Good afternoon. My name is Brent Bracelin, the co-head of technology here at Piper Sandler. Thank you all for joining us. Had an interesting opening keynote here around the state of AI. I thought the policy keynote this luncheon was interesting. Gonna have to watch those Iowa caucuses really closely. The next session here, we have the CFO and IR of BILL. Really excited to have them. John, Karen, thank you guys so much for joining us in Nashville here.
Yeah, it's great to be here with you.
Thank you. So maybe we'll start a little bit with the origin story here for BILL. If I think about financial software, it's not new. I think Intuit was founded in 1983, and QuickBooks launched in the late 1990s. Walk us through the concept of why BILL was founded. What were the pain points that weren't being addressed by the software industry players at the time?
Great place to start, and I, I think it goes back to René's experience at his first startup, which was PayCycle, where he found trying to actually manage cash flow and run the financial operations was not altogether different than how his parents and grandparents had managed businesses decades before. And a lot of the innovation that happened in business software up to that point was around the recording of transactions and making it easier to do accounting and bookkeeping, things like that, not necessarily process automation. And so that's really where he dug in, 'cause there weren't problems with recording numbers, even making payments for that matter. Like, there were some systems that worked, but managing the process, the data, getting visibility and whatnot, is where the gap was. He set out to build a solution that made it really easy to get visibility and control. Not necessarily account for, but improve, you know, be a complement to the accounting systems.
That was the breakthrough that led to obviously creating a category in many respects. The other thing I'd say, Intuit was obviously very early in serving SMBs, it's hard to serve small businesses. It's hard to find them, attract them, keep them, make the economics work, and that's where what we've done with our distribution ecosystem is really important. Allows us to reach customers wherever they are with their trusted partners. We've built a network. We partner with financial institutions, so we make end businesses, small businesses, successful, get more visibility and control out of their financial operations. We also make partners more successful. So bringing the solution and the distribution ecosystem together, I think, has allowed us to address a need in the market that others hadn't previously tried to attack.
So start out with process, solving the process and workflow pain points. A lot of data involved in that, and then obviously with the distribution advantages. Bring us up to speed on now the scale of the business. This is much more than just software, right? You have a big B2B payment business that's complemented those workflows. Maybe compare or contrast the business mix. What does that business mix of software and payments look like today versus maybe five years ago?
Sure. This most recent fiscal year, we're really proud to announce that we achieved over $1 billion in revenue. It was a big milestone for us that we really feel very excited about. That was really driven by the platform and the ecosystem that we have, that John talked about. If you look at our revenue just compared to four years ago, our revenue is 10x what it was four years ago. On a subscription basis, our subscription fees are 4x, so they quadrupled over four years. Our transaction fee revenue is 26 times. You can really see how the revenue growth, a lot of it is being driven by strong subscription revenue growth, as well as by transaction fee revenue growth.
That's really been driven by how we've expanded the platform and the use cases that it serves, as well as the types of payments that we offer. We started by offering AP and AR with ACH and check. We expanded to offer other types of payment solutions, and what that did is it really offered businesses choice, and with choice, we captured more wallet share. We also expanded into corporate cards with spend and expense management, and all of that combined really has driven some great growth.
20x increase, and that's over four years?
26x transaction fee revenue.
So let's talk about that. You've 20x the payment business. It's now 1% of, of basically GDP you're processing through the platform. What's the aspiration longer term? Where does this go?
Yeah, we did $266 billion in payment volume in fiscal 2023. That's where the 1% of GDP comes in. And if even just looking back a year ago, I think it was René started talking about, you know, billions in revenue and the market opportunity being so large that we can build a really big business. I mean, this was before we were even past the billion-dollar milestone. So while that's really important, we have been building the infrastructure and the opportunity to scale to support a much larger, you know, base of customers, market share, and so forth. And I think we're. The market is now beginning to evolve. Pandemic was a big wake-up call in terms of awareness for businesses. That's really important.
So as we think about, you know, growing payment volume, increasing our share of wallet with customers, increasing the surface area of our platform, and how much of the, the processes for customers we can serve, we're, we're building to be, you know, billions in, in revenue over time and trillions in payment volume. We're obviously a long way away from that but it's, we didn't, we haven't really constructed the business just to get to where we are today. We've been building for several years ahead.
With the additive, for sure. One of those things you've added to, to really help spark this growth is Divvy. As we think about the, you know, expense card management business, this is now a $350 million business. Feels like on this current trajectory, you have a line of sight to $1 billion just within the Divvy business. I think you talked about a unified Divvy product launch. It sounds like that now is called, I think, BILL Spend & Expense.
BILL Spend & Expense.
Then BILL Spend & Expense. Maybe walk us through the highlight of that launch. What does that unified launch look like?
Sure. The unified launch just went live last week.
Yep.
And we acquired Divvy about two years ago, had about $100 million annual revenue run rate. In the most recent fiscal year, did $350 million. So really good growth. It's a very innovative solution for SMBs. It helps them manage their card spend, integrated with software, so they really have good insight into how their card's being used, and they have great, insight, visibility, and control. And we have combined, now Spend and Expense management with our core AP and AR platform, and that's really giving- it gives businesses the opportunity to have a complete view of all of their B2B spend in one place, and also see, what their to-do lists are in a single sign-on. So it really provides a lot of, a lot of benefit for the SMB.
So what's changed? Is it BILL branding on the card then, or is it opened up now, where the software back end's integrated? Walk me through, like, what's really changed with the launch.
Yeah, so look, there's been a lot of invisible changes over the last 18 months as we've integrated the back end solutions. We've consolidated, you know, data, identities on customers, and now it's the customer-facing and brand elements that are the last mile.
Yep.
And the key customer benefit is being able to manage all of their financial operations within one interface, if you will. We have about 5,000 BILL customers as of the end of June who adopted the Divvy, formerly Divvy solution, up from about 1,000 when we closed the transaction. Yet they were still needing to use two solutions. They were connected, but they were separate solutions. And now what we've done is brought all that together, and that, I think, will really unlock the BILL customer base as being a major source of attach and adoption for Divvy. It's not the reason we did the transaction, because the market is still evolving. It's very early in the spend and expense space.
Mm-hmm.
But now I think we have the opportunity to double down on addressing, you know, penetration adoption of the BILL customer base.
So as we think about that BILL customer base, there's a couple different aspects of that installed base. You have the core subscription BILL customers, you have basically the international customers with acquisition, and then you also have a supplier base. Should we think about a staged rollout of cross-sell potential across all three of those? And how does that, how does that kind of, transition and go-to-market focus shift? Is it solely just on the existing BILL subscription customers first, and then they'll pivot to suppliers? Walk me through that.
Yeah. I'd say there's probably different motions for different product sets. As it relates to spend and expense, that's primarily a cross-sell, up-sell motion to BILL AP automation customers.
Okay.
That's the core of what they're doing, and we're expanding the footprint of that solution with spend and expense. With spend and expense customers, who are leveraging the corporate card, the Divvy card now, we have the up-sell opportunity around BILL AP, international payments. These are larger businesses, typically mid-market, who have a much higher percentage of cross-border payments of their total payment volume. And then the network opportunity is probably more around other working capital solutions and obviously AR, bringing that AR persona and tools and capabilities to better manage invoicing and receipts to network members.
All three, cross-sell potentials.
Yeah.
What do you think is gonna be the easiest motion? Is it gonna be easier to cross-sell the card to your core? Will it be easier to cross-sell AP into those card customers?
The order that I laid them out, I think, is the time to reach the opportunity.
Okay.
I think it starts with the spend and expense,
Yep
And then evolves to AP automation being a broader solution for spend and expense customers. And then something that we think long term will be a huge advantage for us is activating the network through AR tools and better adoption of capabilities, and that can become a much more viral network and an important source of future customer acquisition, even though it's quite small today.
Great. Super helpful color there. I know we're quite excited about, and investors are quite excited about cross-sell. We'll have to check the progress here over the next, you know, six to 12 months. Let's take a step back. If I look at the software industry as a whole, it's been a challenging two-year period. You know, we had this big post-pandemic, forced digital spend, a digital awakening, tough compares, moderating growth across the whole industry, big spike in interest rates that obviously trying to slow the economy down a little bit and cool inflation. But we're now starting to see the industry start to stabilize. I think, growth rates across the Cloud 100 are about half of where they were at the peak. There are some signs that maybe we could start to see software industry growth start to re-accelerate at some point.
A lot of that's easier compares.
Yeah
M ath. But for your business, as you think about the opportunity, talk a little bit about the BILL Spend & E xpense card. What other potential growth levers do you see in the business?
Well, just stepping back at the highest level, it's market penetration, so that's number of customers, number of subscribers who are using one or more of our solutions. That is the long-term growth driver. There's always a lag between acquiring a customer and then monetization needs to follow. The second is payment volume-related. How much of their commerce, their activity, are we able to facilitate and support? And that's both absolute spend level of a business, as well as the share of that spend level that BILL is addressing. And by BILL now, it's all of our solutions combined. And then the third is monetization. So how do we find the right payment products to either suppliers or buyers? And over time, you've seen us expand, as Karen mentioned earlier, transaction monetization significantly.
That's not just optimizing what's best for BILL, that's actually finding the right products that are best for buyers and suppliers, and that's what drives repeat usage. That repeat usage and stickiness of the platform is how we drive expanded monetization over time. At the highest level, that's how we think of the business model and how it grows.
Conceptually, maybe Karen, as we think about the opportunity set, we really haven't seen a software cloud model that had two material growth engines, two monetization engines, subscription and B2B payments. 1% of GDP, like, as you think about dream the dream, what's that dream look like for you? Thinking out over the next, you know, five years, how big of an opportunity do you see the potential to capture, particularly as you go maybe international?
Yeah. Well, we think it's a significant opportunity, because we really have a platform that serves SMBs, that was purposely designed for them, and we're solving their use cases and their pain points in the back office. And then with regards to payments, as John mentioned, it's really about providing choice to customers as well as to suppliers, so they can really find the best transaction opportunity that they have that serves their immediate needs. And that's what's been driving a lot of our transaction fee revenue growth. And so long term, we think, our take rate could be significantly higher than where it is today. And, monetization, as John mentioned, is an important, important driving factor.
How much room should we think about the take rate? I mean, it's expanded a lot. I think, early days of the IPO were 7 basis points.
Mm-hmm.
14 basis points now. Could that be a 20 basis point, 25 basis point opportunity for you or not? Is there a threshold where it gets a little challenging to expand those take rates?
I think individual products all have a natural life cycle, depending upon the composition of the customer or the supplier base. But when we step back and look at the portfolio of products that we have, and think that today, the vast majority of our payment volume runs on payment rails or payment types that monetize very close to zero. And we do that as a convenience, for customers, knowing that some percentage of that volume will also transact on higher monetizing payments. We think that, you know, today we're a little over 10% ad valorem payments. Could that be 20%, 30%, 40% as we look down the road long term? We think it can.
And it's not gonna be a single product that gets us there, it's gonna be a portfolio approach with an emphasis on electronic payments and repeat usage. Those are the things that we want to ensure. We'll take repeat usage and annuity payment volume streams over immediate monetization any day, because we know it pays back over a longer period of time.
Very interesting. So we get a lot of questions, shifting gears here to Intuit. Intuit obviously was a partner for a long time, kind of evolved now into a little bit of a foe. Maybe walk us through the Intuit relationship, where we stand now, and as we think about them becoming a potential competitor in the space, how long would it take to, like, as me as a small business, migrate off of BILL to try to go do something on Intuit?
Yeah. So there's the market's big, first of all, and it's our belief that it isn't a winner-take-all market. But there are certain segments of needs where multiple companies can fulfill those needs. And I think there's analogies to the CRM market, payroll, other e-commerce segments, where there are many large companies serving large customer bases. We think this market plays out like that as well, and we're obviously a leader in this space. We have a huge actual product on-the-ground advantage today. Like, what we do for customers, how they use our product, the advanced, you know, tools that we have, and we think we're gonna continue to extend that lead.
I think there are a segment of very small, you could think of them as even micro businesses, that could benefit from a super simple, more consumer-like payment experience, less about managing and automating their operations and creating collaboration and workflow, but more about point solutions. I think given the nature of the QBO customer base being a very large installed base of probably majority really small businesses, there's certainly gonna be a need that's met there. But we think the combination of our tools and our distribution ecosystem, and if you look at the habits of our customers when they've been on our solution for a while, call it six months, nine months, it's really sticky because it's how they run their business. It's not this thing that they use once a month or once a quarter. They use it every day, and we think that stickiness is something that really helps us.
I think, the target, for Intuit from a customer's perspective, has kind of been in this 2 to 1 to 100 employee kind of range, at least across the broader part of the business. What is the typical size of your customer? I think about swim lanes, where you're focused-
Yeah.
Is it similar, or are you trying to redirect your focus in a different swim lane?
I think we're all of the above. Our sweet spot is 10-100.
Okay.
We have customers that are much larger than that. We call them mid-market customers. They're many multiples of that. And then we do have sub-10 employee customers. And we serve them well. The smaller the customer, normally the fewer needs they have to collaborate and to create workflows. Certainly, one-person businesses, sole props, and freelancers, and things like that, a much more simplified solution is important. We're building towards that. We've talked a little bit about what we're doing for small businesses with B of A and other banks. That's part of that initiative. So I'd say we do have overlapping interests in the customers, but that's probably a sliver versus it being a complete overlap.
Helpful color. As I think about this business, a little different than other SMB businesses, when I think about churn, gross retention, it is kind of more back office workflow. You get tied to the workflow, it's a little harder to rip and replace. What has historically been the gross retention rate for kind of the core business, and how hard is it to move off?
Yeah, the gross retention rate's really strong. It's 86%.
Okay.
If you think about it, about 1% of SMBs go out of business a month, so that's relative to 88%, essentially. So really strong retention, and it's because of the value that we provide. We save businesses half of their time that they spend on AP, and then we also just have incredible data and offer them a lot of payment choices.
Last question is just so we think about competition. What is the moat, the biggest competitive moat? What's gonna be the hardest thing for Intuit to try to catch up?
First of all, I think we're doing different things. So like, there's a shiny object around payments, and I think we've, in some ways, with our success in transaction monetization, attracted attention to that. That's just the last mile of how BILL serves customers. So like, our mission and what we're trying to do, I think, is slightly different than standing up payments and AP and things like that that they might be talking about. But I think our differentiation is around the purpose-built platform from the ground up, understanding the needs of some of the legacy processes for business, our expertise in payments, we've been doing payments at scale for a long time. And third is, I think, our open approach to reaching SMBs wherever they are. So it's not a closed network, it's an open network.
We have over 5 million members in our network. It doesn't matter what accounting software they use or how they're doing business, they can connect to anyone in our customer base and vice versa. So I think we have a unique set of capabilities that will allow us to continue to scale the business in what is obviously a large market opportunity.
Last two questions I have, one is international and one is on AI. We spent almost 20 minutes without talking about AI, so we have to.
Yeah.
Address that. But on international, are there things that could accelerate international as you think about that opportunity, certainly?
Yeah. Well, we're just going after such a big market opportunity, where there's 6 million SMBs in the U.S., 30 million, if you include sole props, and worldwide, there's 70 million small businesses, and the vast majority still use paper processes or manual processes. So it's a huge opportunity, and we've been laying the groundwork to enter international markets. So for instance, we acquired Invoice2go. They're headquartered in Australia, and they have customers in over 150 countries. We also do international payments in more than 130 countries.
And we've been doing some pretty unique things to better serve our network members. So for instance, in Canada, we got money transmitter licenses, and we've made it easier for companies within our network to receive payments. So we're taking steps towards international, but right now, the big opportunity for us is really domestic.
Forgot about that money transfer licensing kind of model. Is that something Intuit's gonna have to do?
They have money transmitter licenses.
They do.
Yeah, so.
Let's shift to a two-minute AI discussion. Obviously, AI is new. It's all the rage. We're talking about it. But it does feel like the pace of change is happening fast. As you think about the opportunity to kind of create new features, new functions, how do you see AI at BILL?
So first, like we're sort of a first-generation early adopter of AI. We've been leveraging AI and machine learning and lots of tools to manage risk, to leverage our data asset to better serve customers. We like to think of it as, we're able to move money in seconds versus hours, or days, or weeks, in part because of our investments in AI and ML. I'd say there's probably different categories of use cases for us for this next generation of AI. Certainly, there's some positive potential around just customer targeting and the value proposition and how we penetrate the market in terms of the overall acquisition funnel. Two, we do have huge datasets, language datasets, around interacting with our customers.
We have a chat-based and email-based customer support, so you can think of hundreds of thousands of customers, millions of interactions that we believe we can bring much more automation to that, and predictive capabilities to anticipate customer needs and help them solve those needs in a self-service way versus a human-powered way. And then, like a lot of other companies, we're obviously exploring ways to get more productive, whether that's in the engineering and product development side of things, or just in our own, you know, operations to create efficiency. So it's early in terms of tangible business results for us yet, but we have a number of important initiatives that we're pushing hard on, led by our CTO, Ken Moss, who comes from EA and has lots of experience in this AI world.
Great. Well, Karen, John, thank you so much for taking time and sharing with us your insights, and, you know, enjoy your time in Nashville.
Awesome. Thanks, Brent.
Thanks so much.
Thank you.