Bottomline Technologies, Inc. (EPAY) Q1 Earnings Conference Call Transcript

Bottomline Technologies, Inc. (EPAY)
Q1 2019 Earnings Conference Call
Nov. 8, 2018, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Bottomline Technologies first quarter 2019 earnings conference call. Statements made on today's call will include forward-looking statements about Bottomline's future expectations, plans, and prospects. All such forward-looking statements are subject to risks and uncertainties. Please refer to the cautionary language in today's earnings release and Bottomline's most recent periodic reports filed with the SEC for a discussion of the risks and uncertainties that could cause the company's actual results to be materially different from those contemplated in these forward-looking statements. Bottomline does not assume any obligation to update any forward-looking statements.

During this call, Bottomline's financial results are presented on a non-GAAP basis. These non-GAAP results include, among others, constant currency growth rates, gross margins, operating income, EBITDA, net income, and earnings per share. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures is available in the Investor Resources section of Bottomline's website, www.bottomline.com. Bottomline will be providing forward-looking guidance on the call. A summary of the guidance provided during the call is available from the company upon request.

I would now like to turn the conference over to our host, Mr. Rob Eberle. Please go ahead.

Rob Eberle -- President and Chief Executive Officer

Good afternoon, and welcome to the first quarter fiscal '19 earnings call. I'm delighted to report on what was a very good quarter for Bottomline. I'm here with Rick Booth, our Chief Financial Officer, who will provide a detailed review of the quarter's financial results and our guidance going forward. Then as always, both Rick and I will be available for any questions following his remarks.

First quarter was both a very good quarter and a very good start to the fiscal year. We are once again reporting solid financial results today, having seen the merit of our strategic plan and our execution against that plan. A while back, we committed to FY19 targets of $300 million in subs and trans revenue, and $100 million in EBITDA, and we consistently executed against those goals. The results for Q1 are another step forward, and demonstrate we're on track to achieve our $300 million and recently increased $100 to $102 million FY19 targets.

Beyond the quarter, I'm even more excited about the future and the steps we took in Q1 to drive continued growth. The future prospects for the business, our market opportunity, product set, and business model are all aligned for continued momentum and strong performance. I'll focus my remarks on our market opportunity, but first let me briefly touch on the financial highlights for the first quarter.

Subscription and transaction revenues grew 15% in the quarter. Subscription and transaction revenue for the products other than banking solutions grew 20%. This is the fifth quarter in a row now these products have grown over 20%. As expected, banking solutions was low in Q1, but will be 15% to 20% by FY20, given our large backlog we're currently bringing live. Subscription and transaction revenue was $69.8 million, a run rate of $280 million today, and by year end, that'll be well above $300 million.

Revenue overall was $102.4 million; EBITDA was $25.1 million, up $3 million from the prior year, as we continue to drive profitability while prioritizing key product growth initiatives. EPS was $0.33, ahead of our target and expenses, and we ended the quarter with $86 million in cash. The financial success we're seeing demonstrates the alignment of market opportunity, our strategic plan, our product set, and our execution.

I'm going to now turn to the market and some quarter updates, and then comment on our priorities for the fiscal year and most importantly, why we're confident we'll drive continued growth in the value of this business. We're in the very early innings of the digital transformation of business payments. It's a huge opportunity. The U.S. B2B payment volume is estimated at over $20 trillion. 63% of businesses still make 50% or more of their payments by paper check.

We're right in the middle of that digital transformation. As we continue to leverage and build upon our scale, technology set, product capabilities, and increasingly recognize business payments brand, we'll attract and grow customer relationships and also see increased partner interest and availability. While we provide a number of different payment products, the reason to work with us is almost always centered in some common themes we hear regularly from our customers and partners around the globe. The first is scale and experience. We have a proven capability and real-world experience. While others may have an idea and software, we can show a prospective partner or customer thousands of existing customers using our technology and doing so at scale.

We have business payments expertise. We have deep domain expertise in the area of business payments. This has become a particularly valuable asset as the pace of change in business payments has accelerated. We bring that leading expertise to bear, whether addressing open banking, faster payments, cybersecurity, or payment automation. We have product leadership. We are a product and innovation leader in business payments. We are committed to being first in market and best in market, not just today, but as the market continues to evolve with new capabilities like machine learning and NLP.

Our product leadership is verified regularly by both customers and industry analysts. The best recent example is Aité's recently released analysis of cash management providers. In this in-depth report, Bottomline was the only vendor to fully achieve Aité's best-in-class rating. They went on to say, and I quote, "Bottomline Technologies' message resonates better than any other vendors because it demonstrates an understanding of the true needs of the industry. Bottomline Technologies has tremendous momentum when a record number of banks are considering the replacement of their cash management solution. It has become the vendor to beat."

We're seeing that every day in the marketplace, and we couldn't be more excited about the opportunity ahead, given our product leadership. The last and important piece is trust. Customers and partners trust us based on a history of delivering customer success and innovation. Customers see us as a trusted innovation partner. We're truly focused on delivering successful outcomes for customers and partners alike.

Our enhanced cybersecurity capabilities ensuring payments will be secure increases the trust and confidence of our partners even more in this threatening environment. One example is Visa. We recently announced our expanded partnerships with Visa, whereby we're helping them extend Visa's B2B connect as a payment option for large-ticket cross-border payments. Visa is able to leverage our existing bank connectivity and relationship to offer end-to-end visibility on FX rates and settlement dates.

While this is a good example of helping a partner achieve a result, we're also of course highly focused on helping customers successfully achieve business outcomes. An example in the quarter was we brought one of our banking customers live and migrated thousands of the bank's business banking customers to the platform. This bank has the express goal of being the leading commercial bank in the major metropolitan area they serve.

By leveraging our next-generation infrastructure and set up APIs and core integration, the bank was able to expedite implementation and thus their time to revenue. The platform is seen as a major strategic initiative and Bottomline is seen as a key partner in helping them achieve their business objectives. What's interesting to note that in the short time we've been engaged with this customer, we've already see the ARR grow 15%, as they purchased our CFRM secure payments add-on.

Whether customer business outcomes, partner opportunities, changing payment standards, or evolving technology, Bottomline is responding. So how does that translate in shareholder value? Well, simple. Through continued and consistent strong growth. We have a huge market opportunity. As I've already indicated, we're in the beginning of an accelerating transformation in the way businesses pay and get paid. We're extremely well-positioned with unmatched business payment capabilities and experience. We have every opportunity to be the way businesses pay and get paid.

From a financial perspective, we see an opportunity to drive 15% to 20% subs and trans growth, and potentially higher for years to come. Everything we're doing is focused on that objective. The TAM for 15% to 20% growth, or even, frankly, 25% growth is there. Our product set, execution, investments, and financial plans are all focused on driving that growth. By year end, we'll be a $300+ million SaaS company. One which happens to have $120 million or so of other valuable revenue streams, but our focus is on our subs and trans revenue. If we can grow that $300 million, 15% to 20% a year for the next five years, which I have every belief we can, shareholders will be rewarded. Of course, if we can outperform that target, which is our ambition and goal, the results will be even higher.

As I look across this business, I see every capability to achieve these goals. We're well positioned to drive continued growth and success in a huge market, and in doing so create long-term shareholder value. So with that, I'll turn it over to Rick, who will provide details on our financial and our guidance, and then both of us will be available for questions following his remarks.

Rick Booth -- Chief Financial Officer

Thank you, Rob. I'm pleased to report on another successful quarter, including subs and trans revenue growth at 15% overall, led by 20% subs and trans growth from our established products, and delivering EBITDA of $25.1 million or 24% of this revenue. This quarter sets us up well to achieve our full-year fiscal '19 guidance of subs and trans revenue, and $100 to $102 million of EBITDA.

In the quarter, we advanced our strategic objectives, were able to invest in innovation and growth, and gained even greater confidence in our fiscal '19 guidance and long-term growth potential. These results are a reflection of our strong position in the large and growing business payment space, as well as our attractive business model.

I'll focus my remarks today on three topics. First, I'll briefly comment on our strategic and financial position. Then, I'll review our Q1 financial results in detail. And finally, I'll provide guidance for the upcoming quarter.

Our quarterly results are driven by our strong strategic and financial position. We address the large and growing market for business payments. Our product platforms are clearly differentiated in the market. Our sales teams have strong momentum. We're a trusted innovation partner to our customers and channel partners, with long-term, valuable customer relationships. And our attractive business model allows us to simultaneously deliver current financial results, make the investments we need to drive growth and value for years to come, and deliver shareholder value through consistent and sustainable growth.

Each of these factors is evidence in our Q1 financial results. To review these results in detail, I'll speak briefly to each line in our P&L, and in addition, we posted supplementary materials to our website for your reference. Beginning with revenue, subscription and transaction revenue is our priority. It drives growth today and it positions us to continue to grow with our customers as they expand their use of our products. Overall, subs and trans revenue grew 15% in the quarter, led by 20% growth in products traditionally sold in the subscription model. With this growth, we reported $69.8 million of subs and trans revenue, equivalent to $279 million on an annualized basis. This means 68% of our Q1 revenue came from these subs and trans offerings, up from 67% a year ago. I'm particularly proud that since we introduced the 300/100 target, our established subs and trans products have met or exceeded 15% to 20% growth every single quarter through disciplined execution against our plan.

Maintenance revenue is another valuable component of our revenue mix. Given the central importance of our applications to our customers and our very long customer relationships, we enjoy high renewal rates. Maintenance revenue of $17.4 million in the quarter, was up slightly year-over-year, and the combination of maintenance and subs and trans revenue provides us with 86% recurring revenue, and excellent visibility to upcoming results.

License revenue by design is only a small part of our overall business. In Q1, we reported license revenue of $4.5 million from our traditional license products. Total revenue came to $102 million for the quarter, up 12% overall. We had solid sales performance in the quarter, as customers continued to choose Bottomline as their trusted innovation partner to automate business payments. We signed $17.4 million of new subs and trans bookings in the quarter, led by Paymode-X and legal spend management. This brings us to $84 million in new subs and trans bookings in the last four quarters.

While bookings figure their estimates and customers take time to implement and ramp to full revenue production, this provides us with visibility to future subs and trans growth in fiscal '19 and beyond. Looking at new customer signings, our Paymode-X network added 26 new payers, which further validates the attractiveness of our full payment automation proposition, as well as the effectiveness of our general partnerships. We signed another new customer to our digital banking product set, and have approximately $16 million of annual subscriptions which are not yet being recognized in our P&L.

Our digital banking implementations continue to go well, which keeps us on track to bring a substantial majority of this revenue live in fiscal '19. We also signed 7 new insurers to our legal spend management network, including another insurer on Partner Select. Continuing down the P&L, we delivered on our financial commitments, which investing significant to advance our solutions and drive long-term growth.

Adjusted EBITDA of $25.1 million was up 13% year-over-year. EBITDA margin of 24% was consistent with prior year. We drove core operating income of $19.4 million, and core earnings per share of $0.33. In total, these results evidence the attractiveness of our business model, allowing us to meet our financial commitments which investing for growth in product and sales initiatives.

Our overall gross margin of $60.3 million or 59% of revenue is up 2 percent points year-over-year; subs and trans gross margin of 57% is up 1 percentage point year-over-year; and as planned, we used this expanded margin to invest in growth, primarily through marketing, sales, and product enhancements. We increased spending on sales and marketing for the quarter by $2.5 million or 16% year-over-year. This brought sales and marketing expenses to $18.3 million, as we invest to continue to attract and win valuable long-term customer relationships. We increased development expense by $2.4 million or 19% year-over-year. This brought development expense to $14.5 million, as we ramped planned investment in our products. Combined, this represents an additional $5 million of investment, all targeted toward sustainable long-term subs and trans growth.

I'll make one comment on accounting before turning to the cash flow and balance sheet. This was the first quarter reporting under the new revenue standard, ASC 606. As expected, the impact of 606 was immaterial. It was a modest headwind to subs and trans revenue of under a million, and this was offset by cost deferrals and more timely recognition of license revenue, so it netted a roughly $1 million P&L benefit to operations.

Turning to cash flow and the balance sheet, operating cash flow was $12 million, and after capex of $8.4 million, we reported free cash flow of $3.6 million for the quarter. This is consistent with our normal seasonality in which Q1 and Q2 have lower operating cash flows and Q3 and Q4 are higher. We ended the quarter with $86 million of cash and investments, after using $40 million to pay down our credit facility, leaving us with total borrowings of $110 million.

Moving from debt to equity, in Q1 we fully retired the warrants associated with our 2012 convertible bond offering; remaining warrants converted into 932,000 shares of stock in Q1, and now those warrants are fully extinguished.

Turning to guidance, I'm pleased to reiterate that we're well on track to deliver our full-year guidance, including $300 million of subs and trans revenue, and $100 to $102 million of EBITDA. Our guidance for Q2 is as follows. $72 to $73 million of subs and trans revenue; $103 to $104 million of total revenue; $24.5 to $25.5 million adjusted EBITDA; $20 to $21 million core operating income; and $0.33 to $0.35 core earnings per share.

So in conclusion, we're pleased to report on another successful quarter, including 15% overall subs and trans revenue growth and $25.1 million of EBITDA. We're well positioned in a large and growing market. Our current financial performance is strong. And as planned, we are making the investments that we need in order to create value for customers and shareholders for years to come. With that, we can open the call to questions.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, if you would like to ask a question, please press * then 1 on your touchtone phone. If you are using a speakerphone, please pick up the handset before pressing the numbers. Again, *1 if you'd like to ask a question. Our first question comes from Andrew Schmidt from Citi. Please go ahead.

Andrew Schmidt -- Citigroup Global Markets -- Analyst

Hey, Rob. Hey, Rick. Thanks for taking my question. Quick question on the digital banking segment. The $16 million in digital banking subscription revenues, they're not live. I was wondering if you could just talk a little bit about when you expect those to go live in the back half? Then thinking about the run rate of exiting FY19, what does that mean for digital banking subscription, subs and trans revenue growth as we exit the year?

Rick Booth -- Chief Financial Officer

Yeah, I think it's a great question, Andrew. We've got seven banks that are going live in fiscal '19. They're weighted toward Q3 and Q4. As you know, the first half of this year is impacted by the attrition of the legacy of the Intuit customers. But overall, we expect that as we exit '19 and as we get into fiscal '20, by fiscal '20, the digital banking business will be growing at the 15% to 20% that we expect from all of our subs and trans streams over the long term. So we feel really good. The reason that the $18 million went down to $16 million was in fact successfully bringing customers live. So really good progress in digital banking.

Andrew Schmidt -- Citigroup Global Markets -- Analyst

Got it. Thanks. That's helpful. Then the bookings number in the quarter. Robust. Coming off of very high levels in '18. I guess should we think about just, and I know it's hard to forecast bookings, but should we think about bookings staying in the level that they are in the first quarter? Then any context on just the bookings number in the first quarter '19 relative to the fourth quarter? Since you are coming off a pretty strong number, I'm just curious to get a little bit of context on the quarter-to-quarter movement in terms of signings, contract discussions, etc.

Rick Booth -- Chief Financial Officer

Absolutely, Andrew. Step 1, I would never forecast bookings because we don't manage to that metric on an every-90-day basis. There's no way that we're going to give up pricing power in order to close an individual deal the night of quarter end versus the next period. So I always look at bookings over a more extended period. Even in this quarter, which was a solid quarter but not as high as Q4. Those bookings were still 25% of subs and trans revenue. And over a trailing 4-quarter basis, which is one useful metric, we booked $84 million of subs and trans. So the bookings at today's levels certainly support our growth outlook and our momentum is strong.

Andrew Schmidt -- Citigroup Global Markets -- Analyst

Got it. Thank you for that. Then last question. On Paymode-X, it seems like there's an opportunity to better integrate Paymode-X with digital banking products, corporate digital banking products. I guess could you talk a little bit about that and how that's progressing? I know it's probably early days, but your discussions with banks out there [inaudible]. It seems like the TD Bank relationship illustrates this, but just curious to get your thoughts.

Rick Booth -- Chief Financial Officer

I think big picture, the theme that I see coming together is banks are increasingly looking to take advantage of our full suite of capabilities. Some of the specific ways that we're working with banks on is, for example, exposing the APIs within our digital banking platforms such that a bank who wants to present digital banking 3.0 as their cash management platform can have the full functionality of Paymode-X right within that same portal. So it becomes one, single, beautiful face for the customer. That does a couple of things. One, it helps scale our overall business, and two, it changes the competitive dynamics. When you're competing against someone who's a cash management vendor but doesn't have a powerful payment network or vice versa, you're really just changing the game. So it takes our relationships to the next level. Citizens is a good example of that.

Rob Eberle -- President and Chief Executive Officer

I'm just going to underscore that because there's so many examples of that. The breadth of what we do ranges from financial messaging to cybersecurity and fraud to open banking, for example, where U.S. banks are asking quite a few questions. How would open banking look in the U.S.? What's that actually looking like on the ground in Europe? We have the breadth of those solutions, which as Rick pointed out, different than anybody we compete with. So we're bringing more and more of those together at technology level, and we're bringing more and more of those to the table as we're talking with customers in all geographies.

Andrew Schmidt -- Citigroup Global Markets -- Analyst

Sure, yeah. There's certainly a lot to talk about and we look forward to continuing the discussion next week when I see you guys. Thanks a lot.

Rick Booth -- Chief Financial Officer

Thanks you.

Operator

Thank you. And now to the line of John Davis from Raymond James. Please go ahead.

John Davis -- Raymond James & Associates -- Analyst

Hey, good afternoon, guys. Rob, just wanted to maybe dive in a little bit deeper on the B2B connect partnership with Visa. Understanding what you guys bring to the table, maybe you can help us understand, is there anything strategically that Visa brings or is this purely an economic relationship? Maybe just anymore color you can give on the detail and what exactly you're bringing to Visa with this partnership.

Rob Eberle -- President and Chief Executive Officer

First off, the easy part of that is Visa brings a lot. Visa brings a lot. Visa brings -- and a lot more than the obvious brand. There is an organization with global payment capability and global payment brand [inaudible]. What we bring is unique. We bring the ability to connect banks to their B2B connect platform. We bring the ability to help them from a technology standpoint to our financial messaging technology. That can kind of connect, if you will, the last mile for those banks. It's just an example. It's actually kind of interesting. The last question we just answered was about the breadth of our capabilities and bringing them to bear in conversations where a number of capabilities will be important to customers. This is actually the exact same example with a partner perspective, where they had a problem of how can they get this out and connect to banks throughout Europe for the cross-border payment capability, and we have that. We do that all the time. That's really the nature of the partnership.

John Davis -- Raymond James & Associates -- Analyst

Okay. That's helpful. Then maybe a follow-up on Andrew's question, Rick, on the banking solution subs and trans growth. Understanding next year is kind of a 15% to 20%, should we expect the gradual ramp this year to get to the run rate that you spoke of?

Rick Booth -- Chief Financial Officer

Yes, it'll be back-end weighted, as you can see from Q1 actuals and Q2 guidance. As those deals go live in Q3 and Q4, you'll see that start to tick up.

John Davis -- Raymond James & Associates -- Analyst

Okay. Then maybe, Rob, for you. On M&A, obviously you guys have a lot of fire power here. There was a transaction [inaudible] out today. B2B is hot. As I look at your M&A strategy, how should I think about where the focus is? Is it distribution? Is it product gaps? Is there anything specific that you guys thought about or you need or is it purely opportunistic? Just any color there would be helpful.

Rob Eberle -- President and Chief Executive Officer

Need and gap is stronger. I don't see a gap or a need, but we're always looking at where are there places where we can extend our capability, where can we extend our competitive differentiation, where are there new capabilities that would integrate well with things we're doing today? So we have a pretty high bar in terms of technology customer culture financials, but we're always looking from an M&A perspective on where can we bring more to customers, as to where we can, again, kind of a similar theme, where can add to all the breadth and capabilities we're bringing to our customers? And if there's new things we can bring, we're always looking at M&A from that perspective.

John Davis -- Raymond James & Associates -- Analyst

Okay. Then from a distribution standpoint, is there anything out there you think you may be able to broaden your distribution and bring you more vendors or do you have anything there?

Rob Eberle -- President and Chief Executive Officer

We would look at all those. We look at technology. We look at customer sets. We look at distribution and geographic presence. All of those can be rationales for us, but I don't see a hole or a gap today. It's more opportunistic. Where do we see an opportunity to be even stronger or extend even further?

John Davis -- Raymond James & Associates -- Analyst

Okay, all right. Thanks, guys.

Operator

Thank you. Again, *1 if you'd like to ask a question. Now to the line of Brett Huff from Stephens. Please go ahead.

Brett Huff -- Stephens -- Analyst

Good evening, Rob and Rick. Thanks for taking the question, and congrats on a nice quarter.

Rob Eberle -- President and Chief Executive Officer

Thanks, Brett.

Brett Huff -- Stephens -- Analyst

A bigger picture question on Paymode-X and business-to-business payments, I guess networks. Is there -- somebody just asked about M&A and maybe a distribution by M&A. I'm wondering if there's maybe a distribution interesting question via partnering with other B2B payment networks? It seems that we're maybe going to see some verticalization and maybe some specialization in pockets, and maybe there are networks that serve certain verticals. Is there interoperability opportunity there to help drive the overall market acceptance? It seems like there's economics enough that it could still be a very profitable and interesting business model, maybe with a little bit of extensibility through partnerships. I'm wondering your take on that?

Rob Eberle -- President and Chief Executive Officer

Yeah, there could be, but you have to have -- there are some technology issues. There's also business model issues. So is the network paying just card? Or how is the network approaching network use fee? How is that distributed? I'd say more partnership opportunities -- and I'm not suggesting we do something or committing to doing anything, but probably more around the vendors that are automating on the AR side. So if there's a technology provider that has capability around vendors and accounts receivable, we're doing it on the accounts payable side. Those two can come together pretty logically. That's true in Europe. That's true in the U.S.

So I'd say more partnership opportunity around that than I would connecting multiple networks. I think what you're talking about on connecting multiple networks has an opportunity. That's probably further out when I becomes more of a single revenue model or a more accepted revenue model and there's more technology issues of APIs and formats and the like are resolved. We see a bigger opportunity around broadening the capabilities for vendors and folks more on the AR side than we would connecting with other networks.

Operator

Thank you. Now to the line of Bob Napoli.

Robert Napoli -- William Blair -- Analyst

Thank you. Good afternoon. Maybe just give it a try if I could. This deal that was in the market today I think this company went for 14x revenue, 14x 2018 revenue. It would be helpful if we had your Paymode revenue. Is it possible you might, as that business continues to grow, think about giving out that specifically or is it just too difficult to break it out specifically?

Rob Eberle -- President and Chief Executive Officer

I wouldn't see us breaking out a piece for a sale or changing what we're doing from a reporting standpoint. Everything we just talked about, these products have really engaged. It's part of our payments and cash management competitive advantage now. It's linked in to our cybersecurity broad capabilities. I think our attractiveness, more importantly to customers and to partners, if we diminish the capabilities we had would be less.

I think what you're seeing is the strategic value of business payments is being expressed in that and other transactions. We're only beginning to see that in Bottomline. You take the multiple that was applied there and you apply that to our 300 subs and trans, that would be a really attractive piece you could write. But that's kind of the range. I think you're seeing more of that that's occurring in the market, and you'll see more of that ahead of Bottomline, particularly as we continue to put up the numbers we put up today from a growth perspective.

Robert Napoli -- William Blair -- Analyst

Rob, on the accounts receivable side, I think you suggested that you're more likely to partner, as opposed to build that business. I guess there are a few specialists like maybe a Billtrust out there that would make a good partner. Are there specific accounts receivable side companies that we should expect to see? It seems like a natural partnership.

Rob Eberle -- President and Chief Executive Officer

Sure. Billtrust is a solid company that could be won. There's a number that are out there. I wouldn't want to handicap or underscore anybody in particular. At such time that we had a partnership, we'd announce it, but there's a number of companies that are effective on the AR side.

Robert Napoli -- William Blair -- Analyst

Okay. Then, Rick, just on the guidance. Just trying to -- so, in order to get to that $300 million for the year, which I mean you guys seem really confident you'd need a pretty good ramp up in the back half of the year? Is that coming from the banking? That revenue coming on board?

Rick Booth -- Chief Financial Officer

Yes, we get a significant lift in Q3 and Q4 from banking. We feel very confident. We're only 90 days in, so I expect that we'd get some questions about guidance. We'll continue to monitor that as we go through the year.

Robert Napoli -- William Blair -- Analyst

Thanks. Last question for Rob. I think as John had mentioned, there's definitely a lot more attention in the B2B payment space. It really seems like the industry has cracked the code, if you would. What is the differentiation? How would you explain the differentiation for Bottomline versus an Avid or the WEX or Fleetcor or Bill.coms of the world? Is it the combination with the digital banking piece primarily?

Rob Eberle -- President and Chief Executive Officer

I think there's a number of things. I think one is the breadth of capabilities we have as a firm. Rick and I have commented on a couple of questions of touch. Yes, our capabilities in payments and cash management and in addition to Paymode-X. Some of the comments I made in my opening remarks. It's the scale and experience. When you're engaging with one of the bank channel partners or other partners, there's so many different reviews they have -- resiliency, cybersecurity, physical security, scale, what you do in an incident. All of those things.

We've been through all of those reviews time and time again. We've been through those reviews with government agencies, as well as customers. I think there's scale and experience. There's domain knowledge and innovation. There's our product set. Then there's trust, which is driven both by trust of us as an organization and trust that things will be secure with cyber-fraud and security capabilities we have. All of those things come together to give us competitive advantage really in each of the markets we're engaged in.

Rick Booth -- Chief Financial Officer

Just to underscore that, I think often people look at a large payment-oriented company who's maybe oriented mostly around card, and they think oh, they handle B2B payments. They do it via card. It would be easy for them to get into ACH. Well, it's not easy at all. The key thing is managing the information around the transaction and dealing with all of that metadata. Card companies are primarily moving money from point A to point B, doing very basic matching. None of that is -- they don't have any of the capabilities that are inherent in Paymode-X, just to pick one simple example. So it's a lot further away than it looks like when you're reading press releases.

Robert Napoli -- William Blair -- Analyst

Great. Thanks, Rob. Thanks, Rick. Appreciate it.

Rob Eberle -- President and Chief Executive Officer

Thank you.

Operator

Thank you. Now to the line of Larry Berlin from First Analysis. Please go ahead.

Lawrence Berlin -- First Analysis Securities -- Analyst

Good evening, guys. Hope all is well with you today.

Rick Booth -- Chief Financial Officer

It is, thanks.

Lawrence Berlin -- First Analysis Securities -- Analyst

Good. Just to follow up on what Mr. Napoli asked. Just curious with all these announcements from WEX and MasterCard and Visa and other banks moving into the B2B space, do you see those as helping you or as adding competition or how do you view them?

Rick Booth -- Chief Financial Officer

I think it's very helpful. When you think about what's driving this industry right now, it's about green field adoption. It is so under-penetrated, with two-thirds of businesses making half or more of their payments in the form of paper checks. Anything that accelerates onboarding is good for the industry. We saw that as Visa and MasterCard started to make more noise about it. It continues to hold true.

Rob Eberle -- President and Chief Executive Officer

I think what's particularly helpful is the fact that we're partnering, and that we're partnering to allow a payer to continue to execute payments, appropriate payments and payments that work for them and their vendors over card, while then accommodating full accommodation to our network of an integrated payables capability, which can include all the other payment types to really achieve that. So it would be a much more difficult market for us if, in fact, they weren't the partners that they are today, particularly Visa.

Lawrence Berlin -- First Analysis Securities -- Analyst

Cool. Then on a somewhat different track, the financial messaging, especially in Europe, just curious how it was for the quarter and what's driving growth? The European payment area and the English rules and so forth.

Rob Eberle -- President and Chief Executive Officer

Well, what's driving growth is a couple different things. One is our capabilities. We've been able to bring together a center of excellence in London, as well as a center of excellence in Geneva. Also, open banking is another type and another payment change. Bottomline has always done well when there's changes in payment standards because our customers have to say, how do we navigate this? And we can add a new payment type or new payment requirement to our platform and our answer is, you use us, you use our platform. So we're doing very well in financial messaging.

We're doing very well in Europe. I think that's going to continue despite Brexit or other challenges that may look like they're appearing on the economy. Because underneath that, you've got the same kind of acceleration around business payments and probably a bigger factor in Europe, you've got payment change. You've got open banking, PSD2, and a lot of changes coming into payments.

Lawrence Berlin -- First Analysis Securities -- Analyst

Thank you, guys. Appreciate it.

Operator

Thank you. Our final question today comes from the line of Peter Heckman from Davidson. Please go ahead.

Peter Heckmann -- D.A. Davidson & Co. -- Analyst

Good afternoon. Thanks for taking my question. I have a follow-up a little bit on Larry's question as regards the fragmentation of payment networks and some of the talk about an alternative to Swift, potentially real-time payments, eating into some sort of volume. Can you talk about how -- and I know that Bottomline works with multiple inter-messaging platforms, multiple payment networks. Can you talk about how you can benefit from that fragmentation and talk about how you maybe made some multiple bets in terms of working with multiple networks and depending on who wins, you can still participate in that win?

Rob Eberle -- President and Chief Executive Officer

We benefit a couple different ways. First off, we benefit as a thought leader. So organizations will come to us and say, what do you see occurring in those markets? What do you think's going to happen with real-time payments, for example, in the U.S.? How will that work? What will customers decide? The breadth and experience we have allows us to provide thought leadership to customers and prospects alike. Then second, the change requires them to have technology to adopt that. That can be a new platform. That can be a reason for them to leave from an other vendor to come to Bottomline. So it's really across the board. It's thought leadership and it's dialogue we can have, and then ultimately, of course, it's sales and revenue.

Rick Booth -- Chief Financial Officer

We have a tremendous capability in acting as a universal aggregator feeding into multiple payment networks. That is the essence of our financial messaging business, which interoperates with 32 different payment networks. Conceptually, it's very similar to what we do with [inaudible]. Our proven track record in that makes it a clear opportunity.

Peter Heckmann -- D.A. Davidson & Co. -- Analyst

Great. Then just a couple housekeeping issues for you, Rick. Could you give us an update on the timeline for the ERP conversion? Then just within this quarter, can you talk about or quantify the FX headwind as well as any acquired revenue in the period?

Rick Booth -- Chief Financial Officer

Yes. Taking those in order. As you know, our ERP implementation was two major phases. The first was going live with 605 and the second was going live with 606. We've not reported our first quarter under 606, so we'll see the effort that's being dedicated to the ERP begin to tail down in the upcoming quarter, so I think we'll see that, which is very consistent with what we've guided for fiscal '19.

Sorry, Pete, what was your second question? You had three questions there.

Peter Heckmann -- D.A. Davidson & Co. -- Analyst

Sure. Just FX headwind and then any acquired revenue in the period?

Rick Booth -- Chief Financial Officer

Oh, yeah. Currency was a small headwind. The average for last quarter was about a penny higher than year-over-year than this one. It was down $0.06 sequentially from Q4 to Q1. But nothing that we couldn't overcome.

Peter Heckmann -- D.A. Davidson & Co. -- Analyst

Okay. And then the acquired revenue?

Rick Booth -- Chief Financial Officer

The acquisitions didn't contribute materially from a financial perspective. A small amount of revenue and slightly accretive. But less than half a million dollars.

Peter Heckmann -- D.A. Davidson & Co. -- Analyst

Okay, thank you.

Operator

Thank you. I would now like to turn the conference back over to our host for any closing remarks.

Rob Eberle -- President and Chief Executive Officer

Thank you, everyone, for your interest in Bottomline, and thanks for attending the call. We're delighted to report a strong quarter and a strong start to the fiscal year, and we look forward to reporting similar strong results in Q2. Thank you.

Operator

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference service. You may now disconnect.

Duration: 45 minutes

Call participants:

Rob Eberle -- President and Chief Executive Officer

Rick Booth -- Chief Financial Officer

Andrew Schmidt -- Citigroup Global Markets -- Analyst

John Davis -- Raymond James & Associates -- Analyst

Brett Huff -- Stephens -- Analyst

Robert Napoli -- William Blair -- Analyst

Lawrence Berlin -- First Analysis Securities -- Analyst

Peter Heckmann -- D.A. Davidson & Co. -- Analyst

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