BILL Holdings, Inc. (BILL) — Form 10-Q Summary
Reporting period: Fiscal second quarter ended December 31, 2019, with six-month results for the period ended December 31, 2019; comparatives are for the same periods in 2018. The filing is unaudited. The request metadata’s “2019 Q2” label differs from the fiscal-period presentation in the filing.
Business context
BILL provides cloud-based software and payment services that automate small and midsize businesses’ accounts payable and receivable workflows. Revenue comes from subscription and transaction fees, plus interest earned on customer funds while payments clear. At quarter-end, the company reported approximately 85,900 customers, up 20% year over year, and operated in one segment with revenue generated in the United States.
Key financial results
Amounts below are in millions of dollars except percentages and per-share data.
| Metric | Three months ended Dec. 31, 2019 | Three months ended Dec. 31, 2018 | Six months ended Dec. 31, 2019 | Six months ended Dec. 31, 2018 |
|---|---|---|---|---|
| Revenue | $39.1 | $26.0 | $74.3 | $48.4 |
| Gross profit / margin | $29.3 / 75% | $18.8 / 72% | $55.3 / 75% | $34.9 / 72% |
| Operating loss | $(7.9) | $(0.6) | $(14.2) | $(1.8) |
| Net income (loss) | $(7.6) | $0.1 | $(13.3) | $(0.8) |
| Basic and diluted EPS | $(0.34) | $0.00 | $(0.87) | $(0.10) |
- Revenue growth: Total revenue increased 50% in the quarter and 53% for the six-month period. Subscription and transaction fees rose 61% and 59%, respectively; customer-fund interest revenue rose 10% and 30%.
- Operating costs and margins: Quarterly operating expenses increased 92% to $37.2 million, including R&D of $13.0 million, sales and marketing of $11.5 million, and G&A of $12.7 million. For the six-month period, operating expenses were $69.5 million, up from $36.7 million. GAAP gross margin improved three percentage points to 75%; non-GAAP gross margin was 78% for the quarter and six months.
- Cash flow: For the six months, operating cash flow was negative $4.1 million (versus negative $2.2 million), capital expenditures were $3.0 million, and capitalized internal-use software costs were $0.3 million. Company-defined free cash flow was negative $7.5 million (versus negative $4.6 million). Financing provided $389.9 million, including IPO proceeds; net cash increased $224.6 million.
- Liquidity and debt: At December 31, cash and cash equivalents were $314.9 million and short-term investments were $68.1 million. Funds held for customers of $1,491.8 million were matched by customer fund deposits of the same amount and should not be treated as unrestricted corporate cash. The company had no credit-facility borrowings and $43.1 million available after letters of credit under its $50 million revolving facility.
Material changes and notable items
- On December 16, 2019, BILL completed its IPO, issuing 11.3 million shares at $22 per share and receiving approximately $225.5 million net proceeds. Outstanding preferred stock converted into common stock. The IPO substantially increased cash and stockholders’ equity.
- Payment volume grew 41% year over year to $24.8 billion for the quarter and $46.8 billion for six months; transactions processed grew 29% and 30%, respectively. Transaction-fee revenue growth notably exceeded subscription-fee growth, reflecting increased product adoption and usage.
- Customer-fund interest revenue depends on both balances and investment yield. Quarterly yield fell to 1.74% from 2.02%, while average customer funds in transit grew 27%; management attributed higher interest revenue principally to increased balances, partly offset by lower yield.
- Stock-based compensation was $3.1 million for the quarter and $5.4 million for six months, compared with $0.6 million and $1.2 million, respectively, a contributor to higher operating expenses.
- The company entered an 11-year lease for approximately 132,000 square feet of future headquarters space in San Jose. The stated aggregate minimum commitment is approximately $70 million net of rent abatement; the lease was expected to commence in May 2020.
Outlook, risks, and contingencies
- No specific financial guidance was provided. Management expects continued investment in product development, sales and marketing, and public-company and administrative functions, with related expenses expected to rise. It cautioned that investment may weigh on near-term profitability. The company reported a $130.9 million accumulated deficit and stated that sustained profitability is uncertain.
- Management believed cash, investments, and available credit would fund working-capital needs for at least 12 months. Additional capital may be needed if those sources and operating cash are insufficient; future financing could dilute shareholders or add debt and restrictions.
- Key risks include fraud and payment-processing losses; safeguarding and timely availability of customer funds; interest-rate sensitivity; money-transmission, anti-money-laundering, privacy, and cybersecurity compliance; dependence on banks, accounting firms, Intuit, and cloud providers; competition; customer retention; and execution of growth and scaling plans.
- The company disclosed that a 100-basis-point interest-rate change would have changed customer-fund interest revenue by approximately $3.7 million for the quarter and $6.9 million for six months, based on average balances. Management also described potential liquidity risks in customer-fund operations, while noting safeguards including advance collection and same-day-liquid investments.
- Litigation provisions were described as immaterial at quarter-end, and management reported no legal proceeding expected to have a material adverse effect. The company said disclosure controls were effective; it also noted prior fiscal 2018 material weaknesses in financial close and reconciliation of customer funds, with remediation ongoing.
Most important facts for investors to verify
- Whether revenue and payment-volume growth can continue, and how much growth comes from recurring subscriptions versus transaction fees and customer-fund interest.
- Whether expanding operating expenses—especially R&D, sales and marketing, G&A, and stock-based compensation—can be supported by revenue growth and lead to improving operating leverage.
- Customer-fund safeguarding, liquidity, investment duration and quality, and exposure to falling interest rates; distinguish customer funds from corporate liquidity.
- Progress on internal-control remediation and the company’s ability to meet public-company reporting and regulatory obligations.
- The financial effect of the new long-term headquarters lease and the terms, availability, and covenant requirements of the secured revolving credit facility.