Earnings Call Transcript - BILL Q3 2023

Operator, Operator

Good afternoon. Thank you for joining BILL's Fiscal Third Quarter 2023 Earnings Conference Call. My name is Brika, and I will be your moderator. I would now like to pass the conference to Karen Sansot, Vice President of Investor Relations at BILL. Please proceed.

Karen Sansot, Vice President of Investor Relations

Thank you, operator. Welcome to BILL's fiscal third quarter 2023 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 at investor.bill.com. With me on the call today is Rene Lacerte, Chairman, CEO and Founder of BILL; and John Rettig, Executive Vice President and CFO. 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 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 SEC, including our most recent annual report on Form 10-K and quarterly report on Form 10-Q filed with the SEC and available on the Investor Relations section of our website. 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. Additionally, please note that the appendix for the quarterly investor deck, which is posted on our Investor Relations website, contains a supplemental table of revenue and metrics information. At times during this call, we will discuss BILL's standalone results, which exclude our Divvy spend management, invoice to-go accounts receivable, and Finmark financial planning solutions. Now, I'll turn the call over to Rene. Rene?

Rene Lacerte, Chairman, CEO

Thank you, Karen. Good afternoon everyone. Thank you for joining us today. BILL delivered strong profitable growth for the third quarter, as we executed on our strategy to be the essential financial operations platform for SMBs. Revenue in Q3 grew 63% year-over-year, driven by broad strength across our diversified revenue streams. We also made significant progress growing non-GAAP net income, which was $59 million for the quarter, reflecting a margin of 22%. At the end of Q3, more than 450,000 businesses used BILL to automate their financial operations and generate $65 billion in payment volume during the quarter. We are pleased with our Q3 results, amidst an external environment that included significant macro uncertainty and a banking crisis. Our financial performance and scale are a testament to the value of our platform and ecosystem. Consistent with earlier indicators from the last two quarters, SMBs are moderating their expenditures in this tough macro environment and continuing to focus on doing more with less. In Q3, customers were highly engaged with our platform and made a similar number of transactions on a year-over-year basis, yet reduced their expenditures per transaction as belt tightening continued. We know that BILL is the center of our customers' day-to-day financial operations. Our platform enables process automation from the moment a bill was received all the way through to syncing completed transactions with the accounting system. Customers leverage our solutions to operate more efficiently and gain increased visibility into their cash flows. A great example of how we help companies transform their financial operations and gain efficiency is Anchored Tiny Homes, a family-owned homebuilding business in Fair Oaks, California that leverages our accounts payable and spend management solutions. Cindy Morton, Financial Controller, said and I quote, 'We never knew managing our finances to be this easy. We went from having no understanding of which checks were outstanding to having a real-time view of our cash position. With 35 Divvy cards in use, we know exactly who has made each purchase and have an accurate picture of costs associated with individual homebuilding projects. With BILL, we are able to take on more clients. In the past year, we went from 60 active construction projects to 140 at any time. BILL and Divvy completely renovated our financial operations.' Our platform enables customers like Anchored Tiny Homes to connect with millions of network members regardless of which accounting system or bank they use. We have built a large-scale two-sided network that simplifies operations and offers automation and multiple payment choices for both sides of a transaction within a secure and frictionless experience. Today, roughly one-third of BILL's stand-alone platform core revenue is generated by suppliers in our network, who choose to accept virtual card instant transfer, international payments, and now in beta, invoice financing. Leveraging the breadth of our platform, we believe there is significant long-term growth ahead to drive further network member acquisition and ad valorem payment adoption. Every new member that we add to our network increases platform engagement, thereby enabling additional value creation across the platform. Our platform is the central hub that facilitates millions of transactions each month for billions of dollars. We have built an always-on platform with 24/7 availability for it to deliver the financial peace of mind SMBs need. This means we have created redundancy through integrations with multiple payment processors to ensure consistency and reliability. BILL's world-class infrastructure and operational capabilities were demonstrated during the recent banking crisis. Today, at the Silicon Valley Bank closure, we committed to our customers that we would stand behind all pending transactions regardless of the ultimate resolution of the bank situation. We seamlessly redirected SVB-bound transactions to another financial institution partner so that transactions continued uninterrupted. We also helped impacted businesses stay operational by utilizing our suite of products. We offered a new way for customers to access capital by pre-approving lines of credit through Divvy, provided a solution for debit card users to connect their cards to our pay-by-card offering, and expanded access to BILL Balance to secure a convenient place to store funds and make fast payments. Recognizing that businesses want to manage all their spend in one place, we continue to work on creating an integrated customer experience blending the best of BILL and our acquired solutions. Recently, we unified the look and feel of our Divvy and BILL solutions across our web and mobile apps. Later this year, our platform will power a cohesive and consistent experience and customers will have a significantly enhanced view of cash inflows, outflows, and open tasks, all in one place. The consolidated view will enable businesses to gain a more complete picture of their finances and further control their financial operations. By offering enhanced in-product discovery and simplified self-service product adoption, we believe that we will further unlock our sizable cross-sell opportunity. In addition, we are enhancing our accountant dashboard, making it easier for our 6,000-plus accounting firm partners to offer more of our products that provide more strategic value-added services to their clients. We are also continuing to leverage our expertise in developing AI capabilities that make our solutions easier to use, more automated, and predictive. We were an early adopter of AI applying it to our large data asset for reading invoices, enabling suppliers, detecting risks, and managing documents. In addition, we are working on ways that BILL can leverage generative AI capabilities to enhance customer experiences. Turning now to the people front. Ken Moss recently joined our executive team as Chief Technology Officer. We're excited to have another seasoned executive on the team with experience enabling breakthrough technology at speed and scale. Ken brings decades of innovation and leadership experience to BILL, including eight years as CTO at Electronic Arts, where he led the company through a cloud-based transition and pioneered broad uses of data in AI to improve the game creator and player experience. He also led technology strategies at eBay, connecting millions of buyers with sellers to enable online commerce, and at Microsoft, he oversaw development and engineering with key teams. Ken will be taking over from Vinay Pai, who is retiring. In closing, we delivered another great quarter with strong revenue growth and expanding profitability while creating value for hundreds of thousands of SMBs. With our robust platform that automates financial operations and offers a variety of payment and funding choices, BILL serves as a financial nervous system for SMBs and connects them with millions of network members. I'd like to thank our customers and partners for the trust they place in us, and I'd also like to thank the BILL team for their strong commitment to serving SMBs. I'll now turn the call over to John to talk in more detail about our quarter.

John Rettig, Executive Vice President and CFO

Thanks, Rene. Today, I'll provide an overview of our fiscal third quarter 2023 financial results and discuss our outlook for the fiscal fourth quarter and full fiscal year 2023. In Q3, we delivered strong financial results that were well ahead of our estimates, driven by strength across our multiple revenue streams. Total revenue grew 63% year-over-year and non-GAAP gross margin was 87%, our highest margin on record. Non-GAAP net income was $59 million or 22% of revenue, which expanded approximately 2.5 percentage points quarter-over-quarter. In addition, we delivered our third consecutive quarter of positive free cash flow, which totaled $84 million year-to-date through March. Our strong performance highlights the strength of our diversified business model and our commitment to deliver balanced growth and profitability. Our results were delivered amidst the backdrop of multiple challenges being faced by SMBs, most notably the ongoing macroeconomic headwinds and to a lesser extent, the banking uncertainty that materialized in March. Many of the changing B2B spend patterns that we saw last year continued in Q3. Even though customers continue to face challenging business conditions and are reducing their expenditures, engagement with our platform remains strong and shows that SMBs drive value from our solutions throughout any business cycle. For example, on our BILL standalone platform, excluding financial institution channel customers or FIs, the average number of transactions per customer was 74, consistent with the March quarter a year ago. Of these payments, approximately 80% were repeat transactions consistent with prior periods. Turning to an update on our key metrics and financial results in Q3. We ended the third quarter with 455,300 businesses using our solutions. BILL standalone customers grew to 197,900, up 35% year-over-year. Net new customer adds on our BILL standalone platform were 15,200, which set a new record. This includes 3,700 net-adds from our direct and accounting channels which was up slightly from last quarter. Net-adds in the FI channel were 11,500. Looking ahead to Q4, we expect fewer net customer adds in the FI channel due to Bank of America electing to sunset the BILL-powered legacy ACH and Check bill pay solution used by their commercial customer segment. We have transitioned many of the most active BofA commercial customers to our direct-to-bill platform where we will be able to deliver an enhanced experience and many more payment choices, including our ad valorem payment and spend management offerings. Note, this will be a one-time impact on our customer count and this transition does not impact our partnership with BofA focused on their small business segment. For our Divvy spend management solution, we ended the quarter with 27,100 spending businesses, an increase of 2,400 from last quarter. Moving on to payment volume. During the quarter, we processed $64.7 billion in TPV, well ahead of our expectations which assumed the TPV trends we saw late in the December quarter would continue in the seasonally soft March quarter. BILL standalone total payment volume was $61 billion in Q3, reflecting 11% growth from Q3 of last year and a decrease of 4% sequentially which was slightly below historical trends. In addition, in Q3, we also had $3.4 billion in card payment volume from our spend and expense management product, representing 63% year-over-year growth. Moving on to transaction volumes, we processed 21.4 million payments in Q3. This includes 10.9 million payments on the BILL standalone platform and 10.2 million spend management card transactions. Total transaction revenue per transaction was $8.09 reflecting growth of 12% year-over-year. For card payments processed through our spend management solution in Q3, we generated a gross take rate of approximately 262 basis points. Now I'll review our reported Q3 results. Total revenue was $272.6 million, an increase of 63% from a year ago. Core revenue which includes subscription and transaction revenue was $239.5 million, representing growth of 45% year-over-year. Subscription revenue increased to $66.7 million, up 28% year-over-year. BILL standalone subscription revenue was $57.6 million, reflecting growth of 33% year-over-year driven by our expanding customer base and a price increase implemented in our direct and accounting channels over the last few quarters. Transaction revenue increased to $172.8 million, up 52% year-over-year as a result of increased spend management card volume, strong ad valorem payment adoption, and TPV growth. BILL standalone transaction revenue totaled $83.2 million reflecting growth of 41% year-over-year and Divvy transaction revenue totaled $88.6 million reflecting growth of 65% year-over-year. Float revenue was $33.1 million. Our yield was 429 basis points in the quarter. Shifting to gross margin and our operating results for Q3. Non-GAAP gross margin was 87%, up 2.4 percentage points year-over-year as a result of higher float revenue and increasing variable transaction fee revenue. The last few quarters we've had a very favorable payment mix and a tailwind from high-margin float revenue which has resulted in peak non-GAAP gross margin, which we would expect to moderate in the next few quarters. Non-GAAP operating expenses were $202.3 million, an increase of just 4% from Q2 due to proactive expense management including reducing our pace of hiring and closely managing our variable spend. Rewards costs which are included in sales and marketing expenses were 48% of spend management card revenue compared to 50% in the prior quarter. Non-GAAP operating income was $34.8 million, an increase of $40.5 million year-over-year. Non-GAAP operating margin was 12.8%, an improvement of 16 percentage points year-over-year. Non-GAAP other income, net of other expenses, was $25.4 million and benefited from higher yields on corporate cash and investment portfolios. Our non-GAAP net income was $58.7 million or 22% of revenue resulting in non-GAAP net income per diluted share of $0.50 based on $117.2 million diluted weighted average shares outstanding. Our non-GAAP net income was significantly ahead of our estimates due to revenue outperformance combined with our disciplined approach to managing expenses as we scale. Moving on to the balance sheet. Cash, cash equivalents, and short-term investments at the end of Q3 were $2.7 billion. We are well capitalized and focused on continuing to invest in our platform to serve more needs of SMBs. Our track record of investing in organic and inorganic opportunities and translating those investments into efficient growth is a playbook that we will continue to deploy. With our strong balance sheet and free cash flow generation, we are in a position to allocate capital for both investing for growth and reducing dilution through our share buyback program. In March, we repurchased 359,000 shares for $27 million at an average price of $75.22 per share. As of March 31, we had approximately $273 million of share repurchase authority remaining. Before shifting to our financial outlook for the fourth quarter and full fiscal year 2023, I'd like to share our view on how we see the macro environment impacting SMBs and our business. While we've seen initial signs of spend trends beginning to stabilize, we anticipate that the challenging macro environment and tightening credit conditions in the near term will translate into customers continuing to reduce spend from the elevated levels of the pandemic years. For the BILL standalone platform, we expect Q4 TPV to be roughly flat to Q3 and down slightly on a per customer basis quarter-over-quarter. While the cyclical headwinds will likely persist in the near term, we are optimistic about the strong secular trends driving digital transformation, and we're confident in our ability to achieve our long-term aspiration to serve millions of businesses. Through our platform and payment offerings, we are driving robust customer engagement and strong ad valorem adoption. We are innovating at a rapid pace to create more value for SMBs and to further differentiate ourselves. Now turning to our outlook. For fiscal Q4, we expect total revenue to be in the range of $277 million to $280 million, which reflects 38% to 40% year-over-year growth. As a reminder, our recent subscription price increase is now in our run rate numbers and as a result, we expect a smaller sequential subscription revenue increase compared to recent history. We expect float revenue to be $32 million in Q4, which assumes our yield on FBO funds will be approximately 410 basis points. On the bottom line, for Q4, we expect to report non-GAAP net income in the range of $45.4 million to $48.4 million and non-GAAP net income per diluted share in the range of $0.39 to $0.41, based on a share count of 117.3 million diluted weighted average shares outstanding. For Q4, we expect other income, net of other expenses or OIE to be $24 million. We expect stock-based compensation expenses of approximately $64 million in Q4 and we expect capital expenditures of approximately $11 million to $12 million. Moving on to full year guidance. For fiscal 2023, we expect total revenue to be in the range of $1.0395 billion to $1.0425 billion, which represents 62% year-over-year growth. We expect float revenue to be $109 million in fiscal 2023, which assumes a yield on FBO funds of approximately 350 basis points for the year. We expect to report non-GAAP net income for fiscal year 2023 in the range of $170.4 million to $173.4 million. We expect non-GAAP net income per diluted share to be $1.46 to $1.48, based on a share count of 117 million diluted weighted average shares outstanding. In closing, with our platform, ecosystem and scale, we are well positioned to capture a large market opportunity to transform financial operations for millions of SMBs. We have an efficient, multi-revenue stream business that enables us to invest in driving innovation and value creation for our customers while delivering significant revenue growth, non-GAAP profitability, and free cash flow for our investors.

Operator, Operator

Thank you. We have the first question from Andrew Schmidt of Citigroup.

Andrew Schmidt, Analyst

Hi, Rene. Hi, John. Good afternoon. Thanks for taking the questions. Good to see the results in the quarter. I wanted to ask about just the spend trends in terms of just a stabilization comment. It's good to hear about just the comment about stabilization, but it does sound like you're expecting kind of more moderation. So maybe you could kind of reconcile on what you're seeing currently, versus how you're setting up kind of the outlook? Any comments about just what you're seeing in the environment would be helpful. Thanks a lot.

Rene Lacerte, Chairman, CEO

Okay. Thank you, Andrew. I'm super happy with the quarter, and in part, because the deterioration that we had seen at the end of the last quarter did not continue as strongly into this quarter, and so that's the comment around stabilization. And what we saw, what that really tells us is that once again we have proven and seen the proven capability that SMBs have to be resilient. They've really worked hard to be able to manage their business, and they use our platform to be able to do that. And being able to manage through uncertainty is something that we feel very comfortable that we can help SMBs do, and we started to see that across the platform. In addition, we continue to see great execution across our business and that enabled us to drive opportunities to support our customers in multiple ways, to be able to drive monetization across the platform, and to be able to drive customer growth one of the strongest quarters ever for us for total net-new adds around 15,200. So, all of that in this macro environment, I would say bodes well for our future. I don't know if John, if you have anything else to say on this.

John Rettig, Executive Vice President and CFO

No, I think that was good. We did expect heading into the quarter that some of the trends we saw materialized late in the December quarter, which was a pretty sizable drop off in spend. As businesses were reacting to the macro environment and reducing expenses, we had assumed that those trends would continue in the quarter and it proved to be conservative, frankly. We ended up with TPV of 11% year-over-year growth versus our initial estimates of being flat, and down slightly quarter-to-quarter, which is pretty consistent with normal seasonal trends. So we feel really good about the strength of the SMB customer base we have, and the utility that the platform is providing for our customers.

Andrew Schmidt, Analyst

Super helpful. Thanks for that. And Rene, maybe I could sneak one more in, just since you mentioned the better net new add profile. I remember last quarter there were some delays in decision-making, SMBs pushing software decisions out. It seems like XFI, BILL net adds got a little bit better, but still under that kind of 4,000 to 5,000 mark. Are you seeing improvement in terms of the cycles there? And how should we think about normalization over the next few quarters? Thanks a lot.

Rene Lacerte, Chairman, CEO

Yeah. Thank you, Andrew. One of the great things about our business is our go-to-market strategy. We have a very robust multi-channel distribution approach, which allows us to support businesses and small businesses wherever they may be and whatever they're looking for. Solutions to help them really automate their financial operations and that's how we become the financial nervous system for SMBs. And so what we continue to see is in our direct channel we continue to see kind of the macro play out in that the smallest businesses continue to be in this wait-and-see mode versus a growth mode, and so they have waited to make decisions to add on different expenses to their business. And then when it comes to the accountants that we also serve, we see accountants being very focused on how to help their customers from a strategic perspective really drive efficiency in their business, and so they're not as busy adding new customers as we would like to see. Ultimately this is the macro condition that we talked about that when it impacts the net new adds it's because they're focused on using our platform to manage their business today. And we believe the opportunity that we see across channels hence what we saw with the financial institution channel shows the robustness of our capabilities here that SMBs when they need something, when it comes to financial operations, they're going to come to BILL.

Andrew Schmidt, Analyst

Got it. Very helpful. Thank you very much, Rene.

Rene Lacerte, Chairman, CEO

Thank you, Andrew.

Josh Beck, Analyst

Thank you for taking the question. I wanted to ask a little bit about Divvy. Certainly, you've started to unify the experience with BILL. I think you were talking really across the web and mobile apps, but certainly you seem to have more plans. So maybe just help us understand what may be some of the early learnings have been? And really just how we should think about the cross-sell potential in the coming years?

Rene Lacerte, Chairman, CEO

Thank you, Josh. From the beginning, we have taken the time and placed the effort around purposely building a robust interconnected platform that allows us to offer multiple types of payment products to our SMBs to be able to serve them as they need. And with the acquisition of Divvy, the focus has been on how do we continue to extend that platform. And so we have defined this as our unified platform it's something that we're very focused on. And to begin that integration, we first started with unifying the data lake - if you will - being able to have the ability to see customer data across both platforms and have a single view of that. And that led us into also having a unified brand approach, which you saw that in the fall where we released and shared how we're thinking about branding. And what we announced this quarter is that the look and feel that customers see is actually one experience now. It's one color system as an example, one sign-on, one unified identity. That allows us to focus on the next phase, which we think is going to be an important phase to go after that sizable cross-sell opportunity that we talked about, which is to have the platforms integrated from an experience perspective; a more unified experience. Not just from a color perspective, which is the first step of look and feel, but now integrating different software features and capabilities across that unified experience. And so we are committed to getting that done this calendar year. It's been our plan all along to deliver that this calendar year. And we feel very good about where we're at in that execution of that requirement for the business. And we're excited about what that's going to mean for the cross-sell opportunity. Like we said, we really believe it is a sizable opportunity. We see from the customers that are already using both BILL and Divvy, the value they get out of it. We also see the increased usage and spend across both platforms when they work together. It becomes very, very sticky the application and the service that we provide. And that's something that we're excited about and look forward to rolling that out later this year.

Josh Beck, Analyst

Okay. Great. And then maybe a related question, it sounds like BofA is really zeroing in on the SMB segment for the white-label option and looking to maybe put the commercial over to more of a direct relationship. So that's certainly interesting to hear. How applicable do you think this is across a broader swath of FI customers and really finding the strong product-market fit within SMB in particular?

Rene Lacerte, Chairman, CEO

Yeah. I think the thing that we've always focused on is creating value for our partners and really being there to serve them. And so we do have multiple relations with Bank of America. We have a small business relationship. And we have the commercial relationship. And when we did the commercial relationship 10 years ago, we were integrating already into what I would call a legacy platform that the bank had. And so, we're at a point now where this platform now 10 years later, the bank has made a decision to go in a different direction and sunset that legacy platform that supported really just the ACH and check capabilities from a BILL pay product perspective. And so, from our perspective this is kind of a one-off situation. When you look at the financial institution partners across we continue to do more and more with all of our partners including Bank of America. And so, we think this channel is going to be super important as financial operations become part of the fabric of every SMB and we're going to continue to focus on serving those FIs. We have six out of the top 10. We're going to continue to focus on serving them with more and more products and more capabilities.

Josh Beck, Analyst

Thanks for that.

Darrin Peller, Analyst

Thank you. I'd like to begin with the topic of take rate expansion. While it's more of an outcome than a direct focus, I noticed that it didn't expand as much sequentially last quarter compared to previous ones. You mentioned there might be opportunities to be more proactive in this area, such as through supply enablement or other categories. This quarter, however, we saw a significant expansion, approximately two to three times what it was before sequentially. Could you elaborate on what contributed to this strength and whether there are proactive measures being taken? Additionally, can we expect this trend to be sustainable? Thank you.

Rene Lacerte, Chairman, CEO

Thank you, Darrin. I'll start and then let John add some more color. First and foremost, we've built a very strong platform that allows us to use multiple levers across the business to drive monetization and more uses of our payment products. And in any given quarter, we're doing different things experimenting, testing, and driving that capability. And we've always said that it's not going to be a linear approach to get to the ultimate expansion of monetization with our customers. And this is a good example. We had a lot of great experiments that worked well for us this quarter. I'll let John kind of talk more to that.

John Rettig, Executive Vice President and CFO

Yes, Darrin. We experienced strong adoption of ad valorem during the quarter, linked to our payment offerings, which are well-received by both buyers and suppliers. Specifically, we observed excellent adoption and usage of our virtual card payments and pay-by-card solutions, along with a shift in our international payment products, seeing an increase in foreign currency transactions compared to U.S. dollar transactions and a reduced impact from foreign exchange losses that we mentioned last quarter. Looking ahead, we can reasonably expect typical average quarterly expansion rates, though there may be some fluctuations as Rene indicated, along with possible changes driven by macro factors. However, we're optimistic about our quarterly performance and how our ad valorem products are increasingly appealing to our small business customers.

Darrin Peller, Analyst

That's really encouraging guys. I mean a very quick follow-up just the comments you made on into the next quarter. Is there an element of just macro conservatism? Are you seeing a real change in behavior on customers? Just a quick update. Thanks again guys.

John Rettig, Executive Vice President and CFO

I'd say, looking ahead to this June quarter, we're assuming that the environment is going to be relatively stable, the external macro environment. And that small businesses are continuing to adjust their spend patterns and what ultimately flows through our platform as TPV in light of inflation, interest rates, credit. All of those things are continuing to force SMBs, and our customers to react. So we're assuming that continues, but no significant worsening of the environment where we would see major changes from SMB. So it's kind of a continuation of the trends that we feel like we experienced in the March quarter.

Brent Bracelin, Analyst

Thank you. Good afternoon. Maybe I'll start with John. Core TPV clearly was stronger than expected three months ago. It sounds like that was partially tied to SMB stabilization. Can you talk a little bit about linearity of the core TPV trends there on a monthly basis? And did that trend off at all in March just given some of the regional banking issues? Just any color on linearity would be helpful. Thanks.

John Rettig, Executive Vice President and CFO

Yes, Brent. First, I’d like to point out that the March quarter usually sees lower spending than the December quarter. In December, we didn’t see the usual seasonal increase we expected, so we thought this trend would continue into March. However, we actually observed spending trends this quarter that aligned with historical seasonal patterns. Overall, spending levels have decreased since, as I mentioned earlier, small and medium-sized businesses are cutting back on their expenditures. Nevertheless, the spending patterns during the quarter appeared consistent, which contributes to our observations of some early signs of stabilization in spending trends.

Rene Lacerte, Chairman, CEO

Just one thing I'd add just you asked about kind of the regional bank. One of the beautiful things about our platform is that our customers can switch and add multiple bank accounts. And so for them, this was a non-event because we stood up and we took care of our customers.

William Nance, Analyst

Hey, guys. Thanks for taking my questions. I wanted to kind of follow up on the point that you made on the BofA partnership. With those customers moving from the BofA channel to the direct channel, I guess could you put some parameters around just how large of a move in customers we're talking about here? And then we generally think about the monetization in the direct channel as being significantly higher than the FI channel. Is that something that we're going to see in the near-term as these customers come over? And could you kind of talk about how that might differ between upfront movements in subscription versus transaction revenue? Thanks.

Rene Lacerte, Chairman, CEO

Thank you, Will and great question. I think the first thing I would kind of call out is that we have a very strong partnership with the bank, and it's because of the strength of that partnership that we've been able to work with them on helping those customers make a decision about migrating and migrating over. And already we've seen many of the customers that are active migrate to our platform, and it's only been - May 1 was the effective date that the bank set out. So it's very, very early for us but we feel good that many of the active customers are coming over. And to your point, those customers when they come over they have the ability to leverage all of our payment capabilities. And so that could be anything from virtual card which is kind of built into the direct experience to instant transfer to cross-border payments to working capital invoice financing. These are all things that we know will drive the ARPU up on those customers and we expect that will be an important contributor for us in the future relative to the relationship overall. And it's something that we're happy to serve the customers and make sure that we're delivering for them.

William Nance, Analyst

Got it. I appreciate that. And then maybe just a question on working capital. I think you guys have been rolling that out. Could you talk about just kind of where we are and any initial thoughts around how you think about attach rates in that product and what that might look like over time?

Rene Lacerte, Chairman, CEO

Thanks. So let me start and then I'll let John add some additional color. The way we think about things is to always build something that's going to be robust, stand the test of time, deliver for customers, and deliver for shareholders. And so as we roll this out into our beta program, we are learning about what it is that customers want, how to actually manage the capabilities that we have. And what we see so far has us encouraged about the opportunity in the future. We're going to continue to work on rolling that out and making sure that contributes in a way to the customers' experience as well as our financial experience. So John anything else?

John Rettig, Executive Vice President and CFO

Yes, just a quick follow-up to that. One of the things that we previously mentioned is that we're in the middle of the transaction flow with our platform. We see the vast majority of B2B spend with our customers on our platform and we think it's a perfect spot to offer alternatives that help improve cash flow and liquidity for customers. That was our thesis in rolling out this product initially and we've been testing and learning. It's still very small. I wouldn't say we're at full launch yet. The feedback has been very positive, and we're starting to be able to validate many of the initial assumptions that we had about product adoption and repeat usage and things of that nature. So I'd say we're a ways away from the scaling phase on that product, but we believe it can be a really interesting product. Perhaps in the near-term, not something that moves the needle overall for our business. But over the longer term, we think it is a really nice addition to our ad valorem portfolio.

Kenneth Suchoski, Analyst

Hi. Good afternoon, Rene and John. Thanks for taking the questions. I think you mentioned that 3,500 net adds ex the FI channel is kind of the right number going forward. We saw a little bit of an acceleration this quarter versus last, so I'm just curious like why is 3,500 the right number, or should this accelerate back to that kind of 5,000 type of net adds type of range? And then, just any thoughts on kind of the visibility you have into this number.

Rene Lacerte, Chairman, CEO

Yes. Thanks, Ken, for the question. Yes. First and foremost, and I've said this many times, this is a massive opportunity. We have been creating and defining this category of financial operations automating payable spend, expense, and AR capabilities for our customers for a number of years, and what we see in the future is that there's so much more opportunity in front of us. What we've talked about is that that macro environment means that businesses in general are in this wait-and-see, not grow mode and that means that some businesses are waiting to take on additional expense before they actually move forward with the opportunities to create more efficiency. So, we do think that that will change as we see the other side of this economy when we could see the light at the end of the tunnel of this wait and see. And we really believe that the multi-channel distribution approach we have will continue to serve us well that we can continue to build our customer base across all channels. And what that means is that just as a reminder that allows us to continue building our network. And the network customers really do provide value for every customer experience and allows us to continue to grow our direct experience as well. And I think the thing that we continue to be most excited about is just the satisfaction we see with customers and how they use the product and the time savings that they have and all the things that we do. So, we believe there's a bigger opportunity that we're going to continue to grow and work on and leverage the simplicity capabilities that we're learning every day to make this more available to more customers.

Kenneth Suchoski, Analyst

Okay, great. Thanks Rene. And I guess just as my follow-up question. If we put the FI channel to the side for a second, we look at the business ex-FI, the TPV per customer was down just 5% year-over-year. It was down 7% year-over-year last quarter, and it sounds like you're feeling better about the macro. So do you think that year-over-year change in TPV per customer ex-FI has troughed? And can you talk about how we should think about the normalized growth of this metric over the medium term and just the building blocks of that?

John Rettig, Executive Vice President and CFO

Yes, thank you, Ken. That's a good question. You are correct about the statistics. We are optimistic about the trends in the quarter regarding total payment volume and are starting to see what seems like more typical patterns. However, I believe it is too soon to declare a bottom or a return to growth. As Rene pointed out, businesses appear to still be cutting back, so we anticipate softer spending in the short term, which is also reflected in our estimates for Q4. In the medium term, there are still many factors dependent on the macro environment, interest rates, and the overall credit situation. We expect to have a clearer understanding of these trends by our August FY 2024 call and will provide an update then.

Taylor McGinnis, Analyst

Yes, hi. Thanks so much for taking my question. Maybe just to piggyback off the last question. When we think about the stabilization that you're seeing with SMBs reacting to the macro post-December, anything you can share on the mix of that spend in terms of what might be more discretionary versus fixed? And is the stabilization that you guys are seeing at all a reflection of that mix maybe being more at a more favorable level potentially today?

Rene Lacerte, Chairman, CEO

Thank you, Taylor, for the question. This wait-and-see approach reflects how businesses are tightening. It's important to note that we serve a broad range of the economy, with businesses of all sizes and sectors. This gives us unique insights into spending trends across various industries. One consistent observation is that larger businesses generally have more discretionary spending and tend to tighten their budgets more than smaller businesses. As a result, although all businesses are tightening, the overall impact on our total payment volume is more affected by larger businesses on the platform. We're beginning to see early signs of stabilization. While we need a bit more data to draw any definitive conclusions, we believe that our platform helps businesses manage their spending more effectively, putting them in a better position than those not using BILL.

William Nance, Analyst

Hey, guys. Thanks for taking my questions. I wanted to kind of follow up on the point that you made on the BofA partnership. With those customers moving from the BofA channel to the direct channel, I guess could you put some parameters around just how large of a move in customers we're talking about here? And then we generally think about the monetization in the direct channel as being significantly higher than the FI channel. Is that something that we're going to see in the near-term as these customers come over? And could you kind of talk about how that might differ between upfront movements in subscription versus transaction revenue? Thanks.

Rene Lacerte, Chairman, CEO

Thank you, Will and great question. I think the first thing I would kind of call out is that we have a very strong partnership with the bank and it's because of the strength of that partnership that we've been able to work with them on helping those customers make a decision about migrating and migrating over. And already, we've seen many of the customers that are active migrate to our platform and it's only been - May 1 was the effective date that the bank set out. So it's very, very early for us, but we feel good that many of the active customers are coming over. And to your point, those customers when they come over they have the ability to leverage all of our payment capabilities. And so that could be anything from virtual card which is kind of built into the direct experience to instant transfer, to cross-border payments, to working capital, invoice financing. These are all things that we know will drive the ARPU up on those customers and we expect that will be an important contributor for us in the future relative to the relationship overall. And it's something that we're happy to serve the customers and make sure that we're delivering for them. Thank you. I'd just like to say thanks to everyone for joining us today. We look forward to communicating our progress as we execute against our strategy to be the essential financial operations platform for SMBs. Thank you and have a great evening.

Operator, Operator

Thank you. I can confirm this does conclude today's call. Please have a lovely day and you may now disconnect your lines.