Bill.com Holdings Stock

All right. We are going to start with the next session. Pleased to have Rene Lacerte here, the Founder and CEO of BILL. Rene, you've been here for the last several years and looking forward to the conversation again today.

Yes. Likewise, Will, thank you.

So look, AI is reshaping the way that businesses expect work to get done, and BILL sits at the heart of financial operations for 0.5 million SMBs. You said the shift is from a do-it-yourself to a do it with you to a do-it-for-you mindset. And you've rolled out a number of agents within the products to get at that goal. So at a high level, how are you thinking about the role that AI will play in BILL's products going forward? And what does AI native actually mean for the customer experience 12 to 24 months down the line?

Yes. I mean it's -- I think we all know that AI is a game changer. It's a game changer in how you do work and in the experiences that we are able to create for our customers. And so as we move customers, which the premise of the company was to go from the do-it-yourself to the do it with you into this, what I would call do-it-for-me because I think AI is a very personal experience, that do-it-for-me means that we have to take work off the customer's plate that they never knew could be taken off their plate. And we've started doing this with some of the agents that we've already rolled out. And some of the best examples I can think of are our W-9 agent where we have 40,000 customers leveraging that over 240,000 W-9s have just been collected and those suppliers have been added and they'll be in a position to be 1099 next year as well as obviously get paid electronically.

So that happens without any human really being involved. And that's a unique differentiator in the work that we've taken off the plate. So when I think about what's happening over the next 12 to 18 months, it's more stuff like that. It's more stuff like the fact that we have 60,000 customers now using our invoice coding agent. And when you think about the invoice coding agent, we've had AI before understand and interpret kind of the 5 biggest variables in the invoice, but this coding agent can go through all the line items and actually categorize the bills for you. And so again, tremendous work efficiency is provided. We have over 30,000 touchless transaction agent customers. So this is on more of the SME side. So a huge population where transactions come in and they're entered automatically.

We have 30,000 pay-for-you agents, where this is on our operational side where we actually take customers' payments, and we make sure that they're paid via a virtual card supplier accepts that. We have an agent doing that, not a human doing that. And so I give you all those examples because there's just tremendous value in that customer experience, but it's not just about that. And so again, when you look out at the 12 to 18 months that you're asking, it's also about what we're able to do internally. And so we've had a very strong drive in profitability, but there are some of the things that are probably worth highlighting. We've got over 20 agents across our risk modeling and risk platform, if you will. Those agents are able to do roughly touch 95% of all the risk decisions, fully automating them. And those agents are able to protect and save us from close to $90 million in fraud on an annual basis.

That's real value to our business, and we have more opportunity to leverage those agents and more as we continue to develop more AI skills. Just on the customer service, a year ago, 10% of the customer touch points were automated. Now it's close to 50 -- it's over 50%. And so just to give you an example, like we're just getting started. And what I would imagine you will see is that more of the back office that we have to do will be automated and more of the experiences like the agents I talked about, will take work off our customer slate, work that they don't know that can be automated, it will just automate it. And that's what I'm excited about because that actually lowers and removes friction. And when we remove friction, we actually increase the opportunity to serve customers, drive more adoption as well as more revenue growth.

And so you mentioned revenue growth there. That's the vision for the product. How do you think about pricing and monetization for AI-enabled products? And do you see this as something that's table stakes or something that differentiates the product, drives more customer acquisition? Or conversely, do you see kind of specific monetization levers that can come with this?

Yes. So I think all of the above, I mean that's the easy answer. But in general, the way I think about pricing is you create value for the customer, you do something for them, they will pay you for it, right? And so we have to make sure that we are driving and creating value, things they weren't sure they needed before that they can't live without once they come on the platform. So that's the first and foremost thing we do. So when I think about the AI capabilities, some of the AI capabilities will just be in some ways, table stakes, but it will allow us to drive more customers.

Some of the AI capabilities will actually be, oh, you want that, that might be in a different tier of the product so that you need to pay more to be able to get access to that. We need to learn based on the customer adoption that we see and the monetization we see from the transactions, what is the right mix. We have teams that are working on that and really setting up the opportunity for us to drive revenue growth, not just from the traditional way of saying, okay, well, it's more products and more customers, but actually looking at the AI influence on how the pricing happens. So a lot of opportunity there. And I think if you look at the total value of work that's done by people in financial operations, if we're able to eliminate a good piece of that, well, then some of that value should accrue to BILL.

Can you talk about willingness to adopt in this category? We have Market on stage, I know you work with, and they said they think the agentic commerce conversation or the adoption trend could happen faster in B2B than in consumer because there's such a need and such an undigitized opportunity. What do you hear when you talk to customers about the willingness to engage and adopt some of these products?

I think one of the key levers that BILL has is we have a platform. We've got 0.5 million businesses that are using us. We have close to 10,000 accounts that are leveraging our platform to run their business. And what that means is adoption is not so much we have to go sell the adoption. There will be some selling that we have to go do. But a lot of it can be product-led growth. And when you have product-led opportunities, AI, which we all know can actually increase the speed from a UI perspective, will allow us to create the experiences that customers want and need and feel that so that the adoption happens.

And I can give you a couple of examples. Like I was -- last week, we had our accountant partners conference and we had close to 50 accounting firms in, and we talk to them about all the products and capabilities we have. And time after time, whether it was the multi-entity and the amount of work that we saved, like yes, they're adopting as fast as they can. The W-9 agent, they're adopting that as fast as they can. These things, they're not a question of adoption like, oh, yes, that's the way we do things now. So I think we do potentially, to your comment, have a unique position that customers are already on the platform, they will adopt.

Now I think the other thing that I'm excited about, really excited about actually is how do we change the adoption for new customers. And I think the onboarding capabilities that AI will actually obviously improve that removal of friction will allow us to be able to do a better job getting the right customer at the right price point at the right time.

Yes. Makes sense. All right. So let's talk about the financial algorithm of the company. Rohini laid out a framework of low double-digit to mid-teens core revenue growth with strong margins. Can you walk through the inputs to that range? And then what has to go right to land consistently at the upper end of that range versus the lower end?

Yes. I mean, obviously, revenue comes down to 2 things, the number of customers and the revenue per customer. On the number of customers, as we continue to develop AI capabilities as well as focus the customer go-to-market teams on the larger customers, like that will kind of drive opportunity there, we believe. On the ARPU expansion, like we could just talk about the multiproduct adoption that we've had. And just as a data point, in the last year, we had a 35% increase in customers that were adopting use of both products and the net revenue retention across those customers was 111%, which was a good chunk higher than what we see in the people that are not adopting both products.

And so when we look out to how do we get to that mid-teens number that Rohini talked about, it's like just knowing that we have very strong levers in both camps, and you look at our payment products, we have 12 different payment modalities. There's so much more opportunity for us to continue to sell into the customer, whether it's the supplier or the buyer, but there's an opportunity for us to drive more adoption of those products. We do not think we're saturated in any of those payment products at this point. And so I think part of this is us continuing to enhance the adoption and onboarding. Part of us is continue to do multiproduct and part of this is making the product-led growth throughout the supplier and buyer network we have kind of just happened.

Right. And so that's the revenue side. On the margin side, in the context of aiming to be a Rule of 40 company, your -- you exited the year at 23% non-GAAP operating margins after a really significant reset in costs, you're guiding to further expansion in '27, meaningful GAAP profitability. How are you thinking about what will drive operating leverage in the model from here?

Yes. I think one of the things I hope investors take away is that we have been consistently driving profitability. So I think over the last 3 years, we've essentially doubled our operating margin each year, if not better. And I think in '27, we've given guidance for another 590 basis points of increase. And so I think one of the things that's important about whether it's Rule of 40 or whatever is like the consistency of delivering results and driving efficiency across the scale of the business that we have. So that's the first thing I would say.

I think our opportunity to drive the GAAP profitability is something that we're excited about because obviously, it's taken us a long time to get there. But we know that there's meaningful profitability. I think we're targeting somewhere over $125 million. And you look at our [ SBC ] impact, we've been driving that down again, over the last few years, it will be somewhere around 10% for FY '27. And so when we look at the margin in the Rule of 40, it's like us getting comfortable that, yes, we can manage and control costs as well as drive the revenue. That's something that we think we've demonstrated the last 2 years have each had growth of 15%, 16%. So we feel very good about the opportunity for us to continue our march on the Rule of 40.

And then just while we're on the topic of margins, really significant restructuring in the business last year, restructured several leadership roles, caught out a little bit of disruption in the go-to-market in the fourth quarter, if you look back, what's the postmortem on that restructuring? And how has the organization and culture settled into kind of the new normal at the company?

I think one of the hardest things to do is a restructuring, right? Any layoff is a hard any firing is a hard thing to do. And I think one of the things when you ask me if I look back, we've been consistent in our ability to do the restructurings with care and with speed. So if you think about this a year ago, we would have close to 2,500 employees, and now we're around 1,500. So that's close to 40% in 1 year. And we did it in a way that was consistent with our culture, that was consistent with the opportunities in front of us, and that's actually creating energy for the team today.

So when I look to how the team has responded and is engaged and the excitement and the positive alignment that we have across the company, like that -- when I look back, I think we did an excellent job of that. Super hard. Part of it was super hard because we were working on for 6 months, we can tell anybody about it, right? That's just a hard thing to do that much work. But we did it quickly, and we've actually made that transition. There was a little bit of turbulence. I think one of the things I have talked about that when you -- if you haven't done this before, like this type of work is like changing the engine of the plane while you're flying at 40,000 feet. Like it's just not easy to do. And you have to be very thoughtful about, you have to be intentional and you have to do it with care if you want to have the culture be positive on the other side. And the culture is very strong and positive right now. So that's something I'm proud of.

I'm proud of the people that contributed to BILL, and I wish them well that aren't with us. But I think doing it the way we did is creating dividends for us in the execution. We created a flatter, leaner organization, which was the reason we went as big as we did is that we felt that AI required that, that you could not move fast without having fewer levels in the organization that you had to have teams that have more responsibility, had more authority, more autonomy to execute. And I mean, you're not done, but this was a specific decision to drive the energy and the management of the company around more ownership.

One of the things I talked about is a founder owner. I don't like the founder mindset as much as like a founder owner. I think most small businesses don't think of themselves as founders. They're the owner. My parents, my grandparents, that's the way they thought about their business. They weren't like I'm the founder, like I own the business. And so I want every employee to feel like they're an owner that they own the results, that they own the speed at which we execute, that they own the experience that we give our customers. That is a different mindset than what we probably had a year ago, but everything that we did in the restructuring was around that. So it was consistent and the energy is in a very strong place at this point.

The restructuring also came with some leadership changes. You brought in Jonathan Lief as Chief Revenue Officer with ownership, as you just talked about, of the entire go-to-market and revenue operation. Can you talk about why make that decision? What was the case for having one person fully accountable for revenue?

Yes. I think the platform is a big platform, and there's lots of different levers to pull and creating an alignment so that the person who's responsible for revenue has the ability to influence and own the number that they're signing up for was super important. So we had a hybrid model before, and we thought that wasn't working for us. It gave us some expertise, but it wasn't creating the ownership of that this is the number, let's go make it happen.

And so Jonathan came to BILL, and I was super excited about it because he has really deep SMB expertise. He's been doing this for over 25 years. So he has a lot of pattern recognition around sales and go-to-market processes that we need. And he has very clear thought and accountability motivations inside of his personality. So that's why we brought them. The expertise that I've already seen is allowing him to challenge the team in more meaningful ways. It's allowing them to make faster decisions, which is great. Like we're just beginning days, but I can see him leaning and making decisions at a pace that I'm super excited about when I extrapolate out a couple of quarters, and he's creating alignment across other members of the team. So while he owns the revenue number, he doesn't own the product. That's our Chief Product Officer. He doesn't own the engineering.

And yet if a customer says, hey, like I need this in order to be able to sign on, he has to go influence that. And he's able to do that early days, and the teams are working together in ways that I haven't seen that give me energy and excitement. And so his focus areas will be leveraging all of that, that I just talked about on acquisition funnel. We have a very strong funnel. We have a lot of customers that fall out of that funnel. Let's make sure that we get all those customers that we can, let's drive conversion improvements there. Some of that will be sales, some of that will be product. Let's make sure we get the right customers. Let's focus on the efforts being on the larger customers that drive more revenue and more profit for us.

He's going to also focus on NPA across the organization because we've had some success, which we've talked about. And that's a clear focus area of this and something he's done before. And the third thing is just driving an operating discipline that comes from 25-plus years of managing sales teams, whether that's how we develop the quotas, whether that's how we train and manage the teams, these are just all things that he's done over and over and over again. And the impact and the energy and one of the things that -- and I don't know if this is how others in the room manage, but one of the most telling things for me as a manager is when unsolicited, I get feedback on something, whether it's good or bad. And I can tell you the team unsolicited is just like, oh my God, Jonathan, is just amazing for us. So I'm super excited about it, a big opportunity in front to have that all be under one ownership.

Great. Let's talk about the go-to-market on the sales side. You talked on the most recent quarter about a unified go-to-market across SME and accounts payable. BILL attempted to do this in the immediate aftermath of the Divvy acquisition, and I think it proved harder than expected the first go around. So can you talk about what's different today versus when that occurred? Is it the product integration, the org structure? How do you derisk that transition and ensure a successful outcome?

Yes. I mean maybe the first thing I'll say is when we made the decision to acquire Divvy, it was because we saw spend and expense happening on our platform with Divvy and other competitors out there. And so we knew there was market demand. So that's why we did it. And we always believe that having a platform that is end-to-end is a requirement in order to be able to go get to the larger market. And we've done, I think, a very strong job of actually defining what an end-to-end SMB payments platform looks like. Like we -- obviously, the 12 payment modalities that we talked about, having AP, AR, S&E, all the workflow, these are things that we think are super important.

I think what we didn't necessarily fully understand was how to integrate that fully into something that already had hundreds of thousands of customers on it and do it in a way that was consistent. So what happened in the last year, the last piece, so to speak, not that there isn't more integration, but the last piece from a user experience perspective was we unified the UI, and it's a modern UI. And the teams, when they work on UI now, it's one platform across the experience, which is super helpful from a speed, if you will, of execution. And that has allowed our sales teams and the go-to-market teams when they talk to customers to say, it's in one place here. And that just happened actually this calendar year, we weren't able to do that. And we started seeing pickup in the ability for the AP team to be able to sell S&E. And that gave us confidence, that's the 35% year-over-year growth. That gave us confidence to start looking at the S&E team, can you sell AP and they can.

Early days, and that has given us confidence that we're ready for there to be one go-to-market experience. It is a hell of a lot easier to train a team of people that these are all the products you can sell. And when you do your discovery with the customer, figure out which are the right ones for them then to train different teams, different things. And I think it just took us getting to that one user experience that became self obvious, if you will, for the customer and for the sales teams and the go-to-market teams to be able to do that. So very excited about it. And it's -- like I said, we get very high never every attention when we get customers to do both.

So you talked about that. We talked for many years about the cross-sell opportunity in the base of customers to bring these 2 products together. You talked about joint customers growing 35% last year. You mentioned the net revenue retention. What is the process for upsell motion in the base? And has anything changed about your sizing of that opportunity?

So the process in the past was a very specific team that was responsible for trying to cross-sell both products. And what I just talked about is the success we've seen there, the success in the product, what we expect to come from an AI perspective in the product experience has us putting and leaning more into an experience where the sales and the go-to-market teams are selling the platform. And we've seen some early success of that. Like as we've enabled this, we've seen that. What we've also seen is the sales teams asking for more training, which is great, and we're giving it to them and a unified comp plan, which we're giving it to them over time, right?

So all that work is getting done, and we expect really by Q3 that, that will be more consistent across all of the sales teams and the go-to-market efforts. So the opportunity that we have, I think we all see and understand is predicated though on great execution. So like great opportunity, which we have. Now we got to go execute, and that's why talked about Jonathan. It's why I'm super happy about it. It's why I'm happy about Mike and Eric and the teams to be able to go build what we need to in those markets. And it's something that I think over the next few quarters, you'll see an impact.

All right. Let's talk about Embed 2.0. You signed NetSuite, Paychex, Acumatica, had all 3 live shortly after a huge pie of businesses underneath those 3. At year-end, how those partnerships performed versus your original expectations? And how would you frame a reasonable timeline for Embed to become a more meaningful contributor to the growth algorithm?

Yes. I think what I'm super happy is so there's kind of multiple stages to any partnership. One is you got to land the deal. Two is you got to get the product in motion. Three is you got to get go-to-market going. Four is you refine and then you washer and repeat, right? So at this point, we've obviously got product in market, and we've had go-to-market happening. One of the data points that I'm very happy about is over the last -- between the third and the fourth quarter, one of our partners, which is probably a little bit further ahead than some of the others, was able to triple the TPV on the platform in one quarter. And so that just gives you a sense. There's a lot of opportunity.

And by the way, it's -- any of those partners have massive spend, whether it's massive spend per customer because it's somebody like a NetSuite or an Acumatica or massive spend because of the number of customers, right, like Paychex. So it is none of this is ever instantaneous. And sometimes I think people expect instantaneous results. And what we expect is that we will continue to improve the experience, the go-to-market efforts, and we will be able to drive an impact. And that's what we're seeing, and we're happy about where we're at, and there's a lot more opportunity for us. So there's more partners we can get. There's more software partners we can get on Embed 2.0. We expect that we'll get more software partners. We have a lot more of our customers leveraging our APIs these days. So there's just a lot of opportunity for us to continue to create the experience that the SMB and the mid-market companies need directly, and that's going to be something that really drives the embedded experience.

So the other thing that came this quarter was the decision to consolidate some of the legacy embedded partnerships onto the new platform. And you were clearly you expect a little bit of churn on the back of that process. Historically, that's been more FI channel focused. And so I think I think we understand the decision to move to the more modern platform. So how has your view changed on the FI channel specifically separate away from maintaining multiple platforms that a lot to work on?

I mean I believe that financial institutions are a natural opportunity to leverage all the capabilities we've built, but it has to be leveraging all the capabilities we've built. And so what's happened over time is our eagerness to get some of these deals on meant that there were multiple platforms, if you will, and they weren't using all of the capabilities to build. And what we need for them to be successful and for their customers to be successful is that you're leveraging our capabilities. You can't just use us for a payment. I mean you could that's not as interesting for us. We do better risk when we have all of the workflow and all the documents, and we do more for them when we have all that.

So the decision -- and it's one of the things actually that gave energy for the team is that across the company is that we were going to make hard decisions, not just around people, but about our initiatives. And that's the one that's most obvious for people externally, but there are plenty of those examples inside the company. We're like, no, we're not doing that because we're going to go do this. And that clarity is probably the most important thing right now for everyone to understand. It's like if it's not driving real growth for the business, then we should not be investing behind it. There could be something else we can invest behind. So every conversation with every partner I've had is like, I want to work with you. We have an Embed 2.0 platform. We have more capabilities, but we need to think about how you can leverage all of it versus just a piece because the piece isn't interesting to you and it's not interesting to us.

Yes. Makes sense. Okay. Let's talk a little bit about the traction you've seen moving upmarket. And this has been a deliberate strategic shift over the last couple of years. How have you implemented that on the ground as it relates to sales incentives and so on? And what are the product features that become more important in that customer segment?

Yes. I mean I think the first thing, which is easy, it's simplistic. If you go back in time, when we had pretty much a subscription revenue model business and not necessarily a transaction, is that sales comp plans were focused around net new adds. And by the way, all investors, everybody is always asking about net new adds. But really, what matters is the revenue we drive from the overall business. And so having a sales team that's focused just on net new adds means sometimes they're pursuing smaller customers. Sometimes they're pursuing large customers that don't have any profitability. Sometimes they're pursuing things that don't make sense for the business.

And so what we have now, and part of this is the clarity of just leveraging the data we have, part of this is the clarity of, I think, the vision that we're articulating and the clarity and alignment that we have on the executive team that comp plans are going to be driven off of things that are powerful for the business. So it's going to be revenue and obviously, the bottom line. And we're going to be looking at those consistently. And so those comp plans are being rolled out. They don't change overnight because there's a lot of risk in changing comp plans overnight, but those are being rolled out and should be rolled out the rest of this calendar year. And they will involve a more sophisticated and impactful comp plan. The teams are excited about, they're asking for it, and we just got to make that transition. I think part of that will lead to more multiproduct adoption, which we already talked about those advantages.

And then I think what underpins all of that, which was the second part of your question was what are the product things that you need to go get. And so at a high level, just to give you some example of supporting larger customers, things that we've already done and we'll continue to work on and make better and do other things like this, is multi-entity management. So if you're a business that has 5, 7, let's say, you're a franchise. Franchise owners own multiple locations duly. So you've got a handful of franchises. How do you manage all that? You might have one expense that should be allocated across all of them. Well, what we do at BILL today, which we didn't do before is you can take it up at the parent level and then you can allocate it back out to everybody. It seems simple. It's actually quite hard to do. And so that happens now. And that's an example that what our accounting firms have told us is that saves them 40% of the time that they were -- we've already taken 40% out, and that saves another 40%. That's real time savings that we're able to get.

We added travel and expense. So we have the ability if you're using the spend Expense card, all of your travel can be part of the BILL spend expense card. We can book it. We can do all the things that you would expect to do with it. We can help obviously flights, hotels, whatever. That's an important part. We've added the Supplier Payments Plus. And the reason that's important for the larger business is that everybody wants every payment to be seamless transaction with no reconciliation errors. So Supplier Payments Plus does have revenue goals for us, but also has an experience goal, like let's make the payment completely clean and reconcile free. And so that's important.

We've added our BILL Cash account. And the cash account, like it's been out less than a year. One of the ways that I would probably describe it is that we would see that as being in beta right now. But what we see from the customers that are on it is that the amount of spend that they bring from offline to online is significant, which was a hypothesis that we bring spend back into BILL. And so like these are all things when we step back at how do we actually drive the larger kind of customer growth and revenue and change of sales teams. Well, you have to have all these products in there. So a lot more capabilities, but it gives you a sense of what we're focused on.

I'm going to combine 2 questions here. But on payment monetization specifically, we've seen kind of ebbs and flows in the rate of monetization improvements over the last couple of years. And I think we've been seeing some progress more recently. The guidance this year calls for partially as a result of the move upmarket, more ACH heavy volume and take rates being relatively stable. So a big picture, how has your view on the opportunity to expand monetization in the business changed over the last several years?

I mean I think the big picture is that there's a lot more revenue to go get. And so that's actually not exactly answering your question, but there's a lot more revenue per customer, and that's through the 12 different payment products we have. There'll be more that we roll out over time. And I think the nuance is that take rate is a function of the overall TPV. And when a large customer has 4x the TPV, but from a revenue perspective, it is only 3x because of those large ACH transactions, that's going to be a weight to the take rate, not a weight to revenue, right?

Everybody should want us to go do that all day long and not be worried about take rate, but we have to help investors and analysts help you guys understand why that's true. So I would say that my belief and confidence in our ability to drive more adoption of our products is high. The take rate is not the best measure of that, and we'll work on helping folks understand what is the best measure of that.

Got it. Okay. Let's talk about Supplier Payments Plus. I think you were candid on the call that the early ramp came in a little bit below the initial expectation. There was some enterprise sales motion that the company had to get used to. But more recently, I think you said that the traction accelerated pretty meaningfully. So can you talk about that inflection and how you think about the pace of scaling and how we see that from the outside?

I mean I think the first thing to step back is we got 9 million suppliers across the entire platform, but we've got close to $400 million in TPV that we're managing for our customers on an annual basis. So we have a lot of spend that large suppliers, and we can define what large is need automated, need done quickly, need the ability to have payments be accurate and timely, right? They need that. We learned that this past year. When we go and talk to folks like, "Oh, oh, that's what you're going to do for me. I want that." Then it becomes a conversation, what do you want to pay, then it becomes a conversation of how hard it is to implement.

What we found and what we've been able to do is that they're willing to pay and the implementation is actually -- we're getting really good at it. We've had partners implement in as little as a week. And what that means is they go from having hundreds of accounts across BILL to track all their customers' payments to one. And they get payment reconciliation and they get faster payment, and we commit to them that they're not going to get checks anymore because we go through our database and we constantly scrub for any supplier that looks like them and make sure they get that.

So that was a learning that took -- I probably should have thought it would take time, launching a new business, a new product takes time. That we got in the first year of it. And what we're seeing is that the go-to-market teams have learned how to sell that. And so they have confidence in their pipeline. I have confidence in their ability to drive more. I think that over time, what you will see is that as we solve the largest suppliers, we will continue to find the product to see if they can extend to the next set of suppliers. And so there's a lot of opportunity on this one.

Got it. All right. Let me squeeze one in here on competitive dynamics. There's been a lot of noise in the category over the last couple of years, consolidation like Brex and Capital One. You've got private competitors like [ RAM ] pushing hard Intuit at the lower end. You've got the bank core processors trying to roll out their own AP products. How do you frame BILL's moat today? And what sort of changed and what stayed the same in the competitive landscape over the last couple of years?

I mean I think the first and foremost, I've been doing this to actually make a difference for SMBs, mid-market companies since the beginning. Automating financial workflows is something that we care tremendously about. And I think as a result, we've defined a category that others are now following. And so all the folks you mentioned, they're all copying what we're doing. We are not going to sit back. We're going to continue to innovate and deliver AI capabilities that really differentiate the customer experience in a way that nobody else could do because nobody else has the platform that we have. This is close to $400 billion in spend that we manage close to $2 trillion that we've managed over time. Like all of that gives us a data advantage and a proprietary set of data that nobody else has.

I think we have an expertise across our product domain and SMBs that creates a real advantage for us as we kind of continue to develop those capabilities. So when I step back, there's a massive market, which I think everybody gets. We are focused on a very specific customer, 20 to 250 employees. It's very tight what we want to do for them. And there'll be multiple players in the market, and that's great. Our focus is going to be helping the ICP customer that we have, the ideal customer profile, helping them win with AI in a way that eliminates work that helps them be more efficient and makes better decisions. And we have confidence that we can do that.

Got it. All right. I'll close one out here just on the pricing model. You signaled a shift away from per seat pricing over time towards more of a platform fee plus consumption model, which makes intuitive sense in a world where agents may be doing a lot more of the work. How far along are you in that transition? And how are you thinking about the potential for disruption and the way that could impact the company?

I mean I think that first and foremost, pricing has to be tied to value creation. So we are very focused on creating value. Second, I am an accountant at heart, so I like the matching principle. So if we're saving you work, you should pay us. If we're -- that whole concept, I think, is important. And where we're at right now is that we are doing strategic work around analyzing the levers we have as well as the capabilities that we're building to be in a position to actually change from just the subscription pricing model we have today to something that actually more closely matches and aligns with the value that we're creating. So early days, but we feel good this year that we'll make good progress on it.

Very good. Well, we'll have to leave it there. But Rene, thanks for joining. Really enjoyed the conversation.

Thank you all.

Hello, everyone. Thank you for joining us, and welcome to BILL's Fourth Quarter and Fiscal Year 2026 Earnings Call. [Operator Instructions]

I will now hand the conference over to Jack Andrews, Vice President, Investor Relations. Jack, please go ahead.

Thank you. Good afternoon, everyone. Welcome to BILL's Fiscal Fourth 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 Rene Lacerte, Chairman, CEO and Founder; and Rohini Jain, CFO. Our remarks today include forward-looking statements about our business, products and expectations that involve many assumptions, risks and uncertainties. Actual results could differ materially from those expressed or implied by such statements.

On today's call, we will also refer to both GAAP and non-GAAP financial measures. Please refer to our earnings press release and investor presentation posted today and to our periodic reports filed with the SEC for additional information about such risks and uncertainties and for reconciliations of non-GAAP measures to GAAP.

With that, let me turn the call over to Rene.

Thanks, Jack. Good afternoon, everyone, and thank you for joining us. Q4 was one of the most significant quarters in the history of BILL. We completed the significant organizational changes required to accelerate our transformation to be an AI-native company. We sharpened our view of the highest impact actions that power our growth. And at the same time, we drove good overall business performance in the quarter.

Core revenue grew 16% year-over-year, while our non-GAAP operating margin exceeded 23%. With increased activity in the industry, it's clear that BILL's value proposition of an integrated platform continues to resonate with SMBs. I'll first recap the highlights from Q4 then provide an update on our new organizational structure and then introduce our key priorities for FY 2027.

As I shared on our last earnings call, innovating with AI represented our top priority during the past fiscal year. We continue to see strong momentum and adoption of our AI capabilities among our customer base. To date, we have had over 175,000 businesses using our agents to improve their financial operations across S&E and AP. The number of organizations using our W9 agents more than tripled sequentially to over 40,000. As a result, we have collected over 240,000 W9s with 0 award from our customers. This agent handles outreach collection and validation with the IRS without anyone touching it, eliminating a job nobody wanted in the first place.

Next up, BILL's invoice coding agent, which launched in February, has already been used by over 60,000 companies to eliminate around 90% of the coding steps for a multiline invoice. This has generated significant time savings, reducing the processing time across our AP customers by nearly half. In addition, our touchless transactions agent became generally available at the end of April through all of our spend and expense customers. Already, it has automated more than 7 million transaction fields for 30,000 customers.

Lastly, our [ Pay 40 ] agent became generally available at the end of Q3 and completed over 30,000 card transactions without any human interaction during Q4. These examples are just some of the many AI capabilities we have and are building for customers. Given these successes, we are excited to launch major new AI-powered functionality over the coming months. The value to BILL and customers from this technology will confirm better business outcomes with greater speed, control and efficiency.

AI success is all about this. Period. It is easy to drive agent creation and code completion, but it takes great domain expertise to build products that customers never knew they wanted or needed. Our domain expertise and scale is long established. Customers know that we have built our platform to deliver better business outcomes, and that has built a brand trusted by businesses everywhere. We are making these AI investments to extend the significant value creation for SMBs that we are known for. It will help them save more time, maximize financial performance and leverage AI with confidence.

As a result, customers will spend more time on strategic work, catch risks that would otherwise be missed and focused on growing their businesses. Our commitment to constantly innovating and delivering software that optimizes and executes the workflows and decisions that run the financial operations for our customers has a real impact. They trust us. Let me share a customer quote from Matthew May, National Accounting Manager Partner at [ Sorin ], a large accounting firm. We handle some of the world's most sensitive data. So our philosophy is always security first.

Rather than using generic AI tools, we trust solutions from embedded tech partners like BILL, who have proven their security with our clients' financial information. AI is an enabler but only with guardrails and the right partnerships, augmenting expertise and trust. When it comes to financial operations, trust is a critical factor in the purchasing decision. That trust is helping our integrated platform gain strong traction among the fastest-growing segments of SMB spend, AI-first businesses, technology services and professional services firms. These firms are scaling quickly and need financial infrastructure that keeps pace.

Customer spend on AI through BILL grew over 50% year-over-year in Q4 and TPV from our AI-first customers nearly doubled from Q3 to Q4. AI is not only a game changer for our customers, but it is critical to how we build and operate at scale inside of BILL. We are driving more and more internal efficiencies while improving execution across the entire company. One use case is having a direct impact on our financial results. A few quarters ago, we introduced a new AI underwriting model to assist with our invoice financing applications. This new model is built on singles and patterns based on how businesses pay and receive payments within the build network over time.

Relationship level data allows the model to assess invoice level risk with a precision not replica from traditional credit bureaus. We are seeing a material impact on our invoice financing business. Both volume and revenue grew approximately 30% year-over-year in FY '26 while the expected loss rate has improved by more than 50%. This is a strong illustration of two of BILL's key moats, our massive proprietary data set and our network. As more and more transactions are executed on our platform, our models get smarter, our risk selection improves, and we can extend more credit at better economics for the customer and us. This is a compounding advantage that grows with scale.

Next, I'd like to provide an update regarding a number of organizational changes we completed during Q4. Over the last fiscal year, we have been working diligently and intently on structuring BILL for our next phase. We significantly simplified and reduced layers across the entire company. In addition, we moved from a hybrid general manager structure to a functional model, the imperative to become an AI-native organization, combined with driving speed of execution on the initiatives that drive results across the business, is the primary motivation for these changes. We are moving fast with strong accountability and end-to-end ownership in order to drive velocity, impact and growth. Simply stated, we built BILL to achieve what it needs to in the future.

During Q4, we made some deliberate leadership changes to support this direction. I was pleased to welcome Jonathan Leaf to BILL as our new Chief Revenue Officer. Jonathan has a strong background and track record in scaling revenue organizations to serve lower end mid-market companies. He is responsible for all aspects of our go-to-market organization. In addition, Mike Cherry, who joined BILL last year has been promoted as Chief Product Officer. He now leads the end-to-end platform experience spanning software solutions, payments and financial services. This structure reflects how customers use all of BILL's capabilities together across a single integrated platform.

Finally, Eric Chan has been appointed Chief Technology Officer. As BILL's founding engineer, former CTO and Chief Architect, Eric has exceptionally strong knowledge of our technology, the team, the current technology landscape and operates with the speed this moment requires. We've done the work to assemble the right team and our focus, energize and position to win in our market. Entering FY '27, we are focused on the following 3 strategic priorities: our first and most important priority is to deliver AI experiences for our customers. Because this is our top priority, I'd like to spend a moment on what that means for BILL.

Achieving an AI-native experience means that AI is so deeply embedded that removing it would make the products no longer work. Our success with over 175,000 customers leveraging AI capabilities is compelling. We are making a strategic pivot to an agentic platform that automates financial operations out of the box by default or nearly 0.5 million customers. We are building new front-end experiences that remove friction so that customers can instantly realize value from AI. Our knowledge of SMB-specific pain points and workflows combined with our proprietary data advantage, our network of over 9 million members and our robust payments infrastructure creates a powerful foundation to build trusted, accurate secure AI solutions, specifically aimed at the Fortune 5 million.

Our second priority is to acquire higher ROI customers. One of the key areas of focus here is driving multiproduct adoption. In Q4, the number of joint customers leveraging both of our AP and spending expense solutions grew 35% year-over-year. Those who were customers both in Q4 and a year ago, exhibited a net revenue retention of 111%. Given the success we have seen, we have made a change to our go-to-market strategy in FY '27. The entire sales team is now trained to sell BILL as a single platform rather than individual components. This is how we will engage with customers and prospects moving forward. Our Embed 2.0 strategy represents an efficient channel opportunity. We believe there's a large market for software companies interested in deploying our embedded finance solutions to support the financial operation needs of their clients.

We are gaining traction with our Embed partners. As an example, one of our Embed partners, TPV and units more than tripled sequentially from Q3 to Q4. And focusing on higher ROI go-to-market activities, we have made the decision to align our bank channel efforts with BILL's broader embedded strategy. We are investing in scalable and is embedded solutions. We need all of our partners to use all of our products and experiences. Focus here will allow us to leverage a platform across all of our partners versus the multiple versions we support today. We do not expect that every existing bank channel relationship will carry forward.

Our third priority is to expand value through BILL's platform. We aim to achieve this by providing greater value for customers in terms of new product introductions and enhancements. This, in turn, should result in greater value BILL from a monetization perspective. We have a strong track record of introducing new ad valorem payment products over time that have solved specific pain points for our customers while leading to broader monetization opportunities. One example of this is Supplier Payments Plus or SPP.

Driving adoption of our SPP offering remains a key area of focus to expand value for both customers and BILL. The early progress has not met our initial expectations. The enterprise sales motion required was new to BILL in FY '26. Over the last year, we have invested in building out this go-to-market motion, and we are now starting to see increased deal momentum and faster implementations. Our contracts with these large customers lock in new ACH monetization and preserve virtual card volume. Our committed TPV across all of our payment offerings from these early adoptive suppliers has reached almost $800 million.

Building great products is hard work. It takes vision, execution, listening to customers and iterating over and over to create a great customer experience. We have been doing that with SPP and the customer response is positive. I'd like to share a case study from one of our early customers describing the value they are deriving from SPP. We recently signed a business services company that is managing over $75 million in annual SMB payment volume through BILL. Prior to adopting SPP, they face a fragmented receivables operation with hundreds of separate accounts spread across multiple field locations.

Half of all incoming payments were invisible to corporate treasury and posted manually with no automation. This is a painful way to run a business. After deploying BILL Supplier Payments Plus, the company consolidated 168 accounts into 1 centralized corporate account in just 10 weeks, with 0 IT involvement and no disruption to customers or field teams. The percentage of payment transactions that are processed and settled automatically without any manual intervention, jumped from 72% to 98% to 100%. The company has recovered more than 400 hours of manual labor per month, time that is now redirected toward higher value customer-facing work. The customer summed it up in one word, efficient.

AI dramatically expands what is possible, but the requirements of financial operation systems that serve critical functions remain the same: accuracy, control and security are paramount. Our wealth of proprietary data, combined with our infrastructure, scale, reliability and experience having moved almost $2 trillion in spend gives BILL an advantage in the market that is not easily replicated at scale. Successfully executing hundreds of millions of transactions for hundreds of thousands of customers gives us invaluable learnings. We are uniquely positioned to develop and deliver AI native solutions that are best tailored to address the needs of the customers we serve.

A year ago, we set out to do something hard, grow the business, return capital to shareholders and fundamentally reshape how BILL operates, all at the same time. We did that. I couldn't be more proud of the team given the amount of change experience and the results delivered. The team I have beside me today is smaller, faster and more aligned. The product we are building is the most compelling it has ever been and the customers who trust us with their financial operations are telling us it is working. I'm excited and confident in where we are headed.

And with that, I'll turn it over to Rohini.

Thanks, Rene. Before getting into the details of our quarterly results, I'd like to make some comments upfront regarding how we view the longer-term financial trajectory for BILL. During my first year here. Many investor conversations have focused on the importance of providing a financial framework for how we view both growth and margin opportunities over time.

There are 3 key pillars to our framework that I'd like to share now. First, BILL has built a durable business model, and we are well positioned to deliver low double-digit to mid-teens core revenue growth with expanding margins over time. Second, we are focused on driving progress towards the Rule of 40. We define this metric as growth in total revenue less rewards plus non-GAAP operating margin. This is a measure we believe better reflects our underlying unit economics and improves comparability to peers. Our actions in FY '26 have positioned us to be a Rule of 40 company, and we expect to exceed this threshold exiting FY '27. Third, BILL is focused on achieving meaningful GAAP profitability in FY '27 and expand it from there.

Now let's dive into the financial results for the quarter. In Q4, we delivered $400.5 million in coal revenue, growing 16% year-over-year. Non-GAAP operating margin was 23%, expanding 370 basis points sequentially and 860 basis points year-over-year. Non-GAAP net income was $94 million, representing a 22% improvement sequentially and a 53% improvement year-over-year. The large profitability beat this quarter was driven by earlier-than-planned workforce reduction, timing and lower fraud and credit losses. Within our integrated platform, we saw double-digit growth in both AP/AR and spend in expense.

AP/AR core revenue grew 10% with subscription ARPU increasing by 1.4% year-over-year. Mid-market core ARPU from newly acquired customer cohorts grew 31% year-over-year as we continue to focus on higher quality customers. In Q4, we added approximately 1,800 net new customers, which is below recent trends. In addition to our decision to deliberately prioritize signing the right customers for BILL, the organizational restructuring impacted this result. We decided to exit salespeople earlier than originally planned in order to familiarize the remaining sales team with their new pipeline and quota opportunities.

Under Jonathan's leadership, we have moved quickly to a single platform selling motion with tighter execution across the team. The early indicators in Q1 are already trending in the right direction, which gives us confidence. AP/AR transaction revenue was $131 million, up 10% year-over-year. We saw very strong TPV in Q4, exceeding our expectations by approximately 300 basis points. This came mainly from newly acquired larger customers and their ACH volumes. This TPDX resulted in an AP/AR take rate of 16.0%, which contracted by 0.5 basis points. Normalizing for the large ACH TPV beat, take rate would have been in line with our Q3 guidance.

TPV on a same-store sales basis grew 6% year-over-year, representing a sequential acceleration of 2 points and highest since Q1 FY '23. By industry vertical, we saw increased spending in manufacturing, administrative services, information technology and construction. We saw decreased spending in retail trade and wholesale trade. Customer spend on AI increased over 50% year-over-year in Q4. In spend and expense, Q4 revenue totaled $185 million, up 23% year-over-year. Card payment volume grew 20% year-over-year. Travel, entertainment and health and services drove that growth, more than offsetting the slight softness in advertising spend. Take rate for the quarter came in at 261 basis points, reflecting a favorable mix of high interchange verticals. Reward rate was 133 basis points, up 3 basis points sequentially, driven by higher-than-expected volume in our top rewards tier from a concentrated group of customers.

We have renegotiated those commercial contracts moving forward. S&E fraud and credit losses continue to improve over time, driven by AI-enabled enhancements to our fraud platform and underwriting. In Q4, the percentage of TPV, it improved nearly 6 basis points sequentially. Turning to capital allocation. In the fourth quarter, we repurchased approximately $300 million of stock at an average price of $35.31 per share. We have now retired approximately 15 million shares, representing close to 14% of our common stock outstanding since our Q3 earnings call. As of today, we have $400 million remaining on our $1 billion repurchase authorization announced in May. Given our confidence in BILL's durable growth profile and free cash flow generation, we expect to execute the remaining authorization within the parameters we have established.

Before turning to formal guidance, I want to highlight 3 factors that are shaping our near-term outlook. First, we are navigating through a lot of change in our go-to-market organization specifically. We are in our first quarter of a new sales motion under new leadership, unified around a single platform sale. Second, on S&E, we are monitoring a dynamic environment regarding card acceptance that may impact a small number of merchants. Additionally, we are taking proactive commercial actions on certain higher reward tiers and contracts. Third, as Rene noted, we are concentrating our Embed channel on new Embed 2.0 platform. This means moving away from custom 1.0 solutions we built for a small number of bank partners. This is a deliberate choice to consolidate on a scalable and standardized embedded platform that supports our full product suite.

Given these aspects, we believe a measure of prudence appropriate in our forward outlook. I also want to address an accounting presentation change we are making. Beginning in Q1 of fiscal year 2027, we will present revenue net of rewards expense. Rewards expense will be recognized as a reduction of subscription and transaction fees rather than as a sales and marketing expense. This voluntary change better reflects the unit economics of our spend and expense business. It will sharpen focus on the right customer segments, improve comparability with our peer group, and will help us drive profitable growth. The change has no impact on the operating income or net income. Total revenue and total operating expenses will each be reduced by the same amount. We will begin reporting under this new presentation in Q1.

I will now detail our guidance for our first quarter and fiscal year '27. In light of this accounting change, we will guide to our historical presentation of revenue and rewards today. However, beginning with Q1 of fiscal year '27, our guidance framework will be presented on a revenue net of rewards basis only. For fiscal Q1 '27, on a historical presentation of revenue basis, we expect total revenue to be in the range of $432.5 million to $442.5 million. and coal revenue to be in the range of $398 million to $408 million, reflecting 11% to 14% year-over-year growth. For fiscal Q1 '27, we expect the rewards expense to be $92.5 million, implying a core revenue net of rewards growth rate of 10% to 14%.

Here are a few key assumptions that underpin our Q1 revenue guidance. First, on volume, we expect AP/AR TPV growth to be in line with FY '26 volume growth. For spend and expense, we are assuming year-over-year volume growth of mid-teens in Q1. Second, turning to monetization, we expect AP/AR take rate in line with Q4 as we expect higher ACH TPV growth trends to continue. Moving to spend and expense. We expect the take rate to be approximately 260 basis points. On the bottom line for Q1, we expect to report non-GAAP operating income in the range of $112.5 million to $117.5 million. We expect non-GAAP EPS to be between $0.96 and $1. These EPS figures are based on fully diluted share count assumption of approximately 102 million shares.

Turning to full year guidance. For fiscal year 2027, on a historical revenue presentation basis, we expect total revenue in the range of $1.807 billion to $1.857 billion, reflecting 9% to 12% year-over-year growth. We expect coal revenue in the range of $1.669 billion to $1.719 billion, reflecting 11% to 14% year-over-year growth. One modeling point to flag is that Q2 FY '27 faces our highest prior year comparison, and we expect this to represent the trough of our growth trajectory for the year.

Our guidance reflects 3 points of year-over-year growth headwind, 2 points from S&E dynamics and 1 point from bank channels. For fiscal '27, we expect the rewards expense to be $401.5 million, implying a coal revenue net of rewards growth rate of 10% to 14%. Turning to bottom line. For fiscal 2027, we expect to report non-GAAP operating income in the range of $421 million to $451 million which represents a 23% to 24% range in non-GAAP operating margin. This implies an explode operating margin expansion of approximately 590 basis points at the midpoint. We expect non-GAAP net income in the range of $370.5 million to $394.5 million and non-GAAP EPS to be between $3.56 to $3.79, representing 33% year-over-year growth.

These EPS figures are based on fully diluted share count assumptions of approximately 104 million shares. This accounts for the $600 million share repurchases completed under our $1 billion authorization. As we mentioned, GAAP profitability is now a key focus area. We expect to generate well over $125 million of GAAP profits for the full year. Included in this guide is an expectation for stock-based compensation expenses to be approximately $190 million. As a percentage of total revenue, we expect stock-based compensation to represent 10% in fiscal year '27, down from 14% in fiscal year '26.

A year ago, we were company with questions around profitability. Today, that question is answered. We are a leaner organization with a sharper focus. Exiting Q4 '26, we are a Rule of 40 company, driving strong revenue growth and GAAP profitability. We have made deliberate decisions to trade low-quality revenue for durable high-quality growth, anchored in AI-led initiatives, stronger unit economics and a platform our customers trust. FY '27 is about executing against that foundation.

And now we'll open up the call for Q&A.

[Operator Instructions] Your first question comes from the line of Tien-Tsin Huang with JPMorgan.

Good results here. I think I was going to ask on the restructuring charge maybe and that came in on the higher side. But just to get to that charge, we're doing everything land versus what we talked about last quarter in terms of head count reduction, savings run rate and reinvestments. I know you gave some initial views there. Where did you land? And what's the assumption in the time line for realization in fiscal '27?

Thank you so much for the question. And let me start by just letting you know the restructuring efforts went exactly as we had planned. So we had given you an initial estimate of about $110 million of gross savings. We came very, very close to that number. So that's good. We had given a range of investments back into the business of about $20 million to $30 million. We are right now anchoring those investments on the number [ $30 million ]. So that was our net benefit from this at around $80 million.

Okay. Terrific. And then maybe for you, Rene, just thinking big picture here. I heard the go-to-market change and you brought in the CRO as you talked about. Any big learnings worth sharing here from whether it be the employees of the clients that you talk to your partners, given the reorg, love to hear your thoughts on that.

Yes. Thank you, Tien-Tsin. Yes, it's a great question. I think the way that you're starting to hear us talk and the way that we're executing is really across the platform. We started on day 1 to build a platform and the platform that makes doing business simple. We started with workflow. We started then adding AP, AR, SNE, but we do so much more than that.

And I think the go-to-market changes that you're referencing and kind of the momentum and energy that we're feeling inside the company is that the platform capabilities we have matter to our customers. They matter to our partners. They matter because that's how you get the most value out of the experience. And so when I look at the last 12 months, we did really, really important work that unified the platform and the organization. They go hand in hand.

We've aligned both the products and the go-to-market organizations to specifically sell all of AP and SNE customer experiences. They are now fully integrated across a new modern UI. We are leveraging that customer experience to start selling that platform. You heard me talk about that. And then we are seeing results. I mean, 35% growth in the multiproduct adoption is great in the course of the year.

And that success has accelerated our change from a go-to-market perspective to really look at the totality of the offering that we have and to make sure that the marketing, the selling, the supporting is thinking about a unified platform approach. The tight organizational changes that we made during the year are both supporting the shift and are in concert with this belief that the platform is the key to driving customer satisfaction and success.

And given what we've already seen, the excitement that we have across the impact only increases when we think about the broader platform that we're building. And so again, when you ask the question, like what's kind of giving you confidence, momentum or energy here, it is really this platform. And just like to step back, we see this really resonating with customers. And it resonates because financial operations is complex. There's a lot of moving pieces with that.

And if you think about a customer, doesn't want to have to make a lot of decisions about their financial operations the same way they don't want to have to make the decisions about building their own car. They would rather buy a fully loaded than finished product. And so we, at BILL, are the masters at simplifying that complexity behind financial operations. And we are increasingly, increasingly becoming the fully loaded finished product for our customers. So the core products the customers come for, we know that, that's the AP, that's the S&E.

But we also know they come for way more than that. They come for all the payment capabilities. And just to give you an example about how the platform just was extended to create more value for our customers in the past year. In the midst of all the restructuring that we've done, we now have SPP, a new product, new platform extension, that really is taking advantage of the multisided network that we have with over 9 million connections, close to $400 billion in annual spend and the data that actually allows us to understand what matters to our suppliers and really how to go target those suppliers. That data is what is behind the development of SPP.

And nobody else has this data today. And so when we think about the platform play and again, what's giving me energy, what's giving me confidence it is seeing that the combined product mindset capabilities that we have in the company and that platform capabilities we have from the shared data capabilities that we have, we're doing stuff that nobody else can do. We have a really interesting opportunity. We see that in invoice financing. You can see from the prepared remarks that we're able to now extend obviously into small suppliers to help them get their funds faster. They don't have to wait.

We can only do that because of the data graph we have. It's unique. It enables us to make real-time offers based on patterns and documents that we see across the largest B2B payment network that we know of. And simply put, no one else has this capability at this scale today. The third thing I'd like to call out from a platform perspective is more looking forward in how we think about build cash. Again, it's a reminder of how we have built a platform that actually solves the financial complexities that are behind the operations of any business.

So payments require speed, they require clarity and they require a comedian audit trail. And BILL cash delivers that. It's fast or same-day payments. We have perfect visibility into every transaction when it's a BILL cash transaction. No FI has that. No accounting software has that today, and we're in a position to continue to create value for our customers and to really reinforce the trust and confidence that they have in our platform with build cash.

Now it's early days on billed cash and already, I think we are seeing strong, good adoption from our early customers. And one of the most important factors that we're seeing in that adoption is that they are moving spend that was off-line, spend that was never on the BILL platform before, and it's now becoming online. And so when you combine all the capabilities that we have from a core front end, the front door of AP, S&E and AR, you add all the payment capabilities and the extensions that we're doing suppliers and cash management, unbilled cash. And the ability for us to now start selling that platform that's what gets us excited.

It's something that we've been building a long time to make happen. And we know that the scale that we have, we get scale, and we know that we have got a very large, successful and profitable business that we can invest from. And we're now 100% line, thanks to the restructuring on how to go make that happen. So a lot of things that are kind of underneath that go-to-market consolidation, if you will, but it all comes back to the platform.

Your next question comes from the line of Scott Berg with Needham & Company.

I guess 2 questions. Rene, we'll start off with all the AI usage on the platform. Your adoption rates are impressive and realized use cases are equally impressive, how they're saving your customers' time. How do you think about the monetization strategy of your AI efforts so going forward, now that you have some for high-grade [indiscernible] data and understanding how customers you use, you have both the existing functionality and the innovation you spoke about in the pipeline coming out this year.

Thank you, Scott. I think this is obviously a really important part of the strategic direction of the company. The pivot to really becoming AI-native gives us lots of opportunities. But the first and foremost thing to think about is that we are sitting on a massive opportunity. There are millions of businesses that need financial operational help. And we are in a position with the platform that we have to go reach them and support them in ways that they never knew was possible.

And so the first thing from an AI perspective is going to be building the capabilities to actually drive significant improvement and opportunities around customer retention and adoption in the early stages of their life cycle with us. So one of the ways that you'll see the monetization is that we will be really tracking holder sales accountable to driving better conversion, better retention, if you will, in the first 90 days.

But the other thing that you will see us thinking about is the strategic rationale of from a pricing perspective. And so the reason I broke these up here is there's obviously customers that matter and then there's obviously the revenue per customer. And on the revenue per customer, we've been, I would say, tactical with some price increases in the last year. But as we roll out these AI capabilities, we're going to really be strategic. And one of the things that we know is that we are going to be inclined to move customers from a per seat basis to really a platform fee to really understanding the capabilities and the value that we're providing them as well as the usage consumption fee, if you will.

And so those are, I would say, the kind of the direction that we're moving towards. Agents will be grouped into different subscription tiers based on the value that they're creating for our customers. And obviously, we will have some consumption based as we roll these out. So a lot of opportunity coming in the future, and obviously, it's predicated on us. Getting the agents that actually completely simplify the experience for SMBs, move them from a do-it-yourself approach to the do-it-for-me approach. And we think that's the key thing to the AI strategy.

Very helpful, Rene. From a follow-up we modeled this out a couple of times, what your operating kind of margin and structure will look like in this post-reduction in force environment in your Rule of 40 is, I think, a great strategy to be achieving here as you get through the year. But where does incremental leverage in the model come from? Because we look at the model X rewards as well, and we think you'll be exiting this year at an already relatively high rate. There's always some additional room to move those margins up over time. But what does that incremental kind of next step come from now that this phase is kind of in the background?

Yes. Thank you for the question. And the way I think about it, we have done a lot of work in expanding the operating margins over the last year. I think this was the third year in a row that we doubled our operating margin ex float. So we want to continue in expanding the margins. We did a lot of work on labor-related OpEx and some on the other effects in the last year, where the additional opportunities will continue to come from is the AI led productivity.

So we're starting out on that journey. We're starting to see some good examples across our risk teams, across CS teams, across engineering teams, but we would expect to see that mature further and drive additional operating leverage. Additionally, we're going to really move our focus on revenue growth. We have now really taken a very focused approach to durable and profitable revenue prioritization and you will continue to see that happen through the year.

And the easiest way to grow margin is to grow revenue, really. So I think driving the right product structure, making sure that the economics behind the product itself are robust. Those will be our next move.

Your next question comes from the line of Chris Quintero with Morgan Stanley.

I want to ask about the TPV upside, especially on the AP/AR side in the quarter. Could you maybe just unpack a little bit more of the details around? Won't really surprise you to the upside there, the drivers of that outperformance. We've heard from the airlines talking about some travel inflation. So curious if that was any impact. And I think, Rene, you talked about AI spend on BILL being up 50% year-over-year in Q4. So just curious if you can unpack the drivers here for us.

Yes, absolutely. So as I look at Q4 and the large overperformance on TPV, I would come back to how strong our ACH product is, it's only best-in-class, and we continue to see usage across ACH continuing to increase, our product gets better and better. So that's where we saw a majority of the uptick from -- now if you compare that to the verticals where we are seeing upside within our AP/AR platform. We are seeing construction, the manufacturing side, some of these verticals that are very tied to the new AI flywheel that we are seeing in spending.

So big ticket items, construction manufacturing type of verticals doing really well. That's impacting the ACH, TPV growth as well. Additionally, one very interesting dynamic is now emerging, which is our mid-market customers have some really large ticket size transactions that come on the platform, which they have more ACH. They have generally lower take rates than the rest of our portfolio, but they are extremely valuable customers to us because their ARPU is 3x more than an average customer at BILL. The TPV is 4x more.

So as we continue to grow the mid-market segment of our business, we will see some of this dynamic continue to happen. One thing I would like to highlight is this additional TPV that's flowing through the system is actually giving us good benefit in terms of flow over performance you guys saw in Q4, we'd be float by close to $2 million. And this is not due to the rate fluctuations. It's really because of more TPV flowing through the system. And I think this is just the flywheel of the product that Rene was talking about as well. We have multiple ways to monetize.

Yes. Very helpful. And then I wanted to follow up on subscription revenue. That line item, the growth rate there had been kind of stuck around this mid-single-digit type of range for a few quarters now. And in the past 2 quarters, you've seen it accelerate up to 11% this quarter. So I was just curious if you can unpack what are some of the drivers there and considerations around that performance.

Yes, absolutely. On the specifically subscription ARPU side, over the last couple of quarters, we did see an sequential uptick, which drove the trend of flattish trend that we have seen in the past. And that's exciting. It was just showing we are going upmarket a little bit. We are -- we were doing some tactical changes with the pricing as well. So that was starting to go up as a combination.

What we continue to also see from a subscription ARPU side is larger -- the biggest number of customer adds that we get continue to be from the accounting channel. There is a mix element that plays out there where we continue to add a smaller set of customers at a faster clip. And obviously, the bigger customers are fewer in numbers, although much higher in ARPU. So there is a little bit of that dynamic that will play out into the subscription number.

Having said that, what we really focus on is the core for the total ARPU of the customer we're bringing in. And as we rethink strategically what our pricing models and frameworks are going forward, based on usage and capacity usage, et cetera, this will continue to be more important. How many customers are we getting in and how are we monetizing them, which is the ARPU. So the core ARPU actually sequentially grew again 3% versus the last quarter, which continues to be a good trend.

Your next question comes from the line of Will Nance with Goldman Sachs.

I wanted to follow up on some of the commentary on ACH volumes and maybe tie it back to some of the longer-term thoughts on growth that I think you talked about already in the prepared remarks. I'm just -- when we think about the longer-term growth rate, I think the guidance this year calls for a relatively flat take rate, I think you said. And you called out some drivers there, ACH volume from larger customers as well as maybe some changes in virtual card acceptance in the near term. So maybe you can help unpack a little bit over the long term. How do you think about monetization and ad valorem mix over time? And is take rate expansion still part of that algorithm over time? Or as you think about pricing and the answer that you just gave, are there other ways to kind of monetize consumption-based pricing beyond explicitly charging for some of the payment volumes? Curious how that thought process over the long.

Yes. Thank you for that question. There are a couple of things that you mentioned and some of them actually are AP/AR dynamics and some of them S&E dynamics. I'm going to try and unpack them one by one. So we've talked -- let's talk about S&E from a take rate perspective. We talked about some of the acceptance challenges more from an S&E side. We don't see that on the AP/AR side. And from that perspective, we do have a slight reduction in the volume growth rate on S&E. But on S&E, the take rate range we've given to you in the past is 250 to 260, and we expect the quarter and then going forward to be on the higher end of that range. So that's where the revenue growth from an S&E perspective is going to be modeled.

From AP/AR perspective, our ACH TPV continues to do much better than our expectations, which is kind of an isolated variable ad valorem TPV continues to grow at a healthy clip as well as we are seeing some of our established portfolio items are doing well. and the emerging portfolio continues to add to that growth as well. So I feel good about that. Just the math of the take rate because of the outsized ACH performance is compressing the number a little bit.

So as we think about it, I would say a lot of the growth in the AP/AR will be based on the TPV and monetizing that TPV through multiple ways. And a bigger TPV number monetized at the same rate still gives you the growth. So flat to slightly uptake rate from what we were at in Q4 is how I would guide you.

Got it. That's very helpful. And just on the rewards change, obviously, I think that makes a lot of sense. I thought you said being netted against both subscription and transaction revenue. Just wondering if you could clarify that. Does it not all go through transactions? And then just separately, how do you think about breaking that out? Like do you expect to disclose that separately and talk about the rewards rate going forward? Or do you expect to largely talk about F&E dynamics as they kind of just like a net take rate from here on out?

Yes. So just to clarify, the way we'll talk about our revenue will be net of what you see today as gross revenue line, minus the robust dollars number. So that will be our net revenue. We use those words just because it's exactly what we externally report. So more of an accounting thing. So it will be the net revenue. We will give periodic color to the performance of rewards as well. But the way I think about rewards, it's a really great incentive and a tool for us to drive the right customers onto the platform. We are not in the business of trying to win on rewards basis only. The business we want to bring to our company is one that's profitable or when we are incentivizing our customers to use many products that aligned with what Rene has said about the platform approach.

Your next question comes from the line of Andrew Schmidt with KeyBanc Capital Markets.

I just want to dig into the FY '27 core revenue outlook for a moment. I think it's 11% to 14%. Just how you're reporting today. But I think you called out 2 points from S&E dynamics, 1 point from the bank channel. And then I think you also -- it sounds like you're also baking in some prudence from go-to-market and reorg implications. Maybe just help us understand what's recurring, what's nonrecurring? And then sort of level set us in terms of how you think about the ongoing rate of growth for the business over the intermediate term considering some of these things seem transitory?

Yes, I can take that question. Thank you. So as I think about the S&E business overall, right, we -- there are some short-term dynamics. We have the change in the approach that we are taking, both from a net revenue perspective as well as the whole team is now selling all of the products. We don't have a separate S&E sales team and a separate AP sales team. So which means that there is training involved, there's ramping the structures changing, incentive changing, all of that. So it takes time to ramp some of that up to its full potential.

So those are some of the things that are transitionary. I talked a little bit about the impact of one of the larger platforms and the card acceptance issues. Again, very concentrated towards some of the bigger customers. So we'll see some impact from that also transitionary. Over time, we -- the net approach should help us get back to strong growth levels and drive more profitability in the business than we had in the past. So some of these dynamics that I talked about are in a shorter term. And that's why as we open, as I opened my scripted remarks, I had mentioned that the range in the midterm that we think of is low double-digit still mid-teens.

Got it. Very helpful. And then if I could just ask a follow-up just on the net new adds on BILL AP/AR. Understanding that there was some disruption in your quarter from the reorg and things like that. I just want to clarify what you're seeing. Was there any sort of demand dynamics at play? Or do you think it was all sort of self-driven? And then as we think about just FY '27, the trajectory for net new adds. It sounds like that's improving even intra-quarter. Maybe just talk about the expectation in terms of stature trend, understanding there's a lot of changes going on that are working through.

Sure. happy to talk about that. So just as a reminder, we have been talking for the last couple of quarters that we have a deliberate focus on the ICP or our ideal comer profile. We want to continue to focus on slightly better customers that we have in the past, which then is a trade-off between the number of customers we're getting on the platform and the quality of the customers beginning. So we had indicated in the last earnings or 2 that we expect the trend to be not in line with what we had seen in the past and slightly lower.

So we continue to be on that path. Nothing has changed in that regard. What has changed was the material organizational restructuring and the sales motion that we are now getting into. So what I mentioned earlier in my remarks also was that in July, and we started to see some great and recovery within the numbers, which we are actually quite eased about. And as I think about the quarter, I could see us land at the range of 2,500 to 3,000 having made a large part of that recovery towards the number that we want to get to, which will be sort of higher than this range over the remaining part of the year, but this is the range I'm expecting for the quarter.

Your next question comes from the line of Nate Svensson with Deutsche Bank.

Rene, I wanted to ask about the second key priority you laid out in your prepared remarks of acquiring the higher ROI customers. So I mean, it sounds like the 35% growth you're seeing in the adoption of AP/AR and spend in expenses coming before all of these go-to-market changes. So I was hoping you could put some guardrails around kind of how to think about these go-to-market changes and how they can help improve the already strong trajectory growth that you're seeing today?

And then just maybe the second one on that topic is just around the bank channel partners. Could you maybe talk a little bit more about the decision to move away from the small number of those bank partners? And then maybe beyond that the success you're seeing with the incremental 2.0 opportunities that can help offset that?

Okay. Thank you, Nate, for the question. Yes, I think the summary, I would say, is that we understood our data, and that's why Rohini just mentioned, we focused on our larger customers, the larger SMBs are on the platform ones with more than 20 payments, for example. And that focus means that we are, I would say, honing the product offerings for those customers as well as the go-to-market motions for those customers. And what we -- one of those honing exercises was to sell the platform that we were so hard to build. And we are seeing, like I said, early success.

That success has under Jonathan's leadership, we are positioned now to kind of leverage that success across the entire go-to-market team. And so positioning ourselves to sell the platform, which you heard me talk about at the beginning, I think, is a super important part of how we focus on the higher ROI customers that are in the portfolio and capable of coming into the business. So our focus is always going to be on filtering great customer experiences and driving value for them, extending that and that focus also applies to our partners.

And so when we looked at the restructuring work that we did, we knew that we needed to create more focus across the business. It's paramount, it's imperative, you named the word, like it is super critical that we have teams aligned and that we leverage the teams and the resources and the attention and a focused path so that we can execute well. And so that exercise led us to look at individual, I would say, product experiences and our approach with the bank channel over the last dozen or so years, has been more custom than we would like and more customer than we would do today. And that means we have multiple platforms that make it challenging to be able to actually offer all of the capabilities that BILL has for all of their customers.

And so our decision was really to lean in on this focus initiative across the company and to say, this is where we're going to invest. This is where we're going to spend time, analyzing and working how to drive more results of the business, and that's the Embed 2.0 platform, that actually enables the entire platform for those customers. And so we are super excited about leveraging our platform into our partners, but we know we got to be disciplined in our approach to how we do that. And so as we made those decisions, we expect that not all of the banks will be able to make it.

Helpful color. Just for a follow-up, I wanted to ask on SPP. I think in the prepared remarks, you said the initial rollout hadn't tightened your expectations, some of that related to the different enterprise sales motion. So maybe you could talk more about some of the roadblocks you ran into and how you think the recent changes in go-to-market are going to help improve the trajectory for SPP in fiscal '27 and beyond. I think you also mentioned that the contracts are going to preserve virtual card volumes. I was hoping for more color on kind of what specifically is in those contracts that will allow you to maintain virtual card volume while adding the sort of incremental ACH volumes on top of that?

Yes. I think probably the most important thing in any customer offering is to get the customer experience right. And so we have spent a lot of time talking with suppliers, analyzing the data, like I mentioned, about our platform and the data we have is unique and understanding the payments and the flows and understanding how we can make their experiences better. The case study I gave somebody with hundreds of accounts across build going down to one with no IT involvement. That's actually because of great product work.

And so I think from a go-to-market perspective, having the right product is important, and that's part of the go-to-market, but then also having the right sales motion. And enterprise sales is different than what we've ever done before. I think we knew that. And I think the learning year is that it just sometimes takes a little bit more time than you would like. But I feel very good about what we've learned and the opportunity to kind of extend that. If you look at the number we called out there, $800 million under contract from a TPV perspective, that strong growth from the last time that we talked about this.

And really, to your question around the virtual card, the under contract is important. These suppliers have -- you've received payments across all of our payment modalities. And so having an experience for them that is consistent is important. And it's also important for us that if the customer wants to use a card that the card goes through as an example. And so that commitment is an important part of the conversations we have with the suppliers, and it's something that we'll continue to work with them to make sure they're getting the value that they need out of those experiences.

Your final question comes from the line of Ken Suchoski with Autonomous Research.

I was just wondering if you can give us some more color on the dynamic you mentioned regarding the spend and expense card acceptance that's impacting volume growth. Is that just acceptance by the large ad providers like Meta and Google? And I guess do we have 4 quarters of slightly slower growth and then we're sort of ticking back higher once we lap that dynamic? Any thoughts there would be great.

Yes, that's what we're referring to on the S&E side. I talked about -- just to clarify a little bit more. We talked about 2 points of headwind coming from that piece of the business. And this is just a part of it because there's other dynamics of us moving from gross to net and leading on the table some of the less profitable volume, et cetera, that is playing in a big new part of that. That's exactly right.

And then here, we would lose that as it in the rollout low and it's quite concentrated to small number of customers that have large volume. But if you look at the same impact on a net basis, it will be much smaller because they're also the higher reward customers.

Okay. That makes sense. And maybe just for my follow-up, I think you're expecting to exceed the Rule of 40 threshold exiting fiscal year '27. I think if our math is right, we're at the Rule of 35 in fiscal 1Q based off of your guidance. So just curious how do we get to something above that Rule of 40 threshold exiting fiscal year '27? Is it mostly on the adjusted EBIT side, or could we see core revenue growth accelerate throughout the rest of the year and into next year?

So in my prepared remarks upfront, I actually defined our Rule of 40. And the definition we use is in line with how we will report revenue going forward. So it is the net revenue growth percentage along with the total operating margin of the company. So if you add those 2, we were at a Rule of 40 at wise in Q4. And there will be in-quarter fluctuations, but we will exit FY '27, exceeding the number.

We have reached the end of the Q&A session. I will now turn the call back to Rene Lacerte, Chairman, CEO and Founder, for closing remarks.

Thank you, everyone, for joining FY '20 was a typical year for BILL. We accomplished a lot, restructuring the company, executing a significant share buyback and we are well positioned to drive profitable growth, leveraging our platform in AI. All of us at BILL are super excited about the future and look forward to continuing to update you on our progress as we go forward. Thank you.

This concludes today's call. Thank you for attending. You may now disconnect.

Good morning, everyone. My name is Tomer Zilberman, and I lead the back-office applications and vertical software coverage here at Bank of America. Today, I'm joined by Rohini Jain, CFO of BILL. Rohini, thank you for joining us.

Rohini, I want to start off with a very high-level question, maybe for investors that are newer to the story. First, talk about BILL, what you guys do. And in the world of AI and agentic, what is BILL's value proposition and all of that?

Yes. Great question and something we talk about and think about a lot. So what does BILL do? BILL started out about 20 years ago with our founder, Rene, trying to build a software to simplify the back-office operations for the SMBs. So SMBs could focus on growth of their business, doing what they want to do and take away the friction of managing the paperwork and the workflows and approvals and financial management basically.

That's how it started out. And over time, we continue to add feature functionality and products to it. The next thing was building out a payments platform where we could then enable not only the financial operations, but also financial transactions. What that led to was building out a regulatory infrastructure and a large set of data that understands risk and understands the customers and the suppliers and collects a bunch of data about very closed-loop transactions where even before the transactions, there's a lot of companies who enable transactions only have just the transaction data.

We are in the workflow. So we know what happens before that. We understand the cash flow situation. So we can actually help the SMBs manage their payments in a certain way and which type of payments, when to make it, et cetera. So what we do really can enable the SMBs to focus on growth versus dealing with the back-end operations, payments and all of that stuff. So that's primarily what BILL does.

And how we are positioned in the AI world, and I just talked about our data and the trust that the customers have, and we move a lot of money, almost a percentage of GDP of the U.S., we talk about that a lot as well. So that has enabled us to build a lot of trust. We have built a lot of regulatory muscle that enables us to do all of that in a very efficient and accurate way.

And if you build out an experience that is AI first or AI native, you could take out a lot of friction. What Rene talks about, our founder and CEO talks about a lot is we were on this journey of helping SMBs do their. We were doing the work with them. And now we are able to do it for them. So we are building those capabilities where we are not only automating tasks and simplifying tasks, but simplifying jobs or taking -- or building out agents capabilities and everything that will reduce the number of jobs that SMBs need to do, and that's where the real value for them comes through actually money back in their pocket that they can actually spend on growth.

So that's our next pivot here, and we made some big announcements during our earnings call this time. We leaned out our organization quite materially. We are -- we also announced a couple of weeks ago that we are changing some of the leadership at the top as well. All of those changes are really going to help us drive velocity and execution in this vision of AI native. The data we have, the trust we have, the regulatory framework we have and the integration of the software where we simply do things for SMBs on the financial operations side and enable payments seamlessly when and how taking out some of that decision-making, helping them manage cash flow and such. That's where we can make a step change with the AI-led experiences.

Got it. Could you actually remind us of the announcements and some of the leadership transitions you made and how you think about the impact to both growth and profitability?

Yes, absolutely. So let me actually go back to -- I think it was about 10 months ago when I joined as the CFO of BILL. So that's my history with BILL. When I joined, one of the things that I was looking at, and there was a lot of conversations already with the management team on was we have had a 20-year track record of growth. And as we look at the P&L profile, how do we make a step change this year on the profitability side?

So we were trying to balance -- as the growth was stabilizing in a mature company, we were starting to think much more about now resetting what the financial profile looks like. And we engaged with external consultants. I did a lot of work in just sort of understanding what the lay of the land is, and we came up with a lot of things that we wanted to do to streamline our operations, our company overall, et cetera.

So over the last 10 months or so, we have done small restructurings and tweaks to the expense profile. But the big one, which we've been working on for several months was announcing up to a 30% workforce reduction, and that was during our earnings in the first week of May. We are executing on that. That's a big reduction in workforce, and we are doing it really thoughtfully in the sense that we preannounced it.

And now we have -- we don't have a situation where suddenly -- one day suddenly 30% of the workforce walks out of the door. We have 1.5 months to 2 months to thoughtfully transition the roles that we do not need anymore to the people who will take over parts of those roles. We are driving much more focus in terms of what are the few things that we're going to do and do them really well and fully fund them. We are simplifying the org structure to take out a bunch of levels for the size of the company.

We want to make sure that we are not only at the benchmarks that we see in the industry, but we are better, especially in the AI world that helps us move with velocity in the next several months. And the third and the key part is to actively embrace the AI tools that are available in every function. I own finance, analytics and legal. And I can tell you that day-to-day, my life is getting simplified with the tools that I use and the amount of work my teams have to do to give me answers is rapidly simplifying.

So I think all of these together help us to do this with confidence, reduce our workforce by 30%. Right after that announcement in the earnings, we also announced that we are getting a new CRO. So this is to take us into the next phase of BILL's growth now that we have reset the profitability profile. Again, thinking of what we need to do as a public company has 3 legs of this tool. One is profitability, which we worked a lot on.

Just to give you some numbers, we first guided when I came in a 190 basis point expansion of operating margin. And we actually are delivering more than twice of that and setting ourselves for that step change that you don't even see in the numbers yet into the next year. So huge amount of work there. I would say that leg of the stool has been worked towards -- the biggest benefits have been taken.

The second was -- is capital return to the shareholders. So we are -- we announced a material buyback of $1 billion in the last earnings as well. We are actively executing on that. We think this price is really attractive, especially thinking through the opportunities that we have ahead of us. So executed on that. And the third leg of this stool is growth. And this is where our CRO comes in with a new muscle of how to take us into this next AI-led selling profile, somebody who's seen growth, somebody who's worked closely with the SMBs and in that environment and has a lot of muscle built in on how to work through channels, through your sales force, et cetera.

So we are changing our CRO. We are also -- our CTO is moving away as well, and we are making room for a new CTO who's been with the organization for a long time. He has -- I mean, Ken has done amazing work for BILL. He was the right CTO for the time, and he built out an amazing AI platform in a very short period of time on which we can now build agents and experiences very seamlessly without having fragmented experience.

So -- but he is taking -- he's moving on, and we are promoting one of our people into that role. And Eric is amazing. He is so smart. He's been with BILL for a very long time. He understands the experience. He understands the platform we've built and is able to work in a leaner, meaner organization that works really fast, and he's got much more of a start-up mindset. So I'm really excited about that.

And the third change is we are putting all of our experiences across payments and software under one Chief Product Officer, which is Mike, who joined us about a year ago as well. And Mary Kay is moving away who used to own payments. Now this is the right move also for us because now we have one person who is end-to-end thinking about our experience. So what the customer sees irrespective of whether it's payments or whether it's software, it's one experience. And everything is thought through and going to be built with this AI-native mindset, which takes out a lot of friction and makes our experiences seamless and modern.

Understood. Maybe a 2-part question here based on what you just said, is there, one, any risk overlay conservatism or any notion of conceptual risk from this management transition? And two is, if we quantify some of your recent results, right, you had 16% top line growth, operating margins of 20% and you kind of talked about some of the growth of margins historically. But you guys historically referenced a Rule of 40 framework. So how do we think about that trade-off between either reaccelerating growth to a 20% mark or focusing on margins to get you to that?

Yes. I always have said that the best way to expand profitability is growing revenue, which just falls through the bottom line, which is great. But periodically, you have to look closely at the structure of the financial profile and make some tough decisions to reset it. So that's what we've done.

Now I think majority of the focus will shift into the next year to start to build out the things that really drive growth into the next phase of BILL. So I would say that we have very materially changed the profitability structure over the last 12 months. And the focus will go back into growth and driving margin growth through, a, revenue; and b, the revenue-linked expenses. So those are things like rewards, processing costs and those type of things.

From here on, we think the discretionary expenses are rightsized, and we will continue to manage them thoughtfully, but we don't expect any step changes there. So that's how I think about that. And if you think about the risk from all the changes, I mean, this is a lot of change. We are executing within a very short period of time. We have been planning on it and thinking about it and what is the right approach to do it for a period of time, so as to eliminate the most important things, most important risks.

What I am focused on is the 2 commitments that we make to you guys, which we take very, very seriously is the revenue commitment in the guidance and the OI commitment in the guidance. So those 2, we will protect with all of the tools that we have at our disposal, be it retention packages for people or making sure the transition is smooth and the package people -- outgoing people get is tied to what they perform over the next 2 months and how they transition.

So there are all these tools that we are using to make sure that we are eliminating the risk. I'm less worried about the management or the leadership changes. Those leaders will stay as consultants with us for 1 year. And they're amazing individuals, amazing leaders. And I know that if I call them or anybody else on the management team or the team overall calls them, they will be out there to help us get through the problem. So I'm less worried about that, but there is a transitionary period definitely in the next couple of quarters that we have to work through to get to a different organizational structure.

Great. Maybe if we take a step back and talk about the revenue growth drivers, your transactions business grew 18%, subscription is about half of that at 9%. What are the drivers for both segments, right? What are the puts and takes of the growth? And what's the long-term trajectory?

Yes. So let me start by subscription -- with the subscription side of things. Subscription revenue is less than 20% of our total revenue now. And we have been accelerating growth over the last couple of quarters with the subscription side. Now that's driven by 2 things. One is we have talked about our intent to go upmarket and try to get higher quality customers versus just customers who would probably be on the lowest plan and not probably interact with a lot of different products and the depth of the portfolio that we have.

So we are moving upmarket. That means fewer customers who give us more revenue per customer. So you see that trend increase, you see the subscription revenue increase. The other piece of the subscription revenue increase is also the pricing rightsizing we are doing. So I talked about it in a couple of earnings calls earlier on when I joined that we're looking at the pricing structure. We had done nothing for almost 3 years.

And this was the time to start to think about the value we're giving to our customers and what we are realizing in return. So we rolled out some small pricing changes, which rightsize the pricing of the value prop we have for the customers and really excited to see the results, and we see sticky customers. We see the customers who want to retain are staying on the platform because it's still one of the better products in the market and has all the bells and whistles and features that people need.

So that's on the subscription side. We saw a really healthy 9% growth last quarter, which is an acceleration from the prior quarters and hope to continue to see that growth. The second part is our transaction revenue. Again, transactions are very much tied to the customer growth and the spend environment. And the spend environment of the SMBs, as we've said, continues to be fairly stable and resilient. It's not growing at a very healthy clip right now, given all the uncertainty in the environment, there's inflation and such.

But because BILL has a very diverse portfolio of type of customers and where they spend and who they are, that gives us kind of offsets of there are some things that are not doing very well like retail discretionary, spending on travel and entertainment is a little bit softer. On the other side, we see some of the AI expenses being stronger and manufacturing in the U.S. has been stronger as well.

They kind of offset each other, and we continue to see overall resilience across the board. So that's the backdrop of how we think about next year. And as you know, we haven't yet guided. And given all the changes, we are heads down right now in terms of planning for next year and the growth algorithm for the next 3 years looks like. And we'll be really happy to share all of that in August when we meet.

Right. You have about, I think, $35 million in float revenue...

A quarter, yes.

A quarter, right?

Yes.

How do we think about or how are you hedging against you talked about inflation, but the risk of lower interest rates?

Yes. If you look at our gross margin profile, you'd see a fair amount of stability in the rates despite the float rate reduction. So there are several things, right? Number one, the TPV continues to grow. So the balances we hold are also growing with that. Yes, the interest rates are coming down, which we've taken part of the pain already. So there's less of that, I think, how low can they go?

So one of them is just we continue to drive growth on the platform. So the balances will continue to help us. I do want to mention here that float is a very critical part of our revenue stream. It's a very profitable part of our portfolio. And we invest a lot to earn that or we have invested in the past a lot to earn that revenue. The trust of the customers, the platform we've built, the security enables us to hold those funds for the customers.

So it's important for us as a monetization stream. Now how can we offset some of the impacts of rate changes is we're building out the BILL Cash capabilities, which help us not only increase our TPV flywheel. So if we are holding cash, we can approve more transactions. We know the customer well. Our losses can be driven lower from that. So there's a lot of ecosystem benefits we can get from driving BILL Cash, which is a relatively new product for us.

But also, we will earn some revenue from an interest perspective as people start to hold cash in that account, and we share part of that interest rate with them. So there are a variety of things we're looking at to continue to grow that portfolio.

Right. You mentioned earlier the $1 billion authorization. How do you think about the split between returning cash to shareholders and M&A?

Yes. And several thoughts on that, right? At the levels of stock that we are seeing, it's just very attractive to buy given the opportunity we see ahead of us. Having said that, we have a very strong balance sheet, and we have a really good cash position. Our cash flow, especially with all the productivity actions and a durable revenue growth profile, we see cash flow annually growing in a healthy clip as well.

So with all of that, I would say that we -- despite doing the $1 billion buyback, we continue to have a good amount of cash to be opportunistically doing M&A as we may need to. If something really attractive comes through, we have enough dry powder to be able to execute on that. But we want to be very thoughtful. I mean we have a very clear focused priority right now to create an AI-native experience that is absolutely frictionless and creates a very sticky and easy-to-adopt product.

So we focused on that. But the other thing is -- and this is something that I think about always is as we think about build and buy as a finance person, it was always a really good mathematical exercise and modeling exercise to see what does build cost and what does buy cost. The cost of build with AI is starting to come down rapidly, and I see a lot of excitement. If you want to do something, there's a lot of excitement in our product and engineering teams to want to do it themselves because the time to execution is shrinking. So I think that changes the equation of build and buy in my mind a little bit. Additionally, you have less risk and complexity and integration of an outside portfolio. So right now, I don't see any very exciting things that I will jump at.

Well, maybe to ask another question on the buy side of the equation. Given your cohort of customers, is it -- does it make more sense to buy a brand name, something that they're familiar with? Or in this market where we're evolving so quickly with agents that it's better to buy the better kind of AI native technology. It might not have an established customer base or whatnot, but you're buying the best technology.

Yes. And this is where I think the question of how good is the technology and how well we can integrate a technology. And having been in a few tech companies, I've seen the rate of success with M&A integration is low and it's hard. So to be able to -- I think acquiring talent is very attractive. So if there's something that has talent that can build rapidly that capability within our ecosystem, that feels like something attractive that we would want to do once we're done with this big task of creating a certain experience. But I don't -- I'm not seeing any big brand names that would excite me at the moment...

Yes. You're making a shift from kind of SMB-type cohort to larger businesses. You added, I think, it was about 4,000 customers last quarter. I think that's closer to the lower end of the range, but that transition makes sense, right? Can you talk to us about that? How you're thinking about adding more quality customers versus quantity of customers?

Yes. And one of the things I've talked about also over the last couple of quarters is we -- all these metrics that we look at are very important leading indicators into the growth profile, but they're also just one indicator. And in the past, we have kind of overemphasized a couple of things, but I think we need to look at the overall profile of all metrics like we have anchored more on take rate, less on TPV, but it's take rate times TPV equals revenue.

We have anchored a lot on NNAs, not enough on ARPU, but NNA times ARPU is revenue. So I am constantly looking at all of those metrics that drive the revenue growth. And at different points in time, there will be different things that will be more important to us. And as we are starting to make that shift into higher-quality NNAs and driving growth in a shorter period of time, ARPU is going to be more important for us as we figure out what are the right compensation plans for the sales team, what do we want to incentivize them for? What is the right quality of customers.

And as we start to stabilize that, we want to start then using our other channels like Embed where we have Paychex, which probably will bring in a lot more customers, but they are a lower profile, but we're not spending our sales force time in getting those customers. Product-led growth can bring in -- if it's a very frictionless onboarding experience, product-led growth can bring in the customers at the lower end of the profile.

But right now, we have a sales motion, and I want to focus them on larger customers. Given that and given all the changes over the next quarter or 2, I think that NNA would be one of those metrics that we'll see more fluctuation as we try to focus on managing revenue and OI.

Right. We only have about 6 minutes here. So I want to open up any questions to any investors in the room. It's always generally a very quiet room, but -- at these conferences. But maybe to talk about competitive dynamics right now, right? I think you have big companies like Intuit that you compete against. You have smaller, maybe more nimble companies like Ramp. How do you think about where you fit in the overall stack? And given the fact that you have an embedded platform across all these different dimensions, how does that differentiate you versus your peers?

So that's actually a very asked question. So the way I think about it is there are several players in the market, and there are more coming only because the size of the market is so large. So in a way, there is room for everybody. And I think what's happening is everybody is finding their ICP or the customer profile that their product is really suited for. So as I think about us, we are really focused on our ideal customer profile where we win more deals than anybody else is anywhere from like 20 headcount to 250 headcount type of a business.

And that for us is the sweet spot. We continue to move towards that 250 versus the 20 as we build out the size and scale and feature functionality for those customers. If I think about Intuit, probably on the lower side of that ICP that we have, they have been trying to do bill pay for a very long time. I think running a payments business fully integrated into a software is not easy. You have to create a lot of different products, build a regulatory framework.

And it kind of starts to become for Intuit a different type of company. So how much they want to lean into the complexity of payments is to be seen. But right now, I'm not seeing a lot of complexity in the product that they offer and the overall seamless integration that we have. So I feel we have more depth. Similarly, with Ramp, a lot of talk about it. Again, it's not a public company, so we have limited understanding of their financial profile and such.

But they play a little bit more on the higher side of our ICP, and they are primarily spend and expense, whereas we really sell the platform from an integrated perspective. Again, depth of the platform that we have is way better and richer for what these customers, especially on the higher end of that ICP want to do. What Ramp does really well, by the way, is their experience is very frictionless and seamless.

But in this age of AI, that's not hard to build. So that's our focus on how do we start to become a very seamless, frictionless, easy-to-adopt product, which is, again, best-in-class in the market from a depth perspective.

Right. Maybe the last question here, and this was actually going to be my first question to you, but I decided to save it for the end is, as you mentioned at the beginning of the conversation, you're now 10 months into the role, close to a year. You bring a fresh lens, right? I think you've talked about some of the management team who was maybe a little bit more seasoned and been here for around a little more a while.

But I ultimately want to ask you, when you came in here and you look over the last 10 months, what were your learnings about things that could be improved upon? And then when you look about the strategy for the next year, the next few years, outside of everything we already spoke about in terms of growth and profitability and all these other things, like what are your key initiatives?

Yes. So a couple of things. I started out about 10-some months ago, who's counting. I was just joking the IR team this was the last conference. I said, now that I've done this, my whole...

You've done the whole circuit.

Yes, I've done the circuit. I've done the year. My first one was Goldman. But anyway, a few things. It was a very intense year. I have to say. I did not expect that. There was a lot of things that were happening. I joined and I had to get ready for an earnings in just a few weeks of starting, finalizing the plan, having all the fun with the activists and a bunch of market rumors, getting through that and executing on 3 workforce reduction projects. And this is all while delivering on the revenue commitments that we had made at the beginning of the year.

So I think it was action packed. It was intense. It was hard, but it's been very fulfilling and I probably learned more than I could have ever had in any other place. So thankful for that. From a perspective of going forward, right, I mean, we did a lot this year, not only on a financial profile perspective, but if you look at the execution, we rolled out new products that are now starting to scale. We rolled out SPP. We rolled out BILL Cash. The AI platform was built in a period of 6 months, which is now enabling us to do all the AI things quite rapidly.

So there was a lot of execution that happened in the year. Now looking forward, all those new products that we've built out, we're going to focus on scaling those. We are going to be focused on a step change in the experience that BILL has. And from a finance perspective, my job is to enable that growth in the most efficient and effective way. So how do we allocate resources in the right places. We said that from the workforce reduction, we want to put back about $20 million, $30 million back into the business to support the growth initiatives.

And as AI comes out, we want to make sure we have the right skill set, we have the right tools for the company. We are not over constraining the growth side of things. And when the new product is ready, we want to make sure that we are investing in the right GTM motions, especially as new Chief Revenue Officer comes in, we want to make sure that, that person is able to do what he intends to do.

So I think that's going to be my role to really support the growth now that we have rightsized the profitability, looking forward and deliver -- drive accountability. And that was something that I said in my first earnings, that's really important to me as my brand, and I want to make sure that I'm not only supporting the team, but also making sure that we are delivering on what we say quarterly annually.

Got it. Rohini, thank you so much for joining us today.

That's great. Thank you for having me.

Thank you.

All right. Thanks, everybody, for joining. We're a little late. Everything is running a little bit behind. So apologies for that. My name is Tien-Tsin Huang. I cover the payments and IT services sector at JPMorgan and always delighted to have BILL with us here.

Always look forward to having a good conversation with Rene Lacerte. So Rene is the Founder and CEO. We also have Rohini Jain in the audience here, the new CFO there. So thank you for being here. Rene.

Well, thank you for having us. Always a good conversation. Like you said, both ways. So...

It's fun. I know you're coming a long way. So I thought we kick off what we learned a lot from your most recent call. Rene, I have been thinking about it a lot and how to be productive with this time that we have with you. So you called out this being a pivotal moment, right?

And you talked about the opportunity for the company that you founded, right, to make some serious changes and you've been busy with, right, focusing on profitability. I wrote down, right, investing, you got this AI workforce optimization. You got a lot of industry consolidation going on. You've announced a buyback, right?

And of course, there's been a lot of shareholder engagement and activism, too. So how are you personally organizing all of these things, Rene? I thought we'd start with that because as the founder, I know you look at it very, very closely. You have big ambitions for the company. How do you organize all of these things?

It's a great question. I think from a day-to-day perspective and doing this including both companies close to 30 years now, you have to have a little bit of ADD because you have to take on multiple tasks to be able to do all this because it is a busy time. But the reason I called it a pivotal moment is that AI, it's a real impact, and it's a transformational impact for any software developer.

And we are at our core, building software to connect to payments. We are converging software and payments. And so our ability to deliver more products is real. And that's something that we wanted to like look at this moment and really understand how we could actually do more for our customers by leveraging it. So that was one component of it.

And then I think from a focus perspective, to your point, like there's -- maybe one way I'd step back is we see kind of 3 legs of the stool of how our investors probably look at us. So one is shareholder return another would be profitability, other would be growth. And so from our perspective, we wanted to make clear to all investors what our intentions were across all of them.

I think the focus on the workforce restructuring will give a lot more clarity on what it is that we're going to be doing from a profitability perspective, our path to the Rule of 40 -- all of that is, I think, something that's important for investors. I think the share buyback is important. But then when it gets to where we really focus, it's on the growth, right? And so where I'm spending my time is understanding the capabilities of AI inside the company, the capabilities of AI from peers, understanding how that can translate into experiences, both internal and external.

So really working with the product teams on kind of the extension of the vision. Vision hasn't changed in the company. We want to make it simple to connect and do business. But how is it that we connect and do business for our customers. And so that part of the vision will change, how we build it will change. And that is where I'm spending time and I think how we serve our customers from an efficiency perspective will also be how -- where I'm spending time right now.

So we're in the middle of this realignment, if you will, inside the company on becoming an AI-native company, both internally and externally. So all of my time right now is focused on helping the teams make progress in their vision around what it means to be an AI native company.

So let's stay with that AI native. I mean, Rene, you've seen a lot of tech cycles in the past. And I'm always trying to learn from those past cycles and think, okay, what's going to be similar, what might be different? And I'm curious, I hear your sense of urgency around AI as being very, very high. Is that fair? How would you compare AI to pass tech waves and why you're so focused on this transformation?

Yes. I think at the core, I'm a builder. I just love to build capabilities for customers. I love SMBs and mid-market companies. I think they are kind of the glue of society. And so I love building. And the urgency is because AI is accelerating and collapsing the distance between an idea and a vision and execution and creation.

And this collapsing means that it's a unique opportunity to actually deliver more capabilities to our customers faster. And so it is the highest sense of urgency I felt in my 30-plus years of developing software. It is a tool, it's a capability. Software still comes back to knowing what to build and how to build it. And so AI is a part of the how to build. It's not the only part of the how to build, right?

There's lots of development -- lots of software development life cycle, all these different things that are how you build. AI is a component of that. But what you build comes from expertise. And I think us really understanding where we've developed expertise over time allows us because of the broad base of customers to really think about where could AI disintermediate the existing friction that customers may have or businesses may have in their financial operations.

And so we see opportunities around onboarding. We see opportunities around kind of transaction capture. We see opportunities around the buyer and supplier relationships. You've seen some of the agents we do on transaction capture and buyer supplier relationships with the W9 agent. We see all of that already starting to play out.

We have over 100,000 customers that are leveraging our agents today. And I think what this really comes back to is something I've talked about. And again, it's back to the urgency -- when I started this company, financial operations was a do-it-yourself model. And so every business had to figure out how they were going to manage their financial operations. Were they going to file alphabetically by first name or last name?

I mean simple things like that. They had to figure out how they were going to manage their financial operations, issue checks, reconcile checks, what accounting software integration they needed, if that. And we came along, we enabled to do it with you. And so now we walk a customer through the entire process of how -- what's the workflow you need? How do you connect with your suppliers? How do you make a payment happen? Do you have to actually write a check or then separately send an ACH or can it all be in one platform?

So we're in a do-it-with-you mode now. And what I see AI doing, and this is again back to the urgency, it's going to totally mean that we're able to deliver a do-it-for-you experience. And a do-it-for-you experience, and you've heard me talk about this before, if you think about this category of financial operations, the closest one that I see is payroll.

And so payroll is in the dominant form, it actually probably went from a do-it-yourself to a do-it-for-you -- that would have been ADP and Paychex was a do-it-for you. And then Intuit came along and some of the stuff I built out Intuit was a do-it-with-you approach. The company I started was a do-it-with-you approach. But the thing that really drove the overall industry was do-it-for you.

And so AI being available now that we can actually quickly go to all the things that create a burden and a friction for customers, whether they're customers or prospects, that's why the urgency is there, and it's something that we're very excited about driving.

So do you think, Rene, that this expands the TAM? Or does it just increase the penetration of the TAM that we've been talking about for quite some time? Because it does -- I can appreciate that there's some pricing potential here, and I've heard you talk about monetization of some agents, but it's just this does it accelerate the TAM penetration? Or is it more TAM expansive in your mind?

Another really great question. I think it's both, and that's probably the easy answer to give. But the reason I think it's both is I think if you think about the friction that we see customers have in adopting the platform, we think that AI will enable us to remove that friction and really reduce the amount of complexity it is to actually understand what it is that they need to be doing with the financial operations. So -- that actually means the TAM is the same number of businesses, we're actually able to get to them more.

That's the first part. But to your second point, one of the things we've talked about is moving from essentially task-based agents into roles-based agents. And when you look at the labor costs associated with financial operations, it is significantly greater than the existing infrastructure costs that people have.

And so that will also expand the TAM. I don't think that's the next year or 2. I mean you'll see some of that from us. But overall, what you'll see is us making sure that we're getting the solution right to expand the penetration of the TAM, while learning how to actually expand the monetization of the TAM.

So both will happen, but it's going to take, obviously, there's a first order of business, which is getting the customers and the second order is to continue to monetize. I think the other thing that is interesting for us is that we have this combination of software and payments. And I think for us, part of the TAM expansion is just getting more penetration of our existing payment products, right?

And so we have lots of levers to grow. It's one of the things that make it fun to work at BILL is that there is no shortage of opportunities to drive growth in the business, and that's something that all of our teams are thinking about. And what you've seen us do is actually continue to drive payment adoption across the platform.

Okay. Good. So I have to ask, I know it's a big topic in software and how AI might lower the barriers to entry for players to compete. So it comes back to what's the moat for BILL. I've heard you talk about that quite a bit.

Have you changed your thinking about describing what your moat is and why other merchant platforms or software platforms, SMB marketplaces, whatever, why they can't replicate what BILL has created?

Yes. I think the first thing that I would focus on is just expertise in knowing what to build and how to build it. And so I think that's a real thing. I think I've been building software through multiple generations of tool development. And I've seen that each generation makes you more efficient in developing what you want, but you still have to know what you want to build and you have to have a process for that.

And so that first one, I would say for us is that we've got SMB and payments expertise that nobody else has. You just look at our size and scale, B2B payments, over 1% of GDP, over $300 billion going through our rails, hundreds of thousands of customers, billions of transactions, $1 trillion in spend lifetime. That's a tremendous amount of expertise that comes off of every one of those transactions, every one of those customers. So that's the first part of the mode, like knowing what to go build in this AI native world.

The next part, I would say, is really the payment platform capabilities that we have. We have a very seamless end-to-end platform that is deeply understands the problems SMBs have and enables the different payments that they need. And so we have 12 different payment modalities that our customers have access to when they need access to it.

Behind that, understanding what that means is that there's a lot of compliance. There's a lot of money movement. There's a lot of reconciliation. There's a lot of different challenges here and there. There's risk and credit that actually come into that play. And our payment capabilities and the fact that we weave all of those together so seamlessly, enabling every customer to be able to make those payment decisions or every supplier to be able to make those payment decisions, that's a real competitive advantage.

The third area, which is predicated on the first 2, really is the data that we have. So you just think about the vast amount of data that we have across payments, across documents, across the SMBs and the workflow they have -- that gives us insights around, again, what to build and how to actually manage the credit and risk exposure that might be inside of any business transaction.

And so that actually really creates, I think, a fairly important moat for us because we have a size and scale that only gets bigger every year. And then the last moat, the fourth moat that I would talk about is our distribution. So we've been very focused and understood from the beginning that reaching the broad market is not easy. It's not easy. You have to have multiple channels to go after that market.

And so we have a direct effort, which drives great revenue per customer for us. We have an accountant effort, which probably drives more units for us. And we have a partnership effort, which can be both depending on the size. And we have this fourth thing that we call the network that is obviously pretty helpful in onboarding a customer as well as seeing some of those upgrade in.

So the distribution is something that you can't -- you can come up with a new idea today, but you still need to work hard at distribution. If I were to look back over the last 20 years in building BILL, how much of it was building great product and how much of it was building great distribution. They're both equally valuable, and you can't get one without the other, and it takes time.

So I think that is a moat when it comes to any AI players coming in, like they have to go find the distribution, and it's not something that's going to happen overnight.

So we've seen some of your competitors address that by going into deals, maybe address some of the 3 or 4 items that you talked about in my mind, I think of, for example, Brex going to Capital One, right, the balance sheet and some scale and some distribution. So I'm curious if some of the recent consolidation and activity out there, if that's changed your strategic priorities in any way?

It hasn't changed the priorities. I think when we look at everything that we've done, everything that we've built, a key factor in business in general, I think it's going to become even more critical in an AI world is trust. And so what we've been able to do at our size and scale is build trust with our customers, with our partners, with the accountants, and that's not something that goes away.

So as others are looking for distribution and potentially consolidating and let themselves be acquired, that's actually a different problem. Like we have distribution, we have opportunities. We still obviously like partnering with our partners from that perspective. But I don't see the consolidation.

And when we looked at -- if we were to talk about our close one analysis, we have not seen any change over the last few years from a cohort analysis perspective. If anything, in the cohorts we care most about because we've been focused on it, we're getting better at close one.

Okay. Good. So let's pivot a little bit and talk about the workforce reduction, which I know we've talked about it. Again, I know you put a lot of thought into it, Rene. So how did you land on the 30% reduction? And what can you relay to you investors about why that's not going to drive any service disruption or go-to-market disruption as you go through this new sizing?

Yes. It's -- any time you do something this meaningful, you have to put a lot of thought into it. And I think one of the -- again, one of the competencies and things that we've been able to do and consistently demonstrate, I think, to investors and others is that we execute well. And so we put the thought into it and we deliver and exceed what we're saying we're going to deliver.

And so on this particular front, we looked at this as very simplistically, and sometimes it's easier to step back and just look at the simplistic formula. Simplistically, is there 10% to 15% less stuff that we could be doing that's not creating real value for the company. And is there 10% to 15% efficiencies that we should be able to gain either through AI or just being more thoughtful about the organizational design.

And so that's how you get to 20% to 30%, which is why we said up to 30%. We're in the middle of actually doing all that work right now. We did bring outside consultants in to kind of help us think structurally about the business. And so now we're applying that with the teams to actually create the business of tomorrow, the BILL of tomorrow today.

We don't want to kind of piecemeal this. We want to get there. We want to execute in that fashion. So the teams are very focused on understanding what drives the performance today. And so we have put mitigating factors in place to try to address anything that might happen as a result. But like I said, we're in the middle of this, and I would always invest in the future of tomorrow ahead of just today because we have to get this right.

This is a pivotal moment. We have to get the transformation right. We have to make sure that we address all the capabilities that we want to be able to do as a company and are structured to be able to move at the pace that we want to move. And so I think we'll have more to share in August. But at this point, we feel good about being able to balance and manage the transformation of the business into AI data while committing -- maintaining our commitment to the numbers.

Got it. So you're reinvesting the minority of the gross savings back into the business. I'm just curious, how did you arrive at the distribution of flowing it through to the bottom line versus reinvesting?

A lot of the thought around this was what we were ready to invest in. I mean the teams have -- we have a long list of things that we want to invest in. A lot of the thought was around understanding the efficiencies that we were going to get and what we expected where the increased costs might come, whether that's talent or tokens or whatnot.

So there was a lot of thought put behind that. And I think the -- our focus is always on what's going to be the right thing to drive durable growth for the business and to do that profitably. And so we've -- I think we've demonstrated that this year. I mean I think you've seen us actually exceed the growth targets and the revenue targets that we gave out at the beginning of the year.

And I think the revenue targets were a good incremental beat on that, but the profit have been significantly more. And so I think from our perspective, we actually can do both, and we can actually drive the capabilities inside the business the way we want to...

So with that in place, I know there's more work to do, like you said, there's no question a greater emphasis on profitability at BILL. So once we -- you've rebased with this new sizing of the workforce, what steps can we measure to see that product profitability compound? Is it more on the pricing side? Is it more maybe on sales efficiency? Help us understand where you see the bigger unlock on profitability.

I think our focus is really driving the right customers in the door and at the right price structure profit levels, if you will. And so on the right customers, what you've heard us start to talk about this past year is really focusing on the customers that get the most value out of BILL.

So those customers are probably going to be a little bit larger than the smallest customers that are on the platform. We are still going to serve the smallest customers. We're not going to spend aggressively at acquiring those customers. We're going to spend more aggressively at the larger customers that drive a lot more ARPU.

One of the ways that, that shows up has been the cross-sell opportunities that we've had. So if you look at the last year, our cross-sell of both the spend and expense and the AP product is now 39% year-over-year growth. So that tells you that we're driving more value for the customer because we have this integrated platform that enables them to do both, and that's really valuable. So you'll see more opportunities on the revenue side from that perspective.

On the margin side, what you've heard from us this past year is really, hey, we're going to take a look at rewards, and we have focused on rewards, and we've actually been able to start bringing that down. We know there's opportunities for us to be selective. It's not -- by the way, if you look at rewards, it's not across the board. We have plenty and plenty of customers that have a very strong rewards profile that we're happy with. But we've had some over the last few years that are probably more focused on the rewards part of the product versus the product part of the product.

And so we're very focused there. I think the other area you've seen this is in some of the emerging portfolio ad valorem products where we've been growing that nicely. And now we have more data and more focus on incremental margins to understand which ones of these customers are actually going to not produce to the bottom line. They only produce to the top line.

And that focus and that intention is something that comes from Rene coming into the company and just creating a lot more responsibility around all of our teams driving durable profitable growth. And so I think that's the thing that we're focused on. And I think for investors, we've given some proof points, you will see more proof points like that in the coming quarters.

Yes. So simplistically, larger clients is going to have more cross-border needs or potentially more cash flow needs. And so that's what drives the natural opportunity to...

Using all of the products, right? If we have a customer that uses AP, that uses AR, that uses S&E, that uses our BILL cash product and then their suppliers are across the board, which is going to be -- we're going to get some suppliers doing FX, some suppliers doing [indiscernible].

All of that means a much different customer. And so if you look at the smallest customers, we may not be able to get them to do all those things. And so though over time, we would expect product-led growth to be able to drive all those things for all customers. And so that's part of the focus on AI native is actually removing the friction that requires humans to be involved in the marketing and sales process.

So where does embed 2.0 then fit given everything we've talked about? I know you've given us a lot of details in the past and -- you announced some partners, but just an update on 2.0 embed?

Yes. So it is one of our unique competitive moats, I think, is our distribution on that 2.0. We've been able to leverage everything we've learned over the last 10 or so years with our financial institution partners and throw that into an experience that allows software providers such as NetSuite to activate into the payment capabilities that we have.

What we've seen early on in the experience this past year is that we are getting those customers to activate multiple payment products. So all of them ad valorem is I think the partner has 4 different payment products, and we're seeing adoption of those payment products at rates that are closer and more similar to what we've seen inside of our non-partner business. And so that's a very, very good sign.

Now obviously, some of these partnerships like NetSuite are much larger customers. And so if we can maintain that as we roll out the go-to-market, that will mean real revenue for the business. And so our commitment is to take the -- that expertise I talked about in the beginning around payments. We have SMB domain expertise. We also have payments domain expertise to leverage that expertise into the capabilities that other people can access as long as we have the opportunity to obviously earn revenue and get the data we need to be able to make those payment decisions safely and securely.

Okay. Good. So maybe I did want to talk about spend and expense, but before we get there, maybe just to make sure I ask the question because people want me to ask you just the health of the SMB, Rene and you always have great insight on what you're seeing in terms of spend per user or spend per SMB, whatever metric you're tracking, what signals are you paying attention to? What are you observing?

Well, I mean, the one thing that we feel good about is that our same-store sales essentially TPV per customer is up 4% year-over-year, right? So that feels good. I would say broadly, though, and I've been saying this for a couple of years, we're not yet really in a growth mode other than the AI world, right? And businesses, if you look at -- if you take out nominal, the nominal growth, you take out inflation, it's still kind of flattish, right?

And so I think what that means is -- and you hear this from us in any of the specific industry data that we give any quarter, it's kind of just seasonal, right? It's not like we can call a trend and be like, I think in Q2, we said construction was doing well, but we also said that was one data point. Q3 construction was less well, right?

So it's still kind of bumpy, I would say. It's not recessionary, but it's not growth. And I think it will be great to get to a place where growth comes back into the equation for SMBs.

Yes. It just seems like -- I know people ask us about energy prices, but that just feels like that's just -- that was -- that's the next thing to worry about. That was previously something else that we're worrying about. Okay. So just more of the same and still waiting for.

They're resilient. They're managing the business, they're growing, and that's always good.

Now your spend and expense business, right? I know the T&E business in general, as we've been asking your peers has actually been doing quite well. I mean Visa, Mastercard both talked about commercial activity being quite good globally, not just in the U.S.

How are you feeling about pushing that product a little bit harder. I know that your appetite for credit will also play a role there. Do you see any potential for shifts in trajectory there?

Well we are seeing, and that was the data point on the cross-sell units is up 39% year-over-year. And part of this is kind of the integrated the platform. We are still early days on BILL cash and rolling that out and understanding how customers are using that. But to your point on credit, there's opportunities when all of that is in one place for us to be able to understand the customers' overall creditworthiness in a better light.

And so that is something that I think over time will enable us to do more on that front. But we're very, very happy with the cross-sell. We're very happy with the focused growth that we've been driving with S&E being very focused on the customers and the go-to-market motions there. When we look at our ideal customer profile, like I said earlier, we continue to do very well on our -- the wins on the conversion pipeline that we have.

And if anything, we're stronger today than we were a year ago. And so I think to your point, I think there is this element of S&E because of the rewards component that has a lot of excitement is the wrong word, but obviously, it does drive strong revenue, not just for us, but for others, and it does drive rewards for the customers.

So there is energy there. But if you just step back, we're still -- if you look at modern SME platforms, still under, what, 100,000 customers, 150,000 customers. It just hasn't really cracked. You still got the largest payment companies in the world that are managing corporate card spend and expense. And so we look to continue to drive as much as we can and to partner where we can as well.

Okay. So when you think about pipeline and sales, just to bring it all back to the top, pipeline and sales, we've talked a lot. You've said that you'll see a little bit of a dip in size of users. So less about units, more about size spend and expense, we just talked about, you're pushing ad valorem. Of course, you've got the AI piece as well. But how would you characterize pipeline sales? Where do you think -- where are you going to lean a little bit harder on go-to-market?

Well, we always are going to lean hard on the accounts. We have close to 10,000 firms, and we know that we are an unlock for them. And the accounts -- if you were to talk to accounts when I started the company, nobody ever wanted to do any of this business. And now it's the fastest-growing part of the account practice is something called CAS, Client Advisory Services, and that's because of the capabilities that we provide.

So accounts will be one area. I think embed, I think the AI transformation that's happening, every software company is thinking about how they leverage AI for themselves, and they don't know how to do payments. So I think that's an opportunity for us to continue to leverage embed 2.0 with the capabilities that we have. And then I think that on the direct side, it's going to be this more focused spend on acquiring customers. That said, I believe a year from now, we'll be talking about how the opportunity for product-led growth has changed because of AI.

Yes. Yes. So 6 minutes left. So just hitting on take rate. I know, it's always an important subject. And I know it's hard to measure parts of basis points sometimes, Rene. But I think you've been -- you guys have been leaning more into this transaction revenue per transaction metric because there is some danger in looking at take rate. So what's the message here to us around penetrating and getting that monetization level higher?

Yes. I mean I think the most important part of the business that we're focused on is how do we create adoption of all the payment products that we have. And sometimes, the reason we're kind of starting to articulate this a little bit more succinctly is sometimes you're going to have large ACH transactions that come through that we're going to get $0.69 on, but it's massive to the TPV and that can force the take rate down.

And so then people kind of don't understand why is the take rate down? It's like, well, the TPV necessarily isn't apples-to-apples in that particular year-over-year comparison. So when we focus on the transaction revenue, that gives us a chance to be like, okay, well, that will be consistent because then that large dollar amount just becomes small.

It's just -- it was $0.69 before, and it doesn't matter whether it's $1,000 or it's $1 million. So that's the reason for that because there's been a lot of questions around take rate, and we understand this important part of the models that folks have. And we want to make sure that people don't get focused too much on that when there's many other things that actually make for the business growing.

Okay. Makes sense. So I have to ask you about stablecoins. We talked about AI already. Just to catch you up, right, Visa and Mastercard both talk about stablecoins and the potential around B2B, cross-border, things like that, you have a play there, of course. So how does it fit in your mental model of where you want to take BILL.

I mean on one side, I appreciate there's an opportunity to improve your transaction expense. But then on the other side, there's questions of, will that become a use case that drives demand and could it be disruptive? Could it lower your take rate or your transaction revenue, if you want to look at it that way? How would you summarize it all for us and what's important about stablecoins?

I mean I think what you get from me and everybody on the team is what is it that SMBs need. And sometimes that comes from what they ask for and sometimes that comes from knowing what they need.

What are they asking for?

And they're not asking for stablecoin, okay? And what they are asking for is they want speed. They want the ability to manage everything in one place. And if you look at the 12 different payment modalities that we serve, like we give them a lot on that front.

I think if you -- the real -- if you just step back and where is the real value of stablecoin, it's going to be in countries that have high inflation and high volatility in their currency. And so when you look at just the payments that are coming out of the U.S., our customer base and where they're going, they're pretty much going to the G7, right? It's going to be the European countries, Canada, Australia and China. I mean that's pretty much where the vast majority of the payments are going.

And in those particular currencies, the only thing stablecoin would provide is speed and yet we provide speed. So it's not something customers are asking for in the same way. That said, if they start asking for it, since we do 12 for us to do 13 or 14, it's not going to be a hard thing for us to do. It's just more to where do we focus.

And I think what you're hearing from us right now is that we're being very diligent about where our focus is because that is -- can be a distraction if we go chase after other things that don't yet have a business model case. And stablecoin doesn't necessarily have a unique business model case to what we do today.

Glad to hear it, Rene. Glad to hear it. So we're just about out of time. Let me end on a capital allocation or buyback question. You announced a $1 billion buyback. It's 1/4 of your market cap. Just your process of deploying that or executing that buyback? Is it more opportunistic? I think I asked this on the call, so I thought I'd ask again as we had a little bit more time.

Yes. I mean I think the Board, management, I think most people that we talk with do feel like there's an opportunity that the company is undervalued considering the assets that we have and the growth that we have. And so from that perspective, we want to be buying as much as we can just because that's one really strong way to return value to shareholders, right?

So if we can retire a bunch of shares, that actually creates value for shareholders, especially when you think about the profitability growth that we're talking about. So you fast forward a year from now or 18 months or whatever, if those shares are fully retired and you have the same profitability numbers increasing, then obviously, your EBITDA per share ends up looking better. So that was our focus on is what can we do for shareholders right now. We can do that.

We have the cash. We're not going to go make any significant acquisitions right now. We're very focused on this AI native. So we knew for the next 12 to 18 months that this was going to be a focus area for us. And so we felt comfortable deploying the cash, knowing what the cash flow was going to grow at.

So hopefully, people see this as just another example of our ability to take our commitment seriously and our shareholder value seriously and whether we were delivering above the growth or above the profitability expectations, we also want to deliver on the shareholder expectations.

Okay. No, looks an important vote of confidence. So glad to see it out there. I know you're really busy, Rene. So thank you for spending the day with us. It does mean a lot to me.

Okay. Thank you, Tien-Tsin.

Thank you, Rene.

Thank you.

Hello, everyone. Thank you for joining us and welcome to BILL's Fiscal Third Quarter 2026 Earnings Call. [Operator Instructions]

I will now hand the conference over to Jack Andrews, Vice President, Investor Relations. Jack, please go ahead.

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 Rene 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. In addition to our prepared remarks, please refer to the information in the company's press release issued today, our Q3 '26 Investor Deck and 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 a reconciliation of GAAP to non-GAAP and additional information regarding these measures.

With that, let me turn the call over to Rene.

Thanks, Jack. Good afternoon, everyone, and thank you for joining us. Our Q3 results extended our strong track record of delivering strong revenue growth while significantly improving profitability. Core revenue grew 16%, while our non-GAAP operating margin approached 20%. We also achieved another important milestone of GAAP profitability. This combination of durable growth and expanding profitability has been an important focus at BILL. The operational rigor we apply across the company has translated into consistent results and increasing operating leverage.

During the quarter, we made strong progress against our key priorities, which we will walk through shortly. But the work I am most intensely focused on and energized by is the AI transformation we are accelerating across the company. AI provides us a unique opportunity to further unlock what financial operations means deploying the scale and capabilities we have built. The work we are doing in this area will be a catalyst across the industry as we build new customer experiences that dramatically reduce SMB friction by going deeper into the financial operations stack that underpin every business.

We firmly believe this because of the success we are seeing. As we shared on previous earnings calls, innovating with AI as 1 of our top 3 priorities for the fiscal year. The tangible proof points we have seen rapidly deploying new agents to create more value for customers and driving greater productivity for employees have made it clear that this is no longer 1 priority among 3. It is our #1 priority. Over the last few quarters, we built powerful AI infrastructure, leveraging our data assets to launch a suite of agents. These agents are already in the hands of tens of thousands of customers, automating hundreds of thousands of invoices executing card payments end to end without human touch and scoring customer interactions in real time. Let me share some updates regarding our AI momentum.

We have accelerated the adoption of our AI agents. To date, we have had well over 100,000 customers using our agents to improve their financial operations. These agents are making a significant impact in creating real value. From our touchless transactions agent to managing suppliers with our W-9 agent to our invoice coding agent that has automated approximately 1.2 million invoices across over 9 million data fields, we are changing the game. We are unlocking the power of AI for our customer experiences and are excited about the breadth of additional capabilities we are building.

In addition, AI is helping us automate how we execute payments across the platform. Last quarter, we discussed our pay-for-you agent, which autonomously executes card payments based on each supplier's preferences, streamlining a multistep human workflow into an autonomously executed agent enables significantly lower per transaction cost and a better card accepting experience. Following the pay-for-you agent beta launch in early Q3, the agent has completed tens of thousands of card transactions without any human interaction.

Internally, we are harnessing AI to drive efficiencies and improve execution across the entire company. For example, we recently launched a new quality assurance agent that scores 100% of all customer interactions, compared with our prior practice in an employee many pulling a 1% to 2% sample set for review. This provides an automated data-driven evaluation to every interaction. Furthermore, this agent also provides real-time feedback and live queues to support staff during calls, which we believe will result in stronger customer value through stronger retention and more efficient customer management.

The results we are driving with AI are just some of the examples that give us the conviction that with the intense focus and urgency we are applying to AI, we have the opportunity to once again reinvent the category we created. This is a galvanizing moment for BILL. We are aggressively moving our company to become AI native end-to-end and rapidly changing how we work. We are building AI so it will not just be a feature or function, but that will serve as the fundamental core of our platform experience.

In the near future, as a business joins BILL, our agents will onboard connect, transact, understand and optimize cash flow while keeping humans in the loop. Customers will not only be adopting software when they join BILL, they will be bringing on a team of expert agents that learn their financial back office and run it. They will collect W-9s and invoices before the customer even thinks to act. They will connect them to their business partners and our proprietary network. They will autonomously identify which bills to pay, when to pay them and how to route the cash, optimizing in real time against the business actual financial position. They will flag the decisions that need a human and will then autonomously execute the rest. The value of our AI compounds rapidly because it learns the business and improves.

Inside BILL, AI is no longer just assisting our teams. It is executing real work. We are seeing our engineers ship faster. Our customer operations team handle greater volume and our go-to-market teams execute with greater leverage, seeing this in action enables us to transition to completely new ways of operating.

I started the company to solve pain points for SMBs that no one else was addressing or cared about. We have built unique assets that position us to lead our category. Our integrated platform, our proprietary network of millions of connected businesses and now the AI capabilities we are embedding at the core.

Essential to driving this AI transformation is the foundation we have built over 2 decades. Complex money movement, cash flow management and financial operations are critical functions where accuracy, reliability and trust are paramount to SMBs. To be successful in serving SMBs at scale requires a broad platform with sophisticated payment infrastructure and scale distribution. Let me discuss each of these in more detail.

First, we have a powerful platform that operates where software meets money movement. Our platform has moved over $1 trillion in payments and processed over 1 billion financial documents. This makes us a data company. We have unique data assets in the B2B payments landscape derived from the behaviors and context generated by hundreds of millions of B2B transactions. This proprietary data set is structurally hard to replicate, creating a durable, compounding advantage for our AI solutions.

Second, we have created a scaled and diverse partner-led distribution ecosystem. We partner with nearly 10,000 well-known accountants, banks, software companies and have one of the largest B2B payment networks with over 8 million members. Together, this extends our market reach to serve the Fortune 5 million, solving their mission-critical problems. This distribution asset allows us to efficiently acquire new customers and deliver innovations to SMBs.

Through our platform and ecosystem assets, we have established trust at scale, which is a critical intangible. In payments, trust is nonnegotiable because this is a 100% precision world. The consequences of less than perfect accuracy can potentially put SMBs out of business. This is one of our key moats. We enforce the right way to handle money, which involves domain-specific guardrails, compliance lodging, operational controls and proprietary context that generic AI does not have. All of these assets enable us to deliver one-of-a-kind solutions to solve problems that our customers and partners have long based. And those solutions create tremendous value for our customers.

One good example is Quist Group, a large accounting firm that serves thousands of businesses. Great, Christopher, Managing Partner, said, BILL'S platform enables the kind of controls and AP visibility that most small businesses just don't have that desperately need. We've tested some competitor options, but they never deliver in the way BILL does. It's a win for our team and our clients.

The strength of our platform, our network and the moats we have built position BILL for our next phase. This phase requires focus. We will be very selective in the opportunities we pursue. We will concentrate our resources and attention entirely on the priorities that drive the most value. The time and distance between vision and execution has shortened dramatically. We will meet this reality head on. It is clear that the team required to operate a company at scale that captures the opportunity ahead is now structurally different than what was required in the past. It's flatter, leaner and faster.

We have chosen to align to this new structure now. By the end of Q4, we will reduce the workforce by up to 30%. This is a hard decision, and I want to be direct about that. The reduction will involve colleagues who have helped build BILL. And we will treat them with the care and support they deserve through this transition. We are making this decision from a position of strength. A smaller, more focused organization, working closer to the customer with AI embedded and how we build and operate will equip us to move with the precision and speed this opportunity demands.

Finally, our strong financial performance and cash generation, combined with confidence in our business trajectory, gives our management team and the Board strong conviction and the value creation opportunity ahead for BILL. As such, our Board has authorized a significant increase to our share repurchase program. The new authorization now totaling $1 billion in aggregate provides us the opportunity to create meaningful shareholder value while continuing our disciplined approach to capital allocation.

Since the founding of BILL, we have constantly delivered new ways to create value for our customers and partners. The value we have created for them has translated into strong and consistent financial results. We believe the convergence of this paradigm shift that AI represents combined with our foundational assets such as expertise, data, distribution, trust, network and leadership positions us to set a new standard for how businesses do their financial operations. We are extremely focused on our future. And with that, I'll turn it over to Rohini to share more details on our financial performance.

Thanks, Rene. Our strong Q3 results extend the durable trajectory we have 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 Rene 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 2 strategic priorities. First, I would like to update you on growth from our integrated platform. One of our main focus areas has been multiproduct 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 & Expand 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 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's Spend & Expense customers. BILL TB 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 1 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 3 of our latest partners have activated a number of our ad valorem payment modalities with 1 of them enabling 4 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 continue 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 health care 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 '26. For fiscal Q4 '26, we expect total revenue to be in the range of $425 million to $435 million and core revenue to be in the range of $392 million to $402 million, reflecting 13% to 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 to $86.5 million. We expect non-GAAP net income in the range of $78 million to $82 million, and non-GAAP EPS to be between $0.69 and $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 '26, we now expect core revenue to be in the range of $1.496 billion to $1.506 billion, reflecting a 15% to 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 to $1.652 billion.

Turning to the bottom line. We now expect non-GAAP operating income in the range of $303.6 million to $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 '26 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 to $302.7 million and non-GAAP EPS to be between $2.61 and $2.64. For Fiscal '26, we now expect stock-based compensation expenses to be below $250 million.

Looking ahead, I want to provide additional context on the workforce optimization Rene 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 to $30 million reinvested in critical growth areas in FY '27. 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. And now we'll open up the call for Q&A.

[Operator Instructions] Your first question comes from the line of Tien-Tsin Huang of JPMorgan.

Just I wanted to ask on the workforce optimization. I know, Rene it is not an easy decision, like you said. I'm curious, can you just comment on why is 30% the right magnitude? What should we track to see if the restructuring is working beyond the cost savings that you laid out? And then what are the risks in doing this? I know it's been a theme for the group, you talked about AI, but I just like to hear a little bit more on the decision of where you ended?

Thanks, Tien-Tsin. I appreciate the question. This is a pivotal moment and opportunity for BILL. I've been working a long time building financial solutions that solve the operational problems that businesses have from top to bottom. We've got tremendous scale. We've got tremendous assets, which I'll talk about. And there's an opportunity with AI to extend that to the Fortune 5 million in ways we've never seen.

And I'll get to why AI is a part of it because I want to answer your question first. But the summary is that building in an AI world, where the distance and time between ideation and execution is shrinking rapidly and compressing requires a different organizational structure. We have to drive focus and clarity across the organization at a speed that we haven't had to do in the past. And AI enables that, and it also requires a different structure for that. And so when we look at what it is that we want to accomplish with AI, we have big dreams. We understand the reality in these dreams because we've been successfully rolling out agents and seeing strong adoption. Over 100,000 customers have adopted some of our agents already, and we're just getting started.

We see efficiencies across the organization, which you see in the bottom line results that we produce quarter in and quarter out. And those dreams require that we align the organization with where it is that we're going. And so you're right, this is an exceptionally hard decision. These are colleagues that I care deeply about. And having to part ways with people that have contributed to our success today is not easy. And so when we get to the size, this is all about what is the structure of the organization that's required to execute in an AI world, what is the investment that we think we need to put back into the company. And it's also a combination of just understanding where we are in our journey as a company.

So we have been public now for a few years. We are driving strong profitability. But we also know that balancing growth and profitability is central to the success of any company. And when we look at the opportunity for us to drive that to help ensure the success of the company going forward in such a transformative period, we know and decided that we needed to have more profitability as part of the overall financial picture for BILL.

So I think in summary, I would say like this is us leaning into AI. It's us seeing the successes that AI has already enabled inside of BILL. And it's getting the structural components of how you build product, which will be very different and already is different. We already see that in an AI world and having that aligned with the team that we have. So I think it's -- what we'll be able to do is exciting. And like you said, it's a hard decision.

Sorry, I don't want to cut you up. I respect the answer. Did you have [indiscernible] I had a quick follow-up.

Yes. No, yes, quick follow-up, sorry.

Yes. So no, I respect the answer there. But, I'm sure I'll get some other questions. But maybe just a quick follow-up on unrelated, just on the share repurchase, just to get out of the way I'm getting some questions. Just the $1 billion obviously, a big number. Is that a programmatic buyback that you're announcing? Is it going to be more opportunistic? Just talk to us a little bit about how you plan to execute the share repurchase?

Yes. I'll start, and then I'll let Rohini add to some of the details. I mean I think the first thing that I want to make clear, when we at the company and the management team, the Board, when we look at the success that we've been able to drive across the past year and achieving the initiatives that we set out, the financial results that we are producing, the cash flow that we're producing. And we look at where the share price is today, we think it's a significant opportunity to actually return value to shareholders by essentially retiring some shares. And so when we, as a Board, talked about this, we wanted to make sure that we would be able to go as big as we could to make sure that people understood our intentions and that we would get into market I think as soon as possible. I'll let Rohini kind of talk to that.

Yes, absolutely. And all I would add to everything Rene said is when we make these big capital allocation decisions, we do them very thoughtfully. We analyze the available cash, the strength in our balance sheet, 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. And we've created set of parameters in which we are ready to execute on it, Tien-tsin, as soon as we can. So that's all I would add.

Your next question comes from the line of Bryan Keane of Citi.

Congrats on the solid results here. Rene, obviously, the lean-in on AI is apparent here, and we can think about the productivity gains, obviously, that will help the bottom line. What about the top line? Any callouts that AI could help accelerate the core revenue growth of the business?

Great question, Bryan. And the short answer is absolutely. There's a couple of ways that we see AI leveraging the overall business that we've built. First would be just in building amazing great products. We have a massive market in front of us. And you just look at the adoption that we've had that the market has, it's still in the very early days. And I think one of the key things there is that the approach, if you will, that we've taken to date in building our solution has been what I would call a do-it-with-you approach. We help customers trigger out their financial operations. We guide them through the process.

AI is going to change that from a guide to actually do. This is going to become a do it for you. And we think that will dramatically expand the market. So one way is we will drive more customers onto the platform because of AI. The other way is we will be creating more value and that will create more monetization opportunities that we haven't even put out there yet. So it's not going to be subscription and transaction revenue. As we move from task-based kind of capabilities to jobs and roles, there will be opportunities to kind of monetize those agents differently than we've seen before.

But let me just step back because I think it's super important to think about how it is that BILL is going to win in this space. And the first thing I would just say is we invented this category and we are disruptors at heart. AI represents an opportunity to accelerate that disruption in ways others can't easily replicate. We're playing offense here. And the SMBs that we care about, they're tired of managing their back office. They want their work to get done and they wanted to get done better. And so our ability to kind of go serve that market to be able to deliver that promise to the SMBs is predicated on 2 critical factors. One is knowing what to build and how to build it. Those are the 2 things.

How to build it comes down to the assets that we, as a company, have built carefully and methodically over the last few decades here. And I think there are some unique advantages that we have in an AI world that others don't have readily. And so those advantages divide into kind of 3 key pillars. The first I would say is we have proprietary context. We have a data repository that has tremendous amounts of data, whether you think of that as transactions or documents or collaboration or connections to your network members. And that data provides a depth of insight that nobody else has at this point.

The second thing we have is we productized the operational complexity that is across the financial operations of every SMB in this country. We make it so that it's essentially click rock, you sign, click and you point buttons. We have dozens of payment capabilities. We have obviously the 8 million entities in our network that we connect to, this is and represents the last mile execution that's required to actually move to a do-it-for-you environment. And again, nobody else has what we have.

Finally, in an AI world, and any new technology, the thing that is the -- I think the linchpin for adoption is trust. We are trusted across our partners, across close to 0.5 million customers, and that trust is because of the things that we do around money movement. It's a regulated area. It should be, in my opinion. Customers need to be able to trust how their money moves, when it moves and where it's going. And our ability to prioritize the decisions that involve AI because we have the trust of our customers, of our partners and of our providers at the size and scale that we have, again, nobody else has that.

So we have these capabilities that generic AI has that nobody else has. And we use that in how we build the capabilities. So this is the second point that I was making, which is knowing what to build. So knowing what to build comes down to great product management. And to me, great product management is all about falling in love with the customer and then obsessing over their pain points and especially the ones that nobody else cares about or even understands. And then you have to persistently build solutions that address those pain points. We've been doing that. We've been doing that a long time, 20 years. And that persistence is something that leads to knowledge and understanding of what the customer's experience is and their pain points. And that allows us to build solutions that nobody else is even thinking about yet.

So we have advantages with the data that we have and the platform we built. But we also have an advantage in really understanding our customer and the SMBs and the mid-market customers we serve so that we can build the best AI capabilities that will help them move into the do-it-for-you world that is coming. AI is going to accelerate the market. Like I said, it's going to dramatically shrink the time it takes to actually move between idea to execution. And we know that this is a game changer, which is why we've made these decisions today. These are big decisions, and they weren't taking lightly. But when you see what we see across our customers, you see the opportunities, you see the complexity and solutions that we've built that solve that complexity for our customers, you get pretty energized about extending this to everybody out there that needs it. And so that is the source of our decision.

And Bryan, you're right, there will be plenty of opportunities to drive revenue because of AI, whether it's bringing customers in or adding monetization capabilities for the agents we release to our customers. Thanks for the question.

Your next question comes from the line of Chris Quintero of Morgan Stanley.

I wanted to ask on the restructuring. Just curious where within the organization you're really making these changes? And within that $20 million to $30 million that you are reinvesting back into the business, could you provide a bit more color on what exact areas you're looking to double down on?

Thank you, Chris. The first thing that I would say is that as we become an AI-native company, AI is going to be a part of every role in every job that's inside of BILL. And so to your first question, we will be looking across all teams, all levels to actually drive the right structure so that we can move faster. And so what we would say is if you step back and think about what I was sharing earlier on AI and how you develop software and AI, it's much faster. The time compression, the distance between ideation and execution, vision execution, it requires a leaner, flatter organization.

And so to your first question, it will be across the organization. It definitely obviously makes it hard, but it is something that we believe is the right structure for the company.

I think on the second question, I'll let Rohini take that one.

Yes. Absolutely. So as Rene had fairly emphatically mentioned the #1 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. So Chris, that's where we will invest most in.

[Operator Instructions] Your next question comes from the line of Darrin Peller of Wolfe Research.

This is [indiscernible] on for Darrin. I just wanted to ask on your AP/AR customer net adds, so that came in a little bit better than we had expected at 4,000. You mentioned that as you kind of move up market, this may come down. So just wondering how we should think about that metric versus -- to customer or ARPU as you move up market?

Yes, I can take that question. Thank you for the question. We had earlier in the prior earnings said that we've given some color on the [ NNAs ] it will be slightly below 4,000. We actually got some good results with the wealth management firms as the teams went after that side of the customers and got some uptick in Q3, which got us to the 4,100. Now those are lumpy acquisitions and not as consistent quarter-over-quarter.

So what we are saying now is we continue to believe we will be a little below 4,000 number, and that's the color we'd like to add for the NNAs.

And on the TPV per customer and TPV metrics were fairly stable where we are in Q3, we expect to see similar results going forward in Q4.

Okay. Great. And then quickly, we had seen a couple of changes in virtual card acceptance from some bigger online advertisers. Just wondering if will that impact take rates around the AP/AR side or the expense side either this year or maybe as we think about the beginning of FY '27?

Yes. The latest thing that we're hearing on that side are -- don't seem to be very material and largely focusing on the very large customers, which we have limited exposure to from our side. So I would say at this point, it's incorporated within our guidance range and not very material for our numbers.

There are no further questions at this time. I will now turn the call back to Rene Lacerte, Chairman, CEO and Founder, for closing remarks.

Thank you. At BILL, we have tremendous assets that we are methodically building over the years. Those assets in combination with AI mean that the opportunity in front of us is greater than it has ever been. We are building BILL for the Fortune 5 million, and the decisions announced today will enable us to better serve them. I want to thank the BILL team for their continued focus on delivering great solutions for our customers. Thank you. Good afternoon.

This concludes today's call. Thank you for attending. You may now disconnect.

Awesome. Thank you, everyone, for joining us here. My name is Chris Quintero. I am the Office of the CFO Software Analyst here at Morgan Stanley. And I'm really excited to be joined here by Rene Lacerte, the CEO and Founder of BILL. Thanks for joining us, Rene.

Thanks for having me, Chris. Looking forward to the conversation.

Before I get into the interesting stuff for important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative.

So Rene, I couldn't think of someone better to talk to you about the accounting industry, especially right now. I think we're at a pretty interesting inflection point, especially with AI entering the space. And you recently held a webinar with an MIT Professor of Accounting, and she said that 50% to 65% of an accountant's time can now be automated using AI, large language models. A lot of the work they were doing was more kind of manual data entry type of stuff. So I'm curious, is that kind of consistent with what you've heard from your customers? And how do you think about how AI kind of revolutionized the accountant job over the next 3, 5 years?

I mean if anybody knows me well, they know that I love accountants that you're [ paching ] to acquire. Like the opportunity that we have set out from day 1 is to enable accountants to be more successful, to be more strategic and to really help their clients and businesses with capabilities they didn't have before to eliminate friction, to eliminate hassle.

And so an example of that is we did a partnership with CPA.com, which is the division of the FCPA, where we've developed this client advisory services. So I think what the MIT professor are seeing is actually the evolution, like we've already taken care of actually making it possible to get the data centralized for the clients so that the accountant can actually now have processes that are rigorous, that have the right set of controls in place that gives the accountant comfort that then allows us to execute transactions. And so we've already done that.

So our accounts today will say that we do help them save 50% of the time. So that is [ appreciating the acquirer ]. But I think the point is like, well, what is AI going to do for that? And I think AI is going to continue to just accelerate this transition from accounts doing busy work to accounts doing strategic work. And by the way, like having been an account and my grandmothers were accounts, like nobody likes the busy work, right? People like doing the busy work only because you get them to have insights and be valuable to the engagement that you have with your clients. And so what we're already seeing is that the elimination of the friction points that a business has that enables an account to be far more strategic.

And so I think AI, whether that's us continuing to eliminate the hassle of collecting documents and entering documents and eliminate the hassle of collecting the W9s and eliminate the hassle of payments and reconciliation and integrating with the ERPs, the customers use, like limiting all that hassle means the account gets to come in and now have time to be strategic. Now I think ultimately, what's going to be very interesting is using the data that we have. So 1% of GDP goes through BILL, $300 billion a year, hundreds of millions of documents, billions actually in the lifetime of the company. How do you use that data to then provide strategic advice toolkit so accounts can actually start with the starting point. And so I think ultimately, that's probably what the account -- the professor was thinking about MIT, like all that is coming and it's going to be a game changer for accounts.

Yes, absolutely. Becoming much more strategic, being able to take on more clients, being a greater kind of business partner to the overall business.

It's the fastest-growing part of an accounts practice right now. That's what we do.

Yes. Let's jump into kind of the moat aspects of BILL.com. I think you mentioned this a little bit on the last earnings call when I asked you the question. But maybe for those who weren't on the call, remind us again, like why do you think BILL is defensible from AI startups, large language models?

I think the -- because unfortunately or fortunately, I've got a lot of experience now. I've been building software for 30-plus years. And every evolution of building software comes down to kind of 3 things that I see. You have to have domain expertise, you have to have technology expertise and you have to have trust. Customers don't do something with you unless they trust you. And so when I think about the domain expertise, having the ability to look at 0.5 million businesses across our platform, seeing how they use our platform or services, seeing how they understand the payments that we offer them, the capabilities to offer there, that gives us a set of domain expertise that is unparalleled. Like we understand financial operations that others are having to go figure out, right? They don't have that. We understand that, that's domain expertise.

On the technology expertise, it's probably -- it's the other half of having the demand piece. Having a platform that supports 0.5 million and all the connections, we have over 10 different payment products. We have $1 trillion in spend that's come across the platform, like having that technology expertise to manage risk, to manage all the integrations that we do, that gives us an opportunity, again, that a young start-up doesn't have because we understand that. And ultimately, both of those work hand-in-hand to create trust with customers.

And so I think that the most important thing that you can have with any customer relationship is trust and having the ability to actually earn the right to actually move all the money that we move for our customers, to have them store all the documents, have them use us for all their workflow, integrate with all their accounting systems, like that's something that we take very seriously. And I think that's something that is a moat that it takes time to build those things. And so we've been building it with intentionality since day 1, and we'll continue to add to that platform and expertise every day with the capabilities that we have.

Yes, absolutely. You've also said that SMBs don't want more AI, they want less work. How do you think about your agent strategy and the ones you've launched, W9 agents, reconciliation agent? Like what are you trying to go after with the strategy of these very kind of specific like use case agents?

Well, I think one of the things we're trying to do is just to really eliminate work that was being done manually. So another thing we're trying to do is to eliminate any friction in what we already have, right? And so there's lots of different things. But the W9 agent is an example of -- if you think about our network, we have a unique asset. We've got over 8 million entities in the network that use us to pay and get paid. And we have this opportunity to take that network and actually engage customers and suppliers in different ways. So whether that's Supplier Payments Plus, which I'm sure we'll talk about, or a W9 agent, they're very similar as part of the same experience. Like what is the supplier experience that needs to happen. And so the W9 agent is, hey, let's go out and collect the W9s for a new vendor that's going to get paid through bill. When you go and do that collection, customers don't have to do any work. The supplier has very little work to do.

And what we're seeing is that we have -- it's early days, but we have over around 10,000 businesses that have already started using it. They've done over 40,000 W9s. And we expect in the coming years, it's going to be close to 3 million W9s that we'll do. So we think there's a unique opportunity for us to take what is work and actually just eliminate that. Another example is our B assistant, where self-service is a super important part of any customer experience and our ability to actually drive AI efficiencies where customers can actually have the time and the ability to do the service when they want, that's going to be important. And so we've developed a tool, not all customers have it yet.

But for those customers, we've taken -- we had a 3x improvement from 13% usage to over 40% doing self-service. So that tells you like the opportunity to really kind of save, again, customers' time and let them do work they want. And the third example I'd call out is our invoice coding agent, which allows our customer now to go into all the line item details on invoice. And so big invoices have a lot of details. And if we can go in and extract all that data, that means we save customers 90% of the time it takes for them to go enter that data. And so significant examples of how we're just eliminating work for our customers, and that leads to opportunities to drive either more customer adoption or more revenue in the future.

Yes. We're driving some pretty tangible real results for your customers here. You mentioned that a little bit, but like how is this also impacting customer usage, adoption of the broader platform you all have now?

So what we're seeing is that there is a significant opportunity from customers to be able to save time. And so what we're seeing is in our conversations with accountants, for example, like they're now -- to the first question you had, they now see kind of maybe the next chapter in the book for them. And so these tools enable them to say, okay, I want to partner with BILL. We have other partnerships we've done to kind of continue to extend the network and the capabilities whether that's NetSuite, Acumatica, Paychex, like these are all capabilities for us to kind of bring more into the fold and using AI to actually be the way that we actually drive customer elimination of friction is something that everybody is interested in. And customers are starting to use it, which is great.

Yes. So results, usage, how do you think about the monetization angle of this, too? I think you guys have talked about a two-pronged kind of approach to it. Could you kind of unpack that? And why did you kind of take that approach?

Yes. I think when I started the company, it was all about serving SMB, mid-market companies and really eliminating, making it simple to connect and do business. That's the mission statement. And so when we look at the opportunity in front of us, it's always going to be let's do the most to bring people in and let's do things to raise revenue per customer. So we do both at all times. So the two-pronged approach is there are going to be tools that we do that will bring people in and it will just be part of the base subscription pricing that we have. That's kind of the more tactical.

But then the next level will be when we start to think about roles that we're actually supporting or eliminating the need to go do. And so when we have roles, we think there's an opportunity for us to either put subscription pricing into different tiers to actually raise the revenue per customer that way or potentially charge separately for that.

And then the third area would be strategic advice, and that will be us charging for the advice that we're giving. But I think each of these things, I think the important thing is that having an intentional plan, a pricing strategy that works across all so that you bring as many customers into the fold. I mean we have roughly 0.5 million businesses. There's tens of millions. There's 6 million employers in the U.S., and there's a lot more to go get. And so our focus is on how do we actually drive that adoption because that's the first thing that we want to do.

Yes. If we take a step back, I mentioned the platform you all have built. Walk us through that journey of starting out as an AP provider, you build out this broader platform inorganically and organically. Where are we today? And how do you think about the future evolution of that platform going forward?

Yes. I think the original idea comes from being a small business owner and an entrepreneur and seeing the pain points real time and experiencing the challenges that SMBs have when it comes to managing their finances, it was different. I was a product manager at Intuit and I didn't see it. And then I started living in. I started running a company. I started actually seeing all the things that were hassles and pain points that were the same things I would hear my parents and grandparents complain about at the dinner table because they had a lot of businesses. And the aha for me was this is an opportunity to actually flip that to actually get into the doing a business, right? Like we have a chance to make running a business about being with your customers and being with your employees and not about doing business, like BILL can do the business, like we can be the doers here.

And so when I think about the platform and how we started was let's look at the -- what our ideal customer profile is and let's look at those customers that are big enough to need to have a pain point and see it and not so big that they already have teams doing it. And then that focus area was let's focus on AP -- let's focus on cash in and cash out, right? So AP, AR and then as spend and expense category evolved, we added the spend and expense capabilities onto the platform. As we've had more data, we've been able to add some of the lending capabilities, the working capital and invoice financing capabilities, international payment capabilities. We've been able to extend our core platform around payables and receivables into much more.

And so I think over time, what you'll see from us is continuing to leverage the data set that we have, the capabilities we have around technology and the domain expertise we have about what customers need into more and more adjacencies that are next to the platform that we've already built.

Yes. Let's talk about some of those newer ones you've developed, procurement, multi-entity reporting, advanced reporting. What's been the kind of the customer feedback to some of those newer and newer solutions you've rolled out?

Yes, it's been very, very strong. So one of the things we did, and this kind of goes back to the pricing question we had earlier. One of the things we did with procurement is that it was part of a larger tier, a more expensive tier for our customers. And one of the things that we did is you had to opt in to say you want a procurement. There's other things you might have opted in for. But what we've seen is that we've now had 10,000 customers opt into that tier. And so that tells you that there's demand and there's a desire to be able to have more capabilities because there's more things that customers want to do with us. So that's the procurement.

So then on multi-entity, what we're hearing from our customers, again, very strong early adoption. But what we're hearing that gives us confidence is 30% to 40% time savings across all the entities that they use at BILL. So that's something that we're super excited about. And I just think that we continue to spend time understanding what the customers want, spend time understanding what the technology capabilities are and then putting those 2 together to make better experiences. And so there's more to come, and we're excited about the engagement that we're seeing on these 2 in particular.

Yes. I think the build-out of the platform also lends itself well to your move upmarket to more larger businesses, mid-market side of the equation. Can you share with us like how you've been evolving the kind of go-to-market strategy and the product portfolio as well to be successful in that kind of newer segment?

Yes. Maybe I'll just first step back a little bit and talk about this ideal customer that we set out from the beginning. So when we think about the ideal customer, like I said, it's customers that are complex enough that they have a pain point, they're not so complex that they've already tried to solve it. And so that would be customers from a few million to a few hundred million in revenue. And so that's the largest segment of the business economy, but it's not all of it, right? Let's say that's 50% of the overall economy.

What we know from what we've done today is that we have very strong, better than market adoption rates of those customers, meaning that as you would expect, 5% of customers to be X, we might be 7% of customers being X because we have the right product market fit or it might be 10%. And so anyways, what that tells us is that we have very strong fit with those businesses that are just not so small that they don't need us, but they're getting bigger. And so what we've been able to do on the mid-market approach is actually listen to the customers about what else that they needed. And so whether that was multi-entity, whether that was procurement, those are the most recent examples, whether that's integration with different capabilities and actually the partnerships we've done with Acumatica and NetSuite, those are examples of larger businesses saying, "Hey, we kind of want more to happen here."

So like these capabilities of being able to kind of listen to customers and really drive the opportunities into what they're asking for allows us to continue to expand our abilities and really the revenue per customer that we're seeing across all of our mid-market customers.

Yes. Curious like what metrics are you really most focused on? And what's your kind of North Star? Is it like NPS score? Is it something else? Like what are you mostly focused on from a metric perspective to make sure you're retaining customers and driving expansion with existing?

I mean the first metric that probably any business leader thinks about is top line, so revenue. The second would be profitability. But then on a -- and those two go hand-in-hand together. And so then -- but from a pure customer adoption, there are so many different metrics, but I would look at our kind of our net revenue retention, the logo retention rate over time because that's the best -- it's not quite -- it's not -- the leading indicators of a new customer are not the same as one that's been on the platform for 6 months. And so we looked at that on a consistent basis.

Got it. You mentioned a little bit about the pricing and packaging, but how do you think about the phasing, the timing, the rollout of some of these changes that you're making as you continue to add more and more value into the platform?

I think the -- our focus is always going to be on listening to customers and doing what's best for them and driving the results from that. And so we have done some price adjustments, if you will, over the last year, first on transactions and now on subscription revenue. We have a broad pricing strategy. So I would expect as we roll that broad pricing strategy out over the next year or so that we'll be able to talk more about that.

Got it. I wanted to hit on Supplier Payments Plus or it used to be known as Advanced ACH. Maybe give us a quick overview of what this product does and why you as BILL are best positioned to really deliver this capability?

Yes. The first thing that the suppliers need is simple reconciliation. And so if you think about the large suppliers, and we've said Supplier Payments Plus is targeted today for the top 10,000 on our network. Those suppliers are receiving thousands of payments from BILL customers. And their AR departments are having to reconcile those payments. And those payments, by the way, come in a multitude of factors, form factors. It could be a check, it could be an ACH, it could be a card payment. And so what that means is the reconciliation job just got harder for any one of those particular payments. And so having a tool, which we built a platform for suppliers to be able to manage all of those payments in one experience, to be able to manage their own users on that platform, to be able to engage and get what they want to potentially sync that with their accounting platform. All of that means that they're able to be much more efficient, and they're very happy about that.

Now what makes it unique, which is the second part of your question, is that we have scale. From a B2B perspective, the amount of payments we do on the B2B front, we think we're unique. We don't see anybody else doing the amount of volume that we have today. And so when we work with suppliers, the number of entities that we support, the dollars that we transfer, like that's all something that they care about. And what we're finding as we work with suppliers is that they most want to get rid of checks. Everybody hates checks. There's still plenty of checks out there. So they want to get rid of checks. They're comfortable and want to pay for the service that we provide, whether that's an ACH or a virtual card. And so we've seen consistent feedback from our suppliers that like this is an opportunity for them to be more efficient and for them to pay us.

So we're excited about that. It's early days. We have $400 million in TPV that we've already contracted in the first 6 months, which we feel good about. And there's a significant opportunity when we look at the tens of billions of dollars that these suppliers have.

Yes. So really leveraging that network that you have, the large SMB customer base with those suppliers that they send those payments to. How do you think about the go-to-market strategy, going after the supplier for the first time versus the typical kind of SMB customer you have historically. What's different about that go-to-market strategy?

Well, it is different. It's an enterprise customer. So a little bit more handholding, more sales touches, different marketing is required. And that's all the things we've been working on in the first 6 months. We feel good about what we've learned. Like we said, we've gotten some adoption, and we'll be able to take that adoption forward into getting more suppliers on the platform. It's helpful when people see kind of the success that others are having. So we feel like there's an opportunity to continue getting better and an opportunity to obviously bring more revenue into the business.

Yes. How do you think about the sales cycle length for those customers? Is that like a 6- to 12-month type of cycle?

I mean enterprise would typically be more than 6, right? So that's probably the right time line that we're thinking on.

Yes. And anything on pricing you can give? You have a bunch of different payment products. How does SPP kind of match up versus those others?

Yes. I think the -- if you look at similar products in the market, what we have said in the past is that the monetization is somewhere between 50 and 125 bps. We're consistently in that range. And so obviously, it's not going to be at the high end. It's not going to be at the low end. It's going to be somewhere in between. But it's a significant opportunity.

And like I said, we're learning with the large suppliers. We think the smaller suppliers, there could be some capabilities for them that we learn from this that will help them as well.

Got it. Shift gears to go-to-market strategy with Embed 2.0. Could you give us a quick overview of what that is for those who aren't familiar, how does that exactly work?

Yes. So the Embed 2.0 capabilities that we have basically enable any of our partners to take advantage of the products and services we build. So the primary things that folks are wanting to take advantage of are the connection to the payments capabilities. And so our ability to kind of have payments inside of NetSuite, payments inside the Acumatica means that it's easier for the customer to be able to execute and transfer funds to the supplier, whatnot. And what we've been able to do is from a technology perspective, leverage the first 10 years of partnering with banks and others to be able to create a platform that each of these partners, Paychex, Acumatica and NetSuite, all got up and running in less than 90 days. And so that gives you a technology expertise that we've been able to develop that is super important.

The other thing I would say is that these partnerships really enable us to extend into different adjacencies, right? So if you think about the Paychex has close to 1 million businesses on its own, our ability to kind of reach into all of those payroll companies that tend to be smaller is much stronger because we have a great partnership. Now in that embedded partnership, they're taking all of the capabilities of BILL, the workflow, the document management, all of that and creating an experience inside of a new platform that they've built. And so I think there's lots of things that we're excited about with Embed, like we're trying to be able to support our partners with what they want from us.

One last thing I would say on this is that different than our first version of Embed. This version is all of our customers, partners are getting access to all of our payment products from day 1. They won't all use all the payment products day 1, but they all have in their contract and have told us that they want to use all the payment products. It's just a question of when they are ready to kind of open up with some of that stuff. So yes, it's a good thing from a monetization perspective.

Totally. And you've been announcing a lot more of these partnerships over the past few weeks. You've got Acumatica, Paychex, NetSuite, those are live now. How do you think about the early traction you're seeing there? What are the kind of economics look like? Is it kind of a rev share program? And when is this kind of -- when are you expecting this to be more of a meaningful contributor to the overall growth profile of the company?

Yes. No, it's -- so far, the early data is that customers are very happy. They are enjoying the products, high NPS scores, which is this is when you would use NPS as a leading indicator to kind of help understand if you're getting the right product where it fits. So we feel good about that. We're seeing data on the platform. And -- but now we're busy working with the go-to-market teams, each of those firms to really help them roll this out to all their customers.

I've done enough and worked enough with partners that I don't expect home runs out of the gate because that would be unreasonable. Like it takes time to train sales teams to get the right go-to-market message. And so I would say we will continue to develop this. And I would expect in the -- not this year, but I would expect next year, we'd start talking more about the financial impact on the results from these partnerships.

Fiscal year or calendar year?

Well, '27.

Got you. Let's shift to competition. We've seen some consolidation in the industry. AvidXchange got acquired, Capital One purchased Brex, all kind of in the space here. So curious from your perspective, how you view that kind of industry consolidation evolution from a competitive standpoint? And how do you continue to stand out?

Yes. I think when I step back, one, I set out when I started this to redefine how business gets done. And we've done that. BILL has done that, right? These companies, they weren't doing what we were doing. Other bigger players are now coming and saying they want to be a part of that. So that tells me the category is evolving, it's maturing that there's going to be an opportunity for even more customer adoption because larger players are saying, "Hey, that they're coming at this."

We -- and from day 1, we focused on building the best tools and capabilities to be a public independent company. And so we continue to focus on building those capabilities out to be able to serve our customers as many as possible. And what I see from a competitive standpoint is that we continue to see more and more opportunity. So while there are more competitors in the space, we're seeing more opportunity by extending our platform, by actually reaching the close to 10,000 accounts we have, leveraging that network. I mean all these things give us an opportunity that we didn't have before. Like if you think about the NetSuite and the Acumatica and Paychex deals, those weren't deals 5 years ago that those companies, they would take a call from me, but they wouldn't actually engage.

And so this is, I think, just a reflection of the competitive space is that there's more awareness, people are excited about the space, and that's actually good for customer adoption. That's good for the business.

Yes. Let's talk a little bit about the numbers. Core revenue growth accelerated from 14% in your fiscal Q1 to 17% in Q2. Can you walk us through kind of what's driving that acceleration? And how sustainable do you think that can be for the rest of the fiscal year?

Yes. No, I think it's always happy when we have good results. Obviously, we've spent a lot of time working on that, not just today but for the future. And so one of the examples here is the emerging portfolio. And so -- of ad valorem payment products. And so when we look across our business, we've got 10 different payment products that customers -- a little bit more than 10 different payment products customers use to execute their payments. And each one of those has a different attach rate and a different monetization. So we're seeing good adoption. Invoice financing is an example I talked about. We have a product called AP Card, which is when you have the SME card with BILL, you can actually do virtual cards inside for your payables. We have a Pay By Card product. These emerging payment products are actually having an impact, which is great.

And then I would say the other part that we saw in the quarter was the strength in the spend on an SME perspective. So it was a strong volume growth in the quarter, and that's in part due to the focused efforts from the teams on driving usage and adoption, helping customers understand that, getting the right customers on the platform to begin with. And that's something that we're very happy with. So we've had an opportunity now because of the success to raise the guidance, which we feel good about and to really continue to drive financial success for the business this fiscal year.

Got it. So emerging products start to contribute more meaningfully. And on the spend and expense side, some of that push up market, a little bit better spend as well from an overall macro perspective. Move on to kind of margins, capital allocation. You've mentioned Rule of 40 as a key operating metric for the business here. Why did you go with that framework? And how do you think about getting to that type of operating profile?

Well, I said the reason we like the Rule of 40 is it balances growth and profitability. And I think it's really important in a business, especially a business that's at our stage of market development, right? This is -- we have -- we're the largest player. And roughly, if you look at our AP spend expense business, we probably have 4% or 5% of the market, right? So there's a massive market to go get. So we should be holding ourselves accountable to driving more growth. And given our size, we should be holding ourselves accountable for driving more profitability. And so I think the Rule of 40, what I like about that is kind of a balance of the 2. I think it's super important for us to make sure that we invest behind both.

And so from an AI perspective, we are investing behind things that drive more customer adoption or drive more revenue potential, but we're also investing behind things that will create more efficiency in the business so we can drive more profitability. And you've seen that in the business, right? We've -- it's something I am super proud of. In the last, I guess, since we went public, we've 16x the revenue. We've added 300 bps pretty much every year to the profitability margin. We've kept headcount flat for the last 4 years. Like like we have, I think, are doing a good job of balancing growth and profitability. And people don't always, I think, see that, but I think it's something that's super important to do.

Yes. Let's bring in like M&A, just capital returns too into that equation. How do you think about those for BILL?

Yes. I mean I think that we are a well-capitalized business. We have a lot of capital to put to work. The first and foremost that we're focused on right now is actually driving great customer experiences, and we're investing behind AI to kind of do that, drive great go-to-market experiences and the partnerships. So we're investing, I think, more in the stuff that we have control of, but we are always evaluating and understanding opportunities to partner and do an M&A. So nothing to say at this point in time, but I think we are well capitalized to take advantage of that.

We've also wanted and have done some capital return to shareholders by doing some stock buybacks. And so we've been active, I think, each of the last few quarters. and taking advantage of the capital we have to make sure that we provide a return to shareholders on that front.

Yes. I wanted to ask about stock-based comp. It's not just you, but the entire software space is down pretty meaningfully over the past 6 months, a year. How are you thinking about stock-based comp going forward? Are you going to be issuing more units because the stock is down where it is or moving more conversation to cash? How do you think about that equation?

Yes. I mean this is a real thing, and it's something that we do think about and talk about, not just at the exec team, but with the Board. If you look at the progress we've made over the last few years, we continue every year, again, to make progress, significant progress every year on driving stock-based comp as a lower percentage of overall revenue as well as keeping dilution consistent or lower as well.

And so from our perspective, one of the things we did last year is we did some kind of onetime adjustments to the grant cycle to kind of help things this year. We'll continue to make adjustments. But I think the one thing folks should know is that we're committed to bringing that down to be, I think, leading in how that reflects across the business. So it's going to take time, but it's something that we have been doing, I think, a good job of so far.

Yes. Maybe last question here. As you reflect back on 2025, what were some of the key lessons you learned in terms of what worked really well? And what are some areas you're still looking to improve upon?

Yes. That's such a great question. I think the key learnings, I think, are leaning into the strengths, I mean, which obviously you always do. But the Embed partnerships that we've been able to get because of the domain expertise, the technology expertise and the trust we have in the market, I think that's one example. I think leaning into accountants where we continue to have strong success there. I think leaning in on the technology platform. Like this is -- I don't think people fully understand the complexity of what it is that we do. And that's good. Customers should understand it, but I also think investors don't understand it.

Like the number of touch points we have, 1% of GDP goes through BILL, billions of documents, hundreds of millions of transactions, like that's a crazy amount of data to actually manage and protect and secure. And we do all of that in a way that enables us to have lower risk across the business day in and day out. We keep driving efficiencies there as well as driving new AI capabilities. And so I think when I look back at '25, we did a very strong job of leaning in with the assets that we had and actually made significant improvements on an Agentic front, if you will, improvements on a business model front when you think of the risk models and capabilities and significant distribution opportunities.

So those are things that I think not always appreciated, but it comes back to those 3 buckets of domain expertise, technology expertise and trust with your customers and partners.

Absolutely. It's an exciting time for both the industry and BILL. I think we end it there. Okay. Thank you so much Rene.

Thank you, Chris. Appreciate it.

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

Thank you. Good afternoon, everyone. Welcome to BILL's Fiscal Second 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 Rene Lacerte, Chairman, CEO and Founder; John Rettig, President and COO; and Rohini Jain, CFO. 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.

In addition to our prepared remarks, please refer to the information in the company's press release issued today, our Q2 '26 investor deck and 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 a reconciliation of GAAP to non-GAAP and additional information regarding these measures.

With that, let me turn the call over to Rene.

Thanks, Jack. Good afternoon, everyone, and thank you for joining us. During Q2, we continued to build on the strong momentum of Q1 and delivered a meaningful beat on both core revenue and profitability. Our consistent and disciplined execution against our strategic priorities drove 17% core revenue growth versus last year and an 18% non-GAAP operating margin in Q2.

Additionally, we're seeing encouraging signs of SMB resilience with increasing spend volumes across the platform. Our innovation defines the broad category of how businesses manage their financial operations. We are introducing new products and partnerships that extend our capabilities and reach while delivering durable growth and expanding margins.

Nearly 500,000 customers trust BILL and use our software solutions to run and grow their businesses with speed, confidence and clarity. More than 9,500 accounting firms rely on our platform and over 8 million businesses are now part of our proprietary B2B payment network. This unmatched scale enriches of data, gives us broad visibility across the SMB economy and positions us to both grow and expand the intelligent financial operations category.

We are seeing our massive scale and the deep trust we've built across our ecosystem translate directly into value creation. By spanning the critical workflows our customers rely on every day, we are driving higher engagement and more transaction volume across the entire platform. We've also continued to strengthen our position with accounts, through new offerings such as procurement, multi-entity support and advanced reporting in the accountant council. These tools are increasingly important as AI reshapes accounting and more specifically, the accounting profession.

As the profession adapts to a rapidly changing technology landscape, our foundational knowledge of the back office for SMBs and the accounts that serve them is unique. This capability, combined with the breadth of our platform is enabling firms to transform their mundane transactional work into high-value automated advisory services. We are deeply integrated across many of the largest firms and are best positioned to support this evolution by combining modern workflows, scale and continuous innovation.

AI is prompting more firms to adopt and embrace automation so that they can provide more strategic value to their clients. With BILL already trusted by nearly 90 of the top 100 firms, we're leading this transformation through innovation by rapidly deploying new agentic capabilities to eliminate workflows for accounts and their clients.

A significant part of the value we provide customers is through our world-class money moving capability. We are a regulated provider that moves over 1% of U.S. GDP and supports over a dozen payment modalities. Importantly, for customers, we also optimize payment speed as a direct result of our proprietary data models and risk engine.

Our ongoing investment in integrating software and payments enables us to give businesses a unified real-time view of their financial health, while helping them maximize their capital and make better strategic decisions. As businesses increase their use of BILL, they unlock more from the platform. Our momentum with multiproduct adoption demonstrates this. The number of businesses using both AP/AR and Spend & Expense grew 28% year-over-year in Q2.

These customers drive significantly more revenue per customer and become stickier as they realize more combined value from the platform. We leverage our world-class payment and risk management capabilities to give SMBs what they want, the ability to maximize cash flow. Invoice financing is a fast-growing emerging payment solution that provides flexible capital exactly when it's needed, addressing a critical operating need for many SMBs. In Q2, customers using invoice financing grew by nearly 50% year-over-year and the origination volume increased by more than 30%.

We increased adoption while improving unit economics at the same time. This outcome is a direct result of our powerful AI models and our evolving capability to safely underwrite a wider range of suppliers. BILL cash account is another important extension of the overall value we create to help SMBs maximize cash flow. At the core, it is an integrated operating account that makes it easier for SMBs to optimize cash flow and gain greater control and flexibility over their financial operations.

We see cash account as an opportunity to bring billions of dollars of monthly offline spend onto our network, increasing our wallet share. Early indications since launching in Q2 showed that more than 70% of cash account users have increased their spend volumes on our network. Our Embed 2.0 growth strategy continues to show great progress and potential. Last quarter, we announced new partnerships with NetSuite, Acumatica and Paychex and within 3 months, all are in market, demonstrating the strength of our platform and the ability to move quickly.

Our Embed 2.0 strategy is purpose built to extend our reach with SMBs and complement our other go-to-market channels. It allows us to meet growing businesses inside the systems they already use, reduce friction as complexity increases and deliver a more unified technology stack. With these 3 partnerships alone, we've unlocked the potential to reach close to 1 million businesses, showing how embedded capabilities scale our ecosystem efficiently.

As businesses grow, complexity compounds, Large enterprises solve that complexity by adding layers of people, processes and systems. But for the [ Fortune 5 million ] businesses that power the economy, growth too often means more manual work, more risk and more friction. That imbalance has defined this category for decades and is exactly what we are aiming to change. Agentic AI is live across our platform today. Agents are actively running core financial workflows, eliminating manual work, reducing risk and improving reliability and accuracy.

To date, we have focused on 3 areas with unnecessary friction: Vendor management, transaction entry and operational efficiency and risk management. First, let me discuss vendor management. Running a business requires spend and spend requires vendors, yet managing vendors remains one of the most manual and fragmented parts of finance.

BILL'S [ W9 ] agent and our new Smart Response agent autonomously collect tax documents and manage routine vendor communications, helping customers stay compliant, build trust and keep money moving without adding overhead. Since launching in Q2, nearly 10,000 customers have turned on the W-9 agent and 40,000 W-9s have been collected. We recently added new mobile capabilities, enabling real-time compliance control from anywhere and expect our W-9 agent to collect and automate 3 million W-9s by the end of the year, saving thousands of weeks of manual work for our customers.

Second, turning to transactions. BILL sits at the center of how money flows for our customers and our agents are making those transactions increasingly touchless and intelligent. We are eliminating the manual work required to code, match and reconcile transactions. Leveraging RAI, our invoice coding agent can now fully code complex invoices, which reduces the steps required by 90%. We have also expanded our transactions agent with auto-generated receipts and [ gmail ] capture, improving visibility while further reducing daily friction.

Third, operational efficiency and risk management is critical for both us and our customers. Secure financial operations are core to our platform and a key reason customers trust us to run their workflows. As businesses scale, risk grows alongside complexity. Our AI-powered fraud and risk systems apply deep domain expertise and network level intelligence to protect customers at scale while reducing operational burden.

In the first half, our system stopped 5.3 million fraudulent attempts and reduced manual fraud reviews by 40%. We are also reducing operational complexity for our customers through the BILL Assistant agent. This agent provides customers with real-time automated support. Prior to its introduction, 13% of customer contacts were self-serve. For customers enabled with this new agent, self-serve rates have more than tripled and now represent 40% of customer contacts.

We have unique capabilities to advance agentic Finance. We are embedded in the financial operations of nearly 0.5 million businesses. Our models are trained on insights from more than $1 trillion in payment volume and billions of processed documents. Our network gives us unmatched visibility into vendor behavior, transaction patterns and operational risk protection across millions of workflows. This combination of these assets positions us to significantly amplify time savings and efficiency gains for our customers.

We're seeing strong early momentum. And as we continue to launch more agents, we believe the impact will compound from saving weeks and months of work to creating the capacity of entire finance teams. We're redefining how financial operations scale, enabling SMBs to expand capability and capacity without adding costs. This is the future we are building. So every Fortune 5 million business regardless of size can operate with the power of a full finance organization.

BILL holds a leading highly advantaged position in a large and growing market. We built a deeply differentiated platform at scale, powered by proprietary data, established and expanding partnerships and mission-critical workflows that are difficult to replicate. We are simplifying the financial lives of businesses in a meaningful way. And as a result, we are capturing the economic returns of our differentiation.

We are very excited about our future. We are executing and delivering against our commitments while proving the durability of our model. And with that, I'll turn it over to John.

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.

Congrats on a solid quarter here. I wanted to ask the main question I think all of us have been getting from investors recently is how at risk is BILL from AI disruption from your perspective, at a very high level, what is your competitive moat? And how is that defensible against AI startups?

Thank you, Chris, for the question. Always good to talk to you. Happy to talk about this. I think it's a little bit overplayed out there. The impact of AI and software really comes down to -- it's just another tool to accelerate the democratization of software development. I've been building software for SMBs -- financial software for SMBs now for over 35 years. And every evolving language, if you will, has just made more and more people able to develop software. And that's been a great thing. That means we have a lot more capabilities for customers today than we had before. .

And so when we think about developing solutions to solve real pain points and real problems for our customers, it requires expertise combined with creativity. And so our understanding of the problem that SMBs face today is rooted in a deep level of expertise with technology. And so that foundational understanding of the financial operations underlying the transactions that we drive today for our business.

The deep expertise that we have at BILL actually kind of comes through, obviously, in the fact that we've created a category. Nobody was thinking or talking about financial operations before BILL came along. And now we have this category that we continuously redefine and add agentic capabilities, and that means that AI can't replace that expertise instead it will bring it to life.

We have and have built a unique company. We operate where software means money movement. We have married software and payments seamlessly, automating more B2B payments than anyone else. Our scale in B2B transactions is unmatched and we have an advantaged position that will continue to grow with agentic AI. And because of the 3 differentiating factors, I think, are really important for folks to understand, that's why I have this confidence. So first, I would say there's a large quantum of highly contextual data that we have.

Nobody else has done $1 trillion in spend in payments across our network, hundreds of millions of transactions, over 1 billion documents that we've digested and supported our customers on. This gives us a unique data set to understand customer behavior and to build risk models around how you move money. And like I said, no one else has this. This is not something 5 guys in a garage can just build on their own. It takes time.

You have to scale. You have to grow and build the asset to be able to make these capabilities come to life. The second thing that I think is differentiating for BILL is that trust, customers trust BILL. we talked about 9,500-plus accounts across the country, trust BILL to actually build their business off of us. It's a critical intangible that allows money to move freely and quickly in society.

And I just want to pause and just make sure everybody understands how important trust is when it comes to moving money. I mean when the [ precision ] bar is 100%, which it is for money, the consequences of failure can be catastrophic for an SMB. And so anything less, we know they will be out of business. And our track record having moved more than $1 trillion speaks for itself.

So we have this massive amount of data. We've got a large amount of trust. And the third area that differentiates us and really defines how we will move forward as the network effects. We have a unique set of 8 million entities on our network. No one connects and understands how buyers and suppliers transact better than BILL. And I want to be clear that our network [indiscernible] enables intelligence to cross an ecosystem, not just within a single business. And we will continue to leverage this to help businesses get done across the ecosystem.

So to sum it up, our assets are scarce. They're unique. Our platform is at the intersection of both software and payments. It's carefully built, it's owned with expertise and these assets are not easy, and they may be even impossible to replicate, and that will allow us to create significant opportunities with the agentic AI. So I'm pretty obviously pumped about the depth of expertise and vigorous execution that we demonstrate, and I know that will unlock the power of SMBs going forward.

Awesome, super helpful, answer there, Rene. Maybe just as a follow-up to that, on the opportunity front with AI, I think your agent strategy is really interesting because it seems to be going after more specific use cases to ultimately just reduce the amount of work that SMBs are doing. So curious to kind of get your thoughts on that strategy? Why that's the right one? And what's been the feedback from SMBs?

That's a great -- another great question, Chris. So I think this is what happens when you have a foundational understanding of what drives the business. This is -- this business was born out of processing and managing payments in my family and my businesses. And that understanding means that we get to actually develop capabilities that haven't been thought of before.

And so agenetic AI will allow us to dive deeper into the stack of transactional confusion, if you will, and simplify it. And so what we see is an opportunity to create essentially roles that manage the different transaction levels that business is at. So as an example of this that we've talked about a bunch so far is the supplier management, what we're doing with W-9s. Nobody was thinking about, okay, well, W-9s need to be collected. They need to be entered. They need to be stored. They need to then drive at 1099.

We were thinking about that. We've built that agent. We did it before anybody else. Nobody else is thinking about, okay, well, coding an invoice actually is really hard. Well, that's why we have documents at the source of our platform. That's why we started with our inbox virtual assistant. But then now we've added our coding agent that can go and take 90% of the steps out of coding to bill. That's an incredible amount of time savings that we've been able to provide.

Nobody else is thinking about the fact that SMBs need help, they need assistance, and they want to be able to do it on their time. And so our ability with the Bill Assistant agent that we just launched, it's just early, right? But what we've seen is we've gone from a 13% self-serve rate to over 40%. That means customers get back to doing what they love. They get their questions answered. They're able to kind of move quickly into what they love.

And that's everything that we're about at BILL is just helping business get back to work, helping them pursue their passion. So I think that our approach to kind of understand the underlying foundational challenges that a business has that's going to be what differentiates us in the market, and we have a lot more to go on this. We're super excited about what AI is going to enable us to tackle.

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

Yes, nice to see the growth acceleration and the upside to the guidance. I'm just curious, from an attribution standpoint, what would you assign it to in terms of what did a little bit better? I heard the improving volume. I've been getting questions around how much of that is macro versus using some of the return on the investments that you put in, for example?

Yes, I'll start, and then I'll have Rohini jump in. So I mean I think, Tien-Tsin, the first thing you're seeing is the results, just the durability of building a great business. I mean we are constantly focused on actually taking care of building solutions for our customers that deliver value for them in the long term. And we're also obviously have a strong pulse on how SMBs are kind of moving through the cycles.

And so we definitely see the resilience of SMBs kick in. We see the opportunity for them to drive and grow their business with our platform. And we think that the innovation that we've been bringing is creating more stickiness with the platform and creating more value opportunities for the platform. So with that, I'll let Rohini add a bit more. .

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.

I wanted to follow up on the AI question, maybe with regards to pricing. I know you've talked about kind of some of the targeted actions that you're taking. But just in the context of all the headlines around AI and LLMs for writing tools or creating their own software solutions, do you see any risk to the pricing algorithm over the long term? I think we get the picture in the near term, but just any thoughts on how to think about that over the long term. And I thought the answer earlier from Rene, just on the overall competitive [indiscernible], but just wondering more specifically with regards to pricing.

Yes. Thank you, Nate. First, I'll start off and then I think Rohini can kind of add some comments. But at the highest level, pricing comes from the value you create for your customers. And so what we see happening with AI is that it will continue to unlock the friction that maybe is the inertia behind why more businesses don't use our solution. And so we think there are lots of opportunities to create more value inside the applications that will attract more customers.

And we also see opportunities to create more services that we can price for as well. In addition, we believe that AI will be a significant helpful partner, if you will, on how we drive more consolidation of the expenses, more efficiency across the business. And so -- we've seen some of that. We talked about the BILL Assistant Agent that's actually driving self-serve, and [ eliminating ] calls with higher satisfaction for customers. These are things that we will continue to do to kind of obviously drive both the top line and the bottom line. But Rohini, what else would you like to add?

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.

That's super helpful. I appreciate all the detail there. That was great. I appreciate it, Rohini. The other oen that was interesting that stood out to me was the invoice financing metrics that were interesting, customers grew 50%, origination volume over 30%. You talked about some of that in your prepared remarks, but just interested to hear more where invoice financing you're seeing good product market fit, either with specific verticals or customer groups or maybe use cases that businesses are leading on the invoice financing for? And then maybe looking forward, where do you think adoption can go for that product and how it could impact the P&L going forward?

Thank you, Nate, for the question. I think it brings back a couple of things I mentioned with the durable assets that we built at BILL. So one is the data that we have and 2 is the network. And so when you think about invoice financing, we're opening up the 8 million entities in the network. We're giving them a chance to get their money faster. They actually get paid maybe 4 or 6 weeks earlier than they would have been paid otherwise.

And that's a huge, huge impact on how they manage their cash flow. So there is definitely demand for it. We see repeat usage. And the only reason we're able to do that is because of the huge data asset that we have. And it really matters that we're able to look at these patterns over time to be able to look at the patterns of the network at this moment in time.

And That's how we're able to drive the success. And so I would say that the overall particular verticals or what not that are picking the solution. It probably varies from month to month depending on the cycles that they're in. I don't think there's anything specific that I would say other than that, this is a product that does have demand, and we're excited to keep rolling it out. And John will kind of add a few comments here.

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.

Going back 4 or 5 months ago when you had different investors get involved and the Board changed a bit. We talked about more of a strategic process review and I guess I'd be curious to hear an update on what findings you've had since then, whether it's on the revenue side, the cost side or the stand-alone side or anything else for that matter? Where are we in that process? And maybe what do you see us headed on it? .

Thank you, Darrin, for the question. I'll start, and then I'll let John kind of take some points on some of the work he's been leading looking at the business more realistically.

So I mean, first and foremost, when you build a durable business, you have lots of levers at your disposal, and you continue to add to those levers over time. And so I think if you look back 6 months like you were suggesting there was a point in time when we realized we needed to be activating more of the, I guess, the efficiency across the business. And so we've been focused on that. You've seen that in the results. We continue to drive growth while balancing obviously and growing the profitability across the business. And that's just because of the levers that we have. But there are some more opportunities for us. I'll let John kind of talk broadly to that.

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..

Okay. All right, guys, just one more is on the move-up market. I just want to hear a little bit more on your view of your right to win in that space. You talked about I know a slight downtick on the [indiscernible] 4,000 APA or net adds based on moving upmarket to bigger customers, that makes sense. But how should we think about this showing up in other KPIs? And again, just more and more holistically, help us understand why you believe you can succeed there versus others.

Yes. Thanks, Darrin. I'll start and I'll let John or Rohini add more comments. So I mean I think the first reason we believe we can win is that we've got a unique differentiated platform. We built that platform from the beginning to kind of go square at the heart of business in America.

So we have businesses that are small, we have business that are medium, and we have larger businesses. We're not focused on enterprise, but we do think that our solution, if you just look at our data, already suggests that larger businesses get more value out of the platform than even smaller businesses do.

So that is where the conviction comes from. I think when you look at the go-to-market motion, one of the things we talked about this quarter is that we've been able to drive more adoption of both the core ATAR and the spending expense solutions together, driving 28% growth year-over-year in that. So a lot of opportunity to tell us that the platform as a whole is quite meaningful. And that is why we will be able to drive more adoption when we get to larger businesses. So I don't know, John or Rohini have anything else you want to add? .

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.

Yes. Let me start by just talking about the Embed channel revenue performance. And just to clarify, the revenue numbers you see at Embed are related to our original Embed 1.0, as we may call it. The 2.0 very nascent, [indiscernible] really early days as we announced and then took to market the products with these partners.

So each one of the banks that we have in our initial version of Embed have their own revenue schedules and there is some change quarter -- on a quarter-to-quarter basis. That is showing up in the numbers -- for Embed 2.0 early days, and we really expect the numbers to start to show up closer to next year.

Ken, just to add to Rohini's comments, the Embed 2.0 is just now getting to market with the 3 new partners, the NetSuite, the Acumatica and Paychex. We're super excited about the pace that we've been able to launch this. It was only 6 months ago, whatever that platform was ready and we launched signed 3 partners and within a quarter to have all of them alive and in market. And just as a comment, I was up that Acumatica's Annual Conference last week and John Case, CEO, mentioned us in his keynote address.

But the thing that was super motivating for me was just to actually talk to the VARs that they serve and work with the customers. And these are large, mid-market customers, some of them are in the construction vertical, if you well. And there is demand and interest about what it is that we're doing. And so I think the broad strategy with Embed 2.0 proving itself out. We have to go execute on the go-to-market now. but there is an opportunity to reach both larger customers, as John said, and smaller customers like [ [indiscernible] with Paychex. So we're super excited about it and a lot of opportunity going forward.

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.

We're now out of time for any further questions. So I'll pass you back over to Rene for any closing comments.

Thank you, Lydia. Okay. Thank you for joining us today. I want to thank our team for their focused execution during the quarter, and we delivered accelerated growth and expanded margins and reflecting the strength of our operating model and the compounding advantage of our platform. We believe this positions us well for sustained profitable growth over the long term. And thank you. Hope you have a great evening. .

This concludes our call today. Thank you very much for joining. You may now disconnect your lines.

Awesome. Hello, everyone. I hope you're all enjoying the third day of UBS' Tech Conference. My name is Taylor McGinnis. I head up this mid-cap application SaaS coverage here at UBS. And with me, I have Rohini, who's BILL's CFO. So thanks so much for taking the time today.

It's so nice to be here with you Taylor.

Perfect. Rohini, let them start at a high level. You've been in the CFO role at BILL for about 6 months or so.

5 months.

5 months. Approaching 6 months.

So maybe you could just talk to the group. What are your top strategic priorities? Given your past experience, how do you think that uniquely positions you to add value at BILL? And what are you most enthusiastic about coming into the next year plus?

A lot of questions there. I'm going to take it piece by piece. So starting out with what excites me, what are my priorities and all of that stuff, right? So I think about it in 2 pieces. One is to drive durable growth. And there are some very critical things that BILL has launched over the last, I would say, fiscal year '25 that we now, this year, are scaling, so we want to just absolutely put all our execution capabilities and focus into making those 3 big things successful. For me, the biggest 3 anchors here are, which, by the way, in my mind, into the next year and in the future, are the inflection drivers for the business are: number one, using AI to drive absolutely amazing frictionless experiences for our customers, really modernizing that experience, and I'm so excited to see Mike who's our software GM his obsession with customer experience and how he's driving that forward; the second piece is supplier payments plus which we've talked about a lot. What that does is really helps us monetize a very large TPV that we have on our platform and continue to drive revenue growth in a very durable, profitable way. So opportunities there. The go-to-market teams are in place to go capture that opportunity. It's a longer sales cycle, but people are excited about that; and third, and equally important as the other 2 is the Embed work that we are doing. So as we start to focus our efforts in product building and GTM into our very specific segment that we go after, like how we define our ideal customer profile. We want channels like accountants and Embeds to really start to scale outside of that limited segment as well.

So it's going to give us extra feed to be able to run really fast and capture the market opportunity that we have in front of us. So if we are able to execute on those 3 in a very fundamental way and good way. I think this is going to really set us up for amazing growth in the future years. So that's what I'm really excited about at the revenue side. And then as I look at the cost base, there is so much opportunity for us to continue to refine that cost structure and make decisions that help us drive further profitability and drive shareholder value.

And as I think about it, shareholder value is always a combination of driving revenue growth and driving OI growth. And all these efforts combined together, I think, are exciting. There's a lot of work to do, and we're very excited about it. So the other part of your question was, how does my experience position me? I think being in scaled companies, it kind of shows you what scale looks like. And what does it take to operate at that scale with discipline and drive execution accountability, all of that.

So I think that is the type of structure I want to bring into BILL in my own way. And additionally, just the thoughtfulness and the discipline around investments and making sure that we are staggering the investments in a way that we want to have the first set be successful, show green shoots, drive growth, reinvest, do that all over again and continue to have a more durable business. So I think putting that discipline in place is the other thing that I feel very passionate about. There was a third part of the question that I forgot.

No. But I think that was a perfect, perfect answer. And maybe just building on that, some of the things that you mentioned is, you mentioned a couple of areas that could support durable growth. And then you also talked about wanting to do that in a profitable way. So as you look ahead, I guess, how are you thinking about balancing growth and profitability? Do you see a path to a rule of 40, what does that look like to you? How are you thinking about the level of growth and margin expansion that makes the most sense for BILL, and then just overall, how you're thinking about those pieces longer term.

Yes. As we are talking here, the teams are working. I'm working with them on putting together those plans and really clarifying again the market we are poised to win, what do we need to do? What are the few building blocks and not like 50 things that we need to do to get there. But what are the few things that we are really going to put our energy and execution behind, what would those building blocks contribute to the overall growth profile. As I always say, the easiest way to get profitability is to drive revenue growth at just falls to the bottom.

But at the same time, the opportunity for us to also look at the cost structure really compounds the ability we have to drive to the rule of 40. And I feel confident that we can get there. We will share the time frame in which we will get there and what the trajectory of revenue growth to OM looks like for us, and that would be, again, a combination of all the things that we're driving to find growth, and push growth. And then secondly, optimization in the cost structure.

And we have so many tools now available for us to drive growth in a profitable way with AI, the latest developer tools we have. We are exploring areas of geolocation diversity within our business as well. That's going to also help with SEC, GAAP profitability is going to be a big focus of what we talk to you guys about as well in Investor Day. So really looking forward to sharing that with you, the vision is coming together really nicely.

Yes. And of those areas that can drive leverage going forward, I guess, which do you think could be the most needle moving in the medium term?

If you think about near term being in year, I would say we have a very packed slate of things. We already had a workforce reduction that we did. And that was really tied more to what do we focus on and what -- how do we trim around. This not only helps with the cost situation, but also helps with focus of the organization. And if you do a few things, you do them well and you get the whole organization behind it. So I think that was more related to that as well as some of the efficiencies we were already seeing internally with AI, especially in the CXO organization.

We have a lot of work that we are doing this year on building out our pricing strategy, scaling these 3 big pieces that I talked about as well as putting down plans for OpEx optimization. So in your benefit for a lot of these things will be minimal in year, but I really expect us to exit the year, setting ourselves up for these meaningful expansions that we are looking at for the next 2 to 3 years.

Yes. And one of the big investment areas that BILL has talked about is mid-market, right, and the push up into the mid-market that you guys are taking. So can you talk to how big of an investment is needed in order to support those gross initiatives. And in terms of where that's coming from, is this net new that's being allocated to mid-market initiatives? Are you reallocating resources maybe from downmarket and shifting them up market. Maybe you could just provide a little bit more color there?

Absolutely. So it is more of a shift reallocation, again, because I want to continue to bring us back to how do we focus on the areas that we believe are going to help us win. So it's all about that. So we are reallocating resources. We are trying to make sure that -- again, it's not a very drastic shift in the market, the size of the customers we're going after. I would say we are kind of refining it and focusing it to the higher end of where we generally end up playing. And that doesn't mean that we don't go after the smaller customers or the bigger ones, but we're going to use other channels like the Embed channel, where we have partners like Paychex that are going to help us get to the really smaller customers, but we don't focus our internal GTM resources to go after that.

Now what -- as a result of this change in focus, and we've talked about that in the previous earnings call as well, is you may see in short term some fluctuation in the NNA numbers. But again, I bring everybody to the point that the NNA, ARPU, these are the leading indicators that help us understand what the growth trajectory will be, right? So we will continue to be on that growth trajectory for the outcomes like revenue and OI, but there may be some fluctuation in these in the short term. And you will see over time, Embed starts to kick in and our accounting channel already fairly strong.

So that will help us bridge that gap. Additionally, there's a lot of work we are undertaking in modernizing and making our platform friction-free and absolutely seamless by eliminating a lot of workflows we add a lot of gross adds, but there is some friction that makes us lose some customers in the first 30 to 60 days. So there is some onboarding friction that we really want to go after and use of AI makes it much easier for us to make those improvements. I would say actually they're not improvements of step changes and how people experience our products. So that's going to help with the NNA number over time as well as reducing churn.

Yes. Let's dive into that a little bit more. So 2 questions on the mid-market side. I guess, one, a common question that we get from investors is why now, right? Why does it make the most sense today to make that shift and push up market. And then the second piece to that is as investors are trying to gauge the success that you're having in that transition, what KPIs or revenue line items would you point people to look at to say, if this is starting to materialize the way that you guys want it to, this is where you'll start to see that show up?

Yes, absolutely. I think let me take the second one, first. So as we start to think about the metrics that help us get to the revenue and OI outcomes on the SaaS side, the 2 things that we always watch is NNA and ARPU. And we have focused a lot on NNA. We want to start to balance that focus between NNA and ARPU. So over time, we are doing a bunch of things as we look at mid-market, our ARPU should go up. That's what you should look at. over time. Again, this is not going to be a flip of the switch because there's a transition involved, the scaling of the customers. And I think of ARPU really as a holistic ARPU, you bring in a customer, they have not only SaaS revenue, but also a lot of transaction revenue that attaches to that customer, and that's where the value of the customer lies for us, right, using a lot of different products.

Additionally, periodically, as we said in one of the earnings calls, we will talk about the growth in the mid-market units that we are driving to demonstrate our shift and success in that, but in the end, the proof of it is going to be in the pudding. And over time, you want to start seeing the TPV revenue per customer and all of those metrics start to go up. And to your question of why now? So we've been pulled a little bit up market as some of the -- initially when BILL was launched, we got a lot of the smaller end of the SMBs. They grew with us. They had increasing needs in products. And we have been adding a lot of depth in the product portfolio over time.

So we have now a set of products that service the higher end of the SMB really well. So that's -- and when we do the analysis of how people transact with us, how much value we get out of each one of our customers it's very clear that the mid-market customers use -- or it's the lower end of mid-market and they use us much more. They are able to use a lot of our products, including International and such, which are heavily monetized. So that makes it a right point for us. We have the product set, the customers need us, and it's a perfect coming together at the moment. So now we're going to just make sure that our go-to-market motions are in line with the product that we're selling and what our ideal customer profile is.

Yes. And I think actually it would be helpful. How do you guys define mid-market, right? Because I'm sure every company has a different definition, but it actually might be helpful. And even too, if you think about the competitive landscape, right, and which areas you guys are starting to focus a bit more on that. Maybe you can provide a bit more color there. So then I think it may...

A lot of this conversation I would love to have during the Investor Day. I don't want to Mike's thunder here, but I will give a little bit of color. We have been working hard on trying to understand what is the size of the customer that really needs us talking to the customers, understanding their needs, mapping our own products over there and also looking at our data to say where do we drive most value from the customers. So there's a very small -- I'm not going to give the numbers right now just because there's still more work that's happening around it.

But there's a really smaller end where we think that they're -- good to have those customers, but we don't want to put our dollars towards getting those customers and if Embed channel, accounting channel gets those customers, that's great, and they will hopefully grow with us. Then there is a middle part, and there is a higher mid-market where we think that there are other players that are actually serving that market fairly well. And in that upper mid-market, the customers end up wanting to use multiple suppliers for multiple things. They are more sophisticated. What we want to really target in this middle place is customers who are looking for simplicity, who are looking for one place to plug in and you get a lot of services, not only all of your software needs of managing the financial back end is met, but also you're able to, in a very seamless way make transactions.

Now we have some start to the treasury services with our BILL cash account. We pay interest on that, and that would be lucrative for these people to just use it as somewhere to keep the money and then easily transact. So -- and SME card, of course, so they can attach their corporate cards or whatever else they want to do. So it's fully plugging into one and getting all those services. That's the customer we want because that's really where the value lies for us and what our platform delivers.

And this is what we're going to focus on, all of the focus that we have on like giving the best services. We're not going to start to make a product that's perfect for everybody that doesn't always end well, right? So this is where we want to really find our sweet spot and win the market and we have a right to win that.

Yes. And when you're reallocating resources from down market to upmarket, can you talk about the potential impact that we could see to that customer segment or to some of the KPIs and revenue line items? I know you've -- BILL has talked about the potential for net new customer adds, right, to start to moderate a bit. But how, I guess, are you guys thinking about that shift and the potential impact that it could have?

Yes. And we are watching that super closely, right? The NNA impact in the short term it will just fluctuate because we are starting to change the focus of the teams, along with that, there's a lot of changes that need to happen on how people are compensated, what they're focused on and they have to rev the engine and execute on that. So there's going to be a timing related to that shift. And even though there are fewer net new adds, the -- over time, the ARPU should start to increase as we talked about, right?

So there will be some impact. some more immediate in the short run. The other is more, I wouldn't call it longer term. Within the year, we want to start seeing the ARPU start to go up from here on. So I think those are some of the changes that you will. I don't want to be very specific with the numbers I give out. You should expect those trends. And if again, the situation is where we are turning around flexing, moving things around, so that would lead to some sort of fluctuation.

Yes, makes sense. And I want to dive into each of the revenue line items. But before we get there, not the most exciting question, but I think given that we mentioned earlier, you've been in the CFO role now for 5 months, and I think investors are still getting used to your guidance philosophy, your approach. Could you just talk a little bit about the assumptions that you embed in your guide? And give a revenue guidance range, how you assume some of the variables for the high end of the guide and the low end of the guide, if I reflect on the back of last quarter, revenue came at the high end of the range.

When we look into 2Q, the guide assumes a little bit of an acceleration, so common question that we get from investors is, okay, BILL had this consistency of putting up beats above the high end of the range to get to the 2Q guide and that slight acceleration, what needs to happen under what scenario. Could that be a more likely outcome?

Yes. And I think it's very consistent to John before me how he thought about the guidance as well, right? There are just processes that we have in the system that work. So there -- the midpoint of the guide is where we all anchor to when we say, okay, this is the number that we do not want to miss. This is where we feel very confident that we are going to hit, barring some very systemic changes that happen around us sometimes and those changes could be either macro or internal execution related or very specific to our customers.

So there's a lot of big systemic things that could happen. It's hard to accommodate all of that. Otherwise, I'll never show, right? But the ideal thing is you have to have enough of positive and negatives that you have thought about and hence, the range. So you should be able to accommodate the small hiccups that you see in the business or small increases or benefits that you see that implies the range. At the end of the day, from a philosophy standpoint, we assume a stable environment as we come into. We do not anticipate based on a wide variety of sources that are externally available that, the second half will see better trends or higher consumer confidence or higher spending from the B2B businesses.

We do not assume any of that. We actually anchor on what we are seeing. And what do we believe because of very factual reasons that could happen, incorporated in the guide and give ourselves the ability to deal with some ups and downs within the range. But that's really flat. I mean I don't know if it's worth reiterating what we've said slight year-over-year increase in line with last year for APAR take rate, the roughly similar levels of customer spending and whatnot we're seeing SMBs start to stabilize now and we continue to assume that in the rest of the year. Now if it bounces back, that's going to be surprise to the positive.

Yes. Perfect. No, I think it was really helpful to unpack that. So I appreciate all those insights. Focusing on 2Q, in particular, I think just to get to the high end of the range, part of that is being driven by an easier compare for TPV per customer where there was a large advertising company that discontinued card payments last year, and now you're starting to lap that. So can you talk about what is the drivers on that metric specifically to get to the high end of the guide potentially?

And then as we look throughout this year and into calendar 2026. I think you made a couple of interesting comments earlier, which is this push up market, right? You potentially could see some tailwinds to TPV per customer from that. Obviously, to some degree, it's going to be dependent on what you're hearing from customers in terms of their appetite to spend going into next year. So anything that you can unpack there for the group?

Yes. Remind me your first question.

On 2Q.

On 2Q specifically. So what will it take to hit the high end of the guidance? I think we continue to see strength in the SME spending in Q1. And if that continues to outperform our expectations, our expectations always reside at the midpoint. So if it's a little bit higher. That's going to help us hit the top end. The mix of the business is really important. So people using one funding method versus the other defines the monetization as well. And we generally take the range of outcomes to be the range of the guide. And if some of the higher monetization vehicles do better, that is a critical component of that. I do not see this quarter any material macro-related changes that are happening as of yet.

I hope I didn't jinx ourselves. But so far, so good. I think I continue to feel really good about the guidance that we have set out for Q2. On as we exit the year, I think the key growth drivers for us will be, yes, the mid-market customers that we get spend 3x more than the other customers that we have on the platform. So those metrics will start to move up, ARPU should look better over time. We are taking pricing actions that align the value that we deliver more with the price that we charge, again doing it thoughtfully and slowly, but definitely making strides there.

So all of those should help us improve ARPU, improve TPV per customer. And as we get into the next year, we are optimistic -- continue to be optimistic about SPP driving some take rate accretion as well. Those will be the key things to look out for.

Perfect. Because you brought it up, I'd love to talk about the pricing strategy because I know that, that's been more of a focus of the late. So could you just talk about when you evaluate how pricing could evolve and the opportunities, what that potentially looks like? I know you guys have started to tinker with pricing on some of the SKUs like the corporate changes that you made, but I think it would be helpful for the group if you just provide a little bit more color on how you guys are thinking about that?

Absolutely. And as we've said before, right, we've, over the last 3 years, not really changed prices. And additionally, we have rolled out a lot of feature functionality in our products that customers just get. And now they're starting to see the value there. And -- what we want to do is take a step back and look at all of that. Now there are 2 things we are doing on pricing. One is more of a short-term tactical in-year plan that we have built out, which is also incorporated in the guidance, is how do we, for specific things, match the value that we give and we did the corporate change.

We're also introducing modular pricing where if you're on a very base price, you should still be able to access some of the features that you may need one-off for your business, and you will be able to pay for that and take advantage of it like procurement, for example. And then the second big thing is that we really -- if you step away, looking at the overall pricing framework for the whole business as it comes together. So that includes a lot of analysis and work, benchmarking, understanding customer feedback and all of that. And that work is being led by our pricing team with inputs from the consultant would hire. They provided some good inputs to us as well.

So we're laying out that strategy that we would actually love to share also on the Investor Day in terms of how we think about it. This will enable us to put much clearer structure around our pricing and provide us with the ability to continue to launch agents and price for them at the right value, either through being a part of the base product because it's so fundamental, the improvement we've done, we want all of our customers to have. So that will flow into the normal pricing, but it gives us to then enhance the pricing over time as we deliver value and then create a structure where we are able to do modular pricing where pay-as-you-go type of agent use as well.

So that work is more meaningful in my mind as we get into the next year. It will really clarify how we price. It puts structure, governance, everything around it and helps us match the value to the value we get.

Perfect. And on take rate, I think that's the most volatile metric. And in terms of -- I think when we look into 2Q, there's an understanding that there's a seasonal component to that. But as we move throughout the year, in order to hit the guide of a similar rate of expansion to what we saw last year, you need to assume the second half of the year take rate starts to tick up a bit more. So in terms of what's giving comfort in that trajectory. Could you unpack that a bit more?

Absolutely. So we closed the quarter FY Q1 with the expansion of take rate of 0.3 basis points, and we had guided to similar growth rates for take rate, and that was around roughly 0.4, right? So we are doing that, the Q1 delivered on that, even though sequentially, Q2 is coming down Q1 to Q2. But year-over-year, it's still going to be the expansion that we have talked about. And what's really happening is -- sorry, I don't know why my phone is ringing.

Well, what's happening is we talk about our transaction portfolio in 2 critical ways, right? One is our emerging portfolio. The other is the established portfolio. The emerging portfolio grew in Q1 at 40%. We expect that growth rate to continue, and now it starts to become meaningful scale where it starts to make a difference in how the take rate pans out, right? So that's a very critical thing. And overall, I think I've mentioned it before that the size of our emerging portfolio is now nearing the Virtual Card portfolio and Virtual Card is one of our biggest portions of the transaction business, right?

So now it's start to become meaningful. And as we exit the year with this 40% growth rate somewhat continuing, next year, this emerging portfolio starts to make a dent, especially now if you add SPP monetization to that, those are the things that are exciting to me on take rate.

Yes, that was the next question that I was just going to ask you because there's been a lot of these newer emerging initiatives that have been underway for some time. So you mentioned Supplier Payment Plus there have been initiatives to work more closely with suppliers, deepening collaboration there. You've made changes on the Virtual Card side like introducing straight-through processing. So what gives comfort that we're finally at that tipping point? And it sounds like you expect that to be more needle moving next year. Could we start to see that in 4Q of 2026? I guess just how are you thinking about the time frame for when these really start to impact take rates?

Yes. I think SSP is more of a next year story. Again, I think we've talked about this a little bit before that when we started out with the advanced ACH feature and monetizing just advanced ACH, it seems to be like, we can reach out to the suppliers and then talk to them about solving ABC problems and then get a cut of the take rate. As we started engaging with some of our biggest suppliers, we realize they want to have a much more holistic conversation with a bunch of people in the conversation where we are now having deeper discussions on how would they want payments.

And in some cases, they want to say, okay, X type of volume we want on virtual card because it's quick money for us. We get the money in the bank. It's great information. There is no pain points. Yes, there is a payment to be made for that, but we feel good about the trade-off. So we've had some discussions with suppliers where they're locking in virtual card volume in some cases, increasing virtual card volume. And then separately, we are discussing, okay, here is the volume that should ideally go to ACH, and we are happy to pay for this advanced ACH feature.

Monetization or the take rate on that will depend on the complexity of the payments that could be suppliers who are taking a few big payments, lower monetization. If you have many payments and you need much more data to reconcile, that's a huge problem. So there's a bigger take rate associated with that. So it really is following the problems we are solving for. But given a much more holistic conversation it's a longer cycle for closure where we are really tweaking the best outcome for the supplier and the value we drive. So to me, [indiscernible] SPP is more of next year, but this emerging portfolio growing. It continues to grow faster than our established portfolio, and that continues to help us with the take rate slowly, but surely through the year.

Perfect. And we'll end on a fun one, which is the Embed opportunity. So you've announced 3 big partners there. How are you thinking about the size of the opportunity, potentially? And any greater insight you can give on the structure of these partnerships. So is there potentially co-selling opportunities, revenue share opportunities. I guess how are you thinking about the different scenarios with these partnerships?

Yes. So the things that I feel super excited about is in our Version one of Embed we were working on building for each one of our partners, a very custom type of solution. And over time, we realize that the faster path to go to market is just build a platform that is plug-and-play for the most part and really easy for the partners to come in with. So super excited that some big names like NetSuite, Acumatica, Paychex chose us to work with us, right? They obviously find value and what BILL brings to the table for their customers. So we are able to fairly quickly and when I use quickly contextually in the scheme of these types of partnerships, we can take a lot of our transactional capabilities to these partners as well.

This is the second thing that excites me that it's the full value of the ad valorem portfolio that can actually be used by these customers, which in Embed one was fairly limited in terms of growth. So without giving you very specific numbers because it's really very early days. We've launched with one, the other 2 over the next couple of quarters we're going to launch. So it's a little bit too early, but the size of the opportunity is super exciting. And the way it works really is that this augments our feet on the ground, which is going to be focused on certain segments and the type of customer we want to go after.

NetSuite is going to help us with that, our move a little bit towards upmarket, but also get us customers that are higher than that, whereas Paychex will probably be a little bit lower end of the spectrum where we know our product is great for those customers. And the reason why they would want to do this is they have rev share built into the things. It's a win-win situation for us. It's not us from the background trying to push for an outcome.

It does -- the rev share is a cost for us, but it is offset by the simplicity of our sales organization, which we then don't have to invest copious amounts of money in the first line of defense from customer support and all of that gets simplified as we embed our capabilities into their platforms. So I think it's a really great outcome in terms of a win-win situation. They want us to grow, and we want us to grow.

Perfect. Well, we'll leave it there. Rohini thanks so much for taking the time. We covered a lot, and thanks, everyone, for joining in. Let's give a round of applause.

Thank you so much.

[Audio Gap] fintech practice here at Citi, and we're excited to have Rohini Jain, who's the CEO at BILL to go through the latest and greatest at BILL.

So with that, Rohini, maybe you could first -- before you dive into the business, you're obviously relatively new as the CFO. Can you talk a little bit about your background and what brought you to BILL?

Absolutely. So as I always say, I grew up in GE. That was my first job. And what a wonderful place to start a finance career, great grounding from an operational finance perspective, analytics-based, very rigorous training ground for a lot of us finance professionals. So value that. Went over to the tech world with eBay. After that, did a short stint with Walmart and then 9 years at PayPal, from which now I joined BILL.

So over the 9 years at PayPal, got a deep understanding of fintech and before that, some technology as well. So BILL was just the right spot and especially given the transition and a pivotal point in their journey, it just seemed to be a great time to walk into the CFO position. That was obviously the next step in my career as well. Great team, great business model, diversified portfolio along with very sticky business model. So was really attracted to that and really excited to be here.

Yes. Yes. Well, thanks for being here. Can you talk a little bit about -- in the fourth quarter, BILL discussed getting back to 20% -- or fourth quarter of '24, sorry, BILL discussed about getting back to the 20% core revenue growth. BILL is doing 14% core revenue growth as of last quarter. What needs to happen for BILL to get back to that 20% plus? Is it a better economy, better software growth, higher payment penetration? Is it macro only? Just trying to think about the drivers of where we are today at 14%, given last quarter's results versus the 20% plus that you guys aspire to?

Yes. No, great question. And the way I think about it is the purpose for us is really to drive holistic shareholder value, and that comes in 2 components, to drive growth and to drive profitability expansion. And we are very focused on both of them at the moment.

And as you think about growth specifically, that seems to be -- all of us can vouch to that is the easiest way to drive profitability. If you're growing, profitability happens to you. But we need to just continue to be focused on the initiatives that we outlined in the Q4 earnings call, setting out our guidance and priorities. John talked about things that we are focused on. And there are some very specific things that I think are really the key building blocks of how we demonstrate growth over the next 3 to 5 years.

SPP, we've talked about a lot, the Embed partnerships that we've announced on top of that overlaying the AI components and the agents that we are releasing really add value to the customers. We're also continuing to go upmarket, driving higher ARPU and the value of the customers and the cross-sell. So all of these things in combination take us to our path to a robust growth and [Audio Gap] are big.

So some of these new things, even if they are growing very rapidly, the contribution to growth starts to be meaningful over time just because they start from a smaller number, right? So as we think about that, we want to focus our efforts on driving profitability as well in parallel. And there are several initiatives that we are undertaking now and have planned for next several months to also undertake to make sure that we are -- while we are growing, we are expanding profitability, we are getting revenue from durable, sustainable sources that add to the shareholder value. So that's the overall context of how we think about it.

And how would you guys -- how how do you think about the macro situation today? Is it -- does the volumes feel depressed still? It doesn't seem to be getting worse, but maybe at a depressed level?

I would say there was a definite step down from the robust growth that SMB was seeing during the pandemic and such. What's encouraging in Q4 and now seeing the Q1 trends as well getting into Q2 that the SMBs spend is starting to look stable. And we monitor a couple of metrics like TPV per customer, same-store sales and things like that. They continue to be stable, robust, now not growing at the elevated levels they were. So there's definitely that step down that happened kind of sustains itself in a way.

But it's promising that they're resilient, and they continue to be roughly stable. If you go down a level or 2 deeper, you see different growth rates for different industries, and we follow that fairly closely as well to see how discretionary spend versus more of the necessary spend is coming along.

I want to ask about pricing opportunities. I know BILL is taking a deeper look at its pricing model. Where are the biggest opportunities that BILL sees to potentially raise price for the value given?

Yes. Over the last several months, we have actually added a lot of feature and functionality to our products. We have added a lot of new things like procurement, the multi-entity and things like that, which we haven't yet -- we hadn't priced in at the beginning of the year. So what we are trying to do over the last 3 years, we haven't raised any prices. What we're trying to do now is to make sure that the value that we have given to our customers, we're starting to price to that value that we have delivered.

And there are 2 components of it, right? There's one bit of pricing that we baked into our guidance. It's more I think of it as run the business, okay, we are kind of tweaking things here and there. And then there is a bigger effort of what we call the more strategic pricing view that we are taking and stepping away and saying, what is the market at [indiscernible]? What is the value we're delivering overall? How would we ideally bundle these products rather than do very singular motions of pricing? And that is something that is going to really help us drive the right pricing for the value that we add. And some of that work takes time.

There are no risk periods involved. There are different cohorts that need to be dealt with. There are contracts that are already in place. So the way I think about it is a lot of that work that we're doing now will set us up to exit the year in a way where we can start to see expansion well into the next year of ARPU.

Pricing is one thing and then more product offerings, attachment and then moving upmarket is another, which we'll talk about in a second. But just overall, when you think about ARPU expansion, which is on the play sheet for BILL, where do you see the biggest opportunity?

All of those, right? We're very focused on all of those 3, and you articulated them really well. So the pricing, I talked about, there are short-term actions we're taking as well as the overall look at the strategic implications of the overall pricing structure for us.

The second piece is going upmarket in a more deliberate fashion. And when I say deliberate, it means that we're really trying to tie our resource allocation not only across the products that will then create the products and make the product most efficient and effective for that segment as well as the sales and marketing resources also geared to driving customer adoption in that segment.

Having said that -- excuse me, you can see I've been talking a lot today. So the other side of it is we have the product, the sales. We are not going to leave behind the smaller customers that are on the platform. We just don't want to apply all of our resources and direct sales motions for those smaller customers. And for them, partnerships like Paychex with the Embed channel, that's one of the ways we will reach the smaller customers in the future as well as well as our accounting channel continues to be a very strong moat for us, and they continue to bring the customers more at the smaller end who then all of them will grow with us and get to scale.

Yes. I was going to ask a little bit about the go-to-market. I know the strategy for the last couple of years has been to move upmarket, but now it seems a little more deliberate. Can you just talk about the differences of what you were doing before versus what you're doing now and a little bit about the embedded 2.0 strategy?

Absolutely. So the way I would describe the efforts before now were more about how -- as our customers were growing, their demands of certain features and functionality was increasing, and we were trying to cater to them as they grew. So it was more of how we describe as a pull. And now what we are doing differently is what we describe as a push in terms of we are aligning our go-to-market resources in a very specific way and building the muscle to go get the lower mid-market, the higher side of the SMBs into the portfolio.

And part of the reason for that is that these mid-market customers, as we look at our book of work, they drive 3x the TPV of the other customers. So it is [Audio Gap] products on the platform. The demand for international payments, et cetera, is high from that segment. So overall, it's a much more valuable segment for us to focus on. And our product anyways is a very nice fit for the smaller customers who will, through marketing motions continue to come through Embed partnerships, as I said, and also accounting channel.

And that's all part of the embedded 2.0 strategy.

Yes. And the Embed 2.0 strategy is really to get scale faster and get a bigger part of the TAM in a more rapid fashion. And what I mean by that is, this is an attempt to meet the customers where they already are. They're already integrated into certain ERP systems. Paychex is another way where there are customers already there, and it'd be so much simpler for them to just have a very simple integration into one point and get all access to the BILL services.

And I'm excited about Embed 2.0 much more than 1 also is because of 2 reasons. One is an Embed first version that we did with the FIs, we had to do a lot of custom work to get that product working for the customers and for the banks itself. And in 2.0, we have built this platform that's much more of a plug-and-play. So the ability to get customers more rapidly and scale more rapidly is great.

And on the second side, the transaction portfolio is a larger part of our revenue today. And as we think about the FI channel that we did Embed 1.0 with, they were more keen on the software that we provided because they have their own capabilities on the transaction side. But the partners you are going with in terms of 2.0 will have full access to -- the potential to grow the transaction revenue is quite high. So I think of that as the overall BILL ecosystem, and we will have all of that potential of growth with all the products that we have today. So that's exciting.

I think BILL signed 4,000 net new clients, maybe a little over 4,000 in the previous quarter. What's the right number of new accounts to think about, new client accounts. I know you're moving upmarket. So we're just trying to figure out what's the right number to think about. Is it that 4,000 on a quarterly basis?

Yes. It's not going to be a very steady number. So there will be, as they've always been some fluctuation around that, but I think it's the right ballpark. But the more important thing I wanted to point out was that -- and I think I had it in my commentary in the earnings call as well, is that we really want to get focused on acquiring the higher-value units that are driving revenue and ARPU. So less focused on units, want to drive focus on ARPU so that we are really getting the most out of the customers that we have and that we invest in appropriately. And over time, I feel like over at least this year, the units in isolation is going to be a less relevant number for us to walk through.

Spend management was up 21%, and I think rewards grew at a faster pace. It sounds like you guys are scrutinizing the rewards paid out. What's the process there?

Yes. So really excited about the growth in SME business within BILL. It's 21% year-over-year growth in Q1 on the spend. Expect to continue to grow in high teens over the rest of the year as well. So it's on a great trajectory. Now the rewards have been ticking up. One of the key reasons for that reward tick up is as we go upmarket within the SME business is there's higher propensity of rewards being given to those bigger merchants or bigger customers.

So what we are doing is actually a twofold approach. There are some quick wins and a short-term plan and trying to kind of get that cost a little bit to plateau as a percentage of TPV. And then as we exit the year, even start to tick down a little bit. In the short term, we want to scrutinize the type of customers we have. Are we really extracting the value in terms of the rewards that we are giving and then selectively start to think about the contracts that we have are a win-win for both the customer and for us.

Secondly, we are also starting to think through the incentives that were initially for the sales teams based much more so on the spend overall. And now we are moving towards the incentives for sales teams to be more focused on what we call the overall revenue minus the rewards. So the net outcome or some form of contribution margin, we could describe it as. So every day, when salespeople get up, they know which number to focus on. So I think those are some of the things that we are in the short term focused on.

As a longer-term strategy, it's really important to make sure that you're using rewards and an investment and a tool to get the right type of customers. It's tied to the economics. And in this case, in SME business, the economics is really the interchange. So if you're -- you have categories of spend that are higher interchange, better economics for us, we would want to incentivize higher spend in those areas. So that's the capability that we want to really build up to be able to do that in an automated way.

Another popular topic when you're talking about BILL is the payment take rate expansion. I think the APAR take rate is expected to expand. I think it's 0.4 bps this year. I guess, first, what's included in the emerging portfolio? I know that's growing at 40% and maybe what percentage of volume is it today?

Yes, absolutely. So overall, the way we think about our portfolio now from an ad valorem perspective is in 2 categories. One is the more established products, which is like international payments and the other one is virtual cards. In the emerging portfolio, we have products like instant payments, working capital, the newly launched product, SPP out for 4 months now and working capital or invoice financing.

So all of these products together comprise of what we call the emerging portfolio. It's been growing at a very nice clip, 40% year-over-year growth rate in Q1. And as we think about this overall portfolio, it's starting to become a meaningful portion of the ad valorem portfolio now. So it is approaching the size of the virtual card portfolio, which is the largest of the ad valorem.

I think as that happens, we continue to diversify the growth that's coming from the ad valorem portfolio and will be a contributor to the take rate accretion that we will see now at the back half of the year. Again, I want to point out, there will be some seasonality in Q2 take rate, but back half normalizes and grows back up with these emerging portfolios.

And so ad valorem is what percentage? What was the last disclosure of volume?

Did we disclose the volume?

Overall [indiscernible].

14%?

[indiscernible]

Yes, I just couldn't remember the 14% is ad valorem. You mentioned the profitability balance for some of the emerging payment products. What are the risk profiles for products like Instant Transfer and invoice financing?

Yes, great question. So on -- instant payments is actually a really great product. There is -- it's a very high-margin product for us. The customers love it because they are able to manage their cash flow and get the payments faster. And we don't have much of a risk. The loss rates are almost nothing for this portfolio, but that's because we already have extracted like taken the payment from the payer, and we're just expediting the payment to the receiver by a day or 2, which really adds to their cash flow situation and they pay for it. So it's a win-win on both sides.

On the working capital or invoice financing side, it's a new product. Like all credit products, there is a little bit of a J-curve with how the costs or losses mature and the models learn and the risk model gets more tuned. And we've seen very promising performance overall from a risk and fraud basis points as a percentage of TPV compared to when we launched it to now. We continue to see and you guys will see in our financials quarter-over-quarter, the loss rate continues to go down. So we are expanding the contribution margin meaningfully for that product. And every quarter, we fund about $250 million of volume through that portfolio. So promising.

Got it. Got it. promising. How big was the major online advertising platform that stopped taking virtual card? And I think that kind of anniversaried in 1 quarter just as we can think about the go forward.

Yes. So we had disclosed last year, I think, in Q2 earnings that this was impacting the revenue of the SME side of the portfolio by about 4% or so. And Q1 was the last time we lapped the remains of that impact, and Q2 is now agnostic of the lapping. So we are through that in Q2.

So should we just -- we'll see a little bit of a -- how do we think about...

Normalization of the growth rate.

Yes, the growth rate in the fourth quarter, so you'll see a little bit of a pickup in -- naturally in the second quarter.

Correct.

Got it. And it was 4% of just the SME revenue or volume?

4% of revenue because it's a take rate adjustment with that spend change. So what I do want to call out that there will be an uptick because of that. There are other factors that will play into it. So you may or may not see a sequential increase to that amount, right? And half of that impact was Q4, half Q1. So it's like another full 4 sequential improvement.

Can you talk about the price increases that you guys implemented for check and ACH? How big were they? And was that across the board?

Yes. So we get that question a lot, and I'd love to put that in context overall. The TPV that we see on that channel is -- or payment method is quite high, but the revenue composition is fairly low as a part of our total revenue. So just for context, it's in low single digits. So small price increases or changes that we do to that portfolio doesn't really add anything meaningful to the portfolio. So we did make that change, but it's not material enough for us to talk about.

Got it. Got it. And then the Supplier Payments Plus, which is the old enhanced ACH, can you just talk about -- I think it entered the commercial phase this quarter, just focusing on mid- to [Audio Gap] pipeline.

Yes, absolutely. So Supplier Payment Plus is -- was initially thought of the way we envisioned it was advanced ACH. So having additional features of reconciliation, providing data and making it much simpler for the large suppliers to take multiple payments in the right way, which helps them with their efficiency on their side of the work, right?

So as we are talking about Supplier Payment Plus or the enhanced ACH with our largest suppliers, this conversation has started to become much bigger in terms of them needing help in understanding the overall portfolio of payments in the sense that we are able to now within this construct of conversations, locking -- we're locking in the virtual card payment because they want faster payments on cards, on certain types of payments. We are able to say, okay, here is how much volume would be on advanced ACH and the rest would be ACH. We're also converting a lot of the manual payments into electronic payments for them.

So it's a much more holistic than just an advanced ACH feature. But to answer your specific question on how do we monetize it, the advanced ACH specifically in the market right now, we are seeing anywhere between 50 basis points to 120 basis points of range on the take rate. And the initial deals that we are doing are somewhere in that range as well, so fairly consistent.

Additionally, the way we think the value of SPP to us comes from is also from not only protection, but increasing the virtual card adoption by the suppliers as well and increasing monetization in other ways, a holistic relationship. So the GTM strategy around that is to go after the top 10,000 sellers or suppliers first and then follow up with the rest. But we're right now focused on the top 10,000, which really have this issue of a lot of different payments that are received and reconciliation becomes quite a manual exercise for them for them.

And so are you mostly going after those suppliers that are doing ACH and check versus virtual card with this SPPV product?

The way we think about it is our largest suppliers on the network, that's what we are going after. And when they are really large, they're taking a lot of different types of payments, and we are trying to sit down with them and say, okay, what does the portfolio look like and then trying to work through all of the solutions that we have for them and try to monetize. So it's not a type of ACH or not, but it's like holistic.

But if you were to step away, it's probably similar subset. So people who have very large -- just pure ACH manual payments, they would probably also be larger suppliers.

And so what's the adoption like? And where does -- when does it move the needle for BILL? Is that this fiscal year or not until fiscal year '27?

No. So this is -- again, as I said, geared to very large suppliers. So the motion is very different than our general small businesses and medium-sized or lower medium-sized businesses. It's a much longer sales cycle. It's different types of customers that we are dealing with, and we are setting up the sales force to target very specific conversations with the suppliers who are different people in the organization that we are generally used to dealing with.

So all of that is starting to happen now, and we've had some really good wins and feedback as well from them, and it continues to mature. The sales cycles are long. So the expectation is that next year would be meaningful to the growth of the company.

So to wrap up the kind of the whole payments business, when we talk about the 0.4 bps of expansion this year, is that -- do you hope to expand beyond that going forward in '27 and '28? Or is that the normalized kind of level of adoption you think you expect?

I would like to defer that question until the Investor Day, which we are actually excited to share not only the numbers and the financial construct and all of that, but our strategy. What is the segment of customers that we are really going after? What is the strategy in terms of the software and the payments and the SME business coming together as one platform? What is the value that we add, how do we price for it? And then how does all of that come together in a model that you guys can use to then think about take rate expansion over longer term, et cetera. Right now, unfortunately, I'm bound by the in-year guide that I have put out there.

Got it. Got it. Yes. We'll look forward to that. And I'll ask you maybe something about the Analyst Day at the end. I want to ask about the cash treasury business. I think you guys just launched a cash account treasury capability. What's that product? And how do you get paid for it?

Yes. I love that product, first of all, very excited about it. It is, I would say, our first step for into the overall treasury solutions enhancements that we want to do. So what this does is really an operating cash account that you as a business could have and yet earn interest on that. There are not that many of them that could earn a healthy interest rate for the customer. So that's a win for them and incentivizes them to put money into that account that is now fully integrated with BILL platform so that the transactions are really much easier to do.

And from our side, how do we monetize it? It's 2 different ways. One is -- which is why we actually launched the product is the flywheel we expect if you are moving money into your BILL account, the ability to do transactions seamlessly very quickly is enhanced by the customer. So we expect a higher velocity of transactions that happen on the system and we monetize those.

The second piece is that we earn interest on that -- the funds that the customer holds with us. And that interest that we provide to the customers is different and a little bit lower than what we get. So there is a delta in the monetization of the balance as well. Those are the 2 ways. But primarily, it's really about driving the transaction flywheel and just having those customers use BILL much more.

Okay. Great. I wanted to ask about the AI agents. What's -- what efficiencies can BILL's AI agents bring to customers? And is there a revenue model there? Or is it just more a retention and efficiency?

All of that. So we talked about some of the agents that we have released. We spent Q4 primarily on building the platform of AI. And why that is important is because we have a variety of portfolio of products that sit on top of a platform. And if we have the appropriate controls on the AI platform built in, it kind of unifies all of the product offerings, but also it's -- we are in a payment business, so regulation control and all those things are really important. So getting the foundation right in the AI platform was important. And now our velocity to be able to release those agents effectively has been enhanced because of that.

So as I think about the agents we've released, the philosophy really is to go towards the biggest pain points that our customers have. The biggest pieces of manual work that they have to engage in, that's what we want to completely eliminate. And a great example is the W-9 agent that we released. We've heard from so many customers that it takes so much work to get all of those to actually reach out to the suppliers for the W-9 forms, make sure they're right, reconcile them and do all of the work for the taxation.

So that's one of the things that our customers are really [Audio Gap] which automatically grabs the receipts from your inboxes.

Jun actually had a great experience yesterday with her flight tickets that were automatically taken from her e-mail attached to the spend and expense account, and she had to do nothing. So customers are excited about that as well. Now as we solve those pains for the customers, we have a 2-step approach to monetizing those AI agents. Of course, there's the additional benefit of these customers being more sticky, loving the product, having less churn, which will show up in the financials, but we also have plans to monetize them.

So the first type of agents are the ones that are very fundamental to our product, so like the receipts agent and such, which will be available to all of our customers who are using spend and expense. What that does is then gives us the ability to price appropriately for the offering that we have because we are giving them that enhanced value. So that could be over time taken care of through the pricing. And the second piece is pay-per-use type of agents where they are adding much more value. And if you want access to those, there will be more -- there were specific charges for that. So those would be the 2 ways we monetize the agents.

BILL is obviously focused on driving profitability, and we've seen the margins start to grow here. Where are the opportunities to lower costs and raise margins? And is there any -- as you think about it as a CFO, any target margins out there you think BILL can get to?

I always tell everybody that the easiest way to grow profitability is through revenue. So you grow revenue, it falls to the bottom line, that's an easy, robust way to do it. But in parallel, we also want to continue to make sure that our operating cost structure is efficient. It's driving the right outcomes, and we are lean and fast. So those expenses that we think about as discretionary OpEx, which are what people generally think about what the operating expenses of a business are like sales and marketing, R&D and G&A.

And there are some volume-related expenses, which we need to spend on to drive the volume that we have. It's the nature of the business. And those are like rewards and fraud and losses that we talked about. So in those 2 categories, we are focused on both and want to make sure that we are growing our revenues with optimized value for the rewards that we are extracting as well as fraud and losses, I think, continue to do great from a performance perspective.

On the discretionary OpEx side, we -- actually, we talked about having a consulting company come in and what we're using them for, for this short project is really to give us a very outside in view of how our cost structure stacks up against some similar comparative companies and where do we have opportunities to streamline, simplify, et cetera. So we're working very closely with them to see what those opportunities are, and we combine it with the efforts we are already internally doing to have more outsized impact as we exit the year. We want to set ourselves up for this expansion over the next 3 to 5 years.

I want to ask before I let you go about the Analyst Day and some thoughts around that. But I guess, first, there were some press reports talking about BILL looking at strategic opportunities. Anything you can add to that?

As a policy, we do not address rumors. There are always rumors coming in and out in the market. What I would say, though, is that we are always, the Board, the management team, Rene as the CEO, focused on driving shareholder value. And we would entertain things as they come up to drive that value for the shareholders. There's nothing to talk about right now, but we'll keep you updated as things evolve.

Great. And then on the Analyst Day, I think you guys talked about the first half of calendar year 2026 [Audio Gap] talking about that. What other things do you guys plan to discuss at the Analyst Day?

Yes. I mean Rule of 40 is really interesting because it gives you a framework of how to measure success and give an anchor on where we are walking towards. But I think overall, the idea is to really hone in on the strategy of the business and share it with the investors, with the shareholder community on where we are headed, what is important to us, what is the segment that we are really working towards and what differentiates us from the competition.

We would love to introduce the CEO, staff members to the community as well, just as they refine their vision of their strategy and how they want to evolve it. I'd love to get a really robust financial model out of it 3 to 5 years to understand where the business is going and be able to talk to you guys, not an increment of quarters and 1 year at a time, but also say how are we making progress towards our longer-term goal. We've not had an Investor Day since we did the IPO, and the business has evolved quite a bit. We've had an acquisition. We've done a whole bunch of new product introductions.

So I think this is time for us to just step away also and look at what is a simplistic growth algorithm that we need to describe to the investor community and measure our progress with the right metrics that help us get to our growth rates.

Will it be here in New York City? Or will it be in the West Coast where we're at?

Stay tuned.

Haven't been decided. Okay. With that, we'll leave it there. Thanks so much, Rohini.

Thank you very much. Thanks.

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 First Quarter 2026 Conference Call. [Operator Instructions]

I'll now turn the call over to Jun Wang, Director, Investor Relations. You may begin your conference.

Thank you. Good afternoon, everyone. Welcome to BILL's Fiscal First Quarter 2026 Earnings Conference Call. We released 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 Rene Lacerte, Chairman, CEO and Founder; John Rettig, President and COO; and Rohini Jain, CFO.

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. In addition to our prepared remarks, please refer to the information in the company's press release issued today, our Q1 '26 investor deck and 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 a reconciliation of GAAP to non-GAAP and additional information regarding these measures.

With that, let me turn the call over to Rene. Rene?

Thanks, Jun. Good afternoon, everyone, and thank you for joining us today. We're off to a strong start in fiscal '26. Delivering first quarter results at the top end of our guidance range for core revenue and achieving a substantial beat on profitability. Our focus on driving business results while expanding the value of our platform is working. The [ Fortune 5 million ] need BILL to help them operate more efficiently, manage cash with greater confidence and navigate an increasingly complex financial environment. Our focus on intelligent automation and efficient operations is driving real impact for customers and strengthening our business. We made significant progress on our strategic priorities since our last call.

Here are a few key highlights. First, our strong execution and disciplined investment delivered solid financial results. Our core revenue grew to $358 million, up 14% year-over-year. Additionally, we posted a non-GAAP operating margin of 17%, a significant expansion as a result of our continued focus on profitability. Second, we signed 3 broad-reaching and bed partnerships with category-leading software providers, significantly extending BILL's reach and positioning our platform directly within the tools where millions of SMBs already work. Third, we advanced our AI leadership with BILL's new intelligent AI agents, which deliver automation capabilities that are transforming financial workflows from manual to touchless.

We continue to enhance the value delivered through BILL's platform with features that simplify financial operations and deepen customer engagement. BILL exists to empower the Fortune 5 million. Our momentum is anchored and the trust of nearly 0.5 million businesses and over 9,000 accounting firms. Trust that fuels growth, unlocks opportunity and uniquely differentiates BILL in the market. In today's environment, where every dollar an hour matter, that trust enables us to reshape financial operations for SMBs, replacing friction and complexity with simplicity, speed and confidence. Powered by our platform strength and the network we've built, BILL is transforming how SMBs manage their finances and move money, setting the standard for intelligent, scalable financial operations. As more and more software solutions become available, we think it is critical to meet the customer where they are. That is why we have always had a focus on developing our platform with partners in mind.

Last year, we launched our Embed 2.0 strategy to remove friction for partners to quickly and easily leverage our unique size and capabilities for their customers. This focus allows us to accelerate our ability to efficiently and effectively expand BILL's reach and creates a compelling long-term growth opportunity. Since last quarter, we've taken a major step forward with 3 new embedded partnerships across tops to software providers. These partners collectively serve almost 1 million small and midsized customers, representing an estimated $1 trillion in annual payment volume.

In October, we announced a strategic partnership with NetSuite, the new BILL power payment automation capability, which is embedded in NetSuite's intelligent payment automation helps customers accelerate accounts payable processes, increase efficiency and reduce risk. It's available to all U.S. NetSuite customers, meaning that tens of thousands of businesses can access BILL's leading AP automation and payment solutions directly inside NetSuite's #1 AI cloud ERP.

Additionally, we're also excited to announce our new embedded partnership with Paychex, one of the largest payroll and HR providers in the U.S. paying 1 out of every 11 American private sector workers and serving hundreds of thousands of SMB customers. With unmatched distribution through a vast accountant network and dedicated sales force for SMBs, Paychex further extends BILL's ability to reach and support millions of small and midsized businesses nationwide. Our next and most recent embed partner is Acumatica, one of the fastest-growing ERPs that serves a large and growing base of mid-market businesses across industries like construction, manufacturing, distribution and professional services. By embedding BILL's AP capabilities natively into Acumatica system, thousands of SMBs gain direct access to BILL when they need it most.

Industry-leading software companies are choosing BILL to enhance the value they provide to their customers. These partners select the BILL to leverage our scale, data and payment capabilities, enabling them to efficiently diversify their customer relationships, deliver greater efficiency and drive more revenue. As a result, we're able to expand the market and accelerate BILL's reach to businesses large and small.

In addition to scaling BILL's reach through our Embed 2.0 initiative, we're also expanding the delivery of strategic finance capabilities to SMBs, deepening the value we provide and helping businesses manage and move money more intelligently. In Q1, we launched BILL cash account, which is a high-yield fully integrated operating banking account that lets businesses do more than track their money. It helps them manage their money by optimizing their cash flow, enabling faster payments, earning interest and providing seamless control and visibility across all of their transactions, all within the platform they already use for payables, receivables and spending expense.

In addition, we continue to expand the capabilities across our core platform, adding advanced reporting in the accountant council, new self-service global payment tools, a more extensible API platform and new third-party integrations. Our new [ Gmail and Lyft ] integrations for Spend & Expense are great examples of how we're embedding BILL into the tools businesses already use every day. Receipts now flow automatically saving customers time and eliminating friction from expense management. This is another example of extending our reach to meet businesses where they work.

BILL's platform is increasingly intelligent, increasingly autonomous and increasingly essential to how BILL's customers manage their finances. As a leader in delivering predictive in Generative AI, BILL was once again redefining our platform in the category with Agentic AI. Our new AI agents represent a paradigm shift in automation at the operational level. Building the foundation for a new era of touchless B2B transactions. Our vision goes beyond simply speeding up existing workflows. We are eliminating unnecessary busy work and friction. While Fortune 500 companies have enjoyed automation for years, the Fortune 5 million still face paperwork, policy gaps and costly trade-offs because no one has ever built the workflows they need. We are rapidly changing that.

Through the BILL Network, we've created one of the most comprehensive real-time financial maps of the SMB economy. Our network grows, our data advantage grows as well. Increasing both the scale of our insights and the depth of our understanding we have into how SMBs operate and what they need most. We have the unique capability to see how SMBs move money across industries in real time, revealing patterns and connections that no one else can see. And this visibility is powered by the reach of our network, 1% of U.S. GDP flows through BILL. It was more than half of that between members of our network. Having processed over $1 trillion in transaction volume and 1.3 billion documents, we built the richest verified financial data set in our category.

As a highly trusted company, BILL holds the highest financial regulatory and privacy standards. We're now leveraging this combination of scale, data and trust to power BILL's Agent AI. Purpose-built agents that go beyond traditional automation to deliver strategic finance capabilities and enable a future of truly touchless B2B transactions.

Here are a few examples of how our new agents are already making it easier to connect and do business. One of the biggest pain points for SMBs during tax season is managing 1099s and collecting the required W9s. Our new W9 agent automatically requests, collects and pre-validates W9s on behalf of customers for all of their new suppliers throughout the year, making what no business wants to touch touchless. This agent eliminates over 80% of the manual steps and is now generally available for BILL's AP customers. By eliminating this workflow, we estimate that we can help save more than 80,000 days of unnecessary work that is collectively spent by BILL's AP customers annually on W9s. This is a game changer and enables SMBs to focus on strategy and growing their business.

Next, we believe expense processing should also be touchless. We've introduced a new agent that automatically codes transactions, eliminating the need for data entry and reconciliation. Initial results show this agent dramatically decreasing the need for manual work, saving our customers' time while increasing accuracy. Building on the same Agentic foundation, we're simplifying user onboarding for Spend & Expense, automatically creating virtual cards and permissions so our customer employees can be enabled even more quickly and spend compliantly from day 1.

We've also introduced our new Agentic BILL Assistant to provide personalized instant answers to customer inquiries and troubleshoot common issues. This means customers spend less time managing the back office and more time growing their business. These new agents are just the beginning of our Agentic journey. We're excited for customers to use them and to continue to leverage our scale and unparalleled expertise around SMB financial operations to develop more agents that eliminate workflows and the friction of doing business. The future for SMB finance is touchless and BILL is delivering it.

As we look ahead, we have strong momentum and a clear path for creating value delivery for customers through AI, which positions BILL for durable growth. This quarter, we introduced important products to help small and midsized businesses operate more efficiently and unlock new opportunities. At the same time, we are building a more efficient and agile organization. The steps we've taken to align our cost structure, streamline operations and invest in high-impact areas are positioning BILL for sustainable success and long-term profitability expansion.

We're strengthening our foundation for the future with the addition of 2 new Independent Directors. We recently appointed [ Peter Feld ], Managing Member, Portfolio Manager and Head of Research at [ Star Bird Value ]; and [ Lee Herpatrick ], former Chief Financial Officer of [ Twilio ] to our Board. Their combined and deep expertise in finance, digital transformation, fintech and operational excellence will help BILL as we execute our strategy, accelerate innovation and drive long-term value creation. We'd also like to thank [ Steve Fisher ] for his service and invaluable contributions to BILL's growth and success.

We're focused on executing our strategy and continuing to build on the strong and differentiated foundation we've established. In the quarters ahead, we'll share a deeper view of BILL's long-term vision and financial framework highlighting how our scale, data and platform innovation position us to redefine intelligent finance for SMBs, drive sustained growth and create lasting value for our shareholders.

I'll now turn it over to John to share more on our Q1 fiscal '26 performance and key initiatives.

Thanks, Rene. Our Q1 results exceeded our expectations as a result of focused execution and strong operational rigor. As you heard from Rene, we made great progress on our strategic priorities.

To start, we expanded our ad valorem payment portfolio to deliver increased value for both buyers and suppliers. In Q1, we introduced [ BILL Cash ] account, the first step of a broader treasury capability. It serves as an operating bank account that enables fast payment speed, integrate seamlessly with BILL and accounting software and generates revenue for both customers and for BILL. Early feedback from customers is very positive. [ Steve Chen ], CEO of accounting firm, [ Chini and Associates ] has scaled his firm to serve more than 1,300 clients on BILL since 2019. Steve said and I quote, "The build cash account makes the platform we rely on even more powerful. Now I have a one-stop shop to manage payables, card spend and cash all in one place. Many of our clients are churches and nonprofits and this integration simplifies how money moves in and out of their organizations, helping them manage cash flow more efficiently and maximize their funds in a single trusted place."

The combination of [ BILL Cash ] account and our broader financial operations platform is a powerful flywheel that enables customers to manage more of their funds and transactions within the bill platform. This drives TPV per customer expansion and creates an opportunity for transaction monetization growth. Our Supplier Payments Plus solution, or SPP, is our newest advanced ad valorem payment product and it entered the commercial scaling phase in the first quarter. SPP is designed for the largest suppliers in our diversified 2-sided network and advances how we serve them by unifying payments, workflows and dedicated account management into a comprehensive, purpose-built offering.

Suppliers today often navigate dozens of disconnected portals to submit invoices and track different types of payments, which consumes time and increases the cost of payment acceptance. We are solving this pain point with an integrated software and payment offering that serves as a single destination for suppliers to track and manage receivables and access rich remittance data. The strong value proposition of this solution is resonating with large suppliers in our network. While it's early in the commercial phase, suppliers are leveraging this new capability to complement virtual card payments with enhanced ACH. And some are leaning in with annual or multiyear agreements. We see an opportunity to engage suppliers at a broader payment portfolio level by providing them with tools to optimize receivables for convenience, flexibility and control. As with many enterprise solutions, the sales cycle is longer than our historical SMB trials, and we are building out our enterprise go-to-market capabilities to accelerate prospect conversion.

Shifting to our progress in mid-market, our Spend & Expense solution continued strong traction with higher spend businesses who typically have a large volume of transactions and complex business rules. In Q1, card spend per customer reached a record high of $145,000. In support of these larger businesses, we recently introduced a set of new functionality that enable businesses to integrate with their vendors and automatically collect, match and categorize receipts. We also rolled out upgraded budget workflows that allow businesses to configure and customize based on their business policies, increasing the depth of our solution and driving stronger engagement.

As we move upmarket, we're adapting our approach on balancing customer unit economics with market penetration. We are shifting more direct go-to-market resources towards larger APAR and Spend & Expense prospects where we see strong unit economics and greater monetization opportunities.

On Spend & Expense specifically, we are prioritizing customer segments where we can improve rewards efficiency over time, aligning our sales and marketing objectives with incentive structures that support higher quality, more durable revenue. Our accounting channel is a key foundation of our distribution strategy. A durable advantage that enables us to expand our ecosystem, acquire customers efficiently and drive multiproduct adoption. Accountants rely on BILL as a core technology component of their [ cat ] practices, and we are making progress extending our distribution reach. In Q1, we added more than 250 accounting firms, bringing our total to over 9,300 firms. We're now replicating our playbook with the new Embed 2.0 partnerships.

As Rene mentioned, we recently signed 3 important partners, NetSuite, Paychex and Acumatica. These partnerships will accelerate our ability to drive adoption of the BILL platform among small and midsized businesses. Importantly, we will roll out the full portfolio of our payment solutions to these partners over time. enabling them to deliver more value to their customers while deepening the value we realize in return. In October, NetSuite Intelligent Payment Automation powered by BILL was announced and customers are already using it, representing a significant proof point of our Embed 2.0 strategy in action. We're now working closely with our other partners as they progress towards general availability in the coming quarters.

Turning to our progress on AI innovation. We introduced new AI agents in onboarding, support and workflows such as vendor management, payments and receipt management. These new agents allow SMBs to bypass step-by-step processes and complete tedious tasks instantly. Furthermore, we're also scaling the use of AI internally to drive meaningful productivity gains across all BILL internal teams. For example, within our front-end modernization work stream, our engineering teams are leveraging AI to automate cogeneration, testing and refactoring. In the areas where AI was applied, we're seeing significant improvement in developer productivity, empowering our engineers to accelerate delivery while maintaining quality.

In summary, in Q1, we executed well on our fiscal '26 priorities with a simultaneous focus on profitability expansion. In October, we made progress on further aligning our organization with our strategic priorities and increasing operational efficiency, which Rohini will cover in more detail. We are executing with clarity and speed, positioning us to continue leading the financial operations category, while delivering greater shareholder value over time.

I'll now hand the call over to Rohini to provide more details on our financial performance.

Thank you, John. We started the year with significant momentum and continued our track record of delivering on our commitments. As we shared on the last earnings call, our focus continues to be a scaling BILL into a much larger and a more profitable business. Our Q1 results underscores that focus with strong revenue growth and profitability expansion.

In Q1, we delivered $358 million in core revenue, growing at 14% year-over-year, hitting the top end of our guidance range. Non-GAAP operating income was $68 million, $10 million ahead of the high end of our guidance, driven by disciplined expense management and some deferred investment timing. Let me share some key highlights of our Q1 performance. Within our integrated platform, BILL APAR revenue grew 10% year-over-year. Subscription revenue grew 6%. We added 4,000 net new customers during the quarter. This level of net adds is lower sequentially and reflects our enhanced focus on higher ROI customer acquisition and ARPU expansion. BILL APAR transaction revenue was $123 million, up 12% year-over-year. TPV per customer saw a slight decrease, which was in line with our expectations APAR transaction monetization increased 0.3 basis points year-over-year.

BILL Spend & Expense card payment volume increased 21% year-over-year driven by strength in retail spend. Spend & Expense revenue totaled $157 million in Q1, reflecting a 19% growth year-over-year. Rewards increased to 132 basis points as a percentage of payment volume, up 10 basis points compared to Q1 '25. We are now scrutinizing and actively adjusting our reward structure. We expect this will result in rewards flattening and over time, declining as a percentage of TPV.

Moving on to profitability. Non-GAAP operating margin expanded over 250 basis points sequentially or approximately 300 basis points, excluding the benefit of float revenue. These strong profitability results reflect our ongoing focus on operating efficiency, a temporary pause in hiring and a deferral of certain investments.

Shifting to our business update. As you heard from John, we began the year with strong momentum driven by focused investment and execution approach. We are carrying this principle forward and applying a strong profitability lens across operational and investment decisions. On our last earnings call, we noted that our fiscal '26 profitability guidance reflected this disciplined approach, one that emphasized continued expense management and further structural efficiencies. As a part of this initiative, over the last 2 months, we have finalized and executed a reduction in force of approximately 6%.

In connection with this action, we incurred $9 million of restructuring charges in Q1. These charges, which are excluded from our non-GAAP results consisted primarily of cash expenditures of severance payments, employee benefits and related costs. As we pursue more meaningful operating income expansion over the next few years, we are undertaking additional initiatives across our revenue profile and expense base, including the following: On the top line, we are taking actions to enhance the quality of revenue. For example, prioritizing higher-value customers, the ARPU expansion over net adds growth, ROI-based approach to rewards and evolving our pricing to better reflect the value we deliver. On the expense side, we plan to expand our talent footprint strategically in low-cost geographies. In addition, we have partnered with a third party to perform a comprehensive outside in assessment of our cost structure.

This work, combined with the internal efficiency actions already underway will support continued improvement in profitability.

Before we get into the detailed guidance, here are a few key assumptions. First, I want to reiterate our fiscal '26 APAR volume and take rate expectations. We are assuming flat volume per customer and a similar level of take rate expansion as we did in fiscal '25. On Spend & Expense, we expect card payment volume to grow in the high teens year-over-year in fiscal '26 and the take rate for fiscal '26 to be slightly above 250 basis points.

Second, we updated our float yield assumption to be in line with the current consensus. That now includes 1 additional rate cut anticipated in calendar '25. The updated float yield assumption reflects the Fed funds rate exiting fiscal '26 at approximately 325 basis points.

Third, on the cost side. As I mentioned last quarter, our full year guidance reflected structural changes aimed at driving efficiencies. The recent 6% reduction in force was a direct outcome of these initiatives and was already incorporated into our prior fiscal '26 guide.

Now turning to guidance. For fiscal Q2 '26, we expect total revenue to be in the range of $395 million to $405 million, and core revenue to be in the range of $359 million to $369 million, reflecting 12% to 15% year-over-year growth. On the bottom line, for Q2, we expect to report non-GAAP operating income in the range of $63 million to $68 million. We expect non-GAAP net income in the range of $63 million to $67 million, and non-GAAP EPS to be between $0.54 and $0.57.

Shifting to full year guidance. For fiscal '26, we expect core revenue to be in the range of $1.46 billion to $1.49 billion, we expect float revenue of $134 million, $5 million lower than the prior guidance, bringing total revenue to the range of $1.6 billion to $1.63 billion.

Turning to the bottom line. We expect non-GAAP operating income in the range of $257 million to $277 million or 16% to 17% in non-GAAP operating margin. Our updated operating income guidance implies an export margin expansion of more than 290 basis points compared to fiscal '25. Relative to our prior guidance, the updated outlook reflects a $16 million increase in explode profitability or 106 basis points of additional margin improvement. We expect non-GAAP net income in the range of $249 million to $265 million and non-GAAP EPS to be between $2.11 and $2.25.

For fiscal '26, we expect stock-based compensation expenses to be approximately $260 million, which is $30 million or 10% lower than we previously communicated. This implies SEC at approximately 16% of revenue.

In closing, we executed with rigor and discipline and delivered a strong Q1. We made significant progress executing our strategic priorities and driving greater efficiency across the organization. Looking ahead, we see tremendous opportunity to deepen the value we deliver for SMB. Extend our market leadership and position the company for sustainable, best-in-class financial performance.

And now we'll open up the call for Q&A.

[Operator Instructions] Our first question comes from Andrew Schmidt with KeyBanc.

It's great to see the product advancement some of the integrations that you guys have rolled out. So good job on that. If I could ask about the move-up market. If you could talk about whether you're seeing that in your customer numbers yet or if that's to come? Obviously, it's a nice needle mover once you get that going. But -- and then if we could also, as a corollary to that, talk about the payback period, unit economics, sales and marketing intensity as you kind of shift up market that you should expect. I know you've already kind of been moving up already, but it seems to obviously be a little bit more of a concern to ship now.

Yes. Thanks for the question, Andrew. Our focus on mid-market has been a bit of an evolution where it started as an organic pull where we saw increased demand in the market from larger businesses. And that's now become a deliberate strategy where we're proactively investing in our go-to-market resources and capabilities and tactics as well as product capabilities where we're rolling out new features for procurement, multi-entity, both pay, supplier payments and things like that. So demand has been good. And I think we're making steady progress at evolving the composition of the new customers that we acquire and we continue to see good results with acquiring mid-market businesses.

To move the needle on the business overall, it's going to still take a little bit of time just given the size of the installed base that we have in terms of customers and revenue. But as we've said previously, a typical mid-market customer is probably 2x the size in terms of TPV than the average SMB and they're much more likely to adopt multiple products. This translates into much higher ARPU, TPV, [ ad val ] payments, all of which will improve our unit economics. And that's really the -- one of the main drivers of this area of focus for us.

Got it. And then maybe I could ask about AI. Obviously, on everyone's mind these days. It's great to see the agent rollout. Maybe you could discuss the pipeline when you think about just the role that [indiscernible] plays for BILL? And then also just anything on how the monetization might evolve. There's a lot of questions about how you monetize? Or this is just retention factor? Anything there would be great.

Thank you, Andrew. Yes, we're very excited about what we can do with AI and what the impact will have for our customers. And I think when we step back and look at the assets that we built at BILL, we have a unique data set. I mean we've got 1% of GDP and half of that flows between network nodes on the BILL platform. You've got great SMB expertise about financial operations, understanding the workflow that really matters to them, what's going to save them time, ultimately is what's going to save them money, and we're very much been focused on that since day 1.

And when you combine that data and that expertise our ability then to kind of leverage that into agents that make meaningful impact, it's real. And so I'll just take one to call out, which is the W9 agent. It's a workflow that is obviously, it's a painful process for folks. But when we talk to customers and we talk to many, one of the examples of this impact for one of our customers is that it's going to save that a quarter at the time an annual year -- fiscal year for them when it comes to processing these W9s, there are 1,500 W9's. They need to collect and work on and it's an iterative process, getting those suppliers to come in for their clients. This is an accounting firm, [ Highline ], where they've been able to quantify already just in the early days that -- it's a meaningful impact.

And so that's the type of impact. We've always looked to do it, BILL. Like our mission is to make it simple to connect and do business. That's a great example of doing business more efficiently. And that leads to opportunities for us to actually drive additional price effectiveness, if you will, value for our customers. We are in the early days of actually rolling out these agents as we talked about. We have a broader pricing strategy, which I think John could talk to a little bit here, but it's the monetization you're talking about would be part of the product strategy.

Yes. It's actually a really interesting time in the evolution of our platform and our capabilities and the value that we're able to deliver to our small business customers and how that influences our pricing strategy. We've obviously added a ton of capabilities lately. And we have made a couple of near-term pricing changes, things like adjusting some transaction pricing last quarter, some pricing tier changes more recently. And these are just short-term actions we've taken, but they're in the context of a much broader pricing optimization effort that we have. And that's where we think AI actually becomes an additional tailwind as we think about optimization over time.

And what we're trying to accomplish is creating strong alignment between the value we're delivering and the value that BILL also generates from these customer relationships. And that should have a positive impact on customer ARPUs and revenue per customer over time. We don't have a specific time line for the impact of this pricing initiatives, but I can say that it is an important priority and initiative at BILL in fiscal '26.

Our next question comes from Darrin Peller with Wolfe Research.

Good start to the fiscal year. Can we just start off by talking about what obviously came up a lot during the quarter with different investor involvement and Board changes that you alluded to earlier? And the Rule of 40 that you called out agreeing to. And just help us understand, first of all, the definition in your mind of Rule of 40 in terms of -- I'm assuming it's core revenue growth, does it include or exclude any items? And is it on operating income? Just a little more specificity would be great.

And then more importantly, just your thought process of what you think it takes to do it from a cost standpoint and an investment standpoint.

Thank you, Darrin, for the question. I'll start, and then I'll let Rohini kind of get into some of the details there. I mean the first thing I would say that I just want to make sure folks understand that profitability is a part of the DNA of our company. It's kind of who we are, is how we built the company from day 1. It's being an account at heart, my grandmother work count, like it's just who we are. So like this focus on profitability, while we've shifted from kind of focusing on the growth to also add the profitability focus in these conversations with investors. It's not a new thing for us. And so we've been steadily increasing profitability over the past few years. We have a lot of opportunity to continue to do that. And that's why we are comfortable and believe that the Rule of 40 is the right target for us.

I'll let Rohini start to talk about kind of the time line for us hearing more on that.

Yes, absolutely. There are so many ways of calculating the Rule of 40, but the spirit of all of those is largely the same. We are being very thoughtful about how we define it for our business. Because the goal is not just to choose a formula, but really to ensure that we're truly reflecting how we create the durable value for the business, right? And the idea is to be able to balance growth and margin.

We look forward to sharing our framework and the rationale that we adopted for the Rule of 40 during the Investor Day in the first half of the calendar year '26. So this is still a work in progress, and you'll see it soon.

Okay. All right, just a quick follow-up. You beat the quarter in terms of getting your own guidance on top line. And so maybe just help us understand what was the -- it looked like some spend trends on some of the SME side, but perhaps a little more color on what you thought was the driving force of the upside and sustainability of that as we see going forward?

Yes, absolutely. So let me start with the beat on operating income, excluding float. Float has some other assumptions that I can talk through later. So on the -- excluding float OI, we had a beat of roughly $11 million. I would categorize $5 million of that as what I would call timing as we were contemplating a reduction in force we decided to pause and slow down not only hiring but also the other investment spend as we settle the organization a little bit. So that drove a little bit of in-quarter benefit that we expect to spend into the rest of the year.

The rest of, I would say, $5 million or $6 million of flow-through is a combination of we had a small onetime goodness that came in through losses, which quarter-to-quarter fluctuates and we had a bit of a goodness there. But about, I would say, [ $45 million ] were still good flow-through of the efficiency efforts that we've been executing on as we go through the year. So that is the part that will flow through, which resulted in a $16 million increase in the operating income ex float guidance.

If you look at the OI at a total level, including float, there was -- we always follow the guidance of the consensus. So there was one more rate cut that was added to the consensus, which we have incorporated into our guidance now. This impacted our OI by about $5 million as I, I think, stated in my script. So that is offsetting impact to the $16 million and the rest was flowing through. So I hope that helps answer your question.

Our next question comes from [ Keith Weiss ] with Morgan Stanley.

Excellent. This is [ Keith LetchMorgy ] Morgan Stanley on for Chris Quintero. Congratulations on a solid start to the fiscal year. I was hoping to dig into the Embed 2.0 initiative a little bit further. And maybe particularly when it comes to a vendor like NetSuite, 3 kind of parts of the relationship. I'd love to get more detail on like one, product functionality? Like what's the incremental functionality that BILL is bringing? And is there overlap? Because I know is has an AP module and they do payments. Is there overlap? And how does that get resolved? Number one.

Number two, on the go-to-market side of the equation. Is this just a technical integration? Or is there a go-to-market component from the NetSuite or the embedded sellers, if you will, like are they helping to sell the solution?

And then number three would be on the monetization. Should we think of this as more as like an OEM relationship of where customers NetSuite and they're selling the solution to the customer? Or is this just a way for you guys to address existing NetSuite customers directly with a solution that's already embedded into something that they're using already. That would be amazing.

Okay. Great. Thank you, Keith, for the question. Good to hear your voice. So I think I'll answer your question, and I'll probably go into a little bit more detail about in depth because it's a super important part of our strategy and a differentiator for us.

So I think the first thing on the product overlap and how it's going to work inside of NetSuite. The Embed 2.0 platform enables us to extend the APIs into the experience that our partner is developing. So if you're a NetSuite customer, you obviously have a full ERP to be able to manage lots of your P&L, all of your P&L. And now you'll be able to make payments a courtesy of BILL inside of that. Those payments will start with the existing obvious payment choices of check and ACH and soon follow a virtual card and eventually all the other payment types that we have. And so the experience is you're inside of the application, the ERP and now you can make payments and then it takes full advantage of the network and the payment products that we've built.

So from a go-to-market perspective, the second part of the question, it's really -- one of the things we've learned in being partners for lots of FIs and other companies in the past is that we have a ton of market expertise for how to sell this. So we are working with NetSuite and the team there on their go-to-market and how to extend this. Obviously, in product is going to be a key part of the experience. but there's opportunities. And we just take the launch. It was announced on the center stage, first announcement that they did at [ SuiteWorld ] where Evan and I had a fireside chat. So there's going to be lots of ways for us to continue to leverage what we know about our products and how to sell them through the customers and what they know about their products and how to sell through customers. It's going to be a joint effort, and we'll be a part of that.

And the third thing around monetization and just kind of the opportunity for BILL. Ultimately, these partnerships are set up where it's going to be a rev share relationship. So opportunity for us to incentive for them to have as much volume as possible on the platform. And the same is true for us. And then as we develop and extend the payment products we have, that's going to be good. So it's pretty, I would say, simple from that perspective, and we're aligned, and that's the focus of a good partnership is to make sure everybody's aligned.

But let me just like step back now for a little bit really just what sets us apart in the market. And so our philosophy from day 1 has been to meet customers where they are. Like I know SMBs and mid-market companies are hard to reach. Awareness is hard. It's a busy world. And so we've always worked hard to make sure that we can be where customers are looking for opportunities to improve their lots. And so you think about what we've done with accounts over 9,300 firms, that's because we have a partnership that we started with [ cpa.com ], and the vision of the [ SPA ] in 2008. That type of capability enables us to actually have customers like [ Steve Chaney ], who has 1,300 clients on. But that's a partnership. We get to learn from that.

And also, we've built a 2-sided network in this effort to actually meet customers where they are. We have partnerships that leverage that, whether they're FIs or now software partners. And as that success and that belief in meeting customers where they are, that is driven and actually attracted these premier partners in NetSuite, Paychex and Acumatica. Just again, I think it's super important for folks to understand. Those customers alone, these partners that we just brought in this past quarter, they reached close to 1 million SMBs with over $1 trillion in spend approximately. And that's just an amazing opportunity for us to continue to meet customers where they are.

So then you have to ask, why did they take us? Why did they take BILL? And I think it's really important to understand that, that's a key advantage of the platform that we've been building over the last few decades. And it comes down to 5 things. The first thing our platform ease of use. The Embed 2.0 platform is very easy to use. You can inject the APIs, you can inject elements. You can do all the things that a partner wants to do with our platform that's been built with 0.5 million businesses in mind and serving. They can do that day 1. That's the first point they pick us.

The second point is the scale of the data. That really matters because our ability to leverage the risk and the payment timing benefits that we get from understanding the risk that means our customers get a better experience day 1.

The third thing would be the breadth of the payments that we have. We have more payment products and capabilities than anybody else in the market. we enable all these payments for our partners. They have to adopt them, but that's what they're attracted to. They want their customers to stay inside of their application. They don't want their customers to go outside to make international wires or to make card payments. They want them all inside of their application. We do that, the breadth of payments.

The fourth thing is we have financial operations expertise. We have an amazing amount of knowledge and know-how around how SMB's mid-market companies, how they want to work and how their financial operations impact their lives. They want access to that, so they can build the experience exactly the way that they need to inside of their application.

And then the fifth thing, which I think is super important is the DNA of this company includes a partnership lens. We always focus on making sure our partners win, we do a great job of that. And when you combine all of that, there is nobody in the market that's offering an approach to serving partners the way we do with the scale we have. So I appreciate the beginning of the question, but I wanted to make sure that folks understood how important and valuable this is to BILL, and we're super excited about it.

It definitely sounds exciting. And maybe just as a quick follow-up. How expansive could Embed 2.0, should we -- or Embed 2.0, should we expect to see -- would this be dozens of partnerships like this? Or would it be a more narrow focus on a group of key partners?

Well, the capability of the platform can support as many partners as are out there. Our focus is going to be to make sure the partners we have really can drive value for BILL and our shareholders. And so we're starting with partnerships that make a lot of sense. There's going to be opportunities and opportunities that even some of our existing customers, for example, use the APIs we have as part of the Embed 2.0.

So I think I would think of the platform as being scalable and capable to support whatever the market really wants to do. But we're going to maintain that laser focus on driving value for our business and for our shareholders.

Our next question comes from [ Svante Anson ] with SIG.

I was just hoping to get an update on your invoice financing initiative. How has the program been scaling? And what are the key levers you have for driving expansion there?

Thank you, James for the question. So we are super excited about the full portfolio of products we have. This one invoice financing is great for suppliers, especially smaller suppliers that are on the network. We continue to see strong growth. I think one of the ways that we define -- our growth is in the emerging payment portfolio products, and this would be a part of that. I'll let Rohini kind of give some of the specifics on that category as a whole, but we continue to see strong growth, and we think it's an important part of the overall product suite we offer.

Yes. I can add a couple of things on invoice financing. As Rene mentioned, it is a really important part of what we call our emerging ad valorem portfolio. which is now becoming a material part of our APAR transaction overall offering from a revenue perspective. So we discussed last quarter as well that we are not going to discuss individual pieces of the portfolio and each one of the products. But overall, this emerging portfolio nearly grew at 40% last quarter in Q1 year-over-year. So very exciting growth in that portfolio as the rest of the ad valorem portfolio continues to stabilize.

The other thing that we are keeping in mind is the profitability balance with the growth. So we want to continue to be thoughtful of which risk years we take on with the invoicing portfolio, and we are pricing them appropriately to cover for the risk and the cost that comes with it and that's going to be a real focus. So there may be some cases we do trade-offs and just not follow rapid growth but balance it with the profitability outcomes.

Congrats on the strong start of the year.

Our next question comes from Bryan Keane with Citigroup.

Congrats on the solid results. I'm going to ask on the ARAP kind of that take rate. Looked kind of flattish sequentially but you guys are kind of reiterating kind of expect kind of the same kind of improvement that you saw last year. Can you just talk about some of the initiatives that are going to drive that take rate forward and how you feel about it after the first quarter going into the second, what we can expect?

Yes, I can take that, absolutely. So we have said last quarter that the APAR take rate will be similar expansion to last year, which was roughly 0.4 basis points of expansion. So we continue to reiterate that guide. In Q1, you saw very similar expansion as well.

In Q4 last year, we had mentioned that APAR take rate was strong, and some of that was driven by the increased activity in international FX, where we saw some initial volume from pull-ins due to tariffs that were expected to happen. So we saw that normalize as we came into Q1, the numbers were very close to where we expected. And going into Q2, the only part of seasonality that I want to point out is that we see additional TPV coming into Q2 in the APAR portfolio, and that's largely as people are closing the December year. We see increase in TPV, largely driven by the ACH volume and checks in sub cases, which is lower monetization. So the take rate in Q2 goes down sequentially. But overall, it doesn't have an impact on the revenues increase in TPV and lowered math of the take rate.

And as I look forward, we are seeing some green shoots. Our emerging portfolio, as I mentioned, continued strong momentum, the revenue their grew nearly at 40%, that will continue to drive the trade rate expansion. In addition, we are in early stages of SPP, which is an important strategic addition to our portfolio as well. And as we are seeing, the value is resonating with the large suppliers. So as we exit this fiscal year, we expect it to start contributing to the take rate expansion as well.

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

Appreciate it. Good afternoon, everyone. Just thinking about the shift to larger clients, it feels like maybe you're leaning a little bit harder into that. Correct me if I'm wrong there. Just overall, how might that impact the P&L and some of the KPIs? And also for the smaller clients that you're previously going after, are you going to assume that the partner channel will pick up some of the slack there? I'm just curious how those will be addressed looking ahead.

Yes. Thanks for the question. Yes, our mid-market focus ultimately, we think, has the impact of driving stronger engagement, retention and growth from clients who adopt more of our solutions. So we're increasingly rolling out products in support of larger businesses. And I think we had several comments in prepared remarks that talked about quality of revenue and how we're making investment prioritization decisions based on improving the quality of revenue. And where there are trade-offs that we need to consider, we're going to prioritize revenue growth, quality revenue growth over just pure customer acquisition, a number of customers.

So that shift to increasing investment in this mid-market segment ultimately supports ARPU expansion and other areas of revenue growth. And the economics typically work out for us very good. We have strong unit economics. We have very good lifetime values because of multiproduct adoption and higher TPV per customer from this mid-market segment. So we think, as Rohini mentioned, our focus on balancing profitability and growth, it's additive to that priority that we have.

Got it. Yes, I didn't mean to -- I just wanted to clarify, so that helps. Maybe as my quick follow-up, thinking about the agent question. Again, I know it was asked a couple of times differently around monetization and whatnot. But if there is so much in the way of savings that you're presenting back to the clients, including the W9s, et cetera, it does feel like you can participate in some of those savings. So is that how you're thinking about some of the pricing around that? Or is it really more about just lowering the cost of delivery?

And then one more point, sorry to ramble. Is there a pipeline of more agents that we can expect this fiscal year or maybe even sooner than that?

Yes. At the highest level, the agent is -- the agentic approach is really what we've been doing all along, which is to make things simple for businesses to save them time, to save them money because time is money for them.

And so the first thing we want to do is make sure we create a great experience, creating a great experience actually gives you the opportunity to reach more customers as well as to charge appropriately for the value you're creating. So Tien-Tsin, I think that you will see both. I think we will see these agents help us one of the agents we talked about was onboarding for SME customers. The ability for an SME customer to get the cards, the virtual cards across their suppliers automatically just by uploading and looking at prior expenses to be able to drive volume real time for those customers in the early days.

So so I think that you will see that the agents will both drive activity on the platform as well as opportunities for us to charge appropriately for the value that we're creating. I think we are early days in that, and there's a broader pricing strategy work that we are doing, that John is leading that will incorporate that as we roll them out.

As far as the pipeline of agents, I'll just step back. I think in the May quarter, we talked about -- actually, it was actually August, we talked about the ability for AI platform that we'd worked on all last year to create platform for our teams to be able to execute quickly around ideas and opportunities they see. So we will see, I think, lots of agents. I think we will try to make sure they are bucketed, if you will, into the appropriate parts of the product because it could be overwhelming, if you think about the things we're going to do, but there's a lot of opportunity for us to leverage the expertise that we developed a couple of decades and all the payments and volume that we've done to be able to drive even more efficiency for SMBs.

So we're super excited about it. The team is excited about it. and we look forward to rolling them out as we continue to leverage the data and the capabilities that we have.

Yes, can I add some more color here. So Tien-Tsin, we are also thinking about a two-pronged approach here, right? There are some agents that are very key to our products and our essential agents to what we do, and they will be included in its [indiscernible] given to all of the users of the product. But that would provide us opportunity to create more pricing on the same subscription plans because we're now adding more value. Additionally, we also will have higher value agents that will be priced based on access and how much you use it. So this will be a two-pronged approach that we are pursuing right now.

The next question is from [ Nate Stanson ] with Deutsche Bank.

I was hoping to get a little more detail on the [ BILL Cash account ]. It sounds super, super interesting. John, I think you had that one quote from a customer, but would love to hear a little bit more about the earlier feedback that you've gotten. And you also mentioned revenue benefits both to customers and to BILL. So would love to hear about both sides of those coins, especially with regards to how your revenue generation might benefit from this.

Thank you, Nate, for the question. I'll start and then I'll let John cover anything I missed. So I mean, I think the first thing that as a reminder for folks that haven't been following, BILL, as long as I have, obviously, the original name of the company was cash view. And it was cash view because the pain point I felt running my prior startup was I needed to help managing cash flow, which involve payables, receivables, Spend & Expense and obviously the treasury services that come with the cash account.

So this is a strategic part of our mission of making it simple to connect and do new business and getting the product in motion from regulatory and product perspective, all of that has been work that the teams have been working on now for a little bit. And we're super excited because with this, it means that customers are going to save a tremendous amount of time and have more clarity about what they're doing. So the reason I say to have more clarity is, if you think about kind of the -- this is being the first step to world-class treasury services, having an operating account where you can see all the details of the transactions inside the account, that's not something businesses do today.

You will be able to see with the BILL Cash Account, exactly who do you pay, when you pay them, how much you pay them and link back into the information that was the supporting information for that transaction. That's a unique advantage when you're trying to understand your cash flow.

The other thing that this product gives you because when the cash is in the bill cash account, we are able to make faster payments. Faster payments matter to SMBs every day. And so our ability to be -- to do that goes up with this. We think that leads to us bringing offline payments into the bill ecosystem. That's super important because we know there is spend that happens outside of BILL. And we want to make sure it happens in the BILL platform because of all the capabilities we give our customers to track and manage to do workflow to have efficiency gains. All of that's super important.

And so the fact that you have the cash account means now you can pay leveraging the BILL platform across 10 different payment vehicles that we have. Anywhere in the world, pretty much next day to real time depending on the service you're doing. And that's a real customer benefit. And what you heard from [ Steve Chaney ], which I just love hearing about a customer that 6 years ago didn't have any customers on the platform. This is a new business for him. Now his got 1,300. This is a critical part of how he's thinking about supporting the nonprofits and the church as he supports across this country. So all of that's because we build a great product.

Now to your business question, the opportunity from a revenue perspective is real for both BILL and for our customers, giving them interest income, operating count that you don't normally get. This is an opportunity for businesses to get something on their working capital account. It's an opportunity for us because typically, with our payments that have on the platform, we have the funds for 2 to 3 days. If a customer uses to BILL Cash count, those funds will be in the account forever how long they want to manage their account. That could be 2 weeks. It could be a month, who knows. We are starting to learn that experience, and that will give us an opportunity to earn revenue that's different than the float revenue we get today. So super exciting to get this in market. It's strategic, and we're looking forward to rolling this out to more customers, and we'll give you an update as that happens.

Yes. And John, go ahead.

And just one thing to add on the economics, the monetization associated with the product. One of the things that we're seeing with the early adoption of the rollout here is that having the integrated cash account is likely to bring more TPV onto the platform. And as Rene said, it stays within our ecosystem for longer. So that additional TPV from offline to online in the bill platform, creates an opportunity for incremental ad valorem adoption. So that's the primary monetization method and the secondary one that Rene mentioned is by having balances in our system for longer, that creates an incremental quote revenue or transaction revenue stream for us as well.

That's super interesting stuff. I appreciate the detailed answer. I guess, for a quick follow-up just on the Spend & Expense rewards continues to tick up a little bit. Rohini, I think you talked about scrutinizing the structure there and then that eventually flattening out. So maybe would love to hear some specifics on what you're doing in terms of that scrutiny. Is it specific client contract? Is it more broad-based changes to the reward structure, maybe it's the front book? Just any details there? And then how long it takes for us to kind of level out with where we're at on rewards.

Yes, absolutely. So I'll make this quick. We have demonstrated a strong track record of expanding profitability, we're looking at all the levers at our disposal right now. And this is one of the critical pieces of our overall spend portfolio. So what we're thinking of doing is evolving the reward structure to tie in more directly to the revenue and the overall economics that we get from the customer and not just spend. So we've been very selective in how we will, going forward, use the rewards as an acquisition tool for high quality and high monetization customers.

And if we have to, we will make disciplined trade-offs to drive that profitability growth. So we believe that this will result in what's flattening out over time and then declining as a percentage of TPV as we exit the year.

I think we're out of time. So I'll go ahead and -- thank you, Lydia. So thank you, everyone, for joining us today. I want to thank our teams for executing with strong rigor and discipline while continuing to innovate. The initiatives we are taking are driving meaningful profitability improvements and position us well for durable profitable growth in the years ahead. Have a great evening. Thank you.

This concludes today's call. Thank you very much for joining. You may now disconnect your lines.