Q4 2020 Bottomline Technologies (DE) Inc Earnings Call

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Welcome to bottom lines fourth quarter, 2020, <unk> earnings conference call and Danielle share and I'm joined by Rob early Bottomline, CEO and Rick because our CFO.

I'd like to remind everyone that statements made on today's call will include forward looking statements about bottomline future expectations plans and prospects.

All such forward looking statements are subject to risks uncertainties assumptions, including those related to be impacted Kobin 19, honor business and global economic conditions.

The forward looking guidance, we provide today is based on our assumptions as to the macroeconomic environment based on the facts as we know them today.

Many of these assumptions related matters be under control, including the impact of Cobot 19.

Please refer to the cautionary language in today's earnings release and Bottomlines. Most recent periodic reports filed with the FCC for a discussion of the risks and uncertainties that could cause the companys actual results to be materially different than those contemplated in these forward looking statements.

Bottom line does not assume any obligation to update any forward looking statements.

During this call Bottomline financial results are presented on a non gafisa.

These non-GAAP results include among others constant currency growth rate gross margin operating income EBITDA net income in earnings per share.

Reconciliation of these non-GAAP financial measures to most directly comparable GAAP measures is available in the Investor resources section a bottom lines website.

Thanks for joining our call let me now I'll turn it over to Rob for his remarks, Rob.

Good afternoon, and welcome to bottom lunch fourth quarter fiscal 20 earnings call.

We're delighted to be reporting on a strong quarter.

As always we greatly appreciate your interest in Baltimore.

I'm here with Rick Booth, our CFO.

A couple find a detailed review with the quarter's financial outlook going forward and a both of US of course will be available for any questions. Following his remarks.

Fourth quarter was a strong quarter.

In fact in many ways, what's the strongest quarter, what was a strong year.

Quarter was highlighted by record subscription bookings, which drove record bookings for the year.

Strong sales numbers are result of the technology and innovation investments we've made.

Our competitive position in our key markets and increased demand by customers for digital payment capabilities.

There's an acceleration occurring in the digital transformation a business payments no one is better positioned to benefit the bottom line.

We see the strong demand level, we saw in the fourth quarter continuing to fiscal 21.

We would expect normal seasonality in Q1.

I'm really pleased with our execution in a quarter's results.

But the very different than we were expecting just six months ago.

At that time, we're tracking at 21% subscription growth for this quarter and 19% for the year.

But beginning in March we saw an impact like everyone else on transaction based revenue streams, principally Paymode X some legal spend management.

It was transaction based revenues will return on full at some point, there's no question about that until they do there's a headwind on our growth rate.

Overall, we're well positioned unfortunate.

The vast majority of our revenues from recurring and Unimpacted by this year's economic disruption.

Our business model produces consistent strong profitability and cash flow.

We're seeing is relatively modest overall and it's certainly temporary.

In fact, we view today's environment its unique opportunity to increase our innovation and expand our product capabilities.

To strengthen and extend our competitive position.

And convert it increased need for our solutions 20 years and years of gross at or above our 15% to 20% target range.

I'm going to focus my remarks, and just that.

The product innovations, we've completed for customers or have underway to drive accelerated growth for years to come.

First I will cover the financial results for the fourth quarter.

Subscription revenue was 87.7 million.

Which is up 12% from a year ago on a constant currency basis.

Transaction volume declines and Paymode X some legal spend management negatively impacted the growth rate, but when transaction volumes normalize subscription growth will be into 15% to 20% range if not higher.

Subscription bookings were 25.8 million, which was a record.

No other metrics speaks directly to the demand for our solutions or competitive position in the market. Some delighted to report such strong bookings quarter.

Revenue over almost 110.6 million.

EBITDA was 23.4 million for the quarter and 95 million for the year.

With strong operating cash flow of 27 million for the quarter 197 million for the year.

We ended the quarter with over 200 million in cash.

So strong financial results for the quarter.

And the fiscal year.

Oh, no talk about sales environment market for keeps solutions.

The first observation I'd make is we obviously had strong sales results in the quarter and we expect to see that continue.

There are number factors behind that.

First off customer demand is strong.

There's an acceleration of the digital transformation a business payments as organizations large and small rethink every aspect of their business process.

Second our marketing brand and reputation are excellent.

We are well known in our target markets for thought leadership and innovation.

We're known for a culture that is focused on customer delight as the top priority.

Third as sales execution is strong.

Through our direct sales teams and increasingly through effective channels and the U.S. such as citizens TD Bank you won't be bank in New York, Marilyn Bank of America, and RBS and Lloyds in Europe.

We've always focused on sales execution that we significantly increased our sales capabilities during that fly 20.

Finally, and most important is product.

In the fast moving markets, we compete in the technology, we provide customers into future as important as current capabilities.

Say that time and time again, a customers choose us as much for who will be in the future as we are today.

Able to meet new demands are customers and surprise them with innovations no other competitor offers.

Given the importance of product I'll highlight some of the current competitive differentiators provide comments around the innovation agenda, we're pursuing for each of our major platforms.

My reference these in the context of a single product. It's important to note that many if not all of these new capabilities, we develop machine learning being a good example are deployed across our entire product suite.

Driving product excellence in innovation is the most critical factor behind our results in the quarter.

It's also the basis of our confidence in the future.

Digital banking is a good place to start over the course of a few years, we have gone from competitive to clear leadership.

And their most recent cash management survey age they recognize bottom line is the best in class KES management technology leader.

We let all providers in three or four categories covered sharing leadership in a fourth.

This is no surprise, we've been winning roughly three quarters of the arf piece, we compete in.

Today 265000 businesses connect to their bank over our platform and there are another 128000 businesses, which will be on our platform on the current implementation backlogs lives.

Today, we processed more than one trillion dollars annually and payments for these businesses.

That number will only continue to go up.

One of an incredibly strategic position and it gives us a ready market for new capabilities. We are currently developing.

One of the important capabilities, we offer banks is online account opening.

It's no surprise, our customers saw a surgeon activity with new account applications up 62% in Q4 from the prior year.

We're broadening the capabilities of our customer engagement solutions in several key ways.

We're adding any insights which allows banks to learn more about their customers, which each click and we're developing advanced digital onboarding capabilities to improve every aspect of the digital customer journey.

It's a good example of targeting our investments in new capabilities to meet the needs of our customers.

And to drive Tam expansion and revenue growth.

Another good example of our product innovation sales execution and go to market message and customer demand all coming together as a 37 deals we signed for Paymode X.

This a record quarter for this strategic business payment platform declare a reflection of the hub market Warren and our position in that market.

We have effective sales channels and our bank partners and a direct sales team also now contributing to the booking results.

From a product standpoint.

Our size scale vendor network, and Onboarding capabilities, and simple smart and secure a proposition is a clear winner.

And we continue to innovate with new capabilities.

Most recently extended network insights to our invoicing solution.

And adding b to C payments, so any business on our platform can make payments directed to consumers.

We enter endpoint 21, and a fabulous position to accelerate the growth of Paymode X.

We're also successfully bringing new customers under our legal spend management solution and we drove strong sales results for the fourth quarter, which completed a strong sales result year.

We've continued our expansion into the UK market where of course, we have a large presence.

From a product standpoint, we're continuing to increase our machine learning capabilities for Bill review and adding claims adjusters to partnerselect.

Quite strong sales results in Europe, as well today, we count over 10000, UK businesses in 2.2 million unique payers that use our pgx cloud payment platform.

With PT exit customer can now game visibility across all their bank accounts on their phone and one consolidated view no matter, how many banks that bank with.

Just one of the many tools, we provide for businesses to monitor and manage their cash and financial health.

The most exciting innovation effort in the fourth quarter, maybe the launch of an integrator receivables platform effort.

It's a very natural extension for us.

An area in which we have a lot of experience an existing technology assets.

Paymode X a significant air capabilities for vendors as this RPX platform.

And cash application and visibility has always been a critical part of our banking solutions.

To accelerate the effort give it real substance, we purchased a receivables platform from a major financial institution.

Having a platform and bank partner speeds up our time to market, that's where beginning with an existing technology already being used by real customers.

In addition, with an existing product as a starting point, we get invaluable customer feedback in the development process. In fact, it's the model we successfully used to accelerate the development of Paymode X.

Ultimately, we expect to have global solution, we can offer integrated with our other platforms, making it available to the 400000, plus Paymode X vendors, the 700000 businesses and our digital banking solutions.

And our 10000 plus P T X customers in Europe.

It's a great example, partnership and innovation, providing new capabilities to customers.

And more Tam sales revenue growth for Bottomline.

So in conclusion, we're really pleased with the results for the fourth quarter in the year.

Bookings and sales results were strong and every indication is accelerating demand for our solutions will continue.

Our meeting that demand with effective execution and new innovations.

21 will be an exciting and rewarding year for our company.

And our shareholders. So I'll now turn it over to Rick and then of course, both of US will be available for questions. After his remarks. Thank you.

Thank you Rob I'm pleased to report on a strong quarter capping a strong year.

As we entered the second half of the year, we're forecasting and tracking towards subscription growth of over 20% in both the third and fourth quarters.

Due to the temporary impact of lower transaction volumes, that's not what we reported.

But overall, we were very pleased with their results.

We know that volumes from our existing customers will come back and inbound interest from new customers is very strong.

This strong demand allowed us to report record bookings and exceed guidance and expectation on every financial metric.

The highlights include subscription bookings of 25.8 million.

Subscription revenue of 87.7 million.

Up 12% on a constant currency basis.

Total revenue of 110.6 million with EBITDA of 23.4 million.

And 26 cents core earnings per share.

Each of these results was ahead of guidance and expectations.

This quarter ended a strong year in which we reported 16% growth on a constant currency basis 93 million at subscription bookings 442 million of total revenue long with 95 million of EBITDA.

In core earnings per fear of a dollar in 17 cents.

I will cover four topics in my remarks today.

Just a brief review our business model.

Second overview, our Q4 and full year results in more detail.

Third I'll provide guidance for the upcoming quarter and finally, a look ahead and comment on our longer term outlook.

Our business model provides a strong foundation for continued profitable growth.

We are well established and large and growing market for business payments.

Customer adoption of our solutions is accelerating.

Or products that provides mission critical functionality that our customer reviews for 10 to 15 years or more.

And we're investing derived revenue growth, while continuing to deliver solid profitability.

Turning to detailed the result subscription revenue grew 12% on a constant currency basis. This was impacted by transaction volumes, which were down in April and May but began to recover in June and July.

87.7 million of subscription revenue is equivalent to 351 million per year.

And is this rate 79% of total revenue came from subscription offerings up six full percentage points from a year ago.

Recurring revenue was 92% of total revenue of three percentage points year over year.

And we also produced 8.6 million of license and service revenue, bringing total revenue into 110.6 million.

Turning to sales I'm pleased to report very strong sales results as we benefited from increased demand for our offerings.

Customer signed 25.8 million of new subscription bookings, including record bookings for Paymode X and legal spend management for the quarter and for banking at our European product sets for the year.

This brings us to 93 million in new subscription bookings for the year equivalent to 27% of subscription revenue in the same period.

And well booking figures are estimates and customers take time to implement ramp to full revenue production. This provides us with welcome visibility.

Turning to signings are Paymode X network sold a record 37, new payers, including several very large deals we're seeing strong interest in our full invoiced to pay value proposition and good traction with both our channel partners and our direct Salesforce.

We signed six new customers to our digital banking products set including another large platform deal.

And with those signings, we have approximately 15 million of annual digital banking subscriptions, which are signed but not yet being recognized as revenue in RPM now.

Finally, we also signed five new insurers to our legal spend management network and another nine insurers expanded their relationships with us.

Overall, a very strong sales quarter.

Turning to profitability, we continue to produce consistent profitability as we identified book natural cost savings and select opportunities to manage spending outside of group areas.

This delivered EBITDA of 23.4 million were 21% of revenue.

Core operating income of 16 million.

And core earnings per share of 26 cents.

Subscription gross margin at 61% was up two percentage points year over year.

Which means that overall in fiscal 20, we added 44 million of subscription revenue of which 76% or over 33 million flowed through to gross margin.

This margin reflects the power of our business model to scale with growth.

As planned we invested to fund our sales marketing and innovation efforts to further distinguishing differentiate our products in this large and expanding market.

Sales and marketing expense was 22 million or 20% of revenue of two percentage points for the full year.

Development expense was 16 million or 15% of revenue of two percentage points in two years.

And between sales and marketing and development, we've increased our growth investments from 31% of revenue to 35% in lab in the past two years as we prioritize driving revenue growth.

From cash flow perspective in Q4, we generated 27 million of operating cash flow and 20 million of free cash flow, which allowed us to maintain our strong balance sheet position with 205 million of cash and investments on hand.

This means we're in a very strong financial position, which is important to both investors and to customers.

Turning to guidance in the upcoming quarter, we expect to deliver subscription revenue of 89 to 91 million.

Total revenue of 110 to 111 million.

Core income of 16 to 17 million.

Adjusted EBITDA of 23 to 24 million.

In core earnings per share of 27 to 28 cents.

Looking to the longer term outlook as payment volumes recover we expect to see that reflected in accelerating revenue growth as well.

For subscription revenue, we expect to return to subscription revenue growth of 15% to 20% driven by a combination of increased volumes from existing customers and sustained demand for our products and solutions.

For non subscription revenue, we expect the customer preference for our cloud solutions over on premise applications to remain strong.

And therefore for services and maintenance to continue to become less important as we've seen in recent years.

In conclusion.

I'm pleased to have been able to report record bookings due to accelerated demand for products and services.

Strong financial results in the fourth quarter.

The solid outlook for next quarter and strong demand in large and expanding market that positions us well for sustained and profitable growth.

And with that we can open the call the questions.

Again.

This timing, but be conducting a question to answer your question.

I would like to ask a question. Please press star one of your telephone keypad.

Information, telling <unk> King your line open ended question Q.

Probably start to feel like you have been good question Ken.

That's it. Thank you. Thank you carry equipment and made the necessary to pick up you can actually looked darkie.

The first question comes from Andrew Smith.

With Citigroup.

Please go ahead.

Hey, Rob Hey, Rick Thanks for taking my questions.

Thanks for the comments on the technology innovation and good progress on sales trends.

Starting off I'd, just a question for 21 talk a little bit about your visibility in in terms of returning to that 15% to 20% growth rates clearly have some good momentum here, but just just just a to more comments on.

Visibility returning to that range and that you know correspondingly was it what does it take to.

Consistently do subs and trans at the upper end to that range any comments around there that would be helpful.

Well first comment I'd make is absent economic events I think we are consistently in that range. We certainly would have been this year on we would've been up 21.

But as you think as to your question when do we get visibility.

We've got good visibility to our business today. The challenge is what's going to happen what level of economic disruption will we see are we going back to work is that more locked down or we don't have any more visibility of course to that than anyone else.

In our business the areas that will have some impact that we talked about a legal spend management with transaction volume.

I'm, sorry, with Paymode X, what transaction volume and the other was legal spend management I want to curse. There was a couple of things around activity.

If all of us are driving less and.

Having less accidents, having less insurance events being watched litigation.

Oh impact transaction volumes in that in a legal spend management and the second area that impacts it is a activity around the claims so.

Quarter parents is occurring at the same pace depositions et cetera, all the things that lawyers that going forward. So I think the answer to your question is we have in place today, 15% to 20% subs.

Growth engine no question on that we have some headwind from transaction volumes in the economic environment that well beyond our control and I don't think we have better visibility to one that.

Goes away I don't know, Rick if you'd have a more to add or a different perspective on that.

No I think that's well said at this point it didn't make sense to to try to provide full year guidance. We've seen some encouraging trends in terms of Paymode X transaction volumes as we've gone through June and July. So we're hopeful about that but I think we're all watching the news every day and.

Realized that the shape of their recovery a scale will still a big question.

Okay. Thank you that's helpful context, and then.

Clearly as I alluded to the a lot of good sales momentum here can you talk to the sustainability of the sales momentum you know <unk> question, we get quite often I mean, we're pretty confident that you'd see a tough uptick given that does is it digitization that's going on associated with co that but but just wondering about the sustainable.

Really do you have current sales momentum can you talk a little bit but that that'd be helpful.

Sure I think one of the things to really recognize is one how much sales that actually changed prior to this event.

And then how much has changed during this up that.

I was on a call it the significant prospect earlier this morning.

And a lot of ways actually it's a more powerful form and we would've had before where you're trying to schedule calendars and who can be therein.

And this and this effective people aren't as accommodated and used to that so we have a very strong digital marketing capabilities. We have a lot of content. We've a lot of thought leadership that creates the top of funnel and now we're not finding the fact that folks on traveling aren't meeting to be that disruptive I think the big.

Just challenge that's harder to predict is what happens on that customer side are there other priorities from other activities, but everything we're seeing today is working in our favor because.

Just as it we made in the Kid mentioned in the comments that digital transformation that business payments is clearly a priority if youre CFO and you're wondering about offices being open and getting payments out.

Bottom line solution, so exactly what you're looking for.

Okay. That's good to hear about the sales momentum by this last one for me the receivables management technology nice to see the pick up there. Obviously you guys have already have assets in place on the air side with Paymode X could you just talk a little bit about what the technology.

He brings that you don't have today because they think.

It seems like increasingly having both sides of the spectrum full capabilities on both sides of the spectrum is increasingly important so any information share on what the tuck ins brings that that would be helpful.

Well all of that's really well put yes, we have a lot of capabilities today.

Providing capability and visibility on the other side of the payment that's critical for payment what we haven't done it was really focused exclusively on the receivable side.

Cash application other modules around that credit for example collections and the like so the effort, which before we get the next question is not going to have any revenue in this coming year, but the effort that will be building out a full capability on that so in light of versions will be deploying that technology that.

For example, vendors on Paymode X, but it gives us the full opportunity it off for that as an aggressive module with digital banking or part of TTX or part of a rather solution to even ultimately sell that directly at a point in time.

Got it alright. Thanks, Thanks, again, guys a good job in the results here.

Thank you. The next question comes from John Davis with Raymond James.

Let's go ahead.

Hey, good afternoon guys.

Wondering if you guys are willing to comment on bookings trends in July. So somebody would you guys didn't April last quarter. They just curious it looks like given the update you gave intra quarter bookings were relatively consistent throughout fiscal fourth quarter, what we've heard a lot of.

Some of your private peers talk about acceleration bookings with Covance. So just have you seen a pickup in July or is it more steady as she goes that when people come to that.

<unk>.

Hey, you've probably seen that overtime our summer quarter.

The this upcoming quarter that ends in September thirtyth tends to be seasonally a little bit down versus versus our fourth quarter.

So we're seeing solid bookings through.

Through July no indication that will have any any slowdown in demand I think we should have a solid quarter, but I would remind everyone that the quarter ended.

September Thirtyth contains a European summer, which traditionally includes a little bit of a slowdown for us.

Okay. That's helpful. And then maybe just an update I think pretty cold did you guys have just hired a new direct sales team.

All the wins quarterly there's no doubt impressive specifically the 37 Paymode X maybe help us through actually break out how many those came from the bank channel versus new sales team are you kind of color you can give on on how the new sales teams performing.

So we're not breaking out by bank or by direct but the new ticket sales team is it is doing real well for US we had signings in the quarter. We've got a fabulous pipeline, we were able to put together really a strong team.

That's out in the marketing, there's so much market opportunity, what we're really not seen any conflict with channels. So kind of both engines are running well, oh, well, but which of course earlier at less than a year for the direct sales team at this point.

Okay, and then maybe help us I'm a little bit on the opportunity for B to C. Is this more of a nice add on products. That's gonna help you retain business or less revenue opportunity there maybe just obviously.

Given kind of the environment, it's become more important for business. They will pay to equal. So you just curiously how big opportunity that is or is that basically table stakes at this point.

Yeah, what we're doing there is we're adding more flexible wanting more capability to the Paymode X platform. So it allows a business that up there our consumer directed payments whether that.

<unk> funds for insurance claims or whatever type of payment that may be sabic capability to do that directly from a single payment platforms. So it I wouldn't see it being something more to point exclusively for B to C application that.

At this point, but it gives us great flexibility and gifts. Okay. It was great flexibility Paymode X platform.

Okay last one for me.

Rick on capital allocation, you guys have dedicated slide to the balance sheet.

The highlight of the 200 million casual balance sheet and thinking about a 120 million or so I'm available on the revolver, maybe talk about how you balance investments and organic growth versus M&A, obviously to get to a couple sounds like very small tuck ins or at least with receivables piece.

Versus share buybacks and deal with the stock Haynesville a around $50. So just curious there all the I'd say look quite that capital over the next year. So.

Absolutely JB.

As you know, we always pride ourselves on maintaining a strong balance sheet, it's important to our customers as well as to investors and we remain resolutely focused on accelerating our growth organic is the primary means but doing acquisitions that extend our capability, it's where we can.

We can sell through another products to our large installed base. There's also attractive. So I think you'll continue to see a combination that those things we haven't we haven't mailed out anything larger, but we're not looking to enter a brand new market. So what were what were more commonly seeing as.

It's smaller tuck ins.

Okay, and then just just a quick follow up gladney as you continue to generate free cash flow.

Oh, Hi, <unk> cash balance go or at some point around to help us back in the buybacks barring all the opportunities. Thanks guys.

I want a I won't comment on buybacks at this point other than dimension that 'em, we do have an open open authorization.

Okay fair enough thanks, guys.

You next question comes from George Sutton of Craig Hallum. Please go ahead.

Thank you this is Adam on for George.

Right and Rob could you are in terms of the inbound interest could you provide a little more color is there anything you you're hearing from the market.

As a result of Cowen.

So let me make sure I get that question right you sort of broke up there is there anything more hearing from the market where there is <unk>.

Yeah from customers from inbound a potential customers and inbound interest is there anything New York hearing from them.

Sure.

Well, we <unk>, we talk to all of our bank customers. Since so there's a lot of things that they're thinking about let's say if I break that into chunks in the quarter first off was the.

Change Ranch is closing <unk> online banking online applications, where small business in particular that would frequent the branch more than <unk> leveraging online channels mr. majors shipped in that so many branches were close and so that's one big implication one big thing we're hearing from customers on the second the course.

The.

Well protection plan loans and stimulus and our efforts to help in that by making our technology available for anyone who needed that you know beyond that I think the things. We here at the same worries that otherwise would have where's the economy go or do we have you know banks thinking it.

About the loan portfolios thinking about the strength of their customer base and bigger questions around you know, what's your national issues around supply chain in the U.S. medical testing when do branches opened one do offices open but.

I think at the end of the day I asked one customer one major banks or what are the solutions you need from US right now to answer was.

Exact solutions, you've been developing for the last 10 years. So I think he said that honestly not just to be nice <unk>, where that's what we're that's the dialogue. We're really happy we have to write capabilities right solution for folks today. There are concerns customers concerns are probably the same as all of certain ones when surfaxin once here.

Economy open.

But we're servicing customers while in there appreciate it.

Great and then in terms of the direct sales team with this increase in inbound interest is there any than any change in terms of your strategic thinking on how you use that group.

Well, we have direct sales teams across all the bottom line. So I wouldn't want to get [laughter] they'd be computer shouldn't just because we launched a newer team for one of our products Paymode X I think that there's been a transition of how direct sales teams have been deployed over time digital content is so important.

Being the digital marketing efforts you know the surprise, 70% of the buying process happens before human interaction. So our brand our recognition as a trusted innovation partner so critical than what we've seen and I referenced earlier is businesses up adopted.

Where in the past it would've been a sign of less interest. If we were on a webex are shown call instead of having more if the team a person. That's obviously the wage sales are being conducted now so it actually allows us to bring more if the team I personally would sort enjoy him get to be in Baltimore.

Yeah, and other specialists or other executives can be involved in a call bring more capability more more of the leadership team to that relationship. So I think that's been an adjustment, but I wouldn't characterize it as a negative impact in any way so last part of that and I apologize for such a long answer.

It's really interesting this where does that end up in terms of trade shows onsite travel and all the like but for now that's just the environment and we're seeing an adjustment, but not an impact.

Oh, that's very helpful. Final question for me in terms of the receivables platform that you picked up curious from your perspective, what were you know one of the two major factors into this decision to go after the specific asset was it price was it the customer base was there something with the technology. They had that that got your.

Cited and then that's all for me.

So.

First off we did not take on the customer base or Brett the new or the like what's the technology platform.

Well look what did the then current any M&A market price points that other recent assets would be win as was pointed out earlier, we have a lotta capability ourselves. So this was I think it creative and clever way for us to get a jump start with capabilities that we did not happen today, there's no substitute for I've been real.

I've customers, having a real live in service platform as a starting point, that's where we are now we're developing the next generation capability based on that so it was a mixed it factors the quality of the partnership <unk> certainly on the other factors like customers using the technology, which is so much better than a theoretical develop.

I meant.

And it was the best place then for us to add to our existing capabilities.

The next question comes from Gary Prestopino, Eric could research. Please go ahead.

Hi, good afternoon, everyone. Most questions have been answered, but I just want to get to make sure pinpoint or on some of that things you talked about in terms of your subscription and transaction revenue where would you say that there was about a two to 300 basis point hit because of a paymode X and legal spend management or having a sluggish quarter or less than expected.

Not a sluggish, but just the impact of what's going on the economy.

Yeah, I would say it was actually a it was greater this quarter last quarter. It was the two to three that you mentioned, but it was greater this quarter, because we had the a full quarter of the about although the trend.

Particularly for Paymode was upward as we move through the quarter.

Okay, and then because it for the Partnerselect. The those the addition of having how does the addition of adjusters or change the use of that product anywhere or how does that benefit that product [noise].

So insurance adjuster like attorneys have to submit bills and need to be a need to be.

Evaluated as part of that so it's just a linear extension of that functionality, bringing more and more of our insurance company the vendors within within our platform.

Okay. Thank you.

Yeah. The next question comes from they can't get <unk>. Please go ahead.

Hey, good evening out at this actually calculator said on for Mike Thanks for taking the questions.

Just a follow up on a through the transaction revenue had what the trend is that.

How.

I'm wondering if you guys could help size up how big of a left you guys experience between throughout the quarter and it into July.

Just so we can figure at like are you guys kind of back to last year's transaction level or something like kind of a same store sales pick up basis or are we still kind of fighting our way back there just kind of want to see where the transaction side, where volumes will need to go to get us towards that 15 to 20.

Sent subscription growth from the back half of here.

Transaction volumes hit there a hit their lowest point in late May early June and.

Have begun to improve as we move through June and it continued to improve as we move through July the overall transaction volumes.

Still below the same time in the prior year, but one subtle refinement is that the transaction volumes from our vendor pay model has continued to grow year over year, just a little less rapidly then they would have otherwise so the underlying transaction volumes are healthy its just too.

Question have you know there are a little bit below where they were prior year.

Great. That's a that's helpful color and then just have a follow up on.

The incremental gross margin on a subscription revenue that's great to see that rolling in at a nice incremental market.

Is that for kind of future subscription and transaction growth is that like the kind of incremental gross margins, we should be saying on this business, especially as it scales or were there any kind of onetime benefits that skewed that incremental margin higher.

We've been we've been very steady at posting.

Incremental gross margins and a high 70 high 70% range and I think we'll look for that to continue it may not be as linear step forward each individual quarter, but the fixed cost nature of many of our solutions is part of what makes them so attractive.

Great. That's helpful. Thanks, guys nice quarter.

Thank you. The next question comes from Brett Huff with <unk>. Please go ahead.

Good afternoon, Robyn, Rick and hope, you're both still facing well.

After me.

Question on Paymode X volumes did years ago, you gave us a paymode X volume number I think of a north of 200 billion I wondered if you had updated that are could care dish would care to update that for us to give us little sense, So directionally, where that's headed or had been.

I think we've given you a directional sense and we don't intend to be breaking out individual transaction volumes on the call up we haven't been we haven't in sometime.

Okay. Thanks.

And then in terms of the direct sales capability. It sounds like Rob you mentioned that there were some deals that those folks close and they'd been added for about a year.

More earnestly.

When you all think of the contribution to Paymode X revenue growth that could come from direct sales.

Yeah. There are there kind of rough amount. So a rough percentages that you think about or help us side, how about you know how much extra growth we might get from that that channel.

No I think we're thinking more about the imports than the N. bristled, it's a growth that will produce a <unk> rather than trying to model, but for and produce but we're growing our distribution, we're doing that by adding new bank channels from a doing that by adding the direct team and for clarity because somebody on the direct team will call me afterwards.

Actually we actually have not been out of the year. We started in October and November in bringing people on so really actually a very strong strong effort I'm on the Paymode X direct team.

That's helpful. And then last question for me.

Rick when you went through the year the quarter, you noted that I think that sort of opex for data and sales and marketing with maybe a 400 basis points, 35%, a revenue versus 31 or something like that.

As you guys spend a little bit and lean in behind the growth from the Tam and these businesses.

Have you considered ramping up even more from there or are we kind of at a level that feels good or as we think about the out year is that you know same percentage dollars go up or is there any sort of thought of maybe you know pour more gas on that fire now that we see the tams open up because of coated.

Okay more high return investments that we can make me that'd be a sales and marketing and development now we'll continue to operate at a reasonable level of profitability as we have so I think.

No I wouldn't picture anything dramatic we're not going to take our our EBITDA margin down into where our competitors are for example.

But we will prudently prudently invest and its you know now that more of our revenue is coming from subscription than we have that nice ongoing step up in the gross margin we feel good about our ability to one that.

Great. Those are my questions I appreciate it.

Yes. The next question comes from Cris Kennedy with William Blair. Please go ahead.

Hey, guys. Thanks for taking the questions just wanted to dig getting a little bit more on Paymode X and you've made a lot of investments over the years can you just frame kind of what Paymode X has been growing historically and.

What you think it can grow going forward.

Paymode X that's always been a strong growth and you know its ground even through a this reduction in transaction volume, albeit not as albeit not as rapidly. So we would continue to see Paymode X.

Selling in at least the upper end up or 15% to 20% brains and potentially even faster given the amount of interest that we'll see.

The only thing I'd add there with the statement, we made a lot of investments actually where we've been historically lights on R&D investment and so the amounts we brought that up actually bring us closer to what Norman certainly not a high level of investment.

Okay. That's helpful and then any update on the.

And bringing legal spend over to Europe, how's that going.

That's what we're doing very well go ahead right go ahead, you got it you've got to yeah, it's been going really well. So we've got strong adoption you know it started with the UK divisions of U.S. insurance companies. Some are starting to see some expansion around there. So we think the market is actually.

Little bit larger than we had originally anticipated and were pleased with the progress.

Right and then just one last one you mentioned the 15 million of banking business in the backlog any.

A lot on kind of implementation time of one that hits the piano. Thanks, a lot guys.

Yeah, we we expect half of that to me going live in the first half of that why 21, and the remainder by the time to get to the end of year.

Great. Thank you.

Yeah. The next question comes from Peter Heckmann with D.A. Davidson. Please go ahead.

Hi, This is alexis on for Pete. Thanks, So much for taking our question Oh, So personally wanted to touch on the vendor pay model. It came at X. I was hoping you could give us the number of total customers that are on that model now.

We have well over a thousand customers on Paymode X overall, and we don't break it out any further than that.

Okay. That's fair a and then on the receivables management tuck in deal could you just give us a sense of the purchase price on that and also I just want to make sure of understanding it correctly. It sounds like it was a software purchase but not necessarily bringing revenue onboard or was there a revenue so.

I see it it was that as well.

Yes, that's exactly right and do not giving up the purchase price today. It will be in his 10-K, but it was single digit low single digit millions.

And I think the other right. The other piece the other piece just to emphasize in terms of the value. In addition to getting the platform itself, which is supporting customers. We're also working with with the team and to further develop the capability.

Uh huh.

Okay, and then you mentioned a possibility I thought the current environment, expanding the Tam and a couple of different directions or will you be providing any I think I'm not going forward or any sense of what opportunity might look like.

Sorry, withstand on receivable, specifically or was that more broadly I can tell more broadly.

No we from time to time I've provided updates and Tim I I think a simple westlake about it just as a trusted innovation partner to major banks.

We continue to see there in requirements for new capabilities, expanding I referenced in my remarks for example, onboarding and creating a whole digital journey for each new business and new customer they bring on that all adds to our Tam that's all new capabilities. So we.

We've got between the market opportunity and Paymode X digital banking Tam is not an issue for Bottomline, we've got huge markets in front of us.

Great. Thanks for taking my question.

Thank you you have reached the I'd just a question answer session I would I like to turn the call back to Mr., Bob I believe I couldn't secret bikes.

Well. Thank you everyone. Thank you for your interest in bottom line as you could tell from our remarks and questions. We're really pleased with the results for the quarter. Many year, we couldn't be more excited about the opportunity ahead of us at that point 21 look forward to report in a strong Q1, a in the October timeframe.

Thank you.

Thank you that does conclude our conference for today.

Participating you may now disconnect.

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