BILL Holdings, Inc. ($BILL)

Good evening, everyone. My name is Tomer Zilberman, and I lead the back-office applications and vertical software coverage here at Bank of America. Today, I'm joined by Rohini Jain, CFO of Bill. Rohini, thank you for joining us.

Rohini, I want to start off with a very high-level question maybe for investors that are newer to the story. First, talk about Bill, what you guys do? And in the world of AI and agentic, what is a Bills value proposition and all of that?

Yes. Great question and something we talk about and think about a lot. So what does Bill do? Bill started out about 20 years ago with our founder, Rene trying to build a software to simplify the back office operations for the SMBs. So SMBs could focus on growth of their business, doing what they want to do and take away the friction of managing the paperwork and the workflows and approvals and financial management basically. That's how it started out. And over time, we continue to add feature functionality and products to it. The next thing was building out a payments platform where we could then enable not only the financial operations, but also financial transactions. What that led to was building out a regulatory infrastructure and a large set of data that understands risk and understands the customers and the suppliers and collect a bunch of data about very close loop transactions where even before the transaction, there's a lot of companies who enable transactions only have just the transaction data. We are in the workflow. So we know what happens before that. We understand the cash flow situation, so we can actually help the SMBs manage their payments in a certain way and type of payments when to make it, et cetera. So what we do really can enable the SMBs to focus on growth versus dealing with the back-end operations, payments and all of that stuff. So that's primarily what Bill does and how we are positioned in the AI world, and I just talked about our data and the trust that the customers have and we move a lot of money on as a percentage of GDP of the U.S. We talk about that a lot as well. So that has enabled us to build a lot of trust. We have built a lot of regulatory muscle that enables us to do all of that in a very efficient and accurate way. And if you build out an experience that is AI first or AI native, you could take out a lot of friction. What Renee talks about, our Founder and CEO talks about a lot, is we were on this journey of helping SMBs do their work, we were doing the work with them. And now we are able to do it for them. So we are building those capabilities where we are not only automating tasks and simplifying tasks, but simplifying jobs or taking or building out agents, capabilities and everything that will reduce the number of jobs that SMBs need to do, and that's where the real value for them comes through actually money back in their pocket that they can actually spend on growth. So that's our next pivot here, and we made some big announcements during our earnings call this time. we leaned out our organization quite materially. We are -- we also announced a couple of weeks ago that we are changing some of the leadership at the top as well. All of those changes are really going to help us drive velocity and execution in this vision of AI native. The data we have, the trust we have, the regulatory framework we have and the integration of the software where we simply do things for SMBs on the financial operations side and enable payments seamlessly when and how taking out some of that decision making, helping them manage cash flow and such. That's where we can make a step change with the AI-led experiences.

Got it. Could you actually remind us of the announcements and some of the leadership transitions you made and how you think about the impact to both growth and profitability.

Yes, absolutely. So let me actually go back to, I think it was about 10 months ago when I joined as the CFO of Bill. So that's my history with Bill. When I joined, one of the things that I was looking at and there was a lot of conversations already with the management team on was we have had a 20-year track record of growth. And as we look at the P&L profile, how do we make a step change this year on the profitability side. So we were trying to balance as the growth was stabilizing in a mature company, we were starting to think much more about now resetting what the financial profile looks like. And we engaged with external consultants. I did a lot of work into sort of understanding what the lay of the land is, and we came up with a lot of things that we wanted to do to streamline our operations, our company overall, et cetera. So over the last 10 months or so, we have done small restructurings and tweaks to the expense profile. But the big one, which we've been working on for several months was announcing up to a 30% workforce reduction, and that was during our earnings in the first week of May. We are executing on that. That's a big reduction in workforce, and we're doing it really thoughtfully in the sense that we preannounced it. And now we have -- we don't have a situation where one suddenly -- one day suddenly, 30% of the workforce walks out of the door. We have 1.5 months to 2 months to thoughtfully transition the roles that we do not need any more to the people who will take over parts of those roles. We are driving much more focus in terms of what are the few things that we're going to do and do them really well and fully fund them. We are simplifying the org structure to take out a bunch of levels for the size of the company. We want to make sure that we are not only at the benchmarks that we see in the industry, but we are better, especially in the AI world that helps us move with velocity in the next several months. And the third and the key part is to actively and embrace the AI tools that are available in every function. I own finance, analytics and legal. And I can tell you that day to day, my life is getting simplified with the tools that I use and the amount of work my teams have to do to give me answers is rapidly simplifying. So I think all of these together help us to do this with confidence, reduce our workforce by 30%. Right after that announcement in the earnings, we also announced that we are getting a new CRO. So this is to take us into the next phase of Bill's growth now that we have reset the profitability profile, again, thinking of what we need to do as a public company as 3 legs of this tool. One is profitability, which we worked a lot on just to give you some numbers. We first guided when I came in a 190 basis point expansion of operating margin. We actually are delivering more than twice of that and setting ourselves for that step change that you don't even see in the numbers yet into the next year. So a huge amount of work there. I would say that leg of this tool has been worked towards the biggest benefits have been taken. The second was is capital return to the shareholders. So we are -- we announced a material buyback of $1 billion in the last earnings as well we are actively executing on that. We think this price is really attractive, especially thinking through the opportunities that we have ahead of us. So we executed on that. And a third leg of the stool is growth, and this is where our CRO comes in, with a new muscle of how to take us into this next AI-led selling profile, somebody who's seen growth, somebody who's worked closely with the SMBs and in that environment and has a lot of muscle built in on how to work through channels, through your sales force, etc. so we're changing our CRO. We are also -- our CTO is moving away as well, and we are making room for a new CTO, who's been with the organization for a long time. He has -- I mean, Ken has done amazing work for Bill. He was the right CTO for the time and he built out an amazing AI platform in a very short period of time, on which we can now [ both ] agents and experiences very seamlessly without having fragmented experiences. So -- but he is taking -- he's moving on and we are promoting one of our people into that role. And Eric is amazing. He is so smart. He's been with Bill for a very long time. He understands the experience. He understands the platform we've built and is able to work in a leaner, meaner organization that works really fast. And he's got much more of a start-up mindset. So I'm really excited about that. And the third change is we are putting all of our experiences across payments and software under one Chief Product Officer, which is Mike, who joined us about a year ago as well, and [indiscernible] is moving away, who used to on payments. Now this is the right move also for us because now we have one person who is end-to-end thinking about our experience. So what the customer sees irrespective of whether it's payments or whether it's software, it's one experience and everything is thought through and going to be built with this AI-native mindset, which takes out a lot of friction and makes our experiences seemless and modern.

Understood. Maybe a 2-part question based on what you just said, is there 1 any risk overlay conservatism or any notion of conceptual risk from this management transition. And 2 is, if we quantify some of your recent results, right, you had 16% top line growth, operating margins of 20%, and you kind of talked about some of the growth of margins historically. But you guys historically referenced a Rule 40 framework. So how do we think about that trade-off between either reaccelerating growth to a 20% mark or focusing on margins to get you to that.

I always have said that the best way to expand profitability is growing revenue, it just falls through the bottom line, which is great. But periodically, you have to look closely at the structure of the financial profile and make some tough decisions to reset it. So that's what we've done. Now I think majority of the focus will shift into the next year to start to build out the things that really drive growth into the next phase of Bill. So I would say that we have very materially change the profitability structure over the last 12 months, and the focus will go back into growth and driving margin growth through a revenue and the revenue-linked expenses. So those are things like rewards, processing costs and those types of things. From here on, we think the discretionary expenses are rightsized and we will continue to manage them thoughtfully, but we don't expect any step changes there. So that's how I think about that. And if you think about the risk from all the changes, I mean, this is a lot of change we're executing within a very short period of time. We have been planning on it and thinking about it and what is the right approach to do it for a period of time. So as to eliminate the most important things, most important risks -- what I'm focused on is the 2 commitments that we made to you guys, which we take very, very seriously is the revenue commitment and the guidance and the UI commitment in the guidance. So those 2, we will protect with all of the tools that have at our disposal, be it retention packages for people or making sure the transition is smooth and the people -- outgoing people get is tied to what they perform over the next 2 months and how they transition. So there are all these tools that we are using to make sure that we are eliminating the risk. I'm less worried about the management of the leadership changes. Those leaders will stay as consultants with us for 1 year. And there are amazing individuals, amazing leaders, and I know that if I call them or anybody else on the management team or the team overall call them, they will be out there to help us get through the problem. So I'm less worried about that, but there is a transitionary period definitely in the next couple of quarters that we have to work through to get to a different organizational structure.

Right. Maybe if we take a step back and talk about the revenue growth drivers, your transactions business grew 18%, subscription is about half of that at 9%. What are the drivers for both segments, right? What are the puts and takes of the growth? And what's the long-term Trajectory?

Yes. So let me start by subscription with the subscription side of things. Subscription revenue is less than 20% of our total revenue now. And we have been accelerating growth over the last couple of quarters with the subscription side. Now that's driven by 2 things. One is we have talked about our intent to go upmarket and try to get higher quality customers versus just customers who would probably be on the lowest plan and not probably interact with a lot of different products and the depth of the portfolio that we have. So we are moving a market that means fewer customers who give us more revenue per customer. So you see that trend increase. You see the subscription revenue increase. The other piece of the subscription revenue increase is also the pricing rightsizing we are doing. So I talked about it in a couple of earnings calls earlier on when I joined that we're looking at the pricing structure. We had done nothing for almost 3 years. And this was a time to start to think about the value we're giving to our customers and what we are realizing in return. So we rolled out some small pricing changes, which rightsizes the pricing of the value prop we have for the customers. And really excited to see the results and we see sticky customers. We see the customers want to retain our staying on the platform because it's still one of the better products in the market and has all the bells and whistles of features that people need. So that's on the subscription side. We saw a really healthy 9% growth last quarter, which is an acceleration from the prior quarters and hope to continue to see that growth. The second part is transaction revenue. Again, transactions are very much tied to the customer growth and the spend environment. And the spend environment of the SMBs, as we've said, continues to be fairly stable and resilient. It's not growing at a very healthy clip right now, given all the uncertainty in the environment, there's inflation and such. But because Bill has a very diverse portfolio of type of customers and where they spend and who they are, that gives us kind of offsets. So there are some things that are not doing very well, like retail, discretionary spending on travel and entertainment is a little bit softer. On the other side, we see some of the AI expenses being stronger and manufacturing in the U.S. has been stronger as well. They kind of offset each other, and we continue to see overall resilience across the board. So that's the backdrop of how we think about next year. And as you know, we haven't yet guided. And given all the changes, we are heads down right now in terms of planning for next year and the growth algorithm for the next 3 years looks like. And we'll be really happy to share all of that in August when we meet.

Right. You have about, I think, $35 million in float revenue.

A quarter, yes.

A quarter, right.

Yes.

how do we think about -- or how are you hedging against? You talked about inflation, but the risk of lower interest rates.

Yes. If you look at our gross margin profile, you'd see a fair amount of stability in the rates despite the float rate reduction. So there are several things, right? Number one, the TPV continues to grow. So the balances we hold are also growing with that. Yes, the interest rates are coming down, which we've taken part of the pain already. So there is less of that. I think how those -- can they go. So one of them is just we continue to drive growth on the platform, so the balances will continue to help us. I do want to mention here that float is a very critical part of our revenue stream. It's a very profitable part of our portfolio. And we invest a lot to earn that or we have invested in the past a lot to earn that revenue. The trust of the customers, the platform we built, the security enables us to hold those funds for the customers. So it's important for us as a monetization stream. Now how can we offset some of the impacts of rate changes as we're building out the Bill cash capabilities, which help us not only increase our TPV flywheel, so if we are holding cash, we can approve more transactions. We know the customer well, our losses can be driven lower from that. So there's a lot of ecosystem benefits we can get from driving the Bill Cash, which is a relatively new product for us. But also, we will earn some revenue from an interest perspective as people start to hold cash in that account, and we share part of that interest rate with them. So there are a variety of things we're looking at to continue to grow that portfolio.

Right. You mentioned earlier the $1 billion authorization. How do you think about the split between returning cash to shareholders and M&A?

Yes. And several thoughts on that, right? At the levels of stock that we are seeing, it's just very attractive to buy given the opportunity we see ahead of us. Having said that, we have a very strong balance sheet, and we have a really good cash position. Our cash flow, especially with all the productivity actions and durable revenue growth profile, we see cash flow annually growing in a healthy clip as well. So with all of that, I would say that we -- despite doing the $1 billion buyback we continue to have a good amount of cash to be opportunistically doing M&A as we may need to. If something really attractive comes through, we have enough dry powder to be able to execute on that. But we want to be very thoughtful. I mean we have a very clear focused priority right now to create AI-native experience that is absolutely frictionless and creates a very sticky and easy-to-adopt product. So focused on that. But the other thing is, and this is something that I think about always is, as we think about build and buy as a finance person, it was always a really good mathematical exercise and modeling exercise to see what has build cost and what is buy cost. The cost of build with AI is starting to come down rapidly. And I see a lot of excitement. If you want to do something, there's a lot of excitement in our product teams to want to do it themselves because the time to execution is shrinking. So I think that changes the equation of build and buy in my mind a little bit. Additionally, you have less risk and complexity and integration of an outside portfolio. So right now, I don't see any very exciting things that I will jump at.

Well, maybe to ask another question on the buy side of the equation. Given your cohort of customers, is it -- does it make more sense to buy a brand name, something that they're familiar with, or in this market where we're evolving so quickly with agents that is better to buy the better kind of AI native technology. It might not have an established customer base or whatnot, but you're buying the best technology?

Yes. And this is where I think the question of how good is the technology now well we can integrate a technology, and I haven't been in a few tech companies. I've seen the rate of success with M&A integration is low and it's hard. So to be able to -- I think acquiring talent is very attractive. So if there's something that has talent that can build rapidly that capability within our ecosystem, that feels like something attractive that we would want to do once we are done with this big task of creating a certain experience. But I don't -- I'm not seeing any big brand names that would excite me at the moment.

You're making a shift from kind of SMB-type cohort to larger business. You added, I think, it was about 4,000 customers last quarter. I think that's closer to the lower end of the range. But that transition makes sense, right? Can you talk to us about that? How you're thinking about adding more quality customers versus quantity of customers.

Yes. And one of the things I've talked about also over the last couple of quarters is we -- all these metrics that we look at are very important leading indicators into the growth profile, but they are also just 1 indicator. And in the past, we have kind of overemphasized a couple of things, but I think we need to look at the overall profile of all metrics that we have anchored more on take rate, less on TPV, but it's take rate times TPV equals revenue. We have anchored a lot on NNAs, not enough on ARPU, but M&A times ARPU was revenue. So I'm constantly looking at all of those metrics that drive the revenue growth. And at different points in time, there will be different things that will be more important to us. And as we are starting to make that shift into higher-quality NNAs and driving growth, in a shorter period of time, ARPU is going to be more important for us as we figure out what are the right compensation plans for the sales team, what do we want to incentivize them for? What is the right quality of customers. And as we start to stabilize that, we want to start then using our other channels like Embed where we have Paychex, which probably bring in a lot more customers, but they are a lower profile, but we're not spending our sales force time in getting those customers. product-led growth can bring in. If it's a very frictionless onboarding experience, product-led growth can bring in the customers at the lower end of the profile. But right now, we have a sales motion, and I want to focus them on larger customers. Given that and given all the changes over the next quarter or 2, I think that NNA would be one of those metrics that we'll see more fluctuation as we try to focus on managing revenue and [ OI ].

Right. We only have about 6 minutes here, so I want to open up any questions to any investors in the room. It's always generally a very quiet room. But at these conferences. But maybe to talk about competitive dynamics right now, right? I think you have big companies like Intuit that you compete against, you have smaller, maybe more nimble companies like Ramp, how do you think about where you fit in the overall stack? And given the fact that you have an embedded platform across all these different dimensions, how does that differentiate you versus your peers?

So that's actually a very asked question. So the way I think about it is there are several players in the market and there are more coming, only because the size of the market is so large. So in a way, there is room for everybody. And I think what's happening is everybody is finding their or the customer profile that their product is really suited for. So as I think about us, we are really focused on our ideal customer profile where we win more deals than anybody else is anywhere from like 20 headcount 250 headcount type of a business. And that for us is the sweet spot. We continue to move towards that 250 versus the 20 as we build out the size and scale and future functionality for those customers. If I think about Intuit, probably on the lower side of that ICP that we have, they have been trying to do bill pay for a very long time. I think running a payments business fully integrated into a software is not easy. You have to create a lot of different products, build a regulatory framework. And it kind of starts to become for Intuit a different type of company. So how much they want to lean into the complexity of payment is to be seen. But right now, I'm not seeing a lot of complexity in the products that they offer and the overall seamless integration that we have. So I feel we have more depth. Similarly with Ramp, a lot of talk about it. Again, it's not a public company, so we have limited understanding of financial profile and such. But they play a little bit more on the higher side of our ICP and they are primarily spend in expense, whereas we really sell the platform from an integrated perspective. Again, depth of the platform that we have is way better and richer for what these customers, especially on the higher end of that ICP want to do. What Ramp does really well, by the way, is their experience is very frictionless and seemless. But in this age of AI, that's not hard to build. So that's our focus on how do we start to become a very seamless, frictionless, easy to adopt product, which is, again, best in class in market from a depth perspective.

Right. Maybe the last question here, and this is actually going to be my first question to you, but I decided to save it for the end is, as you mentioned at the beginning of our conversation, you're now 10 months into the role, close to a year. You bring a fresh lens, right? I think you've talked about some of the management team who was maybe a little bit more seasoned, been here for around a little more or a while. But ultimately, I want to ask you, when you came in here and you look over the last 10 months, what were your learnings about things that could be improved upon. And then when you look about the strategy for the next year or the next few years, outside of everything we already spoke about in terms of growth and profitability and all these other things, like what are your key initiatives?

Yes. So a couple of things. I started out about 10 some months ago, was counting, I was just joking our team, this was the last one conference. I said now that I've done this my whole... .

you have done the whole circuit.

Yes, I've done the circuit. I've done the year -- my first 1 was Goldman. But anyway, a few things. It was a very intensive, I have to say, I did not expect that there was a lot of things that were happening. I joined, and I had to get ready for an earnings in just a few weeks of starting, finalizing the plan, having all the fun with the activists and a bunch of market rumors getting through that and executing on 3 workforce reduction projects. And this is all while delivering on the revenue commitments that we had made at the beginning of the year. So I think it was action packed. It was intense. It was hard, but it's been very fulfilling and probably learned more than I could have ever any other place. So thankful for that. From a perspective of going forward, right, I mean, we did a lot this year, not only on a financial profile perspective, but if you look at the execution, we rolled out new products that are now starting to scale. We rolled out SPP, we rolled out Bill Cash. The AI platform was built in a period of 6 months, which is now enabling us to do all the AI things quite rapidly. So there was a lot of execution that happened in the year. Now looking forward, all those new products that we built out, we're going to focus on scaling those. We are going to be focused on a step change in the experience that Bill has. And from a finance perspective, my job is to enable that growth in the most efficient and effective way. So how do we allocate resources in the right places. We said that from the workforce reduction, we want to put back about $20 million, $30 million back into the business to support the growth initiatives. And as AI comes out, we want to make sure we have the right skill set, we have the right tools for the company, we are not over constraining the growth side of things. And when the new product is ready, we want to make sure that we are investing in the right GTM motion especially as new chief revenue officer comes in, we want to make sure that, that person is able to do what he intends to do. So I think that's going to be my role to really support the growth now that we have rightsized the profitability. Looking forward and deliver -- drive accountability. And that was something that I said in my first earnings. That's really important to me as my brand, and I want to make sure that I'm not only supporting the team, but also making sure that we are delivering on what we say quarterly, annually.

Got it. Rohini, thank you so much for joining us today.

That's great. Thank you for having me.

Thank you.