BILL Holdings, Inc. — Q1 FY2022 Form 10-Q
Reporting period: Three months ended September 30, 2021. Amounts below are in U.S. dollars; financial statement amounts are in millions unless otherwise noted. This quarter’s results include Divvy and Invoice2go from their respective acquisition dates, so comparisons with the prior-year quarter are not fully like-for-like.
Business context and reporting period
BILL provides cloud-based software and payments tools that automate small and midsize businesses’ accounts payable, accounts receivable, and spend management. It acquired Invoice2go on September 1, 2021, for $674.3 million and had acquired Divvy on June 1, 2021, for $2.3 billion.
Key financial metrics
| Metric | Q1 FY2022 | Prior-year quarter |
|---|---|---|
| Revenue | $116.4 million | $46.2 million |
| Gross profit / margin | $86.6 million / 74.4% | $34.1 million / 73.8% |
| Operating loss | $76.2 million | $13.8 million |
| Net loss | $75.7 million | $13.0 million |
| Basic and diluted loss per share | $0.79 | $0.16 |
| Cash used in operating activities | $21.1 million | $2.4 million |
| Free cash flow | $(25.5) million | $(8.6) million |
Revenue increased 152% year over year. Subscription revenue rose 43% to $35.0 million; transaction fees rose 319% to $80.6 million, which management attributed mainly to adoption of new products and a shift toward variable-priced transaction products. Non-GAAP gross margin was 83.3%, versus 76.2% in the prior-year quarter; this measure excludes specified expenses, including intangible amortization and stock-based compensation.
Operating expenses were $162.7 million, up from $47.9 million. Increases included acquisition-related staffing and costs, stock-based compensation, Divvy rewards expense, and acquired intangible amortization. Stock-based compensation charged to expense was $37.9 million, compared with $9.9 million.
At September 30, 2021, cash and cash equivalents were $2.013 billion and short-term investments were $821.6 million. Funds held for customers of $2.433 billion were matched by customer fund deposits of the same amount and should not be treated as unrestricted corporate liquidity. The company reported $77.5 million drawn against $155.0 million of total credit-facility commitments, leaving $77.5 million available, subject to eligible receivables and facility terms. Management said available cash, investments, and credit lines should meet working-capital needs for at least 12 months.
Total debt principal was $1.803 billion: $1.150 billion of 0% convertible notes due 2025, $575.0 million of 0% convertible notes due 2027, and $77.5 million of credit-facility borrowings. The 2025 notes became convertible at holders’ option during the quarter following September 30 after the share-price conversion condition was met; their $1.133 billion net carrying amount was classified as current. Management’s stated intent was to settle conversions with principal in cash and any excess conversion value in shares, subject to the notes’ terms.
Cash provided by financing activities was $2.104 billion, primarily reflecting net proceeds from a September public stock offering and the 2027 notes. Investing activities used $453.9 million, including investments, the Invoice2go acquisition, and increased card receivables.
Material changes versus the prior comparable period
- Revenue grew substantially, but reported growth includes acquired businesses and is not a like-for-like measure of organic growth. The quarter included only one month of Invoice2go results.
- Net loss widened to $75.7 million from $13.0 million, and operating cash use increased. Operating expenses grew faster than revenue, while gross margin remained broadly stable.
- The September stock offering generated approximately $1.3 billion in net proceeds, and the 2027 notes generated approximately $560.1 million net proceeds. The company also issued 1.79 million shares as Invoice2go acquisition consideration.
- Total assets increased to $8.564 billion from $5.969 billion at June 30, 2021, reflecting the capital raises and acquisition accounting, among other changes.
Outlook, risks, contingencies, and unusual items
- Outlook: The filing provides no specific revenue, earnings, or margin guidance. Management expects operating costs to rise as it invests in product development, sales and marketing, customer support, compliance, and growth. It cautions that results may fluctuate and that recent growth may not indicate future performance.
- Acquisition and integration: Invoice2go contributed $1.3 million of revenue and a $5.0 million net loss from acquisition through quarter-end. Its preliminary purchase accounting included $585.4 million of goodwill; the company said that goodwill was not expected to be tax-deductible. Integration, realization of expected synergies, and international operations are identified risks.
- Convertible notes: The 2025 notes’ conversion condition was triggered, creating possible cash settlement needs and a current-liability classification. The company also identifies liquidity, dilution, and refinancing risks associated with conversions and debt obligations.
- Credit, funding, and customer funds: The business bears credit and fraud exposure from card receivables and payment activity, and depends on bank partners and third-party financing arrangements. It reported a $3.7 million allowance for acquired card receivable losses. Customer funds are invested subject to liquidity, interest-rate, market, and credit risks.
- Contingencies: Litigation reserves were described as immaterial, and management reported no legal proceedings expected to have a material adverse effect. Authorized card transactions not yet cleared totaled $28.7 million and were not recorded on the balance sheet; the company has a contractual obligation to purchase those receivables.
- Internal controls: Disclosure controls were deemed ineffective because a material weakness identified in fiscal 2021 related to Divvy acquisition accounting had not been remediated by September 30, 2021. Invoice2go was not included in the quarter-end internal-control assessment while it was being integrated.
- Other risks: The filing highlights competition, regulatory and licensing requirements, cybersecurity and operational risks, COVID-19 uncertainty, low interest rates affecting interest earned on customer funds, and dependence on accounting-firm, financial-institution, and technology partners.
Important facts for investors to verify
- How much of revenue and payment-volume growth reflects underlying business performance versus Divvy and Invoice2go acquisitions, and whether acquisition-related costs and amortization will continue to weigh on margins.
- The status and potential timing of 2025-note conversions, related cash-settlement capacity, and the effects of the notes and capped calls on dilution.
- Whether the Divvy-related material weakness is remediated and whether the expanded company’s internal controls remain effective as acquisitions are integrated.
- The quality and performance of card receivables, credit-loss provisions, access to financing, and the company’s ability to meet obligations involving customer funds.
- Whether the company can convert rapid revenue growth into improved operating results and cash flow; the filing provides no specific forward financial guidance.