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?