BILL Holdings, Inc. ($BILL)

All right. Thanks, everybody, for joining. We're a little late. Everything is running a little bit behind. So apologies for that. My name is Tien-Tsin Huang. I cover the payments and IT services sector at JPMorgan and always delighted to have Bill with us here. Always look forward to having a good conversation with Renee Lasscerte. So Renee is the Founder and CEO. We also have Raimi James in the audience here, the new CFO there. So thank you for being here. Renee.

Well, thank you for having us. Always a good conversation. Like you said, both ways. So...

It's fun. I know you're coming a long way. So I thought we kick off what we learned a lot from your most recent call. Renee, I have been thinking about it a lot and how to be productive with this time that we have with you. So you called out this being a pivotal moment, right? And you talked about the opportunity for the company that you founded, right, to make some serious changes and you've been busy with, right, focusing on profitability. I wrote down, right, investing, you got this AI workforce optimization. You got a lot of industry consolidation going on. You've announced a buyback, right? And of course, there's been a lot of shareholder engagement and activism, too. So how are you personally organizing all of these things, Rene? I thought we'd start with that because as the founder, I know you look at it very, very closely. You have big ambitions for the company. How do you organize all of these things?

It's a great question. I think from a day-to-day perspective and doing this including both companies close to 30 years now, you have to have a little bit of ADD because you have to take on multiple tasks to be able to do all this because it is a busy time. But the reason I called it a pivotal moment is that AI, it's a real impact, and it's a transformational impact for any software developer. And we are at our core, building software to connect to payments. We are converging software and payments. And so our ability to deliver more products is real. And that's something that we wanted to like look at this moment and really understand how we could actually do more for our customers by leveraging it. So that was one component of it. And then I think from a focus perspective, to your point, like there's -- maybe one way I'd step back is we see kind of 3 legs of the stool of how investors probably look at us. So one is shareholder return another would be profitability, other would be growth. And so from our perspective, we wanted to make clear to all investors what our intentions were across all of them. I think the focus on the workforce restructuring will give a lot more clarity on what it is that we're going to be doing from a profitability perspective, our path to the Rule of 40 -- all of that is, I think, something that's important for investors. I think the share buyback is important. But then when it gets to where we really focus, it's on the growth, right? And so where I'm spending my time is understanding the capabilities of AI inside the company, the capabilities of AI from peers, understanding how that can translate into experiences, both internal and external. So really working with the product teams on kind of the extension of the vision. Vision hasn't changed in the company. We want to make it simple to connect and do business. But how is it that we connect and do business for our customers. And so that part of the vision will change, how we build it will change. And that is where I'm spending time and I think how we serve our customers from an efficiency perspective will also be how -- where I'm spending time right now. So we're in the middle of this realignment, if you will, inside the company on becoming an AI-native company, both internally and externally. So all of my time right now is focused on helping the teams make progress in their vision around what it means to be an AI native company.

So let's stay with that AI native. I mean, Rene, you've seen a lot of tech cycles in the past. And I'm always trying to learn from those past cycles and think, okay, what's going to be similar, what might be different? And I'm curious, I hear your sense of urgency around AI as being very, very high. Is that fair? How would you compare AI to pass tech waves and why you're so focused on this transformation?

Yes. I think at the core, I'm a builder. I just love to build capabilities for customers. I love SMBs and mid-market companies. I think they are kind of the glue of society. And so I love building. And the urgency is because AI is accelerating and collapsing the distance between an idea and a vision and execution and creation. And this collapsing means that it's a unique opportunity to actually deliver more capabilities to our customers faster. And so it is the highest sense of urgency I felt in my 30-plus years of developing software. It is a tool, it's a capability. Software still comes back to knowing what to build and how to build it. And so AI is a part of the how to build. It's not the only part of the how to build, right? There's lots of development -- software development life cycle, all these different things that are how you build. AI is a component of that. But what you build comes from expertise. And I think us really understanding where we've developed expertise over time allows us because of the broad base of customers to really think about where could AI disintermediate the existing friction that customers may have or businesses may have in their financial operations. And so we see opportunities around onboarding. We see opportunities around kind of transaction capture. We see opportunities around the buyer and supplier relationships. You've seen some of the agents we do on transaction capture and buyer supplier relationships with the W9 agent. We see all of that already starting to play out. We have over 100,000 customers that are leveraging our agents today. And I think what this really comes back to is something I've talked about. And again, it's back to the urgency -- when I started this company, financial operations was a do-it-yourself model. And so every business had to figure out how they were going to manage their financial operations. Were they going to file alphabetically by first name or last name? I mean simple things like that. They had to figure out how they were going to manage their financial operations, issue checks, reconcile checks, what accounting software integration they needed, if that. And we came along, we enabled do it with you. And so now we walk a customer through the entire process of how -- what's the workflow you need? How do you connect with your suppliers? How do you make a payment happen? Do you have to actually write a check or then separately send an ACH or can it all be in one platform? So we're in a do-it-with-y mode now. And what I see AI doing, and this is again back to the urgency, it's going to totally mean that we're able to deliver a do-it-for-you experience. And a do-it-for-you experience, and you've heard me talk about this before, if you think about this category of financial operations, the closest one that I see is payroll. And so payroll is in the dominant form, it actually probably went from a do-it-yourself to a do-it-for-you -- that would have been ADP and Paychex was a do-it-for you. And then Intuit came along and some of the stuff I built out Intuit was a do-it-with-you approach. The company I started was a do-it-with-you approach. But the thing that really drove the overall industry was do-it-for you. And so AI being available now that we can actually quickly go to all the things that create a burden and a friction for customers, whether they're customers or prospects, that's why the urgency is there, and it's something that we're very excited about driving.

So do you think, Rene, that this expands the TAM? Or does it just increase the penetration of the TAM that we've been talking about for quite some time? Because it does -- I can appreciate that there's some pricing potential here, and I've heard you talk about monetization of some agents, but it's just this does it accelerate the TAM penetration? Or is it more TAM expansive in your mind?

Yes. I think the first thing that I would focus on is just expertise in knowing what to build and how to build it. And so I think that's a real thing. I think I've been building software through multiple generations of tool development. And I've seen that generation makes you more efficient in developing what you want, be start to know what you want to build, and you have to have a process for that and expertise that nobody else has. If you just look at our size and scale B2B payments over 1% of GDP, over $300 billion going through our rails, hundreds of thousands of customers buildings or transactions at $1 trillion dollars in spend in lifetime. That's a tremendous amount of expertise that comes off of every 1 of those transactions, every 1 of those customers. So that's the first part of the middle. -- like knowing what to go build in this AI native world. The next part, I would say, is really the payment platform capabilities that we have. We have a very seamless end-to-end platform that is deeply understands the problems that some customers have access to when they need access to it. Behind that, understanding what that means is that -- there's a lot of compliance. There's a lot of money movement. There's a lot of reconciliation. There's a lot of different challenges here and there. There's risk and credit that actually come into that play. And our payment capabilities and the fact that we weave all of those together so seamlessly. -- enabling every customer to be able to make those payment decisions or every supplier to be able to make those payment decisions, that's a real competitive advantage. The third area, which is predicated on the first 2, really is the data that we have. So if you just think about the vast amount of data that we have across payments across documents across the SMBs and the workflow they have -- that gives us insights around, again, what to build and how to actually manage the credit and risk exposure that might be inside any business transaction. And so that actually really creates, I think, a fairly important moat for us because we have a size and scale that only gets bigger every year. And then the last note, the fourth note that I would talk about is our distribution. So we've been very focused and understood from the beginning that reaching a broad market is not easy. It's not easy. You have to have multiple channels to go after that market. And so we have a direct effort, which drives great revenue per customer for us. We have an accountant effort, which probably drives more units for us. And we have a partnership effort, which can be both depending on the size. And we have this fourth thing that we call a network that is obviously pretty helpful and onboarding of customers while seeing some of those upgraded in. So the distribution is something that you can't -- you can come up with a new idea today, but you still need to work hard at distribution. If I were to look back over the last 20 years in building Bill, how much of it was building great product and how much of it was building great distribution. They're both equally valuable and you can't get 1 without the other, and it takes time. So I think that is a moat, when it comes to any AI players coming in like they have to go find the distribution, and it's not something that's going to happen overnight.

So we've seen some of your competitors address that by going into deals, maybe address some of those 3 or 4 items that you talked about in my mind, I think of, for example, Brex going to Capital One, right, the balance sheet and some scale and some distribution. So I'm curious if some of the recent consolidation and activity out there, if that's changed your strategic priorities in any way?

It hasn't changed the priorities. I think when we look at everything that we've done, everything that we've built, a key factor in business in general, I think it's going to become even more critical in an AI world is trust. And so what we've been able to do at our size and scale is build trust with our customers, with our partners, with the accountants, and that's not something that goes away. So as others are looking for distribution and potentially consolidating and let themselves be acquired, that's actually a different problem. Like we have distribution, we have opportunities. We still obviously like partnering with our partners from the bed perspective. But I don't see the consolidation. And when we looked at -- if we were to talk about our close one analysis, we have not seen any change over the last few years from a cohort analysis perspective. If anything, in the cohorts we care most about because we've been focused on it, we're getting better at close one.

Okay. Good. So let's pivot a little bit and talk about the workforce reduction, which I know we've talked about it. Again, I know you put a lot of thought into it, Rene. So how did you land on the 30% reduction? And what can you relay to investors about why that's not going to drive any service disruption or go-to-market disruption as you go through this new sizing?

Yes. It's -- any time you do something this meaningful, you have to put a lot of thought into it. And I think one of the -- again, one of the competencies and things that we've been able to do and consistently demonstrate, I think, to investors and others is that we execute well. And so we put the thought into it and we deliver and exceed what we're saying we're going to deliver. And so on this particular front, we looked at this as very simplistically, and sometimes it's easier to step back and just look at the simplistic formula. Simplistically, is there 10% to 15% less stuff that we could be doing that's not creating real value for the company. And is there 10% to 15% efficiencies that we should be able to gain either through AI or just being more thoughtful about the organizational design. And so that's how you get to 20% to 30%, which is why we said up to 30%. We're in the middle of actually doing all that work right now. We did bring outside consultants in to kind of help us think structurally about the business. And so now we're applying that with the teams to actually create the business of tomorrow, the bill of tomorrow today. We don't want to kind of piecemeal this. We want to get there. We want to execute in that fashion. So the teams are very focused on understanding what drives the performance today. And so we have put mitigating factors in place to try to address anything that might happen as a result. But like I said, we're in the middle of this, and I would always invest in the future of tomorrow ahead of just today because we have to get this right. This is a pivotal moment. We have to get the transformation right. We have to make sure that we address all the capabilities that we want to be able to do as a company and are structured to be able to move at the pace that we want to move. And so I think we'll have more to share in August. But at this point, we feel good about being able to balance and manage the transformation of the business into AI data while committing -- maintaining our commitment to the numbers.

Got it. So you're reinvesting the minority of the gross savings back into the business. I'm just curious, how did you arrive at the distribution of flowing it through to the bottom line versus reinvesting?

A lot of the thought around this was what we were ready to invest in. I mean the teams have -- we have a long list of things that we want to invest in. A lot of the thought was around understanding the efficiencies that we were going to get and what we expected where the increased costs might come, whether that's talent or tokens or whatnot. So there was a lot of thought put behind that. And I think the -- our focus is always on what's going to be the right thing to drive durable growth for the business and to do that profitably. And so we've -- I think we've demonstrated that this year. I mean I think you've seen us actually exceed the growth targets and the revenue targets that we gave out at the beginning of the year. And I think the revenue targets were a good incremental beat on that, but the profit have been significantly more. And so I think from our perspective, we actually can do both, and we can actually drive the capabilities inside the business the way we want to...

So with that in place, I know there's more work to do, like you said, there's no question a greater emphasis on profitability at Bill. So once we -- you've rebased with this new sizing of the workforce, what steps can we measure to see that product profitability compound? Is it more on the pricing side? Is it more maybe on sales efficiency? Help us understand where you see the bigger unlock on profitability.

I think our focus is really driving the right customers in the door and at the right price structure profit levels, if you will. And so on the right customers, what you've heard us start to talk about this past year is really focusing on the customers that get the most value out of BILL. So those customers are probably going to be a little bit larger than the smallest customers that are on the platform. We are still going to serve the smallest customers. We're not going to spend aggressively at acquiring those customers. We're going to spend more aggressively at the larger customers that drive a lot more ARPU. One of the ways that, that shows up has been the cross-sell opportunities that we've had. So if you look at the last year, our cross-sell of both the spend and expense and the AP product is now 39% year-over-year growth. So that tells you that we're driving more value for the customer because we have this integrated platform that enables them to do both, and that's really valuable. So you'll see more opportunities on the revenue side from that perspective. On the margin side, what you've heard from us this past year is really, hey, we're going to take a look at rewards, and we have focused on rewards, and we've actually been able to start bringing that down. We know there's opportunities for us to be selective. It's not -- by the way, if you look at rewards, it's not across the board. We have plenty and plenty of customers that have a very strong rewards profile that we're happy with. But we've had some over the last few years that are probably more focused on the rewards part of the product versus the product part of the product. And so we're very focused there. I think the other area you've seen this is in some of the emerging portfolio ad valorem products where we've been growing that nicely. And now we have more data and more focus on incremental margins to understand which ones of these customers are actually going to not produce to the bottom line. They only produce to the top line. And that focus and that intention is something that comes from Rehini coming into the company and just creating a lot more responsibility around all of our teams driving durable profitable growth. And so I think that's the thing that we're focused on. And I think for investors, we've given some proof points, you will see more proof points like that in the coming quarters.

Yes. So simplistically, larger clients is going to have more cross-border needs or potentially more cash flow needs. And so that's what drives the natural opportunity to...

Using all of the products, right? If we have a customer that uses AP, that uses AR, that uses S&E, that uses our Bill cash product and then their suppliers are across the board, which is going to be -- we're going to get some suppliers doing FX, some suppliers doing. All of that means a much different customer. And so if you look at the smallest customers, we may not be able to get them to do all those things. And so though over time, we would expect product-led growth to be able to drive all those things for all customers. And so that's part of the focus on AI native is actually removing the friction that requires humans to be involved in the marketing and sales process.

So where does embed 2.0 then fit given everything we've talked about? I know you've given us a lot of details in the past and -- you announced some partners, but just an update on 2.0 embed.

Yes. So it is one of our unique competitive moats, I think, is our distribution on that 2.0. We've been able to leverage everything we've learned over the last 10 or so years with our financial institution partners and throw that into an experience that allows software providers such as NetSuite to activate into the payment capabilities that we have. What we've seen early on in the experience this past year is that we are getting those customers to activate multiple payment products. So all of them ad valorem is I think the partner has 4 different payment products, and we're seeing adoption of those payment products at rates that are closer and more similar to what we've seen inside of our non-partner business. And so that's a very, very good sign. Now obviously, some of these partnerships like NetSuite are much larger customers. And so if we can maintain that as we roll out the go-to-market, that will mean real revenue for the business. And so our commitment is to take the -- that expertise I talked about in the beginning around payments. We have SMB domain expertise. We also have payments domain expertise to leverage that expertise into the capabilities that other people can access as long as we have the opportunity to obviously earn revenue and get the data we need to be able to make those payment decisions safely and securely.

Okay. Good. So maybe I did want to talk about spend and expense, but before we get there, maybe just to make sure I ask the question because people want me to ask you just the health of the SMB Rene and you always have great insight on what you're seeing in terms of spend per user or spend per SMB, whatever metric you're tracking, what signals are you paying attention to? What are you observing?

Well, I mean, the one thing that we feel good about is that our same-store sales essentially TPV per customer is up 4% year-over-year, right? So that feels good. I would say broadly, though, and I've been saying this for a couple of years, we're not yet really in a growth mode other than the AI world, right? And businesses, if you look at -- if you take out nominal, the nominal growth, you take out inflation, it's still kind of flattish, right? And so I think what that means is -- and you hear this from us in any of the specific industry data that we give any quarter, it's kind of just seasonal, right? It's not like we can call a trend and be like, I think in Q2, we said construction was doing well, but we also said that was one data point. Q3 construction was less well, right? So it's still kind of bumpy, I would say. It's not recessionary, but it's not growth. And I think it will be great to get to a place where growth comes back into the equation for SMBs.

Yes. It just seems like -- I know people ask us about energy prices, but that just feels like that's just -- that was -- that's the next thing to worry about. That was previously something else that we're worrying about. Okay. So just more of the same and still waiting for.

They're resilient. They're managing the business, they're growing, and that's always good.

Now your spend and expense business, right? I know the T&E business in general, as we've been asking your peers has actually been doing quite well. I mean Visa, Mastercard both talked about commercial activity being quite good globally, not just in the U.S. How are you feeling about pushing that product a little bit harder. I know that your appetite for credit will also play a role there. Do you see any potential for shifts in trajectory there?

Well we are seeing, and that was the data point on the cross-sell units is up 39% year-over-year. And part of this is kind of the integrated the platform. We are still early days on Bill cash and rolling that out and understanding how customers are using that. But to your point on credit, there's opportunities when all of that is in one place for us to be able to understand the customers' overall creditworthiness in a better light. And so that is something that I think over time will enable us to do more on that front. But we're very, very happy with the cross-sell. We're very happy with the focused growth that we've been driving with S&E being very focused on the customers and the go-to-market motions there. When we look at our ideal customer profile, like I said earlier, we continue to do very well on our -- the wins on the conversion pipeline that we have. And if anything, we're stronger today than we were a year ago. And so I think to your point, I think there is this element of S&E because of the rewards component that has a lot of a lot of excitement is the wrong word, but obviously, it does drive strong revenue, not just for us, but for others, and it does drive rewards for the customers. So there is energy there. But if you just step back, we're still -- if you look at modern SME platforms, still under, what, 100,000 customers, 150,000 customers. It just hasn't really cracked. You still got the largest payment companies in the world that are managing corporate card spend and expense. And so we look to continue to drive as much as we can and to partner where we can as well.

Okay. So when you think about pipeline and sales, just to bring it all back to the top, pipeline and sales, we've talked a lot. You've said that you'll see a little bit of a dip in size of users. So less about units, more about size spend and expense, we just talked about, you're pushing at Valorem. Of course, you've got the AI piece as well. But how would you characterize pipeline sales? Where do you think -- where are you going to lean a little bit harder on go-to-market?

Well, we always are going to lean hard on the accounts. We have close to 10,000 firms, and we know that we are an unlock for them. And the accounts -- if you were to talk to accounts when I started the company, nobody ever wanted to do any of this business. And now it's the fastest-growing part of the account practice is something called C client advisory services, and that's because of the capabilities that we provide. So accounts will be one area. I think embed, I think the AI transformation that's happening, every software company is thinking about how they leverage AI for themselves, and they don't know how to do payments. So I think that's an opportunity for us to continue to leverage embed 2.0 with the capabilities that we have. And then I think that on the direct side, it's going to be this more focused spend on acquiring customers. That said, I believe a year from now, we'll be talking about how the opportunity for product-led growth has changed because of AI.

Yes. Yes. So 6 minutes left. So just hitting on take rate. I know it's always an important subject. And I know it's hard to measure parts of basis points sometimes, Rene. But I think you've been you guys have been leaning more into this transaction revenue per transaction metric because there is some danger in looking at take rate. So what's the message here to us around penetrating and getting that monetization level higher?

Yes. I mean I think the most important part of the business that we're focused on is how do we create adoption of all the payment products that we have. And sometimes, the reason we're kind of starting to articulate this a little bit more succinctly is sometimes you're going to have large ACH transactions that come through that we're going to get $0.69 on, but it's massive to the TPV and that can force the take rate down. And so then people kind of don't understand why is the take rate down? It's like, well, the TPV necessarily isn't apples-to-apples in that particular year-over-year comparison. So when we focus on the transaction revenue, that gives us a chance to be like, okay, well, that will be consistent because then that large dollar amount just becomes small. It's just -- it was $0.69 before, and it doesn't matter whether it's $1,000 or it's $1 million. So that's the reason for that because there's been a lot of questions around take rate, and we understand this important part of the models that folks have. And we want to make sure that people don't get focused too much on that when there's many other things that actually make for the business growing.

Okay. Makes sense. So I have to ask you about stablecoins. We talked about AI already. Just to catch you up, right, Visa and Mastercard both talk about stablecoins and the potential around B2B, cross-border, things like that, you have a play there, of course. So how does it fit in your mental model of where you want to take BIL. I mean on one side, I appreciate there's an opportunity to improve your transaction expense. But then on the other side, there's questions of, will that become a use case that drives demand and could it be disruptive? Could it lower your take rate or your transaction revenue, if you want to look at it that way? How would you summarize it all for us and what's important about stablecoins?

I mean I think what you get from me and everybody on the team is what is it that SMBs need. And sometimes that comes from what they ask for and sometimes that comes from knowing what they need. What are they asking for? And they're not asking for stablecoin, okay? And what they are asking for is they want speed. They want the ability to manage everything in one place. And if you look at the 12 different payment modalities that we serve, like we give them a lot on that front. I think if you -- the real -- if you just step back and where is the real value of stablecoin, it's going to be in countries that have high inflation and high volatility in their currency. And so when you look at just the payments that are coming out of the U.S., our customer base and where they're going, they're pretty much going to the G7, right? It's going to be the European countries, Canada, Australia and China. I mean that's pretty much where the vast majority of the payments are going. And in those particular currencies, the only thing stablecoin would provide is speed and yet we provide speed. So it's not something customers are asking for in the same way. That said, if they start asking for it, since we do 12 for us to do 13 or 14, it's not going to be a hard thing for us to do. It's just more to where do we focus. And I think what you're hearing from us right now is that we're being very diligent about where our focus is because that is -- can be a distraction if we go chase after other things that don't yet have a business model case. And stablecoin doesn't necessarily have a unique business model case to what we do today.

Glad to hear it, Rene. Glad to hear it. So we're just about out of time. Let me end on a capital allocation or buyback question. You announced a $1 billion buyback. It's 1/4 of your market cap. Just your process of deploying that or executing that buyback? Is it more opportunistic? I think I asked this on the call, so I thought I'd ask again as we had a little bit more time.

Yes. I mean I think the Board, management, I think most people that we talk with do feel like there's an opportunity that the company is undervalued considering the assets that we have and the growth that we have. And so from that perspective, we want to be buying as much as we can just because that's one really strong way to return value to shareholders, right? So if we can retire a bunch of shares, that actually creates value for shareholders, especially when you think about the profitability growth that we're talking about. So you fast forward a year from now or 18 months or whatever, if those shares are fully retired and you have the same profitability numbers increasing, then obviously, your EBITDA per share ends up looking better. So that was our focus on is what can we do for shareholders right now. We can do that. We have the cash. We're not going to go make any significant acquisitions right now. We're very focused on this AI native. So we knew for the next 12 to 18 months that this was going to be a focus area for us. And so we felt comfortable deploying the cash, knowing what the cash flow was going to grow at. So hopefully, people see this as just another example of our ability to take our commitment seriously and our shareholder value seriously and whether we were delivering above the growth or above the profitability expectations, we also want to deliver on the shareholder expectations.

Okay. No, looks an important vote of confidence. So glad to see it out there. I know you're really busy, Rene. So thank you for spending the day with us. It doesn't mean to me.

Okay. Thank you, Tien-Tsin. Thank you.

Thank you.