Bottomline Technologies, Inc.
Q1 2019 Earnings Call Transcript

Published: 9 Nov 2018

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the Bottomline Technologies First Quarter 2019 Earnings Conference Call. Statements made on today's call will include forward-looking statements about Bottomline's 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 Bottomline's most recent periodic reports filed with the SEC for a 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, Bottomline's 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 Resource section of Bottomline's website, www.bottomline.com. Bottomline 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 Eberle. Please go ahead.

[Robert A. Eberle:]

Good afternoon, and welcome to the First Quarter Fiscal 2019 Earnings Call. I'm delighted to report on what was a very good quarter for Bottomline. I'm here with Rick Booth, our Chief Financial Officer, who'll 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 any questions following his remarks. First quarter was both a very good quarter and a very good start to the fiscal year. We are once again reporting solid financial results today, having seen the merit of our strategic plan and our execution against that plan. A while back, we committed to FY 2019 targets of $300 million in subs and trans revenue and $100 million in EBITDA, and we've consistently executed against those goals. The results for Q1 are another step forward and demonstrate we're on track to achieve our $300 million and recently increased $100 to $102 million FY 2019 targets. Beyond the quarter, I'm even more excited about the future and the steps we took in Q1 to drive continued growth. The future prospects for the business, our market opportunity, product set, and business model are all aligned for continued momentum and strong performance. I'll focus my remarks on our market opportunity, but first let me briefly touch on the financial highlights for the first quarter. Subscription and transaction revenues grew 15% in the quarter. Subscription and transaction revenue for the products other than banking solutions grew 20%. This is the fifth quarter in a row now these products have grown over 20%. As expected, banking solutions was low in Q1 but will be 15% to 20% by FY 2020, given a large backlog we're currently bringing live. Subscription and transaction revenue was $69.8 million, a run rate of $280 million today. And by year-end, that'll be well above $300 million. Revenue overall was $102.4 million. EBITDA was $25.1 million, up $3 million from the prior year as we're continuing to drive profitability while prioritizing key product growth initiatives. EPS was $0.33, ahead of our target and expectation, and we ended the quarter with $86 million in cash. Financial success we're seeing demonstrates the alignment of market opportunity, our strategic plan, our product set, and our execution. I'll now turn to the market and some quarter updates and then comment on our priorities for the fiscal year and most importantly why we're confident we'll drive continued growth in the value of this business. We are in the very early innings of the digital transformation of business payments. It's a huge opportunity. The U.S. B2B payment volume is estimated at over $20 trillion. 63% of businesses still make 50% or more of their payments by paper check. We're right in the middle of that digital transformation. And as we continue to leverage and build upon our scale, technology set, product capabilities and increasingly recognize business payments brand, we'll attract and grow customer relationships and also see increased partner interest in activity. While we provide a number of different payment products, the reason to work with us is almost always centered in some common themes we hear regularly from our customers and partners around the globe. The first is scale and experience. We have a proven capability and real-world experience. While others may have an idea in software, we can show a prospective partner or customer thousands of existing customers using our technology and doing so at scale. We have business payments expertise. We had deep domain expertise in the area of business payments. That has become a particularly valuable asset as the pace of change in business payments has accelerated. We bring that leading expertise to bear whether addressing open banking, faster payments, cybersecurity, or payment automation. We have product leadership. We are a product and innovation leader in business payments committed to being first-to-market and best-in-market, not just today but as the market continues to evolve with new capabilities like machine learning and NLP. Our product leadership is verified regularly by both customers and industry analysts. The best recent example is AAT's recently released analysis of cash management providers. In this in-depth report, Bottomline was the only vendor to fully achieve AAT's best-in-class rating. They went on to say, and I quote, "Bottomline Technologies' message resonates better than any other vendors because it demonstrates an understanding of the true needs of the industry. Bottomline Technologies has tremendous momentum when a record number of banks are considering a replacement of their cash management solutions. It has become the vendor to beat." We're seeing that every day in the marketplace and we couldn't be more excited about the opportunity ahead given our product leadership. The last and important piece is trust. Customers and partners trust us based on a history of delivering customer success and innovation. Customers see us as a trusted innovation partner. We're truly focused on delivering successful outcomes for customers and partners alike. Our enhanced cybersecurity capabilities ensuring payments will be secure increases the trust and confidence of our partners even more in this threatening environment. One example is Visa. We recently announced our expanded partnership with Visa, whereby we're helping them extend Visa's B2B Connect as a payment option for large ticket cross-border payments. Visa is able to leverage our existing bank connectivity and relationship to offer end-to-end visibility on FX rates and settlement dates. While this is a good example of helping a partner achieve a result, we're also, of course, highly focused on helping customers successfully achieve business outcomes. An example in the quarter was we brought one of our banking customers live and migrated thousands of the bank's business banking customers to the platform. This bank has the expressed goal of being the leading commercial bank in the major metropolitan area they serve. By leveraging our next-generation infrastructure instead of APIs and core integration, the bank was able to expedite implementation and thus their time to revenue. The platform is seen as a major strategic initiative. And Bottomline is seen as a key partner, helping them achieve their business objectives. What's interesting to note is that in the short time we've been engaged with this customer, we've already seen the ARR grow 15%, as they purchased our CFRM Secure Payments add-on. Whether customer business outcomes, partner opportunities, changing payment standards, or evolving technology, Bottomline is responding. So how does that translate into shareholder value? Well, simple. Through continued and consistent strong growth. We have a huge market opportunity. As I've already indicated, we're in the beginning of an accelerating transformation in the way businesses pay and get paid. We're extremely well-positioned with unmatched business payment capabilities and experience. We have every opportunity to be the way businesses pay and get paid. From a financial perspective, we see an opportunity to drive 15% to 20% subs and trans growth and potentially higher for years to come. Everything we're doing is focused on that objective. The TAM for 15% to 20% growth or frankly even 25% growth is there. Our product set, execution, investments, and financial plan are all focused on driving that growth. By year-end, we'll be a $300 million-plus SaaS company, one which happens to have $120 million or so of other valuable revenue streams, but our focus is on our subs and trans revenue. If we can grow that $300 million, 15% to 20% a year for the next five years, which I have every belief we can, shareholders will be rewarded. And of course, if we can outperform that target, which is our ambition and goal, the results will be even higher. So as I look across this business, I see every capability to achieve these goals. We're well-positioned to drive continued growth and success in a huge market and in doing so, create long-term shareholder value. So with that, I'll turn it over to Rick. He'll provide details on the financial and our guidance. And then both of us will be available for questions following his remarks.

[Richard Douglas Booth:]

Thank you, Rob. I'm pleased report on another successful quarter, including subs and trans revenue growth of 15% overall, led by 20% subs and trans growth from our established products, and delivering EBITDA of $25.1 million or 24% of revenue. This quarter sets us up well to achieve our full-year fiscal 2019 guidance of $300 million of subs and trans revenue and $100 million to $102 million of EBITDA. In the quarter, we advanced our strategic objectives, were able to invest in innovation and growth, and gained even greater confidence in our fiscal 2019 guidance and long-term growth potential. These results are a reflection of our strong position in the large and growing business payment space, as well as our attractive business model. I'll focus my remarks today on three topics. First, I'll briefly comment on our strategic and financial position. Then I'll review our Q1 financial results in detail. And finally, I'll provide guidance for the upcoming quarter. Our quarterly results are driven by our strong strategic and financial position. We address the large and growing market for business payments, our product platforms are clearly differentiated in the market, our sales teams have strong momentum, we're a trusted innovation partner to our customers and channel partners, we have long-term, valuable customer relationships, and our attractive business model allows us to simultaneously deliver current financial results, make the investments we need to drive growth and value for years to come, and deliver shareholder value through consistent and sustainable growth. Each of these factors is evident in our Q1 financial results. To review these results in detail, I'll speak briefly to each line in our P&L, and in addition, we've posted supplemental materials to our website for your reference. Beginning with revenue, subscription and transaction revenue is our priority. It drives growth today and it positions us to continue to grow with our customers as they expand their use of our products. Overall subs and trans revenue grew 15% in the quarter, led by 20% growth from products traditionally sold in the subscription model. With this growth, we recorded $69.8 million of subs and trans revenue, equivalent to $279 million on an annualized basis. This means 68% of our Q1 revenue came from these subs and trans offerings, up from 67% a year ago. I'm particularly proud that since we introduced the $300 million/$100 million target, our established subs and trans products have met or exceeded 15% to 20% growth every single quarter through disciplined execution against our plan. Maintenance revenue is another valuable component of our revenue mix. Given the central importance of our applications to our customers and our very long customer relationships, we enjoy high renewal rates. Maintenance revenue of $17.4 million in the quarter was up slightly year-over-year, and the combination of maintenance and subs and trans revenue provides us with 86% recurring revenue, an excellent visibility to upcoming results. License revenue by design is only a small part of our overall business. In Q1, we reported license revenue of $4.5 million from our traditional license products and total revenue came to $102 million for the quarter, up 12% overall. We had solid sales performance in the quarter as customers continued to choose Bottomline as their trusted innovation partner to automate business payments. We signed $17.4 million of new subs and trans bookings in the quarter, led by Paymode-X and Legal Spend Management. This brings us to $84 million in new subs and trans bookings in the last four quarters. And while bookings 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 2019 and beyond. Looking at new customer signings. Our Paymode-X network added 26 new payers, which further validates the attractiveness of our full payment automation value proposition, as well as the effectiveness of our channel partnerships. We signed another new customer to our Digital Banking product set and have approximately $16 million of annual subscriptions which are not yet being recognized in our P&L. Our Digital Banking implementations continue to go well, which keeps us on track to bring substantial majority of this revenue live in fiscal 2019. We also signed seven new insurers to our Legal Spend Management network, including another insurer on PartnerSelect. And continuing down the P&L, we delivered on our financial commitments while investing significantly to advance our solutions and drive long-term growth. Adjusted EBITDA of $25.1 million was up 13% year-over-year. EBITDA margin of 24% was consistent with prior year. We drove core operating income of $19.4 million and core earnings per share of $0.33. So in total, these results evidence the attractiveness of our business model, allowing us to meet our financial commitments while investing for growth in product and sales initiatives. Our overall gross margin of $60.3 million, or 59% of revenue, is up 2 percentage points year-over-year. Subs and trans gross margin of 57% is up 1 percentage point year-over-year. And as planned, we used this expanded margin to invest in growth, primarily through marketing, sales, and product enhancements. We increased spending on sales and marketing for the quarter by $2.5 million or 16% year-over-year. This brought sales and marketing expenses to $18.3 million as we invest to continue to attract win and valuable, long-term relationships. We increase development expense by $2.4 million or 19% year-over-year. This brought development expense to $14.5 million as we ramped planned investment in our products. Combined, this represents an additional $5 million of investment, all targeted toward sustainable long-term subs and trans growth. I'll make one comment on accounting before turning to the cash flow and balance sheet. This was the first quarter reporting under the new revenue standard ASC 606. And as expected, the impact of ASC 606 was immaterial. It was a modest headwind to subs and trans revenue of just under $1 million, and this was offset by cost deferrals and more timely recognition of license revenue so it netted a roughly $1 million net P&L benefit to operations. Turning to cash flow and the balance sheet. Operating cash flow was $12 million, and after CapEx of $8.4 million, we reported free cash flow of $3.6 million for the quarter. This is consistent with our normal seasonality in which Q1 and Q2 have lower operating cash flows and Q3 and Q4 are higher. We ended the quarter with $86 million of cash and investments after using $40 million to pay down our credit facility, leaving us with total borrowings of $110 million. Moving from debt to equity, in Q1 we fully retired the warrants associated with our 2012 convertible bond offering. The remaining warrants converted into 932,000 shares of stock in Q1, and now those warrants are fully extinguished. Turning to guidance, I'm pleased to reiterate that we're well on track to deliver full-year guidance, including $300 million of subs and trans revenue and $100 million to $102 million of EBITDA. Our guidance for Q2 is as follows

[Operator:]

Thank you. And our first question comes from Andrew Schmidt from Citi. Please go ahead.

[Andrew Schmidt:]

Hey, Rob. Hey, Rick. Thank you for taking my question. Quick question on the Digital Banking segment, so the $16 million in Digital Banking subscription revenues, they are not live. I'm wondering if you could just talk a little bit about when you expect those to go live in the back half. And then thinking about the run rate of exiting FY 2019, what does that mean for Digital Banking subscription, subs and trans revenue growth as we exit the year?

[Richard Douglas Booth:]

Yeah. So I think it's a great question, Andrew. So we've got seven banks that are going live in fiscal 2019. They are weighted towards Q3 and Q4. As you know, the first half of this year is impacted by the attrition of the legacy Intuit customers. But overall we expect that as we exit 2019 and as we get into fiscal 2020, that by fiscal 2020, the Digital Banking business will be growing at the 15% to 20% that we expect from all of our subs and trans streams over the long term. So we feel really good. The reason that the $18 million went down to $16 million was in fact successfully bringing customers live, so really good progress in Digital Banking.

[Andrew Schmidt:]

Got it. Thanks. That's helpful. And then the bookings number in the quarter, robust coming off of very high levels in 2018. I guess should we think about just – and I know it's hard to forecast bookings, but should we think about bookings staying in the level that they are in the first quarter? And then any context on just the bookings number in the first quarter 2019 relative to the fourth quarter? Since you are coming off a pretty strong number, just curious to get a little bit of context on the quarter to quarter movement in terms of signings, contracts discussions, et cetera.

[Richard Douglas Booth:]

Absolutely, Andrew. Step one, I would never forecast bookings, because we don't manage to that metric on an every 90-day basis. There's no way that we're going to give up pricing power in order to close an individual deal the night of quarter-end versus the next period. So I always look at bookings over a more extended period. So even in this quarter, which was a solid quarter but not as high as Q4, those bookings were still 25% of subs and trans revenue. And over a trailing four-quarter basis, which is one useful metric, we've booked $84 million of subs and trans. So the bookings at today's levels certainly support our growth outlook, and our momentum is strong.

[Andrew Schmidt:]

Got it. Thank you for that. And then last question, on Paymode-X, seems like there was an opportunity to better integrate Paymode-X with Digital Banking products, corporate Digital Banking products. I guess could you talk a little bit about that and sort of how that's progressing? I know it's probably early days, but sort of your discussions with banks out there and the reception – it seems like the TD Bank relationship sort of illustrated this, but just curious to get your thoughts.

[Richard Douglas Booth:]

Yeah. I think big picture, the theme that I see coming together is banks are increasingly looking to take advantage of our full suite of capabilities. And some of the specific ways that we're working with banks on is, for example, exposing the APIs within our Digital Banking platform, such that a bank who wants to present Digital Banking 3.0 as their cash management platform can have the full functionality of Paymode-X right within that same portal. So it becomes one, single, beautiful face to the customer. And that does a couple of things. One, it helps scale our overall business. And two, it changes the competitive dynamics. When you're talking – when you're competing against someone who's a cash management vendor but doesn't have a powerful payment network or vice versa, you're really just changing the game. So it takes our relationships to the next level. Citizens is a good example of that.

[Robert A. Eberle:]

Yeah, they're – I'm going to just underscore that because there's so many examples of that. And the breadth of what we do ranges from financial messaging to cybersecurity and fraud to open banking, for example, where U.S. banks are asking quite a few questions. How would open banking look in the U.S.? What's that actually looking like on the ground in Europe? And we have the breadth of those solutions, which, as Rick pointed out, is different than anybody we compete with. So we're bringing more and more of those together at the technology level, and we're bringing more and more of those to the table as we're talking with customers in all geographies.

[Andrew Schmidt:]

Sure. Yeah, certainly a lot to talk about, and look forward to continuing the discussion next week when I see you guys.

[Richard Douglas Booth:]

Thanks a lot.

[Robert A. Eberle:]

Thank you.

[Operator:]

Thank you. And now to the line of John Davis from Raymond James. Please go ahead.

[John Davis:]

Hey. Good afternoon, guys. Rob, just wanted to maybe dive in a little bit deeper on the B2B Connect partnership with Visa. Understanding what you guys bring to the table, maybe you can help us understand, is there anything strategically that Visa brings, or is this purely an economic relationship? And maybe is there any more color you can give on the details and what exactly you're bringing to Visa with this partnership?

[Robert A. Eberle:]

Well, first off, the easy part of that is Visa brings a lot. Visa brings a lot. Visa brings – and a lot more than the obvious brand. I mean, there is an organization with global payment capability and global payment brand. That's close in (26

[John Davis:]

Okay. That's helpful. And then maybe a follow-up on Andrew's question, Rick, on the banking solutions subs and trans growth, understanding next year is kind of a 15% to 20%, should we set expect to the gradual ramp this year to kind of get to the run rate that you spoke of?

[Richard Douglas Booth:]

Yes. It'll be back-end weighted, as you can see, from Q1 actuals and Q2 guidance. So if those deals go live in Q3 and Q4, you'll see that start to tick up.

[John Davis:]

Okay. And then maybe, Rob, for you. On M&A, obviously, you guys have a lot of firepower here. There was a transaction that's pacing out today. B2B is hot. So as I look at your M&A strategy, how should I think about where the focus is? Is it distribution? Is it product gaps? Is there anything specific that you guys have thought about or you need, or is it purely opportunistic? Just any color there would be helpful.

[Robert A. Eberle:]

Yeah. So need and gap is stronger. I don't see a gap or a need, but we're always looking at where are the places we can extend our capability. Where can we extend our competitive differentiation? What about their new capabilities that would integrate well with things we are doing today? So we have a pretty high bar in terms of technology, customer culture, financial, but we're always looking from an M&A perspective on where can we bring more to customers as where can we again kind of similar theme, what can we add to all the breadth of capabilities we're bringing to our customers? And if there's new things we can bring, we're always looking at M&A from that perspective.

[John Davis:]

Okay. And then from a distribution standpoint, is there anything out there you think may be able to broaden your distribution and bring you more vendors or anything there?

[Robert A. Eberle:]

We would look at all those. We'd look at technology. We'd look at customer set. We'd look at distribution, geographic presence. All those can be rationales for us, but I don't see hole or a gap today. It's more opportunistic. Where do we see an opportunity to be even stronger or extend even further?

[John Davis:]

Okay. All right. Thanks, guys.

[Operator:]

Thank you. And now to the line of Brett Huff from Stephens. Please go ahead.

[Brett Huff:]

Good evening, Rob and Rick. Thanks for taking question and congrats on nice quarter.

[Richard Douglas Booth:]

Thanks, Brett.

[Brett Huff:]

A bigger picture question on Paymode-X in business-to-business payments, I guess networks. Is there a – somebody just asked about M&A and maybe distribution via M&A, and I'm wondering if there is maybe a distribution interesting question via partnering with other B2B payment networks. It seems that we're maybe going to see some verticalization and maybe some specialization in pockets and maybe there are networks that serve certain verticals. Is there interoperability opportunity there to help drive the overall market acceptance? And it seems like there's economics enough that it could still be a very profitable and interesting business model, maybe with a little bit of extensibility through partnerships and what will be your take on that?

[Robert A. Eberle:]

There's could be but you'd to have – there are some technology issues, there's also business model issues. So is a network paying just card? Or how is a network approaching a network use fee? How is that distributed? Well, I'd say more partnership opportunities, and I'm not suggesting we do something or committing that we're doing anything, but probably more around the vendors that are automating on the AR side. So if there's things that – there's a vendor that has – I mean, if there's a technology provider that has capability around vendors and accounts receivable, we're doing on the accounts payable side, those two can come together pretty logically. That's true in Europe, that's true in the U.S. So I'd see more partnership opportunity around that than I would connecting multiple networks. I think what you're talking about on connecting multiple networks has an opportunity, but that's probably further out when it becomes more of a single revenue model or a more accepted revenue model and there's more technology issues and APIs and formats and the like are resolved. So we see a bigger opportunity around broadening capabilities for vendors and focusing more on the AR side than we would connecting with other networks.

[Operator:]

All right. Thank you. And now to the line of Bob Napoli from William Blair. Please go ahead.

[Robert Paul Napoli:]

Thank you. Good afternoon. Maybe just give it a try, if I could, I mean, this side of the deal that was in the market today, I think this company went for 14 times revenue, 14 times 2018 revenue. It would be helpful if we had your Paymode-X revenue. Is it possible you might, as that business continues to grow, think about giving out that specifically, or is it just too difficult to break it out specifically?

[Robert A. Eberle:]

No. I wouldn't see us breaking out a piece for a sale or changing what we're doing from a reporting standpoint. Everything we just talked about, these products are really engaged. They're really – it's part of Payments and Cash Management, competitive advantage now. It's linked in to our cybersecurity broad capabilities. And I think our attractiveness, more importantly to customers and to partners, if we diminish the capabilities we had would be less. I think what you're seeing is the strategic value of business payments as being expressed in that and other transactions, and we're only beginning to see that in Bottomline. You take the multiple that was applied there and you apply that to our 300 subs and trans, well, that would be a really attractive piece you could write. But that's kind of the range. I think you're seeing more of that that's occurring in the market, and you'll see more of that ahead for Bottomline, particularly as we continue to put up the numbers we put up today from a growth perspective.

[Robert Paul Napoli:]

Rob, are you – on the accounts payable side or the accounts receivable side, I think you suggested that you're more likely to partner. So, I mean, as opposed to build that business – and I mean, I guess I there are a few specialists like maybe a Billtrust out there that would make a good partner or there are specific accounts receivable side companies that we should expect to see. I mean, it seems like a natural partnership.

[Robert A. Eberle:]

Sure. Billtrust is a solid company. That could be one. There's a number that are out there. I wouldn't want to handicap or underscore anybody in particular today. At such time that we had a partnership, we'd announce it, but there is a number of companies that are effective then on the AR side.

[Robert Paul Napoli:]

Okay. And then, Rick, just on the guidance, just trying to – so in order to get to that $300 million for the year, which I mean you guys seem really confident, you need a pretty good ramp-up in the back half of the year. And is that coming from the banking, that revenue coming on board?

[Richard Douglas Booth:]

Yes. We get a significant lift in Q3 and Q4 from banking, and we feel very confident. We're only 90 days in, so I expected that we'd get some questions about guidance. And we'll continue to monitor that as we go through the year.

[Robert Paul Napoli:]

Thanks. And last question for Rob, just it does like – I think as John had mentioned, there's definitely a lot more tension in the B2B payment space. It really seems like the industry has cracked the code, if you would. And what is like the differentiation – how would you explain the differentiation for Bottomline versus an Avid or the WEX or FleetCor or Bill.coms of the world? Is it the combination with the Digital Banking piece primarily?

[Robert A. Eberle:]

I think there's a number of things. I think one is the breadth of capabilities we have as a firm that Rick and I have commented on, on a couple of questions have touched. So, yes, our capabilities and payments and cash management in addition to Paymode-X. Some of the comments I made in my opening remarks, it's the scale and experience. When you're engaging with one of the – a bank channel partner or other partners, there's so many different reviews they have, resiliency, cybersecurity, physical security, scale, what you do in an incident, all of those things. We've been through all of those reviews time and time again. We've been through those reviews with government agencies as well as customers. So I think there's scale and experience. There's domain knowledge and innovation. There's our product set. And then there's trust, which is driven both by trust of us as an organization and trust that things will be secure with the cyber, fraud, security capabilities we have. So all of those things come together to give us competitive advantage really in each of the markets we're engaged in.

[Richard Douglas Booth:]

And just to underscore that, I think often people look at large payment-oriented companies, who may be oriented mostly around cards. And there you go, they handle B2B payments. They do it via card. It would be easy for them to get into ACH. Well, it's not easy at all. The key thing is managing the information around the transaction and dealing with all of that metadata. Card companies are primarily moving money from point A to point B, doing very basic matching. None of that is – they don't have any of the capabilities that are inherent in Paymode-X, just to pick one simple example. So it's a lot further away than it looks like when you're reading press releases.

[Robert Paul Napoli:]

Great. Thanks, Rob. Thanks, Rick. Appreciate it.

[Robert A. Eberle:]

Well, thank you.

[Operator:]

Thank you. And now to the line of Larry Berlin from First Analysis. Please go ahead.

[Lawrence Berlin:]

Good evening, guys. Hope all is well with you today.

[Richard Douglas Booth:]

It is. Thanks.

[Lawrence Berlin:]

Good. Hey. Just to follow up on what Mr. Napoli asked, just curious, with all these announcements from WEX and Mastercard and Visa and other banks moving into the B2B space. Do you see those as helping you or as adding competition? Or how do you view them?

[Richard Douglas Booth:]

I think it's very helpful. When you think about what's driving this industry right now, it's about greenfield adoption. It is so underpenetrated with two-thirds of businesses making half or more of their payments in the form of paper check. Anything that accelerates onboarding is good for the industry. We saw that as Visa and Mastercard started to make more noise about it, and it continues to hold true.

[Robert A. Eberle:]

I think what's particularly helpful is the fact that we're partnering, and that we're partnering to allow a payer to continue to execute payments, the appropriate payments and payments that work for them and their vendors over card, while they end up accommodating full accommodation through our network of an integrative payables capability, which can include all the other payment types to really achieve that. So it would be a much more difficult market for us if, in fact, they weren't the partners that they are today, particularly Visa.

[Lawrence Berlin:]

Cool. And then on a slightly different track, the Financial Messaging especially in Europe, just curious how it was for the quarter? And what's driving growth on the European payment area and the English rules and so forth?

[Robert A. Eberle:]

Well, what's driving growth is a couple different things. One is our capabilities, and we've been able to bring together a center of excellence in London, as well as a center of excellence in Geneva. Also open banking and as another type and another payment change, and Bottomline has always done well when there's changes in payment standards because our customers have to say how do we navigate this? And we can add a new payment type or new payment requirement to our platform and our answer is, you use us. You use our platform. So we're doing very well in Financial Messaging, we're doing very well in Europe, and I think that's going to continue despite Brexit or other challenges that may look like they're appearing on the economy because underneath that, you've got the same kind of acceleration around business payments and probably a bigger factor in Europe, you've got payment change. You've got open banking, PSD2, and a lot of change that's coming into payments.

[Lawrence Berlin:]

Thank you, guys. Appreciate it.

[Operator:]

Thank you. And our final question today comes from line of Peter Heckmann from Davidson. Please go ahead.

[Peter J. Heckmann:]

Good afternoon. Thanks for taking my question. I follow up a little bit on Larry's question as regards kind of the fragmentation of payment networks and some of the talk about an alternative to SWIFT, potentially real-time payments eating into some SWIFT volumes. Can you talk about how, and I know that Bottomline works with multiple inter-messaging platforms, multiple payment networks? But can you talk about how you can benefit from that fragmentation and talk about how you maybe made some multiple bets in terms of working with multiple networks, and depending on who wins, you could still participate in that win?

[Robert A. Eberle:]

We benefit in a couple different ways. First off, we benefit as a thought leader. So organizations will come to us and say what do you see occurring in those markets? What you think is going to happen with real-time payments, for example, in the U.S.? How will that work? What will customers desire? So the breadth and experience we have allows us to provide thought leadership to customers and prospects alike. Then second, the change requires them to have technology to adopt that. So that can be new platform, that can be a reason for them to leave from other vendor to come to Bottomline, so it's really across the board. It's thought leadership and it's dialogue we can have and then ultimately, of course, it's sales and revenue.

[Richard Douglas Booth:]

We have a tremendous capability in acting as a universal aggregator feeding into multiple payment networks. That is the essence of our Financial Messaging business, which interoperates with 32 different payment networks. And conceptually it's very similar to what we do with Paymode-X. So our proven track record in that makes it a clear opportunity.

[Peter J. Heckmann:]

Great, great. And then a couple housekeeping issues for you, Rick. Could you give us an update on the timeline for the ERP conversion? And then just within this quarter, could you talk about or quantify the FX headwind, as well as any acquired revenue in the period?

[Richard Douglas Booth:]

Yes. So taking those in order, as you know, our ERP implementation was two major phases. The first was going live with ASC 605 and the second was going live with ASC 606. We've now reported our first quarter under ASC 606, so we'll see the effort that's being dedicated to the ERP begin to tail down in the upcoming quarter. So I think we'll see that, which is very consistent with what we've guided for fiscal 2019. Sorry, Pete, you what was your second question? You had three questions there.

[Peter J. Heckmann:]

Sure. Just FX headwind and then any acquired revenue in the period.

[Robert A. Eberle:]

Currency.

[Richard Douglas Booth:]

Oh, yeah. Currency was a small headwind. The average for last quarter was down, was about $0.01 higher year-over-year than this one. It was down $0.06 sequentially from Q4 to Q1, but nothing that we couldn't overcome.

[Peter J. Heckmann:]

Okay. And then the acquired revenue?

[Richard Douglas Booth:]

The acquisitions didn't contribute materially from a financial perspective. Small amount of revenue and slightly accretive, but less than $0.5 million.

[Peter J. Heckmann:]

Okay. Thank you.

[Operator:]

Thank you. I would now like to turn the conference back over to our hosts for any closing remarks.

[Robert A. Eberle:]

Thank you, everyone, for your interest in Bottomline, and thank you for attending the call. We're delighted to have reported a strong quarter and a strong start to the fiscal year, and we look forward to reporting similar strong results in Q2. So, thank you.

[Operator:]

Thank you. And, ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.