Bottomline Technologies, Inc.
Q3 2015 Earnings Call Transcript

Published: 3 May 2015

[Operator:]

Ladies and gentlemen, thank you for standing by and welcome to the Bottomline Technologies’ Third Quarter 2015 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 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 Resources section of Bottomline's website, at 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 call over to your host, Mr. Rob Eberle. Please go ahead.

[Robert A. Eberle:]

Thank you. Good afternoon, everyone. Thank you for your interest in Bottomline Technologies, and welcome to the third quarter fiscal 2015 earnings call. This is an exciting day for Bottomline, as for the report on what was a strong third quarter and we welcome Rick Booth as our new CFO. Rick has an outstanding record of accomplishment and the experience to lead Bottomline to the next level of profitable growth and enterprise value. I’m delighted to welcome him to our senior team. It’s also a day we say thanks to Kevin Donovan, who is leaving us to lead his family business. Kevin has made an extraordinary contribution to Bottomline Technologies to ensure a smooth transition, he will be with us through the end of the fiscal year. We wholeheartedly thank him for his unwavering dedication and commitment to Bottomline and we wish him all the best in his new business venture. Both Kevin and Rick are with me on the call, Kevin will report on the quarter and then Rick will introduce himself and then the three of us will be available for questions. Results for the third quarter were strong, as was our execution against our plan. We’re excited about our major strategic initiatives and the quarter saw strong progress in each. Our long-term objective is clear to drive double-digit growth to high margin subscription transaction revenue streams. The actions we are taking and investments we are making are all aligned with that objective. We’re confident, our strategy and our execution against our strategy will produce sustained strong financial results and positive returns to shareholders. Turing to the financial results for the quarter, subscription and transaction revenues grew 25% to $42.9 million, that’s on a consistent currency basis and is now $172 million on an annualized basis. Revenues overall were up 9% to $82 million, also on a consistent currency basis. Profitability metrics reach up from the prior year and slightly ahead of our expectations with EBIDTA of $17.1 million, representing 21% of revenue and operating income of $14.4 million, representing 18% of revenue. Operating cash flow was strong at $24.2 million, cash was $140 million and finally we recorded EPS of $0.33 for the quarter, ahead of our target and expectations. So strong financial results across the board. In addition to financial results, the third quarter was about execution. One of the clear highlights of the quarter was our acquisition of Intellinx. In the 90 days, since the transaction closed, the Fit Now product set is confirmed and we are more confident than ever in the long term potential this capability brings to Bottomline. So far, we’ve defined package solutions for Bottomline’s markets and began introducing the offering to our customer base. I’m delighted to report that the early response from customers has been extremely positive. They are too content, put the threat aside by fraud. As a trusted technology innovation partner, they see it as a natural and welcomed extension of our product set. Back two days ago, I was in New York and I had dinner with a senior banking executive, a longstanding customer. She was very, very interested in what it was we’re doing in this space, and what new capabilities we could offer the bank. She saw it as, are continuing to be focused on innovation that matters to and is relevant for banks and thought it was completed logical extension of our offerings. That really has been a universal reception I’ve received so far, so we’re off to a good start and what’s certain to being an exciting and rewarding market for Bottomline. We also had strong execution and PayMode-X, signing a record 17 new deals under the vendor pay model. That total included our largest deal ever, one of the country’s major healthcare providers that organization signed on to one of our new bank channels. We now have over 100 payer organizations that have signed onto the vendor pay model. With an active pipeline, new banks generating sales, we’ve strong sales momentum. The power of this model is, we get a small percentage of that repayment two in row of vendor. We’re beginning to see vendor pay revenue contribution and we expect to be in annualized rate of $5 million by the end of this quarter, double the level of a year. This proves the mode of works. Vendors will pay a percentage base fee for the technology platform much like an interchange and in return they receive automation that information and faster payments. The next step, of course is driving revenue with scale. Large, powerful payers like the healthcare organization we signed this quarter, one of the keys to doing so. Turing to legal spend management, we also had strong sales results in that arena with seven new deals. This brings our total for the year to 23 deals, as we continue to add customers and extend our leading market position. As we’re also developing a new platform PARTNERSELECT, to extent our competitive advantage and accelerate growth by monetizing the relationship with the law firms. It automates the important process of law firm selection, management, and evaluation. The bulk of the revenue will come from lawyers who post a fee for their professional profile and a fee they pay for each new case they are awarded. During the quarter, we had valuable customer and law firm feedback on the prototype product, which alone corporate into a fall official GA. We’re confident this offering will be well received and financially rewarding. Close of an exciting quarter and digital banking, signing two customers to our platform which is going to be released later this quarter. One of these customers will be driving a seven figure annual subscription fee. The feedback we’re getting across the board is we’re on point and well ahead of the market. What we’re doing here is, leveraging our core payment and case management functionality for providing broader business capabilities and enhances customer engagement features. Our strategy is to help banks grow revenues, not just make payments. Delivering this capability will provide us a competitive edge and drive increased market share and revenues. We could not be more in target with what banks need and the level of interest has never been higher, where our pipeline every stronger. That’s a lot, let me summarize. The quarter was one of execution. Execution against financial targets, sales execution and execution against our strategic plan; Cyber fraud risk management, we completed the Intellinx synchronization; customers view it as a logical and important addition to Bottomline’s capabilities. PayMode-X, we’ve strong sales momentum, new bank channels live, we recorded 17 deals and we signed our largest payer ever. Legal spend management we had seven new deals, and good reception to PARTNERSELECT prototype. In digital banking, two new customers signed one of which will be worth of seven figures, extremely positive market feedback, and a platform of GA in this current quarter. We are making very calculated investments in the markets where we have a lot of knowledge, experience and customers. It’s great to see opportunity for disproportionally high reward versus the investment at risk. We are excited about our future and confident it will produce positive results and reward shareholders. Bottomline Technologies has never been in a better position to drive revenue growth, margin expansion and shareholder returns. I’ll now turn it over to Kevin M. Donovan for a detailed review of the financials and our guidance going forward, then Rick will introduce himself and finally we’ll open the call up for any questions.

[Kevin M. Donovan:]

Thank you, Rob. We had a very good third quarter with 25% subscription in transaction revenue growth on a consistent currency basis, earnings ahead of guidance and record cash generated from operations. We continue to execute on our strategy and see our investment in cloud based subscription and transaction offerings paying off. Financial highlights of the quarter include revenue increasing 9% on a constant currency basis to $82 million and subscription and transaction revenue increasing to $42.9 million. Operating come was $14.4 million or 18% of revenue and EBITA was $17.1 million, 21% of revenue. Operating cash flow was a record $24.2 million completing the quarter with a cash balance of $140.3 million and EPS was $0.33 ahead of guidance. In summary, a very good quarter. I will now provide a more detailed look into the third quarter financial results. Total revenue increased to $82 million, subscription and transaction revenue represented 52% of overall revenue. Subscription and transaction revenue was the largest component of recurring revenue, which as $62.8 million or 77% of overall revenue. Annualizing our third quarter results, our subscription and transaction revenue run rate is $172 million and our recurring revenue run rate is over $250 million, each representing significant growth for these predictable, highly visible revenue streams. We signed new subscription and transaction-based deals across our legal spend management, PayMode-X, and digital banking solutions. During the quarter, we closed seven new legal spend management deals and signed 17 PayMode-X deals under the vendor pay model and had two early wins on our new digital banking platform. As is always the case, while these new deals are not expected to contribute much to revenue this fiscal year, they do represent visibility into our further recurring revenue growth. The revenue growth drove year-over-year expansion in gross margin, operating income and EBIDTA. We finished the quarter with operating income of $14.4 million and EBITDA of $17.1 million. The operating margin of 18% was head of our previous guidance as 16% for the third quarter. Turing to margins, overall gross margin was $48.4 million or 59%, an increase from $57% last year. Subscription and transaction margin expanded to 56%, representing growth on both the year-over-year and quarter-over-quarter basis. From an operating expense standpoint, sales and marketing expense was $16.8 million, representing 21% of revenue, while product development expense was $11.2 million, 14% of revenue. Looking at the balance sheet, cash at the end of March was $140.3 million and reflects the $67 million of cash used in the Intellinx acquisition in January. During the quarter, we generated $24.2 million of cash flow from operations and $19.2 million of free cash flow. Over the past 12 months, we have generated $63 million of operating cash flow, which is almost equal to the amount of cash used in the Intellinx transaction. In addition to the strong cash balance, we have a significant backlog. Backlog at the end of March was $147.9 million, up $10.7 million from last year. So as we look forward, we are very confident in our strategy and the market opportunities in front of us as we continue to drive higher levels of recurring revenue. As a result, we are confirming our fourth quarter revenue, operating margin, and EPS guidance numbers. In summary, we had a very good quarter and we have a great opportunity ahead. We delivered constant currency growth of 9% on revenue and 25% on subscription and transaction revenue. We have a $140 million of cash and generated over $24 million of operating cash flow. With a clear strategy, and strong financial results we are well positioned to finish the year strong and continue the growth trajectory in the years ahead. On a personal note, I’m excited to have the opportunity to pursue running a family business. It is a great opportunity for me and one that I could not pass up. It is truly been a pleasure to work at Bottomline over the past 16 years. I will remain with Bottomline through the end of the fiscal year, and have committed to ensuring a smooth transition. Bottomline has a very bright future. I’m confident about the company’s ability to capitalize on the significant opportunity ahead. I will now turn the call over to Rick to allow and introduce himself and then we will open up the call for any questions.

[Richard H. Booth:]

Thanks, Kevin. And thanks Rob. I’m very excited to join the Bottomline team and to speak with this group today. I thought it would be helpful to tell everyone a little bit about my background. I’ve spend the last 20 years helping software and hi-tech companies grow profitably. After business school at Stanford, I joined Mercer Management Consulting, where I lead teams that develop customer driven growth strategies for companies in software, services, and banking. Later at EMC, I was part of the finance team as EMC transformed and built out their software business, including the acquisitions Documentum, Megadodo and VMware. At Nuance Communications, during their very highest growth periods, I held a number of senior leadership roles starting when Nuance was about the same size the Bottomline is today and by the time I left years later, it was almost $2 billion in revenue. These are my personal experience Bottomline is a type of company that I want to be a part of and it’s a company I know I can help grow. Looking at its large market opportunity, its innovative technology solutions, a scalable business model, and a management team that’s focused on driving execution and growth. I look forward to getting to know many of you better in the months and years to come as we execute against the plans that we’ve laid out on this call. And with that I think we are ready to accept questions.

[Operator:]

Thank you very much. [Operator Instruction] We’ll take our first question from Brett Huff with Stephens. Please go ahead.

[Brett Huff:]

Good afternoon, guys and congrats on a nice quarter.

[Robert E. Eberle:]

Thanks, Brett.

[Kevin M. Donovan:]

Thank you.

[Brett Huff:]

Kevin, we are sorry to see you go but congrats on the new role.

[Kevin M. Donovan:]

Thank you.

[Brett Huff:]

And Rick, welcome and we’re looking forward to working with you.

[A:]

Thank you.

[Brett Huff:]

So the first question is on the, any update to the cost spent to-date and or the addressable markets and when we can get there on the three new investments?

[Kevin M. Donovan:]

I would say the costs are running right on track with what we would expect and on the last call, as we outlined the addressable market opportunities, there is no change since our last call. So we remain confident in terms of the opportunities in front of us across those various initiatives and things are tracking very well against that.

[Brett Huff:]

Okay. On PayMode-X, you guys kind of have a niche in focusing more on the payments execution part of financial supply chain management, there is lot other companies that are doing some more process workflow stuff approving invoices, and TOs and things like that I know you do some of that but in terms of the pricing model, what’s the feedback you’ve gotten on the pricing model relative to you guys only doing a piece at value chain, what are the other guys who you might partner with I guess it would manage more of the process of invoice approval and how does your fee fit in kind of with their fee in an IT organization?

[Kevin M. Donovan:]

There is a lot in that. But what I’d say is we’re now just a purchase card, a purchase card is accepted across all almost business-to-business commerce at this point, but it has some limitations. We’ve got more flexibility in our model, so we can complement a purchase card, in some cases we can be the only payment program that’s used. In terms of the invoicing fees we have that capability it’s not something we focus on. And in terms of the pricing model, I mean the vendor pay model, it’s free to our payers. So our payers actually will see a dividend as were able to drive total network use fee above agreed levels and hit different thresholds. So the pricing decisions pretty simple one around Bottomline and Paymode-X it’s an opportunity to actually of accounts payable be revenue center, which is extremely attractive and again following the interchange model and complimenting the interchange model of the card program. So we don’t see a like-for-like comparison within voice, when typically happening in these programs is, you not going after a big bank of try to automate the entire enterprise, we’ll see actually, its most common organizations already been automating all payments, so take a certain division or certain sector of payments and it will be more of a step-by-step process. So we’re really comfortable with focus on being a payment network, it aligns to Bottomline’s capability and aligns to market interest and it’s certainly aligns to an attractive revenue model.

[Brett Huff:]

Okay. The other last question I had was you guys beat by $0.03 or so I think versus guidance. Any thoughts on why we didn't to raise guidance as a result of that for the full year? I know we are pretty close to the end and just wondering about visibility, if there’s something that maybe got pushed out or just give us thoughts on that.

[Robert A. Eberle:]

Yeah, so to be clear Brett, we confirm the fourth quarter guidance, you’re correct that we exceeded the third quarter guidance by $0.03, so the guidance for the full-year would increase by $0.03 we confirm specifically the other fourth quarter.

[Brett Huff:]

Okay, that's what I needed. Thank you.

[Robert A. Eberle:]

Thank you.

[Operator:]

Thanks. The next question in queue that will come from George Sutton with Craig-Hallum. Please go ahead.

[George F. Sutton:]

Thank you. Rick, welcome.

[Richard H. Booth:]

Thank you.

[George F. Sutton:]

So from the Intellinx perspective, you mentioned that the fit is now confirmed and you are more convinced than ever. I wondered if you could just give us a little bit more specificity around what you have heard from customers, what the market opportunity looks like, etcetera.

[Robert A. Eberle:]

Well, the market opportunities different, in different areas where Bottomline’s active. So Banks is a huge opportunity. Majority of Intellinx customers, 200 customers they are banks. And the opportunity there is both the use it for internal monitoring as well as to have customer applications like Bottomline’s digital banking platform monitored, so we have a couple different opportunities within banks. In area that we’re taking the platform, where traditionally they have not spend as much time as in the corporate arena, with the same challenges exists within banks, whether that’s someone penetrating your network and pertaining credentials or insider fraud. Those are two key focus areas for us around the corporate market. And then last we have a relatively small from a revenue perspective but fairly active healthcare practice and one of the big opportunities is healthcare because the requirements of disclosure of any breach data causes reputational damage to hospital organizations and other healthcare providers as wells as its troubling from a revenue standpoint and embarrassment factor. So, what were to see the healthcare opportunity as an interesting place to leverage the sales relationships and teams we have and we are hoping to pursue that as the third vertical if you will.

[George F. Sutton:]

And just to be clear relative to the broadened customer base opportunity that would be handled by your existing sales force including the Intellinx folks, not necessarily through partners?

[Robert A. Eberle:]

We have a little bit of sales through partners but what I found personally and what our sales teams are finding, it’s a very logical extension of our current product set. If you think about the people were interacting with, they dealing with movement of money, they dealing with payments. Things like check fraud, insider fraud. The other pieces around it are compliance, so AML, sanctions. Those type of things are all very, very relevant to our existing customer base whether that’s corporate banks, healthcare whatever vertical, yeah so it actually is a very logical extension and its allowed us to lift our profile I think in terms of how we’re proceed from customers. The fact that we have made this move, at least customers, I personally spoken to which have been actually quite a few, have thought that this is very innovative, forward thinking and again a very logical extension of our products set.

[George F. Sutton:]

And we thought it was a very logical extension of your product set, so we're excited about it. So and my last question relates to the digital banking platform and that you mentioned would be rolled out later this year, but you mentioned the broader capabilities of that platform and I just wanted to make sure we understand what some of those capabilities or how broad those additional capabilities would be.

[A –Richard H. Booth:]

Right. So it’s really two areas that were increasing those capabilities today and I think we’ve got additional opportunities we go forward. One is around the capability and functionality were providing to the business customers of the bank. To step back and make sure we level set and what it is we’re providing. We’re providing the online banking experience for corporate customers. One of things were providing this more capability those corporate customers and that includes large multinationals down to small business, more capabilities that they need to run their business. More than just executing the payment that can be forecasting cash that can be getting a read of cash across multiple bank accounts. There is number of different capabilities around business operations around the financial aspects of the organization. The second area where we’re enhancing our capabilities is around customer engagement. Traditionally, these platforms have been looked at as the capability to provide a payment or wire, to check balances and those type of financial functions, but it has not been utilized as a way for the bank to take every interaction and learn something else about their customer, so is there an opportunity from a wallet share. This is a customer that’s a candidate for financing. And we’ve seen transfers at the end of the day that suggest we are not the primary operating account. Is this the customer that’s a risk of loss? So those are the types of things that were building into the platforms capability. So the business end users have more functionality and the bank can see and learn more about their customers. At the end of the day, what that does is, instead of just providing payment capability, it allows the bank to be more comparative and grow revenue. And that’s really were the ROI behind these investments and that’s why we’re getting every strong reaction from customers today and I think we’re going to have a nice run over the next couple of years from a sales perspective with as this platform GA and continues to develop.

[George F. Sutton:]

Makes a lot of sense, thanks for your help.

[Operator:]

Thank you. The next question in queue will come from Wayne Johnson with Raymond James. Please go ahead.

[Wayne Johnson:]

Hi, yes, good afternoon and welcome. And, Kevin, I'm sorry to hear the news but I'm glad that you are staying on for a little bit here. My question is as follows. Can you talk about the cadence of adding new vendors overall? I think the last count, and maybe you mentioned it and I missed it, was $300,000 or so in total and the number of customers they serve I thought was like 1,000 or so. If those numbers are dated, I'm looking for an update. And then I have a follow-up please.

[Kevin M. Donovan:]

Yeah, there is two numbers I think. We’ve been adding about 3000 vendors a month. The key though around, not all of those vendors will be in the vendor pay model in fact today small portion of those vendors, I mean the vendor pay models, they keep rest driving revenues driving more vendors to the vendor pay model including new vendors. One of the keys to do that is having big, powerful payers. So already in the short time, that we signed on the large healthcare organization we’re already live with them and were signing on vendors and its, they had the leverage and the importance of that payer is allowing us to sign on bigger and bigger vendors. So there is a the growth of the network overall is continuing at the 3,000 plus a month vendor pays, so those numbers are continuing but underneath that what’s pretty existing is were to seen more vendors involved in a dividends model and seen larger vendors involved in the dividends model. And that’s would ultimately will revenue in the vendor pay model.

[Wayne Johnson:]

Okay. So, and I apologize for circling back on this. The 1,000 or so clients that feed into those vendors, how should we think about that particular metric?

[Kevin M. Donovan:]

There is you mean the payers, 1,000 or so payers?

[Wayne Johnson:]

Yes. Yes.

[Kevin M. Donovan:]

About a 100 of those are under vendor pay model.

[Wayne Johnson:]

Okay, well, that's very helpful. I think you gave that before, so what's the growth of that 1,000 is what I'm asking? If you're adding 3,000 on the vendor side, how many are you adding on the payer side?

[Kevin M. Donovan:]

We added 17 this last quarter.

[Wayne Johnson:]

Got it, got it, so…

[Kevin M. Donovan:]

What happens in today’s model as we sign up payer, then we’ll go out and sign enroll that payers vendors.

[Wayne Johnson:]

Right, right, okay. I will circle back with you on that. Can you talk a little bit on the --? Sorry, just a follow up here and I will jump back in queue. Can you talk a little bit about the timing again of the commercial release of the new services you guys were working on or are working on, number one? And if memory serves, I thought there was supposed to be a fall release for two of the three and maybe a summer release for one of them. I just wanted to make sure that I am still thinking about the timing correctly. And then longer-term - not so much longer-term, next year isn't so far away on a fiscal year basis. How should we think about the expense structure for the Company going forward? Thank you.

[Robert A. Eberle:]

I’ll take the release here first and our new releases - first off, we are an agile development shop so we always have new things coming out, new pieces and product, but I think the things you meant the more significant ones, would be the digital banking platform and that’s on track to be GA this coming quarter. And partners select which we actually thought we would bring out this coming quarter but we push that back based on feedback we’ve gotten from law firms and customers which is actually very positive because, it’s created a couple new opportunities and the couple new monetization opportunities within that. So that will be a far release and digital banking is on track for the first release of our new platform this quarter.

[Wayne Johnson:]

Okay, great. Thank you. Operator Thanks. Our next question in queue that will come from Richard Davis with Canaccord. Please go ahead.

[Mark Massaro:]

Yes hi guys it’s Mark here for Richard, just a quick one for me, on the FX side thanks for helping us think about constant currency on the top line, but I was just wondering about the net effects or how does FX impact the expenses and how does that impact profitability basically net?

[Robert A. Eberle:]

Yes we end up with about 20% impact of the effect on the top line, we do have our expenses denominated in foreign currency as well principally over in the UK and the British Pound. So there is a natural hedge in place in a much smaller impact from a profit perspective but there is a small impact from a profitability and profit would have been negatively affected this quarter from the decreasing exchange rates.

[Mark Massaro:]

Okay, great. Thanks guys.

[Operator:]

Thank you very much. And our next question in queue that will come from Elizabeth Chwalk with Needham & Company. Please go ahead.

[Elizabeth C. Chwalk:]

Hi thanks for taking my question. On the subscription and transaction revenue, which is driving your growth, how much of this is new business versus converting existing cash management contracts into an updated model?

[Robert A. Eberle:]

Yes we don’t actually convert a perpetual client over to a subscription and transaction. So the perpetual clients would continue to stay perpetual and we would have an ongoing maintenance stream on that. So the subscription and transaction is really driven off new revenue sources as opposed to conversions of existing customers.

[Elizabeth C. Chwalk:]

Okay. And I think that you said earlier, so the Intellinx acquisition is on track for - to add $10 million this calendar year. Is that correct?

[Robert A. Eberle:]

That’s correct.

[Elizabeth C. Chwalk:]

Okay. And are there any additional synergies and should we still expect it to be accretive for calendar year 2016?

[Robert A. Eberle:]

That’s correct. Yes.

[Elizabeth C. Chwalk:]

Okay. And last question is on the legal exchange business. Are there any competitive changes here? Maybe you can give us an update on how penetrated the market is and what your current market share is?

[Robert A. Eberle:]

We’ve got a 50% market share, we would estimate that market is probably about 35% penetrated at this point. So that’s still a good strong remaining opportunities. It’ll never get to 100% penetration from our market perspective will always be paper in the process. But still a strong remaining opportunity for us to go after.

[Elizabeth C. Chwalk:]

Okay. Great, thank you.

[Operator:]

Thanks. And our next question in queue that will come from Gary Prestopino with Barrington Research. Please go ahead.

[Gary F. Prestopino:]

Good afternoon, everyone. Kevin, I couldn't scribble down the recurring revenue number and the percentage of sales that was recurring revenue. Do you have that handy again?

[Kevin M. Donovan:]

Yes it was $62.8 million, which is 77% of revenue that is the highest level of recurring revenue as a percentage of revenue that we’ve ever had.

[Gary F. Prestopino:]

Great, thanks. And then last quarter you talked about the payload deals on the vendor pay model. You had about 50% of them live. Even though you added some customers, what percentages are now live? Would that have moved up this quarter?

[Kevin M. Donovan:]

No I think that has moved up some and if it varies it’s interesting and the driver behind that is really the payer zone, internal bandwidth, optimization and prioritization. So our large healthcare provider we’re live already and are already enrolling vendors and that was signed just this quarter. We can at other instances where in order to get IT or finance or other resources they can delay for quarters and quarters. So it varies or it really focus on is the biggest guys that can make the biggest impact on the vendor community and the healthcare vertical in this large healthcare providers beginning to drive that.

[Gary F. Prestopino:]

Could you give us some idea of how long the process was to get this large healthcare provider signed up? And as this is out in the market now and world is getting around, is the process slowing down or is it speeding up in terms of getting interested parties signed up?

[Kevin M. Donovan:]

No I think it’s definitely speeding up, because we can point to more of references, we could point to more references within verticals and early on we have to prove that yes vendor will pay for the benefits of technology and the capabilities that we’re providing now that proven and now it was clearly the biggest obstacle we had in early sales. So I think it’s speeding up from a sales standpoint as the results are showing 17 deals was a record, we’re seeing more interest from bank channels and new bank channels. So it’s certainly speeding up the process in this large healthcare provider was competitive was probably a six, two quarter to three quarter sales process I would say and the end of the day they moved right into implementation and operations which is very positive for us.

[Gary F. Prestopino:]

Can you maybe just talk about some of the feedback that you got on the partner select product that you're going to have to tweak it here and there? Is that something you can share with us?

[Kevin M. Donovan:]

We won’t share the exact tweaks because that is kind of gets into some competitive advantage but that’s pretty good assessment that’s what has occurred. We see some new opportunities in some instances that can be in new opportunity to monetize an element of it in the different way but that’s exactly what our process about. What did took relatively small investments, small group, got a prototype out in the market, talk to customers with whom we have great relationships and then we are making the adjustments from there and I think that’s how you get to a lower risk, higher pay off product introduction in new market introduction and that’s what our system and process is really about.

[Gary F. Prestopino:]

Thank you.

[Operator:]

Thanks. And our next question in queue will come from Chris Kennedy with William Blair. Please go ahead.

[Christopher G. Kennedy:]

Hi guys thanks for taking the question. Rob, just a follow-up. Others than the payers' internal bandwidth, as you put it, is there anything that you guys can do to accelerate the onboarding of the vendors?

[Robert A. Eberle:]

We can the onboarding of vendors to the vendor pay model is really a partnership with us and the payer because it’s certainly that is there, their customer, that is where the support is. So what we’ve been doing is we have been working with the payers and then the other piece is we are doing around that is some of the proprietary analytics we developed in some of the thinking segmentation, the ways we will approach the methodology of approaching a vendor, explaining the value, demonstrating the value, those types of things are all things, but continuing to develop but have built out, I think in a way different than anyone else. So it’s a combination of our capabilities and knowhow with certainly a payer being behind that, in some cases payers are telling vendors that this is a mandatory program. That’s a wonderful thing for us that means we’re going to get it high, high percentage of vendors. Other cases is required or other language and then it will have an influence but the key is we’re continuing to sharpen our capabilities and now that we’re getting bigger and bigger payers, I think we will see that as continue to accelerate.

[Christopher G. Kennedy:]

Okay, great. And then, I know you’re not giving guidance for fiscal 2016, but as we look out into next year, I mean can you kind of talk about the key growth drivers of the business going into next year?

[Robert A. Eberle:]

Key for next year is product success and the initiatives that we’ve identified, so the key for next year is that we go from talking to the customers about our capabilities in cyber thought risk management and signing to signing those customers up. It means that we go to continuing to get record number of payers on in Paymode-X but then the next steps to revenue signing those vendors on which will ultimately in transactions lead to our revenues. And legal spend is continuing to sign on new deals as well as get partners select out and start to build that room community and finally in a digital banking space it’s getting our platform will be available at the beginning of the year and then we will see signing deals that we signed two deals already which is wonderful and continuing to sign deals. What’s interesting about that is I see we will be able to measure success in deals and market momentum revenue because of the subscription model will be coming later in the year and even towards the end of the fiscal year as these initiatives start to take hold.

[Christopher G. Kennedy:]

Okay, great. And one last one; just an update on the M&A pipeline and your appetite?

[Robert A. Eberle:]

The question was could you repeat that sorry?

[Christopher G. Kennedy:]

Just the M&A pipeline and Bottomline's appetite to make additional acquisitions?

[Robert A. Eberle:]

We’re always actively looking because it can be real value, we see valuations are pretty high which and we’re very disciplined about what we’re buying and we really want to avoid in the near term you never say never but we want to avoid dilutive acquisitions because we think we’ve set ourselves at the world level of operating income going forward with these investments and to take the operating levels lower and that’s probably unlikely I just would have to be a pretty darn attractive acquisition for us to do that. So we’re getting into the market we’re looking, we find it, at times pricey, and but we always are and we’re going to be as always disappointed about valuations we pay.

[Christopher G. Kennedy:]

Okay. Thanks a lot.

[Operator:]

We do have follow-up in queue from Brett Huff. Please go ahead.

[Brett Huff:]

Thanks for taking my follow-up. Two questions. One, organic growth, can you give us a sense of the piece of the business that was inorganic? And I know it's sometimes tough to discern, but we just kind of that's a metric we get asked a lot, so I'm trying to figure out what the organic growth was for the quarter?

[Robert A. Eberle:]

Yes, that would have been a small element of the growth tied to the Intellinx acquisition and then previously the Andera acquisition. Those are the only two elements that would be inorganic in the quarter.

[Brett Huff:]

Okay. And then the second question was on the -- the two customers that have signed up for the new cash management platform, I just wanted to make sure I'm understanding what that is. You're talking about the new platform that includes the marketing automation piece. Is that – the two customers are signed up for that?

[Robert A. Eberle:]

In the order it includes more in the business operating system today and it will include more of the customer engagement going forward that is exactly right, that is a platform you signed up for it.

[Brett Huff:]

And that new platform, I didn't realize, so there's better a redo of some of the older functionality or UI, or I don't know maybe the other functionality, in conjunction with this market automation update. I guess I didn't understand the refresh was broader than just the marketing automation?

[Robert A. Eberle:]

Yes that’s right. We’re taking forward really all of our cash management capability across our WebSeries platform, BB and BFS platforms. And the vast majority of all of WebSeries, vast majority of BFS would be incorporated in this coming release and then there is some minor pieces that will be incorporated in the next releases and so that ultimately, we will have all of our cash management capabilities in this single platform and as well as the business operating capabilities and customer engagement.

[Brett Huff:]

Okay that’s fine. Thank you.

[Operator:]

Thank you. At this time, there is no additional questions in queue, please continue. End of Q&A

[Robert A. Eberle:]

Well thank you everyone. Thank you for your interest in Bottomline Technologies, thank you Kevin for tremendous 16 years, we certainly miss you, I welcome Rick and I look forward to reporting - Rick and I look forward to reporting on the fourth quarter and our continued execution against our plan. Thank you.

[Operator:]

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