BTRS Holdings Inc.

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to Build Trust's second 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'd now like to turn the call 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 intent 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 GAAP measure can be found in today's earnings release, which is available on the company's website. Hosting today's call are Flint Lane, Bill Trust founder and chief executive officer, and Mark Schiffke, Bill Trust chief financial officer. With that, I'd like to turn the call over to Flint to begin.

Thanks, Dara, and as always, thanks everybody for joining the call today. This is our third earnings report as a public company, and we're thrilled to share that we had another great quarter, both strategically and financially. We saw great performance in our core software and payments business, fueled by our investments in sales and marketing. Many of the strategic investments we've made around payments and the channel are starting to pay off. Our net revenue came in at $31.6 million, representing growth of approximately 23% year-over-year. Our software and payment segment revenue grew 27% year-over-year. This outperformance has informed our decision to once again raise our guidance for the year, which Mark will discuss in a moment. Total payment volume, or TPV, increased during the quarter by 47% year-over-year to $18.8 billion from $12.7 billion from the same period in 2020. This is an acceleration from the payment growth we saw in the first quarter of 33% year over year. Included in TPV are the payments that run through BPN, the Business Payments Network. BPN TPV increased 160% year over year in the second quarter, an acceleration from the 146% year over year growth we saw in the first quarter. The credit card component of the BPN TPV saw a volume of $1.7 billion in the quarter, which grew 123% year-over-year, and year-to-date through June exceeds $3 billion. After a strong July, we are now at an approximate $9 billion annualized run rate with BPN TPV. One of the big highlights of the second quarter was the return of BillTrust Summit. This year, we focused on the future of accounts receivable and integrated B2B payments. Like many events, Our annual summit was canceled in 2020, but we returned this year bigger and better than before. Over the course of four days, over 1,000 attendees, including CFOs, heads of finance, and shared services, participated in 52 breakout sessions and eight main stage sessions, smashing the previous attendance record. I'm pleased that investors and analysts were also able to participate and learn more about the mission we're on. During BuildTrust Summit, we announced the latest version of BPN, our open two-sided network that leverages our underlying accounts receivable platform and connects the financial services ecosystem across buyers and suppliers. BPN 4.0 is the first and only bi-directional B2B payments network, enabling invoice delivery to over 100 accounts payable portals in addition to its existing payments and remittance acceptance capabilities. We take data from customers' ERP systems and deliver it to accounts payable portals through a variety of mechanisms, including direct interfaces, APIs, and robotic process automation. This addresses a major pain point for suppliers as more and more of their buyer customers are implementing accounts payable systems that require them to do manual work around invoicing. BPN already had incredible momentum before we added this capability, and we think BPN 4.0 will be a game changer in the industry. While VPN and payments represent an enormous opportunity for BillTrust, I want to spend some time talking about the foundation of our business, our industry-leading software platform, offering customers an end-to-end solution spanning the entire order-to-cash process. Almost 10 years ago, renowned investor Mark Andresen wrote an article in the Wall Street Journal titled, Why Software is Eating the World. In that article, he talked about the major disruption software would play in just about every industry. Accounts receivable and B2B payments are no exception to what Mark wrote about. While the payments capabilities that we deliver to our customers are incredibly exciting, none of that would be possible without the software layer that sits on top of it. Credit decisioning, e-commerce, invoicing, payments, cash application, and collections are all being disrupted by software. That's a good thing because it allows knowledge workers to focus on high-value activities. It also is good for the environment as we continue to help our customers dramatically reduce their consumption of raw materials like paper. It is also good for the bottom line as transacting digitally drives significant savings for our customers. Many people wonder why so many B2B payments are still sent via US mail. Standards protocols like EDI and XML have existed for decades and haven't solved this problem. It seems pretty unlikely that an entire industry will adopt some new standard in the future to solve B2B payments. The payment infrastructure in the U.S. is well established with plenty of choices balancing speed and certainty. It also seems unlikely that there is a new payment rail that will be coming to the rescue. We believe the answer to this problem will ultimately be software. Software like our e-invoice connect solution that allows our supplier customers to review and pay their invoices through a branded web portal. Software like our business payments network that provides an interoperable framework that allows large buyers who use accounts payable systems an easy way to discover and pay suppliers. Software like our mobile deposit solution that allows our customers to arm their field personnel with an easy way to accept payment and remittance on the road. This is not simple. There are many use cases that need to be solved for. Integrating with banks, ERPs, payment gateways, and AP providers is a lot of work. We have spent almost 20 years building best-in-class software solutions that drive meaningful results for our customers. I'd like to highlight a few of them. One of the world's largest food service distributors was trying to reduce cost structure, and last year they began using our cash application software solution to automate the hundreds of thousands of payments they receive per year. They also were an early user of our mobile deposit capture solution that allows their teams to accept payments while on the road. They're now processing over $10 million per month with mobile deposit capture, which also drives higher automation rates with our cash application solution. The result of this is a savings of thousands of hours of manual labor each year. The customer was thankful for the savings and said, the efficiencies we've gained from Build Trust have been unbelievable. We are all in. This is so efficient, it is crazy. An international commercial truck dealership has been dealing with manual processes and institutional knowledge that was held by only a few key personnel related to ACH Processing. Processing ACH payments and the corresponding remittance data that is buried in emails or buyer portals is expensive and requires a fair amount of training for our customers. This customer, recognizing they needed to increase efficiencies and reduce risk, signed on with the BPN Digital Lockbox to automate their ACH payments and remittances. Since going live in March, they've already processed over $18 million in ACH remittance on nearly 2,000 payments in less than five months. Their success in managing ACH payments has motivated them to drive more of their customers to ACH, something they wouldn't have done without Biltrust. A multinational electronics company identified a major need to provide their customers a modern billing and payment experience. With Biltrust Invoice Connect solution, they enabled self-service and integrated payments across both ACH and card for their customers. On top of elevating the customer experience, Biltrust solutions are reducing card processing fees through Level 2 and Level 3 optimizations. They're getting paid quicker, these payments are easier to apply to their ERP, and they have improved the experience for their customers. Suppliers buy our solutions for many reasons, to reduce costs, to increase efficiencies, to accelerate cash, to increase compliance, and often to enhance the experience of their customers, the buyers. There are some other great accomplishments this quarter that I'd like to highlight. Pursuant to our strategic investment in the channel, we recently announced the new Biltrust Global Partner Program, which offers even more tools to promote faster growth and enable the success of our partners and their customers. The program offers its go-to-market channel partners, banks, fintechs, ERPs, industry associations, buying groups, accounts pay providers, and system integrators more opportunities and support in adding Biltrust's leading AR automation and B2B integrated payments capabilities to their portfolio. Currently, over 50 companies are participating in the program. We executed a strategic alliance agreement with Wipro, a leading global information technology consulting and business process services company. We released a new version of our collection solution that allows collectors to seamlessly accept both card and ACH payments as part of our Payments Everywhere strategy. There's clearly so much opportunity for growth and to further drive the digitization of the AR process. The opportunity is further demonstrated by an in-depth research study we recently commissioned from Paradoxes. Among the many insights generated, the research showed that there is a significant gap between accounts receivable practitioners' perception of how modern their processes are and reality. 86% rated their department as very or somewhat modernized. While over 40% of AR departments do not offer self-service capabilities, over 50% do not have real-time integrations with ERP systems, and over 60% do not have a majority of their payments or invoices as digital, with nearly 30% of payments still being cash and paper check. This research really highlights the opportunity ahead for Biltrust to help these teams maximize efficiency and leverage the most advanced cash flow acceleration and integrated payments capabilities available. With that, I'd now like to turn the call over to Mark to review our second quarter results in more detail, as well as provide an update to our financial outlook.

Mark? Thank you, and good afternoon, everyone. As Flint mentioned, we are very pleased with our accomplishment this quarter. Towards the end of June, we launched our registered underwritten secondary offering, which closed at the beginning of July. This transaction began the orderly transition of share ownership from our pre-public institutional investors to shareholders with a longer-term view in owning public company stocks. The secondary offering was oversubscribed, with many of our existing long-only investors participating and increasing their ownership position, as well as a significant number of new investors using this opportunity to establish positions in our stock. Turning now to our financial results in Q2, net revenue in the quarter was 31.6 million dollars, an increase of 23.2% year-over-year. Software and payment segment revenue exceeded our expectations, growing 27% year-over-year from $19.4 million to $24.6 million. Services revenue also was again ahead of expectations, growing 37% year-over-year to $2.5 million, while print revenue grew modestly to $4.5 million. Just a gross profit was $22.6 million, or 71.7% of net revenue, compared to $18.1 million, or 70.5% of net revenue, in the second quarter of 2020. The year-over-year margin improvement was driven primarily by the mixed shift in segment revenue towards higher gross margin software and payments. This margin expansion was against a tough comp in the same period last year when we began some short-term cost reduction measures in response to COVID, which cost returned to normal later in the year. Turning now to our operating expenses in the quarter, excluding stock-based comp in each case, research and development expenses were $10.2 million compared to $8.6 million in the year-ago period. Sales and marketing expenses were $9 million compared to $5 million in the year-ago period. The year-over-year increase reflects the strategic decision the company has made to accelerate top-line growth through an increase in its sales and marketing budget to a larger percentage of overall revenue. It also includes a cost incurred in the quarter to host the highly successful 2021 Build Trust Summit that Flint mentioned. DNA expenses were $6.7 million compared to $4.5 million in the year-ago period. Not included in those costs in the current quarter were a half million dollars of expenses associated with the underwritten secondary offering I just discussed. Adjusted EBITDA was a loss of $3 million, compared to approximately positive $100,000 in the prior year period. We had expected a larger loss in Q2, but some of our hiring has been slowed by a very competitive market for talent. We ended the quarter with $287 million in cash and equivalents in short-term investments on our balance sheet and no debt for borrowed money. Turning now to our full-year outlook, we had a strong Q2 with continuing momentum in July, which provides us the confidence to raise our annual total and net revenue guidance by $2 million at the midpoint, as well as narrow the range of our guidance on the basis of more visibility to the remainder of the year. for the fiscal year ending December 31, 2021. We are increasing and narrowing our total revenue guidance from a range of $160 million to $166 million to a range of $163 million to $167 million, including reimbursable cost revenue of $37 million. We are also increasing and narrowing our net revenue guidance from a range of $123 million to $129 million to a range of $126 million to $130 million, which at the midpoint of $128 million would represent 18% year-over-year net revenue growth. This increase in projected net revenue is being driven by greater than expected growth in our software and payment segment, which is now expected to grow 23% year-over-year rather than 21% as previously projected. On the back of this mixed shift to higher margin software and payment segment revenue, we are correspondingly raising and narrowing our adjusted gross margin range from 69% to 71% to a range of 70% to 71%, or 70.5% at the midpoint, which would be a year-over-year increase of 20 basis points. Consequently, adjusted gross profit, which was expected to be in a range of $85 million to $89 million, is now expected to be in a range of $88 million to $92 million, or $90 million at the midpoint, an increase year-over-year of approximately 18%. Lastly, we previously said we expected adjusted EBITDA to be in the range of $14 million to $16 million. Once again, we plan to reinvest this quarter's overperformance into the business. We therefore continue to expect adjusted EBITDA to be closer to the higher end of that range, and if we can hire fast enough, given the huge opportunities Glenn described, even beyond that range. In terms of remainder of the year, we expect to see the improvement in software and payment segment revenue noted earlier, tempered by softness in print and nominal growth in services. As discussed on our call last quarter, this implies that we expect year-over-year growth rates in the first half of the year to exceed those rates in the second half of the year, as a consequence of the combination of a tough second half year-over-year comp and the unusual timing of revenue recognition this year from a legacy customer in the first quarter. As we begin to think about trends in our business leading into next year, we continue to see acceleration in our payments volumes, momentum in our subscription business, success from our sales and marketing efforts, both in the acquisition of new logos, as well as executing on our land and expand strategies. and early indications of potential longer-term revenue acceleration through partnerships. These trends, in conjunction with an assumption that the economy will remain constructive through the remainder of the year, provide us with a high degree of confidence that we will exit this year on a growth trajectory in our software and payment segment in the low to mid-20s into 2022. 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. We're happy to answer your question. Operator, please open the line.

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 handset before pressing the star keys. One moment please while we poll for questions.

Your first question comes from the line of Bob Napoli with

William Blair, please proceed with your question.

Thank you. Good afternoon, Flint and Mark. Really good to see the acceleration in a lot of those metrics in the second quarter, especially the payment volume, the number of e-bills presented, a number of metrics showed nice acceleration. Now, as you look at the software and payments revenue, which is at a nice rate, 27% high growth, but it seems like with the growth in some of the other metrics that there could be some acceleration in that software and payments revenue in the back half of the year and into 2022. Why would that not be correct?

Hey, Bob. It's Mark. Thanks for the question. There are a couple of things to think about. First, it is the year-over-year. When we look at back half of last year, we took on some – we were delighted that we were able to take on some large customers, both in subscription and in payments, and that's contributing very nicely to the first year-over-year comp relative to that. So we're seeing overall – an increase in absolute numbers, quarter over quarter over quarter, and we expect that to continue. But going over a very tough second half of the year comp makes that continued acceleration difficult. So as I said, in absolute terms, we continue to see great acceleration month over month, quarter over quarter, but on a year over year basis, it makes it a difficult comp. And that's why we said we have some visibility into how things are trending, and we feel good about that continued growth into next year.

Great. Thank you. And then just on the M&A front, I know you've called out being very active in M&A. Another player in the space acquired another significant acquisition, I think. But maybe just your thoughts on the competitive environment for M&A and the opportunities you're seeing and what we should expect to see out of Bill Trust over the next several quarters or if you would on that front, where would you be looking to acquire?

Thank you for the question. I think we've been very clear publicly that one of the reasons we went public is so that we could be more acquisitive. Our intent is to be aggressive in this area, but not foolish. So we're not going to do a deal just for the sake of doing a deal, but we're looking at a variety of things. It is a healthy market for sure in terms of prices that people are paying. So we're going to do a deal that makes sense. And, you know, I think Mark and I would be disappointed if we don't start getting some deals under our belt here. But, you know, we've got a few things in play, and I would expect over the next 12 months that you'll see us pretty active here.

Then last quick question on BPN 4.0 and just the momentum in the business payments network. How is it being received? What are clients appreciating about 4.0 versus 3.0? And then how does that very strong growth translate into revenue? How do you monetize that? How will we see that revenue contributing or that payment volume contributing to the software and payments revenue growth over the next several years?

Yeah, so if you talk about the differences in 3.0 versus 4.0, 4.0 now includes the invoice delivery into accounts payable portals, and that is included in the subscription revenue that we get with BPN 4.0. We've made a pretty big bet here that every organization of scale is going to need an online billing site. We've been providing those for almost two decades now. But as more and more payments move to digital, we also recognize that everybody's not going to pay at the portal. Large buyers... want to use their ap software both to send payments and to receive invoices for that we firmly believe that every large supplier is going to need a digital lockbox they don't know that yet but as more and more payments are being initiated from ap providers and more invoices are getting ingested by ap providers the pain becomes even more acute so we're feeling a really big need on that supplier side for both invoice delivery and payment acceptance from their large buyers you will see that in our financials as additional software and payments revenue. BPN 4.0 specifically will be software because it's invoice delivery, but the BPN suite obviously has lots of payment monetization. Great. Thank you. Appreciate it.

Your next question comes from the line of Andrew Schmidt with Citi. Please proceed with your question.

Hey, Flint. Hey, Mark. Congrats on the acceleration here, and thank you for taking my questions. I wanted to start off on the sophomore payments growth in the quarter. I think it was 27%. That's correct. Yeah, 27%. If I remember correctly, that client that sort of went up, that B2C client that went up the platform in the first quarter, that was expected to dampen revenue for the remainder of the year. So if you kind of exclude that that impact, the underlying growth would be actually higher, maybe around 29%. Is that fair, or am I missing something here in terms of underlying growth in the second quarter? Thanks.

Sure. No, without commenting on whether it's 29% or otherwise, you're absolutely right. That customer was in our numbers last year, was not in our numbers in Q2, and the 27% software and payments growth rate. is at that level, notwithstanding that headwind.

Got it. Appreciate that clarification. And then I think one thing that really stuck out to me is the early success with the sales and marketing investments that you alluded to in the release. I think we're expecting more of a benefit in the back half in its next year. So if you don't mind, if you could talk a little bit more about the success you're seeing the sales and marketing front and then it seems intuitive that things should ramp from here. So maybe talk a little bit about how that influenced your confidence and accelerating software and payments growth going forward. Thanks.

Yeah, so we talked to, this is Flint Andrews, thank you. So we talked about some aggressive investments in sales and marketing and we continue to invest aggressively in sales and marketing and that is paying dividends, not just from the new people, but across our entire team. You know, we had a a near record quarter in terms of new logos signed. We had great bookings for the quarter. And a lot of that hasn't even shown itself in the revenue numbers yet because we have to get those deals live. So we are very excited about the results we're getting from our sales and marketing initiatives and expect to continue to keep the pedal down on that. And I would not also underestimate what's happening in the channel, right? Having channel partners also deliver business for us is a big part of our growth. initiatives, and we've talked about that in the past. So having our sales and marketing team having an impact on our direct efforts as well as our channel efforts will certainly manifest itself in higher software and payments growth over time.

That's great to hear. It certainly helps the visibility from a revenue growth perspective. If I could sneak one more sort of higher-level question in. You know, listening to the Biltro Summit, there was sort of a highlight on interchange rates. And it's been talked about for some time, but obviously adjusting interchange rates to sort of encourage higher ticket B2B transactions still on the card, it seems like it's a pretty big opportunity for Bill Trust and others in the space. What's the likelihood of that happening, or is there any developments on that front? It seems like it'd be a significant boost to a number of players, but just curious to hear your thoughts, Flint, on that front.

Yeah, I'd say it seems unlikely in the short term that there will be a blanket change to interchange rates in B2B because I think the card brands and the banks are afraid of cannibalizing T&E and things like that. That said, there are prop rates that are occurring today where buyers and suppliers can agree to a rate that they'll transact. They can pick any rate that they want. And I would expect that will continue to grow. And we've got a hand in some of that as well. But I wouldn't expect all of a sudden that B2B interchange is going to be dropped to 100 basis points versus where it's at today, it would be surprising for the banks and the card brands to get that done. So we're going to make money regardless of how those payments flow, and we've said that, right? As paper checks move to digital and our accelerated digital payment rates are showing that they are moving faster, we're making money whether it's ACH or card, and we are making more money on cards But we're thrilled for any digital payment that we can monetize, whether it's card or ACH. Got it. Thank you both very much.

Congrats on good results in the quarter. Appreciate it.

Thanks.

Thanks, Andrew.

Your next question comes from line of Mayank Pandhan with Needham & Company. Please proceed with your question.

Hey, good evening, guys. This is actually Kyle Peterson on for Mayank. Thanks for taking the questions. Just wanted to touch on gross margins a little bit. The adjusted gross margins, looks like the guidance implies that there'll be a little bit of a sequential dip in the second half of the year. Is that the impact of some of the hiring you guys alluded to, or is there like a mixed shift with some of the revenue that we should think about over the next few quarters?

Yeah, it's a good observation. I think So I'm hopeful we're being a little bit conservative about where gross margins might be in the back half. But overall, we're still very comfortable with the 70.5 at the midpoint. We had just tremendous results in the first and the second quarter. And so, you know, it's very hard to repeat that level of performance. So we're a little bit on Nick's shift. Mike tampered them, you know, tamped down on them a little bit, but we still feel pretty good about them.

Okay, that's helpful. Then maybe just a higher level question. I know you guys have really been investing heavily in R&D and new product initiatives. What are some of the key priorities that you guys are focusing on in trying to build out your product suite? What's kind of higher priorities in the near term? What are clients increasingly asking for and the like?

Yeah, so there's two flavors of things we work on. We call them continuous innovation and discontinuous innovation. So the continuous innovation stuff is the features and capabilities in our existing products that our customers are asking for. We announced we added ACH support into our collection solution, for instance, which is a relatively new product for us that we launched a few years ago. And we were always doing that every quarter. We're releasing new capabilities in these existing products. The discontinuous innovations are those things that customers aren't asking for. BPN, for instance, nobody was asking for a two-sided market to solve this whopper of a problem related to B2B payments. So we continue to invest in those things as well, and we kind of average about one per year on major new capabilities in BPN or some of our other solutions. We don't want to share what's next there. There's plenty to talk about about what is there, but we're always – spending some effort on those discontinuous innovations as well.

Great. That's very helpful. Thanks, guys. Nice quarter.

Thank you. Your next question comes from the line of Jeff Cantwell with Guggenheim Securities. Please proceed with your question.

Hi. Good evening. Hi. Thanks for taking my questions. Clint, you're calling BPN 4.0 a game changer, so I feel like we might want to spend some more time on this. Can you talk some more about the reasons why, meaning what's differentiated about it? And can you also give us some color on BPN now being available to your suppliers via a single subscription price, which you're highlighting in that presentation? What does that mean for revenue? How should we be thinking about the implications of that change for your revenue generation? Just trying to be clear on what this means as we get into our models and think about these updates. Thanks.

Yeah, so when we launched BPM, we were the first ones to market with a sort of two-sided payments network that was this interoperable framework. We're not trying to be the only B2B payments network. We're trying to stitch together the payment networks that already exist, whether it's the ACH network, the Visa network, the Avid network, the Bottomline network, the Ariba network. There's plenty of networks, and everybody wants to be the network. We're not trying to be the only network. We're trying to provide some glue to allow the networks to interoperate, which will yield higher digital payments. And this is not a new thing in the world. This has been done before. A great example is the ATM network. Back in the day, you could only go to your bank if you wanted to withdraw cash from an ATM. And then private networks started to exist like Cirrus and Nice, and then you could only take money out of Cirrus and Nice. Ultimately, all those networks were stitched together, and they still exist today, but you never look at the back of your card to see whether you can take money out or not. Those networks are interoperable. That did not exist before BPN. So we did that on payments. We're now doing it on invoice delivery, and there's no one doing it today, and that's why we think it is a game changer. In terms of the revenue, the subscription revenue model that we built is that every payment and every invoice delivered counts towards a tier in the subscription. Many of our customers start with one of the three elements of BPN. It could be BPN card, BPN ACH, or BPN invoicing. They can easily upgrade to another component without signing another piece of paper just by starting to use it. And that will then contribute to those subscription tiers. And as they go through those subscription tiers, we will make more money. As more things go digital, we will make more money. And it doesn't require a salesperson to go sell them something else.

Interesting. Okay, that's great color. The other thing I wanted to ask about, Flynn, is the competitive environment. And, you know, of course, I guess it's always been a competitive environment for you, and that's really never going to change, right? But, you know, when we think about competition, we like to try and think about it from your perspective in terms of how there's things that you can control, right, internally. You know, maybe it's higher staff, maybe it's product. And there's also things you can control externally, meaning how you're interacting with your customers and where you're focusing on adding new customers, et cetera. So my question is, can you talk about what the competitive environment is driving you to do both internally and externally? Can you maybe give us some thoughts there in terms of how you're staying ahead, how you're adapting? We'd love to hear your thoughts about what you're doing at BuildTrust in this environment. Thanks.

Yeah, no, listen, I think competition is healthy. It keeps you on your toes and makes you perform better. You know, if you look at the accounts payable side of things, there's 100 folks duking it out on the AP side, and they all have to figure out how they're going to win, whether it is focusing on specific verticals, focusing on large versus small customers, and maybe even like go-to-market strategy. And I think there's elements of that within BillTrust. You know, we've got vertical focus where we're going after specific verticals and aggressively rolling up business there. We certainly believe we are probably the most innovative person in the AR space. If you look at where our peer group is, you know, they are, there's a bunch of legacy companies that have been around for quite a long time. So we believe we are leading in terms of innovation, which gives us a several year advantage in terms of the capabilities we bring to market. Ultimately, though, it's about execution. You know, you can be as visionary as you want, but if you're not executing, it really doesn't matter. So we believe we can execute across all fronts because we have been doing that for nearly 20 years. So it is an enormous market. We do not need to be the only player. As much as I would like our competition to disappear, it is healthy for us to have competition, and we will certainly get more than our fair share of the market.

Yeah. And just to put Flint's observation in context, Jeff, I mean, just Yeah, an example of vision and execution. Five years ago, BPN didn't exist. And today it's on a, you know, annual run rate of $9 billion of process volume. So that to me is a great example of what we're seeing.

Right, right. Okay. Okay, great. And if I could squeeze the last one in. On the guide, the revenue increase here in 21 is great. I wanted to double check on that as it relates to the back half of this year. I just want to be clear. about the increased guidance. Can you talk a little bit about what you're attributing that to? Is it, you know, greater optimism about growth with your customer base? Is it from the economy rebounding? Maybe I thought it might be fair to say that the momentum you have with BPM is causing you greater optimism about the go forward. How would you break that out for us? I just want to make sure that we have that right. Thanks.

Sure. Yeah. Great question. So I would say it is across the board in our software and payments segments. As I said, we're not looking for much out of services and print. We're really focused on how software and payments are delivering. And the outperformance is coming, of course, from transactional software and payments. So customers who are running more card and ACH transactions through the system, that's transactional. We're also getting some outperformance on subscription, but it is really the transactional components. And we've seen it come back strong. I think after Q1, we had some cautious optimism that this would continue. I think after Q2, heading into July, seeing that momentum continuing into July, we feel very good about the rest of the year.

Okay, great. Thank you, and congrats again on the results.

Thanks.

Your next question comes from the line of George Mahalos with Cowan. Please proceed with your question.

Hey, guys. Good afternoon, and thanks for taking my questions. I guess the first thing I wanted to ask is just on a high-level flint, if you can talk a little bit more in depth on the Global Partner Program and maybe how you're benchmarking success over there, and potentially you talk about sort of an acceleration in growth. Maybe if you're not going to quantify that, just kind of give us a sense of How meaningful of an acceleration could that drive longer term?

So if successful, it can be incredibly meaningful. So we have to prove that we can drive significant business from the channel. So we've always been a company that had channel-influenced business, and we had partnerships with ERPs and different things, but it was ultimately us signing the business. You know, the last time we talked about customers, you know, we had, I think the number was around number around 1,800 customers. We're not getting to 10,000, 20,000 customers just by hiring direct salespeople. The way we get to 10,000, 20,000 customers is by arming the channel, and this is banks who resell the VPN digital lockbox to their treasury clients. It's AP providers who want a more supplier-friendly solution. It is integration with ERPs and a go-to-market strategy with those ERPs. So if we are successful, and other companies have proven success here, it is a potential game changer. We don't want to spend too much time talking about things that we haven't proven yet, but we have been consistent about speaking about the importance of the channel. We've made significant hires here. We've announced some great channel partnerships. VPN is a classic channel strategy with our interoperability, so it is a big deal for us to execute here.

Okay, I appreciate the color and the enthusiasm there. Mark, just wanted to circle back on a prior question on the second half gross margin. I guess if I'm looking at net revenue over the back half of the year, it's comparable and similar to what we saw in the second quarter with a better than 71% gross margin. So I just want to make sure I understand what would be pushing it down. Is that, as you said, just some conservatism? Is it sort of channels that are that are impacting it, and is that something that you're seeing now, or you just want to kind of have a cushion there as you think about the back half of the year? Thank you. Sure.

We're not seeing pressure on gross margins that is making me concerned about the back half of the year. I think we had great performance in the first half. We're looking to make some investments, perhaps catch up on some hiring. So there are different things that could put some pressure on gross margins, and It just seemed to me we should factor in some of those possibilities. But we are not seeing any pressures on them right now. As we've said before, our software and payments gross margins are already in the 80s, and it's really just a mix of how they're bouncing up against services and print. And that's what brings it down into somewhere in the 70s.

Okay, thank you.

Your next question comes from line of Joseph Vafi with Ken Accord. Please proceed with your question.

Hey, Flint. Hey, Mark. Nice follow through here on your second public order. Congrats on that. Maybe I'm just going to kind of follow up on George's question a little bit here on the channel. Could you remind us kind of how deep the channel is at this point? I mean, from my view, it seems like you've developed some great software, some great solutions. And one of the big pain points at this point is really your customers being able to get your solutions installed relative to what they're doing now. And maybe a little more color on how the channel and some of your consulting partners can kind of help kind of prime the pump on some of your customers or your new leads. And then I'll have a follow up from there.

I think the most obvious example is around the VPN digital lockbox. So we believe that ultimately every large enterprise is going to need a way to accept electronic payments efficiently. If you think about a way electronic payments come in today, It is a hot mess, right? You've got virtual cards being delivered via email. ACH is coming in with a deposit into their bank account and separately an email remittance. You've got many remittance details stuck on websites that our customers have to log into. And the BPM Digital Lockbox automates all of that. As more and more payments go digital, that problem becomes worse. So we believe that everybody's going to ultimately need that. We think banks should have a role in that. Banks have these treasury groups that sell to corporates on a regular basis and they want to be relevant. They don't want to be sort of blocked out of this like they were blocked out of payroll. We think they want to offer more than just depository solutions. And, you know, we've got a channel team that is aggressively signing up banks to offer that digital lockbox to their treasury clients. So you could, you know, one of the challenges we have as a software company is building that new relationship and signing that new logo. Once we sign a customer, they generally stay with us for a long time, and we're able to cross-sell additional things. But landing new logos, no big surprise, is hard because they don't have a relationship with us. Banks already have these relationships, often at the highest level. They've got a credit facility or something like that. So it's much easier for them to get an audience with the right people to bring interesting stories like a digital lockbox. So that's why I think it's so transformative. We've got work to do. It's early innings. But we're pretty excited about the bets we've made so far.

We could probably talk about this whole area for a while, Flint, but you have a lot of channel partners here. You've got systems integrators. You've got financial institutions. How do you sort that out?

Yeah, the goal is not to have a thousand partners. The goal is to have performing partners. We announced the hiring of Gwen Lazar earlier this year, and We inherited some partners. She inherited some partners, and we're sorting through them. Some we are discontinuing the partnership because it's not performing as we expected, but we expect different things from different partners. We've got partners now who are implementing our solutions because one of the keys to scalability is making sure that we can turn up the dial around implementations. We've got partners like Visa who are aggressively introducing us into the bank network and have been a key part of our BillTrust success. So making sure you know what you want out of the partner, making sure there's something in it for them, making sure there's skin in the game on both sides so that you both want to perform. We're not very excited about doing just press release partnerships. We've been around for 20 years. We don't really need to do that kind of stuff. So we're looking for partnerships that actually will deliver results for both us and the partner.

Great. Thanks so much, Flint. Great results, guys.

Thank you.

Thanks, Jeff. Your next question comes from the line of Tianxinhuang with JP Morgan. Please proceed with your question.

Yes, thank you. Let me add, for sure, great results and you covered a lot of ground here. I hear the raise and the sales investments and the partner channel and I know the comp in the second half is a little bit tougher, but I wanted to ask on that. Do you feel like you can replenish that backlog with some large customer additions here in the second half given what you see in the pipeline?

I don't think the new sale – Mark, let me just – a little high tension. Any customers that we sign in the back half of the year, you're not going to see a material impact. So we did a great first and second quarter in terms of sales. That will certainly have an impact on revenue. But I think Mark has addressed the – we've got certain visibility into what happens. We've shown accelerated payments, and we've got a great tailwind behind us. So I don't expect that all to contribute in the back half of the year.

Got it. But just in general then fair point, right? Nothing translates or converts that quickly, but just in general from us beyond the logo, the quantity of logos, just curious on the quad quality or the size of some of the, some of the wins as well as what you see in the pipeline, if there's anything interesting to share there.

I don't think we're sharing, you know, yeah, I was, I guess I think about it the following way. Let's put it in context in gin. If we think about where we finished last year, Q4 was 12% year-over-year growth in net revenue. Nevertheless, we went into this year with visibility where we were able to guide to 16% year-over-year, full-year growth, and now we're raising that to 18%. So the fact that there are tough comps that are making it look like there's deceleration in I think we've seen this same story in the past where we finish on a relative basis year over year at a lower comp, but with the right backlog taking us into the next year and with things that then sort of grow over on a year over year basis to the right levels. And I think that's why we're saying we have good visibility into how our software and payments business continues to grow. We're looking for that growth. at a four level in the low to mid 20s. And as I said, there are other things at play that could possibly bring it higher. So we feel pretty good about where we are and the visibility we have around our software and payments business.

Yeah, no, it certainly sounds that way. Last one, if you don't mind, just on the hiring side, that's been a theme. I think everyone's heard me ask this question a million times. I'll ask you guys too. Just this war for talent and you know, finding the right people to lean in on investments. Do you feel like you can get the folks you're looking for on that front?

Mark, you want me to take that one? Yeah.

Thank you. Yeah, it's a tough labor market for sure. And, you know, we offer a, you know, a great environment with a great culture that people want to work at. And we are We're certainly filling spots aggressively, but there are a lot of great companies out there trying to get people. So we're certainly landing lots of people. We're hiring new classes of people every couple weeks to fill sales positions, marketing positions, R&D positions, admin positions. So we're pedal to the metal on recruiting, and we've got a great recruiting team that's filling those spots. Okay.

I'm glad to hear it. And the good news is we have a budget that will accommodate that effort.

Right. Thank you for the update, guys. Thank you.

hey guys this is maddie on for josh uh congrats on the quarter and thanks for taking my question um i wanted to circle back to bpn 4.0 again i was just wondering you know now that you guys are connected to over 100 accounts payable portable portals what portion of the market you think that you're able to cover with that yeah that's a great question we talked uh mark and i talked about

what metric we could share around invoice delivery, you know, as another metric for BPN. You know, it's no surprise that, you know, we're going to start where the biggest pain is. I would be making up a number, but I'm sure it's north of 75% of the potential volume with all of those different portals. But, you know, it is, as our customers are, you know, getting requests for new portals, they're quickly added into the system. But, you know, we are, It's probably well north of 75%. I don't know the exact number.

Great. Super helpful. And then, you know, just to go back to that investment in sales and marketing, I was just wondering if you guys could give any color on your mix of go-to-market, you know, as you're investing more in your partnerships, but also in your internal sales team, I guess where you see things shifting mix-wise in the future. Sure.

I don't think we're sharing specific mix of that, but we are aggressively investing in all those things. Aggressively investing in marketing, aggressively investing in our direct sales force, and aggressively investing in our channel. So we believe all will factor into our growth, and if there's an opportunity to invest somewhere that we think will pay dividends, we're making that investment. As you know, we're sitting on a bit of a war chest that's going public with over 280 million cash on the balance sheet. Some of that is certainly earmarked for M&A, but a lot of that is earmarked for growth initiatives, too. So, we're evaluating lots of different internal growth initiatives.

Great. Thanks for answering my question.

Your next question is a follow-up from Joseph Vafi with Canaccord. Please proceed with your question.

Yeah. Hey, guys. I think, you know, maybe some of that was answered in the previous question on capital allocation, but, I mean, you have You could deploy a lot into the channel. You could deploy a lot into sales. You could deploy a lot into, you know, a lot of areas. And, I mean, is there any area right now that, you know, may be perhaps kind of the highest ROI? I mean, I know you already have a good LTV to CAC on your direct effort.

Thanks. Mark, do you want to take a stab at that one?

Yeah. I mean, it's almost like being a kid in a candy store. We have so many fantastic opportunities, Joe, and we are sort of looking at what makes the sense for what is the next dollar going to buy us. And we are weighing somewhat equally investment in our direct investment go-to-market strategy, our channel, and product, because they all play off of each other very nicely. What we're doing at the same time is taking a more deliberate view about what we should be chasing in the market, which customers today, which customers in the future, which types of products will be best return on investment today, which products will we be spending later on. So I think we're trying to impose discipline on how to spend. We are trying to stay within budgets that we originally set, and the only variance from those budgets is acceleration of what was already on the radar screen for next year. If we can bring that into this year somewhat, we'll do that to accelerate growth. But I don't know how to answer the question differently other than, you know, we see channel direct and product and then just layer on the timing of when we want to, you know, which investments we're looking to get the greatest return in the short term, which investments we're making for a longer term opportunity. Is there something else to add to that?

Yeah, that's good color, Mark. I think it's just, you know, it's a very active market. It's very opportunistic. And I think, you know, we're all, you know, there are just a lot of growth opportunities.

And so just staying focused is what's important here. That is what we're doing. Thanks, guys.

Ladies and gentlemen, we have reached the end of the question and answer session, and I'd like to turn a call back to management for closing remarks.

Once again, thank you everybody for participating in this earnings call. We are incredibly excited about the results we put up in the second quarter, but more excited about the future ahead as we continue to reinvent accounts receivable and B2B payments. Have a great night.

This concludes today's conference. You may disconnect your lines at this time. Thank you all for your participation.