BILL Holdings, Inc.

Good afternoon and welcome to Bill.com's fourth quarter and fiscal 2020 earnings conference call. Joining us today for today's call are Bill.com CEO Renee Lissert and CFO John Rettig. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. With that, I would like to turn the call over to John Rettig for introductory remarks. John.

Thank you, Christine. Welcome to Bill.com's fiscal fourth quarter and year-end 2020 earnings conference call. We issued our earnings press release a short time ago and furnished the related form 8K to the SEC. The press release can be found on the investor relations section of our website. With me on the call today is Renee LeCert, chairman, CEO, and founder of Bill.com. Before we begin, please remember that during the course of this call, we may make forward-looking statements about the operations and future results of Bill.com that involve many assumptions, risks, and uncertainties. If any of these risks or uncertainties develop, or if any of the assumptions prove incorrect, actual results could differ materially from those expressed or implied by our forward-looking statements. For a discussion of the risk factors associated with our forward-looking statements, please refer to the text in the company's press release issued today and to our periodic reports filed with the Securities and Exchange Commission, including our Form 10-Q dated May 8, 2020. We disclaim any obligation to update any forward-looking statements. On today's call, we will refer to both GAAP and non-GAAP financial measures. The non-revenue financial figures discussed today are non-GAAP, unless stated that the measure is a GAAP number. Please refer to today's press release for the reconciliation of GAAP to non-GAAP financial performance and additional disclosures regarding these measures. Now, I'll turn the call over to Rene. Rene?

Thanks, John, and good afternoon, everyone. Thank you for joining us today to review our fourth quarter and fiscal 2020 results. Despite the challenging economic environment as a result of COVID, Bill.com delivered very strong financial performance. I'm thankful for all of our dedicated employees for their efforts. First, a quick recap of our financial results for the quarter. Core revenue, which we define as subscription plus transaction revenue, grew by 54% year-over-year to $38.8 million. Total revenue in the quarter grew by 33% year over year to $42.1 million. We also delivered a strong non-GAAP gross margin of 78.6% in the quarter. For the full fiscal year, core revenue was $136.4 million, an increase of 59% from the prior year. Total revenue was $157.6 million, an increase of 45% from the prior year. Non-GAAP gross profit was 78.2%, an increase from 75.8% in fiscal 2019. John will review our financials in more detail later, but first let me give you an update on our overall progress and execution efforts. Bill.com enables SMBs to digitally transform how they manage their cash flows and outflows, making manual paper-based processes obsolete. Customers use our platform anytime, anywhere to generate and process invoices, streamline approvals, send and receive payments, and sync their accounting system. Over the years, we have built sophisticated integrations with popular accounting software solutions, financial institutions, and payment processors, enabling our customers to manage their back office finance functions on our cloud platform. The current work-from-home environment reinforces our vision that now is the time for SMBs to automate their financial operations and and Bill.com is ready to lead the way. At the end of the fourth quarter, we had over 98,000 customers representing 28% year-over-year growth. These 98,000-plus customers trust our platform to manage their financial workflows and process their payments, which total billions of dollars annually. Our platform extends well beyond our customers to our network members. Network members include our customers, suppliers, and clients that exchange electronic payments and collaborate on our platforms. As we increase our network members, it helps us to fulfill our mission of making it simple to connect and do business. At the end of the fourth quarter, Bill.com had over 2.5 million network members, an increase of 39% over the 1.8 million members we had at the end of the last fiscal year. During the quarter, we processed $25.4 billion in total payment volume, or TPV, an increase of 26% over Q4 of the prior year. Despite the significant slowdown in the economy this past quarter, we were very pleased that our TPV surpassed $100 billion on an annualized basis. This demonstrates both the strong customer need for our solution and our ability to scale our operations by adding and expanding new payment capabilities in the last year. Now, I'd like to share a few other highlights of this past fiscal year, starting with cross-border payments. According to McKinsey's 2019 Global Payments Report, worldwide B2B cross-border flows exceeded $133 trillion in 2018. We believe that Bill.com has a large opportunity to capture the portion of these flows that represent US-based SMBs paying their international suppliers. In fiscal 2020, we disbursed over $2.3 billion to international suppliers on behalf of our US customers. up 300% from approximately $570 million in fiscal 2019. We launched this offering in late 2018 after doing an analysis of foreign supplier payments recorded on our platform and receiving requests from customers who wanted a more efficient way to pay offshore vendors. We attribute this strong early growth in TBV to our success in marketing the cross-border service to our installed customer base. We monetized these payments as follows. If our AP customer makes the payment in U.S. dollars, we assess a flat fee, which is priced at a premium over our domestic transaction prices. If the disbursement is made in foreign currency, Bill.com performs the FX conversion based upon the payment amount. For these payments, our revenue is ad valorem, that is, based on the size of the transaction. We believe it is still early in the evolution of our cross-border offering and that there remains a significant growth opportunity. One of the initiatives we focused on is increasing the volume of payments made in foreign currency. Today, approximately 75% of our cross-border payments are made in U.S. dollars, and moving more of this volume to local currency allows us to generate more FX revenue. To reach this goal, we recently piloted new product functionality for international suppliers to choose to receive local currency, even if their invoices were issued in U.S. dollars. The response we have received to date is encouraging. The other part of our transaction revenue that varies based on the TPV is our virtual card offering. We continue to believe this product represents a significant opportunity for us. In its business payments 2022 report, MasterCard projected the virtual card market to grow at a five-year CAGR of 19.2% from 2017 to 2021. MasterCard states that 6% of B2B check volume has already moved to card payments. and that there's an opportunity to shift another 2% to 5% in the next few years. Our experience supports this trend. We've had success in converting a portion of our check payments to virtual cards, which required building in-house capabilities to handle supplier enablement and payment exception handling. We will continue to make investments in this area as we expand our efforts to convert not just checks, but also ACH transactions to virtual cards. Let me give you an example. Through our machine learning capabilities and our access to supplier invoices, we are working to automatically determine which vendors accept cards. At scale, this will make the supplier enablement process faster and less labor intensive. For Q4, our virtual call volume represented approximately 1% of our total TPV, and we believe there is room to grow from there. We will keep you apprised of our progress in this important initiative as we expand our AI capabilities to improve our operational efficiencies and both the customer and supplier experience. Turning now to our go-to-market strategies, we leverage four distinct channels, financial institutions, accounting software companies, accountants, and our own direct response marketing efforts. On this call, we'll be briefly highlighting our progress with each. First, let's discuss our partnerships with financial institutions. Our platform is, or will soon be, the go-to-market solution for the commercial customer segments at the top three largest banks in the U.S., as well as five other major financial institutions. By working with Bill.com, our financial institution partners can provide their customers with many of the benefits realized by our direct customers. However, these partnerships take time to secure, build, and launch. Once a bank selects Bill.com, we begin a development phase where we integrate our platform with the bank's online experience. Simultaneously, the bank develops its go-to-market strategy. Next, We did a targeted rollout of the integrated platform to fine-tune the experience with a pilot customer set. Finally, the white label service is offered to the bank's customer base with ongoing marketing and sales initiatives to promote activation and usage. As an example of this, I'd like to highlight our partnership with the First National Bank of Omaha, or FMBO. FMBO has proudly served its customers for more than 160 years, and we were thrilled when the bank selected us as a strategic partner in 2018. F&BO launched Paymaker, powered by Bill.com, in mid-2019. Paymaker, F&BO's small business accounts payable and receivable solution, is the bank's default cash management offering for business banking. Both F&BO and Bill.com have been happy with the result of the bank's decision to offer a single comprehensive solution for this segment, and we have seen strong adoption of the offering. And just today, we announced that Bill.com and KeyBank have joined forces to introduce Key Cash Flow, an online banking solution that streamlines payment workflow for KeyBank customer segments, including both their small business and commercial customers, enabling them to scale their use of the platform as they grow. Customers can easily manage their cash flow and end-to-end payments powered by Bill.com's AI technology. KeyBank is currently rolling out key cash flow on a pilot basis, and we expect it to be generally available in late calendar 2020. Continuing on the theme of financial institution channel momentum, let me update you on the status of the partnership we announced last quarter with Wells Fargo Bank. Wells Fargo is planning to power a new digital AP and AR solution for its treasury management clients by integrating Bill.com into its commercial electronic office or CEO online portal. This relationship reinforces Bill.com's market position as a leading provider of business AP and AR workflow solutions for major financial institutions. We expect to launch the service later this calendar year. Finally, regarding our financial institution partners, we filed a form 8K in late May disclosing that Bill.com had expanded an existing agreement with one of the top three small business banks in the U.S. The expanded partnership will open the door for us to provide a bank-branded version of Bill.com to the bank's small business clients. We're excited that this bank will enable the new offering as their default bill pay and receivable solution for all of their new SMB banking customers. This significant expansion of our existing relationship represents the largest deal in our financial institution channel to date and includes revenue commitments over a five-year term from the launch date, which is anticipated in calendar 2021. John will discuss how we're investing in support of our financial institution partners later. Another way we reach customers is through our partnerships with the leading accounting software providers for SMBs, including Intuit's QuickBooks. Earlier this month, we announced that we've extended our long-standing partnership with Intuit to support one of their important initiatives, QuickBooks Online Advanced. QuickBooks Online Advanced customers are larger, have more users, and process more transaction volume. They are also a better fit for our platform than the smaller QuickBooks customers we serve today through the simple bill pay offering. As a result, we expect the economics of serving this segment will result in a significantly higher ARPU than what we've experienced with the Simple Bill Pay segment. We will jointly market and promote our existing direct offering, which includes payment and workflow automation capabilities to intuit larger QuickBooks Online Advanced customers as part of its application ecosystem. We will continue to support our existing Simple Bill Pay customers Though starting in Q2, we expect the customers we acquire through this partnership to be primarily the mid-sized customers of QuickBooks Online Advance. According to Intuit, there are an estimated 1.5 million mid-sized businesses that could benefit from our combined solutions enhanced control over cash flow, streamlined payments, and associated workflows. We are excited to be one of a select group of partners that Intuit has chosen to help further penetrate this market. Turning now to our accounting channel, Since the company's early days, we have focused on accounting firms as part of our go-to-market strategy. Accountants are critically important advisors to SMBs. Our accountant-specific tools help accounting firms grow their client advisory practice, establish a competitive advantage, and retain their SMB clients. With our platform, the same accounting firm staff can serve their clients more strategically and generate incremental revenue streams for their practice. Our attention to this market segment has made us a leading provider among accounting firms when it comes to automating financial operations. We ended fiscal 2020 with 80 of the top 100 accounting firms in the U.S., up from 70 at the end of the last fiscal year. In total, Still.com now enables approximately 5,000 accounting firms, up from 4,000 at the end of fiscal 2019, to deliver more value to their customers every day. We believe that Bill.com's penetration of the accounting channel represents just a fraction of the overall opportunity. According to CBA.com, an accounting industry trade group, there are over 45,000 accounting firms in the U.S. that are members of its association. And there are over 100,000 bookkeeping firms who are looking for cloud-based tools to help them become more efficient. We are excited about this channel given the strong penetration we have today and the significant runway ahead. Finally, We acquire customers directly through our own sales and marketing efforts. As we've shared with you previously, we have begun making investments to also target larger SMBs, what we call mid-market. These mid-market businesses are already using our platform, and they are attractive in that they purchase more seats and process more payments, including cross-border. The profile of these mid-market businesses are those that have a larger number of employees and have revenue typically between $10 and $100 million. They also use more advanced software programs such as Oracle NetSuite and Sage Intacct and others. With the increased need for digital solutions that facilitate remote work, we saw increased demand in fiscal Q4 from this customer segment. One terrific example of a new mid-market win in Q4 is Coravin, a global technology company with over 100 employees focused on wine preservation. Corbin's decision to move to Bill.com was driven by a combination of needs and their desire for overall control, visibility, and efficiency. Their new CFO, Jeffrey Lasher, quickly assessed the need for better processes and systems as the company did not have an automated payable solution when he joined. Jeffrey described the benefits of Bill.com by saying, and I quote, Bill.com creates a level of transparency and workflow that we lacked. Before using Bill.com, all of our invoice approvals were done through email, and as a result, there was a lack of timeliness and follow-up. Our AP department spent time chasing approvals, and this was difficult to manage with a geographically distributed workforce. Importantly, Corbin was up and running with Bill.com in a matter of weeks. I can't imagine going back to the prior complex and error-prone process." Corvin's ability to transform its business in a matter of weeks illustrates how COVID is accelerating digital transformation adoption. In closing, I'm happy with the focused execution we demonstrated this quarter and even happier with the progress we made toward our long-term goal of meeting the needs of the 6 million SMBs in the U.S. I'd also like to thank our more than 600 dedicated employees for all their efforts this past fiscal year. These past few months have been exceptionally challenging, and with their hard work and enthusiasm, we didn't miss a beat in helping our customers, and as a result, we delivered a very strong end to our fiscal year. Now, I'll turn the call over to John to review our financials. John?

Thanks, Rene. Today, I'll provide a brief overview of our fiscal fourth quarter and full year 2020 financial results and discuss our outlook for the first quarter of fiscal 2021. As a quick reminder, today's discussion includes non-GAAP financial measures. Please refer to the tables in our earnings press release for a reconciliation from non-GAAP to the most directly comparable GAAP financial measure. With that background, let me turn to our financial results. We delivered solid fourth quarter results with strong year-over-year growth in total and core revenue, as well as strong non-GAAP gross margin and a much lower non-GAAP earnings per share loss than in recent periods. Total revenue for Q4 was 42.1 million, representing growth of 33% over Q4 2019, and for the year, total revenue was 157.6 million, up 45% year-over-year. Core revenue, which represents subscription and transaction fees, was 38.8 million in Q4, growth of 54% year-over-year, and for the full year, core revenue was 136.4 million, an increase of 59% year-over-year. To break down core revenue further, subscription revenue increased to $23.6 million, representing 40% growth from Q4 fiscal 2019, and subscription revenue grew 41% for the full year. This was driven by the increase in customers and the growth in average subscription revenue per customer, which was a result of a price increase that we rolled out in tranches throughout fiscal 2020. Transaction revenue increased to $15.2 million in Q4, up 81% year-over-year, and for the year, transaction revenue is up 100%. This growth was driven by the adoption of new product offerings and the mix of transaction revenue shifting to variable-priced products. We continue to be pleased with the traction we've gained with our cross-border and virtual card payment products, as Renee discussed earlier. With that said, as we discussed on prior calls, we anticipated more difficult comparisons and lower growth rates for transaction revenue compared to the prior year as we pass the anniversary of the early quarters of these new payment solutions, and we expect this trend to continue through fiscal 2021. Moving to float revenue, we generated $3.3 million in float revenue in Q4, and our annualized rate of return on customer funds held in Q4 was approximately 95 basis points, consistent with our guidance. This reduced yield from last quarter reflects the low interest rate environment we're now operating in. Next, I'll give you an update on our key metrics, some of which we report on an annual basis. Also, as with last quarter, given the COVID backdrop, I'll be disclosing additional details that we believe will be helpful to investors, but on an ongoing basis, we don't plan to provide the same level of disclosure. We ended the quarter with 98,100 customers, representing year-over-year growth of 28%. During the quarter, we added more than 6,700 net new customers. The growth in net new customers was driven by strong demand across all channels due to the need to manage financial operations remotely as part of work-from-home orders, as well as the 90-day free subscription offer we ran from late March through April. Our ending customer count includes approximately 1,000 customers that are on the 90-day promotion price plan, and these customers will continue to convert to regular paying customers through the end of August, depending upon the date they first signed up. While the majority of these customers were not paying subscription fees as of the end of June, they do pay for transactions, though they carry a lower ARPU than our average customer. During our last earnings call, we discussed the fact that we were providing subscription fee waivers for existing customers facing COVID-related financial hardship. Through June 30th, the aggregate amount of subscription fee waivers remained less than $100,000, and the vast majority of customers who received waivers are now paying regular subscription rates. At this point, rather than have a formal hardship program, we're working with customers on a case-by-case basis. Moving on to our annual customer retention rating, excluding customers from our financial institution partners, 82% of customers from June 30, 2019 were still customers as of June 30, 2020. This is in line with the 82% we reported as of the end of fiscal 2019, and we believe that this consistency within our customer base during a difficult time reflects the value customers realize from our platform. Bill.com is core to helping SMBs efficiently manage their financial operations, and this is especially true in a remote working environment. Regarding the growth of our customer base going forward, there are two factors over and above the uncertainty of the pandemic that may influence our future customer growth numbers. First, we normally see lower new customers from our accountant channel during the tax season in the months surrounding the tax filing deadline. With the tax season shifting to the July quarter, we're expecting to see this impact shift to Q1 of fiscal 2021. Second, as Renee discussed earlier, we'll be transitioning our focus with Intuit to acquiring its larger QuickBooks Online advanced customers. We anticipate acquiring fewer advanced customers than we've experienced recently with simple bill pay customers because advanced represents a smaller portion of Intuit's overall QuickBooks Online base. Historically, these advanced customers have an ARPU that is approximately seven times higher and a much lower attrition rate than our simple bill pay customers, so we're really excited about this opportunity. Moving from customers to an annual update on our net dollar-based revenue retention rate, as of Q4 2020, net revenue retention was 121%, an increase from 110% as of Q4 fiscal 2019, and a slight increase from Q3 fiscal 2020. The improved revenue retention was driven by the adoption of new variable price transaction offerings as well as the subscription price increase that I mentioned earlier. Looking at total payment volume during the quarter, we processed $25.4 billion in TPV on our platform, an increase of 26% year-over-year. We processed over 5.6 million payment transactions during Q4. As we discussed on our last earnings call, while in the early part of the quarter we saw lower transactions, we generally saw improving trends in both the number of transactions and TPV by the second half of the quarter. Moving on to gross margin and our operating results, our non-GAAP gross margin for the quarter was 78.6%. And for the year, our non-GAAP gross margin was 78.2%. You will recall last quarter we discussed Q3 fiscal 2020 being peak margins, and we expect gross margin in the range of 75% to 77% in the near term, mainly as a result of the reduced float revenue from the low interest rate environment. Turning to our non-GAAP operating expenses, R&D expense was $12.7 million for the quarter, or 30% of revenue, a slight increase from 29% of revenue in the fourth quarter of fiscal 2019. due primarily to investments we've made in our product development organization to enhance our platform and add new features and functionality. We ended the quarter with lower R&D spend in Q4 than in Q3, as we deferred some hiring, though we expect to catch up in Q1, and I'll discuss that in a moment. Sales and marketing expenses were $12 million, or 28% of revenue in Q4 of fiscal 2020, a decrease from 32% of revenue in Q4 of fiscal 2019. During the quarter, we continued to invest in our go-to-market capabilities, though we slowed the pace of spend given the uncertainty around COVID. We expect to continue to invest behind meeting the demand we've experienced from mid-market customers, as well as increasing spend on demand generation, including SEM and brand awareness programs. G&A expenses were $11 million, or 26% of revenue, up from 25% of revenue in Q4 of fiscal 2019. As a reminder, Bill.com's payment products require a significant investment in compliance and regulatory capabilities, such as money transmitter licenses, and this impacts our G&A spend. In Q4 fiscal 2020, our non-GAAP operating loss was $2.6 million versus $3.2 million in Q4 fiscal 2019, and our non-GAAP net loss was $1.8 million, or a loss of $0.02 per share based on 74.1 million basic weighted shares outstanding. Our lower loss level was the result of strong revenue performance combined with our conservative approach to incurring operating expenses in the quarter as COVID unfolded. For the year, our non-GAAP operating loss was $15 million, and our non-GAAP net loss was $11.1 million, or $0.17 per share, on 67.5 million basic weighted shares outstanding. Because we had a net loss on a GAAP basis, our diluted share count was the same as the basic share count for both GAAP and non-GAAP EPS calculations. Moving on to the balance sheet, ending cash, cash equivalents, and short-term investments were $698 million, up from $382 million at the end of Q3. As a reminder, we completed a follow-on offering during Q4, which netted proceeds of $308 million. As of June 30th, we had $1.6 billion in customer funds on our balance sheet, which was up 21% from the end of Q3. This is due primarily from a spike in transaction volume at the end of the quarter, which we attribute to customers catching up on bill payments after a slowdown earlier in the quarter as the pandemic unfolded. In addition, I wanted to mention that we have provided a supplemental table in our press release regarding performance obligations with financial institutions. As of the end of Q4, they totaled $152 million, an increase of $118 million from Q4 fiscal 2019. This significant growth is directly related to our recent wins with financial institution partners, and we expect to recognize approximately $13 million of revenue within one year and $139 million thereafter from these contracts. While these partnerships won't generate material new revenue in fiscal 2021, we believe they will ultimately accelerate our rate of customer adoption and support intermediate and long-term revenue growth. Now let's move on to our financial outlook. We continue to monitor the macroeconomic environment, and given the current level of uncertainty, we will provide our outlook for the fiscal first quarter of 2021. As macro conditions stabilize, we will provide a longer-term outlook for our financial performance. For the first quarter of fiscal 2021, total revenue is expected to be in the range of 41 to 42 million, made up of core revenue in the range of 39.2 to 40 million, and float revenue in the range of 1.8 to 2 million. Float revenue assumes that the average Fed funds rate will continue to be approximately 25 basis points during the September quarter, and that our yield will be in the range of 50 to 55 basis points. Looking ahead, due to the lag effect of the timing of interest rate reductions on our investment yields, we expect further declines in float revenue until we normalize at approximately $900,000 to $1 million per quarter later in the year, assuming interest rates remain at today's level. As for our operating expense profile, we're planning to catch up on R&D hiring to support product development work relating to the new financial institution partnerships that I mentioned earlier. These projects involve complex integrations with long lead times, and we will incur incremental expenses as a result. We expect the associated increased R&D spending levels to persist through fiscal 2021. We plan to maintain our vigilant approach with regards to sales and marketing investment, aligning investment levels with market conditions, and being opportunistic where and when possible. In addition, we expect our G&A spending to continue to reflect the ongoing overhead associated with being a public company, as well as the regulatory overhead associated with our money transmitter licenses. On the bottom line, we expect to report a non-GAAP net loss in the range of $6.5 to $5.5 million and a non-GAAP EPS loss of $0.08 to $0.07 per share based on a share count of approximately 80 million basic weighted average shares per Q1. In addition, we expect stock-based compensation expense of approximately $11 to $12 million in Q1 of fiscal 2021 and capital expenditures for our new headquarters and other requirements to be approximately $10 to $11 million in Q1. To close out on the guidance topic, we believe the ongoing pandemic has accelerated the need for businesses to focus on digital transformation, and we will continue to leverage our position of strength and invest for disciplined growth despite the uncertain environment, given the large market opportunity we're addressing. Now Renee and I will open up the call for your questions. Operator?

Thank you. As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, please press the pound or hash key. Please stand by. We compile a Q&A roster. Your first question comes from the line of Scott Berg from Needham. Your line is open.

Hi, Renee and John. Congrats on the great quarter, and thanks for taking my questions. I guess, too, here... John, let's start with the RPO number. Obviously, that's a pretty significant move, and I get that it's tied to some of your updated contracts with financial institutions. But how should we do that number in terms of what the duration of that is? I understand that we know what the contribution is for the next 12 months, but that remaining number, is that over a two-year term, five-year term, ten-year term? That would be helpful to better understand. Thank you.

Yeah, good. Good question, Scott. I can say that typically, our arrangements with financial institutions cover normally a five year term. And so remember that this RPO number includes all of our financial institutions, and they obviously have different start dates and different end dates. So it's reasonable to expect that that 139 million would be over a period slightly longer than than that average contact link contract length of five years.

Got it. Helpful. And then, Rene, I just wanted to touch on some of the trends that you talked about in the quarter. Sounds like transaction, both payment volume and the number of transactions started to normalize in the second half. Would you say those payment trends are at kind of pre-COVID normalization levels, or is there a different way to view that? And then, secondly, how are you seeing those trends, you know, kind of come through earlier in your Q1?

Thank you. Thanks, Scott, for the question. And I would say that we – saw a trough uh in the quarter and that it started going you know back in the right direction i think it's a testament to the resilience that smbs have all over this country and you know they were waiting to kind of see what was going to happen and with the uh opening of the doors as well uh at the end of the quarter we started seeing transactional pickups so At this point, we would say that that trend is still going in the right direction, and we'll wait to get more guidance on whether that's back to the pre-COVID levels or not. Great. Congrats, and thanks, Skip. Thank you, Scott.

Your next question comes from a line of Brent Braceland from Piper Sandler. Your line is open.

Thank you, and one for Renee and one for John. I guess we'll start with you, Renee. As you think about The quarter, the one metric here that stands out to me is just the record number of new customers. You know, even if you take out the 1,000 tied to the free trial, it's still a record this quarter. Are you – do you feel like the COVID potential headwinds and disruption to S&B is now actually turning into a tail end? Do you have enough – data there to say looking out this year, this remote work move and shift could potentially kind of accelerate the business or is a little too early? Any color on what drove the broad-based strengths across new customer ads would be helpful. And, again, one quick follow-up for John.

Sure. Well, thank you, Brent, for the question. I think we kind of started to reference this in the last quarter, and we definitely saw that the shelter-in-place orders, the immediacy of those orders, required businesses, like I said earlier, they're resilient, to react quickly. And so SMBs were out looking for solutions that would help them manage their business remotely. And we did see, you know, a good number of businesses that were, you know, proactive in coming, you know, onto the platform because of the shelter-in-place orders. So, you know, when I think about the overall trends in the market, I would say that, you know, businesses, you know, something over 90% of businesses rely on paper checks as a primary form of payment. And we expect that that's not going to be true in the future. And what we have seen is Already, just from the early days of the forced requirement of shelter-in-place orders, as well as just kind of the messaging and tone we've seen from customers and partners, is that people want to move on and get to a remote work environment. It is early for us to say how that will change adoption in the near term. So, you know, I think there's still a tremendous amount of uncertainty with respect to COVID, and I think that's something that we're watching and just, you know, making sure that we're able to help L7Bs with the platform that we've built and that we still have the opportunity to serve, you know, the 6 million businesses that potentially need to move off the paper.

Got it. And then just a quick follow-up on RPO. John, it looks like it was up over $100 million sequentially in just the last three months. Was that tied to kind of one contract with one of the top three banks, or should we think about the magnitude of the change in RPO there in a three-month period tied to RPO? kind of multiple new relationships there. Obviously, Intuit's new. You had an expanded agreement with one of the top three. Keen Bank sounds like it's a pilot going to kind of GA later this year. Just walk me through the scope of the number of deals that drove that $100 million plus increase sequentially in RPO.

Yeah, thanks, Brent. So, Just from a definition standpoint, this RPO number is only applicable to our financial institution partners because they're the type of partner where we have longer than a one-year contractual relationship. So it doesn't include, you know, anything from Intuit or even our mid-market customers for the most part. And I think of the number as a portfolio. It's across all of our partners. We have announced in the last, you know, couple of quarters, you know, three new arrangements with KeyBank, with Wells Fargo, and then with the top three banks. So it is probably influenced most by that recent activity.

Got it. Helpful. And then, Rene, just a follow-up there. I think you mentioned top three on the financial institution white label side. You have three of the top three banks and five others. Of those, let's say eight financial institutions using the white label service, how many are kind of launched of the eight?

So the ones that are not launched would be Wells Fargo, and in key bank is in pilot so um all the others are are in market uh the extension of the partnership with the you know the top three small business bank obviously that's not launched and we have you know a lot of work to do to make that happen but that was already an existing bank right that was already a partnership we had where we served the commercial customers uh and again you know that just kind of points to the value in the platform right we're able to serve and support one segment, the commercial segment, and now that bank has said, you know what, the small business segment needs this too. And they came to us and asked us to really do something special, and we're looking forward to it.

Got it. Very helpful. Thank you so much.

Your next question comes from the line of Samad Samani from Jefferies. Your line is open. Thank you.

Hi, good afternoon. Thanks for taking my questions. Rene, maybe one for you to start and then I'll follow up for John after. But just as we think about the evolution of the Intuit relationship, there's been several expansions, especially on focusing on higher value mid-market customers. Maybe help us understand how What's driving that on Intuit's side? And then, you know, as we think about the smaller customers that maybe are less in focus and that you won't work on to acquire, how should we think about that decision and, you know, maybe what the reason was in not necessarily targeting that segment? And then one follow-up for John.

Okay. Thank you, Samad. You know, it's interesting. When I was at Intuit back in the 90s, one of the things that, you know, we realized then when I was at Intuit was, you that there were a lot of customers that were large customers that used the platform. And so I think you would have to talk to Intuit as to why Sasan referenced that the QuickBooks Advanced was one of its top five bets, but it's important for Intuit. They They really are focused on serving that customer segment. They know there's more that they can do to support customer acquisition as well as support the services and programs that they offer those customers. And so when they, you know, came to us and looked to us as, you know, one of the select partners that they wanted to make sure offerings were included so that the customer that they're targeting, the 1.5 million businesses that they're targeting, had a solution that was robust and that could really address the needs across the entire business, financial operations that a business has. You know, we were excited about that, and we definitely said, yes, we want to support that, and let's go make that happen. You know, I think on the simple bill pay customers, the biggest difference here is really kind of the revenue per customer. And so our focus is on acquiring customers that monetize and make sense across the business. And so we're excited about supporting Intuit in whichever way they need us to support them. And we'll go from there.

Great. That's helpful. And then, John, you know, as we think about both the TPV per transaction and average per transaction fee revenue, there's a pretty big increase in both of those. I'm curious if we should take that TPV per transaction increase to be reflective of Bill.com being more successful getting larger customers, hence doing larger transaction sizes, or how should we maybe interpret that data?

Yeah, thanks, Samad. So I think one of the influences on TPV per transaction has been the lower level of transactions that we've seen in the last few months, starting really with the early, early days of the pandemic. And we noticed it pretty quickly. We talked about it on our last call, and there was sort of a more pronounced increase pause in transaction levels than there was TPV. And so we still see really healthy activity, particularly with repeat customers and repeat payments, which is a stat that we've talked about before where 80% or so of the transactions on our platform are recurring between parties that have transacted before. We see that still being the case. So I wouldn't, you know, jump to the conclusion that that increased TPV per transaction is all about larger customers. Part of it is simply we're still coming out of that early COVID phase where we had, you know, lighter transaction numbers. So I would expect actually that to moderate somewhat in the future. You're right, though, the increased, you know, activity and demand that we see from the mid-market customers tends to actually increase the, you know, the ticket size and the TPV per transaction.

Great, that's helpful. Thanks again and congrats on a great quarter and a tough time. Thank you.

Your next question comes from the line of Chris Merwin from Goldman Sachs. Your line is open.

Hey, thanks very much for taking my question. I just wanted to ask about some of the, I guess, the payment type makeshift and some of the incremental opportunities there. I think you talked earlier in the prepared remarks about the opportunity to take cross-border payments made in domestic currency and perhaps have more of that shift over to local currency to better monetize those. And I think you also talked about a 1% penetration rate for virtual cards. So what can you do to increase virtual card as a percentage of the mix? Is there any sort of incentive you could provide a supplier? Just curious about the opportunity there as well. Thank you.

Thank you, Chris. And, you know, I think when we look at, the opportunity to shift the cross-border payments. We think it's a really big opportunity. Today, suppliers all over the globe are being forced to take U.S. dollars when they may not want U.S. dollars. They may prefer their local currency. And so we have a network. We talked about the fact that we have two and a half million members on our network today. And the opportunity for us is to make that network node that is an international supplier, make it so easy and make it so advantageous that they prefer to actually take money directly into their bank account in a currency of their choice. And so the stuff that we talked about in the product reference that we had is that we are now enabling choice by the supplier. Everything beforehand was up to how our payers, our AP customers, chose to pay their customers. If they chose to pay in U.S. dollars, it went in U.S. dollars. And that's the 75% of the cross-border payments are in U.S. dollars today. And so we think there's a big opportunity to give choice to the suppliers across, you know, the globe. And we think that will lead to, you know, continued growth in FX penetration for us. On Virtual Card, just as a reminder, this business is less than 18 months old for us. We take our responsibility seriously. When we add new payment rails, when we add new functionality, we take the responsibility seriously that we are doing the right thing for our customers and that we will operate appropriately. We are still, I would say, in early days of understanding how to serve the customer, reach those customers, and help those suppliers that are receiving a virtual card payment. And so we believe the target range that we have set in the past is that we think 5% to 10% of the total payment volume could be on a virtual card. Now, that's a total addressable market. The reason we provided the MasterCard data was to kind of give an external data point that says, hey, 6% of checks today are going via virtual card, and they think there's another 2% to 5% growth, which is consistent with what we see and the trend we see. So there are many things that we can do from the product for both suppliers and our own operations to kind of drive more adoption, and that's what we're focused on right now.

Okay, great. Thank you. And maybe just a follow-up. I know in prior calls you had talked about some new payment types. There's real-time payments and same-day ACH. I know those are obviously even newer businesses. Is the opportunity for those to maybe get up to where a virtual card is 18 months from launch, or how do we think about the potential for those payment types? And if you can share it, how we should think about the differences in monetization.

Yeah, so I think The way we think about payments is first and foremost, what do we need to do to support our customers? And so, for example, the same day ACH, is something that if a customer needs to pay somebody right now, it's going to be cheaper, more efficient, easier than a wire. So we think that's kind of an important aspect of the payment rails that we have. The real-time payments, though, is similar to the other focus we talked about with suppliers, is how does the supplier want to get paid? When do they want to get paid? So if the supplier wants to get paid right now, there is an opportunity for us to take a percentage, have another ad valorem business model that would be an opportunity for us to help, obviously, the supplier receive their funds immediately, but also we would need to monetize appropriately to cover the operational costs associated with that. And so we are in the early days. The first thing, like I referenced with the with the virtual card businesses that it's, you know, we're now in the, you know, month two or whatever of understanding how to build the technology and essentially piling it with internal, you know, select few customers. And so I think over time, we will be better able to answer, you know, what the monetization of that will look overall. And we look forward to sharing that when we can. Got it. Thanks so much. Thank you.

Your next question comes from the line of Josh Beck from KeyBank. Your line is open.

Thank you for taking the question. I have a higher level just strategy question because, you know, the world has changed a lot in the last six months. I think really the shortfalls in the back office have, you know, probably become more acute. So I'm just wondering if it's driven you to reprioritize, you know, maybe some of your initiatives. It certainly seems like You know, you're spending more with the FIs, and that seems to be success-based. But, you know, I feel like that was really already in place. So I'm just wondering if it drove any reprioritization as you think about, you know, next year and beyond.

Great to hear your voice, Josh. Thanks for the question. And we've got a lot of opportunity in front of us. And like you said, with the FIs, those have been in the works for a long time. You know, we only, you know, announce them when they become concrete or, you know, obviously when there's, you know, financial reporting requirements, then we announce, right? So those, nothing with respect to the COVID and the immediacy and the awareness that, hey, remote work is going to be here for us to stay. None of that has changed that part of the strategy. I think it has potentially galvanized, if you will, you know, financial institutions and partners to think, what are the services we need to help businesses work in a remote environment? I don't think anybody like you have just, you know, stated. Nobody doesn't – nobody thinks – that work from home is going away. Everybody thinks it's going to get stronger and become more an important part of how we work going forward. With that, I think it will have an impact with partners, but the partnerships we have today, obviously, were in the worst beforehand. When we think about our own strategy, again, I think it's the potential and the tailwind that will come from people saying, hey, it's time to move into a work from home environment. I believe that simplicity in the product and experience is going to be more and more critical. Those initiatives for us were already underway, but it does give us more confidence and conviction that we have to continue to simplify the experiences for our customers and our suppliers. We're going to continue to focus on that to make sure customers and suppliers can come to us in a work-from-home environment.

Okay. Really helpful and Maybe for John, just thinking through the sales efficiency, I mean, you had a very good net ad quarter. Sales and marketing really slowed a lot. So is there anything going on there just with respect to maybe some of the channels where You know, perhaps it was mix impacted or conversion impacted as you got through some of the obstacles. Just, you know, would love to hear any color you could provide on sales efficiency and any notable call-outs there.

Yeah, thanks, Josh. So I'd say as far as the demand profile that we experienced during the quarter, it was pretty broad-based. There wasn't a particular channel or – sales and marketing sort of tactic that stood out. I'd say we did experience maybe a higher level of urgency on the part of customers to get solutions in place sooner than later. I think that helped us with a slightly shorter conversion timeframe and probably a higher conversion rate than if we look back over a number of quarters, both of which definitely translate into improvements in customer acquisition efficiency. You know, some of that could certainly be, you know, here to stay if the world and demand profile is just different going forward. But at the same time, we're going to continue to, you know, evolve our sales and marketing efforts and continue to invest to attract customers.

Okay. Really helpful. Thank you both.

Your next question comes from the line of Brad Sills from Bank of America. Your line is open.

Oh, great. Hey, guys. Thanks for taking my question. I wanted to ask about the receivables business. To the extent that has contributed to this kind of success you've seen in new customer acquisition, how much is that contribution coming from the receivables business, that freemium model where customers run receivables and then there's the upsell opportunity? Just any color on how that's been tracking and how much impact that's been having versus maybe say a year ago.

Thank you, Brad, for the question. Overall, the business has definitely a predisposition on the payable side, and so we've not seen a change in receivables activity between the quarters. What we have seen on receivables is that you know, customers do like getting paid faster. And so our customers are able to get paid two to three times faster using the platform. And so the customers that are on it are definitely enjoying it. I would say that we have not seen a change in any of the growth rates between the two. And I think that's just because, you know, we have a strong, you know, penetration on payables and that, you know, payables customers definitely start telling other people about it. And that keeps up with the growth that we're seeing on receivables.

Great, thank you. And then any color, any update on the procurement offering that you announced back in February? Where is that in development? And what are some of the use cases that you might go after initially there?

Yeah, so the PO offering that we announced in February was the ability to integrate the POs that were generated out of the mid-market accounting packages such as Intact and NetSuite, to have those POs be synced with bill.com so that customers would be able to see the PO information and approve the bills, the invoices as they're coming through. And so that has been rolled out, and we have seen good adoption from customers in the mid-market segment. that are using that capability so that they can kind of track their POs at the same time that they're tracking their payables. So you've been happy with that adoption. And I think, you know, as we continue to, you know, learn and listen from those larger customers, we'll end up adding, I'm sure, more functionality that will support them.

Got it. Thanks, Renee. And then maybe one for you, John. the commentary on some catch-up in transaction volumes at the end of the quarter. Is that primarily in that category that you've said is more variable when you've kind of back-tested your volumes and determined about 20% are more variable in nature? Or was it across the board between kind of recurring and variable?

Yeah, thanks, Brad. I think it was primarily, you know, across the board. We just generally saw a slowdown in activity in the first half of the quarter. And I think, you know, people were – businesses were focused on lots of different issues. And we saw them trying to catch up in the second half of the quarter. And that's reflected in – you know, in the numbers, we saw an increase in, you know, the payment size to individual vendors, which suggested to us that as opposed to a contractual change or something like that, they were paying multiple invoices with one payment. So that has the effect of supporting, you know, the stronger TPB, but also resulting in fewer transactions that we mentioned. So I think it was, you know, a pretty broad-based impact.

Got it. Thanks, John. Thanks, Renee. Okay. Thank you, Brad.

Your next question comes from the line of Brian Schwartz from Oppenheimer & Company. Your line is open.

Yeah, hi. Thanks for taking my questions this afternoon. I've got one for Renee and then a follow-up for John. Renee, I just want to dig in again on the go-to-market strategy. I know the sales focus is clearly on new logos, given the low penetration in the market. But you did highlight the early success the business is having here with cross-border sales. So I'm wondering if that success or the early traction that you're having, does that at all change your thinking on the market strategy of potentially maybe building up a farmer's engine inside the company to further upsell those 100,000 customers?

Hi, Brian. Thanks for the question. When we look at the opportunity, 98,000 customers out of 6 million employers in the U.S., we still think that the logo ads are going to be an important part of the growth of the business. But like you surmised, we are very happy with the modernization that we've been able to do with cross-border and virtual card and expect in the future other opportunities. payment products as well to be able to do. So we believe that it's kind of a balancing act that we want to invest in both. We want to make sure that we take advantage of the broad-based, multifaceted distribution opportunity that we have through our partners that we've talked about already and through our own direct efforts. But we also want to be able to monetize the capabilities that we have with payments, you know, on cross-border and virtual card. And so we will continue to invest in both. And to that end, you know, already what we've done with cross-border is a fair bit of, you know, product marketing and some, you know, if you will, you know, farmer sales team working on some of that capability with our customers, especially the larger customers. And I think there's opportunities there for us to continue to do more. So thank you.

Thank you, Renee. And then, John, one quick follow-up for you on the dollar base retention number, the 121%. That was clearly better than I think a lot of us were thinking, just given the uncertain data that happened during the quarter. But do you feel like this higher level is a metric that it can either stabilize at, or do you think that there could even be more upward pressure that it could continue to improve? I don't want to pin you down here too much on a number, but just wondering how you're thinking about the trend with that metric. Thanks.

Yeah, thanks, Brian. So obviously we're very pleased with our retention rate. We think it supports our thesis that customers really run their financial operations with our platform. It's not a sort of elective solution. It's core to what they do. And when we introduce new products, most recently the payment products, we get quick adoption, and that helps grow revenue from customers. existing customers. So, you know, we don't have a prediction or any guidance on the forward numbers. We're obviously an SMB-focused company across the board, so it's not an enterprise business. And I think we've historically said, you know, if we're able to operate the business north of 100%, we know that our unit economics are going to work and it all makes sense. We're obviously way above that now and we feel good about where we are. Thank you very much. Thank you, Brian.

Your next question comes from the line of David Hines from Canaccord. Your line is open.

Hey, thanks, guys. Congrats on the results, and thanks for taking my questions. Two quick follow-ups on topics that have been discussed. So the expansion with the top three small business banks, given it's an expansion of an existing relationship, I'm just curious what kind of incremental investments need to happen to enable that. And then just in terms of the timeline, you know, how should we think about the timeline until we could see some, you know, material revenue contribution there? I mean, obviously the jump in backlog, both current and long-term, is huge. So I think it's an important question.

Thank you, David. Appreciate the question. So when we have a partnership with a financial institution and it's the commercial side of the bank, every financial institution has multiple systems that they run their business on. And so the commercial side is a different set of systems than the small business side. And so it's important, actually, one of the things that they're excited about that our financial institution partners are excited about is to have some continuity in the platform between their smallest customers and their largest customers. We referenced that actually with KeyBank because the offering will be for both their small business and their commercial customers. But also with this expanding relationship now, we will not just have the commercial customers that this partner has been working with us on for a number of years that will now have the small business customers. And so the work required is not just kind of the complexity of integrating the payment rails, as an example, because some of that is redundant, but it's their front end, what they use to go to their customers. And so the small business customers that they serve are on a different platform. And so the white labeling effect, there's a fair bit of work for the financial institution, and then obviously we're supporting that. And there's some changes that we have to make And so as a result, you know, we're investing behind that. We're making sure that the offering is, you know, a unique offering that really does target those small business customers as best we can. Okay.

And as far as the timeline.

Yeah. So as far as the timeline, you know, I think what we stated is we expected no material revenue and, and FY21. So, you know, it should launch, you know, I think what we're saying is in calendar 21. And as we, you know, do the work that we just talked about, we'll be able to provide, you know, continue to provide more guidance on that.

Sure. Okay. You know, that makes perfect sense. And then follow up on the cross-border side. Where do you think the ceiling is in terms of getting those cross-border payments made in local currency? I think you said it was 25% today. You know, where could that go?

we have work to do to understand that, right? At this point, we know it should be higher. And I think, you know, for us to, you know, have a target, internal target of saying, you know, can we get that to 40 or 50%, that may be right, but it may not be right. And so this is still relatively early business for us because we just turned this capability on in the last couple of months. And so we will know more over time what we think the right penetration is. We would like it to be, obviously, north of 50%. And what we're seeing from customers today, the suppliers that are on, we are encouraged that they want to get paid in the local currency. So that's going to be our goal.

Yeah. Yeah. Okay. Excellent. Thanks for the call, guys. Congrats. Thank you.

We have time for one more question. Your last question comes from the line of Bob Napoli from William Blair. Your line is open.

Thank you, and good afternoon. Also representing my colleagues, Boban Suri and Matt Stotler. Congratulations, Renee and John. You did a very great job in, again, in a very tough environment, a very impressive execution. You guys have a great balance sheet, as you mentioned up front, John. You've talked about investing in mid-market, international, expanding your payments, maybe even working capital. Is there, from an investment perspective, some thought on using that balance sheet offensively in expanding your business? And if so, would it be in which areas would be the primary focus?

Hi, Bob. It's good to hear your voice. So part of the reason I wanted to go public was to have the opportunity to continue to expand the distribution and the capabilities to reach more businesses organically, and that's part of the cash capital that we were able to raise from being public to make sure to support all the things that we talked about today. But the other reason was to leverage the platform that we've built, and it's a broad platform with lots of capabilities that to augment that platform with offensive, opportunistic M&A when the timing made sense. So we are not focused on that today in the near term, but it is something that we know would make sense for us to consider, and it's something that we will obviously consider as we move forward with the business and continue to understand what our customers need and what we're able to do to kind of enhance the overall platform.

Great. Follow-up question on the pricing side. And, John, you mentioned that you had some price increase in the sub and trans. I thought in the subscription amount, and I thought there was opportunity there. I just wondered if you could get some color on how much pricing contributed and where you see pricing opportunities still. I know the cost per transaction for your clients is relatively low, I think, versus the value they receive today. then I think also you're on the ACH side doing some enhanced ACH, so there may be some pricing opportunity on the ACH transactions.

Yeah, thanks, Bob. So I think on the subscription side, you know, our growth in subscription revenue is driven by, you know, new customer ads on the platform as well as an overall price increase that the full effect of which, you know, didn't really materialize until, you know, the third and fourth quarter. So it's kind of staged throughout the year. With that said, if you look at just the annualized ARPU that our customers pay of around $1,500 for the platform that we have, it's a small sort of dollar amount given the functionality and the capabilities that we give customers. So, I mean, we think over the long term there's lots of opportunities to continue to increase monetization, some of which you mentioned around payment products, which is maybe more of a near-term opportunity as we continue to roll out ways to enable both suppliers and and paying customers to get paid faster. With a faster payment comes typically more risk, and with that more risk comes better monetization opportunities. So we're pretty enthusiastic about what we can do. With that said, we tend to invest in the platform, create more capabilities, create more value for customers, and then over time raise prices commensurate with the value that we've added. So we're not on a program of, every 12 months or 18 months or whatever, raising prices, that's not the model that we're following. But with that said, we do feel like there are opportunities over the intermediate and long-term. Great. Thank you. Appreciate it. Thanks, Bob.

There are no further questions at this time. I turn the call back over to Rene Lessert.

Thank you, Christine. Thanks, everyone, for joining today's call. We appreciate your ongoing support as shareholders and stakeholders in our business. and hope you and your loved ones are well. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.