Bill Holdings Inc.
11/06/2026 | Press release | Distributed by Public on 11/06/2026 05:00
Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q. Some of the information contained in this Quarterly Report on Form 10-Q includes forward-looking statements that involve risks and uncertainties. You should read the sections titled "Special Note Regarding Forward-Looking Statements" and "Risk Factors" for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Our fiscal year end is June 30, and our fiscal quarters end on September 30, December 31, and March 31.
Overview
BILL is the intelligent finance platform trusted by nearly half a million businesses and their accountants to manage, move, and maximize their money. BILL powers businesses ranging from fast-moving startups to growing companies with complex operations. We use artificial intelligence (AI) to deliver strategic finance capabilities in one integrated platform that includes accounts payable (AP), accounts receivable (AR), expenses, forecasting, procurement, and more. With more than 9 million network members, our platform's total payment volume represents over 1% of U.S. gross domestic product. Headquartered in San Jose, California, BILL is a trusted partner of leading U.S. financial institutions, accounting firms, and software providers.
Our platform creates seamless connections between our customers, their suppliers, and their clients. Businesses on our platform generate and process invoices, streamline approvals, make and receive payments, manage employee expenses, sync with their accounting system, foster collaboration, and manage their cash flow. We have built sophisticated integrations with popular software solutions, banks, card issuers, and payment processors, enabling our customers to access these mission-critical services quickly and easily. Our integrated platform also includes BILL Spend and Expense, our spend and expense management product, which provides a solution for businesses to have charge cards, build and monitor budgets, manage payments, and eliminate the need for manual expense reports.
We efficiently reach small and midsized businesses (SMBs) through our proven direct and indirect go-to-market strategies. We acquire new businesses to use our solutions directly through digital marketing and inside sales, and indirectly through accounting firms, financial institution partnerships, and software providers. As of September 30, 2026, our partners included some of the most trusted brands in the financial services business, and more than 85 of the top 100 accounting firms. As we add customers and partners, we expect our network to continue to grow organically.
In fiscal 2026, we launched BILL AI, including our first suite of AI agents, which are designed to simplify and accelerate SMB workflows, including W-9 filings, customer support and assistance, touchless transactions, automatic reconciliations and complex invoice coding. We recently announced an expanded suite of AI features, including new risk intelligence, a consolidated control hub, AI-assisted onboarding, an external MCP connector, a smarter inbox, and BILL inside Claude connector marketplace. A newly announced collaboration with Visa and Billtrust marks the debut of the first live pilot empowering AI agents to execute approved buyer invoice payments through supplier portals from start to finish. Furthermore, our newly announced embed partnership with Blackbaud expands upon prior partnerships with Paychex, Oracle NetSuite, and Acumatica - all under our "Embed 2.0" initiative, which aims to deliver our platform capabilities as embeddable solutions through third-party platforms. We expect this approach will extend our platform's reach and offer new payment capabilities to our partners' users.
We have grown significantly and scaled our business operations in recent periods. Our revenue was $353.8 million and $314.5 million during the three months ended September 30, 2026 and 2025, respectively, representing an increase of $39.3 million. We generated net income of $60.3 million compared to a net loss of $3.0 million during the three months ended September 30, 2026 and 2025, respectively.
Macroeconomic and Other Factors
Current macroeconomic conditions and uncertainties, including volatility in interest rates and borrowing costs, inflation, changes in currency exchange rates (including changes in the value of the U.S. dollar), the impact of the ongoing rapid development and adoption of new AI capabilities, ongoing geopolitical conflicts and related supply chain disruptions, increases in the cost of memory, computing power, and related raw materials, and recent changes in international trading relationships and U.S. and foreign tariff rates have impacted and could continue to impact our business and the SMBs we serve. SMBs are particularly susceptible to changes in overall economic and financial conditions, and certain SMBs may, in the event of adverse economic conditions a recession or increased borrowing costs, moderate their expenditures, shift to lower-cost methods of payment, or cease operations entirely. The interest income we generate on funds held for customers is subject to the effects of interest rate volatility. We intend to continue to monitor macroeconomic conditions closely and to take appropriate financial or operational actions in response to such conditions.
We are committed to undertaking measures to improve organizational agility and efficiency, while also seeking to drive greater profitability. In May 2026, we announced a reduction in force (RIF) impacting 30% of our workforce, which was substantially completed as of September 30, 2026. In August 2026, we announced our decision to transition to a remote-first company and reduce our real property footprint. As of September 30, 2026, we exited a portion of our leased office spaces, which we intend to sublease, and recognized a non-cash impairment charge on operating lease right-of-use (ROU) assets and property and equipment. Refer to Note 12 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information.
Any of the conditions and uncertainties described above may have a negative impact on our future results of operations, liquidity, and financial condition. We are unable to predict the full impact that macroeconomic factors, actual or perceived instability in the U.S. and global banking systems, or ongoing global geopolitical conflicts will have on our future results of operations, liquidity, and financial condition due to numerous uncertainties, including economic downturns or recessions, government budget cuts and government shutdowns, tariffs and other changes in trade policy, changes in central bank policies and interest rates, rates of inflation, changes in the value of the U.S. dollar, the related impact to our customers, spending businesses, subscribers, partners, and suppliers, and other factors described in the section titled "Risk Factors" in Part II, Item 1A of this Quarterly Report on Form 10-Q.
Our Revenue Model
We generate revenue primarily from subscription and transaction fees.
Our subscription revenue is primarily based on a fixed monthly or annual rate per user or per customer account. Our transaction revenue consists of transaction fees, on a fixed or variable rate per transaction, and interchange fees. Transactions primarily include card payments, real-time payments, check payments, ACH payments, cross-border payments, pay-by-card, invoice financing, and creation of invoices. Much of our revenue comes from repeat transactions, which are an important contributor to our recurring revenue.
In addition, we generate revenue from interest on funds held for customers. When we process payment transactions, the funds flow through our bank accounts, resulting in a balance of funds held for customers. The balances may fluctuate based on volume and the type of payments processed. Interest is earned from interest-bearing deposit accounts, certificates of deposit, money market funds, corporate bonds, asset-backed securities, municipal bonds, commercial paper, U.S. treasury securities, and U.S. agency securities. We hold these funds from the day they are withdrawn from a payer's account to the day the funds are credited to the receiver. This revenue can fluctuate depending on the amount of customer funds held, as well as our yield on customer funds invested, which is influenced by market interest rates and our investments.
Our Receivables Purchases and Servicing Model
We market our BILL Spend and Expense software and BILL Divvy Card, a charge card for business credit and expense management, to potential spending businesses and issue business-purpose charge cards through our card issuing partner banks (Issuing Banks). When a business applies for a BILL Divvy Card, we utilize, on behalf of the Issuing Bank, proprietary risk management capabilities to confirm the identity of the
business, and perform a credit underwriting process to determine if the business is eligible for a BILL Divvy Card pursuant to our credit policies. Once approved for a BILL Divvy Card, the spending business is provided a credit limit and can use the BILL Spend and Expense software to request virtual cards or physical cards, establish budgets, and manage spend.
The cards on our platform are issued by Cross River Bank, a Federal Deposit Insurance Corporation (FDIC)-insured New Jersey state chartered bank, and WEX Bank and WebBank, FDIC-insured Utah state chartered banks. Under our arrangements with the Issuing Banks, we must comply with their respective credit policies and underwriting procedures, and the Issuing Banks maintain ultimate authority to decide whether to issue a card or approve a transaction. We are responsible for all fraud and unauthorized use of a card and generally are required to hold the Issuing Bank harmless from such losses unless claims regarding fraud or unauthorized use are due to the sole gross negligence of the Issuing Bank.
When a spending business completes a purchase transaction, the payment to the supplier is made by the cards' Issuing Bank. Obligations incurred by the spending business in connection with their purchase transaction are reflected as receivables on the Issuing Bank's balance sheets from the BILL Divvy Card account for the spending business. The Issuing Bank then sells a 100% participation interest in the receivable to us. Pursuant to our agreements with the Issuing Banks, we are obligated to purchase the participation interests in all of the receivables originated through our platform, and our obligations are secured by cash deposits. When we purchase the participation interests, the purchase price is equal to the outstanding principal balance of the receivable.
In order to ensure we have the operational flexibility and liquidity to purchase the participation rights in the receivables, we maintain certain funding arrangements, including warehouse facilities. We typically fund some portion of these participation interest purchases by borrowing under our credit facilities, although most purchases are funded using corporate cash.
Key Business Metrics
We regularly review several metrics, including the key business metrics presented in the table below, to measure our performance, identify trends affecting our business, prepare financial projections, and make strategic decisions. We periodically review and revise these metrics to reflect changes in our business.
We present our key business metrics on a consolidated basis, which we believe better reflects the performance of our consolidated business overall. Our key business metrics are defined following the table below and track our BILL AP/AR, BILL Spend and Expense, and Embedded Solutions and Other combined (as further defined below). The relevant metrics for each of BILL AP/AR, BILL Spend and Expense, and Embedded Solutions and Other are set forth in the footnotes to the table. The calculation of the key business metrics and other measures discussed below may differ from other similarly-titled metrics used by other companies, securities analysts, or investors.
| As of September 30, | |||||||||||||||||
| 2026 | 2025 | % Growth | |||||||||||||||
|
Businesses using our solutions (1)
|
475,300 | 498,500 | (5) | % | |||||||||||||
|
Three Months Ended September 30, |
|||||||||||||||||
| 2026 | 2025 | % Growth | |||||||||||||||
|
Total Payment Volume (billions) (2)
|
$ | 101.8 | $ | 89.3 | 14 | % | |||||||||||
|
Three Months Ended September 30, |
|||||||||||||||||
| 2026 | 2025 | % Growth | |||||||||||||||
|
Transactions processed (millions) (3)
|
38.0 | 33.3 | 14 | % | |||||||||||||
(1)As of September 30, 2026, the total number of BILL AP/AR customers was approximately 186,300; the total number of spending businesses that used our BILL Spend and Expense solution was approximately 47,100; and the total number of Embedded Solutions and Other customers was approximately 241,900.
(2)During the three months ended September 30, 2026, the Total Payment Volume (TPV) by BILL AP/AR customers was approximately $85.0 billion; the total card payment volume transacted by spending businesses that used BILL Divvy Cards was approximately $6.9 billion; and the TPV transacted by Embedded Solutions and Other customers was approximately $9.9 billion.
(3)During the three months ended September 30, 2026, the total number of transactions executed by BILL AP/AR customers was approximately 12.9 million; the total number of transactions executed by spending businesses that used BILL Divvy Cards was approximately 22.3 million; and the total number of transactions executed by Embedded Solutions and Other customers was approximately 2.8 million.
Businesses Using Our Solutions
We define businesses using our solutions as the summation of: (A) businesses that use our core BILL accounts payable and receivable platform (BILL AP/AR), (B) spending businesses that use our BILL Spend and Expense product, and (C) businesses that access our solutions through our embedded partners' platforms and other indirect sales channels (including our financial institution partners), and Invoice2go subscribers (Embedded Solutions and Other). Businesses using more than one of our solutions are included separately in the total for each solution utilized; as of June 30, 2026, this included approximately 21,400 businesses. Businesses using our solutions during a trial period are not counted as new businesses using our solutions during that period. If an organization has multiple entities billed separately for the use of our solutions, each entity is counted as a business using our solutions. Businesses using our solutions exclude certain network members utilizing limited features of our platform, such as those that only receive payments. The number of businesses using our solutions in the table above represents the total number of businesses using our solutions at the end of each fiscal quarter.
Total Payment Volume
To grow revenue from businesses using our solutions, we must deliver a product experience that helps them automate their back-office financial operations. The more they use and rely upon our product offerings to automate their operations, the more transactions they process on our platform. This metric provides an important indication of the aggregate value of transactions that businesses using our solutions are completing on our platform and is an indicator of our ability to generate revenue from businesses using our solutions. We define TPV as the total value of transactions that we process on our platform during a particular period, comprising transactions from BILL AP/AR customers, BILL Divvy Card transactions, and transactions executed by Embedded Solutions and Other customers. Our calculation of TPV is presented gross of payments that may be subsequently reversed. Such reversals accounted for less than 2% of TPV during each of the three months ended September 30, 2026 and 2025.
Transactions Processed
We define transactions processed as the total number of payments initiated and processed through our platform during a particular period. Payment transactions include checks, ACH payments, card payments, Invoice2go subscriber transactions, real-time payments, pay by card, invoice financing, and cross-border payments.
Components of Results of Operations
Revenue
We generate revenue primarily from subscription and transaction fees.
Subscription fees are fixed at a monthly or annual rate per user or per customer account for the use of our platform to process transactions. Transaction fees are fees collected for each transaction processed, on
either a fixed or variable fee basis. Transaction fees primarily include processing of payments in the form of checks, ACH, card payments, real-time payments, pay by card, invoice financing, cross-border payments, and the creation of invoices. Transaction fees also include interchange fees paid by suppliers accepting card payments. Fixed transaction fees are set at a fixed charge per payment transaction, while variable transaction fees are generally calculated based on a percentage of the dollar amount of the payment transaction.
Our contracts with SMB and accounting firm customers provide them with access to the functionality of our cloud-based payments platform to process transactions. These contracts are either monthly contracts paid in arrears or upfront, or annual arrangements paid up front. We charge our SMB and accounting firm customers subscription fees to access our platform either based on the number of users or per customer account and the level of service. We generally also charge these customers transaction fees based on transaction volume and the category of transaction. The contractual price for subscription and transaction services is based on either negotiated fees or the rates published on our website. Revenue recognized excludes amounts collected on behalf of third parties, such as sales taxes collected and remitted to governmental authorities.
We enable our SMB and accounting firm customers to make virtual card payments to their suppliers. We also facilitate the extension of credit to spending businesses through the BILL Spend and Expense product in the form of BILL Divvy Cards. The spending businesses utilize the credit on BILL Divvy Cards as a means of payment for goods and services provided by their suppliers. Virtual card payments and BILL Divvy Cards are originated through agreements with the Issuing Banks. Our agreements with the Issuing Banks allow for card transactions on the Mastercard and Visa networks. For each virtual card and BILL Divvy Card transaction, suppliers are required to pay interchange fees to the issuer of the card. Based on our agreements with the Issuing Banks, we recognize the interchange fees as revenue gross or net of fees paid to the Issuing Banks based on our determination of whether we are the principal or the agent under the agreements.
We offer a rewards program to spending businesses using our card products. Rewards are earned based on transaction volume and are recorded as a reduction of interchange revenue within subscription and transaction fees.
We also enter into multi-year contracts with financial institution customers to provide them with access to our cloud-based payments platform. These contracts typically include fees for initial implementation services that are paid during the period the implementation services are provided as well as fees for subscription and transaction processing services, which are subject to guaranteed minimum fees that are paid over the contract term. These contracts enable the financial institutions to provide their customers with access to online bill pay services through the financial institutions' online platforms. Implementation services are required up-front to establish an infrastructure that allows the financial institutions' online platforms to communicate with our online platform. A financial institution's customers cannot access online bill pay services until implementation is complete. The total consideration in these contracts varies based on the number of users and transactions to be processed.
In addition, we generate revenue from interest on funds held for customers. Interest on funds held for customers consists of the interest that we earn from customer funds while payment transactions are clearing. Interest is earned from interest-bearing deposit accounts, certificates of deposit, money market funds, corporate bonds, asset-backed securities, municipal bonds, commercial paper, U.S. treasury securities, and U.S. agency securities, until those payments are cleared and credited to the intended recipient.
Service Costs and Expenses
Service costs - Service costs consist primarily of costs that are directly attributed to processing customers' and spending businesses' transactions (such as the cost of printing checks, postage for mailing checks, fees associated with the issuance and processing of card transactions, net of card network incentives, and fees for processing payments), personnel-related costs, including stock-based compensation expenses, for our customer success and payment operations teams, outsourced support services for our customer success team, direct and amortized costs for implementing and integrating our cloud-based platform with our customers' systems, and cloud payments infrastructure costs. We expect that service costs will increase in absolute dollars, but may fluctuate as a percentage of revenue from period to period, as we continue to invest in growing our business and based on whether or not we are the principal or the agent under arrangements with third parties.
Research and development (R&D) - R&D expenses consist primarily of personnel-related expenses, including stock-based compensation expenses, for our R&D teams, incurred in developing new products or enhancing existing products, and allocated overhead costs. We expense a substantial portion of R&D expenses as incurred. We believe that delivering new and enhanced functionality is critical to attract new customers and expand our relationship with existing customers. We expect to continue to make investments in and expand our offerings to enhance our customers' experience and satisfaction, and to attract new customers. We expect our R&D expenses to increase in absolute dollars, but they may fluctuate as a percentage of revenue from period to period as we expand our R&D team to develop new products and product enhancements, including continued investments in our AI tools and offerings, such as AI agents. We capitalize certain internal-use software development costs that are attributable to developing new products and adding incremental functionality to our platform and amortize such costs into service costs over the estimated life of the new product or incremental functionality, which is generally three years.
Sales and marketing - Sales and marketing expenses consist primarily of personnel-related expenses, including stock-based compensation expenses, for our sales and marketing teams, sales commissions, marketing program expenses, travel-related expenses, and costs to market and promote our platform through advertisements, marketing events, partnership arrangements, direct customer acquisition, and allocated overhead costs. Sales commissions that are incremental to obtaining new customer contracts are deferred and amortized ratably over the estimated period of our relationship with new customers.
We focus our sales and marketing efforts on generating awareness of our company, platform, and products, creating sales leads, and establishing and promoting our brand. We plan to continue investing in sales and marketing efforts by driving our go-to-market strategies, building our brand awareness, and sponsoring additional marketing events; however, we will adjust our sales and marketing spend level as needed, as the spend may fluctuate from period to period, in response to changes in the economic environment.
General and administrative - General and administrative expenses consist primarily of personnel-related expenses, including stock-based compensation expenses, for finance, corporate business operations, risk management, legal and compliance, human resources, and information technology functions, costs incurred for external professional services, losses from fraud, and allocated overhead costs. We expect to incur additional general and administrative expenses as we explore various growth initiatives, which include incurring higher costs for professional services. We also expect to increase the size of our general and administrative functions to support the growth in our business. As a result, we expect that our general and administrative expenses will increase in absolute dollars but may fluctuate as a percentage of revenue from period to period.
Provision for expected credit losses - Provision for expected credit losses represents the amount of expense required to maintain the allowance for expected credit losses on our condensed consolidated balance sheets, which represents management's estimate of expected credit losses. In the event that our receivables outperform expectation and/or we reduce our expectation of credit losses in future periods, we may release reserves and thereby reduce the provision for expected credit losses. The provision is determined based on our estimate of expected credit losses on acquired card receivables, loans held for investment and accounts receivable on our balance sheets, changes in our estimate of expected credit losses on receivables outstanding and loans held for investment as of the end of the period and the net charge-offs incurred in the period.
Depreciation and amortization - Depreciation and amortization consists of depreciation and amortization of property and equipment, and amortization of acquired intangibles, such as developed technology, and customer relationships. Amortization of capitalized internal-use software costs paid in cash is excluded.
Restructuring - Restructuring costs consist primarily of employee severance and other employment termination benefits related to the RIFs, and non-cash impairment charges related to operating lease ROU assets and property and equipment associated with office space we exited and intend to sublease. Additionally, these costs include other costs related to the execution of our efforts to improve organizational agility and efficiency, while also seeking to drive greater profitability. Refer to Note 12 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information.
Other income, net - Other income, net consists primarily of interest income on our corporate funds, gain on debt extinguishment and interest expense on our borrowings (including amortization of debt discount and issuance costs).
Provision for income taxes - Income tax expense consists of U.S. federal, state and foreign income taxes. We maintain a full valuation allowance against our U.S. federal and state net deferred tax assets as we have concluded that it is more likely than not that we will not realize our net deferred tax assets.
Results of Operations
The following table sets forth our results of operations together with the dollar and percentage change for the periods presented (amounts in thousands):
|
Three Months Ended September 30, |
Change
|
||||||||||||||||||||||
| 2026 | 2025 |
$
|
%
|
||||||||||||||||||||
| Revenue | |||||||||||||||||||||||
|
Subscription and transaction fees (1)(2)
|
$ | 316,388 | $ | 276,714 | $ | 39,674 | 14 | % | |||||||||||||||
| Interest on funds held for customers | 37,386 | 37,736 | (350) | (1) | % | ||||||||||||||||||
|
Total revenue (2)
|
353,774 | 314,450 | 39,324 | 13 | % | ||||||||||||||||||
| Cost of revenue | |||||||||||||||||||||||
|
Service costs (1)
|
68,950 | 66,066 | 2,884 | 4 | % | ||||||||||||||||||
|
Depreciation and amortization (3)
|
12,703 | 10,937 | 1,766 | 16 | % | ||||||||||||||||||
| Total cost of revenue | 81,653 | 77,003 | 4,650 | 6 | % | ||||||||||||||||||
|
Gross profit (2)
|
272,121 | 237,447 | 34,674 | 15 | % | ||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||
|
Research and development (1)
|
50,519 | 80,289 | (29,770) | (37) | % | ||||||||||||||||||
|
Sales and marketing (1)(2)
|
57,980 | 67,925 | (9,945) | (15) | % | ||||||||||||||||||
|
General and administrative (1)
|
65,281 | 76,919 | (11,638) | (15) | % | ||||||||||||||||||
| Provision for expected credit losses | 14,540 | 16,096 | (1,556) | (10) | % | ||||||||||||||||||
|
Depreciation and amortization (3)
|
8,271 | 8,067 | 204 | 3 | % | ||||||||||||||||||
|
Restructuring (1)
|
24,372 | 8,870 | 15,502 | 175 | % | ||||||||||||||||||
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Total operating expenses (2)
|
220,963 | 258,166 | (37,203) | (14) | % | ||||||||||||||||||
| Income (loss) from operations | 51,158 | (20,719) | 71,877 | (347) | % | ||||||||||||||||||
| Other income, net | 10,335 | 17,906 | (7,571) | (42) | % | ||||||||||||||||||
| Income (loss) before provision for income taxes | 61,493 | (2,813) | 64,306 | (2,286) | % | ||||||||||||||||||
| Provision for income taxes | 1,240 | 149 | 1,091 | 732 | % | ||||||||||||||||||
| Net income (loss) | $ | 60,253 | $ | (2,962) | $ | 63,215 | (2,134) | % | |||||||||||||||
(1) Includes stock-based compensation charged to revenue and expenses as follows (amounts in thousands):
|
Three Months Ended September 30, |
Change
|
|||||||||||||||||||||||||
| 2026 | 2025 | $ |
%
|
|||||||||||||||||||||||
| Revenue - subscription and transaction fees | $ | 655 | $ | 609 | $ | 46 | 8 | % | ||||||||||||||||||
| Cost of revenue - service costs | 2,026 | 2,345 | (319) | (14) | % | |||||||||||||||||||||
| Research and development | 14,642 | 25,900 | (11,258) | (43) | % | |||||||||||||||||||||
|
Sales and marketing
|
5,618 | 9,626 | (4,008) | (42) | % | |||||||||||||||||||||
| General and administrative | 16,946 | 20,325 | (3,379) | (17) | % | |||||||||||||||||||||
| Restructuring | 840 | - | 840 | 100 | % | |||||||||||||||||||||
|
Total stock-based compensation
|
$ | 40,727 | $ | 58,805 | $ | (18,078) | (31) | % | ||||||||||||||||||
(2) Prior period amounts have been retrospectively adjusted to reflect a change in accounting principle adopted in the first quarter of fiscal 2027 related to the presentation of rewards. Refer to Note 1 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information.
(3) Depreciation and amortization does not include amortization of capitalized internal-use software costs paid in cash of $10.5 million and $4.5 million during the three months ended September 30, 2026 and 2025, respectively, which are included in service costs and general and administrative in the condensed consolidated statements of operations.
The following table sets forth the components of our condensed consolidated statements of operations for the periods presented as a percentage of revenue:
|
Three Months Ended September 30, |
|||||||||||
| 2026 | 2025 | ||||||||||
| Revenue | |||||||||||
|
Subscription and transaction fees (1)
|
89 | % | 88 | % | |||||||
| Interest on funds held for customers | 11 | % | 12 | % | |||||||
|
Total revenue (1)
|
100 | % | 100 | % | |||||||
| Cost of revenue | |||||||||||
| Service costs | 19 | % | 21 | % | |||||||
| Depreciation and amortization | 4 | % | 3 | % | |||||||
| Total cost of revenue | 23 | % | 24 | % | |||||||
|
Gross profit (1)
|
77 | % | 76 | % | |||||||
| Operating expenses | |||||||||||
| Research and development | 14 | % | 26 | % | |||||||
|
Sales and marketing (1)
|
16 | % | 22 | % | |||||||
| General and administrative | 19 | % | 24 | % | |||||||
| Provision for expected credit losses | 4 | % | 5 | % | |||||||
| Depreciation and amortization | 2 | % | 3 | % | |||||||
| Restructuring | 7 | % | 3 | % | |||||||
|
Total operating expenses (1)
|
62 | % | 83 | % | |||||||
| Income (loss) from operations | 15 | % | (7) | % | |||||||
| Other income, net | 3 | % | 6 | % | |||||||
| Income (loss) before provision for income taxes | 18 | % | (1) | % | |||||||
| Provision for income taxes | 0 | % | 0 | % | |||||||
| Net income (loss) | 18 | % | (1) | % | |||||||
(1) Prior period amounts have been retrospectively adjusted to reflect a change in accounting principle adopted in the first quarter of fiscal 2027 related to the presentation of rewards. Refer to Note 1 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information.
Comparison of the three months ended September 30, 2026 and 2025
Revenue
The following table sets forth our revenue during the three months ended September 30, 2026 and 2025, respectively (amounts in thousands):
|
Three Months Ended September 30, |
Change | ||||||||||||||||||||||
| 2026 |
2025 (1)
|
Amount | % | ||||||||||||||||||||
| BILL AP/AR | $ | 62,688 | $ | 56,072 | $ | 6,616 | 12 | % | |||||||||||||||
| Embedded Solutions and Other | 14,622 | 14,760 | (138) | (1) | % | ||||||||||||||||||
| Subscription fees | 77,310 | 70,832 | 6,478 | 9 | % | ||||||||||||||||||
| BILL AP/AR | 137,701 | 122,524 | 15,177 | 12 | % | ||||||||||||||||||
| BILL Spend and Expense | 92,463 | 75,995 | 16,468 | 22 | % | ||||||||||||||||||
| Embedded Solutions and Other | 8,914 | 7,363 | 1,551 | 21 | % | ||||||||||||||||||
| Transaction fees | 239,078 | 205,882 | 33,196 | 16 | % | ||||||||||||||||||
| Total subscription and transaction fees | 316,388 | 276,714 | 39,674 | 14 | % | ||||||||||||||||||
| Interest on funds held for customers | 37,386 | 37,736 | (350) | (1) | % | ||||||||||||||||||
| Total revenue | $ | 353,774 | $ | 314,450 | $ | 39,324 | 13 | % | |||||||||||||||
(1) Prior period amounts have been retrospectively adjusted to reflect a change in accounting principle adopted in the first quarter of fiscal 2027 related to the presentation of rewards. Refer to Note 1 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information.
Total revenue increased by $39.3 million during the three months ended September 30, 2026 as compared to the prior year period, primarily due to:
•a $33.2 million increase in transaction fee revenue primarily due to increased total payment volume driven by the increase in customer adoption of our BILL AP/AR and BILL Spend and Expense products; and
•a $6.5 million increase in subscription fee revenue primarily due to an increase in BILL AP/AR customers as compared to the same prior year period.
Cost of Revenue, Gross Profit, and Gross Margin
Cost of revenue, gross profit, and gross margin during the three months ended September 30, 2026 and 2025, respectively, were as follows (amounts in thousands):
|
Three Months Ended September 30, |
Change
|
||||||||||||||||||||||
| 2026 | 2025 | Amount |
%
|
||||||||||||||||||||
| Cost of revenue: | |||||||||||||||||||||||
| Service costs | $ | 68,950 | $ | 66,066 | $ | 2,884 | 4 | % | |||||||||||||||
|
Depreciation and amortization (1)
|
12,703 | 10,937 | 1,766 | 16 | % | ||||||||||||||||||
| Total cost of revenue | 81,653 | 77,003 | 4,650 | 6 | % | ||||||||||||||||||
|
Gross profit (2)
|
$ | 272,121 | $ | 237,447 | $ | 34,674 | 15 | % | |||||||||||||||
|
Gross margin (2)
|
76.9 | % | 75.5 | % | |||||||||||||||||||
(1) Consists of depreciation of property and equipment and amortization of developed technology, excluding amortization of capitalized internal-use software costs paid in cash of $9.3 million and $4.5 million during the three months ended September 30, 2026 and 2025, respectively, which are included in service costs.
(2) Prior period amounts have been retrospectively adjusted to reflect a change in accounting principle adopted in the first quarter of fiscal 2027 related to the presentation of rewards. Refer to Note 1 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information.
Service costs increased by $2.9 million during the three months ended September 30, 2026 as compared to the prior year period, primarily due to:
•a $5.8 million increase in other costs primarily related to an increase in amortization of capitalized internal-use software costs; partially offset by
•a $3.2 million decrease in personnel-related costs, including stock-based compensation expense, primarily driven by our RIFs executed in the prior fiscal year.
Gross margin increased to 76.9% during the three months ended September 30, 2026 as compared to 75.5% for the prior year period primarily due to lower personnel-related costs, including stock-based compensation expense.
Research and Development Expenses
Research and development expenses decreased by $29.8 million during the three months ended September 30, 2026 as compared to the prior year period, primarily due to:
•a $32.3 million decrease in personnel-related expense, including stock-based compensation expense, primarily driven by our RIFs executed in the prior fiscal year; partially offset by
•a $1.4 million increase in consulting fees for outside services.
Sales and Marketing Expenses
Sales and marketing expenses decreased by $9.9 million during the three months ended September 30, 2026 as compared to the prior year period, primarily due to the following:
•a $13.5 million decrease in personnel-related expense, including stock-based compensation expense and sales commissions, driven by the decrease from our RIFs executed in the prior fiscal year; partially offset by
•a $3.5 million increase in advertising spend, marketing initiatives, and software subscription expenses.
General and Administrative Expenses
General and administrative expenses decreased by $11.6 million during the three months ended September 30, 2026 as compared to the prior year period, primarily due to the following:
•a $9.5 million decrease in personnel-related expense, including stock-based compensation expense, driven by our RIFs executed in the prior fiscal year; and
•a $2.8 million decrease in consulting fees for outside services, including fees related to shareholders' activism.
Provision for Expected Credit Losses
Provision for expected credit losses decreased by $1.6 million during the three months ended September 30, 2026 as compared to the prior year period. Provision for expected credit losses from acquired card receivables decreased by $1.9 million during the three months ended September 30, 2026, as compared to the prior year period, primarily due to improvements in delinquency performance, partially offset by portfolio growth.
Depreciation and Amortization
Depreciation and amortization increased by $2.0 million during the three months ended September 30, 2026 as compared to the prior year period, primarily due to higher amortization of capitalized internal-use software costs during the period.
Restructuring
Restructuring increased by $15.5 million during the three months ended September 30, 2026 as compared to the prior year period, primarily due to a $25.8 million impairment charge on operating lease ROU assets and property and equipment, partially offset by $10.4 million in higher prior year period restructuring charges related to severance and other employment termination benefits in connection with the RIF. Refer to Note 12 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information.
Other Income, Net
Other income, net decreased by $7.6 million during the three months ended September 30, 2026 as compared to the prior year period, primarily due to an $8.0 million decrease in interest income as a result of a lower average balance of corporate funds, and lower yields driven by the decrease in average interest rates throughout the quarter.
Provision for Income Taxes
Provision for income taxes increased by $1.1 million during the three months ended September 30, 2026 as compared to the prior year period, primarily due to an estimated cash tax liability and an increase in the net deferred tax liability.
Non-GAAP Financial Measures
To supplement our condensed 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 from 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 help investors understand our financial performance from management's perspective. We believe that these measures provide an additional tool for investors to use in comparing our core financial performance over multiple periods with other companies in our industry. We also periodically review our non-GAAP financial measures and may revise these measures to reflect changes in our business or otherwise.
Non-GAAP Gross Profit and Non-GAAP Gross Margin
We define non-GAAP gross profit as gross profit adjusted for depreciation and amortization, and stock-based compensation and related payroll taxes charged to cost of revenue. Non-GAAP gross margin is defined as non-GAAP gross profit, divided by total revenue. We believe non-GAAP gross profit and non-GAAP gross margin provide our management and investors consistency and comparability with our past financial performance and facilitate period-to-period comparisons of operations. The following table shows a reconciliation of our non-GAAP gross profit and non-GAAP gross margin to our gross profit and gross margin for the periods presented (amounts in thousands):
|
Three Months Ended September 30, |
|||||||||||
| 2026 |
2025 (1)
|
||||||||||
| Revenue | $ | 353,774 | $ | 314,450 | |||||||
| Gross profit | 272,121 | 237,447 | |||||||||
| Add: | |||||||||||
|
Depreciation and amortization (2)
|
12,703 | 10,937 | |||||||||
| Stock-based compensation and related payroll taxes charged to cost of revenue | 2,082 | 2,405 | |||||||||
| Non-GAAP gross profit | $ | 286,906 | $ | 250,789 | |||||||
| Gross margin | 76.9 | % | 75.5 | % | |||||||
| Non-GAAP gross margin | 81.1 | % | 79.8 | % | |||||||
(1) Prior period amounts have been retrospectively adjusted to reflect a change in accounting principle adopted in the first quarter of fiscal 2027 related to the presentation of rewards. Refer to Note 1 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information.
(2) Consists of depreciation of property and equipment and amortization of developed technology that are revenue generating, excluding amortization of capitalized internal-use software costs paid in cash of $9.3 million and $4.5 million during the three months ended September 30, 2026 and 2025, respectively. These amounts are included in service costs in the condensed consolidated statements of operations.
Free Cash Flow
Free cash flow is a non-GAAP measure defined as net cash provided by operating activities, less 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 that is generated, after incurring operating expenses, purchases of property and equipment and capitalization of internal-use software costs, for future operational expenses and investment in our business. Free cash flow is useful to investors as a liquidity measure because it measures our ability to generate or use cash in the ordinary course of business. One limitation of free cash flow is that it does not reflect our future contractual commitments. Additionally, free cash flow does not represent the total increase or decrease in our cash balance for a given period. Once our business needs and obligations are met, cash can be used to maintain strong balance sheets and invest in future growth. The following table provides a reconciliation of our free cash flow to net cash provided by operating activities for the periods presented (in thousands):
|
Three Months Ended September 30, |
|||||||||||
| 2026 | 2025 | ||||||||||
| Net cash provided by operating activities | $ | 96,809 | $ | 96,855 | |||||||
| Purchases of property and equipment | (80) | (1,299) | |||||||||
| Capitalization of internal-use software costs | (13,836) | (13,294) | |||||||||
| Free cash flow | $ | 82,893 | $ | 82,262 | |||||||
Liquidity and Capital Resources
As of September 30, 2026, our principal sources of liquidity were our cash and cash equivalents of $915.5 million, our available-for-sale short-term investments of $678.1 million, and our available undrawn Revolving Credit Facilities (as defined below) of $270.0 million. Our cash equivalents are comprised primarily of money market funds, certificates of deposit, and investments in debt securities with original maturities of three months or less at the time of purchase. Our short-term investments are comprised primarily of available-for-sale investments in corporate bonds, certificates of deposit, asset-backed securities, municipal bonds, and U.S. treasury securities with original maturities of more than three months. Our corporate deposits held at large multinational financial institutions and U.S. national or regional banks, may at times exceed federally insured limits. We monitor the financial strength of the financial institutions with which we do business to ensure they are financially sound and present minimal credit risk. We further believe the associated risk of concentration for our investments is mitigated by holding a diversified portfolio of highly rated investments consisting of the money market funds and short-term debt securities described above. We have a total borrowing capacity of
$600.0 million from our Revolving Credit Facilities, and have drawn $330.0 million under the Revolving Credit Facilities as of September 30, 2026. Our principal uses of cash are funding our operations and other working capital requirements, including the contractual and other obligations discussed below.
We believe that our cash, cash equivalents, and short-term investments will be sufficient to meet our working capital requirements for at least the next 12 months. In the future, we may attempt to raise additional capital through the sale of equity securities or through additional equity-linked or debt financing arrangements to fund future operations or obligations, including the repayment of outstanding convertible senior notes. We may also seek to raise additional capital from these offerings or financings on an opportunistic basis when we believe there are suitable opportunities for doing so. If we raise additional funds by issuing equity or equity-linked securities, the ownership of our existing stockholders will be diluted. If we raise additional financing by incurring additional indebtedness, we may be subject to increased fixed payment obligations and could also be subject to additional restrictive covenants, such as limitations on our ability to incur additional debt, and other operating restrictions that could adversely impact our ability to conduct our business. Any future indebtedness we incur may have terms that could be unfavorable to equity investors. There can be no assurances that we will be able to raise additional capital. The inability to raise capital would adversely affect our ability to achieve our business objectives.
As of September 30, 2026, our principal commitments to settle our contractual obligations consisted of our 2027 Notes, 2030 Notes (as defined below), and outstanding borrowings from our Revolving Credit Facilities as further discussed below. For additional discussion about our Notes and Revolving Credit Facilities, refer to Note 7 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. In addition, we have minimum commitments under our noncancellable operating lease agreements and agreements with certain vendors. There have been no material changes to our contractual obligations or litigation from those disclosed in Note 14 to the financial statements in our Annual Report on Form 10-K for the fiscal year ended June 30, 2026 (2026 10-K).
In August 2025, our board of directors authorized a share repurchase program pursuant to which we announced our intention to purchase up to $300.0 million of our outstanding shares of common stock (the August 2025 Share Repurchase Program).
In May 2026, we announced that our board of directors authorized the repurchase of up to $1.0 billion in shares of our outstanding common stock, which authorization includes unused amounts under the August 2025 Share Repurchase Program (the 2026 Share Repurchase Authorization). Pursuant to this authorization, we may repurchase such shares from time to time through open market purchases, in privately negotiated transactions, or by other means, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, in accordance with applicable securities laws and other restrictions. The timing and total amount of stock repurchases will depend upon business, economic and market conditions, corporate and regulatory requirements, prevailing stock prices, and other considerations. This authorization has a term of 24 months, may be suspended, discontinued or modified at any time, and does not obligate us to acquire any amount of common stock.
For additional discussion about our share repurchase program activity during the period and shares available for future repurchases, refer to Note 8 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Depending on market conditions, our liquidity requirements, contractual restrictions, and other factors, we may consider initiating additional share repurchase programs or repurchasing additional Notes.
Cash Flows
Below is a summary of our consolidated cash flows for the periods presented (in thousands):
|
Three Months Ended September 30, |
|||||||||||
| 2026 | 2025 | ||||||||||
| Net cash provided by (used in): | |||||||||||
| Operating activities | $ | 96,809 | $ | 96,855 | |||||||
| Investing activities | $ | 142,396 | $ | (108,721) | |||||||
| Financing activities | $ | (550,744) | $ | 1,100 | |||||||
Net Cash Provided by 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 or per customer account. Our transaction revenue is comprised of transaction fees on a fixed or variable rate per type of transaction. We also generate cash from the interest earned on both corporate funds and funds held in trust on behalf of customers. Our primary uses of cash in our operating activities include payments for employees' salaries and related costs, payments to third parties to fulfill our payment transactions, payments to sales and marketing partners, payments for card rewards, and other general corporate expenditures.
Net cash provided by operating activities decreased to $96.8 million during the three months ended September 30, 2026, from $96.9 million during the prior year period. The net change was primarily driven by payments for severance and other employment termination benefits related to the RIF executed in the fourth quarter of the prior fiscal year partially offset by higher subscription and transaction revenue, and decreased operating expenditures.
Net Cash Provided by Investing Activities
Our cash usage for our investing activities consists primarily of purchases of corporate and customer fund available-for-sale investments, purchases of loans held for investment, and capitalization of internal-use software. Our cash proceeds from our investing activities consist primarily of proceeds from the maturities and sale of corporate and customer fund available-for-sale investments and repayments of loans held for investment. Additionally, the increase or decrease in our net cash from investing activities is impacted by the net change in acquired card receivables.
Our net cash provided by investing activities was $142.4 million during the three months ended September 30, 2026, compared to net cash used of $108.7 million during the prior year period. The net change was primarily due to the decrease in purchases of corporate and customer short-term investments, an increase in proceeds from maturities of corporate and customer short-term investments, partially offset by an increase in acquired card receivables and a net increase in cash used for loans held for investment.
Net Cash Used in Financing Activities
Our cash usage for our financing activities consists primarily of repurchases of shares of common stock. Additionally, the increase or decrease in our net cash from financing activities is impacted by the change in customer fund deposits liability and prepaid card deposits.
Our net cash used in financing activities was $550.7 million during the three months ended September 30, 2026, compared to net cash provided by financing activities of $1.1 million during the prior year period. The net change was primarily due to the increase in repurchase of shares of common stock, the absence of proceeds from line of credit borrowings, the decrease in customer fund deposits liability, and the net decrease in prepaid card deposits.
2030 Notes
On December 6, 2024, we issued $1.4 billion in aggregate principal amount of our 0% convertible senior notes due on April 1, 2030 (the 2030 Notes). The 2030 Notes are senior, unsecured obligations, and will not accrue interest unless we determine to pay special interest, and are convertible on or after January 1, 2030 until the close of business on the second scheduled trading day immediately preceding the maturity date on April 1, 2030. The 2030 Notes are convertible by the holders at their option during any calendar quarter after December 31, 2024 under certain circumstances, including if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on and including the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the $119.45 per share initial conversion price. If the note holders exercise their right to convert, our current intent is to settle such conversion through a combination settlement involving a repayment of the principal portion in cash and the balance in shares of common stock. For additional discussion about the 2030 Notes and the capped call transactions, refer to Note 7 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
2027 Notes
On September 24, 2021, we issued $575.0 million in aggregate principal amount of our 0% convertible senior notes due on April 1, 2027 (the 2027 Notes). The 2027 Notes are senior, unsecured obligations, will not accrue interest unless we determine to pay special interest, and are convertible on or after January 1, 2027 until the close of business on the second scheduled trading day immediately preceding the maturity date on April 1, 2027. The 2027 Notes are convertible by the holders at their option during any calendar quarter after December 31, 2021 under certain circumstances, including if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on and including the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the $414.80 per share initial conversion price. If the note holders exercise their right to convert, our current intent is to settle such conversion through a combination settlement involving a repayment of the principal portion in cash and the balance in shares of common stock.
In December 2024, in connection with the issuance of our 2030 Notes, we entered into privately negotiated transactions with certain holders of our 2027 Notes to repurchase $451.5 million aggregate principal amount of our 2027 Notes for an aggregate cash repurchase price of $408.6 million, inclusive of transaction costs. Following the repurchases, we cancelled the repurchased 2027 Notes and, after such cancellation, $123.5 million aggregate principal amount of 2027 Notes remains outstanding. For additional discussion about our 2027 Notes and the capped call transactions, refer to Note 7 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Revolving Credit Facilities
2021 Credit Facility
We have a total borrowing capacity of $300.0 million pursuant to our Revolving Credit and Security Agreement, by and between our subsidiary, Divvy Peach, LLC, Goldman Sachs Bank USA and the lenders party thereto (as amended to date, the 2021 Credit Facility), of which we have borrowed $180.0 million as of September 30, 2026. Revolving loans under the 2021 Credit Facility bear interest at a rate per annum determined by reference to the applicable three-month secured overnight financing rate or a base rate, plus an applicable margin of 1.95% (subject to a floor rate of 0.25%). Obligations under the 2021 Credit Facility are secured by receivables generated by our BILL Divvy Card and certain related collateral, and subject to a limited guarantee by BILL Holdings, Inc. The 2021 Credit Facility matures in May 2028. We have amended our 2021 Credit Facility from time to time, most recently in October 2025, as further discussed under Note 7 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
2025 Credit Facility
We have a total borrowing capacity of $300.0 million pursuant to our Revolving Credit and Security Agreement, by and between our subsidiary, Odin Financing, LLC, JPMorgan Chase Bank, N.A. and the lenders party thereto (the 2025 Credit Facility, and together with the 2021 Credit Facility, the Revolving Credit Facilities),
of which we have borrowed $150.0 million as of September 30, 2026. Revolving loans under the 2025 Credit Facility bear interest at a rate per annum determined by reference to the applicable one-month secured overnight financing rate or a base rate, plus an applicable margin of 1.80%. Obligations under the 2025 Credit Facility are secured by receivables generated by our BILL Divvy Card and certain related collateral, and subject to a limited guarantee by BILL Holdings, Inc. The 2025 Credit Facility matures in November 2027. For additional discussion about the 2025 Credit Facility, refer to Note 7 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Off-Balance Sheet Arrangements
We are contractually obligated to purchase all card receivables from U.S. based Issuing Banks including authorized transactions that have not cleared. The transactions that have been authorized but not cleared totaled $74.4 million as of September 30, 2026 and have not been recorded on our condensed consolidated balance sheets. We have off-balance sheet credit exposures with these authorized but not cleared transactions; however, our expected credit losses with respect to these transactions were not material as of September 30, 2026.
Other than our expected credit loss exposure on the card transactions that have not cleared, we had no other off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures, or capital resources as of September 30, 2026.
As of September 30, 2026 we, in partnership with the Issuing Banks and the Originating Bank Partner, had approximately $4.5 billion in unused credit available to spending businesses using BILL Divvy Card product and borrowers using our invoice financing product. While this balance represents the total unused credit available, historical trends and current expectations indicate that the unused credit will likely not be fully utilized by spending businesses using BILL Divvy Card product and borrowers using our invoice financing product at any one time.
Critical Accounting Estimates
Our condensed consolidated financial statements have been prepared in accordance with GAAP. The preparation of these condensed consolidated 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 condensed 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.
Goodwill
We continually evaluate our current and estimated future financial results, macroeconomic environment and industry-specific conditions, which are subject to many uncertainties, including the impact of government budget cuts, government shutdowns and tariffs, volatility related to changes in rates of inflation, interest rates, and changes in the value of the U.S. dollar, geopolitical conflicts, and the potential for a slowing economy. These conditions, if sustained or exacerbated, could negatively impact the estimated fair value of our single reporting unit, and we may be required to perform a quantitative goodwill impairment test in a future period, which could result in a non-cash impairment charge.
Deferred Tax Valuation Allowance
Deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years. Such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as from net operating loss, capital loss, and tax credit carryforwards. We evaluate the realizability of our deferred tax assets on a quarterly basis to determine whether a valuation allowance is necessary and reduce such assets to the amount that is more likely than not to be realized. This
evaluation requires significant judgment and involves the consideration of all available positive and negative evidence, primarily our profitability in future periods and ongoing prudent and feasible tax planning strategies.
Given our recent results and expected future results, sufficient positive evidence may exist in a future period to support the conclusion that all or a portion of the valuation allowance will no longer be required. The release would result in the recognition of material federal and state deferred tax assets and a corresponding decrease to income tax expense and the effective tax rate in the period the release is recorded. The timing and amount of the valuation allowance release could vary based on our assessment of all available evidence.
For more information, see "The Company and its Significant Accounting Policies" in Note 1 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q and Note 1 to the financial statements in the 2026 10-K.
There have been no material changes to our critical accounting estimates as compared to the critical accounting estimates described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" set forth in our 2026 10-K, except as noted below:
Valuation of Long-lived Assets
We assess the impairment of long-lived assets whenever events or changes in business circumstances indicate that the carrying amounts of the asset group may not be fully recoverable. We determine whether there has been an impairment by comparing the carrying value of the asset group to the anticipated undiscounted net cash flows associated with the asset. If such cash flows are less than the carrying value, we write down the asset to its fair value, which may be measured as anticipated discounted net cash flows associated with the asset. For more information, see The Company and its Significant Accounting Policies" in Note 1 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Recent Accounting Pronouncements
See "The Company and its Significant Accounting Policies" in Note 1 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
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