Good afternoon and welcome to Bill.com's Fourth Quarter and Fiscal 2020 Earnings Conference Call. Joining us today are Bill.com's CEO, René Lacerte, and CFO, John Rettig. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. With that, I would like to turn the call over to John Rettig for introductory remarks. John?

Thank you, Christine. Welcome to Bill.com's fiscal fourth quarter and year-end 2020 earnings conference call. We issued our earnings 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. With me on the call today is René Lacerte, Chairman, CEO and Founder of Bill.com. Before we begin, please remember that during the course of this call, we may make forward-looking statements about the operations and future results of Bill.com 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 a discussion of the risk factors associated with our forward-looking statements, please refer to the text in the company's press release issued today and to our periodic reports filed with the Securities and Exchange Commission, including our Form 10-Q dated May 8, 2020. 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. The non-revenue financial figures discussed today are non-GAAP unless stated that the measure is a GAAP number. Please refer to today's press release for the reconciliation of GAAP to non-GAAP financial performance and additional disclosures regarding these measures. Now, I'll turn the call over to René.

Thanks, John, and good afternoon, everyone. Thank you for joining us today to review our fourth quarter and fiscal 2020 results. Despite the challenging economic environment as a result of COVID, Bill.com delivered very strong financial performance. I'm thankful for all of our dedicated employees for their efforts. First, a quick recap of our financial results for the quarter. Core revenue, which we define as subscription plus transaction revenue, grew by 54% year-over-year to $38.8 million. Total revenue in the quarter grew by 33% year-over-year to $42.1 million. We also delivered a strong non-GAAP gross margin of 78.6% in the quarter. For the full fiscal year, core revenue was $136.4 million, an increase of 59% from the prior year. Total revenue was $157.6 million, an increase of 45% from the prior year. Non-GAAP gross profit was 78.2%, an increase from 75.8% in fiscal 2019. John will review our financials in more detail later, but first let me give you an update on our overall progress and execution efforts. Bill.com enables SMBs to digitally transform how they manage their cash flows and outflows, making manual paper-based processes obsolete. Customers use our platform anytime, anywhere to generate and process invoices, streamline approvals, send and receive payments, and sync their accounting system. Over the years, we have built sophisticated integrations with popular accounting software solutions, financial institutions, and payment processors, enabling our customers to manage their back-office finance functions on our cloud platform. The current work-from-home environment reinforces our vision that now is the time for SMBs to automate their financial operations, and Bill.com is ready to lead the way. At the end of the fourth quarter, we had over 98,000 customers, representing 28% year-over-year growth. These 98,000-plus customers trust our platform to manage their financial workflows and process their payments, which total billions of dollars annually. Our platform extends well beyond our customers to our network members. Network members include our customers, suppliers, and clients that exchange electronic payments and collaborate on our platform. As we increase our network members, it helps us to fulfill our mission of making it simple to connect and do business. At the end of the fourth quarter, Bill.com had over 2.5 million network members, an increase of 39% over the 1.8 million members we had at the end of the last fiscal year. During the quarter we processed $25.4 billion in total payment volume, or TPV, an increase of 26% over Q4 of the prior year. Despite the significant slowdown in the economy this past quarter, we were very pleased that our TPV surpassed $100 billion on an annualized basis. This demonstrates both the strong customer need for our solution and our ability to scale our operations by adding and expanding new payment capabilities in the last year. Now I'd like to share a few other highlights of this past fiscal year. Starting with cross-border payments. According to McKinsey's 2019 global payments report, worldwide B2B cross-border flows exceeded $133 trillion in 2018. We believe that Bill.com has a large opportunity to capture the portion of these flows that represent U.S.-based SMBs paying their international suppliers. In fiscal 2020, we disbursed over $2.3 billion to international suppliers on behalf of our U.S. customers, up 300% from approximately $570 million in fiscal 2019. We launched this offering in late 2018 after performing the analysis of foreign supplier payments recorded on our platform and receiving requests from customers who wanted a more efficient way to pay offshore vendors. We attribute the strong early growth in TPV to our success in marketing the cross-border service to our installed customer base. We monetize these payments as follows: if our AP customer makes the payment in U.S. dollars, we assess a flat fee which is priced at a premium over our domestic transaction prices. If the disbursement is made in foreign currency, Bill.com performs the FX conversion based on the payment amount. For these payments, our revenue is ad valorem that is based on the size of the transaction. We believe it is still early in the evolution of our cross-border offering and that there remains a significant growth opportunity. One of the initiatives we focused on is increasing the volume of payments made in foreign currency. Today, approximately 75% of our cross-border payments are made in U.S. dollars, and moving more of this volume to local currency allows us to generate more FX revenue. To reach this goal, we recently piloted new product functionality for international suppliers to choose to receive local currency even if their invoices were issued in U.S. dollars. The response we have received to date is encouraging. The other part of our transaction revenue that varies based on the TPV is our virtual card offering. We continue to believe this product represents a significant opportunity for us. In its Business Payments 2022 Report, Mastercard projected the virtual card market to grow at a 5-year CAGR of 19.2% from 2017 to 2021. Mastercard states that 6% of B2B check volume has already moved to card payments and that there's an opportunity to shift another 2% to 5% in the next few years. Our experience supports this strength. We've had success in converting a portion of our check payments to virtual cards, which required building in-house capabilities to handle supplier enablement and payment exception handling. We will continue to make investments in this area as we expand our efforts to convert not just checks, but also ACH transactions to virtual cards. Let me give you an example. Through our machine learning capabilities and our access to supplier invoices, we are working to automatically determine which vendors accept cards. At scale, this will make the supplier enablement process faster and less labor-intensive. For Q4, our virtual card volume represented approximately 1% of our total TPV, and we believe there is room to grow from there. We will keep you apprised of our progress in this important initiative as we expand our AI capabilities to improve our operational efficiencies and both the customer and supplier experience. Turning now to our go-to-market strategies. We leveraged four distinct channels: financial institutions, accounting software companies, accountants, and our own direct response marketing efforts. On this call, we'll be briefly highlighting our progress with each. First, let's discuss our partnerships with financial institutions. Our platform is or will soon be the go-to-market solution for the commercial customer segments as the top three largest banks in the U.S. as well as five other major financial institutions. By working with Bill.com, our financial institution partners can provide their customers with many of the benefits realized by our direct customers. However, these partnerships take time to secure, build, and launch. Once a bank selects Bill.com, we begin a development phase where we integrate our platform with the bank's online experience. Simultaneously, the bank develops its go-to-market strategy. Next, we do a targeted rollout of the integrated platform to fine-tune the experience with a pilot customer set. Finally, the white label service is offered to the bank's customer base with ongoing marketing and sales initiatives to promote activation and usage. As an example of this, I'd like to highlight our partnership with the First National Bank of Omaha or FNBO. FNBO has proudly served its customers for more than 160 years and we were thrilled when the bank selected us as a strategic partner in 2018. FNBO launched PayMaker powered by Bill.com in 2019. PayMaker, FNBO's small business accounts payable and receivable solution, is the bank's default cash management offering for business banking. Both FNBO and Bill.com have been happy with the result of the bank's decision to offer a single comprehensive solution for this segment, and we have seen strong adoption of the offering. And just today, we announced that Bill.com and KeyBank have joined forces to introduce Key CashFlow, an online banking solution that streamlines payment workflow for KeyBank customer segments, including both their small business and commercial customers, enabling them to scale their use of the platform as they grow. Customers can easily manage their cash flow and end-to-end payments powered by Bill.com's AI technology. KeyBank is currently rolling out Key CashFlow on a pilot basis and we expect it to be generally available in late calendar 2020. Continuing on the theme of financial institution channel momentum, let me update you on the status of the partnership we announced last quarter with Wells Fargo Bank. Wells Fargo is planning to power a new digital AP and AR solution for its treasury management clients by integrating Bill.com into its Commercial Electronic Office or CEO online portal. This relationship reinforces Bill.com's market position as a leading provider of business AP and AR workflow solutions for major financial institutions. We expect to launch the service later this calendar year.

Thanks, René. Today, I'll provide a brief overview of our fiscal fourth quarter and full year 2020 financial results and discuss our outlook for the first quarter of fiscal 2021. As a quick reminder, today's discussion includes non-GAAP financial measures. Please refer to the tables in our earnings press release for a reconciliation from non-GAAP to the most directly comparable GAAP financial measure. With that background, let me turn to our financial results. We delivered solid fourth quarter results with strong year-over-year growth in total and core revenue as well as strong non-GAAP gross margin and a much lower non-GAAP earnings per share loss than in recent periods. Total revenue for Q4 was $42.1 million representing growth of 33% over Q4 2019. And for the year total revenue was $157.6 million up 45% year-over-year. Core revenue which represents subscription and transaction fees was $38.8 million in Q4 growth of 54% year-over-year. And for the full year, core revenue was $136.4 million, an increase of 59% year-over-year. To break down core revenue further, subscription revenue increased to $23.6 million, representing 40% growth from Q4 fiscal 2019 and subscription revenue grew 41% for the full year. This was driven by the increase in customers and the growth in average subscription revenue per customer, which was a result of a price increase that we rolled out in tranches throughout fiscal 2020. Transaction revenue increased to $15.2 million in Q4, up 81% year-over-year. And for the year, transaction revenue was up 100%. This growth was driven by the adoption of new product offerings and a mix of transaction revenue shifting to variable price products. We continue to be pleased with the traction we've gained with our cross-border and virtual card payment products as René discussed earlier. With that said, as we discussed on prior calls, we anticipate more difficult comparisons and lower growth rates for transaction revenue compared to the prior year as we pass the anniversary of the early quarters of these new payment solutions, and we expect this trend to continue through fiscal 2021. Moving to float revenue. We generated $3.3 million in float revenue in Q4 and our annualized rate of return on customer funds held in Q4 was approximately 95 basis points, consistent with our guidance. This reduced yield from last quarter reflects the low interest rate environment we're now operating in. Next I'll give you an update on our key metrics, some of which we report on an annual basis. Also, as with last quarter, given the COVID backdrop, I'll be disclosing additional details that we believe will be helpful to investors. But on an ongoing basis, we don't plan to provide the same level of disclosure. We ended the quarter with 98,100 customers, representing year-over-year growth of 28%. During the quarter, we added more than 6,700 net new customers. The growth in net new customers was driven by strong demand across all channels, due to the need to manage financial operations remotely as part of work-from-home orders as well as the 90-day free subscription offer, we ran from late March through April. Our ending customer count includes approximately 1,000 customers that are on the 90-day promotional price plan and these customers will continue to convert to regular paying customers through the end of August, depending upon the date they first signed up. While the majority of these customers were not paying subscription fees as of the end of June, they do pay for transactions though they carry a lower ARPU than our average customer. During our last earnings call, we discussed the fact that we were providing subscription fee waivers for existing customers facing COVID-related financial hardship. Through June 30, the aggregate amount of subscription fee waivers remained less than $100,000 and the vast majority of customers who received waivers are now paying regular subscription rates. At this point, rather than having a formal hardship program, we're working with customers on a case-by-case basis. Moving on to our annual customer retention rate. Excluding customers from our financial institution partners, 82% of customers from June 30th 2019 were still customers as of June 30th 2020. This is in line with the 82% we reported at the end of fiscal 2019, and we believe that this consistency within our customer base during a difficult time reflects the value customers realize from our platform. Bill.com is core to helping SMBs efficiently manage their financial operations, and this is especially true in a remote working environment. Regarding the growth of our customer base going forward, there are two factors over and above the uncertainty of the pandemic that may influence our future customer growth numbers. First, we normally see lower new customers from our accountant channel during the tax season in the months surrounding the tax filing deadline. With the tax season shifting to the July quarter, we're expecting to see this impact shift to Q1 of fiscal 2021. Second, as René discussed earlier, we'll be transitioning our focus with Intuit to acquiring its larger QuickBooks Online Advanced customers. We anticipate acquiring fewer advanced customers than we've experienced recently with Simple Bill Pay customers, because Advanced represents a smaller portion of Intuit's overall QuickBooks Online base. Historically, these Advanced customers have an ARPU that is approximately seven times higher and a much lower attrition rate than our Simple Bill Pay customers. So, we're really excited about this opportunity. Moving from customers to an annual update on our net dollar-based revenue retention rate, as of Q4 2020 net revenue retention was 121%, an increase from 110% as of Q4 fiscal 2019 and a slight increase from Q3 fiscal 2020. The improved revenue retention was driven by the adoption of new variable price transaction offerings as well as the subscription price increase that I mentioned earlier. Looking at total payment volume during the quarter, we processed $25.4 billion in TPV on our platform, an increase of 26% year-over-year. We processed over 5.6 million payment transactions during Q4. As we discussed on our last earnings call, while in the early part of the quarter we saw lower transactions, we generally saw improving trends in both the number of transactions and TPV by the second half of the quarter. Moving on to gross margin and our operating results, our non-GAAP gross margin for the quarter was 78.6%. And for the year, our non-GAAP gross margin was 78.2%. You will recall, last quarter we discussed that Q3 fiscal 2020 was peak margins, and we expect gross margin in the range of 75% to 77% in the near-term, mainly due to the reduced float revenue from the low-interest rate environment. Turning to our non-GAAP operating expenses. R&D expense was $12.7 million for the quarter, or 30% of revenue, a slight increase from 29% of revenue in the fourth quarter of fiscal 2019, due primarily to investments we've made in our product development organization to enhance our platform and add new features and functionality. We ended the quarter with lower R&D spend in Q4 than in Q3 as we deferred some hiring though we expect to catch up in Q1, and I'll discuss that in a moment. Sales and marketing expenses were $12 million or 28% of revenue in Q4 of fiscal 2020, a decrease from 32% of revenue in Q4 of fiscal 2019. During the quarter, we continued to invest in our go-to-market capabilities though we slowed the pace of spend given the uncertainty around COVID. We expect to continue to invest behind meeting the demand we've experienced from mid-market customers as well as increasing spend on demand generation, including SEM and brand awareness programs. G&A expenses were $11 million or 26% of revenue, up from 25% of revenue in Q4 of fiscal 2019. As a reminder, Bill.com's payment products require a significant investment in compliance and regulatory capabilities, such as money transmitter licenses, and this impacts our G&A spend. In Q4 fiscal 2020, our non-GAAP operating loss was $2.6 million versus $3.2 million in Q4, fiscal 2019, and our non-GAAP net loss was $1.8 million or a loss of $0.02 per share based on 74.1 million basic weighted shares outstanding. Our lower loss level was the result of strong revenue performance combined with our conservative approach to incurring operating expenses in the quarter as COVID unfolded. For the year, our non-GAAP operating loss was $15 million and our non-GAAP net loss was $11.1 million or $0.17 per share on 67.5 million basic weighted shares outstanding. Because we had a net loss on a GAAP basis, our diluted share count was the same as the basic share count for both GAAP and non-GAAP EPS calculations. Moving on to the balance sheet. Ending cash, cash equivalents, and short-term investments were $698 million, up from $382 million at the end of Q3. As a reminder, we completed a follow-on offering during Q4, which netted proceeds of $308 million. As of June 30, we had $1.6 billion in customer funds on our balance sheet, which was up 21% from the end of Q3. This is due primarily from a spike in transaction volume at the end of the quarter, which we attribute to customers catching up on bill payments after a slowdown earlier in the quarter as the pandemic unfolded. In addition, I want to mention that we have provided a supplemental table in our press release regarding performance obligations with financial institutions. As of the end of Q4, they totaled $152 million, an increase of $118 million from Q4 fiscal 2019. This significant growth is directly related to our recent wins with financial institution partners, and we expect to recognize approximately $13 million of revenue within one year and $139 million thereafter from these contracts. While these partnerships won't generate material new revenue in fiscal 2021, we believe they will ultimately accelerate our rate of customer adoption and support intermediate and long-term revenue growth. Now let's move on to our financial outlook. We continue to monitor the macroeconomic environment. Given the current level of uncertainty, we will provide our outlook for the fiscal first quarter of 2021. As macro conditions stabilize, we will provide a longer-term outlook for our financial performance. For the first quarter of fiscal 2021, total revenue is expected to be in the range of $41 million to $42 million, made up of core revenue in the range of $39.2 million to $40 million and float revenue in the range of $1.8 million to $2 million. Float revenue assumes that the average Fed funds rate will continue to be approximately 25 basis points during the September quarter and that our yield will be in the range of 50 to 55 basis points. Looking ahead, due to the lag effect of the timing of interest rate reductions on our investment yields, we expect further declines in float revenue until we normalize at approximately $900,000 to $1 million per quarter later in the year, assuming interest rates remain at today's level. As for our operating expense profile, we're planning to catch up on R&D hiring to support product development work relating to the new financial institution partnerships that I mentioned earlier. These projects involve complex integrations with long lead times and we will incur incremental expenses as a result. We expect the associated increased R&D spending levels to persist through fiscal 2021. We plan to maintain our vigilant approach regarding sales and marketing investment, aligning investment levels with market conditions and being opportunistic where and when possible. In addition, we expect our G&A spending to continue to reflect the ongoing overhead associated with being a public company, as well as the regulatory overhead associated with our money transmitter licenses. On the bottom line, we expect to report a non-GAAP net loss in the range of $6.5 million to $5.5 million and a non-GAAP EPS loss of $0.08 to $0.07 per share, based on a share count of approximately 80 million basic weighted average shares for Q1. In addition, we expect stock-based compensation expense of approximately $11 million to $12 million in Q1 of fiscal 2021 and capital expenditures for our new headquarters and other requirements to be approximately $10 million to $11 million in Q1. To close out on the guidance topic, we believe the ongoing pandemic has accelerated the need for businesses to focus on digital transformation and we will continue to leverage our position of strength and invest for disciplined growth, despite the uncertain environment, given the large market opportunity we're addressing. Now René and I will open up the call for your questions. Operator?

Thank you. Your first question comes from Scott Berg from Needham. Please proceed.

Hi René and John, congratulations on a strong quarter, and thank you for taking my questions. I have two questions. John, let's begin with the RPO number. That's a significant change, and I understand it's related to your updated contracts with financial institutions. How should we interpret that number regarding its duration? I know we can identify the contributions for the next 12 months, but what about the remaining amount? Is it based on a two-year term, five-year term, or a ten-year term? That would help in understanding better. Thank you.

Yes. Good question, Scott. I can say that typically our arrangements with financial institutions cover normally a five-year term. And so remember that this RPO number includes all of our financial institutions and they obviously have different start dates and different end dates. So it's reasonable to expect that that $139 million would be over a period slightly longer than that average contract length of five years.

Got it. Helpful. And then René, I just wanted to touch on some of the trends that you talked about in the quarter. It sounds like transaction both payment volume and the number of transactions started to normalize in the second half. Would you say those payment trends are at kind of pre-COVID normalization levels, or is there a different way to view that? And then secondly, how are you seeing those trends kind of come through early here in your fiscal Q1? Thank you.

Thanks, Scott, for the question. We observed a low point in the quarter, but things began to improve afterward. This reflects the resilience of small and medium-sized businesses across the country, which were waiting to see what would happen. With the reopening at the end of the quarter, we noticed an increase in transaction volumes. Currently, we can say that this positive trend is continuing, and we will hold off on providing further guidance on whether it has returned to pre-COVID levels.

Great. Congrats and thanks again.

Thank you, Scott.

Your next question comes from the line of Brent Bracelin from Piper Sandler. Your line is open.

Thank you. I have a question for René and one for John. Let’s begin with you, René. When reflecting on the quarter, the standout metric for me is the record number of new customers. Even excluding the 1,000 associated with the free trial, this quarter still marks a record. Do you think the challenges from COVID for small and medium-sized businesses are now becoming beneficial? Do you have sufficient data to suggest that the shift to remote work this year could potentially boost the business, or is it still too soon to tell? Any insights on what contributed to the widespread increase in new customers would be appreciated. And I have a quick follow-up for John.

Thank you, Brent, for your question. We mentioned this in the last quarter, and it’s clear that the shelter-in-place orders required businesses to act swiftly. Small and medium-sized businesses began seeking solutions to manage their operations remotely, which led to a significant number of them proactively joining our platform. When I consider the overarching market trends, it's apparent that over 90% of businesses currently use paper checks as their main payment method, but we anticipate that this will change in the future. From the initial stages of these shelter-in-place mandates, along with feedback from our customers and partners, it's evident that there’s a desire to transition to a remote work setting. While it's still too early to determine how this will impact adoption in the short term, there's considerable uncertainty surrounding COVID-19. We remain focused on supporting small and medium-sized businesses with our platform and believe there is still an opportunity to assist the 6 million businesses that may need to transition away from using paper checks.

Got it. And then just a quick follow-up on RPO kind of John. It looks like it was up over $100 million sequentially in just the last three months. Was that tied to kind of one contract with one of the top three banks, or should we think about the magnitude of the change in RPO there in a three-month period tied to kind of multiple new relationships there? Obviously, Intuit's new. You had an expanded agreement with one of the top three KeyBank sounds like it's a pilot going to kind of GA later this year. Just walk me through the scope of the number of deals that drove that $100 million plus increase sequentially in RPO.

Thank you, Brent. From a definitional perspective, the RPO number applies solely to our financial institution partners since they are the ones with whom we have contractual relationships that extend beyond a year. This figure does not account for Intuit or most of our mid-market customers. I view the number as a portfolio that encompasses all of our partners. Over the past couple of quarters, we have announced three new agreements with KeyBank, Wells Fargo, and the top three banks, which likely had the most significant impact on this recent activity.

Got it, helpful and then, René, just a follow-up there, I think you mentioned top three on the financial institution white label side. You have three of the top three banks and five others. Of those let's say eight financial institutions using the white label service, how many are kind of launched of the eight?

So the ones that are not launched would be Wells Fargo and KeyBank, is in pilot. So all the others are in the market.

Got it, very helpful. Thank you so much.

Your next question comes from the line of Samad Samana from Jefferies. Your line is open.

Hi. Good afternoon. Thanks for taking my questions. René, maybe one for you, to start and then a follow-up for John after, but just as we think about the evolution of the Intuit relationship, there's been several expansions, especially on focusing on higher-value mid-market customers. Maybe help us understand, what's driving that on Intuit's side? And then, as we think about the smaller customers that maybe are less in focus and that you won't work on to acquire, how should we think about that decision? And maybe, what the reason was in not necessarily targeting that segment though, and then, one follow-up for John.

Okay. Thank you, Samad. It's interesting. When I was adding to it back in the '90s, one of the things that we realized then when I was adding to it was that, there were a lot of customers that were large customers that use the platform. And so, I think you would have to talk to Intuit as to, why Susan referenced that, the QuickBooks Advanced as one of its top five bets, but it's important for Intuit. They really are focused on serving that customer segment. They know there's more that they can do to support customer acquisition as well as support the services and programs that they offer, those customers. And so, when they came to us and looked to us as one of the select partners that they wanted to make sure offerings were included, so that the customer that they're targeting, the 1.5 million businesses that they're targeting had a solution that was robust. And that could really address the needs across the entire business that financial operations a business has. We were excited about that. And we definitely said, 'Yes, we want to support that. And let's go make that happen.' I think on the Simple Bill Pay customers, the biggest difference here is, really kind of the revenue per customer. And so our focus is on acquiring customers that monetize and make sense across the business. And so we're excited about supporting Intuit, in whichever way they need us to support them.

Great, that's helpful. And then John, as we think about, both the TPV per transaction and average per transaction fee revenue, there's a pretty big increase in both of those. I'm curious if we should take that TPV per transaction increase to be reflective of Bill.com being more successful in getting larger customers, hence doing larger transaction sizes, or how should we maybe interpret that data?

Yeah. Thanks, Samad. So, I think one of the influences on TPV per transaction has been the lower level of transactions that we've seen in the last few months, starting really with the early, early days of the pandemic. And we noticed it pretty quickly. We talked about it on our last call, and there was sort of a more pronounced pause in transaction levels than there was TPV. And so we still see really healthy activity, particularly with repeat customers and repeat payments, which is a stat that we've talked about before, where 80% or so of the transactions on our platform are recurring between parties that have transacted before. We still see that still being the case. So I wouldn't jump to the conclusion that that increased TPV per transaction is all about larger customers. Part of it is simply, we're still coming out of that early COVID phase where we had lighter transaction numbers. So I would expect actually that to moderate somewhat in the future. You're right though the increased activity and demand that we see from the mid-market customers tends to actually increase the ticket size and the TPV per transaction.

Great. That's helpful. Thanks again, and congrats on a great quarter in a tough time.

Thank you.

Thank you.

Your next question comes from the line of Chris Merwin from Goldman Sachs. Your line is open.

Hey. Thanks very much for taking my question. I just wanted to ask you about some of the, I guess the payment type mix shift and some of the incremental opportunities there. I think you talked earlier in the prepared remarks about the opportunity to take cross-border payments made in domestic currency and perhaps have more of that shift over to local currency to better monetize those. And I think you also talked about, a 1% penetration rate for virtual cards. So what can you do to increase virtual card as a percentage of the mix? Is there any sort of incentive you could provide a supplier? Just curious, about the opportunity there as well. Thank you.

Thank you, Chris. I think when we look at the opportunity to shift the cross-border payments, we think it's a really big opportunity. Today, suppliers all over the globe are being forced to take U.S. dollars when they may not want U.S. dollars. They may prefer their local currency. And so we have a network. We talked about the fact that we have 2.5 million members on our network today. And the opportunity for us is to make that network node that is an international supplier, make it so easy and make it so advantageous that they prefer to actually take money directly into their bank account in a currency of their choice. And so the stuff that we talked about in the product reference that we had is that we are now enabling choice by the supplier. Everything beforehand was up to how our payers our AP customers chose to pay their customers. If they chose to pay in U.S. dollars, it went in U.S. dollars. And that's the 75% of the cross-border payments are in U.S. dollars today. And so we think there's a big opportunity to give choice to the suppliers across the globe and we think that will lead to continued growth in FX penetration for us. On virtual card, just as a reminder, this business is less than 18 months old for us. And so we take our responsibility seriously. When we add new payment rails, when we add new functionality, we take the responsibility seriously that we are doing the right thing for our customers and that we will operate appropriately. And so we are still, I would say in early days of understanding how to serve the customer, reach those customers and help those suppliers that are receiving a virtual card payment. And so we believe the target range that we have said in the past is that we think 5% to 10% of the total payment volume could be on a virtual card. Now that's the total addressable market. The reason we provided the Mastercard data was to kind of give an external data point that says, hey 6% of checks today are going via virtual card, and they think there's another 2% to 5% growth, which is consistent with what we see and the trend we see. So, there are many things that we can do from the product for both suppliers and our operations to drive more adoption and that's what we're focused on right now.

Okay. Great. Thank you. And maybe just a follow-up. I know in prior calls you had talked about some new payment types. There's real-time payments and same-day ACH. And those are obviously newer businesses. Is the opportunity for those to maybe get up to where a virtual card is 18 months from launch, or how do we think about the potential for those payment types? And if you can share it how we should think about the differences in monetization?

We prioritize payments based on how we can best support our customers. For example, same-day ACH is a more cost-effective and efficient option when a customer needs to make an immediate payment compared to a wire transfer. This feature is an essential part of our payment system. Regarding real-time payments, our focus is understanding how and when suppliers prefer to receive their payments. If a supplier wants immediate payment, we have the opportunity to charge a fee based on the amount, which allows us to help the supplier access their funds right away while also covering our operational costs. We are in the early stages of this development, similar to our virtual card initiative. Currently, we are in the second month of piloting this technology with a select group of internal customers. Over time, we will gain more clarity on how to monetize these services, and we look forward to sharing more insights as they become available.

Thank you.

Your next question comes from the line of Josh Beck from KeyBanc. Your line is open.

Thank you, for taking the question. I have a higher level just strategy question because the world has changed a lot in the last six months. I think, really the shortfalls in the back office probably become more acute. So I'm just wondering, if it's driven you to reprioritize maybe some of your initiatives. It certainly seems like you're spending more with FIs and that seems to be success-based, but I feel like that was really already in place. So I'm just wondering, if it drove any reprioritization as you think about next year and beyond.

Great to hear from you, Josh. Thanks for your question. We have many opportunities ahead of us. As you mentioned regarding the financial institutions, those have been developing for a long time. We announce them once they are finalized, or when financial reporting requires it. Nothing concerning COVID has altered that aspect of our strategy. In fact, it may have encouraged financial institutions and partners to consider what services are necessary to support businesses in a remote work setting. It's clear that no one believes remote work will diminish; instead, it is expected to become increasingly significant in our work culture. This shift will influence our partnerships, but the collaborations we currently have were established beforehand. In terms of our own strategy, I see the promise and support from the trend toward remote work. I believe that simplifying our products and experiences will become even more vital. Those initiatives were already in progress, but they now inspire greater confidence and commitment to streamline experiences for our customers and suppliers. We will continue to focus on ensuring that our offerings are appealing to customers in a work-from-home environment.

Okay. Really helpful. And maybe for John, just thinking through the sales efficiency, I mean you had a very good net add quarter. Sales and marketing really slowed a lot. So is there anything going on there just with respect to maybe some of the channels where perhaps it was mix impacted or conversion impacted as you got through some of the obstacles? Just would love to hear any color you can provide on sales efficiency and any notable callouts there.

Yes. Thanks Josh. So, I'd say as far as the demand profile that we experienced during the quarter, it was pretty broad-based. There wasn't a particular channel or sales and marketing sort of tactic that stood out. I'd say we did experience maybe a higher level of urgency on the part of customers to get solutions in place sooner than later. I think that helped us with a slightly shorter conversion timeframe and probably a higher conversion rate than if we look back over a number of quarters, both of which definitely translate into improvements in customer acquisition efficiency. Some of that could certainly be here to stay if sort of if the world and the demand profile is just different going forward. But at the same time we're going to continue to evolve our sales and marketing efforts and continue to invest to attract customers.

Okay, really helpful. Thank you, both.

Thank you.

Your next question comes from the line of Brad Sills from Bank of America. Your line is open.

Great, hey guys. Thanks. I wanted to ask about the receivables business. To the extent that has contributed to this kind of success you've seen in new customer acquisition, how much is that contribution coming from the receivables business that freemium model where customers run receivables and then there's the upsell opportunity? Just any color on how that's been tracking and how much that impact has been having versus maybe say a year ago?

Thank you, Brad for the question. Overall, the business has definitely I guess predisposition on the payable side. And so we've not seen a change in receivables activity between the quarters. What we have seen on receivables is that customers do like getting paid faster. And so our customers are able to get paid two to three times faster using the platform. And so the customers that are on it are definitely enjoying it. I would say that we have not seen a change in any of the growth rates between the two, and I think that's just because we have a strong penetration on payables and that payables customer is definitely start telling other people about it, and that keeps up with the growth that we're seeing on receivables.

Thank you. Can you provide an update on the procurement offering that was announced in February? What is its current development status, and what initial use cases are being targeted?

Yes. So, the PO offering that we announced in February was the ability to integrate the POs that were generated out of the mid-market accounting packages such as Intacct and NetSuite to have those POs be synced with Bill.com so that customers would be able to see the PO information and approve the bills, the invoices as they're coming through. And so that has been rolled out and we have seen good adoption from customers in the mid-market segment that are using that capability so that they can kind of track their POs at the same time that they're tracking their payables. So, we've been happy with that adoption. And I think as we continue to learn and listen from those larger customers, we'll end up adding I'm sure more functionality that will support them.

Got it. Thanks, René. And then maybe one for you John on the commentary on some catch-up in transaction volumes at the end of the quarter. Is that primarily in that category that you said is more variable when you kind of back-tested your volumes and determined about 20% are more variable in nature, or was it across the board between kind of recurring and variable?

Yes, thanks, Brad. We observed a general slowdown in activity during the first half of the quarter, as businesses focused on various issues. In the latter half, they appeared to be catching up, which is reflected in our numbers. We noted an increase in payment sizes to individual vendors, indicating that instead of altering contracts, they were likely consolidating multiple invoices into a single payment. This contributed to higher total payment volume but resulted in fewer transactions, so the impact was quite broad-based.

Got it. Thanks, John. Thanks, René.

Thank you, Brad.

Your next question comes from the line of Brian Schwartz from Oppenheimer & Co.

Yes, hi. Thanks for taking my questions this afternoon. I've got one for René and then a follow-up for John. René just wanted to dig in again on the go-to-market strategy. I know the sales focus is clearly on new logos given the low penetration in the market but you did highlight the early success the business is having here with cross-border. So, I'm wondering if that success or the early traction that you're having, does that at all change your thinking on the market strategy of potentially maybe building up a farmer's engine inside the company to further upsell those 100,000 customers?

Hi, Brian. Thanks for the question. When we consider the opportunity, there are 98,000 customers out of six million employers in the U.S. We believe that logo ads will be a significant part of our business growth. However, as you've suggested, we are pleased with the monetization we've achieved through cross-border and virtual card transactions, and we expect to introduce more payment products in the future. We see this as a balancing act; we want to invest in both areas. We aim to leverage the extensive multi-faceted distribution opportunities available through our partners, as well as our direct efforts. At the same time, we intend to capitalize on our capabilities in payments, particularly regarding cross-border and virtual cards, so we will continue to invest in both. To that end, we have already engaged in considerable product marketing for cross-border and are deploying a focused sales team to enhance our capabilities with customers, especially the larger ones. I believe there are opportunities for us to expand further. Thank you.

Thank you, René. And then John one quick follow-up for you on the dollar-based retention number, the 121%. That was clearly better than I think a lot of us were thinking just given the uncertainty that happened during the quarter. But do you feel like this higher level is a metric that it can either stabilize at, or do you think that there could even be more upward pressure that it could continue to improve? I don't want to pin you down here too much on a number, but just wondering how you're thinking about the trend with that metric. Thanks.

Yeah. Thanks, Brian. So, obviously, we're very pleased with our retention rate. We think it supports our thesis that customers really run their financial operations with our platform. It's not a sort of elective solution. It's core to what they do. And when we introduce new products, most recently the payment products, we get quick adoption and that helps grow revenue from existing customers. So we don't have a prediction or any guidance on the forward numbers. We're obviously an SMB-focused company across the board. So it's not an enterprise business. And I think we've historically said, if we're able to operate the business north of 100%, we know that our unit economics are going to work and it all makes sense. We're obviously way above that now, and we feel good about where we are.

Thank you very much.

Thank you, Brian.

Your next question comes from the line of David Hynes from Canaccord. Your line is open.

Hey, thanks guys. Congrats on the results. And thanks for taking my questions. Two quick follow-ups on topics that have been discussed. So the expansion with the top three small business bank, given it's an expansion of an existing relationship, I'm just curious what kind of incremental investments need to happen to enable that? And then just in terms of the timeline, how should we think about the timeline until we could see some material revenue contribution there? I mean, obviously, the jump in backlog both current and long-term is huge. So I think it's an important question.

Thank you, David, for the question. When we partner with a financial institution, particularly on the commercial side of the bank, it's important to note that each institution operates on various systems. The commercial side utilizes different systems compared to the small business side. Our financial institution partner is enthusiastic about achieving consistency in the platform for both their smallest and largest customers. We highlighted this in relation to KeyBank, as our offering will cater to both small business and commercial customers. With this expanded relationship, we will now include small business customers alongside the commercial customers we have been working with for several years. The work involved goes beyond simply integrating payment systems, as it also encompasses the front-end platforms they utilize with their customers. The small business customers are on a different platform, which adds to the workload for the financial institution, and we are committed to supporting this transition, requiring some adjustments on our end as well. Consequently, we are investing in this initiative to ensure that our offering effectively targets small business customers.

Okay. Makes sense. And just the time lines?

Regarding the timeline, we expect no significant revenue in fiscal year 2021. The launch is anticipated in calendar year 2021. As we continue our work, we will provide further guidance on this.

Sure. Okay. That makes perfect sense. And then a follow-up on the cross-border side. Where do you think the ceiling is in terms of getting those cross-border payments made in local currencies? I think you said it was 25% today. Where could that go?

We have work to do to understand that. At this point, we know it should be higher. Our internal target is to determine if we can increase that to 40% or 50%. This may be a possibility, but it's not certain. What we are seeing from customers and suppliers is encouraging; they want to get paid in the local currency. That will be our goal.

Okay. Excellent. Thanks for the color, guys. Congrats.

Thank you.

We've time for one more question. Your last question comes from the line of Bob Napoli from William Blair. Your line is open.

Thank you and good afternoon. I also want to acknowledge my colleagues, Bhavan Suri and Matt Stotler. Congratulations to René and John for doing an excellent job once again in a challenging environment; your execution is very impressive. As you mentioned earlier, John, you have a strong balance sheet. You discussed investing in mid-market international withstanding your payments and potentially in working capital. From an investment standpoint, do you have any thoughts on leveraging that balance sheet strategically to expand your business? If so, which areas would you prioritize?

Hi, Bob. It's great to hear from you. One of the reasons I wanted to go public was to have the chance to further expand our distribution and capabilities to reach more businesses organically. This is part of the cash capital we can raise by being public, which will help support everything we discussed today. Additionally, I wanted to take advantage of the platform we've built, which has a wide range of capabilities, by considering opportunistic mergers and acquisitions when the timing is right. While we’re not focused on that in the near term, it's definitely something we recognize could be beneficial and will consider as we move forward with the business, keeping in mind our customers' needs and how we can enhance the overall platform.

Great. I have a follow-up question regarding pricing. John, you mentioned there have been some increases in subscription amounts, and I see potential there. Could you elaborate on how much pricing has impacted revenue and where you still see pricing opportunities? I understand that the cost per transaction for your clients is relatively low compared to the value they gain. Additionally, on the ACH side, there may be potential for enhanced pricing on ACH transactions.

Yes. Thanks, Bob. So I think on the subscription side, our growth in subscription revenue is driven by new customer adds on the platform as well as an overall price increase that the full effect of which didn't really materialize until the third and fourth quarter. So it's kind of staged throughout the year. With that said if you look at just the annualized ARPU that our customers pay of around $1,500 for the platform that we have, it's a small, sort of, dollar amount given the functionality and the capabilities that we give customers. So, I mean we think over the long-term there's lots of opportunities to continue to increase monetization some of which you mentioned around payment products which is maybe more of a near-term opportunity as we continue to roll out ways to enable both suppliers and paying customers to get paid faster. With a faster payment comes typically more risk. And with that more risk comes better monetization opportunities. So we're pretty enthusiastic about what we can do. With that said we tend to invest in the platform, create more capabilities, create more value for customers, and then over time raise prices commensurate with the value that we've added. So we're not on a program of every 12 months or 18 months or whatever raising prices. That's not the model that we're following. But with that said, we do feel like there are opportunities over the intermediate and long-term.

Great. Thank you. Appreciate it.

Thank you.

There are no further questions at this time. I turn the call back over to René Lacerte.

Thank you, Christine. Thanks everyone for joining today's call. We appreciate your ongoing support as shareholders and stakeholders in our business and hope you and your loved ones are well. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.