Bill.com Holdings Inc
NYSE:BILL
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Bill.com Holdings Inc
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Good afternoon. Thank you for attending the BILL's Fiscal Fourth Quarter 2023 Earnings Conference Call. My name is Sierra, and I'll be your moderator for today's call. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end.
I would now like to pass the conference over to Karen Sansot, Vice President of Investor Relations at BILL. Please go ahead.
Thank you, operator. Welcome to BILL's fiscal fourth quarter and full fiscal year 2023 earnings conference call. We issued our earnings press release, a short time ago and furnished the related Form 8-K to the SEC. The press release can be found on the Investor Relations section of our website at investor.bill.com.
With me on the call today are Rene Lacerte, Chairman, CEO, and Founder of BILL; and John Rettig, Executive Vice President and CFO. Before we begin, please remember that during the course of this call, we may make forward-looking statements about the future operations and results of BILL that involve many assumptions, risks, and uncertainties. If any of these risks or uncertainties develop or if any of the assumptions prove incorrect, actual results could differ materially from those expressed or implied by our forward-looking statements.
For additional discussion, please refer to the text in the Company's press release issued today and to 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 the reconciliation of GAAP to non-GAAP financial performance and additional disclosures regarding these measures. At times, during this call, we will discuss BILL's standalone results which exclude our Divvy spend and expense management, Invoice2go accounts receivable, and Finmark financial planning solutions.
Now, I will turn the call over to Rene. Rene?
Thank you, Karen. Good afternoon, everyone. Thank you for joining us today. Before diving into our business results, I would like to share my thoughts on the awful disaster in Maui. I was in Maui just one mile north of the fires in Lahaina when it happened. During the fires, it was scary on so many levels, mostly because of the lack of communication that played all of West Maui. Waking up Wednesday to hear the stories of destruction was devastating.
Talking to the Hawaiians who knew they had lost all of their possessions and were unsure they had lost their friends or even worse family members was overwhelming. And then leaving on Thursday and driving through the war zone not just seeing the scorched earth but smelling it. It is something I will never forget nor should any of us.
Well, Lahaina is at the heart of the beautiful people of Hawaii. All of the Lahaina artifacts to remind us of the heritage have been lost, but what not to be lost is a strong sense of community, the Aloha spirit that makes Hawaii so special.
Now is the time if you have ever felt the Aloha spirit of love, compassion and respect to give back. The Hawaiian people need to know that their Aloha spirit is going to come back to them when they need it most. Our hearts go out to the Hawaiians in the Lahaina community. We stand ready to assist our customers and all small businesses affected by these fires.
Many of us at BILL will be giving to Maui strong. Please give from your heart and let the healing begin. Thank you for your consideration.
Now onto our business results. Fiscal 2023 was a defining year for BILL. The strength of our business model and talent of our team are on full display, as we delivered our commitments to hundreds of thousands of businesses during a year filled with macro challenges and banking turmoil.
We delivered more than $1 billion in revenue and 65% year-over-year revenue growth while achieving our first year of non-GAAP profitability. Strong demand for our platform combined with our disciplined investment approach, and rigorous execution led to non-GAAP net income of $194 million, reflecting an 18% margin.
Free cash flow for the year was $157 million. We are most proud of the significant number of SMBs we empower each and every day. At the end of fiscal 2023, more than 460,000 businesses used BILL as their central hub of financial operations. We expanded our network to 5.8 million members that have originated or received an electronic payment through our platform by making it easy for buyers and suppliers to connect and transact payments, we enabled $266 billion in total B2B payment volume across our platform reflecting approximately 1% of US GDP and a significant milestone.
Our strong financial performance and significant scale are due to many factors including the messaging critical nature of our platform, the breadth of our strategic ecosystem and constant focus to solve the needs of SMBs. 17 years ago, BILL was founded with the mission to make it simple for SMBs to connect and do business.
We created a category as we set out to help businesses automate their financial back office. Early on, we knew it was important to partner with an SMBs most trusted advisors to develop the market. That is why we built an ecosystem that strategically integrates with accounting firms and the top banks in the country. Driving success for our entire ecosystem is core to our DNA. Together with our partners, we can serve SMBs at a much faster pace.
We have big ambitions. Today, we serve hundreds of thousands of SMBs, but we want to serve millions more. There are 30 million small businesses in the US and 70 million globally. The majorities still use manual paper-based processes to manage their financial back office.
There is a vast opportunity to help these small businesses automate their financial operations to gain better insight to the company manage their business and cash flow and easily transact trillions of dollars of B2B payments. As the creator of this category and with our leading platform, payments expertise, large network, partner ecosystem, and scale we are uniquely positioned to capture these large greenfield opportunity.
A great example of how we help companies reimagine their financial operations and create efficiency as Talbott Farms. A 100-year-old family farm in Colorado known for sweet Palisade Peaches. Desiree Schuman, bookkeeper of Talbott Farms said, we previously received invoices in the mail and we would manually enter them into our accounting system, and need to print and mail out cheques. BILL's accounts payable and spend management solutions changed how we do our finances. I can improve BILL's on the go and have real-time visibility. I save on average two hours a day, which is particularly important during our busiest seasonal harvesting time.
Our large-scale two-sided network serves as a key pillar for frictionless connections and secure payment transactions. It frees our AP and AR customers from the need to share bank information with each other. It acts as a payment choice switchboard enabling both customers and network members to choose their preferred method of payment.
Our network doesn't require a subscription, as accounting software agnostics and even worse when businesses don't have a general ledger system. With its ease of use, tens of millions of transactions flow through our network each year. This creates a valuable data asset that we apply our AI engine too which enables us to develop better user experiences such as auto-matching customers, and suppliers, auto-populating invoices, no matter how they are received, managing risk and providing payment and funding choices for customers and network members.
An example of how network members benefit from our platform and manage payment choice is Chariots of Fire Transportation, a business that provides door-to-door transportation services to seniors, and disabled adults and use clients include medical, nursing, and rehabilitation centers.
Chariots of Fire uses Excel as their accounting system. [indiscernible] the owner said, everyday our drivers help many people get to the important places, they need to go. We process lots of money coming in and going out. Since we pay our drivers daily we need our money from customers quickly. BILL's instant transfer helps us a lot by getting paid instantly instead of waiting a few days we can better manage our cash flow and pay drivers quickly.
This is a great example of how the power and flexibility of our two-sided network and suite of payment choices help SMBs strive. Our diverse and broad ecosystem enables us to efficiently reach small and midsized businesses. BILL is trusted by more than 85 of the top 100 accounting firms and the largest banks in the US including Bank of America and JPMorgan Chase who all put their brand on our platform to serve their customers.
Payments are complex and our partners trust us to do payments on their behalf given our deep expertise. Over 7,000 accounting firms, use our platform to provide financial automation, bill payment and client advisory services forecast to their clients. Our platform empowers accounts with a purpose-built console to collaborate with their staff and clients across multiple workflows, enabling them to be more strategic and serve more clients.
GRF, an accounting firm based in Washington, DC is a great example. Elinor Litwack partnered GRF Outsourced Accounting and Advisory Services said, in an environment where automation is crucial to success of any business, BILL remains a key ingredient in the growth of our accounts practice with roughly 90 clients on our BILL console, we are able to centralize billing selection, staff assignments and bill implementations.
Transferring new clients to our BILL console or creating a new BILL instance for them is a breeze and allows us to cross that big piece off of our onboarding checklist with ease. We've onboarded dozens of new cash lines over the past three years and our practice has doubled in size. Our partnership with BILL is a critical component of our infrastructure and continued growth.
Before I lay out our fiscal 2024 priorities, I will recap our fiscal 2023 accomplishments. At the start of the year, we set our priorities were to develop a unified platform experience, further scale our ecosystem and drive innovation and adoption of our payment solutions. We take our commitment seriously and have accomplished all of these objectives.
We laid the foundation to launch a unified platform experienced this fall bringing our accounts payable and spend and expense management solution seamlessly together. Our tightly woven solution with consolidated insights and unified data enables businesses to manage more of their financial back office in one place than ever before. In parallel, we built our cross-sell plans and capabilities for the unified platform launch. We consolidated our sales teams across channels, created single customer identities, and pre-approved many customers for spend and expense management credit lines.
We developed cross-sell plans that encompass in-product discovery, marketing campaigns, partner enablement, and direct sales outreach. In addition, we acquired Finmark to span our solutions to include financial planning and analysis tools. This is an important step towards evolving our platform to empower SMBs with greater insights to run their business and manage their cash flow. In fiscal 2023, we expanded our distribution ecosystem by acquiring new partners and strengthened our existing partners by bringing more solutions to their customers.
For example, in our financial institution channel, we extended our agreement with JPMorgan Chase Commercial Banking's Cashflow360 powered by BILL for another five years and expanded it to include additional payment capabilities.
With Cashflow360 JPMorgan Chase Commercial Banking clients connect digitally with suppliers, vendors, and BILL network members to automate invoicing, approvals, payments, and reconciliation. Customers can choose from a variety of payment choices today including ACH cheque and virtual card.
We are in the process of expanding our relationship with Bank of America to serve more of their SMB customers. Given the success of our solution and serving their new small business customers, we are now working together to extend our solution to serve their much larger installed base of SMB customers.
We have started investing behind this exciting long-term initiative. The growth in our relationship with BofA speaks to the strong value proposition of our solutions, deep expertise in payments and the collective success of our strategic partner ecosystem today.
Turning to the accounting channel. We acquired many new partners and now serve approximately 7,000 accounting firms, up from 6,000 a year ago. We continue to enhance the tools we provide accountants to manage their clients. With simplified workflows, more comprehensive reporting and integrated accounts payable and spend and expense management.
Now moving on to our agreement with Intuit. Our co-marketing and embedded BILL pay agreement expired in June. The customers served through this partnership represented less than 1% of revenue during fiscal 2023. We believe there is a much stronger opportunity for BILL to serve micro and small business directly and through our strategic partner ecosystem with banks and accountants.
We will offer them a richer experience with our defining platform that has a broader suite of workflow and payment capabilities. Delivering payment innovations and increasing ad valorem payment adoption has been an important priority for BILL and we made significant progress in fiscal 2023.
By providing choice and helping customers and network members find the best solutions for their needs, ad valorem penetration, excluding the FI channel, expanded to 13% of our payment volume across solutions, up from 10% a year ago.
Our easy and secure payment experience drives growth in our network members now at 5.8 million, up from 4.7 million a year ago. We expanded our ad valorem solutions by broadly rolling out pay-by-card and BILL balance and introducing a beta version of invoice financing to a select group of network members. We are continuing to test the solution and will make it available to more businesses in fiscal 2024.
Our large data asset and risk management expertise provides us a competitive advantage to serve SMBs with working capital and cash flow solutions.
Looking ahead to fiscal 2024, we are prepared to operate in a constricted macro environment while executing our top priorities. Our overarching goal is to help small businesses thrive by providing the tools and insights they need to efficiently and confidently manage their financial operations and cash flow.
In support of this goal, we have set out these three top priorities for fiscal 2024. First is to drive adoption of our integrated financial operations platform that empowers SMBs to easily manage their AP and spend and expense operations together. Second, we will expand our ecosystem by bringing more innovations to our partners and attracting new partners; and third, we will continue to enrich our payment experiences and drive penetration of our ad valorem solutions.
In closing, we delivered a strong defining year as we surpassed more than $1 billion in revenue and achieved meaningful non-GAAP profitability. This threshold is a reminder that we have built and are building a new category around financial operations for SMB. We are the leader and continue to innovate across our platform and ecosystem. We've built this category to bring automation, efficiency and insights around the underlying financial operations that make any business tick.
For most of our existence, no other company was doing let alone thinking about how to help SMBs on this front at scale. Our mission has just begun, and we will continue to innovate across our platform and ecosystem of customers, partners and suppliers to serve more and more SMBs.
We want to thank our customers, partners and employees who are on this journey with us to help SMBs change the way they do business.
Now I'll turn the call over to John to talk in more detail about our quarter.
Thanks, Rene. Today, I'll provide an overview of our fourth quarter and full fiscal year 2023 financial results and discuss our outlook for the first quarter and full fiscal year 2024.
We achieved significant financial milestones in fiscal 2023 while investing to expand our category and extending our lead in serving the financial operations and B2B payment needs of SMBs. Revenue exceeded $1 billion, and we were meaningfully non-GAAP profitable and free cash flow positive for the year.
Total revenue for fiscal 2023 was $1.058 billion, reflecting 65% year-over-year growth. Core revenue was $945 million and increased 49% year-over-year. Annual revenue growth for our BILL stand-alone platform and our Divvy spend and expense management solution was 40% and 69%, respectively.
Float revenue was $114 million. Float revenue is an important part of our business model as it gives us the opportunity to invest in our platform and payments innovation and expand our ecosystem through economic cycles. We made significant investments this past year while delivering our first year of non-GAAP profitability.
Non-GAAP net income for the year was $194 million, reflecting an 18% margin and free cash flow was $157 million, representing a 15% margin. Importantly, we also delivered profitability for the full fiscal year on a non-GAAP operating income basis, excluding the impact of float revenue. This demonstrates the progress we have made, efficiently scaling our non-GAAP operating expenses. BILL's durable business model, combined with excellent execution drove these strong results as we carefully navigated macro and banking turmoil challenges.
Now to a few highlights of our Q4 results. The headline is that we delivered strong and profitable growth. Total revenue was $296 million, up 48% year-over-year. Non-GAAP gross margin was 86.9%. Non-GAAP net income was $69 million or 23% of revenue compared to a non-GAAP net loss of $3 million a year ago. In addition, we generated a free cash flow margin of 25% in Q4.
Our strong financial performance in Q4 was achieved despite macro headwinds as SMBs continue to moderate their spend during the quarter. In Q4, our TPV results exceeded our expectations, but also showed a continuation of our customer base scaling back spend compared to a year ago. TPV per customer, excluding financial institution channel customers or FIs, increased 4% quarter-over-quarter. However, it declined 5% year-over-year, demonstrating that SMBs are still facing macro pressures.
SMBs use our platform as the center of their financial operations and engagement with our platform remains strong. For example, on our BILL stand-alone platform, excluding FIs, the average number of transactions per customer was 76 in fiscal Q4, up from 74 in the prior quarter. Our annual BILL stand-alone customer retention rate, which excludes FIs, remained consistent compared to a year ago and is at a very healthy level of 86%.
Turning to an update on our key metrics and financial results in Q4. As this is our year-end earnings call, I'll provide additional disclosures on certain metrics beyond our regular quarterly updates. We ended the fourth quarter with 461,000 businesses using our solutions. BILL stand-alone customers grew to 201,000, up 27% year-over-year. This included 5,300 net adds from the direct and accounting channels, including approximately 700 Bank of America commercial customers who migrated to our direct channel from our FI channel during the quarter.
We ended the quarter with 61,600 customers in the FI channel, which declined approximately 2,200 quarter-over-quarter. The decrease was primarily due to the sunset of our legacy platform for BofA's commercial customers which impacted approximately 6,000 FI customers.
For our Divvy spend management solution, we ended the quarter with 29,200 spending businesses, an increase of 2,100 from last quarter. At the end of Q4, approximately 7,200 businesses use both our AP and spend and expense management solutions.
Moving on to payment volume. During the quarter, we managed 69.1 billion in TPV. BILL stand-alone total payment volume was 65.1 billion in Q4, reflecting 7% growth from Q4 of last year and an increase of 7% sequentially. While this was below historical trends, TPV trends in the quarter exceeded our expectations. In addition, in Q4, we had 3.8 billion in card payment volume from our spend and expense management product, representing 42% year-over-year growth.
We experienced macro-driven changing customer spend patterns during the year leading to lower TPV growth, which is a key driver for transaction revenue growth. This directly impacts our annual net dollar-based revenue retention rate, which includes subscription and transaction fees. As of June 30th, 2023, our net dollar-based revenue retention rate was 111%, which is a great result considering two consecutive years of outsized expansion. We made substantial progress driving adoption of variable price payment products as reflected in our annually reported metrics.
In Q4, instant transfer crossed 1% of BILL's stand-alone TPV and virtual cards were 3.2% of BILL's stand-alone TPV. Cross-border payments totaled 4.7% of BILL's stand-alone TPV in Q4 with foreign currency payments representing 36% of total cross-border payment volume.
For Q4, our total variable price payments, which includes ad valorem payments transacted through our AP/AR and spend management solutions was 13% of BILL consolidated payment volume, excluding TPV from the FI channel, which is up from 10% a year ago. We believe there is a significant runway for ad valorem adoption across our solution in the years ahead.
Moving on to transaction volumes. We processed 23.4 million payments in Q4. This includes 11.6 million payments on the BILL stand-alone platform, of which 72% were electronic payments. In addition, we processed 11.4 million spend management card transactions. Total transaction revenue per transaction, which includes transactions for our BILL stand-alone, Divvy and Invoice2go solutions was $8.23, reflecting growth of 7% year-over-year. For our BILL stand-alone solution, transaction revenue per transaction was $7.88, growth of 20% year-over-year.
The gross take rate on card payments processed through our spend management solution in Q4 was approximately 265 basis points. For fiscal 2023, our contribution margin for our Divvy spend and expense management solution increased to approximately 33%, an improvement of approximately three percentage points year-over-year, driven by ongoing improvements in our credit underwriting capabilities.
Now I'll review our reported Q4 results. Total revenue was $296 million, an increase of 48% from a year ago. Core revenue, which includes subscription and transaction revenue was $259.5 million, representing growth of 33% year-over-year. Subscription revenue increased to $66.9 million, up 21% year-over-year. BILL stand-alone subscription revenue was $57.8 million, reflecting growth of 25% year-over-year driven by our expanding customer base and a price increase implemented in our direct and accounting channels during the fiscal year.
Transaction revenue increased to $192.6 million, up 38% year-over-year. BILL stand-alone transaction revenue totaled $91.5 million or growth of 33% year-over-year and Divvy transaction revenue totaled $99.9 million, reflecting growth of 44% year-over-year. Float revenue was $36.5 million. Our yield on FBO funds was 453 basis points in the quarter. Non-GAAP gross margin was 86.9%, up 2.7 percentage points year-over-year as a result of higher float revenue and increasing variable transaction fee revenue.
As discussed previously, we are expecting our non-GAAP gross margin to moderate as our payment type composition matures and float revenue tailwinds subside. For fiscal 2024, we expect non-GAAP gross margin to be in the low to mid-80s. Non-GAAP operating expenses were $214.8 million, an increase of 6% from Q3. Rewards expenses, which are included in sales and marketing expenses, were 49% of spend management card revenue compared to 48% in the prior quarter.
Non-GAAP operating income was $42.3 million, representing a margin of 14%. This was an increase of $45.5 million from a loss of $3.2 million a year ago. Non-GAAP other income, net of other expenses, was $28 million and benefited from higher yields on corporate cash and investment portfolios.
Our non-GAAP net income was $69.4 million or 23.5% of revenue resulting in non-GAAP net income per diluted share of $0.59 based on 117 million diluted weighted average shares outstanding. Our non-GAAP net income was significantly ahead of our estimates due to our revenue results combined with proactive expense management.
We ended the quarter with $2.7 billion in cash, cash equivalents and short-term investments. Before shifting to our financial outlook for the first quarter and full fiscal year 2024, I'd like to share our latest views on the impact macro conditions are having on SMBs and our business.
The spend patterns we experienced in fiscal Q4 are an indicator that the sharp reduction in spending that occurred in the second half of calendar 2022 has now moderated though our customers are still in contraction mode. The trends pointing to payment volume stabilization are encouraging, that we are expecting continued TPV headwinds throughout the year given higher interest rates, tighter credit conditions and an uncertain macro environment.
While we expect approximately mid- to high single-digit growth in TPV in fiscal 2024, we anticipate that BILL's stand-alone TPV per customer, excluding the FI channel, will decrease low single-digits percentage for fiscal 2024, compared to a year-over-year decline of 5% in Q4.
Near term, we expect Q1 to be a continuation of the trend we experienced in Q4. We also expect that near-term macro distractions will continue to impact SMBs. For the next couple of quarters, we expect BILL stand-alone net adds, excluding the FI channel, to be approximately 4,000 per quarter, excluding the impact of the expiration of our contract with Intuit.
As of June 2023, approximately 12,000 of our more than 400,000 customers used our embedded feature in Intuit's Simple Bill Pay solution. While we expect the majority of these micro businesses to churn over the next two quarters, we expect some of the larger businesses to become BILL-direct customers, where there will be an opportunity to provide them with a more advanced workflow capabilities and a much broader suite of payment solutions, including ad valorem payments.
As Rene discussed earlier, we are enhancing and expanding our solution with Bank of America to serve their large installed SMB customer base in addition to their new SMB customers. Together with BofA, we will both be accelerating our investments to address this very large market opportunity.
As a part of this initiative, we are restructuring the contractual minimums to push out subscription fees planned for fiscal 2024 to future years. While this impacts our fiscal 2024 revenue and profitability, we expect it to unlock a significantly larger revenue opportunity in the future and accelerate the adoption of financial operations for SMBs.
We believe this strategic partnership is an important step towards driving awareness and accelerating adoption of our solutions. The market is ripe for SMBs to automate and stop using manual legacy processes. We're investing in our platform and ecosystem of strategic partners to collectively capture this large opportunity.
Even with these stepped up investments, we plan to expand our non-GAAP operating income for the year. Now turning to our outlook. For fiscal Q1, we expect total revenue to be in the range of $295.5 million to $298.5 million, which reflects 28% to 30% year-over-year growth. This assumes our subscription revenue in Q1 will increase a mid-single-digit percentage year-over-year as we factor in our initiatives with BofA in our comparison to the subscription price increase last year.
We expect float revenue to be $38 million in Q1, which assumes our yield on FBO funds will be approximately 460 basis points. On the bottom line, for Q1, we expect to report non-GAAP net income in the range of $56.5 million to $59.5 million and non-GAAP net income per diluted share in the range of $0.48 to $0.50 based on a share count of 118.5 million diluted weighted average shares outstanding.
For Q1, we expect other income, net of other expenses, or OIE to be $27 million. We expect stock-based compensation expenses of approximately $70 million in Q1, and we expect capital expenditures of approximately $8 million to $10 million.
Moving on to full year guidance. For fiscal 2024, we expect total revenue to be in the range of $1,288.5 million to $1,306.5 million, which represents approximately 22% to 23% year-over-year growth. This assumes our subscription revenue for the full year will increase a mid-single-digit percentage compared to fiscal 2023 as we factor in the temporary impact related to our initiatives with BofA and the lapse of our subscription price increase last year.
We expect float revenue to be approximately $136.5 million in fiscal 2024, which assumes a yield on FBO funds of approximately 415 basis points for the year, reflecting our assumption that the Fed funds rate begins to decline at the beginning of calendar 2024.
We expect to report non-GAAP net income for fiscal year 2024 in the range of $217 million to $235 million. We expect non-GAAP net income per diluted share to be $1.82 to $1.97 based on a share count of 119.5 million diluted weighted average shares outstanding.
We expect to achieve this profitability while accelerating our investments in our platform and partnerships. In addition, for fiscal 2024, we expect other income net of other expenses to be approximately $90 million. We expect stock-based compensation expenses of approximately $300 million and expect capital expenditures to be approximately $35 million to $40 million for the full year.
In closing, we delivered exceptional financial performance during the year with multiple challenges faced by SMBs. We made significant investments in our platform, expanded our ecosystem and delivered our first year of non-GAAP profitability. Looking ahead, we are accelerating our pace of investments to unlock the significant opportunity to automate financial operations for many more SMBs.
With our proven track record of investing in organic and inorganic opportunities, we will continue to invest to pursue this large market opportunity while laying the foundation for long-term profitability. We created a category, and this is just the beginning. We are building our business and ecosystem to bring the transformative experience of our platform to millions of businesses and facilitate trillions of their B2B spend while building a multibillion dollar revenue business.
Operator, we're now ready to take questions.
[Operator Instructions] Our first question today comes from Scott Berg with Needham & Company. Please proceed.
Hi, everyone. Congrats on the nice quarter and thanks for taking my questions. I guess a couple. I don't know if Rene or John, who wants to take the first one. John, you talked about your assumptions for this year are slowing, accelerating TPV growth, which I think we understand. But your core BILL customer adds, quarterly adds guidance for 4,000 in the next couple of quarters is kind of in line with what you've seen all year. Help us kind of balance what you're seeing on the new customer adds versus the TPV because it sounds like your new customer acquisition channels continue to hum along pretty well.
Yes. Thanks for the question, Scott. We're feeling good about our levers and our ability to penetrate the market and acquire customers and retain and serve them. I think the -- some of the influences of the macro environment on SMBs today also have an influence on the timing and the rate of adopting new technology. So while I think we're well positioned to accelerate net new adds after making a transition from, I think, some changes in the market and dynamics related to macro that we saw in the December quarter, we're still sort of measured in our estimates about how fast that is going to happen. So I think the setup is good. The multichannel distribution strategy is working well. And I feel like for this year, we're confident in being able to accelerate. But it's likely the year has got to progress and the macro environment needs to resolve itself before we see any sort of outsized step up in net new adds.
Got it. Helpful. And then on the -- I think it was the BofA contract, John, you mentioned it's pushing some subscription revenues out of fiscal '24 into future periods. You certainly have good relationships with them and other bank FI customers out there, partners. But how should we think about the impact on your '24 revenue guidance with that change in the contract?
Yes. Good question, Scott. So I mean, we're actually really excited about this moment in time. We've been, I think, building towards an inflection point like this for a long time and the progress that we've made working closely with BofA has resulted in the opportunity to bring forward, working with a much larger installed base of customers versus where we've been for the last year or so, which was with the new customers to the bank. So we think the trade-off is a no-brainer, simple decision to bring forward the larger opportunity. For fiscal '24, well, I can't give specific numbers, I can say our subscription revenue estimates probably would have been in the range of 8% to 10% higher if we hadn't adjusted some of the contractual terms with BofA. But looking at this opportunity over the next couple of years, we feel really good about where this is headed.
Maybe I'd just add a comment. Yes, just a few comments on the opportunity with financial institutions, right? So in general, when we think about how adoption happens across payment products and payment rails, banks have been instrumental in making that happen over the years. They've had -- if you think about ACM credit card solutions, debit card solutions, bill pay. On the consumer side, banks have been responsible for kind of driving that adoption. And like John said, this -- we see this as an opportunity for an inflection point with adoption across the broader market, not just within the existing customers and partners we have today, but this is an opportunity for us to invest behind that, and we're super excited about it.
Thanks so much for all the additional color. Congrats again.
Thank you, Scott.
Our next question comes from Bryan Keane with Deutsche Bank. Please proceed
Hey, guys. Thanks for taking my questions. I guess just following up on the BofA contract, just understanding you gave up some near-term revenue but what are we gaining in the out years? How does -- how might the revenue inflect in fiscal year '25 or '26.
Great question, Bryan. Just to maybe continue the conversation and the comments that I just had, the opportunity that we had started with Bank of America was really to serve their new small business customers coming into the bank. We always invested behind that with the opportunity to serve their existing customers. BofA is one of the largest providers of financial services to small businesses in the country with millions of customers on their platform across the country. And so for us, this opportunity and the investment that's needed for both us and Bank of America is really to do something transformative. It's really too kind of change the way business gets done for all of their SMBs and that's something that we will invest in consistently to make happen because we've been building and defining this space, this category for a decade or more and actually 17 years to be exact. And we're going to take all these opportunities we can.
Got it. Got it. And John any comments on just looking at the organic volume take rate increase. I think it was a little less than last quarter and then kind of what to expect for take rate increase as we head into this fiscal year '24.
Yes. Thanks, Bryan. I think we've got a pretty consistent track record now of delivering expanded monetization. As you know from prior discussions, it's not perfectly linear on a quarter-to-quarter basis, but the overall portfolio is performing really well. If you think about what we've done over the last four years or so, our average revenue per customer is up about four times. It's grown virtually every quarter in the last four years. We crossed an annualized ARPU of $4,000 in this fiscal fourth quarter for the first time. And so we think the tools and the portfolio of payment products that we have that have led to that are something that's going to continue to support expansion in '24 and '25 and beyond. And I'd say, starting with our historical quarterly expansion rate is probably a good estimate, obviously subject to puts or takes from the macro environment and any influences that might have in individual payment choices.
Got it. Thanks for taking the questions.
You bet. Thank you.
Our next question comes from William Nance with Goldman Sachs. Please proceed.
Hey, guys. I appreciate you taking the question. I actually wanted to ask about the commercial partnership on BofA, the 700 customers that you added this quarter. Is that process over? And should we expect kind of further transitions of customer base in future quarters?
Thank you, William. We've got really strong adoption, not just from the customer numbers, but more from the spend that was actually happening, the bill pay that was actually happening across the platform. So the vast majority of the spend has come across already and we're already starting to see early days of ad valorem penetration. So I would say going forward, we expect the opportunity to continue to grow for BILL.
Yes. And I would just add, in terms of the transition, the sunsetting of that product with the commercial customers. We have seen the initial group migrate. That's the 700 we talked about. We're feeling really good about the revenue opportunity, probably being larger with those than the entire population previously, which was 6,000, but that transition has finished now. There could be some longer tail of new customers that come in. But for the most part, that adjustment has already taken place.
Got it. Appreciate you taking the question. And then on some of the moving pieces around ad valorem payment adoption, the 10 to 13, very nice to see. I guess what are some of the adoption trends underneath the hub that you're seeing across the different products? It seems like cross-border saw very nice adoption. You guys have talked about that. What are the trends in like instant payment and virtual card been. And we saw some relatively strong orders in this past year. Is there anything that you guys have line of sight to see an acceleration of adoption in the coming year?
I think the -- one of the more important things about the platform we've built is that we give customers choice. We give suppliers choice. We give our customers choice and all the payment products and services we offer is because we believe choice is what's actually going to make the market happen. We didn't get in to build and create something that wasn't going to actually make an impact on the world. We want to make a big impact on the world. And so the choice matters and what we're seeing is that there's lots of iteration required on the platform at scale to actually make this stuff happen. That's why we kind of say from quarter-to-quarter, it's not going to be exact, but we believe in the long-term opportunity. And what we know is that the capabilities we've already built on the platform allow us to continue to scale each of the categories of our payment rails that we've talked about. So we do feel good about the virtual card adoption. We do feel good about the international payment option. We feel good about the instant transfer adoption. We feel good about all the products and opportunities that are still to come, such as the invoice financing that we've got out in kind of alpha beta mode. These are all things that we know customers want. They need the choices out there. And I think we're just super happy that we've got a platform that can kind of scale with customers and scale with the opportunity.
Right. Thanks for taking the questions.
Thank you.
Our next question comes from Brent Bracelin with Piper Sandler. Please proceed.
Good afternoon, Rene, maybe I want to shift gears a little bit to Divvy. I mean this is been a key growth engine for the business, over 30% of the revenue. How are you thinking about the Divvy growth opportunity in the next year and are there any catalysts that you're looking at that could help accelerate adoption? Thanks.
Great question, Brent. We are super excited about pulling together and launching our unified platform later this fall, which we talked about in the script. We've been working on that, obviously, since the acquisition. In addition to having the capabilities around the product, we've also been working very hard on the capabilities to kind of go to market. And so the opportunity for us to really drive adoption of the spend and expense solution, the capabilities we have is going to be dependent on not just that go-to-market for the BILL customers that we already have in the platform, but it's going to be for the go-to-market broadly. And so this year, we expect to start shifting the focus on financial operations and obviously, all of our marketing and go-to-market will include all the capabilities we have, and we think that's important. So John, do you have anything else you want to add?
No, that all makes sense. I think we could see some, obviously, building momentum throughout the year associated with our integrated product and the attached cross-sell and go-to-market motion with that. For guidance purposes, like the estimates that we have that are embedded in our assumptions call for Divvy to have mid-30s growth for the year, which we think is something that reflects all of the moving parts, both macro and otherwise. And we're obviously going to work hard to drive the cross-sell and other upside opportunities.
Helpful color there. And then just, John, a quick follow-up on the Q1 guide itself implies a $1 million sequential increase here. That's a little below normal seasonality that we've seen in the last couple of years. Is that factoring the step down at Bank of America in subscription revenue? Or are there other factors baked into that guide? Just trying to think through the seasonality and the guide here in Q1, what we should factor in? Thanks.
Yes. Thanks for the question, Brent. That's exactly right. So there is obviously some seasonality that we believe still holds in this environment that is included in our estimates. But the more material change is an assumption around the BofA subscription revenues, and that's something that will be reflected -- is reflected throughout our FY'24 guidance. But starting in Q4 and the drop-off in Q1, I think, is where you see that change being most prominent.
Thank you.
Thank you.
Our next question comes from Kenneth Suchoski with Autonomous. Please proceed.
Hey, good afternoon, Rene and John. Thanks for thanks for questions. It's nice to see the continued adoption of the variable rate payments. I think you've mentioned recently that there are several additional areas to invest around supplier enablement to drive more adoption, whether it's virtual card or cross-border payments. There's some interesting stuff you could do in terms of passing along reconciliation data and offering choice. So can you just talk about some of the specific things that you're working on now that will drive that next leg up in terms of penetration of these variable rate payment types? And then, I guess, when can we expect some of these initiatives to be rolled out? Thanks.
Thank you, Ken. There's always a lot of things going into how we execute across creating the choice of suppliers and customers need and integrating with the customers on the platform. So I would say that the things you mentioned, there's always going to be more reconciliation capabilities for us to develop. There's always going to be more supplier matching capabilities for us to develop. We use AI to do a bunch of that, but there's more that we can do to kind of drive better connectivity and that front. When you think about international payments, which is an important part of the overall portfolio, part of this is going to be influenced by macro. If you just looked at kind of international payments in general, we see that being kind of a choppy sideways environment, has been for the last few quarters, and yet we're still making progress on our penetration. So I think some of this is going to be us continuing to execute and create choice, which is obviously one of the themes I'm hitting on here, the way our suppliers in Canada and soon in other countries will be -- are able to kind of select how they want to be paid, what currency, that's going to help that adopt. And then you have choice on how suppliers want to get paid? Do they want to get paid now or they want to get paid tomorrow. They want to get paid 30 days before the bill is paid. These are all things that we're working on and the platform has the capabilities to deliver and are something that we think creates a competitive advantage in the marketplace.
Great. And maybe just for my follow-up, I wanted to ask about TPV per customer ex-FI. And I think the expectation is for that to decline kind of low single-digits in fiscal year '24. It sort of feels like SMB spending has stabilized here. The results this quarter trended in line with seasonality. If you model out seasonality over the next few quarters, you can easily get to kind of low single-digit to mid-single-digit growth and TPV per customer ex-FI. So I guess, is the guidance on TPV per customer for SMB spend to soften from here or to hit your revenue guidance, are you relying on more take rate expansion? Thank you.
Yeah. That's Ken. I don't think we're looking at any material softening in spend. As Rene mentioned, we view it as more of like a sideways environment from here, but we still see numerous categories of spend by SMBs that are declining. Real estate is a good example of that, where there's lots of adjustments happening with the way people work and where they're spending dollars for core facilities. There's also some rebounding categories. T&E continues to be strong. Advertising seems to be coming back. So there's going to be puts and takes. We tried to estimate this based on all the information we have available. We haven't really seen in the last couple of quarters like a turnaround where it's clear that SMBs are going to be in expansion mode across all spend categories. And that's how we came up with our estimates of a low single-digit decrease on a year-over-year basis.
Okay, great. Thank you.
Thank you.
Our next question comes from Robert Napoli with William Blair. Please proceed.
Thank you. Good afternoon. I appreciate your comments on Lahaina, we spent a lot of time there. It's pretty amazing what's happened there. But thank you just -- so the Intuit relationship, just some color on that. So essentially, the relationship is ending. The contract is up and you're not going forward with them. Does that open up opportunities? I know you mentioned a little bit, Rene, that's going direct, but were you prevented from doing certain things under that contract that you're now freed up from?
Thank you, Bob, for the question. And I think the first thing that I would just kind of call out is that Intuit has decided to compete on payments, rather than partner. And so as we think about what kind of unfolds for us, there was nothing contractually that was restricting us from doing anything, but we do think that our ability to really help customers understand the benefits and the value of our platform, the robustness of it, it's built at scale. And just as a kind of a reminder here, 1% of GDP rolls through BILL. If you just step back and think about the size and scale that, that means, we're not a financial institution and yet 1% is going through BILL. This is a meaningful accomplishment and it's because of all the capabilities we have around risk, around the platform, around how we weave documents and workflow and payment reconciliation and risk decisions into one solution for our customers. And so I think -- how we think about this is that the market is maturing. There's more competitors coming into the space and we are leading, we're defining and folks are looking to us to follow, and we don't look to anybody to follow. We always are going to be leading. And then just on the invoice financing, the strategy around that, and I don't know if that's part of the incremental investment that you're making this year that you had mentioned upfront, Rene. But what is the timing of rolling out that? And will you be doing it for both BILL -- Core BILL and for Divvy? And just your confidence now that you have the data that you need to be able to roll that.
Yes, yes. I think the -- it's a great question. It's something we are excited about because suppliers, businesses, they need cash flow. One of the testimonials that we put into the script was a network member that used instant payments to be able to fund and pay the drivers because they need to pay people today or tomorrow. And we know that there's going to be demand for businesses to manage their cash flow across longer time frames. And so invoice financing gives our suppliers in our network, the choice and the opportunity to actually accelerate their cash flow and help them manage their business and make it work a lot better. And so what we've seen to date, and it's early days, but what we've seen to date is that suppliers do use the product on a repeat basis, not every time that there's a transaction that comes their way, but they do use it. And so that's something that we think is a good indicator that there's value in this solution. And now we're building out all the capabilities so that you can do it at scale. And it's one of the things that we've learned that when you move the type of money we move across our platform, that you got to be thoughtful. You got to build things carefully and you got to do it in a way that's going to enhance the capabilities going forward. And so that's where we're at right now, and we expect FY'24 will make good progress on that.
Thank you.
Thank you, Bob.
Our next question comes from Brad Sills with Bank of America. Please proceed.
Great. Thanks for taking the question. I wanted to ask about TPV per customer. John, you're guiding to or expecting low single-digit decline here. I mean before the macro, that metric was kind of in the mid-teens, high teens. So my question is, is there a path back to that type of growth if we were in a better macro. Could you just help us unpack what's driving that delta? It's a big deceleration. Obviously, there's a lot of macro here, but any thoughts on where that could trend as the macro improves?
Yes. Thanks for the question, Brad. And I think macro does influence our view of TPV per customer here. And I'd say one of the things that we work really hard at is increasing like the surface area of our platform and the share of wallet that we have like how much of the B2B spend of our customers, are we helping them with. And we know that there's a ways to go there. That's one of the drivers of increasing TPV per customer. So I think we do have some levers even before a complete turnaround in a sort of growth economy environment. But you put those two things together, down the road, including more payment types, which we know increases TPV per customer and other features and functionality that we'll build out in the platform. And we do see a path to much more meaningful growth on a per customer basis. But I'd say the short term is certainly influenced by the external environment and how small businesses are reacting to that and adjusting their spend levels.
That's great color. Thank you for that, John. And then, Rene, you mentioned some pretty exciting initiatives this year, adoption of integrated AP and spend, the partner ecosystem, ad valorem solutions, continued progress there. When you look across those initiatives, which one are you most excited about? Which one perhaps is there some low-hanging fruit where maybe we could see some upside if execution on those is kind of pulled forward.
Yes, it's a great question, Brad. And obviously you -- in some ways are going to ask me to pick my favorite child, which there are no such things, right? So -- and the reason I kind of say that is because if you were in any of the operating meetings, I think everybody on the team would think that I wanted that one to be done more important than the next one. And the reality is that they're all super important. And one of the things and our responsibilities is to make sure that we somehow do all of them and focus on all of them. And so I think the opportunity to expand the market with our ecosystem is super important. We have obviously enhanced our financial institution capabilities with the extending contract with JPMorgan Chase, going after the SMBs that BofA has. We're expanding those capabilities. You see all the strength we have in the accounting channel. But then I look at the ability for us to drive the integration of seamless financial back office when it comes to AP and spending expense. And over the -- over time, obviously, the financial analytics and tools that we're going to be bringing in from the Finmark acquisition. That is super exciting, and we hear that from customers all the time. They just want one place to do this. And so there's lots of opportunities then, obviously, on the ad valorem capabilities, which we've talked about. And I think maybe if I just step back, the thing that to me is that I get excited about every day is that we started this financial operations category, solutions set, whatever you want to call it. We started it 17 years ago. We just crossed $1 billion in revenue, which obviously is a milestone itself but we see no obstacles to this being tens of billions of dollars in annual revenue from a category perspective. And we're working hard to be the leader in that category. And so we see this as kind of similar to how payroll has become its own thing, and there are multiple players in that, and we see this as an opportunity to continue to lead and define what does it mean to think about financial operations for SMBs.
That's exciting. Thanks so much, Rene.
Thank you, Brad.
Our next question comes from Darrin Peller with Wolfe Research. Please proceed.
Hey, thanks, guys. John, maybe just to quickly start with you. If we could bridge from this year in 2023, some of the major KPIs. Just remind us of the compare between this year's factors that drove your results versus, again, just like-for-like the assumptions and guidance. Just trying to figure out how much of it was again, float income changes, how much of it again was macro conservatism that you're building in? Just your assumptions for TPV. If you could just help us parse that out. Then part of that would also be to understand the step down from Q1 growth targets of, I think, 29% of the midpoint and just the bridge down to the 22% to 23% for the full year.
Yes. Thanks for the question, Darrin. So I'd say the key trend that occurred throughout all of FY'23 was the deceleration in spend on a per customer basis for TPV. And we think that's a direct reflection of adjustments, our small business customers are making to the macro environment. It's our view, at least our assumptions that, that adjustment process is going to continue throughout all of FY'24 like until we see clear signs that businesses have turned the corner and entering expansion mode, until then, we're going to assume a more muted spend or moderated spend environment. And that's what's reflected in our numbers. That's probably the most important variable. I think we'll continue to make progress as we've discussed earlier on our monetization and things of that nature, regardless of the spend environment. As it relates to the Q1 -- Q4 to Q1 transition, the primary change there is around our subscription revenue. So embedded in our core revenue estimates are a step down in Q1 associated with the change in our contract with Bank of America. So if we look at that for the whole year, we'd be looking at high single-digits increase in subscription revenue versus our estimates earlier on the call. So that's probably the biggest change on a sequential quarterly basis.
I guess I was trying to figure out from Q1 guide versus the full year decel, I mean, I assume a lot of that is the macro factors being embedded as the year progresses more substantially in comps, right, like float income comps and whatnot.
Yes. Well, so float income, sorry, specifically to address that comment, we're assuming a yield for the full year that's lower than our Q1 yield, up 460 basis points. So we're actually anticipating in the first half of calendar '24, so the second half of our fiscal year that the Fed funds rate is going to decline. We're obviously not forecasters on these topics, but our assumption is 4% Fed funds rate versus I think current consensus is 5%. So that's rolling through our numbers for sure, in terms of float that obviously has an impact on cash flows as well.
Rene, just on Divvy and the cross-sell, it sounds like you guys are very excited about that. We are too. I just want to understand the conviction you have now combined with -- I think you said you had 7,200 customers cross sold now from probably 2,000 last time you talked about it. So is the conviction there because of the progress on the engineering side of it having been really up and running and ready to go in the fall the way you hoped?
Yes. I think a great question, Darrin. There's -- the conviction is and it goes back to the hypothesis thesis about why we wanted the Divvy solution as part of the BILL solution and have the spend management expense capabilities inside of BILL. And so just to clarify, we had started the acquisition, we had 1,000 joint customers. And what we disclosed today is that we have 7,200 joint customers. So roughly up 6,000. Of that, around 5,000 are BILL customers adopting Divvy, the others are Divvy customers adopting BILL. So I think what gets me excited is that when you get a chance to talk and see the activity that these joint customers are doing, they're using it as one platform. They're seeing the opportunity to be able to manage their financial operations differently. And that's something that we're very passionate about. And I think it's super important that when you're going to go create a new space or a new solution for businesses that you have to have passion, you have to have set of expertise and vision and you have to have the ability to be persistent and do it on a continuous basis over time. And that's what we've been doing. And so this is -- FY'24 is an important year on this journey of getting more cross-sold. But it's going to take all the things I just said, to continue this journey for SMBs to have -- make that difference so that they actually do have one place, and that's something that we're going to be focused on for years to come.
Unfortunately, that is all the time that we do have for the Q&A session. So I will pass the conference back to Rene for any final remarks.
Thank you, and thanks, everyone, for joining us today. BILL delivered another great quarter and fiscal year. We are excited about the future, and we look forward to serving more and more SMBs. Thanks for joining.
That will conclude today's conference call. Thank you all for your participation. You may now disconnect your lines.