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

Hello, everyone. Thank you for joining us, and welcome to BILL's Fourth Quarter and Fiscal Year 2026 Earnings Call. [Operator Instructions] I will now hand the conference over to Jack Andrews, Vice President, Investor Relations. Jack, please go ahead.

Thank you. Good afternoon, everyone. Welcome to BILL's Fiscal Fourth Quarter 2026 Earnings Conference Call. We issued our earnings press release a short time ago and filed the related Form 8-K with the SEC. The press release can be found on our Investor Relations website at investor.bill.com. Joining me on the call today are Rene Lacerte, Chairman, CEO and Founder; and Rohini Jain, CFO. Our remarks today include forward-looking statements about our business, products and expectations that involve many assumptions, risks and uncertainties. Actual results could differ materially from those expressed or implied by such statements. On today's call, we will also refer to both GAAP and non-GAAP financial measures. Please refer to our earnings press release and investor presentation posted today and to our periodic reports filed with the SEC for additional information about such risks and uncertainties and for reconciliations of non-GAAP measures to GAAP. With that, let me turn the call over to Rene.

Thanks, Jack. Good afternoon, everyone, and thank you for joining us. Q4 was one of the most significant quarters in the history of BILL. We completed the significant organizational changes required to accelerate our transformation to be an AI-native company. We sharpened our view of the highest impact actions that power our growth. And at the same time, we drove good overall business performance in the quarter. Core revenue grew 16% year-over-year, while our non-GAAP operating margin exceeded 23%. With increased activity in the industry, it's clear that BILL's value proposition of an integrated platform continues to resonate with SMBs. I'll first recap the highlights from Q4, then provide an update on our new organizational structure and then introduce our key priorities for FY 2027. As I shared on our last earnings call, innovating with AI represented our top priority during the past fiscal year. We continue to see strong momentum and adoption of our AI capabilities among our customer base. To date, we have had over 175,000 businesses using our agents to improve their financial operations across S&E and AP. The number of organizations using our W-9 agents more than tripled sequentially to over 40,000. As a result, we have collected over 240,000 W-9s with zero work from our customers. This agent handles outreach collection and validation with the IRS without anyone touching it, eliminating a job nobody wanted in the first place. Next up, BILL's invoice coding agent, which launched in February, has already been used by over 60,000 companies to eliminate around 90% of the coding steps for a multiline invoice. This has generated significant time savings, reducing the processing time across our AP customers by nearly half. In addition, our touchless transactions agent became generally available at the end of April to all of our Spend and Expense customers. Already, it has automated more than 7 million transaction fields for 30,000 customers. Lastly, our Pay For You (sic) [ Pay By Card ] agent became generally available at the end of Q3 and completed over 30,000 card transactions without any human interaction during Q4. These examples are just some of the many AI capabilities we have and are building for customers. Given these successes, we are excited to launch major new AI-powered functionality over the coming months. The value to BILL and its customers from this technology will come from better business outcomes with greater speed, control and efficiency. AI success is all about this. Period. It is easy to drive agent creation and code completion, but it takes great domain expertise to build products that customers never knew they wanted or needed. Our domain expertise and scale is long established. Customers know that we have built our platform to deliver better business outcomes, and that has built a brand trusted by businesses everywhere. We are making these AI investments to extend the significant value creation for SMBs that we are known for. It will help them save more time, maximize financial performance and leverage AI with confidence. As a result, customers will spend more time on strategic work, catch risks that would otherwise have been missed and focus on growing their businesses. Our commitment to constantly innovating and delivering software that optimizes and executes the workflows and decisions that run the financial operations for our customers has a real impact. They trust us. Let me share a customer quote from Matthew May, National Accounting Manager Partner at Sorren, a large accounting firm. We handle some of the world's most sensitive data. So our philosophy is always security first. Rather than using generic AI tools, we trust solutions from vetted tech partners like BILL, who have proven their security with our clients' financial information. AI is an enabler, but only with guardrails and the right partnerships augmenting expertise and trust. When it comes to financial operations, trust is a critical factor in the purchasing decision. That trust is helping our integrated platform gain strong traction among the fastest-growing segments of SMB spend, AI-first businesses, technology services and professional services firms. These firms are scaling quickly and need financial infrastructure that keeps pace. Customer spend on AI through BILL grew over 50% year-over-year in Q4 and TPV from our AI-first customers nearly doubled from Q3 to Q4. AI is not only a game changer for our customers, but it is critical to how we build and operate at scale inside of BILL. We are driving more and more internal efficiencies while improving execution across the entire company. One use case is having a direct impact on our financial results. A few quarters ago, we introduced a new AI underwriting model to assist with our invoice financing applications. This new model is built on signals and patterns based on how businesses pay and receive payments within the BILL network over time. Relationship level data allows the model to assess invoice level risk with a precision not replicable from traditional credit bureaus. We are seeing a material impact on our invoice financing business. Both volume and revenue grew approximately 30% year-over-year in FY '26, while the expected loss rate has improved by more than 50%. This is a strong illustration of 2 of BILL's key moats, our massive proprietary data set and our network. As more and more transactions are executed on our platform, our models get smarter, our risk selection improves, and we can extend more credit at better economics for the customer and us. This is a compounding advantage that grows with scale. Next, I'd like to provide an update regarding a number of organizational changes we completed during Q4. Over the last fiscal year, we have been working diligently and intently on structuring BILL for our next phase. We significantly simplified and reduced layers across the entire company. In addition, we moved from a hybrid general manager structure to a functional model. The imperative to become an AI-native organization, combined with driving speed of execution on the initiatives that drive results across the business is the primary motivation for these changes. We are moving fast with strong accountability and end-to-end ownership in order to drive velocity, impact and growth. Simply stated, we've built BILL to achieve what it needs to in the future. During Q4, we made some deliberate leadership changes to support this direction. I was pleased to welcome Jonathan Leaf to BILL as our new Chief Revenue Officer. Jonathan has a strong background and track record in scaling revenue organizations to serve lower and mid-market companies. He is responsible for all aspects of our go-to-market organization. In addition, Mike Cherry, who joined BILL last year has been promoted to Chief Product Officer. He now leads the end-to-end platform experience spanning software solutions, payments and financial services. This structure reflects how customers use all of BILL's capabilities together across a single integrated platform. Finally, Eric Chan has been appointed Chief Technology Officer. As BILL's founding engineer, former CTO and Chief Architect, Eric has exceptionally strong knowledge of our technology, the team, the current technology landscape and operates with the speed this moment requires. We've done the work to assemble the right team and are focused, energized and positioned to win in our market. Entering FY '27, we are focused on the following 3 strategic priorities. Our first and most important priority is to deliver AI-native experiences for our customers. Because this is our top priority, I'd like to spend a moment on what that means for BILL. Achieving an AI-native experience means that AI is so deeply embedded that removing it would make the products no longer work. Our success with over 175,000 customers leveraging AI capabilities is compelling. We are making a strategic pivot to an agentic platform that automates financial operations out of the box by default for our nearly 0.5 million customers. We are building new front-end experiences that remove friction so that customers can instantly realize value from AI. Our knowledge of SMB-specific pain points and workflows, combined with our proprietary data advantage, our network of over 9 million members and our robust payments infrastructure, creates a powerful foundation to build trusted, accurate, secure AI solutions, specifically aimed at the Fortune 5 million. Our second priority is to acquire higher ROI customers. One of the key areas of focus here is driving multiproduct adoption. In Q4, the number of joint customers leveraging both of our AP and Spend and Expense solutions grew 35% year-over-year. Those who were customers both in Q4 and a year ago exhibited a net revenue retention of 111%. Given the success we have seen, we have made a change to our go-to-market strategy in FY '27. The entire sales team is now trained to sell BILL as a single platform rather than individual components. This is how we will engage with customers and prospects moving forward. Our Embed 2.0 strategy represents an efficient channel opportunity. We believe there's a large market for software companies interested in deploying our embedded finance solutions to support the financial operation needs of their clients. We are gaining traction with our Embed partners. As an example, one of our Embed partners TPV and units more than tripled sequentially from Q3 to Q4. In focusing on higher ROI go-to-market activities, we have made the decision to align our bank channel efforts with BILL's broader embedded strategy. We are investing in scalable standardized embedded solutions. We need all of our partners to use all of our products and experiences. Focus here will allow us to leverage one platform across all of our partners versus the multiple versions we support today. We do not expect that every existing bank channel relationship will carry forward. Our third priority is to expand value through BILL's platform. We aim to achieve this by providing greater value for customers in terms of new product introductions and enhancements. This, in turn, should result in greater value to BILL from a monetization perspective. We have a strong track record of introducing new ad valorem payment products over time that have solved specific pain points for our customers while leading to broader monetization opportunities. One example of this is Supplier Payments Plus or SPP. Driving adoption of our SPP offering remains a key area of focus to expand value for both customers and BILL. The early progress has not met our initial expectations. The enterprise sales motion required was new to BILL in FY '26. Over the last year, we have invested in building out this go-to-market motion, and we are now starting to see increased deal momentum and faster implementations. Our contracts with these large customers lock in new ACH monetization and preserve virtual card volume. Our committed TPV across all of our payment offerings from these early adopting suppliers has reached almost $800 million. Building great products is hard work. It takes vision, execution, listening to customers and iterating over and over to create a great customer experience. We have been doing that with SPP and the customer response is positive. I'd like to share a case study from one of our early customers describing the value they are deriving from SPP. We recently signed a business services company that is managing over $75 million in annual SMB payment volume through BILL. Prior to adopting SPP, they faced a fragmented receivables operation with hundreds of separate accounts spread across multiple field locations. Half of all incoming payments were invisible to corporate treasury and posted manually with no automation. This is a painful way to run a business. After deploying BILL Supplier Payments Plus, the company consolidated 168 accounts into one centralized corporate account in just 10 weeks with 0 IT involvement and no disruption to customers or field teams. The percentage of payment transactions that are processed and settled automatically without any manual intervention jumped from 72% to 98% to 100%. The company has recovered more than 400 hours of manual labor per month, time that is now redirected toward higher-value customer-facing work. The customer summed it up in one word, efficient. AI dramatically expands what is possible, but the requirements of financial operation systems that serve critical functions remain the same. Accuracy, control and security are paramount. Our wealth of proprietary data, combined with our infrastructure, scale, reliability and experience, having moved almost $2 trillion in spend, gives BILL an advantage in the market that is not easily replicated at scale. Successfully executing hundreds of millions of transactions for hundreds of thousands of customers gives us invaluable learnings. We are uniquely positioned to develop and deliver AI-native solutions that are best tailored to address the needs of the customers we serve. A year ago, we set out to do something hard, grow the business, return capital to shareholders and fundamentally reshape how BILL operates, all at the same time. We did that. I couldn't be more proud of the team given the amount of change experienced and the results delivered. The team I have beside me today is smaller, faster and more aligned. The product we are building is the most compelling it has ever been, and the customers who trust us with their financial operations are telling us it is working. I'm excited and confident in where we are headed. And with that, I'll turn it over to Rohini.

Thanks, Rene. Before getting into the details of our quarterly results, I'd like to make some comments upfront regarding how we view the longer-term financial trajectory for BILL. During my first year here, many investor conversations have focused on the importance of providing a financial framework for how we view both growth and margin opportunities over time. There are 3 key pillars to our framework that I'd like to share now. First, BILL has built a durable business model, and we are well positioned to deliver low double-digit to mid-teens core revenue growth with expanding margins over time. Second, we are focused on driving progress towards the Rule of 40. We define this metric as growth in total revenue less rewards plus non-GAAP operating margin. This is a measure we believe better reflects our underlying unit economics and improves comparability to peers. Our actions in FY '26 have positioned us to be a Rule of 40 company, and we expect to exceed this threshold exiting FY '27. Third, BILL is focused on achieving meaningful GAAP profitability in FY '27 and expanding from there. Now let's dive into the financial results for the quarter. In Q4, we delivered $400.5 million in core revenue, growing 16% year-over-year. Non-GAAP operating margin was 23%, expanding 370 basis points sequentially and 860 basis points year-over-year. Non-GAAP net income was $94 million, representing a 22% improvement sequentially and a 53% improvement year-over-year. The large profitability beat this quarter was driven by earlier-than-planned workforce reduction timing and lower fraud and credit losses. Within our integrated platform, we saw double-digit growth in both AP/AR and Spend and Expense. AP/AR core revenue grew 10% with subscription ARPU increasing by 1.4% year-over-year. Mid-market core ARPU from newly acquired customer cohorts grew 31% year-over-year as we continue to focus on higher-quality customers. In Q4, we added approximately 1,800 net new customers, which is below recent trends. In addition to our decision to deliberately prioritize signing the right customers for BILL, the organizational restructuring impacted this result. We decided to exit salespeople earlier than originally planned in order to familiarize the remaining sales team with their new pipeline and quota opportunities. Under Jonathan's leadership, we have moved quickly to a single platform selling motion with tighter execution across the team. The early indicators in Q1 are already trending in the right direction, which gives us confidence. AP/AR transaction revenue was $131 million, up 10% year-over-year. We saw very strong TPV in Q4, exceeding our expectations by approximately 300 basis points. This came mainly from newly acquired larger customers and their ACH volumes. This TPV mix resulted in an AP/AR take rate of 16.0, which contracted by 0.5 basis points. Normalizing for the large ACH TPV beat, take rate would have been in line with our Q3 guidance. TPV on a same-store sales basis grew 6% year-over-year, representing a sequential acceleration of 2 points and highest since Q1 FY '23. By industry vertical, we saw increased spending in manufacturing, administrative services, information technology and construction. We saw decreased spending in retail trade and wholesale trade. Customer spend on AI increased over 50% year-over-year in Q4. In Spend and Expense, Q4 revenue totaled $185 million, up 23% year-over-year. Card payment volume grew 20% year-over-year. Travel, entertainment and health and services drove that growth, more than offsetting the slight softness in advertising spend. Take rate for the quarter came in at 261 basis points, reflecting a favorable mix of high interchange verticals. Reward rate was 133 basis points, up 3 basis points sequentially, driven by higher-than-expected volume in our top rewards tier from a concentrated group of customers. We have renegotiated those commercial contracts moving forward. S&E fraud and credit losses continue to improve over time, driven by AI-enabled enhancements to our fraud platform and underwriting. In Q4, as a percentage of TPV, it improved nearly 6 basis points sequentially. Turning to capital allocation. In the fourth quarter, we repurchased approximately $300 million of stock at an average price of $35.31 per share. We have now retired approximately 15 million shares, representing close to 14% of our common stock outstanding since our Q3 earnings call. As of today, we have $400 million remaining on our $1 billion repurchase authorization announced in May. Given our confidence in BILL's durable growth profile and free cash flow generation, we expect to execute the remaining authorization within the parameters we have established. Before turning to formal guidance, I want to highlight 3 factors that are shaping our near-term outlook. First, we are navigating through a lot of change in our go-to-market organization. Specifically, we are in our first quarter of a new sales motion under new leadership, unified around a single platform sale. Second, on S&E, we are monitoring a dynamic environment regarding card acceptance that may impact a small number of merchants. Additionally, we are taking proactive commercial actions on certain higher reward tiers and contracts. Third, as Rene noted, we are concentrating our Embed channel on new Embed 2.0 platform. This means moving away from custom 1.0 solutions we built for a small number of bank partners. This is a deliberate choice to consolidate on a scalable and standardized embedded platform that supports our full product suite. Given these aspects, we believe a measure of prudence is appropriate in our forward outlook. I also want to address an accounting presentation change we are making. Beginning in Q1 of fiscal year 2027, we will present revenue net of rewards expense. Rewards expense will be recognized as a reduction of subscription and transaction fees rather than as a sales and marketing expense. This voluntary change better reflects the unit economics of our Spend and Expense business. It will sharpen focus on the right customer segments, improve comparability with our peer group and will help us drive profitable growth. The change has no impact on the operating income or net income. Total revenue and total operating expenses will each be reduced by the same amount. We will begin reporting under this new presentation in Q1. I will now detail our guidance for our first quarter and fiscal year '27. In light of this accounting change, we will guide to our historical presentation of revenue and rewards today. However, beginning with Q1 of fiscal year '27, our guidance framework will be presented on a revenue net of rewards basis only. For fiscal Q1 '27, on a historical presentation of revenue basis, we expect total revenue to be in the range of $432.5 million to $442.5 million and core revenue to be in the range of $398 million to $408 million, reflecting 11% to 14% year-over-year growth. For fiscal Q1 '27, we expect the rewards expense to be $92.5 million, implying a core revenue net of rewards growth rate of 10% to 14%. Here are a few key assumptions that underpin our Q1 revenue guidance. First, on volume, we expect AP/AR TPV growth to be in line with FY '26 volume growth. For Spend and Expense, we are assuming year-over-year volume growth of mid-teens in Q1. Second, turning to monetization. We expect AP/AR take rate in line with Q4 as we expect higher ACH TPV growth trends to continue. Moving to Spend and Expense. We expect the take rate to be approximately 260 basis points. On the bottom line, for Q1, we expect to report non-GAAP operating income in the range of $112.5 million to $117.5 million. We expect non-GAAP EPS to be between $0.96 and $1. These EPS figures are based on fully diluted share count assumption of approximately 102 million shares. Turning to full year guidance. For fiscal year 2027, on a historical revenue presentation basis, we expect total revenue in the range of $1.807 billion to $1.857 billion, reflecting 9% to 12% year-over-year growth. We expect core revenue in the range of $1.669 billion to $1.719 billion, reflecting 11% to 14% year-over-year growth. One modeling point to flag is that Q2 FY '27 faces our highest prior year comparison, and we expect this to represent the trough of our growth trajectory for the year. Our guidance reflects 3 points of year-over-year growth headwind, 2 points from S&E dynamics and 1 point from bank channel. For fiscal '27, we expect the rewards expense to be $401.5 million, implying a core revenue net of rewards growth rate of 10% to 14%. Turning to bottom line. For fiscal 2027, we expect to report non-GAAP operating income in the range of $421 million to $451 million, which represents a 23% to 24% range in non-GAAP operating margin. This implies an ex-float operating margin expansion of approximately 590 basis points at the midpoint. We expect non-GAAP net income in the range of $370.5 million to $394.5 million and non-GAAP EPS to be between $3.56 to $3.79, representing 33% year-over-year growth. These EPS figures are based on fully diluted share count assumptions of approximately 104 million shares. This accounts for the $600 million share repurchases completed under our $1 billion authorization. As we mentioned, GAAP profitability is now a key focus area. We expect to generate well over $125 million of GAAP profits for the full year. Included in this guide is an expectation for stock-based compensation expenses to be approximately $190 million. As a percentage of total revenue, we expect stock-based compensation to represent 10% in fiscal year '27, down from 14% in fiscal year '26. A year ago, we were a company with questions around profitability. Today, that question is answered. We are a leaner organization with a sharper focus. Exiting Q4 '26, we are a Rule of 40 company, driving strong revenue growth and GAAP profitability. We have made deliberate decisions to trade low-quality revenue for durable, high-quality growth, anchored in AI-led initiatives, stronger unit economics and a platform our customers trust. FY '27 is about executing against that foundation. And now we'll open up the call for Q&A.

[Operator Instructions] Your first question comes from the line of Tien-Tsin Huang with JPMorgan.

Good results here. I think I was going to ask on the restructuring charge maybe and that came in on the higher side. But just to get to that charge, where did everything land versus what we talked about last quarter in terms of headcount reduction, savings run rate and reinvestments? I know you gave some initial views there. Where did you land? And what's the assumption and the time line for realization in fiscal '27?

Thank you so much for the question. And let me start by just letting you know the restructuring efforts went exactly as we had planned. So we had given you an initial estimate of about $110 million of gross savings. We came very, very close to that number. So that's good. We had given a range of investments back into the business of about $20 million to $30 million. We are right now anchoring those investments on the number $30 million. So that puts our net benefit from this at around $80 million.

Okay. Terrific. And then maybe for you, Rene, just thinking big picture here. I heard the go-to-market change and you brought in the CRO as you talked about. Any big learnings worth sharing here from whether it be the employees or the clients that you talk to or your partners given the reorg? Love to hear your thoughts on that.

Yes. Thank you, Tien-Tsin. Yes, it's a great question. I think the way that you're starting to hear us talk and the way that we're executing is really across the platform. We started on day 1 to build a platform, a platform that makes doing business simple. We started with workflow. We started then adding AP, AR, S&E, but we do so much more than that. And I think the go-to-market changes that you're referencing and kind of the momentum and energy that we're feeling inside the company is that the platform capabilities we have matter to our customers. They matter to our partners. They matter because that's how you get the most value out of the experience. And so when I look at the last 12 months, we did really, really important work that unified the platform and the organization. They go hand in hand. We've aligned both the products and the go-to-market organizations to specifically sell all of AP and S&E customer experiences. They're now fully integrated across the new modern UI. We are leveraging that customer experience to start selling that platform. You heard me talk about that. And we are seeing results. I mean, 35% growth in the multiproduct adoption is great in the course of the year. And that success has accelerated our change from a go-to-market perspective to really look at the totality of the offering that we have and to make sure that the marketing, the selling, the supporting is thinking about a unified platform approach. The tight organizational changes that we made during the year are both supporting the shift and are in concert with this belief that the platform is the key to driving customer satisfaction and success. And given what we've already seen, the excitement that we have across the impact only increases when we think about the broader platform that we're building. And so again, when you ask the question like what's kind of giving you confidence momentum or energy here, it is really this platform. And just like to step back, we see this really resonating with customers. And it resonates because financial operations is complex. There's a lot of moving pieces with that. And if you think about a customer doesn't want to have to make a lot of decisions about their financial operations, the same way they don't want to have to make the decisions about building their own car. They'd rather buy a fully loaded and finished product. And so we at BILL are the masters at simplifying that complexity behind financial operations. And we are increasingly becoming the fully loaded finished product for our customers. So the core products that customers come for, we know that, that's the AP, that's the S&E. But we also know they come for way more than that. They come for all the payment capabilities. And just to give you an example about how the platform just was extended to create more value for our customers in the past year. In the midst of all the restructuring that we've done, we now have SPP, a new product, new platform extension that really is taking advantage of the multisided network that we have with over 9 million connections, close to $400 billion in annual spend and the data that actually allows us to understand what matters to our suppliers and really how to go target those suppliers. That data is what is behind the development of SPP. And nobody else has this data today. And so when we think about the platform play and again, what's giving me energy, what's giving me confidence, it is seeing that the combined product mindset capabilities that we have in the company and the platform capabilities we have and the shared data capabilities that we have, we're doing stuff that nobody else can do. We have a really interesting opportunity. We see that in invoice financing. You can see from the prepared remarks that we're able to now extend, obviously, into small suppliers to help them get their funds faster. They don't have to wait. We can only do that because of the data graph we have. It's unique. It enables us to make real-time offers based on patterns and documents that we see across the largest B2B payment network that we know of. And simply put, no one else has this capability at this scale today. The third thing I'd like to call out from a platform perspective is more looking forward and how we think about BILL cash. Again, it's a reminder of how we have built a platform that actually solves the financial complexities that are behind the operations of any business. So payments require speed, they require clarity and they require a clean audit trail. And BILL Cash delivers that. It's faster same-day payments. We have perfect visibility into every transaction when it's a BILL cash transaction. No FI has that. No accounting software has that today. And we're in a position to continue to create value for our customers and to really reinforce the trust and confidence that they have in our platform with BILL Cash. Now it's early days on BILL Cash and already, I think we are seeing strong good adoption from our early customers. And one of the most important factors that we're seeing that adoption is that they are moving spend that was offline, spend that was never on the BILL platform before, and it's now becoming online. And so when you combine all the capabilities that we have from a core front end, the front door of AP, S&E and AR, you add all the payment capabilities and the extensions that we're doing with suppliers and cash management on BILL Cash, and the ability for us to now start selling that platform, that's what gets us excited. It's something that we've been building a long time to make happen. And we know that the scale that we have begets scale, and we know that we have got a very large, successful and profitable business that we can invest from. And we're now 100% aligned, thanks to the restructuring on how to go make that happen. So a lot of things that are kind of underneath that go-to-market consolidation, if you will, but it all comes back to the platform.

Your next question comes from the line of Scott Berg with Needham & Company.

Nice quarter and nice forward guide here. I guess 2 questions. Rene, we'll start off with all the AI usage in the platform. Your adoption rates are impressive and the real-life use cases are equally impressive and how they're saving your customers' time. How do you think about the monetization strategy of your AI efforts going forward now that you have some, I guess, more concrete usage data and understanding how customers are going to use both the existing functionality and the innovation you spoke about in the pipeline coming out this year?

Thank you, Scott. I think this is obviously a really important part of the strategic direction of the company. The pivot to really becoming AI-native gives us lots of opportunities. But the first and foremost thing to think about is that we are sitting on a massive opportunity. There are millions of businesses that need financial operational help, and we are in a position with the platform that we have to go reach them and support them in ways that they never knew was possible. And so the first thing from an AI perspective is going to be building the capabilities to actually drive significant improvement and opportunities around customer retention and adoption in the early stages of their life cycle with us. So one of the ways that you'll see the monetization is that we will be really tracking and hold ourselves accountable to driving better conversion, better retention, if you will, in the first 90 days. But the other thing that you will see us thinking about is the strategic rationale from a pricing perspective. And so the reason I broke these up here is there's obviously customers that matter and then there's obviously the revenue per customer. And on the revenue per customer, we've been, I would say, tactical with some price increases in the last year. But as we roll out these AI capabilities, we're going to really be strategic. And one of the things that we know is that we are going to be inclined to move customers from a per seat basis to really a platform fee to really understanding the capabilities and the value that we're providing them as well as a usage consumption fee, if you will. And so those are, I would say, the kind of direction that we're moving towards. Agents will be grouped into different subscription tiers based on the value that they're creating for our customers. And obviously, we will have some consumption based as we roll these out. So a lot of opportunity coming in the future. And obviously, it's predicated on us getting the agents that actually completely simplify the experience for SMBs, move them from a do-it-yourself approach to the do-it-for-me approach. And we think that's the key thing to the AI strategy.

Very helpful, Rene. And then from a follow-up, Rohini, we modeled this out a couple of times what your operating kind of margin structure will look like in this post-reduction in force environment. And your Rule of 40 is, I think, a great strategy to be achieving here as you get through the year. But where does incremental leverage in the model come from? Because we look at the model ex rewards as well. And we think you'll be exiting this year at an already relatively high rate. There's always some additional room to move those margins up over time. But where does that incremental kind of next step come from now that this phase is kind of in the background?

Yes. Thank you for the question. And the way I think about it, we have done a lot of work in expanding the operating over the last year, I think this was the third year in a row that we doubled our operating margin ex-float. So we want to continue in expanding the margins. We did a lot of work on labor-related OpEx and some on the other OpEx in the last year. Where the additional opportunities will continue to come from is the AI-led productivity. So we are starting out on that journey. We're starting to see some good examples across our risk teams, across CS teams, across engineering teams, but we would expect to see that mature further and drive additional operating leverage. Additionally, we're going to really move our focus on revenue growth. We have now really taken a very focused approach to durable and profitable revenue prioritization, and you will continue to see that happen through the year. And the easiest way to grow margin is to grow revenue, really. So I think driving the right product structure, making sure that the economics behind the product itself are robust, those would be our next moves.

Your next question comes from the line of Chris Quintero with Morgan Stanley.

I wanted to ask about the TPV upside, especially on the AP/AR side in the quarter. Could you maybe just unpack a little bit more of the details around what really surprised you to the upside there, the drivers of that outperformance? We've heard from the airlines talking about some travel inflation. So curious if that was any impact. And I think, Rene, you talked about AI spend on BILL being up 50% year-over-year in Q4. So just curious if you can unpack all those drivers for us.

Yes, absolutely. So as I look at Q4 and the large overperformance on TPV, I would come back to how strong our ACH product is. It's really best-in-class, and we continue to see usage across ACH continuing to increase as our product gets better and better. So that's where we saw majority of the uptick from. Now if you compare that to the verticals where we are seeing upside within our AP/AR platform, we are seeing construction, the manufacturing side, some of these verticals that are very tied to the new AI flywheel that we are seeing in spending. So big ticket items, construction manufacturing type of verticals doing really well, that's impacting the ACH TPV growth as well. Additionally, one very interesting dynamic is now emerging, which is our mid-market customers have some really large ticket size transactions that come on the platform, which they have more ACH. They have generally lower take rates than the rest of our portfolio, but they're extremely valuable customers to us because their ARPU is 3x more than an average customer at BILL. Their TPV is 4x more. So as we continue to grow the mid-market segment of our business, we will see some of this dynamic continue to happen. One thing I would like to highlight is this additional TPV that's flowing through the system is actually giving us good benefit in terms of float over performance. You guys saw in Q4, we beat float by close to $3 million. And this is not due to the rate fluctuations. It's really because of more TPV flowing through the systems. And I think this is just the flywheel of the product that Rene was talking about as well. We have multiple ways to monetize. I hope that helps.

Yes, very helpful. And then I wanted to follow up on subscription revenue. That line item, the growth rate there had been kind of stuck around this mid-single-digit type of range for a few quarters now. And in the past 2 quarters, you've seen it accelerate up to 11% this quarter. So I'm just curious if you can unpack what are some of the drivers there and considerations around that performance?

Yes, absolutely. On the -- specifically subscription ARPU side over the last couple of quarters, we did see a sequential uptick, which broke the trend of flattish trend that we had seen in the past. And that's exciting. It was just showing we are going upmarket a little bit. We were doing some tactical changes with the pricing as well. So that was starting to show up as a combination. What we continue to also see from a subscription ARPU side is larger -- the biggest number of customer adds that we get continue to be from the accounting channel. There's a mix element that plays out there where we continue to add a smaller set of customers at a faster clip. And obviously, the bigger customers are fewer in numbers, although much higher in ARPU. So there is a little bit of that dynamic that will play out into the subscription number. Having said that, what we really focus on is the core ARPU or the total ARPU of the customer we are bringing in. And as we rethink strategically what our pricing models and frameworks are going forward based on usage and capacity usage, et cetera, this will continue to be more important. How many customers are we getting in and how are we monetizing them, which is the ARPU. So the core ARPU actually sequentially grew again 3% versus the last quarter, which continues to be a good trend.

Your next question comes from the line of Will Nance with Goldman Sachs.

I wanted to follow up on some of the commentary on ACH volumes and maybe tie it back to some of the longer-term thoughts on growth that I think you talked about, Rohini, in the prepared remarks. I'm just -- when we think about the longer-term growth rate, I think the guidance this year calls for a relatively flat take rate, I think you said. And you called out some drivers there, ACH volume from larger customers as well as maybe some changes in virtual card acceptance in the near term. So maybe you can help unpack a little bit over the long term, how do you think about monetization and ad valorem mix over time? And is take rate expansion still part of that algorithm over time? Or as you think about pricing and the answer that you just gave, are there other ways to kind of monetize consumption-based pricing beyond explicitly charging for some of the payment volume? Just curious how that thought process has evolved.