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Bill.com Holdings Inc (BILL 1.68%)
Q1Â 2021 Earnings Call
Nov 5, 2020, 4:30 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good afternoon, and welcome to Bill.com's First Quarter of Fiscal 2021 Earnings Conference Call. Joining us today for today's call is Bill.com's CEO, Rene Lacerte; and CFO, John Rettig. [Operator Instructions]
With that, I would now like to turn the call over to John Rettig for introductory remarks. John?
John Rettig -- Chief Financial Officer
Thank you, operator. Welcome to Bill.com's Fiscal First Quarter 2021 Earnings Conference Call. We issued our earnings press release a short time ago and furnished the Form 8-K to the SEC. The press release can be found in the Investor Relations section of our website. With me on the call today is Rene Lacerte, Chairman, CEO and Founder of Bill.com. Before we begin, please remember that during the course of this call, we may make forward-looking statements about the operations and future results of Bill.com that involve many assumptions, risks and uncertainties. If any of these risks or uncertainties develop or if any of the assumptions prove incorrect, actual results could differ materially from those expressed or implied by our forward-looking statements.
For a discussion of the risk factors associated with our forward-looking statements, please refer to the text in the company's press release issued today and to our periodic reports filed with the Securities and Exchange Commission, including our Form 10-K dated August 31, 2020. We disclaim any obligation to update any forward-looking statements. On today's call, we will refer to both GAAP and non-GAAP financial measures. The nonrevenue financial figures discussed today are non-GAAP, unless stated that the measure is a GAAP number. Please refer to today's press release for the reconciliation of GAAP to non-GAAP financial performance and additional disclosures regarding these measures.
Now I'll turn the call over to Rene. Rene?
Rene Lacerte -- Chief Executive Officer And Founder
Thanks, John, and good afternoon, everyone. Thank you for joining us today. We kicked off our new fiscal year with strong Q1 financial results, which exceeded our expectations across the board as we continue to see significant demand for the Bill.com platform. In Q1, we saw our SMB customers getting back to business, illustrated by several of our key metrics showing improvement. We are excited about the increasing adoption of our platform throughout our diversified go-to-market ecosystem. Core revenue, which we define as subscription plus transaction revenue, grew by 53% year-over-year to $43.8 million. We also delivered a strong non-GAAP gross margin of 77% in the quarter. John will review our financials in more detail later. But first, let me give you an update on our overall progress and execution efforts. At the end of the first quarter, we achieved a company milestone by surpassing the 100,000-customer mark, with overall customer growth of 27% year-over-year.
Our customers trust the Bill.com platform to manage their workflows and process their payments, which totaled billions of dollars monthly. As a reminder, our platform extends well beyond our customers to over 2.5 million network members that pay and get paid through Bill.com. We believe that we are operating one of the largest B2B networks in the United States. Later, I'll be talking more about how we are focused on growing and monetizing this network asset. During the quarter, we processed $28.8 billion in total payment volume, or TPV, an increase of 31% over Q1 of the prior year. This demonstrates the strong customer demand for our platform and the new payment capabilities we've added over the last 18 months. We recently surveyed over 900 Bill.com customers using a third-party firm. Survey respondents represented a broad spectrum of company sizes, industries and product usage.
The results really showcased Bill.com's strong value proposition with 97% of respondents noting that Bill.com allows them to operate their businesses remotely. The vast majority said that Bill.com enables them to digitize financial operations and described Bill.com as essential to their operations. It's this value proposition that leads to our platform becoming mission-critical for customers and our strong customer and revenue retention metrics. Customers that participated shared direct feedback, noting, and I quote, "Bill.com enabled us to switch to primarily electronic payments once our office switched to being fully remote during the COVID-19 pandemic. It was easy to learn when I onboarded to my new job at this company and easy to onboard vendors and to do real-time sync with accounting software. The payment process for international contractors is much easier and more efficient. Being able to enter the bills in QuickBooks and have auto-pay set on Bill.com is excellent." We also are pleased to see that our customers continue to have high levels of satisfaction as reflected in G2's independent peer-to-peer review research.
This year, Bill.com moved further to the upper right on G2's grid for small business AP automation and took over the number one ranking to be the clear leader in the eyes of SMB. We remained in first place for market presence. And our average rating this year was 4.85 on a scale of 0 to five in this market barometer of small business sentiment. At the end of the day, the satisfaction and value we deliver to our customers can best be illustrated by a real customer experience. The Manhattan Soccer Club is one of the largest soccer clubs in New York City, with over 60 teams, 1,000 players and an annual budget of $3.5 million, a nonprofit that offers all levels of development and competition. Over the past few seasons, the paperwork from scorers and managers and coaches was getting out of hand. Each year, their auditors require more detailed proof, such as receipts, check stubs, invoices, all of which had to be processed, sent back to the auditor and then filed in the home office of Sam Arnoff, Director of Operations.
With Bill.com, Sam no longer uses paper checks, reducing his workload and facilitating faster reimbursement for managers and coaches. Sam also provided the auditors direct access to Bill.com, cutting down the time and, just as importantly, the cost of the audit. He also transitioned all paper files to digital on our platform. Sam noted, and I quote, "I called Bill.com my personal assistant. I'm also the president of a youth soccer league. If it weren't for Bill.com, I wouldn't have the cycles to pursue my passion for developing and mentoring these soccer players." In addition to serving our customers, we're also focused on extending our ability to create value for our more than 2.5 million network members. We work hard to simplify the process of getting customers, their vendors and their clients to connect and do business, which creates a healthy flywheel effect. For example, our platform intelligence includes data from suppliers who are currently in the Bill.com network. For these suppliers, we store pertinent information such as tax ID, remittance address and other payment preferences.
So when an SMB joins our platform, that new customer can instantly pay many vendors who are already in our network without going through the painful and time-consuming process of collecting confidential financial and bank account details. Recently, we discussed our efforts at increasing the number of card-accepting suppliers enabled on our platform, which, in turn, increases our virtual card TPV. During Q1, we brought supplier enablement entirely in-house, employing our own vendor AI matching logic to automate this critical function. By controlling this process ourselves end-to-end, we've improved our ability to identify card-accepting suppliers and pay them more quickly. Our own employees are better equipped than a third party to promote the benefits of our virtual card payments to our customers' suppliers. Through these efforts, we are seeing early success adding the long-tail suppliers to our network. We believe there's plenty of opportunity ahead. As we continue to focus on creating a better user experience for suppliers, we have also been expanding our payment capabilities so that we can pay vendors faster.
On a prior call, we are adding faster payment functionality by leveraging the real-time payment network from The Clearing House. While the real-time payments rail has been used primarily for consumer payments to date, we believe that there are interesting applications for B2B payments. According to a recent survey conducted by Mastercard and PYMNTS.com, 72% of companies stated that they intend to adopt real-time payments within the next three years. We also hear from our own customers and network members that enabling real-time payments is an important use case. Leveraging these rails this past quarter, we began rolling out a new feature called Instant Transfer. With Instant Transfer, our network partners can get paid 24/7, and their funds are available immediately. We currently charge the recipient an ad valorem fee for the service. Instant Transfer is currently in pilot mode, and we are pleased with early engagement data. This latest payment innovation demonstrates our continued efforts to deliver value to both sides of our network. Finally, I want to highlight another indicator of increased platform engagement: the growing use of our native mobile app.
In September, the number of Bill.com mobile app downloads almost doubled year-on-year. And our number of active mobile users hit an all-time high at the end of the quarter. We attribute this increase in mobile usage to better promotion of it, in the customer's desktop experience and via deep linking to the mobile app in our workflow-related emails. Looking ahead, we also expect a higher level of mobile usage by our network members, driven by innovations like the Instant Transfer product mentioned earlier. Next, let me update you on the progress with our go-to-market initiatives, starting with the status of our newest financial institution partners. Turning to our partnership with KeyBank. Key CashFlow became generally available for its business banking customers in October and for the commercial banking customers this week. We are very pleased with how quickly we were able to stand up this partnership despite the unexpected challenges presented by COVID-19 from March through September. With respect to our new relationship with Wells Fargo, the integration is now complete. And we began piloting our service inside the bank's commercial electronic office portal in October.
This means that the top three commercial banks in the country are now leveraging our white-label solution. We are excited about helping them and all of our bank partners better serve their customers. Finally, we continue to work closely on the design and integration of our platform to serve the SMB customers of one of the top three small business banks in the U.S. We look forward to being able to announce details of our launch plans here in calendar 2021. The accounting channel continues to be a strong part of our customer acquisition ecosystem. Our relationships with over 5,000 accounting firm partners accounted for 51% of our total customers and 46% of our total revenue in fiscal 2020. Like most SMBs that are now working from home, accountants are operating in a similar setting, unable to go to their office. As a result, we have seen increased interest in our work-from-anywhere value proposition, particularly from family office and wealth management firms who leverage some of the same tools that accounting firms use to serve their clients. Remote work resonates more and more with accountants.
As such, I would like to highlight one of our accounting partners, Countsy. With over 150 employees and hundreds of clients, Countsy is an outsource provider of back-office accounting and HR functions for leading technology and venture-backed companies. Countsy relies on Bill.com to serve customers such as Asana, Dreamcloud, Fast, Intercom and Quora, to name a few. Founder Mairtini Ni Dhomhnaill commented on the benefits of using Bill.com in the remote work environment, as she stated, and I quote, "Countsy's clients utilize Bill.com as they realize the benefits it provides, including the flexibility to operate their businesses remotely. When we took over the accounting function of an entirely paper-based client in Seattle at the beginning of the lockdown, where all employees were immediately ordered to stay at home, they were very concerned about being able to pay the bills and keep their business running with no interruption. We were able to quickly pivot the company to Bill.com's cloud-based service overnight. Bill.com saved the day." None of our success is possible without the performance of strong teams across our company.
During the quarter, we continued to expand both our management team and Board of Directors, adding top tier talent. Tom Clayton joined our team as Chief Revenue Officer. As we continue to scale and grow the business, we saw the value in aligning all customer revenue opportunities under one leader. In this newly created role, Tom will focus on growing the company's overall revenue. He leads the sales, marketing and strategic partnerships organizations for the company. His experience, cultural fit and agile learning are unique, and we're thrilled that he has joined the Bill.com team. We also added two independent directors to our Board: seasoned payment executive, Colleen Taylor; and brand leader, Allie Kline. Colleen has considerable payments experience with over 30 years helping different types of customers transact around the world. She is currently the President of Merchant Services U.S. for American Express. And previously, she served as the Executive Vice President of Merchant Services for Wells Fargo.
Allie's background includes having served as the Chief Marking Officer for Verizon Media, which consisted of over 20 distinct digital brands reaching one billion customers. She also served as the Chief Marketing Officer for AOL, with responsibilities for global consumer and B2B marketing, brand strategy as well as external and internal communications. In closing, I am pleased with our start to the fiscal year. I'd like to give a shout-out to all of our employees for their hard work and continued dedication. In spite of the many external distractions, employee engagement and energy has remained high. Everyone at Bill.com is focused on helping SMBs succeed in any environment. I'm excited about the momentum we have in FY '21 as our platform simplifies business for our customers and their network, making it easier for them to focus on what they do best.
Now I'll turn the call over to John to review our financials. John?
John Rettig -- Chief Financial Officer
Thanks, Rene. Today, I'll provide a brief overview of our fiscal first quarter 2021 financial results and discuss our outlook for the fiscal second quarter of 2021. As a quick reminder, today's discussion includes non-GAAP financial measures. Please refer to the tables in our earnings press release for a reconciliation from non-GAAP to the most directly comparable GAAP financial measure. With that background, let me turn to our financial results. We delivered solid first quarter results with strong year-over-year growth in total and core revenue as well as strong non-GAAP gross margin. Total revenue for Q1 was $46.2 million, representing growth of 31% over Q1 2020. Q1 revenue exceeded our expectations as customers continue to expand their use of our platform. Core revenue, which represents subscription and transaction fees, was $43.8 million in Q1 and grew 53% year-over-year. To provide additional detail on core revenue, Q1 subscription revenue increased to $24.6 million, representing 36% growth from Q1 of 2020. This growth was driven primarily by the increase in customers on our platform.
We're also starting to see the impact of the anniversary of our fiscal 2020 subscription price increase, which was phased in beginning in Q1 2020 and continued through Q3 2020. This will lead to tougher comparisons in year-over-year subscription revenue growth over the next several quarters. Transaction revenue increased to $19.2 million in Q1, accelerating to 83% year-over-year growth. In addition to growth in transaction volume, we saw our investment in virtual card supplier enablement starting to pay off earlier than expected in the quarter, translating into more suppliers enabled to receive virtual card payments and corresponding growth in virtual card TPV. We expected to see the benefits of taking the supplier enablement activity in-house accrue more gradually throughout the fiscal year.
While we're very pleased with the progress we've made scaling transaction revenues and driving a shift in revenue composition to variable-priced products like virtual cards, we anticipate year-over-year comparisons to fiscal 2020 to be more challenging, which will likely lead to lower growth rates for transaction revenues through the rest of fiscal 2021 as we begin to compare to more difficult prior year comps.
Moving to float revenue. We generated $2.4 million in float revenue in Q1, and our annualized rate of return on customer funds held in Q1 was approximately 62 basis points, slightly above our estimated range for the quarter and down from 95 basis points last quarter. This reduced yield reflects the current low interest rate environment and maturing investments being reinvested at lower rate levels, which we expect to continue over the intermediate term. Turning to an update on our key business metrics. We ended the quarter with 103,600 customers, representing year-over-year growth of 27%. During the quarter, we added 5,500 net new customers. We continue to experience broad-based demand across all our channels. So overall net new customers were down from Q4 when we had a spike at the beginning of the work-from-home phase of the pandemic. We continue to be pleased with the breadth and diversity of our distribution channels, where our horizontal go-to-market approach results in no significant concentration. In fact, no partner accounted for more than 3% of total revenue in fiscal 2020.
Our net new customer results in Q1 were influenced by a few factors that I discussed on our prior call, including the expiration of the 90-day free subscription promotion and fewer new customers from our accounting channel because tax season moved from April to July this year. We also added fewer QuickBooks Simple Bill Pay customers as we began shifting our focus to QuickBooks Online Advanced, where we are targeting larger customers with significantly more attractive unit economics. As I outlined on our last call, for the next few quarters, we expect lower quarterly net customer adds before our newest financial institution partnerships start to ramp. With the progress we're making in improving monetization of our existing customer base through transactions, the net new customer metric will become less meaningful as we scale. Looking at total payment volume during the quarter, we processed $28.8 billion in TPV on our platform, an increase of 31% year-over-year. We processed over 6.5 million payment transactions during Q1, which was up 16% sequentially after two quarters of sequential declines.
We believe that this increase in transactions is illustrative of SMBs starting to get back to more normalized business activity compared to the prior quarter. Moving on to gross margin and our operating results. Our non-GAAP gross margin for the quarter was 77%. We continue to expect gross margin in the range of 75% to 77% in the near term primarily as a result of infrastructure investments we are making to support our financial institution partners as well as reduced float revenue from the low interest rate environment. Turning to our non-GAAP operating expenses. R&D expense was $15.5 million for the quarter or 34% of revenue, an increase from 31% of revenue in the first quarter of fiscal 2020. As I mentioned on our Q4 call, we increased our R&D hiring to support product development work related to the new financial institution partnerships that we signed earlier this calendar year. Sales and marketing expenses were $11.9 million or 26% of revenue in Q1 of fiscal 2021, a decrease from 29% of revenue in Q1 of fiscal 2020. Our spend level for go-to-market sales and marketing capabilities was consistent with the level of spend in Q4. G&A expenses were $11.9 million or 26% of revenue compared to 27% of revenue in Q1 of fiscal 2020.
As a reminder, unlike other software companies, our G&A expenses reflect our investments in risk management and regulatory compliance, which are a core part of our competitive advantage related to our payment capabilities. Looking ahead, we expect to see continued investments in this area. In Q1, our non-GAAP operating loss was $3.7 million versus $3.5 million in Q1 of last year. And our non-GAAP net loss was $2.8 million or a loss of $0.04 per share based on 80.2 million basic weighted shares outstanding. Because we had a loss on a GAAP basis, our diluted share count was the same as the basic share count for both GAAP and non-GAAP EPS calculations. Moving on to the balance sheet. Ending cash, cash equivalents and short-term investments were $700 million, up from $698 million at the end of Q4. As of September 30, 2020, we had $1.7 billion in customer funds on our balance sheet, which was up $25 million or 1.5% from the end of Q4. Lastly, I'll note that our balance sheet includes a liability of approximately $55 million as well as a corresponding asset associated with our new San Jose headquarters and our Houston office leases.
These items are the result of adopting new lease accounting standards as of July 1, 2020, which require recognizing leases on the balance sheet. We ended the quarter with 639 employees, up 21 from the prior quarter. Now let's move on to our financial outlook. There continues to be considerable macroeconomic uncertainty and questions about any potential future stimulus funds that could help small businesses. Given the level of uncertainty, we will provide our outlook for the fiscal second quarter of 2021. As macro conditions stabilize, we will provide a longer-term outlook for our financial performance. For the second quarter of fiscal 2021, total revenue is expected to be in the range of $46.5 million to $47.5 million, made up of core revenue in the range of $45.4 million to $46.2 million and float revenue in the range of $1.1 million to $1.3 million. Float revenue assumes that the average fed funds rate will continue to be approximately 25 basis points during the December quarter and that our yield will be in the range of 25 to 30 basis points.
Looking ahead, due to the lag effect from the timing of interest rate reductions on our investment yields, we expect further declines in float revenue over the next few quarters, assuming interest rates remain at today's level. Regarding our planned operating expenses, we will continue to invest in R&D hiring to support product development work related to our new financial institution partnerships and continued development of our payment products. The bank projects involve complex integrations with long lead times, and we will be increasing our R&D spend from the prior quarter to fulfill our bank partners' needs. We will continue our disciplined approach with regards to sales and marketing investment. We will increase our investment in sales and marketing as opportunities and economics dictate. On the bottom line, we expect to report a non-GAAP net loss in the range of $6.8 million to $5.8 million and a non-GAAP EPS loss of $0.08 to $0.07 on a per share basis based on a share count of approximately 81.2 million basic weighted average shares for Q2.
In addition, we expect stock-based compensation expenses of approximately $11 million to $12 million in Q2 of fiscal 2021 and capital expenditures for our new headquarters and other requirements to be approximately $8 million to $9 million in Q2 of fiscal 2021. In closing on the guidance topic, while we expect near-term economic uncertainty to persist, we're very excited about the long-term opportunity. And we will continue to invest and innovate to support SMBs, while remaining diligent and agile about the need to respond quickly to changes in the macro environment.
Now Rene and I will open up the call for your questions. Operator?
Questions and Answers:
Operator
[Operator Instructions] Your first question is from the line of Brad Sills with Bank of America.
Brad Sills -- Bank of America -- Analyst
Great. Congratulations on a nice quarter. I wanted to ask about the transaction business. It was like a nice move in the take rate that we calculated. And you called out virtual card as an area of strength. I wanted to just ask about that. And cross-border, I know, is also ramping. I wanted to -- any color you can provide on those two offerings and how they track during the quarter.
Rene Lacerte -- Chief Executive Officer And Founder
Thanks, Brad. A big part of the quarter for the transaction growth was the fact that TPV just rebounded really nicely. The small businesses, we talked about this last quarter, are resilient. And we saw 31% year-over-year growth on the TPV. And so given the monetization through card and international payments, we were able to obviously take advantage of those businesses to drive revenue growth in the transaction part. In particular, one of the things that we have done on the virtual card business is we did talk about enabling suppliers on our own and pulling that in-house. And we expected that would take us more time to kind of figure out exactly what we need to do. And we were able to pull that into this quarter, and we did see good growth from that. So we feel good about that part of the business. On the international side, we mentioned this in the last quarter, that we were going to be letting vendors that were international enter their own bank account information to identify that they wanted local currency versus U.S. dollars. And that has started to roll out. And the success there is that we have 137 countries that we make payments to, and just around 100 now have vendors that are adding bank account information directly so they can get local currency. So those things are what's driving the growth. It's something that we're happy about. We have a lot more to do. When we look at the growth opportunities across international and card, there's just lots more work for us to do, and we're going to keep doing it.
Brad Sills -- Bank of America -- Analyst
That's great. That's great. And then one more if I may, just on the same topic. On cross-border, I think you were clear last quarter that you see, over time, the virtual card business potentially reaching 5% to 10% of transactions. Are there any targets or thoughts on where cross-border could ramp to over the longer term?
Rene Lacerte -- Chief Executive Officer And Founder
There's two components to a cross-border payment, right? One is the dollars that are just flowing through our system, and then the second part is how much of that is going as a local currency and FX. And so I think the guidance that we provided is that we think the transaction percentage on the network, on the payment volume is somewhere between 10% and 20%. But that we also think, and this is the more important driver of the revenue, that the long-term opportunity is for us to get the FX revenue in the 40% to 50% range. Now that's the long term. I think at -- the annual guidance that we gave last quarter was that we were right around 25%. So we have plenty of work to do to get there, and that's not something we see, obviously, in the next quarter. It's something that we're going to work toward.
Operator
Your next question is from the line of Josh Beck with KeyBanc.
Josh Beck -- KeyBanc -- Analyst
I know it was a very challenging environment to come up with guidance. I'm just kind of curious, as you went through the quarter and maybe, in particular, the months, I'm just curious about maybe how the health of the SMBs played out relative to your expectations? And any surprises to call out there?
Rene Lacerte -- Chief Executive Officer And Founder
There are a couple of components that obviously drive the business. There's new customer acquisition, then there's the payment volume that goes across the biz -- the platform. And we did have a good, healthy adds in the quarter. And we still think that's part of the carryover from the pandemic and the immediacy of people saying, "Hey, now I got to operate my business across the ether," if you will. And so -- but the new revenue from those customers takes -- isn't as impactful. So it really is the TPV rebounding that really drove the transaction revenue. And so what we saw was that I think with the opening up -- and unfortunately, across the country, we also did see increased cases in the summer. But as the economy opened up, we did see people saying, "Okay, the stimulus package kept me in business during the closed months, and now I can kind of open up and find a way to make it work."
And so we did see TPV rebound. The TPV per transaction is still lower than it was prior to the pandemic, but the overall TPV rebounded. And so it was good to see. And I think on the -- in the August call, we had started to see that, which is why we messaged that there was resilience there. But it continued, obviously. And I would say we feel good about where business is now, though there is obviously a lot of uncertainty. And now with cases -- the COVID cases at the highest level they've ever been, it's hard to know what that means going into the winter months.
Josh Beck -- KeyBanc -- Analyst
Okay. That's good to hear and very helpful. I also wanted to ask about this Instant Transfer product. You've been in pilot mode for a couple of months. So I know it's very early, but I'm just kind of curious about maybe where you could see that fitting into the product portfolio, maybe what some of the use case -- early use cases that you are witnessing?
Rene Lacerte -- Chief Executive Officer And Founder
Yes. Our mission is to make it simple to connect and do business. And that's why I started the company 14 years ago, was to focus on just really eliminating all the hassle that businesses have, whether it's tracking their documents, the workflow or their payments. And when we think about the instant payments, it's the opportunity for vendors, suppliers to get paid on the terms that they want to get paid. If they need the money today and they don't want to wait, then we want to enable that. And where we are at with it is making sure that we have a way to obviously support the rails. That was probably the beginning of the quarter. And then now we're in the phase of kind of rolling it out and understanding how is it that suppliers want to use that. What are they willing to pay for that? What are all the different systems that we need to track to make sure that we're honoring our commitment to both sides of the network? So it is early. But when I think about the long-term goal of it is we're going to pay people via ACH. We're going to pay people via check.
We're going to pay people via international wire, FX. And we're going to pay people via Instant Transfer, which is the real-time payments. And it's the completeness of all those options that actually makes our platform so valuable. And something that we focus on, first and foremost, is eliminating paper and making payments electronic. And so I think the opportunity here is giving suppliers who are going to get an ACH payment or a check in a few days, in a week or whenever the opportunity to get that money today. That's going to, we think, drive more happiness and satisfaction across the network and ultimately drive business results because there will be business model attached to the instant payments since there is an opportunity for us to take risk. And we're going to manage that risk appropriately but also have a revenue model from it.
Operator
Your next question is from the line of Brent Bracelin with Piper Sandler.
Brent Bracelin -- Piper Sandler -- Analyst
We'll stick on the topic of Instant Transfer. I have one question and one follow-up. On this Instant Transfer kind of opportunity, Rene, you talked about monetizing the -- this 2.5 million B2B supplier network more broadly. Is the primary way going to be a -- potentially the supplier will pay you in order to kind of get that real-time payment, and so they're willing to pay a slight fee? Or is there some sort of like subscription angle here? Just trying to think through the specific monetization of those 2.5 million suppliers. And do the buyers have to pay as well? Any additional color on kind of how you're monetizing that would be helpful.
Rene Lacerte -- Chief Executive Officer And Founder
Yes. The way the business works is, right, we collect money into our account, and then we pay out to the suppliers on the AP side. If it was receivables, it would be into our account and then out to our customer. But let's just take the payables example. So once the money comes in, and they make a payment decision, there is a small transaction fee. It's $0.49 to $1.49. What we will be doing on the real-time payments on an ACH transaction, for example, we will let the supplier know that a payment is coming. It's scheduled, and it will arrive on a specific date sometime the next week, depends on the ACH transaction, what day it is that we get it and the business risk of all those things. But we manage all that risk to make sure that we're going to be whole on the funds. And so when they find out that, OK, it's coming.
Let's say, somebody initiates a payment on today, let's say, it's Thursday. And we tell them that you're going to get paid in your account next Wednesday, if you'd like to have it today, there is an ad valorem model that we have built in, that we're building in and learning about, right? And so if you look at the other folks that are doing instant payments, whether it's a Square or a PayPal or Venmo, there is typically kind of a risk fee, if you will, that goes to the supplier if they want the money now. And that's the way we're thinking about it. But like -- it is early days for us on this. We also are very focused on making sure that this increases the satisfaction and simplicity across our platform. And so it is early for us to say exactly what the business model is, but we are going to focus on driving value for the business because of the speed and ease that we're able to move money.
Brent Bracelin -- Piper Sandler -- Analyst
Getting that money right away certainly makes a ton of sense, and very, very helpful color there. A follow-up for me. I guess, John, maybe just on linearity. You talked about the small business recovery, this reacceleration of 31%. Month-over-month, did every month get better? Or did it snap back in kind of July and then stabilized? Just trying to understand how much volatility month-to-month you're still seeing, given we're still kind of in a global pandemic. So any color there you can provide on just the linearity month-to-month you're seeing on the volume recovery here.
John Rettig -- Chief Financial Officer
Yes. Good question. There's nothing that jumps out at us. It's, as you know, a pretty stable business with a vast majority of transactions that we execute on behalf of customers being repeat transactions. So they're running their business. They're doing the same kind of things every month. We did see improvements in the number of transactions. And you can see we went from kind of 1% year-over-year growth last quarter when we felt like there -- certainly, the pandemic was having an impact on our customers, and they were scaling back. TPV held a little bit better, but both those metrics improved this quarter, which I think is just a sign to us of improving activity that was generally throughout the quarter. There is a small bit of nuance to the transactions based on the business days in a month. So we tend not to get too focused on month-to-month changes, and there was no material throughout the quarter, just generally things going in the right direction.
Operator
Your next question is from the line of Brian Schwartz with Oppenheimer & Company.
Brian Schwartz -- Oppenheimer & Company -- Analyst
Rene, starting with you, I just wanted to follow-up maybe more near term on what you're seeing on the demand environment. You talked about over the medium term, it clearly sees that the modernization for digitizing payments is becoming a bigger priority here. But how about right now? And how is that modernization being prioritized, say, relative to pre-COVID or past years? And then I have a follow-up.
Rene Lacerte -- Chief Executive Officer And Founder
So with the pandemic, like I've said before, there was definitely an initial kind of desire, need, capability that needs to happen for businesses. And so we did see increased demand in Q4 and in Q1 on the unit growth. When we look forward, in general, I would say that we would -- we've seen kind of increased conversion across our customer base, but lower -- maybe a little bit softer demand at the top of the funnel. And so I think that's part of this uncertainty that everybody is having in the economy right now is just understanding are we really going back to work for good? Or is the COVID case increase going to force more shutdowns? And people not wanting to kind of change too much when they're dealing with that uncertainty. We do think that the increased conversion is an example of how this is a tailwind for us long term. It's going to continue to help us get more and more customers. And so when we look at demand over the next few quarters, we're anticipating customer growth just below 25% year-over-year. And that's because of a number of things that we think are some are good and some are a little bit softer, and it's all something that we are obviously focused on every day.
Brian Schwartz -- Oppenheimer & Company -- Analyst
One just follow-up question on that commentary, that 25% growth. Is that your assumption, assuming that we do get some stimulus in the early part of next year or just assuming no stimulus at this point?
John Rettig -- Chief Financial Officer
Yes. I'll take that, Brian. Well, I don't think we have specific assumptions around the direct impact of stimulus. That's sort of beyond what we can model. I think there's just a number of factors in the near term that lead to our expectations for slightly lower net new customer adds, including our increasing focus on larger customers, where we have better unit economics and larger lifetime value. We tend to get fewer of those. But financially, they're beneficial for us as well as the investments that we're making in supporting our new financial institution partners. We know that those aren't really going to ramp for a few quarters. So there's sort of a -- in between now and there, we have slightly lower expectations than we've had, particularly coming out of Q4, where we saw a pretty significant spike because of the early days of the pandemic. and just generally speaking, with our strategy for monetization, which is increasingly leaning toward transactions, it's probably fair to say that just the absolute customer numbers on a quarterly basis probably becomes slightly less meaningful.
Brian Schwartz -- Oppenheimer & Company -- Analyst
That's really helpful. John, one question I wanted to just ask you on margins and operating margins. I guess if I look at the last two quarters, there -- the improvement is up about three points compared to the same period from the prior year, and that's with much less of that flow revenue that's essentially 100% margin. So as we think about the margin structure of the business heading into the next calendar year here, how should we think about the potential to continually improve the margins on a year-over-year basis? Can you talk about the puts and takes that we should be thinking about?
John Rettig -- Chief Financial Officer
Yes. Sure. So we talked about this a little bit on our last call. Our bias continues to be to invest for long-term growth. We were a little bit cautious in our fourth quarter just given the early stages of the pandemic. As you can see in our Opex trends quarter-to-quarter, we ramped investment in R&D as we said we would in support of our financial institution partners. And we're continuing to look at opportunities to increase investment in sales and marketing. So I think it's fair to say that we're going to invest where we think the return is good and where it helps us with long-term sustainable growth. So -- and that may well translate into an increased investment level and less improvement in operating margin in the near term. But we're obviously very confident that long term, we will transition to a profitable business.
Operator
Your next question is from the line of Samad Samana with Jefferies.
Mason Marion -- Jefferies -- Analyst
This is Mason Marion on for Samad. So can you talk a little bit more about bringing your virtual card supplier efforts in-house? What are you actually doing to get these suppliers set up on your virtual card program? And how far along are you in these efforts? And then can this ultimately lead you to hitting your more long-term targets for virtual card faster?
Rene Lacerte -- Chief Executive Officer And Founder
The effort that we did first starts with AI. So we have a massive supplier network, 2.5 million. And we're using AI, machine learning to analyze the data and match that with the Mastercard Comdata network that is accepting cards that we process our rails through. And so the first part was let's make sure that we understand and use AI. But then quickly, we wanted to pair that with human involvement to do some calling out to the suppliers to get them onboarded and help them understand what the process is to handle the transactions from us. And so it is that kind of that teamwork that happens very quickly between the AI matching that -- our team is able to do and the supplier enablement with people that is allowing us -- that allowed us to actually bring supplier engagement at a higher level than we expected.
And I think there is -- it is, to your question, Mason, is this part of how we get to the long-term model? It is absolutely part of how we get to the long-term model. And I think right now, what we're saying is what we were able to do is bring in what we saw happening. We were just starting this, what we thought was going to happen in a quarter, we're able to bring that into the current quarter. And so now we have to go back and figure out what else are we going to do to kind of continue that growth. And there's lots of ideas, but all of those get tested and then -- before we invest aggressively behind it. So we feel good about what we've learned and the opportunity to, again, marry the AI capabilities and the data that we have with the human touch of connecting with the suppliers real time.
Mason Marion -- Jefferies -- Analyst
Okay. And then on the Intuit relationship, how is the new agreement progressing here? Any initial feedback you can provide us on the transition upmarket toward the QBO Advanced customers?
Rene Lacerte -- Chief Executive Officer And Founder
Yes. We're excited. We know they're excited. We know this is one of the top five bets that the company has. It's to focus on Advanced. They picked a handful of partners to go-to-market with. We've just kind of kicked this off. It is on the App Store as one of the preferred partners for Advanced. So there is customer activity, but we're just in the beginning of understanding with Intuit about how we're going to go to market. What are the right touch points maybe in the product, the right touch points outside of the product, the right sales touch points, their company and our company. There's just a lot of work that has to get done. And I would say the most important thing is the excitement that both teams have about the opportunity in front of us. And it really comes down to kind of the monetization opportunity and the fact that these businesses need help.
I mean we have just a data point that might be helpful because Advanced has been out there for a couple of years, and we have multiple channels outside of exactly how we -- we're working with Intuit on this particular partnership. We have thousands of customers that are on Advanced using our platform. And that's how we're able to say with confidence that the ARPU is significantly higher. And it is part of that customer learning and history that allows us to work with Intuit on figuring out how do we actually make the most of this opportunity. This is a -- one of the big bets that Intuit has. It's not going to be a six-month bet. This is a multiyear bet that they have, that we have, around how do you actually grow the QuickBooks Online Advanced customer base from 75,000 to something much bigger than that. And this is something that we're excited about.
Operator
Your next question is from the line of Scott Berg with Needham.
Scott Berg -- Needham -- Analyst
Rene and John, congrats on a great quarter. I actually only have one. But Rene, I wanted to go -- kind of revisit your comment on -- or maybe it was John's comments, on customer growth normalizing or maybe slowing a little bit the next couple of quarters until you start ramping customers from the new FI relationships. I guess as you look at the implementations that are now complete with those new relationships like Wells is, what is your expectation around customer additions on the new FI relationships versus the existing ones, maybe it's Bank of America or JPMorgan Chase that you've had a while?
Rene Lacerte -- Chief Executive Officer And Founder
Thanks, Scott. The FI relationships obviously depend on their customer base and kind of the target customer they have. And so the example with Wells is that it's their commercial customers. So this is their larger customers, this is the $10 million to $100 million revenue range customers. KeyBank is both the small business and the commercial. Primarily, the existing business we have with the top banks in the country is the commercial. And so it's not a lot of units that you're going to see through. It does help the TPV. And so as we look at the TPV growth year-over-year, that's something that we think is going to be important for us to continue to obviously have success. The -- what I can tell you is that, again, the early, early days with any of the bank partners is all about, just like with Intuit, figuring out the right go-to-market plan and the right strategy. I know that the Wells team, for example, is excited about what they've been able to see from their customer base so far. But at this point, it's still early for us to be kind of projecting what the customer numbers would look like because there's obviously a big customer base, and we can figure that out as we roll.
Scott Berg -- Needham -- Analyst
Got it. And -- apologies. And a follow-up for that, Rene. Given the complexity of the -- maybe the Wells relationship has, it has some differences in it with regards to having AR as a component of the platform that those customers can adopt. Do you think that changes kind of the viewpoint on those customer adoption -- new areas because it is a slightly different -- maybe a different product offering at that point versus someone just buying the AP side of the solution?
Rene Lacerte -- Chief Executive Officer And Founder
Yes. I think offering the complete package of both AP and AR does create a different sales message. And we do have a partner, a large bank, and I can't remember if we're allowed to say their name, so I won't at this point. But it's a large bank that does do both AP and AR. And they have great success leading with that and so we look to that, we share that learning, we help others understand how you can lead with both, and we think that's an opportunity. So I think, Scott, you're right to kind of think that that's an opportunity for us. And when we look at the top three bank that we're in the process of rolling out into the small business space as well as, obviously, we have the commercial, that opportunity to kind of serve both AP and AR, it's going to be a real opportunity for us.
Scott Berg -- Needham -- Analyst
Great. Congrats on the strong quarter again.
Rene Lacerte -- Chief Executive Officer And Founder
Thank you, Scott.
Operator
Your next question is from the line of Chris Merwin with Goldman Sachs.
Chris Merwin -- Goldman Sachs -- Analyst
I just wanted to ask about the mid-market sales force hiring plan. I know that as you build out a broader suite of payment products and improve the functionality of the platform, I'm sure it's more and more relevant to larger customers. So anything you can share about on hiring you're doing there to accelerate the direct sales outreach to some larger customers?
Rene Lacerte -- Chief Executive Officer And Founder
Yes. The first hiring that I did was, we mentioned, the CRO, and that was, in part, to really create alignment across all the different ways we were measuring and acquiring customers, so marketing, sales and partnerships. And the focus there was to be able to understand the trade-offs that naturally inherently happen across each acquisition vehicles that we have. And I think as we -- as Tom comes up to speed and ends up coming up with his game plan, I think part of that will be an opportunity to say how do we invest more in any of those channels to drive the growth that we want to see. So at this point, what we've seen with mid-market is it continues to resonate well with customers as we're continuing to invest in lead growth as well as sales growth. And it's something that we feel good about. The opportunity there is real. The complexity is definitely real for businesses without our solution. And the simplicity that we have across every type of payment vehicle out there really does resonate with customers.
Operator
Your next question is from the line of Ken Suchoski with Autonomous Research.
Ken Suchoski -- Autonomous Research -- Analyst
I was just wondering if you could talk about the virtual card acceptance. Are you seeing greater virtual card adoption across certain types of suppliers, either by size or industry? Or are there certain suppliers where you're seeing a lower acceptance in terms of that virtual card?
Rene Lacerte -- Chief Executive Officer And Founder
We are, I would say, still learning on that front, if you will, right? I mean that's part of the automation and the supplier enablement that we just talked about. The teams are -- that's why we wanted to bring it in-house because there is a -- I guess, a connective tissue that needs to happen between understanding our data and connecting with suppliers, understanding what suppliers want. And we want to be in a position to kind of obviously accelerate the business and deliver delightful experience for both suppliers.
So at this point, we've not seen anything that would say, "Oh, we should not talk to these suppliers. We should talk to these suppliers." We are seeing that suppliers want to get paid as quickly as possible. And when you make it easy for them, they're comfortable doing that. And there's opportunities for us to continue to enhance that ease. Now there are some suppliers that, from time to time, will say that's not the right fit for them. And so that's OK. And that's why we have these other payment vehicles that we do.
Ken Suchoski -- Autonomous Research -- Analyst
That's really helpful. And then just for my follow-up, I think you mentioned that you're going to see fewer QuickBooks Simple Bill Pay customers. So I was curious of why Bill.com wouldn't be able to go upmarket with Intuit while maintaining the historical level of Simple Bill Pay net adds. Any color there would be really helpful.
Rene Lacerte -- Chief Executive Officer And Founder
Yes. The -- our understanding and our experience with the Simple Bill Pay customers, that these are the micro businesses. They're rather small, a few transactions. They're not paying subscription revenue. And as you know, our business, it's the kind of the combination of subscription revenue and transaction revenue that really drives our success. And so having a business model that wasn't expensive had us less focused on being there versus the QuickBooks Online Advanced customers. As we've managed to acquire those customers outside of the specific partnership we just started, we saw that the revenue opportunity, the business opportunity was significant and much stronger than on the Simple Bill Pay. So that's why we focus on that with Intuit. That's why we spent our time talking with them, helping them understand that. And they saw it, too. I mean they didn't need us. They could see it in their data as well. So I think it's really just what's the right thing for the business to grow the business, and we think this is obviously the best growth opportunity, is to go after the Advanced customers.
Operator
Your next question is from the line of Bob Napoli with William Blair.
Bob Napoli -- William Blair -- Analyst
Nice quarter. Just wanted to dig a little deeper into the distribution success, like the accounting firm, the mix. Did you see anything different than the mix of customer adds? Did you get more traction from FIs this quarter? Or will we see that further down the line?
Rene Lacerte -- Chief Executive Officer And Founder
Yes. Bob, we -- what we saw was accountants were obviously busy with the tax deadline in July, but then they kind of came back. And one of the things I think we mentioned in the press release was just as -- some accountants actually get involved with wealth management. And so we saw some good uptick from that part of the business as well. So I would say that there was no one channel that kind of came in strong. I do think accountants -- the reason I bring up the accountants is because we mentioned that they were going to be a little bit slow in July, and they were. But then they came back and had a good quarter overall. So lots of good demand across the quarter, across all of the channels. And nothing specific to kind of call out. And on the new banks, it is kind of early, right? I mean, Wells Fargo is now in pilot and KeyBank just went live this week in GA. So it's -- I think we'll know more, obviously, in the next quarter to be able to tell you the direction about how we're thinking about it.
Bob Napoli -- William Blair -- Analyst
And then anything on the distribution strategy, anything new? I mean it seems to me like partnerships with some of the bank tech companies like a Q2 or an Alkami or FIS or Fiserv, it seems like your product would fit really well with their corporate customers. And it seems like a...
Rene Lacerte -- Chief Executive Officer And Founder
Yes. Yes. There's a lot of opportunities on distribution, nothing that we're going to share today. But what I can say is the first and foremost important thing for us to do in the company is to focus on the incredible distribution opportunities that we have with Wells Fargo, KeyBank and the third -- the largest small business bank in the country, one of the top three small business banks in the country. Getting that right, like that's all new, obviously, our existing partners. So I think we have a lot of distribution, I guess, well to go to. And I'm asking the team to focus on that. We are obviously talking to plenty of people, but nothing that we can share at this point.
Bob Napoli -- William Blair -- Analyst
And then is there anything, last question, on the product pipeline? I know you talked about supply chain finance at one point. But is there anything -- what -- obviously, you're working on a number of different things. I was wondering if you could give us any color on what's most important besides what we talked about tonight already.
Rene Lacerte -- Chief Executive Officer And Founder
Yes. I mean one of the things that I was really excited about in this quarter is that we crossed 100,000 customers. And that is a significant milestone, and it's something that I know it's an elite group of businesses that serve that many other small businesses. And so -- and our focus, and you know this, the market is just massive in front of us. Our focus is how do we get from that 100,000 to something much bigger. And so the distribution deals that we have, which we just talked about, is a big part of that. And another big part of that is the simplicity across the platform. And so the biggest thing we can do in our product is to continue to simplify the experience from beginning to end, from buyers to suppliers. And we are doing that. There's a number of things -- actually, the Instant Transfer, the real-time payments we're doing, is a really good example of simplifying the experience for the supplier. And so we have lots of things that we're doing on that front. There are new product opportunities that we are looking at, but there's nothing to disclose at this time.
Operator
Your next question is from the line of Matt VanVliet with BTIG.
Matt VanVliet -- BTIG -- Analyst
Nice job on the quarter. I guess as kind of a follow-up to the last couple of questions. But as you think about pursuing and getting into discussions with other financial institutions and what that might mean, what's kind of the longer-term mindset around looking to broaden the horizons of the institutions you're working with versus investing in deeper capabilities and working more closely with the three big ones in particular that you talked about and expanding there and just kind of the broader mindset around that channel?
Rene Lacerte -- Chief Executive Officer And Founder
There is a tremendous amount of opportunity with the financial institution channel. The -- and that goes both for adding more banks, right? We now have five of the top 10, and there's an opportunity for us to continue to get more of the top 10 as well as to get other superregional and regional banks. And so there's lots of opportunity to bring more banks on. And there's lots of opportunity with our existing bank partners to extend into other parts of their business, the small business side of the bank. And so I think the really powerful part of the model that we have is that we go in, and we do what we say we're going to do with our bank partners. And then they have an opportunity to say, "Let's do more together." And that's what we've seen in general and something that we're going to keep doing. So I can't say that we're going to just do one or the other, there -- is that both need to have a great product strategy with a lot of simplicity because this is going into the early majority, late majority part of the market. And it's just -- we recognize and understand it's going to be a little bit different than what it was to get here.
Matt VanVliet -- BTIG -- Analyst
And then looking at the overall product portfolio, what you might do, whether that's mimicking what some of the competitors in the enterprise are doing for a broader set of capabilities with their customers, but what's kind of the mindset between build versus buy and kind of what the overall M&A pipeline might look like, understanding that there's a little more cash on the balance sheet than there was not too long ago?
Rene Lacerte -- Chief Executive Officer And Founder
Yes. And it's not just the cash, right? One of the reasons that I wanted to go public was to have a currency in addition to the capital to be able to be opportunistic about how we could extend the platform. And we've got a very strong platform that was purpose-built from the ground-up to serve and automate financial processes for SMBs, and those processes that we built from the ground-up were AP and AR. Now there's opportunities to extend that platform and add other things onto the platform. And we're -- we definitely are aware of lots of opportunities. We would say that kind of expense, spend management is an area that we think is interesting to think about. We would say that HR and payroll is an area that could be interesting to think about. We would say that there's an opportunity for us to continue to look at working capital efficiency for SMBs. And so none of that is something that we're going to do right now. But when you ask the broad question about how do you think about it, I would probably say right now, we're going to stay focused on how do we extend the platform of AP and AR most closely and go from there.
Operator
Your final question is from the line of Jeff Cantwell with Guggenheim.
Jeff Cantwell -- Guggenheim -- Analyst
Nice results here. I just want to touch on a question from earlier and ask you about what you're seeing with your customer base and payment transactions. So right now, you're at 103,000 customers, it's almost 104,000 customers. Transactions were 6.5 million. Those numbers were ahead of where we were for the quarter. So you're growing faster, and transactions are expanding nicely. So I just wanted to ask you if we can drill down a little bit on the characteristics of your customer base right now as you're expanding very quickly and as you're broadening out your own product lineup. Are you seeing new customers that are more likely to be users of these newer products like virtual card or cross-border? Are your new adds the kind that will remain into these higher-value products, I guess, is one way of asking. Can you just talk a little bit about that because that will help us get a better sense of how to project out, call it, 12 to 18 months from now.
Rene Lacerte -- Chief Executive Officer And Founder
Thank you. Thanks, Jeff. The -- on the virtual card business, just for a little bit of clarity, at this point, we do all the matching, and we reroute a payment to a card -- to a supplier that accepts a virtual card. So our customers don't have a choice in that matter. We go to the fastest method of payment so that our customers can know that their vendor, supplier has been paid quickly and efficiently, and it's reconciled. So on that type -- customers, that's not something that is -- that they're making decision on. On the international payments, we have seen, I would say, in the mid-market companies that we bring on, that international payments can be something that they're interested in and want to make sure that we have a solution for. And our simplicity and cleanliness of how we provide that solution is sometimes the reason as to why we acquire mid-market customers. So all in all, I would say what we already knew from our business before we entered either business was that the transactions across our platform, there were international transactions that businesses were doing that they were going outside of Bill.com. And there were virtual card transactions that were happening that could have -- that we weren't doing. And so we have a real opportunity to kind of enable that for our customers. And what we've seen is that that's -- it's not something -- it ends up being additive when the -- especially international payments, when they're considering our solution.
Jeff Cantwell -- Guggenheim -- Analyst
Appreciate that. And if I could ask you a quick follow-up. You have been in this business for a long time. And I guess the question is, as you're watching this year unfold with small businesses, what can you leave us with in terms of what's new? What are small businesses doing right now that's different or new or maybe it's just a little change in the behavior that will help us understand customer growth over time and why those flow through to your platform. I'm just curious if you can kind of give us the broad picture for what you're seeing over the past three to six months as you're sort of emerging from the lockdowns and trying to grow through this pandemic?
Rene Lacerte -- Chief Executive Officer And Founder
Yes. It's a great question. I think one of the things that we all have come to appreciate as much as we want to be in the office with people is the efficiency and the ability to be remote. And so what's -- an example of what's new that SMBs need is they need the ability to do more mobile stuff. We talked about the mobile data on -- in my script, where we talked about it had great growth in the last year. And some of that is us doing great product placement and really encouraging suppliers to come on board and be able to do a mobile transaction. But we think when you ask that question, that's the first thing that came to mind, is that as we come out, more and more is going to get done from a remote business perspective. And mobile will be -- continue to be a part of that and a stronger part of that. Okay. Well, I just want to say thanks, everyone, for joining today's call, and we really appreciate your ongoing support as shareholders and stakeholders in our business. So thank you.
Operator
[Operator Closing Remarks]
Duration: 67 minutes
Call participants:
John Rettig -- Chief Financial Officer
Rene Lacerte -- Chief Executive Officer And Founder
Brad Sills -- Bank of America -- Analyst
Josh Beck -- KeyBanc -- Analyst
Brent Bracelin -- Piper Sandler -- Analyst
Brian Schwartz -- Oppenheimer & Company -- Analyst
Mason Marion -- Jefferies -- Analyst
Scott Berg -- Needham -- Analyst
Chris Merwin -- Goldman Sachs -- Analyst
Ken Suchoski -- Autonomous Research -- Analyst
Bob Napoli -- William Blair -- Analyst
Matt VanVliet -- BTIG -- Analyst
Jeff Cantwell -- Guggenheim -- Analyst
