BTRS Holdings Inc.
Q3 2021 Earnings Call Transcript

Published: 10 Nov 2021

[Operator:]

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to Billtrust’s Third Quarter 2021 Earnings Conference Call. As a reminder, this conference call is being recorded. I would now like to turn this call over to John T. Williams, Head of Investor Relations. Thank you, sir. You may begin.

[John T. Williams:]

Thank you, operator. Before we begin, I 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 the SEC and available on 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, today’s call may include non-GAAP measures. These measures should be considered as a supplement to and not as substitute for GAAP financial measures. Reconciliation to the nearest GAAP measure can be found in today’s earnings release, which is available on our website. Hosting today’s call are Flint Lane, Billtrust’s Founder and Chief Executive Officer; and Mark Shifke, Billtrust’s Chief Financial Officer. I’ll now turn the call over to Flint to begin.

[Flint Lane:]

Thanks, John, and thank you, everybody for joining the call today. The third quarter was another great quarter for Billtrust both financially as well as strategically. I’d like to share a few headlines first and then discuss some of the trends that we’re seeing. I’ll then address some of the more frequent questions we get and then hand it off to Mark for more detail on our performance and updated guidance for the year. We once again saw a great results in our core, software and payments revenue line, which exceeded our expectations and grew 22% year-over-year. You may recall that we had some one-time deferred revenue accelerated into the first quarter. If that revenue had been recognized throughout the year, the Software and Payments segment revenue growth would’ve been 25%. Adjusted gross margin percentage also exceeded our expectations and came in at 72.7% compared to 70.5% in the third quarter of 2020. We expect this to continue the trend up as we drive customers from print to digital and continue to grow our Software and Payments revenue. Total payment volume or TPV, which is the dollar value of customer payment transactions that we process on our platform increased 41% year-over-year to $21.0 billion versus $14.9 billion in the year ago quarter. TPV through the Business Payments Network or BPN TPV increased a 102% year-over-year in Q3. The credit card component of BPN TPV grew $1.9 billion in Q3 and is up 72% year-over-year and year-to-date through September exceeds $5 billion. Additionally, on the BPN front, our partnership with Visa continues to pay dividends as we signed another top five bank issuer to process payments through BPN giving us four of the top five U.S. bank issuers as BPN partners. We also entered into a pilot agreement with a major bank to offer the BPN supplier experience what we call the BPN digital lockbox to their treasury clients. We’ve received many questions related to payment revenue, and what many referred to as take rate or yield. For the first time, we have decided to breakout the revenue we get from processing credit card payments, which we call direct card revenue or DCR. DCR is the fastest growing component of our Software and Payments revenue, viewing this in concert with our card related TPV reveals favorable underlying trends as our payments mix shifts towards card and our legacy gateway business migrates to PayFac. Q3 direct card revenue was $4.2 million representing 77% year-over-year growth and a quarterly yield of 5.7 basis points. The yield on DCR has been growing year-over-year as we move more and more of our card volume onto our PayFac expect that to grow into the teens over the long-term. In addition, our average card transaction size is approximately $2,500, which drives great per unit transaction fees that have also been increasing over time. These card payment metrics, including historicals are available in our earnings supplement. We were also very excited to announce last month our most recent acquisition iController based in Belgium. This is our first acquisition as a public company and ninth in company history. iController has several hundred customers throughout Europe using their collection solutions. This deal will help accelerate our global expansion and as part of the strategy we have shared in the past around M&A. I would now like to highlight three keys to our investment story. The first is the favorable secular trends. The world is moving more and more to electronic billing and payments and suppliers and buyers need help with that transition. Companies are seeing an opportunity to generate significant cost savings and improve cash collections by digitizing accounts receivable workflows. Billtrust has built and scaled a superior robust platform that allows them to do just that and more. The rapid uptake of digital accounts payable software solutions has created even more complexity for suppliers. Our customers requiring manual activity for invoice presentment, remits capture and electronic payment processing. Governments have required B2B sellers to interact with electronic tax validation systems in order to present invoices. The global pandemic, working from home and reduced U.S. post office service have further accelerated this transition to digital solutions. We see the direct impacts of that in our customer portfolio and accompanying invoice dollar volumes on our platform. The second key to our investment story is the enormous underpenetrated addressable market. We’ve talked about the top down view of our addressable market before $280 billion global invoices for software, $120 trillion in global commercial payments. B2B commerce drives approximately two-thirds of global payments. These markets will continue to get bigger and we expect to grow faster than the overall industry and take a disproportionate share of the market. Drilling down a bit, we estimate that the North American addressable market for digital accounts receivable transformation is $11 billion with a target universe of 50,000 businesses with annual revenue greater than $50 million and potential annual revenue to us of approximately $250,000 per customer. Roughly 50% of B2B payments are still made using paper checks, which are expensive, slow and risky. Billtrust is driving that digital transformation for our customers, our bank partners, and the entire ecosystem with BPN. And remember we have several ways we grow, adding new customers, cross-selling additional solutions into existing customers, increasing digital conversion, and by more effectively monetizing payments. Put simply this is a huge TAM and a great long-term opportunity. Lastly, we are a platform. Our SaaS solutions are mission critical and integrated across a broad array of ecosystem players including financial institutions, ERPs, and AP software platforms. We help our customers accelerate cash flow and generate sales more quickly and efficiently. We have customers of varying sizes across a variety of industries, but the common threat is that they’re all high volume billers with highly diverse buyer sets meaning their buyers require them to invoice and collect payment in many different ways. Our customers’ needs are complex. And our scalable offerings streamline their entire process, whether via our core SaaS offerings, our growing payment suite or through BPN are two-sided network. I’d now like to address some of the questions we get frequently from investors. Question one, why are you focused on AR and how does it differ from AP? AR or accounts receivable is the lifeblood of corporations. Simply put, if companies don’t have cash, they can’t pay their bills and can’t operate. We hear a lot these days about the accounts payable side or AP. AR is more complex and we believe right for innovation. The traditional AR processes is latent with inefficiencies. There are multiple steps that need to be taken before a company can get paid from credit decisioning to order placement and processing, invoicing, and cash application. These steps are time consuming, paper intensive, people intensive and highly inefficient. Taken together, they represent a real pain point for our customers and an opportunity for Billtrust to drive efficiencies, accelerate payments, and help them manage the entire order to cash process. On the AP side, automation has been a mixed blessing. AP departments have happily pushed spend onto virtual credit cards to capture generous high margin interchange rebates. And many AP providers have eagerly helped with that transition, payable spend is being monetize turning – turned into mini profit centers that have been great for AP software vendors, banks and the companies themselves. But this is creating significant complications with the accounts receivable department, which is now forced to deal with the inefficient delivery of credit cards and payments often through email plus lots of manual transactions and verifications that are simply too much to handle. Some of our customers get thousands of these email payments per month, which is quite a mess. To solve this problem, we developed our Business Payments Network or BPN to allow buyers to access a directory of suppliers looking to get paid, move money, where it’s supposed to go and properly and automatically apply that payment against open invoice. Now there’s a nice connection here between the question about AR versus AP. And our second common investor question is can you explain BPN and why it’s special. At a very basic level, BPN is to business to business transactions. What Venmo is to person to person transactions. In both cases, there was a two-sided network that includes a directory of parties who can be paid a money movement tool, and remittance information. BPN is an open network that leverages our AR platform and connects the financial services ecosystem including AP providers, payment card issuers, ERPs, and banks, bringing together suppliers and buyers at its core. We partnered with Visa, banks and software vendors, because we understand that the sheer size and importance of this problem requires comprehensive and interoperable solution. Question three, simply explain your business model and how you get paid? Over 75% of our revenues generated from software and payments and the remainder is from print and services. Most of our software revenue is generated from subscriptions for our AR solutions, but we continue to increase the amount of payments related subscription revenue for processing ACH and cards. This revenue is highly predictable. The majority of our non-subscription card payment volume is driven through credit card gateways. However, the fastest growing and highest yielding direct card revenue is generated at as basis points on the volume process through our PayFac. Providing print surface services, coupled with a digital solution is how we initiate some of our customer relationships and we have a team dedicated to helping our customers to continue on the path to invoicing and other e-solutions, which all include a payments opportunity. We also provide services both for implementations and post-implementation projects. We are maniacally focused on pleasing our customers, which continues to help us maximize their lifetime value. Our success in landing and expanding customer relationships with an NDR and software and payments approaching 120% for the full year reflects the success we are having with our platform. Question four, how do you monetize payments? We process customer payments that come in through BPN and through branded customer portals, which are websites where their small customers can go through review and pay bills. We generate subscription revenue from processing ACH and certain card payments, we generate interchange and gateway fees in connection with processing credit card and virtual card payments. In general, relatively larger dollar payments are transmitted through BPN and smaller dollar payments through customer portals. Given that both BPN and our PayFac were introduced in the last five years, most of the card volume we process is still through customer portals using our gateway. The fastest growing portion of our card payments portfolio and the materially higher take rate on volumes comes through our PayFac, which we use to monetize substantially all of the card payments processed through BPN. We generally get 10 to 40 basis points on these card volumes with lower rates on outsized volume. Finally, we also received single-digit basis points on volume from AP providers and banks provided – for providing them access to the suppliers on BPN. We’ve been public now for about 10 months. As part of going public, we committed to investing for growth, driving more payments, expanding our partnership channel and focusing on M&A. We have kept our promises and our strong performance reflects that. I’ll now turn the call over to Mark to review our third quarter results in more detail and provide our updated financial outlook.

[Mark Shifke:]

Thanks, Flint. We’re very pleased with our third quarter results. Q3 software and payment segment revenue grew 21.5% year-over-year from $21.4 million to $26 million or $1.5 million more than was implied by our internal forecast. This outperformance was driven by greater than expected growth in card TPV and direct card revenue, as well as revenue from increased customer utilization of our software. Moving more of those customers to higher subscription tiers in the quarter than we had expected. Services revenue declined 12% year-over-year to $2.4 million and print revenue also declined as expected to $4.4 million. In the aggregate, Q3 net revenue was $32.7 million an increase of 13.6% year-over-year. Adjusted gross profit was $23.8 million or 72.7% of net revenue compared to $20.3 million or 70.5% of net revenue in the third quarter of 2020. The year-over-year margin improvement was driven primarily by the higher mix of software and payments revenue relative to our expectations, as well as lower than expected direct cost. Turning now to operating expenses. They were generally in line with expectations, excluding stock based comp in each case, research and development expenses were $12.2 million compared to $8.9 million in a year ago period. We continue to increase our year-over-year spend in sales and marketing as we said we would, which expenses were $9.3 million compared to $5.6 million in the year ago period. And G&A expenses were $6.6 million compared to $4.6 million in the year ago period. Adjusted EBITDA came in at a lower loss and expected or a loss of $4 million compared to positive $1.2 million in the prior year period. We acquired iController shortly after the close of Q3. Acquisition costs in Q3 were $300,000 and are excluded from our calculation of adjusted EBITDA. We ended the quarter with $288.5 million in cash and equivalents and short term marketable securities on our balance sheet and zero debt. As we have disclosed, we used approximately $57 million of our cash after the end of the quarter for the acquisition of iController. Now we’ll turn to our updated full year outlook. We are raising our net revenue guidance, given the strong Q3 results and positive momentum into October. For the fiscal year ending December 31, 2021, our total revenue guidance remains $163 million to $167 million, given the reduction in our estimate of reimbursable costs from $37 million to a range of $34 million to $36 million. But we are in increasing and narrowing are net revenue guidance, which excludes reimbursable items from a range of $126 million to $130 million to a range of $129 million to $131 million, which at the midpoint of $130 million represents 20% year-over-year net revenue growth. Included in this guide is less than $1 million attributable to our recent acquisition of iController. This increase in projected net revenue is driven by greater than expected growth in our software and payment segment, which we now expect to grow 26% organically year-over-year rather than 23% as previously projected. Given the continued mix shift to higher margin software and payment segment revenue, we are raising our adjusted gross margin range from 70% to 71% to a range of 71.5% to 72.5% or 72% at the midpoint, a year-over-year increase of 170 basis points. Adjusted gross profit guidance also moves higher from $88 million to $92 million to a range of $93 million to $95 million or $94 million at the midpoint, a year over year increase of 23%. Our prior guidance of full year 2021 adjusted EBITDA pointed towards the higher end of our negative $14 million to negative $16 million range. We intend to, again, reinvest our quarterly over performance into the business and expect our full year adjusted EBITDA to be at the higher end, if not slightly above the high end of that prior range. I would like to turn now to our medium to longer term outlook. Our focus on software and payments continues to pay off as shown by our mix shift from 64% of net revenue in 2017 to approximately 78% year-to-date 2021. As customers continue to shift from print to digital, and we continue to monetize payments and BPN. As we look out over the next few years, we are increasingly confident in the sustainability of year-over-year software and payments growth in the mid-20s, adjusted of course, for any one time items, which growth in turn should support net revenue growth over the same period in excess of 20% year-over-year. With that in mind, we reiterate our long-term outlook for other key non-GAAP metrics. Adjusted gross margins of 80% plus with sales and marketing at 25%, R&D 20%, and G&A 10% of net revenue, all of which exclude stock based compensation expense. With a long-term adjusted EBITDA margin target of 25% plus. Note, we have been showing electronic invoices presented or e-invoices as a proxy for the growth of our software business. This is only loosely correlated to software and payments group. So we’ve decided to eliminate that metric. We therefore will no longer show e-invoices presented in our quarterly earning supplement, but we will continue to disclose this metric and our quarterly reports on Form 10-Q and then you’ll report on Form 10-K filed with the SEC in respect to fiscal year 2021. We believe the company is well positioned for the continuation of sustainable high growth and geographic expansion. We are driving acceleration in our payment volumes, continued momentum in our subscription software business, sales and marketing success via new logo acquisitions, our land and expand strategy, and our focus on long-term revenue acceleration through partnerships. The economy remains on good footing and we expect to exit the year on a strong growth trajectory and our core software and payment segment. We remain incredibly excited about the opportunity in front of us at Billtrust and are excited to have you along as partners on this journey. Thanks again for joining the call and we’re happy to answer your questions. Operator, please open the lines.

[Operator:]

At this time, we’ll be conducting a question-and-answer session. Our first question comes from the line of Andrew Schmidt with Citi. You may proceed with your question.

[Andrew Schmidt:]

Hey, guys. Thanks for taking my questions and great quarter here. A lot of good stuff to dig into, appreciate the incremental disclosure. I think it’ll be helpful. Just a quick clarification on my end, the direct card revenue, and you might have addressed this one, sorry if I missed this, but does the direct card revenue include the BPN spread that you earn for allowing AP partners access to the network? Or is this just purely PayFac and gateway revenue?

[Flint Lane:]

It is more the latter. So no, we don’t include the AP charges in the direct card revenue. We only include those things that we can correlate directly to the payment, including gateway PayFac and there’s some foreign gateway fees and things like that.

[Andrew Schmidt:]

Perfect. So BPN ramping would be incremental to what we see here. Okay. That’s good to know. Obviously, BPN drives card volume, but that’s good to understand.

[Flint Lane:]

Well, I’m sorry, just to be clear, the BPN card revenue is part of that as well as the rest of the card revenue.

[Andrew Schmidt:]

So the – so what AP providers are paying like network spread, essentially that’s included in the direct card revenue, I guess.

[Flint Lane:]

There’s two components of revenue on BPN, what we charge the AP participants and what we get in terms of acquiring. It’s just the acquiring revenue that’s included here.

[Andrew Schmidt:]

Perfect. Okay. Yes. That makes a lot of sense. I appreciate that clarification. Mark, you mentioned the mid-20s growth rate over the intermediate term in the 20%,the mid-20s kind of software payments revenue growth of intermediate term 20% total revenue growth. But if I look at that the page in your deck that has the normalized software payments growth, it looks like it’s already running at 25%. You’re already there. We haven’t seen kind of the effect of all the initiatives that you put in place. So maybe some context in terms of that intermediate guide in terms of what you’re assuming for productivity from everything you’re putting in motion today.

[Mark Shifke:]

Yes. Great question, Andrew. And again, we continue to see the opportunity to grow 25% in the mid-20s on top of growth that was previously in the mid-20s. What we’re looking at right now is feeling very good about seeing the continued momentum of the organic growth in our existing business. Now on top of that, we’re feeling or we’re seeing the effects of our increased spend on sales and marketing. So we’re looking for continued growth coming from new sales both to existing logos, as well as new logos that then start the process of our land and expand motion. We are very excited to about iController. We see that as replacing in part some of the grow over revenue we’ll have from the loss of a customer this year going into next year, and then the opportunity for revenue synergies on top of that, both in the U.S. and in Europe. And we’ll probably see some contribution from an increase in prices. So when you put that all together, we see that opportunity for that mid-20s growth for the medium-term.

[Andrew Schmidt:]

Got it. Thank you for that. If I could just speak one more in, what’s the right way to think about just the ceiling for card yield and what – should we expect to continue moving up at the pace, that’s been moving up at over the past couple years. Or is there opportunity to accelerate that the growth in yield? Thanks guys.

[Flint Lane:]

I think we would continue to – I think we can expect to continue to see that increase. And what I shared in my commentary is we expect it to hit the teens in the long-term.

[Andrew Schmidt:]

Perfect. Thanks, Flint. Thanks, Mark. Congrats in the quarter. Appreciate it.

[Flint Lane:]

Thank you.

[Mark Shifke:]

Thank you, Andrew.

[Operator:]

Our next question comes from the line of Tien-Tsin Huang with JPMorgan. You may proceed with your question.

[Andrew Steinerman:]

Hey guys, this is Andrew on for Tien-Tsin. Congrats in the quarter.

[Flint Lane:]

Thanks.

[Andrew Steinerman:]

Just had two questions. The first one on gross margin, on the – is really nice gross margin expansion both year-over-year and sequentially beating our forecast. I know you talked about it a little bit, can you drill in on some of the drivers? Was there any benefit from organic investments you guys have been making over the past couple years? And I just wanted to make sure I caught it right. You said that you expect this level to continue, so that suggest is largely recurring benefit, but just wanted to clarify.

[Mark Shifke:]

Sure. So look, there are a couple of things that we – you look at in adjusted gross margin. On the one hand, our software and payments revenue is already generating adjusted gross margins in the 80%s. And so on a consolidated basis, that will be diluted somewhat by the margins we have on print and the margins associated with services. In the quarter, we saw more customers going through existing tiers into higher tiers and at a faster or greater pace than we had expected. And at the same time, some of our direct costs associated with generating revenue were less than we anticipated. So we saw that benefit in the quarter. As we look forward, we expect to see a continuation of our software and payments growth relative to other parts of the business. And as we continue to see that mix shift that should continually – should continue to pull our adjusted gross margins upward.

[Andrew Steinerman:]

Great. That’s helpful. And I just had one more quick one in BPN, it’s been several months now since you guys announced BPN 4.0, I was just curious if there are any milestones or highlights that you’re able to share with us today.

[Flint Lane:]

We added the direct card revenue and we’ve gotten requests for lots of other types of disclosures. So we don’t have any specific disclosure around BPN invoicing, which is the distribution of invoices into third-party accounts payable portals. We’ve been very happy with the market acceptance so far and have seen lots of adoption, but we’re not ready to share any specifics around that yet.

[Andrew Steinerman:]

Okay. No problem. And thank you guys.

[Operator:]

Our next question comes from the line of George Mihalos with Cowen. You may proceed with your question.

[George Mihalos:]

Hey, good evening, guys. Let me add my congrats on a very solid quarter and as always appreciate the additional disclosure, very, very helpful. I guess, maybe for my first question, if we can kind of dovetail to back to the first question that was asked just around the monetization of the credit card TPV, it looks like, basically if I look on an annual basis, you’ve been able to improve that yield by a little under call at a basis point on an annualized basis. Is that a good way to be thinking about it going forward or should that accelerate a little bit as there’s a bigger contribution coming from the BPN and PayFac monetization.

[Flint Lane:]

Mark, do you want to take that?

[Mark Shifke:]

Sure. I think that isn’t a bad way to think about it, and yes, there is the upside of greater acceleration in as we grow volumes. I mean, we’re growing volumes at a very healthy pace through the PayFac. And as we do so, George, it then reduces the impact of the lower revenue generated from the historic gateway these are where we’re getting. So I think it’s not a bad way to think about that as a floor and to consider the possibility of upside to it.

[George Mihalos:]

Okay. That’s super helpful, Mark. And just one more, if I can kind of sneak in, nice to see the gross margin ticking up and you were taking up the guide. Just curious, I guess, on the math that I’ve done, it looks like for fourth quarter, you’re talking about something a margin that is maybe at the upper end kind of flattish to 3Q maybe down a little bit, depending on where revenue falls. Just curious if there’s anything embedded in there that we need to think about, is it an impact from acquisition or something else that might be impacting that?

[Mark Shifke:]

Yes. I mean, there’s nothing major going on and no problems in the business. The things that we want to make sure, we’re being cautious about or is a potential direct cost associated with print and the possibility of some costs that may be coming in from our acquisition, but nothing major.

[George Mihalos:]

Okay, great. Appreciate it guys. And congrats, really solid results.

[Flint Lane:]

Thanks, George.

[Operator:]

Our next question comes from the line of Mayank Tandon with Needham. You may proceed with your question.

[Mayank Tandon:]

Thank you. Good evening. Congrats, Flint and Mark on a strong quarter. I wanted to just start with maybe directionally if you could talk about 2022 based on the client decision making and just the adoption of AR automation. Is it possible that maybe growth could run above trend if some of these supply chain issues that resolve and businesses have more visibility. Would that in any way help maybe drive an acceleration in 2022 above trend? Or should we expect that to be more still normalized growth based on your long-term, medium-term outlook?

[Mark Shifke:]

So at this point, it would be early for us to be guiding 2022. But at a high level, if you’re asking – is there potential upside to something in the mid-20s? The answer is absolutely yes. It’s too early to guide that or to know that. But the things that we would think about are again the economy continues and then potentially picks up as we get through the supply chain issues. And then on top of that, we’re seeing a lot of good stuff percolating in our partnership area, as well as the success we’re having in our direct sales. And depending on how quickly some of those possibilities take shape that could provide upside. And then in general, we’ve been very pleased to see the performance in the existing portfolio perform better than we had been anticipating both in terms of card volumes and yield on card volumes, as well as utilization of our software and customers going into higher tier. So I think all of those come together to create a possibility, but certainly as I said too early for us to guide that and give comfort around it.

[Mayank Tandon:]

Right. That’s very helpful. And then I would just ask you about the international side, given the acquisition, what is the realistic timeline on scaling the international footprint like when does it become more meaningful and a needle more to the business? And in that context like what are some of the gating factors to really driving that international scale over time more for like a general question versus being specific around like 2022?

[Flint Lane:]

I think we shared earlier that as part of our M&A strategy, we were focused on global expansion putting handful of salespeople in a country and expecting to grow greenfield is not the fastest approach to scaling. So we now have a great beachhead in Belgium to expand from, and we would expect to do so in the very near future. So I don’t think this is a three-year thing. This is a immediate term thing.

[Mayank Tandon:]

Got it. Thanks, again.

[Flint Lane:]

Thank you.

[Mark Shifke:]

Thank you.

[Operator:]

Our next question comes from the line of Joe Vafi with Canaccord. You may proceed with your question.

[Joe Vafi:]

Hey Flint. Hey Mark. Good afternoon. Great results. Maybe we drill down a little bit on your partners here and signing another bank and it looks like now you’ve got four of the five top banks. Obviously there could be a fifth bank, but if you look across those partners and what they’re doing with their clients on treasury and on cash management and what they’re thinking about moving forward. Just interesting to get a feel for how penetrated BPN is across their customers and what that opportunity may look like from a partnership basis over the next couple years.

[Flint Lane:]

Yes, that’s a great question. So as you know, there’s two sides to the Business Payments Network. There’s the issuing side. And then there’s the acceptance side. On the issuing side, I think we’ve proven to the market that you almost have to be on BPN if you want to drive significant card payments. And that’s why we’ve had so much success signing banks and AP software vendors. And that’s why volumes have increased so substantially. We’re in the middle of proving that on the supplier side or what the banks call the treasury side, that every supplier of scale is going to need a digital lockbox, that they can accept all of their card payments and ACH payments and the wire payments, because we’re going through a short generational shift. We went through cash to check. We’re now going through check to digital. And the equivalent of a paper lockbox is needed on the electronic side. So we announced that one bank is now in pilot with us reselling the digital lockbox to their customers. I’m sorry, referring business around the digital lockbox. So we are early in the journey around having treasury departments at banks reselling. So yes, that could be a great accelerant to the business if we continue to prove that drives business for them, and they can remain relevant around payments for their treasury clients.

[Joe Vafi:]

That’s great. And then maybe just drilling down on that a little bit more Flint on that digital lockbox and its maturity level and one big bank on the digital, it kind of signed up here on the digital lockbox. I’d assume that is already one of the banks that you have signed up on the other side of the business. And are the other banks looking at that lockbox as an opportunity on their treasury side?

[Flint Lane:]

Yes. So we hired Gwenn Lazar to run channels for us earlier this year, and we are aggressively pursuing both sides of the bank, the issuing side and the acquiring side. So that is a big focus for us to expand the amount of sales we get from the channel and banks are part of that. ERPs are a part of that as well as system integrators.

[Joe Vafi:]

That’s great. Thanks so much, guys.

[Flint Lane:]

Thank you.

[Operator:]

Our next question comes to line of Bob Napoli with William Blair. You may proceed with your question.

[Unidentified Analyst:]

Hey, good evening, guys. This is a Dave on for Bob. Just one on iController and the acquisition, any more color you could provide on that deal and what you guys are going for would be helpful. And then anything in terms of financial metrics, you could share relating to revenue growth rates and margins, and maybe your expectations around cost. So thanks.

[Flint Lane:]

Mark, do you want to take that?

[Mark Shifke:]

There’s so many aspects to it. So…

[Flint Lane:]

I’ll take the cross-cell component.

[Mark Shifke:]

Yes. Just on the financial side, I think what we indicated is on a trailing 12 months, it was contributing call it something less than $4 million that we expect to have in next year’s numbers. And then which we think will – we will be able to then grow to our cross-sells, which Flint just spoke about. Other than that, I’m not sure that there’s any other information we can share about that transaction overall in the scheme of things. We think it’s material from a strategic perspective, but right now not material from a financial perspective.

[Flint Lane:]

The one thing I’ll add to that is, this is not our first acquisition, where we bought a company with a product and cross hold it into our existing customer base. But that cross-sell goes both directions. They have north of 500 customers that need more expansive accounts receivable solutions. We have 1,000 of customers that need collection solutions, so that cross-sell goes both directions and we have experience doing that.

[Unidentified Analyst:]

Great. Makes sense. And then for the follow-up clearly Billtrust has been accelerating investments in sales and marketing and R&D, which are both up significantly year-over-year. Could you guys kind of just talk about how some of these increases are being invested into the business and what sets of returns you guys are seeing from these investments? Thank you.

[Flint Lane:]

Yes. So we’ve disclosed, we’ve invested in aggressively in sales and marketing, and we’re going to continue to invest in sales and marketing when we can see the returns. So that is direct sales people, that’s channel sales people, that is marketing activities and marketing people. So we want to make sure that our CAC to LTV ratios are strong and we will continue to monitor those and make investments where we think we can get a good return on that. There’s lots of things we can fund from an R&D perspective. And the business payments network is a massive breakout opportunity for us. And we’re going to fund that aggressively. So lots of great opportunities for us to fund. We don’t fund every great idea we have, but we are picky about those things that we choose to fund, and we think we’ve balanced those needs.

[Unidentified Analyst:]

Great. Thanks very much.

[Operator:]

Ladies and gentlemen, we have reached the end of today’s question-and-answer session. I would like to turn this call back over to Mr. Flint Lane for closing remarks.

[Flint Lane:]

Yes. Once again, thank you, everybody. It’s been a great journey so far as a public company. And we’re excited to continue this journey with you. So thanks and have a great evening.

[Operator:]

This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation. Enjoy the rest of your day.