bring people in, in a very aggressive hiring environment, right? It's a challenging hiring environment. We've been able to do that because of our culture and because of the growth. And so understanding what those needs are that people have, it's -- employment is definitely 2-way street and really being able to deliver an environment that employees enjoy. It's something that we do focus on in the company.

That's great. And I want to maybe step back and I think what Bill has achieved up until this point, I know even as big of fans we were at the IPO, I don't know if we had ever thought 10x this early. And so this may be a tough question to ask because you've already accomplished so much. But when I think about the long term, how do you see Bill evolving over the next few years as your suite for the office of the [ CFO ].

Yes. I think it's -- my passion and vision around what we're doing for business has not changed since 2006 when I started. And the goal has always been to automate stuff that was not automated before. Financial operations are painful. And the reason I started the company is that financial operations I had when I started PayCycle were no different than what my grandfather had 60 years prior when he started his first company. And so having that passion around how do you automate and look at where we're at, 2% market share, right? There's a massive opportunity in front of that. And the way that comes together is you continue to evolve the software platform that we have. So we added Divvy and Invoice2go, so we could have spend management capabilities as part of the AP and then more AR capabilities as part of our AR solution. And so what I see us doing and evolving is continuing to really develop the essential platform for SMBs on their financial operations to really build and serve them with a great software experience is that software is what gives us all the right and opportunity to do the payments. And the combination of the software and the transaction is something that was super important to me. We built a platform from day 1 to actually make sure that we can do payments, not just the software, but we lever the software. We knew the experience. The reason payments weren't electronic before Bill.com is because the experience leading up to a payment was actually manual and paper-based. So we've automated that and we're continuing to automate both sides of that payment transaction. And so for us, when I think about how we evolve, it's going to be continuing to grow share, help this digital transformation happen, and that's going to happen through increasingly better software and more capabilities on the payment products to be able to drive that.

I think that's an interesting point on the software side. And we often get asked about Bill and its competitors, and I think a lot of times, your -- some of the other companies in the space, they're payments companies, right? They think about it as how do I get interchange. And I think what you're just describing is you're solving a tougher process. I guess just as my follow-up to that is, is that where you think the value resides is involving the difficult processes around AP and then again, more broadly on the finance side? And is that the feedback that customers are giving you?

So it's definitely the feedback that customers give us from the moment they start using is that this helps them do something they weren't doing before. It helps automate all the processes. And when you talk to customers, invariably, like they might be searching for an electronic payment capability, but when they start using the product, it's like, well, no, I got workflow. I got document management. They get the ability to connect with our suppliers. It happens automatically, something reads the data and enters the information for me. All that, those capabilities, that's all from software. And then creating that connection in our network, right? The network has 3.2 million network members in it, automatically connecting suppliers and buyers so they can actually exchange and create services. That's the opportunity that we see as part of the network. And so for us, it's really -- it gets back to creating an experience that differentiates and allows us right transaction, right? The payment is the very last part of the transaction, important part.

Great. So I do want to ask maybe with that -- with the 2 questions I asked previously, with those in mind, where do you think we are in the innovation cycle for the -- on the software side in the finance function for SMB? Are we earlier stage? Do you think a lot of the low-hanging fruit's been captured? Where do you see that as running one of the biggest companies of scale serving those SMBs?

I think one of the things that oftentimes I think is missed if I just go back a little bit. So when I started PayCycle, it was 1999, and we thought about the Internet payroll. We didn't think about cloud payroll. And so if you just go forward 23 years now, the difference is that people realize that central data and central UI creates lots of opportunity, and that opportunity that it creates is to reinvent processes that were manual. And so the reason I think we're just at the beginning, the short answer to your question is I think we're at the beginning of the digital transformation is that if you look at the scale we have now, $200-plus billion of money going through our platform, millions of invoices every month, 146,000 customers, 3.2 million network. All that data is connected, and we're starting to help get businesses use that data so they can spend less time doing the financial operations. So I know for us, we're just kind of at the beginning of this cycle, the ability to really transform the digital operations that a business has. And that's something that gets us excited every day to continue to do that transformation work.

Great. And maybe kind of sticking on a thread that's in that vein. You have a lot of companies that work with you. So key financial institution partners, you have accounting partners. What do you think that the financial institutions see in Bill that makes them want to work with you? I mean there's huge commercial banks like Bank of America and Wells Fargo, household names. What differentiates Bill for them and wanting to work with you?

There's, I think, a couple of things, and it's actually probably not that different than how even SMBs look at what differentiates us. So first and foremost is business is personal and it's all about trust. And so we partner with businesses that are trusted partners to SMBs. So that would be the financial institutions. We talked about CPA.com, a division of the AICPA. But the reason they trust us, the reason those large companies trust us is because, one, we have scale now. We have the ability to kind of show the data and help them understand their customers even before started anybody on the platform. Two, we have compliance and regulatory needs. And for financial institutions, that's super important. And it's one of the key parts of our platform is that we built a platform that not just did software but also did do the payments. And to do that, we had to make sure that we could be at compliance in all of 50 states and at the Fed. And now, internationally. And so those capabilities, I think, give financial institutions the ability to trust us. And then they -- so the scale also gives them the ability to understand how they can actually leverage the network, the 3.2 million for their customers that have joined the platform. And ultimately, it's -- partnership is -- it's like my grandfather used to say, you shake somebody's hand and you [indiscernible], right? And so we have that ability. We've been doing this a long time. PayCycle have partnerships as well, and that ability to trust is super important and something that we feel that business isn't worth doing [indiscernible].

I completely hear you. And clearly, your customers are navigating things well with you, and you can see with more and more joining every day. Maybe -- I know we've largely stuck to the software side of it and where Bill fits maybe more in the ecosystem. But I have to ask on the payment side. It's a key part of the growth strategy. We often get asked, what's the value proposition for customers and the suppliers that are on the Bill.com network for using different payment types like virtual card and instant transfer? Why do they opt for that versus maybe ACH or even checks, right? I mean I haven't written a check in about a decade, but why do people still write checks?

Yes. So I mean, ultimately, we believe that choice matters, that the -- giving our customers choice, giving suppliers choice. Those are things that matter. And so if you think about the network of the 3.2 million, some of those people are going to be international. And so letting them choose what currency they receive their funds in, that's helpful. Letting this -- the buyer choose what currency they send it in, they just want to think U.S. dollars. I'm a U.S. dollar company. They just want to think about that. We'll do the translation. We'll spend the FX, and that's the choice. When you think about virtual cards and vendor direct, that offering that we have, that's all about large suppliers being able to get the money now versus waiting for the check or an ACH to clear in [ there ] because it's on a card. And so they have their own processes for managing card transactions, and that is good for them. There's more data that goes across that. And then on the instant transfer example, you think about smaller suppliers that may have a cash need, and they need money right now. It's not going to be every time they receive money from Bill.com. But sometimes, it will be like, you know what, I'm willing to pay to get that money today because I have some other cash outlay that [indiscernible]. So I think choice is the key thing and having a platform that enables customer choice on both sides, that's what makes us unique. And we know how to make sure that the offerings are known to our customers, buyers and how to make sure they get value out of it.

Maybe just as a follow up to that, like as I think about some of the constraints that I've been thinking about for small businesses and especially as things may be tightened up, it would seem that the cash conversion cycle and that choice would almost seem more valuable in this type of environment. And I guess, are you seeing that? Or are you hearing that from customers that, that choice makes it even more valuable when they're even more laser-focused on each dollar that's coming in the door and getting it in faster and getting paid more quickly as well?

We definitely hear that and see in the data that customer suppliers value the choice, right? So one way we see that is the repeat transactions. So it's not like somebody comes in once and says, I want to have a faster payment today. They will come in again, not necessarily every time, but giving them the choice gives them the flexibility. And so our job is to make sure that it's easy enough for them to pick that choice whenever they need it and to make sure that the offering is compelling whenever they need it. So we continually are looking at different payment products and opportunities to drive choice for the customers and suppliers so they can actually drive the value that they need out of these. Again, it all starts with software, right? We have to be able to make the experience known software in the platform. We have to make it a great experience. We have to make it simple and easy. These are all things that lead to the opportunity to have the payments. And payments are, like you said, a big part of the business model. So it's all integrated and something that we do think is important is to create that choice option for our suppliers.

Great. I want to -- I know we have a few minutes left. I want to maybe switch gears here for a second. Another really exciting part of Bill's evolution over the last, let's call it, 14, 15 months, in particular, has been the M&A strategy, right? And you brought on a couple of very exciting companies. What stood out to you about Divvy and Invoice2go when you were thinking about revving up the M&A engine?

Yes, there are a number of great things in both companies cases. But ultimately, there's kind of 4 ways that we think about it. It's people, it's product, it's technology, it's go to market, and they each had unique strengths in each of those categories. And ultimately, you look at spend management and the ability to kind of -- so if you think -- sorry, to step back, we have all the AP spend. One of the AP spends might be a credit card statement. But with the ability with Divvy spend management, now we get all the spend that's in part of that credit card statement. And so -- and what's really powerful is the choice that they give customers, to be able to manage their spend on the fly with different budgets. That's a great product. So go-to-market has got a strong [indiscernible] business focus. And then ultimately, you look at kind of the people team and urgency, drive, that's all something that's powerful. On the Invoice2go side, they had 250,000 businesses across the globe that are product. And those customers are in 152 countries, and they have an opportunity for us to really drive AR side of our platform. And again, great people that are kind of driving 4 parts of that business proposition. So all of it came back to those 4 tenets and really making sure that we could drive those capabilities across our platform.

Great. And then maybe as an extension of that, we're now past the 12-month mark on at least the announcement of Divvy not since closed, but a good amount of time has gone by. Maybe what are the lessons you've learned in integrating the 2 acquisitions? And how do those lessons maybe inform your M&A strategy going forward?

I think the first lesson is just having a clear value proposition about how the products work together. So in case of Divvy, we had a lot of joint customers that were on the platform, so we'll be able to talk to them. So just really testing that value proposition was important. I would say, really focusing on those 4 things, what are the people -- understanding the people's strengths, the go-to-market strengths, the technology strengths and the product strengths and understanding where we could augment that and they could augment us. And so those were all things that I think is super important. We announced in the last earnings call that we fully integrated all 3 companies in 1 org structure. We did that probably faster than I would have thought originally, and I was glad that we did it. But I would think hard about that, like how do you really drive that synergy across the company so that we're effectively driving more digital transformation for customers. But ultimately, we're here to help SMBs and to do that, you need to have people. So I think those would probably be kind of the key, core to your principal to understand what you're buying and why you're buying.

Great. And maybe I have time for one more question. So just there's obviously a lot going on at Bill.com, a lot of exciting things. Maybe what are the 1 or 2 priorities that are on top of your mind as a CEO of such a large-scale business, especially in a time where there's a lot of cross-currents? What are your priorities right now, maybe the 1 or 2 you're thinking most about?

Well, in general, with cross-currents, it becomes even more critical of a leader to be transparent. And so from a priority perspective, I think the communication with the employee base is something that's super important. And that leads to communication around strategy, communication around the macro environment, communication around how we're listening to employees about what their needs are and what their challenges are. And so from an employee perspective, it's always going to be leadership and how do you kind of do that, and those are the kind of key tenets. From a business perspective, I think really taking advantage of the platform that we've built to drive more digital transformation to increase the tailwind that we have. We got a little bit with COVID. I believe that in an inflationary environment, increasing efficiency is the way we counterbalance that. So those are priorities that we have, how do we kind of drive that and then continuing to think about the value we provide through whether it's software, whether the payment [indiscernible].

Great. They're giving me the flashing light. So Rene, thank you for joining me. I appreciate your time, and I know the audience appreciates it as well, and we look forward to getting to see you for the rest of the conference.

That sounds great. Thanks, Samad.