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

Welcome back, everyone. I think we can get started with the next session, which is Bill.com. So my name is Ken Suchoski. I'm the payments and fintech analyst at Autonomous Research. We're really excited to have John Rettig, the CFO of Bill.com with us today. John has more than 20 years of experience in strategic finance and operational leadership in both private and public companies. John, welcome. Great to see you again.

Hey, Ken. Thanks a lot. It's great to be with you.

Yes. It's great to have you. We'd like to make this session as interactive as possible. So if you have a question for John, feel free to lob those into the Zoom app or you can e-mail me at [email protected], and we'll do our best to get those answered.

But John, maybe to start off, for those who are less familiar with the Bill.com story, maybe you could just give us the 60-second overview of the company and kind of what are the major pain points Bill is trying to solve for their customers?

Sure. Yes. I mean, 60 seconds is hard but I'll give it a shot. We have a platform that helps SMBs automate their financial operations, which really means the processes that go into accounts payable, accounts receivable, most recently, spend management. And the main pain point is that most SMBs rely on kind of legacy manual processes. It's a lot of paper. There's not a lot of tools and automation. And so it kind of holds them back at some level. They devote resources and people's time to these back-office activities that could be better used doing something else in the business. And that's where our solution comes in. We built an ecosystem to reach SMBs through trusted partners like accounting firms and large financial institutions. We've built a big network, 4.7 million members that our customers interact with. And we've been on, I think, a nice run of very high growth and penetrating the market. So we feel really good about the value that our solutions adds for customers. And our vision really is to try to become the global go-to solution for SMBs when they think about managing the money.

Great. I think that was right around 60 seconds, so nice job with that. John, when we do our analysis and add up the 10 largest AP automation providers, what we find is that the market is still kind of low mid-single digit penetrated of over -- of U.S. businesses overall. Some people find that stat surprisingly low. I was wondering if you could just explain why that number isn't higher and why haven't businesses already adopted a solution like Bill's, especially when the unit economics are so attractive.

Yes, it's a great question. I think it touches on one of the common sort of misunderstandings around the B2B space because a lot of people assume that it has advanced like the consumer space has, for example. And the reality is awareness and inertia are really big factors that kind of have held back the B2B financial ops space, and it's moved much slower than the adoption of some of the newer consumer solutions. I'd say that COVID has changed the awareness part of that calculus quite a bit. Everyone was impacted in some way. Businesses and many companies had a wake-up call. They haven't all moved to digital solutions yet, but at least that awareness has started. And I'd say our core where we started was really on the AP side, accounts payable, and it's super complex. And that's what makes it difficult. It requires workflow and collaboration. There's a bunch of people involved. And so it's important to kind of find a business when they're open to change. Inertia is very powerful. And I think the awareness is there now and businesses are starting to adopt more digital and cloud solutions for their back office to complement things like accounting systems or payroll solutions or things like that. So the key, I think, to unlocking the market to get much higher penetration than the numbers you mentioned is, at least from our strategy, our standpoint is meeting SMBs wherever they are. Like wherever they're going to be open to a change, whether that's by working with their accountant or their bank or some awareness of a digital alternative, that's where we want to be.

Okay, great. One thing I find interesting, John, is that Paychex, Paychex is a payroll provider focused on small businesses, I think they have over 700,000 customers today. Bill's at, I think it's around 160,000 or so. It seems like Bill's customer count can continue to grind higher over time. I mean, maybe just talk about how confident you are that you can get to a number that is closer to 700,000 over time. I think that's 1 question that we get a lot.

Sure. So the really short version, as we think of the opportunity as measured in like millions, billions and trillions. So there's millions of small businesses, 6 million companies with employees, another 25 million if you count sole proprietors. That's just in the U.S. and the global opportunity is just as big. They spend billions of dollars a year on software, and they have trillions of dollars in payment volume that can be facilitated and digitized and value created for businesses. Our solution, we rely on a hybrid business model, both subscriptions and transactions. We were one of the first platforms to integrate payments to serve businesses there. And we're really excited about the opportunity. I'd say we've built a platform with SMBs in mind. Like from the beginning, we tried to think like SMBs, understand their situation. And so we're confident that the solution can achieve mass market success. I wouldn't necessarily limit the size of our opportunity to that 700,000 number though. We actually think it's much bigger than that.

Right, absolutely. And that's -- yes, once you bring the international opportunity in there, obviously, that's going to increase that TAM. John, the payback period declined from 5 quarters down to 4 quarters recently. Can you just talk about your appetite to push that back up to 5 quarters over time? Are you comfortable with the current payback period coming down?

Yes, I'd say that our efficient go-to-market strategy, just how we reach customers, acquiring them, retaining them, growing our activities with them over time and revenue is very foundational to how we run the business, how we look at incremental investments and marginal profitability and things like that. Great unit economics are really important when serving the SMB market. I'd say that we'll be both disciplined and opportunistic as it relates to incremental investment opportunities that can help us drive additional market penetration. So we're not necessarily wed to our most recent payback performance, which we feel really good about. There may be opportunities that it makes sense for us to invest at a higher rate and maybe it impacts that metric. But it's certainly 1 that we pay attention to. It's probably the best measure, in our opinion, about the efficiency with which we can deploy capital.

Right. And then just 1 follow-up question on this, John. On the sales and marketing expense and how it relates to CAC, I mean, 1 thing we noticed was that the sales and marketing, excluding the Divvy Rewards cost, it continues to move higher as a percentage of revenue despite the decline in that payback period. Could you just talk about what's driving that?

Yes. I think when you peel back the onion a little bit, there's some moving parts in the sales and marketing number. Our 4-quarter payback metric refers specifically to Bill.com organic number, so it excludes Divvy and the financial institution channels. And our sales and marketing expense, if you look at just the headlines on the P&L, it also includes sales and related expenses for headcount and things like that related to our Divvy solution. So when you kind of strip out the organic Bill core, our non-GAAP sales and marketing expense has actually been declining as a percentage of revenue. One thing I would say, though, around the payback period and how there can be nuances to the overall investment level is that, as I think we've seen some success, we see incremental demand from larger mid-market companies. And the sales cycle for that customer segment is a little bit longer than it is for a small business. It might extend beyond a 30-day trial period. And as a result of that, there's slightly higher sales and marketing expenses associated with it, which could lead to actually a slightly higher payback period as well. So overall, I think we -- when you look at the building blocks of our overall sales and marketing numbers, I think we are being successful at creating some efficiency for the organic core Bill business.

All right. Great. John, I wanted to dig into the monetization of TPV a bit because it's a big part of the story. A lot of revenue growth coming from that transaction side of the business. The company is still in the early innings of increasing monetization on that TPV. And I think it's still early innings when it comes to enabling suppliers, for example, to accept virtual cards. And the way I understand it is that you kind of have to go to each of these suppliers to see if they accept card, and if they don't, you kind of have to educate them of the benefits of accepting cards. So can you just talk about what inning you're in, in that supplier enablement process? John, I think you're on mute.

Sorry about that. Just starting with the monetization, you're right that monetizing spend on our platform is an important growth driver for us. Just as a reference point, last quarter, we hit, I think it was $6.54 in transaction revenue per transaction. That's up about 50% year-over-year. So we've been very successful in expanding monetization for the last few years. And a big part of that is actually the work that we've been doing, working with suppliers. So building this in-house capability. It's a combination of people and technology to connect buyers and suppliers for both virtual cards, for international payments, for real-time payments, anywhere where there's a choice to be made by a supplier about how they want to receive a payment, maybe how much data is important to them to collect with the actual payment for reconciliation purposes. And we've done a good job at automating much of the process, particularly as it relates to the Bill activities, but there's a lot more that we can do. The key is that for the first time over the last 18 months or so, we've built a direct relationship with suppliers. That helps us not only in driving additional adoption with products that we already have, but it helps us with all future payment offerings where suppliers might be involved in making a choice on how to get paid.

Okay, that's really helpful. And I think you mentioned recently that you have several additional areas to invest around supplier enablement to drive more adoption. Can you just talk about some of those investment areas? And how will they help you increase the number of suppliers accepting virtual cards?

I'd say we're kind of entering the second phase of our sort of multistep investment process around supplier enablement. We're doing more to drive automation on the supplier side, not just the Bill side with the goal to eliminate as much of the kind of manual activities and friction as possible. For example, including with virtual card payments, where there is some friction and there is some annual activities associated with accepting those types of payments. And over time, we think this actually helps us drive better adoption because if we can automate more, remove some of that friction, it actually lowers the overall cost of acceptance. So suppliers when they're taking payments, it's not just the transaction cost that influences their numbers. It's the overall process by which they have to reconcile and report and manage payment flows. And so we're working on all of that to lower the effective cost, which we think yields, over the longer term, much higher adoption rates.

Okay, great. And just to make sure I understand it, John, so basically, you would try to make it more streamlined on the supplier side so that they have less manual work and it's more value-add because you're getting the cash in the door, you're doing that reconciliation somewhat streamlined and automatically.

Yes, that's exactly right.

Okay. Okay, that makes sense. And then you've been providing penetration figures for the variable rate payment types on each fiscal fourth quarter earnings call. And just looking at the increase in virtual card penetration and cross-border penetration, so comparing this year's penetration to last year's, it looks like that increase slowed a little bit this last fiscal year, so the second derivative kind of slowing. So we got a bunch of questions on this after the last earnings call. And we're just trying to understand, what's causing that slowdown across those 2 payment types?

Well, first, I'd say we actually feel really good about the progress we're making, driving adoption across the whole portfolio of payment products, including virtual card and international payments. I'd say it's not really a linear process where it's mechanical. Any time you're driving adoption on a particular payment method, it involves behavioral change on the part of buyers or suppliers, depending upon the transaction type. And that's why it takes time to achieve target adoption rates. We laid out quite a while ago our longer-term adoption rates, and we knew it would take us some time to get there. And we're confident in those eventual ranges because of the visibility we have into the payment flows and the data on the part of our customers and our suppliers. So we know the volume is there. It's a matter of just being in the right place at the right time to change that behavior. At the same time, we've also been investing in diversifying our provider relationships. This applies to card issuing, which impacts virtual cards. It applies to international payments. And this has helped us expand monetization and margins at the same time that we're driving adoption. So there's multiple benefits to these investments that we're making. And as I said a moment ago, this next phase of supplier enablement will be important. And if you look at where the business is at overall right now, I think as of this last June, we're at like 11.3 basis points in terms of our overall take rate. So we know there's a significant runway to continue to expand from here. I'd say that we're closer to the beginning of that runway than the end.

Yes, absolutely. And John, I received a question from the audience. I just want to weave it in here because it's a good time. But what specific initiatives does the company have planned to reaccelerate cross-border and virtual card TPV penetration rates? Because it kind of leads into that last question I had.

Yes. I mean, I'll stay away from the specific initiatives on that and just point out that we are managing a portfolio of payment products. And our primary goal is to increase adoption of electronic payments. Our secondary goal is when the value proposition makes sense to influence the payments to an ad valorem payment type. We had about 10% ad valorem adoption, 10% of non-FI TPV as of the last quarter. And that's something that we think there's a long way to go. And so we're continuing to invest in capabilities that we think are both strategic and have a lot of leverage for us as we continue to drive growth.

Great. That's a good segue, John, into the next question I have because it looks like based on our math, the Instant Transfer and the Pay By Card payment types continue to gain traction. And I wanted to dig into Instant Transfer a bit. I know it's still early days, but do you think that product can actually scale faster than what you're seeing on the cross-border and virtual card side? Because it seems like you might be able to just turn it on and suppliers can use it compared to virtual card, where I think there's a little bit more handholding, there's more of an onboarding process. You have to change behavior a little bit more. So I'd love to get your comments on that. You're on mute, John?

I'm just going to figure this out at some point, I promise. I think there's some common elements across the different payment types. So Instant Transfer is very complementary to virtual cards. Virtual cards are kind of for larger suppliers who are kind of set up as merchants to accept cards and we work with them to connect them with buyers and things like that. And then Instant Transfer of real-time payments is really appealing to small vendors who -- they're not set up to take cards. They might have 1 project going at a time that results in an invoice, and that's their source of cash flow. So having the option of turning that invoice into cash like today, not next week or the week after, that's an important choice. And it's a value proposition that we've seen lots of analogies where suppliers are willing to pay for that, whether that's other companies you've seen who have much higher volume. So some of the indicators -- early indicators are pretty strong. Repeat usage is one that we look at. And we see a lot of small suppliers who adopt high Instant Transfer, wanting to use it on a recurring basis, kind of the default payment type. I don't think it's a payment method that is going to be ubiquitous and all the volume is going to go there, but it's promising, I think and I think it can scale. It's still below 1% of TPV today and so it's early in that process. But the way to think about the adoption cycle is that we introduced choice at the moment of key parts of a transaction life cycle. And so maybe it's when a payment gets approved or when it gets scheduled, that's a moment at which we can go to a supplier and see if they want to evaluate alternatives. So it's not a blast and e-mail out to the supplier base and everybody adopts it at one time. It has a little bit to do with the frequency with which they are engaging with buyers and involved in transactions.

That makes a lot of sense. So John, we received another question from the audience, and it was 1 topic I wanted to hit on next, which is just FedNow. And so the question reads, can you talk about the potential implications of FedNow launching next year on your ability to continue increasing penetration of higher take rate alternative payment methods such as virtual cards? Is there any reason why clients wouldn't choose to use real-time ACH through FedNow if it is cheaper than other methods?

Yes. The -- I would just say, the absolute cost of accepting or delivering a payment, it's just 1 component to the value equation. I'd say it's a little bit early and there's some unknowns about FedNow exactly how it will work, whether transactions will be settled at the moment of delivery like a wire transfer or whether there will be a return window like an ACH. So there's some things that are unknown. But I would view that for Bill as more of a payment rails opportunity. So we move money lots of different ways using our proprietary technology, debit cards, credit cards, ACH, wires, I mean, obviously, real-time payments due to the clearinghouse. And so it is another potential method that we can build the software experience on top of. So I view it more as probably an opportunity for us to expand our offerings than a threat or somehow an obstacle to our monetization journey.

That makes sense. I wanted to ask about cross-border payments, John. I mean, you're making progress on having more of those cross-border payments made in local currency where you generate a variable rate fee instead of a fixed fee if the payment is done in U.S. dollars. And I think the stat you gave on the last earnings call was about 32% of those cross-border payments are done in local currency, which was up from, I think, mid-20s, call it, last year. So what are some of the changes you put in place to drive that mix shift more towards local currency payments? And what's working well there?

I think there's a couple of moving parts that are helping us drive a higher mix of local currency payments. The first is going back to supplier enablement, having a direct dialogue with suppliers. We've done some testing in certain countries where the supplier has given a choice to receive local currency even if the transaction was invoiced and paid in U.S. dollars. And the key there is, can that currency conversion happen at a rate that's better than what they're going to get from their local banks? So it's got to be cost competitive. And we saw a significant uptick in the FX percentage. And that's part of what's driving that expansion from 25% to 32% that you mentioned. The other is just overall improvements in the user experience on the platform. As I mentioned earlier, we've diversified our supplier base, so we're, I think, in a better position to deliver international payments faster and we can do it at a lower cost. That helps us deliver a lower cost to our customers, whether that's the buyer or the supplier. And those things, combined with those supplier enablement efforts, are both leading to an expansion in that FX component. We think longer term, somewhere between 40% and 50% of our international payment volume could be local currency versus where we've been.

Yes. Okay. Maybe we could pivot to just this kind of this one-stop shop idea that's taken over the industry. And you talked about creating a unified platform experience across Bill, across Divvy, across Invoice2go, so bringing a lot of different products and capabilities together. Can you just talk about where we are in that effort? And are the solutions still separate? What do you actually have to do to bring those together? And what does that give you in terms of customer experience or ability to navigate the platform?

Yes. So we did 2 acquisitions within a few months of each other, so the timing was such that we brought on 2 great teams. And we -- the first thing we did was integrate organizationally so all of the product and tech and sales and marketing, all of that, 1 organization. We then connected the solutions. So an example would be single sign-on. It doesn't matter which solution you're in, you can get to the other products without having to re-authenticate or sign in or use different credentials. But the experience is when you actually dive into, say, the Divvy spend management solution or the AR product with Invoice2go is still separate. It's not integrated into 1 landing page or dashboard for customers. And that's what we're focused on. It's that deep integration to bring a unified and seamless experience regardless of what solution a customer might be using. So we have a back-end integration we had to do. The tech stacks of these acquisitions we've done are very similar to Bill, so that helps us move a little bit faster. I2G is becoming -- Invoice2go is becoming the AR platform for Bill so it's replacing our existing product and that will be on the Bill tech stack. And then we're also taking this opportunity since we're working on integration to improve the overall sort of user experience, look and feel of the Bill platform, in fact, adopting some of the design criteria and UI that Divvy built very successfully in working with their larger mid-market customers. So I'd say that we're expecting to make significant progress in fiscal '23. I don't think we'll be 100% done. It's probably a 12- to 18-month process from here, but we would expect to reach a couple of milestones that allow the products to be much more seamless than they are today.

Okay. And maybe just feeding into my next question, I wanted to ask about your cross-selling efforts and bringing the Divvy solution to the other channels. And I believe the company mentioned last quarter that there are about 2,000 Bill customers already using the Divvy solution. So is that a figure that could really start to increase in the next say, 2 to 3 quarters? Or is it really more of a, say, a fiscal year '24 event?

Yes. We actually, in '22, I think we're pleasantly surprised, we're kind of ahead of what we were thinking in terms of initial cross-sell results, the 2,000 customers that you mentioned. And I'd say it's probably later in the fiscal year and into '24 before we start to see material changes. We'll continue to make progress, right? We have a small team that's dedicated to cross-sell. It's primarily been in our direct channel to date, in part because we wanted to go to market jointly with CPA.com with accountants, and that's something that started now. And so we'll continue to scale that. We know that the customer value proposition is always better if it's 1 solution versus multiple solutions. And so we will probably start to double- and triple-down on that cross-sell motion as the products become more integrated. And so that's why I'd say it's late this fiscal year, early next year when we'd start to see other acceleration in that cross-sell motion.

Okay, great. And I guess, John, just 1 question that I thought of is, is there an opportunity, like when you think about this cross-sell, do you see the -- do you think the attach rates on sort of the new customers that are coming to the platform could be higher than what you see across the existing base? Because that's 1 thing we hear across other fintechs that maybe there's more of an opportunity to layer in a product when that new customer is joining the platform. So is that like -- is that part of the strategy for you and the team?

It is, and I think that's a fair assumption. And the main reason for that is most new customers, whether it's Bill or Divvy expense management, they're doing something -- they're considering something for the first time. They're not necessarily replacing an existing digital solution. And what that means is they're open to change at that moment. So if we can present them with the right product solutions that might fit whatever their current situation is, that should lead to accelerating adoption from day 1 of the relationship. At the same time, we want to make sure we're getting the right product market fit, and we're not offering solutions to customers that aren't relevant, given the breadth of our solutions. But that is a strategy that we think, especially as our products become more integrated, will make a ton of sense.

Okay, that's great. John, I have -- maybe I'll go through a few more questions, and there's a few from the audience that I wanted to weave in just because I think we have 15, 20 minutes left. But with interest rates increasing, access to capital, I think, is going to become more important, can you just talk about where you are in rolling out different financing solutions and which solutions, either on the buyer side or the supplier side, you might introduce first on your platform?

Yes. I think the interest in working capital from our customer base is very high. We hear it's like one of the most requested features. And it's sort of access to capital at the moment of transactions like inside of the platform versus something that's separate that needs to be managed alongside of their transaction flows. So we think given the scale that we have in -- and the high share of wallet we have in managing customer transaction flows, it's going to make a lot of sense. So I think given the different touch points we have, we're uniquely positioned to surface liquidity or working capital solutions to customers. An example might be -- and it could apply to both the supplier and the buyer side and that's simply invoice advances. So a supplier has an invoice that's going to be paid in 45 days. They want cash now versus later. We've already underwritten the buyer. We have a long history. We can see the data between buyer and supplier. The same might be true on the buyer side, where they're looking for more time to pay, if you will. So we've been working towards this for a long time. About 90% of the transactions on the Bill platform are accelerated, meaning we're already moving money faster and there's some element of, I guess, of payment acceleration there in advance of good bonds. Divvy is another step in that direction where we have the charge card, which is a good working capital solution. And I think things like invoice advancement would be next. That's just an example. There's other products we could surface in the platform, whether that's lines of credit and term loans and Whatnot. We would look to partner on those like we're not necessarily focused on diluting our balance sheet to longer-duration working capital solutions. But we think the need is real and especially sitting right alongside of transactional activity seems to be something that customers are really interested in.

Right. And maybe just a follow-up question to this. I mean, the company has a lot of dry powder. You've done a couple of acquisitions, as you mentioned. Is the priority to really focus on the integration of Divvy and Invoice2go with the Bill.com platform? Or do you feel like you can add another capability, another solution over the next 12 months? And I guess if so, what product or offering would you prioritize?

Well, our #1 priority is definitely the platform unification. That's our biggest FY '23 priority. We're also focused on scaling our ecosystem and bringing more of our products to our partners and driving payment adoption, continuing to roll out new payment methods. So those are all things that we're focused on. At the same time, we have like a multiyear product road map. We know there's areas that and use cases that we can support small businesses with because, in part, we talk to them all the time. We hear what the pain points are. And so we tend to look at those on a holistic basis, like does it make sense? If it's close to the customer experience and the value proposition, we're going to want to own it and which means we're either going to build it or buy it. If it's something that facilitates us delivering value but maybe it's more of a commodity layer, we're likely to partner. As long as we can get to market fast, I think we are now positioned to evaluate additional opportunities as it relates to inorganic. But it'll all be along the lines of our existing product priorities and road map.

Right. John, just I want to -- we have a couple of questions in from the audience. So this one relates to the spend management offering and just the overall market. So how much of a concern are some of the emerging players that monetize with interchange and offer embedded Bill pay and other value-added services as part of an integrated product suite, an example, ramp? And how does that compare to core Bill plus Divvy?

Well, first, stepping back and looking at the spend management market, we think it's a huge opportunity and it's nascent. Like it is at the very beginning if you add up all of the businesses who are using kind of a newer spend management tool. And what I mean by that is a software solution that helps bring visibility and control and transparency to spend along with an embedded card. Like it rounds to 0 versus the millions of businesses that are out there. So there's -- the market is still evolving. Divvy has been a leader in that space. We are at a -- as a company, both Bill and Divvy combined in to go at a completely different scale than most of the other companies who have a toe in the water on this space. So I think the opportunity is huge. There's tons of white space. And I don't think we haven't seen things happening in the market that would deter or, in any way, be an obstacle to us continuing to penetrate and scale in the spend management space.

That makes a lot of sense. And just another 1 from the audience here I wanted to weave in, John. One of the issues that comes up repeatedly amongst investors is the tail risk from a strategic pivot by Intuit. And they're just asking, can you outline your thinking on how that relationship can evolve over time in the event Intuit takes a more directly competitive stance?

Well, we've been working with Intuit at multiple levels for many years, I think, as everyone knows. From a commercial standpoint, we're not sort of dependent upon Intuit for acquiring customers or things like that. We do have a commercial relationship but it's small relative to the scale of our business. And I think what we've proven out over the years is that our platform is a great complement to accounting systems, ERP systems and online banking tools. It's not attempting to replace those things. And what we've focused on are really hard things to do that are sort of adjacent or tangential to accounting and even payments for that matter. It's this whole workflow automation and helping documents and processes go digital. And those needs are real. And I think the market opportunity is large enough around AP and AR automation that we'll be able to continue to scale kind of regardless of the percentage of overlap in some of the offerings that we might have and some of the software providers. I think there still is a huge opportunity there.

Okay, great. And then maybe we could just touch on the FI channel quickly, John, because you provided some nice disclosure there to really help us understand how big that business is, how fast that business is growing and how fast the rest of the business is growing, which is great. So can you just talk about the evolution of the size of the customer base in the FI channel? I know there are a lot of moving parts, but how much smaller are the FI customers relative to the consolidated average? And how do the customers from the top 3 FI partner that you're working with compare to the customers and the other FI partnerships?

Yes. So historically, the customer sizes have been pretty similar. So the average customer through our FI channel looked a lot like the average customer from say, a spend perspective, a TPV perspective to give you an indication of the size of the business. But 1 thing that we found is that with the Bill platform, when somebody is using our product directly, we probably have a higher share of wallet than when they're using the product through their bank, through the online bank. So the reality is some of the customers with the financial institutions are actually larger than the average Bill segment. And that's been true up until, say, the last few quarters, where we started to leverage the success that we've had serving the commercial customers with banks. It's opened up the door to some of the small business segments at these large banks. And as those customers are now coming online, it's early, but nevertheless, there's a large number of customers. Think of the small business segment as millions of customers versus tens of thousands for the commercial segment. That has the effect of kind of lowering the overall average size of the financial institution customer, whether that's in revenue terms or spend terms. Over time, though, we think it's an important strategy to continue to drive awareness and adoption of the product. It also helps build our network. So regardless of the size of the end customer, they're bringing suppliers and customers onto the network, which then we have an indirect monetization opportunity. So on average, I'd say today, it's starting to skew a little bit smaller, the FI customers on average than the Bill business, even though historically, they've been a little bit larger.

Absolutely. And just, John, I guess 1 question that I just thought of. You mentioned higher share of wallet with your direct customers. Is it -- I mean, do these direct customers, do they basically have 100% of their spend on Bill.com, just excluding some of the cross-border activity right now? Is that kind of how it works? You're pretty much ramping to 100% share of wallet because it's like why would you go outside the Bill platform if you have that capability right there?

Yes, that's the goal. I don't -- we're not there yet. I mean, pre Divvy, we felt like when a customer has been on the platform for 6 or 9 months or a year, we get to like 70% to 80%. A big piece that was missing is the card spend. So now we've got that solution in place that over time should help. And then there's always some exception payments that happen or transactions that go outside the platform. But we think the opportunity is well above 90% over time. If a customer is truly embracing all of our solutions and they're relying on it to automate their operations, then we tend to get a very high wallet share.

Great. And then I think the other question we get a lot, John, is just is there a framework for thinking about the time to reach the threshold for that top 3 FI partner that you're working with? I know it depends on the performance of that deal and the number of customers that you hit over time. But it's 1 question that we get a lot. Is this a few quarter type of situation or is it multiple years?

I mean, I can't talk about any specific partners, but just generally, it's measured in years, not quarters, the penetration time line. And the way the model works with the financial institutions is we have an embedded minimum revenue commitment, like that's our RPO number, right? So we kind of have high visibility into the near and intermediate term revenue. And that becomes the floor. It's not the maximum, it's the floor. And so then we work with the partners to try to drive revenue over and above that. And that's usually a little bit longer-term process.

Okay, great. Maybe I can ask 1 just on some of the metrics that you provided were really helpful to understand how the different channels were performing. Bill TPV per customer, excluding FI channel, continues to grow nicely. It was up 21% year-over-year in the most recent quarter. Retention rates remain high at 86%. Is there any way you can give us some insight into what you're seeing on a TPV retention rate basis? I think that's an important metric to consider just because down the road, once that tailwind for monetization slows, I think that TPV retention is going to be a bigger driver of growth at that point.

Yes. We haven't specifically disclosed that metric, but I can directionally say our spend retention is very high, in part because of the way our platform is used, like 80% of the transactions are repeat transactions, meaning it's the same buyer and supplier who are doing recurring transactions for the core expenses that go into running a business that don't change very much. There's obviously discretionary spend that comes into play also. But as I mentioned a few minutes ago, like we're still seeing increases in our share of wallet with customers, which leads to expanding, actually, spend retention, if you want to think of it like that. And as we continue to roll out new payment choices, we see that often that results in an uptick in spend per customer, even though we maybe thought we were at maturity with them. So I think it's the recurring nature of the way the platform is used as opposed to on an ad hoc basis that results in pretty high retention on a spend basis.

Okay, great. John, I just wanted -- we received a question from the audience, and it's asking about some of the management changes, just different changes that happened recently and the client asks, why is Blake leaving the company? Are there any concerns with Divvy despite the KPIs looking great right now?

Well, Blake is transitioning to an adviser role from his operating role, and we brought on Loren Padelford to be our Chief Commercial Officer, and he's taking on the responsibilities for sales and go-to-market with our strategic partners and these financial institutions, all of the revenue -- linear revenue generation activities of the company, some of which was reporting to Blake. So what we're focused on, this is -- think of it as like a proactive or preemptive building of the team as Rene and the Board and the management team starts to think about the next several billion dollars of growth. Like we have very good line of sight to we're near $1 billion annual revenue business today with our guidance, and we're looking well beyond that and bringing on skills and experience and pattern recognition that's going to help us along that journey.

Yes. No, that makes a lot of sense. You're deepening the bench at this point and preparing for the next leg of growth. John, maybe just 1 last question and we'll wrap it up. I mean, congrats on achieving non-GAAP profitability this fiscal year, at least in terms of the guidance. It seems like you've made some upfront investments, whether it's the Divvy integration, getting the BofA partnership off the ground or launching new payment types over the last several quarters. Could you just talk about your appetite to let margins drift higher over the coming years versus reinvesting a large portion of that for growth?

Well, I'd say first, we're going after a big market opportunity, as we've talked about. There's secular tailwinds and we're in a clear leadership position. So our bias is to continue investing for market penetration with a view towards outsized growth for years ahead. So that's kind of our starting position. And we have lots of good levers. We didn't just flip a switch on profitability. We've been working towards this because of: one, great unit economics measured by payback period and things like that; second, we have this tailwind from the rising interest rate environment that is very helpful to monetize the payment investments that we've made, our proprietary payment capabilities; and third is just scale. We're starting to get to a scale where it makes sense. So the growth and profitability for us is a bit of a -- like it's a balancing act. It's not a trade-off. It's not one or the other. We would expect to continue to be non-GAAP profitable beyond fiscal '23, obviously, excluding the impact of any major recession or maybe there's M&A that could influence that. But it's a -- we're taking the first step towards a journey of building a much bigger business that's profitable.

Okay, great. John, I just wanted to squeeze 1 last 1 in here because it came in from the audience just now. But what's Bill's ability to grow with customers who require increasingly specialized integrations and solutions?

Our focus on the integration front has been around like the accounting and ERP systems that most businesses use. So we're covering like 80%, 85% of the market. There's thousands more of ERP systems, that's something we might address. Our goal is to deliver a platform that kind of handles the needs of 80% of businesses, like most of the needs are the same. We will look to add solutions that help larger businesses or really small businesses to the extent they could also benefit others. We'll probably, in the near term, because we're not going after an enterprise market, avoid making customized changes to our platform that only serve a very small segment of customers.

Okay, great. John, I think we're out of time, so I think we're going to have to leave it there. Thanks so much for taking the time. It's great to hear your insights as always. And I look forward to doing this again next year.

You bet. Thanks a lot, Ken. Appreciate it. Take care.

All right. You got it. All right. Stay safe and we'll chat soon. And now we're going to have a 15-minute break. You can grab some lunch and we'll come back, and we're going to hear from Marwan Forzley, the CEO and Co-Founder of Veem; and Bimal Shah, Head of Corporate Development and Partnerships at Veem, and that session will start at 12:45 Eastern time. Thanks, everyone.