BTRS Holdings Inc.

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to Build Trust's fourth quarter 2020 earnings conference call. At this time, all lines have been placed on mute to prevent any background noise. Following the speaker's remarks, we will open the lines for your questions. As a reminder, this conference call is being recorded. I'd now like to turn the call over to Dara Dirks, Managing Director of ICR, to begin the presentation. Thank you.

Thank you. Before we begin, I'd like to remind you that today's call may contain forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including those set forth in our filings with the SEC and available in the investor relations section of our website. Actual results may differ materially from any forward-looking statements we make today. These four looking statements speak only as of today and the company does not assume any obligation or intend to update them except as required by law. In addition, today's call may include non-GAAP measures. These measures should be considered as a supplement to and not a substitute for GAAP financial measures. Reconciliation to the nearest gap measure can be found in today's earnings press release, which is available on the company's website. Hosting today's call are Flint Lane, Biltrust founder and chief executive officer, and Mark Schiffke, Biltrust chief financial officer. With that, I'd like to turn the call over to Flint to begin.

Thanks, Dara, and thank you, everyone, for joining the call today. Since this is our first earnings call as a public company, I'd like to begin with a brief overview of Biltrust and the market opportunity. i'll then share some financial highlights and updates on our growth initiatives mark will then discuss our fourth quarter results in detail, as well as our outlook before we take your questions. bill trust was started over 19 years ago with a simple premise, the world was going through a massive shift from analog to digital this was going to affect corporate American ways that people were just beginning to imagine. Our big bet was that the accounts receivable department was ripe for transformation, because there were so many manual and paper processes. This is kind of obvious in retrospect. The internet was ushering in a whole new world for accounts receivable department once they realized they could get paid faster and do things more efficiently if they could switch their customers from receiving paper invoices and sending paper checks to a digital interaction. One obvious path to solving this problem was to offer businesses a branded online billing portal where their customers could review, approve, and pay bills online. While this is a key part of the strategy, it alone doesn't solve the problem. Delivering a great e-billing experience is important, but what is far more important is to get end customers to actually use it. In order to do this, a more complete solution was required where we could meaningfully impact the rate of conversion from print to digital. A similar shift occurred in the payroll industry with the advent of direct deposit. The most successful payroll companies didn't offer just direct deposit. They offered check printing, compliance, 401K, and a host of other capabilities that were payroll related. We've done the same in the accounts receivable space, which is also called order to cash. We offer customers an end-to-end solution that includes credit decisioning, e-commerce, invoicing, payments, cash application, and collections. Equally important is we have teams focused on helping our customers to drive the business results that they desire from our solutions. Our total addressable market is enormous. Our software opportunity stacks up against 280 billion global invoices. Our payment opportunity against $120 trillion in global commercial payments. The existing B2B payments ecosystem is highly inefficient. However, there are incredibly strong industry tailwinds as this market continues to move towards electronic payments. a shift which has been accelerated by the pandemic. Given this, we believe the total addressable market will continue to grow, and we're well positioned to own a disproportionate share. Many of you are likely familiar with the accounts payable side, or AP. Accounts receivable, or AR, tends to be more complex. While the goal of AR is to get paid, there are many steps that have to occur before that, starting with establishing credit. Businesses sell to other businesses based on the promise to pay. Each customer first goes through a credit decisioning process, which often involves filling out a form and collecting things like bank statements that are often faxed back to our customer. Once credit is established, which can take weeks, the customer can start placing orders. Those orders are processed and then it's time for invoicing. In many cases, that still means sending a paper bill or faxing it, emailing it, or entering it into an online AP portal. and that's just to get the invoice out, let alone actually getting it paid. Payments can be made in a variety of different ways, including check, wire, ACH, and credit card. More challenging than accepting the various form of payments is properly applying those payments and the associated remittance information to an ERP like SAP or Oracle. Electronic payments in B2B are often extremely difficult and time-consuming to process. When B2B customers get paid, it is critical that they know which invoices are getting paid where they can't clear the customer's account correctly. The problem with electronic payments in B2B is that the remittance data, literally which invoices that are being paid, come separately from the payment, most often via email. If I'm running a large AR department, I'm paying people to sift through thousands of emails that come in each month and matching them to bank account deposits. This is a big reason why so many B2B payments are still on paper check. Electronic payments as they exist today aren't that great. Finally, there is the collections process for invoices that aren't paid on time. This is typically a labor-intensive exercise where customers print out an aging report and work their way down through the list, starting with the highest balances or the most past due. The bottom line is there are many opportunities to drive efficiencies and accelerate payments along the entire order-to-cash process, and BuildTrust is leading the digital transformation to make it easier for businesses to get paid. Our mission-critical SaaS solutions integrate with a number of ecosystem players, including financial institutions, ERPs, and AP software platforms to help our customers accelerate cash flow and generate sales more quickly and efficiently. Our customer sales team go into accounts to diagnose problems, and they spend time learning about the existing processes and figuring out the cause of the pain points before offering a solution. Oftentimes, customers will think they have one problem, and it turns out to be something else. For example, they think they have a collections issue, but it's actually an invoicing and payments problem. Our goal isn't to go into an account and land all of our solutions immediately. Rather, we land and expand, and we do so by delivering great results. Our customers are extremely happy with us and loyal, as evidenced by our 110% net dollar retention in our software and payment segment and very strong net promoter scores. We have customers of varying sizes across a variety of industries, but the common thread is they are all high-volume billers with highly diverse buyer sets, meaning their buyers require them to invoice and collect payment in many different ways. Their needs are complex and our offerings streamline their entire process. We see incredible opportunity ahead to continue to grow our core SaaS offerings aggressively. However, there is another part of our business that is growing even faster, and that's the Business Payments Network, or BPN. B2B payments are fundamentally broken in the U.S. with a significant percentage of payments still on paper check. There are many reasons for this. One of the biggest is that there is no easy way for a business who wants to make an electronic payment to find out how to pay another business electronically. There's no central repository of banking credentials and email addresses. So what they resort to is calling up their vendors to find out the required information, bank account number, routing number, and email addresses, for instance. That's wildly inefficient. A better process is to hire an accounts payable partner who does this regularly as part of their business model. But these AP partners are effectively doing the same thing, and the messy process has just pushed to their business model. That's not the way it works in person-to-person payments. If you want to pay your friend electronically, you can simply pay them through a service like Venmo. You don't call them up and ask, who they bank with, Venmo is both a directory of people who can be paid and also a money movement tool. We created BPN in 2017 as a new framework for B2B payments. The simplest way to describe it is that it is like Venmo, but for B2B payments. It is a directory of suppliers that can be paid and how they want to be paid, as well as a money movement tool. BPN facilitates the flow of payments and remittance information from accounts payable to accounts receivable. BPN is an open network that leverages our underlying AR platform and connects the financial service ecosystem across AP providers, payment card issuers, ERPs, and banks, bringing together suppliers and buyers. We've partnered with Visa as well as many leading banks and software vendors because we recognize that the enormity and importance of this problem requires a comprehensive solution. As our customers and their end customers connect on BPN, we've seen strong network effects driving further growth and adoption. For large businesses transacting with suppliers, including the large AP providers paying on behalf of smaller organizations, we believe BPM will play a central role in the future of B2B payments. Now on to some financial highlights. We finished the year strong and exceeded our net revenue and gross margin goals. We shared with investors back in September during our SPAC process that our 2020 net revenue target was $105 million. We beat that quite comfortably and finished the year at $108.6 million. Because of this and the recurring nature of our business, we will be revising our guidance slightly upwards, and Mark will share those specifics later. On the adjusted gross margin front, we had originally targeted finishing the year at 69%, and again, because of the strong fourth quarter performance, closed the year at 70.3%. We get revenue from a variety of sources that we break out into software and payments, print, and services. Two of the components of software and payments continue to perform well. Subscription revenue grew at 32% year-over-year, and card volume processed through our payment facilitation business, or what's commonly called PFAC, now represents a little less than 30% of our overall card volume. On the business front, we executed well against many of the proof points we articulated during the de-SPAC process. We discussed last fall that our intent is to be more aggressive with sales and marketing. Since September 1st, we've hired 14 quota-carrying sales reps and increased this team's size by nearly 30%. There is a ramp-up time before salespeople start closing deals and generating revenue, but our pipeline is developing as we expected, and we are cautiously optimistic about the benefits to come. We will continue to be aggressive here. We've also made two key executive hires. Greg Hansen joined in December as our chief product officer, and now oversees all of our product initiatives across the entire company. He most recently was SVP of product at Precision Lender, which was acquired by Q2 Software. Gwen Lazar joined Biltrust in December as our SAP of channel development. She manages our growing ecosystem of partnerships, including banks, car brands, system integrators, and ERPs. Gwen most recently was VP of global alliances at Skillsoft. We also made a lot of progress on the product front. The Biltrust email solution, which delivers millions of invoices per year on behalf of our customers, was enhanced last year to include a convenient and secure payment option. We've now turned this on for a small group of customers and are seeing nice payment uptake initiatives like this align with one of bill trust strategic imperatives that we call payments everywhere. The bill trust cash application solution or cash APP also got some major upgrades we launched enhanced machine learning capabilities which have led to substantially higher automation rates and therefore less touches by customers. cash APP also includes a mobile deposit APP that is targeted at field personnel will often have to collect payments in the field, which is capturing additional payment revenue. The Bill Trust e-commerce solution, also known as Second Phase, recently released version 10.0 of this platform, which includes user experience enhancements, a single-page checkout module, and certifications from some of the leading tax processing companies, which makes it even easier for our customers to process online orders. On the BPN front, we have a lot to share. We finished 2020 with year-over-year payment volume growth of 137%, reaching nearly $4 billion in spend. This was composed almost exclusively of commercial credit card spent. We now have five of the top 10 commercial card issuing banks on BPN and expect that to further fuel payments growth through the network. Since announcing BPN 3.0 in August 2020, which includes support for ACH and wire payments, that volume has grown nicely and it accounted for more than 10% of the BPN payment volume for the first two months of 2021. BPN partnerships, which are critical to the network's expansion, also continue to increase. BillTrust now has an expanded partnership with Avid Exchange to provide additional services to suppliers through both the Avid Pay Network and BPN. We've also partnered with Repay, an integrated payment processing solutions provider, to enable them to access our BPN directory of suppliers, increasing the network's reach. Lastly, we extended our partnership with Visa to provide qualified BillTrust suppliers with flexible pricing models. We will use this capability to grow TPV within our PayFac and BPN offerings across markets that have historically lagged in the acceptance of commercial credit cards. Before I end my comments, I'd like to say just a few words on how proud I am of how BillTrust has been navigating this pandemic, which has been so awful for so many people and businesses. A little over a year ago, BillTrust shifted to working from home when it became clear we couldn't safely have people in the office. We implemented temporary pay cuts when we weren't clear on how badly the pandemic would affect our business. We instituted a hiring freeze and clamped down on expenses. A year later, we are doing our first public company earnings call. This is a testament to the resiliency of the build trust culture and our nearly 600 employees who live our values every day. The digital transformation of accounts receivable was already happening. It is now accelerated and we are positioned well to capitalize and drive this transformation with our solutions, people, and maniacal focus on driving outcomes for our customers. I'll now turn the call over to Mark to review our fourth quarter results in detail, as well as our financial outlook.

Thanks Flint. And good afternoon, everyone. Thank you so much for joining our call today. Before we get into our fourth quarter results, I'd like to provide some further clarity around our business model. GoTrust focuses on maximizing the lifetime value of a customer relationship by providing measurable efficiencies along the entire order-to-cash process. We generate revenue from a combination of subscription, transactions, payments, print, and services. Subscription fees are recognized gradually as our obligations are delivered over the subscription term with the ability for customers to move to higher subscription tiers as they derive more value to more electronic payments and accounts under management. Transaction fees are recognized for the processing of electronic invoices delivered, stored, or printed. Payments are based on a percentage of dollar volume processed or per item processing. Print revenue is based on the number of invoices and envelopes mailed for customers, and service revenue is derived from contracted fees associated with the implementation of new customers on the platform, as well as consulting services provided to customers on a time and materials basis. Turning now to our results for the three-month period ended December 31, 2020. As Flint mentioned, we are pleased with our fourth quarter results. Net revenue is which is defined as total revenues less reimbursable cost revenue, primarily amounts charged to customers for postage, was $29.6 million in the quarter, an increase of 12% year-over-year. While this growth rate exceeded the projections we shared during the D-SPAC process, it nevertheless under-represents the great quarter we had and is attributable to the tough comp arising from a one-time sale of a perpetual software license during Q4 2019. More representative of our strong performance in the quarter is the growth of our software and payment segment, which grew 17.8%, worth $3.3 million year-over-year, to $22.1 million, driven in part by year-over-year Q4 growth in card TPV of 43%. Print results were in line, declining 7.8% year-over-year, and also weighing on the strong growth otherwise in the business. And services grew 8.5% over the year-ago period from $2.8 million to $3.0 million. Adjusted gross profit, which is defined as gross profit, excluding depreciation and amortization, as well as stock-based compensation expense included in total cost of revenues, was $21.3 million, or 71.8% of total revenue and compares to $18.1 million or 68.4% of total revenue in the fourth quarter of 2019. This 343 basis point increase was driven primarily by a combination of mixed shift in segment revenue towards higher gross margin software and payments, as well as the benefit of improved realization for professional services. Turning now to our OpEx in Q4, R&D expenses were $9.2 million as compared to $9.3 million in the prior year period, which is a year-over-year decrease of over 400 basis points as a percentage of net revenue from 35% in the prior year period. This decrease was due primarily to a shift in focus to increasing budget for sales and marketing. Sales and marketing expenses were $6.1 million, up approximately 19%, from $5.2 million in the fourth quarter last year. As a percentage of net revenue, sales and marketing expenses were 21% as compared to approximately 20% in the prior year period. The increase reflects the initial steps the company is taking to increase its sales and marketing budget to a larger percentage of overall revenue. General and administrative expenses were $7 million, or 23.5% of net revenue, an increase of 1.4%, from $6.9 million in the year-ago period, or 26% of net revenue. Adjusted EBITDA was $200,000 in the quarter compared to a loss of $1.5 million in the prior year period, representing a year-over-year increase of 114% from the prior year period. We ended the quarter with $14.6 million in cash and equivalents on our balance sheet and $44.7 million of debt, which was subsequently retired on January 12, 2021, in connection with our merger with SMMC and are becoming a publicly traded company. Turning now to our full-year outlook. During the DSPAC process, we gave single-point guidance, but going forward, we will be providing annual ranges on a few key financial metrics. With that said, for the fiscal year ending December 31, 2021, we expect the following. Net revenue in a range of $122 million to $128 million, which at the midpoint of $125 million, would represent 15% year-over-year growth. Software and payment segment revenue is expected to grow approximately 21% year-over-year, in line with our statements during the D-SPAC process, and continue to represent an increasing share of our total net revenues. We also expect adjusted gross profit for the year to be in the range of $85 million to $89 million, or $87 million at the midpoint, an increase of 14%. And an adjusted gross margin of 69% to 71%, or 70% at the midpoint, which would be relatively flat to the year-ago period, as adjusted gross margin in 2020 benefited from one-time cost-cutting measures, creating an unusually tough year-over-year comp. In addition, we expect adjusted EBITDA in the range of negative $14 million to negative $16 million, or negative $15 million at the midpoint. The year-over-year decrease in adjusted EBITDA as compared to the year-ago period is driven primarily by the combination of a reversal of one-time COVID-related cost saves, such as reduced salaries and discretionary sales and marketing spend for a partial year, single-digit growth in cost structure off that new base, and an increase in cost in excess of $7 million attributable to becoming a public company, with approximately one-half of those costs attributable to D&O insurance. In terms of the expected cadence for recognizing revenue, there is no discernible seasonality to the business, and ordinarily, revenue grows quarter over quarter as well as year over year. While revenue growth is projected to accelerate this year over last, the quarterly cadence is likely to be different than is normally the case for two reasons. First, as contemplated in our forecast during the D-SPAC process, we have a B2C customer terminating our services in the first quarter and compressing into Q1 what otherwise would have been revenue evenly distributed throughout the year. This acceleration into Q1 will cause Q1's revenue to be a greater percentage of full-year revenue than is normally the case and for Q1's growth year-over-year to be larger than normal. In addition, given COVID's impact on the timing of bookings and implementations, we had relatively stronger subscription revenue growth back in first half of 2020, causing relatively lower year-over-year growth in the back half of this year and leaving the misimpression that software and payments growth is moderating in 2H. whereas we continue to expect it to accelerate into next year. With that said, we would expect generally that the cadence of revenue recognized throughout the year will be distributed roughly 24% to 26% to each quarter, rather than increasing quarter over quarter throughout the year. We continue to be incredibly excited about the opportunity ahead. We have an enormous SAS and payment opportunity in front of us, And we're in the very early stages of monetizing the shift to electronic payments with the growing TPV on our platform. Our comprehensive SaaS and integrated payment solutions are making us a sustainable leader with strong top line growth and high margins. We're now happy to answer your questions. Operator?

Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handsets before pressing the star keys. One moment, please, while we poll for questions. And our first question is from Andrew Schmidt with Citigroup. Please proceed.

Hey, Flint, Mark. Congrats on your first earnings call as a public company here.

Thanks, Andrew.

Thank you, Andrew. Thanks for taking my question. So I want to start off with a question on the outlook. So just since, you know, it's your first guide as a public company, Mark, I'm wondering if you could kind of characterize, you know, sort of the outlook, your guidance philosophy in terms of how you set it up. I'm familiar with the way you guide from a former life. but maybe you could just help everyone else out with the guidance philosophy and then also kind of what are you assuming, what are the biggest variables, things like volumes, new customer ramps, what's the assumption embedded in the outlook in terms of those major items? That would be helpful.

Yeah, happy to answer that, Andrew. So what we're, in terms of our guidance, you know, we're sort of looking at the trends that we saw throughout last year and how we exited 2020. I think you have seen that our 2020 performance exceeded our expectations and we see the trends that gave rise to that rolling into 21. And so we're taking them into account on the recurring revenue aspects of our business. So the software and payments beat in last year is running into this year and we're continuing to maintain a view around the same growth that we were sharing last year, you know, roughly 21% in that area. In terms of, you know, services, we were thrilled with the performance at the end of last year, but as you also saw, it was a full year beat of, it was a full year growth of, you know, 28%. And some of that, and a lot of that actually is consulting related revenue. And, you know, we look at that and, While it is reoccurring, it's not in the same nature as the rest of the business where we have a high degree of confidence to say before even completion of the first quarter of the year that we should assume all of that growth will continue into this year. So I'd say the approach we take is to look at underlying trends, understand how they go forward, and then project what we're reasonably comfortable with in those trends and to the extent that there's more variability than not, hold off on sharing that upside until we have greater confidence in it.

Got it. That's super helpful. And then maybe a question on distribution. I think this is a key part of the story. Maybe, Flynn, could you talk about kind of your approach to distribution historically and how you know, your distribution strategy might change over the next year or two in terms of channels. Obviously, a lot of it is putting more emphasis on the direct sales force and putting more money into the sales and marketing organization. But just any thoughts, more detailed thoughts on just distribution strategy going forward and how that might evolve will be helpful.

Yeah, sure. So, you know, as we shared throughout the D-SPAC process, We are going to be very aggressive with direct sales and marketing growth, and as I said in my comments, we've hired about 14 new people in sales to drive our direct sales business. In addition, though, we are focused on growing the channel. That was one of the growth factors we shared that we thought was upside on the growth numbers that we had represented. We hired Gwen Lazar to manage the channel partnerships. We've got lots of activity in the channel, a lot of that from the Business Payments Network, where we partner with many of the leading AP providers who drive payments through BPN, but we also partner with many of the banks who drive payments through BPN. On the other side of BPN, which is the supplier side, not the buyer side, we think there's a tremendous opportunity to offer our digital lockbox solution, the ability to accept payments, either ACH or a card, through that bank channel, one area that we're super excited about. There's system integrator opportunities. There are ERP opportunities. Gwen's been here all of, you know, three months, so we're not ready to announce all those wonderful things quite yet, but we believe there is a big opportunity to expand aggressively into that channel.

That's helpful. And as we think about BPN, you know, last question for me, BPN putting up some pretty impressive growth numbers here. You launched BPN 3.0, ACH, and wire capability. How should we expect BPN to evolve in the future? Part of it is adding more partners, but there's also another aspect in terms of adding additional capabilities. So just some thoughts on the evolution of BPN over time and kind of your vision would be helpful.

Yeah, we're leading the charge on innovation related to B2B payments for sure. BPN 3.0 was the first of its kind where somebody came out with a network that supported both card, ACH, and wire, including the remittance information around B2B. And it's a pretty hard problem to solve. We think we're well positioned to solve it because of our nearly 20 years in accounts receivable. So we have sort of a great pedigree to solving those kinds of problems. We certainly don't think we're done. There are other B2B-related problems that we may fold into BPN in the future. Right now, we've bitten off a pretty big bite already, and I think we can grow BPN for the foreseeable future without any of those innovations, but we're not the kind of organization that stands still either.

Understood. Thanks, Flint. Thanks, Mark. Appreciate it, and congrats again.

Thanks, Andrew. Thanks, Andrew.

And our next question is from Mayank Tandon with Needham & Co.

Thank you. Good evening. Congrats, Flint and Mark, on your first quarter as a public company. Flint, I wanted to start maybe high level. You know, going back to your D-SPAC, you had talked about, I think, a trillion dollar of payment volume as sort of the opportunity, and you're monetizing about $54 billion as of last quarter. Could you help explain what that really means? Is that more of a land and expand opportunity? opportunity within the install base, or is there something else that would help reconcile those numbers?

Yeah, so the trillion dollars that you described is actually the invoice volume that we manage, not the payment volume. So every B2B transaction is really two things. It's an invoice going out and a payment coming back. So those invoices can be delivered in a variety of different ways through one of our systems. As we described, many of the payments are still on paper check. So part of our challenge is to help our customers convert their customers to an electronic payment acceptance, which we do through a variety of different ways. We don't think there's just one way to convince customers to pay electronically. So we launch online billing portals that are branded as our customers. So there are small businesses can look at bills and pay bills online. Some of their customers like to go to bank sites to look at bills and pay bills online. We have now our email solutions powered with payments. And the business payments network is more geared towards large buyers who are using accounts payable networks to drive payments. And that's why you see our payments volume growing much faster than the business because we are able to convert, not only sign new customers, but also convert paper check volume into some kind of digital payment.

Got it. Oh, that makes sense. And then Mark, shifting over to the numbers, I wanted to, again, I'm sorry if I missed this, but did you share the growth across the three buckets of revenue? in terms of your guidance, Brent, how we should expect that to trend over the course of the year, and then, of course, the important software and payments revenue stream, and then services in terms of the guidance build. That would be helpful. Thank you.

Yeah, great question. We shared that qualitatively, not quantitatively. So what we said was just as we – expected during the D-SPAC process, software and payment growth rolling through this year at 21%. We said that our raise of the guide maintains that growth rate. And then what you're going to see is some decline in print and services not growing in the same way it did last year.

Okay. Thank you so much. It's helpful.

Sure.

And our next question is from Joseph Baffi with Canaccord.

Hey, Clint and Mark. Good evening. Thanks for taking the questions and congrats on progress so far here as a public company. I just thought, you know, as we sit here and, you know, the extent you can talk about this group sitting here in the end of March and, you know, I think VPN made some terrific progress in Q4 and, Just wondering what you might be able to share on kind of follow-through momentum here in Q1 so far relative to, you know, some of those, you know, those partners you signed and, you know, what that might beget in terms of creating more of a network effect there and then a quick follow-up after that.

Yeah, so we're – you know, we've announced we're doing pretty – Pretty astronomical growth on BPN year-over-year. I think, Mark, we said 137%. Is that right? Yeah.

Yeah, so we're exiting Q4 at over 140%.

So we're targeting keeping up 100% year-over-year growth rate. It's tough to predict with these network effects, and as partners ramp up their volume, they all come at different paces. But we're pretty comfortable that we think that we can continue to grow BPN by over 100% in the foreseeable future.

Great. And then, you know, perhaps on the customer acquisition front, I think, you know, I think it may be a little early for some metrics on, you know, more traditional staff metrics, but perhaps you could share some thoughts on, you know, as the network on the VPN side gets bigger and more expansive, What's the strategy there perhaps on ramping that spend and bringing that network effect, even making it a little bit bigger relative to what you're seeing in the opportunity? Thanks a lot.

We have several different solutions that we can offer to accounts receivable departments, whether it's credit decisioning, collections, invoicing, payments, cash app, Our e-commerce solution, BPN is another solution that we can offer and it's often a great starting point. In fact, many of our new opportunities that we're landing, they're buying what we call our BPN 3.0 digital lockbox. If you think about what a paper check lockbox was, people would outsource the receipt of their checks to their bank because they got so many paper checks, banks could do it more efficiently. With more and more payments going to electronic, customers need a similar solution to solve their electronic payment problems because electronic payments are really difficult for them to balance. So our digital lockbox solution is selling really well. We talked about how we think there's a big channel opportunity there. So that is yet another tool in our toolbox for our land and expand strategy.

All right, great. Thanks very much, guys.

And our next question is from Bob Napoli with William Blair. Please proceed. Thank you.

Good afternoon, and congratulations, Flint and Mark. Good to talk to you guys. So, Flint, what is the right growth rate for this business long term, and what are the biggest drivers to that growth? I mean, I know what you're looking at in margins, and I appreciate the revenue guidance, but what do you think the right revenue growth rate is for this business? And again, the most important drivers organically.

So good question. The TAM is obviously quite enormous and can support large growth rates for the foreseeable future. So how could we grow faster, I think, is the question inside that question. And there are lots of different things that we are doing to increase that growth rate, which are going well. One is rolling out the business payments network, which certainly helps the growth rate. Two is monetizing payments more effectively, which we're doing by moving our traditional card gateway business onto our payfac. Three is being more aggressive with sales and marketing, and we're at the very early stages of that. Part of the reason of going public was to raise the capital so that we could be more aggressive there, and we're certainly doing that now. Fourth is expanding through the channel so that we are not doing all of the selling of our solutions. And then I would say fifth is just sort of the tailwinds of the digital transformation. More and more businesses want to do things electronically, And that is a benefit to us. And as that continues to accelerate, the post office continues to deliver, you know, sort of slow down the mail. More and more customers are going to be looking for digital solutions and migrating their customers from predominantly print to electronic.

Thank you. And then in the fourth quarter, the software and payments revenue, how much of that is software and payments and what were the relative growth rates of each?

That's a great question, Bob. And we are really not able to break out the difference between software and payments because it's clear that what is card payment is card payment. It's all transactional, and we're generating, you know, bits on volume or fees associated with card processing. But in the case of our ACH payments, that's really part of our software process. platform. And we're generating software subscription fees with respect to that. We're also generating subscription fees with respect to customers on VPN who we're able to deliver level two, level three discounts to. So we really can't break out in a fair way what's associated with one versus the other. In terms of growth rates, I think what we said during the fall is, and it's still true now, our payments is the smaller piece of software and payments, our card payments is a smaller piece of growing at a much faster rate. And you get a sense of that by looking at the card growth as a percentage of total TPV, and then also the growth of VPN, which is, you know, at this point, all or substantially all card. So I think that's sort of the best guidance we can give you around those right now. As we've said before, we're seeing over 80% growth margins on both our software and our payment lines of that segment. And so right now, our goal is to grow them both as fast as we can through higher volumes and new customer acquisition.

Thank you. And how should we think about the revenue and the long-term revenue and profit model of the BPN?

Well, we haven't broken out, you know, BPN, P&L as separate and apart from where it fits in the overall segment of software and payments. But I think if you're going to see, the only thing you're going to see on BPN is software and payments. then we would expect over the long term it would continue to have the high 80% plus gross margin.

Right. Can you give us any color on the revenue that the BPM is generating, maybe?

We don't break out revenue by single product, as Flint laid out before. It's one of many products we bring to customers. So it's a fair question, Bob. I understand the ask, but we're just not getting down to that level of detail.

Okay, and this last question, when you have a stronger balance sheet coming now as a public company, any thoughts on the importance of M&A and if you will be active in M&A in 2021?

So we can't provide any color about any deals that are in progress for obvious reasons. None of our forecasts that we've shared include any M&A. But we are an acquisitive company. We've done eight acquisitions. And in the past, we've raised capital privately to do those acquisitions. As a public company, we believe we can be more acquisitive. So we certainly have people working on that.

Great. Thank you.

And our next question is from Josh Beck with KeyBank. Please proceed.

Thank you for taking the question. I wanted to start maybe with a higher level one for Flint. So a lot of the investor questions that I've received on this space is really the distinction maybe with some of the AP platforms as well as maybe some of the ERP systems. And I think maybe to someone who's new to this space saying, you know, I don't really understand why it makes sense to have an independent say, AR company and maybe why it doesn't make sense just to have it blended with one of those other elements of the value chain. So maybe, and you obviously touched on this earlier, but just help us really understand what is driving the moat and complexity and what would really make it challenging maybe for some of these other segments that seem adjacent to get into the AR space.

Yeah, so if you think about AR and AP, the constituents you deal with from an AR department perspective and AP perspective are wildly different. So the accounts payable department is dealing with vendors that you buy things from, and generally you can ask them to do things that they don't want because you are threatening to do business with somebody else, perhaps. When you're dealing with accounts receivable, you're dealing with the customer relationship, which is nothing more important than that customer relationship, and often it is hundreds of thousands of customers versus five to 10,000 vendors at scale. So there's a volume difference and there's also a relationship difference in terms of changing behaviors there. Further complicating is on the accounts payable side, we've seen over the last five to 10 years this big move to moving spend onto credit card or virtual card, and that has been a bit of a gold rush that has driven a lot of activity in the accounts payable space That's why there's so many companies out there doing that, because they can monetize AP spend by moving it onto card. And that's attracted a lot of venture capital and a lot of businesses. Accounts receivable is on the other end of that AP. So when the accounts payable departments and the accounts payable software vendors ask AR to do things, that creates even further complication for AR. This started with Ariba back in the day when they would ask AR departments to type invoices into an Ariba portal to make things more convenient for AP. Great for AP, not so good for the accounts receivable department. Similar dynamic with virtual card payments and ACH payments. Good for AP, not necessarily good for AR. Winds up being great for Bill Trust because those pain points drive the need for our kinds of solutions. So we've looked at offering AP to our customers and the HP department, the AR department both report into the CFO. So we could have those conversations. However, we think it's far more valuable to partner with all the leading AP software vendors out there because every invoice we send out to a large buyer often goes into one of their platforms. Every payment that they send back out comes into one of our customers that we want to automate. So we like being neutral in that AR, AP battle. We've got enough to solve on AR, and I think it would be a little arrogant to think we could be the best at AP as well. So we're going to stick to our knitting and focus on AR. There are other areas of AR that we can certainly expand into, but I would not expect us to be expanding into AP anytime soon.

Very helpful context. Thank you for sharing that. I wanted to also ask about the macro environment. A year ago, as you mentioned, incredibly uncertain and obviously it's been challenging in a lot of different ways. As we've gone through the year and we're starting to come up on that one-year anniversary, do you feel like there's been a maybe increased awareness of really needing to digitize the back office and specifically AR? Just curious maybe with your customer conversations or perhaps pipeline activity, Certainly, you're a public company now. I would imagine that helped generate some buzz. Just curious if you're seeing any leading indicators that this market is maybe accelerating in terms of secular adoption.

I can certainly share the sentiment that we're hearing from customers. The pandemic has created a variety of negative impacts on their business. One, you've got people working from home, which is creating complications that people did not anticipate. Many of our customers routinely accepted payments over the phone, but you're not able to outfit your employees with card terminals at their home offices and expect them to answer the phone and take payments over the phone from home. So that has driven more e-billing and e-payment solutions for us. Two, you've seen the sort of post office, and they're in the news just today, about slowing down mail again so that they can turn to profitability. Anytime they talk about slowing down mail, that drives additional conversations, right? Because many of our customers or many of the prospects out there are still mailing lots of invoices. And the longer they take, the longer it takes to get paid. And that affects their day sales outstanding or DSO. So that drives lots of conversation. And then it just feeds on upon itself. So the more we're able to put up success for our customers. You know, we go in, we roll out an e-billing solution, an e-payment solution. We drive them from print to digital. That's another case study that we can share with their peers in the industry, which drives more business for us. So, yeah, I think this was going to happen at some point. We believe the pandemic has actually accelerated things.

Okay. And then just last question for Mark. I believe that you said the net revenue retention was 110%. which I think was maybe up a little bit from the last update. So maybe just help us understand maybe the waterfall there, and maybe what are some of the major drivers, you know, as you think about that pretty healthy NRR that you've reported?

Yeah, great question. So with software and payments, our net dollar retention is at 110, and I think what's Driving that are a couple of things. Our customers in general are staying, and they are increasing their volumes with us. And we were very pleased with that number, particularly with that coming out of COVID. So in our software and payments segment, we have not just subscription revenue but transactional revenue. So transactional invoicing during a part of the year was down a little bit. And nevertheless, and probably some payments were moderating a little bit during COVID as well, but notwithstanding that, you know, the overall strength of the business and I think the back-end December trends helped firm that number up.

Thanks, Mark. Thanks, Tim.

Thank you. And as a quick reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate your line is indeed in the question queue. One moment please while we poll for further questions. And our next question is from Jeff Cantwell with Guggenheim Securities. Please proceed.

Hey, thanks for taking my questions and congrats on the results. Thanks, Jeff. Can we go back to these past 12 months, really the past six months? I wanted to ask you if you could think about the new customers you've onboarded and how do they compare to maybe that 2019 cohort or 2018 cohort in terms of the products they're demanding from you. Is there anything that stands out about this cycle, this post-pandemic cycle? How is it different? I think what I'm trying to get towards is just as much detail as possible on how much traction you're getting with land and expand. We would usually call it attached rates for these software-type revenue streams. So just would love to get some color on the trends you saw with this year's cohort versus past years. Thanks.

Yeah, that's a good question. So because we continue to grow and because we continue to land new customers, the ability to sell into that base increases. So we call it a customer TAM. So how much opportunity do we have to grow the business just by selling things to existing customers? And as we continue to scale, we scale that team and we continue to do more and more there. So that has progressed. We sell two kinds of solutions, I would roughly call them. Ones that help customers convert to digital and ones that help automate. So if you take something like our cash application solution, when checks are sent into a lockbox or payments are emailed in, our cash application solution will help automate those, therefore reducing labor for our customers. It doesn't necessarily make things digital, but it does automate and save them a bunch of money. Whereas our online billing solution will help customers drive people off of a predominantly paper-based exchange into a complete electronic exchange. I think we've seen more activity around the digital versus the automation. In fact, like that's growing faster than the automation type solutions. Not that we're not selling both, but certainly more of a focus on how do I get paper out of the business and make things digital, which also saves the money, but it isn't just through automation. Does that make sense?

Yeah, that's great. Okay. Okay. That's perfect. And then my next question was, I was hoping you could talk some more about your new partnerships and with Repay and that expanded partnership with Avid Exchange. I'd love to hear more about your strategy there, you know, why those partners are important. And is there any detail you can give us there in terms of size? You know, if you just maybe talk a little more about those partners and help us understand how those are creating new opportunities and how material they might be to you, that would be great. Thanks.

Yeah, so the Business Payments Network is a two-sided network. We need participants on both sides of the network for that to work, like any two-sided network. If you're using PayPal, If you don't have people sending money and receiving money, it's really not of much use. Similar with BPN, we need both suppliers, people to receive payment, and buyers, those people sending payments. Our strategy has not been to go directly after buyers. We go after people who represent buyers, generally AP-type folks. Those could be independent software companies or they could be banks. So we mentioned in the release five of the top ten commercial card issuing banks are now on the Business Payments Network. I believe we added two or three Over the last three or four months, we're not able to disclose their names, but those are scaled banks that will drive activity through BPN. In addition, we added Repay as a new partner so that they can start driving payments for their buyers through the BPN to the suppliers that are already on there. On the Avid Exchange side, I believe the relationship is on the supplier side where they want to offer to some of their supplier customers a more rich supplier experience. So we partner on both sides of the BPN for people to bring both suppliers and buyers into the network because we recognize that this is going to take effort on a lot of participants. We believe the key to B2B payments in the future is interoperability, and we've built BPN as that open network so that we can get both buyers and suppliers at scale through our partnership strategy.

Got it. Got it. Great. And then just to put a little bit of more – meat on the bone, if you will, just in terms of your strategic priorities. Because you referred to everything in your prepared remarks. I just wanted to kind of ask you another one on that. And, you know, it sounds like there's a lot of green field ahead of you, right? So right now, can you just talk some more about how you plan to invest to grow the business from here? And can you name some of the key areas where you see yourselves playing offense? You know, where do you see the most opportunity to grow revenue? If you could just frame that for us, it'd be great to help us understand that. how to think about going forward for you guys and where you're seeing the greatest opportunity. Thanks very much.

Yeah, so I think there are a variety of areas. I wouldn't want to say one's better than the other. Certainly the business payments network, which has been around for a little less than four years, is an enormous opportunity for us, and we expect outsized growth from VPN. But that is certainly not the only area we're focused on. Continuing to drive aggressively organic sales is a major priority for us and also one of the strategic imperatives. I didn't call out in my notes, but we've got a variety of strategic imperatives that drive the things we do each year, and one of them is turbocharged organic growth, and we are certainly focused on that. But M&A is a big focus for us as well. It certainly doesn't affect organic growth, but our goal is to be the globally dominant provider of accounts receivable and B2B payment solutions. That goal is going to be accomplished over many years. But somebody is going to be the ADP of our category, and we expect it to be us. You know, we have great solutions. We have a great team. We're well-funded. The TAM is enormous. But we've got to go get it, right? And part of us proving to the public is we can execute, and that's what we think we did in this last quarter.

Okay, great. Thanks so much for all the color, and congrats again on the results.

And our next question is from Bob Napoli with William Blair.

Thank you for the follow-up. I did want to ask about the Visa Flexible Pricing Initiative. There's a lot of discussion around the penetration rate of cards, the virtual card payments. you know, being in the 5% to 10% range or potentially, but a lot more upside from that with flexible pricing initiatives. So maybe a little more color on that. Is this, you know, a, and we've talked to these, and they've kind of intimated about this, but is this a significant mover that could enable a lot more of the B2B payments to be cardable at lower interchange rates?

Yeah, so we can speak for Bill Trust. We're not going to speak for Visa. So we believe that we are not going to move significant spend onto card with rate structures at 200 to 300 basis points. We believe that there are certain folks who will not take card at those levels, period. But at other levels, they will, right, at 150 or 100 basis points. If you can get them good, clean remittance at a reasonable price, we think we can drive more card spends. That is what the Visa partnership is about related to that announcement that we made. They also believe that there are certain segments of the market that are not card accepting and that they have to be creative with that. So we're working collaboratively with Visa to roll out that plan so that we can drive more spend onto card. Eventually, these checks are going to go away. And I think the card brands recognize they want to participate there and they need to be aggressive or it's all going to wind up on the ACH network or somewhere else. So we are working in concert with Visa to try to make that happen.

Is there a timing on that, Flint, or have you already rolled out? Are you rolling that out over the course of the next year?

Yeah, that's about all we can share about that partnership.

Okay. All right. And then just a question on can you give the number of customers you have and what was the customer retention rate over the past year, and is that consistent?

We haven't provided customer count beyond our initial description of over 1,800 customers. And in large part, it's because the customer count is not what is driving the revenue. If you think about BPN, it's all about volume, not about number of folks on it. And then in terms of customers we retain, I think we're really focused just on the NDR numbers and reflecting that as you know, where we are with our customers.

And then I guess just any change in the customer target, what is the average customer revenue and are you, is there any shift or change in focus or expansion of focus in the size of customer enterprise versus mid-market?

Nothing much has changed there other than the additional focus on the channel. We believe that the average revenue per customer will actually go down through the channel because the reach will expand and it will not be our sales and marketing dollars generally going after that. We actually think that's a good thing. It will expand our ability to go more down market through the channel. But our direct team is continuing to focus on generally businesses that are $50 million in revenue and up.

Thank you. Appreciate it.

Thank you, ladies and gentlemen. We have reached the end of the Q&A session, and I would like to turn the call back over to CEO Clint Lane for closing remarks.

Again, just want to thank everybody for participating in this investor call. This is our first earnings call ever. Glad to have it out of the way, but we look forward to continuing to share updates with you in the future, and thank you for your interest in BuildTrust. Have a great day.