BTRS Holdings Inc.

and we've gotten requests for lots of other types of disclosures, so we don't have any specific disclosure around BPN invoicing, which is the distribution of invoices into third-party accounts payable portals. We've been very happy with the market acceptance so far and have seen lots of adoption, but we're not ready to share any specifics around that yet.

Okay, no problem. Thank you, guys.

Our next question comes from the line of George Mahalos with Cowan. You may proceed with your question.

Hey, good evening, guys. Let me add my congrats on a very solid quarter and, as always, appreciate the additional disclosure. Very helpful. I guess maybe for my first question, if we can kind of dovetail back to the first question that was asked just around the monetization of – the credit card TPV, it looks, guys, like basically if I look on an annual basis, you've been able to improve that yield by a little under, call it a basis point on an annualized basis. Is that a good way to be thinking about it going forward, or should that accelerate a little bit as there's a bigger contribution coming from the BPN and payback monetization?

Mark, you want to take that?

Sure. I think that that isn't a bad way to think about it. And yes, there is the upside of greater acceleration as we grow volumes. I mean, we're growing volumes at a very healthy pace through the PACE Act. And as we do so, George, it then reduces the impact of the lower revenue generated from the historic gateway fees that we were getting. So I think it's not a bad way to think about that as a floor and to consider the possibility of upside to it.

Okay, that's super helpful, Mark. And just one more if I can kind of sneak in. Nice to see the gross margin ticking up and you're taking up the guide. Just curious, I guess on the math that I've done, it looks like for fourth quarter you're talking about something a margin that is, you know, maybe at the upper end kind of flattish to 3Q, maybe down a little bit depending on where revenue falls. Just curious if there's anything embedded in there that we need to think about. Is it an impact from acquisition or something else that might be impacting that?

Yeah, I mean, there's nothing major going on and no problems in the business. The things that, you know, we want to make sure we're being cautious about is the potential direct cost associated with print and the possibility of some costs that may be coming in from our acquisition, but nothing major.

Okay, great. Appreciate it, guys, and congrats. Really, really solid results. Thanks, George.

Our next question comes from the line of Mayang Tandon with Needham. You may proceed with your question.

Thank you. Good evening. Congrats, Flint and Mark, on a strong quarter. I wanted to just start with maybe directionally, if you could talk about 2022 based on the client decision-making and just the adoption of AR automation. Is it possible that maybe growth could run above trend if some of these supply chain issues are resolved and businesses have more visibility? Would that in any way help maybe drive an acceleration in 2022 above trend or should we expect that to be more still normalized growth based on your long-term, medium-term outlook?

So at this point, it would be early for us to be guiding 2022. But at a high level, if you're asking, is there potential upside to something in the mid-20s, the answer is absolutely yes. It's too early to guide that or to know that. But the things that we would think about are, again, the economy continues and then potentially picks up as we get through the supply chain issues. And then on top of that, We're seeing a lot of good stuff percolating in our partnership area as well as the success we're having in our direct sales. And depending on how quickly some of those possibilities take shape, that could provide upside. And then in general, we've been very pleased to see the performance in the existing portfolio perform better than we had been anticipating. both in terms of card volumes and yield on card volumes, as well as utilization of our software and customers going into higher tiers. So I think all of those come together to create a possibility, but certainly, as I said, too early for us to guide that and give comfort around it.

Right. That's very helpful. And then I would just ask you about the international side. Given the acquisition, what is the realistic timeline on scaling customers the international footprint, like when does it become more meaningful and a needle more to the business? And in that context, like what are some of the gating factors to really driving that international scale over time? More for like a general question versus, you know, being specific around like 2022.

I think we shared earlier that as part of our M&A strategy, we were focused on global expansion. You know, putting a handful of salespeople in a country and expecting to grow Greenfield is, not the fastest approach to scaling. So we now have a great beachhead in Belgium to expand from, and we would expect to do so in the very near future. So I don't think this is a three-year thing. This is a immediate term thing.

Got it. Thanks again. Thank you. Thank you.

Our next question comes from the line of Joe Baffi with Canaccord. You may proceed with your question.

Hey, Flint. Hey, Mark. Good afternoon. Great results. Maybe we drill down a little bit on your partners here and signing another bank. And, you know, it looks like now you've got four of the five top banks. Obviously, there could be a fifth bank. But if you look across those partners and, you know, what they're doing with their clients on, you know, on treasury and on cash management and what they're thinking about moving forward, Just interesting to get a feel for how penetrated BPN is across their customers and what that opportunity may look like from a partnership basis over the next couple of years.

Yeah, that's a great question. So as you know, there's two sides to the business payments network. There's the issuing side and then there's the acceptance side. On the issuing side, I think we've proven to the market that You almost have to be on VPN if you want to drive significant card payments, and that's why we've had so much success signing banks and AP software vendors, and that's why volumes have increased so substantially. We're in the middle of proving that on the supplier side, or what the banks call the treasury side, that every supplier of scale is going to need a digital lockbox that they can accept all of their card payments and ACH payments and their wire payments, because we're going through a sort of generational shift. We went through Cash to check. We're now going through check to digital and the equivalent of a paper lockbox is needed on the electronic side. So we announced that one bank is now in pilot with us reselling the digital lockbox to their customers. I'm sorry, referring business around the digital lockbox. So we are early in the journey around having treasury departments at banks reselling. So yeah, that could be a great accelerator into the business if we continue to prove that drives business for them and they can remain relevant around payments for their treasury clients.

That's great. And then, you know, maybe just drilling down on that a little bit more, Flint, on that digital lockbox and its maturity level and, you know, one big bank on the digital, you know, kind of signed up here on the digital lockbox. I'd assume that is already one of the banks that you have signed up, you know, on the other side of the business. And Are the other banks looking at that lockbox as an opportunity on their treasury side?

Yeah, so we hired Gwen Lazar to run channels for us earlier this year, and we are aggressively pursuing both sides of the bank, both the issuing side and the acquiring side. So that is a big focus for us to expand the amount of sales we get from the channel, and banks are a part of that, ERPs are a part of that, as well as system integrators.

That's great. Thanks so much, guys. Thank you.

As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad one moment while we pull for questions. Our next question comes from the line of Bob Napoli with William Blair. You may proceed with your question.

Hey, good evening, guys. This is Adib on for Bob. Just on iController and the acquisition, any more color you could provide on that deal and what you guys are going for would be helpful. And then anything in terms of financial metrics you could share relating to revenue growth rates and margins and maybe your expectations around cross-sell.

Thanks. Mark, do you want to take that?

There are so many aspects to it.

I'll take the cross-sell component.

Yeah. Just on the financial side, I think what we indicated is On a trailing 12 months, it was contributing, you know, call it something less than 4 million that we expect to have in next year's numbers. And then, which we think will, you know, we will be able to then grow through our cross-sells, which, you know, Flint just spoke about. Other than that, I'm not sure that there's any other information we can share about that transaction. Overall, in the scheme of things, we think it's material from a strategic perspective, but right now not material from a financial perspective.

The one thing I'll add to that is this is not our first acquisition where we bought a company with a product and cross-sold it into our existing customer base, but that cross-sell goes both directions. They have north of 500 customers that need more expansive accounts receivable solutions. We have thousands of customers that need collection solutions, so that cross-sell goes both directions, and we have experience doing that.

Great. Makes sense. And then for the follow-up, clearly, Bill Trust has been accelerating investments in sales and marketing and R&D, which are both up significantly year-over-year. Could you guys kind of just talk about how some of these increases are being invested into the business and what types of returns you guys are seeing from these investments? Thank you.

Yes, we've disclosed we've invested aggressively in sales and marketing, and we're going to continue to invest in sales and marketing when we can see the returns.

So that is direct salespeople, that's channel salespeople, that is marketing activities and marketing people. So we want to make sure that our CACT LTV ratios are strong, and we will continue to monitor those and make investments where we think we can get a good return on that. There's lots of things we can fund from an R&D perspective, and you know, the business payments network is a massive breakout opportunity for us, and we're going to fund that aggressively. So lots of great opportunities for us to fund. We don't fund every great idea we have, but we are picky about those things that we choose to fund, and we think we've, you know, balanced those needs.

Great. Thanks very much.

Ladies and gentlemen, we have reached the end of today's question and answer session. I would like to turn this call back over to Mr. Flint Lane for closing remarks.

Yeah, once again, thank you, everybody. It's been a great journey so far as a public company, and we're excited to continue this journey with you. So thanks, and have a great evening.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Enjoy the rest of your day. THE END Thank you. Music. Thank you. Thank you. Thank you. Thank you. you you Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to Bill Trust's third quarter 2021 earnings conference call. As a reminder, this conference call is being recorded. I would now like to turn this call over to John T. Williams, head of investor relations. Thank you, sir. You may begin.

Thank you, operator. Before we begin, I'll 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 on 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. Reconciliation to the nearest gap measure can be found in today's earnings release, which is available on our website. Hosting today's call are Flint Lane, BillTrust's founder and chief executive officer, and Mark Schiffke, BillTrust's chief financial officer. I'll now turn the call over to Flint to begin.

Thanks, John, and thank you, everybody, for joining the call today. The third quarter was another great quarter for BillTrust, both financially as well as strategically. I'd like to share a few headlines first and then discuss some of the trends that we're seeing. I'll then address some of the more frequent questions we get and then hand it off to Mark for more detail on our performance and updated guidance for the year. We once again saw great results in our core software and payments revenue line, which exceeded our expectations and grew 22% year over year. You may recall that we had some one-time deferred revenue accelerated into the first quarter. If that revenue had been recognized throughout the year, the software and payments segment revenue growth would have been 25%. Adjusted growth margin percentage also exceeded our expectations and came in at 72.7% compared to 70.5% in the third quarter of 2020. We expect this to continue to trend up as we drive customers from print to digital and continue to grow our software and payments revenue. Total payment volume, or TPV, which is the dollar value of customer payment transactions that we process on our platform, increased 41% year-over-year to $21.0 billion versus $14.9 billion in the year-ago quarter. TPV through the business payments network, or BPN TPV, increased 102% year-over-year in Q3. The credit card component of BPN TPV grew $1.9 billion in Q3 and is up 72% year-over-year and year-to-date through September exceeds $5 billion. Additionally, on the BPN front, our partnership with Visa continues to pay dividends as we signed another top five bank issuer to process payments through BPN, giving us four of the top five U.S. bank issuers as BPN partners. We also entered into a pilot agreement with a major bank to offer the BPN supplier experience, what we call the BPN Digital Lockbox, to their treasury clients. We've received many questions related to payment revenue and what many refer to as take rate or yield. For the first time, we have decided to break out the revenue we get from processing credit card payments, which we call direct card revenue or DCR. DCR is the fastest growing component of our software and payments revenue. Viewing this in concert with our card-related TPV reveals favorable underlying trends as our payments mix shifts towards card and our legacy gateway business migrates to PayFac. Q3 direct card revenue was $4.2 million, representing 77% year-over-year growth and a quarterly yield of 5.7 basis points. The yield on DCR has been growing year-over-year as we move more and more of our card volume onto our PayFac and expect that to grow into the teens over the long term. In addition, our average card transaction size is approximately $2,500, which drives great per-unit transaction fees that have also been increasing over time. These card payment metrics, including historicals, are available in our earnings supplement. We were also very excited to announce last month our most recent acquisition, iController, based in Belgium. This is our first acquisition as a public company and ninth in company history. iController has several hundred customers throughout Europe using their collection solutions. This deal will help accelerate our global expansion and is part of the strategy we have shared in the past around M&A. I would now like to highlight three keys to our investment story. The first is the favorable secular trends. The world is moving more and more to electronic billing and payments, and suppliers and buyers need help with that transition. Companies are seeing an opportunity to generate significant cost savings and improve cash collections by digitizing accounts receivable workflows. Bill Trust has built and scaled a superior, robust platform that allows them to do just that and more. The rapid uptake of digital accounts payable software solutions has created even more complexity for suppliers, our customers, requiring manual activity for invoice presentment, remittance capture, and electronic payment processing. Governments have required B2B sellers to interact with electronic tax validation systems in order to present invoices. The global pandemic, working from home, and reduced U.S. post office service have further accelerated this transition to digital solutions, and we see the direct impacts of that in our customer portfolio and accompanying invoice dollar volumes on our platform. The second key to our investment story is the enormous underpenetrated addressable markets. We've talked about the top-down view of our addressable market before, 280 billion global invoices for software, $120 trillion in global commercial payments. B2B commerce drives approximately two-thirds of global payments. These markets will continue to get bigger, and we expect to grow faster than the overall industry and take a disproportionate share of the market. Drilling down a bit, we estimate that the North American addressable market for digital accounts receivable transformation is $11 billion, with a target universe of 50,000 businesses with annual revenue greater than $50 million and potential annual revenue to us of approximately $250,000 per customer. Roughly 50% of B2B payments are still made using paper checks, which are expensive, slow, and risky. BuildTrust is driving that digital transformation for our customers, our bank partners, and the entire ecosystem with BPN. And remember, we have several ways we grow, adding new customers, cross-selling additional solutions into existing customers, increasing digital conversion, and by more effectively monetizing payments. Put simply, this is a huge TAM and a great long-term opportunity. Lastly, we are a platform. Our SaaS solutions are mission critical and integrate across a broad array of ecosystem players, including financial institutions, ERPs, and AP software platforms. We help our customers accelerate cash flow and generate sales more quickly and efficiently. We have customers of varying sizes across a variety of industries, but the common thread is that they're all high volume billers with highly diverse buyer sets, meaning their buyers require them to invoice and collect payment in many different ways. Our customers' needs are complex and our scalable offerings streamline their entire process, whether via our core SaaS offerings, our growing payment suite, or through BPN, our two-sided network. I'd now like to address some of the questions we get frequently from investors. Question one, why are you focused on AR and how does it differ from AP? AR, or accounts receivable, is the lifeblood of corporations. Simply put, if companies don't have cash, they can't pay their bills and can't operate. We hear a lot these days about the accounts payable side, or AP. AR is more complex and we believe ripe for innovation. The traditional AR process is laden with inefficiencies. There are multiple steps that need to be taken before a company can get paid, from credit decisioning to order placement and processing, invoicing, and cash application. These steps are time-consuming, paper-intensive, people-intensive, and highly inefficient. Taken together, they represent a real pain point for our customers and an opportunity for Billtrust to drive efficiencies, accelerate payments, and help them manage the entire order-to-cash process. On the AP side, automation has been a mixed blessing. AP departments have happily pushed spend onto virtual credit cards to capture generous, high-margin interchange rebates, and many AP providers have eagerly helped with that transition. Payable spend is being monetized, turned into mini profit centers that have been great for AP software vendors, banks, and the companies themselves. But this is creating significant complications to the accounts receivable department, which is now forced to deal with the inefficient delivery of credit cards and payments, often through email, plus lots of manual transactions and verifications that are simply too much to handle. Some of our customers get thousands of these email payments per month, which is quite a mess. To solve this problem, we developed our Business Payments Network, or BPN, to allow buyers to access a directory of suppliers looking to get paid, move money where it's supposed to go, and properly and automatically apply that payment against open invoice. Now, there's a nice connection here between the question about AR versus AP, and our second common investor question is, can you explain BPN and why it's special? At a very basic level, BPN is to business-to-business transactions what Venmo is to person-to-person transactions. In both cases, there is a two-sided network that includes a directory of parties that can be paid, a money movement tool, and remittance information. BPN is an open network that leverages our AR platform and connects the financial services ecosystem, including AP providers, payment card issuers, ERPs, and banks, bringing together suppliers and buyers at its core. We partnered with Visa, banks, and software vendors because we understand that the sheer size and importance of this problem requires a comprehensive and interoperable solution. Question three, simply explain your business model and how you get paid. Over 75% of our revenue is generated from software and payments, and the remainder is from print and services. Most of our software revenue is generated from subscriptions for our AR solutions, but we continue to increase the amount of payments-related subscription revenue from processing ACH and cards. This revenue is highly predictable. The majority of our non-subscription card payment volume is driven through credit card gateways. However, the fastest-growing and highest-yielding direct card revenue is generated as basis points on the volume processed through our PayFac. Providing print services coupled with a digital solution is how we initiate some of our customer relationships, and we have a team dedicated to helping our customers to continue on the path to e-invoicing and other e-solutions, which all include a payments opportunity. We also provide services both for implementations and post-implementation projects. We are maniacally focused on pleasing our customers, which continues to help us maximize their lifetime value. Our success in landing and expanding customer relationships NDR and software and payments approaching 120% for the full year reflects the success we are having with our platform. Question four, how do you monetize payments? We process customer payments that come in through BPN and through branded customer portals, which are websites where their small customers can go to review and pay bills. We generate subscription revenue from processing ACH and certain card payments, We generate interchange and gateway fees in connection with processing credit card and virtual card payments. In general, relatively larger dollar payments are transmitted through BPN and smaller dollar payments through customer portals. Given that both BPN and our PayFac were introduced in the last five years, most of the card volume we process is still through customer portals using our gateway. The fastest growing portion of our card payments portfolio and the materially higher take rate on volumes comes through our PayFact, which we use to monetize substantially all of the card payments processed through BPN. We generally get 10 to 40 basis points on these card volumes with lower rates on outsized volume. Finally, we also receive single digit basis points on volume from AP providers and banks for providing them access to the suppliers on BPN. We've been public now for about 10 months. As part of going public, we committed to investing for growth, driving more payments, expanding our partnership channel, and focusing on M&A. We have kept our promises and our strong performance reflects that. I'll now turn the call over to Mark to review our third quarter results in more detail and provide our updated financial outlook.

Thanks, Flint. We're very pleased with our third quarter results. Q3 software and payment segment revenue grew 21.5% year-over-year from $21.4 million to $26 million, or $1.5 million more than was implied by our internal forecast. This outperformance was driven by greater-than-expected growth in card TPV and direct card revenue, as well as revenue from increased customer utilization of our software, moving more of those customers to higher subscription tiers in the quarter than we had expected. Services revenue declined 12% year over year to $2.4 million, and print revenue also declined as expected to $4.4 million. In the aggregate, Q3 net revenue was $32.7 million, an increase of 13.6% year over year. Adjusted gross profit was $23.8 million, or 72.7% of net revenue, compared to $20.3 million, or 70.5% of net revenue, in the third quarter of 2020. The year-over-year margin improvement was driven primarily by the higher mix of software and payments revenue relative to our expectations, as well as lower than expected direct cost. Turning now to operating expenses, they were generally in line with expectations. Excluding stock-based comp in each case, research and development expenses were $12.2 million compared to $8.9 million in the year-ago period. We continue to increase our year-over-year spend in sales and marketing as we said we would, which expenses were $9.3 million compared to $5.6 million in the year-ago period. And G&A expenses were $6.6 million compared to $4.6 million in the year-ago period. Adjusted EBITDA came in at a lower loss than expected, or a loss of $4 million compared to positive $1.2 million in the prior year period. We acquired iController shortly after the close of Q3. Acquisition costs in Q3 were $300,000 and are excluded from our calculation of adjusted EBITDA. We ended the quarter with $288.5 million in cash and equivalents in short-term marketable securities on our balance sheet and zero debt. As we have disclosed, we used approximately $57 million of our cash after the end of the quarter for the acquisition of iController. Now we'll turn to our updated four-year outlook. We are raising our net revenue guidance given the strong Q3 results and positive momentum into October. For the fiscal year ending December 31, 2021, our total revenue guidance remains $163 million to $167 million, given the reduction in our estimate of reimbursable costs from $37 million to a range of $34 million to $36 million. but we are increasing and narrowing our net revenue guidance, which excludes reimbursable items from a range of $126 million to $130 million to a range of $129 million to $131 million, which at the midpoint of $130 million represents 20% year-over-year net revenue growth. Included in this guide is less than $1 million attributable to our recent acquisition of iController. This increase in projected net revenue is driven by greater than expected growth in our software and payment segment, which we now expect to grow 26% organically year over year, rather than 23% as previously projected. Given the continued mix shift to higher margin software and payment segment revenue, we are raising our adjusted gross margin range from 70% to 71% to a range of 71.5% to 72.5%. or 72% at the midpoint, a year-over-year increase of 170 basis points. Adjusted gross profit guidance also moves higher from $88 million to $92 million to a range of $93 million to $95 million, or $94 million at the midpoint, a year-over-year increase of 23%. Our prior guidance of full year 2021 adjusted EBITDA pointed towards the higher end of our negative $14 million to negative $16 million range. We intend to again reinvest our quarterly overperformance into the business and expect our full year adjusted EBITDA to be at the higher end, if not slightly above the high end of that prior range. I would like to turn now to our medium to longer term outlook. Our focus on software and payments continues to pay off, as shown by our mix shift from 64% of net revenue in 2017 to approximately 78% year-to-date 2021, as customers continue to shift from print to digital and we continue to monetize payments and VPN. As we look out over the next few years, we are increasingly confident in the sustainability of year-over-year software and payments growth in the mid-20s, adjusted, of course, for any one-time items. Which growth, in turn, should support net revenue growth over the same period in excess of 20% year-over-year. With that in mind, we reiterate our long-term outlook for other key non-GAAP metrics. Adjusted gross margins of 80% plus, with sales and marketing at 25%, R&D 20%, and G&A 10% of net revenue, all of which exclude stock-based compensation expense, with a long-term adjusted EBITDA margin target of 25% plus. Note, we have been showing electronic invoices presented, or e-invoices, as a proxy for the growth of our software business. This is only loosely correlated to software and payments growth, so we've decided to eliminate that metric. We therefore will no longer show e-invoices presented in our quarterly earnings supplement, but we will continue to disclose this metric in our quarterly reports on Form 10-Q and annual report on Form 10-K filed with the SEC in respect to fiscal year 2021. We believe the company is well positioned for the continuation of sustainable high growth and geographic expansion. We are driving acceleration in our payment volumes, continued momentum in our subscription software business, sales and marketing successes via new logo acquisitions, our land and expand strategy, and our focus on long-term revenue acceleration through partnerships. The economy remains on good footing, We expect to exit the year on a strong growth trajectory in our core software and payment segment. We remain incredibly excited about the opportunity in front of us at BuildTrust and are excited to have you along as partners on this journey. Thanks again for joining the call, and we're happy to answer your questions. Operator, please open the lines.

At this time, we will be conducting a question and answer session. 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 to remove your question from the queue. For participants using speaker equipment, it may be necessary for you to pick up your handset before pressing the star keys one moment while we pull for questions. Our first question comes from the line of Andrew Schmidt with CD. You may proceed with your question.

Hey, guys. Thanks for taking my questions and great quarter here. A lot of good stuff to dig into. Appreciate the incremental disclosure. I think it'll be helpful. Just a quick clarification on my end. The direct card revenue, and you might have addressed this, Flint. Sorry if I missed this, but does the direct card revenue include the BPN spread that you earn for allowing AP partners access to the network, or is this just purely PFAC and gateway revenue?

It is more the latter. So no, we don't include the AP charges in the direct card revenue. We only include those things that we can correlate directly to the payment, including gateway, PFAC, and there's some foreign gateway fees and things like that.

Perfect. So yeah, so BP and ramping would be incremental to what we see here. Okay, that's good to know. Obviously, you know, BPN drives card volume, but that's good to understand.

Well, I'm sorry, just to be clear, the BPN card revenue is part of that as well as the rest of the card revenue.

So what AP providers are paying, like a network spread essentially, that's included in the direct card revenue, I guess.

There's two components of revenue on BPN, what we charge the AP participants and what we get in terms of acquiring. It's just the acquiring revenue that's included here.

Perfect. Okay. Yep. That makes a lot of sense. I appreciate that clarification. Mark, you mentioned the mid-20s growth rate over the intermediate term in the 20%. The mid-20s kind of software payments revenue growth through intermediate term, 20% total revenue growth. But if I look at the page in your deck that has the normalized software payments growth, it looks like it's already running at 25%. You're already there. We haven't seen kind of the effect of all the initiatives that you put in place. So maybe some context in terms of that intermediate guide in terms of what you're assuming for productivity from everything you're putting in motion today.

Yeah, great question, Andrew. And again, we continue to see the opportunity to grow in the mid-20s on top of growth that was previously in the mid-20s. What we're looking at right now is feeling very good about seeing the continued momentum of the organic growth in our existing business. And then on top of that, we're seeing the effects of our increased spend on sales and marketing. So we're looking for continued growth coming from new sales, both to existing logos as well as new logos that then start the process of our land and expand motion. We are very excited about iController. We see that as replacing in part some of the grow over revenue we'll have from the loss of a customer this year going into next year. And then the opportunity for revenue synergies on top of that, both in the US and in Europe. And we'll probably see some contribution from an increase in prices. So when you put that all together, we see that opportunity for that, you know, mid-20s growth for the, you know, medium term.

Got it. Thank you for that. If I could just sneak one more in. What's the right way to think about just the ceiling for card yield? And, you know, what should we expect to continue moving up at the pace it's been moving up at over the past couple years? Or is there an opportunity to accelerate that, the growth in yield?

Thanks, guys. I think we can expect to continue to see that increase, and what I shared in my commentary is we expect it to hit the teens in the long term.

Perfect. Thanks, Flynn. Thanks, Mark. Gratitude in the corner. Appreciate it. Thank you, Andrew.

Our next question comes from the line of Tianxing Huang with J.P. Morgan. You may proceed with your question.

Hey guys, this is Andrew on for contingent. Congrats on the quarter. Thanks. I said, just had two questions. The first one on gross margin is really nice gross and margin expansion, both year over year and sequentially, you know, beating our forecast. I know you talked about a little bit, but can you drill in on some of the drivers? Was there any benefit from organic investments you guys have been making over the past couple of years? And I just wanted to make sure I caught it right. You said that you expect this level to continue, so that suggests it's largely a recurring benefit, but just wanted to clarify.

Sure. So, look, there are a couple of things that you look at in adjusted gross margin. On the one hand, our software and payments revenue is already generating adjusted gross margins in the 80s. And so on a consolidated basis, that will be diluted somewhat by the margins we have on print and the margins associated with services. In the quarter, we saw more customers going through existing tiers into higher tiers and at a faster or greater pace than we had expected. At the same time, some of our direct costs associated with generating revenue were less than we anticipated. We saw that benefit in the quarter. As we look forward, we expect to see a continuation of our software and payments growth relative to other parts of the business. And as we continue to see that mix shift, that should continue to pull our adjusted gross margins upward.

Great. That's helpful. And I said one more quick one in BPN. It's been several months now since you guys announced BPN 4.0. I was just curious if there are any milestones or highlights that you're able to share with us today.

You know, we added the direct card revenue and we've gotten requests for lots of other types of disclosures. So we don't have any specific disclosure around BPN invoicing, which is the distribution of invoices into third party accounts payable portals. We've been very happy with the market acceptance so far and have seen lots of adoption, but we're not ready to share any specifics around that yet.

Okay, no problem. Thank you, guys.

Our next question comes from the line of George Mahalos with Cowan. You may proceed with your question.

Hey, good evening, guys. Let me add my congrats on a very solid quarter and, as always, appreciate the additional time disclosure are very, very helpful. I guess maybe for my first question, if we can kind of dovetail back to the first question that was asked just around the monetization of the credit card TPV, it looks, guys, like basically if I look on an annual basis, you've been able to improve that yield by a little under, call it a basis point on an annualized basis. Is that a good way to be thinking about it going forward, or should that accelerate a little bit as there's a bigger contribution coming from the VPN and payback monetization?

Mark, do you want to take that?

Sure. I think that isn't a bad way to think about it, and yes, there is the upside of greater acceleration as we grow volumes. I mean, we're growing volumes at a, very healthy pace through the PACE Act. And as we do so, George, it then reduces the impact of the lower revenue generated from the historic gateway fees that we were getting. So I think it's not a bad way to think about that as a floor and to consider the possibility of upside to it.

Okay, that's super helpful, Mark. And just one more, if I can kind of sneak in. Nice to see the gross margin ticking up and you're taking up the guide. Just curious, I guess on the math that I've done, it looks like for fourth quarter, you're talking about something, a margin that is, you know, maybe at the upper end kind of flattish to 3Q, maybe down a little bit depending on where revenue falls. Just curious if there's anything embedded in there that we need to think about. Is it an impact from from acquisition or something else that might be impacting that?

Yeah, I mean, there's nothing major going on and no problems in the business. The things that, you know, we want to make sure we're being cautious about is the potential direct cost associated with print and the possibility of some costs that may be coming in from our acquisition, but nothing major.

Okay, great. Appreciate it, guys, and congrats. Really, really solid results. Thanks, George.

Our next question comes from the line of Mayang Tandon with Needham. You may proceed with your question.

Thank you. Good evening. Congrats, Flint and Mark, on a strong quarter. I wanted to just start with maybe directionally if you could talk about 2022 based on the client decision-making and just the adoption of AR automation Is it possible that maybe growth could run above trend if some of these supply chain issues are resolved and businesses have more visibility? Would that in any way help maybe drive an acceleration in 2022 above trend? Or should we expect that to be more still normalized growth based on your long-term, medium-term outlook?

Yeah. So at this point, you know, it would be early for us to be guiding 2022. But at a high level, if you're asking, is there potential upside to something in the mid-20s, the answer is absolutely yes. It's too early to guide that or to know that. But the things that we would think about are, again, the economy continues and then potentially picks up as we get through the supply chain issues. And then on top of that, We're seeing a lot of good stuff percolating in our partnership area as well as the success we're having in our direct sales. And depending on how quickly some of those possibilities take shape, that could provide upside. And then in general, we've been very pleased to see the performance in the existing portfolio perform better than we had been anticipating before. both in terms of card volumes and yield on card volumes, as well as utilization of our software and customers going into higher tiers. So I think all of those come together to create a possibility, but certainly, as I said, too early for us to guide that and give comfort around it.

Right. That's very helpful. And then I would just ask you about the international side, given the acquisition, what are the realistic timeline on scaling and, the international footprint, like when does it become more meaningful and a needle more to the business? And in that context, like what are some of the gating factors to really driving that international scale over time? More for like a general question versus, you know, being specific around like 2022.

I think we shared earlier that as part of our M&A strategy, we were focused on global expansion. You know, putting a handful of salespeople in a country and expecting to grow Greenfield is, not the fastest approach to scaling. So we now have a great beachhead in Belgium to expand from and we would expect to do so in the very near future. So I don't think this is a three-year thing. This is a immediate term thing.

Got it. Thanks again. Thank you. Thank you.

Our next question comes from the line of Joe Baffi with Canaccord. You may proceed with your question.

Hey, Flint. Hey, Mark. Good afternoon. Great results. Maybe we'd drill down a little bit on your partners here and signing another bank. It looks like now you've got four of the five top banks. Obviously, there could be a fifth bank, but if you look across those partners and what they're doing with their clients on treasury and on cash management and what they're thinking about moving forward, Just interesting to get a feel for how penetrated BPN is across their customers and what that opportunity may look like from a partnership basis over the next couple of years.

Yeah, that's a great question. So as you know, there's two sides to the business payments network. There's the issuing side and then there's the acceptance side. On the issuing side, I think we've proven to the market that You almost have to be on VPN if you want to drive significant card payments, and that's why we've had so much success signing banks and AP software vendors, and that's why volumes have increased so substantially. We're in the middle of proving that on the supplier side, or what the banks call the treasury side, that every supplier of scale is going to need a digital lockbox that they can accept all of their card payments and ACH payments and their wire payments, because we're going through a short generational shift. We went through Cash to check. We're now going through check to digital. And the equivalent of a paper lockbox is needed on the electronic side. So we announced that one bank is now in pilot with us reselling the digital lockbox to their customers. I'm sorry, referring business around the digital lockbox. So we are early in the journey around having treasury departments at banks reselling. So yeah, that could be a great accelerant to the business if we continue to prove that drives business for them and they can remain relevant around payments for their treasury clients.

That's great. And then, you know, maybe just drilling down on that a little bit more, Flint, on that digital lockbox and its maturity level and, you know, one big bank on the digital, you know, kind of signed up here on the digital lockbox. I'd assume that is already one of the banks that you have signed up, you know, on the other side of the business. And Are the other banks looking at that lockbox as an opportunity on their treasury side?

Yeah, so we hired Gwen Lazar to run channels for us earlier this year, and we are aggressively pursuing both sides of the bank, both the issuing side and the acquiring side. So that is a big focus for us to expand the amount of sales we get from the channel, and banks are a part of that. ERPs are a part of that, as well as system integrators.

That's great. Thanks so much, guys. Thank you.

As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad one moment while we pull for questions. Our next question comes from the line of Bob Napoli with William Blair. You may proceed with your question.

Hey, good evening, guys. This is Adib on for Bob. Just on iController and the acquisition, any more color you could provide on that deal and what you guys are going for would be helpful. And then anything in terms of financial metrics you could share relating to revenue, growth rates, and margins, and maybe your expectations around cross-sell.

Thanks. Mark, do you want to take that?

There are so many aspects to it. I'll take the cross-sell component. Yeah. Just on the financial side, I think what we indicated is On a trailing 12 months, it was contributing, you know, call it something less than $4 million that we expect to have in next year's numbers. And then, which we think, you know, we will be able to then grow through our cross-sells, which, you know, Flint just spoke about. Other than that, I'm not sure that there's any other information we can share about that transaction. Overall, in the scheme of things, we think it's material from a strategic perspective, but right now not material from a financial perspective.

The one thing I'll add to that is this is not our first acquisition where we bought a company with a product and cross-sold it into our existing customer base, but that cross-sell goes both directions. They have north of 500 customers that need more expansive accounts receivable solutions. We have... thousands of customers that need a collection solution. So that cross sell goes both directions and we have experience doing that.

Great. Makes sense. And then for the follow up, clearly Bill Trust has been accelerating investments in sales and marketing and R&D, which are both up significantly year over year. Could you guys kind of just talk about how some of these increases are being invested into the business and what types of returns you guys are seeing from these investments? Thank you.

Yes, we've disclosed we've invested aggressively in sales and marketing, and we're going to continue to invest in sales and marketing when we can see the returns. So that is direct salespeople, that's channel salespeople, that is marketing activities and marketing people. So we want to make sure that our CACT LTV ratios are strong, and we will continue to monitor those and make investments where we think we can get a good return on that. There's lots of things we can fund from an R&D perspective, and you know, the Business Payments Network is a massive breakout opportunity for us, and we're going to fund that aggressively. So lots of great opportunities for us to fund. We don't fund every great idea we have, but we are picky about those things that we choose to fund, and we think we've, you know, balanced those needs.

Great. Thanks very much.

Ladies and gentlemen, we have reached the end of today's question and answer session. I would like to turn this call back over to Mr. Flint Lane for closing remarks.

Yeah, once again, thank you, everybody. It's been a great journey so far as a public company, and we're excited to continue this journey with you. So thanks, and have a great evening.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Enjoy the rest of your day.