BILL Holdings, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter ended March 31, 2021, with nine-month results for the period ended March 31, 2021. The filing’s reporting period is fiscal 2021 Q3, notwithstanding the request metadata. BILL provides cloud-based accounts payable, accounts receivable, and payment software for small and midsize businesses and partners.
Key financial metrics
| Metric | Three months ended March 31 | Nine months ended March 31 |
|---|---|---|
| Revenue | $59.7 million; +45% year over year | $160.0 million; +39% |
| Subscription and transaction fees | $58.6 million; +62% | $154.7 million; +59% |
| Interest on customer funds | $1.1 million; down 78% | $5.2 million; down 71% |
| Gross profit / gross margin | $44.3 million / 74%, versus $31.1 million / 75% | $118.5 million / 74%, versus $86.4 million / 75% |
| Operating loss | $15.3 million, versus $9.7 million | $43.2 million, versus $23.9 million |
| Net loss | $26.7 million, or $0.32 per share, versus $8.3 million, or $0.11 | $56.9 million, or $0.70 per share, versus $21.6 million, or $0.63 |
| Operating cash flow / free cash flow | Operating cash flow $(1.6) million; free cash flow $(5.4) million | Operating cash flow $(13.2) million; free cash flow $(31.3) million, versus $(9.6) million |
Dollar figures are rounded; cash-flow figures are for the three or nine months ended March 31, as indicated. The company remained unprofitable. Nine-month operating expenses rose 46% to $161.7 million, including research and development of $60.6 million, sales and marketing of $42.3 million, and general and administrative costs of $58.9 million. Nine-month stock-based compensation was $31.3 million, versus $10.4 million.
Balance sheet, debt, and liquidity
- At March 31, 2021, cash and cash equivalents were $1.224 billion and short-term investments were $512.5 million. Total assets were $3.800 billion; stockholders’ equity was $870.5 million.
- Funds held for customers were $1.930 billion and were matched by customer fund deposit liabilities of the same amount. These customer funds are not equivalent to unrestricted corporate cash.
- BILL issued $1.15 billion of 0% convertible senior notes due December 2025 in November 2020. Their net balance-sheet carrying amount was $897.9 million after the equity allocation and unamortized discount and issuance costs. The discount and issuance-cost amortization contributed $15.7 million of interest expense in the nine-month period.
- The revolving credit facility had $43.1 million available after letters of credit at quarter-end; there were no borrowings outstanding. BILL reported covenant compliance. Management said available cash, investments, and facility capacity were expected to cover working-capital needs for at least 12 months.
Changes, outlook, and significant items
- Growth was driven by subscription and transaction fees: customer count rose 27% to 115,600, quarterly total payment volume increased 44% to $35.0 billion, and transactions processed rose 19% to 7.182 million.
- Transaction-fee growth outpaced subscription growth, reflecting increased adoption of new offerings, a shift toward variable-priced products, and greater customer usage. Gross margin declined one percentage point, partly because interest revenue—a high-margin source—fell.
- Customer-fund interest income was pressured by lower yields following Federal Reserve rate cuts. The average return on customer funds was 0.23% in the quarter, down 127 basis points year over year. Management identified interest rates, customer fund balances, and payment mix and timing as drivers of this revenue.
- Management expects to continue investing in product development, sales and marketing, and growth; it anticipates research and development and other expenses may increase. The filing provides no specific revenue, earnings, or margin guidance and cautions that profitability is not assured.
- On May 6, 2021, after quarter-end, BILL agreed to acquire DivvyPay for approximately $2.5 billion, including approximately $625 million in cash and the remainder in BILL equity or equity awards. Closing remained subject to customary conditions, including regulatory clearance. BILL cautioned that integration, execution, and realization of expected benefits carry risks.
- COVID-19’s full effects remained uncertain. The company noted potential customer, partner, vendor, operating, and demand impacts, as well as lower interest income. Other material risks include fraud and payment-processing errors, safeguarding and liquidity of customer funds, cybersecurity and service interruptions, regulatory compliance, competition, and its history of losses.
- Litigation provisions were reported as immaterial, and management said there were no proceedings expected to have a material adverse effect. Disclosure controls were judged effective at a reasonable-assurance level; no material change in internal control over financial reporting was reported for the quarter.
Most important facts for investors to verify
- Whether transaction-fee and payment-volume growth can continue and translate into improving operating leverage, given rising expenses and losses.
- How much of future revenue and margins may be affected by persistently low interest rates, changing payment mix, and faster payment settlement.
- The terms, financing, dilution, closing status, integration progress, and realized benefits of the Divvy acquisition.
- The convertible notes’ potential cash-settlement needs, conversion and dilution exposure, and the effectiveness and counterparty risk of the capped calls.
- Whether customer-fund controls, liquidity, fraud prevention, regulatory compliance, and cybersecurity remain adequate as payment volumes grow.
- The extent to which stock-based compensation and other non-cash items affect reported losses and comparisons with management’s non-GAAP measures.