Q4 2022 Bill.com Holdings Inc Earnings Call
A great example of how we help companies succeed is about golf a developer of premium golf simulators.
Actually four as director of Finance, and accounting said and I quote we paid hundreds of bills each month prior to build dot com, our AP process was manual and time consuming.
With Bill Dot com instead of taking 10 hours a week to write checks attached stamps and seal envelope.
Counting staff is able to analyze our financials assess risks and build forecast.
<unk> four combination of Bill Dotcoms, AP and spend management solutions enable us to have more visibility into our cash flow, which really gives me more confidence as we navigate continuing supply chain constraints and quote.
Our unique go to market ecosystem enables us to efficiently bring the value of our platform to many more businesses and provides us with a strong competitive advantage we.
We work with a small businesses, most trusted partners accountants, and financial institutions and share and in line goal to better serve smbs.
More than 6000 accounting firms use bill dot com to automate their clients' financial operations.
Leveraging our platform accounting firms spend less time on routine bookkeeping activities freeing up time to focus on more value added services and enabling them to add more clients.
An example of how accountants use our platform as Armenia, a top 20 accounting firm in the U S D.
David Miller consulting partner said and I quote Dot com got our clients out of paper based processes and enables our internal distributed teams to collaborate seamlessly.
We now have a center of excellence team dedicated to building best practices around Bill Dot com.
Now, we can help businesses better face macro challenges.
In an inflationary environment Dot com serves as a deflationary tool that simplifies workflow and provides better insights and quote.
Businesses have always turned to their banks to help them with their financial needs and our white label solution powers Bill payment and invoicing solutions for six of the top 10 financial institutions in the U S.
The partnerships, we have developed with these financial institutions enabled cost efficient customer adoption that expands our network at a faster rate and creates opportunities for incremental monetization.
This is a part of our organic flywheel more subscribers drive more transactions delivering more network members, which in turn grows our data asset.
With our expanding dataset, we continue to evolve our AI and machine learning capabilities, driving better platform experiences and more time savings, which encourages further platform adoption.
Before I lay out our fiscal 2023 priorities I want to talk about our fiscal 2022 accomplishments.
At the start of the year, we said our priorities were to integrate <unk> and invoice to go.
Expand our payment offerings of monetization enhance the user experience on our platform and extend our reach through strategic partners. We.
We take our commitments seriously and have accomplished all of these objectives.
We completed our initial integration of our AP and spend management solution building, a connected but separate platform experience and fully integrated the employees of all three companies into a single organization.
We launched instant transfer pay by card and Bill Dot Com balance.
<unk> are continually evolving AI capabilities, we automated more workflows, giving our customers more time savings.
We also enhanced our mobile experience, making it easier for users on the move to approve bills add vendors and initiate and receive payments.
We added new partners and increase our wallet share with existing financial institution partners.
Most significantly we launched a white label platform with bank of America to serve their new SMB customers and we entered an agreement with CPA dot com to be their exclusive partner for spend and expense management and corporate card solutions.
Now turning to fiscal 2023 objectives. Our first priority is to develop a unified platform experience with a consistent look and feel seamless navigation and consolidated business insights delivered through a single comprehensive dashboard.
Our second priority is to further scale, our ecosystem by offering more of our platform solutions for our current partners as well as acquiring new ones.
Our third priority is to continue to drive innovation and adoption of our payment solutions.
We will leverage our ecosystem, which includes direct sales accounts and financial institutions to advance our enablement initiatives to drive further adoption of our AD valorem payment suite.
Underpinning all of these priorities, we have an overarching focus on managing the business to deliver non-GAAP profitability for fiscal 2023.
All of us at Dot Com now 2003 hundred people strong are focused on building the essential financial operations platform for millions of Smbs.
Our success is driven by an excellent team with a shared passion for helping smbs.
Im excited to share with you that we expanded the executive leadership team with the addition of <unk> as Chief product Officer, and Sofia program as Chief operating Officer.
Iran has extensive experience leading product teams, having built global platforms for Smbs at Godaddy and type form.
Prior to that she was a product leader adding to it.
So he brings extensive experience leading operations at Fintech companies, including as Chief operating officer at both next insurance and true accord.
After that she was a senior executive at Paypal with responsibility for risk management strategy and policy across the Americas.
It would be happier to add these accomplished executives joined our mission to make it simple for smbs to connect new business.
<unk> will be taking over from <unk>, who is retiring.
<unk> has led our customer experience and product management teams through a time of tremendous growth.
So you will continue at <unk> dot com through a transition period, ensuring a smooth handoff to Irina <unk>.
All of us at <unk> Com are deeply appreciative for his many contributions during her four year tenure.
We also recently welcomed a new board member.
<unk> right.
<unk> held executive roles or advised that American Express Citibank Chase and Fintech startups.
<unk> brings over 20 years of global financial services industry expertise to our board and we are excited about being able to tap into her unique expertise in payments and risk management.
In closing, we had a great transformational year, our Tam is significant and we plan to continue to invest in creating value for smbs for the long haul driving both multiyear revenue growth and profitability.
We are laser focused on automating the future of finance, so that all businesses can flourish.
We are grateful to our employees customers and partners on this journey and we thank them for the trust they continue to place in us.
Now I'll turn the call over to John to talk in more detail about our quarter.
Thanks Renee.
Today I'll provide an overview of our fiscal fourth quarter 2022 financial results and discuss our outlook for the fiscal first quarter and full fiscal year 2023.
As a reminder, today's discussion includes non-GAAP financial measures. Please refer to the tables in our earnings press release for a reconciliation from non-GAAP to the most directly comparable GAAP financial measure.
We delivered strong Q4 financial results with revenue non-GAAP gross margin and non-GAAP net loss per share all significantly exceeding our expectations.
Revenue for Q4 was $200 million, reflecting 156% year over year growth and 20% sequential growth core.
Core revenue, which includes subscription and transaction fees increased to 151% year over year.
Organic core revenue grew 71% year over year.
<unk> revenue was $5 $4 million during the quarter, reflecting recent fed funds rate increases.
non-GAAP gross margin was 84, 2% for the quarter well above our estimated range driven by the payment mix and transaction cost optimization strategies, we have employed.
non-GAAP net loss per share was <unk> <unk>, showing our strong revenue and gross margin performance and our vigilant approach to managing operating expenses.
In fiscal 2022, we delivered non-GAAP gross margin and non-GAAP net margin improvements, while also making significant investments in our platform go to market ecosystem and the integration of our two acquisitions.
We continue to operate an efficient business model with strong customer acquisition and retention.
Spanning net dollar based revenue retention and a short customer acquisition cost payback period.
As you'll hear when I discuss our outlook, we're pleased to show the progress of our scaling and the strength of our business as we plan to become non-GAAP profitable in fiscal 2023.
Now turning to an update on our key metrics.
As this is our year end earnings call I will provide additional disclosures on certain metrics beyond our regular quarterly updates.
We ended the fiscal fourth quarter with 400000 businesses using our solutions. This includes a 157800 bill dot com organic customers 20700, <unk> spending businesses and 221600 invoice to go subscribers.
All of these customers 36100 or from a financial institution or Fi partners.
We added 11200 net new customers on the Bill Dot com platform in the quarter.
Net customer adds in the direct and account channels showed continued momentum and we delivered another quarter of elevated net ads from our Fi partners.
We have significantly scaled new customer acquisition in the last year, while also improving our acquisition economics.
For Bill Dot Com organic customers acquired during fiscal 2021, our payback period averaged four quarters, an improvement from five quarters at the time of our IPO.
The value of our platform is resonating with customers and this has resulted in improving retention and expansion trends.
Our annual organic customer retention rate, which is always excludes customers from our <unk> channel.
Increased to 86% as of the end of Q4 2022 up from 85% at the end of Q4 2021.
Our annual net dollar based revenue retention rate expanded to 131% as of Q4 2022, an increase from 124% as of fiscal Q4 2021.
This improvement was driven in large part by our success driving adoption of variable price payments and the stickiness of our mission critical platform.
As of the end of fiscal 2022, our network grew to more than $4 7 million members, an increase of 47% compared to the $3 2 million members, we reported a year ago.
The size of our network is an important indicator of the opportunity we have to eliminate friction between subscribers and their clients and suppliers as well as to create a funnel for future customer acquisition.
Moving on to payment volume during the quarter, we managed $63 4 billion in payments.
This includes bill Dot com organic total payment volume was $60 7 billion in Q4, representing 46% year over year growth and $2 7 billion in card transaction volume from <unk> spending businesses, which is an increase of 115% year over year.
TPB from customers, excluding our Fi partners represented approximately 91% of Bill Dotcom TPB.
And on a per customer basis increased 21% year over year and 5% sequentially in Q4.
As Rene mentioned starting in June we began to see TPP growth rates moderate and this trend continued into July and early August well. It appears that the macro environment is influencing business spend we continue to see very strong customer acquisition engagement and retention as evidence of the value our platform provides for smbs.
We have made substantial progress driving adoption of variable price payment products in Q4 virtual cards were two 7% of organic buildup com TPB and cross border payments totaled four 5% of organic buildup com TPB.
Foreign currency payments represented 32% of total cross border volume in the fourth quarter.
For Q4 total variable price payments made up 10% of Bill Dot Com consolidated payment volume, excluding TPB from the Fi channel.
This includes virtual card payments foreign currency transactions instant transfer pay by card and debit card payment volume.
As we've shared previously we offer our customers a variety of payment solutions and our overall focus is on driving electronic payment adoption versus optimizing for any given payment type.
Regarding card payments processed through our spend management solution in Q4, we generated a gross take rate of approximately 260 basis points and margins were slightly higher exiting fiscal 2022 than they were a year ago.
We're pleased with the margin improvements for card payments, which has been driven by faster than anticipated take rate expansion and lower credit losses.
As a reminder, the <unk> spend management solution Leverages, a charge card that requires the balance to be paid each month as opposed to a revolving credit program, where customers carry balances and the average payment cycle is approximately 10 days.
Moving on to transaction volumes, we processed $18 2 million payments in Q4. This includes $10 5 million payments on the bill dotcom organic platform, reflecting 28% year over year growth.
These organic payments approximately 80% were repeat transactions, which we define as payments initiated between the same subscriber and vendor within the preceding three months.
Excluding the financial institution channel build dotcom customers averaged 79 transactions in the quarter up from 75 last year and last quarter.
During the quarter, we also processed $7 3 million debit card transactions.
Before discussing our Q4 financial results I want to provide some additional insight about the financial institution channel since the dynamics differ from our other channels.
We earned revenue from our Fi partners under long term contractual minimums based in part unexpected customer adoption over the term of the contract as reflected in our remaining performance obligations or <unk> in the near term. Our F&I revenue is tied to these <unk> rather than to new customer adds.
The other key difference between this channel and our other go to market motions is that we offer these partners wholesale rates on our subscription and transaction fees.
Return, the Pfizer responsible for sales and marketing as well as customer support for the businesses, who adopt our white label platform that the banks net net <unk> generated contribution margin consistent with our other channels in.
In fiscal 2022, our FY channel represented approximately 5% of core revenue with the vast majority of this revenue being subscription fees.
Now I'll review, our reported Q4 results.
Total revenue was $200 2 million up 156% from a year ago.
Core revenue, which consists of subscription and transaction fees was $194 8 million representing growth of 151% year over year.
Organic build dot com core revenue was $114 9 million, an increase of 71% year over year due to strong demand across channels and increased customer adoption of our AD valorem payment products.
In addition to our organic core revenue stream revenue from our spin and expense management solution grew 140% year over year.
Organic core revenue <unk>, excluding fri customers increased 38% year over year.
Subscription revenue increased to $55 2 million up 77% year over year, driven by our growing customer base and the inclusion of invoice to go subscribers Buildout.
<unk> dot com organic subscription revenue growth was 49% year over year.
Transaction revenue increased to $139 6 million up 201% year over year due to bill Dot com organic TPB stream increased adoption of our AD valorem products and increasing spend on <unk>, which totaled $69 5 million in transaction revenue for Q4.
Go Dot com organic transaction revenue growth was 90% year over year.
Float revenue was $5 4 million, an increase of more than 600% year over year.
Float revenue exceeded our expectations given the magnitude of the recent fed funds rate increases.
Our yield was 68 basis points in the quarter.
Turning to gross margin and our operating results for Q4 non-GAAP gross margin was 84, 2% up four points year over year, driven by a higher mix of variable transaction fee revenue and improving transaction economics.
As a reminder, we manage a portfolio of payment offerings with a range of margins that are in various stages of adoption and we currently have a very favorable payment mix.
In the short term, we expect non-GAAP gross margin to be slightly above the 79% to 81% range that we have previously discussed.
non-GAAP operating expenses were $171 7 million, an increase of $25 million from Q3.
We expanded R&D investments related to integrating our recent acquisitions in addition to enhancing our product innovation and platform capabilities.
Sales and marketing expenses increased primarily due to expanding our go to market initiatives and rewards expenses associated with our spend and expense management solution.
non-GAAP operating loss was $3 2 million.
Our non-GAAP operating margin was negative 2% an improvement from negative 8% last year.
Our non-GAAP net loss was $3 3 million for a net loss per share of <unk> <unk> based on $104 4 million basic weighted shares outstanding.
Our non-GAAP net loss was significantly better than our expectations, given our revenue performance and our rigorous approach to managing expenses.
Moving on to the balance sheet cash cash equivalents and short term investments at the end of Q4 were $2 7 billion flat quarter over quarter.
We continue to be well capitalized, enabling us to invest in our platform expand our go to market capabilities and extend our market leadership.
As of June 32022, we had $3 1 billion in customer funds on our balance sheet up $99 million from the end of Q3 driven by strong TBD.
Before shifting to our financial outlook for the first fiscal quarter and full fiscal year 2023.
Like to address our current views on the macro environment as it relates to our business.
Looking ahead, we're excited about the large global opportunity we are pursuing to help businesses transform their financial operations and better manage their spend and cash flow.
Our platform go to market ecosystem and scale continue to drive strong customer acquisition and engagement with our solutions.
Entering a challenging economic environment businesses need solutions to help them automate and create efficiency, while increasing visibility and control.
Our bias is to invest to capture the large market opportunity ahead of us while exercising our disciplined investment approach that will allow us to drive operating leverage as we grow.
The current macro environment presents numerous near term uncertainties in our fiscal 2023 outlook anticipates customers will continue to react to the external factors and tempur spend throughout the year similar to the trends we saw emerging in late Q4 and early this quarter.
Our outlook assumes no material changes in customer retention, which is the largest driver of near term revenue customer acquisition trends or credit losses.
We believe we are very well positioned to succeed in an uncertain environment given the multiple tailwind. We have these include the revenue and margin contribution from the rising interest rate environment, a significant payment monetization expansion opportunity that exists and the growing awareness by smbs about the potential to transform their financial operations.
Adopting cloud solutions.
Our value proposition resonates with smbs, regardless of the macro situation.
Turning to our outlook for fiscal Q1, we expect our total revenue to be in the range of $280 million to $211 million, which reflects 76% to 78% year over year growth.
We expect float revenue to be approximately $12 million in Q1, which assumes our yield on FBR funds will be approximately 145 basis points.
On the bottom line for Q1, we expect to report non-GAAP net income in the range of five $5 million to $8 million and non-GAAP net income per diluted share in the range of 5% to seven.
Based on a share count of $117 5 million diluted weighted average shares outstanding.
In addition for Q1, we expect other income to be $4 9 million net of other expenses.
For fiscal 2023, we expect total revenue to be in the range of 955, five to $973 5 million.
We expect float revenue to be approximately $55 million in fiscal 2023, which assumes a yield on FBL funds of approximately 2% for the year and is based on a mix of funds invested in higher yielding securities and funds held in demand deposit accounts in support of payment transactions clearing.
We expect to report non-GAAP net income for fiscal 2023 in the range of 27, five to $45 5 million and non-GAAP net income per share of <unk> 23 to 38.
Based on a share count of 119 million diluted weighted average shares outstanding.
In addition for fiscal 2023, we expect other income to be $22 million net of other expenses.
We expect stock based compensation expenses of approximately $75 million per quarter and capital expenditures to be approximately $6 million to $7 million per quarter.
In closing I want to reiterate that we believe there is a significant greenfield opportunity ahead of us to help millions of businesses manage their cash flows and transform their financial operations, our broad platform capabilities diverse distribution ecosystem and increasing scale uniquely position us to be the de facto financial operations platform for.
Companies ranging from sole proprietors to mid market firms.
This opportunity together with our efficient business model and execution rigor positions us to transition to be non-GAAP profitable company in fiscal 2023.
Operator, we're now ready to take questions.
We will now begin the Q&A session, if you'd like to ask a question. Please press star followed by one on your Touchtone keypad.
If for any reason you would like to remove that question. Please press star followed by <unk>.
To ask a question press Star one we will pause briefly to allow questions to generate in Q.
The first question is from the line of Bryan Keane with Deutsche Bank You May proceed.
Hi, guys congrats on the quarter and outlook I'll ask my two questions upfront.
You talked a little bit about seeing some softness in spend especially in advertising is there a way to breakout maybe discretionary spend of clients versus non discretionary spend or maybe a breakout of clients by services and then secondly, now that we are turning non-GAAP profitable for the year has there been any.
Thought about any long term margin trajectory that we should think about for adjusted margin or for EBITDA margins. Thanks.
Thank you Brian .
This is.
Always.
Kind of the nuances of the macro environment, something always hard to read but what we would say is that we have a broad base of customers.
Broad base of customers across SMB is all the way up to mid market companies and while we called out in particular it was.
TBD growth moderating at the end of the quarter through the beginning of this quarter and it really is around larger customers and so when we think about discretionary spend that's it's kind of nuance in the business environment because they have so many business activities that they do on a daily basis.
So I would say for us, we see that growth continuing to grow strong and going forward from there.
Maybe I'll take the.
The long term margin question, Brian we haven't explicitly laid out longer term targets, yet we're very happy with the progress we've made scaling the business and.
Nearing $1 billion in.
And revenue in <unk>.
Expecting non-GAAP profitability, this year and with that momentum.
We're expecting a lot of good news ahead, we'll rollout longer term targets.
<unk> targets.
In the not too distant future, but haven't done so yet.
Great. Thanks for taking the questions.
Thank you.
Thank you.
The next question is from the line of Brad Sills with Bank of America. You May proceed.
Oh, Great Hey, Thanks, guys and congratulations on a real nice end of the year and outlook here.
I'll ask the macro question in a slightly different way, obviously, you've been very specific on the impact.
The impact there on TPB outside of advertising are there any other categories. You are noticing some some softening and what gives you the the rationale I guess for.
Assuming that that doesn't change in the near term.
Yeah, Hey, Brad good to hear your voice.
We saw healthy demand throughout the quarter year over year, the customer growth was 30%.
We've had great PPV growth across the quarter. The core Bill PPD growth was 10% quarter to quarter. The WTP the growth was stronger than that and so when we look at the overall macro environment, we really do see a number of tail winds that are supporting the business and does tailwind really get too.
As we've talked about before so the first that we kind of talked about what had been the pandemic and the <unk>.
Dire need for remote capabilities and the ability to have the financial back office in your back pocket, which we've delivered for our customers at other thing we've talked about is just the pure.
Need for digital transformation that businesses have the desire to be able to be anywhere and manage their business and the third one which is kind of new in this kind of macro environment that we're in is that an inflationary times the only deflationary impact that you're going to have on your businesses to take advantage of software and create more efficiencies across your financial operations and so.
We have been built in from day, one to really serve our SMB customers with the ability to be more efficient to really drive more technology usage and more engagement across their customers and their employees and their vendors and thats something that we feel good about so from a high level macro perspective really we just wanted to call out that we did see.
The larger customer the TPB spend starting to moderate.
From a growth rate perspective.
Thanks for that Renee one more if I may please.
The combination of the growth Youre seeing in the network and the progress you've made integrating invoice to go should we expect that channel to kind of that flywheel effect to start to really take hold here receivables customers, bringing in more payables customers are we at that point now where we might see momentum there. Thank you so much.
Thank you Brad we have been I think with the Q3 call we talked about out in.
The February March timeframe, we fully integrated the companies across one organizational structure to drive a unified platform. It's one of the priorities key priorities for the year is to really continue.
Continue to develop that unified platform so customers have.
One common dashboard to manage all of their financial operations and so we are in the I would say that the beginning stages of building that in throughout the fiscal year, we will make more progress and update you as that happens.
Great to hear thanks Renee.
Thank you Brad.
Thank you. The next question is from the line of Darrin Peller with Wolfe Research you May proceed.
Okay.
Hey, Thanks, guys.
And great job on these results, let me just try to understand a little bit more and more we think of the guidance and the outlook there is.
Given how many moving parts there are in the business. There's obviously a ton of assumptions that can swing the output in guidance. So really love to hear what kind of assumptions you made around some of the main variables Bill dot com versus perhaps Debbie.
Maybe you can help us understand how the <unk> cross sell and Bill is going and if you've made any assumptions of progress around that also.
I guess I'll stop there we can probably go on and on maybe it voiced ago, but there is this any more color on the inputs would be great.
Yeah.
Sure. Thanks, Darren good good question and you're right there are a lot of moving parts.
One of the benefits that we have a very large customer base and our scale is that we do have a lot of visibility into spend patterns and activities and repeat behaviors. We talked about on the earlier in the call. The repeat transaction rates continued to be very very high so that visibility is helpful. As we.
As we pin down our assumptions.
We have.
The main variable I would say that we're focused on is the spend patterns amongst customers across both the bill and the B.
Spending businesses and we're assuming.
Some of the softness or moderation as we called it in the last couple of months continues throughout the year given the external environment.
And with <unk>, it's a slightly larger customer base. They have good visibility as well and it's not I would point out that like like build the <unk> spend management solution is a tool to manage spend it's not just a card and so it's integrated into the way companies operate in regard.
So the absolute spend number it creates high visibility.
For us so we feel good about that we have made progress.
In FY 'twenty, two probably faster than we would have anticipated with some of the cross sell activities. I think we had about 2000 build dot com customers.
Who adopted the <unk> spend management solution.
So that's good momentum going into FY 'twenty, three and as we focus on integrating the platforms. Even tighter we think that will help with our additional efforts.
And cross selling bill and <unk> customers in both directions.
That's really helpful. Thanks, if I can just quickly.
A mechanical question, the new ads and the costs in the quarter I just wasn't sure if I heard how much of that was <unk> five versus the <unk>.
Time around.
Yes, we had 11200 in the quarter. It is our second highest net new adds ever last quarter was 11 six.
We had about 5000 net new adds in the what I would describe the bill core business, excluding the <unk> channel. So excluding all of the ads from the Fi channel and as we sort of look out over FY 'twenty three we think that 4% to 5000 range for bill excluding the financial.
<unk> contribution is probably a good.
A good placeholder.
Okay very good thanks, guys.
Thank you.
Thank you. The next question is from the line of Josh Beck with Keybanc you May proceed.
Yes. Thank you for taking the question I wanted to also layer on.
Some of the macro impacts so one of the comments that you've made will certainly the improvement in the <unk>.
Hey back period.
I had made some comments about really bill being deflationary and obviously, that's very critical for Smbs right. Now. So when you look at the payback that youre seeing in the recent months Hasnt held steady.
Are there any notable changes kind of with respect to that variable.
Yes. Thank you Josh we have as you know we have a very broad.
<unk> channel ecosystem that we've tapped into that allows us to reach smbs wherever they are whether it's directly or through the businesses and partners. They trust, most whether it's an accounting or financial institutions.
And that's actually does help our ability to drive that payback number that way we've talked about it.
The opportunity that we continue to see is the combination of that ecosystem with our ability to kind of drive better usage of our payment products that really drive value for our customers.
Increasing our net dollar based retention numbers all of that goes together to really help.
<unk>.
<unk> to attract and bring more customers onto the platform. So.
No no specific trends right now is just.
Everything we've been building for years has been working for us.
Okay very helpful and then maybe.
A follow up.
Really the adoption of cross border and virtual certainly the stats there were very helpful.
We think about the pace of that adoption curve, obviously, we have a pretty good.
Sense of how that's trended from last year to this year, how should we think about that shape moving forward are there factors that could steepen that adoption curve leveled out.
Framework just to think about that.
Pace of adoption in future years.
Yes, thank you for that.
I would say from the very beginning we've had a strategy to invest in our proprietary payment platform. So that we can create better customer experiences for our customers and for their suppliers and that's been the backbone of how we've been able to drive virtual card international payments FX transactions within the international payments instant transfer all the things.
We've done and as we look at the success that we've had.
Growing virtual card from two two to two 7% at TPB International payments from four one to $4 five.
Really happy that we were able to grow the FX rate from 25% to 32% all of that is because of this proprietary payment platform that we've been building over the years and will continue to build we know this is a multiyear effort to drive adoption in the original.
<unk> that we've made around the penetration that we expect it just takes time and we're happy with where we're at and we'll continue to do the work that we need to drive that adoption.
Excellent thanks for that.
Thanks Ross.
Thank you. The next question is from the line of into batch with SMB <unk> co. You May proceed.
Hey, guys. Thanks for taking my question and another nice set of results here wanted to touch upon the remaining performance obligations. This is the one that we get.
Question from investors fairly often trying to understand on <unk>.
How that revenue comes on and I appreciate the color that you provided.
The.
The prepared remarks, but it's remained fairly steady at this $150 million level over the last couple of years and just so what are you kind of thinking about with regards to that bucket within two years as far as what's kind of layered in in 2012 fiscal 'twenty three.
Mentioned, the minimums I guess.
So we anticipate that you're going to have a lot of those customers those minimums in the next several quarters.
Thanks for the question Andrew.
So the RPM.
A number of $150 million approximately reflects the minimum contractual commitments. So the way to think about that is is the floor.
Not the ceiling to the extent that over a multiyear period of time, we work with our financial institution partners to drive.
<unk>.
Better adoption than initially targeted than we have revenue upside in both subscription and transaction fees I think our disclosures spell out.
Both the total ARPA and the expectation for how much revenue will earn from that over the next two years, we haven't provided more granular disclosure than that but.
The the RPI number moves in two ways as we sign new financial institutions, those minimums get added to the IPO and then obviously as we earn revenue in the near term that comes out of the <unk> balance its been pretty stable over as you said the last 18 months or so.
And so it's a fairly steady revenue stream that is contractually guaranteed and not subject to any significant.
Movement quarter to quarter.
Got it it's helpful and then as we think about that.
Progression of margins throughout this year I mean, obviously youre starting at a lower point in the first quarter and obviously the business has a ton of operating leverage in it and so I guess, where where the guide is implying like youre exiting the year and kind of this mid single digit range or high single digits does that is that way the way we should be thinking about.
Like the sequential steps and in margin throughout the year are there any one off variables we need to consider.
Well there is.
First of all obviously, we've laid out the first quarter and the full year, we haven't given the <unk>.
Clearly details there is some <unk>.
Seasonality in the business, particularly as it relates to payment volumes, we've talked about the third quarter or the March quarter.
A little bit softer payment volume in the December quarter that does in some.
I'm way influenced.
The margins, but looking stepping back and looking at how we're starting the year and the full year.
Were obviously comfortable with the ranges that we provided and they reflect our best estimates at this point about how the business will evolve.
Got it congrats on another nice set of results.
Thank you.
Thank you.
The next question is from the line of Brent <unk> with Piper Sandler you May proceed.
Good afternoon.
Magnitude of upside here in Q4, and midpoint guide by another 50% growth year suggests that.
Automating finance operations is clearly resonating with Smbs.
Stood out to me was the second straight quarter of 11000, net new core ads, we're seeing other F&B companies.
A slowdown on the macro could you just.
Double click down on visibility into adding new customers, what's resonating here, what's giving you confidence in your ability to continue to kind of land new customers in this challenging environment.
Hey, Brian Great to hear your voice.
<unk> been building this platform for 16 years now to really drive.
And amongst Smbs of all industries, and all really sizes from the smallest to the mid market companies across multiple partners and ecosystems and so the success that we have is our ability to continue to drive partnerships and <unk>.
During the fiscal year, we obviously announced the partnership with Bank of America to serve their Smbs that were new to the bank.
<unk> announced a partnership with CPA dot com to be their exclusive provider across bill payment and expense management spend management and so these types of partnerships in combination with the 6000 accountants that are on the platform today definitely give us visibility into whats happening for them I would.
Say the tailwind as I mentioned the that.
That need to be able to manage.
Worked remotely that need to be able to to really drive.
Efficiency in an inflationary environment that need to be able to have the technical tools to be able to run your financial operations from anywhere. These are all <unk> that are helping drive demand and awareness and you combine that with the increased capabilities of innovation. We've done on the payment front. So all of that continues to create that healthy demand.
We feel good about the demand and we have plenty more to go do and it's a massive market in front of us and we're going to keep working hard to serve as many smbs as we can.
Super helpful color, There and then John just wanted to ask on <unk>, specifically it looks like the volumes there jumped meaningfully on a sequential basis more than doubling from last quarter.
What drove that is there some some additional cross sell benefits was that all just kind of a debbie adoption, increasing what drove the acceleration there and how should we think about the momentum youre seeing in <unk> going into next year.
Yes, Thanks Brent.
Youre right the momentum is quite strong.
As we mentioned before the average customer.
Or spending business that did you spend management solutions, serving is slightly larger than than bill and they've done a really good job at at offering both the platform and spend solutions that help large customers.
<unk> their spend capabilities and have visibility and control and they are seeing the results of those efforts come through and increased spend from from businesses. So we feel really good about.
The progress Thats being made there and then I would say that the bill contribution so bill customers, who have adopted the <unk> spend management solution and it's still relatively small.
Versus the base JV spending businesses. So we're really excited about the continued opportunity we have in fiscal 'twenty three and beyond to continue to drive that cross sell adoption.
Helpful color great to see thank you.
Thank you.
The next question is from the line of <unk> <unk> with Jefferies. You May proceed.
Hi, good evening, Thanks for taking my questions John maybe one to start with you on the guidance.
In terms of the assumptions.
From a high level, what are you thinking for core Bill Dot com revenue versus Davy.
<unk> I know in the past you've given that in just a figure on the fiscal year, maybe we can see what the assumptions are for fiscal 'twenty, three, especially Davey and fully.
And wrapping around that that would be the comps.
Yes, Thanks Ahmad so in terms of core revenue growth. So the combination of our subscription and transaction fees, excluding float for <unk> Directionally I can tell you we're planning for above 50% year over year growth in for organic Bill Excluding give you were planning for above 40%.
Organic growth beyond that obviously are our formal guidance is around the combined businesses as we're operating them now, but hopefully that additional color helps.
Very helpful. And then Ron I wanted to ask you. Your question. There is how do you guys have really been helpful that funding the macro I would say that some of your smaller competitors I think have had different sets of struggles yet you guys are getting great right in terms of net adds the kpis are strong.
PPV volume slowed later in the quarter, you are still doing well in terms of attracting more customers to bill I'm curious if there's something you can do to be opportunistic and accelerate that while some of your competitors may be struggling whether they're private or what their own business decisions and maybe what youre seeing and if there's something you can do to capitalize on that.
Yes, Thanks Ahmad.
Pursuing in serving the SMB market is tricky business.
Smbs are hard to reach and hard to find and that's why we have the ecosystem. We have our investment philosophy since day, one has been grounded in our long term aspirations.
To be a profitable company that serves millions of smbs and so from that perspective, I think the focus and attention that we've had around execution and rigor over the years is what's paying off and that's what it's able to create the opportunities that we have with the SMB market, whether it's in our direct channel our partner channel or our accountant channel. So.
I think it really comes back to just being committed and really being focused and executing in a way that we are able to create solutions that resonate that delight customers and really make a difference.
Great Congrats on all the success guys.
Thank you.
Thank you.
The next question is from the line of Tien Tsin Huang with Jpmorgan you May proceed.
Hey, great.
Great to be on the call here impressive results at the <unk>.
Number for a second but I wanted to ask I think you've covered some of this but just thinking about the growth drivers in fiscal 'twenty, three and how it's going to be different than what we saw last year across <unk>.
Volume growth client growth pricing for example, I heard the commentary around volume in July .
In July and August it sounds like client growth, you're assuming would be relatively consistent what about some of the other big.
Drivers that might be.
Different this coming year versus last year.
Yes, Thank you and you can't say.
So I think yes.
When we look at this it is it's all about kind of driving the continued operational execution rigor that we've had and so the success we've had with virtual card with international payments there is.
A lot more opportunity there we continue to have a multi year strategy and execution plan around that and we will continue to do that I think on the customer acquisition, we've talked about the ecosystem. We have so it's all of these things and the levers working together that create the results that we have today and the results that we've had really since being public. So I think the long term.
<unk>.
<unk> and how we see that translate into this year is to continue executing at the level that we're executing.
Understood so thinking about the profitability here and what Youre showing is there anything youre doing differently, just thinking about maybe expenses some things that you're you're.
Youre pushing out what's what's non negotiable, what's your what are you still focusing on for example, I would imagine emerging the dividend that build out comtech stacks are still high priority. So just trying to understand what may be changed or what maybe is being deferred versus.
On the investing side. Thank you.
Sure Greg Great question.
I guess start with the multi year view from an investment strategy standpoint, we're obviously.
Investing to drive results this year, but we're always thinking out several years given the large market opportunity that we're that we're pursuing as Rene mentioned earlier on the call our number one priorities and driving.
Integration and a great user experience across all of the solutions.
Two.
To help customers automate their financial operations, where we're investing in the platform our go to market capabilities as well as our.
Partner ecosystem, which is important in driving awareness of.
Of our solutions we also.
Have for a long time invested in our own proprietary payment capabilities. In fact, we were one of the first companies to have payments integrated with the SaaS platform and those strategic choices frankly, many years ago also positions us today to benefit from this rising interest rate environment and generate.
Pretty significant float revenue on the funds that we manage through through our technology and so that's one of the tailwind that we have in addition to being fairly early in our journey of expanding monetization on payments. We've made great progress were north of $6 per trans.
Action in terms of monetization and we feel like we have a long way to go.
Yes.
Good stuff. Thank you all.
Thank you.
Yes.
Thank you the.
The next question is from the line of Matt Stotler with William Blair You May proceed.
Hi, there. Thank you for taking the questions.
Maybe just to start.
Maybe as it relates to gross margin I mean, you talked about better transaction economics being a factor there.
Just kind of dig into some more color on this dynamic.
Leverage is provided so far and then any further levers here or leverage that could impact gross margin going forward from better economics and transaction for them.
Sure. Thanks, Matt.
We've indicated that.
We'd be we expect to be above the range that we've talked about recently, which is that 79% to 81% were expected to be a bit above that in part because some of the variable priced products that we're seeing good adoption.
From customers and suppliers.
Not only higher a higher revenue per transaction profile, but much higher margins than some of the fixed price.
<unk> like an HCA to a check payments so we have good.
Good mix happening there we've also.
Had a couple of initiatives to optimize our transaction.
So the fulfillment costs associated with delivering payment transaction. So that's contributed to it.
Margin expansion as well and then as I mentioned a moment ago.
<unk> associated with.
Rapidly rising float revenue is a positive for margins at the end of the day also.
Got you that's very helpful.
And then maybe just a follow up on the financial institution channel obviously.
Some very strong relationships, there very positive commentary and kind of.
Data points in terms of customer adds and new relationships.
You kind of pointed out.
A few questions ago, it's been kind of around $150 million in terms of <unk>.
Pretty consistently and so.
I mean should we be thinking about this as kind of a stable dollar contributor to revenue going forward and the expectation being that we should continue to see a kind of compressed as a percentage of revenue or is there a point in time when you when you kind of get to a.
A point of critical mass, where you expect that you would see a financial institution partners start to actually expand.
And be accretive in terms of revenue growth.
Sure I think in the short term, it's fair to look at our <unk> as sort of a stable.
Number we're going to obviously earn revenue against that over the next couple of years and that likely leads to a slightly declining percentage of revenue given the rapid growth in some of our payment revenues outside of the financial institution channel, but long term, we're actually very bullish and working with our financial institution.
Partners and think there's a big opportunity such that the channel can be a larger component of our overall business as we think out intermediate and longer term and then has to do with.
The potential to drive adoption of some of our additional products inside the white label solution that our banks are using the opportunity to partner with new banks, who are not currently working with us.
And so forth. So in the short term I would say directionally, it's probably a slightly lower percentage, but intermediate to longer term, we think it's a really big opportunity.
Got it thanks again.
You bet.
Thank you.
Next question is from the line of Scott Berg with Needham You May proceed.
Hi, everyone. This is Michael <unk> and I'm on for Scott Berg today. Thanks for taking my question and congrats on the quarter.
You touched on it a bit earlier, but I'm curious on kind of what the core bill sales motion looks like today versus maybe a year ago.
You made any notable adjustments based on the macro or the strong demand environment, you're seeing and then how should we think about this moving forward. Thank you.
Thank you Michael the core.
Go to market motion has not changed we continue to enhance the go to market approach one of the areas that we've enhanced it is we've had larger businesses have more interest.
Continue to build the sales team that works with those customers and I would say that we continue to see these other tailwind as I've talked about driving more awareness and more demand across the ecosystem and so they were kept busy kind of really making sure that we're responding to customers and delivering what they.
Need for them to be successful so no no changes really in the go to market motion.
Great. Thank you.
Okay.
Thank you. Thank you.
The next question is from the line of Ken suggested with Autonomous Research you May proceed.
Hey, Renee and John can afternoon, and thanks for taking the questions.
Really nice job here and appreciate a lot of the incremental data points, excluding the Si channel. So thank you for that I wanted to ask about the traction you're seeing with some of the new payment products, because the virtual card and cross border penetration figures came in a little bit lower than we were expecting so of the new payment types instant transfer.
Enhanced CCH pay by card, which which payment methods across these three are seeing the most traction in and which ones drove the upside on take rate in the quarter and I guess whats the appetite on your end to get those into the market quickly and having them start contributing more TBD.
Yes, they can get to good to hear your voice.
Always been building a platform to really deliver delight and success for our customers and one of the things that they need us multiple ways to pay and get paid and it's been part of our mission statement, obviously is to make it simple for business to connecting and do businesses. So I think what we are seeing is continued adoption.
Avalon payment products across the platform. So if you were to add up all the Avalon and capabilities that we have now just at 10% and they were all TPG, we know theres a lot more opportunity going forward.
And it's going to be on some of the products that you mentioned and instant transfer is going to be on potentially balance is going to be out of all the different things that we've rolled out in the last few years international virtual card and others yet to come so part of the <unk>.
Focus and that I have is to continue to to really drive and develop the team to be able to go to where we think we can get to the multiple billions and profitable company and I think part of that is going to be to really drive those priorities across the team.
Okay, Great and then just a quick follow up I wanted to ask you about some of the price increases that were recently put in place I believe those changes were made in the direct channel.
Are you guys planning on introducing similar increases into the accounting firm channel and I guess when should we expect those higher prices to flow through your results.
Thanks, Ken at this point, we have announced two customers.
The direct channel price increases effective.
Actually this month in August we notified them I think a couple of months ago, we haven't made any other announcements to customers in other channels or anything like that at this point, we would expect by the probably the third fiscal quarter to by the end of that quarter any price action.
<unk> that we're taking in the year would be fully reflected in our in our model. We have made some assumptions about.
Slightly higher subscription prices throughout the year, but at this point, it's just the direct channel that we have.
And foreign customers.
Okay, alright, thanks, a lot appreciate it.
Thank you.
Thank you next.
The next question is from the line of Nick <unk> with Credit Suisse. You May proceed.
Hey, Thanks for taking my question and congrats on the strong results I just wanted to touch on really quick and at what point in FY 'twenty three do you expect to complete the unified platform experience.
And when should we start to see benefits from the CPA partnership expansion.
Thank you Nick we have started that integration obviously.
Last fall, we announced that we had.
Connected that separate integration and then we pull teams together in February and that work started.
We will share more as that happens that we are working as fast as we can.
That integration, we think it's going to be important for customers and from a go to market approach to be able to have.
One unified approach and we definitely hear that from the customers that we talked about so.
So feel good about that and then.
I'm not sure.
Another question there sorry.
Just when we could see benefits from the CPA partnership expansion.
Oh, great, yes, so the CPA dotcom expansion of the partnership the teams are working on that today, we obviously the unified platform will help that approach as well, but we're making good progress on to go to market muscle that we need to develop there and it's something that we will continue to make.
Progress on throughout the year.
Thanks, and if I could just squeeze in a quick follow up I just wanted to see if we can get an update on the payment monetization efforts for invoice to go and what that could look like in 2023.
Yeah. Thanks, Nick So we're in the very early stages of transitioning from invoice to goes outsourced payment provider to.
Through a combination of bill and other third parties and I'd say, it's very early and not contributing materially to our results yet we will have more updates on that as we progress throughout the fiscal year.
Great. Thank you.
Sure.
Thank you.
We have time for one more question. The question is from the line of Jeff Cantwell with Wells Fargo. You May proceed.
Hey, Thanks, Congrats on the results and thanks for squeezing me in.
I wanted to ask you a longer term question about your operating expenses.
And.
The key question is how are you thinking what is your updated thinking on <unk>.
<unk> sizing thought opex space relative to your revenue.
And just to give you some context on this year. If we go back a couple of years I seem to remember.
There was a period, where you were being very thoughtful on the R&D lines in the sales and marketing lines in order to scale the business and so it's interesting to me at this point to see profitability being breached in fiscal year 'twenty three.
And clearly the revenue the revenue piece of it is there. So I just wanted to get your updated thoughts on longer term operating expenses and what your thoughts are on flexibility.
In R&D and sales and marketing to the extent that you're able to kind of share that with us. Thank you.
Okay.
Thanks for the question Jeff.
Obviously as I think I mentioned before really happy with the progress we've made scaling the business with moving in FY 'twenty three to non-GAAP profitability, while delivering very strong growth and strong margins and we think it is still early in the evolution of the market that we're going after there is tens of millions of businesses globe.
<unk>, who could benefit from our solutions and I think we're going to continue to take a disciplined approach to investing to build out our product platform to serve customers, while leveraging very efficient unit economics in acquiring retaining and growing our relationship with customers over time.
Okay, great and just to follow up on the net adds number I think what you were saying was you got about 5000 from core Dot com and the remainder were from.
From the channel is that correct I want to make sure I got that correct and then what was the commentary for for this year as far as Dot com versus.
Thanks.
Yes, that's correct 11.
2000 net.
Net new adds in the quarter of which approximately 5000 were core organic bill excluding the financial institution channel and our expectation throughout fiscal 'twenty three is that we'd be in that 4% to 5000 net new adds per quarter range again, excluding the financial institution channel.
Total net new adds would obviously be higher than that.
Okay. Thank you everybody just wanted to say thanks for joining us today <unk> delivered another great quarter. We're excited about the large opportunity we have to digitally transform millions of smbs. Thanks again for joining.
That concludes today's conference call. Thank you for your participation and enjoy the rest of your day.