BILL - NYSE

Good afternoon. My name is Lydia, and I will be your conference operator today. At this time, I'd like to welcome everyone to BILL'S Fiscal Second Quarter 2026 Conference Call. [Operator Instructions] Thank you. I'll now turn the call over to Jack Andrews Vice President, Investor Relations. You may begin

Thanks, Rene. Q2 results exceeded our expectations with strong execution, operational leverage and improving volume trends across our platform, all having a positive impact on performance. As a reminder, we outlined 3 strategic priorities for this fiscal year on our Q4 earnings call last August. They are drive growth from our integrated platform, expand and penetrate our addressable market and innovate with AI to create incremental value for customers and productivity for employees. We are making good progress against these strategic priorities. In Q2, we delivered accelerated growth from our integrated platform, most notably in the transaction revenue stream. We are providing highly differentiated payment offerings that customers and their suppliers are adopting. Here's one great example. Customers are leveraging our BILL Divvy card as an alternative to ACH and checks to make traditional AP payments and the adoption is growing rapidly. In Q2, volume for these AP card payments grew more than 160% year-over-year. The reason behind such strong growth is simple. AP customers are realizing more value from this integrated solution, including improved efficiency, enhanced reporting and better economics. This offering is also adding to our overall card portfolio growth. In addition, we continue driving awareness and adoption of Supplier Payments Plus, or SPP, from the largest suppliers in our network. Since its introduction 2 quarters ago, early adopting Suppliers have committed to approximately $400 million in annual TPV. Several of these suppliers are multibillion-dollar revenue enterprises, such as a Fortune 500 company that provides workplace and safety products and services as well as one of the largest waste management companies in North America. These enterprises adopted our SPP solution for 1 key reason. We enable automation at scale. Our large AP footprint gives suppliers a single connection into their SMB customer base, and SPP provides a secure, trusted and efficient payment receiving experience. We expect SPP volume to be an excellent complement to virtual card payments and also address a significant portion of our ACH volume over the intermediate term. Turning to our second priority, expanding and penetrating our addressable market. On the AP side, we scaled our multi-entity capability, so larger businesses can efficiently onboard and manage hundreds of subsidiaries within a single bill environment. We also saw encouraging signals of improving core ARPU among the most recent cohorts within our direct channel, which reflects our increased focus on larger businesses. As we continue to innovate and create more value from our integrated platform for customers, we are also implementing measures to better align pricing with the value our AP customers realize. As a recent example, we have implemented targeted subscription price increases for new and existing direct channel customers. On the spend and expense side, we're balancing market penetration with focus on customer unit economics. Our go-to-market execution drove consistent customer acquisition velocity and yielded a record high card spend per business of $148,000 in the second quarter. We believe the differentiated experience of our spend and expense software solution positions us well to win in our targeted segment. For example, we consistently hear positive customer feedback on the depth and flexibility of our 2-way sync capability, our strong controls to manage cards and types of transactions and the ability to track and categorize expenses. Moving on to our partner channels. We believe our established accounting firm channel and emerging Embed 2.0 channel are highly complementary to our direct go-to-market strategy. Today, we partner with more than 9,500 accounting firms, which collectively drive a material number of our quarterly APAR net adds. As we provide an expanded set of solutions to accountants, we believe together we can further unlock market adoption. On our Embed 2.0 channel, we're pleased the solution is live and available to customers for all 3 of our newly signed partners. Over time, we expect this channel to meaningfully expand our distribution footprint and enhance our overall Embed monetization through ad valorem payment option. To illustrate, one of these partners has recently activated both virtual card and instant transfer payment methods. Over the next several quarters, we are focusing on enabling and scaling these partnerships. Turning to our third priority, innovate with AI. In addition to customer-facing agents, we are investing and deploying a agentic capabilities to improve internal efficiency. We recently introduced a [ pay for you ] agent, which autonomously executes card payments based on each supplier's preferences. This is streamlining what was previously a multistep human workflow into a single agent-driven process. In transactions where the agent has been deployed, we are already seeing significantly lower per transaction costs. We believe this agent will also enable payments beyond cards, leading to a higher adoption of our ad valorem portfolio over time. In summary, we delivered a very strong quarter. We're concentrating our investments on the priorities that will meaningfully improve outcomes for our customers and drive durable value for BILL with clear strategic focus and strong execution, we're well positioned to deliver the next phase of profitable growth and expand the opportunity ahead. I'll now hand the call over to Rohini to provide details on our financial performance.

Thanks, John. We are pleased with our business momentum in Q2. These results mark another step forward in growing Bill into a larger, more profitable enterprise. In Q2, we delivered $375 million in core revenue, growing 17% year-over-year, exceeding the top end of our guidance range. This represents an acceleration of 370 basis points sequentially, driven by broad-based strength across the business. Non-GAAP operating margin was 18%, expanding both sequentially and year-over-year. The efficiency initiatives we identified this year are yielding results. Let me share some key highlights of our Q2 performance. Within our integrated platform, growth in both Bill AP/AR and Spend & Expense accelerated in Q2. AP/AR core revenue grew 11% year-over-year. In Q2, we added approximately 4,000 net new customers. We expect this number to trend down slightly in the short term as we enhance our focus on larger customers and take steps to better align pricing with the value we deliver. Early indicators of these actions are positive as subscription ARPU grew 1% sequentially. AP/AR transaction revenue was $128 million, up 14% year-over-year. TPV per customer increased modestly, which was ahead of our expectations. TPV on the same-store sales basis grew 4% year-over-year, above the Q1 level. We saw continued spend strength in manufacturing and an uptick in construction, reversing the trend in recent quarters. Transaction monetization increased 0.4 basis points year-over-year. Spending expense revenue totaled $166 million in Q2, representing 24% year-over-year growth. The revenue upside was primarily driven by accelerated card volume growth and better-than-expected ind take rate. Card payment volume increased 25% year-over-year, driven by meaningful spend uptick in advertising, retail and health care services industry. Take rate was 255 basis points, driven by volume and higher interchange verticals such as advertising and health care services. Rewards rate as a percentage of payment volume was 133 basis points, up 9 basis points compared to Q2 '25. As the initiatives to optimize rewards started to kick in, we saw the rate of increase moderating this quarter. We have updated our go-to-market incentive plan to better align rewards programs with our unit economics. Additionally, we are evaluating the contribution margin across the portfolio at the spending business level, making deliberate trade-offs as appropriate. Moving on to profitability. Non-GAAP operating margin, excluding the benefit of float expanded 70 basis points sequentially and 290 basis points year-over-year. Discontinued margin expansion reflects our ongoing focus on driving operating efficiencies. Turning to the balance sheet. We remain well capitalized to fund strategic investments, while returning value to shareholders. During the quarter, we repurchased $133 million of stock as we pursue a disciplined approach to share repurchases. Now turning to guidance. As always, we would like to provide a few assumptions upfront that underpin our guidance. First, on the AP/AR side, we are now assuming modest growth in payment volume per customer in fiscal '26. We are reiterating our previous expectation for take rate to increase from the Q2 level in second half of fiscal '26. For the year, we are reiterating a 0.4 basis points expansion. Second, on Spend & Expense, we now expect card payment volume to grow in the low 20% range year-over-year. We continue to expect the take rates to be slightly above 250 basis points for the year. For fiscal Q3 '26, we expect total revenue to be in the range of $397.5 million to $407.5 million and core revenue to be in the range of $364.5 million to $374.5 million, reflecting 14% to 17% year-over-year growth. On the bottom line for Q3, we expect to report non-GAAP operating income in the range of $62.5 million to $67.5 million. We expect non-GAAP net income in the range of $60.5 million to $64.5 million and non-GAAP EPS to be between $0.53 and $0.57. Shifting to full year guidance. For fiscal '26, we now expect core revenue to be in the range of $1.490 billion to $1.510 billion, reflecting 15% to 16% growth year-over-year. This is approximately 170 basis points higher than our previous guide. We expect float revenue of $141.5 million, an increase of $7.5 million compared to prior guidance driven by higher expected yields on funds held for customers. We now expect total revenue to be in the range of $1.631 billion to $1.651 billion. Turning to the bottom line, we expect non-GAAP operating income in the range of $274.0 million to $286.5 million. This represents a non-GAAP operating margin of approximately 17%. Our updated operating income guidance implies a year-over-year margin expansion of more than 320 basis points, excluding the benefit of float. Relative to our initial fiscal '26 guidance, this updated outlook reflects more than 130 basis points of additional margin improvement. We expect non-GAAP net income in the range of $267.5 million to $277.5 million and non-GAAP EPS to be between $2.33 and $2.41. For fiscal '26, we now expect stock-based compensation expenses to be approximately $255 million, below our previous guidance as we diligently manage the use of equity to attract and retain talent. In closing, we accelerated core revenue growth and strengthened our margin profile, proving that our disciplined investment approach and improved execution are delivering tangible results. We are extending our differentiation across mission-critical financial operation solutions. This will enable us to both price to value and deepen customer relationships. The breadth of our platform and scale of our payments network reinforce our position as a trusted long-term partner to we are highly confident in our strategy to extend BILL'S category leadership and deliver a tearable attractive financial profile. And now we'll open up the call for Q&A.

[Operator Instructions] Our first question comes from Chris Quintero with Morgan Stanley.

Our next question comes from Tien-Tsin Huang with JPMorgan.

Yes, absolutely. Just to add, color, and I want to start by saying that if you have a strong platform, a robust business and the right product for the customers, when there is increase in spend, we will get the benefit of that. So to unpack that a little bit more as we have said the same-store sales on the AP/AR platform grew 4%, which actually was an acceleration from the last quarter of a point, grew from 3% to.4%. What was really encouraging is some of the foundational industries like manufacturing continue to do well as well as construction actually had a nice rebound on the AP/AR side, which we are very happy to see. And on the SME side, in particular, we had resurgence of spend going into the advertising and retail, which is like the discretionary verticals we have called out for a couple of quarters to be a little bit muted. So very encouraged to see some of those trends. So overall, we were seeing some green shoots as a combination of the execution of the GTM, the product strategy as well as the spend environment coming through.

Good. No, that's encouraging. So maybe as my follow-up, I'll ask on spending expense as you mentioned it there. I'm just thinking growing 2x the market. There's been some consolidation in the space. 20% growth, I think you're calling out for the rest of the year. So I'm curious how sustainable, how visible that is, what's preventing you from maybe growing a little bit faster given the shift to larger clients and the big installed base you have there? Is there a change in the credit appetite, all of that?

Yes. Sure. So the way I think about it is, we talked about the reversal of trends in some of the categories that you saw in this quarter play out, especially advertising and retail. So 3 months, not relying a lot on that trend and would love to see these encouraging signs play out for a little bit longer before we break in again as we think about the guidance. It's a range as we think about all the puts and takes. We'll continue to point you to the midpoint as our highest fidelity number, but that's why we give you the range of outcomes that could play out.

Our next question is from Nate Svensson with Deutsche Bank.

Yes, nothing much. But just to reiterate the point that if the pricing followed the value that you deliver to the customers, there is always potential for growth here, right? So again, to step away for a second, about 80% plus of our revenue comes from transaction-based businesses and a little less than 20% is subscription-based. . So the pricing that we're talking about here, I'm guessing is more around the subscription based and AI and the features that we are developing to remove friction for SMBs is really giving us that advantage to be able to price in a differentiated fashion for a premium product that we have. So we will be thoughtful about that. And some of the price changes that we have done, we have seen the progress on that and overall encouraging results from that. We don't -- we actually see less churn than we were expecting. We see the stickiness of the platform play out. And overall, very close to the benefit we were expecting [ in year ] within our guidance as well. I hope that answers your question.

Yes, that makes perfect sense. And the invoice financing product is a great complement to other payment products we have that enable suppliers to get paid quickly. So we're -- access to cash is an important driver. Typically, that follows the size of the business. So we see across our large network, the smaller suppliers who might have just a handful of customers that they're working with on either service based projects or things like that and needing access to invoice-based financing in order to meet cash flow needs. So we're seeing really good uptick there. It's a product that has, I think, significant upside for the business overall but it's 1 that we're managing in a measured way in order to continue to refine and perfect our underwriting and risk models and make sure that we're delivering not just a great customer experience, but also the right economics for BILL as we scale. .

Our next question comes from Darrin Peller with Wolfe Research.

Sure. We -- over the first half of this fiscal year, we spent time looking at the business bottoms up, with the goal of optimizing costs over time. We've developed a series of focus areas with some outside consulting help, including geographical diversification, so geo location strategy for our employee base, AI-driven productivity, which includes developer productivity, internal teams via automation, even go-to-market customer economic optimization as well Rohini mentioned this earlier around rewards and optimization there. So we feel like we have a good road map of opportunities. This is going to be a multiyear effort. And we think the initial benefits will start to be realized in fiscal '27. So as -- given the time line there, there's no additional impact that we're expecting in fiscal '26, but we are planting the seeds for continued optimization..

Sure. So we've definitely learned over time that the depth of our platform and our sophisticated workflows really resonate with more established small businesses and these lower mid-market customers. And as a part of the overall market, 6 million employers in the U.S. 2 million to 3 million of those fall into this target category for us. So it's a huge market opportunity. We've been rolling out new product capabilities in support of this segment, enhanced multi-entity features, expanded 2-way sync integrations, procurement, some of the things that you've heard over the last few quarters on our innovation agenda. And we've evolved our go-to-market strategies to reach these larger businesses. So we've got dedicated sales teams with channel partners, including pricing strategies. And we're starting to see good signals there. We talked about with in AR and improving core ARPU in recent cohorts. That reflects the increased size of businesses and slightly more multiproduct adoption. And then with SME 2 quarters in a row of record high card spend per business. We saw that in Q2 as well. So to your question about the metric side of things, over time, we would expect this to translate into higher ARPU, increased multiproduct adoption, increased customer and revenue retention. It will take a little time for that to materialize in the numbers just given the size of our customer base. And then as far as the rest of the market, we -- our Embed 2.0 strategy is a great complement to what we're doing with our direct efforts where we can reach those smaller businesses and large businesses to partner. So we think we're really, really well positioned, Guarantee your question about winning this slightly larger segment.

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

I want to start, I guess, asking about the pricing impact for the core AP/AR solution. Obviously, you probably needed to allow it for some of the additional value that you've added. But early trends. I know Rohin said that we should expect slightly lower customer count going forward, partially due to that impact in your move upmarket to larger customers. But just want to get a sense on maybe what you're seeing around, I don't know, win rates or customer feedback around that pricing, if there's anything to know with the change?

Yes. Thanks for the question, Scott. First, I'd say there's 2 moving parts as it relates to expanding ARPU. One is size of customers, their payment volume, number of users and we're seeing some positive signals there. And then the other is specific pricing strategies that we implement. And we're continuing to execute on the plans that we talked about earlier this fiscal year that involve some transaction and subscription pricing, targeted changes. This is relatively small in the grand scheme of the scale of our business in fiscal '26, but we're starting to more and more create alignment between the value we deliver and the value that BILL is achieving. And it also helps us attract and retain customers that are the best fit for our product. So the overall sort of pricing optimization strategy is a journey and we're developing that approach, incorporating AI and the impact that will have as well as the customer segments that we're most focused on. We would expect the more holistic pricing optimization to roll out in fiscal '27. But as I said, we have made some changes in fiscal .

Yes. And those have been actually good learning opportunities for us since we haven't done pricing for almost 3 years in terms of the customer reaction stickiness and all of that, and we are very optimistic seeing the early results. And -- just to bring it back into context for the year, we had laid out some plans at the beginning of the year incorporated into our guidance. and we are doing well, executing on that plan. So the range is still incorporating all the actions that we had committed to. .

Understood. Helpful. And then as a follow-up perspective, you all ton-wise sound much better on the spending on the platform, especially with Spend & Expense in the quarter. Now we've seen some volatility around that the last couple of 3 years as sentiment around the macro certainly kind of bounce up and down. . I guess your confidence or at least your tone seems to indicate this is a little bit more sustainable. Any help to maybe see here what you're seeing in Q3 so far that kind of accentuates that confidence, I guess, I think we're trying to all understand if this is something that really can continue into the balance of the calendar year. .

Sure, I could take that one. So strong -- very strong quarter in Q2. When you look at the Q2 results, there are some trends that we feel really confident about that are enduring, that are continuous. So you see that even though we beat our guidance by about $11 million. We are flowing through a material portion of all of that trend into the back half as we cautiously optimistic, continue to look at certain verticals in coming back from a spending perspective. So we feel good about the early trends that we are seeing in this quarter, and that has gone into how we think about the guidance as well. So the range we provided feels solid.

Our next question is from Andrew Schmidt with Key Corp.

If I could just dig into Embedded for a moment. That saw some nice growth, and that came online much faster than we had anticipated. So it's great to see that materialize pretty quickly. Maybe talk about the sustainability of that growth, it seems still very early. And then just looking out next couple of years, how the embedded distribution compares from a scale perspective versus sort of the other channels accounting direct, et cetera.

Got it. I appreciate those comments. That's helpful. As we think about -- a lot of comments on sort of the sustainability of growth, and I'll kind of throw 1 more in there. As we think about just the base of growth, the core -- the base of growth for sort of core revenues, is this the right way to think about it, sort of how FY '26 is trending Obviously, there's a lot of other opportunities when we think about getting into FY '27, distribution, pricing, et cetera. But just curious to understand whether this is just sort of a a nice base to kind of work off here if there's other considerations we should be taking into account.

That is correct. This is the right set of metrics that we provided initial early guidance on as inputs into our guide. So you should rely on that to build out your models and your assumptions for the year. .

Okay. I guess we'll get into more of the out-year sort of Sustainability Analyst Day, which we look forward to.

Our next question is from Kenneth Suchoski with Autonomous.

I wanted to ask about SPP. I mean you talked about early adopting suppliers having committed $400 million in annual TPV. It's really good traction for just a couple of quarters. I'm curious how we should think about the ramp in those commitments over the next year or 2. I mean is this initiative that you can get to, say, $5 billion, $10 billion of volume in a couple of years? And then anything you could share on the monetization rate of that volume, meaning how does it compare to other payment types like virtual cards? I'm just trying to quantify how much this initiative could impact the AP/AR take rate and the transaction revenue there?

Yes. Thanks for the question, Ken. SPP, Supplier Payments Plus, is a really important solution that we brought to market. It adds significant breadth to our payment portfolio and it's a really nice complement to virtual card payments for large suppliers and then also a much better experience than vanilla ACH payments given enhanced reconciliation tools, more data, more efficiency. So it actually brings down the cost of payment acceptance. For suppliers, and that's part of the important value proposition here that also sets up. This is, I think, a long-term growth ad val product for us. So we feel good about the initial traction we have. As you said, it's just 2 quarters into the commercial side of things and selling. But I think that experience to date has proven our thesis that we started with, which was that at least for the contracted volume that we've seen so far, SPP is a great solution for a large suppliers. So we're optimistic about where we can take this. It's an enterprise sales motion, which is a new motion for Bill. We've been building that over the last few quarters, a little bit longer sales cycle than the SMB base. So I'd say it's going to take a while to move the needle overall for our metrics, but we did want to share some of the good early signs of progress. And I think as it relates to the multiyear impact we'll leave that to Investor Day in terms of the actual numbers. But given the size of ACH volume in our business today and even that amongst the largest 10,000 suppliers in our network, we're talking -- it's a really big opportunity for us, but it will obviously take some time to play out.