Q1 2021 Bottomline Technologies (DE) Inc Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the bottom line Q1 2021 earnings call. At this time, everyone. Joining by phone is in a listen only or muted mode. Later, we will conduct a question and answer session instructions will be given at that time, if you should require assistance during the call.
Please press Star then zero on your telephone keypad as a reminder, this conference is being recorded I'll now turn the conference over to our host Danielle Shere. Please go ahead.
Welcome to the bottom line third quarter 2021 earnings Conference call. This is Daniel here and I'm joined by Rob early Bottomline, CEO and Rick Booth, the CFO I'd like to remind everyone that statements made on today's.
This call will include forward looking statements about bottomlines future expectations plans and prospects all such forward looking statements are subject to risks uncertainties and assumptions, including those related to the impact of COVID-19, our business and global economic conditions.
Revenues in our SaaS platforms drive the bulk of our revenue.
Reaching 80% is a meaningful milestone.
Our results in model lineup, while with the characteristics of a valuable SAS platform business.
The large 20 billion market opportunity and a leading competitive position in that market.
Targeted growth of 15% 20%.
With an opportunity to exceed that range.
When SaaS metrics.
We continue to drive consistent profitability and cash flow, allowing us to invest in innovation and expand our product capabilities.
Our strategic plan is focused on the product set.
Market position and execution needed to drive years and years of growth at or above our 15% to 20% target range.
Before I get further into my remarks, let me touch on the key financial results for the first quarter.
We're really pleased with our execution and the quarters results.
Subscription revenue was 90.4 million.
Which was up 13% from a year ago.
Interesting and gratifying to see the bank accelerate the conversion to this customer facing strategic system. Despite other competing priorities.
They realize that if they waited vigorous falling behind the competition native.
And they determined our platform was the quarter market later and represented the best opportunity to aggressively grow their business banking franchise.
Innovation effort underway is focused on the digital capabilities for corporate and commercial Onboarding.
Second important new platform capability, we're developing this cash flow optimizer.
Brings a variety of data related to cash from different sources into one intelligent platform. None provides insights predictions and recommendations all driven by embedded intelligence.
What created.
Doing that personally at several events and meetings with investors over the month of November.
We have a great story to tell.
$360 million of subscription revenue with strong SaaS metrics.
A leading position in large important markets.
Targeted growth of 15% to 20% with an opportunity to exceed that growth.
And strong EBITDA.
Bottom line represents an asymmetrical risk investment for any investor and an extremely attractive price point for SaaS investors.
Finally, with the shares undervalued, we'll be buying back shares beginning immediately under our previously authorized $50 million buyback program.
Sewage prior existing customers.
As we add products and capabilities to our subscription platforms. These metrics should continue to rise.
I need a new customers live without delay in doing so virtually.
I'm pleased to report solid bookings and continued strong demand for our offerings.
Customer signed $22.4 million of new subscription bookings.
Patrick's was ahead of plan and expectations.
Subscription gross margin was 62% of.
Up to four percentage points year over year.
In the quarter, we added $10 million, a subscription revenue of which 76% were just under 8 million flip through the gross margin.
As we step back based on our confidence and bottom line strategy growth prospects in value. We will immediately begin buying back stock under our existing 50 million share repurchase authorization.
Of the 30 million remaining on that authorization, we commit to no less than $10 million in repurchases to be completed between now and December 30 Onest.
So in conclusion I'm pleased to have been able to report on the strong quarter.
A significant milestone as subscription revenues exceeded 80% of total revenue.
13% subscription revenue growth and 25%, excluding our cobot impacted lines.
Accelerate.
So just any comments around how we should think about just.
The run rate the business, giving all those dynamics, particularly exiting this fiscal year.
Oh.
I'll make some comments and I'm sure a record as well, but the first thing I tell you what I always try to do as an operating executive is take a look at normalizing things for variables. Instead of occurred. So I know for example, we were headed into Q3 and Q for it last year of 20, and then 21.
<unk> that was a forecast somewhat subscription Robyn that's usually pretty much right on the money. So you can feel good about the engine or I feel good about the engine driving.
And our subscription and growth in our business. The second data point, then there's one more reference stomach call here when we take out the transaction based revenue models that are legal spend management and pay my next 25% growth in the quarter. So I think the question is when do we say.
<unk>.
Uhm volumes normalize and at that point in time I have every confidence we'd be in our 15% to 20% target growth range and I think there's a potential for us to be above that.
Weren't aware is tougher to pick exact timing, but the engine driving growth in our business is as strong as ever.
Well said, Rob the other bit of context that I wanted to just remind everyone of is that we planned unexpected the migration away from license revenue and some maintenance revenue. This this you're going from fiscal 20th of physical 19, that's a more than 10 million dollar.
And the beautiful thing is in the four thing this quarter. We had left me a million dollars a software so less than 1% of revenue. So it's impossible for that to be a significant dragged going forward. So I just wanted to remind people give him a comment about other revenue.
Yeah. That's that's helpful. I appreciate that.
And then a I appreciate all the comments on innovation the products I think I do think it's helpful for investments understand what you're doing and work details regarding your devotion. So that's helpful <unk>.
I guess you know robbing your prepared remarks, you had you know a lot of comments in terms of just you know what you're trying to get some innovation perspective, but if you take a step back you know you look at the product set which which products yeah. Our most exciting to you which have them was potential you know and maybe talk.
About the product roadmap over the next year or two that that'd be helpful.
HM.
Well the first thing I'd say.
Lot of what we're doing in fact, I'd say across the board what we're doing in terms of product innovation. Some of the things I talked about machine learning.
Person was personalization data insights beautiful software.
And an intuitive experience a P I as all of those pieces those for common across all platforms. That's our innovation agenda across all platforms, I think the dynamics and opportunities for a little bit different slight take a look I think the largest opportunity we have in Europe enemy U S. Just really.
Businesses pain, and getting paid that would be P. T X in Europe came out X in the U S. That's certainly the biggest overall town.
From a competitive position and a really attractive market. We also address is digital banking, where banks under service about their business cranking franchise want to compete Grub Walnut Chair wrote customer account grow their business, we're gonna select bottomline and so the opportunity there is really significant.
Just to win those deals, but then new capabilities like some of the pets I love French during the call commercial I'm boarding and our cashflow optimizer.
Those are two huge market opportunities for us we gonna spend management doesn't have the same size market opportunity, but the position. We have is so strategic we're seeing all of the flow of legal billing for major I'm sure. So one of the things we've been doing now is introducing new capabilities law firm analytics for example.
The law firms can't subscribe to already carriers, so new product opportunity as well as continuing to so if that sounds like I didn't have a particular favorite that's right because I think each of those major areas swarm best in and and driving gross and payments in Europe.
It's in the U S digital banking legal spend management they'll have a great opportunity and bought if you step aside from transaction impact every one of them is growing at or above our target range.
That's helpful contacts and just.
Just last question I will have them could you talk a little bit about kind of the recovery curb there I knew there can be a lag in terms of just legal claims being submitted and things like that so you can just talk about you know what you're seeing and you know how how we should expect that trend that would be helpful.
You're right Andrew be.
The leg between an accident and litigation ensuing and therefore legal bills can can range you know approximately six months and we had commented.
Last call a bit volumes were up in July relative to what we had seen in may and June but not as materially as we had seen in in the payload X actually trying to slightly down in August. So July to August was slightly down, but then we've seen a steady recovery in each of the following.
So three months, so far of some slight improvement.
As Rob referenced.
First in profitability as our theme as opposed to maximizing profitability in the short term given the large space that we're targeting.
Okay. That's helpful and then Paul.
And as the you're going quickly and I missed it just the bookings number again and then just coupled with that Weve lot of checks we've done in private companies you've talked to as well as banks have really talks about the increase in tech budgets as a result of the pandemic. So just curious.
For more of a subjective perspective are you guys seem that uptick in demand.
Is your pipeline build and just kind of any kind of macro comments you can give maybe both here in the U.S. and in the UK.
Yeah. There's no question, we've seen an uptick in demand you track data to top of the funnel.
No borders on any given quarter, particularly a corridor boots.
So the difference or something more.
I thought it was really strong solid orders number.
Yes, no question, we're seeing more demand more interest and I think that translate.
Kennedy, which as Rick referenced, we're making investment around product and marketing and sales to maximize them.
Okay reckon as quickly the bookings number again, sorry, I just during the prepared remarks.
22.4 million JV, Okay. Thanks, and then Rob maybe a bigger picture question I think the 25%.
The transaction related businesses is encouraging and Rob you alluded to even upside to the 15% to 20% over the over the longer term or maybe even exiting this year, but from a higher level I think.
You kind of touched on it on Andrews question, but if we think about the three different businesses that you have the payment network business in the U.S. and in Europe, and digital banking and an L. FM, how do we think about what those growth rates are for those different businesses and how we can get to potentially 20 or even higher as a digital banking needs to grow 20.
5% is upside into the payments like how do we kind of get to that 20 plus percent.
From a growth perspective for those three different businesses.
Well, we have for ourselves satisfied or ability to get a sense on its pretty lumps and of course, we didn't see that occur with the disruption quoted but we know we can get there to each piece is contributing to that there isn't a single <unk> tribe.
Well I go that's more important than another but each piece is contributing to that so we know we know we can get to that range. The way I think about that I think we're going to deliver attractive gross and attractive value.
At 15% to 20%.
So specifically to your question, it's somewhat both in it but it's all new revenue.
It needs some of those things.
And from a geographic perspective is that limited to a few specific countries or is it more widespread.
So we we do that's that's specific thing is focused more around the banks, we work with in Europe, and gingiva in particular, but what will typically C. As in the technology. So will depart for a family deploy around the world, Singapore and Australia in London U S. They are.
Universal Aggregators part of around at them Seleucia financial messaging solution stuff. That's one of the core pieces in our partnership with the zombie to be connect for example, so.
Which will do is take technologies and use them in different marketplaces, which I will slight adjustment typically the payment types of protocol, but we can deploy that most of our technologies around the world.
Great and obviously a couple of small acquisitions in the quarter I was hoping just relative to that how should we spoke about what's your approach to M&A.
Is going to look like in the future as you go towards this new innovation plan.
And we focus our attention unexplained and functionality and strategic advantage rather than chasing the largest the largest company is gonna be given size maintain.
<unk> discipline.
Alright, great. Thank I would yeah, I would not expect M&A to be a hugely material use of capital on a go forward basis.
Thank you. Our next question from the line of Brent half with Stevens incorporated. Please go ahead.
Good afternoon, guys hope you well.
Okay great.
Uhm wanted to begin a little bit on the 15, 20% 21 outlook Uhm.
First of all we appreciate that sort of view I know, it's still pretty uncertain and so I appreciate the the the the range uhm, but I Wanna make sure that I got sort of what the parameters of the caveat where.
The way I read it in the release was kind of depends on how covid macro sort of comes out and I just want to make sure I heard again.
How are we should think about that 15% to 20% in 21, I'm kind of what what's what's built into the macro assumptions. There just so we know how the how to sensitive do a sensitivity on it.
Thank you put your finger right on it for at the the key unknown is how quickly will see the economy returning to normal. So we know that as the economy returned storm or will see that 15 to 20 per cent as I mentioned and I gave some indicators, we're seeing some recovery of payment volumes for example, seven per.
<unk> quarter over quarter, but as of now there are still 2% below prior year and normally they would be significantly above so dependent on the state of the economy.
Either a Q3 or queue for we should see that but we're not ready at this point to to provide a precise guide on full year Subtree Avenue. Nonetheless, we're confident that with our operating discipline. We <unk>, we can deliver on our EBITDA commitment.
Okay, that's great and so just to dig in a little bit on that it was my second question I'm glad you mentioned the payments volume so the 7% with total pay mode volume growth that you're seeing in the in the first quarter and normally kind of it runs at 900 is that the right way or 9% of the right way to interpret what you said.
Yeah, we would normally see normally see payment volume increases up more significantly than that but it was up 7% sequentially. So from the corner and it ended June 30th to the quarter ended September 30th.
I see so it's up to 700 basis points sequentially and did you tell us what 074774 percentage points Yep I'm.
I'm, sorry, seven points higher sequentially and did you you were talking there's a lot of it or did you actually say what the the actual growth was I just Wanna make sure I didn't miss that.
Sorry could you repeat the question.
Yeah. Just wanted did you actually give the payment would volume growth I Wonder if you gave that I just want to make sure I got it so.
Yes, It was up 7% from June to September, but September September 20, but still 2% below the payment volumes that we saw in September 2019.
Okay.
And then on the.
The New initiative, you know with the buyback idea that we're going to start right away. In addition to that you mentioned sort of a little bit more outreach to investors. It sounds like you're getting starting to November to do that you know what other what other items are gonna be on that it does it sounded like maybe we can get some more incremental data points such as this asthma.
<unk> that you provided and things like that.
No I think it's just that I think it and 80% of our revenues subscription revenues driven by market, leaving SaaS platforms big opportunity and find them them I think it's a great story to tell him and I don't think that sports, but it was clear from investors. It fine it's it's capital.
It gets an investor's decision, but I'm told by those that to get close to us and look at it. They said I can get you know <unk> business. That's that's K O 360 million, yes, it's not calling at 40% or some of the superstar rates, but it's got him attractive unpredictable gross level and I can't get in that at a price.
Multiple that's entirely different from what I've seen and others, which creates a symmetrical lips killed I think that's significant upside if we can be seen in the clearer picture of what we really adult around the subscription revenue streams in size platforms to trade at a much higher level amount today and that's the story will be out telling.
That's great and last one for me sorry to ask so many questions could you just repeat the SaaS metrics that you gave us those where it sounded like they were helpful and I couldn't write fast enough.
Yeah, certainly so.
97% gross gross renewal rates and well over 100% not renewal rates, even in today's environment and we're confident that those will move up over time as we continue to build the functionality into our platforms.
And those relationships the customer relationships are very very valuable because of our 76% incremental gross margin on subscription Rodney.
So that to me.
Is a real opportunity.
Okay, great. Thank you I appreciate the extra time.
And our next question from the line of Peter Heckmann with D. A Davidson. Please go ahead.
Good evening. This is Carson on for Pizza. Thank you for taking our questions. Just one quick one under recently come a activity could you provide the annual run rate and purchase price for your security recognition.
Certainly I can address that question.
And I mentioned this earlier, but I can go into a bit more detail, we focus our attention I'm expanding functionality and strategic advantage as opposed to going after the largest companies in a given market. So FMR. For example is a very small company focused on corporate Onboarding.
And that's a perfect extension of our existing account opening tools and that will significantly extend the reach and functionality of our platform since we integrate the capabilities, but I'm on day one.
<unk>, we're taking on board three customers five employees and you know all of our total expenditure and that was 2.3 million. So as you would expect there's minimal Reverend revenue in the short term, but it helps accelerator on our Onboarding development efforts.
M S S.
Likewise focused on strategic advantage in this case on acquiring local language capabilities to extend our financial messaging solutions more deeply into German speaking Europe.
Small, but experienced team is focused on extending our reach but there's no significant contribution FY 21 results.
Great I'm very helpful. Thanks, a lot for your time I appreciate it.
You know I think the common theme you can see it there are no m&a's strategy is being creative and smart.
Price sensitive finding value without.
Spending a 15 times revenue.
Company, which there's plenty of brown, there's plenty of opportunity to do that they could add some things, but I think what we're doing is executing far more effectively and efficiently around emanates.
Right. Thank you.
Thank you and I'll turn it back to your management for closing remarks.
Well. Thank you. Thank you for your interest in bottom line very strong cortical I suppose a lot of what the results I'm even more excited for the year ahead I appreciate your time and interest.
Thank you ladies and gentlemen, this conference call has ended we thank you for using the AT&T Conference service you may now disconnect. Thank you.