BILL Holdings, Inc. (BILL) FY 2024 MD&A

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.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations focuses on a discussion of fiscal 2024 compared to fiscal 2023. A discussion of fiscal 2023 compared to fiscal 2022 can be found under Item 7 of Part II in our Annual Report on Form 10-K for the fiscal year ended June 30, 2023, filed with the SEC on August 29, 2023, 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.

Overview

We are a leading financial operations platform for small and midsize businesses (SMBs). As a champion of SMBs, we are automating the future of finance so businesses can thrive. Our integrated platform helps businesses to more efficiently control their payables, receivables, and spend and expense management. Hundreds of thousands of businesses rely on BILL’s proprietary network of millions of members to 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, 2024, 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 $1.3 billion and $1.1 billion during fiscal 2024 and 2023, respectively, a year-over-year increase of $231.7 million. We generated net losses of $28.9 million and $223.7 million during fiscal 2024 and 2023, respectively.

Macroeconomic and Other Factors

Elevated interest rates and recent inflation in the U.S. and other markets globally have increased economic volatility and led to tightening in credit markets in the U.S. and globally. The SMBs we serve are 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 spending businesses using BILL Spend and Expense to moderate their expenditures and, in certain cases, shift to lower-cost methods of payment, resulting in lower payment volume growth and lower transaction fee growth than historical trends. Moreover, 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 to take appropriate financial or operational actions in response to such conditions.

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In December 2023, we announced a reduction-in-force (RIF), impacting approximately 15% of our global workforce and including the closure of our office in Sydney, Australia, designed to right-size our organization, enhance our profitability profile, and reallocate resources towards our most impactful initiatives. We incurred the majority of the charges related to the RIF in the three months ended December 31, 2023, and it was substantially completed by June 30, 2024.

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 ongoing global geopolitical conflicts will have on our future results of operations, liquidity, and financial condition due to numerous uncertainties, including 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.

Our Revenue Model

We generate revenue primarily 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 consists of transaction fees and interchange fees on a fixed or variable rate per transaction. Transactions primarily include card payments, real-time payments, check payments, ACH payments, cross-border payments, pay-by-card, invoice financing, 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. The balances may fluctuate based on 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 our BILL Spend and Expense software and BILL Divvy Corporate Card solutions to potential spending businesses and issue business-purpose charge cards through our card issuing partner banks (Issuing Banks). When a business applies for a BILL Divvy Corporate 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 BILL Divvy Corporate Card pursuant to our credit policies. Once approved for a BILL Divvy Corporate Card the spending business is provided a credit limit and can use the BILL Spend and Expense software to request virtual cards or physical cards, establish budgets, and manage spend.

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 the 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 BILL Divvy Corporate 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

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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 certain funding arrangements, including warehouse facilities and, from time-to-time, other purchase arrangements with third-party 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 2024, over 89% 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 83% of BILL standalone customers as of June 30, 2023 were still customers as of June 30, 2024.

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 92%, 111%, and 131% during fiscal 2024, 2023, and 2022, respectively. The decrease in fiscal 2024 when compared to fiscal 2023 was primarily due to the change in spending patterns per customer, continued softness in the SMB economic environment which limited payment monetization, and the migration or churn of certain customers of a bank partner. 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.

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 2023, the average payback period was approximately six quarters.

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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 the continued evolution of our business, and anticipate updating our metrics, beginning with the first quarter of fiscal 2025, to distinguish activity attributable to our integrated platform, on the one hand, and to our embedded payment and other solutions, on the other, rather than attributing such activity to specific solutions individually.

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, BILL Spend and Expense, and Invoice2go solutions combined. The relevant metrics for each of BILL standalone, BILL Spend and Expense, and Invoice2go, respectively, are set forth in the footnotes to the table. As noted above, we intend to discontinue reporting these metrics on a solution specific basis. 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.

(1)As of June 30, 2024, the total number of BILL standalone customers was approximately 222,000; the total number of spending businesses that used our BILL Spend and Expense solution was approximately 34,800, and the total number of Invoice2go subscribers was approximately 217,800.

(2)During fiscal 2024, the total payment volume transacted by BILL standalone customers was approximately $273.9 billion; the total card payment volume transacted by spending businesses that used BILL Divvy Corporate Cards was approximately $17.5 billion; and the total payment volume transacted by Invoice2go subscribers was approximately $1.1 billion.

(3)During fiscal 2024, the total number of transactions executed by BILL standalone customers was approximately 48.2 million; the total number of transactions executed by spending businesses that used BILL Divvy Corporate Cards was approximately 54.4 million; and the total number of transactions executed by Invoice2go subscribers was approximately 1.3 million.

(4)Includes Invoice2go metrics from the acquisition date on September 1, 2021.

Businesses Using Our Solutions

For the purposes of measuring our key business metrics, we define businesses using our solutions as the summation of: (A) businesses that are either billed directly by us or for which we bill our partners for use of our core BILL accounts payable and receivable platform during a particular period (BILL standalone customers), (B) spending businesses that use our BILL Spend and Expense product during the period, and (C) Invoice2go subscribers during the period. Businesses using more than one of our solutions are included separately in the total for each solution utilized; as of June 30, 2024, this included approximately 11,500 businesses. Businesses

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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. Businesses using our solutions may exclude certain network members which receive a bill from us in connection with limited use of our platform. 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, comprising transactions from BILL standalone customers, BILL Divvy Corporate 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 2024, 2023, and 2022.

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, pay by card, invoice financing, 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, pay by card, invoice financing, and cross-border payments, and the creation of invoices. Transaction fees also include interchange fees paid by suppliers accepting card payments. Fixed transaction fees are set at a fixed charge per payment transaction, while variable transaction fees are generally calculated based on a percentage of the dollar amount of the payment transaction.

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.

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 BILL Divvy Corporate Cards. The spending businesses utilize the credit on BILL Divvy Corporate Cards as a means of payment for goods and services provided by their suppliers. Virtual card payments and BILL Divvy Corporate Cards are originated through agreements with the Issuing Banks. Our agreements with the Issuing Banks allow for card transactions on the Mastercard and Visa networks. For each virtual card and BILL Divvy Corporate Card transaction, suppliers are required to pay interchange fees to the issuer of the card. Based on our agreements with the

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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, money market funds, corporate bonds, asset-backed securities, municipal bonds, commercial paper, U.S. treasury securities, and U.S. agency 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, for our customer success and payment operations teams, 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), outsourced support services for our customer success team, direct and amortized costs for implementing and integrating our cloud-based platform into our customers’ systems, and cloud payments infrastructure 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 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.

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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, 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.

Provision for expected credit losses – Provision for expected credit losses represents the amount of expense required to maintain the allowance for expected credit losses on our consolidated balance sheet, which represents management’s estimate of credit losses. In the event that our receivables outperform expectation and/or we reduce our expectation of credit losses in future periods, we may release reserves and thereby reduce the provision for expected credit losses. The provision is determined based on our estimate of expected credit losses on acquired cards receivables, loans held for investment and accounts receivable on our balance sheet, changes in our estimate of expected credit losses on these receivables outstanding as of the end of the period and the net charge-offs incurred in the period.

Depreciation and amortization – Depreciation and amortization consist of depreciation and amortization 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 paid in cash are excluded.

Restructuring – Restructuring costs consist primarily of employee severance and other employment termination benefits, including commission, as well as stock-based compensation expense. Additionally, these costs include contract termination expenses and other costs related to the execution of our restructuring plan announced in December 2023, which included the RIF and closure of our office in Sydney, Australia (Restructuring Plan). Refer to Note 16 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information on the Restructuring Plan.

Other income (expense), net – Other income (expense), net consist primarily of interest income on our corporate funds, gain on debt extinguishment, interest expense on our borrowings (including amortization of 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 consist 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 more likely than not that we will not realize our net deferred tax assets.

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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):

(1) Includes the results of Invoice2go from the acquisition date on September 1, 2021.

(2) Includes stock-based compensation charged to revenue and expenses as follows (in thousands):

* Fiscal 2023 includes $52.2 million of stock-based compensation expense related to separation and advisory agreements with our former Chief Revenue Officer.

** Consists of acquisition related equity awards (Acquisition Related Awards), which include equity awards assumed and retention equity awards granted to certain employees of acquired companies in connection with acquisitions, modified equity awards in connection with the Restructuring Plan (Restructuring Awards), 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 ordinary course

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of business. The following table summarizes stock-based compensation recorded for the periods presented and as a percentage of total revenue (amounts in thousands):

(3) Depreciation and amortization do not include amortization of capitalized internal-use software costs paid in cash.

(4) Provision for expected credit losses was included in general and administrative expenses in fiscal 2023 and 2022.

The following table sets forth the components of our consolidated statements of operations for the periods presented as a percentage of revenue:

(1) Includes the results of Invoice2go from the acquisition date on September 1, 2021.

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Comparison of Fiscal 2024 and 2023

Revenue

Total revenue during fiscal 2024 and 2023 were as follows (amounts in thousands):

Total revenue increased by $231.7 million, or 22% during fiscal 2024 as compared to fiscal 2023, primarily due to:

•a $3.8 million increase in subscription fee revenue primarily due to an increase in customers as compared to the same prior year period;

•a $174.2 million increase in transaction fee revenue primarily due to increased total payment volume driven by the increase in customer adoption of our products; and

•a $53.7 million increase in interest on funds held for customers primarily due to an increase in yield earned from investing customer funds as interest rates remained elevated throughout fiscal 2024.

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. In addition, interest on funds held for customers could be impacted by changes in interest rates.

Cost of Revenue, Gross Profit, and Gross Margin

Cost of revenue, gross profit, and gross margin were as follows (amounts in thousands):

(1) Consists of depreciation of property and equipment and amortization of developed technology, excluding amortization of capitalized internal-use software costs paid in cash.

Service costs increased by $38.9 million during fiscal 2024 as compared to fiscal 2023, primarily due to:

•a $31.2 million increase in direct costs associated with the processing of our customers’ payment transactions, use of software applications and equipment, 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; and

•a $12.3 million increase in temporary contractors, shared overhead, and other costs; offset by

•a $4.6 million decrease in personnel-related costs due to our RIF announced in December 2023.

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Gross margin increased to 81.8% during fiscal 2024 from 81.7% during fiscal 2023, 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 $22.1 million during fiscal 2024 as compared to fiscal 2023, primarily due to a $22.9 million increase in personnel-related costs, including stock-based compensation expense.

Our research and development expenses decreased to 25% as a percentage of revenue during fiscal 2024 from 30% during fiscal 2023, primarily due to a higher revenue growth rate but a relatively lower increase in personnel-related expenses, including stock-based compensation, as a percentage of revenue.

Sales and Marketing Expenses

Sales and marketing expenses decreased by $37.3 million during fiscal 2024 as compared to fiscal 2023, primarily due to the following:

•a $85.3 million decrease in personnel-related costs as a result of higher stock-based compensation expense related to former executives in the prior year period and a decrease in sales and marketing personnel from our RIF announced in December 2023; offset by

•a $45.8 million increase in rewards expense in connection with the rewards program through our BILL Divvy Corporate Cards as a result of increased transaction volume. Rewards expense decreased from 49% to 48% as a percentage of revenue from spend and expense interchange fees primarily due to lower rewards redemption rate; and

•a $2.2 million increase in advertising, marketing initiatives, software subscription and computer-related expenses, shared overhead, and other costs.

Our sales and marketing expenses decreased to 37% as a percentage of revenue during fiscal 2024 from 49% during fiscal 2023, primarily due to a higher revenue growth rate and decreases in personnel-related expenses, including stock-based compensation, recognized during fiscal 2024.

General and Administrative Expenses

General and administrative expenses increased by $28.6 million during fiscal 2024 as compared to fiscal 2023, primarily due to the following:

•a $7.4 million increase in personnel-related expense, including stock-based compensation expense, resulting from the hiring of additional general and administrative personnel and higher average cost per employee;

•a $7.7 million increase in provision for fraud losses driven by the increase in the volume of transactions processed during the current year;

•a $2.5 million increase in software subscription and computer-related expenses and shared overhead; and

•a $11.0 million increase in professional and consulting fees for outside services, and temporary contractors who provided general and administrative services.

Our general and administrative expenses decreased to 22% as a percentage of revenue during fiscal 2024 from 24% during fiscal 2023, primarily due to a higher revenue growth rate but a relatively lower increase in personnel-related expense, including stock-based compensation, as a percentage of revenue.

Provision for Expected Credit Losses

Provision for expected credit losses increased by $27.9 million during fiscal 2024 as compared to fiscal 2023, primarily due to an increase in balance of acquired card receivables and loans held for investment during the period.

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Depreciation and Amortization

Depreciation and amortization increased by $2.3 million during fiscal 2024 as compared to fiscal 2023, primarily due to higher amortization of capitalized software during fiscal 2024.

Restructuring

Restructuring expense increased by $27.6 million during fiscal 2024 as compared to fiscal 2023 as a result of the Restructuring Plan announced on December 5, 2023. Refer to Note 16 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information on the Restructuring Plan.

Other Income, Net

Other income, net increased by $75.0 million during fiscal 2024 as compared to fiscal 2023, primarily due to the following:

•a $45.3 million increase due to a gain on debt extinguishment resulting from the partial repurchases of our 2025 Notes and mark to market derivatives associated with the 2025 Note repurchases and unwind of the Capped Calls; and

•a $32.2 million increase in interest income due to higher interest rates earned on corporate funds; partially offset by

•a $4.0 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, 2024, consists of a current federal and state tax liability as a result of the mandatory R&D capitalization by the Tax Cuts and Jobs Act of 2017, which became effective for us 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. The current tax liability was offset by the reduction to the net deferred tax liability.

Non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared and presented in accordance with 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.

We also periodically review our non-GAAP financial measures and may revise these measures to reflect changes in our business or otherwise.

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Non-GAAP Gross Profit and Non-GAAP Gross Margin

We define non-GAAP gross profit as gross profit minus depreciation and amortization, 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 total 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 shows 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):

(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 costs paid in cash.

Free Cash Flow

Free cash flow is a non-GAAP measure 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 generated, after incurring operating expenses, purchases of property and equipment and capitalization of internal-use software costs, for future 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 in the ordinary course of business. One limitation of free cash flow is that it does not reflect our future contractual commitments. Additionally, free cash flow does not represent the total increase or decrease in our cash balance for a given period. 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 provides a reconciliation of our free cash flow to net cash provided by (used in) operating activities for the periods presented (in thousands):

(1) Includes the results of Invoice2go from the acquisition date on September 1, 2021.

Liquidity and Capital Resources

As of June 30, 2024, our principal sources of liquidity were our cash and cash equivalents of $985.9 million, our available-for-sale short-term investments of $601.5 million, and our available undrawn Revolving

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Credit Facility (as defined below) of $120.0 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 $300.0 million from our Revolving Credit Facility and have drawn $180.0 million as of June 30, 2024. Our principal uses 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 2025 Notes, outstanding borrowings from our Revolving Credit Facility and 2027 Notes 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 January 2023 Share Repurchase Program). We completed the repurchase of shares with an aggregate value equal to the full authorized amount under the January 2023 Share Repurchase Program by December 31, 2023. In August 2024, our board of directors authorized a share repurchase program pursuant to which we intend to purchase to $300 million of our outstanding shares of common stock (the August 2024 Share Repurchase Program). We may repurchase such shares from time to time through open market purchases, in privately negotiated transactions, or by other means, including through the use of trading plans. The timing and total amount of stock repurchases will depend upon business, economic and market conditions, corporate and regulatory requirements, prevailing stock prices, and other considerations. The August 2024 Share Repurchase Program has no mandated end date, may be suspended, discontinued or modified at any time, and does not obligate us to acquire any amount of common stock.

In addition, in March 2024 and May 2024, we repurchased $748.2 million and $234.5 million aggregate principal amount of our 2025 Notes, respectively, for an aggregate cash repurchase price of $711.0 million and $221.6 million, inclusive of transaction costs, respectively. Depending on market conditions, our liquidity requirements, contractual restrictions, and other factors, we may consider initiating additional share repurchase programs or repurchasing additional Notes.

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Cash Flows

Below is a summary of our consolidated cash flows for the periods presented (in thousands):

(1) Includes the results of Invoice2go from the acquisition date on September 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 increased to $278.8 million during fiscal 2024 compared to $187.8 million during fiscal 2023. The net change was due mainly to the increase in our revenue during the year.

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 loans held for investment (loans held for investment represent funds advanced, through a partnership with a third party, in connection with our invoice financing product), and capitalization of internal-use software. 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 and repayments of loans held for investment. 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 used in investing activities was $409.4 million during fiscal 2024 compared to net cash provided of $259.3 million during fiscal 2023. The net change was primarily due to the decrease in proceeds from maturities of corporate and customer short-term investments.

Net Cash Provided by (Used in) Financing Activities

Our cash proceeds from our financing activities consist primarily of proceeds from line of credit borrowings, employee purchases of our common stock under our Employee Stock Purchase Plan (ESPP). Our cash usage for our financing activities consists primarily of the repurchase of convertible senior notes and repurchases of shares. Additionally, the increase or decrease in our net cash from financing activities is impacted by the change in customer fund deposits liability and prepaid card deposit.

Our net cash used in financing activities was $742.6 million during fiscal 2024 compared to net cash provided of $235.1 million during fiscal 2023. The net change was primarily due to the partial repurchase of our 2025 Notes and repurchases of our common stock.

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). The 2027 Notes are senior, unsecured obligations, will not

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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). 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. In March 2024 and May 2024, we entered into privately-negotiated transactions with certain holders of our 2025 Notes to repurchase $748.2 million and $234.5 million aggregate principal amount of our 2025 Notes, respectively, for an aggregate cash repurchase price of $711.0 million and $221.6 million, inclusive of transaction costs, respectively. Following the repurchases, we cancelled the repurchased 2025 Notes and, after such cancellation, $233.2 million aggregate principal amount of 2025 Notes remains outstanding. 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 $300.0 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 (as amended to date, the Revolving Credit Facility), of which we borrowed $180.0 million as of June 30, 2024. 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 BILL Divvy Corporate Card and certain related collateral. Our Revolving Credit Facility matures in June 2026 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 $27.2 million as of June 30, 2024 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, 2024.

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, 2024.

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As of June 30, 2024, we, in partnership with the Issuing Banks and the Originating Bank Partner, had approximately $2.8 billion in unused credit available to spending businesses and borrowers using our invoice financing product. While this balance represents the total unused credit available, historical trends and current expectations indicate that the unused credit will likely not be fully utilized by spending businesses and borrowers using our invoice financing product at any one time.

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.

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 acquirer 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.

Expected Credit Losses on Acquired Card Receivables

We acquire card receivables pursuant to our contracts with certain 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 expected credit losses reflects our estimate of uncollectible balances resulting from credit losses and is based on the determination of the amount of expected credit losses inherent in the acquired card receivables 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, 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 receivables 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 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 charged-off loans based on historical recovery experience. Additionally, management evaluates whether to include qualitative reserves to cover credit losses that are expected but may not be adequately represented in the quantitative methodology 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.

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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 charge-off card receivables after the balance substantially becomes 120 days delinquent.

Spending Businesses Rewards

Our BILL Spend and Expense product allows spending businesses to earn rewards based on transaction volume. The amount of rewards that a spending business earns varies based on the terms and conditions of the rewards program. The majority of our rewards are earned and paid based on fixed rates and are not subject to estimation uncertainty. The remaining rewards are earned through our reward points program and may be redeemed at varying rates based on the redemption method selected by the spending business. Redemption methods include statement credits, cash, travel, and gift cards. Determining a liability for the earned and outstanding rewards is a subjective process that requires the use of estimates and the exercise of significant judgment. We estimate the ultimate redemption cost of rewards points based on historical redemption trends. Our current assumption is that substantially all rewards earned will eventually be redeemed. We use the weighted-average redemption cost during the previous 12 months, adjusted as appropriate for recent changes in redemption costs, including changes related to the mix of rewards redeemed, to estimate future redemption costs. While the rewards liability is sensitive to changes in assumptions for redemption costs and involves significant judgment, we believe historical performance is the best indication of future rewards redemption behavior and therefore, it is the primary basis for our estimate.

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, 2024.