BILL - NYSE

Good afternoon, everyone. Welcome to BILL's fiscal third quarter 2026 earnings conference call. We issued our earnings press release a short time ago and filed the related Form 8-K with the SEC. The press release can be found on our Investor Relations website at investor.bill.com. Joining me on the call today are René Lacerte, Chairman, CEO, and Founder, and Rohini Jain, CFO. We also have John Rettig, President and COO, joining us for the Q&A portion of the call. Before we begin, please remember that during the course of this call, we may make forward-looking statements about the future business, operations, targets, products, and expectations of BILL that involve many assumptions, risks, and uncertainties. Actual results could differ materially from those expressed or implied by our forward-looking statements.

Thanks, René. Our strong Q3 results extend the durable trajectory we've been building all year. Core revenue grew 16% year-over-year. Operating discipline and rigorous execution not only drove a strong non-GAAP operating margin of 20%, but also GAAP profitability this quarter. We are building a larger and more productive enterprise with a resilient operating model as our foundation. As René announced, our board of directors has authorized the purchase of up to $1 billion of common stock. This decision is supported by our conviction in our growth, our ability to generate sizable free cash flow, and the opportunity to return value to the shareholders. Before turning to detailed financial results, I'd like to provide a progress update on our other two strategic priorities. First, I would like to update you on growth from our integrated platform.

One of our main focus areas has been multi-product adoption across our customer base, and we are pleased with the progress we have made. Our integrated platform strategy is working, and we now have over 20,000 businesses leveraging both our AP and Spend & Expense solutions. The number of joint customers accelerated to 39% growth year-over-year. They exhibit both higher retention rates and faster revenue growth on our platform. In addition, we continue to introduce new enhancements for our BILL Supplier Payments Plus portfolio. We have streamlined the processing of B2B payments for suppliers, providing automated reconciliation capabilities directly and through their service providers. We are doing this across all their transactions from ACH to card. We have also extended BILL's digital payment capabilities for enterprise suppliers to receive payments from their SMB customers, both inside and outside the BILL network.

It is important to note that SPP has a longer enterprise sales cycle. We are continuing to mature our go-to-market motions to support this offering. Early indications remain positive as the number of suppliers under contract in Q3 doubled from Q2 and includes the largest supplier signed to date. Our other priority is to expand and penetrate our addressable market. In Q3, we broadened our ecosystem through product enhancements, our partner channel relationships, and deepening sync capabilities. These moves further enable us to move upmarket. On the product side, we launched new international capabilities for BILL Spend & Expense customers. BILL Divvy Cards can now be used globally wherever cards are accepted. In addition, we recently launched BILL Travel, a new Spend & Expense product to manage travel and spend in one single connected workflow.

By streamlining the process from booking to reconciliation, we estimate that businesses on our platform can reduce the time spent on their travel workflow by more than 85%, saving more than 100,000 hours each month in aggregate. Turning to our embed channel, we continue to work on enabling both product and go-to-market motions. One of our key assets that partners want to leverage is our deep payment expertise. We have built this capability into our embed offerings and are seeing progress in payment adoption. To illustrate, all three of our latest partners have activated a number of our ad valorem payment modalities, with one of them enabling four of these payment types. Now let's dive into the financial results for the quarter. In Q3, we delivered $371 million in core revenue, growing 16% year-over-year.

For non-GAAP operating margin, we surpassed the top end of our guidance range. Non-GAAP operating margin was 20%, expanding 176 basis points sequentially and 475 basis points year-over-year. Non-GAAP net income was $77 million, representing a 5% improvement sequentially and a 32% improvement year-over-year. This magnitude of margin expansion is a direct reflection of the efficiency initiatives we have been executing against. Moving to product performance. Within our integrated platform, growth in both AP/AR and Spend & Expense continued to be resilient, driving a healthy double-digit growth rate. AP/AR core revenue grew 12% year-over-year. In Q3, we added approximately 4,100 net new customers. This was above our expectations, driven by strength in wealth management category.

We continue to estimate that net new customer adds will tend below 4,000 in near term as we focus on landing larger customers. Early indications of this upmarket move are starting to positively impact our financials as subscription ARPU grew over 3% sequentially. AP/AR transaction revenue was $122 million, up 13% year-over-year. AP/AR take rate was 16.5, which expanded 0.5 basis points sequentially and 0.3 basis points or 2% year-over-year. Transaction revenue per transaction was $10.14, reflecting 8% growth year-over-year. We believe transaction revenue per transaction better demonstrates our progress on payment monetization as it removes the impact of large ACH ticket sizes. Turning to volume trends, similar to last quarter, TPV on a same-store sales basis grew 4% year-over-year.

By industry vertical, we saw increased spending in manufacturing, services, and utilities driven by an increase in energy prices. We saw decreased spending in wholesale and retail trade. In Spend & Expense, Q3 revenue totaled $167 million, up 21% year-over-year. This performance was fueled by sustained momentum in card volume and take rate that slightly exceeded our expectations. Card payment volume grew 23% year-over-year, led by strength in shipping, advertising, and travel sectors, which helped offset a deceleration in healthcare and retail spend. Our take rate for the quarter was 254 basis points, benefiting from favorable mix of high interchange verticals. On the expense side, our rewards rate was 130 basis points, a sequential improvement of 3 basis points.

This reflects our disciplined approach to managing rewards while maintaining a competitive value proposition for our customers. I will now detail our guidance for the fourth quarter and FY 2026. For fiscal Q4 2026, we expect total revenue to be in the range of $425 million-$435 million and core revenue to be in the range of $392 million-$402 million, reflecting 13%-16% year-over-year growth. Here are a few key assumptions that underpin our Q4 revenue guidance. First, on volume, we expect AP/AR TPV growth to be in line with what we saw in Q3. For Spend & Expense, we are assuming volume growth of approximately 20% year-over-year in Q4.

Second, turning to monetization, we expect AP/AR take rates to be in line with Q3 as we enhance our focus on the quality of growth. Moving to Spend & Expense, we expect the take rate to be slightly above 250 basis points. On the bottom line, for Q4, we expect to report non-GAAP operating income in the range of $81.5 million-$86.5 million. We expect non-GAAP net income in the range of $78 million-$82 million and non-GAAP EPS to be between $0.69-$0.72. We are raising the midpoint of our full-year revenue and operating income guidance to reflect the impact of overperformance we saw in Q3 flowing through.

For fiscal 2026, we now expect core revenue to be in the range of $1.496 billion-$1.506 billion, reflecting a 15%-16% growth year-over-year. We expect float revenue of $145.7 million, an increase of $4.2 million compared to the prior guidance driven by higher expected yields on funds held for customers. We now expect total revenue to be in the range of $1.642 billion-$1.652 billion. Turning to the bottom line, we now expect non-GAAP operating income in the range of $303.6 million-$308.6 million. This represents a non-GAAP operating margin of approximately 19%.

Our updated operating income guidance implies a year-over-year margin expansion of more than 460 basis points, excluding the benefit of float. Relative to our initial fiscal 2026 guidance, this updated outlook reflects more than 270 basis points of additional margin improvement. We expect non-GAAP net income in the range of $298.7 million-$302.7 million and non-GAAP EPS to be between $2.61 and $2.64. For fiscal 2026, we now expect stock-based compensation expenses to be below $250 million. Looking ahead, I want to provide additional context on the workforce optimization René referenced. As we transform BILL into an AI-native organization, we are aligning our cost base to that future.

We expect this initiative to generate approximately $110 million in gross annualized savings with approximately $20 million-$30 million reinvested in critical growth areas in FY 2027. These net savings will deliver further margin expansion and provide capacity to scale our highest return opportunities, reinforcing our ability to drive growth with operational discipline, as we've demonstrated throughout the year. Separately, we want to provide you with an update regarding our Investor Day. Given the material changes to our strategic priorities and organizational structure, it is imperative that we are 100% focused on delivering strong outcomes for our customers, employees, and shareholders. Consequently, we are pushing out the timing of our Investor Day. We look forward to providing additional color on our framework for Rule of 40 and GAAP margin expansion opportunity during our August earnings call.

In closing, we delivered a strong Q3 with accelerating margin expansion and GAAP profitability. The changes we are making position us to compound efficiency gains and deliver durable growth in the years ahead. Now we'll open up the call for Q&A.

We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one on your telephone keypad. To withdraw your question, press star one again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. Please standby while we compile the Q&A roster. Your first question comes from the line of Tien-tsin Huang of JPMorgan. Your line is open. Please go ahead.

Absolutely. All I would add to everything René said is, you know, when we make these big capital allocation decisions, we do them very thoughtfully. We analyze the available cash, the strength in our balance sheet, and not only the free cash flow we generate today, but the opportunity of what we would do in the next few years gets us really comfortable to be able to do this size of a buyback. You know, we've created a set of parameters in which we are ready to execute on it, Tien-tsin, as soon as we can. That's all I would add.

Your next question comes from the line of Bryan Keane of Citi. Your line is open. Please go ahead.

Thanks so much. Thanks for the thorough answer.

Your next question comes from the line of Chris Quintero of Morgan Stanley. Your line is open. Please go ahead.

Absolutely. As René had fairly emphatically mentioned, the number one priority for us is going to be the AI-native experience build, which we have to do most efficiently, effectively, and fast. That is going to be one of the key areas of our investment, getting the right talent, the tools, the infrastructure around it. Chris, that's where we will invest most in.

Yeah, I can take that question. Thank you for the question. We had earlier in the prior earnings said that, you know, we'd given some color on the NNAs, it'll be slightly below 4,000. We actually got some good results with the wealth management firms as the teams went after that set of the customers and got some uptick in Q3, which got us to the 4,100. Now, those are lumpy acquisition and not as consistent quarter-over-quarter. What we are saying now is we continue to believe we will be, you know, a little below 4,000 number, and that's the color we'd like to add for the NNAs. On the TPV per customer and TPV metrics, we're fairly stable where we are in Q3.