Q3 2020 Earnings Call

Good afternoon, and welcome to go Dark comedy fiscal third quarter 2020 earnings conference call joining us today for today's call are built dot Coms CEO My name is church and CFO John rhetoric.

<unk> all participants are in listen only mode. After the speakers presentation. There will be a question and answer session to ask your question. During this session you will need to press star one on your telephone keypad. If you require any further assistance. Please press star zero TQ with that I would like to turn the call on for John Reddick for introductory remarks John.

Thank you Jack one welcome to Dotcom fiscal third quarter 2020.

Cool.

We issued our earnings press release, a short time ago inversely related form 8-K to the FTC.

The press release can be found on the Investor Relations section of our website.

With me on the call today's when amateur.

Chairman CEO and founder Bill Dot Com.

Before we begin.

Remember that during the course of this call will make forward looking statements about the operations and future results Dot com.

All many assumptions risks and uncertainties.

These risks or uncertainties develop working 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 testing the company's press release issued today into our periodic reports filed with the Securities and Exchange Commission, including our form 10-Q dated February 11 2020.

We disclaim any obligation to update any forward looking statements.

On today's call, we were refer to both GAAP and non-GAAP financial measures. The non revenue financial figures discussed today are non-GAAP.

I've stated that the major is a GAAP number.

Please refer to today's press release for the reconciliation of GAAP to non-GAAP financial performance and additional disclosures regarding these measures.

Now I'll turn the call for <unk>.

Thanks, John and good afternoon, everyone. Thank you for joining us today speaking on behalf of everyone here at Dotcom, we want to send her best wishes to all of you and we want to share our appreciation to all of those on the front line from the health care to the service workers that kept us going.

After a brief comment about dot Coms response, the cobot 19, I'll provide an overview of our fiscal third quarter results discuss a few highlights and then later I'll turn the call over to John to cover our financial results in greater detail.

We'll also be providing you with our fiscal fourth quarter outlook before opening the call up for today.

Our world has changed dramatically since our first earnings call in early February.

Well that 19 has been a catalyst for change.

Give me an idea of how we've adapted to this new environment. Let me give you. Some examples of changes we have made for our employees and customers.

We proactively switched our entire workforce to the 100% remote and less than a week because we had a comprehensive business continuity plan in place and because our tech stack is completely cloud days.

Our employees have done a phenomenal job working from home and up not missed a beat.

<unk> success is driven by their passion and dedication and I'm grateful for their commitment to each other and to our customers.

Our mission is rooted in being champions of small and midsized businesses and we knew they needed help.

We've taken the following actions to assist them.

We waived subscription fees for three months for new customers financially impacted by Cobot 19.

For existing customers and distress. We've also opera short term suspensions and other forms of assistance.

We extended our customer support hours to help people, who are balancing work and family life within the confines every remote working environment.

We join stand for small a coalition of more than 40 companies that have banded together to provide support to small businesses as they navigate the impacts of covert 19th.

Led by our strategic partner American Express to stand for small coalition will provide millions of smbs access to valuable services offered to an expertise.

And finally, along with our strategic partner into it dotcom contributed funding to the small business releasing them.

Which was started by go find me to help small businesses that have been affected the goal of empowering their communities to rally behind them.

Coven 19 has created uncertainty that could not have been porcine.

Our focus along with many of our partners is to make sure SMB is no they're cared for and supported by all of us.

That is the one certainty we can provide at this time.

Now, let me turn to our third quarter financial performance.

Core revenue, which we define a subscription plus transaction revenue grew by 63% year over year to 36.1 million.

Total revenue in the quarter grew by 46% year over year to 41.2 million.

We also delivered strong non-GAAP gross margins of 78.8% in the quarter.

At the end of the quarter, we had over 91000 customers, representing 28% year over year growth.

Our platform also reaches a large number of Smbs there are 1.8 million plus network members.

In fiscal Q3, we processed 6 million payment transactions, representing an increase of 23% over the year ago period.

During the quarter, we processed $24.2 billion and total payment volume or TPV on our platform an increase of 35% over Q3 of the prior year.

We've worked hard over the last year to extend our payment rails and capture more of our customers transactions and our please see the strong growth in TPV.

John will discuss our financial results in greater detail and a few minutes.

Similar to an SMB is accounting system. We believe our platform is a foundational mission critical solution for business.

We expect SMB to spend less than a downturn and we provide the visibility they need to confidently stretch out there payables and accelerate the receivables.

Without dotcom doing all of this from home is even more challenging our platform provides our customers the ability to monitor their finances closely and react quickly.

Remote work requirements of exposed the degree to which SMB still rely on paper based manual processes.

We believe that this crisis could accelerate the move to digital financial operations for companies of all sizes.

The inefficiencies inherent in the old way of doing business will not work going forward and this is not lost on businesses nor their accounts for financial institutions.

Turning now to our resiliency.

We believe that build icons business model is particularly durable for the following reasons.

First our demand generation as not reliant on in person events like annual user conferences.

We market our platform directly to Smbs through online digital marketing referral program and strategic partnerships.

In fact, the 2019 customer survey, we conducted path of new customer respondents indicated they first heard about us because they use our platform at a prior company heard about us through a colleague.

Next well go to market model is not reliant upon feet on the street.

Our direct sales motion as 100% inside sales.

These first two points lead to its short sales cycle of less than 30 days.

Which combined with our risk free trial makes it easy for customers to get on the platform quickly.

One signed up new customers can start using dotcom anytime anywhere from any device they self onboard without complicated or time consuming implementation cycle.

With subscription starting as low as $39 per month, our price points are affordable for Smbs.

Finally, dot com at the strong balance sheet with over $382 million in cash cash equivalents and short term investments at March 30, Onest 2020.

In summary, we have a unique position in the market and a solid financial foundation in place. We believe that bill Dot com is well positioned to support small businesses through and as they come out of Cobot 19.

That being said, we want to be transparent and share the recent trends we're seeing.

In terms of customer acquisition and retention, we have experienced some kobin related churn. However, we have also seen some increased inflow from prospective customers looking for solutions that enable continuity for financial operations.

Looking at the transaction side of the business, we started to see some impact on both TV and the number of transactions being processed by our customers during the second half of March.

And lastly flows obviously the reduction in the federal funds rate adversely impact our flow revenue.

John will discuss these topics in more detail later on.

Let me discuss some of the changes we've initiated to address Covidien 19 impact on our business as a SaaS company. The majority of our Opex spend is related to headcount.

In the near term, we have pause new hiring for the quarter, except for critical positions.

We've also refined our payment risk management policies to mitigate potential increases in credit losses associated with payment flows on our platform.

Shifting gears last quarter, we featured use cases from our direct customers this quarter I want to showcase how we're helping our accounting partners.

Over the past 12 years, we've developed relationships with over 4000 accounting firms in the U.S.

The accounting from channel as a valuable part of our ecosystem because accounts our trusted advisors smbs.

Our account specific tools help firms grow their client advisory practice.

Just a competitive advantage and satisfy their SMB clients needs.

With our platform in the same accounting firms that can serve more clients more strategically and more profitably.

With Coven 19, we have seen increased traction in this channel.

Let me give you just one example of how our accounting from partners have leveraged dotcom digital payments platform ease their clients transition to the new normal.

Good Minders.

Spurt base from providing outsourced accounting and bookkeeping services for small businesses has praised the value of our digital workflow capabilities.

Minders Chief operating officer, Jessica men Kiss stated that and I quote.

So dot com is allowing foot miners to rapidly transformer outsource bookkeeping service to meet the challenges of working remotely.

Both minders and our clients the lead the dot com is a necessity to safely and securely operate in this new environment.

The ability to process approved transmit and deposit payments electronically is imperative in a world where do you can't rely on being able to meet with clients go to the bank for receive snail mail.

And quotes.

In addition to trusting account businesses trust their financial institutions.

Smbs look to their banking partners for digital solutions that provide end to end cash flow management.

And many of those financial institutions turned to us to meet their customers' needs.

Working with US our financial institution partners can provide their customers with many of the benefits realized by our directly acquired customers.

So dot com is currently integrated with several of the largest financial institutions in the United States, including Bank of America, JP Morgan Chase and American Express.

These partners and better platform typically on a white label basis into their online banking solutions.

We continue to have many great conversations with our existing partners about doing more together and we continue to see opportunities to partner with additional institutions.

Today I'm excited to let you know that Weve reached agreement with our newest partner Wells Fargo.

Wells Fargo will power, a new digital AG in a our solution for its treasury management clients by integrating build icon into its commercial electronic office online portal.

Wells Fargo shares in our mission of helping small and midsized businesses save time and improve their cash flows from anywhere at any time.

We expect to launch the service later in 2020, and we will update you with additional information on our next earnings call.

This relationship reinforces dotcom market position as a leading provider of small and mid sized business HP and they are workable solutions for major financial institutions.

Next.

I want to update you on a few of our latest enhancements to the dot com platform.

Innovation and payments is core to who we are.

Over the past few years, we have launched cross border and virtual card payments.

For the past several months, we've been rolling out same day AC age payments.

Our customers have been making good use of this expedited payment capability, especially now that the transaction limits at an increase to $100000.

We've also begun testing real time payments with the RTP network from the clearinghouse.

More to come on this later that using this new payments rail, we perceive being able to offer our customers independent contractors and vendors the ability to get paid 24 seven.

As I mentioned, a moment ago, our relationships with our existing partners continue to evolve and growth.

Last month and supportive our partner JP Morgan Chase, we integrated chases virtual card offering into cash flow 360.

Cash flow through 60 as chases digital platform for businesses that includes so dot com.

This integration will allow chase customers another way to pay bills with faster delivery of payment enhance spending controls and simplified reconciliation.

We look forward to helping chase drive more payment volume to its virtual card through the seamless integration.

Looking ahead, we will continue to focus on capturing more of the overall business the business payments flows of existing and new customers for both our direct and financial institution partners.

The expansion of our payment rails and growth in our virtual card program demonstrates our progress against the strategic goal.

In conclusion, I want to reinforce our commitment to our mission, we make it simple to connect and new business.

We are optimistic that our purpose built platform resonate even more with Smbs you are now coping with the reality that the old way of managing back office financial operations, just Doesnt work anymore.

Now I'll turn the call over to John to discuss our financials in more detail John.

Thanks Renee.

Today I will provide a brief overview of our fiscal third quarter 2020 financial results and discuss our outlook for fiscal fourth quarter.

As a quick reminder, today's discussion includes non-GAAP financial measures.

Please refer to the tables in our earnings release for a reconciliation from non gap to the most directly comparable GAAP financial measure.

With that background, let me turn to our third quarter key metrics.

Given the current situation might also be disclosing additional details including monthly data.

We hope the information will be helpful to investors on an ongoing basis, we don't plan to provide the same level of disclosure.

We ended the quarter with 91300 customers representing year over year growth of 28% and more than 5400 net customer adds in the quarter.

As we experienced broad based demand across our accounting firm direct and financial institution partner channels.

In addition to new customers. We also experienced an increase in new trial sign ups during March and April let's go to 19 began to impact businesses and prosperous prospects looked for solutions that would enable continuity for financial operations in a remote working environment.

At the same time it was clear to covert 19 presented some challenges for both prospective and existing customers and we've taken a number of steps to assist those has been negatively impacted as rene outlined earlier on an as needed basis. We offered 90 day pre subscriptions for new customers and provided subscription fee waivers for existing customers.

I'd like to provide transparency into the impact we're seeing from these actions.

Regarding support for prospective customers, who were impacted by covert 19, we've had over 1000 trial customers, who joined under our new 90 day pre subscription offer through April Thirtyth.

We introduced this new offer on March Thirtyth, So we'll be in a position to assess the conversion rate of these customers towards the end of the current quarter.

For existing customers, who were negatively impacted by code 19.

And 2% of our 91000 customers had a portion of their subscription fees waived representing a reduction in subscription revenue of less than $100000 through April.

The majority of our customers are on a monthly subscription plan in auto pay their fees monthly in arrears, and we haven't experienced any changes and aging receivables were customers requesting payment deferrals outside of the subscription fee relief I mentioned earlier.

The trends were observing with customers requesting fee accommodation for still early given the cobot 90 impact rolling through our customers businesses.

While we haven't experienced any material negative impact to date, we will be monitoring the underlying trends carefully looking forward.

Moving on to payment volume.

During the quarter, we processed $24.2 billion in total payment volume or TPV on our platform an increase of 35% over Q3 of the prior year and we processed over 6 million payment transactions, representing an increase of 23% year over year.

On a sequential basis, both TPV in transactions were down slightly versus the typical seasonal pattern. We're fiscal Q3 is usually relatively flat with Q2.

During the second half of March we started to see an impact from cobot 19 on both the number of transactions and TPV being processed by our customers and this trend continued into April.

To give you an idea the impact in April the number of payment transactions per customer was down approximately 14% from March and total TPV decreased 1.4% between March and April.

As you know we plan to update you on additional metrics such as our net dollar based revenue retention rate and customer retention rate at the end of each fiscal year, but given the covert 19 situation I want to provide visibility into the current trends we're seeing on these two important metrics.

As macro conditions normalize on a go forward basis, we will revert to an annual cadence for updates on these metrics.

Through March or dollar base net revenue retention rate was 120% and increase from the last reported number of 110% as at June Thirtyth 2019.

In April we experienced a decline in revenue retention to 118%, reflecting the transaction trends that I mentioned earlier.

We began to see increased attrition from existing customers in April where our monthly attrition rate increased by approximately 15% versus March excluding customers for our financial institution partners.

Additional attrition came mainly from customers in industry segments that were materially impacted by quarantine orders, especially restaurants and other retail consumer facing businesses.

I also like to update you on our annual customer retention rate, excluding customers from our financial institution partners.

2% of our customers as of April 32019, we're still customers as of April Thirtyth 2020. This is consistent with the 82% retention rate we reported as of the end of fiscal 2019.

Turning to our financial results, we delivered strong financial performance in Q3 with solid year over year growth in total and core revenue as well as strong non-GAAP gross margins.

Total revenue for Q3 was 41.2 million representing growth of 46% from Q3 19.

During Q3 or total revenue growth was driven mainly by the strength of our core revenue, which represents subscription and transaction fees and excludes float revenue.

Core revenue in Q3 accelerated to $36.1 billion were 63% year over year growth the strength in core revenue was driven by the increasing the number of customers, we serve and growth in revenue per customer from both subscriptions and transactions.

To break down our core revenue subscription revenue increased to 22.3 million up from $15.4 million in Q3 last year, representing an increase of 44% year over year.

This growth was driven by the increase in customers on the platform and the growth in average subscription revenue per customer.

Transaction revenue increased to 13.8 million in Q3 up from 6.7 million in Q3 last year, an increase of 106% year over year.

Growth was driven by adoption of new product offerings, and increasing the number of transactions processed from our growing customer base and the mix of transaction revenue shifting to variable price products.

The strong transaction revenue growth in the first three quarters of this fiscal year benefited from continued cross border and virtual card payment adoption.

Moving on to float revenue, we delivered $5.1 million float revenue in Q3 compared to 6.1 million in Q3, 19, a decrease of 16% year over year.

Annualized rate of return on customer funds held in Q3 was approximately 1.5% representing a decrease of 74 basis points over Q3 19.

The decrease in yield was due primarily to the federal reserves action to significantly cut the federal funds rate.

Well, we expected to decline in the fed funds rate during the quarter the move to lower the fed funds rate to near zero was much more significant than we planned and this will impact our float revenue going forward.

Our non-GAAP gross margin for the quarter was 78.8% an increase of 280 basis points over Q3, Nineteens non-GAAP gross margin of 76% and an increase of 80 basis points from last quarter.

The margin improvement year over year was driven primarily by the adoption of our new product offerings, and partially offset by the decline in Florida.

Note that our non-GAAP gross margin results in Q3 should be viewed as the peak for margins for the foreseeable future given the negative impact on float due to the fed funds rate being in the zero to 25 basis points range, what's likely to be an extended period of time.

Turning to operating expenses R&D expense was 12.8 million for the quarter for 31% of revenue up from 29% in Q3 19.

The increase was due primarily to the hiring of additional engineering and product management talent R&D continues to be an important investment area as we add new features and functionality in support of our growing customer base, including accounting firms and financial institution strategic partners.

We believe these investments will set us up for long term growth and competitive differentiation and I'll discuss this in more detail as it relates to our outlook for Q4.

Sales and marketing expenses were 11.5 million or 28% of revenue in Q3, an increase from 26% of revenue in the prior years quarter. During the quarter, we continue to invest in our go to market capabilities, including expanding our sales team to meet the increased demand we've experienced from mid market customers as well as increasing spend on demand generation, including.

SCM, social and brand awareness programs.

As you know, we've historically experienced efficient customer acquisition economics, and we continue to be vigilant in driving capital efficiency in sales and marketing.

Gene and expenses were 12.5 million or 30% of revenue up from 25% in Q3 fiscal 2019.

This reflects the first full quarter, a public company expenses, including.

Insurance regulatory and compliance costs as well as the regulatory costs associated with our payment capabilities and money transmitter licenses.

This results in our Gionee as a percentage of revenue being higher than some of our SaaS software peers. We believe these investments help us create competitive differentiation and we expect to achieve operating leverage in the DNA area over the long term.

Our Q3, non-GAAP operating loss was $4.3 million versus 1.1 million in a year ago quarter as we continue to make investments in our platform and go to market capabilities combined with new expenses associated with being a public company.

Non-GAAP net loss was 2.9 million or a loss of four cents per share based on 72.4 million basic weighted shares outstanding.

Because we had a loss on a GAAP basis, our diluted share count was the same as the basic share count for both GAAP and non-GAAP EPS calculations.

Moving onto the balance sheet.

Ending cash cash equivalents and short term investments were $382.4 million down from $383 million at the end of Q2.

As of March 31, 2020, we had 1.35 billion in customer funds on our balance sheet, which was down slightly from the end of Q2 due to lower total payment volume in March.

We ended the quarter was 617 employees up from 560 as of end of Q2.

Now, let's move onto our fiscal fourth quarter 2020 outlook.

The economic impact from Cobot 19 is unprecedented in the world as a different place than just three months ago. When we had her last earnings call.

We do not have a crystal ball and we're really at the beginning stages of economic impact pointing out.

Well, we didn't see any material direct impact on our Q3 financial results pertaining to cope with 19, it is challenging to accurately assess the future impact.

The most immediate impact on our business from Coven 19, it's a declining interest rates to near zero. This will impact our float revenue looking ahead at yields come down.

For purposes of Q4 guidance, we've made a number of assumptions about our business based on a data available to us today, including the assumption that the trends we've seen in our business through April continue throughout Q4, but not materially deteriorate.

For the fourth quarter fiscal 2020 total revenues expected to be in the range of 37.4 to 38.4 million comprised of core revenue in the range of $34.8 million to $35.6 million and float revenue in the range of 2.6 to 2.8 million.

Revenue assumes that the average fed funds rate will can you continue to be approximately 25 basis points during the June quarter and that our yield will be approximately 95 to 100 basis points.

In terms of operating expenses, we plan to continue investing in R&D, where we are focused on building new platform capabilities, including features to support larger midmarket customers and our financial institution partners.

We will remain diligent with sales and marketing investments aligning investment levels with market conditions.

In addition, we expect our DNA spending to continue to reflect the ongoing overhead associated with being a public company.

<unk> the way we have gone to market with that is we are matching the suppliers that our customers pay with the suppliers that are in the calm data network. So calm data is our partner, we find a way to Nashville suppliers and if we can pay that supplier with a card payment. They accept a car payment then we're able to actually.

It'd be a part of the transaction as a card transactions. So we've been working hard at doing is understanding and matching those suppliers you know with that particular networks. So that we can enable more virtual card payments. So customers can pay their suppliers faster suppliers have better reconciliation and all those things. So we feel you know really good about those businesses and both have.

Lots of opportunity for us to continue to to work hard at.

Yeah, I would just be.

Rigid about a little bit under $2 in 30 cents per transaction in in the corridor, which was about 10% sequentially and 68%. Your your and that comes mainly on the heels of it's been any mention just continued adoption of of our newer products five to customer base and we think though.

<unk>.

That's great. Thanks, so much guys.

Thank you.

Your next question comes from Josh back.

Your line is okay.

Thanks for named John Glad to hear every one is a is doing well yeah. I just wanted to ask about this increased in bound activity that you are seen you know are there certain maybe verticals, where it's it seems to be gaining traction or is it is it more of the same that you would tip.

We get from that channel I'm, just just trying to understand it fits in some ways they'd be expanding the awareness an audience that that might think about to send the solution.

I think it really is an awareness you know the fact that we're seeing right. The if you think about you know mid March or whenever I think probably in the Bay area was the end of February the beginning of March when the larger companies were actually all saying work from home and so that cascade into the economy and what we started to.

He was you know in mid to late March that businesses that now had shelter in place of work from home guidelines. They now needed to find a way to manage their back office their financial operations and so you know with that you know we were able to have the across pretty much the entire base, we did not see any vertical attraction.

Yeah, we did a comment and highlight our accounting channel because accounts you know and the reason we highlight of that as accounts do are the place that businesses tribes when they need help and so when the businesses, saying Oh, My gosh I have to shelter and place I don't know how to be able to pay bills anymore. They reach out to their account and they reach out to their their bank. So we were able to kind of.

You know take our platform and our messaging and support our partners, both accounts and things as well to be able to help them sort of their customers. So we didn't see any concentration. It was just really brought awareness.

And you know need from the fact that you know people had a different word situation.

[noise], Okay really hopeful.

Also wanted to ask about P.P.P., obviously, it's a bit more of a indirect benefit and I realize where you said it might be a bit tough to discern, but I'm. Just wondering if you know if you think over the last month.

Do you feel like your customers have been recipients you know some of those funds in some ways could that be something to the baby helps effectively buffer. The you know good Christian rate.

I think the you know the immediate impact of shelter in place and just I mean, we saw in the unemployment numbers across the country out quickly folks may changes to their business to be able to to manage it I think the the good news is that P.P. mitigated that continued decline right.

So I think you know I think you can see it in the unemployment numbers and I'm not as probably at the speed as others on the call our but the unemployment numbers have been <unk> the rate of decline for unemployment numbers has been declining over the last you know three or four weeks right. So so I think that isn't resulting P.P.P. I don't have any data to prove that point, but I think P.P.B. was it really helpful program.

Ram to keep businesses give them, a lifeline and given that data that we're seeing I have no reason not to believe that it didn't help.

[noise] really helpful Internet.

Yep.

Your next question comes from Chris Merwyn, Some Goldman Sachs.

<unk>.

Thanks for taking the question Yeah, I I first wanted to ask about customer AD in the core it looks like you had a really healthy quarter for for net as in just just curious if there is any particular strength in any of your channels, whether it's official institutions accounting firms or a direct.

<unk> had been an area, where I think you're investing a bit more so just just curious which if any of those channels were particularly stronger than the corridor.

We think that the you know one of the powerful things about our model is the fact that we have this broad distribution.

Ah capability, and we did not see anyone channel dominate compared to others. We did see so fast across all channels and so you know I think the the platform you know the messaging that we we did start messaging in February I believe it was late February that we started saying you know we help you work from home. We help you worked remotely we think.

That matter for any business as they were thinking about you know what was coming and so nothing specific to any channel was just good strong you know demand across the the base.

Okay, Great and then maybe just another one on virtual card is there anything in particular, you're in particular, you're doing to incentivize supplier acceptance I thinking to pass you talked about an opportunity for virtual car they'd be maybe 10% to 20% of of the next for payments to just curious how so far anyway virtual corners.

Been trendy relative relative to your own expectations.

We we do not incentivize supplier payments with our customers you know our payments are our customers initiate a payment they say they want to make a payment we decide how to pay the supplier and we work hard to to find the fastest most efficient and excessive way for the supplier to see that payment.

Our partner J.P. Morgan Chase does a incentivize you know their suppliers with their payment. So so you know and I and our supplier partner with American Express, which has a virtual car program. They incentify. So there you know we have different opportunities to learn and see the impact on that model.

Will get about the approach that we've taken today.

Great. Thank you.

You're welcome.

Your next question comes from some odd so some on huh.

From Jeffrey's.

Your line or something.

Hi, good afternoon, and I'm glad to hear visiting Wow, great quarter to to for it to start 20, <unk> account or 20, a couple of questions Renee on the banks partner side do you think that with their customers feeling overwhelmed in this environment that your existing financial institution partners or.

Accelerating dare focus on marketing build icons embedded features to there to their <unk> and customers and are you seeing new inbound interest from Hmm financial institution is you don't currently partner with.

Cove at 19 is definitely changed the way everyone thinks about how they manage their financial operations right you can't escape. It I mean, the changes how we think about washing your hands and conferences, we go to and and how we pay our bills and so you know what we have seen from our financial institution partners is that they are keen to.

Help their customers through this that held primarily in the last month or so has been all about P.P.B. They have lots of opportunity to help S.M.D.S with the P.P. programs. They have but we've also had discussions and understand that they want to help them be able to operate their business from anywhere. It's why you know the firms that we have have really.

Look to us to help them automate and digitize the prosody. These other businesses and I think that this has just been a great reminder, for our existing partners. How important you know the opportunity is to help their businesses and I hope it's been a wakeup call for other partners that there is something they can do to help their businesses migrate indeed more digital we.

I've seen and continue to see you know since the IPO increase interests from partners about opportunities to do stuff together. So it's hard to kinda understand where all that comes together, but we believe that the market is clear for folks and I think this has been a reminder for everybody that you know that's just a little bit kind of data to be using.

Jackson filing cabinets and paper to kind of manager back office.

It's awful and then John maybe just one on on the guidance still very healthy growth is it fair to assume that if not for the the small percentage of the base that accepted the wave payments and and the new trials that the suburbs or that the core rap growth would have been even higher for for the gender.

Porter.

Good good question some odd I think it's it's reasonable.

Let me, let me just not going to say, we factored into our guidance you know talk to sort of the day trends on turn as well as new customer acquisition and some assumptions about how you know the the promotion off or do we have for new customers may convert to Japan customers. So you know.

Things are a bit of a headwind in the corner, we're assuming that and you know so absent those yeah, we probably would have had.

A higher you know guide, but but we're taking all things into consideration and we think we've taken a pretty balanced view of you know all the factors that we're able to look good.

Grade and I apologize for asking a third one but just any idea what you're vertical exposure looks like thanks for letting me sweet one n.

Yeah. So we have we have looked at our vertical exposure. It is self reported across our customer base [noise].

It's hard to be 100% accurate about it and well we can say well we will share as that you know at 91000 plus customers. We have we've kind of represent the U.S. economy. We kind of just look like you would expect if you just went to census data you know and and what that means is there's not a lot of vertical risk and anyone vertical.

We feel good about that and we think that's kind of helping our turn numbers and that that's the thing that we don't know is how businesses are going to do two months from now or three months from now.

Great really helpful guys in congrats on the strong strong quarter. Thanks, Thanks a lot.

Your next question comes from Scott Bird.

From need them your line is open.

[noise], Hi were named John Grad sort of good quarter and John thinks through the additional disclosures quite helpful.

I guess two questions for me, we'll start off with number one Renee you know swells partnership today, obviously, there are large institution with large customer base, but as you look at the structure of that contract does it differ it often when you have with either you know other financial institutions, maybe it'd be a bay or or J.P. Morgan Chase.

The one of the things I'm really you know happy proud excited you fix the particular average over there is that all of the largest banks the top three large banks and the country have chosen build dot com to support their you know they're bigger customers their mid market customers. So they deal.

J.P. Morgan Chase with Bank of America, and Wells Fargo supporting there really they're mid size businesses and they you know structurally you know they there can be differences between them. We don't disclose those types of differences, but from a financial perspective, you know it would it be material. So it's it's a good partnership and worked side about.

Having you know all three of them.

Got it Ah helpful. And then from a a follow up question with regards to the kind of the free trial that you've been giving away in the month the vehicle.

Sounds like a continues today those thousand plus leads that you've been able to kind of gains from that or signings, how does that compared to a typical kind of first month and a quarter, whether it's prepared again April of January from another quarter, She's trying to get a sense on on that increase in.

I'm kind of leads or customer base that fits material from what you typically see.

Let me just get a little more color on that offering just to make sure. It's clear so that offering it as per businesses that are impacted by covert 19, and you know a significant financial impact. It is you know self report itself, you know kind of select and that would that the reason I'm, giving that clear.

Already is.

Most businesses aren't they're coming and they're saying, hey, I need something to manage my back office. So we have kind of to sign up close if well we had to sign up flow from our our what we were doing before <unk> and then we had to offer and so I I just wanted to be clear that that offers more of an additive offer then what we're seeing across you know our normal flows.

It does that help clarify.

It does thanks for that.

<unk>.

<unk>.

Your next question comes from <unk>.

<unk> from William Blair. Your line is open.

Yeah, it's a nice job and thanks to my question I'm going to question. The button up we will follow up with one my question is it's probably a little more forward looking here, but but if we went to compare those 2000 h. those nine [noise].

You know you sought tremendous small business formation coming out 2008, nine but took a while for them to Ram.

Do you think about you know maybe queue for me to Q1 next year.

By the same sort of small business formation that'll obviously, new accompanies more tech savvy, either not going to file cabinets. As you said, there's also underpenetration on the market how do you see the business.

Looks or you know do you see the growth return to normal very quickly do you think it's time around new business formation that gets you. There do you think there's enough sort of at the top of the fun on the top of phones big enough that we actually get there faster than say you know once they things stabilize in 12 months I'm, just trying to censor that recovery path might look like.

Guys given the focus on the on the S.N.B. market.

Yeah, Yeah. The the market is just a really big market right. This at the 6 million businesses and and what we saw a in March and April. This was the reason I gave the comment that it was yeah March was the strongest month in the quarter that we just reported on and April's. The strongest month that we've had so you know we there is plenty.

There are plenty of businesses out of the 6 million that are saying I've Gotta change I've had this on my list I've got to change and so there is that opportunity for us to go make sure that they're aware of us that we can actually you know bring those customers and then there's you know the opportunity like you said of new businesses. So it's hard for me to predict.

You know, what's gonna happen with new businesses and the rate that that's going to happen. It is something that does happen. In every recession is that people you know start up and there are more businesses that come out of it after you get through that turn part and that the you know the the stuff that is unknown right now and what's the duration of that that cycle [noise].

Oh, okay, but what about.

Thank you.

Here next question comes from David Heinz from Cannacord Genuity. Your line is okay.

Hey, Thanks, guys. Congrats on the quarter range on so <unk>, maybe you could just kind of double click on the the accounting channel and and.

<unk> gives that channel you know more resiliency in in in in why you've seen kind of increase traction there in this environment is it just said you know they tend to serve a little bit of a larger customer or you know how we understand what's happening there.

The you know.

Strategy from day, one was to support businesses wherever they wanted to turn for help.

And by help I meant just hey, I don't know how to manage my financial operations I want to be more fish and I want to do a better.

And we've worked for 12 years to build a relationship with over 4000, plus accountants across the U.S. and the benefit of that having that track record and having that experience has those 4000 account all do some business with US today, we know that all 4001 have more clients or they can add.

That aren't necessarily on our platform today, but or doing something else without accounting firm and to those 4000 accounts have a network of their own accounting friends that they do business with and talk with and so what we have seen is that with covert 19. There is a significant need that becomes very acute when somebody saying how.

I am I Gonna run my business, if I can't go to the office I can't get my employees to go to the office to pick up the mail to do this to do that how am I going to run my business. If I don't have a digital solution and so I counts that already knew hey, I've already got this other client that's running their business and this was the example, with both Minders they were already a customer, but they were able to.

Use this as a you know I wouldn't say I mean, if it has become a catalyst for their business, but uses to help their clients that are saying I'm <unk> I'm stuck how am I gonna run this business and and and a week from now if I don't know how to do it you know remotely and so that's the reason that channel has been very powerful for us and it's something that we believe will continue.

Just as the market unfolds is that accounts they have awareness to have reach and we have tools for them to make their life easier. So that that's why it all comes together and why we were able to tease him you know additional traction. This past you know past few weeks here.

Yeah, No that's helpful.

And then maybe a follow up for John just in terms of thinking about gross margins in India Fitzco queue for I mean is it.

As simple as we should take that kinda sequential delta and float revenue that you got it <unk> it kind of pull that out on a near 100% margin basis to to gross profit is that kind of the right way to think about it.

Ah directly I think that got got the right way to look at it or or float rubbing. It isn't quite 100% margin. We do have some costs such as asset management fees and things of that nature, but there are no other sort of disruptions or obstacles are issues that we're seeing within cost him sales that would translate into sort of.

Margin crusher, if it is mainly to float.

Yeah, Okay very good thanks, guys.

Thank you.

Your next question comes from Bob <unk> William Blair.

Okay.

No. Thank you could have to me and my name John a question on the platform E.R. and D.D. investment then yeah. You know your move up market. If you <unk> building out of maybe invoices or other items that you can build that.

Oh, yeah. They the revenue per per customer you know maybe as a you move up market to make sure. We feel would apply to the smallest customers you know could love a little color on the A.P.A.R. and no.

Voices other other items, you you might be adding overtime.

Yeah. The you know the R. and D. around mid market just to be clear and give a little more you know history on it is we've been pulled into mid market right. So we have a product <unk> serving businesses for a long time, and we looked out and like this and data and saw that we had many you know midsize companies.

Is that we're using the application our partners have pulled us there because they had a neat and those are the examples I gave us the J.P. Morgan be a day and now Wells Fargo. So we've seen you know that that that need and so the features that we've been adding I would say are really rounding out you know the capabilities that we have you know I think.

One of the things we've talked about in the past on the platform is Ah you know transition that we've had for a new user experience that allows us to more quickly you know respond to you know demand that we want to do functionality that we want to add and that has been you know part of the R. and d. over the past year and that's.

Almost complete and then I think we talked about payments innovation right. We've been that thing a fair bit on our payment <unk> you know whether that was virtual card international or you know the payment timing with the same day C.H. and now the real real time payments you know platform from the clearinghouse so lots of.

You know ways for us to innovate and we will continue to do that but you know I think you know we're gonna always liquid water customers are doing and seeing what they want and then understand how weekend you know effectively improve their lives and do that as quickly as possible.

Tank So follow up question and we get this question a lot and.

There's a partial cause penetration rate and you know as we check around the industry either.

Very wide differences in penetration rates by other be to be payments companies that may be in the mid market.

I just wondered if you could give us any color because it seems like it's early days you have a lot of room, a net revenue per transaction, but any color on.

The virtual card penetration rate, which you would would you think it could become.

Yeah, maybe the push back to you have in in in driving that further.

Yeah, I mean, I think the you know where we are focus is on you know for creating a a solution and the platform that works well for our customers and worst golfer, who they pay over here they get paid by so in this case, it's the suppliers that are getting paid and so you know our focus like I said on the call on on the <unk>.

There's really focus on matching our suppliers with no network you know we believe given the size of our customers. Yeah that we think it's you know somewhere in the neighborhood of 5% to 10% penetration over time, but were you know like you said, we're early days and you know, we're very focused on making sure that the experience.

That we provide for our customers and for the supplier is actually a win win and so you know we don't have a need to to.

Do anything crazy here, we're doing it right so that everybody wins so.

Great. Thank you nice job Ah, great to see and but to see you guys are all doing well.

Thank you very much huh.

<unk>.

Your next question comes from Kimberly from Wells Fargo. Your line is open.

Hey, Thanks, and good afternoon, John <unk> two questions first one.

Regarding the new contract, which <unk> <unk> <unk> <unk>.

Should think about in terms of.

I guess costs associated with getting ready for that launch or.

No whether it be support <unk> you know just the the standard shut the stand up a large relationship I guess typically we see some expense.

In front of the revenue would just curious as we think about our models over the next couple of quarters. If there that's something we should just keep in mind.

Yeah. Good good question to there there is an element integration that happens in advance of of launching with you know a large financial institutions such as much as well as we've got lots of experience with this given or other partnerships with M.X. and.

Morgan So we've we've developed a pretty streamlined process and and I wouldn't view.

The the costs you know from from now to launch a material incremental expense that would it would change that your directory of our numbers. We've got it factored into you know are cute or guidance and ultimately we we will provide some you know additional color.

On the relationship you know in in the future likely on our on our next call as we are closer to to the launched on it.

Great and then my follow up was just going back to your comments and you're prepared remarks to believe around the real time payment testing.

And the same day A.C.H. I think your reference as well.

Curious if you think about the transaction revenue side of core revenue and those two products.

You know it do they open up in your opinion the final in terms of this transaction counted customers as I believe they'd probably be viewed as lower cost ways of making payments and so we may see some play around the revenue per transaction, but there were probably be more than an offset.

Around customer acquisition or just transaction growth per customer as those products sort of find there were quite underway into the into the mainstream.

Yeah. The the reason we include of that in the prepared remarks was just to give you color you know about the capabilities of the payment platform that we've built and our building and we do think and you know with the same data. The age that you know we will change our pricing model to you know increase the revenue per transaction, it'll probably be cheaper than what.

The other options in the market are but it will be different than what we price today and we do think that with real time payments there'll be a different monetization than what we've done before so I think there were two questions I heard him kind of one really around you know, it's just going to get two more transactions and then you know what's kind of the revenue per transaction is that going to be different so I just.

Answered the revenue I think we'll find a way to to monetize and just like we have with card and international Fame as well you know work on making sure that it's good for our customers and we'll work on making sure that it's good for us as a business on the number of transactions like we have seen you know with other payment types that we've introduced a particular international it does allow us to bring.

And more transaction volume different different TPV potentially and so we don't know and you know this is early days. We you know in the call. We're just trying to give you a sense of the R. and D.. It's very early days Ah you know I would say, it's too early to kind of predict you know what did this and small impact will be but we think it's going to being.

Important part.

Businesses migrate their payments from paper to Digitals to have every vehicle available for them to be able to do that.

Under said, thanks very much for the insight.

Thank you.

Yeah.

[noise] just concludes changed conference call now turn the call over to rename for final remarks.

Thanks again, everyone for joining the call today, we believe in our mission and despite the uncertain macro economic backdrop, we are committed to building a sustainable durable business for the long term opportunity ahead of us.

Thank you for your participation today Goodbye.

[music].