UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________
FORM 10-K
___________________________________________
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2023
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO ________
Commission File Number: 001-39149
___________________________________________
BILL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
___________________________________________
Delaware
83-2661725
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
6220 America Center Drive, Suite 100, San Jose, CA
(Address of principal executive offices)
95002
(Zip Code)
(650) 621-7700
___________________________________________
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which
registered
Common Stock, $0.00001 par value
BILL
The New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No o
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No x
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was
required to submit such files). Yes x No o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
Emerging growth company
x
o
o
Accelerated filer
Smaller reporting company
o
o
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the Registrant has filed a report on and attestation to its management’s assessment of the effectiveness of
its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting firm that prepared or issued its audit report. x
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the Registrant
included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based
compensation received by any of the Registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, based on the closing price
of the shares of common stock on December 31, 2022 (the last business day of the Registrant’s most recently completed second fiscal
quarter) as reported by The New York Stock Exchange on December 31, 2022, was approximately $11.1 billion.
The number of shares of Registrant’s common stock outstanding as of August 22, 2023 was 106,605,605.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s definitive proxy statement for its 2023 Annual Meeting of Stockholders (Proxy Statement), to be filed within 120
days after the end of the fiscal year covered by this Annual Report on Form 10-K, are incorporated by reference in Part III. Except with
respect to information specifically incorporated by reference in this Annual Report, the Proxy Statement shall not be deemed to be filed as
part hereof.
BILL HOLDINGS, INC.
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Reserved
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits, Financial Statement Schedules
Item 16
Form 10-K Summary
Signatures
Page
3
16
53
53
53
53
54
56
57
75
78
128
128
129
130
130
130
130
130
130
131
132
133
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements. All statements contained in this
Annual Report on Form 10-K other than statements of historical fact, including statements regarding our future
operating results and financial position, our business strategy and plans, market growth, and our objectives for
future operations, are forward-looking statements. The words “believe,” “may,” “will,” “potentially,” “estimate,”
“continue,” “anticipate,” “intend,” “could,” “would,” “project,” “target,” “plan,” “expect,” and similar expressions are
intended to identify forward-looking statements. Our fiscal year end is June 30. Our fiscal years ended June 30,
2023, 2022, and 2021 are referred to herein as fiscal 2023, fiscal 2022, and fiscal 2021, respectively.
Forward-looking statements contained in this Annual Report on Form 10-K include, but are not limited
to, statements about:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
our future financial performance, including our expectations regarding our revenue, cost of
revenue, gross profit, operating expenses, including changes in research and development,
sales and marketing, and general and administrative expenses (including any components of
the foregoing), and our ability to achieve and maintain, future profitability;
our business plan and our ability to effectively manage our growth;
our market opportunity, including our total addressable market;
our international expansion plans and ability to expand internationally;
anticipated trends, growth rates, and challenges in our business and in the markets in which we
operate;
beliefs and objectives for future operations;
our ability to further attract, retain, and expand our customer base;
our ability to develop new products and services and bring them to market in a timely manner;
the effects of seasonal trends on our results of operations;
our expectations concerning relationships with third parties, including partners;
our ability to maintain, protect, and enhance our intellectual property;
the effects of increased competition in our markets and our ability to compete effectively;
economic downturns or recessions, inflation, fluctuations in market interest rates and currency
exchange rates, supply chain shortages, instability in the U.S. and global banking systems, and
the ongoing impact of the COVID-19 pandemic, and their impact on our customers, partners,
vendors, employees, results of operations, liquidity, and financial condition;
future acquisitions or investments in complementary companies, products, services, or
technologies;
our ability to stay in compliance with laws and regulations that currently apply or become
applicable to our business;
economic and industry trends, projected growth, or trend analysis;
our ability to attract and retain qualified talent;
the increased expenses associated with being a public company; and
the future market prices of our common stock.
We caution you that the foregoing list may not contain all of the forward-looking statements made in this
Annual Report on Form 10-K.
These forward-looking statements are subject to a number of risks, uncertainties, and assumptions,
including those described in the section titled “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-
K. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from
time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all
factors on our business or the extent to which any factor, or combination of factors, may cause actual results to
1
differ materially from those contained in any forward-looking statements we may make. In light of these risks,
uncertainties, and assumptions, the future events and trends discussed in this Annual Report on Form 10-K
may not occur and actual results could differ materially and adversely from those anticipated or implied in the
forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. The events and
circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe
that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future
results, performance, or achievements. We undertake no obligation to update any of these forward-looking
statements for any reason after the date of this Annual Report on Form 10-K or to conform these statements to
actual results or to changes in our expectations, except as required by law.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the
relevant subject. These statements are based upon information available to us as of the date of this Annual
Report on Form 10-K, and while we believe such information forms a reasonable basis for such statements,
such information may be limited or incomplete, and our statements should not be read to indicate that we have
conducted an exhaustive inquiry into, or review of, all potentially available relevant information.
You should read this Annual Report on Form 10-K and the documents that we reference in this Annual
Report on Form 10-K and have filed with the SEC as exhibits to this Annual Report on Form 10-K with the
understanding that our actual future results, performance, and events and circumstances may be materially
different from what we expect.
In this Annual Report on Form 10-K, the words "we," "us," and "our" refer to BILL Holdings, Inc.
(formerly, Bill.com Holdings, Inc.) (BILL), together with its wholly owned subsidiaries, including Bill.com, LLC
(BILL standalone), DivvyPay, LLC (Divvy), and Invoice2go, LLC and Cimrid Pty, Ltd (together, Invoice2go),
unless the context requires otherwise.
2
Item 1. BUSINESS
PART I
Overview
Our mission is to make it simple to connect and do business.
We are a leader in financial automation software for small and midsize businesses (SMBs). As a
champion of SMBs, we are automating the future of finance so businesses can thrive. Hundreds of thousands of
businesses rely on BILL to more efficiently control their payables, receivables, and spend and expense
management. Our network connects millions of members so they can pay or get paid faster. Headquartered in
San Jose, California, we are a trusted partner of leading U.S. financial institutions, accounting firms, and
accounting software providers.
BILL's purpose-built, artificial intelligence (AI)-enabled financial software platform creates seamless
connections between our customers, their suppliers, and their clients. Businesses use our platform to generate
and process invoices, streamline approvals, make and receive payments, manage employee expenses, sync
with their accounting systems, foster collaboration, and manage their cash. We have built sophisticated
integrations with popular accounting software solutions, banks, card issuers, and payment processors, enabling
our customers to access these mission-critical services quickly and easily. Divvy, a BILL company, provides a
solution for businesses to have smart corporate cards, build budgets, manage payments, and eliminate the
need for manual expense reports.
As of June 30, 2023, more than 460,000 businesses used our solutions and processed $266 billion in
Total Payment Volume (TPV) during fiscal 2023. As of June 30, 2023, approximately 5.8 million network
members have paid or received funds electronically using our platform. See “Management’s Discussion and
Analysis of Financial Condition and Results of Operations — Key Business Metrics” for definitions and a
detailed discussion of our key business metrics.
Our Solution
Our platform automates the SMB back office and enables businesses using our solutions to pay their
suppliers and collect payments from their clients, in effect acting as a system of control for their accounts
payable, accounts receivable, and spend and expense management activities. As a result, our platform frees
businesses using our solutions from cumbersome legacy financial processes and provides the following key
benefits:
•
•
•
•
Automated and Efficient. Our AI-enabled platform helps businesses using our solutions pay
their bills efficiently and get paid faster. We provide tools that streamline the transaction
lifecycle by automating data capture and entry, routing bills for approval, and detecting
duplicate invoices.
Integrated and Accurate. We provide an end-to-end platform that connects businesses using
our solutions to their suppliers and clients. Our platform integrates with accounting software,
banks, card issuers, and payment processors, enabling businesses using our solutions to
access all of these mission-critical partners easily. Because we provide a comprehensive view,
customers can more easily find inconsistencies and inaccuracies, and fix them quickly.
Digital and Secure. We enable secure connections and storage of sensitive supplier and client
information and documents, such as invoices and contracts, and make them accessible to
authorized users on any device, from anywhere.
Visible and Transparent. With our solutions, customers can easily view their transaction
workflows, create budgets, and manage spend, enabling them to gain deeper insight into their
financial operations, and manage their cash flows.
3
•
•
•
•
•
•
What Sets Us Apart
Purpose-Built for SMBs. Our platform provides SMBs with core functionality and value-added
services generally reserved for larger companies. Through our cloud-based desktop and mobile
applications, SMBs can connect and do business from anywhere, any time. Our platform offers
a variety of payment solutions which enhances the experience for both buyers and suppliers in
a transaction.
Diverse Distribution Channels. We leverage both direct and indirect channels - accounting
firms, financial institution partners, and accounting software integrations - to efficiently go-to-
market.
Large and Growing Network. As accounts receivable customers issue invoices, and accounts
payable customers pay bills, they connect to their clients and suppliers, driving a powerful
network effect. This aids our customer acquisition efforts by increasing the number of
businesses connected to our platform, which then become prospects.
Large Data Asset. We have a large data asset as a result of processing millions of documents
and billions of dollars in business payments annually for businesses using our solutions. By
leveraging our machine learning capabilities, we generate insights from this data that drive
product innovation.
Proprietary Risk Management Expertise. Leveraging our data, our proprietary risk engine
has trained upon millions of business-to-business ACH, check, card, and wire transactions,
enabling us to keep businesses using our solutions’ funds secure.
Experienced Management Team and Vibrant Culture. Our management team has deep
experience with SMBs, software-as-a-service companies, AI, accounting firms, and financial
institutions. We have built a unique culture that resonates with employees, as evidenced by our
highly competitive, low attrition rates.
Our Platform
Our purpose-built platform leverages the fact that we can see both sides of a transaction and can
easily connect both transaction parties and promote the rapid exchange of information and funds, with strong
network effects and greater monetization opportunities as more customers adopt our platform. Our platform also
expands the ability of businesses using our solutions to budget for, monitor, and approve employee expenses
across organizations of all sizes, all in real-time.
Accounts Payable Automation
Our accounts payable automation service streamlines the entire payables process, from the receipt of a
bill, through the approvals workflow, to the payment and synchronization with the accounting system. Here are
some highlights of our service:
•
•
•
Visibility at a glance – Through our platform, businesses using our solutions gain a
comprehensive view of their cash inflows and outflows.
Document management – BILL automatically assigns a dedicated email address to each
customer to provide to its suppliers. Suppliers use that email address to send invoices to the
customer’s dedicated BILL inbox. Alternatively, scanned invoices can be uploaded directly
through our application. Once uploaded, we store the bills securely, linking them to the
associated supplier. With a single click, customers can use our search feature to scan
documents quickly and resolve open questions. Our document management capabilities help
businesses using our solutions make payment decisions, answer supplier questions, and
provide support to accountants and auditors.
Intelligent bill capture – We have automated the capture of data from bills by leveraging our
proprietary AI capabilities. Incoming bills are machine-read, and critical data fields, including
due date, amount, and supplier name, are prepopulated. The customer's Accounts Payable
staff can review the result and make any adjustments required, and our platform routes the bill
internally for approval.
4
•
•
Digital workflows and approvals – Our platform speeds approval processes through policy-
driven workflows. Much of this activity takes place while people are on-the-go: one of the top
three uses of our mobile app is bill approvals. Our platform proactively suggests payment dates
based upon a bill’s due date, helping customers avoid late payment penalty fees. Businesses
using our solutions assign each user a role: administrator, payor, approver, clerk, or accountant.
Each role has its own entitlements to ensure appropriate checks and balances in the back
office.
Collaboration and engagement – Our platform promotes collaboration. Our in-app messaging
capabilities make communications between businesses using our solutions and their
employees, vendors, and clients, easy. For example, BILL allows administrators and payors to
remind approvers to act, or delegate payment authority when a key employee is unavailable.
Our platform creates a clear audit trail that becomes invaluable in the event of an audit, or for
tax compliance.
Accounts Receivable Automation
Our accounts receivable service automates the entire process, from the creation of an invoice and
delivery to the client, to funds collection and synchronization back to the accounting system. Here are some
highlights of our service:
•
•
•
Easy invoicing – Using a simple template, customers can easily create electronic invoices on
our platform and insert their own logos to customize them. If required, our platform also enables
the printing and mailing of paper invoices. Many accounts receivable customers take advantage
of our recurring invoice feature.
Digital workflows and visibility – Our platform automates and simplifies electronic invoice
creation, delivery, and collection of funds. Using our progress bar, customers have complete
visibility into the accounts receivable process. When both trading partners are in the network,
businesses using our solutions can see when their invoices are delivered, opened, authorized
to be paid, and when payment was received. Invoices and supporting documents like contracts
are readily accessible and notes can be entered for future reference.
Collaboration and engagement – To make paying an invoice easy, we offer a customizable,
branded client payment portal. Clients receive a link to an electronic invoice accessible on the
Bill.com site. From this portal, the client can make a payment via ACH or credit card within
seconds. For reference purposes, the client has ongoing access to bills and associated
payments within the portal. Just like our accounts payable service, our in-app collaboration
tools make communications between the accounts receivable customer and its clients easy and
trackable.
Spend and Expense Management
With Divvy, spending businesses gain robust spend and expense management tools, helping them
spend smarter. Our spend and expense management product provides businesses full visibility into their spend,
by giving businesses the ability to issue any employee their own Divvy card. Every card provides access to
charge card lines originated through our card issuing partner banks (Issuing Banks) and is linked to proactive
spend controls: managers control their budgets by team through the assignment of individual permissions.
Employees can request funds from their phones, and budget owners or admins can approve or deny spend
requests on-the-go from a push notification to their phone. Spending businesses can leverage a single,
centralized budget or opt for a more sophisticated scenario, where budgets are established by department,
team, or project. Rather than building a business budgeting strategy using outdated numbers in a static
spreadsheet, our budgeting software syncs automatically with the employee's Mastercard or Visa cards, while
also facilitating reimbursements and vendor spend. With Divvy’s intuitive web and mobile applications, budget
owners can drill down into spending by department, team, project, or individual. Whether on-the-go or in the
office, an SMB can view up-to-date spend against budgets, so they always know where they stand.
We market Divvy cards to potential spending businesses and issue business-purpose charge cards
through our partnerships with Issuing Banks. When a business applies for a Divvy card, we utilize, on behalf of
the Issuing Bank, proprietary risk management capabilities to confirm the identity of the business, and perform a
credit underwriting process to determine if the business is eligible for a Divvy card pursuant to our credit
5
policies. Once approved for a Divvy card, the spending business is provided a credit limit and can use the Divvy
software to request virtual cards or physical cards.
Payment Services
Our suite of comprehensive payment services includes:
•
•
•
•
•
•
•
ACH payments – We enable ACH transactions for both disbursements and collections. Our
network makes it simple to make the switch from paper checks.
Card payments – Through a third party, we offer businesses using our accounts receivable
solutions the convenience of accepting credit and debit card payments. In addition, we enable
virtual card payments to vendors of businesses using our account payable solutions and who
have elected to accept card payments. Virtual cards support faster payments to suppliers,
which includes the data needed to easily match incoming payments with open receivables.
Through card issuing partners, Divvy provides both physical and virtual Mastercard and Visa
cards to companies that enroll in its business spend and expense management program.
Real-time payments (RTP) – Through The Clearing House’s RTP® network, a real-time
payments platform, we offer an instant transfer service to allow businesses using our solutions
to disburse funds rapidly to meet urgent funding needs. We also facilitate near real-time
payments to customers’ debit cards via a service offered with a partner.
Checks – We issue checks if our customer prefers or is contractually obligated to pay via this
method. By design, we protect our SMB customers against check fraud by never disclosing
their bank account details to a supplier and by reviewing every check presented against a
check issue file to detect and prevent check fraud.
Cross-border payments – We simplify cross-border disbursements by facilitating electronic
funds transfers around the world with our International Payments service. Payments can be
issued in either U.S. or foreign currency, and our platform synchronizes with customers’
accounting software for a consolidated view of domestic and international outflows. We offer
our U.S.-based customers the ability to disburse funds to over 130 countries worldwide.
Pay By Card – Our Pay By Card feature allows businesses using our solutions to make
payments using a credit or debit card, even if the vendor or contractor does not accept card
payments. We process the payment with the business' credit or debit card provider, then we
pay the vendor or contractor via ACH ePayment or check depending on the business'
preference.
Invoice financing – We, through a partnership with a third party, enable businesses easier
access to cash by allowing them to finance outstanding invoices. For a small origination fee,
businesses using our solutions can receive cash immediately instead of waiting for their
invoices to be paid.
Value-Added Services
•
•
Two-way sync with leading accounting systems – Our platform automatically synchronizes
customers, suppliers, general ledger accounts, and transactions with an SMB’s accounting
system to automate reconciliation. We are integrated with several of the most popular business
accounting software applications, including QuickBooks, Oracle NetSuite, Sage Intacct, Xero,
and Microsoft Dynamics 365 Business Central. Our two-way synchronization capabilities
virtually eliminate double data-entry, as our platform and the customer’s accounting software
continuously keep each other updated. Customers who use other types of systems use our
advanced file import/export capabilities to minimize data entry activities.
Purchase order (PO) matching – We sync POs directly from accounting software systems,
including Oracle NetSuite and Sage Intacct, and QuickBooks Desktop into our platform. Users
can compare POs and invoices on one screen, then route bills for approval and payment
seamlessly in the same workflow. This eliminates the need to switch between systems for two-
way matching and reduces the back-and-forth communication between PO creators and
accounts payable managers.
6
•
•
•
•
•
Frequent status updates – We provide timely status updates of financial inflows and outflows by
providing status updates of all transactions on a regular basis. Through our workflow progress
bars on each page, businesses using our solutions can see who has approved an invoice and
what approvals remain, the status of each payment, and the date transactions are expected to
clear.
Treasury services – Our platform integrates advanced treasury services tools that are normally
either not offered to or are costly for SMBs. Examples include:
◦
◦
◦
the positive pay feature we employ to ensure only authorized payment transactions are
processed;
a streamlined void and reissue function when an in-process payment needs to be
cancelled; and
the cleared check images we make available to enable businesses using our solutions
to confirm payment receipt and facilitate research.
Custom user roles – Our platform enables customers to define custom user roles. These roles
can be used to expand or limit each user’s access to the platform and core financial operations
functions. For example, a customer can temporarily enable its auditors or tax preparers to
access our platform using a custom role that allows them to view source documents in support
of the services they are providing, but not have access to other confidential documents or
information.
Document discovery – With our advanced document management capabilities, a customer can
easily search for an uploaded document and search its data elements, regardless of how old it
is, or how long it has been in our system. Businesses using our solutions utilize this feature
when deciding whether to pay a given bill or re-issue an invoice, or in determining who
authorized a certain payment.
Integrated, robust mobile functionality – Our mobile-native apps, available in both iOS and
Android, are easy to adopt and use. Through our apps, businesses using our solutions can
manage their transaction workflows, send an invoice, make payments on-the-go, and manage
spend.
Partner Integrations
Accounting firms use our platform to provide financial automation, bill payment, and client advisory
services, or “CAS,” to their clients. Our platform empowers accountants 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.
We provide our financial institution partners a technology platform that enables a white-label integration
with their existing business banking services. We deliver single sign-on, multi-factor authentication, integrated
provisioning, and entitlement of new accounts, as well as integration with required compliance systems.
Transactions are synchronized automatically between the financial institution’s platform and ours, keeping the
customer’s view current and consistent.
In addition to our white-labeled solution, we support a broad range of partners and customers with our
platform application programming interfaces (APIs). These APIs allow our partners to integrate our platform
seamlessly into their solutions, create web or mobile apps that integrate with ours, or leverage our payments
capabilities. Through our APIs, developers can:
•
•
•
interact with business entities, like suppliers and clients;
obtain summary-level reports, such as payables and receivables reports; and
interact with accounting details, such as the general ledger codes of the chart of accounts.
7
Our Unique Data Asset
BILL's total payment volume and number of documents processed for businesses using our solutions
provides us with a unique data asset. This asset has allowed us to build powerful AI capabilities. The data
provides a view into customer transactions and operational status of various payment processes, which enables
us not only to effectively manage risk exposure but also to provide businesses using our solutions with
enhanced tools, such as automatically populating drafts of bills, to save time and simplify their operations. Our
system continues to learn with each payment made and document processed. This virtuous cycle of learning
powers a network effect that facilitates customer satisfaction, offers intelligent insights, improves trust and
safety, and fuels further growth.
Our Network
Through our AI-enabled platform, businesses using our solutions can easily connect with existing
network members. The benefit of being in the network is simple: customers connect with others to pay and be
paid electronically, freeing them from the need to solicit or share bank account and routing numbers with each
trading partner individually. The process of adding bank account details to our platform is easy and secure. For
example, when a supplier of an accounts payable customer receives an invitation to join our network, the
supplier can accept and securely share its bank account details once with BILL. From that point onward, all
payments to that supplier will be electronic.
Once in the network, other BILL customers can easily link to that same supplier without the supplier
having to repeat this process again. This approach to connecting businesses has allowed us to build a robust
and growing business-to-business payments directory, which includes approximately 5.8 million network
members as of June 30, 2023. We define network members as our BILL standalone customers plus their
suppliers and clients, who have paid or received funds electronically via our platform. These network effects
promote greater adoption of our platform, higher levels of engagement, and increased value across our
ecosystem.
Payment and Risk Management Services
Our payments engine powers our payment services. Through dedicated connections with banks and
payment processors, we issue checks, initiate card-based transactions, originate ACH-based payments,
including real-time payments, through our instant transfer feature, and execute wire transfers. Our payments
engine handles all aspects of payment file transfers, exception file handling, and required payment status
reporting. We have redundancy across our core payment methods such that if there is an outage with one
payment processor, we can direct payments to an alternative provider.
Through our risk engine, we use both proprietary and third-party tools to assess, detect, and mitigate
financial risk associated with the payment volume that we process. Throughout the transaction lifecycle, we
monitor data and payments to ensure that we are safeguarding our customers, their suppliers and clients, and
our company. When a bank account is added to the platform, we validate that the bank account is held at a
U.S.-domiciled financial institution, is associated with the organization adding the account, and is in good
standing.
When customers use our services, we monitor key activities looking for signals that would indicate
anomalies that could create risk exposure and need to be investigated. Our risk engine analyzes many unique
data elements to score transactions. Those that score above our thresholds are routed to trained risk agents for
manual review. Agents have the latitude to contact customers to gather further information, or if a financial risk
is imminent, to prevent funds from leaving our system until any suspicious activity can be resolved.
Once a payment transaction is processed, we continue to manage our exposure. We have extensive
contacts in the banking industry, and we utilize these to reverse payments when possible. If a suspicious or
fraudulent payment cannot be reversed, we follow a rigorous collections process to recover funds.
This risk management process gets progressively more insightful as our data set gets larger and our AI-
enabled risk engine gets smarter. This is an advantage that we expect to continue to grow over time. Our
success in managing the risk inherent in moving funds for business customers is proven. As a percentage of our
8
TPV, fraud and credit loss rates for our BILL standalone payment services were nominal, less than 0.01% for
each of fiscal 2023, 2022, and 2021. As a percentage of total card payment volume transacted by spending
businesses that use Divvy cards, fraud and credit loss rate was approximately 0.28% for fiscal 2023. See
“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Business
Metrics” for a detailed discussion of our key business metrics.
Security, Privacy, and Data Protection
Trust is important for our relationship with customers and partners, and we take significant measures
designed to protect their privacy and the data that they provide to us. Keeping our customers’ data safe and
secure is a high priority. Our approach to security includes data governance as well as ongoing testing for
potential security issues.
We have robust access controls in our production environment with access to data strictly assigned,
monitored, and audited. To ensure our controls remain up-to-date, we undergo continuous external testing for
vulnerabilities within our software architecture. These efforts have enabled us to certify our platform to SOC1
Type II, SOC2 Type II, and SOC3 standards. Our security program is aligned to the NIST-800-53 standards and
is regularly audited and assessed by third parties as well as our partners, including some of the largest banks in
the world.
The focus of our program is working to prevent unauthorized access to the data of our customers and
network members. To this end, our team of security practitioners work to identify and mitigate risks, implement
best practices, and continue to evaluate ways to improve.
These steps include close attention to network security, classifying and inventorying data, limiting and
authorizing access controls, and multi-factor authentication for access to systems. We also employ regular
system monitoring, logging, and alerting to retain and analyze the security state of our corporate and production
infrastructures.
We take steps to help ensure that our security measures are maintained by the third-party suppliers we
use, including conducting annual security reviews and audits.
Competition
Our primary competition remains the legacy manual processes that SMBs have relied upon for
decades. Other competitors range from large firms that predominantly focus on selling to enterprises, to
providers of point solutions that focus exclusively on one of the many aspects of our business: document
management, workflow management, accounts payable solutions, spend and expense management, card
issuance, or accounts receivable solutions; to companies that offer industry-specific payment solutions.
We differentiate ourselves from our competitors by offering a portfolio of financial back-office solutions
that handle all of these core cash flow activities end-to-end. Our extensive investment in building a fully-
integrated two-way sync with popular accounting software providers is well-regarded in the industry. With
respect to the domestic payments that comprise the bulk of our business, we disburse and collect funds on
behalf of our customers through our proprietary payments engine. We manage the associated financial risk of
processing billions in total payment volume through our proprietary risk models and rules.
We believe that the key competitive factors in our market include:
•
•
•
•
•
•
•
Product features, quality, and functionality;
Data asset size and ability to leverage AI;
Ease of deployment;
Ease of integration with leading accounting and banking technology infrastructures;
Ability to automate processes;
Cloud-based delivery architecture;
Advanced security and control features;
9
•
•
•
Regulatory compliance leadership, as evidenced by our money transmitter licenses in all
required U.S. jurisdictions and in Canada;
Brand recognition; and
Pricing and total cost of ownership.
We compare favorably with our competitors on the basis of these factors. We expect the market for
SMB back-office financial software and business-to-business payment solutions to continue to evolve and grow,
as greater numbers of SMBs and larger businesses digitize their back offices. We believe that we are well-
positioned to help them.
Research & Development
We invest substantial time, energy, and resources to ensure we have a deep understanding of our
customers’ needs, and we continually innovate to deliver value-added products and services. Our technology
organization consists of engineering, product, and design teams. These teams are responsible for the design,
development, and testing of our applications. We focus our efforts on developing new functionality and further
enhancing the usability, reliability, and performance of existing applications.
Sales and Marketing
We distribute our platform through direct and indirect sales channels, both of which we leverage to
reach our target customers in an efficient manner. Our direct sales are driven by a self-service process and an
inside sales team. Our inside sales team augments our direct sales capabilities by targeting potential customers
that have engaged with us on their own.
We also reach customers indirectly through our partnerships with accounting firms, financial institutions,
and accounting software providers. While these partners sometimes require an initial integration investment, a
go-to-market flywheel takes effect as our partners accelerate the delivery of our platform across their customer
base with minimal incremental investment from us.
We focus our marketing efforts on generating leads to develop our sales pipeline, building brand and
category awareness, enabling our go-to-market partners, and growing our business from within our existing
customers. Our sales leads primarily come through word-of-mouth, our accounting firm partners, and website
searches. We generate additional leads through digital marketing campaigns, referrals, in-product customer
education, brand advertising, public relations, and social media.
As part of our marketing efforts for our spend and expense management solution, we offer a card
rewards program to drive card adoption, incent card usage, and drive card loyalty with spending businesses.
Under the card rewards program, spending businesses can earn rewards based on transaction volume on the
cards issued to them and can redeem those rewards mainly for statement credits or cash, travel, and gift cards.
Customer Success
SMBs have unique needs and customer support contact expectations. With more than a decade of
experience supporting our product, our customer success team has a deep understanding of their needs and
has developed our support model accordingly. We recognize and understand deep customer spending and
behavior patterns because we see the aggregate – millions of transactions per month. We use what we learn to
continuously improve the platform and the customer experience. We provide onboarding implementation
support, as well as ongoing support and training. We periodically contact businesses using our solutions to
discuss their utilization of our platform, highlight additional features that may interest them, and identify any
additional tools that may be needed.
We operate in a rapidly-evolving regulatory environment.
Regulatory Environment
10
Payments and Banking Regulation
In order to conduct the payment services we offer, we are required to be licensed to offer money
transmission services in most U.S. states. We have procured and maintain money transmitter licenses that are
required in 50 U.S. jurisdictions and actively work to comply with new license requirements as they arise. We
are also registered as a Money Services Business with the U.S. Department of Treasury’s Financial Crimes
Enforcement Network (FinCEN). These licenses and registrations subject us, among other things, to anti-money
laundering and anti-terrorist financing requirements, the U.S. Department of Treasury's Office of Foreign Assets
Control (OFAC) sanctions obligations, record-keeping requirements, reporting requirements, bonding
requirements, minimum capital requirements, limitations on the investment of customer funds, and regulatory
examinations by state and federal regulatory agencies.
We also hold a Foreign Money Services Business (FMSB) license in Canada that is administered by
The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) and a Money Services
Business License administered by Quebec's Autorité Des Marchés Financiers (Financial Markets Authority).
Global Affairs Canada and Canada's Department of Public Safety administer Canadian sanctions programs and
oversee our compliance with these regulations.
We are contractually obligated to comply with Federal Deposit Insurance Corporation (FDIC) federal
banking regulations, as well as with Visa and MasterCard rules, as a card program manager for the card
program management banks (CPMB) for our card product offerings. As a card program manager for the
CPMBs, we have implemented compliance programs designed to ensure we are in compliance with applicable
banking regulations and the Visa and MasterCard network rules. The CPMBs oversee our compliance program
and conduct periodic audits to ensure compliance with applicable regulations and rules. We are also subject to
the examination and enforcement authority of the FDIC under the Bank Service Company Act in our capacity as
program manager to the CPMBs for our card product offerings.
In addition, we are subject to FDIC oversight through the provision of FDIC insured business deposit
accounts provided by a regulated bank in relation to certain Invoice2Go products.
We maintain loan origination, brokering, and servicing licenses through our subsidiaries in a number of
U.S. states and actively work to comply with new license requirements as they arise.
Our services utilize ACH transfers and require compliance with National Automated Clearing House
Association rules. We are required to comply with Regulation E, the Electronic Funds Transfer Act, which
regulates certain funds transfers.
We are procuring state lending, brokering, and servicing licenses to support lending products. We also
partner with a FDIC and State of Utah regulated bank to offer lending products originated by such bank and
may originate loans using our own licenses in the future. The lending products and services subject us to state
and federal lending regulations including, but not limited to Fair Lending, state specific lending disclosures, and
Unfair, Deceptive, or Abusive Acts and Practices and Unfair or Deceptive Acts or Practices requirements.
Anti-money Laundering, Counter-terrorist Financing, and Sanctions.
As a Money Services Business and a licensed money transmitter we are subject to U.S. anti-money
laundering (AML) laws and regulations, including under the Bank Secrecy Act, as amended (BSA), and similar
U.S. state laws and regulations, and as a Foreign Money Service Business (MSB) in Canada we are subject to
various AML laws and regulations in Canada. In addition, we are required to comply with U.S. economic and
trade sanctions administered by OFAC, as well as similar requirements in other jurisdictions, including, among
others, the Canadian Proceeds of Crime and Terrorist Financing Act and the Australian Sanctions Regime. We
have implemented an AML and sanctions compliance program designed to prevent our platform from being
used to facilitate money laundering, terrorist financing, and other financial crimes. Where we rely on partners for
payment services, our partners have implemented AML and sanctions compliance programs. These compliance
programs include policies, procedures, reporting protocols, systems, training, testing, independent audits, and
internal controls designed to address these legal and regulatory requirements and to assist in managing the
risks associated with money laundering. Our United States (U.S.) compliance program includes the designation
of a BSA compliance officer to oversee the program. These programs are also designed to manage terrorist
financing risks and to comply with sanctions requirements to prevent our products from being used to facilitate
11
business in certain countries, or with certain persons or entities, including those on designated lists promulgated
by OFAC and relevant foreign authorities.
Data Protection and Information Security
We receive, store, process, and use a wide variety of personal, business, and financial information from
prospective customers, existing customers, their vendors, and other users on our platform, as well as personal
information about our employees and service providers. Our handling of this data is subject to a variety of laws
and regulations. In the U.S. we are subject to privacy and information safeguarding requirements under the
Graham Leach Bliley Act and state laws relating to privacy and data security, including the California Consumer
Privacy Act and the California Privacy Rights Act. Additionally, the U.S. Federal Trade Commission (FTC) and
many state attorneys general are interpreting federal and state consumer protection laws as imposing standards
for the online collection, use, dissemination, and security of data. We are also subject to foreign laws and
regulations governing the handling of personal data, including the European Union's General Data Protection
Regulation (GDPR), the United Kingdom's GDPR, Australian and Canadian privacy laws, and the privacy laws
of other foreign jurisdictions.
Regulatory scrutiny of privacy, data protection, cybersecurity practices, and the processing of personal
data is increasing around the world. Regulatory authorities regularly consider new legislative and regulatory
proposals and interpretive guidelines that may contain privacy and data protection obligations. In addition, the
interpretation and application of these privacy and data protection laws in the U.S., Europe, and elsewhere are
often uncertain and in a state of flux.
Anti-corruption
We are subject to the U.S. Foreign Corrupt Practices Act, U.S. domestic bribery laws, and other anti-
corruption laws in the foreign jurisdictions in which we operate, including, among others, Australia's anti-bribery
laws, the Canadian Criminal Code, and the Canadian Corruption of Foreign Public Officials Act. Anti-corruption
laws generally prohibit offering, promising, giving, accepting, or authorizing others to provide anything of value,
either directly or indirectly, to or from a government official or private party in order to influence official action or
otherwise gain an unfair business advantage, such as to obtain or retain business. We have implemented
policies, procedures, and internal controls that are designed to comply with these laws and regulations.
Additional Regulatory Developments
Various regulatory agencies in the U.S. and in foreign jurisdictions continue to examine a wide variety of
issues which are applicable to us and may impact our business. These issues include identity theft, account
management guidelines, privacy, disclosure rules, cybersecurity, and marketing. As our business continues to
develop and expand, we continue to monitor the additional rules and regulations that may become relevant.
Any actual or perceived failure to comply with legal and regulatory requirements may result in, among
other things, revocation of required licenses or registrations, loss of approved status, private litigation,
regulatory or governmental investigations, administrative enforcement actions, sanctions, civil and criminal
liability, and constraints on our ability to continue to operate. For additional discussion on governmental
regulation affecting our business, please see the risk factors related to regulation of our payments business and
regulation in the areas of privacy and data use, under the section titled “Risk Factors—Risks Related to our
Business and Industry.”
Environmental, Corporate Governance, and Social (ESG) Oversight and Initiatives
ESG Management
We are committed to helping build a more sustainable future for businesses using our solutions, as well
as for their communities, and stakeholders. We take this commitment seriously and will continue to provide
transparent disclosures on the progress of this work through both our internal and external communications.
Our executive leadership team sponsors and funds our ESG programs, with our board of directors exercising
ultimate oversight. Guided by best practices, feedback we receive from our stockholders, and third-party
frameworks such as the Sustainability Accounting Standards Board Software & IT Services standards, we are
focused on the initiatives described below.
12
Our Culture and Employees
Our culture enables us to attract and retain exceptional talent. We center our culture around five values
which are core to who we are, guide how we operate, define how we treat each other, and help make our teams
strong, cohesive units:
•
•
•
•
•
Humble – No ego;
Authentic – We are who we are;
Passionate – Love what you do;
Accountable – To each other and our network; and
Fun – Celebrate the moments.
As of June 30, 2023, we had a total of 2,521 employees working across three offices in the U.S.: San
Jose, CA, Houston, TX, and Draper, UT; one office in Sydney, Australia; and others working remotely. We also
employ individuals on a temporary basis and use the services of contractors as necessary. None of our
employees are represented by a labor union in connection with their employment.
We know our success is tied to recruiting, developing, and retaining our employees. Our Chief People
Officer is responsible for creating and implementing our initiatives around our employees and our board of
directors has ultimate oversight and receives updates on these initiatives periodically.
We leverage data and analytics to align the recruiting function to business growth and revenue drivers.
We are committed to providing a fair and equitable compensation and benefits program that supports our
diverse workforce. BILL offers market-competitive base salaries, semi-annual bonuses, and sales incentives.
The majority of our employees are awarded equity at the time of hire and through annual equity refresh grants.
We also offer an employee stock purchase plan to foster a strong sense of ownership and engage our
employees in our long-term success. Our full-time employees are eligible to receive, subject to the satisfaction
of certain eligibility requirements, our comprehensive benefits package, including medical, dental, and vision
insurance, family planning support and fertility treatments, and life and income protection plans. In addition, we
provide generous paid time-off policies, access to free mental health services, and offer a tax-qualified 401(k)
retirement plan. Through the self-directed brokerage features of the plan, participants in the 401(k) plan can
choose to invest their contributions in funds focused on their particular goals and preferences, including having
options of funds that are focused on their particular goals and preferences, such as ESG matters.
We develop our leaders and high-potential employees through intensive, cohort-based, key talent
programs. We offer training for new people managers. To facilitate ongoing learning and development, we
provide employees with an online curriculum of study, linked to business needs, leveraging a third-party
platform. The curriculum includes coursework in inclusion, change management, and decision-making. All
employees are eligible and participate in developmental reviews with their managers. We conduct performance
review cycles twice a year.
To keep a pulse on engagement, we survey our employees semi-annually. Employees respond
anonymously, and we take action on the areas flagged for improvement, reporting back to the employee base
on progress against stated improvement goals. We closely monitor employee turnover, conducting exit
interviews and surveys to alert us to any issues, as well as to make improvements to the employee experience.
Diversity, Equity, and Inclusion
Through an equitable approach to hiring, compensation, and career growth, we have built a company
that fosters inclusivity, authenticity, and action. We seek to embed a sense of inclusion and social responsibility
into our culture and how we serve the businesses using our solutions. Our Vice President of Diversity, Equity
and Inclusion (DEI) is building a strategy that helps us accelerate our progress across four key pillars:
•
•
•
•
cultivating a respectful and accessible workplace where every employee feels they belong;
increasing diverse representation at all levels and functions of the company;
supporting our diverse customers’ needs through our products and services; and
engaging with our communities to promote more equitable outcomes.
13
One of the ways we strengthen our workplace culture of DEI is by supporting employee resource
groups (ERGs). ERGs are self-organized communities that bring employees together to raise awareness and
belonging for under-represented groups. Through a grassroots effort, BILL employees have established seven
ERGs focused upon the following dimensions of identity: women, Latinx, Black, LGBTQIA+, disabilities and
mental health, veterans, and Pan Asian and Pacific Islanders. These ERGs have established strong employee
mentorship programs to support the career development of their members.
We also offer employees learning opportunities to increase awareness of DEI issues. Unconscious bias
training is available through our e-learning platform, we regularly host speakers from diverse backgrounds to
share their lived experiences, and our ERGs host safe-space discussions on issues important to their members.
We partner with organizations like Codepath.org and ColorStack to support Black, Latinx, and
Indigenous students interested in technical careers. Through Codepath’s Internship Connection Program, we
have placed underrepresented students majoring in computer science into technical internships at BILL. Last
year, we also sponsored the Tejano Tech Summit, which brought together Latinx founders, investors, and
professionals working in tech to advance their community. Our talent acquisition team also developed our ERG
Ambassador Program, which gives candidates an opportunity to connect with an ERG member to learn more
about BILL’s culture and our focus on DEI. We are hopeful that through programs and partnerships like these,
we can both help local communities and build a solid pipeline of future employees for our company.
As part of our focus on community outreach, one of our BILL ERGs built a new program to reach
underprivileged, low-income students in the Bay Area. Recruiting middle-school and high-school students
locally, the program’s goal is to prepare these young students for academic success, college acceptance, and
early career growth by providing internships, mentorships, and coding camps. Along with the African Diaspora
Network, BILL founded the African Diaspora Network's Accelerating Black Leadership and Entrepreneurship
(ABLE) program, an enterprise accelerator program. The program is designed to strengthen, energize, and
support startups and small businesses led by Black entrepreneurs in the U.S. In the last two years, 28
entrepreneurs with impact-oriented solutions at the local and national level across multiple sectors graduated
from ABLE.
Environmental Matters
Our San Jose headquarters building is LEED Gold and Energy Star certified, our Houston building is
LEED-certified GOLD, and our Sydney building features a green roof and an organic waste farm, and was
awarded a ‘Green Star’ rating of six (the highest rating available). In San Jose, we also offer employees free
electric vehicle charging stations. Further, we embrace a hybrid work model at each of our office locations,
permitting employees to work remotely several days a week, in addition to having a significant number of fully-
remote employees who collaborate via videoconference and periodic offsite retreats. This flexible model allows
us to minimize employee commute times, thereby reducing congestion, the consumption of energy, and
pollution.
Intellectual Property
We seek to protect our intellectual property rights by relying upon a combination of patent, trademark,
copyright, and trade secret laws, as well as contractual measures.
As of June 30, 2023, in the U.S., we had 20 issued patents that expire between 2028 and 2040, and
seven pending patent applications, two of which have been allowed as of the date of this Annual Report on
Form 10-K, along with five pending international patent applications. These patents and patent applications
seek to protect proprietary inventions relevant to our business. While we believe our patents and patent
applications in the aggregate are important to our competitive position, no single patent or patent application is
material to us as a whole. We intend to pursue additional patent protection to the extent we believe it would be
beneficial and cost effective.
As of June 30, 2023, in the U.S. we had two trademark registrations covering the “Bill.com” logo and
three trademark registrations for DIVVY or the Divvy logo, along with registrations for Divvy slogans. We also
own a U.S. trademark registration for the name Invoice2Go and the Invoice2Go logo. We own a pending
application for BILL.COM plus design in Canada, along with a registration in Canada for the Invoice2Go logo.
We own one registration in Australia for the Invoice2Go logo, along with additional registrations internationally
14
for the mark INVOICE2GO or the Invoice2Go logo. We will pursue additional trademark registrations to the
extent we believe it would be beneficial and cost-effective. We also own several domain names, including
www.bill.com, www.getdivvy.com, and www.invoice2go.com.
We rely on trade secrets and confidential information to develop and maintain our competitive position.
It is our practice to enter into confidentiality and invention assignment agreements (or similar agreements) with
our employees, consultants, and contractors involved in the development of intellectual property on our behalf.
We also enter into confidentiality agreements with other third parties in order to limit access to, and disclosure
and use of, our confidential information and proprietary information. We further control the use of our proprietary
technology and intellectual property through provisions in our terms of service.
From time to time, we also incorporate certain intellectual property licensed from third parties, including
under certain open source licenses. Even if any such third-party technology was not available to us on
commercially reasonable terms, we believe that alternative technologies would be available as needed.
For additional information about our intellectual property and associated risks, see the section titled
“Risk Factors—Risks Related to our Business and Industry.”
Available Information
Our internet address is www.bill.com. We make available free of charge, on our website, our annual
report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended (Exchange Act), as soon as reasonably practicable after we electronically file such material with, or
furnish it to, the Securities and Exchange Commission (SEC).
We have used, and intend to continue to use, our website, investor relations website (accessible via our
website), and social media accounts, including our Twitter/X feed (@billcom), our LinkedIn page and our
Facebook page , as a means of disclosing material non-public information and for complying with our
disclosure obligations under Regulation FD.
The contents of the websites provided above are not intended to be incorporated by reference into this
Annual Report on Form 10-K or in any other report or document we file with the SEC. Further, our references to
the URLs for these websites are intended to be inactive textual references only.
15
Item 1A. Risk Factors
Investing in our common stock involves a high degree of risk. You should consider carefully the risks
and uncertainties described below, together with all of the other information in this Annual Report on Form 10-K,
including “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our
consolidated financial statements and the accompanying notes included elsewhere in this Annual Report on
Form 10-K before deciding whether to invest in shares of our common stock. Additional risks beyond those
summarized below or discussed elsewhere in this Annual Report on Form 10-K, may apply to our activities or
operations as currently conducted or as we may conduct them in the future or in the markets in which we
operate or may in the future operate.
Consistent with the foregoing, we are exposed to a variety of risks, including the following:
Summary of Risk Factors
•
•
•
•
•
•
•
•
•
•
•
•
•
•
We have a history of operating losses and may not achieve or sustain profitability in the future;
Our recent rapid growth, including growth in our volume of payments, may not be indicative of
our future growth, and if we continue to grow rapidly, we may not be able to manage our growth
effectively;
A significant portion of our revenue comes from small and medium-sized businesses, which
may have fewer financial resources to weather an economic downturn, and volatile or
weakened economic conditions in the U.S. and globally may adversely affect our business and
operating results;
If we are unable to attract new customers or convert trial customers into paying customers or if
our efforts to promote our charge card usage through marketing, promotion, and spending
business rewards are unsuccessful, our revenue growth and operating results will be adversely
affected;
If we are unable to retain our current customers, increase customer adoption of our products,
sell additional services to our customers, or develop and launch new payment products, our
business and growth will be adversely affected;
Our Divvy card offering exposes us to credit risk and other risks related to spending businesses'
ability to pay the balances incurred on their Divvy cards. Certain of our other current and future
product offerings may also subject us to credit risk;
Our risk management efforts may not be effective to prevent fraudulent activities by our
customers, subscribers, spending businesses, or their counterparties, which could expose us to
material financial losses and liability and otherwise harm our business;
The markets in which we participate are competitive, and if we do not compete effectively, our
operating results could be harmed;
We transfer large sums of customer funds daily, and are subject to numerous associated risks
which could result in financial losses, damage to our reputation, or loss of trust in our brand,
which would harm our business and financial results;
Our business depends, in part, on our relationships with accounting firms;
Our business depends, in part, on our business relationships with financial institutions;
We are subject to numerous risks related to partner banks and financing arrangements with
respect to our spend and expense management solution;
Future acquisitions, strategic investments, partnerships, collaborations, or alliances could be
difficult to identify and integrate, divert the attention of management, disrupt our business, dilute
stockholder value, and adversely affect our operating results and financial condition;
Payments and other financial services-related regulations and oversight are material to our
business. Our failure to comply could materially harm our business;
16
•
•
•
Our debt service obligations, including the Notes, may adversely affect our financial condition
and results of operations;
We may not have the ability to raise the funds necessary for cash settlement upon conversion
of the Notes or to repurchase the Notes for cash upon a fundamental change, and our future
debt may contain limitations on our ability to pay cash upon conversion of the Notes or to
repurchase the Notes; and
The market for our common stock has been, and will likely continue to be, volatile and the
market price of our common stock may fluctuate significantly in response to numerous factors,
many of which are beyond our control.
Risks Related to Our Business and Industry
We have a history of operating losses and may not achieve or sustain profitability in the future.
We were incorporated in 2006 and have mostly experienced net losses since inception. We generated
net losses of $223.7 million, $326.4 million, and $98.7 million for fiscal 2023, 2022, and 2021, respectively. Our
net loss for fiscal 2022 includes the results of operations of Invoice2go from the date of acquisition on
September 1, 2022 and of Divvy for the full fiscal year. Our net loss for fiscal 2021 includes the results of
operations of Divvy from the date of acquisition on June 1, 2021. As of June 30, 2023, we had an accumulated
deficit of $856.2 million. While we have experienced significant revenue growth in recent periods, we are not
certain whether or when we will generate sufficient revenue to achieve or maintain profitability in the future. We
also expect our costs and expenses to increase in future periods, which could negatively affect our future
operating results if our revenue does not increase. In particular, we intend to continue to expend significant
funds to further develop our platform, including introducing new products and functionality, drive new customer
adoption, expand partner integrations, and support international expansion, and to continue hiring across all
functions to accomplish these objectives. Our profitability each quarter is also impacted by the mix of our
revenue generated from subscriptions, transaction fees, including the mix of ad valorem transaction revenue,
and interest earned on funds that we hold for the benefit of our customers. Any changes in this revenue mix will
have the effect of increasing or decreasing our margins. In addition, we offer promotion programs whereby
spending businesses that use our spend and expense management products can earn rewards based on
transaction volume on our Divvy charge cards, and the cost of earned rewards that are redeemed impacts our
sales and marketing expenses. Inflationary pressures may also result in increases in many of our other costs,
including personnel-related costs. Our efforts to grow our business may be costlier than we expect, and we may
not be able to increase our revenue enough to offset our increased operating expenses. We may incur
significant losses in the future for several reasons, including the other risks described herein, and unforeseen
expenses, difficulties, complications, delays, and other unknown events. If we are unable to achieve and sustain
profitability, the value of our business and common stock may significantly decrease.
Our recent rapid growth, including growth in our volume of payments, may not be indicative of our
future growth, and if we continue to grow rapidly, we may not be able to manage our growth effectively.
Our revenue was $1.1 billion, $642.0 million, and $238.3 million during fiscal 2023, 2022, and 2021,
respectively. Our TPV was $266.0 billion, $228.1 billion, and $140.7 billion during fiscal 2023, 2022, and 2021,
respectively. Our revenue and TPV for fiscal 2022 includes Invoice2go from the date of acquisition on
September 1, 2021 and Divvy charge cards for the full fiscal year. Our revenue and TPV for fiscal 2021 includes
Divvy charge cards from the date of acquisition on June 1, 2021. Although we have recently experienced
significant growth in our revenue and total payment volume, even if our revenue continues to increase, we
expect our growth rate will decline in the future as a result of a variety of factors, including the increasing scale
of our business. Overall growth of our revenue depends on a number of factors, including our ability to:
•
•
•
•
•
price our platform effectively to attract new customers and increase sales to our existing
customers;
expand the functionality and scope of the products we offer on our platform;
maintain or improve the rates at which customers subscribe to and continue to use our
platform;
maintain and expand payment volume;
generate interest income on customer funds that we hold in trust;
17
•
•
•
•
•
•
•
provide our customers with high-quality customer support that meets their needs;
introduce our products to new markets outside of the U.S.;
serve SMBs across a wide cross-section of industries;
expand our target market beyond SMBs;
manage the effects of macroeconomic conditions, including economic downturns or recessions,
inflation, fluctuations in market interest rates and currency exchange rates, supply chain
shortages and instability in the U.S. and global banking systems on our business and
operations;
successfully identify and acquire or invest in businesses, products, or technologies that we
believe could complement or expand our platform; and
increase awareness of our brand and successfully compete with other companies.
We may not successfully accomplish any of these objectives, which makes it difficult for us to forecast
our future operating results. Further, the revenue that we derive from interest income on customer funds is
dependent on interest rates, which we do not control. If the assumptions that we use to plan our business are
incorrect or change in reaction to changes in our market, or if we are unable to maintain consistent revenue or
revenue growth, our stock price could be volatile, and it may be difficult to achieve and maintain profitability. You
should not rely on our revenue from any prior quarterly or annual periods as any indication of our future revenue
or revenue or payment growth.
In addition, we expect to continue to expend substantial financial and other resources on:
•
•
•
•
•
•
sales, marketing, and customer success, including an expansion of our sales organization and
new customer success initiatives;
our technology infrastructure, including systems architecture, scalability, availability,
performance, and security;
product development, including investments in our product development team and the
development of new products and new functionality for our AI-enabled platform;
acquisitions or strategic investments;
international expansion; and
regulatory compliance and risk management.
These investments may not result in increased revenue growth in our business. If we are unable to
increase our revenue at a rate sufficient to offset the expected increase in our costs, or if we encounter
difficulties in managing a growing volume of payments, our business, financial condition, and operating results
will be harmed, and we may not be able to achieve or maintain profitability over the long term.
A significant portion of our revenue comes from small and medium-sized businesses, which may have
fewer financial resources to weather an economic downturn, and volatile or weakened economic
conditions in the U.S. and globally may adversely affect our business and operating results.
Our overall performance depends in part on U.S. and international macroeconomic conditions. The U.S.
and other key international economies have experienced and may in the future experience significant economic
and market downturns in which economic activity is impacted by falling demand for a variety of goods and
services, restricted credit, poor liquidity, reduced corporate profitability, volatility in credit, equity, and foreign
exchange markets, inflation, bankruptcies, and overall uncertainty with respect to the economy. These
economic conditions can arise suddenly and the full impact of such conditions are impossible to predict. In
addition, geopolitical and domestic political developments, such as existing and potential trade wars and other
events beyond our control, such as the war in Ukraine, can increase levels of political and economic
unpredictability globally and increase the volatility of global financial markets. Moreover, there has been recent
turmoil in the global banking system. For example, in March 2023, Silicon Valley Bank (SVB) was closed by the
California Department of Financial Protection and Innovation, which appointed the FDIC as receiver. First-
Citizens Bank & Trust Company then assumed all of SVB’s customer deposits and certain other liabilities and
18
acquired substantially all of SVB’s loans and certain other assets from the FDIC. While the closure of SVB did
not have a material direct impact on our business, continued instability in the global banking system may result
in additional bank failures, as well as volatility of global financial markets, either of which may adversely impact
our business and financial condition.
Further, a significant portion of our revenue comes from SMBs. These customers may be more
susceptible to negative impacts from economic downturns, recession, inflation, changes in foreign currency
exchange rates, including the strengthening U.S. dollar, financial market conditions, instability in the U.S. and
global banking systems, supply chain shortages, increased fuel prices, any ongoing effects of the COVID-19
pandemic, and catastrophic events than larger, more established businesses, as SMBs typically have more
limited financial resources than larger entities. If any of these conditions occur, SMBs may be disproportionately
impacted and, as a result, the overall demand for our products and services could be materially and adversely
affected.
We expect fluctuations in our financial results, making it difficult to project future results, and if we fail
to meet the expectations of securities analysts or investors with respect to our operating results, our
stock price and the value of your investment could decline.
Our operating results have fluctuated in the past and are expected to fluctuate in the future due to a
variety of factors, many of which are outside of our control. As a result, our past results may not be indicative of
our future performance. In addition to the other risks described herein, factors that may affect our operating
results include the following:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
fluctuations in demand for, or pricing of our platform;
our ability to attract new customers;
our ability to retain and grow engagement with our existing customers;
our ability to expand our relationships with our accounting firm partners, financial institution
partners, and accounting software partners, or identify and attract new partners;
customer expansion rates;
changes in customer preference for cloud-based services as a result of security breaches in the
industry or privacy concerns, or other security or reliability concerns regarding our products;
fluctuations or delays in purchasing decisions in anticipation of new products or product
enhancements by us or our competitors;
general economic, market, credit and liquidity conditions, both domestically and internationally,
such as high inflation, high interest rate and recessionary environments, and instability in the
U.S. and global banking systems, as well as economic conditions specifically affecting SMBs or
the industries in which our customers participate;
changes in customers’ budgets and in the timing of their budget cycles and purchasing
decisions, as a result of general economic factors or factors specific to their businesses;
potential and existing customers choosing our competitors’ products or developing their own
solutions in-house;
the development or introduction of new platforms or services that are easier to use or more
advanced than our current suite of services, especially related to the application of AI-based
services;
our failure to adapt to new forms of payment that become widely accepted;
the adoption or retention of more entrenched or rival services in the international markets where
we compete;
our ability to control costs, including our operating expenses;
the amount and timing of payment for operating expenses, particularly research and
development and sales and marketing expenses, including commissions;
19
•
•
•
•
•
•
•
•
•
the amount and timing of non-cash expenses, including stock-based compensation, goodwill
impairments, and other non-cash charges;
the amount and timing of costs associated with recruiting, training, and integrating new
employees, including employees acquired inorganically, and retaining and motivating existing
employees;
fluctuation in market interest rates, which impacts interest earned on funds held for customers;
the effects of acquisitions and the integration of acquired technologies and products, including
impairment of goodwill;
the impact of new accounting pronouncements;
security breaches of, technical difficulties with, or interruptions to, the delivery and use of our
platform;
any ongoing impact of the COVID-19 pandemic on our employees, customers, partners,
vendors, operating results, liquidity and financial condition, including as a result of supply chain
disruptions and labor shortages;
the impact of the war in Ukraine, economic sanctions and countermeasures taken by other
countries, and market volatility resulting from the above; and
awareness of our brand and our reputation in our target markets.
Any of these and other factors, or the cumulative effect of some of these factors, may cause our
operating results to vary significantly. In addition, we expect to continue to incur significant additional expenses
due to the costs of operating as a public company. If our operating results fall below the expectations of
investors and securities analysts who follow our stock, the price of our common stock could decline
substantially, and we could face costly lawsuits, including securities class action suits.
If we are unable to attract new customers or convert trial customers into paying customers or if our
efforts to promote our charge card usage through marketing, promotion, and spending business
rewards are unsuccessful, our revenue growth and operating results will be adversely affected.
To increase our revenue, we must continue to attract new customers and increase sales to those
customers. As our market matures, product and service offerings evolve, and competitors introduce lower cost
or differentiated products or services that are perceived to compete with our platform, our ability to sell
subscriptions or successfully increase customer adoption of new payment products could be impaired. Similarly,
our subscription sales could be adversely affected if customers or users perceive that features incorporated into
alternative products reduce the need for our platform or if they prefer to purchase products that are bundled with
solutions offered by other companies. Further, in an effort to attract new customers, we may offer simpler, lower-
priced products or promotions, which may reduce our profitability.
We rely upon our marketing strategy of offering risk-free trials of our platform and other digital marketing
strategies to generate sales opportunities. Many of our customers start a risk-free trial of our service. Converting
these trial customers to paid customers often requires extensive follow-up and engagement. Many prospective
customers never convert from the trial version of a product to a paid version of a product. Further, we often
depend on the ability of individuals within an organization who initiate the trial versions of our products to
convince decision makers within their organization to convert to a paid version. To the extent that these users
do not become, or are unable to convince others to become, paying customers, we will not realize the intended
benefits of this marketing strategy, and our ability to grow our revenue will be adversely affected. In addition, it
may be necessary to engage in more sophisticated and costly sales and marketing efforts in order to attract
new customers, and changes in privacy laws and third party practices may make adding new customers more
expensive or difficult. As a result of these and other factors, we may be unable to attract new customers or our
related expenses may increase, which would have an adverse effect on our business, revenue, gross margins,
and operating results.
In addition, revenue growth from our charge card products is dependent on increasing business
spending on our cards. We have been investing in a number of growth initiatives, including to capture a greater
20
share of spending businesses’ total spend, but there can be no assurance that such investments will be
effective. In addition, if we develop new products or offerings that attract spending businesses looking for short-
term incentives rather than displaying long-term loyalty, attrition could increase and our operating results could
be adversely affected. Expanding our service offerings, adding acquisition channels and forming new
partnerships or renewing current partnerships could have higher costs than our current arrangements and could
dilute our brand. In addition, we offer rewards to spending businesses based on their usage of charge cards.
Redemptions of rewards present significant associated expenses for our business. We operate in a highly
competitive environment and may need to increase the rewards that we offer or provide other incentives to
spending businesses in order to grow our business. Any significant change in, or failure by management to
reasonably estimate, such costs could adversely affect or harm our business, operating results, and financial
condition.
If we are unable to retain our current customers, increase customer adoption of our products, sell
additional services to our customers, or develop and launch new payment products, our business and
growth will be adversely affected.
To date, a significant portion of our growth has been attributable to customer adoption of new and
existing payment products. To increase our revenue, in addition to acquiring new customers, we must continue
to retain existing customers and convince them to expand their use of our platform by incentivizing them to pay
for additional services and driving adoption of new and existing payment products, including ad valorem
products such as our Divvy cards, virtual cards, instant transfer, and international payment offerings. Our ability
to retain our customers, drive adoption and increase usage could be impaired for a variety of reasons, including
our inability to develop and launch new payment products, customer reaction to changes in the pricing of our
products, general economic conditions or the other risks described in this Annual Report on Form 10-K. Our
ability to sell additional services or increase customer adoption of new or existing products may require more
sophisticated and costly sales and marketing efforts, especially for our larger customers. If we are unable to
retain existing customers or increase the usage of our platform by them, it would have an adverse effect on our
business, revenue, gross margins, and other operating results, and accordingly, on the trading price of our
common stock.
While some of our contracts are non-cancelable annual subscription contracts, most of our contracts
with customers and accounting firms primarily consist of open-ended arrangements that can be terminated by
either party without penalty at any time. Our customers have no obligation to renew their subscriptions to our
platform after the expiration of their subscription period. For us to maintain or improve our operating results, it is
important that our customers continue to maintain their subscriptions on the same or more favorable terms. We
cannot accurately predict renewal or expansion rates given the diversity of our customer base in terms of size,
industry, and geography. Our renewal and expansion rates may decline or fluctuate as a result of several
factors, including customer spending levels, customer satisfaction with our platform and customer service,
decreases in the number of users, changes in the type and size of our customers, pricing changes, competitive
conditions, the acquisition of our customers by other companies, and general economic conditions. In addition,
if any of the accounting software providers with which our platform currently integrates should choose to disable
two-way synchronization, there can be no assurance that customers shared with such providers would not
choose to leave our platform, adversely affecting our business and results of operations. If our customers do
not renew their subscriptions, or if they reduce their usage of our platform, our revenue and other operating
results will decline and our business will suffer. Moreover, if our renewal or expansion rates fall significantly
below the expectations of the public market, securities analysts, or investors, the trading price of our common
stock would likely decline.
Our Divvy card offering exposes us to credit risk and other risks related to spending businesses' ability
to pay the balances incurred on their Divvy cards. Certain of our other current and future product
offerings may also subject us to credit risk.
We offer our Divvy card as a credit product to a wide range of businesses in the U.S., and the success
of this product depends on our ability to effectively manage related risks. The credit decision-making process for
our Divvy cards uses techniques designed to analyze the credit risk of specific businesses based on, among
other factors, their past purchase and transaction history, as well as their credit scores. Similarly, proprietary risk
models and other indicators are applied to assess current or prospective spending businesses who desire to
use our cards to help predict their ability to repay. These risk models may not accurately predict
21
creditworthiness due to inaccurate assumptions, including assumptions related to the particular spending
business, market conditions, economic environment, or limited transaction history or other data, among other
factors. The accuracy of these risk models and the ability to manage credit risk related to our cards may also be
affected by legal or regulatory requirements, competitors’ actions, changes in consumer behavior, changes in
the economic environment, policies of Issuing Banks, and other factors.
For a substantial majority of extensions of credit to Divvy spending businesses facilitated through our
spend and expense management platform, we purchase from our Issuing Banks participation interests in the
accounts receivables generated when spending businesses make purchases using Divvy cards, and we bear
the entire credit risk in the event that a spending business fails to pay card balances. Like other businesses with
significant exposure to losses from credit, we face the risk that spending businesses will default on their
payment obligations, creating the risk of potential charge-offs. The non-payment rate among spending
businesses may increase due to, among other factors, changes to underwriting standards, risk models not
accurately predicting the creditworthiness of a business, or a decline in economic conditions, such as a
recession, high inflation or government austerity programs. Spending businesses who miss payments may fail
to repay their outstanding statement balances, and spending businesses who file for protection under the
bankruptcy laws generally do not repay their outstanding balances. If collection efforts on overdue card
balances are ineffective or unsuccessful, we may incur financial losses or lose the confidence of our funding
sources. We do not file UCC liens or take other security interests on Divvy card balances, which significantly
reduces our ability to collect amounts outstanding to spending businesses that file for bankruptcy protection.
Any such losses or failures of our risk models could harm our business, operating results, and financial
condition. Non-performance, or even significant underperformance, of the account receivables participation
interests that we own could have an adverse effect on our business.
Moreover, the funding model for our Divvy card product relies on a variety of funding arrangements,
including warehouse facilities and, from time-to-time, purchase arrangements, with a variety of funding sources.
Any significant underperformance of the participation interests we own may adversely impact our relationship
with such funding sources and result in an increase in our cost of financing, a modification or termination of our
existing funding arrangements or our ability to procure funding, which would adversely affect our business,
operating results, financial condition, and future prospects.
Several of our other product offerings whereby we advance funds to our customers or vendors of our
customers based on credit and risk profiling before we receive the funds on their behalf, such as our Instant
Transfer feature, also expose us to credit risks. Although these offerings are only available to customers that
satisfy specific credit eligibility criteria, the credit and risk models we use to determine eligibility may be
insufficient. Any failure of our credit or risk models to predict creditworthiness would expose us to many of the
credit risks described above and could harm our business, operating results, and financial condition.
Our risk management efforts may not be effective to prevent fraudulent activities by our customers,
subscribers, spending businesses, or their counterparties, which could expose us to material financial
losses and liability and otherwise harm our business.
We offer software that digitizes and automates financial operations for a large number of customers and
executes payments to their vendors or from their clients. We are responsible for verifying the identity of our
customers and their users, and monitoring transactions for fraud. We have been in the past and will continue to
be targeted by parties who seek to commit acts of financial fraud using stolen identities and bank accounts,
compromised business email accounts, employee or insider fraud, account takeover, false applications, check
fraud, and stolen cards or card account numbers. We may suffer losses from acts of financial fraud committed
by our customers and their users, our employees, or third parties. In addition, our customers or spending
businesses may suffer losses from acts of financial fraud by third parties posing as our company through
account takeover, credential harvesting, use of stolen identities, and various other techniques, which could harm
our reputation or prompt us to reimburse our customers for such losses in order to maintain customer and
spending business relationships.
The techniques used to perpetrate fraud on our platform are continually evolving, and we expend
considerable resources to continue to monitor and combat them. In addition, when we introduce new products
and functionality, or expand existing products, we may not be able to identify all risks created by such new
products or functionality. Our risk management policies, procedures, techniques, and processes may not be
22
sufficient to identify all of the risks to which we are exposed, to enable us to prevent or mitigate the risks we
have identified, or to identify additional risks to which we may become subject in the future. Our risk
management policies, procedures, techniques, and processes may contain errors, or our employees or agents
may commit mistakes or errors in judgment as a result of which we may suffer large financial losses. The
software-driven and highly automated nature of our platform could enable criminals and those committing fraud
to steal significant amounts of money from businesses like ours.
Our current business and anticipated growth will continue to place significant demands on our risk
management efforts, and we will need to continue developing and improving our existing risk management
infrastructure, policies, procedures, techniques, and processes. As techniques used to perpetrate fraud on our
platform evolve, we may need to modify our products or services to mitigate fraud risks. As our business grows
and becomes more complex, we may be less able to forecast and carry appropriate reserves in our books for
fraud related losses.
Further, these types of fraudulent activities on our platform can also expose us to civil and criminal
liability and governmental and regulatory sanctions as well as potentially cause us to be in breach of our
contractual obligations to our third-party partners.
The markets in which we participate are competitive, and if we do not compete effectively, our operating
results could be harmed.
The market for cloud-based software that automates the financial back-office is highly fragmented,
competitive, and constantly evolving. We believe that our primary competition remains the legacy manual
processes that SMBs have relied on for generations. Our success will depend, to a substantial extent, on the
widespread adoption of our cloud-based automated back-office solution as an alternative to existing solutions or
adoption by customers that are not using any such solutions at all. Some organizations may be reluctant or
unwilling to use our platform for several reasons, including concerns about additional costs, uncertainty
regarding the reliability and security of cloud-based offerings, or lack of awareness of the benefits of our
platform.
Our competitors in the cloud-based software space range from large corporations that predominantly
focus on enterprise resource planning solutions, to smaller niche suppliers of solutions that focus exclusively on
document management, workflow management, accounts payable, accounts receivable, spend and expense
management, and/or electronic bill presentment and payment, to companies that offer industry-specific
payments solutions. With the introduction of new technologies and market entrants, we expect that the
competitive environment will remain intense going forward. Our competitors that currently focus on enterprise
solutions may offer products to SMBs that compete with ours. In addition, companies that provide solutions that
are adjacent to our products and services may decide to enter our market segments and develop and offer
products that compete with ours. Accounting software providers, such as Intuit, as well as the financial
institutions with which we partner, may internally develop products, acquire existing, third-party products, or may
enter into partnerships or other strategic relationships that would enable them to expand their product offerings
to compete with our platform or provide more comprehensive offerings than they individually had offered or
achieve greater economies of scale than us. These software providers and financial institutions may have the
operating flexibility to bundle competing solutions with other offerings, including offering them at a lower price or
for no additional cost to customers as part of a larger sale. For example, in September 2022, Intuit announced
its intention to launch a native bill payment solution. In addition, new entrants not currently considered to be
competitors may enter the market through acquisitions, partnerships, or strategic relationships. Many of our
competitors and potential competitors have greater name recognition, longer operating histories, more
established customer relationships, larger marketing budgets, and greater resources than us. Our competitors
may be able to respond more quickly and effectively than we can to new or changing opportunities,
technologies, standards, and customer requirements. Certain competitors may also have long-standing
exclusive, or nearly exclusive, relationships with financial services provider partners to accept payment cards
and other services that compete with what we offer. As we look to market and sell our platform to potential
customers, spending businesses, or partners with existing solutions, we must convince their internal
stakeholders that our platform is superior to their current solutions.
We compete on several factors, including:
•
product features, quality, breadth, and functionality;
23
•
•
•
•
•
•
•
•
•
data asset size and ability to leverage AI to grow faster and smarter;
ease of deployment;
ease of integration with leading accounting and banking technology infrastructures;
ability to automate processes;
cloud-based delivery architecture;
advanced security and control features;
risk management, exception process handling, and regulatory compliance leadership;
brand recognition; and
pricing and total cost of ownership.
There can be no assurance that we will be able to compete successfully against our current or future
competitors, and this competition could result in the failure of our platform to continue to achieve or maintain
market acceptance, any of which would harm our business, operating results, and financial condition.
We transfer large sums of customer funds daily, and are subject to numerous associated risks which
could result in financial losses, damage to our reputation, or loss of trust in our brand, which would
harm our business and financial results.
As of June 30, 2023, we had approximately 461,000 businesses using our solutions and TPV
processed was approximately $266.0 billion, $228.1 billion, and $140.7 billion during fiscal 2023, 2022, and
2021, respectively. Accordingly, we have grown rapidly and seek to continue to grow, and although we maintain
a robust and multi-faceted risk management process, our business is highly complex and always subject to the
risk of financial losses as a result of credit losses, operational errors, software defects, service disruption,
employee misconduct, security breaches, or other similar actions or errors on our platform.
As a provider of accounts payable, accounts receivable, spend and expense management, and
payment solutions, we collect and transfer funds on behalf of our customers and our trustworthiness and
reputation are fundamental to our business. The occurrence of any credit losses, operational errors, software
defects, service disruptions, employee misconduct, security breaches, or other similar actions or errors on our
platform could result in financial losses to our business and our customers, loss of trust, damage to our
reputation, or termination of our agreements with financial institution partners and accountants, each of which
could result in:
•
•
•
•
•
loss of customers;
lost or delayed market acceptance and sales of our platform;
legal claims against us, including warranty and service level agreement claims;
regulatory enforcement action; or
diversion of our resources, including through increased service expenses or financial
concessions, and increased insurance costs.
Although our terms of service allocate to our customers the risk of loss resulting from our customers’
errors, omissions, employee fraud, or other fraudulent activity related to their systems, in some instances we
may cover such losses for efficiency or to prevent damage to our reputation. Although we maintain insurance to
cover losses resulting from our errors and omissions, there can be no assurance that our insurance will cover all
losses or our coverage will be sufficient to cover our losses. If we suffer significant losses or reputational harm
as a result, our business, operating results, and financial condition could be adversely affected.
24
Funds that we hold for the benefit of our customers are subject to market, interest rate, credit, foreign
exchange, and liquidity risks, as well as general political and economic conditions. The loss of any of
these funds could adversely affect our business, operating results and financial condition.
We invest funds that we hold for the benefit of our customers, including funds being remitted to
suppliers, in highly liquid, investment-grade marketable securities, money market securities, and other cash
equivalents. Nevertheless, our customer fund assets are subject to general market, interest rate, credit, foreign
exchange, and liquidity risks. These risks may be exacerbated, individually or in the aggregate, during periods
of heavy financial market volatility, such as that experienced in 2008 and 2022, that may result from high
inflation, high interest rate or recessionary environments, from actual or perceived instability in the U.S. and
global banking systems, or from war (such as the war in Ukraine), or other geopolitical conflicts. As a result, we
could be faced with a severe constriction of the availability of liquidity, which could impact our ability to fulfill our
obligations to move customer money to its intended recipient. For example, the sudden closure of SVB in March
2023 introduced a potential risk of loss because we held certain corporate and customer funds at SVB.
Although we were able to move substantially all such funds to large multinational financial institutions and to
redirect substantially all customer payment processing previously made through SVB to one of our multinational
bank processors, there can be no assurance that we would be able to do so in the future in the event of a
similar or more severe, systemic banking crisis. In addition, cash held at banks and financial institutions is
subject to applicable deposit insurance limits, and in the event that our corporate or customer funds held at a
given institution exceed such limits, or are held in investments that are not covered by deposit insurance, such
funds may be unrecoverable in the event of a future bank failure.
We rely upon certain banking partners and third parties to originate payments, process checks, execute
wire transfers, and issue virtual cards, which could be similarly affected by a liquidity shortage and further
exacerbate our ability to operate our business. Any loss of or inability to access customer funds could have an
adverse impact on our cash position and operating results, could require us to obtain additional sources of
liquidity, and could adversely affect our business, operating results, and financial condition. In addition to the
risks related to customer funds, we are also exposed to interest rate risk relating to our investments of our
corporate cash.
We are licensed as a money transmitter in all required U.S. states and registered as a Money Services
Business with FinCEN. In certain jurisdictions where we operate, we are required to hold eligible liquid assets,
as defined by the relevant regulators in each jurisdiction, equal to at least 100% of the aggregate amount of all
customer balances. Our ability to manage and accurately account for the assets underlying our customer funds
and comply with applicable liquid asset requirements requires a high level of internal controls. As our business
continues to grow and we expand our product offerings, we will need to scale these associated internal controls.
Our success requires significant public confidence in our ability to properly manage our customers’ balances
and handle large and growing transaction volumes and amounts of customer funds. Any failure to maintain the
necessary controls or to accurately manage our customer funds and the assets underlying our customer funds
in compliance with applicable regulatory requirements could result in reputational harm, lead customers to
discontinue or reduce their use of our products, and result in significant penalties and fines, possibly including
the loss of our state money transmitter licenses, which would materially harm our business.
We earn revenue from interest earned on customer funds held in trust while payments are clearing,
which is subject to market conditions and may decrease as customers’ adoption of electronic payments
and technology continues to evolve.
For fiscal 2023, 2022, and 2021, we generated $113.8 million, $8.6 million, and $6.0 million,
respectively, in revenue from interest earned on funds held in trust on behalf of customers while payment
transactions were clearing, or approximately 11%, 1%, and 3% of our total revenue for such periods,
respectively. While these payments are clearing, we deposit the funds in highly liquid, investment-grade
marketable securities, and generate revenue that is correlated to the federal funds rate. As interest rates have
risen in recent periods, the amount of revenue we have generated from such funds has increased; however,
given the deceleration in U.S. interest rate increases in 2023 to date, we do not expect this interest revenue
expansion to continue in the future. If interest rates decline, the amount of revenue we generate from these
investments will decrease as well. Additionally, as customers increasingly seek expedited methods of electronic
payments, such as instant transfer, or potentially migrate spend to our Divvy corporate card offering, our
revenue from interest earned on customer funds could decrease (even if offset by other revenue) and our
operating results could be adversely affected. Finally, in addition to the risks outlined above, any change in laws
25
or applicable regulations that restrict the scope of permissible investments for such customer funds could
reduce our interest income and adversely affect our operating results.
Our business depends, in part, on our relationships with accounting firms.
Our relationships with our more than 7,000 accounting firm partners contribute a significant portion of
our consolidated revenue. We market and sell our products and services through accounting firms. We also
have an exclusive partnership with CPA.com to market certain of our products and services to accounting firms,
which then enroll their customers directly onto our platform. Although our relationships with accounting firms are
independent of one another, if our reputation in the accounting industry more broadly were to suffer, or if we
were unable to establish relationships with new accounting firms and grow our relationships with existing
accounting firm partners, our growth prospects would weaken and our business, financial position, and
operating results may be adversely affected.
Our business depends, in part, on our business relationships with financial institutions.
We enter into partnering relationships with financial institutions pursuant to which they offer our services
to their customers. These relationships involve risks that may not be present or that are present to a lesser
extent with sales to our direct SMB customers. Launching a product offering with our financial institution
partners entails integrating our platform with our partners’ websites and apps, which requires significant
engineering resources and time to design, deploy, and maintain, and requires developing associated sales and
marketing strategies and programs. With financial institution partners, the decision to roll out our product
offering typically requires several levels of management and technical personnel approval by our partners and is
frequently subject to budget constraints. Delays in decision making, unplanned budget constraints, or changes
in our partners’ business, business priorities, or internal resource allocations may result in significant delays to
the deployment of our platform and its availability to their customers. Significant delays in the deployment of our
platform to our partners’ customers could cause us to incur significant expenditures for platform integration and
product launch without generating anticipated revenue in the same period or at all and could adversely impact
our operating results. In addition, once we have successfully launched a product offering with a financial
institution partner, lower than anticipated customer adoption or unanticipated ongoing system integration costs
could result in lower than anticipated profit margins, which could have an adverse impact on our business,
financial position, and operating results. Moreover, if our partners or their customers experience problems with
the operation of our platform, such as service outages or interruptions or security breaches or incidents, our
relationship with the partner and our reputation could be harmed and our operating results may suffer.
We may not be able to attract new financial institution partners if our potential partners favor our
competitors’ products or services over our platform or choose to compete with our products directly. Further,
many of our existing financial institution partners have greater resources than we do and could choose to
develop their own solutions to replace ours. Moreover, certain financial institutions may elect to focus on other
market segments and decide to terminate their SMB-focused services. If we are unsuccessful in establishing,
growing, or maintaining our relationships with financial institution partners, our ability to compete in the
marketplace or to grow our revenue could be impaired, and our operating results may suffer.
We are subject to oversight by our financial institution partners and they conduct audits of our
operations, information security controls, and compliance controls. To the extent an audit were to identify
material gaps or evidence of noncompliance in our operations or controls it could violate contractual terms with
the financial institution partner, which could materially and adversely impact our commercial relationships with
that partner.
Our spend and expense management products are dependent on our relationship with our Issuing
Banks, Cross River Bank and WEX Bank.
The extensions of credit facilitated through our platform are originated through Cross River Bank and
WEX Bank, and we rely on these entities to comply with various federal, state, and other laws. There has been
significant recent U.S. Congressional and federal administrative agency lawmaking and ruling in the area of
program agreements between banks and non-banks involving extensions of credit and the regulatory
environment in this area remains unsettled. There has also been significant recent government enforcement
and litigation challenging the validity of such arrangements, including disputes seeking to re-characterize
lending transactions on the basis that the non-bank party rather than the bank is the “true lender” or “de facto
26
lender”, and in case law upholding the “valid when made” doctrine, which holds that federal preemption of state
interest rate limitations are not applicable in the context of certain bank—non-bank partnership arrangements. If
the legal structure underlying our relationship with our Issuing Banks were to be successfully challenged, our
extension of credit offerings through these banks may be determined to be in violation of state licensing
requirements and other state laws. In addition, Issuing Banks engaged in this activity have been subject to
increased regulatory scrutiny recently. Adverse orders or regulatory enforcement actions against our Issuing
Banks, even if unrelated to our business, could impose restrictions on our Issuing Banks’ ability to continue to
extend credit through our platform or on current terms, or could result in our Issuing Banks increasing their
oversight or imposing tighter controls over our underwriting practices or compliance procedures or subjecting
any new products to be offered through our Issuing Banks to more rigorous reviews.
Our Issuing Banks are subject to oversight by the FDIC and state banking regulators and must comply
with applicable federal and state banking rules, regulations, and examination requirements. We, in turn, are
subject to audit by our Issuing Banks in accordance with FDIC guidance related to management of service
providers and other bank-specific requirements pursuant to the terms of our agreements with our Issuing Banks.
We are also subject to the examination and enforcement authority of the FDIC under the Bank Service
Company Act and state regulators in our capacity as a service provider for our Issuing Banks. If we fail to
comply with requirements applicable to us by law or contract, or if audits by our Issuing Banks were to conclude
that our processes and procedures are insufficient, we may be subject to fines or penalties or our Issuing Banks
could terminate their relationships with us.
In the event of a challenge to the legal structure underlying our program agreements with our Issuing
Banks or if one or all of our Issuing Banks were to suspend, limit, or cease its operations, or were to otherwise
terminate for any reason (including, but not limited to, the failure by an Issuing Bank to comply with regulatory
actions or an Issuing Bank experiencing financial distress, entering into receivership, or becoming insolvent), we
would need to identify and implement alternative, compliant, bank relationships or otherwise modify our
business practices in order to be compliant with prevailing law or regulation, which could result in business
interruptions or delays, force us to incur additional expenses, and potentially interfere with our existing customer
and spending business relationships or make us less attractive to potential new customers and spending
businesses, any of which could adversely effect our business, operating results, and financial condition.
We rely on a variety of funding sources to support our Divvy corporate card offering. If our existing
funding arrangements are not renewed or replaced, or if our existing funding sources are unwilling or
unable to provide funding to us on terms acceptable to us, or at all, it could adversely affect our
business, operating results, financial condition, cash flows, and future prospects.
To support the operations and growth of our spend and expense management business, we must
maintain a variety of funding arrangements, including warehouse facilities and, from time-to-time, purchase
arrangements with financial institutions. In particular, we have financing arrangements in place pursuant to
which we purchase from our Issuing Banks participation interests in the accounts receivables generated when
Divvy spending businesses make purchases using our cards. We typically fund some portion of these
participation interest purchases by borrowing under credit facilities with our finance partners, although we may
also fund participation purchases using corporate cash. Typically, we immediately sell a portion of the
participation interests we have purchased to a warehousing subsidiary which funds the purchases through
loans provided by our financing partners, and we may sell a portion of the participation interests to a third-party
institution pursuant to a purchase arrangements.
If our finance partners terminate or interrupt their financing or purchase of participation interests or are
unable to offer terms which are acceptable to us, we may have to fund these purchases using corporate cash,
which we have a limited ability to do and may place significant stress on our cash resources. An inability to
purchase participation interests from our Issuing Banks, whether funded through financing or corporate cash,
could result in the banks’ limiting extensions of credit to spending businesses or ceasing to extend credit for our
cards altogether, which would interrupt or limit our ability to offer our card products and materially and adversely
affect our business.
We cannot guarantee that these funding arrangements will continue to be available on favorable terms
or at all, and our funding strategy may change over time, depending on the availability of such funding
arrangements. In addition, our funding sources may curtail access to uncommitted financing capacity, fail to
renew or extend facilities, or impose higher costs to access funding upon reassessing their exposure to our
industry or in light of changes to general economic, market, credit, or liquidity conditions. Further, our funding
27
sources may experience financial distress, enter into receivership, or become insolvent, which may prevent us
from accessing financing from these sources. In addition, because our borrowings under current and future
financing facilities may bear interest based on floating rate interest rates, our interest costs may increase if
market interest rates rise. Moreover, there can be no assurances that we would be able to extend or replace our
existing funding arrangements at maturity, on reasonable terms, or at all.
If our existing funding arrangements are not renewed or replaced or our existing funding sources are
unwilling or unable to provide funding to us on terms acceptable to us, or at all, we may need to secure
additional sources of funding or reduce our spend and expense management operations significantly. Further,
as the volume of credit facilitated through our platform increases, we may need to expand the funding capacity
under our existing funding arrangements or add new sources of capital. The availability and diversity of our
funding arrangements depends on various factors and are subject to numerous risks, many of which are outside
of our control. If we are unable to maintain access to, or to expand, our network and diversity of funding
arrangements, our business, operating results, financial condition, and future prospects could be materially and
adversely affected.
If we do not or cannot maintain the compatibility of our platform with popular accounting software
solutions or offerings of our partners, our revenue and growth prospects will decline.
To deliver a comprehensive solution, our platform integrates with popular accounting software solutions
including Intuit QuickBooks, Oracle NetSuite, Sage Intacct, Xero, and Microsoft Dynamics 365 Business
Central, through APIs made available by these software providers. We automatically synchronize certain data
between our platform and these accounting software systems relating to invoices and payment transactions
between our customers and their suppliers and clients. This two-way sync saves time for our customers by
reducing duplicative manual data entry and provides the basis for managing cash-flow through an integrated
solution for accounts payable, accounts receivable, spend and expense management, and payments.
If any of the accounting software providers change the features of their APIs, discontinue their support
of such APIs, restrict our access to their APIs, or alter the terms or practices governing their use in a manner
that is adverse to our business, we may be restricted or may not be able to provide synchronization capabilities,
which could significantly diminish the value of our platform and harm our business, operating results, and
financial condition. In addition, if any of these accounting software providers reconfigure their platforms in a
manner that no longer supports our integration with their accounting software, we would lose customers and our
business would be adversely affected.
If we are unable to increase adoption of our platform with customers of these accounting software
solutions, our growth prospects may be adversely affected. In addition, any of these accounting software
providers may seek to develop a payment solution of its own, acquire a solution to compete with ours, or decide
to partner with other competing applications, any of which its SMB customers may select over ours, thereby
harming our growth prospects and reputation and adversely affecting our business and operating results.
We depend on third-party service providers to process transactions on our platform and to provide
other services important to the operation of our business. Any significant disruption in services
provided by these vendors could prevent us from processing transactions on our platform, result in
other interruptions to our business and adversely affect our business, operating results and financial
condition.
We depend on banks, including JPMorgan Chase, to process ACH transactions and checks for our
customers. We also rely on third-party providers to support other aspects of our business, including, for
example, for card transaction processing, check printing, real-time payments, virtual and physical card
issuance, and our cross-border funds transfer capabilities. If we are unable to effectively manage our third-party
relationships, we are unable to comply with security, compliance, or operational obligations to which we are
subject under agreements with these providers, these providers are unable to meet their obligations to us, or we
experience substantial disruptions in these relationships, including as a result of the closure or insolvency of
banks with which we do business, our business, operating results, and financial condition could be adversely
impacted. In addition, in some cases a provider may be the sole source, or one of a limited number of sources,
of the services they provide to us and we may experience increased costs and difficulties in replacing those
providers and replacement services may not be available on commercially reasonable terms, on a timely basis,
or at all.
28
Interruptions or delays in the services provided by AWS or other third-party data centers or internet
service providers could impair the delivery of our platform and our business could suffer.
We host our platform using third-party cloud infrastructure services, including certain co-location
facilities. We also use public cloud hosting with Amazon Web Services (AWS). All of our products utilize
resources operated by us through these providers. We therefore depend on our third-party cloud providers’
ability to protect their data centers against damage or interruption from natural disasters, power or
telecommunications failures, criminal acts, and similar events. Our operations depend on protecting the cloud
infrastructure hosted by such providers by maintaining their respective configuration, architecture, and
interconnection specifications, as well as the information stored in these virtual data centers and transmitted by
third-party internet service providers. We have periodically experienced service disruptions in the past, and we
cannot assure you that we will not experience interruptions or delays in our service in the future. We may also
incur significant costs for using alternative equipment or taking other actions in preparation for, or in reaction to,
events that damage the data storage services we use. Although we have disaster recovery plans that utilize
multiple data storage locations, any incident affecting their infrastructure that may be caused by fire, flood,
severe storm, earthquake, power loss, telecommunications failures, unauthorized intrusion, computer viruses
and disabling devices, natural disasters, military actions, terrorist attacks, negligence, and other similar events
beyond our control could negatively affect our platform. Any prolonged service disruption affecting our platform
for any of the foregoing reasons could damage our reputation with current and potential customers, expose us
to liability, cause us to lose customers, or otherwise harm our business. Also, in the event of damage or
interruption, our insurance policies may not adequately compensate us for any losses that we may incur.
System failures or outages, including any potential disruptions due to significantly increased global demand on
certain cloud-based systems, could compromise our ability to perform these functions in a timely manner, which
could harm our ability to conduct business or delay our financial reporting. Such failures could adversely affect
our operating results and financial condition.
Our platform is accessed by many customers, often at the same time. As we continue to expand the
number of our customers and products available to our customers, we may not be able to scale our technology
to accommodate the increased capacity requirements, which may result in interruptions or delays in service. In
addition, the failure of data centers, internet service providers, or other third-party service providers to meet our
capacity requirements could result in interruptions or delays in access to our platform or impede our ability to
grow our business and scale our operations. If our third-party infrastructure service agreements are terminated,
or there is a lapse of service, interruption of internet service provider connectivity, or damage to data centers,
we could experience interruptions in access to our platform as well as delays and additional expense in
arranging new facilities and services
Moreover, we are in the process of migrating our systems from internal data centers and smaller
vendors to AWS. AWS provides us with computing and storage capacity pursuant to an agreement that
continues until terminated by either party. We have a limited history of operating on AWS. As we migrate our
data from our servers to AWS’ servers, we may experience some duplication and incur additional costs. If our
data migration is not successful, or if AWS unexpectedly terminates our agreement, we would be forced to incur
additional expenses to locate an alternative provider and may experience outages or disruptions to our service.
Any service disruption affecting our platform during such migration or while operating on the AWS cloud
infrastructure could damage our reputation with current and potential customers, expose us to liability, cause us
to lose customers, or otherwise harm our business.
If we lose our founder or key members of our management team or are unable to attract and retain
executives and employees we need to support our operations and growth, our business may be
harmed.
Our success and future growth depend upon the continued services of our management team and other
key employees. Our founder and Chief Executive Officer, René Lacerte, is critical to our overall management,
as well as the continued development of our products, our partnerships, our culture, our relationships with
accounting firms, and our strategy. From time to time, there may be changes in our management team resulting
from the hiring or departure of executives and key employees, which could disrupt our business. In addition, we
may face challenges retaining senior management of acquired businesses. Our senior management and key
employees are employed on an at-will basis. We currently do not have “key person” insurance for any of our
employees. Certain of our key employees have been with us for a long period of time and have fully vested
29
stock options or other long-term equity incentives that may become valuable and are publicly tradable. The loss
of our founder, or one or more of our senior management, key members of senior management of acquired
companies or other key employees could harm our business, and we may not be able to find adequate
replacements. We cannot ensure that we will be able to retain the services of any members of our senior
management or other key employees or that we would be able to timely replace members of our senior
management or other key employees should any of them depart.
In addition, to execute our business strategy, we must attract and retain highly qualified personnel. We
compete with many other companies for software developers with high levels of experience in designing,
developing, and managing cloud-based software and payments systems, as well as for skilled legal and
compliance and risk operations professionals. Competition for software developers, compliance and risk
management personnel, and other key employees in our industry and locations is intense and increasing and
may be exacerbated in tight labor markets. We may also face increased competition for personnel from other
companies which adopt approaches to remote work that differ from ours. In addition, the current regulatory
environment related to immigration is uncertain, including with respect to the availability of H1-B and other
visas. If a new or revised visa program is implemented, it may impact our ability to recruit, hire, retain, or
effectively collaborate with qualified skilled personnel, including in the areas of AI and machine learning, and
payment systems and risk management, which could adversely impact our business, operating results, and
financial condition. Many of the companies with which we compete for experienced personnel have greater
resources than we do and can frequently offer such personnel substantially greater compensation than we can
offer. If we fail to identify, attract, develop, and integrate new personnel, or fail to retain and motivate our current
personnel, our growth prospects would be adversely affected.
Future acquisitions, strategic investments, partnerships, collaborations, or alliances could be difficult
to identify and integrate, divert the attention of management, disrupt our business, dilute stockholder
value, and adversely affect our operating results and financial condition.
We have in the past and may in the future seek to acquire or invest in businesses, products, or
technologies that we believe could complement or expand our platform, enhance our technical capabilities, or
otherwise offer growth opportunities. For example, in November 2022 we completed the acquisition of Finmark
Financial, Inc. to augment our financial planning product offerings. However, we have limited experience in
acquiring other businesses, and we may not successfully identify desirable acquisition targets in the future.
Moreover, an acquisition, investment, or business relationship may not further our business strategy or result in
the economic benefits or synergies as expected or may result in unforeseen operating difficulties and
expenditures, including disrupting our ongoing operations, diverting management from their primary
responsibilities, subjecting us to additional liabilities, increasing our expenses, and adversely impacting our
business, financial condition, and operating results.
In addition, the technology and information security systems and infrastructure of businesses we
acquire may be underdeveloped or subject to vulnerabilities, subjecting us to additional liabilities. We could
incur significant costs related to the implementation of enhancements to or the scaling of information security
systems and infrastructure of acquired businesses and related to the remediation of any related security
breaches. If security, data protection, and information security measures in place at businesses we acquire are
inadequate or breached, or are subject to cybersecurity attacks, or if any of the foregoing is reported or
perceived to have occurred, our reputation and business could be damaged and we could be subject to
regulatory scrutiny, investigations, proceedings, and penalties. We may also acquire businesses whose
operations may not be fully compliant with all applicable law, including economic and trade sanctions and anti-
money laundering, counter-terrorist financing, and privacy laws, subjecting us to potential liabilities and requiring
us to spend considerable time, effort, and resources to address.
Moreover, we may acquire businesses whose management or compliance functions require significant
investments to support current and anticipated future product offerings, or that have underdeveloped internal
control infrastructures or procedures or with respect to which we discover significant deficiencies or material
weaknesses. The costs that we may incur to implement or improve such functions, controls, and procedures
may be substantial and we could encounter unexpected delays and challenges related to such activity.
Given the complexity of our platform and the distinct interface and tools that we offer to our accounting
firm partners and financial institution partners, it may be critical that certain businesses or technologies that we
acquire be successfully and fully integrated into our platform. In addition, some acquisitions may require us to
30
spend considerable time, effort, and resources to integrate employees from the acquired business into our
teams, and acquisitions of companies in lines of business in which we lack expertise may require considerable
management time, oversight, and research before we see the desired benefit of such acquisitions. Therefore,
we may be exposed to unknown liabilities and the anticipated benefits of any acquisition, investment, or
business relationship may not be realized, if, for example, we fail to successfully integrate such acquisitions, or
the technologies associated with such acquisitions, into our company. The challenges and costs of integrating
and achieving anticipated synergies and benefits of transactions, and the risk that the anticipated benefits of the
proposed transaction may not be fully realized or take longer to realize than expected, may be compounded
where we attempt to integrate multiple acquired businesses within similar timeframes, as was the case with the
concurrent integration efforts related to our acquisitions of the Divvy and Invoice2go businesses.
Acquisitions could also result in dilutive issuances of equity securities or the incurrence of debt, as well
as unfavorable accounting treatment and exposure to claims and disputes by third parties, including intellectual
property claims. We also may not generate sufficient financial returns to offset the costs and expenses related
to any acquisitions. In addition, if an acquired business fails to meet our expectations, our business, operating
results, and financial condition may suffer.
If we fail to offer high-quality customer support, or if our support is more expensive than anticipated,
our business and reputation could suffer.
Our customers rely on our customer support services to resolve issues and realize the full benefits
provided by our platform, as well as to understand and fully utilize the growing suite of products we offer. A
range of high-quality support options is critical for the renewal and expansion of our subscriptions with existing
customers: we provide customer support via chat, email, and phone through a combination of AI-assisted
interactions with the BILL Virtual Assistant as well as robust support from a highly trained staff of customer
success personnel. If we do not help our customers quickly resolve issues and provide effective ongoing
support, or if our support personnel or methods of providing support are insufficient to meet the needs of our
customers, our ability to retain customers, increase adoption by our existing customers, and acquire new
customers could suffer, and our reputation with existing or potential customers could be harmed. If we are not
able to meet the customer support needs of our customers during the hours that we currently provide support,
we may need to increase our support coverage or provide additional support, which may reduce our profitability.
If we fail to adapt and respond effectively to rapidly changing technology, evolving industry standards,
changing regulations, and changing business needs, requirements, or preferences, our products may
become less competitive.
The market for SMB software financial back-office solutions is relatively new and subject to ongoing
technological change, evolving industry standards, payment methods, and changing regulations, as well as
changing customer needs, requirements, and preferences. The success of our business will depend, in part, on
our ability to adapt and respond effectively to these changes on a timely basis, including launching new
products and services. In addition, the market for our spend and expense management solution is new and
fragmented, and it is uncertain whether we will achieve and sustain high levels of demand and market adoption.
The success of any new product and service, or any enhancements or modifications to existing products and
services, depends on several factors, including the timely completion, introduction, and market acceptance of
such products and services, enhancements, and modifications. If we are unable to enhance our platform, add
new payment methods, or develop new products that keep pace with technological and regulatory change and
achieve market acceptance, or if new technologies emerge that are able to deliver competitive products and
services at lower prices, more efficiently, more conveniently, or more securely than our products, our business,
operating results, and financial condition would be adversely affected. Furthermore, modifications to our existing
platform or technology will increase our research and development expenses. Any failure of our services to
operate effectively with existing or future network platforms and technologies could reduce the demand for our
services, result in customer or spending business dissatisfaction, and adversely affect our business.
If the prices we charge for our services are unacceptable to our customers, our operating results will be
harmed.
31
We generate revenue by charging customers a fixed monthly rate per user for subscriptions as well as
transaction fees. As the market for our platform matures, or as new or existing competitors introduce new
products or services that compete with ours, we may experience pricing pressure and be unable to renew our
agreements with existing customers or attract new customers at prices that are consistent with our pricing
model and operating budget. Our pricing strategy for new products we introduce and existing products we
continue to offer may prove to be unappealing to our customers, and our competitors could choose to bundle
certain products and services competitive with ours. If this were to occur, it is possible that we would have to
change our pricing strategies or reduce our prices, which could harm our revenue, gross profits, and operating
results.
We typically provide service level commitments under our financial institution partner agreements. If we
fail to meet these contractual commitments, we could be obligated to provide credits or refunds for
prepaid amounts related to unused subscription services or face contract terminations, which could
adversely affect our revenue.
Our agreements with our financial institution partners typically contain service level commitments
evaluated on a monthly basis. If we are unable to meet the stated service level commitments or suffer extended
periods of unavailability for our platform, we may be contractually obligated to provide these partners with
service credits, up to 10% of the partner’s subscription fees for the month in which the service level was not
met. In addition, we could face contract terminations, in which case we would be subject to refunds for prepaid
amounts related to unused subscription services. Our revenue could be significantly affected if we suffer
unexcused downtime under our agreements with our partners. Further, any extended service outages could
adversely affect our reputation, revenue, and operating results.
We may not be able to scale our business quickly enough to meet our customers’ growing needs, and if
we are not able to grow efficiently, our operating results could be harmed.
As usage of our platform grows and we sign additional partners, we will need to devote additional
resources to improving and maintaining our infrastructure and computer network and integrating with third-party
applications to maintain the performance of our platform. In addition, we will need to appropriately scale our
internal business systems and our services organization, including customer support, risk and compliance
operations, and professional services, to serve our growing customer base.
Any failure of or delay in these efforts could result in service interruptions, impaired system
performance, and reduced customer satisfaction, resulting in decreased sales to new customers, lower
subscription renewal rates by existing customers, the issuance of service credits, or requested refunds, all of
which could hurt our revenue growth. If sustained or repeated, these performance issues could reduce the
attractiveness of our platform to customers and could result in lost customer opportunities and lower renewal
rates, any of which could hurt our revenue growth, customer loyalty, and our reputation. Even if we are
successful in these efforts to scale our business, they will be expensive and complex, and require the dedication
of significant management time and attention. We could also face inefficiencies or service disruptions as a result
of our efforts to scale our internal infrastructure. We cannot be sure that the expansion and improvements to our
internal infrastructure will be effectively implemented on a timely basis, if at all, and such failures could
adversely affect our business, operating results, and financial condition.
Failure to effectively develop and expand our sales and marketing capabilities could harm our ability to
increase our customer base and achieve broader market acceptance of our products.
Our ability to increase our customer base and achieve broader market acceptance of our platform will
depend to a significant extent on our ability to expand our sales and marketing organizations, and to deploy our
sales and marketing resources efficiently. Although we will adjust our sales and marketing spend levels as
needed in response to changes in the economic environment, we plan to continue expanding our direct-to-SMB
sales force as well as our sales force focused on identifying new partnership opportunities. We also dedicate
significant resources to sales and marketing programs, including digital advertising through services such as
Google AdWords. The effectiveness and cost of our online advertising has varied over time and may vary in the
future due to competition for key search terms, changes in search engine use, and changes in the search
algorithms used by major search engines. These efforts will require us to invest significant financial and other
resources.
32
In addition, our ability to broaden the spending business base for our Divvy spend and expense
management offerings and achieve broader market acceptance of these products will depend to a significant
extent on the ability of our sales and marketing organizations to work together to drive our sales pipeline and
cultivate spending business and partner relationships to drive revenue growth. If we are unable to recruit, hire,
develop, and retain talented sales or marketing personnel, if our new sales or marketing personnel and partners
are unable to achieve desired productivity levels in a reasonable period of time, or if our sales and marketing
programs are not effective, our ability to broaden our spending business base and achieve broader market
acceptance of our platform could be harmed. Moreover, our Divvy marketing efforts depend significantly on our
ability to call on our current spending businesses to provide positive references to new, potential spending
business customers. Given our limited number of long-term spending businesses, the loss or dissatisfaction of
any spending business could substantially harm our brand and reputation, inhibit the market adoption of our
offering, and impair our ability to attract new spending businesses and maintain existing spending businesses.
Our business and operating results will be harmed if our sales and marketing efforts do not generate
significant increases in revenue. We may not achieve anticipated revenue growth from expanding our sales
force if we are unable to hire, develop, integrate, and retain talented and effective sales personnel, if our new
and existing sales personnel are unable to achieve desired productivity levels in a reasonable period of time, or
if our sales and marketing programs and advertising are not effective.
We currently handle cross-border payments and plan to expand our payments offerings to new
customers and to make payments to new countries, creating a variety of operational challenges.
A component of our growth strategy involves our cross-border payments product and, ultimately,
expanding our operations internationally. Although we do not currently offer our payments products to
customers outside the U.S., starting in 2018, we introduced cross-border payments, and now, working with two
international payment services, offer our U.S.-based customers the ability to disburse funds to over 130
countries. We are continuing to adapt to and develop strategies to address payments to new countries.
However, there is no guarantee that such efforts will have the desired effect.
Our cross-border payments product and international expansion strategy involve a variety of risks,
including:
•
•
•
•
•
•
•
•
complying with financial regulations and our ability to comply and obtain any relevant licenses
in applicable countries or jurisdictions;
currency exchange rate fluctuations and our cross-border payments providers' ability to provide
us favorable currency exchange rates, which may impact our revenues and expenses;
reduction or cessation in cross-border trade resulting from government sanctions, trade tariffs
or restrictions, other trade regulations or strained international relations;
potential application of more stringent regulations relating to privacy, information protection, and
data security, and the authorized use of, or access to, commercial and personal information;
sanctions imposed by applicable government authorities or jurisdictions, such as OFAC, or
comparable authorities in other countries;
exposure to liabilities under anti-corruption and anti-money laundering laws, including the U.S.
Foreign Corrupt Practices Act (FCPA), U.S. bribery laws, the UK Bribery Act, and similar laws
and regulations in other jurisdictions;
unexpected changes in tax laws; and
cessation of business of a cross-border payment service provider or other limitation or inability
of a cross-border payment service provider to make payments into certain countries, including
for the reasons set forth above.
If we invest substantial time and resources to further expand our cross-border payments offering and
are unable to do so successfully and in a timely manner, our business and operating results may suffer.
33
A substantial portion of our revenue is derived from interchange revenue, which exposes us to potential
variability in income and other risks.
Certain of our products, including our Divvy charge card and our virtual card products, generate
revenue primarily from interchange paid by the supplier accepting the cards for purchase transactions.
Interchange revenue comprises a substantial portion of our total revenue. The amount of interchange fees we
earn is highly dependent upon the interchange rates set by the third-party card networks and, from time to time,
card networks change the interchange fees and assessments they charge for transactions processed using
their networks. In addition, interchange fees are the subject of intense legal and regulatory scrutiny and
competitive pressures in the electronic payments industry.
Interchange revenue involves a variety of risks, including:
•
•
•
•
•
interchange revenue fluctuations due to the variability of card acceptance practices at supplier
locations, and the resulting effect on our revenue;
changes in card network interchange rates or rules which could dissuade new and existing
card-accepting suppliers from continuing to accept card payments;
unexpected compliance and risk management imposed by the card networks or resulting from
changes in regulation;
declines in the number of active card-accepting suppliers due to concerns about cost or
operational complexity; and
unexpected changes in card acceptance or card issuing rules which may impact our ability to
offer this payment product.
Any of these developments could adversely affect our business, financial condition, and operating
results.
If we fail to maintain and enhance our brands, our ability to expand our customer base will be impaired
and our business, operating results, and financial condition may suffer.
We believe that maintaining and enhancing our brands are important to support the marketing and sale
of our existing and future products to new customers and partners and to expand sales of our platforms to new
and existing customers and partners. Our ability to protect our BILL brand is limited as a result of its descriptive
nature. Successfully maintaining and enhancing our brands will depend largely on the effectiveness of our
marketing and demand generation efforts, our ability to provide reliable products that continue to meet the
needs of our customers at competitive prices, our ability to maintain our customers’ trust, our ability to continue
to develop new functionality and products, and our ability to successfully differentiate our platform and products
from competitive products and services. Our brand promotion activities may not generate customer awareness
or yield increased revenue, and even if they do, any increased revenue may not offset the expenses we incur in
building our brand. If we fail to successfully promote and maintain our brands, our business could suffer.
Changes to payment card networks rules or fees could harm our business.
We are required to comply with the Mastercard, American Express, and Visa payment card network
operating rules applicable to our card products. We have agreed to reimburse certain service providers for any
fines they are assessed by payment card networks as a result of any rule violations by us. We may also be
directly liable to the payment card networks for rule violations. The payment card networks set and interpret the
card operating rules. The payment card networks could adopt new operating rules or interpret or reinterpret
existing rules that we or our processors might find difficult or even impossible to follow, or costly to implement.
We also may seek to introduce other card-related products in the future, which would entail compliance with
additional operating rules. As a result of any violations of rules, new rules being implemented, or increased fees,
we could be hindered or lose our ability to provide our card products, which would adversely affect our
business. In addition, we are contractually obligated to comply with MasterCard and Visa network rules as a
card program manager. As a result of any violations of these rules or new rules being implemented, we could
lose our ability or rights to act as a card program manager.
34
We may require additional capital to support the growth of our business, and this capital might not be
available on acceptable terms, if at all.
We have funded our operations since inception primarily through equity and debt financings, sales of
subscriptions to our products, usage-based transaction fees and interest earned on customer funds. We cannot
be certain when or if our operations will generate sufficient cash to fully fund our ongoing operations or the
growth of our business. We intend to continue to make investments to support our business, which may require
us to engage in equity or debt financings to secure additional funds. We may also seek to raise additional
capital from equity or debt financings on an opportunistic basis when we believe there are suitable opportunities
for doing so. Additional financing may not be available on terms favorable to us, if at all. If adequate funds are
not available on acceptable terms, we may be unable to invest in future growth opportunities, which could harm
our business, operating results, and financial condition. If we incur additional debt, the debt holders would have
rights senior to holders of common stock to make claims on our assets, and the terms of any debt could restrict
our operations, including our ability to pay dividends on our common stock. Furthermore, if we issue additional
equity securities, including in connection with merger and acquisition transactions, stockholders will experience
dilution. In addition, new equity securities could have rights senior to those of our common stock. During fiscal
2023, interest rates increased and the trading prices for our common stock and other technology companies
have been highly volatile, which may reduce our ability to access capital on favorable terms or at all. More
recently, credit and capital markets have been impacted by instability in the U.S. banking system. In addition, a
recession or depression, high inflation, or other sustained adverse market event could materially and adversely
affect our business and the value of our common stock. Because our decision to issue securities in the future
will depend on numerous considerations, including factors beyond our control, we cannot predict or estimate the
amount, timing, or nature of any future issuances of debt or equity securities. As a result, our stockholders bear
the risk of future issuances of debt or equity securities reducing the value of our common stock and diluting their
interests.
Our ability to use our net operating losses to offset future taxable income may be subject to certain
limitations.
As of June 30, 2023, we had net operating loss (NOL) carryforwards of approximately $1.4 billion,
$1.1 billion, and $83.4 million for federal, state, and foreign tax purposes, respectively, that are available to
reduce future taxable income. If not utilized, the state NOL carryforwards will begin to expire in 2025. As of
June 30, 2023, the federal and foreign NOL carryforwards do not expire and will carry forward indefinitely until
utilized. As of June 30, 2023, we also had research and development tax credit carryforwards of approximately
$56.1 million and $35.6 million for federal and state tax purposes, respectively. If not utilized, the federal tax
credits will expire at various dates beginning in 2039. The state tax credits do not expire and will carry forward
indefinitely until utilized. In general, under Sections 382 and 383 of the U.S. Internal Revenue Code of 1986, as
amended (the Code), a corporation that undergoes an “ownership change” is subject to limitations on its ability
to utilize its pre-change NOLs and other tax attributes, such as research tax credits, to offset future taxable
income or income tax. If it is determined that we have in the past experienced an ownership change, or if we
undergo one or more ownership changes as a result of future transactions in our stock, then our ability to utilize
NOLs and other pre-change tax attributes could be limited by Sections 382 and 383 of the Code. Future
changes in our stock ownership, many of which are outside of our control, could result in an ownership change
under Sections 382 or 383 of the Code. Furthermore, our ability to utilize NOLs of companies that we may
acquire in the future may be subject to limitations. For these reasons, we may not be able to utilize a material
portion of the NOLs, even if we were to achieve profitability. In addition, any future changes in tax laws could
impact our ability to utilize NOLs in future years and may result in greater tax liabilities than we would otherwise
incur and adversely affect our cash flows and financial position.
We could be required to collect additional sales taxes or be subject to other tax liabilities that may
increase the costs our customers would have to pay for our offering and adversely affect our operating
results.
The vast majority of states have considered or adopted laws that impose tax collection obligations on
out-of-state companies. States where we have nexus may require us to calculate, collect, and remit taxes on
sales in their jurisdiction. Additionally, the Supreme Court of the U.S. recently ruled in South Dakota v. Wayfair,
Inc. et al (Wayfair) that online sellers can be required to collect sales and use tax despite not having a physical
presence in the buyer’s state. In response to Wayfair, or otherwise, states or local governments may enforce
laws requiring us to calculate, collect, and remit taxes on sales in their jurisdictions. We may be obligated to
35
collect and remit sales and use taxes in states where we have not collected and remitted sales and use taxes. A
successful assertion by one or more states requiring us to collect taxes where we historically have not or
presently do not do so could result in substantial tax liabilities, including taxes on past sales, as well as
penalties and interest. The imposition by state governments or local governments of sales tax collection
obligations on out-of-state sellers could also create additional administrative burdens for us, put us at a
perceived competitive disadvantage if they do not impose similar obligations on our competitors, and decrease
our future sales, which could adversely affect our business and operating results.
Changes in our effective tax rate or tax liability may adversely affect our operating results.
Our effective tax rate could increase due to several factors, including:
•
•
•
•
•
changes in the relative amounts of income before taxes in the various U.S. and international
jurisdictions in which we operate due to differing statutory tax rates in various jurisdictions;
changes in tax laws, tax treaties, and regulations or the interpretation of them, including the
2017 Tax Act as modified by the CARES Act, and the Inflation Reduction Act of 2022;
changes to our assessment about our ability to realize our deferred tax assets that are based
on estimates of our future results, the prudence and feasibility of possible tax planning
strategies, and the economic and political environments in which we do business;
the outcome of current and future tax audits, examinations, or administrative appeals; and
limitations or adverse findings regarding our ability to do business in some jurisdictions.
Any of these developments could adversely affect our operating results.
We use artificial intelligence in our business, and challenges with properly managing its use could
result in reputational harm, competitive harm, and legal liability, and adversely affect our results of
operations.
We currently leverage AI into certain aspects of our platform, such as prepopulating invoices based on
the historical behavior of businesses using our solutions and modeling businesses' creditworthiness and
offering them and their counterparties expedited means of payment. Moving forward, we anticipate that AI will
become increasingly important to our platform. Our competitors and other third parties may incorporate AI into
their products and offerings more quickly or more successfully than us, which could impair our ability to compete
effectively and adversely affect our results of operations. Additionally, if the content, analyses, or
recommendations that AI applications assist in producing are or are alleged to be inaccurate, deficient, or
biased, our business, financial condition, and results of operations may be adversely affected. The use of AI
applications has resulted in, and may in the future result in, cybersecurity incidents that implicate the personal
data of customers analyzed within such applications. Any such cybersecurity incidents related to our use of AI
applications to analysis personal data could adversely affect our reputation and results of operations. AI also
presents emerging ethical issues and if our use of AI becomes controversial, we may experience brand or
reputational harm, competitive harm, or legal liability. The rapid evolution of AI, including potential government
regulation of AI and it various uses, will require significant resources to develop, test and maintain our platform,
offerings, services, and features to help us implement AI ethically in order to minimize unintended, harmful
impact.
Natural catastrophic events, pandemics, and man-made problems such as power-disruptions, computer
viruses, data security breaches, war, and terrorism may disrupt our business.
Natural disasters, pandemics such as the COVID-19 pandemic, other catastrophic events, and man-
made problems, such as terrorism, war, or economic or trade sanctions related to war (including the 2022
Russian invasion of Ukraine), may cause damage or disruption to our operations, international commerce, and
the global economy, and thus could harm our business. We have a large employee presence in the San
Francisco Bay Area in California, Draper, Utah, Houston, Texas and Sydney, Australia, and our data centers are
located in California and Arizona. The west coast of the U.S. contains active earthquake zones and is subject to
frequent wildfire outbreaks, the Houston area frequently experiences significant hurricanes and Sydney also
frequently experiences wildfires. In the event of a major earthquake, hurricane, or catastrophic event such as
fire, flooding, power loss, telecommunications failure, vandalism, cyber-attack, war, or terrorist attack, we may
36
be unable to continue our operations and may endure system interruptions, reputational harm, delays in our
application development, lengthy interruptions in our products, breaches of data security, and loss of critical
data, all of which could harm our business, operating results, and financial condition. In addition, data centers
depend on predictable and reliable energy and networking capabilities, which could be affected by a variety of
factors, including climate change.
Additionally, as computer malware, viruses, and computer hacking, fraudulent use attempts, and
phishing attacks have become more prevalent, we, and third parties upon which we rely, face increased risk in
maintaining the performance, reliability, security, and availability of our solutions and related services and
technical infrastructure to the satisfaction of our customers. Any computer malware, viruses, computer hacking,
fraudulent use attempts, phishing attacks, or other data security breaches related to our network infrastructure
or information technology systems or to computer hardware we lease from third parties, could, among other
things, harm our reputation and our ability to retain existing customers and attract new customers.
In addition, the insurance we maintain may be insufficient to cover our losses resulting from disasters,
cyber-attacks, or other business interruptions, and any incidents may result in loss of, or increased costs of,
such insurance.
If we fail to maintain an effective system of disclosure controls and internal control over financial
reporting, our ability to produce timely and accurate financial statements or comply with applicable
laws and regulations could be impaired.
We are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002
(Sarbanes-Oxley), the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the listing
requirements of the New York Stock Exchange (NYSE), and other applicable securities rules and regulations.
Compliance with these rules and regulations will increase our legal and financial compliance costs, make some
activities more difficult, time consuming, or costly, and increase demand on our systems and resources. The
Exchange Act requires, among other things, that we file annual, quarterly, and current reports with respect to
our business and operating results. Sarbanes-Oxley requires, among other things, that we maintain effective
disclosure controls and procedures and internal control over financial reporting. It may require significant
resources and management oversight to maintain and, if necessary, improve our disclosure controls and
procedures and internal control over financial reporting to meet this standard. As a result, management’s
attention may be diverted from other business concerns, which could adversely affect our business and
operating results. Although we have already hired additional employees to comply with these requirements, we
may need to hire more employees in the future or engage outside consultants, which would increase our costs
and expenses.
We are required, pursuant to Section 404 of Sarbanes-Oxley (Section 404), to furnish a report by
management on, among other things, the effectiveness of our internal control over financial reporting. Effective
internal control over financial reporting is necessary for us to provide reliable financial reports and, together with
adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required
new or improved controls, or difficulties encountered in their implementation, could cause us to fail to meet our
reporting obligations. Ineffective internal controls could also cause investors to lose confidence in our reported
financial information, which could have a negative effect on the trading price of our common stock.
This assessment needs to include disclosure of any material weaknesses identified by our management
in our internal control over financial reporting, as well as a statement that our independent registered public
accounting firm has issued an opinion on the effectiveness of our internal control over financial reporting.
Section 404(b) of the Sarbanes-Oxley Act requires our independent registered public accounting firm to
annually attest to the effectiveness of our internal control over financial reporting, which has, and will continue
to, require increased costs, expenses, and management resources. An independent assessment of the
effectiveness of our internal controls could detect problems that our management’s assessment might not.
Undetected material weaknesses in our internal controls could lead us to restate our financial statements, which
could cause investors to lose confidence in our reported financial information, have a negative effect on the
trading price of our common stock, and result in additional costs to remediate such material weaknesses. We
are required to disclose changes made in our internal control and procedures on a quarterly basis. To comply
with the requirements of being a public company, we may need to undertake various actions, such as
implementing new internal controls and procedures and hiring accounting or internal audit staff. For example, in
May 2023, we concluded that a material weakness in our internal control over financial reporting existed as of
37
June 30, 2022, as a result of insufficient testing, documentation, and evidence retention related to certain
information systems and applications within the quote-to-cash process. While this material weakness was
remediated as of June 30, 2023, there can be no assurance that we will not have material weaknesses or
deficiencies in our internal control over financial reporting in the future. If we are unable to assert that our
internal control over financial reporting is effective, or if our independent registered public accounting firm issues
an adverse opinion on the effectiveness of our internal control, we could lose investor confidence in the
accuracy and completeness of our financial reports, which could cause the price of our common stock to
decline, and we may be subject to investigation or sanctions by the SEC. In addition, if we are unable to
continue to meet these requirements, we may not be able to remain listed on the NYSE.
Our reported financial results may be adversely affected by changes in accounting principles generally
accepted in the U.S.
U.S. generally accepted accounting principles (GAAP) is subject to interpretation by the Financial
Accounting Standards Board (FASB), the SEC, and various bodies formed to promulgate and interpret
appropriate accounting principles. A change in these principles or interpretations could have a significant effect
on our reported operating results and financial condition and could affect the reporting of transactions already
completed before the announcement of a change.
If our estimates or judgments relating to our critical accounting policies prove to be incorrect, our
operating results could be adversely affected.
The preparation of financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the amounts reported in the consolidated financial statements and
accompanying notes. We base our estimates on historical experience and on various other assumptions that we
believe to be reasonable under the circumstances, as provided in the section titled “Management’s Discussion
and Analysis of Financial Condition and Operating Results—Critical Accounting Policies and Estimates.” The
results of these estimates form the basis for making judgments about the carrying values of assets, liabilities,
and equity, and the amount of revenue and expenses that are not readily apparent from other sources.
Significant estimates and judgments may involve the variable consideration used in revenue recognition for
certain contracts, determination of useful lives of long-lived intangible assets, present value estimation of
operating lease liabilities, the estimate of losses on accounts receivable, acquired card receivables and other
financial assets, accrual for rewards, inputs used to value certain stock-based compensation awards, benefit
period to amortize deferred costs and valuation of income taxes. Our operating results may be adversely
affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could
cause our operating results to fall below the expectations of securities analysts and investors, resulting in a
decline in the trading price of our common stock.
Our estimates of market opportunity and forecasts of market growth may prove to be inaccurate, and
even if the market in which we compete achieves the forecasted growth, our business could fail to grow
at similar rates, if at all.
Market opportunity estimates and growth forecasts, including those we have generated ourselves, are
subject to significant uncertainty and are based on assumptions and estimates that may not prove to be
accurate. The variables that go into the calculation of our market opportunity are subject to change over time,
and there is no guarantee that any particular number or percentage of addressable users or companies covered
by our market opportunity estimates will purchase our products at all or generate any particular level of revenue
for us. Any expansion in the markets in which we operate depends on a number of factors, including the cost,
performance, and perceived value associated with our platforms and those of our competitors. Even if the
markets in which we compete meet the size estimates and growth forecasted, our business could fail to grow at
similar rates, if at all. Our growth is subject to many factors, including our success in implementing our business
strategy, which is subject to many risks and uncertainties. Accordingly, our forecasts of market growth should
not be taken as indicative of our future growth.
We rely on assumptions and estimates to calculate certain of our performance metrics, and real or
perceived inaccuracies in such metrics may harm our reputation and negatively affect our business.
38
We calculate and track certain customer and other performance metrics with internal tools, which are
not independently verified by any third party. While we believe our metrics are reasonable estimates of our
customer base and payment and transaction volumes for the applicable period of measurement, the
methodologies used to measure these metrics require significant judgment and may be susceptible to algorithm
or other technical errors. For example, the accuracy and consistency of our performance metrics may be
impacted by changes to internal assumptions regarding how we account for and track customers, limitations on
system implementations, and limitations on the ability of third-party tools to match our database. If the internal
tools we use to track these metrics undercount or overcount performance or contain algorithmic or other
technical errors, the data we report may not be accurate. In addition, limitations or errors with respect to how we
measure data (or the data that we measure) may affect our understanding of certain details of our business,
which could affect our longer-term strategies. Further, as our business develops, we may revise or cease
reporting certain metrics if we determine that such metrics are no longer accurate or appropriate measures of
our performance. If our performance metrics are not accurate representations of our business, customer base,
or payment or transaction volumes, if we discover material inaccuracies in our metrics, or if the metrics we rely
on to track our performance do not provide an accurate measurement of our business, our reputation may be
harmed, we may be subject to legal or regulatory actions, and our business, operating results, financial
condition, and prospects could be adversely affected.
Any future litigation against us could be costly and time-consuming to defend.
We have in the past and may in the future become subject to legal proceedings and claims that arise in
the ordinary course of business, such as claims brought by our customers in connection with commercial
disputes, employment claims made by our current or former employees, or claims for reimbursement following
misappropriation of customer data. Litigation might result in substantial costs and may divert management’s
attention and resources, which might seriously harm our business, overall financial condition, and operating
results. Insurance might not cover such claims, might not provide sufficient payments to cover all the costs to
resolve one or more such claims, and might not continue to be available on terms acceptable to us. A claim
brought against us that is uninsured or under-insured could result in unanticipated costs, thereby reducing our
operating results and leading analysts or potential investors to reduce their expectations of our performance,
which could reduce the trading price of our stock.
If we cannot maintain our company culture as we grow, our success and our business may be harmed.
We believe our culture has been a key contributor to our success to date and that the critical nature of
the platform that we provide promotes a sense of greater purpose and fulfillment in our employees. Inorganic
growth through mergers and acquisitions may pose significant challenges to assimilating the company cultures
of acquired companies. Any failure to preserve our culture could negatively affect our ability to retain and recruit
personnel, which is critical to our growth, and to effectively focus on and pursue our corporate objectives. As we
grow and develop the infrastructure of a public company, we may find it difficult to maintain these important
aspects of our culture. If we fail to maintain our company culture, our business and competitive position may be
adversely affected.
We are exposed to foreign currency exchange risk relating to our Australian operations.
We are exposed to foreign currency exchange risk relating to our Australian operations and Australian
subsidiary. A change in foreign currency exchange rates, particularly in Australian dollars to U.S. dollars, can
affect our financial results due to transaction gains or losses related to the remeasurement of certain monetary
asset and monetary liability balances that are denominated in currencies other than U.S. dollars, which is the
functional currency of our Australian subsidiary. In addition, we expect our exposure to foreign currency rate
risks in the future to increase as our international operations increase.
Risks Related to Government Regulation and Privacy Matters
Payments and other financial services-related regulations and oversight are material to our business.
Our failure to comply could materially harm our business.
The local, state, and federal laws, rules, regulations, licensing requirements, and industry standards
that govern our business include, or may in the future include, those relating to banking, deposit-taking, cross-
border and domestic money transmission, foreign exchange, payments services (such as licensed money
39
transmission, payment processing, and settlement services), lending, anti-money laundering, combating
terrorist financing, escheatment, international sanctions regimes, and compliance with the Payment Card
Industry Data Security Standard, a set of requirements designed to ensure that all companies that process,
store, or transmit payment card information maintain a secure environment to protect spending business data.
In addition, Divvy is required to maintain loan brokering or servicing licenses in a number of U.S. states in which
it conducts business and is contractually obligated to comply with FDIC federal banking regulations, as well as
Visa and MasterCard network rules as a card program manager. These laws, rules, regulations, licensing
schemes, and standards are enforced by multiple authorities and governing bodies in the U.S., including the
Department of the Treasury, the FDIC, the SEC, self-regulatory organizations, and numerous state and local
agencies. As we expand into new jurisdictions, the number of foreign laws, rules, regulations, licensing
schemes, and standards governing our business will expand as well. In addition, as our business and products
continue to develop and expand, we may become subject to additional laws, rules, regulations, licensing
schemes, and standards. We may not always be able to accurately predict the scope or applicability of certain
laws, rules, regulations, licensing schemes, or standards to our business, particularly as we expand into new
areas of operations, which could have a significant negative effect on our existing business and our ability to
pursue future plans.
Several of our subsidiaries maintain licenses to operate in regulated businesses in U.S. states and
other countries. Our subsidiary, Bill.com, LLC, maintains licenses, as applicable, to operate as a money
transmitter (or its equivalent) in the U.S., the District of Columbia, the Commonwealth of Puerto Rico, and, to
the best of our knowledge, in all the states where such licensure or registration is required for our business. In
addition, our subsidiary, Bill.com Canada, LLC is a Foreign Money Services Business in Canada and the
regulations applicable to our activity in Canada are enforced by FINTRAC and Quebec’s Financial Markets
Authority. As a licensed money transmitter in the U.S., we are subject to obligations and restrictions with respect
to the investment of customer funds, reporting requirements, bonding requirements, minimum capital
requirements, and examinations by state and federal regulatory agencies concerning various aspects of our
business. As a licensed Foreign Money Services business in Canada, we are subject to Canadian compliance
regulations applicable to money movement and sanctions requirements. In addition, our DivvyPay, LLC
subsidiary holds brokering and servicing licenses required in connection with our Divvy card offering, and
certain of our other subsidiaries hold loan brokering and servicing licenses as well.
Evaluation of our compliance efforts in the U.S. and Canada, as well as questions as to whether and to
what extent our products and services are considered money transmission, are matters of regulatory
interpretation and could change over time. In the past, we have been subject to fines and other penalties by
regulatory authorities for violations of state money transmission laws. Regulators and third-party auditors have
also identified gaps in our anti-money laundering and sanctions program, which we have addressed through
remediation processes. In the future, as a result of the regulations applicable to our business, we could be
subject to investigations and resulting liability, including governmental fines, restrictions on our business, or
other sanctions, and we could be forced to cease conducting certain aspects of our business with residents of
certain jurisdictions, be forced to change our business practices in certain jurisdictions, or be required to obtain
additional licenses or regulatory approvals. There can be no assurance that we will be able to obtain or maintain
any such licenses, and, even if we were able to do so, there could be substantial costs and potential product
changes involved in maintaining such licenses, which could have a material and adverse effect on our business.
In addition, there are substantial costs and potential product changes involved in maintaining and renewing
such licenses, certifications, and approvals, and we could be subject to fines or other enforcement action if we
are found to violate disclosure, reporting, anti-money laundering, capitalization, corporate governance, or other
requirements of such licenses. These factors could impose substantial additional costs, involve considerable
delay to the development or provision of our products or services, require significant and costly operational
changes, or prevent us from providing our products or services in any given market.
Government agencies may impose new or additional rules on money transmission, including
regulations that:
•
•
prohibit, restrict, and/or impose taxes or fees on money transmission transactions in, to, or from
certain countries or with certain governments, individuals, and entities;
impose additional customer and spending business identification and customer or spending
business due diligence requirements;
40
•
•
•
•
•
•
•
•
impose additional reporting or recordkeeping requirements, or require enhanced transaction
monitoring;
limit the types of entities capable of providing money transmission services, or impose
additional licensing or registration requirements;
impose minimum capital or other financial requirements;
limit or restrict the revenue that may be generated from money transmission, including revenue
from interest earned on customer funds, transaction fees, and revenue derived from foreign
exchange;
require enhanced disclosures to our money transmission customers;
require the principal amount of money transmission originated in a country to be invested in that
country or held in trust until paid;
limit the number or principal amount of money transmission transactions that may be sent to or
from a jurisdiction, whether by an individual or in the aggregate; and
restrict or limit our ability to process transactions using centralized databases, for example, by
requiring that transactions be processed using a database maintained in a particular country or
region.
Our business is subject to extensive government regulation and oversight. Our failure to comply with
extensive, complex, overlapping, and frequently changing rules, regulations, and legal interpretations
could materially harm our business.
Our success and increased visibility may result in increased regulatory oversight and enforcement and
more restrictive rules and regulations that apply to our business. We are subject to a wide variety of local, state,
federal, and international laws, rules, regulations, licensing schemes, and industry standards in the U.S. and in
other countries in which we operate and in many of the approximately 150 countries in which Invoice2go has
subscribers. These laws, rules, regulations, licensing schemes, and standards govern numerous areas that are
important to our business. In addition to the payments and financial services-related regulations, and the
privacy, data protection, and information security-related laws described elsewhere in this "Risk Factors" section
our business is also subject to, without limitation, rules and regulations applicable to: securities, labor and
employment, immigration, competition, and marketing and communications practices. Laws, rules, regulations,
licensing schemes, and standards applicable to our business are subject to change and evolving interpretations
and application, including by means of legislative changes and/or executive orders, and it can be difficult to
predict how they may be applied to our business and the way we conduct our operations, particularly as we
introduce new products and services and expand into new jurisdictions. We may not be able to respond quickly
or effectively to regulatory, legislative, and other developments, and these changes may in turn impair our ability
to offer our existing or planned features, products, and services and/or increase our cost of doing business.
Although we have a compliance program focused on the laws, rules, regulations, licensing schemes,
and industry standards that we have assessed as applicable to our business and we are continually investing
more in this program, there can be no assurance that our employees or contractors will not violate such laws,
rules, regulations, licensing schemes, and industry standards. Any failure or perceived failure to comply with
existing or new laws, rules, regulations, licensing schemes, industry standards, or orders of any governmental
authority (including changes to or expansion of the interpretation of those laws, regulations, standards, or
orders), may:
•
•
subject us to significant fines, penalties, criminal and civil lawsuits, license suspension or
revocation, forfeiture of significant assets, audits, inquiries, whistleblower complaints, adverse
media coverage, investigations, and enforcement actions in one or more jurisdictions levied by
federal, state, local, or foreign regulators, state attorneys general, and private plaintiffs who
may be acting as private attorneys general pursuant to various applicable federal, state, and
local laws;
result in additional compliance and licensure requirements;
41
•
•
increase regulatory scrutiny of our business; and
restrict our operations and force us to change our business practices or compliance program,
make product or operational changes, or delay planned product launches or improvements.
The complexity of U.S. federal and state regulatory and enforcement regimes, coupled with the scope
of our international operations and the evolving regulatory environment, could result in a single event giving rise
to many overlapping investigations and legal and regulatory proceedings by multiple government authorities in
different jurisdictions.
Any of the foregoing could, individually or in the aggregate, harm our reputation as a trusted provider,
damage our brands and business, cause us to lose existing customers, prevent us from obtaining new
customers, require us to expend significant funds to remedy problems caused by breaches and to avert further
breaches, expose us to legal risk and potential liability, and adversely affect our business, operating results, and
financial condition.
We are subject to governmental regulation and other legal obligations, particularly those related to
privacy, data protection, and information security, and our actual or perceived failure to comply with
such obligations could harm our business, by resulting in litigation, fines, penalties, or adverse
publicity and reputational damage that may negatively affect the value of our business and decrease the
price of our common stock. Compliance with such laws could also result in additional costs and
liabilities to us or inhibit sales of our products.
Our customers, their suppliers, and other users store personal and business information, financial
information, and other sensitive information on our platform. In addition, we receive, store, and process personal
and business information and other data from and about actual and prospective customers and users, in
addition to our employees and service providers. Our handling of data is subject to a variety of laws and
regulations, including regulation by various government agencies, such as the FTC, and various state, local,
and foreign agencies. Our data handling also is subject to contractual obligations and industry standards.
The U.S. federal and various state and foreign governments have adopted or proposed limitations on
the collection, distribution, use, and storage of data relating to individuals and businesses, including the use of
contact information and other data for marketing, advertising, and other communications with individuals and
businesses. In the U.S., various laws and regulations apply to the collection, processing, disclosure, and
security of certain types of data, including the Gramm Leach Bliley Act and state laws relating to privacy and
data security. Additionally, the FTC and many state attorneys general are interpreting federal and state
consumer protection laws as imposing standards for the online collection, use, dissemination, and security of
data. For example, in June 2018, California enacted the California Consumer Privacy Act (CCPA), which
became operative on January 1, 2020 and broadly defines personal information, gives California residents
expanded privacy rights and protections, and provides for civil penalties for violations and a private right of
action for data breaches. The CCPA was amended several times after its enactment, most recently by the
California Privacy Rights Act (CPRA), which, as of its effective date of January 1, 2023, gives California
residents expanded privacy rights, including the right to opt out of certain personal information sharing, the use
of “sensitive personal information,” and the use of personal information for automated decision-making or
targeted advertising. The CCPA and CPRA provide for civil penalties and a private right of action for data
breaches that is expected to increase data breach litigation. Many aspects of the CCPA, the CPRA, and their
interpretation remain unclear, and their full impact on our business and operations remains uncertain. Following
the lead of California, several other states, including Colorado, Utah, Virginia, and Connecticut have each
enacted laws similar to the CCPA/CPRA and other states are considering enacting privacy laws as well.
Accordingly, the laws and regulations relating to privacy, data protection, and information security are evolving,
can be subject to significant change, and may result in ever-increasing regulatory and public scrutiny and
escalating levels of enforcement and sanctions.
In addition, several foreign countries and governmental bodies, including the European Union (EU) and
the United Kingdom (UK), have laws and regulations dealing with the handling and processing of personal
information obtained from their residents, which in certain cases are more restrictive than those in the U.S.
Laws and regulations in these jurisdictions apply broadly to the collection, use, storage, disclosure, and security
of various types of data, including data that identifies or may be used to identify an individual, such as names,
email addresses, and in some jurisdictions, internet protocol addresses. Our current and prospective service
offerings subject us to the EU's GDPR, the UK GDPR, Australian and Canadian privacy laws, and the privacy
42
laws of many other foreign jurisdictions. Such laws and regulations may be modified or subject to new or
different interpretations, and new laws and regulations may be enacted in the future.
For example, the GDPR and the UK GDPR impose stringent operational requirements for controllers
and processors of personal data of individuals within the European Economic Area and the UK, respectively,
and non-compliance can trigger robust regulatory enforcement and fines of up to the greater of €20 million or
4% of the annual global revenues. Among other requirements, these laws regulate transfers of personal data to
third countries that have not been found to provide adequate protection to such personal data, including the
United States. The efficacy and longevity of current transfer mechanisms between the EU or the UK and the
United States remains uncertain. Violations of the GDPR or the UK GDPR may also lead to damages claims by
data controllers and data subjects, in addition to civil litigation claims by data controllers, customers, and data
subjects.
The scope and interpretation of the laws that are or may be applicable to us are often uncertain and
may be conflicting as a result of the rapidly evolving regulatory framework for privacy issues worldwide. For
example, laws relating to the liability of providers of online services for activities of their users and other third
parties are currently being tested by a number of claims, including actions based on invasion of privacy and
other torts, unfair competition, copyright and trademark infringement, and other theories based on the nature
and content of the materials searched, the ads posted, or the content provided by users. As a result of the laws
that are or may be applicable to us, and due to the sensitive nature of the information we collect, we have
implemented policies and procedures to preserve and protect our data and our customers’ data against loss,
misuse, corruption, misappropriation caused by systems failures, or unauthorized access. If our policies,
procedures, or measures relating to privacy, data protection, information security, marketing, or customer
communications fail to comply with laws, regulations, policies, legal obligations, or industry standards, we may
be subject to governmental enforcement actions, litigation, regulatory investigations, fines, penalties, and
negative publicity, and it could cause our application providers, customers, and partners to lose trust in us, and
have an adverse effect on our business, operating results, and financial condition.
In addition to government regulation, privacy advocates and industry groups may propose new and
different self-regulatory standards that may apply to us. Because the interpretation and application of privacy,
data protection and information security laws, regulations, rules, and other standards are still uncertain, it is
possible that these laws, rules, regulations, and other actual or alleged legal obligations, such as contractual or
self-regulatory obligations, may be interpreted and applied in a manner that is inconsistent with our existing data
management practices or the functionality of our platform. If so, in addition to the possibility of fines, lawsuits,
and other claims, we could be required to fundamentally change our business activities and practices or modify
our software, which could have an adverse effect on our business.
Any failure or perceived failure by us to comply with laws, regulations, policies, legal, or contractual
obligations, industry standards, or regulatory guidance relating to privacy, data protection, or information
security, may result in governmental investigations and enforcement actions, litigation, fines and penalties, or
adverse publicity, and could cause our customers and partners to lose trust in us, which could have an adverse
effect on our reputation and business. We expect that there will continue to be new proposed laws, regulations,
and industry standards relating to privacy, data protection, information security, marketing, and consumer
communications, and we cannot determine the impact such future laws, regulations, and standards may have
on our business. Future laws, regulations, standards, and other obligations or any changed interpretation of
existing laws or regulations could impair our ability to develop and market new functionality and maintain and
grow our customer base and increase revenue. Future restrictions on the collection, use, sharing, or disclosure
of data, or additional requirements for express or implied consent of our customers, partners, or users for the
use and disclosure of such information could require us to incur additional costs or modify our platform, possibly
in a material manner, and could limit our ability to develop new functionality.
If we are not able to comply with these laws or regulations, or if we become liable under these laws or
regulations, our business, financial condition, or reputation could be harmed, and we may be forced to
implement new measures to reduce our exposure to this liability. This may require us to expend substantial
resources or to discontinue certain products, which would negatively affect our business, financial condition,
and operating results. In addition, the increased attention focused upon liability issues as a result of lawsuits
and legislative proposals could harm our reputation or otherwise adversely affect the growth of our business.
Furthermore, any costs incurred as a result of this potential liability could harm our operating results.
43
We, our partners, our customers, and others who use our services obtain and process a large amount
of sensitive data. Any real or perceived improper or unauthorized use of, disclosure of, or access to
such data could harm our reputation as a trusted brand and adversely affect our business, operating
results, and financial condition.
We, our partners, our customers, and the third-party vendors and data centers that we use, obtain and
process large amounts of sensitive data, including data related to our customers and their transactions, as well
as other data of the counterparties to their payments. We face risks, including to our reputation as a trusted
brand, in the handling and protection of this data, and these risks will increase as our business continues to
expand to include new products and technologies.
Cybersecurity incidents and malicious internet-based activity continue to increase generally, and
providers of cloud-based services have frequently been targeted by such attacks. These cybersecurity
challenges, including threats to our own information technology infrastructure or those of our customers or third-
party providers, may take a variety of forms ranging from stolen bank accounts, business email compromise,
customer employee fraud, account takeover, check fraud, or cybersecurity attacks, to “mega breaches” targeted
against cloud-based services and other hosted software, which could be initiated by individual or groups of
hackers or sophisticated cyber criminals. State-sponsored cybersecurity attacks on the U.S. financial system or
U.S. financial service providers could also adversely affect our business. A cybersecurity incident or breach
could result in disclosure of confidential information and intellectual property, or cause production downtimes
and compromised data. We have in the past experienced cybersecurity incidents of limited scale. We may be
unable to anticipate or prevent techniques used in the future to obtain unauthorized access or to sabotage
systems because they change frequently and often are not detected until after an incident has occurred. As we
increase our customer base and our brand becomes more widely known and recognized, third parties may
increasingly seek to compromise our security controls or gain unauthorized access to our sensitive corporate
information or our customers’ data.
We have administrative, technical, and physical security measures in place, and we have policies and
procedures in place to contractually require service providers to whom we disclose data to implement and
maintain reasonable privacy, data protection, and information security measures. However, if our privacy
protection, data protection, or information security measures or those of the previously mentioned third parties
are inadequate or are breached as a result of third-party action, employee or contractor error, malfeasance,
malware, phishing, hacking attacks, system error, software bugs, or defects in our products, trickery, process
failure, or otherwise, and, as a result, there is improper disclosure of, or someone obtains unauthorized access
to or exfiltrates funds or sensitive information, including personally identifiable information, on our systems or
our partners’ systems, or if we suffer a ransomware or advanced persistent threat attack, or if any of the
foregoing is reported or perceived to have occurred, our reputation and business could be damaged. Recent
high-profile security breaches and related disclosures of sensitive data by large institutions suggest that the risk
of such events is significant, even if privacy, data protection, and information security measures are
implemented and enforced. If sensitive information is lost or improperly disclosed or threatened to be disclosed,
we could incur significant costs associated with remediation and the implementation of additional security
measures, and may incur significant liability and financial loss, and be subject to regulatory scrutiny,
investigations, proceedings, and penalties.
In addition, our financial institution partners conduct regular audits of our cybersecurity program, and if
any of them were to conclude that our systems and procedures are insufficiently rigorous, they could terminate
their relationships with us, and our financial results and business could be adversely affected. Under our terms
of service and our contracts with certain partners, if there is a breach of payment information that we store, we
could be liable to the partner for their losses and related expenses. Additionally, if our own confidential business
information were improperly disclosed, our business could be materially and adversely affected. A core aspect
of our business is the reliability and security of our platform. Any perceived or actual breach of security,
regardless of how it occurs or the extent of the breach, could have a significant impact on our reputation as a
trusted brand, cause us to lose existing partners or other customers, prevent us from obtaining new partners
and other customers, require us to expend significant funds to remedy problems caused by breaches and
implement measures to prevent further breaches, and expose us to legal risk and potential liability including
those resulting from governmental or regulatory investigations, class action litigation, and costs associated with
remediation, such as fraud monitoring and forensics. Any actual or perceived security breach at a company
providing services to us or our customers could have similar effects. Further, as the COVID-19 pandemic and
44
ensuing adoption of remote work has resulted in a significant number of people working from home, these
cybersecurity risks may be heightened by an increased attack surface across our business and those of our
partners and service providers. We have heightened monitoring in the face of such risks, but cannot guarantee
that our efforts, or the efforts of those upon whom we rely and partner with, will be successful in preventing any
such information security incidents.
While we maintain cybersecurity insurance, our insurance may be insufficient or may not cover all
liabilities incurred by such attacks. We also cannot be certain that our insurance coverage will be adequate for
data handling or data security liabilities actually incurred, that insurance will continue to be available to us on
economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim. The
successful assertion of one or more large claims against us that exceed available insurance coverage, or the
occurrence of changes in our insurance policies, including premium increases or the imposition of large
deductible or co-insurance requirements, could adversely affect our business, operating results, financial
condition, and reputation.
We are subject to governmental laws and requirements regarding economic and trade sanctions, anti-
money laundering, and counter-terror financing that could impair our ability to compete in international
markets or subject us to criminal or civil liability if we violate them.
Although we currently only offer our payment and card products to customers in the U.S. and Canada,
Invoice2go has international subscribers in approximately 150 countries, including Australia and several EU
countries, for which payment activity is conducted through third-party payment providers. As we continue to
expand internationally, we will become subject to additional laws and regulations, and will need to implement
new regulatory controls to comply with applicable laws. We are currently required to comply with U.S. economic
and trade sanctions administered by OFAC and we have processes in place to comply with the OFAC
regulations as well as similar requirements in other jurisdictions, including the Australian Sanctions Regime, the
Canadian Proceeds of Crime and Terrorist Financing Act and, to the extent we expand our offerings into the UK
and the EU, UK and EU money laundering directives. As part of our compliance efforts, we scan our customers
against OFAC and other watch lists and have controls to monitor and mitigate these risks. If our services are
accessed from a sanctioned country in violation of the trade and economic sanctions, we could be subject to
fines or other enforcement action. We are also subject to various anti-money laundering and counter-terrorist
financing laws and regulations in the U.S., Canada, Australia, and around the world that prohibit, among other
things, our involvement in transferring the proceeds of criminal activities.
In the United States, most of our services are subject to anti-money laundering laws and regulations,
including the BSA and similar state laws and regulations. The BSA requires, among other things, MSBs to
develop and implement risk-based anti-money laundering programs, to report suspicious activity, and in some
cases, to collect and maintain information about customers who use their services and maintain other
transaction records. Regulators in the United States, Canada, Australia, and in many other foreign jurisdictions
continue to increase their scrutiny of compliance with these obligations, which may require us to further revise
or expand our compliance program, including the procedures we use to verify the identity of our customers and
to monitor transactions on our system, including payments to persons outside of the U.S., Canada, and
Australia. Regulators regularly re-examine the transaction volume thresholds at which we must obtain and keep
applicable records or verify identities of customers, and any change in such thresholds could result in greater
costs for compliance.
We are subject to anti-corruption, anti-bribery, and similar laws, and non-compliance with such laws
can subject us to criminal or civil liability and harm our business.
We are subject to the FCPA, U.S. domestic bribery laws, and other anti-corruption laws, including
Australia’s anti-bribery laws, the Canadian Criminal Code and the Canadian Corruption of Foreign Public
Officials Act. Anti-corruption and anti-bribery laws have been enforced aggressively in recent years and are
interpreted broadly to generally prohibit companies, their employees, and their third-party intermediaries from
authorizing, offering, or providing, directly or indirectly, improper payments or benefits to recipients in the public
sector. These laws also require that we keep accurate books and records and maintain internal controls and
compliance procedures designed to prevent any such actions. Although we currently only offer our payment and
card products to customers in the U.S.,and payment services in Canada and the United Kingdom, Invoice2go
has international subscribers in approximately 150 countries, including Australia and several EU countries for
45
which payment activity is conducted through third-party payment providers. As we increase our international
cross-border business and expand operations abroad, we may engage with business partners and third-party
intermediaries to market our services and obtain necessary permits, licenses, and other regulatory approvals. In
addition, we or our third-party intermediaries may have direct or indirect interactions with officials and
employees of government agencies or state-owned or affiliated entities. We can be held liable for the corrupt or
other illegal activities of these third-party intermediaries, our employees, representatives, contractors, partners,
and agents, even if we do not explicitly authorize such activities.
We cannot assure you that all of our employees and agents will not take actions in violation of our
policies and applicable law, for which we may be ultimately held responsible. As we increase our international
business, our risks under these laws may increase.
Detecting, investigating, and resolving actual or alleged violations of anti-corruption laws can require a
significant diversion of time, resources, and attention from senior management. In addition, noncompliance with
anti-corruption or anti-bribery laws could subject us to whistleblower complaints, investigations, sanctions,
settlements, prosecution, enforcement actions, fines, damages, other civil or criminal penalties, injunctions,
suspension or debarment from contracting with certain persons, reputational harm, adverse media coverage,
and other collateral consequences. If any subpoenas are received or investigations are launched, or
governmental or other sanctions are imposed, or if we do not prevail in any possible civil or criminal proceeding,
our business, operating results, and financial condition could be materially harmed. In addition, responding to
any action will likely result in a materially significant diversion of management’s attention and resources and
significant defense costs and other professional fees.
Risks Related to Our Intellectual Property
If we fail to adequately protect our proprietary rights, our competitive position could be impaired and we
may lose valuable assets, generate less revenue, and incur costly litigation to protect our rights.
Our success is dependent, in part, upon protecting our proprietary technology. We rely on a
combination of patents, copyrights, trademarks, service marks, trade secret laws, and contractual provisions to
establish and protect our proprietary rights. However, the steps we take to protect our intellectual property may
be inadequate. While we have been issued patents in the U.S. and have additional patent applications pending,
we may be unable to obtain patent protection for the technology covered in our patent applications. In addition,
any patents issued in the future may not provide us with competitive advantages or may be successfully
challenged by third parties. Any of our patents, trademarks, or other intellectual property rights may be
challenged or circumvented by others or invalidated through administrative process or litigation. There can be
no guarantee that others will not independently develop similar products, duplicate any of our products, or
design around our patents. Furthermore, legal standards relating to the validity, enforceability, and scope of
protection of intellectual property rights are uncertain. Despite our precautions, it may be possible for
unauthorized third parties to copy our products and use information that we regard as proprietary to create
products and services that compete with ours.
We have been in the past, and may in the future be, subject to intellectual property disputes, which are
costly and may subject us to significant liability and increased costs of doing business.
We have been in the past and may in the future become subject to intellectual property disputes.
Lawsuits are time-consuming and expensive to resolve and they divert management’s time and attention.
Although we carry insurance, our insurance may not cover potential claims of this type or may not be adequate
to indemnify us for all liability that may be imposed. We cannot predict the outcome of lawsuits and cannot
assure you that the results of any such actions will not have an adverse effect on our business, operating
results, or financial condition.
The software industry is characterized by the existence of many patents, copyrights, trademarks, trade
secrets, and other intellectual and proprietary rights. Companies in the software industry are often required to
defend against litigation claims based on allegations of infringement or other violations of intellectual property
rights. Our technologies may not be able to withstand any third-party claims against their use. In addition, many
companies have the capability to dedicate substantially greater resources to enforce their intellectual property
rights and to defend claims that may be brought against them. Any litigation may also involve patent holding
46
companies or other adverse patent owners that have no relevant product revenue, and therefore, our patents
may provide little or no deterrence as we would not be able to assert them against such entities or individuals. If
a third party is able to obtain an injunction preventing us from accessing such third-party intellectual property
rights, or if we cannot license or develop alternative technology for any infringing aspect of our business, we
would be forced to limit or stop sales of our software or cease business activities related to such intellectual
property. Any inability to license third-party technology in the future would have an adverse effect on our
business or operating results and would adversely affect our ability to compete. We may also be contractually
obligated to indemnify our customers in the event of infringement of a third party’s intellectual property rights.
Responding to such claims, regardless of their merit, can be time consuming, costly to defend, and damaging to
our reputation and brand.
Indemnity provisions in various agreements potentially expose us to substantial liability for intellectual
property infringement, data protection, and other losses.
Our agreements with financial institution partners and some larger customers include indemnification
provisions under which we agree to indemnify them for losses suffered or incurred as a result of claims of
intellectual property infringement, data protection, damages caused by us to property or persons, or other
liabilities relating to or arising from our platform or other contractual obligations. Some of these indemnity
agreements provide for uncapped liability and some indemnity provisions survive termination or expiration of the
applicable agreement. Large indemnity payments could harm our business, operating results, and financial
condition. Although we normally limit our liability with respect to such obligations in our contracts with direct
customers and with customers acquired through our accounting firm partners, we may still incur substantial
liability, and we may be required to cease use of certain functions of our platform or products, as a result of
intellectual property-related claims. Any dispute with a customer with respect to these obligations could have
adverse effects on our relationship with that customer and other existing or new customers, and harm our
business and operating results. In addition, although we carry insurance, our insurance may not be adequate to
indemnify us for all liability that may be imposed, or otherwise protect us from liabilities or damages with respect
to claims alleging compromises of customer data, and any such coverage may not continue to be available to
us on acceptable terms or at all.
We use open source software in our products, which could subject us to litigation or other actions.
We use open source software in our products. From time to time, there have been claims challenging
the ownership of open source software against companies that incorporate it into their products. As a result, we
could be subject to lawsuits by parties claiming ownership of what we believe to be open source software.
Litigation could be costly for us to defend, have a negative effect on our operating results and financial
condition, or require us to devote additional research and development resources to change our products. In
addition, if we were to combine our proprietary software products with open source software in a certain manner
under certain open source licenses, we could be required to release the source code of our proprietary software
products. If we inappropriately use or incorporate open source software subject to certain types of open source
licenses that challenge the proprietary nature of our products, we may be required to re-engineer such products,
discontinue the sale of such products, or take other remedial actions.
Risks Related to Our Indebtedness
Our debt service obligations, including the Notes, may adversely affect our financial condition and
results of operations.
As of June 30, 2023, we had outstanding $1.15 billion aggregate principal amount of 0% convertible
senior notes due December 1, 2025 (the 2025 Notes), $575.0 million aggregate principal amount of 0%
convertible senior notes due April 1, 2027 (the 2027 Notes, and together with the 2025 Notes, the Notes), and
had drawn $135.0 million under our Revolving Credit Facility, as described in Note 10 to the consolidated
financial statements included elsewhere in this Annual Report on Form 10-K. Our ability to make payments of
the principal of, to pay interest on, or to refinance our indebtedness, including the Notes and our Revolving
Credit Facility, depends on our future performance, which is subject to economic, financial, competitive, and
other factors beyond our control. Moreover, our obligations under the Revolving Credit Facility are secured by
our Divvy credit card receivables and certain other collateral. Our business may not generate cash flow from
operations in the future sufficient to service our debt and make necessary capital expenditures. If we are unable
to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets,
47
restructuring debt, or obtaining additional debt financing or equity capital on terms that may be onerous or highly
dilutive. Our ability to refinance any future indebtedness will depend on the capital markets and our financial
condition at such time. We may not be able to engage in any of these activities or engage in these activities on
desirable terms, which could result in a default on our debt obligations. In addition, any of our future debt
agreements may contain restrictive covenants that may prohibit us from adopting any of these alternatives. Our
failure to comply with these covenants could result in an event of default which, if not cured or waived, could
result in the acceleration of our debt.
In addition, our indebtedness, combined with our other financial obligations and contractual
commitments, could have other important consequences. For example, it could:
•
•
•
•
•
make us more vulnerable to adverse changes in general U.S. and worldwide economic, industry,
and competitive conditions and adverse changes in government regulation;
limit our flexibility in planning for, or reacting to, changes in our business and our industry;
place us at a disadvantage compared to our competitors who have less debt;
limit our ability to borrow additional amounts to fund acquisitions, for working capital, and for
other general corporate purposes; and
make an acquisition of our company less attractive or more difficult.
Any of these factors could harm our business, operating results, and financial condition. In addition, if
we incur additional indebtedness, the risks related to our business and our ability to service or repay our
indebtedness would increase. We are also required to comply with the covenants set forth in the indentures
governing the Notes. Our ability to comply with these covenants may be affected by events beyond our control.
If we breach any of the covenants and do not obtain a waiver from the note holders or lenders, then, subject to
applicable cure periods, any outstanding indebtedness may be declared immediately due and payable. In
addition, changes by any rating agency to our credit rating may negatively impact the value and liquidity of our
securities. Downgrades in our credit ratings could restrict our ability to obtain additional financing in the future
and could affect the terms of any such financing.
We may not have the ability to raise the funds necessary for cash settlement upon conversion of the
Notes or to repurchase the Notes for cash upon a fundamental change, and our future debt may contain
limitations on our ability to pay cash upon conversion of the Notes or to repurchase the Notes.
Holders of the Notes have the right to require us to repurchase their notes upon the occurrence of a
fundamental change (as defined in the indentures governing the 2025 Notes and 2027 Notes, respectively) at a
repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and
unpaid special interest, if any. In addition, upon conversion of the Notes, unless we elect to deliver solely shares
of our common stock to settle such conversion (other than paying cash in lieu of delivering any fractional share),
we will be required to make cash payments in respect of the Notes being converted. However, we may not have
enough available cash or be able to obtain financing at the time we are required to make repurchases of the
Notes surrendered or the Notes being converted. In addition, our ability to repurchase the Notes or to pay cash
upon conversions of the Notes may be limited by law, by regulatory authority, or by agreements governing our
future indebtedness.
In addition to the Notes, we and our subsidiaries may incur substantial additional debt in the future,
subject to the restrictions contained in our current and future debt instruments, some of which may be secured
debt. We are not restricted under the terms of the indentures governing the Notes from incurring additional debt,
securing existing or future debt, recapitalizing our debt, or taking a number of other actions that could have the
effect of diminishing our ability to make payments on the Notes when due.
Our failure to repurchase the Notes at a time when the repurchase is required by the applicable
indenture or to pay any cash payable on future conversions of the Notes as required by such indenture would
constitute a default under that indenture. A default under one of the indentures or the fundamental change itself
could also lead to a default under the other indenture or other agreements governing our existing or future
indebtedness. If the repayment of the related indebtedness were to be accelerated after any applicable notice or
48
grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the Notes or make
cash payments upon conversions thereof.
The conditional conversion feature of the Notes, when triggered, may adversely affect our financial
condition and operating results.
Prior to the close of business on the business day immediately preceding September 1, 2025, in the
case of the 2025 Notes, and January 1, 2027, in the case of the 2027 Notes, the holders of the applicable Notes
may elect to convert their Notes during any calendar quarter (and only during such calendar quarter) if the last
reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a
period of 30 consecutive trading days ending on, and including, the last trading day of the immediately
preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading
day (Conversion Condition). The Conversion Condition for the 2025 Notes and 2027 Notes was not triggered as
of June 30, 2023, but had been triggered for the 2025 Notes in several prior quarters. In the event the
Conversion Condition is triggered, holders of the Notes will be entitled to convert the Notes at any time during
specified periods at their option. If one or more holders elect to convert their Notes, unless we elect to satisfy
our conversion obligation by delivering solely shares of our common stock (other than paying cash in lieu of
delivering any fractional share), we would be required to settle a portion or all of our conversion obligation
through the payment of cash, which could adversely affect our liquidity. In addition, even if holders do not elect
to convert their Notes, we could be required under applicable accounting rules to reclassify all or a portion of the
outstanding principal of the Notes as a current rather than long-term liability, which would result in a material
reduction of our net working capital.
The Capped Calls may affect the value of our Notes and our common stock.
In connection with the sale of each of the 2025 Notes and the 2027 Notes, we entered into privately
negotiated Capped Call transactions (collectively, the Capped Calls) with certain financial institutions (option
counterparties). The Capped Call transactions are expected generally to reduce the potential dilution upon
conversion of the Notes and/or offset any cash payments we are required to make in excess of the principal
amount of converted Notes, as the case may be, with such reduction and/or offset subject to a cap.
The option counterparties and/or their respective affiliates may modify their hedge positions by entering
into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our
common stock or other securities of ours in secondary market transactions prior to the applicable maturity of the
2025 Notes and the 2027 Notes (and are likely to do so following any conversion, repurchase, or redemption of
the Notes, to the extent we exercise the relevant election under the Capped Calls). This activity could also
cause or avoid an increase or a decrease in the market price of our common stock or the Notes, which could
affect note holders’ ability to convert the Notes and, to the extent the activity occurs during any observation
period related to a conversion of the Notes, it could affect the number of shares and value of the consideration
that note holders will receive upon conversion of the Notes.
We do not make any representation or prediction as to the direction or magnitude of any potential effect
that the transactions described above may have on the price of the Notes or our common stock. In addition, we
do not make any representation that the option counterparties will engage in these transactions or that these
transactions, once commenced, will not be discontinued without notice.
We are subject to counterparty risk with respect to the Capped Calls.
The option counterparties are financial institutions, and we are subject to the risk that any or all of them
might default under the Capped Calls. Our exposure to the credit risk of the option counterparties will not be
secured by any collateral. Past global economic conditions have resulted in the actual or perceived failure or
financial difficulties of many financial institutions. If an option counterparty becomes subject to insolvency
proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at
that time under the Capped Calls with such option counterparty. Our exposure will depend on many factors but,
generally, an increase in our exposure will be correlated to an increase in the market price and in the volatility of
our common stock. In addition, upon a default by an option counterparty, we may suffer adverse tax
consequences and more dilution than we currently anticipate with respect to our common stock. We can provide
no assurance as to the financial stability or viability of the option counterparties.
49
Risks Related to Ownership of Our Common Stock
The stock price of our common stock has been, and will likely continue to be volatile, and you may lose
part or all of your investment.
The market for our common stock has been, and will likely continue to be, volatile. In addition to the
factors discussed in this report, the market price of our common stock may fluctuate significantly in response to
numerous factors, many of which are beyond our control, including:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
overall performance of the equity markets;
actual or anticipated fluctuations in our revenue and other operating results;
changes in the financial projections we may provide to the public or our failure to meet these
projections;
failure of securities analysts to initiate or maintain coverage of us, changes in financial
estimates by any securities analysts who follow our company, or our failure to meet these
estimates or the expectations of investors;
recruitment or departure of key personnel;
the economy as a whole and market conditions in our industry, such as high inflation and high
interest rate and recessionary environments;
the global macroeconomic impact of the COVID-19 pandemic;
negative publicity related to the real or perceived quality of our platform, as well as the failure to
timely launch new products and services that gain market acceptance;
rumors and market speculation involving us or other companies in our industry;
announcements by us or our competitors of new products or services, commercial
relationships, or significant technical innovations;
acquisitions, partnerships, joint ventures, or capital commitments;
new laws or regulations or new interpretations of existing laws or regulations applicable to our
business;
lawsuits threatened or filed against us, litigation involving our industry, or both;
developments or disputes concerning our or other parties’ products, services, or intellectual
property rights;
changes in accounting standards, policies, guidelines, interpretations, or principles;
interpretations of any of the above or other factors by trading algorithms, including those that
employ natural language processing and related methods to evaluate our public disclosures;
other events or factors, including those resulting from war (such as the war in Ukraine),
incidents of terrorism, or responses to these events;
instability in the U.S. and global banking systems;
the expiration of contractual lock-up agreements; and
sales of shares of our common stock by us or our stockholders.
In addition, the stock markets have experienced extreme price and volume fluctuations that have
affected and continue to affect the market prices of equity securities of many companies. Stock prices of many
companies, and technology companies in particular, have fluctuated in a manner unrelated or disproportionate
to the operating performance of those companies. In the past, stockholders have instituted securities class
action litigation following periods of market volatility. If we were to become involved in securities litigation, it
50
could subject us to substantial costs, divert resources and the attention of management from our business, and
adversely affect our business.
Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition
of our company more difficult, limit attempts by our stockholders to replace or remove our current
management, and affect the market price of our common stock.
Provisions in our amended and restated certificate of incorporation and second amended and restated
bylaws may have the effect of delaying or preventing a change of control or changes in our management. Our
amended and restated certificate of incorporation and second amended and restated bylaws include provisions
that:
•
•
•
•
•
•
•
•
•
authorize our board of directors to issue, without further action by the stockholders, shares of
undesignated preferred stock with terms, rights, and preferences determined by our board of
directors that may be senior to our common stock;
require that any action to be taken by our stockholders be affected at a duly called annual or
special meeting and not by written consent;
specify that special meetings of our stockholders can be called only by our board of directors,
the chairperson of our board of directors, or our chief executive officer;
establish an advance notice procedure for stockholder proposals to be brought before an
annual meeting, including proposed nominations of persons for election to our board of
directors;
establish that our board of directors is divided into three classes, with each class serving three-
year staggered terms;
prohibit cumulative voting in the election of directors;
provide that our directors may be removed for cause only upon the vote of sixty-six and two-
thirds percent (66 2/3%) of our outstanding shares of common stock;
provide that vacancies on our board of directors may be filled only by a majority vote of
directors then in office, even though less than a quorum; and
require the approval of our board of directors or the holders of at least sixty-six and two-thirds
percent (66 2/3%) of our outstanding shares of common stock to amend our bylaws and certain
provisions of our certificate of incorporation.
In addition, our amended and restated certificate of incorporation and our second amended and
restated bylaws provide that the Court of Chancery of the State of Delaware, to the fullest extent permitted by
law, will be the exclusive forum for any derivative action or proceeding brought on our behalf, any action
asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware
General Corporation Law (DGCL), our amended and restated certificate of incorporation, or our second
amended and restated bylaws, or any action asserting a claim against us that is governed by the internal affairs
doctrine. These choice of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum
that it finds favorable for disputes with us or any of our directors, officers, or other employees, which may
discourage lawsuits against us and our directors, officers, and other employees. These exclusive forum
provisions will not apply to claims that are vested in the exclusive jurisdiction of a court or forum other than the
Court of Chancery of the State of Delaware, or for which the Court of Chancery of the State of Delaware does
not have subject matter jurisdiction. For instance, these provisions would not preclude the filing of claims
brought to enforce any liability or duty created by the Exchange Act or Securities Act of 1933, as amended
(Securities Act), or the rules and regulations thereunder in federal court.
51
Moreover, Section 203 of the DGCL may discourage, delay, or prevent a change in control of our
company. Section 203 imposes certain restrictions on mergers, business combinations, and other transactions
between us and holders of 15% or more of our common stock.
We have incurred and will continue to incur increased costs as a result of operating as a public
company, and our management is required to devote substantial time to compliance with our public
company responsibilities and corporate governance practices.
As a public company, we will incur significant legal, accounting, and other expenses that we did not
incur as a private company, which we expect to further increase. Sarbanes-Oxley, the Dodd-Frank Wall Street
Reform and Consumer Protection Act, the listing requirements of the NYSE, and other applicable securities
rules and regulations impose various requirements on public companies. Our management and other personnel
devote a substantial amount of time to compliance with these requirements. Moreover, these rules and
regulations will increase our legal and financial compliance costs and will make some activities more time-
consuming and costly compared to when we were a private company.
Our management team has limited experience managing a public company.
Our management team has limited experience managing a publicly traded company, interacting with
public company investors and securities analysts, and complying with the increasingly complex laws pertaining
to public companies. These new obligations and constituents require significant attention from our management
team and could divert their attention away from the day-to-day management of our business, which could harm
our business, operating results, and financial condition.
We do not intend to pay dividends for the foreseeable future.
We have never declared or paid any cash dividends on our capital stock, and we do not intend to pay
any cash dividends in the foreseeable future. Any determination to pay dividends in the future will be at the
discretion of our board of directors. Accordingly, investors must rely on sales of their common stock after price
appreciation, which may never occur, as the only way to realize any future gains on their investments.
If securities or industry analysts do not publish research or publish unfavorable or inaccurate research
about our business, our stock price and trading volume could decline.
Our stock price and trading volume is heavily influenced by the way analysts and investors interpret our
financial information and other disclosures. If securities or industry analysts do not publish research or reports
about our business, downgrade our common stock, or publish negative reports about our business, our stock
price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us
regularly, demand for our common stock could decrease, which might cause our stock price to decline and
could decrease the trading volume of our common stock.
Sales of substantial amounts of our common stock in the public markets, particularly sales by our
directors, executive officers, and significant stockholders, or the perception that these sales could
occur, could cause the market price of our common stock to decline and may make it more difficult for
you to sell your common stock at a time and price that you deem appropriate.
The market price of our common stock could decline as a result of sales of a large number of shares of
our common stock in the market. The perception that these sales might occur may also cause the market price
of our common stock to decline. We had a total of 106,550,211 shares of our common stock outstanding as of
June 30, 2023. All shares of our common stock are either freely tradable, generally without restrictions or further
registration under the Securities Act, or have been registered for resale under the Securities Act by us, subject
to certain exceptions for shares held by our “affiliates” as defined in Rule 144 under the Securities Act.
In addition, we have filed registration statements on Form S-8 to register shares reserved for future
issuance under our equity compensation plans. Subject to the satisfaction of vesting conditions, the shares
issued upon exercise of outstanding stock options or settlement of outstanding restricted stock units will be
available for immediate resale in the United States in the open market.
52
In addition, we have in the past, and may in the future, issue our shares of common stock or securities
convertible into our common stock from time to time in connection with financings, acquisitions, investments, or
otherwise. We also expect to grant additional equity awards to employees and directors under our 2019 Equity
Incentive Plan and rights to purchase our common stock under our 2019 Employee Stock Purchase Plan. Any
such issuances could result in substantial dilution to our existing stockholders and cause the trading price of our
common stock to decline.
The timing and amount of any repurchases under our Share Repurchase Program are subject to a
number of uncertainties.
In January 2023, our board of directors approved the repurchase of up to $300 million of our
outstanding shares of common stock (the Share Repurchase Program). Under the Share Repurchase Program,
repurchases can be made from time to time using a variety of methods, through open market purchases or
privately negotiated transactions, including through Rule 10b5-1 plans, in compliance with the rules of the SEC
and other applicable legal requirements. The Share Repurchase Program does not obligate us to acquire any
particular amount of shares, and the Share Repurchase Program may be suspended or discontinued at any
time at our discretion.
The Inflation Reduction Act, enacted on August 16, 2022, among other things, imposes a 1% non-
deductible, excise tax on net repurchases of shares by U.S. corporations whose stock is traded on an
established securities market. The excise tax is imposed on repurchases that occur after December 31, 2022.
The excise tax did not apply to repurchases of our shares made during fiscal 2023. If excise tax applies to any
repurchases of our shares we make in future fiscal years, it may increase the cost to us of making repurchases
and may cause us to reduce the number of shares repurchased pursuant to the Share Repurchase Program.
Item 1B. Unresolved Staff Comments
None.
Item 2. PROPERTIES
We lease our office facilities, including approximately 138,000 square feet in San Jose, California for
our corporate headquarters. This lease agreement expires in June 2031. We also maintain offices in Draper,
Utah, Houston Texas, and Sydney, Australia. Our leased facilities in Draper, Utah consist of 155,000 square feet
of office space for our employees located in Draper, Utah, approximately 20,000 square feet of which is being
subleased for a period of 5 years expiring in December 2025. The lease for our Draper, Utah property expires in
March 2030.
We believe that our office facilities are adequate to meet our needs for the immediate future. We
continue to evaluate our real estate strategy to accommodate expansion of our operations.
Item 3. LEGAL PROCEEDINGS
From time to time, we may be subject to legal proceedings and claims in the ordinary course of
business, including patent, commercial, product liability, employment, class action, whistleblower, and other
litigation and claims, as well as governmental and other regulatory investigations and proceedings. In addition,
third parties may from time to time assert claims against us in the form of letters and other communications. We
are not currently a party to any legal proceedings that we believe to be material to our business or financial
condition.
The results of any future litigation cannot be predicted with certainty, and regardless of the outcome,
litigation can have an adverse impact on us because of defense and settlement costs, diversion of management
resources, and other factors.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
53
PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock trades on The New York Stock Exchange under the symbol “BILL”.
Holders of Record
As of June 30, 2023, there were 181 holders of record of our common stock. This number does not
include beneficial owners whose shares are held by nominees in street name.
Dividend Policy
We have not declared or paid any dividends, or authorized or made any distribution upon or with
respect to any class or series of our capital stock. We currently intend to retain future earnings for use in the
operation of our business and do not anticipate paying any dividends on our capital stock in the foreseeable
future. Any future determination to declare dividends will be made at the discretion of our board of directors,
subject to applicable laws, and will depend on our financial condition, operating results, capital requirements,
general business conditions and other factors that our board of directors may deem relevant.
Stock Performance Graph
The following performance graph and related information shall not be deemed “soliciting material” or to
be “filed” with the SEC for purposes of Section 18 of the Exchange Act, nor shall such information be
incorporated by reference into any future filing under the Securities Act or the Exchange Act, whether made
before or after the date hereof and irrespective of any general incorporation language in any such filing, or
otherwise subject to the liabilities under the Securities Act or Exchange Act, except to the extent that we
specifically incorporate it by reference into such filing.
The following graph depicts the total cumulative stockholder return on our common stock from
December 12, 2019, the first day of trading of our common stock on the NYSE, through June 30, 2023, relative
to the performance of the S&P 500 Index and S&P 500 IT Index. The graph assumes an initial investment of
$100.00 at the close of trading on December 12, 2019 and that all dividends paid by companies included in
these indices have been reinvested. The performance shown in the graph below is not intended to forecast or
be indicative of future stock price performance.
54
Recent Sales of Unregistered Equity Securities
None.
Purchase of Equity Securities by the Issuer
In January 2023, our board of directors approved our Share Repurchase Program of up to $300 million
of shares of common stock. The timing and actual number of shares repurchased will depend on a variety of
factors, including price, general business and market conditions, and alternative investment opportunities.
Under the Share Repurchase Program, repurchases can be made from time to time using a variety of methods,
through open market purchases or privately negotiated transactions, including through Rule 10b5-1 plans, in
compliance with the rules of the SEC and other applicable legal requirements. The Share Repurchase Program
has a term of 12 months and does not obligate us to acquire any particular amount of shares, and it may be
suspended or discontinued at any time at our discretion.
The following table provides share repurchase activity during the quarter ended June 30, 2023:
Period
April 1 - April 30, 2023
May 1 - May 31, 2023
June 1 - June 30, 2023
Total
Total number of
shares
purchased (1)
Average price
paid per share
Total number of
shares purchased as
part of publicly
announced plans or
programs (1)
Approximate dollar
value of shares that
may yet be purchased
under the plans or
programs (1)
372,254 $
346,244 $
— $
718,498
76.56
92.76
—
372,254 $
346,244 $
244,500,240
212,382,647
— $
212,382,647
718,498 $
212,382,647
(1) See Note 11, in Notes to Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K.
55
Item 6. RESERVED
Not applicable.
56
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
You should read the following discussion and analysis of our financial condition and results of
operations together with our consolidated financial statements and the related notes included elsewhere in this
Annual Report on Form 10-K. Some of the information contained in this Annual Report on Form 10-K includes
forward-looking statements that involve risks and uncertainties. You should read the sections titled “Special
Note Regarding Forward-Looking Statements” and “Risk Factors” for a discussion of important factors that
could cause actual results to differ materially from the results described in or implied by the forward-looking
statements contained in the following discussion and analysis. Our fiscal year end is June 30, and our fiscal
quarters end on September 30, December 31, and March 31.
Overview
We are a leader in financial automation software for small and midsize businesses (SMBs). As a
champion of SMBs, we are automating the future of finance so businesses can thrive. Hundreds of thousands of
businesses rely on BILL to more efficiently control their payables, receivables, and spend and expense
management. Our network connects millions of members so they can pay or get paid faster. Headquartered in
San Jose, California, we are a trusted partner of leading U.S. financial institutions, accounting firms, and
accounting software providers.
Our purpose-built, AI-enabled financial software platform creates seamless connections between our
customers, their suppliers, and their clients. Businesses on our platform generate and process invoices,
streamline approvals, make and receive payments, manage employee expenses, sync with their accounting
system, foster collaboration, and manage their cash. We have built sophisticated integrations with popular
accounting software solutions, banks, card issuers, and payment processors, enabling our customers to access
these mission-critical services quickly and easily.
We efficiently reach SMBs through our proven direct and indirect go-to-market strategies. We acquire
new businesses to use our solutions directly through digital marketing and inside sales, and indirectly through
accounting firms and financial institution partnerships. As of June 30, 2023, our partners included some of the
most trusted brands in the financial services business, including more than 85 of the top 100 accounting firms
and seven of the top ten largest financial institutions for SMBs in the United States (U.S.), including Bank of
America, JPMorgan Chase, Wells Fargo Bank, and American Express. As we add customers and partners, we
expect our network to continue to grow organically.
We have grown rapidly and scaled our business operations in recent periods. Our revenue was $1.1
billion and $642.0 million during fiscal 2023 and 2022, respectively, an increase of $416.5 million. We generated
net losses of $223.7 million and $326.4 million during fiscal 2023 and 2022, respectively.
Macroeconomic and Other Factors
Ongoing interest rate increases and persistent inflation in the U.S. and other markets globally have
increased the risk of an economic recession and volatility and dislocation in the capital and credit markets in the
U.S. and globally. The SMBs we serve may be particularly susceptible to changes in overall economic and
financial conditions, and certain SMBs may cease operations in the event of a recession or inability to access
financing. The macroeconomic environment has caused our BILL standalone customers and Divvy spending
businesses to moderate their expenditures, which has resulted in lower payment volume growth through our
solutions than historical trends, which in turn has led to lower transaction fee growth than historical trends.
Moreover, net customer adds on our BILL standalone solution were slightly lower than recent trends, caused in
part by businesses taking longer to make decisions about whether or not to implement new software solutions in
light of the current macro environment. In addition, increased interest rates have led to an increase in interest
on funds held for customers. We have not observed any other material impacts on our business or the demand
for our products as a result of these factors, but we anticipate volatile conditions and there can be no assurance
that, in the event of a recession, demand for our products would not be adversely affected. We intend to
continue to monitor macroeconomic conditions closely and may determine to take certain financial or
operational actions in response to such conditions to the extent our business begins to be adversely impacted.
57
In March 2023, instability in the U.S. banking system resulted in the closure of several U.S. banks,
including Silicon Valley Bank (SVB), where we held significant company and customer funds. However, all of
our and our customers' funds were preserved, and were able to re-route pending transactions involving SVB
through other banking partners. Going forward, we will continue to assess the potential advantages in
diversifying our banking relationships, including with both multinational financial institutions and, as appropriate,
U.S. national and regional banks. Nonetheless, continued actual or perceived instability in the U.S. banking
system that adversely effects any of the financial institutions with which we do business may adversely impact
our ability to access our corporate cash and cash equivalents and cash held in trust on behalf of customers or
process customer payments.
In addition, for so long as the impacts of the COVID-19 pandemic, including variants thereof, persist,
restrictions and policies implemented by governments and companies may continue to impact our business and
the businesses of the SMBs we serve. In response to the COVID-19 pandemic, we instituted several programs
and precautionary measures in support of employee well-being and to protect the health and safety of our
workforce, our customers, and the communities in which we participate. Such measures included closure of our
corporate headquarters in California and our office in Texas, implementing full-time work from home, and
eliminating non-essential travel. We continue to monitor federal, state, and local regulatory pronouncements
and COVID-19 infection statistics and have reopened our offices with our return to office plan, which
encompasses a hybrid approach to in-office attendance based on the different needs of teams across the
company.
Any of these conditions or actions may have a negative impact on our future results of operations,
liquidity, and financial condition. We are unable to predict the full impact that macroeconomic factors, banking
sector dynamics or the ongoing impacts of the COVID-19 pandemic will have on our future results of operations,
liquidity, and financial condition due to numerous uncertainties, including the duration of the pandemic, the
actions that may be taken by government authorities across the U.S. or other countries, changes in central bank
policies and interest rates, rates of inflation, the impact to our customers, spending businesses, subscribers,
partners, and suppliers, and other factors described in the section titled “Risk Factors” in Part I, Item 1A of this
Annual Report on Form 10-K.
We generate revenue primarily from subscription and transaction fees.
Our Revenue Model
Our subscription revenue is primarily based on a fixed monthly or annual rate per user charged to our
customers. Our transaction revenue consists of transaction fees and interchange income on a fixed or variable
rate per transaction. Transactions primarily include card payments, real-time payments, check payments, ACH
payments, cross-border payments, and creation of invoices. Much of our revenue comes from repeat
transactions, which are an important contributor to our recurring revenue.
In addition, we generate revenue from interest on funds held for customers. When we process payment
transactions, the funds flow through our bank accounts, resulting in a balance of funds held for customers. This
balance is determined by volume and the type of payments processed. Interest is earned from interest-bearing
deposit accounts, certificates of deposit, money market funds, corporate bonds, asset-backed securities,
municipal bonds, commercial paper, U.S. treasury securities and U.S. agency securities. We hold these funds
from the day they are withdrawn from a payer’s account to the day the funds are credited to the receiver. This
revenue can fluctuate depending on the amount of customer funds held, as well as our yield on customer funds
invested, which is influenced by market interest rates and our investments.
Our Receivables Purchases and Servicing Model
We market Divvy charge cards to potential spending businesses and issue business-purpose charge
cards through our card issuing partner banks (Issuing Banks). When a business applies for a Divvy card, we
utilize, on behalf of the Issuing Bank, proprietary risk management capabilities to confirm the identity of the
business, and perform a credit underwriting process to determine if the business is eligible for a Divvy card
pursuant to our credit policies. Once approved for a Divvy card, the spending business is provided a credit limit
and can use the Divvy software to request virtual cards or physical cards.
58
The majority of cards on our platform are issued by Cross River Bank, a Federal Deposit Insurance
Corporation (FDIC)-insured New Jersey state chartered bank, and WEX Bank, an FDIC-insured Utah state
chartered bank. Under our arrangements with our Issuing Banks, we must comply with their respective credit
policies and underwriting procedures, and the Issuing Banks maintain ultimate authority to decide whether to
issue a card or approve a transaction. We are responsible for all fraud and unauthorized use of a card and
generally are required to hold the Issuing Bank harmless from such losses unless claims regarding fraud or
unauthorized use are due to the sole gross negligence of the Issuing Bank.
When a spending business completes a purchase transaction, the payment to the supplier is made by
the cards' Issuing Bank. Obligations incurred by the spending business in connection with their purchase
transaction are reflected as receivables on the Issuing Bank’s balance sheet from the Divvy card account for the
spending business. The Issuing Bank then sells a 100% participation interest in the receivable to us. Pursuant
to our agreements with the Issuing Banks, we are obligated to purchase the participation interests in all of the
receivables originated through our platform, and our obligations are secured by cash deposits. When we
purchase the participation interests, the purchase price is equal to the outstanding principal balance of the
receivable.
In order to purchase the participation rights in the receivables, we maintain a variety of funding
arrangements, including warehouse facilities and, from time-to-time, other purchase arrangements with a
diverse set of funding sources. We typically fund some portion of these participation interest purchases by
borrowing under our credit facilities, although we may also fund purchases using corporate cash.
Our Business Model
We efficiently reach SMBs through our proven direct and indirect go-to-market strategies. We acquire
them directly through digital marketing and inside sales and indirectly by partnering with leading companies that
are trusted by SMBs, including accounting firms, financial institutions, and software companies.
Our revenue from existing businesses using our solutions is visible and predictable. For fiscal 2023,
over 87% of our subscription and transaction revenue from BILL standalone customers came from customers
who were acquired prior to the start of the fiscal year. See "—Key Business Metrics—Businesses Using Our
Solutions" below for the definition of BILL standalone customers. We expand within our existing customer base
by adding more users, increasing transactions per customer, launching additional products, and through pricing
and packaging our services. We make it easy for SMBs to try our platform through our risk-free trial program.
Should an SMB choose to become a customer after the trial period, it can take several months to adapt their
financial operations to fully leverage our platform. Even with a transition period, however, we believe our
customer retention is strong. Excluding those customers of our financial institution partners, approximately 86%
of BILL standalone customers as of June 30, 2022 were still customers as of June 30, 2023.
Net Dollar-Based Retention Rate
Net dollar-based retention rate is an important indicator of customer satisfaction and usage of our
platform, as well as potential revenue for future periods. We calculate our net dollar-based retention rate at the
end of each fiscal year. We calculate our net dollar-based retention rate by starting with the revenue billed to
BILL standalone customers in the last quarter of the prior fiscal year (Prior Period Revenue). We then calculate
the revenue billed to these same customers in the last quarter of the current fiscal year (Current Period
Revenue). See "—Key Business Metrics—Businesses Using Our Solutions" below for the definition of BILL
standalone customer. Current Period Revenue includes any upsells and is net of contraction or attrition, but
excludes revenue from new customers and excludes interest earned on funds held on behalf of customers. We
then repeat the calculation of Prior Period Revenue and Current Period Revenue with respect to each of the
preceding three quarters, and aggregate the four Prior Period Revenues (the Aggregate Prior Period Revenue)
and the four Current Period Revenues (the Aggregate Current Period Revenue). Our net dollar-based retention
rate equals the Aggregate Current Period Revenue divided by Aggregate Prior Period Revenue.
Our net dollar-based retention rate was 111%, 131%, and 124% during fiscal 2023, 2022, and 2021,
respectively. The decrease in fiscal 2023 when compared to fiscal 2022 was primarily due to the change in
spending patterns per customer, driven by the challenging macroeconomic environment. The increase in fiscal
2022 was primarily attributable to increase in the number of users, more transactions per customer, and sales of
additional products to those customers.
59
Customer Acquisition Efficiency
Our efficient direct and indirect go-to-market strategy, combined with our recurring revenue model,
results in our short payback period. We define “payback period” as the number of quarters it takes for the
cumulative non-GAAP (as defined below) gross profit we earn from BILL standalone customers acquired during
a given quarter to exceed our total sales and marketing spend in that same quarter, excluding customers
acquired through financial institutions and the related sales and marketing spend. See "—Key Business Metrics
—Businesses Using Our Solutions" below for the definition of BILL standalone customer. For BILL standalone
customers acquired during fiscal 2022, the average payback period was approximately five quarters.
Key Business Metrics
We regularly review several metrics, including the key business metrics presented in the table below
(as well as the additional metrics described in "Our Business Model"), to measure our performance, identify
trends affecting our business, prepare financial projections, and make strategic decisions. We periodically
review and revise these metrics to reflect changes in our business. We present our key business metrics on a
consolidated basis, which we believe better reflects the performance of our consolidated business overall. Our
key business metrics are defined following the table below and track our BILL standalone, Divvy, and
Invoice2go solutions combined. The relevant metrics for each of BILL standalone, Divvy, and Invoice2go,
respectively, are set forth in the footnotes to the table. The calculation of the key business metrics and other
measures discussed below may differ from other similarly-titled metrics used by other companies, securities
analysts, or investors.
As of June 30,
% Growth
as of June 30,
2023
2022 (4)
2021 (5)
2023
2022
Businesses using our solutions (1)
461,000
400,100
131,900
15 %
203 %
Year ended
June 30,
2022 (4)
2023
% Growth
Year ended June 30,
2021 (5)
2023
2022
Total Payment Volume (amounts
in billions) (2)
$
266.0 $
228.1 $
140.7
17 %
62 %
Year ended
June 30,
% Growth
Year ended June 30,
2023
2022 (4)
2021 (5)
2023
2022
Transactions processed (in
millions) (3)
85.1
62.9
30.6
35 %
105 %
(1)
(2)
(3)
(4)
(5)
As of June 30, 2023, the total number of BILL standalone customers was approximately 201,000;
the total number of spending businesses that used Divvy's spend and expense management
products was approximately 29,200, and the total number of Invoice2go subscribers was
approximately 230,800.
During fiscal 2023, the total payment volume transacted by BILL standalone customers was
approximately $251.5 billion; the total card payment volume transacted by spending businesses
that used Divvy cards was approximately $13.4 billion; and the total payment volume transacted by
Invoice2go subscribers was approximately $1.1 billion.
During fiscal 2023, the total number of transactions executed by BILL standalone customers was
approximately 44.3 million; the total number of transactions executed by spending businesses that
used Divvy cards was approximately 39.5 million; and the total number of transactions executed by
Invoice2go subscribers was approximately 1.3 million.
Includes Invoice2go metrics from the acquisition date on September 1, 2021.
Includes Divvy metrics from the acquisition date on June 1, 2021.
60
Businesses Using Our Solutions
For the purposes of measuring our key business metrics, we define businesses using our solutions as
the summation of: (A) customers that are either billed directly by us or for which we bill our partners for our BILL
standalone products during a particular period, (B) spending businesses that use Divvy's spend and expense
management products during the period, and (C) Invoice2go subscribers during the period. We define BILL
standalone products as those offered on our core accounts payable and receivable platform (excluding Divvy
and Invoice2go), and we define BILL standalone customers as customers using our core BILL accounts payable
and accounts receivable offering. In prior fiscal years, we counted and reported only BILL standalone
customers in our "Number of Customers", which excluded spending businesses using our Divvy solution and
our Invoice2go subscribers. In light of the growth of our company in recent periods, we consider the businesses
using our solutions metric to better represent the performance and scale of our business as it currently exists.
Businesses using more than one of our solutions are included separately in the total for each solution utilized;
as of June 30, 2023, this included approximately 7,200 businesses. Businesses using our solutions during a trial
period are not counted as new businesses using our solutions during that period. If an organization has multiple
entities billed separately for the use of our solutions, each entity is counted as a business using our solutions.
The number of businesses using our solutions in the table above represents the total number of businesses
using our solutions at the end of each fiscal year.
Total Payment Volume
To grow revenue from businesses using our solutions, we must deliver a product experience that helps
them automate their back-office financial operations. The more they use and rely upon our product offerings to
automate their operations, the more transactions they process on our platform. This metric provides an
important indication of the aggregate value of transactions that businesses using our solutions are completing
on our platform and is an indicator of our ability to generate revenue from businesses using our solutions. We
define TPV as the total value of transactions that we process on our platform during a particular period,
including transactions from BILL standalone customers, Divvy card transactions, and transactions executed by
Invoice2go subscribers. Our calculation of TPV includes payments that are subsequently reversed. Such
payments comprised less than 2% of TPV during each of fiscal 2023, 2022, and 2021.
Transactions Processed
We define transactions processed as the total number of payments initiated and processed through our
platform during a particular period. Payment transactions include checks, ACH payments, card payments,
Invoice2go subscriber transactions, real-time payments, and cross-border payments.
Components of Results of Operations
Revenue
We generate revenue primarily from subscription and transaction fees.
Subscription fees are fixed monthly or annually and charged to customers for the use of our platform to
process transactions. Subscription fees are generally charged either on a per user or per customer account per
period basis, normally monthly or annually. Transaction fees are fees collected for each transaction processed,
on either a fixed or variable fee basis. Transaction fees primarily include processing of payments in the form of
checks, ACH, card payments, real-time payments, and cross-border payments, and the creation of invoices.
Transaction fees also include interchange fees paid by suppliers accepting card payments.
Our contracts with SMB and accounting firm customers provide them with access to the functionality of
our cloud-based payments platform to process transactions. These contracts are either monthly contracts paid
in arrears or upfront, or annual arrangements paid up front. We charge our SMB and accounting firm customers
subscription fees to access our platform either based on the number of users or per customer account and the
level of service. We generally also charge these customers transaction fees based on transaction volume and
the category of transaction. The contractual price for subscription and transaction services is based on either
negotiated fees or the rates published on our website. Revenue recognized excludes amounts collected on
behalf of third parties, such as sales taxes collected and remitted to governmental authorities.
61
We enable our SMB and accounting firm customers to make virtual card payments to their suppliers.
We also facilitate the extension of credit to spending businesses in the form of Divvy cards. The spending
businesses utilize the credit on Divvy cards as a means of payment for goods and services provided by their
suppliers. Virtual card payments and Divvy cards are originated through agreements with our Issuing Banks.
Our agreements with the Issuing Banks allow for card transactions on the Mastercard and Visa networks. For
each virtual card and Divvy card transaction, suppliers are required to pay interchange fees to the issuer of the
card. Based on our agreements with the Issuing Banks, we recognize the interchange fees as revenue gross or
net of rebates received from the Issuing Banks based on our determination of whether we are the principal or
the agent under the agreements.
We also enter into multi-year contracts with financial institution customers to provide them with access
to our cloud-based payments platform. These contracts typically include fees for initial implementation services
that are paid during the period the implementation services are provided as well as fees for subscription and
transaction processing services, which are subject to guaranteed monthly minimum fees that are paid monthly
over the contract term. These contracts enable the financial institutions to provide their customers with access
to online bill pay services through the financial institutions’ online platforms. Implementation services are
required up-front to establish an infrastructure that allows the financial institutions’ online platforms to
communicate with our online platform. A financial institution’s customers cannot access online bill pay services
until implementation is complete. The total consideration in these contracts varies based on the number of users
and transactions to be processed.
In addition, we generate revenue from interest on funds held for customers. Interest on funds held for
customers consists of the interest that we earn from customer funds while payment transactions are clearing.
Interest is earned from interest-bearing deposit accounts, certificates of deposit, corporate bonds, asset-backed
securities, municipal bonds, money market funds, commercial paper, and U.S. Treasury securities, until those
payments are cleared and credited to the intended recipient.
Service Costs and Expenses
Service costs – Service costs consist primarily of personnel-related costs, including stock-based
compensation expenses, for our customer success and payment operations teams, outsourced support
services for our customer success team, costs that are directly attributed to processing customers’ and
spending businesses' transactions (such as the cost of printing checks, postage for mailing checks, fees
associated with the issuance and processing of card transactions, fees for processing payments, such as ACH,
checks, and cross-border wires), direct and amortized costs for implementing and integrating our cloud-based
platform into our customers’ systems, costs for maintaining, optimizing, and securing our cloud payments
infrastructure, amortization of capitalized internal-use developed software related to our platform, fees on the
investment of customer funds, and allocation of overhead costs. We expect that service costs will increase in
absolute dollars, but may fluctuate as a percentage of revenue from period to period, as we continue to invest in
growing our business.
Research and development (R&D) – R&D expenses consist primarily of personnel-related expenses,
including stock-based compensation expenses, for our R&D teams, incurred in developing new products or
enhancing existing products, and allocated overhead costs. We expense a substantial portion of R&D expenses
as incurred. We believe that delivering new and enhanced functionality is critical to attract new customers and
expand our relationship with existing customers. We expect to continue to make investments in and expand our
offerings to enhance our customers’ experience and satisfaction, and to attract new customers. We expect our
R&D expenses to increase in absolute dollars, but they may fluctuate as a percentage of revenue from period to
period as we expand our R&D team to develop new products and product enhancements. We capitalize certain
software development costs that are attributable to developing new products and adding incremental
functionality to our platform and amortize such costs into service costs over the estimated life of the new
product or incremental functionality, which is generally three years.
Sales and marketing – Sales and marketing expenses consist primarily of personnel-related expenses,
including stock-based compensation expenses, for our sales and marketing teams, rewards expense in
connection with our card rewards programs, sales commissions, marketing program expenses, travel-related
expenses, and costs to market and promote our platform through advertisements, marketing events, partnership
62
arrangements, direct customer acquisition, and allocated overhead costs. Sales commissions that are
incremental to obtaining new customer contracts are deferred and amortized ratably over the estimated period
of our relationship with new customers.
We focus our sales and marketing efforts on generating awareness of our company, platform, and
products, creating sales leads, and establishing and promoting our brand. We plan to continue investing in sales
and marketing efforts by driving our go-to-market strategies, building our brand awareness, and sponsoring
additional marketing events; however, we will adjust our sales and marketing spend level as needed, as the
spend may fluctuate from period to period, in response to changes in the economic environment.
General and administrative – General and administrative expenses consist primarily of personnel-
related expenses, including stock-based compensation expenses, for finance, corporate business operations,
risk management, legal and compliance, human resources, information technology, costs incurred for external
professional services, provision for credit losses, losses from fraud, and allocated overhead costs. We expect to
incur additional general and administrative expenses as we explore various growth initiatives, which include
incurring higher costs for professional services. We also expect to increase the size of our general and
administrative functions to support the growth in our business. As a result, we expect that our general and
administrative expenses will increase in absolute dollars but may fluctuate as a percentage of revenue from
period to period.
Depreciation and amortization of intangible assets – Depreciation and amortization of intangible assets
consist of depreciation of property and equipment, and amortization of acquired intangibles, such as developed
technology, customer relationship, and trade names. Amortization of capitalized internal-use software costs are
excluded.
Other income (expenses), net – Other income (expenses), net consists primarily of interest income on
our corporate funds, interest expense on our borrowings (including amortization issuance costs) and the lower
of cost or market adjustment on card receivables sold and held for sale.
Provision for (benefit from) income taxes – Income tax expense consists of U.S. federal, state and
foreign income taxes. We maintain a full valuation allowance against our U.S. federal, state and Australian net
deferred tax assets as we have concluded that it is not more likely than not that we will realize our net deferred
tax assets.
63
Results of Operations
The following table sets forth our results of operations together with the dollar and percentage change
for the periods presented (amounts in thousands):
Revenue
Subscription and transaction fees (4)
Interest on funds held for customers
Total revenue
Cost of revenue
Service costs (4)
Depreciation and amortization of
intangible assets (3)
Total cost of revenue
Gross profit
Operating expenses
Research and development (4)
Sales and marketing (4)(5)
General and administrative (4)
Depreciation and amortization of
intangible assets (3)
Total operating expenses
Loss from operations
Other income (expense), net
Loss before provision for (benefit from)
income taxes
Year ended June 30,
Change
(2023 compared to 2022)
Change
(2022 compared to 2021)
2023
2022 (1)
2021 (2)
Amount
%
Amount
%
$
944,710 $
633,365 $
232,255 $ 311,345
49 % $ 401,110
173 %
113,758
8,594
6,010
105,164
1224 %
2,584
43 %
1,058,468
641,959
238,265
416,509
65 % 403,694
169 %
151,010
105,496
56,576
45,514
43 %
48,920
86 %
42,967
193,977
864,491
314,632
515,858
281,278
39,508
5,230
3,459
9 %
34,278
145,004
61,806
48,973
34 %
83,198
496,955
176,459
367,536
74 % 320,496
219,818
307,151
89,503
94,814
43 % 130,315
67,935
208,707
68 % 239,216
241,174
128,116
40,104
17 % 113,058
48,496
45,630
4,872
2,866
6 %
40,758
1,160,264
813,773
290,426
346,491
43 % 523,347
655 %
135 %
182 %
146 %
352 %
88 %
837 %
180 %
(295,773)
(316,818)
(113,967)
21,045
(7) %
(202,851)
178 %
72,856
(13,861)
(25,370)
86,717
(626) %
11,509
(45) %
(222,917)
(330,679)
(139,337)
107,762
(33) %
(191,342)
137 %
Provision for (benefit from) income taxes
808
(4,318)
(40,617)
5,126
(119) %
36,299
(89) %
Net loss
$
(223,725) $
(326,361) $
(98,720) $ 102,636
(31) % $ (227,641)
231 %
(1) Includes the results of Invoice2go from the acquisition date on September 1, 2021.
(2) Includes the results of Divvy from the acquisition date on June 1, 2021.
(3) Depreciation expense does not include amortization of capitalized internal-use software wage costs.
(4) Includes stock-based compensation cost charged to revenue and expenses as follows (in thousands):
Year ended June 30,
Change
(2023 compared to 2022)
Change
(2022 compared to 2021)
2023
2022 (1)
2021 (2)
Amount
%
Amount
%
Revenue - subscription and transaction
fees
Cost of revenue - service costs
Research and development
Sales and marketing (5)
General and administrative
Total stock-based compensation (6)
$
188 $
— $
— $
188
100 % $
—
9,111
93,364
130,421
80,619
5,144
54,907
60,237
76,869
2,938
3,967
77 %
2,206
16,091
38,457
70 %
38,816
241 %
8,547
70,184
117 %
51,690
605 %
44,411
3,750
5 %
32,458
73 %
— %
75 %
$ 313,703 $ 197,157 $ 71,987 $ 116,546
59 % $ 125,170
174 %
(5) Fiscal 2023 includes $52.2 million of stock-based compensation expense related to separation and advisory agreements with our
former Chief Revenue Officer.
(6) Consists of acquisition related equity awards (Acquisition Related Awards), including equity awards assumed and retention equity
awards granted to certain employees of acquired companies in connection with acquisitions, and non-acquisition related equity awards
(Non-Acquisition Related Awards), which include all other equity awards granted to existing employees and non-employees in the
64
ordinary course of business. The following table presents stock-based compensation recorded for the periods presented and as a
percentage of total revenue:
Acquisition Related Awards
Non-Acquisition Related Awards
Total stock-based compensation
As a % of total revenue
Year ended June 30,
Year ended June 30,
2023
2022
2021
2023
2022
2021
$
107,815 $
100,698 $
28,992
205,888
96,459
42,995
$
313,703 $
197,157 $
71,987
10 %
19 %
29 %
16 %
15 %
31 %
12 %
18 %
30 %
The following table presents the components of our consolidated statements of operations for the
periods presented as a percentage of revenue:
Revenue
Subscription and transaction fees
Interest on funds held for customers
Total revenue
Cost of revenue
Service costs
Depreciation and amortization of intangible assets
Total cost of revenue
Gross profit
Operating expenses
Research and development
Sales and marketing
General and administrative
Depreciation and amortization of intangible assets
Total operating expenses
Loss from operations
Other income (expense), net
Loss before provision for (benefit from) income taxes
Provision for (benefit from) income taxes
Net loss
Year ended June 30,
2023
2022 (1)
2021 (2)
89 %
11 %
100 %
14 %
4 %
18 %
82 %
30 %
49 %
26 %
5 %
110 %
(28) %
7 %
(21) %
— %
(21) %
99 %
1 %
100 %
16 %
7 %
23 %
77 %
34 %
48 %
38 %
7 %
127 %
(50) %
(2) %
(52) %
(1) %
(51) %
97 %
3 %
100 %
24 %
2 %
26 %
74 %
38 %
29 %
54 %
1 %
122 %
(48) %
(11) %
(59) %
(17) %
(42) %
(1) Includes the results of Invoice2go from the acquisition date on September 1, 2021.
(2) Includes the results of Divvy from the acquisition date on June 1, 2021.
Comparison of Fiscal 2023 and 2022
A discussion regarding our financial condition and results of operations for fiscal 2023 compared to
fiscal 2022 is presented below. A discussion regarding our financial condition and results of operations for fiscal
2022 compared to fiscal 2021 can be found under Item 7 of Part II in our Annual Report on Form 10-K for the
fiscal year ended June 30, 2022, filed with the SEC on August 22, 2022, which is available free of charge on the
SEC’s website at www.sec.gov and on the Investor Relations section of our corporate website at
investor.bill.com.
Revenue
Revenue consisted mainly of subscription and transactions fees. Subscription revenue increased by
$59.8 million, or 31%, during fiscal 2023 as compared to fiscal 2022, primarily due to the increase in customers
and average subscription revenue per customer due to an increase in the number of users. Transaction fee
65
revenue increased by $251.5 million, or 57%, during fiscal 2023 as compared to fiscal 2022, primarily due to
increased total payment volume and the mix of transaction revenue shifting to variable-priced products. In
addition, interest on funds held for customers increased by $105.2 million, or 1224%, during fiscal 2023 as
compared to fiscal 2022, primarily due to an increase in yield earned from investing customer funds as interest
rates increased during fiscal 2023.
Our revenue could be impacted by fluctuations in foreign currency rates in the future, especially if our
revenue through our international operations and international payments grows as a percentage of our revenue
or our international operations increase.
Cost of Revenue, Gross Profit, and Gross Margin
Cost of revenue, gross profit, and gross margin were as follows (amounts in thousands):
Cost of revenue:
Service costs
Depreciation and amortization of
intangible assets (2)
Total cost of revenue
Gross profit
Gross margin
Year ended June 30,
Change
2023
2022 (1)
Amount
%
$
$
$
151,010
$
105,496
$
45,514
43 %
42,967
193,977
864,491
$
$
39,508
3,459
145,004
$
48,973
496,955
$ 367,536
9 %
34 %
74 %
82 %
77 %
(1) Includes the results of Invoice2go from the acquisition date on September 1, 2021.
(2) Consists of depreciation of property and equipment and amortization of developed technology, excluding amortization of capitalized
internal-use software wages costs.
Service costs increased by $45.5 million during fiscal 2023 as compared to fiscal 2022, primarily due to:
•
•
•
a $22.4 million increase in direct costs associated with the processing of our customers’
payment transactions, use of software applications and equipment, bank fees for funds held for
customers, and data hosting services, which were driven by the increase in the number of
customers, increased adoption of new product offerings, and an increase in the volume of
transactions;
a $16.2 million increase in personnel-related costs, including stock-based compensation
expense and increased deferred service costs amortization, due to the hiring of additional
personnel, who were directly engaged in providing implementation and support services to our
customers; and
a $6.9 million increase in costs for consultants, temporary contractors, shared overhead, and
other costs.
Gross margin increased to 82% during fiscal 2023 from 77% during fiscal 2022, primarily due to the
increase in interest on funds held for customers and a higher mix of variable-priced transaction revenue.
Research and Development Expenses
Research and development expenses increased by $94.8 million during fiscal 2023 as compared to
fiscal 2022, primarily due to the following:
•
•
a $95.4 million increase in personnel-related costs, including stock-based compensation
expense, resulting from the hiring of additional personnel and added headcount from our
acquisition of Invoice2Go, who were directly engaged in developing new product offerings;
a $5.8 million increase in computer-related expenses and software costs and increase in
shared overhead and other costs; and partially offset by
66
•
a $6.4 million decrease in costs for engaging consultants and temporary contractors who
provided product development services, which have now been replaced by full-time employees.
Our research and development expenses decreased to 30% as a percentage of revenue during fiscal
2023 from 34% during fiscal 2022, primarily due to a higher revenue growth rate but a relatively lower increase
in personnel-related expenses as a percentage of revenue and decrease in consulting costs during fiscal 2023
compared to fiscal 2022.
We expect research and development expenses to be affected by fluctuations in foreign currency rates
in the future, especially if our international operations increase.
Sales and Marketing Expenses
Sales and marketing expenses increased by $208.7 million during fiscal 2023 as compared to fiscal
2022, primarily due to the following:
•
•
•
•
a $106.3 million increase in personnel-related costs, including stock-based compensation
expense of $52.2 million recognized during the year related to the separation and advisory
agreements with our former Chief Revenue Officer, and due to the hiring of additional
personnel, who were directly engaged in acquiring new customers and in marketing our
products and services;
a $78.7 million increase in rewards expense in connection with the rewards program through
our Divvy cards as a result of increased transaction volume and higher rewards rates;
a $21.1 million increase in advertising spend and various marketing initiatives and activities,
such as engaging consultants and attending marketing events, as we increased our efforts in
promoting our products and services and in increasing brand awareness; and
a $2.6 million increase in software subscription and computer-related expenses, shared
overhead, and other costs.
Our sales and marketing expenses increased to 49% as a percentage of revenue during fiscal 2023
from 48% during fiscal 2022, primarily due to higher rewards expense and stock-based compensation expense
recognized during fiscal 2023.
General and Administrative Expenses
General and administrative expenses increased by $40.1 million during fiscal 2023 as compared to
fiscal 2022, primarily due to the following:
•
•
•
•
a $30.7 million increase in personnel-related expense, including stock-based compensation
expense, resulting from the hiring of additional general and administrative personnel;
a $15.2 million increase in provision for expected credit losses and fraud losses mainly due to
increase in acquired card receivables during the year;
a $3.7 million increase in software subscription and computer-related expenses, temporary
contractors, shared overhead and other costs; and partially offset by
a $9.6 million decrease in professional and consulting fees, primarily resulting from the
reduction of integration costs of acquired businesses.
Our general and administrative expenses decreased to 26% as a percentage of revenue during fiscal
2023 from 38% during fiscal 2022, primarily due to a higher revenue growth rate but a relatively lower increase
in personnel-related expense and provision for expected credit losses and fraud losses as a percentage of
revenue.
67
Depreciation and Amortization of Intangible Assets
Depreciation and amortization of intangible assets increased by $6.3 million during fiscal 2023 as
compared to fiscal 2022, primarily due to a full-year amortization of intangible assets associated with the
acquisition of Invoice2go in September 2021, as well as higher spend on capital expenditures.
Other Income, Net
Other income, net increased by $86.7 million during fiscal 2023 as compared to fiscal 2022, primarily
due to the following:
•
•
•
a $84.6 million increase in interest income due to higher interest rates earned on corporate
funds;
a $9.9 million decrease in discount associated with the measurement of cards receivable sold
and held for sale at a lower of cost or market as we ceased selling acquired card receivables in
August 2022; and partially offset by
a $7.8 million increase in other expenses mainly due to interest expense primarily as the result
of higher interest rates and increased borrowings under the Revolving Credit Facility.
Provision for Income Taxes
Provision for income taxes during fiscal year ended June 30, 2023, consists of the reduction to the net
deferred tax liability, offset by an estimated cash tax liability as a result of the mandatory R&D capitalization by
the Tax Cuts and Jobs Act of 2017, which was effective beginning fiscal 2023. R&D expenses are capitalized
and amortized over five years for domestic R&D and fifteen years for international R&D. The requirement
increases our current year cash tax liabilities, however, the cash flow impact is expected to decrease over time
as capitalized research and development expenses continue to amortize.
Non-GAAP Financial Measures
To supplement our consolidated financial statements, which are prepared and presented in accordance
with U.S. generally accepted accounting principles (GAAP), we use certain non-GAAP financial measures, as
described below, to understand and evaluate our core operating performance. These non-GAAP financial
measures, which may be different than similarly-titled measures used by other companies, are presented to
enhance investors’ overall understanding of our financial performance and should not be considered a
substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.
We believe that these non-GAAP financial measures provide useful information about our financial
performance, enhance the overall understanding of our past performance and future prospects and allow for
greater transparency with respect to important metrics used by our management for financial and operational
decision-making. We are presenting these non-GAAP metrics to assist investors in seeing our financial
performance using a management view. We believe that these measures provide an additional tool for investors
to use in comparing our core financial performance over multiple periods with other companies in our industry.
Non-GAAP Gross Profit and Non-GAAP Gross Margin
We define non-GAAP gross profit as gross profit minus depreciation and amortization of intangible
assets, and stock-based compensation and related payroll taxes recognized in cost of revenue. Non-GAAP
gross margin is defined as non-GAAP gross profit, divided by revenue. We believe non-GAAP gross profit and
non-GAAP gross margin provide our management and investors consistency and comparability with our past
financial performance and facilitate period-to-period comparisons of operations. The following table presents a
reconciliation of our non-GAAP gross profit and non-GAAP gross margin to our gross profit and gross margin for
the periods presented (amounts in thousands):
68
Revenue
Gross profit
Add:
Depreciation and amortization of intangible assets (3)
Stock-based compensation charged to expenses and related
payroll taxes
Non-GAAP gross profit
Gross margin
Non-GAAP gross margin
Year ended June 30,
2023
2022 (1)
2021 (2)
$ 1,058,468 $
641,959 $
238,265
$
864,491 $
496,955 $
176,459
42,967
39,508
5,230
9,428
5,599
3,309
$
916,886 $
542,062 $
184,998
81.7 %
86.6 %
77.4 %
84.4 %
74.1 %
77.6 %
(1) Includes the results of Invoice2go from the acquisition date on September 1, 2021.
(2) Includes the results of Divvy from the acquisition date on June 1, 2021.
(3) Consists of depreciation of property and equipment and amortization of developed technology, excluding amortization of capitalized
internal-use software cost.
Free Cash Flow
Free cash flow is defined as net cash provided by (used in) operating activities, adjusted by purchases
of property and equipment and capitalization of internal-use software costs. We believe free cash flow is an
important liquidity measure of the cash (if any) that is available, after purchases of property and equipment and
capitalization of internal-use software costs, for operational expenses and investment in our business. Free
cash flow is useful to investors as a liquidity measure because it measures our ability to generate or use cash.
Once our business needs and obligations are met, cash can be used to maintain a strong balance sheet and
invest in future growth. The following table presents a reconciliation of our free cash flow to net cash provided
by (used in) operating activities for the periods presented (in thousands):
Net cash provided by (used in) operating activities
$
187,768 $
(18,093) $
4,623
Purchases of property and equipment
Capitalization of internal-use software costs
Free cash flow
(7,589)
(5,377)
(18,902)
(23,614)
(10,259)
(2,304)
$
156,565 $
(33,729) $
(16,583)
Year ended June 30,
2023
2022 (1)
2021 (2)
(1) Includes the results of Invoice2go from the acquisition date on September 1, 2021.
(2) Includes the results of Divvy from the acquisition date on June 1, 2021.
Liquidity and Capital Resources
As of June 30, 2023, our principal sources of liquidity were our cash and cash equivalents of $1.6
billion, our available-for-sale short-term investments of $1.0 billion, and our available undrawn Revolving Credit
Facility (as defined below) of $90.0 million. Our cash equivalents are comprised primarily of money market
funds and investments in debt securities with original maturities of three months or less at the time of purchase.
Our short-term investments are comprised primarily of available-for-sale investments in corporate bonds,
certificates of deposit, asset-backed securities, municipal bonds, U.S. agency securities, and U.S. treasury
securities with original maturities of more than three months. Our corporate deposits held at large multinational
financial institutions and U.S. national or regional banks, may at times exceed federally insured limits. We
monitor the financial strength of the financial institutions with which we do business to ensure they are
financially sound and present minimal credit risk. We further believe the associated risk of concentration for our
investments is mitigated by holding a diversified portfolio of highly rated investments consisting of the money
market funds and short-term debt securities described above. We have a total borrowing commitment of $225.0
million from our Revolving Credit Facility and have drawn $135.0 million as of June 30, 2023. Our principal uses
69
of cash are funding our operations and other working capital requirements, including the contractual and other
obligations discussed below.
We believe that our cash, cash equivalents, and short-term investments will be sufficient to meet our
working capital requirements for at least the next 12 months. In the future, we may attempt to raise additional
capital through the sale of equity securities or through equity-linked or debt financing arrangements to fund
future operations or obligations, including the repayment of the principal amount of the Notes in the event that
the Notes become convertible and the note holders opt to exercise their right to convert. We may also seek to
raise additional capital from these offerings or financings on an opportunistic basis when we believe there are
suitable opportunities for doing so. If we raise additional funds by issuing equity or equity-linked securities, the
ownership of our existing stockholders will be diluted. If we raise additional financing by incurring additional
indebtedness, we may be subject to increased fixed payment obligations and could also be subject to additional
restrictive covenants, such as limitations on our ability to incur additional debt, and other operating restrictions
that could adversely impact our ability to conduct our business. Any future indebtedness we incur may have
terms that could be unfavorable to equity investors. There can be no assurances that we will be able to raise
additional capital. The inability to raise capital would adversely affect our ability to achieve our business
objectives.
Our principal commitments to settle our contractual obligations consist of our 2027 Notes, 2025 Notes,
and outstanding borrowings from our Revolving Credit Facility as further discussed below. For additional
discussion about our Notes and Revolving Credit Facility, refer to Note 10 to our consolidated financial
statements included elsewhere in this Annual Report on Form 10-K. In addition, we have minimum
commitments under our noncancellable operating lease agreements and agreements with certain vendors. For
additional discussion about our commitments, including operating leases, refer to Note 15 to our consolidated
financial statements included elsewhere in this Annual Report on Form 10-K.
In January 2023, our board of directors authorized the repurchase of up to $300.0 million of our
outstanding shares of common stock (the Share Repurchase Program). We may repurchase shares of common
stock from time to time through open market purchases, in privately negotiated transactions, or by other means,
including through the use of trading plans, intended to qualify under Rule 10b5-1 of the Securities Exchange Act
of 1934, as amended. The timing and total amount of share repurchases will depend upon business, economic
and market conditions, corporate and regulatory requirements, prevailing stock prices, and other considerations.
The Share Repurchase Program has a term of 12 months, may be suspended or discontinued at any time, and
does not obligate us to acquire any amount of common stock. During the year ended June 30, 2023, we
repurchased and subsequently retired 1,077,445 shares for $87.6 million under the Share Repurchase
Program. The total price of the shares repurchased and related transaction costs are reflected as a reduction of
common stock and accumulated deficit on the our consolidated balance sheets. As of June 30, 2023, $212.4
million remained available for future share repurchases under the Share Repurchase Program.
Cash Flows
Below is a summary of our consolidated cash flows for the periods presented (in thousands):
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Year ended June 30,
2023
2022 (1)
2021 (2)
$
$
$
187,768 $
(18,093) $
4,623
259,285 $ (1,127,302) $ (1,426,890)
235,110 $ 2,878,566 $ 1,639,583
70
(1) Includes the results of Invoice2go from the acquisition date on September 1, 2021.
(2) Includes the results of Divvy from the acquisition date on June 1, 2021.
Net Cash Provided by (Used in) Operating Activities
Our primary source of cash provided by our operating activities is our revenue from subscription and
transaction fees. Our subscription revenue is primarily based on a fixed monthly or annual rate per user charged
to our customers. Our transaction revenue is comprised of transaction fees on a fixed or variable rate per type
of transaction. We also generate cash from the interest earned on both corporate funds and funds held in trust
on behalf of customers. Our primary uses of cash in our operating activities include payments for employees'
salaries and related costs, payments to third parties to fulfill our payment transactions, payments to sales and
marketing partners, payments for card rewards expenses, and other general corporate expenditures.
Net cash provided by operating activities was $187.8 million during fiscal 2023 compared to a net cash
used of $18.1 million during fiscal 2022. The net cash provided during fiscal 2023 was due mainly to the
increase in our revenue during the year.
Net cash used in operating activities decreased to $18.1 million during fiscal 2022 from a net cash
provided of $4.6 million during fiscal 2021. The net cash used during fiscal 2022 was due mainly to the timing of
the payments for costs of our services and operating expenses, partially offset by the increase in our revenue.
Net Cash Provided by (Used in) Investing Activities
Our cash usage for our investing activities consists primarily of purchases of corporate and customer
fund available for-sale investments, purchases of card receivables, business acquisitions, capitalization of
internal-use software, and purchases of property and equipment. Our cash proceeds from our investing
activities consist primarily of proceeds from the maturities and sale of corporate and customer fund available-
for-sale investments. Additionally, the increase or decrease in our net cash from investing activities is impacted
by the net change in acquired card receivable balances.
Our net cash provided by investing activities was $259.3 million during fiscal 2023 compared to net
cash used of $1.1 billion during fiscal 2022 due primarily to the increase in proceeds from maturities of
corporate and customer short-term investments, partially offset by the increase in acquired card receivables.
Additionally, our cash paid for acquisitions during fiscal 2023 was lower compared to our payment to acquire
Invoice2go during fiscal 2022.
Our net cash used in investing activities decreased to $1.1 billion during fiscal 2022 from $1.4 billion
during fiscal 2021 due primarily to the increase in proceeds from maturities of corporate and customer short-
term investments, partially offset by the increase in purchases of corporate and customer fund short-term
investments, and increase in acquired participation interests in card receivables. Additionally, our payment to
acquire Invoice2go during fiscal 2022 was lower compared to our payment to acquire Divvy during fiscal 2021.
Net Cash Provided by Financing Activities
Our cash proceeds from our financing activities consist primarily of proceeds from line of credit
borrowings, exercises of stock options, increase in prepaid card deposits, employee purchases of our common
stock under our Employee Stock Purchase Plan (ESPP) and proceeds from public offerings of our common
stock and issuance of convertible notes. Our cash usage for our financing activities consists primarily of
repurchases of shares, and payments on line of credit and bank borrowings. Additionally, the increase or
decrease in our net cash from financing activities is impacted by the change in customer fund deposits liability.
Our net cash provided by financing activities decreased to $235.1 million during fiscal 2023 from $2.9
billion during fiscal 2022 due primarily to the absence of the proceeds from the public offering of our common
stock and the issuance of our 2027 Notes in the prior year, as well as a decrease in customer funds liability,
partially offset by proceeds from our Revolving Credit Facility.
Our net cash provided by financing activities increased to $2.9 billion during fiscal 2022 from $1.6 billion
during fiscal 2021 due primarily to the proceeds from the public offering of our common stock and increase in
customer funds liability.
71
2027 Notes
On September 24, 2021, we issued $575.0 million in aggregate principal amount of our 0% convertible
senior notes due on April 1, 2027. The 2027 Notes are senior, unsecured obligations, will not accrue interest
unless we determine to pay special interest, and are convertible on or after January 1, 2027 until the close of
business on the second scheduled trading day immediately preceding the maturity date on April 1, 2027. The
2027 Notes are convertible by the holders at their option during any calendar quarter after December 31, 2021
under certain circumstances, including if the last reported sale price of our common stock for at least 20 trading
days (whether or not consecutive) during a period of 30 consecutive trading days ending on and including the
last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the $414.80
per share initial conversion price. If the note holders exercise their right to convert, our current intent is to settle
such conversion through a combination settlement involving a repayment of the principal portion in cash and the
balance in shares of common stock. For additional discussion about our 2027 Notes and the capped call
transactions, refer to Note 10 to our consolidated financial statements included elsewhere in this Annual Report
on Form 10-K.
2025 Notes
On November 30, 2020, we issued $1.15 billion in aggregate principal amount of our 0% convertible
senior notes due on December 1, 2025. The 2025 Notes are senior, unsecured obligations, will not accrue
interest unless we determine to pay special interest, and are convertible on or after September 1, 2025 until the
close of business on the second scheduled trading day immediately preceding the maturity date on December
1, 2025. The 2025 Notes are convertible by the holders at their option during any calendar quarter after March
31, 2021 under certain circumstances, including if the last reported sale price of our common stock for at least
20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on and
including the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of
the $160.88 per share initial conversion price. If the note holders exercise their right to convert, our current
intent is to settle such conversion through a combination settlement involving a repayment of the principal
portion in cash and the balance in shares of common stock. For additional discussion about our 2025 Notes and
the capped call transactions, refer to Note 10 to our consolidated financial statements included elsewhere in this
Annual Report on Form 10-K.
Revolving Credit Facility
We have a total borrowing commitment of $225.0 million pursuant to our Revolving Credit and Security
Agreement, by and between our subsidiary, Divvy Peach, LLC, Goldman Sachs Bank USA, and the lenders
party thereto (the Revolving Credit Facility), of which we borrowed $135.0 million as of June 30, 2023. In August
2022, we amended the Revolving Credit Facility to increase the borrowing capacity from $75.0 million to $225.0
million. Revolving loans under the Revolving Credit Facility bear interest at a rate per annum determined by
reference to either the SOFR Rate or an adjusted benchmark rate plus an applicable margin ranging from
2.65% to 2.75%, based on the outstanding principal amount and the date that principal amounts are
outstanding. Obligations under the Revolving Credit Facility are secured by receivables generated by our Divvy
charge card and certain related collateral. Our Revolving Credit Facility matures in June 2024 and the
outstanding borrowings are payable on or before the maturity date. For additional discussion about our
Revolving Credit Facility, refer to Note 10 to our consolidated financial statements included elsewhere in this
Annual Report on Form 10-K.
Off-Balance Sheet Arrangements
We are contractually obligated to purchase all card receivables from U.S.-based Issuing Banks
including authorized transactions that have not cleared. The transactions that have been authorized but not
cleared totaled $68.6 million as of June 30, 2023 and have not been recorded on our consolidated balance
sheets. We have off-balance sheet credit exposures with these authorized but not cleared transactions;
however, our expected credit losses with respect to these transactions were not material as of June 30, 2023.
Other than our expected credit loss exposure on the card transactions that have not cleared, we had no
other off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material
effect on our consolidated financial condition, results of operations, liquidity, capital expenditures, or capital
resources as of June 30, 2023.
72
Critical Accounting Estimates
Our consolidated financial statements have been prepared in accordance with GAAP. The preparation
of these financial statements requires us to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated
financial statements, as well as the reported revenue generated, and reported expenses incurred during the
reporting periods. Our estimates are based on our historical experience and on various other factors that we
believe are reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are described in the notes to our consolidated financial
statements included elsewhere in this Annual Report on Form 10-K, we believe that the following critical
accounting estimates are most important to understanding and evaluating our reported financial results.
Revenue Recognition
Our contracts with our customers require us to provide multiple services comprising subscription,
transaction and implementation services. We identify performance obligations in these contracts by evaluating
whether individual services are distinct. Services that are not distinct are combined into a single performance
obligation. The evaluation of whether a service is distinct involves judgment and could impact the timing of
revenue recognition. We determine the transaction price in these contracts based on the amount of
consideration we expect to be entitled to, which are typically variable. The transaction price is then allocated to
each separate performance obligation on a relative standalone selling price basis. Each performance obligation
is analyzed to determine if it is satisfied over time or at a point in time. Our performance obligations are
generally recognized as revenue over the period each performance obligation is satisfied using an attribution
method that best reflects the measure of progress in satisfying the performance obligation. The attribution
method used involves judgment and impacts the timing of revenue recognition.
Business Combinations
We account for acquisitions using the acquisition method of accounting, which requires assigning the
fair value of purchase consideration to the assets acquired and liabilities assumed by the acquiree at the
acquisition date. The excess of the fair value of purchase consideration over the fair value of these assets
acquired and liabilities assumed in the acquiree is recorded as goodwill. When determining the fair values of
assets acquired and liabilities assumed in the acquiree, management makes significant estimates and
assumptions, especially with respect to intangible assets. Critical estimates in valuing intangible assets include,
but are not limited to, expected future cash flows, which includes consideration of future growth rates and
margins, attrition rates, future changes in technology and brand awareness, loyalty and position, and discount
rates. Fair value estimates are based on the assumptions management believes a market participant would use
in pricing the asset or liability. Amounts recorded in a business combination may change during the
measurement period, which is a period not to exceed one year from the date of acquisition, as additional
information about conditions existing at the acquisition date becomes available.
Credit Losses on Acquired Card Receivables
We acquire card receivables pursuant to our contracts with certain Issuing Banks. The acquired card
receivable portfolio consists of a large group of smaller balances from spending businesses across a wide
range of industries. We establish an allowance for credit losses based on an estimate of uncollectible balances
resulting from credit losses and such allowance could fluctuate depending on certain factors. An estimate of
lifetime expected credit losses is performed by incorporating historical loss experience, as well as current and
future economic conditions over a reasonable and supportable period beyond the balance sheet date. In
estimating expected credit losses, we use models that entail a significant amount of judgment. The primary
areas of judgment used in measuring the quantitative components of our reserves relate to the attributes used
to segment the portfolio, the determination of the historical loss experience look-back period, and the weighting
of historical loss experience by monthly cohort. We use these models and assumptions to determine the
reserve rates applicable to the outstanding acquired card receivable balances to estimate reserves for expected
credit losses. Based on historical loss experience, the probability of default decreases over time, therefore the
attribute used to segment the portfolio is the length of time since an account’s credit limit origination. Our
73
models use past loss experience to estimate the probability of default and exposure at default by aged
balances. We also estimate the likelihood and magnitude of recovery of previously written off card receivables
based on historical recovery experience. Additionally, we evaluate whether to include qualitative reserves to
cover losses that are expected but may not be adequately represented in the quantitative methods or the
economic assumptions. The qualitative reserves address possible limitations within the models or factors not
included within the models, such as external conditions, changes in underwriting strategies, the nature and
volume of the portfolio, and the volume and severity of past due accounts.
We review our assumptions periodically and the amount of allowance that we recorded may be
impacted by actual performance of the acquired card receivables and changes in any of the assumptions used.
In general, we write-off card receivables after the balance substantially becomes 120 days delinquent.
Spending Businesses Rewards
We offer a promotion program whereby users of our spend and expense management products can
earn rewards based on the volume of their card transactions. Users can redeem those rewards for statement
credits or cash, travel, and gift cards, among other things. We establish a rewards liability that represents
management’s estimate of the cost for earned rewards. The portion of our liability related to points earned is
determined based on an estimate of the redemption cost and an estimate of expected redemption (net of
breakage). Our estimated liability could fluctuate based on the changes on the input used to make our estimate.
Stock-based Compensation
Stock-based compensation expense related to stock option awards and purchase rights issued under
our ESPP is measured at fair value on the date of grant using the Black-Scholes option-pricing model. Stock-
based compensation expense for performance-based awards is measured at fair value on the date of grant
using the Black-Scholes valuation option-pricing model or other valuation technique depending on the nature of
the award. Awards that are classified as liabilities are remeasured at fair value at the end of each reporting
period. These valuation methods require inputs that are based on estimates, which are highly subjective.
Estimates used in the Black-Scholes option-pricing model include:
Expected term – Represents the period that stock option awards are expected to be outstanding. The
expected term for stock option awards is determined using the simplified method. The simplified method deems
the term to be the average of the time-to-vesting and the contractual life of the stock-based awards.
Expected volatility – The expected volatility was estimated based on the historical volatility of the
Company’s common stock.
Risk-free interest rate – The risk-free interest rate is based on the U.S. Treasury zero coupon issues in
effect at the time of stock option awards for periods corresponding with the expected term of the option.
Expected dividend yield – We have never paid dividends on our common stock and have no plans to
pay dividends on our common stock.
We recognize the compensation costs for stock option awards, purchase rights issued under our ESPP,
and market-based RSUs over the requisite service period of the awards, which is generally the vesting term,
reduced for estimated forfeitures at the date of grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates. We estimate the forfeiture rate based on the historical experience. We
recognize compensation costs for performance-based awards over the vesting period if it is probable that the
performance condition will be achieved.
Recent Accounting Pronouncements
See “The Company and its Significant Accounting Policies” Note 1 to our consolidated financial
statements included elsewhere in this Annual Report on Form 10-K for recently adopted accounting
pronouncements and recently issued accounting pronouncements not yet adopted as of June 30, 2023.
74
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Our overall investment portfolio is comprised of corporate investments and funds held for customers.
Our corporate investments are invested in cash and cash equivalents and investment-grade fixed income
marketable securities. These assets are available for corporate operating purposes and mature within 24
months from the date of purchase. Our customer funds assets are invested with safety of principal as the
primary objective. As secondary objectives, we seek to provide liquidity and diversification and maximize
interest income. Our customer funds assets are invested in money market funds that maintain a constant net
asset value, other cash equivalents, and highly liquid, investment-grade fixed income marketable securities,
with maturities of up to 13 months from the time of purchase. Our investment policy governs the types of
investments we make. We classify all of our investments in marketable securities as available-for-sale.
As part of our customer funds investment strategy, we use funds collected daily from our customers to
satisfy the obligations of other unrelated customers, rather than liquidating investments purchased with
previously collected funds. There is risk that we may not be able to satisfy customer obligations in full or on time
due to insufficient liquidity or due to a decline in value of our investments. However, the liquidity risk is
minimized by collecting the customer’s funds in advance of the payment obligation and by maintaining
significant investments in bank deposits and constant net asset value money market funds that allow for same-
day liquidity. The risk of a decline in investment value is minimized by our restrictive investment policy allowing
for only short-term, high quality fixed income marketable securities. We also maintain other sources of liquidity
including our corporate cash balances.
Interest Rate and Credit Risk
We are exposed to interest rate risk relating to our investments of corporate cash and funds held for
customers that we process through our bank accounts. Our corporate investment portfolio consists principally of
interest-bearing bank deposits, money market funds, certificates of deposit, commercial paper, other corporate
notes, asset-backed securities, and U.S. Treasury securities. Funds that we hold for customers are held in non-
interest and interest-bearing bank deposits, money market funds, certificates of deposit, commercial paper,
other corporate notes, and U.S. Treasury securities. We recognize interest earned from funds held for
customers as revenue. We do not pay interest to customers.
Factors that influence the rate of interest we earn include the short-term market interest rate
environment and the weighting of our balances by security type. The annualized interest rate earned on our
corporate investment portfolio and funds held for customers increased to 3.51% during fiscal 2023 compared to
0.29% during fiscal 2022 due primarily to the changes in the short-term interest rate environment during fiscal
2023.
Unrealized gains or losses on our marketable debt securities are due primarily to interest rate
fluctuations from the time the securities were purchased. We account for both fixed and variable rate securities
at fair value with unrealized gains and losses recorded in accumulated other comprehensive income (loss) since
we classify our marketable debt securities as available for sale. Our investments in marketable debt securities
are generally held through maturity with minimal sales before maturity barring unforeseen circumstances, and
thus unrealized gains or losses on fixed-income securities from market interest rate decreases or increases are
not realized as the securities mature at par.
We are also exposed to interest-rate risk relating to borrowings from our Revolving Credit Facility. As of
June 30, 2023, we borrowed $135.0 million from our Revolving Credit Facility. Because the interest rate on our
borrowings is indexed to SOFR, which is a floating rate mechanism, our interest cost may increase if market
interest rates rise. A hypothetical 1% increase or decrease in interest rates would not have a material effect on
our financial results.
In addition to interest rate risks, we also have exposure to risks associated with changes in laws and
regulations that may affect customer fund balances. For example, a change in regulations that restricts the
permissible investment alternatives for customer funds would reduce our interest earned revenue.
We are exposed to credit risk in connection with our investments in securities through the possible
inability of the borrowers to meet the terms of the securities. We limit credit risk by investing in investment-grade
75
securities as rated by Moody’s, Standard & Poor’s, or Fitch, by investing only in securities that mature in the
near-term, and by limiting concentration in securities other than U.S. Treasuries. Investment in securities of
issuers with short-term credit ratings must be rated A-2/P-2/F2 or higher. Investment in securities of issuers with
long-term credit ratings must be rated A- or A3, or higher. Investment in asset-backed securities and money
market funds must be rated AAA or equivalent. Investment in repurchase agreements will be at least 102
percent collateralized with securities issued by the U.S. government or its agencies. Securities in our corporate
portfolio may not mature beyond two years from purchase, and securities held in our customer fund accounts
may not mature beyond 13 months from purchase. No more than 5% of invested funds, either corporate or
customer, may be held in the issues of a single corporation.
We are also exposed to credit risk related to the timing of payments made from customer funds
collected. We typically remit customer funds to our customers’ suppliers in advance of having good or confirmed
funds collected from our customers and if a customer disputes a transaction after we remit funds on their behalf,
then we could suffer a credit loss. Furthermore, our customers generally have three days to dispute
transactions, and if we remit funds in advance of receiving confirmation that no dispute was initiated by our
customer, then we could suffer a credit loss. We mitigate this credit exposure by leveraging our data assets to
make credit underwriting decisions about whether to accelerate disbursements, managing exposure limits, and
various controls in our operating systems.
We continually evaluate the credit quality of the securities in our portfolios. If a security holding is
downgraded below our credit rating threshold or we otherwise believe the security’s payment performance may
be compromised, we will evaluate the relevant risks, remaining time to maturity, amount of principal, as well as
other factors, and we will make a determination of whether to continue to hold the security or promptly sell it.
We are exposed to credit risk from card receivable balances we have with our spending businesses.
Spending businesses may default on their obligations to us due to bankruptcy, lack of liquidity, operational
failure, or other reasons. Although we regularly review our credit exposure to specific spending businesses and
to specific industries that we believe may present credit concerns, default risk may arise from events or
circumstances that are difficult to foresee or detect, such as fraud. In addition, our ability to manage credit risk
or collect amounts owed to us may be adversely affected by legal or regulatory changes (such as restrictions on
collections or changes in bankruptcy laws, and minimum payment regulations). We rely principally on the
creditworthiness of spending businesses for repayment of card receivables and therefore have limited recourse
for collection. Our ability to assess creditworthiness may be impaired if the criteria or models we use to manage
our credit risk prove inaccurate in predicting future losses, which could cause our losses to rise and have a
negative impact on our results of operations. Any material increases in delinquencies and losses beyond our
current estimates could have a material adverse impact on us. Although we make estimates to provide for credit
losses in our outstanding portfolio of card receivables, these estimates may differ from actual losses.
Foreign Currency Exchange Risk
We are exposed to foreign currency exchange risk relating to our cross-border payment service, which
allows customers to pay their international suppliers in foreign currencies. When customers make a cross-
border payment, customers fund those payments in U.S. dollars based upon an exchange rate that is quoted on
the initiation date of the transaction. Subsequently, when we convert and remit those funds to our customers’
suppliers primarily through our global payment partners, the exchange rate may differ, due to foreign exchange
fluctuation, from the exchange rate that was initially quoted. Our transaction fees to our customers are not
adjusted for changes in foreign exchange rates between the initiation date of the transaction and the date the
funds are converted.
We are also exposed to foreign currency exchange risk relating to the operations of our subsidiaries in
Australia and Canada. A change in foreign currency exchange rate can affect our financial results due to
transaction gains or losses related to the remeasurement of certain monetary asset and monetary liability
balances that are denominated in currencies other than the functional currency of our Australian and Canadian
subsidiaries, which are both in U.S. dollars.
If the value of the U.S. dollar weakens relative to the foreign currencies, this may have an unfavorable
effect on our cash flows and operating results. We do not believe that a 10% change in the relative value of the
U.S. dollar to other foreign currencies would have a material effect on our cash flows and operating results.
76
Inflation Risk
We do not believe that inflation had a material effect on our cash flows and operating results during
fiscal 2023. If our costs were to become subject to significant inflationary pressures, we may not be able to fully
offset such higher costs through increase in prices of our product offerings.
The Inflation Reduction Act was enacted on August 16, 2022 and includes a number of provisions that
may impact us in the future. We have assessed these impacts for the current reporting period, and conclude
that the new law does not have a material impact on our fiscal 2023 financial statements.
77
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm (PCAOB ID: 42)
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Loss
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Note 1 – The Company and Its Significant Accounting Policies
Note 2 – Revenue
Note 3 – Business Combination
Note 4 – Fair Value Measurement
Note 5 – Short-Term Investments
Note 6 – Funds Held for Customers
Note 7 – Acquired Card Receivables
Note 8 – Property and Equipment
Note 9 – Goodwill and Intangible Assets
Note 10 – Debt and Bank Borrowings
Note 11 – Stockholders' Equity
Note 12 – Other Income (Expense), Net
Note 13 – Income Taxes
Note 14 – Leases
Note 15 – Commitments and Contingencies
Note 16 – Net Loss Per Share Attributable to Common Stockholders
79
83
84
85
86
87
89
89
98
99
102
105
106
108
111
111
113
116
121
121
124
125
126
78
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of BILL Holdings, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of BILL Holdings, Inc. (the Company) as of June 30,
2023 and 2022, the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash
flows for each of the three years in the period ended June 30, 2023, and the related notes (collectively referred to as the
“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material
respects, the financial position of the Company at June 30, 2023 and 2022, and the results of its operations and its cash
flows for each of the three years in the period ended June 30, 2023, in conformity with U.S. generally accepted accounting
principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company's internal control over financial reporting as of June 30, 2023, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework), and our report dated August 29, 2023 expressed an unqualified opinion
thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide
a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements
that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or
disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex
judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a
separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
79
Funds Held for Customers and Customer Fund Deposits
Description of
the Matter
As discussed in Note 1 to the consolidated financial statements, funds held for customers and the
corresponding customer fund deposits liability represent the Company’s contractual obligations to
remit funds to customers or customers’ suppliers, to satisfy customers’ fund obligations and are
recorded as an asset and corresponding liability at the time the Company collects funds from
customers or on behalf of customers. At June 30, 2023, the Company reported funds held for
customers and a corresponding customer fund deposits liability of $3.4 billion. The Company
processes a high volume of transactions comprising of funds that are collected from customers for
payments to their suppliers and funds that are collected on behalf of customers.
Auditing the funds held for customers and corresponding customer fund deposits liability was
complex and involved increased audit effort due to the complexity of the account reconciliations, the
significance of the balances, and the high volume of transactions.
How We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of
controls over the Company’s funds held for customers and customer funds deposits. For example,
we tested controls over management’s review of the completeness and accuracy of the account
reconciliations.
To test the funds held for customers and corresponding customer fund deposits liability, our audit
procedures included, among others, obtaining external confirmations for the cash and investment
balances and testing the account reconciliations. We sampled funding and disbursement
transactions prior to and subsequent to period end and evaluated whether funds were properly
included or excluded from the funds held for customers and customer fund deposit balances and
evaluated the aging of balances. We evaluated the reasonableness of the customer fund deposits
liability balance by performing analytical procedures using transactional data for a period of time
prior to and subsequent to period end.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2018.
San Mateo, California
August 29, 2023
80
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of BILL Holdings, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited BILL Holdings, Inc.’s internal control over financial reporting as of June 30, 2023, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework), (the COSO criteria). In our opinion, BILL Holdings. Inc. (the Company)
maintained, in all material respects, effective internal control over financial reporting as of June 30, 2023, based on the
COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated balance sheets of the Company as of June 30, 2023 and 2022, the related
consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the three
years in the period ended June 30, 2023, and the related notes and our report dated August 29, 2023 expressed an
unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s
Annual Report on Internal Control Over Financial Reporting . Our responsibility is to express an opinion on the Company’s
internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed
risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
81
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ Ernst & Young LLP
San Mateo, California
August 29, 2023
82
BILL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
ASSETS
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, net
Acquired card receivables, net
Prepaid expenses and other current assets
Funds held for customers
Total current assets
Non-current assets:
Operating lease right-of-use assets, net
Property and equipment, net
Intangible assets, net
Goodwill
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
Accrued compensation and benefits
Deferred revenue
Other accruals and current liabilities
Borrowings from credit facilities, net
Customer fund deposits
Total current liabilities
Non-current liabilities:
Deferred revenue
Operating lease liabilities
Convertible senior notes, net
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 15)
Stockholders' equity:
Preferred stock: $0.00001 par value per share; 10,000 shares authorized; none
issued and outstanding
Common stock; $0.00001 par value per share; 500,000 shares authorized; 106,550
and 104,731 shares issued and outstanding at June 30, 2023 and 2022,
respectively
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total stockholders' equity
Total liabilities and stockholders' equity
June 30,
2023
2022
$
$
1,617,151 $
1,043,110
28,233
458,650
170,111
3,355,909
6,673,164
68,988
81,564
361,427
2,396,509
54,366
9,636,018 $
$
8,519 $
32,901
26,328
194,733
135,046
3,355,909
3,753,436
410
72,477
1,704,782
18,944
5,550,049
1,596,542
1,108,493
24,045
256,392
151,258
3,142,660
6,279,390
76,445
56,985
432,583
2,362,893
47,730
9,256,026
9,948
29,004
31,868
120,080
75,097
3,142,660
3,408,657
2,159
82,728
1,697,985
20,803
5,212,332
—
—
2
4,946,623
(4,488)
(856,168)
4,085,969
9,636,018 $
$
2
4,598,737
(10,217)
(544,828)
4,043,694
9,256,026
See accompanying notes to consolidated financial statements.
83
BILL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Revenue
Subscription and transaction fees
Interest on funds held for customers
Total revenue
Cost of revenue
Service costs
Depreciation and amortization of intangible assets (1)
Total cost of revenue
Gross profit
Operating expenses
Research and development
Sales and marketing
General and administrative
Depreciation and amortization of intangible assets (1)
Total operating expenses
Loss from operations
Other income (expense), net
Year ended
June 30,
2023
2022
2021
$
944,710 $
633,365 $
232,255
113,758
8,594
6,010
1,058,468
641,959
238,265
151,010
42,967
193,977
864,491
314,632
515,858
281,278
48,496
1,160,264
105,496
39,508
145,004
496,955
219,818
307,151
241,174
45,630
813,773
56,576
5,230
61,806
176,459
89,503
67,935
128,116
4,872
290,426
(295,773)
(316,818)
(113,967)
72,856
(13,861)
(25,370)
Loss before provision for (benefit from) income taxes
(222,917)
(330,679)
(139,337)
Provision for (benefit from) income taxes
Net loss
808
(4,318)
(40,617)
$
(223,725) $
(326,361) $
(98,720)
Net loss per share attributable to common stockholders:
Basic and diluted
$
(2.11) $
(3.21) $
(1.19)
Weighted-average number of common shares used to compute
net loss per share attributable to common stockholders:
Basic and diluted
105,976
101,753
82,813
(1) Depreciation expense does not include amortization of capitalized internal-use software wage costs.
See accompanying notes to consolidated financial statements.
84
BILL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
Net loss
Other comprehensive income (loss):
Net unrealized gain (loss) on investments in available-for-sale
securities
Comprehensive loss
Year ended
June 30,
2023
2022
2021
$
(223,725) $
(326,361) $
(98,720)
5,729
(10,117)
(2,520)
$
(217,996) $
(336,478) $
(101,240)
See accompanying notes to consolidated financial statements.
85
BILL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
Balance at June 30, 2020
79,635 $
2 $
857,044 $
2,420 $
(148,747) $
710,719
Common stock
Shares
Amount
Additional
paid-in
capital
Accumulated
other
comprehensive
(loss) income
Accumulated
deficit
Total
stockholders'
equity
Issuance of common stock as consideration for an acquisition, net of
issuance costs
Fair value of replacement awards
Equity component of 2025 Notes, net of issuance costs and taxes
Purchase of capped calls
Issuance of common stock upon exercise of stock options and release
of restricted stock units
Issuance of common stock under the employee stock purchase plan
Stock-based compensation
Other comprehensive loss
Net loss
Balance at June 30, 2021
Cumulative effect of the accounting change upon the adoption of ASU
2020-06
Issuance of common stock upon public offering, net of underwriting
discounts and other offering costs
Issuance of common stock as consideration for the acquisition, net of
issuance costs
Fair value of replacement awards
Issuance of common stock upon exercise of stock options and release
of restricted stock units
Issuance of common stock under the employee stock purchase plan
Purchase of capped calls
Stock-based compensation
Other comprehensive loss
Net loss
Balance at June 30, 2022
Issuance of common stock upon exercise of stock options and release
of restricted stock units
Issuance of common stock as consideration for an acquisition
Issuance of common stock under the employee stock purchase plan
Repurchase and retirement of common stock
Stock-based compensation
Other comprehensive income
Net loss
Balance at June 30, 2023
10,767
—
—
—
3,656
446
—
—
—
94,504
—
5,074
1,788
—
3,283
82
—
—
—
—
104,731
2,703
40
182
(1,106)
—
—
—
—
—
—
—
—
—
—
—
—
2
—
—
—
—
—
—
—
—
—
—
2
—
—
—
—
—
—
—
1,603,031
55,275
245,066
(87,860)
26,981
8,864
68,754
—
—
2,777,155
(245,066)
1,341,122
488,263
26,710
34,024
12,849
(37,893)
201,573
—
—
—
—
—
—
—
—
—
(2,520)
—
(100)
—
—
—
—
—
—
—
—
(10,117)
—
—
—
—
—
—
—
—
(98,720)
1,603,031
55,275
245,066
(87,860)
26,981
8,864
68,754
(2,520)
(98,720)
(247,467)
2,529,590
29,000
(216,066)
—
—
—
—
—
—
—
—
1,341,122
488,263
26,710
34,024
12,849
(37,893)
201,573
(10,117)
—
(326,361)
(326,361)
4,598,737
(10,217)
(544,828)
4,043,694
13,872
3,375
17,879
—
312,760
—
—
—
—
—
—
—
5,729
—
—
—
—
(87,615)
—
—
13,872
3,375
17,879
(87,615)
312,760
5,729
(223,725)
(223,725)
106,550 $
2 $
4,946,623 $
(4,488) $
(856,168) $
4,085,969
See accompanying notes to consolidated financial statements.
86
BILL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Stock-based compensation
Amortization of intangible assets
Depreciation of property and equipment
Amortization of capitalized internal-use software costs
Amortization of debt discount and issuance costs, net of accretion of debt premium
Amortization of premium (accretion of discount) on investments in marketable debt
securities
Provision for losses on acquired card receivables and other financial assets
Non-cash operating lease expense
Deferred income taxes
Other
Changes in assets and liabilities:
Accounts receivable
Prepaid expenses and other current assets
Other assets
Accounts payable
Other accruals and current liabilities
Operating lease liabilities
Other long-term liabilities
Deferred revenue
2023
Year ended
June 30,
2022
2021
$
(223,725) $
(326,361) $
(98,720)
313,567
80,205
11,258
4,215
6,964
(37,194)
32,189
9,493
(1,361)
1,127
(4,482)
(16,844)
320
(1,686)
34,465
(10,303)
(3,097)
(7,343)
197,157
75,977
9,161
2,366
4,777
11,386
19,879
8,601
(4,075)
(726)
(3,032)
(12,970)
5,105
(3,771)
7,460
(7,877)
(6,749)
5,599
68,290
5,659
4,443
907
27,531
4,692
741
3,813
(40,617)
—
(6,535)
706
(12,525)
7,417
22,980
8,395
592
6,854
4,623
Net cash provided by (used in) operating activities
187,768
(18,093)
Cash flows from investing activities:
Cash paid for acquisition, net of acquired cash and cash equivalents
Purchases of corporate and customer fund short-term investments
Proceeds from maturities of corporate and customer fund short-term investments
Proceeds from sale of corporate and customer fund short-term investments
Increase in acquired card receivables, net
Purchases of property and equipment
Capitalization of internal-use software costs
Proceeds from beneficial interest
Other
(28,902)
(144,349)
(556,090)
(2,743,763)
(2,801,697)
(2,070,296)
3,283,961
1,902,474
11,607
55,744
(234,256)
(129,178)
(7,589)
(23,614)
2,080
(239)
(5,377)
(10,259)
6,699
(1,359)
1,104,532
142,665
(26,495)
(18,902)
(2,304)
—
—
Net cash provided by (used in) investing activities
259,285
(1,127,302)
(1,426,890)
Cash flows from financing activities:
Proceeds from issuance of common stock upon public offering, net of underwriting discounts
and other offering costs
Proceeds from issuance of convertible senior notes, net of discounts and issuance costs
Purchase of capped calls
Increase in customer fund deposits liability and other
Repurchase of common stock
Increase in prepaid card deposits
Proceeds from line of credit borrowings
Payments on line of credit and bank borrowings
Proceeds from exercise of stock options
Proceeds from issuance of common stock under the employee stock purchase plan
—
—
—
204,390
(87,615)
26,584
60,000
—
13,872
17,879
1,341,122
560,075
(37,893)
941,003
—
29,886
37,500
(40,000)
34,024
12,849
—
1,129,379
(87,860)
563,291
—
—
—
(2,300)
28,209
8,864
Net cash provided by financing activities
235,110
2,878,566
1,639,583
Effect of exchange rate changes on cash, cash equivalents, restricted cash, and restricted
cash equivalents
Net increase in cash, cash equivalents, restricted cash, and restricted cash equivalents
Cash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of year
(38)
(149)
682,125
3,542,715
1,733,022
1,809,693
—
217,316
1,592,377
Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of year
$
4,224,840 $
3,542,715 $
1,809,693
87
2023
Year ended
June 30,
2022
2021
Reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents
within the consolidated balance sheets to the amounts shown in the consolidated
statements of cash flows above:
Cash and cash equivalents
Restricted cash included in other current assets
Restricted cash included in other assets
$
1,617,151 $
1,596,542 $
509,615
87,322
13,810
85,252
6,724
10,977
6,875
Restricted cash and restricted cash equivalents included in funds held for customers
2,506,557
1,854,197
1,282,226
Total cash, cash equivalents, restricted cash, and restricted cash equivalents, end of year
Supplemental disclosure of cash flow information:
Cash paid for interest during the period
Cash paid for income taxes during the period
Noncash investing and financing activities:
Payable on purchases of property and equipment and internal-use software costs
Fair value of shares issued as consideration for acquisition
Fair value of stock-based awards assumed in acquisition
Fair value of earn-out consideration for acquisition
Recognition of beneficial interest
$
$
$
$
$
$
$
$
4,224,840 $
3,542,715 $
1,809,693
7,440 $
1,266 $
4,867 $
— $
174 $
1,936 $
112
—
664
3,375 $
488,494 $
1,603,543
— $
21,724 $
55,275
10,762 $
1,682 $
— $
4,690 $
—
—
See accompanying notes to consolidated financial statements.
88
BILL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
Bill.com, Inc. was incorporated in the State of Delaware in April 2006. BILL.com Holdings, Inc., was
incorporated in the State of Delaware in August 2018. In November 2018, Bill.com, Inc. consummated a
reorganization with Bill.com Holdings, Inc. (renamed BILL Holdings, Inc. in February 2023), resulting in the latter
becoming the parent entity of Bill.com, Inc. Bill.com, Inc. was subsequently converted into a limited liability
company and renamed Bill.com, LLC. BILL Holdings, Inc. and its wholly owned subsidiaries are collectively
referred to as the “Company”.
The Company is a provider of software-as-a-service, cloud-based payments, and spend and expense
management products, which allow users to automate accounts payable and accounts receivable transactions,
enable businesses to easily connect with their suppliers and/or customers to do business, eliminate expense
reports, manage cash flows, and improve back-office efficiency.
Follow-on Offering
On September 24, 2021, the Company closed a public offering in which the Company issued and sold a
total of 5,073,529 shares of common stock at a public offering price of $272.00 per share. The Company
received $1.3 billion in net proceeds from this public offering, after deducting underwriting discounts,
commissions, and other offering costs of $38.9 million.
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and were
prepared in conformity with U.S. generally accepted accounting principles (GAAP) and applicable rules and
regulations of the Securities and Exchange Commission (SEC). All intercompany accounts and transactions
have been eliminated.
Segment Reporting
The Company operates as one operating segment because its chief operating decision maker, who is
the Chief Executive Officer, reviews its financial information on a consolidated basis for purposes of making
decisions regarding allocating resources and assessing performance. The Company's long-lived assets are
mainly located in the United States (U.S.) and revenue is mainly generated in the U.S. Long-lived assets
outside the U.S. are not material as of June 30, 2023 and 2022. Total revenue from external customers outside
of the U.S. was approximately 3% of consolidated total revenue during the years ended June 30, 2023 and
2022. There were no revenue from external customers outside of the U.S. for the year ended June 30, 2021.
Business Combinations
The Company accounts for acquisitions using the acquisition method of accounting, which requires,
among other things, allocation of the fair value of purchase consideration to the tangible and intangible assets
acquired and liabilities assumed at their estimated fair values on the acquisition date. The excess of the fair
value of purchase consideration over the values of the identifiable assets and liabilities is recorded as goodwill.
The determination of the fair value of assets acquired and liabilities assumed involves assessments of
factors such as the expected future cash flows associated with individual assets and liabilities and appropriate
discount rates at the date of the acquisition. Significant management inputs used in the estimation of fair value
of assets acquired and liabilities assumed include, but are not limited to, expected future cash flows, future
changes in technology, estimated replacement costs, discount rates, and assumptions about the period of time
the brand will continue to be used in the Company’s product portfolio. Where appropriate, external advisers are
consulted to assist in the determination of fair value. For non-observable market values, fair value has been
determined using acceptable valuation methods (e.g., relief from royalty methods). The results of operations for
businesses acquired are included in the financial statements from the acquisition date. Acquisition-related
expenses and post-acquisition integration costs are recognized separately from the business combination and
are expensed as incurred. During the measurement period, not to exceed one year from the date of acquisition,
89
the Company may record adjustments to the tangible and intangible assets acquired and liabilities assumed,
including the fair value of acquired intangible assets, an indemnification asset related to certain assumed
liabilities, net lease liabilities, uncertain tax positions, tax-related valuation allowances, and pre-acquisition
contingencies with a corresponding offset to goodwill. The Company continues to collect information and
reevaluates these estimates and assumptions quarterly and records any adjustments to the Company’s
preliminary estimates to goodwill provided that the Company is within the measurement period. After the
measurement period, any subsequent adjustments are reflected in the consolidated statements of operations.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to
make various estimates and assumptions that affect the amounts reported and disclosed in the consolidated
financial statements and the accompanying notes. Management regularly assesses these estimates, including,
but not limited to useful lives of long-lived assets; capitalization of internal-use software costs; incremental
borrowing rates for right-of-use (ROU) operating lease assets, and operating lease liabilities; the estimate of
losses on accounts receivable, acquired card receivables and other financial assets; accrual for rewards;
variable consideration used in revenue recognition for certain contracts; benefit periods used to amortize
deferred costs; reserve for losses on funds held for customers; inputs used to value certain stock-based
compensation awards; and valuation of income taxes. The Company evaluates these estimates and
assumptions and adjusts them accordingly. Actual results could differ from those estimates, and such
differences may be material to the consolidated financial statements.
Funds Held for Customers and Customer Fund Deposits
Funds held for customers and the corresponding liability on customer fund deposits represent funds
that are collected from customers for payments to their suppliers and funds that are collected on behalf of
customers. Generally, these funds held for customers are initially deposited in separate bank accounts until
remitted to the customers’ suppliers or to the customers. Funds held for customers also include amounts that
are held by or deposited into the accounts of payment processing companies and receivables from customers.
The funds held for customers are restricted for the purpose of satisfying the customers’ fund obligations and are
not available for general business use by the Company. The Company partially invests funds held for customers
in highly liquid investments with maturities of three months or less, consisting of money market funds and
marketable debt securities, and in marketable debt securities with maturities of more than three months up to
thirteen months at the time of purchase. Funds held for customers that are invested in marketable debt
securities are classified as available-for-sale. These investments are carried at fair value, with unrealized gains
or losses included in accumulated other comprehensive loss on the consolidated balance sheets and as a
component of the consolidated statements of comprehensive loss. The Company contractually earns interest on
funds held for customers with associated counterparties.
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents
Cash and cash equivalents consist of cash in banks, highly liquid investments with maturities of three
months or less at the time of purchase, and securities purchased under overnight reverse repurchase
agreements.
Restricted cash consists of (i) amounts restricted under deposit account control agreements, (ii)
minimum cash balances that are required to be maintained by certain banks, (iii) cash collateral required by the
Company’s lessors to satisfy letter of credit requirements under its lease agreements, (iv) cash collateral
required by a bank in connection with the Company’s money transmission activities, and (v) cash in bank and
cash deposits held by payment processing companies included in funds held for customers.
Restricted cash equivalents consist of highly liquid investments with maturities of three months or less
at the time of purchase that are included in funds held for customers.
Except for the restricted cash included in funds held for customers, the current and non-current portion
of the restricted cash is included in prepaid expenses and other current assets and in other assets, respectively,
in the accompanying consolidated balance sheets.
90
Short–term Investments
The Company invests excess cash in a diversified portfolio of highly rated marketable debt securities
with maturities of more than three months. These securities are classified as available-for-sale and recorded at
fair value. The Company determines the appropriate classification of investments in marketable debt securities
at the time of purchase and reevaluates such designation at each balance sheet date. After consideration of risk
versus reward attributes and liquidity requirements, the Company may sell these debt securities prior to their
stated maturities. As the Company views these securities as available to support current operations, the
Company classifies highly liquid securities with maturities beyond 12 months as current assets. Unrealized
gains or losses are included in accumulated other comprehensive income (loss) on the consolidated balance
sheets and as a component of the consolidated statements of comprehensive loss.
An impairment loss is recognized when the decline in fair value of the marketable debt securities is
determined to be other than temporary. The Company does not intend to sell the investments and it is not likely
that the Company will be required to sell the investments before recovery of their amortized cost bases, which
will be at maturity. The Company periodically evaluates its investments to determine if impairment charges are
required. The Company determined that there was no other-than-temporary impairment on short-term
investments during each of the years ended June 30, 2023, 2022, and 2021.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist
principally of cash, cash equivalents, restricted cash, restricted cash equivalents, short-term investments,
accounts receivable, and acquired card receivables (collectively referred to as Financial Assets). The Company
maintains its cash, cash equivalents, restricted cash, restricted cash equivalents and short-term investments
with large multinational financial institutions that may at times exceed federally insured limits. In connection with
recent instability in the U.S. banking system, the Company's management has taken incremental precautions to
safeguard its assets and evaluate the nature and extent of its financial partnerships. Management believes that
the financial institutions with which the Company does business are financially sound with minimal credit risk.
Management further believes the associated risk of concentration for the Company’s investments is mitigated
by holding a diversified portfolio of highly rated investments consisting of money market funds and short-term
debt securities.
The Company performs credit evaluations to verify the credit quality of its financial assets and
determine any at-risk receivables. An allowance for potential credit losses on Financial Assets is recognized, if
material. As of June 30, 2023 and 2022, the allowance for potential credit losses related to accounts receivable
and acquired card receivables totaled approximately $15.9 million and $5.8 million, respectively. These amounts
do not include the immaterial allowance for potential credit losses on the purchase of card receivables that have
been authorized but not cleared at the end of the periods (see Note 15).
There were no customers that exceeded 10% of the Company’s total revenue during each of the years
ended June 30, 2023, 2022, and 2021.
Foreign Currency
The functional currency of the Company's foreign subsidiaries is the U.S. dollar, which is the Company's
reporting currency. Gains and losses from the remeasurement of transactions denominated in foreign
currencies other than the functional currency of the foreign subsidiaries are included in other (expense) income,
net in the accompanying statements of operations.
Accounts Receivable and Unbilled Revenue
Accounts receivable, which consist primarily of fees from customers, including accounting firm and
financial institution customers, are recorded at the invoiced amount, net of an allowance for credit losses.
Unbilled revenue is recorded based on amounts that the Company expects to invoice to customers in the
subsequent period. The allowance for credit losses related to accounts receivable and unbilled revenue is
based on the Company’s assessment of the collectability of the receivables. The Company regularly reviews the
adequacy of the allowance for credit losses by considering the age of each outstanding invoice and the
91
collection history of each customer to determine whether a specific allowance is appropriate. Accounts
receivable deemed uncollectable are charged against the allowance for credit losses when identified. For all
periods presented, the allowance for credit losses related to accounts receivable and unbilled revenue was not
material.
Acquired Card Receivables
The portfolios of acquired card receivables are U.S. based commercial accounts diversified across
various geographies and industries. The Company manages credit risk based on common risk characteristics
including financial condition of the users of the spend and expense management application.
Acquired card receivables are reported at their principal amounts outstanding net of allowance for credit
losses. Acquired card receivables are deemed to be held for investment when such receivables are not
acquired specifically for resale.
As part of the onboarding process, users of the Company’s free spend and expense management
application are provided with a credit limit subject to a credit policy and underwriting process which is
periodically re-performed based on risk indicators and the size of the credit limit.
Spending businesses may over fund their accounts through payments in excess of the outstanding
balance. Such over funded amounts are recorded as prepaid card deposits, which are included in other
accruals and current liabilities in the accompanying consolidated balance sheets.
Acquired card receivables represent amounts due on card transactions integrated with the spend and
expense management application. The Company is contractually obligated to purchase all card receivables
from U.S.-based card issuing banks (Issuing Banks) including authorized transactions that have not cleared at
the Issuing Banks. Acquired card receivables are recorded at the time a transaction clears the Issuing Banks
and generally payment for the card receivables is made on the day the transaction clears the Issuing Banks.
The acquired card receivables portfolio consists of a large group of smaller balances from spending
businesses across a wide range of industries. The allowance for credit losses reflects the Company’s estimate
of uncollectible balances resulting from credit and fraud losses and is based on the determination of the amount
of expected losses inherent in the acquired card receivable as of the reporting date. An estimate of lifetime
expected credit losses is performed by incorporating historical loss experience, as well as current and future
economic conditions over a reasonable and supportable period beyond the balance sheet date. In estimating
expected credit losses, the Company uses models that entail a significant amount of judgment. The primary
areas of judgment used in measuring the quantitative components of the Company’s reserves relate to the
attributes used to segment the portfolio, the determination of the historical loss experience look-back period,
and the weighting of historical loss experience by monthly cohort. The Company uses these models and
assumptions to determine the reserve rates applicable to the outstanding acquired card receivable balances to
estimate reserves for expected credit losses. Based on historical loss experience, the probability of default
decreases over time, therefore the attribute used to segment the portfolio is the length of time since an
account’s credit limit origination. The Company’s models use past loss experience to estimate the probability of
default and exposure at default by aged balances. The Company also estimates the likelihood and magnitude of
recovery of previously written off loans based on historical recovery experience. Additionally, management
evaluates whether to include qualitative reserves to cover losses that are expected but may not be adequately
represented in the quantitative methods or the economic assumptions. The qualitative reserves address
possible limitations within the models or factors not included within the models, such as external conditions,
changes in underwriting strategies, the nature and volume of the portfolio, and the volume and severity of past
due accounts. In general, acquired card receivables are written off after substantially the entire balance
becomes 120 days delinquent. Assumptions regarding expected losses are reviewed periodically and may be
impacted by actual performance of the acquired card receivables and changes in any of the factors discussed
above. As of June 30, 2023 and 2022, the allowance for potential credit losses on acquired card receivables
shown on the consolidated balance sheets totaled $15.5 million and $5.4 million, respectively. These amounts
do not include the immaterial allowance for potential credit losses on purchase of card receivables that have
been authorized but not cleared at the end of the periods (see Note 15).
92
Derivative Instruments
The Company retains a beneficial interest derivative in the form of a deferred purchase price on card
receivables sold. This derivative is not designated as a hedging instrument, and is initially recorded at fair value,
with subsequent changes in fair value recorded through other gains and losses. The Company does not use
derivative instruments for speculative or trading purposes. The beneficial interest derivative is a residual interest
in collections on card receivables sold, and serves to align the economic interests of the Company as servicer
with those of the purchasing bank. Effective August 2022, the Company ceased selling acquired card
receivables (see Note 7).
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation and amortization.
Depreciation and amortization are computed using the straight-line method over the estimated useful lives of
the respective assets, generally one to four years. Leasehold improvements are amortized over the shorter of
estimated useful lives of the assets or the lease term. Expenditures for repairs and maintenance are charged to
expense as incurred. Upon disposition, the cost and related accumulated depreciation and amortization are
removed from the accounts and the resulting gain or loss is reflected in the consolidated statements of
operations.
The Company capitalizes internal and external direct costs incurred related to obtaining or developing
internal-use software. Costs incurred during the application development stage are capitalized and are
amortized using the straight-line method over the estimated useful lives of the software, generally three years
commencing on the first day of the month following when the software is ready for its intended use. Costs
related to planning and other preliminary project activities and post-implementation activities are expensed as
incurred.
Goodwill
Goodwill represents the excess of the purchase price of the acquisition over the net fair value of
identifiable assets acquired and liabilities assumed. Goodwill amounts are not amortized.
Intangible Assets
The Company generally recognizes assets for customer relationships, developed technology and finite-
lived trade names from an acquisition. Finite-lived intangible assets are carried at acquisition cost less
accumulated amortization. Such amortization is recorded on a straight-line basis over the estimated useful lives
of the respective assets, generally from three to ten years. Amortization for developed technology is recognized
in cost of revenue. Amortization for customer relationships and trade names is recognized in sales and
marketing expenses.
Impairment
Goodwill is tested annually at the reporting unit level for impairment during the fourth fiscal quarter or
more frequently if facts or changes in circumstances indicate the carrying amount of goodwill may not be
recoverable. The Company has one reporting unit; therefore, all of its goodwill is associated with the entire
company. Management has the option to first perform a qualitative assessment to determine whether it is more
likely than not that the fair value of the Company is less than the carrying amount, including goodwill. If it is
determined that it is more likely than not that the fair value of the Company is less than the carrying amount, a
quantitative assessment is performed by comparing the fair value of a reporting unit with its carrying amount. An
impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair
value, not to exceed the total amount of goodwill allocated to that reporting unit. The Company also has the
option to bypass the qualitative assessment and perform the quantitative assessment.
The Company reviews the valuation of long-lived assets, including property and equipment and finite-
lived intangible assets, whenever events or changes in circumstances indicate that the carrying amount of the
asset may not be recoverable. The recoverability of long-lived assets or asset groups is calculated based on the
93
estimated undiscounted future cash flows expected to result from the use and eventual disposition of the asset.
Impairment testing is performed at the asset group level.
Based on management's assessment, the Company did not recognize any impairment losses on its
goodwill, finite-lived intangible assets or other long-lived assets during the periods presented herein.
Leases
The Company determines if an arrangement is a lease, or contains a lease, by evaluating whether there
is an identified asset and whether the Company controls the use of the identified asset throughout the period of
use. The Company determines the classification of the lease, whether operating or financing, at the lease
commencement date, which is the date the leased assets are made available for use.
The Company uses the non-cancelable lease term when recognizing the ROU assets and lease
liabilities, unless it is reasonably certain that a renewal or termination option will be exercised. The Company
accounts for lease components and non-lease components as a single lease component. Modifications are
assessed to determine whether incremental differences result in new contract terms and accounted for as a
new lease or whether the additional right of use should be included in the original lease and continue to be
accounted with the remaining ROU asset.
Operating lease ROU assets and lease liabilities are recognized at the lease commencement date
based on the present value of the lease payments over the lease term. Lease payments consist of the fixed
payments under the arrangement, less any lease incentives. Variable costs, such as common area
maintenance costs, are not included in the measurement of the ROU assets and lease liabilities, but are
expensed as incurred. As the implicit rate of the leases is not determinable, the Company uses an incremental
borrowing rate in determining the present value of the lease payments. Lease expenses are recognized on a
straight-line basis over the lease term.
The Company does not recognize ROU assets on lease arrangements with a term of 12 months or less.
Lease expense for such arrangements is recognized on a straight-line basis over the term of the lease.
Accrued Rewards
Spending businesses participate in rewards programs based on card transactions. The Company
records a rewards liability that represents the estimated cost for rewards owed to spending businesses.
Rewards liabilities are impacted over time by redemption costs and by spending businesses meeting eligibility
requirements. Changes in the rewards liabilities during the period are recognized as an increase or decrease to
sales and marketing expense in the accompanying consolidated statements of operations. The accrued rewards
liability, which was $55.4 million and $36.2 million as of June 30, 2023 and 2022, respectively, is included in
other accruals and current liabilities in the accompanying consolidated balance sheets. The rewards expense,
which was $173.9 million, $95.2 million, and $4.5 million, during the years ended June 30, 2023, 2022, and
2021, respectively, is included in sales and marketing expenses in the accompanying consolidated statements
of operations.
Revenue Recognition
The Company enters into contracts with small and midsize businesses (SMB) and accounting firm
customers to provide access to the functionality of the Company’s cloud-based payments platform to process
transactions. These contracts are either monthly contracts paid in arrears or upfront, or annual arrangements
paid up front. The Company charges its SMB and accounting firm customers subscription fees for access to its
platform either based on the number of users or per customer account and the level of service. The Company
generally also charges these customers transaction fees based on transaction volume and the category of
transaction. The contractual price for subscription and transaction services is based on either negotiated fees or
the rates published on the Company’s website.
The Company accounts for its annual and monthly contracts as a series of distinct services that are
satisfied over time. The Company determines the transaction price for such contracts by estimating the total
consideration to be received over the contract term from subscription and transaction fees. The Company
94
recognizes the transaction price as a single performance obligation based on the proportion of transactions
processed to the total estimated transactions to be processed over the contract period. Revenues recognized
exclude amounts collected on behalf of third parties, such as sales taxes collected and remitted to
governmental authorities.
The Company enables SMB and accounting firm customers to make virtual card payments to their
suppliers. The Company also facilitate the extension of credit to spending businesses through the Divvy product
in the form of Divvy cards. The spending businesses utilize the credit on Divvy cards as a means of payment for
goods and services provided by their suppliers. Virtual card payments and Divvy cards are originated through
agreements with Issuing Banks. The agreements with the Issuing Banks allow for card transactions on the
MasterCard and Visa networks. For each virtual card and Divvy card transaction, suppliers are required to pay
interchange fees to the issuer of the card. Based on the Company's agreements with its Issuing Banks, the
Company recognizes the interchange fees as revenue gross or net of rebates received from the Issuing Bank
based on the Company's determination of whether it is the principal or agent under the agreements.
The Company enters into multi-year contracts with financial institution customers to provide access to
the Company’s cloud-based payments platform to process transactions. These contracts typically include fees
for initial implementation services that are paid during the period the implementation services are provided as
well as fees for subscription and transaction processing services, which are subject to guaranteed monthly
minimum fees that are paid monthly over the contract term. These contracts enable the financial institutions to
provide their customers with access to online bill pay services through the financial institutions’ online platforms.
Implementation services are required up-front to establish an infrastructure that allows the financial institutions’
online platforms to communicate with the Company’s online platform. A financial institution’s customers cannot
access online bill pay services until implementation is complete.
Initial implementation services and transaction processing services are not capable of being distinct
from the subscription for online bill pay services and are combined into a single performance obligation. The
total consideration in these contracts varies based on the number of users and transactions to be processed.
The Company has determined it meets the variable consideration allocation exception and therefore recognizes
guaranteed monthly payments and any overages as revenue in the month they are earned. Implementation
fees are recognized based on the proportion of transactions processed to the total estimated transactions to be
processed over the contract period. The ability of the financial institution customers to renew their contracts
without having to pay up-front implementation fees again could provide them a material right. For such
arrangements, the Company allocates revenue to each performance obligation based on its relative standalone
selling price.
Interest on Funds Held for Customers
The Company also earns revenue from interest earned on funds held for customers that are initially
deposited into the Company’s bank accounts that are separate from the Company’s operating cash accounts
until remitted to the customers or their suppliers. The Company partially invests funds held for customers in
highly liquid investments with maturities of three months or less and in marketable debt securities with
maturities of three months to one year at the time of purchase. Interest and fees earned are recognized based
on the effective interest method and also include the accretion of discounts and the amortization of premiums
on marketable debt securities.
Deferred Revenue
Subscription and transaction fees from customers for which the Company has annual or multi-year
contracts are generally billed in advance. These fees are initially recorded as deferred revenue and
subsequently recognized as revenue as the performance obligation is satisfied.
Deferred Costs
Deferred costs consist of (i) deferred sales commissions that are incremental costs of obtaining
customer contracts and (ii) deferred service costs, primarily direct payroll costs, for implementation services
provided to customers prior to the launching of the Company’s products for general availability (go-live) to
customers. Sales commissions paid on renewals are not material and are not commensurate with sales
commissions paid on the initial contract. Deferred sales commissions are amortized ratably over the estimated
95
life of the customer relationship aligned with the pattern of customer attrition, taking into consideration the initial
contract term and expected renewal periods. Deferred service costs are amortized ratably over the estimated
benefit period of the capitalized costs starting on the go-live date of the service.
Service Costs
Service costs consist primarily of personnel-related costs, including stock-based compensation
expenses, for the Company’s customer success and payment operations teams, outsourced support services
for the Company's customer success team, costs that are directly attributed to processing customers’, and
spending businesses' transactions (such as the cost of printing checks, postage for mailing checks, fees
associated with the issuance and processing of card transactions, fees for processing payments, such as ACH,
check and cross-border wires), direct and amortized costs for implementing and integrating the Company’s
platform into the customers’ systems, costs for maintaining, optimizing, and securing the Company’s cloud
payments infrastructure, amortization of capitalized internal-use software (excluding capitalized stock-based
compensation), fees on the investment of customer funds, and allocation of overhead costs.
Research and Development
Costs incurred in research and development, excluding development costs eligible for capitalization as
internal-use software, are expensed as incurred.
Stock-based Compensation
The Company measures stock-based compensation for stock options and purchase rights issued under
the Employee Stock Purchase Plan (ESPP) at fair value on the date of grant using the Black-Scholes option-
pricing model. The Company measures stock-based compensation for restricted stock units (RSUs) and
market-based RSUs based on the closing price of the Company’s stock and using the Monte Carlo simulation
model, respectively, on the date of grant. The Company measures stock-based compensation for performance-
based awards at fair value on the date of grant by using the Black-Scholes valuation option-pricing model or
other valuation technique depending on the nature of the award. Awards that are classified as liabilities are
remeasured at fair value at the end of each reporting period.
The Company recognizes compensation costs on a straight-line basis over the requisite service period,
which is generally the vesting term of four years for stock options and RSUs, the offering period of one year for
purchase rights under the ESPP, and the requisite period of one to three years for market-based RSUs. Stock
compensation costs are reduced by the estimated forfeitures at the date of grant and revised, if necessary, in
subsequent periods if actual forfeitures differ from those estimates. The Company estimates the forfeiture rate
based on its historical experience for annual grant years where the majority of the vesting terms have been
satisfied. The Company recognizes compensation costs for performance-based awards over the vesting period
if it is probable that the performance condition will be achieved.
The Black-Scholes option-pricing model and Monte Carlo simulation model require the use of highly
subjective assumptions which determine the fair value of stock-based awards.
The main assumptions used in the Black-Scholes option-pricing model include:
Expected term – The expected term represents the period that stock-based awards are expected to be
outstanding. The expected term for option grants is determined using the simplified method. The simplified
method deems the term to be the average of the time-to-vesting and the contractual life of the stock-based
awards.
Expected volatility – The expected volatility was estimated based on the historical volatility of the
Company’s common stock.
Risk-free interest rate – The risk-free interest rate is based on the U.S. Treasury zero coupon issues in
effect at the time of grant for periods corresponding with the expected term of option.
Expected dividend yield – The Company has never paid dividends on its common stock and has no
plans to pay dividends on its common stock. Therefore, the Company used an expected dividend yield of zero.
96
The main assumptions used in the Monte Carlo simulation model include (i) expected volatility, (ii) risk-
free interest rate, and (iii) performance period of the market-based RSU award, which represents the period that
the Company's stock price condition has to be achieved in order for the award to vest.
Advertising
The Company expenses the costs of advertising, including promotional expenses, as incurred.
Advertising expenses during the years ended June 30, 2023, 2022, and 2021 were $39.0 million, $29.4 million,
and $8.5 million, respectively.
Income Taxes
The Company accounts for income taxes using the asset and liability method, which requires the
recognition of taxes payable or refundable for the current year and deferred income tax assets and liabilities for
the future tax consequences of temporary differences between the financial statement carrying amounts and the
tax basis of the Company's assets and liabilities, net operating loss (NOL), and tax credit carryforwards. A
valuation allowance is established to reduce deferred tax assets to the amount expected to be realized.
The Company accounts for uncertainty in income taxes using a two-step approach to recognizing and
measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if
the weight of available evidence indicates that it is more likely than not that the position will be sustained on
audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the
tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. The Company
classifies any liabilities for unrecognized tax benefits as current to the extent that the Company anticipates
payment (or receipt) of cash within one year. Interest and penalties related to uncertain tax positions are
recognized in the provision for income taxes.
Net Loss Per Share Attributable to Common Stockholders
Basic net loss per share attributable to common stockholders is calculated by dividing the net loss
attributable to common stockholders by the weighted-average number of shares of common stock outstanding
during the period, without consideration of potentially dilutive securities. Diluted net loss per share attributable to
common stockholders is the same as basic net loss per share attributable to common stockholders for all
periods presented since the effect of potentially dilutive securities is anti-dilutive given the net loss of the
Company.
New Accounting Pronouncements:
Adopted
In March 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update
(ASU) 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage
Disclosures. This ASU eliminates the accounting guidance for Troubled Debt Restructurings (TDRs) by creditors
in Subtopic 310-40, Receivables—Troubled Debt Restructurings by Creditors, while enhancing disclosure
requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing
financial difficulty. Additionally, this ASU requires a company to disclose current-period gross write-offs by year
of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20,
Financial Instruments—Credit Losses—Measured at Amortized Cost. The Company early adopted this ASU on
a prospective basis beginning July 1, 2022. The Company does not expect the adoption to have a material
impact on the Company's financial statements.
Not Yet Adopted
The Company does not expect that any other recently issued accounting pronouncements will have a
significant effect on its financial statements.
97
NOTE 2 – REVENUE
The Company generates revenue primarily from subscription and transaction fees. The table below
shows the Company’s revenue from subscription and transaction fees, which are disaggregated by sales
channel, and revenue from interest on funds held for customers (in thousands).
SMBs, accounting firms, spending businesses and other
$
901,602 $
603,171 $
218,227
Year ended
June 30,
2023
2022
2021
Financial institutions
Total subscription and transaction fees
Interest on funds held for customers
Total revenue
Deferred revenue
43,108
944,710
113,758
30,194
633,365
8,594
14,028
232,255
6,010
$ 1,058,468 $
641,959 $
238,265
Fees from customers with which the Company has annual or multi-year contracts are generally billed in
advance. These fees are initially recorded as deferred revenue and subsequently recognized as revenue as the
performance obligation is satisfied. During the year ended June 30, 2023, the Company recognized
approximately $32 million of revenue that was included in the deferred revenue balance as of June 30, 2022.
Remaining performance obligations
The Company has performance obligations associated with commitments in customer contracts for
future services that have not yet been recognized as revenue. As of June 30, 2023, the aggregate amount of
transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied), including
deferred revenue, was approximately $131.1 million. Of the total remaining performance obligations, the
Company expects to recognize approximately 77% within two years and 23% over the next three to five years
thereafter. The Company determines remaining performance obligations at a point of time. Actual amounts and
timing of revenue recognized may differ due to subsequent contract modifications, renewals and/or
terminations.
Unbilled revenue
Unbilled revenue consists of revenue recognized that has not been billed to the customers yet. The
unbilled revenue amounted to $14.0 million and $11.4 million as of June 30, 2023 and 2022, respectively.
Deferred costs
Deferred costs consisted of the following as of the dates presented (in thousands):
Deferred sales commissions:
Current
Non-current
Total deferred sales commissions
Deferred service costs:
Current
Non-current
Total deferred service costs
June 30,
2023
2022
$
$
$
$
6,523 $
12,317
5,460
9,187
18,840 $
14,647
904 $
2,221
3,125 $
720
3,433
4,153
The current portion of deferred costs is included in prepaid expenses and other current assets and the
non-current portion is included in other assets in the accompanying consolidated balance sheets. The
amortization of deferred sales commissions, which is included in sales and marketing in the accompanying
98
consolidated statements of operations, was $6.6 million, $5.2 million, and $3.6 million during the years ended
June 30, 2023, 2022, and 2021, respectively. The amortization of deferred service costs, which is included in
the service costs in the accompanying consolidated statements of operations, was $2.5 million, $1.6 million, and
$0.6 million during the years ended June 30, 2023, 2022, and 2021, respectively.
NOTE 3 – BUSINESS COMBINATION
Fiscal 2022 Acquisition
On September 1, 2021, the Company acquired 100% of the outstanding equity interests of Invoice2go,
LLC, and Cimrid Pty, Ltd (together, Invoice2go). The results of Invoice2go's operations have been included in
the accompanying consolidated financial statements since the acquisition date. Invoice2go provides mobile-first
accounts receivable software that empowers SMBs and freelancers to grow their client base, manage invoicing
and payments, and build their brand. Invoice2go has operations in the U.S. and in Australia, and serves a large
global customer base of SMBs. The acquisition of Invoice2go will enhance the Company’s ability to provide an
expanded product solution to enable SMBs to manage accounts payable, corporate card spend, and accounts
receivable all in one place. Additionally, the acquisition will expand the market opportunity for the Company by
offering Invoice2go's product to its existing customers and network members and vice versa.
The acquisition purchase consideration totaled $674.3 million, which consisted of the following (in
thousands):
Equity consideration (1)
Cash
Total
$
$
510,218
164,087
674,305
(1) This includes 1,788,372 shares of the Company’s common stock issued with a fair value based upon the opening market price on the
acquisition date. This also includes the stock options assumed to replace stock options that were outstanding on the acquisition date under
Invoice2go's 2014 Equity Incentive Plan. The fair value of these stock options was $21.7 million, which was the amount attributable to the
pre-combination requisite service period.
The following table summarizes the preliminary fair values of the assets acquired and liabilities
assumed at the acquisition date (in thousands):
Cash and cash equivalents
Accounts receivable and other assets
Intangible assets
Total identifiable assets acquired
Accounts payable and other liabilities
Net identifiable assets acquired
Goodwill
Net assets acquired
$
19,738
4,518
91,219
115,475
(26,618)
88,857
585,448
$
674,305
The preliminary fair values allocated to the identifiable intangible assets (in thousands) and their
estimated useful lives are as follows:
Customer relationships
Developed technology
Trade name
Total
99
Weighted
average
useful life
(in years)
10.0
3.0
3.0
Preliminary
fair value
$
$
61,269
15,908
14,042
91,219
Customer relationships were measured at fair value using the multiple-period excess earnings method
under the income approach. Significant inputs used to measure the fair value include an estimate of projected
revenue and costs associated with existing customers, and a discount rate of 12.3%.
Developed technology was measured at fair value using the relief-from-royalty method of the income
approach. Significant inputs used to measure the fair value include an estimate of projected revenue from
existing technology, a pre-tax royalty rate of 15.0%, and a discount rate of 12.3%.
Trade name was measured at fair value using the relief-from-royalty method under the income
approach. Significant inputs used to measure the fair value include an estimate of projected revenue from the
trade name, a pre-tax royalty rate of 2.5%, and a discount rate of 12.3%.
The $585.4 million goodwill is attributable primarily to the expected synergies and economies of scale
expected from combining the operations of both entities, and intangible assets that do not qualify for separate
recognition, including assembled workforce acquired through the acquisition. None of the goodwill is expected
to be deductible for income tax purposes. As a result of the adoption of ASU 2021-08 Business Combinations
(Topic 805)—Accounting for Contract Assets and Contract Liabilities from Contracts with Customers on
October 1, 2021, retrospectively to September 1, 2021, the Company recorded adjustments of $8.0 million to
increase goodwill and deferred revenue, and an immaterial amount to deferred income tax liability. The amounts
recorded as measurement period adjustments were not material during the 12-month measurement period.
The Company recognized $3.7 million of acquisition-related costs that were expensed during the year
ended June 30, 2022. These costs are shown as part of general and administrative expenses in the
accompanying consolidated statements of operations.
The amount of Invoice2go’s revenue and net loss, which includes amortization of intangible assets,
from the acquisition date of Invoice2go that were included in the Company’s consolidated statements of
operations during the year ended June 30, 2022 were approximately $32.9 million and $32.0 million,
respectively.
Unaudited Pro Forma Financial Information
The unaudited pro forma information below summarizes the combined results (in thousands) of the
Company and Invoice2go as if the Company’s acquisition of Invoice2go closed on July 1, 2020, but does not
necessarily reflect the combined actual results of operations of the Company and Invoice2go that would have
been achieved, nor are they necessarily indicative of future results of operations. The unaudited pro forma
information reflects certain adjustments that were directly attributable to the acquisition of Invoice2go, including
additional depreciation and amortization adjustments for the fair value of the assets acquired and liabilities
assumed. The pro forma net loss for the year ended June 30, 2022 was adjusted to exclude nonrecurring
acquisition-related costs of $19.0 million. The pro forma net loss for the year ended June 30, 2021 was adjusted
to exclude nonrecurring acquisition-related costs of $20.6 million.
Revenue
Net loss
Fiscal 2021 Acquisition
Year ended June 30,
2022
2021
$ 648,476 $ 274,842
$ (327,136) $
(149,003)
On June 1, 2021, the Company acquired 100% of the outstanding equity interests of DivvyPay, Inc.
(Divvy). The results of Divvy’s operations have been included in the consolidated financial statements since the
acquisition date. Divvy offers a cloud-based spend management application and smart corporate cards to SMBs
in the U.S. The acquisition of Divvy will enhance the Company’s ability to provide an expanded solution to
enable SMBs to manage accounts payable, corporate card spend, and accounts receivable all in one place.
Additionally, the acquisition will expand the market opportunity for the Company by offering a spend
management application combined with smart corporate cards to its existing customers and network members.
The acquisition purchase consideration totaled $2.3 billion, which consisted of the following (in
thousands):
100
Equity consideration (1)
Cash
Total
$ 1,658,818
664,779
$ 2,323,597
(1) This includes 10,767,140 shares of the Company’s common stock issued with a fair value based upon the opening market price
on the acquisition date. This also includes the stock options assumed to replace stock options that were granted after May 1,
2019 under Divvy’s 2016 Equity Incentive Plan and were outstanding on the acquisition date. The fair value of these stock options
was $55.3 million, which was the amount attributable to the pre-combination requisite service period.
The following table summarizes the fair values of the assets acquired and liabilities assumed at the
acquisition date (in thousands):
Cash
Acquired card receivables
Accounts receivable
Card receivables held for sale
Property and equipment
Intangible assets
Prepaid expenses and other assets
Total identifiable assets acquired
Accounts payable and other liabilities
Outstanding borrowings from credit facilities
Total liabilities assumed
Net identifiable assets acquired
Goodwill
Net assets acquired
$
108,689
159,784
7,435
12,730
15,805
423,000
57,669
785,112
(153,855)
(79,703)
(233,558)
551,554
1,772,043
$
2,323,597
The fair values allocated to the identifiable intangible assets (in thousands) and their estimated useful
lives are as follows:
Customer relationships
Developed technology
Trade name
Total
Weighted
average useful
life (in years)
10.0
6.0
3.0
Fair value
$
198,000
191,000
34,000
$
423,000
Following the acquisition of Divvy, the Company had a period of not more than 12 months to finalize the
fair values of assets acquired and liabilities assumed, including valuations of identifiable intangible assets and
indemnification asset related to certain assumed liabilities at the acquisition date. During the 12-month
measurement period, the Company remeasured the fair value of the leases acquired and the replacement
stock-based awards included in the purchase consideration. The effect of these measurement period
adjustments resulted in a decrease of goodwill by $2.7 million. There were no other material adjustments made
during the 12-month measurement period related to the acquisition of Divvy.
Customer relationships were measured at fair value using the multiple-period excess earnings method
under the income approach. Significant inputs used to measure the fair value include an estimate of projected
revenue and costs associated with existing customers, and a discount rate of 16.0%.
Developed technology was measured at fair value using the relief-from-royalty method of the income
approach. Significant inputs used to measure the fair value include an estimate of projected revenue from
existing technology, a pre-tax royalty rate of 15.0%, and a discount rate of 16.0%.
101
Trade name was measured at fair value using the relief-from-royalty method under the income
approach. Significant inputs used to measure the fair value include an estimate of projected revenue from the
trade name, a pre-tax royalty rate of 1.0%, and a discount rate of 16.0%.
The $1.8 billion goodwill is attributable primarily to the expected synergies and economies of scale
expected from combining the operations of both entities, and intangible assets that do not qualify for separate
recognition, including assembled workforce acquired through the acquisition. Goodwill is not expected to be
deductible for income tax purposes.
As of the acquisition date, the fair value of card receivables held for sale, which approximates the gross
contractual amount, was $12.7 million. These receivables were substantially settled as of June 30, 2021.
Pursuant to the terms of the merger agreement, the Company recognized an indemnification asset of
$13.4 million and $20.4 million related to certain assumed liabilities at the acquisition date as of June 30, 2022
and 2021, respectively. The indemnification asset was measured and recognized on the same basis and at the
same time as the indemnified liabilities.
The Company recognized $15.5 million of acquisition-related costs that were expensed during the year
ended June 30, 2021. These costs are shown as part of general and administrative expenses in the
accompanying consolidated statements of operations.
The amounts of Divvy’s total revenue and net loss that were included in the Company’s consolidated
statement of operations from the acquisition date through June 30, 2021 were $10.3 million and $11.4 million,
respectively.
Unaudited Pro Forma Financial Information
The unaudited pro forma information does not necessarily reflect the actual results of operations of the
combined entities that would have been achieved, nor are they necessarily indicative of future results of
operations. The unaudited pro forma information reflects certain adjustments that were directly attributable to
the acquisition of Divvy, including additional depreciation and amortization adjustments for the fair value of the
assets acquired and liabilities assumed. The pro forma net loss for the year ended June 30, 2021 was adjusted
to exclude nonrecurring acquisition related costs of $2.3 million. Below is the unaudited pro forma financial
information of the combined results of operations of the Company and Divvy as if the acquisition occurred on
July 1, 2019 (in thousands).
Total revenue
Net loss
NOTE 4 – FAIR VALUE MEASUREMENT
Year ended
June 30,
2021
$
$
307,618
(223,470)
The Company measures and reports its cash equivalents, short-term investments, funds held for
customers that are invested in money market funds and marketable debt securities, and contingent
consideration at fair value. Fair value is defined as the exchange price that would be received for an asset or an
exit price paid to transfer a liability in the principal or most advantageous market for the asset or liability in an
orderly transaction between market participants on the measurement date. Valuation techniques used to
measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.
The fair value hierarchy defines a three-level valuation hierarchy for disclosure of fair value
measurements as follows:
Level 1 –
Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 –
Inputs other than quoted prices included within Level 1 that are observable, unadjusted
quoted prices in markets that are not active, or other inputs that are observable or can
102
be corroborated by observable market data for substantially the full term of the related
assets or liabilities.
Level 3 –
Unobservable inputs that are supported by little or no market activity for the related
assets or liabilities and typically reflect management’s estimate of assumptions that
market participants would use in pricing the assets or liabilities.
In determining fair value, the Company utilizes quoted market prices, or valuation techniques that
maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, and
also considers counterparty credit risk in its assessment of fair value.
The following tables set forth the fair value of assets and liabilities that were measured at fair value on a
recurring basis based on the three-tier fair value hierarchy as of the dates presented (in thousands):
Assets
Cash equivalents:
Money market funds
Certificates of deposit
Corporate bonds
U.S. treasury securities
Short-term investments:
Corporate bonds
U.S. treasury securities
U.S. agency securities
Asset-backed securities
Certificates of deposit
Funds held for customers:
Restricted cash equivalents
Money market funds
Short-term investments
Corporate bonds
Certificates of deposit
U.S. agency securities
Asset-backed securities
U.S. treasury securities
Level 1
Level 2
Level 3
Total
June 30, 2023
$ 1,131,621 $
— $
—
—
44,856
2,578
45,301
—
1,176,477
47,879
—
479,483
408,368
—
—
—
—
57,967
51,193
46,099
408,368
634,742
713,469
713,469
—
—
—
—
81,074
81,074
—
—
433,920
233,291
27,458
70,661
—
765,330
— $ 1,131,621
2,578
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
45,301
44,856
1,224,356
479,483
408,368
57,967
51,193
46,099
1,043,110
713,469
713,469
433,920
233,291
27,458
70,661
81,074
846,404
Total assets measured at fair value
$ 2,379,388 $ 1,447,951 $
— $ 3,827,339
Liabilities
Contingent consideration(1)
Total liabilities measured at fair value
$
—
— $
—
(12,035)
— $
(12,035) $
—
—
(1) The Company used the probability-weighted discounted cash flow method to estimate the contingent consideration. The
significant inputs used in the fair value measurement of the contingent consideration are the probability of payout and discount
rate. As these inputs are not based on observable market data, the liability represents a Level 3 measurement within the fair value
hierarchy.
103
Level 1
Level 2
Level 3
Total
June 30, 2022
$ 1,424,259 $
— $
— $ 1,424,259
Assets
Cash equivalents:
Money market funds
Corporate bonds
Short-term investments:
Corporate bonds
U.S. treasury securities
Asset-backed securities
Certificates of deposit
Funds held for customers:
Restricted cash equivalents
Money market funds
Corporate bonds
Short-term investments
Corporate bonds
Certificates of deposit
Municipal bonds
Asset-backed securities
U.S. treasury securities
Beneficial interest derivative on card receivables
sold
—
1,424,259
11,430
11,430
—
597,204
421,728
—
—
—
51,406
38,155
421,728
686,765
—
133,557
133,557
807,685
397,533
6,516
69,912
—
1,281,646
34,703
—
34,703
—
—
—
—
3,072
3,072
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
11,430
1,435,689
597,204
421,728
51,406
38,155
1,108,493
34,703
133,557
168,260
807,685
397,533
6,516
69,912
3,072
1,284,718
—
398
398
Total assets measured at fair value
$ 1,883,762 $ 2,113,398 $
398 $ 3,997,558
There were no transfers of financial instruments between Level 1, Level 2, and Level 3 during the
periods presented.
The fair values of the Company’s Level 1 instruments were derived from quoted market prices and
active markets for these specific instruments.
The valuation techniques used to measure the fair values of Level 2 instruments were derived from
non-binding market consensus prices that were corroborated with observable market data, quoted market
prices for similar instruments, or pricing models.
The Company has $575 million and $1.15 billion in aggregate principal amount of its 0% convertible
senior notes due in 2027 (2027 Notes) and in 2025 (2025 Notes, together with the 2027 Notes, the Notes),
respectively, outstanding as of June 30, 2023. The Company carries the Notes at par value, less the
unamortized issuance costs in the accompanying consolidated balance sheets. The estimated fair value of the
2027 Notes and 2025 Notes, which is presented for disclosure purposes only, was approximately $473.7 million
and $1.19 billion, respectively, as of June 30, 2023. The fair value was based on a market approach, which
represents a Level 2 valuation estimate. The market approach was determined based on the actual bids and
offers of the Notes in an over-the-counter market as of the last day of trading prior to the end of the period.
104
NOTE 5 – SHORT-TERM INVESTMENTS
Short-term investments consisted of the following as of the dates presented (in thousands):
Corporate bonds
U.S. treasury securities
Asset-backed securities
Certificates of deposit
U.S. agency securities
Corporate bonds
U.S. treasury securities
Asset-backed securities
Certificates of deposit
June 30, 2023
Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair value
$
481,658 $
207 $
(2,382) $
479,483
409,586
51,321
46,099
58,166
42
8
—
—
(1,260)
408,368
(136)
—
(199)
51,193
46,099
57,967
$ 1,046,830 $
257 $
(3,977) $ 1,043,110
June 30, 2022
Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair value
$
601,987 $
3 $
(4,786) $
597,204
424,644
51,622
38,155
1
—
—
(2,917)
421,728
(216)
—
51,406
38,155
$ 1,116,408 $
4 $
(7,919) $ 1,108,493
The amortized cost and fair value amounts include accrued interest receivable of $4.3 million and $3.0
million at June 30, 2023 and 2022, respectively.
As of June 30, 2023, the fair value of the Company’s short-term investments that mature within one
year and thereafter was $758.1 million and $285.0 million, respectively, or 73% and 27%, respectively, of the
Company’s total short-term investments. As of June 30, 2022, the fair value of the Company’s short-term
investments that mature within one year and thereafter was $961.8 million and $146.7 million, respectively, or
87% and 13%, respectively, of the Company’s total short-term investments.
As of June 30, 2023, approximately 190 out of approximately 330 investment positions were in an
unrealized loss position. The following table presents the gross unrealized losses and fair values for those
investments that were in an unrealized loss position as of the dates presented (in thousands):
Corporate bonds
U.S. treasury securities
Asset-backed securities
U.S. agency securities
Total
June 30, 2023
Fair value
$
296,562 $
213,726
38,426
57,967
Unrealized
losses
(2,382)
(1,260)
(136)
(199)
$
606,681 $
(3,977)
105
Corporate bonds
U.S. treasury securities
Asset backed securities
Total
June 30, 2022
Fair value
$
392,699 $
411,787
51,406
Unrealized
losses
(4,786)
(2,917)
(216)
$
855,892 $
(7,919)
The Company investments balance with unrealized losses that had been in a continuous unrealized
loss position for less than 12 months was $506.5 million and $851.8 million as of June 30, 2023 and June 30,
2022, respectively. Investments balance with unrealized losses that had been in a continuous unrealized loss
position for more than 12 months was $100.2 million and not material as of June 30, 2023 and June 30, 2022,
respectively. The Company does not intend to sell the investments and it is not likely that the Company will be
required to sell the investments before recovery of their amortized cost bases, which will be at maturity.
Therefore, the Company does not consider those unrealized investment losses as other-than-temporary
impairment of the investments. There have been no significant realized gains or losses on the short-term
investments during each of the years ended June 30, 2023, 2022, and 2021.
The Company has not recorded an allowance for credit losses on investments that were in an
unrealized loss position as of each of June 30, 2023 and 2022 because they were not material.
NOTE 6 – FUNDS HELD FOR CUSTOMERS
Funds held for customers consisted of the following as of the dates presented (in thousands):
Restricted cash
Restricted cash equivalents
Funds receivable
Corporate bonds
Certificates of deposit
Municipal bonds
Asset-backed securities
U.S. agency securities
U.S. treasury securities
June 30,
2023
2022
$ 1,793,088 $ 1,685,937
713,469
12,822
433,920
233,291
—
70,661
27,458
81,074
168,260
6,747
807,685
397,533
6,516
69,912
—
3,072
Total funds held for customers
3,365,783
3,145,662
Less - income earned by the Company included in other current assets
(9,874)
(3,002)
Total funds held for customers, net of income earned by the Company
$ 3,355,909 $ 3,142,660
Income earned by the Company that is included in other current assets represents interest income,
accretion of discount (offset by amortization of premium), and net unrealized gains on customer funds that were
invested in money market funds and short-term marketable debt securities. Earnings from these investments
are contractually earned by the Company and are expected to be transferred into the Company’s corporate
deposit account upon sale or settlement of the associated investment, and are not considered funds held for
customers.
106
Below is a summary of the fair value of funds held for customers that were invested in short-term
marketable debt securities as of the dates presented (in thousands):
Corporate bonds
Certificates of deposit
Asset-backed securities
U.S. agency securities
U.S. treasury securities
Total
Corporate bonds
Certificates of deposit
Municipal bonds
Asset backed securities
U.S. treasury securities
Total
June 30, 2023
Gross
unrealized
gains
Gross
unrealized
losses
Amortized
cost
Fair value
$
433,936 $
18 $
(34) $
433,920
233,290
70,993
27,484
81,309
1
—
5
1
—
233,291
(332)
(31)
(236)
70,661
27,458
81,074
$
847,012 $
25 $
(633) $
846,404
June 30, 2022
Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair value
$
809,113 $
1 $
(1,429) $
807,685
397,533
6,542
70,574
3,082
—
—
—
—
—
397,533
(26)
(662)
(10)
6,516
69,912
3,072
$ 1,286,844 $
1 $
(2,127) $ 1,284,718
The amortized cost and fair value amounts include accrued interest receivable of $6.9 million and $3.0
million at June 30, 2023 and 2022, respectively.
As of June 30, 2023, approximately 93%, or $785.3 million, of the total funds held for customers
invested in marketable debt securities mature within one year and approximately 7%, or $61.1 million, mature
thereafter. As of June 30, 2022, 95%, or $1.2 billion, of the funds held for customers invested in short-term
marketable debt securities matured within one year and approximately 5%, or $69.9 million, mature thereafter.
As of June 30, 2023, approximately 50 out of approximately 230 investment positions were in an
unrealized loss position. The following tables present the gross unrealized losses and fair values for those
investments that were in an unrealized loss position as of the dates presented (in thousands):
Corporate bonds
Asset-backed securities
U.S. agency securities
U.S. treasury securities
Total
June 30, 2023
Fair value
$
34,530 $
70,661
22,494
74,888
$
202,573 $
Unrealized
losses
(34)
(332)
(31)
(236)
(633)
107
Corporate bonds
Municipal bonds
Asset backed securities
U.S. treasury securities
Total
June 30, 2022
Fair value
Unrealized
losses
$
301,625 $
(1,429)
6,516
64,361
3,072
(26)
(662)
(10)
$
375,574 $
(2,127)
Investments with unrealized losses have been in a continuous unrealized loss position for less than 12
months was $191.0 million and $375.6 million as of June 30, 2023 and June 30, 2022, respectively. Investments
balance with unrealized losses that had been in a continuous unrealized loss position for more than 12 months
was not material as of June 30, 2023 and 2022. The Company does not intend to sell the investments and it is
not likely that the Company will be required to sell the investments before recovery of their amortized cost
bases, which will be at maturity. Therefore, the Company does not consider those unrealized investment losses
as other-than-temporary impairment of the investments. There have been no significant realized gains or losses
on funds held for customers that were invested in short-term marketable debt securities during each of the
years ended June 30, 2023, 2022, and 2021.
The Company has not recorded an allowance for credit losses on investments that were in an
unrealized loss position as of each of June 30, 2023 and 2022 because they were not material.
NOTE 7 – ACQUIRED CARD RECEIVABLES
Acquired Card Receivables
Acquired card receivables consisted of the following as of the dates presented (in thousands):
Gross amount of acquired card receivables
Less: allowance for credit losses
Total
June 30,
2023
2022
$
474,148 $
261,806
(15,498)
(5,414)
$
458,650 $
256,392
Certain lines of credit and acquired card receivable balances are collateralized by cash deposits held by
the Issuing Banks. Before an account is charged off, the Company obtains any available cash collateral from
the Issuing Banks. As of June 30, 2023, approximately $188.0 million of the acquired card receivable balance
served as collateral for the Company’s borrowings from the Revolving Credit Facility (see Note 10).
The Company incurred losses related to card transactions disputed by spending businesses. The
amounts were not material during each of the years ended June 30, 2023 and 2022.
The acquired card receivable balances above do not include purchases of card receivables from the
Issuing Banks that have not cleared at the end of the reporting period. Purchases of card receivables that have
not cleared as of June 30, 2023 totaled $68.6 million. The Company recognized an immaterial amount of
expected credit losses on the purchased card receivables that have not cleared yet as of each of June 30, 2023
and 2022 (see Note 15).
Credit Quality Information
The Company regularly reviews collection experience, delinquencies, and net charge-offs in
determining allowance for credit losses related to acquired card receivables. Historical collections rates have
shown that days past due is the primary indicator of the likelihood of loss. The Company uses the delinquency
trends or past due status of the acquired card receivables as the credit quality indicator. Acquired card
108
receivables are considered past due if full payment is not received on the bill date or within a grace period,
which is generally limited to five days. Below is a summary of the acquired card receivables by class (i.e., past
due status) as of the dates presented (in thousands):
Current and less than 30 days past due
30 ~ 59 days past due
60 ~ 89 days past due
90 ~ 119 days past due
Over 119 days past due
Total
June 30,
2023
2022
$ 463,704 $
257,618
2,507
4,544
3,196
197
1,677
1,199
1,186
126
$ 474,148 $
261,806
The amount of outstanding balance of acquired card receivables that is (i) 90 days or more past due
that continue to accrue fees and has an allowance for outstanding balance and fees and (ii) classified as
nonperforming was not material as of each of June 30, 2023 and 2022.
As part of its collection efforts, the Company may modify card receivables terms with spending
businesses that defaulted on payments; such modifications may include principal forgiveness, late fee
forgiveness, and/or an extension of payment terms. Total card receivables subject to such modifications were
not material during the years ended June 30, 2023 and 2022. Outstanding and modified card receivables as of
June 30, 2023 subject to modification were not material. Upon the Company's determination that a modified
card receivable (or a portion of the card receivable) has subsequently been deemed uncollectible, the card
receivable balance and allowance for credit losses are adjusted for the uncollectible portion.
Allowance for Credit Losses
Below is a summary of the changes in allowance for credit losses (in thousands):
Balance, beginning
Initial allowance for credit losses on purchased card receivables with credit
deterioration
Provision for expected credit losses
Charge-off amounts
Recoveries collected
Balance, ending
June 30,
2023
2022
$
5,414 $
1,740
10
32,015
313
19,566
(24,120)
(18,005)
2,179
$
15,498 $
1,800
5,414
Card receivables acquired from the Issuing Banks and held for investment during the years ended
June 30, 2023 and 2022 were $13.2 billion and $6.6 billion, respectively. The allowance for credit losses related
to acquired card receivables increased during the year ended June 30, 2023 due to portfolio growth.
Gross charge-off amounts for the year ended June 30, 2023 consisted of $6.5 million that originated in
the year ended June 30, 2022 and $17.6 million that originated in the year ended June 30, 2023.
Card Receivables Held for Sale
The Company sells a portion of acquired card receivables to a purchasing bank at a discount. Effective
August 2022, the Company ceased selling acquired card receivables.
Card receivables held for sale, which are carried at the lower of cost or estimated market value at the
individual user account level based on pricing agreed upon with the purchasing bank plus an estimate of the
deferred purchased card receivables held for sale, are included in prepaid expenses and other current assets in
109
the accompanying consolidated balance sheets, amounted to zero and $8.7 million as of June 30, 2023 and
2022, respectively.
Card Receivables Sold and Related Servicing and Beneficial Interest Derivative Retained
The Company accounts for the transfer of card receivables as a sale if all of the following conditions are
met:
•
•
•
the financial asset is isolated from the transferor and its consolidated affiliates as well as its creditors,
even in bankruptcy or other receivership;
the transferee or beneficial interest holders have the right to pledge or exchange the transferred
financial asset; and
the transferor, its consolidated affiliates and its agents do not maintain effective control over the
transferred financial asset
The card receivables that the Company transferred to the purchasing bank during each of the years
ended June 30, 2023 and 2022 met all of the requirements described above; therefore, the Company
accounted for the transfer as a sale of financial assets. Accordingly, the Company measures gain or loss on the
sales of financial assets as the net proceeds less the carrying amount of the card receivables sold. The net
proceeds represent the fair value of any assets obtained or liabilities incurred as part of the transfer, including,
but not limited to, servicing assets, servicing liabilities, or beneficial interest derivatives.
Under the agreement with the purchasing bank, the Company had a continuing involvement as servicer.
Effective August 2022, the Company ceased selling acquired card receivables. The outstanding transferred card
receivable balance as of June 30, 2023 and 2022 was zero and $57.3 million, respectively. The fair value of the
beneficial interest derivative, which is included in prepaid expenses and other current assets in the
accompanying consolidated balance sheets, was zero and immaterial as of June 30, 2023 and 2022,
respectively. The servicing fee income was not material during each of the years ended June 30, 2023 and
2022.
Below is a summary of the fair value of consideration received from the transfer of card receivables
accounted for as a sale during the periods presented (in thousands):
Initial fair value of consideration received:
Cash
Beneficial interest derivative
Total
Year ended June 30,
2023(1)
2022
$
316,477 $ 1,483,481
1,682
4,690
$
318,159 $ 1,488,171
(1) Effective August 2022, the Company ceased selling acquired card receivables.
Card receivable repurchases during each of the years ended June 30, 2023 and 2022 were not
material.
Below is a summary of outstanding transferred card receivables by class (i.e., past due status) that
have not been charged-off and have not been recorded on the Company's consolidated balance sheets, but
with which the Company has a continuing involvement through its servicing agreements, as of the dates
110
presented (in thousands):
Current and less than 30 days past due
30 ~ 59 days past due
60 ~ 89 days past due
90 ~ 119 days past due
Over 119 days past due
Total
June 30,
2023(1)
2022
$
— $
56,162
—
—
—
—
292
375
422
30
$
— $
57,281
(1) Effective August 2022, the Company ceased selling acquired card receivables
The difference between the outstanding balance of transferred card receivables as of June 30, 2022
and the amount derecognized for which the Company has a continuing involvement as a servicer as of June 30,
2022 was not material.
NOTE 8 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of the dates presented (in thousands):
Software and equipment
Capitalized software
Furniture and fixtures
Leasehold improvements
Property and equipment, gross
Less: accumulated depreciation and amortization
Property and equipment, net
June 30,
2023
2022
$
20,971 $
53,950
12,598
39,068
126,587
20,102
21,457
10,608
35,105
87,272
(45,023)
(30,287)
$
81,564 $
56,985
Depreciation and amortization expense, which includes the amortization of capitalized software, during
the years ended June 30, 2023, 2022, and 2021 was $15.5 million, $11.5 million, and $5.4 million, respectively.
As of June 30, 2023 and 2022, the unamortized capitalized software cost was $42.7 million and $15.7
million, respectively.
NOTE 9 – GOODWILL AND INTANGIBLE ASSETS
Goodwill
Goodwill, which is primarily attributable to expected synergies from acquisitions and is not deductible for
U.S. federal and state income tax purposes, consisted of the following as of the dates presented (in thousands):
Balance, beginning
Addition related to acquisition during the period
Measurement period adjustments
Adoption of ASU 2021-08
Balance, ending
111
June 30,
2023
2022
$ 2,362,893 $ 1,772,043
33,441
175
—
585,448
(2,876)
8,278
$ 2,396,509 $ 2,362,893
Intangible Assets
Intangible assets consisted of the following as of the dates presented (amounts in thousands):
Customer relationships
Developed technology
Trade name
Total
Customer relationships
Developed technology
Trade name
Total
June 30, 2023
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
$
259,269 $
(52,483) $
206,786
215,958
48,042
(77,178)
138,780
(32,181)
15,861
$
523,269 $
(161,842) $
361,427
Jun 30, 2022
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
$
259,269 $
(26,556) $
232,713
206,908
48,042
(38,909)
167,999
(16,171)
31,871
$
514,219 $
(81,636) $
432,583
Weighted
average
remaining
useful life
(In years)
8.0
3.8
1.0
Weighted
average
remaining
useful life
(In years)
9.0
4.7
2.0
Amortization of finite-lived intangible assets was as follows during the years ended June 30, 2023 and
2022 (in thousands):
Cost of revenue
Sales and marketing
Total
June 30,
2023
2022
$
$
38,269 $
41,936
80,205 $
36,256
39,721
75,977
As of June 30, 2023, future amortization of finite-lived intangible assets that will be recorded in cost of
revenue and operating expenses is estimated as follows (in thousands):
Fiscal years ending June 30:
2024
2025
2026
2027
2028
Thereafter
Total
$
Amount
79,953
61,234
59,570
56,912
26,606
77,152
$
361,427
112
NOTE 10 – DEBT AND BANK BORROWINGS
Debt and borrowings consisted of the following as of the dates presented (in thousands):
Current liabilities:
Borrowings from credit facilities
(including unamortized debt premium)(1)
Non-current liabilities:
Convertible senior notes:
2027 Notes, principal
2025 Notes, principal
Less: unamortized issuance costs
Convertible senior notes, net
Total
June 30,
2023
2022
$
135,046 $
75,097
$
575,000 $
575,000
1,150,000
1,150,000
(20,218)
(27,015)
$ 1,704,782 $ 1,697,985
$ 1,839,828 $ 1,773,082
(1) Unamortized debt issuance costs on the Revolving Credit Facility were $0.2 million and zero as of June 30, 2023 and June 30,
2022, respectively, and are included in Prepaid expense and other current assets on the consolidated balance sheet.
2027 Notes
On September 24, 2021, the Company issued $575.0 million in aggregate principal amount of its 0%
convertible senior notes due on April 1, 2027, in a private placement to qualified institutional buyers pursuant to
Rule 144A under the Securities Act of 1933, as amended. The 2027 Notes are subject to the terms and
conditions of the indenture governing the 2027 Notes between the Company and Wells Fargo Bank, N.A., as
trustee (2027 Notes Trustee). The net proceeds from the issuance of the 2027 Notes were $560.1 million, after
deducting debt discount and debt issuance costs totaling $14.9 million.
The 2027 Notes are senior, unsecured obligations of the Company, and will not accrue interest unless
the Company determines to pay special interest as a remedy for failure to timely file any reports required to be
filed with the SEC, certain trading restrictions or failure to deliver reports to the 2027 Notes Trustee. The 2027
Notes rank senior in right of payment to any of the Company’s indebtedness that is expressly subordinated to
the 2027 Notes and rank equal in right of payment to any of the Company’s unsecured indebtedness that is not
so subordinated, including the 2025 Notes. In addition, the 2027 Notes are subordinated to any of the
Company’s secured indebtedness and to all indebtedness and other liabilities of the Company’s subsidiaries.
The 2027 Notes have an initial conversion rate of 2.4108 shares of common stock per $1,000 principal
amount, which is equivalent to an initial conversion price of approximately $414.80 per share of the Company’s
common stock and approximately 1.4 million shares issuable upon conversion. The conversion rate is subject to
customary adjustments for certain events as described below. Upon conversion, the Company will pay or
deliver, as the case may be, cash, shares of its common stock, or a combination of cash and shares of its
common stock, at its election. The Company’s current intent is to settle conversions of the 2027 Notes through
a combination settlement, which involves a repayment of the principal portion in cash with any excess of the
conversion value over the principal amount settled in shares of common stock.
The Company may redeem for cash, all or any portion of the 2027 Notes, at the Company’s option, on
or after October 5, 2024 if the last reported sale price of the Company’s common stock has been at least 130%
of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30
consecutive trading day period (including the last trading day of such period) ending on and including the
trading day (Conversion Condition) preceding the date on which the Company provides notice of redemption at
a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus any accrued and
unpaid special interest to, but excluding, the redemption date. No sinking fund is provided for the 2027 Notes.
113
The holders of the 2027 Notes may convert their notes at their option at any time prior to the close of
business on the business day immediately preceding January 1, 2027 in multiples of $1,000 principal amount,
under the following circumstances:
•
•
•
•
during any calendar quarter commencing after the calendar quarter ending on December 31, 2021, and
only during such calendar quarter, if the last reported sale price of the Company's common stock for at
least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days
ending on and including the last trading day of the immediately preceding calendar quarter is greater
than or equal to 130% of the conversion price on each applicable trading day;
during the five business day periods after any five consecutive trading day period in which the trading
price per $1,000 principal amount of the 2027 Notes for each trading day of that period was less than
98% of the product of the last reported sale price of the Company’s common stock and the conversion
rate on each such trading day;
if the Company calls such notes for redemption, at any time prior to the close of business on the second
scheduled trading day immediately preceding the redemption date; or
upon the occurrence of specified corporate events.
The conversion rate is subject to adjustment upon the occurrence of certain events or if the Company’s
board of directors determines it is in the best interest of the Company. Additionally, holders of the 2027 Notes
that convert their notes in connection with a make-whole fundamental change or during the redemption period,
may be eligible to receive a make-whole premium through an increase of the conversion rate based on the
estimated fair value of the 2027 Notes for the given date and stock price. The make-whole premium is designed
to compensate the holder for lost “time-value” of the conversion option. The maximum number of additional
shares that may be issued under the make-whole premium is 1.2656 per $1,000 principal (the lowest price of
$272.00 in the make whole).
The indenture governing the 2027 Notes contains customary events of default with respect to the 2027
Notes and provides that upon certain events of default occurring and continuing, the holders of the 2027 Notes
will have the right, at their option, to require the Company to repurchase for cash all or a portion of their
outstanding notes, at a price equal to 100% of the principal amount of the 2027 Notes to be repurchased, plus
any accrued and unpaid interest.
2025 Notes
On November 30, 2020, the Company issued $1.15 billion in aggregate principal amount of its 0%
convertible senior notes due on December 1, 2025, in a private placement to qualified institutional buyers
pursuant to Rule 144A under the Securities Act of 1933, as amended. The 2025 Notes are subject to the terms
and conditions of the indenture governing the 2025 Notes between the Company and Wells Fargo Bank, N.A.,
as trustee (2025 Notes Trustee). The net proceeds from the issuance of the 2025 Notes were $1.13 billion, after
deducting debt discount and debt issuance costs totaling $20.6 million.
The 2025 Notes are senior, unsecured obligations of the Company, and will not accrue interest unless
the Company determines to pay special interest as a remedy for failure to timely file any reports required to be
filed with the SEC, certain trading restrictions, or failure to deliver reports to the 2025 Notes Trustee. The 2025
Notes rank senior in right of payment to any of the Company’s indebtedness that is expressly subordinated to
the 2025 Notes and rank equal in right of payment to any of the Company’s unsecured indebtedness that is not
so subordinated, including the 2027 Notes. In addition, the 2025 Notes are subordinated to any of the
Company’s secured indebtedness and to all indebtedness and other liabilities of the Company’s subsidiaries.
The 2025 Notes have an initial conversion rate of 6.2159 shares of common stock per $1,000 principal
amount, which is equivalent to an initial conversion price of approximately $160.88 per share of the Company’s
common stock and approximately 7.1 million shares issuable upon conversion. The conversion rate is subject to
customary adjustments for certain events as described below. Upon conversion, the Company will pay or
deliver, as the case may be, cash, shares of its common stock, or a combination of cash and shares of its
common stock, at its election. The Company’s current intent is to settle conversions of the 2025 Notes through
114
a combination settlement, which involves a repayment of the principal portion in cash with any excess of the
conversion value over the principal amount settled in shares of common stock.
The Company may redeem for cash, all or any portion of the 2025 Notes, at the Company’s option, on
or after December 5, 2023 if the last reported sale price of the Company’s common stock has been at least
130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any
30 consecutive trading day period (including the last trading day of such period) ending on and including the
trading day (Conversion Condition) preceding the date on which the Company provides notice of redemption at
a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus any accrued and
unpaid special interest to, but excluding, the redemption date. No sinking fund is provided for the 2025 Notes.
The holders of the 2025 Notes may convert their notes at their option at any time prior to the close of
business on the business day immediately preceding September 1, 2025 in multiples of $1,000 principal
amount, under the following circumstances:
•
•
•
•
during any calendar quarter commencing after the calendar quarter ending on March 31, 2021,
and only during such calendar quarter, if the last reported sale price of the Company's common
stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive
trading days ending on and including the last trading day of the immediately preceding calendar
quarter is greater than or equal to 130% of the conversion price on each applicable trading day;
during the five business day periods after any five consecutive trading day period in which the
trading price per $1,000 principal amount of the 2025 Notes for each trading day of that period
was less than 98% of the product of the last reported sale price of the Company’s common
stock and the conversion rate on each such trading day;
if the Company calls such notes for redemption, at any time prior to the close of business on
the second scheduled trading day immediately preceding the redemption date; or
upon the occurrence of specified corporate events.
The conversion rate is subject to adjustment upon the occurrence of certain events or if the Company’s
board of directors determines it is in the best interest of the Company. Additionally, holders of the 2025 Notes
that convert their notes in connection with a make-whole fundamental change or during the redemption period,
may be eligible to receive a make-whole premium through an increase of the conversion rate based on the
estimated fair value of the 2025 Notes for the given date and stock price. The make-whole premium is designed
to compensate the holder for lost “time-value” of the conversion option. The maximum number of additional
shares that may be issued under the make-whole premium is 2.9525 per $1,000 principal (the lowest price of
$109.07 in the make whole).
The indenture governing the 2025 Notes contains customary events of default with respect to the 2025
Notes and provides that upon certain events of default occurring and continuing, the holders of the 2025 Notes
will have the right, at their option, to require the Company to repurchase for cash all or a portion of their
outstanding notes, at a price equal to 100% of the principal amount of the 2025 Notes to be repurchased, plus
any accrued and unpaid interest.
Additional Information About the Notes
As of June 30, 2023 and 2022, the Notes consisted of the following (in thousands):
Liability component:
Principal
June 30, 2023
June 30, 2022
2027 Notes
2025 Notes
2027 Notes
2025 Notes
$
575,000 $ 1,150,000 $
575,000 $ 1,150,000
Less: unamortized debt issuance costs
(10,188)
(10,030)
(12,873)
(14,142)
Net carrying amount
$
564,812 $ 1,139,970 $
562,127 $ 1,135,858
115
The debt issuance costs of the Notes are being amortized using the effective interest method. During
the years ended June 30, 2023 and 2022, the Company recognized $6.8 million and $6.1 million, respectively,
of the debt issuance costs of the Notes. The effective interest rates of the 2027 Notes and 2025 Notes was
0.48% and 0.36%, respectively. As of June 30, 2023, the weighted-average remaining life of the Notes was 2.9
years.
The "if-converted" value of the Notes did not exceed the principal amount of $1.7 billion as of June 30,
2023.
Capped Call Transactions
In conjunction with the issuance of each of the 2025 Notes and the 2027 Notes, the Company entered
into capped call transactions (collectively, the Capped Calls) with certain of the initial purchasers of the Notes
and/or their respective affiliates or other financial institutions at a total cost of $125.8 million. The Capped Calls
are separate transactions and are not part of the terms of the Notes. The total amount paid for the Capped Calls
was recorded as a reduction of additional paid-in capital. The Company used the proceeds from the Notes to
pay for the cost of the Capped Call premium. The cost of the Capped Calls is not expected to be tax-deductible
as the Company did not elect to integrate the Capped Calls into the Notes for tax purposes.
The Capped Calls associated with the 2027 Notes and 2025 Notes have an initial strike price of
approximately $414.80 per share and $160.88 per share, respectively, subject to certain adjustments, which
corresponds to the respective initial conversion price of the 2027 Notes and 2025 Notes, and have an initial cap
price of $544.00 per share and $218.14 per share, respectively, subject to certain adjustments; provided that
such cap price shall not be reduced to an amount less than their respective strike price. The Capped Calls
associated with the Notes cover, subject to anti-dilution adjustments, a total of approximately 8.5 million shares
of the Company’s common stock. The Capped Calls are expected to generally reduce the potential dilution of
the Company’s common stock upon any conversion of the Notes and/or offset any cash payments that the
Company is required to make in excess of the principal amount of such converted notes, as the case may be,
with such reduction and/or offset subject to a cap.
Revolving Credit Facility
The Company’s Revolving Credit and Security Agreement, was executed in March 2021 (the 2021
Revolving Credit Agreement), and was amended in August 2022 (as amended, the Revolving Credit Facility), to
finance the acquisition of card receivables. The Revolving Credit Facility matures in June 2024 or earlier
pursuant to the agreement and has a total commitment of $225.0 million. The required minimum utilization was
$135.0 million, or 60% of the total commitment, and the Company had borrowed $135.0 million against the
Revolving Credit Facility as of June 30, 2023. The Revolving Credit Facility requires the Company to pay
unused fees up to 0.50% per annum. Borrowings are secured by acquired card receivables. Prior to March 3,
2023, borrowings of up to $75.0 million bore interest of 2.75% per annum and borrowings greater than $75.0
million bore interest of 2.65% per annum, plus SOFR (subject to a floor rate of 0.25% and benchmark
adjustment rate of 0.28%). Beginning March 3, 2023, borrowings bear interest of 2.65% per annum, plus SOFR
(subject to a floor rate of 0.25% and benchmark adjustment rate of 0.28%). The effective interest rate was
8.19% per annum as of June 30, 2023. The Company is required to comply with certain restricted covenants,
including liquidity requirements. As of June 30, 2023, the Company was in compliance with those covenants.
The debt issuance costs and debt premium associated with the Revolving Credit Facility is amortized
using the effective interest method over the remaining term of the agreement, with a weighted-average
remaining amortization period of approximately 0.9 years. The amortization of the debt issuance costs and debt
premium is recorded in interest income (expense), net in the accompanying consolidated statement of
operations and during each of the years ended June 30, 2023 and 2022 was not material.
NOTE 11 – STOCKHOLDERS’ EQUITY
Equity Incentive Plans
On November 26, 2019, the Company’s board of directors approved the 2019 Equity Incentive Plan
(2019 Plan), which became effective on December 10, 2019. The 2019 Plan authorizes the award of stock
116
options, RSUs, restricted stock awards, stock appreciation rights, performance-based awards, market-based
awards, cash awards, and stock bonus awards, as determined by the Company’s board of directors.
The Company’s 2016 Equity Incentive Plan (2016 Plan), which was adopted in February 2016, was
terminated concurrent to the effective date of the 2019 Plan. The Company’s 2006 Equity Incentive Plan (2006
Plan), which was adopted in April 2006, was terminated upon the adoption of the 2016 Plan. There were no
equity-based awards granted under the 2016 Plan and the 2006 Plan after their termination; however, all
outstanding awards under the 2016 Plan and the 2006 Plan continue to remain subject to the terms of the
respective Equity Incentive Plan until such awards are exercised or until they terminate or expire by their terms.
The 2019 Plan, 2016 Plan, and 2006 Plan are collectively referred to as the “Equity Incentive Plans.”
The Company initially reserved 7,100,000 shares of its common stock, plus any reserved shares not
issued or subject to outstanding grants under the 2016 Plan, for issuance pursuant to awards granted under the
2019 Plan. The number of shares reserved for issuance under the 2019 Plan increases automatically on July 1
of each of 2020 through 2029 by the number of shares equal to the lesser of 5% of the total number of
outstanding shares of the Company’s common stock as of the immediately preceding June 30, or a number as
may be determined by the Company’s board of directors. In addition, the following shares of common stock
from the 2016 Plan and the 2006 Plan will be available for grant and issuance under the 2019 Plan:
•
•
shares issuable upon the exercise of options or subject to other awards under the 2016 Plan or
2006 Plan that cease to be subject to such options or other awards by forfeiture or after the
effective date of the 2019 Plan; and
shares issued pursuant to outstanding awards under the 2016 Plan and 2006 Plan that are
forfeited or repurchased after the effective date of the 2019 Plan.
The total number of shares of common stock available for future grants under the Equity Incentive
Plans was 15,087,695 shares as of June 30, 2023.
Equity Awards Assumed in Acquisitions
The Company assumed and replaced the outstanding stock options of Invoice2go and Divvy upon their
acquisitions. The assumed equity awards will be settled in shares of the Company’s common stock and will
retain the terms and conditions under which they were originally granted. No additional equity awards will be
granted under equity incentive plans of the acquired companies.
Stock Options
The Company may grant incentive and non-statutory stock options to employees, non-employee
directors, and consultants of the Company under the Equity Incentive Plans. Stock options granted generally
vest and become exercisable ratably over a requisite service period of four years following the date of the grant
and expire ten years from the date of the grant.
The exercise price of stock options granted is generally the market closing price of the Company’s
common stock at the date of grant.
117
A summary of stock option activity as of June 30, 2023, and changes during the year ended June 30,
2023, is presented below:
Outstanding at June 30, 2022
Exercised
Forfeited
Outstanding at June 30, 2023
Vested and expected to vest at June 30, 2023 (1)
Vested and exercisable at June 30, 2023
3,858 $
(1,063) $
(207) $
2,588 $
2,560 $
2,367 $
18.28
13.06
29.06
19.56
19.32
15.62
Number of
shares
(in thousands)
Weighted
average
exercise
price
per share
Weighted
average
remaining
contractual
term
(in years)
Aggregate
intrinsic
value
(in thousands)
361,053
6.97 $
5.90 $
5.89 $
258,093
255,787
5.79 $
242,525
(1) The expected to vest options are the result of applying the pre-vesting forfeiture rate assumptions to total outstanding options.
No options were granted during the year ended June 30, 2023.The fair value of options granted during
the years ended June 30, 2022, and 2021 was estimated at the date of grant using the Black-Scholes option-
pricing model with the following assumptions:
Expected term (in years)
Expected volatility
Risk-free interest rate
Expected dividend yield
Year ended
June 30,
2022
2.00 to 7.05
2021
6.25
30.0% to 81.2%
35.0% to 85.1%
0.20% to 2.88%
0.38% to 1.03%
0 %
0 %
The weighted-average grant date fair value of options granted during the years ended June 30, 2022,
and 2021 was $207.07 and $132.04 per share, respectively. The total intrinsic value of options exercised during
the years ended June 30, 2023, 2022, and 2021 was $114.1 million, $640.0 million, and $387.1 million,
respectively. The intrinsic value was calculated as the difference between the estimated fair value of the
Company’s common stock at exercise and the exercise price of the in-the-money options. The fair value of
stock options vested during the years ended June 30, 2023, 2022, and 2021 was $163.8 million, $555.8 million,
and $485.7 million, respectively.
As of June 30, 2023, the total unamortized stock-based compensation cost related to the unvested
stock options was approximately $14.0 million, which the Company expects to amortize over a weighted-
average period of 1.5 years.
Restricted Stock Units
A summary of RSU activity as of June 30, 2023, and changes during the year ended June 30, 2023, is
presented below.
Nonvested at June 30, 2022
Granted
Vested
Forfeited
Nonvested at June 30, 2023
118
Number of
shares (1)
(in thousands)
Weighted
average
grant date
fair value
3,279 $
3,322 $
(1,640) $
(777) $
4,184 $
178.85
120.25
164.38
165.37
140.50
(1) Includes RSU, market-based RSUs and performance-based RSUs.
The fair value of the RSU grant is determined based upon the market closing price of the Company’s
common stock on the date of grant. The weighted-average grant date fair value of RSU granted during the
years ended June 30, 2023, 2022, and 2021 was $120.25, $202.79, and $134.29 per share, respectively. The
RSUs vest over the requisite service period, which ranges between 1 year and 4 years from the date of grant,
subject to the continued employment of the employees and services of the non-employee directors. The total
fair value of RSUs that vested during the years ended June 30, 2023, 2022, and 2021 was approximately
$197.3 million, $118.9 million, and $40.0 million, respectively.
As of June 30, 2023, the total unamortized stock-based compensation expense related to the unvested
RSUs was approximately $412.1 million, which the Company expects to amortize over a weighted-average
period of 2.9 years.
Market-based RSUs
In December 2021, the Company granted a total of 50,000 market-based RSUs to one executive
employee that vest based on appreciation of the price of the Company’s common stock over a multi-year
period, subject to such executive’s continued service to the Company. The Company estimated the fair value of
the market-based RSU award on the grant date using the Monte Carlo simulation model with the following
assumptions: (i) expected volatility of 60%, (ii) risk-free interest rate of 1.08% to 1.21%, and (iii) total
performance period of three to five years. The weighted-average grant date fair value of the market-based RSU
award was $182.15 per share. The Company recognizes expense for market-based RSUs over the requisite
service period of 1 to 3 years. Provided that the requisite service is rendered, the total fair value of the market-
based RSUs at the date of grant is recognized as compensation expense even if the market condition is not
achieved. However, the number of shares that ultimately vest can vary significantly with the achievement of the
specified market criteria.
As of June 30, 2023, the total unrecognized compensation expense related to the market-based RSUs
was approximately $2.2 million, which is expected to be amortized over a weighted-average period of 1.1 years.
Performance-based RSUs
During the year ended June 30, 2023, the Company granted approximately 150,000 RSUs to certain
executive employees that vest based upon the achievement of designated financial and continued employment
with the Company over period of three years. The fair value of the performance-based RSU grant is determined
based upon the market closing price of the Company’s common stock on the date of grant. The weighted-
average grant date fair value of these performance-based RSUs was $133.48 per unit. The Company
recognizes expense for performance-based RSUs over the requisite service period based on management's
estimate of the number of performance-based RSUs expected to vest. For any change in the estimate of the
number of performance-based RSUs that are probable of vesting, the Company will cumulatively adjust
compensation expense in the period that the change in estimate is made. The number of shares that ultimately
vest vary with the achievement of the specified performance criteria.
As of June 30, 2023, the total unrecognized compensation expense related to the performance-based
RSUs was $5.9 million, which is expected to be recognized over a weighted-average period of 1.3 years.
Employee Stock Purchase Plan
On November 26, 2019, the Company’s board of directors approved the ESPP, which became effective
on December 11, 2019. The ESPP is intended to qualify under Section 423 of the U.S. Internal Revenue Code
of 1986, as amended (the Code), and will provide eligible employees a means to acquire shares of common
stock through payroll deductions. Under the ESPP, the Company initially reserved for issuance 1,400,000
shares of common stock, which will increase automatically on July 1 of each fiscal year during the term of the
ESPP by the number of shares equal to 1% of the total number of shares of common stock and preferred stock
(on as-converted basis) outstanding as of the immediately preceding June 30, unless the board of directors
elects to authorize a lesser number of shares; provided, that, the total number of shares issued under the ESPP
may not exceed 14,000,000 shares of common stock.
119
The ESPP provides for consecutive offering periods of 12-months during which eligible employees can
participate in the ESPP and be granted the right to purchase shares semiannually.
Eligible employees can contribute up to 15% of their eligible compensation, subject to limitation as
provided for in the ESPP, and purchase the common stock at a purchase price per share equal to 85% of the
lesser of the fair market value of the common stock on (i) the offering date or (ii) the purchase date.
The fair value of ESPP offerings during the years ended June 30, 2023, 2022, and 2021 was estimated
at the date of the offering using the Black-Scholes option-pricing model with the following assumptions:
Expected term (in years)
Expected volatility
Risk-free interest rate
Expected dividend yield
2023
Year ended
June 30,
2022
2021
0.4 to 1.0
0.4 to 1.0
0.5 to 1.00
81.8% to 82.5% 76.0% to 77.3% 81.0% to 88.4%
3.39% to 4.89% 0.06% to 0.88% 0.05% to 0.13%
0 %
0 %
0 %
As of June 30, 2023, the total unrecognized compensation expense related to the ESPP was
$4.5 million, which is expected to be amortized over a weighted-average period of 0.5 years.
Stock Based Compensation Cost
Stock-based compensation cost by award type (in thousands):
Stock options
RSUs(1)
Performance-based awards
Market-based RSUs
Employee stock purchase plan
Year ended
June 30,
2023
2022
2021
$
37,882 $
55,667 $
251,456
134,222
17,914
4,308
11,280
—
2,755
8,918
45,035
23,225
—
—
4,191
Total stock-based compensation cost
$
322,840 $
201,562 $
72,451
Stock-based compensation cost from stock options, RSUs and purchase rights issued under the ESPP
was included in the following line items in the accompanying consolidated statements of operations and
consolidated balance sheets (in thousands):
Year ended
June 30,
2023
2022
2021
Revenue - subscription and transaction fees
$
188 $
— $
Cost of revenue - service costs
Research and development
Sales and marketing(1)
General and administrative
Total amount charged to loss from operations
Property and equipment (capitalized internal-use software)
9,111
93,364
130,421
80,619
313,703
9,137
5,144
54,907
60,237
76,869
197,157
4,405
—
2,938
16,091
8,547
44,411
71,987
464
Total stock-based compensation cost
$
322,840 $
201,562 $
72,451
(1) In October 2022, the Company entered into separation and advisory agreements with its former Chief Revenue Officer (the
CRO, and such agreements, the CRO Agreements). Pursuant to the CRO Agreements, the former CRO will serve the Company
120
as an advisor through September 2024. Upon execution of the CRO Agreements, the Company recognized $52.2 million of stock-
based compensation expense related to the former CRO's outstanding RSU awards.
Share Repurchase Program
In January 2023, the Company's board of directors authorized the repurchase of up to $300 million of
the Company's outstanding shares of common stock (the Share Repurchase Program). The Company may
repurchase shares of common stock from time to time through open market purchases, in privately negotiated
transactions, or by other means, including through the use of trading plans, intended to qualify under Rule
10b5-1 of the Securities Exchange Act of 1934, as amended. The timing and total amount of share repurchases
will depend upon business, economic and market conditions, corporate and regulatory requirements, prevailing
stock prices, and other considerations. The Share Repurchase Program has a term of 12 months, may be
suspended or discontinued at any time, and does not obligate the Company to acquire any amount of common
stock.
During the year ended June 30, 2023, the Company repurchased and subsequently retired 1,077,445
shares for $87.6 million under the Share Repurchase Program. The total price of the shares repurchased and
related transaction costs are reflected as a reduction of common stock and accumulated deficit on the
accompanying consolidated balance sheets. As of June 30, 2023, $212.4 million remained available for future
share repurchases under the Share Repurchase Program.
NOTE 12 – OTHER INCOME (EXPENSE), NET
Other income (expense), net consisted of the following for the periods presented (in thousands):
Interest expense
Lower of cost or market adjustment on card
receivables sold and held for sale
Interest income
Other
Total
NOTE 13 – INCOME TAXES
Year ended
June 30,
2023
2022
2021
$
(15,203) $
(9,419) $
(28,158)
(1,545)
(11,460)
91,279
(1,675)
6,691
327
(691)
2,992
487
$
72,856 $
(13,861) $
(25,370)
The components of loss before provision for (benefit from) income taxes were as follows during the
periods presented (in thousands):
Domestic
Foreign
Total
Year ended
June 30,
2023
2022
2021
$
(199,452) $
(304,508) $
(139,337)
(23,465)
(26,171)
—
$
(222,917) $
(330,679) $
(139,337)
121
The components of provision for (benefit from) income taxes were as follows during the periods
presented (in thousands):
Current:
Federal
State
Foreign
Total current
Deferred:
Federal
State
Foreign
Total deferred
Year ended
June 30,
2023
2022
2021
$
572 $
(247) $
1,583
14
2,169
(995)
(366)
—
(1,361)
—
—
(247)
(1,115)
(2,956)
—
(4,071)
—
—
—
—
(27,529)
(13,088)
—
(40,617)
Provision for (benefit from) income taxes
$
808 $
(4,318) $
(40,617)
The items accounting for the difference between the income taxes computed at the federal statutory
rate and the provision for (benefit from) income taxes consisted of the following during the periods presented (in
thousands):
Year ended
June 30,
2023
2022
2021
Expected benefit at U.S. federal statutory rate
$
(46,813) $
(69,443) $
(29,261)
State income taxes, net of federal benefit
Stock-based compensation (1)
Research and development tax credits
Change in valuation allowance related to acquisition (2)
Change in valuation allowance (3)
Unrecognized tax benefit
Acquisition-related costs
Foreign rate differential
Other
8,087
4,253
13,509
(54)
(93,705)
(70,262)
(19,974)
(22,061)
(8,846)
(126)
(2,831)
(34,749)
48,321
174,477
(390)
(10,975)
—
4,942
2,508
553
5,496
662
94,244
6,766
1,484
—
61
Provision for (benefit from) income taxes
$
808 $
(4,318) $
(40,617)
(1)
(2)
(3)
The rate impact during the year ended June 30, 2023 relates to the impact of non-deductible stock compensation and
shortfalls related to tax deductions being smaller than the associated stock compensation expense. The rate impact during
the years ended June 30, 2022 and 2021 pertains windfalls from tax deductions being larger than the associated stock
compensation expense.
The rate impact during the years ended June 30, 2022 and 2021 pertains to the income tax benefit recorded as a result of
the acquisitions of Invoice2go and Divvy, respectively, which allowed the Company to release a portion of its valuation
allowance due to the net deferred tax liabilities that were recorded as a result of such acquisitions.
The rate impact during the year ended June 30, 2023, 2022 and 2021 pertains to (i) an increase in valuation allowance due
to the increase in deferred tax assets associated with losses, capitalized R&D expense and tax credits generated during the
year, (ii) a change in deferred tax liability related to the 2025 Notes, and (iii) a change in deferred tax liability related to the
acquisitions of Invoice2go and Divvy.
122
The components of deferred tax assets and liabilities were as follows as of the dates presented (in
thousands):
Deferred tax assets:
Accruals and reserves
Capitalized research and development
Deferred revenue
Stock-based compensation
Net operating loss carryforwards
Research and development credits
Accrued rewards
Operating lease liabilities
Other
Total deferred tax assets before valuation allowance
Valuation allowance
Deferred tax assets
Deferred tax liabilities:
Deferred contract costs
Property and equipment
Intangible assets
Operating right of use assets
Total deferred tax liabilities
Net deferred tax liabilities
June 30,
2023
2022
$
12,537 $
9,325
75,694
1,084
24,998
—
1,794
25,897
379,758
410,849
62,299
1,855
21,616
1,257
46,013
2,867
24,203
3,247
581,098
524,195
(479,449)
101,649 $
(384,158)
140,037
(4,772) $
(3,745)
(13,078)
(67,455)
(17,155)
(19,316)
(99,483)
(19,490)
(102,460) $
(142,034)
(811) $
(1,997)
$
$
$
$
Accounting Standards Codification 740 requires that the tax benefit of net operating losses, temporary
differences, and credit carryforwards be recorded as an asset to the extent that management assesses that
realization is “more likely than not.” Realization of the future tax benefits is dependent on the Company’s ability
to generate sufficient taxable income within the carryforward period. Because of the Company’s recent history
of operating losses, management believes that recognition of the deferred tax assets arising from the above-
mentioned future tax benefits is currently not likely to be realized and, accordingly, has provided a valuation
allowance. The change in valuation allowance was approximately $95.3 million, $276.3 million, and $22.3
million during the years ended June 30, 2023, 2022, and 2021, respectively. The increase in the June 30, 2023
valuation allowance is primarily from the application of the Tax Cuts and Jobs Act of 2017 effective fiscal year
2023 and thereafter, that requires companies to capitalize and amortize research and development expenses
rather than deduct the costs as incurred, offset by a reduction in a deferred tax liabilities. The net deferred tax
liability is included as other long-term liabilities in the accompanying consolidated balance sheet.
The Tax Cuts and Job Act subjects a U.S. company to tax on its Global Intangible Low Tax Income
(GILTI). Under GAAP, the Company can make an accounting policy election to either treat taxes due on the
GILTI inclusion as a current period expense or factor such amounts into the measurement of deferred taxes.
The Company elected the period expense method.
The Company does not currently operate under any tax holiday in any country in which it operates.
The Company does not have foreign earnings available to distribute. As such, there is no unrecorded
deferred tax liability associated with an outside basis of foreign subsidiaries.
As of June 30, 2023, the Company had NOL carryforwards of $1.4 billion, $1.1 billion, and $83.4 million
for federal, state, and foreign tax purposes, respectively, that are available to reduce future taxable income. If
not utilized, the state NOL carryforwards will begin to expire in 2025. As of June 30, 2023, the federal and
foreign NOL carryforwards do not expire and will carry forward indefinitely until utilized. As of June 30, 2023, the
123
Company also had research and development tax credit carryforwards of approximately $56.1 million and $35.6
million for federal and state tax purposes, respectively. If not utilized, the federal tax credits will expire at various
dates beginning in 2039. The state tax credits do not expire and will carry forward indefinitely until utilized.
Utilization of the NOL and tax credit carryforwards may be subject to a substantial annual limitation due
to the ownership change limitations provided by the Code and other similar state provisions. The annual
limitation may result in the expiration of NOLs and tax credits before utilization.
Below is the reconciliation of the unrecognized tax benefits related to federal and California research
and development credits during the periods presented (in thousands):
Balance at the beginning of the year
$
16,724 $
22,185 $
5,787
Year ended
June 30,
2023
2022
2021
Add:
Tax positions related to the current year
Increase from business combination
Tax positions related to the prior year
Less:
Tax positions related to the prior year
Statute of limitations lapse
Balance at the end of the year
6,642
—
226
7,354
160
—
—
(12,761)
(292)
(214)
8,267
668
7,463
—
—
$
23,300 $
16,724 $
22,185
The Company had unrecognized tax benefits of approximately $23.3 million and $16.7 million as of
June 30, 2023 and 2022, respectively, all of which are offset by a full valuation allowance. If the unrecognized
tax benefits as of June 30, 2023 is recognized, it will not have an impact to the effective tax rate due to the
Company’s valuation allowance.
The amount of interest and penalties accrued as of each of June 30, 2023 and 2022 were not material.
The Company files income tax returns in the U.S. for U.S. federal, California, and various states and
foreign jurisdictions. The Company’s U.S. federal, state, and foreign tax returns for all years remain subject to
examination by taxing authorities as a result of unused tax attributes being carried forward. The Company
records liabilities related to uncertain tax positions, which provide adequate reserves for income tax
uncertainties in all open tax years. The Company’s management evaluates the realizability of the Company’s
deferred tax assets based on all available evidence, both positive and negative. The realization of net deferred
tax assets is dependent on the Company’s ability to generate sufficient future taxable income during the
foreseeable future. The Company does not anticipate any material change on its unrecognized tax benefits over
the next 12 months.
In December 2022, the Internal Revenue Service initiated an audit of Divvy's pre-acquisition tax year
ending December 31, 2020, which was closed without adjustment on August 7, 2023.
NOTE 14 – LEASES
The Company has non-cancelable operating leases for office and other facilities in various locations,
and certain equipment, which expire through 2031. Also, the Company subleases part of its office facility in
Draper, Utah under a non-cancellable operating lease that expires in December 2025. The Company's leases
do not contain any material residual value guarantees.
As of June 30, 2023, the weighted average remaining term of these operating leases is 7.3 years and
the weighted-average discount rate used to estimate the net present value of the operating lease liabilities was
5.1%.
124
The total payment for amounts included in the measurement of operating lease liabilities was $14.9
million, $13.8 million, and $2.1 million during the years ended June 30, 2023, 2022, and 2021, respectively.
The total amount of ROU assets obtained in exchange for new operating lease liabilities was $2.0
million, $5.3 million, and $31.6 million during the years ended June 30, 2023, 2022, and 2021, respectively.
The components of lease expense during the years ended June 30, 2023, 2022, and 2021 are shown in
the table below (in thousands):
Operating lease expense (1)
Variable lease expense, net of credit
Sublease income
Total lease cost
Year ended June 30
2023
2022
2021
$
14,081 $
12,983 $
2,251
(586)
2,909
(712)
7,826
2,252
(55)
$
15,746 $
15,180 $
10,023
(1) Includes short-term lease, which is not material for the fiscal years ended June 30, 2023, 2022, and 2021.
NOTE 15 – COMMITMENTS AND CONTINGENCIES
Commitments
The Company has non-cancelable operating leases for office and other facilities in various locations,
and certain equipment, which expire through 2031. Future minimum lease payments as of June 30, 2023 are as
follows (in thousands):
Fiscal years ending June 30:
2024
2025
2026
2027
2028
Thereafter
Gross lease payments
Less - present value adjustments
Total operating lease liabilities, net
$
Amount
14,649
13,699
13,292
13,226
13,590
35,919
104,375
(17,737)
$
86,638
The current portion of operating lease liabilities, which is included in other accruals and current liabilities
in the accompanying consolidated balance sheets, was $14.1 million and $12.1 million as of June 30, 2023 and
2022, respectively. The non-current portion of operating lease liabilities was $72.5 million and $82.7 million as of
June 30, 2023 and 2022, respectively.
In addition to the minimum lease payments above, the Company has multi-year agreements with
certain third parties and financial institution partners, expiring through 2029, which require the Company to pay
125
fees over the term of the respective agreements. Future payments under these other agreements as of June 30,
2023 are as follows (in thousands).
Fiscal years ending June 30:
2024
2025
2026
2027
2028
Thereafter
Total
Amount
14,612
12,582
6,004
5,241
5,491
29,373
73,303
$
$
Purchase of Card Receivables That Have Not Cleared
The Company is contractually obligated to purchase all card receivables from the Issuing Banks
including authorized transactions that have not cleared. The transactions that have been authorized but not
cleared totaled $68.6 million as of June 30, 2023 and have not been recorded on the accompanying
consolidated balance sheets. The Company has credit exposures with these authorized but not cleared
transactions; however, the expected credit losses recorded were not material as of June 30, 2023. See Note 7
for additional discussion about acquired card receivables.
Litigation
From time to time, the Company is involved in lawsuits, claims, investigations, and proceedings that
arise in the ordinary course of business. The Company records a provision for a liability when management
believes that it is both probable that a liability has been incurred and the amount of the loss can be reasonably
estimated. As of each of June 30, 2023 and 2022, the Company’s reserve for litigation is immaterial. The
Company reviews these provisions periodically and adjusts these provisions to reflect the impact of
negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a
particular case. Litigation is inherently unpredictable.
NOTE 16 – NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS
The following table presents the calculation of basic and diluted net loss per share attributable to
common stockholders during the periods presented (in thousands, except per share amounts):
Year ended
June 30,
2023
2022
2021
Numerator:
Net loss attributable to common stockholders
$
(223,725) $
(326,361) $
(98,720)
Denominator:
Weighted-average shares used to compute net loss per
share attributable to common stockholders
Basic and diluted
105,976
101,753
82,813
Net loss per share attributable to common stockholders:
Basic and diluted
$
(2.11) $
(3.21) $
(1.19)
126
Potentially dilutive securities, which were excluded from the diluted net loss per share calculations
because they would have been anti-dilutive, were as follows as of the dates presented (in thousands):
Stock options
Restricted stock units
Total
2023
2,588
4,184
6,772
June 30,
2022
3,858
3,279
7,137
2021
6,552
1,176
7,728
In addition, approximately 8.5 million shares underlying the conversion option of the Notes are not
considered in the calculation of diluted net loss per share as they would be anti-dilutive. Such number of shares
issuable under the Notes is subject to adjustment up to approximately 12.7 million shares if certain corporate
events occur prior to the maturity date of the Notes or if the Company issues a notice of redemption. The
Company’s current intent is to settle conversions of the Notes through a combination settlement, which involves
a repayment of the principal portion in cash with any excess of the conversion value over the principal amount
settled in shares of common stock. The Company uses the "as-if converted" method for calculating any
potential dilutive effect of the conversion option on diluted earnings per share, if applicable. As of June 30, 2023,
the Conversion Condition was not triggered for either the 2025 Notes or the 2027 Notes.
127
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
Item 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation and supervision of our chief executive officer (CEO) and our
chief financial officer (CFO), have evaluated the effectiveness of our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the
Exchange Act)) as of June 30, 2023, the end of the period covered by this Annual Report on Form 10-K. Our
disclosure controls and procedures are designed to ensure that information we are required to disclose in
reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within
the time periods specified in the Securities and Exchange Commission rules and forms, and that such
information is accumulated and communicated to our management, including our CEO and CFO, as
appropriate, to allow timely decisions regarding required disclosure. Based on such evaluation, our CEO and
CFO have concluded that our disclosure controls and procedures were effective at a reasonable assurance
level.
Management's Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting, as defined in Rule 13a-15(f) and 15d- 15(f) under the Exchange Act. Management, with the
participation of our CEO and CFO, has assessed the effectiveness of our internal control over financial reporting
as of June 30, 2023 based on the 2013 framework established in the “Internal Control-Integrated Framework,”
issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this
assessment, management has concluded that our internal control over financial reporting as of June 30, 2023
was effective.
The effectiveness of the internal control over financial reporting as of June 30, 2023 has been audited
by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report, which appears
in Part II, Item 8 of this Annual Report on Form 10-K.
Material Weaknesses Remediation
As previously reported, our management and Ernst & Young LLP, our external auditor, determined that
previously unidentified deficiencies existed in our internal control over financial reporting related to certain
information systems and applications within the quote-to-cash process as of June 30, 2022 because insufficient
testing, documentation, and evidence had been retained to conclude on the effectiveness of internal controls.
Solely as a result of these deficiencies, in May 2023, we concluded that we had a material weakness in internal
controls over financial reporting as of June 30, 2022.
Our management has been committed to maintaining a strong internal control environment. In response
to the identified material weakness above, management, with the oversight of the audit committee of our board
of directors, has taken comprehensive actions to remediate the material weakness described above. During the
quarter ended June 30, 2023, we implemented measures designed to remediate the control deficiencies
contributing to the material weakness, which included testing of the relevant controls, enhancing documentation,
and retaining incremental evidence that supports the effectiveness of controls in the information systems and
applications used in the quote-to-cash process by the end of fiscal 2023.
The remediation efforts are intended both to address the identified material weakness and to enhance
our overall financial control environment. We believe our remediation efforts resulted in the elimination of the
previously identified material weakness as of June 30, 2023. We have dedicated resources to design,
implement, document, and test our internal controls over financial reporting. We will continue to evaluate the
effectiveness of our internal control over financial reporting and will continue to make changes that we believe
will strengthen our internal control over financial reporting to ensure that our financial statements continue to be
fairly stated in all material respects.
128
Changes in Internal Control Over Financial Reporting
Except as described above there were no changes in our internal control over financial reporting
identified in connection with the evaluation required by Rules 13a-15(f) and 15d-15(f) of the Exchange Act that
occurred during the quarter ended June 30, 2023 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
Inherent Limitation on the Effectiveness of Internal Control
Our management, including our CEO and CFO, do not expect that our disclosure controls and
procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system,
no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system will be met. Further, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered relative to their costs. Because
of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple
error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion
of two or more people or by management override of the controls. The design of any system of controls is also
based in part upon certain assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls
may become inadequate because of changes in conditions, or the degree of compliance with policies or
procedures may deteriorate. Due to inherent limitations in a cost-effective control system, misstatements due to
error or fraud may occur and not be detected.
Item 9B. OTHER INFORMATION
Action
Date
Trading Arrangement
Non-Rule
10b5-1 (2)
Rule
10b5-1 (1)
Total Shares to be
Sold
Expiration Date
Alison
Wagonfeld Adopt
6/9/2023
X
1,039
8/23/2024
(1) Intended to satisfy the affirmative defense of Rule 10b5-1(c). The Rule 10b5-1 plan included a representation from the participant to the
broker administering the plan that such person was not in possession of any material nonpublic information regarding us or our securities
subject to the Rule 10b5-1 plan at the time the Rule 10b5-1 plan was entered into. This representation was made as of the date of adoption
of the Rule 10b5-1 plan, and speaks only as of that date. In making this representation, there is no assurance with respect to any material
nonpublic information of which the participant was unaware, or with respect to any material nonpublic information acquired by the participant
or us after the date of the representation.
(2) Not intended to satisfy the affirmative defense of Rule 10b5-1(c).
Item 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
None.
129
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
We maintain a Code of Business Conduct and Ethics that incorporates our code of ethics applicable to
all our employees (including executive officers), independent contractors, and our board of directors. Our Code
of Business Conduct and Ethics is published on our Investor Relations website at investor.bill.com under
“Governance.” We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding
amendments to, or waiver from, a provision of our Code of Business Conduct and Ethics by posting such
information on the website address and location specified above.
The remaining information required by this item is incorporated by reference to the definitive Proxy
Statement for our 2023 Annual Meeting of Stockholders, which will be filed with the SEC no later than 120 days
after June 30, 2023.
Item 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the definitive Proxy Statement for
our 2023 Annual Meeting of Stockholders, which will be filed with the SEC no later than 120 days after June 30,
2023.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information required by this item is incorporated by reference to the definitive Proxy Statement for
our 2023 Annual Meeting of Stockholders, which will be filed with the SEC no later than 120 days after June 30,
2023.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item is incorporated by reference to the definitive Proxy Statement for
our 2023 Annual Meeting of Stockholders, which will be filed with the SEC no later than 120 days after June 30,
2023.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is incorporated by reference to the definitive Proxy Statement for
our 2023 Annual Meeting of Stockholders, which will be filed with the SEC no later than 120 days after June 30,
2023.
130
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
PART IV
(a)
The following documents are filed as a part of this Annual Report on Form 10-K:
(1)
Consolidated Financial Statements:
See “Index to Consolidated Financial Statements” in Part II, Item 8 of this Annual Report on Form 10-K.
(2)
Financial Statement Schedules:
All financial statement schedules have been omitted as the information is not required under the related
instructions or is not applicable or because the information required is already included in the financial
statements or the notes to those financial statements.
(3)
Exhibits
The documents set forth below are filed herewith or are incorporated herein by reference to the location
indicated.
EXHIBITS
Exhibit
Number
Description
Form
File No.
Exhibit
Number
Filing Date
Filed
Herewith
Incorporated by Reference
Agreement and Plan of Merger, dated May 6, 2021, between
the Registrant, certain subsidiaries of the Registrant and
DivvyPay, Inc., a Delaware corporation.
Agreement and Plan of Merger, dated July 16, 2021,
between the Registrant and Invoice2go, Inc.
Restated Certificate of Incorporation, as amended.
S-3/ASR 333-256709
2.1
06/02/2021
S-3/ASR 333-259419
2.1
09/09/2021
Second Amended and Restated Bylaws.
8-K
001-39149
S-1/A
333-234730
S-1
333-234730
3.2
4.1
4.2
02/17/2023
12/2/2019
11/15/2019
Form of Common Stock certificate.
Tenth Amended and Restated Investors’ Rights Agreement,
dated December 21, 2018, by and among the Registrant and
certain security holders of the Registrant, as amended.
Description of Securities Registered Under Section 12 of the
Exchange Act.
Indenture, dated as of November 30, 2020, between the
Registrant and Wells Fargo Bank, National Association
(including the form of 0% convertible senior notes due 2025).
Indenture, dated as of September 24, 2021, between the
Registrant and Wells Fargo Bank, National Association
(including the form of 0% convertible senior notes due 2027).
10.1†
Form of Indemnification Agreement.
2006 Equity Incentive Plan, as amended, and forms of equity
agreements thereunder.
8-K
001-39149
4.1
11/30/2020
S-1
S-1
333-234730
333-234730
10.1
10.2
11/15/2019
11/15/2019
2016 Equity Incentive Plan, as amended, and forms of equity
agreements thereunder.
S-1
333-234730
10.3
11/15/2019
2019 Equity Incentive Plan, and forms of equity agreements
thereunder.
2019 Employee Stock Purchase Plan, and forms of
subscription agreement thereunder.
Form of Change in Control and Severance Agreement for
executive officers.
S-1/A
333-234730
10.6
12/2/2019
131
2.1
2.2
3.1
3.2
4.1
4.2
4.3
4.4
4.5
10.2†
10.3†
10.4†
10.5†
10.6†
X
X
X
X
X
10.7†
Offer Letter, by and between the Registrant and René
Lacerte.
S-1/A
333-234730
10.7
12/2/2019
10.8†
Offer Letter, by and between the Registrant and John Rettig.
S-1/A
333-234730
10.9†
Offer Letter, by and between the Registrant and Raj Aji.
10-K
001-39149
10.8
10.1
12/2/2019
08/30/2021
10.10†
Employment Agreement, by and between the Registrant and
Loren Padelford.
10.11†
Consulting Agreement, by and between the Registrant and
Bora Chung.
10-Q/A
001-39149
10.1
8/24/2023
10.12†
Letter Agreement, by and between the Registrant and Bora
Chung.
10-Q/A
001-39149
10.2
8/24/2023
10.13
10.14
Third Amendment to Office Lease, by and between the
Registrant and US ER America Center 4, LLC.
Revolving Credit and Security Agreement, as amended, by
and between Divvy Peach LLC, Goldman Sachs Bank USA
and the lenders party thereto.
10-K
001-39149
10.12
08/22/2022
10-Q
001-39149
10.1
11/04/2022
10.15†
DivvyPay, Inc. 2016 Equity Incentive Plan.
10-K
001-39149
10.14
08/30/2021
10.16†
Invoice2go, Inc. 2014 Stock Plan.
S-8
333-259420
99.1
09/09/2021
21.1
List of Subsidiaries of the Registrant.
23.1
31.1
31.2
32.1*
32.2*
Consent of Ernst & Young LLP, independent registered
public accounting firm.
Certification of Principal Executive Officer Pursuant to Rule
13a-14(a) or 15d-14(a) of the Securities Exchange Act of
1994 as Adopted Pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002.
Certification of Principal Financial Officer Pursuant to Rule
13a-14(a) or 15d-14(a) of the Securities Exchange Act of
1994 as Adopted Pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002.
Certification of Principal Executive Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
Certification of Principal Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
101.INS Inline XBRL Document Set for the consolidated financial
statements and accompanying notes in Part II, Item 8,
“Financial Statements and Supplementary Data” of this
Annual Report on Form 10-K.
104
Inline XBRL for the cover page of this Annual Report on
Form 10-K, included in the Exhibit 101 Inline XBRL
Document Set
______________________________
†
Indicates management contract or compensatory plan.
X
X
X
X
X
X
X
X
X
+ Registrant has omitted portions of the exhibit as permitted under Item 601(b)(10) of Regulation S-K.
*
The certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Annual Report
on Form 10-K and are not deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise
subject to the liability of that section, nor shall they be deemed incorporated by reference into any filing
under the Securities Act of the Exchange Act.
Item 16. FORM 10-K SUMMARY
Not applicable.
132
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned hereunto duly authorized.
SIGNATURES
August 29, 2023
(Date)
By:
/s/ René Lacerte
René Lacerte
Chief Executive Officer
(Principal Executive Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below
hereby constitutes and appoints René Lacerte and John Rettig, and each of them, as his true and lawful
attorneys-in-fact, proxies, and agents, each with full power of substitution, for him in any and all capacities, to
sign any and all amendments to this registration statement (including post-effective amendments or any
abbreviated registration statement and any amendments thereto filed pursuant to Rule 462(b) increasing the
number of securities for which registration is sought), and to file the same, with all exhibits thereto and other
documents in connection therewith, with the SEC, granting unto said attorneys-in-fact, proxies, and agents full
power and authority to do and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully for all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact, proxies, and agents, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Annual Report on Form 10-K has been signed
by the following persons in the capacities and on the dates indicated.
Signature
Title
Date
/s/ René Lacerte
René Lacerte
/s/ John Rettig
John Rettig
Chief Executive Officer and Director
August 29, 2023
(Principal Executive Officer)
Chief Financial Officer and
Executive Vice President, Finance and Operations
(Principal Financial Officer)
August 29, 2023
/s/ Germaine Cota
Germaine Cota
Senior Vice President, Finance and Accounting
(Principal Accounting Officer)
August 29, 2023
/s/ Aida Alvarez
Aida Alvarez
/s/ Steven Cakebread
Steven Cakebread
/s/ Stephen Fisher
Stephen Fisher
/s/ David Hornik
David Hornik
Director
Director
Director
Director
133
August 29, 2023
August 29, 2023
August 29, 2023
August 29, 2023
/s/ Brian Jacobs
Brian Jacobs
/s/ Peter Kight
Peter Kight
/s/ Allie Kline
Allie Kline
/s/ Allison Mnookin
Allison Mnookin
/s/ Tina Reich
Tina Reich
/s/ Scott Wagner
Scott Wagner
/s/ Alison Wagonfeld
Alison Wagonfeld
August 29, 2023
August 29, 2023
August 29, 2023
August 29, 2023
August 29, 2023
August 29, 2023
August 29, 2023
Director
Director
Director
Director
Director
Director
Director
134