Bottomline Technologies, Inc.
Q2 2019 Earnings Call Transcript

Published: 1 Feb 2019

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the Bottomline Technologies Second 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.

[Rob Eberle:]

Good afternoon. Thanks for your interest in Bottomline Technologies and welcome to the second quarter fiscal '19 earnings call. 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. As always, both Rick and I will be available for any questions following his remarks. We are once again reporting solid operating results and finances, evidencing the merit of our strategic plan and our execution against that plans. Beyond the financial results in a quarter, I'm even more excited about the future and the steps we took in Q2 to drive continued growth. The future prospects for the business, our market opportunity products that in business model are all align for strong performance for years to come. I'll focus my remarks on our products set and market position, but first let me briefly touched on the financial highlights of the second quarter. For consistency, I report dollar amount since repeated and year-over-year percentages on an FX neutral and consistent accounting basis. Subscription and transaction revenues grew 14% in Q2. Subscription and transaction revenue for the products other than banking solutions grew 17%. We expect banking solutions growth to be in our target 15% to 20% range within fiscal '20. That's based on explored backlog we're currently implementing. Subscription and transaction revenue was $71.3 million the run rate of $285 million. Subscription and transaction bookings were $22.5 million. Bookings in Q2 were up 5 million from last quarter, having seen no market opportunity, strong customer demand and sales execution. Revenue overall was $104.8 million, EBITDA was $25.6 million up $3.1 million from the prior year. We're continuing to produce attractive profitability while prioritizing key product growth initiatives. EPS was $0.35 consistent with our target and expectations and we ended the quarter with $96 million in cash. The financial results were reporting demonstrate the alignment of market opportunity, a strategic plan, our product set and our execution. During the quarter, we continue the advancement of our product set. Our goal was simple, we have the leading technology solution, the solution best equipped to drive business results for our customers. We believe that as the best of my strategy for customers and a big part of why they sign on with Bottomline and it's certainly the best strategy for the Company, both short and long-term. Product leadership drives new wins. Today's enterprises are sophisticated consumers of technology, they know what is possible. They see it from leading enterprise solution providers and you see it every day in your consumer lives. The advancements we're making our products set are increasing our competitive advantage, help drive our strong bookings in Q2 and we'll produce continued strong bookings in the future. There's a playbook we successfully deployed across all our major product platforms. Key elements of that playbook, our product leadership driving wins, new capabilities and products driving additional add-on sales, revenues growing year-after-year as our customers grow and market expansion to new capabilities and new geographies. We saw that playbook at work across wins and Paymode-X, banking solutions and legal spend management in Q2. I'll provide some more color on that starting with legal spin management. We've seen consistent strong growth in legal spend management and that was certainly the case again in the second quarter. Revenue growth is driven by the addition of new customers, the sale of add-on products to existing customers, the growth of our customers business and even increases in legal fees and costs. We also believe we're seeing increased volume resulting from major disaster claimable events. This past quarter, we signed 7 new legal spend customers based on our product leadership and we added new add-on products for 6 of our existing customers. From a technology perspective, we've been developing analytics and machine learning technologies for some time now. We've utilized them in our Paymode-X vendor enrollment and in our prod protection solutions as two examples. We will now leverage technology to further automate the legal spend build review process, developing new product capabilities and innovations and then deploying it across our full products set, accelerates our innovation and it does so in a cost effective manner. One of our add-on products is PartnerSelect, which is the most effective way for insurers to choose a lawyer, assigned work and managed the workflow, the engagement through to completion. The law firms that provides automation and a marketing tool to allow the firm to showcase this particular strengths and expertise. And for insurers, they provide analytics to choose the best firm for the matter concerned. We're also extending our international reach with legal spend management. We've several legal spend customers in Canada and we recently began selling into the UK. We're leveraging our global presence and existing local UK data center, which is the benefit of is showing complete GDPR compliance. We expect to be live in Q4 with the first customer revenues coming in FY20. The UK market is relatively untapped and provides a very attractive additional source for future legal spend growth. The same growth playbook played out for us with a key new customer sign on for digital banking during Q2. Such as always the case we compete and win based on product leadership. Frost Bank is a 31 billion leading Texas bank, serving customers from small start-ups to large corporates primarily in the Houston, Dallas, FortWorth and San Antonio markets. Frost stated business objective is to double the size of their corporate base over the next 5 years. They evaluated a mix of alternatives, but ultimately determine Bottomline provided the full functionality and extensible and configurable user experience. They required to attract and retain corporate customers and to achieve their double the size of the business objective. In addition, the overall breath the Bottomline solution capabilities with unmatched as they signed up for DB 3.0 secured payments which is our integrated cyber fraud risk management solution and our bank-to-bank payments automation. This was a thorough and competitive process with both a core provider in current treasury provider involved. We want, because we brought the platform best aligned with their business objectives, because we're the proven leader in business banking, because of our continued commitment to technology innovation. Finally, we saw another strong Paymode-X bookings quarter with 29 new customer sign on in the second quarter. We're particularly pleased to see wins across 6 different sales channels including Bank of America, Citizens, the third, Bank of New York Mellon and TD Bank The sales success we're seeing across multiple channels. Evidence is the market expansion strategy at work. The value proposition is resonating with prospective customers and our sales results and shared the continued strong growth the Paymode-X. So in summary, we're extremely well positioned for continuous subscription and transaction growth. We're targeting large markets or even established leadership position and the actions were taken will extend that way. Most of all customers are responding. We have the opportunity to drive continued sustained 15% to 20% subs and trans growth and we're fully focused on executing to achieve that objective. As I look across the business, I see every capability to do so. We're well positioned to drive continued growth and success in a huge market and doing so create long-term shareholder value. So with that, I'll turn it over to Rick. And then again, both of us will be available for questions following his remarks.

[Rick Booth:]

Thank you, Rob. I'm pleased to report on another solid quarter. We delivered total revenue of $104.8 million, and EBITDA of $25.6 million, both of which exceeded our guides. Operating income to $20 million and $0.35 core earnings per share were at the top end of our range. And subs and trans revenue of $71.3 million with equal to $285 million on a run rate basis. I'll focus my remarks today on three areas. First, I'll briefly review our executive strategic position and business model. Then, I'll review our Q2 financial results in detail. And finally, I'll update guidance for the remainder of the year. Our financial results rest on the firm foundation of our attractive strategic position and business model. We addressed a large and growing market for business payments. Our product platforms are clearly differentiated in the market. Our sales teams have strong momentum. We're trusted innovation partner to our customers with long-term valuable customer relationships, and our track your business model allows us to simultaneously delivered current financial results and making investments we need to drive growth and value for the long-term. To review or quarterly financial results in detail, I'll speak briefly to each line in our P&L, and in addition, we posted supplemental materials for our website for your reference. Begin 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 the use of our products. We reported growth in overall subs and trans revenue is 13%, which is equivalent to 14% after normalized for its currency and accounting. This growth was led by products fully converted the subscription which grew 15% in U.S. dollars for 17% on a normalized basis. With this growth our $71.3 million of subs and trans revenue was equivalent to $285 million on an annualized basis. And it's been 68% of our revenue came from the subs and trans offerings up to full percentage points from a year ago. Maintenance revenue is another valuable and highly profitable component of our revenue mix, and the combination of maintenance and subs and trans revenue provides us with 85%, recurring revenue and excellent visibility to upcoming results. License revenue by design is only a small part of our overall business. In Q2, we reported license revenue, $5.7 million and service revenue which reflect the professional services we offer to ensure our customers succeed with 9.8 million in the quarter. For total revenue of 104.8 million was up 11% on a constant currency basis. Of course, the driver behind our revenue growth is bookings and we had been sales performance in the quarter. We signed 22.5 million of new subs and trans bookings, but by Paymode-X and Global Business Solutions. This brings us to 85 million in new subs in trans bookings for the last four quarters. As customers continue to choose Bottomline as their trusted innovation partner to automate business payments. Well bookings, figures or estimates and customer take time to implement and ramp to full revenue production. This provides us with visibility to keep for subs and trans growth in fiscal '19 and beyond. Looking a new customer signings, our Paymode-X network added 29 new payers across multiple channel partners, which further validates the attractiveness of our full payment automation value proposition, as well as the effectiveness of our channel partners. We signed 2 new customers to our digital banking products, including the competitive platform deal that Rob described earlier. With those signings and after grow lives in the quarter, we have approximately 16 million of annual subscriptions which are not yet been recognized in our P&L. Our digital banking implementations continue to go well and we brought one major customer live in the quarter, which keeps us come on track to bring approximately two-thirds of this revenue backlog live later in fiscal '19. We singed 7 new insurers for our illegal spend management network and expanded our relationships with 6 others, further validating the breadth and depth of our value proposition and the leading technology capabilities as Rob mentioned. Continuing down the P&L, we delivered on our financial commitments flow investing significantly to advance our solutions and drive long-term growth. Adjusted EBITDA of 25.6 million is up 3.1 million or 14% year-over-year. EBITDA margin was 24% consistent with our plan and we also do a core operating income of 20 million and core earnings per share of $0.35. So in total, these results evidence the attractiveness of our business model, which allows us to meet our financial commitments while also investing progress. For overall gross margin is 61.69 million or 59% of revenue is up one percentage point year-over-year, sales and marketing spends for the quarter was 18.5 million and development expense was 15.3 million in the quarter and increase of 2.8 million or 22% year-over-year as we ramp the plan investments in our products. Turning to cash flow and the balance sheet. Operating cash flow is very strong at 19.2 million for the quarter. Free cash flow of 12.6 million for the quarter was also very strong and this allowed us to end the quarter with 96 million in cash and investments on hand. We deployed some of that cash just after quarter end to purchase a new UK headquarters for £16 million or $20.7 million. This will replace our current lease and own facilities. Financially, we evaluated a range of alternatives and completed that purchasing the facility with the best structure for us as it gives us control optimizes our local tax situation and limits the incremental P&L costs to less than 300,000 per quarter beginning when we take occupancy in mid fiscal '20. As I turned to guidance, let me say a few words about the British pound. When we announced our detailed fiscal '19 guidance in May, the pound was at $1.36. By the end of our second quarter at December 31, the pounds have declined to $1.27. Although, there is no impact to our underlying operating results, the impact of that decline on are reported revenue was $1.5 million in the quarter and will be a further $3.8 million to second half of the year, of which approximately two thirds it's subs and trans revenue. Flowing us through our guidance calculations, means that for the full year fiscal '19, we expect to report $295 million to $298 million of subs and trans revenue $415 million to $420 million of total revenue, $98 million to $100 million of adjusted EBITDA. $76 million to $78 million core operating income, and core earnings per share of between $1.27 and $1.32. Our guidance for the upcoming Q3 is as follows. $74 million to $76 million of subs and trans revenue. $103million to $105 million of total revenue, $21 million to $23 million adjusted EBITDA, $16 million to $17 million core operating income and $0.27 to $0.29 core earnings per share. So in conclusion, I'm pleased to report a solid quarter, including $104.8 million in total revenue, $25.6 million in EBITDA and 14% overall normalized subs in trans growth led by 17% normalized growth from our product already in subs and trans model. Currency does and will fluctuate, but we have a great opportunity in future in front of us by continuing to focus on the things that we can control. We're well positioned in the large and growing market. Our current financial performance is strong and as planned we're making the investments we need in order to create value for customers and shareholders for years to come. And with that, we can open with all the questions.

[Operator:]

Thank you. [Operator Instructions] And our first question will come from the line of Andrew Schmidt with Citi. Please go ahead.

[Andrew Schmidt:]

Thank you for taking my question.

[Rob Eberle:]

Andrew, let me make one comment before we do that. I misspoke earlier, the Q3 EBITDA guidance as reflected in our supplemental materials is $22 million to $24 million, not $21 million to $23 million, as I said earlier.

[Andrew Schmidt:]

Got it. Okay. Thank you. No worries. So, obviously, the revenue -- the revenue outlook for subs and trans came down. I guess, can you just walk us through whether that's all FX? Is there something else in there maybe some incremental intuit attrition or any other factors to consider when we model the outlook here for the rest of the year?

[Rob Eberle:]

I appreciate the question on the guidance. It's literally just currency. There's no effect on underlying operations. And although, we can't control currency, we have a great opportunity, focusing on the things that we can control.

[Andrew Schmidt:]

If you think about the guide from in the third quarter, if we take out I guess the FX impact, it seems like, we should start seeing and celebrations subs and trans growth just from the unrealized digital banking revenues coming online. I guess when you strip out the FX noise, should we expect to see the acceleration in the back half just on a currency neutral basis in subs and trans?

[Rob Eberle:]

It begins to accelerate in the back half and it really kicks-in in fiscal '20. So we're confident that we'll be seeing growth in the 15% to 20% range from digital banking within fiscal '20. Not necessarily in Q1, but you'll begin to see the trend and we'll get there in fiscal '20.

[Andrew Schmidt:]

And then the Bottomline outlook, it is my understanding that you are mostly hedged down the expenses, but it seems like there's about maybe a 40% flow through into the margin of the Bottomline. Is just something incremental investments being heard or I guess what's the best way I think FX to the Bottomline?

[Rob Eberle:]

No. it's -- we often to say, we have about a 70% to 80% effective natural hedge built in there. So back to the outlook, I think it works out to about 30% impact.

[Andrew Schmidt:]

And then I guess last question, more strategically. Pretty good progress with Paymode-X in the quarter and certainly seem to show up in that positive bookings number. We see MasterCard come out and do things around MasterCard track, obviously, they have met the MasterCard B2B hub visa is doing plenty of partnerships. Not just doing some other things from a business directory perspective. But did these recent developments change sort of your strategic imperative, there is require additional investment or I guess more people going after the opportunities is obviously very fragmented by the whitespace. How does this affect the strategy here when you go after business payments?

[Rick Booth:]

No, I think actually it underscores that we're targeting large opportunity and we're right on track for that. Business directory, we're close to 400,000 vendors in our Paymode-X. That's what others are trying to achieve with a business directory and accelerating that vendor enrollment process where. We have our intelligent engagement model leveraging predictive analytics and other capabilities to do just that. A central directory could be an interesting thing. We could be part of that. There are a variety of different people proposing those and they're always, you have them for quite some time. In terms of MasterCard and Visa we have partnerships with both. We do more today than we do with Visa -- I am sorry, we do more with Visa than we do with MasterCard and it's an attractive partnership for us in a vehicle where there capabilities they have, that we don't, and things that we can bring on that they certainly don't have around business payments. So, we're actively partnering with local organizations.

[Rob Eberle:]

The other thing I'd share about business directories. People talk a lot about business directories, but a business directory without value added functionality for both the payer and the recipient and a business model that makes it work for both sides is at no value. So a lot of these ideas, I think, our more ideas and concepts but not linked to a proven that application and business model.

[Operator:]

Our next question comes from the line of John Davis with Raymond James. Please go ahead.

[John Davis:]

Rick, just a clarification question on the guidance. The Bottomline EPS guidance looks came down roughly $0.13, but EBITDA $2 million. Can just help us square what is below the line they're causing the difference?

[Rob Eberle:]

No, there's nothing unusual going on there. I think it's the impact of other line items below EBITDA.

[John Davis:]

EBITDA is coming down $2 million, if I were just to do back of the envelope it's only like $0.04, so we take that offline. I'll just -- and then, I want to be very clear on the subs and trans guidance for this year. It seems like I hear it's all effects, but it does sound like the digital banking getting to 15% to 20%, has gone from second half this year and now in to next year. I just want to make sure that's the case and is any of that FX related just trying to figure out, if there's anything else besides effects going on subs and trans?

[Rob Eberle:]

No, there's no FX impact in digital banking and digital banking was not intended for 15% to 20% in the back half of this year. That the member in our guidance.

[John Davis:]

And then, good to see bookings kind of bounce back here. Can you just talk about expectations for the full year? Or how you frame it nothing, but now looking for a number, but you guys target a certain percentage of subs and trans? Or just help us think about how you judge yourself on bookings kind of normalizing for the lumpiness?

[Rob Eberle:]

Yes, we're delighted with the bookings number 22.5, you're right bounce back. I think we'll see some level of bounce generally. Now that's not suggesting would be down in Q3 or Q4, but we don't manage to that number. What I mean by that is we're not going to measure ourselves by trying to bring in deals, lower pricing change on terms in order to have a stronger booking somewhere. We commented on that first quarter, had we had two quarters at $20 million instead of 17 and then 22.5, there probably would have been a smoother run, but we just don't manage that number. Second thing I'd say is we feel really good about the bookings going forward. It's all about product leadership and what we're doing in product areas capabilities for bringing out in each of our key areas and some of the things we're doing on a centralized basis and then deploying to those gives us just a strong position with customers. We have analysts supporting our leading position in some of our key product sets. And we of course always have and continued to have strong reference customers. So, we will continue to see strong bookings would be my expectation. And then what we look for us we have enough bookings that supporting that the subs and trans growth levels and we certainly do. On the first half of the year and obviously looking at quarter of itself we do as well.

[John Davis:]

And then just wanted to touch on the UK, you guys have a decent size business in the UK, generated some amount of revenue there. Any impact I think you'll be more resistant to any type of near-term change in macro? Have you seen the deterioration your business any changes in customer behavior just the obligatory Brexit question?

[Rob Eberle:]

Yes, no, the Brexit is obligatory because it's on page one. With someplace doesn't even make the main news, but some place tucked in the payments world, it's the hottest place on the planet. And the reason it's hot is what's going on and open banking. Now how do we evolve, we don't know exactly but it is a very attractive market because it's changed. Whenever this change, that's good for us. It means there's new capabilities we can bring out and existing customers have to adapt to that change, so the open banking is really exciting opportunity for us. So rather than the Brexit headlines, which we've not seen a lot or actually, frankly, any real impact from other than the headlines, of course. What is exciting and happening at the ground level and payments is, open banking and how does that change, the whole payment landscape? And we're right in the middle of that. I don't think anybody has that figured out. So if the next question is, what does that long-term means and how will that work? I don't know. But we're right in the middle of that from a business payment leadership position and it couldn't be more exciting to have that level of change and one of our largest markets.

[John Davis:]

Rick, the software licenses was a little bit better this quarter. Is that just ASC 606 moving from revenue around or it just looks like it's popped up 2 quarters in a row? And I don't know, if there's any specific color on the license revenue side?

[Rick Booth:]

Yes, there's a little bit of ASC 606 effect and then we also -- we hit a revenue event on a contract dating back to May 2017 for one of our banking clients. So, an old on-premise contracts hit license of that.

[John Davis:]

And last one for me, any timeline when Visa -- have you guys started to see any incremental revenue from your partnership with Visa? Understands, it's probably not material today but the partnership was announced relatively recently on a quarter or so ago? How is that tracking timelines or time when you think it could be material or at least any color there would be helpful?

[Rob Eberle:]

Well, if you don't define it in what's today's revenue, I believe, I tell you, it's a certainly a material relationship for us today. And the introductions we're getting the opportunities. So I was invited to attend and present on a panel of 2 of us in a form with some of the largest customers. That's so valuable for us that endorsement. So, revenue today, no, we're not driving revenue tonight that's not wouldn't really actually be our measure of what certain, we hope will be a longer term significant strategic partnership. And of course over the long haul is one we would hope and expect drive revenue, but certainly not are measured today.

[Operator:]

Next, we'll go to the line of George Sutton with Craig-Hallum. Please go ahead.

[George Sutton:]

Rob, you mentioned in your prepared comments that you were in the process of prioritizing some of your key growth initiatives. I'm just curious what things are you prioritizing relative to prior? And what things are you de-emphasizing?

[Rob Eberle:]

The areas that are key for us really on the product side. So what we're doing around new technologies in our key products of Digital Banking platforms for example, and what we're doing in product there, we're doing around legal spend actually touched on some of that geographic expansion and bringing in machine learning and parts of the bill review. And then in Paymode-X, we've done a lot around vendor enrollment and we always are doing a lot around securities. So those would be some of the biggest priorities from a product standpoint.

[George Sutton:]

A question for Rick on the FX assumptions you're making. It looks -- if I'm looking correctly, the pounds actually improved from your perspective since the end of the year. So what are you using in your assumptions from a currency perspective?

[Rick Booth:]

Yes, we got a little bit of conservatism in the value of the pound that we're using, George.

[George Sutton:]

So you're not using the current rate, you're using a different rate, is that?

[Rick Booth:]

Yes, it's been up and down. It has trended positively a little bit but we're not yet certain that we expect that to continue.

[Operator:]

Thank you. And next we'll go to the line of Mayank Tandon with Needham & Company. Please go ahead.

[Mayank Tandon:]

Rob, maybe just high-level. There's obviously been some concerns about economic slowdown, particularly in Europe and given you have exposure to the UK and some parts of Europe. Maybe you could just comment on what you're seeing in terms of the pipelines? Conversion rates? Size and scope of deals within your bank customers broadly?

[Rob Eberle:]

Yes -- no. I sort of referenced that earlier but we're seeing -- we saw a strong quarter in Europe and we're continuing to see that. I think what's happening is, you got a changing payment environment. So that -- at our level, the broader economic headlines of what could or may -- may or may not occur on a Brexit scale is not at an any impact on the business for us today. What is the opposite of what we're seeing is, open banking and what does that mean? How does our platform -- how do our platforms impact that? And then the other piece we've seen, our Cyber Fraud and Risk Management solutions done particularly well in Europe as well. So we're not being impacted. I -- 2008 our business grew which was our largest customers were at that time, Bank of America, Citi and AIG actually was one of our largest customers. Our business still grew. Payments businesses have to make payments. They're going to make payments whether the economy slows or whether the economy is moving. Our growth comes as their businesses grow, our growth comes as volume transactions and of course selling new solutions and selling to customers. But we've got a real confidence. We've got the right product set in Europe and we have not to-date seen any impact from any of the Brexit possibilities or Brexit discussions.

[Mayank Tandon:]

That's helpful. And then if you could just talk about our competition, particularly on the B2B payment side. It seemed to be several start-ups out there and also some scaled players that are obviously going to tackle this large opportunity. Just from your standpoint, are they nipping at your heels or do you to feel like you're still ahead of the competition as they try to close the gap between you and them?

[Rob Eberle:]

No. We don't see -- what we see is -- there's more competition on a very small or micro business level where handling everything for them from an invoice purchase order all the way through to a payment. Those businesses that typically doing that on a virtual card to card basis, you don't -- we don't see an integrated payables offering ACH, ACH plus, card, check or full automation and full monetization with a network like we have. So now I wouldn't see -- I don't think we've seen anybody nipping at our heels in that direction. If the objective is very, very small business, that's less where we play today but otherwise -- so that's just a matter of what our strategic market and what our target market is, then it is competition.

[Mayank Tandon:]

And finally for Rick. Rick, any updated thoughts on the capital allocation side in terms of use of cash on the M&A side versus maybe potential buybacks if the stock were to pull back from these levels?

[Rick Booth:]

We feel good about our organic growth opportunities in front of us. We always stay in the market. But from a capital allocation perspective, the big expense was the building in the UK that I mentioned, and we are glad to be able to fund that with cash on hand, optimize our local tax situation, we still maintain the strong balance sheet.

[Operator:]

Thank you. And next we'll go to the line of Brett Huff with Stephens. Please go ahead.

[Brett Huff:]

Good evening, Rob and Rick. Thanks for taking the questions. Just a quick review and I want to make sure I got the bookings right. Rick, can you just remind us so the bookings this quarter or in 2Q were $22.5 million and what was the year-over-year comp on that?

[Rick Booth:]

The year-over-year comp was $21.746 million. So $21.7 million.

[Brett Huff:]

And then what was that last quarter? I know that some folks were...

[Rick Booth:]

17 -- $17.4 million last quarter.

[Brett Huff:]

And the comp on that was -- it was higher the year-over-year?

[Rick Booth:]

Yes, in Q1 of 2018 it was $22.4 million.

[Brett Huff:]

Okay. And Rob, I know you noted that it's hard you can't really manage the business to that. But you also shared a thought that bookings would be strong, we should just always be ready for bookings that are little lumpy. There's really no way getting around it. Is that the right message to takeaway?

[Rob Eberle:]

I think that's right. It's both the combination of its lumpy and the management piece of that. We could easily make this symmetric and have forecast the meetings and say we have to be at this number and pull in transactions. Sophisticated customers or purchasing organizations that know that we're a public company, know there is quarters. We just don't -- we don't want to exceed that leverage to them. I think I probably did this at one of the investor conferences or so. But we had an instant last quarter where there was provisions around cybersecurity it would sensibly have made us be an insurance policy and we said, no we're not signing that, we're not going to do that, that's not what we do. These were our provisions. Quarter -- the deal pushed out of the quarter and signed in early in October. That's fine. I'd rather have that happen and have us conceding contractual provisions that don't make sense for us.

[Brett Huff:]

That's make sense. And then the question about the long-term guide, you guys provided really helpful the, 100, 300 long-term guide several years ago and I think Rob, you said in the past that it was -- many thought it was a reach goal when you gave it and you guys have come up to it pretty nicely. We had some folks ask, is -- do you all think that you'll provide a similar medium-term goal once we sort of achieve this over the next couple of quarters? Or how should we think about as we're on the sell side around try to make sure we understand what the kind of the medium-term business model is and that's a helpful metric. But not sure if you guys are thinking about giving us a new one or how should we think about that?

[Rob Eberle:]

I think we -- we'd look at that as that makes sense. I certainly wouldn't say today that Bottomline is going to be giving 2-year out stretch goals regularly. I think that made sense for us to do. I think by the way when we gave that, I know some feedback we had, some degree on calls, but certainly one on one was that it seemed like a stretch, seemed like unrealistic, seemed like when and of course, it's -- we are very much on target to that range right today. So no commitment now that we would be giving out longer-term targets. I think we'll look at the business and look at what's happening in the capital markets and what our investors is going to be in the best interest of investors. We all know giving out something that isn't going to come together, we don't have confidence over two, three or five year or any longer-term, doesn't make sense. So we're always balancing that.

[Brett Huff:]

Okay. And then last question for me is, how do we measure sort of the side of your two-sided network which is, that's the vendors or the payees I guess that people are getting paid. Is that -- should we perceive that to be a little bit of a land grab that you want to get the most that you can, quickest and that will help drive value meaning, you get more spend on your platform quicker when you install a new payer? Or are you to a point were that's you could do more but it's not necessarily going to be that much more of a competitive advantage. I'm just trying to get a sense of the capital intensity of...

[Rob Eberle:]

Yes. It's certainly not a land grab of how many payers but payer number we achieved. I mean, I referenced there is a lot more noise and a lot more competitors that are providing some level of automation or got an inch deep mile wide level of automation with the card. They can sign up 50 or 100 customers in a quarter. That doesn't mean anything to us. We're signing a meaningful organizations that are driving -- each of which is driving meaningful revenue. So our 29 is a great number for us. If somebody else had 50, that wouldn't mean a thing to me.

[Operator:]

Thank you. Next, we'll go to the line of Bob Napoli with William Blair. Please go ahead. Q - Bob Napolit Thank you and good afternoon. Rob, on the B2B payments business on Paymode, I mean that there's a lot of innovation, a lot of investments going into that space as people brought up here on the call. Five years from now, where -- what does -- where does Paymode, where does Bottomline need to be? I mean, it's -- I don't think it's probably just an accounts payable. It's got to be accounts payable, receivable, it's the business spend management. Where does this business need to go to stay ahead of the competition and the innovation and do you need to make some acquisitions in order to get there?

[Rob Eberle:]

Well I don't think the answer is broader. We've had different product sets for broader. We see competitors that are broader. When you're operating at the smallest business level, if you're operating at the micro business level then, yes, you're going to offer purchase to pay and a full solutions across with limited functionality. We're not going to move for example, to purchasing, we would see our customers were having a reimburse, somebody like that on purchasing. So that's not a place that we would find our customers telling us to add more capability or -- add capability or we would need to do an acquisition. We really specialize and the strongest on the payment automation, monetizing that, doing that securely and seamlessly for our customers. What's the misconception is the idea that our receivables side is something Bottomline doesn't plan or do anything, we provide a lot of value to our vendors in fact, you won't have a network, if you're only providing capabilities and technology for payers. So a lot of Paymode-X capabilities are vendor-facing, gives the vendors a lot of visibility to payment, integration in the systems, workflow all of those kinds of capabilities. There isn't an acquisition or GAAP that I see that we would need to do or would do around Paymode-X. I wouldn't say never on anything, you can always add scale and things. But there isn't a gap in product where we have to go out and buy again a purchasing platform a receivables capability. I think what you will see is, as you look five years, I think every company pays and gets paid to a network like Paymode-X and I think will be one of those networks that's a leader. I think you get to some level of interoperability at that point in time, five years out. So you could have a series of networks that have interoperability but I don't think a business is executing theirs own payments today. I think -- I don't mean to make this answer too long, but I think, like if you ask an organization, what are you doing for CRM today, they're using this system of some type that is in Salesforce, HubSpot whatever it would be five years from now can I ask a business where we used to pay and get paid. If they're larger, their answer will be Paymode-X or somebody like us and if they're smaller, they might be using an Avid or a MineralTree or someone else. Q - Bob Napolit And just -- I mean just if you could remind me -- your ag target size of business that Paymode is signing up in a revenue basis, would you call it -- is it -- could you give me range of...

[Rob Eberle:]

We actually have customers of all different -- smaller levels. But I guess smaller for us we'd say $10 million. We're not off signing up $300,000 business or a small business or a $5 million or $1 million business. So you could say sort of a $10 million and above with the sweet spot being larger than that real mid market organizations are best for Bottomline. Q - Bob Napolit Thank you very much. Appreciate it.

[Operator:]

Thank you. [Operator Instructions] And we'll go to the line of Peter Heckmann with Davidson. Please go ahead.

[Peter Heckmann:]

Good afternoon, gentlemen. Thank for taking my questions. I have two. I'll go ahead and give those questions and then wait for the answer. But just trying to understand the guidance that -- the subscriptions and transactions revenue guidance seems to imply on a constant currency basis something like 13% to 15% organic revenue growth for subs and trans in the back half. But when I look at total revenue, the rest of the business needs to be down on 13%, 14%, 15% in the back half to get to your numbers. So number one is, is there something that I may have missed in terms of retention or maintenance is falling off more significantly, certainly it looks more significant than just FX. And then the second question, we'd get back to that issue of FX that the 1% decline in the midpoint of your guidance on revenue makes sense based upon 23% of revenue in the UK. But then again -- your 75% or 80% hedged, how do you get to a 5% decrease in EBIT and then a 9% decrease in EPS? just doesn't -- if you're hedged it, the decline should be somewhat closer to this decline of revenue.

[Rick Booth:]

Yes. So let me address that. So we had about $323 million of revenue left to go in the year, a quarter that in the UK kind of declined by about 7%. That get to you about $5.5 million of revenue impact, very similar to what we guided. We assume 30% exposure, you -- you're at $2 million EBITDA exposure.

[Peter Heckmann:]

Okay. But again how does $2 million of EBITDA exposure turn into $4 million on the EBIT line and then a 9% decline on EPS? Is there something going on with the tax provision?

[Rick Booth:]

The reported tax rate can fluctuate. I think that most important thing about taxes to remember is, in this quarter, for example, we paid $200,000 of cash taxes. For the full-year, we expect to be around $1.6 million of cash taxes. So when you're dealing with core EPS which is affected by the hypothetical higher tax rate, you've got other puts and takes. And I've got someone checking on like the -- on the other items.

[Peter Heckmann:]

Okay. And then just could you give us services in the year-ago period? I think you said this quarter it was 9 -- $9.8 million?

[Rick Booth:]

Yes. It was down slightly. I don't have the exact number in front of me.

[Peter Heckmann:]

Thank you.

[Operator:]

Thank you. And we have no additional questions in queue.

[Rob Eberle:]

Well, thank you, everyone. Thank you for your time, thank you for your attention and thank you for your interest in Bottomline Technology. We should look forward to reporting on Q3 in three months from now. Talk to you soon.

[Operator:]

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