What You Need To Know About Bottomline Technologies (NASDAQ:EPAY) In 2016
Bottomline Technologies (NASDAQ:EPAY) posted fairly strong results in its F2Q201. Adjusted EPS beat expectations and revenue rose from a year earlier. Management reiterated its commitment to expand recurring revenue as a percentage of total revenue. Recurring revenue presently accounts for about 80% of total revenue up from 60% in 2011.
The recent quarter showed Bottomline has continued to grow its business across board. The company is attracting new partners and also extracting more value from the existing customer base.
Bottomline posted adjusted EPS of $0.38. Revenue rose 5% to hit $86 million, supported by 13% lift in subscription and transaction revenue. The company reported that it won a 7-figure annually business deal in its Digital Banking division during the quarter. That marks a positive start to monetization of the platform after years of investment in it.
The chart below shows Bottomline’s subscription/transaction revenue trend:
Bottomline also posted a 110% spike in annual recurring revenue bookings, which reached $19.4 million at the end of the quarter. The Paymode business has also continued to demonstrate strong growth with volumes in 2015 reaching $182 billion.
What’s exciting about Bottomline?
Bottomline Technologies (NASDAQ:EPAY) said Visa Inc (NYSE:V) continues roll it to partners in F2Q2016. Visa brings to Bottomline a global network and extensive connection with players in the financial sector. While the addition of Visa may not have immediate material impact on Bottomline’s income statement, but it paves the way for the company to net more banking partners for its Paymode-X service and other transaction automation solutions.
Bottomline Technologies (NASDAQ:EPAY) is cashing in on the secular shift from manual paper-based transactions to electronic form of transaction. More companies are embracing digital transaction because it is fast, efficient and cheaper than the paper option.
The shift to digital transaction presents a long-term growth opportunity for Bottomline given that only a small fraction of its target market has upgraded.
Bottomline Technologies (NASDAQ:EPAY) has cultivated close ties with the majority of the leading players in the banking and financial services industry. In a closely regulated industrial such as finance, a solid reputation is a key competitive advantage and Bottomline has it.
Solid quotable customer base
With well-known companies such as British Airways and American International Group Inc (NYSE:AIG) among its customers, Bottomline has succeeded in creating a large refrenceable customer base. In many organizations, who you serve is a key factor of decision-making in awarding contracts. As such, the large refrenceable customer base gives Bottomline an edge over the competition.
Bottomline Technologies (NASDAQ:EPAY) has succeeded in presenting itself as the largest bank-neutral provider of digital payment settlement platform. Through the acquisition of Paymode for $26 million from Bank of America Corp. (NYSE:BAC), Bottomline added to its portfolio a tool that simplifies the process of shifting from paper-based processes to digital transaction.
Through a combination of acquisitions and internal innovation, Bottomline has continued to enrich Paymode, thus transforming itself to be the largest on-demand electronic payments platform provider.
Growing recurring revenue
The larger portion of Bottomline Technologies (NASDAQ:EPAY)’s revenue is recurring. But the management continues to work to grow the recurring revenue base. With recurring revenue, there is increased financial visibility that supports proper planning.
Bottomline’s financial automation software can be used in any country and supports virtually any currency. With solutions that know not geographical limits, Bottomline is able to support its multinational customers efficiently because they need not to have multiple, fragmented transaction automation systems.
What’s challenging for Bottomline?
Bottomline Technologies (NASDAQ:EPAY) competes against a mix of established and budding rivals. Ariba is one of the established rivals giving it a run for its money in financial automation space. In the legal spend management market Bottomline competes for market share with a host of smaller rivals. Intense competition can have a hit on the bottom-line metrics as more money is diverted to advertising and other defensive measures.
Large deals pose integration challenge
In the recent times, Bottomline has seemed to aim at considerably larger acquisition deals in terms of size and scope. While such deals can unlock huge revenue potential, they also pose integration challenges. Absorbing the acquisitions can be costly and prolonged, thus delaying revenue recognition.
Bottomline Technologies (NASDAQ:EPAY) derives a significant portion of its revenue from a concentrated customer base. Its high-profile customers include British Airways, Bank of America, American International Group Inc (NYSE:AIG) and Home Depot Inc (NYSE:HD). Loss of business with any of these large customers can significantly take out pressure from Bottomline’s growth momentum.
Freeze on IT spending
Economic slowdown in China and collapsing crude oil price threaten to cool spending on IT as banks boost their reserves amid feature of widespread loan default by energy companies. In a soft IT spend environment, revenue opportunities become limited for Bottomline. Although the company executed well during the 2008/2009 Great Recession, things might be more complicated if another round for a global financial meltdown were to unleash itself.
Adverse forex movements
A stronger U.S. dollar versus weaker foreign currencies presents a major headwind for Bottomline Technologies (NASDAQ:EPAY). The company’s woes are particularly heightened by unfavorable foreign currency fluctuation because it generates a significant portion of its revenue overseas yet it doesn’t have a program to hedge against adverse shifts in the forex market.
Other takraway from Bottomline
Outlook: The management of Bottomline Technologies (NASDAQ:EPAY) is predicting subscription and transaction revenue to expand 16% to 17% in fiscal 2016. Additional expansion of 18% to 19% of the same is expected in fiscal 2017. The management’s projections appear ambitious and they seem to be predicated on the recent sharp rise in bookings (110%).
Bottomline stepped down its fiscal 2016 revenue by $9 million citing $4 million adverse impact due to adverse forex shifts and $5 million due to softness in the professional services segment. In the same breath, the management vacated the previous guidance provided for F3Q2016 (March) and F4Q2016 (June). For the March quarter, revenue target is now $87.5 million as opposed to $92 million that was previously guided. As for the June quarter, the new guidance is $91.5 million down from $96 million in the prior guidance.
No changes were made to adjusted EPS estimate and adjusted operating margin was reaffirmed as 18%.
Bottomline Technologies (NASDAQ:EPAY) is an exciting company in an exciting industry as can be seen from management execution and secular trends.
Disclaimer: The opinions and data expressed herein by the author are not an investment recommendation and are not meant to be relied upon in investment decisions. The author is not acting in an investment advisory capacity, nor is this an investment research report. The author’s opinions expressed herein address only select aspects of potential investment in securities of the company or companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies’ SEC filings, and consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice.
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