Date: 2026-04-06 Quarter: Q2 FY26 (Oct-Dec 2025), reported Feb 5, 2026 Stock price: 39.95|Marketcap: 4.15B | EV: ~$3.74B
Beat-and-raise from a company I sold in August 2023. The numbers force me to pay attention again.
I sold BILL entirely after Q4 FY23 when René Lacerte admitted "the market is maturing" and competitors were entering the space. Revenue growth was decelerating, subscription revenue was flat, and the whole thing felt like a steamboat — slow, steady, uninspiring. Two and a half years later, revenue has grown from $296M/q to $415M/q, the business is generating $91M of FCF per quarter at 22% margins, and Q2 FY26 delivered a +3.8% revenue beat — the biggest in BILL's tracked history — with a meaningful raise. Core revenue reaccelerated to +17% YoY. Transaction fees hit +20%.
This is not hypergrowth. It will never be hypergrowth again. But at 2.3x run-rate revenue for a business with 80% gross margins, 18% non-GAAP operating margins, 22% FCF margins, and accelerating core growth — the setup is interesting. Add confirmed PE buyout talks (H&F, Bloomberg) and you have asymmetric optionality.
Pattern: Beat-and-raise with guidance de-risking. Bullish setup.
| Q2 | FY23 | FY24 | FY25 | FY26 | Trend |
|---|---|---|---|---|---|
| Revenue ($M) | $260.0 | $318.5 | $362.6 | $414.7 | Steady sequential step-ups |
| QoQ % | +13.1% | +4.4% | +1.2% | +4.8% | Recovery from FY25 trough |
| YoY % | +66.1% | +22.5% | +13.8% | +14.4% | First YoY acceleration in 8 quarters |
That's the signal. Q2 FY26 YoY of 14.4% vs Q2 FY25's 13.8% → first YoY acceleration since Q1 FY25. The 7-quarter deceleration streak from 32.7% (Q1 FY24) to 10.4% (Q1 FY26) is broken.
| Q1_FY23 | Q2_FY23 | Q3_FY23 | Q4_FY23 | Q1_FY24 | Q2_FY24 | Q3_FY24 | Q4_FY24 | Q1_FY25 | Q2_FY25 | Q3_FY25 | Q4_FY25 | Q1_FY26 | Q2_FY26 | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Cal Date | Sep-22 | Dec-22 | Mar-23 | Jun-23 | Sep-23 | Dec-23 | Mar-24 | Jun-24 | Sep-24 | Dec-24 | Mar-25 | Jun-25 | Sep-25 | Dec-25 |
| Revenue ($M) | 229.9 | 260.0 | 272.6 | 296.0 | 305.0 | 318.5 | 323.0 | 343.7 | 358.4 | 362.6 | 358.2 | 383.3 | 395.7 | 414.7 |
| QoQ % | +37.7% | +13.1% | +4.8% | +8.6% | +3.0% | +4.4% | +1.4% | +6.4% | +4.3% | +1.2% | -1.2% | +7.0% | +3.2% | +4.8% |
| YoY % | +94% | +66% | +63% | — | +33% | +23% | +19% | +16% | +18% | +14% | +11% | +12% | +10% | +14% |
| GM% [GAAP] | 80.4% | 81.7% | 82.1% | 82.2% | 81.6% | 81.7% | 83.0% | 81.0% | 82.0% | 81.6% | 81.2% | 80.8% | 80.5% | 79.8% |
| Op% [NG] | — | — | — | 14.3% | — | — | — | 17.5% | 18.7% | 17.3% | 14.9% | 14.7% | 17.2% | 17.9% |
| FCF ($M) | 16.8 | — | — | 72.9 | 53.3 | — | — | 73.1 | 88.6 | 71.6 | 90.9 | 68.5 | 82.3 | 91.1 |
| FCF% | 7.3% | — | — | 24.6% | 17.5% | — | — | 21.3% | 24.7% | 19.7% | 25.4% | 17.9% | 20.8% | 22.0% |
| EPS [NG] | — | — | — | $0.48 | — | — | $0.60 | $0.57 | $0.63 | $0.56 | $0.50 | $0.53 | $0.61 | $0.64 |
| Shares (M) | 105.1 | 105.9 | 106.6 | 106.4 | 106.8 | 105.9 | 111.2 | 106.3 | 107.3 | 104.5 | 102.2 | 103.2 | 101.9 | 100.5 |
| Q4_FY24 | Q3_FY25 | Q4_FY25 | Q1_FY26 | Q2_FY26 | Direction | |
|---|---|---|---|---|---|---|
| Subscription ($M) | 65.8 | 68.2 | 68.8 | 70.8 | 72.1 (+6% YoY) | Slow but steady |
| Transaction ($M) | 235.5 | 252.1 | 277.1 | 287.2 | 303.1 (+20% YoY) | Accelerating |
| Core Revenue ($M) | 301.3 | 320.3 | 345.9 | 358.0 | 375.1 (+17% YoY) | Accelerating |
| Float ($M) | 42.4 | 37.9 | 37.4 | 37.7 | 39.5 | Stabilising |
| Float % of Total | 12.3% | 10.6% | 9.8% | 9.5% | 9.5% | Declining share |
→ Transaction fees are the story. +20% YoY with volume acceleration (TPV +13%, transactions +16%). Revenue per transaction is rising — this is real monetisation depth, not pricing games.
→ Float is a non-issue at 9.5% of revenue and stabilising. Anyone still framing BILL as "rate-dependent" isn't looking at the mix shift.
| Quarter | Guide Mid | Actual | Beat $ | Beat % |
|---|---|---|---|---|
| Q1 FY25 | $348.5M | $358.4M | +$9.9M | +2.8% |
| Q4 FY25 | $375.5M | $383.3M | +$7.8M | +2.1% |
| Q1 FY26 | $390.0M | $395.7M | +$5.7M | +1.5% |
| Q2 FY26 | $399.5M | $414.7M | +$15.2M | +3.8% |
→ Beats are widening, not narrowing. 15.2Mismassiveforacompanyguiding 400M. Management sandbagged hard — this is exactly the pattern I look for: underpromise/overdeliver.
| Event | FY26 Rev Mid | Delta | FY26 NG OpInc Mid |
|---|---|---|---|
| Initial (Aug-25) | $1,609.5M | — | $255.0M |
| Q1 FY26 (Nov-25) | $1,611.5M | +$2.0M | $266.5M |
| Q2 FY26 (Feb-26) | $1,641.0M | +$29.5M | $280.3M |
→ $29.5M raise at midpoint. FY26 growth now guided 12-13% vs initial 9-11%. That's a 3pp raise in the growth guide — meaningful for a "boring" company.
Midpoint 402.5Mimplies − 2.9418M → flat QoQ with Q2. I'd bet on a beat above $410M.
Implied Q4 FY26 from FY26 midpoint: $1,641M - $810.4M (H1) - 402.5M(Q3mid) = **428.1M**. That would be +12% YoY, 3.2% QoQ — roughly in-line with recent trajectory.
| Q3_FY24 | Q4_FY24 | Q1_FY25 | Q2_FY25 | Q3_FY25 | Q4_FY25 | Q1_FY26 | Q2_FY26 | |
|---|---|---|---|---|---|---|---|---|
| GAAP GM% | 83.0% | 81.0% | 82.0% | 81.6% | 81.2% | 80.8% | 80.5% | 79.8% |
| Non-GAAP GM% | 87.1% | 85.0% | 85.7% | 85.2% | 84.9% | 84.2% | 83.9% | 83.9% |
Seven consecutive quarters of GAAP gross margin decline (83.0% → 79.8%). That's 3.2pp erosion. Atlas flagged this correctly. But here's what matters:
Non-GAAP stabilised at 83.9% for two straight quarters. The GAAP compression is driven by rising D&A on capitalised software and SBC in COGS — not by worsening service economics.
83.9% non-GAAP GM is still excellent. This is not a business with margin structure problems. Compare to peers: Intuit ~80%, Paycom ~85%, Paylocity ~70%.
The GAAP-to-non-GAAP gap is widening (79.8% vs 83.9% = 4.1pp), which tells me capitalised software amortisation is increasing as past development investments flow through. This is expected for a company investing in platform (AP, AR, Spend, Procurement, Forecasting).
→ Assessment: GAAP GM compression is optically bad but fundamentally benign. Non-GAAP GM stabilisation is the signal. If non-GAAP GM starts declining again, that changes the calculus.
| Q1_FY25 | Q2_FY25 | Q3_FY25 | Q4_FY25 | Q1_FY26 | Q2_FY26 | |
|---|---|---|---|---|---|---|
| GAAP Op Margin | -2.1% | -6.0% | -8.1% | -5.8% | -5.2% | -4.4% |
| NG Op Margin | 18.7% | 17.3% | 14.9% | 14.7% | 17.2% | 17.9% |
| NG Op Income ($M) | $67.1 | $62.8 | $53.3 | $56.4 | $68.2 | $74.1 |
| FCF ($M) | $88.6 | $71.6 | $90.9 | $68.5 | $82.3 | $91.1 |
| FCF Margin | 24.7% | 19.7% | 25.4% | 17.9% | 20.8% | 22.0% |
→ Non-GAAP op margin hit 17.9% — cycle high (prior peak 18.7% in Q1 FY25). Non-GAAP op income of $74.1M is an all-time record.
→ FCF of $91.1M at 22% margin is also an all-time record. This is a genuinely cash-generative business.
→ Rule of 40: 14.4% growth + 22.0% FCF margin = 36.4. Not quite 40, but for a mid-teens grower, this is solid. If core revenue growth of 17% is the better measure, then it's 39 on core.
| Q4_FY25 | Q1_FY26 | Q2_FY26 | |
|---|---|---|---|
| SBC ($M) | $59.8 | $58.8 | $64.3 |
| SBC % Revenue | 15.6% | 14.9% | 15.5% |
| Shares (M) | 103.2 | 101.9 | 100.5 |
| Repurchased ($M) | — | — | $133M (2.5M shares) |
→ SBC at ~15% of revenue is elevated but declining trend over time (was 46% in FY22). Shares declining -6.3% over 5 quarters due to buybacks. The $300M program is aggressive and accretive to EPS.
→ FCF minus SBC: $91.1M - $64.3M = $26.8M/quarter. That's $107M annualised — modest but positive real free cash flow after SBC dilution.
Transaction revenue YoY: Q3 FY25 +17% → Q4 FY25 +18% → Q1 FY26 +16% → Q2 FY26 +20%. This is the most important signal. Transaction revenue is 73% of total and it's accelerating. TPV grew +13% to $95B; transactions grew +16% to 35M. Revenue per transaction and revenue per dollar of TPV are both expanding.
Core revenue growth (+17%) is outpacing total revenue growth (+14%) by 3pp. The gap is float revenue drag. As float stabilises (which it has — $39.5M vs $37.4M trough), total revenue growth will converge toward core. Core growth is the true operating metric — total revenue including float is misleading.
498.5K businesses served. Net adds: Q4 FY25 +5.2K → Q1 FY26 +4.3K → Q2 FY26 +0.4K. Near-zero.
This is concerning but needs context:
→ If customer adds stay near-zero for another 2 quarters while ARPU growth slows, that's a hard ceiling on revenue growth. This is the #1 thing to watch.
Revenue / TPV is declining: Q4 FY24 0.452% → Q2 FY26 0.436%. Volume is scaling faster than price. Normal for payment networks but limits per-customer economics long-term.
| Metric | Value | Assessment |
|---|---|---|
| Stock Price | $39.95 | |
| Market Cap | ~$4.15B | |
| Net Cash | $408M | |
| EV | ~$3.74B | |
| Run-Rate Revenue (Q x 4) | $1,659M | |
| EV/Run-Rate Revenue | 2.3x | Cheap |
| Run-Rate FCF | $364M | |
| EV/Run-Rate FCF | 10.3x | Very cheap |
| Run-Rate NG Op Inc | $297M | |
| EV/NG Op Inc | 12.6x | Cheap |
| NG EPS (run-rate) | $2.56 | |
| P/E (Non-GAAP) | 15.6x | Cheap for 14%+ grower |
| Rule of 40 | 36.4 |
→ At 2.3x EV/run-rate revenue for a business growing 14% total (17% core) with 84% non-GAAP gross margins and 22% FCF margins, BILL is priced for permanent stagnation. The market is assigning zero value to reacceleration, zero value to M&A optionality, and zero value to the Embed 2.0 distribution thesis.
→ PEG ratio: 15.6x P/E / 14.4% growth = 1.08. Under 1.5 is interesting; under 1.0 is cheap.
→ H&F takeout scenario: At 4-5x EV/revenue → 62−78/share → 55-95% upside. Bloomberg confirmed talks.
→ Standalone fair value: If BILL sustains 15% core growth + 20% FCF margins, a 4x EV/revenue multiple (discount to SaaS peers at ~5x) = $6.6B EV → 7.0Bmarketcap→ 70/share. Analyst consensus $58.95 (average of 22 analysts).
Atlas rated conviction 3.5/5 and called this a "value-recovery play with M&A optionality." I agree with the facts but I'd frame it differently:
Atlas underweights the transaction revenue reacceleration. +20% YoY in the component that's 73% of revenue is a genuinely bullish signal, not just "the quarter was good." Transaction volume acceleration at $95B quarterly TPV is a platform network effect in action.
Atlas appropriately flagged the customer add stall but didn't connect it to ARPU math. Revenue can grow 15%+ for several more quarters on ARPU expansion alone before customer adds become the binding constraint. Embed 2.0 has runway to deliver by Q4 FY26.
The GAAP gross margin compression is overweighted. Atlas called it a "red flag below 78%." The non-GAAP stabilisation at 83.9% is the actual unit economic signal. D&A of capitalised software flowing through GAAP COGS is just amortisation of past investment — it tells you nothing about current margin structure.
On valuation, Atlas and I agree. 2.2-2.3x EV/revenue for this profile is cheap. The takeout optionality is real. This isn't speculative — Bloomberg confirmed H&F talks.
When I sold after Q4 FY23, I wrote: "I will probably reduce my position... I sold my entire position on Friday." The CEO had said "the market is maturing, there's more competitors" and I ran for the hills.
What actually happened:
The lesson: I over-indexed on the CEO's cautious language about competition and treated it as a thesis-break. It was actually just honest market commentary from a founder-CEO who tends to under-hype. The numbers never actually broke. Revenue never missed guidance. Growth decelerated from hyper levels but never fell off a cliff. I should have differentiated between "growth rate deceleration from 60%+ to 15%" (natural normalisation) and "business quality deterioration" (actual thesis break). They are not the same thing.
Framework gap: My sell trigger — "2 consecutive quarters of deceleration" — doesn't distinguish between deceleration from hypergrowth toward a sustainable base rate vs deceleration that indicates structural impairment. At some point, every company's growth rate decelerates. The question is where it stabilises and what the economics look like when it does.
New thesis: BILL is a category-defining B2B payment platform with 80%+ gross margins, 22% FCF margins, and 17% core revenue growth that is currently priced as a value stock (2.3x revenue) due to headline growth deceleration that has now reversed. The setup is asymmetric: standalone execution with 15%+ core growth gets you a double from here; M&A takeout at 4-5x revenue gets you 55-95%.
Thesis status: Intact — reaccelerating. Not a position yet; evaluating.
What needs to happen for me to initiate a position:
What breaks it:
Action: Watchlist. Next earnings April 30, 2026. Will evaluate for position if Q3 confirms reacceleration. This is not a growth stock yet — it's a turnaround/value play with growth characteristics. My framework says 14% growth isn't enough. But 17% core growth with 22% FCF margins at 2.3x revenue and PE takeout optionality is a different animal than a declining-growth SaaS at 10x revenue.
-wsm
(No position. Watchlist.)