Good afternoon, and welcome to Bill.com's First Quarter of Fiscal 2021 Earnings Conference Call. Joining us today is Bill.com's CEO, Rene Lacerte, and CFO, John Rettig. I would now like to turn the call over to John Rettig for introductory remarks. John?

Thank you, operator. Welcome to Bill.com's Fiscal First Quarter 2021 Earnings Conference Call. We issued our earnings press release a short time ago and furnished the Form 8-K to the SEC. The press release can be found in the Investor Relations section of our website. With me on the call today is Rene 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-K dated August 31, 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 Rene.

Thanks, John, and good afternoon, everyone. Thank you for joining us today. We kicked off our new fiscal year with strong Q1 financial results, which exceeded our expectations across the board as we continue to see significant demand for the Bill.com platform. In Q1, we saw our SMB customers getting back to business, illustrated by several of our key metrics showing improvement. We’re excited about the increasing adoption of our platform throughout our diversified go-to-market ecosystem. Core revenue, which we define as subscription plus transaction revenue, grew by 53% year-over-year to $43.8 million. We also delivered a strong non-GAAP gross margin of 77% in the quarter. John will review our financials in more detail later. But first, let me give you an update on our overall progress and execution efforts. At the end of the first quarter, we achieved a company milestone by surpassing the 100,000 customer mark, with overall customer growth of 27% year-over-year. Our customers trust the Bill.com platform to manage their workflows and process their payments, which totaled billions of dollars monthly. As a reminder, our platform extends well beyond our customers to over 2.5 million network members that pay and get paid through Bill.com. We believe that we are operating one of the largest B2B networks in the United States. Later, I'll be talking more about how we are focused on growing and monetizing this network asset. During the quarter, we processed $28.8 billion in total payment volume, or TPV, an increase of 31% over Q1 of the prior year. This demonstrates the strong customer demand for our platform and the new payment capabilities we've added over the last 18 months. We recently surveyed over 900 Bill.com customers using a third-party firm. Survey respondents represented a broad spectrum of company sizes, industries and product usage. The results really showcased Bill.com's strong value proposition with 97% of respondents noting that Bill.com allows them to operate their businesses remotely. The vast majority said that Bill.com enables them to digitize financial operations and described Bill.com as essential to their operations. It's this value proposition that leads to our platform becoming mission-critical for customers and our strong customer and revenue retention metrics. Customers that participated shared direct feedback, noting, and I quote, 'Bill.com enabled us to switch to primarily electronic payments once our office switched to being fully remote during the COVID-19 pandemic. It was easy to learn when I onboarded to my new job at this company and easy to onboard vendors and to do real-time sync with accounting software. The payment process for international contractors is much easier and more efficient. Being able to enter the bills in QuickBooks and have auto-pay set on Bill.com is excellent.' We also are pleased to see that our customers continue to have high levels of satisfaction as reflected in G2's independent peer-to-peer review research. This year, Bill.com moved further to the upper right on G2's grid for small business AP automation and took over the number one ranking to be the clear leader in the eyes of SMB. We remained in first place for market presence. And our average rating this year was 4.85 on a scale of 0 to 5 in this market barometer of small business sentiment. At the end of the day, the satisfaction and value we deliver to our customers can best be illustrated by a real customer experience. The Manhattan Soccer Club is one of the largest soccer clubs in New York City, with over 60 teams, 1,000 players and an annual budget of $3.5 million, a nonprofit that offers all levels of development and competition. Over the past few seasons, the paperwork from scorers and managers and coaches was getting out of hand. Each year, their auditors require more detailed proof, such as receipts, check stubs, invoices, all of which had to be processed, sent back to the auditor and then filed in the home office of Sam Arnoff, Director of Operations. With Bill.com, Sam no longer uses paper checks, reducing his workload and facilitating faster reimbursement for managers and coaches. Sam also provided the auditors direct access to Bill.com, cutting down the time and, just as importantly, the cost of the audit. He also transitioned all paper files to digital on our platform. Sam noted, and I quote, 'I called Bill.com my personal assistant. I'm also the president of a youth soccer league. If it weren't for Bill.com, I wouldn't have the cycles to pursue my passion for developing and mentoring these soccer players.' In addition to serving our customers, we're also focused on extending our ability to create value for our more than 2.5 million network members. We work hard to simplify the process of getting customers, their vendors and their clients to connect and do business, which creates a healthy flywheel effect. For example, our platform intelligence includes data from suppliers who are currently in the Bill.com network. For these suppliers, we store pertinent information such as tax ID, remittance address and other payment preferences. So when an SMB joins our platform, that new customer can instantly pay many vendors who are already in our network without going through the painful and time-consuming process of collecting confidential financial and bank account details. Recently, we discussed our efforts at increasing the number of card-accepting suppliers enabled on our platform, which, in turn, increases our virtual card TPV. During Q1, we brought supplier enablement entirely in-house, employing our own vendor AI matching logic to automate this critical function. By controlling this process ourselves end-to-end, we've improved our ability to identify card-accepting suppliers and pay them more quickly. Our own employees are better equipped than a third party to promote the benefits of our virtual card payments to our customers' suppliers. Through these efforts, we are seeing early success adding the long-tail suppliers to our network. We believe there's plenty of opportunity ahead. As we continue to focus on creating a better user experience for suppliers, we have also been expanding our payment capabilities so that we can pay vendors faster. On a prior call, we mentioned adding faster payment functionality by leveraging the real-time payment network from The Clearing House. While the real-time payments rail has been used primarily for consumer payments to date, we believe that there are interesting applications for B2B payments. According to a recent survey conducted by Mastercard and PYMNTS.com, 72% of companies stated that they intend to adopt real-time payments within the next three years. We also hear from our own customers and network members that enabling real-time payments is an important use case. Leveraging these rails this past quarter, we began rolling out a new feature called Instant Transfer. With Instant Transfer, our network partners can get paid 24/7, and their funds are available immediately. We currently charge the recipient an ad valorem fee for the service. Instant Transfer is currently in pilot mode, and we are pleased with early engagement data. This latest payment innovation demonstrates our continued efforts to deliver value to both sides of our network. Finally, I want to highlight another indicator of increased platform engagement: the growing use of our native mobile app. In September, the number of Bill.com mobile app downloads almost doubled year-on-year. And our number of active mobile users hit an all-time high at the end of the quarter. We attribute this increase in mobile usage to better promotion of it, in the customer's desktop experience and via deep linking to the mobile app in our workflow-related emails. Looking ahead, we also expect a higher level of mobile usage by our network members, driven by innovations like the Instant Transfer product mentioned earlier. Next, let me update you on the progress with our go-to-market initiatives, starting with the status of our newest financial institution partners. Turning to our partnership with KeyBank. Key CashFlow became generally available for its business banking customers in October and for the commercial banking customers this week. We are very pleased with how quickly we were able to stand up this partnership despite the unexpected challenges presented by COVID-19 from March through September. With respect to our new relationship with Wells Fargo, the integration is now complete. And we began piloting our service inside the bank's commercial electronic office portal in October. This means that the top three commercial banks in the country are now leveraging our white-label solution. We are excited about helping them and all of our bank partners better serve their customers. Finally, we continue to work closely on the design and integration of our platform to serve the SMB customers of one of the top three small business banks in the U.S. We look forward to being able to announce details of our launch plans here in calendar 2021. The accounting channel continues to be a strong part of our customer acquisition ecosystem. Our relationships with over 5,000 accounting firm partners accounted for 51% of our total customers and 46% of our total revenue in fiscal 2020. Like most SMBs that are now working from home, accountants are operating in a similar setting, unable to go to their office. As a result, we have seen increased interest in our work-from-anywhere value proposition, particularly from family office and wealth management firms who leverage some of the same tools that accounting firms use to serve their clients. Remote work resonates more and more with accountants. As such, I would like to highlight one of our accounting partners, Countsy. With over 150 employees and hundreds of clients, Countsy is an outsourced provider of back-office accounting and HR functions for leading technology and venture-backed companies. Countsy relies on Bill.com to serve customers such as Asana, Dreamcloud, Fast, Intercom and Quora, to name a few. Founder Mairtini Ni Dhomhnaill commented on the benefits of using Bill.com in the remote work environment, as she stated, and I quote, 'Countsy's clients utilize Bill.com as they realize the benefits it provides, including the flexibility to operate their businesses remotely. When we took over the accounting function of an entirely paper-based client in Seattle at the beginning of the lockdown, where all employees were immediately ordered to stay at home, they were very concerned about being able to pay the bills and keep their business running with no interruption. We were able to quickly pivot the company to Bill.com's cloud-based service overnight. Bill.com saved the day.' None of our success is possible without the performance of strong teams across our company. During the quarter, we continued to expand both our management team and Board of Directors, adding top-tier talent. Tom Clayton joined our team as Chief Revenue Officer. As we continue to scale and grow the business, we saw the value in aligning all customer revenue opportunities under one leader. In this newly created role, Tom will focus on growing the company's overall revenue. He leads the sales, marketing and strategic partnerships organizations for the company. His experience, cultural fit and agile learning are unique, and we're thrilled that he has joined the Bill.com team. We also added two independent directors to our Board: seasoned payment executive, Colleen Taylor; and brand leader, Allie Kline. Colleen has considerable payments experience with over 30 years helping different types of customers transact around the world. She is currently the President of Merchant Services U.S. for American Express. And previously, she served as the Executive Vice President of Merchant Services for Wells Fargo. Allie's background includes having served as the Chief Marketing Officer for Verizon Media, which consisted of over 20 distinct digital brands reaching one billion customers. She also served as the Chief Marketing Officer for AOL, with responsibilities for global consumer and B2B marketing, brand strategy as well as external and internal communications. In closing, I am pleased with our start to the fiscal year. I'd like to give a shout-out to all of our employees for their hard work and continued dedication. In spite of the many external distractions, employee engagement and energy have remained high. Everyone at Bill.com is focused on helping SMBs succeed in any environment. I'm excited about the momentum we have in FY '21 as our platform simplifies business for our customers and their network, making it easier for them to focus on what they do best. Now I'll turn the call over to John to review our financials. John?

Thanks, Rene. Today, I'll provide a brief overview of our fiscal first quarter 2021 financial results and discuss our outlook for the fiscal second quarter of 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 first quarter results with strong year-over-year growth in total and core revenue as well as strong non-GAAP gross margin. Total revenue for Q1 was $46.2 million, representing growth of 31% over Q1 2020. Q1 revenue exceeded our expectations as customers continue to expand their use of our platform. Core revenue, which represents subscription and transaction fees, was $43.8 million in Q1 and grew 53% year-over-year. To provide additional detail on core revenue, Q1 subscription revenue increased to $24.6 million, representing 36% growth from Q1 of 2020. This growth was driven primarily by the increase in customers on our platform. We're also starting to see the impact of the anniversary of our fiscal 2020 subscription price increase, which was phased in beginning in Q1 2020 and continued through Q3 2020. This will lead to tougher comparisons in year-over-year subscription revenue growth over the next several quarters. Transaction revenue increased to $19.2 million in Q1, accelerating to 83% year-over-year growth. In addition to growth in transaction volume, we saw our investment in virtual card supplier enablement starting to pay off earlier than expected in the quarter, translating into more suppliers enabled to receive virtual card payments and corresponding growth in virtual card TPV. We expected to see the benefits of taking the supplier enablement activity in-house accrue more gradually throughout the fiscal year. While we're very pleased with the progress we've made scaling transaction revenues and driving a shift in revenue composition to variable-priced products like virtual cards, we anticipate year-over-year comparisons to fiscal 2020 to be more challenging, which will likely lead to lower growth rates for transaction revenues through the rest of fiscal 2021 as we begin to compare to more difficult prior year comps. Moving to float revenue. We generated $2.4 million in float revenue in Q1, and our annualized rate of return on customer funds held in Q1 was approximately 62 basis points, slightly above our estimated range for the quarter and down from 95 basis points last quarter. This reduced yield reflects the current low interest rate environment and maturing investments being reinvested at lower rate levels, which we expect to continue over the intermediate term. Turning to an update on our key business metrics. We ended the quarter with 103,600 customers, representing year-over-year growth of 27%. During the quarter, we added 5,500 net new customers. We continue to experience broad-based demand across all our channels. So overall net new customers were down from Q4 when we had a spike at the beginning of the work-from-home phase of the pandemic. We continue to be pleased with the breadth and diversity of our distribution channels, where our horizontal go-to-market approach results in no significant concentration. In fact, no partner accounted for more than 3% of total revenue in fiscal 2020. Our net new customer results in Q1 were influenced by a few factors that I discussed on our prior call, including the expiration of the 90-day free subscription promotion and fewer new customers from our accounting channel because tax season moved from April to July this year. We also added fewer QuickBooks Simple Bill Pay customers as we began shifting our focus to QuickBooks Online Advanced, where we are targeting larger customers with significantly more attractive unit economics. As I outlined on our last call, for the next few quarters, we expect lower quarterly net customer adds before our newest financial institution partnerships start to ramp. With the progress we're making in improving monetization of our existing customer base through transactions, the net new customer metric will become less meaningful as we scale. Looking at total payment volume during the quarter, we processed $28.8 billion in TPV on our platform, an increase of 31% year-over-year. We processed over 6.5 million payment transactions during Q1, which was up 16% sequentially after two quarters of sequential declines. We believe that this increase in transactions is illustrative of SMBs starting to get back to more normalized business activity compared to the prior quarter. Moving on to gross margin and our operating results. Our non-GAAP gross margin for the quarter was 77%. We continue to expect gross margin in the range of 75% to 77% in the near term primarily as a result of infrastructure investments we are making to support our financial institution partners as well as reduced float revenue from the low interest rate environment. Turning to our non-GAAP operating expenses. R&D expense was $15.5 million for the quarter or 34% of revenue, an increase from 31% of revenue in the first quarter of fiscal 2020. As I mentioned on our Q4 call, we increased our R&D hiring to support product development work related to the new financial institution partnerships that we signed earlier this calendar year. Sales and marketing expenses were $11.9 million or 26% of revenue in Q1 of fiscal 2021, a decrease from 29% of revenue in Q1 of fiscal 2020. Our spend level for go-to-market sales and marketing capabilities was consistent with the level of spend in Q4. G&A expenses were $11.9 million or 26% of revenue compared to 27% of revenue in Q1 of fiscal 2020. As a reminder, unlike other software companies, our G&A expenses reflect our investments in risk management and regulatory compliance, which are a core part of our competitive advantage related to our payment capabilities. Looking ahead, we expect to see continued investments in this area. In Q1, our non-GAAP operating loss was $3.7 million versus $3.5 million in Q1 of last year. And our non-GAAP net loss was $2.8 million or a loss of $0.04 per share based on 80.2 million basic weighted shares outstanding. Because we had a 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 $700 million, up from $698 million at the end of Q4. As of September 30, 2020, we had $1.7 billion in customer funds on our balance sheet, which was up $25 million or 1.5% from the end of Q4. Lastly, I'll note that our balance sheet includes a liability of approximately $55 million as well as a corresponding asset associated with our new San Jose headquarters and our Houston office leases. These items are the result of adopting new lease accounting standards as of July 1, 2020, which require recognizing leases on the balance sheet. We ended the quarter with 639 employees, up 21 from the prior quarter. Now let's move on to our financial outlook. There continues to be considerable macroeconomic uncertainty and questions about any potential future stimulus funds that could help small businesses. Given the level of uncertainty, we will provide our outlook for the fiscal second quarter of 2021. As macro conditions stabilize, we will provide a longer-term outlook for our financial performance. For the second quarter of fiscal 2021, total revenue is expected to be in the range of $46.5 million to $47.5 million, made up of core revenue in the range of $45.4 million to $46.2 million and float revenue in the range of $1.1 million to $1.3 million. Float revenue assumes that the average fed funds rate will continue to be approximately 25 basis points during the December quarter and that our yield will be in the range of 25 to 30 basis points. Looking ahead, due to the lag effect from the timing of interest rate reductions on our investment yields, we expect further declines in float revenue over the next few quarters, assuming interest rates remain at today's level. Regarding our planned operating expenses, we will continue to invest in R&D hiring to support product development work related to our new financial institution partnerships and continued development of our payment products. The bank projects involve complex integrations with long lead times, and we will be increasing our R&D spend from the prior quarter to fulfill our bank partners' needs. We will continue our disciplined approach with regards to sales and marketing investment. We will increase our investment in sales and marketing as opportunities and economics dictate. On the bottom line, we expect to report a non-GAAP net loss in the range of $6.8 million to $5.8 million and a non-GAAP EPS loss of $0.08 to $0.07 on a per share basis based on a share count of approximately 81.2 million basic weighted average shares for Q2. In addition, we expect stock-based compensation expenses of approximately $11 million to $12 million in Q2 of fiscal 2021 and capital expenditures for our new headquarters and other requirements to be approximately $8 million to $9 million in Q2 of fiscal 2021. In closing on the guidance topic, while we expect near-term economic uncertainty to persist, we're very excited about the long-term opportunity. We will continue to invest and innovate to support SMBs while remaining diligent and agile about the need to respond quickly to changes in the macro environment. Now Rene and I will open up the call for your questions. Operator?

Your first question is from Brad Sills with Bank of America.

Great job on a successful quarter. I wanted to ask about the transaction business. We noted a positive change in the take rate that we calculated, and you highlighted virtual card as a strong area. I’d like to inquire more about that, as well as the cross-border aspects, which I understand are also growing. Any insights you can share on those two offerings and their performance during the quarter would be appreciated.

Thanks, Brad. A big part of the quarter for the transaction growth was the fact that TPV just rebounded really nicely. The small businesses, we talked about this last quarter, are resilient. And we saw 31% year-over-year growth on the TPV. And so given the monetization through card and international payments, we were able to obviously take advantage of those businesses to drive revenue growth in the transaction part. In particular, one of the things that we have done on the virtual card business is we did talk about enabling suppliers on our own and pulling that in-house. And we expected that would take us more time to kind of figure out exactly what we need to do. And we were able to pull that into this quarter, and we did see good growth from that. So we feel good about that part of the business. On the international side, we mentioned this in the last quarter, that we were going to be letting vendors that were international enter their own bank account information to identify that they wanted local currency versus U.S. dollars. And that has started to roll out. And the success there is that we have 137 countries that we make payments to, and just around 100 now have vendors that are adding bank account information directly so they can get local currency. So those things are what's driving the growth. It's something that we're happy about. We have a lot more to do. When we look at the growth opportunities across international and card, there's just lots more work for us to do, and we're going to keep doing it.

That's great. That's great. And then one more if I may, just on the same topic. On cross-border, I think you were clear last quarter that you see, over time, the virtual card business potentially reaching 5% to 10% of transactions. Are there any targets or thoughts on where cross-border could ramp to over the longer term?

There are two components to a cross-border payment. One is the dollars flowing through our system, and the other is the amount being converted to local currency and foreign exchange. We provided guidance indicating that the transaction percentage on our network for payment volume falls between 10% and 20%. Importantly, we believe the long-term opportunity is to increase the foreign exchange revenue to the range of 40% to 50%. In the near term, the annual guidance we offered last quarter was approximately 25%. We have significant work ahead to reach that goal, and it's not something we expect to achieve in the next quarter; rather, it's a target we will work towards.

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

I know it was a very challenging environment to come up with guidance. I'm just kind of curious, as you went through the quarter and maybe, in particular, the months, I'm just curious about maybe how the health of the SMBs played out relative to your expectations? And any surprises to call out there?

There are a few key factors that drive the business, such as acquiring new customers and the payment volume that flows through the platform. We had a healthy increase in new customers during the quarter, which we believe is still influenced by the pandemic as businesses adapt to operating online. However, the new revenue generated from these customers is not as significant. The rebound in total payment volume was the main factor driving transaction revenue. With the economy reopening, we observed that many businesses felt the support of stimulus packages during the shutdowns and are now finding ways to operate. While the total payment volume per transaction remains below pre-pandemic levels, the overall volume has increased, which is encouraging. This trend began to emerge in our August call, indicating resilience. We feel optimistic about the current state of the business, despite ongoing uncertainty. With COVID cases at an all-time high, it’s difficult to predict what will happen as we head into the winter months.

Okay. That's good to hear and very helpful. I also wanted to ask about this Instant Transfer product. You've been in pilot mode for a couple of months. So I know it's very early, but I'm just kind of curious about maybe where you could see that fitting into the product portfolio, maybe what some of the use cases that you are witnessing?

Yes. Our mission is to make it simple to connect and do business. And that's why I started the company 14 years ago, was to focus on just really eliminating all the hassle that businesses have, whether it's tracking their documents, the workflow or their payments. And when we think about the instant payments, it's the opportunity for vendors, suppliers to get paid on the terms that they want to get paid. If they need the money today and they don't want to wait, then we want to enable that. And where we are at with it is making sure that we have a way to obviously support the rails. That was probably the beginning of the quarter. And then now we're in the phase of kind of rolling it out and understanding how is it that suppliers want to use that. What are they willing to pay for that? What are all the different systems that we need to track to make sure that we're honoring our commitment to both sides of the network? So it is early. But when I think about the long-term goal of it is we're going to pay people via ACH. We're going to pay people via check. We're going to pay people via international wire, FX. And we're going to pay people via Instant Transfer, which is the real-time payments. And it's the completeness of all those options that actually makes our platform so valuable. And something that we focus on, first and foremost, is eliminating paper and making payments electronic. And so I think the opportunity here is giving suppliers who are going to get an ACH payment or a check in a few days, in a week or whenever the opportunity to get that money today. That's going to, we think, drive more happiness and satisfaction across the network and ultimately drive business results because there will be a business model attached to the instant payments since there is an opportunity for us to take risk. And we're going to manage that risk appropriately but also have a revenue model from it.

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

We'll stick to the topic of Instant Transfer. I have a question and a follow-up. Regarding the opportunity with Instant Transfer, Rene, you mentioned monetizing the 2.5 million B2B supplier network more broadly. Will the primary method be that suppliers pay you to receive real-time payments, possibly by paying a small fee? Or is there also a subscription model in play? I'm trying to understand the specific monetization strategy for those 2.5 million suppliers. Do buyers need to pay as well? Any additional insights on how you plan to monetize this would be helpful.

Yes. The business operates by collecting money into our account and then paying out to suppliers on the accounts payable side. If it were receivables, it would go into our account and then out to our customers. Taking the payables example, once the money comes in and a payment decision is made, there is a small transaction fee ranging from $0.49 to $1.49. For real-time payments via ACH transactions, we will inform the supplier that a payment is scheduled and will arrive on a specific date, which can vary based on the ACH transaction and associated business risks. We manage these risks to ensure we maintain the integrity of the funds. For instance, if someone initiates a payment today, which is Thursday, we would inform them that they will receive the payment in their account next Wednesday. If they prefer to receive it today, we have an ad valorem model that we are developing and learning about. Other companies providing instant payments, such as Square, PayPal, or Venmo, usually charge a risk fee to suppliers for immediate access to funds. This is the mindset we have, but it is still early for us. We are focused on enhancing satisfaction and simplicity across our platform. It is too soon to define our exact business model, but we aim to create value for the business through the speed and ease of our money transfer capabilities.

Getting that money right away certainly makes a ton of sense, and very, very helpful color there. A follow-up for me. I guess, John, maybe just on linearity. You talked about the small business recovery, this reacceleration of 31%. Month-over-month, did every month get better? Or did it snap back in kind of July and then stabilized? Just trying to understand how much volatility month-to-month you're still seeing, given we're still kind of in a global pandemic. So any color there you can provide on just the linearity month-to-month you're seeing on the volume recovery here.

Yes, good question. There's nothing that stands out. As you know, it's a fairly stable business, with the majority of our transactions being repeat business from customers. They operate consistently each month. We did notice an increase in the number of transactions. Last quarter, we experienced around 1% year-over-year growth, as the pandemic was affecting our customers and causing them to reduce their activity. Total payment volume remained relatively stable, but both metrics showed improvement this quarter, indicating better overall activity during the period. There are some minor variations in transactions related to the number of business days in a month, so we tend not to concentrate too much on monthly fluctuations, and there were no significant changes throughout the quarter, just a general upward trend.

Your next question is from the line of Brian Schwartz with Oppenheimer & Company.

Rene, starting with you, I just wanted to follow-up maybe more near term on what you're seeing on the demand environment. You talked about over the medium term, it clearly sees that the modernization for digitizing payments is becoming a bigger priority here. But how about right now? And how is that modernization being prioritized, say, relative to pre-COVID or past years? And then I have a follow-up.

With the pandemic, there was an initial need for businesses to adapt, which led to increased demand in Q4 and Q1 regarding unit growth. Looking ahead, we've observed improved conversion rates across our customer base, although there may be slightly softened demand at the top of the funnel. This uncertainty in the economy raises questions about our return to normalcy and whether increasing COVID cases will lead to more shutdowns, causing people to hesitate in making changes. However, we believe that improved conversion rates will provide long-term benefits, helping us attract more customers. For the upcoming quarters, we are expecting customer growth to be just under 25% year-over-year, influenced by various factors that include both positive and slightly weaker elements, all of which we are closely monitoring.

One just follow-up question on that commentary, that 25% growth. Is that your assumption, assuming that we do get some stimulus in the early part of next year or just assuming no stimulus at this point?

Yes, I'll address that, Brian. We don’t have specific assumptions regarding the direct impact of stimulus as it's difficult to model. There are several factors influencing our near-term expectations for slightly lower net new customer additions. This includes our increasing focus on larger customers, who provide better unit economics and larger lifetime value, even though we tend to acquire fewer of them. These customers are financially beneficial for us, along with the investments we're making to support our new financial institution partners. We anticipate that those partnerships won't really ramp up for a few quarters. Hence, in the interim, we are setting slightly lower expectations than we had previously, especially when compared to the significant spike we observed in Q4 due to the initial phase of the pandemic. Overall, with our monetization strategy becoming more transaction-focused, it's likely that the absolute number of customers added each quarter may become less significant. Yes. Sure. We discussed this on our last call. Our focus remains on investing for long-term growth. We were somewhat cautious in the fourth quarter due to the early stages of the pandemic. As reflected in our operating expense trends, we increased investment in research and development as planned to support our financial institution partners. We are also exploring opportunities to boost our investments in sales and marketing. Therefore, we plan to invest where we see a good return that contributes to long-term sustainable growth. This may result in higher investment levels and less improvement in operating margins in the short term. However, we are confident that we will eventually transition to a profitable business in the long run.

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

This is Mason Marion on for Samad. So can you talk a little bit more about bringing your virtual card supplier efforts in-house? What are you actually doing to get these suppliers set up on your virtual card program? And how far along are you in these efforts? And then can this ultimately lead you to hitting your more long-term targets for virtual card faster?

Our initial effort begins with AI. We have a massive supplier network of 2.5 million, and we are utilizing AI and machine learning to analyze data and align it with the Mastercard Comdata network, which processes our transactions. The first step was ensuring we effectively understood and utilized AI. Soon after, we decided to integrate human involvement to reach out to suppliers, helping them get onboarded and guiding them through the transaction process. This collaborative approach between AI and our team has significantly enhanced supplier engagement beyond our expectations. To answer your question, Mason, this is indeed a critical component of achieving our long-term model. Currently, we've observed that we could achieve in this quarter what we initially expected to accomplish in a longer timeframe. Moving forward, we need to explore additional strategies to sustain our growth. We have numerous ideas, all of which will be tested before we commit to significant investments. Overall, we are optimistic about what we have learned and the potential to combine our AI capabilities and data with the personal touch of engaging with suppliers in real time.

Okay. And then on the Intuit relationship, how is the new agreement progressing here? Any initial feedback you can provide us on the transition upmarket toward the QBO Advanced customers?

We are excited about our partnership with Intuit and recognize that they are equally enthusiastic. This initiative is one of the top five priorities for our company, focusing specifically on Advanced. We have selected a few partners to collaborate with as we launch this effort. Advanced is now featured on the App Store as a preferred partner, and while there is customer engagement, we are still in the early stages of defining our go-to-market strategy with Intuit. We need to determine the most effective product touch points, engage with sales teams, and align our companies effectively. There is considerable work ahead of us, but what stands out is the shared excitement between both teams regarding the potential of this opportunity. The focus is on monetization and addressing the needs of businesses. We have relevant data indicating that Advanced has been available for a few years, and we have numerous channels that complement our work with Intuit on this partnership. We have thousands of customers using Advanced on our platform, which supports our confidence in the significantly higher ARPU. This customer experience and history are essential as we collaborate with Intuit to maximize our efforts. Intuit views this as a long-term commitment, as do we, seeking to expand the QuickBooks Online Advanced customer base from 75,000 to a much larger figure. We are genuinely looking forward to this development.

Your next question is from the line of Scott Berg with Needham.

Rene and John, congratulations on a great quarter. I have just one question. Rene, I wanted to revisit your comment, or possibly it was John's, regarding customer growth normalizing or possibly slowing a bit over the next couple of quarters until you start seeing an increase in customers from the new financial institution relationships. Considering the implementations that are complete, like the one with Wells, what are your expectations for customer additions from these new financial institution relationships compared to existing ones, such as Bank of America or JPMorgan Chase that you've had for a while?

Thank you, Scott. The financial institution relationships clearly depend on their customer base and the specific target customers they have. For instance, Wells Fargo focuses on its commercial customers, which range from $10 million to $100 million in revenue. KeyBank serves both small businesses and commercial clients. Generally, the primary business we have with the leading banks in the country is commercial. Therefore, we don't expect a large number of units to come through, but it does contribute to the total payment volume. As we evaluate the year-over-year growth in total payment volume, we believe it's essential for our ongoing success. What I can share is that in the initial stages with any bank partners, akin to our experience with Intuit, it's essential to identify the right go-to-market strategy and plan. For example, the Wells team is enthusiastic about what they've observed from their customer base so far. However, it's still too early to predict customer numbers because there is a significant customer base, and we will understand more as we progress.

Got it. I apologize for the follow-up, Rene. Considering the complexity of the relationship with Wells, which has some differences related to having AR as a component of the platform that those customers can adopt, do you think that alters the perspective on customer adoption in new areas because it represents a slightly different product offering compared to someone just purchasing the AP side of the solution?

Yes. I think offering the complete package of both AP and AR does create a different sales message. And we do have a partner, a large bank, and I can't remember if we're allowed to say their name, so I won't at this point. But it's a large bank that does do both AP and AR. And they have great success leading with that and so we look to that, we share that learning, we help others understand how you can lead with both, and we think that's an opportunity. So I think, Scott, you're right to kind of think that that's an opportunity for us. And when we look at the top three bank that we're in the process of rolling out into the small business space as well as, obviously, we have the commercial, that opportunity to kind of serve both AP and AR, it's going to be a real opportunity for us.

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

I just wanted to ask about the mid-market sales force hiring plan. I know that as you build out a broader suite of payment products and improve the functionality of the platform, I'm sure it's more and more relevant to larger customers. So anything you can share about on hiring you're doing there to accelerate the direct sales outreach to some larger customers?

The initial hire I made was the Chief Revenue Officer to foster alignment in our customer acquisition efforts, particularly in marketing, sales, and partnerships. The goal was to understand the trade-offs associated with each of our acquisition methods. As Tom gets acclimated and formulates his strategy, we'll explore how to invest more in those channels to achieve our growth targets. Currently, mid-market offerings are well received by customers as we continue to focus on both lead and sales growth, which we feel confident about. The potential in this area is significant, and the challenges businesses face without our solution are real. Our straightforward approach across various payment methods greatly appeals to customers.

Your next question is from the line of Ken Suchoski with Autonomous Research.

I was just wondering if you could talk about the virtual card acceptance. Are you seeing greater virtual card adoption across certain types of suppliers, either by size or industry? Or are there certain suppliers where you're seeing a lower acceptance in terms of that virtual card?

We are still learning in this area. It's part of the automation and supplier enablement we just discussed. The teams are focused on bringing this in-house because we need to understand our data better and connect with suppliers to know their needs. Our goal is to accelerate the business and provide a great experience for suppliers. Currently, there hasn’t been any indication that we should avoid talking to certain suppliers. In fact, suppliers want to be paid quickly, and when we make it easy for them, they are willing to engage. We see opportunities to improve this ease further. However, there are some suppliers who may not find this approach suitable, and that’s okay. We have other payment options available for them.

That's really helpful. And then just for my follow-up, I think you mentioned that you're going to see fewer QuickBooks Simple Bill Pay customers. So I was curious of why Bill.com wouldn't be able to go upmarket with Intuit while maintaining the historical level of Simple Bill Pay net adds. Any color there would be really helpful.

Yes. Our understanding and experience with the Simple Bill Pay customers is that they are micro businesses. They are relatively small, with only a few transactions, and they do not generate subscription revenue. As you know, our business relies on both subscription and transaction revenue to drive success. Therefore, since their business model was not costly, we were less focused on those customers compared to the QuickBooks Online Advanced customers. As we have successfully acquired those customers beyond our recent partnership, we realized that the revenue and business opportunities were much more significant than those of Simple Bill Pay. This is why we prioritize that with Intuit and have dedicated our time to discussions with them to help them recognize this. They were also able to see this clearly in their data. Ultimately, it’s about identifying the best strategy for growth, and we believe that targeting Advanced customers presents the greatest opportunity.

Your next question is from the line of Bob Napoli with William Blair.

Nice quarter. Just wanted to dig a little deeper into the distribution success, like the accounting firm, the mix. Did you see anything different than the mix of customer adds? Did you get more traction from FIs this quarter? Or will we see that further down the line?

Yes, Bob, we noticed that accountants were quite busy with the tax deadline in July, but they returned afterward. One point we highlighted in our press release is that some accountants are involved in wealth management, which contributed to a noticeable increase in that sector of our business as well. There wasn't a single channel that performed exceptionally well. I bring up accountants specifically because we noted they would be slow in July, which turned out to be accurate, but they returned and had a strong quarter overall. We experienced robust demand throughout the quarter across all channels, and there was nothing specific to mention. Regarding the new banks, it's still early days. Wells Fargo is currently in pilot, and KeyBank just launched this week in general availability. We expect to have more insights in the next quarter that will help us gauge the direction of this initiative.

And then anything on the distribution strategy, anything new? I mean it seems to me like partnerships with some of the bank tech companies like a Q2 or an Alkami or FIS or Fiserv, it seems like your product would fit really well with their corporate customers. And it seems like a...

Yes, there are significant opportunities in distribution that we aren't ready to discuss today. However, the most important focus for us as a company is to leverage the excellent distribution channels we have with Wells Fargo, KeyBank, and one of the largest small business banks in the country. Ensuring we get this right is crucial, and it's all new in addition to our existing partnerships. I believe we have a lot of potential in distribution to explore, and I'm encouraging the team to concentrate on that. While we are in discussions with various parties, there's nothing specific we can share at this time. I'm really excited that we surpassed 100,000 customers this quarter, which is a significant achievement. It places us in an elite category of businesses serving that many small enterprises. Our focus now is on expanding beyond that 100,000 mark, and our distribution deals play a crucial role in that strategy. Additionally, we're committed to simplifying our platform to enhance the overall experience for both buyers and suppliers. One key example of this is the Instant Transfer feature, which streamlines real-time payments for suppliers. We're actively pursuing various initiatives to simplify our product further, and while we have new opportunities in mind, we cannot disclose specifics at this time.

Your next question is from the line of Matt VanVliet with BTIG.

Nice job on the quarter. I guess as kind of a follow-up to the last couple of questions. But as you think about pursuing and getting into discussions with other financial institutions and what that might mean, what's kind of the longer-term mindset around looking to broaden the horizons of the institutions you're working with versus investing in deeper capabilities and working more closely with the three big ones in particular that you talked about and expanding there and just kind of the broader mindset around that channel?

There is a significant opportunity with the financial institution channel. This includes both adding more banks, as we now have five of the top ten, and the potential to continue securing more of the top ten, along with other superregional and regional banks. We have plenty of opportunities to onboard additional banks and to deepen our relationships with our existing bank partners, particularly on the small business side. The strength of our model lies in our reliability; we deliver on our commitments to our bank partners, which encourages them to explore further collaborations with us. Overall, we are committed to both expanding our partnerships and enhancing our product strategy to ensure simplicity, as we recognize that approaching the early and late majority segments of the market will differ from our past experiences. Certainly. One of the reasons I wanted to take the company public was to have a currency, in addition to capital, that would allow us to be opportunistic in expanding the platform. We have a robust platform designed from the start to serve and automate financial processes for small and medium-sized businesses, primarily focusing on accounts payable and receivable. There are numerous opportunities to enhance that platform by integrating additional features. We recognize that expense and spend management is an intriguing area to explore, as well as human resources and payroll. We also see potential for improving working capital efficiency for small and medium-sized businesses. However, this is not something we plan to pursue immediately. In response to your broader question about our approach, I would say that for now, we're primarily focused on extending our platform for accounts payable and receivable.

Your final question is from the line of Jeff Cantwell with Guggenheim.

Nice results here. I just want to touch on a question from earlier and ask you about what you're seeing with your customer base and payment transactions. So right now, you're at 103,000 customers, it's almost 104,000 customers. Transactions were 6.5 million. Those numbers were ahead of where we were for the quarter. So I just wanted to ask you if we can drill down a little bit on the characteristics of your customer base right now as you're expanding very quickly and as you're broadening out your own product lineup. Are you seeing new customers that are more likely to be users of these newer products like virtual card or cross-border? Are your new adds the kind that will remain into these higher-value products, I guess, is one way of asking. Can you just talk a little bit about that because that will help us get a better sense of how to project out, call it, 12 to 18 months from now.

Thank you. The virtual card business operates by matching and rerouting payments to suppliers who accept virtual cards, meaning our customers do not have a choice in this process. We prioritize the fastest payment method to ensure that vendors are paid quickly and efficiently, with proper reconciliation. In this case, customers are not making a decision. Regarding international payments, mid-market companies have shown interest, and we aim to provide solutions for them. Our straightforward approach often attracts these customers. Previously, we noticed that businesses were making international transactions outside of our platform, and there were virtual card transactions we weren’t handling. This presents a significant opportunity to empower our customers. We have observed that these offerings, particularly international payments, tend to be an additional benefit when they consider our solution.

Appreciate that. And if I could ask you a quick follow-up. You have been in this business for a long time. And I guess the question is, as you're watching this year unfold with small businesses, what can you leave us with in terms of what's new? What are small businesses doing right now that's different or new or maybe it's just a little change in the behavior that will help us understand customer growth over time and why those flow through to your platform. I'm just curious if you can kind of give us the broad picture for what you're seeing over the past three to six months as you're sort of emerging from the lockdowns and trying to grow through this pandemic?

It's a great question. As much as we want to be in the office with people, we've all come to appreciate the efficiency and ability to work remotely. One new need for small businesses is the capability to enhance their mobile operations. We mentioned in my script that mobile data saw significant growth over the past year. This is partly due to our effective product placement and our efforts to encourage suppliers to engage in mobile transactions. As we move forward, I believe more and more operations will be conducted remotely, with mobile continuing to play a vital and growing role. I want to thank everyone for joining today's call and for your ongoing support as shareholders and stakeholders in our business. Thank you.

This concludes the Bill.com’s first quarter of fiscal 2021 earnings conference call. Thank you for your participation. You may now disconnect.