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

All right. We are going to start with the next session. Pleased to have Rene Lacerte here. the Founder and CEO of BILL. Rene, you've been here for the last several years and looking forward to the conversation again today.

Yes, likewise, we'll, thank you.

So look, AI is reshaping the way that businesses expect work to get done, and BILL sits at the heart of financial operations for 0.5 million SMBs. You said the shift is from a do-it-yourself to do it with you, to a do-it-for-you mindset and you've rolled out a number of agents within the products to get at that goal. So at a high level, how are you thinking about the role that AI will play in BILL's products going forward? And what does AI native actually mean for the customer experience 12 to 24 months down the line?

Yes. I mean it's -- I think we all know that AI is a game changer. It's a game changer in how you do work and the experiences that we are able to create for our customers. And so as we move customers, which the premise of the company was to go from the do yourself to do it with you into this, what I would call, do it for me because I think AI is a very personal experience. that for me means that we have to take work off the customer's plate that they never knew could be taken off their plate. And we've started doing this with some of the agents that we've already rolled out. And some of the best examples I can think of are W&I agent where we have 40,000 customers leveraging that over 240,000 W&Is have just been collected and those suppliers have been added and they'll be in a position to be 1099 next year as well as obviously get paid electronically. So that happens without any human really being involved, and that's a unique differentiator and the work that we've taken off their plate. So when I think about what's happening over the next 12 to 18 months, it's more stuff like that. It's more stuff like the fact that we have 100 customers now using our invoice coding agent. And when you think about the invoice coding agent, we've had AI before understand and interpret kind of the 5 biggest variables in any invoice, but this coding agent can go through all the line items and actually categorize the bills for. And so again, tremendous work efficiency is provided. We have over 30,000 touchless transaction agent customers. So this is on more SME side. So a huge population where transactions come in, and they're entered automatically. We have 30,000 pay for you agents, where this is on our operational side where we actually take customers' payments, and we make sure that they're paid via a virtual card or the supplier accepts that. We have an agent doing that, not a human doing that. And so I give you all of those examples because there's just tremendous value in that customer experience. But it's not just about that. And so again, when you look out at the 12-months that you're asking, it's also about what we're able to do internally. And so we've had a very strong drive in profitability, but there are some of the things that are probably worth highlighting. We've got over 20 agents across our risk modeling and risk platform, if you will, those agents are able to do roughly touch 95% of all the risk decisions, fully automating them. And those agents are able to protect and save us from close to $90 million in fraud on an annual basis. That's real value to our business, and we have more opportunity to leverage those agents -- those agents and more as we continue to develop more AI skills. Just on the customer service. A year ago, 10% of the customer touch points were automated. Now it's close to 50 -- it's over 50%. And so -- just to give you an example, we're just getting started and what I would imagine, you will see is that more of the back office that we have to do will be automated and more of the experiences like the agents I talked about, will take work off for customers slate. -- work that they don't know that can be automated, it will just automate it. And that's what I'm excited about because that actually lowers and removes friction. And when we remove friction, we actually increase the opportunity to serve customers, drive more adoption as well as more revenue growth.

So you mentioned revenue growth there. That's the vision for the product. How do you think about pricing and monetization for AI-enabled products? And do you see this as something that's table stakes or something that differentiates the product drives more customer acquisition or conversely, do you see kind of specific monetization levers that can come to this?

Yes. So I think all of the above. I mean that's the easy answer. But in general, the way I think about pricing is you create value for the customer, you do something for them, they will pay you for it, right? And so we have to make sure that we are driving and creating value, things they weren't sure they needed before that they can't live without once they come on the platform. So that's the first and foremost thing we do. So when I think about the AI capabilities, some of the AI capabilities will just be in some ways, table stakes, but it will allow us to drive more customers. Some of the AI capabilities will actually be, oh, you want that, that might be in a different tier of the product so that you need to pay more to be able to get access to that. We need to learn based on the customer adoption that we see and the monetization we see from the transaction, what is the right mix. We have teams that are working on that and really setting up the opportunity for us to drive revenue growth not just from the traditional way of saying, okay, well, it's more products and more customers but actually looking at the AI influence on how the pricing happens. So a lot of opportunity there. And I think if you look at the total value of work that's done by people and financial operations, if we're able to eliminate a good piece of that, well, then some of that value should accrue to BILL.

Can you talk about willingness to adopt in this category? We had Market on stage, I know you work with. And they said they think the agenetic commerce conversation, the adoption trend could happen faster in B2B than in consumer because there's such a need and such an undigitized opportunity. What do you hear when you talk to customers about the willingness to engage and adopt some of these products?

I think one of the key levers that Bill has is we have a platform. We've got 0.5 million businesses that are using us. We have close to 10,000 accounts that are leveraging our platform to run their business. And what that means is adoption is not so much -- we have to go sell the adoption. There will be some selling that we have to go do. But a lot of it can be product led growth. And when you have product-led opportunities, AI, which we all know can actually increase the speed from a UI perspective, will allow us to create the experiences that customers want and need and feel that so that the adoption happens. And I can give you a couple of examples, like I was -- last week, we had our accountant partners conference and we had close to 50 accounting firms, and we talked to them about all the products and capabilities we have. And time after time, whether it was the multi-entity and the amount of work that we save like yes, they're adopting as fast as they can. The W9 agent, they're adopting that as fast as they can. -- these things, they're not -- not a question of adoption like, "Oh yes, that's the way we do things now. So I think we do potentially to your comment, have a unique position that customers are already on the platform. they will adopt. Now I think the other thing that I'm excited about and really excited about actually is how do we change the adoption for new customers -- and I think the onboarding capabilities that AI will actually obviously improve that removal of friction will allow us to be able to do a better job getting the right customer at the right price point at the right time.

Yes. Makes sense. All right. So let's talk about the financial algorithm of the company. Randy laid out a framework of low double-digit to mid-teens core revenue growth. with strong margins. Can you walk through the inputs to that range? And then what has to go right to land consistently at the upper end of that range versus the lower end?

Yes. I mean, obviously, revenue comes down to 2 things, the number of customers and the revenue per customer on the number of customers as we continue to develop AI capabilities as well as focus the customer go-to-market teams on the larger customers like that will kind of drive opportunity there, we believe. On the ARPU expansion, if we could just talk about the multiproduct adoption that we've had. And just as a data point, in the last year, we had a 35% increase in customers that we're adopting using both products and the net revenue retention across those customers was -- which was a good chunk higher than what we see in the people that are not adopting both products. And so when we look out to how do we get to that mid-teens number that -- talked about, it's like just knowing that we have very strong levers in both camps. And you look at our payment products, we have 12 different payment modalities, there's so much more opportunity for us to continue to sell into the customer, whether it's supplier or the buyer, but there's an opportunity for us to drive more adoption of those products. We do not think we're saturated in any of those payment products at this point. And so I think part of this is us continuing to enhance the adoption and onboarding part of us is continue to do multiproduct. And part of this is making the product like growth throughout the supplier and buyer network we have kind of just happened.

Right. And so that's the revenue side. On the margin side, in the context of aiming to be a Rule of 40 company, you exited the year at 23% non-GAAP operating margins after a really significant reset in costs. you're guiding to further expansion in '27, meaningful GAAP profitability. How are you thinking about what will drive operating leverage in the model from here?

Yes. I think one of the things I hope investors take away is that we have been consistently driving profitability. So I think over the last 3 years, we've essentially doubled our operating margin each year, if not better. And I think in '27, we've given guidance for another 590 basis of increase. And so I think one of the things that's important about whether it's rule 40 or whatever, it's like the consistency of delivering results and driving efficiency across the scale of the business that we have. So that's the first thing I would say. I think our opportunity to drive the GAAP profitability is something that we're excited about because obviously, it's taken us a long time to get there, but we know that there's meaningful profitability. I think we're targeting somewhere over $125 million. And if you look at our SBC impact, we've been driving that down again over the last few years, it will be somewhere around 10% for FY '27. And so when we look at the margin in the Rule 40, it's like us getting comfortable that, yes, we can manage and control costs as well as drive the revenue. That's something that we think we've demonstrated the last 2 years of us had growth of 15% to 16%. So we feel very good about the opportunity for us to continue our march on the Rule 40.

And then just while on the topic of margins, really significant restructuring in the business. Last year, restructured several leadership goals. You called out a little bit of disruption and then go to market in the fourth quarter. if you were to look back, what's the postmortem on that restructuring? And how has the organization and culture settled into kind of the new normal company?

I think one of the hardest things to do as a restructuring, right? Any layoff is a heart of any firing is a hard thing to do. And I think one of the things when you ask me if I look back, we've been consistent and our ability to do the restructurings with care and with speed. So if you think about this a year ago, we would have had close to 2,500 employees, and now we're around 1,500. So that's close to 40% in 1 year. And -- and we did it in a way that was consistent with our culture that was consistent with the opportunities in front of us. And that's actually creating energy for the team today. So when I look to how the team has responded and is engaged and the excitement and the positive alignment that we have across the company like that -- when I look back, I think we did an excellent job at that. Super hard. Part of it was super hard because we were working on it for 6 months and can tell anybody about it, right? That's just a hard thing to do that much work. But we did it quickly, and we've actually made that transition. There was a little bit of turbulence. I think one of the things I have talked about that when you -- if you haven't done this before, like this type of work is like changing the end of the plan while you're flying at 40,000 feet. Like it's just not easy to do, and you have to be very thoughtful about, you have to be intentional and you have to do with care, if you want to have the culture to be positive on the other side. And the culture is very strong and positive right now. So that's something I'm proud of the people that contributed to BILL, and I wish them well that aren't with us. But I think doing it the way we did is creating dividends for us in the execution. We created a flatter, leaner organization. which was the reason we went as big as we did is that we felt that AI required that, that you could not move fast without having fewer levels in the organization that you had to have teams that have more responsibility, had more authority, more autonomy to execute. And I mean you're not done, but this was a specific decision to drive the energy and the management of the company around more ownership. One of the things I talk about is a founder owner -- I don't like the founder mindset as much as like a founder owner. I think most of all businesses don't think of themselves as founders, they're an owner, my parents, my grandparents, that's the way they had about their business. They weren't like on the founders I own the business. And so I want every employee to feel like they're an owner, then the own results that they own the speed at which we execute that they own the experience that we give our customers. That is a different mindset than what we probably had a year ago, but everything that we did in the restructuring was around that. So it was consistent and the energy is in a very strong place at this point.

Restructuring also came with some leadership changes. You brought in Jonathan Leaf as Chief Revenue Officer with ownership, as you just talked about, of the entire go-to-market and revenue operation. Can you talk about why make that decision? And what was the case for having one person fully accountable for revenue?

Yes. I think the platform is a big platform, and there's lots of different levers to pull and creating an alignment so that the person who's responsible for revenue has the ability to influence and own the number that they're signing up for was super important. So we had a hybrid model before, and we thought that wasn't working for us. It gave us some expertise but it wasn't creating the ownership of that. This is the number, let's go make it happen. And so Jonathan came to BILL, and I was super excited about it because he has really deep SMB expertise. We've been doing this for over 25 years. So he has a lot of pattern recognition around sales and go-to-market processes that we need. And he has very clear thought and accountability motivation inside of his personality. So that's why we brought them the expertise that I've already seen is allowing him to challenge the team in a more meaningful way. It's allowing them to make faster decisions, which is great, like we're just beginning days, but I can see him leaning and making decisions at a pace that I'm super excited about when I extrapolate out a couple of quarters, and he's creating alignment across other members of the team. So while he owns the revenue number, he doesn't own the product. That's our Chief Product Officer. He doesn't own the engineering. And yet if a customer says, "Hey, like I need this in order to be able to sign on, he has to go influence that." And he's able to do that early days, and the teams are working to get together in ways that I haven't seen that give me energy and excitement. So his focus areas will be leveraging all of that, that I just talked about on acquisition model. We have a very strong funnel. We have a lot of customers that fall out of that funnel. Let's make sure that we get all those customers that we can, let's drive conversion improvements there. Some of that will be sales, some of them will be product. Let's make sure we get the right customers. Let's focus on the efforts being on the larger customers that drive more revenue and more profit for us. He's going to also focus on NPA across the organization because we've had some success, which we've talked about. And that's a clear focus area is and something he has done before. And the third thing is just driving and an operating discipline that comes from 25-plus years of managing sales teams, whether that's how we develop the quotas, whether that's how we train and manage the teams. These are just all things that he's done over and over and over again, and the impact in the energy. And one of the things that -- and I don't know if this is how others in the room manage, but one of the most telling things for me as a manager is when unsolicited I get feedback on something whether it's good or bad. And I can tell you the team unsolicited is just like, "Oh, my god, Johnathan, is just amazing for us." So I'm super excited about it, big opportunity in front to have that all be under one ownership.

Right. Let's talk about the go-to-market on the sales side. You talked on the most recent quarter about a unified go-to-market across SME and accounts payable. Bill attempted to do this in the immediate aftermath of the Divi acquisition. And I think it proved harder than expected the first go around. So can you talk about what's different today versus when that occurred? Is it the product integration, the org structure how do you derisk that transition and ensure steel outcome?

Yes. I mean maybe the first thing I'll say is when we made a decision to acquire Divi was because we saw spending expense happening on our platform. with Divi and other competitors out there. And so we knew there was market demand. So that's why we did it. And we always believe that having a platform that is end-to-end is a requirement in order to be able to go get the larger market. And we've done, I think, a very strong job of actually defining what and then SMB payments platform looks like. Like we obviously, the 12 payment modalities we talked about having AP/AR, S&E, all the workflow. These are things that we think are super important. I think what we didn't necessarily fully understand was how to integrate that fully into something that already had hundreds of thousands of customers on it and do it in a way that was consistent. So what happened in the last year, the last piece, so to speak, not that there isn't more integration, but the last piece from a user experience perspective was we unified the UI, and it's a modern UI. And the teams, when they work on UI now, it's one platform across the experience, which is super helpful from a speed, if you will, execution. And that has allowed our sales teams to go to market teams when they talk to customers and say, it's in one place here. And that just happened actually this calendar year. We weren't able to do that. And we started seeing pickup in the ability for the AP team to be able to sell SME. And that gave us confidence that's the 35% year-over-year growth. That gave us confidence to start looking at the S&E team, can you sell AP and they can. Early days, and that has given us confidence that we're ready for there to be 1 go-to-market experience. It is a hell of a lot easier to train a team of people that these are all the products you can sell. And when you do your discovery with the customer, through out which are the right ones for them then to train different teams, different things. And I think it just took us getting to that 1 user experience that it became self obvious, if you will, for the customer and for the sales teams and the go-to-market teams to be able to do that. So very excited about it. And it's -- like I said, we get very high net revenue retention when we get customers to do both.