Q4 2020 Bill.com Holdings Inc Earnings Call

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Good afternoon, and welcome kept feels dot com fourth quarter fiscal 2020, <unk> earnings conference call joining us today for today's call, our Bill Dot Com CEO [laughter], Renee lessors and CFO John right. At this time all participants are in listen only mode. After the speakers.

Presentations there'll be a question answer session to ask a question during the session you'll need to press star one on your telephone if you acquire any further assistance. Please press star zero with that I would like to turn the call over to John Racking introductory remarks John.

Thank you Christine welcome to build outcomes fiscal fourth quarter and year end 2020 earnings conference call.

We issued our earnings press release, a short time ago and furnished the related form 8-K to the FCC.

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

With me on the call today's when insert chairman CEO and founder Bill Dotcom.

Before we begin some.

Before we begin please remember that during the course of this call. We may make forward looking statements about the operations and future results of Bill Dot com that involve many assumptions risks and uncertainties.

If any of these risks or uncertainties develop.

Club, where if any of the assumptions prove incorrect actual results could differ materially from those expressed or implied by our forward looking statements.

For a discussion of the risk factors associated with our forward looking statements. Please refer to the text and the company's press release issued today and to our periodic reports filed with the Securities Securities and Exchange Commission, including our form 10-Q dated may eight 2020.

We disclaim any obligation to update any forward looking statements.

On today's call, we will refer to both GAAP and non-GAAP financial measures. The non revenue financial figures discussed today are non-GAAP unless stated that the measure is a GAAP number. Please refer to today's press release for the reconciliation of GAAP to non-GAAP financial performance and additional disclosures regarding these measures.

Now I'll turn the call over to rename Renee.

Thanks, John and good afternoon, everyone. Thank you for joining us today to review our fourth quarter in fiscal 2020 results.

Despite the challenging economic environment as a result of coven build icon delivered very strong financial performance.

Thankful for all of our dedicated employees for their efforts.

First a quick recap of RV financial results for the quarter core revenue, which we define a subscription plus transaction revenue grew by 54% year over year to 38.8 million.

Total revenue in the quarter grew by 33% year over year to 42.1 million. We also delivered a strong non-GAAP gross margin of 78.6% in the quarter.

For the full fiscal year core revenue was 136.4 million an increase of 59% from the prior year total revenue was 157.6 million an increase of 45% from the prior year non-GAAP gross profit was 78.2% an increase from 75.8% in fiscal 2019.

John will review our financials in more detail later, but first let me give you an update on our overall progress and execution efforts.

Dot com enables smbs to digitally transform how they manage their cash flows and outflows.

Making manual paper based processes obsolete.

Customers use our platform anytime anywhere to generate in process invoices streamline approvals send and receive payments and think their accounting system.

Over the years, we have built sophisticated integrations with popular accounting software solutions financial institutions and payment processors, enabling our customers to manage their back office financed options on our cloud platform.

The current work from home environment reinforces our vision that now is the time for Smbs to automate their financial operations and dotcom has ready to lead the way.

At the end of the fourth quarter, we had over 98000 customers, representing 28, plus customers Trust our platform to manage their financial workflows and process their payment, which totaled billions of dollars annually.

Our platform extends well beyond our customers to our network members.

Network members include our.

Customers suppliers and clients that exchange electronic payments and collaborate on our platform.

As we increase our network members it helps us to fulfill our mission of making it simple to connect and do business.

At the end of the fourth quarter build icon that over two and a half million network members an increase of 39% over the 1.8 million members. We had at the end of the last fiscal year.

During the quarter, we processed $25.4 billion and total payment volume or TPV, an increase of 26% every Q4 of the prior year.

Despite the significant slowdown in the economy. This past quarter, we were very pleased that our TV surpassed $100 billion on an annualized basis.

This demonstrates both the strong customer need for our solution and our ability to scale, our operations by adding and expanding new payment capabilities in the last year.

Now I'd like to share a few other highlights of this past fiscal year, starting with cross border payments. According to Mckenzie 2019 Global payments report worldwide BTD Cross border outflows exceeded 133 trillion dollars in 2018.

We believe that build dot com has a large opportunity to capture the portion of these flows that represent new us base smbs paying their international suppliers.

In fiscal 2020, we dispersed over $2.3 billion to international suppliers on behalf of our us customers up 300% from approximately $570 million in fiscal 2019.

We launched this offering in late 2018 after doing analysis of foreign supplier payments recorded on our platform and receiving requests from customers, who wanted to more efficient way to pay off shore vendors.

We attribute this strong early growth in TBV to our success and marketing the cross border service to our installed customer base.

We monetize these payments as follows if our APC customer makes the payment in US dollars, we assess a flat fee, which is priced at a premium over our domestic transaction prices at the disbursement has made and foreign currency dotcom performed the FX conversion based upon the payment amount.

For these payments our revenues add floor that is based on the size of the transaction.

We believe it is still early in the evolution of our cross border offering and that there remains a significant growth opportunity one of the initiatives. We focused on has increased in the volume the payments made in foreign currency.

Today, approximately 75% of our cross border payments are made in us dollars.

And moving more of this volume to local currency allows us to generate more FX revenue.

To reach this goal, we recently piloted new product functionality for international suppliers to choose to receive local currency even at their invoices were issued in us dollars.

The response, we have received to date is encouraging.

The other part of our transaction revenues have varies based on the TBV as our virtual card offering.

We continue to believe this product represents a significant opportunity for us.

And its business payments 2022 report Mastercard projected the virtual card market to grow at a five year CAGR of 19.2% from 2017 to 2021.

Mastercard States that 6% of BTB check volume has already moved to card payments and that Theres, an opportunity to ship another 2% to 5% in the next few years.

Our experienced supports the strength we've had success in converting a portion of our tech payments, the virtual cards, which required building in house capabilities to handle supplier enablement and payment exception handling.

We will continue to make through our machine learning capabilities and our access to supplier invoices, we are working to automatically determine which vendors except cards.

At scale this will make the supplier enablement process faster and less labor intensive.

For Q4, our virtual call volume represented approximately 1% of our total TPV.

And we believe there is room to grow from there we.

We will keep you apprised of our progress in this important initiative as we expand our AI capabilities to improve our operational efficiencies and both the customer supplier experience.

Turning now to our go to market strategies, we leveraged four distinct channels financial institutions accounting software companies Accountants, and our own direct response marketing efforts.

On this call will be roughly highlighting our progress with each.

First let's discuss our partnerships with financial institutions.

Our platform is or will soon be the go to March solution for the commercial customer segments at the top three largest banks and use as well as five other major financial institutions.

By working with Dotcom, our financial institution partners can provide their customers with many of the benefits realized by our direct customers.

Every these partnerships take time to secure built and launch once a bank select spill dotcom, we began a development days, where we integrate our platform with the banks online experience.

Simultaneously the bank develops as go to market strategy next we did a targeted rollout of the integrated platform to fine tune the experience with a pilot customer set.

Finally, the white label services offered to the banks customer base with ongoing marketing and sales initiatives to promote activation and usage.

As an example, this I'd like to highlight our partnership with the first National Bank of Elma for Smbs.

Mmboe has probably served as customers for more than 160 years, and we were thrilled when the banks selected us as a strategic partner in 2018.

FNB launched pay maker powered by dotcom in mid 2019.

Pacemaker FMT of small business accounts payable and receivable solution is the banks default cash management offering for business banking.

Both FNB show and build our content than happy with the result of the banks decision to offer a single comprehensive solution for this segment and we have seen strong adoption of the offering.

And just today.

We announced that build dot com and Keybanc have joined forces to introduce key cash flow and online banking solution that streamlined payment workload for keybanc customer segments, including both are small business and commercial customers, enabling them to scale their use of the platform as they grow.

Customers can easily manage their cash flow and end to end payments powered by build icons AI technology.

Keybanc is currently rolling out key cash flow on a pilot basis and we.

Okay.

Continuing on that theme of financial institution channel momentum, let me update you on the status of the partnership we announced last quarter with Wells Fargo Bank.

Wells Fargo is planning to power and new digital and HR solution for its treasury management clients by integrating build icon into its commercial electronic office or CEO online portal.

This relationship reinforces dot coms market position as a leading provider of business Asap and our workflow solutions for major financial institutions.

We expect to launch the service later this calendar year.

Finally regarding our financial institution partners, we filed a form 8-K in late May disclosing that build dot com had expanded an existing agreement with one of the top three small business banks in the U.S.

The expanded partnership will open the door for us to provide a bank branded version of build outcome to the banks small business clients.

We're excited that this bank will enable the new offering as their default bill pay and receivable solution for all of their new SMB banking customers.

This significant expense as one of our existing relationship.

On physician channel to date and includes revenue commitments over a five.

Have year term from the launch date 21.

John will discuss how we're investing in support of our financial institution partners later.

Another way, we reach customers is through our partnerships with leading accounting software providers for smbs, including into its quickbooks.

Earlier this month, we announced that we've extended our long standing partnership with into it to support one of their important initiatives Quickbooks online advance.

Quickbooks online advanced customers are larger have more users and process more transaction volume.

Were also a better fit for our platform than the smaller quickbook customers. We serve today to the simple bill pay offering.

As a result, we expect the economics of serving this segment will result in a significantly higher ARPU than what we've experienced with the simple bill pay segment.

We will jointly market and promote our existing direct offering which includes payment and workflow automation capabilities to into its larger quickbooks online advanced customers as part of its application ecosystem.

We will continue to support our existing simple bill pay customers that are starting in Q2, we expect the customer.

To be primarily the mid sized customers.

A foot books online advance.

According to into it.

Billion mid sized businesses that could benefit from our combined solutions enhance control over cash flow streamline payment and associated workflows. We are excited to be one of a select group of partners that into it has chosen to help further penetrate.

This market.

Turning now to our accounting channel since the company's early days, we have focused on accounting firms as part of our go to market strategy.

Accountants are critically important advisers smbs are.

Our account specific tools help accounting firms grow their client advisory practice established a competitive advantage and retain their SMB clients.

With our platform the same accounting firms staff can serve their clients more strategically and generate incremental revenue streams for their practice.

Our attention to this market segment has made us a leading provider among accounting firms when it comes to automating financial operations.

We ended fiscal 2020 with 80 of the top 100 accounting firms in the yes up from 70 at the end of the last fiscal year and total dotcom now enables approximately 5000 accounting firms up from 4000 at the end of fiscal 2019 to deliver more value to their customers every day.

We believe that build our ecommerce penetration of the accounting channel represents just a fraction of the overall opportunity.

According to CBS Dot com and accounting industry trade group there are over 45000 accounting firms and use that are members of its association.

And there are over 100000 bookkeeping firms, who are looking for cloud based tools to help them become more efficient.

We are excited about this channel given the strong penetration we have today and a significant runway ahead.

Finally, we acquire customers directly through our own sales and marketing efforts as we shared with you previously we have begun making investments to also target larger smbs, what we call mid market.

These midmarket businesses are already using our platform and they are attractive and that they purchase more seats and process more payments, including cross border.

The profile. These midmarket businesses are those that have a larger number of employees and have revenue typically between 10 and $100 million.

They also use.

This more advanced software programs, such as Oracle, Netsuite, and sage intact and others.

With the increased need for digital solutions to facilitate remote work we saw increased demand in fiscal Q4 from this customer segment.

One terrific example of a new Midmarket win in Q4 is Corbin, a global technology company with over 100 employees focused on wine preservation.

Covance decision to new to build our Tom was driven by a combination of needs and their desire for overall control visibility and efficiency.

Their new CFO, Jeffery lasher quickly assess the need for better processes and systems as the company did not have an automated payable solution when he joined.

Jeffrey described the benefits of build icon by saying and I quote.

So dot com create a level of transparency and workload that we lacked.

Before using dotcom all of our invoice approvals were done through email and as a result, there was a lack of timeliness and follow up.

Our APC departments spent time chasing approvals and this was difficult to manage with a geographically distributed workforce importantly, corbin was up and running with build icon in a matter of weeks I can't imagine going back to the prior complex and airfone process and quote.

Core Vince ability to transform its business in a matter of weeks illustrates how cobot is accelerating digital transformation adoption.

In closing I am happy with the focus execution, we demonstrated this quarter and even happier with the progress we made toward our long term goal of meeting the needs of the 6 million smbs in the U.S.

I'd also like to thank our more than 600 dedicated employees for all their efforts. This past fiscal year. These past few months have been exceptionally challenging and with their hard work and enthusiasm we didn't miss a beat and helping our customers and as a result, we delivered a very strong end to our fiscal year.

Now I'll turn the call over to John to review our financials John.

Thanks, Thanks for Nay.

Today I'll provide a brief overview of our fiscal fourth as a quick reminder, today's discussion includes non-GAAP financial measures. Please refer to tables in our earnings press release for a reconciliation from non-GAAP to the most directly comparable GAAP financial measure.

With that background, let me turn to our financial results.

We delivered solid fourth quarter results with strong year over year growth in total in core revenue as well as strong non-GAAP gross margin in a much lower non-GAAP earnings per share loss than in recent periods.

Total revenue as a 19 and for the year total revenue was 157.6 million up 45% year over year.

Core revenue, which represent subscription and transaction fees was 38.8 million in Q4 growth of 54% year over year.

And for the full year core revenue was $136.4 million, an increase of 59% year over year.

To breakdown core revenue further subscription revenue increased to 23.6 million, representing 40% growth from Q4 fiscal 2019 and subscription revenue grew 41%.

Which was the result of a price increase that we rolled on and Traunches throughout fiscal 2020.

Transaction revenue increased to 15 point.

2 million in Q4 up 81% year over year and for the year transaction revenue was up 100%.

This growth was driven by the adoption of new product offerings in the mix of transaction revenue shifting to variable price products.

We continue to be pleased with the traction we've gained with our cross border in virtual card payment products as Rene discussed earlier.

With that said as we discussed on prior calls, we anticipated more difficult comparisons and lower growth rates for transaction revenue compared to the prior year as we passed the anniversary of the early quarters of these new payment solutions and we expect this trend to continue through fiscal 2021.

Moving to float revenue, we generated 3.3 million inflow revenue in Q4, and our annualized rate of return on customer funds held in Q4 was approximately 95 basis points consistent with our guidance.

This reduced yield from last quarter reflects a low interest rate environment. We're now operating in.

Next I'll give you an update on our key metrics some of which we report on an annual basis also as with last quarter, given the cobot backdrop I will be disclosing additional details that we believe will be helpful to investors, but on an ongoing basis, we don't plan to provide the same level of disclosure.

We ended the quarter was 98100 customers representing year over year growth of 28% during the quarter. We added more than 6700 net new customers the growth in net new customers was driven by strong demand across all channels due to the need to manage financial operations remotely as part of work from home orders as well as the 90 day free subscription offer.

We ran from late March through April.

Our ending customer count includes approximately 1000 customers that are on the 90 day promotion price plan and these customers will continue to convert to regular paying customers through the end of August depending upon the date that first signed up.

While the majority of these customers, we're not paying subscription fees as of the end of June they do pay for transactions through the Keiro carry a lower ARPU center average customer.

During our last earnings call. We discussed the fact that we were providing subscription fee waivers for existing customers facing cobas related financial hardship.

Through June Thirtyth, the aggregate amount of subscription fee waivers remains less than $100000 and the vast majority of customers who receive waivers are now paying regular subscription rates at this point rather than have a formal hardship program, we're working with customers on a case by case basis.

Moving onto our annual customer retention rate, excluding customers from our financial institution partners, 82% of customers from June Thirtyth 2019, we're still customers as of June Thirtyth 2020. This is in line with the 82% we reported until the end of fiscal 2019, and we believe that this consistency within our customer base during a difficult time.

Reflects the value customers realized from our platform dual dot com is core to helping smbs efficiently manage their financial operations and this is especially true in a remote working environment.

Regarding the growth of our customer base going forward. There are two factors over and above the uncertainty of the pandemic demi influence our future customer growth numbers first we normally see lower new customers from our accountant channel during the tax season in the months surrounding the tax filing deadline with the taxis and shifting to the July quarter, we're expecting to see this impacts.

If the Q1 fiscal 2021.

Second as Rene discussed earlier will be transitioning our focus with intuit to acquiring its larger quickbooks online advanced customers, we anticipate acquiring fewer advanced customers than we've experienced recently with simple bill pay customers because advance represents a smaller portion of into its overall quickbooks online base. Historically these advanced customers have an ARPU to.

As approximately seven times higher and a much lower attrition rate than are simple bill pay customers. So we're really excited about this opportunity.

Moving from customers to an annual update in our net dollar based revenue retention rate as of Q4 2020 net revenue retention was 121%.

An increase from a 110% as of Q4 fiscal 2019, and a slight increase from Q3 fiscal 2020.

The improved revenue retention was driven by the adoption of new variable price transaction offerings as well as the subscription price increase that I mentioned earlier.

Looking at total payment volume during the quarter Reprocess $25.4 billion in TPV on our platform an increase of 26% year over year, we processed over 5.6 million payment transactions. During Q4 as we discussed on our last earnings call. While in the early part of the quarter, we saw lower transactions, we generally saw improving trends in both the.

Number of transactions and TPV by the second half the quarter.

Moving on to gross margin and our operating results our non-GAAP gross margin for the quarter with 78.6% and for the year or non-GAAP gross margin 78.2%.

You will recall last quarter, we discuss Q3 fiscal 2020 being peak margins and we expect gross margin in the range of 75% to 77% in the near term mainly as a result of the reduced float revenue from the low interest rate environment.

Turning to our non-GAAP operating expenses R&D expense was 12.7 million for the quarter for 30% of revenue a slight increase from 29% of revenue in the fourth quarter of fiscal 2019, due primarily to investments we've made in our product development organization to enhance our platform and add new features and functionality.

We ended the quarter with lower R&D spend in Q4 than in Q3, as we deferred some hiring that we expect to catch up in Q1, and I'll discuss that in a moment.

Sales and marketing expenses were 12 million or 28% of revenue in Q4 fiscal 2020, a decrease from 32% of revenue in Q4 fiscal 2019.

During the quarter, we continue to invest in our go to market capabilities, we slowed the pace of spend given the uncertainty around cobot.

We expect to continue to invest behind meeting the demand we've experienced from mid market customers as well as increasing spend on demand generation, including SCM and brand awareness programs.

Good and expenses were $11 million were 26% of revenue up from 25% of revenue in Q4 fiscal 2019.

As a reminder, build our comps payment products require a significant investment in compliance and regulatory capabilities, such as money transmitter licenses and this impacts our DNA spend.

In Q4 fiscal 2020, our non-GAAP operating loss was 2.6 million versus 3.2 million in Q4 fiscal 2019, and our non-GAAP net loss was 1.8 million. We're a loss of two cents per share based on 74.1 million basic weighted shares outstanding.

Our lower loss level was the result of strong revenue performance combined with our conservative approach to incurring operating expenses in the quarter as coven unfolded.

For the year, our non-GAAP operating loss was $15 million and our non-GAAP net loss was 11.1 million or 17 cents per share on 67.5 million basic weighted shares outstanding.

Because we had a net 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 698 million up from 382 million at the end of Q3 as a reminder, we completed a follow on offering during Q4, which netted proceeds of 308 million.

As of June Thirtyth, we had $1.6 billion in customer funds on our balance sheet, which was up 21% from the end of Q3.

This is due primarily from a spike in transaction volume at the ended the quarter, which we attribute to customers catching up on bill payments after a slowdown earlier in the quarter as the pandemic unfolded.

In addition, I wanted to mentioned that we have provided a supplemental table in our press release regarding performance obligations with financial institutions as of the end of Q4. They totaled 152 million an increase of $180 million from Q4 fiscal 2019. This significant growth is directly related to our recent wins with financial institution partners and we.

Expect to recognize approximately $13 million of revenue within one year and 139 million thereafter from these contracts while these partnerships won't generate material new revenue in fiscal 2021, we believe they will ultimately accelerate our rate of customer adoption and support intermediate and long term revenue growth.

Now, let's move onto our financial outlook.

We continue to monitor the macroeconomic environment and given the current level of uncertainty we will provide our outlook for the fiscal first quarter of 2021.

As macro conditions stabilize we will provide a longer term outlook for our financial performance.

For the first quarter fiscal 2021 total revenues expected to be in the range of 41 to 42 million made up of core revenue in the range of 39.2 to 40 million and float revenue in the range of $1.8 million to $2 million.

Float revenue assumes that the average fed funds rate will continue to be approximately 25 basis points during the September quarter and that our yield will be in the range of 50 to 55 basis points.

Looking ahead due to the lag effect of the timing of interest rate reductions on our investment yields. We expect further declines in flu revenue until we normalize at approximately 900000, a $1 million per quarter later in the year, assuming interest rates remain at today's level.

As for operating expense profile, we're planning to catch up on R&D hiring to support product development work relating to the new financial institution partnerships that I mentioned earlier. These projects involve complex integrations with long lead times, and we will incur incremental expenses as a result, we expect the associated increase R&D spending levels to persist through fiscal.

2021.

We plan to maintain our vigilant approach with regards to sales and marketing investment aligning investment levels with market conditions, and being opportunistic where and when possible.

In addition, we expect our DNA spending to continue to reflect the ongoing overhead associated with being a public company as well as the regulatory overhead associated with our money transmitter licenses.

On the bottom line, we expect to report a non-GAAP net loss in the range of 6.5 to 5.5 million and a non-GAAP EPS loss of eight to seven cents per share based on a share count of approximately 80 million basic weighted average shares for Q1.

In addition, we expect stock based.