Q4 2019 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to bottom lines fourth quarter 2019 earnings Conference call.
Statements made on today's call will include forward looking statements about bottomlines future expectations plans and prospects all such forward looking statements are subject to risks and uncertainties.
Please refer to the cautionary language in today's earnings release and Bottomlines. Most recent periodic reports filed with the FCC for discussion of the risks and uncertainties that could cause the company's actual results to be materially different from those contemplated in these forward looking statements.
Bottomline does not assume any obligation to update any forward looking statements.
During this call Bottomlines financial results are presented on a non-GAAP basis. These non-GAAP results include among others constant currency growth rates gross margins operating income EBITDA net income and earnings per share a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures is available in the Investor resources section of Bottomlines website.
Bottom line will be providing forward looking guidance on the call a summary of the guidance provided during the call is available from the company upon request.
I would now like to turn the conference over to our host Mr. Rob Bradley. Please go ahead.
Good afternoon. Thank you for your interest in Bottomline and welcome to the fourth quarter fiscal 19 earnings call.
I'm here with our CFO Rick Booth.
He will provide a detailed review of the quarter's financial results and our guidance going forward and then as always both Rick and I will be available for questions. Following his remarks.
Fourth quarter was a solid quarter with financial results in line or ahead of our expectations.
Quarter featured strong market success in bookings.
Which position us well to meet or exceed our subs and trans growth targets in fytwenty.
As we enter the new fiscal year driving acceleration in growth this our focus.
And we have every confidence, we'll achieve subs and trans growth in our target, 15% to 20% range.
It is our top priority and the primary objective of our strategic plan.
As we produce acceleration in growth.
We'll see multiple expansion.
Shareholders will benefit from both the larger SMB revenue base.
And a higher multiple.
Our confidence in the future is underscored by our recently announced $50 million buyback.
We announced the buyback for a very simple reason.
We're confident we will see growth acceleration and F y 20.
When anup and the stock will be trading considerably higher than it is today.
We see today's price as an excellent buying opportunity.
I'm going to focus my remarks today on several key new wins in the quarter and then review our product advancements.
But first I'll start with a brief overview of the financial highlights of the fourth quarter.
Subscription and transaction revenues grew 13% on a constant currency basis in the quarter.
While this is just outside our target of 15%, 20%, we're comparing to a particularly strong quarter a year ago.
We enter a fly 20 confident we'll see growth accelerate back to our target 15% to 20% range.
Subscription and transaction revenue was $79 million for the quarter and $295 million for the year.
We're now at 300 million annual subs and Trans revenue business with a plan to get to $500 million in three to four years time.
That's a valuable business payment franchise.
Subscription and transaction bookings were $24.3 million.
The strong bookings result was driven by 22, new deals for Paymode X and our digital banking platform, which added three new Dbi Q platform deals, including our largest ever.
Revenue overall was $108.2 million.
EBITDA was $25 million for the quarter and $100 million for the fiscal year, achieving the ambitious target we set over two years ago.
EPS was 34 cents.
Above our target and expectations.
And we ended the quarter with $100 million in cash.
The financial results were seen demonstrate the alignment of the market opportunity.
Our strategic plan, our investment in our product set and our execution.
During the quarter, we saw broad based demand translate into strong subs and trans bookings.
I'll give some examples of the market success, we saw in the quarter, starting with Paymode X.
We have a large opportunity with paymode X to be the way businesses paying get paid.
During the quarter, we signed 22, new payers to Paymode X, including several payers that signed on for Paymode X with visa payables.
New payers on the system include one of the leading auto manufacturers, a major athletic shoe brand a top tier grocer.
Several hospitals and health care providers, and two well known universities.
The breadth of new Payors shows the Universal appeal of the platform.
As in the past the contribution from Bank of America was strong. We also sign ons to fifth third TD Bank citizens and our newest channel partner few Mb.
We had a solid sales quarter in legal spend management as well signing five new deals in the quarter.
We continue to win and grow in the legal spend market by deploying a leading platform and launching additional offerings, which company.
The sales highlight of the quarter was the three major platform deals we signed for a dbi Q digital banking platform.
It was a very strong quarter for digital banking and nothing speaks loudly to our product leadership and strong market position.
One of the wins with a major global bank and shipping our largest single Dbi Q relationship.
But what's more exciting is the range of banks represented by the three wins.
A major global bank one of the largest in the world with Superregional 30 plus billion dollar bank.
And a regional 6 billion dollar commercial bank.
Thats quite a range of one quarter.
I could not be more excited by the combination of these wins.
It shows we're uniquely qualified to meet the business banking needs across a wide spectrum another market.
When you consider the range 6 billion to one of the largest global banks on one quarter.
You see the huge market opportunity.
But the $24 million in subs and trans bookings in Q4, we had a total bookings of $83 million in the year.
These bookings are the basis of our flight 20 growth plan and the source of our confidence in growth acceleration this coming year.
While the Q4 wins and Fynineteen bookings will drive for a 20.
It's our product leadership and technology innovation that will ensure we reach $500 million in the next three to four years.
I'll now highlight some of the most significant items on our innovation agenda.
We are at an exciting juncture over the next several years the markets when will experience a major transformation.
Today's systems of record will be replaced by systems of engagement and intelligence.
Systems of engagement in intelligence learn new users and new users goals. They use AML Eni to do work that make recommendations and a predictive Benson outcomes.
This is the future.
But it isn't really that radical we've already seen this in the consumer well done within some segments of enterprise software.
Bottom line is well ahead of this transformation in our markets.
We have an innovation agenda designed to protect and extend our leadership and open up new revenue opportunities and a larger Tam.
The move to systems of engagement in intelligence as a major growth opportunity for Bottomline.
Customers recognize that changes ahead, and they buy for us from us for as much as who we are today as where we'll be tomorrow.
Let me highlight some examples.
Starting with Paymode X.
We continue to expand what we offer the midmarket.
We've established Paymode X is the clear leading b to b payment solution for medium and large corporate payers.
And our more recent focus has been on integrating our market, leading invoice capabilities, which position us, particularly well for mid market and SMB payers.
And then there's security.
Paymode X has always been the most secure way for businesses to pay and get paid.
Customers and prospective customers are racing security more than ever.
As a value proposition.
And importantly, as the catalyst to join the network.
There are basic in unique insights, we can provide payers through the transaction data produced by the $200 billion in payments the flow through Paymode X each year.
That data produces our network payment score for each payment.
Looking at for example, whether or not the payer is paying a known vendor with a history of payments from others in the network.
Whether the amount the payers pain is consistent with what others have paid that vendor.
New and unknown vendors payments well above the range of payments previously received and other network only insights.
Make the network payments score a valuable tool to fight fraud.
Importantly, the data and insights we are leveraging are only available as part of our large network.
No payer could be a secure on their own.
With increased security features the case for Paymode X is the way to pay and get paid gets more compelling.
The combination of our size and scale platform capabilities partnerships and market momentum positions, Paymode X well going into 2020 and beyond.
Innovation is a key driver of the growth we're seeing in legal spend management in the coming year as well.
Two highlights our machine learning for Bill review, and a new offering law firm analytics.
We using machine learning to approve the Bill review process.
With AML and a platform observes in loans as bill adjustments are made and then automates that processes software detects what are perceived to be repeated patterns.
The user provides thumbs up thumbs down feedback or actual comments to refine the machine driven process.
Over time this results in Bill review efficiencies and results far exceeding today's levels.
It's a powerful application of this technology, especially when one considers the over 8 billion in legal spend that flows to the bottom line annually.
We're also actively making data and analytics important part of our value proposition.
We've launched a new offering law firm analytics this past quarter.
We already have 10 pilot customers signed on to drive enhanced visibility into.
Key case in billing metrics and ultimately win retain and grow major client relationships.
New innovations in the legal spend suite of allowed us to increase value for customers drive growth and expand Tam.
The last product set I will touch on as our digital banking Dbi Q suite.
Which consists of an integrated payments and cash management.
Fraud, and risk management account opening in Onboarding customer insights and relationship management.
On a standard based epi open banking platform.
The solution combines a 360 degree view of customer relationships.
Inclusive of the performance and volume of all customer products and services.
And the complete customer experience across channels.
Provides bankers with targeted actionable insights on their customers.
Powered by machine learning and augmented by integrated internal and external data sources.
Dbi Q empowers banks to engage intelligently with customers.
Deliver unified experience and acquire deepen and grow profitable relationships.
Goes to the heart of banks most critical objective.
So in summary, it's an exciting time for Bottomline.
We know in the coming year will bring an acceleration in growth.
We're backing our growth plan with a $50 million buyback.
And beyond the coming year, we have a technology set and plan to drive to 500 million in subs and trans revenue in three to four years.
We are confident in our strategic plan and confidence the right plan to drive shareholder value.
So with that I'll now turn it over to Rick and then both of US will be available for questions. Following his remarks.
Thank you Rob.
Im pleased to report a solid quarter in line with guidance and expectations.
We delivered subs and trans revenue of $79.1 million or 316 million on a run rate basis.
Total revenue of 108.2 million, which exceeded guidance.
An EBITDA of $25 million in core earnings per share of 34 cents, both of which were at the high end of our range.
I will focus my remarks today on three major topics first I will review, our Q4 financial results in detail.
Second I will provide guidance for the first quarter fiscal 2000 and confirm our guidance for the full year.
And finally, I will comment on the new buyback program established based on our confidence in the outlook.
First to review our financial results in detail ill speak briefly to each mine in our PNM and in addition, we posted supplemental materials to our website for your convenience.
Beginning with revenue subscription and transaction revenue is our clear priority.
We drove $79.1 million of subs and trans revenue in the quarter, which is equivalent to 316 million on an annualized basis.
And at this rate, 73% of our revenue comes from subs and trans offerings up six full percentage points from a year ago.
Subs and trans revenue was consistent with guidance and expectations, but I will note that from a percentage growth perspective, due to an exceptionally tough compare in the prior year, our reported subs and trans growth was 13% overall and 14% from products fully converted to subscription.
Slightly below or 15% to 20% goal on a constant currency basis.
As we head into fiscal 20, we're confident that we will see this growth accelerate back into our 15% to 20% range driven by implementation of existing signed backlog.
Year over year growth from existing customers and the impact of additional signings.
Maintenance revenue the other component of recurring revenue and the combination of maintenance in subs and Trans revenue provides us with 89% recurring revenue.
Up five percentage points year over year. This gives us excellent visibility to upcoming results.
License revenue by design is only a small part of our overall business in Q4, we reported license revenue of 2.4 million or 2% of revenue.
This level is consistent with what we expect for fiscal 20, as we prioritize subs and trans offerings.
Services, which we offer only as needed to help our customers succeed were 9 million in the quarter.
And as I mentioned total revenue of $108 million was above our guidance.
In addition to our revenue results, we had solid sales execution in the quarter.
We signed 24.3 million of new subs and trans bookings led by digital banking and Paymode X.
This brings us to $82.9 million in new subs and trans bookings for the last four quarters.
Equivalent to 28% of subs and trans revenue in the same period.
While booking figures are estimates and customers take time to implement and ramp to full revenue production.
This provides us with visibility to future subs and trans growth in fiscal 20.
And beyond.
We signed six new customers to our digital banking product set including the three significant platform deals that Rob described.
With the signings and after go lives in the quarter, we have approximately $18.4 million of annual digital banking subscriptions, which are signed but not yet being recognized in our PNM.
Our digital banking implementations continue to go well and we brought two more customers live in the quarter.
This visibility gives us high confidence that banking will achieve 15%, 20% growth within fiscal 20.
Our Paymode X network added 22, new payers across multiple channel partners, including our new channel partner you Mb.
This further validates the attractiveness of our highly secure full payment automation value proposition and channel partnership approach.
We signed five new reinsurers to our legal spend management network, including another insurer in the UK.
We launched a new offering called law firm analytics and have a robust pipeline of additional offerings to drive continued growth in this product set.
At New girl level, these bookings and sign backlog give us excellent visibility to revenue growth acceleration in fiscal 20.
Equally importantly, our continued product innovation and competitive differentiation in the large and growing business payments market gives us confidence in our path to $500 million of subs and trans revenue.
Within three to four years.
Continuing down the PNM, we delivered on our financial commitments, while investing to advance our solutions and drive long term growth.
EBITDA margin was 23% consistent with our plan and expectations.
Core operating income was $18.9 million.
And adjusted EBITDA of $25 million in core earnings per share of 34 cents were both at the high end of our range and allowed us to complete fiscal 19 with 100 million of EBITDA.
Our overall gross margin was $62.8 million or 58% of revenue.
In our subs and trans gross margin at 59% was up two full percentage points year over year.
As planned.
As gross margins expand we funded development and sales and marketing as we aggressively pursue growth with our innovation agenda.
Development expense was $15.6 million in the quarter or 14% of revenue.
Up one percentage point year over year, we see this continuing into fiscal 20, when development will be approximately 15% to 16% of revenue up from today's 14%.
And we see this continuing into fiscal 20, when net development will be approximately 16% of revenue up from today's 14%.
Sales and marketing expense for the quarter was $20.3 million or 19% of revenue.
Up almost one percentage point year over year.
And Gionee expense for the quarter was $8.1 million were 7.5% of revenue down almost one full percentage point year over year.
Moving from profitability to cash flow operating cash flow was $15.3 million and with only 1 million of net investing cash outflow in the quarter. This allowed us to end the quarter with $100 million of cash and investments on hand.
Turning to guidance as the second major topic, our solid results and momentum position us well for Q1 in the short term.
And for fiscal 2000 and beyond in longer term.
As we drive towards $500 million of subs and trans revenue in three to four years.
Beginning with the growth that we can see and touch in fiscal 2000.
Now given the recent declines in the British pound, we do need to update guidance for currency, but there are no. Other changes for transparency, we've provided a bridge of the impact in our supplemental materials on our website.
In Q1 at current FX rates, we expect to deliver $77 million to $80 million of subs and trans revenue.
22 to 24 million adjusted EBITDA.
105 to 107 million overall revenue.
$15 million to $17 million core operating income.
And core earnings per share of 25 to 29 cents.
Other than currency Theres no change to full year fiscal 20 guidance, we continue to expect subs and trans acceleration as we proceed through the year with new customers going live in subs and trans growth within our 50 target, 15% to 20% range, including our digital banking set.
We will continue to present detailed guidance prior to each quarter, while evaluating and updating the full year as needed.
With strong bookings exciting product innovations and solid financial performance.
We are highly confident in our strategy.
The board recently authorized a new $50 million buyback authorization with 10 million specifically targeted to be completed in the first quarter of the year.
This buyback underscores our conviction in our outlook and the confidence that our strategy will drive shareholder value.
In conclusion.
I'm pleased to report a solid quarter, including $108 million in total revenue 25 million in EBITDA.
And as subs and trans revenue run rate of $316 million driving toward 500 million in three to four years.
Further.
As I step back and think about our PNM I'm struck that all of the year over year trends are moving consistent with our strategic plan.
In long term model.
Subs and trans revenue as a percentage of total revenue.
Is up six percentage points year over year.
Subs and Trans gross margin is up two percentage points year over year.
Development expense is up one percentage point.
Sales and marketing expense is up one percentage point.
And DNA is down one percentage point.
We're well positioned in a large and growing market.
Our current financial performance is strong and we're confident in our ability to drive value for customers and shareholders for years to come.
And with that we can open the call to questions.
Ladies and gentlemen, if youd like to ask a question. Please press star one at this time.
You'll hear a tone indicated in place in Q and may remove yourself from the queue at any time by pressing the pound key fusion. The speakerphone. Please pick up the handset before pressing the numbers. Once again, if you have a question. Please press star one at this time.
Our first question will come from line of Andrew Schmidt with Citi Financial. Please go ahead.
Hey, Robin Rick Thanks for taking my question and congrats on the good sales momentum here, it's good to see.
Starting with the just the subs and trans outlook for X Y 21, just dig into.
Your your confidence in terms of the acceleration other factors that Ken.
Taken.
The rail this when I think about.
Dental factors think about macro and in UK transaction growth there.
At a high level, sorry, just just discuss your level of visibility in terms of the.
Step up in in subs and Trans growth and then specifically where you see that coming from.
Andrew This is Rick.
One of the great things about our business model is five contract today give us very high visibility to the upcoming year of that 18.4 million of digital banking deals that are signed but not yet live almost 90% is going live within fiscal 20, Alex admittedly backend loaded, but that gives us extremely high visibility and confidence.
Understood and I think it east you actually answered part of my My next question, which was just the cadence of the growth. We should I guess, just taking the first quarter outlook and then the full year outlook together, we should.
Expect more of a back half acceleration versus say second quarter, I guess, just just talk with or without the timing of the acceleration as the year progresses, yes, very much so from a revenue perspective, but I would also note that as the revenue grows we'll see.
Margins increase we've we're so confident in our revenue growth that we've we've invested for our product development innovation.
Starting even in this first quarter so were slightly below.
Slightly below where we otherwise without that investment.
Understood.
And then you talked about some areas of incremental investment but.
Just you know.
I think you spoke more about things that are rolling out this year as we think about what you're investing in today that can support the pipelines beyond 2020.
What are some things just as we think about just growth beyond the current year.
Well if you. If your question is on product investment I think theres, a major transformation in the markets that we participate in.
Going from systems of record to systems of engagement and Intel witches a system of record tells you what the data is from Paul reports on that it will give you a workflow, but it doesn't know the user doesn't make recommendations to the user doesn't predict future events or possible outcomes make recommendations and the like and we will see you already see that kind of built 10 ml and AI in some consumer applications, you'll see that in some areas of digital marketing for example that is common across enterprise software that's gone coming to our markets and were well ahead of that we just had a strategic advisory board with.
10 of our top bank customers and they are very focused on today's.
Operational excellence, but equally focused on our ability to deliver for them. The next generation platforms and next generation capability, which is all around systems of engagement.
Alright. Thank you guys appreciate that.
The next question that comes from the line of John Davis with Raymond James Financial. Please go ahead.
Hey, good afternoon, guys, Alright, just want to start off with a quick housekeeping question.
The updated guidance for fiscal 2020, I am assuming that does not include the buyback, but I just want to confirm that that's correct. We never guide on share count into with repurchase but at today's prices.
It won't have a material impact on EPS.
Okay.
And then Rick maybe just quick commentary or sorry, Rob on the Mastercard announcement of buying Thats account to account.
Business in Europe , how similar or different year business do you see any impact from that.
Yes.
Yes, hi level commentary here.
Hi, Joe.
You were breaking up a little bit JV is I'm going to repeat the question that with some commentary on mastercard's acquisition of next.
Right sure.
It's actually more about payment infrastructure, so thats more consistent with their acquisition of Vocalink for example.
So it's kind of like to think of it as the rails for bottomlines going to feed his join us for helping organizations.
Payments onto those rails and received payments from those wells, but we arent the rails ourselves and we are going to run National AC eight sure clearinghouse system or the like and that's with that acquisition as Vocalink, which they've done in the past that's what that gives them that kind of capability.
Yes, when you okay.
When you think about our financial products for example, we connect to over 30 different that the rail.
In Europe today, so the more rail there are the higher our value add.
Okay, and then on the on the capital allocation front, obviously, the the $50 million buyback is nice to see.
Anything any interest in doing a bigger M&A transaction. Obviously, you guys have a very strong balance sheet with a lot of flexibility.
There's a lot of changing going on.
Rumors of several of your competitors potentially being held for sale just in any interest in doing anything more than that take event tuck ins or should we expect tuck ins and continued buybacks.
Our basis.
I think its tuck ins I think it's also technology. So our most recent combination or acquisition was really a pre revenue company Thats omics.
Expanse and development and sales and marketing, but we get fabulous new capabilities that extend what we're doing today. So I think you'd see some about tuck ins and.
Pure technology plus.
Okay, and then last one for me just as we try and bridge the near term.
2020 in.
Yes. The next couple of years margin outlook I will call. It 20, 324% with the longer term guidance it looks like a lot of that.
For 30, 35, we'll say a lot of that expansion comes from a gross margin and not as much leverage on the.
Six.
<unk> expense base, but maybe just talk specifically about what you see driving that gross margin expansion.
What gives you confidence in that longer term margin profile, 30% to 35%.
But I think one of the things I comment right away. This Rob is that Rick.
Reference in his remarks that we'd see an increase as we move in to this year end debt expense. So.
Actually not only what we're not seeing leverage that we're going to be spending more on some of the things I've already talked about in terms of product and product initiatives. We will see gross margins on subs and trans move over time as we have this quarter I'm mixing I'd say our margin we comment on this before our focus is solving for growth, we're driving growth, we're going to drive growth in our 15% to 20% target range and Thats definitely the priority as we move into slide 20.
Okay. Thanks, guys.
Next question will be from the line of George Sutton with Craig Hallum. Please go ahead.
Thank you.
Guys I was.
Encouraged to see the breadth of sales from your other channel partners. Your non B of a channel partners could you just give us a little bit more specificity in the how active as other partners.
I have been in the quarter and then also an update on the beauty side.
Sure, they're very active and we're very active with that one of the things that makes our channel.
Program successful is our engagement with those channels helmet sales training that call, making calls directly that strategic.
Our meetings, we just.
Posted on couple of those banks that are strategic Advisory Board just last week. So we're very engaged and I think thats one of the keys, we saw as I referenced in my comments on sales across the board. So really widespread which is which is great which is what we like to say.
And just to be clear bank of America remains active as well so I'm sorry, yes, yes, a lower.
More people rowing the boat if you will.
So Rob you mentioned on the last call that you were making investments in Paymode in particular.
Over kind of a three year period and I just I wanted to see if we can get an update on your thought process in terms of the timing and the significance of the investments you're making in that platform.
Well, we're making investments to be clear so I'll comment on both for making investments across all of our platforms intelligence personalization analytics leveraging data those are common themes across all of our platforms.
In terms of Paymode X some of the things we're doing as much a lot more on security, we've always been a very secure platform, but what we're hearing more and more from customers. The securities really a catalyst to come onto the platform.
We've been selling against shack and antiquated inefficient payment processes for people kind of went with that because we've always done that.
Then when they're hit with a fraud incident, which most recent thing I saw a 79% of businesses that have reported payment fraud in the last year of that becomes a real catalyst to come off shore.
Doing more things around fraud for example, our network payments score, which if you think about the network. We have we have data that nobody else can get on the wrong. So if you're about to pay a vendor for the first time as anybody else pays founder.
Are you paying them an amount that's much more inconsistent with what others have paid if you've paid this fund performance of others, but certainly there's a multimillion dollar payment that well do they make.
Do they sell aircrafts and thats consistent with what they normally seen receive horse that an out something that's maybe to add accounts from compromise. So we're we have a lot of fraud protection and with built in the network and now adding more payer specific things you could just never do on your own that's a huge advantage for Paymode X other things were building them.
As our invoice capability, we've always had invoice platforms. The bottom line on a lot of expertise around that we've now fully integrated that into Paymode X. So we have the invoice to pay and that addresses a small market small mid size market needs.
Much better say look for a broader solution than the mid market and larger corporate splits. So those are a couple of things and then more on the sales and marketing side, we're adding additional direct sales teams to supplement the.
Bank channels as well so.
Investment on both sales and marketing and product and Paymode X.
Two for one more question if I could on the digital banking side. So you mentioned signing up one of the world's largest banks.
Can you just give us a sense of the significance of that in terms of size relative to traditional transactions for you and are you.
Working with the entirety of that bank or is this just a portion of the bank does this give you additional upsells of any yeah. It's it's actually our largest subscription and its just a portion of it back it's just a region for the bank. So.
Very exciting part of that by the way is that we're adding more capability to a single platform. There. So we'll have.
So.
We have the ability to have online account opening cyber fraud risk protection secure payments payment automation and now our insights, which gives you customer ends and sites of the level of banks have not previously had so those are some of the things that can get us to a larger deal salus. This had a nice combination of capabilities secure payments real time payments and our.
CVI Q.
Platform.
Super Thanks, guys.
Next question will be from the line of Mayank Tandon with Needham and company. Please go ahead.
Hey, good evening is actually how Peterson on for Mike.
Thanks for taking my question.
Just wanted to kind of follow up on M&A. Some of the questions earlier on you guys and then potentially interested in doing some deals they're mostly technology plays just want to see if you guys. Tom the right stuff out there would that necessarily impacts singer elevated R&D investments at all kind of a build or buy decision or is there just a lot of.
Runway on the development front that we'd still see higher R&D cadence for a while.
I think that on the development front, what's really encouraged because we've got such a clear our innovation agenda product vision assistance speculation or new features this absolute clarity and confidence where our applications are going.
That there is an appetite to make such spend and then we know what we're looking for from an M&A standpoint, if we see those capabilities. So.
It's very targeted very clear, we're going in with where our customers.
Needless to go yeah. So our hope is that responded which talking about on the M&A side. When we're looking at technology, We know where we're going to know and looking for it's not randomly looking.
Across a spectrum this specific specific capabilities.
Yeah. That's a helpful color. Thanks for that and then just one follow up.
Just on I'm kind of.
Brexit kind of noise in the UK you guys reach guidance, just given a pound weakness do you guys seen any operational.
Disruption or anything you guys are hearing from clients, whether with their wallets or I'm just verbally that has changed anything or is it just purely FX noise.
No Rick referenced this but I'll say it as well one of the things about what we do is we help businesses pay and get paid up economy down economy businesses of pain and get paid we grow in 2008 as kind of the evidence of that the principal thing what we see coming out of Brexit is not a slowness in the economy and the reason on that is causing me itself seems fine. The second thing is Morris going on with payments.
In the UK than anywhere else well with open banking and then across in Europe PST to the changes in payment standards things that are moving so it's a fabulous time for all to be in the business warmer in the UK.
The one element that does hit us as currency the volatility of currency and unfortunately, Rick and shouted I can say on earnings calls with constant currency growth rate was et cetera. We now people are looking at screens that looking at reported numbers and thats really dominant Fortunately the process Rupp progress we're making.
I'm all right Yeah. That's helpful color. Thanks, guys.
And once again, if youd like to ask a question. Please press star one at this time.
Next question will be from the line of Brett Huff with Stephens Inc. Please go ahead.
Good afternoon, guys. Thanks for taking my question.
Hey, Brett.
To him for me one bigger picture for you Rob can you talk a little bit about.
The question a question for asked about kind of whether you focus on being a network or sort of an aggregator of networks in an on ramp.
Can you talk a little bit about that but then also talk about how deep you would like to go into if at all.
Within the corporate to help process get approvals and et cetera for.
<unk> expenses in Okaying that kind of stuff kind of process automation stuff is kind of where you see yourself ultimately playing in that value chain.
Right.
So.
On a network or an aggregate or were actually both so we're in some places for a network like Paymode X for example in other places won't be aggregating.
Unlike our universal aggregator will take different payment types and different I'm rails. So we actually can play both angles whatever's going to help accommodate the customer whatever customers needs are going to be in terms of.
Process, we yet we already do a lot of that type of process. When I mentioned, our invoicing capability that some voice receipt, that's a p. automation and how how are you handling that work flow watch out.
What a cautiousness is invoice correctness of adjustment to be made is set to be paid if you think about what we do in legal spend management Thats all process approval. So we have a lot of strong capabilities on both ends on the payment side and on the process of approval side.
Thank you that's helpful and then Rick one for you on the bookings that we've gotten a lot of questions on the bookings I want to make sure I have it right.
You guys put up 20 425 million this quarter and the year over year compare is that 25 million is that the right number to use.
[noise] in Q4 18, it was 24.8 okay.
And just from a an acceleration I know we've got it improved dramatically sequentially in terms of the year over year growth, but kind of how should we think about bookings I know they are naturally lumpy I know, it's hard to estimate and I know that's difficult but in terms of you talked about a strong pipeline optically is there any sort of.
I don't know rules of thumb or thoughts you can give us on as we think about the bookings in the future.
We we try hard not to guide bookings just because as you noted that they are lumpy I'd like to look at them on a trailing 12 month basis, and if we're seeing bookings that are 25% to 30% of our subs and trans revenue in the same time period Thats very strong signal I will note that we were a little ahead of it this quarter. It was 31% but were 28 for the trailing 12 months, so right, where we want to be.
Okay, that's what I need to thanks again for the time.
The only other thing I'd add on that by the way is to remember that in many cases, where they have growth outside of bookings. So for example, if volumes go up on a transactional based pricing model in Paymode X or.
Legal spend management of those businesses bring on other divisions or acquire or do other things now that will rarely if ever have a new contractor in new bookings number. So we see actually can see a lot of growth outside of straight conversion of bookings into a into revenue great. That's helpful detail. Thank you guys.
Next question will be from the line of Chris Kennedy with William Blair and company. Please go ahead.
Yes, Hey, guys. Thanks for taking my question, Rob just wanted to follow up on your comments about open banking and that opportunity in Europe can you just talk about kind of how you guys are positioned and how material that opportunity can be.
Well the change to payments stand and how the world will work over time is very material no. One really knows exactly how that will evolve but that has the potential to be very significant and thats always good for us because while the software that accommodates change in payment. So we help corporate expense.
You know what the next standard whenever that new piece may be up what a definition for everyone. So they understand it would open banking mandates is that banks if the owner of the account requested that the bank make that account available through ipi. So what that means is hi, Aggregators. For example, other providers can access that account leverage that information and with a pie. So some of the places that's an opportunity for US is we work with platforms that would do that directly what provide that capability for banks and challenger banks, we're expecting some level of that kind of.
Thinking that come to the west probably not for us from a regulatory standpoint, the way it has been in the UK, but some banks challenger banks and more forward thinking banks may decide to provide that capability and we have a next generation infrastructure architecture that allows us to provide that kind of open banking capability to a bank, whether the leveraging our platform or not so it's actually a product opportunity as well.
Okay. That's helpful and then on Paymode X as you guys go down market can you just talk about kind of how the competitive landscape is different and kind of how the business is different.
Versus the larger businesses. Thank you.
Sure I think the couple of weeks, it's a mix of payments that would be different you can see more card issue moving down market. So we have a partnership with visa wells.
Can accommodate mastercard payments, we'd see more on card payments across that you'd see a broader capability not just looking for payments you'd look for invoicing through other payment and then there are us or some mix of competitors that have focused more on small business or micro business.
Mineral tray and Abbott exchange.
And others.
I think a real advantage, we have their security scale and the size of our network. Another advantage. We have is our channel partner relationships. So our banks that have had success with bottom line now have an opportunity to take us further down market into their customer base.
Okay, Great and just one last one if the bookings 83 million for the year is there any way you can put perspective on the key drivers of that whether it be paymode X and banking and is there any way you can just help us think about.
The percentage from year, just you just hit the two biggest right. There so thats exactly right Paymode X and then digital banking.
And they really represent two great opportunities for us going forward. So as we move into next year I'd expect them to continue to lead our lead beyond leaders in bookings.
Okay, great. Thanks, a lot guys.
The next question will be from line of Dan Perlin with RBC capital markets. Please go ahead.
Yes, good evening, it's actually at Roswell in for Dan Congratulations on a nice quarter.
Especially with the FX headwind.
One is.
And in terms of a bigger picture question, you're getting some very nice wins in digital banking is there any kind of changes in demand or differences in demand you can see between larger or smaller banks global banks European banks first North American banks.
[noise] you know I think the.
The demands to grow your business banking franchise or universal for anybody that's that's truly important part of the bank, whether they're smaller launch that's that's a real mandate. So you can see it in this quarter with bottom line 6 billion assets Bank and then.
30, plus billion asset Bank and then a major global bank. So that we'll see as common we have to our technology gives us the ability to scale the capabilities and the scale price points. It fits each each of those size banks.
We're focused more today on North America, a we have a presence in Europe and bus banks in Europe , as well were not addressing the rest of the globe and we'll find out usually that'll bring us more customer requirements to other pieces and so there's a ton of market opportunity for us in North America, and Europe , and that's really what we're focused on.
If you noticed with.
Two of the kind of core bank processors tied up in large acquisitions have you noticed any changes in.
You know their push their competitiveness et cetera.
You know I couldn't tell you that we've seen that specifically.
What does a pattern in the past with other competitors. Other course, that's always been it's been a distraction. That's always becomes a focus I think whats happening instead for us, though whether they slowed down or not this is going to be less relevant because what's really happening is were speeding up if you listen to what I talked about on the Dbi Q platform, we're bringing all these capabilities in one integrated platform with customer insights, there's nobody else doing that there's nobody else, bringing those kinds of capabilities. So yeah, there's probably a theoretical brenda <unk> benefit or advantage that they are distracted I couldn't say, we've seen that specifically.
But even beyond that we're moving so fast and bringing somebody in new capabilities to the market that a core solution is appropriate in some circumstances, but I'm not a few truly ambitious about growing your business banking franchise.
Shifting over to Paymode X, where do we stand with the the move to kind of the interchange like model and does the kind of moved downstream help or hurt their transition.
Oh that helps that transition inside of transition at this point that is our model today and that helps because as you move downstream to smaller ticket there more used to an interchange are paying on a being paid on a card and the vendor community. So I think we see a higher acceptance of Oh, but dividends are a network use fee model vendor pay model whichever terminology one is.
So.
Obviously, new clients are on that model, what what sort of percentage of kind of the Paymode X is volume do you think it is has moved to that model.
No. It's still the vast majority is on the traditional model, there's still by a large a vast majority of that still on the traditional model and 90% kind of number.
Okay and a question on that on the numbers for Rick tax rate for the year I think I think last quarter, you talked about a 25% rate does that still seem reasonable.
Correct, Yes, yes, we did and it's still there.
Excellent. Thank you very much.
Thank you.
Our next question will be from the line of Peter Heckmann with D.A. Davidson. Please go ahead.
Good afternoon, gentlemen, could you repeat I'm sure we'll be in the K., but just trying to track some of the segments.
Legal spend in the quarter, what type of growth did that put up it really seems like it was outperforming in the first three quarters the year.
Yeah, the legal spend which has been a strong performer throughout the throughout the year and can be lumpy at times, depending on the timing of customer go lives. So we actually had one large customer that slowed down their roll out a little bit for internal reasons, and so that impacted our growth rate. It will be it will be off a little bit I think we're talking later Tonight.
Okay.
Yeah, we can we can talk about it then yeah.
Okay, Okay, and then and that leads me to my other question within the outsourced solution that are cloud solution segment. It appears that settlement networks, a big deceleration and of course, that's a UK motor business and ER and the Swift messaging business, but it looked like it if you know depending upon how the fourth quarter came up a great decelerated and it seems like as you shift to the interchange model and Paymode X, which actually see that line celebrating yeah.
There was a small currency impact there, but where did the gives and takes there why aren't we seeing that line and grow 15, 20% annually.
Due to the two pieces you know first and foremost Q4 with an exceptional quarter within payment networks and we referenced it in the call is being very very very very strong and then the other thing is the decline in the a in the pound certainly impacts the FM business.
Okay. Okay. That's helpful and then.
Just the free cash flow that might be a implied by your 2020 guidance.
You help us with the range there.
Oh I don't have a.
I don't have the a free cash flow in front of me.
Oh, okay.
Maybe just one more than the we did see in the news that.
A little bit of any antitrust issue around this closed acquisition and our anti competitive and and you know made in order to segregate the business I know that the small deal, but its interesting that such a small deal would would would result in a new investigation by the.
I guess I competition authorities can you just give us some insight there into into what exactly they might be concerned with.
Yeah, we're it's entirely customary for them to review transactions of this type we're working closely with him in the review and there was some mis perception around the the recent order that order is simply requiring us to hold certain confidential information separate more specifically customers. For example can be a can be stored in the same CRM. So it's it's normal course.
Okay. Okay. So we should see that resolved and hopefully in the next.
Quarter or so.
[noise].
Our next question will be from the line of Bob Napoli with William Blair and company. Please go ahead.
Hi.
Thanks, just wanted to thank you for taking another question from us, but just wanted to ask a little bit more on the the adoption of virtual cards and the Buildout of direct sales force anymore color that you can give on that or I mean.
Are you.
Who are you working with on on virtual cards and what are the plans on building out the sales force for Paymode, a direct sales force.
Well, our strongest a partnership is with visa.
We work with Mastercard as well you know we've always had a direct sales force I'm glad you asked the question because it will give me a chance to clarify we've always had a direct sales force.
And we were certainly up support and our channel driven far so if there's a conflict on that well off and step back and let that go directly to the channel. We're just going to be adding more horsepower behind that direct sales force.
Okay and just on the virtual card is what percentage of your revenue in Paymode comes from virtual card.
Oh, nothing very little today, I mean, it would be a it would be a you know a very insignificant portion today, it's part of it when we went to and have added the car for an integrated payable solution.
Now, we're seeing more from a won't begin to see that payment types well part of it is strategic though because that allows us to then accommodate a payer we have a we have a number of payers in the past where that would be a separate part outside of our platform. We handle everything else other than card now with a four and a great a payable solution everything can flow through Paymode X makes it much easier for the payer and then we'll start to see a revenues on a car as well.
And revenues on that card would be much higher I think.
Then.
You know Dan then off the card I mean, if the revenue yield as much higher is it not hurt.
No because there's there's a higher interchange, but theres a much higher pay out in terms of a rebate or so and then there's a number of other partners that are engaged in that on a C.H. plus where we have a network use fee were sharing with the bank and the payer we take the largest share of that so we really look we were kind of want to accommodate with the payer wants to do rather than drive for what's a more profitable for bottomline, but the most advantageous payment type for us specifically would be up.
Would still be a AC edge plus you know with the network history.
Okay last question just on Paymode I don't if you Rob if you could give us some color on what the growth rate of that business is and what you think it would be is it above the sub and trans target that you're that you have been.
Yeah, the growth rate, we'd expect 'em, that's one of the big drivers for next year, and it's higher than our targets absolutely want to breaking out product by product or paper, but growth rates, but yes, absolutely.
Higher our plan for next year, I plan and our confidence it's a big part of it that it will be higher than the average growth right Yep.
Great. Thank you very much really appreciate it.
The next question will be from the line of Terry Qiwi wallet with first analysis. Please go ahead.
Hey, good evening and congratulations on a great quarter.
Hi, My question is regarding the digital banking onboarding process, and how youre structuring investments in development to speed that for potentially speed that process and how that would impact your three to four year sub and trans goal.
Yeah, we're not so the investments we're making in things like next generation or infrastructure that give us and a P I layer and a faster integrations into core and other systems.
But the.
The bulk of the investment, we're making is around product capabilities and functionality and customer insights and a fully integrated single platform. The timeframe on an implementation isn't as much about the technology. It's about steps. It's about the fact that you're working with the bank working with multiple systems. There's a testing cycle. There's reviews of that as a plan and compressing those isn't as much about technology as it is about the human process. So I think what we've seen nine month implementations today I think that's a great target could that move up slightly perhaps but that's not what we're investing for what were investing is to deliver more capability. The bank. So they have more insights about their customer they can no more term or more actionable next sales any been defensive moves that they would make more breadth of fun.
Optionality that they can provide their customers. So speed of integration has some elements in there in a PR architecture, but it is not the principal driver or principal benefit of the investment we're making.
Thank you.
At this time there is no further questions in the queue I will turn the call back over to Mr. I believe for any closing comments well. Thank you. So much. Thank you for your time work couldn't be more excited for the position we're in.
And heading into the coming year, we couldn't be more excited for the results were confidently comfortable post and with that we've got our $50 million buyback that'll be in place as well. So clearly we look forward to reporting back on subsequent quarters in the fiscal year as we go forward and we thank again, everyone for your time and Rod I can add to that that the free cash flow will support that 50 million buyback.
Very good.
Thank you.
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