So let me be frank, I thought that BILL would have produced better results than they actually did yesterday.
Still, they delivered the goods, especially on cash flow, and they provided commentary of a very long runway ahead. Kinda like a steamboat. It definitely lost the feel and excitement of a hypergrowth story. Here are the numbers to kickstart the discussion about the quarter and the stock.
Revenue
| Revenue $m | Q1 | Q2 | Q3 | Q4 | QoQ Q1 | Q2 | Q3 | Q4 |
|---|---|---|---|---|---|---|---|---|
| 2020 | 28.5 | 39.1 | 41.2 | 42.1 | 37.2% | 5.4% | 2.2% | |
| 2021 | 46.2 | 54.0 | 59.7 | 78.3 | 9.7% | 16.9% | 10.6% | 31.2% |
| 2022 | 116.4 | 156.5 | 166.9 | 200.2 | 48.7% | 34.5% | 6.6% | 20.0% |
| 2023 | 229.9 | 260 | 272.6 | 296 | 14.8% | 13.1% | 4.8% | 8.6% |
So revenue growth was strong and accelerated from Q3, but it was also supposed to be a seasonally stronger quarter (see the bold qoq rates from prior years), so I was left a little disappointed.
Subscription revenue
| Sub revs $m | Q1 | Q2 | Q3 | Q4 | QoQ Q1 | Q2 | Q3 | Q4 |
|---|---|---|---|---|---|---|---|---|
| 2020 | 19.9 | 22.3 | 23.6 | 12.1% | 5.8% | |||
| 2021 | 25.9 | 26.6 | 29.3 | 31.2 | 9.7% | 2.7% | 10.2% | 6.5% |
| 2022 | 37.0 | 49.2 | 52.2 | 55.2 | 18.6% | 33.0% | 6.1% | 5.7% |
| 2023 | 58.1 | 61.5 | 66.7 | 66.9 | 5.3% | 5.9% | 8.5% | 0.3% |
Yikes - subscription revenue only increased marginally qoq, up by all of $200,000. But management had an explanation: BofA’s small customers left the platform, as is part of the master plan, and growth will continue to be lower due to contractual changes to the BofA agreement for the full 2024 - BUT in 2025 - then we’ll see massive benefits from BofA. So while the explanations seemed sound, the whole BofA thing sounded like jam tomorrow in a jam today environment to me. So again, I was left a little disappointed.
Transaction revenues
| Trans revs $m | Q1 | Q2 | Q3 | Q4 | QoQ Q1 | Q2 | Q3 | Q4 |
|---|---|---|---|---|---|---|---|---|
| 2020 | 13.1 | 13.8 | 15.2 | 5.3% | 10.1% | |||
| 2021 | 19.2 | 25.7 | 29.3 | 46.3 | 26.3% | 33.9% | 14.0% | 58.0% |
| 2022 | 80.6 | 106.3 | 113.3 | 139.6 | 74.1% | 31.9% | 6.6% | 23.2% |
| 2023 | 156.5 | 169.6 | 172.8 | 192.6 | 12.1% | 8.4% | 1.9% | 11.5% |
Same as overall revenues, this was up vs the prior Q, but less than what I was hoping for. SMB customers just didn’t spend that much…and management thinks that’ll be the story for the whole of next year too…
Float revenue
| Float revs $m | Q1 | Q2 | Q3 | Q4 | QoQ Q1 | Q2 | Q3 | Q4 |
|---|---|---|---|---|---|---|---|---|
| 2020 | 6.1 | 5.1 | 3.3 | -16.4% | -35.3% | |||
| 2021 | 1.1 | 1.7 | 1.1 | 0.8 | -66.7% | 54.5% | -35.3% | -27.3% |
| 2022 | -1.2 | 1.0 | 1.4 | 5.4 | -250.0% | -183.3% | 40.0% | 285.7% |
| 2023 | 15.3 | 28.9 | 33.1 | 36.5 | 183.3% | 88.9% | 14.5% | 10.3% |
This was up nicely and as expected - no surprise for me here; rates were higher in this quarter than last - if float revenue wasn’t up, I would have been disappointed. So nothing really to see here. They got some free revenue and margin, as was to be expected.
→ So overall on the top line I was left slightly disappointed, and for the guide - which was exactly equal to the average analyst forecast (as if the CFO might just have had access to that data point!) - the maximum that they could derisk the forecast - I was also left a bit let down.
On to margins, where things looked better.
Operating margin (excluding float revenue):
| Op % | Q1 | Q2 | Q3 | Q4 |
|---|---|---|---|---|
| 2020 | -12% | -10% | -9% | -1% |
| 2021 | -5% | -3% | -4% | -8% |
| 2022 | -10% | 2% | -3% | -2% |
| 2023 | 4% | 12% | 13% | 14% |
→ Again no shooting out of the lights here, but steady progress. Operating margin increased by 1%pt for each of the last 3 quarters. They are showing some operating leverage. But nothing like Monday, for example.
Free cash flow
| FCF% | Q1 | Q2 | Q3 | Q4 |
|---|---|---|---|---|
| 2020 | -15.8% | -7.4% | -5.1% | -16.6% |
| 2021 | -18.6% | -32.0% | -9.0% | 18.8% |
| 2022 | -22.2% | -10.3% | 13.6% | -7.4% |
| 2023 | 5.2% | 18.5% | 8.6% | 24.6% |
→ Free cash flow margin popped very nicely, driven by float revenue (as the operating margin improvement wasn’t that big).
Customers
Given all the ways that they slice and dice customers, I put it in a graph to see if it made more sense to me (it didn’t really). Even though the only customers contributing meaningfully to revenue are Bill and Divvie, the rest shows a picture of potential for cross-sell in the years ahead; something which they’ve only started to do. So a positive here for the future again. Anyhow here’s the graph - and it is nicely up and to the right, is probably the main takeaway. Looking a bit closer does show nice positive: Divvie customer growth - which brings in 3x the revenue of a Bill customer (and to be fair then costs half of what is brought in as marketing expense, so probably more 1.5x) continued the upward trajectory, albeit at a slower pace.
My take
Bill continued to deliver the goods and put down the most de-risked guide that it could do without upsetting analysts. Free cash flow popped and will likely remain there, and they have a plan to continue to do well in the years ahead.
However this quote by the CEO probably summed it up for me:
“And so I think – how we think about this is that the market is maturing. There’s more competitors coming into the space and we are leading, we’re defining and folks are looking to us to follow, and we don’t look to anybody to follow.”
I will probably reduce my position from currently being overweight BILL. [edit: I sold my entire position on Friday; I agree with all the posters below]
-wsm