BILL Discusses Impact of Silicon Valley Bank Closure
03/11/2023
SAN JOSE, Calif.–(BUSINESS WIRE)-- BILL (NYSE: BILL) today issued the following statement.
Today, the California Department of Financial Protection and Innovation (DFPI) closed Silicon Valley Bank (“SVB”) and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. While Bill Holdings, Inc. (the “Company”) has funds with SVB, the significant majority of our corporate cash and processed payments are with numerous large, multinational financial institutions. When we received notice of SVB’s closure, we promptly redirected payments to be made through SVB to one of our multinational bank processors. The Company is no longer using Silicon Valley Bank to process payment transactions for our customers.
According to the FDIC, all insured depositors of SVB will have full access to their insured deposits no later than Monday morning, March 13, 2023. In addition, the FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will be issued a receivership certificate for the remaining amount of their uninsured funds. As the FDIC sells the assets of SVB, future dividend payments may be made to uninsured depositors. Information on the SVB receivership from the FDIC can be found here.
While the Company continues to assess the potential impacts associated with SVB’s closure, we are providing the following preliminary information as of March 9, 2023:
The Company has total corporate cash, cash equivalents, and short-term investments of approximately $2.6 billion held at multiple financial institutions. Of this amount, approximately $300 million is held at SVB. These corporate deposits with SVB are largely uninsured, and it is unclear how much of this cash will be unrecoverable.
The Company has total cash held in trust on behalf of our customers (“FBO Funds“) of approximately $3.3 billion, held at multiple financial institutions. Of this amount, approximately $370 million is held at SVB. While the amount of FBO Funds that will be recoverable and timing of recovery is currently uncertain, we believe a significant portion will ultimately be recoverable. This assessment is based on information from the FDIC indicating that all outstanding checks issued from SVB accounts will be honored. In addition, up to $250,000 of each BILL customer’s funds held in our FBO account may be recoverable through FDIC’s pass-through insurance.
In the event of uninsured FBO Funds, it is our intention to utilize corporate cash to ensure pending payment transactions through SVB are processed successfully.
Regardless of the amount of funds recovered from SVB and FDIC, the Company strongly believes that its existing cash, cash equivalents and cash flow from operations are sufficient to meet its working capital, capital expenditures, and material cash requirements from known contractual obligations.
Yes… Of nearly $6B (aka 11.4% of funds)… which does not seem substantial and in no way puts them in any jeopardy … plus is in large part insured ($250K per SMB cust). They have time to let the FDIC and potential buyer get figured out….
The actual amount at risk is very likely to be far lower than $670 million. I managed a multi billion dollar liquidity portfolio for a large fund for many years and no such firm leaves large deposits just sitting in cash overnight at a bank (usually earning nothing). Most likely a substantial portion of this amount was invested in money market instruments like treasury bills and commercial deposits. These investments are bankruptcy protected if held in the right type of a custody account. I would hope that Bill, as an expert in liquidity management would ensure that was the case with their deposits. The only issue will be the amount time to recover these funds and get a final tally of actual loss, if any. There will be some lost interest on those deposits as well which may hurt earnings.
I am frankly disappointed that Bill had such a large exposure to SVB. To many this failure may have come from nowhere but to someone who is so deeply steeped in the interbank financial flows as Bill this should not have come as a surprise. At the very least they should have cut off any ACH flows starting Thursday when SVB stock crashed which would eliminate all their exposure by now. I know how emotionally difficult it is to cut off your financial partners when their solvency is at risk but it is 101 of risk management. I assumed Bill would have done that days if not weeks prior to this failure. Since they did not do that, I hope at the very least they are competent enough to have minimized their unsecured exposure to the absolute minimum. Only time will tell however. They may be another fintech company that has far less than ideal understanding of how financial markets work, like our friends at Upstart.
I’m impressed by the depth of your knowledge on the specifics, but to us laymen this is a huge sigh of relief. When other companies are having trouble making payroll, and will rightly suffer real struggles due to this debacle, BILL has assured us that there isn’t a life-threatening risk to them as a company.
However not ideal this is, my feeling is that the sell-off of BILL was overdone, given that this is more “blip in the road” territory than a systemic risk to BILL.
When I add on the fact that BILL was already in FUD (fear, uncertainty, doubt) territory after a short report earlier in the week, plus the general malaise in the market, I’m actually pretty optimistic about the stock. But more importantly, my confidence in the company hasn’t changed.
The Below chart shows EV / NTM revenue multiple divided by NTM consensus growth expectations, provided yesterday by Jamin a ball. He says that the goal of this graph is to show how relatively cheap / expensive each stock is relative to their growth expectations. image|666x500](upload://6l28k2mYS2lIal6IoFkdytkOYii.png)
Consensus Expectations
(EV / NTM revenue)/ (Consensus NTM Rev)
According to the above graph, when/if looking at Analyst estimates,
Among My Companies of interest, In the above graph:
Datadog shows the least room to surprise the Market.
Then MongoDB
Then Cloudflare, just above the line
And Snowflake, at the line.
Below the line, in descending order is Crowstrike, Zscaler, Monday, Bill, then
SentinelOne has the most room to surprise.
I’m assuming that Jamin Ball gathered his data prior to the SVB and other FUD effecting Bills Share price.
I don’t recall any larger disconnect between how we value companies and how Mr. Market does. I’ll say it, ‘we the smart money’ can take advantage of this.
I really like your way of using these tables, which have otherwise proven interesting but of no practical value to me. Then the question becomes one about assessing the individual company on the basis of traits not obviously accessible to algorithms. So here TMF-style qualitative analysis, including the intangible “great CEO” component (TTD, CRWD for example) help as does one’s view of a company and a sector based on one’s take on the salvo of calls.
I am watching S for potential immediate re-entry after the coming call and I would not consider DDOG and BILL until I see the next results.I sold with an eye on the wash rules so I am all in position to repurchase if they [edit: S] report as we all hope they would (I for one wish the best to all of these companies, including BILL, even if I am not “in” at a specific moment).
In a joint statement Sunday, Treasury Secretary Janet Yellen, Federal Reserve Chair Jerome Powell and Federal Deposit Insurance Corporation Chairman Martin J. Gruenberg said the FDIC will make SVB and Signature’s customers whole. By guaranteeing all deposits – even the uninsured money that customers kept with the failed banks – the government aimed to prevent more bank runs and to help companies that deposited large sums with the banks to continue to make payroll and fund their operations.
The Fed will also make additional funding available for eligible financial institutions to prevent runs on similar banks in the future.
“A deal has been agreed for HSBC to buy the UK arm of the failed US Silicon Valley Bank (SVB), the government has announced.
…Noel Quinn, HSBC Group chief executive, said UK customers of SVB could “continue to bank as usual, safe in the knowledge that their deposits are backed by the strength, safety and security of HSBC”.”
Oh my… what a weekend. As if BILL wasn’t complicated enough.
Just to emphasize an important part of the joint statement:
[…], Secretary Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, California, in a manner that fully protects all depositors. Depositors will have access to all of their money starting Monday, March 13.
Even though the government has now stepped in, the timing of the payments in process may take a few extra days. We continue working with our financial and regulatory partners to make sure all future actions we take will minimize the impact to our customers.
In the meantime, we have identified customers who could experience payment delays as a result of SVB’s closure. We are proactively communicating directly with these customers.
If anyone wants a (preliminary) positive take on all this from me, it would be that BILL has demonstrated their ability to quickly navigate around and handle an extraordinary situation. While there are still things to be sorted out and we don’t know how they’re communicating with their customers, we can compare this:
To provide a bit more context, with BILL’s significant scale, we have intentionally built multiple relationships with banks to ensure we can service the scale of our operations. This diversified portfolio of multinational processing banks processes the significant majority of our payments. BILL also processes payments with SVB, and when we received notice of SVB’s closure, we promptly redirected payments to one of our multinational bank processors. As of today, any new BILL payment scheduled by our customers will be processed by this multinational bank.
We are committing that for any pending transactions BILL processed through SVB, we will stand behind them to ensure they are processed successfully.
