Robert A. Eberle - Bottomline Technologies, Inc.

Richard Douglas Booth - Bottomline Technologies, Inc.

Andrew Schmidt - Citigroup Global Markets, Inc. George Frederick Sutton - Craig-Hallum Capital Group LLC Gary Frank Prestopino - Barrington Research Associates, Inc.

Mayank Tandon - Needham & Co. LLC Blake Anderson - Stephens, Inc.

Robert Paul Napoli - William Blair & Co. LLC Daniel R.

Perlin - RBC Capital Markets LLC

Good afternoon, everyone. Thank you for your interest in Bottomline Technologies, and welcome to the fourth quarter fiscal 2018 earnings call.

I'm delighted to report on what was an outstanding quarter for Bottomline. I'm here with our Chief Financial Officer, Rick Booth, who will provide a detailed review of the quarter's financial results and our guidance going forward, and then, as always, both Rick and I will be available for questions following his remarks.

The fourth quarter was an outstanding quarter, and it completes a very successful year. I'm delighted with the results we're reporting today: 20% subs and trans revenue growth, $26 million EBITDA, and $25 million in bookings.

Since we committed to FY 2019 targets of $300 million in subs and trans revenue and $100 million in EBITDA, we've consistently executed against those goals exactly as we said we would. The results for Q4 in FY 2018 are another step forward and demonstrate we're on track to meet or exceed our $300 million and recently increased $100 million to $102 million FY 2019 targets.

I'm even more excited about the future prospects for the business. Our market opportunity, product set and business model are all aligned.

The size of the business payments opportunity we're addressing, the market response to our technology set, and our continued execution against our strategy will drive growth and shareholder value in FY 2019 and for years to come. I'm going to focus my remarks on several important topics.

Our market opportunity, which is large; the competitive dynamics and why we are consistently winning; our business model, which produces long-term, profitable growth; and finally, our FY 2019 priorities. Before doing so, let me touch briefly on the financial highlights of the quarter.

Subscription and transaction revenues grew 20% in the fourth quarter. This is the second quarter now we've had subscription and transaction revenue growth of 20-plus-percent driven by broad-based demand for our cloud-based business payment offerings.

Subscription and transaction revenue for the products fully converted and traditionally sold in subscription grew 24%. For four quarters now, these products have grown over 20%.

Subscription and transaction revenue was $71.1 million, a run rate of $284 million. Revenue overall was $106.5 million, that's 14% growth year-over-year.

EBITDA was $26.1 million, up 25% from the prior year, demonstrating the profit potential of our model. Operating income was up 28% from the prior year at $21 million.

EPS was $0.35, ahead of our target and expectations. And we ended the quarter with $132 million in cash, reflecting $29 million free cash flow we generated in the quarter.

The financial success we're seeing demonstrates the alignment of market opportunity, our strategic plan, our product set, and our execution. I'm now going to turn to the market, how and why we win, how we'll drive continued growth in the value of the business, and our priorities for the fiscal year.

We are in the very early innings of the digital transformation of business payments. It is a huge opportunity.

The U.S. B2B payment volume is estimated at over $20 trillion, 63% of businesses still make 50% or more of their payments by paper check.

The most exciting thing about it is the market is breaking our way. No one is better positioned to capitalize on this opportunity than Bottomline.

We see that in the interest from customers. We see it in our new bookings.

We see it with banks who now more than ever compete first and foremost on technology and look to Bottomline for next-generation capabilities. And those already favorable dynamics are being amplified by changing payment standards and new payment regulation.

We're in a fabulous position and committed to making the most of it. Our market position was evidenced by $25 million of new subscription and transaction bookings in Q4.

We've had over $20 million in bookings each quarter in FY 2018, generating a total of $90 million in new bookings for the year. The strong sales results evidence this market opportunity, product leadership, customer value, and sales execution.

To help understand the bookings success, I'll next comment on competitive dynamics. While we provide a number of different payment products, the competitive dynamics, the why we win, is virtually the same across all products and across geographies.

I hear these themes regularly from our customers around the globe. First, we have scale and experience.

We have a proven capability and real world experience. While others may have an idea and some software and even a lot of funding, we can show our prospective customer hundreds if not thousands of existing customers using our technology.

That means something. It means a lot, actually.

We also have deep domain expertise. We have incredible institutional knowledge, second to none, around business payments.

That's become a particularly valuable asset as the pace of change of payments has accelerated. Whether Open Banking, Faster Payments, or cybersecurity, we have the expertise to guide clients and direct product strategy.

We have trust, built on a track record of delivering customer success and innovation. Customers see us as a trusted innovation partner, I hear it regularly, and we focus our employee, team, and culture on that theme.

And most of all, we have product leadership. We're committed to delighting customers and the principal way we do that is with product capability and leadership.

It's all about being first-to-market and best-in-market, not just today, but going forward as well. Turning now to our business model, while market leadership and competitive dynamics drive wins, our business model drives sustained value creation.

We have a model that can drive extraordinary value creation. That's because of both the nature of the capabilities we're providing and the manner by which we monetize them.

When we win a new customer, these are long-term relationships. We're deploying mission-critical business payment platforms that become essential to a business' everyday operations.

When our customers become engaged with Bottomline, there is a deep dependency. We've integrated into back office systems, we've been tested, we've been embraced, and we've become a crucial part of their infrastructure and operating success.

We're not deploying a consumer app. We're deploying heavy-duty business payment platforms.

When customers go live with us, often thousands of vendors are enrolled or hundreds of law firms connected or thousands of customers converted. They do not want to change.

And they don't, because our customers are seeing significant benefits in ROI (9:23) each day, month and year they are on our platform. Organizations who select Bottomline know they can count on our commitment to continue to innovate.

This ensures they'll be on the latest platform even as technology and industry standards change in unpredictable ways. Faster Payments, PSD2 and Open Banking are all examples of recent industry changes for which we've been at the forefront of the market.

As a result, we keep our customers for 10, 15 years or more. Nobody wants to move or leave.

Part of that is our customer focus I've already alluded to. But equally important is the systemic mission-critical nature of our platforms and the technology model itself.

From a Bottomline perspective, the lifetime value of a new major relationship will be $10 million, $20 million, or even $50 million. These customers will be paying us not just for our current capability, but also buying our new add-on capabilities.

And with many of our products, our revenue grows as the customer grows. It's a mutually beneficial relationship and a highly attractive business model.

As we enter FY 2019, our priorities are two-fold; achieve or exceed our committed financial targets, and extend our product leadership. Achieving our financial commitments is a central part of who we are and what we are about.

Nothing will get in the way of our achieving our committed $300 million and $100 million to $102 million targets, and we may well exceed them. Equally important is extending our product leadership which has multiple benefits.

First, it means more capabilities for our customers, an important part of our success. Second, it translates into competitive advantage, increased product leadership further distances us from competition, enabling a deeper moat, securing our edge against established market participants and new entrants.

And perhaps most importantly, the opportunity is there. The opportunity to drive further growth is right in front of us.

With our TAM, market position and competitive dynamics and the changing business payment landscape, we have the opportunity to drive significant growth for years to come and even to accelerate that growth. Extending our product leadership is the key.

The TAM for 20-plus-percent or frankly even 25-plus-percent growth is readily available. So in conclusion, the fourth quarter was an excellent quarter.

We leveraged strong market demand that post 20% subscription and transaction revenue growth, and grew total revenue 14%. We recorded $26 million EBITDA and $94 million EBITDA in the fiscal year.

And most importantly, this is a big market in the early innings and it's breaking our way. Customers are responding our offerings, establishing new relationships which will result in significant lifetime customer value.

Our market opportunity is large and our strategy and execution are aligned with that opportunity. We have a high confidence we'll achieve our goals including specifically the $300 million of subscription and transaction revenue and the $100 million to $102 million of EBITDA.

Our bigger goal is to establish Bottomline as the way businesses pay and get paid and, in doing so, drive the value of this company to a multiple of what it is today. So with that, I'll turn it over to Rick and then of course both of us will be available for questions following his remarks.

Thank you, Rob. I'm pleased to report on an exceptionally strong quarter capping a very successful year.

I'll focus my remarks on three topics. First, I'll briefly comment on our strategic and financial position as we enter the new year.

Then, I'll review our fourth quarter financial results in detail. And finally, I'll provide guidance for the upcoming period.

Our financial results are driven by our strong strategic and financial position. We address a large and growing market for business payments.

We're seen as a trusted innovation partner by our customers and our channel partners. Our product platforms are clearly differentiated in the market.

Our sales teams have tremendous momentum and our predictable and profitable business model allows us to simultaneously deliver current financial results and make the investments we need to drive growth and value in the long run. Each of these factors is evidenced in our Q4 financial results.

Highlighted by 20% overall subs and trans revenue growth, $26.1 million of EBITDA in the quarter, and $24.8 million of new subs and trans bookings. And to review these results in detail, I'll speak briefly to each line in our P&L and, in addition, we've posted supplementary materials to our website for your reference.

Beginning with revenue, subscription and transaction revenue is our priority. It's predictable and profitable today and it positions us to continue to grow with our customers as they expand their use of our products and as we extend our value propositions to them as well.

Overall subs and trans revenue grew 20% in the quarter, led by 24% growth from products fully converted to subscription. With this growth, we recorded $71.1 million of subs and trans revenue, which is equivalent to $284 million on an annualized basis.

This means that 67% of our revenue in the quarter came from these subs and trans offerings which is up 4 percentage points year-over-year. Moving down to license revenue, this, by design, is only a small part of our overall business driven by our traditional product set.

And as we expected, in Q4, license revenue was only 2% of total as customers continue to embrace our newer cloud solutions. Moving to services revenue, this reflects the professional services we offer to ensure our customers succeed and we recognized $12 million of services in the quarter, slightly ahead of our expectations.

Now, maintenance revenue is a valuable and highly profitable component of our revenue mix. Given the central importance of our applications to our customers and our very long customer relationships, we enjoy high renewal rates which enabled maintenance to increase year-over-year.

Maintenance revenue of $17.5 million in the quarter and of $70.4 million for the year were each up slightly year-over-year and the combination of maintenance and subs and trans revenue provides us with 84% recurring revenue and excellent visibility to upcoming results. Now, other revenue is typically less than 1% of total.

This quarter, we also recognized $2.6 million in other revenue related to the retirement of certain potential revenue sharing arrangements which also produced around $1 million of EBITDA. In total, this brought revenue to $106.5 million for the quarter which was up 14% overall year-over-year and well ahead of plan.

Now, sales momentum is a leading indicator of revenue growth and I'm pleased to report strong sales performance as customers continue to choose Bottomline as their trusted innovation partner to automate business payments. We signed $24.8 million of new subs and trans bookings in the quarter, bringing us to $90 million in new subs and trans bookings for the year.

While bookings figures are estimates and customers take time to implement and ramp to full revenue production, this provides us with visibility to future subs and trans growth in fiscal 2019 and beyond. Looking at new customer signings, our Paymode-X network added 25 new payers, which further validates the attractiveness of our full payment automation value proposition as well as the effectiveness of our channel partnerships.

We signed three new customers to our Digital Banking product set and have approximately $18 million of annual subscriptions, which are not yet being recognized in our P&L. We signed three new insurers to our legal spend management network and seven others expanded their existing relationships with us, further validating the breadth and depth of that value proposition.

Turning from sales to profitability, we delivered adjusted EBITDA of $26.1 million. This is up 25% year-over-year and this brought us to $93.7 million of EBITDA for the full year.

This is an EBITDA margin of 24% of revenue, which is up 2 percentage points year-over-year. We also drove core operating income of $20.7 million and core earnings per share of $0.35, which were up 28% and 25% year-over-year, respectively.

So, in total, these results evidenced the predictable profitability of our business model. Our gross margin of $62.6 million, or 59% of revenue, is up 2 percentage points year-over-year and our subs and trans gross margin of 57% is also up 2 percentage points year-over-year.

From an operating expense standpoint, sales and marketing expense for the quarter was $19.1 million, or 18% of revenue, and development expense was $13.9 million, or 13% of revenue. And with the market opportunity we see in front of us, we feel increased investment in both these areas into our fiscal 2019 plan.

Turning from profitability to cash flow and the balance sheet, we had strong cash flow in Q4. Our operating cash flow was $35.2 million, which, after CapEx of $6.5 million, drove free cash flow to $28.7 million for the quarter and $54.7 million for the year.

This provided us with $132 million of cash and investments on-hand at the end of June. And subsequent to quarter-end, we deployed $20 million of that cash to pay down our credit facility and we made a small 5% tuck-in acquisition in the U.K., which further expands our U.K.

payment presence and our capabilities in the region. One consequence of our strong stock performance is that warrants associated with our 2012 convertible bond offering converted into 264,000 shares of stock in Q4.

And at today's stock price, we expect around 750,000 more shares to convert in Q1, at which point those warrants will be fully extinguished. Turning to guidance, as we enter fiscal 2019, I'm pleased to report that we're well on track to deliver our full-year guidance, including $300 million of subs and trans revenue and $100 million to $102 million of EBITDA.

We continue to evaluate the impact of ASC 606 and we expect it to be modestly favorable, which is reflected in that guidance. In the first quarter of the year, we expect to deliver $68 million to $69 million of subs and trans revenue, $99 million to $100 million of total revenue, $23 million to $24 million of adjusted EBITDA, $18 million to $19 million core operating income, and core earnings per share of $0.31 to $0.33.

So in conclusion, we closeout our fiscal year with an exceptional quarter, including 20% overall subs and trans growth, $26.1 million of EBITDA and $24.8 million of new subs and trans bookings. This broad momentum provides confidence in our 2019 guidance, including $300 million of subs and trans revenue and $100 million to $102 million of EBITDA.

But, equally important, we have a strong strategic position and a financial model which will drive value for years to come. And with that, we can open the call to questions.

Yeah. Hi, Rob.

Hi, Rick. Thanks for taking my question.

Starting with a question on the FY 2018 outlook, it looks like, just looking at the implied margins, you're expecting flattish margins in FY 2019. I was wondering if you could walk us through a little bit just the puts and takes in terms of the EBITDA look for the year.

I understand some of that's incremental investment, but I guess how much is incremental investment contributing to that flattish margin versus just general prudence. Any context in terms of the bottom line outlook would be helpful.

Hi, Andrew. This is Rick, and thank you for your question.

We're actually growing EBITDA from $93.7 million to $102 million. I think when you look at Q4, Q4 was an extraordinary quarter.

We had a lot of things going right, and we are increasing our investment in development spend in the upcoming year in order to extend our product capabilities. We're in the early innings facing very large market, and we think that's the appropriate thing for us to do.

I guess on that note, could you talk about just in a little more granular detail the areas in which you're investing and how that can relate to future growth?

Yeah, our primary investments, and I won't get into a lot of detail here because competitors listen to our calls, as well, but our key priorities as we look at our investments in the upcoming year is product development. So some of the – two-thirds, one-third or a three-to-one ratio in terms of development investment relative to sales and marketing, which is the other key area of operating investment below the gross margin line.

Okay. So fair to say, just I think some of it's product and some of it's sales and distribution?

Yes, and as we talked about before on these calls, we're continuing to expand the range of capabilities of our products, including interoperability across the platforms and some of those same areas.

Understood. And I think switching gears just to the subs and trans outlook.

Can you help us just I think contextualize just the outlook? It looks like there's a little bit of a deceleration from a growth perspective.

Should we think that of that more as a starting point? I would imagine, given the robust bookings growth over the past couple years that that growth should be a little bit faster.

But any help there just to frame the subs and trans growth in FY – Q1 FY 2018 would be helpful.

Yeah, certainly. Starting with Q1, and I'll make some commentary about the year, as well.

So Q1 reflects normal seasonality from Q4 to Q1. It also reflects the impact of 606 and the absence of certain contractual milestones which benefited Q4.

I'll speak about each of those in turn. First, under 606, we lose the benefit of some ratable revenue recognition that's related to previous installations.

Although this impacts us in the short-term, our underlying growth allows us to confidently maintain our subs and trans guidance for the year. Next, completion of certain contractual terms resulted in the recognition of revenue in Q4 which had previously been deferred, along with the associated costs.

We don't expect that to recur in Q1. And then finally, just an overall comment, subs and trans revenue can move up and down on a sequential basis due to transaction volume, price limits in bands, and contractual success fees.

Okay. So a few moving parts in there – got it – in terms of the growth.

That's helpful in terms of an explanation. I guess just my final question.

If we could take the subs and trans bookings growth in the quarter and break those down, what do those look like? And I know you don't like to break those down in such a granular fashion, but is that more Paymode-X?

Is that legal? How does that break out?

We had broad strength across the product lines. I would say in contrast to prior quarter, where we had the large banking booking that we talked about, banking bookings were more normalized this quarter, with our established products that are already on the subs and trans model performing even more strongly.

Okay. Understood.

Thank you, guys. Appreciate it.

Thank you. Nice results.

So, Rob, I think you did a good job of explaining that the opportunity is right in front of you, and you are doing everything from a product innovation perspective to stay ahead. I'm curious what you were doing in that context to really increase the go-to-market profile both from a direct sales and from a channel partner perspective.

You mentioned you're making some increased investments. So I wondered if you could give us a little bit more detail there.

Well, as Rick mentioned quickly, alluded to, we're not going to go into product roadmaps and specifics on this call. It's just such an easy forum for competitors to say that they're doing the same elements.

But you're seeing a lot of the things that we talked about before, seeing user experience, multi-channel, machine learning, fraud. Simple, smart, secure is really what people are looking for and that's what we're bringing to market with the most feature-rich product set.

From a go-to-market standpoint, we are increasing what we're doing in terms of channels, particularly in Europe. We have efforts underway to increase our channel partnerships in Europe on some of our U.K.

payment products, in particular. So channel remains an important part and we're continuing to see more success with our channel partners for Paymode-X in the U.S.

This was a wonderful quarter. We saw a mix of deals from across – virtually every one of our significant channel partners had a transaction in this quarter.

So we're really pleased with how that's working and we expect that to continue to grow and contribute to Bottomline's success.

Can you give us a sense of any additional conversions of historic Paymode customers to vendor pay?

Yeah, there were two in this past quarter, one of significant size. So that, as you know, kind of continues to be an account by account rather than an established program but there were two conversions in this past quarter.

And that remains a focus, I would assume, going forward?

Actually, it would be an upside going forward. I wouldn't call it a focus for us because we don't really control that.

Bank of America controls that. Our focus, frankly, is winning new deals.

We know that, over time, we're going to capture a huge upside from that effectively installed base, if you will. But telling the bank where and when and how to accelerate that or make that a focus, that's really beyond our influence.

What we like to see is the fact that we're selling new deals. The TAM on new market, new deals is obviously much bigger than shooting the fish in a barrel of our existing population.

So it'll continue to occur over time. At some point, we could see a program where there's a stronger focus and conversion but that will be driven by Bank of America.

Got you. Lastly for Rick, if I could, you typically give annual Paymode volume on the network and I'm wondering if you could also update us on the number of vendors on the network.

I don't have a volume number today but number of vendors on the network, we're approaching the 400,000 and we'd expect to clear through the 400,000, if not by the end of this quarter, shortly thereafter.

Okay. Thanks, guys.

Yes.

Hey, everyone. How you doing?

Good, thanks.

Hey. Can you maybe talk about some of the stronger vertical markets for Paymode-X signings and if you've started to – if you and your channel partners have been able to start to sign up some different vertical markets than you have in the past?

Well, I'd say that, first off, the thing I'd say is that we're far from penetrating the vertical markets where we're having great success. So healthcare is a huge vertical and a very successful vertical for us in the fourth quarter (31:29).

We're also seeing success in property management and have seen – that traditionally continue to see that. We are seeing more interest on municipal government, local government.

We're seeing more interest from universities and higher ed. So those are a couple of other verticals that have real potential for us.

But this is an application that really fits any business that needs to pay. It is the way businesses, we believe, will pay and get paid.

So we're not focused just on a vertical basis. We have everything from a major shoe brand this past quarter to a chocolate brand.

We have a whole variety of different customers in all industries and in all verticals.

Can you give us some idea of what's been the uptake of using credit cards since you're on both networks and as payment modes?

Our ability to offer a credit card is really important, because what it means is somebody that's already taken some steps automated and monetizing their payables and continue to leverage that and funnel (32:40) all of that through Paymode-X. It also means, as we're approaching new customers, we can offer the maximum monetization because it will realize a higher rebate from a card program.

So, it's a fabulous piece. It's really the last element of a full integrated payables offering, which is what we're aligned with.

It's what banks are working for from large corporate payers, bid (33:07) market, and small- and medium-sized businesses are all looking at the (33:10) same thing, an integrated payments capability, which Paymode-X offers.

Okay. And then I know you don't have a dollar-volume number, but can you give us some idea within a range of what the dollar-volume growth was this year or in fiscal 2018 of process payments?

Yeah, we don't have that figure here.

Yeah, I think the piece on that that we continue to watch is the – we're actually getting close on a vendor basis to almost 10% of our vendor population being enrolled on the dividend model, so that's pretty exciting metric we're getting close to.

Okay. Thank you.

Thank you. Good evening.

Congrats on the quarter, Rob and Rick. I wanted to just talk a little about the market.

Rob, you gave us some color on the overall trends, but maybe you could speak to just as you go into the new fiscal year pipeline levels, deal flow, conversion rates, maybe also talk a little about win rates versus your key competitors. That would be very helpful.

First thing I'd say it's just a fantastic market. The markets really were – as I said in my remarks, I believe we're in the beginnings of the digital transformation of business payments.

We sit particularly well positioned for that. For me, it's also a fabulous time to be selling to banks.

Banks are looking at technology as a principal offering that they're providing to their customers. They are more and more technology providers and looking at how do they mimic the consumer experience and the technology experience, both business customers and consumers all experience every day.

So, we're in a great position from that perspective. I'd say on a particular win rate across products, last thing I'd mention on a trending is in Europe the change in payment standards and a move to Open Banking has really helped us in the U.K., because it's a type of investment that smaller organizations haven't been able to make or haven't made as quickly as we have.

So, we're seeing actually market share that we're winning, as well as migrating our customers to our PT-X platform there. In terms of win rates, we're winning about three-quarters of the Digital Banking platform opportunities that we're engaged in.

I'd say if we lose, we're more likely to lose, because the bank has decided not to move elsewhere. We've traditionally continued to win the majority of the legal spend opportunities that we're in.

We're the clear market leader there. So pipeline is strong, buying indications are very strong and we see an opportunity to continue this growth and actually drive even a bigger competitive advantage and hopefully higher growth rate with FY 2019 product initiatives.

That's a very helpful color. A few housekeeping items for Rick.

Rick, the bookings number, how much was that up year-on-year? And also, could you comment on any noticeable impact in the other line?

Because it seems like revenue was higher than normal and then you also had a much higher margin in that segment.

Yeah, so, bookings of $24.8 million were up, I believe, (36:34) 68%. Yeah.

It's up 68%.

Versus the prior year. And then, the profitability was helped by a number of factors.

We had some transaction volume related success fees in the quarter, which dropped down. So you saw our revenue exceeded expectations by $5 million in profit.

$4.4 million of that dropped down to EBITDA.

The other question he asked was on the – you asked about the other revenue. We had a business partner who's being sold and the buyer wanted to cash out of a variety of market share rights and royalty rights that we've set up with this business partner.

So we were paid $2.6 million to cancel a royalty stream that last year was actually pretty small, about $70,000. It was not particularly strategic, and we weren't really certain about whether that would grow in the future or not.

So we thought it was a pretty good deal. The total proceeds out of that transaction were actually $10.7 million, but we excluded all but the $2.6 million from core revenue numbers.

And with the costs associated, that produced about $1 million of additional EBITDA. So those are the lines falling.

The revenue line on the other revenue is – relates to that buyout of a future mix of rights.

Great. That helps a lot.

Yeah, so, overall, we excluded 75% of the proceeds and included all the costs associated with that transaction.

Got it. Thank you so much.

Hi. This is Blake on for Brett.

I appreciate you taking my questions. On Digital Banking, just a couple.

You've had a couple big wins recently. I was wondering if you could update us on the implementations of those, and then maybe specifically, should that help accelerate the sequential revenue growth?

It seems like the growth there and the transitioning has been about $1 million per quarter, so should we see that pick up in the next few quarters?

Great question, Blake. So we have had extraordinary sales success with Digital Banking, and those implementations are going well.

You see that reflected in the growth rates across the remainder of the year. So in the first quarter, it's actually down year-over-year due to the Intuit attrition.

But as we've got several large banks that are going live and, in fact, the vast majority of the $18 million of unimplemented ARR will be going live during the year, primarily in the back half of the year. We feel really good about its contribution to fiscal 2019.

Great. And then on Paymode.

You talked about kind of the market demand from customers in general. Can you talk a little bit more just on your product features and functionality?

Maybe is that – do you still feel like that's unique? Are you seeing more new entrants in the market that are trying to replicate some of those features?

Just maybe more specifically on how your product may differ from others in the market.

Yeah, the combination of full-payment automation with a dividend model, a vendor pay model, really does continue to be a significant advantage for us, particularly in dealing with large payers. We see new entrants, but the new entrants are primarily with the very small players, which is a different market from that which we address.

I sort of commented a bit on new entrants as I went through the why we win thesis (40:20) of my remarks. You can have software.

You can have a lot of funding. You can have a great (40:26).

You can have, frankly, our software. And without the scale, without being able to point to a Treasurer or CFO and say, here are the hundreds of other customers that are on this platform, here's what we've done for years, here's the volume we put through, here's all those experience metrics, here's what we do to prevent fraud, here's all those real-world, real-life pieces, that it's so much harder to getting that ex time (40:53).

Time is really the only way to gain that experience. So a big lump of funding and a brand-new idea, we have a tremendous competitive advantage over those organizations.

If anything, they work like a marketing vehicle for us, and they spin-up more interest in the market. So it's moving money, in and of itself, creates a significant moat.

You're just less likely to try new entrants than you are in other spaces.

I was actually involved in a sale recently, Rob, which built off of exactly that theme. So a new entrant had gone to a large company, and then they began to talk to us.

And the deciding factor was actually security. As they looked more deeply at the way that the smaller and newer company was approaching their security versus our bank-grade data center, it was clear that they wouldn't trust their corporate reputation to anything but an industry-leading player.

Great. Appreciate it.

Thank you, and good afternoon, Rob and Rick, and nice job on the quarter. The bookings for the year, $90 million.

How much is that up year-over-year?

68%.

For the full year, as well, the quarter and the full year?

(42:23) 67% for the full year and 68% for the quarter, yes.

Okay. Great.

And generally that, when you say that those are the bookings, that was what you would expect on a full year run rate sub and trans revenue once the new clients are implemented?

Yes, once they're implemented and once they're fully ramped.

Okay. Thank you.

That's very helpful. With the $25 million of sub and trans you added this quarter or for the full year, are you getting – is Digital Banking or Paymode or the European business, which of those businesses, any idea, can you give me some idea of mix that you would expect?

Yeah, so I'll keep it just at the level of Digital Banking versus our established SaaS platform, just because that's the level at which we generally talk about this stuff. The last quarter, Digital Banking, had been very strong as well as our traditional products.

This quarter, they were more – they were closer to their average run rate and our established products were outperforming, relatively speaking.

Great.

Broad strength.

And, Rick, you guys are doing a great job and you clearly have a great position in this market. I mean it's such a broad market that you may not even see some of these companies but, like, an AvidXchange or FLEETCOR or WEX or bill.com, some of these other players that are out there, PrimeRevenue, are they just in – I mean, do you not see them?

Are they in different parts of the markets, SMB? Or how would you look at some of these growing other competitors that are generally in a similar market?

I think you said it best in your industry report recently when you pointed out that this is a large and growing market with room for many winners. Each of those stories goes after particular parts of the market.

And so we find ourselves either adjacent to or sometimes overlapping with those players but no one is competing head to head in the key areas that we're focused on. That is, nonetheless, a reason why we continue to invest in expanding the capabilities of our platforms.

We think that's critical as well.

And, I mean, I guess, Rob, you guys now have built – I mean, you have a really strong balance sheet, obviously, and generate a lot of cash flow and there are these probably more than 100 interesting private companies globally that are related. Are there any thoughts on tuck-in acquisitions that might make sense?

I know you guys had sworn off any significant deals for a while but I wondered now that you've progressed quite a bit if that's changed at all?

We certainly wouldn't comment on a significant deal but I'll tell you we've always – the same answer we've had every quarter, we're always looking for the right opportunities. We're very disciplined about that.

We're not going to do anything that's dilutive or is going to jeopardize our $100 million to $102 million target. There we have the capabilities we need to win.

So we don't have a product hole (46:01) or we'll say a tuck-in's a good word that you used. That's a pretty good word for the best opportunities for us.

It's wherever there is either a set of customers on an older technology that we can upgrade to our platforms, or is there a capability that we can add and extend. But the organic engine we have today it's driving growth we're reporting today, and we see that continuing and we don't have to extend ourselves in M&A in any fashion.

Great. Thank you very much.

Appreciate it.

Hey, guys. Just a couple quick ones.

Rick, you said 606. I think I heard you say modestly favorable but then you used it as a reason why subs and trans growth was going to be implied to have lower growth.

Can you just help me reconcile that?

Yeah. Both are true.

So under 606, we lose some deferred revenue that's associated with prior implementations which was flowing through and impacting our subs and trans line. So subs and trans is down in the short-term but our strong bookings allow us to maintain, despite that, our full year guidance.

And then on the other hand, as we ramp our implementation costs, we get some slight favorability from the cost deferral. So overall, it's not a material factor, but we have weighed all of that in considering our guidance.

Okay. So you're saying it's a little bit more favorable in terms of reduction of costs and so potentially towards EBITDA but not so much on top line?

Just so I'm clear.

Correct.

And then the U.K. tuck-in acquisition in the quarter, what did that exactly bring to you, guys?

Like, what is it going to enable you to take advantage of? Is it more to do with Open Banking, just a piece of business that you thought you could have or...?

Exactly.

I'd love to hear more about that.

Yeah, exactly. We have a leading platform, which is Open Banking capable.

And many companies have not been able to develop appropriate platforms for this, so we had a unique opportunity, through this tuck-in, to up-sell a set of small business customers onto our market-leading platform called PT-X.

Okay. Does that take you to a different part of the market or...?

It sounds like it might even open up a market that you may be weren't addressing. Is that fair?

Or is that maybe a little bit of an overstatement?

I would say it strengthens our position in the small business market, extends us a little bit. But, importantly, this is an existing platform and an existing capability that we now have the opportunity to up-sell those customers on, but it's a very small tuck-in.

Okay. That's great.

And then, just lastly, and a couple of quarters ago, I think we talked a little about some of the opportunities you had with Digital Banking and Paymode-X and clients taking both of those. It was not quite bundled, but it was kind of a bigger opportunity to pull them both together.

I'm wondering what those discussions look like now. Are they more robust?

Are people backed away from that? There's always this cash management that flows right into Paymode-X.

So I just wonder if that's gaining momentum or if that is actually – I don't know – maybe just got ahead of itself during that period. Thanks.

Well, certainly hasn't lost any momentum. It's by the end of the calendar year, in the third quarter for Bottomline, we'll have that capability available in market.

We're not ahead of ourselves in terms of offering that today and I wouldn't say it's a central part of sales discussions, but it's a unique capability. We have many unique capabilities, but it's certainly a unique capability.

And I think as Paymode-X in a settlement network becomes the more common way for businesses to pay and get paid, that makes the competitive advantage for our cash management product set even bigger. So, certainly, no loss of momentum on that.

No.

Thanks (49:58).

Yeah, I think all those conversations just get more holistic. If you pull some of these pieces together, it's a holistic conversation around cash management and the payment network.

The payment network is holistic across card and ACH monetizing both pieces. It really is you just see this value proposition crystallizing.

And, of course, that takes time to translate into contracts, but it's absolutely the right direction for us to be going.

That's great. Sounds like it's resonating.

All right. Thanks, guys.

Well, thank you. Thank you for your interest, and thank you for your questions.

A strong quarter, 20% subs and trans growth, $26 million EBITDA, $94 million EBITDA for the fiscal year. We look forward to reporting on Q1 and continuing the progress we're making in this large market.

So thank you very much.