BILL (US:BILL)2024-05-03 20:11Part I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the company's unaudited condensed consolidated financial statements for the three and nine months ended March 31, 2024, providing a snapshot of its financial position and performance Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2024 | June 30, 2023 | | :--- | :--- | :--- | | Total Assets | $9,122,258 | $9,636,018 | | Cash and cash equivalents | $952,474 | $1,617,151 | | Funds held for customers | $3,510,918 | $3,355,909 | | Goodwill | $2,396,509 | $2,396,509 | | Total Liabilities | $5,063,525 | $5,550,049 | | Customer fund deposits | $3,510,918 | $3,355,909 | | Convertible senior notes, net | $966,242 | $1,704,782 | | Total Stockholders' Equity | $4,058,733 | $4,085,969 | Condensed Consolidated Statements of Operations Highlights (in thousands) | Metric | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | Nine Months Ended Mar 31, 2024 | Nine Months Ended Mar 31, 2023 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $323,028 | $272,555 | $946,508 | $762,485 | | Gross Profit | $268,016 | $223,705 | $777,093 | $621,060 | | Operating Loss | ($27,622) | ($54,218) | ($151,940) | ($254,375) | | Net Income (Loss) | $31,809 | ($31,138) | ($36,473) | ($207,854) | Condensed Consolidated Statements of Cash Flows Highlights (Nine Months Ended Mar 31, in thousands) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $200,151 | $107,413 | | Net cash used in investing activities | ($366,388) | ($119,923) | | Net cash provided by (used in) financing activities | ($722,404) | $39,710 | Notes to Condensed Consolidated Financial Statements This subsection provides detailed disclosures supporting the main financial statements, covering revenue, fair value measurements, debt, equity, and a December 2023 restructuring plan Revenue Disaggregation (in thousands) | Revenue Source | Three Months Ended Mar 31, 2024 | Nine Months Ended Mar 31, 2024 | | :--- | :--- | :--- | | Subscription and transaction fees | $281,294 | $821,428 | | Interest on funds held for customers | $41,734 | $125,080 | | Total Revenue | $323,028 | $946,508 | - On December 5, 2023, the company announced a restructuring plan that included reducing its global workforce and closing its Sydney, Australia office, recording restructuring expenses of $27.2 million for the nine months ended March 31, 2024107 - On March 6, 2024, the company repurchased $748.2 million of its 2025 Notes for $711.0 million in cash, resulting in a gain of $32.5 million, which was recorded in other income99 - The company completed its $300.0 million Share Repurchase Program by December 31, 2023, repurchasing 2,882,634 shares for $212.2 million during the nine months ended March 31, 2024104 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management provides an analysis of the company's financial performance and condition, highlighting a 19% year-over-year revenue increase, the impact of macroeconomic factors, and details of a December 2023 restructuring plan Key Business Metrics | Metric | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | % Growth | | :--- | :--- | :--- | :--- | | Businesses using our solutions | 464,900 | 455,300 | 2% | | Total Payment Volume (in billions) | $71.4 | $64.7 | 10% | - The macroeconomic environment, including elevated interest rates and inflation, has caused SMB customers to moderate expenditures and shift to lower-cost payment methods, resulting in lower payment volume growth than historical trends138 - In December 2023, the company initiated a reduction-in-force (RIF) affecting approximately 15% of its global workforce to right-size the organization and enhance profitability114 Revenue Comparison (in thousands) | Revenue Component | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | % Change | | :--- | :--- | :--- | :--- | | Subscription and transaction fees | $281,294 | $239,495 | 17% | | Interest on funds held for customers | $41,734 | $33,060 | 26% | | Total Revenue | $323,028 | $272,555 | 19% | Item 3. Quantitative and Qualitative Disclosures About Market Risk This section outlines the company's exposure to various market risks, including interest rate risk from customer funds, credit risk from acquired card receivables, and foreign currency exchange risk from international operations - The company is exposed to interest rate risk, as revenue is generated from interest on corporate cash and customer funds, with the annualized interest rate earned on customer funds increasing to 5.08% for the nine months ended March 31, 2024, from 3.14% in the prior year period due to the higher interest rate environment208 - Credit risk exposure stems from acquired card receivables, where spending businesses may default, and the company manages this risk through credit underwriting, but acknowledges that default risk can arise from unforeseen events like fraud or economic downturns229 - Foreign currency exchange risk arises from cross-border payment services and operations in Australia and Canada, though the company does not believe a 10% change in the U.S. dollar's value would materially affect its results418 Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures as of March 31, 2024, concluding they were effective, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of March 31, 2024, the CEO and CFO concluded that the company's disclosure controls and procedures were effective412413 - There were no changes in the company's internal control over financial reporting during the quarter ended March 31, 2024, that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting231 Part II. OTHER INFORMATION Item 1. Legal Proceedings The company reports that it is not currently involved in any legal proceedings that, in management's opinion, would have a material adverse effect on its business, operating results, financial condition, or cash flows - The company is not presently party to any legal proceedings that are expected to have a material adverse effect on its business, financial condition, or cash flows421 Item 1A. Risk Factors This section provides a comprehensive overview of the risks and uncertainties facing the company, including its history of operating losses, reliance on the SMB market, intense competition, credit and fraud risks, dependence on third-party relationships, and extensive regulatory oversight Risks Related to Our Business and Industry This subsection details operational risks, including a history of losses and an accumulated deficit of $1.1 billion, dependence on SMBs, credit risk from its BILL Divvy Corporate Card, intense competition, potential for fraud, and reliance on key partnerships - The company has a history of operating losses and had an accumulated deficit of $1.1 billion as of March 31, 2024, with future profitability not guaranteed as costs are expected to increase427 - The BILL Divvy Corporate Card offering exposes the company to significant credit risk, as it purchases participation interests in the accounts receivables and bears the entire credit risk if a spending business defaults268 - The company's risk management efforts may not be effective in preventing fraudulent activities, which could expose it to material financial losses, liability, and reputational harm246 Risks Related to Government Regulation and Privacy Matters This subsection discusses risks from the complex and evolving regulatory landscape, including laws governing money transmission, anti-money laundering (AML), economic sanctions, and data privacy, where non-compliance could lead to significant fines and reputational damage - The company is licensed as a money transmitter in the U.S. and is subject to extensive regulations regarding AML, sanctions, and capital requirements, where failure to comply could result in fines, penalties, or loss of licenses351 - The company is subject to various data privacy laws, including the CCPA in California and GDPR in Europe, where non-compliance can lead to significant fines, litigation, and reputational damage337 - The company is required to comply with U.S. economic and trade sanctions administered by OFAC and recently submitted a voluntary self-disclosure related to potential gaps in its IP address blocking controls358 Risks Related to Our Intellectual Property This subsection covers risks associated with the company's intellectual property, highlighting challenges in protecting proprietary technology, potential for costly infringement lawsuits, and risks related to the use of open-source software - The company's success depends on protecting its proprietary technology, but its reliance on patents, copyrights, and trade secrets may be inadequate to prevent others from developing similar products381 - The company has been and may in the future be subject to intellectual property disputes, which are expensive and time-consuming to defend and could result in significant liability362 - The use of open-source software in the company's products could subject it to litigation or require it to release the source code of its proprietary software364 Risks Related to Our Indebtedness This subsection details risks related to the company's significant debt obligations, including its Convertible Senior Notes, emphasizing the ability to service debt, potential for default, and the possibility of insufficient funds for cash settlement or repurchases - As of March 31, 2024, the company had significant debt, including $401.8 million of 2025 Notes, $575.0 million of 2027 Notes, and $180.0 million drawn on its Revolving Credit Facility, which could strain its financial condition386 - The company may not have the ability to raise the funds necessary to repurchase the Notes upon a fundamental change or to pay cash upon conversion, which could lead to a default386387 Risks Related to Ownership of Our Common Stock This subsection discusses risks for common stock investors, including high stock price volatility, the company's lack of plans to pay dividends, and the presence of anti-takeover provisions in its charter that could deter potential acquisitions - The market price of the company's common stock has been and is expected to remain volatile due to factors such as operating results, analyst projections, and overall market conditions371 - Anti-takeover provisions in the company's charter documents and Delaware law could make an acquisition more difficult or limit stockholders' ability to replace management372 - The company has never paid cash dividends and does not intend to do so in the foreseeable future, meaning investors must rely on stock price appreciation for returns396406 Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities This section is marked as 'Not applicable,' indicating no unregistered sales of equity securities, use of proceeds from such sales, or issuer purchases of equity securities to report for the period - This item is marked as 'Not applicable' in the report375 Item 3. Defaults Upon Senior Securities This section is marked as 'Not applicable,' indicating no defaults upon senior securities occurred during the reporting period - This item is marked as 'Not applicable' in the report375 Item 4. Mine Safety Disclosures This section is marked as 'Not applicable' as the company's operations do not involve mine safety - This item is marked as 'Not applicable' in the report375 Item 5. Other Information This section notes the adoption of a Rule 10b5-1 trading arrangement by an executive, Raj Aji, on March 8, 2024, for the sale of 25,429 shares - On March 8, 2024, executive Raj Aji adopted a Rule 10b5-1 trading plan for the sale of 25,429 shares, with an expiration date of June 13, 2025397 Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including an amendment to the Revolving Credit and Security Agreement, certifications by the CEO and CFO, and interactive data files (XBRL) - Lists exhibits filed with the report, including certifications from the Principal Executive Officer and Principal Financial Officer, and interactive data files376409 - Exhibit 10.1 is Amendment No. 5 to the Revolving Credit and Security Agreement, dated March 15, 2024398