Filing summary
Period clarification: The supplied filing is BILL Holdings, Inc.’s Form 10-K for the fiscal year ended June 30, 2020, filed August 28, 2020. This does not match the request metadata “2019 Q4”; the figures below summarize the filing’s fiscal 2020 year, with the June 2020 quarter noted separately.
Business context and reporting period
BILL provides cloud-based accounts payable, accounts receivable, and payment automation software for small and midsize businesses. At June 30, 2020, it reported 98,100 customers, 2.5 million network members, and fiscal-year total payment volume (TPV) of $96.5 billion. Revenue comes from subscription and transaction fees and interest on customer funds held while payments clear.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $157.6 million | $108.4 million |
| Subscription and transaction fees | $136.4 million | $86.0 million |
| Interest on customer funds | $21.2 million | $22.4 million |
| Gross profit / GAAP gross margin | $118.5 million / 75.2% | $78.4 million / 72.4% |
| Operating loss | $(34.2) million | $(9.8) million |
| Net loss | $(31.1) million | $(7.3) million |
| Net cash used in operating activities | $(4.4) million | $(3.9) million |
| Free cash flow (non-GAAP) | $(16.5) million | $(8.2) million |
Revenue grew 45%; subscription and transaction fees grew 59%, while customer-fund interest revenue fell 5%. TPV rose 35% to $96.5 billion, compared with 44% growth in FY2019. Customers increased 28%, versus 21% in FY2019. Net dollar-based retention improved to 121% from 110%. Non-GAAP gross margin was 78.2%, up from 75.8%.
At year-end, cash, cash equivalents, and short-term investments totaled $697.6 million; working capital was $702.6 million. Funds held for customers were $1.644 billion and were matched by customer fund deposits; these restricted customer funds are not available for general corporate use. The company had $2.3 million of line-of-credit borrowings and $40.8 million of remaining availability under its $50 million secured facility after borrowings and letters of credit. It reported compliance with loan covenants.
Material changes, outlook, and risks
- Operating expenses rose 73% to $152.7 million, outpacing revenue growth; research and development and general and administrative expenses each increased 85%. Stock-based compensation rose to $18.1 million from $4.1 million.
- The company raised net proceeds of $225.5 million in its December 2019 IPO and $307.5 million in its June 2020 follow-on offering. Preferred shares converted to common stock upon the IPO. The increased share base and equity compensation are relevant to dilution.
- Management provided no specific numerical revenue, earnings, or margin guidance. It expects continued investment in product development, sales and marketing, infrastructure, compliance, and growth; it cautioned that these costs may pressure near-term profitability.
- COVID-19 created uncertainty around SMB customers, demand, payment volumes, and operations. Lower interest rates reduced returns on customer funds: the average return on those funds fell to 1.55% from 2.06% in FY2019. The company also offered temporary subscription relief to affected customers and anticipated potential pressure on subscription fees.
- The company has a history of losses and an accumulated deficit of $148.7 million. Other key risks include fraud and operational errors in payment processing, cybersecurity, regulatory compliance and money-transmitter licensing, reliance on accounting-firm and financial-institution partners and Intuit, competition, and dependence on third-party payment processors and cloud infrastructure.
- For the June 2020 quarter, revenue was $42.1 million and net loss was $9.5 million; the June 2019 quarter reported revenue of $31.7 million and net loss of $4.5 million.
- The filing reports no material legal proceedings and no material off-balance-sheet arrangements. Management said disclosure controls were effective at a reasonable-assurance level; the auditor did not opine on internal-control effectiveness. The company reported no material weaknesses for FY2019 or FY2020, while disclosing prior-year weaknesses in its FY2018 close and customer-funds reconciliation processes.
Most important facts for investors to verify
- Confirm the intended reporting period: this filing covers FY2020, not 2019 Q4.
- Assess whether core-fee growth and 121% retention can continue, and whether expense growth and stock-based compensation moderate relative to revenue.
- Track the impact of lower interest rates and faster electronic payment processing on revenue from customer funds.
- Distinguish corporate liquidity from restricted customer funds, and review the secured credit facility’s covenants and availability.
- Review dilution from the IPO, follow-on offering, outstanding options and RSUs, and future equity awards.
- Monitor COVID-19 effects on SMB customers, payment volumes, customer retention, and the temporary pricing and subscription-relief measures.