Bottomline Technologies Director Selling on Weakness (EPAY)

From Insider Score: Director Selling On Weakness: The co-founder and chairman of Bottomline Technologies (EPAY) sold almost 30% of his holdings after the company reported poor first-quarter financials that resulted in three analyst downgrades.

Dan McGurl sold 100K shares of EPAY at an average price of $11.08 on May 12th, dropping his holdings in the company to about 235.8K shares. McGurl previously sold 100K shares at an average price of $11.53 on February 1st, and he has exercised options on and immediately sold 107.5K shares this year. Following EPAY's 1999 initial public offering, McGurl owned just under a 15% stake in the company.

EPAY provide software that automates the financial transactions and financial reporting for businesses, enabling payments and collections. McGurl, a former executive at State Street Bank and IBM (IBM), and James Loomis, a former executive at Nashua Corp. (NSHA), founded the company in 1989. EPAY went public at $13.00 per share in February 1999, and the stock closed that year more than 175% higher at $36.00. While EPAY initially weathered the NASDAQ crash, the stock slid into an abyss by April 2001, falling as low as $2.00. More recently, shares of EPAY re-based above the $10.00 mark in December 2004, trading as high as $18.62 last July, before falling to an 18-month low of $9.64 on April 19th.

For the most recent quarter (fiscal Q3, ended March 31st, 2006), EPAY reported a loss of -$2.7M, or -9 cents per share, swinging from a year-ago profit of $1.8M, or 9 cents EPS. Costs related to the company's acquisition of Visibillity, Inc., a provider of legal e-billing solutions specializing in the insurance industry, as well as stock-based compensation, ate away at EPAY's profits, which excluding items, came in at 5 cents per share. Analysts, however, were expecting adjusted earnings of 9 cents per share, and EPAY's modest 1.6% revenue growth, to $24.9M, left the company short of Wall Street's consensus.

As a result of earnings, three research firms downgraded EPAY. DA Davidson took the stock from a "buy" to "neutral," while Stanford Group dropped the name from "buy" to "hold." Needham, meanwhile, revised its rating on EPAY from "strong buy" to "hold," saying that sales were slower than expected and that it now expects revenue to be flat sequentially and earnings to stall at 5 cents per share for the next "several quarters." In a rare admission from a research shop, Needham said its "strong buy" rating, which was put on the stock in January, was "ill-timed" and that its models forecasting revenue growth based on EPAY's shift towards subscription-based products (i.e., recurring revenue) were too aggressive. Interestingly, Needham's original upgrade of EPAY came after the stock sold off in the wake of fiscal Q2 earnings, and the firm's analyst seemed to chastise investors, saying that the reaction to the company's new strategy, which would limit near-term growth, was "misinformation at best and outright panic at worst.