Bottomline Technologies, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the bottom line Q1 2021 earnings call. At this time, everyone joining by phone is in a listen only or muted mode. Later, we will conduct a question and answer session. Instructions will be given at that time. If you should require assistance during the call, please press star then zero on your telephone keypad. As a reminder, this conference is being recorded. I'll now turn the conference over to our host, Danielle Shear, please go ahead.

Welcome to Bottom Line's first quarter 2021 earnings conference call. This is Danielle Shear, and I'm joined by Rob Everly, Bottom Line's CEO, and Rick Booth, the CFO. I'd like to remind everyone that statements made on today's call will include forward-looking statements about Bottom Line's future expectations, plans, and prospects. All such forward-looking statements are subject to risks, uncertainties, and assumptions, including those related to the impacts of COVID-19 on our business and global economic conditions. The forward-looking guidance we provide today is based on our assumptions as to the macroeconomic environment based on the facts as we know them today. Many of these assumptions relate to matters that are beyond our control, including the impact of COVID-19. Please refer to the cautionary language in today's earnings release and Bottom Line'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. Bottom Line does not assume any obligation to update on the forward-looking statements. During this call, Bottom Line'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 our website. Bottom line, we'll be providing forward-looking guidance on this call, and a summary of the guidance provided during the call is available from the company upon request. Let me now turn it over to Rob for his remarks. Rob?

Good afternoon, and welcome to the Bottom Line first quarter fiscal 21 earnings call. As always, we appreciate your interest in Bottom Line. We're delighted to be reporting on a strong and strategically important quarter. Q1 was the first quarter where 80 percent of our revenue was subscription revenue. We've worked hard to get to the point where subscription revenues and our SaaS platforms drive the bulk of our revenue, reaching 80 percent is a meaningful milestone. Our results and model line up well with the characteristics of a valuable SaaS platform business. A large 20 billion market opportunity and a leading competitive position in that market. Targeted growth of 15 to 20% with an opportunity to exceed that range. An attractive lifetime customer value as we retain customers for a decade or more and our platform strategy provides additional new revenue opportunities. A gross retention rate of 97% and a net renewal rate of well over 100%. Incremental gross margins, 76%, and attractive EBITDA of $26 million. The progress with our SaaS offerings has to some degree been masked by the legacy of traditional revenue streams. But with 80% of our revenue now driven by these platforms, the valuable business we are growing will come into clearer focus. With today's over $360 million in revenue, we can easily see $500 million as the next important milestone, one which we'll achieve within the next three years. At $500 million, our target growth rate translates into $75 to $100 million of incremental high-margin revenue a year. Stepping back from the quarter, we're executing against our strategic plan to build a subscription business of scale driven by market-leading platforms which feature solid SaaS metrics. We continue to drive consistent profitability and cash flow, allowing us to invest in innovation and expand our product capabilities. Our strategic plan is focused on the product set, market position, and execution needed to drive years and years of growth at or above our 15 to 20 percent target range. Before I get further into my remarks, let me touch on the key financial results for the first quarter. We're really pleased with our execution and the quarter's results. Subscription revenue was 90.4 million, which was up 13 percent from a year ago. As in the prior quarter, we continue to see a COVID impact on our transaction-based revenue streams. PayModeX and legal spend management, which has disrupted the acceleration in our subscription revenue growth, but those transaction-based revenues will return in full. Excluding those two platforms, subscription revenue growth was 25%. This is meaningful, as it demonstrates our potential to drive 20% or higher growth as the environment normalizes. Subscription bookings were $22.4 million, a strong start to the fiscal year. EBITDA was $26.2 million for the quarter, with 23 percent of revenue. The $26.2 million in Q1 puts us on track to be over $100 million in EBITDA for the year. And we continue to have a strong balance sheet as we enter the quarter with just under $200 million in cash. so strong financial results for the quarter. I'd like to now provide an example of how we win and how our product innovations position us well for continued growth. I'll then conclude with some remarks on our commitment and plans to drive shareholder value. One of the key platforms driving our growth is our digital banking product set. We had a major win this quarter, which highlights the strength of our strategy and the opportunity for future growth. We're pleased to be selected by a major regional bank who will be deploying our DVIQ payments and cash management platform with secure payments. It was particularly interesting and gratifying to see the bank accelerate the conversion of this customer-facing strategic system, despite other competing priorities. They realized that if they waited, they'd risk falling behind their competition. They determined our platform was the clear market leader and represented the best opportunity to aggressively grow their business banking franchise. Beyond our technology, we were chosen because they saw a superior grasp of the bank's strategic imperatives, an enduring commitment to innovation, an unwavering commitment to their success, not just in the sales and implementation phase, but importantly, an empowering, sustained competitive advantage for the bank. Like any bank or key customer, they were choosing a vendor and partner not just based on our capabilities today, but as much or more based on our innovation agenda and what we'll have for the three, five, eight, ten years from now. Across everything we do, we're focused on building great products that deepen the customer engagement and transform the digital experience. The innovation principles we set for ourselves across our entire product set are providing a simple, intuitive, and beautiful software experience. Leveraging embedded intelligence to personalize the user experience, ensure platforms continuously learn and improve performance, and generate data-driven intelligence and insights. And it's all based on an open, API-enabled architecture to make disparate systems work seamlessly, promote interoperability, flexibility, and collaboration, and reduce fragmentation and friction. I'll give a couple examples related to our banking product set. One innovation effort underway is focused on the digital capabilities for corporate and commercial onboarding. Second important new platform capability we're developing is Cash Flow Optimizer, which brings a variety of data related to cash from different sources into one intelligent platform and then provides insights, predictions, and recommendations, all driven by embedded intelligence. These platforms are additional means by which we help banks win and grow their business banking franchise and drive continued growth for bottom line. While we're focused on customers, products, and growing the business as the primary priority, we believe the value of the business is not currently reflected in the stock. We have a four-part plan to address that, focused on growth, profitability, investor outreach, and a buyback program. First and foremost, we will continue producing growth driven by product leadership and innovation. We have a huge market opportunity and a competitive advantage in the markets we address, which will translate to strong growth for years to come. We have 25% growth in our platforms not impacted by decreased volumes and 13% overall in the first quarter. This shows our ability to produce growth at or above our target 15% to 20% range in a normal environment. Accelerating growth will drive a higher valuation. Second, We'll continue to produce strong EBITDA, even while making a significant investment in product development, marketing, and sales. We had EBITDA of 26.2 million in the first quarter, which sets us up well to produce EBITDA of 100 million on the year, a result we're fully committed to. Growth and investment remains our priority, but we can achieve 100 million EBITDA as well. We can do a better job ensuring more investors understand the value we're creating. I'll be doing that personally at several events and meetings with investors over the month of November. We have a great story to tell. $360 million of subscription revenue with strong SaaS metrics, a leading position in large, important markets. Targeted growth of 15% to 20% with an opportunity to exceed that growth and strong EBITDA. Bottom line represents an asymmetrical risk investment for any investor and an extremely attractive price point for SaaS investors. Finally, with the shares undervalued, we'll be buying back shares beginning immediately under our previously authorized $50 million buyback program. So in conclusion, we're really pleased with the results for the first quarter. We're now an 80% subscription SaaS business We're investing and winning with more growth ahead. We're building a valuable franchise, one which will serve customers and reward investors. With the continued growth of our product set and revenues, FY21 will be an exciting and rewarding year for our company and our shareholders. So I'll now turn it over to Rick, and then we'll open up the call for questions.