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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good afternoon and welcome to Bill.com's Third Quarter of Fiscal 2021 Earnings Conference Call. Joining us today for today's call are Bill.com's CEO René Lacerte and CFO, John Rettig and VP of Investor Karen Sansot. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session [Operator Instructions]. Please be advised that today’s conference is being recorded.
With that, I would like to turn the call over to Karen Sansot for introductory remarks. Karen?
Thank you, operator. Welcome to Bill.com's fiscal third quarter 2021 earnings conference call. We issued our earnings press release a short time ago and furnished the related Form 8-K to the SEC. The press release can be found on the Investor Relations section of our website at investor.bill.com.
With me on the call today is René Lacerte, Chairman, CEO and Founder of Bill.com and John Rettig, Executive Vice President and CFO. We are also joined by Blake Murray, CEO and Co-founder of Divvy
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 SEC, including our most recent annual report on Form 10-K and quarterly report on Form 10-Q filed with the SEC and available on the Investor Relations section of our website.
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. On today’s call we will refer to both GAAP and non-GAAP financial measueres. The non-revenue 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 René. René?
Thank you, Karen. Good afternoon, everyone. Thank you for joining us today. I hope that all of you and your families are in good health and doing well. I'm pleased to report that Q3 was a very strong quarter as a result of our continued focus on rigorous execution. I'm also excited to announce that we've entered into a definitive agreement to acquire Divvy, a leader in the spend management space. It cannot be more enthusiastic about this transaction and the significant value our combined companies can create for our customers. I am thrilled to welcome the talented Divvy team to the Bill.com family when the transaction closes.
Blake Murray, the co-founder and CEO Divvy is with us today to talk about our shared vision and commitment for helping SMEs transform grow and thrive. We posted a slide deck on our Investor Relations website with an overview of the transaction. I'll share more about Divvy transaction after recap our fiscal third quarter results.
We delivered record results and accelerated growth in our quarter revenue transaction fees and total payment volume. In the fiscal third quarter core revenue increased 62% year-over-year, transaction fees increased 112% year-over-year, and TPV increased 44% year-over- year. These results are only possible because of the passion and dedication of our employees. I'd like to thank them for their tireless efforts in delivering another excellent quarter. Every day they're laser focused on how we can help small and midsize businesses simplify and transform their financial operations. Our mission is to make it simple to connect and do business.
Our platform enables this by helping businesses simplify their back office financial operations, connect with suppliers and customers and make payments. We ended the third quarter with over 115,000 customers, more than two and a half million network members and the annualized run rate of $140 billion in TPV.
We believe we are the leading digital B2B payments platform for SMBs and operate one of the largest B2B networks in the United States. Throughout the pandemic, we have been inspired by the resilience and innovation of our SMB customers. It's been more than a year since COVID-19 changed everyone's lives and disrupted business operations. During this time we've seen our customers adapt their business models, expand their services and embrace digital tools.
For example, Wag the Dog-Walking Service expanded into new virtual offerings like wag health, pet care, advice and remote training. With the help of cloud technology solutions like Bill.com, they were able to serve many more pet parents daily through new virtual services and automation. Bill.com empowered them with faster insight into their spend and cash flow, which enabled them to reduce expenditures while investing in these new offerings.
Another example, is evolution events solutions, you had to quickly pivot from live events to virtual ones. When the pandemic hit, they needed to be able to analyze their financials on a dime and systems Bill.com help them closely track their daily cash flow and manage the company through the crisis. With Bill.com their time was freed up to focus on more strategic and activities, including focusing on their post pandemic plans for integrated live and virtual events. The scarcest resource for an SMB is time, and our deep understanding of that has driven us to make sure SMBs experience simplicity and ease with every Bill.com interaction.
For example, new customers are able to sign up and actually use the platform to manage documents, create invoices, make payments and collaborate with co-workers all in the same day. This ease of use is one of the reasons that in February Bill.com was named a G2 best software winner for the second year in a row. The quotes from Bill.com customers on G2’s website speak for themselves.
I love Bill.com. It saves me time and keeps me organized said one, the best and easiest to use payable system on the market said another, and finally collecting payments, paying bills all of it is super easy. These comments aligned with the recent customer survey to over 2000 customers, more than 90% of those customers said Bill.com is easy to implement, learn and use. And that Bill.com makes them more efficient.
70% or more said they found Bill.com was at least two times faster than traditional accounts payable methods and the biggest efficiency improvement they've made in the last year. Delivering for our customers is what motivates all of us at Bill.com. I'm extremely grateful for our team's commitment to bringing our mission to life every day for the businesses that drive so much of our economy.
In addition to talking with customers, we also reach out to SMBs across the country to understand how they're doing. We're hearing that many business owners are optimistic about the year ahead. We recently commissioned a survey of 1000 small and mid-sized businesses in the U.S. and learn the numbers 80% of businesses began or plan to begin digital transformation during COVID-19.
About 75% of companies surveyed are planning on introducing new products and services in an effort to drive growth as they navigate year two as a pandemic. In addition, 85% of businesses ranked generating revenue as their top priority. This is a significant shift from our survey a year ago, where companies were focused on cost savings and business model adaptation. These data points from both our customers and the general SMB population tell us we are and can be an important part of driving digital transformation for the financial back office of SMBs everywhere. We believe that we are at the beginning of a multiyear digital transformation wave that has been accelerated by the COVID pandemic.
Shifting gears, I'd like to highlight some of our recent initiatives which are driving expanded adoption among current customers and attracting new ones. We continue to enhance our menu of payment offerings for our customers and network members. Adoption of our newer payment methods such as virtual card and cross border contributes significantly to our transaction fee growth in Q3.
In addition, we've been piloting our real time payments product, which we branded instant transfer. As we mentioned last quarter, we are building an integration with Stripe that will expand the reach of our instant transfer product by enabling vendors to receive funds via debit cards. The Stripe integration will be generally available this quarter, and will allow us to deliver real time payments to nearly all of our more than two and a half million network members bank accounts.
Another focus area has been on simplifying the bill creation process while enabling straight through processing for supplier payments. In addition to our work on data entry and capture using our AI capabilities, we are also working with a third party to enable electronic bill presentment for our platform. This will give us the ability to fetch and automatically enter bills from large enterprises such as utility companies directly into our platform. We are also working with this third party to automatically route payments via virtual cards to those same suppliers. The result is a near autonomous bill collection and payment process from beginning to end. We expect to introduce this functionality later this calendar year.
We recently launched a feature that enabled accounting firms to upload and onboard up to 200 clients at once instead of individually. This capability enables our accounting firm partners to scale much faster and is powerful reason for new firms to join our platform.
Our platform's ability to help accounting firms manage and onboard clients at scale attract new business opportunities. As an example, one of our accounting firms partners mourn LLP won a contract with several states to process applications and distribute COVID relief funds. Warren selected Bill.com to help and distribute these songs because we make handling large volumes of payments seamless with our platforms and API's.
Given our platform's ease of use, we continue seeing significant demand from midmarket customers. We recently announced our new two way sync integration with both Microsoft, Dynamics 365, Business Central and GP software. This integration increases efficiency, ease of use, and workload controls for customers by creating a real time data sync between our platform and Microsoft Dynamics.
The initial feedback has been very positive. We're excited about the opportunity this has to extend our reach as 10s of 1000s of midmarket companies rely on Microsoft Dynamics ERP systems. For example, Collin Casper, CFO of JMA Ventures, a real estate investment and development firm said, and I quote, “The Bill.com and Dynamics 365 syn streamlines are entire AP process”. From coding invoices, collecting approvals to making digital payments, enabling us to have real time visibility and understanding of our cash position, both with the accounting team and at the asset management level. This integration eliminates duplication of work efforts and saves us tremendous time across the entire company.
In summary, the results this quarter are a strong demonstration of the breadth of our platform. It powers finance operations for organizations ranging from very small businesses, to midmarket companies, and it serves branded offerings for financial accounting and wealth management partners of all sizes. We have a large market opportunity and the right platform strategy, partnerships and team to win it.
Now I'll turn the call over to John to review our financial results. John?
Thanks René. Today I'll provide a brief overview of our fiscal third quarter 2021 financial results and discuss our financial outlook for the fiscal fourth quarter. 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. Note that we revised our method for calculating certain non-GAAP financial measures. The details can be found in today's press release which includes a reconciliation table that reflects nominal adjustments made to both our Q3 21 and Q3 20 results.
We've also included a reconciliation for prior periods and an appendix to the presentation posted on our Investor Relations website. Now let me turn to our financial results for the quarter which are based on our updated non-GAAP definitions.
Q3 results exceeded our expectations across all areas of the business, driven by strong customer engagement on our platform and solid progress driving adoption of our newer payment offerings for both new and existing customers. We delivered strong growth in Q3 across all areas of our key financial and operating metrics.
Total Revenue for Q3 was $59.7 million, up 45% year-over-year, as new and existing customers leveraged our platform to digitize their financial operations. Core revenue, which represents subscription and transaction fees was $58.6 million in Q3 up 62% year-over-year and acceleration from our 59% year-over-year growth last quarter.
Subscription revenue in Q3 increased to $29.3 million, up 32% year-over-year. This growth was driven primarily by the increase in the number of customers on our platform. Transaction revenue increased to $29.3 million in Q3, up 112% year-over-year, due mainly to higher average revenue per transaction, which increased 79% year-over-year, driven by the changing composition of payment types used by our customers.
Our 112% growth in Q3 represents the fourth quarter in a row of accelerated transaction revenue growth, and transaction revenue now represents 50% of our core revenue up from 38% a year ago. Transaction revenue growth was driven by strong TPV and a continuation of payment mix shift towards products with variable pricing.
As you recall, in Q1 we brought supplier enablement entirely in house employing our own vendor AI matching logic to automate this initiative. We also apply our AI capabilities to identify international suppliers who want to be paid in their local currencies versus U.S. dollar payments. Both of these efforts resulted in better than expected traction during Q3 and enhanced our transaction revenue results.
Moving to float, we generated $1.1 million in float revenue in Q3. Our annualized rate of return on customer funds held in Q3 was approximately 23 basis points, slightly above our estimated range for the quarter and down from 35 basis points last quarter. The reduced yield from last quarter reflects the current low interest rate environment and maturing investments being reinvested at lower rate levels.
Turning to an update on our key business metrics, we ended the quarter with 115,600 customers up 27% year-over-year. During the quarter, we added 6500 net new customers which above our expectations due to better than expected performance from our financial institution channel. One of our bank partners added over 1000 incremental new customers due to the launch of a program that they implemented in the quarter.
Excluding these incremental new customers, our net new customer adds would have been slightly below last quarter and consistent with our expectations. We are investing for customer growth and strong unit economics and expect to generate roughly 4000 to 5000. net new customer ads over the next few quarters until our newest financial institutions enter the scaling phase, as we previously discussed.
Moving on to total payment volume, we processed $35 billion in TPV on our platform in q3, up 44% year-over-year, and we processed 7.2 million payment transactions during Q3, which was up 19% year-over-year. On a sequential basis, both TPV and transactions were roughly flat, which follows our typical seasonal pattern.
Moving on to gross margin and our operating results. Our non-GAAP gross margin for the quarter was 76.9%, which was at the high end of our expected gross margin range of 75% to 77%, primarily from strong transaction revenues from variable price products, partially offset by the infrastructure investments we are making to support our financial institution partners, as well as reduce float revenue from the low interest rate environment.
Note that our updated non-GAAP definitions resulted in a reduction in non-GAAP gross margin of 64 basis points in the quarter compared to our prior calculation methodology. R&D expense was $18 million for the quarter or 30% of revenue, consistent with the third quarter of fiscal 2020. We continue to invest in additional hiring and R&D to support our product roadmap for payments innovation, continued investment in our platform, and work related to our newer financial institution partnerships.
Sales and marketing expenses were $13.2 million for the quarter or 22% of revenue, compared to 27% of revenue in Q3 of fiscal 2020. Quarter-over-quarter sales and marketing spend increased $1 million. We have been successful in driving adoption of our payment products mainly through in product discovery and upsell with minimal incremental sales and marketing spend. And this has driven an increase in sales and marketing efficiency.
G&A expenses were $16.9 million for the quarter or 28% of revenue compared to 30% in Q3 of fiscal 2020. Our G&A expenses include investments in risk management and regulatory compliance, which are a core part of our proprietary payment capabilities and we believe form an important part of our competitive advantage.
Looking ahead, we will continue to invest in our risk and compliance capabilities, but expect to achieve economies of scale over the longer term. In Q3, our non-GAAP operating loss was $2.1 million versus $3.8 million in Q3 of last year. And our non-GAAP net loss was $1.7 million or a loss of $0.02 per share based on 83 million basic weighted shares outstanding.
Note that our updated non-GAAP definitions resulted in a modest improvement in non-GAAP net loss of $1.2 million in the quarter, or a $0.02 improvement in loss per share compared to our prior calculation methodology.
Turning to the balance sheet, we ended the quarter with over $1.7 billion in cash, cash equivalents and short term investments. As of March 31 2021, we had $1.9 billion in customer funds on our balance sheet.
Now let's move to our financial outlook. Please note that our outlook is for Bill.com on a standalone basis and does not include any contribution from the Divvy transaction. Based on our solid execution in Q3 and the encouraging trends we're seeing in our business, we're entering Q4 with momentum. Our expanded payment offerings go-to-market initiatives and strategic partnerships are driving strong core revenue growth, increased platform adoption and a mix shift to higher revenue payments.
Now I'll provide an outlook for the fiscal fourth quarter of 2021. For fiscal Q4, total revenue is expected to be in the range of $60.9 million to $61.9 million. We expect core revenue in the range of $60.4 million to $61.3 million, representing our view that the momentum from Q3 will continue in the current quarter. We expect float revenue in the range of 500 to 600,000 and our float revenue outlook assumes that the Fed Funds target rate will continue to be in the zero to 25 basis points range during the June quarter, and that our annualized yield will be in the range of 10 to 15 basis points.
We expect our float yield will remain in that range for the foreseeable future given the low interest rate environment. Regarding our planned operating expenses, we will continue to develop our platform's capabilities and invest in R&D to support product development work relating to our newer financial institution partnerships, and creating new payment products. We will continue our vigilant approach with regards to sales and marketing investment and will increase our investment as opportunities and unit economics warrant.
On the bottom line, we expect to record a non-GAAP net loss in the range of $4.5 million to $3.5 million and a non-GAAP EPS loss of $0.05 to $0.4 on a per share basis based on a share count of approximately 83.3 million basic weighted average shares for Q4. In addition, in Q4, we expect stock-based compensation expenses of approximately 11 to 12 million and capital expenditures for our new headquarters and other requirements to be approximately 5 million to 6 million. We're pleased with the strength of our business driven by the need for SMBs to transform their financial operations and adopt digital solutions.
We're in a strong position with a leading platform that simplifies financial operations and customers trust us to move their funds efficiently, safely and securely. We're delivering very strong core revenue growth and accelerated transaction revenue growth. We are committed to investing strategically to expand our reach and our platforms capabilities, which we believe will create a durable long term growth runway for Bill.com in the SMB market.
Now I'll turn the call over to René to talk about our acquisition of Divvy, René?
Thank you, John. Earlier today, we announced the definitive agreement to acquire Divvy, which will extend our reach into the spend management space. I'm very excited about this transaction and thrilled to welcome the Divvy team to the Bill.com family. Divvy is a modern, extremely innovative solution that combines expense management and budgeting software, the smart corporate cards. By bringing our companies together, we can provide our customers an expanded platform to manage all their B2B spend in one place, and create even more value for our customers faster than we can do on our own.
We have always been committed to expanding the value of our platform for our customers and today is a major milestone. Divvy is at high growth mode and has attractive recurring revenue. To give you an idea of their scale exiting the March 2021 quarter, Divvy’s annualized recurring revenue run rate was approximately $100 million, which was more than 100% from their March 2020 run rate.
I've watched Divvy since they launched their product three years ago. And I've always been impressed with the team their solution and their mission to help SMBs. There is incredible strategic alignment between our companies. We both have a similar purpose to help SMBs transform and thrive by simplifying their financial operations. We both have built simple and elegant software that is loved by our customers. And our visions are aligned to be the leading platform for SMBs to automate financial operations. We're a leader in AP automation, Divvy is a leader in corporate card spend. Together, we'll be disrupting the status quo of how SMB business gets done, and I believe we can create tremendous value for our customers and employees.
I founded Bill.com 15 years ago with the mission to make it simple to connect and do business. Having grown up in a family of entrepreneurs and founding companies in my own, I know how hard it is to run a business. And that the day-to-day work of managing the back office takes significant time away from focusing on the core business and building relationships with customers. That is why I founded Bill.com to be a champion for small and midsize businesses to help them thrive by simplifying and automating their back office financial processes, so they can focus on what's most important to them.
Similarly, Blake founded Divvy to solve another pain point he experienced running a small business too, which is card spend. I've experienced first-hand the challenges of managing card spend across the company. And in fact, one of the most frequent requests we get from customers is to add a card spend solution to our platform. I really respect and admire the constantly evolving solution the Divvy team has built. By combining expense management software and smart corporate cards into a single solution, Divvy empowers its customers to manage all card spend with a single solution that provides real time insight, and has sophisticated budgeting and expense management tools.
No more being surprised by unexpected card expenditures, no more having to hunt for information. It's a simple solution that gives businesses control visibility and savings. It's meaningful to me that both of our companies were founded on the premise that day to day business and growth should be simpler for SMBs. We will keep this year of purpose at the center of our go forward strategy.
Together with Divvy we have an opportunity to accelerate our innovation agendas and exceed the expectations of SMB and midmarket businesses by bringing together Bill.com’s experienced and automated payables, receivables and workflow capabilities, and Divvy’s experience with expense management, budgeting and corporate card spend.
With a scale of more than 1200 dedicated and talented employees along with our combined solutions, we can bring transformational innovation to our customers more quickly. Customers will be able to manage and have visibility into the vast majority of their B2B spend empowering them with real time insight for spend and cash flow management. The addition of a VR platform will also move us further up their transaction lifecycle, support more use cases with budgeting and spend management and enable businesses to simplify and transform their financial operations like never before.
And now I'll turn the call over to Blake to share his perspective on the proposed transaction.
Thank you, René. On behalf of the entire Divvy team, I'd like to say how incredibly excited we are to join the Bill com team when the transaction closes. This is an amazing day for Divvy’s customers and team members. When we founded Divvy, we had one thing in mind, supporting the small and medium sized businesses that are the backbone of the economy. I wanted to build a company that would give them the software and access to the financial tools that they needed to run a great business. I wanted to help them grow and thrive. Our mission has always been to build an all-in-one solution for finance teams.
We think a significant amount of time is wasted when businesses have to log into lots of different software just to make payments and manage corporate spend. In a short period of time, we've been very successful scaling our business and as of March, we now have more than 7,500 monthly spending customers and more than $4 billion in annualized spend on Divvy. Our annualized revenue was up more than 100% growth is our DNA. This is a large part of what has been so exciting for us about Bill.com.
René, John and team have built an incredible company. They're ambitious and driven, they're authentic. And most importantly, they are fierce advocates for making life simpler for SMBs. It's a perfect fit, like Bill.com our customers our true north, in everything we do is focused on them. Our solution has a meaningful impact on their customers. For example, one customer recently recounted how during COVID, they immediately had to make all employees work remotely, their bank couldn't provide them the tools to get money for PPE equipment. With Divvy, they were able to issue cards with spending limits to quickly enable their employees to buy equipment they needed to stay safe while staying under budget. We're really excited to be joining forces with Bill.com to help SMBs thrive by modernizing and transforming their financial operations.
The combination of our two companies will bring our customers as single solution for all their B2B payment needs. No more wasting time on manual work, no more staying late at the office to close the books. No more waiting for a tool that does everything you needed to.
From day one, we have known that finance teams and business owners need a one stop solution. Together with Bill.com, we'll be able to deliver the platform that our customers in the market have been asking for.
And now I'll turn the call back to René.
Thank you, Blake. We're really excited about the value we can create for our customers and businesses everywhere by bringing our two companies together. This transaction supports our commitment to invest for growth and scale. And we believe that more than doubles our domestic total addressable market. This is a result of the corporate card product that Divvy has developed, which comes with very attractive monetization rates similar to our vendor direct virtual card offering. We're excited to be investing in this growth opportunity. And we believe it's significant portion of our 115,000 customers will be interested in adopting Divvy corporate card solutions. So there's a sizable cross sell opportunity that we will aggressively pursue.
Additionally, we believe that having spent management capabilities will increase the value of our platform for prospective SMBs and midmarket customers. Bringing these companies together will allow us to more quickly deepen our market penetration. Our combination will accelerate our shared vision to be the leading platform for SMBs to automate financial operations and make it simple to connect and do business. We look forward to welcoming Divvy’s 400 plus team members when the transaction closes. And the Divvy team will remain in Utah expanding our geographic reach for talent.
And now I'll turn the call over to John who will talk about the terms of transaction.
Thanks, René. Let me start by saying I share René and Blake's enthusiasm for this transaction and the opportunity ahead by combining our companies. Our shared vision and commitment to serving SMBs with innovative solutions for automating financial operations will only be enhanced by bringing our companies together.
Turning to the transaction. Under the terms of the definitive agreement, Bill.com will acquire Divvy for $2.5 billion, consisting of approximately $625 million in cash and 1.875 billion in stock based on a Bill.com share price of $157.27. We expect the acquisition to close by the fiscal quarter ending September 30 2021 subject to customary closing conditions. We will cover details of the combined company's financial profile after closing though at this time, I can say that we expect Divvy will be accretive to our revenue growth rate. In addition, Divvy brings us scale and expertise in card payments and has a recurring revenue model that is predominantly transaction based with very attractive monetization rates that are similar to those we earn on our variable price virtual card offering.
We expect to provide fiscal year 2022 annual guidance including the impact of Divvy likely on our next earnings call once the transaction has closed. We intend to maintain our bias towards investing for growth and this transaction is a reflection of our confidence in our Bill.com team, the Divvy team in business and our belief that this combination can accelerate our market penetration and success in serving SMBs.
The combined vision of our companies creates an incredible growth opportunity and we are excited to execute together once the transaction closes.
With that we'd like to open up the call for questions. Operator?
[Operator Instructions] And your first question comes from a line of Josh Beck from KeyBanc. Your line is open.
Thank you so much for taking the question. And congratulations on the transaction everyone. I wanted to ask just a little bit about why you thought Divvy was such a good fit. Obviously, some companies do tuck-ins, some companies go for larger deals, I'm sure you looked at many, many before you decided that Divvy was your right partner. So maybe you just walk us through a little bit of the background of why it was such a good fit from your seat?
Thank you, Josh, good to hear your voice and a great question. You're right, we definitely canvass the market, we think a lot about how we can add to our platform, both by building new features, which we talked about some on the on the script, and as well as obviously partnering, which we also talked about as well as actually acquiring and really blending and taking the the real opportunity to enhance and expand a platform that we've been working on for 15 years. And so when we looked out there, and we looked at the really the speed and success that that device has had, since their founding, it kind of just stands out. I mean, they're, they're growing super fast, something that's, exciting to see is the success that they've had, but it also comes back to customers, which is really important.
And so for, for us, with everything we do, we're always listening to customers, we're always talking to customers, and we're always talking to prospects. And so, with 115,000 customers, we're able to kind of see what's going on in the market in general. And so we do have 1000s of customers that are doing and using spend management solutions, and we have over 1000 that are actually DB customers. And so when we talk to those customers, what we found out was everything that you kind of see, when you get to know the team at Divvy is just how much their customers love them. It is really a powerful thing to kind of see the customer success, it reminds me of kind of the success that we've had with our customers. And that the alignment, there really goes back to this shared purpose that we have, which is to really help SMBs transformed, grow and to thrive.
And it's this as part of the DNA, the shared DNA across both companies, goes from both the purpose, the vision, which is really to be the leading platform for SMBs to automate their financial operations, as well as really the people on the values. And you I, it's this has been one of the most fun things for me about doing this deal is getting to know Blake and his team. I mean, they are phenomenal. They have, you know, really high, high sense of execution, they have a high vision that is really strong. And they have, just a lot of fun to be with.
And so when I think about the team that we've built the.com, over 15 years, I've been very focused on making sure that whoever comes into the Bill.com family, that it's just going to be aligned and be a lot of fun to work with those folks. So, so lots of good reasons to do it. But, it started with kind of us taking notice of the business results, then asking customers and then really digging in with the team and being pretty excited about that.
Really good to hear about the deep alignment there. Maybe just a quick follow up on the synergies. So when you think about all of your customers that are not Divvy customers today, maybe what they're What are they using generally, within this category of expense management? And what is the strategy to convert those customers to become Divvy users as well?
Yes, the overall when we look at customer spend, on our platform, we think that we have, roughly, let's say 70% to 75% of the customer spend in the B2B space. And when we look at what's remaining, that, 25% 30% we think a lot of that, if not all of it is really the corporate card spend and that's what Divvy isn't working on. So, so a lot of this is, you know, customers are, in a solution where they're using manual processes to track Excel spreadsheets, when you talk to Blake, you get a chance to kind of hear kind of the manual process that he sees customers doing without their solution. But it's just a lot of manual processes that businesses are using to kind of track the corporate spend that's happening outside of solution, the payables solution like what we have.
And so it is that type of, you know, synergistic opportunity on the on the business that helps us get a comfortable that you. This is an opportunity for us to double the TAM of our business. This is the, this is the opportunity when we looked at, the monetization approach that that Divvy has, it is a variable, price product, essentially, the card spend actually leads to the monetization, that leads to the revenue for the business. And you know that that type of revenue monetization is multiple times are two of what we have. And so we just think that that gives us confidence that we can double the overall Tam of the business and look forward to doing that.
Great to hear. Congrats, everyone.
Hey Josh.
Your next question comes from a line of Brad Sills from Bank of America. Your line is open.
Oh, great. Thanks, guys, for taking my question. Congratulations on a real nice quarter and on the transaction here. I wanted to ask question on Divvy as well, please. Yes, I see that they have a pretty good mix of business between small and midmarket. Obviously, Bill.com has been embarking on a move up market already and seeing progress there. You know, to what extent do you think this could accelerate that that move up market? Is this? Is this the view this is more of a midmarket solution? Or is it even more balanced between the ability to cross sell this into your small business base, in addition to kind of bring you guys up market?
Yes, one of the things that we said, all along around the pool into the midmarket is that we serve customers of all sizes. And as we get scale, they ask us to build more functionality, and we find better ways to reach them. So, for us it is a broad cross section of businesses across the country, both in industry and size that actually, we serve. And when we looked at the customer data that we had, obviously with Divvy as well as when we talk to Blake and his team and the customer day they have, we saw a lot of alignment with customer base.
So this isn't going to change our focus, we're going to continue to serve all businesses that want and need a solution to automate their financial operations, which we think is all businesses. We will continue to build features, for each of the side segments that we serve. But this isn't something that's going to accelerate, it's going allow us to continue to monetize in a very meaningful way.
That's great. Thanks René. And then one, if I may, the transaction revenue this quarter was tremendous. And, you called out VCard and cross border. In the past, you had last couple quarters, you'd seen some traction with the supplier enablement capability and really driving adoption of VCard. My question is, you guys feel like you're hitting your stride here in terms of in product promotion. This is a relatively new, sales motion for the firm, with supplier enabling capabilities, and really what you're seeing, it sounds like is traction within product promotion? Seems like you're really hitting your stride there. So, where does this go from here, and any commentary on kind of that sales motion and how that's tracking?
It's an excellent call out. And, I guess I would just start with at the beginning of the script, I talked about how I had to thank the employees for just really, the rigorous execution and just delivering an amazing quarter and, and it's something that we see every day that, we are getting better at everything that we do. And that's such an important part of scaling a business and serving the SMBs all over this country, is that you have to be able to know that you can get better and demonstrate that you can get better. And that's something that we've been doing. And, having the results that we had this quarter, I think it's a real testament to the team and everything that they're learning. And I would agree that we are learning how to, essentially cross sell our own internal products, which is a great lead in to the opportunity that we have with Divvy.
And once the transaction closes, we are going to focus very aggressively on how do we cross sell, they're a great solution. It's elegant, it’s really simple. How do we cross sell that solution into the 115,000 customers, we have. It make their lives even better. And that's something that we're excited about and as we've gotten to know, Blake and his team, like they have the same passion and thirst for rigorous execution, like they love to execute well. They love to actually knock it out of the park. And that's something that's going to be fun to do together.
Exciting. Thanks René.
Your next question comes from a line of Brent Bracelin from Piper Sandler. Your line is open.
Hi, this is Clark Jefferies on for Brent, first question. Obviously, transactional revenue growth continues to be fantastic. I think what stood out to us is really the strength and dollar per transaction and, and the revenue you're generating on each transaction. I just wanted to, ask when you think back to 2019 when you when you launched these variable products, what has surprised you the most So I mean, this used to be about replacing paper checks and it just, it feels different now has the willingness for customers to use virtual cards for large transactions than been wholly above your expectations? And just trying to understand what's driving this acceleration at, 7.2 million transactions scale?
Yes, I think it really comes back to, the rigorous execution again. This is, we're building teams and capabilities around how to cross sell our products, into our customer base, as well as into our supplier network, right. So the international payments are something that we need to cross sell into our customers, as well as then we need to get their suppliers accepting an FX transaction. And so it's a mix of product technologies and mix of the product marketing, it's a mix of sales tools. And the same is true on the virtual car. But in that situation, it is with the suppliers focused on getting them, excited and wanting and needing to take the virtual card transaction.
And so it is this success that has got us, like I said, really excited about the opportunity to cross sell, what the Divvy team is built into the customer base. And I think it gave us confidence, knowing that the teams were really, leaning in and figuring this out that we would be able to do this with, the extension of our platform once Divvy becomes part of it.
Great. And then and then just a follow up, is there any more detail you can share about the composition of the revenue model for Divvy today? I mean, should we think about this as, 100 million ARR contribution post closer, what portion of transaction versus subscription, just any color there in terms of how we should think about extruding the model.
Yes, thanks for the question, Clark. This is John. We’ll definitely provide more color on the combined financial profile and some additional information on the components of the of the Divvy revenue model once we close the transaction. At this point, I mean, I can say qualitatively that it's a high growth transaction monetization focus business. And similar to the traction that you've seen in the growth that we've had from some of our new financial products is a great alignment with customer the more customers the more they use our platform, the more they pay and similar model is true with Divvy. We’ll provide more color after the transaction closes.
Perfect. Appreciate it. Thank you.
Your next question comes from the line of Darrin Peller from Wolfe Research. Your line is open.
Hey, guys, thanks. Nice job on the quarter and look, congrats on Divvy. I still want to focus though, on the customer acquisition that we're seeing the trends came in strong. And they came in actually above what we expected when considering I think you guys mentioned about, potential air pocket, just the interrelationship. And then banks coming on, can you just revisit the cadence we can expect? Are you seeing any pull forward or, demand, given the pandemic still carrying forward are the trends on new customers coming on at an accelerated pace?
What we're seeing with customers is that there is a digital transformation away, that's happening. And we see more awareness out there, both with our direct customers, our accountants, and our financial system partners. And that's something that we referenced in, in the call and the script, was, one of our financials to partners is, being more aggressive about how they sell and market the solution. And we expect that to be across all of our partnerships, as people are continuing to demand and ask for, digital solutions.
So, I think it's something that we're excited about, we're really happy with the results on the customer acquisition this quarter. And again, it's something that I think points to a general trend, as well as the execution that the teams to be able to deliver.
When we think about Divvy and just the cross hill I mean, you guys have helped with some, some examples. But, if you just prioritize what you're most excited about in terms of the acquisition and the offerings they have that you didn't have, it'll be the easiest to really see clients pick up. And maybe just a little more color on which direction you think is going to be cross sold more easily in terms of clients who to the other side of the [Indiscernible] and just timing. Thanks again, guys.
Yes, so I'll start and then I'll ask Blake to kind of fill in his perspective, because obviously, when it comes to spend management, we've kind of got the guru in the room. So I kind of want him to have a chance to talk to you guys about that. So really, what we see is that our customers have been asking for spend managed solutions. They've been asking for expense management solutions. They've been asking for these things because they like doing everything in one place. This is the One Stop Shop concept that we've talked about. It's super important that customers can be able to do it in one place. And so no, we see customers making a lot of spend on corporate cards through the Bill.com platform. We believe that there is like I said, we've got 70% to 75% of spend, and there's another 25% to 30%. And we see a lot of that go through as a card transaction, but we don't have all the individual transactions.
So, that's why we believe there's a significant opportunity to cross sell into our base. But I think, let me let Blake out a few words, because I know he sees this all the time from his business.
Yes, it's a great question. It's something we obviously have really strong opinions on. And frankly, even as a precursor to kind of my response. It's core to why we feel so comfortable with working with and combining with Bill.com is that we have a shared vision here, we work so closely with closely with our customers. And we know that small and midsize businesses that they place a premium on consolidation, this is what they want. They want a single platform through which they can make their payments but then also managed the entirety of their financial back office.
And in spend management obviously being an important piece of that and spend management really, the reason behaviourally why it's striking such a nerve, now in certainly in the future, is that finance teams, they simply want to feel in control. They want control of who spends what, where, when, and why. They want a free flow of data. That's real time instead of reactive. And that's what the Divvy platform in conjunction with Bill.com after the close and after we're able to integrate will give them that one stop solution with free flowing data in complete control.
That’s really helpful.
Your next question comes from a line of Scott Berg from Needham. Your line is open.
Hi, René, John and Blake, congrats on both the quarter and the transaction. I guess, I have two here. First question for Blake. Blake, you and I've had a chance to meet a couple times historically. What’s one of the things that stood out was your aggressive product strategy you have for Divvy. As you think about this transaction, what the functionality can bring together? How do you look at that, that roadmap your maybe over the next, couple three years and in terms of what this transaction can bring you?
Yes, great to speak to you again. It's fun to do on this side at this point. It's an accelerant to it. And that was clear to us. And I hope it's clear to you as well as you've been able to have a peek under the hood of the Divvy platform and our product roadmap. When thinking about a one stop solution that corporate Card Payments as René has already illustrated is a small portion of that it was 20% to 25%. And that was always a very clear to us. And a big missing piece was then the rest, it was the rest of the payment modalities of how finance teams need to make payments and business owners need to make payments.
And this, this obviously allows us to accelerate giving them flexibility, pay as you want, where we provide you the tools, you make the payments in the way that is the most beneficial to your business. And so yes, we see this clearly as an accelerant of that roadmap rather than a hindrance.
Got it? Wish you luck on it, it'll be fun to watch. And then René from a follow up perspective, you obviously acquire a lot of customers, a large chunk of your customers through your partners, whether it's accounting firms or financial institutions, and others maybe like Intuit, etcetera. How do you think about taking these solutions and selling them through those partners? In addition to the current, AP and payment platform that you currently sell?
Yes, it's a Scott always great to talk to you. It's a super important part of our growth strategy, right. We first want to have customers on the platform. Next, we want to sell them more and more services and products. And so whether that's a direct customer or a partner to customer through, a name partner, like a financial institution or an accountant, we're going to work hard to build a platform that allows us to sell all the way through, and it'll be up to the partners in what they choose to do and when they want to do it. But we're pretty excited about this. We think that this one stop shop, this idea of having one solution for your financial operations is going to be critical. It's going to be part of the digital transformation wave that we've been talking about that customers are going to want that and so we think our partners don't want that. And I think it's going to be a lot of fun to see execute throughout the channels.
Good luck. I'm looking forward to watching this one. Thanks again.
Thank you, Scott.
Your next question comes from a line of Samad Samana from Jefferies. Your line is open.
Hi, good afternoon and thanks for taking my questions. Congrats on a very strong quarter. John, maybe one to start off for you. As we think maybe back to the Bill.com customer base as the world starts to reopen. And when you look at the typical bill customer, are you seeing them get back to pre COVID transaction volume levels on a kind of an aggregate customer basis? Or, how should we maybe bifurcate, which was, what segment is back to normal volume levels versus still lagging behind?
Great question. Thanks Samad. Yes, we've seen most of our metrics on a per customer basis returned to near or pre-COVID levels. I'd say the one that has continued to evolve throughout the pandemic is just the number of transactions per customer that's a little bit lower today, in this most recent quarter than pre pandemic levels. And we think it is driven by both consolidation of payments across our platform. And actually the ease with which we increasingly allow customers to do that, just a simpler product, batch mode, things like that, because we see very strong TPV. And if you look at TPV per transaction, or overall, total payment volume per customer, it continues to be strong. So it tells us that, at least our customer base is definitely getting back to business. And we're encouraged by most of the trends that we're seeing.
Great, and then maybe one on Divvy. If I remember correctly, I think I'd heard that the majority of their customers, they end up getting from the corporate card providers like MX and Chase and just trying to think about maybe where Divvy sources, its customers versus thinking about builds relationships with some of these financial institution partners, and how they all marry well together.
Sure, I'll start and then I'll have Blake add in a few comments. So one of the things that excited me about working with the Divvy team is that the go-to-market motion is actually very similar. They have, inside sales team, obviously, like we do. They've got obviously digital marketing capabilities. And they have partnering capabilities. Now their partner capabilities are more junior than ours. But, we believe that there's an opportunity for us to kind of, sell through the accounts and to sell into the financial institutions. And that's something that, we'll work on once we get the deal closed and have a chance to talk to all the partners.
Yes, this was actually one of the pieces that got me comfortable with the deal is that we had invested a significant amount of time and resources specifically in the accounting channel and in the bank channel, working with both large and small banks alike, and providing them with a software platform that traditionally they hadn't been able to build themselves. And so I think we reinforce each other, both Bill.com and Divvy, and that we should be able to continue to work with partners in a healthy way going forward.
That's great to hear. And Congrats, again, on the success of the quarter.
Thanks, Samad.
Your next question comes from a line of Brian Schwartz from Oppenheimer. Your line is open.
Hi, this is Chad Schoening on for Brian, congrats on another great quarter really strong execution here. Just one for me, I wanted to go back to virtual card, if I may. Just curious, you've called out this kind of 5% to 10% penetration rate over time. And given the success of Divvy I’m just wondering why couldn’t that be higher than 10% long term? What are kind of the gating factors to moving beyond that upper bound? Is it just market readiness or technology enablement on the network? Just curious on that one thing?
Yes, we support lots of different types of payments. And our focus on the AP platform is to make sure that customers can manage their AP spend, and, and be able to pay all their suppliers in whichever is easiest for them. So when we look at the virtual card for the supplier payments on the AP side, that's based on us looking at data of, our merchants that are accepting payments from our customers, and looking at the cross section of how that intersects with MasterCard and Visa and the card networks, and what we see is, that 5% to 10%. So that's on the payments going out, from the, I would say the invoices that come in. What's really powerful that what Divvy is, as Bill as this is all the kind of, I think the term that, that Blake used earlier was the proactive spending that businesses are doing without a bill, right. There people are just executing, whether, obviously in TNA they're out and out in the road, but sometimes it's spend on marketing services with a virtual card. But that's the type of program that Divvy supports. And so this allows us to continue to expand our region transactions and to be able to monetize those transactions, as we capture them. So this doesn't really change the 5% to 10% that we've said on the virtual card program that we have for the traditional payables that are going out the door for black arm, but it does bring in, a lot of TPV opportunity. Like we said, the ARPU for Divvy is multiple times that of Bill.com because they get all of the TPV is a variable card spend. So it'll be an interesting, really exciting opportunity for our customers and our business.
Got it very clear. Thank you.
Thank you.
Your next question comes from the line of Robert Napoli from William Blair. Your line is open.
Thank you, and good afternoon. I guess I can take the M&A question off my list for a quarter or two. Congratulations on a strong quarter and acquiring a really exciting company. Maybe for Blake on your customer base and René talked about 75% of the spend. But Blake, what percentage of the spend are you getting? I think Divvy has been really successful one getting a very high percentage of the company spend on the, on the credit card. Is that is that correct?
That's a really good question. When you think of how we think about driving wallet share and driving spend with our customers is that it's software driven. Our entire focus is to provide software that both delights and provides incredible utility, again, saving them time and money and making sure that they're in control. And that has created a really powerful flywheel effect of them spending behaviors. So traditionally, we are their dominant card program inside of their ecosystem once they adopt Divvy, because the two are inextricable from the corporate card program to the software, they work in conjunction with each other.
Again, just providing them with a variety of different cost saving features and budgeting control features. And so they tend to then lean towards using Divvy as their predominant card program.
They're putting virtually, close to 100% of their spending on the card there.
I'm not comfortable giving an exact number. But incredibly high percent of their wallet share goes through Divvy. Yes, and for most it is an exclusive program. Obviously, there's always outliers. And the outliers are different from size of business industry of business. But the majority of customers use it as their exclusive card program.
And just hey, Bob, just to help clarify, right? It's the 70% to 75% of the invoices that come in, that's the spend that comes in, right. And then there's just other spend that happens outside of a payables process. And that's the vast majority that the Divvy team has solved. Right. And so I think the combination with Bill.com and Divvy that's the homerun, because now there's one place that a business can have all of their spend in one place.
Right? And then just like, who are your primary competitors? Is it is it like an American Express? Or is it Abraxas [ph] focused? I know they're focused more on tech companies. But do you overlap with Brett's? And where companies like Amex or JPMorgan that have very large SMB client bases?
Yes, really great question. By far and away, our largest competitor is spreadsheets and manual processes. And it's not close. It's that we serve middle American businesses small and midsize. And although they are tech enabled, and have an eye to improving their operations, this is a distinct pain point in the business spending expense management, which is still driven by paper and manual processes.
Great, thank you. And congratulations. Very exciting. Looking forward to the combination.
Thank you, Bob.
And we have time for one more question. And your final question comes from the line of Matt VanVliet from BTIG. Your line is open.
Yes, thanks for taking the question. Congrats on the deal. Maybe first on sort of the legacy business, if you will, on the financial partnerships. Just curious, what, what the appetite is? What kind of the pipeline you have for additional partnerships here, both with sort of new partners and as you've launched sort of a small business at one of your larger FIIS [Ph], are you having those conversations of expanding the partnership yet on some of the others that are a little more commercial focus?
Yes. Thank you, Matt. So the thing that's been interesting about COVID for us is it has really put a spotlight on those manual paper processes and partners, especially large financial institutions and banks really everywhere. They're the ones that how to challenge their businesses are like, how do I make these payments, and they saw their businesses, suffering, if you will, for lack of a digital, process and enablement.
And so what we have seen is, continued interest, from new partners, and really great interest from our existing partners about what more we can do together. It's, it is one of the reasons we're excited about the transaction with Divvy is that we think there's an opportunity, as we, combine and expand our platform to be able to enable that capability into the financial institutions as well. So, lots of stuff for us to go figure out, but, what we've seen is that the digital transformation, it's real, and it's happening at all levels of our channels.
And then, I guess, following up on sort of the rationale, or to play a little bit of a advocate here of, what, what was difficult about trying to build the Divvy capabilities around pain management, is there something that you tried to build out a little bit, just given the such drastic level of more customers that you have, that are already sort of captive on the Bill.com platform, in a pushing out something that was homegrown. Maybe just kind of what your thoughts were there, what the attempt to build was, and how much this really sort of jumpstarts that instead of taking the time to build it.
I'll be definitely looked at the internal build versus buy decision. And, what we conclude is that it takes time, like he just said, and time to market is super important. This market that's been management market is growing rather fast. And, you just look at the growth rate that Divvy had 100% year-over-year, $100 million run rate. And you can see that the markets, growing fast, and so for us, when we got a chance to know the Divvy team, it was like, well, this is going to be a lot of fun working with the team building something together, adding that onto our platform and expanding our platform. We built our platform to be able to have these types of add ons, it's you know, highly API driven. We have lots of ways to integrate the technology. And so we're excited about doing that. And we weren't going to say we have to build it here, we're going to always look to what's going to be best for customers, how can we serve them the fastest? And how can we have the biggest impact on their lives? And that was this decision this time, and we're super excited about it.
Thank you, Congrats.
Thank you, Matt.
And this concludes our question-and-answer session. And I'd like to turn the call back over to René Lacerte, CEO of Bill.com for closing remarks.
Thank you. I want to thank everyone for your time and all the great questions today. I will close by thanking our employees, customers, partners. We would not be here today without the incredible stakeholders we work with. So thank you. Have a good day, everybody.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.