According to IDC, small and mid-sized businesses (SMBs) are expected to spend approximately $65 billion in 2019 on software in the U.S. Bill.com, which recently went public, is a leading cloud-based financial software provider for back-office financial processes at SMBs. In its first quarter since going public in December, the company looks impressive.
Revenue for the second quarter grew 50% to $39.1 million, beating estimates of $33.8 million. Cash, cash equivalents and short-term investments were $383.0 million on December 31, 2019.
Core revenue including revenue from subscriptions and transactions was up 61% to $33 million. Float revenue or interest on funds held for customers grew 10% to $6.1 million. Bill.com processed $24.8 billion in total payment volume on its platform, an increase of 41%. It processed over 6.2 million transactions, an increase of 29%. It expanded coverage for cross-border payments to support over 130 countries. Customer count was up 20% to 85,900, and total payment volume increased 41% to $24.8 billion.
Core profitability improved during the quarter. Adjusted gross margin increased from 75.8% to 78%, but fixed expenses outgrew revenue. Net loss was $7.6 million, compared to net income of $102,000 in Q2 2019. Non-GAAP net loss was $3.6 million, or ($0.06) per share, compared to non-GAAP net income of $330,000, or $0.01 per share a year ago. Analysts estimated a loss of $0.08 per share.
In its third-quarter outlook, the company expects revenue of $38 million to $38.7 million, beating estimates of $34.4 million. Core revenue is expected in the range of $33.2 million to $33.7 million and float revenue in the range of $4.8 million to $5 million. Full-year revenue is expected to be $150.3 million to $151.7 million, compared with analyst estimates of $140.6 million.
The company plans to increase its spending on go-to-market initiatives and R&D investments, including expanding the capabilities of its AI engine, developing new payment products and building out the platform to support larger customers. It expects to report a non-GAAP net loss in the range of $7.4 million to $6.7 million and a non-GAAP EPS loss of $0.10 to $0.09. Non-GAAP net loss for fiscal 2020 is expected in the range of $21.7 million to $20.3 million or a loss of $0.32 to $0.30 per share.
Bill.com was originally founded as Cashview by René Lacerte in 2006 to simplify, consolidate, and automate how business and finance professionals manage their payments processes for accounts payable, accounts receivable, and cash flow management tasks. Prior to Bill.com, in 1999, he had founded PayCycle, a SaaS payroll company catering to small businesses with fewer than 20 employees. PayCycle was acquired for $170 million by Intuit in 2009. I did an interview with CEO Jim Heeger on cracking the Very Small Business Market.
In the following podcast, Rene and I discuss strategies and nuances of selling solutions to small businesses, and the nuances of Do It Yourself SaaS, Do It For Me SaaS Enabled BPO, and Do It With Me, a hybrid of the two.
About 86,000 customers use the Bill.com cloud platform to generate and process invoices, streamline approvals, send and receive payments, sync to their accounting system, and manage their cash. Bill.com weaves software and payments together, and the result is a more efficient and reliable financial operation. Its customers electronically exchange more than 8,000 messages per day, approve more than 2.4 million bills per month, and store almost 45 million documents per year. At the end of 2019, it had over 1.8 million network members including customers, their suppliers and clients.
Bill.com partners with more than 70 of the top 100 accounting firms in the U.S. and is integrated with several of the largest financial institutions in the U.S., including Bank of America, J.P. Morgan Chase, and American Express. Bill.com also partners with the leading accounting software providers for SMBs, including QuickBooks and QuickBooks Online from Intuit, Oracle NetSuite, Sage Intacct, and Xero. However, no partner is overrepresented within its business. In FY ’19, no single partner constituted over 2.5% of total revenue.
Bill.com’s average revenue per customer is $1,500 and assuming that there are 6 million SMBs in the US and 20 million SMBs globally, its annual TAM is estimated to be $9 billion in the US and $30 billion globally. As more SMBs move to digital payments, Bill.com is well-positioned to capitalize on this evolution.
In addition to the software opportunity, the Bill.com platform also targets the B2B payments market. According to the 2018 MasterCard report, North American companies make approximately $25 trillion of B2B payments annually. According to Deloitte, the U.S. market for SMB payments is expected to exceed $9 trillion in 2020.
On December 12, 2019, Bill.com went public on the NYSE under the ticker BILL. It raised $216 million at an IPO price of $22 and a valuation of $1.6 billion. Prior to going public, Bill.com had raised $279.7 million in over 10 rounds. It had raised $88 million in its last funding round at a valuation of $1.1 billion. Its stock is currently trading at $61.77, up 180% from its IPO price, with a market cap of $4.47 billion.