BILL - NYSE

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

Thank you, operator. Welcome to BILL's fiscal second quarter 2024 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 are Rene Lacerte, Chairman, CEO and Founder of BILL; and John Rettig, President and CFO. Before we begin, please remember that during the course of this call, we may make forward-looking statements about the future operations and results of BILL that involve many assumptions, risks and uncertainties. If any of these risks or uncertainties develop or if any of the assumptions prove incorrect, actual results could differ materially from those expressed or implied by our forward-looking statements. For additional discussion, please refer to the text in the company's press release issued today and to our periodic reports filed with the SEC including our most recent annual report on Form 10-K and quarterly reports on Form 10-Q. We disclaim any obligation to update any forward-looking statements. On today's call, we will refer to both GAAP and non-GAAP financial measures. Please refer to today's press release for the reconciliation of GAAP to non-GAAP financial performance and additional disclosures regarding these measures. Note that at times during this call, we will discuss those stand-alone results, which exclude our BILL's Spend and Expense management, which was formerly called Divvy, Invoice2go accounts receivable and Finmark Financial Planning Solutions. Now I'll turn the call over to Rene. Rene?

Thank you, Karen. Good afternoon, everyone. Thank you for joining us today. We delivered strong profitable growth in the second quarter as we continue to advance on our strategy to be the essential financial operations platform for SMBs. In Q2, we grew revenue 22% year-over-year, generated non-GAAP net income growth of 48% year-over-year and produced a 23% non-GAAP net income margin. We achieved this strong combination of growth and profitability in a challenging macro environment as SMBs continue to carefully manage their spend. Our performance demonstrates the strength of our business model, the value of our platform to our customers and our commitment to deliver profitable growth. These results reinforce our conviction that when the macro environment improves and SMB starts spending for expansion, BILL was well positioned to drive strong growth across our business. The BILL platform serves as the center of financial operations for our customers. At the end of Q2, more than 470,000 businesses use our solutions. During the quarter, these businesses completed more than $75 billion in payment volume on our platform. Our scale and experience uniquely positions us to continue to redefine how SMBs everywhere automate their financial operations. We are the innovation leader, and we are continually expanding the breadth and depth of our solutions. As we do this, my confidence grows about our ability to help SMBs everywhere transform their payments and financial operations. Today, there are millions of SMBs transacting trillions of dollars of payments using manual legacy processes and paper checks. This is terribly inefficient, and it will change. Our platform was purpose-built to help SMBs modernize and streamline their financial operations. We hear increasingly about the gains in efficiency, visibility and financial controls that we provide. In short, we eliminate the friction of doing business. An example of a business transforming their operations with our platform is Enlightened Equipment, an ultralight hiking gear company based in Minnesota. Jessica Sonnek, their Director of Finance said and I quote, "BILL has been a huge timesaver establishing strong internal controls and generating operational efficiency. Every single payment that runs through any of our bank accounts goes through BILL, from the electric bill and rent to raw material purchases from abroad. The increased control with Spend and Expense capability has been a game changer in terms of budgeting for different departments and managing spend for each vendor. BILL really empowered me to transform the manual and time-consuming financial operations process into something that was simply beautiful and efficient." SMBs are difficult to reach at scale. The diverse and broad ecosystem we developed that enables us to reach them efficiently is a core competitive advantage. We know how to partner and to bring this transformative experience to SMBs at the test points where they prefer to do business. Our go-to-market ecosystem includes direct sales and our large network as well as accounting firms and financial institutions who are among in SMBs' closest advisers. BILL is trusted by more than 7,000 accounting firms who recommend and use our platform across tens of thousands of clients. We have a successful track record of partnering with accounts which includes having developed a platform that enables them to provide more strategic and operational value-added services to their clients. There are firms now that base their entire practice on client advisory services. Before BILL, this was nearly impossible. Our platform empowers accounts with a suite of features to enable collaboration between their staff and clients across multiple workflows. With BILL, accountants help their clients simplify their operations and have more time to focus on growing their business. It's a win-win for all. A good example is hiline, an SMB-focused and tech savvy accounting firm. Matt Gardner, Founder and CEO, said and I quote, "Combining AP, AR and Spend and Expense management into a central hub has been a great change for us. At hiline, we give our customers a competitive edge by getting them on to best-of-breed cloud tools like BILL. This gives them full operational transparency and 24/7 online access, which modern business owners expect. BILL allows us to streamline our workflows to increase speed and work quality and focus more time on providing strategic advice to our clients." We also partner with some of the largest financial institutions in the U.S. Similar to accounting firms, financial institutions leverage a white label embedded version of our platform to help their business banking customers modernize their financial operations. The FI channel positions us to tap large numbers of SMBs as they transform their financial operations via their online banking experience. Traditionally, most FI partners have offered just ACH and checks to their customers through our platform. Given our payments expertise, large network and extensive experience in driving payment adoption, we are making early progress in bringing our ad valorem offerings to our FI partners. Six financial institution partners have started leveraging more of our payment modalities such as Virtual Card, Instant Transfer and Pay By Card. Regarding Bank of America, a couple of quarters ago, I discussed that given our success in serving BofA's new small business customers, we were now working together to extend our solution to serve their installed base of SMB customers. Since then, we have been working with them to define and build the experience needed to reach their existing customers. Separate from this effort, the bank recently shared with us that they have been evolving their firm-wide payment strategy and that evolution will impact the solutions they offer to their existing customers. We will continue to work side by side with the bank to determine how to best leverage what we have currently deployed to support their broader payment strategy. We are in the early days of understanding the impact on our expansion opportunity with the bank. Our experience serving nearly 500,000 businesses, more than 7,000 gallium firms and leading financial institutions in the U.S. gives us strong foundational competencies for extending our reach through more embedded offerings. The core competencies underneath this level of trust are our flexible ways to integrate with software systems, our payment risk management and regulatory expertise, our large data asset and network and our ability to serve businesses and transact payments at scale. We moved 1% of GDP and are licensed to move money in all 50 states and Canada. This set of foundational capabilities and expertise places us at the centre of the convergence of software and payments and positions us well to extend our capabilities to other software companies. As the market unfolds, we see opportunities to expand our ecosystem to include embedded offerings beyond the accountant and FI channels. The convergence of software and payments is increasing the needs for more embedded financial operations. We have built our platform and ecosystem to support partners across the SMB landscape. We believe our agile platform model incorporates various capabilities into our partner solutions and can accelerate the convergence. In addition to our financial institution and accounting embedded solutions, we also have enabled API capabilities with embedded solutions for a number of different use cases. Hundreds of developers have created integrations using our APIs to support thousands of customers. For example, an accounting firm leveraged our API to automatically create e-mail and collect invoices for over 1,000 firm clients using the data from their practice management software. The potential use cases are vast, and we are just beginning to increase focus in this area. We are excited about the scale of the market opportunity we are going after and our position for the next chapter in BILL's growth. In preparing for the road ahead, we are doubling down on our core strengths, evolving our strategy, expanding our offerings and scaling operationally. As part of our focus, we have made some hard choices. In December, we made the very difficult decision to right-size our organization by reducing our workforce by 15% and closing our Sydney office. We made this decision in order to streamline our operations and further balance growth and profitability, while we concentrate resources on our most important priorities. As we build the foundation for our next phase of growth, I ask John to take on broader operational responsibilities in his new role as President and CFO. The senior team under John's leadership recently completed a thorough assessment of our business operations and growth priorities. And I would now pass the call to John to provide an update on this important effort.

Thanks, Rene. Today, I'll start with an overview of our key operational focus areas over the next 12 to 18 months, and then discuss our financial results and outlook. The market we are pursuing is large and evolving rapidly. With our wide moat and talented team of employees, we are well positioned to capture the market as it matures and for BILL to become the essential financial operations platform for SMBs. In my new role as President, the senior team and I recently performed an assessment of our capabilities and readiness to scale our business in preparation for our next phase of growth. We identified several key focus areas to support execution on our top priorities that we outlined at the beginning of the fiscal year, which I'll briefly recap. Our first priority for fiscal 2024 is to drive adoption of our integrated financial operations platform. We launched our new integrated platform last fall, which brought together our BILL AP and Divvy Spend and Expense Solutions to create a unified customer experience. Initial customer feedback has been positive and we've also identified incremental improvements that will help us scale further. For context, in support of this launch, we revised our go-to-market activities around the new solution and made many changes to our direct sales motion, rebranded Spend and Expense from Divvy to BILL and revised customer onboarding flows. All these moving parts created inefficiencies in our acquisition funnel so we continue to pull back on marketing spend that we referenced last quarter. This had an impact on acquisition and attrition mainly for smaller, lower credit quality prospects and led to lower net new customers for the quarter compared to historical averages. We expect these trends to continue in the near term. As a result, we are adapting our go-to-market approach and processes to offer individual or unified solutions as appropriate to accelerate the pace of customer adoption of our solutions. Over time, we expect the unified experience will benefit all of our customers, but in the meantime, we will deliver to customers the immediate solutions they need most. Additionally, we are prioritizing our go-to-market towards businesses with a higher propensity to spend which should translate into increasing penetration within higher ARPU customer segments. Our second priority is to expand our ecosystem by bringing more innovation to our partners and attracting new partners. In support of this priority, we are continuing to grow our footprint with accountants and financial institution partners and invest further in our embedded strategy. Accounts have been at the center of our ecosystem strategy to reach SMBs from the very beginning and we are focused on continuing to expand our reach within the industry. We added approximately 600 accounting firms within the first half of fiscal 2024. As Rene discussed, we are seeing the convergence between payments and software and the emergence of embedded finance play out as we receive early inbound interest from other software companies for our AP, AR and card solutions. Leveraging our deep expertise in architecting embedded solutions to serve and expand the ecosystem, we are investing in our platform to create new ways for our capabilities to be leveraged by third parties who serve SMBs. Our third priority is to enrich our payment experiences and drive penetration of our ad valorem solutions. To this end, we are doubling down on our investments for card offerings and international payments. As we discussed on our last call, we continue to operate in an environment where customers and their suppliers are increasingly focused on costs and are being more selective with their payment choices to minimize cost. As expected, this translated into a slight decline in transaction monetization in the second quarter as a result of muted payment volume growth for some of our highest monetizing products. Our current portfolio today includes virtual cards and our Bill Divvy Charge Card. To capture more wallet share and drive payment adoption, we are improving the automation and reconciliation features of our virtual card supplier experience and creating a dedicated sales motion to serve large customers and suppliers in our network. In addition, we are beginning to rollout a unique card experience that enables AP customers to use a BILL debit card for traditional AP or off-line payments. We believe these actions will support expanding payment volumes on card offerings and drive improved monetization. We are also enhancing and scaling our newer ad valorem offerings, such as Instant Transfer and invoice financing. We believe our portfolio approach provides choice and flexibility to SMBs and our network members and creates balancing growth to our business. Turning to international payments, in order to capture more off-line payments and drive further FX payment adoption, we are planning to introduce our enhanced international payment supplier experience to more countries and increased payment speed by leveraging local payment routes. Recently, the strength of the U.S. dollar has negatively impacted the option of our FX payments, given our scale, we are able to optimize our costs, which will allow us to provide more attractive FX pricing. We believe these actions to adapt our go-to-market approach, grow our footprint with partners and invest in our amended strategy and double down on our card offerings and international payments are the right focus areas for BILL. We expect to strengthen our core capabilities and enhance the foundation of our business, which will pave the way for the next phase of growth. Now turning to a discussion of our second quarter fiscal 2024 financial results, in Q2, we delivered strong profitable growth. Total revenue for Q2 was $318 million, up 22% year-over-year. Core revenue, which includes subscription and transaction revenue was $275 million, representing growth of 19% year-over-year. Non-GAAP gross margin was 86% and non-GAAP net income was $73 million, growth of 48% year-over-year. Non-GAAP net income margin was 23% of revenue and expanded 4 percentage points year-over-year. Free cash flow was $74 million, reflecting a 23% margin. Importantly, we were non-GAAP operating income profitable, excluding the benefit of float revenue. Now I'd like to dive deeper on revenue and key revenue drivers. Subscription revenue in Q2 was $63 million, up 3% year-over-year and transaction revenue was $212 million, up 25% year-over-year. This growth in transaction revenue was driven by overall payment volume growth and higher ad valorem payment volume. Total payment volume, or TPV per bill consolidated, which also includes card processing volume was $75 billion in Q2, reflecting 11% year-over-year growth. BILL's stand-alone TPV growth improved in the second quarter, representing an increase of 10% year-over-year compared to 7% in the first quarter, which was above our expectations. It's too early to call a trough in B2B spend, and we expect the current interest rate environment will continue to depress overall spend growth. BILL's Spend and Expense card payment volume was $4.2 billion in Q2 and increased 28% year-over-year. Turning to customer acquisition, BILL stand-alone customers increased 18% year-over-year. Net new adds for the quarter were 10,100, including 3,900 net adds in the direct and accounting channels and 6,200 in the FI channel. This excludes attrition related to the sunset of Intuit Simple BILL Pay Solution, which was approximately 3,800 in Q2. To-date, we have retained the majority of the customers who used Simple BILL Pay prior to the payment integration being sunset. The number of BILL's Spend and Expense spending businesses grew 28% year-over-year and net new adds for the quarter were 900. In addition to the items mentioned earlier, we also took further action to manage our credit exposure and tightened credit for smaller businesses and prospects, which impacted both existing and new customer acquisition. Float revenue was $44 million, an increase of 50% year-over-year. Our yield on FBO funds was 490 basis points in the quarter. Now turning to a discussion of our Q2 profitability performance. Non-GAAP gross margin was 86%, which was above our target range due to favorable float revenue. As previously discussed, we expect our non-GAAP gross margin to moderate to the low to mid-80s as our payment mix evolves and our float revenue declines with lower interest rates later in this economic cycle. Non-GAAP operating expenses were 229 million, flat sequentially. Rewards expenses, which are included in sales and marketing represented 49% of Spend and Expense card revenue. G&A expenses remained slightly elevated, due primarily to an increase in our provision for credit losses, given the macro environment. Non-GAAP operating income was 44 million or 14% of revenue. Non-GAAP net income was 73 million or 23% of revenue, up 48% year-over-year. Free cash flow grew 56% to 74 million for a free cash flow margin of 23%. Before turning to guidance, I want to provide a bit more context regarding our recent organizational changes. As Rene noted, in December, we made the difficult decision to reduce our workforce by nearly 400 employees and close our Sydney office as we right-size our organization, enhance profitability and reallocate resources towards the most impactful initiatives. In connection with this reduction in force, we incurred 25 million of restructuring charges in Q2. These charges, which are excluded from our non-GAAP results consisted primarily of cash expenditures for severance payments, employee benefits and related costs, in addition to noncash charges for stock-based compensation expenses. These actions mark our enhanced efforts in driving efficient and profitable growth. Organization-wide, we are raising the bar on the ROI of the initiatives we are investing behind and proactively deprioritizing lower impact projects. We are adjusting our level of investments with the goal to generate more operating profit, excluding the benefit of float revenue. We believe the tough choices and prioritization decisions we are making today will make BILL a stronger company in the future. Now turning to our outlook, while SMB spending trends showed an early sign of improvement in Q2, we are looking for more consistent signals of spend growth recovery. Taking this into account, we expect BILL standalone total payment volume for Q3 to be up roughly 10% year-over-year and for fiscal 2024 to increase approximately 7% to 8% year-over-year. Now turning to our financial outlook, for fiscal Q3, we expect total revenue to be in the range of 299 million to 309 million, which reflects 10% to 13% year-over-year growth. We expect float revenue to be 36 million in Q3, which assumes our yield on FBO funds to be approximately 450 basis points which takes into consideration a seasonal FBO balance decline and a lower-yielding portfolio mix. On the bottom line, for Q3, we expect to report non-GAAP net income in the range of 56 million to 66 million and non-GAAP net income per diluted share in the range of $0.48 to $0.57 based on a share count of 116.1 million diluted weighted average shares outstanding. For Q3, we expect other income, net of other expenses or OIE to be 24 million. We expect stock-based compensation expenses to be approximately 65 million in Q3 and we expect capital expenditures of approximately 7 million to 9 million. Moving on to full year guidance, for fiscal 2024, we expect total revenue to be in the range of 1.226 billion to 1.251 billion, which represents 16% to 18% year-over-year growth. We expect float revenue to be 151 million in fiscal 2024, assuming a yield on FBO funds of 450 basis points, which reflects our assumption that interest rates will begin to decline in Q4. We expect non-GAAP net income for fiscal 2024 in the range of 245 million to 270 million and non-GAAP net income per diluted share to be $2.09 to $2.31 based on a share count of 117 million diluted weighted average shares outstanding. In addition, for fiscal 2024, we expect OIE to be approximately 107 million, up approximately 11 million from our estimate last quarter, as a result of reclassification of off-balance sheet financing assumptions. We expect stock-based compensation expenses of approximately 260 million and capital expenditures to be approximately 26 million to 30 million for the full year. I will now pass the call back to Rene for closing remarks.

Thank you, John. We knew this quarter was going to be challenging given the macro environment. Our platform and team delivered a strong quarter with profitable growth and significant scale. The work we do every day is focused on taking the complexity and guesswork out for SMBs as they manage their financial back-office. With these results, we know we are closer to our vision for the future of financial operations, a simple and powerful central hub built on our enhanced payment infrastructure empowered by automation and AI. We have many growth drivers and are tightly aligned to bring that blueprint into reality. These growth drivers position us well as macro conditions improve and B2B spend rebounds. I'd like to thank our customers and partners for the trust they place in us, I'd also like to thank the BILL team for their focused execution and commitment to serving SMBs. Operator, we are now ready to take questions.

[Operator Instructions]. Our first question today comes from Brent Bracelin with Piper Sandler. Please proceed.

Thank you and good afternoon. It's certainly encouraging here to see spend growth for SMBs pickup after a two year slowdown. My question is really around expectations when we trough. John, the guide implies here a slowdown to 12% revenue growth in March implied, 5% revenue growth in the December quarter. Do you think that December quarter is really the trough from a planning standpoint? And Rene, on a similar vein, can you talk about maybe what are the one or two levers that could accelerate growth exiting this year going into fiscal '25?

Yes. Thanks, Brent. I'll take the first part of the question. In the end, we think a conservative framework is warranted given the signs that we've seen so far in this macro environment, the TPV results in the second quarter were ahead of our expectations, which is encouraging, but it feels a little bit early to suggests that its expansion from here. So we're expecting some choppiness ahead. Our estimates for the rest of the year suggest that where we have still muted TPV growth and in an environment where we have short-term limited expansion on monetization. We put all those things together and feel like the rest of this year, it's appropriate to have a somewhat more conservative approach.

Hey Brent, thanks for the question. There's -- we've got three key priorities that we're working on right now that will definitely carry out into FY '25. The three priorities are, driving adoption across our integrated platform, expanding our ecosystem and enhancing the payment experiences. And so when we think about driving adoption, there's been a lot of things that we pulled together in the last year. We've created one product, one organization and one brand and we are adapting our go-to-market to really take advantage of all those things as we go into the customer that we serve. And so that's the top area of focus for the team right now. When we think about expanding the ecosystem, we referenced on our prepared remarks, the indications that we're seeing in the market for an embedded solution across multiple different types of software providers that reach SMBs. So we're seeing increased interest. We have capabilities that we've built over the last 10 years serving financial institutions and betting our solutions inside of the financial institutions and our 7,000 accounting partners across the country. And we are leveraging that capability to extend the APIs that we have to really create embedded solutions everywhere when it comes to financial operations. So we think that's something that can start to drive opportunities in FY '25 and obviously, into the future. And something we've been working on since we started launching our Ad Valorem payment products, is really just continuing to enhance those experiences and what we've seen in the last maybe quarter or so, is the opportunity to really focus on supplier experiences and how do we drive the suppliers to use and adopt and have more value creation from the experience they have with BILL. And so the teams are working hard on doing that, so that we can continue to drive adoption from suppliers. We also are continuing to drive and added capabilities across our platform. The ability that we've always focused on is, giving our customers choice in how they fund their payments and choice in how they make their payments. And that's true for both our customers and their suppliers. And so, some of the capabilities that we have been working on and driving are really around that type of capability where, for example, invoice financing is something that we see suppliers want. We see the ability of our customers to be able to spend on a card is something that's important to them. So lots of drivers to drive the business forward pretty comfortable and excited about all the opportunities that we have in front of us. Thank you, Brent.

Helpful. Thank you.

Our next question today comes from Andrew Schmidt with Citigroup. Please proceed.

Hi, Rene. Hi, John. Thanks for taking the question. I just want to dig in on the take rate trajectory a little bit here. I'm curious what you're seeing into the March quarter in terms of just management of payment acceptance cost and how you're thinking about just how we should think the overall take rate should trend from here? Thanks a lot, guys.

Thanks, Andrew, for the question. We continue to operate in an environment where it's clear that customers and their suppliers are increasingly focused on costs and are being more selective with payment choices really with an eye towards minimizing costs. And that's a trend that we spoke about previously. It's one that I think, has put some pressure on increasing volumes across some of our higher monetizing products like virtual cards and FX payments and things like that. So those trends have continued, albeit less pervasive in the second quarter than perhaps we anticipated a little bit ahead of our expectations. And I'd say some of the actions that we're we are taking to improve product experiences, increase payment timing and speed, as Rene suggested, are starting to have a positive impact. So I'd say that's -- I think we're set up well. Our prior expectations about being able to make progress in this fiscal year continue to be what we believe and we'll keep rolling out product enhancements that we think will have a positive impact on Ad Valorem volumes throughout the rest of the fiscal year.

Perfect. Thank you so much for that. And then if I could ask a question just on the distribution strategy. Rene, I think you mentioned API access and embedded finance for lack of a better word, embedding BILL and third-party software, et cetera. Could you talk about how that distribution might evolve? And just how that might augment your existing distribution channels? Anything there would be helpful. Thanks a lot, guys.

Sure. Thanks, Andrew. Well, when I started the company, I was very, very committed and focused on how do you serve SMBs. And my learning that I had over the prior couple of decades of serving SMBs was that they're hard to reach and that to reach them, you have to be where they are. And so we have a direct channel, which we talk about, we have an accountant channel because accountants are one of the most trusted advisers that SMBs had. And then we have a partner channel, which to date has been primarily focused on financial institutions. But partners are an opportunity for us to support the experience that they have with their customers in an indirect and direct fashion so that we can actually drive more adoption of the platform across the overall ecosystem. And so what we've learned in the last 10 years with the financial institution partners is how to go to market, how to embed, how to serve, how to manage a regulated environment, which, obviously, what we do is regulated and what our financial institute partners do is heavily regulated. And we're able to take all of those learnings and use that as the seed, if you will, the fuel for a broader embed strategy. At the same time, we've been working on this at the same time in the last six months to a year, we've seen increasing interest from third parties, whether they're payroll companies or software companies, accounting companies, finance, working capital, fintech. These are all types of companies that we're seeing interest and having the financial operations that we deliver for SMBs inside of their platforms. And so our opportunity is to leverage what we've learned take that seed to use that as fuel to really enhance SMBs and their experience everywhere no matter where they go. And so we're super interested in this. It's definitely an opportunity that we're uniquely positioned for, and we look forward to sharing more as the market develops.

Great. Thank you very much, Rene.

Thank you, Andrew.

Our next question comes from Scott Berg with Needham & Company. Please proceed.

Hi, Rene and Bill -- excuse me, Rene and John. Congrats on the nice quarter here. Rene, I want to talk about the lower marketing spend in the quarter, not surprised given what's going on in the macro there driving some lower net new customer additions there. But how should we think about those customers being brought on? Is the profile of those customers maybe a little bit better because you're not reaching through some of the low-quality customers? Or would you say the distribution of those additions maybe are no different than what you've seen recently?

Hi, Scott. Thanks for the question. There's a lot of stuff going on in the business, right? It's a complex business. And one of the things that we started with last year, we first talked about how we were creating one organization across the company to be able to align internally on the initiatives that need to happen. And then we focus on executing and delivering one unified product to our customers. And at the same time, we focused on having one brand across all of our products. Well, all of that came together in the fall. And that, like I said, did introduce some inefficiencies in our go-to-market process. And so part of this was getting more clear about, okay, where do we want to spend and so that impacts the marketing dollars. But it's also being more clear about which types of customers we want. At the same time, when we think about the Divvy Spend and Expense capabilities that we have in this particular market, the credit environment is something that we're very thoughtful about, and we're very careful on who we extend these credit lines, too. And so with that, you saw some tightening, if you will, on the smallest customers, and that impacted kind of the customer growth there. So in general, I would say that we are focused on delivering very strong growth in the customers as well as the revenue per customer. And we're aligning our initiatives now that we are kind of one company, one product, one brand and adapting to those strategies as we speak.

Got it. Very helpful. And then, John, from a follow-up perspective, you mentioned you've embedded some lower assumptions around yield on your float here going forward to the back half of the year. I think that's probably the right view. I'm sure we're all in agreement on that. But how do you think about the opportunity in the types of investments that you're making right now? Are you able to stretch duration through maybe investing in some different, I don't know, securities, et cetera, that can hold yield up for a longer period of time? Or will this always continue to be something more on a quick overnight basis? Thank you.

Yes. Thanks, Scott, for the question. It's a good point. It's clear that at some point, we're likely to see lower interest rates than higher. And this is the moment at which those types of opportunities present themselves to extend our maturities and lock in a little bit higher for longer rates. We obviously haven't had the need to do that over the last 18 months or so as short-term rates have been very high. But our portfolio mix will evolve as we get further into this macro environment, and we should have an opportunity to do plenty of yield optimization as rates begin to fall a little bit later in the cycle.

Our next question today comes from Kenneth Suchoski with Autonomous. Please proceed.

Hi, good afternoon. Thanks for taking the question. I wanted to ask about Bank of America. I think I heard you say that they're evolving their payment strategy and thinking about the solutions to offer to their customers. It sounded like there was a bit of a change of tone there. So can you just provide some more detail on what happened with BofA? And can you talk about how some of those conversations evolved over the last few quarters? And I guess, what do you think the probability is that BILL can service the back book of customers?

The opportunity that we have with the bank started with serving their new small businesses on their digital platform. And we, like I said in the last the August call that we had done a very strong job and so that the opportunity to serve their existing customers presented itself. And so we had an agreement and a plan that we are working on with the bank, and we are executing across that over the last six months. And then just last month, things changed. The bank shared their recent decision to broaden their firm-wide strategy around payments. And so we are now together working through how this will impact the serving of those existing customers. So we are in the early days. And I would say what I would just maybe focus on is the bank serves millions of customers and the opportunity to serve those millions of customers is super important. We are always going to lean on our strong partnership capabilities to support our bank partners or any partner for that matter, on how we support their strategies and their go to market. So we are in the early days on that, and we'll have more to share in the future.

Okay, thanks, Rene. And then I wanted to ask about the recently announced partnership with Adyen. Could you just provide some more detail on this partnership? Is this initiative simply to diversify back-end providers of virtual card issuance? Or is there something more to this meeting? Are you trying to get closer to straight through processing where you can onboard suppliers they have sub accounts and you could do more of a straight-through processing type of transaction?

Thanks for that follow-up question, Ken. The partnership with Adyen is super important to the business. They have amazing strong capabilities across their platform. What we look forward to them, first and foremost, has been supporting our accounts receivable customers with the ability to collect via card. And so that's across the entire AR platform and ecosystem that we have. In addition, like you referenced, they have strong virtual card capabilities. And so having them as a second source, if you will, third party to be able to support our virtual card payments is important. When you move 1% of GDP, you do need to make sure that you have redundancy across the platform, and there will always be opportunities to continue to leverage their capabilities as we extend our offering into the market.

Okay, thank you.

Thanks, Ken.

Our next question comes from Bryan Keane with Deutsche Bank. Please proceed.

Hi, guys. Just a couple of clarifications. Rene, on BofA, has the rollout stopped? Or has that continued? And then what about the existing clients you're working with BofA has there been any change there? And then I'm just kind of wondering about the whole minimums. Is that off the table now until we figure out where we're going with the relationships?

Thanks, Brian, for the question. So the initial relationship here with the small business team at the bank was to serve the new small businesses. And if you look at the overall total adds for Bill for the quarter. We were over 10,000 customer adds, net new adds in the quarter, of which financial institution partners were 6,200. So Bank of America was definitely a part of that, and they are definitely an important part of -- we are an important part of serving their new small business customers. So the nuance here is the existing installed base that BofA has, the millions of customers they have across their platform that are not yet on this new digital platform, how are we going to go support them? And so we had an agreed-upon approach with the bank. We were executing across that. And then as they evolve their payment strategy last month, things changed and they let us know that they were expanding their payment strategy firm wide. And so we're now working on what that means. And so this will impact that expansion opportunity, and we are working now to understand how it will. When it comes to kind of the overall contract terms, we have a contract, and we are going to continue to work against that contract until we have something different.

Got it. No, that's helpful. And then, John, just following up on the organic take rate. I think it was a little better than your expectations, it was down sequentially. Should we model it flattish to up this quarter and then the fourth quarter was going to be similar to the first quarter? I don't know if you can just help us for modelling purposes, exactly how to model that organic take rate going forward. Thanks so much.

Thanks for the question, Brian. The second half of the year, if you just take a look at our revenue estimates and the TPV estimates that we provided, you'll get to a slightly increasing monetization rate. We're still in a range, though, that's not far from where we are today and where we started the year, and we think that's appropriate given the visibility we have and some of the headwinds on the higher monetizing products. We are working hard to improve the product experience across a couple of our important revenue growth drivers, and we think that will provide probably more monetization upside as we look at FY '25 and beyond.

That's helpful. Thanks, guys.

Thank you.

Our next question comes from Taylor McGinnis with UBS. Please proceed.

Yeah, hi. Thanks so much for taking my question. So you talked about some restructuring that you did in the go-to-market motion that led to softer net adds. So can you provide just some color on how we should think about the trajectory of net adds from here? So could this metric gets worse over the next couple of quarters, maybe before it gets better? And then as a second part to the question, how could it focus on businesses with a higher propensity to spend sort of as an offset in higher TPV per customer, for instance?

Thanks for the question, Taylor. So in terms of net adds, I'd first start with BILL, where we're pretty close to our initial estimate for the quarter even with some challenges and additional friction associated with some of the changes that we've made to the platform and the branding and our approach. And I'd say we're going to be kind of in that range for the rest of the year, maybe in the 3% to 4% versus 4%. But nevertheless, it's more of an impact on the Spend and Expense side of the business. BILL's Spend and Expense where not only did all the moving parts are moving into one platform consolidating our brands, one organization. We've also had a heightened level of scrutiny on the credit side of smaller businesses. So as we saw performance on some of our marketing initiatives decline, and we created some inefficiency continue to hold back on marketing spend. The impact that has is on really the smaller businesses. In fact, in Q2, if you look at our larger Spend and Expense businesses, the demand, the top of the phone from those was consistent, actually up from Q1. So we feel good about that. It's really in the net as a result of the smaller businesses. So in the very near term, we would expect to be a bit lower than we have been historically. But from a revenue and revenue per customer standpoint, we feel really good about that setup because that ties into the second part of your question about moving to a higher propensity to spend customers, which is a direct correlation to larger businesses that are more financially stable and likely to have an effect of increasing ARPUs for us, and this is across both BILL and our Spend and Expense product.

Awesome. And then just as a follow-up. So you started to mention it in response to Bryan's question, but when you think about the rollout of more automation, things like straight-through processing, working closer with suppliers. Can you just help us think through the timeline of when those are going into place? Maybe some of these initiatives have already gone into in place and how that influences how you're thinking about the second half improvement into 2025?

Yes. I mean it's pretty -- when we talked about this last quarter, we already had some of the activities and initiatives that we mentioned, in-flight, working with suppliers making changes. We certainly have a pipeline of improvements that we'll be rolling out over the next several quarters. Our expectation is that we start to move the needle more materially on driving volume across these higher monetizing products into fiscal '25 versus '24. But we have also seen some good progress with other products beyond virtual cards and FX payments in the most recent quarter we saw a good uptick in working capital. We saw a contribution from both AR and Instant Transfer or real-time payments that we're providing support for the take rate. So we think those will continue in the second half of the year as well.

Great. Thanks so much.

Thank you. Thanks, Taylor.

Our next question comes from Darrin Peller with Wolfe Research. Please proceed.

Guys, hey. Let me just follow up on the -- first, the volume trends that you saw were clearly stronger, I think, than we anticipated and I think then and it's flowing through to some degree than your guidance was for the current quarter. So it was great to see if you could just give a little more expansion on what you actually are seeing among your customer base in terms of behavior. And obviously, you took a bit of a conservative stance in what you're expecting for the remainder of the year, but is that just conservatism? Or is there anything going on in terms of what you're seeing with customers? And just very quickly to follow on, again, just one more time on the monetization opportunity because I think what we're seeing is the evidence that you're convicted that the second half improvement will occur. I think the questions we're still getting is just whether or not there's a magnitude of it being impactful in '25 in the next fiscal year and beyond that we should be on a steady state. And so if you could just give a little more color on whether or not you believe these fixes should lead to a resumption of a steady-state improvement? Or is this not going to be more volatile?

Thanks, Darren, for the question. I'll start and then let John add in a bit. So the first thing I would just say across the customer base when we kind of look at all the different segments, we definitely see holding pattern for all but the largest of businesses, which are still declining, just not as much as they were. So if you look at the overall TPV, while we had good growth year-over-year, it was not what it should have been because the largest businesses are still spending less than they were a year ago. And so that declining rate is less than it has been in prior quarters. So that gives us confidence in the ability to kind of whether the storm is well and to be able to see that as they start spending, we will have an opportunity to grow and serve that part of the spend that they have. So that's kind of -- the first thing I would say is that what we are maybe happy to see is that all but the largest businesses seem to be more in a holding pattern and not declining right now. And then with the monetization, just to kind of give you one example, some of the conviction we have. It is a lot of different payment products we have, and there's lots of different activities across those payment products to be able to drive adoption and customer success and happiness. And so one of the things, for example, on international payments, that's super important is that we get a bigger share of wallet. And so if you were to look internally across the platform, are continuing to increase the share of wallet of international payments. Now one thing that's going counter to that in the last year has been that there's been an increase in adoption of U.S. dollar payments versus FX dollar payments. Particularly, if you looked at, I think, broader economic data, you would see that euros are less favorable to dollars these days for some reason. And we could all speculate on the geopolitical reasons as to why but that impacts all the goodness that we're doing on driving FX adoption inside of our customers. So we have strong wallet share growth, and we have strong adoption where we have some more influence with Canada and the U.K. and the portal we have, but the opportunity and conviction we have around the future is because of those underlying facts. So that just gives you one highlight. I don't know, John, if you have anything you want to add to that?

Sure. So just on the TPV volumes, we were at about $450,000 and TPV per customer, excluding the FIs in the quarter, which was certainly ahead of our expectations. And I think reflected some small seasonal uptick in spending, unlike we've seen the prior year, our assumptions for the second half are that we're reverting certainly for the March quarter to more of a seasonal pattern and we're expecting some declines as you can see in our number. And in terms of the monetization improvement, we do have a lot of levers, as Rene mentioned, and I think we're working hard to, if you will, cover to our prior monetization level in fiscal '24. And as we talked previously, going back quite a while, we feel like there's a multiyear opportunity in front of us in terms of monetization expansion. Exactly how that plays out in terms of linear starting in FY '25 or not, we'll certainly have more to say about that trajectory as we get through fiscal '24.

Thanks, John. Just -- not to beat up the topic again, but just on BofA, we're getting questions. I think there's -- it's worthwhile clarifying this. People are wondering if you're losing the entire opportunity on the existing customer base that you would have read to earlier or is this just a change. Maybe -- just if you can clarify that a little bit because we're getting a lot of questions on it.

Thanks, Darrin. Yes. So again, just dividing the customer base to new customers versus the installed customer base that the bank has. We continue to serve the new customers and on the existing installed base, the opportunity with them is to look at how do we deploy what we've developed and the other capabilities that the BILL platform has inside of the new payment strategy that's now been broadened inside of the bank. So it's early days so unfortunately, I can't say more than that because we're just like literally last month is when we kind of understood that this was a change on their side.

Got it. Thank you, guys.

Thank you, Darrin.

Our next question comes from the William Nance with Goldman Sachs. Please proceed

Hi, guys. Appreciate you taking the questions. I just maybe wanted to take a step back and ask about maybe the structural versus cyclical aspects of what's been happening over the business. I think on the cyclical impact, it sounds like you're starting to see some green shoots on volume. The take rates came in slightly better. I can't really tell us your outlook on the take rate going forward is better or worse or kind of the same than it was last quarter. And then if we think about some of the longer-term sort of structural tailwinds that people have been focused on, the cross-sell of Divvy that was a huge strategic initiatives. It sounds like that could be impacted by some of the challenges in the go-to-market that you mentioned. And then, John, I think you mentioned something like three to four of core BILL net adds ex-FI. I think previously, we're talking closer to four, so maybe a little bit lower there. So just maybe putting it all together, I guess that uncertainty is still high. I think the questions that we've gotten over the past three months have been increasing uncertainty around some of the long-term structural tailwinds in the business. So maybe can you talk about what you're seeing in the market? And if anything has sort of changed near or longer term over the last three months?

Yeah, I'll start. Thank you, Will. The -- from a structural perspective, some of the examples I just gave with international payments. I could give you other examples inside of virtual card initiatives that we're doing. I can give you examples inside of invoice financing, it's in transfer, all the different payment initiatives. And so when we think about the confidence we have and the ability to kind of continue to drive more payment volume and more dollars going through our platform, that are positive economic to BILL, we have high confidence in that just because we have lots of initiatives. Now what I do know, and I've been building software companies now for over 25 years. And what I do know is that there is a cycle that you go through in building, you build and then you adapt and then you iterate and then you build and then you adapt and then you iterate. Now all of our products have different stages of where they're at. But I have a lot of experience in this kind of cycle that you need to actually sometimes take two steps forward to be able to really make this opportunity happen. And that's what we've just done in the last year. It was a lot to pull together, and we're looking forward to continuing to adapt the offerings that we have and enhance the capabilities that we've built.

Let me just add, Will, on the cyclical comments around volumes. We agree with you, things are a little bit better than expected. That could be the beginning of a sustained improvement. It's not something that we are expecting at the moment. And there's no real change to our expectations around monetization take rate for the second half of the year. We're not calling a return to normal quarterly expansion. At this point, something we'll obviously come back to in fiscal '25.

Got it. That's helpful. And then maybe just a question on the restructuring. Could you -- is there any way you could quantify just the savings that resulted from the restructuring? And then as you think about the remainder of the year, is there a portion of those savings that will be reinvested? Or kind of how much are you thinking about letting fall to the bottom line there?

Sure. So we -- as a part of our reduction in the workforce, we generated approximately $60 million in annualized non-GAAP operating expense savings, obviously, for half of the year, that's $30 million. And this is related to compensation and benefits-related expenses and the closure of our Sydney office. We realized approximately $5 million in non-GAAP OpEx savings in Q2. And we expect to reinvest, if you will, about 50% or so of that $30 million into some of the both near-term and longer-term growth initiatives that Rene mentioned earlier.

Got it. I appreciate you taking the questions.

Thank you.

Our next question comes from Brad Sills with Bank of America. Please proceed.

Great. Thanks, guys. I wanted to ask a question about the new platform here. It sounds like, if I'm not mistaken, that might have been an area that kind of sourced somebody upside this quarter. In other words, that better integrated platform enabled a better on-ramp and cross-sell for cross-border virtual card. Is that correct?

Thanks, Brad, for the question. The new platform with the unified platform, we've seen from certainly the customers that are adopting it a lot of strong synergies. And that's why I think the quote we had in the prepared remarks, the customer said that it was simply beautiful. The capabilities we have, we're very excited about. But actually, rolling all of this out at the same time, the one brand, the one platform, and the one organization has actually created some inefficiencies in our go-to-market. So we have not yet seen the uplift that we would like to see from the new platform. We have seen uplifts, just not as much as we'd like to see yet.

Okay. Thanks for that clarification. And then on the expanding ecosystem here, accounts, FI, embedded, there's a lot there. Where is the focus and how does that map to your plan to go target businesses that have a higher propensity for upgrade and perhaps larger spend? Thank you.

Yes. No, it's a great question, something we're excited about. The -- from day one, we've built the platform to be able to serve SMBs wherever they come from, and we have great success with accountants, the 7,000 firms across the country, and we are continuing to build on that platform. So there's more capabilities that we will be enabling. We were the kind of the first platform, if you will, that helps businesses and accountants actually work together in a unique way. And that category is now called Client Advisory Services, CAS and there are whole practices that build their practice around BILL. We're continuing to expand the capabilities of AP, AR and Spend and Expense inside of the accounting console and we're adding dashboards from the Finmark acquisition over the next year. So these capabilities will enhance the account platform, which is one of the questions. But then if you take the learning's that we've had from the accounts as well as the financial institutions, we have strong learning's around how to embed our capabilities inside of others so they can serve their customers. And what we're seeing in the market is that there is strong demand for other software providers to embed financial operations to be able to serve their customers. And so the capabilities that we referenced on the call with respect to APIs, we have hundreds of developers across thousands of customers that are taking advantage of the APIs. We're just extending those capabilities and what we've done with FIs and what we've done with accounts to create a more unified experience, if you will, inside of that embed approach so that others can take advantage of the capabilities that BILL has built. So we're excited about that. That's a long-term opportunity for us, just like the FIs are a long-term opportunity is something that we think is super important.

Thanks, Rene.

Great. Thank you, Brad. So thank you, everyone, for joining us today. We've built a great business over the years because of our commitment to SMBs. And we look forward to bringing the transformative financial operations experience to them. Thanks again for joining us. Take care.