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Bill.com (NYSE:BILL) Delivers Strong Q1 Numbers, Provides Optimistic Full Year Guidance


Full Report / November 03, 2022
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Payments and billing software maker Bill.com (NYSE:BILL) reported Q1 FY2023 results that beat analyst expectations, with revenue up 94.2% year on year to $229.9 million. On top of that, guidance for next quarter's revenue was surprisingly good, being $243 million at the midpoint, 4.06% above what analysts were expecting. Bill.com made a GAAP loss of $81.6 million, down on its loss of $74.2 million, in the same quarter last year.

Bill.com (BILL) Q1 FY2023 Highlights:

  • Revenue: $229.9 million vs analyst estimates of $210.9 million (9.01% beat)
  • EPS (non-GAAP): $0.14 vs analyst estimates of $0.06 ($0.08 beat)
  • Revenue guidance for Q2 2023 is $243 million at the midpoint, above analyst estimates of $233.4 million
  • The company lifted revenue guidance for the full year, from $964.5 million to $1 billion at the midpoint, a 3.73% increase
  • Free cash flow of $12 million, up from negative free cash flow of $14.9 million in previous quarter
  • Customers: 172,000, up from 157,800 in previous quarter
  • Gross Margin (GAAP): 80.3%, up from 74.9% same quarter last year

Started by René Lacerte in 2006 after selling his previous payroll and accounting software company PayCycle to Intuit, Bill.com (NYSE:BILL) is a software as a service platform that aims to make payments and billing processes easier for small and medium-sized businesses.

The software offers a central cloud repository for invoices and provides an interface where its users can issue, process, approve and pay invoices in an easy to use environment. By automating a lot of previously laborious manual work, Bill.com brings down the cost of running the accounts receivable/payable department. The company charges its customers software subscription and also processing fees on the payments they make through the platform.

Finance and accounting software benefits from dual trends around costs savings and ease of use. First is the SaaS-ification of businesses, large and small, who much prefer the flexibility of cloud-based, web-browser delivered software paid for on a subscription basis than the hassle and expense of purchasing and managing on-premise enterprise software. Second is the consumerization of business software, whereby multiple standalone processes like supply chain and tax management are aggregated into a single, easy to use platforms.

Today, Bill.com is mainly competing with legacy manual processes and software companies like SAP (NYSE:SAP) that primarily focus on large enterprises.

Sales Growth

As you can see below, Bill.com's revenue growth has been incredible over the last two years, growing from quarterly revenue of $46.2 million in Q1 FY2021, to $229.9 million.

Bill.com Total Revenue

This was another standout quarter with the revenue up a splendid 94.2% year on year. But the growth did slow down a little compared to last quarter, as Bill.com increased revenue by $29.7 million in Q1, compared to $33.3 million revenue add in Q4 2022. So while the growth is overall still impressive, we will be keeping an eye on the slowdown.

Guidance for the next quarter indicates Bill.com is expecting revenue to grow 55.2% year on year to $243 million, slowing down from the 189% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 38.4% over the next twelve months.

Customer Growth

You can see below that Bill.com reported 172,000 customers at the end of the quarter, an increase of 14,200 on last quarter. That is a fair bit better customer growth than last quarter and quite a bit above the typical customer growth we have seen lately, demonstrating that the business itself has good sales momentum. We've no doubt shareholders will take this as an indication that the company's go-to-market strategy is working very well.

Bill.com Customers

Profitability

What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Bill.com's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 80.3% in Q1.

Bill.com Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.80 left to spend on developing new products, marketing & sales and the general administrative overhead. Despite the recent drop that is still a great gross margin, that allows companies like Bill.com to fund large investments in product and sales during periods of rapid growth and be profitable when they reach maturity.

Cash Is King

If you follow StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. Bill.com's free cash flow came in at $12 million in Q1, turning positive year on year.

Bill.com Free Cash Flow

Bill.com has generated $3.76 million in free cash flow over the last twelve months, 0.49% of revenues. This FCF margin is a result of Bill.com asset lite business model, and provides it with at least some cash to invest in the business without depending on capital markets.

Key Takeaways from Bill.com's Q1 Results

With a market capitalization of $12.3 billion, more than $2.64 billion in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in growth.

We were impressed by the exceptional revenue growth Bill.com delivered this quarter. And we were also excited to see that it outperformed Wall St’s revenue expectations. On the other hand, it was less good to see the pretty significant deterioration in gross margin. Overall, we think this was a strong quarter, that should leave shareholders feeling very positive. The company is up 3.45% on the results and currently trades at $120.01 per share.

Is Now The Time?

When considering Bill.com, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. There are a number of reasons why we think Bill.com is a great business. While we would expect growth rates to moderate from here, its revenue growth has been exceptional, over the last two years. On top of that, its impressive gross margins are indicative of excellent business economics, and its very efficient customer acquisition hints at the potential for strong profitability.

Bill.com's price to sales ratio based on the next twelve months of 11.7x indicates that the market is definitely optimistic about its growth prospects. And looking at the tech landscape today, Bill.com's qualities stand out, we think that the multiple is justified and we still like it at this price.

The Wall St analysts covering the company had a one year price target of $201.2 per share right before these results, implying that they saw upside in buying Bill.com even in the short term.

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