Q1 2024 Bill Holdings Inc Earnings Call
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Good afternoon, and welcome to bounce back quarter fiscal 2024 earnings conference call joining us today.
Co op L C I liked it.
President John <unk>, and VP of Investor Relations, Karen Van So with that I would like to turn the call. If its current sensor for introductory remarks Karen.
Thank you operator welcome to Bill its fiscal first quarter 2024 earnings Conference call. We issued our press release, a short time ago and furnished the related form 8-K to the SEC. The press release can be found on the Investor Relations section of our website at Investor Day, Bill Dot Com with me on the call today.
They are enabled <unk>, chairman CEO, and founder of Bill and John Rettig, President and CFO.
Before we begin please remember that during the course of this call. We may make forward looking statements about the future operations.
Also bill that involve many assumptions risks and uncertainties if any of these risks or uncertainties develop or any of the assumptions prove incorrect actual results could differ materially from those expressed or implied by our forward looking statements for additional discussion. Please refer to the text in the Companys press release issued today.
And to our periodic reports filed with the SEC, including our most recent annual report on Form 10-K, and quarterly reports on Form 10-Q, we disclaim any obligation to update any forward looking statements on today's call. We will refer to both GAAP and non-GAAP financial measures. Please refer to today's press release.
For the reconciliation of GAAP to non-GAAP financial performance and additional disclosures regarding these measures.
Note that at times during this call, we will discuss bill Standalone results, which exclude our bill spend and expense management, formerly called Debbie invoice to go accounts receivable and Finmark financial planning solutions now I will turn the call over to Renee Renee.
Thank you Karen and good afternoon, everyone. Thank you for joining us today during the quarter Bill delivered strong profitable growth and continued to redefine the category with the launch of our integrated financial operations platform Rev.
Revenue in Q1 exceeded $300 million for the first time and grew 33% year over year non-GAAP net income was also strong at a 21% margin.
While our performance exceeded our outlook and strong customer adoption continued we started to see more intense macro pressure on their business related to spin late in the quarter and that has continued through October.
As a result of higher interest rates and tighter credit markets capital and cash it become less affordable and available for Smbs.
Some of our larger businesses have scaled back their spend while both customers and their suppliers became more selective with their payment choices.
Business behaviors change rapidly in this respect this has impacted our fiscal year outlook, which John will talk about more in a few minutes.
We are taking actions to adjust to this new environment and are confident in our ability to navigate the short term macro challenges, while continuing to invest behind the long term opportunity at hand.
Smbs are often forgotten when things are most challenging for them serving SMB uses our north star and we will not forget them as we work to create more value for them and their suppliers in this market.
We know these headwinds are only temporary and that our long term focus on innovation combined with the strength of our business model will help millions of businesses transform their financial operations, while building an exceptional business.
I am confident in our ability to execute given our history of responding to the dynamic environments in the past and we will continue to get stronger.
We have built in category to help smbs automate their financial operations. So they can better manage their business and cash flow.
Today more than 470000 businesses use our solutions and transact more than $280 billion in annualized payment volume.
<unk> Trust and rely on bill to be their central hub finish operations.
This platform also serves and empowers an ecosystem of thousands of accounts, leading financial institutions and millions of network members.
As we continue to innovate and develop the F&B finish operations category, we see the value customers receive from our offerings and are working hard to bring more smbs into the future with game changing solutions. This quarter, we rolled out our unified platform to customers. We have now integrated our portfolio of solutions into one platform for Smbs.
We believe this will begin to unlock both the opportunity to serve many more businesses and meet more of their needs.
Our integrated financial operations platform empowers smbs to manage accounts payable accounts receivable and spend and expense management all in one place.
This is now have access to it because he says experience across desktop and mobile that is unified easy to use and consistent across solutions with.
With integrated and intelligent workflow and consolidated inside the new platform breaks down operational silos and increases visibility and control.
A great example of the value of our integrated platform provides for Smbs as renewal Andy the medical group practice specializing in reconstructive and cosmetic surgery.
<unk> CEO said and I quote Bill has transformed our AP process. The integrated platform gives us even better control all of our full time employees have a bill spend and expense card. We now have visibility on who is spending and what they are buying is the best thing we've ever done the amount of hours, we now save by having everything in <unk>.
One place I can just click pay in sync is unbelievable and quote.
This integrated experience helps businesses large or small and we will continue to further position bill as the essential and central financial operations platform for Smbs.
In addition to our integrated platform initiative, we also rolled out an enhanced bill accounts in console, a centralized homebase for accounting professionals to simplify workflows and serve their clients more efficiently.
Based on the learning from our 7000 accounting partners the new console enables firms to prioritize tasks across the client base.
Managed their clients and assign staff support.
It also allows accounts to easily add and select the right products across AAP.
And spend and expense on behalf of their clients.
Many of our accounting partners have started to leverage the new console to provide greater value to their clients.
We are excited to see these new capabilities in action and to continue helping accounting firms reinvent their practice, while strengthening their client advisory services.
The <unk> group a top 50 accounting firm is a great example of how accounting firms use our platform to create more value for their customers and more efficiently run their practices Thomas.
Thomas Datura director of accounting implementation said and I quote our professional services team at the <unk> group has found tremendous value and a unified platform created by Bill.
Seamlessly integrating access to both bill spend and expense and the Bill <unk> platforms.
This solution has streamlined our workflow, making it easier than ever for our team to interact with the platform with this unified approach. We have gained greater efficiency improved collaboration and gained a more comprehensive view of our clients' financial operations ultimately, enabling us to better serve our clients and achieve our business goals.
In addition to delivering best in class solutions for accounts are white label solutions are deeply integrated in the experience of many of the largest banks in the U S.
Through this embedded approach we are now making more of our payment capabilities available inside of the nation's leading financial institutions.
Today I'm happy to share that we've reached an agreement with our newest partner regions Bank, which is one of the 10 largest SMB banks in the U S regions.
Regions Bank will power, a new digital AP and AR solution for its commercial segment customers and will leverage a host of our payment modalities, such as virtual card pay by card and international payments.
This is a great example of bill, bringing more and more for payment solutions through the broad financial institutions market.
Bill's collaborative approach with all of our bank partners combined with our platform expertise has enabled us to efficiently reach and better serve smbs.
Together with partners, we are executing to help millions of smbs use our platform to automate their operations and transact trillions of dollars of BTB payments.
As the business continues to grow and we move from one phase of the company to the next.
I'll ask John to take on more responsibility for the day to day operations as President and CFO I've worked with John for over nine years and his understanding of our business is exceptional and look forward to seeing his impact because we continue to scale and grow the company.
In closing we are excited about the launch of our integrated financial operations platform and its potential to provide significant value for Smbs and partners. We continue to drive meaningful innovation to lead smbs into simpler world. We aimed to be at every touch point, where smbs want to do business, whether thats at their banks with their accounts or in the future.
Within their payroll commerce marketplace or other software assistance. Our objective is to be the essential operations software for businesses and partners to thrive.
All of US that bill are energized by this potential we want to thank our customers and partners who are on this journey with us to help Smbs change the way they do business now I'll turn the call over to John.
Thanks, Renee before discussing our updated outlook and what we're seeing in the business climate I will provide an overview of our fiscal first quarter results.
Challenging economic environment that is creating uncertainty for small businesses, we delivered strong financial results.
Total revenue for Q1 was $305 million up 33% year over year non-GAAP gross margin was 86, 1%.
non-GAAP net income was $64 million or 21% of revenue and increased approximately 280% year over year.
Core revenue, which includes subscription and transaction revenue was $265 million representing growth of 24% year over year.
Subscription revenue was $62 million up 7% year over year.
As previously discussed subscription revenue growth was impacted by the restructuring of an agreement with a financial institution partner.
The Q1 increase in subscription revenue was driven mainly by our expanding customer base and a price increase implemented in our bill Standalone direct and accounting channels over the course of fiscal 2023.
Transaction revenue increased to $203 million up 30% year over year, driven by payment volume growth and adoption of AD valorem payments, including our spend and expense corporate card as well as our AP and AR payment solutions.
Total payment volume or TPB for Bill consolidated which also includes card processing volume was 70 billion, reflecting 8% year over year growth.
Bill Standalone transaction revenue totaled $95 million, reflecting growth of 25% year over year total.
Total payment volume per Bill stand alone was <unk> $66 billion and increased 7% year over year.
CPP growth continued to be muted as smbs carefully controlled their spend for example, TPB per bill Standalone customer, excluding the Fi channel declined 4% year over year and 1% quarter over quarter.
Bill spend and expense transaction revenue, which was formerly called <unk> totaled $106 million, reflecting growth of 36% year over year.
Card payment volume totaled 4 billion and increased 35% year over year.
Interchange fees were approximately 262 basis points consistent with prior periods.
While card payment volume growth was strong overall, Paul it was slightly lower than we anticipated due to downward adjustments to credit line limits. We made during the quarter as we continue to mitigate increasing credit exposure created by macro conditions.
In addition, we observed businesses decreasing transaction sizes, which led to an 11% decline in average payment size per transaction on a year over year basis in the quarter.
Turning to customers net customer ads remained strong during the quarter.
<unk> standalone customers increased 22% year over year net new adds for the quarter were 9300, including 4700 net adds in the direct and accounting channels and 4600 in the Fi channel.
This excludes attrition related to the sunset of Intuit's simple bill pay solution, which totaled approximately 1000 in Q1.
The number of bill spend and expense spending businesses increased 35% year over year and net new adds for the quarter 1600.
This was slightly lower than prior quarters as we move to the Bill brand from DB, which involved a pause to some of our customer acquisition initiatives.
<unk> revenue was $40 million, an increase of 160% year over year, our yield on spo funds was 484 basis points in the quarter.
Float revenue was $40 million, an increase of 160% year over year, our <unk> funds was 484 basis points in the quarter.
Float revenue is an important part of our business model that serves as a counterweight to macro headwinds and enables us to continue investing in long term opportunities through economic cycles.
Now turning to a discussion of our Q1 profitability performance.
non-GAAP gross margin was 86, 1% above our target range due to favorable float revenue.
As discussed previously within the next few quarters, we expect our non-GAAP gross margin to moderate to the low to mid 80%.
As our payment mix matures and float revenue tailwind subside non.
non-GAAP operating expenses were $229 million R&D increased $3 million from Q4, as we continue investing in our platforms workflow and payment capabilities sale.
Sales and marketing increased 1 million from Q4, primarily due to increased go to market expenses from our cross sell efforts.
Rewards expenses, which are included in sales and marketing represented 49% of spend and expense card revenue.
G&A expenses increased by 10 million from last quarter due in large part to nonrecurring consulting fees.
non-GAAP operating income was $33 million or 11% of revenue an increase of more than 260% year over year.
non-GAAP net income was $64 million or 21% of revenue up approximately 280% year over year.
non-GAAP net income per diluted share was <unk> 54.
Compared to <unk> 14, a year ago.
Free cash flow grew forex year over year to $48 million or 16% of revenue.
To sum up the quarter, we delivered strong growth and expanded our non-GAAP profitability and free cash flow, while continuing to support smbs during a challenging economic cycle.
With our durable business model and strong balance sheet, we are well positioned to navigate the challenging macro environment and support our small business customers, while continuing to invest in opportunities to expand our platform depth and market reach.
Now turning to our outlook as previously discussed over the last several quarters. The external economic environment has created challenges for Smbs and this has resulted in declining BW spending trends.
Beginning in late fiscal Q1, and continuing into Q2, we have seen further tightening by our customers and suppliers with higher interest rates tighter credit conditions and cost increases for businesses Smbs are focused on finding ways to lower expenses. This was most pronounced with larger smbs and mid market companies.
In addition, larger suppliers in our network it started to increasingly choose lower cost payment methods, sometimes at the expense of payment speed.
We expect that this trend will continue as economic conditions influenced businesses and this could have a negative impact on overall transaction monetization in the near term.
Taking these trends into account for Q2, we expect bill Standalone total payment volume to be flat year over year and for spend and expense card payment volume to increase approximately 20% to 25% from last year.
For fiscal 2024, we expect Bill Standalone total payment volume to increase approximately 5% year over year and for spend and expense card payment volume to increase approximately 20% to 25% year over year.
While the economic environment has led many small businesses to take longer to prioritize digital initiatives customer acquisition has remained strong in recent quarters.
Over the next couple of quarters, we expect Bill Standalone net adds to be approximately 4000 per quarter, excluding the Fi channel and the sunset of the Intuit simple bill pay solution.
Now turning to our financial outlook for fiscal Q2, we expect total revenue to be in the range of $293 million to $303 million, which reflects 13% to 17% year over year growth.
We expect float revenue to be $38 million in Q2, which assumes our yield on FBR funds will be approximately 460 basis points.
On the bottom line for Q2, we expect to report non-GAAP net income in the range of 42 to 52 million and non-GAAP net income per diluted share in the range of 35% to 44.
Based on a share count of $118 8 million diluted weighted average shares outstanding.
For Q2, we expect other income net of other expenses or E to be $26 million, we expect stock based compensation expenses to be approximately $68 million in Q2.
And we expect capital expenditures of approximately $8 million to $10 million.
Moving on to full year guidance, given the factors I discussed earlier regarding economic environment, and changing customer and supplier behavior. We've adjusted our full year total revenue outlook to reflect incremental payment volume and monetization headwinds, we will continue to be vigilant with operating expenses.
For fiscal 2024, we expect total revenue to be in the range of $1 $205 million to $1 billion $245 million, which represents approximately 14% to 18% year over year growth.
We expect float revenue to be approximately $145 million in fiscal 2024, which assumes a yield on FBR funds of approximately 455 basis points for the year.
We expect to report non-GAAP net income for fiscal year 2024 in the range of $195 million to $235 million, we expect non-GAAP net income per diluted share to be $1 64.
To $1 97.
Based on a share count of 119 million diluted weighted average shares outstanding.
In addition for fiscal 2024, we expect other income net of other expenses to be approximately $96 million.
We expect stock based compensation expenses of approximately $275 million for fiscal 2024.
And we expect capital expenditures to be approximately $35 million to $40 million for the full year.
In closing we are operating in an environment of increasing economic choppiness and small businesses are under increasing pressure to adjust to the current realities, we set out to build for the SMB market because they have historically been the most underserved and our commitment to the success of Smbs is unwavering our diversified business model, which includes subscription.
Action and float revenue and our strong balance sheet helps bill mitigate macro headwinds and enables us to continue investing in our platform and ecosystem, while delivering balanced growth and profitability. We are carefully navigating through this economic cycle and when macro conditions improve we will be well positioned to benefit from its tailwind.
We created this category and we are much closer to the beginning than a mature market. We believe we are the best positioned company to become the de facto solution for smbs to automate their financial operations, operator, we're now ready to take questions.
Thank you we will now enter all Q&A session, if you'd like to ask a question. Please press star followed by one on your telephone keypad. If you change your mind and would like to repeat your question you can do so by pressing star, but if I change.
I'm, hoping to ask a question. Please ensure that your device is on mute.
Our first question today comes from Bryan Keane at Deutsche Bank, Brian. Your line is open. Please go ahead.
Okay.
Hi, guys. Good afternoon. Thanks for taking the question I guess mine is just thinking about how much of the lower guide is macro driven versus anything structural at all our competitive what are you seeing on the competitive landscape anything that's changing kind of your go forward outlook.
Based on that versus just pure macro.
Thank you Brian for the question.
This definitely is impacted by the macro what we have seen and we've talked about the difficult environment that F&B has been in over the last probably four to six quarters in and how they've been managing discretionary spend and what we saw late in the quarter and continue to see into October is that that the.
Scenario spend the large businesses is getting more scrutiny today.
Yes.
From your perspective, the question around kind of threshold are competitive we do not see any impact from competition. What we see instead is that the market opportunity continues to increase the opportunity.
None of us with solving businesses needs around in financial operations, and having a hub the central hub is something that we continue to see increase whether that's in our ecosystem or just the market at large and so we think from that perspective. This is definitely more impacted by macro than anything else.
It's the challenge is when you end up.
Supporting businesses in all the payments that they have then you see Theyre house actually comes through to your health, sometimes and that's kind of the challenge we have here and Thats the way, we see it but John any color you'd like to add sure I would just add Brian.
We see some really good trends associated with customer retention customer engagement other related measures that tell us the platform is continuing to deliver value for for customers, but we are sensitive to a couple of things. One is the overall spend environment that small businesses are operating in and we've talked for a number of quarters now about that.
Environment being being very soft we continue to see signs of that in the most recent quarter and our forward estimates assume that we're going to see a soft spending environment going forward. There are some pockets of strength around travel and entertainment as an example, and some areas of weakness around advertising on card spend and <unk>.
<unk> and office rents and things like that around core AP AP spend so.
In total it feels like this is.
Influenced significantly by by the macro environment, which to us feels more cyclical than structural or related to competition or things of that nature and we're obviously.
Gearing up to adapt to the current situation in and do as much as we can to optimize results within the envelope of the spend environment in customer and supplier behaviors that we're seeing today.
Got it and just as a quick follow up I know last year, we cut numbers and you turned out to be a little bit ahead. This year youre cutting numbers I guess just on visibility.
Now given given some of the macro headwinds.
Do you have any sense of if there is.
Another shoe to drop in volumes or do you feel like you've cut the numbers enough here and this should be to the bone of where business is spend thank you.
Thanks, Brian, It's obviously, a dynamic environment and we've seen some.
Evolving behaviors from both customers and suppliers, particularly large suppliers in our network, who are starting to exert more influence over payment type choices and things like that all things considered we've taken these variables into consideration as we updated our estimates for the rest of the year and we think it reflects the environment that were off.
<unk> plus the assumption that there is some continuation of headwinds associated with both payment volume and adoption of certain payment types. So we tried to take.
Take into account as best we can all of the variables that we're seeing.
Yeah.
Thanks for taking the questions.
Thank you.
Thank you. Our next question today comes from Brad Sills from Bank of America Rod. Your line is open. Please proceed with your question.
Okay. Thank you so much.
Just another question on kind of what you guys saw here on the macro.
It sounds like you saw this late in the quarter and you're expecting a sustained sort.
<unk>.
As reflected in your guidance could you just comment on when you started to see this what were there certain categories.
You started to see this.
Celebration, you called out mid market mid sized firms versus small business, a small business holding and then any commentary just categories and how they're behaving.
Yes sure Thanks, Brad.
First I just step back and say, we saw a strong adoption across the platform. So we're happy about that.
Able to obviously get the integrated platform together with the spend and expense in AP on the platform. We've started seeing adoption there.
And so.
Overall from the in the spend perspective, what we saw was in the very tail end of the quarter.
That larger businesses, we're having more scrutiny, if you will over how theres whole spend and over their payment choices that they have.
I think John can probably provide a little bit more color on exactly how that translated but it was it was late in the quarter and we do expect that scrutiny to continue given the current macro environment. Yeah. We've seen a couple of emerging trends. The first is around just payment composition and the choices that both buyers and suppliers.
Or making as it relates to payment types. A couple of examples there on international payments, we've seen an increase in U S dollar transactions versus FX transactions, and we think that has everything to do with the business that our customers and their suppliers are doing and the impact of overall macro and cost pressures that may exist on on there.
Their businesses at the same time on our vendor direct product virtual card payments, we've seen more sensitivity on the part of large suppliers to acceptance costs and that's led to some opt outs for larger dollar virtual card payments and things of that nature. The second component.
We mentioned earlier on the call was just around the credit environment and how we become increasingly proactive in managing credit lines for our spend and expense card program to make sure that we're not taking on significant.
Significant incremental credit risk associated with that product that has the effect of.
Creating somewhat of a headwind on card spend associated with our spend and expense product, but we think that's the right trade off in this environment.
Great great. Thanks for that color John every day and just one more if I may on the on the launch of the integrated platform here. What are you most excited about.
The integration largely complete do you expect that cross sell opportunity to start to take hold from here. Thank you.
Yes, Thanks, Brian Yes.
Launched that during the quarter.
Teams are just kind of getting up and running on the cross sell opportunity, but the initial traction is good is kind of what we were hoping for and expecting that there would be.
Or is that obviously wanted to do both and that they would be able to put more of their spend and more of their wallet. So to speak on our platform. The customer close we included from the <unk> group and <unk> were both integrated customers that are using the platform. The ways. We intend the other thing that is super.
Exciting for us when we think about having the integrated platform is the ability for us to over time push.
Pushed more payment products and that drive more share of wallet across the customer.
And so an example of things that we're going to be able to do is being able to help customers be involved in and connecting with their suppliers to pay by card. So we already have a pay by card product, but if you think about the spend and expense card, where the rebates are coming back to the bill customer having a more consistent.
Approach for the customer to be able to manage all of their spend in one place and to be able to participate in any of the rewards that might happen from those pay by card transactions. We think that will also help drive supplier adoption of card payments. So just an example of how having one platform really matters and something that when I step back and think about the health of the business.
Like we've been building this category define this category over the last 17 years and that doesn't happen overnight because he built a platform that actually has the capabilities and then you expand the capabilities and enhance the experiences for your customers and so what I'm excited about when it comes to the integrated platform experiences that we're starting to pull the enhanced.
Cities that we got with the <unk> acquisition, and we're pulling that into the overall experience that we market and sell to our customers that we serve for our accounts and eventually obviously make available for our financial institution partners and that is the thing that actually when I step back and really think about the the.
The importance of this application is going to be for us to continue to be the financial hub for the SMB and having more payment choices available for the SMB, having them participate that's going to drive adoption and something that we're super excited about.
Thanks Renee.
Thank you Brad.
Yeah.
Thank you. Our next question comes from Tom Mackinnon Yeah.
Your line is open. Please go ahead.
Yeah, hi, thanks, so much for asking that question or answering my question. So you're keeping the guide implies down 3% sequentially. So can you maybe talk about how that compares to what you've seen so far at the start of the quarter in October and if the guide assume things can get worse.
Just trying to understand the assumption there.
And then as a follow up if the TB.
It looks like the TPB guide for the second half of the year appears unchanged and assumes an acceleration quarter over quarter, which is greater than we saw last year. So can you just talk through some of the puts and takes there as well. Thank you.
Sure. Thanks for the question Taylor.
On the TPB estimates going forward, we are looking at quarter to quarter down low single digits. As you suggested and I think that reflects.
Some of the trends that we've experienced.
Across the business over the last several quarters, we haven't seen any significant.
A deterioration or changes, but there have been frankly, some pockets of strength.
The core TPB or for Bill on the card payment volume, we're looking at kind of flat quarter to quarter up 2025% year over year something in that range. So we think that we're still doing a good job at increasing our penetration of customers in <unk>.
<unk> our share of wallet, that's one of the components that leads to.
Stronger TPB performance, even in a lower spend environment and so that's something that we are seeing good. Good success with we're assuming we'll be able to continue doing that throughout the year and we feel pretty good about the stability of the spend environment that we're operating in right now versus some of the other moving parts of the business that we talked about earlier.
Thanks, so much for answering my question.
Thank you.
Thank you. Our next question today comes from Darrin Peller from Wolfe Research. Your line is open. Please go ahead.
Hey, guys. Thanks.
To go back to the questions on cyclical versus structural because the market is acting like something with your stock down the magnitude of these aftermarket right now.
Like something thats more than cyclical in reality is the Kpis don't look like it's more than cyclical.
So again I mean, if we look at the Kpis you have customer adds it looked pretty strong take rate expansion that was strong this quarter sequentially or your volume beat but I guess youre, suggesting that the trends youre seeing is all about the spend trends.
That's really indicating your guide for the next quarter is there any other inputs on the Kpis that is informing the guidance that we should keep in mind or is it really just spend and maybe the side.
AD valorem payments.
Thanks for the question Darren I think you have the moving parts identified appropriately we are in a muted spend environment. We do feel good about our ability to drive awareness reach customers and sign up new customers that continues to go well.
We see positive trends there notwithstanding the macro environment and in light of the softer spend environment. We're also seeing more friction be introduced into the system between buyers and suppliers and more of a desire to lower the cost of acceptance that is obviously something that we factored into our estimates.
Were certainly for the rest of the year as it relates to our ability to continue to drive incremental adoption on some of our AD valorem products that certainly not not all we continue to make great progress with products like pay by card or real time payments and instant transfer and things like that those happen to be small relative to our overall.
Payment volume those so they don't move the needle across the whole business versus some of the I'd say, increasing headwinds that we're seeing with things like our vendor direct product or FX that I mentioned earlier. So we think that these are.
These changes in behavior, and how customers and suppliers have maybe new initiatives to optimize their payment flows and costs. It feels transitory like cyclical in nature, it's not a change in retention unnecessarily of spend or things like that so I think we feel pretty good.
About our ability to evolve through this particular period, yeah, I would just add that.
As I've been in this holding pattern is wait and see.
For well over a year now and I think as rates.
Remain high that's going to continue to drive more action.
It's really macro related and so when we look at the underlying fundamentals of the business. We see so much opportunity to continue to do more and to drive more success across the business for our customers and for the business and things that we can do that there are many things we can do to continue to drive and leverage payment choices that we haven't done historically and so this is we will.
Our adjusting and pulling in the roadmap that we have for some of these things.
But it is definitely macro environment.
Okay, and just very quickly any changes in your plans for this year given what we see now in terms of the spend trends by your customers in terms of your investment slash profitability expectations or anything of the sort. Thanks again guys.
Yes, Thank you Darren.
Our DNA is to really manage the business for both profitability and growth Thats, how <unk> built the business over the years as Hal John and I think about it is how the teams think about it.
And we're committed to the profitability path that we're on we believe the opportunity with the portfolio of products, we have to continue to make progress on both.
Is there because of the strength of the business that we've built so we.
We will manage the expenses that we need to in order to drive the goals that we set.
Thanks, guys appreciate it.
Thank you.
Thank you. Our next question comes from Jensen Huang from JP Morgan. Please go ahead. Your line is open.
Okay.
Hi, Thanks, Thanks, so much and John Congrats on the new President title on the.
On the outlook, maybe can you elaborate how much of the guidance revision is tied to the weakness on spend that we've been talking a lot about versus the adverse selection of the <unk>.
The payment choices and does it make sense to maybe talk about.
The penetration of some of the Avalon products, so that we better understand the impact.
Yes.
Good question. Thanks for that I would say if you step back and look at our overall estimates for the year. The majority of the adjustments that we've made is actually related to the spend and expense product, which has mostly to do with slightly lower spend per per ticket per transaction by customers thats directly related.
The macro and then indirectly proactive adjustments that we're making to align sizes and things like that in an attempt to mitigate any increased exposure as a result of worsening credit conditions in our customer base. The average sized customer as you know for our spend and expense product is much larger mid market type customers.
Versus the core the core <unk> product in the quarter. This last quarter, we did see increased penetration across.
All of our products better usage, although we saw lower actual volume growth on some of our higher monetizing products like virtual cards and an FX as I mentioned in some of these trends are directly related to the choices that larger suppliers or customers are making and those are the trends that we're expecting to persist through.
The year, we do have levers at our disposal, including.
With the launch of our unified platform, many more opportunities to drive customer behavior and create awareness and things like that as we think about a more modular approach to pricing and packaging that we think we can make progress with this fiscal year. So those are some of the puts and takes that we considered.
Okay, and then quickly on myself, then the spend and expense side, the ability to dial up and down the credit standards when did that change.
Change for you.
It sounds like maybe you might get a little bit tighter on the credit side before it.
Reversing then just wondering if I understood the timing of that thank you for the question. Yeah. I think my question Yeah. Thanks for clarifying question, we've actually been making adjustments.
And doing more frequent reviews of our customers' financial position in more frequently engaging with them over the course of the last year. So this didn't just start in the last quarter. However.
We have made some some more significant more aggressive adjustments to align sizes. So that we minimize our exposure previously we talked about doing things like reducing open Dubai, where if a customer is using $50000 a month consistently and they have a line of 100000, we will reduce the line to 50 and things like that so we have been.
I think evolving some of these adjustments over the last year, but we've been more aggressive with them over the last quarter or so and we expect for the remainder of the fiscal year to be a little bit tighter. If you will on the credit limits, because we're really managing to avoid credit losses.
Makes sense. Thank you John.
Thank you.
Thank you. Our next question comes from William <unk> from Goldman Sachs. Your line is open. Please go ahead.
Hey, guys.
Taking the question I.
I was wondering if there's been a little bit more time on some of the.
Supplier behavior changes that you guys have noted.
I guess.
How does how do we kind of square that with.
I think they've been had on.
Ill take rate like should we expect take rates to be kind of flattish in this environment and maybe just more and more rich discussion on what is the kind of mechanism for some of the suppliers to change their payment preferences is this it sounds like it's concentrated around larger suppliers, but is this.
Is this something that can reverse at some point in time or do they have they found a cheaper way to do it. This is how they're going to accept payments from now on maybe you can just talk about like the stickiness with some of the headwinds okay great.
Thank you Ian.
Yes.
When we think about how the suppliers are addressing there is there is a long tail suppliers are small suppliers is large suppliers.
By the way suppliers of both on the international side as well as the virtual card side and the opportunities to serve them are different so.
When we look at the impact that we're seeing today there are opportunities for us to address and like I said pulling the roadmap to drive more payment choice as across.
Across the portfolio and so the first thing we're going to do is focus on pulling in that roadmap and then we'll continue to.
Great operating leverage using the strong payment economics, we have to drive adoption and then we will obviously leverage the integrated platform to drive adoption of payment products. So lots of opportunities to kind of continue to drive.
The penetration of our payment products.
Typically on the specific question of suppliers.
Essentially opting out I'll, let John take that one yes.
To that point about Ken Ken the trends that we've seen recently.
Reverse or revert to where we're back to a more linear increase in adoption. We think that's absolutely. The case so we've seen.
Numerous areas, where product improvements can really help us drive adoption those are becoming more important in this macro environment than they were say a year ago or two years ago. When adoption was increasing rapidly. An example would be we have a number of cross of transactions for virtual cards that go unprocessed or even rejected.
And part of the reason for that is not actually costs that were not passing rich enough data in some instances to drive automated reconciliation and so when Renee mentioned accelerating some of the product improvements, we're going to make enhancements to remove as much friction as possible.
And that was just one example from our AD valorem payment suite to make it easier for suppliers to adopt payments. We also have the ability just within the unified platform and I mentioned pricing and packaging earlier.
We can look at the whole relationship that we have with suppliers now offer them more tools and capabilities and increase the value proposition that we're delivering for them. If that involves incentives at that involves payment speed other product enhancements, we're going to be leaning into all of that and we think.
Within this fiscal year, we will start to see a change in an increasing volumes on some of these payment products.
Got it that's Super helpful. And then just maybe a question maybe you can just put some numbers around sort of the exposure to more cyclical payment volume streams. It sounds like you guys have called out.
Strong.
Stronger areas in digital advertising weaker things like lease and rent weaker. So just maybe you could put some numbers around kind of like the overall size and any other categories. You would call out as we kind of try to separate out more versus less cyclical streams of payment volume.
Yes, I mean, we haven't provided specific.
Percentages are things on spend categories other than to say just like we serve customers across all industries, we have a pretty diversified base of expenses across across customers as well because we generally have call. It 70, or 80 or more percent share of wallet. So we're seeing all types of spend in the <unk>.
Case of.
<unk>, that's why I called out specifically around card spend that's still small relative to the total base of spend which was $4 billion in the last quarter four for our spend and expense product, but it's large enough that like that that movement, we're seeing strength there. It stands out because most other categories are flat to.
Down now even <unk> is still down on a per transaction basis. So the card spend per transaction and I would say the same is true with <unk>.
The example on the AP automation side with with lease payments and rent and everything that is facilities related that's like low single digits percent of a company's overall spend on average, but we are seeing aggressive reductions in that category as companies rethink small businesses rethink their physical foot.
Print in this environment.
Yes.
Got it Super helpful. I appreciate all the color guys.
Thank you. Thank you.
Okay.
Thank you. Our next question comes from Andrew Schmidt from Citigroup, Andrew Your line is open. Please go ahead.
M&A, Hey, John Thanks for taking my questions.
I just wanted to dig back into the SMB health topic. It sounds like retention characteristics engagement are still pretty strong but are you seeing any changes around involuntary attrition.
On the smaller side of the business spectrum more more business is going our business things like that would love to dig a little bit more into that front just on the SMB health. Thanks, a lot guys.
Yes, I think Andrew we are definitely seeing strong demand across the platform 4700 core net adds this quarter.
Continues obviously good success in our financials fishing category, so lots of opportunity to drive adoption and when I think John referenced from a retention perspective.
We're in a good spot. It's nothing has changed from that perspective. It really is about businesses tightening their belt and like we said, it's the larger businesses that have the most ability to tighten their belt and Thats where were seeing the spend.
Spend and expense capabilities from from the <unk> acquisition, those tended to be larger businesses to begin with and so that's kind of where we see the impact is kind of the larger indices and the SMB as a whole I mean, they are adopting the platform they're using the platform.
The engagement is high everything that we are doing to make their lives easier comes through that's what we hear from our customers and why we include them in the call. This is something that we believe there is an opportunity to continue to grow and expand and reach more businesses because of that those types of adoption trends.
Got it thank you very much Renee and then.
The completion of the unified platform I'm sure that frees up a lot of internal bandwidth.
Resources things like that.
Talk about how you redeploy those resources, whether it's additional product velocity go to market.
Anything around that front would be helpful. Thank you.
Yes.
Great question a lot of what we're focused on is is how do we continue to iterate faster and expand the portfolio.
Payment products, we have is enhancing customer experiences that we have so with the integration of the platform into one theres now one unified experience across mobile and desktop that we did not have before and now thats not out for all customers, but it is rolling out to our customers.
On the mobile experience for example over the next few quarters here, so lots of opportunity to kind of enhance and iterate faster because like you said it was a heavy lift I was super happy that we got it done ahead of schedule. Originally we had said we'd get it done by the end of calendar 'twenty four we got it done.
Earlier than that the teams are working efficiently and effectively and we are excited about the opportunities to continue to enhance and the number of ideas. We have as high so we'll be doing that for customers as we roll forward here.
Thank you very much for now.
Thank you.
Thank you. Our next question comes from Keith Weiss from Morgan Stanley Keith. Your line is open. Please proceed with your question.
Excellent. Thank you guys for taking the question.
A little bit of a different focus last quarter, we talked a lot about the.
Changing relationship with one of the nature.
By Channel partners.
How should we think about it.
A lot of investors excited because it went from kind of transactional ability to get to the new customers to our base.
Equation of where you could go after the entire customer base, how should we think about the timeframe of that where that could have a positive impact on kind of new customer adds like what are the milestones or the roadway. If you will that we should be thinking about in terms of getting that.
Sort of going in a good way.
Thank you Keith we are actively working with our partner.
To enhance the capabilities. So that we can roll this out to all other customers.
Something that we're actively doing we will give you an update on the timing of that for that particular partner. When we have one later this fiscal year, but I would suggest.
Kind of.
When I think about I step back and I think about the ecosystem developing like this does not happen overnight, but we have.
Created this category and this opportunity for SMB is to have one financial hub for all of their financial operations, that's unique and were seeing it in the ecosystem. It's not just the partners, we've announced and the partners. We're working on but it's what we're seeing in the pipeline. It's what we're seeing.
From you just in general what we hear from Accountants like people are getting pretty excited about the opportunity to have one place to manage all of these financial operations and the platform to do that as Bill is something that is not easy to build in something that has taken us time that having the integrated platform integrated in a way that we can actually now add these different payment products on.
Making that available to our partners to accounts those are all things that I think about the ecosystem being super important. So it's not just one partner, it's really all of the opportunities we see in front of us.
Excellent. Thank you guys.
Thank you.
Thank you. Our next question comes from Kenneth Zukowski from Autonomous your.
Your line is open. Please go ahead.
Okay.
Hey, good afternoon, guys. Thanks for taking the question I just wanted to better understand the assumptions in the guidance are you extrapolating. The October trends I guess, both what youre seeing on TP vision and payment type selection.
Or are you assuming it gets worse.
Worse in November and December and then sort of stabilizes from there.
Alright, Thanks for the question Ken So we've taken a look at the trends from late in the first quarter. Those have continued into the second quarter. Our assumption is that those trends persist through the quarter, we begin to see some stabilization in Q3.
And throughout the rest of the fiscal year its really.
As I mentioned overall pretty stable spend environment, but some moving parts around payment type composition and that's the thing that we've tried to capture in and our assumptions for for the rest of the year that there is some adjustment that's happening now we'll get ahead of that in the second half of the year and start to drive incremental.
<unk> adoption to overcome or mitigate some of those behavioral changes. So it's not something that we expect to for example, deteriorate throughout the year or anything like that but we are we are assuming the trends we've seen early.
In the December quarter and late in the first quarter continue this calendar year.
Okay, and John just on that on that point I mean, what what transaction take rate is being assumed in the guidance for the rest of the year as it is.
Stable quarter over quarter or is it is it declining and I guess is there an opportunity to offer some other solutions like working capital or pay by card in this type of environment.
Just sort of offset some of those headwinds.
Yeah, So our assumption for for the second quarter is for our monetization to be down slightly.
And then grow in the second half of the year such that we exit the fourth quarter above where we were we were in the first quarter.
And the second part of your question about other products, that's 100% true. So we think.
We have highlighted FX transactions and virtual card payments just as examples because those have been large drivers of growth historically, but we have some really good trends happening with some of the newer products, including pay by card and working capital.
That we think can be significant drivers of monetization expansion not only later this year, but in years ahead. So we've talked in prior quarters about this portfolio approach that we take without valorem payments and we expect some of these newer payment products to be able to at least partially mitigate some of.
The trends that we've seen recently.
Okay, alright, great. Thanks, so much John.
Thank you again.
Thank you very much. Our next question comes from Brent <unk> from Piper Sandler your.
Your line is open. Please go ahead.
Thank you good afternoon, I guess Rene for you, we're seeing a number of stress fractures in the SMB sector emerging Soho in October pay Comms and then fell in the last week can you quantify how much of the spend slowed in October versus September.
<unk> now seeing these SMB start to cut non discretionary spend.
Yeah.
Yeah. Thanks, Brent for the question there are.
That's the way for us to probably talk about it is that a large business is going to have a dedicated fans professional whose job is to look for how do you manage expenses down when you have a wait and see economy, a holding pattern and so thats why we keep talking about this the larger businesses of which our spend in <unk>.
Platform has more larger businesses than the core Bill platform and why we are seeing more of the impact for the rest of the year from that segment of our business and so when we look at the overall small business portfolio that we have we're very fortunate because we have customers of all sizes and most of the businesses.
Our managing their spend which is why John has said and we've said that the spend is generally stable, there's some downward pressure, but as generally stable. It's this managing the expense side, that's kind of maybe new for us as well as the larger businesses also managing where they have some additional discretionary so.
Yes, I guess the step back is.
A large portfolio of customers lots of opportunity within them and this is more the macro is impacting today.
Larger businesses more than the rest of the portfolio.
Super helpful color There and then just one quick follow up for John The implied guide for the second half does still look like you were looking for 10% overall growth does that assume increasing wallet.
Landing or are you actually baking in a hard landing into those.
10% growth rate. Thanks.
Yes, we have.
<unk>.
Our long track record of increasing our penetration with customers helping <unk>.
Businesses automate more of their processes with all the payment products that we have a whole portfolio that that allows them to bring more payments onto the platform. We're assuming that those trends continue but the overall payment volume and the payment volume per customer is very muted down slightly.
As we talked about in the second quarter mid single digits on a year over year basis on our TPB per customer. So we're not trying to predict or forecast the overall sort of macro economic impact here other than projecting forward the behaviors that we've seen from our customers and.
This environment, which as we said have shifted a little bit. So we're assuming those shifts will will continue and we'll be able to partially offset or mitigate some of those through continued progress with share of wallet and some of the product improvements and experience improvements at Renee mentioned earlier.
Got it thanks.
Okay.
Thank you. Thank you very much.
Next question comes from Samad Samana from Jefferies. Your line is open. Please proceed.
Hi, good evening, Thanks for taking my questions. So maybe John just thinking through the commentary on.
AD valorem and payment type selection.
I know you addressed the types of both where payments are going towards in terms of <unk> spend and then talking about payment type, but maybe if we could actually triangulate if you think about the.
The AD valorem transactions themselves right. So you gave three 2% of the mix in the fourth quarter was from virtual card and one 7% lift from across the border in local currency, what's the concentration there looked like right if I isolate it to that three 2%.
How concentrated is that amongst a certain number of suppliers because if I annualize that that's like $8 billion is it a handful of suppliers that are accepting that in terms of virtual card is it hundreds of suppliers I'm just trying to guess that at that level of concentration within that spend.
Yes, thanks for the question <unk>, So I'd say on.
On cross border payments, it's very diversified across a large number of suppliers without significant concentration on the on the virtual card or vendor direct side of things.
And tens of thousands of suppliers not tens or hundreds with that said, we do have large suppliers who are.
Of examples like national providers, whether its utilities or or telecoms or things like.
That which are used by many customers of bill. So there's a many to one relationship but if we step back and look at the overall spend profile for Andy or for any of our payment products, but that in particular, we don't feel like theres any sort of outsize concentration or anything like that of a very small number of.
Suppliers.
Got you and then maybe asking the question on the spend side. So if I think about if I think about the type of pain.
Payments that are made using ACTH.
Versus the type of payment that a customer may choose to make virtual card and I guess, what I'm wondering is is that are the payments that are typically selected for AD valorem more discretionary.
Versus maybe something that is more recurring if it's ACTH. Once again, just trying to understand if there's different concentrations at this specific higher fee level.
Yeah.
That's a great clarifying question I would say there might be a higher percentage of discretionary spend that flows through our spend and expense card program because that involves individual cards, some of which are physical cards, not all virtual and and therefore more sensitive.
Things like <unk>, which we mentioned before thats been strong on the virtual card program that vendor direct side AP automation for Bill we don't see significant differences between say, an <unk> payment that might be set up for a one off transaction or even one that's in auto charge or an auto debit to a bank account.
<unk> is a a virtual card payment that's delivered to a supplier in some case, it's the supplier who's driving here's how I want to get paid and they're buyer takes that action in other cases, it's the buyer I don't think there are big differences other than.
Transaction size, where most suppliers do have limits and various other variables that they want to manage when deciding whether to take the card payment.
Okay.
Great I appreciate the clarity thanks for letting me squeeze two in.
Thanks, so much.
Thank you. Thanks for all the questions you have time for today. So I'd now like turn the call back to Renee if any final amount.
Thank you everyone for joining us today, we built a great business over the years because of our constant focus on automating the financial operations for Smbs, we look forward to serving them and thanks again for joining us.
That concludes today conference call everybody. Thank you very much for joining you may now disconnect your lines.