BILL - NYSE

Good afternoon, and welcome to Bill.com Holdings, Inc.'s Second Quarter Fiscal 2025 Earnings Conference Call. Joining us for today's call are Bill.com Holdings, Inc.'s CEO and Founder Rene Lacerte, President and CFO John Rettig, and Vice President 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.com Holdings, Inc.'s fiscal second quarter 2025 earnings conference call. We issued our earnings press release a short time ago and furnished the related Form 8-Ks 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.com Holdings, Inc., 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, targets, and results of Bill.com Holdings, Inc. 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. Now I'll turn the call over to Rene. Rene?

Thank you, Karen. Good afternoon, everyone. In Q2, we delivered strong financial results, launched innovative product updates, and continued our track record of execution across the company. We are leveraging our leadership position to empower small and midsize businesses, and we are extending our lead by expanding the depth and breadth of our platform and diverse distribution ecosystem that includes accountants, partners, and network members. Through focus and dedication, we are delivering robust financial performance and positioning Bill.com Holdings, Inc. for long-term durable growth. Second quarter performance reflects our continued commitment to balance growth and profitability while generating strong cash flow. Our leading AI-enabled platform, efficient go-to-market, and disciplined operation drove 16% year-over-year core revenue growth while driving great margin expansion. Non-GAAP operating margin was 17% and expanded three percentage points year over year. Our focus on efficiency drove strong cash generation with a free cash flow margin of 20% in Q2. During the quarter, our platform was used by more than 480,000 businesses to automate their financial operations. Customers transacted nearly $85 billion in payment volume across 30 million transactions using the Bill.com Holdings, Inc. platform. Our mission is clear. We make it simple to connect and do business. We are winning in the SMB market. We are addressing an advanced market opportunity to automate financial operations for millions of small and midsize businesses, and we are moving quickly to capture this opportunity. 99.9% of businesses in the US are small or midsize with fewer than 500 employees. These businesses drive our economy, employ nearly half of US workers, and contribute trillions of dollars to the US GDP. Yet they are often underserved by technology because the market is highly fragmented and SMBs are difficult to reach. This is why the majority of SMBs still use manual legacy processes and why Bill.com Holdings, Inc. is so well positioned to automate their financial operations for the first time. A great example of how our innovation powers growth across the SMB landscape is Ignite Medical Resorts, a company that pairs advanced medical rehabilitation with luxury hospital fidelity. Ignite Medical Resorts has been a customer of Bill.com Holdings, Inc. since 2020, and during that time, it has grown from operating two facilities to more than 23 across the US. Shona Hanscom, Executive Director for Ignite Medical Resorts, said, and I quote, "Bill.com Holdings, Inc. has been a life changer by supporting our rapid growth. We manage nearly 2,000 rehabilitation resorts and process about 2,000 payments a month. Before Bill.com Holdings, Inc., many AP tasks, including coding and approving bills, were handled manually. You can imagine how time-consuming it was running our back office that way. Bill.com Holdings, Inc. completely changed the game for us. It replaces the manual process with digitized and automated workflows and provides robust document management and collaboration tools, making it a breeze to pay thousands of bills each month. The financial back office makeover didn't just stop there. Bill.com Holdings, Inc. also completely transformed our spend and expense management experience, and we are now running 95% of our expenses on its platform." End quote. Bill.com Holdings, Inc. is the essential financial operations platform for Ignite Medical Resorts and for SMBs everywhere. We transform and empower SMBs of all sizes across all types of industries. Our solutions eliminate complexity and guesswork that have long burdened SMBs and their financial operations management and free them with automation so they can focus on growing their business. We've taken a different approach from other software and fintech companies in order to serve the broad and diverse SMB market at scale. We architected our platform to support an end-to-end view of the transactions and the required workflows while building an ecosystem that lets us support SMBs wherever they are. AI has been deeply embedded since the beginning to eliminate data entry, accelerate payments, and easily match customers with suppliers within our network. Our extensive platform features and automation tools combined with our large proprietary data assets that include hundreds of millions of transactions and documents provide the foundation to expand our surface area. Adding more solutions to the automated financial back office. Through our continuous innovation, we broadened our ability to serve an increasing range of an SMB's financial operations needs. We have shared in recent quarters that as we see clear demand signals for our solutions from mid-market customers, we are building functionalities to more fully address the needs of this segment of the market and the accounts who serve them. Some recent examples include our investments to create a game-changing procure-to-pay experience and powerful multi-entity tools that enable larger businesses to drive more automation and efficiency gains across all of their entities. Customer and account reception to these newer capabilities is very positive. The scale, the network, and richness of our platform enable Bill.com Holdings, Inc. to solve many of the most complex problems that businesses face on a daily basis. We are increasingly engaging with both sides of our two-sided network so that businesses can more seamlessly work together. For example, once a year, businesses have to file 1099s for payments made to certain suppliers. It is a hassle and requires collecting tax information from suppliers one by one. After a short development cycle, we recently introduced embedded 1099 functionality to transform this into a seamless autonomous process for both our AP customers and their suppliers. Since January, over 5% of our customers have made nearly 200,000 1099 filings through our platform, demonstrating our two-sided networks in action. In short order, we eliminated another headache of running a small business. With a few clicks, AP customers can now file and send all of their 1099s to all of their suppliers. This functionality is really important as it not only automates work for our AP customers, it also enables a dramatically better solution for suppliers paid via Bill.com Holdings, Inc. They can now create one W-9 across all of their customers, then they can automatically receive electronic 1099s every January. This is an example of what it means to make it simple to connect and do business. Turning to payments, we have significantly expanded our product portfolio, particularly card offerings. The execution of our card strategy has led to card adoption among AP and AR customers more than tripling over the past two years. As part of this, we continue to make progress on enabling customers to use their Bill Divvy card as an alternative to ACH and check payments when making a traditional AP payment. This product now leverages our AP customer relationship with their vendors to drive acceptance of card payments. We expect card adoption to expand as we create more differentiated card experiences. We are continuing our expansion into working capital to solve many of the cash flow needs of SMBs. Cash flow is typically the number one challenge faced by SMBs. In fact, the 2024 Goldman Sachs 10,000 Small Businesses Voices survey found that 77% of small businesses were concerned about their ability to access capital. We are leveraging our large scale and unique proprietary data and network to build differentiated AI-powered underwriting capabilities that provide businesses with access to liquidity at the time that they need it. Since our initial launch, more than 30,000 vendors have used our invoice financing product to access over $800 million in invoice advances. Turning to our ecosystem, we partner with top banks in the US and thousands of accounting firms provide embedded solutions to various software companies and have a large proprietary member network. For accounting firms, our solutions not only enable partners to transform the financial operations of their clients, but also their own. Take Jitasa, for example, the nation's largest accounting and bookkeeping firm focused exclusively on serving nonprofits. Our accounts payable and spending expense solutions become an indispensable part of its tech stack for approximately 80% of their clients. Together with Bill.com Holdings, Inc., Jitasa modernized the B2B payment processes for their nonprofit clients, helping them to ensure cash flow health and drive better business decisions. The majority of its clients on Bill.com Holdings, Inc., Jitasa was able to streamline employee training and create more efficient operations, which led to a 20% gross margin improvement for their business. Accounts have been an important strategic part of our ecosystem from the very beginning. And we are doubling down on accounts to expand our leadership position. We are leveraging our customer feedback loop to do more for existing accounting partners to help them more strategically and efficiently serve their clients. We are also investing in our go-to-market motion to drive more penetration across the omnipresent accounting firm market. There are more than 40,000 CPA firms in the US, and more than 100,000 when you include bookkeeping firms. Accountants and larger businesses are asking for our embedded solutions, which opens up new avenues for SMBs to access our platform. Our learnings from working with the largest banks in the US serve as a great springboard for us to extend our product reach. In less than a year, we rolled out our Embed 2.0 platform with tools for partners and customers. We are making our leading workflow and payment functionalities available to larger businesses and accounting firms so they can streamline their operations. We are rapidly expanding our capabilities here, and during the quarter, we had the ability for customers to seamlessly integrate Bill.com Holdings, Inc. spending expense with their existing systems. The reception has been strong with good early adoption by customers. With our vast distribution ecosystem, we have created an unparalleled network that captures the interactions between buyers and suppliers and generates a large amount of relational and transactional data. Over the past four years, we have more than doubled the size of our network to over 7 million network members. Serving suppliers is an important part of our expansion strategy. We are continually investing to enhance our platform experiences to simplify their automation while building direct relationships with the largest suppliers. These are important initiatives that drive ad valorem and payment adoption across the network. Large suppliers on average receive 5,000 check-in ACH transactions per quarter through our platform, which presents a significant opportunity to help these businesses eliminate a large volume of manual work and streamline payment acceptance at scale. We are investing in enhanced automation such as straight-through processing and advanced ACH. With these capabilities, we are adding specialized go-to-market teams focused on addressing specific needs and complexities of these large suppliers. We believe this dedicated focus will translate into efficient and streamlined experiences that drive revenue. As we look ahead, we remain laser-focused on penetrating and serving the large market opportunity with differentiated solutions that bring SMBs more moments. We are excited about the future to further empower SMBs and the progress we are making. Our vision is success attracts strong talent to the company. We recently added two new directors to our board, Carrie Gohman and Dan Wernicott. They have deep expertise that will help us advance our strategy. Carrie has an extensive track record of scaling SaaS and FinTech businesses that are SMB-focused. Dan has extensive experience leading in business and consumer brands, including as EVP and general manager at Intuit for both the small business and consumer groups. We look forward to working with them as we build on our momentum to widen our leadership position in the market. In closing, we are making great progress enhancing our platform and payment experiences while delivering profitable growth. Hundreds of thousands of businesses trust Bill.com Holdings, Inc. to run their financial operations, and there are millions more to serve. Our robust product and broad ecosystem position is second to none. We are capitalizing on this compelling market opportunity to be the de facto intelligent financial operations platform for SMBs. Now I'll turn the call over to John.

Thanks, Rene. Q2 marked another quarter of Bill.com Holdings, Inc. successfully balancing growth and profitability while investing in our strategic priorities to accelerate innovation for SMBs. We are seeing great early indicators of the potential impact of our investments to drive sustained value creation for SMBs and growth for Bill.com Holdings, Inc. In August, we outlined our priority investment areas across payments and working capital, supplier solutions, accounting firms, and embedded finance. Over the first two quarters of the fiscal year, we've executed well against these priorities. I'll cover a few examples of our progress. We are now live with an important enhancement to our virtual card solution, with the launch of an additional straight-through processing provider in November. This opens up new payment routing with significant automation benefits for suppliers, including improved data integration with their ERP systems. We have also been advancing our direct connection with select suppliers as part of our ongoing product experience improvements with a focus on automation and efficiency in the payment acceptance process. We are also investing to expand our payment solutions to create more choices in addressing the unique needs of large volume payment receivers in the Bill.com Holdings, Inc. network. To this end, we're in beta testing with our advanced ACH solution, which will provide tools to drive automation and efficiency that suppliers haven't had before. We believe this new payment solution will redefine the payment receiving processes for large suppliers, driving a fast, automatic, and scalable experience. We expect to fully launch this solution this year. On the international payment front, we expanded the availability of our local offering to over 30 countries. We have started to create awareness among customers and network members about the significant improvements we've made in efficiency and payment speed, which is now approaching a real-time payment experience. Shifting to our go-to-market focus on accounting firms, we are investing in both new product capabilities, as Rene mentioned, as well as enhanced partnership support teams to create even greater engagement with accountants. We are the platform of choice for accounting firms, and we are constantly raising the bar to improve our solutions to deliver more account-specific capabilities. Some recent examples of product innovation that empower accounts to better serve their clients include multi-entity and bulk action solutions, purchase orders, and streamlined 1099s. We also expanded and enhanced our account and coverage teams, which is driving better penetration with our existing partners and acquisition of new partners. Our product innovation and go-to-market initiatives are driving results. In Q2, net new ads in our accounting channel increased 38% from the same period a year ago. Turning to our embedded solutions, we launched a spend and expense integration for our Embed 2.0 solution, which enables businesses to onboard large numbers of employees and issue cards much faster at scale. We delivered this solution in the fall and now have over 200 customers using this embedded product. We're pleased with the early signs of increased usage and higher card spend. We look forward to these early indicators of progress becoming material value creation levers for customers, partners, and suppliers in our network and growth drivers for Bill.com Holdings, Inc. So shifting from progress on our investments to our Q2 results, we delivered strong profitable growth in Q2. As core revenue increased 16% year over year and non-GAAP operating income increased 42% year over year. We created meaningful operating leverage in our business and produced a non-GAAP operating margin of 17%, which is up more than 300 basis points from a year ago. Our free cash flow margin was 20%. On the back of this momentum, the investments we are making will add to our leadership. Now for some more details about the quarter. Total revenue was $363 million in Q2, up 14% year over year. Core revenue, which includes subscription and transaction fees, was $320 million, up 16% year over year. Float revenue was $43 million, and our yield on FBO funds was 443 basis points in the quarter. Revenue from our integrated platform, which includes our Bill APAR and spend and expense solutions, but excludes the financial institution channel, was $301 million in Q2, up 16% year over year. Within our integrated platform, revenue for our Bill APAR solution was $167 million, up 13% year over year. TPP grew 11% year over year, and TPV per customer was 1% lower year over year. Overall transaction monetization in Q2 was down slightly from the first quarter, primarily due to TPB seasonality combined with minimal volume growth on more established ad valorem products as well as FX losses from currency volatility. We are making good progress to advance the features of our more established payment products and expand our payment portfolio with new solutions. Note that our total ad valorem year-over-year growth in the second quarter from our APAR solution increased compared to the prior two quarters, driven by the adoption of newer solutions. During the quarter, we continued to see momentum on penetrating the market, with 4,500 net new Bill APAR customers added. Strategic go-to-market investments in the accounting channel have accelerated adoption, deepened engagement with existing firms, and reduced client attrition. Accelerated investment and deployment of AI within the sales journey is also driving increased sales efficiency. We now have more than 160,000 customers using our Bill APAR solution. This scale is a direct result of our go-to-market engine, the customer value proposition of our platform, and our expansive network. Also within our integrated platform, revenue from our Bill spend and expense solution was $134 million, up 21% year over year, driven by 23% card payment volume growth. Spending expense interchange fees were 257 basis points in the quarter, and rewards were 48% of spend and expense revenue. Both card payment volume growth and gross interchange fees were impacted by a mix shift towards lower gross interchange merchant categories. We added 1,400 net new spending businesses to our spend and expense solution in Q2 and ended the quarter with 37,800 spending businesses. Our customer acquisition focus for spend and expense continues to be on larger businesses with a strong financial position. We're doing well targeting and acquiring these businesses. Revenue from our embedded and other solutions, which includes the financial institution channel, Invoice2Go, and other solutions, was $19 million, up 16% year over year. Moving on to additional financial highlights, our focus on driving efficient growth enabled us to deliver non-GAAP gross profit of $309 million in Q2, up 13% year over year. And non-GAAP gross margin was 85%, significantly above our targeted range for the low 80s. We generated non-GAAP operating income of $63 million in Q2, representing a 17% non-GAAP operating margin. An expansion of more than three percentage points year over year created operating leverage from our core business as non-GAAP operating margin excluding float revenue, expanded six percentage points year over year to 6.5%. Non-GAAP net income was $63 million for the quarter, representing a 17% non-GAAP net income margin, while non-GAAP net income per fully diluted share was $0.56. Non-GAAP diluted weighted average share count declined 4.8 million shares, or 4% year over year, primarily due to our convert and share repurchases over the last twelve months, partially offset by the issuance of new convertible notes. We have a very strong balance sheet with significant liquidity. And during the quarter, we took proactive steps to strengthen our position further by completing an offering of $1.4 billion zero coupon convertible senior notes to 2030. We used approximately $539 million of the net proceeds to repurchase significant portions of our 2025 and 2027 convertible notes, and approximately $200 million of the net proceeds to purchase 2.3 million shares of our common stock. Our balance sheet and strong cash flow enable us to invest in initiatives that drive long-term growth and market leadership. Shifting to our outlook, there is increased uncertainty related to potential fiscal and trade policy changes and how they may impact SMB sentiment and spend. We are confident in the resilience of SMBs to successfully adapt to the macro environment, and we are carefully monitoring policy changes for any near-term implications for SMBs. Our outlook for the second half of fiscal 2025 assumes that the macro and B2B spend environment remain consistent with recent quarters and that SMBs transact at similar rates to our historical averages. Now moving on to guidance. For fiscal Q3, we expect core revenue to be in the range of $317.5 to $322.5 million, which reflects 13% to 15% year-over-year growth. We expect total revenue to be in the range of $352.5 to $357.5 million in Q3. Float revenue is expected to be $35 million in Q3, which assumes our yield on FBO funds will be approximately 390 basis points. Turning to our profitability outlook, we expect a sequential increase in operating expenses as some of our incremental investment spending that was back-loaded in the fiscal year starts to take effect. In Q3, we expect to report non-GAAP operating income in the range of $38 to $43 million and non-GAAP net income in the range of $42 million to $46 million. We expect non-GAAP net income per diluted weighted average share in the range of $0.35 to $0.38 in Q3, based on a share count of 119.5 million diluted weighted average shares outstanding. Moving on to full-year guidance. For fiscal 2025, we expect core revenue to be in the range of $1.297 billion to $1.312 billion, which reflects 16% to 17% year-over-year growth. We expect total revenue to be in the range of $1.454 billion to $1.469 billion. We expect float revenue to be approximately $157 million for fiscal 2025, assuming a yield on FBO funds of approximately 430 basis points for the year, and an exit Fed funds rate of 425 basis points as of June 2025. On the bottom line, for fiscal 2025, we expect to report non-GAAP operating income in the range of $207.5 to $222.5 million and non-GAAP net income in the range of $216 to $228 million. We expect non-GAAP net income per diluted weighted average share to be $1.87 to $1.97, based on a share count of 115.5 million diluted weighted average shares outstanding. Note that our Q3 and full-year guidance for share count and non-GAAP net income per share do not reflect the impact of future purchases under our share repurchase program. For fiscal 2025, we expect stock-based compensation expenses to be less than 20% of total revenue. In conclusion, we built a great business by revolutionizing financial operations for hundreds of thousands of SMBs and creating a unique ecosystem to efficiently reach them. The investments we are making in our platform, distribution capabilities, and team are showing good progress. This gives us confidence in our ability to extend our category leadership and further empower SMBs, which in turn positions us to drive years of strong growth and shareholder value creation. And now we'll open up the call for Q&A. Of course. We will now begin the question and answer session. Our first question will come from the line of Chris Quintero with Morgan Stanley. Your line is now open.

Hey, Rene. Hey, John. Thanks for taking the questions here. Maybe to start, I would want to dig a bit into the monetization here. Obviously, a lot of puts and takes with FX and then seasonally higher TPV, but just curious if you can delineate between some of those headwinds and some of the improvements you all made on the virtual card and product side, how much of that was a contributing factor to overall monetization here?

Yeah. Thanks for the question, Chris. Yeah. Q2 monetization was slightly lower than our expectation from discussions last quarter when we were anticipating flattish quarter to quarter. Several factors influenced that, including, I think, first, seasonality where just the December quarter uptick in overall TPV tends to result in a mix shift in payment types, and this showed up as strength in check and ACH volume, which we actually saw a 6% quarter to quarter growth rate. And at the same time, our ad valorem volume grew but at a rate lower than that check and ACH volume. So that mix as a result has been influenced on the take rate and in the quarter ended up a little bit lower. Another impact was we've seen increased FX volatility, particularly in the second quarter. And that's versus, you know, Q1 we did it. We saw a small gain in FX changes, whereas Q2, we saw some losses. So that change quarter to quarter also had an influence. We've obviously been investing in a number of initiatives that we think ultimately have a positive impact on our overall ad valorem growth. We talked about in prepared remarks the accelerating growth rate. But in that December quarter, just not as fast as that, you know, flat rate payment type volume growth for check and ACH payments. So we do expect these initiatives to ultimately drive monetization expansion from here.

Thanks, John.

You bet.

Thank you for your question. Our next question comes from the line of Tien-Tsin Huang with JPMorgan.

I just want to clarify, John, your answer to what? Can you help? You can hear me. I just wanted to clarify the answer that you gave, John, to the last question. So did you size the currency volatility? And can we expect the second half monetization rate to show modest improvement? I think you still called that out last quarter. So I was curious if that still applies. And then my question I actually had was on the $45 million in targeted spend, are you on track with that spending? And trying to say you're getting the returns that you expected originally here? Thank you.

Thanks for the question. On the first part, going back to the prior question on monetization, overall, our international payments monetization in the second quarter was about 0.3 basis points below what we would have expected, and a portion of that is related to this FX loss and the overall currency volatility. And as we've indicated before, we do expect monetization expansion in the second half of fiscal 2025. So no change in our outlook and what we're striving for there. Shifting to the incremental spend for FY 2025 that we outlined in August, $45 million. We're making good progress against that. As we indicated last quarter, some of that spending is actually back-loaded into the year, so you'll see that flow through our guidance. We have some OpEx increases in the third quarter as a result of that. And I'd say pointed out a few reference points, signs of progress, both this quarter and last, that are a reflection of the progress we're making against those investments, and we think that those begin to have a more material impact on our overall business and growth rates as we get further into fiscal 2025 and into fiscal 2026.

Thanks, John. I just wanted to add a few things on the investment areas. So, you know, you'd I think everybody knows that we have a singular focus on financial operations, driving, you know, a lot of scale across our platform and with our diverse ecosystem. And we said that annual call that we have four kind of priorities for the year. Those priorities were one, to, you know, increase the value proposition, two, to augment our supplier experiences, three, to deepen our relations with our accountants, and four, to expand the ecosystem. And we made great progress across each of those in the quarter. And so on the increase in the value prop, we saw an opportunity where we pulled together a team, built a product for our advanced ACH. It is now in beta. We also expanded our local transfer capabilities. And we expanded our learning on invoice finance. That's one that we think will be an important driver for us in the future. On augmenting the supplier experience, we called out the 1099. The reason we called that out was just the power of the two-sided network. This is something that the team came up with, really, in a very short order. And drove a product definition product experience for our customers and their suppliers, and was able to drive a very strong adoption in a short period of time. And because we were able to drive that adoption because of the two-sided nature of our network, we have, you know, all the capabilities inside the 7.1 million network members we have to help both the buyer and the supplier. So that was a huge win for us. We also added straight-through processing, which was important for the virtual card part of the business. And we also have dedicated teams now focused on connecting and helping suppliers understand our offerings. As well as understanding what suppliers need. And that's all stuff that we've been building over the last, you know, quarter or so, and that investment continues to go well. The third area I said again was deep in account relationships. We have a tremendous asset here. We have, you know, close to, you know, 8,500, I think is the last number we've said, accounts on the platform. That's out of around 100,000 account and bookkeepers across the entire US ecosystem, and we have a unique opportunity to serve them with more and more capabilities. Referenced the customer, Jitasa, who has, you know, hundreds of clients that they're able to kind of really work in a nonprofit space in a much more efficient way because of what we do. An example of having all that capability it creates great opportunity for us to drive new account adoption. And so one of the things we talked about, you know, on the prepared remarks was that overall, you know, year over year that net adds per accounts was up 38%. This is because of a focus on both product where we talked about, you know, obviously, the capabilities around adding POs, adding, obviously, the 1099s, adding the ability for us to drive multi-entity. These are all things that we're working on. They're ongoing product additions. But as we engage with accountants, we continue to hear how much that that will make a difference for them, and they're excited about the platform and want to do more with us. It's also because we have a much stronger go-to-market focus on this than we've had in the past as part of the investments. So then the last area that we said we are focused on fiscal year was to expand our ecosystem. This is really around the embed platform. And everything that we've taken, all the learning we've learned from the banks and the financial institutions over the last ten years, rolling that into experiences for both partners and our customers. And so we highlighted that during the quarter, we were able to pull together capabilities for our customers to access that capabilities across the S and E platform. What that means is that those customers that are adopting, we've had over 200 that they're able to add more customers more, I should say, more employees, on more cards on the spend and that's driving usage across the platform. So all of these things really point to the investments we've been making. There is obviously much more under the hood that I, you know, we didn't talk about, but this is all why we expect and have confidence in growth happening in the second half of the year and in FY 2026. So thank you for the questions, and Tien-Tsin, just wanted to give some additional color there.

Yeah. Thanks for going through it. Thank you for going through it. Thank you.

Thank you for your question. Our next question comes from the line of Andrew Schmidt with Citigroup.

Hi, Rene. Hi, John. Thanks for taking my questions this evening. I just want to go back to the take rate for a second. John, I know you had some comments on ad valorem expansion. Know, x, international. Maybe you could just run through that real quick and just talk about what you saw in terms of supplier acceptance, you know, virtual card growth. Just curious on the stability on that side of things if we strip out the FX losses. Thank you so much.

Sure. Thanks for the question, Andrew. Overall ad valorem volume grew in the second quarter, so that's a positive for us. It actually accelerated versus the prior two quarters. Most of that growth is driven by newer products. So these are things like invoice financing, pay by card, on the buyer's side, real-time payments, and some of our more established products, if we remove international payments per second like virtual card, volume was consistent with the prior quarter. So no significant growth there. We have continued to see similar trends with card acceptance on the Bill.com Holdings, Inc. side. Consistent volume as I mentioned, some of our initiatives that Rene just outlined are now in the market and starting to be used by select suppliers. So we haven't seen a significant impact material impact on those yet, but there's no new trends in terms of, you know, acceptance across those more established ad valorem products than we've seen previously.

Perfect. Thank you so much for that. And maybe I could just sneak more one more in. Just on the product engine, it does seem like there's a pretty significant step up in terms of what you're rolling out recently. Have there been any changes just to the product engine development cycle, things like that? And then, you know, when you think about the opportunity to roll out more subscription products, ARPU driving products, and things like that, what does that opportunity look like just in general? Thank you so much.

Thank you, Andrew. I think one of the things that we're really benefiting from is the scale that we're at now. We have significant scale. You think about the size of the business from where it was just a few years ago and where it's at today, and getting the teams in place, we've been continuing to add to the team, the leadership, really drive clarity and focus and execution. We had obviously John move into the present role to help drive some of that focus and clarity. And that clarity across the company is really driving, I think, you know, the, you know, if you will, the innovation inside of each of us, and that's the focus. That's one of the goals I have across the company is to make sure that everyone is enabled and free to actually innovate and we're seeing that. And I think the exciting thing for us is the number of ideas about how we can expand our experience for customers, making their lives easier, making their lives faster, making their lives more efficient. Like, there's just the list is just phenomenal. And so I think the teams are excited. We're excited about how AI is helping us do that. There's lots of opportunities for us to continue to leverage AI internally as well as in the experiences for our customers. And so that excitement, I think, is driving some of the energy you're seeing and some of the clarity in our ability to kind of tie the priorities back to initiatives that really drive customer adoption.

Thank you very much, Rene. Thank you, Andrew.

Thank you for your question. Next question comes from the line of Kenneth Suchoski with Autonomous. Your line is now open.

Hey, Rene and John. Thanks for taking the question. Maybe just to clarify on the take rate, the 0.3 basis point impact from FX losses. I guess, is the right way to think about it that, you know, on the take rate, it was down, I guess, sort of half a basis point quarter over quarter. If you add back, yeah, the 0.3 basis points, you're actually down 0.2 basis points quarter over quarter on a normalized basis. And then I guess the, you know, is the right jumping off point for fiscal 3Q, you know, it's not actually what you showed in fiscal 2Q, but it's actually a little bit higher just because we have to add back sort of that FX loss that you saw in the quarter.

Yeah. Thanks for the clarifying question, Ken. I think that math is right. The 0.3 is referring to the overall change in IP monetization of which the FX is a large component of that. And so while that's not strictly a one-time item, we do expect with the speed of payments and other improvements we're making to the product to be able to minimize FX volatility and gains and losses going forward. So the baseline for growth from here is certainly, you know, above the Q2 overall monetization that as you suggested.

Okay. Great. Thank you so much, guys. Thank you.

Thank you for your question. Our next question comes from the line of Andrew Estes with Wolfe Research. Your line is now open.

Hey, guys. Can you hear me?

Yes. We can.

Okay. Hey. It's Darrin Peller from Wolfe. I just wanted to follow-up a little bit more on TPV per customer and the volume trends you guys are seeing. You've made I know you guys have made some progress on really having the whole business aligned to enable your customers to see more ability to use your platform for spend. And you've also worked with the suppliers, and you're seeing you've been seeing progress on generally TPV per customer. That effect. More transactions, larger transactions, help us understand what you saw in the past quarter around that relative to the prior quarters maybe add on to it what you're seeing from a macro standpoint on TPV per customer, and then maybe the building blocks of what you can see in the next year or so these initiatives on the magnitude of how much spend per customer we can expect.

Thank you, Darrin, for the question. I think in general, you know, with the macro, we're still seeing, I think, you know, optimism from SMBs, but not really translating to action yet. It's kind of, you know, flattish in general. And John can talk more to that if there's a need, but what we are seeing and what we can't control is obviously increasing the share of wallet across the platform. And so one of the things that we have been doing is, you know, obviously expanding card usage and opportunities across Bill.com Holdings, Inc. to be able to leverage that, whether that's pay by card, you just talked about, whether that's, you know, the opportunity to actually do what we're talking about with Bill's spend and expense inside of the AP products. So you can actually now make your AP payments using a card. And why we're excited about that is having suppliers engaged by their customer that actually drives, you know, more opportunity for us to drive adoption on those products. So I think the, you know, the overall gist is, you know, overall TPV trends are consistent. There is seasonality from quarter to quarter. And then there is this, you know, growing share of wallet that we continue to drive.

Yeah. I would just add, Darrin, that TPV per customer is pretty much in line with our expectations for the quarter. We do see typically in the third quarter this March quarter, seasonally, you know, lower spend on a quarter to quarter basis will be consistent with Q2 in terms of year-over-year impact. There's no real pockets of significant change within spend categories. We still see strength in real estate and related industries, information technology, things like that. And we've seen, you know, a little bit of compression in construction-related categories. But, you know, as Rene mentioned, our emphasis on larger businesses, the, you know, the medium to mid-market size segment of the market, I think over time will enable us to expand overall spend per customer.

Thanks, guys. Thank you.

Thank you for your question. Our next question comes from the line of Samad Samana with Jefferies. Your line is now open.

Hi. Good evening. Hey, Rene and John. Thank you guys both for I hope you guys are doing well. Thanks for taking the questions. Maybe first, just zooming out. I get the specifics around take rate, but maybe to an earlier point by a different you guys have innovated a lot. You've rolled out a lot of different payment types as well. I'm curious if it's becoming more difficult, John, to forecast what the monetization will be from quarter to quarter, and maybe related to that, have you made a change in how you're forecasting kind of that quarter to quarter trend that you're giving us? To make the baseline off of. Just curious if maybe you're taking a more conservative swipe at it given that it it's evolved a little over the last couple of quarters.

Thanks for the question, Samad. I wouldn't say it's more difficult to forecast. We do have history where we are in a transition with some of our more established products to making significant enhancements. So we're early in, if you will, an upgrade cycle with both existing AP customers and suppliers that is somewhat new to us. I think we have really good clarity on the ultimate impact of those investments. So there's no changes in really philosophy. We try to present, you know, a balanced view of what we think the range of outcomes are based on primarily the things that we control, the levers that we have available to us. We're not expecting any significant change in the external environment that SMBs are operating in, but, you know, there is obviously some uncertainty there that we hear about from SMBs. So it feels, you know, to us like we're continuing the philosophy that we've had in trying to call the, you know, the near-term outlook the rest of 2025, how we see it.

On the It continued to just as a second, Samad. One thing I would just add is, you know, we have delivered what we said on core. We had a, you know, a strong beat on the bottom line and on overall total revenue. And we're continuing to innovate and invest the way we said we would. So, you know, we feel and our goal is always to present what we think is going to happen with the business and to, you know, guide everybody into, you know, obviously understanding how we're going to make the business grow.

Understood. And then maybe just a follow-up on the spend and expense side. John, I think I heard you say in the prepared remarks that it was negatively impacted by a mix on that was, I guess, lower gross interchange. Can you just maybe help us understand that dynamic? Was that an impact to the revenue quarter over quarter or TPV or both? Just because it seemed a little bit more seasonally muted for December than I think we've seen in the past several years. Submitting that business is obviously much bigger.

Yeah. Thanks. Thanks for the follow-up question, Samad. Obviously, we had really strong growth with the SNE product, 21% transaction revenue growth on 23% card volume growth. The reference in the prepared remarks to a mix shift amongst merchant categories is really pointing to a declining growth rate that we saw in the advertised category. And so this was driven by the largest player in the online ad space, making some proactive shifts to their payment acceptance policies, which has the effect of moving volume from card payments to ACH payments. As it relates to our SNE business, that impacts both gross interchange because the advertising category tends to be a higher interchange rate than our average overall for the spend and expense business. And then also had the effect being a slight headwind to card spend. So when we step back and look at the impact of that shift in the quarter, it was about four points of revenue impact for SNE in the quarter. It's something that we factored into our estimates, you know, going forward. And so it did definitely impact both monetization and card spend.

Great. Appreciate you taking my questions. Thank you.

Thanks, Samad.

Thank you for your question. Our next question comes from the line of Brian Keane with Deutsche Bank. Your line is now open.

Hi, guys. Yeah. Hi, guys. Thanks for taking my questions. I guess, John, on core revenue growth, it came in kind of in the midpoint at, I think, 16%. But you're guiding for third quarter to be, I think, 13% to 15%, which is slightly down even though I think you said monetization will be up. So just trying to make sure I understand why that would be. And then the full-year guidance on core revenue, it was raised last quarter for the full year. This quarter, it was actually cut, I think, about $4 million at the high end. And just trying to make sure I understand why kind of the small reduction in core revenue growth full year.

Yeah. So thanks for the question, Brian. Obviously, we're providing our estimates for Q3 and Q4 for the first time implied. Estimates for the second half of the year, we're essentially reaffirming the midpoint of our core revenue guidance. Passing through obviously, the favorable performance we've had from Q2 and the first half of the year. And then we've layered in the benefit of higher interest rates for longer and the impact that has on both float revenue and profitability. In terms of core revenue growth, there's just a mix shift between Q3 and Q4. So we, for the first time, put out Q3 numbers. So we essentially increased to Q4 and brought down Q3. So slightly, but the net effect of which is reaffirming our core revenue estimates. The range gets tighter in total as we move through the year. That's the only reason for the change on the upper end.

Got it. That's helpful. And then just maybe a follow-up. Just curious on client's appetite for enhanced ACH, the timing for that rollout, what are you hearing, and when do you think it might have a more material impact to financials?

Thank you, Brian, for the question. We are excited about the ability to enhance the relationship with suppliers just as a fact point which we kind of referenced in the prepared remarks is our large suppliers have 5,000 payments a quarter through Bill.com Holdings, Inc. that are check or ACH. And so that's a lot of hassle for them. When you ask about their excitement, their interest, it is strong. They definitely need tools and capabilities to make that part of their headache in managing their business go away. And we're excited that we're now in beta. And as we get a chance to learn from these customers and understand exactly, you know, what it is they need and how they need it. We'll be able to continue, obviously, evolving the product and roll that out. We expect that will be rolled out in this calendar year. And it'll, you know, we believe will have an impact on the business.

Thank you.

Thank you for your questions. Our next question comes from the line of William Nance with Goldman Sachs. Your line is now open. William, can you hear us? William, your line is now open. We can move on to the next in the queue.

Okay. Sounds great. Thank you. Our next question comes from the line of Alexander McGrath with KeyCorp.

Hey, Rene, John. Thanks for taking the question. Can you all hear me?

Yep.

Yeah. Great. Thanks for taking the question. Just maybe a product question. A couple of your peers have launched treasury and banking products. I'm just curious if as you think about sort of broadening your reach in the back office of the SMBs, is that an area that you expect to eventually participate in and just sort of maybe refresh us on how far-reaching you think the Bill.com Holdings, Inc. platform should or could be in the SMB back office?

Yeah. I appreciate that question, Alex. We have a, obviously, you know, very broad payment platform. I think we have over twelve different payment products. And, you know, we obviously transact, you know, over $300 billion a year, 1% of GDP. And one of those products is actually what we call Bill Balance. It is, you know, it's an early stage of, I would say, of what a treasury product, you know, would become. It allows, you know, customers to be able to, you know, have a balance account at Bill.com Holdings, Inc. and be able to make, you know, essentially instant payments to any of their suppliers. So I think, you know, your broad question is, like, you know, would we play in that space. We already are playing in that space with more capabilities that we can build to help customers leverage that. And when you think about the overall platform that we have, you know, the original name just a little, you know, history lesson on Bill.com Holdings, Inc. was CashView, and so one of the missions customers insights how to manage your cash flow. They can manage their treasury function and basically demark the, you know, all the things that we do. And so I think that, you know, we're going our way, and I think we're leading into defining that space to be able to do that. And at the core, actually executing transactions, and that's why we focus so much on all the different payment products and all the things we do.

Great. Thank you.

Thank you.

Thank you for your question. Our next question comes from the line of Scott Berg with Needham and Company. Your line is now open.

Hi, Rene and John. Thanks for taking my questions here. I guess the probably two pretty easy ones. I think this last person, last analyst that asked about or maybe it was two ago that asked about guidance on core. And you all mentioned there's a shift between Q3 and Q4. But, Rene, how do we think about your prior stated objective to reaccelerate core revenue growth to that 20% level exiting this year? You have a, you know, with what you saw in Q2, does that change your enthusiasm of how you think the year kind of progresses? Or are you still pretty steady about that target?

I'm definitely excited about the top target. We have a lot of confidence in the initiatives that we're driving and the impact we're seeing. You know, that are, you know, early green shoots, if you will. And, you know, our focus is and something I've learned over, you know, 25 years of building companies is that it takes one, it takes a very strong mission and strong focus across the team to execute and then deliver capabilities and then to iterate on all of that. And, you know, you see us doing that iteration using our scale to our advantage using, you know, obviously, the distribution ecosystem we have to our advantage, using the customer learning that we have to our advantage, and really helping drive the initiatives and what's going to make a difference in growth going forward. So when we step back, this is, you know, kind of, you know, we reaffirmed what we thought we'd do for the year. And we've actually been able to pass through and, you know, obviously exceed on overall revenue as well as the bottom line. So we feel exceptionally good about where we're at. And the opportunity to drive innovation at the same time, which I, you know, is something that is, you know, very dear and near to my heart, which is to make different strategies every day. And they need innovation. They need it now. They need it, you know, every day. We're having the opportunity to do something with the platform for them that others don't have.

Understood. Helpful. And then, John, when you thought about the guidance for the rest of the year, you all have been a little cautious on the macro for, you know, several quarters now. Was there any incremental level of caution in the new guidance that the tagline you used seemed like it was maybe a little bit different than the last couple of quarters, but I didn't know if that was, you know, explicit or a reason or there's really just kind of no change on your cautious view.

Thanks for the question, Scott. I'd say there's no real change in philosophy or the view. I'd say there's more moving parts to the macro environment, obviously, right now. That need to play out for us to better understand the implications for SMBs, the environment that they're operating in, and how that translates eventually to B2B spend. And so we're watching that, you know, much more closely now given the number of moving parts. I'd say we didn't explicitly factor in any of those considerations into guidance. But it's something that is top of mind for us.

Very helpful. Thank you.

Thank you, Scott.

Thank you for your question. Next question comes from the line of Brad Sills with Bank of America. Your line is now open.

Oh, great. Thank you so much. I wanted to ask a question, another one on the take rate. You know, if you kind of x out the currency impact this quarter, and you just look at the monetization, you know, being a little bit lighter than you had expected on core ad valorem, which of the growth initiatives would you point to that give you that confidence that, you know, second half, you'll see some improvement here? Love to get some color on that. Thank you.

Yeah. I'll start and then let John add. Thank you, Brad, for the question. It's hard for me to pick one because we see success, you know, green shoots if you will, in many of the initiatives. The ability for us to continue to, you know, work with suppliers, understand what they need, help them understand the value of any of our products, whether it's virtual card, whether it's advanced ACH or and the other things, we think that's important and that's going to continue to make a difference. We think the ability to drive, you know, the newer ad valorem products, whether that's pay by card or the, you know, what we're calling spend and expense inside of Bill AP, or, obviously, the invoice financing. Those are all opportunities for us, and we see we have initiatives around each of those, and we see things happening and good things on that front. And, you know, I think we're going to continue to see, you know, overall growth and adoption of customers across the platform. Right? You know, we talked about the focus with accounts, but we also had, you know, strong progress especially on the spend and expense side with respect to our larger customers, mid-market customers, customers. You know, one of the things that, you know, we have said and we've feel good about our progress on that being able to support those larger businesses out there. And so when you look at year over year, the deal size of what the team is going 30% higher than it was a year ago. So you combine all of those things, and that's what really leads to the deep obviously the overall confidence, but I also gave you some details on kind of the monetization side. So okay. With that, I think we're going to need to wrap it up with everybody. And so first of all, thank you for joining the call. I really appreciate the time everybody puts into understanding Bill.com Holdings, Inc. I also want to thank the team for their dedication, innovation. We are executing well against our strategic initiatives, and we are looking forward to bringing more value to SMBs and their suppliers across the coming quarters. Believe these investments we are making today will lead to strong market adoption and long-term durable growth. Thank you, everyone. Take care.