Q2 2025 BILL Holdings Inc Earnings Call
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Good afternoon, and welcome to Bill second quarter fiscal 2025 earnings Conference call.
Speaker Change: Joining us for today's call are bill CEO and founder Rene will assert.
John Rettig: President and CFO, John Rettig, and Vice President of Investor Relations, Karen and thought.
John Rettig: With that I would like to turn the call over to Karen and thought for introductory remarks Caron.
John Rettig: Thank you operator, welcome to Bill fiscal second quarter 2025 earnings Conference call. We issued our earnings press release, a short time ago and furnished the related form 8-K to the SEC.
John Rettig: The press release can be found on the Investor Relations section of our website at Investor Dot Bill Dot com.
Speaker Change: With me on the call today are a nail assert 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 targets and results are bill that involve many assumptions.
Speaker Change: Risks and uncertainties, if any of these risks or uncertainties develop or if any of the assumptions prove incorrect actual results could differ materially from those expressed or implied by our forward looking statements.
Speaker Change: For additional discussion please refer to the text in the company's 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.
Renee Renee: Our 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 now I'll turn the call over to Renee Renee.
Renee Renee: Thank you Darren good afternoon, everyone. Thank you too we delivered strong financial results launched innovative product updates and continued our track record of execution across the company.
Renee Renee: We are leveraging our leadership position to empower small and mid sized businesses and we are extending our lead by expanding the depth and breadth of our platform and diverse distribution ecosystem that includes accountants partners and network members.
Renee Renee: Through focus and dedication we are delivering robust financial performance and positioning bill for long term durable growth.
Renee Renee: Our second quarter performance reflects our continued commitment to balanced growth and profitability, while generating strong cash flow.
Renee Renee: Our leading AI enabled platform efficient go to market and disciplined operation drove 16% year over year core revenue growth, while driving great margin expansion.
Renee Renee: non-GAAP operating margin was 17% and expanded three percentage points year over year.
Renee Renee: Our focus on efficiency drove strong cash generation with a free cash flow margin of 20% in Q2.
Renee Renee: During the quarter our platform is used by more than 480000 businesses to automate their financial operations.
Renee Renee: Customers transacted nearly $85 billion in payment volume across 30 million transactions using the <unk> platform.
Renee Renee: Our mission is clear, we make it simple to connect and do business.
Renee Renee: We are winning in the SMB market, we are addressing a vast market opportunity to automate financial operations for millions of small and mid sized businesses and we are moving quickly to capture this opportunity.
Renee Renee: 99, 9% of businesses in the U S are small or mid size with fewer than 500 employees.
Renee Renee: These businesses drive our economy employee nearly half of U S workers and contribute trillions of dollars to the U S GDP yet.
Renee Renee: Yet there often underserved by technology, because the market is highly fragmented and smbs are difficult to reach.
Renee Renee: This is why the majority of SMB still use manual legacy processes and why bill is so well positioned to automate their financial operations for the first time.
Renee Renee: A great example of how our innovation power with growth across the SMB landscape as ignite medical resorts accompany that pairs advanced medical rehabilitation with luxury hospitality.
Renee Renee: Ignite medical resorts has been a customer of bill since 2020 and during that time. It has grown from operating two facilities to more than 23 across the U S.
Renee Renee: Shona Hanscom executive director for Ignite medical Resorts said and I quote Bill has been a life changer by supporting our rapid growth.
Renee Renee: Managed nearly two dozen rehabilitation resource and process about 2000 payments a month.
Renee Renee: <unk> Bill many AAP task, including coding and improving bills were handled manually.
Renee Renee: You can imagine how time consuming it was running our back office that way Bill.
Renee Renee: Bill completely changed the game for US maybe replaces the manual process with digitized and automated workflows and provides robust document management and collaboration tools and making it a breeze to pay thousands of bills each month.
Renee Renee: The financial back office makeover did not just stop there Bill also completely transformed our spend and expense management experience and we are now running 95% of our expenses. There is platform end quote.
Renee Renee: Bill is the essential financial operations platform for ignite medical resorts and for Smbs everywhere.
Renee Renee: We transform and empower smbs of all sizes across all types of industries.
Renee Renee: Physicians eliminate complexity and guesswork that have long burden smbs and their financial operations management and frees them with automation. So they can focus on growing their business.
Renee Renee: We've taken a different approach from other software and Fintech companies in order to serve the broad and diverse SMB market at scale, we architected our platform to support end to end view of the transactions and the required workflows, while building an ecosystem that lets us support smbs wherever they are.
Renee Renee: AI has been deeply embedded since the beginning to eliminate data entry accelerated payments and easily matched customers with suppliers within our network.
Renee Renee: Our extensive platform features and automation tools combined with our large proprietary data assets that include hundreds of millions of transactions and documents provides a foundation to expand our surface area at a more solutions to the automated financial back office.
Renee Renee: Through our continuous innovation, we broadened our ability to serve an increasing range of an SMB is financial operations needs.
Renee Renee: We have shared in recent quarters that as we see clear demand signals for our solutions from mid market customers. We are building functionalities to more fully address the needs of this segment of the market and the accounts to serve them.
Renee Renee: Some recent examples include our investments to create a game changing procure to pay experience and powerful multi entity tools that enable larger businesses to drive more automation and efficiency gains across all of their entities.
Renee Renee: Customer and account reception to these newer capabilities is very positive.
Renee Renee: The scale of the network and richness of our platform enables bill to solve many of the most complex problems that businesses face on a daily basis.
Renee Renee: We are increasingly engaging with both sides of our two sided network. So that businesses can more seamlessly work together.
Renee Renee: For example, once a year businesses have to file 10, 90 nines for payments made to certain suppliers.
Renee Renee: It is a hassle and requires collecting tax information from suppliers one by one.
Renee Renee: After a short development cycle, we recently introduced embedded $2 99 functionality to transform this into a seamless autonomous process for both our AAP customers and their suppliers.
Renee Renee: Since January over 5% of our customers have made nearly $210 99 filings through our platform demonstrating our two sided network inaction.
Renee Renee: In short order, we eliminated another headache of running a small business with a few clicks or AP customers can now file incentive all of their 10 90 nines to all of their suppliers.
Renee Renee: This functionality is really important as it not only automates work for our customers. It also enables a dramatically better solution for suppliers paid via bill there.
Renee Renee: Can now create one <unk> across all of their customers and then they can automatically receive electronic 10 90 Nines every January.
Renee Renee: This is an example of what it means to make it simple to connect and do business.
Renee Renee: Turning to payments, we have significantly expanded our product portfolio, particularly card offerings. The execution of our card strategy has led to card adoption, among AP and AR customers more than tripling over the past two years.
Renee Renee: As part of this we continue to make progress on enabling customers to use their bill debit card as an alternative to <unk> and check payments, we're making a traditional AP payments.
Renee Renee: This product now leverages, our AP customers relationship with their vendors to drive acceptance of card payments we.
Renee Renee: We expect card adoption to expand as we create more differentiated card experiences.
Renee Renee: We are continuing our expansion into working capital to solve many of the cash flow needs of Smbs.
Renee Renee: Cash flow is typically the number one challenge faced by Smbs.
Renee Renee: In fact, the 2020 for Goldman Sachs 10000, small businesses voices survey found that 77% of small businesses were concerned about their ability to access capital.
Renee Renee: We are leveraging our large scale and unique proprietary data and network to build differentiated AI powered underwriting capabilities that provide businesses with access to liquidity at the time that they need it.
Renee Renee: Our initial launch more than 30000 vendors have used our invoice financing product to access over $800 million in invoice advances.
Renee Renee: Turning to our ecosystem, we partner with top banks in the U S and thousands of accounting firms provide embedded solutions to various software companies and have a large proprietary member network.
Renee Renee: For accounting firms our solutions not only enable partners to transform the financial operations of their clients, but also their own takes it to offset for example, the nation's largest accounting and bookkeeping firm focused exclusively on serving nonprofits, our accounts payable and spending expense solutions have become an indispensable part of its tech stack for.
Renee Renee: Ultimately 80% of their clients.
Renee Renee: Together with bill to toss a modernized that BW payment processes for their nonprofit clients, helping them to ensure cash flow health and drive better business decisions.
Renee Renee: It was the majority of its clients on Bill to Tosser was able to streamline employee training and create more efficient operations, which led to a 20% gross margin improvement for their business.
Renee Renee: The accounts have been an important strategic part of our ecosystem from the very beginning and we are doubling down on accounts to expand our leadership position.
Renee Renee: We are leveraging our customer feedback loop to do more for existing accounting partners and to help them more strategically and efficiently serve their clients.
Renee Renee: We are also investing in our go to market motion to drive more penetration across the omnipresent accounting firm market.
Renee Renee: There are more than 40000 CPA firms in the U S and more than 100000. When you include bookkeeping firms.
Renee Renee: Accounts and larger businesses are asking for our embedded solutions, which opens up new avenues for smbs to access our platform.
Renee Renee: Our learnings from working with the largest banks in the U S serves as a great springboard for us to extend our product reach and.
Renee Renee: In less than a year, we rolled out our embed <unk> platform with tools for partners and customers we.
Renee Renee: We are making are leading workflow and payment functionality is available to our larger businesses and accounting firms. So they can streamline their operations.
Renee Renee: We are rapidly expanding our capabilities here and during the quarter, we added the ability for customers to seamlessly integrate bill spending expense with their existing systems.
Renee Renee: The reception has been strong with good early adoption by customers.
Renee Renee: With our vast distribution ecosystem, we have created an unparalleled network that captures the interactions between buyers and suppliers and generates a large amount of relational and transactional data.
Renee Renee: Over the past four years, we have more than doubled the size of our network to over 7 million network members.
Serving suppliers is an important part of our expansion strategy. We are continually investing to enhance our platform experiences to simplify their automation, while building direct relationships with the largest suppliers.
Renee Renee: These are important initiatives that drive AD valorem and payment adoption across the network.
Renee Renee: Large suppliers on average, we see 5000 check in acis transactions per quarter through our platform.
Renee Renee: Which presents a significant opportunity to help these businesses eliminate a large volume of manual work and streamline payment acceptance at scale.
Renee Renee: We're investing in enhanced automation, such as straight through processing and advanced <unk> with these capabilities. We are adding specialized go to market teams focused on addressing the specific needs and complexities of these large suppliers.
Renee Renee: We believe this dedicated focus will translate into efficient and streamlined experiences that drive revenue.
Renee Renee: As we look ahead, we remain laser focused on penetrating in serving the large market opportunity with differentiated solutions that bring SMB is more a ha moments. We are excited about the future to further empower smbs and the progress we're making.
Renee Renee: Our vision of success attract strong talent to the company.
Renee Renee: We recently added two new directors to our board <unk>, Zelman and Dan Warner Cox, who have deep expertise that will help us advance our strategy.
Renee Renee: Cary has an extensive track record of scaling SaaS and Fintech businesses that are SMB focus Dan has extensive experience, leading and business and consumer brands, including as EVP and general manager at <unk> for both the small business and consumer groups.
Renee Renee: I look forward to working with them as we build on our momentum to widen our leadership position in the market.
Renee Renee: In closing, we are making great progress enhancing our platform and payment experiences while delivering profitable growth hundreds of thousands of businesses Trust built to run their financial operations and there are millions more to serve our robust product and broad ecosystem position is second to none we are capitalizing on this compelling market opportunity.
Renee Renee: To be the de facto intelligent financial operations platform for Smbs.
John Rettig: Now I'll turn the call over to John.
John Rettig: Thanks, Renee Q2 marked another quarter of bill successfully balancing growth and profitability, while investing in our strategic priorities to accelerate innovation for Smbs.
John Rettig: We're seeing great early indicators of the potential impact of our investments to drive sustained value creation for smbs and growth for bill.
John Rettig: In August we outlined our priority investment areas across payments and working capital supplier solutions accounting firms and embedded finance.
John Rettig: Over the first two quarters of the fiscal year, we've executed well against these priorities.
John Rettig: I'll cover a few examples of our progress.
John Rettig: We are now live with an important enhancement to our virtual card solution with the launch of an additional straight through processing provider in November.
John Rettig: This opens up new payment routing with significant automation benefits for suppliers, including improved data integration with their ERP systems.
John Rettig: We have also been advancing our direct connection with select suppliers as part of our ongoing product experience improvements with a focus on automation and efficiency and the payment acceptance process.
John Rettig: We're also investing to expand our payment solutions to create more choices and addressing the unique needs of large volume payment receivers in the Bill network.
John Rettig: To this end we're in beta testing with our advanced <unk> solution, which will provide tools to drive automation and efficiencies that suppliers haven't had before.
John Rettig: This new payment solution will redefine the payment receiving processes for large suppliers driving a fast automatic and scalable experience.
John Rettig: We expect to fully launch this solution this year.
John Rettig: On the international payment front, we expanded the availability of our local transfer offering to over 30 countries. We have started to create awareness among customers and network members about the significant improvements we've made in efficiency and payment speed, which is now approaching our real time payment experience.
Speaker Change: Shifting to our go to market focus on accounting firms, we are investing in both new product capabilities as Rene mentioned as well as enhanced partnership support teams to create even greater engagement with accountants.
Speaker Change: We are the platform of choice for accounting firms and we're constantly raising the bar to improve our solutions to deliver more account specific capabilities.
Speaker Change: Some recent examples of product innovation that empower accounts to better serve their clients include multi entity in bulk auction solutions purchase orders and streamline 10 90 nines.
Speaker Change: We also expanded and enhanced our account and coverage teams, which is driving better penetration with our existing partners and acquisition of new partners.
Speaker Change: Our product innovation and go to market initiatives are driving results in Q2 net new adds in our accounting channel increased 38% from the same period a year ago.
Speaker Change: Turning to our embedded solutions, we launched a spend and expense integration for our embedded <unk> solution, which enables businesses to onboard large numbers of employees and issue cards much faster at scale.
Speaker Change: We delivered the solution in the fall and now have over 200 customers using this embedded product.
Speaker Change: We're pleased with the early signs of increased usage and higher card spend.
Speaker Change: We look forward to these early indicators of progress becoming material value creation levers for customers partners and suppliers in our network and growth drivers for bill.
Speaker Change: Shifting from progress on our investments to our Q2 results.
We delivered strong profitable growth in Q2 as core revenue increased 16% year over year and non-GAAP operating income increased 42% year over year.
Speaker Change: We created meaningful operating leverage in our business and produced a non-GAAP operating margin of 17%, which is up more than 300 basis points from a year ago.
Speaker Change: Our free cash flow margin was 20%.
Speaker Change: On the back of this momentum the investments we are making will add to our leadership position in the market.
Now for some more details about the quarter.
Speaker Change: Total revenue was $363 million in Q2 up 14% year over year.
Speaker Change: Core revenue, which includes subscription and transaction fees was $320 million up 16% year over year.
Speaker Change: Float revenue was $43 million and our yield on FPL funds was 443 basis points in the quarter.
Speaker Change: Revenue from our integrated platform, which includes our bill AP AR and spend and expense solutions, but excludes the financial institution channel was $301 million in Q2 up 16% year over year.
Within our integrated platform revenue for our Bill APR solution was $167 million up 13% year over year.
Speaker Change: TPP grew 11% year over year, and TPP per customer was 1% lower year over year.
Speaker Change: Overall transaction monetization in Q2 was down slightly from the first quarter, primarily due to the TPB seasonality combined with minimal volume growth on more established AD valorem products as well as FX losses from currency volatility.
Speaker Change: We are making good progress to advance the features of our more established payment products and expand our payment portfolio with new solutions.
Speaker Change: Note that our total AD valorem year over year growth rate in the second quarter from our AP solution increased compared to the prior two quarters driven by the adoption of newer solutions.
Speaker Change: During the quarter, we continued to see momentum on penetrating the market with 4500 net new Bill APR customers added.
Our strategic go to market investments in the accounting channel have accelerated adoption deepened engagement with existing firms and reduced client attrition.
Speaker Change: Accelerated investment and deployment of AI within the sales journey is also driving increased sales efficiency.
Speaker Change: We now have more than 160000 customers using our bill <unk> solution. This scale is a direct result of our go to market engine, the customer value proposition of our platform and our expansive network.
Speaker Change: Also within our integrated platform revenue from our Bill spend and expense solution was $134 million up 21% year over year, driven by 23% card payment volume growth.
Speaker Change: It's been an expense interchange fees were 257 basis points in the quarter and rewards were 48% of spend and expense revenue.
Speaker Change: Both card payment volume growth in gross interchange fees were impacted by a mix shift towards lower gross interchange merchant categories.
Speaker Change: We added 1400, net new spending businesses to our spend and expense solution in Q2 and ended the quarter with 37 800 spending businesses.
Speaker Change: Our customer acquisition focus for spending and expense continues to be on larger businesses with a strong financial position.
Speaker Change: And we're doing well targeting and acquiring these businesses.
Speaker Change: Revenue from our embedded and other solutions, which includes the financial institution channel invoice to go and other solutions was $19 million up 16% year over year.
Speaker Change: Moving onto additional financial highlights our focus on driving efficient growth enabled us to deliver non-GAAP gross profit of $309 million in Q2 up 13% year over year and non-GAAP gross margin was 85% significantly above our targeted range for the low eighty's.
Speaker Change: We generated non-GAAP operating income of $63 million in Q2, representing a 17% non-GAAP operating margin expansion of more than three percentage points year over year.
Speaker Change: We've created operating leverage from our core business as non-GAAP operating margin, excluding float revenue expanded six percentage points year over year to six 5%.
Speaker Change: non-GAAP net income was $63 million for the quarter, representing a 17% non-GAAP net income margin while non-GAAP net.
Speaker Change: Net income per fully diluted share was <unk> 56.
Speaker Change: non-GAAP diluted weighted average share count declined $4 8 million shares or 4% year over year, primarily due to our convert and share repurchases over the last 12 months, partially offset by the issuance of new convertible notes.
Speaker Change: We have a very strong balance sheet with significant liquidity and during the quarter. We took proactive steps to strengthen our position further by completing an offering of $1 4 billion zero coupon convertible senior notes due 2030.
Speaker Change: We used approximately $539 million of the net proceeds to repurchase significant portions of our 2025 and 2027 convertible notes and approximately $200 million of the net proceeds to purchased two 3 million shares of our common stock.
Speaker Change: Our balance sheet and strong cash flow enable us to invest in initiatives that drive long term growth and market leadership.
Speaker Change: Shifting to our outlook there was increased uncertainty related to potential fiscal and trade policy changes and how they may impact SMB sentiment and spend.
Speaker Change: We are confident in the resilience of Smbs to successfully adapt to the macro environment that we are carefully monitoring policy changes for any near term implications for smbs.
Speaker Change: Our outlook for the second half of fiscal 2025 assumes that the macro and BW spend environment remained consistent with recent quarters and that smbs transact at similar rates to our historical averages.
Speaker Change: Now moving onto guidance for.
Speaker Change: For fiscal Q3, we expect core revenue to be in the range of $317 five to $322 5 million, which reflects 13% to 15% year over year growth. We expect total revenue to be in the range of 352, five to $357 5 million in Q3.
Speaker Change: <unk> revenue is expected to be $35 million in Q3, which assumes our yield on <unk> funds will be approximately 390 basis points.
Speaker Change: Turning to our profitability outlook, we expect a sequential increase in operating expenses as some of our incremental investment spending that was back loaded in the fiscal year starts to take effect.
Speaker Change: For Q3, we expect to report non-GAAP operating income in the range of $38 million to $43 million.
Speaker Change: non-GAAP net income in the range of $42 million to $46 million.
Speaker Change: We expect non-GAAP net income per diluted weighted average share in the range of 35% to 38 in Q3 based on a share count of $119 5 million diluted weighted average shares outstanding.
Speaker Change: Moving on to full year guidance for fiscal 2025, we expect core revenue to be in the range of $1 $297 million to $1 $312 million, which reflects 16% to 17% year over year growth.
Speaker Change: We expect total revenue to be in the range of $1 $454 million to $1 $469 million.
Speaker Change: We expect float revenue to be approximately $157 million in fiscal 2025, which assumes that yield on FBR funds of approximately 430 basis points for the year and an exit fed funds rate of 425 basis points as of June 2025.
On the bottom line for fiscal 2025, we expect to report non-GAAP operating income in the range of $207 five to $222 5 million and non-GAAP net income in the range of $216 million to $228 million.
Speaker Change: We expect non-GAAP net income per diluted weighted average share to be $1 87 to $1 97.
Based on a share count of $115 5 million diluted weighted average shares outstanding.
Speaker Change: Note that our Q3 and full year guidance for share count and non-GAAP net income per share do not reflect the impact of future purchases under our share repurchase program.
Speaker Change: For fiscal 2025, we expect stock based compensation expenses to be less than 20% of total revenue.
Speaker Change: In conclusion, we built a great business by revolutionizing financial operations for hundreds of thousands of Smbs and creating a unique ecosystem to efficiently reach them investments, we are making in our platform distribution capabilities and team are showing good progress. This gives us confidence in our ability to extend our category leadership and further empower.
Speaker Change: <unk>, which in turn positions us to drive years of strong growth and shareholder value creation.
Speaker Change: And now we'll open up the call for Q&A.
Speaker Change: Of course.
Speaker Change: We will now begin the question and answer session.
Speaker Change: I would like to ask a question. Please press star followed by one on your telephone keypad.
Speaker Change: Any reason you would like to turn that question. Please press star followed by Kim again to ask a question press Star one.
Speaker Change: As a reminder, if youre using a speakerphone please pick up your handset.
Speaker Change: Asking a question.
Speaker Change: Our first question will come from the line of Chris <unk> with Morgan Stanley.
Speaker Change: Your line is now open.
Speaker Change: Okay.
Speaker Change: Hey, Renee Hey, John Thanks for taking the questions here.
Speaker Change: Maybe to start I would want to dig a bit into the monetization here, obviously, a lot of puts and takes with FX and then seasonally higher TPB, but just curious if you can delineate between some of those headwinds and some of the improvements you augment on the.
Speaker Change: Virtual card and product side, how much of that was a contributing factor to the overall monetization here.
Speaker Change: Yeah. Thanks for the question, Chris, Yes, Q2 monetization was slightly lower than our expectation.
Speaker Change: From discussions last quarter, when we were anticipating flattish quarter to quarter.
Speaker Change: Several factors influenced that including I think first seasonality, where just the December quarter uptick in overall TPB tends to result in a mix shift in payment types and this showed up as strength in checking CH volume, which we actually saw a 6% quarter to quarter.
Speaker Change: Growth rate and at the same time, our AD valorem volume grew but at a rate lower than that checking ACTH volume so that mix as a result.
Speaker Change: Has it been influence on the take rate and in the quarter ended up a little bit lower.
Speaker Change: Another impact was we've seen increased FX volatility, particularly in the second quarter and.
Speaker Change: And thats versus.
Speaker Change: Q1, we did we saw a small gain in FX.
Speaker Change: Changes, whereas Q2, we saw some losses, so that change quarter to quarter also had an influence we've obviously been investing in a number of initiatives that we think ultimately have a positive impact on overall AD valorem growth, we talked about in prepared remarks, the accelerating growth rate, but in that December quarter, just not as fast as that.
Speaker Change: Flat rate payment type volume growth for protecting hgh payments. So we do expect these initiatives to ultimately drive monetization expansion from here.
Okay.
Speaker Change: Thanks, John.
Speaker Change: You bet.
Speaker Change: Thank you for your question.
Speaker Change: Our next question comes from the line of Tien Tsin.
Tien Tsin: <unk> with Jpmorgan.
Speaker Change: Okay.
Speaker Change: Hey, Thanks, I just wanted to.
Speaker Change: Clarify John your answer to us.
Speaker Change: Can you I hope you can hear me I just want to clarify the answer that you gave John the last question. So did you size the.
Speaker Change: The currency volatility and can we expect the second half monetization rate to show modest improvement I think you still called that out last quarter. So I'm just curious if that still applies and then my.
Speaker Change: The question I actually had both on the $45 million in targeted spend are you on track with that spending.
Speaker Change: Fair to say you are getting the returns that you expected originally here. Thank you.
Speaker Change: Thanks for the question on the first part going back to the prior question on monetization.
Speaker Change: Overall, our international payments monetization in the second quarter was about three basis points.
Speaker Change: Below what we would have expected in a portion of that is related to this FX loss in the overall currency volatility and as we've indicated before we do expect monetization expansion in the second half of fiscal 'twenty five so no change in our outlook and what we're striving for their shifting to the incremental spend for FY 'twenty five that we outlined in August 14th.
Speaker Change: $5 million, we're making good progress against that as we indicated last quarter. Some of that spending is actually back loaded into the year. So youll see that flow through our guidance. We had some opex increases in the in the third quarter as a result of that and I would say.
Speaker Change: We pointed out a few.
Speaker Change: Reference point signs of progress both this quarter and last that are a reflection of the progress we're making against those investments and we think that those begin to have a more material impact on our overall business and growth rates as we get further into fiscal 'twenty five and into fiscal 'twenty six.
Speaker Change: Thanks, John I, just wanted to add a few things on the investment areas.
Speaker Change: So I think everybody knows that we have a singular focus on financial operations driving a lot of scale across our platform and with our diverse ecosystem and we said that.
Speaker Change: Annual call that we have for kind of priorities for the year.
Speaker Change: Those priorities were wanted to increase the value proposition to augment our supplier experiences three to deepen our relationships with our accountants and for it to expand the ecosystem and we made great progress across each of those in the quarter and so on the increase in the value prop.
Speaker Change: Had an opportunity where we pulled together a team built a product for our advanced <unk>. It is now and data. We also expanded our local transfer capabilities and we expanded our learning on invoice financing Thats. One that we think will be an important driver for us in the future.
Speaker Change: On augmenting the supplier experience and we called out the $10 99, and the reason we called that out with just the power of the two sided network. This is something that the team came up with really in a very short order and drove a product definition product experience for our customers and their suppliers and was able to drive very strong adoption of <unk>.
Speaker Change: For a period of time and because we were able to drive that adoption because of the two sided nature of our network. We have all of the capabilities inside the $7 1 million network members, we have to help both the buyer and the supplier. So that was a huge win for US. We also added straight through processing, which was important for the virtual card part of the business.
Speaker Change: And we also have dedicated teams now focus on connecting in helping suppliers understand our offerings as well as understanding with suppliers need and that's all set that we've been building over the last quarter or so and that investment continues to go well and the third area that again was deepening account relationships, we have tremendous asset here we have.
Speaker Change: Close to 8500 I think is the last number we said accounts on the platform that's out of around 100000 accountants and bookkeepers across.
Speaker Change: The entire U S ecosystem.
Speaker Change: And we have a unique opportunity to serve them with more and more capabilities I referenced the customer to tosser, who has.
Speaker Change: Hundreds of clients that they're able to kind of really work in the nonprofit space and a much more efficient way because of what we do and example of having all of that capability. It creates great opportunities for us to drive new account adoption and so one of the things we talked about on the prepared remarks was that overall year over year that net adds per.
Speaker Change: <unk> was up 38% and this is because of our focus on both product, where we talked about obviously the capabilities around.
Speaker Change: Adding <unk>, adding obviously, the 10 90 nines, adding the ability for us to drive multi entity. These are all things that we're working on their ongoing product additions, but as we engage with accounts. We continue to hear how much did that will make a difference for them and they are excited about the platform and want to do more with us.
Speaker Change: Also because we have a much stronger go to market focus on this than we've had in the past as part of the investments.
Speaker Change: And then the last area that we said we are focused on this fiscal year was to expand our ecosystem.
Speaker Change: This is really around the embedded platform and everything that we've taken all the learning we've learned from the banks and the financial decisions over the last 10 years rolling that into experiences for both partners and our customers and so we highlighted that during the quarter, we were able to pull together capabilities for our customers to access and bed capabilities.
Speaker Change: Across the <unk> platform and what that means is that those customers that are adopting we've had over 200 that theyre able to add more customers and more I should say more employees.
Speaker Change: And more cards on the spend and thats driving usage across platform. So all of these things really point to the investment we've been making there is obviously much more under the hood that we didn't talk about but this is all why we expect and have confidence in growth happening in the second half of the year ended FY 'twenty six.
Speaker Change: Thank you for the question Tien Tsin, just wanted to give some additional color there.
Speaker Change: No. Thanks.
Speaker Change: Thanks for going through it. Thank you I'll go through it.
Speaker Change: Thank you.
Speaker Change: Thank you for your question.
Speaker Change: Our next question comes from the line of Andrew Schmidt with Citigroup.
Speaker Change: Your line is now open.
Andrew Schmidt: Hey, Renee Hi, John Thanks for taking my questions. This evening I just wanted to go back to the take rate for a second.
Speaker Change: John I know you had some comments on AD valorem expansion.
Speaker Change: Ex International maybe you could just run through that real quick and just talk about what you saw in terms of supplier acceptance.
Speaker Change: Virtual card growth just curious on the stability on that side of things if we strip out the FX losses. Thanks, so much.
Speaker Change: Sure. Thanks for the question Andrew overall AD valorem volume grew in the second quarter. So thats a positive for us it actually accelerated versus the prior two quarters. Most of that growth was driven by newer products. So these are things like <unk>.
Speaker Change: Invoice financing.
Speaker Change: By card on the buyer side real time payments and.
Speaker Change: Some of our more established products, if we remove international payments for a second like virtual card volume was consistent with the prior quarter so significant growth there.
Speaker Change: Have continued to see.
Speaker Change: Similar trends with card acceptance on the build side.
Rene Renee: Consistent volume as I mentioned in some of our initiatives that Rene just outlined are now in the market and starting to be used by by select suppliers. So we haven't seen a significant impact or material impact on those yet, but there is no no new trends in terms of.
Rene Renee: <unk> across those more established AD valorem products than we've seen previously.
Rene Renee: Okay.
Rene Renee: Yeah.
Rene Renee: Perfect. Thank you so much for that and maybe you could just sneak one more in just on the product engine.
Rene Renee: It does seem like there's a pretty significant step up in terms of what youre rolling out recently.
Rene Renee: Recently, there have been any changes to the product engine development cycle things like that and then.
Rene Renee: When you think about opportunity rollout more subscription products <unk> driving products and things like that.
Rene Renee: What does that opportunity look like just in general thanks, so much.
Andrew Schmidt: Thank you Andrew.
Andrew Schmidt: One of the things that were really benefiting from is the scale that we're at now we have significant scale and you think about the size of the business from where it was just a few years ago and where it's at today and getting the teams in place we've been continuing to add to the team the leadership to really drive clarity and focus and execution we had on.
Andrew Schmidt: Obviously, John move into the president role to help drive some of that focus and clarity and that that clarity across the company is really driving I think.
Andrew Schmidt: If you will the.
Andrew Schmidt: Innovation inside of each of us and that's the focus that's one of the goals I have across the company is to make sure that everyone is enabled and free to actually innovate and we're seeing that and I think the siding thing for US is the number of ideas about how we can expand our experience for customers, making their lives easier, making their lives faster and making their lives more efficient.
Andrew Schmidt: There is yes.
Andrew Schmidt: The list is just phenomenal and so I think the teams are excited we're excited about how AI is helping us do that theres lots of opportunities for us to continue to leverage AI internally as well as in the experiences for our customers and so that excitement I think is driving some of the energy youre seeing in some of the clarity in our ability to kind of tie the priorities back to initiatives that that really.
Andrew Schmidt: Drive customer adoption.
Andrew Schmidt: Yeah.
Andrew Schmidt: Thank you very much.
Andrew Schmidt: Thank you Andrew.
Andrew Schmidt: Thank you for your question.
Andrew Schmidt: Our next question comes from the line of.
Speaker Change: Joe ski with autonomous.
Speaker Change: Your line is now open.
Speaker Change: Hey, Renee and John Thanks for taking the question, maybe just to clarify on the take rate.
<unk> three basis point impact from FX losses, I guess is the right way to think about it that yes.
Speaker Change: On the take rate it was down I guess sort of have a base basis point quarter over quarter, if you add back the.
Speaker Change: 0.3 basis points, you're actually down 0.2 basis points quarter over quarter on a normalized basis, and then I guess.
Speaker Change: As the right jumping off point for fiscal <unk>.
Speaker Change: It is not actually what you showed in fiscal <unk>, but it's actually a little bit higher just because you have to add back.
Speaker Change: The FX loss that you saw in the quarter.
Speaker Change: Yes. Thanks for the clarifying question, Ken I think that math is right. The 0.3 is referring to is the overall change in IP monetization of which the FX is a large component of that and so.
Speaker Change: While that's not strictly a one time item, we do expect with the speed of payments and other improvements, we're making to the product to be able to minimize.
Speaker Change: FX volatility and gains is locked in losses going forward. So the baseline for growth from here is certainly.
Speaker Change: Above the Q2 overall monetization as you suggested.
Speaker Change: Yeah.
Speaker Change: Okay, great. Thanks, so much guys.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Thank you for your question.
Speaker Change: Our next question comes from the line of Andrew <unk>.
Speaker Change: With Wolfe research.
Speaker Change: Your line is now open.
Speaker Change: Okay.
Speaker Change: Hey, guys can you hear me.
Speaker Change: Yes, we can.
Speaker Change: Okay, Hey, its Darrin peller from Wolfe I, just I wanted to follow up a little bit more on PPV per customer and the volume trends you guys are seeing you've made I know you guys have made some progress on really having a whole business aligned to enable your customers to see more ability to use your platform for spend.
Speaker Change: And you've also worked at the suppliers and Youre seeing <unk> been seen progress on generally TBB per customer.
Speaker Change: That effect.
More transactions larger transactions.
Speaker Change: All of US understand what your what you saw in the past quarter around that relative to the prior quarters.
Speaker Change: Maybe add onto it what youre seeing from a macro standpoint on TBB per customer and then maybe the building blocks of what you can see in the next year or so from these initiatives on the magnitude of how much spend per customer we can expect.
Speaker Change: Thank you Darren for the question I think in general with the macro.
Speaker Change: Still seeing I think optimism from smbs, but that's not really translating to action yet it's kind of flattish in general and John can talk more to that if there is a need that the well.
Speaker Change: We are seeing what we can control obviously is increasing the share of wallet across the platform and so one of the things that we have been doing is obviously expanding card usage and opportunities across bill to be able to leverage that whether that's paid by card, but you talked about whether thats the opportunity to actually do what we're talking about it with bill <unk>.
Speaker Change: <unk> expense inside of the AP products. So you can actually now make your AP payments using a card and why we're excited about that as having suppliers engaged by their customer that actually drives more opportunity for us to drive adoption on those products. So I think the <unk>.
Overall, just as overall TB TPB trends are consistent there is seasonality from quarter to quarter.
Speaker Change: And then there is this growing share of wallet that we continue to drive.
Speaker Change: Yes, I would just add darrin.
Speaker Change: TBB per customer is pretty much in line with our expectations for the quarter, we do see typically in the third quarter. This March quarter.
Speaker Change: Seasonally lower spend on a quarter to quarter basis will be consistent with Q2 in terms of year over year impact there is no real.
Speaker Change: <unk> of significant change within spend categories, we still see strengthen in real estate and related industries information technology things like things like that and we've seen a little bit of compression in construction related categories, but as Rene mentioned, our emphasis on larger.
Speaker Change: Mrs.
Speaker Change: The medium to mid market size.
Speaker Change: Segment of the market I think over time will enable us to expand overall spend per customer.
Speaker Change: Okay.
Speaker Change: Thanks, guys.
Speaker Change: Thank you.
Speaker Change: Thank you for your question.
Speaker Change: Our next question comes from the line of Matt <unk> with Jefferies.
Speaker Change: Your line is now open.
Speaker Change: Hi.
John: Hi, good evening, modern and John Thank you guys, but I hope you guys are doing well thanks for taking the collections.
John: Maybe first just zooming out I get to specifics on take rate but.
Speaker Change: And earlier point by different analysts you guys have innovated a lot you've rolled out a lot of different payment types as well.
Speaker Change: I'm curious, if it's becoming more difficult John to forecast, what the monetization will be from quarter to quarter and maybe related to that are you are you thinking about have you made a change in how you're forecasting kind of that quarter.
Speaker Change: That youre, giving us to make the baseline off I'm just curious if maybe you're taking a more conservative swipe at it given that it has been volatile over the last couple of quarters.
Speaker Change: Thanks for the question <unk>.
I wouldn't say, it's more difficult to forecast we do have.
Speaker Change: History, where we are in a transition with some of our more established products to making significant enhancements. So early in if you will an upgrade cycle with both existing customers and suppliers that is somewhat new new to us I think we have really good clarity on the ultimate impact of those investments.
Speaker Change: <unk>.
Speaker Change: So there is no no changes in really philosophy, we try to present.
Speaker Change: A balanced view of what we think the range of outcomes are based on primarily the things that we control all the levers that we have available to us.
Speaker Change: We're not expecting any any significant change in in the external environment that smbs are operating in but there is obviously some some uncertainty there that we hear about from from SMB. So it feels to us like we're continuing.
Speaker Change: The philosophy that we've had in trying to call the.
Speaker Change: The near term outlook for the rest of 25, how we see it.
Speaker Change: Having said that that will continue.
Speaker Change: <unk> continued to just ask a second one thing I would just add as we have delivered what we said on core we had a strong beat on the bottom line and overall total revenue and we're continuing to innovate and invest the way. We said we would so we feel and our goal is always to present.
Speaker Change: What we think is going to happen with the business and to guide everybody into obviously understanding how we're going to make the business grow.
Speaker Change: Understood and then maybe just a follow up on on the spend and expense side, John I think I heard you say in the prepared remarks that it was negatively impacted by by.
Speaker Change: By mix.
Speaker Change: That was great.
Speaker Change: I guess lower gross interchange could you just maybe help us understand that dynamic was that an impact to the revenue quarter over quarter or PV or both.
It seemed a little bit more seasonally muted for December then I think we've seen in the past several years to admitting that the business is obviously a much bigger.
Speaker Change: Yeah. Thanks, Thanks for the follow up question some odd.
Speaker Change: Obviously, we had really strong growth with.
Speaker Change: <unk> <unk>.
Speaker Change: Product, 21% transaction revenue growth on 23% card volume growth.
Speaker Change: The reference in the prepared remarks to a mix shift amongst merchant categories. It was really pointing to.
Speaker Change: A declining growth rate that we saw in the advertising category and so this was driven by the largest player in the online AD space, making some proactive shifts to their payment acceptance policies, which has the effect of moving volume from card payments to <unk> payments as it.
Speaker Change: Rates to our SME business that impacts both gross interchange because the advertising category tends to be a higher interchange rate than our average overall for their spend and expense business and then also had the effect of being.
Speaker Change: Being a slight headwind to card spend so when we step back and look at the impact of that shift in the quarter. It was about four four points of revenue impact for <unk> in the quarter, it's something that we've factored into our estimates going forward.
Speaker Change: And so it did it did definitely impact both monetization and and card spend.
Speaker Change: Great I appreciate you taking my questions. Thank you.
Mark: Thanks Mark.
Speaker Change: Thank you for your question.
Speaker Change: Our next question comes from the line of Bryan Keane with Deutsche Bank.
Speaker Change: Your line is now open hi, guys.
Bryan Keane: Hi, guys. Thanks for taking my questions I guess, John on core revenue growth. It came in kind of in the midpoint at I think 16%.
Speaker Change: But you are guiding for third quarter to be I think 13 to 15, which is slightly down even though I think you said monetization will be up so just trying to make sure I understand why that would be and then.
Speaker Change: The full year guidance on core revenue. It was raised last quarter for the full year. This quarter. It was actually cut I think about $4 million at the high end and just trying to make sure I understand why kind of the small reduction in core revenue growth for the full year.
Speaker Change: Yes. So thanks for the question, Brian Obviously, we are providing our estimates for Q3 and Q4 for the first time implied estimates for Q4 and for the second half of the year, we're essentially reaffirming the midpoint of our core revenue guidance, we're passing through obviously the favorable performance we had from <unk>.
Speaker Change: Q2 in the first half of the year and then we've layered in the benefit of higher interest rates for longer and the impact that has on both float revenue and profitability.
Speaker Change: In terms of core core revenue growth.
Speaker Change: It's just a mix shift between Q3 and Q4, so we for the first time put out our Q3 numbers. So we essentially.
Speaker Change: Increased Q4 and brought down Q3 slightly but.
Speaker Change: Net effective which is reaffirming our core revenue estimates the range gets gets tighter in total as we move through the year. So that's the only reason for the change on the upper end.
Speaker Change: Got it that's helpful. And then just maybe a follow up just curious on clients' appetite for enhanced ECH the timing for that rollout what are you hearing and when do you think it might have a more material impact to financials.
Speaker Change: Thank you Brian for the question. We are excited about the ability to enhance that relationship suppliers, just that fact point, which we kind of referenced in this.
Speaker Change: <unk> remarks.
Speaker Change: Our largest suppliers have 5000 payments a quarter through build that our checker AC H and so that's a lot of hassle for them. So when you ask about their assignment their interest it is strong.
Speaker Change: They definitely need tools and capabilities to make that part of their headache, and managing their business go away and we're excited that we're now in data and as we get a chance to learn from these customers and understand exactly what it is in need and how they need it we will be able to continue obviously evolving the product and roll that out we expect that will be rolled out in this calendar year.
Speaker Change: And it will we believe it will have an impact on the business.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you for your questions.
Speaker Change: Our next question comes from the line of William <unk> with Goldman Sachs.
Speaker Change: Okay.
Speaker Change: Your line is now open.
Speaker Change: Yeah.
Speaker Change: Well Ann can you hear us.
Speaker Change: Yeah.
Speaker Change: William your.
Speaker Change: Your line is now open.
Speaker Change: Okay.
Speaker Change: We can move on.
Speaker Change: In the Q.
Speaker Change: Okay sounds great.
Speaker Change: Thank you. Our next question comes from the line of Alexander Mcgrath with Keycorp.
Speaker Change: Okay.
Speaker Change: Your line is now okay, Ron and John Thanks for taking the question.
Speaker Change: Alright can you all hear me.
Speaker Change: We look at.
Speaker Change: Great. Thanks for taking the question.
Speaker Change: Maybe a product question a couple of them.
Speaker Change: Of your peers have launched treasury and banking products I'm. Just curious if you think about sort of broadening your reach in the back office of the SMB is that an area that expect to eventually purchases participate in and just sort of maybe refresh us on how far reaching I think the bill platform should or could be in yes in the back office.
Speaker Change: Yes, I appreciate that question, Alex we have obviously very broad payment platform I think we've ever 12 different payment products.
Speaker Change: And we obviously transact over $300 billion, a year, 1% of GDP and one of those products is actually what we call build balance.
Speaker Change: It is.
Speaker Change: And early stage I would say about what the treasury product would become that allows customers to be able to have a balancing account that bill and be able to make essentially instant payments any of their suppliers. So I think your broad question is like what we play in that space. We already are playing in that space, there's more capabilities that we can build.
Speaker Change: To help customers leverage that and when you think about the overall platform that we have.
Speaker Change: The original named just a little history lesson on Bill was cash view and so one of the admissions that I've always had is to give customers insight to how to manage their cash flow. So that they can manage their treasury function and basically democratized treasury for all the customers capabilities across all of the things that we do and so I think that we are.
Speaker Change: Gone our way and I think we're leading in defining that space to be able to do that and at the core is actually executing transactions and that's why we focus so much on all the different payment products and all the things we do.
Speaker Change: Yeah.
Speaker Change: Great. Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you for your question.
Speaker Change: Okay.
Speaker Change: Our next question comes from the line of Scott Berg with Needham <unk> Company.
Speaker Change: Your line is now open.
Speaker Change: Okay.
Speaker Change: Hi, Rene and John Thanks for taking my questions here, I guess, probably Q pretty easy one.
Speaker Change: I think it was last person last analyst asked about or maybe it's two ago that asked.
Speaker Change: Guidance on core and you all mentioned there is a shift between Q3 and Q4.
Speaker Change: But really how do we think about your prior stated objective to Reaccelerate core revenue growth to that 20% level exiting this year do you have.
Speaker Change: With what you saw in Q2 does that change your enthusiasm of how you think the year kind of progresses or.
Speaker Change: Are you still pretty excited about that that target.
Speaker Change: I'm definitely excited about the top target we have a lot of confidence in the initiatives that we're driving and the impact we're seeing.
Speaker Change: Our early Green shoots if you will and our focus is and something I've learned over 25 years of building companies is that it takes one it takes a very strong mission and strong focus across the team to execute and then deliver capabilities and then to iterate on all of that and you see us doing that.
<unk> using our scale to our advantage using obviously the distribution ecosystem, we have to our advantage using the customer learning that we have to our advantage and really helping drive the initiatives and what's going to make a difference in growth going forward. So when we step back. This is kind of we reaffirmed what we thought we would do for the year.
Speaker Change: And we've actually been able to pass through and obviously exceed on overall revenue as well as the bottom line. So we feel exceptionally good about where we're at and the opportunity to drive innovation at the same time, which is something that is very dear to my heart wishes to make a difference for Smbs every day and they need innovation and you're at now.
Speaker Change: They need it every day, we're have an opportunity to do something with the platform for them that others don't have.
Speaker Change: Okay.
Speaker Change: Understood helpful. And then John when you thought about the guidance for the rest of the year you all have been a little cautious on the macro for.
Speaker Change: Several quarters now was there any incremental level of caution in the new guidance. The tagline you use seemed like it was maybe a little bit different than the last couple of quarters, but I didn't know if that was.
Speaker Change: Explicit a reason or there's really just kind of no change on your cautious view.
Speaker Change: Thanks for the question Scott I'd say, there's no real change in philosophy or the view I'd say theres more.
Speaker Change: Moving parts to the macro environment, obviously right now.
Speaker Change: Need to play out for us to better understand the implications for Smbs the environment that they're operating in and how that translates eventually to <unk> spend and so we're watching that much more closely now given the number of moving parts I would say we didn't explicitly factor in it.
Speaker Change: Any of those considerations into guidance.
Speaker Change: But it's something that is top of mind for us.
Speaker Change: Yeah.
Speaker Change: Very helpful. Thank you.
Speaker Change: Thank you Scott.
Speaker Change: Thank you for your question.
Speaker Change: Our next question comes from the line of Brad Sills with Bank of America.
Speaker Change: Your line is now open.
Speaker Change: Great.
Speaker Change: Oh, great. Thank you so much.
Speaker Change: I wanted to ask a question another one on the on the take rate.
Speaker Change: If you kind of ex out the currency impact this quarter.
Speaker Change: Look at the monetization being a little bit lighter than you had expected on core AD valorem, what which of the growth initiatives would you point to that give you that confidence that second half you'll see some improvement here.
Speaker Change: Would love to get some color on that thank you.
Speaker Change: Yeah, I'll start and then let John add thank you Brad for the question.
Speaker Change: It's hard for me to pick one because we see success Green Street's if you well in many of the initiatives.
Speaker Change: The ability for us to continue to work with suppliers understand what they need help them understand the value of any of our products, whether it's a virtual card whether it's advanced <unk> and the other things, we think thats important and thats going to continue to make a difference we think the ability to drive.
Speaker Change: The newer AD valorem products, whether that's a pay by card or the what we're calling spend and expense inside of bill AP or AR, obviously, the invoice financing those are all opportunities for us and we see we have initiatives around each of those and we see things happening in good things on that front.
Speaker Change: And I think we're going to continue to see overall growth in adoption of customers across the platform right, we talked about the <unk>.
Speaker Change: Focus with accounts, but we also had strong progress, especially on the spend and expense side with respect to our larger customers mid market customers. One of the things that we have said and we feel good about our progress on that as being able to support those larger businesses out there and so when you look at year over year.
Speaker Change: The deal size of what the team is 30% higher than was a year ago. So you combine all of those things and that's what really leads to the obviously the overall confidence but I also gave you some details on kind of the monetization.
Speaker Change: Amortization side so.
Speaker Change: Okay.
Speaker Change: That I think we're going to need to wrap it up with everybody and so first of all thank you for joining the call I really appreciate the time everybody puts in to understanding Bill I also want to thank the team for their dedication innovation, we are executing well against our strategic initiatives and we are looking forward to bringing more about S&P's and their suppliers across the coming quarters. We believe these investments were.
Today, we will lead to strong market adoption and long term durable growth thank everyone take care.
Speaker Change: That concludes today's call. Thank you for your participation and enjoy the rest of your day.