BILL Q1'23 beats and Guides potential for soft customer spend

[CMFSircc]

BILL’s Mission Statement is to make it simple to connect and do business.

‘We make paper-based manual transaction processing obsolete by transforming how our customers manage their cash inflows and outflows, creating efficiencies and freeing our customers to run their businesses.’

Highlights from Q1’23 Earnings Report

• Core Revenue are up 83% YoY
• Total Revenue up 94% YoY
• Acquiring Finmark, a Financial Planning and Analysis Software Company
• They beat their own (and Others) expectations for revenue, non-GAAP gross margin, and non-GAAP net income
• Record Customer additions this quarter

Let’s see what the CEO and CFO have to say about this great quarter and review some detail from the earnings report.

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BILL Reports First Quarter Fiscal Year 2023 Financial Results
November 3, 2022

“We delivered excellent results in the first quarter. Revenue grew in excess of 90% year-over-year, we achieved non-GAAP profitability, and we had a record number of customer net adds for the quarter,”

said René Lacerte, BILL CEO and Founder.

“Our solutions are helping more than 400,000 businesses manage their financial operations, empowering them with more control and cash flow visibility while giving them more time to run their businesses. With our platform, ecosystem, and scale, we are well positioned to help millions of SMBs automate their financial back office.”

Financial Highlights for the First Quarter of Fiscal 2023:

The financial measures listed below identified as BILL standalone exclude the results of Divvy and Invoice2go.

• Total revenue was $229.9M, an increase of 94% year-over-year.

• Core revenue, which consists of subscription and transaction fees, was $214.6 million, an increase of 83% year-over-year.

• Gross profit was $184.8 million, representing an 80.4% gross margin, compared to $88.5 million, or a 74.8% gross margin, in the first quarter of fiscal 2022.

• Non-GAAP gross profit was $197.2 million, representing an 85.8% non-GAAP gross margin, compared to $98.9 million, or a 83.6% non-GAAP gross margin, in the first quarter of fiscal 2022.

• … Non-GAAP net income was $16.9 million, or $0.14 per diluted share, compared to non-GAAP net loss of $12.1 million, or ($0.13) per share, basic and diluted, in the first quarter of fiscal 2022.

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Total revenue was $229.9M beat both the analysts and BILL’s estimates and non-GAPP earnings per share of $0.14 also beat analysts and BILL’s estimates.

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“We delivered great first quarter financial results, with revenue, non-GAAP gross margin, and non-GAAP net income well ahead of our expectations,”

said John Rettig, BILL CFO.

“Looking ahead, we expect to deliver strong revenue growth and non-GAAP profitability in fiscal year 2023, while continuing to invest in our platform to create more value for SMBs.”

BILL Reports First Quarter Fiscal Year 2023 Financial Results

Now let’s look how Divvy and Invoice2go have contributed to growth compared to BILL standalone.

Business Highlights and Recent Developments

The metrics listed below identified as BILL standalone exclude the results of Divvy and Invoice2go.

• Served 419,800 businesses using our solutions as of the end of the first quarter. This includes 172,000 BILL standalone customers, 22,800 spending businesses that used Divvy, and **225,100 subscribers that used Invoice2go.

• Processed $64.9 billion in total payment volume in the first quarter, an increase of 34% year-over-year. This includes $61.6 billion of total payment volume on our BILL standalone platform, an increase of 31% year-over-year, and $3.0 billion in total card payment volume for Divvy, an increase of 103% year-over-year.

• Processed 19.6 million transactions during the fourth quarter, an increase of 45% year-over-year. This includes 10.8 million transactions on our BILL standalone platform, representing an increase of 23% year-over-year, and 8.5 million Divvy card transactions, an increase of 83% year-over-year.

[Q1 FY23 Investor Deck]
https://investor.bill.com/files/doc_financials/2023/q1/BILL-IR-DECK-Q1’23.pdf

Summary

• Lots of “congrats on the great quarter” on the conference call Q&A
• They beat their own expectations for revenue, non-GAAP gross margin, and non-GAAP net income
• Hired Loren Padelford, as their first Chief Commercial Officer.
• Added Alison Wagonfeld, Google Cloud Chief Marketing Officer, to the board
• Acquiring Finmark financial planning and cash flow insights software company
• Management did mention during the conference call that they notice that the ‘spend habits’ of customers are softening in reaction to economic pressures.
• They also say that they have the tools to handle and adapt to any economic scenarios.
• Strong and healthy customer base.
• Record Customer additions this quarter.

Click on any highlighted Blue words for more information.

Fool ommmm, kevin c
long of Bill.com Holdings, Inc.
please click my screen name for disclosed holdings

[sjo]

Here are my notes from the Analyst Q/A portion of the earnings call.

BILL Earnings Call Analyst Q/A -Q1 FY 2023
CEO –Rene’ Lecerte
CFO -John Rettig

Q Moderated payment volume around smaller customer cohort and what you expect to happen in this regard in the future. How will this be impacted if we do see a severe economic downturn.
A The demand is healthy. Q4 and now difference, we’re seeing this across all business segments, people are not cutting back the spend, they’re using BILL’s products to optimize their business.

Q How will new deals you’ve signed impact future quarters?
A Instead of customer using their own FI card, they’re using BILL’s FI card. Eco system is super strong. Impact on future quarters, made a lot of progress in the FI area, helps us bring more of our products and monetization forward and most of our revenue from FI partners will have a positive impact over the intermediate term.

Q Is there something from marketing that impacted your results?
A BILL has an opportunity to manage the way they do business. This is not elective software, this is a mission critical software that allows customers to do more with less and drive through the unified platform to develop momentum.

Q Color re: Cross sell success.
A Continue to drive unified experience, brand announcement, getting more comfortable driving cross sell and see very good things in the future.

Q Acquisition -How is this the glue that brings spend mgt. and AP together?
A 1 of the things for FI’s is managing their back office and all that goes with that. Original name of BILL was Cash Board. Bill allows customers to run their business differently.

Q TPB incremental disclosure…How should we think about this in the future?
A Expecting trends observed over the last 4 months to continue, which means lower growth, which is factored into our projections and growth profile numbers.

Q Customer acquisition trends are good to see. Landscape of different tiers and what you’re seeing. Will competitors start moving in soon?
A Bill has a 16 year lead, they have 6,000 accounting firms and 6 of 10 of the top banks. Number one competitor is pen and paper and we’re focused on delivering value through automating this process for customers.

Q Do you see this being resilient through macro periods to increase take rates.
A Made great progress expanding transaction monetization driven by continued adoption and TPB growth. This lead to a step up in monetization. In the next few quarters, they expect to see lower expansion and they’re very bullish on Bill’s ability to grow.

Q Increase in transaction rate excluding DIVVY, can you say which payment types are seeing the most traction?
A Across the board with their ad valorem products and allowing the customer with choice. Real time and pay by card payments are smaller but are having a positive impact.

Q Transaction Revenue. What’s driving it.
A Invoice to go product is predominately subscription revenue. Have integrated branded payments, not yet material to business, but monetization is better than anticipated, and larger opportunity in the future will be to bill subscribers and networks.

Q SMB comments. Client growth and net adds, any change vs. 90 days ago?
A Much of script of this call is re: doing more with less, and BILL allows customers to do more with less. This demand is healthy because they have so many partners who are already doing business with BILL’s new customers and the untapped market is still strong.

Q Virtual cards issuance.
A Very proud of capability of platform and customer switched to using BILL.com to sell to their customers and it’s what the FI partner saw and that’s why they’re doing it.

Q TPV trends and how you expect to see it going forward?
A Generally see all businesses moderate their spend. Strong growth in TPV and seeing softer spend across all their customers.
Q Opportunities amidst a softening macro?
A Enabling suppliers to decide how and in which currency they want to be paid. Viewing suppliers as customers. This creates value for their suppliers re: FX rate they can get from their bank in Canada in Europe.

Q Is there a different ramp time when customers come in through FI channel vs. direct with BILL?
A Takes 3-6 months to get up in a meaningful way

Q TPV
A Appears to be in discretionary spend, such as advertising spend that small businesses use and found that spend is down across the whole universe of their small businesses. They’re being a bit more cautious re: their spend.

Q Risk management philosophy that’s engrained in the product. What’s your approach to risk management re: DIVVY.
A Underwriting, risk management that delivers a great customer experience that delivers better, more informed decisions for their customers. Feel really good about the progress they’re making.
Q Finmark -an important tool for accountants. Do you anticipate bringing in more accountants to provide this service?
A Accountants bring in customers and strategic advisory services that you can digest and CEO thinks it will help to drive client and accountant adoption.

Q Transactions vs. volume. Sensitivity of model. Impact?
A BILL does monitor engagement and transactions per customer. Customers use BILL to run their operations. BILL’s results in Q1 when volume was softer, showed that since most of their volume is in subscription fees, BILL showed that they can function in both volume based and subscription based scenarios.

Q Macro and outlook?
A Outlook represents all the information they have around recent trends, they anticipate some softness, and yet they’re not anticipating a severe economic downturn. Feel confident no matter what the macro environment does.

Q Finmark expenses and revenue.
A Small transaction, great team and fits nicely with where BILL is taking their platform. Building out the team and continuing the investment in Finmark.

Q Lumpiness and/or seasonality in future?
A Some of the historical/seasonal patterns what’s anticipated in spend, other than that, use some of the past patterns to get to Q3 or Q4 numbers.

Q For customers who are reducing their spend, if you look at ad valorem payment models, are they going backwards and how it evolves for the take rate going forward.
A Softening spend commentary particularly in discretionary spend are repeat/recurring transactions between buyers and suppliers. It’s more just the absolute spend at this point.

Q Unified platform and being able to go to market with the 3 products. How far away are we from this?
A Phases and steps require 1 team and integrating the organizations, takes one brand, which they have, and need 1 platform. They see the importance of having 1 platform and will continue to develop over the intermediate term.

Q DIVVY w/ 6 quarters of growth continues to impress. Competitors are seeing this too.
A Honing the go to market and making sure customers are getting value and in turn the customers spend money on BILL’s products.

Guidance Note per CFO: BILL’s outlook does not anticipate a severe economic downturn.
Multiple recurring revenue streams and robust product offerings that allow their customers to automate this part of their business are the main reasons for their bullishness.

sjo