S-1

S-1 1 d710902ds1.htm S-1 S-1

As filed with the Securities and Exchange Commission on November 15, 2019.

Registration No. 333-

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM S-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

BILL.COM HOLDINGS, INC.

(Exact name of registrant as specified in its charter)


Delaware	7372	83-2661725
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)

1810 Embarcadero Road

Palo Alto, California 94303

(650) 621-7700

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

René Lacerte

Chief Executive Officer and Founder

Bill.com Holdings, Inc.

1810 Embarcadero Road

Palo Alto, California 94303

(650) 621-7700

(Name, address, including zip code, and telephone number, including area code, of agent for service)

James D. Evans

Mark C. Stevens

Dawn H. Belt

Nicolas H. R. Dumont

Fenwick & West LLP

801 California Street

Mountain View, California 94041

(650) 988-8500

Raj Aji

General Counsel,

Chief Compliance Officer and Secretary

Bill.com Holdings, Inc.

1810 Embarcadero Road

Palo Alto, California 94303

(650) 621-7700

Raj S. Judge

Andrew D. Hoffman

Wilson Sonsini Goodrich & Rosati, P.C.

650 Page Mill Road

Palo Alto, California 94304

(650) 493-9300

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended, or Securities Act, check the following box. ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

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 Securities Exchange Act of 1934, as amended.


Large accelerated filer ☐				Accelerated filer ☐

Non-accelerated filer ☒				Smaller reporting company ☐

				Emerging growth company ☒

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 7(a)(2)(B) of the Securities Act. ☐

CALCULATION OF REGISTRATION FEE



Title of each class of securities to be registered	Proposed maximum aggregate offering price(1)(2)	Amount of registration fee
Common stock, $0.00001 par value per share	$100,000,000	$12,980

(1)	Estimated solely for the purpose of calculating the amount of the registration fee in accordance with Rule 457(o) of the Securities Act.

(2)	Includes the aggregate offering price of any additional shares that the underwriters have the option to purchase.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion. Dated November 15, 2019

LOGO

Common Stock

This is the initial public offering of our common stock.

Prior to this offering, there has been no public market for our shares of common stock. It is currently estimated that the initial public offering price per share will be between $ and $ per share.

We have applied to list our common stock on the New York Stock Exchange under the symbol “BILL.”

We are an “emerging growth company” as that term is used in the Jumpstart Our Business Startups Act of 2012 and, as such, may elect to comply with certain reduced public company reporting requirements in future reports after the completion of this offering.

See the section titled “Risk Factors” beginning on page 12 to read about factors you should consider before buying shares of our common stock.

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.


	Per Share	Total
Initial public offering price	$	$
Underwriting discount⁽¹⁾	$	$
Proceeds, before expenses	$	$

(1)	See the section titled “Underwriting” beginning on page 13 of this prospectus for additional information regarding total underwriting compensation.

To the extent that the underwriters sell more than shares of our common stock, the underwriters have an option to purchase up to an additional shares from us at the initial public offering price, less the underwriting discount.

The underwriters expect to deliver the shares against payment in New York, New York, on or about , 2019.


Goldman Sachs & Co. LLC		BofA Securities		Jefferies		KeyBanc Capital Markets


Canaccord Genuity		Needham & Company		William Blair

Prospectus dated , 2019

LOGO

“Bill.com gave me my life back!” Jeremy Pyles, Founder and CEO of Niche, a modern lighting company - PDF to EO/HTML I- File BlU’d - JPG with white searchable text “I like Bill.com because it’s much, much easier for me to see our cash on hand.” Keeley Tillotson, Founder and CEO of Wild Friends Foods, a clean-food company “Bill.com is like an extra partner in the office... it helps me be more productive.” Mark Lindsay, Managing Director at Lindsay Leasing, a property management company “Bill.com is reliable, dependable, trustworthy, and secure-all the things you want to see in your finance chain.” AndyCiorda, Partner at The Secret Chocolatier, a boutique chocolate business “Bill.com has made a huge difference to our operations... freeing up precious time to focus on more important initiatives.” Diana Westrop, Controller at Atlanta Humane Society “Without Bill.com we would have had to hire at least one more full-time accounts payable person.” Jurie Victor, Finance Manager at Spikeball’’, a sports equipment company “Bill.com saved us from having to outsource our accounts payable. By not handing it over to an outside firm we saved about $150,000 last year.” David Ostrowe. President of O&M Restaurant Group, a Burger King. Taco Bell and Blaze Pizza franchisee “Bill.com is the cornerstone of our business. The success of our clients, and our company, depends on it.” Laura Redmond, Founder of Redmond Accounting

TABLE OF CONTENTS


	Page
PROSPECTUS SUMMARY		1
RISK FACTORS		12
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS		48
INDUSTRY AND MARKET DATA		50
USE OF PROCEEDS		51
DIVIDEND POLICY		52
CAPITALIZATION		53
DILUTION		56
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA		59
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		63
A LETTER FROM BILL.COM CEO AND FOUNDER RENÉ LACERTE		94
BUSINESS		96
MANAGEMENT		122
EXECUTIVE COMPENSATION		130
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS		143
PRINCIPAL STOCKHOLDERS		146
DESCRIPTION OF CAPITAL STOCK		149
SHARES ELIGIBLE FOR FUTURE SALE		156
MATERIAL U.S. FEDERAL TAX CONSEQUENCES TO NON-U.S. HOLDERS OF OUR COMMON STOCK		159
UNDERWRITING		164
LEGAL MATTERS		170
EXPERTS		170
WHERE YOU CAN FIND MORE INFORMATION		170
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS		F-1

Through and including , (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

Neither we nor any of the underwriters have authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. Neither we nor any of the underwriters take responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is accurate only as of its date, regardless of the time of delivery of this prospectus or of any sale of our common stock.

For investors outside the United States: Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of our common stock and the distribution of this prospectus outside the United States.

PROSPECTUS SUMMARY

This summary highlights selected information presented in greater detail elsewhere in this prospectus. This summary does not contain all the information you should consider before investing in our common stock. You should carefully read this prospectus in its entirety before investing in our common stock, including the sections titled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Special Note Regarding Forward-Looking Statements,” and our consolidated financial statements and the accompanying notes included elsewhere in this prospectus. Our fiscal year end is June 30, and our fiscal quarters end on September 30, December 31, March 31, and June 30. Our fiscal years ended June 30, 2017, 2018, and 2019 are referred to herein as fiscal 2017, fiscal 2018, and fiscal 2019, respectively.

Overview

Our mission is to make it simple to connect and do business.

We are champions of small and midsize businesses (SMBs). We are a leading provider of cloud-based software that simplifies, digitizes, and automates complex back-office financial operations for SMBs. By transforming how SMBs manage their cash inflows and outflows, we create efficiencies and free our customers to run their businesses.

Our purpose-built, artificial-intelligence (AI)-enabled financial software platform creates seamless connections between our customers, their suppliers, and their clients. Customers use our platform to generate and process invoices, streamline approvals, send and receive payments, sync with their accounting system, and manage their cash. We have built sophisticated integrations with popular accounting software solutions, banks, and payment processors, enabling our customers to access these mission-critical services through a single connection. As a result, we are central to an SMB’s accounts payable and accounts receivable operations.

We Make Paper-based Manual Transaction Processing Obsolete

We believe we have a significant opportunity to help millions of SMBs improve their financial operations. Most SMBs are still dependent on manual accounts payable and accounts receivable processes: mailing invoices, printing paper checks, waiting for payments, and storing paper in filing cabinets. According to the SMB Technology Adoption Index, in 2016 over 90% of SMBs surveyed still relied on paper checks to make and accept business-to-business payments. Manual processes are time-consuming, inefficient, and costly. A survey of back-office employees by Levvel Research points to process issues, such as long approval cycles and missing information on invoices, as the leading cause of late payments and missed discounts. Customers who adopt our platform benefit from streamlined back-office processes, as evidenced by our customers’ electronically exchanging more than 8,000 messages per day, approving more than 2.4 million bills per month, and storing almost 45 million documents per year, collectively, as of June 30, 2019.

Today, over 81,000 customers trust our platform to manage their financial workflows and process their payments, which totaled over $70 billion for fiscal 2019, and nearly $22 billion for the three months ended September 30, 2019. As of June 30, 2019, we had over 1.8 million network members. We define network members as our customers plus their suppliers and clients with accounts on our platform. Our network members entrust us with their bank account details, enabling them to connect, invoice, pay, and get paid electronically.

customers with insights into their back-office processes and business relationships, which allows our customers to make more informed financial decisions.

We Partner with Many of the Most Trusted Accounting Firms and Financial Institutions in the United States

We efficiently reach SMBs through our proven direct and indirect go-to-market strategies. We acquire customers directly through digital marketing and inside sales, and indirectly through accounting firms and strategic partners. As of September 30, 2019, our partners included some of the most trusted brands in the financial services business, including more than 70 of the top 100 accounting firms and several of the largest financial institutions in the United States, including Bank of America, JPMorgan Chase, and American Express. As we add customers and partners, we expect our network to continue to grow organically.

We have grown and scaled our business operations rapidly in recent periods. Our total revenue was $64.9 million and $108.4 million for fiscal 2018 and 2019, respectively, an increase of 67%. For the three months ended September 30, 2018 and 2019, our total revenue was $22.4 million and $35.2 million, respectively, an increase of 57%. We incurred net losses of $7.2 million and $7.3 million for fiscal 2018 and 2019, respectively. For the three months ended September 30, 2018 and 2019, we incurred net losses of $0.9 million and $5.7 million, respectively.

Industry Trends

Back-Office Financial Workflows Are Essential to All Businesses

The transaction lifecycle—encompassing the processes that enable businesses to pay and get paid—is critical to every business. Businesses begin the transaction lifecycle by creating and mailing invoices, approving bills, and making payments, and end the process by recording and reconciling transactions in an accounting system. The ability to manage this critical set of activities efficiently and effectively is key for any business. Yet, for many businesses, cash flow is managed in a complex, inefficient, and all too often, paper-based manner.

SMBs are Underserved by Current Software Solutions

We believe SMBs, despite comprising a large part of the economy, are underserved by existing financial software solutions. Many software providers attempt to sell solutions designed for consumers or enterprises, which struggle to gain traction in the SMB market. Solutions for consumers are too simple, while enterprise solutions are too complex and expensive. Additionally, these products generally do not integrate well with other systems, requiring SMBs to piece together an expensive patchwork of individual products to meet their needs. We believe we have a greenfield opportunity to provide SMBs with a platform to automate their back-office financial operations.

SMBs Generally Rely upon Antiquated and Inefficient Processes

SMBs generally handle their financial workflows the same way they have for decades. The lack of an end-to-end financial software platform tailored for SMBs results in a back office that is:

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Manual and Cumbersome. Legacy back-office workflows are plagued by manual data entry and inefficiency, resulting in a transaction lifecycle that takes too long and costs too much.

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Inaccurate and Error-Prone. Legacy processes rely upon disparate systems throughout the transaction lifecycle. Multiple entries in different systems introduce the risk of improperly recorded transactions, unreconciled items, or late payments and associated penalty fees.

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Paper-Based and Not Secure. Traditional financial processes are dependent on paper throughout the transaction lifecycle, including mailed invoices, signatures on documents

indicating approval to pay, and the issuance of physical checks. This is not only inefficient and costly but also not secure, leaving SMBs exposed to fraud risk.

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Lacking Visibility and Data. Legacy workflows leave businesses with limited visibility into their current and future cash position as well as their accounts payable and accounts receivable workflows. SMBs lack data insights and tools to track usage, spend, and cash flows.

We believe SMBs deserve and are ready to adopt a modern, efficient, cloud-based offering that meets their needs.

Our Solution

Our cloud-based, intelligent platform was purpose-built as an end-to-end solution that automates the SMB back office and enables our customers to pay their suppliers and collect payments from their clients, in effect acting as a system of control for their accounts payable and accounts receivable activities. As a result, our platform frees our customers from cumbersome legacy financial processes and provides the following key benefits:

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Automated and Efficient. Our AI-enabled platform helps our customers pay their bills efficiently and get paid faster. We provide tools such as our Intelligent Virtual Assistant (IVA) that streamlines the transaction lifecycle by automating data capture and entry, routing bills for approval, and detecting duplicate invoices.

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Unified, Integrated, and Accurate. We provide an end-to-end platform that connects our customers to their suppliers and clients. Our platform integrates with accounting software, banks, and payment processors, enabling our customers to access all of these mission-critical partners through a single connection. Because we provide a unified view, customers can more easily find inconsistencies and inaccuracies, and fix them quickly.

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Digital and Secure. We enable secure connections and storage of sensitive supplier and client information and documents, such as invoices and contracts, and make them accessible to authorized users through our cloud-based application, on any device.

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Visible and Transparent. With our platform dashboard, customers can easily view their transaction workflows, enabling them to gain deeper insight into their financial operations and manage their cash flows intelligently.

Our Opportunity

According to the U.S. Census Bureau, there were approximately six million employer SMBs in the U.S. in 2018. Globally, there were approximately 20 million small and medium enterprises (SMEs) according to the SME Finance Forum’s 2019 database.

We estimate the annual addressable market for the services we offer today to be $30 billion globally and $9 billion domestically. We derive these estimates by multiplying our average fiscal 2019 revenue per customer of $1,500 by each of the 20 million SMEs globally and 6 million domestic employer firms.

In addition, we believe we have the following incremental monetization opportunities, including to:

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expand our target market to include sole proprietors and larger companies;

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enter international markets;

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sell additional solutions or products on our platform; and

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capture more of the overall business-to-business payments flow from new and existing customers.

According to IDC, in 2019 small and lower-midsize businesses will spend approximately $65 billion on software in the U.S. We believe that we are well positioned to capture a meaningful portion of that spend as we increase the breadth of our platform to sell additional solutions or products.

According to a 2018 Mastercard report, North American companies make approximately $25 trillion of business-to-business payments annually, and, according to Deloitte, the United States market for SMB payments is expected to exceed $9 trillion in 2020. Over 90% of SMBs still rely on paper checks, according to a survey by the SMB Technology Adoption Index. As more SMBs move to digital payments, we believe we are well-positioned to capitalize on this evolution.

Our Go-to-Market Strategy

We seek to acquire customers in an efficient manner. We market our platform directly to businesses through online digital marketing and referral programs and indirectly by leveraging partnerships with accounting firms, financial institutions, and accounting software companies.

Direct-to-SMBs. Our direct-to-SMB strategy leverages digital customer acquisition tools, supported by efficient inside sales capabilities, and a steady stream of new SMBs continuously introduced to our platform through our 1.8 million network members as of June 30, 2019.

Accounting Firms. Our accountant-specific tools help firms grow their client advisory services practices and establish a competitive advantage, while delivering our platform to their large base of SMB clients. We currently partner with more than 70 of the top 100 accounting firms, and over 4,000 accounting firms nationwide.

Financial Institutions. SMBs look to financial institutions for digital solutions for end-to-end cash flow management. As a result, many of those financial institutions turn to us to meet their customers’ needs. By working with Bill.com, our financial institution partners can provide their customers with many of the benefits realized by our directly-acquired customers. We are currently integrated with several of the largest financial institutions in the United States, including Bank of America, JPMorgan Chase, and American Express.

Accounting Software Companies. We are integrated with Intuit QuickBooks, making our features available to millions of SMBs. In addition, we have referral relationships with several other popular accounting software providers, including Oracle NetSuite and Sage Intacct.

What Sets Us Apart

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Purpose-Built for SMBs. Our easy-to-use, unified platform provides SMBs with core functionality and value-added services generally reserved for larger companies. Through our cloud-based desktop and mobile applications, SMBs can connect and do business from anywhere, at any time.

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Diverse Distribution Channels. We leverage both direct and indirect channels—accounting firms, financial institution partners, and accounting software integrations—to efficiently reach our target market.

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Large and Growing Network of Connected Businesses. As accounts receivable customers issue invoices and accounts payable customers pay bills on our platform, they

connect to their clients and suppliers, driving a powerful network effect. This aids our customer acquisition efforts by increasing the number of businesses connected to our platform, which then become prospects.

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Large Data Asset. We have a large data asset as a result of processing millions of documents and billions of dollars in business payments annually for our customers. By leveraging our AI and machine learning capabilities, we generate insights from this data that drive product innovation.

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Risk Management Expertise. Leveraging our data, our risk engine has trained upon millions of business-to-business ACH, check, card, and wire transactions. Our AI capabilities have enhanced the power of that engine, enabling us to keep our customers’ funds secure.

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Experienced Management Team and Vibrant Culture. Our management team and employees have deep experience with SMBs, software-as-a-service (SaaS) companies, and financial institutions.

Our Growth Strategy

Key elements of our growth strategy include:

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Acquiring new customers;

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Increasing adoption by our existing customers;

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Growing the number of network members;

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Expanding our platform capabilities; and

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Expanding internationally.

Risks Associated with Our Business

Our business is subject to numerous risks and uncertainties, including those highlighted in the section titled “Risk Factors” immediately following this Prospectus Summary. These risks include, but are not limited to, the following:

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We have a history of operating losses and may not achieve or sustain profitability in the future;

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We transfer large sums of customer funds daily, and are subject to the risk of loss, errors, and fraudulent activities of customers or third parties, any of which could result in financial losses, damage to our reputation, or loss of trust in our brand, which would harm our business and financial results;

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Customer funds that we hold in trust are subject to market, interest rate, foreign exchange, and liquidity risks, as well as general political and economic conditions. The loss of these funds could have a material adverse effect on our business;

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We earn revenue from interest earned on customer funds held in trust while payments are clearing, which is subject to market conditions and may decrease as customers’ adoption of electronic payments and technology continues to evolve;

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If we are unable to attract new customers or convert trial customers into paying customers, our revenue growth and operating results will be adversely affected;

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If we are unable to retain our current customers or sell additional functionality and services to them, our revenue growth will be adversely affected;

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Our business depends, in part, on our relationships with accounting firms;

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Our business depends, in part, on our strategic partnerships with financial institutions;

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Our business depends, in part, on our relationship with Intuit;

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The markets in which we participate are competitive, and if we do not compete effectively, our operating results could be harmed; and

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Payments and other financial services-related regulations and oversight are material to our business. Our failure to comply could materially harm our business.

Channels for Disclosure of Information

Following the completion of this offering, we intend to announce material information to the public through filings with the Securities and Exchange Commission (SEC), the investor relations page on our website, www.bill.com, press releases, public conference calls, and public webcasts.

Any updates to the list of disclosure channels through which we will announce information will be posted on the investor relations page on our website.

Corporate Information

BDC Payments Holdings, Inc., a Delaware corporation, was formed in August 2018, and changed its name to Bill.com Holdings, Inc., a Delaware corporation, in June 2019. Bill.com Holdings, Inc. is a holding company and its principal assets are the equity interests of Bill.com, LLC. We were initially formed in April 2006 as Cashboard, Inc., a Delaware corporation. We changed our name to Cashview, Inc. in September 2006 and to Bill.com, Inc. in December 2007. In November 2018, we completed a corporate reorganization whereby Bill.com, Inc. became a subsidiary of Bill.com Holdings, Inc., and reorganized as a LLC, Bill.com LLC. Our principal executive offices are located at 1810 Embarcadero Road, Palo Alto, California 94303. Our telephone number is (650) 621-7700. Our website address is www.bill.com. The information contained on, or that can be accessed through, our website is not a part of this prospectus. Investors should not rely on any such information in deciding whether to purchase our common stock. Unless otherwise indicated, the terms “Bill.com,” “we,” “us,” and “our” refer to Bill.com Holdings, Inc., together with our subsidiary, Bill.com LLC.

Bill.com, the Bill.com logo, and other registered or common law trade names, trademarks, or service marks of Bill.com appearing in this prospectus are the property of Bill.com. This prospectus contains additional trade names, trademarks, and service marks of ours and of other companies. We do not intend our use or display of other companies’ trade names, trademarks, or service marks to imply a relationship with, or endorsement or sponsorship of us, by these other companies. Other trademarks appearing in this prospectus are the property of their respective holders. Solely for convenience, our trademarks and tradenames referred to in this prospectus appear without the ^® and ^™ symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights, or the right of the applicable licensor, to these trademarks and tradenames.

Implications of Being an Emerging Growth Company

As a company with less than $1.07 billion in revenue during our most recently completed fiscal year, we qualify as an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended, or the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (JOBS Act). As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable, in general, to public companies that are not emerging growth companies. These provisions include:

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an exemption from compliance with the auditor attestation requirement on the effectiveness of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act);

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an exemption from compliance with any requirement that the Public Company Accounting Oversight Board may adopt regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;

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reduced disclosure about our executive compensation arrangements;

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exemptions from the requirements to obtain a non-binding advisory vote on executive compensation or a stockholder approval of any golden parachute arrangements; and

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extended transition periods for complying with new or revised accounting standards.

We will remain an emerging growth company until the earliest to occur of: (i) the last day of the fiscal year in which we have more than $1.07 billion in annual revenue; (ii) the date we qualify as a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates; (iii) the date on which we have issued, in any three-year period, more than $1.0 billion in non-convertible debt securities; and (iv) the last day of the fiscal year ending after the fifth anniversary of the completion of this offering.

We may take advantage of these exemptions until such time that we are no longer an emerging growth company. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock. Further, pursuant to Section 107 of the JOBS Act, as an emerging growth company, we have elected to take advantage of the extended transition period for complying with new or revised accounting standards until those standards would otherwise apply to private companies. As a result, our operating results and consolidated financial statements may not be comparable to the operating results and financial statements of other companies who have adopted the new or revised accounting standards. It is possible that some investors will find our common stock less attractive as a result, which may result in a less active trading market for our common stock and higher volatility in our stock price.

The Offering



Common stock offered by us		shares

Option to purchase additional shares of common stock		shares

Common stock to be outstanding immediately after this offering		shares ( shares, if the underwriters’ option to purchase additional shares of our common stock from us is exercised in full).

		We estimate that the net proceeds from the sale of shares of our common stock in this offering will be approximately $ million, or approximately $ million if the underwriters exercise their option to purchase additional shares in full, based upon an assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses.

Use of proceeds		We intend to use the net proceeds from this offering for working capital and other general corporate purposes, which may include research and development, sales and marketing, general and administrative matters, and capital expenditures. We may also use a portion of the proceeds for the acquisition of, or investment in, technologies, solutions, or businesses that complement our business. However, we do not have binding agreements or commitments for any acquisitions or investments outside the ordinary course of business at this time. See the section titled “Use of Proceeds” for additional information.

Risk factors		See the section titled “Risk Factors” and other information included in this prospectus for a discussion of some of the factors you should consider before deciding to purchase shares of our common stock.

New York Stock Exchange trading symbol		“BILL”

The number of shares of our common stock to be outstanding after this offering is based on 121,461,891 shares of our common stock outstanding as of September 30, 2019 and excludes:

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22,493,593 shares of our common stock issuable upon the exercise of stock options outstanding as of September 30, 2019, with a weighted-average exercise price of $3.49 per share under our 2006 Equity Incentive Plan (the 2006 Plan), and our 2016 Equity Incentive Plan (the 2016 Plan);

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1,923,500 shares of our common stock issuable upon the exercise of stock options granted after September 30, 2019 under our 2016 Plan, with a weighted-average exercise price of $8.14 per share;

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125,000 shares of our common stock issuable upon the exercise of outstanding warrants to purchase common stock outstanding as of September 30, 2019, with a weighted-average exercise price of $3.20 per share;

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102,740 shares of common stock issuable upon the exercise of outstanding warrants to purchase shares of Series B redeemable convertible preferred stock outstanding as of September 30, 2019, with an exercise price of $0.73 per share;

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25,000 shares of common stock issuable upon the exercise of outstanding warrants to purchase shares of Series D redeemable convertible preferred stock outstanding as of September 30, 2019, with an exercise price of $1.25 per share;

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11,264,926 shares of common stock that are not currently outstanding but may become issuable, when certain conditions are met, upon the issuance and exercise of warrants with an exercise price of $2.25 per share; and

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shares of our common stock reserved for future issuance under our equity compensation plans, consisting of (i) 362,309 shares of our common stock reserved for future issuance under our 2016 Plan, as of September 30, 2019 (which number of shares is prior to the stock options to purchase shares of our common stock granted after September 30, 2019), (ii) shares of our common stock reserved for future issuance under our 2019 Equity Incentive Plan, or the 2019 Plan, which will become effective on the date immediately prior to the date of this prospectus, and (iii) shares of our common stock reserved for issuance under our 2019 Employee Stock Purchase Plan (ESPP), which will become effective on the date of this prospectus.

On the date immediately prior to the date of this prospectus, any remaining shares available for issuance under our 2016 Plan will be added to the shares of our common stock reserved for issuance under our 2019 Plan, and we will cease granting awards under the 2016 Plan. Our 2019 Plan and ESPP also provide for automatic annual increases in the number of shares reserved thereunder. See the section titled “Executive Compensation—Employee Benefit and Stock Plans” for additional information.

Unless otherwise noted, the information in this prospectus reflects and assumes the following:

•

the automatic conversion of all shares of our redeemable convertible preferred stock outstanding as of September 30, 2019 into an aggregate of 104,869,089 shares of common stock in connection with the completion of this offering;

•

a -for- reverse stock split to be effected on , 2019;

•

the filing of our restated certificate of incorporation and the effectiveness of our restated bylaws, each of which will occur immediately prior to the completion of this offering;

•

no exercise of outstanding stock options or warrants subsequent to September 30, 2019; and

•

no exercise of the underwriters’ option to purchase additional shares of our common stock in this offering.

Summary Consolidated Financial Data

The following tables summarize our consolidated financial data. We derived our summary consolidated statements of operations for fiscal 2018 and 2019 and our summary consolidated balance sheet data as of June 30, 2019 from our audited consolidated financial statements included elsewhere in this prospectus. We derived our summary consolidated statements of operations for the three months ended September 30, 2018 and 2019 and our summary consolidated balance sheet data as of September 30, 2019 from our unaudited interim consolidated financial statements that are included elsewhere in this prospectus. We have prepared the unaudited interim consolidated financial statements on the same basis as the audited consolidated financial statements and have included all adjustments, consisting only of normal recurring adjustments that, in our opinion, are necessary to state fairly the information set forth in those consolidated financial statements. Our historical results are not necessarily indicative of the results to be expected in any future period, and the results of operations for the three months ended September 30, 2019 are not necessarily indicative of the results to be expected for the full year ending June 30, 2020 or any future period. You should read the following summary consolidated financial data in conjunction with the sections titled “Selected Consolidated Financial and Other Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements, the accompanying notes, and other financial information included elsewhere in this prospectus.


	Year Ended June 30,						Three Months Ended September 30,
	2018			2019			2018			2019
	(in thousands, except per share data)
Consolidated Statements of Operations:
Revenue
Subscription and transaction fees	$	56,992		$	85,951		$	18,170		$	28,548
Interest on funds held for customers		7,873			22,400			4,254			6,632

Total revenue		64,865			108,351			22,424			35,180
Cost of revenue⁽¹⁾		19,372			29,918			6,341			9,147

Gross profit		45,493			78,433			16,083			26,033

Operating expenses
Research and development⁽¹⁾		17,986			28,924			5,424			11,515
Sales and marketing⁽¹⁾		19,290			30,114			5,944			10,267
General and administrative⁽¹⁾		16,034			29,198			5,937			10,535

Total operating expenses		53,310			88,236			17,305			32,317

Loss from operations		(7,817	)		(9,803	)		(1,222	)		(6,284	)
Other income, net		632			2,333			317			639

Loss before provision for (benefit from) income taxes		(7,185	)		(7,470	)		(905	)		(5,645	)
Provision for (benefit from) income taxes		10			(156	)		(21	)		51

Net loss	$	(7,195	)	$	(7,314	)	$	(884	)	$	(5,696	)

Net loss per share attributable to common stockholders, basic and diluted⁽²⁾	$	(0.50	)	$	(0.47	)	$	(0.06	)	$	(0.35	)

Weighted-average number of common shares used to compute net loss per share attributable to common stockholders, basic and diluted⁽²⁾		14,310			15,594			14,845			16,462

Pro forma net loss per share attributable to common stockholders, basic and diluted (unaudited)⁽²⁾				$	(0.06	)				$	(0.05	)

Weighted-average number of shares used to compute pro forma net loss per share attributable to common stockholders, basic and diluted (unaudited)⁽²⁾					115,198						121,331

(1)	Includes stock-based compensation expense as follows (in thousands):


	Year Ended June 30,				Three Months Ended September 30,
	2018		2019		2018		2019
Cost of revenue	$	78	$	331	$	69	$	148
Research and development		429		1,128		233		671
Sales and marketing		508		922		166		382
General and administrative		530		1,701		139		1,075

Total stock-based compensation expense	$	1,545	$	4,082	$	607	$	2,276

(2)

See Notes 12 and 13 to our consolidated financial statements included elsewhere in this prospectus for an explanation of the method used to calculate basic and diluted net loss per share attributable to common stockholders and pro forma net loss per share attributable to common stockholders, and the weighted-average number of shares used in the computation of the per share amounts.


	As of September 30, 2019
	Actual			Pro Forma⁽¹⁾			Pro Forma As Adjusted⁽²⁾
	(unaudited)
	(in thousands)
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term investments	$	157,642		$	157,642		$
Working capital		158,544			159,397
Funds held for customers		1,466,492			1,466,492
Total assets		1,662,157			1,662,157
Redeemable convertible preferred stock warrant liabilities		853			-
Deferred revenue, current and non-current		5,248			5,248
Customer fund deposits		1,466,492			1,466,492
Redeemable convertible preferred stock		276,307			-
Accumulated deficit		(123,352	)		(123,352	)
Total stockholders’ (deficit) equity		(105,981	)		171,179

(1)

The pro forma consolidated balance sheet information reflects (i) the automatic conversion of all outstanding shares of redeemable convertible preferred stock into common stock, as if such conversion occurred on September 30, 2019, into 104,869,089 shares of our common stock, (ii) the reclassification of the redeemable convertible preferred stock warrant liabilities to additional paid-in capital in connection with the conversion of the outstanding warrants to purchase shares of redeemable convertible preferred stock into warrants to purchase shares of common stock, and (iii) the filing and effectiveness of our restated certificate of incorporation in Delaware that will become effective immediately prior to the completion of this offering.

(2)

The pro forma as adjusted consolidated balance sheet information reflects (i) all adjustments included in footnote (1) above, and (ii) the sale of shares of our common stock in this offering at an assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the front cover of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses. The pro forma as adjusted information discussed above is illustrative only and will be adjusted based on the actual public offering price and other terms of this offering determined at pricing. Each $1.00 increase (decrease) in the assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) cash, cash equivalents and short-term investments, working capital, total assets, and total stockholders’ equity by $ million, assuming that the number of shares offered, as set forth on the cover of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions payable by us. Similarly, each increase (decrease) of one million shares in the number of shares offered by us would increase (decrease) cash, cash equivalents and short-term investments, working capital, total assets, and total stockholders’ equity by approximately $ million, assuming the assumed initial public offering price, which is the midpoint of the price range set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions payable by us.

RISK FACTORS

Investing in our common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other information in this prospectus, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the accompanying notes included elsewhere in this prospectus before deciding whether to invest in shares of our common stock. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of or that we deem immaterial may also become important factors that adversely affect our business. If any of the following risks actually occur, our business, financial condition, operating results, and future prospects could be materially and adversely affected. In that event, the market price of our common stock could decline, and you could lose part or all of your investment.

Risks Related to Our Business and Industry

We have a history of operating losses and may not achieve or sustain profitability in the future.

We were incorporated in 2006 and have experienced net losses and negative cash flows from operations since inception. We generated a net loss of $7.2 million and $7.3 million for fiscal 2018 and 2019, respectively, and of $0.9 million and $5.7 million during the three months ended September 30, 2018 and 2019, respectively. As of September 30, 2019, we had an accumulated deficit of $123.4 million. While we have experienced significant revenue growth in recent periods, we are not certain whether or when we will obtain a high enough volume of subscription and transaction fee revenue to sustain or increase our growth or achieve or maintain profitability in the future. We also expect our costs and expenses to increase in future periods, which could negatively affect our future operating results if our revenue does not increase. In particular, we intend to continue to expend significant funds to further develop our platform, including introducing new products and functionality, and to expand our marketing programs and sales teams to drive new customer adoption, expand strategic partner integrations, and support international expansion. Our profitability each quarter is also impacted by the mix of our revenue generated from subscriptions and transaction fees, on the one hand, and interest earned on customer funds that we hold in trust, on the other. Any changes in this revenue mix will have the effect of increasing or decreasing our margins. We will also face increased compliance and security costs associated with growth, the expansion of our customer base, and being a public company. Our efforts to grow our business may be costlier than we expect, and we may not be able to increase our revenue enough to offset our increased operating expenses. We may incur significant losses in the future for several reasons, including the other risks described herein, and unforeseen expenses, difficulties, complications, delays, and other unknown events. If we are unable to achieve and sustain profitability, the value of our business and common stock may significantly decrease.

Our recent rapid growth, including growth in our volume of payments, may not be indicative of our future growth, and if we continue to grow rapidly, we may not be able to manage our growth effectively. Our rapid growth also makes it difficult to evaluate our future prospects and may increase the risk that we will not be successful.

Our revenue was $64.9 million and $108.4 million, and our payment volume was $49.6 billion and $71.3 billion, for fiscal 2018 and 2019, respectively. For the three months ended September 30, 2018 and 2019, our revenue was $22.4 million and $35.2 million, and our payment volume was $15.5 billion and $22.0 billion, respectively. Although we have recently experienced significant growth in our revenue and payment volume, even if our revenue continues to increase, we expect our growth rate will decline in the future as a result of a variety of factors, including the increasing scale of our business. Overall growth of our revenue depends on a number of factors, including our ability to:

•

price our platform effectively to attract new customers and increase sales to our existing customers;

•

expand the functionality and scope of the products we offer on our platform;

•

maintain the rates at which customers subscribe to and continue to use our platform;

•

maintain payment volume;

•

generate interest income on customer funds that we hold in trust;

•

provide our customers with high-quality customer support that meets their needs;

•

introduce our products to new markets outside of the United States;

•

serve SMBs across a wide cross-section of industries;

•

expand our target market beyond SMBs;

•

successfully identify and acquire or invest in businesses, products, or technologies that we believe could complement or expand our platform; and

•

increase awareness of our brand and successfully compete with other companies.

We may not successfully accomplish any of these objectives, which makes it difficult for us to forecast our future operating results. Further, the revenue that we derive from interest income on customer funds is dependent on interest rates, which we do not control. If the assumptions that we use to plan our business are incorrect or change in reaction to changes in our market, or if we are unable to maintain consistent revenue or revenue growth, our stock price could be volatile, and it may be difficult to achieve and maintain profitability. You should not rely on our revenue from any prior quarterly or annual periods as any indication of our future revenue or revenue or payment growth.

In addition, we expect to continue to expend substantial financial and other resources on:

•

sales, marketing and customer success, including an expansion of our sales organization and new customer success initiatives;

•

our technology infrastructure, including systems architecture, scalability, availability, performance, and security;

•

product development, including investments in our product development team and the development of new products and new functionality for our AI-enabled platform;

•

acquisitions or strategic investments;

•

international expansion;

•

regulatory compliance and risk management; and

•

general administration, including increased legal and accounting expenses associated with being a public company.

These investments may not result in increased revenue growth in our business. If we are unable to increase our revenue at a rate sufficient to offset the expected increase in our costs, or if we encounter difficulties in managing a growing volume of payments, our business, financial position, and operating results will be harmed, and we may not be able to achieve or maintain profitability over the long term.

Our risk management efforts may not be effective to prevent fraudulent activities by our customers or their counterparties, which could expose us to material financial losses and liability and otherwise harm our business.

We offer software that digitizes and automates back-office financial operations for a large number of customers and executes payments to their vendors or from their clients. We are responsible for

verifying the identity of our customers and their users, and monitoring transactions for fraud. We have been in the past and will continue to be targeted by parties who seek to commit acts of financial fraud using techniques such as stolen identities and bank accounts, compromised business email accounts, employee or insider fraud, account takeover, false applications, and check fraud. We may suffer losses from acts of financial fraud committed by our customers and their users, our employees or third-parties. For example, in 2016, an accounts payable customer fraudulently enrolled on our platform using a stolen business identity and bank account, and disbursed approximately $300,000 funded by an unauthorized bank account. While we were able to recover some of the funds, we incurred a loss of approximately $200,000 in connection with that incident. Also, in 2018, we processed payments on behalf of an accounts receivables customer, whose client made approximately $225,000 in payments to our customer with funds from stolen bank accounts. We were able to recover a portion of the funds but incurred a loss of approximately $75,000 in connection with that incident.

The techniques used to perpetrate fraud on our platform are continually evolving, and we expend considerable resources to continue to monitor and combat them. In addition, when we introduce new products and functionality, or expand existing products, we may not be able to identify all risks created by the new products or functionality. Our risk management policies, procedures, techniques, and processes may not be sufficient to identify all of the risks to which we are exposed, to enable us to prevent or mitigate the risks we have identified, or to identify additional risks to which we may become subject in the future. Furthermore, our risk management policies, procedures, techniques, and processes may contain errors or our employees or agents may commit mistakes or errors in judgment as a result of which we may suffer large financial losses. The software-driven and highly automated nature of our platform could enable criminals and those committing fraud to steal significant amounts of money from businesses like ours. As greater numbers of customers use our platform, our exposure to material risk losses from a single customer, or from a small number of customers, will increase.

Our current business and anticipated domestic and international growth will continue to place significant demands on our risk management efforts, and we will need to continue developing and improving our existing risk management infrastructure, policies, procedures, techniques, and processes. As techniques used to perpetrate fraud on our platform evolve, we may need to modify our products or services to mitigate fraud risks. As our business grows and becomes more complex, we may be less able to forecast and carry appropriate reserves in our books for fraud related losses. Further, these types of fraudulent activities on our platform can also expose us to civil and criminal liability, governmental and regulatory sanctions as well as potentially cause us to be in breach of our contractual obligations to our third-party partners.

We transfer large sums of customer funds daily, and are subject to the risk of errors, which could result in financial losses, damage to our reputation, or loss of trust in our brand, which would harm our business and financial results.

For fiscal 2019, over 76,000 customers processed over $70 billion in Total Payment Volume on our platform. During the three months ended September 30, 2019, over 81,000 customers processed nearly $22 billion in Total Payment Volume on our platform. We have grown rapidly and seek to continue to grow, and although we maintain a robust and multi-faceted risk management process, our business is always subject to the risk of financial losses as a result of credit losses, operational errors, software defects, service disruption, employee misconduct, security breaches, or other similar actions or errors on our platform. As a provider of accounts payable, accounts receivable, and payment solutions, we collect and transfer funds on behalf of our customers. Software errors in our platform and operational errors by our employees may also expose us to losses.

Moreover, our trustworthiness and reputation are fundamental to our business. As a provider of cloud-based software for complex back-office financial operations, the occurrence of any credit losses,

operational errors, software defects, service disruption, employee misconduct, security breaches, or other similar actions or errors on our platform could result in financial losses to our business and our customers, loss of trust, damage to our reputation, or termination of our agreements with strategic partners and accountants, each of which could result in:

•

loss of customers;

•

lost or delayed market acceptance and sales of our platform;

•

legal claims against us, including warranty and service level agreement claims;

•

regulatory enforcement action; or

•

diversion of our resources, including through increased service expenses or financial concessions, and increased insurance costs.

Although our terms of service allocate to our customers the risk of loss resulting from our customers’ errors, omissions, employee fraud, or other fraudulent activity related to their systems, in some instances we may cover such losses for efficiency or to prevent damage to our reputation. Although we maintain insurance to cover losses resulting from our errors and omissions, there can be no assurance that our insurance will cover all losses or our coverage will be sufficient to cover our losses. If we suffer significant losses or reputational harm as a result, our business, operating results, and financial condition could be adversely affected.

We invest funds that we hold in trust for our customers, including funds being remitted to suppliers, in highly liquid, investment-grade marketable securities, money market securities, and other cash equivalents. Nevertheless, our customer fund assets are subject to general market, interest rate, credit, foreign exchange, and liquidity risks. These risks may be exacerbated, individually or in aggregate, during periods of heavy financial market volatility. In the event of a global financial crisis, such as that experienced in 2008, employment levels and interest rates may decrease with a corresponding impact on our business. As a result, we could be faced with a severe constriction of the availability of liquidity, which could impact our ability to fulfill our obligations to move customer money to its intended recipient. Additionally, we rely upon certain banking partners and third parties to originate ACH payments, process checks, execute wire transfers, and issue virtual cards, which could be similarly affected by a liquidity shortage and further exacerbate our ability to operate our business. Any loss of or inability to access customer funds could have an adverse impact on our cash position and results of operations, could require us to obtain additional sources of liquidity, and could have a material adverse effect on our business, financial condition, and results of operations.

We are licensed as a money transmitter in all required U.S. states. In certain jurisdictions where we operate, we are required to hold eligible liquid assets, as defined by the relevant regulators in each jurisdiction, equal to at least 100% of the aggregate amount of all customer balances. Our ability to manage and accurately account for the assets underlying our customer funds and comply with applicable liquid asset requirements requires a high level of internal controls. As our business continues to grow and we expand our product offerings, we will need to scale our associated internal controls. Our success requires significant public confidence in our ability to properly manage our customers’ balances and handle large and growing transaction volumes and amounts of customer funds. Any failure to maintain the necessary controls or to accurately manage our customer funds and the assets underlying our customer funds in compliance with applicable regulatory requirements could

result in reputational harm, lead customers to discontinue or reduce their use of our products, and result in significant penalties and fines, possibly including the loss of our state money transmitter licenses, which would materially harm our business.

For fiscal 2018 and 2019, we generated $7.9 million and $22.4 million, respectively, in revenue from interest earned on funds held in trust on behalf of customers while payment transactions are clearing, or approximately 12% and 21% of our total revenue for such periods. For the three months ended September 30, 2018 and 2019, we generated $4.3 million and $6.6 million, respectively, in revenue from interest earned on funds held in trust on behalf of customers while payment transactions are clearing, or approximately 19% of our total revenue for both such periods. While these payments are clearing, we deposit the funds in highly liquid short-term investments, and generate revenue that is correlated to the federal funds rate. When interest rates decrease, the amount of revenue we generate from these investments decreases. Additionally, because we process electronic payments faster than checks, we hold customer funds for a shorter time and consequently, earn less revenue. If our customers transition from checks to electronic payments faster than we anticipate, or to new, faster payment rails like The Clearing House’s Real Time Payments Network, our revenue could decrease and our financial results could be adversely affected.

If we are unable to attract new customers or convert trial customers into paying customers, our revenue growth and operating results will be adversely affected.

To increase our revenue, we must continue to attract new customers and increase sales to those customers. As our market matures, product and service offerings evolve, and competitors introduce lower cost or differentiated products or services that are perceived to compete with our platform, our ability to sell subscriptions could be impaired. Similarly, our subscription sales could be adversely affected if customers or users perceive that features incorporated into alternative products reduce the need for our platform or if they prefer to purchase products that are bundled with solutions offered by other companies. Further, in an effort to attract new customers, we may offer simpler, lower-priced products, which may reduce our profitability.

We rely upon our marketing strategy of offering risk-free trials of our platform and other inbound, digital marketing strategies to generate sales opportunities. Many of our customers start a risk-free trial of our service. Converting these trial customers to paid customers often requires extensive follow-up and engagement. Many prospective customers never convert from the trial version of a product to a paid version of a product. Further, we often depend on individuals within an organization who initiate the trial versions of our products being able to convince decision makers within their organization to convert to a paid version. To the extent that these users do not become, or are unable to convince others to become, paying customers, we will not realize the intended benefits of this marketing strategy, and our ability to grow our revenue will be adversely affected. As a result of these and other factors, we may be unable to attract new customers, which would have an adverse effect on our business, revenue, gross margins, and operating results.

If we are unable to retain our current customers or sell additional functionality and services to them, our revenue growth will be adversely affected.

To increase our revenue, in addition to acquiring new customers, we must continue to retain existing customers and convince them to expand their use of our platform by increasing the number of users and incenting them to pay for additional functionality. Our ability to retain our customers and

increase their usage could be impaired for a variety of reasons, including customer reaction to changes in the pricing of our products or the other risks described in this prospectus. As a result, we may be unable to retain existing customers or increase the usage of our platform by them, which would have an adverse effect on our business, revenue, gross margins, and other operating results, and accordingly, on the trading price of our common stock.

Our ability to sell additional functionality to our existing customers may require more sophisticated and costly sales efforts, especially for our larger customers with more senior management and established procurement functions. Similarly, the rate at which our customers purchase additional products from us depends on several factors, including general economic conditions and the pricing of additional product functionality. If our efforts to sell additional functionality to our customers are not successful, our business and growth prospects would suffer.

While some of our contracts are non-cancelable annual subscription contracts, most of our contracts with customers and accounting firms primarily consist of open-ended arrangements that can be terminated by either party without penalty at any time. Our customers have no obligation to renew their subscriptions for our platform after the expiration of their subscription period. For us to maintain or improve our operating results, it is important that our customers continue to maintain their subscriptions on the same or more favorable terms. We cannot accurately predict renewal or expansion rates given the diversity of our customer base in terms of size, industry, and geography. Our renewal and expansion rates may decline or fluctuate as a result of several factors, including customer spending levels, customer satisfaction with our platform, decreases in the number of users, changes in the type and size of our customers, pricing changes, competitive conditions, the acquisition of our customers by other companies, and general economic conditions. If our customers do not renew their subscriptions, or if they reduce their usage of our platform, our revenue and other operating results will decline and our business will suffer. If our renewal or expansion rates fall significantly below the expectations of the public market, securities analysts, or investors, the trading price of our common stock would likely decline.

Our business depends, in part, on our relationships with accounting firms.

Our relationships with our over 4,000 accounting firm partners account for approximately 54% of our total customers and 45% of our revenue as of and for fiscal 2019. We market and sell our products and services through accounting firms. We also have a partnership with CPA.com to market our products and services to accounting firms, which then enroll their customers directly onto our platform. Although our relationships with accounting firms are independent of one another, if our reputation in the accounting industry more broadly were to suffer, or if we were unable to establish relationships with new accounting firms and grow our relationships with existing accounting firm partners, our growth prospects would weaken and our business, financial position, and operating results may be adversely affected.

Our business depends, in part, on our strategic partnerships with financial institutions.

To grow our business, we will seek to expand our relationships with our financial institution partners and to partner with additional banks and financial institutions. Establishing our strategic partner relationships, particularly with our financial institution customers and, to a lesser extent, accounting software providers, entails extensive and highly specific upfront sales efforts, with little predictability and various ancillary requirements. For example, our financial institution partners generally require us to submit to an exhaustive security audit, given the sensitivity and importance of storing their customer billing and payment data on our platform. As a result, sales to new strategic partner enterprises involve risks that may not be present or that are present to a lesser extent with sales to SMB organizations. With strategic partners, the decision to subscribe to our platform

frequently requires the approval of multiple management personnel and more technical personnel than would be typical of a smaller organization. Accordingly, sales to strategic partners may require us to invest more time educating and selling to these potential customers. Purchases by strategic partners are also frequently subject to budget constraints and unplanned administrative, processing, and other delays, including considerable efforts to negotiate and document relationships with them. Further, we integrate our platform with our financial institution partners’ own websites and apps, which requires significant time and resources to design and deploy even after sales have been processed and documented. If we are unable to increase sales of our platform to strategic partners and manage the costs associated with marketing our platform to such customers and integrating with their systems, our business, financial position, and operating results may be adversely affected.

We may not be able to attract new financial institution strategic partners if our potential partners favor our competitors’ products or services over our platform or choose to compete with our products directly. Further, many of our existing financial institution partners have greater resources than we do and could choose to develop their own solutions to replace ours. Moreover, certain financial institutions may elect to focus on other market segments, and decide to terminate their SMB-focused services. For example, in late 2018, one of our former financial institution partners chose not to renew its relationship with us due to a change in business strategy. As a result, we lost approximately 5,000 customers. Although these customers did not represent a significant amount of revenue for our business, there can be no guarantee that other financial institution partners will not choose to terminate their relationships for strategic or other reasons. If we are unsuccessful in establishing, growing, or maintaining our relationships with strategic partners, our ability to compete in the marketplace or to grow our revenue could be impaired, and our results of operations may suffer.

Our business depends, in part, on our relationship with Intuit.

In addition to our relationship with financial institutions, we rely on our strategic relationship with Intuit Inc., a leading provider of financial, accounting, and tax preparation software, to further expand our business. Our platform is integrated into Intuit’s QuickBooks product, which millions of SMBs rely on for accounting services. Achieving this integration required extensive coordination and commitment of time and resources, and has led to thousands of additional customers for us. If we are unable to increase adoption of our platform by Intuit’s customers, however, our growth prospects may be adversely affected. Additionally, if Intuit reconfigures its platform in a manner that no longer supports our integration or if Intuit terminates this relationship or replaces our platform with that of another provider, we would lose customers and our business would be adversely affected. Finally, Intuit may seek to develop a solution of its own, acquire a solution to compete with ours, thereby or decide to partner with a competitor and build a new product, which its SMB customers may select over ours, thereby harming our growth prospects and adversely affecting our results of operations.

The markets in which we participate are competitive, and if we do not compete effectively, our operating results could be harmed.

The market for financial back-office solutions is fragmented, competitive, and constantly evolving. Our competitors range from large entities that predominantly focus on enterprise resource planning solutions, to smaller niche suppliers of solutions that focus exclusively on document management, workflow management, accounts payable, accounts receivable, and/or electronic bill presentment and payment. With the introduction of new technologies and market entrants, we expect that the competitive environment will remain intense going forward. Our competitors that currently focus on enterprise solutions may offer products to SMBs that compete with ours. Accounting software providers, such as Intuit, as well as the financial institutions with which we partner, may internally develop products, acquire existing, third-party products, or may enter into partnerships or other strategic relationships that would enable them to expand their product offerings to compete with our

platform or provide more comprehensive offerings than they individually had offered or achieve greater economies of scale than us. These software providers and financial institutions may have the operating flexibility to bundle competing solutions with other offerings, including offering them at a lower price or for no additional cost to customers as part of a larger sale. In addition, new entrants not currently considered to be competitors may enter the market through acquisitions, partnerships, or strategic relationships. As we look to market and sell our platform to potential customers or strategic partners with existing solutions, we must convince their internal stakeholders that our platform is superior to their current solutions.

We compete on several factors, including:

•

product features, quality, and functionality;

•

data asset size and ability to leverage artificial intelligence to grow faster and smarter;

•

ease of deployment;

•

ease of integration with leading accounting and banking technology infrastructures;

•

ability to automate processes;

•

cloud-based delivery architecture;

•

advanced security and control features;

•

regulatory compliance leadership, as evidenced by money transmitter licenses in all required US jurisdictions;

•

brand recognition; and

•

pricing and total cost of ownership.

Our competitors vary in size, breadth, and scope of the products and services offered. Many of our competitors and potential competitors have greater name recognition, longer operating histories, more established customer relationships, larger marketing budgets, and greater resources than us. Our competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards, and customer requirements. For example, an existing competitor or new entrant could introduce new technology that reduces demand for our platform.

For these reasons, we may not be able to compete successfully against our current or future competitors, and this competition could result in the failure of our platform to continue to achieve or maintain market acceptance, any of which would harm our business, operating results, and financial condition.

If we do not or cannot maintain the compatibility of our platform with popular accounting software solutions or offerings of our strategic partners, our revenue and growth prospects will decline.

To deliver a comprehensive solution, our platform integrates with popular accounting software providers including Intuit QuickBooks, Oracle NetSuite, and Sage Intacct, through application program interfaces (APIs) made available by these software providers. We automatically synchronize customers, suppliers, clients, invoices, and payment transactions between our platform and these systems. This two-way sync eliminates duplicate data entry and provides the basis for managing cash-flow through an integrated solution for accounts payables, accounts receivable, and payments.

If any of the accounting software providers change the features of their APIs, discontinue their support of such APIs, restrict our access to their APIs, or alter the terms governing their use in a

manner that is adverse to our business, we will not be able to provide synchronization capabilities, which could significantly diminish the value of our platform and harm our business, operating results, and financial condition.

The functionality and popularity of our platform depends, in part, on our ability to integrate our platform with the offerings of our strategic partners. Critically, our financial institution strategic partners must be able to integrate our platform into their existing offerings. These strategic partners periodically update and change their systems, and although we have been able to adapt our platform to their evolving needs in the past, there can be no guarantee that we will be able to do so in the future. In particular, if we are unable to adapt to the needs of our strategic partners’ platforms, our strategic partners may terminate their agreements with us and we may lose access to large numbers of customers as a result.

We depend upon several third-party service providers for processing our transactions. If any of our agreements with our processing providers are terminated, we could experience service interruptions.

We depend on banks, including JPMorgan Chase, The Bancorp Bank, and Silicon Valley Bank, to process ACH transactions and checks for our customers. We have entered into treasury services or similar agreements with these banks for payment processing and related services. Those agreements include significant security, compliance, and operational obligations. If we are not able to comply with those obligations or our agreements with the processing banks are terminated for any reason, we could experience service interruptions as well as delays and additional expenses in arranging new services.

Similarly, we have an agreement with Cambridge Mercantile Corp., under which Cambridge provides us with cross-border wire transfer capabilities. This arrangement has enabled us to offer our cross-border payments service, which we view as a significant growth opportunity for our business. Finally, we have an agreement with Comdata Inc., under which Comdata acts as our program manager and card issuer processor for our virtual card program.

If any of our banking agreements related to ACH transactions or checks, or our agreements with Cambridge or Comdata are terminated, we may experience business interruptions and delays, and be forced to incur additional expenses, potentially interfering with our existing customer relationships or making us less attractive to potential new customers.

Interruptions or delays in the services provided by AWS or other third-party data centers or internet service providers could impair the delivery of our platform and our business could suffer.

We host our platform using third-party cloud infrastructure services, including co-location facilities at Equinix, Iron Mountain, and Digital West. We also use public cloud hosting with Amazon Web Services (AWS). All of our products utilize resources operated by us through these providers. We therefore depend on our third-party cloud providers’ ability to protect their data centers against damage or interruption from natural disasters, power or telecommunications failures, criminal acts, and similar events. Our operations depend on protecting the cloud infrastructure hosted by such providers by maintaining their respective configuration, architecture, and interconnection specifications, as well as the information stored in these virtual data centers and transmitted by third-party internet service providers. We have periodically experienced service disruptions in the past, and we cannot assure you that we will not experience interruptions or delays in our service in the future. We may also incur significant costs for using alternative equipment or taking other actions in preparation for, or in reaction to, events that damage the data storage services we use. Although we have disaster recovery plans

that utilize multiple data storage locations, any incident affecting their infrastructure that may be caused by fire, flood, severe storm, earthquake, power loss, telecommunications failures, unauthorized intrusion, computer viruses and disabling devices, natural disasters, military actions, terrorist attacks, negligence, and other similar events beyond our control could negatively affect our platform. Any prolonged service disruption affecting our platform for any of the foregoing reasons could damage our reputation with current and potential customers, expose us to liability, cause us to lose customers, or otherwise harm our business. Also, in the event of damage or interruption, our insurance policies may not adequately compensate us for any losses that we may incur.

Our platform is accessed by many customers, often at the same time. As we continue to expand the number of our customers and products available to our customers, we may not be able to scale our technology to accommodate the increased capacity requirements, which may result in interruptions or delays in service. In addition, the failure of data centers, internet service providers, or other third-party service providers to meet our capacity requirements could result in interruptions or delays in access to our platform or impede our ability to grow our business and scale our operations. If our third-party infrastructure service agreements are terminated, or there is a lapse of service, interruption of internet service provider connectivity, or damage to data centers, we could experience interruptions in access to our platform as well as delays and additional expense in arranging new facilities and services

Moreover, we are in the process of gradually migrating our systems from internal data centers and smaller vendors to AWS. AWS provides us with computing and storage capacity pursuant to an agreement that continues until terminated by either party. We have a limited history of operating on AWS. As we migrate our data from our servers to AWS’ servers, we may experience some duplication and incur additional costs. If our data migration is not successful, or if AWS unexpectedly terminates our agreement, we would be forced to incur additional expenses to locate an alternative provider and may experience outages or disruptions to our service. Any service disruption affecting our platform during such migration or while operating on the AWS cloud infrastructure could damage our reputation with current and potential customers, expose us to liability, cause us to lose customers, or otherwise harm our business.

We operate in an emerging and evolving market, which may develop more slowly or differently than we expect. If our market does not grow as we expect, or if we cannot expand our platform to meet the demands of this market, our revenue may decline or fail to grow, and we may incur additional operating losses.

Our primary competition remains the legacy manual processes that SMBs have relied on for generations. Our success will depend, to a substantial extent, on the widespread adoption of our cloud-based back-office solutions as an alternative to existing solutions or adoption by customers that are not using any such solutions at all. Some organizations may be reluctant or unwilling to use our platform for several reasons, including concerns about additional costs, uncertainty regarding the reliability and security of cloud-based offerings, or lack of awareness of the benefits of our platform. Our ability to expand sales of our platform depends on several factors, including prospective customers’ awareness of our platform, the timely completion, introduction, and market acceptance of enhancements to our platform or new products that we may introduce, the effectiveness of our marketing programs, the costs of our platform, and the success of our competitors. If we are unsuccessful in developing and marketing our platform, or if organizations do not perceive or value the benefits of our platform as an alternative to legacy systems, the market for our platform may not continue to develop or may develop more slowly than we expect, either of which would harm our growth prospects and operating results.

Payments and other financial services-related regulations and oversight are material to our business. Our failure to comply could materially harm our business.

The local, state, and federal laws, rules, regulations, licensing schemes, and industry standards that govern our business include, or may in the future include, those relating to banking, deposit-taking, cross-border and domestic money transmission, foreign exchange, payments services (such as money transmission, payment processing, and settlement services), anti-money laundering, combating terrorist financing, escheatment, international sanctions regimes, and compliance with the Payment Card Industry Data Security Standard, a set of requirements designed to ensure that all companies that process, store, or transmit payment card information maintain a secure environment to protect cardholder data. We do not directly collect or store payment card information; instead, we rely on a third-party payment processor to do so. These laws, rules, regulations, licensing schemes, and standards are enforced by multiple authorities and governing bodies in the United States, including the Department of the Treasury, the Federal Deposit Insurance Corporation, the SEC, self-regulatory organizations, and numerous state and local agencies. As we expand into new jurisdictions, the number of foreign laws, rules, regulations, licensing schemes, and standards governing our business will expand as well. In addition, as our business and products continue to develop and expand, we may become subject to additional laws, rules, regulations, licensing schemes, and standards. We may not always be able to accurately predict the scope or applicability of certain laws, rules, regulations, licensing schemes, or standards to our business, particularly as we expand into new areas of operations, which could have a significant negative effect on our existing business and our ability to pursue future plans.

Our subsidiary, Bill.com, LLC, has obtained licenses or made registrations, as applicable, to operate as a money transmitter (or its equivalent) in the United States, in the District of Columbia, and, to the best of our knowledge, in all the states where such licensure or registration is required for our business. As a licensed money transmitter, we are subject to obligations and restrictions with respect to the investment of customer funds, reporting requirements, bonding requirements, minimum capital requirements, and inspection by state regulatory agencies concerning various aspects of our business. Evaluation of our compliance efforts, as well as the questions of whether and to what extent our products and services are considered money transmission, are matters of regulatory interpretation and could change over time. In the past, regulators have identified violations and we have been subject to fines and other penalties by regulatory authorities due to their interpretations and applications to our business of their respective state money transmission laws. Regulators and third-party auditors have also identified gaps in our anti-money laundering program. In the future, as a result of the regulations applicable to our business, we could be subject to investigations and resulting liability, including governmental fines, restrictions on our business, or other sanctions, and we could be forced to cease conducting certain aspects of our business with residents of certain jurisdictions, be forced to change our business practices in certain jurisdictions, or be required to obtain additional licenses or regulatory approvals. There can be no assurance that we will be able to obtain or maintain any such licenses, and, even if we were able to do so, there could be substantial costs and potential product changes involved in maintaining such licenses, which could have a material and adverse effect on our business. In addition, there are substantial costs and potential product changes involved in maintaining and renewing such licenses, certifications, and approvals, and we could be subject to fines or other enforcement action if we are found to violate disclosure, reporting, anti-money laundering, capitalization, corporate governance, or other requirements of such licenses. These factors could impose substantial additional costs, involve considerable delay to the development or provision of our products or services, require significant and costly operational changes, or prevent us from providing our products or services in any given market.

Government agencies may impose new or additional rules on money transmission, including regulations that:

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prohibit, restrict, and/or impose taxes or fees on money transmission transactions in, to or from certain countries or with certain governments, individuals, and entities;

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impose additional customer identification and customer due diligence requirements;

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impose additional reporting or recordkeeping requirements, or require enhanced transaction monitoring;

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limit the types of entities capable of providing money transmission services, or impose additional licensing or registration requirements;

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impose minimum capital or other financial requirements;

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limit or restrict the revenue that may be generated from money transmission, including revenue from interest earned on customer funds, transaction fees, and revenue derived from foreign exchange;

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require enhanced disclosures to our money transmission customers;

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require the principal amount of money transmission originated in a country to be invested in that country or held in trust until paid;

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limit the number or principal amount of money transmission transactions that may be sent to or from a jurisdiction, whether by an individual or in the aggregate; and

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restrict or limit our ability to process transactions using centralized databases, for example, by requiring that transactions be processed using a database maintained in a particular country or region.

If we lose our founder or key members of our management team or are unable to attract and retain executives and employees we need to support our operations and growth, our business may be harmed.

Our success and future growth depend upon the continued services of our management team and other key employees. Our founder and Chief Executive Officer, René Lacerte, is critical to our overall management, as well as the continued development of our products, strategic partnerships, our culture, our relationships with accounting firms, and our strategic direction. From time to time, there may be changes in our management team resulting from the hiring or departure of executives and key employees, which could disrupt our business. Our senior management and key employees are employed on an at-will basis. We currently do not have “key person” insurance on any of our employees. Certain of our key employees have been with us for a long period of time and have fully vested stock options or other long-term equity incentives that may become valuable and will be publicly tradable if we become a public company. The loss of our founder, or one or more of our senior management, or other key employees could harm our business, and we may not be able to find adequate replacements. We cannot ensure that we will be able to retain the services of any members of our senior management or other key employees or that we would be able to timely replace members of our senior management or other key employees should any of them depart.

If we fail to offer high-quality customer support, or if our support is more expensive than anticipated, our business and reputation could suffer.

Our customers rely on our customer support services, which we refer to as customer success, to resolve issues and realize the full benefits provided by our platform. High-quality support is also important for the renewal and expansion of our subscriptions with existing customers. We primarily

provide customer support over chat and email, with limited phone-based support. If we do not help our customers quickly resolve issues and provide effective ongoing support, or if our support personnel or methods of providing support are insufficient to meet the needs of our customers, our ability to retain customers, increase adoption by our existing customers and acquire new customers could suffer, and our reputation with existing or potential customers could be harmed. If we are not able to meet the customer support needs of our customers by chat and email during the hours that we currently provide support, we may need to increase our support coverage and provide additional phone-based support, which may reduce our profitability.

If we fail to adapt and respond effectively to rapidly changing technology, evolving industry standards, changing regulations, and changing business needs, requirements, or preferences, our products may become less competitive.

The market for SMB financial back-office solutions is relatively new and subject to ongoing technological change, evolving industry standards, payment methods and changing regulations, and changing customer needs, requirements, and preferences. The success of our business will depend, in part, on our ability to adapt and respond effectively to these changes on a timely basis, including launching new products and services. The success of any new product and service, or any enhancements or modifications to existing products and services, depends on several factors, including the timely completion, introduction, and market acceptance of such products and services, enhancements, and modifications. If we are unable to enhance our platform, add new payment methods or develop new products that keep pace with technological and regulatory change and achieve market acceptance, or if new technologies emerge that are able to deliver competitive products and services at lower prices, more efficiently, more conveniently, or more securely than our products, our business, operating results, and financial condition would be adversely affected. Furthermore, modifications to our existing platform or technology will increase our research and development expenses. Any failure of our services to operate effectively with existing or future network platforms and technologies could reduce the demand for our services, result in customer dissatisfaction and adversely affect our business.

If the prices we charge for our services are unacceptable to our customers, our operating results will be harmed.

We generate revenue by charging customers a fixed monthly rate per user for subscriptions as well as transaction fees. As the market for our platform matures, or as new or existing competitors introduce new products or services that compete with ours, we may experience pricing pressure and be unable to renew our agreements with existing customers or attract new customers at prices that are consistent with our pricing model and operating budget. Our pricing strategy for new products we introduce, including our virtual card and cross-border payment products, may prove to be unappealing to our customers, and our competitors could choose to bundle certain products and services competitive with ours. If this were to occur, it is possible that we would have to change our pricing strategies or reduce our prices, which could harm our revenue, gross profits, and operating results.

We typically provide service level commitments under our strategic partner agreements. If we fail to meet these contractual commitments, we could be obligated to provide credits or refunds for prepaid amounts related to unused subscription services or face contract terminations, which could adversely affect our revenue.

Our agreements with our strategic partners typically contain service level commitments on a monthly basis. If we are unable to meet the stated service level commitments or suffer extended periods of unavailability for our platform, we may be contractually obligated to provide these partners with service credits, up to 10% of the partner’s subscription fees for the month in which the service

level was not met. In addition, we could face contract terminations, in which case we would be subject to refunds for prepaid amounts related to unused subscription services. Our revenue could be significantly affected if we suffer unexcused downtime under our agreements with our partners. Further, any extended service outages could adversely affect our reputation, revenue, and operating results.

We may not be able to scale our business quickly enough to meet our customers’ growing needs, and if we are not able to grow efficiently, our operating results could be harmed.

As usage of our platform grows and we sign additional strategic partners, we will need to devote additional resources to improving and maintaining our infrastructure and computer network and integrating with third-party applications to maintain the performance of our platform. In addition, we will need to appropriately scale our internal business systems and our services organization, including customer support, risk and compliance operations, and professional services, to serve our growing customer base.

Any failure of or delay in these efforts could result in service interruptions, impaired system performance, and reduced customer satisfaction, resulting in decreased sales to new customers, lower subscription renewal rates by existing customers, the issuance of service credits, or requested refunds, all of which could hurt our revenue growth. If sustained or repeated, these performance issues could reduce the attractiveness of our platform to customers and could result in lost customer opportunities and lower renewal rates, any of which could hurt our revenue growth, customer loyalty, and our reputation. Even if we are successful in these efforts to scale our business, they will be expensive and complex, and require the dedication of significant management time and attention. We could also face inefficiencies or service disruptions as a result of our efforts to scale our internal infrastructure. We cannot be sure that the expansion and improvements to our internal infrastructure will be effectively implemented on a timely basis, if at all, and such failures could adversely affect our business, operating results, and financial condition.

The failure to attract and retain additional qualified personnel and any restrictions on the movement of personnel could prevent us from executing our business strategy and growth plans.

To execute our business strategy, we must attract and retain highly qualified personnel. Competition for executive officers, software developers, compliance and risk management personnel and other key employees in our industry and location is intense and increasing. We compete with many other companies for software developers with high levels of experience in designing, developing, and managing cloud-based software and payment systems, as well as for skilled legal and compliance and risk operations professionals. The current regulatory environment related to immigration may increase the likelihood that immigration laws may be modified to further limit the availability of H1-B and other visas. If a new or revised visa program is implemented, it may impact our ability to recruit, hire, retain or effectively collaborate with qualified skilled personnel, including in the areas of artificial intelligence and machine learning, and payment systems and risk management, which could adversely impact our business, operating results and financial condition. Many of the companies with which we compete for experienced personnel have greater resources than we do and can frequently offer such personnel substantially greater compensation than we can offer. If we fail to identify, attract, develop and integrate new personnel, or fail to retain and motivate our current personnel, our growth prospects would be adversely affected.

Failure to effectively develop and expand our sales and marketing capabilities could harm our ability to increase our customer base and achieve broader market acceptance of our products.

Our ability to increase our customer base and achieve broader market acceptance of our platform will depend to a significant extent on our ability to expand our sales and marketing organizations, and to deploy our sales and marketing resources efficiently. We plan to continue expanding our direct-to-SMB sales force as well as our sales force focused on identifying new strategic partners. We also dedicate significant resources to sales and marketing programs, including digital advertising through services such as Google AdWords. The effectiveness and cost of our online advertising has varied over time and may vary in the future due to competition for key search terms, changes in search engine use, and changes in the search algorithms used by major search engines. These efforts will require us to invest significant financial and other resources. Our business and operating results will be harmed if our sales and marketing efforts do not generate significant increases in revenue. We may not achieve anticipated revenue growth from expanding our sales force if we are unable to hire, develop, integrate, and retain talented and effective sales personnel, if our new and existing sales personnel are unable to achieve desired productivity levels in a reasonable period of time, or if our sales and marketing programs and advertising are not effective.

We are subject to governmental regulation and other legal obligations, particularly those related to privacy, data protection, and information security, and our actual or perceived failure to comply with such obligations could harm our business, by resulting in litigation, fines, penalties, or adverse publicity and reputational damage that may negatively affect the value of our business and decrease the price of our common stock. Compliance with such laws could also result in additional costs and liabilities to us or inhibit sales of our products.

Our customers, their suppliers, customers and other users store personal and business information, financial information and other sensitive information on our platform. In addition, we receive, store, and process personal and business information and other data from and about actual and prospective customers and users, in addition to our employees and service providers. Our handling of data is subject to a variety of laws and regulations, including regulation by various government agencies, such as the U.S. Federal Trade Commission (FTC), and various state, local, and foreign agencies. Our data handling also is subject to contractual obligations and industry standards.

The U.S. federal and various state and foreign governments have adopted or proposed limitations on the collection, distribution, use, and storage of data relating to individuals and businesses, including the use of contact information and other data for marketing, advertising, and other communications with individuals and businesses. In the United States, various laws and regulations apply to the collection, processing, disclosure, and security of certain types of data, including the Electronic Communications Privacy Act, the Computer Fraud and Abuse Act, the Gramm Leach Bliley Act, and state laws relating to privacy and data security. Additionally, the FTC and many state attorneys general are interpreting federal and state consumer protection laws as imposing standards for the online collection, use, dissemination, and security of data. For example, in June 2018, California enacted the California Consumer Privacy Act, which becomes operative on January 1, 2020 and will broadly define personal information, give California residents expanded privacy rights and protections, and provide for civil penalties for violations and a private right of action for data breaches. Many aspects of the California Consumer Privacy Act and its interpretation remain unclear, and its full impact on our business and operations remains uncertain. The laws and regulations relating to privacy and data security are evolving, can be subject to significant change, and may result in ever-increasing regulatory and public scrutiny and escalating levels of enforcement and sanctions.

In addition, several foreign countries and governmental bodies, including the European Union, have laws and regulations dealing with the handling and processing of personal information obtained

from their residents, which in certain cases are more restrictive than those in the United States. Laws and regulations in these jurisdictions apply broadly to the collection, use, storage, disclosure, and security of various types of data, including data that identifies or may be used to identify an individual, such as names, email addresses, and in some jurisdictions, Internet Protocol (IP) addresses. While we believe that the products and services that we currently offer do not subject us to such laws or regulations in foreign jurisdictions, such laws and regulations may be modified or subject to new or different interpretations, and new laws and regulations may be enacted in the future.

Within the European Union, the General Data Protection Regulation (GDPR), significantly increases the level of sanctions for non-compliance from those in existing EU data protection law and imposes direct obligations on data processors in addition to data controllers. EU data protection authorities have the power to impose administrative fines for violations of the GDPR of up to a maximum of €20 million or 4% of the data controller’s or data processor’s total worldwide global turnover for the preceding fiscal year, whichever is higher, and violations of the GDPR may also lead to damages claims by data controllers and data subjects. Such penalties are in addition to any civil litigation claims by data controllers, customers, and data subjects. While we believe that the products and services that we currently offer do not subject us to the GDPR, the GDPR and other laws and regulations relating to privacy, data protection, and information security may be modified or subject to new or different interpretations or may be modified in the future, or modifications or enhancements that we make to our products may subject us to GDPR, or we otherwise may become, or have it asserted that we are, subject to the GDPR or other laws or regulations relating to privacy, data protection, or information security. If we are, or are asserted to be, subject to the GDPR, we may need to take steps to cause our processes to be compliant with applicable portions of the GDPR, but we cannot assure you that we will be able to implement changes in a timely manner or without significant disruption to our business, or that such steps will be effective, and we may face the risk of liability under the GDPR.

The scope and interpretation of the laws that are or may be applicable to us are often uncertain and may be conflicting, as a result of the rapidly evolving regulatory framework for privacy issues worldwide. For example, laws relating to the liability of providers of online services for activities of their users and other third parties are currently being tested by a number of claims, including actions based on invasion of privacy and other torts, unfair competition, copyright and trademark infringement, and other theories based on the nature and content of the materials searched, the ads posted, or the content provided by users. As a result of the laws that are or may be applicable to us, and due to the sensitive nature of the information we collect, we have implemented policies and procedures to preserve and protect our data and our customers’ data against loss, misuse, corruption, misappropriation caused by systems failures, or unauthorized access. If our policies, procedures, or measures relating to privacy, data protection, marketing, or customer communications fail to comply with laws, regulations, policies, legal obligations, or industry standards, we may be subject to governmental enforcement actions, litigation, regulatory investigations, fines, penalties, and negative publicity, and could cause our application providers, customers and partners to lose trust in us, and have an adverse effect on our business, operating results, and financial condition.

In addition to government regulation, privacy advocates and industry groups may propose new and different self-regulatory standards that may apply to us. Because the interpretation and application of privacy and data protection laws, regulations, rules, and other standards are still uncertain, it is possible that these laws, rules, regulations, and other actual or alleged legal obligations, such as contractual or self-regulatory obligations, may be interpreted and applied in a manner that is inconsistent with our existing data management practices or the functionality of our platform. If so, in addition to the possibility of fines, lawsuits and other claims, we could be required to fundamentally change our business activities and practices or modify our software, which could have an adverse effect on our business.

Any failure or perceived failure by us to comply with laws, regulations, policies, legal, or contractual obligations, industry standards, or regulatory guidance relating to privacy or data security, may result in governmental investigations and enforcement actions, litigation, fines and penalties, or adverse publicity, and could cause our customers and partners to lose trust in us, which could have an adverse effect on our reputation and business. We expect that there will continue to be new proposed laws, regulations, and industry standards relating to privacy, data protection, marketing, consumer communications, and information security, and we cannot determine the impact such future laws, regulations, and standards may have on our business. Future laws, regulations, standards, and other obligations or any changed interpretation of existing laws or regulations could impair our ability to develop and market new functionality and maintain and grow our customer base and increase revenue. Future restrictions on the collection, use, sharing, or disclosure of data, or additional requirements for express or implied consent of our customers, partners, or end users for the use and disclosure of such information could require us to incur additional costs or modify our platform, possibly in a material manner, and could limit our ability to develop new functionality.

If we are not able to comply with these laws or regulations, or if we become liable under these laws or regulations, we could be directly harmed, and we may be forced to implement new measures to reduce our exposure to this liability. This may require us to expend substantial resources or to discontinue certain products, which would negatively affect our business, financial condition, and operating results. In addition, the increased attention focused upon liability issues as a result of lawsuits and legislative proposals could harm our reputation or otherwise adversely affect the growth of our business. Furthermore, any costs incurred as a result of this potential liability could harm our operating results.

We, our strategic partners, our customers, and others who use our services obtain and process a large amount of sensitive data. Any real or perceived improper or unauthorized use of, disclosure of, or access to such data could harm our reputation as a trusted brand, as well as have a material adverse effect on our business.

We, our strategic partners, our customers, and the third-party vendors and data centers that we use, obtain and process large amounts of sensitive data, including data related to our customers and their transactions, as well as other data of the counterparties to their payments. We face risks, including to our reputation as a trusted brand, in the handling and protection of this data, and these risks will increase as our business continues to expand to include new products and technologies.

Cybersecurity incidents and malicious internet-based activity continue to increase generally, and providers of cloud-based services have frequently been targeted by such attacks. These cybersecurity challenges, including threats to our own IT infrastructure or those of our customers or third-party providers, may take a variety of forms ranging from stolen bank accounts, business email compromise, customer employee fraud, account takeover, check fraud or cybersecurity attacks, to “mega breaches” targeted against cloud-based services and other hosted software, which could be initiated by individual or groups of hackers or sophisticated cyber criminals. A cybersecurity incident or breach could result in disclosure of confidential information and intellectual property, or cause production downtimes and compromised data. We have in the past experienced cybersecurity incidents of limited scale. We may be unable to anticipate or prevent techniques used in the future to obtain unauthorized access or to sabotage systems because they change frequently and often are not detected until after an incident has occurred. As we increase our customer base and our brand becomes more widely known and recognized, third parties may increasingly seek to compromise our security controls or gain unauthorized access to our sensitive corporate information or our customers’ data.

We have administrative, technical, and physical security measures in place, and we have policies and procedures in place to contractually require service providers to whom we disclose data to

implement and maintain reasonable privacy and security measures. However, if our privacy protection or security measures or those of the previously mentioned third parties are inadequate or are breached as a result of third-party action, employee or contractor error, malfeasance, malware, phishing, hacking attacks, system error, software bugs or defects in our products, trickery, process failure, or otherwise, and, as a result, there is improper disclosure of, or someone obtains unauthorized access to or exfiltrates funds or sensitive information, including personally identifiable information, on our systems or our partners’ systems, or if we suffer a ransomware or advanced persistent threat attack, or if any of the foregoing is reported or perceived to have occurred, our reputation and business could be damaged. Recent high-profile security breaches and related disclosures of sensitive data by large institutions suggest that the risk of such events is significant, even if privacy protection and security measures are implemented and enforced. If sensitive information is lost or improperly disclosed or threatened to be disclosed, we could incur significant costs associated with remediation and the implementation of additional security measures, and may incur significant liability and financial loss, and be subject to regulatory scrutiny, investigations, proceedings, and penalties.

In addition, our financial institution strategic partners conduct regular audits of our cybersecurity program, and if any of them were to conclude that our systems and procedures are insufficiently rigorous, they could terminate their relationships with us, and our financial results and business could be adversely affected. Under our terms of service and our contracts with strategic partners, if there is a breach of payment information that we store, we could be liable to the partner for their losses and related expenses. Additionally, if our own confidential business information were improperly disclosed, our business could be materially and adversely affected. A core aspect of our business is the reliability and security of our platform. Any perceived or actual breach of security, regardless of how it occurs or the extent of the breach, could have a significant impact on our reputation as a trusted brand, cause us to lose existing partners or other customers, prevent us from obtaining new partners and other customers, require us to expend significant funds to remedy problems caused by breaches and implement measures to prevent further breaches, and expose us to legal risk and potential liability including those resulting from governmental or regulatory investigations, class action litigation, and costs associated with remediation, such as fraud monitoring and forensics. Any actual or perceived security breach at a company providing services to us or our customers could have similar effects.

While we maintain cybersecurity insurance, our insurance may be insufficient or may not cover all liabilities incurred by such attacks. We also cannot be certain that our insurance coverage will be adequate for data handling or data security liabilities actually incurred, that insurance will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, including our financial condition, operating results, and reputation.

We currently handle cross-border payments and plan to expand our offering to new customers and to make payments to new countries, creating a variety of operational challenges.

A component of our growth strategy involves our cross-border payments product and, ultimately, expanding our operations internationally. Although we do not currently serve customers outside the United States, starting in 2018 we introduced cross-border payments through our relationship with Cambridge Mercantile, and now offer our United States-based customers the ability to disburse funds to over 130 countries. We are continuing to adapt to and develop strategies to address payments to new countries. However, there is no guarantee that such efforts will have the desired effect.

Our cross-border payments product and international operations strategy involve a variety of risks, including:

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changes in financial regulations and our ability to comply and obtain any relevant licenses;

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currency exchange rate fluctuations and the resulting effect on our revenue and expenses, and the cost and risk of entering into hedging transactions;

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reduction in cross-border trade resulting from trade sanctions, other trade regulations, and relations;

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potential application of more stringent regulations relating to privacy, data protection, and data security, and the authorized use of, or access to, commercial and personal information;

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potential changes in trade relations, regulations, or laws;

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exposure to liabilities under anti-corruption and anti-money laundering laws, including the U.S. Foreign Corrupt Practices Act (FCPA), U.S. bribery laws, the UK Bribery Act, and similar laws and regulations in other jurisdictions; and

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unexpected changes in tax laws.

If we invest substantial time and resources to further expand our cross-border payments offering and are unable to do so successfully and in a timely manner, our business and operating results may suffer.

Future acquisitions, strategic investments, partnerships, collaborations, or alliances could be difficult to identify and integrate, divert the attention of management, disrupt our business, dilute stockholder value, and adversely affect our operating results and financial condition.

We may in the future seek to acquire or invest in businesses, products, or technologies that we believe could complement or expand our platform, enhance our technical capabilities, or otherwise offer growth opportunities. The pursuit of potential acquisitions may divert the attention of management and cause us to incur various expenses in identifying, investigating, and pursuing suitable acquisitions, whether or not such acquisitions are completed. In addition, we have no experience in acquiring other businesses, and we may not successfully identify desirable acquisition targets, or if we acquire additional businesses, we may not be able to integrate them effectively following the acquisition. Acquisitions could also result in dilutive issuances of equity securities or the incurrence of debt, as well as unfavorable accounting treatment and exposure to claims and disputes by third parties, including intellectual property claims. We also may not generate sufficient financial returns to offset the costs and expenses related to any acquisitions. In addition, if an acquired business fails to meet our expectations, our business, operating results, and financial condition may suffer.

We use open source software in our products, which could subject us to litigation or other actions.

We use open source software in our products. From time to time, there have been claims challenging the ownership of open source software against companies that incorporate it into their products. As a result, we could be subject to lawsuits by parties claiming ownership of what we believe to be open source software. Litigation could be costly for us to defend, have a negative effect on our operating results and financial condition, or require us to devote additional research and development resources to change our products. In addition, if we were to combine our proprietary software products with open source software in a certain manner under certain open source licenses, we could be required to release the source code of our proprietary software products. If we inappropriately use or incorporate open source software subject to certain types of open source licenses that challenge the proprietary nature of our products, we may be required to re-engineer such products, discontinue the sale of such products, or take other remedial actions.

If we fail to maintain and enhance our brand, our ability to expand our customer base will be impaired and our business, operating results, and financial condition may suffer.

We believe that maintaining and enhancing the Bill.com brand is important to support the marketing and sale of our existing and future products to new customers and strategic partners and to expand sales of our platform to existing customers and strategic partners. Our ability to protect our brand is limited as a result of its descriptive nature. Successfully maintaining and enhancing our brand will depend largely on the effectiveness of our marketing and demand generation efforts, our ability to provide reliable products that continue to meet the needs of our customers at competitive prices, our ability to maintain our customers’ trust, our ability to continue to develop new functionality and products, and our ability to successfully differentiate our platform and products from competitive products and services. Our brand promotion activities may not generate customer awareness or yield increased revenue, and even if they do, any increased revenue may not offset the expenses we incur in building our brand. If we fail to successfully promote and maintain our brand, our business could suffer.

If we fail to adequately protect our proprietary rights, our competitive position could be impaired and we may lose valuable assets, generate less revenue and incur costly litigation to protect our rights.

Our success is dependent, in part, upon protecting our proprietary technology. We rely on a combination of patents, copyrights, trademarks, service marks, trade secret laws, and contractual provisions to establish and protect our proprietary rights. However, the steps we take to protect our intellectual property may be inadequate. While we have been issued patents in the United States and have additional patent applications pending, we may be unable to obtain patent protection for the technology covered in our patent applications. In addition, any patents issued in the future may not provide us with competitive advantages or may be successfully challenged by third parties. Any of our patents, trademarks, or other intellectual property rights may be challenged or circumvented by others or invalidated through administrative process or litigation. There can be no guarantee that others will not independently develop similar products, duplicate any of our products, or design around our patents. Furthermore, legal standards relating to the validity, enforceability, and scope of protection of intellectual property rights are uncertain. Despite our precautions, it may be possible for unauthorized third parties to copy our products and use information that we regard as proprietary to create products and services that compete with ours.

No assurance can be given that these agreements will be effective in controlling access to and distribution of our products and proprietary information. Further, these agreements do not prevent our competitors or partners from independently developing technologies that are substantially equivalent or superior to our platform.

We have been in the past, and may in the future be, subject to intellectual property disputes, which are costly and may subject us to significant liability and increased costs of doing business.

We have been in the past and may in the future become subject to intellectual property disputes. Lawsuits are time-consuming and expensive to resolve and they divert management’s time and attention. Although we carry insurance, our insurance may not cover potential claims of this type or may not be adequate to indemnify us for all liability that may be imposed. We cannot predict the outcome of lawsuits and cannot assure you that the results of any such actions will not have an adverse effect on our business, operating results, or financial condition.

The software industry is characterized by the existence of many patents, copyrights, trademarks, trade secrets, and other intellectual and proprietary rights. Companies in the software industry are

often required to defend against litigation claims based on allegations of infringement or other violations of intellectual property rights. Our technologies may not be able to withstand any third-party claims against their use. In addition, many companies have the capability to dedicate substantially greater resources to enforce their intellectual property rights and to defend claims that may be brought against them. Any litigation may also involve patent holding companies or other adverse patent owners that have no relevant product revenue, and therefore, our patents may provide little or no deterrence as we would not be able to assert them against such entities or individuals. If a third party is able to obtain an injunction preventing us from accessing such third-party intellectual property rights, or if we cannot license or develop alternative technology for any infringing aspect of our business, we would be forced to limit or stop sales of our software or cease business activities related to such intellectual property. Any inability to license third-party technology in the future would have an adverse effect on our business or operating results and would adversely affect our ability to compete. We may also be contractually obligated to indemnify our customers in the event of infringement of a third party’s intellectual property rights. Responding to such claims, regardless of their merit, can be time consuming, costly to defend, and damaging to our reputation and brand.

Indemnity provisions in various agreements potentially expose us to substantial liability for intellectual property infringement, data protection, and other losses.

Our agreements with strategic partners and some larger customers include indemnification provisions under which we agree to indemnify them for losses suffered or incurred as a result of claims of intellectual property infringement, data protection, damages caused by us to property or persons, or other liabilities relating to or arising from our platform or other contractual obligations. Some of these indemnity agreements provide for uncapped liability and some indemnity provisions survive termination or expiration of the applicable agreement. Large indemnity payments could harm our business, operating results, and financial condition. Although we normally limit our liability with respect to such obligations in our contracts with direct customers and with customers acquired through our accounting firm partners, we may still incur substantial liability, and we may be required to cease use of certain functions of our platform or products, as a result of IP-related claims. Any dispute with a customer with respect to these obligations could have adverse effects on our relationship with that customer and other existing or new customers, and harm our business and operating results. In addition, although we carry insurance, our insurance may not be adequate to indemnify us for all liability that may be imposed, or otherwise protect us from liabilities or damages with respect to claims alleging compromises of customer data, and any such coverage may not continue to be available to us on acceptable terms or at all.

Changes to payment card networks fees or rules could harm our business.

We are required to comply with Mastercard, American Express, and Visa payment card network operating rules in connection with our virtual card payments service and our subscription billing engine. We have agreed to reimburse our service providers for any fines they are assessed by payment card networks as a result of any rule violations by us. We may also be directly liable to the payment card networks for rule violations. The payment card networks set and interpret the card operating rules. The payment card networks could adopt new operating rules or interpret or reinterpret existing rules that we or our processors might find difficult or even impossible to follow, or costly to implement. We also may seek to introduce other card-related products in the future, which would entail additional operating rules. As a result of any violations of rules, new rules being implemented, or increased fees, we could lose our ability to make payments using virtual cards, or such payments could become prohibitively expensive for us or for our customers. If we are unable to make customer payments to vendors using virtual cards, our business would be adversely affected.

Our business is subject to extensive government regulation and oversight. Our failure to comply with extensive, complex, overlapping, and frequently changing rules, regulations, and legal interpretations could materially harm our business.

Our success and increased visibility may result in increased regulatory oversight and enforcement and more restrictive rules and regulations that apply to our business. We are subject to a wide variety of local, state, federal, and international laws, rules, regulations, licensing schemes, and industry standards in the United States and in other countries in which we operate. These laws, rules, regulations, licensing schemes, and standards govern numerous areas that are important to our business. In addition to the payments and financial services-related regulations, and the privacy, data protection, and information security-related laws described elsewhere, our business is also subject to, without limitation, rules and regulations applicable to: securities, labor and employment, immigration, competition, and marketing and communications practices. Laws, rules, regulations, licensing schemes, and standards applicable to our business are subject to changes and evolving interpretations and application, including by means of legislative changes and/or executive orders, and it can be difficult to predict how they may be applied to our business and the way we conduct our operations, particularly as we introduce new products and services and expand into new jurisdictions. We may not be able to respond quickly or effectively to regulatory, legislative, and other developments, and these changes may in turn impair our ability to offer our existing or planned features, products, and services and/or increase our cost of doing business.

Although we have a compliance program focused on the laws, rules, regulations, licensing schemes, and industry standards that we have assessed as applicable to our business and we are continually investing more in this program, there can be no assurance that our employees or contractors will not violate such laws, rules, regulations, licensing schemes, and industry standards. Any failure or perceived failure to comply with existing or new laws, rules, regulations, licensing schemes, industry standards, or orders of any governmental authority (including changes to or expansion of the interpretation of those laws, regulations, standards or orders), may:

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subject us to significant fines, penalties, criminal and civil lawsuits, license suspension or revocation, forfeiture of significant assets, audits, inquiries, whistleblower complaints, adverse media coverage, investigations, and enforcement actions in one or more jurisdictions levied by federal, state, local or foreign regulators, state attorneys general and private plaintiffs who may be acting as private attorneys general pursuant to various applicable federal, state, and local laws;

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result in additional compliance and licensure requirements;

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increase regulatory scrutiny of our business; and

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restrict our operations and force us to change our business practices or compliance program, make product or operational changes, or delay planned product launches or improvements.

The complexity of U.S. federal and state regulatory and enforcement regimes, coupled with the scope of our international operations and the evolving regulatory environment, could result in a single event giving rise to many overlapping investigations and legal and regulatory proceedings by multiple government authorities in different jurisdictions.

Any of the foregoing could, individually or in the aggregate, harm our reputation as a trusted provider, damage our brands and business, cause us to lose existing customers, prevent us from obtaining new customers, require us to expend significant funds to remedy problems caused by breaches and to avert further breaches, expose us to legal risk and potential liability, and adversely affect our results of operations and financial condition.

We may require additional capital to support the growth of our business, and this capital might not be available on acceptable terms, if at all.

We have funded our operations since inception primarily through equity financings, sales of subscriptions to our products, and usage-based transaction fees. We cannot be certain when or if our operations will generate sufficient cash to fully fund our ongoing operations or the growth of our business. We intend to continue to make investments to support our business, which may require us to engage in equity or debt financings to secure additional funds. Additional financing may not be available on terms favorable to us, if at all. If adequate funds are not available on acceptable terms, we may be unable to invest in future growth opportunities, which could harm our business, operating results, and financial condition. If we incur additional debt, the debt holders would have rights senior to holders of common stock to make claims on our assets, and the terms of any debt could restrict our operations, including our ability to pay dividends on our common stock. Furthermore, if we issue additional equity securities, stockholders will experience dilution, and the new equity securities could have rights senior to those of our common stock. Because our decision to issue securities in the future will depend on numerous considerations, including factors beyond our control, we cannot predict or estimate the amount, timing, or nature of any future issuances of debt or equity securities. As a result, our stockholders bear the risk of future issuances of debt or equity securities reducing the value of our common stock and diluting their interests.

Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations.

As of June 30, 2019, we had U.S. federal net operating loss (NOL) carryforwards of approximately $104.2 million and state net operating loss carryforwards of approximately $71.3 million. The federal and material state net operating loss carryforwards will begin to expire in 2026. As of June 30, 2019, we had U.S. federal research and development tax credit carryforwards of approximately $4.7 million and state research and development tax credit carryforwards of approximately $4.3 million. In general, under Sections 382 and 383 of the United States Internal Revenue Code of 1986, as amended, or the Code, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change NOLs and other tax attributes such as research tax credits to offset future taxable income. If it is determined that we have in the past experienced an ownership change, or if we undergo one or more ownership changes as a result of this offering or future transactions in our stock, then our ability to utilize NOLs and other pre-change tax attributes could be limited by Sections 382 and 383 of the Code. Future changes in our stock ownership, many of which are outside of our control, could result in an ownership change under Sections 382 or 383 of the Code. Furthermore, our ability to utilize NOLs of companies that we may acquire in the future may be subject to limitations. For these reasons, we may not be able to utilize a material portion of the NOLs, even if we were to achieve profitability.

The Tax Cuts and Jobs Act (Tax Act) was enacted on December 22, 2017 and significantly reforms the Code. The Tax Act, among other things, includes changes to U.S. federal tax rates and the rules governing net operating loss carryforwards. For federal NOLs arising in tax years beginning after December 31, 2017, the Tax Act limits a taxpayer’s ability to utilize NOL carryforwards to 80% of taxable income. In addition, federal NOLs arising in tax years ending after December 31, 2017 can be carried forward indefinitely, but carryback is generally prohibited. NOLs generated in tax years beginning before January 1, 2018 will not be subject to the taxable income limitation, and NOLs generated in tax years ending before January 1, 2018 will continue to have a two-year carryback and twenty-year carryforward period. Deferred tax assets for NOLs will need to be measured at the applicable tax rate in effect when the NOL is expected to be utilized. The changes in the carryforward/carryback periods as well as the new limitation on use of NOLs may significantly impact our valuation allowance assessments for NOLs generated after December 31, 2017.

We could be required to collect additional sales taxes or be subject to other tax liabilities that may increase the costs our customers would have to pay for our offering and adversely affect our operating results.

The vast majority of states have considered or adopted laws that impose tax collection obligations on out-of-state companies. States where we have nexus may require us to calculate, collect, and remit taxes on sales in their jurisdiction. Additionally, the Supreme Court of the United States recently ruled in South Dakota v. Wayfair, Inc. et al (Wayfair) that online sellers can be required to collect sales and use tax despite not having a physical presence in the buyer’s state. In response to Wayfair, or otherwise, states or local governments may enforce laws requiring us to calculate, collect, and remit taxes on sales in their jurisdictions. We may be obligated to collect and remit sales and use tax in states in which we have not collected and remitted sales and use tax. A successful assertion by one or more states requiring us to collect taxes where we historically have not or presently do not do so could result in substantial tax liabilities, including taxes on past sales, as well as penalties and interest. The imposition by state governments or local governments of sales tax collection obligations on out-of-state sellers could also create additional administrative burdens for us, put us at a perceived competitive disadvantage if they do not impose similar obligations on our competitors, and decrease our future sales, which could adversely effect our business and operating results.

Changes in our effective tax rate or tax liability may adversely effect our operating results.

Our effective tax rate could increase due to several factors, including:

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changes in the relative amounts of income before taxes in the various jurisdictions in which we operate due to differing statutory tax rates in various jurisdictions;

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changes in tax laws, tax treaties, and regulations or the interpretation of them, including the Tax Act;

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changes to our assessment about our ability to realize our deferred tax assets that are based on estimates of our future results, the prudence and feasibility of possible tax planning strategies, and the economic and political environments in which we do business;

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the outcome of current and future tax audits, examinations, or administrative appeals; and

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limitations or adverse findings regarding our ability to do business in some jurisdictions.

Any of these developments could adversely affect our operating results.

Natural catastrophic events and man-made problems such as power-disruptions, computer viruses, data security breaches, and terrorism may disrupt our business.

Natural disasters or other catastrophic events may cause damage or disruption to our operations, international commerce and the global economy, and thus could harm our business. We have a large employee presence in Palo Alto, California and a smaller presence in Houston, Texas, and our data centers are located in California and Arizona. The west coast of the United States contains active earthquake zones and the Houston area frequently experiences significant hurricanes. In the event of a major earthquake, hurricane or catastrophic event such as fire, power loss, telecommunications failure, vandalism, cyber-attack, war, or terrorist attack, we may be unable to continue our operations and may endure system interruptions, reputational harm, delays in our application development, lengthy interruptions in our products, breaches of data security, and loss of critical data, all of which could harm our business, operating results, and financial condition.

Additionally, as computer malware, viruses, and computer hacking, fraudulent use attempts, and phishing attacks have become more prevalent, we, and third parties upon which we rely, face

increased risk in maintaining the performance, reliability, security, and availability of our solutions and related services and technical infrastructure to the satisfaction of our customers. Any computer malware, viruses, computer hacking, fraudulent use attempts, phishing attacks, or other data security breaches related to our network infrastructure or information technology systems or to computer hardware we lease from third parties, could, among other things, harm our reputation and our ability to retain existing customers and attract new customers.

In addition, the insurance we maintain may be insufficient to cover our losses resulting from disasters, cyber-attacks, or other business interruptions, and any incidents may result in loss of, or increased costs of, such insurance.

As a result of becoming a public company, we will be obligated to develop and maintain proper and effective internal control over financial reporting, and if we fail to develop and maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable laws and regulations could be impaired.

As a public company, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (Exchange Act), the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act), the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the listing requirements of the New York Stock Exchange, and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time consuming, or costly, and increase demand on our systems and resources, particularly after we are no longer an emerging growth company. The Exchange Act requires, among other things, that we file annual, quarterly, and current reports with respect to our business and operating results. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. It may require significant resources and management oversight to maintain and, if necessary, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard. As a result, management’s attention may be diverted from other business concerns, which could adversely affect our business and operating results. Although we have already hired additional employees to comply with these requirements, we may need to hire more employees in the future or engage outside consultants, which would increase our costs and expenses. Furthermore, for fiscal 2018, we identified material weaknesses in our internal control over financial reporting relating to our financial statement close process and reconciliation of funds held for customers. While no material weaknesses were identified in fiscal 2019, our remediation efforts are still ongoing and there can be no assurance that we will not experience additional material weaknesses in the future.

As a public company, we will also be required, pursuant to Section 404 of the Sarbanes-Oxley Act (Section 404), to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting commencing with our second annual report on Form 10-K. Effective internal control over financial reporting is necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could cause us to fail to meet our reporting obligations. Ineffective internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock.

This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting, as well as a statement that our independent registered public accounting firm has issued an opinion on the effectiveness of our internal control over financial reporting, provided that our independent registered public accounting firm

will not be required to attest to the effectiveness of our internal control over financial reporting until our first annual report required to be filed with the SEC following the later of the date we are deemed to be an “accelerated filer” or a “large accelerated filer,” each as defined in the Exchange Act, or the date we are no longer an emerging growth company, as defined in the JOBS Act. We could be an emerging growth company for up to five years. An independent assessment of the effectiveness of our internal controls could detect problems that our management’s assessment might not. Undetected material weaknesses in our internal controls could lead to financial statement restatements and require us to incur the expense of remediation. We will be required to disclose changes made in our internal control and procedures on a quarterly basis. To comply with the requirements of being a public company, we may need to undertake various actions, such as implementing new internal controls and procedures and hiring accounting or internal audit staff.

We are in the early stages of the costly and challenging process of compiling the system and processing documentation necessary to perform the evaluation needed to comply with Section 404. We may not be able to complete our evaluation, testing, and any required remediation in a timely fashion. During the evaluation and testing process, if we identify material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal control over financial reporting is effective.

If we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion on the effectiveness of our internal control, including as a result of the material weakness described above, we could lose investor confidence in the accuracy and completeness of our financial reports, which could cause the price of our common stock to decline, and we may be subject to investigation or sanctions by the SEC. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on .

Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the United States.

U.S. generally accepted accounting principles (GAAP) is subject to interpretation by the Financial Accounting Standards Board (FASB), the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported operating results and financial condition and could affect the reporting of transactions already completed before the announcement of a change.

If our estimates or judgments relating to our critical accounting policies prove to be incorrect, our operating results could be adversely affected.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in the section titled “Management’s Discussion and Analysis of Financial Condition and Operating Results—Critical Accounting Policies and Estimates.” The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities, and equity, and the amount of revenue and expenses that are not readily apparent from other sources. Significant estimates and judgments involve the identification of performance obligations in revenue recognition, the valuation of the stock-based awards, including the determination of fair value of common stock, and the period of benefit for amortizing deferred commissions, among others. Our operating results may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our operating results to fall below the expectations of securities analysts and investors, resulting in a decline in the trading price of our common stock.

Any future litigation against us could be costly and time-consuming to defend.

In addition to intellectual property litigation, we have in the past and may in the future become subject to legal proceedings and claims that arise in the ordinary course of business, such as claims brought by our customers in connection with commercial disputes, employment claims made by our current or former employees, or claims for reimbursement following misappropriation of customer data. Litigation might result in substantial costs and may divert management’s attention and resources, which might seriously harm our business, overall financial condition, and operating results. Insurance might not cover such claims, might not provide sufficient payments to cover all the costs to resolve one or more such claims, and might not continue to be available on terms acceptable to us. A claim brought against us that is uninsured or underinsured could result in unanticipated costs, thereby reducing our operating results and leading analysts or potential investors to reduce their expectations of our performance, which could reduce the trading price of our stock.

The estimates of market opportunity and forecasts of market growth included in this prospectus may prove to be inaccurate, and even if the market in which we compete achieves the forecasted growth, our business could fail to grow at similar rates, if at all.

Market opportunity estimates and growth forecasts included in this prospectus, including those we have generated ourselves, are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. The variables that go into the calculation of our market opportunity are subject to change over time, and there is no guarantee that any particular number or percentage of addressable users or companies covered by our market opportunity estimates will purchase our products at all or generate any particular level of revenue for us. Any expansion in our market depends on a number of factors, including the cost, performance, and perceived value associated with our platform and those of our competitors. Even if the market in which we compete meets the size estimates and growth forecasted in this prospectus, our business could fail to grow at similar rates, if at all. Our growth is subject to many factors, including our success in implementing our business strategy, which is subject to many risks and uncertainties. Accordingly, the forecasts of market growth included in this prospectus should not be taken as indicative of our future growth. For more information regarding the estimates of market opportunity and the forecasts of market growth included in this prospectus, see the section titled “Industry and Market Data.”

We are subject to governmental laws and requirements regarding economic and trade sanctions, anti-money laundering, and counter-terror financing that could impair our ability to compete in international markets or subject us to criminal or civil liability if we violate them.

Although we currently only operate in the United States, in the future we will seek to expand internationally and will become subject to additional laws and regulations, and will need to implement new regulatory controls to comply with applicable laws. We are currently required to comply with U.S. economic and trade sanctions administered by the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC) and we have processes in place to comply with the OFAC regulations as well as similar requirements in other jurisdictions. As part of our compliance efforts, we scan our customers against OFAC and other watchlists. While we offer services only to customers domiciled in the United States, our application could be accessed from anywhere in the world. If our service is accessed from a sanctioned country in violation of the trade and economic sanctions, we could be subject to fines or other enforcement action. We are also subject to various anti-money laundering and counter-terrorist financing laws and regulations around the world that prohibit, among other things, our involvement in transferring the proceeds of criminal activities. In the United States, most of our services are subject to anti-money laundering laws and regulations, including the Bank Secrecy Act, as amended (BSA), and similar laws and regulations. The BSA, among other things, requires money transmitters to develop and implement risk-based anti-money laundering programs, to report large cash transactions and

suspicious activity, and in some cases, to collect and maintain information about customers who use their services and maintain other transaction records. Regulators in the United States and globally continue to increase their scrutiny of compliance with these obligations, which may require us to further revise or expand our compliance program, including the procedures we use to verify the identity of our customers and to monitor transactions on our system, including payments to persons outside of the United States. Regulators regularly re-examine the transaction volume thresholds at which we must obtain and keep applicable records or verify identities of customers, and any change in such thresholds could result in greater costs for compliance.

We are subject to anti-corruption, anti-bribery, and similar laws, and non-compliance with such laws can subject us to criminal or civil liability and harm our business.

We are subject to the FCPA, U.S. domestic bribery laws, and other anti-corruption laws. Anti-corruption and anti-bribery laws have been enforced aggressively in recent years and are interpreted broadly to generally prohibit companies, their employees, and their third-party intermediaries from authorizing, offering, or providing, directly or indirectly, improper payments or benefits to recipients in the public sector. These laws also require that we keep accurate books and records and maintain internal controls and compliance procedures designed to prevent any such actions. Although we currently only maintain operations in the United States, as we increase our international cross-border business and expand operations abroad, we may engage with business partners and third-party intermediaries to market our services and to obtain necessary permits, licenses, and other regulatory approvals. In addition, we or our third-party intermediaries may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities. We can be held liable for the corrupt or other illegal activities of these third-party intermediaries, our employees, representatives, contractors, partners, and agents, even if we do not explicitly authorize such activities.

We cannot assure you that all of our employees and agents will not take actions in violation of our policies and applicable law, for which we may be ultimately held responsible. As we increase our international business, our risks under these laws may increase.

Detecting, investigating, and resolving actual or alleged violations of anti-corruption laws can require a significant diversion of time, resources, and attention from senior management. In addition, noncompliance with anti-corruption or anti-bribery laws could subject us to whistleblower complaints, investigations, sanctions, settlements, prosecution, enforcement actions, fines, damages, other civil or criminal penalties, injunctions, suspension or debarment from contracting with certain persons, reputational harm, adverse media coverage, and other collateral consequences. If any subpoenas are received or investigations are launched, or governmental or other sanctions are imposed, or if we do not prevail in any possible civil or criminal proceeding, our business, operating results, and financial condition could be materially harmed. In addition, responding to any action will likely result in a materially significant diversion of management’s attention and resources and significant defense costs and other professional fees.

Our Senior Secured Credit Facilities Credit Agreement provides our lender with a first-priority lien against substantially all of our assets, and contains financial covenants and other restrictions on our actions, which could limit our operational flexibility and otherwise adversely affect our financial condition.

Our Senior Secured Credit Facilities Credit Agreement (Senior Facilities Agreement) restricts our ability to, among other things:

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use our accounts receivable, inventory, trademarks, and most of our other assets as security in other borrowings or transactions, unless the value of the assets subject thereto does not exceed a certain threshold;

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incur additional indebtedness;

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incur liens upon our property;

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dispose of certain assets;

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declare dividends or make certain distributions; and

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undergo a merger or consolidation or other transactions.

Our Senior Facilities Agreement also prohibits us during certain covered time periods from allowing Net Revenue (as defined in the Senior Facilities Agreement) for any fiscal quarter to be less than prescribed minimums. Our ability to comply with this and other covenants is dependent upon several factors, some of which are beyond our control.

Our failure to comply with the covenants or payment requirements, or the occurrence of other events specified in our Senior Facilities Agreement, could result in an event of default under the Senior Facilities Agreement, which would give our lender the right to terminate its commitments to provide additional loans under the Senior Facilities Agreement and to declare all borrowings outstanding, together with accrued and unpaid interest and fees, to be immediately due and payable. In addition, we have granted our lender first-priority liens against all of our assets as collateral. Failure to comply with the covenants or other restrictions in the Senior Facilities Agreement could result in a default. If the debt under our Senior Facilities Agreement was to be accelerated, we may not have sufficient cash on hand or be able to sell sufficient collateral to repay it, which would have an immediate adverse effect on our business and operating results.

If we cannot maintain our company culture as we grow, our success and our business may be harmed.

We believe our culture has been a key contributor to our success to date and that the critical nature of the platform that we provide promotes a sense of greater purpose and fulfillment in our employees. Any failure to preserve our culture could negatively affect our ability to retain and recruit personnel, which is critical to our growth, and to effectively focus on and pursue our corporate objectives. As we grow and develop the infrastructure of a public company, we may find it difficult to maintain these important aspects of our culture. If we fail to maintain our company culture, our business and competitive position may be adversely affected.

We expect fluctuations in our financial results, making it difficult to project future results, and if we fail to meet the expectations of securities analysts or investors with respect to our operating results, our stock price and the value of your investment could decline.

Our operating results have fluctuated in the past and are expected to fluctuate in the future due to a variety of factors, many of which are outside of our control. As a result, our past results may not be indicative of our future performance. In addition to the other risks described herein, factors that may affect our operating results include the following:

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fluctuations in demand for or pricing of our platform;

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our ability to attract new customers;

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our ability to retain and grow engagement with our existing customers;

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our ability to expand our relationships with our accounting firm partners, financial institution partners, and accounting software partners, or identify and attract new partners;

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customer expansion rates;

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changes in customer preference for cloud-based services as a result of security breaches in the industry or privacy concerns, or other security or reliability concerns regarding our products;

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fluctuations or delays in purchasing decisions in anticipation of new products or product enhancements by us or our competitors;

•

changes in customers’ budgets and in the timing of their budget cycles and purchasing decisions;

•

potential and existing customers choosing our competitors’ products or developing their own solutions in-house;

•

the development or introduction of new platforms or services that are easier to use or more advanced than our current suite of services, especially related to the application of artificial intelligence-based services;

•

our failure to adapt to new forms of payment that become widely accepted, including cryptocurrency;

•

the adoption or retention of more entrenched or rival services in the international markets where we compete;

•

our ability to control costs, including our operating expenses;

•

the amount and timing of payment for operating expenses, particularly research and development and sales and marketing expenses, including commissions;

•

the amount and timing of non-cash expenses, including stock-based compensation, goodwill impairments, and other non-cash charges;

•

the amount and timing of costs associated with recruiting, training, and integrating new employees, and retaining and motivating existing employees;

•

fluctuation in market interest rates, which impacts interest earned on funds held for customers;

•

the effects of acquisitions and their integration;

•

general economic conditions, both domestically and internationally, as well as economic conditions specifically affecting industries in which our customers participate;

•

the impact of new accounting pronouncements;

•

changes in the competitive dynamics of our market;

•

security breaches of, technical difficulties with, or interruptions to, the delivery and use of our platform; and

•

awareness of our brand and our reputation in our target markets.

Any of these and other factors, or the cumulative effect of some of these factors, may cause our operating results to vary significantly. In addition, we expect to incur significant additional expenses due to the increased costs of operating as a public company. If our quarterly operating results fall below the expectations of investors and securities analysts who follow our stock, the price of our common stock could decline substantially, and we could face costly lawsuits, including securities class action suits.

Risks Related to Ownership of Our Common Stock

There has been no prior public market for our common stock, the stock price of our common stock may be volatile or may decline regardless of our operating performance, and you may not be able to resell your shares at or above the initial public offering price.

There has been no public market for our common stock prior to this offering. The initial public offering price for our common stock will be determined through negotiations between the underwriters and us, and may vary from the market price of our common stock following this offering. An active trading market for our common stock may not develop on the New York Stock Exchange or elsewhere or, if developed, any market may not be sustained. The market prices of the securities of newly public companies such as ours have historically been highly volatile. The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:

•

overall performance of the equity markets;

•

actual or anticipated fluctuations in our revenue and other operating results;

•

changes in the financial projections we may provide to the public or our failure to meet these projections;

•

failure of securities analysts to initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors;

•

recruitment or departure of key personnel;

•

the economy as a whole and market conditions in our industry;

•

negative publicity related to the real or perceived quality of our platform, as well as the failure to timely launch new products and services that gain market acceptance;

•

rumors and market speculation involving us or other companies in our industry;

•

announcements by us or our competitors of new products or services, commercial relationships, or significant technical innovations;

•

acquisitions, strategic partnerships, joint ventures, or capital commitments;

•

new laws or regulations or new interpretations of existing laws or regulations applicable to our business;

•

lawsuits threatened or filed against us, litigation involving our industry, or both;

•

developments or disputes concerning our or other parties’ products, services or intellectual property rights;

•

changes in accounting standards, policies, guidelines, interpretations, or principles;

•

interpretations of any of the above or other factors by trading algorithms, including those that employ natural language processing and related methods to evaluate our public disclosures;

•

other events or factors, including those resulting from war, incidents of terrorism, or responses to these events;

•

the expiration of contractual lock-up or market stand-off agreements; and

•

sales of shares of our common stock by us or our stockholders.

In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. Stock prices

of many companies, and technology companies in particular, have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business, and adversely affect our business.

Concentration of ownership of our common stock among our existing executive officers, directors, and principal stockholders may prevent new investors from influencing significant corporate decisions.

Based upon shares outstanding as of September 30, 2019, upon the completion of this offering, our executive officers, directors, and current beneficial owners of 5% or more of our common stock will, in the aggregate, beneficially own approximately % of our outstanding common stock. These persons, acting together, will be able to significantly influence all matters requiring stockholder approval, including the election and removal of directors and any merger or other significant corporate transactions. The interests of this group of stockholders may not coincide with the interests of other stockholders.

Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of our company more difficult, limit attempts by our stockholders to replace or remove our current management and affect the market price of our common stock.

Provisions in our restated certificate of incorporation and restated bylaws, as they will be in effect upon the completion of this offering, may have the effect of delaying or preventing a change of control or changes in our management. Our restated certificate of incorporation and restated bylaws will include provisions that:

•

authorize our board of directors to issue, without further action by the stockholders, shares of undesignated preferred stock with terms, rights, and preferences determined by our board of directors that may be senior to our common stock;

•

require that any action to be taken by our stockholders be affected at a duly called annual or special meeting and not by written consent;

•

specify that special meetings of our stockholders can be called only by our board of directors, the chairperson of our board of directors, or our chief executive officer;

•

establish an advance notice procedure for stockholder proposals to be brought before an annual meeting, including proposed nominations of persons for election to our board of directors;

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establish that our board of directors is divided into three classes, with each class serving three-year staggered terms;

•

prohibit cumulative voting in the election of directors;

•

provide that our directors may be removed for cause only upon the vote of sixty-six and two-thirds percent (66 2/3%) of our outstanding shares of common stock;

•

provide that vacancies on our board of directors may be filled only by a majority vote of directors then in office, even though less than a quorum; and

•

require the approval of our board of directors or the holders of at least sixty-six and two-thirds percent (66 2/3%) of our outstanding shares of common stock to amend our bylaws and certain provisions of our certificate of incorporation.

In addition, our restated certificate of incorporation will provide that the Court of Chancery of the State of Delaware, to the fullest extent permitted by law, will be the exclusive forum for any derivative

action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law (DGCL), our restated certificate of incorporation, or our restated bylaws, or any action asserting a claim against us that is governed by the internal affairs doctrine. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, or other employees, which may discourage lawsuits against us and our directors, officers, and other employees. This exclusive forum provision will not apply to claims that are vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery of the State of Delaware, or for which the Court of Chancery of the State of Delaware does not have subject matter jurisdiction. For instance, the provision would not preclude the filing of claims brought to enforce any liability or duty created by the Exchange Act or Securities Act or the rules and regulations thereunder in federal court.

Moreover, Section 203 of the DGCL may discourage, delay, or prevent a change in control of our company. Section 203 imposes certain restrictions on mergers, business combinations, and other transactions between us and holders of 15% or more of our common stock. See the section titled “Description of Capital Stock” for additional information.

We are an “emerging growth company,” and we cannot be certain if the reduced reporting and disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including the auditor attestation requirements of Section 404 reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. Pursuant to Section 107 of the JOBS Act, as an emerging growth company, we have elected to use the extended transition period for complying with new or revised accounting standards until those standards would otherwise apply to private companies. As a result, our consolidated financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies, which may make our common stock less attractive to investors. In addition, if we cease to be an emerging growth company, we will no longer be able to use the extended transition period for complying with new or revised accounting standards.

We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year following the fifth anniversary of this offering, (ii) the last day of the first fiscal year in which our annual gross revenue is $1.07 billion or more, (iii) the date on which we have, during the previous rolling three-year period, issued more than $1 billion in non-convertible debt securities, and (iv) the last day of the fiscal year in which the market value of our common stock held by non-affiliates exceeded $700 million as of December 31^st, our second fiscal quarter, of such fiscal year.

We cannot predict if investors will find our common stock less attractive if we choose to rely on these exemptions. For example, if we do not adopt a new or revised accounting standard, our future operating results may not be as comparable to the operating results of certain other companies in our industry that adopted such standards. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock, and our stock price may be more volatile.

We will incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time to compliance with our public company responsibilities and corporate governance practices.

As a public company, we will incur significant legal, accounting, and other expenses that we did not incur as a private company, which we expect to further increase after we are no longer an “emerging growth company.” The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of the New York Stock Exchange, and other applicable securities rules and regulations impose various requirements on public companies. Our management and other personnel devote a substantial amount of time to compliance with these requirements. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. We cannot predict or estimate the amount of additional costs we will incur as a public company or the specific timing of such costs.

Our management team has limited experience managing a public company.

Our management team has limited experience managing a publicly traded company, interacting with public company investors and securities analysts, and complying with the increasingly complex laws pertaining to public companies. These new obligations and constituents require significant attention from our management team and could divert their attention away from the day-to-day management of our business, which could harm our business, operating results, and financial condition.

We do not intend to pay dividends for the foreseeable future and, as a result, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.

We have never declared or paid any cash dividends on our capital stock, and we do not intend to pay any cash dividends in the foreseeable future. In addition, our Senior Credit Facilities Agreement contains restrictions on our ability to pay cash dividends on our capital stock. Any determination to pay dividends in the future will be at the discretion of our board of directors. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.

If securities or industry analysts do not publish research or publish unfavorable or inaccurate research about our business, our stock price and trading volume could decline.

Our stock price and trading volume following the completion of this offering will be heavily influenced by the way analysts and investors interpret our financial information and other disclosures. Securities and industry analysts do not currently, and may never, publish research on our business. If few securities analysts commence coverage of us, or if industry analysts cease coverage of us, our stock price could be negatively affected. If securities or industry analysts do not publish research or reports about our business, downgrade our common stock, or publish negative reports about our business, our stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our common stock could decrease, which might cause our stock price to decline and could decrease the trading volume of our common stock.

Future sales of our common stock in the public market could cause the market price of our common stock to decline.

Sales of a substantial number of shares of our common stock in the public market following the completion of this offering, or the perception that these sales might occur, could depress the market

price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that such sales may have on the prevailing market price of our common stock.

All of our directors and officers and the holders of substantially all of our capital stock and securities convertible into our capital stock are subject to lock-up agreements that restrict their ability to transfer shares of our capital stock for 180 days from the date of this prospectus. These lock-up agreements limit the number of shares of capital stock that may be sold immediately following this offering. Subject to certain limitations, approximately shares of common stock, based upon an assumed initial public offering price of $ per share (which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus), will become eligible for sale upon expiration of the 180-day lock-up period. Goldman Sachs & Co. LLC may, in their sole discretion, permit our stockholders who are subject to these lock-up agreements to sell shares prior to the expiration of the lock-up agreements.

In addition, there were 22,493,593 shares of common stock issuable upon the exercise of options outstanding as of September 30, 2019. We intend to register all of the shares of common stock issuable upon exercise of outstanding options or other equity incentives we may grant in the future, for public resale under the Securities Act. The shares of common stock will become eligible for sale in the public market to the extent such options are exercised, subject to the lock-up agreements described above and compliance with applicable securities laws.

Based on shares outstanding as of September 30, 2019, upon completion of this offering, holders of up to approximately shares, or %, of our common stock will have rights, subject to some conditions, to require us to file registration statements covering the sale of their shares or to include their shares in registration statements that we may file for ourselves or other stockholders.

We may issue our shares of common stock or securities convertible into our common stock from time to time in connection with financings, acquisitions, investments, or otherwise. Any such issuance could result in substantial dilution to our existing stockholders and cause the trading price of our common stock to decline.

We will have broad discretion in the use of the net proceeds to us from this offering and may not use them effectively.

We will have broad discretion in the application of the net proceeds to us from this offering, including for any of the purposes described in the section titled “Use of Proceeds,” and you will not have the opportunity as part of your investment decision to assess whether the net proceeds are being used appropriately. Because of the number and variability of factors that will determine our use of the net proceeds from this offering, their ultimate use may vary substantially from their currently intended use. If we do not use the net proceeds that we receive in this offering effectively, our business, financial condition, operating results, and prospects could be harmed, and the market price of our common stock could decline. Pending their use, we may invest the net proceeds from this offering in short-term, investment-grade, interest-bearing securities, such as money market accounts, certificates of deposit, commercial paper, and guaranteed obligations of the U.S. government that may not generate a high yield for our stockholders.

You will experience immediate and substantial dilution in the net tangible book value of the shares of common stock you purchase in this offering.

The initial public offering price of our common stock will be substantially higher than the pro forma net tangible book value per share of our common stock immediately after this offering. If you purchase shares of our common stock in this offering, you will suffer immediate dilution of $ per share, or $ per share if the underwriters exercise their option to purchase additional shares in full, representing the difference between our pro forma as adjusted net tangible book value per share after giving effect to the sale of common stock in this offering and the assumed public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus. See “Dilution.” If outstanding options or warrants to purchase our common stock are exercised in the future, you will experience additional dilution.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. All statements contained in this prospectus 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 prospectus 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;

•

our expectations concerning relationships with third parties, including strategic 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;

•

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 employees;

•

the estimates and methodologies used in preparing our consolidated financial statements and determining stock option exercise prices;

•

the increased expenses associated with being a public company; and

•

the future market prices of our common stock.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this prospectus.

These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described in the section titled “Risk Factors.” 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, uncertainties, and assumptions, the future events and trends discussed in this prospectus 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 prospectus 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 prospectus, 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. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

You should read this prospectus and the documents that we reference in this prospectus and have filed with the SEC as exhibits to the registration statement of which this prospectus is a part with the understanding that our actual future results, performance, and events and circumstances may be materially different from what we expect.

INDUSTRY AND MARKET DATA

Unless otherwise indicated, information contained in this prospectus concerning our industry and the markets in which we operate, including our general expectations, market position, market opportunity, and market size, is based on information from various sources, as well as assumptions that we have made that are based on those data and other similar sources and on our knowledge of the markets for our products and services. This information involves important assumptions and limitations, and you are cautioned not to give undue weight to such estimates. While we believe the market position, market opportunity, and market size information included in this prospectus is generally reliable, information of this sort is inherently imprecise. In addition, projections, assumptions, and estimates of our future performance and the future performance of the industry in which we operate is necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section titled “Risk Factors” and elsewhere in this prospectus. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us. The information contained on, or that can be accessed through, any website listed below is not a part of this prospectus.

This prospectus contains statistical data, estimates, and forecasts that are based on industry publications or reports generated by third-parties or other publicly available information, as well as other information based on our internal sources.

The source of, and selected additional information contained in, the independent industry and other publications related to the information so identified are provided below:

•

Mastercard, Business Payments 2022, 2018.

•

Levvel Research, 2018 Payables Insight Report, 2018.

•

Levvel Research, 2019 Payables Insight Report, 2019.

•

RPMG Research, Electronic Accounts Payable Benchmark Survey Results, 2018.

•

PYMNTS.COM, SMB Technology Adoption Index, 2016.

•

2018 Association for Financial Professionals (AFP) Payments Fraud and Control Survey Report.

•

Deloitte, B2B Payments for the Middle Market, 2016.

•

IDC Research, Inc., U.S. Small and Medium-Sized Business Forecast, 2018-2022: PCs and Peripherals, Systems and Storage, Telecommunications/Network Equipment, Software, IT Services, and Business Services, 2018.

•

SME Finance Forum, 2019 MSME Economic Indicators Database, 2019. The SME Finance Forum is managed by the International Finance Corporation (World Bank Group).

USE OF PROCEEDS

We estimate that the net proceeds from our sale of shares of common stock in this offering at an assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses, will be approximately $ million, or $ million if the underwriters’ option to purchase additional shares is exercised in full.

A $1.00 increase (decrease) in the assumed initial public offering price of $ per share would increase (decrease) the net proceeds from this offering by approximately $ million, assuming the number of shares of our common stock offered by us remains the same and after deducting estimated underwriting discounts and commissions. Similarly, each increase (decrease) of 1,000,000 shares in the number of shares of our common stock offered would increase (decrease) the net proceeds from this offering by approximately $ million, assuming that the assumed initial public offering price of $ remains the same, and after deducting the estimated underwriting discounts and commissions.

The principal purposes of this offering are to create a public market for our common stock, increase our visibility in the marketplace, obtain additional capital, and increase our capitalization and financial flexibility. We currently intend to use the net proceeds we receive from this offering for working capital and other general corporate purposes, which may include product development, general and administrative matters, and capital expenditures. We may also use a portion of the net proceeds for the acquisition of, or investment in, technologies, solutions, or businesses that complement our business. However, we do not have agreements or commitments for any acquisitions or investments outside the ordinary course of business at this time.

We will have broad discretion over the uses of the net proceeds of this offering. Pending these uses, we intend to invest the net proceeds from this offering in short-term, investment-grade interest-bearing securities such as money market accounts, certificates of deposit, commercial paper, and guaranteed obligations of the U.S. government.

DIVIDEND POLICY

We have never declared or paid cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any dividends on our capital stock in the foreseeable future. Any future determination to declare dividends will be made at the discretion of our board of directors and will depend on our financial condition, operating results, capital requirements, general business conditions, and other factors that our board of directors may deem relevant. In addition, our Senior Facilities Agreement contains restrictions on our ability to pay cash dividends on our capital stock.

CAPITALIZATION

The following table sets forth our cash, cash equivalents and short-term investments, as well as our capitalization, as of September 30, 2019, on:

•

an actual basis;

•

a pro forma basis, which reflects (i) the automatic conversion of all outstanding shares of our redeemable convertible preferred stock as of September 30, 2019 into 104,869,089 shares of our common stock, (ii) the reclassification of the redeemable convertible preferred stock warrant liabilities to additional paid-in capital in connection with the conversion of the outstanding warrants to purchase shares of redeemable convertible preferred stock into warrants to purchase shares of common stock, and (iii) the filing and effectiveness of our restated certificate of incorporation; and

•

a pro forma as adjusted basis, which reflects (i) all adjustments included in the pro forma column and (ii) the sale of shares of our common stock in this offering at an assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the front cover of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses.

The pro forma as adjusted information presented is illustrative only and will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. You should read this table together with our consolidated financial statements and related notes, “Selected Financial and Other Data,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” each included elsewhere in this prospectus.


	As of September 30, 2019
	Actual			Pro Forma			Pro Forma as Adjusted⁽¹⁾
	(in thousands, except share and per share data)
Cash, cash equivalents and short-term investments	$	157,642		$	157,642		$

Redeemable convertible preferred stock warrant liabilities	$	853		$	-		$	-
Redeemable convertible preferred stock: 106,090,134 shares authorized; 104,869,089 shares issued and outstanding, actual; no shares authorized, issued, and outstanding, pro forma and pro forma as adjusted		276,307			-
Stockholders’ (deficit) equity:
Common stock: $0.00001 par value per share; 169,300,000 shares authorized, 16,592,802 shares issued and outstanding, actual; 500,000,000 shares authorized, 121,461,891 shares issued and outstanding, pro forma; 500,000,000 shares authorized, shares issued and outstanding, pro forma as adjusted		1			2
Non-voting common stock: $0.00001 par value per share; 14,000,000 shares authorized, no shares issued and outstanding, actual; no shares authorized, issued and outstanding, pro forma; no shares authorized, issued and outstanding, pro forma as adjusted		-			-
Preferred stock, $0.00001 par value per share; no shares authorized, issued and outstanding, actual; 10,000,000 shares authorized, no shares issued and outstanding, pro forma and pro forma as adjusted		-			-
Additional paid-in capital		17,242			294,401
Accumulated other comprehensive income		128			128
Accumulated deficit		(123,352	)		(123,352	)

Total stockholders’ (deficit) equity		(105,981	)		171,179

Total capitalization	$	171,179		$	171,179		$

(1)

Each $1.00 increase (decrease) in the assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) our pro forma as adjusted cash, cash equivalents and short-term investments, additional paid-in capital, total stockholders’ equity, and total capitalization by approximately $ million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions. Similarly, each increase (decrease) of 1,000,000 shares in the number of shares of our common stock offered would increase (decrease) the amount of our pro forma as adjusted cash, cash equivalents and short-term investments, additional paid-in capital, total stockholders’ equity, and total capitalization by approximately $ million, assuming that the assumed initial public offering price remains the same, and after deducting the estimated underwriting discounts and commissions. If the underwriters exercise their option to purchase additional shares in full, the pro forma as adjusted amount of each of cash, cash equivalents and short-term investments, additional paid-in capital, total stockholders’ (deficit) equity, and total capitalization would increase by approximately $ million, after deducting the estimated underwriting discounts and commissions, and we would have shares of our common stock issued and outstanding, pro forma as adjusted.

The number of shares of our common stock to be outstanding after this offering is based on 121,461,891 shares of our common stock outstanding as of September 30, 2019 and excludes:

•

22,493,593 shares of our common stock issuable upon the exercise of stock options outstanding as of September 30, 2019 under our 2006 Plan and our 2016 Plan, with a weighted-average exercise price of $3.49 per share;

•

1,923,500 shares of our common stock issuable upon the exercise of stock options granted after September 30, 2019 under our 2016 Plan, with a weighted-average exercise price of $8.14 per share;

•

shares of our common stock reserved for future issuance under our equity compensation plans, consisting of (i) 362,309 shares of our common stock reserved for future issuance under our 2016 Plan, as of September 30, 2019 (which number of shares is prior to the stock options to purchase shares of our common stock granted after September 30, 2019), (ii) shares of our common stock reserved for future issuance under our 2019 Plan, which will become effective on the date immediately prior to the date of this prospectus, and (iii) shares of our common stock reserved for issuance under our ESPP, which will become effective on the date of this prospectus.

To the extent that any outstanding options to purchase our common stock are exercised or new awards are granted under our equity compensation plans, there will be further dilution to investors participating in this offering.

DILUTION

If you invest in our common stock in this offering, your ownership interest will be diluted to the extent of the difference between the amount per share paid by purchasers of shares of common stock in this initial public offering and the pro forma as adjusted net tangible book value per share of common stock immediately after this offering.

As of September 30, 2019, our pro forma net tangible book value was approximately $ million, or $ per share of common stock. Our pro forma net tangible book value per share represents the amount of our total tangible assets reduced by the amount of our total liabilities and divided by the total number of shares of our common stock outstanding as of September 30, 2019, after giving effect to (i) the automatic conversion of all outstanding shares of our redeemable convertible preferred stock into 104,869,089 shares of our common stock, (ii) the reclassification of the redeemable convertible preferred stock warrant liabilities to additional paid-in capital in connection with the conversion of the outstanding warrants to purchase shares of redeemable convertible preferred stock into warrants to purchase shares of common stock, and (iii) the filing and effectiveness of our restated certificate of incorporation.

After giving effect to our sale in this offering of shares of our common stock, at an assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses, our pro forma as adjusted net tangible book value as of September 30, 2019 would have been approximately $ million, or $ per share. This represents an immediate increase in pro forma net tangible book value of $ per share to our existing stockholders and an immediate dilution of $ per share to investors purchasing common stock in this offering at the assumed initial public offering price.

The following table illustrates this dilution on a per share basis to new investors:


Assumed initial public offering price per share		$
Pro forma net tangible book value per share as of September 30, 2019, before giving effect to this offering	$
Increase in pro forma net tangible book value per share attributable to new investors in this offering

Pro forma as adjusted net tangible book value per share

Dilution in pro forma as adjusted net tangible book value per share to new investors in this offering		$

A $1.00 increase (decrease) in the assumed initial public offering price of $ per share, which is the midpoint of the price range reflected on the cover page of this prospectus, would increase (decrease) our pro forma as adjusted net tangible book value per share after this offering by $ per share and would increase (decrease) the dilution per share to new investors in this offering by $ per share, assuming the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions. Similarly, each increase (decrease) of 1,000,000 shares in the number of shares of common stock offered would increase (decrease) the pro forma as adjusted net tangible book value per share after this offering by $ per share and would increase (decrease) the dilution to new investors by $ per share, assuming the assumed initial public offering price, which is the midpoint of the price range set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions.

If the underwriters exercise their option to purchase additional shares in full, the pro forma as adjusted net tangible book value per share of our common stock after giving effect to this offering would be $ per share, and the dilution in pro forma net tangible book value per share to investors in this offering would be $ per share.

The following table summarizes, on a pro forma as adjusted basis as of September 30, 2019, after giving effect to the pro forma adjustments described above, the difference between existing stockholders and new investors purchasing shares of common stock in this offering with respect to the number of shares purchased from us, the total consideration paid to us, and the average price per share paid by our existing stockholders or to be paid by investors purchasing shares in this offering at an assumed offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, before deducting the estimated underwriting discounts and commissions and estimated offering expenses:

Shares Purchased

Total Consideration

Average
Price
Per Share

Number

Percent

Amount

Percent

Existing stockholders

New public investors

Total

100%

A $1.00 increase (decrease) in the assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) total consideration paid by new investors and total consideration paid by all stockholders by $ million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus remains the same and after deducting the estimated underwriting discounts and commissions.

Except as otherwise indicated, the above discussion and tables assume no exercise of the underwriters’ option to purchase additional shares of our common stock. If the underwriters exercise their option to purchase additional shares in full, our existing stockholders would own % and our new investors would own % of the total number of shares of our common stock outstanding after this offering.

In addition, to the extent we issue any additional stock options or any outstanding stock options or warrants are exercised, or we issue any other securities or convertible debt in the future, investors will experience further dilution.

The number of shares of our common stock to be outstanding after this offering is based on 121,461,891 shares of our common stock outstanding as of September 30, 2019 and excludes:

•

1,923,500 shares of our common stock issuable upon the exercise of stock options granted after September 30, 2019 under our 2016 Plan, with a weighted-average exercise price of $8.14 per share;

•

shares of our common stock reserved for future issuance under our equity compensation plans, consisting of (i) 362,309 shares of our common stock reserved for future issuance under our 2016 Plan, as of September 30, 2019 (which number of shares is prior to the stock options to purchase shares of our common stock granted after September 30, 2019), (ii) shares of our common stock reserved for future issuance under our 2019 Plan which will become effective on the date immediately prior to the date of this prospectus, and (iii) shares of our common stock reserved for issuance under our ESPP which will become effective on the date of this prospectus.

SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

The following tables present selected historical consolidated financial and other data for our business. We derived the selected consolidated statements of operations data for the fiscal years ended June 30, 2018 and 2019 and the consolidated balance sheet data as of June 30, 2019 from our audited consolidated financial statements that are included elsewhere in this prospectus. We derived our selected consolidated statements of operations for the three months ended September 30, 2018 and 2019 and our selected consolidated balance sheet data as of September 30, 2019 from our unaudited interim consolidated financial statements that are included elsewhere in this prospectus. We have prepared the unaudited interim consolidated financial statements on the same basis as the audited consolidated financial statements and have included all adjustments, consisting only of normal recurring adjustments that, in our opinion, are necessary to state fairly the information set forth in those consolidated financial statements. Our historical results are not necessarily indicative of the results that may be expected for any other period in the future, and the results of operations for the three months ended September 30, 2019 are not necessarily indicative of the results to be expected for the full year ending June 30, 2020 or any other future period. You should read this information in conjunction with the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements, the accompanying notes, and other financial information included elsewhere in this prospectus.


	Year Ended June 30,						Three Months Ended September 30,
	2018			2019			2018			2019
	(in thousands, except per share data)
Consolidated Statements of Operations:
Revenue
Subscription and transaction fees	$	56,992		$	85,951		$	18,170		$	28,548
Interest on funds held for customers		7,873			22,400			4,254			6,632

Total revenue		64,865			108,351			22,424			35,180
Cost of revenue⁽¹⁾		19,372			29,918			6,341			9,147

Gross profit		45,493			78,433			16,083			26,033

Operating expenses
Research and development⁽¹⁾		17,986			28,924			5,424			11,515
Sales and marketing⁽¹⁾		19,290			30,114			5,944			10,267
General and administrative⁽¹⁾		16,034			29,198			5,937			10,535

Total operating expenses		53,310			88,236			17,305			32,317

Loss from operations		(7,817	)		(9,803	)		(1,222	)		(6,284	)
Other income, net		632			2,333			317			639

Loss before provision for (benefit from) income taxes		(7,185	)		(7,470	)		(905	)		(5,645	)
Provision for (benefit from) income taxes		10			(156	)		(21	)		51

Net loss	$	(7,195	)	$	(7,314	)	$	(884	)	$	(5,696	)

Net loss per share attributable to common stockholders, basic and diluted⁽²⁾	$	(0.50	)	$	(0.47	)	$	(0.06	)	$	(0.35	)

Weighted-average shares used to compute net loss per share attributable to common stockholders, basic and diluted⁽²⁾		14,310			15,594			14,845			16,462

Pro forma net loss per share attributable to common stockholders, basic and diluted (unaudited)⁽²⁾				$	(0.06	)				$	(0.05	)

Weighted-average shares used to compute pro forma net loss per share attributable to common stockholders, basic and diluted (unaudited)⁽²⁾					115,198						121,331

(1)	Includes stock-based compensation expense as follows (in thousands):


	Year Ended June 30,				Three Months Ended September 30,
	2018		2019		2018		2019
Cost of revenue	$	78	$	331	$	69	$	148
Research and development		429		1,128		233		671
Sales and marketing		508		922		166		382
General and administrative		530		1,701		139		1,075

Total stock-based compensation expense	$	1,545	$	4,082	$	607	$	2,276

(2)


	As of June 30, 2019			As of September 30, 2019
	(in thousands)
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term investments	$	162,275		$	157,642
Working capital		163,685			158,544
Funds held for customers		1,329,306			1,466,492
Total assets		1,526,298			1,662,157
Redeemable convertible preferred stock warrant liabilities		688			853
Deferred revenue, current and non-current		5,255			5,248
Customer fund deposits		1,329,306			1,466,492
Redeemable convertible preferred stock		276,307			276,307
Accumulated deficit		(117,656	)		(123,352	)
Total stockholders’ deficit		(102,657	)		(105,981	)


	Year Ended June 30,				Three Months Ended September 30,
	2018		2019		2018		2019
Key Business Metrics:
Number of Customers at End of Period⁽¹⁾		63,653		76,790		67,511		81,374
Total Payment Volume (in millions)⁽¹⁾	$	49,592	$	71,282	$	15,514	$	21,982
Transactions Processed⁽¹⁾		15,256,358		19,861,298		4,491,511		5,934,610

(1)	For definitions of Number of Customers, Total Payment Volume, and Transactions Processed, see the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Business Metrics.”

Non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared and presented in accordance with U.S. generally accepted accounting principles (GAAP), we use certain non-GAAP financial measures, as described below, to understand and evaluate our core operating performance. These non-GAAP financial measures, which may be different than similarly-titled measures used by other companies, are presented to enhance investors’ overall understanding of our financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

We believe that these non-GAAP financial measures provide useful information about our financial performance, enhance the overall understanding of our past performance and future prospects and allow for greater transparency with respect to important metrics used by our management for financial and operational decision-making. We are presenting these non-GAAP metrics to assist investors in seeing our financial performance using a management view. We believe that these measures provide an additional tool for investors to use in comparing our core financial performance over multiple periods with other companies in our industry.


	Year Ended June 30,						Three Months Ended September 30,
	2018			2019			2018			2019
Non-GAAP gross profit (in thousands)	$	47,396		$	82,154		$	16,847		$	27,170
Non-GAAP gross margin		73	%		76	%		75	%		77	%
Free cash flow (in thousands)	$	(10,402	)	$	(8,248	)	$	(3,510	)	$	(4,541	)

Non-GAAP Gross Profit and Non-GAAP Gross Margin

We define non-GAAP gross profit and non-GAAP gross margin as GAAP gross profit and GAAP gross margin, respectively, excluding stock-based compensation expense, depreciation and amortization expense and amortization of deferred costs. We believe non-GAAP gross profit and non-GAAP gross margin provide our management and investors consistency and comparability with our past financial performance and facilitate period-to-period comparisons of operations, as these measures eliminate the effects of certain variables unrelated to our overall operating performance. The following table presents a reconciliation of our non-GAAP gross profit and non-GAAP gross margin to our GAAP gross profit and GAAP gross margin for the periods presented (amounts in thousands):


	Year Ended June 30,						Three Months Ended September 30,
	2018			2019			2018			2019
Total revenue	$	64,865		$	108,351		$	22,424		$	35,180
Gross profit		45,493			78,433			16,083			26,033
Add:
Stock-based compensation expense		78			331			69			148
Depreciation and amortization expense and amortization of deferred costs		1,825			3,390			695			989

Non-GAAP gross profit	$	47,396		$	82,154		$	16,847		$	27,170

Gross margin		70	%		72	%		72	%		74	%
Non-GAAP gross margin		73	%		76	%		75	%		77	%

Free Cash Flow

Free cash flow is defined as net cash used in operating activities reduced by purchases of property and equipment and capitalization of internal-use software costs. We believe free cash flow is an important liquidity measure of the cash (if any) that is available, after purchases of property and equipment and capitalization of internal-use software costs, for operational expenses and investment in our business. Free cash flow is useful to investors as a liquidity measure because it measures our ability to generate or use cash. Once our business needs and obligations are met, cash can be used to maintain a strong balance sheet and invest in future growth. The following table presents a reconciliation of our free cash flow to net cash used in operating activities for the periods presented (in thousands):


	Year Ended June 30,						Three Months Ended September 30,
	2018			2019			2018			2019
Net cash used in operating activities	$	(8,356	)	$	(3,949	)	$	(2,255	)	$	(2,380	)
Purchases of property and equipment		(1,313	)		(2,743	)		(834	)		(1,946	)
Capitalization of internal-use software costs		(733	)		(1,556	)		(421	)		(215	)

Free cash flow	$	(10,402	)	$	(8,248	)	$	(3,510	)	$	(4,541	)

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 the section titled “Selected Financial and Other Data” and our consolidated financial statements and the related notes appearing elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should read the sections titled “Risk Factors” and “Special Note Regarding Forward-Looking Statements” 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, March 31, and June 30.

Overview

We are a leading provider of cloud-based software that simplifies, digitizes, and automates complex back-office financial operations for small and midsize businesses (SMBs). By transforming how SMBs manage their cash inflows and outflows, we create efficiencies and free our customers to run their businesses.

Our purpose-built, artificial-intelligence (AI)-enabled financial software platform creates seamless connections between our customers, their suppliers, and their clients. Customers use our platform to generate and process invoices, streamline approvals, send and receive payments, reconcile their books, and manage their cash. We have built sophisticated integrations with popular accounting software solutions, banks, and payment processors, enabling our customers to access these mission-critical services through a single connection. In essence, we sit at the center of an SMB’s accounts payable and accounts receivable operations.

We efficiently reach SMBs through our proven direct and indirect go-to-market strategies. We acquire customers directly through digital marketing and inside sales, and indirectly through accounting firms and strategic partnerships. As of September 30, 2019, our partners included some of the most trusted brands in the financial services business, including more than 70 of the top 100 accounting firms and several of the largest financial institutions in the United States, including Bank of America, JPMorgan Chase and American Express. As we add customers and partners, we expect our network to continue to grow organically.

Since our founding, our dedication to customer experience and innovation has propelled us to achieve numerous key business and financial milestones. As we have expanded our platform, launched new products and added new strategic partners over time, we have experienced significant growth in annual payment volume processed:

Our Track Record of Organic Growth

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We have grown rapidly and scaled our business operations in recent periods. Our total revenue was $64.9 million and $108.4 million for fiscal 2018 and 2019, respectively, an increase of 67%. Our total revenue was $22.4 million and $35.2 million for the three months ended September 30, 2018 and 2019, respectively, an increase of 57%. We incurred net losses of $7.2 million and $7.3 million for fiscal 2018 and 2019, respectively, and $0.9 million and $5.7 million for the three months ended September 30, 2018 and 2019, respectively.

Our Revenue Model

We generate revenue by charging subscription and transaction fees, and by earning interest on funds held in trust on behalf of customers while their payment transactions are clearing.

Our subscription revenue is primarily based on a fixed monthly or annual rate per user charged to our customers. Our transaction revenue is comprised of transaction fees on a fixed or variable rate per transaction. Transactions include check issuance, ACH origination, cross-border payments, virtual card issuance, and creation of invoices. Much of our revenue comes from repeat transactions; in fact, repeat transactions by our customers are an important contributor to our recurring revenue: approximately 80% of both the Total Payment Volume (as defined below) and the number of transactions on our platform in every month of fiscal 2019 represented payments to suppliers or from clients that had also been paid or received by those same customers in the preceding three months.

Our pricing model reflects the flexibility and value that our customers have come to expect from our platform. Most of our SMB customers pay their subscription fee monthly, while some customers enter into annual contracts with up-front payments. Our financial institution strategic partners typically sign multi-year contracts with minimum annual revenue commitments.

We offer a variety of subscription price plans to our customers depending on their required features and functionality. The below chart is an illustrative view of what we provide our customers as part of the different plans but it is not a comprehensive list of our product offerings. Note that network members who are not customers do not pay subscription or transaction fees but become prospects for our paid services in the future.

Current Subscription Plans

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Our transaction fees include the following:


Transaction Fees		Prices
ACH Processing		$0.49 / send and receive
Checks or Invoices Mailed		$1.69 / check payment or invoice
Virtual Card Payments		Variable based upon transaction size
Cross-Border Wire Transfers—U.S. Dollars		$9.99 / transaction
Cross-Border Wire Transfers—Foreign Exchange		Variable based upon transaction size and currency

Transactions priced on a variable basis include cross-border foreign currency and virtual card payments, for which our revenue is a percentage of the dollar value of the transactions that we process.

With our strategic and accounting partners, we generally provide wholesale prices, and our partners determine the final prices to their clients.

We also generate revenue from interest earned on funds held in trust on behalf of customers while payment transactions are clearing. When we process payment transactions, the funds flow through our bank accounts and we have a balance of funds held for customers that is a function of the volume and the type of payments processed. Interest is earned from interest-bearing deposit accounts, certificates of deposit, money market funds, commercial paper, and U.S. Treasury 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. We are authorized to hold customer funds and process payments through our bank accounts because we are a licensed money transmitter in all required U.S. states. This allows us to provide advanced treasury services and protect our customers from potential fraud.

Our Business Model

We efficiently reach SMBs through our proven direct and indirect go-to-market strategies. We acquire customers directly through digital marketing and inside sales. We also acquire customers indirectly by partnering with leading companies that are trusted by our current and prospective customers, including accounting firms, financial institutions, and software companies.

Our revenue is visible and predictable from our existing customers. For the fiscal year ended June 30, 2019, over 80% of our subscription and transaction revenue, which we also refer to as core revenue, came from customers who were acquired prior to the start of the fiscal year. We expand within our existing customer base by adding more users, increasing transactions per customer, launching additional products, and through pricing and packaging our services. We make it easy for SMBs to try our platform through our risk-free trial program. Should an SMB choose to become a customer after the trial period, it can take several months to adapt their financial operations to fully leverage our platform. Even with a transition period, however, we believe our customer retention is strong. Excluding those from our financial institution partners, over 82% of customers as of June 30, 2018 were still customers as of June 30, 2019.

Net Dollar-Based Retention Rate

Net dollar-based retention rate is an important indicator of customer satisfaction and usage of our platform, as well as potential revenue for future periods. We calculate our net dollar-based retention rate at the end of each fiscal year. We calculate our net dollar-based retention rate by starting with the revenue billed to customers in the last quarter of the prior fiscal year (Prior Period Revenue). We then calculate the revenue billed to these same customers in the last quarter of the current fiscal year (Current Period Revenue). Current Period Revenue includes any upsells and is net of contraction or attrition, but excludes revenue from new customers and excludes interest earned on customer funds held in trust. We then repeat the calculation of Prior Period Revenue and Current Period Revenue with respect to each of the preceding three quarters, and aggregate the four Prior Period Revenues (the Aggregate Prior Period Revenue) and the four Current Period Revenues (the Aggregate Current Period Revenue). Our net dollar-based retention rate equals the Aggregate Current Period Revenue divided by Aggregate Prior Period Revenue. Our net dollar-based retention rate was 110% for fiscal 2019 and 106% for fiscal 2018, which increase is primarily attributable to an increase in the number of users, transactions per customer, and selling additional products to those customers.

Cohort Analysis

To illustrate the economics of our customer relationships, we are providing an analysis of the revenue growth and contribution margin to date of the customers we acquired during fiscal 2017,

excluding customers acquired through financial institutions, which we refer to as the 2017 Cohort. We exclude customers from financial institutions from our cohort analysis because our financial institution partners pay minimum fees regardless of the number of customers that adopt our platform and, as a result, our cost of sales and sales and marketing expenses for these customers are not comparable to those of customers not acquired through financial institutions. We selected the 2017 Cohort to illustrate the potential long-term growth and profitability of our customer base. The 2017 Cohort of customers represents various industries and geographies and includes customers who have expanded their subscriptions as well as those that have reduced or not renewed their subscriptions, and we believe the 2017 Cohort fairly represents our overall customer base, excluding those acquired through our financial institution partners. We define contribution margin for a period as the billed revenue that represents amounts billed to and collected from our customers less the estimated, allocated variable costs for the period associated with such revenues. The cost allocated to these revenues includes cost of sales and sales and marketing expenses associated with converting the customer. We define contribution margin percentage for a cohort in a period as contribution margin divided by the revenue associated with such cohort in a given period. The growth of the 2017 Cohort is depicted below:

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Cost of sales expense includes customer support and payment operations expenses, transaction fulfillment costs, and a portion of our platform technical operations costs. Sales and marketing expense includes personnel-related expenses, sales commissions paid associated with these customers, marketing program expenses, and allocated overhead costs. Costs of sales and allocated sales and marketing expenses exclude share-based compensation and depreciation expenses. A significant majority of our sales and marketing expenses are dedicated to acquiring new customers. Accordingly, these costs are mainly associated with the newest cohort of customers in a given fiscal year.

We allocate cost of sales to a cohort by multiplying the period non-GAAP Gross Margin for all cohorts by the revenue of the 2017 Cohort.

We allocate our sales and marketing expenses to a cohort in two steps. First, we segment expenses between non-commission sales expenses and marketing expenses. We then separately assign these categories of expenses to acquiring or renewing and upselling activity. We allocate non-commission sales expenses using the estimated proportion of time, based on internal data, that our sales team spends acquiring customers versus renewing or upselling customers. We allocate marketing expenses based on the estimated proportion of marketing expenses we spend to acquire or renew and upsell customers. In the second step, we allocate the expenses to the cohort based on the

cohort’s respective share of revenue in each category. We exclude all sales and marketing expenses associated with our financial institution partners.

We exclude all research and development and general and administrative expenses from this analysis because these expenses support the growth of our business generally.

For fiscal 2017, the 2017 Cohort represented $6.7 million in revenue billed to these customers and $11.8 million in sales and marketing costs to acquire these customers, and $2.3 million of cost of sales representing a computed contribution margin of -108%. In fiscal 2018 and 2019, the 2017 Cohort represented $14.2 million and $17.3 million, respectively, in revenue billed to these customers and $3.9 million and $4.2 million, respectively, in estimated costs related to retaining and expanding these customers, representing a computed contribution margin of 73% and 76%, respectively.

While we believe the 2017 Cohort to be a fair representation of our overall customer base, excluding those acquired through our financial institution partners, the 2017 Cohort may not be representative of any other group of customers or periods. We expect that the contribution margin and contribution margin percentage of our customer cohorts will fluctuate from one period to another depending upon the number of customers remaining in each cohort, our ability to increase their revenue, as well as changes in our associated costs. We may not experience similar financial outcomes from future customers. The revenue, associated costs, contribution margins, and contribution margin percentages for other cohorts could differ from those for the 2017 Cohort. Contribution margin is not a measure that our management uses to manage or evaluate our business nor is it a predictor of past or future financial performance. Unlike our financial statements, contribution margin is not prepared in accordance with GAAP and may not be comparable to contribution margin calculations prepared by other companies. Contribution margin is an operational measure; it is not a financial measure of profitability and is not intended to be used as a proxy for the profitability of our business.

Customer Acquisition Efficiency

Our efficient direct and indirect go-to-market strategy, combined with our recurring revenue model, results in our short payback period. We define “payback period” as the number of quarters it takes for the cumulative non-GAAP gross profit we earn from customers acquired during a given quarter to exceed our total sales and marketing spend in that same quarter. For customers acquired during fiscal 2018, the average payback period was approximately five quarters.

Key Factors Affecting Our Performance

Acquiring New Customers

Sustaining our growth requires continued adoption of our platform by new customers. We will continue to invest in our efficient go-to-market strategy as we further penetrate our addressable markets. Our financial performance will depend in large part on the overall demand for our platform, particularly demand from SMBs. As of September 30, 2019, we had over 81,000 customers across a wide variety of industries and geographies in the United States.

Expanding Our Relationship with Existing Customers

Our revenue grows as we address the evolving needs of our customers and as our customers increase usage of our platform. As they realize the benefits of our solution, our customers often increase the number of users on our platform. We also experience growth from customers when we introduce new products and services that are adopted by our customers.

Our ability to monetize our payments-related services is an important part of our business model. Today, we charge fixed and variable transaction fees for payment transactions initiated, and our revenue and payment volume generally grow as customers process more transactions on our platform. Our ability to influence customers to process more transactions on our platform will have a direct impact on our transaction fee revenue. As payment volume grows we experience growth in the level of funds held for customers, and we also earn interest revenue on these funds while payment transactions are clearing. Our interest earned on customer funds is positively correlated with our interest earnings rate and with customer fund balances. Our interest earnings rate is a function of the market interest rate environment and the mix of our investments across interest bearing accounts, government money market funds, and short-term highly liquid securities. The fund balances are a function of the amount of money transmitted by our customers and the mix of payment types, with some payment types averaging more days in transit than others.

Investing in Sales and Marketing

We intend to increase our marketing spend to drive awareness and generate demand to acquire new customers and develop new accounting firm and strategic partner relationships. Our investment in supporting accounting firms and strategic partners has been significant and will continue. We support these accounting firms and strategic partners through education and training initiatives like hosting webinars, presenting at industry trade shows, and developing sell-sheet case studies.

As a result, we expect our expenses related to marketing and sales to increase as we continue to grow. These efforts will require us to invest significant financial and other resources.

Investing in Our Platform

We will invest in our platform to maintain our position as a leading provider of SMB back-office financial software. To drive adoption and increase penetration within our base, we will continue to introduce new products and features. We believe that investment in research and development will contribute to our long-term growth but may also negatively impact our short-term profitability. We will continue to leverage emerging technologies and invest in the development of more features that meet and anticipate SMB needs.

Key Business Metrics

We regularly review several metrics, including the metrics presented in the table below, to measure our performance, identify trends affecting our business, prepare financial projections, and make strategic decisions. We believe that these key business metrics provide meaningful supplemental information for management and investors in assessing our historical and future operating performance. The calculation of the key metrics and other measures discussed below may differ from other similarly-titled metrics used by other companies, securities analysts or investors.


	As of June 30,							As of September 30,
	2018		2019		% Growth			2018		2019		% Growth
Number of Customers⁽¹⁾		63,653		76,790		21	%		67,511		81,374		21	%

	Year ended June 30,							Three months ended September 30,
	2018		2019		% Growth			2018		2019		% Growth
Total Payment Volume (amounts in millions)	$	49,592	$	71,282		44	%	$	15,514	$	21,982		42	%

	Year ended June 30,							Three months ended September 30,
	2018		2019		% Growth			2018		2019		% Growth
Transactions Processed		15,256,358		19,861,298		30	%		4,491,511		5,934,610		32	%

(1)

Number of customers as of June 30, 2018 and September 30, 2018 includes approximately 5,000 and 4,500 customers, respectively, from a strategic partner that did not renew its contract during fiscal 2019. Excluding these customers, our customer growth would have been 31% during fiscal 2019 and 29% during the three months ended September 30, 2019.

Number of Customers

For the purposes of measuring our key business metrics, we define customers as entities that are either billed directly by us or for which we bill our strategic partners during a particular period. Customers who are using our platform during a trial period are not counted as new customers during that period. If an organization has multiple entities billed separately for the use of our platform, each entity is counted as a customer. The number of customers in the table above represents the total number of customers at the end of our fiscal year and quarter.

Total Payment Volume

To grow revenue from customers we must deliver a product experience that helps them automate their back-office financial operations. The more they use the product and rely upon our features to automate their operations, the more transactions they process on our platform. This metric provides an important indication of the value of transactions that customers are completing on the platform and is an indicator of our ability to generate revenue from our customers. We define Total Payment Volume (TPV) as the value of customer transactions that we process on our platform in a period. Our calculation of TPV includes payments that are subsequently reversed. Such payments comprised approximately 1% of TPV for fiscal 2019 and the three months ended September 30, 2019.

Transactions Processed

We define transactions processed as the number of customer payment transactions, such as checks, ACH items, wire transfers, and virtual cards, initiated and processed through our platform during a particular period.

Components of Results of Operations

Revenue

We generate revenue from two sources: (1) subscription and transaction fees, and (2) interest on funds held for customers.

Subscription fees are fixed monthly or annually and charged to our customers for the use of our platform to process transactions. Subscription fees are generally charged on a per user per period basis, normally monthly or annually. Transaction fees are fees collected for each transaction processed through our platform, on either a fixed or variable fee basis. Transaction fees primarily include processing of payments in the form of checks, ACH, cross-border payments, virtual cards, and the creation of invoices.

Interest on funds held for customers consists of the interest that we earn from customer funds while payment transactions are clearing. We invest these funds in interest-bearing investment securities, primarily money market funds, commercial paper, and U.S. Treasury securities, until those payments are cleared and credited to the intended recipient.

Our contracts with SMB and accounting firm customers primarily consist of cancelable contracts that can be terminated by either party without penalty at any time. In July 2019, we updated our terms of service for our monthly subscription contracts, whereby cancellations become effective at the end of the monthly subscription period in which the last transaction is processed. We recognize subscription revenue for cancelable contracts on a daily basis and transaction revenue on the date we process the transactions. Some of our contracts are non-cancelable annual or monthly contracts. We recognize revenue for non-cancelable annual and monthly contracts as a series of distinct services satisfied over time. We determine the transaction price for such contracts by estimating the total consideration to be received over the contract term from subscription and transaction fees. We recognize the transaction price from annual and monthly contracts as a single performance obligation based on the proportion of transactions processed to the total estimated transactions to be processed over the contract period.

We enter into multi-year contracts with financial institution customers that typically include fees for initial implementation services that are paid during the period. Fees for subscription and transaction processing services are subject to guaranteed monthly minimum fees that are paid over the contract term. These contracts enable the financial institutions to provide their clients with access to online bill pay services through the financial institution’s online platform. Implementation services are required up-front to establish an infrastructure that allows the financial institution’s online platform to communicate with our platform. The financial institution’s clients cannot access online bill pay services until implementation is complete and the financial institution has provided acceptance of the implementation services. The fees we earn through these contracts vary based on the number of users and transactions processed. We have determined these contracts meet the variable consideration allocation exception and therefore we recognize guaranteed monthly payments and any overages as revenue in the month they are earned. We recognize implementation fees based on the proportion of transactions processed to the total estimated transactions to be processed over the contract period.

Cost of Revenue and Expenses

Cost of revenue—Cost of revenue consists primarily of personnel-related costs, including stock-based compensation expenses, for our customer success and payment operations teams, certain costs that are directly attributed to processing customers’ transactions (such as the cost of printing checks), postage for mailing checks, expenses for processing payments (ACH, check, and cross-border wires), direct and amortized costs for implementing and integrating our cloud-based platform

into our strategic partners’ systems, costs for maintaining, optimizing, and securing our cloud payments infrastructure, amortization of capitalized internal-use developed software, fees on the investment of customer funds, and allocation of overhead costs. We expect that cost of revenue will increase in absolute dollars, but may fluctuate as a percentage of total revenue from period to period, as we continue to invest in growing our business.

Research and development—Research and development expenses consist primarily of personnel-related expenses, including stock-based compensation expenses, incurred in developing new products or enhancing existing products, and allocated overhead costs. We capitalize certain software development costs that are attributable to developing new products and adding incremental functionality to our platform and amortize such costs in cost of revenue over the estimated life of the new product or incremental functionality, which is generally three years.

We expense a substantial portion of research and development expenses as incurred. We believe delivering new functionality is critical to attract new customers and expand our relationship with existing customers. We expect to continue to make investments in and expand our offerings to enhance our customers’ experience and satisfaction, and to attract new customers. We expect our research and development expenses to increase in absolute dollars, but they may fluctuate as a percentage of total revenue from period to period as we expand our research and development team to develop new products and product enhancements.

Sales and Marketing—Sales and marketing expenses consist primarily of personnel-related expenses, including stock-based compensation expenses, sales commissions, marketing program expenses, travel-related expenses and costs to market and promote our platform through advertisements, marketing events, partnership arrangements, direct customer acquisition, and allocated overhead costs. Sales commissions that are incremental to obtaining new customer contracts are deferred and amortized ratably over the estimated period of our relationship with new customers. We focus our sales and marketing efforts on generating awareness of our company, platform, and products, creating sales leads, and establishing and promoting our brand. We plan to increase our investment in sales and marketing by hiring additional sales and marketing personnel, driving our go-to-market strategies, building our brand awareness, and sponsoring additional marketing events. We expect our sales and marketing expenses to increase in absolute dollars, but they may fluctuate as a percentage of total revenue from period to period.

General and Administrative—General and administrative expenses consist primarily of personnel-related expenses, including stock-based compensation expenses, for finance, risk management, legal and compliance, human resources and information technology, costs incurred for external professional services, losses from fraud and credit exposure, and allocated overhead costs. We expect to incur additional general and administrative expenses as a result of operating as a public company, including expenses to comply with the rules and regulations applicable to companies listed on a national securities exchange, expenses related to compliance and reporting obligations pursuant to the rules and regulations of the SEC, as well as higher expenses for director and officer insurance, investor relations, and professional services. We also expect to increase the size of our general and administrative functions to support the growth in our business. As a result, we expect that our general and administrative expenses will increase in absolute dollars but may fluctuate as a percentage of total revenue from period to period.

Other Income, Net—Other income, net consists primarily of interest income on corporate funds invested in money market instruments and highly liquid short-term investments, partially offset by interest expense on our bank borrowings.

Provision for (Benefit from) Income Taxes—This consists of income tax benefit shown on the consolidated statements of operations that is offset against the income tax on the unrealized gain on

investments in available-for-sale securities that is shown on the consolidated statements of other comprehensive loss, as well as state income taxes.

Results of Operations

The following table sets forth our results of operations for the periods presented (in thousands):


	Year Ended June 30,						Three Months Ended September 30,
	2018			2019			2018			2019
Revenue
Subscription and transaction fees	$	56,992		$	85,951		$	18,170		$	28,548
Interest on funds held for customers		7,873			22,400			4,254			6,632

Total revenue		64,865			108,351			22,424			35,180
Cost of revenue⁽¹⁾		19,372			29,918			6,341			9,147

Gross profit		45,493			78,433			16,083			26,033

Operating expenses
Research and development⁽¹⁾		17,986			28,924			5,424			11,515
Sales and marketing⁽¹⁾		19,290			30,114			5,944			10,267
General and administrative⁽¹⁾		16,034			29,198			5,937			10,535

Total operating expenses		53,310			88,236			17,305			32,317

Loss from operations		(7,817	)		(9,803	)		(1,222	)		(6,284	)
Other income, net		632			2,333			317			639

Loss before provision for (benefit from) income taxes		(7,185	)		(7,470	)		(905	)		(5,645	)
Provision for (benefit from) income taxes		10			(156	)		(21	)		51

Net loss	$	(7,195	)	$	(7,314	)	$	(884	)	$	(5,696	)

(1)	Includes stock-based compensation expenses as follows (in thousands):


	Year Ended June 30,				Three Months Ended September 30,
	2018		2019		2018		2019
Cost of revenue	$	78	$	331	$	69	$	148
Research and development		429		1,128		233		671
Sales and marketing		508		922		166		382
General and administrative		530		1,701		139		1,075

	$	1,545	$	4,082	$	607	$	2,276

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


	Year Ended June 30,						Three Months Ended September 30,
	2018			2019			2018			2019
Revenue
Subscription and transaction fees		88	%		79	%		81	%		81	%
Interest on funds held for customers		12	%		21	%		19	%		19	%

Total revenue		100	%		100	%		100	%		100	%
Cost of revenue		30	%		28	%		28	%		26	%

Gross profit		70	%		72	%		72	%		74	%

Operating expenses
Research and development		28	%		27	%		24	%		33	%
Sales and marketing		29	%		27	%		27	%		29	%
General and administrative		25	%		27	%		26	%		30	%

Total operating expenses		82	%		81	%		77	%		92	%

Loss from operations		(12	)%		(9	)%		(5	)%		(18	)%
Other income, net		1	%		2	%		1	%		2	%

Loss before provision for (benefit from) income taxes		(11	)%		(7	)%		(4	)%		(16	)%
Provision for (benefit from) income taxes		-			-			-			-

Net loss		(11	)%		(7	)%		(4	)%		(16	)%

Comparison of the Three Months Ended September 30, 2018 and 2019

Revenue

The components of our revenue during the three months ended September 30, 2018 and 2019 were as follows (amounts in thousands):


	Three Months Ended September 30,				Change
	2018		2019		Amount		%
Subscription and transaction fees	$	18,170	$	28,548	$	10,378		57	%
Interest on funds held for customers		4,254		6,632		2,378		56	%

Total revenue	$	22,424	$	35,180	$	12,756		57	%

Subscription and transaction fees increased to $28.5 million during the three months ended September 30, 2019 from $18.2 million during the three months ended September 30, 2018, an increase of $10.3 million or 57%. Subscription fees increased to $18.0 million during the three months ended September 30, 2019 from $13.0 million during the three months ended September 30, 2018, an increase of $5.0 million or 38%, driven primarily by the increase in customers and average subscription revenue per customer. Transaction fees increased to $10.5 million during the three months ended September 30, 2019 from $5.1 million during the three months ended September 30, 2018, an increase of $5.4 million or 105%, primarily due to increased adoption of new product offerings and the increase in the number of transactions initiated. Our total customers increased to over 81,000 as of

September 30, 2019 compared to over 67,000 as of September 30, 2018, or an increase of approximately 21%. Our average subscription revenue and transaction fees per customer increased by 15% and 70%, respectively, during the three months ended September 30, 2019, driven primarily by the increase in customers’ usage of our platform and payment activities.

Interest on funds held for customers increased to $6.6 million during the three months ended September 30, 2019 from $4.3 million during the three months ended September 30, 2018, an increase of $2.4 million or 56%. The increase was due primarily to the increase in the balance of customer funds held while payment transactions are clearing and also from the increase in the yield we earned from investing the funds. The average balance of customer funds in transit increased to approximately $1.3 billion during the three months ended September 30, 2019 from approximately $946 million during the three months ended September 30, 2018, or an increase of 41%. Fund balances increased primarily due to growth in TPV. Our TPV increased to approximately $22.0 billion during the three months ended September 30, 2019 from approximately $15.5 billion during the three months ended September 30, 2018, or an increase of 42%. The annualized rate of return earned on customer funds held was 1.97% during the three months ended September 30, 2019, an increase of 19 basis points over the annualized yield during the same period in fiscal 2019. The increase in yield was primarily due to the short-term interest rate environment as the average daily effective Federal Funds rate increased by 27 basis points during the three months ended September 30, 2019 over the same period in fiscal 2019.

Cost of Revenue, Gross Profit, and Gross Margin

Cost of revenue, gross profit, and gross margin during the three months ended September 30, 2018 and 2019 were as follows (amounts in thousands):


	Three months ended September 30,						Change
	2018			2019			Amount		%
Cost of revenue	$	6,341		$	9,147		$	2,806		44	%
Gross profit	$	16,083		$	26,033		$	9,950		62	%
Gross margin		72	%		74	%

Cost of revenue increased to $9.1 million during the three months ended September 30, 2019 from $6.3 million during the three months ended September 30, 2018, an increase of $2.8 million or 44%. The increase was due primarily to a $1.4 million increase in direct costs associated with the processing of our customers’ payment transactions, use of software applications and equipment, bank fees for holding the funds of our customers, and data hosting services, which were driven by the increase in the number of customers and volume of transactions. The increase was also due to a $0.9 million increase in personnel-related costs, including stock-based compensation expense and amortization of increased deferred service costs, due to the hiring of additional personnel who were directly engaged in providing implementation and support services to our customers, and a $0.5 million increase in shared overhead costs. Our average headcount of such personnel during the three months ended September 30, 2019 increased by 33% compared to the same period in fiscal 2019.

Gross margin increased to 74% during the three months ended September 30, 2019 from 72% during the three months ended September 30, 2018. The increase was driven primarily by higher revenue on increased adoption of new product offerings.

Research and Development Expenses

Research and development expenses during the three months ended September 30, 2018 and 2019 were as follows (amounts in thousands):


	Three months ended September 30,						Change
	2018			2019			Amount		%
Research and development expenses	$	5,424		$	11,515		$	6,091		112	%
Percentage of revenue		24	%		33	%

Research and development expenses increased to $11.5 million during the three months ended September 30, 2019 from $5.4 million during the three months ended September 30, 2018, an increase of $6.1 million or 112%. The increase was due primarily to a $5.0 million increase in personnel-related costs, including stock-based compensation expense, resulting from the hiring of additional personnel who were directly engaged in developing new product offerings, a $0.6 million increase in shared overhead costs, and a $0.5 million increase in costs for engaging consultants and temporary contractors who provided product development services. Our average research and development headcount during the three months ended September 30, 2019 increased by 67% compared to the same period in fiscal 2019.

As a percentage of total revenue, research and development expenses increased to 33% during the three months ended September 30, 2019 from 24% during the three months ended September 30, 2018 due primarily to the increase in our headcount, which resulted in higher personnel-related costs relative to the increase in our revenue.

Sales and Marketing Expenses

Sales and marketing expenses during the three months ended September 30, 2018 and 2019 were as follows (amounts in thousands):


	Three months ended September 30,						Change
	2018			2019			Amount		%
Sales and marketing expenses	$	5,944		$	10,267		$	4,323		73	%
Percentage of revenue		27	%		29	%

Sales and marketing expenses increased to $10.3 million during the three months ended September 30, 2019 from $5.9 million during the three months ended September 30, 2018, an increase of $4.4 million or 73%. The increase was due primarily to a $2.2 million increase in personnel-related costs (net of capitalized sales commissions of $0.4 million), including stock-based compensation expense, due to the hiring of additional personnel who were directly engaged in acquiring new customers and in marketing our products and services, and a $0.4 million increase in shared overhead costs. Our average sales and marketing headcount during the three months ended September 30, 2019 increased by 51% compared to the same period in fiscal 2019. The increase was also attributed to a $1.0 million increase in various marketing initiatives and activities, such as engaging consultants and attending marketing events, and a $0.8 million increase in advertising spend, as we continued to increase our effort in promoting our products and services and in increasing brand awareness.

As a percentage of total revenue, sales and marketing expenses increased to 29% during the three months ended September 30, 2019 from 27% during the three months ended September 30, 2018, due primarily to the increase in our headcount, which resulted in higher personnel-related costs relative to the increase in our revenue.

General and Administrative Expenses

General and administrative expenses during the three months ended September 30, 2018 and 2019 were as follows (amounts in thousands):


	Three months ended September 30,						Change
	2018			2019			Amount		%
General and administrative expenses	$	5,937		$	10,535		$	4,598		77	%
Percentage of revenue		26	%		30	%

General and administrative expenses increased to $10.5 million during the three months ended September 30, 2019 from $5.9 million during the three months ended September 30, 2018, an increase of $4.6 million or 77%. The increase was due primarily to a $2.8 million increase in personnel-related costs, including stock-based compensation expense, resulting from the hiring of additional executive employees and administrative personnel. Our average general and administrative headcount during the three months ended September 30, 2019 increased by 65% compared to the same period in fiscal 2019. The increase was also due to a $0.7 million increase in recruiting fees and temporary staffing costs as we engaged external help to recruit employees or to temporarily fill certain roles within the organization, a $0.5 million increase in money transfer license fees and credit card processing fees, a $0.4 million increase in shared overhead costs, and a $0.3 million increase in professional and consulting fees as we obtained additional external assistance in connection with the overall growth of our business and our preparation to operate as a public company.

As a percentage of total revenue, general and administrative expenses increased to 30% during the three months ended September 30, 2019 from 26% during the three months ended September 30, 2018 due primarily to the increase in our headcount, which resulted in higher personnel-related costs relative to the increase in our revenue.

Other Income, Net

Other income, net during the three months ended September 30, 2018 and 2019 was as follows (amounts in thousands):


	Three months ended September 30,				Change
	2018		2019		Amount		%
Other income, net	$	317	$	639	$	322		102	%

Other income, net increased to $0.6 million during the three months ended September 30, 2019 from $0.3 million during the three months ended September 30, 2018, due primarily to a $0.5 million increase in interest earned on corporate funds that we invested in money market instruments and highly liquid short-term investments, partially offset by a $0.2 million loss on the revaluation of warrants liabilities.

(Benefit from) Provision for Income Taxes

(Benefit from) provision for income taxes during the three months ended September 30, 2018 and 2019 was as follows (amounts in thousands):


	Three months ended September 30,					Change
	2018			2019		Amount		%
(Benefit from) provision for income taxes	$	(21	)	$	51	$	72		(343	)%

The provision for income taxes during the three months ended September 30, 2019 pertains primarily to state income taxes. The benefit from income taxes during the three months ended September 30, 2018 pertains primarily to the income tax benefit that is reported on the consolidated statements of operations and is offset against the income tax on the unrealized gain on investments in available-for-sale securities that is shown on the consolidated statements of comprehensive loss.

Comparison of the Years Ended June 30, 2018 and 2019

The components of our revenue during fiscal 2018 and 2019 were as follows (amounts in thousands):


	Year Ended June 30,				Change
	2018		2019		Amount		%
Subscription and transaction fees	$	56,992	$	85,951	$	28,959		51	%
Interest on funds held for customers		7,873		22,400		14,527		185	%

Total revenue	$	64,865	$	108,351	$	43,486		67	%

Subscription and transaction fees increased to $86.0 million during fiscal 2019 from $57.0 million during fiscal 2018, an increase of $29.0 million or 51%. Subscription fees increased to $59.6 million during fiscal 2019 from $42.0 million during fiscal 2018, an increase of $17.6 million or 42%, driven primarily by the increase in customers and average subscription revenue per customer. Transaction fees increased to $26.4 million during fiscal 2019 from $15.0 million during fiscal 2018, an increase of $11.4 million or 76%, primarily due to increased adoption of new product offerings and increases in the number of transactions initiated. Our total customers increased to over 76,000 as of June 30, 2019 compared to over 63,000 as of June 30, 2018, or an increase of approximately 21%. Our average subscription revenue and transaction fees per customer increased by 12% and 39%, respectively, during fiscal 2019, driven primarily by the increase in customers’ usage of our platform and payment activity.

Interest on funds held for customers increased to $22.4 million during fiscal 2019 from $7.9 million during fiscal 2018, an increase of $14.5 million or 185%. The increase was due primarily to the increase in the yield we earned from strategically investing funds held for customers and the increase in the balance of customer funds while payment transactions are clearing. The annualized rate of return on our average customer funds held was 1.99% during fiscal 2019, an increase of 101 basis points over the annualized yield during fiscal 2018. The increase in yield was primarily due to the short-term interest rate environment as the average daily effective Federal Funds rate increased by 85 basis points during fiscal 2019 over the prior fiscal year. Our active management of customer funds during fiscal 2019 also improved the return generated on our funds held. The average balance of customer funds in transit increased to approximately $1.1 billion during fiscal 2019 from approximately $777 million during fiscal 2018, or an increase of 42%. Fund balances increased primarily due to growth in TPV. Our TPV increased to approximately $71.3 billion during fiscal 2019 from approximately $49.6 billion during fiscal 2018, or an increase of 44%.

Cost of Revenue, Gross Profit, and Gross Margin

Cost of revenue, gross profit, and gross margin during fiscal 2018 and 2019 were as follows (amounts in thousands):


	Year Ended June 30,						Change
	2018			2019			Amount		%
Cost of revenue	$	19,372		$	29,918		$	10,546		54	%
Gross profit		45,493			78,433			32,940		72	%
Gross margin		70	%		72	%

Cost of revenue increased to $29.9 million during fiscal 2019 from $19.4 million during fiscal 2018, an increase of $10.5 million or 54%. The increase was due primarily to a $4.2 million increase in direct costs associated with the processing of our customers’ payment transactions, use of software applications and equipment, bank fees for holding the funds of our customers, and data hosting services, which were driven by the increase in the number of customers and volume of transactions. The increase was also due to a $4.0 million increase in personnel-related costs, including stock-based compensation expense and amortization of deferred service costs, due to the hiring of additional personnel who were directly engaged in providing implementation and support services to our customers, and a $1.4 million increase in shared overhead costs. Our average headcount of such personnel during fiscal 2019 increased by 26% compared to fiscal 2018.

Gross margin increased to 72% during fiscal 2019 from 70% during fiscal 2018. The increase was driven primarily by the increase in our total revenue and in our revenue mix, in particular the increase in interest on funds held for customers, which has low costs and high gross margin, partially offset by the increase in costs as a percentage of revenue related primarily to software applications that we used to support our customers as well as allocated shared overhead costs.

Research and Development Expenses

Research and development expenses during fiscal 2018 and 2019 were as follows (amounts in thousands):


	Year Ended June 30,						Change
	2018			2019			Amount		%
Research and development expenses	$	17,986		$	28,924		$	10,938		61	%
Percentage of revenue		28	%		27	%

Research and development expenses increased to $28.9 million during fiscal 2019 from $18.0 million during fiscal 2018, an increase of $10.9 million or 61%. The increase was due primarily to an $8.1 million increase in personnel-related costs, including stock-based compensation expense, resulting from the hiring of additional personnel who were directly engaged in developing new product offerings and a related $1.5 million increase in shared overhead costs. Our average research and development headcount during fiscal 2019 increased by 45% compared to fiscal 2018.

As a percentage of total revenue, research and development expenses decreased to 27% during fiscal 2019 from 28% during fiscal 2018 due primarily to the leveraging of our overall expenses on higher revenue.

Sales and Marketing Expenses

Sales and marketing expenses during fiscal 2018 and 2019 were as follows (amounts in thousands):


	Year Ended June 30,						Change
	2018			2019			Amount		%
Sales and marketing expenses	$	19,290		$	30,114		$	10,824		56	%
Percentage of revenue		29	%		27	%

Sales and marketing expenses increased to $30.1 million during fiscal 2019 from $19.3 million during fiscal 2018, an increase of $10.8 million or 56%. The increase was due primarily to a $4.5 million increase in personnel-related costs (net of capitalized sales commissions of $2.1 million), including stock-based compensation expense, due to the hiring of additional personnel who were directly engaged in acquiring new customers and in marketing our products and services, and a $0.8 million increase in shared overhead costs due to the increase in headcount. Our average sales and marketing headcount during fiscal 2019 increased by 37% compared to fiscal 2018. The increase was also attributed to a $2.9 million increase in advertising spend and a $1.9 million increase in various marketing initiatives and activities, such as engaging consultants and attending marketing events, as we continued to increase our effort in promoting our products and services and in increasing brand awareness.

As a percentage of total revenue, sales and marketing expenses decreased to 27% during fiscal 2019 from 29% during fiscal 2018, due primarily to the leveraging of our overall expenses on higher revenue.

General and Administrative Expenses

General and administrative expenses during fiscal 2018 and 2019 were as follows (amounts in thousands):


	Year Ended June 30,						Change
	2018			2019			Amount		%
General and administrative expenses	$	16,034		$	29,198		$	13,164		82	%
Percentage of revenue		25	%		27	%

General and administrative expenses increased to $29.2 million during fiscal 2019 from $16.0 million during fiscal 2018, an increase of $13.2 million or 82%. The increase was due primarily to a $6.4 million increase in personnel-related costs, including stock-based compensation expense, resulting from the hiring of additional executive employees and administrative personnel. Our average general and administrative headcount during fiscal 2019 increased by 63% compared to fiscal 2018. The increase was also due to a $1.9 million increase in professional and consulting fees as we obtained additional external assistance in connection with the overall growth of our business and our preparation to operate as a public company, a $1.6 million increase in recruiting fees and temporary staffing costs as we engaged external help to recruit employees or to temporarily fill certain roles within the organization, a $1.5 million increase for sales and use taxes due to an increase in state reporting, collection and remittance requirements, and a $0.8 million increase in losses on funds held due to the increase in the number of instances of fraud during the year.

As a percentage of total revenue, general and administrative expenses increased to 27% during fiscal 2019 from 25% during fiscal 2018 as we engaged in more activities in connection with the overall growth of the business and our preparation to become a public company.

Other Income, Net

Other income, net during fiscal 2018 and 2019 was as follows (amounts in thousands):


	Year Ended June 30,				Change
	2018		2019		Amount		%
Other income, net	$	632	$	2,333	$	1,701		269	%

Other income, net increased to $2.3 million during fiscal 2019 from $0.6 million during fiscal 2018, due primarily to a $2.1 million increase in interest earned on corporate funds that we invested in money market instruments and highly liquid short-term investments, partially offset by an increase in interest expense of $0.4 million.

Provision for (Benefit from) Income Taxes

Provision for (benefit from) income taxes during fiscal 2018 and 2019 was as follows (amounts in thousands):


	Year Ended June 30,					Change
	2018		2019			Amount			%
Provision for (benefit from) income taxes	$	10	$	(156	)	$	(166	)		-1,660	%

The benefit from income taxes during fiscal 2019 pertains primarily to the income tax benefit that is reported on the consolidated statements of operations and is offset against the income tax on the unrealized gain on investments in available-for-sale securities that is shown on the consolidated statements of comprehensive loss. The provision for income taxes during fiscal 2018 pertains to state income taxes.

Quarterly Results of Operations

The following tables present our unaudited consolidated statements of operations for each of the last nine quarters in the period ended September 30, 2019, as well as the percentage of each line item to our total revenue for each quarter presented. The unaudited consolidated statements of operations for each quarter have been prepared on the same basis as the annual consolidated financial statements included in the prospectus and reflect all normal and recurring adjustments that are, in our opinion, necessary for the fair presentation of the results of operations for the periods presented. Our historical results are not necessarily indicative of the results that may be expected in the future. The following quarterly financial data should be read in conjunction with our consolidated financial statements included elsewhere in the prospectus.


	Three Months Ended
	September 30, 2017			December 31, 2017			March 31, 2018			June 30, 2018			September 30, 2018			December 31, 2018			March 31, 2019			June 30, 2019			September 30, 2019
	(in thousands)
Revenue
Subscription and transaction fees	$	12,365		$	13,338		$	14,921		$	16,368		$	18,170		$	20,444		$	22,112		$	25,225		$	28,548
Interest on funds held for customers		737			1,825			2,177			3,134			4,254			5,555			6,132			6,459			6,632

Total revenue		13,102			15,163			17,098			19,502			22,424			25,999			28,244			31,684			35,180
Cost of revenue⁽¹⁾		4,413			4,395			5,006			5,558			6,341			7,175			7,914			8,488			9,147

Gross profit		8,689			10,768			12,092			13,944			16,083			18,824			20,330			23,196			26,033

Operating expenses
Research and development⁽¹⁾		4,206			4,391			4,415			4,974			5,424			6,154			7,899			9,447			11,515
Sales and marketing⁽¹⁾		4,068			4,586			4,697			5,939			5,944			6,856			7,365			9,949			10,267
General and administrative⁽¹⁾		3,367			3,449			4,444			4,774			5,937			6,404			7,904			8,953			10,535

Total operating expenses		11,641			12,426			13,556			15,687			17,305			19,414			23,168			28,349			32,317

Loss from operations		(2,952	)		(1,658	)		(1,464	)		(1,743	)		(1,222	)		(590	)		(2,838	)		(5,153	)		(6,284	)
Other (expense) income, net		(37	)		70			273			326			317			686			734			596			639

(Loss) income before income taxes		(2,989	)		(1,588	)		(1,191	)		(1,417	)		(905	)		96			(2,104	)		(4,557	)		(5,645	)
Income taxes		6			-			-			4			(21	)		(6	)		(70	)		(59	)		51

Net (loss) income	$	(2,995	)	$	(1,588	)	$	(1,191	)	$	(1,421	)	$	(884	)	$	102		$	(2,034	)	$	(4,498	)	$	(5,696	)

(1)	Includes stock-based compensation expenses as follows:


	Three Months Ended
	September 30, 2017		December 31, 2017		March 31, 2018		June 30, 2018		September 30, 2018		December 31, 2018		March 31, 2019		June 30, 2019		September 30, 2019
	(in thousands)
Cost of revenue		25		16		16		21		69		42		93		127		148
Research and development		89		100		108		132		233		119		379		397		671
Sales and marketing		125		118		111		154		166		122		299		335		382
General and administrative		131		131		135		133		139		311		605		646		1,075

	$	370	$	365	$	370	$	440	$	607	$	594	$	1,376	$	1,505	$	2,276


	Three months ended
	September 30, 2017			December 31, 2017			March 31, 2018			June 30, 2018			September 30, 2018			December 31, 2018			March 31, 2019			June 30, 2019			September 30, 2019
Revenue
Subscription and transaction fees		94%			88	%		87	%		84	%		81	%		79	%		78	%		80	%		81	%
Interest on funds held for customers		6%			12	%		13	%		16	%		19	%		21	%		22	%		20	%		19	%

Total revenue		100	%		100	%		100	%		100	%		100	%		100	%		100	%		100	%		100	%
Cost of revenue		34%			29	%		29	%		28	%		28	%		28	%		28	%		27	%		26	%

Gross profit		66%			71	%		71	%		72	%		72	%		72	%		72	%		73	%		74	%

Operating expenses
Research and development		32%			29	%		26	%		26	%		24	%		24	%		28	%		30	%		33	%
Sales and marketing		31%			30	%		27	%		30	%		27	%		26	%		26	%		31	%		29	%
General and administrative		26%			23	%		27	%		25	%		26	%		25	%		28	%		28	%		30	%

Total operating expenses		89%			82	%		80	%		81	%		77	%		75	%		82	%		89	%		92	%

Loss from operations		(23)%			(11	)%		(9	)%		(9	)%		(5	)%		(3	)%		(10	)%		(16	)%		(18	)%
Other income, net		-			1	%		2	%		2	%		1	%		3	%		3	%		2	%		2	%

(Loss) income before income taxes		(23)%			(10	)%		(7	)%		(7	)%		(4	)%		-			(7	)%		(14	)%		(16	)%
Income taxes		-			-			-			-			-			-			-			-			-

Net (loss) income		(23)%			(10	)%		(7	)%		(7	)%		(4	)%		-			(7	)%		(14	)%		(16	)%

Quarterly Revenue Trends

Our subscription and transaction fees in each of the quarters presented increased consecutively over all periods presented due primarily to the increase in the number of customers and the increase in average subscription and transaction fees per customer. Additionally, our transaction fees during the quarters ended June 30, 2019 and September 30, 2019 increased partially due to the increase in the adoption of new product offerings.

Our interest on funds held for customers in each of the quarters presented increased consecutively over all periods presented due primarily to the increase in the balance of customer funds held while payment transactions are clearing.

Quarterly Cost of Revenue and Gross Margin Trends

Our cost of revenue in each of the quarters presented increased consecutively for all subsequent periods due primarily to the increase in transaction-related costs, which was the result of the increase in the number of customers and the increase in payment transactions that we processed, and the increase in costs directly associated to providing support to our customers.

Our gross margin during the quarter ended December 31, 2017 increased compared to the preceding quarter due primarily to the increase in our total revenue and the increase in our revenue mix. Our gross margin slightly increased during the quarter ended June 30, 2018 compared to the preceding quarters due primarily to the increase in our total revenue, which was higher relative to the increase in costs. Our gross margin had consecutively increased from the quarter ended June 30, 2019 due primarily to the increase in our total revenue, in particular the increase in adoption of new product offerings, and the increase in our revenue mix, in particular the increase in interest on funds held for customers.

Quarterly Operating Expenses Trends

Our operating expenses in each of the quarters presented increased consecutively for all subsequent periods due primarily to the increase in personnel-related costs, including stock-based compensation expense, as we invested in additional headcount quarter-over-quarter to support the growth of our business. Additionally, our professional and consulting fees, temporary staffing costs, and shared overhead costs increased consecutively over all periods due to the overall growth of our business. We also continued to increase our sales and marketing spend quarter over quarter, in particular advertising and promotional marketing expenses, as we continued to invest in promoting brand awareness.

As a percentage of total revenue, our operating expenses fluctuated in the quarters presented. Our operating expenses as a percentage of total revenue during the quarter ended September 30, 2018 and December 31, 2018 decreased compared to the respective preceding quarters due primarily to the leveraging of certain costs on relatively higher revenue, in particular due to the lower personnel-related costs as a percentage of total revenue resulting from the timing of hiring employees. Our operating expenses as a percentage of total revenue during the quarter ended June 30, 2019 increased compared to the preceding quarters due primarily to the increase in professional and consulting fees as we obtained additional external assistance in connection with the overall growth of our business and our preparation to operate as a public company. Our operating expenses as a percentage of total revenue during the quarter ended September 30, 2019 increased compared to the preceding quarters due primarily to the increase in personnel-related costs, including stock-based compensation expense, due to the increase in headcount.

Quarterly Other Income Trends

Our other income (net) in each of the quarters presented increased consecutively for all subsequent periods due primarily to the increase in interest earned on corporate funds that we invested in money market instruments and highly liquid short-term investments.

Liquidity and Capital Resources

We have financed our operations and capital expenditures primarily through sales of redeemable convertible preferred stock, bank borrowings, and utilization of cash generated from operations. As of September 30, 2019, our principal sources of liquidity are our cash and cash equivalents of $86.2 million, our available-for-sale short-term investments of $71.4 million, and funds available under our Senior Facilities Agreement (as defined below). Our cash equivalents are comprised primarily of money market funds and investments in debt securities with original maturities of three months or less. Our short-term investments are comprised primarily of investments in corporate bonds, asset-backed securities and U.S. Treasury securities with original maturities of more than three months to less than one year. Our Senior Facilities Agreement, which expires on June 28, 2022, allows us to borrow up to $50.0 million. We had no outstanding borrowings from our Senior Facilities Agreement as of September 30, 2019.

We believe that our cash, cash equivalents, available-for sale short-term investments, and funds available under our Senior Facilities Agreement will be sufficient to meet our working capital requirements for at least the next twelve months. To the extent existing cash, cash from operations, and amounts available for borrowing under the Senior Facilities Agreement are insufficient to fund future activities, we may need to raise additional funds. In the future, we may attempt to raise additional capital through the sale of equity securities or through equity-linked or debt financing arrangements. If we raise additional funds by issuing equity or equity-linked securities, the ownership of our existing stockholders will be diluted. If we raise additional financing by the incurrence of

additional indebtedness, we may be subject to increased fixed payment obligations and could also be subject to additional restrictive covenants, such as limitations on our ability to incur additional debt, and other operating restrictions that could adversely impact our ability to conduct our business. Any future indebtedness we incur may result in terms that could be unfavorable to equity investors. There can be no assurances that we will be able to raise additional capital. The inability to raise capital would adversely affect our ability to achieve our business objectives.

Cash Flows

Below is a summary of our consolidated cash flows (in thousands):


	Year Ended June 30,						Three months ended September 30,
	2018			2019			2018			2019
Net cash provided by (used in):
Operating activities	$	(8,356	)	$	(3,949	)	$	(2,255	)	$	(2,380	)
Investing activities		(335,421	)		(419,801	)		(104,019	)		(138,132	)
Financing activities		326,282			491,655			99,181			136,455

Net (decrease) increase in cash and cash equivalents	$	(17,495	)	$	67,905		$	(7,093	)	$	(4,057	)

Net Cash Used in Operating Activities

Our primary source of cash provided by our operating activities is our revenue from subscription and transaction fees. Our subscription revenue is primarily based on a fixed monthly or annual rate per user charged to our customers. Our transaction revenue is comprised of transaction fees on a fixed or variable rate per type of transaction. We also generate cash from the interest earned on funds held in trust on behalf of customers while payment transactions are clearing.

Our primary uses of cash in our operating activities include payments for employee salary and related costs, payments to third parties to fulfill our payment transactions, payments to sales and marketing partners, and other general corporate expenditures.

Net cash used in operating activities increased to $2.4 million during the three months ended September 30, 2019 from $2.3 million during the three months ended September 30, 2018 due primarily to the increase in cash paid for our cost of services and operating expenses, primarily employee salary and related costs due to the increase in headcount, offset by the increase in cash received from subscription and transaction fees revenue, as well as the increase in cash received from interest on funds held for customers.

Net cash used in operating activities decreased to $3.9 million during fiscal 2019 from $8.4 million during fiscal 2018 due primarily to the increase in cash received from subscription and transaction fees revenue, as well as the increase in cash received from interest on funds held for customers, offset by the increase in cash paid for our cost of services and operating expenses, primarily employee salary and related costs due to the increase in headcount.

Net Cash Used in Investing Activities

Cash provided by our investing activities consists primarily of proceeds from the maturities and sale of corporate and customer fund available-for-sale investments. Cash used in our investing activities consists primarily of purchases of corporate and customer fund available-for-sale investments, purchases of property and equipment, and capitalization of internal-use software.

Net cash used in investing activities increased to $138.1 million during the three months ended September 30, 2019 from $104.0 million during the three months ended September 30, 2018, due primarily to an increase in restricted cash and cash equivalents included in funds held for customers and an increase in purchases of property and equipment, offset by an increase in proceeds from the maturities and sale of corporate and customer fund available-for-sale investments.

Net cash used in investing activities increased to $419.8 million during fiscal 2019 from $335.4 million during fiscal 2018, due primarily to an increase in purchases of corporate and customer fund available-for-sale investments, an increase in restricted cash and cash equivalents included in funds held for customers, an increase in purchases of property and equipment and an increase in capitalized internal-use software, offset by an increase in proceeds from the maturities and sale of corporate and customer fund available-for-sale investments.

Net Cash Provided by Financing Activities

Cash provided by our financing activities consists primarily of increase in customer fund deposits liability, proceeds from the issuance of redeemable convertible preferred stock, exercise of stock options and bank borrowings. Cash used in our financing activities consists primarily of repayments of our bank borrowings.

Net cash provided by financing activities increased to $136.5 million during the three months ended September 30, 2019 from $99.2 million during the three months ended September 30, 2018, due primarily to an increase in customer fund deposits liability, offset by payments of deferred offering costs and deferred debt issuance costs.

Net cash provided by financing activities increased to $491.7 million during fiscal 2019 from $326.3 million during fiscal 2018, due primarily to an increase in customer fund deposits liability, proceeds from the issuance of Series H redeemable convertible preferred stock and an increase in proceeds from exercise of stock options, offset by an increase in repayments of bank borrowings.

Credit Facilities

On June 28, 2019, we entered into a Senior Secured Credit Facilities Credit Agreement (Senior Facilities Agreement) with Silicon Valley Bank for a revolving credit facility of up to $50.0 million, which amount may be increased by up to $25.0 million upon request and subject to conditions. Under the Senior Facilities Agreement, Bill.com, LLC is the borrower and Bill.com Holdings, Inc. is the guarantor. The Senior Facilities Agreement expires on June 28, 2022 and is secured by substantially all of our assets.

Borrowings under the Senior Facilities Agreement are subject to interest, determined as follows: (a) Eurodollar loans shall bear interest at a rate per annum equal to the Eurodollar rate plus the applicable margin of 1.75% or 2.75%, depending on company cash balances (Eurodollar rate is calculated based on the ratio of Eurodollar Base Rate, which is determined by reference to ICE Benchmark Administration London Interbank Offered Rate (LIBOR), but not less than 0%) or (b) Alternate Base Rate (ABR) loans shall bear interest at a rate per annum equal to the ABR minus the applicable margin of 0.25% or 1.25% depending on company cash balances (ABR is equal to the highest of (i) the prime rate, (ii) the Federal Funds Effective Rate plus 0.50%, and (iii) the Eurodollar rate plus 1.25%).

The Senior Facilities Agreement requires us to comply with certain restrictive covenants. As of June 30, 2019 and September 30, 2019, we were in compliance with the loan covenants.

We had no outstanding borrowings under the Senior Facilities Agreement as of June 30, 2019 and September 30, 2019.

On October 5, 2017, we entered into an Amended and Restated Loan and Security Agreement (Loan and Security Agreement) with Silicon Valley Bank providing for a term loan of up to $10.0 million and a revolving line of credit of up to $15.0 million. The Loan and Security Agreement was terminated on June 28, 2019, upon our entry into the Senior Facilities Agreement.

Contractual Obligations and Other Commitments

Our principal commitments consist of obligations under operating leases for office space, a strategic partnership agreement to promote our platform, and agreements with various third parties to purchase software and maintenance services. The following table summarizes our commitments to settle contractual obligations in cash as of June 30, 2019 (in thousands):


	Total		Less than 1 year		1 - 3 years		3 - 5 years		More than 5 years
Operating lease commitments⁽¹⁾	$	5,677	$	2,611	$	1,246	$	1,310	$	510
Partnership and other commitments⁽²⁾		18,724		3,471		5,566		4,187		5,500

Total	$	24,401	$	6,082	$	6,812	$	5,497	$	6,010

(1)	Consists of future non-cancellable minimum rental payments under operating leases for our offices.

(2)	Consists of future minimum payments under a strategic partnership agreement and for purchases of software and maintenance services.

Off-Balance Sheet Arrangements

As of June 30, 2019 and September 30, 2019, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures, or capital resources.

Quantitative and Qualitative Disclosures about Market Risk

Our overall investment portfolio is comprised of corporate investments including company operating cash and cash equivalents, and short-term marketable securities. Customer funds assets are funds that have been collected from customers, but not yet remitted to the applicable supplier or deposited into our customers’ accounts.

Our corporate investments are invested in cash and cash equivalents and highly liquid, investment-grade marketable securities. These assets are available for corporate operating purposes. All of our short-term fixed-income securities are classified as available-for-sale securities.

Our customer funds assets are invested with safety of principal, liquidity, and diversification as the primary objectives. Consistent with those objectives, we also seek to maximize interest income and to minimize the volatility of interest income. Customer funds assets are invested in money market funds that maintain a constant market price, other cash equivalents, and highly liquid, investment-grade fixed income securities, with maturities of three months or less or more than three months to one year at the time of purchase. The types of investments that we can make with the fund balances are governed by our investment policy and restrictions on permissible investments or other similar restrictions in applicable state money transmitter laws.

As part of our customer funds investment strategy, we use the daily collection of funds from our customers to satisfy other unrelated customer funds obligations, rather than liquidating previously-collected customer funds that have already been invested in available-for-sale securities. We minimize the risk of not having funds collected from a customer available at the time the customer’s obligation becomes due by collecting the customer’s funds in advance of the timing of payment of the customer’s obligation. As a result of this practice, we have consistently maintained the required level of customer funds assets to satisfy all of our obligations.

There are inherent risks and uncertainties involving our investment strategy relating to our customer funds assets. Such risks include liquidity risk, including the risk associated with our ability to liquidate, if necessary, our available-for-sale securities in a timely manner in order to satisfy our customer funds obligations. However, our investments are made with the safety of principal, liquidity, and diversification as the primary goals to minimize the risk of not having sufficient funds to satisfy all of our customer funds obligations. We also believe we have significantly reduced the risk of not having sufficient funds to satisfy our customer funds obligations by maintaining a portion of our customer funds in demand deposit accounts and money market funds that maintain a constant market price, as well as maintaining access to other sources of liquidity, including our corporate cash balances and available borrowings under our Senior Facilities Agreement. In addition to liquidity risk, our investments are subject to interest rate risk and credit risk, as discussed below.

Interest Rate and Credit Risk

We are exposed to interest-rate risk relating to our investment portfolio and funds of our customers that we process through our bank accounts. Our investment portfolio consists principally of interest-bearing bank deposits, money market funds, certificates of deposit, corporate bonds, asset-backed securities, and U.S. Treasury securities. Funds that we hold for customers are held in non-interest and interest-bearing bank deposits, money market funds, certificates of deposit, commercial paper and other corporate notes, and U.S. Treasury securities. We recognize interest earned from funds held for customers as revenue. We do not pay interest to customers. Factors that influence the rate of interest we earn include the short-term market interest rate environment and the weighting of balances by security type. The annualized interest rate earned on our investment portfolio and funds held for customers increased to 2.05% during fiscal 2019 from 1.03% during fiscal 2018. The annualized interest rate earned on our investment portfolio and funds held for customers increased to 2.02% during the three months ended September 30, 2019 from 1.81% during the three months ended September 30, 2018. Our investments in both fixed rate and floating rate interest earning securities carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely affected due to a rise in interest rates, while floating rate securities may produce less income than predicted if interest rates fall. Unrealized gains or losses on our marketable debt securities are primarily due to interest rate fluctuations as a result of a change in market interest rates compared to interest rates at the time of purchase. We account for both fixed and variable rate securities at fair value with unrealized gains and losses recorded in accumulated other comprehensive income until the securities are sold. Based on current investment practices, a change in the Federal Funds interest rate of 100 basis points would have changed our interest income from our short-term investment portfolio by approximately $1.3 million and our interest on funds held for customers by approximately $9.3 million on the average balances for fiscal 2019 of $133 million in Company investments and $1.1 billion in customer funds, respectively. Such a change in the Federal Funds interest rate would have changed our interest income from our short-term investment portfolio by approximately $0.4 million and our interest on funds held for customers by approximately $3.4 million on the average balances during the three months ended September 30, 2019 of $159.2 million in Company investments and $1.3 billion in customer funds, respectively. In addition to interest rate risks, we also have exposure to risks associated with changes in laws and regulations that may affect customer fund

balances. For example, a change in regulations that restricts the permissible investment alternatives for customer funds would reduce our interest earned revenue.

We are also exposed to interest-rate risk relating to future bank borrowings. As of June 30, 2019 and September 30, 2019, our Senior Facilities Agreement provides a revolving credit facility of up to $50.0 million that may be increased by up to $25.0 million, subject to conditions, incurring interest expense at a floating market rate plus a contractual spread. However, we had no outstanding borrowings under the Senior Facilities Agreement as of June 30, 2019 and September 30, 2019.

We are exposed to credit risk in connection with our investments in available-for-sale marketable securities through the possible inability of the borrowers to meet the terms of the securities. We limit credit risk by investing in investment-grade securities as rated by Moody’s, Standard & Poor’s or Fitch, by investing only in securities that mature in the near-term, and by limiting concentration in commercial paper. Investment in securities of issuers with short-term credit ratings must be rated A-2/P-2/F2 or higher. Investment in securities of issuers with long-term credit ratings must be rated A- or A3, or higher. Investment in asset-backed securities and money market funds must be rated AAA or equivalent. Investment in repurchase agreements will be at least 100 percent collateralized with securities issued by the U.S. government or its agencies. Securities in our corporate portfolio may not mature beyond two years from purchase, and securities held in our customer fund accounts may not mature beyond 13 months from purchase. No more than 5% of invested funds, either corporate or customer, may be held in the issues of a single corporation.

We are also exposed to credit risk related to the timing of payments made from customer funds collected. We typically remit customer funds to our customers’ suppliers in advance of having good or confirmed funds collected from our customers. Our customers generally have three days to dispute transactions and if we remit funds in advance of receiving confirmation that no dispute was initiated by our customer, then we could suffer a credit loss. We mitigate this credit exposure by leveraging our data assets to make credit underwriting decisions about whether to accelerate disbursements, managing exposure limits, and various controls in our operating systems.

Foreign Currency Exchange Risk

We are exposed to foreign currency exchange risk relating to our cross-border payments, which allows customers to pay their international suppliers in foreign currencies. When customers make a cross-border payment, customers fund those payments in U.S. dollars based upon an exchange rate that is quoted on the initiation date of the transaction. Subsequently, when we remit those funds to our customers’ suppliers through our global payment partner, the exchange rate may differ, due to foreign exchange fluctuation, compared to the exchange rate that was initially quoted. Our transaction fees to our customers are not adjusted for changes in foreign exchange rates between the initiation date of the transaction and the date the funds are remitted. If the value of the U.S. dollar weakens relative to the foreign currencies, this may have an unfavorable effect on our cash flows and operating results. We do not believe that a 10% change in the relative value of the U.S. dollar to other foreign currencies would have a material effect on our cash flows and operating results.

Critical Accounting Policies and Estimates

Our consolidated financial statements have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported revenue generated, and reported expenses incurred during the reporting periods. Our estimates are based on our historical

experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in the notes to our consolidated financial statements included elsewhere in this prospectus, we believe that the following critical accounting policies are most important to understanding and evaluating our reported financial results.

Revenue recognition—Our contracts with financial institutions require us to provide multiple services comprising subscription, transaction and implementation services. We identify performance obligations in these contracts by evaluating whether individual services are distinct. We consider a service distinct if it is (i) capable of being distinct and (ii) distinct within the context of the agreement. Services that are not distinct are combined into a single performance obligation. The evaluation of whether a service is distinct involves judgment and could impact the timing of revenue recognition. We determine the transaction price in these contracts based on the amount of consideration we expect to be entitled to, which are typically variable. The transaction price is then allocated to each separate performance obligation on a relative standalone selling price basis. We determine the standalone selling prices based on the overall pricing objectives, taking into consideration the adjusted market assessment approach and the expected cost plus margin approach. Each performance obligation is analyzed to determine if it is satisfied over time or at a point in time. Our performance obligations are generally recognized as revenue over the period each performance obligation is satisfied. Our implementation services included in these contracts consist of the development of interfaces between our platform and the financial institution’s platform and the development of graphical user interfaces within the financial institution’s platform. The financial institution’s customers cannot access online bill pay services until implementation is complete and the financial institution has provided acceptance of the implementation services. As a result, initial implementation services are not capable of being distinct from subscription and transaction processing services, and are therefore combined into a single performance obligation. The ability of financial institution customers to renew contracts without having to pay up-front implementation fees again provides them a material right. Material rights, which have not been significant to date, are treated as separate performance obligations and are recognized over the expected period of benefit.

We recognize revenue over time using an attribution method that best reflects the measure of progress in satisfying the performance obligation. The attribution method used involves judgment and impacts the timing of revenue recognition. We recognize revenue on annual and monthly subscription contracts based on the proportion of transactions processed compared to the total estimated transactions to be processed over the contract period.

Deferred costs—Deferred costs include deferred sales commissions that are incremental costs of obtaining customer contracts. We amortize deferred sales commissions ratably over the estimated period of our relationship with new customers of four to six years. Based on historical experience, we determine the average life of our customer relationship by taking into consideration our customer contracts and the estimated technological life of our platform and related significant features.

Stock-based compensation—We use the grant-date fair-value-based measurements for stock-based compensation using the Black-Scholes option-pricing model. We recognize these compensation costs on a straight-line basis over the requisite service period of the award, which is generally the option vesting term of four years, reduced for estimated forfeitures at the date of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. We estimate the forfeiture rate based on the historical experience for annual grant years where the majority of the vesting terms have been satisfied.

The Black-Scholes option-pricing model requires the use of highly subjective assumptions which determine the fair value of stock-based awards. These assumptions include:

Expected term—The expected term represents the period that stock-based awards are expected to be outstanding. The expected term for option grants is determined using the simplified method. The simplified method deems the term to be the average of the time-to-vesting and the contractual life of the stock-based awards.

Expected volatility—Since we are privately held and do not have any trading history for our common stock, the expected volatility was estimated based on the average volatility for comparable publicly traded companies over a period equal to the expected term of the stock option grants. The comparable companies were chosen based on their similar size, stage in the lifecycle or area of specialty.

Risk-free interest rate—The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of the option.

Expected dividend yield—We have never paid dividends on our common stock and have no plans to pay dividends on our common stock.

Common Stock Valuation—Historically, for all periods prior to this offering, the fair value of the shares of common stock underlying our share-based awards were estimated on each grant date by our Board of Directors with input from management and contemporaneous third-party valuations. We believe that our Board of Directors has the relevant experience and expertise to determine the fair value of our common stock. Given the absence of a public trading market for our common stock, our Board of Directors exercised reasonable judgment and considered a number of objective and subjective factors to determine the best estimate of the fair value of our common stock, including:

•

contemporaneous valuations of our common stock performed by independent third-party appraisers;

•

our actual operating results and financial performance;

•

conditions in the industry and economy in general;

•

the rights, preferences and privileges of our redeemable convertible preferred stock relative to those of our common stock;

•

the likelihood of achieving a liquidity event for the holders of our common stock, such as an initial public offering or a sale of our company, given prevailing market conditions;

•

equity market conditions affecting comparable public companies and the market performance of comparable publicly traded companies;

•

the U.S. and global capital market conditions; and,

•

the lack of marketability of our common stock and the results of independent third-party valuations. Valuations of our common stock were prepared by an unrelated third-party valuation firm in accordance with the guidance provided by the American Institute of Certified Public Accountants 2013 Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation.

In valuing our common stock, our Board of Directors determined the equity value of our business generally using the income approach and the market comparable approach valuation methods. When applicable due to a recent preferred stock offering, the prior sale of company stock method was also utilized.

The income approach estimates value based on the expectation of future cash flows that a company will generate—such as cash earnings, cost savings, tax deductions, and the proceeds from disposition. These future cash flows are discounted to their present values using a discount rate derived from an analysis of the cost of capital of comparable publicly traded companies in our industry or similar lines of business as of each valuation date and is adjusted to reflect the risks inherent in our cash flows. In addition, we also considered an appropriate discount adjustment to recognize the lack of marketability due to being a closely-held entity.

The market comparable approach estimates value based on a comparison of the subject company to comparable public companies in a similar line of business. From the comparable companies, a representative market value multiple is determined which is applied to the subject company’s operating results to estimate the value of the subject company. In our valuations, the multiple of the comparable companies was determined using a ratio of the market value of invested capital less cash to each of the last twelve-month revenues and the forecasted future twelve month revenues. The estimated value is then discounted by a non-marketability factor because stockholders of private companies do not have access to trading markets similar to those enjoyed by stockholders of public companies which impacts liquidity. To determine our peer group of companies, we considered public enterprise cloud-based application providers and select those that are similar to us in size, stage of lifecycle, and financial leverage.

The resulting equity value is then allocated to each class of stock using an Option Pricing Model (OPM). The OPM treats common stock and redeemable convertible preferred stock as call options on an equity value, with exercise prices based on the liquidation preference of our redeemable convertible preferred stock. Under this method, our common stock has value only if the funds available for distribution to stockholders exceed the value of the liquidation preference at the time of a liquidity event, such as a merger or sale, assuming we have funds available to make a liquidation preference meaningful and collectible by the stockholders. The common stock is considered to be a call option with a claim at an exercise price equal to the remaining value immediately after the redeemable convertible preferred stock is liquidated.

Beginning in December 2018, the resulting equity value was allocated to each class of stock using a Probability Weighted Expected Return Method (PWERM). The PWERM involves the estimation of future potential outcomes of our company as well as values and probabilities associated with each respective potential outcome. The common stock per share value determined using this approach is ultimately based upon probability-weighted per share values resulting from the various future scenarios, which can include an IPO, merger or sale, dissolution, or continued operation as a private company. There was a very wide range of possible future exit events for the “remain private scenario” in our PWERM analysis, and forecasting specific probabilities and potential values associated with any future events would be highly speculative and imprecise for this scenario. As such, we relied primarily upon the OPM in order to allocate the equity value among the stockholders for the “remain private scenario” in our PWERM analysis.

In some cases, we considered the amount of time between the valuation date and the grant date to determine whether to use the latest common stock valuation determined pursuant to one of the methods described above or a straight-line calculation between the two valuation dates. This determination included an evaluation of whether the subsequent valuation indicated that any significant change in valuation had occurred between the previous valuation and the grant date.

After the completion of this offering, our Board of Directors will determine the fair value of each share of underlying common stock based on the closing price as reported on the date of grant on the primary stock exchange on which our common stock is traded.

Recent Accounting Pronouncements

See Note 1 to our consolidated financial statements included elsewhere in this prospectus for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of the date of this prospectus.

Emerging Growth Company Status

We are an emerging growth company, as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, these consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. During fiscal 2018, we early adopted ASU 2014-09, Revenue from Contracts with Customers (Accounting Standards Codification Topic 606) effective July 1, 2017 using the full retrospective method as the JOBS Act does not preclude an emerging growth company from early adopting a new or revised accounting standard earlier than the time that such standard applies to private companies. We expect to use the extended transition period for any other new or revised accounting standards during the period in which we remain an emerging growth company.

A LETTER FROM BILL.COM CEO AND FOUNDER RENÉ LACERTE

Dear Prospective Shareholder,

Thank you for your interest in Bill.com. I wrote this letter to help you understand the opportunity we have ahead of us, the large problem we are solving, and the power of what we have built for our customers.

Since founding Bill.com, I have been motivated by the desire to build solutions that make a real difference for small and mid-sized businesses (SMBs). At Bill.com, we have merged software, payments and artificial intelligence to move the back-office of SMBs into the cloud. We have created an end-to-end software platform that simplifies, digitizes, and automates the repetitive and manual tasks involved in paying suppliers and getting paid by clients. Our unified platform weaves software and payments seamlessly together, resulting in better, more efficient and reliable financial operations.

Financial software solutions are in my DNA. My parents and grandparents owned their own businesses, each of them using software to automate the processes surrounding data processing and payroll. After working for an accounting firm post-college, I returned to my parents’ business where I worked in all parts of the operation and experienced firsthand the daily challenges of managing a small business back-office.

I subsequently joined Intuit with the idea of building something that could make a difference for small businesses like my family’s. I was part of the group that built consumer bill pay and was one of the founding team members who launched the connected payroll business. The success of those initiatives gave me the confidence to co-found my first company, PayCycle, in 1999. Over the next decade, PayCycle became one of the fastest growing online payroll services in America and was acquired by Intuit in 2009. This Intuit platform continues to grow, and was recently rated the best online payroll system for small businesses by Business.com.

It was the running of the day-to-day back-office at PayCycle that drove home how difficult it was to manage a business successfully. I was drowning in paper: snail-mailed bills, filing cabinets haphazardly filled with bids and contracts, sticky notes with questions about invoices left on people’s desks, and check stock. In reality, the paper was a just symptom of a broader problem: how inefficient back-offices are at small companies. PayCycle’s accounts payable and accounts receivable workflow processes were no different than the ones my grandfather had used 60 years earlier when he started his first business. Everything about managing company cash flow was tedious, manual and complicated.

Building one of the first internet payroll solutions, I realized that cloud-based software could change much more than how employees got paid: it could change how the entire back-office worked. The more I thought about it, the more excited I got. I left PayCycle and started Bill.com in 2006 with the mission of making it simple to connect and do business.

Any business transaction is like a coin: heads on one side, tails on the other. One company’s debit is another’s credit. I built Bill.com with this holistic transaction lifecycle in mind, integrating workflow automation, accounting, and payments into a single platform, accessible with a single connection. This has allowed us to automate operations that no one had ever given any thought to changing or improving for SMBs, delivering transformative time and cost-savings.

I believe we have built a business that is not only making an impact today, but offers several avenues for growth in the future. And this is just the beginning. The Bill.com team continues to look forward, creating new ways to leverage the capabilities we have built and the data we have collected to

help our customers become even more efficient and productive. Using AI, we are eliminating data entry, preventing duplicate payments, and providing our customers with actionable insights to inform their business decisions. We are convinced that we have only scratched the surface of this new technology, and I am thrilled about the potential that lies ahead.

In closing, as a serial entrepreneur, I’d like to share my philosophy on building successful companies. Being an entrepreneur requires a perfect balance of impatience and patience. The impatience compels you to fix something that’s broken, and the patience keeps you iterating on your solution, long after others would have quit. In thirteen years, I’ve stayed focused on listening to our customers and innovating to improve their experience with our platform.

It is the success of today that drives us toward even better outcomes tomorrow. Business is personal, and for those that become shareholders, I appreciate your trust and confidence in my ability to take the company to the next level.

Thank you for taking the time to learn more about Bill.com.

Sincerely,

René Lacerte

CEO and Founder

BUSINESS

Overview

Our mission is to make it simple to connect and do business.

We Make Paper-based Manual Transaction Processing Obsolete

Because many of our customers use our platform to manage their end-to-end financial workflows, we have visibility into the entire transaction lifecycle. We leverage this transaction data to provide our customers with insights into their back-office processes and business relationships, which allows our customers to make more informed financial decisions. Our customers benefit from our platform in a wide variety of ways. Here are a few of their stories:

“Bill.com automatically enters our invoices, and that made a huge difference for me when I was the only accounting person on staff. I also love that the approver system and audit trail helps me respond to any inquiries that we receive about a payment. In 2018, we paid 1,800 bills through Bill.com, a 63% increase over the previous year. Without Bill.com we would have had to hire at least one more full-time accounts payable person to print out all of those invoices and manually cut checks. Bill.com also enables us to pay international suppliers. Given the number of bills we pay, as

well as the currency amount, it took a lot of administration time for the complex tasks required when paying through banks. With Bill.com, it’s a one-click solution. It’s a lifesaver.”

-Jurie Victor, Finance Manager at Spikeball (Chicago, IL), a sports equipment company

“By moving to Bill.com we’ve decreased the time it takes to complete our accounts payable processes by 60%! With Bill.com we can trust that our checks will be issued accurately and on time after we hit the ‘Pay’ button and we are confident that all of our direct deposits will be in our customers’ accounts within 1-2 days.”

- Blake Seidman, Controller at TED Conferences (New York, NY), the organization behind TED Talks

“We had no bill payment clients before adopting Bill.com four years ago, primarily because we had no cost-effective method of processing bills on their behalf. With Bill.com, we were able to offer a service that brings in over $250,000 a year in revenue. The core of our business is to use best-of-breed software to build our firm and our services, and Bill.com’s elegant technology fits this profile and has become a fundamental part of our business plan.”

- Matthew May, Founder of Acuity (Atlanta, GA), a mid-size accounting firm

“We use both the accounts receivable and accounts payable features of Bill.com, which helps us manage our cash flow for our property-management business. Bill.com allows us to automatically withdraw rent payments directly from tenant banking accounts and schedule payments to vendors and property owners. This gives us a competitive advantage because we can pay owners faster than other property-management companies in the area. It also means we have more time to spend developing new business instead of collecting rent and paying bills. I check the Bill.com system every day, because it brings pertinent information to the surface that I need to act on and helps me be more productive.”

- Mark Lindsay, Managing Director at Lindsay Leasing (Sarasota, FL), a family-run property management company

We Partner with Many of the Most Trusted Accounting Firms and Financial Institutions in the United States

Industry Trends

Back-Office Financial Workflows Are Essential to All Businesses

The transaction lifecycle—encompassing all processes that enable businesses to pay and get paid—is critical to companies of all sizes, in all industries and geographies. Businesses begin the transaction lifecycle by creating and mailing invoices, approving bills, and making payments, and end

the process by recording and reconciling transactions in an accounting system. The ability to manage this critical set of activities efficiently and effectively is key for any business. Yet, for most businesses, cash flow is managed in a complex, inefficient, and all too often, paper-based manner.

SMBs Are Underserved by Current Software Solutions

We believe SMBs, despite comprising a large part of the economy, are underserved by existing financial software solutions. Instead of developing purpose-built solutions, many software providers attempt to sell solutions designed for consumers or enterprises, which struggle to gain traction in the SMB market. Solutions for consumers are too simple, while enterprise solutions are typically too complex and expensive. Additionally, these products generally do not integrate with other systems, requiring SMBs to piece together an expensive patchwork of individual products to meet their needs. Further, SMBs are often resource-constrained and focused on their day-to-day operations, making them difficult to reach through traditional sales and marketing approaches.

SMBs remain largely underserved by current software solutions, despite an SMB Group survey showing that 74% of SMBs believe using new technology effectively is key to their survival. We believe we have a greenfield opportunity to provide SMBs with a platform to automate their back-office financial operations.

SMBs Generally Rely upon Antiquated and Inefficient Processes

SMBs generally handle their financial workflows the same way they have for decades. The lack of an end-to-end financial software platform tailored for SMBs results in a back office that is:

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Manual and Cumbersome. Legacy workflows require people to be involved at every stage of the transaction lifecycle. According to a 2019 survey by Levvel Research, the number one workflow process challenge reported by back-office employees was the level of manual data entry required and the inefficiency inherent in traditional processes. It simply takes too long and costs too much.

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Inaccurate and Error-Prone. Legacy processes rely upon disparate systems throughout the transaction lifecycle, introducing the risk of improperly recorded transactions, unreconciled items, or late payments and associated penalty fees. Missing information on invoices was cited as a top reason for late payments and missed discounts, according to a 2018 Levvel Research survey.

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Paper-Based and Not Secure. Traditional financial processes are dependent on paper throughout the transaction lifecycle, including mailed invoices, signatures on documents indicating approval to pay, and the issuance of physical checks. According to a survey conducted by RPMG Research, the estimated full cost of invoice processing and payments by check is $39 per payment. Further, check fraud is a universal problem in the United States – according to a 2018 study by AFP Payments Fraud and Control Survey, 74% of organizations surveyed experienced check fraud in 2017. This was the highest incidence of fraud across all payment methods, including wires, credit cards, and automated clearing house (ACH) payments. Unlike enterprises, SMBs generally lack the tools and budget to invest in sophisticated fraud prevention measures.

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Lacking Visibility and Data. Legacy software solutions leave businesses with limited visibility into their current and future cash position as well as their accounts payable and accounts receivable workflows. Many SMBs also lack data insights and tools to track usage, spending trends, and cash flows.

We believe SMBs deserve and are ready to adopt a modern, efficient, cloud-based offering that meets their needs.

Our Solution

Our cloud-based, intelligent platform was purpose-built to simplify life for SMBs. Our end-to-end solution automates the back-office processes of generating and processing invoices; receiving and approving bills; collecting and disbursing funds; and completing reconciliation. We provide businesses with both a unified and mobile platform to pay their suppliers and collect payments from their clients. In effect, we act as a system of control for their accounts payable and accounts receivable activities.

Our platform frees our customers from cumbersome legacy financial processes and provides the following key benefits:

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Automated and Efficient. Our AI-enabled platform helps our customers pay their bills efficiently and get paid faster. For example, our Intelligent Virtual Assistant (IVA) streamlines the transaction lifecycle by automatically capturing data from an incoming invoice and prepopulating the critical data fields that an accounts payable clerk would typically key-in manually, saving the SMB time and money. IVA also detects duplicates, flagging invoices that a customer should scrutinize before approving a duplicative payment.

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Unified, Integrated, and Accurate. We provide a platform that connects our customers to their suppliers and clients. Our platform integrates with popular accounting software solutions, banks, and payment processors, enabling our customers to access all these mission-critical business partners through a single connection. Because we provide a unified view, customers can more easily find inconsistencies and inaccuracies, and fix them quickly. Through these integrations, we synchronize all customer-initiated changes between the systems, so that our customers do not have to create files to update or keep their various systems in-balance. We automate financial workflows through the entire transaction lifecycle, and provide SMBs the functionality of an enterprise business infrastructure, at a fraction of the cost.

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Digital and Secure. Our platform securely stores over 185 million documents for our customers. With our platform, SMBs do not need to worry about manually collecting and storing sensitive supplier and client information, including bank account details. We enable secure connections and storage of sensitive supplier and client information and documents, such as invoices and contracts, and make them accessible to authorized users through our cloud-based application, on any device.

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Visible and Transparent. With our platform dashboard, customers can easily view their transaction workflows. They can see which bills have been approved, what payments await approvals, and what cash has been received. Progress bars show our accounts receivable customers when an invoice has been sent, been viewed by the recipient, payment scheduled, and funds received. This visibility helps SMBs gain more insight into their financial operations and manage their cash flows intelligently.

Our Opportunity

SMBs represent a significant and critical component of the U.S. economy. SMBs are businesses with fewer than 500 total employees, as defined by the Small Business Administration. In 2018, there were approximately 30 million SMBs in the United States, which provided employment for over 47.5% of U.S. workers and were responsible for a third of goods traded by value. While 24 million of these SMBs are sole-proprietors, we focus on serving the over six million employer firms. SMBs large enough to have employees tend to have a greater need for more advanced accounts payable and accounts receivable processes in their back offices.

Globally, there were approximately 20 million small and medium enterprises (SMEs) registered in the SME Finance Forum’s 2019 database.

We estimate the annual addressable market for the services we offer today to be $30 billion globally and $9 billion domestically. We derive this estimate by multiplying our average fiscal 2019 revenue per customer of $1,500 by the 20 million SMEs globally and 6 million domestic employer firms.

In addition, we believe we have the following incremental monetization opportunities, including to:

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expand our target market to include sole proprietors and larger companies;

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enter international markets;

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sell additional solutions or products on our platform; and

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capture more of the overall business-to-business payments flow from new and existing customers.

Our Go-to-Market Strategy

Direct-to-SMBs

Our direct-to-SMB strategy leverages digital customer acquisition tools and techniques and is supported by efficient inside sales capabilities. We also build awareness through direct interaction at industry trade shows and by word of mouth. In a 2019 customer survey we conducted, half of new customer respondents indicated they first heard about us because they used our platform at a prior company, or heard about us through a colleague. In addition, new SMBs are continuously being introduced to our platform’s value proposition through our 1.8 million network members as of June 30, 2019.

Indirect through Accounting Firms and Strategic Partners

Accounting Firms

Accountants are very important to SMBs. Since our inception, we have focused on providing accounting firms with tools to better manage and support their clients. Our accountant-specific tools help firms grow their client advisory services practices, establish a competitive advantage, and satisfy and retain their SMB clients. With our platform, the same accounting firm staff can serve more clients—and serve them more profitably. We partner with more than 70 of the top 100 accounting firms, and enable over 4,000 accounting firms across the country to deliver more value

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to their customers every day. As a result of this compelling value proposition, many of our customers are first introduced to us through their accountants.

Financial Institutions

SMBs look to financial institutions for digital solutions for end-to-end cash flow management. As a result, many of those financial institutions turn to us to meet their customers’ needs. By working with Bill.com, our financial institution partners can provide their customers with many of the benefits realized by our directly-acquired customers. We are currently integrated with several of the largest financial institutions in the United States, including Bank of America, JPMorgan Chase, and American Express. These partners embed our platform, typically on a white-label basis, into their online banking solutions, making our products available to millions of their clients.

Accounting Software Companies

We are integrated with Intuit QuickBooks, making our features available to millions of SMBs. Customers can seamlessly access our platform within QuickBooks Online, making it easy to manage their accounting activities and back-office workflows. In addition, we have referral relationships with several other popular accounting software providers, including Oracle NetSuite and Sage Intacct.

What Sets Us Apart

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Purpose-Built for SMBs. We understand the challenges SMBs experience each and every day running their businesses. From invoice image recognition and automated data entry, to intelligent approval routing, payment disbursement, and collections, and accounting system reconciliation, our unified platform provides SMBs with core functionality and value-added services generally reserved for larger companies. Our user-centric design provides our customers with the ease-of-use they are accustomed to with consumer applications.

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Diverse Distribution Channels. We leverage both direct and indirect channels to efficiently reach our target market. Our trusted brand attracts customers directly through our website, while accounting firms sell our platform to their SMB clients. Similarly, our financial institution partners distribute our platform under their brand, providing us with access to millions of businesses. Finally, our integration into Intuit’s accounting software positions us advantageously as a financial software solution of choice for SMBs using QuickBooks Online. While these partners require an initial integration investment, a go-to-market flywheel takes effect as our partners accelerate the delivery of our platform across their customer bases with minimal incremental investment from us.

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Large and Growing Network of Connected Businesses. As accounts receivable customers issue invoices or accounts payable customers pay bills on our platform, they connect to their clients and suppliers, driving an organic expansion of our network. Once we connect an SMB with its clients and suppliers and enable both parties to collaborate and transact electronically, we become an integral tool to the back-office operations. This drives a powerful network effect, aiding our customer acquisition efforts by increasing the number of businesses connected to our platform, which then become prospects.

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non-United States suppliers on our platform, but executing those transactions through other financial institutions. As a result, we introduced cross-border payments, confident that there was an opportunity among our existing customer base to address their need for international payments in addition to domestic payments. Since introducing cross-border payments, we have disbursed over $500 million for our customers, demonstrating our ability to gain further share of wallet from our existing customer base.

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Risk Management Expertise. In addition to leveraging our data and machine learning capabilities for product innovation, our data asset and technology drives our risk engine. We move billions of dollars of customer funds monthly, and it is critical to our business model that we keep those funds and our customers’ data safe. Every customer who enrolls and transacts on our platform benefits from our risk management capability. We believe that our risk engine, built in-house and trained upon millions of business ACH, check, card, and wire transactions, provides us with a competitive advantage.

Because we move funds on behalf of our customers, we have become licensed as a money transmitter and regulated by both state and federal entities. The decision to acquire licenses illustrates our commitment to operating in a safe, secure, and transparent manner. It also provides us with the ability to serve our customers directly with new payment offerings, creating revenue opportunities and operating leverage.

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Experienced Management Team and Vibrant Culture. Our management team has deep experience with SMBs, software-as-a-service (SaaS) companies, and financial institutions. We have built a strong culture where employees are tightly connected to our mission. We are passionate about our craft, dedicated to each other and our customers, humble to the core, authentic about who we are, and fun to be around. As of August 30, 2019, our Chief Executive Officer, René Lacerte, has a 98% approval rating on Glassdoor, which is indicative of the enthusiasm that our employees feel about our leadership and the culture our CEO has nurtured.

Our Growth Strategy

Key elements of our growth strategy include:

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Acquire New Customers. We believe there is an opportunity to further invest in sales and marketing activities to drive awareness and adoption of our platform by new customers. Our expanding ecosystem of strategic partners and accounting firms also provides us with a strong pipeline of SMB signups, as our partners promote our platform to their clients through their own marketing efforts. While there are millions of businesses in our network today, most are not currently customers. Many joined our network at the invitation of a Bill.com customer who wanted to pay them or be paid electronically. While we have converted some network members into paying subscribers, we believe we can increase conversion given the growth of our network to date and our efforts to increase functionality and engagement. While we intend to maintain our focus on SMBs, we also believe there is an opportunity for us to target sole proprietors and larger companies in the future.

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Increase Adoption by Our Existing Customers. As we become more integral to our customers’ daily business, we increase the number of our customers’ employees who become regular users. Over time, we also typically increase the number of payments processed per customer. We collect subscription revenue from our customers based on the number of enrolled users, as well as revenue from transaction fees and interest on customer funds from payments held in trust during clearing. We seek to expand these revenue streams as we introduce new products and services.

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Grow the Number of Network Members. As customers connect with their suppliers and clients through our platform, our member network organically expands. As companies are added to our network, we leverage our data matching algorithms to present network recommendations to our customers. With a single click, our customers can accept network recommendations and do business with these members. This creates an organic network effect that improves the reach and visibility of our platform and powers our customer acquisition efforts. This network also introduces the potential for additional monetization opportunities.

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Expand our Platform Capabilities. We continue to invest in research and development to enhance the breadth and depth of our platform. We continue improving our artificial intelligence engine, which enables us to help our customers manage end-to-end financial workflows, predict trends and cash flow needs, and deliver more precise, targeted network recommendations. To reach larger SMBs where their policies require a more formal procurement process prior to a purchase, we have enabled purchase order creation, processing and further accounting software synchronization.

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Expand Internationally. In 2018, we enabled our customers to make cross-border payments, and now offer our United States-based customers the ability to disburse funds to over 130 countries through our platform. Looking ahead, we will seek to further extend our network and engage with customers worldwide. According to Mastercard’s Business Payments 2022 whitepaper, global business-to-business non-cash payments are expected to increase at a compound average growth rate of 6.5% through 2020, reaching 122.4 billion transactions.

Transaction Lifecycle Overview

SMBs suffer from antiquated and inefficient accounts payable and accounts receivable processes. To illustrate the magnitude of the challenge, we have provided a detailed overview of how legacy accounts payable and accounts receivable processes function below:

LOGO

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Accounts Payable Process

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Business receives an invoice for goods or services purchased from a supplier. Invoices are often received by mail or electronically via email with a PDF attached.

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An accounts payable employee logs the bill, notes its terms, and files it. Details contained on an invoice can be limited and/or unclear regarding the originating party and purchase details.

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An accounts payable employee confirms the goods or services purchased were received as expected, and reviews the invoice for accuracy. This process can involve contacting other employees for confirmation of receipt and invoice approval.

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If there are inaccuracies or complaints of non-receipt, the supplier must be contacted and the invoice corrected and re-issued.

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Once validated as accurate, the accounts payable employee codes the transaction into the accounting system, makes any necessary adjustments, and an accounts payable journal entry is opened.

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