BILL Holdings, Inc.

Welcome to Bill.com's fiscal second quarter 2022 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 at investor.bill.com. With me on the call today is Renee LeCert, Chairman, CEO, and founder of Bill.com, and John Reddick, Executive Vice President and CFO. 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 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 SEC, including our most recent annual report on Form 10-K and quarterly report on Form 10-Q, filed with the SEC and available on the Investor Relations section of our website. 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. At times during this call, we will discuss organic or standalone results which exclude DIVI and Invoice2Go, which we acquired on June 1 and September 1, 2021, respectively, to help listeners understand our organic performance. Now we'll turn the call over to Rene. Rene?

Thank you, Karen. Good afternoon, everyone. Thank you for joining us today. I hope that all of you and your families are healthy and doing well. In a time of uncertainty, Zill.com produced exceptional results. Total revenue for the quarter nearly tripled year over year. Zill.com's organic core revenue increased 85% year over year, while revenue from our Divi Spend Management solution grew 188% year over year. Q2 marks the fifth consecutive quarter of an accelerating core revenue growth, as customer adoption of our platform has continued unabated. We ended the quarter at break-even from a non-GAAP earnings perspective, well ahead of our expectations. We are well on our way to becoming a profitable multi-billion dollar revenue company, delivering the all-in-one platform for small and mid-sized business financial operations. Achieving this goal requires us to continue to enhance our platform, while also expanding the breadth and depth of our go-to-market ecosystem. As part of this expansion, we have decided to combine our sales team under a single sales leader. I'm happy to announce that Blake Murray, the co-founder and CEO of Divi, has accepted a new role as our Chief Revenue Officer. As CRO of our combined organization, Blake will be responsible for sales company-wide, helping us scale efficiently across our diverse distribution channels. I believe Blake's experience innovating to serve SMBs, combined with his track record of selling and driving adoption, will benefit the entire company and make them uniquely qualified to lead this expansion. As part of this change, Tom Slaton will be leaving Bill.com. I'd like to thank Tom for his many contributions to Bill.com and wish him the best in his future endeavors. We are helping SMBs transform at a significant scale. As of the end of Q2, more than 350,000 businesses were leveraging our solutions to simplify and automate their back offices. These businesses trust our platform to manage their financial operations and process their payments, which in the second quarter totaled more than $55 billion in TPV. Bill.com is a champion of SMBs. Our mission is to make it simple to connect and do business. Most SMBs are still encumbered by manual back office processes that are inefficient, opaque, and are time consuming. Build.com's platform serves as a digital accelerant for these businesses, transforming their financial operations. With Build.com, SMBs get more visibility and control of their cash flow, freeing them up to work on the fun and rewarding part, growing their businesses. In prior earnings calls, we discussed being selected to design a new payables and receivables solution for one of the top three small business banks in the US. Today, I'm excited to share that the bank is Bank of America. This new partnership came together as a result of our success serving Bank of America's commercial customers and extends our reach to support all of the small businesses, including sole proprietors, that Bank of America serves. The new solution was launched in several markets in Q2, and the nationwide rollout will continue throughout calendar year 2022. We are delighted about the tremendous extension of our reach this opportunity brings to Bill.com. The transformative power of our platform makes Bill.com a mission-critical tool for SMBs and accountants. This, together with our diverse go-to-market ecosystem, which includes self-service, inside direct sales, and strategic partnerships, fuels our growth in an efficient manner. We have partnerships with six of the top 10 financial institutions and more than 5,500 accounting firms, including more than 85 of the top 100 in the U.S., The breadth and diversity of our distribution strategy has enabled us to reach more customers and expand our network to more than 3.2 million members. Bare Bones Broth, an Ohio-based company that has sold nourishing bone broth since 2014, is a great example. Catherine and Ryan Harvey, the co-founders, have grown their business from working out of a small commercial kitchen to shipping to all 50 states and generating millions in revenue across five sales channels. Catherine Harvey said, and I quote, Before Bill.com, payables was my whole job, and it used to take me 30 hours a week just managing stacks of paper. Now it takes me five hours a week, which enables me to spend more time focusing on sales and distribution. With the time I saved, I was able to find my passion for sales and grow our business to a level we never would have been able to. We also have more time now to focus on our mission to create food that helps the body heal." Accounting firms are also able to transform their business using Bill.com to digitize and automate their clients' financial operations, creating the accounting team to focus on more strategic initiatives for their clients. A great example is Highline. Highline is an SMB-focused and tech-enabled accounting firm that relies on Bill.com. Matt Gardner, CEO and co-founder, said, and I quote, With Bill.com, we are able to save two-thirds of the time spent on managing paper checks and invoices. which give us more time to provide our clients high-value services. This drives growth for Highline, and it also creates more value for our clients. They can focus more on scaling their businesses while having more financial peace of mind." Our ability to transform the AP process is why accounting firms, customers, and partners are asking for a more comprehensive and complete solution for the back office. An example is Manhattan Soccer Club, who uses bill.com for payables. Manhattan Soccer is one of the largest soccer clubs in New York City. They recently adopted Divi, our spend management solution. With approximately 70 teams and over 1,000 players using their personal cards for tournament-related expenses, the recurring reimbursement process has been manual and time-consuming. Samuel Arnoff, general manager, said, and I quote, Divi really alleviates our reimbursement process, saving time and reducing frustration. Additionally, I also have real-time visibility into each transaction and the integration with QuickBooks is seamless. The ease of having multiple solutions in one place also adds value for me. I can count on Bill.com for bill pay and expense management." Recognizing the need that the Manhattan Soccer Club articulated, our product teams are building features that enable a more unified Bill.com and Divi platform experience. Recently, we introduced single sign-on and simple, consistent navigation throughout both solutions. We also made it easy for Bill.com customers to sign up for Divi and speed up the credit line approval process. We are in the early stages of digital transformation for businesses. We have a strong track record of introducing new services to meet customer demand, and we are accelerating our pace of innovation to capture the tremendous opportunities ahead of us. For example, we continue to test payment solutions that give our customers more choices. Our new pay-by-card product enables payables customers to fund their payments via credit cards. Recently, we also enhanced Invoice2Go's payment capabilities with an in-platform branded experience for getting paid. Now, Invoice2Go customers can receive their funds directly, rather than through an intermediary. A branded payments experience makes sign-up easier, reduces friction, and speeds up funds availability. Continuing on the topic of innovation, we recently launched a host of improvements to our Divi solution, designed to give customers an end-to-end view of expense management. Now employees of spending businesses can email receipts which get auto-matched to card transactions, do better categorization, and receive free expense reimbursements via ACH. In addition, we upgraded the Divi dashboard to provide budget owners enhanced cash flow insights. Looking ahead, I continue to be bullish about the opportunity we have to support businesses ranging from sole proprietors to mid-market companies. In the near term, it remains our priority to deliver features that create a more unified and seamless platform experience. We will also continue to expand our payment offerings, extend our network reach via our diverse ecosystem, and scale our relationships with accounting firms and financial institutions. None of this is possible without growing our people and bringing in great talent across the company. In Q2, we welcome Sarah Acton as our Chief Marketing Officer. Sarah brings a wealth of brand and leadership experience from her years at Yahoo and LinkedIn. She has built leading global brands across both business and consumer markets. Sarah will accelerate our marketing and brand building efforts and play an important part in our future growth. We are thrilled to have her on the Build.com team. In closing, we delivered very strong financial growth this quarter as we continue to widen the moat we've built through our go-to-market strategies and product innovations. I want to thank our 1,800 employees for driving these great results and for their commitment to our mission, customers, and each other. Now let me turn the call over to John to talk in more detail about our amazing quarter.

Thanks, Rene. Today I'll provide an overview of our fiscal second quarter 2022 financial results and discuss our outlook for the fiscal third quarter and full fiscal year 2022. As a 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. Both DIVI and Invoice2Go are included in our second quarter results. Our Q2 results exceeded our expectations across the board, with total revenue growth of 190% year over year, organic core revenue growth of 85% year over year, non-GAAP gross margin of 85%, and break-even on a non-GAAP EPS basis. We continue to see very strong organic results, including DIVI standalone revenue growth of 188% year over year. We are energized by our progress creating value for SMBs while at the same time delivering strong revenue growth and operating leverage. With our large base of engaged customers, network members, and our go-to-market ecosystem, we can quickly build and efficiently scale adoption of new products. And our R&D investments enable us to create additional growth levers across the business. Turning to an update on our key metrics, Given our recent acquisitions, we are providing additional insights on organic metrics for Bill.com, Divi, and Invoice2Go. Customer acquisition during Q2 was strong across Bill.com. We ended the fiscal second quarter with 135,000 Bill.com organic customers, including 8,100 net new customers in the quarter, driven by strong customer adoption across all of our channels. We also had 15,500 spending businesses using Divi and 223,000 subscribers using Invoice2Go's AR solution as of the end of Q2. The slight decline in net new customers added at Divi and Invoice2Go was expected as we applied Bill.com's more robust underwriting and onboarding criteria to their new customer signup flows. We believe this application of our proprietary risk logic will yield higher value customers going forward. We delivered very strong organic total payment volume in Q2 of $56 billion, representing 62% year-over-year growth and 20% quarterly sequential growth. Organic TPP significantly outperformed our expectations and exhibited strong seasonal trends similar to the trends observed in the December 2020 quarter. Our organic TPP growth in recent quarters has been driven by engagement from our customers and expansion in share of wallet given more payment choices and the impact of a slightly larger average customer. Looking ahead, in the fiscal third quarter, we typically experience some seasonality, with TPV slightly down compared to Q2, because many SMBs pull spend into the December quarter from January for year-end tax planning purposes. During the quarter, we processed $1.9 billion in card transactions from spending businesses using our Divi spend management solution, which is an increase of 145% from last year. Moving on to the number of transactions, we processed 9.8 million payments on the Bill.com platform in Q2, reflecting 35% year-over-year growth. We also processed 5.3 million Divi card transactions. Now I'll review our reported consolidated Q2 results. Total revenue was 156.5 million, up 190% year-over-year. Core revenue, which consists of subscription and transaction fees, was 155.5 million, representing growth of 197% year-over-year. OrganicBill.com core revenue growth accelerated to 85% year-over-year, compared to 78% growth last quarter. As Renee noted, fiscal Q2 marked the fifth quarter in a row of accelerating annual core revenue growth, which we believe speaks to the value we create for customers. In addition to our organic core revenue strength, revenue from our spend management solution grew 188% year-over-year, Divi's results were driven by seasonally strong card spend and take rate expansion to approximately 260 basis points in the quarter, as more card spend was processed through higher yielding partners than in the prior quarter. Subscription revenue increased to $49.2 million, up 85% year over year. In addition to our growing customer base, subscription revenue was driven by the inclusion of invoice-to-go subscribers for a full quarter. We also early adopted FASB ASU 2021-8 relating to acquisition accounting for deferred revenue, which was issued by FASB in October 2021. This resulted in recognizing invoice to go subscription revenue from annual contracts that were previously written down as part of the acquisition accounting. In Q2, we also began recognizing revenue from our new small business solution with Bank of America. Together, these items represented a step up in subscription revenue of approximately $10 million in Q2 compared to the prior quarter. Bill.com organic subscription revenue growth was 51% year-over-year, which accelerated from 39% in Q1, driven mainly by the impact of a slightly larger average customer size and the new Bank of America revenue. Transaction revenue increased to $106.3 million, up 313% year-over-year, due to strong TPV growth, increased adoption of our ad valorem products, and increased usage of our spend management card solution, which totaled $48.7 million in revenue for Q2. Bill.com organic transaction revenue growth was 121% year-over-year. Quote revenue was approximately $1 million in Q2, an increase of $200,000 from last quarter, as a result of the significant growth in our FBO balances. Looking ahead, We do not expect material growth and float revenue in the short term, but further out, there is an opportunity for accelerating growth given the rising interest rate environment. Turning to gross margin and our operating results for Q2, non-GAAP gross margin was 85.3%, up from 83.6% last quarter, driven by the invoice-to-go deferred revenue benefits and a higher mix of ad valorem transaction revenue. In addition, our non-GAAP gross margin improved due to the impact of optimizing the routing between our foreign exchange providers, resulting in lower FX conversion costs for cross-border payments. For the remainder of fiscal 2022, we expect our non-GAAP gross margin to be in the range of 79% to 81%. Non-GAAP operating expenses were $130.1 million, an increase of $22 million from Q1. R&D increased $5.7 million from Q1 as we continue investing in our platform's workflow and payment capabilities. Sales and marketing increased $13.3 million from Q1, primarily due to increased go-to-market expenses due to our cross-sell efforts, the inclusion of invoice-to-go for the full quarter, and increased rewards expense associated with our spend management solution. G&A expenses increased $3 million from Q1, reflecting a full quarter of invoice to go and increased fraud and credit losses associated with the growth in TPV and card spend, with estimated loss rates being consistent with historical trends. For Q2, we delivered a non-GAAP operating profit of $3.4 million, and our non-GAAP net loss was $220,000, or a break-even net loss per share, based on 102.9 million basic weighted shares outstanding. Our non-GAAP operating profit and break-even non-GAAP net loss were both significantly better than our expectations, in part due to the additional subscription revenue recognized during the quarter. Now moving on to the balance sheet, cash, cash equivalents, and short-term investments at the end of Q2 were $2.8 billion, flat quarter over quarter. We continue to be well capitalized, enabling us to invest in scaling our business. As of December 31st, we had 3.4 billion in customer funds on our balance sheet, which was up 948 million, or 39%, from the end of Q1 due to the significant increase in TPB we processed during Q2, as well as slightly longer check transit times. Now moving on to our financial outlook for the fiscal third quarter and full fiscal year 2022. With the recent acquisitions of Divi and Invoice2Go, we have already transitioned to managing one consolidated business, that we are providing additional information on organic revenue growth expectations for comparability purposes. We've never been more excited about the large global SMB market opportunity we're pursuing and our leadership position. Our results have clearly demonstrated the significant momentum we have creating value for SMBs and driving financial results. Looking at the macro environment, there is uncertainty regarding the impact of Omicron, inflation, and supply chain constraints being experienced by businesses. While we don't see an impact on our overall SMB base at the moment, we continue to monitor the situation closely. Our fiscal 2022 outlook update assumes there won't be a material negative impact to our business from pandemic, macroeconomic, or supply chain issues faced by our customers. For fiscal Q3, we expect our total revenue to be in the range of $157 to $158 million. Note that sequential revenue growth in Q3 will be influenced by seasonality as well as the step-up in revenue recognized in Q2 that I referenced earlier for Invoice2Go and Bank of America subscription fees. Both these items are additive to our full-year results and contribute to year-over-year growth in Q3 and Q4. For Q3, Bill.com organic core revenue annual growth is expected to be approximately 67% on a standalone basis. While DIBI's spend management revenue growth is expected to be approximately 132%, which reflects lower seasonal card spend in Q3 for the advertising and travel categories and an estimated take rate closer to the top end of the 230 to 250 basis points previously discussed. We expect short-term interest rates to increase beginning as early as March, but do not expect a material impact on float revenue in fiscal 2022. Note that while our float revenue will increase with rising interest rates, there will be a timing lag as we reinvest maturing securities in higher yielding securities. Over time, we expect higher interest rates will become a tailwind to our overall model. To give you some perspective, if the federal funds rate was 100 basis points today, this would translate into approximately 30 to 35 million of annual float revenue, which carries very high margins. In terms of operating expenses, we expect to continue the strategic investments we're making in R&D for platform integration with Divvy and Invoice2Go, scaling activities with financial institution partners, and bringing new payment products to market. In addition, we expect to continue being vigilant regarding our sales and marketing investments. On the bottom line, for Q3, we expect to report a non-GAAP net loss in the range of $16.9 to $15.9 million. and a non-GAAP loss per share of 16 to 15 cents based on a share count of 103.5 million basic weighted shares outstanding. Moving to our outlook for fiscal 2022, we expect total revenue to be in the range of 597 to 600 million with approximately 34 million from invoice to go. This assumes organic or standalone Bill.com core annual revenue growth of approximately 69% in fiscal 2022, up from our previous estimate of 55% annual growth. For DIBI, we expect annual revenue growth of 132% for fiscal 2022 versus our estimate of 115% with guidance last quarter. On the bottom line, for fiscal 2022, we expect to report a non-GAAP net loss in the range of 47.2 to 44.2 million and a non-GAAP loss per share of 46 to 43 cents, based on a share count of 101.9 million basic weighted shares outstanding. We have a track record of creating operating leverage as we grow, and we're confident that our strong unit economics and scale will enable us to continue creating efficiency in the future. Our high growth and strong unit economics empower us to invest in our business. For over a decade, we have worked to build the leading financial operations platform that helps hundreds of thousands of entities ranging from the smallest of businesses to mid-sized companies. We have consistently invested in new ways to create value for SMBs, and we have a strong track record of turning these investments into tangible results. At the same time, we believe we're still in the early innings of a large market opportunity. Our platform offers a differentiated value proposition that SMBs are increasingly recognizing, given the new reality of hybrid work that is here to stay. With our rapidly growing scale and fast pace of innovations, we are uniquely positioned to become the de facto platform for SMBs to manage their financial back offices now and in the future. I'll now hand the call back to Karen. Karen?

Thanks, John. Before opening up for Q&A, we request that you limit yourselves to just one question so we have enough time to get to everyone on the call today. If you have a follow-up question, we ask that you jump back in the queue. Thanks. Operator, we are now ready for questions.

Thank you for our Q&A. If you would like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. And when preparing to ask a question, please ensure your phone is unmuted locally. Our first question today comes from Brent Bracelin from Piper Sandler. Brent, please go ahead.

Thanks for taking the question here, Rene. John, obviously super impressive to see the acceleration in the business, both organically and the acquisitions. My question, one question here for Rene, One of the more interesting aspects of the invoice to go business is the global reach. Some of our data suggests that half of the application downloads are coming from international. So could you talk maybe a little bit about your global strategy, how that fits in relative invoice to go appreciate the AR product capabilities it brings, but we'd love to hear a little bit more about your aspirations to expand globally.

Thank you, Brent. Always good to hear from you. Part of the reason for the acquisition definitely was the international aspect of the business that Voice2Go has, both the customer and the reach they have, you know, over 100 countries that they're serving with customers in all those countries and all those places. You know, 40% of the business is in the U.S. So the fact that they have both the international presence and the U.S. was very attractive to us. It was also attractive because of the international workforce that they have and the folks in Sydney and other countries. And as we think about our global aspirations, we are very focused on delivering value for SMBs everywhere. And the way we've started that process with the core bill product is through the international payments and the ability to do cross-border payments for those customers and those suppliers that are out there. And so when we think of the opportunity with respect to Invoice2Go, it's to leverage all the experience that they have, simplicity in the product, simplicity in going to market, and to leverage that with the Bill.com payment rails and software capabilities that we have. So we're excited about it and look forward to extending that reach as we continue to integrate the application.

Sounds great. Thank you. Thank you.

Our next question comes from Scott Berg from NeedHelmet and Company. Scott, please go ahead.

Hey, guys. This is Josh on for Scott. Congrats on the strong quarter. So you had your best quarter of net customer additions maybe ever as a public company. How should we think about the source of that growth by channel? I know you mentioned that it was broad-based strength there. Any more color there would be helpful. And then was the Bank of America relationship You mentioned it began to hit the model this quarter. Was that a material contributor to that figure as well?

Thank you, Josh. We had an exceptional quarter across all of our channels. I would say, in particular, we are very satisfied and very excited about the progress of the accountant channel. A lot of great work was done, obviously, over the quarter. But over the years, we now have 85 of the top 100. We have over 5,000 firms across the country. We launched the aspect of the wealth management, which accountants often serve, and all of that is working well for us. So that was definitely a call-out worth mentioning, that that was a strong driver. With respect to the Bank of America opportunity, we just started rolling that out in the quarter, and it will be rolled out through the coming quarters by the end of calendar 22. We well expect that to be in market and launched and starting to drive more meaningful results at that point.

Yeah, and I just add to that, Rene, as we look ahead, we're really pleased with the progress we have scaling our net new ads. And it's worth noting that the rollout with Bank of America will be throughout the rest of fiscal 22. So at this point, there isn't a significant contribution to the net new ads we had in the last quarter. But we do expect going forward that we'll be above the previously discussed range of 4,000 to 5,000, maybe closer to 6,000 than the most recent quarter of 8,100. But we're really pleased with the progress.

Okay, great. And then I was just curious on the invoice to go declining by 3,000 sequentially. Is there a dynamic there with you mentioned a bit of pruning or the process of adding customers? Was that impacted that in some way?

Hey, Josh, we're going to kind of take that and put you back in the queue. We want to be able to get through all the analysts today, so sorry about that. But, you know, if there's time, we'll get to that question.

Our next question comes from Ken Suchoski from Autonomous Research. Ken, please go ahead.

Hey, Rene and John. Thanks for taking the question. I'll keep it to one. You mentioned continuing to invest to bring new payment products to market, and it's great to see the launch of both pay by card and bill.com balance during the quarter. So can you provide some kind of framework for how we should think about the potential penetration of these products over time, as well as some sense of the revenue model and unit economics of both? In particular, what monetization opportunities does bill.com balance open up for you down the line? Is it a segue into working capital finance or are you creating some sort of then though for B2B payments?

Thank you, Ken. We have always been focused on building software solutions that really simplify the financial operations that a business has. And, you know, we've worked hard to become, you know, I would say the go-to de facto solution when somebody wants to automate those, their operations. And part of having a great platform software platform enables us and gives us the opportunity to offer payments. And so our focus on payments is really making sure that we serve our customers and having all the different solutions and payments products that they want. And when we look at bill.com balance or the pay by card, this is something that customers are asking for for different reasons at different times. And so at this point, you know, I would say what we're excited about is continuing to create a solution. that drives adoption in the marketplace that really helps SMBs. And as far as the economics go, there's lots of ways for us to continue to drive financial opportunities with our solutions, and we'll continue to do that.

Okay. Thank you very much.

Thank you.

Our next question comes from Darren Peller from Wolf Research. Darren, please go ahead.

Thanks, guys, and great job on this print. Can you just talk about where you are in consolidation of the assets you have now between Bill and Vivi and Invoice2Go and where you are in your hopes for cross-selling potential? And then maybe just on a related note, investments being employed to integrate these relative to your longer-term path to profitability, you called that earlier in the call, just the sense of how much more investment is coming and what the opportunity could be at full run rate of integrated assets.

Thanks, guys. Thank you, Darren. We feel really good about the integration that we've done to date. We've got the product integration that we talked about in the call, the single sign-on, similar user experiences, the ability for us to streamline the approval process with Divi credit applications. We have lots of work that we've just started on Invoice2Go. As a reminder, Invoice2Go closed in September quarter, so it's a quarter behind on the integration, so to speak. from the Divi experience. And so we have been focused on really delivering great value, and what we're starting to see is the experience, and we gave some examples in the call of customers that are using both Bill.com, the Manhattan Soccer Club, and Divi, and what they're getting from it. And so as we get comfortable with that experience and the integrations, that's when we'll become more assertive, if you will, in the market, whether that's going to market directly or using our in-product capabilities. So we feel good about the cross-sell. Everything that we're doing makes us feel really good about the opportunity in front of us. And I think the integration, you see it with the organizational announcement that we included in the top of the script of having Blake Murray come in and be the CRO across the company. That kind of speaks to how we're thinking about about the combined company to be across all three entities. And just, you know, we're excited about where we're at and what we get to do in the coming quarters.

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

Our next question comes from Brad Sills from PFA Securities. Brad, your line is now open.

Oh, great. Thanks, guys. Congratulations on a real strong quarter here. I wanted to ask about Invoice2Go. said 223,000 subscribers, just a great number. What's your expectation for conversion of those? When should we expect to see the integration of Invoice2Go such that you really start to capitalize on that opportunity to convert those customers and then that flywheel effect with receivables customers coming in that you could upgrade to payables over time?

Thank you, Brad. We have a lot of excitement about the Invoice2Go platform across both the AP and the AR side of our business. As a reminder, we have 3.2 million network members in our platform. Predominantly, those are receivables customers receiving money from a payables customer And so the opportunity for us to drive success across our platform includes both AR and AP opportunities. So the opportunity to integrate and cross-sell payables into Invoice2Go is real. But I also just want to remind folks that the opportunity to cross-sell the AR capabilities that Invoice2Go has across our base is also real. And ultimately, there is a payment opportunity with invoicing. And that's something that we've been focused on. We announced in the script here that You know, we do have the beginning of, you know, integration with a seamless payments experience for the Invoice2Go customers. So all of this is something that, you know, we continue to be excited about, and we know will drive, you know, some success for the business and our customers.

Thanks, Rene. Thank you, Brad.

We now go to Will Nance from Goldman Sachs. Will, please go ahead.

Hey, guys. Thanks for taking my questions. I'll echo the others. Congrats on a nice quarter. I wanted to follow up on the partnership with Bank of America. I'm wondering if you could help put that into context, how meaningful that could be for customer acquisition once fully ramped, and maybe in the context of what the FI channel today contributes in terms of net ads on a quarterly basis.

Thank you, Will. Bank of America is obviously one of the top three banks in the country. And so from an opportunity to reach SMBs, we're super excited about the reach they have, the scale they have, the opportunity for us to support their businesses as they're growing, expanding their business. And so, you know, for us, this opportunity just is reflective of our overall bank strategy. And the FI strategy that we've chosen is to make sure that we can support our FI partners. And that's the white-labeled experience. It's having an ability to kind of understand what their needs are. And then as we understand those needs, it's an opportunity to kind of cross-sell other services and products we have. And Bank of America is a perfect example of that. It started off as a commercial relationship focused on the largest businesses that they have. And, you know, based on our success there and our ability to serve those customers, you know, got some, you know, interest and discussion around their smallest businesses. And so, you know, for us, when we look at the overall opportunity, it really is around supporting FIs, businesses trust financial institutions. They have an opportunity to serve and do something for their customers that they've never had before. which is to really leverage the software to automate the financial operations that then drive the payments that they all want to be a part of. So we are super excited about the opportunity with Bank of America and what that leads to in our FI practice.

Our next question comes from Brian Keane from Deutsche Bank. Brian, please go ahead.

Hi, guys, congrats. Wanted to ask John, maybe about transaction yield that that kind of beat our estimates. And both organically, and, you know, total, which includes acquisitions, I think you had a call out on Divi, just thinking about the moving pieces there for transaction, because it seemed like it was a solid take rate. Thanks.

Sure, great question, and we're really happy with the progress we're making driving adoption of products for customers, in particular these ad valorem price products that are the ones contributing to expansion of our transaction revenue, of our revenue per transaction, which was $579, just a little below $6, up 63% year over year. You mentioned the take rate on an organic basis above 10 basis points, so significant quarter-to-quarter expansion. And then the spend management product with Divi had great results as well, where the take rate there was a little bit above the range that we were expecting based on some good results in the quarter, particularly with ad spend and other categories. So we feel really good about the progress that we're making, and As you can see from our organic business, there's still a long way to go as we continue to drive adoption of some of our newer products, and we expect to be able to continue to grow adoption and our take rate going forward.

Great. Thanks for the call. Sure.

Our next question comes from Josh Beck from KBCM. Josh, please go ahead.

Thanks for taking the question and wanted to say congrats to Blake as well. It sounds like an exciting time to be in that seat. You know, what I wanted to ask about was instant transfer. I know it's a product that's very early in its life cycle for you all. I realize it wasn't a big part of the transcript today, but just curious on how the reception has been and just kind of how you're thinking about the long-term potential of that product.

Great question, Josh. There's a lot of what we do, which I talked about earlier, is just to make sure that there's choice for customers and choice for suppliers so they can receive payments how they want and when they want. And having a platform that's as robust as what we've done allows us to create these opportunities. And so when it comes to instant transfer, what we're seeing is that there are definitely suppliers that would like to receive payment instantaneously. And those suppliers oftentimes want to do that again in the future. So we are encouraged by the repeat usage that we see from them. And we are encouraged by the opportunity to just keep providing value, whether you're on the paying side or the receiving side. So I think it will be something that we see continue to grow and be a part of the overall offering that we have for our customers as a differentiator.

Great to hear. Thanks for that. Josh?

Our next question comes from Samad Samana from Jefferies. Samad, please go ahead.

hi thanks for taking my questions guys just uh another stellar quarter from you guys and great to see it um john if i if i maybe try to pro forma out the bank of america contribution it still looks like subscription revenue on an organic basis would have accelerated and a big part of that looks to be the implied arpu um growing double digits year over year can you maybe just help us understand what's driving that that ARPU growth? Is it larger customers? Is it pricing increases? Just how should we unpack maybe that implied ARPU growth?

Sure. Thanks, Samad. Great question. And with regards to organic subscription revenue, we have seen expansion ARPU driven mainly by the composition of our customer base skewing to a slightly average customer. There's no specific subscription-related pricing action that we've taken. In fact, it's been a couple of years since we've had a price increase. But as larger customers, you know, get onto the platform, they tend to enter at a slightly higher price point, you know, the packaging and promotion that we do than, say, a really small customer, in part because they have more users and therefore, you know, higher monthly fees. So it does support expansion of the organic subscription art who's separate from the arrangements that we have with our financial institution partners.

Okay, great. Thanks for that, John. Yep.

Our next question comes from Matt VanVille from BTIG. Matt, your line is now open.

Yeah, thanks for taking the question. Nice job on the quarter. I guess thinking about the financial institution channel, Launching into the SMB world of B of A, how much does that maybe open up new dialogue with either your existing FI partners where you're a little more in the commercial segment, and then what has maybe been learned of some of the complexities around the SMB world in terms of this product development that you might be able to leverage into either new relationships or just going after those customers more organically?

Thank you, Matt. Lots has been learned, right? That's one of the great things about being in business is you get to learn every day. And one of the things that we've learned over the years is how to support our banks and to listen to what they need. And offering our services and products that we build is part of reflection of what they're asking for as well as what the SMBs and the accountants are asking for. And so I think the success of any offering that we do does lead to others asking how they can kind of do more for their customers with some of the products and services we have. So we believe that the opportunity to extend our reach with our FIs is real. It's why we invest behind the products that we do and the teams that we do that are going after the market. And I think the opportunity only increases as digital transformation increases across the SMB space. So lots of businesses are stuck in the mess of the back office, and we're here to clean it up. And that's what we're doing with our partners. It's what we do directly with accountants. It's what we do directly for the SMBs and mid-market companies we serve.

All right, Chris, thank you. Thank you.

We now turn to Sanjay Sakharani from KBW. Sanjay, please go ahead.

Thanks. Maybe a question for Rene, which is a follow-up to one that was asked earlier. Obviously, you mentioned earlier in the call that you're well on your way towards profitability, and the momentum is really strong, and obviously the investor expectation landscape is changing, too. Any updated thoughts on sort of timing and direction? Thanks.

Thank you, Sanjay. We have focused for years about the future. And when we think of the future, we think in terms of years and decades, not months and quarters. Our focus on the success of the business is predicated on our ability to drive penetration into the market that we have. This is a massive opportunity in front of us. We've got just over 2% of the SMBs in this country that have employees that are on our core Build.com platform. And when you look at that across the scale that we can deliver and the value that we can provide for our customers, we're going to continue to invest diligently, thoughtfully, and with discipline. And that said, we're super excited when we have a revenue beat like we just did that drives kind of the numbers that we just had.

Our next question comes from Joe Fafi from Canaccord Genuity. Joe, please go ahead.

Hey, guys. Good afternoon. And my congratulations here. Just wondering if we get an update here on the product roadmap. You know, obviously valuations are down. Dividi and, you know, Invoice2Go are integrating nicely. And you've done such a good job on cross-sell with when you're bringing things in. Feels like sooner rather than later may be the right time to focus on, you know, maybe some more M&A here. So any further thoughts on that would be helpful. Thank you.

Thank you, Joe. We have lots of capital on the books, and that allows us to think about the build-by-partner relationship, and it's always a discussion that we are focused on internally. We're evaluating what we feel our customers need, what we feel our partners need. And we continue to listen to the market and see what others are doing to see if there's opportunities to bring that in-house. So when we think about M&A, it's not really thinking about M&A. It's about how do we add value for our customers and how do we add value for shareholders. And so we have lots of interest about ways to extend the platform. We've talked about working capital in the past. We've talked about HR and payroll opportunities. I don't know if we've mentioned this, but business insights and analytics. I mean, there's lots of things that we can do that will continue to drive and automate financial operations for our customers. And that's ultimately the goal that we have. You know, when we can save customers 50% of the time on their back office mess, that's super powerful. And the more customers we can reach, the happier that makes me.

We now turn to Matt Stottler from William Blair. Matt, please go ahead.

Hey, guys. Thanks for taking the question. Obviously, there's a ton of opportunity left in the SMB segment of business. I think you mentioned 2% of employer SMBs are on the platform. You're expanding into sole proprietors and things like that. But in terms of the move-up market, we'd love to get kind of an update on the mid-market traction, the impact that had in the quarter, and how you see that going forward. And I know that John, you mentioned how it's kind of providing some upward lift to the average subscription revenue per customer. We'd love to maybe dig into that a little bit more and understand the trajectory of that going forward.

Okay. Thank you, Matt. Lots of goodness on the platform happens because we have a horizontal approach, and that allows us to attract customers of all sizes and in all segments, right? And what we're seeing and what we've talked about in the past with mid-market is that Because of our horizontal approach and having a breadth of product, we were able to bring mid-market companies in and then understand things that they needed that were specific to them. And so we've been doing that over the last couple years, whether that's in product or whether that's focused on specific marketing and sales activities. We've been doing that, and we feel that we're getting better and better at that opportunity to reach those customers and to make a difference for them. And the success that we're seeing and the reason John mentioned the ARPU increase is that we are able to attract those customers, and they do have a higher ARPU, and they do really impact the overall scale of the business when it comes to TPV and the things that they do on a per-unit basis. So we're going to continue to listen to customers. We're going to continue to drive focus to make them successful, and we believe that the mid-market is something that's super valuable and important to us.

Great, thanks again. Thank you.

As a reminder, to ask any further questions, please press star followed by one on your telephone keypad now. We now turn to Lamar Clark from SMBC NICO Americas Incorporated. Lamar, the line is now open.

Hello, sorry, this is actually Andrew from SMBC. I wanted to talk about yields again. You've had this year-over-year progression in yields of 2.7 bps on the core bill side. When you have a big influx of new customers at 8,200 that you did this year or this quarter, I would assume that a lot of those are still in the early innings of their AP automation journeys and may have a higher mix of manual payments. Is there any reason that the year-over-year trajectory that we've seen could slow down with this big influx of new customers?

Andrew, thanks for the question. This is John. We're really happy with the progress, as you noted, very significant growth in increased monetization year-over-year. You're absolutely right that there's a life cycle that customers go through when they're automating their financial operations, including on our platform. So when they first you know, subscribe to the bill.com platform. They tend to have many more check payments versus electronic payments. They tend to have some of their suppliers on the network, but not all. And over the course of several quarters, as they get further engaged with the platform, we see the electronic payments go up. And as a result of that, we see higher adoption of some of the newer ad valorem products that we have that has the effect of increasing our overall transaction monetization. So we're still early in the adoption cycle with some of the newer products, whether it's virtual cards or instant transfer or even cross-border payments where they're FX and feel like there's still a long way to go. It's not going to happen in a perfect linear fashion quarter to quarter, but nevertheless, over the longer term, we think there's a long way to go.

Understood. Thanks, guys, and congrats on the quarter. Thank you.

We now turn to Brian Schwartz from Oppenheimer and Company. Brian, please go ahead.

Oh, hi, Renee and John. Thanks for taking my question. John, just following up, I think you made the comment that you saw an increase in average customer size in the core Bill.com business. I guess my assumption is I would assume that, you know, that would come with the financial institutions channel. But the question I wanted to ask you is, Are you seeing those upward pressures across all your distribution channels, or is one really driving that upward momentum to average customer size? Thanks.

Great. Thanks, Brian. I think it's really across the board. Just to clarify, I mean, we are all about serving customers. you know, from the smallest of businesses through mid-market. There's tens of millions of businesses globally that we think are candidates for the Bill.com platform. So we're not necessarily moving up market, but we do see increasing demand from mid-size and mid-market companies. And we see that come to the platform really across all of our distribution channels. In some cases, we're marketing to them directly through digital demand gen or through our accounting firm partners or, as you mentioned, our financial institution relationships as well. So it's really broad-based demand, and to the extent that our platform works for those larger customers, just like the really small ones, we're obviously motivated to serve them. Thanks, John. Sure.

Our last question comes from Ken Suchoski from Autonomous Research. Ken, please go ahead.

Hey guys, thanks for squeezing me in again here. I just wanted to ask about the TPD per customer. I mean, it looks like it continues to move higher and quarter over quarter. I mean, we've seen two out of the last three quarters, it's been up double digits. So just trying to get a sense for the sustainability of that, just because when we look at your incremental TPD per customer year over year, I mean, you're tracking at a, at a figure that's north of $3 million on an annualized basis. So could we just have any comments on that TPD per customer and the sustainability there?

Sure. Thanks, Ken. I mean, one of the things that we've realized in the last couple of years is the more payment choices that we offer to businesses, the more they consolidate their financial operations activity on our platform. That translates into a higher share of wallet, we're able to serve more of their payment activity. And that flows through to the payment volume and then payment volume for customers. So we're north of on an organic basis, $400,000 in the quarter, up significantly from last year. And we've actually seen, I think it's six-plus quarters in a row of expansion in TPP for customer. And I think that just speaks to the fact that customers realize a lot of value by doing more of their financial operations activity in one place versus point solutions. And I think we've been the beneficiary of that.

Makes sense. Thanks, guys. Great job.

Thank you. Thanks, everyone, for joining us today. We deliver strong growth as we help SMBs transform their financial operations, and we look forward to communicating our progress as we pursue the tremendous opportunity ahead. Thank you.