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Edited Transcript of EPAY earnings conference call or presentation 27-Apr-17 9:00pm GMT

Thomson Reuters StreetEvents

Q3 2017 Bottomline Technologies (DE) Inc Earnings Call (English)

Portsmouth May 1, 2017 (Thomson StreetEvents) -- Edited Transcript of Bottomline Technologies (DE) Inc earnings conference call or presentation Thursday, April 27, 2017 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Richard Douglas Booth

Bottomline Technologies (de), Inc. - CFO and Treasurer

* Robert A. Eberle

Bottomline Technologies (de), Inc. - CEO, President and Director

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Conference Call Participants

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* Blake Anderson

* Cristopher Kennedy

* Gary F. Prestopino

Barrington Research Associates, Inc., Research Division - MD

* Jason Michael Kreyer

Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst

* Wayne Johnson

Raymond James & Associates, Inc., Research Division - MD, Technology Equity Research - Transaction Processing

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Bottomline Technologies Third Quarter 2017 Earnings Conference Call. Statements made on today's call will include forward-looking statements about Bottomline's future expectations, plans and prospects. All such forward-looking statements are subject to risks and uncertainties. Please refer to the cautionary language in today's earnings release and Bottomline's most recent periodic reports filed with the SEC for a discussion of the risks and uncertainties that could cause the company's actual results to be materially different from those contemplated in these forward-looking statements. Bottomline does not assume any obligation to update any forward-looking statements.

During this call, Bottomline's financial results are presented on a non-GAAP basis. These non-GAAP results include, among others, constant currency growth rates, gross margins, operating income, EBITDA, net income and earnings per share. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures is available in the Investor Resources section of Bottomline's website, www.bottomline.com.

Bottomline will be providing forward-looking guidance on the call. A summary of the guidance provided during the call is available from the company upon request. I would now like to turn the conference over to our host, Mr. Rob Eberle. Please go ahead.

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Robert A. Eberle, Bottomline Technologies (de), Inc. - CEO, President and Director [2]

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Good afternoon. Thank you for your interest in Bottomline Technologies, and welcome to the third quarter fiscal '17 earnings call. I'm delighted to report on what was a very good quarter for Bottomline. I'm here with Rick Booth, our Chief Financial Officer, who'll provide a detailed review of the quarter's financial results and our guidance going forward. And as always, both Rick and I will be available for questions following his remarks.

The third quarter was highlighted by strong subscription and transaction revenue growth and record cash flow. The results align well with our plan and future direction. Our strategic plan is centered on developing market-leading business payment solutions to drive sustained subscription and transaction revenue growth in a range of 15% to 20%. With 65% of our revenues now subs and trans and a high confidence we can continue to grow those revenues of 15% to 20%, we can deliver a target of $300 million of subs and trans revenue in a 2-year time frame. With those increased subscription revenues and 86% of revenues currently recurring, we can expand operating income and EBITDA margins, allowing us to achieve our near-term target of $100 million EBITDA. With the center element of our strategic plan being subscription and transaction revenue growth, Q3 was an important and positive step forward.

In the third quarter, subs and trans revenues grew 22% for the products fully converted and traditionally sold in subscription and 16% overall. There is no more important metric or better measure of our forward growth potential. Subscription and transaction revenue was 65% of overall revenue, up from 57% a year ago. Revenue overall was $86.1 million. EBITDA was $19.1 million or 22% of revenue, ahead of plan. Operating income was $14.4 million, also ahead of plan. EPS was $0.23, ahead of our target and expectations. And we had free cash flow of just over $23 million, ending the quarter with $141 million in cash.

Quarter's financial results are strong. The real drivers of the results and the key to getting the $300 million in subs and trans revenue and $100 million in EBITDA are customers and products. The greatest source of my confidence in our future is the strength of our product set in the large markets in which we operate. Our best-of-breed product set addressing the large business payment market will produce sustained growth for years to come.

I'll focus the remainder of today's remarks in product and market updates, covering 2 of the key drivers of our Q3 subscription and transaction growth and 2 product sets, which will add to growth in the future. Paymode-X was a major contributor to Q3 and a platform that will most certainly drive continued future growth. We had an exciting quarter with 18 new organizations choosing this leading business payment platform. Bank of America was a big contributor. Their new payer sign-ons included 5 organizations converting to our vendor pay model. During the quarter, we also had significant new payers sign-ons through Bank of New York Mellon and Fifth Third. Both are a form of marketing or platform.

From a volume standpoint, we're now processing over $200 billion in annual payment volume. This is a meaningful milestone. Today, the vast majority of that volume is still in the classic revenue model. So the network size, in addition to being a strategic asset, is also a large yet to be realized opportunity.

From a product standpoint, we've integrated Visa card payment functionality, which is important to banks seeking to offer an integrated payable solution to their business banking customers. We're also actively integrating MasterCard's capability as well, which will be completed by the fall. Our aspiration for Paymode-X is to be the way businesses pay and get paid. Everything we are doing is moving us steadily towards that goal. Paymode-X is a big growth contributor today, and we're confident it will be a significant driver of our future growth and success.

Legal spend management was another key driver of Q3 subscription and transaction revenue growth. We've made targeted investments in the platform to extend our competitive differentiation and to expand into new revenue opportunities. We are seeing our strategy play out.

During the third quarter, we signed contracts for PARTNERSELECT with 2 significant organizations, including 1 on the top 10 insurers. PARTNERSELECT allows our customers to more effectively choose a legal counsel to use when they assign new matters. For Bottomline, it represents an opportunity to provide breadth of capabilities unmatched by any competitor and to derive revenues from the over 13,000 law firms currently on our network. We're getting real traction for this offering. At this point, PARTNERSELECT has been chosen and is being implemented by 4 important customers, validating our original vision when we launched this product.

Strategically, we've secured the position as the clear market leader. This gives us great confidence in our ability to drive consistent subscription and transaction revenue growth. One of the offerings which will certainly contribute to our subs and trans growth in the future is our Digital Banking product set. In line with our strategic plan, a few years ago, we saw the opportunity to develop a truly differentiated capability for business banking, which we call DB 3.0. Our efforts have been recognized by industry analysts and more importantly, by new wins. With the launch of this platform, we converted the revenue model to subscription. That disrupted near-term financials but will provide significant rewards longer term. We now have 2 bank customers live on DB 3.0, one of whom has over 20,000 business banking customers using the platform.

From a product standpoint, during the quarter, we added important new capabilities for international payments. From a sales and marketing perspective, our product leadership was again confirmed in Q3 as one of the 20 largest commercial banks selected DB 3.0. This bank was particularly enamored with the depth of our cash management functionality, the flexibility and design of our user experience and the ability to segment and differentiate their offerings across the SMB and vertical corporate markets they serve.

Digital Banking offerings will positively contribute to our subscription and transaction revenue growth as our current customers go live and more banks choose our market-leading capabilities. We are particularly excited about the market. As rates go up, commercial banking business becomes far more profitable and attractive for banks. That means banks spend more in solutions to grow business banking deposits, which benefits our Digital Banking products as well as Paymode-X and our cyber fraud solutions.

An area targeted for future subscription growth is cyber fraud risk management. We've developed and are marketing cyber fraud solutions packaged to integrate within a company Bottomline's payment and financial messaging platforms. Just this past week, we launched a payments fraud solution for SWIFT payment network. This offering provides a unique combination of comprehensive data capture, behavior analytics, real-time alerting and instruction-blocking designed to identify fraudulent activity and potentially compromised user accounts within the SWIFT payment network. Payment fraud for SWIFT follows on our Web payment fraud solution for web and mobile banking and PT-X Protect, our payment fraud solution for our PT-X cloud platform. Success with these cyber fraud risk management offerings will provide a new source of and additional boost to our subscription and transaction revenue growth.

So in conclusion, a few years ago, we developed a new strategic plan to drive accelerated growth and shareholder value. Our strong Q3 results validate that plan and are indicative of our long-term potential. Key elements of the plan are to invest in our leading business payment platforms to accelerate subscription and transaction revenue growth; sell those solutions in the subscription and transaction model; and to the extent we're not already doing so, convert the model; and as we grow subscription and transaction revenue, drive expansion of operating margin. I think I've given a good sense of our execution against that plan, with the growth in subscription and transaction revenue evidencing the success we're having. We are committed to $300 million in subscription and transaction revenues and $100 million in EBITDA.

We have a lot of confidence given that 2/3 of our revenue is subs and trans growing at 15% to 20%. And with 86% of overall revenue recurring, we have a high-quality, predictable revenue base from which to drive margin expansion. Our plan will drive attractive shareholder returns. Q3 shows we're executing against that plan.

So with that, I'll turn it over to Rick, and then both of us will be available for questions following his remarks.

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Richard Douglas Booth, Bottomline Technologies (de), Inc. - CFO and Treasurer [3]

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Thank you, Rob. I'm pleased to report on a strong quarter and to share our fiscal '18 guidance and longer-term targets. Before I get into those items, however, I'd like to step back and observe that this quarter's results provides strong evidence that we're succeeding with our longer-term strategic plan and financial model.

In brief, our financial model is clear. We target sustained 15% to 20% subs and trans revenue growth. Our current results in fiscal '18 guidance underscore that we're doing that today. And continued execution of this strategy allows us to target $300 million in subs and trans revenue and $100 million in adjusted EBITDA in 2019.

I'll focus my commentary on 3 topics today, each of which supports this model: First, I'll review our Q3 results, particularly the continued very strong subs and trans revenue growth; second, I'll provide an update on our record cash flow generation and our intent to significantly accelerate our share repurchase program; and third, I'll look ahead to confirm our Q4 guidance, provide guidance for full year fiscal 2018 and comment on our longer-term financial model and targets. In addition to my remarks on this call, for your convenience, we've posted detailed supplementary materials to our website.

The third quarter was driven by very strong performance in our subs and trans products, which helped drive core operating income and earnings per share, both above guidance. The highlights of the quarter include the subs and trans revenue grew 22% on a constant-currency basis from the product offerings we've fully converted to subscription and 16% overall. This brought total revenue to $86.1 million, up 4% on a constant currency basis, as adoption of cloud solutions took priority over licensed software. And we recorded $14.7 million of new subs and trans bookings, which is consistent with our long-term subs and trans growth goals.

From a profitability perspective, adjusted EBITDA was $19.1 million or 22% of revenue, and core operating income of $14.4 million or 17% of revenue as well as core earnings per share of $0.23 were each ahead of guidance.

I'll now provide a more detailed look into the third quarter financial results, beginning with revenue. As I mentioned, subs and trans revenue for the product offerings that we have already fully converted to subscription grew 22% on a constant currency basis versus prior year. This is ahead of our target, 15% to 20% range, and shows the power of our product offerings.

The Digital Banking product set recorded a lower growth rate, but led to our overall growth as the additional annual subscriptions currently being implemented go live. With this growth, we had $55.9 million of subs and trans revenue in the quarter, equivalent to $223 million per year. This provides strong evidence the strategy is working and also supports the outlook for fiscal '18 and beyond.

Within the quarter, adoption of our cloud solutions took priority over licensed software. This is favorable for us but resulted in $3.1 million less revenue from software and $1.6 million less services revenue in the quarter than in the same period in the prior year. This means that 86% of our total revenue is now recurring, up from 80% in the prior year, and 65% of total revenue is from subs and trans offerings, which are growing at 15% to 20% per year. We significantly advanced both these metrics year-over-year while also delivering profit ahead of expectations.

From a sales perspective, our performance was good as we signed $14.7 million of subs and trans bookings. This is 26% of subs and trans revenue for the same period, which is consistent with sustaining our 15% to 20% subs and trans revenue growth over the long term. These figures are estimates, and customers take time to implement and ramp to full production, but this provides visibility and consistency to the model as well as the power to drive margin expansion.

Looking solely at new customers, we added 26 new customers across Paymode-X, Legal Spend Management and Digital Banking.

Specifically, 18 new payers joined the Paymode-X network, 3 new insurers selected our legal spend management solutions and 5 new banks selected our Digital Banking product.

Turning to profit and margins. We delivered adjusted EBITDA of $19.1 million or 22% of revenue and core operating income of $14.4 million or 17% of revenue, each ahead of guidance. Of particular note is that the products in our established revenue models delivered core operating margin of 21%, showing the power of our financial model.

Overall gross margin was $48.2 million or 56% of revenue, and our subs and trans gross margin was 55%, as margin expansion in the products which have fully transitioned their revenue models was diluted by the cost of banking implementations which are not yet live.

From an operating expense standpoint, sales and marketing expense for the quarter was $15.7 million or 18% of revenue, and development expense was $11.7 million or 14% of revenue.

Our cash flow for the quarter was very strong, with operating cash flow of $28.3 million and free cash flow of $23.4 million for the quarter. Each of these was a record for Bottomline, and we ended the quarter with $141 million of cash and investments on hand.

We believe our stock is an attractive investment, particularly at today's levels. We're moving quickly to repurchase an additional 1 million shares and expect to have the program completed by the end of our fourth quarter ended June 30.

Turning to guidance. I'm pleased to confirm our fourth quarter guidance of $91 million of overall revenue, $15.1 million of core operating income and $0.25 core earnings per share. As with this quarter, we expect a richer mix of subs and trans revenue within the original guidance, which sets us up for the following year. For full year fiscal 2018, we see strong subscription and transaction growth to $250 million to $255 million overall, up 15% on a constant currency basis, including 18% to 21% growth from the established product lines. This will bring total revenue to $370 million to $375 million. And from a profitability perspective, we expect core operating income of $65 million or 17% of revenue, adjusted EBITDA of $85 million or 23% of revenue and core earnings per share of $1.06. We will provide more detailed quarterly guidance as part of each preceding quarter's call rather than guiding all 4 quarters individually today.

In conclusion, our financial model is clear. We target sustained 15% to 20% subs and trans revenue growth with the expansion of operating and EBITDA margins. Current financial results show that we're doing that today. And our fiscal '18 guidance underscores our confidence. Continued execution will allow us to target $300 million in subs and trans revenue and $100 million of adjusted EBITDA, both in 2019.

And with that, we can open the call to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question, from Chris Kennedy with William Blair.

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Cristopher Kennedy, [2]

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Can you just talk a little bit about sales trends? Year-to-date, they're still well below last year. And if you can just kind of frame what's going on there that will be great.

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Robert A. Eberle, Bottomline Technologies (de), Inc. - CEO, President and Director [3]

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Sure. I think I'd take that up by way I mentioned some of the products I just touched on. So I think legal spend management, the new products are really exciting for us in terms of a new sales trend and opening that with PARTNERSELECT. Paymode-X, a key there is getting additional channels live. And we had a strong quarter with a significant -- one of our largest-ever deals, actually, through Bank of New York Mellon and real good activity through Fifth Third. So we're seeing additional bank channels coming on there. In Digital Banking, the DB 3.0 platform has really become the platform of choice. So as deals come up in that $10 billion and above or under $10 billion in asset size a bit focused on business banking, we should win, and we are winning. So that's -- that really becomes a function of how many deals are coming up in any given circumstance. And then the last piece on sales, I'd say in Europe, where we have thought things might be a little rougher with Brexit and everything else, we've seen really strong results. There's a lot of regulatory changes that are coming into play with payment, so more organizations are moving to cloud to allow them and being more nimble to address that, and that's playing out well. So I think we got good sales results across the board so far this year. The one place I'd mentioned we'd had last would be in software. And that's really at the end of the day kind of understandable given the focus we've put on subscription and transaction. I do think we can generate more in software than we did this particular quarter. But across the board, looking overall, I think sales results have been strong. And then the last thing I'd mention is with rates going up, it creates a better market for us with banks because the side of the bank we're dealing with is driving a significant portion of their income from float and account balances. And so they'll look to win more business banking customers and win more wallet share. And the solutions we're providing, Digital Banking 3.0, Paymode-X, even cyber fraud risk management, all relate to that. So we've had so far this year through 3 quarters good sales results and a good sales environment.

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Cristopher Kennedy, [4]

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Okay. And then just one follow-up on Paymode-X. I think you highlighted Fifth Third and Bank of New York Mellon contributing. Can you just frame how much they're contributing today versus 6 months ago? Are they kind of fully ramped?

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Robert A. Eberle, Bottomline Technologies (de), Inc. - CEO, President and Director [5]

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No. It's certainly not fully ramped. And they're contributing more in terms of than they had in the past. In terms of dollars on that, we're not providing that just from their perspective, but I can put out who's ahead of who or how. But they're both now firing well for us and contributing well, so that's pretty exciting.

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Operator [6]

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We have a question from the line of Gary Prestopino with Barrington Research.

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Gary F. Prestopino, Barrington Research Associates, Inc., Research Division - MD [7]

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Just on the metrics that you put out as a target for fiscal '19, Rick, is that exiting Q4 at a run rate of $300 million of sub and trans on a run rate of $100 million of adjusted EBITDA? Or is that what you're looking at? How that should be totaled by the end of fiscal '19?

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Richard Douglas Booth, Bottomline Technologies (de), Inc. - CFO and Treasurer [8]

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We actually think that we can get there in total in 2019. It's the momentum that we're seeing.

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Gary F. Prestopino, Barrington Research Associates, Inc., Research Division - MD [9]

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I just wanted to clarify that, okay. And then a lot of talk around the banking product. But are -- given the emphasis that you're putting on DB 3, I mean, are you kind of seeing more of an appetite with the banks with a SaaS model versus wanting to take license and that's why we haven't seen anything signed up on a license level for a couple of quarters now?

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Robert A. Eberle, Bottomline Technologies (de), Inc. - CEO, President and Director [10]

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Well, the -- we're focused on subscription and transaction. There are customers that are going to want it on premise and going to want a license. But what our strong, strong -- more than preference, our strong go-to-market is in the subscription and transaction model.

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Gary F. Prestopino, Barrington Research Associates, Inc., Research Division - MD [11]

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Okay, all right. And then lastly, on Paymode-X. As this kind of proliferates in the market, are you seeing any kind of acceleration on the side of the user getting more of their vendors all -- or getting the vendors signed up and actually using the product versus maybe where you were 3 or 4 years ago?

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Robert A. Eberle, Bottomline Technologies (de), Inc. - CEO, President and Director [12]

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Definitely. What we can see is that when you have an existing vendor community on and we bring, particularly in health care, as an example, one of the verticals where we've had great success, we'll have a larger population of the existing vendors already enrolled in a vendor pay model. So from the moment of go-live, we'll see a much quicker ramp on that. So yes, no question. We're seeing momentum today on that. And I think as you play that out, another -- you asked a question 2 or 3 years ago, as you play that out another 2, 3 years forward, I think you'll see even more momentum.

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Gary F. Prestopino, Barrington Research Associates, Inc., Research Division - MD [13]

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Okay. Just real quickly, would you be willing to share, I think you said you're doing about $200 billion of processing. Just what percentage of that is the classic versus the interchange at this point?

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Robert A. Eberle, Bottomline Technologies (de), Inc. - CEO, President and Director [14]

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We're not breaking that out exactly so we don't end up having that become a competitive sort, but I'd tell you that 90% plus is in the classic model today. So it's a huge opportunity when we see a mix of conversion deals from Bank of America because a vast majority of that volume comes through customers of Bank of America and brought to us through Bank of America. When we see a number of conversion deals in the quarter that gets pretty exciting because, ultimately, converting that whole base is a huge, huge revenue model -- revenue opportunity for Bottomline.

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Gary F. Prestopino, Barrington Research Associates, Inc., Research Division - MD [15]

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So I mean, how many did you say converted this quarter? Or you didn't give the number?

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Robert A. Eberle, Bottomline Technologies (de), Inc. - CEO, President and Director [16]

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No. I gave the number that was 5. That's the most we've ever had.

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Gary F. Prestopino, Barrington Research Associates, Inc., Research Division - MD [17]

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That's good. And so once they convert, you totally flip the switch. You go to an interchange model versus a classic, right?

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Robert A. Eberle, Bottomline Technologies (de), Inc. - CEO, President and Director [18]

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That's right. Totally, flip the switch. Right now, we have to enroll their vendors, and some of their vendors, as you referenced earlier, will already be on. Then we have to enroll other vendors. So it's not 100% of their vendors instantly paying, but it does flip the switch right away against the population of vendors we have enrolled, and then we'll work the rest of their vendors.

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Operator [19]

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And our next question, from Brett Huff with Stephens.

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Blake Anderson, [20]

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This is Blake Anderson on for Brett. Can you just talk a little bit more about the size of the banks for the 5 Digital Banking wins? How do these compare a little bit more to the size of your recent wins? And then were these all the new SaaS version of the software?

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Robert A. Eberle, Bottomline Technologies (de), Inc. - CEO, President and Director [21]

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So we had -- let's see, from the size standpoint, we had -- one was a significant size this quarter, and that's kind of what we run. We typically have one of a larger bank per quarter, and that's roughly what we've been seeing. Some -- having 1 in a $10 billion to kind of $500 billion range, and that's what we saw here this quarter. We had one deal this quarter that wasn't a license, but the vast majority continued to be in subscription. And what we're really benefiting from is the mix of capabilities that we can bring to these banks so that you can get one vendor that can provide online account opening, can provide cash management, can provide Paymode-X, can provide cyber fraud risk management solutions. So while we're focused on the largest component of that being the payment and cash management piece, we have a huge opportunity for other sales to all of our bank customers.

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Blake Anderson, [22]

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Okay. And then for the '18 Paymode wins, are there any large corporates in there? And it seems like the last few quarters, you've kind of been in this 15% to 20% range wins per quarter. Is that kind of the rate you should expect in FY '18?

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Robert A. Eberle, Bottomline Technologies (de), Inc. - CEO, President and Director [23]

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No, I think that's the rate we're running at. I'd like, of course, to see that rate go up, but I think the right rate to expect right now would be that rate. And we had a nice mix. We're doing particularly well in health care. So we've had some large health care players this year, and I think we'll continue to see that. Once you get more and more scale, you'll have more and more of the installed vendor community as part of the network. But in short, I think that 15% to 20% range is probably a good expectation for now. As we bring on more bank channels, I think we'll see that go up, though.

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Richard Douglas Booth, Bottomline Technologies (de), Inc. - CFO and Treasurer [24]

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Yes. And in general, I would say on the logo accounts, I focus much more on ARR bookings and how those compare to our existing subs and trans run rate. We booked an additional 26% relative to our subs and trans run rate today, and remember that these deals take time to roll out. So that's more than sufficient to support our long-term growth aspirations. You can have quarters in which you've got smaller deals, quarters in which you've got larger deals. So I really keep circling back to the ARR.

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Blake Anderson, [25]

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That's helpful. And then one last question, if I could. I think you said you expect the MasterCard integration to be done by the fall. I guess have you closed any deals you can talk about with the MasterCard or Visa partnership?

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Robert A. Eberle, Bottomline Technologies (de), Inc. - CEO, President and Director [26]

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We have not. We're actively talking to banks that, for obvious reasons, has a long sales cycle given the kind of complexity in multiparties of that. But we're excited that FY '18 should be as an interesting year for signing new bank channels on with those important partners, Visa and MasterCard.

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Operator [27]

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And we have a question from George Sutton with Craig-Hallum.

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Jason Michael Kreyer, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [28]

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It's Jason on for George. I wanted to go back to Paymode-X and the vendor pay. You had the record number of conversions from classic to vendor pay in the quarter. Just wondering if there's anything you can point to that fuel that or if there's a different appetite at BofA to kind of go after that existing customer base at this point.

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Robert A. Eberle, Bottomline Technologies (de), Inc. - CEO, President and Director [29]

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I don't know that I'd point to something. I know we've presented that. We're -- we've been big advocates of that opportunity. Obviously, we benefit from that. I think what we have is an ocean liner the turns and turns slowly, but it turns with real power as it does. So we've -- we're not trying to push the banks more aggressively on that. But I think they'll see that success. What's nice is Bank of America's quarterly revenue from the vendor pay model has been steadily increasing and really catching the eye of more of the executive team there. So I think that's probably the #1 driver because that's how you get more of that revenue. But in short, we're not in a great -- we're not going to push the bank faster than the bank wants to move. But it's a fantastic opportunity in front of both organizations that I've got every confidence, ultimately, we'll wind up realizing.

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Jason Michael Kreyer, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [30]

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Okay. On CFRM, we've talked about this a little bit as kind of a land and expand. And just wondering if you can give a little bit more detail on at what point in the process you introduce that or at what point does the fraud component become a part of the conversation with banks.

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Robert A. Eberle, Bottomline Technologies (de), Inc. - CEO, President and Director [31]

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Well, it's against -- there's a couple different ways that comes into play. So it's an opportunity to expand existing relationships. So an add-on sale, if you will. It's also an opportunity for us, and has been very successful to us, to demonstrate thought leadership in innovation. So the #1 thing top of mind of banks today is certainly, and has been for the past couple of years, is cybersecurity and the fact that we have brought that leading solution to market. Whether or not they've integrated that or bought that today has definitely benefited us in sales cycles across the board. And then, ultimately, what we would see is not just in banks, but the opportunity -- the new products we've launched now on an integrated basis so that we're sitting alongside a SWIFT Alliance access points that were in our cloud payment platform, PT-X, and as well as with web payment fraud for digital banks that it just becomes a complement to Bottomline's existing payment solution.

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Jason Michael Kreyer, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [32]

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Okay, and the last one for Rick. I'm coming up with subs and trans growth of about 13% in the quarter, which is a little bit below the long-term range you provided. And I'm not sure if that delta is FX-related or if there is another component there. If you can just kind of break into your thoughts on the numbers.

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Richard Douglas Booth, Bottomline Technologies (de), Inc. - CFO and Treasurer [33]

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It's absolutely FX-related. So our overall constant currency growth rate is 16%. But most importantly, for those products which we've fully transitioned to the subscription model, we're growing at 22%. So both numbers are within -- well, one is above. And the overall blend, even with banking not contributing as much this quarter, we're within that range.

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Jason Michael Kreyer, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [34]

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Got it. So the difference between the 13% and 16%, that's FX. So it was about a 3% headwind?

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Richard Douglas Booth, Bottomline Technologies (de), Inc. - CFO and Treasurer [35]

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That's correct. And they're reconciled in the supplementary materials on the website, just FYI.

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Operator [36]

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(Operator Instructions) We'll go to Wayne Johnson with Raymond James.

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Wayne Johnson, Raymond James & Associates, Inc., Research Division - MD, Technology Equity Research - Transaction Processing [37]

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I was wondering on the timing of how long it would take to board that top 20 client -- top 20 bank client, excuse me that was awarded a win on the Digital Banking side in the quarter.

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Robert A. Eberle, Bottomline Technologies (de), Inc. - CEO, President and Director [38]

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So that program will probably be a 6-quarter time frame, and that has not yet begun, having just been signed. So I would think before we see revenue out, it would probably be -- it would probably be a 6-, 7-quarter time frame.

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Wayne Johnson, Raymond James & Associates, Inc., Research Division - MD, Technology Equity Research - Transaction Processing [39]

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Got it. And is Bottomline doing the implementation on that? Or have you guys decided to use a third-party for any of the Digital Banking customer wins?

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Robert A. Eberle, Bottomline Technologies (de), Inc. - CEO, President and Director [40]

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It's a great question. We are doing the implementation there. There's a significant accounting advantage to us at the point in time that we have a third-party do implementation to a change to our accounting pretty dramatically, and its services for subscription customers that were being paid for separately would actually become revenue for Bottomline. Today, that's deferred over the expected life of the customer, while costs are all expensed today. Having said that, for us, the key has really been customer delight and customer success and interjecting a third party, bringing on our solution where a lot of what we do, frankly, is helping the bank on pieces that they don't do regularly. This is a business we're in all the time. So whether that's how we're migrating existing customers, what are test scripts, what are the other pieces around that, we do that regularly and they don't. It's really a partnership around that. So interjecting a third party would lose not just the technology side of Bottomline, but you'd also lose data systems and leadership role we play with respect to the banks. So from a financial and an accounting standpoint, we'd love to get there, and we'd love to have a partner. But we don't -- we're not utilizing a partner yet today.

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Wayne Johnson, Raymond James & Associates, Inc., Research Division - MD, Technology Equity Research - Transaction Processing [41]

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And then just a quick follow-up on a separate topic, if I may. So on the cybersecurity side -- or cyber fraud, I should say, that's -- when is this going to be implemented? Is this just for the SWIFT clients that you guys have? Or is this going to be sold into the SWIFT network in its entirety?

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Robert A. Eberle, Bottomline Technologies (de), Inc. - CEO, President and Director [42]

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It's -- so to be clear, it's a technical point. We're not actually in the SWIFT's network -- SWIFT network. What we would do is we'd play on any access points to SWIFT network. We offer this to our existing customers, which we're the largest provider of financial messaging platforms outside of SWIFT themselves in the world. So that's a big market opportunity for us. And it's also available to organizations that are not today a Bottomline Technologies customer.

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Operator [43]

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And we have no additional questions. I'll turn it back to our presenters for any closing remarks.

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Robert A. Eberle, Bottomline Technologies (de), Inc. - CEO, President and Director [44]

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Well, thank you. Thank you, everyone, for your attention to the call. We're committed to driving subscription and transaction revenue growth and shareholder value, and we look forward to reporting back to all of you at the end of the fourth quarter. Thank you.

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Operator [45]

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Thank you. Ladies and gentlemen, this will conclude our teleconference for today. Thank you for your participation and for using AT&T Executive TeleConference. You may now disconnect.