Executive Summary / Key Takeaways

• BILL is transforming financial operations for small and midsize businesses (SMBs) through its intelligent platform, leveraging a unique two-sided network and advanced AI capabilities to automate complex workflows and drive efficiency.
• The company delivered strong Q1 FY26 results, with core revenue growing 14% year-over-year and non-GAAP operating margin expanding to 17%, reflecting a strategic focus on profitability and disciplined investment.
• Key strategic initiatives, including the launch of AI agents for touchless transactions (e.g., W-9 collection, receipt reconciliation) and new Embed 2.0 partnerships with industry leaders like NetSuite, Paychex , and Acumatica, are poised to accelerate market penetration and deepen customer value.
• BILL's robust liquidity, including $1.10 billion in cash and $1.20 billion in short-term investments as of September 30, 2025, supports strategic investments and shareholder returns through ongoing share repurchase programs.
• While macroeconomic uncertainties and interest rate fluctuations present near-term challenges, BILL's differentiated technology, expanding ecosystem, and focus on higher-value customer acquisition position it for sustained, profitable growth and market leadership.

The Intelligent Core of SMB Financial Operations

BILL Holdings, Inc. (NYSE:BILL) stands at the forefront of revolutionizing financial operations for the "Fortune 5 Million" – the vast ecosystem of small and midsize businesses that form the backbone of the U.S. economy. Since its inception as Bill.com, Inc. in 2006, the company has been dedicated to simplifying the complex, often manual, processes of accounts payable (AP), accounts receivable (AR), and spend management. This foundational mission has evolved into a comprehensive, cloud-based platform that automates financial workflows, manages cash flow, and connects businesses with their suppliers and customers, thereby enhancing back-office efficiency. BILL's strategic approach is deeply rooted in meeting SMBs where they are, fostering a robust ecosystem that includes direct sales, over 9,000 accounting firm partners, and a growing network of financial institution and software partners.

The market for cloud-based financial software remains highly fragmented and competitive, with legacy manual processes still representing the primary competition for many SMBs. BILL's differentiation stems from its specialized focus on automating these intricate financial workflows, offering a unique value proposition through focused expertise. While larger competitors like Intuit (QuickBooks), SAP (Concur), and Oracle (NetSuite) offer broader ERP solutions, BILL carves out its niche by providing a platform designed for ease of use, deep integration, and a comprehensive suite of payment capabilities tailored specifically for SMBs. This targeted approach, coupled with its expansive network, positions BILL as an essential partner for businesses seeking to modernize their financial back office.

Technological Edge: AI-Powered Automation and Agentic Finance

BILL's competitive advantage is increasingly defined by its sophisticated application of artificial intelligence (AI), which is deeply embedded across its platform to deliver predictive and generative capabilities. The company has processed over 1.3 billion documents, including nearly 500 million through its AI features and the Bill Intelligent Virtual Assistant (IVA). This extensive and proprietary data asset, derived from processing 1% of U.S. GDP and over $1 trillion in transaction volume, provides a rich context for training AI models. This data advantage enables BILL to deliver strategic finance capabilities and intelligence that SMBs typically cannot access on their own or through other platforms.

The tangible benefits of BILL's AI are quantifiable and impactful. Since the beginning of 2025, BILL's AI solution has increased the number of fully automated bills by 80%. In fiscal year 2025, AI features proactively identified customers qualifying for larger credit limits, leading to $200 million in proactive line increases for spend and expense customers. Furthermore, predictive AI solutions stopped over 8 million fraudulent attempts in FY2025, safeguarding SMBs' critical cash assets.

A significant leap in BILL's technological roadmap is its investment in "Agentic AI," a new generation of intelligent agents designed to deliver autonomous finance for SMBs. These agents aim to eliminate workflows entirely, shifting from a "do-it-with-you" to a "do-it-for-you" model. Examples of these new AI agents, launched in Q1 FY26, include:

• W-9 Agent: Automatically requests, collects, and pre-validates W-9s for new suppliers, eliminating over 80% of manual steps and estimated to save BILL's AP customers over 80,000 days of work annually.
• Transaction Coding Agent: Automatically codes transactions, dramatically decreasing manual work and increasing accuracy in expense processing.
• Agentic Bill Assistant: Provides personalized instant answers to customer inquiries and troubleshoots common issues.

These technological advancements are not merely feature enhancements; they are foundational to BILL's long-term growth strategy. By providing unparalleled efficiency and accuracy, these AI agents contribute to a stronger competitive moat, enhance customer retention, accelerate multi-product adoption, and fuel customer acquisition. The company expects the majority of customers to be using at least one BILL agent by the end of fiscal 2026, solidifying its leadership in delivering AI-driven financial capabilities to SMBs.

Strategic Expansion and Ecosystem Deepening

BILL's strategy extends beyond core automation to encompass a broader ecosystem and new product offerings. The company's Embed 2.0 strategy, which allows partners to seamlessly integrate BILL's APIs and elements into their existing platforms, is gaining significant traction. Recent partnerships announced in October 2025 with Oracle NetSuite, Paychex (PAYX), and Acumatica are particularly noteworthy. These collaborations are expected to extend BILL's reach to nearly 1 million SMBs, representing an estimated $1 trillion in annual payment volume. These partners choose BILL for its scale, data, and payment capabilities, enabling them to diversify customer relationships and drive efficiency, with monetization typically structured as a revenue-sharing model.

In Q1 FY26, BILL launched the BILL Cash Account, a high-yield, fully integrated operating bank account. This product aims to help businesses optimize cash flow, enable faster payments, and earn interest within the platform. Early feedback is positive, with expectations that it will bring more Total Payment Volume (TPV) onto the platform and keep funds within the BILL ecosystem longer, creating opportunities for incremental ad valorem adoption and float revenue.

Another significant initiative is Supplier Payments Plus (SPP), or Advanced ACH, which entered its commercial scaling phase in Q1 FY26. Designed for large suppliers, SPP unifies payments, workflows, and dedicated account management to streamline incoming payments. This solution is expected to transition from a flat-fee ACH transaction model to an ad valorem fee paid by the supplier, driving value creation for both suppliers and BILL. The company is also expanding its mid-market focus, with mid-market customer growth outpacing overall BILL APAR customer growth by five points in fiscal 2025. These larger businesses typically have twice the TPV and users, contributing significantly to Average Revenue Per User (ARPU) expansion and overall growth.

Financial Performance and Outlook

BILL's financial performance in Q1 FY26 demonstrates a strong start to the fiscal year, marked by a deliberate focus on balancing growth with profitability. Core revenue, which includes subscription and transaction fees, grew 14% year-over-year to $358 million. This growth was accompanied by a significant expansion in profitability, with non-GAAP operating margin reaching 17%, a sequential increase of over 250 basis points, or approximately 300 basis points excluding the benefit of float revenue.

Segment-Specific Performance (Q1 FY26):

• BILL APAR: Revenue increased 10% year-over-year to $178.6 million, with subscription revenue up 6%. Transaction revenue grew 12% year-over-year, and AP/AR transaction monetization expanded by 0.3 basis points year-over-year. TPV per customer saw a slight, expected decrease.
• BILL Spend & Expense: Revenue totaled $157.3 million, a 19% year-over-year increase, driven by a 21% rise in card payment volume. Card spend per customer reached a record high of $145,000. Rewards expense, as a percentage of payment volume, increased to 132 basis points, up 10 basis points from Q1 FY25, prompting management to scrutinize and adjust the reward structure.
• Embedded and Other Solutions: Revenue was $22.1 million, up from $20.1 million in Q1 FY25.
• Interest on Funds Held for Customers: Revenue decreased 13% year-over-year to $37.7 million, primarily due to a lower yield driven by a decrease in interest rates.
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For the full fiscal year 2026, BILL anticipates core revenue in the range of $1.46 billion to $1.49 billion, with total revenue projected between $1.6 billion and $1.63 billion. Non-GAAP operating income is guided to be $257 million to $277 million, representing a 16% to 17% operating margin, implying an ex-float margin expansion of over 290 basis points compared to fiscal 2025. Key assumptions include flat volume per customer for AP/AR with similar take rate expansion as FY25, high-teens growth for Spend & Expense card payment volume with a take rate slightly above 250 basis points, and a float yield assumption reflecting one additional rate cut in calendar 2025, with the Fed funds rate exiting FY26 at approximately 325 basis points. Stock-based compensation expenses are expected to be approximately $260 million, a $30 million reduction from prior communication.

The company's liquidity remains robust, with $1.10 billion in cash and cash equivalents and $1.20 billion in available-for-sale short-term investments as of September 30, 2025. This strong financial position supports ongoing strategic investments and shareholder returns, evidenced by the August 2025 Share Repurchase Program authorizing up to $300 million in repurchases.

Competitive Dynamics and Risk Considerations

BILL operates in a highly competitive and rapidly evolving market. Its primary competition remains the legacy manual processes that SMBs have relied on for generations. In the cloud-based software space, BILL competes with large ERP providers like SAP (SAP) and Oracle (ORCL), as well as accounting software giants like Intuit . While Intuit's (INTU) QuickBooks launched a native bill payment solution in October 2023, and fintech firms like Brex and Ramp have introduced bill payment products, BILL differentiates itself through its specialized focus on automating complex financial workflows, its expansive two-sided network, and its deep expertise in SMB financial operations. The company's Embed 2.0 strategy and AI-powered agents are critical in maintaining this competitive edge, allowing BILL to integrate its solutions directly into partners' platforms and offer unique, touchless experiences.

Despite its strong positioning, BILL faces several risks. Macroeconomic conditions, including volatility in interest rates, inflation, and changes in trade policies, continue to impact SMB spending patterns. Management observed fewer transactions per customer and slightly decreased spend per customer in Q3 FY25, leading to a prudent near-term outlook. Reductions in interest rates, while potentially beneficial for SMBs, would reduce BILL's interest revenue from funds held for customers. The company also manages credit risk associated with its acquired card receivables and invoice financing products, with an allowance for expected credit losses of approximately $30.20 million as of September 30, 2025.

Operational risks include the consequences of its recent reduction in force (RIF) impacting 6% of employees in October 2025, which could lead to unanticipated costs or impact employee morale. Regulatory compliance in payments and financial services is also a continuous focus, with potential for new rules or interpretations impacting business practices. However, BILL actively mitigates these risks through close macroeconomic monitoring, diversified investment portfolios, robust credit evaluations, and ongoing compliance programs. The company's strategic initiatives, such as optimizing reward structures and expanding into lower-cost geographies, are designed to enhance efficiency and profitability in a dynamic environment.

Conclusion

BILL Holdings, Inc. is executing a compelling strategy to redefine financial operations for SMBs, leveraging its deep understanding of the market, a powerful two-sided network, and a rapidly advancing AI platform. The company's strong Q1 FY26 financial performance, marked by robust core revenue growth and significant operating margin expansion, underscores the effectiveness of its disciplined approach to balancing growth and profitability. Strategic initiatives like the BILL Cash Account, Supplier Payments Plus, and the transformative Agentic AI agents are poised to deliver substantial value to customers by eliminating manual workflows and providing unprecedented efficiency.

While the macroeconomic landscape presents ongoing uncertainties, BILL's proactive management of risks, coupled with its expanding ecosystem through key partnerships and a focus on higher-value customer acquisition, positions it for durable, profitable growth. The company's technological leadership, particularly in AI-powered automation, is a critical differentiator that enables it to outcompete rivals and capture a significant share of the vast SMB market. Investors should recognize BILL's foundational strengths, strategic execution, and innovative roadmap as key drivers for sustained value creation in the evolving financial technology sector.