Q4 Earnings

Overview. provides AP and AR on a cloud based payment platform primarily for Small and Medium Sized Businesses (SMBs). They reported Q4 and Fiscal year-end earnings on 8/27. It has a MC of $7.9 billion and went public in 12/2019. While not as widely held by this board, a few of us own or follow it. It is currently my #2 position in my taxable account (behind FSLY).

Their total revenues increased to $42.1 million and $157.6 million for the quarter and year respectively. That represents a YOY increase of 33% (quarter) and 45% (annual). As pointed out before, their revenue is broken into core (SaaS and transaction based) and float revenue. Core revenue was $38.8 million (up 54% for the YOY Qtr) and $136.4 Million (up 59% annually). Gross Margins continue to improve and are 76% GAAP and 78.6 Non-GAAP. Their net loss is improving. They have cash of $697 million and almost no debt. A big part of this quarter covered the worst of COVID. They noticed a “trough” of payment early in the quarter, but also noticed a big pick up in the final weeks (perhaps getting current on bills). In general, they saw improving trends. They also noted that AP/AR is not discretionary spending for SMBs. It needs to happen.’s pitch is that they can do it a lot cheaper and much more efficiently.

TAM. Their solution targets the more than 6 million SMBs. At the end of the quarter, they increased their customers from Q3 to 98,100 from 91,400 (+28% from Q3). They have about 1.6% of the TAM. As for electronic payments, SMBs still process 90% of their payments using paper checks. So, they have a long runway. While they did offer a limited free trial, it seems like it was de minimus at around $100,000 cost of revenue.

SaaS Revenue Channels. They have 4 revenue channels: financial institution partners, accounting software partners, accounting firms and Direct SMB clients.
They have relationships with the three biggest SMB financial institutions (e.g., JPM, BOA, AXP). They also have relationships with others including 5 other major institutions. They announced an expansion of services to SMB clients in addition to commercial clients with one of their 3 top partners prior to the call (Previously, I speculated this was Wells, but I think it must be JPM, BOA or AXP). They announced previously that Wells Fargo added them for their treasury clients (in FY 2021). They also announced on the call a new relationship with Key Bank. They disclosed Performance Obligation (PO) Revenue (ASC606) related to the financial institution channel of $152 Million at end of Q4/2020. Of this, they expect to recognize $13 million in FY 2021. (They typically have 5 year deals with FIs.) This PO Revenue is up from $33.9 million at EY2019 or up 350% YOY.

They have relationships with numerous accounting software firms including their biggest with Intuit (Quick Books). (Note, CEO previously sold a company to Intuit and worked there prior to BILL.COM). They announced an expanded relationship with Intuit’s QuickBooks Online Advanced Program.

They increased their penetration with accounting firms. 80 of the top 100 accounting firms now use (up from 70 at EY 2019). In total 5000 accounting firms use Note, there are an estimated 45,000 accounting firms and 100,000 bookkeeping firms that could use this solution. So, my take is that they only have penetration into a bit over 10% of these firms.

They continue to acquire and serve SMBs directly. The TAM is 6 million SMBs. While SMBs are their target market, they are putting additional focus on the larger SMBs which they call the mid-market
they define as $10 to $100 million in revenue companies. These mid-market SMBs tend generate more SaaS fees and bigger transaction revenues. They added a number of SMB clients last quarter with the WFH issues. They noticed a shortening of the build out phase because SMBs needed it, and new SMBs were integrated and up and running within weeks.

Analyst asked whether their increased revenues are attributable to building out more AR work vs their original/traditional AP work. Answer, no. AR is increasing, but AP continues to increase at pace because of word of mouth and partners. My take, AP is still growing strong and continues to have a strong growth cycle on par with new revenue stream growth cycle.

Transaction Revenues. In addition to SaaS revenue, they also receive transaction based revenue. They also receive a premiums or additional revenue for (a) overseas payments – a premium flat fee per transaction I believe, (b) ad valorem revenues from processing payments in foreign currency (FX), and (c) additional fees related to payments made by/with virtual cards. Lots of discussion on the Cross Border payments to international suppliers because of the higher revenue/margin opportunities especially with FX and VC fees. Also, a large TAM is available.

Currently, only 25% of their cross border payments are made in local currency. They would like to see this approach 50% or more. Recently, they enabled suppliers to choose whether they want in FX rather than USD. Previously, it was solely up to payor. On the higher margin VC, only 1% of the total payment volume was VC. They believe this can get to 10% based on mastercard surveys and other info, but still relatively new offering from BILL.

Some numbers: Payment Volume for Q4 was $25.4 billion (+26% yoy) and $96.5 billion for the FY2020 (up 35%). Transaction volume for Q4 was 5.6 million and 23.9 million for the FY 2020. 80% of these payments are recurring payments between the same customers and suppliers. They now have 2.5 million “network members” (customers, suppliers etc).
I also note again that there is a barrier to entry (and ongoing GA cost as they noted) of being a licensed payment provider in all the different jurisdictions.

Float Revenue. BILL receives interest float on cash that it holds. Currently, the interest rates are at an all-time low. This impacts (negatively) the total revenue and margin comparisons and growth rates. Depending on interest rates, it looks like it has been between 5-10+% of their total revenues. It is expected to be only 5% of TR next quarter. For example, float revenue was $21.2 million for YE2020; Q3 was $5.1 million; Q4 was $3.3 million and Q1 2021 is projected to be only $1.8 - $2.0 million. It is a nice safe revenue stream, but I back it out of my growth and margin outlook.

Q1 2021 Projections and Retention Rates. I think they are conservative in their projections and look to be about 10% lower that top end projections historically. They project TR of $41-$42 million of which $39.2-$40 million of core and $1.8-$2.0 of float revenue. In that, they noted that they experience lower revenues around tax season for accountant channel and because of the push back in tax season they see a slowdown for Q1.

Customer retention rate was 82% (I believe this excludes FI Channel). (Note SMBs’ inherent risk play a role here. Likewise, covid-19 probably forced some closures.) They also noted that this rate may go down as they transition to getting bigger business – they add fewer/bigger businesses and lose more but comparatively smaller businesses. BILL’s net retention rate however was a strong 121% (up from 110% yoy). They want this number to be above 100%. They believe some of the increase was due to an increase in SaaS fees (which are related to improvements and adds on the platform vs. regular price increases) as well as some of the variable transaction pricing revenue.
Overall Thoughts. My take is that BILL is still in a big growth stage. They have a great platform that is widely accepted in the US for SMBs by the key partners as well as a segment of the SMBs directly. They seem to have a huge runway to capture SMB business for a non-discretionary function (AP/AR). They seem to be doing everything to making sure that they are the best platform for their customers. They also appear to be responsive in developing new solutions for their costumers and turning them into revenue streams (e.g., AR functions, FX conversion and VCard). It seems to me that they are still picking up low hanging fruit and grabbing more and more market share in a high margin business. I like the management as well.

Analysts appeared impressed by the results in Q4. The question is will the conservative Q1 2021 projections hurt the near term price of the stock. I bought a small amount of additional shares at $100 after hours during earnings call.

So far, BILL has worked out very well for me, and I currently intend to ride it out for at least the next few years.


P.S. I also built a decent size position in Sprout Social (SPT) in July (up 35.44%). I haven’t seen anyone else here mention SPT. Wonder if anyone took a look or bought in?