QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2019
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-25259
——————
Bottomline Technologies (de), Inc.
(Exact name of registrant as specified in its charter)
——————
Delaware
02-0433294
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
325 Corporate Drive
03801-6808
Portsmouth,
New Hampshire
(Address of principal executive offices)
(Zip Code)
(603) 436-0700
(Registrant’s telephone number, including area code)
——————
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:
Trading Symbol(s):
Name of each exchange on which registered:
Common Stock, $.001 par value per share
EPAY
The Nasdaq Global Select Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐No ☒
The number of shares outstanding of the registrant’s common stock as of January 31, 2020 was 44,007,641.
Accounts receivable net of allowances for doubtful accounts of $893 at December 31, 2019 and $824 at June 30, 2019
67,946
77,285
Prepaid expenses and other current assets
29,451
30,434
Total current assets
196,842
213,061
Property and equipment, net
71,616
54,541
Operating lease right-of-use assets, net
24,294
—
Goodwill
208,836
206,101
Intangible assets, net
161,695
168,349
Other assets
31,648
27,177
Total assets
$
694,931
$
669,229
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
$
15,940
$
10,947
Accrued expenses and other current liabilities
42,739
33,945
Customer account liabilities
8,475
5,637
Deferred revenue
65,166
75,097
Total current liabilities
132,320
125,626
Borrowings under credit facility
100,000
110,000
Deferred revenue, non-current
13,286
17,062
Operating lease liabilities, non-current
20,988
—
Deferred income taxes
7,420
10,345
Other liabilities
24,983
26,819
Total liabilities
298,997
289,852
Stockholders' equity
Preferred Stock, $.001 par value:
Authorized shares-4,000; issued and outstanding shares-none
—
—
Common Stock, $.001 par value:
Authorized shares-100,000; issued shares-47,645 at December 31, 2019 and 46,995 at June 30, 2019; outstanding shares-41,697 at December 31, 2019 and 41,315 at June 30, 2019
48
47
Additional paid-in-capital
744,359
721,438
Accumulated other comprehensive loss
(37,631
)
(43,593
)
Treasury stock: 5,948 shares at December 31, 2019 and 5,680 shares at June 30, 2019, at cost
Notes to Unaudited Condensed Consolidated Financial Statements
December 31, 2019
Note 1—Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Bottomline Technologies (de), Inc. (referred to below as we, us, our or Bottomline) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States (GAAP) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals and adjustments) considered necessary for a fair presentation of the interim financial information have been included. Operating results for the three and six months ended December 31, 2019 are not necessarily indicative of the results that may be expected for any other interim period or for the fiscal year ending June 30, 2020. For further information, refer to the financial statements and footnotes included in the Annual Report on Form 10-K as filed with the Securities and Exchange Commission on August 29, 2019.
Note 2—Recent Accounting Pronouncements
Recently Adopted Pronouncements
Leases:In February 2016, the Financial Accounting Standards Board (FASB) issued an accounting standard update which requires balance sheet recognition of a lease liability and a corresponding right-of-use (ROU) asset for all leases unless, as a policy election, a lessee elects not to apply the standard to short-term leases. The pattern of recognition of lease related revenue and expenses are dependent on its classification. We adopted the standard on July 1, 2019 and elected the package of practical expedients which permitted us not to reassess prior conclusions regarding lease identification, lease classification and treatment of initial direct costs. For all asset classes, we adopted the lessee practical expedient to combine lease and non-lease components and made a policy election not to recognize a ROU asset or lease liability for leases with a term of less than twelve months. We also availed ourselves of the adoption expedient not to adjust our comparative period financial statements for the effects of the new standard or make additional disclosures for periods prior to the adoption date.
Upon adoption, we recognized operating ROU assets and operating lease liabilities of $26.7 million and $29.0 million, respectively, in our consolidated balance sheet. The difference between the ROU assets and lease liabilities is primarily related to the reclassification of deferred rent on our balance sheet at the date of adoption. The adoption of this standard did not have a material impact on our consolidated statements of comprehensive income (loss) or consolidated statements of cash flows.
Financial Instruments - Credit Losses: In June 2016, the FASB issued an accounting standard update that introduces a new forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments including trade receivables. The estimate of expected credit losses will require entities to incorporate historical information, current information and reasonable and supportable forecasts. This standard also expands the disclosure requirements to enable users of financial statements to understand the entity’s assumptions, models and methods for estimating expected credit losses. We will adopt this standard on July 1, 2020 and are currently evaluating the anticipated impact of this standard on our financial statements.
Goodwill Impairment:In January 2017, the FASB issued an accounting standard update to simplify the test for goodwill impairment which removes step 2 from the goodwill impairment test. Under the revised standard, an entity will perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The loss should not exceed the total amount of goodwill allocated to the reporting unit. We will adopt this standard on July 1, 2020 on a prospective basis and do not currently expect the adoption of this standard to have a material impact on our financial statements.
Income Taxes:In December 2019, the FASB issued an accounting standard update related to simplifying the accounting for income taxes. The standard is effective for us on July 1, 2021, with early adoption permitted. We are currently in the process of evaluating the effects of this update on our financial statements, including potential early adoption.
The transaction price we allocate to remaining performance obligations that are unsatisfied, or partially unsatisfied, as of December 31, 2019 represents contracted revenue that will be recognized in future periods. Our future performance obligations consist primarily of SaaS hosting/subscription obligations relating to future periods, contracted but uncompleted professional services obligations and support and maintenance obligations. During the three and six months ended December 31, 2019 and 2018, the amount of revenue recognized from performance obligations satisfied in prior periods was not significant.
Revenue allocated to remaining performance obligations was $399.2 million as of December 31, 2019 of which we expect to recognize approximately $156.2 million over the next twelve months and the remainder thereafter. We exclude from our measure of remaining performance obligations amounts related to future transactional or usage-based fees for which the value of services transferred to the customer will correspond to the amount we will invoice for those services.
Contract Assets and Liabilities
The table below presents our accounts receivable, contract assets and deferred revenue balances as of December 31, 2019 and June 30, 2019.
December 31,
June 30,
2019
2019
$ Change
(in thousands)
Accounts receivable
$
67,946
$
77,285
$
(9,339
)
Contract assets
2,939
5,135
(2,196
)
Deferred revenue
78,452
92,159
(13,707
)
Accounts receivable include amounts related to our contractual right to consideration for both completed and partially completed performance obligations, including amounts that may not have been invoiced. Contract assets arise when we recognize revenue in excess of amounts billed to the customer and the right to payment is contingent on conditions other than simply the passage of time, such as the future completion of a related performance obligation. Contract assets are classified in our consolidated balance sheets as other current assets for those contract assets with recognition periods of one year or less and other assets for contract assets with recognition periods greater than one year. Deferred revenue consists of billings or customer payments in excess of amounts recognized as revenue.
The decrease in deferred revenue at December 31, 2019 as compared to June 30, 2019 reflects the impact on deferred revenue of our recognition of revenue from maintenance contracts, a significant portion of which are billed on a calendar year basis, as well as the impact of foreign exchange changes.
For the three and six months ended December 31, 2019, we recognized $30.0 million and $64.0 million, respectively, in revenue from amounts that were included in deferred revenue as of June 30, 2019. For the three and six months ended December 31, 2018, we recognized $24.7 million and $51.8 million, respectively, in revenue from amounts that were included in deferred revenue as of July 1, 2018.
We measure fair value at the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the assumptions that market participants would use in pricing an asset or liability (the inputs) are based on a tiered fair value hierarchy consisting of three levels, as follows:
Level 1: Observable inputs such as quoted prices for identical assets or liabilities in active markets.
Level 2: Other inputs that are observable directly or indirectly, such as quoted prices for similar instruments in active markets or for similar markets that are not active.
Level 3: Unobservable inputs for which there is little or no market data and which require us to develop our own assumptions about how market participants would price the asset or liability.
Valuation techniques for assets and liabilities include methodologies such as the market approach, the income approach or the cost approach, and may use unobservable inputs such as projections, estimates and management’s interpretation of current market data. These unobservable inputs are only utilized to the extent that observable inputs are not available or cost-effective to obtain.
At December 31, 2019 and June 30, 2019, our assets and liabilities measured at fair value on a recurring basis were as follows:
December 31, 2019
June 30, 2019
Fair Value Measurements Using Input Types
Fair Value Measurements Using Input Types
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
(in thousands)
Assets
Money market funds (cash and cash equivalents)
$
292
$
—
$
—
$
292
$
2,807
$
—
$
—
$
2,807
Available for sale securities - Debt
Government - U.S. treasury securities
—
10,091
—
10,091
—
7,479
—
7,479
Total assets
$
292
$
10,091
$
—
$
10,383
$
2,807
$
7,479
$
—
$
10,286
Liabilities
Short-term derivative interest rate swap
$
—
$
282
$
—
$
282
$
—
$
37
$
—
$
37
Long-term derivative interest rate swap
$
—
$
1,111
$
—
$
1,111
$
—
$
1,248
$
—
$
1,248
Total liabilities
$
—
$
1,393
$
—
$
1,393
$
—
$
1,285
$
—
$
1,285
Fair Value of Financial Instruments
We have certain financial instruments which consist of cash and cash equivalents, cash and cash equivalents held for customers, marketable securities, accounts receivable, accounts payable, customer account liabilities, derivative interest rate swaps and debt drawn on our Credit Facility (see Note 11 Indebtedness). Fair value information for each of these instruments is as follows:
•
Cash and cash equivalents, cash and cash equivalents held for customers, accounts receivable, accounts payable and customer account liabilities fair values approximates their carrying values, due to the short-term nature of these instruments.
•
Marketable securities classified as held to maturity, all of which mature within one year, are recorded at amortized cost, which at December 31, 2019 and June 30, 2019, approximated fair value.
•
Marketable debt securities classified as available for sale are recorded at fair value. Unrealized gains and losses are included as a component of other accumulated comprehensive income (loss) in stockholders’ equity, net of tax. We use the specific identification method to determine any realized gains or losses from the sale of our marketable debt securities classified as available for sale.
•
The fair value of our derivative interest rate swaps are based on the present value of projected cash flows that will occur over the life of the instruments, after considering certain contractual terms and counterparty credit risk.
The carrying value of assets related to deposits we have made to fund future requirements associated with Israeli severance arrangements was $1.1 million and $1.2 million at December 31, 2019 and June 30, 2019, respectively, which approximated their fair value.
•
We have certain other investments for which there is no readily determinable fair value. The carrying value of these investments was $0.9 million and $0.7 million at December 31, 2019 and June 30, 2019, respectively, and they are reported as a component of our other assets. These investments are recorded at cost, less impairment (if any), plus or minus adjustments for observable price changes.
•
We have borrowings of $100 million against our Credit Facility. The fair value of these borrowings, which are classified as Level 2, approximates their carrying value at December 31, 2019, as the instrument carries a variable rate of interest which reflects current market rates.
Marketable Securities
The table below presents information regarding our marketable securities by major security type as of December 31, 2019 and June 30, 2019.