Bill – A high-flying Finance OS provider?
Bill – A high-flying Finance OS provider?
Company Intro & Insights of Bill’s Q1 2023 FY report
Macro, rising interest rates, fallen stocks.
Meh.
When market sentiment is depressing, there is nothing better than focusing on hot new stocks that might turn things around in the future.
One of my latest high-conviction companies is the Finance OS provider bill.
This issue will take a closer look at the company, its key financial and business highlights, and if this stock could be an interesting addition to your portfolio.
Bill at a glance
What they do
Bill provides cloud-based software that helps SMBs automate their financial processes. This includes accounts payable & receivable, spend management, and payments.
Revenue Type
Seat- and tier-based subscription revenue (25%)
Transaction Revenue, mostly recurring (68%)
Float revenue, interest rate-based (7%)
Important note: Bill is not a full SaaS business. 68% of their revenue is transaction-based, and even if that is mostly recurring, it is not as predictable as recurring subscription revenue.
Moats & Stickiness
Bill is deeply integrated into the process and system landscapes of finance departments. Their solution has a broad process coverage and high customer satisfaction. Bill also provides a sticky supplier network.
Disruptive Business Model
Bill has strong partnerships with large accounting firms and Financial Institutions, like Bank of America, American Express, and more. These partners generate new customers and pull them into the Bill ecosystem.
TAM
Not indicted in $$$, but Bill targets 300M SMBs and their payment volume in the US, and 700M globally.
Tailwinds
Cloud Migration, Automation, Digital Transformation, Data insights, and data-driven decision-making.
Latest Key Financial & Business Insights
Highlights
Total revenue was $229.9M, an increase of 94% YoY and 14.8% quarter-over-quarter
While there is some slow-down, this is still a strong result considering the current market and tough comps due to the Divvy acquisition in 2021
The highlight of last quarter: they added 14,200 customers to bill standalone, the highest sequential increase to date (9% QoQ)
Dollar-based Net Retention Rate is reported annually in Q4, but it should be around 131%. That is great in absolute and in relative terms (up from 124% a year ago)
Revenue per Transaction was $7.06, a sequential increase of 8%, up from 5.5% in Q4
bill is seeing a consistent number of transactions per customer. That’s good news because it shows us that customers continue to use the platform and transaction revenue is mostly recurring (80%)
Strong Non-GAAP Gross Margin of 85.8%, up from 83.6% a year ago
This was their first quarter of positive non-GAAP profitability:
Operating Income was $9.1M; or 4% of revenues, their highest ever
Net income was $16.9M or 7.4% of revenues, their highest ever
Operating Cash Flow was $18.15M or 7.9% of revenues, up from -$21.13M in the same quarter a year ago
Free Cash Flow was $12.01M or 5.2% of revenues, up from -$25.48M in the same quarter a year ago
EPS $0.14 cents, their best EPS to date
They reported a 12-month payback period. This is good to see: usually, you want SaaS businesses with payback periods < 12 months
bill will acquire another company to enhance its product portfolio. They signed a definitive agreement to acquire Finmark, a cash flow management software provider
They reiterated their strategy to partner up with accounting firms and large Financial Institutions. This is great because it is a strong growth and sales driver and further pulls clients into their ecosystem
3 different revenue streams create diversified income
Room for improvement:
Conservative guidance for FY2023, estimated around 70% YoY in Q2 2023 (but hey, what can we expect?)
Management commented a lot on macro softness in the near future, which did not make the market happy
Transaction revenue, even if mostly recurring, might be prone to macro softness. To some extent, the effect can be offset by increasing float revenue due to rising interest rates. Let’s see, how it will play out. Most likely, management is just being prudent
While revenue is still great in absolute terms, it did slow down compared to previous quarters, and sequentially. Growth is partially “bought” via acquisitions
The remaining performance obligations were $143.1M, a decrease of -6.3% YoY
bill has grown greatly via acquisitions (Divvy, invoice2go, etc.). That has its advantages in terms of enhancing growth and product capabilities, but these solutions now need to be properly integrated with each other. A top priority of bill for the coming months
Outlook: BILL reporting Q2 2023
bill will be reporting their fiscal year Q2 2023 results on Feb 2n, 2023. These are my expectations to maintain my conviction:
bill guided FY Q2 2023 revenue between $241.5M and $244.5M. Assuming a 9% beat of their topline guidance, I expect $266M, representing 70% YoY growth
They also provided full-year guidance last quarter, and I hope for at least a small raise in full-year guidance
I expect bill to cement its positive profitability trend. They guided for $14.5 - $17.0 Non-GAAp net income. I’d also expect a similar 9% beat here and hope for $18.5M
I am also looking forward to some positive surprises thanks to their record customer add in Q1 2023 materializing on revenue and profitability
Let’s see, what the next earning season will bring.
Happy Investing Score: 4/5
Business strategy & trajectory: 5/5
Growth, Revenue & Scalability: 4/5
(Trend to) Profitability: 2/5
Customer activity & satisfaction: 4/5
Product & Market: 4/5
Key Takeaways
Bill has been performing and delivering great results consistently and for many quarters in a row. That is remarkable. Especially in the current environment.
I gladly remain invested with a 15-ish % position, due to:
Consistent high growth, even if partially due to acquisitions
First profitable quarter, and a clear trend toward profitability
Strong market position and powerful partners and ecosystem
Large TAM and long-term growth opportunity
There is a lot to like about Bill.
Happy Investing! ✌️
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Sources: Investor Relations Website of bill, especially FY Q1 2023 earnings
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Please note: The text is based on the information available at the time. Investment decisions can change at any time based on new information.