BILL Holdings, Inc. — Form 10-Q Summary
Reporting period: Three months ended September 30, 2022, the first quarter of fiscal 2023. The filing compares results with the three months ended September 30, 2021. Amounts below are in U.S. dollars; financial statement amounts are converted from thousands to millions unless noted.
Business context
BILL provides cloud-based financial automation, payments, spend and expense management products primarily to small and midsize businesses. The quarter’s results include Divvy and Invoice2go; Invoice2go was included from its acquisition date in September 2021 in the comparative quarter. Management reports one operating segment.
Financial performance and liquidity
| Metric | Q1 FY2023 | Prior-year quarter | Change or context |
|---|---|---|---|
| Revenue | $229.9 million | $118.3 million | Up 94% |
| Gross profit / gross margin | $184.8 million / 80.4% | $88.5 million / 74.8% | Margin improved, primarily from a higher mix of variable-priced transaction revenue |
| Operating loss | $87.7 million | $74.2 million | Loss increased as operating expenses grew |
| Net loss | $81.6 million | $74.3 million | Basic and diluted loss per share was $0.78 in both periods |
| Operating cash flow | $18.2 million provided | $21.1 million used | Improved year over year |
| Free cash flow | $12.0 million | $25.5 million used | Defined by the company as operating cash flow less property purchases and capitalized software costs |
- Revenue mix: Subscription and transaction fees were $214.6 million, including $204.8 million from SMBs, accounting firms and other customers and $9.8 million from financial institutions. Interest on customer funds was $15.3 million, versus $0.8 million a year earlier.
- Expenses: Operating expenses were $272.5 million, up 67%. Sales and marketing rose 121% to $118.6 million, including increased personnel, marketing and card-rewards costs. Research and development rose 79% to $75.1 million. General and administrative expense was $66.7 million, up 16%.
- Cash and investments: Cash and cash equivalents were $1.609 billion and short-term investments were $1.035 billion at September 30, 2022. Management also cited $150 million of available undrawn credit. Customer funds held of $3.122 billion are matched by customer fund deposits and should not be treated as unrestricted corporate liquidity.
- Debt: Outstanding principal included $1.725 billion of 0% convertible senior notes ($1.150 billion due 2025 and $575 million due 2027) and $75 million drawn on the revolving facility. The revolver’s total commitment is $225 million, matures in June 2024, and is secured by acquired card receivables. Its effective interest rate was 6.58% at quarter-end; the company reported compliance with its covenants.
- Other balance-sheet items: Total assets were $9.253 billion, total liabilities $5.206 billion, and stockholders’ equity $4.048 billion. Acquired card receivables, net, were $357.7 million, with a $7.5 million allowance for credit losses.
Changes versus the prior comparable period
- Revenue growth reflected higher subscription revenue, increased transaction fees from product adoption and a shift toward variable-priced products, and higher interest earned on customer funds as rates increased.
- Businesses using BILL’s combined solutions reached 419,800, up 15%; transactions processed increased 45% to 19.58 million. Total payment volume was reported as $64.9 billion, up 34% from $48.4 billion.
- Gross margin expanded from 74.8% to 80.4%. Operating loss nevertheless widened as operating expenses increased, particularly sales and marketing and research and development.
- The company reported $72.6 million of stock-based compensation charged to expense, compared with $37.9 million in the prior-year quarter.
- Operating cash flow turned positive. Investing cash outflow was $133.3 million, versus $453.9 million, largely reflecting the absence of the prior-year Invoice2go acquisition payment. Financing cash flow was a $2.2 million outflow, compared with $2.1 billion provided in the prior year, which included equity and convertible-note proceeds.
- The company amended its revolving facility in August 2022, increasing its commitment from $75 million to $225 million. It also ceased selling acquired card receivables effective August 2022; card receivables held for sale were zero at quarter-end versus $8.7 million at June 30, 2022.
Outlook, risks and contingencies
- The filing provides no quantified revenue, earnings or cash-flow guidance. Management said cash, cash equivalents and available-for-sale short-term investments should meet working-capital needs for at least the next 12 months.
- Management said it had not observed material effects from macroeconomic conditions on the business or outlook to date, but highlighted inflation, rising interest rates, recession risk, COVID-19 effects and possible adverse impacts on SMB customers. It said it would continue monitoring conditions and may adjust operations if business is affected.
- Key risks include ongoing operating losses and uncertain profitability; credit losses, fraud and collections associated with Divvy card receivables; reliance on bank, funding and payment-processing partners; customer-fund safeguarding and liquidity; cybersecurity and service disruptions; and extensive financial-services, privacy and money-transmission regulation.
- Short-term investments had $8.2 million of gross unrealized losses at quarter-end; customer-fund investments had $2.1 million. The company stated it did not intend, and was not likely to be required, to sell these securities before recovery at maturity.
- Authorized card transactions not yet cleared totaled $55.9 million and were not recorded on the balance sheet; expected credit losses on them were described as immaterial. The litigation reserve was also described as immaterial, and management reported no legal proceedings expected to have a material adverse effect.
- Disclosure controls and procedures were deemed effective at a reasonable level, and the company reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the reported TPV comparison and growth against the company’s underlying metric definitions; the filing text contains a malformed table entry, although the narrative reports $64.9 billion versus $48.4 billion and 34% growth.
- Track whether revenue growth and gross-margin improvement continue, particularly as interest income depends on rates and transaction mix.
- Assess whether expense growth, including sales and marketing, card rewards and stock-based compensation, moderates enough to improve the path to profitability.
- Monitor Divvy receivables, delinquencies, credit-loss provisions and funding capacity, including the revolver’s rising minimum-utilization requirements.
- Distinguish corporate liquidity from customer funds, and evaluate potential cash needs related to convertible-note conversion or repayment.
- Review subsequent disclosures for macroeconomic effects on SMB customers, customer funds, investment values, partner relationships and regulatory compliance.