Good afternoon, and welcome to BILL’s First Quarter Fiscal 2024 Earnings Conference Call. Joining us today for today’s call are BILL’s CEO, René Lacerte; CFO and President, John Rettig; and VP of Investor Relations, Karen Sansot. With that, I would like to turn the call over to Karen Sansot for introductory remarks. Karen?

Thank you, operator. Welcome to BILL’s fiscal first quarter 2024 earnings conference call. We issued our press release a short time ago and furnished the related Form 8-K to the SEC. The press release can be found on the Investor Relations section of our website at investor.bill.com. With me on the call today are René Lacerte, 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 and results of BILL that involve many assumptions, 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. 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’s call, we will refer to both GAAP and non-GAAP financial measures. Please refer to today’s press release for the reconciliation of GAAP to non-GAAP financial performance and additional disclosures regarding these measures. Note that at times during this call, we will discuss BILL’s stand-alone results, which exclude our BILL’s Spend and Expense management formerly called Divvy, Invoice2go accounts receivable and Finmark Financial Planning Solutions. Now I’ll turn the call over to René. René? René Lacerte: Thank you, Karen. Good afternoon, everyone. Thank you for joining us today. During the quarter, BILL delivered strong profitable growth and continue to redefine the category with the launch of our integrated financial operations platform. Revenue in Q1 exceeded $300 million for the first time…

Thanks, René. Before discussing our updated outlook and what we are seeing in the business climate, I will provide an overview of our fiscal first quarter results. In a challenging economic environment that is creating uncertainty for small businesses, we delivered strong financial results. Total revenue for Q1 was $305 million, up 33% year-over-year. Non-GAAP gross margin was 86.1%. Non-GAAP net income was $64 million or 21% of revenue and increased approximately 280% year-over-year. Core revenue, which includes subscription and transaction revenue was $265 million, representing growth of 24% year-over-year. Subscription revenue was $62 million, up 7% year-over-year. As previously discussed, subscription revenue growth was impacted by the restructuring of an agreement with a financial institution partner. The Q1 increase in subscription revenue was driven mainly by our expanding customer base and a price increase implemented in our BILL stand-alone direct and accounting channels over the course of fiscal 2023. Transaction revenue increased to $203 million, up 30% year-over-year, driven by payment volume growth and adoption of ad valorem payments, including our Spend and Expense corporate card as well as our AP and AR payment solutions. Total payment volume, or TPV, for BILL consolidated, which also includes card processing volume was $70 billion, reflecting 8% year-over-year growth. BILL’s stand-alone transaction revenue totaled $95 million, reflecting growth of 25% year-over-year. Total payment volume for BILL stand-alone was $66 billion and increased 7% year-over-year. TPP growth continued to be muted as SMBs carefully control their spend. For example, TPV per BILL stand-alone customer, excluding the FI channel, declined 4% year-over-year and 1% quarter-over-quarter. BILL Spend and Expense transaction revenue, which was formerly called Divvy, totaled $106 million, reflecting growth of 36% year-over-year. Card payment volume totaled $4 billion and increased 35% year-over-year. Interchange fees were approximately 262 basis points, consistent with prior…

Thank you. [Operator Instructions]. Our first question today comes from Bryan Keane at Deutsche Bank. Bryan, your line is open. Please go ahead.

Hi guys, good afternoon and thanks for taking the question. I guess mine is just thinking about how much of the lower guide is macro-driven versus anything structural at all or competitive? What are you seeing on the competitive landscape? Anything that’s changing kind of your go-forward outlook based on that versus just pure macro? René Lacerte: Thank you, Bryan, for the question. This definitely is impacted by the macro. What we have seen, and we’ve talked about the difficult environment that SMBs have been in over the last probably four quarters to six quarters, and how they’ve been managing discretionary spend. And what we saw late in the quarter and continued to see into October, is that the discretionary spend of the large businesses is getting more scrutiny today. And from your perspective, the question around kind of structural or competitive, we do not see any impact from competition. What we see instead is that the market opportunity continues to increase. The opportunity in front of us with solving the businesses needs around financial operations and having a hub, the central hub is something that we continue to see increase, whether that’s in our ecosystem or just the market at large. And so we think from that perspective, this is definitely more impacted by macro than anything else. And it’s the challenge of when you end up supporting businesses and all the payments that they have, then you see their health actually comes through to your health sometimes. And that’s kind of the challenge we have here, and that’s the way we see it. But John, any color you’d like to add?

Sure. I would just add, Bryan, we see some really good trends associated with customer retention, customer engagement, other related measures that tell us the platform is continuing to deliver value for customers, but we are sensitive to a couple of things. One is the overall spend environment that small businesses are operating in. And we’ve talked for a number of quarters now about that environment being very soft. We continue to see signs of that in the most recent quarter in our forward estimates assume that we’re going to see a soft spend environment going forward. There are some pockets of strength around travel and entertainment, as an example, and some areas of weakness around advertising on card spend and facilities and office rents and things like that around core AP spend. So in total, it feels like this is influenced significantly by the macro environment, which to us feels more cyclical than structural or related to competition or things of that nature and we’re obviously gearing up to adapt to the current situation and do as much as we can to optimize results within the envelope of the spend environment and customer and supplier behaviors that we’re seeing today.

Got it. And just as a quick follow-up. I know last year, we cut numbers and you turned out to be a little bit ahead this year, you’re cutting numbers. I guess just on visibility, now given some of the macro headwinds, do you have any sense of if there’s another shoot [ph] to drop in volumes? Or do you feel like you’ve cut the numbers enough here and this should be to the bone of where businesses spend up? Thank you.

Thanks, Bryan. It’s obviously a dynamic environment, and we’ve seen some evolving behaviors from both customers and suppliers, particularly large suppliers in our network who are starting to exert more influence over payment-type choices and things like that. All things considered, we’ve taken these variables into consideration as we updated our estimates for the rest of the year, and we think it reflects the environment that we’re operating in, plus the assumption that there’s some continuation of headwinds associated with both payment volume and adoption of certain payment types. So we’ve tried to take into account as best we can, all of the variables that we’re seeing.

Thanks for taking the questions. René Lacerte: Thank you.

Thank you. Our next question today comes from Brad Sills from Bank of America. Brad, your line is open. Please proceed with your question.

Okay. Thank you so much. Maybe just another question on kind of what you guys saw here on the macro. It sounds like you saw this late in the quarter and you’re expecting a sustained softness that’s reflected in your guidance. Can you just comment on when you started to see this? Were there certain categories that you started to see deceleration. You called out mid-market, midsized firms versus small businesses, small business holding? And then any commentary on just categories and how they’re behaving? René Lacerte: Sure. Thanks, Brad. The – I mean, first, I just step back and say we saw strong adoption across the platform. So we’re happy about that. We were able to obviously get the integrated platform together with the Spend and Expense and AP on the platform. We’ve started seeing adoption there. And so overall, from the spend perspective, what we saw was in the very tail end of the quarter that larger businesses were having more scrutiny, if you will, over how – there’s whole spend and over their payment choices that they have. I think John can probably provide a little bit more color on exactly how that translated, but it was late in the quarter, and we do expect that scrutiny to continue given the current macro environment.

Yes. We’ve seen a couple of emerging trends. The first is around just payment composition and the choices that both buyers and suppliers are making as it relates to payment types. A couple of examples there. On international payments, we’ve seen an increase in U.S. dollar transactions versus FX transactions, and we think that has everything to do with the business that our customers and their suppliers are doing and the impact of overall macro and cost pressures that may exist on their businesses. At the same time, on our Vendor Direct product, virtual card payments, we’ve seen more sensitivity on the part of large suppliers to acceptance costs, and that’s led to some opt outs for larger dollar virtual card payments and things of that nature. The second component that we mentioned earlier on the call was just around the credit environment and how we’ve become increasingly proactive in managing credit lines for our Spend and Expense card program to make sure that we’re not taking on significant incremental credit risk associated with that product. That has the effect of creating somewhat of a headwind on card spend associated with our Spend and Expense product, but we think that’s the right trade-off in this environment.

Great. Thanks for that color, John and René. And just one more, if I may, on the launch of the integrated platform here. What are you most excited about? Is the Divvy integration largely complete, do you expect that cross-sell opportunity to start to take hold from here? Thank you. René Lacerte: Thanks, Brad. Yes, so we launched that during the quarter. The teams are just kind of getting up and running on the cross-sell opportunity. But the initial traction is good. It’s kind of what we were hoping for and expecting that there would be customers that obviously wanted to do both and that they would be able to put more of their spend and more of their wallet, so to speak, on our platform. The customer quotes we included from Bonadio Group and RenewalMD, we’re both integrated customers that are using the platform, the ways we intend. The other thing that is super exciting for us when we think about having the integrated platform is the ability for us to, over time, push more payment products and that drive more share of wallet across the customer base. And so an example of things that we’re going to be able to do is being able to help customers be involved in connecting with their suppliers to pay by card. So we already have a pay by card product. But if you think about the Spend and Expense card or the rebates are coming back to the bill customer, having a more consistent approach for the customer to be able to manage all of their spend in one place and to be able to participate in any of the rewards that might happen from those pay by card transactions. We think that will also help drive supplier adoption of card payments. So just an example of how having one platform really matters and something that when I step back and think about the health of the business, like we’ve been building this category, defined this category over the last 17 years, and that doesn’t happen overnight, because you build a platform that actually has the capabilities and then you expand the capabilities and you enhance the experiences for your customers. And so what I’m excited about when it comes to the integrated platform experience is that we’re starting to pull the enhanced capabilities that we got with the Divvy acquisition, and we’re putting that into the overall experience that we market and sell to our customers that we serve for our accounts and eventually, obviously make available for our financial institution partners. And that is the thing that actually when I step back and really think about the importance of this application is going to be for us to continue to be the financial hub for the SMB and having more payment choices available for the SMB, having them participate. That’s going to drive adoption, something that we’re super excited about.

Thanks, René. René Lacerte: Thank you, Brad.

Thank you. Our next question comes from Taylor McGinnis from UBS. Taylor, your line is open. Please go ahead.

Yes, hi, thanks so much for asking my question or answer my question. So your TPV guide implies down 3% sequentially. So can you maybe talk about how that compares to what you’ve seen so far at the start of the quarter in October? And if the guide assumes things can get worse, I’m just trying to understand the assumptions there. And then as a follow-up, if the TPV – it looks like the TPV guide for the second half of the year appears unchanged and assumes an acceleration quarter-over-quarter, which is greater than we saw last year. So can you just talk through some of the puts and takes there as well? Thank you.

Sure. Thanks for the question, Taylor. On the TPV estimates going forward, we are looking at quarter-to-quarter down low single digits, as you suggested. And I think that reflects some of the trends that we’ve experienced across the business over the last several quarters. We haven’t seen any significant deterioration or changes. But there have been, frankly, some pockets of strength around the core TPV for BILL. On the card payment volume, we’re looking at kind of flat quarter-to-quarter, up 20%, 25% year-over-year, something in that range. So we think that we’re still doing a good job at increasing our penetration of customers and increasing our share of wallet. That’s one of the components that leads to stronger TPV performance even in a lower spend environment. And so that’s something that we’re seeing good success with. We’re assuming we’ll be able to continue doing that throughout the year. And we feel pretty good about the stability of the spend environment that we’re operating in right now versus some of the other moving parts of the business that we talked about earlier.

Thanks so much for answering my question.

Thank you.

Thank you. Our next question today comes from Darrin Peller from Wolfe Research. Darrin, your line is open. Please go ahead.

Hey guys. Thanks. I mean, I have to go back to the questions on cyclical versus structural, because the market is acting like something with your stock down the magnitude is after market right now. It’s acting like something that’s more than cyclical. And reality is the KPIs don’t look like it’s more than cyclical. So again, I mean, if we look at the KPIs, you have customer adds that look pretty strong. You had take rate expansion that was strong this quarter sequentially, your volume beat. But I guess you’re suggesting that the trends you’re seeing is all about the spend trends that’s really indicating your guide for the next quarter. Is there any other inputs on the KPIs that is informing the guidance that we should keep in mind? Or is it really just spend and maybe the side effect of ad valorem payment payments?

Thanks for the question, Darrin. I think you have the moving parts identified appropriately. We are in a muted spend environment. We do feel good about our ability to drive awareness, reach customers and sign up new customers that continues to go well. We see positive trends there, notwithstanding the macro environment. And in light of the softer spend environment, we’re also seeing more friction be introduced into the system between buyers and suppliers and more of a desire to lower the cost of acceptance. That is obviously something that we’ve factored into our estimates for certainly for the rest of the year as it relates to our ability to continue to drive incremental adoption on some of our ad valorem products. It’s certainly not all. We continue to make great progress with products like pay by card or real-time payments and instant transfer and things like that. Those happen to be small relative to our overall payment volume though, so they don’t move the needle across the whole business versus some of the, I’d say, increasing headwinds that we’re seeing with things like our Vendor Direct product or FX that I mentioned earlier. So we think that these are – these changes in behavior and how customers and suppliers have maybe new initiatives to optimize their payment flows and costs. It feels transitory, like cyclical in nature. It’s not a change in retention necessarily of spend or things like that. So I think we feel pretty good about our ability to evolve through this particular period. René Lacerte: Yes. I would just add that businesses have been in this holding pattern just wait and see for well over a year now. And I think as rates remain high, that’s going to continue to drive more action that’s really macro related. And so when we look at the underlying fundamentals of the business, we see so much opportunity to continue to do more and to drive more success across the business for our customers and for the business. And things that we can do to – there are many things we can do to continue to drive and leverage payment choices that we haven’t done historically. And so this is – we will – are adjusting and pulling in the road maps that we have for some of these things, but it is definitely a macro environment.

Okay. And just very quickly, any changes in your plans for this year, given what we see now in terms of the spend trends by your customers in terms of your investments/profitability expectations or anything on the sort? Thanks again guys. René Lacerte: Yes. Thank you, Darrin. We are – our DNA is to really manage the business for both profitability and growth. It’s how I’ve built the business over the years. It’s how John and I think about it, it’s how the teams think about it. And we’re committed to the profitability path that we’re on. We believe the opportunity with the portfolio of products we have to continue to make progress on both is there because of the strength of the business that we’ve built. So we will manage the expenses that we need to in order to drive the goals that we set.

Thanks guys. Appreciate it. René Lacerte: Thank you.

Thank you. Our next question comes from Tien-tsin Huang from JPMorgan. Please go ahead. Your line is open.

Hi, thanks. Thanks so much. And John congrats on the new President title. On the outlook, maybe can you elaborate how much of the guidance revision is tied to the weakness on spend that we’ve been talking a lot about versus the adverse selection of the payment choices. And does it make sense to maybe talk about that the penetration of some of the ad valorem products so that we better understand the impact.

Yes, great question. Thanks for that. I’d say if you step back and look at our overall estimates for the year, the majority of the adjustment that we’ve made is actually related to the Spend and Expense product, which has mostly to do with slightly lower spend per ticket per transaction by customers. That’s directly related to macro. And then indirectly, proactive adjustments that we’re making to line sizes and things like that in an attempt to mitigate any increased exposure as a result of worsening credit conditions in our customer base. The average size customer, as you know, for our Spend and Expense product is much larger, mid-market type customers versus the core BILL product. In the quarter – this last quarter, we did see increased penetration across all of our products, better usage, although we saw lower actual volume growth on some of our higher monetizing products like virtual cards and FX, as I mentioned. And some of these trends are directly related to the choices that larger suppliers or customers are making. And those are the trends that we’re expecting to persist throughout the year. We do have levers at our disposal, including with the launch of our unified platform many more opportunities to drive customer behavior and create awareness and things like that as we think about a more modular approach to pricing and packaging that we think we can make progress with this fiscal year. So those are some of the puts and takes that we considered.

Okay. And quickly on myself on the Spend and Expense side, the ability to dial up and down the credit standards. When did that change for you? It sounds like maybe you might get a little bit tighter on the credit side before reversing them. I just want to make sure I understood the timing of that. Thank you for the question.

Yes, thanks for the clarifying question. We’ve actually been making adjustments and doing more frequent reviews of our customers’ financial position and more frequently engaging with them over the course of the last year. So this didn’t just start in the last quarter. However, we have made some more significant more aggressive adjustments to line sizes so that we minimize our exposure. Previously, we talked about doing things like reducing open to buy, where if a customer is using $50,000 a month consistently, and they have a line of $100,000, we will reduce the line to $50,000 and things like that. So we’ve been – I think, evolving some of these adjustments over the last year, but we’ve been more aggressive with them over the last quarter or so, and we expect for the remainder of the fiscal year to be a little bit tighter, if you will, on the credit limits because we’re really managing to avoid credit losses.

Makes sense. Thank you, John.

Thank you.

Thank you. Our next question comes from William Nance from Goldman Sachs. William, your line is open. Please go ahead.

Hey, guys, appreciate you taking the question. I was wondering if can you spend a little bit more time on some of the supplier behavior changes that you guys have noted. And I guess – how does that – how do we kind of square that with the historical guidance you have had on take rate? Like should we expect take rates to be kind of flattish in this environment? And maybe just a more rich discussion on what is the kind of mechanism for some of these suppliers to change their payment preferences? Is this – it sounds like it’s concentrated among larger suppliers. But is this something that can reverse at some point in time? Or do they – have they found a cheaper way to do it and this is how they’re going to accept payments from now on. Maybe you could just talk about like the stickiness of some of the headwinds to take rate. René Lacerte: Thank you, William. It’s – when we think about how the suppliers are addressing, there’s a long tail of suppliers. They’re small suppliers, there’s large suppliers. By the way, suppliers are both on the international side as well as the virtual card side. And the opportunities to serve them are different. So when we look at the impact that we’re seeing today, there are opportunities for us to address and, like I said, pull in the road map to drive more payment choice across the portfolio. And so the first thing we’re going to do is focus on pulling in that road map. And then we’ll continue to create operating leverage using the strong payment economics we have to drive adoption. And then we’ll obviously leverage the integrated platform to drive adoption of payment products. So lots of opportunities to kind of continue to drive the penetration of our payment products specifically on the specific question of suppliers potentially opting out, I’ll let John take that one.

Yes. So to that point about Ken, the trends that we’ve seen recently reversed or revert to or were back to a more linear increase in adoption. We think that’s absolutely the case. So we’ve seen numerous areas where product improvements can really help us drive adoption. Those are becoming more important in this macro environment than they were, say, a year ago or two years ago when adoption was increasing roughly. An example would be – we have a number of transactions for virtual cards that go unprocessed or even rejected and part of the reason for that is not actually cost. It’s that we’re not passing rich enough data in some instances to drive automated reconciliation. And so when René mentioned accelerating some of the product improvements, we are going to make enhancements to remove as much friction as possible from – and that was just one example from our ad valorem payment suite to make it easier for suppliers to adopt payments. We also have the ability just within the unified platform, and I mentioned pricing and packaging earlier. We can look at the whole relationship that we have with suppliers now offer them more tools and capabilities and increase the value proposition that we’re delivering for them. If that involves incentives, if that involves payment speed, other product enhancements, we’re going to be leaning into all of that. And we think within this fiscal year, we’ll start to see a change in increasing volumes on some of these payment products.

Got it. That’s super helpful. And then just maybe a question, maybe you could just put some numbers around sort of the exposure to more cyclical payment volume streams. It sounds like you guys have called out T&E is a strong – kind of a stronger area of spend, digital advertising, weaker, things like lease and rent weaker. So just maybe if you could put some numbers around kind of like the overall size and any other categories that we call out as we kind of try to separate out like more versus less cyclical streams of payment volume.

Yes. I mean we haven’t provided specific percentages or things on spend categories other than to say, just like we serve customers across all industries, we have a pretty diversified base of expenses across customers as well because we generally have, call it, 70 or 80 or more percent share of wallet. So we’re seeing all types of spend. In the case of T&E, that’s what I called out specifically around card spend. That’s still small relative to the total base of spend, which was $4 billion in the last quarter for our Spend and Expense product. But it’s large enough that like that movement, we’re seeing strength there. It stands out because most other categories are flat to slightly down. Now even T&E is still down on a per transaction basis. So the card spend per transaction. And I’d say the same is true with the example on the AP automation side with lease payments and rent and everything that is facilities related that’s like low single digits percent of a company’s overall spend on average, but we are seeing aggressive reductions in that category as companies rethink small businesses rethink their physical footprint in this environment.

Got it. Super helpful. Appreciate all the color, guys.

Thank you.

Thank you. Our next question comes from Andrew Schmidt from Citigroup. Andrew, your line is open. Please go ahead.

Hey René. Hey John. Thanks for taking my questions. I just want to dig back into the SMB health topic. And it sounds like retention characteristics, engagement are still pretty strong, but are you seeing any changes around involuntary attrition maybe on the smaller side of the business spectrum, more businesses is going on business, things like that. I would love to dig a little bit more into that front just on the SMB Health. Thanks a lot guys. René Lacerte: Yes. Thank you, Andrew. We are definitely seeing strong demand across the platform, 4,700 core net adds this quarter continues, obviously, good success in our financial institution category. So lots of opportunity to drive adoption. And when – I think John referenced from a retention perspective, we’re in a good spot. It’s nothing has changed from that perspective. It really is about businesses tightening their belt. And like we said, it’s the larger businesses that have the most ability to tighten their belt. And that’s where we’re seeing the spend – the Spend and Expense capabilities from the Divvy acquisition. Those tended to be larger businesses to begin with. And so that’s kind of where we see the impact is kind of the larger business and the SMBs as a whole, I mean, they’re adopting the platform, they’re using the platform. The engagement is high. Everything that we are doing to make their lives easier comes through. That’s what we hear from our customers and why we include them in the call. This is something that we believe there’s an opportunity to continue to grow and expand and reach more businesses because of that – those types of adoption trends.

Got it. Thank you very much René. And then with the completion of the unified platform, I’m sure that frees up a lot of internal bandwidth resources, things like that. Can you talk about how you redeploy those resources, whether it’s additional product velocity, go-to-market? Anything around that front would be helpful. Thank you. René Lacerte: Yes. Another great question. A lot of what we’re focused on is how do we continue to iterate faster and expand the portfolio of the payment products we have, that enhance the customer experiences that we have. So with the integration of the platform into one, there’s now one unified experience across mobile and desktop that we did not have before. Now that’s not out for all customers, but it is rolling out to our customers. On the mobile experience, for example, over the next few quarters here. So lots of opportunity to kind of enhance and iterate faster because like you said, it was a heavy lift. I was super happy that we got it done ahead of schedule. Originally, we had said we’d get it done by the end of calendar 2024. We got it done earlier than that. The teams are working efficiently and effectively, and we are excited about the opportunities to continue to enhance. And the number of ideas we have is high. So we’ll be doing that for customers as we move forward here.

Thank you very much, René. René Lacerte: Thank you.

Thank you. Our next question comes from Keith Weiss from Morgan Stanley. Keith, your line is open. Please proceed with your question.

Excellent. Thank you guys for taking the question. Maybe a little bit of a different focus. Last quarter, we talked a lot about the changing relationship with one of the major FI channel partners. How should we think about sort of – and it got a lot of investors excited because it went from a kind of transactional ability to get to the new customers to a base equation of where you could go after the entire customer base. How should we think about the time frame of that where that could have a positive impact on kind of new customer adds? Like what are the kind of milestones or the roadway, if you will, that we should be thinking about in terms of getting that sort of going in a good way? René Lacerte: Thank you, Keith. We are actively working with our partner to enhance the capabilities so that we can roll this out to all of their customers. It’s something that we’re actively doing. We will give you an update on the timing of that for that particular partner when we have one later this fiscal year. But I would just really kind of – when I think about I step back and I think about the ecosystem developing, like this does not happen overnight, but we have created this category and this opportunity for SMBs to have one financial hub for all of their financial operations. That’s unique. And we’re seeing it in the ecosystem. It’s not just the partners we’ve announced and the partners we’re working on, but it’s what we’re seeing in the pipelines, what we’re seeing from just in general, what we hear from accountants like people are getting pretty excited about the opportunity to have one place to manage all these financial operations and the platform to do that is BILL. It’s something that’s not easy to build. It’s something that has taken us time. But having the integrated platform integrated in a way that we can actually now add these different payment products on making that available to our partners to our accountants, those are all things that I think about the ecosystem being super important. So it’s not just one partner. It’s really all the opportunities we see in front of us.

Excellent. Thank you, guys. René Lacerte: Thank you.

Thank you. Our next question comes from Kenneth Suchoski from Autonomous. Kenneth, your line is open. Please go ahead.

Hey, good afternoon, guys. Thanks for taking the question. I just wanted to better understand the assumptions in the guidance. Are you extrapolating the October trends, I guess both what you’re seeing on TPV and payment-type selection? Or are you assuming it gets worse in November and December and then sort of stabilizes from there?

Thanks for the question, Ken. So we’ve taken a look at the trends from late in the first quarter. Those have continued into the second quarter. Our assumption is that those trends persist through the quarter. We begin to see some stabilization in Q3 and throughout the rest of the fiscal year. It’s really – as I mentioned, overall, pretty stable spend environment, but some moving parts around payment type composition. And that’s the thing that we’ve tried to capture in our assumptions for the rest of the year that there is some adjustment that’s happening now. We’ll get ahead of that in the second half of the year and start to drive incremental adoption to overcome or mitigate some of those behavioral changes. So it’s not something that we expect to, for example, deteriorate throughout the year or anything like that. But we are assuming the trends we’ve seen early in the December quarter and late in the first quarter continue this calendar year.

Okay. And John, just on that point, I mean what transaction take rate is being assumed in the guidance for the rest of the year? Is it stable quarter-over-quarter? Or is it declining? And I guess, is there an opportunity to offer some other solutions like working capital or pay by card in this type of environment to sort of offset some of those headwinds.

Yes. So our assumption for the second quarter is for our monetization to be down slightly and then grow in the second half of the year such that we exit the fourth quarter above where we were in the first quarter. And to your – the second part of your question about other products, that’s 100% true. So we think – we have highlighted FX transactions and virtual card payments, just as examples because those have been large drivers of growth historically. But we have some really good trends happening with some of the newer products, including pay by card and working capital. That we think can be significant drivers of monetization expansion, not only later this year, but in years ahead. So we’ve talked in prior quarters about this portfolio approach that we take with ad valorem payments. And we expect some of these newer payment products to be able to at least partially mitigate some of the trends that we’ve seen recently.

Okay, all right, great. Thanks so much, John, René. René Lacerte: Thank you, Ken.

Thank you very much. Our next question comes from Brent Bracelin from Piper Sandler. Brent, your line is open. Please go ahead.

Thank you. Good afternoon. I guess, René for you. We’re seeing a number of stress fractures in the SMB sector emerge. I think Zoho in October, Paycom, ZoomInfo in the last week. Can you quantify how much of the spend slowed in October versus September? And are you now seeing these SMBs start to cut nondiscretionary spend? René Lacerte: Yes. Thanks, Brent, for the question. There are – best way for us to probably talk about it is that a large business is going to have a dedicated finance professional whose job is to look for how do you manage expenses down when you have a wait-and-see economy, a holding pattern. And so that’s why we keep talking about the larger businesses, of which our Spend and Expense platform has more larger businesses than the core BILL platform and why we are seeing more of the impact for the rest of the year from that segment of our business. And so when we look at the overall small business portfolio that we have, we’re very fortunate because we have customers of all sizes. And most of the businesses are managing their spend, which is why John has said, and we’ve said that the spend is generally stable there’s some downward pressure, but it’s generally stable. It’s just managing the expense side that’s kind of maybe new for us as well as the larger businesses also managing where they have some additional discretionary. So I guess, the step back is, we have a large portfolio of customers, lots of opportunity within them. And this is more – the macro is impacting today, the larger businesses more than the rest of the portfolio.

Super helpful color there. And then just one quick follow-up for John. The implied guide for the second half does still look like you’re looking for 10% overall growth, does that assume increasing wallet in the soft landing? Or are you actually baking in a hard landing into those 10% growth rate? Thanks.

Yes. We have, I think, a long track record of increasing our penetration with customers, helping small businesses automate more of their processes with all the payment products that we have, our whole portfolio, that allows them to bring more payments onto the platform. We’re assuming that those trends continue, but that the overall payment volume and the payment volume per customer is very muted down slightly as we talked about in the second quarter, mid-single digits on a year-over-year basis on a TPV per customer. So we’re not trying to predict or forecast the overall sort of macroeconomic impact here other than projecting forward the behaviors that we’ve seen from our customers in this environment, which, as we said, have shifted a little bit. So we’re assuming those ships will continue and we’ll be able to partially offset or mitigate some of those through continued progress with share wallet and some of the product improvements and experience improvements that René mentioned earlier.

Got it. Thanks.

Thank you.

Thank you very much. Our next question comes from Samad Samana from Jefferies. Samad, your line is open. Please proceed.

Hi, good evening. Thanks for taking my questions. So maybe, John, just thinking through the commentary on ad valorem and payment type selection I know you addressed the type of both where – what payments are going towards in terms of end spend and then talking about payment types. But maybe if we could actually triangulate, if you think about the ad valorem transactions themselves, right? So you gave 3.2% of the mix in the fourth quarter was from virtual card and 1.7% was from cross-border in local currency what’s the concentration there look like, right? So if I isolate it to that 3.2%, how concentrated is that amongst a certain number of suppliers? Because if I annualize that, that’s like $8 billion, is it a handful of suppliers that are accepting that in terms of virtual card? Is it hundreds of suppliers? I’m just trying to get at the level of concentration within that spend?

Yes. Thanks for the question Samad. So I’d say on cross-border payments, it’s very diversified across a large number of suppliers without a significant concentration. On the virtual card or vendor direct side of things, it’s thousands and tens of thousands of suppliers, not tens or hundreds. With that said, we do have large suppliers who are – think of examples like national providers, whether its utilities or telecoms or things like that, which are used by many customers of BILL. So there’s a many to one relationship. But if we step back and look at the overall spend profile for any of our payment products, but that in particular, we don’t feel like there’s any sort of outsized concentration or anything like that of a very small number of suppliers.

Got you. And then maybe asking the question on the spend side. So if I think about the type of payments that are made using ACH versus the type of payment that a customer may choose to make virtual card in. I guess what I’m wondering is, is that are the payments that are typically selected for ad valorem more discretionary versus maybe something that is more recurring if it’s ACH. Once again, just trying to understand if there’s different concentrations at this specific higher fee level.

Yes. That’s a great clarifying question. I’d say there might be a higher percentage of discretionary spend that flows through our Spend and Expense card program because that involves individual cards, some of which are physical cards, not all virtual and therefore, more sensitive to things like T&E, which we mentioned before, that’s been strong. On the virtual card program, the Vendor Direct side, AP automation for BILL. We don’t see significant differences between, say, an ACH payment that might be set up for a one-off transaction or even one that’s an auto charge or an auto debit to a bank account versus a virtual card payment that’s delivered to a supplier. In some case, it’s the supplier who’s driving. Here’s how I want to get paid, and their buyer takes that action. In other cases, it’s the buyer. I don’t think there’s big differences other than transaction size, where most suppliers do have limits and various other variables that they want to manage when deciding whether to take a card payment.

Great. Appreciate the clarity. Thanks for letting me squeeze two in.

Thanks, Samad.

Thank you. Those are all the questions we have time for today. So I’d now like to turn the call back to René for any final remarks. René Lacerte: Thank you, everyone for joining us today. We’ve built a great business over the years of our constant focus on automating the financial operations for SMBs. We look forward to serving them, and thank you again for joining us.

That concludes today’s conference call, everybody. Thank you very much for joining. You may now disconnect your lines.