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Bill.com (NYSE:BILL) Beats Expectations in Strong Q4, Stock Jumps 18.2%


Full Report / August 18, 2022
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Payments and billing software maker Bill.com (NYSE:BILL) beat analyst expectations in Q4 FY2022 quarter, with revenue up 155% year on year to $200.2 million. On top of that, guidance for next quarter's revenue was surprisingly good, being $209.5 million at the midpoint, 11.7% above what analysts were expecting. Bill.com made a GAAP loss of $84.9 million, down on its loss of $41.8 million, in the same quarter last year.

Bill.com (BILL) Q4 FY2022 Highlights:

  • Revenue: $200.2 million vs analyst estimates of $183.1 million (9.35% beat)
  • EPS (non-GAAP): -$0.03 vs analyst estimates of -$0.14
  • Revenue guidance for Q1 2023 is $209.5 million at the midpoint, above analyst estimates of $187.5 million
  • Management's revenue guidance for upcoming financial year 2023 is $964.5 million at the midpoint, beating analyst estimates by 9.66% and predicting 50.7% growth (vs 169% in FY2022)
  • Free cash flow was negative $14.9 million, down from positive free cash flow of $22.7 million in previous quarter
  • Customers: 157,800, up from 146,600 in previous quarter
  • Gross Margin (GAAP): 78.3%, up from 74% 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 year, growing from quarterly revenue of $78.2 million, to $200.2 million.

Bill.com Total Revenue

This was another standout quarter with the revenue up a splendid 155% year on year. On top of that, revenue increased $33.3 million quarter on quarter, a very strong improvement on the $10.4 million increase in Q3 2022, and a sign of acceleration of growth, which is very nice to see indeed.

Guidance for the next quarter indicates Bill.com is expecting revenue to grow 79.9% year on year to $209.5 million, slowing down from the 151% year-over-year increase in revenue the company had recorded in the same quarter last year. For the upcoming financial year management expects revenue to be $964.5 million at the midpoint, growing 50.7% compared to 169% increase in FY2022.

Customer Growth

You can see below that Bill.com reported 157,800 customers at the end of the quarter, an increase of 11,200 on last quarter. That's about the same customer growth as what we seen last quarter and quite a bit above what we have typically seen over the last year, confirming the company is sustaining a good pace of sales.

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 78.3% in Q4.

Bill.com Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.78 left to spend on developing new products, marketing & sales and the general administrative overhead. Trending up over the last year, this is a good 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 burned through $14.9 million in Q4, with cash flow turning negative year on year.

Bill.com Free Cash Flow

Bill.com has burned through $33.7 million in cash over the last twelve months, resulting in a negative 5.27% free cash flow margin. This below average FCF margin is a result of Bill.com's need to invest in the business to continue penetrating its market.

Key Takeaways from Bill.com's Q4 Results

Since it has still been burning cash over the last twelve months it is worth keeping an eye on Bill.com’s balance sheet, but we note that with a market capitalization of $15.7 billion and more than $2.7 billion in cash, the company has the capacity to continue to prioritise growth over profitability.

We were impressed by the very optimistic revenue guidance Bill.com provided. And we were also excited to see the strong gross margin growth. Overall, we think this was a strong quarter, that should leave shareholders feeling very positive. The company is up 18.2% on the results and currently trades at $177.05 per share.

Is Now The Time?

Bill.com may have had a good quarter, but investors should also consider its valuation and business qualities, when assessing the investment opportunity. We think Bill.com is a good business. We would expect growth rates to moderate from here, but its revenue growth has been exceptional, over the last two years. And while its cash burn raises the question if it can sustainably maintain its growth, the good news is its very efficient customer acquisition hints at the potential for strong profitability, and its strong gross margins suggest it can operate profitably and sustainably.

The market is certainly expecting long term growth from Bill.com given its price to sales ratio based on the next twelve months is 17.8x. There are definitely things to like about Bill.com and there's no doubt it is a bit of a market darling, at least for some. But when considering the company against the backdrop of the tech stock landscape, it seems that there is a lot of optimism already priced in and we are wondering whether there might be better opportunities elsewhere right now.

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