Bottomline Technologies F1Q08 (Qtr End 9/30/2007) Earnings Call Transcript

Bottomline Technologies (NASDAQ:EPAY)

Q3 2007 Earnings Call

October 25, 2007 5:00 pm ET

Executives

Rob Eberle – President, CEO

Kevin Donovan - CFO

Analysts

Colin Gillis - Canaccord Adams

John Maietta - Needham& Company

Brendan Watkins - D.A. Davidson

David Grossman - Thomas Weisel Partners

Nick Fisken - Stephens, Inc.

Operator

Welcome to the Bottom Line Technologies first quarter 2008earnings conference call. (Operator Instructions) Before commencing the conference, statementsmade today may including forward-looking information subject to risks,uncertainties and other factors that could materially affect actual results.For further information, please see Bottomline's reports filed with the SECpursuant to the Securities Exchange Act of 1934, which are available at theSEC's website, www.sec.gov.

During their remarks, Bottomline will refer to certainnon-GAAP results. These non-GAAP metrics exclude amortization and intangibleassets, and stock compensation expense. Throughout this call, when they referto non-GAAP, it has that meaning.

Now I'd like to turn the conference over to our host, Mr.Rob Eberle. Please go ahead, sir.

Rob Eberle

Good afternoon. Thank you for your interest in BottomlineTechnologies, and welcome to the first quarter fiscal '08 earnings call. I'mdelighted to have the opportunity to report on what was a very good quarter forBottomline.

I am joined by Kevin Donovan, Chief Financial Officer, whowill provide a detailed review of the first quarter financial results as wellas our guidance going forward. We will be available for questions followingKevin's remarks.

The first quarter was a strong quarter for Bottomline, highlightedby continued earnings growth. Revenue was $31.3 million, a 24% increase fromthe prior year, driven by broad-based demand for our corporate payment anddocument automation offerings, as well as delivery of our payment platforms forbanks. Recurring revenue was over $20 million, a new high, and 64% of totalrevenue. EBITDA of $3.4 million is an increase of $1.9 million and more thandouble the levels of our same quarter a year ago. EPS of $0.16 is an increaseof $0.08, or again, a doubling of the prior year's earnings per share.

Backlog at quarter end was a solid $55 million, an increaseof 19% versus the prior year. During the quarter, we purchased $3.7 million instock, and ended the quarter with $65 million in cash. In short, we had thesolid revenues, which, when combined with strong operational focus, drovestrong EPS results.

As I look at the quarter in our prospects going forward,several things are clear. We continue to have strong success with our LegaleXchange Software as a Service SaaS offering. Our plans to replicate that modeland AP automation are progressing on track. We see continued steady demand forour corporate payment and document automation product offerings. We have anactive pipeline for global payment solutions targeted at major banks. I willdiscuss each of these in more detail later in my remarks.

Before doing so, however, I wanted to comment on severalgeneral trends, each of which I mentioned last quarter as well, which ourbusiness is benefiting from and which will continue to be drivers in ourbusiness and we expect will be sustaining forces for a good period of timegoing forward.

The first is the move from paper to electronic. This is notnew, but it's clearly accelerating. There's an increased interest among bothcorporate and bank customers to remove the paper check from the process.

Second, international trade. More importantly, a desire byglobal and domestic enterprises alike for improved global payment capability.That's exactly what we provide.

Third, competition among banks to offer increasingly complexand comprehensive web-based payment functionality to their corporate customers.The web is the face of the bank to its corporate clients. The more globalpayment functionality the bank can offer, the better its competitivepositioning. We are the best choice to provide banks with this importantcapability.

With that, let me go to some of the specifics that occurredin the quarter and that we see going forward. I'll start with our LegaleXchange platform. During the quarter, we added Westchester County Medical Center,the academic medical center of New York Medical College,as a new customer who signed a multi-year contract for Legal eXchange,Bottomline's Software as a Service offering for legal spend management. This isanother customer profile which shows the breadth and appeal of this offering.Each time we add a customer to Legal eXchange, we add revenue to a relativelyfixed cost basis platform. Over time, it has become a highly profitable model,with strong customer retention.

From a profitability perspective, Bottomline achievesoperating margins of over 25% on its Legal eXchange. That's operating margins,and that's after sales development, G&A, and overhead. That didn't happenright away; rather it happened over the course of several years. Initially, theplatform produced a loss. But over three years the margins have moved from aloss position to single-digits, then ultimately to today's levels.

The Legal eXchange platform is a true Software as a Servicemodel. Built on a J2EE architecture, it supports multiple customers andthousands of users from a single Bottomline hosted instance of the software.That provides significant benefits in efficient implementations, reliableservice, and a highly profitable model for Bottomline.

Our AP automation goal has been to replicate what we have inthe Legal eXchange. Last spring we decided to wait for our true Software as aService technology platform to be available, which we expect to release in ourthird quarter and not spend time and money getting customers implementedrunning on lesser platforms. This platform will drive a better customerexperience and a more competitive customer proposition and over time, will besignificantly more profitable for Bottomline. The development of the platformis proceeding on track, and we are no longer marketing the previously marketedacquired products which were effective in getting us in the market, but are notour long-term strategic direction.

Moving to our corporate payments and documents offerings,I'll first comment on our revenue model, which, at its core is quite simple. Westrive to maximize the revenue derived, over time, from our investment intechnology. We approach the market with a bias to more predictable recurringrevenues of subscription and transaction-based pricing models, but our ultimateallegiance is to the customer buying habits and preferences in the particularmarkets we serve.

In the markets where the technology offering competitiveenvironment and buyers favor a subscription or hosted model, that's what weprovide. What that means in practice is that in some markets and for somecustomers we sell software -- as that is the way they've always bought and wantto continue to buy -- and in other markets, we sell on a subscription andhosted model For example, our corporate payments and documents customers, manyof whom have enjoyed our technology for a long period of time, are oftenaccustomed to buying the software model. That's also true of some of thecustomer segments we serve, such as large banks.

During the quarter we added over 20 new payment and documentautomation customers. We believe we have a leading platform, as is evidenced byour being presented last week with Global Finance Award for Best AccountsPayable; and that's for the third year in a row. But more than awards, it is theindication our customers give us. In the last quarter, organizations such asLindt Chocolate, Mill Craft Paper, Toronto Housing, London Overground RailOperations, and Midwest Insurance all chose our solution.

I'd like to highlight one significant deal with a majorinsurance company that chose Bottomline to automate payments from multipletreasury and bank office systems. They're typical of many customers we serve inthat they want to:

(1) Automate and consolidate disparate payment processingsystems, providing visibility in the cash positions across the organization.

(2) They want to increase business efficiency and reducecosts.

(3) They want to reduce bank charges by using fullyvalidated, standard base payment instructions.

(4) They want to comply with regulatory requirements withfull audit and tracking capabilities.

(5) They want to centralize control while enablingindependent operations at remote locations.

(6) Finally, they want to increase electronic payment volumeversus checks, both domestically and internationally.

The solution this organization chose was the WebSeries GlobalCash Management Platform. ACH is the first phase of a planned nine phaseprogram that also includes wires, international payments, and claim checkprocessing.

No other company offers the capability we do in this market.This is why we are recognized by awards, and why over 60 of the Fortune 100 and90 of the Financial Times 100 have chosen Bottomline. It's also one of thereasons many major global banks come to Bottomline to help them providetechnology solutions to their largest customers. We are seeing increasedbusiness with banks and large financial institutions.

Some of the factors behind our success are the increasedinvestment we've made in our product set; our delivery methodology andreference customers; our understanding, and in many cases, relationship withthe banks' largest customers; and the fact that today banks are more interestedin purchasing rather than building the critical technologies that drive theircustomer interface and revenue streams. We are focused on capitalizing on ourpayment opportunities with both banks and corporates. We see our growth andsuccess continuing with increased sales and marketing, broader new technology,and deeper customer relationships.

Kevin will cover a specific guidance going forward, but I'dlike to let you know that we are increasing our revenue and earnings guidance.We do so despite what will be an increased spend in sales and marketing overthe next several quarters and beyond, because we see leverage in the model. Weare confident we will consistently drive increased earnings as we go forward.

In summary, this was a strong quarter. With revenues up 24%,EBITDA up $3.4 million -- more than double a year ago -- backlog of $55million, strong cash generation, and EPS of $0.16 a share. We are wellpositioned to drive future profitability and growth in the business, and I amvery excited about our prospects. We're off to a very good start for fiscal'08.

With that, I'll turn it over to Kevin Donovan for a detailedreview of the financials. We'll then open the call for questions.

Kevin Donovan

Thank you, Rob. Weare very pleased with the first quarter results and the strong start to ourfiscal year. We achieved the high end of our revenue guidance, and we're wellahead of our earnings expectations for the quarter. As we look forward, ourbusiness remains strong and we are increasing our second quarter and full yearguidance. I will provide more details on our updated guidance later in thecall.

The quarter was highlighted by strong financial results,including revenues of $31.4 million, representing 24% growth from last year; EBITDA,up $3.4 million, a 123% increase over last year; recurring revenues growth of20% year-over-year to $20 million; backlog of $55 million, an increase of $8.7million, or 19% from last year; and non-GAAP EPS of $0.16, double the earningslevel of last year.

These results are a clear indication of the strong quarterthat we had. I will now provide a more detailed review of the results.

Software license fees increased from last year, and were$3.4 million for the quarter, driven by broad-based demand for our payments anddocument automation solutions being sold on a perpetual license basis. Recurringrevenues were $20.1 million in the quarter, a new high, and 20% growth on ayear-over-year basis. Recurring revenue, representing 64% of overall revenue,is derived primarily from software maintenance and subscription and transactionrevenues. Subscription and transaction revenues were $6.8 million in thequarter. Recurring revenue for our Legal eXchange offering was approximately$3.3 million in the quarter.

Service and maintenance revenues increased by $4.2 millionto $17.7 million, reflecting increased professional service revenue associatedwith our payments platform provided to banks and higher levels of softwaremaintenance. Excluding equipment and supplies revenue, first quarter revenuegrew 28% from last year.

During the quarter, gross margins were 55%, in line withlast quarter and last year. Margins for software licenses were 94%, anexpansion of 5% from last year. Service and maintenance margins grew 3% to 57%,our highest margin level for this revenue stream in over three years.

Equipment and supplies margins were slightly ahead of priorperiods, and gross margins for our subscription and transaction offeringsdeclined from last quarter, which reflects the continued upfront implementationcosts for our accounts payable automation offering.

On the expense side, non-GAAP operating expenses were $14.5million, a decrease of $1.2 million from last quarter. Sales and marketingexpense decreased by $1.1 million on a sequential quarter basis as a result ofhigher commission accelerators in the prior quarter, which was at the end ofour fiscal year, and lower marketing and trade show activity during the currentquarter. On a year-over-year basis, sales and marketing expenses have increasedby approximately $1 million. We expect sales and marketing costs in the secondquarter to return to fourth quarter levels based on several major trade showsin the quarter, and the additional expense related to new sales hires.

Consistent with our plan, product development costs,representing 13% of revenue, increased by $250,000 from the last quarter. Wecontinued to drive efficiencies in G&A, with expenses decreasing byapproximately $300,000 in the quarter and now representing 11% of revenue, downfrom 14% of revenue a year ago. The lower operating expenses were a key driverin the earnings upside we achieved in the quarter.

On a non-GAAP basis, net income was $3.8 million or $0.16per share, representing a $0.02 increase from last quarter, and double the$0.08 earnings of a year ago. EBITDA for the quarter was $3.4 million, a 123%increase on a year-over-year basis. During the quarter, we recorded a net taxbenefit of $300,000, which was primarily as a result of taxable losses in ourinternational operations. We expect to continue to be in a small tax benefitposition of approximately $100,000 in the second quarter, and a zero taxposition for the remainder of the year. GAAP net loss for the quarter was$800,000, or $0.03 per share.

Turning to the balance sheet, the company ended the quarterwith $65 million in cash and short-term investments. We repurchased $3.7million of stock in the first quarter, at an average repurchase price of$13.14, and have approximately $5 million remaining under the currentrepurchase program. We expect to continue to repurchase shares at these stockprice levels.

From a cash flow perspective, we generated $1 million ofcash from operations in the quarter, and our DSO was 77 days, a slight increasefrom a year ago. Our total backlog at the end of September was $55 million, an$8.7 million, or 19% increase from last year.

Turning to our future financial outlook. As Rob indicated,we are raising our revenue and earnings guidance. We continue to prioritize andalign our offerings towards the greatest opportunities for near and long-termrevenue growth and margin expansion. As a result, we are raising our secondquarter revenue guidance to a range of $31.5 million to $32.5 million. Full yearrevenue is projected to be between $129 million and $131 million.

We are also increasing our second quarter earnings guidanceto $0.13, and increasing our full year earnings guidance from $0.50 to a rangeof $0.57 to $0.59. Our second quarter earnings guidance reflects increasedsales and marketing expenses, which are expected to be closer to the expenselevels in Q4, as well as a lower tax benefit projected for the quarter.

In summary, we had a very good quarter with solid revenue,strong year-over-year software license growth, a 20% increase in recurringrevenue, and a doubling of earnings over the last year. As we look forward, thebacklog and pipeline remain strong, providing us with good visibility on ourrevenue and earnings growth for the remainder of the year.

We will now open up the call for any questions.

Question-and-AnswerSession

Operator

Your first question comes from Colin Gillis - CanaccordAdams.

Colin Gillis - Canaccord Adams

Can you talk a little bit about the demand and EPAY'spositioning with the large global banks for cash management payments in amulti-currency environment? Particularly the double and the multi-[bite] AsiaPac countries?

Rob Eberle

Sure. A good portionof our business results in the quarter is satisfying that demand. Banks have toprovide that payment capability to their corporate customers. As I mentionedbriefly in my remarks, it's one of the main ways they compete. So we'll oftenbe selling to revenue. What I mean by that is we'll often be selling inresponse to a specific RFP a bank may have gotten from one of their largestcorporate customers that is requesting that kind of capability.

What that does is it accelerates the sales cycle, and itputs us in a situation where, from a pricing standpoint, it's imperative to thebank that they have the best solution, confidence in the time toimplementation, and confidence in the quality and customer experience that willresult. Those factors all favor Bottomline, and it's been a real growth driverfor us and we have a very strong pipeline going forward, as well.

Colin Gillis - Canaccord Adams

Can you give us some color about the Wipro agreement, how itcame about, what type of customers they're looking to leverage the cashmanagement solution across? Maybe a timeframe for one that could start toaccelerate or kick in?

Rob Eberle

Well, I would behesitant to commit to a timeframe and when it would kick in, but I would tellyou it's a very positive relationship for us. First off, Wipro is a leadingsystems integrator and outsourced IT provider. It surveyed all the differentproviders for this type of capability and then chose Bottomline. So that, tobegin with, is significant. This is not the only organization of that size orsignificance that has chosen Bottomline.

Wipro and these other organizations all have relationshipswith major banks and major corporates, and what they look to do is to bring inthe leading technologies which they then can provide the implementationservices, much like the consulting services practices that grew up around theERP. So we're delighted with the relationship. It's early to say exactly whatits impact will be, but it's a very positive thing for us to have announced,and there are other situations that we may announce as well.

Colin Gillis - Canaccord Adams

So this follows onthe heels of the Infosys division. Are they looking to sell your products, orare they looking to use your products to drive more efficiencies?

Rob Eberle

Wipro's verydifferent. Wipro is looking to use our product. The way it would work is theycould bring us into customer situations where we don't have a relationship. Sothat might be based on a geography, for example. Our coverage today in the Far East is not as strong as it might be, their coverage is strong. Itmight be an organization that, for whatever reason, we haven't developed a verystrong, strong relationship, and they would have that.

The other side of it is, we have the ability to bring themin, as in larger implementations. If somebody looks at Bottomline and sees anorganization of $125 million in sales and wonders is Bottomline going have thecapability, we now have the additional resources, or bench, if you will, from aWipro on a services basis. So there's a win-win in a couple of differentdirections.

We're a ways away from announcing deals or winning deals,but I'm confident it's going to have a significant impact on the business.

Colin Gillis - Canaccord Adams

On the Legal eXchange side, is there a timetable when wecould see the Sprinter functionality built into that core platform?

Rob Eberle

We'd expect torelease our AP automation platform in our third quarter.

Colin Gillis - Canaccord Adams

We talked about the 20 new payment document automation wins.Were any of those for the Sprinter product itself?

Rob Eberle

No. That's one of theproducts we're not actively selling today. That would be for WebSeries, around paybase or around document automation.

Colin Gillis - Canaccord Adams

Rob, when you look at the landscape of the offering thatyou've got right now, is there any type of technology or strategic gap in youroffering that you might need to fill with an acquisition that could be dilutivegoing forward?

Rob Eberle

No, we don't see anytechnology gaps. We see some technology opportunities. We see some marketopportunities that we have the technology for that we're not yet realizing themaximum potential from. But no, we don't see gaps today that would require us,force us to go out and make a dilutive acquisition.

Operator

Your next question comes from John Maietta - Needham &Co.

John Maietta - Needham & Co.

Rob, just to piggyback off of the Wipro question and thatrelationship, to the extent you are talking to other large systems integrators,would those relationships potentially follow the Wipro model to the extent thatthey would be selling your products, or would they differ?

Rob Eberle

Let me clarify a biton selling. What they really would do is bring us into what becomes a jointsales situation. So while we've trained people and have more trainingscheduled, Wipro and at least one other at this point, the selling would reallyoccur on a joint basis. Because that's a different level of expertise, thatthose organizations are not going to develop, and they would look toBottomline. So it's really more of a partnership than a channel. Does that makesense?

John Maietta - Needham & Co.

Yes. I think lastcall we had talked about you potentially see some LeX customers come up foranniversary on their contracts. Did you see any upgrade activity this quarter,or is that something we look to in the second half of the year?

Rob Eberle

We had one smallerrenewal. We find that that platform where you're integrating and have many,many of the consumer of the legal services law firms on the system, is verysticky. So our renewal rate is in the high 90s. We've had one small divisionthat was acquired once, not renewed, but otherwise we generally are renewingthose contracts. So the renewals are very favorable. This past quarter, we hadone smaller situation that renewed, but there weren't any significant contractsthat were up.

John Maietta - Needham & Co.

The AR number, I know it's not indicative of the health ofthe business for these next couple of quarters here until we have the newplatform release, but if you have that number for this quarter?

Kevin Donovan

Yes, it's really notindicative of the results, as we're not actively selling the AP automationoffering.

Operator

Your next question comes from Brendan Watkins - D.A.Davidson.

Brendan Watkins - D.A. Davidson

Going forward, what are your share count and D&Aexpectations for next quarter and the year?

Kevin Donovan

We expect the sharecount to be at relatively the same levels as we're seeing today, increasing by100,000 shares per quarter.

Brendan Watkins - D.A. Davidson

Domestic and international bank spending has been an issuerecently in the current environment. Are you guys seeing any major changes withthat or lengthening sales cycles? If you could add any color about that, thatwould be very helpful.

Rob Eberle

We've not seen thattoday. And our relationship with many of these organizations is very close, andwe go through a reorganization with them, et cetera. We have not seen thattoday, because probably for the largest partners, we're dealing withorganizations on the corporate cash management side rather than the retail sideof the operation. Fortunately, most of our customers' organizations weren'tfocused on subprime where the majority that the disruption has occurred.

Brendan Watkins - D.A. Davidson

You guys have a pretty large cash position per share on yourbalance sheet, and we really appreciate your discipline with your acquisitionstrategy and your share repurchase. Going forward, we want to get a better ideaof what you're seeing in your acquisition pipeline, if you guys are kind ofpulling back or if you're still actively looking? Or any other choices you canmake with your cash.

Rob Eberle

Looking at acquisitionsis an ongoing process for us. We wouldn't have any specific comment on thepipeline.

Operator

Your next question comes from David Grossman - Thomas WeiselPartners.

David Grossman -Thomas Weisel Partners

First, on the backlog,I saw that it dropped sequentially. Is that a result of stopping the salescycle on the purchase-to-pay product? Or is there something else, is that morea timing issue between more professional services that are in the backlog thatmay impact that number quarter to quarter?

Rob Eberle

No, you're exactlyright. There is some impact from the AP automation that we've had. There's alsoseasonality in our first quarter from an orders perspective.

David Grossman -Thomas Weisel Partners

Looking at your guidance, it looks like you're talking verypositively about the business and the tone of the business. Yet your guidancekind of seems to imply, if my math is right, relatively flat sequentialrevenues for the balance of the year. Can you help us understand that dynamicand what underlies that, given what appears to be an improving fundamentalsituation for the business?

Rob Eberle

Well as Kevin indicated, we look at our backlog and what wehave in the near-term pipeline in setting the revenue guidance. So while we wouldcertainly have the opportunity and hope to do more than that, we think from apractical and prudent standpoint, the guidance we've set on our revenue hasbeen realistic. This past quarter indicates that it in fact was. We're right inthe high end of the range.

David Grossman -Thomas Weisel Partners

If you look at the introduction of the new product in theMarch quarter, is the typical sales cycle that you can sell in front of that sothat you're starting to deliver the product in the March quarter, or is itgoing to be a ramp like we had with the last cycle on the transition?

Rob Eberle

Oftentimes where it's a new release of a product, a newversion, you can sell in advance. But this is really a new product. So ourability to sell in advance of that is limited. In addition, you have therevenue ramp, as it is a Software as a Service model. So while we would expectto book orders and to be able to show the success in the marketplace from anorders perspective, it'll take the time of an implementation and a ramp intransaction volume before you'll see the revenues increase.

David Grossman -Thomas Weisel Partners

So how should wethink about that, Rob? Is there implementation revenue that will accompanythose sales, or is it bundled into the monthly?

Rob Eberle

There isimplementation revenue. But the way the accounting rules treat that is that isblended with the transaction revenues. So while from a cash basis we'd be paidfor services that were related to an implementation, from a revenue recognitionstandpoint, those revenues will be spread over the life of the contract, orexpected duration of the contract.

David Grossman -Thomas Weisel Partners

So that'll show up asdeferred revenue, right?

Rob Eberle

Right.

David Grossman -Thomas Weisel Partners

So the actual revenueimpact, just without getting into detailed numbers, would you expect that subscription and transaction lineto start benefiting in fiscal '09 then? Just for the time being, should weexpect that line item to stay relatively flat with the exception of incrementalsuccesses, maybe, in Legal eXchange?

Rob Eberle

I think we are seeing incremental success in Legal eXchange,and we often see not only new wins but we moved to new divisions that weweren't covering and the like. We will see, then as you indicated in '09, moresignificant impact from AP automation. But that can vary. You can havecustomers that have a more accelerated timeline, more significant volume. Sowe've got a fair amount of experience with the ramp from the Legal eXchange,and it can, as you indicate, take a year's time, but it also can occur on amuch quicker basis. In short, it's difficult to predict.

David Grossman -Thomas Weisel Partners

On that service and maintenance line, since that seems to havebeen the line item that is showing probably the most consistent growth, arethere other indicators that we can look at, or should be looking at, that willhelp us better understand the trajectory of that business? I know you had a bigdeal with [BoA] a while ago. I assume that that's kind of out of that number bynow, at least the bigger implementation piece? How should we think about thegrowth of that line item, not only through the balance of this year but as wego into next year?

Rob Eberle

I'll let Kevin gointo detail on this, but a component of that is actually a similar accountingconcept. That is to the extent there's a discount on the deal, that discount isapplied to the software. So you actually end up showing what was booked assoftware revenues as software business, in the service and maintenance line.

Kevin Donovan

So what we see isgrowth from our payment platforms that we provide to banks. The primary placethat those revenues are recorded are on the service and maintenance revenueline.

David Grossman -Thomas Weisel Partners

Meaning that thesoftware license number, all of the discount shows up in the product side andthe balance, since it's sold as a solution, is showing up in service andmaintenance?

Kevin Donovan

Yes. The professionalservices are valued at the full price, and any remaining amount on the customerorder gets recorded as software license, which can be a small amount of theoverall value of the contract.

David Grossman -Thomas Weisel Partners

So is that why theservice and maintenance line continues to grow, but the software license number-- I know on a year-over-year basis it's up -- but just looking back,eyeballing the last several quarters it stayed relatively flat.

Kevin Donovan

That's exactly right.

David Grossman -Thomas Weisel Partners

Someone had asked the question earlier about the mood ofyour larger banking customers from a spending standpoint. Since your productisn't necessarily an annual kind of spend, if you will, when do you typicallyget a feel for whether or not the broader slowing of the economic growth in theU.S. may be impacting the spend of your customer base?

Rob Eberle

It's interesting.Several years ago, for larger projects, we'd be part of the budget cycle. We'dhave a much longer sales cycle, and we'd know that at this point in timewhether there was budget dollars for a calendar '08 project. What's changed isit's now customer or revenue driven. So we'll get an RFP, and a large componentof the RFP will be around can you implement in 90 days, can you implement insix months time? Because there are requirements or commitments to eithercurrent or prospective customers that are made by the banks. We see much lessof the budget cycle and we see much more of a bank customer driven buyingprocess.

David Grossman -Thomas Weisel Partners

If you look at, for example, the strength in the softwarelicense number this year, and you take out the bigger customer that maybeaccounted for that, how are they using the product? Just as a case study, ifyou will, in terms of how that implementation revenue may roll through over thenext several quarters?

Rob Eberle

Sure. What wouldtypically happen is, particularly following the thread we've just been talkingabout, a large banking or a current customer or a new customer will issue anRFP but it'll be specifically tailored to a customer's RFP or a customer'sdemand. Again, that can be an existing customer or it can be a new customer.

There are situations where we may be contacted by more thanone financial institution, both of whom are competing for a particular corporatebusiness with a particular corporate requirement. It can be either paymenttype, it can be reporting, it can be a low dollar amount or a high dollaramount. Most jurisdictions, there are different payment types for higher orlower dollar amount payments in the U.S.,such as ACH, Fedwire, for example.

Depending on what that particular requirement is that'sbeing placed to the bank, it will drive the bank's urgency and selection inBottomline. Those typically will have a six month to a year implementation.When it's a customer driven project, when it's a strategic project, theimplementation will be a year to 18 months. We have a mix today of both typesof business.

David Grossman -Thomas Weisel Partners

Which one is thedominant? Is it usually the customer-driven or the strategic?

Rob Eberle

You know, it's allmarket-driven so it's very difficult for me to say. And we don't always getvisibility. Sometimes we'll actually be in front of the customer, but that'snot always the case. So I don't mean to not answer the question, in a way but Iwould say it's all market-driven. It's very market-driven in what are theircustomers telling them they require? Sometimes it has a greater level ofurgency, and sometimes it's on a more strategic year-and--half out basis. Butit's all very much driven by the competitive dynamics of the marketplace.

David Grossman -Thomas Weisel Partners

Would that most likely then be a non-bank customer?

Rob Eberle

I'm sorry, no. I wasstaying within the business to banks. And you're right. The timeline on sellingto, for example, on major insurance, that's going to be a more deliberateprocess, and it'll be a more traditional budgeted process. The banks are wherewe can see a particular urgency around timelines.

Operator

Your next question comes from Nick Fisken - Stephens, Inc.

Nick Fisken - Stephens, Inc.

Can you give us an update specifically on the commercialcash management deal pipeline? Characterize it, size of banks in U.S.versus non-U.S.?

Rob Eberle

We're generally stronger in the U.S.today, but we've had increasing success internationally. We're not going tocharacterize it more than that, from a competitive standpoint.

Nick Fisken - Stephens, Inc.

You say it's morerobust now than it's been in years past?

Rob Eberle

Certainly more robust than it's been in years past. Theopportunity for Bottomline, there is clearly an opportunity for us to have astronger presence and selling force internationally.

Nick Fisken - Stephens, Inc.

On the purchase-to-pay, you guys have delayed the rolloutthere. Can you give us an update on when it's going to come out?

Rob Eberle

Third quarter of our fiscal year.

Operator

Your next question comes from Colin Gillis - CanaccordAdams.

Colin Gillis - Canaccord Adams

Rob, I just wanted toget a sense of what is the headcount for sales right now? Also, could you giveus a little color about the focus of the products that they're selling? Has thatshifted a few times over the last 12 months or so? Just to help explain thesuccess on the cash management side.

Rob Eberle

It has shifted a bit. It shifts in response to a couplefactors. One certainly is the markets, for example, as we're seeing morecorporate interests, we just shifted a strong sales individual to LegaleXchange, for example, and added to that team.

Overall, on a global basis, we're about 50 people in oursales organization, quota carrying people at different levels in the salesorganization. We're adding to enterprise payments, and we're adding to bankingtoday.

Colin Gillis - Canaccord Adams

The reason you're adding to banking?

Rob Eberle

Opportunity.

Colin Gillis - Canaccord Adams

It's just that strongin front of you?

Rob Eberle

Absolutely.

Colin Gillis - Canaccord Adams

Is the competitionjust distracted, what with the takeouts and various things like that?

Rob Eberle

There's an element ofthat, but I'd say the factor, frankly that's moved more than the competition isBottomline's moved up. We've had some people that have put in place a greatdelivery process. We've got a strong, strong platform and we have successeswith customers that we can point to. So we're getting a reputation that we're shortlisted on RFPs, where three years ago, RFPs would go down and we didn't knowabout it and weren't included.

Colin Gillis - Canaccord Adams

WebSeries is just avery good modular product.

Rob Eberle

It's a good product,and we've continued to strengthen it. If you think back two years ago, we saidwe were going to make an increased investment in it, and it had an earningsimpact, but it then had a tremendous payoff.

Operator

There are no other questions in the queue. Mr. Eberle,please go ahead.

Rob Eberle

Thank you, everyone. We appreciate your interest and we lookforward to getting together with you on the call for the second quarter.

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