BILL Holdings, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended March 31, 2023, filed May 15, 2023. This is fiscal 2023 third quarter, although the request metadata identifies it as 2022 Q3. The company provides cloud-based accounts payable, accounts receivable, payments, and spend-management software for small and midsize businesses.
Financial results
| Metric | Three months ended March 31, 2023 | Prior-year quarter | Nine months ended March 31, 2023 | Prior-year period |
|---|---|---|---|---|
| Revenue | $272.6 million | $166.9 million | $762.5 million | $441.7 million |
| Gross profit / margin | $223.7 million / 82.1% | $129.6 million / 77.6% | $621.1 million / 81.5% | $340.2 million / 77.0% |
| Operating loss | $54.2 million | $83.2 million | $254.4 million | $233.5 million |
| Net loss | $31.1 million | $86.7 million | $207.9 million | $241.4 million |
| Net loss per share, diluted | $0.29 | $0.84 | $1.96 | $2.39 |
Quarterly revenue rose 63%; nine-month revenue rose 73%. Higher subscription and transaction fees reflected customer growth, increased users per customer, adoption of newer offerings, and a greater mix of variable-priced transactions. Interest revenue on customer funds increased to $33.1 million for the quarter and $77.3 million year to date, principally because of higher yields. The filing cautions that this revenue depends on interest rates.
For the nine months, operating cash flow was $107.4 million, compared with cash used of $7.6 million a year earlier. Free cash flow, a non-GAAP measure defined by the company, was $83.7 million versus negative $18.8 million. Investing activities used $119.9 million; financing activities provided $39.7 million.
Financial position and material changes
- At March 31, 2023, cash and cash equivalents were $1.591 billion and short-term investments were $1.073 billion. The company also reported $90 million of undrawn capacity under its revolving facility. Management said these resources should cover working-capital needs for at least 12 months.
- Funds held for customers were $3.106 billion, matched by customer-fund deposits of the same amount; these are not ordinary corporate liquidity.
- Debt carrying value was $1.838 billion: $1.725 billion principal of 0% convertible notes due in 2025 and 2027, plus $135 million drawn under the revolving facility. The facility has a $225 million commitment, matures in June 2024, is secured by acquired card receivables, and had a 7.82% effective interest rate at quarter-end. The company reported compliance with its covenants.
- Acquired card receivables, net, increased to $431.1 million from $256.4 million at June 30, 2022. The related allowance for credit losses rose to $13.6 million from $5.4 million, primarily due to portfolio growth. BILL ceased selling acquired card receivables in August 2022.
- Businesses using BILL’s solutions reached 455,300, up 18%; quarterly payment volume was $64.7 billion, up 13%, and transactions processed increased 36% to 21.4 million.
- The company repurchased and retired 358,947 shares for $27 million under a $300 million authorization; $273 million remained available.
Outlook, commentary, risks, and unusual items
- Management reported slower payment-volume growth than historical trends and slightly lower net customer additions for BILL standalone, citing macroeconomic uncertainty and longer customer purchasing decisions. It said higher rates had increased interest earned on customer funds. No specific revenue, earnings, or margin guidance is provided in the filing.
- Management expects research and development, service costs, and general and administrative expenses to increase in absolute dollars as the business grows; sales and marketing spending may be adjusted with economic conditions. The company remains loss-making and says future profitability is uncertain.
- In March 2023, BILL held approximately 12% of corporate cash, cash equivalents, and short-term investments, and approximately 11% of customer funds held in trust, at Silicon Valley Bank. Following the bank’s closure and government action protecting depositors, BILL reported no material access issues, moved most of those balances, and redirected most affected payment processing. Further banking-system instability could still disrupt access to funds or payment processing.
- Nine-month sales and marketing expense included $52.2 million of stock-based compensation tied to agreements with the former Chief Revenue Officer. Total stock-based compensation cost was $262.9 million for the nine months, up from $143.4 million.
- Control issue: The company disclosed a material weakness in internal control over financial reporting related to insufficient testing, documentation, and retained evidence for certain quote-to-cash IT controls. The weakness was identified as existing at June 30, 2022 and had not been remediated by March 31, 2023; disclosure controls were therefore deemed ineffective for the periods stated. The company said the weakness did not cause a misstatement in the referenced 2022 financial statements and that the current-quarter financial statements were fairly presented. Management planned remediation by fiscal year-end 2023.
- Other exposures include SMB sensitivity to recession and inflation, card-receivable credit and fraud losses, dependence on bank and financial-institution partners and funding arrangements, regulatory compliance, cybersecurity and service availability, and the possibility of cash needs upon convertible-note conversion. Authorized card transactions of $64.3 million had not cleared or been recorded at quarter-end; expected credit losses on them were described as immaterial. Litigation reserves were immaterial, and management reported no legal proceedings expected to have a material adverse effect.
Investor verification priorities
- Confirm the applicable period: the filing covers fiscal Q3 2023, ended March 31, 2023, not calendar 2022 Q3.
- Review the material weakness disclosure, remediation progress, and any subsequent assessment of control effectiveness.
- Assess how much revenue and margin growth depends on interest income from customer funds, and how results may change if rates decline.
- Track card-receivable growth, delinquency and loss trends, allowance adequacy, and revolving-facility refinancing or repayment needs.
- Distinguish corporate cash and investments from customer funds, and monitor bank concentration and continuity of payment processing.
- Evaluate the persistence of elevated stock-based compensation, the former CRO charge, share repurchases, and the company’s path toward profitability.