BTRS Holdings Inc.

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to BuildTrust's first quarter 2021 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 would now like to turn the conference over to Dara Dirks to begin.

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 forward-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. Reconciliations to the nearest GAAP measure can be found in today's earnings release, which is available on the company's website. Hosting the call today are Flint Lane, Biltress founder and chief executive officer, and Mark Schiffke, Biltress 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. The digital transformation of accounts receivable and B2B payments continues to accelerate. The events of the last year have permanently changed the landscape of how corporations around the world conduct business. CFOs have a heightened awareness about the need to automate and digitize the order to cash process. Work from home policies are affecting how our customers and their buyers operate. Finance departments are increasingly implementing solutions to take advantage of efficient and cost-effective ways to streamline invoicing, lower DSO, improve customer satisfaction, and reduce cost. Our industry-leading platform offers customers an end-to-end solution spanning the entire order to cash process. including credit decisioning, e-commerce, invoicing, payments, cash application, and collections. These mission-critical solutions are integrated with a number of ecosystem players, including financial institutions, ERPs, and accounts payable software platforms to help our customers accelerate cash flow and more quickly and efficiently generate sales. Equally important to the solutions we provide are the teams we have focused on helping our customers drive the business outcomes they desire from our solutions. For instance, our eSolutions team helps our supplier customers run marketing campaigns to convince their small business customers to switch from paper checks to electronic payments. The switch from analog to digital can be accelerated greatly with our proven best practices. Our business payments network, or BPN, continues to scale, reaping the benefit of strong network effects. Taken together, we're incredibly well positioned to capture more than our fair share of this enormous and growing market. Our 2020 momentum has carried over into 2021 for a strong start to the year. We're very pleased with our first quarter results, which exceeded our expectations. We finished the quarter with over 33 million in net revenue, representing approximately 35% year over year growth. As we noted on our last earnings call, we had some deferred revenue that was going to be accelerated to the first quarter rather than spread across the year, making the first quarter larger than normal. We think a more fair way to look at this is to exclude the accelerated deferred revenue. If you do so, our net revenue in the quarter grew 25% year over year, which is a big step up from Q1 of 2020. Our software and payment segment growth, excluding the accelerated deferred revenue, was up 27% compared to 18% growth in Q4 2020, another big step up. As a private company, we always operate the business in a transparent fashion with our board and our investors. Our plan is to continue with the same philosophy as a public company. Excluding this accelerated deferred revenue will allow investors to do a more apples to apples comparison of our financial performance. While the acceleration of this deferred revenue helped us in the first quarter, it will make for a tough comp in 12 months, so don't be surprised if we remind you of that. On the basis of our outperformance, we are raising guidance for the full year, which Mark will discuss later. During the quarter, we made progress against a number of growth strategies. We continue to be aggressive on the sales and marketing front. Many of the new salespeople that we've hired over the last six months have started to put wins on the board. Our pipeline remains strong, which will have a small impact on this year's results, but should support our next year's growth objectives. Channel partners are particularly meaningful to BPM's expansion, and we are seeing more volumes and more supplier leads from our BPM partners. We're also excited to announce earlier today that Bottom Line Technologies, one of the early pioneers in accounts payable automation, had joined BPN to help expand their supplier payment strategy. BPN continues to have incredible momentum and is the fastest growing part of our business. BPN's first quarter card volume was up 117% year over year, and total payment volume was up 146% year over year when including ACH and wire payments. You may recall that we added these new payment modalities in August 2020 as part of BPN 3.0. I've spent a fair amount of time in the past discussing difficulties that suppliers have processing virtual credit cards. ACH and wire payments can actually be more difficult to handle because the remittance information isn't delivered with the payment. ACH and wire payments hit a customer's bank account and remittance information most often comes via email. So the first step is to make sure you've got a match between the two. If you get thousands of ACH payments per month, this is no easy task. The remittance information also comes in many different formats. It could be in the body of the email, it could be in a PDF attachment, or it actually could be stored at a website that a customer has to log into to retrieve. Our BPN ACH solution automates this process, and customers are responding incredibly well to this new capability. In fact, one customer shared her story that the ACH process now is so seamless that they've begun campaigns to convince their other customers to pay this way, which they never would have done before BPN. Before I turn the call over to Mark, I'd like to invite you all to attend our Bill Trust Summit, which is being held virtually next week. The event, which is the accounts receivable and B2B payment industry's largest conference, will feature impactful keynote addresses from Shift7 CEO and former U.S. CTO Megan Smith and former NFL quarterback Steve Young, as well as an impressive roster of fintech industry experts, including the CEOs of Avid Exchange and Bottom Line, as well as the head of payments from J.P. Morgan. BillTrust Summit is a great way to learn more about our solutions. We've also been known to make some big announcements at Summit. More information and registration details can be found on our website. I really hope you can join us. With that, I'll turn the call over to Mark to review our first quarter results in detail, as well as provide our updated financial outlook. Mark?

Thanks, Flint, and good afternoon, everyone. As Flint mentioned, we are very pleased with our first quarter results. Before we get into the details, I'd like to provide some further clarity around our business and in particular, how we monetize payments. Billtrust generates subscription revenue from processing ACH payments and interchange as well as gateway fees in connection with processing credit card and virtual card payments. These payments are made by buyers, either at our customer portals, where smaller buyers review and pay invoices, or through BPN, where larger buyers, including AP providers, make payments. Subscription revenue at payment portals is usually derived from a bundled solution, like billings and payments, where subscription tiers are determined by the number of invoices delivered as well as the number of invoices paid. In addition, we process credit cards through these portals. Given that we became a payfac only in the last three years, most of the card volumes we process through customer portals are as a gateway where we receive a fee for this service. We monetize payments on BPN in somewhat similar ways as we monetize payments through portals. First, We generate BPM platform subscription fees from our supplier customers. Again, based on subscription tiers determined by the number of invoices paid. Second, where we are the pay fact, we can offer our customers level two and level three discounts on virtual card processing. And from those savings, we look to generate interchange on volumes, generally ranging from 10 to 40 basis points. Finally, we receive single digit basis points on volumes from AP providers for providing them access to the suppliers on BPN. Putting all of that together, our highest TPV growth driver is card payments, and within card, our highest growth is payback volumes. At the same time, given the long history of accepting cards and providing only gateway services, our largest card revenue is fees from such services. In addition, we generate material subscription revenue from processing ACH transactions and from providing the BPN network. This revenue is payments revenue, but it is bundled with other subscription revenue, and we have not yet determined a way to fairly and consistently break out the payments related portion. Turning now to our first quarter financial results, net revenue was $33.1 million in the quarter, an increase of 35% year over year. As a reminder, this result includes the impact of revenue accelerated into the quarter, as Flint previously mentioned, compressing into Q1, what otherwise would have been revenue evenly distributed throughout the full year. Normalizing that revenue across the year, net revenue would have grown in excess of 25% year over year. Software and payment segment revenue grew 40% year over year and grew 27% year over year, excluding the impact of accelerated revenue in the quarter. Services revenue was again ahead of expectations, growing 110% year over year to $2.9 million, while print revenue declined 6% year-over-year to $4.5 million. Adjusted gross profit was $24.3 million, or 73.4% of total revenue, and compares to $16.7 million, or 68% of total revenue, in the first quarter of 2020. Absent the acceleration of higher margin revenue into the quarter, adjusted gross margin would have been closer to 71%, and adjusted gross profit would have been $21.8 million. a year-over-year increase of 31%. The year-over-year margin improvement was driven by a combination of mid-shift in segment revenue towards higher gross margin software and payments, as well as by the benefit of improved realization for professional services. Turning now to our operating expenses in the quarter, research and development expenses were $11 million, as compared year-over-year to $9.4 million, an increase of 12%. Excluding stock-based compensation expense, R&D expenses were $9.8 million compared to $9.3 million in the year-ago period. Sales and marketing expenses were $8.9 million, up approximately 35% from $6.4 million in the first quarter last year. Excluding stock-based compensation expense, sales and marketing expenses were $7.6 million compared to $6.3 million in the year-ago period. The year-over-year increase reflects the strategic decision the company has made to accelerate top-line growth to an increase in its S&M budget to a larger percentage of overall revenue. General and administrative expenses were $12.5 million, or more than double from $5.2 million in the year-ago period. Excluding stock-based compensation expense, G&A expenses were $6.6 million compared to $5 million in the year-ago period. The preponderance of the increase is attributable to the costs associated with becoming a public company, and we would not expect to see these costs grow in line with net revenue. With the impact of accelerated revenue into the quarter, adjusted EBITDA was positive $319,000, compared to a loss of approximately $3.7 million in the prior year period. Excluding the impact of the accelerated deferred revenue, adjusted EBITDA in the quarter was a loss of $2.2 million. We ended the quarter with $286 million in cash and equivalents and short-term investments on our balance sheet and no debt for borrowed money. Turning now to the full-year outlook, we are raising our annual total and net revenue guidance by $1 million. For the fiscal year ending December 31, 2021, we expect total revenue between $160 million to $166 million. including reimbursable cost revenue of $37 million, net revenue to be in a range of $123 million to $129 million, which at the midpoint of $126 million would represent 16% year-over-year growth. We continue to expect adjusted gross profit to be in the range of $85 million to $89 million, or $87 million at the midpoint, an increase year-over-year of $11 million, and 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. Lastly, we continue to expect adjusted EBITDA to be in the range of negative $14 million to negative $16 million. We plan to reinvest this quarter's overperformance into the business So expect adjusted EBITDA to be closer to the higher end of that range. As a reminder, the year-over-year decrease in adjusted EBITDA 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, and an increase in costs in excess of $7 million attributable to becoming a public company, with approximately one-half of those costs attributable to D&O insurance. As discussed last quarter, there's typically no material seasonality to the business. And ordinarily, we expect revenue to grow quarter over quarter, as well as year over year. Given the accelerated revenue and over performance in the quarter, we expect generally that revenue in each quarter throughout the remainder of the year will be roughly 24% to 25% of total net revenue for the year, rather than increasing quarter over quarter throughout the year. And as discussed on our last call, we expect your over-year growth rates in the first half of the year to exceed those rates in the second half of the year, driven by the accelerated revenue recognized in the first quarter, as well as the tougher comparison in the second half of 2020 as subscription revenue recovered following the initial COVID impact. We continue to be incredibly excited about the opportunity ahead and look forward to discussing our progress with you in the future. Thank you again for joining the call, and we're happy to answer your questions. Operator, please open the lines.

Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Andrew Schmidt with Citi. Please proceed.

Hey, Flint. Hey, Mark. We're having some great results here. It's really good to see the acceleration in the business. Thanks, Andrew. So I want to dig into that. So the 27%, you know, underlying software and payments growth, I'm wondering if you could – and I know, you know, you don't disaggregate software and payments, but could you talk a little bit about kind of the drivers of the acceleration in the first quarter in a little bit of detail? And then I'm sorry if I missed this, but – Did you discuss the expectation for software and payments growth in 2021?

Thanks. Thanks, Andrew. It really is the growth in the quarter was everything hitting on cylinders. So the subscription revenue came in as expected. We have growth here. In subscription, in the first half of the year, as we said previously, that will be a bit stronger than the growth we'll see in the second half of the year, given the comps to 2020. That came in where we expected, and payments came in relatively strong as well. So they both led to that nice performance. In terms of the full year, I think we're probably still looking at software and payments in that 21% growth range.

Okay, thank you.

In understanding that the, you know, the comps get a little bit tougher here, is there any particular reason why, you know, the underlying limit should not continue or kind of pick up given the investment in sales and marketing, given the step up in payments monetization, just trying to understand the gating factors to, you know, maybe higher underlying software and payments growth? Thanks.

Yeah, go ahead. We're just emerging from this pandemic as well as our customers are emerging. And we're certainly starting to see volumes pick up, which means our customers are recovering. The construction space where we have exposure, wholesale distribution, manufacturing, we're all growing strong. We don't know how this plays out over the full year, though. And with one quarter behind us, we're not ready to say how that recovery is going to look for the whole year. Certainly many of the things that we've invested in are starting to pay dividends, but we also don't want to get ahead of ourselves with so much unknown about this pandemic recovery.

That makes a lot of sense to be proven, given the environment. Understandable. And then just if I could sneak one last question. On the sales and marketing front, in the comment, it sounds like you've already seen some good traction kind of ticking off some winds. What does the pipeline look like? How is it shaping up with the new sales force? And Any just observations from the investments in the sales force and conversation with customers, things like that would be helpful.

Sure. You know, we've been clear with investors that we are going to be aggressive but not foolish with our sales and marketing spend, and we certainly plan on doing so. So we've had good traction with some of the new reps. We've had good traction in the different categories, both on the enterprise and the corporate side. and we've had good traction on the partner front as well. As you know, Andrew, we get leads passed to us from our partners on the Business Payments Network, which leads to new suppliers for us, and that has been very strong. So, you know, we're excited about all of those channels and growing all of them aggressively.

All right. Thank you, Flint. Thank you, Mark. Appreciate the comments.

Our next question is from Bob Napoli with William Blair. Please proceed.

Thank you. Good afternoon, Flint and Mark. Question on the, and I know you hired a new head of product development a while ago, Greg Hansen, I think, from Precision Lender. Just a little discussion on, I'd like a little more color on your product roadmap. Where are you investing? Where are you looking to make, you know, for innovation in that product set?

Yeah, it's probably a little too much detail to go into on this call. Greg is actually going to be speaking at Bill Trust Summit next week, which is a free virtual session that anybody can sign up for, so I'd encourage you to do that if you haven't already. Clearly, the Business Payments Network is a big focus for us, and we continue to grow that aggressively. But it's not just that. We have a variety of accounts receivable solutions, as you well know, whether it's our online billing sites called eInvoice Connect, which we continue to innovate on, our cash app solution where, you know, just last year we rolled out a new mobile deposit acceptance, um, from cell phones for our, our, our customers who have field personnel who have to accept payments on the road. So we're trying to innovate across the entire product sack and we'll be sharing a lot of those details next week at summit. Okay.

I think, I mean, I mean your plan, uh, that you had put out there maybe a year ago, I guess it's been, uh, since, uh, not quite last fall, was for an acceleration and, you know, pretty good acceleration in software and payments revenue growth into 2022. And I know you're investing aggressively in sales and marketing and the BPN is becoming a bigger part of the business. How do you feel about that acceleration? I think it's into the high 20s in software and payments revenue growth in 2022.

Mark, do you want to take that one?

Sure. So, you know, we had 18% growth in software payments last year. This year we're seeing 21% and, you know, potentially upside to that. And while we're not going to guide 2022 at this point, so far we're hitting on all cylinders with respect to everything that was underlying our assumptions around getting to that accelerated growth, continued accelerated growth into 2022.

Thank you. And then just last question. I know you hired a, also a new head of channel or a new head. Maybe I think maybe your first head of channel partnerships and Gwen Lazar, I think last December, can you talk about the channel partnership strategy and how that's developing and how important you think that is over the medium to longterm?

Yeah, sure. So we've had a, um, uh, a channel strategy for, for quite some time. It is elaborate. There are different elements of our channel strategy. One part is what we do related to ERPs like SAP, Oracle, Infor, Epicor, in terms of integrating our solution with those products. Another part of the channel strategy is what we're doing with the card brands like Visa. As you know, we have a great partnership with Visa. A big part of it is what we're doing with the banks, and we've certainly announced the major banks who are partnering with BuildTrust, not only on the issuing side, the folks that issue the cards, but also on the treasury side. And we continue to see momentum there. And the final area is around the accounts payable software vendors. We announced earlier today a partnership with Bottom Line Technologies, one of the first innovators in the accounts payable side. They've recognized the value that we can add to their business model by giving them extra supplier reach, which means even more volume flowing through the business payments network.

Thank you. And just on that AP, can you talk about the volume you're seeing from the AP providers into the BPN? Can you give any color on the momentum there?

Yeah, so we've broken out BPN total payment volume. And I believe, Mark, correct me if I'm wrong, it's north of 110% growth. That might be the card growth. I think overall it's like 140% growth. Yeah. Yeah.

Yeah, just CARD alone was 100% growth year-over-year in the quarter. And then beyond 140%, as Flynn said, when you take into account the ACH volumes. Great.

Thank you. Appreciate it.

Thanks, Bob.

Our next question is from George Mahalos with Cowan & Company. Please proceed.

Hey, good afternoon, guys, and thanks for taking my questions. Good to be on the call today. I wanted to ask first, just now sort of in this post-COVID environment, how you guys are thinking about pricing overall. I think last year, obviously, you took a more cautious approach as the pandemic hit. Just curious, are we back to sort of normalized pricing patterns and how that's sort of playing out throughout the course of the year?

Last year, as you said, George, we took a pause on what our business as usual annual 18 months or so price increases, and we are back to our usual approach for this year. So far, so good.

Okay, that's helpful. And then just wanted to ask on M&A, Flint, kind of what you're thinking about there, how close you might be. to pulling the trigger on something, and then some of the consolidation that we've seen in the space from some of your peers. Any thoughts on any potential impact at all to Bill Trust? Thanks, guys. Yeah, so there's been some exciting acquisitions in our category, for sure. Most recently, Bill.com and their Divi deal. We don't compete at all with Bill.com, so it's not a competitive threat. We've done eight acquisitions in the last 11 years, and we've been very clear that we intend to continue to be acquisitive, and part of the reason why we went public is so that we can be more acquisitive and take on big deals. We have a full-time focus here and a pipeline of opportunities, but we're not ready to announce anything. We're going to wait until we have something cooked and ready to go before we talk about any material deals. Okay, thank you. Congrats, guys. Thanks. Thanks.

Our next question is from Mayank Tandon with Needham and Company. Please proceed.

Hey, good evening. This is actually Kyle Peterson for Mayank. Thanks for taking the question. Obviously, good to see the software and payments revenue coming in really strong. Just wondering if you could give any color on what drove that strength. Was it you know, increased monetization within the existing customer base? Was it like a ramp in kind of new, new logo wins? Um, how should we think about the split between that growth?

Yeah, I think it was strong. It was strong performance across the board, right? So we landed a bunch of, so landing logos is interesting, really doesn't affect revenue until we get the business live. So, um, Some of our deals can now go live much faster than before. A lot of our VPN deals can go live in just a few weeks, so we'll see in-quarter deals close and go live. A lot of it was payments acceleration, driving more digital payments. As CFOs recognize that their businesses are at risk when they do things in an analog fashion, there's a big push to make things more digital. So just shift from paper to digital will certainly drive more revenue. The shift from... gateway card business to our payfac will drive more revenue as well. So even if there aren't more digital payments, but they're running through our payfac, that will drive additional revenue. And, you know, BPN we've been very clear on, you know, is growing faster than anything in the business. And there's ample opportunity to monetize BPN through both sides, whether we're charging the folks who are delivering payments through BPN on the AP side or getting revenue from the supplier side when we sell them our BPN digital lockbox. So, you know, it was strong performance across the board.

Got it. That's helpful. And then I guess just a quick follow-up on BPN. Good to see the really strong TPV growth. Is there a way we can kind of look at some of the TPV trends and think of how that is kind of parlaying into monetization? either on the card side or the ACH side and just how big of an opportunity do you see BPN longer term for you guys as part of the Bill Trust story?

Mark, do you want to take that?

Sure. Look, we're seeing with BPN 3.0 coming on last year, we opened up the opportunity for more ACH to come in as well. And in terms of It's success as long as the large buyers continue, you know, the AP providers continue to be as successful as they are in looking to make payments on behalf of either large companies or aggregation of small companies. It's creating greater and greater stress on the system for suppliers to be able to deal with, you know, those payments, the complexity of both the payment as well as the complexity of the remittance. So we see VPN as a wonderful opportunity for great growth in providing that network that is open to all buyers and connects sort of very simply to all of our suppliers with the interest. So we see great opportunity there.

All right. That's helpful. Thanks, guys. Nice quarter.

Thanks.

Our next question is from Josh Beck with KeyBank. Please proceed. Josh, check and see if your line is muted.

Sorry about that. I did have a mute on. Thanks, team, for taking the question. I wanted to go back to some of your comments, Flint, on certainly the impacts of COVID with respect to volumes So as we've entered this year, are we at a point where you see a line of sight to full recovery? Just wondering if you could give us an update in terms of how that's shaping up.

Yeah, so we were, we've been tracking volumes since March and how our customers were performing on a year over year basis. So we had a cohort analysis that we, we monitor closely and we saw volumes drop from March to, um, sort of the end of May down to about 70%. Um, and then it bounced back and by June, July timeframe, we were sort of back on par and that just covers like the health of their business in terms of overall volumes that does not cover the fact that more of those volumes are now digital. the digital volumes are way up. So we are back to sort of pre-pandemic volume levels in terms of total volumes, but digital volumes, which is where we monetize, are actually higher.

Okay. Very helpful. And just curious if you could maybe characterize the pipeline. Qualitatively is fine, but just when you look at maybe the discussions that you're you're having the inbound activity. Just curious if you could just help us understand how that is shaping up maybe versus historical pipeline.

So the pipeline is strong. I think we've mentioned in the past that we hired a new SVP of sales early last year and he has continued to build out a super strong team across both enterprise and our mid-market segment, as well as our team that focuses on customers and our team that focuses on new prospects. So our goal is to get all four of those segments cranking. We get a lot of leads passed in from our partners, as I discussed. We have internal targets certainly around bookings that we're working hard towards to achieve. When you're in enterprise sales, bookings is super lumpy, right? You can have some months that are super strong and some months that are relatively weak. because big deals come in when they come in. But we're very pleased with the progress in the first quarter and have ample pipeline to achieve our goals.

Okay. Really helpful. And then just with respect to the guidance, I certainly understand the million of upside to the previous full year range. Now, what are going to be some of the key levers that could drive the performance towards the higher end versus the lower end? Should we be thinking about the contribution from new customers, new logos? Should we be thinking about BPN? What are going to be some of the key swing factors that move the final year performance towards, say, the higher or lower end of that range?

Mark, do you want to take that one, please?

Yeah, delighted. So, look, all of the above. In particular, if we just think about what we have in place right now, as we see the economy continue to pick up, we have, you know, great customer exposure to certain parts of the economy that are coming on very strong, home building, HVAC, plumbing. So some of those things you could see upside in 2020. uh, invoicing. You could see upside, uh, in some of our payments, um, actually, uh, print as well. So a lot of the transactional aspects of the business, uh, have an opportunity to kick up, uh, along with, uh, the way the economy is percolating. Again, it's, it's too early in the year for us to, to say with confidence that will happen. Uh, so we're waiting to get a little bit more visibility around that. But I think, uh, you know, payments and other transactional aspects of our business can, you know, push us to the higher end of the range.

Really helpful, team. Thank you. Sure.

Our next question is from Joseph Valthy with Catacord Genuity. Please proceed.

Hey, Flint and Mark. Good afternoon. Great results. Thanks for the question time. Just, so, You announced bottom line last quarter, I think, Repay said that they integrated with you as well. So it seems like the traction on the AP provider side continues to grow. Maybe we could just talk in a little more detail about what's left out there on the bigger AP provider side and how this momentum in deals that you're seeing maybe kind of helps accelerate kind of conversion of what's out there, and then I'll have a follow-up.

Yeah, that's a great question. So in any partner model, the relatively easy part is to get the partners. The harder part is to actually get the volumes flowing through the network. So today, you know, we announced bottom line, and that's wonderful and everything. But now we've got to fire them up, and we've got to get them paying all of the suppliers on the network. While we're doing that, we also need to continue to drive supplier growth. As we drive more and more suppliers onto the network, we want to make sure that all of the AP side knows those suppliers are on the network so that they can pay them, which will then drive more supplier growth. So there's a wonderful network effect, but just having the participants isn't enough. Getting them to transact on the network is a big part of that. We certainly have not reached saturation on the payment side, on the issuing side. There are many banks that we still want to onboard onto the network and some independent software companies that we want to onboard onto the network. And you can imagine that we're in discussions with most of them. And that is certainly a key step. You know, we've now proven to many of the big players out there that we can add significant value to their business model. We need to do that now, right? Proving it and getting a partnership is great. Now we need to drive additional volumes, which we've certainly done with the participants who've been on the network for a while, which leads us to exciting announcements like we did today with Bottom Line, that we can show them that we can add some value by driving additional payment volumes for them.

That's good color, Flint. Maybe I'll just follow up on that bank channel, maybe, because I know you have a couple big bank partners, but what does that pipeline look like? Because... I mean, across FinTech, we continue to see that banks need to partner with FinTech more and more, and they've got all the accounts right now still. So just some color there would be great.

Yeah, so there's really two parts of our bank strategy. There's the issuing side, the folks that are issuing virtual cards and are on more of the accounts payable side. We've announced previously that we've signed five of the top ten issuing banks onto BPN. So we've had a lot of success there. But there's another side of the bank as well that's called Treasury, and that's the ones that are dealing with corporates. So corporates are going to need to automate digital payments. That is going to be, you know, we think that's clear. Much like they automated check payments with bank lockboxes, we think corporates are going to need to automate digital payments with a digital lockbox. So the other side of the business payments network is this digital lockbox that we sell that allows them to automate all virtual card acceptance and ACH acceptance. What's not clear is who's going to sell that to the corporate. It could be bill trust and our direct sales force, but it could also be the banks. So we are making a concerted push to convince banks that this is something they should offer to their corporates. Cause if they don't, somebody is going to sell them the solution and don't they want to be relevant in this category? But, We need to continue. We've had some success there, but that was not our initial foray into the banks. It was more on the payment side. So we need to do a better job around getting the bank treasury departments reselling the BillTrust digital lockbox solution.

That makes sense, Flint. And then just kind of switching gears to the kind of staff part of your model, I know that you had some good LTV to CAC numbers in the past, and now you've been public for a little while, just maybe long enough with the ability to kind of think about growth, and I know you kind of talked about it a little bit, but how do you think about that really attractive staff metric you have relative to your positioning right now, relative to your balance sheet, and how may that kind of, what might we see there on on the P&L relative to sales and marketing and maybe ACB or, I don't think you're doing ACB right now, but revenue and other big deal ones. High-level color would be great. Thanks a lot, guys.

Thank you. Mark, you want to take that, please?

Sure. So, great question, Joe. We're still in the early stages of having made the concerted effort around sales and marketing. Early indications are things are starting to look nice. We're getting some inbounds. We have early positive results, as Flint mentioned, in terms of pipeline. But it's too early to tell. because we just started the year and we just started this considered effort over the course of the end of last year. So, so far so good. We would expect to continue to have the kind of LTV to CAC that we've had in the past. And once that's proved out, we'll continue to spend more wisely and try to get those types of returns. And if we need to pivot to figure out where something didn't quite go right, we'll do that as well. But right now our expectation is to continue to spend as we've budgeted, and we're cautiously optimistic that we'll get the anticipated results. We have a great sales team. We're making the right progress in the partnership area to expand where we've been in partnerships. So we feel very positive about the opportunity set.

That's great. Thanks, Flint. Thanks, Mark.

Sure. Our next question is from Jeff Cantwell with Guggenheim Securities. Please proceed.

Hi, how are you? Can you hear me okay? Great, great. Nice results here. Most of my questions are being asked. I wanted to see if I could ask you specifically about the payment volume this quarter, because that $15.1 billion came in above our expectations, and the growth is accelerating there. So can you talk a little bit more about that in terms of what you think is driving out our performance? Is it you know, sort of like your customer base is seeing some nice momentum from the reopening here. And as you're mentioning, BPM looks pretty significant as it's continuing to grow very quickly this quarter. So maybe talk about that. And Flint, can you put some perspective on the operating environment for Biltrust right now versus what you might have seen at some point over the past 20 years? Could you maybe tell us why you think that and what that might mean for the company going forward? Any color there would be greatly appreciated.

Yeah, so I think the Pandemic was a bit eye-opening for corporations throughout the U.S. that were dependent on the U.S. post office to run their businesses, whether it was delivering invoices or accepting checks. There's been a widespread slowdown in U.S. mail delivery for a variety of reasons that I won't get into, which means that cash flow is being slowed down. I don't think CFOs generally knew how dependent they were on the postal system for their businesses. So they're, you know, outside of bill trusts, there was certainly been a bit of a wake up call that, Oh my God, we need to stop doing things via paper and us mail. So that is certainly helping. I think we have the best solution to capitalize on that for sure. Whether it is our SMB focused solutions, like our online billing sites that allow small businesses to look at bills and pay bills online, whether it's the business payments network, which is focused on large corporate AP departments that aren't likely to log into a site, whether it's our mobile deposit acceptance for, collecting payments on the road. We had a strategy session last year where we talked about what were the big initiatives that we wanted to focus on for the next 12 months. One of them is we call payments everywhere. We literally want to be able to collect a payment at every touchpoint, whether it is somebody calling in a payment over the phone, whether it is somebody doing collections emails, whether it is a payment inside of an email delivery that we do. So we're really trying hard to make sure that we have an opportunity to collect a payment through any possible touchpoint with our customer's customer. In terms of the operating environment, certainly the world has woken up to this B2B payments opportunity, and more specifically, the accounts receivable side of it. There are more players now in the category. You've got companies that are sort of point solutions that are doing it. You've got some people like us that are trying to do integrated receivables. You've got card brands who are excited about monetizing B2B payments. There's more and more attention here because it's really like the last big payments opportunity that's going to make a shift from analog to digital. And I think people want to capitalize that, which makes a ton of sense.

Okay, great. And then my second one, this is a follow-up to one of the prior questions. I want to ask this in a slightly different way. So you're calling out a major new AP partner in bottom line, Can you maybe tell us a little bit more about your thoughts on that? You seem to have a very methodical strategy regarding partner expansion as we look back over the past few quarters. And I thought this was an interesting one because from my understanding, their pay mode excites 450,000 customers. So I just wanted to see if you're able to tell us anything about that partnership, both qualitatively, and it would be great to get a feel for how that might be reflected quantitatively for you guys. Anything you can tell us about how you're thinking about that partnership going forward would be great.

Thanks again. Sure. So a big part of our BPN strategy is around creating a supplier directory for AP providers to be able to pay. We've been clear that the quantity of suppliers we do not believe is the correct metric. And I'm not picking on bottom line here because everybody on the AP side does it. They are busy calling up suppliers and saying, hey, can I pay you electronically? What's your bank account? What's your routing number? Do you accept card? Under what conditions do you accept card? And they're all building private supplier directories. If you have, you know, 100,000 small businesses or, you know, 1,000 enormous businesses, which are better? Well, what's going to give you the better reach? So we think it's important to get great reach. And we help people like Bottom Line and Avid and J.P. Morgan and Comdata and Wex and all the others that we've announced get better reach by getting them to the largest suppliers because the largest suppliers, they don't want to deal with a hundred different AP providers who all want to send them payments and all want to send them remittance in different formats. They want one single type of payments coming through BPN. So that strategy bet that we made three years ago was right. You know, we've now proven that we can do payments better for these large corporates. And I think the AP side has recognized that. You know, I think BPN, Some thought that we were trying to replace their network because everybody's got a network, right? There's the ACH network. There's the Visa network. There's the business payments network. We're not trying to replace anybody's network. We're trying to provide an interoperable framework so that participants in B2B payments can connect more seamlessly.

Okay, great. Thanks, Sal, very much for all the callers. Congrats to them. And looking forward to seeing what comes out of your summit.

Thank you. Thanks, Joe.

Our next question is from Jensen Hung with JP Morgan. Please proceed.

Hey, thanks so much. Glad to see the acceleration here. Just a couple of clarification questions and a model question, if you don't mind. Just first digging deeper on the pipeline. I know you've gotten a lot of questions on that, guys. I'm curious just the progress on the supplier recruitment side of BPM. Any call-outs there? I know You just went into that a little bit, Flint, but I'd love to hear a little bit more just on what's happening on supplier recruitment side now that you've added ACH and wire and things like that. Also, prospects for payback deals. How is that looking or how has that changed versus 90 days ago?

Yes, I think we've made the decision, Mark, correct me if I'm wrong, that we're going to share our payback percentage on an annual basis, not on a quarterly basis. It just doesn't move that much. I will share with you that BPN ACH, which had very nominal volumes before this year, we have successfully sold many suppliers our BPN ACH solution. They're not actually even accepting cards, but they recognize they need to automate the ACH part of their business. And we've also had a lot of success driving virtual card automation for our BPN card solution. So You know, we're seeing strength along both of those solutions because they solve a real problem. Getting digital payments is hard, whether they're ACH, wire, or card. It's not easy for businesses to accept those payments in volume.

Agreed. Agreed. Which is why we're hoping for the supplier side to also pick up because we've gotten a lot of partners already. On the guidance, raised revenue a million dollars, didn't change the rest. Did I hear correctly that the difference is the reinvesting? that you're putting money back into the business there?

Yes. So, you know, we raised, you know, had a great quarter. Some of it timing, some of it overperformance, looking to reinvest the overperformance back into the business in terms of leaving, you know, margins, growth margins, adjusted growth margins where they were. It's just, you know, mid-shift of where the performance can come for the rest of the year. It could be some more transactional and not necessarily at the same gross margin. So if it's services or print that's contributing in part as we continue, that would have an impact on gross margin. So we thought for the marginal difference, we'd leave the range as it was.

I see. Because the reason I'm glad you said that, because when I'm looking at the incremental gross margin, it looks like it's running around 90% pretty high if you, even if you exclude the accelerated deferred revenue. So a lot of your net revenue is dropping down to adjust the gross profit. So if that sustains, or maybe I should ask any reason why that wouldn't sustain, because it seems like if that does, you'd be running quite ahead of your gross margin percentage target if that continues. Well, If you follow my logic here, Mark.

Yeah, no, I do follow what you're saying. If you look at, you know, if we were to back out the acceleration of revenue into the quarter, I think our adjusted gross margin is, you know, more like 71% taking everything into account. Software and payments, it's significantly higher because a lot of that accelerated revenue came in without incremental, you know, cost to bring it in. So I think that's sort of giving us an inflated outcome for the quarter. Got it.

Thank you for that. Good luck with the summit next week. Thanks.

And we have a final follow-up from Bob Napoli with William Blair. Please proceed.

Thank you. And good Q&A. But I think you're not going to answer my question. I think you just said... But, you know, the payback you gave us last quarter was 30% of the card volume. And since payback is so much higher take rate than the rest of the card volume, I thought I just wondered what your thoughts were on, I mean, is that 30% kind of a baseline that should, you know, the mix should grow off of? And we should see that by payments volume or payments revenue growing faster than payments volume? Should that 30% over time go up to, you know, 40 or 50%? What's, you know, just any thoughts on that, given the outsized revenue contribution per dollar of volume for the payfac?

Yeah, so you said, will payments revenue outstrip outpaced payments volume? And I would just caution you to talk about card and ACH separately. Right, sure. Right, because ACH, that's fine. ACH, we're making subscription fees on. It's not a basis points model. I can assure you that we have every incentive in the world to try to drive as much pay fact business as possible, and we certainly are executing on that as part of our Payments Everywhere strategy.

And I think in my, and again, and go back to my, I think in my, prepared remarks, we did say within CARD, the fastest part of our growth is coming from paid FAQ. And so we're putting a lot of effort into ensuring it continues to go that way to the extent we can control it. Great. Thank you. Appreciate it.

We have reached the end of our question and answer session. I would like to turn the conference back over to Flint Lane for closing remarks.

Great. I just want to thank everybody again for joining the call. It's humbling, and I truly appreciate your interest and support in what we're doing here at BuildTrust. Hopefully, we get to see you next week at BuildTrust Summit or at one of the upcoming investor conferences that we'll be presenting at. Have a great night, everybody.

Thank you. This does conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.