Q2 2021 BTRS Holdings Inc Earnings Call

August 11, 2021

[music].

Good afternoon, ladies and gentlemen, thank you for standing by welcome to build Trust second quarter 2021 earnings Conference call. At this time all lines have been placed on mute to prevent any background noise. Following the Speakers' remarks, we will open the lines for your questions. As a reminder, this conference call is being record.

I'd now like to turn the call over to Dara Dierks to begin.

Yeah.

Thank you before I begin I'd like to remind you that today's call may contain forward looking statements. These forward looking statements are subject to numerous risks and uncertainties, including those set forth in our filings with SEC and available in the Investor Relations section of our website actual results may differ materially from any forward looking statements we make today.

These forward looking statements speak only as of today and the company does not assume any obligation or intend to update them, except as required by law. In addition, todays call may include non-GAAP measures. These measures should be considered as a supplement to and not a substitute for GAAP financial measures reconciliation to the nearest GAAP measure.

It can be found in today's earnings release, which is available on the company's website hosting todays call are Flint Lane, they'll trust founder and Chief Executive Officer, and Mark Shifty, they'll trusts Chief financial officer with that I'd like to turn the call over to Flint to begin.

Thanks, Dara and as always thanks, everybody for joining the call. Today. This is our third earnings report as a public company and we are thrilled to share that we had another great quarter, both strategically and financially.

We saw great performance in our core software and payments business fueled by our investments in sales and marketing.

Any of the strategic investments, we've made around payments and the channel are starting to pay off.

Our net revenue came in at $31.6 million representing growth of approximately 23% year over year, our software and payments segment revenue grew 27% year over year. This outperformance has informed our decision to once again raise our guidance for the year, which mark will discuss in a moment.

Total payment volume or TPB increased during the quarter by 47% year over year to $18.8 billion.

From $12.7 billion from the same period in 2020. This is an acceleration from the payment growth we saw in the first quarter of 33% year over year.

Included in <unk> are the payments that run through VPN, the business payments network VPN TPB increased to 160% year over year in the second quarter, an acceleration from the 146% year over year growth. We saw in the first quarter. The credit card component of the VPN TPB, So a volume of $1.7 billion in the quarter.

<unk> grew 123% year over year and year to date through June exceeds $3 billion.

After a strong July we are now at an approximate $9 billion annualized run rate with <unk>.

One of the big highlights of the second quarter was the return of build Trust summit. This year, we focused on the future of accounts receivable and integrated BTB payments like many events. Our annual summit was cancelled in 2020, but we returned this year bigger and better than before over the course of four days over 1000 attendees, including Cfos heads of finance <unk>.

Shared services participated in 52 breakout sessions and eight main stage sessions smashing previous attendance record I'm pleased that investors and analysts were also able to participate and learn more about the mission we're on.

There is a delta of summit, we announced the latest version of VPN or opened two sided network that leverages, our underlying accounts receivable will platform and connects the financial services ecosystem across buyers and suppliers.

If you had a 4.0 as the first and only bidirectional BTB payments network, enabling invoice delivery to over 100 accounts payable portals. In addition to its existing payments and remittance acceptance capabilities, we take data from customers' ERP systems and delivered to accounts payable portals through a variety of mechanisms, including direct interfaces Apis.

Robotic process automation this addresses a major pain points of suppliers as more and more of their buyer customers are implementing accounts payable systems that require them to do manual work around invoicing Bbs.

<unk> already had incredible mentum before we added this capability and we think VPN for pointed out will be a game changer in the industry.

While we began the payments represents an enormous opportunity for <unk> I want to spend some time talking about the foundation of our business our industry, leading software platform offering customers an end to end solution spanning the entire order to cash process.

Almost 10 years ago, we're now an investor Marc Andreessen wrote an article in the Wall Street Journal titled Why software is eating the world and that article he talked about the major disruption softwood play in just about every industry.

Accounts receivable and BTB payments are no exception to what Mark wrote about while the payments capabilities that we deliver to our customers are incredibly exciting none of that would be possible without the software layer that sits on top of it credit Decisioning E Commerce invoicing payments cash application and collections are all being disrupted by software that's a <unk>.

Good thing because it allows knowledge workers to focus on high value activities. It also is good for the environment as we continue to help our customers dramatically reduce their consumption of raw materials like paper.

It is also good for the bottom line is transacting digitally drive significant savings for our customers.

Many people wonder why so many BTB payments are still sent via U S Mail standards protocols like Adi and XML have existed for decades that havent solve this problem seems pretty unlikely that in the entire industry will adopt some new standard in the future to solve BTB payments.

The payment infrastructure in U S is well established with plenty of choices bouncing speed uncertainty. It also seems unlikely that there is a new payment rail that will be coming to the rescue we believe the answer to this problem will ultimately be software software like our E. Invoice connect solution that allows our supplier customers to review and pay their invoices through our branded web portal.

<unk> software like our business payments network that provides an interoperable framework that allows large buyers who use accounts payable systems and easy way to discover and pay suppliers.

Software like our mobile deposit solution that allows our customers to arm their field personnel with an easy way to accept payment and remittance on the road. This is not simple there are many use cases that need to be solved for integrating with banks erp's payment gateways and AP providers is a lot of work. We've spent almost 20 years building best in class software.

Solutions that drive meaningful meaningful results for our customers I'd like to highlight a few of them.

One of the world's largest foodservice distributors was trying to reduce cost structure and last year. They began using our cash application software solution to automate the hundreds of thousands of payments they receive per year. They.

They also were an early user of our mobile deposit capture solution that allows our teams to accept payments while on the road.

They are now processing over $10 million per month with mobile deposit capture which also drives higher automation rates with our cash application solution.

<unk> of this savings is the result of this is a savings of thousands of hours of manual labour each year. The customer was thankful for the savings and said the efficiencies. We've gained from build trust have been unbelievable. We're all in this is so efficient it is crazy.

International commercial truck dealership has been dealing with manual processes and institutional knowledge that was held by only a few key personnel related to ACA processing.

<unk> payments and the corresponding remittance data that is buried in E mails or buyer portals is expensive and requires a fair amount of training for our customers. This customer recognizing the knee they needed to increase efficiencies and reduce risk signed on with the BPM digital lockbox to automate their ACTH payments in women's is since going live in March.

Already processed over $18 million, an acre permits on nearly 2000 payments in less than five months their success in managing UCH payments has motivated them to drive more of their customers to AC H something they wouldn't have done without build trust.

A multinational electronics company identified a major need to provide their customers a modern billing and payment experience with bill truck EBIT invoice connect solution. They enabled self service in integrated payments across both ECH and card for their customers on top of elevating the customer experience. The ultra solutions are reducing card processing fees through level two level <unk>.

<unk> optimization theyre getting paid quicker these payments are easier to apply to their ERP and they have improved the experience for their customers.

Suppliers by our solutions for many reasons to reduce cost to increase efficiencies to accelerate cash to increase compliance.

And often to enhance the experience of their customers the buyers.

There were some other great accomplishments this quarter that I'd like to highlight.

Pursuant to our strategic investment in the channel, we recently announced the new build trust global partner program, which offers even more tools to promote faster growth and enable the success of our partners and their customers. The programs offers its go to market channel partners banks Fin Techs Erp's industry Association buying groups accounts payable.

<unk> and system integrators, more opportunities and support and adding build trust, leading automation and <unk> integrated payments capabilities to their portfolio. Currently over 50 companies are participating in the program.

We executed a strategic alliance agreement with Wipro, a leading global information technology consulting and business process services Company, We released a new version of our collection solution that allows collectors to seamlessly accept both card and ACH payments as part of our payments everywhere strategy.

There is clearly so much opportunity for growth and to further drive the digitization of the process. The opportunity is further demonstrated by an in depth research study. We recently commissioned from paradoxes. Among the many insights generated the research showed that there was a significant gap between accounts receivable practitioners perception of how modern there.

Assesses our and reality.

86% rated their department is very or somewhat modernized while over 40% of our departments do not offer self service capabilities over 50% do not have realtime integrations with ERP systems and over 60% do not have a majority of their payments or invoices of digital with nearly 30% of payments still are being cash and paper check.

<unk>.

This research really highlights the opportunity ahead for build trust to help these teams maximize efficiency and leverage the most advanced cash flow acceleration and integrated payments capabilities available with that I'd now like to turn the call over to Mark to review, our second quarter results in more detail as well as provide an update to our financial outlook Mark.

Thank you and good afternoon, everyone.

I mentioned, we are very pleased with our accomplishments this quarter towards the end of June we launched our registered underwritten secondary offering which closed at the beginning of July.

This transaction began the orderly transition of share ownership from our pre public institutional investors to shareholders with a longer term view and owning public company stocks.

The secondary offering was oversubscribed with many of our existing long only investors participating and increasing their ownership position.

Well as a significant number of new investors using this opportunity to establish positions in our stock.

Turning now to our financial results in Q2.

Net revenue in the quarter was $31.6 million, an increase of 23, 2% year over year.

Software and payments segment revenue exceeded our expectations growing 27% year over year from $19.4 million.

$24.6 million services revenue also was again ahead of expectations growing 37% year over year to $2.5 million, while print revenue grew modestly to $4.5 million.

Adjusted gross profit was $22.6 million or 71, 7% of net revenue.

Compared to $18.1 million or <unk>, 75% of net revenue in the second quarter of 2020.

Year over year margin improvement was driven primarily by the mix shift and segment revenue.

Towards higher gross margin software and payments.

This margin expansion was against the tough comp in the same period last year. When we began some short term cost reduction measures in response to Covid, which cost returned to normal later in the year.

Turning now to our operating expenses in the quarter.

Excluding stock based comp in each case.

Research and development expenses were $10.2 million.

To $8.6 million in the year ago period.

Sales and marketing expenses were $9 million.

Compared to $5 million in the year ago period.

The year over year increase reflects the strategic decision. The company has made to accelerate top line growth through an increase in net sales and marketing budget to a larger percentage of overall revenue.

Also includes the costs incurred in the quarter to host our highly successful 2021 gotra summit.

Chip.

G&A expenses were $6.7 million.

Compared to $4.5 million a year ago period not included in those costs in the current quarter were a half million dollars of expenses associated with the underwritten secondary offering.

As discussed.

Adjusted EBITDA was a loss of $3 million.

<unk> to approximately positive $100000 in the prior year period.

We had expected a larger loss in Q2 with some of our hiring has been slowed by a very competitive market for talent.

We ended the quarter with $287 million in cash and equivalents and short term investments on our balance sheet and no debt for borrowed money.

Turning now to our full year outlook, we had a strong Q2 with continuing momentum in July which provides us the confidence to raise our annual total net revenue guidance by $2 million at the midpoint as well as <unk> narrowed the range of our guidance on the basis of more visibility to the remainder of the year.

For the fiscal year, ending December 31, 2021.

We are increasing and narrowing our total revenue guidance from a range of $160 million to $166 million to a range of $163 million to $167 million, including Reimbursable costs revenue of $37 million. We are also increasing and narrowing our net revenue.

New guidance from a range of $123 million to $129 million.

Through a range of $126 million to $130 million.

At the mid point of $128 million.

It represents 18% year over year net revenue growth.

This increase in projected net revenue is being driven by greater than expected growth in our software and payments segment, which is now expected to grow 23% year over year, rather than 21% as previously projected.

On the back of this mix shift to higher margin software and payments segment revenue were correspondingly raising and narrowing our adjusted gross margin range from 69% to 71% to a range of 70% to 71% or 75% at the midpoint, which would be a year over year increase of 20 basis points.

Consequently, adjusted gross profit, which was expected to be in a range of 85 million to $89 million.

I expect it to be in a range of 88 million to 92 million.

Our $90 million at the midpoint, an increase year over year of approximately 18%.

Lastly, we previously said, we expected adjusted EBITDA to be in the range of negative $14 million to negative $16 million. Once again, we plan to reinvest this quarter's over performance into the business. We therefore continue to expect adjusted EBITDA to be closer to the higher end of that range. If we can hire fast enough given the huge opportunity.

Quint described even beyond that range.

In terms of remainder of the year, we expect to see the improvement in software and payments segment revenue noted earlier tempered by softness in print and nominal growth in services.

As discussed on our call last quarter. This implies that we expect year over year growth rates in the first half of the year to achieve those rates in the second half of the year.

Consequent to the combination of a tough second half year over year comp.

Usual timing of revenue recognition this year from a legacy customer in the first quarter.

As we begin to think about trends in our business leading into next year, we continue to see acceleration in our payments volume momentum in our subscription business.

<unk> from our sales and marketing efforts.

And the acquisition of new logos as well as executing on our land and expand strategy.

And early indications of potential longer term revenue acceleration through partnerships.

These trends in conjunction with an assumption that the economy will remain constructive through the remainder of the year.

<unk> with a high degree of confidence that we will exit this year on a growth trajectory and our software and payments segment in the low to mid twenties into 2022.

We continue to be incredibly excited about the opportunity ahead and look forward to discussing our progress with you in the future. Thank you again for joining the call and we're happy to answer your question.

Operator, please open the lines.

Thank you at this time, we will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment it may be necessary.

To pick up your handset before pressing the star keys, one moment, please while we poll for questions.

Your first question comes from the line of Bob Napoli with.

William Blair. Please proceed with your question.

Thank you good afternoon plant in March.

Really good to see the acceleration in a lot of those metrics.

In the second quarter.

Especially the payment volume the number of <unk> presented a number of metrics.

So nice acceleration now.

As he talked look look at the software and payments revenue.

Which is.

At a nice rate, 27% high growth, but it seems like with the growth in the some of the other metrics that there could be some acceleration.

And that software and payments revenue.

In the back half of the year and into 2022.

Why why would that not be correct.

Hey, Bob it's Mark Thanks for the question. So there are a couple of things to think about first it is the year.

Year over year, when we look at.

Back half of last year, we took on some.

Delighted that we were able to take on some large customers both in subscription and payments and thats contributing very nicely to the first year over year comp.

Relative to that so we're seeing overall.

The increase in absolute numbers quarter over quarter over quarter, and we expect that to continue but going over a very tough second half of the year comp makes a continued acceleration difficult. So as I said it in absolute terms, we continue to see great acceleration month over month quarter over quarter went on.

On a year over year basis. It makes it a difficult comp, but that's why we said we have some visibility into how things are trending and we feel good about that continued growth into next year.

Great. Thank you and then just on the M&A front I know you've called out.

Being very active in M&A.

Other player in the space acquired.

And now there is a significant acquisition I think.

But maybe just your thoughts on that.

The competitive environment for M&A and.

The opportunities Youre seeing in.

What.

We should expect to see out and build trust over the next.

Several quarters or.

If you would on on that front, where would you be looking to acquire.

Hey, Bob It's split thank you for the question.

I think we've been very clear publicly that one of the reasons. We went public is so that we could be more acquisitive. Our intent is to be aggressive in this area, but not bullish so we're not going to do a deal just for the sake of doing a deal, but we're looking at a variety of things. It is a healthy market for sure.

In terms of prices that people are paying.

So we're going to do a deal that makes sense and I think mark and I would be disappointed if we don't start get some deals under our belt here, but.

We've got a few things in play in.

I would expect over the next 12 months that Youll see us pretty active here.

And then last quick question on VPN for <unk>, and just the momentum in the business payments network.

How is that how is it being received.

What are clients.

<unk> about 4.0 versus three point out and then how does that.

Very strong growth translate into revenue how do you monetize that.

How will we see that revenue contributing or that payment volume contributing to the software and payments revenue growth over the next several years.

Yes. So the if you if you talk about the differences in <unk> versus <unk>. Four O. Now include the invoice delivery into accounts payable portals and that is included in the subscription revenue that we get with began four point out we've made a pretty big bet here that every organization of scale is going to need an online billing right we've been.

Providing those for almost two decades, now, but as more and more payments moved to digital. We also recognize that everybody is not going to pay at the portal large buyers want to use their AP software both to send payments and to receive invoices and for that we firmly believe that every large supplier is going to need a digital lockbox. They don't know that yet but it is.

More and more payments are being initiated from AP providers and more and more invoices are getting adjusted by AP providers. The pain becomes even more acute so we're filling a really big need on that supplier side for both invoice delivery and payment acceptance from their large buyers you will see that in our financials as additional software and payments.

Revenue began Forbes, specifically will be software because its invoice delivery, but the BPM suite, obviously has lots of payment monetization.

Great. Thank you I appreciate it.

Your next question comes from the line of Andrew Schmidt with Citi. Please proceed with your question.

Hey, Mark Congrats on the acceleration here and I. Thank you for taking my questions.

Wanted to start off on this the sophomore payments growth.

<unk> I think was 27%.

That's correct, yes, 27%.

If I if I remember correctly.

Client it sort of went up and BDC client that went up a platform in the first quarter.

That was expected to dampen revenue for the remainder of the year. So if you kind of.

Exclude that that impact the underlying growth was actually higher maybe around 29%.

Is that fair or am.

Am I missing something here in terms of underlying growth in the second quarter. Thanks.

Sure.

Without commenting on whether it's 29% or otherwise you're absolutely right.

That customer within our numbers last year was not in our numbers in Q2, and the 27% software and payments growth rate.

Is it at that level notwithstanding that headwind.

Got it I appreciate that clarification and then.

I think one thing that really stick out to me is the early success will be.

Sales.

Sales and marketing investments that you alluded to in the release.

I think we are expecting more of a benefit in the back half and into next year. So if you don't mind, you can talk a little bit more about the success youre seeing with sales and marketing front and then it seems intuitive that things should ramp from here. So maybe talk a little bit about how that influences your influence.

As to your confidence in accelerating software and payments growth.

Going forward. Thanks.

Yeah, So we talked to this.

This is Linda Anders. Thank you. So we talked about some aggressive investments in sales and marketing and we continue to invest aggressively in sales and marketing and that is paying dividends not not just from the new people, but across our entire team we had a.

A near record quarter in terms of new logos signed.

We had great bookings for the quarter and a lot of that Hasnt, even shown itself in the revenue numbers, yet because we have to get those deals lives. So we're very excited about the results, we're getting from our sales and marketing initiatives and continue and expect to continue to keep the pedal down on that.

And I would not also.

Underestimate what's happening in the channel right, having channel partners also deliver business for US is a big part of our growth.

And we've talked about that in the past, so having our sales and marketing team, having an impact on our direct efforts as well as our channel efforts will certainly manifest itself in higher software and payments growth overtime.

That's great to hear certainly helps the visibility from a revenue growth perspective.

If I could sneak one more sort of higher level question.

Listen to the <unk> summit.

<unk> sort of highlight on interchange rates.

It's been talked about for some time obviously.

Just the interchange rates to sort of.

Sort of encourage higher ticket fees.

<unk> transactions do you want to call it seems like it's a pretty.

A pretty big opportunity for build trust and others in the space, what's the likelihood of that happening or is there any developments on that front. It seems like it would be.

A significant boost to a number of players, but just curious to get your thoughts on.

On that on that front.

Yeah, I'd say it seems unlikely in the short term debt.

There'll be a blanket change to interchange rates in <unk>, because I think the card brands and the banks are afraid of cannibalizing teeny.

Things like that.

That said.

There are prop rates that are occurring today, where buyers and suppliers can do Greta will rate the bill transact. They can pick any rate that they want and I would expect that we will continue to grow and.

And we've got a hand, and some of that as well, but I wouldn't expect all of a sudden.

That BBB interchanges going be dropped to 100 basis points versus where it's at today.

It would be surprising for the banks and the cards to get that the card brands to get that done now if it does so.

We're going to make money, regardless of how those payments flow and we've said that right as paper checks move to digital and our accelerated digital payment rates are showing that they are moving faster, we're making money, whether it's ECH work hard and we are making more money on card.

We're thrilled for any digital payment that we can monetize whether it's card or AC H.

Got it. Thank you both very much congrats on good results in the quarter I appreciate it.

Thanks, Andrew.

Your next question comes from the line of <unk> <unk> with Needham <unk> Company. Please proceed with your question.

Hey, Good evening guys. This is actually how peterson on for <unk>. Thanks for taking the questions.

So I will touch on gross margins a little bit on the <unk>.

Adjusted gross margins it looks like the guidance implies that there'll be a little bit of a sequential dip in the second half of the year is that the impact of some of the hiring you guys alluded to or is there like a <unk>.

Mix shift with some of the revenue that we should think about over the next few quarters.

Yeah.

It's a good observation I think.

I'm hopeful we're being a little bit conservative about where gross margins might be in the back half but.

Overall, we're still very comfortable with the 75 at the midpoint.

We had just tremendous results in the first and the second quarter.

And so we.

Very hard to repeat that that level of performance.

A little bit on mix shift, Mike, Mike tampered them tamped down on them, a little bit, but we still feel pretty good about it.

Okay. That's that's helpful and then.

Maybe just a higher level question I know you guys have.

Really been investing heavily in R&D and new product initiatives or what are some of the key priorities that you guys are focusing on it and trying to build out your product suite like what's kind of.

Higher priority in the near term what are clients increasingly asking for and kind of like.

Yeah.

Yeah. So there's two flavors of things we work on we call them continuous innovation and discontinuous innovation. So the continuous innovation stuff as the features and capabilities in our existing products that our customers are asking for.

We announced we added ECH support into our collection solution for instance, which is a relatively new product for us that we launched a few years ago.

And we were always doing that every quarter, we're releasing new capabilities and use existing products.

The discontinuous innovations are those things that customers aren't asking for VPN for instance, nobody was asking for a two sided market to solve this whopper of a problem related to BTB payments. So we continue to invest in those things as well.

We've kind of averaged about one per year on major new capabilities in VPN or some of our other solutions. We don't want to share. What's next there there's plenty to talk about about what is there, but we're always.

Extending some effort on those discontinuous innovations as well.

Great.

Helpful. Thanks, guys nice quarter.

Thank you.

Your next question comes from the line of Jeff Cantwell with Guggenheim Securities. Please proceed with your question.

Hi, good evening.

Hi.

Sure. Thanks.

Thanks for taking my question.

Your call it BPM to four point or game changer, So I feel like we can.

Right.

Some more time on those can you talk some more about the reasons why meaning whats differentiated about it.

And can you also give us some color on VPN.

Being available to your suppliers via a single subscription price, which you're highlighting in my presentation.

Does that mean for revenue.

How should we be thinking about the implications of our transfer your revenue generation.

Trying to be clear on what this means as we get into our models and think about these topics.

Okay.

Yes so.

When we launched <unk>, we were the first ones to market with a sort of two sided payments network that was this interoperable framework.

We're not trying to be the only BTB payments network, we're trying to stitch together the payment networks that already exist, whether it's the ACS network. The visa network. The avid network to Bottomline network. The <unk> network Theres plenty of that works and everybody wants to be the network. We're not trying to be the only network. We're trying to provide some glue to allow the networks to inter operate which will.

Yield higher digital payments and this is not a new thing in the world. This has been done before them.

Right example is the ATM network back in the day you can only go to your bank. If you wanted to withdraw cash from an ATM and then private network started to exist like Cirrus, a nice and then you could only take money out of Cirrus a nice.

Ultimately all of those networks for stitch together and they still exist today, but you never look at the back of your card you see whether you can take money out or not those networks are interoperable that did not exist before VPN. So we did that on payments. We're now doing it on invoice delivery and Theres no one doing it today and that's why we think it is a game changer in terms of the revenue.

Subscription revenue model that we built is that every payments and every invoice delivered counts towards the tier in the subscription many of our customers start with one of the three elements of VPN. It could be VPN card VPN AC H or BPM invoicing, they can easily upgrade to another component.

Without signing another piece of paper just by starting to use it and that will then contribute to those subscription tiers and as they go through those subscription tiers, we will make more money as more things go digital we will make more money and it doesn't require a salesperson to go sell them something else.

Interesting, Okay, that's great color.

The other thing I wanted to ask about CRM is.

The competitive environment.

Of course, I guess, it's always been a competitive environment for you and that's really never going to change right, but.

When we think about competition, we like to try and think about it from your perspective in terms of how those things that you can control internally.

Maybe its higher staff, maybe it's product.

Also things you can't control externally meeting.

You are interacting with your customers and where you are focusing on new customers et cetera. So my question is can you talk about what the competitive environment is driving you to do.

Both internally and externally can you maybe give us some thoughts there in terms of how you're staying ahead, how youre adopting we'd love to hear your thoughts about what youre doing a real trough in this environment.

Yeah.

Yeah, No listen I think competition is healthy it keeps you on your toes and makes you.

Perform better if you look at the accounts payable side of things Theres, a 100 folks duking it out on the AP side and they all have to figure out how theyre going to win whether it is focusing on specific verticals.

Focusing on large versus small customers and maybe even like go to market strategy and I think there's elements of that within Bill Trust.

Got vertical focus where we're going after specific verticals and are aggressively rolling our business there.

We certainly believe we are probably the most innovative.

Person in the HR space, if you look at where our peer group is.

There's a bunch of legacy companies that have been around for quite a long time.

So we believe we are leading in terms of innovation, which gives us a several year advantage in terms of.

The capabilities, we bring to market ultra.

Ultimately, though it's about execution.

It can be as visionary as you want but if youre not executing it really doesn't matter. So we believe we can execute across all fronts, because we have been doing that for nearly 20 years. So.

It is an enormous market and we do not need to be the only player as much as I would like our competition to disappear. It is healthy for us to have competition and we will certainly get more than our fair share of the market.

Yeah, just a quick.

I met a prudence observation in context.

An example of vision and execution five years ago VPN didn't exist.

And today, it's on a.

Annual run rate of $9 billion of processed volume. So that to me is a great example of what I'm, saying.

Right right. Okay, Okay, great and then if I could squeeze a last one on the guidance. The revenue increase here in 'twenty. One is great I wanted to double check on that as it relates to the cloud competition just want to be clear about the increased guidance can you talk a little bit about what youre attributing about true is it.

Greater optimism about growth with your customer base from the economy rebounding.

Maybe I thought it might be fair to say that the.

The momentum you have with BPI, that's causing your greater optimism about the go forward how would you break that out for US just want to make sure that we got that right.

Sure.

Yeah, Great question, So I would say it is across the board in our software and payments.

As I said, we're not looking for.

<unk> out of services and print, we're really focused on how software and payments are delivering and the outperformance is coming of course Trent Trent actual software and payments so customers, who are running more card and ACTH transactions through the system that's transactional work.

Also getting some outperformance on subscription, but it is really the transactional components and we've seen it come back strong.

Think after Q1, we had some cautious optimism that this would continue I think after Q2 week and heading into July.

That momentum continuing into July we feel very good about the rest of the year.

Okay, great. Thank you and congrats again on the results.

Thanks.

Your next question comes from the line of George <unk> with Cowen. Please proceed with your question.

Hey, guys. Good afternoon, and thanks for taking my questions I guess, the first thing I wanted to ask you just on a high level. Clint if you can talk a little bit more in depth on the.

The global partner program, and maybe how you're benchmarking success over there and potentially you talk about sort of an acceleration in growth.

Yes.

Maybe if you can kind of quantify that just kind of give us a sense of how meaningful of an acceleration could that put up with that drive longer term.

So if successful it can be incredibly meaningful so we have to prove that we can drive significant business from the channel. So we've always been a company that had channel influence business and we have partnerships with ERP and different things, but it was ultimately assigning the business.

The last one we talked about customers.

We had I think the number was around number around 1800.

Not getting to 10000.20000 customers just by hiring direct salespeople the way we get to 10000.20000 customers is by arming the channel and this is thanks to resell to BP in digital lockbox to their treasury clients. It's a P providers, who want a more supplier friendly solution.

It is integrations with ERP and our go to market strategy with those ERP. So if we are successful when other companies have proven success here.

It is.

Potential game changer, we don't want to spend too much time talking about things that we haven't proven yet, but we have been consistent about speaking about the importance of the channel. We've made significant hires year, we've announced some great channel partnerships VPN is a classic channel strategy with our interoperability. So it is a big deal for us to execute here.

Okay I appreciate the color on the enthusiasm there.

Mark just wanted to circle back on a prior question on second half gross margin I guess, if I'm looking at net revenue.

Over the back half of the year its comparable it's similar to what we saw in the second quarter without with a better than 71% gross margin sorry, I I just want to make sure I understand.

What would be.

Person down does that does that is because there's some conservatism as it is it sort of channels that are that are impacting it and is that something that you're seeing now or you just want to kind of have a cushion there.

As we think about the back half of the year. Thank you.

Sure.

We're not seeing pressure on gross margin without us, making you concerned about the back half of the year I think we had.

Great performance in the first half, we're looking to make some investments.

Catch up on some hiring so there are different things that could put some pressure on gross margins.

It just seemed to me we should factor in some of those possibilities but.

We are not seeing any pressures on them right now.

We've said before our software and payments gross margins are already in the eighties and it's really just the mix of how theyre bouncing up against services and print and that's what brings it down at that somewhere in the seventies.

Okay. Thank you.

Yeah.

Sure.

Your next question comes from the line of Joseph <unk> with Canaccord. Please proceed with your question.

Hey, Mark.

Nice follow through here on your second public.

Public quarter, congrats on that maybe.

Follow up on on George's question, a little bit here on the channel could you remind us kind of how deep the channel is at this point.

From my view it it seems like you've developed some great software some great solutions.

And one of the big pain points at this point is really your customers being able to.

Get your get your solutions installed relative to what they were what they're doing now and.

Maybe a little more color on on how the channel and from your consulting partners can kind of help.

Prime the pump on some of your customers.

Customers or your new leads and then I'll have a follow up from there.

Yeah, I think the most obvious example is around the BPM digital lockbox. So we believe that ultimately.

Every large enterprise is going to need a way to accept electronic payments efficiently. If you think about a way electronic payments come in today. It is a hot mess right. You've got virtual card is being delivered via E mail.

<unk> is coming in with a deposit into their bank account it separately and email remittance, you've got many remittances detailed stuck on websites that our customers have to log into the BPM did a lockbox automates all of that as more and more payments go digital album becomes worse. So we believe that everybody is going to ultimately need that.

So.

We think banks should have a role in that banks have these treasury groups that sell to corporates on a regular basis and they want to be relevant they don't want to be sort of blocked out of this like they were blocked out of payroll.

We think they want to offer more than just depository solutions and we've got a a challenging that is aggressively signing up banks to offer that digital lockbox to their treasury clients. So you could you know one of the challenges we have as a software company is building that new relationship and signing that new logo. Once we sign a customer they generally stay with us for a long time, and we were able to.

Cross sell additional things, but landing new logos no big surprise is hard because they don't have a relationship with us banks already have these relationships often at the highest levels they've got a credit facility or something like that so it's much easier for them to get an audience with the right people to bring interesting stories like a digital lockbox. So.

That's why I think it's so transformative we've got work to do it's early innings, but we're pretty excited about the bets we've made so far.

Okay.

Sure.

We could probably talk about this fall with whole area for a while but.

You have a lot of channel partners here, you've got you've got.

Some systems integrators, you've got financial institutions.

How do you sort that out.

Yes. The goal is not to have 1000 partners. The goal is outperforming partners.

We announced the hiring of when those are earlier this year and we inherited some partners she inherited some partners.

We're sorting through them. Some we are discontinuing the partnership because it is not performing as we expected, but we expect different things from different partners. We've got partners now who are implementing our solutions because one of the keys to scalability is making sure that we can turn off turn up the dial around implementations, we've got partners like visa who are aggressive.

Really introducing us into the bank network and have been a key part of our build trust success. So making sure you know what you want out of the partner, making sure there's something in it for them, making sure their skin in the game on both sides of that you both want to perform we're very excited about doing just press release partnerships. We've been around for 20 years, we don't really need to do that kind of stuff. So we're looking for.

Gartner shifts that actually will deliver results for both us and the partner.

Great. Thanks, so much.

Great results guys.

Thank you. Thank you.

Your next question comes from the line of Tien Tsin Huang with Jpmorgan. Please proceed with your question.

Yeah.

Yes. Thank you let me answer yes for sure great results.

A lot of ground here.

I hear the raise in sales investments in the partner channel and.

I know the comp in the second half a little bit tougher, but I wanted to ask on that just do you feel like.

You can replenish the backlog with some large customer additions here in the second half given what you see.

And the pipeline.

I don't think the newswire.

Go ahead, Mark let me just.

Hi, Tien tsin.

Any customers that we signed in the back half of the year, you're not going to see a material impact. So we did have we had a great.

First and second quarter in terms of sales that will certainly have an impact on revenue.

But I think Mark has addressed the we've got certain visibility into what happens we've shown accelerated payments and they've got a great tailwind behind us. So I would expect that all the contribute in the back half of the year.

Got it but just in general then Fairpoint right nothing translate to convert that quickly, but just in general from us.

Beyond the logo with the quantity of Rogue I was just curious on the.

Quality of the size of some of the some of the wins as well as what you see in the pipeline if there's anything interesting to share there.

I don't think were chartering.

Yes.

I guess I think about it the powering away, but let's put it in context if.

If we think about where we finished last year Q4 was 12% year over year growth.

Net revenue.

Nevertheless, we went into this year with visibility, where we were able to guide to 16% year over year full year growth and now we're waiting that to 18%.

That there are.

Tough comps that are making it look like there is deceleration.

I think we've seen the same story in the past, where we finish in a on a relative basis year over year at a lower comp, but with the right backlog taking us into the next year.

Things that that sort of <unk>.

<unk> over on a year over year basis to the right levels and I think that's why we're saying we have.

Good visibility into how our software and payments business continues to grow we're looking for that growth at a floor level in the low to mid twenties.

There are other things at play that could possibly bring it higher so we feel pretty good about where we are.

And the visibility we have around our software patents.

Yes, certainly.

Last one if you don't mind just on the on the hiring side.

That's been a theme I think everyone's heard me ask this question a million times. So I'll ask you guys to just this war for talent in.

Finding the right people to lean in on investments do you feel like you can get the folks youre looking for on that front.

Mark you want me to take that one.

Yeah.

Thank you okay.

It's a tough labor market for sure and we offer a.

Great environment with a great culture that people want to work out and we are we're certainly filling spots aggressively but.

There are a lot of great companies out there trying to get people. So we're certainly landing lots of people. We're hiring new classes of people. Every every couple of weeks to fill sales positions marketing positions R&D positions admin positions.

So we are we're pedal to metal on recruiting and we've got a great recruiting team that's filling those spots.

And the good news is we have a budget that will accommodate that effort.

Alright.

Thank you for the update guys. Thank you.

Thanks.

As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad as a reminder, if you'd like to ask a question. Please press star one on your telephone keypad one moment. Please while we poll for more questions.

Your next question comes from the line of Josh Beck with Keybanc capital markets. Please proceed with your question.

Hey, guys. This is matti on for Josh Congrats on the quarter and thanks for taking my question I wanted to circle back to VPN Powerplay now again I was just wondering now that you guys are connected to over 100 accounts payable carnival portals.

What portion of the market you think that you are able to cover with that.

Yes, Great question, we talked a mark and I talked about what metric we could share around invoice delivery.

As another metric for VPN.

It's no surprise that we're going to start with the biggest pain is.

That would be making up a number but I'm sure it's north of 75% of the potential volume with all of those different portals.

But.

It is as our customers are.

Getting request for new portals, there quickly added into the system.

We are it's probably well north of 75% I don't know the exact number.

Great Super helpful.

And then just to go back to that investment in sales and marketing I was just wondering if you guys could give any color on your mix of go to market you know as you're investing more in your partnerships, but also on your internal sales team.

Where you see things shifting mix wise in the future.

I don't think we're sharing specific mix of that but we are aggressively investing in all of those things aggressively investing in marketing aggressively investing in our direct salesforce and aggressively investing in our channel. So we we believe all will factor into our growth and if there is an opportunity to invest somewhere that we think will pay dividends.

We're making that investment.

We're sitting on a bit of a war chest is going public with over $280 million cash on the balance sheet. Some of that is certainly earmarked for M&A.

Lot of that is earmarked for growth initiatives too. So we're evaluating lots of different internal growth initiatives.

Great. Thanks for answering my questions.

Your next question is a follow up from Joseph <unk> with Canaccord. Please proceed with your question.

Yeah, Hey, guys I think you know maybe some of that was answered in the previous question on capital allocation, but.

You have.

And you could deploy a lot into the channel.

Boy, a lot and the sales you could.

To deploy a lot and so you know a lot of areas and I mean is there any area right now.

<unk> may be.

Perhaps kind of the highest ROI I mean, I know you already have a good.

LTV to CAC on your direct effort.

Yeah.

Okay.

Mark you want to take a stab at that one.

Yeah, I mean, it's.

It's almost like.

Being a kid in a candy store, we have so many fantastic opportunities Joe and we.

We are sort of looking at what makes the sense for what is the next dollar going to.

By Us and we are way.

Somewhat equally.

Investment in.

And.

Our direct.

Our go to market strategy, our channel and product because they all play off of each other very nicely.

We're doing at the same time is taking a more.

Deliberate view.

About what we should be chasing in the market, which customers today with customers in the future, which types of products will be best.

Return on investment today, which products, who we'd be spending later on so I think where we're trying to impose discipline.

<unk> had to.

To spend we are trying to stay within budget that we originally set and the only.

Variance from those budgets as acceleration of what was already on the radar screen for next year. If we can bring that into this year. So what we will do that to accelerate growth.

But I don't know how to answer the question differently other than we see Chan.

Channel direct in product and then just layer on the timing of what we want to.

Which investments we're looking to get the greatest return in the short term, which investments, we're making for a longer term opportunity.

So they asked you about Tibet.

Yeah, that's good color Mark I think it's just it's a.

You know, it's a very active market, it's very opportunistic and.

And I think you know where all you know.

Is there just a lot of growth opportunities and so.

Okay.

Focused is what's important here.

That is what we're doing.

Thanks, guys.

Ladies and gentlemen, we have reached the end of the question and answer session and I'd like to turn the call back to management for closing remarks.

Once again, thank you everybody for participating in this earnings call.

I'm incredibly excited about the results, we put up in the second quarter, but more excited about the future ahead as we continue to reinvent accounts receivable and BTB payments have a great night.

This concludes today's conference you may disconnect your lines at this time. Thank you all for your participation.

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I would now like to turn the call over to Dara Dierks to begin.

So you're seeing available in the Investor Relations section of our website actual results may differ materially from any forward looking statements we make today.

Forward looking statements speak only as of today and the company does not assume any obligation or intend to update them, except as required by law. In addition, todays call may include non-GAAP measures. These measures should be considered as a supplement to and not a substitute for GAAP financial measures reconciliation to the nearest GAAP measure can be found.

In today's earnings release, which is available on the company's website hosting todays call are friendly they'll trust founder and Chief Executive Officer, and Mark <unk> They'll trust she.

Financial officer with that I'd like to turn the call over to Frank to begin.

So great performance in our core software and payments business fueled by our investments in sales and marketing many of the strategic investments we've made around payments and the channel are starting to pay off.

Total payment volume or TPB increased during the quarter by 47% year over year to $18.8 billion from $12.7 billion from the same period. In 2020. This is an acceleration from the payment growth. We saw in the first quarter of 33% year over year include.

Included in <unk> are the payments that run through VPN, the business payments network VPN TPB increased 160% year over year in the second quarter, an acceleration from the 146% year over year growth. We saw in the first quarter. The credit card component of the VPN TPB. So a volume of $1.7 billion in the quarter.

<unk> grew 123% year over year and year to date through June exceeds $3 billion. After a strong July we are now at an approximate $9 billion annualized run rate with <unk>.

One of the big highlights of the second quarter was the return of Bill Trust Summit. This year, we focused on the future of accounts receivable and integrated BTB payments like many events. Our annual summit was cancelled in 2020, but we returned this year bigger and better than before over the course of four days over 1000 attendees, including Cfos heads of finance <unk>.

During the Ultra summit, we announced the latest version of VPN or opened two sided network that leverages, our underlying accounts receivable platform and connects the financial services ecosystem across buyers and suppliers.

<unk> four <unk> is the first and only bidirectional BTB payments network, enabling invoice delivery to over 100 accounts payable portals. In addition to its existing payments and remittance acceptance capabilities, we take data from customers' ERP systems and delivered to accounts payable portals through a variety of mechanisms, including direct interfaces API.

<unk> already had incredible mentum before we added this capability and we think VPN for pointed out will be a game changer in the industry.

While BP and payments represents an enormous opportunity for build trust I want to spend some time talking about the foundation of our business our industry, leading software platform offering customers an end to end solution spanning the entire order to cash process.

Almost 10 years ago renowned Investor Marc Andreessen wrote an article in the Wall Street Journal titled Why software is eating the world and that article he talked about the major disruption softwood play in just about every industry.

Counts receivable and BTB payments are no exception to what Mark wrote about while the payments capabilities that we deliver to our customers are incredibly exciting none of that would be possible without the software layer that sits on top of it credit Decisioning E Commerce invoicing payments cash application and collections are all being disrupted by software that's a good thing.

Because it allows knowledge workers to focus on high value activities. It also is good for the environment as we continue to help our customers dramatically reduce their consumption of raw materials like paper.

It is also good for the bottom line is transacting digitally drive significant savings for our customers.

Many people wonder why so many BTB payments are still sent via U S mail.

Standards protocols like Adi and XML have existed for decades that haven't solved this problem seems pretty unlikely, but in the entire industry will adopt some new standard in the future to solve BTB payments.

The payment infrastructure in the U S is well established with plenty of choices balancing speed uncertainty. It also seems unlikely that there was a new payment rail that will be coming to the rescue we believe the answer to this problem will ultimately be software software like our E. Invoice connect solution that allows our supplier customers to review and pay their invoices through a branded web portal.

Software like our business payments network that provides an interoperable framework that allows large buyers who use accounts payable systems and easy way to discover and pay suppliers.

Software like our mobile deposit solution that allows our customers to arm their field personnel with an easy way to accept payment and remittance on the road. This is not simple there are many use cases that need to be solved for integrating with banks erp's payment gateways and AP providers is a lot of work. We have spent almost 20 years building best in class software.

Solutions that drive, meaning meaningful results for our customers I'd like to highlight a few of them.

They also were an early user of our mobile deposit capture solution that allows our teams to accept payments while on the road. They are now processing over $10 million per month with mobile deposit capture which also drive higher automation rates with our cash application solution.

Of this savings is the result of this is a savings of thousands of hours of manual labour each year. The customer was thankful for the savings and said the efficiencies. We've gained from build trust have been unbelievable. We're all in this is so efficient it is crazy.

On international commercial truck dealership has been dealing with manual processes and institutional knowledge that was held by only a few key personnel related to ACA processing.

<unk> payments and the corresponding remittance data that is buried in emails or buyer portals as expenses requires a fair amount of training for our customers.

This customer recognizing the knee they needed to increase efficiencies and reduce risk signed on with the BPM digital lock box to automate their ECH payments in women's is since going live in March they've already processed over $18 million in Acs permits on nearly 2000 payments in less than five months their success in managing UCH payments has motivated.

Them to drive more of their customers to ACTH something they wouldn't have done without build trust.

A multinational electronics company identified a major need to provide their customers a modern billing and payment experience with bill truck EBIT invoice connect solution. They enabled self service in integrated payments across both ECH and card for their customers on top of elevating the customer experience ultra solutions are reducing card processing fees through level, two and level III optima.

<unk>, they're getting paid quicker these payments are easier to apply to their ERP and they have improved the experience for their customers.

Suppliers by our solutions for many reasons.

<unk> cost to increase efficiencies to accelerate cash to increase compliance.

And often to enhance the experience of their customers the buyers.

There were some other great accomplishments this quarter that I'd like to highlight.

We executed a strategic alliance agreement with Wipro, a leading global information technology consulting and business process services Company, We released a new version of our collection solution that allows collectors to seamlessly accept both card and ACTH payments as part of our payments everywhere strategy.

There is clearly still much opportunity for growth and to further drive the digitization of the process. The opportunity is further demonstrated by an in depth research study, we recently commissioned from paradoxes.

Among the many insights generated the research showed that there was a significant gap between accounts receivable practitioners perception of how modern their processes are and reality.

Jack.

Thank you and good afternoon, everyone.

<unk> mentioned, we are very pleased with our accomplishments this quarter.

Towards the end of June we launched our registered underwritten secondary offering which closed at the beginning of July this.

This transaction began the orderly transition of share ownership from our pre public institutional investors to shareholders with a longer term view and owning public company stocks.

The secondary offering was oversubscribed with many of our existing long only investors participating and increasing their ownership position.

Well as a significant number of new investors using this opportunity to establish positions in our stock.

Turning now to our financial results in Q2.

Net revenue in the quarter was $31.6 million, an increase of 23, 2% year over year.

Software and payments segment revenue exceeded our expectations growing 27% year over year from $19.4 million to $24.6 million services revenue also was again ahead of expectations growing 37% year over year to $2.5 million while print.

Revenue grew modestly to $4.5 million.

Adjusted gross profit was $22.6 million or 71, 7% of net revenue compared to $18.1 million or 75% of net revenue in the second quarter of 2020.

The year over year margin improvement was driven primarily by the mix shift and segment Brexit.

Towards higher gross margin software and payments.

Turning now to our operating expenses in the quarter.

Excluding stock based comp in each case.

Research and development expenses were $10.2 million compared.

Compared to $8.6 million in the year ago period.

Sales and marketing expenses were $9 million compared to $5 million in the year ago period.

The year over year increase reflects the strategic decision. The company has made to accelerate top line growth through an increase in our sales and marketing budget.

A larger percentage of our overall revenue and also includes a cost incurred in the quarter to host a highly successful 2021 gotra summit that we had mentioned.

G&A expenses were $6.7 million compared to $4.5 million in year ago period not included in those costs in the current quarter were a half million.

It's associated with the underwritten secondary offering I just discussed.

Adjusted EBITDA was a loss of $3 million compared to approximately positive $100000 in the prior year period, we had expected a larger loss in Q2 with some of our hiring has been slowed by a very competitive market for talent.

We ended the quarter with $287 million in cash and equivalents and short term investments on our balance sheet and no debt for borrowed money.

Turning now to our full year outlook, we have a strong Q2 with continuing momentum in July which provides us the confidence to raise our annual total net revenue guidance by $2 million at the midpoint as well as it narrowed the range of our guidance on the basis of more visibility to the remainder of the year.

For the fiscal year, ending December 31, 2021.

We are increasing and narrowing our total revenue guidance from a range of $160 million to $166 million to a range of $163 million to $167 million.

<unk> reimbursable costs revenue of $37 million, we are also increasing and narrowing our net revenue guidance from a range of $123 million to $129 million.

To a range of $126 million to $130 million, which at the midpoint of $128 million would represent 18% year over year net revenue growth.

Consequently, adjusted gross profit, which was expected to be in a range of 85 million to $89 million is now expected to be in a range of 88 million to 92 weeks.

Or $90 million at the midpoint, an increase year over year of approximately 18%.

Can hire fast enough given the huge opportunity, it's Glenn described even beyond that range.

In terms of remainder of the year, we expect to see the improvement in software and payment segment revenue noted earlier tempered by softness in print and nominal growth in services.

On our call last quarter. This implies that we expect year over year growth rates in the first half of the year to achieve those rates in the second half of the year as a consequence of a combination of a tough second half year over year comp.

The usual timing of revenue recognition this year from a legacy customer in the first quarter.

As we begin to think about trends in our business leading into next year, we continue to see acceleration in our payments volume momentum in our subscription business.

From our sales and marketing efforts.

And the acquisition of new logos as well as executing on our land and expand strategy.

And early indications of potential longer term revenue acceleration through partnership these.

These trends in conjunction with an assumption that the economy will remain constructive through the remainder of the year.

Just with a high degree of confidence that we will exit this year on a growth trajectory and our software and payments segment in the low to mid twenties into 2022.

We continue to be incredibly excited about the opportunity ahead and look forward to discussing our progress with you in the future.

Thank you again for joining the call and we're happy to answer your question.

Operator, please open the lines.

To pick up your handset before pressing the star keys, one moment, please while we poll for questions.

Your first question comes from the line of Bob Napoli with.

William Blair. Please proceed with your question.

Thank you good afternoon.

And Mark.

Really good to see the acceleration in a lot of those metrics.

In the second quarter.

<unk>.

Especially the payment volume the number of e-mails presented a number of metrics.

So nice acceleration now.

As he talked look look at the software and payments revenue.

Which is.

Nice rate, 27% high growth, but it seems like with the growth in the some of the other metrics that there could be some acceleration.

And that software and payments revenue.

And the back half of the year and into 2022.

Why why would that not be correct.

Hey, Bob it's Mark Thanks for the question. So there are a couple of things to think about first it is the year over year when we look at.

Back half of last year, we took on some we were delighted that we were able to take on some large customers both in subscription and payments and thats contributing very nicely to the first year over year comp.

Relative to that so we're seeing overall increase.

An increase in absolute numbers quarter over quarter over quarter, and we expect that to continue but going over a very tough second half of the year comp makes a continued acceleration difficult. So as I said it in absolute terms, we continue to see great acceleration month over month quarter over quarter, but.

On a year over year basis. It makes it a difficult comp and that's why we said we have some visibility into how things are trending and we feel good about that continued growth into next year.

Great. Thank you and then just on the.

The M&A front I know you've called out.

Being very active in M&A.

Other player in the space acquired.

And now there is a significant acquisition I think.

But maybe just your thoughts on that.

The competitive environment for M&A and <unk>.

The opportunities Youre seeing and.

What we should expect to see and build trust over the next.

Now several quarters or.

If you would on on that front, where would you be looking to acquire.

Hey, Bob It's split thank you for the question.

In terms of prices that people are paying.

So we're going to do a deal that makes sense and I think mark and I would be disappointed if we don't start to get some deals under our belt here, but.

We've got a few things in play in.

I would expect over the next 12 months that Youll see us pretty active here.

And then last quick question on VPN for <unk>, and just the momentum in the business payments network.

How is that how is it being received.

What our clients are appreciating about 4.0 versus three point out and then how does that.

Very strong growth translate into revenue how do you monetize that.

How would we see that revenue contributing or that payment volume contributing to the software and payments revenue growth over the next several years.

Yes, so the if you if you're talking about the differences in <unk> versus <unk>. Four O. Now include the invoice delivery into accounts payable portal and that is included in the subscription revenue that we get with began four pointed out we've made a pretty big bet here that.

Every organization of scale is going to need an online billing right. We've been providing those for almost two decades now, but as more and more payments moved to digital. We also recognize that everybody is not going to pay up a portal large buyers want to use their AP software both to send payments and to receive invoices and for that we firmly believe that every.

Large supplier is going to need a digital lockbox, they don't know that yet, but as more and more payments are being initiated from AP providers and more and more invoices are getting adjusted by eight P providers the pain becomes even more acute so we're filling a really big need on that supplier side for both invoice delivery and payment acceptance from their large buyers.

You will see that in our financials as additional software and payments revenue between four point out specifically will be software because its invoice delivery, but the BPM suite, obviously has lots of payment monetization.

Great. Thank you I appreciate it.

Your next question comes from the line of Andrew Schmidt with Citi. Please proceed with your question.

Hey, Mark Congrats on the acceleration here and I. Thank you for taking my questions.

Wanted to start off on the sophomore payments growth in the quarter.

<unk> I think it was 27%.

That's correct, yes, 27%.

If I if I remember correctly.

Client it sort of went up as BDC client they went up a platform in the first quarter.

That was expected to dampen revenue for the remainder of the year. So if you kind of.

Excluding that impact the underlying growth would be actually higher maybe around 29%.

Is that fair or is missing something here in terms of underlying growth in the second quarter. Thanks.

Sure no without commenting on whether it's 29% or otherwise you're absolutely right.

That customer within our numbers last year was not in our numbers in Q2, and the 27% software and payments growth rate.

Is it at that level notwithstanding that headwind.

Got it I appreciate that clarification and then.

I think one thing that really stick out to me is the early success will be.

Sales in <unk>.

Sales and marketing investments that you alluded to in the release.

Going forward. Thanks.

Yeah, So we talked to.

This is point Andrew. Thank you. So we talked about some aggressive investments in sales and marketing and we continue to invest aggressively in sales and marketing and that is paying dividends not not just from the new people, but across our entire team we had a.

A near record quarter in terms of new logos signed.

And I would not also.

Underestimate what's happening in the channel right, having channel partners also deliver business for US is a big part of our growth.

She lives and we've talked about that in the past, so having our sales and marketing team, having an impact on our direct efforts as well as our channel efforts will certainly manifest itself in higher software and payments growth overtime.

That's great to hear certainly helps the visibility from a revenue growth perspective.

If I could sneak one more sort of higher level question.

Listen to the Ultra summit.

<unk> sort of highlight on interchange rates.

And it's been talked about for some time obviously.

Jesse interchange rates to sort of.

Sort of encourage higher ticket fees.

<unk> transactions don't want to call. It seems like it's a pretty big opportunity for build trust and others in the space, what's the likelihood of that happening or is there any developments on that front. It seems like it would be.

Significant goes to a number of players, but just curious to get your thoughts.

On that on that front.

Yeah, I'd say it seems unlikely in the short term debt.

There'll be a blanket change to interchange rates and b to B, because I think the card brands and the banks are afraid of cannibalizing teeny and things like that.

That said.

There are prop rates that are occurring today, where buyers and suppliers can greta will rate the bill transact. They can pick any rate that they want and I would expect that we will continue to grow.

And we've got a hand, and some of that as well, but I wouldn't expect all of a sudden.

<unk> interchange is going to drop to 100 basis points versus where it's at today.

It would be surprising for the banks and the cards to get that the card brands to get that done now if it does so.

We're going to make money, regardless of how those payments flow and we've said that rate as paper checks move to digital and our accelerated digital payment rates are showing that they are moving faster, we're making money, whether it's <unk> or card and we are making more money on card.

We're thrilled for any digital payment that we can monetize whether it's <unk> or <unk>.

Got it. Thank you both very much congrats on good results in the quarter I appreciate it.

Thanks, Andrew.

Your next question comes from the line of <unk> <unk> with Needham <unk> Company. Please proceed with your question.

Hey, Good evening guys. This is actually how peterson on for <unk>. Thanks for taking the questions.

So I'll touch on gross margins a little bit on the <unk>.

Adjusted gross margins it looks like the guidance implies that there'll be a little bit of a sequential desk in the second half of the year is that the impact of some of the hiring you guys alluded to or is there like a <unk>.

Mix shift with some of the revenue that we should think about over the next few quarters.

Yeah.

It's a good observation I think.

I'm hopeful we're being a little bit conservative about where gross margins might be in the back half but.

Overall, we're still very comfortable with the 70 and a half at the midpoint.

We had just tremendous results in the first and the second quarter.

And so.

It's very hard to repeat that that level of performance. So we're a.

A little bit on mix shift, Mike might tampered them tamped down on them, a little bit, but we still feel pretty good about it.

Okay. That's that's helpful. And then maybe just a higher level question I know you guys have.

<unk> been investing heavily in R&D and new product initiatives.

What are some of the key priorities that you guys are focusing on it and trying to build out your product suite like what's kind of.

Higher priority in the near term what our clients are increasingly asking for an and alike.

Yeah.

We announced we added support into our collection solution for instance, which is a relatively new product for us that we launched a few years ago.

And we were always doing that every quarter, we're releasing new capabilities and use existing products.

Extending some effort on those discontinuous innovations as well.

Great.

Helpful. Thanks, guys nice quarter.

Thank you Hugh.

Your next question comes from the line of Jeff Cantwell with Guggenheim Securities. Please proceed with your question.

Hi, good evening.

Okay.

All right.

Sure. Thanks, Richard Thanks for taking my questions.

Your call it BPM Foreknower game changers, so I feel like we might want to spend some more time on that can you talk some more about the reasons why meaning what's differentiated about it.

And can you also give us some color on VPN not being available to your suppliers.

Subscription price, which you're highlighting in my presentation, you know what does that mean for revenue.

How should we be thinking about the implications of our transfer your revenue generation.

Try to be clear on what this means as we get into our models and think about these topics.

Okay.

Yes so.

When we launched <unk>, we were the first ones to market with a sort of two sided payments network that was this interoperable framework.

We're not trying to be the only BTB payments network, we're trying to stitch together the payment networks that already exist, whether it's the Ath network. The visa network. The avid network to Bottomline network. The <unk> network Theres plenty of that works and everybody wants to be the network. We're not trying to be the only network. We're trying to provide some glue to allow the networks to inter operate which will.

Yield higher digital payments and this is not a new thing in the world. This has been done before them.

The example is the ATM network back in the day you can only go to your bank. If you wanted to withdraw cash from an ATM and then private network started to exist like Cirrus, a nice and then you could only take money out of Cirrus a nice.

Ultimately all of those networks, where stitch together and they still exist today, but you never look at the back of your card you see whether you can take money out or not those networks are interoperable that did not exist before VPN. So we did that on payments. We're now doing it on invoice delivery and Theres no one doing it today and that's why we think it is a game changer in terms of the revenue.

The subscription revenue model that we built is that every payments and every invoice delivered counts towards the tier in the subscription many of our customers start with one of the three elements of VPN. It could be BPM card VPN ECH or BPM invoicing, they can easily upgrade to another component.

Without signing another piece of paper just by starting to use it and that will then contribute to those subscription tiers and as they go through the subscription tiers, we will make more money as more things go digital we will make more money and it doesn't require a salesperson to go sell them something else.

Interesting, Okay, that's great color.

The other thing I wanted to ask about the competitive environment.

Of course, I guess it it's always been a competitive environment for you and that's really never going to change right, but.

You know when we think about competition, we like to try and think about it from your perspective in terms of how those things that you can control internally Oh, maybe it's higher staff, maybe it's product.

There is also things you can't control externally, meaning how you're interacting with your customers and where you are focusing on new customers et cetera. So my question is can you talk about what the competitive environment is driving you to do.

Yes.

Yeah, No listen I think competition is healthy it keeps you on your toes and makes you.

Perform better if you look at the accounts payable side of things Theres 100 folks duking it out on the AP side and they all have to figure out how theyre going to win whether it is focusing on specific verticals.

Focusing on large versus small customers and maybe even like go to market strategy and I think there's elements of that within Bill Trust. We've got vertical focus where we're going after specific verticals and are aggressively rolling our business there.

We certainly believe we are probably the most innovative person in the HR space. If you look at where our peer group is.

So there's a bunch of legacy companies that had been around for quite a long time.

So we believe we are leading in terms of innovation, which gives us a several year advantage in terms of.

The capabilities, we bring to market ultra.

Ultimately, though it's about execution.

You can be as vision area as you want but if you're not executing it really doesn't matter. So we believe we can execute across all fronts, because we have been doing that for nearly 20 years. So.

Yeah.

I met a prince observation in context.

An example of vision and execution five years ago VPN didn't exist.

And today, it's on a <unk>.

Annual run rate of $9 billion of processed volume so.

That to me is a great example of what I'm, saying.

Right right. Okay, Okay, great and then if I could squeeze a last one on the guide the revenue increase at here in 'twenty. One is great I wanted to double check on that as it relates to the cloud copper. This year just want to be clear about the increased guidance can you talk a little bit about what youre attributing Dr. True is it.

Greater optimism about growth with your customer base is there from the economy rebounding maybe.

Maybe I thought it might be fair to say that the momentum you have with BP on those calls you greater optimism about the go forward how would you break that out for US just want to make sure the rehab right.

Sure Yes.

Yeah, Great question, So I would say it is across the board in our software and payments.

Segment.

I said, we're not looking for.

Out of our services and print, we're really focused on how software and payments are delivering and the outperformance is coming of course Trent Trent actual software and payments so customers, who are running more card and ACTH transactions through the system that is transactional.

We're also getting some outperformance on subscription, but it is really the transactional components and we've seen it come back strong.

I think after Q1, we had some cautious optimism that this would continue I think after Q2 week.

Heading into July seeing that momentum continuing into July we feel very good about the rest of the year.

Okay, great. Thank you and congrats again on the results.

Thanks.

Your next question comes from the line of George <unk> with Cowen. Please proceed with your question.

Hey, guys good afternoon, and thanks for taking my questions.

I guess the first thing I wanted to ask could you just at a high level of planting he can talk a little bit more in depth on the glue.

A global partner program, and maybe how you're benchmarking success over there and potentially you talk about sort of an acceleration in growth.

Maybe if you kind of quantify that just kind of give us a sense of how meaningful of an acceleration because that could that drive longer term.

So if successful it can be incredibly meaningful so we have to prove that we can drive significant business from the channel. So we've always been a company that had channel influenced business and we had partnerships with ERP and different things, but it was ultimately assigning the business.

When we talked about customers.

I think the number was around number around 1800, we're not getting to 10000.20000 customers just by hiring direct salespeople. The way we get to 10000.20000 customers is by arming the channel and this is banks, who resell to BP in digital lockbox to their treasury clients. It's a P providers, who want a more supplier friendly solution.

Integrations with ERP and a go to market strategy with those ERP. So if we are successful in other companies have proven success here.

It is.

A potential game changer, we don't want to spend too much time talking about things that we haven't proven yet, but we have been consistent about speaking about the importance of the channel. We've made significant hires year, we've announced some great channel partnerships VPN is a classic channel strategy with our interoperability. So it is a big deal for us to execute here.

Okay I appreciate the color on the the enthusiasm there.

Mark just wanted to circle back on a prior question on on the second half gross margin I guess, if I'm looking at net revenue.

The back half of the year its comparable it's similar to what we saw in the second quarter without with a better than 71% gross margin.

Just want to make sure I understand.

What would be.

Listen with down does that was that is because there's some conservatism as it is it sort of channels that are that are impacting it and is that something that you're seeing now or you just want to kind of have a cushion there.

As we think about the back half of the year. Thank you.

Sure.

Not seeing pressure on gross margin that is making me concerned about the back half of the year I think we had.

Great performance in the first half, we're looking to make some investments perhaps catch up on some hiring so there are different things that could put some pressure on gross margins.

It just seemed to me we should factor in some of those possibilities but.

We are not seeing any pressures on them right now.

I've said before our software and payments gross margins are already in the eighties and it's really just the mix of how theyre bouncing up against services and print and that's what brings it down at that somewhere in the seventies.

Okay. Thank you.

Sure.

Your next question comes from the line of Joseph <unk> with Canaccord. Please proceed with your question.

Hey, Mark.

Nice follow through here on your second public.

Public quarter, congrats on that maybe.

Going to kind of follow up on on George's question, a little bit here on the channel could you remind us kind of how deep the channel is at this point.

From my view it it seems like you've developed some great software some great solutions.

And one of the big pain points at this point is really your customers being able to.

Get your get your solutions installed relative to what they were what they're doing now and.

Maybe a little more color on how the channel and from your consulting partners to kind of help.

Kind of prime the pump on some of Europe.

Customers or your new leads and then I'll have a follow up from there.

Yeah, I think the most obvious example is around the BPM digital lockbox. So we believe that ultimately.

Every large enterprise is going to need a way to accept electronic payments efficiently. If you think about a way electronic payments come in today. It is a hot mess right you've got virtual cards being delivered via email.

<unk> is coming in with a deposit into their bank account and separately an email remittance you've got many remittance detail stuck on websites that our customers have to log into the VPN digital lockbox automates all of that as more and more payments go digital the problem becomes worse. So we believe that everybody's going to ultimately need that.

So we think banks should have a role in that banks have these treasury groups that sell to corporates on a regular basis and they want to be relevant.

I want to be sort of blocked out of this like they were blocked out of payroll.

We think they want to offer more than just depository solutions and we've got a challenge team that is aggressively signing up banks to offer that digital lockbox to their treasury clients. So you could one of the challenges we have as a software company is building that new relationship and signing that new logo. Once we sign a customer they generally stay with us for a long time, and we were able to.

Cross sell additional things, but landing new logos no big surprise, it's hard because they don't have a relationship with us banks already have these relationships often at the highest levels they've got a credit facility or something like that so it's much easier for them to get an audience with the right people to bring interesting stories like a digital lockbox. So.

That's why I think it is so transformative we've got work to do it's early innings, but we're pretty excited about the bets we've made so far.

Yeah.

Sure.

We could probably talk about this fall with whole area for a while went but.

You have a lot of channel partners here, you've got you've got some systems integrators, you've got financial institutions.

How do you sort that out.

Yes. The goal is not to have a thousand partners. The goal is outperforming partners.

We announced the hiring of Glenn when was our earlier this year and we inherited some partners. She inherited some partners and we're sorting through them. Some we are discontinuing the partnership because it is not performing as we expected.

But we expect different things from different partners.

We've got partners now who are implementing our solutions because one of the keys to scalability is making sure that we can turn off turn up the dollar round implementations. We've got partners like visa who are aggressively introducing us into the bank network and have been a key part of our build trust success. So making sure you know what you want out of the partner making sure.

There's something in it for them.

Making sure their skin in the game on both sides of that you both want to perform we're not very excited about doing just press release partnerships. We've been around for 20 years, we don't really need to do that kind of stuff. So we're looking for partnerships that actually will deliver results for both us and the partner.

Great. Thanks, so much.

Great results guys.

Thank you thanks, Joe.

Your next question comes from the line of Tien Sidney Huang with Jpmorgan. Please proceed with your question.

Yes. Thank you let me answer yes for sure great results and you've covered a lot of ground here.

I hear the raise in sales investments in the partner channel and.

I know the comp in the second half a little bit tougher, but I wanted to ask on that just do you feel like.

You can replenish that backlog with some large customer additions here in the second half given what you see.

And the pipeline.

I don't think the newswire.

Go ahead, Mark let me just start Hi, Tien tsin.

Hey, Bob any customers that we signed in the back half of the year Youre not going to see a material impact. So we did have we had a great.

First and second quarter in terms of sales that will certainly have an impact on revenue.

But I think Mark has addressed the we've got certain visibility into what happens we've shown accelerated payments and we've got a great tailwind behind us. So I would expect that all to contribute in the back half of the year.

Got it but just in general then Fairpoint nothing translates who are convinced that quickly, but just in general from us.

Beyond the logo with the quantity of Rogue I was just curious on the.

Quality or the size of some of the some of the wins as well as what you see in the pipeline that theres anything interesting to share there.

I don't think we're targeting.

Yes.

I guess I think about it that way, but let's put it in context if.

If we think about where we finished last year Q4 was 12% year over year growth.

Net revenue.

Nevertheless, we went into this year with visibility, where we were able to guide to 16% year over year full year growth and now we're waiting that to 18%. So the fact that there are.

Tough comps that are making it look like there is deceleration.

I think we've seen the same story in the past, where we finish in Ottawa.

On a relative basis year over year at a lower comp, but with the right backlog taking us into the next year.

Things that that sort of.

Grow over on a year over year basis to the right levels and I think that's why we're saying we have.

Good visibility into how our software and payments business continues to grow we're looking for that growth at a floor level in the low to mid twenties.

There are other things at play that could possibly bring it higher so we feel pretty good about where we are.

The visibility we have around our software patents.

Yes, certainly sounds very last one if you don't mind just on the on the hiring side.

That's been a theme I think everyone's heard me ask this question a million times. So I'll ask you guys to just this war for talent in.

Finding the right people.

Lean in on investments do you feel like you can get the folks youre looking for on that front.

Mark you want me to take that one.

Yeah.

Thank you okay.

It's a tough labor market for sure and we offer a.

Great environment with a great culture that people want to work out and we are we're certainly filling spots aggressively but.

There are a lot of great companies out there trying to get people. So we're certainly land and lots of people. We're hiring new classes of people. Every every couple of weeks to fill sales positions marketing positions R&D positions admin positions.

So we are we're pedal to the metal on recruiting and we've got a great recruiting team that's filling those thoughts.

Okay.

The good news is we have a budget that will accommodate that effort.

Alright.

Thank you for the update guys. Thank you.

Thanks.

Your next question comes from the line of Josh Beck with Keybanc capital markets. Please proceed with your question.

Hey, guys. This is matti on for Josh <unk>, Congrats on the quarter and thanks for taking my question I wanted to circle back to VPN for Plano again I was just wondering now that you guys are connected to over 100 accounts payable carnival portals.

What portion of the market you think that you are able to cover with that.

Yes, that's a great question, we talked a mark and I talked about what metric we could share around invoice delivery.

As another metric for VPN.

It's no surprise that we're gonna start where the biggest pain is.

That would be making up a number but I'm sure it's north of 75% of the potential volume with all of those different portals.

But it is as our customers are.

Getting request for new portals, there quickly added into the system.

We are it's probably well north of 75% I don't know the exact number.

Great Super helpful.

Where do you see things shifting mix wise in the future.

I don't think we're sharing specific mix of that but we are aggressively investing in.

All of those things aggressively investing in marketing aggressively investing in our direct salesforce and aggressively investing in our channel.

So we we believe all will factor into our growth and if theres an opportunity to invest somewhere that we think will pay dividends, we're making that investments.

We're sitting on a bit of a war chest is going public with over $280 million cash on the balance sheet. Some of that is certainly earmarked for M&A, but a whole lot of that is earmarked for growth initiatives too. So we're evaluating lots of different internal growth initiatives.

Great. Thanks for answering my questions.

Your next question is a follow up from Joseph <unk> with Canaccord. Please proceed with your question.

Yeah, Hey, guys I think you know maybe some of that was answered in the previous question on capital allocation, but I mean you have.

And you could deploy a lot into the channel.

Ploy a lot and the sales you could deploy a lot and so you know.

A lot of areas and I mean is there any area right now that you know may be.

Perhaps kind of the highest ROI I mean, I know you already have a good LTV to CAC on your direct effort.

<unk>.

Yeah.

Mark you want to take a stab at that one.

Yeah, I mean, it's.

It's almost like.

Being a kid in a candy store, we have so many fantastic opportunity Joe and we.

We are sort of looking at what makes the sense for what is the next dollar was going to.

By Us and we are waiting.

Somewhat equally.

Investment in.

And.

Our direct.

Our go to market strategy, our channel and product because they all play off of each other very nicely.

We're doing at the same time is taking a more.

Deliberate view.

About what we should be chasing in the market, which customers today, which customers in the future which types of products will be best.

Return on investment today, which products, who we'd be spending later on so I think we're trying to impose discipline.

<unk> had to.

<unk> spend we are trying to stay within budget that we originally said in the only.

Various from those budgets as acceleration of what was already on the radar screen for next year. If we can bring that into this year. So we'll do that to accelerate growth.

But I don't know how to answer the question differently other than we see Chan.

Channel direct in product and then just layer on the timing of when we want to.

Which investments we're looking at here and get the greatest return in the short term, which investments, we're making for a longer term opportunity.

Yeah.

Tibet.

Yeah. That's that's good color Mark I think it's just.

You know, it's a very active market, it's very opportunistic and.

I think you know where all you know.

They're just a lot of growth opportunities and so.

Okay.

Staying focused is what's important here.

That is what we're doing.

Thanks Scott.

Ladies and gentlemen, we have reached the end of the question and answer session and I'd like to turn the call back to management for closing remarks.

Once again, thank you everybody for participating in this earnings call. We are incredibly excited about the results we put up in the second quarter, but more excited about the future ahead as we continue to reinvent accounts receivable and BTB payments have a great night.

This concludes today's conference you may disconnect your lines at this time. Thank you all for your participation.

Q2 2021 BTRS Holdings Inc Earnings Call

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