BILL Holdings, Inc.

24 earnings conference call. Joining us for today's call are Bill's CEO, Renee Lacerk, President and CFO John Rettig, and VP of Investor Relations Karen Sandstock. With that, I'd like to turn the call over to Karen Sandstock for introductory remarks. Karen? Thank you,

Operator. Welcome to Bill's fiscal third quarter 2024 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 .bill.com. With me on the call today are Renee Lacerk, Chairman, CEO, and founder of Bill and John Rettig, President and CFO. Before we begin, please remember that during the course of this call, we may make forward-looking statements about the future operations and results of Bill 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 additional discussion, 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 10K and quarterly reports on form 10Q. 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. Please refer to today's press release for the reconciliation of GAAP to non-GAAP financial performance and additional disclosures regarding these measures. Note that at times during this call, we will discuss Bill's standalone results, which exclude our Bill's spend and expense management, which was formerly called DIVI, -to-go accounts receivable, and SINMARK financial planning solutions. Now I'll turn the call over to Rene. Rene?

Thank you, Karen. Good afternoon, everyone. Thanks for joining us today. In Q3, we delivered very strong financial results, continued our rapid pace of innovation, and executed with persistent rigor and effectiveness. Across the company, we delivered on the key initiatives to strengthen our core. We enhanced our platform, enriched our payment experiences, and expanded our ecosystem. Both the market opportunity and our ability to shape that opportunity grows each and every day. There is a significant growth runway ahead for Bill, and we continue to position ourselves to be the essential financial operations platform for SMBs. In Q3, we deliver strong revenue growth and exceptional non-GAAP profit growth that were ahead of our expectations. Total revenue grew 19% -over-year, and non-GAAP operating income increased 68% -over-year. At Bill, we are energized by the fact that during the quarter, we helped more than 450,000 small businesses automate their financial operations so they could spend more time focused on their mission. With our platform and broad set of solutions, these businesses made more than 25 million transactions during the quarter, totaling more than $70 billion in payment volume. Our performance and scale demonstrate the mission-critical nature of our platform, the strength of our ecosystem, and outstanding execution. This is the foundation for our growth and penetration of the large market opportunity. Bill is a leader in innovative financial solutions for SMBs. We created a category and continue to define it as we serve a vast greenfield opportunity to automate and transform financial operations for millions of small and mid-sized businesses. There are more than 6 million SMBs in the U.S. who have employees and more than 33 million small businesses in total, including sole proprietors. These businesses make trillions of dollars of B2B payments each year. The vast majority of these businesses are still burdened by paper checks and manual processes. Our track record of innovating and delivering value puts us at the forefront to help millions of small businesses digitize their operations for the first time and drive adoption of e-payments. At Bill, we have a passion for serving SMBs and are dedicated to helping them thrive. SMBs create jobs, drive innovation, and are at the heart of their local communities. They deserve dedicated attention, care, and technology designed specifically for their needs. Bill paved the way for SMBs to move their financial operations from the analog to the digital world. Our platform offers an integrated suite of solutions that automates and digitizes the financial back office, including accounts payable, accounts receivable, spend and expense management, and a variety of payment offerings. Our robust workflows take care of mundane, error-prone tasks and are built to handle exceptions. Our suite of payment solutions give businesses choice based on both their needs and their supplier needs while accelerating payments and simplifying data reconciliation. We remove the friction in doing business by weaving together a proprietary two-sided network that enables buyers and suppliers to share bank information securely with the ability to collaborate across invoices. The reach and value of our network has attracted more than 5.8 million members and drives more than one-third of our Bill standalone core revenue. Our artificial intelligence engine and large scale help us deliver significant value to our customers. AI is deeply embedded across our platform to connect businesses, automate their operations, and accelerate their ability to make payments. Our AI engine has been uniquely trained on our proprietary data assets, including more than 300 million transactions across an array of payment modalities and over half a billion documents. Our large and increasing scale naturally drives faster product development and ecosystem expansion as scale begets scale. The virtuous cycle enables us to learn quickly, move fast, and accelerate speed to value our SMBs. With our platform, businesses can save more than 50% of their time on financial processes and gain better insight, visibility, and control for running their business. This is why our platform serves as the central nervous system of their daily financial operations and this is what positions Bill as the category leader with a wide-mode and an engaged sticky customer base. A great example of how our platform empowers SMBs is Joe, a marketing automation solution for boutique coffee shops. Joe uses our platform and payment offerings to digitize their manual payables grind and pay suppliers overseas. Brendan Martin, co-CEO and co-founder said, and I quote, we chose Bill because of their best in industry solutions and our shared commitments to level the playing field for small businesses. Joe has a team of employees supporting a customer base of 1,500 small coffee shops. It would not be possible to have this scale without Bill modernizing our financial operations. More importantly, we can concentrate more time and mindshare on brewing strategies and products to empower more boutique coffee shops, end quote. Enabling Joe and all SMBs to achieve their goals is what makes our journey especially rewarding. We bring together and serve hundreds of thousands of customers and millions of members and simplify their lives. With our platform and ecosystem, we consistently drive strong customer adoption and deeper penetration of the market. Each month, we acquire thousands of customers and tens of thousands of new network members. We simplify centralized money movement for SMBs at a tremendous magnitude. Since fiscal 2018, our platform has enabled more than $1 trillion of SMB payments. This is only possible because of the combination of our payment engine, money transmitter capabilities, and strong risk management expertise. And our scale is increasing. Over the past 12 months, we processed nearly 100 million transactions that represented approximately 1% of US GDP. Underpinning this accomplishment is our demonstrated track record in creating value for SMBs. A great example of how our platform empowers businesses to scale is Tower 28, a fast growing company that creates beauty and skin care products, utilizing clean ingredients to support sensitive skin. Tower 28 uses our accounts payable, accounts receivable, and spend and expense solutions, utilizing the power of our integrated platform. Victor Liu, CFO of Tower 28, said, and I quote, a fresh approach to beauty deserves a fresh approach to business financial operations. Our company has been scaling fast, and in less than two years, our business basically tripled. Being able to scale with all the tools, solutions, and services that Bill provides has been phenomenal. Bill saves us 40 hours a week and an entire full-time employee by automating our financial back office. It provides us real-time updates and strong control on card spend. It also enables us to work on the go. We've approved payments from everywhere. With Bill taking care of our financial operations, our team can focus more time and resources on company growth and skin care product development, end quote. Every day, we are dedicated to creating more value for our customers, partners, and network members. Being a category leader requires an exceptionally strong innovation roadmap that constantly extends our value to SMBs and their account and partners. Innovation is in our DNA and is foundational to our platform payments and ecosystem. We've shared with you our key investment areas for growth, and these include driving adoption of our integrated financial operations platform, expanding our ecosystem by bringing more innovation to our partners and attracting new partners, and enriching our payment experiences and driving penetration of our ad below and solutions. Our team continues to make very strong progress against these initiatives, which lay the foundation for our next phase of growth. This past quarter, we significantly enriched our integrated platform capabilities. Our platform now includes cashflow insight and forecasting, leveraging the best of read FP&A capability from our acquisition of Denmark. This powerful tool empowers SMBs to predict future cashflow, easily visualize trends and opportunities, and make better data-driven decisions faster. They can now optimize, manage, and forecast cashflow with a single platform. Bill is uniquely positioned to provide this rich insight as our comprehensive platform can serve all B2B spend and integrates with the county systems. Given our entrenched role in their -to-day routine, the analytics and forecasting layer unlocks outsides and unique value for SMBs and accounts. We recently extended our platform's capabilities into a brand new mobile app for Bill 8 P&AR that further empowers businesses to manage their operations from anywhere. This new app provides enhanced automation workflows, payment solutions, and leverages our mobile-first approach to provide a fresh look and easy navigation. This experience meets customers where they are and is another extension of driving speed and simplicity in financial operations. The new experience is already driving growth and mobile engagement from both our customers and network members, including more bills created and approved and more demand from our network members for instant transfer and invoice financing. We are continuing to enhance our payment experiences to drive more convenience for SMBs. We have a sophisticated payment infrastructure fueled by continuous enhancements. Our platform has connectivities to 12 payment rails, offers 8 payment modalities, and reaches over 130 countries. This level of payment flexibility is extremely complex because the compliance, regulatory, and risk management needs differ by payment type and source of the customer. We hide all these complexities to deliver SMBs a simple and fast payment experience. By making the complex look simple, our customers accelerate their transition to digital payments. Speed and choice of payments are critical to SMBs, and this is particularly true when it comes to commerce with international suppliers. Over the years, we have grown the scale and the sophistication of our international payment offering, and now we are unlocking greater value by leveraging local clearing capabilities to provide faster payment speed. Our enhanced operating will reduce delivery times from days to near real time. We introduced this experience in our first country last month, and we will roll out these capabilities more broadly throughout 2024. We knew from day one that an ecosystem was required to make financial operations for SMBs mainstream. We built our platform with the sensibility in mind, allowing multiple models to integrate and embed with our partners. We partner with nearly 8,000 accounting firms and the largest banks in the country. We have nearly two decades of experience in integrating and embedding our functionalities into our partner's services. We understand the profound intricacies in creating a cohesive product and go-to market experience that works for our partners. Our differentiated set of expertise and competencies is enabling our platform to ripple across our ecosystem. Software and payments are converging, and we are leading the charge. A decade ago, the financial operations automation journey for an SMB would start almost exclusively with consumer-based online banking. That's why we were pioneers and partnered with banks to enable them to do more beyond payments. Fast forward to today, and the front door to an SMB's financial journey can start in many different places. It can and does start with all sorts of different software providers. Our focused dedication to SMBs means that we meet customers where they are, regardless of the entry point. The industry recognizes our leadership, and inbound interest from software companies is strong. Many software companies are looking to us to help address their customers' payment needs. Consistent themes we hear from partners are that they value bill for our workflows, payment expertise, risk, regulatory practices, broad network, vast data set, and dedication to SMBs. We are moving fast to capitalize on this emerging trend. We are rapidly evolving our embed technology and making it easy for software companies to plug and play. Our embed strategy is resonating. Most recently, Xero, a leading global small business platform, announced they will embed our onboarding workflows and a suite of ad-lorm offerings into their platform. Once available, Xero's US-based customers can pay bills efficiently and connect with our large member network. We are excited about this partnership and are working closely with Xero to bring this innovation to market. In closing, we drove great financial results while executing against our innovation roadmap to provide businesses more automation, control, and insights. Achieving our leadership and scale did not happen overnight. We will continue to extend our leadership position with careful strategic planning, sustained investments and building capabilities, and consistent execution. We are building an enduring company, and we aspire to help millions of SMBs automate their operations and more easily make trillions of dollars of e-payments. At Bill, we have an inspired team that is dedicated to serving SMBs and each other, and this, together with our values and mission, will continue to strengthen our unique competitive advantage that positions us well to serve the large market opportunity we are pursuing. I'll now turn the call over to John.

Thanks, Vinay. Today I'll provide an overview of our fiscal third quarter financial and operating results and discuss our outlook for the fiscal fourth quarter and full year 2024. We delivered strong results for the quarter that reinforce our conviction in the strength of our business, our execution capabilities, and the market opportunity we are pursuing. We are building to strengthen our core while investing with discipline to pave the way for the next phase of accelerated growth. Rigorous execution against our top priorities showed early positive signals in Q3. Net new customer ads for both our spend and expense and Bill standalone XFI solutions returned to historical levels. The B2B spend environment showed signs of stabilization, and our focus on businesses with a higher propensity to spend drove upside in our spend and expense business. Bill standalone payment monetization expanded sequentially. All these factors translated into the Q3. Total revenue for Q3 was $323 million, an increase of 19% year over year. Core revenue, which includes subscription and transaction revenue, was $281 million, up 17% from a year ago. Non-Gap gross profit in Q3 was $281 million, up 19% year over year, and non-Gap gross margin was 87%. Our gross profit results in the quarter included approximately $6 million in one-time benefits. Our strong business model enables us to consistently deliver a gross margin that is among the best in class for software and fintech companies. We also significantly expanded profitability in Q3, reflecting our ongoing commitment to investing with discipline. Non-Gap operating income for Q3 was $59 million, up 68% year over year. Non-Gap operating margin was 18% and expanded more than 5 percentage points from Q3 last year. Once again, we were non-Gap operating income profitable, excluding the benefit of float revenue. In Q3, we expanded ex-float profitability by $10 million sequentially, excluding the one-time benefits mentioned earlier, and demonstrating our ability to drive operating leverage as we scale. Moving on to key business highlights, I'll touch on our spend and expense solution and bill standalone solutions. The strong growth trends we delivered throughout this fiscal year with our spend and expense solution continued in Q3, and our results in the quarter exceeded our expectations. Spend and expense revenue grew 29% year over year, and we added 1,800 net new spending businesses. We are prioritizing our sales and marketing resources towards spending businesses with greater financial strength and the opportunity to capture larger wallet share. Spend and expense card payment volume was $4.4 billion for the quarter, an increase of 29% year over year. Interchange fees were 261 basis points, and rewards expense was 47% of spend and expense revenue. As expected with the choppy macro environment, we have seen an increase in credit and fraud loss rates, particularly among our smaller customer cohorts. Our proactive efforts over the last year to diligently manage credit exposure have enabled us to maintain strong margins. For our bill standalone solutions, we delivered solid performance in the quarter. Bill standalone transaction revenue increased 20% year over year, driven by our diverse suite of payment solutions and continued enhancements to our payment products and supplier initiatives. Bill standalone payment volume was $67 billion, an increase of 9% year over year. Bill standalone payment monetization in the quarter expanded from Q2, driven mainly by increased adoption of our newer ad valorem products, as well as a non-recurring increase in transaction fees from migrating TPB between processing providers in the quarter. Bill standalone subscription revenue, excluding financial institution partners, increased 9% year over year. Over the last year, bill standalone subscription revenue declined 2% from last year, which reflects changes in our FI channel as previously discussed. Our solutions continue to drive value for small businesses and accounting firms, and our customer acquisition and retention results are strong. Bill standalone net new customer ads in the direct and accountant channel were $4,100 in Q3, excluding attrition related to the sunset of Intuit's simple bill pay solution. Bill standalone customer account in the financial institution or FI channel declined quarter over quarter. Across our partner portfolio, new enrollments continued at a consistent pace, but were offset by the removal of inactive customers, which occurs periodically. A word on float revenue, which increased 26% year over year to $42 million in Q3. Float is enabled by our proprietary payment infrastructure and regulatory licenses and serves as a counterbalance to economic trends. Turning to capital allocation, we generate significant free cash flow and have a strong balance sheet. This enables us to fund long-term opportunities while delivering profitable growth. We invest with purpose and discipline and are proactive in optimizing our capital structure. In Q3, we repurchased $748 million in aggregate principal amount of our 2025 convertible notes, resulting in cash usage of $711 million and a reduction in non-GAAP diluted share count of $0.9 million weighted shares. In addition, we unwound a portion of the cap call instrument due to the repurchase. We repurchase these notes to minimize potential future dilution associated with a conversion event and made the purchases at attractive economics. The repurchase of these notes and the unwind of the cap calls resulted in a $34 million net benefit to other income and expense, which is reflected in our GAAP results and excluded from our non-GAAP results. Now turning to a quick update on our non-GAAP net income presentation. Given the significant non-GAAP net income we generated in the past several quarters, we transitioned to include a new non-GAAP income tax adjustment beginning in Q3. Previously, non-GAAP net income included GAAP taxes, which were minimal. In Q3, our non-GAAP provision for income taxes was calculated using a blended tax rate of 20%. Note that this change has no impact on actual cash tax payments. You can refer to our press release and quarterly investor presentation for additional information, including a look back of our prior periods to reflect the adoption of the 20% blended tax rate. Comparing our results on an -to-apples basis by incorporating the non-GAAP provision for income tax, non-GAAP net income in Q3 was $68.6 million. It increased 42% -over-year. Non-GAAP net income margin was 21%, an expansion of 4 percentage points -over-year. Please note that our previously provided guidance did not include the non-GAAP tax presentation. Shifting to our outlook, we are raising our fiscal 2024 outlook to reflect our progress in strengthening our core while continuing to be prudent regarding ongoing macro crosswinds that could negatively impact SMB spending. While there have been signs of the B2B spend environment stabilizing, SMBs continue to be pressured by high inflation and interest rates. For fiscal Q4, we expect total revenue to be in the range of $320 million to $330 million, which reflects 8% to 11% -over-year growth. We expect float revenue to be $40 million in Q4, which assumes a yield on FBO funds to be approximately 480 basis points. We expect non-GAAP gross margin to be approximately 84% in Q4, which reflects a slight shift in payment volume mix and the one-time gross margin benefits we recognized in Q3. As previously discussed, we expect our non-GAAP gross margin to moderate in the low to mid-80s as our payment mix evolves and our float revenue declines with lower interest rates later in this economic cycle. Given our change to apply a non-GAAP tax rate to non-GAAP net income, we are providing guidance for non-GAAP operating income, which we expect to be $40 to $50 million in Q4. We expect non-GAAP income for Q4 in the range of $46.4 to $54.4 million, which includes an assumed 20% tax rate for non-GAAP purposes. We expect our actual cash tax payments to continue to be fairly minimal in the near term. Non-GAAP net income per diluted share is expected to be in the range of $0.41 to $0.49, based on a share count of $112 million diluted weighted average shares outstanding. Moving on to full year guidance, for fiscal 2024, we expect total revenue to be in the range of ,000,000 to ,000,000, which represents 20 to 21% -over-year growth. We expect float revenue to be $165 million in fiscal 2024, assuming a yield on FBO funds of $490 basis points. We expect non-GAAP operating income for fiscal 2024 to be $176 to $186 million, which reflects 51 to 59% -over-year growth. We expect non-GAAP net income for fiscal 2024 in the range of $227 to $235 million, which includes an assumed 20% tax rate, and non-GAAP based on a share count of $115.5 million diluted weighted average shares outstanding. We expect stock-based compensation expenses of approximately $255 million for fiscal 2024, which is approximately $45 million lower than the guidance we provided at the start of the fiscal year. In addition, we expect capital expenditures to be approximately $23 million for fiscal 2024. In closing, we delivered a strong quarter with balanced growth and profitability, and we executed vigilantly against our key business initiatives to build a foundation for sustained long-term growth. At Bill, we are all in to help SMB succeed and thrive. We lead the financial operations category with our distinct moat, rigorous execution, and innovation momentum. We stand poised to expand this category and be the de facto financial operations platform for millions of SMBs. Operator, we're now ready to take questions.

Thank you. Please press star followed by the number one if you'd like to ask a question, and ensure your device is unmuted locally when it's your turn to speak. We kindly ask that you ask one question and one follow-up only. Our first question comes from Kim Jin Hwang of JPMorgan. Please go ahead, your line is open.

Hi, thanks for the update and good results here. May I start with just a macro question? I know last quarter you said you're looking for more consistent signals around TPV. It sounds like you're seeing more stability. Is that the ongoing assumption from here? Thinking about the fourth quarter and as we extend into fiscal 25, any other call-outs?

Thank you for the question, Jin Shin. I would say you've got a good summary of it. We see in general spend neutrality, that the stabilization of spend is consistent across the portfolio of customers that we have. We have not yet seen spend expansion, and so that is how we are building our business models.

Okay, so we'll similarly assume stability. Then I have to ask my follow-up here, Renee, just on the update on Bank of America. I know obviously that drove a lot of attention and focus on the last call. Where are we now with those negotiations with Bank of America?

Thank you. We are working very closely with the bank, and when we have specifics to share, we will definitely get back to all of you. I think it is worth maybe just sharing the broader context of how the bank fits into the overall -to-market strategy that we have. We have a three-pronged approach where we focus on both near-term and medium and long-term initiatives. On the near-term, that's the opportunity for us to influence our direct and accountant. Mid-term is also accountant because they bring customers of the accountants. The longer term really has been our FI and partner strategy. When we think about the long term, just as context, the long term today is around 2% of the overall revenue of the business, which is what you would expect because this is how we are focusing on building the businesses to be where customers are, to meet them where they are, and to actually drive customer acquisition wherever we can. You saw good expansion in the ecosystem this quarter with the addition of zero and the overall software platform that they deliver to businesses all over the world, but in particular to businesses in the US. We see the long-term opportunity just continuing to increase, and we are excited about what we see happening in the market.

Yeah, that was nice to hear the zero. Thank you for the update, Renee. Good to hear from me.

Thank

you. The next question comes from Kenneth Sucoski of Autonomous. Your line is open.

Hey, good afternoon. Thanks for taking the questions. Nice job on the take, Ray. Maybe I'll start there. I think you said there was some non-recurring benefit from migrating some of the volumes from across your back end providers. Can you just quantify the revenue from that in the quarter? Then separately, can you just give us an update on the progress you're making on some of the initiatives to drive more virtual card adoption? Maybe just remind us of the timing of when we could see that, because it sounded like the progress on take rate. Maybe there was some non-recurring revenue in that, but it sounded like it was more driven by some of the new ad-pollower payments and not much of a benefit from the actions you're taking on the

Thanks, Ken. Let me unpack that a little bit for you. First, we feel like we made great progress in the third quarter, obviously a significant expansion in monetization. That was driven both by increased volume on our ad-pollower products as well as the one-time uptick that we mentioned earlier. That was really the movement of volume between processing providers that resulted in just higher monetization on a small portion of our volume. The priorities that we talked about last quarter to improve the product experience for customers and suppliers is beginning to show good signals or positive signals, which for us is a good indicator of the foundation we're building to expand monetization on a more consistent basis going forward. Excluding the one-time uptick in the quarter, we also expanded monetization. That was consistent with our expectations. We felt like we had the programs in place to expand from Q2 and we did that. We expect our Q4 monetization to be at or above Q1, which is what we said previously. That's consistent with our expectations. I'd say in the quarter in Q3, our virtual card program in particular underwent a number of improvements and we saw a stable volume there. By itself, it didn't necessarily drive a significant portion of the expansion that we put up, but we feel like we're setting the table for that to be the case down the road.

Great. Thanks, John. Then I wanted to ask about the Airwallet's partnership that came out recently. Congrats on that. My sense was that this could open up maybe dozens of currency payout options and local currencies versus just the couple that you have today in terms of CBP and Canadian dollar. That would obviously come in at lower price points, better speed. How meaningful could this be to cross-border payment adoption in local currency over the next couple years? I think you guys are actually rolling that out across new markets like Australia, New Zealand, and Europe. Any update there would be really helpful.

Yeah, thanks, Ken. One of the things that we've predicated our entire platform on is payment choice matters. Choice has to be there for both the buyer and the supplier. What we have heard from international suppliers is they sometimes want and need close to real-time payment clearing. The only way you get that is with local clearing. The partnership with Airwallet is to give us the capabilities where we can roll that out across the globe. Like we said, we've started doing that in one country just to test it out and make sure it's working as expected. We do think it will drive adoption because, again, it's back to choice. That's why we have 12 payment rails and over eight different modalities of how we execute payments. We're unique in how we do that. We think that choice is what's going to drive success for the platform and not just for the FX but also the overall usage of our platform. Thanks, René. Thank you.

Our next question comes from Andrew Schmidt of Citigroup. The line is open.

Hey, René. Hey, John. Good results here. Thanks for taking my questions. I want to dig into the net ads for Bill's standalone XFI. I'm wondering if there was any impact there from the residual impact from the small bill payroll off and if there was with the organic ads look like. Then just at a higher level, obviously some mixed signals in terms of software adoption out there. What you're seeing in terms of adoption trends and things like that in the market and if there's any sort of distinctions, any differences by channel. Thanks a lot, guys.

Yeah. Well, thank you, Andrew. We had, I think, a very strong team that executes exceptionally well over the last, I guess a little bit more than the last quarter. We have realigned teams to really focus on a couple of different priorities to drive the adoption that we're seeing. One of the things that we've done is we wanted to make sure that we met customers where they were and that they wanted to have a standalone spend and expense. That would be great. If they wanted to have combined package, that would be great. If they want a standalone AP, that would be great. The teams are aligned around that. I think that clarity of ownership inside the company and the clarity of messaging is making a difference. We see that the market opportunity in front of us is massive. We have hundreds of thousands of businesses where there are millions of businesses that could use a product like ours, that need a product like ours. I know that firsthand because I am a small business at heart, have always been, always will be. That ability to meet them where they are and to deliver the functionality that we do is what drives the success that we had. So we feel very good about the capabilities that we've built onto the platform and the good market skills that we have. It is nice to see it happen across the board.

Got it. Thank you for that, Rene. Then maybe I could dig into the embedded strategy a little bit. It was good to hear about the pipeline of software partners. What was the unlock for that? Was it strategic? Was it technical? Was it sort of some lanes between Bill and Intuit? What's sort of driving the uptick in terms of the embedded distribution? Thank you.

Yeah, I think some of this is just about being there. We've been building this platform over the last 18 years. We have a scale that is unique, over a trillion dollars in money moved in the last five plus, six plus years now. A billion opportunities, I should say that there's the opportunity for us to kind of drive that type of scale for our partners matters a lot. The regulatory compliance needs, they differ depending on the customer and how you find them. Our ability to drive risk efficiency and effectiveness across our platform, it's real. When we talk to partners, whether they're software partners across that do accounting or whether they're software partners that serve other parts of the stack for an SMB, what we consistently hear is that the complexity that is required of financial operations when it comes to moving funds is something that is going to be hard for them to take on and to look to our scale to kind of drive that for their business. I think this is partly just the awareness that financial operations is a real opportunity. The success that we've had is driven awareness for people to see that there's a lot of time to be saved and a lot of opportunity to help your SMB customers. I think people have the awareness on what scale means. The type of scale that we have, moving 1% of GDP over a trillion dollars since 2018, all of this has an impact on building the systems that are required and we've demonstrated that we can do that and do it well. John O'Brien Got it. Thank you, Rene. I appreciate the comments.

Rene Coulter Thank you.

Daron Peller Next in queue we have Daron Peller of Wolf Research. Please go ahead. Your line is open.

Darren Peller Hey guys, thanks. Maybe we could just touch a little further on the -to-market approach you have now going forward and maybe just more color on the customer ad numbers. I know somebody touched on it a second ago, but more detail on I mean you had acceleration in your customer ads in Divi with good volume with it too. So obviously it seems like the strategy there is kicking in a bigger way. Then on the direct side also, 3500, there was a bit of FI churn it looked like on the FI channel. Maybe you could just explain that too and the go-forward expectations for customer ads more broadly, guys? Thanks.

John O'Brien Yeah, thanks, Daron. I'll start and Rene can add color here. If you recall in February we discussed a number of priorities to adapt our -to-market efforts in light of just changing conditions both externally and with SMBs. So as Rene said, one of the big areas of focus was being where SMBs are, delivering them the solutions that they want, whether it's individual solutions or unified, narrowing our focus to be more targeted on prospects that are ready to adopt versus are still thinking about the journey along with a bias towards slightly larger businesses. And we saw good progress in the quarter and that was definitely driven by an incredibly talented leadership and teams across our sales and market entire -to-market organization. For Bill specifically, 4100 ads in the quarter was an uptick from from last quarter and I think was a good start to some of our areas of focus that I just mentioned. That number excludes the attrition associated with Intuit Simple Bill Pay which was quite small in the quarter, 600 customers. So we have retained the vast majority of that initial 12,000 Intuit Simple Bill Pay customers. And then probably the biggest point of acceleration around the customer ads was with our Spend and Expense solution which increased to 1800 in the quarter and that's a function of focusing on both larger businesses along with lower attrition from our smaller business, the smaller business segment and just making progress with enhancing the value proposition and the teams focused on scaling. We indicated before, we felt like there were a number of levers within our control to regain momentum in penetrating the market and you saw that play out in both of those areas, Bill and Spend and Expense this quarter. As it relates to the financial institution channel, we saw a decline in the quarter in the customer ads. That was mainly due to the removal of some inactive customers. So we experienced in the quarter an increase in enrollment and our highest ever rate of active customers within the FI channel but at the same time as happens periodically, typically seasonally, some partners will remove inactive customers. And so that impacted the overall optics of the numbers but we feel good about the level of engagement and activity within our FI customer partners.

That's great to hear guys. Thank you very much. Nice job. Thank you.

Thanks. Our next question comes from Brian Keane of Deutsche Bank. Please go ahead.

Hi guys, congrats on these results. Rene, just following up on B of A, is the B of A relationship likely to continue in some form or is it still possible they bring everything in house? I'm just trying to get a sense of what are the range of outcomes still out there because I know there is or at least there was some kind of a minimum commitment from B of A. So does that still exist as well?

Thanks for the question, Brian. So we are actively working with our partners at the bank and like we said, when we have more to share, we will. The opportunity to extend the ecosystem to serve SMBs wherever they are exists across our platform and we think there's an opportunity to do that with the bank.

Got it. Got it. And then John, just thinking about organic take rate, it sounds like all still holds about getting back to first quarter levels. Just some of the drivers in particular that get you back to first quarter levers on organic take rate. Maybe some of those initiatives are starting to take hold but it sounds like it's all gone to plan so far. And then how do we think about as we cross over to next fiscal year, do we expect a gradual pickup in the organic take rate as we get into fiscal year 25 as well?

Yeah, thanks Brian. So I think you're exactly right on Q4. I mean we are making progress with the product improvements that we've talked about that will certainly have a positive impact on the value proposition and these are things around enhanced data, payment speed, reconciliation, things like that as well as local clearing on the international payment front that Renee mentioned. So we saw an increase in adoption. We also saw growth in some of our newer ad valorem products which are smaller in size than say our virtual card or international payment products but are starting to influence the numbers and I think we're on track for what we said previously in terms of Q4. I'd say we feel really good about the foundation that we're laying to return to consistent expansion. It always varies quarter to quarter but nevertheless driving adoption, payment volume adoption across all of our ad valorem products. How that plays out exactly into fiscal 25, I think it's early for us to comment on that will certainly lay out our assumptions for you come August.

Great, thanks so much for taking the questions.

Thank

you.

The next question comes from Keith Weiss of Morgan Stanley. Please go ahead.

Excellent, thank you guys for taking the question. I was wondering if we could delve into the integrated platform capabilities and hopefully, I was hoping you could give us a little bit more color on how you're monetizing some of those capabilities. Is it coming through more payment volume, better customer ads? I can actually think about the benefits extending from that.

Okay, thanks Keith. One of the reasons and the primary reason that we integrated the two platforms together was to drive simplicity for our SMB customers. It's what we think about every day is how do we simplify their lives? What we have seen so far and I would still say the early days of an integrated platform is that we've seen great progress in active activations and engagement and just driving more cross sale opportunities. What we're seeing to date is what we would have expected and what we are building the platform around is to simplify their lives and we're seeing that across the data that we have of customer usage. In addition to just you think about what we've already done with integrated platform, we did announce that we are rolling in the cash flow insights and forecasting capabilities into the platform. The vision that we have for the SMB is that they only have one place they have to turn to kind of manage their financial operations. This is the pain that every SMB has. There are not tools out there until Bill started building them and the opportunity to serve a customer with this broad set of capabilities we think is unique and it's one of the things that what we see when we have the integration between the two platforms when we see the opportunity that customers are engaging at different levels than they were before.

Got it. Super level. Thank you. Thank you.

Our next question comes from William Nance of Goldman Sachs. Your line is open.

Hey guys, appreciate you taking the question. Nice to see some of the acceleration on the expense platform today. You know, I at the risk of beating the debt, I just wanted to come back to the the take rate dynamics in the quarter. John, I thought you said in the script there was a six million dollar benefit to gross profit and if I kind of pull that out of the transaction revenues, it looks like the take rate was a little bit more stable sequentially and so you know I feel like I'm missing something. Give me a commentary around take rate expansion. I was wondering if you could help me with that and then just kind of more broadly you know when you talk about getting take rate back to first quarter levels next quarter, I guess this is this a one-time step up or a one-time benefit to the take rate?

Yeah, thanks for the question Will. Just to clarify on the six million dollar benefit that we referenced earlier, that's really a positive impact on cost of revenues, cost of sales that improve gross margin. It's not a revenue and monetization impact so that has no real bearing on our take rate which is a function of transaction revenues and the appropriate segment of you know of TDB in this case bill. So we did make progress. We grew. We were at 14-2 I think last quarter and expanded without including a separate one-time step up which was around some AR volume that transitioned between providers. That volume will continue at a higher rate but as we look at like seasonality in Q4 and how payment volume falls, we're expecting some of the near-term headwinds on some of the higher monetizing products to continue and that serves to kind of mute volume expansion across those products and we know that we'll have expansion seasonally in the quarter associated with check and ACH payments. So those are some of the dynamics that are all at play in our expectations for the Q4 monetization. So it will be as we said previously an improvement by Q4 versus Q1 or at least at the Q1 level with limited opportunity for volume growth in the very short term and that's how we get to those assumptions.

Okay that's super helpful. So the six million is not in revenue. It's in cogs and there's a separate one but that one is going to be an enduring uplift in the take rate.

That's correct.

Awesome, appreciate it. All right and then just I guess a separate topic on just go to market. I'm just wondering if you could talk around like the net ads that we're seeing across I guess really more the core bill platform. What is the mix of sort of channel versus direct these days? I guess more accounting versus kind of not talking about the FI channel and I guess specifically how do you kind of envision that changing over time and is there anything you're doing to kind of the mix more towards the direct channel in the near term?

Got it. Yeah we as you know historically if you look at our XFI go to market the majority of our of our new customers come from our relationships with the accounting firms. So the accountant channel that continues to be the case. I don't think we've broken out previously specific numbers between the channels so I won't get to that level of detail but and we are continuing to invest and enhance our presence and build relationships in the accounting channel that we think will provide a long-term growth trajectory for continuing to acquire customers. At the same time we've referenced recently a little bit more focus internally on slightly larger businesses and we've also said those like with a higher propensity to spend meaning get on the platform get up and running now. We have the most control over that in our direct channel. How we target sales and marketing resources and where we deploy you know some of the programs that we have and we're starting to see the early signs of that playing out and so I would think from maybe a new perspective you know slightly larger businesses over time in that direct channel and from the accountant channel all size businesses and continue to be the majority of our customer acquisition.

Got it. That's super helpful. I appreciate you taking the questions and appreciate the clarification on the take rate.

Yeah thank you.

The next question comes from James Friedman of SIG. Please go ahead.

Hi. Thank you for taking the question. I wanted to ask about this Bill Standal and TPV XFI. First of all do you think that that's still the right way to analyze the company and Renee in your earlier answer when you were using that language neutrality is that what you're referring to?

The thank you James. The neutrality I was referring to was just respect to kind of same store sales right. Just the businesses are kind of managing their spend. They're not decreasing their spend. They're not increasing their spend. They're not expanding their spend and so what that means is that across the platform you know we have seen we do not see you know contraction if you will the way we saw in prior quarters. So we're you know we haven't seen expansion. We'd like to see expansion but we haven't seen expansion yet. So that just to clarify you know my you know what I meant by spend neutrality versus spend expansion. That's where I was leaning there. Overall on you know the bill TPV like we feel really good about what we're able to drive it. We continue to add more and more capabilities around the payments to actually drive more share of wallet. We can continue to add more and more customers across the platform which we think is you know super important and you know a lot of this I would just say is just continued strong execution. It's super important of execution and you know I've been fortunate enough I've been building and creating online software solutions that automate financial operations since 1992 and over the years I've learned that having a vision while it's super important it's not nearly as important as the will the grit the passion and all of that to execute better and better each day and that's what we do a bill. It's what we're made of it's with our DNA and it's what we've always done it's what we're always going to do and when you combine that vision you know with that passion that grit that will you have a combo that is unstoppable and we feel really good about where we're at and the ability to drive the -to-market results ever seeing.

Okay thanks for that and then if I could just ask maybe for a one-liner on the interchange change is that something you're prepared to comment on yet or you're going to wait for fiscal 25?

Yeah I think it's early for us to have any specific commentary on that from a timing perspective it appears that would first potentially come in to be in our fiscal Q4 2025 so it's a little ways out there yet we're obviously aware and paying close attention to that but there's a little bit more information needed for I think us to understand exactly what the impact is.

Okay thanks I'll drop back in the queue thank you.

Thank you.

The next question comes from Brad Sills of Bank of America please go ahead your line is open.

Oh great thank you so much wanted to ask about the integration the progress you've made on integrating receivables with payables and the mobile functionality how significant is this in other words could we start to see this kind of add to the flywheel effect of customer acquisition in your business and how so might that play out?

Thanks Brad for the question we I mean we think simplicity is core to the value proposition that is needed and so having you know an integrated mobile app that has all of the APVAR and you know the other capabilities spending expense and cash flow and sign forecasting having one platform that does all of that will be super important for adoption in the short term medium term and definitely the long term and what you know we did share was that the mobile app is also works obviously for suppliers and we're seeing increased usage from suppliers using it for instant transfer and even creating invoices back to the customers on the bill platform so we think it's part of the overall strategy I guess it's you know another thing just to maybe step back is we talked about our scale the reason we talk about the scale the amount of money we move and then our transactions is because we know that scale drives further scale and so in this case the ability for us to really drive more simplicity for our customers comes from how we're seeing them using it across the entire network of hundreds of thousands of businesses and millions of network members and you know I think you know when we look even broader at scale how we're able to use that to actually understand the payment products they need the the AI capabilities that we bring into the platform these are all things that you know we're fortunate enough that we have the type of scale we do and that does lead to better product innovation which is quarter our work every day at bill.

Great thank you Renee one more if I may please just on on the macro maybe I'll just ask it a little differently to you John the TPV per customer metric is one we all kind of follow here as a gauge there are there any signs of improvement whether it's in certain categories for that metric to potentially accelerate I think it grew one percent this quarter which is kind of similar last quarter in the core business thank you

yeah thanks Brad yeah it's up slightly this quarter and if you look at historical you know sort of patterns with the the core bill platform there is a seasonal effect in the March quarter that that typically holds and so we saw that play out as well but we haven't seen any large scale signals across a multiple spend categories that would lead us to believe there's near-term expansion per customer and I think that you know leads to Renee's earlier comments about it feels like it's a somewhat neutral spend environment in the very short term obviously on the card side with our spend and expense solution card volume there is a lot of strength in the T and E category that is that is visible there and that's not that's consistent with you know other companies and airlines and whatnot who are reporting similar stats that's not necessarily broad-based yet such that we believe there's significant near-term expansion but I think we have a little bit of a ways to go with regards to inflation interest rates and other conditions that will give small businesses you know the confidence that now is the time to expand great thank you John thank you

thank you we have time for one more question our last question is from Taylor McGinnis at UBS please go ahead

yeah hi thanks so much for taking my questions so it looks like the 4q core rev growth guide assumes a bit of a deceleration compared to how you guided last quarter so when we think about where slower growth might be occurring anything you would flag as we think through our models so for instance I don't believe you guided to tpv but is it fair to assume the old guide is seven to eight percent tpv growth this year still holds it sounds like earlier you were messaging maybe the potential for take rate to be down sequentially so maybe that you know it's the area but there's any additional color from a modeling perspective you can help us with thanks

yeah thanks thanks Taylor yeah our core revenue guidance implies about 10 percent -over-year growth at the midpoint which is ahead of what what we I guess implied last quarter you know there's a number of variables customers and price plans drive subscriptions and transactions it's a pretty simple model that we have and our main expectation is you know the big picture is that we're going to see muted you know growth across especially the tpv and take rate variables in the very short term and that's that's certainly embedded in in our assumptions for the fourth quarter on spending expense we are expecting full year revenue growth to be slightly higher than the high end of previous expectations which was 20 to 25 percent so we are seeing a little bit more strength in that's just a volume play there our interchange is relatively stable so those are you know some of the the moving parts

great thank you so much

thank you

thank you this concludes the q a session so I'll turn the call back to for any closing comments

thank you thanks everyone for joining us today as we celebrate bill's 18th anniversary we're all proud of the incredible transformational value that our platform provides smbs I'd especially like to call out and thank all of our employees who stepped it up this quarter and continue to drive innovation that empowers our customers to thrive thank you

okay this concludes today's call thank you for joining you may now disconnect your line this concludes today's call thank you for joining you may now disconnect your