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

All right. I think we'll get started here. So joining us today, we are very excited to have both Rene and John, CEO and CFO of Bill.com. Rene founded Bill in 2006 after recognizing that business owners needed a way to simplify payments. And John Rettig, here with us today, joined Bill.com in 2014. So please, everyone, join me in welcoming both Rene and John to the stage. Very excited to have you guys.

Thank you, Will. It's great to be here.

Maybe we can kick it off with a higher-level question on the business. I mean, you guys have had a very busy few years since the IPO. You've grown the revenue base substantially. You've completed 2 major acquisitions, Divvy and Invoice2go. You've grown the network significantly. You've added new payment methods. Can you talk about the evolution of the company over the past 2 years? What differentiates Bill.com in the market today?

That's a great question. Since -- really since the beginning, I've been focused on defining the future of finance for SMBs, and the solution that we've created creates tremendous value for SMBs. They get to automate processes that have been basically manual for eons. They get to take advantage of payment rails that are now integrated and simplify the experience. And they really get to save a ton of time, have a lot more control. And so that focus on being the defining force and the future of finance has meant that we're set up to actually do things since the IPO. And the things that we've done since the IPO, we've expanded the capabilities of the product, the platform. We've extended our reach with new distribution partners and actually expanding the distribution relationships that we have. And we've been able to continue to establish an early presence in international markets. And so all these things lead to the type of success that we've had over the last few years, and it's built and predicated on having a platform. Our platform consists of kind of really 3 core components to it. And at the top level, it is the platform that we have, it's the ecosystem we have, and the scale. And within our platform, we have multiple things that make the platform unique. We have process automation, which I've talked about. We have the ability to leverage payment capabilities across the product. And we've built into the platform the ability to partner into the ecosystem, which leads us to the second point, being the ecosystem. So our ability to reach customers, whether they're small businesses or mid-market companies or SOHO, it really does depend on our ability to find them. And we go out in a direct effort, we go out through accounts, we out through financial institutions. And so that ecosystem since the IPO has continued to grow and to scale, and we continue to add more and more customers every quarter from what we've done before. And then the last is just the scale that all that brings together. So last fiscal year, $10 billion to $25 billion in funds moved, over $4.7 million on the network, over 400,000 businesses served across the globe. All these things come together to really create opportunities for us to continue to extend the payment products and choice that our customers want and to enhance the adoption capabilities of the customers' need.

Got it.

And I'd just add, in addition to all the progress that we made in terms of the platform and the go-to-market ecosystem that Rene mentioned, that's really resulted, since our IPO in 2019, in tremendous growth both through organic traction as well as M&A. In Q4, we grew total revenue of 156% and organically, 77%. In addition to driving growth, we've also improved the efficiency with which we acquire customers, retain customers and grow with them. Fiscal '22 is kind of a breakout year for us. We reduced our payback period, we increased our margins. And that really set us up for the road ahead which, for '23, looks a lot like approaching $1 billion a year in revenue and achieving non-GAAP profitability for the first time. So we have a lot of momentum since the IPO.

Makes sense. So I guess the logical question is sort of what's next? We've got this comprehensive suite of AP, AR. You've got the spend management capabilities with Divvy, payment methods kind of underlying a lot of these different capabilities. Longer term, what's the vision for the company? And how do you kind of think about additional products you can layer on, whether it's payroll, working capital or really something else entirely?

Yes, there's a lot of things that fit in on the platform very nicely. And we've been on this journey since day 1 to serve millions of businesses, and that's been my focus. I have a lot of passion around SMBs, what they do for the economy, how they do it. And when you focus on being the future of finance, there's lots of things that we need to focus on to deliver that. And as John mentioned, we're approaching $1 billion in revenue. I've been thinking a lot about what's next. And it really comes down to, in the near to medium term, the priorities are set out in this fiscal year. Which is, first, the unified platform. So we have multiple applications that we brought together in the last year through the acquisitions, and being able to have a unique experience for customers that gives them what they want when they want it is super important. So that's the first thing that we're focused on. The next would be expanding the ecosystem. So we have the partnership with CPA.com, where we are the exclusive provider for both payables and expense management. And we have the partnership with Bank of America that we've talked about in the last year. So there's -- and there's more happening in partnerships. And then the third area really is continuing to add payment choice, which drives payment adoption and really helps the financials of the business work well, but ultimately gives customers a lot of value in the choice that we've given them. So when we look at that, those are the things that I'm focused on, first and foremost. But none of that happens, really, without having a great team. And so a lot of focus for me is about how do I think about the team and the ability to add capabilities on to the team so we can actually scale to the levels that we've won. So as we approach $1 billion, I'm thinking about $5 billion in revenue. How do we go get that? And some additions to the team that we just announced today, we just announced that Lauren Badelford will be joining the company as our Chief Commercial Officer, who'll have responsibility for all of the sales across the company as well, strategic partnerships. And his background comes from 7 years at Shopify, where he was managing a team of over 1,500 employees, grew multiple different revenue streams for Shopify, part of the multi-billion dollar revenue growth that they had at the time that he was there. And really, just kind of taking advantage of that ability to scale extensively across the globe. And with that announcement, with Lauren coming on, Blake Murray will be moving into an adviser role to me. So he's done a great job growing and building Divvy to really reinvent spend management across the country. And he's done a great job integrating 2 companies together over the last 15 months. And so as he becomes a Strategic Adviser, it will well be kind of on some of the things we're talking about. Strategic opportunities for us, areas that we can kind of grow and expand, and that's something that I'm looking forward to. So the management team is super important. The changes we've made have all been around adding capabilities for growth, and something that we're excited about being in a position to be able to do.

Makes a ton of sense. I want to come back to a couple of the strategic priorities for the coming year. I thought maybe before we do that, we might start on kind of the recession tax sort of questions and some of the more macro oriented that I know are on a lot of the investors' minds in here. And I would start off on payment volume. I think every conference presentation, we're getting this question around the sensitivity of payment volumes or any kind of KPIs to the macro. You guys commented on the most recent earnings call that you've seen some softening in customer spending levels particularly among, I think, the larger customers. Is there any way you could put some numbers around the magnitude of that deceleration? And is there any additional color that you would kind of highlight around what you guys have seen more recently?

Yes, I can start. In June, we started to see some moderation in spend. Really wasn't across the board, but noticeable in the larger customer segments, for us, mid-market businesses, the larger businesses, and tended to be around discretionary spend categories. One that we called out in particular, was advertising spend, which seemed to be a little bit softer. We saw some of these trends continue into July and then early August, and so we're assuming it's the beginning of maybe a more moderate spend environment. So we've incorporated those assumptions into our FY '23 guidance. It's not a major change, but we're not expecting the 50% TPV growth that we've seen in the last couple of years in the business. So -- and it's also kind of not across all categories of customer segments or spend. So the rest of the environment that our customers are operating in appears to be really healthy.

Yes. I think the thing that really matters a lot about what we have is we have a broad-based platform. We serve customers from SOHOs all the way up to mid-market companies, and so we have a lot of opportunity to not just serve more customers but also do more with those customers. And so one of the things that we feel really good about is that as we add more payment products and choice for our customers and their suppliers, we create opportunities to bring more TPV onto the platform. So lots of opportunity where we can create value, save businesses time, save them money, really help them manage their cash flow better and have control over their entire cash flow. And ultimately, those 2 things lead to, I think, a really important fact. In inflationary environment, software is the only deflationary force that a business has. And so that's something that we focus on, making sure we create the value so the businesses can do more with less.

Makes a lot of sense. Just a quick follow-up. I think there's a lot of focus on just how the TPV composition differs between Divvy and the core AP platform. Is there anything you can kind of share about the mix between the two, and whether there's been any kind of divergent trends between kind of the expense management versus AP?

I mean, I think the first highest level comment is that there is more discretionary spend on the card. And that's kind of to the point that John made around what we were seeing with some of the larger customers, in particular, advertising spend. But at the same time, the -- Divvy's solution is new to customers, right? And we are learning and we are working very hard to bring more types of spend on to that program. So we believe the opportunity is there to continue to increase the capabilities so that we can create the balanced approach that we have across the business.

Got it. Makes sense. Okay. So last sort of macro focused question here, but I think we've covered the TPV side of the equation. How do you think about just the underlying customer, the risk to churn rate so that we see more kind of distress among small businesses over the next, call it, 6 to 18 months?

Yes. The trends that we saw in the fourth quarter and early this quarter in spend didn't follow through to customer demand or retention, so we've seen a really healthy environment there. We've also learned over the years that SMBs are really resilient. I think the pandemic -- the early days of the pandemic provides a good example of that. Pre-pandemic and when it unfolded, we were at about 82% gross customer retention. Today, as of June, we're operating at about 86%. Customers, small businesses find a way to adapt, and we've seen that. The other thing I'd say is that we have a handful of levers that help us mitigate any potential increase in attrition or challenges that SMBs might have that could flow through to the demand on the retention environment. First, we're very early in terms of our monetization journey, and so we're increasing monetization significantly. Two, as we build out the platform, we find that we're increasing our share of wallet with customers, which provides more opportunity for monetization. And then third, in this interest rate environment that we're in, we obviously have a significant tailwind associated with float revenue from customer funds. So all things considered, we're feeling really good about the demand environment that we're in.

Got it. Makes sense. Okay. Maybe something slightly more exciting to talk about. The -- I think we'll go a little out of order here, but you mentioned the ecosystem, continue to build that out as being a big part of the priority list. One of the defining characteristics I think on Bill.com is just the incredibly efficient customer acquisition funnel that you guys have, particularly in the accounting channel, which I think is roughly half of the customer base or -- of net adds. You recently brought on Divvy as the exclusive spend management partner to CPA.com, and expanding an existing arrangement. What's the opportunity set like to expand this part of the acquisition funnel, specifically in the accounting channel?

There's a lot of opportunity. And I would go back to kind of when I started the company, and I realized that serving SMBs is going to require a multichannel approach. We're going to need to go direct. We're going to need to go to places where businesses trust, and that would be accountants and financial institutions. And we're going to need to be able to offer products and services for accountants and financial institutions where they would trust us to deliver for their customers. And so when you step back and really think about everything we built in the platform was from day 1 to support all 3 channels. And in that case, different capabilities. The ability to white label, the ability to add APIs, the ability to create different connection points for your partners is super important, and that's the way I've been building businesses for 20 years. And so when we look at how you do that and it gets into both CPA.com, and I think we'll probably talk about the [ available ] bit. But when you get into partnerships, the first thing you have to do is you have to listen. You have to understand what your customers, your partner needs, how they think about their customers, then you have to refine and then you have to expand. And what we've done with CPA.com, they've been a partner of ours since 2008 is we've worked with them. We now have 6,000 accounting firms across the country. We have lots of different touch points with those accounting firms. They serve tens of thousands of customers for us, right, and many more that we continue to add on. And part of that listening and refining is understanding the product capabilities that accountants need. And so we get that directed from accountants, but CPA.com who serves all certified professional accounts across the country, over 400,000, they get that from a different viewpoint. And so that listening and then refining and then expanding, which is how we got to Divvy being an exclusive provider for CPA.com, is because of that process that we have. And that takes patience to actually have partnerships where you build that over time. And so on the accountant side, what we're seeing is more and more of the opportunity that accountants are reinventing how finance gets done for their clients. They are reinventing their own practice and something they call client advisory services where they can be a CFO for rent, so to speak, and really enable strategic thought across the business. When you think about the macro environment right now, what we've experienced over the last few years, businesses need help. These are times that none of us have been through before, and it's an opportunity for them to actually provide that strategic advice that they would rather provide than the mundane task of just doing a tax return.

Yes, makes total sense. So I think year-to-date, the smallest customer acquisition channel, the FI channel, has actually garnered the most attention. I think at a high level, you've essentially doubled the pace of new customer additions to the platform since late last year, which coincided with a new partnership with Bank of America. So I have a couple of questions on this, so we can touch on a few aspects. I mean, first, maybe it's best to set the stage on just how the FI channel differs from some of the other channels that you distribute there?

Sure. It's a great question. And most of our arrangements with financial institutions are structurally similar, so I talk in general. Over our history, most of the financial institution partners we have, we've been serving the commercial customer for the larger businesses. And its success in working through that partner model, the white label solutions, adapting it to their customer needs, that's opened up the small business segment at some of the financial institutions. So our remaining performance obligations or RPOs represent the minimum revenue commitments that our partners make to us. And so in the short term, under these agreements, that's really what drives revenue. It's a pro rata recognition of revenue against the RPOs. We drive these RPOs based on working with our partner to establish the adoption rate of customers and how much activity in terms of payment transactions those customers will perform. So the RPO is like the floor, if you will, of our future revenue recognition. And to the extent that we can drive success in more adoption or more activity from customers, then we have an upside opportunity to deliver incremental revenue over and above the RPOs.

Got it. And so I think it's probably fair to say you guys have never had a partnership perform this strong out of the gate, just ensure numbers of new customers. What do you think has made this partnership so much more successful than prior FI channels? You mentioned the difference between the retail bank and the commercial bank, but can you expand a little bit on that?

Well, it really goes back to my comments the last time about the wash, registry, repeat, which for us would be list and refine, expand, right? So that whole process that we have built into the company and the competency that we've built around listening to the customers allows us to go into the commercial relations, right? So most of the bank partnerships that we have centered on their commercial customers, they're larger than mid-market customers. And we've been able to drive great success there so that then we can say, well, what else do you need? What other capabilities you need? So with JPMorgan Chase, what they needed was actually the virtual card product, so that was launched last year. With Bank of America, several years ago, they started rethinking the entire experience that SMBs have with the bank. And they were going to build a new digital platform that they wanted to have one clear solution for bill pay and receivables and for businesses. And so they talk to us and obviously, we got the partnership. And so in this particular opportunity, we have an opportunity where one of the largest banks in the country is going to market with a new solution for new customers saying, this is how we think you need to experience software that relates to payments in relation to your finances, and Bill.com is a key part of that when it comes to payables and receivables. And so it has led to great customer growth because it's a different customer segment. The largest commercial customers of the -- I think might be tens of thousand customers, but the small business side might be millions, right? So it's a different customer segment, but the opportunity is predicated on the success we had initially. And that's going to be true in our future, right? We have to always continue to listen and refine and expand the partnerships that we have.

Makes sense. Just one more on this. I mean, when you think about -- I know it's a different customer set, larger TAM, so maybe you expected more customer adds out of the gate. You commented in the past that it often takes several years to get through these contract minimums. There's been a lot of focus on just kind of how long it will take to get through that and see the really robust base of net adds start to contribute to incremental revenue. Is there anything you could say about what the sensitivity of that 1.5 to 2 years is? And is it possible to significantly exceed that if a partnership performs well out of the gate?

Well, the minimum revenue guarantees that we have are not meant to be the maximum, right? They are meant to be the minimum. And so it is -- but we do know that there's a certain amount of investment required upfront on our part to be able to take the platform and really fit it into the experience that the financial institution wants to have. And so that's why it's those 1 to 2 years, and I think each partnership is different. It really kind of depends on how they go to market. We've not yet started doing any mass marketing. I should say we, the Bank of America has not yet started doing any mass marketing on that side. And that's something, that every bank is different when it comes to when they're ready to kind of launch an overall product with ads and with other campaigns. And so from our perspective, we're still in the early days of really understanding what the capabilities are across any of our financial institution partners. And yet, we see so much potential in front of that, right? And so I think we will continue to drive lots of innovation. We don't talk about all the other partners that are working, but one of the things we've done in the last year has done some very deep integration APIs for some of the other partners, and that's driven a lot of customers on their base. So lots of opportunity for us to continue to expand the customer base, and something that we will always do is to listen and refine and expand. And that's what's worked for us, and it's something that we'll continue to do the same. It sounds like there's -- if anything more on the comp from that partnership.

Okay. Maybe switching gears a little bit to the payments opportunity. I was wondering if we could spend a little time on some of the various levers you have to increase monetization in the business? The take rate has increased, I think from the low single to the high teens of the percentage of payment volume as from basis points. You recently gave an update for where some of the higher-margin payment volume was of ad-valorem volume, roughly 10% of TPV, I believe. Could you talk through the various opportunities you have to increase payment monetization over time? Anything to call out in the near term that you're particularly excited about, and then maybe any thoughts on where that 10% could go over time?

Yes. Super excited about the opportunity to provide choice for customers that drives value for them. And it was a realization day 1, a strategic decision day 1 to build a proprietary payment network that allows us to do all the capabilities that we have. And what we started with was [ Check ] and ACH. But then in the last few years, with the scale that we have, the customer growth that we've had, we've been able to really leverage those capabilities into international payments, cross-border payments, FX payments, virtual card payments, pay by card for businesses that need kind of an initial working capital loan, so to speak. Instant transfer capabilities for the buyer to send money faster for the supplier to get it faster, the ability for balance. All of this has led to -- before getting to lead to, and then we had the acquisition of Divvy, which gives us an opportunity to get into spend management and expense management that we should have. So all that has meant that we are now at that 10% threshold from an ad valorem capability, and we see it being much higher than this. There's lots of opportunity for us to drive more and more capabilities, more awareness of the capabilities and more simplicity and the experience the customers have so that it really is the future of finance. When you get back to what my mission has been from day 1, it's to define the future of finance, to get people out of the back office and back to doing what they love. And that doesn't happen overnight, that happens when you build a proprietary payment platform that does the capabilities that we have.

Yes, makes sense. Maybe the proverbial profitability question, which has popped up over the last year or so. You recently guided to your first year of non-GAAP profitability in fiscal 2023. I know you haven't talked through operating margin targets longer term, I won't ask you about that. But maybe you could talk through some of the drivers of operating leverage in the business, and just how you think about balancing growth versus profitability in the coming years?

Yes. I mean, I'd start with -- we definitely view it as a balancing act, not a trade-off. And getting to non-GAAP profitability as we expect in fiscal '23, we didn't flip a switch. We've actually been building towards this for a long time. Because when we serve the SMB market, it's been critical that we get unit economics right. And there's a few levers that we have in continuing to scale the business and achieve greater levels of profitability. The first is just understanding how to acquire and serve customers with great economics. And as we get bigger, we have more and more opportunities to continue to enhance that. Second is, some of the investments that we've made in controlling our own destiny in terms of proprietary payment technology have enabled us to benefit from this higher interest rate environment through high-margin float revenue. So in an environment where we're higher for longer with interest rates, that provides a significant tailwind for us. And then I think the third lever is really just scale. As we get bigger, we find ways to drive better costs as it relates to transaction fulfillment. We'll achieve operating leverage in, I think, G&A first, and then eventually sales and marketing. We are definitely a product-oriented company. We want the product to help us as much as possible, create value for customers and be self-service, which is part of the way that we'll create operating leverage as we scale.

Got it. Makes sense. Rene, I want to turn back to some of the strategic priorities, and they are now one of those strategic objectives this year, is the unified platform between Bill and Divvy. So maybe, I think it would be helpful if we could just talk through when you look out a couple of years, what is the vision for the customer experience in these platforms?

Yes, the -- we know that simplified experience is just better, right? And one of the things that drove us to the acquisition of Divvy was just looking across our customer base and seeing what solutions our customers are using, because we have the ability to kind of see who they're paying, obviously, and stuff like that, and we saw that Divvy was the leading solution that they were using. And so our ability to kind of -- that was a small subset of customers at the time, but knowing that customers are using it and were happy led to the acquisition. And so the opportunity that we see is how do we have -- help more customers, and we have 157,000 across the customer base that aren't using a Divvy spending as a solution. How do we help them get there? And so that unified platform, we think having an experience when the customer comes on, that they get one experience is super important. What we hear from SMBs is that they don't want point solutions. They want one solution. They don't want to have to go sign up 7 different solutions to get to one solution. They want to be able to say, hey, the future of finance is Bill, and we're going to go with that. And that future of finance is something that we've been working exceptionally hard at and rigorous over the last 16 years. And just driving the capability so that there's one dashboard, for example, that shows both the payables, spend management, the expense management, all in one place. The ability to collaborate across employees, which we already had. The ability to integrate payments, whether it's a card payment or a supplier is getting an ACH, or maybe an instant transfer payment. These are all things that suppliers, customers, everybody just wants kind of one place to go, and that's why we focus on the unified platform so that we can operate for customers so they can experience sooner, and then obviously drive more opportunities in the future.

Makes sense. I mean, you mentioned the opportunities for more Bill.com customers become Divvy customers. Gotten so many questions from investors around what that ramp looks like over time. Maybe you can tie that into the timeline around platform integration, but you saw some pretty good progress the past year. I think it was 2,000 customers. who kind of -- they were Bill.com and moved to -- adopted Divvy. Could you talk about how you think about the cadence of Divvy cross-sell? And when we could see that accelerate further?

Yes. We continue to everything that we do, we kind of are very focused and rigorous and understand how it's going to work before we expand it in a greater fashion. Part of the reason the unified platform became important is in talking with the 2,000 customers, what else do you want? How would it be easier for you to have come on versus the handholding we might have done? And it was, hey, a unified platform would be helpful. And so when we look at that thoughtful measured process that we have to kind of drive adoption of the cross-selling that we've done to date, there is an opportunity for us, once we have the unified platform, to be more holistic in our go-to-market capabilities. And that will drive, I think, more cross-selling when we get to that point. And that timeline is probably somewhere in 12 to 18 months. It is how we think about it. It's thoughtfully building the experience. It's really listening to customers, getting feedback, getting that experience integrated so that when we go to market, it is one solution for customers in the future.

Makes sense. Switching gears a little bit. I know Invoice2go is a smaller piece of the puzzle, but I think it brought some interesting strategic angles. The international footprint, opening up the TAM kind of down market. Could you provide an update on Invoice2go? And how are you prioritizing investments into that part of the platform?

Yes. There are 2 strategic reasons we wanted to partner and acquire Invoice2go. The first really is probably around the opportunity that we see in our network, and let me just talk a little bit more about that. But every customer that comes on the Bill interacts with either a supplier or a buyer of theirs, and so that interaction allows us to obviously transfer the money. So 4.7 million on our network that are interacting $225 billion last fiscal year, all of that is an opportunity for us to do more for customers. One of the things that we felt we could do more on is while we had an AR product, we felt we could do more on the AR capabilities. There's more automation around invoicing that we think is important. And so Invoice2go has that capability. They have over 200,000 customers across 150 countries. Using the product also got us to hold internationally. And that capability, what we see is taking those learnings and putting that into our network offering so that when a supplier is getting paid, they have an opportunity to use the invoicing capabilities, if that's what they want. That's super important because when you think about all the ecosystem that we have, whether it's a direct customer, an accountant or a financial institution partner and driving lots and lots of customers every quarter, they all connect with people in the network. They bring new people to the network. And so having capabilities for the people in the network is super important. It's how the ecosystem actually supports more and more value. So the first thing was, hey, having more capabilities on the AR side for the network members. The second was Invoice2go was doing $25 billion in payments, but only 4% was going through them, an opportunity that we understand well how to actually drive payment adoption across your customers. If they're using your products, how do you drive that? You have to know something about payments, you have to be comfortable with regulatory and compliance firms. You have to understand these things, and so we focus the acquisition efforts on those 2 areas. And we're now in the early days of leveraging our payment capabilities and see good signs that we'll be able to drive higher adoption of payment products across Invoice2go platform.

Got it. Makes sense. One of the things -- one of the questions we get a lot is around the competitive environment in the B2B space. I mean, you operate in such a large market. It seems like we're still very early in the adoption cycle for business management software for SMBs. Like, what is the competitive environment from your perspective? And is that evolving? Are there more and more players that are looking to kind of catch on to the opportunity in this market?

Well, I think for us, I started 16 years ago, we've been defining the future of finance for 16 years. Building the category, really helping people understand the value that's created. When a customer say 50% to 70% of the time it takes to manage those financial operations, that really drives a lot of value creation. That lets them think differently about their business. And so as we've done and kind of defined that category, yes, we see more people that are out there, but what we see from our customer perspective is still paper and manual processes. That's the thing that drives our customers away from to us is because they're doing things manually. It's the way they've been doing it for eons, it's something that's painful, something they don't feel that comfortable doing. And what we found over the last few years especially with this digital transformation that is happening, I mean, I think it's obvious that more things are going to be digital tomorrow than they are today. But businesses have been holding on to checks. They've been holding on to their processes. What we found is that there can be points like those that can create a little bit of a stair step into customer acquisition or usage. But the one thing I know is that you can't escape digital transformation. It's just going to happen. Businesses are going to have to manage in order to compete, have a much more efficient process. And so we're in the infancy of this market being developed. We've been here 16 years defining it. And the opportunity for us to kind of continue to expand that leadership position is real because of the proprietary payment network that we have. That really enables us to create so much choice around how people make their payments, the form they want to make it at the time they want to make it. That stuff that's really hard to build something that we've worked hard to be able to position ourselves. So competitively, we just don't see in our customers any competitive threats of this nature.

So it seems like a combination of so much greenfield in this space, combined with the significant head start that Bill.com has over any other new entrants, puts you guys in a really good spot. What keeps you up at night from a competitive standpoint that might kind of change your view on how this space could evolve?

I, mean I think the thing that keeps me up at night in general is how do we move faster? We know we have a great opportunity in front of us. We know that we have great capabilities that nobody else has. We know the competencies that we've built are hard to replicate and duplicate. And so -- but I do think that the opportunity for us to reach more customers, whether it's through the ecosystem, through the network, through our own distribution, through accountants or direct, that's something that we focus on. It's something that the opportunity is just so big and so massive in front of us that we are -- that's where I'm going to focus on. I'm doing everything I can to achieve the market potential that I believe we should have.

Got it. Makes sense. John, I wanted to switch gears maybe to a little bit more mechanical part of the business. The revenue that you guys get from the customer flow balances. Obviously, with higher interest rates, that's a meaningful tailwind. You referenced it when we talked about the profitability profile for the year. Could you just remind us maybe mechanically how you earn interest on these balances? And I guess when I wrote this, we were heading towards a 350 Fed funds world. As we approach a 4% Fed funds world, how do we think about the flow-through and the lag that these revenues will be recognized as rates go up?

Yes, it's a great question. We were one of the first companies to integrate payments into a SaaS platform, and that puts us in a great position in this rising rate environment. It's important to note that we don't do anything to maximize flow of revenue with the flow of funds. In fact, it's just the opposite. The reason we invested in our own payment technologies to deliver a better customer experience. So on the other side of every payment, there is some value proposition for customers. It's either automation or efficiency or cost avoidance, whatever the case is. With that said, we have FBO funds on our balance sheet. It's a little over $3 billion. We invest a portion of that in securities during a yield. We go out to about a year. That's 40% of the investment. The rest is in DDA accounts. It turns over every day, earn very low yields. And basically, we work every year to lower transit times around that customer experience. But in this environment, you could say we're in a more normal interest rate environment now. The last couple of years have been abnormal by historical standards. It's what positions us to essentially earn yield. In '23, we'll be around 200 basis points is what we said for yield on the FBO funds. That's quite a bit below the Fed funds rate in part because of the lag effect associated with reinvesting maturing securities. In fiscal '24, we would expect to be closer to the Fed funds rate in terms of our overall yield.

Got it. That makes sense. And obviously, the growth in the underlying balance is a huge piece of that. You've been growing it very robustly. I know you're not optimizing for larger balances over time, but any thoughts on how kind of like faster or slower growth could kind of impact your expectations?

We've been growing it significantly. We do some things that work against growth of that balance, as I mentioned, with faster payments, and we think that produces a better annuity over time. But we're confident in our ability to capture the float revenue opportunity as it exists in the current environment, and that obviously supports margins as well.

Got it. So maybe just one on capital allocation. I mean, the business seems to be transitioning towards kind of consistent positive EBITDA, free cash flow. How does that impact your thoughts on capital allocation? And does it incrementally make you more likely to kind of invest in or deploy into M&A? Any thoughts on evolving capital allocation strategy?

Well, I mean, -- the first thing I would start with is we are and want to continue to be defining the future of finance for businesses. And so whether that's internal and improving using the data asset that we have, we have a massive data asset. You think about the millions of transactions, the billions of dollars that happen every month. Our ability to understand what risk to take, what risk not to take, to accelerate payments or not, that's unique. And those capabilities are something that we'll continue to enhance. We'll continue to enhance the simplicity across the platform. That's the organic side. We'll build capabilities organically around lots of ways that we can continue to add more payment types. But as you've seen, I mean, we're pretty comfortable with M&A. And so we think that the opportunity for us to look at how do we extend the capabilities of the platform, whether it's adding capabilities on AP or spend or expense management or AR. Or really expanding into working capital, things like invoice financing or having more dashboard capabilities, just kind of reporting analytics. These are all things that we are evaluating and that we're always looking to improve for our customers. Things like payroll and HR, these are all capabilities that long term, I think of us as having the ability to leverage the capital we have to be able to drive that.

Makes sense. We've got just about 2 minutes left here. You just mentioned kind of Divvy, the asset that you guys have and having so much valuable customer data. When you think about that as an avenue for additional products and services, like, what are the things that seem most top of mind over the next couple of years?

I think the thing that we've built into the payment capabilities is really understanding how customers spend, and understanding the risk associated with any of that spend. And so we know customers. Customers are asking for more working capital type products. We launched Pay by Card so they could pay a bill with their credit card, which is obviously a working capital product. We know suppliers want instant transfers. We launched Instant Transfer in the last year, and what we were able to launch in the last year was the ability for them to get payments in 1 to 2 days -- or actually, right now versus 3 to 5 days, let's say. We know that they want more of that. Whether it's 2 weeks, 30 days, whatever, they want the ability to get an acceleration of their funds. And I think the data asset allows us to think about those products differently than what others can do. We also know that customers want more reporting analytics on their product. And again, we can kind of see all of this across our data, and it's something that we'll always invest in to do what's best for the customer.

Got it. Makes sense. In the last 60 seconds, I think I've heard you say the future of finance multiple times across the presentation, I hear you loud and clear. Anything else you want to leave the audience with on just how you're thinking about the future of finance for your customers?

Yes. I think you always have to start with the customer. What is it that they need, what the pain points that they have. And this comes from a passion of just being a small business, listening to small businesses. They need to get back to doing what they love, and that's something that we're going to always focus on.

Got it. Okay. Well, everyone join me in thanking Rene and John for being here today. I really appreciate the time. Thank you, guys.