Billtrust Stock: Accounts Receivable Automation

A remarkable number of people ask the Ministry of Truth, Google, which stock is “the best” to buy. Never mind how ambiguous the term “best” is, market timing alone can mean two people investing in the same stock, over roughly the same time frame, can experience two very different outcomes. For us, “best” means the lowest risk option that will best weather times of economic turmoil because we believe that eventually, the market will correct itself, and many people will be caught with their pants down.

A chart showing the 30 year performance of the Nasdaq with dot com crisis marked with blue arrow and pandemic marked with red x.
Blue arrow is dot-bomb era, red X is pandemic reaction – Credit: Yahoo Finance

We recently wrote about the $125 trillion B2B payments opportunity which dwarfs the consumer payments opportunity, a niche whose leaders represent half a trillion dollars in market cap. We’re not trying to find “the best” way to play the B2B payments opportunity based on the stocks we know of today. One of those is Billtrust (BTRS), also known as BTRS Holdings.

Billtrust Becomes BTRS Holdings

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Founded in 2001, New Joisey’s own Billtrust took in $315 million in funding from investors that included Franklin Templeton, Bain, Goldman Sachs, and Fidelity. Some of that money was used to make 10 acquisitions over the last decade at the pace of about one per year. The end result is a solution that automates every step in the invoice-to-cash process. In other words, they’re handling the “accounts receivable” half of the business payments equation while companies like AvidXchange (AVDX) handle the other half – “accounts payable.”

  • AR Automation – automating the collection of money owed to a business from other businesses
  • AP Automation – automating payments a business makes to other businesses

For this reason, Billtrust wouldn’t be considered a competitor to AvidXchange. (Note that some companies like Bills.com do both sides.)

About a year ago, Billtrust went public by merging with a special purpose acquisition company (SPAC) called South Mountain Merger Corporation or SMMC. The end result is a $1.37 billion company called BTRS Holdings Inc. which is a lot less fun-sounding than the name Billtrust. Now that the SPAC merger is complete, we should have sufficient information to make an informed investment decision. However, we’re finding the company a bit difficult to follow.

Annual Revenues? It’s Complicated.

During our recent deep-dive into AvidXchange (AVDX), we liked most of what we saw, aside from a complete focus on the United States. That concern was somewhat alleviated when we noted The Rona didn’t impact the company’s revenues much, at least when compared to other fintech companies like Upstart. When looking at historical revenues for Billtrust, we run into a brick wall. There isn’t any quarterly granularity provided for historical revenues, but the SPAC deck does include a slide showing how COVID impacts were minimal, at least based on year-over-year bill counts.

The impact of COVID on Billtrust is said to be minimal
The impact of COVID on Billtrust is said to be minimal

At an annual level, Billtrust shows nice consistent growth, but things quickly become confusing. When looking at the SPAC deck and the 10-K, we get conflicting numbers as to what historical revenues actually were. From the SPAC deck:

Billtrust net revenues over time
Billtrust net revenues over time – Credit: Billtrust

And from the 10-K, Billtrust’s revenue was $136.5 million, and $120.5 million for fiscal years 2019, and 2018, respectively. The discrepancy comes down to “GAPP vs. non-GAAP” which are two methods of financial reporting. Below, you can see how an item called “reimbursable costs” affects how revenues are summed up.

Billtrust revenues, net vs gross
Billtrust revenues, net vs gross – Credit:Billtrust

It all comes down to showing two windows into revenues – one includes “reimbursable costs” and one doesn’t. If you pay something – like postage – for your customer, and they always reimburse you for it, that shouldn’t be considered revenues because you’ll never be able to obtain a profit from the activity. If we exclude reimbursable costs, here are the actual revenue numbers (they actually beat their SPAC estimate for 2021E of $105 million, so great job there).

BTRS annual revenues with reimbursement costs removed
BTRS Revenues with reimbursements removed

In looking at who is responsible for those revenues, BTRS sells to enterprise and middle-market B2B businesses with at least $50 million in annual revenue. From the SPAC deck, we can see that they’re targeting large enterprise accounts.

Some of Billtrust's reference customers
Some of Billtrust’s reference customers – Credit: Billtrust

Their top 10 customers, with an average tenure of approximately seven years, account for about 18% of new revenues (the 10-K says 17%). We’re also told no single customer accounts for more than 10% or greater of revenues or accounts receivable.

Regarding how Billtrust makes their money, Less than 10% of revenues come from services, with the remainder coming from the below categories.

The three sources of revenue for Billtrust - Credit: Billtrust
The three sources of revenue for Billtrust – Credit: Billtrust

This is where we’d prefer to have transaction-based payments separated out from subscription payments so we can see how each contributes to total revenues. Billtrust doesn’t do that, opting instead to just show the breakdown between three categories – print, services, and software and payments.

BTRS Holdings revenues segments with software and payments all rolled into one.
Software and payments all rolled into one – Credit: BTRS Holdings

Another thing we’d like to hear more about is the potential to increase Billtrust’s $10.9 billion total addressable market (TAM) by offering supply chain finance solutions.

Accounts Receivable Discounting

One thing that really excited us about AvidXchange is their mention of potentially doubling their TAM through providing supply chain finance solutions such as invoice factoring (something we describe in this article). Greensill’s move to become a $7 billion company based on their invoice factoring product showed us the potential opportunity, and Greensill’s implosion also showed us the potential pitfalls. Done right, we believe there’s a huge opportunity here for high yields at a relatively low risk. For Billtrust, they’re dabbling in something called “accounts receivable discounting.”

In our previous article on AvidXchange, we talked about how invoice factoring involves buying a business’s accounts receivables at a discount, then collecting the full amount from the counterparty when the time comes. The downside here is that the person who owes the money may never pay. That’s where some predictive analytics can ensure you only purchase accounts receivables if the counterparty is very trustworthy. That’s how the AvidXchange Invoice Accelerator product works.

Then, there’s something called “accounts receivable discounting.” That’s where a financial institution will make a loan to a business that is backed by accounts receivable assets. If the business does default on their payment, the financial institution would still need to go through the process of collecting the owed money that the accounts receivable represent. As for Billtrust, we don’t know if they’re the financial institution in this scenario or just a facilitator who collects a small percentage on each transaction. Nor do we know just how big a product this is for the company as we only read about it in a Billtrust blog post.

Should We Buy BTRS Holdings?

As we talked about in our recent piece on 5 Pure-Play Stocks for the B2B Payments Thesis, we’d like to put some chips on the $125 trillion B2B payments opportunity. Right now, it’s down to two companies – BTRS Holdings and AvidXchange.

When choosing between two companies, there’s a subjective metric that we’ve never really considered before. We might call this “business model complexity,” but that term fails to capture complexity that exists due to accounting rules. One example can be found in yesterday’s piece on Farmers Edge. Because their business model and/or accounting rules result in seasonal volatility of revenues, it becomes difficult to monitor the progress the company is making because every quarterly earnings report is a big surprise to everyone, and the stock price becomes highly volatile as a result. When a business becomes too difficult to follow, that’s a good enough reason not to invest in it.

BTRS chose a SPAC to go public with, while AvidXchange chose the traditional initial public offering (IPO) route. That becomes apparent when you start sifting through documents from both companies. We found AvidXchange a whole lot easier to understand.

When it comes to valuation, BTRS stock is trading at $8.74, versus the $10 per share price institutions would have paid when the SPAC deal was finalized. Here’s how Billtrust stock stacks up against our small universe of B2B payments stocks using our simple valuation ratio (for BTRS, we’re using net revenues).

Company Name / TickerMarket Cap Annualized RevenuesRev. DataRatio
Bill.com Holdings (BILL) $29,241$3122Q-2021    93.7
AvidXchange Holdings (AVDX) $4,258$2352Q-2021   18.1
BTRS Holdings (BTRS) $1367$1262Q-2021    10.8
FLEETCOR Technologies (FLT)  $22,908 $2668 2Q-2021    8.6      
WEX (WEX) $8,723 $1836 2Q-2021    4.8   

BTRS stock would hardly be considered overvalued right now, and trades at a discount to AvidXchange, while Bill.com would be considered extremely overvalued. As for which stock we’re going to invest in, we’ll be letting Nanalyze Premium subscribers know shortly.

Conclusion

We’ve now covered over 70 SPACs and aren’t holding one of them. Billtrust seems like a fairly valued play on B2B payments, they’re just a bit convoluted under the hood. We’re happy to pay a premium if it means investing in a company that we can better understand. In a traditional IPO, a lot more due diligence happens than when a SPAC manager is trying to push any deal out the door before the music stops.

B2B payments is a segment where a clear leader hasn’t emerged yet, or if it has, we haven’t found it yet. This is a broad fragmented market that’s moving very fast, and which includes a number of private companies we know little about, unless they go public. Our goal is to put a dog in the race, the best dog we know of now. And that’s not BTRS Holdings.

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