Bottomline Technologies, Inc.
Q4 2015 Earnings Call Transcript

Published: 12 Aug 2015

[Operator:]

Ladies and gentlemen, thank you for standing by. And welcome to the Bottomline Technologies’ Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] And as a reminder, today’s conference is being recorded. I would now like to turn the conference over for opening remarks to Rob Eberle and Rick Booth. Please go ahead.

[Rick Booth:]

Hi, this is Rick. We’ll have our normal prepared remarks in a moment. But before we begin, as many of you are now no doubt aware our press release was obtained outside of the normal process and was made public earlier today. As soon as we discovered this fact, we contacted NASDAQ, who halted trading until we can publically release the press release on our websites and via other wires. Trading is now resumed. We sincerely regret any inconvenience this has caused but look forward to discussing a strong quarter and strong guidance in today’s call. With that, I’ll turn to the prepared remarks and then we’ll open the call for questions.

[Operator:]

Ladies and gentlemen, thank you for standing by and welcome to the Bottomline Technologies’ Fourth 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, 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 our host, Mr. Rob Eberle. Please go ahead.

[Rob Eberle:]

Good afternoon. Thank you for your interest in Bottomline Technologies, and welcome to the fourth quarter of fiscal 2015 earnings call. I’m delighted to report on what was a strong quarter for Bottomline Technologies. I’m joined by Rick Booth, our Chief Financial Officer, who’ll provide a detailed review of the financials for the quarter and our guidance going forward. Both Rick and I’ll be available for questions following his remarks. The key headlines for the fourth quarter our strong financial performance to cap a strong fiscal year, strong sales results and our strategic growth drivers, and we enter FY 2016 well-positioned with significant market opportunities and a positive outlook. The headlines for the fourth quarter, the subscription and transaction revenue grew 15% on a constant currency basis to $44.7 million. Subscription and transaction revenue was 52% of revenue in the quarter. Revenues overall grew to $85.4 million, EBITDA increased to $18.2 million, operating income increased to $15.5 million, and finally, we recorded EPS of $0.35 for the quarter, ahead of our target and expectations. The fourth quarters financial results cap a year in which we grew subscription and transaction revenues 21%, grew total revenue to over $330 million, grew EBITDA to over $71 million, grew operating income to over $60 million, and we earned EPS of $1.44 a share. With strong performance in virtually every category, we’re pleased with the FY 2015 financial results. While achieving the financial results for the year, we also made important strategic investments in innovative new product offerings that are designed to extend our leadership position, win new business, drive accelerating subscription revenue growth, and expand operating margins. The sales results for the fourth quarter indicate those investments are well-placed as we had a strong quarter in terms of signing new customer relationships in each of our key growth drivers, PayMode-X, legal spend management, digital banking, and cyber fraud risk management. New wins by which we add customer relationships that will drive recurring revenue are the key metric for investors to track our progress. So I’ll now turn my remarks to an update on each, starting with PayMode-X. Much of the sales results in the quarter for PayMode-X were driven by the major banks we have with as channels. PayMode-X represents an innovative way for banks to win new clients, extend existing relationships, and drive new revenue streams. During the quarter, we worked actively with our largest PayMode-X channel partner, Bank of America, an additional go-to-market and sales activities. We’re also actively engaged with Fifth Third, a major bank who signed on just last quarter. And we continue to add to our distribution with another new bank channel partner, Bank of New York Mellon, so top five U.S. bank by assets, we were delighted to welcome to Paymode-X in this recent fourth quarter. The result of this activity was 22 new customer relationships for Paymode-X, which is well more than doubled the level a year ago. We are clearly gaining momentum. The power of this model is we get a small percentage of every payment made to an enrolled vendor. We’re beginning to see vendor pay revenue contribution in end of the quarter well ahead of our target of an annualized rate of $5 million by the end Q4, double the level of a year ago. We have proven the model works. Vendors will pay a percentage-based fee for the technology platform. And in return, they receive automation, better information and faster payments. The next step for Bottomline is signing more payers on under this model, which will drive revenue at scale. Looking forward to Q1, we expect the sales momentum to continue, and based on our pipeline, we expect to see quarterly new customer wins at or above the current level. Turning to legal spend management, we had strong sales results in that space as well with 12 new customer relationships added in the quarter. This brings our total of the year to 35 new customer relationship wins. We continue to win customers and extend their dominant market position. The new innovations we are bringing to market with new technologies like PartnerSelect, represents a new revenue opportunity, but also helps us win traditional legal spend deals. We remain on track for GA of PartnerSelect later this quarter. During the quarter, we GAed our new Digital Banking 3.01 platform. We are leveraging our core payment and cash management functionality to provide broader business capabilities and enhance customer engagement features. Our strategy is to help banks grow revenues, not just make payments. Reception so far has been very positive and this gives us the confidence to transition a product to a complete and only-subscription model. As of July 1, we are, in fact, transitioning our entire Digital Banking product set to subscription and transaction only. During the quarter, we signed two banks

[Rick Booth:]

Thank you, Rob. We had a strong fourth quarter, which completed a very strong fiscal year. Our subscription and transaction revenue grew 15% on a constant currency basis in the fourth quarter. And we delivered core operating income of 18% for both the quarter and the year. Equally important, our momentum in adding new customer relationships continued to validate our investments. I’ll take you through the fourth quarter and full-year results in detail, before shifting attention to the guidance for 2016. Financial highlights of the quarter include subs and trans revenue increasing to $44.7 million, which is 15% on a constant currency basis. Total revenue increased 8% on a constant currency basis to $85.4 million. Operating income was $15.5 million, or 18% of revenue. EBITDA was $18.2 million or 21% of revenue, and EPS was $0.35. So, overall this was a strong quarter which positions us for growth in 2016 and beyond. For the full-year, revenue of $330.9 million delivered 10% revenue growth or 12% on a constant currency basis. We also delivered profitably, with operating income of 18%. EBITDA of 22%, and EPS of $1.44 for the year, so in total, this is a very strong year financially. I’ll now provide a more detailed look into the fourth quarter financial results. Turning first to revenue, total revenue for the quarter increased to $85.4 million, this represents 8% year-over-year growth on a constant currency basis. Subs and trans of $44.7 million, now represents 52% of overall revenue, up 5 full percentage points from full-year fiscal 2014. Subs and trans revenue is the largest component of recurring revenue. And recurring revenue was 76% of overall revenue, which is 4 percentage points higher than full-year 2014, or $64.7 million on a dollar basis. With over three quarters of our revenues on a recurring basis, and with subs and trans as the fastest growing segment of that, we have deep visibility into our revenue and with our revenue model that visibility should continue to extend. Annualizing our fourth quarter results, our subs and trans revenue run rate is $179 million, and our recurring revenue run rate is $259 million, each representing significant growth. Equally important, we added a significant number of new subs and trans based customers across our legal spend management, PayMode-X and digital banking solutions. During the quarter, we signed 22 PayMode-X agreements under the vendor pay model. This is a record and more than twice the same period a year-ago. We also added 12 new legal spend management customers. And we are selected by nine brand new customers for our Digital Banking platform. These customers take time to implement and to go live, as well as to ramp up into full revenue production. But once that ramp is achieved, they provide visible and consistent revenue streams. These new relationships represent validation of our investments in new solutions, as well as visibility into our future recurring revenue growth. As we turn to margin and profit growth, the revenue growth drove year-over-year expansions in operating income, EBITDA and gross margins. We finished the quarter with operating income of $15.5 million or 18% and EBITDA of $18.2 million or 21% of revenue. Overall gross margin was $50.3 million or 59%, up from 58% in the prior Q4. Subscription and transaction gross margin was 55%, an increase of three percentage points from 52% on a year-over-year basis. From an operating expense standpoint, sales and marketing expense for the quarter increased to $18 million representing 21% of revenue. As planned, this was up from the same period a year earlier as we accelerate our sales and marketing efforts. The amount of the increase was approximately 1%. In terms of non-operating expenses, one item of note in Q4 concern taxes. We have significant deferred tax assets which serve to shelter future income. In Q4, we increased the reserve against those assets by $16 million. This reserve does not impact our ability to utilize these tax assets now or in the future, nor does it impact our quarter results. More specifically, the reason for the reserve is that due to the completion of certain tax planning activities, we’ve shifted more of our taxable income outside of the U.S. to jurisdictions which on average have lower tax rate. As a result, the period of time required to utilize U.S. NOLs has increased. And under the relevant accounting principles, we now believe it as appropriate to increase the reserves. This results in a more conservative presentation of our balance sheet and has no cash tax impact. In terms of cash flow, our operating cash flow was $12 million for the quarter and $62.7 million for the year. This is a 20% increase in full year operating cash flow and allowed us to end the year with cash on hand of $144.4 million. In addition to the strong cash balance, we have a significant backlog. Backlog at the end of June was $153.9 million up $6.8 million from last year. We believe our stock is attractive at current valuations. And accordingly, in June we committed to repurchase $1 million shares by the end of the calendar year 2015. We’ve only began to execute due to blackout periods but we’ll be in the market more aggressively starting this week and through the end of the year. And we will use a 10b5-1 plan to allow repurchases during future blackout periods. In Q4, we repurchased 85,000 shares at a total cost of $2.4 million before our blackout period began. I’ll now turn to guidance for fiscal 2016. As we look forward and build on a strong 2015 financial performance. We’re confident on our strategy and the growth opportunities in front of us, as we go to market and sell our new solutions. The strong base of our current financial performance allows us to undertake the transition of our Digital Banking product offerings completely to a subscription and transaction basis. As a result, we expect 2016 to be the last year with growth headwinds from major product line transitions. Also, during 2016 we will continue to invest in and execute on our key growth initiatives in order to drive higher levels of occurring revenue in the future. As a result, we expect to deliver $360 million of revenue at 18% operating margin for fiscal 2016 translating to core earnings per share of $1.53 million. Because of the nature of our model, the revenue growth is disproportionally in the second-half of the year. So, I will provide some quarterly guidance. We expect revenues by quarter to be $85 million for Q1, $87 million in Q2, $92 million in Q3 and $96 million in Q4, totaling $360 million for the year, at operating income of 18% throughout the year. This represents 9% revenue growth in a year in which we finalized the transition of a major product set, entirely subscription and transactional pricing, and in a year we received less than a 2% revenue lift from prior-year acquisition. As this translates to earnings per share, we expect to see core EPS of $0.34 in Q1, $0.35 in Q2, $0.40 in Q3, and $0.44 in Q4, totaling $1.53. Even more important than the 2016 results is that completing this transition will set the stage for greater revenue and margin growth in 2017 and beyond. In summary, we had a strong quarter, a very strong year, and we have great opportunities ahead. We delivered constant currently growth of 8% on revenue and 15% on subs and trans revenue. We achieved an operating margin of 18% and ended the year with $144.4 million of cash on hand. Now, with a clear strategy and strong financial results, we are well-positioned to continue our growth trajectory and expand operating margins in years ahead. As we’ve noted, in fiscal 2016, our primary focus will be on adding customers to drive 2017 revenue, and we believe that our efforts in fiscal year 2016 will set the stage for accelerating growth and profitability in 2017 and beyond. We’ll now open the call to take questions.

[Operator:]

[Operator Instructions] And our first question today comes from the line of George Sutton with Craig-Hallum. Please go ahead.

[Jason Palmer:]

Hey, good afternoon, guys. It’s Jason on for George. With the new initiatives that you have in place now, Rob, I was just wondering if you could talk a little bit more about the tools that your salespeople have and the capabilities they have now and kind of contrast that with where we were at maybe three or six months ago?

[Rob Eberle:]

Well, on each of the new products, or on cyber fraud risk management?

[Jason Palmer:]

Each of the new products, please?

[Rob Eberle:]

Yes. So in digital banking and in legal spend management, in both cases, what we’re doing is leveraging a clear leadership position with line aside opportunities for technology that the customers frankly have been looking for and then we’ve been able to aggregate that customer demand and come out with a solution that meets that need better than any single customer would have anticipated. So in that two space, there is a really a lot of new learning, it’s an obvious extension of our leadership position. And so from a salespeople – salesperson standpoint, it’s more capability, it’s more innovation that you can bring, it’s not a new capability. The place and the reason I asked for the clarification upon the technology that’s newer to our sales teams, the cyber fraud risk management. And what we’ve done there is, we have about 50 people in Bottomline that have been receiving training on that product and product set. But the principal way that we’re going to market is through sales support from the group that came with that. So when Intellinx and Bottomline combined in the acquisition, we kept the entire team. And so we’re very active sales support at the more technical level. So short answer is Paymode-X, I’m sorry on legal spend management and digital banking, those are well understood problems in the industry and our sales team is ready to go in going to market with them. And in the cyber fraud risk management, we’re leveraging the existing team, as well as an extensive training program.

[Jason Palmer:]

That’s helpful. Thank you. And then, in regards to the risk management solution just can you talk a little bit about how that’s performing relative to your expectations? What you’ve learned in the last two quarters? I know that you’ve got that solution. And then maybe a little bit more about what you’re seeing in sales cycles?

[Rob Eberle:]

Yes. Well, a couple of things we definitely learned a few things and that and frankly all been to the upside. One, we’ve certainly seen a reaction from customers, which is, this is a capability they – having Bottomline been able to provide, because our customers, particularly, banks are looking for us to be a trusted innovation partner that can solve their problems of today and tomorrow. And this is a step forward that provides that, because this is a unique capability. The platform is – and in fact, is the digital surveillance camera that can monitor what’s occurring on the network. So it’s not intended to replace other existing cyber fraud and cyber security technologies, but it supplements them and it’s an extra layer of defense. In terms of things we’ve learnt, one it is a natural product for Bottomline app and it’s very well received by customers. Probably, the two surprises have been on the upside. One is that, the two bank deals I mentioned were competitive bakeoffs. And in one case, it is little unique, they actually had both Bottomline and another organization. And at the same time, and it had our team ask their team questions and their team asked our questions. And we were selected. So those indicated that – customer feedback, industry analysts have made it clear, we’ve got a leading technology in the ways that it monitors the network, the way that minimizes false positives, and the way it can look for both data and behavioral anomalies in real time. Nobody else has that capability. The last piece, upside surprise, that we’ve learned is healthcare. It’s we really stepped into this with the expectation that it was a natural fit for payments market and natural fit for our banking customers. We didn’t anticipate really the response and need in healthcare. And the Cedar Sinai deal brought that to ahead where Bottomline made that opportunity clear. And as I indicated in my remarks, we’re working with Cedars and some of the behavioral anomalies that you would look for in healthcare setting to add more analytics and more rules to the platform. But we see a wonderful opportunity in healthcare. So I think it’s so far six months and it’s all been very positive. The sales cycles are not quick in this. You’re making calculated investments around how it becomes part of an overall cyber fraud and cyber risk prevention program. But what I’m pleased is we’re early on. We should have a lot of initial meetings and a lot of activity that means that back-half of FY 2016 should be very exciting for new deals for Bottomline.

[Jason Palmer:]

Thank you. And then, just the last one for me in regards to the guidance that you provided today. Can you kind of give an outlook or – and maybe talk a little bit about what you’re expecting these new programs to contribute to the updated guidance.

[Rob Eberle:]

Well, the new programs actually don’t contribute that much to the updated guidance. That’s all about the business model. So even if we were to sell today, a brand-new platform, that has to first be implemented. And then, once it’s implemented in the subscription model, you’re seeing 1/12th of the revenue. So, as Rick indicated, we’re backend loaded and he referenced that that’s a business model. So the impact is really going to be signing new deals in FY 2016 or the activity of these signing new deals, the impact will be occurring in the back-half. And we will exit FY 2016 at a much higher subscription and transaction run rate. We have the potential for that and leading into FY 2017, where at that point, we think we’ll see acceleration in our revenue growth in the subs and trans line.

[Operator:]

And we do have a question from the line of Mayank Tandon with Needham and Company. Please go ahead.

[Mayank Tandon:]

Thank you. Good evening. Rob, going to Paymode, I think, you mentioned that you had 22 new customer wins. Could you talk about how many of them came through your bank channel partners? I believe now you have five in total and then how much of that was direct?

[Rob Eberle:]

The majority of that through bank channels.

[Mayank Tandon:]

Okay. Was that weighted more toward the legacy banking relationships or did you also win some from some of your newer bank partners.

[Rob Eberle:]

Well, it’s interesting. Well, The Bank of New York Mellon signed just in a quarter, so we didn’t have activity there. We wouldn’t have expected that. But what’s interesting is we’ve really seen Bank of America coming on and coming on strong. So they were the most or most successful in terms of deal signs. But all of our channel partners are live and actively seeing opportunities.

[Mayank Tandon:]

And then, on the revenue number, I think you said $5 million annualized revenue run rate. Is that only from the vendor pay model or is that the total Paymode contribution, just wanted to be clear?

[Rob Eberle:]

Oh, no, no, that’s only vendor pay model, only the vendor pay model.

[Mayank Tandon:]

Okay. Fair enough. That makes sense. And then, I just wanted to ask you, and maybe this question is for Rick more around margins. I know you mentioned that you’re straight-lining 18% for the rest of this year or rather fiscal 2016. As you look longer term, how should we think about the margin expansion opportunity on the gross margin line and then on the operating margin line? What would be the levers that you have in place that can get you up to that 25% level? And I think you guys have talked about as a long-term target.

[Rick Booth:]

That’s a great question, Mayank, and I’ll take it. This is Rick. It’s a balancing act. In 2016, we’re investing for continued growth, which is holding our operating income at 18%. The reason that we’re doing that is we think that is the right level of investment to drive the growth that we see and the potential what we see in the business. Coming out of that, we would expect to continue to see ramp in gross margin, and ultimately, operating margin. If you look at particularly our subs and trans gross margin improvements, we moved up 3 full percentage points year-over-year. So, we’re seeing a strong gross margin expansion. We would expect that to continue. And coming out of 2016, we’ll probably see a continued shift in the operating expenses, emphasizing sales and marketing as we got more complete solutions coming out of our R&D shop. So we would see expansion in both gross margin and operating income as we go forward. And we are committed in the long-term to that 25% operating income target that we talked about.

[Mayank Tandon:]

Got it, that’s helpful. And then, just going back to the guidance, I know you didn’t give specific tax rate and share count guidance. But can you give us some qualitative sense of how those metrics will track for the fiscal 2016?

[Rick Booth:]

So, we would expect that our tax rate would be consistent with what we observed in 2015 in both 2016 and 2017. And you’re aware of the buyback program that we’re executing through the end of this calendar year, which essentially offsets normal share count dilution.

[Mayank Tandon:]

Oh, so just to be clear, so you’ve already factored in share buybacks into your share count guidance for the year?

[Rick Booth:]

Yes, we have.

[Mayank Tandon:]

Okay. Thank you.

[Operator:]

And we do have a question from the line of Brett Huff with Stephens Inc. Please go ahead.

[Brett Huff:]

Good evening guys. How are you?

[Rob Eberle:]

Oh, we’re good.

[Brett Huff:]

Good. I apologize. We had a little trouble getting in the queue. So, I apologize if my questions – a couple of my questions have been asked. So bear with me. On the guide for 1Q we’re going down sequentially from the fiscal fourth. Can you give us a sense of what’s driving that?

[Rick Booth:]

Sorry. Could you repeat the question? You said, we’re going down sequentially from the…

[Brett Huff:]

Yes. Fiscal fourth, what, 85-and-change, and we’re going down a little bit to $85 million for the first quarter guidance. Can you give us a sense of what’s going on there, is it seasonality or is it the switch in your sub and trans?

[Rick Booth:]

We are completing the aggressive switch to completely subs and trans in our Digital Banking model. And so, in our prior model you would sometimes get upfront service revenue. That would be recognized in the period, that’s the primary driver.

[Brett Huff:]

Okay. And can you give us a sense of what the guidance would be just qualitatively or just in rough terms? If you hadn’t sort of doubled-down and then aggressive switch – I know you’ve been moving that way for a long time. But can you give us a sense just so we have a little more apples-to-apples comparison, maybe versus what we expected originally?

[Rick Booth:]

Actually, the opportunity for us to go in this direction has been so large. We haven’t tried to construct a hypothetical alternative, because we’re just – we’re finding such a good take rate from even larger banks. They really are appreciating the subs and trans model.

[Brett Huff:]

Okay. And then just on that front, I know that you all have some legacy banks still on the site-license and things like that. In the conversations that you’re having – are you having conversations with those banks about if they were new or when they start thinking about switching or updating their technology. Are they engaging you on the sub and tran level or are they – is there still a preference for some banks to buy a license?

[Rob Eberle:]

Yes. I’ll take. This is Rob. The markets really moved quite a bit. So, there is still lot of organizations that were preferred to buy a license. But the market moving and frankly that leadership position I think we’re going to have with the Digital Banking 3.0 platform, what’s gives us a confidence to move entirely to the subs and trans model.

[Brett Huff:]

Okay. And then, I think, Rick, I believe you said that less than 200 basis points of inorganic growth next year. I just want to double check that. Is that what you said in your prepared remarks?

[Rick Booth:]

Yes, we’re getting less than 2 percentage points from our unit growth from companies that we acquired this year.

[Brett Huff:]

Okay. And then, I think this one is for Rob. On the BofA relationship, it sounds like that’s going well still and that there is sort of a higher level engagement than maybe in the last several quarters, which is great. And it’s an engagement on the level of vendor pay more, we had a lot of questions on sort of how do we think about the opportunity of the large number of legacy non-vendor pay clients of BofA moving over time to a more vendor pay model. Any updated thoughts on that, or qualitative thoughts on that?

[Rob Eberle:]

Well, I think you just used the word saying, it’s still going well. I think it’s going well at different levels. The relationship has always been strong, but Bank of America stayed with a classic or legacy model, pricing model for a long time. You’re correct, this past quarter and the last two quarters really we’ve seen a huge uptick in their interest in the dividends model or the vendor pay model, and we expect that now to continue. So I wouldn’t want to speculate as to how and when they may turn and go back against the existing customer base, but that’s obviously a huge opportunity that they’re certainly aware off. But the fact that they’re completely aligned with the dividends vendor pay model now, which had not been the case, say, a year-ago, or I would say, even six months ago, really bodes well for Bottomline going forward.

[Brett Huff:]

Okay. And then the majority of clients that were vendor pay and then of those a good chunk that were BofA, where those new clients to BofA, or where those kind of digging back into those existing classic model into the dividends model?

[Rob Eberle:]

They’ve done a bit of that. So there have been a couple of customers that have been on Paymode-X that they brought to the new model, but this is certainly selling new deals as well.

[Brett Huff:]

Okay. I think one last question is a little bit bigger picture question. Mobile strategy is that you are all obviously really going hard after the digital banking on a cloud basis. What – how does mobile fit into that and strategy wise, how do you think about making sure your product is fit for mobile?

[Rob Eberle:]

Yes. Mobile is a key part of what we do. We’ve been providing mobile banking capabilities for a couple of years now. We have Apple app and those types of things around it. We typically have seen that the enterprise market will trial the consumer market, it trialed in terms of tablet use, trials in terms of mobile use, but those – all of those types of trends have come this direction. So we have fully mobile. We spent an awful lot of time and money around the UI and experience. So the simplicity and ease of use that consumers have come to expect, expect the same thing from enterprise applications. And I think one of the reasons we’re doing well and wining is, in fact, that user interface and that’s ease of use. An executive can pick-up one of our products without extensive training from subject matter experts and can use their product. Business people can see that product and can execute the transactions they want to. And so mobile, ease of use, all of the consumerization of the enterprise software trends that you read about were well in front of those.

[Brett Huff:]

Okay. That’s what I need. Thanks for the time.

[Operator:]

[Operator Instructions] And we do have a question from the line of Bob Napoli with William Blair. Please go ahead.

[Robert Napoli:]

Thank you. Good afternoon. Let’s see, I guess, first of all, let me just ask on the revenue for next year, given the – aggressive switch to digital banking sub and trans model. What should we expect as far as mix of revenue from sub and trans versus this year and a growth rate of sub and trans through the year?

[Rick Booth:]

We’ll continue to see as we have over time strong growth rate in sub and trans. We haven’t broken that out in our guidance. But you see that that’s always the fastest growing part of our revenue streams and that trend will continue.

[Robert Napoli:]

Okay. Let see. So, I mean, I’m sorry. The – I mean, it should be the revenue shift from that transition, the revenues from digital banking last year that was not sub and trans, I mean, how much was that and then does that all go away into sub and trans revenue starting on…?

[Rob Eberle:]

Yes, I’ll take. This is Rob. To the extent of revenue – new revenue signed in subs and trans in the fiscal year very little of an impacts to fiscal year. Because the implementation of these type of platforms, even if the technology is straightforward in there, you’ve got human side of the implementation. So the implementations are measured in quarters, one, two, eve three quarters. So if we sign a deal this quarter, we have a chance of it having some revenue in the fiscal year at the back-end, which is what Rick commented on the back-end loaded. But – so we would – I would expect we’ll see a similar profile in revenue this coming year a little higher on subs and maintenance, since really the FY 2017, where we’ll start to see the impact of the switch of revenue model and digital banking and the impact of the new products.

[Robert Napoli:]

Okay. So that switch is not going to affect revenue in fiscal 2016 then?

[Rob Eberle:]

Will not have a big impact on mix, no, or affect revenue. In fact, it’s a headwind to revenue growth, because in a prior model, we would be able to recognize software upon on standard products what was an implementation we’d on a percentage completion basis. So the subs and trans model delays revenue the furthest. And then, of course, whenever our revenue begins, so you’re beginning at one-twelfth of an annual subscription.

[Robert Napoli:]

Okay. Yes, I guess, we’re all trying to get at is, what that revenue – the revenue you would had, you’re not going to have, and how much that affected your guidance? But – okay, we’ll talk offline, I guess. So the tax reserve charge that you took is, Rick, you were – you moved revenue, you’ve been able to adjust earnings to international markets is what you said. So when – how long do you think it will be before EPAY has to pay cash taxes?

[Rick Booth:]

So, yes, you are correct. We moved some IP offshore, we completed tax planning in the quarter, which as a result moved more of our taxable income offshore. For fiscal 2016 and 2017, we expect our tax rate to be similar to what it is today. And we haven’t issued any longer-term, the guidance beyond that, although given the IP that we have domiciled in the UK. And in Israel, we would expect our long-term tax rate to be mid- to low 20s.

[Robert Napoli:]

Mid- to low-20. Okay. Thank you. That’s helpful. You signed a lot of deals this quarter, I think more deals that I have ever seen you signed…

[Rick Booth:]

That’s right.

[Robert Napoli:]

But it’s hard to tell, I mean, what’s the size of those deals is, like I guess, when you fully ramp it up and maybe takes two years to ramp up those deals to a run rate basis. But – what is – can you give some feel for the revenue from the new deals that you signed two years out, and how that compares to, say, what you did a year ago in the quarter as far as new deals signing, just so we can get a feel for the momentum?

[Rick Booth:]

Yes, I’d say, so it’s difficult to quantify. And it’s certainly difficult to quantify at a level that will be acceptable to the auditors and everything else for a public disclosure. But I would say, the following where least Paymode-X, for example, one, you’re right that we signed more deals than we have in any quarter previously. Second, worried about double the – our estimated rates for those deals where we were a year ago just over double. So the signing big deals in this quarter with featured a large food processor. The last quarter featured a large healthcare operator is a big organizations that not only represent big revenue opportunity. But in the vendor pay model, the influence they have on a vendor community with – within their segment or industry vertical is profound. So we’ve seen that in healthcare and we expect we’ll see the same type of thing with our bigger payers that we signed this past quarter.

[Robert Napoli:]

Okay. And then the $360 million, Rick, what would be the constant currency affect? What is – you have, I mean, I would say, probably a pretty good hit from a constant currency basis in the first two quarters, but and then you kind of lapped a big drop in the currencies. So and do you know what affect the difference would be on a constant currency basis when you have 9% revenue growth 7% organic built into your model, but then constant currency would be somewhat higher than that?

[Rob Eberle:]

Yes you’re correct. We projected at $1.52 in terms of the exchange rate.

[Robert Napoli:]

Okay, great. Thank you very much.

[Rob Eberle:]

Thank you.

[Operator:]

And at this time there are no further questions in queue. Please continue.

[Rob Eberle:]

Well, we thank you for your interest in Bottomline. We’ve got a finish – we felt it was a strong year, but we’re more excited about the opportunity ahead with products, sales results and the business opportunity. We’re confident we’re going to be delivering strong results in shareholder value and I look forward to our next quarterly call after the first quarter. Thank you, all.

[Operator:]

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