Bottomline Technologies : Bottoms Up(date)

EPAY : NASDAQ : US$31.42
BUY 
Target: US$38.00

COMPANY DESCRIPTION:
Bottomline is a leading independent financial automation software firm. EPAY’s software helps financial institutions and
corporations automate cash management, legal billing and financial document management. The firm recently launched a
B2B payments clearinghouse that has a lot of potential. Founded in 1989, Bottomline is headquartered in Portsmouth, NH.

EXECUTE AGAINST A WELL CONCEIVED STRATEGY; REITERATE BUY
Bottomline has quietly assembled a leading, largely subscription-based platform for financial institutions and corporations to automate communications, invoices, and payments across the globe. Steady growth in the firm’s core efforts, augmented by upside optionality from a mid-market commercial banking effort and Paymode-X, positions EPAY for accelerating organic growth in 2H/F14 and into F2015.

This is a conservatively managed, highly predictable, 8-12% organic grower that should deliver material operating
leverage in the coming years that could propel EPS and cash flow ahead at a 25%+ pace. We bucket EPAY into the “sleep at night category,” and would recommend that investors gradually accumulate a full position in this high quality stock on down days. Reiterate BUY.
 A good start to the year: upside revenue and EPS.

Bottomline reported  Q1/14 revenues and non-GAAP EPS of $67.2M (+9% y-o-y) and $0.28, which were respectively $1.2M and $0.12 ahead of our estimates ($0.04 of the upside was driven by lower tax than we had assumed). EPAY ended the
quarter with a $123.3M backlog, which is up 30% y-o-y.
 Additional color: solid deal flow. Bottomline signed ten new Legal eXchange customers in the quarter, up from 8 in the June period and six a year ago. The firm also added twelve new vendor-pay Paymode-X customers, which was up from ten sequentially (half of the new deal were from partners).
Outlook: guidance increase, less dilution than originally thought. EPAY increased F2014 revenue guidance by $1.5M and is now expect operating income to grow roughly 20% y-o-y. Management continues to expect ~25% operating margin in C2016, which is up from ~17% today.

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