Q2 2020 Earnings Call
Mens press Star pound there are 29 participants on the call including you.
Ladies and gentlemen, thank you for standing by and welcome to bottom line second quarter 2020 earnings Conference call.
Statements made on today's call will include forward looking statements about bottom line 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 Bottomlines. Most recent periodic reports filed with the S E.
C for discussion of the risks and uncertainties that could cause the companys actual results to be materially different from those contemplated in these forward looking statements bottom line does not assume any obligation to update any forward looking statements.
During this call bottom line 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 in 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 bottom lines website bottom line 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 ever Lee. Please go ahead.
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And speakers standby one moment.
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We.
Good afternoon lets call would you like to Joe.
Ryan.
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And everyone. Please standby will be under way momentarily.
Good afternoon, and welcome to the second quarter fiscal 20 earnings call.
Thank you for your interest in Baltimore.
I'm here with Rick Booth, our CFO .
Rick will provide a detailed review with the quarter's financial results and our guidance going forward.
And as always both brick and I'll be available for questions. Following his remarks.
The second quarter was a strong quarter.
The quarter was highlighted by accelerating subscription revenue growth.
Bookings success.
Positive customer engagement and continued advancement of our products up.
Our most important financial metric and focus is subscription revenue growth.
And the second quarter subscription revenue growth accelerated to 18%.
That's both as reported and constant currency by the way as currencies seem to have stabilized.
We're committed to subscription growth of at least 15% to 20%, we see an opportunity to accelerate their growth rate in the near term and over a longer term horizon.
We will be 500 million subscription revenues from three to four years, if not sooner.
We see that opportunity clearly.
And we know how they go up there.
Our confidence is based on our current results or continued execution.
And the alignment of our products at market.
We make business payments simple smart and secure.
The b to B payment market is exciting large and growing.
No one is better position to capitalize on or more focused on the need for simple smart and secure business payments the bottom line.
We have established improving business payment solutions.
We have deep domain expertise and all aspects of business payments.
We have seen as a trusted technology partner customers and businesses and geographies around the globe.
And we're actively and aggressively innovating to ensure we not only up the leading business payment capabilities today.
But also in five years in a decade and beyond.
I will highlight some of the innovations, we're progressing to give a sense of or opportunity.
But first I'll briefly cover the financial highlights for the quarter.
As already noted subscription revenue grew 18% on.
On both reported and constant currency basis.
The acceleration of our subscription growth rate is our top priority.
Subscription revenue was 84 million for the quarter.
When our 336 million annual subscription revenue business.
A big step closer to the 500 million we've targeted.
Subscription bookings were 23.3 million.
Revenue fell almost 111.7 million.
EBITDA was 24.8 million.
If you asked was 33 cents.
And we ended the quarter with 91 million and cash after stock repurchases of 5 million.
So a very strong quarter acceleration in subscription growth and strong performance against all our financial metrics.
The quarter strong results are evident Rick will cover the details on our product wins.
I'm going to focus my remarks on the momentum we have in the future of the business.
Innovation is the key to our continuing meet the needs of our expanding customer base and our long term growth goals.
When I talk to customers I always said the same thing.
Choose us impart who we are today.
But as much or more for who will be in three years five years. Some 10 years from now.
They always agree.
One of the advantages of our strong presence in Europe is we're close to the progressive innovations being developed and in some cases mandated knows geographies.
One example of innovation and payments is the ukase open banking.
UK open banking usage has doubled in the past six months along recently passing the one millionth customer.
We've been an active participant from the beginning seen this consumer first mandate ultimately moving to businesses.
Bottomlines pay direct which were piloting with a large bank in some high profile customers was a full fledged open banking payment play.
Pay direct Leverages bottomline status as a P.I.S.P. or payment initiation service provider to facilitate direct account to account payments.
The benefits include transparency to payment status lower costs and ease of reconciliation.
We're delivering innovation to address some benefit from this large opportunity uniquely situated to our experience a market position.
Well the very early innings here as we are in the digital transformation of business payments generally.
We are actively and aggressively driving our product agenda, because we can clearly see the change of will bring any opportunity represents.
We're also innovating around our business payment banking platforms to helps banks address the biggest challenges they face today ill say some of the future.
The most important imperative for banks split the customer at the center of the digital transformation.
Thanks face an increasingly opening competitive environment.
The traditional business banking model was being challenged.
The fight for primary ownership of the customer relationship is the most important competition banks are engaged.
At the same time banks business customers are frustrated by access of complexity fragmentation and friction.
We're providing our banks a seamless unified digital experience.
One that uniquely adds a rich understanding of their customers' needs and interests.
Future is intelligence systems of engagement with experiences a personalized talent insightful and engaging.
And platforms that continuously learn to embedded intelligence to liver targeted actionable insights.
A deeper understanding of the customers and their needs while banks to win.
That's exactly the product capabilities, we're offering today.
Investing further in for banks.
Good answers the greatest challenge.
And in doing so ensures our market leadership in growth for years to come.
All but it gives you some color the innovations we're pursuing.
We approach the market with a deep history and expertise in business payments.
We have established capabilities now well known and trusted by customers.
We have a clear vision of the future for business payments and our company.
We're executing to make that vision a reality.
So in summary.
It's an exciting time for Bottomline.
We said this year would bring an acceleration in growth and we're seeing that occur.
18% subscription growth is just the beginning what will be a very good year.
We have strong customer demand and clear visibility the success ahead.
Beyond the coming here, we have a technology sent and plan to drive to 500 million and subscription revenue in three to four years time.
We're confident when the right path.
I'm confident we'll drive shareholder value.
So with that I'll turn it over to Rick and then again both of US will be available for questions. Following his remarks.
Thank you Rob.
I'm pleased to report on a very strong quarter with subscription revenue growth accelerating to 18%.
This is another quarter of subscription revenue acceleration in a year in which we expect each quarter to be within our targeted 15 to 20 person subscription revenue growth rate.
The results for the quarter were above expectations on almost every metric.
As a result, evidenced as subscription revenue growth, we see in fiscal 20 and beyond.
Subscription revenue grew 18% 84.1 million.
Subscription bookings were 23.3 million.
And while we're focused primarily on subscription revenue growth. We also produced total revenue of 111.7 million.
EBITDA of 24.8 million.
And 33 cents core earnings per share.
Each of which was at or above expectations.
Our focus my remarks today are three major topics.
First.
Reviewing our financial results in detail.
Dan.
Providing increased guidance for fiscal 20 in the third quarter.
And finally, describing how these results fit into our long term business model.
To review our financial results in detail I'll speak briefly at each mine in or PNM.
And in addition, we've posted supplementary materials to our web site for your reference.
Beginning with revenue.
Description revenue continues to be are clear priority.
Growth of 18% on both the reported in a constant currency basis was in the upper half over 15% to 20% long term subscription revenue growth goal.
All of our investments are targeted to drive growth at today's rates are higher.
And we are confident subscription growth will remain within or 15% to 20% range.
We had visibility through multiple growth drivers.
Including signed backlog.
Implementation success and timing.
Group within existing customers.
In expanding our customer base through additional savings.
We drove 84.1 million of subscription revenue in the quarter equivalent to 336 million on an annualized basis.
And at this rate 75% of total revenue came from subscription offerings up seven full percentage points from a year ago.
Maintenance revenue with the other component of recurring revenue.
In recurring revenue comprised 90% of total revenue.
Up five percentage points year over year.
This gives us excellent visibility to upcoming results.
License revenue.
Hi, and there's only a small part of our overall business.
As such license revenue of 2.8 million was down 2.9 million year over year and this is entirely consistent with our strategy to emphasize subscriptions.
And recognize 10 million less software maintenance and last year.
Services, which we offer only as needed to help our customers succeed were 8.2 million in the quarter.
Bringing total revenue of 211.7 million.
From a sales perspective, we had strong sales execution.
Starting 23.3 million, if new subscription bookings led by Paymode X.
This brings us to 88 million in new subscription bookings for last quarter.
Equivalent to 28% of subscription revenue in the same period.
While bookings figures are estimates and customers take time to implement and ramp to full revenue production.
This provides us with visibility to future subscription revenue growth in fiscal 2000 and beyond.
Our Paymode X network added 21, new players, including several very large deals.
These deals were driven by four channel partners as well as by around direct sales force.
This validates the attractiveness of our highly secure full payment automation value proposition.
And our channel partnership approach augmented by our direct Salesforce.
We signed six new insurers to our legal spend management network and another 10 expanded their relationships with us with additional modules or additional divisions adopting our solutions.
We signed for new customers toward digital banking products.
Including a new platform customer and another customer for Dbi Q relationship management in relationship insight solution.
With those signings and after go lives in the quarter, we have approximately 18.4 million of annual digital banking subscriptions, which are signed but not yet being recognized in their PNM.
The implementations themselves continue to go very well.
We expect roughly three quarters of this to go live within the fiscal year.
This visibility gives us high confidence that banking they continue to achieve 15% to 20% subscription revenue growth within fiscal 2000 and beyond.
These bookings and sign backlog give us confidence that our targeted investments in sales and marketing and product development are bearing fruit.
And provide clear visibility to revenue growth acceleration.
Equally important our continued product innovation and competitive differentiation in the large and growing business payments market gives us confidence in our path to 500 million of subscription revenue within three to four years.
While focusing primarily on group, we delivered on our financial commitments, while investing to advance our solutions and drive growth at today's rates are higher.
EBITDA of 24.8 million for 22% of revenue.
Core operating income of 18.2 million.
And core earnings per share of 33 cents were all at or above expectations.
Subscription gross margin of 61 person was up almost four percentage points year over year.
This means we've added 23.1 million of subscription revenue year to date.
Of which 80% flowed through to gross margin.
This margin expansion reflects the power of our business model to scale in a sustainable manner as we pursue our growth agenda.
This agenda includes targeted investment in sales and marketing and product development for continued long term growth.
Sales and marketing expense was 22.5 million or 20% of revenue.
Up 2.5 percentage points year over year, as we strengthened our direct sales capabilities.
Development expense was 16.6 million in the quarter or 15% of revenue also up slightly year over year.
DNA expense was 9 million were 8% of revenue.
Turning to cash flow.
We generated 24 million of operating cash flow in the quarter.
As planned we used five marina that to repurchase 95000 shares within the quarter.
And we paid down 10 million on our credit facility.
We ended the quarter with 91 million of cash in investments and expect to continue to be active repurchasing shares in the upcoming quarter.
Turning to guidance as the second major topic.
Our solid results and momentum positions us well for Q3 in the short term.
And for fiscal 2000 and beyond in longer term as we drive toward 500 million subscription revenue in three to four years, beginning with the growth we can see in fiscal 20.
Specifically.
In the third quarter, we expect to deliver 87 to 90 million of subscription revenue.
112 to 114 million overall revenue.
24 to 26 million of EBITDA.
18 to 21 million core operating income.
In core earnings per share of 31 to 36 cents.
And for the full fiscal year 2020.
We expect to deliver 342 to 345 million of subscription revenue.
Which is an increase of six to 8 million from our previous guidance.
450% to 452 million overall revenue an increase of up to 8 million.
100, 202 million, EBITDA, which will be up slightly year over year.
76 to 80 million core operating income.
In core earnings per share of $1.32 of our 37.
We'll continue to present detailed guidance prior to each quarter.
While evaluating and updating the full year as needed.
And finally I'd like to provide my perspective on how the most important items in the quarter tie into our long term economics.
Our primary focuses on growing subscription revenue and the 18% constant currency growth.
Combined with solid bookings and excellent visibility give us high confidence in both fiscal 20.
And our ability to drive to 500 million of subscription revenue in three to four years.
Performance year to date illustrates the economic power this approach.
As we added 23.1 million of subscription revenue.
With 18 million of increased subscription gross margin.
For 80% incremental gross margin.
As we scale our subscription revenue this will become a powerful engine of growth and ultimately of shareholder return.
In fact, all of the year over year trends are consistent with our strategy and long term model.
Subscription revenue as a percentage of total is up seven percentage points.
Subscription gross margin is up four percentage points.
Sales and marketing expense is up two percentage points.
And product development is up as well as we expand the value propositions available to our customers and the future revenue opportunity for the business.
While doing all this we continue to operate at attractive levels of profitability, while funding these growth investments.
So in conclusion.
We're well positioned in large and growing market.
Our financial performance is very strong.
We are raising guidance and we're confident in our ability to drive value for both customers and shareholders for years to come.
And with that we can open the call for questions.
Ladies and gentlemen, if he would like to ask a question. Please press. One then zero on your telephone keypad. You mean withdraw your question at any time by repeating the one zero command. If you are using a speakerphone. Please pick up the handset before pressing the numbers once.
Again, if you have a question you May press one van zero at this time one moment. Please for first question.
First question from the line of Andrew Smith with Citi Financial. Please go ahead.
Hey, guys. Thanks for taking my questions here nice to see the acceleration as subs and trans and progress with the direct salesforce.
So just digging a little bit into the established products subs and trans growth in the quarter. Once you just unpack that a little bit and you talk about what drove the acceleration there. If you could just I know you don't.
Always good out at this level, but if you could buy product talk about some of the key drivers in the quarter that would be helpful.
I'll give it a general comment and reckon that anything he'd want to access price only seeing really strong strength in Europe , and the reason I assess privately everyone keeps telling us Brexit Brexit Brexit.
We continue to see strength in Europe , and the quarter in Europe was very strong.
Yeah, and I would say.
It was really a continuation of some of the trends that we've been seeing year to date lots of strong growth from our.
Our European platforms Paymode X.
Lseven contributing strongly but not but not at quite the same rate and.
Financial messaging continues to be in a building here.
So pretty similar trends to what you see in a in the first quarter.
Understood. That's helpful and then on the full year outlook for us subs and trans.
If you take a look at the implied fourth quarter Rev growth outlook. It looks like there is little bit of an implied diesel there I just wanted to sort of dig into the factors that sort of drive your visibility and then.
Sort of.
Your confidence and I know you typically have the 15% to 20% subs and trans target, but just talk about maybe visibility towards that being a little bit higher perhaps.
Towards the mid or upper end to that outlook I guess in the intermediate term, especially as you absorb some of these go lives.
I think it's only prudent Andrew when we're talking about large complex implementations going live six month plus from now.
That we can I take that into account and be a little conservative with our with our Q4 guidance, but there's no part I mean thats worried that we're going to have a period thats that.
Not at least at our 15% to 20% range.
Understood and then just you might as well just rounded out an outlook the take down in the operating income assumptions I assume some of that's probably investment related but.
Could you just you know just talk through what drove that the reduction in operating income outlook.
Well sure.
First off some of that is by the model transition, we're selling less software and services by the sign of course.
The other piece of that is just see opportunity in the market I highlighted two places.
Some of the things, what's going on around intelligence and insights and digital banking and also what would join with open banking those are just to have a pretty aggressive product agenda.
Have a whole team coming on in February development team for additional product capabilities. So we were leaning into the market. It's a great time to be happy to be payments, we have a fabulous.
Seven technologies, we've got a wonderful domain expertise, we want to accelerate our growth rate and making further investments the key to that and from a financial perspective, I'd I'd share at work in businesses, where you have limited internal investment opportunities and you end up returning capital to shareholders because it's the right thing to do this is quite the opposite.
We're talking about an adjustment of a couple of million dollars and putting it into the highest ROI investments that we possibly could with clear short term payoffs were talking about hiring a hiring salespeople with we're already seeing start to start to produce as well as continuing to invest and plus what opportunities to have add on.
Capabilities to our existing platforms and we've seen what what that can do so I've never been more confident in decision in my life.
Got it thanks like how much cash.
Thank you.
And our next question will be from the line of John Davis with Raymond James. Please go ahead.
Hi, Good afternoon, guys I just wanted to follow up a little bit on Andrew last question. There so lowering call EBITDA by roughly $3 million at the midpoint I think given the upside in revenue I would expect it to go two or $3 million. The other way. So it's kind of $5 million I guess im surprised to see the magnitude of that.
Of that change so I guess the real question is what opportunities have you seen in the last three to six month since you've given us outlook that warrant this increase step up into the fact that your Paymode X direct salespeople are performing at a high level and so you're going to double your hiring there just well maybe talk a little bit Isle what changed from three.
Six months ago until now to kind of wanted I think I'll spend the first off I don't think there's a change from three to four months ago. I mean, if the magnitude of the change as a few million dollars. We never said roughly at upside that we would be increase in EBITDA pace.
Not with a lot of investors over the last quarter and very clear more focused on driving subscription revenue growth and this alignment. So now when I step back in the last where are we making that I wouldn't want to suggest it's all paymode X sales team because it's certainly not a lot of it isn't product capabilities and go to market. So what we're doing that round digital.
Banking, how we're bringing intelligence and insights into the payments and cash management platform, what we're doing across our solutions and how you're bringing analytics data.
Predictive intelligence all those pieces into our platforms, that's all expensive, but we're leaning in on that so those are it's across the board really a product pace and national capabilities, some of which we've announced some of which were not talking about yes that are going to drive growth.
Hey, 510 years, that's really our objective not what are we going to get in the next two quarters combination to us standpoint.
No no no fair enough. Thank everyone agrees with you had tremendous opportunity at.
Rick maybe as quickly.
To make sure I heard the bookings number correct at 23.3.
Correct.
Okay, let's call it right at call it 28% of trailing 12 month.
In transit revenues kind of how I think you've talked about in the past the way to think about it any reason why that should vary from that kind of 25% to 30% in the back half of the year anything specifically to call out or just I know you don't guide to bookings were just making sure that there's no change in the way to think about that.
Well I'll throw in one comment before written comments and that is that remember we grow also as our customers grow. So for example, if we have seen more volume through Paymode X and we're seeing customer and we're seeing more volume through a legal spend that won't flow through bookings. So bookings is one important element of Hallek Robertson.
Estimates it takes time to ramp.
There was other ways that we're driving growth that don't show up through the bookings number so I, probably didnt help because it probably complicates things [laughter] and now I'll turn it over to rack guess I do but that's really the reality of the booking number it's only a component of our growth yeah and as you pointed out John we've never guided guided bookings we already.
Investing in salespeople and we believe that there will be effective but it takes more than a couple of quarters to build pipeline. So I'm not going to change our policy of not guide.
Oh, no fair enough in the last one.
If I can hear anything obviously, you're not going to give exact numbers here, but yes, paymode X have we seen a pickup in adoption I think you signed a fair number of new.
New clients in the quarter, but just trying to think about fee to be I think has picked up steam over the last call. It three to six months in some of the industry folks that I talked to and just wondering if you're seeing kind of an incremental pickup in the pace of growth.
Paymode X and any kind of movement from classic to vendor pay model just kind of any kind of color commentary you can give there'll be helpful.
I'd agree with that we're seeing a lot more interest in b to b payments were not where.
There were times, where we'd be explaining these capabilities fresh that's not the market today, which again part of the recent we're investing one of them to newer catalysts, we're seeing I've mentioned this before but it's definitely knowing the last six months, maybe or so is that security and cyber fraud events. So.
Paris, I'll come to us and now they want to move the payments to a more efficient more effective means handling that one more to maximize monetization.
At the top of that list, they want to being a more secure environment and if you're a pay our understanding of payment to a new bank account you don't know is that account and paid by others performers that just been established as part of a fraud right.
When you part of Paymode X, we can provide visibility to that has somebody pays up higher before how that pay them and amount consistent with that are you paying a million dollars someone was never received a million dollars a business and never asked so.
There's a lot around the fraud piece that I think is definitely.
Trading at a real tailwind.
In the Mark.
Okay. Thanks, guys.
And our next question from George Sutton of Craig Hallum. Please go ahead.
Hey, Good afternoon. This is Adam on for George Thanks for taking my questions.
Rob.
You mentioned the UK paid <unk> direct a trial that you have currently going on I was hoping to share a little more details on that.
Well I covered some of the comments on what we're really doing there is leveraging open banking.
Provider account to account payment capability for a pile up with a couple of corporate customers I'm not going to go into more detail systems to pilot, where the banks, we're working with the point of established there's so many new opportunities for bottom line.
Beta big payments are changing technology is changing and we're well positioned in the marketplace and then we're making the investments that will be well positioned with growth of three 510 years or more so often banking is.
Hey mandated requirement in the UK, we believe some form of that is going to come into voluntary are mandated to other geographies, including the U.S. over time, so developing the capabilities for that having experience with that this big are actually even just that mark.
Got it as you know the that TTX platform or open banking ready platform in the UK has been strong growth driver and every time, we see these regulatory changes weve through.
As a catalyst for growth.
Great. Thank you and then I still no. It's early days for the direct sales force, but I'm I'm sure you've had some good feedback so far what have you learned from having that unit so far.
Sure.
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Oh, what we're learning sorry, just can you trailed off in the end of that pick up of direct sales force. Just give system is the names finds it gives us into other markets and channels, where we might not necessarily then so that's one thing that's really interesting for us I think it also is helping us in the as we're moving more of them at market. So one we've added them.
Oh I seem to payment next week.
Well situated midmarket solution and that team is helping us in that as well. So it's a market intelligence. It's news articles and it's also moving mom more of them at market.
And is there anything interesting that you've learned from then that you weren't really aware of just working directly with the channel.
No I would say wins.
Validated our understanding of our competitive advantage.
And they're finding that the reasons that they came here in terms of our capabilities are very very true.
And one thing that is actually good is the more we lean into that direct salesforce. The more we see our partnered leaning in and getting more aggressive about how their training their sales team.
That's great. Thank you.
Thank you and our next question is from the line of Mayank Tandon with Needham and company. Please go ahead.
Thank you good evening, Rob and Rick I think you mentioned earlier I Wonder if you about the opportunities with both new client wins, and obviously expansion with existing clients could you just break that down in terms of future growth. How you think that breaks down maybe in the same context, if you could talk about legal and financial messaging and Swift and other areas that.
I will get as much focus as a digital banking and Paymode X pieces.
Right so the.
Just a couple of different ways, we grow with existing clients first off they could have more volumes, so something like legal spend more trends.
The actual based platform like a Paymode X, we'll see more growth to that got away, we grow with existing customers is so important.
On Friday, providing them the new capabilities they need to be successful.
So for example, if we have provided payments cash management platform and real time payments. It comes out as a new payment type our banks are working for us for that solution, but that's something we're not giving them, we're selling that to them as we're bringing out insights into the customer on analytics to better understand customer and next actionable items that.
Something else, we sell them so the lifetime customer value for this.
Platforms, we sell where often times by the way I won't hear from customers.
Our most critical platform or you want them. Our most important vendors that means we have an opportunity to continue to sell more capabilities, because they're going to get us for new solutions as the market changes as technology changes. So what you want to be is not selling a single feature here or capability that want to be that mission.
I'll kind of application that grows as your customers grow so we see it in a couple different ways. We see one transactions can increase some ramp or sell at a new division things like that an acquisition in our Sam and we also then so yes, we're providing new capabilities, whether that's partnerselect law firm analytics thanking insights.
Break that apart product by product, it's really at the same playbook.
And often times, the same technology or similar technology across multiple verticals.
Okay. That's helpful. And then if I could just a pivot to digital banking wanted to get a little perspective on when do you think the transition will be over because it seems like I know, there's some lumpiness from quarter to quarter, but it's been running a little bit shy of the established products subs and trans a growth rate overtime.
So when do we see that start to maybe a accelerate and maybe potentially even.
And with the transition so that is now part of the established piece versus being called out separately as a transitioning area.
Thats a great question My Act, we made a commitment.
Several years ago that we would break it out and until it started to achieve similar growth rates and I'm highly confident that by the end of fiscal 20, we'll look at it and I think we'll all agree it's performing at a level that.
Just combined it all back yet we have made any decisions yet but.
Yes, we feel good about the first half growth with more to calm remember there go lives are backend loaded in this year.
Right. Okay. Thank you last question the rapid marketing cost this quarter is that going to continue or will that.
<unk> expense be more weighted towards R&D going forward.
We expect the we expect the incremental investment to be more heavily development over the next few quarters. We had some had some opportunities to bring onboard senior sales and marketing talent, but we couldn't pass up.
Great. Thank you so much.
And our next question from the line of Christopher Kennedy with William Blair. Please go ahead.
Hey, guys. Thanks for taking my questions just too.
On the banking or profitability of the banking business can you just kinda talk about.
The long term objectives is on that for that segment.
Absolutely you noticed that.
Banking for the first half of the year has been operating at a lower level of profitability than they did in the prior year course in the prior year, we're recognizing.
Software revenue from perpetual licenses as as banking revenues skills in the back half of the year, you'll see you'll see profitability improved significantly.
Okay. That's helpful. And then just one more on Paymode X.
Last year, you talked a lot about several different initiatives, whether it be going after the SMB market improving vendor acceptance improving automation. What have you are we seeing the benefits from those investments today or is that still take us. Thank you.
Certainly our technology and capabilities around.
Identifying vendor segment in those vendors and rolling those vendors a significant I'd also say that our capabilities around the value that we're providing the those vendors in that platform, it's much more than getting a payment.
Tom will sometimes being referred to listen HP shop, I sort of.
Either disagree or brussel at that because we're providing a ton of value on the vendor side. It's just as important as the payer side. If you want to have a network. That's effective so visibility to payment remittance detail all those types of things that we're providing to mandersson, what continuing to make investment on one other capabilities can we provided the vendors.
Yeah. I mean this is this is true bankrate security.
Customers value that in our banking partners value that.
Great. Thanks, a lot guys.
And we'll go next to Dan Perlin with RBC capital markets. Please go ahead.
Yes, good evening, it's actually I've not Roswell in for Dan.
Circling back to the Salesforce and the increase in sales and marketing that you mentioned when we think about it did you hire more people in the quarter than you originally planning because they were available or am I misinterpreting remarks.
No I wouldn't look at the sales and marketing line in tribute that all the Paymode X or direct sales team I mean worse, we're simply spending more on sales and marketing across all of our product set and that's driving a higher growth rate.
Okay, and then I guess when it comes to the R&D investments can you is that across the board or is that in any particular area.
I think it goes in two different direction. So one is across the board capabilities that represent where where technology is going so thats machine learning this analytics.
Thats pieces, along those lines, it's about how 80 ice connectivity to other systems all of those things the uniform across all of our products up and then there are specific areas that we're investing in things like I referenced in my comments open banking for example that we see not just as a UK, but we see ultimately.
As a global trend in different flavors, but a global trend.
And also around insights and analytics, which would be specific to a product. But example would be a dbi Q insights given the bank visibility in their customer around knowledge about their customer more intimate relationship with actionable insights. So again, it's across the hall platform new technology capabilities to me.
Sure, we're leading the market and then its specific in dynamics that may have changed within a particular area like an open banking or an opportunity we see around banks.
If you look it's a competitive market now say compared to a year ago no. We've seen a lot of activity and we.
A lot of activity like core processes in terms of M&A has there been any change.
No I think the biggest changes that ups, we're investing that leaning them more if most is further ahead I think the competitive environment similar it doesn't mean that those organizations are not also moving forward, but we can move forward more aggressively we can move forward with more insight and we're focused on them things.
Matter on that our customers need then we're in a wonderful competitive position I can't think of a market, where we are second to somebody Becker are stronger than us across all of our major product sets. So that's a great position of being in the investment were making Molina product. If you will it's all about it extending that driving that further accelerating growth.
Okay, and I, Didnt think that God, Rick and further I try to track our competitors fairly closely.
I don't see anyone as focused as we are on the central problem, a b to B payments, which is how do you drive high volume transactions in a highly secure an automated way a lot of that press that you here and see is on the edges of card card only or primarily card whereas.
We have deep account to account payment relationships and that really I mean, that's the bulk of stainless today card card is certainly growing but it's still less than 15% of total payments. So I'm very impressed by the growth rates that were seeing right now, but I don't see any one aiming us squarely at the center of the target as we are.
And a quick modeling question, how should we think our tax rate for the back half of the year.
Our tax rate for the back half of the year will be roughly in the 20, 23% to 25% range for non-GAAP and of course. The most important is we're expecting less than $3 million of cash taxes remember, we have a very efficient tax structure.
Right right. Okay. Thank you very much thank you.
Thank you and our next question will be from the line of Peter Heckmann with D.A. Davidson. Please go ahead.
Good afternoon, gentlemen, could you give us a little bit more insight into some of the metrics at Paymode X.
For example, maybe the dollars process on the network in COVID-19, as well as how many payers are affiliated with the network at this time.
Sure Pete I can give you a little bit more flavor paymode continues to perform extremely strongly without getting into all the metrics that we moved away away from but.
We see people in the marketplace that are growing at 30% to 40% and.
We are certainly experiencing similar growth in the vendor pay portion of our model.
So similar to all of our previous.
Comments Paymode X is performing very strongly has got good adoption across additional channel partners and robust bookings.
All right so.
Lets area, it's a vendor pay model is growing 30.
40%.
Paymode X overall is growing you know 10 to 15.
Is that.
What am I missing there.
So payout is solidly at our 15% to 20% growth roughly half of it is the classic model was by design is static and the other half is growing at the rates that I've just described.
Okay and then just my last question.
Bank M&A has ticked up a little bit in the mid tier I think we had seen one that might unit FX for you, but are you having seeing anything there in terms of potential losses.
No. It's always an opportunity it can be a loss that's fine I think I when I kind of have ops tumble or one M&A or an M&A event on the strength of our overall business a momentum, but it actually generally as an opportunity, we're really strong and helping them back how do you think through these systems how to how do you want to combine.
Systems, what capabilities to we offer that mining overlap with the existing platform. So more often than not it's been a growth opportunity for us and remember were stronger the larger the bank the stronger our positioning so as banks combined we tend to be a net dinner.
Fairpoint. Thank you.
And our next question from the line of Teary key Walla with first analysis. Your line is open.
Hey, good afternoon, and thanks for taking my question just wanted to get a little more insight into the sales cycle, so you've met or that the sales process and the timeline to close.
As you've made investments in the direct sales staff, which is probably in its early stages and then you continue.
Product evolution product development to add additional features Im just wondering if you've seen any declines in the sales in the time in the sales cycle and if you project any in future periods.
We certainly haven't seen a decline in sales cycle, so cycle vary depending on product and depending on the organization a particular needs we can see.
Fast sales cycle on a complex.
Product if the bank for example wants to move office system or is finding themselves for the competitive disadvantage.
We can find a sale cycle that can be a long period of time, we're actually sort of patient about the sales cycle because we have the best solution work on a went over time and it's working with striving. So we're not someone that's pushing to a close we want to have that customer come house when they recognize the capability.
Jason the need and that's been a very good strategy for us.
Okay.
Great. Thank you.
Thank you and I will turn it back to where speakers for any closing comments.
Sure. So thank you everyone for your time, it's certainly an exciting time, probably to be payments and for bottomline, 18% subscription growth.
As I believe just the beginning on what should be a family Goodyear.
And we've got our eye on the 500 million subscription growth subscription revenue level, and we know that's kind of reward shareholders.
Thank you when I look forward to reporting on Q3.
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