BILL Holdings, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended December 31, 2020 (fiscal Q2 and first half of fiscal 2021). The company provides cloud-based accounts payable, accounts receivable, and payments software for small and midsize businesses, accounting firms, and financial institutions. Unless otherwise stated, amounts below are in U.S. dollars.
Financial results and position
| Metric | Three months ended Dec. 31, 2020 | Prior-year quarter | Six months ended Dec. 31, 2020 | Prior-year six months |
|---|---|---|---|---|
| Revenue | $54.0 million | $39.1 million | $100.3 million | $74.3 million |
| GAAP gross margin | 74% | 75% | 74% | 75% |
| Operating loss | $14.2 million | $7.9 million | $28.0 million | $14.2 million |
| Net loss | $17.2 million | $7.6 million | $30.1 million | $13.3 million |
| Net loss per share, diluted | $0.21 | $0.34 | $0.37 | $0.87 |
- Quarterly subscription and transaction fees rose 59% to $52.3 million; interest revenue on customer funds fell 72% to $1.7 million. For the six-month period, those figures increased 56% to $96.1 million and decreased 68% to $4.1 million, respectively.
- Quarterly GAAP gross profit was $40.1 million. Non-GAAP gross margin was 77.3%, compared with 78.0% a year earlier. The company reported free cash flow of negative $17.3 million for the quarter and negative $25.9 million for the six months.
- For the six months, cash used in operating activities was $11.6 million; investing activities used $179.3 million; and financing activities provided $1.636 billion. Financing included proceeds from the convertible notes and growth in customer fund deposits.
- At December 31, corporate cash and cash equivalents were $1.569 billion and short-term investments were $165.6 million. Separately, $2.218 billion in customer funds was matched by $2.218 billion in customer fund deposits; these customer assets are not equivalent to unrestricted corporate liquidity.
- The company had $1.15 billion principal amount of 0% convertible senior notes due December 2025, carried at $886.1 million net on the balance sheet. The notes’ estimated fair value was approximately $1.32 billion. The company also had $2.3 million drawn on its secured revolving facility and reported $40.8 million of remaining availability after borrowings and letters of credit.
Changes versus the prior comparable period
- Revenue growth reflected customer and usage expansion: customers increased 27% to 109,200; quarterly total payment volume increased 40% to $34.8 billion; and transactions processed increased 16% to 7.243 million.
- Subscription and transaction revenue grew substantially, while lower market interest rates sharply reduced interest revenue on customer funds. Management attributed the lower yield to Federal Reserve rate cuts in March 2020.
- Operating expenses rose faster than revenue in several areas. In the quarter, research and development increased 58%, sales and marketing 23%, and general and administrative 54%. The company cited hiring, stock-based compensation, public-company costs, and increased insurance and professional fees.
- Net loss widened despite higher revenue, and gross margin declined by about one percentage point, primarily because interest revenue—described as high-margin—fell.
Outlook, commentary, and risks
- No quantitative revenue, earnings, or margin guidance is provided. Management expects cost of revenue, research and development, and general and administrative expenses to increase in absolute dollars; sales and marketing spending may vary with economic conditions. The company expects continued investment in its platform, products, sales, and infrastructure, which may weigh on near-term profitability.
- Management said the business continued operating during COVID-19 disruptions and had not experienced significant business disruption to date, but identified uncertainty around customer health, demand, operations, liquidity, and the pandemic’s duration and effects.
- Interest-rate sensitivity is material: the filing estimates a 100-basis-point change would affect interest on customer funds by approximately $4.8 million for the quarter and $8.7 million for the six months, based on average balances. Lower rates or faster payment settlement could reduce this revenue.
- Key risks include sustained operating losses, fraud and payment-processing errors, safeguarding and liquidity of customer funds, regulation and money-transmitter compliance, cybersecurity and service interruptions, reliance on banking, accounting-software and other partners, and competition. The company also highlights risks of cash settlement or repurchase obligations related to convertible notes and potential dilution; capped calls are intended to reduce dilution only within their terms and cap.
- The company stated its cash, short-term investments, and available credit should be sufficient for working-capital needs for at least 12 months. It was in compliance with credit-facility covenants. Litigation provisions were described as immaterial, and management reported disclosure controls were effective at a reasonable-assurance level.
Important facts for investors to verify
- Whether customer growth and payment-volume expansion can continue to support subscription and transaction revenue while interest revenue remains constrained by rates.
- How operating expenses, particularly stock-based compensation and hiring-related costs, affect the path to profitability and cash use.
- The liquidity and investment risks associated with customer funds, including the distinction between customer balances and corporate cash available for operations.
- The convertible notes’ conversion, cash-settlement, repurchase, dilution, and capped-call terms, along with the company’s capacity to meet related obligations.
- Whether COVID-19 effects, partner dependencies, regulatory requirements, fraud exposure, and cybersecurity risks materially change from management’s current assessment.