BILL Holdings, Inc. — Form 10-Q Summary
Reporting period: Three months ended September 30, 2020, the first quarter of fiscal 2021 (not calendar 2020 Q1). The filing was signed November 6, 2020. BILL provides cloud-based accounts payable, accounts receivable, and payment software, primarily for small and midsize businesses.
Financial performance and position
| Metric | Quarter ended Sept. 30, 2020 | Prior-year quarter | Change |
|---|---|---|---|
| Total revenue | $46.2 million | $35.2 million | +31% |
| Subscription and transaction fees | $43.8 million | $28.5 million | +53% |
| Interest on customer funds | $2.4 million | $6.6 million | -63% |
| Gross profit / GAAP gross margin | $34.1 million / 73.8% | $26.0 million / 74.0% | Margin down 0.2 percentage points |
| Operating expenses | $47.9 million | $32.3 million | +48% |
| Operating loss | $13.8 million | $6.3 million | Loss widened |
| Net loss / diluted loss per share | $13.0 million / $0.16 | $5.7 million / $0.69 | Net loss widened; per-share figures reflect substantially more weighted-average shares |
| Cash used in operating activities | $2.4 million | $2.4 million | Approximately unchanged |
| Free cash flow | -$8.6 million | -$4.5 million | Cash outflow increased |
At September 30, 2020, cash and cash equivalents were $564.2 million and short-term investments were $136.2 million. Total assets were $2.48 billion and total liabilities were $1.76 billion. Funds held for customers were $1.669 billion, matched by customer fund deposits of the same amount; these customer funds are not equivalent to unrestricted corporate liquidity. Cash, cash equivalents, restricted cash, and restricted cash equivalents together were $1.554 billion at quarter-end.
Borrowings under the credit facility were $2.3 million. After borrowings and $6.9 million of letters of credit, $40.8 million remained available under the $50 million revolving facility, which expires in June 2022. The facility is secured by substantially all company assets; the company reported compliance with its covenants.
Material changes and operating drivers
- Subscription and transaction growth reflected customer growth and increased platform usage. Customers rose 27% to 103,600; total payment volume (TPV) grew 31% to $28.8 billion; processed transactions grew 10% to 6.526 million.
- Transaction fees rose 83% to $19.2 million, while subscription fees increased 36% to $24.6 million. Management attributed transaction growth mainly to adoption of new offerings and a mix shift toward variable-priced products.
- Customer-fund interest revenue fell as investment yields declined following Federal Reserve rate cuts. Average customer-fund return was 0.62%, down 147 basis points year over year, partly offset by higher average funds in transit.
- Research and development expense increased 54% to $17.8 million, and general and administrative expense increased 63% to $17.2 million. Sales and marketing expense increased 26% to $12.9 million. Stock-based compensation rose to $9.9 million from $2.3 million.
- Free cash flow deteriorated primarily alongside higher property and equipment purchases: $5.9 million versus $1.9 million in the prior-year quarter.
Outlook, risks, and unusual items
- Guidance: The filing provides no specific numerical revenue, earnings, or cash-flow guidance. Management said existing cash, short-term investments, and available credit should fund working-capital needs for at least 12 months, while noting additional capital might be needed if resources prove insufficient, including under adverse COVID-19 effects.
- Management expected continued investment in product development, sales and marketing, and public-company and administrative capabilities. It anticipated R&D and several expense categories would increase in absolute dollars; profitability was not assured.
- COVID-19 effects remained uncertain. Management reported remote work and no significant business disruption to date, but identified risks to customers, partners, vendors, demand, operations, and liquidity. Reduced interest rates had already materially affected customer-fund interest revenue.
- Key exposures include fraud and operational errors in handling large payment flows; customer-fund liquidity, credit, and investment risks; regulation and money-transmitter licensing; cybersecurity and service interruptions; reliance on bank, software, and strategic partners; and competition and the ability to retain and grow customers.
- Operating leases were recognized on the balance sheet following early adoption of lease accounting on July 1, 2020, adding $44.2 million of right-of-use assets and $49.7 million of lease liabilities at adoption. Quarter-end operating lease liabilities were $55.4 million. The company also disclosed $28.6 million of future payments under specified vendor and partner commitments, including an expanded data-hosting arrangement.
- Litigation provisions were described as immaterial, and management said no pending legal proceeding was expected to have a material adverse effect. The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether subscription and transaction growth can continue to offset the sharp decline and interest-rate sensitivity of customer-fund revenue.
- Whether expense growth—particularly R&D, G&A, and stock-based compensation—can be managed as revenue scales, and whether losses and negative free cash flow narrow.
- How much reported cash is unrestricted corporate liquidity, given the large, separately matched customer-fund assets and deposits.
- Whether the company can maintain payment-processing controls, customer-fund liquidity, regulatory compliance, and cybersecurity as TPV and customer counts grow.
- Potential effects of COVID-19 and macroeconomic conditions on SMB customers, transaction volumes, partner operations, and future funding needs.