BILL Holdings, Inc.

Good afternoon and welcome to Bill's first quarter fiscal 2025 earnings conference call. Joining us today are Bill's CEO and founder, Ray Alicet, President and CFO, John Rettig, and Vice President of Investor Relations, Karen Sansot. With that, I'd like to turn the call over to Karen Sansot for introductory remarks. Karen.

Thank you, Operator. Welcome to Bill's fiscal first quarter 2025 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 are Renee Lacerte, Chairman, CEO, and founder of Bill, and John Reddick, 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, targets, and results of the 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 10-K and quarterly reports on Form 10-Q. 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 we revised our key metrics presentation beginning this quarter to reflect our evolving product solution set, as we previewed on our last earnings call. This new presentation provides investors with an enhanced view of our integrated platform, which includes Bill APAR and Spend and Expense, excluding the financial institution channel. It also provides an enhanced view of our embedded and other solutions, which includes the financial institution channel, invoice to go, and other solutions. The appendix of our fiscal Q1 2025 investor deck reflects this new presentation. Now I'll turn the call over to Rene. Rene?

Thank you, Karen. Good afternoon, everyone. In Q1, we delivered very strong financial results, innovated at a rapid pace and executed well across the company. We made substantial progress on our most important initiatives to expand the depth and breadth of our platform and enhance our go-to-market motion to further serve small and mid-sized businesses. These actions drove increased customer acquisition and higher payment volume per customer among newer cohorts of our integrated platform. Our success this quarter highlights the significant growth runway ahead for Bill. We're moving aggressively to capitalize on the market as we extend the essential financial operations category to more SMBs. In Q1, we drove strong core revenue growth of 19% year over year, which was above our expectations and reflects acceleration from 16% growth last quarter. We are executing on our commitment to balance growth and profitability and achieved a non-GAAP operating income margin of 19% in the quarter, which increased eight percentage points from last year. We also expanded free cash flow margin to 23%, reflecting a seven percentage point increase from last year. Our increasing scale demonstrates that our value proposition resonates with SMBs. During the quarter, we empowered over 475,000 businesses to automate their financial operations, and we managed $80 billion in total payment volume across 29 million payment transactions. We took care of their financial operations so they could take care of serving their customers and growing their business. Our platform is mission critical for SMBs as they digitize their back office. For example, Fairwave, a bill customer since 2023, empowers other SMBs by providing small local coffee shops with scalable infrastructure, such as coffee bean sourcing, loyalty programs, and a tech stack to drive growth. Fairwave does all this while preserving the independence and uniqueness of local coffee brands across the country. Derek Braun, director of FP&A, said, and I quote, Bill is the technology foundation that supports our growth. Fairwave grows fast, adding a new brand every few months. What comes with it is the need to understand and operate each brand's finances. With Bill, we can integrate each brand's financial operations, their accounts payable and card spend, and as soon as possible, create standardized processes and controls. Additionally, Bill allows us to manage card spend by category, build budgets, and eliminate surprises. We're able to get twice the amount of work done without hiring an additional AP clerk, saving us at least $75,000 a year. Bill really brings us the efficiencies we need to focus on adding more brands." We are the leaders in financial operations automation for SMBs. There's a vast market opportunity ahead of us. Customer stories like Fairwave are what inspires us at Bill as we focus on supporting many more SMBs on their automation journey. 99.9% of the businesses in the US are small businesses with fewer than 500 employees, and they power over 40% of the US GDP and employ nearly half of the workforce. Yet given their fragmented and highly diverse nature of the SMB market, small businesses are underserved by technology. and their needs are often neglected. Their adoption of technology solutions for financial operations is still nascent. In fact, only 5% of larger SMBs have fully automated both their AP and AR processes, according to a recent survey by Paymas Intelligence. When it comes to financial operations for small and mid-sized businesses, we are very well positioned to serve this large greenfield opportunity. We have the platform, the ecosystem, and the team to empower millions of businesses, and we will continue to aggressively drive market adoption and deliver on our commitment to helping SMBs succeed. One of Bill's key product differentiators is our integrated platform. We provide SMBs with accounts payable, accounts receivable, spend management, business insights, and working capital solutions. Our platform digitizes and transforms their financial operations and eliminates complex, disconnected, manual paper-based processes that burden SMBs. Our powerful platform automates the B2B payment lifecycle, from the creation of a purchase order all the way through reconciling the transactions. Our tools automate workflow and drive effortless approvals, making it simple to manage cash in and out of a business. We provide a wide range of payment and funding choices for the very critical payment last mile. These tools and capabilities were designed end to end and built from the ground up by working with hundreds of thousands of small businesses. Our platform uniquely enables SMBs to save significant time while gaining more visibility and control of their cash flow. We are always innovating to make our all in one platform for SMBs even more valuable by giving them more choice and flexibility in how they manage their finances. For example, as part of our priority to enrich existing payment offerings and provide new payment options, we delivered new payment innovations for both funding and disbursement. We recently enabled real-time funding options. This means that customers can now fund their payments with credit cards or ACH or real-time payments. Additionally, on the disbursement side, we are making our Bill Divvy card available to accounts payable customers as an alternative to making check and ACH payments. In addition to driving more spend on the Bill Divvy card, this will also create a simpler and easier upgrade path for our Bill AP customers to the full spend and expense platform. These examples are part of our initiatives to further integrate our solutions, provide more card options, and drive more awareness of the robust capabilities of our platform. We also broaden the availability of international payment local transfer to more than two dozen countries. Our new capability enables businesses to receive their international payments days faster with less FX volatility while saving on transaction fees. We are working to extend this value to additional countries. Beyond funding and payment capabilities, we are scaling our working capital solutions, solving one of the biggest pain points for SMBs. With our invoice financing offering, suppliers are getting paid weeks in advance of when they would typically get paid. We have proven product market fit and are seeing recurring usage with 70% of borrowers being repeat users of invoice financing. We have a long history of leveraging our proprietary data and AI to enhance our platform and offerings, such as automated bill entry, payment acceleration, and network matching. As part of our priorities to continue to simplify and enhance our platform experience, we are applying AI to more use cases to further simplify and personalize the user experience on our platform for SMBs. As an example, recently we introduced an AI-powered guide, Sync Assist, which creates a more seamless experience when syncing with accounting systems. Our open platform allows businesses to work with any accounting software and automatically syncs with the top accounting systems that are used by over 80% of the SMB market. And for accounting firms that support clients with multiple different accounting systems, rSync is an invaluable tool. Tens of thousands of organizations have adopted rSync Assist functionality to simplify the experience. One of them is Eisner Amper, a global accounting tax advisory firm. Rob Neely, manager of application success team, said, and I quote, Sync Assist is absolutely fantastic. Our staff loves this new functionality. It does the work for you by generating actionable responses to empower our team to quickly resolve any sync issues on their own without leaving the Bill platform. Bill Sync Assist saves our staff so much time and headache. With hundreds of our clients on Bill, this is an absolute game changer, end quote. Another important point of significant differentiation for Bill is the large and diverse distribution ecosystem we have built, which includes direct sales, partnerships with accounting firms, top financial institutions, and more than 7 million network members. Within our direct channel, our heightened focus on high propensity to spend businesses is producing stronger engagement among new cohorts of customers, particularly new spend and expense customers. And our dedicated programs focused on accounts attracted more accounting firms to Bill. In the past year, more than 1,000 accounting firms joined the Build platform to expand their business and simplify their customers' lives. We now partner with more than 8,500 accounting firms in the U.S., and together we serve tens of thousands of SMBs. Our platform and ecosystem are foundational to the category, leadership, and scale we have today. As we look ahead, we remain focused on expanding our lead and continuing to drive durable, profitable growth. Given the strength of our balance sheet, improving cash flow generation, we are continuing to make targeted investments to bolster our competitive advantages and expand our market opportunity. We believe that investing toward areas of the business where we expect to see a high ROI will enable Bill to extend our competitive note while simultaneously unlocking meaningful long-term value for shareholders. A key area of investment is building our team for the next phase of growth and to expand our category of leadership. We recently added Mary Kay Bowman to our executive team as EVP of Payments and Financial Services. Mary Kay is a world-class leader with significant experience driving innovation and growth at Fortune 500 companies. She brings a wealth of expertise from 20 years of experience building solutions in FinTech, managing hundreds of products, and serving millions of customers at leading companies, including Visa, Block, formerly Square, and Amazon. We believe Mary Kay's proven track record in driving innovation and connecting buyers and sellers will be highly additive to the evolution of our payment and financial services offerings. We are aggressively taking steps to extend our lead and expand the financial operations category. As we do this, we are being very thoughtful and intentional about balancing investments for the future with return of capital to shareholders. To that end, during the quarter, we repurchased $200 million of shares under the $300 million share repurchase program announced in August. These purchases reflect the conviction that the board and management have in our growth potential and in Bill as an investment opportunity with significant upside. In conclusion, Bill has meaningful and expanding scale. Our strong leadership in a highly compelling market enables us to focus on capitalizing on the significant opportunities ahead. The consistent execution of our strategy to help hundreds of thousands of businesses reimagine how financial operations can be done has both changed the game for our customers and built an exceptionally strong business that generates strong cash flows and drives durable, profitable growth. Looking ahead, we remain focused on strategically investing in areas of the business that we believe will further our category leadership and executing on our planned growth and profitability initiatives. We are deeply committed to supporting our customers and partners and realizing our vision to be the essential financial operations platform for SMBs.