BILL (US:BILL)2024-02-08 16:00Part I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Presents the unaudited condensed consolidated financial statements for BILL Holdings, Inc., including balance sheets, statements of operations, and cash flows, with detailed accounting policy notes Note 1 – The Company and Its Significant Accounting Policies The company provides a SaaS platform for payments and spend management, primarily automating accounts payable and receivable, with minimal international revenue - The Company provides a SaaS, cloud-based platform for payments, spend, and expense management, primarily automating accounts payable and receivable for its users70 - The company operates as a single operating segment, with revenue from customers outside the U.S. approximately 3% of total consolidated revenue for the three and six months ended December 31, 2023 and 202245 Note 2 – Revenue Details revenue disaggregation by source and remaining performance obligations, noting a key customer contract under discussion Revenue Disaggregation by Source (in thousands) | Revenue Source | Three Months Ended Dec 31, 2023 (in thousands) | Three Months Ended Dec 31, 2022 (in thousands) | | :--- | :--- | :--- | | Small-to-midsize businesses, etc. | $269,845 | $220,406 | | Financial institutions | $5,147 | $10,689 | | Total subscription and transaction fees | $274,992 | $231,095 | | Interest on funds held for customers | $43,503 | $28,911 | | Total revenue | $318,495 | $260,006 | - As of December 31, 2023, the company had approximately $110.0 million in remaining performance obligations, with a single customer representing about 44% of this total, and the contract is under discussion for a potential amendment84 Note 3 – Fair Value Measurement Explains the fair value measurement hierarchy for financial assets and presents a breakdown of assets measured at fair value - The company measures cash equivalents, short-term investments, and certain funds held for customers at fair value using a three-level hierarchy, where Level 1 inputs are quoted prices in active markets, Level 2 are observable inputs, and Level 3 are unobservable inputs11011185 Assets Measured at Fair Value (in thousands) as of Dec 31, 2023 | Asset Category | Level 1 (in thousands) | Level 2 (in thousands) | Level 3 (in thousands) | Total (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Cash equivalents | $993,163 | $48,706 | $— | $1,041,869 | | Short-term investments | $— | $972,621 | $— | $972,621 | | Funds held for customers | $1,449,575 | $1,075,787 | $— | $2,525,362 | | Total Assets | $2,442,738 | $2,097,114 | $— | $4,539,852 | Note 4 – Short-Term Investments and Funds Held for Customers Provides the composition of short-term investments and funds held for customers, noting unrealized losses on debt securities Composition of Short-Term Investments and Funds Held for Customers (in thousands) | Category | Dec 31, 2023 (in thousands) | June 30, 2023 (in thousands) | | :--- | :--- | :--- | | Short-term investments | $972,621 | $1,043,110 | | Funds held for customers | $3,655,435 | $3,355,909 | - As of December 31, 2023, approximately 130 out of 440 available-for-sale debt securities were in an unrealized loss position, primarily due to changes in market interest rates rather than credit issues, with no intent to sell before recovery97122 Note 5 – Acquired Card Receivables Presents the aging of acquired card receivables and discusses the provision for expected credit losses, reflecting portfolio growth and delinquencies Acquired Card Receivables Aging (in thousands) | Past Due Status | Dec 31, 2023 (in thousands) | June 30, 2023 (in thousands) | | :--- | :--- | :--- | | Current and < 30 days | $524,440 | $463,704 | | 30 ~ 59 days | $5,570 | $2,507 | | 60 ~ 89 days | $5,584 | $4,544 | | 90 ~ 119 days | $2,511 | $3,196 | | Over 119 days | $384 | $197 | | Total | $538,489 | $474,148 | - The provision for expected credit losses on acquired card receivables increased to $26.3 million for the six months ended Dec 31, 2023, up from $15.1 million in the prior year period, due to portfolio growth and an increase in delinquencies103128 - As of December 31, 2023, the company and its partner banks had approximately $2.1 billion in unused credit available to spending businesses101 Note 6 – Debt and Borrowings Summarizes the company's debt, including revolving credit facility borrowings and convertible senior notes, detailing terms and effective interest rates Debt and Borrowings Summary (in thousands) | Liability | Dec 31, 2023 (in thousands) | June 30, 2023 (in thousands) | | :--- | :--- | :--- | | Borrowings from revolving credit facility | $135,021 | $135,046 | | Convertible senior notes, net | $1,708,208 | $1,704,782 | | Total | $1,843,229 | $1,839,828 | - The company has two series of 0% convertible senior notes outstanding: $575.0 million due 2027 and $1.15 billion due 2025, with an intent to settle conversions via a combination of cash for principal and shares for any excess value153134131 - As of December 31, 2023, the company had borrowed $135.0 million against its $225.0 million Revolving Credit Facility, which matures in June 2024, at an effective interest rate of 8.31% per annum142 Note 7 – Stockholders' Equity Details stock-based compensation by award type and reports on the completion of the company's share repurchase program Stock-Based Compensation by Award Type (in thousands) | Award Type | Three Months Ended Dec 31, 2023 (in thousands) | Three Months Ended Dec 31, 2022 (in thousands) | | :--- | :--- | :--- | | Restricted stock units (RSUs) | $57,495 | $101,266 | | Stock options | $2,784 | $13,117 | | Performance-based awards | $4,253 | $3,157 | | Employee stock purchase plan | $1,462 | $2,961 | | Market-based RSUs | $1,415 | $1,254 | | Total | $67,409 | $121,755 | - The company completed its $300.0 million share repurchase program as of December 31, 2023, having repurchased 2.7 million shares for $196.7 million during the three months and 2.9 million shares for $212.7 million during the six months ended December 31, 2023170146 Note 8 – Other Income, Net Provides a breakdown of other income, net, including interest expense and interest income Components of Other Income, Net (in thousands) | Component | Three Months Ended Dec 31, 2023 (in thousands) | Three Months Ended Dec 31, 2022 (in thousands) | | :--- | :--- | :--- | | Interest expense | $(4,753) | $(3,562) | | Interest income | $33,781 | $20,910 | | Other | $(109) | $(326) | | Total other income, net | $28,919 | $17,022 | Note 9 – Income Taxes Reports the income tax provision, primarily driven by estimated cash tax liability from R&D capitalization, offset by deferred tax liability reduction - The income tax provision for the three and six months ended December 31, 2023, was approximately $1.7 million and $2.2 million, respectively, primarily due to an estimated cash tax liability from R&D cost capitalization, partially offset by a reduction in net deferred tax liability from current year losses171201 Note 11 – Restructuring Details the restructuring plan announced in December 2023, including workforce reduction and office closure, and associated expenses - On December 5, 2023, the company announced a restructuring plan involving a reduction of its global workforce and the closure of its Sydney, Australia office, expected to be substantially completed by June 30, 2024175 - For the three and six months ended December 31, 2023, the company recorded restructuring expenses of $25.1 million, which included $3.4 million of stock-based compensation203 Note 12 – Net Loss Per Share Attributable to Common Stockholders Explains the calculation of net loss per share, noting the exclusion of potentially dilutive securities due to their anti-dilutive effect - Potentially dilutive securities, including 7.8 million shares from RSUs and stock options, were excluded from the diluted net loss per share calculation as they would have been antidilutive176204 - Approximately 8.5 million shares underlying the conversion option of the Convertible Notes are not included in the diluted net loss per share calculation as they would be anti-dilutive177 Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2023 (in thousands) | June 30, 2023 (in thousands) | | :--- | :--- | :--- | | Total Current Assets | $6,956,047 | $6,673,164 | | Total Assets | $9,872,411 | $9,636,018 | | Total Current Liabilities | $4,118,192 | $3,753,436 | | Total Liabilities | $5,920,566 | $5,550,049 | | Total Stockholders' Equity | $3,951,845 | $4,085,969 | Condensed Consolidated Statements of Operations Highlights (in thousands, except per share amounts) | Metric | Three Months Ended Dec 31, 2023 (in thousands) | Three Months Ended Dec 31, 2022 (in thousands) | | :--- | :--- | :--- | | Total Revenue | $318,495 | $260,006 | | Gross Profit | $260,118 | $212,539 | | Loss from Operations | $(67,674) | $(112,463) | | Net Loss | $(40,421) | $(95,076) | | Net Loss Per Share (Basic & Diluted) | $(0.38) | $(0.90) | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Provides management's analysis of financial condition, operational results, key business metrics, liquidity, capital resources, and critical accounting estimates Overview and Key Business Metrics Presents an overview of BILL's financial operations platform for SMBs, highlighting revenue growth, net losses, and macroeconomic impacts on customer spending - BILL is a financial operations platform for SMBs, automating payables, receivables, and spend management, experiencing 22% YoY revenue growth to $318.5 million for the quarter, while net losses narrowed to $40.4 million from $95.1 million in the prior-year quarter181209 - Macroeconomic factors like interest rate increases and inflation have caused SMB customers to moderate expenditures and shift to lower-cost payment methods, impacting payment volume and transaction fee growth210 Key Business Metrics (as of Dec 31, 2023) | Metric | Q2 FY24 | Q2 FY23 | YoY Growth | | :--- | :--- | :--- | :--- | | Businesses using our solutions | 473,500 | 435,800 | 9% | | Total Payment Volume (TPV, in billions) | $74.9 | $67.3 | 11% | | Transactions processed (in millions) | 25.6 | 20.8 | 23% | Results of Operations Analyzes revenue growth, gross margin, and changes in operating expenses, including sales and marketing, and the impact of a new restructuring expense Revenue Growth (in thousands) | Revenue Component | Three Months Ended Dec 31, 2023 (in thousands) | Three Months Ended Dec 31, 2022 (in thousands) | YoY Growth | | :--- | :--- | :--- | :--- | | Subscription and transaction fees | $274,992 | $231,095 | 19% | | Interest on funds held for customers | $43,503 | $28,911 | 50% | | Total Revenue | $318,495 | $260,006 | 22% | - Gross margin remained flat at 81.7% for the three months ended December 31, 2023, compared to the prior year period266267 - Sales and marketing expenses decreased by $46.4 million (28%) YoY for the quarter, primarily due to a $56.6 million decrease in personnel-related costs, which included $52.2 million in stock-based compensation for a former executive in the prior year period233272 - A new restructuring expense of $25.1 million was recorded in the quarter due to the restructuring plan announced in December 2023233277 Liquidity and Capital Resources Discusses the company's principal sources of liquidity, summarizes cash flow activities, and reports on the completion of its share repurchase program - As of December 31, 2023, principal sources of liquidity were $1.6 billion in cash and cash equivalents, $1.0 billion in short-term investments, and $90.0 million available under its Revolving Credit Facility336 Summary of Cash Flows (Six Months Ended Dec 31, in thousands) | Cash Flow Activity | 2023 (in thousands) | 2022 (in thousands) | | :--- | :--- | :--- | | Operating activities | $133,342 | $73,382 | | Investing activities | $251,593 | $(94,538) | | Financing activities | $78,811 | $386,872 | - The company completed its $300.0 million share repurchase program as of December 31, 2023, having repurchased $212.7 million in shares during the six-month period285 Item 3. Quantitative and Qualitative Disclosures About Market Risk Details the company's exposure to interest rate risk on investments and borrowings, credit risk from card receivables, and foreign currency exchange risk - The company is exposed to interest rate risk on its corporate investments, funds held for customers, and borrowings under its Revolving Credit Facility, with the annualized interest rate earned on its investment portfolio and customer funds increasing to over 5% in the quarter from around 3.3% in the prior year due to the higher rate environment353 - Credit risk arises from the potential inability of spending businesses to repay card receivable balances, managed by reviewing credit exposure, but acknowledging default risk from unforeseen events like fraud or economic downturns493 - Foreign currency exchange risk exists from cross-border payment services and the operations of subsidiaries in Australia and Canada, though a 10% change in the U.S. dollar's value is not expected to have a material effect on cash flows and operating results328380358 Item 4. Controls and Procedures Reports on the effectiveness of the company's disclosure controls and internal control over financial reporting, as evaluated by management - Based on their evaluation as of December 31, 2023, the CEO and CFO concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level359 - There were no changes in internal control over financial reporting during the quarter ended December 31, 2023, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting383 Part II. OTHER INFORMATION Item 1. Legal Proceedings Discloses that the company is not currently involved in any legal proceedings expected to have a material adverse effect on its business or financial condition - The company is not currently party to any legal proceedings that management believes would have a material adverse effect on its business, operating results, financial condition, or cash flows361 Item 1A. Risk Factors Discusses significant risks including business and industry challenges, reliance on partnerships and technology, regulatory compliance, and financial risks related to indebtedness - Business & Industry Risks: The company has a history of operating losses and may not sustain profitability; its growth depends on attracting and retaining SMB customers vulnerable to economic downturns; the BILL Divvy Corporate Card offering exposes the company to credit risk; and the business faces significant competition and fraud risks387390 - Partnership & Technology Risks: The business relies on relationships with financial institutions, accounting firms, and Issuing Banks (Cross River Bank, WEX Bank), and depends on integrations with third-party accounting software and the reliability of cloud infrastructure providers like AWS364424459 - Regulatory & Compliance Risks: The company is subject to extensive regulation, including money transmission laws, anti-money laundering (AML) rules, and data privacy laws like CCPA/CPRA and GDPR, with non-compliance potentially resulting in significant fines, penalties, and reputational damage636643 - Indebtedness & Financial Risks: The company has significant debt from its convertible senior notes, which could affect its financial condition, and there is a risk it may not have the funds to settle conversions or repurchases in cash389662 Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities Details recent unregistered sales of equity securities, including a warrant issuance, and reports on the completion of the company's share repurchase program - On November 28, 2023, the company issued a warrant to JPMC Strategic Investments I Corporation to purchase up to 13,027 shares of common stock at an exercise price of $0.01 per share, in reliance upon the exemption from registration under Section 4(a)(2) of the Securities Act710503 Issuer Purchases of Equity Securities (Q2 FY24) | Period | Total Shares Purchased (in thousands) | Average Price Paid per Share | | :--- | :--- | :--- | | Oct 2023 | 535 | $100.99 | | Nov 2023 | 1,819 | $63.78 | | Dec 2023 | 369 | $71.32 | | Total | 2,723 | N/A | - The company completed its $300 million share repurchase program as of December 31, 2023, having repurchased the full authorized amount712 Item 6. Exhibits Lists the exhibits filed with the Quarterly Report on Form 10-Q, including certifications and the Interactive Data File - The exhibits filed with this report include the Form of Warrant issued to JPMC, certifications from the Principal Executive Officer and Principal Financial Officer pursuant to Sarbanes-Oxley Sections 302 and 906, and the Interactive Data File (XBRL)507716508