My take on BILL after Q3 ER

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At this moment, BILL was down 16% AH - this is totally non-sense and I believe the loss will be recovered in tomorrow’s normal hour trading.

Here is my brief take on BILL’s Q3 ER (CC transcript is not released yet, will add later).

The good:

  1. Next quarter revenue guidance is very strong, even stronger than what I expected in my model. They guided for 134.1% for Q4 - remember that Q4 will have one month Divvy revenue lapped, so BILL will have one month Divvy revenue reported as part of organic revenue in Q4.

  2. FCF 22.8m - the highest ever for BILL in history in a quarter, 13.7% FCF margin.

  3. New bill.com customer add (this doesn’t include Divvy & in2go) - they added 11,600 new customers, much much higher than 6,400 a year ago and 8,200 last quarter.

  4. Transaction revenue Take rate for both organic and inorganic are steadily increasing.

The not so good:

  1. Total revenue QoQ growth is 6.65%, weaker than 10.56% a year ago but better than 5.37% 2 years ago. Remember that BILL had a blowout quarter in Q2 (QoQ 34%), so Q3’s QoQ comparison is extremely tough.

  2. Organic core revenue growth (guess most investors are looking at this metric) 102.1m, YoY 74.2%, down from 85.1% last quarter but still much better than 62.3% a year ago. QoQ growth 5.3%, much weaker than a year ago (11.8%), again tough comparison is in play here. Same we could find in Organic transaction revenue growth, YoY decelerate to 101% with QoQ up 3.7%, both weaker than a year ago quarter.

  3. Both total TPV and organic bill.com TPV QoQ faced tougher comparison than a year ago, down slightly QoQ vs flat a year ago.

  4. Divvy revenue YoY decelerate to 155% from 188% last quarter but man 155% is still a massive growth. (Not sure about Divvy’s YoY revenue seasonality cause we don’t have Divvy YoY growth number a year ago)

Now, a secret sauce:
Not sure if everyone has been aware of this - Divvy acquisition was closed on Jun 1, 2021, so next quarter Q4 the organic core revenue growth will include one month Divvy revenue and from Q1 FY2023 onwards, Divvy will be fully considered as organic core revenue! Keep in mind that even Divvy might slowly decelerate to 155%, their standalone growth is still way way higher than bill.com organic core revenue growth, based on this quarter’s revenue figure, Divvy might be around 35% of total core revenue based on my estimation and with a 35% of core revenue growing at 155% and remaining 65% of core revenue growing at 74%, I would say we will see organic core revenue growth (oh, from Q2 2023 onward, BILL may remove the term “organic” after fully lapped) will further accelerate to 80%+ (or at least keep at ~75% for many quarters to ago).

Zoro

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My further take after reading their Q3 CC transcript:

  1. Divvy is now exclusive partner for CPA.com.

  2. BoA channel is now available for all 50 states and basically is the single largest contributor for BILL’s massive 11,600 new customer add this quarter. BTW, BILL’s strength against all other players in the industry is really the DISTRIBUTION and this is their true moat and very difficult to be disrupted. Management was saying: “We’ve been building this multichannel distribution strategy for a long time. We’re unique in the way that we go to market with our direct accountant and financial institution partners. And all channels delivered great results this quarter.” "the Bank of America offering where we are the default solution for their new small business customers when it comes to bill pay. "

  3. On Inflation. Management was saying “Because Bill.com provides visibility into spend and cash flow, our platform gives businesses looking for cost efficiencies, the tools to redirect resources where they are needed most in the current environment.”, hence BILL will become even more mission critical to their customers in inflation environment. When analyst asked about how inflation impacted their customers, this is what the management said: “we’ve seen very minimal immaterial impact from inflation environment. What I would note is that in an inflationary environment businesses and small businesses we know are resilient.”

  4. On interest rate. Management was saying “Assuming recent FBO balances of $3 billion to $3.5 billion, every 100 basis points increase in the Fed funds rate would result in approximately $30 million to $35 million in incremental annual float revenue”, and even more directly, they said “The net of these moving parts is that, rising interest rates is a significant tailwind for Bill.com.”

  5. Management believed organic TPV 55B was an expected seasonality as shared per Q2 CC.

  6. On strong Q4 guidance, management was saying “I think excited about the growth prospects ahead and feel good about the fourth quarter in our fiscal year.” “The business is healthy. The fundamentals are strong. We’re really happy with the growth that we delivered in the quarter in particular the organic strength. And I think our guidance implies going forward that we expect additional growth.” (BILL expected additional T&E spend from Divvy platform)

I see this was an excellent call and I believe you might be difficult to find a SaaS company sees “no impact from inflation” and “rising interest rates is a significant tailwind”.

I will add into my BILL positions in the premarket today.

Zoro

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The not so good:

  1. Total revenue QoQ growth is 6.65%, weaker than 10.56% a year ago but better than 5.37% 2 years ago. Remember that BILL had a blowout quarter in Q2 (QoQ 34%), so Q3’s QoQ comparison is extremely tough.

In the mean time, sales and marketing spend has increased from 25% a year ago to 55% this quarter (S&M% of total revenue)

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Herrie,

that is a fair point you make regarding the increased % of sales costs but I think it must also be seen in the context of (1) the company is in hyper growth (also probably marketing its acquisitions’ capabilities to its customers), and (2) the FCF generated is fast increasing

Long BILL

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The good:
1. Next quarter revenue guidance is very strong, even stronger than what I expected in my model. They guided for 134.1% for Q4 - remember that Q4 will have one month Divvy revenue lapped, so BILL will have one month Divvy revenue reported as part of organic revenue in Q4.

Maybe I’ve missed something, but there seems to be a discrepancy in the Q4 and FY guidance in the Q4 earnings Press Release.


1Q22	$116.4 
2Q22	$156.5 
3Q22	$166.9 
4Q22	$183.3 (guidance high-end)
**Total	$623.1 (vs. FY guidance at the high-end of $625)**

If we take the FY guidance as correct, Q4 guidance should rather be $185.2, which would be 11% QoQ, not 9.8%.

Applying the same low beat as seen in Q3 (6.6% actual - 1.0% guided = 5.7%) gives 16.7% QoQ, which is a very decent floor for the next quarter, which bodes well as BILL’s guidance is typically quite conservative.

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In the mean time, sales and marketing spend has increased from 25% a year ago to 55% this quarter (S&M% of total revenue)

This is not correct:

Revenue: $363M
Non-GAAP S&M: $85.26 = 23.5% revenue
GAAP S&M: $101.16 = 27% revenue

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In the mean time, sales and marketing spend has increased from 25% a year ago to 55% this quarter (S&M% of total revenue)

One thing to keep in mind is that BILL puts the rewards costs for Divvy (when you use the card you get rewards like cash back) in the S&M category. Those costs did not exist a year ago. I think they should be putting those in cost of goods sold, so they should go against gross margin, but they don’t. Just something to keep in mind when you read their reports.

  • Justin
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