10-Q 1 bill-20230930.htm 10-Q bill-20230930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
FORM 10-Q
_____________________
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023
OR
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number: 001-39149
_____________________
BILL LOGO.jpg
BILL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
_____________________
Delaware83-2661725
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification Number)
6220 America Center Drive, Suite 100, San Jose, CA
95002
(Address of principal executive offices)(Zip Code)
(650) 621-7700
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report )
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.00001 par valueBILLThe New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer xAccelerated filero
Non-accelerated filer oSmaller reporting companyo
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of October 27, 2023, the registrant had 106,755,694 shares of common stock, $0.00001 par value per share, outstanding.


BILL HOLDINGS, INC.
TABLE OF CONTENTS
Page
Item 1A.
Risk Factors
I

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements regarding our future operating results and financial position, our business strategy and plans, market growth, and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “potentially,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “target,” “plan,” “expect,” and similar expressions are intended to identify forward-looking statements.
Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
our future financial performance, including our expectations regarding our revenue, cost of revenue, gross profit, operating expenses, including changes in research and development, sales and marketing, and general and administrative expenses (including any components of the foregoing), and our ability to achieve, and maintain, future profitability;
our business plan and our ability to effectively manage our growth;
our market opportunity, including our total addressable market;
our international expansion plans and ability to expand internationally;
anticipated trends, growth rates, and challenges in our business and in the markets in which we operate;
beliefs and objectives for future operations;
our ability to further attract, retain, and expand our customer base;
our ability to develop new products and services and bring them to market in a timely manner;
the effects of seasonal trends on our results of operations;
our expectations concerning relationships with third parties, including partners;
our ability to maintain, protect, and enhance our intellectual property;
the effects of increased competition in our markets and our ability to compete effectively;
economic downturns or recessions, inflation, fluctuations in market interest rates and currency exchange rates, cybersecurity events, and recent instability in the United States (U.S.) and global banking systems, and their impact on our customers, partners, vendors, employees, results of operations, liquidity, and financial condition;
future acquisitions or investments in complementary companies, products, services, or technologies;
our ability to stay in compliance with laws and regulations that currently apply or become applicable to our business;
economic and industry trends, projected growth, or trend analysis;
our ability to attract and retain qualified talent;
the increased expenses associated with being a publicly-listed and regulated company; and
the future market prices of our common stock.
We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.
These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described in the section titled “Risk Factors” in Part I, Item 1A of this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks,
1

uncertainties, and assumptions, the future events and trends discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, performance, or achievements. We undertake no obligation to update any of these forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q or to conform these statements to actual results or to changes in our expectations, except as required by law.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information.
You should read this Quarterly Report on Form 10-Q and the documents that we reference herein, that we have filed with the Securities and Exchange Commission (SEC) as exhibits, with the understanding that our actual future results, performance, and events and circumstances may be materially different from what we expect.
In this Quarterly Report on Form 10-Q, the words "we," "us," and "our" refer to BILL Holdings, Inc. (BILL) together with its wholly-owned subsidiaries, including Bill.com, LLC (BILL standalone), DivvyPay, LLC (Divvy), and Invoice2go, LLC and Cimrid Pty, Ltd (together, Invoice2go), unless the context requires otherwise.
2

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BILL HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except per share amounts)
September 30,
2023
June 30,
2023
ASSETS
Current assets:
Cash and cash equivalents$1,527,182 $1,617,151 
Short-term investments1,119,456 1,043,110 
Accounts receivable, net24,100 28,233 
Acquired card receivables, net552,827 458,650 
Prepaid expenses and other current assets195,027 170,111 
Funds held for customers3,263,528 3,355,909 
Total current assets6,682,120 6,673,164 
Non-current assets:
Operating lease right-of-use assets, net66,600 68,988 
Property and equipment, net85,294 81,564 
Intangible assets, net341,206 361,427 
Goodwill2,396,509 2,396,509 
Other assets48,654 54,366 
Total assets$9,620,383 $9,636,018 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable$6,491 $8,519 
Accrued compensation and benefits23,030 32,901 
Deferred revenue19,489 26,328 
Other accruals and current liabilities252,932 194,733 
Borrowings from credit facilities, net135,033 135,046 
Customer fund deposits3,263,528 3,355,909 
Total current liabilities3,700,503 3,753,436 
Non-current liabilities:
Deferred revenue4,800 410 
Operating lease liabilities69,969 72,477 
Convertible senior notes, net1,706,494 1,704,782 
Other long-term liabilities20,504 18,944 
Total liabilities5,502,270 5,550,049 
Commitments and contingencies (Note 11)
Stockholders' equity:
Common stock2 2 
Additional paid-in capital5,022,021 4,946,623 
Accumulated other comprehensive loss(3,813)(4,488)
Accumulated deficit(900,097)(856,168)
Total stockholders' equity4,118,113 4,085,969 
Total liabilities and stockholders' equity$9,620,383 $9,636,018 
See accompanying notes to condensed consolidated financial statements.
3

BILL HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share amounts)
Three Months Ended
September 30,
20232022
Revenue
Subscription and transaction fees$265,142 $214,611 
Interest on funds held for customers39,843 15,313 
Total revenue304,985 229,924 
Cost of revenue
Service costs44,904 34,820 
Depreciation and amortization of intangible assets (1)
11,122 10,287 
Total cost of revenue56,026 45,107 
Gross profit248,959 184,817 
Operating expenses
Research and development89,065 75,121 
Sales and marketing118,398 118,633 
General and administrative85,326 66,738 
Depreciation and amortization of intangible assets (1)
12,817 12,019 
Total operating expenses305,606 272,511 
Loss from operations(56,647)(87,694)
Other income, net29,308 5,947 
Loss before provision for (benefit from) income taxes(27,339)(81,747)
Provision for (benefit from) income taxes522 (107)
Net loss$(27,861)$(81,640)
Net loss per share attributable to common stockholders:
Basic and diluted$(0.26)$(0.78)
Weighted-average number of common shares used to compute net loss per share attributable to common stockholders:
Basic and diluted106,817 105,086 
(1) Depreciation expense does not include amortization of capitalized internal-use software costs paid in cash.

See accompanying notes to condensed consolidated financial statements.
4

BILL HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited, in thousands)
Three Months Ended
September 30,
20232022
Net loss$(27,861)$(81,640)
Other comprehensive income (loss):
Net unrealized gain (loss) on investments in available-for-sale securities
675 (270)
Comprehensive loss$(27,186)$(81,910)

See accompanying notes to condensed consolidated financial statements.
5


BILL HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited, in thousands)
Common stock
Additional
paid-in
capital
Accumulated
other
comprehensive
loss
Accumulated
deficit
Total
stockholders'
equity
SharesAmount
Balance at June 30, 2023
106,550 $2 $4,946,623 $(4,488)$(856,168)$4,085,969 
Issuance of common stock upon exercise of stock options and release of restricted stock units
634 — 2,946 — — 2,946 
Issuance of common stock under the employee stock purchase plan
91 — 7,846 — — 7,846 
Repurchase and retirement of common stock(160)— — — (16,068)(16,068)
Stock-based compensation— — 64,606 — — 64,606 
Other comprehensive income— — — 675 — 675 
Net loss— — — — (27,861)(27,861)
Balance at September 30, 2023107,115 $2 $5,022,021 $(3,813)$(900,097)$4,118,113 
Common stock
Additional
paid-in
capital
Accumulated
other
comprehensive
income
Accumulated
deficit
Total
stockholders'
deficit
SharesAmount
Balance at June 30, 2022104,731 $2 $4,598,737 $(10,217)$(544,828)$4,043,694 
Issuance of common stock upon exercise of stock options and release of restricted stock units835 — 3,901 — — 3,901 
Issuance of common stock under the employee stock purchase plan67 — 8,494 — — 8,494 
Stock-based compensation— — 73,352 — — 73,352 
Other comprehensive loss— — — (270)— (270)
Net loss— — — — (81,640)(81,640)
Balance at September 30, 2022105,633 $2 $4,684,484 $(10,487)$(626,468)$4,047,531 

See accompanying notes to condensed consolidated financial statements.
6

BILL HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Three Months Ended September 30,
20232022
Cash flows from operating activities:
Net loss$(27,861)$(81,640)
Adjustments to reconcile net loss to net cash provided by operating activities:
Stock-based compensation65,147 72,620 
Amortization of intangible assets20,221 19,769 
Depreciation of property and equipment3,718 2,546 
Amortization of capitalized internal-use software costs1,352 924 
Amortization of debt issuance costs, net of accretion of debt premium1,761 1,712 
Amortization of premium (accretion of discount) on investments in marketable debt securities(13,093)(2,215)
Provision for losses on acquired card receivables and other financial assets12,401 6,611 
Non-cash operating lease expense2,388 2,342 
Deferred income taxes(42)(299)
Other(562)930 
Changes in assets and liabilities:
Accounts receivable3,707 (4,774)
Prepaid expenses and other current assets(4,704)(1,339)
Other assets(1,074)(1,138)
Accounts payable(2,508)1,511 
Other accruals and current liabilities(2,286)4,247 
Operating lease liabilities(2,423)(2,386)
Other long-term liabilities(32)34 
Deferred revenue(2,449)(1,303)
Net cash provided by operating activities53,661 18,152 
Cash flows from investing activities:
Purchases of corporate and customer fund short-term investments(399,588)(859,911)
Proceeds from maturities of corporate and customer fund short-term investments757,169 838,099 
Purchases of loans held for investment(32,756) 
Principal repayments of loans held for investment25,330  
Acquired card receivables, net(42,333)(107,943)
Purchases of property and equipment(403)(1,376)
Capitalization of internal-use software costs(5,645)(4,764)
Proceeds from beneficial interest  2,080 
Other 500 
Net cash provided by (used in) investing activities301,774 (133,315)
Cash flows from financing activities:
Customer fund deposits liability and other(91,190)(25,472)
Prepaid card deposits(13,979)10,923 
Repurchase of common stock(12,061) 
Proceeds from exercise of stock options2,946 3,901 
Proceeds from issuance of common stock under the employee stock purchase plan7,846 8,494 
Contingent consideration payout(5,471) 
Net cash used in financing activities(111,909)(2,154)
Effect of exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents(180)(277)
Net increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents243,346 (117,594)
Cash, cash equivalents, restricted cash, and restricted cash equivalents, beginning of period4,224,840 3,542,715 
Cash, cash equivalents, restricted cash, and restricted cash equivalents, end of period$4,468,186 $3,425,121 
 Reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents within the condensed consolidated balance sheets to the amounts shown in the condensed consolidated statements of cash flows above:
Cash and cash equivalents$1,527,182 $1,608,966 
Restricted cash included in other current assets98,313 71,629 
Restricted cash included in other assets7,088 6,724 
Restricted cash and restricted cash equivalents included in funds held for customers2,835,603 1,737,802 
Total cash, cash equivalents, restricted cash, and restricted cash equivalents, end of period$4,468,186 $3,425,121 
See accompanying notes to condensed consolidated financial statements.
7

BILL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
Bill.com, Inc. was incorporated in the State of Delaware in April 2006. BILL.com Holdings, Inc., was incorporated in the State of Delaware in August 2018. In November 2018, Bill.com, Inc. consummated a reorganization with Bill.com Holdings, Inc. (renamed BILL Holdings, Inc. in February 2023), resulting in the latter becoming the parent entity of Bill.com, Inc. Bill.com, Inc. was subsequently converted into a limited liability company and renamed Bill.com, LLC. BILL Holdings, Inc. and its wholly-owned subsidiaries are collectively referred to as the “Company”.
The Company is a provider of software-as-a-service, cloud-based payments, and spend and expense management products, which allow users to automate accounts payable and accounts receivable transactions, enable businesses to easily connect with their suppliers and/or customers to do business, eliminate expense reports, manage cash flows, and improve back-office efficiency.
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and were prepared in conformity with U.S. generally accepted accounting principles (GAAP) and applicable rules and regulations of the Securities and Exchange Commission (SEC) regarding interim financial reporting. The unaudited condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and reflect all normal and recurring adjustments that are, in the opinion of management, necessary to state fairly the Company’s financial position, results of operations, comprehensive loss, changes in stockholders’ equity, and cash flows for the periods presented. The results of operations for the three months ended September 30, 2023 are not necessarily indicative of the results to be expected for the fiscal year ending June 30, 2024 or for any other future annual or interim period. The unaudited condensed consolidated balance sheet as of June 30, 2023 included herein was derived from the audited financial statements as of that date, but does not include all disclosures including certain notes required by GAAP on an annual reporting basis. All intercompany accounts and transactions have been eliminated.
These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2023.
Segment Reporting
The Company operates as one operating segment because its chief operating decision maker, who is the Chief Executive Officer, reviews its financial information on a consolidated basis for purposes of making decisions regarding allocating resources and assessing performance. The Company's long-lived assets are mainly located in the United States (U.S.) and revenue is mainly generated in the U.S. Long-lived assets outside the U.S. are not material as of September 30, 2023 and June 30, 2023. Total revenue from external customers outside of the U.S. was approximately 3% of consolidated total revenue during each of the three months ended September 30, 2023 and 2022.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make various estimates and assumptions that affect the amounts reported and disclosed in the condensed consolidated financial statements and the accompanying notes. Management regularly assesses these estimates, including, but not limited to useful lives of long-lived assets; capitalization of internal-use software costs; incremental borrowing rates for right-of-use operating lease assets and operating lease liabilities; the estimate of losses on accounts receivable, acquired card receivables and other financial assets; accrual for rewards; variable consideration used in revenue recognition for certain contracts; benefit periods used to amortize deferred costs; reserve for losses on funds held for customers; inputs used to value certain stock-based compensation awards; and valuation of deferred tax assets. The Company evaluates these
8

estimates and assumptions and adjusts them accordingly. Actual results could differ from those estimates, and such differences may be material to the condensed consolidated financial statements.
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents
Cash and cash equivalents consist of cash in banks, highly liquid investments with maturities of three months or less at the time of purchase.
Restricted cash consists of (i) amounts restricted under deposit account control agreements, (ii) minimum cash balances that are required to be maintained by certain banks, (iii) cash collateral required by the Company’s lessors to satisfy letter of credit requirements under its lease agreements, (iv) cash collateral required by a bank in connection with the Company’s money transmission activities, and (v) cash in bank and cash deposits held by payment processing companies included in funds held for customers.
Restricted cash equivalents consist of highly liquid investments with maturities of three months or less at the time of purchase that are included in funds held for customers.
Except for the restricted cash included in funds held for customers, the current and non-current portion of the restricted cash is included in prepaid expenses and other current assets and in other assets, respectively, in the accompanying condensed consolidated balance sheets.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents, restricted cash, restricted cash equivalents, short-term investments, accounts receivable, and acquired card receivables (collectively referred to as Financial Assets). The Company maintains its cash, cash equivalents, restricted cash, restricted cash equivalents and short-term investments with large multinational financial institutions that may at times exceed federally insured limits. In connection with recent instability in the U.S. banking system, the Company's management has taken incremental precautions to safeguard its assets and evaluate the nature and extent of its financial partnerships. Management believes that the financial institutions with which the Company does business are financially sound with minimal credit risk. Management further believes the associated risk of concentration for the Company’s investments is mitigated by holding a diversified portfolio of highly rated investments consisting of money market funds and short-term debt securities.
The Company performs credit evaluations to verify the credit quality of its financial assets and determine any at-risk receivables. An allowance for potential credit losses on Financial Assets is recognized. As of September 30, 2023 and June 30, 2023, the allowance for potential credit losses related to accounts receivable and acquired card receivables totaled approximately $18.8 million and $15.9 million, respectively. These amounts do not include the immaterial allowance for potential credit losses on the purchase of card receivables that have been authorized but not cleared at the end of the periods.
There were no customers that exceeded 10% of the Company’s total revenue during the three months ended September 30, 2023 and 2022.
Foreign Currency
The functional currency of the Company's foreign subsidiaries is the U.S. dollar, which is the Company's reporting currency. Gains and losses from the remeasurement of transactions denominated in foreign currencies other than the functional currency of the foreign subsidiaries are included in other income, net in the accompanying condensed consolidated statements of operations.
Significant Accounting Policies
There have been no changes to the Company’s significant accounting policies described in the Annual Report on Form 10-K for the fiscal year ended June 30, 2023.
9

Recently Adopted Accounting Pronouncements
There have been no recently adopted accounting pronouncements since the filing of the Company's Annual Report on Form 10-K for the year ended June 30, 2023 that may have a material impact on the Company's condensed consolidated financial statements.
NOTE 2 – REVENUE
The Company generates revenue primarily from subscription and transaction fees. The table below shows the Company’s revenue from subscription and transaction fees, which are disaggregated by sales channel, and revenue from interest on funds held for customers (in thousands).
Three Months Ended
September 30,
20232022
Small-to-midsize businesses, accounting firms, spending businesses and other
$260,203 $204,821 
Financial institutions4,939 9,790 
Total subscription and transaction fees265,142 214,611 
Interest on funds held for customers39,843 15,313 
Total revenue$304,985 $229,924 
Deferred revenue
Fees from customers with which the Company has annual or multi-year contracts are generally billed in advance. These fees are initially recorded as deferred revenue and subsequently recognized as revenue as the performance obligation is satisfied. During the three months ended September 30, 2023, the Company recognized $10.2 million of revenue that was included in the deferred revenue balance as of June 30, 2023.
Remaining performance obligations
The Company has performance obligations associated with commitments in customer contracts for future services that have not yet been recognized as revenue. As of September 30, 2023, the aggregate amount of transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied), including deferred revenue, was approximately $125.1 million, which the company expects to recognize as revenue in future periods without a significant reduction. Of the total remaining performance obligations, the Company expects to recognize approximately 81% within two years and 19% over the next three to five years thereafter. The Company determines remaining performance obligations at a point of time based on contracts with customers. The Company continues to evaluate expansion opportunities on an ongoing basis, which may include renegotiating the terms of our contracts with SMBs, accounting firms and financial institutions. There were no significant subsequent events that would affect these contracts. However, actual amounts and timing of revenue recognized may still differ due to subsequent contract modifications, renewals and/or terminations.
Unbilled revenue
Unbilled revenue consists of revenue recognized that has not been billed to the customers yet. The unbilled revenue amounted to $15.5 million and $14.0 million as of September 30, 2023 and June 30, 2023, respectively and is included in accounts receivable, net in the accompanying condensed consolidated balance sheets.
NOTE 3 – FAIR VALUE MEASUREMENT
The Company measures and reports its cash equivalents, short-term investments, funds held for customers that are invested in money market funds and marketable debt securities, and contingent consideration at fair value. Fair value is defined as the exchange price that would be received for an asset or an exit price paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.
10

The fair value hierarchy defines a three-level valuation hierarchy for disclosure of fair value measurements as follows:
Level 1 — Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 — Inputs other than quoted prices included within Level 1 that are observable, unadjusted quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.
Level 3 — Unobservable inputs that are supported by little or no market activity for the related assets or liabilities and typically reflect management’s estimate of assumptions that market participants would use in pricing the assets or liabilities.
In determining fair value, the Company utilizes quoted market prices, or valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, and also considers counterparty credit risk in its assessment of fair value.
11

The following tables set forth the fair value of assets and liabilities that were measured at fair value on a recurring basis based on the three-tier fair value hierarchy as of the dates presented (in thousands):
September 30, 2023
Level 1Level 2Level 3Total
Assets
Cash equivalents:
Money market funds$1,056,800 $ $ $1,056,800 
Corporate bonds 50,655  50,655 
U.S. treasury securities 14,858  14,858 
1,056,800 65,513  1,122,313 
Short-term investments:
Corporate bonds 452,417  452,417 
U.S. treasury securities 483,829  483,829 
U.S. agency securities 54,086  54,086 
Asset-backed securities 63,220  63,220 
Certificates of deposit 65,904  65,904 
 1,119,456  1,119,456 
Funds held for customers:
Restricted cash equivalents:
Money market funds1,133,687   1,133,687 
1,133,687   1,133,687 
Short-term investments:
Corporate bonds 199,128  199,128 
Certificates of deposit 93,317  93,317 
U.S. agency securities 27,484  27,484 
Asset-backed securities 49,087  49,087 
U.S. treasury securities 54,560  54,560 
 423,576  423,576 
Total assets measured at fair value$2,190,487 $1,608,545 $ $3,799,032 
Liabilities
Contingent consideration(1)
$ $ $(5,630)$(5,630)
Total liabilities measured at fair value$ $ $(5,630)$(5,630)
(1) The Company used the probability-weighted discounted cash flow method to estimate the contingent consideration. The significant inputs used in the fair value measurement of the contingent consideration are the probability of payout and discount rate. As these inputs are not based on observable market data, the liability represents a Level 3 measurement within the fair value hierarchy.

12

June 30, 2023
Level 1Level 2Level 3Total
Assets
Cash equivalents:
Money market funds$1,131,621 $ $ $1,131,621 
Certificates of deposit 2,578  2,578 
Corporate bonds 45,301  45,301 
U.S. treasury securities44,856   44,856 
1,176,477 47,879  1,224,356 
Short-term investments:
Corporate bonds 479,483  479,483 
U.S. treasury securities408,368   408,368 
U.S. agency securities 57,967  57,967 
Asset-backed securities 51,193  51,193 
Certificates of deposit 46,099  46,099 
408,368 634,742  1,043,110 
Funds held for customers:
Restricted cash equivalents:
Money market funds713,469   713,469 
713,469   713,469 
Short-term investments
Corporate bonds 433,920  433,920 
Certificates of deposit 233,291  233,291 
U.S. agency securities 27,458  27,458 
Asset-backed securities 70,661  70,661 
U.S. treasury securities81,074   81,074 
81,074 765,330  846,404 
Total assets measured at fair value$2,379,388 $1,447,951 $ $3,827,339 
Liabilities
Contingent consideration(1)
  (12,035)(12,035)
Total liabilities measured at fair value$ $ $(12,035)$(12,035)
(1) The Company used the probability-weighted discounted cash flow method to estimate the contingent consideration. The significant inputs used in the fair value measurement of the contingent consideration are the probability of payout and discount rate. As these inputs are not based on observable market data, the liability represents a Level 3 measurement within the fair value hierarchy.
There were no transfers of financial instruments between Level 1, Level 2, and Level 3 during the periods presented.
The fair values of the Company’s Level 1 instruments were derived from quoted market prices and active markets for these specific instruments.
The valuation techniques used to measure the fair values of Level 2 instruments were derived from non-binding market consensus prices that were corroborated with observable market data, quoted market prices for similar instruments, or pricing models.
The Company has $575.0 million and $1.15 billion in aggregate principal amount of its 0% convertible senior notes due in 2027 (2027 Notes) and in 2025 (2025 Notes, together with the 2027 Notes, the Notes),
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respectively, outstanding as of September 30, 2023. The Company carries the Notes at par value, less the unamortized issuance costs in the accompanying condensed consolidated balance sheets. The estimated fair value of the 2027 Notes and 2025 Notes, which is presented for disclosure purposes only, was approximately $467.0 million and $1.16 billion, respectively, as of September 30, 2023. The fair value was based on a market approach, which represents a Level 2 valuation estimate. The market approach was determined based on the actual bids and offers of the Notes in an over-the-counter market as of the last day of trading prior to the end of the period.
Our financial instruments not measured and recorded at fair value, includes cash, restricted cash, acquired cards receivables, interest receivable, incentive receivables and borrowings from revolving credit facility, are carried at amortized cost, which approximates their fair value. If these financial instruments were measured at fair value in the financial statements, cash would be classified as Level 1; restricted cash, interest receivables, incentive receivables and borrowings from revolving credit facility would be classified as Level 2 and the acquired cards receivables would be classified as Level 3 in the fair value hierarchy.
NOTE 4 – SHORT-TERM INVESTMENTS
Short-term investments consisted of the following as of the dates presented (in thousands):
September 30, 2023
Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair value
Corporate bonds$454,350 $75 $(2,008)$452,417 
U.S. treasury securities484,895 17 (1,083)483,829 
Asset-backed securities63,323 17 (120)63,220 
Certificates of deposit65,904   65,904 
U.S. agency securities54,283 6 (203)54,086 
Total$1,122,755 $115 $(3,414)$1,119,456 
June 30, 2023
Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair value
Corporate bonds$481,658 $207 $(2,382)$479,483 
U.S. treasury securities409,586 42 (1,260)408,368 
U.S. agency securities58,166  (199)57,967 
Asset-backed securities51,321 8 (136)51,193 
Certificates of deposit46,099   46,099 
Total$1,046,830 $257 $(3,977)$1,043,110 
The amortized cost and fair value amounts included accrued interest receivables of $4.6 million and $4.3 million as of September 30, 2023 and June 30, 2023, respectively.
As of September 30, 2023, the fair value of the Company’s short-term investments that mature within one year and thereafter was $867.2 million and $252.3 million, respectively, or 77% and 23%, respectively, of the Company’s total short-term investments. As of June 30, 2023, the fair value of the Company’s short-term investments that mature within one year and thereafter was $758.1 million and $285.0 million, respectively, or 73% and 27%, respectively, of the Company’s total short-term investments.
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As of September 30, 2023, approximately 200 out of approximately 354 investment positions were in an unrealized loss position. The following table presents gross unrealized losses and fair values for those investments that were in an unrealized loss position as of the dates presented (in thousands):
September 30, 2023
Fair valueUnrealized
losses
Corporate bonds$292,968 $(2,008)
U.S. treasury securities298,908 (1,083)
Asset-backed securities47,466 (120)
U.S. agency securities49,275 (203)
Total$688,617 $(3,414)
June 30, 2023
Fair valueUnrealized
losses
Corporate bonds$296,562 $(2,382)
U.S. treasury securities213,726 (1,260)
Asset-backed securities38,426 (136)
U.S. agency securities57,967 (199)
Total$606,681 $(3,977)
The Company's investments balance with unrealized losses that had been in a continuous unrealized loss position for less than 12 months was $585.1 million and $506.5 million as of September 30, 2023 and June 30, 2023, respectively. Investments balance with unrealized losses that had been in a continuous unrealized loss position for more than 12 months was $103.5 million and $100.2 million as of September 30, 2023 and June 30, 2023, respectively. Unrealized losses have not been recognized into income as we neither intend to sell, nor anticipate that it is more likely than not that we will be required to sell, the securities before recovery of their amortized cost basis. The decline in fair value is due primarily to changes in market interest rates, rather than credit losses. There have been no significant realized gains or losses on the short-term investments during the three months ended September 30, 2023 and 2022.
NOTE 5 – FUNDS HELD FOR CUSTOMERS
Funds held for customers consisted of the following as of the dates presented (in thousands):
September 30,
2023
June 30,
2023
Restricted cash$1,701,916 $1,793,088 
Restricted cash equivalents1,133,687 713,469 
Funds receivable11,611 12,822 
Corporate bonds199,128 433,920 
Certificates of deposit93,317 233,291 
Asset-backed securities49,087 70,661 
U.S. agency securities27,484 27,458 
U.S. treasury securities54,560 81,074 
Total funds held for customers3,270,790 3,365,783 
Less - income earned by the Company included in other current assets
(7,262)(9,874)
Total funds held for customers, net of income earned by the Company$3,263,528 $3,355,909 
Income earned by the Company that is included in other current assets represents interest income, accretion of discount (offset by amortization of premium), and net unrealized gains on customer funds that were
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invested in money market funds and short-term marketable debt securities. Earnings from these investments are contractually earned by the Company and are expected to be transferred into the Company’s corporate deposit account upon sale or settlement of the associated investment, and are not considered funds held for customers.
Below is a summary of the fair value of funds held for customers that were invested in short-term marketable debt securities as of the dates presented (in thousands):
September 30, 2023
Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair value
Corporate bonds$199,138 $5 $(15)$199,128 
Certificates of deposit93,316 1  93,317 
U.S. agency securities27,502 1 (19)27,484 
Asset-backed securities49,259  (172)49,087 
U.S. treasury securities54,699  (139)54,560 
Total$423,914 $7 $(345)$423,576 
June 30, 2023
Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair value
Corporate bonds$433,936 $18 $(34)$433,920 
Certificates of deposit233,290 1  233,291 
Asset-backed securities70,993  (332)70,661 
U.S. agency securities27,484 5 (31)27,458 
U.S. treasury securities81,309 1 (236)81,074 
Total$847,012 $25 $(633)$846,404 
The amortized cost and fair value amounts include accrued interest receivable of $3.7 million and $6.9 million and as of September 30, 2023 and June 30, 2023, respectively.
As of September 30, 2023, approximately 90%, or $382.4 million, of the total funds held for customers invested in marketable debt securities mature within one year and approximately 10% or $41.1 million mature thereafter. As of June 30, 2023, 93%, or $785.3 million, of the funds held for customers invested in short-term marketable debt securities mature within one year and approximately 7%, or $61.1 million, mature thereafter.
As of September 30, 2023, approximately 30 out of approximately 120 investment positions were in an unrealized loss position. The following tables present the gross unrealized losses and fair values for those investments that were in an unrealized loss position as of the dates presented (in thousands):
September 30, 2023
Fair valueUnrealized
losses
Corporate bonds$9,522 $(15)
U.S. agency securities22,458 (19)
Asset-backed securities49,087 (172)
U.S. treasury securities54,560 (139)
Total$135,627 $(345)
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June 30, 2023
Fair valueUnrealized
losses
Corporate bonds$34,530 $(34)
Asset-backed securities70,661 (332)
U.S. agency securities22,494 (31)
U.S. treasury securities74,888 (236)
Total$202,573 $(633)
Investments with unrealized losses that have been in a continuous unrealized loss position for less than 12 months was $122.1 million and $191.0 million as of September 30, 2023 and June 30, 2023, respectively. Investments balance with unrealized losses that had been in a continuous unrealized loss position for more than 12 months was $13.5 million and $11.5 million as of September 30, 2023 and June 30, 2023, respectively. Unrealized losses have not been recognized into income as we neither intend to sell, nor anticipate that it is more likely than not that we will be required to sell, the securities before recovery of their amortized cost basis. The decline in fair value is due primarily to changes in market interest rates, rather than credit losses. There have been no significant realized gains or losses on funds held for customers that were invested in short-term marketable debt securities during the three months ended September 30, 2023 and 2022.
NOTE 6 – ACQUIRED CARD RECEIVABLES
Acquired Card Receivables
Acquired card receivables consisted of the following as of the dates presented (in thousands):
September 30,
2023
June 30,
2023
Gross amount of acquired card receivables$571,340 $474,148 
Less: allowance for credit losses(18,513)(15,498)
Total$552,827 $458,650 
As of September 30, 2023, approximately $218.1 million of the acquired card receivable balance served as collateral for the Company’s borrowings from the Revolving Credit Facility (see Note 7).
The Company incurred losses related to card transactions disputed by spending businesses. The amounts were not material during the three months ended September 30, 2023 and 2022.
The acquired card receivable balances above do not include purchases of card receivables from the Company's card issuing partner banks (Issuing Banks) that have not cleared at the end of the reporting period. Purchases of card receivables that have not cleared as of September 30, 2023 totaled $36.4 million. The Company recognized an immaterial amount of expected credit losses on the purchased card receivables that have not cleared yet as of each of September 30, 2023 and 2022.
Credit Quality Information
The Company regularly reviews collection experience, delinquencies, and net charge-offs in determining allowance for credit losses related to acquired card receivables. Historical collections rates have shown that days past due is the primary indicator of the likelihood of loss. The Company uses the delinquency trends or past due status of the acquired card receivables as the credit quality indicator. Acquired card receivables are considered past due if full payment is not received on the bill date or within a grace period,
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which is generally limited to five days. Below is a summary of the acquired card receivables by class (i.e., past due status) as of the dates presented (in thousands):
September 30,
2023
June 30,
2023
Current and less than 30 days past due$559,169 $463,704 
30 ~ 59 days past due5,196 2,507 
60 ~ 89 days past due3,277 4,544 
90 ~ 119 days past due2,883 3,196 
Over 119 days past due815 197 
Total$571,340 $474,148 
The outstanding balance of acquired card receivables that were (i) 90 days or more past due that continued to accrue fees and had an allowance for outstanding balance and fees and (ii) classified as nonperforming was not material as of each of September 30, 2023 and June 30, 2023.
As part of its collection efforts, the Company may modify card receivables terms with spending businesses that defaulted on payments; such modifications may include principal forgiveness, late fee forgiveness, and/or an extension of payment terms. Total card receivables subject to such modifications were not material during the three months ended September 30, 2023 and 2022. Outstanding and modified card receivables as of September 30, 2023 subject to modification were not material. Upon the Company's determination that a modified card receivable (or a portion of the card receivable) has subsequently been deemed uncollectible, the card receivable balance and allowance for credit losses are adjusted for the uncollectible portion.
Allowance for Credit Losses
Below is a summary of the changes in allowance for credit losses presented (in thousands):
Three Months Ended
September 30,
20232022
Balance, beginning$15,498 $5,414 
Initial allowance for credit losses on purchased card receivables with credit deterioration
 10 
Provision for expected credit losses11,975 6,583 
Charge-off amounts(9,791)(5,033)
Recoveries collected831 567 
Balance, end of period$18,513 $7,541 
Card receivables acquired from the Issuing Banks and held for investment during the three months ended September 30, 2023 and 2022 were $4.1 billion and $2.7 billion, respectively. The allowance for credit losses related to acquired card receivables increased during the three months ended September 30, 2023 due to portfolio growth.
Gross charge-off amounts for the three months ended September 30, 2023 consisted of $8.9 million that originated in the year ended June 30, 2023 and $0.9 million originated in the three months ended September 30, 2023.
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NOTE 7 – DEBT AND BORROWINGS
Debt and borrowings consisted of the following (in thousands):
September 30,
2023
June 30,
2023
Current liabilities:
Borrowings from revolving credit facility (including unamortized debt premium of $0.1 million)(1)
$135,033 $135,046 
Non-current liabilities:
Convertible senior notes:
2027 Notes, principal575,000 575,000 
2025 Notes, principal1,150,000 1,150,000 
Less: unamortized debt issuance costs(18,506)(20,218)
Convertible senior notes, net1,706,494 1,704,782 
Total$1,841,527 $1,839,828 
(1) Unamortized debt issuance costs balance for the Revolving Credit Facility was $0.2 million as of each September 30, 2023 and June 30, 2023, and is included in "Other assets" on the condensed consolidated balance sheet.
2027 Notes
On September 24, 2021, the Company issued $575.0 million in aggregate principal amount of its 0% convertible senior notes due on April 1, 2027, in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the 2027 Notes). The 2027 Notes are subject to the terms and conditions of the indenture governing the 2027 Notes between the Company and Wells Fargo Bank, N.A., as trustee (2027 Notes Trustee). The net proceeds from the issuance of the 2027 Notes were $560.1 million, after deducting debt discount and debt issuance costs totaling $14.9 million.
The 2027 Notes are senior, unsecured obligations of the Company, and will not accrue interest unless the Company determines to pay special interest as a remedy for failure to timely file any reports required to be filed with the SEC, certain trading restrictions, or failure to deliver reports to the 2027 Notes Trustee. The 2027 Notes rank senior in right of payment to any of the Company’s indebtedness that is expressly subordinated to the 2027 Notes and rank equal in right of payment to any of the Company’s unsecured indebtedness that is not so subordinated, including the 2025 Notes. In addition, the 2027 Notes are subordinated to any of the Company’s secured indebtedness and to all indebtedness and other liabilities of the Company’s subsidiaries.
The 2027 Notes have an initial conversion rate of 2.4108 shares of common stock per $1,000 principal amount, which is equivalent to an initial conversion price of approximately $414.80 per share of the Company’s common stock and approximately 1.4 million shares issuable upon conversion. The conversion rate is subject to customary adjustments for certain events as described below. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of its common stock, or a combination of cash and shares of its common stock, at its election. The Company’s current intent is to settle conversions of the 2027 Notes through a combination settlement, which involves a repayment of the principal portion in cash with any excess of the conversion value over the principal amount settled in shares of common stock.
The Company may redeem for cash, all or any portion of the 2027 Notes, at the Company’s option, on or after October 5, 2024 if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on and including the trading day (Conversion Condition) preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus any accrued and unpaid special interest to, but excluding, the redemption date. No sinking fund is provided for the 2027 Notes.
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The holders of the 2027 Notes may convert their notes at their option at any time prior to the close of business on the business day immediately preceding January 1, 2027 in multiples of $1,000 principal amount, under the following circumstances:
during any calendar quarter commencing after the calendar quarter ending on December 31, 2021, and only during such calendar quarter, if the last reported sale price of the Company's common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on and including the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;
during the five business day periods after any five consecutive trading day period in which the trading price per $1,000 principal amount of the 2027 Notes for each trading day of that period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day;
if the Company calls such notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or
upon the occurrence of specified corporate events.
The conversion rate is subject to adjustment upon the occurrence of certain events or if the Company’s board of directors determines it is in the best interest of the Company. Additionally, holders of the 2027 Notes that convert their notes in connection with a make-whole fundamental change or during the redemption period, may be eligible to receive a make-whole premium through an increase of the conversion rate based on the estimated fair value of the 2027 Notes for the given date and stock price. The make-whole premium is designed to compensate the holder for lost “time-value” of the conversion option. The maximum number of additional shares that may be issued under the make-whole premium is 1.2656 per $1,000 principal (the lowest price of $272.00 in the make whole).
The indenture governing the 2027 Notes contains customary events of default with respect to the 2027 Notes and provides that upon certain events of default occurring and continuing, the holders of the 2027 Notes will have the right, at their option, to require the Company to repurchase for cash all or a portion of their outstanding notes, at a price equal to 100% of the principal amount of the 2027 Notes to be repurchased, plus any accrued and unpaid interest.
2025 Notes
On November 30, 2020, the Company issued $1.15 billion in aggregate principal amount of its 0% convertible senior notes due on December 1, 2025, in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the 2025 Notes, and together with the 2027 Notes, the Notes). The 2025 Notes are subject to the terms and conditions of the indenture governing the 2025 Notes between the Company and Wells Fargo Bank, N.A., as trustee (2025 Notes Trustee). The net proceeds from the issuance of the 2025 Notes were $1.13 billion, after deducting debt discount and debt issuance costs totaling $20.6 million.
The 2025 Notes are senior, unsecured obligations of the Company, and will not accrue interest unless the Company determines to pay special interest as a remedy for failure to timely file any reports required to be filed with the SEC, certain trading restrictions, or failure to deliver reports to the 2025 Notes Trustee. The 2025 Notes rank senior in right of payment to any of the Company’s indebtedness that is expressly subordinated to the 2025 Notes and rank equal in right of payment to any of the Company’s unsecured indebtedness that is not so subordinated, including the 2027 Notes. In addition, the 2025 Notes are subordinated to any of the Company’s secured indebtedness and to all indebtedness and other liabilities of the Company’s subsidiaries.
The 2025 Notes have an initial conversion rate of 6.2159 shares of common stock per $1,000 principal amount, which is equivalent to an initial conversion price of approximately $160.88 per share of the Company’s common stock and approximately 7.1 million shares issuable upon conversion. The conversion rate is subject to customary adjustments for certain events as described below. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of its common stock, or a combination of cash and shares of its common stock, at its election. The Company’s current intent is to settle conversions of the 2025 Notes through
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a combination settlement, which involves a repayment of the principal portion in cash with any excess of the conversion value over the principal amount settled in shares of common stock.
The Company may redeem for cash, all or any portion of the 2025 Notes, at the Company’s option, on or after December 5, 2023 if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on and including the trading day (Conversion Condition) preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus any accrued and unpaid special interest to, but excluding, the redemption date. No sinking fund is provided for the 2025 Notes.
The holders of the 2025 Notes may convert their notes at their option at any time prior to the close of business on the business day immediately preceding September 1, 2025 in multiples of $1,000 principal amount, under the following circumstances:
during any calendar quarter commencing after the calendar quarter ending on March 31, 2021, and only during such calendar quarter, if the last reported sale price of the Company's common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on and including the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;
during the five business day periods after any five consecutive trading day period in which the trading price per $1,000 principal amount of the 2025 Notes for each trading day of that period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day;
if the Company calls such notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or
upon the occurrence of specified corporate events.
The conversion rate is subject to adjustment upon the occurrence of certain events or if the Company’s board of directors determines it is in the best interest of the Company. Additionally, holders of the 2025 Notes that convert their notes in connection with a make-whole fundamental change or during the redemption period, may be eligible to receive a make-whole premium through an increase of the conversion rate based on the estimated fair value of the 2025 Notes for the given date and stock price. The make-whole premium is designed to compensate the holder for lost “time-value” of the conversion option. The maximum number of additional shares that may be issued under the make-whole premium is 2.9525 per $1,000 principal (the lowest price of $109.07 in the make whole).
The indenture governing the 2025 Notes contains customary events of default with respect to the 2025 Notes and provides that upon certain events of default occurring and continuing, the holders of the 2025 Notes will have the right, at their option, to require the Company to repurchase for cash all or a portion of their outstanding notes, at a price equal to 100% of the principal amount of the 2025 Notes to be repurchased, plus any accrued and unpaid interest.
Additional Information About the Notes
As of September 30, 2023 and June 30, 2023, the Notes consisted of the following (in thousands):
September 30, 2023June 30, 2023
2027 Notes 2025 Notes 2027 Notes2025 Notes
Principal$575,000 $1,150,000 $575,000 $1,150,000 
Less: unamortized issuance costs(9,514)(8,992)(10,188)(10,030)
Net carrying amount$565,486 $1,141,008 $564,812 $1,139,970 
The debt issuance costs of the Notes are being amortized using the effective interest method. During the three months ended September 30, 2023 and 2022, the Company recognized $1.7 million and $1.7 million, respectively, of the debt issuance costs of the Notes. During the three months ended September 30, 2023 and
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2022 the effective interest rates of the 2027 Notes and 2025 Notes was 0.48% and 0.36%, respectively. As of September 30, 2023, the weighted-average remaining life of the Notes was 2.6 years.
The "if-converted" value of the Notes did not exceed the principal amount of $1.7 billion as of each of September 30, 2023 and June 30, 2023.
Capped Call Transactions
In conjunction with the issuance of each of the 2025 Notes and the 2027 Notes, the Company entered into capped call transactions (collectively, the Capped Calls) with certain of the initial purchasers of the Notes and/or their respective affiliates or other financial institutions at a total cost of $125.8 million. The Capped Calls are separate transactions and are not part of the terms of the Notes. The total amount paid for the Capped Calls was recorded as a reduction of additional paid-in capital. The Company used the proceeds from the Notes to pay for the cost of the Capped Call premium. The cost of the Capped Calls is not expected to be tax-deductible as the Company did not elect to integrate the Capped Calls into the Notes for tax purposes.
The Capped Calls associated with the 2027 Notes and 2025 Notes have an initial strike price of approximately $414.80 per share and $160.88 per share, respectively, subject to certain adjustments, which corresponds to the respective initial conversion price of the 2027 Notes and 2025 Notes, and have an initial cap price of $544.00 per share and $218.14 per share, respectively, subject to certain adjustments; provided that such cap price shall not be reduced to an amount less than their respective strike price. The Capped Calls associated with the Notes cover, subject to anti-dilution adjustments, a total of approximately 8.5 million shares of the Company’s common stock. The Capped Calls are expected to generally reduce the potential dilution of the Company’s common stock upon any conversion of the Notes and/or offset any cash payments that the Company is required to make in excess of the principal amount of such converted notes, as the case may be, with such reduction and/or offset subject to a cap.
Revolving Credit Facility
The Company's Revolving Credit and Security Agreement was executed in March 2021 (the 2021 Revolving Credit Agreement), and was amended in August 2022 (as amended, the Revolving Credit Facility) to finance the acquisition of card receivables. The Revolving Credit Facility matures in June 2024 or earlier pursuant to the 2021 Revolving Credit Agreement, and has a total commitment of $225.0 million. The required minimum utilization was $135.0 million, or 60% of the total commitment, and the Company had borrowed $135.0 million against the Revolving Credit Facility as of September 30, 2023. The Revolving Credit Facility requires the Company to pay unused fees up to 0.50% per annum. Borrowings are secured by acquired card receivables. Prior to March 3, 2023, borrowings of up to $75.0 million bore interest of 2.75% per annum and borrowings greater than $75.0 million bore interest of 2.65% per annum, plus SOFR (subject to a floor rate of 0.25% and benchmark adjustment rate of 0.28%). Beginning March 3, 2023, borrowings bear interest of 2.65% per annum, plus SOFR (subject to a floor rate of 0.25% and benchmark adjustment rate of 0.28%). The effective interest rate was 8.34% per annum as of September 30, 2023. The Company is required to comply with certain restricted covenants, including liquidity requirements. As of September 30, 2023, the Company was in compliance with those covenants.
The debt issuance costs and debt premium associated with the Revolving Credit Facility is amortized using the effective interest method over the remaining term of the 2021 Revolving Credit Agreement, with a weighted-average remaining amortization period of approximately 0.6 years. The amortization of the debt issuance costs and debt premium is recorded in other income, net in the accompanying condensed consolidated statement of operations and during each of the three months ended September 30, 2023 and 2022 was not material.
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NOTE 8 – STOCKHOLDERS’ EQUITY
Stock Based Compensation
Stock-based compensation by award type (in thousands):
Three Months Ended
September 30,
20232022
RSUs$54,864 $55,670 
Stock options3,707 11,793 
Performance-based awards5,063 3,291 
Employee stock purchase plan2,766 2,821 
Market-based RSUs1,070 1,254 
Total stock-based compensation$67,470 $74,828 
Stock-based compensation was included in the following line items in the accompanying condensed consolidated statements of operations and condensed consolidated balance sheets (in thousands):
Three Months Ended
September 30,
20232022
Revenue - subscription and transaction fees$370 $ 
Cost of revenue2,547 2,001 
Research and development27,365 20,851 
Sales and marketing13,885 29,258 
General and administrative20,980 20,510 
Total amount charged to loss from operations65,147 72,620 
Property and equipment (capitalized internal-use software)2,323 2,209 
Total stock-based compensation$67,470 $74,828 
Unamortized stock-based compensation by award type:
Unrecognized compensation
(in thousands)
Weighted-average recognition period (in years)
RSUs$622,831 3.2
Performance-based awards24,240 3.3
Market-based RSUs11,114 1.4
Stock options11,069 1.2
Employee stock purchase plan3,446 0.6
Total unamortized stock-based compensation
$672,700 
Share Repurchase Program
In January 2023, the Board of Directors authorized the repurchase of up to $300 million of the Company's outstanding shares of common stock (the Share Repurchase Program). The Company may repurchase shares of common stock from time to time through open market purchases, in privately negotiated transactions, or by other means, including through the use of trading plans, intended to qualify under Rule 10b5-1 under Securities Exchange Act of 1934, as amended. The timing and total amount of share repurchases will depend upon business, economic and market conditions, corporate and regulatory requirements, prevailing
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stock prices, and other considerations. The Share Repurchase Program has a term of 12 months, may be suspended or discontinued at any time, and does not obligate the Company to acquire any amount of common stock.
During the three months ended September 30, 2023, the Company repurchased and subsequently retired 159,979 shares for $16.1 million under the Share Repurchase Program. The total price of the shares repurchased and related transaction costs are reflected as a reduction of common stock and and increase to accumulated deficit on the Company's condensed consolidated balance sheets. As of September 30, 2023, $196.3 million remained available for future share repurchases under the Share Repurchase Program.
NOTE 9 – OTHER INCOME, NET
Other income, net consisted of the following for the periods presented (in thousands):
Three Months Ended
September 30,
20232022
Interest expense$(4,738)$(2,849)
Lower of cost or market adjustment on card receivables sold and held for sale (1,545)
Interest income34,353 11,464 
Other(307)(1,123)
Total other income, net$29,308 $5,947 
NOTE 10 – INCOME TAXES
The Company’s provision for income taxes during the interim periods is determined using an estimate of the Company’s annual effective tax rate, which is adjusted for certain discrete tax items during the interim period. For the three months ended September 30, 2023, the Company's income tax provision was approximately $0.5 million.
The Company’s effective tax rate differs from the federal statutory rate primarily due to its federal, state and foreign valuation allowance positions. The income tax provision during the three months ended September 30, 2023 consisted primarily of an estimated cash tax liability associated with the capitalization of R&D costs for federal and certain state tax purposes for the year ending June 30, 2024, partially offset by a reduction to the net deferred tax liability as a result of the Company's current year losses.
The Company has subsidiaries in the U.S, Canada, and Australia and may be subject to income tax audits in those jurisdictions. The Company records liabilities related to uncertain tax positions, which provide adequate reserves for income tax uncertainties in all open tax years. Due to the Company’s history of tax losses, all years remain open to tax audit. The Company’s management evaluates the realizability of the Company’s deferred tax assets based on all available evidence, both positive and negative. The realization of net deferred tax assets is dependent on the Company’s ability to generate sufficient future taxable income during the foreseeable future.

NOTE 11 – COMMITMENTS AND CONTINGENCIES
During the three months ended September 30, 2023 there have been no material changes to the Company's contractual obligations, commitments or litigation from those disclosed in Note 15 to the financial statements in the Company's Annual Report on Form 10-K for the year ended June 30, 2023.
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NOTE 12 – NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS
The following table presents the calculation of basic and diluted net loss per share attributable to common stockholders (in thousands, except per share amounts):
Three Months Ended
September 30,
20232022
Numerator:
Net loss attributable to common stockholders$(27,861)$(81,640)
Denominator:
Weighted-average shares used to compute net loss per share attributable to common stockholders
Basic and diluted106,817 105,086 
Net loss per share attributable to common stockholders:
Basic and diluted$(0.26)$(0.78)
Potentially dilutive securities, which were excluded from the diluted net loss per share calculations because they would have been antidilutive were as follows as of the dates presented (in thousands):
September 30,
20232022
RSUs5,619 4,904 
Stock options2,363 3,498 
Performance-based awards228  
Employee stock purchase plan182  
Market-based RSUs115  
Total8,507 8,402 
In addition, approximately 8.5 million shares underlying the conversion option of the Notes are not considered in the calculation of diluted net loss per share as they would be anti-dilutive. Such number of shares issuable under the Notes is subject to adjustment up to approximately 12.7 million shares if certain corporate events occur prior to the maturity date of the Notes or if the Company issues a notice of redemption. The Company’s current intent is to settle conversions of the Notes through a combination settlement, which involves a repayment of the principal portion in cash with any excess of the conversion value over the principal amount settled in shares of common stock. The Company uses the "as-if converted" method for calculating any potential dilutive effect of the conversion option on diluted earnings per share, if applicable. As of September 30, 2023, the Conversion Condition was not triggered for either the 2025 Notes or the 2027 Notes.
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ITEM 2. 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 condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q. Some of the information contained in this Quarterly Report on Form 10-Q includes forward-looking statements that involve risks and uncertainties. You should read the sections titled “Special Note Regarding Forward-Looking Statements” and “Risk Factors” for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Our fiscal year end is June 30, and our fiscal quarters end on September 30, December 31, and March 31.
Overview
We are a leader in financial automation software for small and midsize businesses (SMBs). As a champion of SMBs, we are automating the future of finance so businesses can thrive. Hundreds of thousands of businesses rely on BILL to more efficiently control their payables, receivables, and spend and expense management. Our network connects millions of members so they can pay or get paid faster. Headquartered in San Jose, California, we are a trusted partner of leading U.S. financial institutions, accounting firms, and accounting software providers.
Our purpose-built, artificial intelligence (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 September 30, 2023, our partners included some of the most trusted brands in the financial services business, including more than 85 of the top 100 accounting firms and seven of the top ten largest financial institutions for SMBs in the 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 $305.0 million and $229.9 million during the three months ended September 30, 2023 and 2022, respectively, an increase of $75.1 million. We generated net losses of $27.9 million and $81.6 million during the three months ended September 30, 2023 and 2022, respectively.
Macroeconomic and Other Factors
Recent interest rate increases and persistent 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 (formerly Divvy) 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, the rate of growth in the number of businesses using our solutions may be impacted by the current macroeconomic environment. In addition, increased interest rates have led to an increase in interest on funds held for customers. Certain of these business impacts have accelerated in recent periods and we anticipate that they will persist in the near-term. 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 March 2023, instability in the U.S. banking system resulted in the closure of several U.S. banks, including Silicon Valley Bank (SVB), where we held significant company and customer funds. However, all of our and our customers' funds were preserved, and were able to re-route pending transactions involving SVB through other banking partners. Going forward, we will continue to assess the potential advantages in diversifying our banking relationships, including with both multinational financial institutions and, as appropriate, U.S. national and regional banks. Nonetheless, continued actual or perceived instability in the U.S. banking system that adversely effects any of the financial institutions with which we do business may adversely impact our ability to access our corporate cash and cash equivalents and cash held in trust on behalf of customers or process customer payments.
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, the conflicts in Ukraine or Israel, or the ongoing impacts of the COVID-19 pandemic will have on our future results of operations, liquidity, and financial condition due to numerous uncertainties, including 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, 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 Cards (which, collectively, we previously referred to as our Divvy 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
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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 by cash deposits. When we purchase the participation interests, the purchase price is equal to the outstanding principal balance of the receivable.
In order to purchase the participation rights in the receivables, we maintain a variety of funding arrangements, including warehouse facilities and, from time-to-time, other purchase arrangements with a diverse set of funding sources. We typically fund some portion of these participation interest purchases by borrowing under our credit facilities, although we may also fund purchases using corporate cash.
Key Business Metrics
We regularly review several metrics, including the key business metrics presented in the table below, to measure our performance, identify trends affecting our business, prepare financial projections, and make strategic decisions. We periodically review and revise these metrics to reflect changes in our business. We present our key business metrics on a consolidated basis, which we believe better reflects the performance of our consolidated business overall. Our key business metrics are defined following the table below and track our BILL standalone, 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. The calculation of the key business metrics and other measures discussed below may differ from other similarly-titled metrics used by other companies, securities analysts, or investors.
As of September 30,
20232022% Growth
Businesses using our solutions (1)
471,200419,80012%
Three Months Ended
September 30,
20232022% Growth
Total Payment Volume (amounts in billions) (2)
$70.2 $64.9 8%
Three Months Ended
September 30,
20232022% Growth
Transactions processed (in millions) (3)
24.8 19.6 26%
(1)As of September 30, 2023, the total number of BILL standalone customers was approximately 209,300; the total number of spending businesses that used our BILL Spend and Expense solution was approximately 30,700; and the total number of Invoice2go subscribers was approximately 231,200.
(2)During the three months ended September 30, 2023, the total payment volume (TPV) transacted by BILL standalone customers was approximately $65.8 billion; the total card payment volume transacted by spending businesses that used BILL Divvy Corporate Cards was approximately $4.0 billion; and the total payment volume transacted by Invoice2go subscribers was approximately $288 million.
(3)During the three months ended September 30, 2023, the total number of transactions executed by BILL standalone customers was approximately 11.6 million; the total number of transactions executed by spending businesses that used BILL Divvy Corporate Cards was approximately 12.8 million; and the total number of transactions executed by Invoice2go subscribers was approximately 0.3 million.
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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 management products during the period, and (C) Invoice2go subscribers during the period. We consider the businesses using our solutions metric to better represent the performance and scale of our business as it currently exists. Businesses using more than one of our solutions are included separately in the total for each solution utilized; as of June 30, 2023, this included approximately 7,200 businesses. Businesses using our solutions during a trial period are not counted as new businesses using our solutions during that period. If an organization has multiple entities billed separately for the use of our solutions, each entity is counted as a business using our solutions. The number of businesses using our solutions in the table above represents the total number of businesses using our solutions at the end of each fiscal quarter.
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, comprised of 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 the three months ended September 30, 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, and cross-border payments.
Components of Results of Operations
Revenue
We generate revenue primarily from subscription and transaction fees.
Subscription fees are fixed monthly or annually and charged to customers for the use of our platform to process transactions. Subscription fees are generally charged either on a per user or per customer account per period basis, normally monthly or annually. Transaction fees are fees collected for each transaction processed, on either a fixed or variable fee basis. Transaction fees primarily include processing of payments in the form of checks, ACH, card payments, real-time payments, and cross-border payments, and the creation of invoices. Transaction fees also include interchange fees paid by suppliers accepting card payments.
Our contracts with SMB and accounting firm customers provide them with access to the functionality of our cloud-based payments platform to process transactions. These contracts are either monthly contracts paid in arrears or upfront, or annual arrangements paid up front. We charge our SMB and accounting firm customers subscription fees to access our platform either based on the number of users or per customer account and the level of service. We generally also charge these customers transaction fees based on transaction volume and the category of transaction. The contractual price for subscription and transaction services is based on either negotiated fees or the rates published on our website. Revenue recognized excludes amounts collected on behalf of third parties, such as sales taxes collected and remitted to governmental authorities.
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
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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 our 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 a