Good afternoon. My name is Tyler and I will be your conference operator today. At this time, I would like to welcome everyone to Bill's fiscal first quarter conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. I will now turn the call over to Jack Andrews, Vice President, Investor Relations. You may begin your conference.

Thank you. Good afternoon, everyone. Welcome to Bill's Fiscal First Quarter 2027 Earnings Conference Call. We issued our press release a short time ago and filed the related Form 8K 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 in Rohini Jain, CFO. Thank you for joining us 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. Q1 was a strong quarter for Bill. We continued to drive profitable growth as core revenue grew 14% year-over-year and our non-GAAP operating margin reached 39%. In addition to these results, I am encouraged to see momentum building across the business. As you know, we undertook significant, deliberate, and proactive organizational restructuring actions during FY26. These actions were designed with one goal in mind, to accelerate our transformation to be an AI-native company. To accomplish this, we are fundamentally reshaping how Bill operates by removing friction that unleashes greater clarity, velocity, and productivity. The progress we achieved in Q1 from a sales execution, product development, and financial discipline perspective is a strong early indication of our progress towards this goal. I'm proud of the team's ability to adapt quickly and drive these results. Bill exists to help SMBs run their businesses by taking care of the operational headaches that plague them. That is the premise upon which I founded the company. Today, we are operating at unprecedented scale. During Q1, we surpassed $2 trillion in cumulative TPV processed on our proprietary payment infrastructure. On an average day, around $1 billion in payments flow through Bill. Behind every dollar moved are finance workflows that have been automated for our customers and risk decisions that have been automated for Bill. These include invoices captured and coded, approvals routed, vendors validated, fraud prevented, and payments sent and reconciled. Our facilitation of these mission critical workflows at massive scale gives us unique assets and a strong moat. We have captured knowledge of the workflows and pain points specific to small and mid-sized businesses, assembled a massive set of proprietary data, connected a network of more than 9 million members, seamlessly integrated a robust payments infrastructure, and created a valuable and differentiated ecosystem of partners. Together, we believe these assets are unparalleled and provide a strong foundation to build trusted, accurate, and secure AI for the Fortune 5 million. I'd like to provide an update on each of our three strategic priorities for FY27. Our first and most important priority is to deliver trusted AI-native experiences for customers. Today, most SMBs and other businesses are using AI in finance, but only about one in five trust it completely. The most common concerns center around data quality and security. That bill, we build for builders. We believe AI should take work off of our customers' plates without taking control out of their hands. So we built AI they can watch, switch off, and check. It is designed to catch mistakes before the money moves. This is how we reinforce the trust customers place in Bill and the trust the market is increasingly demanding from AI solutions. During Q1, we launched five new capabilities as part of our continuous redefinition of intelligent finance. First, we introduce Bill's risk intelligence agent. One of the most time-consuming and frustrating errors is paying the wrong amount. These types of errors cost businesses days to resolve and create cash flow headaches. Risk intelligence is designed to stop unusual payments before the headaches begin. It flags invoices that deviate from a vendor's billing history during AP approval and shows why. Thank you for joining us. Let me share a customer quote from Christine Remington, Accounts Payable Manager at Advice Period. Bills risk intelligence spots and calls out discrepancies, and if an amount seems off, it tells you how and why. I recently had a legal bill 33 times higher than average, and Bill flagged it quickly once it hit my inbox. Now it's even easier to review and approve bills with confidence so our team can focus on the tasks that matter. Next, we've added an AI control hub. This hub provides a centralized view where customers can monitor the actions Bill AI has taken for them, switch AI tools on or off, and control how much AI does for them. According to our customer research, almost 9 in 10 finance teams surveyed want centralized or in-workflow control of their AI. AI control hub addresses this exact market need. As we continue to deliver more agentic capabilities for our customers, this hub will play an essential role in how finance teams deploy and control AI across their business. Third, we've simplified onboarding with our AI-assisted onboarding. This agent enables new customers to get up and running on our platform faster. Bill now personalizes the business profile, recommends products based on how a business works, and helps users add vendors and assign default approvers. Importantly, customers stay in control to review and adjust anything before it's applied. New users can cut platform setup time by up to 50% and vendor customization time by up to 70%. These actions and others are showing stronger engagement earlier in the customer lifecycle. Fourth, we have launched Chat with Bill to help customers understand their business better and get support with Bill. We have all experienced the power of natural language chat. Finance teams want and need the ability to engage with their tools and data at a conversation level. Chat with Bill, currently in beta, enables finance teams to talk to Bill in plain language across AP, AR, and S&E. Customers can easily ask questions such as which vendors need paying and when, where an invoice stands, what's driving card spend, how month-end close and receivables are tracking, and which bills and subscriptions recur. We expect these capabilities to grow and to continue to act as an extension of the company's finance team. Customers have relied on Chat with Bill for customer support over the last 12 months, and those AI-handled support conversations have grown to 45% since launch a year ago. Moving forward, they will be able to rely on Chat with Bill the same way they would rely on any other team member. Finally, we've created an external MCP connector for the Frontier Labs. This enables customers to connect the AI chat tools they already use to Bill. We all know and understand that the proliferation of software tools means we need to be where our customers are. We have been building our API capabilities and thousands of developers build on Bill's APIs. This usage has grown 7x in two years. The learning from these customers has gone into our external MCP connectors. We are excited to share that Bill is now available in the cloud marketplace and we expect others will follow soon. We have seen strong adoption across our existing agents and believe these new AI capabilities will continue to add to the value we are creating for customers with AI. Adoption of our previously introduced AI functionality continues to increase among our customer base. Today, we have had over 200,000 businesses use our agents to improve their financial operations across AP, AR, and S&E. The number of businesses using our W9 agent increased almost 50% sequentially to over 60,000. Bill's invoice coding agent has now been used by over 70,000 businesses in just seven months since launch. Furthermore, the number of transactions our new pay-for-you agent completed without any human interaction during Q1 increased over 20% sequentially. AI Native is not just about capabilities and experiences for customers. It is also integral to how we build, execute, and scale internal processes inside a bill. For example, over the past year, our RISC team has built more than 100 AI agents that actively perform work 24-7 across several different functions. These agents complete defined tasks on their own, such as pulling case files, drafting credit assessments, or writing model documentation. Together, we estimate these agents now return over 1,400 hours per month to our teams, which is equivalent to about eight full-time employees, while improving our results and driving real efficiency. One specific illustration comes from our S&E business. We have developed three AI agents that now work together as a suite nicknamed Robin to handle underwriting cases. Before, an underwriter had to piece each case together by hand to decide whether to approve or change a customer's credit line. Thank you for joining us. This means faster, better, and more personalized experiences for SMBs and more focused team members at Bill. Our second priority is to acquire higher ROI customers. Increasing the number of partners we work with through our Embed 2.0 strategy broadens our reach and strengthens the value proposition for them and their customers. In Q1, we were pleased to announce a new strategic partnership with Blackbaud. Blackbaud is the foundational ERP for nonprofits and educational organizations. Those organizations perform some of the most meaningful work in our communities. All of us are excited that Bill will now be embedded in Blackbaud Financial Edge Next through its payment assistant platform. Nonprofit and education finance teams will now be powered by Bill to manage their vendor payments, approvals, and reconciliation without leaving systems they use and trust every day. These new capabilities are planned for a phased rollout over time. Our existing embed partnerships are making progress as well. One partner's TPV units and transaction revenue all doubled sequentially from Q4 to Q1, and we're just getting started. Partnerships take commitment from both sides, and every partner's path to success looks different. As these relationships progress, we are aligning more closely on go-to-market and adding more of our ad valorem capabilities, which enhances product-market fit. Multi-product adoption is also a key area of focus at Bill to drive ARPU expansion. We are early on this journey and are making good progress. In Q1, the number of joint customers leveraging both our AP and spend and expense solutions grew 30% year over year. The value of the joint solution drives strong net revenue retention improvement from this cohort of customers. We expect to see more progress going forward as our sales team is now trained to sell Bill as a single platform, and we are in the process of implementing changes to incentives to fully align the team to drive continued success. We expect those changes to roll out for Q3. Our third priority is to expand value through Bill's platform. One example of this is how we are extending payment solutions to the suppliers on our network. In a very short time, we worked with our partners to create what we believe is a first of its kind innovative solution that creates a do it for me approach for both customers and their suppliers. We worked with Visa and BillTrust to launch the first live pilot for trusted AI agent payments between buyer and supplier platforms. Even after invoices are approved and payments are scheduled, someone still has to log into a supplier portal and type in a card number. We're changing that. The bill payment agent, registered as a trusted agent through Visa Intelligent Commerce, completes invoice payments in supplier portals using tokenized credentials. There are no share of supplier portal logins, and the agent makes no payment decisions. It only executes payments the buyer has already approved. As agents proliferate, it will be trusted agents that drive adoption. This pilot offering is a great example of how we simplify the financial operations for our customers. Agents are going to change how businesses pay each other. Control is paramount to make this happen successfully. Bill provides this control by centralizing every payment in one system and capturing every action in a complete audit trail. Trust is non-negotiable when it comes to agenda commerce. So the biggest priority for us in building the bill payment engine was not only speed and accuracy, but also security. With Visa and Bill Trust, friction is removed. The payments get done, the supplier gets paid faster, and finance teams get their time back. Thank you for joining us today. as we provide greater value for customers, this creates greater value to Bill from a monetization perspective. Bill connects and automates more B2B payments than just about anyone. We understand the solutions suppliers need and we have a broad and robust portfolio to serve them. This enables us to solve specific supplier pain points by improving working capital and reducing manual work while monetizing TPV through multiple products. In Q1, Volume growth in our ad valorem portfolio accelerated sequentially by 700 basis points. One of the main contributors to that strength was increased momentum in virtual cards. Two factors drove that result. First, we are working with partners to route more of their customers' receivables as card payments utilizing straight-through processing. By identifying which invoices are cardable, we can align with supplier preferences to enable payments to arrive faster than they would have otherwise. Based on these results, we believe that straight-through processing can be a retention lever for suppliers who have previously expressed friction around a card payment. Second, we have been maturing a native AI model that is deeply embedded within our core virtual card stack to optimize payment routing. This model identifies and routes payments to suppliers that are already card accepting, even if they aren't explicitly flagged as such on our network. Both straight-through processing and our AI model contributed roughly equally to the strong performance we saw from Virtual Card in Q1. Our SPP offering is another key area of focus to expand value for both customers and suppliers. SPP is built for suppliers of all sizes, and adoption across multiple channels is encouraging. 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. We are assigning an increasing variety of customers across both size and industry vertical. In Q1, these included law firms, healthcare and life science companies, business service providers, and large technology companies. One of our early customers, DocuSign, is using SPP to automate payment processing and reconciliation, supporting faster collections, fewer manual touches, and lower operational risk. Additionally, the solution transitions customers from check and offline credit card payments to ACH, significantly reducing credit card fees and lockbox processing times. Another customer we landed in Q1 now represents our largest signed TPV deal to date. This global software company had payments arriving through a sprawl of portal accounts with fragmented processes managing multiple bank accounts, remittance emails, and complex multi-entity reconciliation. This created operational confusion, payment delays, and reconciliation nightmares. With Bill, supplier payments plus payments are consolidated into one centralized enterprise portal with user controls, accelerated by moving checks to electronic payments, and reconciled through integrations instead of people. Suppliers like this achieve faster collections, fewer manual touches, and lower operational risk. We continue to see momentum building across our suppliers as we demonstrate increasing value from our solutions. In closing, our success in Q1 combined with the underlying actions we have taken across the company make me confident in our strategy. We are successfully attacking a large and still untapped market for financial operations. We have significantly restructured the company and raised the bar for performance while continuing to deliver on our commitments. AI is changing what's possible for us, and it shows in our product velocity. Five new launches this quarter and a Visa pilot built in four weeks. With a strong financial foundation, we're well positioned to serve the millions of businesses that still need help simplifying their finances. With that, I'll turn it over to Rohini.

Thanks, Rene. Q1 represented another strong quarter as we met or exceeded our guidance ranges on all key metrics. I'm pleased with our execution, given this was the first full quarter after our restructuring. Before going into more detail about the quarterly performance, I'll first give an update on the three key pillars of our financial framework that we provided on our prior earnings call. First, Bill has built a durable business model, and we remain well-positioned to deliver low double-digit to mid-teens core revenue growth with expanding margins over time. We achieved this outcome in Q1 as core revenue grew 14% year-over-year and non-GAAP operating margin expanded by 1,700 basis points. We are focused on sustaining performance as a Rule of 40 company. We define this metric as growth in total net revenue plus non-gap operating margin. Our Rule of 40 score in Q1 improved to 51, achieving the highest level since FY24. We continue to expect to exceed the Rule of 40 threshold exiting FY27. Bill is focused on achieving meaningful GAAP profitability in FI27 and expanding from there. Our Q1 GAAP net income of $60 million exceeded our expectations and has set a strong foundation for us to increase our GAAP profitability guidance for the year. Turning to our Q1 results, as a reminder, this will be our first quarter reporting revenue net of rewards. Please refer to our 8K filing from October 15th for more information on this change and the retrospective impact to our prior quarterly results. In Q1, we delivered $316.4 million in core revenue, growing 14% year-over-year. Non-GAAP operating margin was 39%, expanding 900 basis points sequentially. Non-GAAP net income was $119.1 million, representing a 27% improvement sequentially and a 70% improvement year over year. The large profitability beat this quarter was driven by a combination of factors that ended in a favorable result. These included a flow-through from revenue outperformance, lower fraud and credit losses, and a slower-than-anticipated ramp of planned spend. Within our integrated platform, we saw double-digit growth in both APAR and spend and expense. APAR core revenue grew 12% with subscription ARPU increasing by 3.7% year-over-year. Core ARPU grew 4.1% year-over-year, an acceleration of more than 300 basis points from the prior quarter. In the direct channel, core ARPU growth from recently acquired customers accelerated by 800 basis points sequentially as we continue to focus on acquiring higher quality customers. Unit retention for our ideal customer profile has now improved for five straight quarters. In Q1, we added approximately 3,000 net new customers at the high end of our guidance range for the quarter. APAR transaction revenue was $137.7 million of 12% year-over-year. We saw very strong TPV in Q1, exceeding our expectations by almost 250 basis points. This came from a combination of both strong ACH and a significant improvement in ad valorem volumes. Ad valorem TPV grew in high teens driven by strong virtual card performance. This TPV mix resulted in APAR take rate of 16.2 basis points, which expanded by 0.2 basis points, slightly ahead of our expectations. TPV on a same-store sales basis grew 7% year-over-year, representing a sequential acceleration of one point and the highest since Q1 FY23. Almost all sectors experienced better growth than last quarter. Particular areas of strength included manufacturing, administrative services, and information technology. We saw lower spending in wholesale trade and healthcare. Customer spend to AI businesses increased over 30% year-over-year in Q1. In addition, on a same-store sales basis, spend to and from AI businesses contributed 1% point of overall 7% growth in this metric. Payment volume to or from the Forbes top 50 AI companies on bill grew more than 200% year over year in Q1, with nearly 40 out of the 50 active on our platform this quarter. In spend and expense, Q1 net revenue totaled $92 million, up 22% year over year, outpacing card payment volume growth of 12% year over year. We saw strength in software and health services, which was partially offset by softness in advertising, entertainment, and business services sectors. Take rate net of rewards was 134 basis points ahead of our expectations. Rewards rate was 128 basis points down five basis points sequentially as our contract negotiations begin to flow through. Our focus on higher quality TPV combined with loss improvements continues to enhance the unit economics of our S&E solution. Turning to capital allocation, in the first quarter, we repurchased approximately $300 million of stock at an average price of $44.18 per share. 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 provide an update to the three factors shaping our near-term outlook as I had discussed last quarter. First, we are still navigating through the changes that resulted in a significant improvement in cost structure and operating margin profile. We see good signals already with our product velocity. Our go-to-market organization is coalescing under the new structure and unified single platform sale. Nonetheless, there are still some adjustments regarding our new assignments and incentive plans that are in the process of being implemented. Second, on S&E, we remain cognizant of a dynamic environment regarding card acceptance. Additionally, we are still working through the process of taking proactive commercial actions on certain high reward tiers and contracts. Third, as Rene noted last quarter, we are concentrating our embed channel on the new embed 2.0 platform. We continue to expect to move away from custom 1.0 solutions we built for small number of bank partners. We anticipate that this phenomena will also create headwind to our overall customer count. I will now detail our guidance that incorporates the factors I just articulated for our second quarter and fiscal year 27. For fiscal Q2-27, we expect total revenue to be in the range of $353 to $363 million and core revenue to be in the range of $315.5 to $325.5 million, reflecting 10 to 13% year-over-year growth. Here are a few key assumptions that underpin our Q2 revenue guidance. First, on volume, we expect APAR TPV volume growth to be approximately 12%. Spend and expense volume growth faces a tough compare from Q2 last year, resulting in expected volume growth to be approximately 10%. Second, turning to monetization, we expect APAR take rate to decline by approximately 0.4 basis points from Q1, and S&E net take rate to be slightly lower. Both reflect typical seasonality. On the bottom line, for Q2, we expect to report non-GAAP operating income in the range of $112.5 to $117.5 million. We expect non-GAAP EPS to be between 97 cents and $1.01. These EPS figures are based on a fully diluted share count assumption of approximately 101 million shares. Turning to full year guidance, for fiscal year 2027, we now expect total revenue in the range of $1.4 billion to $1.5 billion, reflecting 10% to 12% year-over-year growth. We expect core revenue in the range of $1.28 billion to $1.31 billion, reflecting 11% to 14% year-over-year growth. Our guidance reflects the assumptions I mentioned earlier. Turning to the bottom line, for fiscal year 27, we expect to report non-GAAP operating income in the range of $466 million to $486 million, which represents a non-GAAP operating margin of approximately 33%. This implies an ex-float operating margin expansion of approximately 1,000 basis points year over year at the midpoint. We expect non-GAAP net income in the range of $409 million to $425 million, which and non-GAAP EPS to be between $3.99 to $4.15, representing 47% year-over-year growth. These EPS figures are based on a fully diluted share count assumption of approximately 102.5 million shares. This includes dilution of approximately 12 million shares from our two outstanding convertible notes. Gap profitability is now a key focus for Bill and we are raising our full year outlook. We now expect more than $180 million of gap profit in FY27. This includes stock-based compensation of approximately $185 million. Because of our move to net revenue reporting, we are now framing our stock-based compensation target as a percentage of total net revenue. On that basis, we expect SBC to be 13.5% in FY27, down from 17.6% in FY26 on an apples-to-apples basis. Q1 was the first full quarter after the big changes in our structure and strategy, and it delivered clear proof points. We are confident and realistic about the journey ahead. The full benefits of our new go-to-market model, our actions in spend and expense, and and the new product experiences will show up in results over time. The foundation is in place, a durable business model, a leaner organization and an integrated platform serving a large market. We are executing with discipline and we are excited about our path to sustained profitable growth. And now we'll open up the call for Q&A.

We will now begin the question and answer session. Please limit yourself to one question and one follow up. If you'd like to ask a question, please press star one on your telephone keypad. To withdraw your question, press star one again. Please pick up your handset when asking a question. And if you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from Chris Quintero with Morgan Stanley. Your line is now open.

Hey, Rene. Hey Rohini, thank you for taking the questions and congrats for the nice execution here. Rene, you mentioned you're making some changes around sales incentives that's going to roll back in Q3, I think you said. But maybe could you give us a bit more color on what some of those changes are and the rationale and what you're trying to solve for there?

Yeah, sure, Chris. Good to hear your voice. And thank you for acknowledging the quarter. So I think, you know, when we talk about that, we've mentioned that we are very focused on multi-product adoption and having our customers be aligned on buying the entire portfolio, if you will. So an AP customer should be taking on S&E, an S&E customer should be taking on AP. We've had some early experimentation, if you will. In prior quarters, we saw good success there. It has driven strong multi-product adoption. And so we have a training that's happened across the entire sales team now to make that a reality for customers as they come in. And so the sales incentives that we're talking about is aligning the compensation plans to make sure they're incented on the right things to drive the important things for the business. So some of this, we've already done some of the changes with respect to the move to net revenue, but we have more work to do on the multi-product and we expect that to roll out in Q3.

Got it. Very helpful. And then in terms of the guidance, It looks like Q2 is what you're calling for, a growth trough here and a little bit of improvement in the back half of the year. So just curious what gives you the confidence in that improvement in the back half.

Yeah, I'll start and let Rohini, you know, add. I mean, I think the first thing on Q2 is that the year-over-year compare is a tough one. Q2 last year was exceptionally strong with the holiday season. And so, you know, we kind of, you know, are factoring that into just the fact of the way the math works. We also know that we're, you know, not done with all the restructuring efforts. And, you know, by that, I mean, you know, the teams are still adapting and adjusting to the AI-native approach and incentives across the So there's just a number of things that, you know, from a restructuring perspective, we made a lot of significant progress on aligning the company on the goals moving forward. And now the execution of making all those things become reality is something that we're working on. So Rohini, anything else you'd like to add?

Yeah, I would just, I think you captured everything. from the AI onboarding improvements, the adoption of AI tools. We are seeing some very early results of those AI agents actually pre-post driving a little more stickiness with our customers as well as TPV. We're not right now sharing specific outcomes because we only see more periods where it rolls out, but there are some really good green shoots there from a product side. And as Rene said, from the GTM side, As we complete the transformation by the end of this calendar year, the back half should start to with new people in their seats. They're fully trained and now full quota coverage as we bring in the new salespeople. We expect to start to see momentum.

Excellent. And great to see all the product philosophy there. Thanks for taking the questions.

Thank you, Chris.

Your next question comes from the line of Tianxin Huang with J.P. Morgan. Your line is now open.

Hi, thanks so much. I'm just curious with the restructuring. I know there's a lot of moving pieces. Are you achieving the net savings that you intended to get to at this point? I guess six months out, maybe one quarter post implementation. And I'm curious also with some of the product velocity. I know, Rene, you mentioned five products in the Visa deal. on the partner fund. Do you feel like there's more to come in terms of product velocity improving? Where are you in the pacing there? Thanks.

Yeah, thank you, Dinjin. I'll start, and again, I think Rohini can add some more color The first thing I would say is that this was a significant amount of change, a material amount of change across the company. We demonstrated in Q1 the strength of the business and durability of the business to be able to produce the results we did. Thank you so much for having me. was to align all of the payments and all of the front-end experiences under one product leader, and that's Mike Cieri, and super excited about the work that his team is doing. We also brought in Eric as our CTO, and the combination of the two is driving more product velocity. I would say both of them feel like they would say that we're kind of in the early days of the capabilities that they're testing out with the teams, and we have a lot of confidence that we can drive more in the future. So, Excited and look forward to what we'll be able to do in the rest of the year and excited about what I'm seeing from an AI native experience, you know, from the teams, you know, vast majority of our code now obviously is being written from an AI perspective. So we have a lot of tools to unleash and the super excited about that. I'll let Rohini kind of take the first part of your question.

Nice to hear your voice again. So regarding OPEX, you would see in our numbers that from Q4 to Q1 fiscal, we saw a pretty material drop in our OPEX. And we had guided to the savings that we anticipated, but we beat our operating income guide for Q1 by about $22 million in total, out of which approximately half came from OPEX. So we actually fairly over-delivered in terms of the OPEX outcomes within Q1. But also want to clarify that I wouldn't expect that to be our new baseline by any means because we exited post-material restructuring. We had talked about how we cut in a little bit deeper in certain areas to be able to bring the right skill sets and such. So we have a little bit of backfill opportunity that we need to execute. And then additionally, we're putting out a lot of product in the marketplace and we want to lean into that product releases by putting marketing behind it so that the customers actually see those product releases and the benefits of it. So there's going to be some uptick in the marketing spending and then the usual run the business cost increases through the year which will include the merit increases, payroll tax resets and the normal software cloud AI type of increases. So I would say that Q1 was more than what we expected and then we're going to start to normalize into the back half.

That's good detail. Just on my follow-up then very quickly, I think, Rohini, you mentioned you saw lower fraud costs there. I'm curious if that's structural. Is that Bill being a little bit more careful? What are you seeing there on the underwriting side and fraud side?

Yeah, Tinjan, if you look at the environment with AI and everything else, the incoming fraud pressure continues to increase. And all the work that our risk teams are doing now with fewer resources but much higher use of AI models or AI in their models, we are able to prevent a lot of that and continue to show the trajectory improving sequentially quarter over quarter on our fraud and loss performances. Now, we saw, I think, approximately 2 million or so improvement versus what we had expected in Q1 from fraud credit losses improvement, but that's really driven by not us doing anything with the funnel, but more so just improving how we control the losses coming through and catch them before.

One thing I would just add is we have a pretty massive amount of data to actually train the AI that actually does this work, and I think You know, we mentioned in the prepared remarks that we have over 100 agents inside of our risk teams that are actually doing this work and helping us become more effective. So, you know, we're obviously, you know, have a strong position from a platform perspective and we have a strong position from a capabilities as we leverage the knowledge that we've learned into the AI capabilities that are available. Great. Thanks. Thank you, Tinjan.

Your next question comes from the line of Ken Suchowski with Autonomous Research. Your line is now open.

Hey, good afternoon. Thanks for taking the question. I wanted to ask on spend and expense, just the rewards rate stepped down to the, I think it was 128 you mentioned. Some of that was contract renegotiation starting to flow through. And then at the same time, I think on our math, gross take rate ticked up to, I think it was 262 basis points from 260. Just walk through how sustainable both of those are, meaning is there more to come on the rewards side as you work through the higher rewards tiers? And then on the gross take rate side, is that lift mix or is it pricing? And then just any commentary on the underlying KPIs, because we noticed the growth slowed a little bit on the net ads side as well as the TPV side. Thank you.

I can start and then Rene, if you want, you can add more color. So starting out on the S&E business overall, I want to repeat some of the metrics that we posted for the quarter. So in Q1, our TPV grew about 12%. Our net revenue grew at 22%. and the rewards rate grew at 9% and this 9% is actually less than half of revenue growth and three points lower than TPV growth which really points to very strong quality of TPV coming in to Q1. We've been implementing a lot of changes in the go-to-market motions, how we think about contracts within S&E space and how do we make this business grow in a profitable and durable fashion and Some of the compensation changes that we laid out this quarter, especially on the post-sale side, very quickly started to show results. It's actually really impressive how quickly the teams were able to adapt to the new structure and start to execute. and we're seeing extremely high quality TPV come through. Having said that, there has been in Q4 some disruption in roles that people are playing, the quotas they have. They have to start kind of making new relationships and going to new sets of customers. So we will expect the customer counts on S&E to continue to improve from here on and the TPV to start growing. But, you know, we do also in Q2 face a little bit of a tougher comp. So we are adjusting the guide for that. but overall, I'm actually really happy with the quality of DPD delivered in Q1.

And the only thing I would add to Rohini's comments is that the deliberate actions we took across the business obviously have an impact. And I think we all know that. But the restructuring and the changes and losing, obviously, some sales folks. Now we're retraining new people and they're in seats and they're starting to get active. So I think the opportunity for us, and that's why I called out that the results we had in Q1, I think all of us, I feel very, very proud of the team. because we were able to deliver it. We do know that the restructuring is not done. We have a lot of work to do when it comes to enabling our teams to continue to have the alignment that they have as well as to leverage the capabilities and the new comp plans and all the things that Rene's mentioned. So I think we believe in the market and believe there's a lot of opportunity in front of us.

Yes. And just on that restructuring point, I mean, I think just in terms of how it relates to APAR net ads, Obviously, putting up good numbers, 3,000 net ads in the quarter. I think that's at the high end of the range that you framed previously up from last quarter as well. Is 3,000 the right sort of run rate for the rest of the year? Is there anything that would drive that higher or lower from here? Thank you.

Ken, let me actually, again, put a little bit of this in context. So we are focused on driving what we believe is our growth algorithm, which includes the customers and the ARPU. We talked a little bit about in my prepared remarks about ARPU, which grew 4.1% year over year. And then as a reminder, we are really focusing our sales teams to go after the ICP that we have defined, which is about 20 to 250 headcount businesses. And as we hone in on this ICP, We would look at probably a rough range of 2,500 to 3,000. That seems appropriate. We have some initial proof points, like I mentioned, 800 basis points of acceleration in the first quarter of delivery from our new direct customer ads. So that will continue and that will be balanced in the short term. with the range that I just mentioned from a net ads perspective. Over the midterm, we have a lot of actions like AI-led products with AI onboarding, the new product-led and marketing-led motions. As they start to kick in over the midterm, we'll see that number start to tick up.

Okay. Thanks, Rohini. Thanks, Rene. Thank you. You're welcome.

Your next question comes from the line of Andrew Schmidt with KeyBank Capital Markets. Your line is now open.

Hi, Rene. Hi, Rohini. Congrats on the progress here. It's good to see. Maybe just to start off with a question on this cash flow. Obviously, with margins stepping up, free cash flow should start to ramp pretty meaningfully. Obviously, this year, there's probably some transformation-related expenses, but is there a way to think about free cash flow conversion or growth over time? I think it becomes more important, especially as the margins start to pick up here. Thank you.

Yeah, I can take that question. So thank you for that very important top of mind, you know, free cash flow metric as we continue to improve GAAP profitability, as we continue to improve the operating income and the discipline within the company. So in Q4 and in Q1 this year, we had some volatility in terms of the restructuring and the payouts of the restructured employees and such happening. There are some dynamics that are disrupting the natural flow of, how would I say, free cash flow to revenue ratios. But as we go forward from Q2 onwards, we'll start to talk a little bit more about that in a more stable format. So stay tuned for that.

Got it. Thank you for that. And then, Rene, you mentioned AI benefiting the virtual card acceptance process, routing, identifying Thank you, Andrew, for the question.

You know, just stepping back, kind of similar to the risk commentary ad, the platform we have, the size and scale and the reach that we have enable us to actually learn a ton about what suppliers need and want, and we are executing on those learnings. And so what you saw with VirtualCard is us understanding the need for straight-through processing, us understanding, you know, how do we identify them to quickly help them get a faster payment. And I would say on supplier enablement, we have a number of things that we are doing on this front. You think about the SPP product, the supplier payments plus, this is a lot about enabling for very large receivers of payments from billed customers. If you think about the scale that we have and the ability to kind of go in and talk to the largest receivers in our network, it makes a difference. And what we mentioned in the quarter is that we have suppliers from All different professions, verticals coming on. It's because of the enablement we have on that side. Now, that's just the payment piece. The other thing that we do on the supplier enablement is what we've done with the W-9 agent. So the W-9 agent goes out and collects the needs for Thank you, Rene. Appreciate the comments. Thank you, Andrew.

Your next question comes from the line of Darren Peller with Wolf Research. Your line is now open.

Darren Peller All right. Thanks, guys. You know, we were pretty impressed by the seven points of Avilarm TBV acceleration, especially on the outperformance of what we were seeing in virtual card. You know, just when you put it into context over the past few years, VC has been a bit more of a headwind. So it sounds like this growth factor might have reaccelerated. Is that the right way to think about it? And how does that change your plans around SPP, if anything? Just curious, a little more context and color there would be helpful.

Thank you, Darren, for the question. I think this really is a testament to the team and just working and learning what it is that suppliers need and really the straight-through processing. We have some partnerships there. We've done some work internally. That has been something that's super important. One of the things I probably should have mentioned earlier Thank you. Thank you. and one of the things that they heard is that it's too hard for customers to log into a portal and then put in a card. And so what we've done now, we are the first to pilot this, is we've enabled our customers to authorize a payment, could be on their mobile phone, could be in the web app, doesn't matter where, as soon as they authorize it, the Visa agent will take over and make sure that that payment is executed without anybody and many more. More accurately using AI. That's the third example. There's a lot of opportunity. It all takes a platform and the size of data that we have to be able to make this successful. And I think the teams are doing, like I said, a very strong job at executing.

Yeah, that's great to hear, Rene. Thanks. One quick follow-up. We joined your product demo today around your new AI offerings, some of which you also listed here. So it's exciting to see those. But Help us understand when we can actually meaningfully see a benefit to your, whether it's revenue or some of your KPIs, and just change your way of thinking of pricing or packaging at all.

Yeah, I mean, I definitely, in some ways, I mean, AI changes everything. But if you think about running a business, it always comes down to kind of two things. You got to add customers. You got to have a good price per customer. We think of AI applying in both of those cases. With respect to adding customers, the AI onboarding that we talked about is super important. We think that's something that's going to streamline the adoption, if you will, in the early days and actually reduce the attrition that we see and actually increase retention from those early customers. We have a very, very large funnel, and this gives us an opportunity to really leverage that. I would say that the other part of the funnel that we're focused on is, and Rohini has mentioned that we're going to be investing in marketing, is as we roll out the AI capabilities, we are going to be spending behind our marketing efforts or go-to-market efforts to really make sure customers know what it is that we do. Just like the demo show that you attended today, we've got to do obviously more of that and reach customers where they are and help them understand the strength of capabilities that we've built at Bill. So that's a second thing on kind of the overall customer adoption piece. But the other side, which I talked about, is adding revenue per customer. And so the multi-product adoption, which we've talked about a lot, we've talked about it from a sales go-to-market perspective, some of that's going to come from AI. Some of that's going to come from us making sure that we understand what it is that customers need and want. And some of that's going to be product placement, product-like growth across the portfolio of payment products we have. That will drive revenue for us. And so when we think about all the opportunities that we have, the first thing that we want to focus on is driving customer adoption. Then we want to drive, obviously, the revenue per customer. And we would say the combination of these two is what we call at-scale monetization because we have such large size and scale. Once we get those two working together, every point of difference makes a meaningful impact in real time to our business. So that's the first thing we're doing from an AI perspective. That said, all these other agents that we have worked on, and there are obviously a number that we've talked about over 200,000 customers today having used our agents, and there'll be more agents that we put out there. We know that there's an opportunity as we execute on those agents and deliver the value for our customers that there's an opportunity to drive pricing opportunities there. And so what we believe is that as we do this, we'll be able to execute this going forward.

Very good.

All right. Thanks a lot, Rene.

Thank you, Darren.

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

Hey, guys. I wanted to ask about the really nice same-store sales, TPV. I think you said 7% highest in four years maybe. Obviously, tons of headlines around interest rates, health of businesses, inflation, et cetera. So maybe you could talk more about what's driving that really strong same-store sales growth. How specific is this to Bill because of the good product velocity you're seeing and vertical exposure? Or is this maybe more macro trends that you're benefiting from? And then just any way to think about what is embedded in the guide from a same-store sales perspective?

Thank you for the question. I'll take a stab at it and then Rene, you could jump in. And so I want to start out by saying, yeah, we're really pleased with the same store sale number of 7%. And again, I think I've mentioned this before. What I really like about the bill portfolio is it's very diversified. And under the very diversified portfolio, we see a lot of puts and takes and some of the headwinds that you mentioned. There are some industries and sectors that see that headwind, but then we have a bunch of others that could be led by AI spending or ancillary areas like construction or some of the IT technology type of spend that continues to grow within our portfolio as well. And couple of areas that we are seeing the impact of inflation on are wholesale, retail, etc. that are, you know, not going as fast. So I would say because we are the sort of a horizontal player and have a very diversified portfolio, we do end up seeing healthy growth rates with sectors offsetting each other. And as as per the, you know, what is baked into the guide. So I would expect, you know, a little more than 5% going into the remaining part of the year, which is kind of in line with how we're thinking about TPD trends as well.

And the only thing I would add to Rene's comments is I think probably close to about a year ago we started talking about our Thank you so much for joining us.

Yeah, I actually missed that comment. And that's primarily, I think, from an internal side, what we are doing is the mix into higher ARPU customer is rapidly evolving. And most of the attrition that we see is in the lowest ARPU categories. So you can see the overall composition of our customers get stronger every quarter.

That's great color and bleeds into what I wanted to ask about next, which was ARPU. You saw acceleration both in core ARPU, I think 300 basis points, larger cohort 800 basis points. Obviously been a huge focus for you, but how should we think about the sustainability of that acceleration in ARPU through the remainder of the year? Just kind of talk about the runway you have to keep pushing this higher, especially as you continue with that move up market.

Yeah, we talk about ARPU in a couple of different contexts. One is the subscription and one is the total. The bigger price for us is really the total ARPU. We bring in customers and we monetize them through all the different products that we have. So Thank you so much for joining us. The other point that's adding to ARPU growth is our success with MPA

So if you think about the multi-product adoption, one of the things that we see is cross-sold customers have a little over 2x the TPV, and the ARPU for joint customers is around 1.4x. So these are things that's just why our strategy is what it is. We think there's a lot of opportunity with product velocity that we have, the go-to-market changes that we have, that we'll be able to continue to drive this type of adoption throughout the year.

Thanks for all the color. Thank you, Nate.

and we've reached the end of the question and answer session. I will now turn the call back to Rene Lacerte for closing remarks.

Thank you everyone for joining the call today. During the quarter we made meaningful progress on our restructuring efforts in becoming an AI native company. We are excited by the progress and know we are not done. We look forward to updating you on our progress in February. Thank you and have a good night.

That concludes today's conference call. You may now disconnect.