BILL.COM HOLDINGS, INC. MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q)

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You should read the following discussion and analysis of our financial condition
and results of operations together with our condensed consolidated financial
statements and the related notes included elsewhere in this Quarterly Report on
Form 10-Q. Some of the information contained in this Quarterly Report on Form
10-Q includes forward-looking statements that involve risks and uncertainties.
You should read the sections titled "Special Note Regarding Forward-Looking
Statements" and "Risk Factors" for a discussion of important factors that could
cause actual results to differ materially from the results described in or
implied by the forward-looking statements contained in the following discussion
and analysis. Our fiscal year end is June 30, and our fiscal quarters end on
September 30, December 31, and March 31.

                                    Overview

We are a 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 vision is to become the leading
one-stop solution that helps millions of businesses around the world manage
their financial operations.

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, make and receive payments, reconcile their books, and
manage their cash. We have built sophisticated integrations with popular
accounting software solutions, banks, card issuers, and payment processors,
enabling our customers to access these mission-critical services 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
March 31, 2022, our partners included some of the most trusted brands in the
financial services business, including 84 of the top 100 accounting firms and
six of the top ten largest financial institutions in the U.S., including Bank of
America, JPMorgan Chase, Wells Fargo Bank and American Express. As we add
customers and partners, we expect our network to continue to grow organically.

On September 1, 2021, we completed our acquisition of Invoice2go, Inc.
(Invoice2go), a provider of mobile-first accounts receivable software that
empowers SMBs and freelancers to grow their client base, manage invoicing and
payments, and build their brand, for an aggregate purchase price of $674.3
million. On June 1, 2021, we completed our acquisition of DivvyPay, Inc.
(Divvy), a leading provider of cloud-based spend management application and
smart corporate cards to SMBs in the U.S., for an aggregate purchase price of
$2.3 billion. Following the acquisitions, Invoice2go and Divvy became our
wholly-owned subsidiaries. Our condensed consolidated results of operations
shown below for the three and nine months ended March 31, 2022 include the
operating results of Invoice2go from the date of the acquisition and of Divvy.
See Note 3 to our condensed consolidated financial statements included elsewhere
in this Quarterly Report on Form 10-Q for additional discussion about our
acquisitions.

We have grown rapidly and scaled our business operations in recent periods. Our
revenue was $166.9 million and $59.7 million during the three months ended March
31, 2022 and 2021, respectively, an increase of $107.2 million. Our revenue was
$441.7 million and $160.0 million during the nine months ended March 31, 2022
and 2021, respectively, an increase of $281.7 million. We generated net losses
of $86.7 million and $26.7 million during the three months ended March 31, 2022
and 2021, respectively, and $241.4 million and $56.9 million during the nine
months ended March 31, 2022 and 2021, respectively.

                               Impact of COVID-19

The full impact of the COVID-19 pandemic is inherently uncertain at the time of
this report. The COVID-19 pandemic has resulted in travel restrictions and
greater uncertainty in global financial markets. As the COVID-19 pandemic
persists, including the outbreak of new variants of COVID-19, it has
significantly impacted the health and economic environment around the world.
Many public and commercial establishments, including schools, restaurants, and
shopping malls, have restricted their operations due to restrictions imposed by
the government since the outbreak of the COVID-19 pandemic and may need to do so
in the future. Our customers, spending businesses, and subscribers have been,
and may continue to be, negatively impacted by government restrictions. These
conditions may continue to have negative implications on

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demand for goods, the supply chain, production of goods, and transportation. A
negative impact on our customers, spending businesses, and subscribers may cause
them to go out of business, request discounts, extend payment terms, or
discontinue using our services. Any of these actions may have a negative impact
on our future results of operations, liquidity, and financial condition.

Although we have not experienced significant business disruptions thus far from
the COVID-19 pandemic and there have been positive developments recently in the
U.S. and in other countries in combating the COVID-19 pandemic because of
vaccinations, we are unable to predict the full impact that the COVID-19
pandemic will have on our future results of operations, liquidity and financial
condition due to numerous uncertainties, including the duration of the pandemic,
the actions that may be taken by government authorities across the U.S. or other
countries, the efficacy of vaccinations, the impact to our customers, strategic
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 charged to our customers. Our transaction revenue consists of
transaction fees and interchange income on a fixed or variable rate per
transaction. Transactions primarily include card payments, check issuances, ACH
origination, cross-border payments, and creation of invoices. Much of our
revenue comes from repeat transactions, which are an important contributor to
our recurring revenue.

                 Our Receivables Purchases and Servicing Model

We market Divvy charge cards to potential spending businesses and issue
business-purpose charge cards through our partnerships with card issuing banks.
When a business applies for a Divvy card, we utilize 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 Divvy card
pursuant to our credit policies. Once approved for a Divvy card, the business is
provided a credit limit and can use the Divvy software to request virtual cards
or physical cards.

The majority of cards on our platform are issued by Cross River Bank, an
FDIC-insured New Jersey state chartered bank, and WEX Bank, an FDIC-insured Utah
state chartered bank. Under our arrangements with these banks, we must comply
with their respective credit policies and underwriting procedures, and the 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 bank harmless from such losses unless claims
regarding fraud or unauthorized use are due to the sole gross negligence of the
bank.

When a spending business completes a purchase transaction, the payment to the
merchant is made by our bank partner that issued the card. Obligations incurred
by the spending business in connection with their purchase transaction are
reflected as receivables on the bank's balance sheet. The bank then sells a 100%
participation interest in the receivable to us. Pursuant to our agreements with
the 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 right in the receivable,
the purchase price is equal to the outstanding principal balance of the
receivable.

We act as the servicer on all receivables we purchase from our issuing bank
partners and earn a servicing fee on loans we sell to our funding sources. We do
not sell the servicing rights on any of the loans, allowing us to control the
consumer experience end-to-end.

In order to purchase the participation rights in the receivables, we maintain a
variety of funding arrangements, including warehouse facilities and other
purchase arrangements with a diverse set of funding sources. We typically fund
some portion of these receivable purchases by borrowing under our credit
facilities, although we may also fund receivables purchases using corporate
cash. Typically, we immediately sell a portion of the receivables interests we
have purchased to our warehousing subsidiary which funds the purchases through
loans provided by our financing partners, and we may sell a portion of our
receivables to a third-party institution pursuant to a purchase arrangement. As
of March 31, 2022, we had $155.0 million in committed credit facility capacity
and with a total balance drawn of $77.5 million, of which $30.0 million is
included in current liabilities and $47.5 million is included in long-term
liabilities on our condensed

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consolidated balance sheets included elsewhere in this quarterly report on Form 10-Q. On average, our spendthrift businesses pay off their statement balances in about 20 days.

                              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. The table below excludes the metrics of the
Divvy and Invoice2go businesses. Relevant metrics for Divvy and Invoice2go are
set forth in the footnotes to the table.

                                As of March 31,
                             2022            2021         % Growth
Number of customers (1)       146,600         115,600       27%

                              Three months ended                           Nine months ended
                                   March 31,                                   March 31,
                             2022            2021         % Growth       2022             2021         % Growth
Total Payment Volume
(amounts in
  millions) (2)           $    55,066     $    34,971       57%      $    158,346     $     98,573       61%

                              Three months ended                           Nine months ended
                                   March 31,                                   March 31,
                             2022            2021         % Growth       2022             2021         % Growth
Transactions
processed (3)               9,462,000       7,182,000       32%        28,053,000       20,951,000       34%


(1) From March 31, 2022the total number of spender companies that used Divvy’s spend management platform was approximately 18,100 and the total number of Invoice2go subscribers was around 221,400.

(2) The total card payment volume transacted by spending businesses that used
Divvy cards was approximately $2.1 billion and $5.4 billion during the three and
nine months ended March 31, 2022, respectively. The total payment volume
transacted by Invoice2go subscribers was approximately $259.0 million and $628.0
million, during the three and nine months ended March 31, 2022, respectively.

(3) The total transactions executed by spending businesses that used Divvy cards
were approximately 5.9 million and 15.9 million during the three and nine months
ended March 31, 2022, respectively. The total transactions executed by
Invoice2go subscribers were over 312,000 and 766,000 during the three and nine
months ended March 31, 2022, respectively.

Number of clients

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
solutions 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 each
fiscal quarter.

Total Payment Volume (TPV)

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

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customers are completing on the platform and is an indicator of our ability to
generate revenue from our customers. We define TPV as the value of customer
transactions that we process on our platform during a particular period. Our
calculation of TPV includes payments that are subsequently reversed. Such
payments comprised approximately 1% of TPV during the three and nine months
ended March 31, 2022 and 2021. The TPV in the table above does not include
transactions made by spending businesses on our spend management platform and
subscribers of Invoice2go.

Transactions Processed

We define transactions processed as the number of customer payment and spend
transactions initiated and processed through our platform during a particular
period. Payment transactions include checks, ACH items, wire transfers and card
payments. The transactions processed in the table above do not include
transactions made by spending businesses on our spend management platform and
subscribers of Invoice2go.

                      Components of Results of Operations

Revenue

We generate revenue primarily from subscription and transaction fees.

Subscription fees are fixed monthly or annually and charged to 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, 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. Transaction fees also include interchange fees paid by
suppliers that accept cards as a means of payment.

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 annual
arrangements paid up front. We charge our SMB and accounting firm customers
subscription fees to access to our platform based on the number of users and
level of service. We 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. Revenues recognized exclude amounts collected on
behalf of third parties, such as sales taxes collected and remitted to
governmental authorities.

We maintain agreements with WEX Bank and Cross River Bank for card transactions
on the MasterCard and Visa networks, respectively. We facilitate the extension
of credit to spending businesses through our Divvy platform in the form of Divvy
cards, which are originated through our agreements with WEX Bank and Cross River
Bank. The spending businesses utilize the credit on the Divvy cards as a means
of payment for goods and services provided by suppliers. On a transaction basis,
these suppliers are required to pay interchange fees to the issuer of the
credit. Based on our agreement with WEX Bank, we recognize interchange fees net
of the rebate we receive from WEX Bank as we are the agent in the card
transactions and recognize the interchange fees on the gross amount under our
agreement with Cross River Bank, as we are the principal in the card
transactions.

We enter into multi-year contracts with financial institution customers to
provide access to our cloud-based payments platform to process transactions.
These contracts typically include fees for initial implementation services that
are paid during the period the implementation services are provided as well as
fees for subscription and transaction processing services, which are subject to
guaranteed monthly minimum fees that are paid monthly over the contract term.
These contracts enable the financial institutions to provide their customers
with access to online bill pay services through the financial institutions'
online platforms. Implementation services are required up-front to establish an
infrastructure that allows the financial institutions' online platforms to
communicate with our online platform. A financial institution's customers cannot
access online bill pay services until implementation is complete. The total
consideration in these contracts varies based on the number of users and
transactions to be processed. For additional discussion about revenue, refer to
Note 1 to our consolidated financial statements included in our Annual Report on
Form 10-K for the fiscal year ended June 30, 20221.

Cost of income and expenses

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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, 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, amortization of
developed technology, 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, for
our research and development teams, 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 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 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, for our
sales and marketing teams, rewards expense in connection with our card rewards
programs, sales commissions, marketing program expenses, travel-related expenses
and costs to market and promote our platform through advertisements, marketing
events, partnership arrangements, direct customer acquisition, amortization of
certain intangible assets, 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, payment operations, risk management, legal and
compliance, human resources and information technology, costs incurred for
external professional services, provision for credit losses, 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 total
revenue from period to period.

Other expenses, net - Other expenses, net consist primarily of the amortization
of debt discount and issuance costs in connection with our Notes, interest
expense on our borrowings from credit agreements, lower of cost or market
adjustment on card receivables sold and held for sale, interest income on
corporate funds, accretion of debt premium, and gains or losses resulting from
remeasurement of foreign currency transactions.

Income tax benefit – The income tax benefit consists primarily of a reduction in the valuation allowance related to the acquisition of
Invoice2go.

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Operating results

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                                     Nine months ended
                                  March 31,                   Change                    March 31,                     Change
                             2022        2021 (1)          $           %            2022        2021 (1)          $             %
Revenue                    $ 166,911     $  59,738     $ 107,173        179 

% $441,738 $159,992 $281,746 176% Cost of sales (2)

           37,342        15,434        21,908        142 

% 101,563 41,513 60,050 145 % Gross profit

                 129,569        44,304        85,265        192 %       340,175       118,479        221,696          187 %
Operating expenses
Research and development
(2)                           60,230        22,286        37,944        170 

% 154,656 60,558 94,098 155% Sales and marketing (2) 92,065 15,190 76,875 506% 235,194 42,272 192 922,456% General and administrative (2)

            60,457        22,124        38,333        173 

% 183,788 58,897 124,891 212% Total Operating Expenses 212,752 59,600 153,152 257% 573,638 161,727 411,911 255% Operations (83,183) (15,296) (67,887) (444), report

           (4,416 )     (11,432 )       7,016         61 %       (12,891 )     (13,943 )        1,052            8 %
Loss before benefit from
income taxes                 (87,599 )     (26,728 )     (60,871 )     (228 )%     (246,354 )     (57,191 )     (189,163 )       (331 )%
Benefit from income
taxes                           (879 )           -          (879 )        -          (4,935 )        (333 )       (4,602 )     (1,382 )%
Net loss                   $ (86,720 )   $ (26,728 )   $ (59,992 )     (224 )%   $ (241,419 )   $ (56,858 )   $ (184,561 )       (325 )%

(1) Excluding results from Divvy and Invoice2go.

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

                          Three months ended                                  Nine months ended
                              March 31,                   Change                  March 31,                  Change
                          2022        2021 (1)         $           %         2022        2021 (1)          $           %
Cost of revenue        $    1,262     $     728     $    534        73 %   $   3,674     $   1,971     $   1,703        86 %
Research and
development                13,912         3,638       10,274       282 %      38,752         9,953        28,799       289 %
Sales and marketing        17,758         1,711       16,047       938 %      36,911         5,086        31,825       626 %
General and
administrative             19,878         4,603       15,275       332 %      61,044        14,253        46,791       328 %
Total                  $   52,810     $  10,680     $ 42,130       394 %   $ 140,381     $  31,263     $ 109,118       349 %

The following table presents the components of our Consolidated Statements of Income for the periods presented as a percentage of revenue:

                                                  Three months ended                Nine months ended
                                                       March 31,                        March 31,
                                               2022             2021 (1)          2022           2021 (1)
Revenue                                            100 %               100 %         100 %             100 %
Cost of revenue                                     22 %                26 %          23 %              26 %
Gross margin                                        78 %                74 %          77 %              74 %
Operating expenses
Research and development                            36 %                37 %          35 %              38 %
Sales and marketing                                 55 %                25 %          53 %              26 %
General and administrative                          37 %                38 %          41 %              37 %
Total operating expenses                           128 %               100 %         129 %             101 %
Loss from operations                               (50 )%              (26 )%        (52 )%            (27 )%
Other expenses, net                                 (3 )%              (19 )%         (3 )%             (9 )%
Loss before benefit from income taxes              (53 )%              (45 )%        (55 )%            (36 )%
Benefit from income taxes                           (1 )%                -            (1 )%              -
Net loss                                           (52 )%              (45 )%        (54 )%            (36 )%

(1) Excluding results from Divvy and Invoice2go.

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Comparison of three and nine months ended March 31, 2022 and 2021

Revenue

Revenue consists mainly of subscription and transactions fees. Subscription
revenue increased by $22.8 million, or 78%, and $57.9 million, or 72%, during
the three and nine months ended March 31, 2022, respectively, as compared to the
same periods in fiscal 2021, primarily due to the increase in customers and
average subscription revenue per customer due to an increase in the number of
users. Transaction fee revenue increased by $84.1 million, or 286%, and $225.9
million, or 304%, during the three and nine months ended March 31, 2022,
respectively, as compared to the same periods in fiscal 2021, primarily due to
increased adoption of new product offerings and the mix of transaction revenues
shifting to variable-priced products.

We expect revenue to be affected by fluctuations in foreign currency rates in
the future, especially if our revenue through our international operations grows
as a percentage of our total revenue or our international operations increase.

Cost of revenue, gross profit and gross margin

Cost of sales, gross profit and gross margin during the three and nine months ended March 31, 2022 and 2021 were as follows (amounts in thousands):

                     Three months ended                                  Nine months ended
                         March 31,                   Change                  March 31,                  Change
                     2022        2021 (1)       Amount        %         2022        2021 (1)       Amount         %
Cost of revenue   $   37,342     $  15,434     $ 21,908       142 %   $ 101,563     $  41,513     $  60,050       145 %
Gross profit      $  129,569     $  44,304     $ 85,265       192 %   $ 340,175     $ 118,479     $ 221,696       187 %
Gross margin              78 %          74 %                                 77 %          74 %

(1) Excluding results from Divvy and Invoice2go.

Cost of sales increased by $21.9 million and $60.1 million in the three and nine months ended March 31, 2022respectively, compared to the same periods of fiscal year 2021 mainly due to:

a $9.3 million and $27.0 million increase in the three and nine months ended
March 31, 2022respectively, as amortization of acquired developed technology;

a $5.4 million and $13.9 million increase during the three and nine months ended
March 31, 2022, respectively, in direct costs associated with the processing of
our customers' payment transactions, use of software applications and equipment,
bank fees for funds held for customers, and data hosting services, which were
driven by the increase in the number of customers, increased adoption of new
product offerings, and an increase in the volume of transactions;

a $4.7 million and $12.9 million increase during the three and nine months ended
March 31, 2022, respectively, in personnel-related costs, including stock-based
compensation expense and amortization of increased deferred service costs, due
to the hiring of additional personnel and new headcount from our acquisitions of
Divvy and Invoice2go, who were directly engaged in providing implementation and
support services to our customers; and

a $2.5 million and $6.3 million increase during the three and nine months ended
March 31, 2022, respectively, in costs for consultants, temporary contractors,
and shared overhead and other costs.

Gross margin increased to 78% and 77% in the three and nine months ended
March 31, 2022respectively, by 74% for the same periods of fiscal 2021, mainly due to a higher mix of income from variable price transactions.

Research and development costs

Research and development expenses increased by $37.9 million and $94.1 million
during the three and nine months ended March 31, 2022, respectively, as compared
to the same periods in fiscal 2021 primarily due to the following:

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a $32.1 million and $79.4 million increase in the three and nine months ended March 31, 2022respectively, personnel costs, including stock-based compensation costs, resulting from the hiring of additional staff and new staff from our acquisitions of Divvy and Invoice2Go, which were directly engaged in the development of new product offerings; and

a $5.8 million and $14.7 million increase during the three and nine months ended
March 31, 2022, respectively, in shared overhead costs, costs for engaging
consultants and temporary contractors who provided product development services,
and other costs.

Our research and development expenses decreased to 36% and 35% as a percentage
of total revenue during the three and nine months ended March 31, 2022,
respectively, from 37% and 38% for the same periods in fiscal 2021, primarily
due to the leveraging of our total research and development spend relative to
the increase in our total revenue.

We expect research and development expenses to be affected by fluctuations in
foreign currency rates in the future, especially if our international operations
increase.

Sales and marketing expenses

Sales and marketing expenses increased by $76.9 million and $192.9 million
in the three and nine months ended March 31, 2022respectively, compared to the same periods of fiscal 2021, mainly due to the following:

a $30.5 million and $67.8 million increase during the three and nine months
ended March 31, 2022, respectively, in personnel-related costs, including
stock-based compensation expense, due to the hiring of additional personnel and
new headcount from our acquisitions of Divvy and Invoice2go, who were directly
engaged in acquiring new customers and in marketing our products and services,
and the acquisitions of Divvy and Invoice2go;

a $24.3 million and $61.4 million increase during the three and nine months
ended March 31, 2022, respectively, in rewards expense in connection with our
rewards programs. We offer promotion programs whereby spending businesses that
use our spend management application can earn rewards based on transaction
volume on the cards issued to them. Rewards can be redeemed by spending
businesses through cash back, statement credit, gift cards and travel. Rewards
expense is driven by transaction volume and an estimate of the cost of earned
rewards that are expected to be redeemed;

a $10.5 million and $29.2 million increase in the three and nine months ended March 31, 2022respectively, as amortization of acquired intangible assets;

a $9.0 million and $26.3 million increase during the three and nine months ended
March 31, 2022, respectively, in advertising spend and various marketing
initiatives and activities, such as engaging consultants and attending marketing
events, as we increased our efforts in promoting our products and services and
in increasing brand awareness; and

a $2.6 million and $8.2 million increase in the three and nine months ended
March 31, 2022respectively, in shared overhead and other costs.

Our sales and marketing expenses increased to 55% and 53% as a percentage of
total revenue during the three and nine months ended March 31, 2022,
respectively, from 25% and 26% for the same periods in fiscal 2021 primarily due
to the rewards expense and the amortization of acquired intangible assets that
were recognized during the current periods in fiscal 2022 and none in comparable
periods in fiscal 2021. Additionally, the increase was attributed to higher
stock-based compensation expense.

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General and administrative expenses

General and administrative expenses increased by $38.3 million and $124.9 million in the three and nine months ended March 31, 2022respectively, compared to the same periods of fiscal 2021, mainly due to the following:

a $26.2 million and $76.8 million increase in the three and nine months ended March 31, 2022respectively, in personnel costs, including stock-based compensation expense, resulting from the hiring of additional general and administrative staff, including executives, and new staff from our acquisitions of Divvy and Invoice2go;

a $7.4 million and $19.8 million increase in the three and nine months ended
March 31, 2022respectively, in provision for card losses and fraud;

a $0.9 million and $16.3 million increase during the three and nine months ended
March 31, 2022, respectively, in professional and consulting fees as we obtained
additional external services to support certain corporate initiatives, including
the integration of our acquired businesses; and

a $3.8 million and $12.0 million in the three and nine months ended March 31, 2022respectively, the increase in shared overhead and other costs.

Our general and administrative expenses decreased to 37% as a percentage of
total revenue during the three months ended March 31, 2022 from 38% for the same
period in fiscal 2021, primarily due to lower expenses incurred from external
services and corporate insurance costs relative to the increase in our total
revenue, partially offset by the increase in stock-based compensation expense
and provision for card and fraud losses.

Our general and administrative expenses increased to 41% as a percentage of our
total revenue during the nine months ended March 31, 2022 from 37% for the same
period in fiscal 2021 due primarily to the increase in stock-based compensation
expense and provision for card and fraud losses.

Other expenses, net

Other expenses, net decreased by $7.0 million and $1.0 million during the three
and nine months ended March 31, 2022, respectively, as compared to the same
periods in fiscal 2021, primarily due to the decrease in interest expense from
the amortization of debt discount and issuance costs associated with our 2025
Notes due to the adoption of ASU 2020-06, partially offset by the increase in
the amount of discount associated with the measurement of cards receivable sold
and held for sale at a lower of cost or market.

Benefit from income tax

Benefit from income taxes during the three and nine months ended March 31, 2022
pertained mainly to the tax benefit of the net loss incurred during the period,
and a reduction of valuation allowance in connection with the acquisition of
Invoice2go. The benefit from income taxes during the nine months ended March 31,
2021 pertained mainly to a partial reversal of net deferred income tax
liability, a majority of which was established in connection with our issuance
of the 2025 Notes.

                          Non-GAAP Financial Measures

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

We believe that these non-GAAP financial measures provide useful information
about our financial performance, enhance the overall understanding of our past
performance and future prospects and allow for greater transparency with respect
to important metrics used by our management for financial and operational
decision-making. We are presenting

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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.

Non-GAAP Gross Profit and Non-GAAP Gross Margin

We define non-GAAP gross profit as gross profit, minus amortization of
intangible assets, stock-based compensation expense, payroll taxes related to
stock-based compensation expense, and depreciation expense recognized in cost of
revenue. Non-GAAP gross margin is defined as non-GAAP gross profit, divided by
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 presents 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           Nine months ended
                                              March 31,                    March 31,
                                          2022        2021 (1)        2022        2021 (1)
Revenue                                $  166,911     $  59,738     $ 441,738     $ 159,992
Gross profit                              129,569        44,304       340,175       118,479
Add:
Amortization of intangible assets           9,285             -        26,971             -
Stock-based compensation expense            1,262           728         3,674         1,971
Payroll taxes related to stock-based
  compensation expense                        139           119           391           263
Depreciation expense                          881           800         2,365         1,868
Non-GAAP gross profit                  $  141,136     $  45,951     $ 373,576     $ 122,581
Gross margin                                 77.6 %        74.2 %        77.0 %        74.1 %
Non-GAAP gross margin                        84.6 %        76.9 %        84.6 %        76.6 %

(1) Excluding results from Divvy and Invoice2go.

Free movement of capital

Free cash flow is defined as net cash used in operating activities, adjusted by
purchases of property and equipment and capitalization of internal-use software
costs. We believe free cash flow is an important liquidity measure of the cash
(if any) that is 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):

                                                   Nine months ended
                                                       March 31,
                                                  2022        2021 (1)
Net cash used in operating activities           $  (7,619 )   $ (13,163 )
Purchases of property and equipment                (3,758 )     (17,062 )

Capitalization of software costs for internal use (7,409 ) (1,038 ) Free cash flow

                                  $ (18,786 )   $ (31,263 )


(1) Excluding results from Divvy and Invoice2go.

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                        Liquidity and Capital Resources

As of March 31, 2022, our principal sources of liquidity were our cash and cash
equivalents of $1.6 billion, our available-for-sale short-term investments of
$1.1 billion, and our available lines of credit. Our cash equivalents are
comprised primarily of money market funds and investments in debt securities
with original maturities of three months or less at the time of purchase. Our
short-term investments are comprised primarily of available-for-sale investments
in corporate bonds, certificates of deposit, asset-backed securities, municipal
bonds, and U.S. treasury securities with original maturities of more than three
months. Our lines of credit are comprised of Credit Agreements (as defined
below), under which we have a total borrowing commitment of $155.0 million. We
have drawn a total of $77.5 million under our Credit Agreements as of March 31,
2022 and can draw additional funds to the extent that we maintain a sufficient
balance of eligible acquired card receivables that serve as collateral.

A significant portion of our cash, cash equivalents and short-term investments
as of March 31, 2022 were derived from the recent public offering of our common
stock and issuance of 2027 Notes in a private offering on September 24, 2021, in
which we received combined aggregate net proceeds of approximately $1.9 billion,
after deducting discounts, commissions and other offering costs.

We believe that our cash, cash equivalents, available-for sale short-term
investments, and funds available under our lines of credit will be sufficient to
meet our working capital requirements for at least the next 12 months. In the
future, we may attempt to raise additional capital through the sale of equity
securities or through equity-linked or debt financing arrangements to fund
future operations or obligations, including the repayment of the principal
amount of the Notes in the event that the Notes become convertible and the
noteholders opt to exercise their right to convert. We may also seek to raise
additional capital from these offerings or financings on an opportunistic basis
when we believe there are suitable opportunities for doing so. If we raise
additional funds by issuing equity or equity-linked securities, the ownership of
our existing stockholders will be diluted. If we raise additional financing by
incurring additional indebtedness, we may be subject to increased fixed payment
obligations and could also be subject to additional restrictive covenants, such
as limitations on our ability to incur additional debt, and other operating
restrictions that could adversely impact our ability to conduct our business.
Any future indebtedness we incur may have terms that could be unfavorable to
equity investors. There can be no assurances that we will be able to raise
additional capital. The inability to raise capital would adversely affect our
ability to achieve our business objectives.

Cash flow

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

                                       Nine months ended
                                           March 31,
                                      2022          2021 (1)
Net cash provided by (used in):
Operating activities              $     (7,619 )   $   (13,163 )
Investing activities              $ (1,075,897 )   $  (563,192 )
Financing activities              $  2,739,860     $ 1,356,043

(1) Excluding results from Divvy and Invoice2go.

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. 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, payments for card rewards expenses, and other general corporate
expenditures.

Net cash used in operating activities decreased to $7.6 million during the nine
months ended March 31, 2022 from $13.2 million during the nine months ended
March 31, 2021, due mainly to the increase in revenue and timing of the payments
for costs of our services and operating expenses.

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Net cash used in investment activities

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. Our cash usage for our investing activities consists primarily of
purchases of corporate and customer fund available for-sale investments,
business acquisitions, capitalization of internal-use software, and purchases of
property and equipment. Additionally, the increase or decrease in our net cash
from investing activities is impacted by the net change in acquired card
receivable balances.

Our net cash used in investing activities increased to $1.1 billion during the
nine months ended March 31, 2022 from $563.2 million during the nine months
ended March 31, 2021 due primarily to the increase in purchases of corporate and
customer fund short-term investments, payment to acquire Invoice2go, and
increase in acquired card receivables; partially offset by the increase in
proceeds from maturities of corporate and customer short-term investments.

Net cash provided by financing activities

Our cash proceeds from our financing activities consist primarily of proceeds
from public offerings of our common stock, issuance of convertible notes,
exercises of stock options, and employee purchases of our common stock under our
ESPP. Our cash usage for our financing activities consists primarily of payments
of costs related to public offerings of our common stock, and issuance of debt.
Additionally, the increase or decrease in our net cash from financing activities
is impacted by the change in customer fund deposits liability.

Net cash provided by financing activities increased to $2.7 billion during the
nine months ended March 31, 2022 from $1.4 billion during the nine months ended
March 31, 2021 due primarily to the proceeds from the public offering of our
common stock and increase in customer funds liability.

Tickets 2027

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 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. For additional discussion about our
2027 Notes and the capped call transactions, refer to Note 9 to our condensed
consolidated financial statements included elsewhere in this Quarterly Report on
Form 10-Q.

2025 Notes

On November 30, 2020, we issued $1.15 billion in aggregate principal amount of
our 0% convertible senior notes due on December 1, 2025. The 2025 Notes are
senior, unsecured obligations, will not accrue interest unless we determine to
pay special interest, and are convertible on or after September 1, 2025 until
the close of business on the second scheduled trading day immediately preceding
the maturity date on December 1, 2025. The 2025 Notes are convertible by the
holders at their option during any calendar quarter after March 31, 2021 under
certain circumstances, including if the last reported sale price of our common
stock for at least 20 trading days (whether or not consecutive) during a period
of 30 consecutive trading days ending on and including the last trading day of
the immediately preceding calendar quarter is greater than or equal to 130% of
the $160.88 per share initial conversion price.

As of March 31, 2022, one of the conditions for early conversion of the 2025
Notes was triggered. Specifically, our common stock during the calendar quarter
ended March 31, 2022 traded at a price greater than 130% of the initial
conversion price of the 2025 Notes for more than 20 consecutive trading days.
Pursuant to the terms of the 2025 Notes, the holders of the 2025 Notes have the
right to convert their notes at their option at any time during the calendar
quarter subsequent to March 31, 2022. 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. As of March 31, 2022, we classified
the net carrying amount of the 2025 Notes as a current

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liability. For additional discussion about our 2025 Notes and the capped call
transactions, refer to Note 9 to our condensed consolidated financial statements
included elsewhere in this Quarterly Report on Form 10-Q.

Credit agreements

Our credit agreements consisted of (i) a Revolving Credit and Security Agreement (Revolving Credit Agreement 2021) and (ii) a Warehouse Credit Agreement (Credit Agreement 2019, as amended, and with revolving credit 2021, credit agreements).

Our 2021 Revolving Credit Agreement has a total commitment of $95.0 million
consisting of a Class A facility amounting to $75.0 million and a Class B
facility amounting to $20.0 million. The total outstanding borrowings from the
Class A and Class B facilities, which bear interest at 2.75% and 10.25% per
annum, respectively, plus LIBOR (subject to a floor rate of 0.25%), were $37.5
million and $10.0 million, respectively, as of March 31, 2022. Our 2021
Revolving Credit Agreement matures in June 2023 or earlier pursuant to such
agreement and the outstanding borrowings are payable on or before the maturity
date.

Our 2019 Credit Agreement (as amended) has a total commitment of $60.0 million.
The outstanding borrowings from the amended 2019 Credit Agreement, which bear
interest at 6.0% per annum plus LIBOR (subject to a floor rate of 2.0%),
amounted to $30.0 million as of March 31, 2022. The interest rate dropped to
4.5% per annum plus LIBOR (subject to a floor rate of 0.25%) beginning October
2021. Our 2019 amended Credit Agreement matures in January 2023 and the
outstanding borrowings are payable on or before the maturity date.

The available funds under our Credit Agreements, after deducting our borrowings
totaling $77.5 million, was $77.5 million as of March 31, 2022. For additional
discussion about our Credit Agreements, refer to Note 9 to our condensed
consolidated financial statements included elsewhere in this Quarterly Report on
Form 10-Q.

Contractual obligations and other commitments

There have been no material changes in our contractual obligations and other commitments from those disclosed in our Annual Report on Form 10-K for fiscal year 2021, other than the transactions described below.

We issued $575.0 million in aggregate principal amount of the 2027 Notes in the
first quarter of fiscal 2022. The 2027 Notes are senior, unsecured obligations,
and will not accrue interest. The 2027 Notes are convertible on or after January
1, 2027 until the close of business on the second scheduled trading day
immediately preceding the maturity date. For additional discussion about our
2027 Notes, refer to Note 9 to our condensed consolidated financial statements
included elsewhere in this Quarterly Report on Form 10-Q.

For more information about our contractual commitments, see Note 14 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
card issuing banks (Issuing Banks) including authorized transactions that have
not cleared. The transactions that have been authorized but not cleared totaled
$41.0 million as of March 31, 2022 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 March 31,
2022.

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 March 31, 2022.

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

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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.

There have been no material changes in our critical accounting estimates from the critical accounting estimates described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10- K for fiscal year 2021.

Recent accounting pronouncements

See "The Company and its Significant Accounting Policies" in Note 1 of the notes
to our condensed consolidated financial statements included in Part I, Item 1 of
this Quarterly Report on Form 10-Q.

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