Bill.com: Not Paying The Bills (NYSE:BILL)

Shares of Bill.com Holdings, Inc. (NYSE:BILL) have returned to double-digit share price territory at the start of 2023. It has been a while since I last looked at the shares, that is, since May 2021, when I concluded that a nice deal did too automatically translate into appeal.

Saving Money For SMBs

When Bill.com went public late in 2019, I noted that it was an interesting name, as its money saving solutions were in great demand with small and medium sized businesses. The cloud-base software solutions allow for automation and simplification of back-office operations, including processes like generating and processing invoices, obtaining approvals, even making payments and synchronizing with accounting systems.

At the time, the solutions covered 2.4 million bills per month on behalf of more than 80,000 customers, overseeing more than $70 billion in payments on an annual basis. The software was marketed by its own sales force and through partnerships with the likes of Intuit Inc. (INTU), among others.

Being priced at $22 per share, Bill.com Holdings, Inc. shares immediately jumped to $35 per share, granting the company a $2.1 billion operating asset valuation, a huge number for a business which saw 2019 sales increase 67% to $108 million, albeit accompanied by a $10 million loss. With sales trending at $140 million based on the latest quarterly results, a 15 times sales multiple looked reasonable given the times.

A neutral approach was too defensive, as shares have seen a huge rally, certainly after the pandemic, hitting a high of $200 in February 2021. 2020 revenues rose to $157 million as growth accelerated again in the final two quarters of the year. With shares trading at $150 in May, the company demanded a $10.6 billion enterprise valuation, this time applies to a business which was posting sales at a run rate of $240 million, translating into a sales multiple of more than 40 times, far too high to see appeal.

To further bolster growth, the company announced a $2.5 billion deal to acquire Divvy, a spent management platform, adding about $100 million in sales. The lower sales multiple and more than 100% growth rate looked appealing (on a relative basis), as the relative appeal did not alter my stance on Bill.com.

That again was too cautious, as Bill.com Holdings, Inc. shares rallied comfortably in their $300s later in 2021, but shares subsequently collapsed during the 2022 retreat in technology names, now having fallen to $95 per share, levels last seen in the summer of 2020.

Growing Into The Valuation

In July 2021 the company announced its next acquisition, this time spending $625 million to acquire mobile-first accounts receivable software provider Invoice2go, of which three quarters was paid in stock. Total revenues for the year 2021 rose to $238 million, with growth accelerating, albeit accompanied by substantial losses, with GAAP operating losses having increased from $34 million to $114 million.

For 2022, the company guided for revenues to grow further to $476 million, set to double, with non-GAAP losses seen around $87 million. While losses were set to rise, non-GAAP losses should come down on a relative basis, after coming in at $71 million in 2021. Fortunately, the company offered 4.4 million shares at $272 per share in September, raising $1.2 billion in cash to pay for the recent dealmaking spree, and even a bit more after the overallotment option was exercised.

In August 2022, Bill.com Holdings, Inc. posted its fiscal year 2022 results as revenues of $642 million came in far ahead of the original guidance for the year, with the company exiting the year at an $800 million revenue run rate. Problematic is that GAAP losses were posted at $316 million for the year. Non-GAAP losses came in at $15 million and while I am happy to adjust for deal-related acquisition costs (such as transaction costs or amortization charges) the same does not go for a $200 million stock-based compensation expense.

For 2023 the company guided for sales at a midpoint of $965 million, with non-GAAP earnings seen around $37 million, suggesting modest leverage on that front, but likely large realistic GAAP losses, as the company still operated with a net cash position of around a billion.

In September, Bill.com Holdings, Inc. posted first quarter sales of $230 million, up 94% on the year before as GAAP operating losses rose modestly to $88 million, with adjusted earnings posted at $17 million. The company hiked the full year sales guidance to around a billion, with adjusted earnings seen in the low sixty millions.

Early in February the company posted second quarter sales of $260 million, with growth of 66% slowing down meaningfully. GAAP losses from operations rose much more pronounced to $112 million, as adjusted earnings rose to $49 million, indicating increasing divergence on that front, due to increasing stock-based compensation. For the year, the company sees sales around a billion, with adjusted earnings now seen around $120 million, but given the increased gap between both numbers, that is not saying that much.

With a near $1 billion net cash position, Bill.com Holdings, Inc. announced a $300 million buyback program to offset some dilution, as a diluted share count of 105 million shares works down to a $10 billion equity valuation, and $9 billion enterprise valuation. This is equal to about 9 times sales, yet with realistic losses trending around $300 million per year here the future is not too great.

And Now?

Amidst continued growth, a peak Bill.com Holdings, Inc. sales multiple in excess of 50 times has come down to about 9 times sales here. That looks a lot more reasonable already, as the size of the firm and >50% sales growth numbers are hard to find in this economy and environment.

While the growth rates look compelling given the sales multiple, the issue is that realistic losses remain huge and keep increasing, despite the fact that Bill.com Holdings, Inc. is now posting adjusted profits, with stock-based compensation (notably in recent quarters) being quite elevated.

Notably, the lack of real operating leverage on the Bill.com Holdings, Inc. bottom line is what makes me cautious, as a 9 times sales multiple still elevated given this environment, despite the continued spectacular top line results (even as growth has come down a lot in the recent quarter).