BILL Holdings, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and first six months ended December 31, 2023; comparisons are with the corresponding 2022 periods. BILL provides cloud-based financial operations, payments, and spend-management products, primarily for small and midsize businesses (SMBs).
Financial and operating performance
| Metric | Three months ended Dec. 31, 2023 | Six months ended Dec. 31, 2023 |
|---|---|---|
| Total revenue | $318.5 million, up 22% | $623.5 million, up 27% |
| Subscription and transaction fees | $275.0 million, up 19% | $540.1 million, up 21% |
| Interest on customer funds | $43.5 million, up 50% | $83.3 million, up 88% |
| Gross profit / GAAP gross margin | $260.1 million / 81.7% | $509.1 million / 82.0% |
| Operating loss | $67.7 million | $124.3 million |
| Net loss | $40.4 million; $0.38 per share | $68.3 million; $0.64 per share |
| Operating cash flow / free cash flow | Not separately provided for the quarter | $133.3 million / $121.8 million |
Revenue growth reflected higher transaction volume and customer adoption, as well as increased yield on customer funds. In the quarter, subscription revenue rose 3% and transaction-fee revenue rose 25%. Interest on customer funds was 14% of quarterly revenue, versus 11% a year earlier. GAAP gross margin was flat year over year in the quarter and improved from 81.0% to 82.0% for the six-month period.
Operating losses narrowed year over year, but BILL remained loss-making. The comparison benefited from lower stock-based compensation, including the absence of $52.2 million of prior-year expense related to the former Chief Revenue Officer’s separation and advisory agreements. Six-month stock-based compensation charged to operations was $130.6 million.
- Business metrics: 473,500 businesses used BILL’s solutions at period end, up 9%. Quarterly total payment volume was $74.9 billion, up 11%, and transactions processed were 25.6 million, up 23%.
- Liquidity: Cash and cash equivalents were $1.58 billion and short-term investments were $972.6 million at December 31. BILL also reported $90 million available under its revolving facility. Customer funds held of $3.66 billion are matched by customer fund deposits and should not be treated as unrestricted corporate liquidity.
- Debt: Outstanding principal comprised $1.15 billion of 0% convertible notes due December 2025, $575 million of 0% convertible notes due April 2027, and $135 million drawn under a $225 million revolving facility. The facility matures in June 2024, bears a floating rate, and had an 8.31% effective rate at quarter end. BILL reported compliance with its facility covenants.
- Credit exposure: Net acquired card receivables were $517.0 million; the allowance was $21.5 million, up from $15.5 million at June 30, 2023. Management attributed higher provisions and charge-offs to portfolio growth and increased delinquencies.
Material changes and unusual items
- On December 5, 2023, BILL announced a reduction in force affecting approximately 15% of its global workforce and closure of its Sydney office. It recorded $25.1 million of restructuring expense, including $3.4 million of stock-based compensation; $13.4 million of restructuring liabilities remained at December 31. The plan was expected to be substantially complete by June 30, 2024.
- BILL repurchased and retired approximately 2.9 million shares for $212.7 million during the six months. It completed the full $300 million authorization by December 31; the authorization expired in January 2024.
- Quarterly other income, net was $28.9 million, primarily reflecting interest income. For the six months, interest income was $68.1 million, compared with $32.4 million in the prior-year period.
- Remaining performance obligations were approximately $110 million; one customer represented about 44% of that amount, and BILL was discussing a potential contract amendment.
Outlook, commentary, and risks
The filing provides no specific numerical revenue, earnings, or margin guidance. Management said it expects near-term macroeconomic effects to persist and noted that SMB customers have moderated spending and shifted in some cases to lower-cost payment methods, weighing on payment-volume and transaction-fee growth. BILL expects available cash, cash equivalents, and short-term investments to meet working-capital needs for at least the next 12 months. It also expects restructuring to be substantially complete by June 30, 2024.
- Results are exposed to SMB financial health, recession and inflation risks, customer retention and adoption, competition, and payment-volume trends. BILL specifically noted Intuit’s October 2023 launch of a native bill-pay solution for QuickBooks.
- Interest revenue depends on customer-fund balances and market yields; lower rates or greater use of expedited payment methods could reduce this revenue.
- Card products expose BILL to credit losses, fraud, delinquencies, and reliance on issuing banks and external funding sources. A reported $2.1 billion of unused credit available to spending businesses is not expected to be fully drawn, but reflects potential exposure associated with the card program.
- Other identified risks include customer-fund safeguarding and banking-partner stability, financial-services regulation, cybersecurity and service interruptions, foreign-exchange exposure, and the cash or dilution implications of convertible-note settlement. The filing says the conversion conditions for both note series were not triggered at December 31, 2023.
- Management reported no material change in contractual commitments or litigation from the prior annual filing and no legal proceeding it believed would have a material adverse effect. Disclosure controls were assessed as effective at a reasonable-assurance level; no material change in internal control over financial reporting was reported for the quarter.
Important facts for investors to verify
- Whether transaction growth and customer adoption can offset SMB spending moderation and competitive pressure.
- How much future revenue growth and operating performance depend on interest income from customer funds and prevailing rates.
- Trends in card delinquencies, credit-loss provisions, and charge-offs as receivables expand.
- Repayment, refinancing, or conversion plans for the June 2024 revolving facility and $1.15 billion of notes due in December 2025.
- The final cost, execution, and operational effects of the workforce reduction, and whether it supports the intended profitability improvements.
- The potential effect of the customer contract amendment on the disclosed remaining performance obligations.