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

Welcome, everybody, to the second keynote here. Delighted to be welcoming Bill.com to the conference. Very fortunate to have CEO and Founder, René Lacerte; CFO, John Rettig, with us today. René, John, thanks for joining. Great to have you here. Looking forward to the discussion. I've got some prepared questions here that I'll go through, and we'll leave some time at the end for any questions you might have. We'll open it up to you all to see if there are any questions. So René, John, thanks again. Great to have you here.

Thanks, Brad, for having us.

Absolutely. So why don't we just start. I mean, you founded the company in 2006. What was your vision for Bill.com? What was the problem you were trying to solve for SMB?

Yes. I mean, when I started the company, it really was a personal pain that I felt, which was the financial back office, the operations that it takes to kind of make a business run, all the paper, all the payments, all the approvals and workflow, all that stuff was just really nasty and messy and it was painful. And so I started thinking about, well, what can we do and what can technology do? And technology really has a chance to kind of reinvent the financial back office. So the aspiration all along is to own the financial back office to really create a solution that creates a lot of simplicity and a lot of time savings and a lot of efficiency in how people manage their financial operations. And what we see today is customers save anywhere from 50% to 75% of the time it takes to manage that financial back office and we're just getting started with solutions. So I would say, ultimately, the aspiration is to own the financial back office to really help businesses do the best work of their lives without having to worry about the mundane task of running a business.

That's great. That's exciting. And when we think about digital transformation, it's a term that we, in some ways, might overuse. But it's a real term, it's a real trend. What are you hearing from SMB business owners? What are they thinking? What's top of mind for them when they think about digital transformation?

Yes. The first thing we hear from SMBs on digital transformation is, the first thing we hear is really from our customers on how much we've done for them. The ability for them to save the time, like I just mentioned, or to be able to make better decisions because all the information is in one place. And so that tends to cascade throughout the SMB community. And what we're hearing, especially, I guess, the first punch would be kind of COVID and the pandemic is that people need tools to be able to manage their business better. And they think a lot about how do I do more with less. And I think that's going to be consistent in the environment that we're in now with rising prices, right? So what we hear is that technology is something that they're looking at more and more and that they know their processes are paper-based. Something like 70% to 80% of payments for businesses are made via check. And that's just a manual process that needs to be digitized. And so we're hearing demand. We're seeing it from our partners. So partners that we work with that reach small businesses, they're asking for those same digital tools to help make that transformation happen. We see it across the growth of our network, across the growth of our number of customers that we add to the platform every month. We just see more and more demand, and we expect it's going to continue.

That's exciting. That's great. Thanks, René. And then why don't we just start out with a question on just Q3 results, which you reported several weeks ago. René, maybe we could start with you and then John, any key points that the 2 of you would like to highlight from the earnings?

Yes. I think the highlight is, it was another great quarter, and this really goes back to a lot of work that we've done over the years to build rigorous execution into the DNA of the company and to really continue to drive the adoption of digital transformation across all of our partners as well as all the customers that they reach and all of the payment tools that we've added innovation. All these things kind of led to that great quarter. So I'll let John kind of talk more to kind of specific numbers, but it was definitely a strong quarter for us.

Sure. Yes. The March quarter was a continuation of, I think, the recent trends with strong growth for the business, 182% core revenue growth. And more importantly, we continue to see great strength with our organic business. So 74% core revenue growth for Bill, 155% for Divvy on a stand-alone basis, really strong non-GAAP gross margins at 84%. And it's really the power of the business model around the combination of subscriptions, transactions and float that are allowing us to achieve high levels of growth with good margins and minimal non-GAAP losses.

Great to hear. René, why don't we switch to you on just the state of the digital payments market. It's an ever-evolving market for SMB in particular. What do you view Bill.com's competitive advantages in the market today? We think about Bill as a platform. There's so much in there. Would just love to get your take on this platform you've built and the competitive moat that you have over time.

Yes. It goes back to the founding of the company. I started prior to Bill, I started a company called PayCycle, which did online payroll for SMBs. Intuit ended up buying it. But I was in a position where I understood what technology was capable of. I've been building software already for about 15 years of my career. And so I was in a position to kind of think about what was possible. So we designed a platform from the ground up to do everything from the beginning of a transaction to the end of a transaction. So the beginning of a transaction typically is paper-based. It's manual. It's documents. It's workflow. But the end is payments. And having that completely integrated into one platform and being able to obviously move money in all 50 states and do it from a regulatory and compliance perspective is not something that's easy. It takes time to do that. And then you add in the ability to leverage the data that comes through our platform to be able to make good risk-adjusted decisions on the money movement that we're doing, how fast do we move those funds for our customers, for example. All of that is kind of built into the platform. So the first thing I would say is building a platform from 2006 through now that is designed for that. The other part that we started early on was just knowing that SMBs are inherently hard to get to, right? And so they're vastly distributed across the country and that we needed to be in places where they were. So yes, we go direct, and we have a great success there, but we also go through partners. And we know that the best partnerships are those that businesses trust the most. And so small businesses, small and medium-sized businesses, trust their accountant and they trust their financial institution partners. So built into the platform is the capability for us to be able to partner and embed our solution with any of our partners. So what we do for accountants is we create a co-branded experience for them to be able to serve all of their clients, and that's something that's been super helpful. We did a partnership with CPA.com, which is a division of the AICPA. So every accountant in the country is a member of that, and they do marketing and promotions for us. And then we did the partnerships with 6 of the top 10 banks. And having the ability for us to be embedded so that they can have the experience that they want for their customers, that's a unique competitive advantage. You take all of that, so the third one I would get to is we've got scale. And that scale allows us to use the data that we have to create more value for our customers in lots of different ways, whether it's the experience they have in entering the information, the experience they have in payment execution. These are all things that lead to the competitive advantages that we've built over the last 16 years.

Absolutely. And then one of the things you mentioned there that strikes me is the data advantage. If you could speak a little bit about what is the data set that resides on Bill.com's platform. What are you doing today to harness that data to help small businesses optimize for payables and payments? What are some of the things you could be doing in the future?

Yes. Yes. So maybe I'll just step back. So we have 146,000 core customers on the core platform. They connect with over 3.2 million members in our network. And so there's transactional data going back and forth between all of those entities. That leads to millions of documents that are coming in on a monthly basis and tens of billions of dollars that are going out on a monthly basis, so $220 billion annually. That's the core data set. But if you think about what's underlying any of those transactions, that's the data we have. So we have obviously kind of the metadata that's used to pay a transaction, but we also have the underlying data that goes into whatever that invoice is. And that's the opportunity that we can use and leverage to understand the risk capabilities that we want to do from an acceleration of the payment perspective. It's also the ability for us to simplify the experience, which it's something that we know customers need and want, and we're able to use that data to get better and better at the AI capabilities that we've built into the product.

Great to hear. It's exciting. And apologies in advance, I have to ask the macro question. It's top of mind for everybody given all the moving parts right now in the, really internationally. You guys are buffered from that given it's U.S., but the risk of recession in the U.S., inflationary environment. I guess 2 questions. One, how does Bill help SMBs navigate this environment of inflation and now we're hearing about slowdown in hiring, stagflation, what have you? And then two, what is your observation in terms of the business, just demand given the macro environment?

Yes. I think the first thing is when we talk to customers and partners, we hear a lot of people wondering about it, but not a lot of data necessarily saying that there's an issue today. And what we know also from the pandemic is that SMBs are extremely resilient. And if you think about it, like if you've gone out to start your own business, you are a problem solver. And you will find a way to get through this and that's kind of the mindset they have. So I have faith in the SMBs. I have faith in their ability to kind of adjust. And I also know, to your first question, that what do we do to help? And so in our solution, our ability to provide a 50%-plus time savings as well as more knowledge around how to manage your cash flow, having the content and the context to be able to make those decisions, that ability for us to be able to do that means that in inflationary time we are a counterbalance to inflation. We give customers, one way that we think about it is, if we save people 50% of their time, you can do twice as much work with the same staff. That's super powerful in this market, and we think it's going to help be the second tailwind for the digital transformation that's happening.

Great. John, any comments you'd like to make?

We haven't seen really signs of macro influence on spend patterns or engagement from customers at this point. Most of the Bill.com and even Divvy and Invoice2go customers are service-based businesses. And that means the majority of their expenses are people-related one way or another, payroll, whatnot. And the way our platform is used, it's kind of the essential back-office utility for managing what's mostly fixed expenses. There's certainly some discretionary spend that happens that could be influenced by the macro environment. But so far, we see pretty consistent engagement and activity from the customer base.

That's great to hear. And while we're on the topic, John, last quarter, you mentioned TPV facing a tough comp. I know you expected that heading into the quarter turned out to be a little bit tougher than you thought. Maybe you could just elaborate on what you mean by that? What is a tough comp on TPV?

Yes. So in the March quarter, we saw TPV down about 2% from the December quarter. And that followed the seasonal patterns that we were expecting. We had indicated that on our February earnings call. And it has a lot to do with just the way businesses spend money and how it changes quarter-to-quarter. The December quarter is usually typically strong particularly around e-commerce and advertising. We saw that in the December quarter, 20% quarter-to-quarter uptick in spend. And so the March quarter pretty much came in as we expected. So there was no influence that we could tell from the macro environment. It was really more seasonality related to just the changing habits of businesses throughout the calendar.

Makes a lot of sense. And maybe we could just talk a little bit about the evolution of the suite, if you will. I think of it as a suite, started in check, ACH, payables. In 2, 3 years ago, you launched virtual card, cross-border. Recently, you made the acquisition of Divvy. Talk a little bit about kind of your, how you've seen this evolve, where you've seen the need to make these organic and in the case of Divvy, acquisitions to expand the suite.

Yes. I think it really comes back to how we are owning that financial back office and really the data that kind of drives that. And so I wanted to start with payables and receivables because on the payable side, all that spend is controlled by one person. In a small business, it's going to be the owner. In a larger business, it's going to be the controller, the CFO. That is somebody that can control the spend that goes out. And I want to make it really simple and easy for them. But the value that we created was all that data started coming in. And so when we talked about the FX and the opportunity to go international, we saw that there was a lot of data being recorded in the platform with payments being made outside the platform because we didn't do international payments but we can see that there was demand and need. The same is true on the spend management. We can see what spend management is happening on the platform, what card spend is happening. And we can actually see solutions out there. And Divvy was an example that were coming up to help businesses manage their card spend that were integrating into the platform. So we would make the ultimate credit card transaction, but all the other transactions were not being recorded in Bill. And so that was the opportunity. So when we think about owning that financial back office, we want to make sure that we help businesses with every part of every transaction that kind of drives their business. And that ability for us to do that is predicated on having great software and then adding to the platform with great tools and new solutions. And so Divvy was a great opportunity. Invoice2go was a great opportunity to augment the AR capabilities that we had and to really drive some experience on the international side and to drive parts of the network which we'll talk about later.

Okay. Makes a lot of sense. And we follow Coupa and AvidXchange, and we've seen a bit of a slower moving cycle for digital payment adoption, B2B payments, if you will, in the mid and enterprise segment of the market. What is it about SMB that's different? Obviously, you've seen a ton of momentum here with these variable-priced offerings you're describing. Customers really opting for that suite. What's different about SMB?

Yes. I think it goes back to the aha moment that I started the company, which was I had run the consumer bill payment group at Intuit. And so when I was starting my first company and trying to manage that business, I realized I wasn't using any of the consumer-based solutions. And the aha was, it's everything that leads up to the transaction that was the pain in the a** for an SMB. And that pain is something that needed to be solved. And so having a platform that's designed from the beginning to do the end-to-end view and workflow of a transaction. I think that's why when we get to the ability, one way that we say this software, great software gives us the right to execute a payment transaction. And because we have that great software, we're able to add these payment capabilities and make sure, by the way, our first priority on the payments is to give customers, buyers and suppliers choice because that creates more stickiness for the platform, creates more value for everybody involved, and we'll find a way and make sure that it's a strong way for us to make money for the company so.

Absolutely. Makes a lot of sense. And why don't we shift to Divvy, interesting acquisition. You've already seen some nice upside. The response seems to be very positive from the customer base. What was the idea behind the Divvy acquisition? What's the opportunity you're going after with that company?

Yes. So I think the business right now has the vast majority, if not all, of the nonpayroll B2B spend. And the way we were seeing card transactions was just paying the card at the end of the month. And so in looking at the data, which I just talked about, we were able to see that there was a fair number of customers that were coming on for any of the spend management solutions and Divvy being the most prominent saying, hey, like they want to have one solution to kind of manage their card spend, have the ability to manage budgets, the ability to manage spend on the fly, to give everybody a virtual card to protect against fraud. These are all things that businesses wanted. And what we saw in our data was that this was an opportunity for us to kind of marry the 2 and give that. Since we already had all the other spend, let's just kind of create that one-stop shop, if you will, that experience that's a unified platform. And so that's 20% to 30% of this B2B spend is probably on the card. And our ability to kind of help businesses with a software solution on that 20% to 30% is something that is super important and creates that holistic experience on owning that back-office financial operation.

That's exciting. And when you say 20% to 30%, that was a surprise to me that SMBs, that, that much spend goes through corporate card programs. Is that the way we should think about the mix of TPV going towards Divvy over time? I think today it's around 3.5% in our model. So that suggests a real nice runway here of adoption within the installed base and with new customers coming in.

Yes. Yes. I think there's a lot of opportunity for us to continue to strengthen the experience to drive as much adoption as possible. On that front, I think, first and foremost, having a unified experience is important. One of the things that we also know from our own analysis is that we think about 50% of the customers that we have are a target for the current experience that Divvy provides. So there might be opportunities for us to have other solutions to get more of the customers. So I don't necessarily think we have a target on that front as much as we know there's a lot more opportunity to drive a better solution for customers, more value and obviously, higher monetization for the business.

Makes a ton of sense. And why don't we shift to virtual card. In that line of business you're targeting 5% to 10% penetration of TPV over time. I think we're in the 2%, just over 2%, 2% to 3% range today, another nice runway there. Where does that 5% to 10% come from? Is this data that you see that these types of transactions, that's roughly what they represent in your business?

Yes. John?

Yes. One of the really interesting parts about having a very large customer base and a huge network is that we get all these insights about the spend between these trading partners. And so we're able to look at the supplier network and understand which suppliers are merchants that accept card payments. And then we were able to do some estimating and realize that there are billions of dollars in card spend that could be converted to a virtual card, if that's what makes sense for the supplier. So we derive the 5% to 10% of TPV target knowing how much spend could be converted along with the idea that we're going to have a portfolio of products. So we don't need to force any particular product. And we're making really good progress towards that 5% to 10% as of last June. As you mentioned, we were a little bit above 2%. We continue to make progress and feel like there's a long way to go.

Great. And a similar question for cross-border, target there of 10% to 20%, again, another business with a real nice runway today. I think we're in the 2% to 3% range there as well. Another opportunity for you to expand into the installed base, more cross-sell. Where does that target come from?

Yes. It's similar. It's one of the interesting things we learned about the power of the platform and how we can increase our share of wallet with customers by adding more capability. So we knew that our AP customers were paying suppliers outside of the U.S., but they weren't doing it with our platform. They were instead using our platform to drive approvals and capture invoices and things like that, to René's point about we'd start with the process automation and end with payment. And so we developed those targets based on a good understanding of how many dollars are moving from our U.S. buyers to international suppliers. And then we're starting to see that behavior change. Our last number that we reported was a little above 4% penetration against that 10% to 20%. And I think we're making really good progress there. There is a component that will always be U.S. dollar payments, and it's the FX piece that we're working hard to increase the penetration rate there. That obviously has much higher economics for us.

Absolutely. No. That's great. Maybe we could talk about that. Just the economics in Divvy, cross-border, virtual card, how does that compare to the economics in the core ACH and check side of the business?

Yes. So the vast majority of our volume as a company, whether it's measured by transactions or TPV is on ACH and check payments. Those round very close to 0 in terms of monetization. So if you look at virtual cards and international payments, it's fair to assume that the economics on that are many multiples of our blended average take rate today, which is 10.7 basis points as of March. We haven't disclosed specific metrics by product. With the exception of Divvy, they're monetizing, the card product was monetizing at about 250 to 260 basis points, very high gross margins, so above the blended Bill.com non-GAAP gross margin of 84%. And then there's about 140 to 150 basis points of variable costs associated with that revenue. That's for things like rewards and in some cases, losses and interest expenses and things like that. We've made good progress in improving the efficiency of the Divvy economics as we've now come together. We just passed our 1-year anniversary. And so we feel great about how together the portfolio of payment products gives us lots of opportunity to expand margins over time.

That's great. And René, I mean, we've seen just in the 2.5 years since you've launched virtual card, cross-border, we've gone from 0 to that 2% to 4% penetration range. What are some of the initiatives underway that have driven that success? How are you driving adoption within the installed base? How are customers discovering these products, these services? And what have been kind of the learnings there? What are some of the things you could be doing going forward?

Yes. Ultimately, our goal is to automate all the processes that a business has around connecting with their suppliers and executing a payment. And so in this case, on international payments, there is a lot of work that we're able to do with the data that John referenced to really understand which buyers, which customers of ours are doing international payments, where they're going and then to create product introduction points in the product experience. In addition, we also understand some of those customers would benefit from a sales touch. So we've been able to work on that outbound sales reach into the companies that are actually executing. But it's also, it's a two-sided network that we have, right? So the buyer is going to initiate the transaction. We also want to work directly with the supplier and let them make a choice. And so one of the things that we've done in the last year or so has really changed the supplier experience so they can choose how they want to receive payment. So if the U.S. company wants to just pay in dollars, but the supplier wants to receive in euros, well, let's make that happen, let the supplier choose. And so that again ends up being a product experience. And those are both very important because there's marketing of the product and there's sales. On the virtual card, it is a combination of the product, but a lot of that is reaching out to suppliers directly, whether that's through marketing or e-mail or sales touches to understand, make them aware that we have this capability so they can kind of certify all their payments on the card rails that they're doing. So it's a combination of learning of how you interact with both sides of the network, whether it's marketing, sales of the product.

Absolutely. That's great. We hear from the channel that you're seeing larger deals moving upmarket a bit. I guess 2 questions. Are you intentionally moving upmarket? Are you being pulled upmarket? Is this a focus of the company? Is there a limit to where you can go? Could the product scale for a larger organization such that over time you could even move into the mid-market?

Yes. Yes. So I think the passion and the energy around the business was to serve as many businesses as possible. And when we look at the market size, just to kind of define, we think of companies that are $10 million to $100 million as being mid-market. There's only 20,000 businesses in the U.S. that have more than $100 million in revenue. And so for us, the solution set is really predicated on what the customers need in the 0 to 1, 1 to 10 and 10 to 100. And we have solutions in each of those. And so for us, I would say it's really more of a pull upmarket. As we scale, we have more customers. So we hear more from all of our customers, and they're able to give us more concrete feedback about what would make a better solution for those larger customers. So that in the last 2 years, we've learned that having PO integration was important, having Great Plains and MS Dynamics integration was important, having dual approvals and single sign-on. Those are just a handful of features. They're super important for the mid-market. But you look at the entire R&D budget across the business, and you would say, no, we're pretty much focused on having a simpler experience across all customers. That said, mid-market does benefit from sales and marketing. And so there is some energy there that we're putting in. But I would say it's more of a pull than us being on the move. Just we have opportunities to serve and we're going to always listen to our customers and do what we can to support them.

Absolutely. And that's great to hear. And why don't we shift gears to the channel. You have a multifaceted channel. It's one of the interesting things about the business. Maybe if you could just describe, René, the channel mix. What are the key channels? And what has mix trended like over time?

Yes. Yes. So for us, the key channels, we have direct, which is super important. Direct is going through digital marketing techniques and traditional inside sales techniques as well as leveraging our network. That's the direct channel. We have accountants, which we have a partnership with CPA.com. We just announced that exclusive partnership with them on the Divvy spend management solution. But we reach 85 of the top 100, more than 5,000 firms across the country and then they market to their clients. And we support the firms in that. And then we have financial institutions where we have 6 of the top 10 financial institutions in the country. Most of those deals have started on the commercial side. And recently, we've been pulling into the SMB side, which we're excited about. The one that we've talked about recently is the partnership with Bank of America, where we started with them on the commercial side first, but now they're pulling us in and we're just now in all 50 states available for new businesses that the bank is bringing in as part of their new platform as the default solution for bill pay and receivables. So those are the kind of the core channels. I'll let John just give the specifics on kind of the breakout.

Yes. About 40% of our customers come from our direct efforts, so digital demand gen or they come to us on their own through referrals. About 50% from the accountant channel relationships that we have and roughly 10% from the financial institution channel. And we've seen growth with the banks and the financial institutions over the last couple of years. As René mentioned, we announced the BofA partnership. We also announced KeyBank and Wells Fargo, all 3 of those in the last 18 months. So you've seen our revenue contribution from that channel increase pretty significantly to about 9% of total now. And we think there's lots of room for additional growth there.

That's great. And on the FI channel, particularly the BofA partnership, if you could elaborate a little bit on the scope of that partnership and anything you can share on economics, pricing. We get this question often.

Sure. So similar to really all of our financial institution deals, the BofA agreement is a white label solution integrated into their online business banking environment focused on small businesses. The way the contracts work across all of our deals, including BofA, is multiyear contracts with minimum financial commitments. We sell sort of on a wholesale or a discount basis both subscription and transaction fees in exchange for those minimum commitments. And then we partner with the banks to drive adoption and penetration of the product. But the expense associated with that, so the product marketing, sales and marketing and some level of customer support, those expenses are the bank's expenses. And so we have lower operating costs associated with these agreements. And that's how we end up net-net at the same contribution margin, even though the, say, total revenue per customer might be lower in the financial institution channel versus the other channels. And the key differentiation around BofA is that, one, we're opening up the small business segment, which suggests long term, maybe it's millions of customers, not hundreds of thousands. That's the market opportunity. And two, we're the default, in fact, only solution for new customers. So that gives us the opportunity to really differentiate the capability for small businesses.

That's exciting. That's great. Any other partnerships that we should be thinking about in this channel? Are there other banks that you're working with? Today, I think you have already 2 others that you're working with, maybe not as far along as BofA. But what are the efforts there on recruitment, if you will, bringing in new partners?

Yes. The team is always talking to any financial institution that wants to do business with us. Our focus is really on delivering and executing on the deals that we have and extending the capabilities that we have into each of the banks, right? So the ability for us to have virtual card, international payments, Divvy spend management solution, invoicing. These are things that not all of our banks have all of them. And so we just have an opportunity to continue to scale that and to really drive that type of success for them as well.

Great. Why don't we shift gears to receivables. The Invoice2go acquisition is an interesting one. What was the motivation there for that acquisition and what does it bring to the platform?

Yes. Yes. There are a couple of motivations on Invoice2go. So when I started the company, like I said, I wanted to be AP and AR. We have an AR solution, AP took off. We spent a lot more energy on the AP side. And as we started thinking about the scale that we are at, the businesses that we were touching, the 3.2 million that are in the network, we realized that there was an opportunity to add AR capabilities and to create a more complete solution for customers. And so Invoice2go was at the top of the list because of their mobile-centric approach. They've been doing kind of mobile-centric design since 2007 when the iPhone came out. They have over 200,000 businesses that are on the platform in 130 countries across the globe. And they also have not yet embedded payments into their experience. So they had $25 billion in invoices being created, if you will, but only $1 billion in payments were going through their rail, so to speak. And we understand something about that, right? We've shown over the last few years that we know how to kind of create that embedded experience to kind of drive adoption of the payment products that create a more simple experience for customers and their customers. And so the motivation was mobile-centric, opportunity to leverage our payment rails and our experience of being able to deliver that into the network of 3.2 million that we have.

Absolutely. That's exciting. John, one for you, the take rate organic at 10.7 basis points. Obviously, the economics in virtual card, cross-border are much higher than that. As you see more penetration, is there a target rate that we should be thinking about on the take rate near term, long term?

Yes. We haven't rolled out a specific target, but we see significant change in the composition of payments, like the adoption is happening. And that tends to reduce the penetration of ACH and check payments. And as that happens, we see the take rate expand. We've grown significantly over the last couple of years. And if I were to look out 3 to 5 years, I think it's fair to say that we expect our take rate to be many multiples of where it is today. The pace of getting there has all to do with delivering choice for customers and driving the adoption of the right product between buyers and suppliers. So we're not in the habit of forcing any particular payment type, but there's a long growth runway ahead there.

Sure. Absolutely. I'll open it up to the audience to see if there are any questions. If you do have a question, please feel free to raise your hand and we'll get a mic over to you. Otherwise, I'm happy to keep going. One over here, please.

Yes. Any commentary on kind of time line to profitability, if your thoughts on that have shifted would be great.

Sure. I can take that. So first, we serve the SMB market, which is really hard to do. Like getting the economics right is something we've obsessed about since the beginning of the company. It's actually what led to our unique go-to-market capabilities, where we're able to deliver very high gross retention, strong net revenue retention of 124%, short payback period on customer acquisition costs and obviously very high software gross margins. With that said, we're also entering this rising interest rate environment that is a tailwind for us as it relates to float revenue. We invested in our own proprietary payment capabilities from the beginning of the company. That means the flow of funds for the $200 billion a year in transactions that we're managing on behalf of customers goes through our bank accounts. That results as of the March quarter north of $3 billion in client funds in transit on our balance sheet and we're able to monetize that as rates increase. So we think to net that out, that profitability is sooner than later for us given the business as it's constructed today. There's obviously lots of other big picture issues going on in the world with the geopolitical situation, supply chain issues and the macro environment. Excluding any sort of impacts there, I think it's sooner than later given where we're positioned today and our high-growth profile.

Any other questions? Okay. Why don't we shift to the subscription business. There's a lot of focus on the transaction business, but you have a very healthy subscription business. ASP growth, how has that trended? What are some of the drivers of ASP? John, maybe this is for you. Could you see over time a premium mix potential lever that you could pull? How are you thinking about pricing on the subscription side, number of users per customer? Anything you can unpack there, I think.

Yes. It's a great question. We've seen expansion in subscription ARPUs over the last few years. Of late, it's declined slightly really due to the rapid pace of new customers that we've added in the last couple of quarters. We've seen users per customer pretty stable over time. It inches up slightly. Some of that has to do with the average size of our customer. Excluding Invoice2go, it's increasing a little bit, back to the mid-market question that you had, that you have more users. We think there's a healthy mix of like the value that we deliver for customers versus what we're getting. We've invested a lot in expanding the platform capabilities over the last couple of years. We're at the beginning of a subscription price increase cycle right now starting with our direct customers. That will flow through all of our nonbank customers over time. That also opens up the opportunity for us to optimize pricing over the next couple of years. So we'll be exploring higher tiers for larger customers, maybe freemium or consumption-only model for our very small customers who are most price sensitive on the path towards ultimately optimizing and enhancing subscription revenues.

That's great. That's exciting. And then, René, one for you, please. It's 5 million U.S. SMBs. I think the customer base is around 180,000, multiples of that TAM. What are the gating factors to growth? If I had more budget for search optimization, for web traffic driving it to the site, more brand awareness for Bill, if I could get the accountant channel really humming, FI channel. I mean, how should we think about the potential for Bill to consolidate a very large market given where you are today?

I mean, ultimately, it comes back to our biggest competitor, which is inertia, right? It's the paper-based processes that businesses have. And really making businesses aware that there's a much simpler and better way to do it. And so that does come from marketing reach through the partnerships that we have, but also comes from a simpler experience. And so one of the things we're doing there is just to leverage AI and all the data we have to make things a lot simpler for businesses when they get on the platform. Already, our customers get on the platform without having to do any particular installation. They can be up and running in 15 to 20 minutes if they so desire. But we know we can make it faster and we know that ability matters. And so using the AI to really drive the simplicity of connecting with all of your suppliers or your customers, that's something that we are doing and using the vast, like I said, the millions of bills that we pay every month worth tens of billions of dollars every month. We're using that data to kind of create that connection. So I think the, ultimately, how do we drive the adoption of digital transformation is continuing to execute on what we've been doing all along, building great software that leads to the transaction at the end and giving customers choice. We just have to keep making it better and better. And so we'll continue to do that and we'll continue to leverage the partners and ecosystem that we have to do that as well.

That's great. Well, I think we're out of time, unfortunately. René, John, thank you so much for joining. Great session, learned a lot, appreciate you being here.

Thank you.

Thanks, everyone.