Executive Summary / Key Takeaways

• BILL Holdings is strategically investing to solidify and expand its leadership in the vast, underserved U.S. small and midsize business (SMB) financial operations market, targeting core revenue growth of 20% or greater in fiscal year 2026.
• The company's differentiated platform, powered by AI and a growing ecosystem of accounting firms, financial institutions, and network members, provides a significant competitive moat, driving efficiency and value for SMBs beyond basic AP/AR automation.
• Recent financial performance demonstrates strong core revenue growth (14% YoY in Q3 FY25) and expanding non-GAAP operating margins (15% in Q3 FY25), showcasing operational discipline despite macroeconomic uncertainties impacting SMB spending patterns.
• Targeted incremental investments of approximately $45 million in FY2025 are focused on enhancing key solutions (payments, working capital), augmenting supplier experiences, deepening accounting firm relationships, and expanding embedded offerings, positioning the company for long-term value creation.
• While near-term outlook reflects caution regarding macro conditions and potential constrained TPV per customer growth, the company's strong balance sheet and free cash flow generation support its offensive investment strategy and share repurchase program, signaling confidence in future market capture.

The Untapped Potential of SMB Financial Operations

BILL Holdings operates at the heart of a massive, yet largely untapped, market: the financial operations of small and midsize businesses (SMBs) in the United States. For decades, these businesses, the backbone of the U.S. economy, have grappled with inefficient, manual, paper-based processes for managing accounts payable, accounts receivable, and overall spend. BILL was founded on the premise of automating this back office complexity, transforming it into streamlined, cloud-based workflows that save time, reduce errors, and provide critical visibility and control over cash flow.

The company's journey began with its core AP/AR automation platform, Bill.com, Inc., later becoming BILL Holdings, Inc. through a reorganization and strategic acquisitions. Key additions like Divvy and Invoice2go expanded the product suite, enabling BILL to offer a more integrated platform encompassing corporate cards, expense management, and invoicing. This evolution culminated in the launch of the integrated platform in fiscal year 2024, aiming to provide a unified view of financial operations.

BILL's strategy is built on three pillars: enhancing its platform, expanding its payment offerings, and deepening its ecosystem. This approach is designed to reach SMBs wherever they are – directly, through trusted advisors like accounting firms, or via embedded solutions within banking and software partners. This multi-channel distribution, coupled with a growing network of over 7 million members (buyers and suppliers), creates powerful network effects, making the platform more valuable as more businesses join.

The competitive landscape is fragmented, ranging from legacy manual processes (still the primary competitor for many SMBs) to large enterprise resource planning (ERP) vendors, niche point solutions, and integrated platforms like Tipalti, Rippling, Airbase, and Corpay (CPAY). While competitors like Tipalti offer enterprise-grade global AP automation and Rippling provides a broad HR/IT/Finance suite, BILL differentiates itself with a deep focus on the specific needs and workflows of SMBs, leveraging its extensive network and tailored technology. This positioning has allowed BILL to capture an estimated 15-20% market share in SMB AP automation, outpacing the overall market growth rate, though trailing some faster-growing private competitors in specific niches.

Technological Foundation and Innovation Engine

At the core of BILL's differentiation is its purpose-built, AI-enabled financial software platform. This technology is designed to automate mundane tasks and provide intelligent insights, directly addressing the pain points of SMBs that lack large finance teams.

Key technological differentiators and innovations include:

• AI-Powered Automation: Leveraging AI for automated bill entry, payment acceleration, and network matching has been foundational. More recently, the company introduced AI-powered tools like Sync Assist, designed to simplify the complex process of syncing BILL with various accounting systems. Management highlighted that tens of thousands of organizations have adopted Sync Assist functionality, indicating its tangible benefit in saving staff time and headaches. While specific quantitative metrics on time savings from Sync Assist were not disclosed, the strategic intent is clear: reduce manual effort and improve data accuracy.
• Integrated Payment Engine: Built upon processing over $1 trillion in TPV since fiscal 2018, BILL's new payment engine is designed to drive faster payment speeds and enhance risk management across its multitude of payment offerings. This infrastructure is critical for supporting the expansion of payment modalities and maintaining efficiency at scale.
• Expanding Payment Modalities: BILL is actively enriching its payment portfolio. This includes enabling real-time funding options (allowing customers to fund payments via credit cards, ACH, or real-time payments) and making the BILL Divvy card available for AP payments. The latter is a strategic move to drive more spend on the card and create a smoother upgrade path to the full Spend & Expense platform. Early signals suggest good adoption.
• International Payments & Local Transfer: The expansion of local transfer capabilities to over two dozen countries allows businesses to receive international payments days faster with less FX volatility and reduced transaction fees. Management noted in Q1 FY25 that annual growth rates for international FX payment volume and revenue increased by 10 percentage points compared to the prior quarter, suggesting positive impact from these enhancements. This directly addresses a critical need for SMBs engaged in cross-border trade.
• Working Capital Solutions (Invoice Financing): Leveraging its proprietary data and AI for underwriting, BILL's invoice financing offering allows suppliers to get paid weeks in advance. This product has shown strong early adoption and repeat usage, with 70% of borrowers being repeat users and over $800 million in invoice advances funded since launch through Q1 FY25. This demonstrates the power of BILL's data asset to offer valuable financial services beyond core AP/AR.
• Advanced ACH: Currently in beta testing, this solution targets large suppliers who receive high volumes of check and ACH payments through the platform (averaging 5,000 per quarter for large suppliers). The goal is to simplify payment reconciliations and automate the conversion of checks/ACH to advanced ACH, addressing a significant pain point for these businesses and offering potential for ad valorem pricing.

These technological advancements and ongoing R&D initiatives are not merely feature additions; they are strategic moves designed to widen BILL's competitive moat. By automating more complex workflows (like procurement and multi-entity management), providing more payment choices, enhancing the supplier experience, and leveraging AI for efficiency and risk management, BILL aims to make its platform indispensable. This contributes to higher customer retention, drives increased transaction volume and ad valorem revenue, and allows the company to maintain strong gross margins (85% non-GAAP in Q3 FY25) compared to many competitors (e.g., Corpay at ~60% gross margin). While some competitors may lead in specific niche features (e.g., Airbase in analytics depth), BILL's strength lies in the breadth and integration of its platform, tailored specifically for the SMB workflow, and underpinned by its network advantage.

Financial Performance and Operational Discipline

BILL's recent financial performance reflects a business that is scaling effectively while demonstrating increasing operational discipline, even amidst a challenging macroeconomic backdrop. For the three months ended March 31, 2025 (Q3 FY25), total revenue grew 11% year-over-year to $358.2 million. Core revenue, which excludes interest on funds held for customers, grew 14% year-over-year to $320.3 million. For the nine months ended March 31, 2025, total revenue was $1.08 billion, up 14% year-over-year, with core revenue at $954.9 million, up 16%.

Growth drivers included increased transaction fee revenue (up $36.4 million in Q3 FY25 and $121.5 million in 9M FY25) driven by higher total payment volume (TPV) and customer adoption, and an increase in subscription fee revenue (up $2.6 million in Q3 FY25 and $12.0 million in 9M FY25) due to customer growth. TPV processed was $79.4 billion in Q3 FY25 (up 11% YoY) and $243.7 billion in 9M FY25 (up 13% YoY).

However, the macroeconomic environment has introduced headwinds. Management observed certain BILL AP/AR customers reducing spending in Q3 FY25, leading to a 2% decrease in TPV per customer compared to the prior year period. This moderation was noted particularly in wholesale trade, real estate, payroll/PEO, and construction categories. Interest on funds held for customers also decreased by $3.8 million in Q3 FY25 and $0.7 million in 9M FY25, primarily due to lower interest rates impacting yield (423 basis points in Q3 FY25, down from 470 in Q1 FY25).

Despite these top-line pressures, BILL demonstrated significant profitability expansion. Non-GAAP operating income reached $53.0 million in Q3 FY25, resulting in a non-GAAP operating margin of 15%, well ahead of expectations. This reflects continued efficiency across the business. For the nine months ended March 31, 2025, non-GAAP operating income was $192.6 million, yielding an 18% margin. Non-GAAP operating margin excluding float revenue was 5% in Q3 FY25 and 7% for the nine months. Gross margin remained robust at 81% in Q3 FY25 (82% for 9M FY25), though slightly down from 83% in Q3 FY24, impacted by lower float revenue contribution and changes in payment processing cost mix.

Operating expenses saw varied trends. R&D increased in Q3 FY25 due to headcount growth but decreased for the nine months due to the December 2023 reduction-in-force (RIF). Sales and marketing increased due to higher rewards expense from increased Spend & Expense volume and personnel costs. General and administrative expenses also increased due to personnel and fraud losses, partially offset by lower consulting fees. The provision for expected credit losses decreased in Q3 FY25 due to methodology refinements and improved delinquency trends, but increased for the nine months primarily due to growth in the loans held for investment portfolio.

Liquidity remains strong. As of March 31, 2025, BILL held $1.05 billion in cash and cash equivalents and $1.13 billion in short-term investments. The company also has access to a $300 million Revolving Credit Facility, with $180 million drawn. Capital allocation actions included the issuance of $1.4 billion in convertible senior notes in December 2024, using proceeds to repurchase outstanding notes ($130.8 million of 2025 Notes, $408.6 million of 2027 Notes) and common stock ($200 million). An additional $201.3 million in shares were repurchased under the August 2024 program during the nine months ended March 31, 2025. These actions reflect a strategic use of capital to manage debt, return value to shareholders, and maintain flexibility for future investments.

Supported by a strong balance sheet and robust free cash flow generation, BILL is playing offense, aiming to widen its competitive moat against rivals.

Outlook and Strategic Investments for Future Growth

BILL's outlook for fiscal year 2025 reflects a strategic decision to invest aggressively from a position of strength, aiming to accelerate long-term growth and extend its category leadership, even if it means moderating near-term profitability expansion compared to prior trends.

For the fiscal fourth quarter ending June 30, 2025, the company guided for core revenue between $335 million and $345 million (11% to 15% YoY growth) and total revenue between $370.5 million and $380.5 million. Float revenue is expected to be approximately $35.5 million, assuming a yield of around 400 basis points. Non-GAAP operating income is projected between $43 million and $48 million.

For the full fiscal year 2025, BILL expects core revenue in the range of $1.290 billion to $1.300 billion (15% to 16% YoY growth) and total revenue between $1.450 billion and $1.460 billion. Float revenue is anticipated to be approximately $160 million, with a full-year yield of around 435 basis points and an exit Fed funds rate assumption of 425 basis points as of June 2025. Non-GAAP operating income is guided between $226.2 million and $231.2 million. Non-GAAP net income per diluted share is expected to be $2.06 to $2.09. Stock-based compensation expenses are projected to be approximately 17% of total revenue, a reduction from earlier estimates.

This guidance incorporates approximately $45 million in incremental targeted investments throughout FY2025. These investments are focused on key strategic priorities: enhancing existing solutions (virtual card, international payments, working capital), augmenting the supplier experience and go-to-market efforts, delivering new capabilities and deepening relationships with accounting firms, and driving the expansion and adoption of embedded solutions. Management noted that the pacing of these investments is more back-loaded in the fiscal year.

The strategic intent behind these investments is clear: position BILL to deliver core revenue growth of 20% or greater in fiscal year 2026 and beyond. Management expressed confidence that these investments, coupled with ongoing platform improvements and execution, will enable the company to accelerate growth and achieve significantly higher long-term operating margins (above 20%). While the near-term outlook reflects caution regarding the macro environment and its potential impact on TPV per customer and monetization expansion, the company believes its FY2025 investments provide the necessary levers for acceleration once conditions improve. The guidance assumes the macro environment remains consistent with recent quarters and SMBs transact at similar historical rates, but acknowledges the increased uncertainty noted in Q3 FY25.

Risks and Challenges

Despite its strong market position and strategic investments, BILL faces several risks. Macroeconomic uncertainty remains a significant factor, potentially impacting SMB spending, TPV per customer, and overall demand. Changes in interest rates directly affect float revenue.

Competition is intense and evolving, with rivals potentially developing competing products, bundling services, or having greater resources. The outcome of ongoing antitrust litigation related to interchange fees could impact a significant revenue stream.

Credit risk, particularly associated with the BILL Divvy Corporate Card and working capital solutions like invoice financing, is a key exposure. Fraudulent activities, which are constantly evolving, also pose a material financial risk. Dependence on third-party service providers (banks, processors) and cloud infrastructure (AWS) (AMZN) introduces operational risks.

Regulatory and compliance risks are substantial, given the company's role in payments and financial services. This includes navigating complex and changing laws related to money transmission, privacy, data protection, information security, sanctions, AML, and anti-corruption. Failure to comply could result in significant fines, penalties, or restrictions on business operations. The use of AI also presents emerging risks related to accuracy, bias, cybersecurity, and potential future regulation.

The company's ability to successfully integrate acquisitions, attract and retain key talent, and maintain its company culture as it scales are also important operational considerations.

Conclusion

BILL Holdings is a leader in the essential and growing market of SMB financial operations automation. Leveraging a differentiated, AI-enabled platform, a powerful ecosystem, and a vast network, the company is uniquely positioned to capture a significant share of this underserved market. While navigating near-term macroeconomic headwinds that have tempered SMB spending and TPV per customer growth, BILL has demonstrated operational discipline, delivering strong core revenue growth and expanding non-GAAP operating margins.

The company's strategic decision to deploy approximately $45 million in incremental investments in FY2025 underscores its conviction in the long-term opportunity. These investments, focused on enhancing the platform, expanding payment offerings, and deepening ecosystem relationships, are designed to accelerate core revenue growth to 20% or greater in fiscal year 2026 and beyond, while also driving higher long-term profitability. Supported by a strong balance sheet and robust free cash flow generation, BILL is playing offense, aiming to widen its competitive moat against rivals. Investors should monitor the execution of these strategic initiatives and the pace of market recovery, as BILL's ability to translate its foundational strengths and targeted investments into sustained growth and profitability will be key to realizing its full potential.