BILL.COM HOLDINGS, I

BILL
Temps Différé Nyse - 22:00:02 08/02/2023
102.05 USD +0.97%

Transcript : Bill.com Holdings, Inc. Presents at 6th Annual Wells Fargo TMT Summit, Nov-29-2022 09:20 AM

29/11/2022 | 18:20

Presenter Speech
Jeffrey Cantwell (Analysts)

Welcome, everybody, and thank you for joining us at the Sixth Annual Wells Fargo TMT Summit. We are delighted to have John Rettig, Chief Financial Officer of Bill. Welcome, John. Thanks for being here.

Presenter Speech
John Rettig (Executives)

Thanks, Jeff. It's great to join you.

Question
Jeffrey Cantwell (Analysts)

Yes. And thank you all for joining us today. So John, maybe, if we think or might we could dive right into it. So would love to hear what's top of mind for you? And how do you see yourselves right now? Maybe certain stuff like, talk about the recent raise you made in the guidance? And then what gave you the confidence to do so?

Answer
John Rettig (Executives)

Yes, it's a good place to start. So I think we came out of the gate strong in Q1 '23. The upper end of our guide is now, a little bit north of $1 billion in revenue. We increased our non-GAAP profitability expectations by more than 50%. And that comes from a position of strength. There's lots of momentum in the business. We're seeing healthy engagement from our SMB customer base.

We're seeing transaction monetization increasing, and we have lots of levers in the business between strong top of the funnel demand, share of wallet increases from our customers, expanding menu of payment offerings and really the ability to help SMBs change the way they operate. And that's translating into really strong financial performance, and it gives us confidence that we have lots of ways that we can continue to scale the business in support of SMBs.

Question
Jeffrey Cantwell (Analysts)

That's great. That's great. And you did actually handful of opportunities for some potential upside to those numbers on your first quarter earnings call. So can you provide any additional color on what the source of side may be? And then if possible, maybe quantify those for us?

Answer
John Rettig (Executives)

Well, I don't know if I can quantify them, but just in terms of categories, we started the fiscal year seeing some softness in TPV in spend. That was a continuation from what we witnessed in the June quarter, the tail end of the June quarter. So it seems like businesses are reacting to the macro environment and moderating their spend somewhat.

For us, that shows up in slightly lower spend or TPV per transaction and slightly lower spend per customer. And so that seems to be a symptom of what's happening in the external environment.

So we've taken those trends into consideration and assume that they continue throughout the fiscal year, and that's reflected in our guidance. That's not to say that there aren't scenarios where businesses could end up being healthier or not impacted as much by the macro environment.

If typical seasonal patterns were to play out this year, I think that would suggest that there's more opportunity around increasing spend with outcomes monetization and transaction revenue growth opportunities. And at the same time, in a challenged external environment, maybe businesses need to do more with less. They're more focused on access to cash quicker.

That could lead to an increase in demand for some of our payment products, things like real-time payments or other solutions that we have that help create liquidity and cash flow improvements for small businesses. Now we haven't assumed that those things are going to come to be, but I think there's lots of points of potential leverage throughout the fiscal year.

Question
Jeffrey Cantwell (Analysts)

Interesting. With so much focus on the macro, I do think it makes sense to take a step back and look at your platform and specifically, the moves you've been making over the past couple of years now in terms of Divvy, Invoice2go, virtual card, instant payments, a number of product launches. So which -- can you remind us which solutions and particularly, among the more recent launches, but also more generally on the platform, are you seeing really resonating the clients?

Answer
John Rettig (Executives)

Yes. Well, where we start with the SMB customer base that we serve is a focus on helping them automate their operations. So it's not really about the payments, it's about changing the way they do business, a digital on-ramp to move from paper documents to digital, workflow automation, collaboration tools. And then because we apply these things to the accounts payable and accounts receivable process, that's what opens up the payment opportunity for us.

With the payments, our goal is really to just facilitate as much as we can in terms of share of wallet for customers. Exactly which payment type customers or suppliers choose is less important to us. The vast majority of the volume that goes through our platform today, our check and ACH payments actually. So those monetize very low, but they're also low friction payment types. So they're quick to adopt.

We've seen some significant progress driving adoption with some of our newer payment offerings, things that allow customers to get paid faster. They allow them to reconcile things easier or they have just more time to pay things like Pay By Card on the funding side. So we're seeing really good traction across all of the newer payment types, many of which are priced on an ad valorem basis.

So the actual monetization of the transaction depends on the size of the transaction. As of the end of June, we were about 10% of our TPB was ad valorem payments. And we think that's really -- we're just now getting on the board with a long way to go.

Question
Jeffrey Cantwell (Analysts)

That's great to hear. And I guess, I think some of the investors in the room would like me to continue on this path. And can you maybe speak to the economics of those solutions and maybe on a margin or take rate basis? How those dynamics may change over time? Because we get this question a lot from investors, I was hoping kind of walk us through what's an appropriate terminal take rate for Bill. And we get this question very, very dynamic. It could either be from a high level or sort of bottoms up.

Answer
John Rettig (Executives)

Yes. Let me start with our strategy, which is like we're on a journey to help SMBs really automate all of their financial operations. And we use payment choice as a strategy to touch more and more of their transactions. The more transactions we touch, the higher share of wallet we have. The higher share of wallet leads to the opportunity to improve monetization. And that's where ad valorem payments comes in, but it's not -- our goal isn't to drive adoption. Our goal is to drive penetration within our customers.

And I'd say there's a few categories of products. I probably can't get into specific transaction monetization, but I can give you some categories. In the ad valorem bucket, we have things like cross-border payments where there's an FX component and virtual card transactions where we're delivering essentially a virtual credit card payment to suppliers into their merchant account or via e-mail. Those are by far the highest monetizing and highest margin products that we have.

They're not right for every transaction, right? It has to make sense between buyer and supplier given the marginal cost of those. So there needs to be other benefits like payment speed or ease of reconciliation or things like that. And then there's other products like our real-time payments product, Instant Transfer in our DB charge card product that also monetized very well with good margins.

At the other end of the spectrum, I'd say we have things like the fixed price payments, check and ACH, which, from a monetization standpoint, the margins are fine, but the monetization is very low. In fact, it rounds closer to 0 than where we are. We've gotten to a little above 12 basis points monetization for the core sort of stand-alone Bill platform, about 24 basis points overall when you include Divvy. And I'd say, if you think of the like the trajectory that we're on in terms of monetization, I don't know what exactly that terminal take rate will be, but it's much higher than it is today because penetration on these newer products is so low relative to our overall payment volume.

Question
Jeffrey Cantwell (Analysts)

Interesting. Interesting. Maybe if we could stay on this topic and you're discussing penetration and in terms of your products into your customer base. So maybe can you talk about the strength of your flywheel and maybe a little bit about potential for cross sell -- incremental cross-selling and success going forward. I guess the question would be, are there more opportunities to cross-sell, Divvy into Bill.com's customer base, for example, where are you seeing the potential to kind of drive further penetration of?

Answer
John Rettig (Executives)

Yes. We've learned from customers that there's a lot of benefits that they get from having fewer tools. So like -- we think of it as a central tool set to manage as much of their operations as possible, eliminating point solutions, and we get this feedback all the time. So it was part of the thesis for expanding our platform, touching more of the operations. And I think in our -- with our June quarter results we talked about in August, René outlined a 12- to 18-month plan, for our unified platform experiences where we bring all of the tools that we have, all of the solutions into one unified customer experience.

I think we've made great progress with that. But there's still things that we can do in the near term to create incremental value for customers. So without any significant investment, we've already started to cross-sell. We have 2000 customers as of the end of June, I think it was from Bill that are using the Divvy solution. We started to go to market in our accountant channel in unison with CPA.com under a new agreement there.

We've announced that we're starting to sell Divvy into the financial institutions. And so we're -- I'd say from a flywheel perspective kind of at the beginning, we would expect that actual dollar synergies and upsell and cross-sell results to only improve over the next year or so as we bring the solutions together and we find more opportunities to create awareness with customers and introduce them to the new products at the right time.

Question
Jeffrey Cantwell (Analysts)

Let me kind of think that for a little bit because we usually try to think about potential penetration of Divvy's expense matters and capabilities into Bill. And the question would be, are you thinking about target might be the wrong word for it, but are you thinking about a trajectory such that you eventually get to 30%, 40%, 50% types of numbers of Divvy expense management capabilities into Bill. Just curious what your thoughts there.

Answer
John Rettig (Executives)

Well, when we did the acquisition of Divvy, we -- based on our analysis, we felt like 50% of the Bill customer base was a target. It was a candidate for the Divvy solution that included the charge card. All of the build customers are a candidate for the Divvy spend and expense management solution, expense reporting, reimbursements, things like that, that doesn't necessarily include the card. So for Bill, it's the largest half of our customer base because they're going to be more likely to be able to be underwritten for credit and things like that.

And I'd say the success and the progress that we've had to date has, in part, validated for us that it's a really large opportunity within the Bill customer base. That's just one direction, though. That's selling Divvy into Bill. We know that the Divvy customer base skews much larger than the stand-alone Bill base, where it's mostly mid-market customers. Well, those mid-market customers tend to have a much higher percentage of cross-border payments. They also use virtual cards, they use other payment tools. So we believe there's a big opportunity in having Divvy customers leverage the Bill platform, if nothing else for point payment solutions. So I think the opportunity for cross-sell is both directions, Divvy to Bill and Bill to Divvy. And exactly how much of that 50% target that we can get? We'll have to -- time will tell on that, how that plays out, but we think it will be significant. Of course, of course.

Question
Jeffrey Cantwell (Analysts)

And not to be remiss, but I also wanted to bring Invoice2go into the conversation. In the sense that, that was a very transformative, strategic transaction internationally from an international perspective. Just curious if you can kind of update us on your progress with Invoice2go. And also, you've been bringing up a lot of thought into potential monetization opportunities? How does that tie in to the rest of the platform? And how are you thinking about that piece of the flywheel?

Answer
John Rettig (Executives)

Yes. So it's starting with, which is the international topic. When we went public in 2019, we laid out 5 growth levers for the business of which international was the fifth because it was the furthest out. And now we've taken a couple of steps towards that with cross-border payments and then more recently with the Invoice2go acquisition that brought us customers in 150 countries, a base of operations in Australia and deep expertise as it relates to AR, like the whole process of very small business, connecting with prospective customers, doing estimates and quotes, performing work and turning those quotes into invoices, getting paid. That's what we're really excited about.

So the Invoice2go solution will become the Bill AR product. We're not going to have two products. And one of the things that we bring to the combined solution is the payments expertise. So as a stand-alone company, Invoice2go had outsourced payments. They worked with a partner that had a whole separate sign-up process, separate KYC and underwriting.

And as a result, they're $25 billion dollars in payment volume, only about 4% or $1 billion of that was actually monetized and electronic payments happen through their solution. We expect that to be much higher in a combined Bill platform, given our payment expertise. And we're just starting to make progress with that. We've done a lot of the plumbing. We've done integration. You're starting to see transaction flows and transaction monetization with Invoice2go.

And I think there's a long way to go there. It's much -- it was one of our, I guess, synergy hypotheses is that we could bring a better embedded payment experience to small businesses and help them get paid quicker as a part of their invoicing process. And I think that's starting to play out now.

Question
Jeffrey Cantwell (Analysts)

Great. Great. Part of the reason I brought that up is you also mentioned providing better monetization, FX rates for suppliers. And you said it was in the U.K. and Canada versus the local banks and how they're paid by U.S. businesses. So I'm just trying think of all the ways that you bring value to your network. And then along those lines, do you see further monetization opportunities perhaps over what kind of time period do you see that developing? You've mentioned creating value through automation for suppliers, for example, switching to those examples.

Answer
John Rettig (Executives)

Yes, it's a good question. So we've started to transition how we support suppliers to treat them more like customers by adding value. The examples of Canada and U.K. with FX transactions is where we're now licensed in those countries to move money and be a payments provider.

Therefore, we can interact directly with those suppliers and give them choice. And as long as we can provide a fast payment that's certain at a lower cost than, say, their bank who's going to auto convert U.S. dollar transaction into a local currency account at the moment of deposit, we're seeing really good reception to that. So it tells us that there's more that we can do for suppliers in improving their engagement and experience with the platform versus just delivering a payment.

And I think you'll see that proliferate through other countries. We're also doing things like presenting new payment methods to different types of suppliers. An example might be with virtual cards, those typically that type of payment appeals to a larger supplier who's already a merchant, they accept cards and they've built a reconciliation process around their merchant account. So they're creating automation and efficiency with payment acceptance. Therefore, they're lowering costs in one part of their business. And that's what makes the cost of acceptance acceptable, if you will, to them, even though it's a higher price.

Smaller suppliers, maybe it's an independent contractor or a freelancer. They're not a merchant. They don't accept credit cards. They might managing their business 1 transaction at a time, 1 invoice at a time. And so the option for a real-time payment say, we are near the end of the month, lease payments are coming up on the first. The option to get paid today in the next 60 seconds versus a week or two from now is really valuable if that's how you're managing your cash flow.

So we have a real-time payments product called Instant Transfer that help support those smaller suppliers. And it's analogous to other companies that provide these sort of quick payment opportunities, but we're seeing that resonate. It's another example of how we're able to create value within our network.

Question
Jeffrey Cantwell (Analysts)

Yes. One of the things that stood out about your earnings call was the acquisition of Finmark. And just wondering if you could talk a little bit more about how you see Finmark complementing those platforms? And how that opportunity that might develop over time? I guess it's a question for investors to sort of start unpacking right now in terms of where Finmark fits? What are the unit economics, rate of revenue growth, potential for accretion to those financials overtime?

Answer
John Rettig (Executives)

Yes. I'd probably focus people on the platform benefits of the Finmark acquisition more than discrete monetization or economics in the near term. It is a subscription model business that just got to the monetization stage. And it's a financial planning and insights dashboard tool for small businesses, founders, mid-market companies. And it's sort of our first step, if you will, to expand beyond financial operations. .

So Bill has done a great job over the years of automating AP, automating AR. We added cards and expense and spend management. That gives us an opportunity to capture or facilitate almost 100% of B2B spend, but there's more that we can do in helping SMBs run a better business, and that is by providing insights and ability to make better decisions about cash flow beyond just the transactions and the moment of transactions, and that's where Finmark comes in. So they have built their easy-to-use solution on an API strategy that integrates with all of the tools that an SMB uses, whether that's an e-commerce or point-of-sale system, a payroll system, the accounting system.

And so their data footprint is beyond that of what Bill has today, where we're integrated primarily with accounting system. So we have deep data and expertise in the transaction layer, and they have access to data across the rest of the surface area of a business. And so it's kind of a step in the direction of moving from financial operations to financial insights.

And that's what we're really excited about. So as a stand-alone product, we'll continue investing in the solution. It's a category that's really interesting for accounting firms as they try to find ways to create more value for their customers through insights and consulting and things like that. And eventually, we'll integrate the dashboarding capability and insights tools into the Bill platform.

It could become one day actually the starting point of the experience in the Bill platform is an integrated consolidated insights tool where you have visibility into the entire financial picture of your business, not just the transaction. So we're really -- it's a small transaction, but we're really excited about the strategic implications for the evolution of our platform.

Question
Jeffrey Cantwell (Analysts)

It's very interesting. And maybe on the topic of M&A, you could talk a little bit about what trends or opportunities you're seeing right now. I guess the question here we're having is, is now a good time to be playing further offense. And would you ever consider a larger transaction or see strategy to focus on more tuck-in acquisitions?

Answer
John Rettig (Executives)

Yes. Given the changes in the market, the public markets, financing, private financing markets and whatnot, it's reasonable to think there's more opportunities today than a year ago. But it's my sense that the private markets, in particular, haven't fully adjusted yet. That's a process that takes some time. But nevertheless, we have a long list of ways that we'd like to expand the platform and enhance what we can do for small businesses. Things beyond even financial operations, touching, as I said, more of the processes of a business. And that's where M&A could help accelerate our time to market for some of these solutions.

We talked historically about things like procurement and people tools or HCM and payroll and working capital solutions. These are all areas that are of interest to have capabilities in our platform or embedded in our platform overtime and I think M&A could be an opportunity to do that. We, obviously, are capitalized to continue to do M&A. We're not in a hurry. We want to get sort of the strategy right and the right opportunities.

But when those come along, I think you'll see us take advantage of those opportunities. I don't know whether that means big or small. Obviously, we just completed a very small transaction, but very strategic, and we're certainly open to that. And I think we're open to bigger things as well. But we're also mindful of the financial goals that we have and our path towards profitability and improving margins. And those are very important priorities for us as we go forward. So the M&A lens that we have includes, not just strategy and product fit, but how targets might contribute to our financial profile.

Question
Jeffrey Cantwell (Analysts)

Yes, interesting. The way that I'm hearing that is in a couple of ways. I think maybe it makes some to kind of say a couple of pieces of puzzle as they're coming together. So it sounds like you would look for accretive acquisitions. It sounds like that's sort of a fundamental piece of the strategy, but also thinking back to the strategy overtime. Can you sort of walk us through your thinking again on Divvy, Invoice2go and Finmark, and what if that specific point of time was what attracted you to those and how that's sort of built into the Bill that we're looking at?

Answer
John Rettig (Executives)

Yes. So for Bill, when a customer has been on the platform, for say, 6 or 9 or 12 months, we tended to support 70% to 80% of their payment volume or transaction flows. The piece that we didn't support, the biggest piece, was card payments where customers would do advertising or recurring fixed charges like Internet expenses whatnot on a stored card. And so that led to the Divvy acquisition. So picking up the software tool that allows companies to have more visibility and control over card payments also meant that the Bill platform could then support nearly 100% of their transaction volume. Invoice2go -- as you know, we have tilted historically towards AP because that's where we started AP automation. So there's not as much balance in the network, in the solution than we wanted. And so we faced a build or buy or partner analysis with AR. And we found a small company that has been doing AR for 20 years and Invoice2go and has learned a lot about how to help small businesses.

And so the rationale there is to bring AR to Bill customers and the Bill network in order to create more engagement and more balance between the payment flows and the transactions that we're facilitating. And then Finmark is really, as I mentioned, the strategy about the insights and dashboards and visibility layer on top of all of the financial operations of a business, not just those that we touch.

Question
Jeffrey Cantwell (Analysts)

Interesting. Okay. Okay. And maybe if we can shift gears a little bit. We get a lot of questions on competition and the competitive landscape. So how have you seen the competitive landscape develop as you've added these new capabilities to the platform and increased the breadth of your solution, I guess where do you see Bill having strong differentiation or market leadership versus the competition?

Answer
John Rettig (Executives)

Yes. We acquired a little over 14,000 net new customers last quarter. Almost all of them are doing something for the first time as opposed to their upgrading or improving a digital solution they already have. So the market that we're in is really adopting digital solutions for financial operations for the first time. So it's a huge market opportunity. We've sort of created this category. And I think we have a big lead because of some of our unique capabilities about the platform, where we have lots of software solutions to help companies automate their capabilities.

We make it really easy for them to connect with their customers or suppliers depending upon the use case to do business. So we remove friction. We have a very unique go-to-market ecosystem, if you will. We work with trusted partners of small businesses. And obviously, we have scale, north of $250 billion a year, and in payment volume, 400,000 customers using one of our solutions, 4.7 million network members. So these are things that I think have helped us grow the business. And I think it's also attracted attention from others.

So there are certainly other players in the competitive landscape that focus on vertical approaches to the market or mid-market, larger customers. We tend to not see them. Most small businesses don't do like RFP processes. It's not about picking amongst many solutions, it's about becoming aware of a solution from a trusted source, trusted partner and then giving it a try, and that's kind of where we come in. So we haven't -- though there's, I think, lots of capital that's gone into, particularly private companies and others who are addressing some part of the B2B spend landscape, we haven't really seen significant changes in the market on a day-to-day basis.

Question
Jeffrey Cantwell (Analysts)

So we get the competitive question a lot from investors. And at times, it gets very specific. So I do want to ask you, do you see others, like Intuit as competitors? And part of the reason I ask that is because we know you have the QuickBooks Advanced partnership. So can you help us and everyone think through that from a competitive standpoint as well?

Answer
John Rettig (Executives)

Sure. We've been working with them for a long time, more recently around supporting the QuickBooks Online Advanced mid-market customers. The vast majority of the QBO customer base is really small businesses. And I think what we do really well is we help make accounting software better. That's true with QuickBooks. It's true with all the solutions that we integrate with because of our focus on process automation. It's not just a payment. So where there might be overlap with other companies, particularly the accounting software providers, it will be in that payment layer.

The piece of pushing payments out or pulling payments in from an AR perspective, but given, I think, where we sit and how we help businesses, I think there is still a huge market opportunity regardless of how other players might want to do more in Bill pay or payments or whatnot. We still have a unique value proposition that I think is proving out.

Question
Jeffrey Cantwell (Analysts)

Yes. You're still early days in capturing that 6 million small business opportunity.

Answer
John Rettig (Executives)

No question.

Question
Jeffrey Cantwell (Analysts)

Yes. So this has been fantastic. And just wanted to give you the floor for closing remarks and how you see Bill, and what you want to leave investors with today? And what do you want them to understand about Bill and its future?

Answer
John Rettig (Executives)

Well, I mean, we have big aspirations. We want to be the default kind of central solution for small businesses to run their business. So that's beyond where we are today. We started with what we think is the most complex part of financial operations. because it involves different sources of data, different people, different entities, that's AP and AR. We've expanded our platform overtime. And as you mentioned a minute ago, there's a huge market opportunity. There's millions of businesses that are still leveraging analog solutions, and we're excited about the growth opportunity ahead to serve millions of businesses. And at some point in time, trillions of dollars in payment volume.

Question
Jeffrey Cantwell (Analysts)

Thank you, John.

Answer
John Rettig (Executives)

Thank you.

Question
Jeffrey Cantwell (Analysts)

Everyone, please join me in giving John a warm round of a pause for today. Thank you.

Answer
John Rettig (Executives)

Thanks.

© S&P Capital IQ 2023
Copier lien
Toute l'actualité sur BILL.COM HOLDINGS, INC.
06/02
03/02
03/02
03/02
03/02