Bottomline Technologies Inc. F3Q08 (Qtr End 03/31/08) Earnings Call Transcript

Bottomline Technologies Inc. (NASDAQ:EPAY)

F3Q08 (Qtr End 03/31/08) Earnings Call

April 24, 2008 5:00 pm ET

Executives

Rob Eberle - President and CEO

Kevin Donovan - CFO

Analysts

Colin Gillis - Canaccord Adams

John Maietta - Needham & Company

John Kraft - D.A. Davidson

Melissa Moran - Thomas Weisel Partners

Brett Huff - Stephens Inc.

Tim Willi - Avondale Partners

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Bottomline Technologies third quarter 2008 earnings conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Instructions will be given at that time. As a reminder, this conference is being recorded.

Statements made today may include forward-looking information subject to risks, uncertainties, and other factors that could materially affect actual results. For further information, please see Bottomline's report filed with the SEC pursuant to the Securities Exchange Act of 1934, which are available at the SEC's website, www.sec.gov.

During the remarks, Bottomline will refer to certain non-GAAP results. These non-GAAP metrics include amortization of intangible assets, stock compensations, and acquisition-related expenses. Throughout this call when they refer to non-GAAP, it has that meaning.

I would now like to turn the conference 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 third quarter fiscal '08 earnings call. I'm delighted to have the opportunity to report on what was a very good quarter for Bottomline. I'm joined by Kevin Donovan, Chief Financial Officer, who will provide a detailed review of the third quarter financial results and our guidance going forward. We will be available for questions following Kevin's remarks.

Bottomline's third quarter was highlighted by continued strong financial performance. We have consistently, each quarter going back to September '06, increased operating income, net income, EBITDA, and EPS. And as you'll see as we go through the numbers, the increases this quarter are once again meaningful.

I also want to point out right here at the start of the call that this was also a very strategic quarter for Bottomline. We identified and during the quarter executed on several strategic opportunities, which will drive future growth, profitability, and, of course, shareholder's return.

We closed on an important strategic acquisition. We signed four new Legal eXchange customers. We've reached verbal agreement with a new significant strategic customer and we have launched and have our first live Business eXchange customer. I'll comment on each later in my remarks.

First, let me turn to the financial highlights. We had revenues of $32 million in the quarter, 63% of which was recurring. Revenue was somewhat impacted by some customers who delayed document automation purchases until the completion of the Optio transaction, and by work we have begun for the new strategic customer, which we've not completed the contract or recorded any revenue.

From an earnings perspective, the results recorded in each performance and profitability metric demonstrate the consistency of Bottomline's business model. Operating income was $4 million, which is up $2 million or double the same period last year. Net income was $4.8 million, also up $2 million from a year ago. EBITDA $4.9 million, was up $2.1 million year-over-year. And EPS was $0.20; that is up 66% from $0.12 a year ago.

Cash flow from operations was a record $8.5 million, and we repurchased $1.9 million in stock, ending the quarter with approximately $77 million in cash.

As we continue to drive our operating plan, we are demonstrating the earnings leverage of our business model. Consistent increasing profitability confirms the course we're on. With the Optio acquisition, our reported numbers over the next several quarters will reflect acquisition accounting and integration costs. But at an operating level, we will continue to run a business driving expanding operating margins and increasing profitability.

With that review of the financial highlights and recognizing that Kevin will go into more detail on the numbers later in the call, I'd like to turn to some of the important strategic activities in the quarter.

As I mentioned up front, this was an important quarter for Bottomline in terms of laying the groundwork for future revenue growth and major expansion. The first strategic event is we closed on the acquisition of Optio Software this past Monday. The benefits we'll reap through this acquisition are many, but I'd like to highlight a few of the most important.

The first is the customer base. Optio brings a large base of 5,000 customers. This represents a significant ongoing maintenance revenue stream, a larger addressable market for future expanded platforms, and an attractive and significant cross-sell opportunity.

With this space, there is an important focus in healthcare with over 700 hospitals and leading healthcare organizations as customers, and we look forward to expanding our presence in this important vertical.

Second, the addition of Optio will extend and solidify our leadership position. As organizations automate and improve the efficiencies of their key business, critical, and document-intensive processes, payments, invoices, and the related day-to-day transactional documents, Bottomline offers the most comprehensive and feature-rich product set to address these challenges.

By combining the domain expertise, development talent, and R&D capability of the two organizations, we enable enhanced products leading to greater value for customers and competitive advantage and increased revenues for Bottomline.

The third benefit centers on operating efficiencies. As a small, public company, Optio is saddled with public company expenses that were disproportionate to its size and impacted both its profit performance and its ability to invest in sales, marketing, and customer-driven initiatives.

In addition, by eliminating the overlap in our management and administrative functions, and by ensuring we've the right people in each role, the right number of people in each function, significant operating efficiencies will be achieved.

We have a high level of confidence in these synergies based on the detailed planning and work we've done over the last several months. I'm delighted to report that one week into it, we are tracking ahead of where we thought we'd be.

So from a strategic standpoint, we've added a business that is a direct fit within Bottomline, adds recurring revenue, a large customer base, and a strong presence in healthcare and brings significant synergistic benefits.

The second strategic area I'm pleased to announce is that we have signed four new Legal eXchange customers in the quarter. This is a great result. We generally target one or two new customers per quarter, and we not only signed four new customers, but a great set of companies; Charter Communications, John Hancock Life Insurance Company, Ophthalmic Mutual Insurance Company, and MDAdvantage.

These are important, and I characterize them as strategic because we don't see any revenue in the quarter; rather, the service they signed on to is a software as a service, or SaaS platform. For those of you not familiar with it, our Legal eXchange platform receives legal invoices and then reviews them with the rules engine, which determines the right amount to pay, a process which can save up to 10% of the legal bill and 50% of the administrative expenses.

We get paid on a transactional base as a percentage of the invoice amount. So what we did was add four new customers, each of which, once implemented, will be providing us with a new recurring revenue stream, driving additional revenues and additional and predictable profitability.

The next area I'd like to comment on is a particular strategic customer opportunity for our WebSeries platform. We saw considerable positive pipeline activity in the quarter and we have reached a verbal agreement with this one very excited new customer.

Now, unfortunately, since we just did a verbal, we're not in a position to talk about this in much detail, but it represents an important strategic deployment of our global payment technology. It also takes the form of a very interesting revenue share deal where we'll receive a component of the revenue upside and a base annual subscription. We began work on this project in the quarter and hope to finalize the contract soon. And, of course, once we do, we'll be in a position to talk more about it.

The fourth item from a strategic perspective is we have our first customer live on the Business eXchange. Our general availability release date was April 11th. But we have worked with this customer on a new codebase and they are now running live.

When I step back and look at our performance in the quarter, I am quite pleased. We delivered strong financial results, demonstrating the continuing evolution and power of our business model. And at the same time, with our eye to the future, we completed an important acquisition, won new customers, and launched new products.

Looking at these results and activities and more broadly at our pipeline of future opportunity, I am confident Bottomline will produce strong results going forward, and I look forward to reporting these future results to everyone on this call.

With that, I'll turn it over to Kevin Donovan for a detailed review of the financials and our guidance going forward, and then after that we'll be available for any questions.

Kevin Donovan

Thank you, Rob. We are very pleased with the third quarter results, as we continue to demonstrate the considerable leverage in our financial model. We have reported record earnings for the quarter and are executing on several strategic initiatives, which will drive future revenue growth and profitability.

The quarter was highlighted by strong financial results. Revenues were $32 million, of which 63% or $20.1 million was recurring. Subscription and transaction revenue increased by $500,000 on a year-over-year basis, to $7.2 million. EBITDA was a record $4.9 million, representing an increase of 75% from last year.

Cash at the end of the quarter was $76.9 million, which was driven by record cash flow from operations of $8.5 million. Backlog was $57 million, an increase of $1.1 million from last quarter, and non-GAAP earnings per share were $0.20, a new record high. These results are a clear indication of another strong quarter.

I will now provide a more detailed review of the results. Recurring revenues were $20.1 million in the quarter, a 6% increase over last year. Recurring revenue represented 63% of overall revenue, and is derived primarily from software maintenance and subscription and transaction revenues.

Subscription and transaction revenues increased to $7.2 million in the quarter and represented 23% of overall revenue. The increase in subscription and transaction revenue was primarily driven by our Legal eXchange offering.

Recurring revenue for Legal eXchange was $3.4 million in the quarter, an increase of $400,000, or 13%, from last year. In addition to the strong Legal eXchange revenue growth in the quarter, we also signed four new Legal eXchange customers, which will drive future revenue growth and profitability.

Service and maintenance revenues increased by $1.5 million from last year to $18.4 million, reflecting increased professional service revenue associated with several large banking implementations.

During the quarter, overall gross margins were 56%, which represented a slight decline from last quarter, driven by lower software license revenue, our highest margin offering. On a line-by-line basis, our gross margins for software licenses, subscription, and transaction, and service and maintenance revenues, were all inline with historical levels.

Turning to operating expenses. Non-GAAP operating expenses were $13.8 million, a decrease of $1.2 million from last quarter. Sales and marketing costs decreased $600,000 from last quarter, as a result of the timing of several sales and marketing campaigns and initiatives, as well as a couple of large trade shows in the prior quarter.

Development costs were $3.8 million, and represented 12% of revenue in the quarter. G&A expense decreased $400,000 to $3.4 million, which reflects our continued focus on reducing our administrative expenses.

Operating income was $4 million in the quarter, double the operating income levels of a year ago. Operating margin increased to 13% in the quarter, from 10% last quarter. The leverage in our financial model is very evident as we've grown our operating margin from 6% a year ago to 13% in the most recent quarter, and we are on track to deliver 20%-plus long-term operating margins.

On a non-GAAP basis, net income was a record $4.8 million, or $0.20 per share, representing a 67% increase from the $0.12 we reported a year ago. EBITDA for the quarter was $4.9 million, 75% higher than last year.

During the quarter, we recorded tax expense of approximately $270,000. The increase in tax expense from last quarter was the result of stronger profit generated by the business in the quarter. GAAP net loss for the quarter was approximately $350,000 or $0.01 per share.

Turning to the balance sheet. The Company ended the quarter with $76.9 million in cash and short-term investments, an increase of $5.7 million from last quarter. We increased our cash position in the quarter while at the same time using $1.9 million of cash to repurchase stock in the quarter.

From a cash flow perspective, we generated $8.5 million of cash from operations. Over the last 12 months, we've generated $20 million of cash from operations and in excess of $15 million of free cash flow.

Earlier this week, we completed the acquisition of Optio Software. After taking into account the net cash used in the acquisition, we continue to have a strong balance sheet with approximately $40 million of cash on hand and zero debt.

Our total backlog at the end of December was $57 million, a $1.1 million increase from last quarter. The increase in backlog was driven by strong order flow of $34.3 million in the quarter.

Turning to our future financial outlook, we are confirming our fourth quarter guidance. Our forward guidance includes the operations of Optio with adjustments in three key areas. First, we've factored in the reduction of revenue related to the accounting haircut on maintenance revenue.

Second, we've incorporated our detailed integration plan, which we are now executing on. We will be more aggressive on the integration plan than originally planned, and that will generate some increased fourth and first quarter costs. Already today, less than one week after we've closed, Optio is a leaner and more focused business on its way to being fully integrated into Bottomline.

And third, we are discontinuing certain non-profitable revenue programs, which will drive less revenue but create a tighter, more efficient company. The effect of these adjustments drives near-term dilution, which does not properly reflect the long-term accretive value of the transaction.

In fact, if it were not for the financial accounting conventions around acquisitions that disallow as much as half the maintenance revenue and the operating costs of completing the integration, this transaction would be immediately accretive. We're confident this plan will drive strong, long-term financial returns for Bottomline.

In the June quarter, we are expecting revenue of between $35 million and $35.5 million and earnings per share of $0.10 to $0.11.

Turning to the first quarter, a quarter in which we have typical seasonality, we are expecting revenue of between $35.5 million and $36 million and earnings per share of $0.10 to $0.11. The earnings guidance reflects our expectation that we'll have a small tax expense of approximately $100,000 to $200,000 for the next several quarters.

As we look out to fiscal '09 and giving considerations to the maintenance haircut, accelerated integration and discontinuation of certain revenue programs, we are projecting full-year revenue of $150 million to $155 million, and annual earnings of $0.64 to $0.67.

In summary, we had a very good quarter with record EBITDA of $4.9 million, record cash flow from operations of $8.5 million, and record earnings of $0.20 per share. As we look forward, the backlog and pipeline remain strong, providing us with good visibility on our revenue growth for the remainder of the year.

We will now open up the call for any questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions)

And our first question comes from the line of Colin Gillis with Canaccord Adams. Please go ahead.

Colin Gillis - Canaccord Adams

Hey, good afternoon. Thanks for taking my question. Can you hear me?

Kevin Donovan

Yes.

Rob Eberle

Yes. Yes, keep going. How are you?

Colin Gillis - Canaccord Adams

Good. I was just wondering, can you walk me through the adoption time line for Business eXchange?

Rob Eberle

Sure. We today have a customer live. That customer's brought on a number of suppliers. We're now ramping the level of suppliers. We have a couple of other customers lined up to begin implementations in later -- probably towards the end of Q4, beginning of Q1.

And then, at this point we're now broadening out the sales and marketing efforts around it, around the Business eXchange, including possible channel partners, exploring possible channel partners. Because last we built out this offering there's been a fair level of interest from that perspective.

From a revenue standpoint, you won't see meaningful revenues and you'll continue to see meaningful costs through certainly calendar '08 and well into FY '09. But what we're doing today is building out the functionality, the network, and the reference customer base.

Colin Gillis - Canaccord Adams

I mean, should we be thinking of it in similar terms of Legal eXchange where it took a few years to get that critical base...

Rob Eberle

I think…

Colin Gillis - Canaccord Adams

…revenue?

Rob Eberle

I think that's right. And then -- but the power -- you crossed two lines. I think that's a very good observation, Colin. The power of the model is that once you've got this fixed cost base and you're then cross on a recurring revenues -- you cross the recurring revenue crosses the cost level, you're producing a highly predictable and profitable business model.

You look at the Legal eXchange today, and we've got very attractive margins. When we add four new customers, as we did this quarter, the vast majority of those revenues will go to -- will make their way to the bottomline.

Colin Gillis - Canaccord Adams

On that cost side, I was expecting that some of the ramp costs for Business eXchange would start to tap down in the back half of this year and into 2009. We might lose track of that now just with the Optio integration. I mean, could you just give us some color? Is that still--

Rob Eberle

What changes, actually, what shifts is you move from more of a development cost. And so you saw a little -- development costs a little lighter. But what'll happen is you end up having significant project and implementation costs because you're really implementing a new workflow around the whole receipt, approval, and processing of invoices.

Colin Gillis - Canaccord Adams

Sure.

Rob Eberle

So that has sales, SE, and it has project management costs all related to it.

Colin Gillis - Canaccord Adams

And then what's the sales force headcount right now?

Kevin Donovan

We have about 50 salespeople.

Colin Gillis - Canaccord Adams

And how many -- is that an increase often? Or I guess how many are selling Business eXchange, if you could figure it in that way.

Rob Eberle

Business eXchange today, we don't have a separate team on that today.

Colin Gillis - Canaccord Adams

Yes.

Rob Eberle

So what we've been doing is having the existing team. That's one of the things we're looking at now. We have product, do we want to have a fully functioned separate team, and that we do not today.

Colin Gillis - Canaccord Adams

Okay. Great. Thank you.

Operator

Thank you. And our next question comes from the line of John Maietta with Needham and Company. Please go ahead.

John Maietta - Needham & Company

Hi, thanks very much. First question I had, Rob, is I was wondering if you could comment on any difference in customer purchase behavior with regard to your U.S. customers versus the folks in the U.K.

Rob Eberle

We've not seen a difference. The other way I would look at the market too is across corporate as compared to a larger financial institution.

John Maietta - Needham & Company

Sure.

Rob Eberle

As you know, we work with many of the global banks. And the comment I'd also make in there if you'd allow me to expand the answer is, we've not seen a slowdown with our global bank customers. I think a component of that is the fact that we're selling to revenue and their competitive advantage.

If anything, we're seeing the pipeline today as probably as active as it's ever been. So, no, I've not seen anything different domestically versus international.

And then twisting that a little bit, on the global banks where there's been -- a couple quarters ago there was concern as to what we'd see. We've certainly not seen any slowdowns; seen an awful lot of activity. And that's one of the areas we continue to ramp-up.

John Maietta - Needham & Company

Got it. Okay. And if you look at order flow and backlog year-over-year, down a little bit. Is that a function of what you prefaced the call with, with regard --

Rob Eberle

Yes. The thing…

John Maietta - Needham & Company

Okay.

Rob Eberle

…you can't -- a couple things are on that. One is you've got customers on the document automation side that froze to see what would end up happening with the acquisition. The other piece you have is that you can have bigger orders on a banking business in any given quarter. We've had orders at this point in the over $10 million. And so that's going to create some lumpiness on a quarter-to-quarter basis in orders. It's a tough metric to look at just quarter-over-quarter.

John Maietta - Needham & Company

Got it. Then just the last question with regards to the profitability outlook for fiscal --

Rob Eberle

Actually, let me add…

John Maietta - Needham & Company

Yes.

Rob Eberle

…something on that.

John Maietta - Needham & Company

Sure.

Rob Eberle

What I'll say is so there wasn't in this quarter a big $5 million or $10 million banking order, which would other -- which would pop that…

John Maietta - Needham & Company

Skew it.

Rob Eberle

…number up.

John Maietta, Needham & Company - Analyst 39

Got you. Okay.

Rob Eberle

Which is fine. There's plenty of pipeline. There's plenty of activity. It's not an issue, but it does mean that the orders number can bounce around a bit.

John Maietta - Needham & Company

Okay. And then, just the final question with regard to the earnings outlook for fiscal '09. You're adding roughly $20 million in revs, earnings outlook is flat to modestly up. What are some of the inputs to operating margins there…

Kevin Donovan

Yes. One of…

John Maietta - Needham & Company

…over the next two quarters?

Kevin Donovan

Yes. One of the things I would say is, is we've moved through our integration plan with respect to Optio. We're going to be more aggressive with cutting some of the revenue programs. So where previously we expected to see about $20 million from the acquisition, today we would see $15 million to $18 million in revenue from that acquisition.

And it's our belief that by cutting some of the custom one-off revenue programs that they have, we'll end up with a tighter, leaner operation, which will drive increased profitability on a long-term basis.

Rob Eberle

Yes. Let me make a comment or two. I view that as a very positive development. If you take a look at the lower of the two numbers Kevin gave, $15 million, and a net $35 million purchase price, that's a 2.3 revenue multiple for what becomes a highly predictable, highly profitable addition to our business.

So I don't want the connotation to be that that's negative news that it's less revenue. I think it's tighter, more predictable revenue base. And we're not chasing things like one-off custom development efforts that don't end up producing profitability or repeatability in the model.

John Maietta - Needham & Company

That makes sense. Thanks very much.

Kevin Donovan

Thank you.

Operator

Thank you. And our next question comes from the line of John Kraft with D.A. Davidson. Please go ahead.

John Kraft - D.A. Davidson

Good afternoon, guys. I just wanted to clarify on the guidance. The new customer that you've got this verbal commitment from, is that included in the guidance or would that be an increase if that was actually…

Rob Eberle

No, we don't know enough about how that'll really pan out. So the base subscription we'd have in the guidance, what the revenue share potential could be, we've not put anything in the guidance. We're very conservative, as you know, John, about our guidance. It doesn't help us and it doesn't help you to get overly aggressive about that.

So, no, there isn't any upside to that in the guidance. And as we go forward and get better visibility on it, and certainly -- obviously, as we sign the deal, we'll be able to share more about it.

John Kraft - D.A. Davidson

Sure. And following up on your comments about achieving the 20% operating margins. Do you have a goal in mind of when that might happen? Is that something we can see? I mean, at this rate, it should happen in '09?

Rob Eberle

No, it won't happen in '09. It would happen as we look out on a two-to-three-year basis.

John Kraft - D.A. Davidson

Got you. And then, a couple other house keepings, Kevin. How many shares did you repurchase?

Kevin Donovan

We repurchased $1.9 million, which is about 150,000 shares that we repurchased.

John Kraft - D.A. Davidson

150,000, okay. And then the percents, you guys used to give this out. I don't know if you still will. But the percent of your revenue that was generated domestically versus outside of the U.S., what is that?

Kevin Donovan

It was inline with historic levels. It was in the mid-40%...

John Kraft - D.A. Davidson

Okay.

Kevin Donovan

…for international revenue.

John Kraft - D.A. Davidson

Great. Thanks, guys.

Operator

Thank you. And our next question comes from the line of Melissa Moran with Thomas Weisel Partners. Please go ahead.

Melissa Moran - Thomas Weisel Partners

Hi. Good afternoon.

Rob Eberle

Good afternoon.

Melissa Moran - Thomas Weisel Partners

I actually just wanted to ask on your revenue guidance. So your contribution from Optio is, you said you were assuming $15 million to $18 million.

Kevin Donovan

That's correct.

Melissa Moran - Thomas Weisel Partners

So I'm getting that the growth on your core is about $6 million or 4% if you take out a little bit of contribution in -- at the end of 2008. Does that sound about right? Is that what you're thinking for your model?

Kevin Donovan

Well, in the guidance piece, there's, for Optio, $15 to $18's the target. There's certainly some overlap between Optio and Bottomline. So we would target a higher growth rate than that. But as you do the numbers for percentage growth based on what we've given for guidance, yes, that's what that would come out to. I'd expect we'll be growing the business at a considerably higher level than that.

Melissa Moran - Thomas Weisel Partners

Okay. But just so the core business, though, because I guess it grew, I'm looking at my model, over 15% in fiscal '07, and 10% to 12% in '08. So I guess I'm just trying to understand why it's in the low single digits.

Kevin Donovan

Well, actually, I haven't done this. But I think if you went back and looked at the guidance, you'd see similar growth levels from a guidance perspective. Our business two years ago was at about $100 million, today we're at 130, and we'll be at well over 150. So growth has not been an issue for the business.

We don't want to get out ahead of ourselves with guidance, particularly where we're bringing Optio in and going through the revenue streams to say what are the most valuable pieces, what pieces do we want to keep, what do we not want to keep. And with, by the way, the cuts of people that are part of the synergies, we know there'll be some revenue falloff there as well.

Melissa Moran - Thomas Weisel Partners

Revenue falloff on the Optio side?

Kevin Donovan

Yeah.

Melissa Moran - Thomas Weisel Partners

Or are you talking about on the --

Kevin Donovan

There'll be a little of that. There'll be a little leakage. I mean, you can't have major reductions in headcount and not lose some component of the revenue. So we've not -- we haven't changed our feeling about the growth prospects for the business at any level. The guidance is relatively conservative as we bring in the Optio acquisition. But the growth prospects for the business have not changed.

Melissa Moran - Thomas Weisel Partners

Okay. I guess I'm trying to understand just inter -- so when you're talking about the business, are you talking about Optio or are you talking about the core EPAY business?

Rob Eberle

Well, Optio would now be part of EPAY, so I'd talk about the whole business.

Melissa Moran - Thomas Weisel Partners

Okay. And then in terms of the -- you mentioned some customer delays in signing because of the acquisition. Can you quantify the impact of that or just give us a sense for how much revenue might have moved out as a result of that?

Kevin Donovan

You know it's difficult to quantify. We know that we've seen pretty good results already in the month of April which deals are through there. I'm not sure, the other piece in the quarter, we had a couple of deals that weren't recognized from a revenue standpoint just due to the terms of the contract on the software line that were payments related. So there's a couple of different factors that I think we'll see come into the fourth quarter here.

Melissa Moran - Thomas Weisel Partners

Okay. And then just lastly, on Legal eXchange, did you say it was $3.4 million? I think I might have missed that number.

Kevin Donovan

Yes, $3.4 million.

Melissa Moran - Thomas Weisel Partners

Okay. And was there any reason why it ticked down slightly sequentially?

Kevin Donovan

Yes. We end up having a larger revenue volume on some of the transactional revenue stream for Legal eXchange at the end of the calendar year, so calendar year end companies will push through a larger amount of volume of invoices as they close out their fiscal year. So, we typically have a slightly stronger December quarter for revenue for a couple of our large customers.

Melissa Moran - Thomas Weisel Partners

Okay. Great. Thank you.

Rob Eberle

Thank you.

Operator

Thank you. And our next question comes from the line of Brett Huff with Stephens, Incorporated. Please go ahead.

Brett Huff - Stephens Inc.

Good afternoon, guys.

Kevin Donovan

Good afternoon.

Brett Huff - Stephens Inc.

Quick question. I just have one. Most of my questions have been answered. You mentioned in your press release about some further developments with the Bank of America. Could you just give us a sense of any color on what's going on in progressing there?

Rob Eberle

Well, we're working with Bank of America on a -- international payment platforms and there's several different releases of that. We're now moving into the next stage of that project. More color than that, we're not going to provide here on the call just from a competitive standpoint, its product functionality that they've not yet announced to the market.

Brett Huff - Stephens Inc.

Okay. And then also, from a purchase-to-pay point of view, somebody asked earlier how that's going to roll out. It sounds like you've got a -- or a sort of a beta customer that's turned into a live customer and you've got a couple of more that you feel pretty good about that may close in the next quarter or two.

When you think about the sort of size and the makeup of those customers, are there early deals going to be bigger because you've been chasing the larger companies, or will they be smaller? Is there any sort or rollout pattern?

Rob Eberle

Yes, it's a good question, and it's interesting. We have a relatively small company and we have a Fortune 100 amongst us -- amongst the three. So I think it's pretty broad-based.

Brett Huff - Stephens Inc.

Those are my only two questions. Thank you.

Operator

Thank you. And our next question comes from the line of Tim Willi with Avondale Partners. Please go ahead.

Tim Willi - Avondale Partners

Hi. Thanks. Good afternoon. I apologize if I ask a repetitive question. I dropped off the line with a bad connection. But so here are a couple questions. One, if I could just go back to the full year sort of '09 revenue outlook and the question about the sort of organic growth of EPAY. Is this strategic customer in that guidance or have you elected not yet to put that strategic customer into that guidance?

Kevin Donovan

Yes, we don't have a lot of revenue for that strategic customer in our guidance. As Rob mentioned, there's a revenue share arrangement that's all upside to our guidance at the current moment.

Tim Willi - Avondale Partners

Okay. And then this maybe trying to get too granular, but would you be willing to comment, sort of, if the Optio deal had not happened, it sounds like the math from the prior question was EPAY would have put up 4% growth, and I know there's probably moving parts in there and you have various revenue streams.

But had Optio not been there, would we have been getting a guidance number on fiscal '09 revenue, whether it'd be now or next question that would be 4% growth, or would you've articulated a numbers you asked that would have been higher and more compelling?

Rob Eberle

No, I think actually the impact is the opposite. I think the quarter, frankly, we'd like to think that an acquisition doesn't impact the quarter, but the reality is it does. It impacts customer decisions in this quarter and it impacts the time that people are spending integrating sales teams, integrating development teams, SE teams.

As we look out going forward, there's a fair amount of uncertainty with a new acquisition. So we've been conservative around that. We expect it to be, as Kevin said, in the $15 million to $18 million range. But we've, in the aggregate, issued a relatively conservative guidance number. What we look forward to doing is upping that as we move -- increasing guidance as we move forward.

Tim Willi - Avondale Partners

Yeah. So, that sounds like that had Optio not been acquired and you just really could still focus on what you're doing and what you're selling and not worrying about them, that you would have said, Bottomline Technologies, as it stands right now in '09, you would have been giving us revenue guidance that was better than 4%, but…

Kevin Donovan

Absolutely.

Tim Willi - Avondale Partners

…now let's just see how this shakes out and let's be careful. Okay.

Rob Eberle

Yes, that's a --

Tim Willi - Avondale Partners

And then, I am --

Rob Eberle

That's a very fair characterization. Thank you.

Tim Willi - Avondale Partners

Okay. And then just a last question, again, I was having a hard time with the cell connection. But on your non-GAAP guidance for 4Q, 1Q, Kevin, given the impact of Optio, did you say whether or not that you were basically confirming the core business guidance? But then once you put the impact of Optio in, that is the net results? Just trying to understand that the core business probably would have met expectations that you had laid out on the last call.

Kevin Donovan

Yes, that's correct. We, on the last call, we had given fourth quarter guidance of $0.15 to $0.16, and…

Tim Willi - Avondale Partners

Okay.

Kevin Donovan

…in March on the conference call where we announced the Optio transaction, we announced that there'd be $0.05 dilution…

Tim Willi - Avondale Partners

Okay.

Kevin Donovan

…taking that $0.15 to $0.16 down to the $0.10 to $0.11 guidance that we currently have today.

Tim Willi - Avondale Partners

Okay. So everything on that underlying basis is still good?

Kevin Donovan

That's correct.

Tim Willi - Avondale Partners

I appreciate it truly. Thanks a lot.

Kevin Donovan

Thanks.

Operator

Thank you. And we have no more questions in queue at this time. Please continue.

Rob Eberle

Well, thank you. Thank you all for your time, and we look forward to reporting on the results for Q4 in early August.

Operator

Thank you. Ladies and gentlemen, this conference will be made available for replay after 7:00 p.m. Eastern Time today, until May 1st at midnight. You may access the AT&T Executive Playback Service at any time by dialing 1-800-475-6701 and entering the access code 919185. International participants may dial 1-320-365-3844. Again those numbers are 1-800-475-6701 and 1-320-365-3844, access code 919185.

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