Earnings Call
BILL Holdings, Inc. (BILL)
Earnings Call Transcript - BILL Q3 2021
Operator, Operator
Good afternoon and welcome to Bill.com's Third Quarter of Fiscal 2021 Earnings Conference Call. Joining us today for today's call are Bill.com's CEO René Lacerte and CFO, John Rettig and VP of Investor Karen Sansot. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. With that, I would like to turn the call over to Karen Sansot for introductory remarks. Karen?
Karen Sansot, VP of Investor Relations
Thank you, operator. Welcome to Bill.com's fiscal third quarter 2021 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 René Lacerte, Chairman, CEO and Founder of Bill.com, and John Rettig, Executive Vice President and CFO. We are also joined by Blake Murray, CEO and Co-founder of Divvy. 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 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. Now I'll turn the call over to René.
René Lacerte, CEO
Thank you, Karen. Good afternoon, everyone. Thank you for joining us today. I hope that all of you and your families are in good health and doing well. I'm pleased to report that Q3 was a very strong quarter as a result of our continued focus on rigorous execution. I'm also excited to announce that we've entered into a definitive agreement to acquire Divvy, a leader in the spend management space. I could not be more enthusiastic about this transaction and the significant value our combined companies can create for our customers. I am thrilled to welcome the talented Divvy team to the Bill.com family when the transaction closes. Blake Murray, the co-founder and CEO of Divvy, is with us today to talk about our shared vision and commitment for helping SMEs transform, grow, and thrive. We posted a slide deck on our Investor Relations website with an overview of the transaction. I'll share more about the Divvy transaction after recapping our fiscal third quarter results. We delivered record results and accelerated growth in our quarter revenue transaction fees and total payment volume. In the fiscal third quarter, core revenue increased 62% year-over-year, transaction fees increased 112% year-over-year, and TPV increased 44% year-over-year. These results are only possible because of the passion and dedication of our employees. I'd like to thank them for their tireless efforts in delivering another excellent quarter. Every day they're laser-focused on how we can help small and midsize businesses simplify and transform their financial operations. Our mission is to make it simple to connect and do business. Our platform enables this by helping businesses simplify their back-office financial operations, connect with suppliers and customers, and make payments. We ended the third quarter with over 115,000 customers, more than two and a half million network members, and an annualized run rate of $140 billion in TPV. We believe we are the leading digital B2B payments platform for SMBs and operate one of the largest B2B networks in the United States. Throughout the pandemic, we have been inspired by the resilience and innovation of our SMB customers. It's been more than a year since COVID-19 changed everyone's lives and disrupted business operations. During this time we've seen our customers adapt their business models, expand their services, and embrace digital tools. For example, Wag the Dog-Walking Service expanded into new virtual offerings like Wag health, pet care, advice, and remote training. With the help of cloud technology solutions like Bill.com, they were able to serve many more pet parents daily through new virtual services and automation. Bill.com empowered them with faster insight into their spend and cash flow, which enabled them to reduce expenditures while investing in these new offerings. Another example is Evolution Events Solutions, which had to quickly pivot from live events to virtual ones. When the pandemic hit, they needed to be able to analyze their financials on a dime, and systems Bill.com helped them closely track their daily cash flow and manage the company through the crisis. With Bill.com, their time was freed up to focus on more strategic activities, including focusing on their post-pandemic plans for integrated live and virtual events. The scarcest resource for an SMB is time, and our deep understanding of that has driven us to ensure SMBs experience simplicity and ease with every Bill.com interaction. For example, new customers are able to sign up and actually use the platform to manage documents, create invoices, make payments, and collaborate with co-workers all in the same day. This ease of use is one of the reasons that in February, Bill.com was named a G2 best software winner for the second year in a row. The quotes from Bill.com customers on G2’s website speak for themselves: 'I love Bill.com. It saves me time and keeps me organized,' said one; 'the best and easiest to use payable system on the market,' said another; and, finally, 'collecting payments and paying bills—it's all super easy.' These comments align with the recent customer survey of over 2,000 customers, where more than 90% said Bill.com is easy to implement, learn, and use, and that Bill.com makes them more efficient. Seventy percent or more said they found Bill.com to be at least two times faster than traditional accounts payable methods. Delivering for our customers is what motivates all of us at Bill.com. I'm extremely grateful for our team's commitment to bringing our mission to life every day for the businesses that drive so much of our economy. In addition to talking with customers, we also reach out to SMBs across the country to understand how they're doing. We're hearing that many business owners are optimistic about the year ahead. We recently commissioned a survey of 1,000 small and midsized businesses in the U.S. and learned the numbers: 80% of businesses began or plan to begin digital transformation during COVID-19. About 75% of companies surveyed are planning on introducing new products and services in an effort to drive growth as they navigate year two of the pandemic. In addition, 85% of businesses ranked generating revenue as their top priority. This is a significant shift from our survey a year ago, where companies were focused on cost savings and business model adaptation. These data points from both our customers and the general SMB population tell us we are and can be an important part of driving digital transformation for the financial back office of SMBs everywhere. We believe that we are at the beginning of a multiyear digital transformation wave that has been accelerated by the COVID pandemic. Shifting gears, I'd like to highlight some of our recent initiatives which are driving expanded adoption among current customers and attracting new ones. We continue to enhance our menu of payment offerings for our customers and network members. Adoption of our newer payment methods such as virtual card and cross border contributes significantly to our transaction fee growth in Q3. In addition, we've been piloting our real-time payments product, which we branded Instant Transfer. As we mentioned last quarter, we are building an integration with Stripe that will expand the reach of our Instant Transfer product by enabling vendors to receive funds via debit cards. The Stripe integration will be generally available this quarter, and will allow us to deliver real-time payments to nearly all of our more than two and a half million network members' bank accounts. Another focus area has been on simplifying the bill creation process while enabling straight-through processing for supplier payments. In addition to our work on data entry and capture using our AI capabilities, we are also working with a third party to enable electronic bill presentment for our platform. This will give us the ability to fetch and automatically enter bills from large enterprises such as utility companies directly into our platform. We are also working with this third party to automatically route payments via virtual cards to those same suppliers. The result is a nearly autonomous bill collection and payment process from beginning to end. We expect to introduce this functionality later this calendar year. We recently launched a feature that enabled accounting firms to upload and onboard up to 200 clients at once instead of individually. This capability enables our accounting firm partners to scale much faster and is a powerful reason for new firms to join our platform. Our platform's ability to help accounting firms manage and onboard clients at scale attracts new business opportunities. As an example, one of our accounting firm partners, Mourn LLP, won a contract with several states to process applications and distribute COVID relief funds. Mourn selected Bill.com to help distribute these funds because we make handling large volumes of payments seamless with our platform and APIs. Given our platform's ease of use, we continue to see significant demand from midmarket customers. We recently announced our new two-way sync integration with both Microsoft Dynamics 365, Business Central, and GP software. This integration increases efficiency, ease of use, and workload controls for customers by creating a real-time data sync between our platform and Microsoft Dynamics. The initial feedback has been very positive. We're excited about the opportunity this has to extend our reach as tens of thousands of midmarket companies rely on Microsoft Dynamics ERP systems. For example, Collin Casper, CFO of JMA Ventures, a real estate investment and development firm, said, and I quote, 'The Bill.com and Dynamics 365 sync streamlines our entire AP process. From coding invoices, collecting approvals, to making digital payments, enabling us to have real-time visibility and understanding of our cash position, both with the accounting team and at the asset management level. This integration eliminates duplication of work efforts and saves us tremendous time across the entire company.' In summary, the results this quarter are a strong demonstration of the breadth of our platform. It powers finance operations for organizations ranging from very small businesses to midmarket companies, and it serves branded offerings for financial accounting and wealth management partners of all sizes. We have a large market opportunity and the right platform strategy, partnerships, and team to win it. Now I'll turn the call over to John to review our financial results. John?
John Rettig, CFO
Thanks, René. Today I'll provide a brief overview of our fiscal third quarter 2021 financial results and discuss our financial outlook for the fiscal fourth quarter. 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. Note that we revised our method for calculating certain non-GAAP financial measures. The details can be found in today's press release, which includes a reconciliation table that reflects nominal adjustments made to both our Q3 21 and Q3 20 results. We've also included a reconciliation for prior periods and an appendix to the presentation posted on our Investor Relations website. Now let me turn to our financial results for the quarter, which are based on our updated non-GAAP definitions. Q3 results exceeded our expectations across all areas of the business, driven by strong customer engagement on our platform and solid progress driving adoption of our newer payment offerings for both new and existing customers. We delivered strong growth in Q3 across all areas of our key financial and operating metrics. Total revenue for Q3 was $59.7 million, up 45% year-over-year, as new and existing customers leveraged our platform to digitize their financial operations. Core revenue, which represents subscription and transaction fees, was $58.6 million in Q3, up 62% year-over-year, an acceleration from our 59% year-over-year growth last quarter. Subscription revenue in Q3 increased to $29.3 million, up 32% year-over-year. This growth was driven primarily by the increase in the number of customers on our platform. Transaction revenue increased to $29.3 million in Q3, up 112% year-over-year, due mainly to higher average revenue per transaction, which increased 79% year-over-year, driven by the changing composition of payment types used by our customers. Our 112% growth in Q3 represents the fourth quarter in a row of accelerated transaction revenue growth, and transaction revenue now represents 50% of our core revenue, up from 38% a year ago. Transaction revenue growth was driven by strong TPV and a continuation of payment mix shift towards products with variable pricing. As you recall, in Q1 we brought supplier enablement entirely in-house employing our own vendor AI matching logic to automate this initiative. We also apply our AI capabilities to identify international suppliers who want to be paid in their local currencies versus U.S. dollar payments. Both of these efforts resulted in better-than-expected traction during Q3 and enhanced our transaction revenue results. Moving to float, we generated $1.1 million in float revenue in Q3. Our annualized rate of return on customer funds held in Q3 was approximately 23 basis points, slightly above our estimated range for the quarter and down from 35 basis points last quarter. The reduced yield from last quarter reflects the current low interest rate environment and maturing investments being reinvested at lower rate levels. Turning to an update on our key business metrics, we ended the quarter with 115,600 customers, up 27% year-over-year. During the quarter, we added 6,500 net new customers, which was above our expectations due to better-than-expected performance from our financial institution channel. One of our bank partners added over 1,000 incremental new customers due to the launch of a program that they implemented in the quarter. Excluding these incremental new customers, our net new customer adds would have been slightly below last quarter and consistent with our expectations. We are investing for customer growth and strong unit economics and expect to generate roughly 4,000 to 5,000 net new customer adds over the next few quarters until our newest financial institutions enter the scaling phase, as we previously discussed. Moving on to total payment volume, we processed $35 billion in TPV on our platform in Q3, up 44% year-over-year, and we processed 7.2 million payment transactions during Q3, which was up 19% year-over-year. On a sequential basis, both TPV and transactions were roughly flat, which follows our typical seasonal pattern. Moving on to gross margin and our operating results. Our non-GAAP gross margin for the quarter was 76.9%, which was at the high end of our expected gross margin range of 75% to 77%, primarily from strong transaction revenues from variable price products, partially offset by the infrastructure investments we are making to support our financial institution partners, as well as reduced float revenue from the low interest rate environment. Note that our updated non-GAAP definitions resulted in a reduction in non-GAAP gross margin of 64 basis points in the quarter compared to our prior calculation methodology. R&D expense was $18 million for the quarter, or 30% of revenue, consistent with the third quarter of fiscal 2020. We continue to invest in additional hiring and R&D to support our product roadmap for payments innovation, continued investment in our platform, and work related to our newer financial institution partnerships. Sales and marketing expenses were $13.2 million for the quarter, or 22% of revenue, compared to 27% of revenue in Q3 of fiscal 2020. Quarter-over-quarter sales and marketing spend increased $1 million. We have been successful in driving adoption of our payment products mainly through in-product discovery and upsell with minimal incremental sales and marketing spend, and this has driven an increase in sales and marketing efficiency. G&A expenses were $16.9 million for the quarter, or 28% of revenue, compared to 30% in Q3 of fiscal 2020. Our G&A expenses include investments in risk management and regulatory compliance, which are a core part of our proprietary payment capabilities and we believe form an important part of our competitive advantage. Looking ahead, we will continue to invest in our risk and compliance capabilities but expect to achieve economies of scale over the longer term. In Q3, our non-GAAP operating loss was $2.1 million versus $3.8 million in Q3 of last year. Our non-GAAP net loss was $1.7 million, or a loss of $0.02 per share based on 83 million basic weighted shares outstanding. Note that our updated non-GAAP definitions resulted in a modest improvement in non-GAAP net loss of $1.2 million in the quarter, or a $0.02 improvement in loss per share compared to our prior calculation methodology. Turning to the balance sheet, we ended the quarter with over $1.7 billion in cash, cash equivalents, and short-term investments. As of March 31, 2021, we had $1.9 billion in customer funds on our balance sheet. Now let's move to our financial outlook. Please note that our outlook is for Bill.com on a standalone basis and does not include any contribution from the Divvy transaction. Based on our solid execution in Q3 and the encouraging trends we're seeing in our business, we're entering Q4 with momentum. Our expanded payment offerings, go-to-market initiatives, and strategic partnerships are driving strong core revenue growth, increased platform adoption, and a mix shift to higher revenue payments. Now I'll provide an outlook for the fiscal fourth quarter of 2021. For fiscal Q4, total revenue is expected to be in the range of $60.9 million to $61.9 million. We expect core revenue in the range of $60.4 million to $61.3 million, representing our view that the momentum from Q3 will continue in the current quarter. We expect float revenue in the range of $500,000 to $600,000, and our float revenue outlook assumes that the Fed Funds target rate will continue to be in the zero to 25 basis points range during the June quarter, and that our annualized yield will be in the range of 10 to 15 basis points. We expect our float yield will remain in that range for the foreseeable future given the low-interest rate environment. Regarding our planned operating expenses, we will continue to develop our platform's capabilities and invest in R&D to support product development work relating to our newer financial institution partnerships and creating new payment products. We will continue our vigilant approach with regard to sales and marketing investment and will increase our investment as opportunities and unit economics warrant. On the bottom line, we expect to record a non-GAAP net loss in the range of $4.5 million to $3.5 million, and a non-GAAP EPS loss of $0.05 to $0.04 on a per-share basis based on a share count of approximately 83.3 million basic weighted average shares for Q4. In addition, in Q4, we expect stock-based compensation expenses of approximately $11 to $12 million and capital expenditures for our new headquarters and other requirements to be approximately $5 million to $6 million. We're pleased with the strength of our business driven by the need for SMBs to transform their financial operations and adopt digital solutions. We're in a strong position with a leading platform that simplifies financial operations, and customers trust us to move their funds efficiently, safely, and securely. We're delivering very strong core revenue growth and accelerated transaction revenue growth. We are committed to investing strategically to expand our reach and our platform's capabilities, which we believe will create a durable long-term growth runway for Bill.com in the SMB market. Now I'll turn the call over to René to talk about our acquisition of Divvy. René?
René Lacerte, CEO
Thank you, John. Earlier today, we announced the definitive agreement to acquire Divvy, which will extend our reach into the spend management space. I'm very excited about this transaction and thrilled to welcome the Divvy team to the Bill.com family. Divvy is a modern, extremely innovative solution that combines expense management and budgeting software with smart corporate cards. By bringing our companies together, we can provide our customers an expanded platform to manage all their B2B spend in one place and create even more value for our customers faster than we can do on our own. We have always been committed to expanding the value of our platform for our customers, and today is a major milestone. Divvy is in high growth mode and has attractive recurring revenue. To give you an idea of their scale exiting the March 2021 quarter, Divvy's annualized recurring revenue run rate was approximately $100 million, which was more than 100% from their March 2020 run rate. I've watched Divvy since they launched their product three years ago, and I've always been impressed with the team, their solution, and their mission to help SMBs. There is incredible strategic alignment between our companies. We both have a similar purpose to help SMBs transform and thrive by simplifying their financial operations. We have both built simple and elegant software that is loved by our customers, and our visions are aligned to be the leading platform for SMBs to automate financial operations. We're a leader in AP automation, and Divvy is a leader in corporate card spend. Together, we'll be disrupting the status quo of how SMBs do business, and I believe we can create tremendous value for our customers and employees. I founded Bill.com 15 years ago with the mission to make it simple to connect and do business. Having grown up in a family of entrepreneurs and founding companies of my own, I know how hard it is to run a business and that the day-to-day work of managing the back office takes significant time away from focusing on the core business and building relationships with customers. That is why I founded Bill.com to be a champion for small and midsize businesses to help them thrive by simplifying and automating their back-office financial processes so they can focus on what's most important to them. Similarly, Blake founded Divvy to solve another pain point he experienced running a small business, which is card spend. I've experienced first-hand the challenges of managing card spend across the company. In fact, one of the most frequent requests we get from customers is to add a card spend solution to our platform. I really respect and admire the constantly evolving solution the Divvy team has built. By combining expense management software and smart corporate cards into a single solution, Divvy empowers its customers to manage all card spend with a single solution that provides real-time insight and has sophisticated budgeting and expense management tools. No more being surprised by unexpected card expenditures—no more having to hunt for information. It's a simple solution that gives businesses control, visibility, and savings. It's meaningful to me that both of our companies were founded on the premise that day-to-day business and growth should be simpler for SMBs. We will keep this shared purpose at the center of our go-forward strategy. Together with Divvy, we have an opportunity to accelerate our innovation agendas and exceed the expectations of SMB and midmarket businesses by bringing together Bill.com's experienced and automated payables, receivables, and workflow capabilities, and Divvy's experience with expense management, budgeting, and corporate card spend. With a scale of more than 1,200 dedicated and talented employees along with our combined solutions, we can bring transformational innovation to our customers more quickly. Customers will be able to manage and have visibility into the vast majority of their B2B spend, empowering them with real-time insight for spend and cash flow management. The addition of a virtual card solution will also move us further up their transaction lifecycle, support more use cases with budgeting and spend management, and enable businesses to simplify and transform their financial operations like never before. Now I'll turn the call over to Blake to share his perspective on the proposed transaction.
Blake Murray, CEO and Co-founder of Divvy
Thank you, René. On behalf of the entire Divvy team, I'd like to say how incredibly excited we are to join the Bill.com team when the transaction closes. This is an amazing day for Divvy’s customers and team members. When we founded Divvy, we had one thing in mind: supporting the small and medium-sized businesses that are the backbone of the economy. I wanted to build a company that would give them the software and access to the financial tools that they needed to run a great business. I wanted to help them grow and thrive. Our mission has always been to build an all-in-one solution for finance teams. We think a significant amount of time is wasted when businesses have to log into lots of different software just to make payments and manage corporate spend. In a short period, we’ve been very successful scaling our business, and as of March, we now have more than 7,500 monthly spending customers and more than $4 billion in annualized spend on Divvy. Our annualized revenue was up more than 100%. Growth is our DNA, and this is a large part of what has been so exciting for us about Bill.com. René, John, and the team have built an incredible company. They're ambitious and driven, they're authentic, and most importantly, they are fierce advocates for making life simpler for SMBs. It's a perfect fit—like Bill.com, our customers are our true north, and everything we do is focused on them. Our solution has a meaningful impact on their customers. For example, one customer recently recounted how during COVID, they immediately had to make all employees work remotely. Their bank couldn't provide them the tools to get money for PPE equipment. With Divvy, they were able to issue cards with spending limits to quickly enable their employees to buy the equipment they needed to stay safe while staying under budget. We're really excited to be joining forces with Bill.com to help SMBs thrive by modernizing and transforming their financial operations. The combination of our two companies will bring our customers a single solution for all their B2B payment needs. No more wasting time on manual work, no more staying late at the office to close the books, and no more waiting for a tool that does everything you need it to. From day one, we have known that finance teams and business owners need a one-stop solution. Together with Bill.com, we'll be able to deliver the platform that our customers in the market have been asking for. And now I'll turn the call back to René.
René Lacerte, CEO
Thank you, Blake. We're really excited about the value we can create for our customers and businesses everywhere by bringing our two companies together. This transaction supports our commitment to invest for growth and scale, and we believe that it more than doubles our domestic total addressable market. This is a result of the corporate card product that Divvy has developed, which comes with very attractive monetization rates similar to our vendor direct virtual card offering. We're excited to be investing in this growth opportunity, and we believe a significant portion of our 115,000 customers will be interested in adopting Divvy corporate card solutions. So there's a sizable cross-sell opportunity that we will aggressively pursue. Additionally, we believe that having spend management capabilities will increase the value of our platform for prospective SMB and midmarket customers. Bringing these companies together will allow us to more quickly deepen our market penetration. Our combination will accelerate our shared vision to be the leading platform for SMBs to automate financial operations and make it simple to connect and do business. We look forward to welcoming Divvy’s 400-plus team members when the transaction closes, and the Divvy team will remain in Utah, expanding our geographic reach for talent. Now I'll turn the call over to John who will talk about the terms of the transaction.
John Rettig, CFO
Thanks, René. Let me start by saying I share René and Blake's enthusiasm for this transaction and the opportunity ahead by combining our companies. Our shared vision and commitment to serving SMBs with innovative solutions for automating financial operations will only be enhanced by bringing our companies together. Turning to the transaction, under the terms of the definitive agreement, Bill.com will acquire Divvy for $2.5 billion, consisting of approximately $625 million in cash and $1.875 billion in stock based on a Bill.com share price of $157.27. We expect the acquisition to close by the fiscal quarter ending September 30, 2021, subject to customary closing conditions. We will cover details of the combined company's financial profile after closing, though at this time I can say that we expect Divvy will be accretive to our revenue growth rate. In addition, Divvy brings us scale and expertise in card payments and has a recurring revenue model that is predominantly transaction-based with very attractive monetization rates similar to those we earn on our variable price virtual card offering. We expect to provide fiscal year 2022 annual guidance including the impact of Divvy likely on our next earnings call once the transaction has closed. We intend to maintain our bias towards investing for growth, and this transaction is a reflection of our confidence in our Bill.com team, the Divvy team, and our belief that this combination can accelerate our market penetration and success in serving SMBs. The combined vision of our companies creates an incredible growth opportunity, and we are excited to execute together once the transaction closes. With that, we'd like to open up the call for questions. Operator?
Operator, Operator
And your first question comes from Josh Beck from KeyBanc. Your line is open.
Josh Beck, Analyst
Thank you so much for taking the question. And congratulations on the transaction, everyone. I wanted to ask just a little bit about why you thought Divvy was such a good fit. Obviously, some companies do tuck-ins, and some companies go for larger deals. I'm sure you looked at many, many before you decided that Divvy was your right partner. So maybe you just walk us through a little bit of the background of why it was such a good fit from your perspective?
René Lacerte, CEO
Thank you, Josh, good to hear your voice, and that’s a great question. You're right, we definitely canvassed the market. We think a lot about how we can add to our platform, both by building new features, which we've talked about, and also partnering, which we also discussed, as well as actually acquiring and really blending and taking the real opportunity to enhance and expand a platform that we've been working on for 15 years. So when we looked out there and we saw the speed and success that Divvy has had since their founding, it kind of just stands out. They are growing super fast, and what’s exciting to see is the success that they’ve had, but it also comes back to customers, which is really important. So for us, with everything we do, we're always listening to customers, and we're always talking to customers and prospects. And with 115,000 customers, we're able to see what's going on in the market in general. We do have thousands of customers that are using spend management solutions, and we have over 1,000 that are Divvy customers. When we talk to those customers, we found everything you see when you get to know the team at Divvy is how much their customers love them. It is really a powerful thing to see the customer success, and it reminds me of the success that we've had with our customers. The alignment goes back to this shared purpose we have, which is to help SMBs transform, grow, and thrive. It’s this shared DNA across both companies, going from both purpose and vision, which is to be the leading platform for SMBs to automate their financial operations, as well as really the people and the values. One of the most fun things about doing this deal has been getting to know Blake and his team. They are phenomenal and have a high sense of execution and a strong vision, and they are a lot of fun to work with. So, lots of good reasons to do it; it started with us taking notice of the business results, then asking customers, and then really diving in with the team and feeling pretty excited about it.
Josh Beck, Analyst
Really good to hear about the deep alignment there. Maybe just a quick follow-up on the synergies. So when you think about all of your customers that are not Divvy customers today, maybe what are they using generally within this category of expense management? And what is the strategy to convert those customers to become Divvy users as well?
René Lacerte, CEO
Yes, overall, when we look at customer spend on our platform, we think we have roughly 70% to 75% of the customer spend in the B2B space. When we look at what's remaining—25% to 30%—a lot of that is really the corporate card spend, and that's what Divvy is focusing on. So many of our customers are in a solution where they're using manual processes to track spends, such as Excel spreadsheets. When you talk to Blake, you can hear about the manual processes customers are using without Divvy's solutions. It's a lot of manual processes that businesses use to track corporate spend outside of a solution like ours. This type of synergistic opportunity helps us be comfortable knowing that we have the opportunity to double our TAM. This is an opportunity to continue examining the monetization approach that Divvy has. It is a variable price product, and the card spend leads to the monetization, which leads to the revenue for the business, and we just think that gives us confidence that we can double the overall TAM.
Josh Beck, Analyst
Great to hear. Congrats, everyone.
René Lacerte, CEO
Hey, Josh.
Operator, Operator
Your next question comes from a line of Brad Sills from Bank of America. Your line is open.
Brad Sills, Analyst
Oh, great. Thanks, guys, for taking my question. Congratulations on a real nice quarter and on the transaction here. I wanted to ask a question on Divvy as well, please. I see that they have a pretty good mix of business between small and midmarket. Obviously, Bill.com has been embarking on a move upmarket already and seeing progress there. To what extent do you think this could accelerate that move upmarket? Is this more of a midmarket solution, or is it even more balanced between the ability to cross-sell this into your small business base and bringing you guys upmarket?
René Lacerte, CEO
Yes, one of the things we’ve said all along about the pool into midmarket is that we serve customers of all sizes. As we gain scale, they ask us to build more functionality, and we find better ways to reach them. So for us, it is a broad cross section of businesses across the country, both in industry and size that we serve. When we looked at the customer data we had, along with what we see from Divvy's customers, we saw alignment with customer bases. This isn’t going to change our focus. We will continue to serve all businesses that want and need a solution to automate their financial operations, which we think is all businesses. We will continue to build features for each of the segments we serve, but this isn’t something that will accelerate; it will allow us to monetize in a meaningful way.
Brad Sills, Analyst
That's great. Thanks, René. And then one, if I may, the transaction revenue this quarter was tremendous. You called out VCard and cross-border. In the last couple of quarters, you’ve seen some traction with supplier enablement capability, which drives adoption of VCard. My question is, do you feel like you're hitting your stride here in terms of in-product promotion? This is a relatively new sales motion for the firm, with supplier enabling capabilities. How does that track?
René Lacerte, CEO
It's an excellent call-out. I would just start by emphasizing how I thanked the employees for their rigorous execution in delivering an amazing quarter. We are getting better at everything we do. That improvement is crucial for scaling a business and serving SMBs across this country. We are learning how to cross-sell our own internal products, which is a great lead into the opportunity we have with Divvy. Once the transaction closes, we'll focus aggressively on how to cross-sell their great solution into our 115,000 customers. We are excited to know that Blake and his team share the same passion for rigorous execution.
Brad Sills, Analyst
Exciting. Thanks, René.
René Lacerte, CEO
Operator, Operator
Your next question comes from a line of Brent Bracelin from Piper Sandler. Your line is open.
Clarke Jeffries, Analyst
Hi, this is Clarke Jefferies on behalf of Brent. First question—obviously, transactional revenue growth continues to be fantastic. What stood out to us is really the strength in dollar per transaction and the revenue you're generating on each transaction. I just wanted to ask, when you think back to 2019 when you launched these variable products, what has surprised you the most? This used to be about replacing paper checks, and it just feels different now. Has the willingness for customers to use virtual cards for large transactions exceeded your expectations? What’s driving this acceleration at 7.2 million transactions scale?
René Lacerte, CEO
Yes, I think it really comes back to the rigorous execution again. We’re building teams and capabilities around how to cross-sell our products, both in our customer base and to our supplier network. Right, so the international payments are something we need to cross-sell to our customers while also getting their suppliers excited about these transactions. It’s a mix of product technologies, marketing, and sales tools. The same is true for the virtual card. In that situation, it’s supplier-focused; we aim to get them excited and made them want to take the virtual card transaction. It’s this success that has got us excited about the opportunity to cross-sell what the Divvy team has built into the customer base. It gave us confidence knowing our teams were really leaning in and figuring this out as we extend our platform once Divvy becomes part of it.
Clarke Jeffries, Analyst
Great. And then just a follow-up: Is there any more detail you can share about the composition of the revenue model for Divvy today? Should we think about this as $100 million ARR contribution post-closure? What portion is transaction versus subscription? Just any color regarding how we should think about extruding the model?
John Rettig, CFO
Yes, thanks for the question, Clarke. This is John. We’ll definitely provide more color on the combined financial profile and some additional information on the components of the Divvy revenue model once we close the transaction. At this point, I can say qualitatively that it's a high-growth transaction monetization-focused business, and similar to the traction that you've seen in the growth that we've had from some of our new financial products. The more customers, the more they use our platform, the more they pay, and a similar model is true with Divvy. We’ll provide more color after the transaction closes.
Clarke Jeffries, Analyst
Perfect. Appreciate it. Thank you.
Operator, Operator
Your next question comes from the line of Darrin Peller from Wolfe Research. Your line is open.
Darrin Peller, Analyst
Hey, guys, thanks. Nice job on the quarter, and look, congrats on Divvy. I want to focus though on customer acquisition that we're seeing; the trends came in strong, actually above what we expected. Can you just revisit the cadence we can expect? Are you seeing any pull forward or demand, given the pandemic still carrying forward? Are the trends on new customers coming in at an accelerated pace?
René Lacerte, CEO
What we're seeing with customers is a digital transformation that’s happening. We see more awareness from both our direct customers, accountants, and financial system partners. That's something we referenced in the call. One of our financial partners is being more aggressive about selling and marketing solutions, and we expect that to be across all our partnerships as people continue to demand and ask for digital solutions. I think it's something we're excited about, and we're pleased with the results in customer acquisition this quarter. It points to a general trend as well as the execution the teams were able to deliver.
Darrin Peller, Analyst
When we think about Divvy and the cross-sell, you guys have helped with some examples. But if you prioritize what you're most excited about in terms of the acquisition and the offerings they have that you didn't have, which direction do you think will be easier to see clients pick up? Any color in terms of timing?
René Lacerte, CEO
Yes, I’ll start and then ask Blake to fill in his perspective, because when it comes to spend management, we've kind of got the guru in the room. Our customers have been asking for spend management solutions, for expense management solutions; they've been asking because they want to do everything in one place. This one-stop-shop concept is vital, and customers want a way to do it in one place. Many customers make significant spend on corporate cards through the Bill.com platform. We believe there's, as I said, 70% to 75% of that, and there's another 25% to 30% that we see go through card transactions. That’s why we believe there's a significant opportunity to cross-sell into our base. I think let Blake add a few words, because I know he sees this all the time from his business.
Blake Murray, CEO and Co-founder of Divvy
Yes, it's an excellent question, and frankly, even as a precursor to my response—it's core to why we feel so comfortable working with and combining with Bill.com. We have a shared vision here, and we work closely with our customers. We know that small and midsize businesses prioritize consolidation—they want a single platform through which they can make their payments, but also manage the entirety of their financial backing. Spend management, being an important piece of that, and behaviorally, why it's striking a nerve, now and certainly in the future, finance teams want to feel in control. They want control of who spends what, where, when, and why. They want a free flow of data that is real-time instead of reactive. That's what the Divvy platform, in conjunction with Bill.com after the close and integration, will give them—a one-stop solution with free-flowing data and complete control.
Darrin Peller, Analyst
That's really helpful.
Operator, Operator
Your next question comes from the line of Scott Berg from Needham. Your line is open.
Scott Berg, Analyst
Hi René, John and Blake, congrats on both the quarter and the transaction. I guess I have two here. First question for Blake: Blake, you and I have had a chance to meet a couple times historically. One of the things that stood out was your aggressive product strategy for Divvy. How do you look at that roadmap over the next couple of years in terms of what this transaction can bring you?
Blake Murray, CEO and Co-founder of Divvy
Yes, great to speak to you again. It's fun to do on this side at this point. It's an accelerant for it. That was clear to us, and I hope it’s clear to you as well as you’ve been able to have a peek under the hood of the Divvy platform and our product roadmap. When thinking about a one-stop solution, corporate card payments—as René has illustrated—are a portion of it; it was always clear to us that we had to capture the rest of the payment modalities that finance teams and business owners need, and this allows us to accelerate our flexibility. We provide our clients the tools, and they make payments in the way that benefits their business most. We see this as an accelerant rather than a hindrance.
Scott Berg, Analyst
Got it. Wish you luck on it. It'll be fun to watch. And then René, from a follow-up perspective, you obviously acquire a lot of customers through your partners—accounting firms, financial institutions, and others maybe like Intuit, etc. How do you think about taking these solutions and selling them through those partners, in addition to the current AP and payment platform that you currently sell?
René Lacerte, CEO
Yes, it's always great to talk to you, Scott. It's a super important part of our growth strategy, right. We first want to have customers on the platform. Next, we want to sell them more and more services and products. Whether that's a direct customer or a partner customer through a name partner like a financial institution or accountant, we're going to build a platform that allows us to sell across. It'll be up to the partners in what they choose to do and when they want to do it. But we're excited about this; we think that this one-stop shop idea is critical and is part of the digital transformation wave we've talked about that customers will want, and we think our partners will, too. It's going to be fun to see it execute throughout the channels.
Scott Berg, Analyst
Good luck. I'm looking forward to watching this one. Thanks again.
René Lacerte, CEO
Thank you, Scott.
Operator, Operator
Your next question comes from the line of Samad Samana from Jefferies. Your line is open.
Samad Samana, Analyst
Hi, good afternoon and thanks for taking my questions. Congrats on a very strong quarter. John, maybe one to start off for you. As we think back to the Bill.com customer base as the world starts to reopen, are you seeing them get back to pre-COVID transaction volume levels on an aggregate customer basis, or how should we maybe bifurcate which segments are back to normal volume levels versus still lagging behind?
John Rettig, CFO
Great question. Thanks, Samad. Yes, we've seen most of our metrics on a per-customer basis return to near or pre-COVID levels. I'd say the one that has continued to evolve throughout the pandemic is just the number of transactions per customer—that's lower today than pre-pandemic levels. This is driven by both the consolidation of payments across our platform and the ease with which we increasingly allow customers to do that; just a simpler product—batch mode, things like that—because we see very strong TPV. TPV per transaction continues to be strong, so it tells us our customer base is definitely getting back to business.
Samad Samana, Analyst
Great, and then maybe one on Divvy. If I remember correctly, I think I'd heard that most of their customers come from corporate card providers like Amex and Chase. What percentage of the spend are you getting, and how do you think about building relationships with these financial institution partners as they marry well together?
René Lacerte, CEO
Sure, I'll start and then have Blake add. One thing that excites me about working with the Divvy team is that the go-to-market motion is similar. They have an inside sales team, like we do, and they have digital marketing capabilities, as well as partnering capabilities. Their partner capabilities are more junior than ours, but we believe there's an opportunity for us to sell through the accounts and into financial institutions. That's something we’ll work on once we get the deal closed.
Blake Murray, CEO and Co-founder of Divvy
This was a piece that got me comfortable with the deal. We have invested significant resources specifically in the accounting and bank channels, working alongside large and small banks alike, providing them with a software platform that they didn’t have the ability to build themselves. We reinforce each other, both Bill.com and Divvy, and should be able to continue to partner effectively going forward.
Samad Samana, Analyst
That's great to hear. And congrats again on the success of the quarter.
René Lacerte, CEO
Thanks, Samad.
Operator, Operator
Your next question comes from the line of Brian Schwartz from Oppenheimer. Your line is open.
Chad Schoening, Analyst
Hi, this is Chad Schoening on for Brian. Congrats on another great quarter and strong execution here. Just one for me: I wanted to go back to virtual card, if I may. You've called out this 5% to 10% penetration rate over time. Given the success of Divvy, I'm just wondering why couldn’t that be higher than 10% long-term? What are the gating factors for moving beyond that upper bound? Is it just market readiness or technology enablement on the network? Just curious about that.
René Lacerte, CEO
Yes, we support lots of different types of payments. Our focus on the AP platform is to ensure that customers can manage their AP spend and pay all their suppliers in whichever way is easiest for them. When we look at the virtual card for supplier payments, we base that on data of our merchants that accept payments from our customers. What we see is that 5% to 10% is a realistic benchmark for invoices coming in. What's powerful about Divvy is our focus on proactive spending without a bill. People execute expenditures on marketing services using virtual cards. Divvy supports that type of program, bringing in a lot of TPV opportunity. The ARPU for Divvy is multiple times that of Bill.com because they capture all variable card spend.
Chad Schoening, Analyst
Got it. Very clear. Thank you.
René Lacerte, CEO
Thank you.
Operator, Operator
Your next question comes from the line of Robert Napoli from William Blair. Your line is open.
Robert Napoli, Analyst
Thank you, and good afternoon. I guess I can take the M&A question off my list for a quarter or two. Congratulations on a strong quarter and acquiring a really exciting company. Maybe for Blake on your customer base: René talked about 75% of the spend. But Blake, what percentage of the spend are you getting? I think Divvy has been really successful in getting a high percentage of company spend on credit cards; is that correct?
Blake Murray, CEO and Co-founder of Divvy
That's a good question. When you think of driving wallet share and spend with our customers, it's software-driven. Our entire focus is to provide software that both delights and provides incredible utility—saving them time and money and ensuring they are in control. That has created a powerful flywheel effect on spending behavior. Traditionally, we are their dominant card program inside their ecosystem once they adopt Divvy, because the two are inextricable—corporate card program tied to our software.
Robert Napoli, Analyst
They’re putting virtually close to 100% of their spending on the card there.
Blake Murray, CEO and Co-founder of Divvy
I'm not comfortable giving an exact number, but an incredibly high percentage of their wallet share goes through Divvy; for most, it is an exclusive program. Obviously, there are always outliers, and those outliers vary by size and industry. But the majority of customers use it as their exclusive card program.
René Lacerte, CEO
Hey Bob, just to clarify: it’s 70% to 75% of the invoices that come in—spending that comes in. Then there's just other spend that occurs outside of payables; this is the vast majority of what Divvy solves. The combination with Bill.com is a homerun because now there's one place that a business can have all their spend.
Robert Napoli, Analyst
Who are your primary competitors? Is it American Express, or is it more focused like Abraxas? I know they target tech companies, but do you compete with Amex and other companies like JPMorgan that serve large SMB client bases?
René Lacerte, CEO
Our largest competitor is by far spreadsheets and manual processes, and it's not even close. We serve small and midsize businesses, and although they are tech-enabled with an eye on improving their operations, this is a distinct pain point in business spend management, still driven by paper and manual processes.
Robert Napoli, Analyst
Great, thank you. And congratulations; very exciting. Looking forward to the combination.
René Lacerte, CEO
Thank you, Bob.
Operator, Operator
And we have time for one more question. Your final question comes from the line of Matt VanVliet from BTIG. Your line is open.
Matt VanVliet, Analyst
Yes, thanks for taking the question, and congrats on the deal. Maybe first on the legacy business, if you will, on the financial partnerships: What appetite do you have? What’s the pipeline you have for additional partnerships here, both with new partners, and since you've launched with one of your larger FIIs, are you having those conversations to expand the partnership with others that are a bit more commercial-focused?
René Lacerte, CEO
Yes, thank you, Matt. The interesting thing about COVID for us is it has put a spotlight on those manual paper processes, and especially large financial institutions and banks everywhere—they're the ones that had to challenge their businesses on how to make payments. They saw their businesses suffering due to a lack of digital processes and enablement. We have seen continued interest from new partners, and really strong interest from our existing partners about what more we can do together. This is one of the reasons we're excited about the transaction with Divvy; we believe there's an opportunity to combine and expand our platform, which can enable capabilities into financial institutions.
Matt VanVliet, Analyst
Following up on the rationale, is there something difficult about trying to build the Divvy capabilities around payment management? Did you try to build out a bit, given the drastic level of your customer base you've already captured on the Bill.com platform, instead of pushing something homegrown? Just kind of your thoughts on what your attempts to build were and how much this really jumpstarts that instead of taking the time to build it.
René Lacerte, CEO
Yes, we definitely looked at the internal build versus buy decision, and what we concluded was that it takes time. Time to market is super important; this spend management market is growing fast, and you see that through Divvy with 100% year-over-year growth, reaching a $100 million run rate. This market is growing rapidly, and when we got the chance to know the Divvy team, it was exciting to think about working together to enhance our platform and expand it quickly. We've built our platform to enable these types of add-ons; it's API-driven, so we are excited to do that. We don't have to build it; we look at what will serve our customers best, how we can respond fastest, and how we can have the greatest impact on their lives. That was the decision this time, and we're super excited about it.
Matt VanVliet, Analyst
Thank you. Congrats.
René Lacerte, CEO
Thank you, Matt.
Operator, Operator
And this concludes our question-and-answer session. I'd like to turn the call back over to René Lacerte, CEO of Bill.com for closing remarks.
René Lacerte, CEO
Thank you. I want to thank everyone for your time and all the great questions today. I will close by thanking our employees, customers, and partners. We would not be here today without the incredible stakeholders we work with. So thank you. Have a good day, everybody.
Operator, Operator
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.