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

Excellent. Let's jump right into it. Thank you, everyone, for joining us. My name is Keith Weiss. I run the U.S. software research franchise here at Morgan Stanley. And very pleased to have with us this morning from Bill.com, both the CEO, Rene Lacerte; and President and CFO, John Rettig. So gentlemen, thank you so much for joining us. Before we get started, brief research disclosure. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales rep. And I'm sure BILL has some good disclosures on your Investor Relations website as well. People are interested in reading those. So again, thank you guys for joining us.

Rene, maybe to start out with, there's been a lot of change in BILL over the past 3 years. You've changed the completion of the company with some major acquisitions, really expanded out the Solution portfolio, both in terms of product as well as expanded distribution partnerships. Maybe to start off with you, could you give us a little bit of a report card of how these initiatives, sort of how these investments have been yielding and how they've been doing over the past year?

Thank you, Keith. Thanks for having us. We're constantly innovating and evolving our business. It's part of our DNA. It's is how you create a category and what we've done is create a category of financial operations. And so, when I look across the spectrum, I feel really good about the progress we've done on leveraging our ecosystem to drive customer adoption and leveraging our platform to drive value for our customers and obviously, for the business. So if I just kind of double-click on how we actually drive that growth and evolution of the business. We've expanded AP and AR, accounts payable and accounts receivable, to include Spend & Expense management. That's the acquisition that you referenced. We've expanded our suite of payments from just 2 payment products around 5 years ago to now over 8 payment products across the platform. We've continued to leverage our platform and the vast amounts of data that we have to scale and provide these payment options for both buyers and receivers alike. And we're just in the early stages of actually providing all the capabilities that we have. And so, part of our never-ending agenda on innovation is really about bringing value to the SMB. And so today, we, for example, announced that we are integrating the capabilities that we have from the Finmark acquisition, about a year ago, into the core platform so that the businesses now have cash flow insights and forecasting capabilities. And so, when we think about financial operations, and I think that's kind of the core thing that I started the company around, it's all around the financial processes that underpin a business finances. And so all of that leads to the capabilities that we've brought together, where we have the ability to drive AP, to drive AR, to drive different payment products, let be the product of choice. So, suppliers and our customers can actually choose how they want to get paid, when they want to get paid. And that's been super important. So that's the platform piece. But you're not -- without go to market, you have nothing, right? And so the ecosystem is also something that's been evolving and growing and something that we feel very good about, what we've positioned ourselves to be able to do. So, the first thing is we went direct, get customers directly have a chance to learn. We continue to have that model continues to grow. Next, though, we went through partnerships because businesses trust accounts, they trust banks, they trust their other software providers. And so we've leveraged our ecosystem. So now we have over 7,000 accounting firms today. I think when we went public, it was around 4,000 accounting firms, right? So, significant amount of growth in the last 4 or 5 years, just driving adoption across the platform. We've continued to add banks. We've added 2 financial institutions this year. We've continued to actually add more of our capabilities into the banks, which we've talked about, the ad valorem capabilities. And we're taking the experience that we've learned and leveraged from working with banks from an embed perspective, the API perspective, that we have. We've taken that learning and actually formalized that approach in how we go to an embedded market for software providers. So, over the last 6 to 12 months, we've had significant interest from other companies that are interested in understanding how they can have financial operations be a part of their platform. And so, software companies are coming to us. And just last week, we announced that Xero is coming to us for their U.S. businesses. So we will be embedded inside of the Xero application. Customers, the U.S. customers, will have the opportunity to use our capabilities. And just one of the things to call out is that because of what we've learned across our platform, we went to this partnership with saying and them wanting all of the capabilities, all the ad valorem capabilities that we have. So everything that we do is going to be something that the Xero customers are able to take advantage of. So international payments, virtual card payments, all the different instant transfer, all these different things we have will be something that's part of that. And so, when I step back and I kind of give the report card, it's like we're innovating all the time. We're innovating across our platform, across our go-to-market, we're constantly building and extending the leadership position that we have. And I feel obviously very good about where we're at on that perspective.

Got it. So it sounds like the 2 going hand-in-hand almost becomes a force multiplier. The expansion of the platform gives you more to offer. The expansion of the accounting channel makes you a deeper and sort of more sticky part of the ecosystem and then that enables stuff like the Xero partnership that is starting off broader and deeper than it would have even been possible 3 to 4 years ago?

Yes. And I think it's the -- I mean, I guess the summary that I would look to is that we've done all these interesting things, extended the platform, extended the ecosystem and are just getting started, right? So we have 0.5 million businesses, roughly 470,000 business, across the globe that use the platform. The core build platform is around 200,000. There's 6 million businesses in the U.S., right? They were we're just getting started. So, when I look at the capabilities that we have, what I get excited about is all the opportunities that's in front of us and having the capabilities of the organization, the scale of the revenue now over -- well over $1 billion. These are just all building into the opportunity to serve more and more customers, which is why I started the company was to actually serve SMBs. And I think our position is super strong. And our ability to kind of leverage everything we've learned with this new set of ecosystem partners that will get through the embed approach, how we're going to continue to support accounts. Like one of the things that I really like about the announcement we had today with the cash flow insights, in particular, is for accounts. So if you think about how we've leveraged what we've done for accounts, we not only give small businesses a tool to help manage their financial operations, we give a counsel tool to manage their financial operations. So, there's a layer on top of the layer that they have the ability to manage all their clients, see different activities that are requiring to those clients. And this has enabled them to go develop a practice called Client Advisory Services. and that Client Advisory Services ends up being really far more strategic, when you can add the cash flow insights and the forecasting capabilities. So, all these things are building to the future and the ultimate vision of really being the financial operations tool for businesses and accountants and software partners and banks that need it.

Got it. So there's a lot going in the right direction. There's also been a couple of bumps in the road. You talked in the last conference call about spend in expense, maybe that integration is not going as well as hoped. Maybe you could talk about some of the lessons that have been learned over the past year and how those are kind of shaping your priorities heading into 2024? And did you learn from those experiences?

Yes. Yes, great question. And so we've been innovating at a very fast pace. That was going to be the last question, how I talked about that. And that's built an exceptionally strong platform. And we're now a much larger company with much bigger teams and pursuing a much bigger opportunity than we were, say, 4 years ago. And what that means is that we scale the business, it becomes increasingly important that we tighten the alignment across the business. So, we have over 200 employees today, and we have to make sure that they're all aligned, understanding how the different parts of the business interact with each other. And I think that's something that we could have done better on, right? Because our focus on innovation, our focus on bringing one company together under one brand and one platform, that focus is super important to the future. But I think we had an opportunity to drive more alignment across the teams. And that is why I asked John to step in, as the President in November is to actually drive that alignment across the team. His understanding of the business is exceptional. And his ability to kind of work through the different ways that the teams need to be interacting is something that we think has a lot of opportunity for us. And he's already made some significant learnings and insights that he'll be able to share as well. John?

Yes. I'd say since the last earnings, I've done a deep dive across all areas of the business and very quickly identified some important things. One, we have a hugely talented team and leaders across the company, who are really committed to driving success for small businesses. Two, we definitely experienced some growing pains, but importantly, those are in areas that we can control, and we can evolve. And third, we'd probably benefit from narrowing the focus of the company on things that are most impactful. And so we pretty quickly adjusted priorities, and we're focused on 3 big things: one being adapting our go-to-market; two being driving adoption of ad valorem payments; and three, accelerating, bringing forward our investment in the embedded opportunities, as Rene mentioned earlier, we're really uniquely positioned there. And in terms of the go-to-market, we're going to deliver the products, the solutions, the capabilities that customers want, at their moment of first contact for us. Over time, we'll enhance the value of the unified platform and deliver them a complete solution for financial operations. In terms of ad valorem adoption, we're improving our products to drive more automation. We're having more direct dialogue with large suppliers to meet their needs. And ultimately, this will help us not only with penetration, but with cross-sell and driving multiple revenue streams. And then the last piece around Embedded, that Rene already touched on, we're really leveraging the work that we've already done with banks. We've driven success there. And we now know how to bring that to other parts of the market and software companies in scale, leveraging some of our unique capabilities that are really hard to replicate around the fintech part of what we do, risk, compliance, regulatory, payments at scale, those are things that we are uniquely positioned to provide, obviously, in addition to our really large network.

Got it. Got it. I do want to bring up, there was an 8-K issued yesterday about the Chief Commercial Officer resigning. Any color on why he's leaving BILL? And do you plan to hire a new Chief Customer Officer?

Yes, I'll take. We announced yesterday via 8-K that Loren is moving on from BILL to pursue other interests. And in the 18 months or so, that Loren has been with the company, we've experienced a lot of change as we talked about, M&A, integration, merging teams, new branding. And he's done a really good job at helping us build the leadership bench of the company. And since I started in the President role, in November, we reorganized the teams. We now have dedicated senior leaders across our AP solution, Spend & Expense and partnerships. And I'm really excited for that team to report directly to me. The data to execution is going great. And so I think this transition will be seamless. And in the months ahead, we'll obviously continue to figure out whether there's additional leadership positions that we're going to bring on.

Got it. Got it. Shifting gears a little bit. I want to drill down on the distribution side of the equation. You guys have highlighted financial institutions as an important channel, an important opportunity you're trying to build out. I actually wanted to start with a little bit of a one-on-one, because I was recently talking with our banks analyst, she is great women [indiscernible] and trying to explain sort of what BILL is doing in the channel. And she kept saying to me like, I thought my banks are trying to do that themselves. I thought this is something that's a core capability of the banks. So can you talk to us about where the -- like where is the value add? What's the differentiation of what BILL is trying to bring to the equation versus what the banks are trying to do themselves?

Yes. That's a great question. And one of the things when I step back is we talked about fintech being kind of the new thing over the last decade or so. And fintech's always been around. Banks have always been consumers of technology. If you think about ATMs, that didn't come from the banks; when you think about credit cards, that actually didn't come from the banks, the banks ended up supporting it and making it happen, right? There's lots of different examples of that throughout the ecosystem. Think about consumer bill payment, that didn't come from the banks, that was somebody outside and the bank's adopted that. So you can just go through opportunity after opportunity. And this is why it is important that banks have an extremely large platform. They serve -- obviously all the businesses this country you go through banks. And the opportunity for us is to leverage what we have learned and the capabilities of our platform to leverage that inside of their go-to-market and distribution system, right? So that's the opportunity. That's the efficiency that we're hoping for, that we work towards. At the same time, banks do build some of these things themselves, right? And that's kind of the point that your other analysts was making is they do build some of these components and they kind of go back and forth in different cycles about what part they want to build themselves and what part they don't want to build. What we're seeing right now that I think is interesting is that the technology that is enabled from an embedded approach. And when I think about this over the last what, 3 decades that I've been building software, there's been SDKs, there's been APIs, but this embedded approach is kind of new. And it's all because of the usability and the capabilities that have come with the technology that we didn't have before. And so the ability to kind of take components and say, "We're going to do this, if you're a bank, we're going to do this, and we're going to do that. " Like that's something that I think is interesting. We also see it from software companies, which is why we talked about Xero and the opportunities we see there. So when we look at the financial institution channel, we see the opportunity to serve a lot of customers, a lot of SMBs and we see an opportunity because of our scale and our regulatory competence, if you will, like we are licensed in all 50 states. We work with federal regulators. We have the know-how about how to move money and actually do this well, 1% of GDP goes through BILL. And so from that perspective, when the banks are sitting, they're are thinking about, well, how do I -- what do I build and what do I partner with. We want to be the first people they call. And that ultimately is what it means to be a good partner. Like we say this with our customers. we don't want to force feed our customers all the payment options. We want them to choose their payment options. We want our partners to choose how they want to work with us. And that's how you be a good partner. And that's what we've always done, and that's how we end up being the leadership when it comes to the FIs, that we have, relationship we have. It's why software companies are coming to us. It's that opportunity because they know that we'll be a good partner.

Got it. So if we put that into context of the comments on last quarter about one of the big financial institution partnerships. It sounds like there's going to be some push and pull in those relationships that sometimes they're not all going to go straight up into the right. There's going to be some motion pull. But that's a necessity to proving yourself out as a good partner that you have to be willing to work with them on their terms. And that's going to make you more amenable to other partners to come in because BILL is going to be a good technology provider to work with on a go-forward basis.

Yes. I mean I think that's definitely an insight that I've had over the last 2 decades working with financial institutions, right? Because I've been doing it not just here, the first company I started, if you go back to my days, had into it, where I did it, like this is that push and pull is something that you need to learn and listen. It's actually something that's true with any innovation. You just don't say, this is the way it is. You continue to learn and listen from your customers, you learn, you go forward, you step back, you go forward, you step back. And so what we have seen in the opportunities that we have is that if we do that, then we have a seat at the table and that way we can influence and be a partner that actually has an impact on not just this one relationship, but multiple relationships. So that's our focus. I think the thing that's interesting is, which is why I mentioned the kind of the scale that we have is that you look at the 1% of GDP, the close to $300 billion, going through our rails from a risk and compliance perspective, that gives financial institutions comfort that we know what we're doing. And that also helps us have a seat at the table, right? And so we believe that this is going to continue to evolve. Nothing's ever set in stone. You just have to go with the flow and make sure that you're leading and that's what we try to do every day.

Right. But there's no imitation in terms of opportunity that you see and sort of how aggressive you guys are pursuing that FI opportunity?

Yes, yes. The opportunity and the reason, when we talk about our ecosystem, we have direct, we have accounts those are more directly within our control, right? When you actually have go-to-market control, and we have opportunities to squeak and manage and make all those that need to happen. With our financial institutions. We've always talked about that. It's going to be true with our partnerships. I was like, this is the next Horizon. I don't want to say which Horizon, but it's an Horizon in the future that -- and I think it's a proof point, around how the market is developing and the category is developing that if you go back 10 years, right, this was a pie in the sky and opportunity that I wanted to make happen. And now we have majority of the top 10 banks on our platform, we're constantly in conversations about how to extend that. Now we have software companies coming to us and opportunities for us to continue to enhance their experience for their customers. Like all of that's because we see the future. And so to your point, like this is all about the future and 90 -- well over 90% of the revenue is coming from our core capabilities that we do control, and that's something that we're going to probably always control, right?

Definitely. And I think that context is important. I mean, it's 2% of your revenues. But -- and I think investors might have over extrapolated, sort of some of those data points and not understanding the -- just the nature of those relationships and that push and pull. I think it's an important conversation to have, but let's focus on the 98%, right? And what's actually driving your business today with the direct and the accounting channel. Can you talk to us about what you're seeing in the accounting channel today? You talked about sort of the expansion of 7,000 accounting firms. What's the potential for further expansion? What kind of investments and sort of strategic initiatives are you making to kind of further exploit that side of the equation?

Yes. I mean, I think to just start and folks that don't know the story, like I'm an accountant at heart, right? My grandmothers were accountants, my first job was accounting a Price Waterhouse. I care deeply about how they influence society because they are the most important adviser that the business has. And I know that. And so we built into our platform this ability to serve accountants, to have this layer on top of the layer, right? And part of that is obviously because we wanted to reach SMBs. But part of that is because we wanted to help accountants be more strategic. There is a lot of concern around AI actually taking away some of these types of jobs. And if you can actually bring the AI to the accountants so they can be more strategic, then that's something that's super interesting. And so, the partnership that we went to accounts with was with the AICPA; they have a division called Cpa.com, we are the exclusive provider for Bill Pay Spend & Expense, period. Like that is who -- the AICPA is going to talk about these capabilities and the importance of cash, they're going to talk about BILL. That is one of the foundational things that we have to go to accounts. We also have 7,000 firms that we've obviously acquired in partnership with them indirectly -- and so the opportunity for us to continue to enhance those capabilities. So they have more simplicity in how they serve their clients. That's real. Now that we have 7,000 firms with tens of thousands of clients, we see lots of opportunities about how we can actually give them more tools that layer upon the layer. We give them more tools to actually enable a more efficient accounting practice. And so we're investing behind that in a way that we think is meaningful. The ability for us to kind of drive the inflow -- the insights and cash flow forecasting capabilities. That's something that accounts are super excited about. One other point, just to talk about the account channel, when you go to an accounting firm, very, very few firms of our 7,000 say they're only on one accounting GL package. They all say they go with what their clients either was doing before or what's right for the client. Some are bigger, some are smaller, they have different solutions. And so having a platform like BILL means, I don't really need to care what the Accounting Software Solution is because I can actually support my client. And my team is going to use BILL, which is why this console, we call the console, this layer upon the layer, is so critical for accounts because they know how to manage all their clients the same. And somebody can be in QuickBooks, somebody could be Xero, somebody can be NetSuite, something can be [ Intuit ]. Somebody cannot have any accounting, just be cash based. All of that works with BILL. And that platform is super important. So the reason I kind of step back is, I think when you think about the capabilities that we have, the foundational parts of the business, the platform that we built, around accounts, that starts day 1. That doesn't start at the end. That's like how we built the platform. And it's something that we're going to continue to really enhance because, one, they're an important part of the economy, they're important part of our business and something that I care deeply about.

Got it. John, switching gears, I want to talk a little bit about the Spend & Expense side of the equation, formerly known as Divvy. Last earnings call, you talked about how you changed the go-to-market initiatives around the new integrated platform. And that led to some inefficiencies in kind of new customer acquisitions. Can you talk about the -- like what those changes were and how you're looking to address those inefficiencies and create a more effective kind of new customer acquisition vehicle on a go-forward business?

Yes, sure. So for our Bill Spend & Expense product, formerly known as Divvy, we continue to scale nicely. We had 28% year-over-year growth in both card volume and revenue in the second quarter. With that said, over the last 2 quarters, we've seen a little bit lower net new adds from that particular segment. And I'd say it's due to a variety of factors that all came together at once, around launching our new unified platform, creating new landing pages for prospects, migrating our brand from Divvy to BILL. We pulled back a little bit on marketing spend in anticipation of some of these changes. And all of these things happen in an environment where we're also tightening our credit standards and just being more sensitive to the macro environment. With that said, though, these are really transitional activities, as we continue to scale the business, some of the growing pains that I mentioned earlier. And what this impacted was primarily the very small, what we call self-directed customers, who come to the Spend & Expense Solution. They're the majority of customers, but a very small amount of our actual spend and revenue. And they typically have a little bit higher -- much higher attrition rates and higher credit losses as well. So, what we're also seeing is consistent strong demand from larger businesses, more of the target segment, that we're going after with the Spend & Expense product. That's been very consistent. And I'd say that's where we're going to drive most of our revenue and volume from the product. So in the near term, we might have lower net adds, but it's primarily from that smaller segment. But at the end of the day, we'll have a higher quality, higher propensity to expand the customer base coming to that product.

Got it. So the takeaway from investors and at least my takeaway from the last conference call was a little bit of a shift to focus of market, in terms of where you're going to direct your efforts. Maybe embedding is more of the strategy for getting those very small customers and a more efficient route to market. Is that the right takeaway of that? Like there's a little bit of a shift of market in terms of where you're going to direct your investment on go-to-market?

I think that's right. I mean if you look at our platform today, whether it's the BILL core AP Automation product or Spend & Expense the most immediate value is from a business that's a little bit larger. They have a little more complexity. They have multiple people involved. They're working with many trading partners, and they're getting value from the process automation side of what we deliver over and above payments. But with that said, we're also -- we have dedicated teams across the entire go-to-market aspect of the company. We are focused, our direct efforts of whether this is sales and account management or marketing demand gen at slightly larger businesses with a higher propensity to spend, they have more stable financial profile and ultimately a higher ARPU. But we're -- as Rene mentioned, doubling down with accountants. It's the core of our customer acquisition engine. We have what I call an enterprise-light type touch to work with large accounting firms and bring them on board. We've been scaling that over the last few years. And ultimately, just adapting our go-to-market ecosystem to focus on slightly bigger businesses. Over time, though, our product will evolve, right? We'll have more entry level or a light version, that will really resonate with smaller businesses as well, and much of that might come through our embedded efforts.

Got it. You mentioned the tighter credit lines at Spend & Expense. Are we right in thinking that, that's a response to the macro environment and a weaker overall macro, just to take down the risk, you tighten up those credit standards?

Yes, I think that's fair. We've been really optimizing the credit management, credit exposure approach since we acquired the Divvy business. We've done a really good job at consolidating the team, improving our automation. We have a much bigger data asset, when thinking about the BILL data for underwriting purposes, and we reduced losses and increased contribution margin, I think, 33% as of fiscal '23. So we feel really good about that progress. But the environment over the last year has changed also, so we're being, I think, proactive in adjusting our exposure, making sure that we really understand the profile of our businesses. We're checking in with them more frequently. And we're not shy about making adjustment to either line sizes or our credit standards because ultimately, we're looking for consistent quality, stable businesses that we're serving on the credit side.

Got it. Maybe this would be a good spot to get sort of the latest thinking from what you're seeing on the ground in terms of that macro environment, in which you're operating in. Over the past year has definitely gotten softer. What's the kind of current status of what you're seeing out there in terms of the directionality of the macro for the majority of your customers?

I'd say we're seeing good stability from businesses. You've seen a lot of volatility in spend and a significant pullback particularly coming off of the pandemic years. The largest businesses, regardless of the segment are still the most cautious with spending. But the majority of the base is pretty consistent now. And as you know, with our platform, regardless of the specific solution, it's really used for repeat recurring transactions. And so we see really good consistency in terms of transaction volume per customer that's continuing. The ticket size, the average dollars per transaction is where we're seeing a little bit of softness, but things seem more stable now than we saw, say, 3, 4 quarters ago.

I was in the earlier presentation, in the CEO there, is it like the reaction to the macro that he's seen is higher gross retention, lower net -- like it sounds like a similar thing, that transactions are still occurring, the customers are still there and maybe because of the difficult macro, they're even stickier than they had been, but less room for expansion.

Yes. And I think that's a fair short-term phenomenon with this macro environment.

Right. Got it. And then just to kind of sum up what we've been talking about on both sides of the equation. It sounds like the investor expectation should be perhaps a lower volume of customers, but a higher quality of customers coming into the platform on a go-forward basis?

That's definitely our near-term focus.

Got it. So Rene, back to you, like having come out of a period of adding a lot of capabilities and using M&A as that strategic to strategic tool to add those capabilities. How does that change your appetite, if at all, for future M&A on a go-forward basis?

Yes. I think the first thing, I would kind of share is that with the acquisitions we've done, there is a process of digestion, if you will, right? And so I think we're through that. I think we've done that. We've learned a ton. We have a very strong set of capabilities should we want to do M&A, our focus right now in the near term is really just on enhancing the core capabilities of the platform, right? We just -- now that we have everything in one company, one platform, one brand, we want to get that humming in a way that we know that it can. And so that's our core primary focus right now. And so there's significant growth opportunities just doing that. And so we're going to focus on that. That's going to be huge area for us, over the near term. And so, I think it's unlikely that we would do transformative M&A in this macro environment as well as just because of the opportunity in front of us with the core set of capabilities is quite large and significant. So if we do M&A, it will be tuck-ins, it will be opportunities to kind of enhance capabilities across the platform. But they won't be kind of the large M&A that we've done in the past, at least in the near term. Philosophy is really to have capital for growth and we have lots of opportunity around that.

Got it. Got it. I want to switch gears to some of the recent performance. In most recent -- for the past couple of quarters now, you've been talking about that softer spend volumes. In the most recent quarter, the TPV for customer did seem to be improving, though. Can you help walk us through kind of the like the near-term seasonality versus like perhaps the medium-term cyclicality of what you're seeing in your business right now?

There's definitely some seasonality. I'll let maybe John talk to that. Just the general theme that we have is that when you look across the U.S. business landscape, there's 6 million businesses and the largest businesses obviously drive more than their share of businesses, right? It's just a fact, just the way the basic math works. And so, what we see, and John already referenced is that we see strong, good stability across all but the largest customers. But because the largest customers have outsized spend, it impacts the overall spend, TPV per customer, right? We are starting to see that, that contraction, if you will, that larger businesses have that is slowing down, right? So that's good. We don't know when it's going to hit bottom. But it's more positive than what we thought, obviously, probably back in November, we were happy with the results we had in the December quarter, right? So, John, what would you like to add?

Well, in the December quarter, we spend was above our expectations. We saw a little bit of a return to more normal seasonal end-of-year increases in spend and that was across the customer base, really all sizes. Now it wasn't same as during the pandemic era and still a little bit below pre-pandemic. But it's a good sign. We're obviously a little bit cautious here and looking for more data points with which to connect the dots, but it was definitely a positive.

Got it. John, I want to go back 2 quarters ago, when you're talking about some of the suppliers on the platform, that started to push back on some of the ad valorem payment modalities for the first time. How pervasive was kind of that within your supplier base? And do you see any similarities amongst what types of suppliers were pushing back in that way?

Yes. So it's mostly on -- we have 2 products that have driven a lot of the ad valorem adoption and revenue growth, virtual cards and international payments, the FX component; on virtual cards is primarily large suppliers. It's not -- we don't have industry concentration or anything like that. It is a broad base, but we've seen much more cost sensitivity now. It's not a brand-new phenomenon. There's always acceptance cost optimization programs that takes place. But I think just combined with the macro and more of an emphasis on reducing costs. We've seen a bit more of that. I'd say that has stabilized. We're continuing to grow adoption and penetration of the existing base. We obviously have the opportunity to add more suppliers as our customer base grows. And then there's a little bit of a dynamic with the U.S. dollar these days and some changes between local currency and U.S. dollar invoicing. We have seen international payment volumes grow. But much of that growth is landing on U.S. dollar transactions versus FX. These things feel transitional to us. The value proposition is there, especially as we're improving our products to drive more automation and removing friction. But in the short term, these are some of the things that we're working through.

Got it. And what are the indicators that you look to that give you confidence that these are more transitional impacts and nothing more structural?

Well, more -- most of the impact that we've seen is from suppliers who are adjusting how they use our product versus stopping. And the other thing that happens is when -- even in the case of a large supplier, who might chose to not accept virtual card payments. That volume is still within the network within the system. It's not moving outside of the network. So, we've talked previously about some of the things that we can do to drive automation and reduce friction by doing much more straight-through processing, working with more partners, delivering the payment types and automated experience that suppliers are looking for. And we're seeing good signs around those indicators.

Got it. So one of the things that you've historically talked to us a lot about, both Rene and John, is the multiple levers that you guys still have at your disposal to further expand take rates, it sounds like you're starting to pull some of those levers. Can you talk to us about what that means in reality, what's sort of the operational initiatives that pulling these levers mean? And what should investor expectations be in terms of how quickly could this start to impact take rates?

Yes. So the first thing I would start with is that we are -- our platform is driven around innovation. How do we continue to evolve the platform to help both buyers and suppliers, receivers, whatever you want to call them, interact and actually do business. And so, if you just take like the virtual card enablement and talk about the different levers that we have there. So, when we first started that, it was just -- if you took a card, we paid to your card right? Now we've enabled more suppliers to be able to do that. As part of that enablement process, we started thinking about and leveraging our -- internally how we think about the supplier relationships we have. Right? So if you think about the $5.8 million in our network, which is a very large number of entities that use us to receive payments, we're now starting to activate them with other types of products and services, that they can use when they choose, right? So, we think choice, again, is super important. So we enabled instant transfer. So suppliers could say, "I want this capability." Now what we see is with this and transfer is that sometimes they want it and sometimes they don't, right? And so that's great. We enabled suppliers in Canada and the U.K., and there will be more countries that come to decide that they want an FX transaction or a dollar transaction. Again, they don't always take FX. Sometimes they take dollar for whatever reason, right? So choice matters. We then also added in the early stages of launching our Invoice Financing product, which allows businesses to really manage their working capital by getting cash 60 days earlier. And again, in the early data, we're seeing sometimes they choose it, sometimes they don't. So the innovation agenda about giving choice and creating opportunities is what actually drives these different take levers and having the opportunity to kind of say, well, sometimes you want this and sometimes you want that and sometimes you want that. Those are all the things that we're working on. The opportunity for us is to continue to make the product experience more obvious, to have the sales experience also brought into the cycle when appropriate and to continue to add more payment products. So I think that's the -- there's more, I'm sure John can add on this, but it's...

Yes, I think that speaks to the portfolio approach that we're taking. We have many ways with which to add value for suppliers and lots of levers with which to drive monetization expansion. Stepping back, the vast majority of the transactions and payment volume across bill are still checking ACH payments. So we've just -- we're really in the early stages of penetrating that. And over time, we want the experience of getting paid by a bill of customer to be like just as rewarding as the core AP automation that our customers use. So we've built a huge network, 5.8 million network members. And over the years, we've trained them to use bill to get paid mostly for free. We're evolving that value proposition to help drive actually automation and leverage our platform for all of their payments and be just as sticky as on AP side.

Got it. So it sounds like underlying a lot of this sort of levers is not a stick approach. It's a carrot approach. It's driving innovation, create more optionality, better outcomes for your end customer, and that's what's going to pull them on to these ad valorem long opportunity for you?

Yes. I think I would say that, we've worked really hard to be well positioned across the macro environment, as well as across the microenvironment, right? And so the microenvironment is around customer choice. That's -- but we're well positioned. That's why we keep adding portfolio of products. The macro environment, it's around having a platform that people want to do business on where 90% of their spend is going.

Got it. And just going to try to sneak one last one in here for John. Historically, you had talked to us about the potential of like a 0.5 basis point quarterly expansion rate in terms of take rates. I know we're going through a little bit of an adjustment period and definitely a soft macro. But is that still a good kind of guiding principle for investors to keep in mind on a go-forward basis?

I'd step back and look at it more on an annual basis, like the second half of our fiscal '24 year is about creating stability and regaining momentum and expansion after having a slight reduction in the second quarter. Beyond that, though, just with the amount of payment volume, our knowledge of suppliers, the breadth of products that we have, we feel like there's significant monetization expansion ahead.

Excellent. Well, unfortunately, that takes us to an end, over a lot of time. But thank you, gentlemen, for joining us. Great conversation.

Thank you.