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

Okay. I think we can get started with the next session. Welcome back, everyone. My name is Ken Suchoski, and I'm an analyst on the U.S. Payments and Fintech team here at Autonomous Research. We're really excited to have John Rettig, BILL's CFO; and Karen Sansot, BILL's Head of Investor Relations, joining us today. John and Karen, great to see you guys. Thanks so much for doing this.

Yes, you bet. Great to see you as well.

Yes, thanks for having us.

Right. Why don't we jump right into it? I think there's a lot of people on the line that know BILL. So maybe we could talk about the AP automation market. When we do our analysis and add up the top 10 players, combined, they have just 5% of the market. And so I think people are surprised that, that number is so low. I guess the question is, what's it going to take to get to 50% to 60% penetration? And how fast do you think we can get there?

Yes. Obviously, it's a big market opportunity, given just the sheer number of businesses that are out there, whether you look at employers. So the companies with employees in the U.S. that $6 million or you look at SOLProps just one-person companies, that's $25 million. And the reality is there's a lot of inertia that exists, especially with more established businesses, which is the lion's share of that 6 million employer market. And if you go back a little ways, I would have said the biggest obstacle to cloud adoption is just awareness and inertia. And the awareness variable has changed a lot over the last couple of years with the pandemic and changes in business models and demand and how businesses are thinking about creating more technology and more efficiency in their operations. And so we've seen increased demand. Obviously, you're right, the overall market share for all of the players is still quite small because the vast majority of small businesses still, in some way, rely on manual legacy paper processes for big portions of the financial back office. So I think the economy is probably having an impact right now as well to the extent that there are more priorities, potentially more distractions that small businesses are dealing with. It's not just how do I meet demand equation and create efficiency, which is what we saw during the pandemic. So we're doing some things that are within our control to help drive accelerated market penetration. That's things like simplifying our solution, making it ready for mass adoption, removing friction and barriers to onboarding and getting up and running quickly. Kind of the time to value is really important for small businesses. They're not going to try something for quarters. And I think we do a great job with our solution. Once you give it a few months and you're really invested in it, we're working to bring that time line down. So it's hard to say what the time line is for accelerated market evolution, but it feels like we're certainly as close as we've ever been.

Okay. Great. And maybe we could touch on the current lending environment. And I guess this is -- it's a 2-part question. I guess, first, I think you said that businesses are now in a holding pattern. I guess, what's it going to take to get businesses back to expansion mode? And what do you think the normalized TPV per customer growth is in this environment? And then I think secondly, just building on that, regarding the TPV per customer growth, what are the main drivers of that metric over the medium term? And how do you and the team think about quantifying the contribution to growth from each of those drivers?

Yes. I'd say starting with the environment, kind of sideways or holding the pattern is how we think about it. And that stems from obviously, having a very large data asset across 400,000-plus customers, millions of transactions, tens of billions of dollars of spend. We have both a macro view and a micro view as to where companies are putting money to work. And there are definitely some weaker spend patterns now than, say, a year ago. We've come off unprecedented spend expansion activity during the pandemic. We saw a short pull back late last calendar year. And now we're seeing some pockets of growth across various spend categories. But overall, we're still estimating that spend on a per customer basis is going to be down slightly in our current fiscal year that ends in June. There's certainly some opportunity for strength. I think the biggest factor that's holding small businesses back is uncertainty. Like this is a choppy macro environment. Obviously, interest rates, access to credit, labor costs. There's lots of factors that businesses have to consider when evaluating their spend environment. And so we're seeing that. We are, at some level, a taker on the overall spend level that small businesses have. But we do have other levers in this period where spend is more sideways than expanding. And that's things like expanding our share of wallet with customers by having more payment products, more choices, more ways to move transactions quickly, which we know there's a positive correlation between payment speed and the percentage of an SMB customers' overall B2B payment volume that we help them with. We also are seeing, on a pretty sustained basis, good demand from larger mid-market customers, which -- our sweet spot is really 10 to 100. That's where -- BILL, across all of our products, does really well. But these larger businesses, honestly, our larger spenders, and they tend to grow at a higher rate in a normalized environment than a typical small business. So as we look kind of maybe beyond the current macro environment, we feel like our main levers are around product, like how do we make it easier for businesses to move all of their processes and the employees who manage those things and the transactions onto the platform, and that should help us with increasing overall TPV and TPV per customer.

And then I guess just on the -- just on that, like TPV per customer growth, like the drivers of it, John, is it -- there's, I guess, the kind of real GDP growth, you have some inflation. You have, I guess, share of wallet gains and then maybe shift upmarket. Is that -- are those sort of the buckets in terms of thinking about the components of the -- of that TPV per customer growth?

Yes, I think that's right. I mean inflation is still with us. And so that is for certain expenses something that's going to increase overall spend levels. But I think we saw more of that earlier in this cycle as interest rates started to rise and whatnot. I think businesses are adjusting for that inflationary factor now and scaling back in some areas. Most small businesses have a relatively fixed overall OpEx level unless the demand environment changes significantly. It's not that they're going further into debt or they're in a venture capital fundraising cycle and things like that. So I think all things can consider the variables that small businesses are managing are supporting pretty low or no growth in this environment.

Okay. And there's been lots of talk of a U.S. recession for several quarters now, and we still really haven't seen one. One question that I received a lot from investors is just how BILL's SMB exposure, specifically around payment volume might perform in a normal recession. And so I don't know if you have and the team have looked at the declines in TPV per customer back to the global financial crisis, but it would be great to hear how you think about how that metric might trend and what you think peak to trough TPV per customer might do if we have a recession? I think there's a lot of folks that want to invest in BILL, but it's just hard to handicap some of the cyclicality around that SMB exposure.

Well, what we've seen over the years is that SMBs prove to be resilient. And so they adopt. And if you look at the spend that was pulled back in the most recent year, it was really across all types of companies. And we actually saw mid-market companies pull back on spend more than SMBs. And that's because they're really resilient, and they also have less excess funds to really pull back. And it's difficult to compare to 15 years ago because we were founded just 17 years ago, and we've changed and grown so much and served so many use cases. But SMB has really proved to be resilient.

Yes. We're more than 30%, 35% in terms of TPV per customer, excluding the FIs and the impact of the smaller business segment that we're reaching, if you look at prepandemic today. So there's certainly been some softness recently. But it feels like to us and the data that we look at that just across the more small businesses are bigger, they're more financially sound and they're healthier businesses today. And that should help them and us through potential recessionary environment and exactly how the metrics work. And whether -- how big of a reversion and spend compared to prepandemic levels. So that's some of the unknowns that are out there at the moment.

No, that's a good point. And you guys have other levers to drive growth even if you do see some softness on the volume side, which I wanted to dig into the monetization of payment volume a bit just because it's a big part of the story. It's nice to see the continued adoption of the variable rate payments. I think you mentioned recently that you have several additional areas to invest around supplier enablement to drive more adoption, whether it's in virtual card payments or cross-border payments. There's some interesting stuff that you can do in terms of passing along reconciliation data, offering choice. So maybe you could talk about some of the specific things that you're working on now that will drive that next leg up in penetration of these variable rate payment types. And I guess the other question is when can we expect these initiatives to be rolled out?

Yes. We started with creating -- leveraging the data assets that we have to create automation for BILL to connect with suppliers. That was the first phase. The second phase was really around creating automation and providing tools to suppliers, making it easier for them to elect payment types, create efficiency on their side, whether that was international payments or virtual card payments and things like that. And I'd say we're entering the next phase now, the third phase, which is really around delivering more features and functionality to suppliers that enable them to not just have a good payment experience, but to start to manage their financial operations and their processes, leveraging BILL tools. And that's where I think we have the next leg of growth where we deliver more value for a small business that generally leads to higher adoption across all payment types. It leads to a stickier customer and ultimately opens up other monetization opportunities for us. But we think of it in that order, delivering value, driving adoption and then monetization follows. I'd say, over the next 12 to 24 months, we should see the next iteration and phases of how we think of ad valorem payments, for example, getting to the next level. We do definitely manage from a portfolio of payments perspective. So we're not necessarily trying to optimize one individual payment type or a certain economic outcome on a payment rail. It's more about the portfolio of products, driving digital adoption and ultimately increasing the share of payments that fall to an ad valorem product versus, say, a fixed fee product or even a free product for that matter, depending upon the customer segment.

Right. That makes a lot of sense. And there's a lot of wood to chop just given the amount of share that ACH and checks BILL have. And ad valorem payment penetration continues to move higher, right, 13% at TPV. I think it was 10% fiscal 4Q '22. And it looks like instant transfer, maybe Pay By Card, continuing to gain traction. I guess I wanted to dig into Instant Transfer a bit. I know it's still early days, a little bit above 1% penetration of payment volume. But do you think that product can actually scale faster than cross-border or virtual card? It seems like you might be able to just turn it on and suppliers can use it fairly quickly compared to virtual card, where it feels like there's a little bit more handholding, a little bit more of an onboarding type of process?

Yes. We're really pleased with how Instant Transfer has performed and how it's being adopted. It serves a broader market, and it's very complementary to virtual card, for instance, because Instant Transfer is particularly popular among smaller businesses that aren't set up to take cards, and it's a way to get paid instantly. And so we're really pleased with -- it's now achieving 1% of our build stand-alone TPV. And you also mentioned Pay By Card. That's a funding choice that we have, and that's in its early days, but we're pleased with the adoption that we're seeing with that as well. And you mentioned that our ad valorem has gone from 10% to 13%. And that does include Divvy. And so the drivers of our ad valorem are really the Divvy as well as virtual card, Instant Transfer and international payments. And then that also leads into working capital, which we haven't mentioned. But in the future, we have the potential with working capital, where right now, it's currently in beta, but it really gives us the ability to drive -- leverage our data assets that we have and provide solutions to customer -- or to vendors within our network.

Okay. Great. One metric that the company provided that I thought was really impressive and might have been overlooked is that roughly 1/3 of BILL's stand-alone platform core revenue is generated by suppliers in the network. I mean I just find that incredible that you're monetizing the supplier side so much already. So I guess the question is, where do you think this number can ultimately go over the long term?

Yes. It sort of speaks to the open network approach that we have. So from the beginning of the business -- and the platform, the idea was with our ecosystem to help make it easier for companies to do business together. So it's not just serving the subscriber, the buyer and the AP model or the builder and the receiver in the model, it's about who they're doing business with. And that's where our network comes in. It's agnostic. It doesn't matter what accounting systems someone uses or how they deliver invoices to their buyer or how they invoice their customer. We're able to support them and being able to grow monetization from -- a few years ago, it was 0. It means that we're creating some value for those suppliers. So increasingly, we're driving adoption, we're giving more choice. And I think there's a lot headroom left in this transition to where we think of -- and frankly, they think of, not just a member in the network, but a customer and changing the persona where they are making a choice to leverage the BILL solution like from a technology and process standpoint to more actively engage with their buyers on the AP side as an example. So many of our network members today, they are receivers of payments, and they leverage BILL for that process to receive payments. But we think there's a long way to go to penetrate more of their operations and help them with it. And that's how we think we'll drive adoption much further than we are today. And as I mentioned earlier, payment choices have a lot to do with it. Those choices lead to process automation and ultimately, where BILL is strongest, I think, in helping small businesses with workflow and collaboration and all those capabilities with the payments being the last mile. The network today and our network members that they were creating value for and monetizing, maybe the payment component is a larger part of the value they're creating. And that's the equation that we're working to change over time.

Right. And let's just say the percentage of revenue coming from suppliers continues to increase over time. I mean it basically means the value of your -- the 2-sided network is quite important. So I mean how are you thinking about strengthening the quality of the network and the moat around the network just because there are other companies out there that are trying to replicate that network that you have?

Yes. I mean longer term, it has to do with market penetration, right? The more customers that BILL attracts, regardless of whether they're direct or indirect through partners like accountants or financial institutions, the more that leads to building the density of our network, the size and density overlap in industries and geographies and things like that. That density is key to, in the future, driving more viral effects where the size of the network is self-reinforcing, and it's creating more value for all participants. That goes back to this mission that we have of making it simple to connect and do business. It's not just about the payments, it's about removing friction and creating automation in the B2B sort of commerce process. And so we think there's a lot to do there, and we can certainly significantly expand not only the monetization, but the density and the size of the network. And I think for BILL in particular, the network at some point in the future becomes a much larger source of customer acquisition, which today is very small. And that's what I mean by increasing the viral effects of having a large and dense number.

And John, just on that point, I mean what's going to change that? And what's going to drive that change and, I guess, acquisition or conversion rate, if you will? Is it the unified platform? Or what's -- what would drive that change?

Yes. Unified platform is a big leap forward for us. To give you an example, we have a strategy to leverage some of the advanced AR accounts receivable capabilities that we've been developing to help our network members use more of our features and functionality versus just being passive receivers of payments. So there's a lot that happens obviously around the AR cycle core businesses before they ever get to the point where they're sending an invoice and receiving a payment. And that's where the AR tool's features and functionality come in. And as an example of a strategy that could help change network member behavior and have them potentially upgrade or start to leverage more tools from BILL and have economics and stickiness and retention that looks a lot more like BILL's paying subscribers.

Okay. I wanted to ask about cross-border payments just because we got a few questions on just the adoption there. It looks like the penetration there was expanding maybe, call it, 40, 50 basis points previously. I think this quarter it was in that 20 basis points of expansion year-over-year. I guess, was there anything specific that drove this slower adoption there?

Yes. With regards to international payments, it was really impacted by macro where we saw businesses continue to make a similar number of transactions, yet they were pulling back on their level of spend of transactions. And part of that is due to companies just purchasing less inventory in this macro environment. But when macro returns, we would expect there to be a natural tailwind to international payments. And what's also really important to look at is within international payments, the mix of FX versus U.S. dollars increased. So it went from 32% a year ago to 36% a year ago. And why that's important is because transactions made in local currencies have a higher monetization than fixed U.S. dollars. And part of that is due to what we've done with the product. So for instance, in Canada, we got money transmitter licenses. And we made it easier for members in our network, as John talked about, to receive payments. And that's driven a lot of local currency adoption.

Okay. That makes a lot of sense. You're stealing some of my future questions, Karen. But I guess maybe just on that, maybe just digging into that a little bit, right, the increase in cross-border payments made in local currency, where you generate that variable rate fee instead of a fixed fee, what are some of the changes outside of getting money transfer licenses are helping to drive that mix more towards that local currency payment option? And I guess curious like what's working well, what's not working well, where do you have to improve?

Sure. So it's making some product enhancements, as we mentioned. What we've done in Canada, we're also starting to do in the U.K., where we're making it easier for suppliers in the U.K. to get paid in the local currency. And then also, it's important to remember that with international payments, it's typically a 2-step process where first, you've got to get the customer making the international payment through the platform. And then once that payment is happening and that connection is happening, then we have the ability to then reach out to suppliers within our network to see what currency they want to get paid in. And so it's just a continuous process of really working with the vendors within our network to have them pay the way they want to get paid.

That makes a lot of sense. I was -- congrats on the unified platform announcement. I was reading through the press release, and I guess a few things stood out to me, and one of those is really around monetization. And I think the press release said that with the new unified platform, businesses can discover additional payment types more easily. So I guess what specifically is the company doing there to make it easier to find some of these other payment options? And I'm assuming those would be the variable rate payment types.

Yes. It's -- I think the main point there is with these solutions coming together in an integrated seamless experience for customers, we're able to better leverage in product discovery to create awareness and potentially adoption of all of our products. I think there's 2 kind of high-level examples: one would be creating a call to action for, say, card spend and our spend in expense, BILL's Spend & Expense solution, formerly Divvy, within the transaction life cycle that's happening inside of BILL. So an example would be a transaction being scheduled, and it's going to be paid, and there is a payment choice that is the BILL Spend & Expense card that is exposed in the moment of decision-making around the transaction. And that's something that will then prompt engagement, whether digital or human powered with customers to take advantage of that awareness where we're creating. Another example might be the other way where in the new integrated solution, we have a Spend & Expense customer or user spending business of our Spend & Expense product who make it exposed to international payments. On average, the Spend & Expense active businesses are a little bit larger than the BILL customers. They're like mid-market customers -- mid-market size businesses, they tend to have a much higher percentage of cross-border payments than do the smaller businesses. So we can expose that functionality as a stepping stone to increase the number of things -- products that they're using without even making a decision to move to full AP automation. So this is -- there's a lot more opportunities for us to create awareness and calls to action within the platform. And we think that's what ultimately leads to serving more of the payment volume, increasing our share of wallet and then as a natural extension of that increasing ad valorem payment adoption and monetization over time as well.

That's interesting. And John, just on that first point, I mean, you mentioned about bringing -- so bringing Divvy into like the payment drop-down list here. Does that -- is that going to cannibalize like ACH and check? Or is it -- would that be a totally separate spend category for that business? It sounds like it would be like more of the traditional AP spending that, I guess, would be put on the Divvy card, is that sort of the right way to think about it?

Yes. And I was just using that as an example, not a specific product road map item. It's more -- our goal is not really to directly increase monetization and adoption, our goal is to capture more of the payment volume that businesses have. So with our Spend & Expense businesses, we're doing a good job serving their card spend, but not the rest of their B2B spend. And so our goal is to introduce them to products around the AP side to capture more. And the reverse is true with BILL customers, right? We're doing a great job at serving a significant portion of their B2B spend. But that might be 70% or 75%. And so we want to drive adoption of, say, the card product in order to get that 20% or 25% that's outside of the BILL platform today. So it's really be able to cover more of the surface area of the B2B spend across each of the different segments of customers that are using perhaps only one product today. And over time, I think we'll talk more about multi-module adoption and attach rates and things like that because it's one of the things that we're focused on.

Okay. Great. And maybe sticking with the unified platform experience that was announced this month. I mean what are some of the early signs of success that you're having with the new setup? I'm sure you guys did a bunch of testing and whatnot before rolling this out. So I'm curious what's working well, maybe what's not working well?

Well, it's obviously very early. But to the point of testing, we had about 5,000 BILL customers adopt what was the Divvy Spend & Expense solution as of the end of our last fiscal year in June. That was up from roughly 1,000 when we did the acquisition. And so we've had BILL customers using the Spend & Expense solution. And then we have about 2,000 formerly Divvy customers who adopted the BILL solution. So through that process, that low-hanging fruit adoption before the products came together, that you could say, our initial cross-sell success, we've gathered a lot of feedback from customers about what a better experience would look like. And we use that as a guide in the designing in part, the unified solution. So we've seen good engagement both when the solutions were separate. And now we're at the beginning stages of having brought to the solutions together. I think there's been very positive feedback about the look and feel, the feedback around having one place to -- rather than multiple tools to manage. Other than that, I think it's still early in the cycle of rolling out the unified platform. We'll certainly gather more feedback and adjust and learn from that to improve the experience along the way.

Okay. And I guess I wanted to ask about the cross-selling efforts. I think last quarter, you mentioned that about 7,000 customers were using more than one solution. That's up from a few thousand, I think at the end of last year. I mean how should we think about the ramp in the cross-sell over the next couple of years? I guess, what's the company's baseline expectation around that?

Yes. Well, as John mentioned, when we acquired Divvy, we had about 1,000 joint customers. And 2 years later, we had 7,000. And that was due to just the low-hanging fruit, as John mentioned. And now with this unified platform, we have the ability to really lean into our cross-sell motion. And we would expect adoption to be at a pace higher than what we've seen in the past. And then we haven't provided specific numbers, but we're really excited about our opportunities. We have, for instance, within the accountant channel, we have a unified platform that's going to be launching later this fall, and that's a console for the accountants to offer both Divvy -- our Spend & Expense management with our AP together, and that's a powerful tool for them to use. We also have in-product discovery, as John mentioned, where it will be easier for businesses to see Divvy as -- or spend expense management as a payment solution. And we've also done some work behind the scenes to really prequalify customers to let them know that they have been prequalified and that our Spend & Expense management is an option that they have to pay their bills.

Okay. And I guess just in terms of -- I guess just one question I thought of, just in terms of like how does the cross-sell, I guess -- or how does the unified platform change the KPIs of the company? If we just take a step back for a second, there's a lot of new investors on the line, like whether it's net adds, TPV per customer, transaction monetization, like how should we think about the changes to these key KPIs as this unified platform gets rolled out?

Well, I think many of the KPIs that we have now will continue to be important going forward. And obviously, market penetration, so new customers to the platform, we will have not just the unified platform, but individual on-ramps, depending upon the needs of small businesses. That will continue to be a part of our strategy. Obviously, retention, both gross customer retention and revenue and spend retention are important metrics. I'd say share of wallet probably becomes a more important metric going forward because we're talking about serving different segments of processes and spend across our customers. We're likely to be less focused on metrics that are around individual product adoption versus portfolios of products. Like we have a number of ad valorem payment products and things like cross-border, virtual card and whatnot. And as we start to penetrate multiple segments of our customer base and our network, how we're doing overall becomes, I think, an important barometer versus individual products. Those are some of the top of mind shifts. This will be sort of an evolution in metrics versus a quick change or anything like that.

Okay. And I guess maybe just pivoting to the FI channel, I think that's where we've received most of the questions since earnings. I think a lot of investors will be interested to hear about the recent contract adjustment with Bank of America. Can you just talk about, I guess, why the company chose to forego $25 million in revenue this year? And what's the revenue opportunity with the new BofA contract?

Yes. Just stepping back, our arrangements with financial institutions really across the board are comprised of a multiyear contract with minimum revenue commitments that we create with our partners based on target adoption rates of certain customer segments and a certain level of transactional activity. And with BofA small business, we were focused on new small businesses to the bank. And the contract was all centered around that. And that is a large opportunity by itself. Obviously, they're a big bank, lots of new customers and whatnot. The concept of serving the existing installed base was in our arrangement from the beginning. But without like specific milestones and timing and performance criteria necessary to get that. And I think the really -- the shift happened from the success in serving the new customers and having a new product experience that was built for B2B payments and small businesses, which is a significant improvement over other maybe consumer-oriented payments that have been leveraged by banks for a long time. And so there's a choice of optimizing adoption activity and economics for the new customers to the bank versus shifting to trying to serve the broad swath of customers -- small business customers who are active online. And so when you look at like the potential value of the relationship on the small business side with Bank of America, serving the existing installed base is obviously a much, much bigger economic opportunity for BILL and frankly, for the bank as well than just the new customers. And so we view it really as a shift in revenues associated with the arrangement. Yes, there's an impact in our fiscal '24. But we think the opportunity over the next few years is much larger than the impact in fiscal '24. And as we get closer to bringing the product to market for the installed base and whatnot, working closely with the bank. We'll obviously have more to say about like the economics and what we expect in terms of the specific trajectory. But I'd say the shift in focus and there's investments happening on the BILL side and the bank side to make some product enhancements and improvements that will enable serving this installed base. The trade-off was really a no-brainer.

Yes. And John, I guess just on that point, like, is it -- is this -- you're obviously going to bring this solution to market. Based off of your comments, it kind of sounds like this is a bit of a planned migration. Is that kind of how to think about it? Or do you have to actually go out and compete for that business?

Well, I'll leave the specifics to the actual change management, which is really what this will be about for the bank. We'll be -- we'll support that, we'll enable that and consult with them. But ultimately, it's our goal to serve as many of the small business customers as possible, and that's what we're doing with the product to make sure that happens. And we will talk more about the timing and how that change management will roll out. But the interesting thing for us here is the potential to be the solution, the default solution. We have this in a couple of other of our FI relationships where maybe at the beginning, we were one of several choices that a business could use. And over time, through success in serving the customer bases we became the default, and in some cases, the only solution. So that's a model that we would love to be able to follow with Bank of America, but the actual change management activities are obviously on their side. And as we get closer to that launch and potential migration we'll obviously have more details on that.

Okay. All right. Great. I know there's a multipronged go-to-market strategy. But does growing FI channel actually cannibalize some of the opportunity in direct and the accounting firm channels, meaning would BILL be better off trying to acquire these customers directly instead of -- in the FI channel since the ARPU and maybe the profitability is just greater if you go direct?

It's a great question. I think it has a lot to do with the time line and the stage of market evolution. Like we aspire to have a point where channel conflict is this big problem that we have to optimize around. The market is still early though in its evolution. And so we don't view our continued progress in penetrating the market through FIs as a problem at all. We actually think it's a huge advantage because not only is it driving awareness across the entire market, it's building our network, which becomes an indirect monetization opportunity. So we view the ARPU differential, which I think you're referring to, between our FI indirect customers and our core business is something that's true today, we think we have levers over time to increase the number of payment products that are surfaced in the white label solution. That will help with transactional ARPUs or revenue per transaction and things like that, which will close the gap somewhat. And we do work to operate all of our channels with a similar margin profile. The absolute dollars might be different as you pointed it out. But we feel really comfortable that the way our go-to-market ecosystem strategy has come together is that they're all sort of additive to the overall growth of the business, margins and how we can penetrate the market faster.

And John, just on that point, I mean does -- so the -- it sounds like the margins are still pretty attractive across all -- is the -- I guess, the EBIT per customer -- I guess that would still vary by channel where it's probably most attractive and direct and then accounting and then FI, is that kind of the right way to think about it, even though the margins are still pretty attractive across each?

Yes, that's right. I mean the actual dollar contribution is going to be a function of the ARPU, the revenue per customer. We -- in the FI channel, we tend to look at portfolio across a bank versus an individual customer because BILL is not directly responsible for driving adoption of sales and marketing and those things. We don't actually bear any of those costs. So it's not an individual customer as much as is a cohort of customers. And we were very happy with the economics there. But on a dollar basis, because of the lower ARPU, it's certainly going to be below, say, our direct channel where we get more mid-market customers and things like that.

Okay. Great. There's a lot of players trying to replicate what BILL has built over the years. I mean, Intuit, for example, is trying to build out their Bill Pay capability. What are some of the ways that BILL can strengthen its moat to protect itself from competition? And how do you feel -- how do you maintain that first-mover advantage that you have?

Yes. Well, we really created and defined the financial operations category because we really focused on the problem that small businesses needed to solve, and that was how did they operate all of the manual processes in the back office that then lead into the payment. And we solved that problem while also building an ecosystem to efficiently reach SMBs by partnering with their most trusted partners. And we have an incredible moat. It really is this platform. It's a platform first that manages all the back-office workflow, and then that naturally leads into payments. We have very strong payments capabilities because of the millions of transactions we do each month and all of the documents that we store. We just have an incredible amount of data, and we're able to look at the patterns of payment, manage our risk. We're operating at significant scale where we did about $260 billion of payment volume last year, and we had less than 1 basis point of losses. And so that just takes incredible risk management and payment expertise to do that. And we also have the ability to accelerate about 90% of our payments. And then we also have this ecosystem that we mentioned. It's really being able to efficiently self-serve businesses. So we have -- it's easy to discover our solution and then adopt it. And we have partnerships with accountants, 7,000 accounting firms, and there's 40,000 in the U.S. We're also the exclusive recommended solution by CPA.com for AP as well as Spend & Expense management, and that's really the technology arm of the accounting firms as we're working together to help them develop client advisory services practices. Financial institutions. We have relationships with 7 of the top 10. And then we have this network, a network of 5.8 million network members. It's agnostic. You can use any accounting system you want. And with that, we're able to easily connect buyers and suppliers and provide this really simple experience. And all of that's really based on a lot of this data that we have, and we also use our AI to really enhance our experiences for our customers and the vendors.

That makes a ton of sense. And then just for modeling purposes, I guess, related to Intuit, the roll-off of the Simple Bill Pay customers, so it sounds like that's going to impact net adds maybe over the next couple of quarters. But what's the impact on TPV per customer ex the FI channel? Because I have to imagine that those customers are much smaller from a transaction and TPV standpoint.

Yes. No, we haven't broken that out at this point. So there are about 12,000 customers that currently use the Simple Bill Pay solution. And when the integration is sunset, we would expect many of those customers to sunset as well. We are targeting the most active users of the platform. And there's an opportunity to bring them over as direct customers. And as we -- as a solution sunsets and as we get more clarity on the numbers, we'll provide it. But it's not a meaningful number to our overall TPV.

Yes. Across any metric, it's not going to be moving.

Right. Yes, I was just thinking that maybe if you're taking out 12,000 customers, and it's a small percentage of volume, it's going to distort that TPV per customer metric that everyone focuses on. Maybe just a couple of follow-up questions to that response. Just I guess in terms of like when is that solution actually being sunset? Has that already happened?

It'll be -- that'll will be later in the fall. There's, I think, already -- there's no new customers coming on to the solution. It's a transition period where outstanding payments, they're in flights. Still need to be managed and things like that. So that will happen over the next quarter.

Okay. And then just in terms of like converting to direct, it's -- you probably won't get the same conversion rate that you saw with the BofA relationship that was sunset. Is it something kind of below that percentage?

I mean, we haven't laid out any specifics, but there are some larger businesses who use that solution who are accustomed to some of BILL's capabilities that might not be available in the new homegrown solutions. So certainly, we think there's some potential to continue to serve some of the customers who've grown accustomed to BILL's capabilities.

Yes. Okay. Maybe we can hit on expenses. I mean the company continues to grow OpEx, just ex the Spend & Expense management rewards at a fairly quick pace. I mean what are the top 3 areas of investment today? And I guess when can we start to see some more meaningful margin expansion in the business?

Well, we certainly delivered that in fiscal '23. Over the last 4 quarters, we've seen revenue grow faster than expenses. We created operating leverage along the way. We are balancing growth and profitability and expenses with an eye towards optimizing profitability or being in a position to down the road. So I think fiscal '23 was an important learning and maturing for BILL. In terms of investments, it starts with the product. We obviously have been investing in the unified platform and supporting our partners. We talked about the FIs a little bit earlier. That's an area of investment. You can think of our overall ecosystem and how we're expanding that and acquiring more partners and supporting accountants. Those are like a big part of what we're doing. I think we'll see in our sales and marketing area, we will begin to allocate more dollars to like cross-sell and upsell opportunities. So that's more say, within the BILL customer -- BILL Spend & Expense customer basis versus just acquiring new customers who will be doing more there. And we think these investments, not just -- they're not just for today, like this fiscal year, these are things that will have multi-year payoffs down the road, especially on the product side, as we open up more features and functionality. So given just where the market is at in its evolution, we feel like having a growth bias is important, while at the same time, delivering improvements in margins and profitability as we scale.

Yes. Okay. Maybe just one last question, since we have a couple of minutes here. Just one question we get a lot is just where are the long-term kind of operating margins for the business? And where those shake out? I know you guys haven't provided specific guidance on that, but is there any way to think about where that might ultimately fall? I think it depends on the mix of revenue a little bit. But it's just one question that we get a lot, I would love to hear your thoughts on it.

Yes. I mean we obviously haven't laid out a multiyear long-term model yet. When we went public, we said 20% long-term margins. I think that obviously will be above that. We don't see like at something closer to maturity any structural issues or obstacles in our business where we wouldn't be operating about 30%, but we'll certainly lay out a road map and how we get it there and the timing at some point here. But it's -- we see a very long growth runway ahead. Yes, the economic environment that we're operating in now is a little bit of a headwind on that journey, but we think that's ideally temporary as well. And we're continuing to invest for that growth, while over time as growth comes down on a more sustained basis into the future, we'll obviously be able to scale profitability.

Yes. SP1 No, that makes a ton of sense. All right, John, Karen, I think we're out of time, so we're going to have to leave it there. Thanks so much for taking the time. And it's always great to hear your insights and look forward to doing this again next year.

Thanks.

Great.

Great. And now we're going to hear from Mike Ellis, the CFO of Flywire; and Akhil Hollis, the Head of Investor Relations, and we'll start that session at 1:15 p.m. Eastern Time. All right, thanks everyone.