Q2 2023 Bill.com Holdings Inc Earnings Call
Paul 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. Additionally, please note that the appendix for quarterly Investor deck, which is posted on our Investor Relations website contains a supplemental table of revenue and metrics information.
At times during this call, we will discuss <unk> standalone results, which exclude our <unk> spend management and voice to go accounts receivable and Finmark financial planning solutions now I'll turn the call over to Renee Renee.
Thank you Karen and good afternoon, everyone. Thank you for joining us today.
<unk> delivered strong second quarter results and achieved another quarter of profitable growth as we executed on our strategy to be the essential financial operations platform for Smbs.
Revenue in Q2 grew 66% year over year and.
And we made exceptional progress growing non-GAAP net income, which was $49 million for the quarter.
Our non-GAAP net income margin was 19% in Q2, and we also delivered another quarter of positive free cash flow.
Our results demonstrate the commitment we have execution rigor and investing for profitable growth.
Power of our scale technology and business model enabled us to create significant float revenue tailwind and this higher interest rate environment.
We are leveraging our float revenue to invest in long term strategic opportunities, while also delivering non-GAAP profitability.
Given the strength of our financial position conviction in our growth prospects and our proven ability to execute today, we announced board authorization for a $300 million share buyback program, which we believe will further enhance shareholder value and minimize dilution without compromising our ability to invest in future growth.
Before talking about our business I'd like to comment on the health of Smbs.
Businesses today are faced with a challenging economy that includes inflation and rising interest rates.
And time again F&B has proved to be resilient and agile and we're seeing them adjust to the current conditions with.
With our solutions Smbs are empowered to better manage their business and cash flow. We are energized by the opportunity to help our customers succeed as.
As we discussed on our Q4 and Q1 calls.
Macro conditions are impacting small businesses and they are taking action to moderate expenses as we anticipated. These trends continued in fiscal Q2, and we experienced lower growth in total payment volume compared to prior periods.
Our proven business model and track record of execution and position us well to navigate this economy, while pursuing our long term aspirations to serve millions of businesses and capture billions of dollars in revenue.
As champions of Smbs, we're proud that more than 400000, smbs use our solutions to better run their businesses.
A great example of how we help companies streamline their financial operations is ditch witch undergone a commercial and industrial equipment distributor that first use <unk> spend management solution and then adopted bills accounts payable solution.
<unk> started as a family owned company and $19 72, and currently has six dealership locations throughout the Midwest and south.
<unk> <unk>, CFO said and I quote division and Bill had been a game changer by giving us more visibility and control of our cash flow the ease of use and automating our finances is really important in running our day to day operations.
The combination of Bill and Debbie has removed the hassle of that paper based process and given us time back to focus on growing our business and providing our customers the equipment and services they need to get the job done.
<unk>.
Our large and growing partner and network ecosystem enables us to efficiently reach new businesses and gives us a competitive edge.
We partner with and Smbs, most trusted advisors, including their accounting firms and financial institutions with a shared goal to create more value for smbs.
Our diverse distribution channels are a key advantage and represent a competitive moat.
Our proprietary network of $4 7 million members transact with bill customers.
This network enables us to offer a strong value proposition to both parties in every transaction, while creating a network effect for new customer acquisition.
Our network members benefit from fast efficient electronic payments the ability to choose their payment types and easy access to data for streamlined reconciliation.
We make it easy for businesses to connect pay and get paid.
Behind the scenes of our network our platform is a complex scale operation with sophisticated capabilities, including risk management multiple payment rails, and a robust regulatory and compliance foundation.
These capabilities enable us to innovate fast and to deliver efficient payment experiences at scale.
We are now processing $250 billion in payment volume annually.
Breath of our platform positions us to be the financial nervous system for millions of Smbs.
Another core foundation of our strategy is our go to market partnership with accounting firms.
Our solutions enable more than 6000 accounting firms to automate their bookkeeping operations create insights for clients grow their practices and provides strategic advisory services.
Counting firms often drive technology adoption and usage as key collaborators and strategic advisors to Smbs.
Recognizing this we build tools that are embedded into the operational day to day activity of their firms.
Because of Bill accountants are able to engage more efficiently with their clients.
Our solution enables them to better support their existing accounts as well as take on additional clients Bill is an integral part of their business.
With the addition of <unk>, we have strengthened our ability to serve accountants needs.
During the quarter, we streamlined that <unk> signed up and client Onboarding process. Looking ahead, one of the earliest customer facing aspects of our unified platform experience will be a more powerful tool for accounts to help them manage and support their clients.
An example of the power of that Bill and Debbie bring into accounts as RKO, a top 100 firm in the U S.
Gretchen NASA President of RKO Virtual management solutions said and I quote <unk> virtual is focused on optimizing and managing our clients accounting and finance functions.
Our best in class Tech stack, featuring Bill and Debbie enables us to streamline clients' operations deliver better insights and help our clients grow.
Our KL virtually rapid growth over the past 18 months would not have been possible without bill and Debbie.
We leveraged bill and <unk> functionality ease of use and end to end automation to triple our practices transaction volume and quote.
Financial institutions represent another important component of our distribution strategy and we partner with six of the top 10 banks in the U S.
On the last earnings call, we discussed being selected to provide an SMB focused solution for a new bank partner.
Today I'm happy to share that we have recently launched with BMO or white label solution will offer a variety of our payment solutions, including virtual cards to BMO customers given them a broad range of payment capabilities within one solution that automates bill pay and Digitizes invoicing to help manage cash flow.
Core to our success has been constantly driving innovation that creates more value for members of our ecosystem.
With a diverse product portfolio and payment scale, we are able to quickly identify areas of opportunity and turn these learnings into new offerings.
Increasingly we are exercising our innovation muscle to provide more features and payment choices for the supplier side of our network.
An example of this is our instant transfer product, which has seen strong demand and good repeat usage amongst smaller suppliers in our network.
Instant transfer enables us to pay suppliers faster and help shape, our roadmap for future innovation.
With these learnings we are developing a working capital solution for existing known suppliers in our network to help them improve their cash flow by getting paid much faster.
With our large data asset of existing customer and supplier relationships and transaction history as well as strong risk management capabilities. We are uniquely positioned to provide working capital solutions to existing customers and network members to enable payment advances.
We believe there is significant demand for solutions like this in the marketplace today and we are excited about the potential here.
In closing, we delivered another strong quarter with high revenue growth and significant improvement in profitability, while making progress towards our goal of being the essential financial operations platform for Smbs.
We have built our business to create value for our customers. While also driving gross margin expansion and profitability, our powerful business model positions us well to navigate the macro environment, while pursuing our long term aspirations to serve millions of businesses and capture billions of dollars in revenue.
I'd like to thank our customers and partners for the trust they place in us.
Also like to thank the bill team for their commitment to serving Smbs, which enabled us to deliver strong financial results.
I'll now 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 second quarter 2023 financial results and discuss our outlook for the fiscal third 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've also included a table of metrics in the supplemental materials on our Investor Relations website.
Please also note that when I refer to Bill Standalone results to exclude our <unk> spend management invoice to grow accounts receivable and Denmark financial planning solutions.
In Q2, we delivered strong financial results that exceeded our expectations.
Total revenue grew 66% year over year and non-GAAP gross margin was 86, 7% our highest margin on record.
In addition, non-GAAP net income was $49 million or 19% of revenue and we generated $48 million and free cash flow.
Our Q2 performance was driven by growth in core revenue, which was up 49% year over year and significant sequential growth in float revenue, where we benefited from rising interest rates and active management focused on higher yielding investments.
Our performance highlights the strength of our diversified business model and our commitment to deliver balanced growth and profitability.
Our diverse distribution channels are a key competitive advantage with no partner generated more than 3% of core revenue in the last 12 months.
We're pleased with our Q2 performance considering the macro economic backdrop in Q2, we saw customer spend levels for bill and Debbie deviate from typical seasonal patterns in this challenging environment.
Spending trends weakened throughout Q2, and notably in December when we typically see a seasonal spike in payment volume.
The lower payment volume growth was visible across most spend categories.
Given the mission critical nature of our platform. However, customer engagement remained healthy in Q2 <unk>.
For example, on our Bill Standalone platform, excluding financial institution channel customers. The average number of transactions per customer was 77% consistent with prior quarter.
Now moving onto our metrics and results in Q2 <unk>.
I'll provide a few highlights since we included a metrics and revenue table in the appendix of our quarterly investor deck.
We ended the second quarter with 435800 businesses using our solutions.
Bill Standalone customers grew to 182700 up 35% year over year net.
Net new customer adds on a bill Standalone platform, where 10700.
This included 7200 net adds from our financial institution channel and 3500 net adds from the direct and accounting channels.
We attribute the lower net adds compared to recent quarters to smaller sized businesses pushing out transformation decisions in this macro environment.
Customer retention rates continued to be strong.
For our <unk> spend management solution, we ended the quarter with 24700 spending businesses, an increase of 1900 from last quarter and growth of 59% year over year.
Moving on to payment volume during the quarter, we processed $67 $3 billion of TPB. This included Bill Standalone total payment volume of $63 7 billion in Q2, reflecting 13% growth from Q2 of last year, and $3 3 billion and card payment volume from <unk> spending businesses, representing 76% year over year.
<unk>.
Moving on to transaction volumes, we processed $20 8 million payments in Q2. This includes 11 million payments on the Bill Standalone platform and $9 4 million debit card transactions.
Total transaction revenue per transaction was $8 17 growth of 19% year over year.
For card payments processed through our spend management solution in Q2, we generated a gross take rate of approximately 262 basis points.
Now I'll review, our reported Q2 results.
Total revenue was $260 million, an increase of 66% from a year ago.
Core revenue, which includes subscription and transaction fees was $231 1 million representing growth of 49% year over year.
Subscription revenue increased to $61 5 million up 25% year over year, driven by our expanding customer base.
Bill Standalone subscription revenue was $52 7 million, reflecting growth of 31% year over year, driven by our expanding customer base and a small effective price increase for customers in our direct channel.
Transaction revenue increased to $169 6 million up 59% year over year as a result of increased cards and volume on duty TPP growth in AD valorem payment adoption.
Bill Standalone transaction revenue totaled $84 million, reflecting growth of 42% year over year and.
<unk> transaction revenue totaled $86 6 million, reflecting growth of 78% year over year.
Float revenue was $28 9 million significantly exceeding our expectations due to the magnitude of recent fed funds rate increases.
Our yield was 341 basis points in the quarter demonstrating that our scale combined with our proprietary payment technology is proving to be an important differentiator that enables us to create tailwind during this period of higher interest rates.
Turning to gross margin and our operating results for Q2 non.
non-GAAP gross margin was 86, 7% up 140 basis points year over year as a result of higher float revenue and increasing variable transaction fee revenue.
non-GAAP operating expenses were $194 6 million, an increase of 4% from Q1 due to proactive expense management, including moderating our pace of hiring and managing our variable spend.
Reward costs, which are included in sales and marketing expenses were 50% of <unk> revenue consistent with prior quarters.
non-GAAP operating income was $30 8 million, an increase of $27 4 million year over year.
non-GAAP operating margin was 11, 8% an improvement of nine seven percentage points from two 2% in Q2 of last year.
non-GAAP other income net of other expenses was $18 8 million and benefited from higher yields on corporate cash balances.
Our non-GAAP net income was $49 4 million or 19% of revenue, resulting in non-GAAP net income per diluted share of <unk> 42.
Based on $117 3 million diluted weighted average shares outstanding our non-GAAP net income was significantly better than our expectations due to our revenue outperformance combined with our disciplined approach to managing expenses as we grow.
Moving onto the balance sheet cash cash equivalents and short term investments at the end of Q2 were $2 7 billion.
Our capital position is an important advantage and provides flexibility for us to invest in scaling our business.
Our number one priority for capital allocation continues to be investing in organic and inorganic growth opportunities that we believe will enhance long term value creation.
With our positive free cash flow results and the confidence we have in the durable strength of our business. We believe investing in a share buyback program to offset dilution is also a great use of capital to this end as Rene mentioned, our board of directors has authorized a $300 million share repurchase program.
Before shifting to our financial outlook for the fiscal third quarter and full fiscal year 2023, I will provide insight about the impact we expect the macro environment to have on Smbs and our business.
We anticipate the trends we've experienced in recent quarters will continue in the second half of fiscal 2023.
This will impact our business, most notably on near term payment volume growth.
We estimate that bill Standalone TPB growth in Q3 will be approximately flat on a year over year basis, reflecting both a continuation of macro trends and our expectations for typical seasonally softer payment volume in the March quarter compared to the December quarter.
For debit card spend we anticipate growth of approximately 50% on a year over year basis in fiscal Q3.
We are excited about our market opportunity and ability to extend our leadership position through this economic cycle, but we also believe that near term trends warrant a conservative financial outlook.
As a result, we've adjusted our core revenue estimates to account for the risk that smbs continue to adjust their spending levels.
We will be disciplined in managing our operating expenses going forward and have proactively reduce planned hiring.
We're also continuing to focus on investing in the highest impact initiatives for customers.
Thus, we are taking a balanced approach to investing for growth over the longer term, while addressing short term challenges and delivering increased profitability.
Now turning to our outlook for fiscal Q3, we expect our total revenue to be in the range of $245 to $248 million, which reflects 47% to 49% year over year growth.
We expect float revenue to be approximately $27 million in Q3, which assumes our yield on MTO funds will be approximately 350 basis points.
On the bottom line for Q3, we expect to report non-GAAP net income in the range of 26, 5% to $29 5 million.
And non-GAAP net income per diluted share in the range of 22 to 25.
Based on a share count of 119 million diluted weighted average shares outstanding.
For Q3, we expect other income net of other expenses or or E to be $17 5 million.
We expect stock based compensation expenses of approximately $73 million in Q3.
And we expect capital expenditures of approximately $9 million to $10 million in Q3.
Moving on to full year guidance for fiscal 2023, we expect total revenue to be in the range of $999 million to 1.007 billion.
We expect float revenue to be approximately $100 million in fiscal 2023, which assumes a yield on FBR funds of approximately 320 basis points for the year.
In summary, we've adjusted the composition of our core and float revenue estimates to reflect external economic conditions. We've also increased our outlook for total revenue at the low end of our range, while holding the top end of our prior total revenue guidance at the same time, we are significantly increasing our profitability through diligent expense management.
We expect to report non-GAAP net income for fiscal year 2023 in the range of $117 five to $125 5 million.
We expect non-GAAP net income per diluted share to be 99.
To $1 <unk> based on a share count of 119 million diluted weighted average shares outstanding.
In addition for fiscal 2023, we expect OE to be $60 million net of other expenses.
For fiscal 2023, we expect total stock based compensation expense of $340 million and capital expenditures of approximately $35 million for the year.
In closing we are confident that we are well positioned to successfully navigate the prevailing uncertain economic environment.
We are committed to driving innovation and value creation for our customers, while delivering revenue growth operating leverage and non-GAAP profitability for our investors operator, we're now ready to take questions.
Thank you.
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I'll pause here briefly as questions are registered.
Our first question comes from the line of Brent bracelet with Piper Sandler Your line is now open.
Good afternoon, I guess Rene for you I guess first off there are a few businesses that theyre growing 50% plus.
Keith recession. So that certainly is continues to press here with the diversity of the model that said I guess, we were a little surprised on the pace of slowdown in PPD growth.
Particularly relative to DD card growth that was totally healthy. So maybe just compare contrast, what are you seeing on the core TPG growth side, that's slowing some of the smbs are having challenges there, but it looks like they are not having as much challenges on the DD card side, just compare and contrast, those two markets and what you sign in.
In the quarter and linearity would be super helpful. Thanks.
Great. Thank you, Brian I'll start and then let John add his perspective.
First and foremost we are pursuing a massive opportunity in front of us.
We see the opportunity for growth to be decades.
Over the next decade, and this is a point in time, where the macro environment is is putting smbs on the mode of standby alright, so standby mode for that means that they are kind of distracted by other things in their business and that has led to them managing their spend more aggressively and that impacts that.
PV growth that we've seen.
Like I said, there's a point in time, we are growing for the year, we will grow over 50%.
As a company and we are doing all of that at the same time, while balancing our profitability goals and doubling the profitability on a non-GAAP net income basis for the year. So John any other comments you'd like to add.
I would just add that it's been a bit of an evolution in the spending patterns that we've seen from small businesses starting with some of the larger businesses mid last year or two other segments focused on discretionary spend being being lighter and now we've seen some trends that suggest businesses of all sizes are.
A hard look at most all of their spending.
As it relates to bill versus giving you the bill core customer base is slightly smaller in size and perhaps more sensitive to.
The economic conditions that are prevailing right now the <unk> customer base is slightly larger and its a newer customer base, where the growth profile is obviously earlier at an earlier stage than bill and obviously much much stronger growth. So we feel good about the visibility that we have and how we're helping.
<unk> is an environment and in the near term, though we have made some adjustments in the way we are operating to account for some of the uncertainties that smbs are facing today.
Helpful color. Thank you.
Thank you.
Thank you.
Our next question comes from the line of Josh Beck with Keycorp. Your line is now open.
Thank you for taking the question I wanted to go to the core net adds that's number I think this quarter did tick.
Tick below $5 and if you exclude the Fi channel So maybe just.
Talk to the go to market motion, maybe where you are.
<unk> success, and maybe where where things did slow just would be curious on the trend there.
Thank you Josh.
Definitely.
Just pointed out the opportunity in front of US is very large and what we are seeing from a macro perspective is that as businesses, especially small businesses are being distracted by this.
Wait and see economy, or if you want to say the standby and wait mode that is impacting their ability to kind of move quickly on on improving their operational efficiencies. So.
What we see across the businesses that we continue to drive through our ecosystem, great customer adoption, great value to our customers and we like I said. This is really a point in time. This is not something that we see as long term, we see decades of growth ahead of us.
Yeah.
Thanks for that.
Thanks, Josh.
Thank you.
Our next question comes from the line of Matt <unk> with <unk>.
Your line is now open.
Yes. Good afternoon, thanks for taking the question.
I guess just looking at.
The guidance for the next couple of quarters.
Curious how much of that is built upon sort of trends that youre already seeing both through December and through the end of January here.
Versus adding an extra level of conservatism given the directionality of seeing things we can.
<unk> more of that to come and sort of wrapped within that curious how much.
Are you expecting both a decline in transaction counts along with the lower <unk> that you have already or I guess, the average transaction size that you already are seeing.
To sort of get to those numbers on the outlook. Thank you.
Yes, thanks for the question Matt.
Tried to take into consideration both the trends we're seeing.
The seasonal effect of the March quarter in particular, which I think as everyone knows is.
As a softer <unk>.
<unk> spend environment ended December <unk>.
<unk>, so we kind of have both.
Macroeconomic factors and seasonality that are playing into our estimates for the second half of the year and we've taken all of these things into consideration as it relates to the payment volume estimates that we put out there.
And I'd say transaction counts.
Are important as a measure of how customers are using our platform and engaging and creating value from our monetization and revenue standpoint, we're obviously more tethered to the actual payment volume and subscription fees and so we've taken all of this into consideration and assumed that the trends we are experiencing.
So far our continuing and that is reflected in the lower payment volume growth for both bill and JV that we've estimated for the second half of the year.
Okay.
Okay. Thank you.
Thank you.
Our next question comes from the line of Darrin Peller with Wolfe Research. Your line is now open.
Hey, guys.
I guess I just wanted to understand a little bit more first about the mix of the customer distribution you have coming in just given that it's obviously now taking over half it looks like of the non maybe customer adds.
Maybe just discuss with us a little bit your strategy your go to market.
If youre doing everything you should you think you could be doing to emphasize the go to market on the direct side, just given how much more revenue unprofitable orders than <unk>, because you guys at least for now.
And then on that note.
Fences, the core expenses, including stock comp score went up pretty notably.
I know youre, saying youre trying to manage for profitability and interest income helps but I think investors kind of want to see the core business profitable not just interest income and so maybe just a little more color on.
What you guys are at and how you think about that and.
And in the backdrop of this environment.
You plan on managing that expense base, a little more aggressively.
Yes.
Thank you Darren.
From a customer.
Physician perspective, one of the beauty of our model is that we do have a diverse ecosystem to attract and reach small businesses and so whether that's the right director account or the Fi channel, we have lots of opportunities to do that.
And you are correct that the direct side does monetize more effectively for us.
The ways that we do that obviously.
Turning to evolve and get stronger and what we saw in this quarter really was more of a.
What I would say just as macro environment not anything again on the long term and so as we look forward.
We expect this is kind of the impact we'll see over the next few quarters and I'll, let John maybe talk a little bit more about that and really to the core profitability question, Yes, yes. Thanks Darren.
I think we're in a really unique position to balance growth and profitability given our business model.
And if you look at our our earnings or profitability keep capabilities. Excluding the impact of interest rates were actually non-GAAP operating income without float profitable in the second quarter and we've increased our.
Our estimates by north of 10% for the full year. So what we're focused on is driving near term profitability. While also investing in longer term growth initiatives. Because this is a big market opportunity, we're going after and I think we are.
Striking the right balance between growth and profitability in the near term, we will obviously continue to adjust.
Our our operating plans our expenses as needed given the market conditions, but we think that our estimates for the second half of the year are good balance between those.
Those objectives.
Yes.
Sure.
Sure.
Thank you thank you Darren.
The next question comes from the line of Andy Schmidt with Citigroup. Your line is now open.
Hey, Renee Hey, John Thanks for having me on the call here.
Wanted to dig into gross margin for a second even if we just pull out float revenue is still very very healthy.
Maybe if you could just dimensionalize the drivers there, whether it's mix or other factors in men.
Standing that there will be some fluctuation in PPV and the back half.
<unk>.
Whether we're at a sustainably higher level from a gross margin.
Gross margin level perspective, any color there would be helpful. Thanks, a lot guys.
Sure. Thanks for the question Andrew Yes, we achieved our highest ever non-GAAP gross margin in the second quarter and Thats a function of both.
Our payment.
Payment type mix, where we're seeing increases in AD valorem payments at high margins, our optimization efforts around transaction cost so with our scale, increasing our ability to lower transaction costs as we were processing payments on behalf of Smbs and obviously you mentioned.
Float revenue, which is a contributor as well we're operating from a non-GAAP gross margin perspective, well above the ranges that we established earlier in the year, we expect to continue to be.
Love the ranges in FY2023.
Given the current composition that we have in our ability to continue to deliver cost optimization.
To drive strong gross margin so we feel really good about the.
The margin potential of the business from here.
Perfect. Thank you very much John .
Thanks, Andrew.
Thank you.
Our next question comes from the line of Keith Weiss with Morgan Stanley . Your line is now open.
Hey, Jonathan Thanks for taking my question.
First off in a standalone bill take rate expanded less than what we've seen historically can you help us understand some of the factors around that is that macro potentially impacted customer behavior around payment modality.
Is there change in pace around payment with early adoption in the quarter.
Yeah. Thanks, Jonathan I'll take that question I think we've talked about a few times before that we've been really successful at driving expanded monetization over the last couple of years, but it's not perfectly linear quarter to quarter.
Our primary goal is finding the right payment method between buyer and supplier in order to drive the transition to electronic payments and repeat transactions and I think we've been very successful at doing that in any given quarter. There is a lot of moving parts in the December quarter, We continued to drive adoption of AD valorem payments, but there were some other factors that.
<unk> Star our monetization expansion examples would be we had a slight headwind associated with foreign currency given the U S. Dollar weakening that was roughly one to two.
Basis points in the quarters are slightly lower monetization expansion because of that we also saw a much higher percentage of ACTH payments versus check payments, which is a good testament to our ability to drive electronic payments and we're now roughly 85% of electronic overall for the business. So.
Near term our expectation is for monetization expansion probably to be similar to what we saw in the second quarter, which is slightly below historical averages, but looking at the longer term opportunity. We're still very confident that we can continue to significantly expand monitor monetization, especially given our large network and our expanding supplier network.
Enablement capabilities over time.
Okay. Thanks for that color a follow up here, how should we think about sales and marketing leverage it David I mean, given some of your private competitors in the state of the funding environment have you seen the intensity in sales and marketing spend their soften a bit.
Well.
Yes.
As you know the spend management market, which frankly duty helped create.
And there has been a leader in the space for a long time, it's still very early in its evolution. We have been working in the AP automation space for a long time and in the spend management is even earlier. So there is still the need to drive awareness.
Connect with prospective customers.
To change behaviors around a completely new way of doing business and we're continuing to invest in growing that segment of the business and tapping into that market opportunity I would say we are less influenced by <unk>.
Day to day competitive pressures just given the sheer size of the market and the very small number of businesses in total that have adopted the type of solution that <unk> offers obviously as we scale as a company we're approaching $1 billion in revenue, we do expect to create operating leverage across the entire business sales and marketing included.
Yeah.
Very helpful. Thanks, guys.
Yes.
Yeah.
Thank you.
As a reminder, please limit yourself to asking one question only.
Our next question comes from the line of Kenneth Zukowski with autonomous.
Your line is now open.
Hey, good afternoon, Rene and John Thanks for taking the question here.
Seems like Youre factoring in a recession in your PPD growth outlook. So can you just talk about the different levers you can pull whether its on the transaction side, the subscription side or maybe even the <unk> side that might support revenue growth as volumes seem to be coming under pressure from the macro environment.
I'm, just curious to get your appetite to pull some of those levers over the coming quarters, and then I don't think I heard the TBD.
<unk> contribution in the quarter and the and the TPB per customer growth ex EFI channel so any.
Color there would be great. Thanks, so much.
Thank you Ken I think first off what we've seen with businesses already is that this this standby mode is impacting how you think about things. So in some ways I would say that businesses are probably in front of the broader economy I think.
The consumer spend to 70% in businesses is 30%. So we may be seeing at first they're in and the levers that we have really do continue to drive.
The innovation that we've been doing across all of our payment product. So obviously.
<unk> launched a number of payment breakthrough reference the instant transfer capability and how that's informing our ability to do working capital an invoice acceleration.
For known suppliers and network. So some of the levers we have are going to be to continue to work on the transaction monetization across the business and continue to work on the diverse ecosystem that we have to drive customer adoption and make sure that customers know we're there for them when they are ready to make these decisions and we see the diversity.
To assist them in making a difference in all the different areas that we've done over the last few quarters and we expect that to continue in the near term as well.
And Ken Let me just add a couple of points that you asked about our TPB.
Our financial institution customers in the quarter is about $6 2 billion and as we look at the Bill Standalone business, excluding DSI customers. Our TPP per customer is about 441 K in the quarter, which is pretty consistent I think flat on a quarter over quarter basis.
Yeah.
Great. Thank you so much.
Thanks, Kevin Thank you.
Thank you.
Our next question comes from the line of Matt <unk> with Goldman Sachs. Your line is now open.
Hey, guys I. Appreciate you taking the question and also just want to say I appreciate it all the enhanced disclosure in the back of the presentation Super helpful.
I wanted to go ahead and ask a follow up on kind of the car.
Customer mix question, I think that Darren was asking about earlier.
Channels, obviously now contributing a significant part of your net adds are over half of your net adds on a quarterly basis.
I think you guys have been very clear that in the near term this isn't going to have a significant impact on the incremental revenue, but I'm wondering if you could kind of look out however, long you feel.
Appropriate.
And give people a sense for what this channel can sort of do for you over the long term once you kind of get fully ramped up and get through some of these <unk> that you're that you are under right now.
What is the how do you kind of paint a picture of our ambassadors of the Fi channel contributing significantly more revenue per customer than than where it is today.
Thank you.
Thank you al Graham.
Points and then John do you have anything to do that so the first thing I would say is we have worked very hard to make sure that the payment products and offerings. We are building and innovating on our available to our partners and so I think in the prior quarters, we've announced one of our larger partners.
Is it signing up to have to spend and solution that we have with Debbie we announced today that BMO is going to be enabling virtual cards from the get go we continue to work on that capability to kind of drive the monetization for that by channel, but one other note that I would just add is that every customer that joined.
<unk> Bill Dot com.
End users to Bill solution is able to to really add their network members and suppliers into the ecosystem and so the <unk> channel does also provide that capability for us. So these these new ads allow us to grow and scale the network and will allow us to increase the monetization over time as we enable more capabilities across that.
Channel John Yes.
Yes, I would just reiterate that we are starting to have more opportunities and create proof points around some of our AD valorem products.
Being integrated into our white label solutions with with various financial institution partners that I think will take time to evolve it is not going to be an instantaneous.
Step up in monetization, but I think we've proven through our direct business the ability to create value for buyers and suppliers that will play out in the financial institution channel as well.
4% to 5% of revenue.
Is what the financial institution contributes today than we were expecting over the long longer term that to be a much higher percentage of our overall business. So that's why we keep investing in the channel and we understand that it's a it's a long term investment we have seen a significant increase in the number of financial institution customers as a percentage of the total net new customers.
That we're seeing we saw slight declines in both segments Bill Bill direct and the Si channel and in the last quarter, and we think Thats a little bit of a function of as Rene mentioned.
Businesses, just going on pause a little bit being on standby being a little bit slower to to.
To make some other decisions around transforming their operations. So we're kind of expecting that to continue in the near term over the next couple of quarters, we're thinking that our net new adds will be similar to what we experienced in the December quarter.
Got it I appreciate you taking my questions.
Thank you. Thank you.
Thank you.
Our next question comes from the line of Scott Berg with Needham <unk> Company. Your line is now open.
Okay.
Hey, guys. This is Josh on for Scott. Thanks for taking my question.
Can we get some more color on trend you are seeing here in the month of January relative to the December quarter and how this recent activity influence the updated guidance for the year. Thank you.
Thanks, Josh So we as I mentioned earlier I think took took all data points into consideration as we updated our estimates for the second half of the year and most notably those include the lower TPB growth across bill and <unk> as well as slightly lower.
Our monetization expansion and we think that that.
Fully reflects the.
The softer environment that we're facing with smbs adjusting their spend and reacting to the macro environment. So there's nothing incremental or new to report on the month of January other than.
It's all a part of what we considered in updating our numbers, we think to appropriately adjust for some of the macro conditions.
Thank you.
Our next question comes from the line of Tianjin.
With Jpmorgan Chase your line is now open.
Okay.
Thank you so much just a clarification on a question. If you don't mind just does the slower spend outlook change in any way your risk appetite for growing <unk> not sure. If you commented on that and then just on the share.
Purchase on the execution of that does that.
Opportunistic or systematic what are you putting in place against that.
Let me make sure I got that thank you.
Yes. Thanks for the question first on television.
Obviously, we've been very proactive at managing.
The growth of <unk> and improving over time, our capabilities around risk management and and the card program, there, which obviously has a very short repayment cycle.
Charge card not a revolving credit card with an average payment cycle around tend to 10 days. So we're we're very proactive in managing that and part of what we're doing is improving the overall sort of.
Help their financial stability of the customer base associated with that charge card and we feel good about the progress that we're making there and we obviously do take the macro conditions into account as we're making some of those decisions on the on the share repurchase that was authorized this is an opportunistic program it's not an.
<unk> purchase or programmatic.
Effort at the moment.
Yeah.
Great. Thank you for clarifying.
Thank you.
Thank you.
Our next question comes from the line of Vermont Samana with Jefferies. Your line is now open.
Great. Thanks, Hi, Rene and John maybe just.
I know that question around guidance, you're going to ask John Owen maybe drilling a little bit more specifically, if I think about the extra week, you guided for TPB being flat year over year for Bell.
That would imply that the same store sales equivalent or existing customer TBD would be down maybe year over year.
Assuming that new customers are still adding GBP said I'm just curious if you could maybe break it apart that way and then just also whatever year retention expectations are for subscription and the forward guidance would be helpful.
Yes, Thanks Ahmad.
We've estimated flat on a year over year basis.
And the changes in absolute TPB.
There is less growth coming from the existing installed base new customers acquired in the last call. It year or so are obviously still getting up to speed on the platform and so there is some embedded growth there and obviously if you look at the year over year numbers and translate those into the transition from the December to March quarter.
It's actually a decline on a quarter to quarter basis that also factors in the seasonality associated with March. So it is not just the.
The macro conditions, there and we were expecting I don't think we've talked about a specific retention number associated with subscription revenues, but it is an important part of our monetization.
Our pricing and packaging.
And so we arent expecting any any significant changes there I think as we mentioned on the earlier comments engagement and retention.
Customers continues to be very strong consistent with.
With recent history.
Great. Thank you John .
Thanks, Mike.
Thank you.
Our next question comes from the line of Bryan Keane with Deutsche Bank. Your line is now open.
Hi, good afternoon guys.
John My question.
It was around kind of the guide as well.
We've all gotten accustomed to build raising guidance, especially.
Some of US who are taken by surprise whenever there is any adjustments in the core growth. So I'm just trying to figure out what surprised you.
<unk> had to adjust our core revenue down was it just the is it just PPV impact. The fact that that smbs have kind of frozen or is there other things in the sales channel or pricing or adding add ons anything like that that's also kind of impacted the guide kind of surprised you from from what you originally thought.
Thanks.
Thanks, Brian I'd say no surprises week four I think.
A few quarters now talked about the beginnings of shifting patterns from smbs in and their spend behavior, starting with mid market customers, then extending to all sizes and now we're seeing some changes in spend not just in discretionary items, but kind of across the board it's not two.
Across all categories, but we're seeing businesses adjust and so we've taken that into consideration.
We've also assumed slightly lower monetization expansion in the second half of the year. We think that is temporary as is.
<unk> patterns from Smbs, we are at a point in time, now where economic conditions need to be taken into consideration for all businesses, but.
It will obviously grow through this particular cycle as well. So we tried to account for really the trends that have continued throughout this fiscal year versus something new that's happened.
So you recently.
Thank you.
Thanks, Brian .
Thank you.
Our next question comes from the line of James Friedman with <unk>.
Your line is now open.
Jon Benet I was encouraged to hear your comments about pricing on the subscription side I was hoping you could unpack that a little is that only direct is there an opportunity to take price or.
Set price rather on the.
<unk> channel as well any commentary on the pricing would be helpful. Thank you.
Okay.
Yes.
We're in fiscal 'twenty three.
We've announced a price increase that impacts our build direct an accountant.
Clients basically so it's not in the financial institution channel and its a phased approach it's been sometime since we've done a price increase I think more than two years.
And it will be later in the fiscal year Q4, so before the effect of the price increases across all of our direct and accounting channel customers. So we think we still are positioned really well from a value proposition standpoint, and what we can.
Small business has accomplished relative to our to our low price points, considering some of the other software that they invest in so notwithstanding the price increase we still feel really good about.
The value proposition that we're delivering for small businesses.
Yes.
Sure.
Thank you.
Yeah.
Thank you.
Okay.
Thank you.
Our next question comes from the line of Brad Sills with Bank of America. Your line is now open.
Oh, great. Thanks, guys I wanted to ask a question on the core transaction business.
John You mentioned, the FX impact in there, but I think even ex that.
Later monetization so could you comment on whether or not you saw any impact from the macro on the uptake of cross border virtual card. The AD valorem services and do you think exiting the macro we might get back to the same level you had been seeing in that kind of uptick quarter to quarter on the core transaction business take rate.
Yes. Thanks for the question, Brad I would say, we haven't seen any direct impact on monetization expansion from macro certainly indirectly there could be some influence but.
As I have mentioned before it is normally not linear or expansion, we're working hard to optimize payments for repeat transactions more than monetization expansion and I think.
The conditions that we're operating in now really that Smbs are operating in is at some point going to be temporary and I think beyond this this particular uncertain period.
We're very confident in our ability to to continue to expand monetization at historical rates or better but in the short term we've tempered those expectations given the.
The conditions that we see in the market.
Thanks, John .
Thank you.
Thank you.
Our next question comes from the line of Andrew Buck with SMB seen your line is now open.
Yes.
Hey, Thanks for taking my question.
Just trying to understand really the slowdown that you guys are calling out in the guide here.
It seems to me that the just the magnitude of slowdown that you guys are going for in the back half of the guide it doesn't necessarily square with a lot of the.
Other data points, we're seeing in the market.
Facebook, calling out a bottoming in AD spend or American express, calling out relatively stable business trends I'm, just trying to get a sense. If there is something beyond the macros.
We're missing here that maybe you need to build that you guys are facing there are there any impacts you're seeing from intuit's announcement that double down on bvd or just maybe there just something else that we're not hitting on here.
Okay.
Thank you Andrew generally what we would say it's really it is the macro environment, where businesses are pausing there in standby mode and I think I mean, just if you look at the macro trends that are in the media the amount of companies that are announcing layoffs and an impact on their employee base. I mean, it's clear that businesses are thinking about how they spend and they are being very thoughtful.
If not are scrutinizing their spend directly so.
That is what we see.
Across the <unk> patent environment like we've defined and created this category continued to defy and create the category and we have not seen any impact from a competitive perspective from anybody on what we're able to do in driving the market.
Got it thank you.
Thank you.
Thank you.
Our next question is.
From the line of Matt Stotler with William Blair.
Your line is now open.
Hi, there. Thank you for taking the question.
I think I'd like to get some more color on the working capital management offering that you mentioned there obviously, it's something that you guys have talked about for I think since the IPO it sounds like it's coming to fruition. So.
Maybe just thoughts on what the revenue model would be there.
Whether or not you keep those loans on your balance sheet and then anything you can provide around timing would be helpful.
Sure. Thank you, Matt ultimately one of the things that we pride ourselves on is that we drive.
The electronics station of BTB payments right, we make it so that businesses can pay and get paid and now choose the timing of how they get paid and that's something that we've worked hard at.
Something that we have north of 80% of all payments across bill are electronic and one of the impacts of having a broad payment platform that we do is that we get to learn from each of the payment offerings that we develop and so when we launched instant transfer in the last year, we had a chance to see that there was demand from.
Repeat demand from suppliers that were known in our network that they wanted to be paid faster than what was able to happen through either the check or the H mechanism that theyre getting paid and so that led us to engaging and understanding from suppliers that were known to us what would be helpful and so.
There is an opportunity for us to accelerate the invoice that they have with bill customer and we can actually drive the capability to make that happen what are they going to be willing to pay and the reality is they will they are willing to pay for that it will be an impact on the ability for us to monetize and what we're excited about is that we are now in a position to start learning.
Xactly, how to roll that out broadly across the $4 7 million members in our network.
Got it thank you.
Thank you Matt.
Thank you.
Our last question comes from the last from the line of Sanjay Zaccone with K B W.
Your line is now open.
Okay.
Thank you.
Maybe just a big picture question to summarize some of the questions that were asked before I know, it's a fluid macro backdrop, but could you maybe just give us a sense of how predictable you think the model is for a given macro backdrop given that it's a fairly you know.
It is not it.
Newer models I'm, just trying to think about the.
The consensus forecast, calling for more macro weakness and maybe how we should gauge how those macro factors affect the assumptions you've made.
Yes.
Thank you Sanjay we have.
A lot of data that we're able to use and look at it and see the trends across all of our customers different sized customers different segments of customers and that is what informs the modeling that we do in the guidance that we provide so we feel like we have the insights to be able to really understand what is happening with businesses at the time.
And that's how we create informed the guidance that we provide today.
Okay. Thank you okay.
Thank you I appreciate that.
I think just I'd just like to say thank you everyone for joining the call today, we look forward to communicating our progress as we pursue the tremendous opportunity in front of us and again, thanks for joining the call.
Okay.
Okay.
Fiscal second quarter 2023 earnings conference call. Thank you for your participation have a wonderful rest of your day.