Bottomline Technologies (EPAY) Q3 2020 Earnings Call Transcript

Bottomline Technologies (EPAY)
Q3 2020 Earnings Call
May 06, 2020, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome to Bottomline's third-quarter 2020 earnings conference Call. My name is Daniel Sheer, and I'm joined by Rob Eberle, Bottomline's CEO; and Rick Booth, our CFO. I'd like to remind everyone that statements made on today's call include forward-looking statements about Bottomline's future expectations, plans and prospects. All four such forward-looking statements are subject to risks, uncertainties and assumptions, including those related to the impacts of COVID-19 on our business and global economic conditions.

The forward-looking guidance we provide today is based on our assumptions as to the macroeconomic environment based on the facts as we know them today. Many of these assumptions relate to matters beyond our control, including the impact of COVID-19. 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 our website. A summary of the guidance provided during the call is available from the company upon your request.

Let me now turn the call over to Rob for his remarks. Rob?

Rob Eberle -- Chief Executive Officer

Good afternoon, and welcome to the Bottomline Technologies third quarter fiscal '20 earnings call. The third quarter was a strong quarter for Bottomline. It demonstrated the mission-critical nature of our applications, the power of our business model and the agility and execution of our team. We're fortunate.

The vast majority of our revenues are recurring and unimpacted by the pandemic's disruption. Our business model produces consistent strong profitability and cash flow. We see some effect, like every business. The impact is relatively modest, and it will be temporary.

Longer term, the impact of this crisis will be the acceleration of the digital transformation of business payments. We're well positioned to address and benefit from that. We have the product set, market position and plan to extend our competitive advantage through this cycle and emerge stronger than ever before. What's top of mind right now is the impact of COVID-19.

We have three simple and clear priorities. First, it's the safety and well-being of the Bottomline team; second, it's caring for and supporting our customers; and third is ensuring our company stays strong and emerges stronger. I'll comment on each, but first, the key financial results for the third quarter. Subscription revenue was $87.5 million.

That's up 16% from a year ago. We actually started the quarter confident we'd produce continued acceleration of subscription revenue and see growth close to 20%. That growth was partially offset by transaction volume, declines and shifts in go-live timing as the quarter progressed. Subscription bookings were $22.8 million, which was particularly solid given the disruption of customer engagement and other normal sales activities.

Revenue, overall, was $111.7 million. EBITDA was $23.2 million. And we ended the quarter with over $180 million in cash. So strong financial results for the third quarter.

I'll focus my remarks on our priorities, what we're currently seeing, what we expect in the short-term and most important, how we see the long term playing out. Our first priority has been and remains the health and well-being of our team. That encompasses much more than just executing our business continuity plans and working from home. It really is providing support at every level, training for managers and leaders, support for special situations, monitoring the continued business impact of the virus and even when necessary arranging for drop shipped office supplies.

We're taking a measured, cautious and thoughtful approach to next phase of our business operates. We can operate effectively in a shelter-in-place mode and will likely be continuing to do so in most, if not all, geographies for some time. The Bottomline team has been extraordinary in responding to the crisis and the new business reality. We cannot be prouder of our company.

Our second priority is seeing our customers through this and serving them in any way we can. We're doing the right thing in doing that. We're also deepening relationships with customers at a time when they need us most. Our efforts have taken many forms.

In some cases, it means working to reschedule implementations as customers focus on their business continuity measures and other challenges. As expected, we've received and responded to hundreds of business continuity plan and readiness inquiries, in each case, with our customers reassured that Bottomline was prepared and the right partner. Sometimes, it's just reaching out, listening and offering support. As the federal stimulus and relief programs begin to take shape, we could see banks have been called upon to play an important role.

We knew this would be a challenge and create extraordinary demand at a time when many physical branches were closed. We saw an opportunity to help. We repurposed our online account opening capability to produce the Payroll Protection Program loans. We made it available to any bank who needed it, whether they were a customer of Bottomline or not.

Today, we have serviced approximately $120 million in loans, representing over 1,800 small business applicants. Our teams did an incredible job to make this a platform that was available in just a matter of days. We offer the capability entirely without charge, no back-end fees, transaction fees or other gimmicks, which was noticed and well received across the industry and our company. It's a fantastic example of the BT team responding with purpose and agility.

Our support of our customers remains a top priority, that's who we are in good times, and it certainly is who we are in challenging times. Our third priority is ensuring that our company stays strong and emerges stronger. In terms of ensuring we stay strong, there's a lot working in our favor. The vast majority of our revenues are recurring and unimpacted by the pandemic and economic disruption.

Our business model produces consistent strong profitability and cash flow. We have a strong balance sheet, and we serve business customers in all industries. Like most businesses, however, we did see some impact in the March quarter in the following areas: transaction-based revenue streams, such as Paymode-X, go-live dates for existing backlog and software licenses and professional service revenues. Those impacts will likely continue in Q4.

We're also watching new bookings closely as sales interaction with customers is much harder in this environment. The March quarter's bookings were solid at $22.8 million, and we saw strong bookings in April, which suggests so far, customer demand and sales results remain reasonably intact. Longer term, the impact is quite likely positive. It's becoming increasingly clear this crisis will drive change and accelerate digital transformation, particularly for the mission-critical applications we provide.

We may already be seeing the beginnings of that. Our recent on-demand webcast, managing the AP amid COVID-19 has recently seen off the chart engagement. We will see increased demand once economic activity resumes, we're confident in that. The disruption we've seen and the desire to manage risk will accelerate technology adoption.

Our product set is spot-on to address the digital capabilities the new reality requires. We also see the competitive landscape shifting our way. During any economic downturn, we benefit from a flight to quality, as banks and businesses select vendors they trust, and they now have the financial strength to sustain continued investment in technology and customer success. Our ongoing response during this crisis has deepened the trusted partnerships we have with our customers and enhanced our already top-of-class brand.

Many of our competitors were not fair as well. Companies who've been raising and burning through large amounts of capital have a lot to contend with. Our focus will remain on driving innovation, meeting customer demand and growing the size and value of our business. So in summary, our company has responded extraordinarily well with the COVID-1tcrisis.

We're operating effectively and consistently. We're focused on protecting the safety and well-being of our team, delivering for customers and keeping our business strong. We had a strong quarter, highlighted by continued subscription revenue growth, strong bookings and an agile and resilient response to the coronavirus crisis. We're deepening relationships with customers who are motivated to reduce risk and accelerate digital transformation.

The crisis has demonstrated the strength of the business, mission-critical applications that drive digital transformation, trusted partnerships and an experienced, skilled and dedicated team. Looking ahead, we see fundamental changes and an acceleration in demand as inevitable outcomes. We have the opportunity and plan to emerge from this situation even stronger. So now I'll turn it over to Rick.

And then, of course, we'll both be available for questions following his remarks.

Rick Booth -- Chief Financial Officer

Thank you, Rob. I'm pleased to report on a solid quarter. Subscription revenue was $87.5 million and up 16% year over year. Subscription bookings were $22.8 million, and we produced total revenue of $111.7 million, with EBITDA of $23.2 million and $0.27 core earnings per share, all despite seeing the initial impacts of COVID in the quarter.

I'll cover four topics in this call. First, I'll briefly review our business model and balance sheet. Second, I'll review our Q3 results. Third, I'll provide Q4 commentary, given the COVID situation.

And finally, I'll look ahead and comment on our outlook once the economy normalizes. From a business model perspective, consistent, predictable profitability is long but at the core of our business model. We have 92% recurring revenue. Our customers are primarily large leading enterprises across a range of industries as opposed to small businesses.

And we generated $97 million of EBITDA and $85 million of operating cash flow over the 12 months ending in March. In this environment, financial strength is actually a customer priority, and I'll briefly highlight some of the key facts about our balance sheet as well. We have $182 million of cash and investments on hand, $120 million of undrawn credit and a full $300 million credit facility, which matures in July 2023. And we're presently reporting a net EBITDA leverage ratio of 1.4, while the credit agreement allows us to go up to 3.75.

Turning to results. We reported solid results in the quarter despite the beginnings of COVID-related disruptions. Subscription revenue grew 16%, which is within our 15% to 20% target rate. At $87.5 million of subscription revenue in the quarter, this is equivalent to $350 million on an annualized basis.

And at this rate, 78% of total revenue came from subscription offerings, up seven full percentage points from a year ago. Recurring revenue was 92% of total revenue, up five percentage points year over year. License revenue was $1.5 million, service revenue was $7.4 million, and total revenue was $111.7 million. We reported solid sales results as well.

Customers signed $22.8 million of new subscription bookings, led by Paymode-X and our European product set. This brings us to $92 million in new subscription bookings for the last four quarters. Equivalent to 28% of subscription revenue in the same period. Our Paymode-X network added 25 new payers, including several very large deals.

We signed three new insurers to our legal spend management network and another 11 insurers expanded their relationship with us. And finally, we signed two new customers to our digital banking product set, and we were also selected as a go-forward platform by one of the largest bank groups in North America. With those signings, we have approximately $15.7 million of annual digital banking subscriptions, which are signed, but not yet being recognized in our P&L, of which we expect roughly 1/3 to go live in the fourth quarter. Turning to profitability.

We continue to produce consistent profitability despite COVID-related impacts flowing through the earnings. This earnings flow-through is to be expected, given our largely fixed cost model. EBITDA of $23.2 million was 21% of revenue. Core operating income was $16 million.

And core earnings per share were $0.27. Driving these results was subscription gross margin of 61%, up 1.4 percentage points year over year. Year-to-date, we added $35 million of subscription revenue, of which 77% flowed through to gross margin. This margin expansion reflects the power of our business model to scale once conditions normalize.

And from a cash flow perspective, in Q3, we generated $28 million of operating cash flow. $15 million of free cash flow, and we used $4 million to repurchase 90,000 shares before pausing our buyback activity. Turning to the COVID impacts that we observed in the quarter. For subscription revenue, the majority of our subscription revenue was not impacted.

We did see two areas of impact on the subscription revenues, however. First, transaction-based platforms like Paymode-X, experienced lower volumes as reduced economic activity meant fewer payments. And second, some customers shifted out implementation of go-live dates due to COVID-related disruption. Combined, we estimate Q3 subscription growth could have been two to three points higher without these impacts.

Maintenance revenue was not impacted. License revenue and service revenue were lower by $1.3 million and $1 million, respectively, compared against the prior quarter as customers took a more cautious approach to software and services, as you would expect in this environment. These COVID impacts inform my commentary on Q4. For subscription revenue, we fully expect normal ongoing growth from customer go-lives and expansion.

But that may be fully offset by the impact of a full quarter's reduced activity. As such, while difficult to forecast with precision, we expect subscription revenues roughly equal to Q3's subscription revenue. For total revenue, in addition to the subscription revenue impact noted above, we expect a further $2 million to $4 million of impact to software, services and other revenues. For core income and adjusted EBITDA, reduced revenues, combined with ongoing costs, could reduce profitability of up to $1 million to $2 million versus the levels seen in Q3.

And as we look ahead to the post-pandemic world, Bottomline should quickly ramp up to a normalized level of performance as the economy recovers. Although we concur with the emerging consensus among economic forecasters that this is unlikely within calendar 2020. For subscription revenue, in fiscal '20, subscription revenue growth accelerated to the upper end of our 15% to 20% range. We expect to return to growth at these levels or even higher, if as we expect demand increases as the economy normalizes.

Now for non-subscription revenue, software and services revenue were particularly impacted by the current situation. And as the economy normalizes, we expect the customer preference for our cloud solutions over on-premise applications to remain strong. We would expect non-subscription revenue to continue to decline but at a more modest rate. And from a profitability perspective, we would expect to operate at 21% to 22% EBITDA margins as we emerge from the depths of the pandemic.

So in conclusion, I'm pleased to have been able to report a strong business model and balance sheet position. Solid financial results in Q3, a solid outlook for next quarter and optimism about the post pandemic world due to the increased relevance of our solutions and the competitive shifts that Rob described earlier. And with that, we can open the call to questions.

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question comes from Andrew Schmidt with Citi Group. Please state your question.

Andrew Schmidt -- Citi -- Analyst

Hey, guys. Good to speak with you. Thanks for taking my questions. First, on transaction-based revenues, could you help us just size that? It seems to be a key source of variability.

Just a framework for that would be helpful. And then maybe some comments on how those trended in March and then into April? And then lastly, perhaps, what's embedded in your perspective for the fiscal fourth quarter for those businesses?

Rick Booth -- Chief Financial Officer

Andrew, this is Rick. I'll address that. First and most importantly, I want to note that the vast majority of our subscription revenue is fixed in nature. We do have two products that have significant transaction components, legal spend management and Paymode-X.

And we saw normal trends right up until the third month of the quarter. We're starting to see a little bit of supply chain disruption at the end of the month and roughly through May 1, we've seen declines in the payment volume versus what we would have expected across virtually all industries, with the exception of healthcare.

Rob Eberle -- Chief Executive Officer

Yes. The one thing I'd add to that, as Rick said, versus what we would have expected. I'd say what we would have expected without a pandemic and the business slowdown.

Rick Booth -- Chief Financial Officer

Yes. That's a good point. I think without the pandemic, we estimate that subscription growth could have been two to three points higher.

Andrew Schmidt -- Citi -- Analyst

OK. That's helpful. And then are you assuming that the current trends continue in the fiscal fourth quarter or a step down improvement? I guess what's the — I know you gave some comments on your perspective for subscription trends growth in the fourth quarter. Just any help there with the volume-based piece of subscription trends would be helpful.

Rob Eberle -- Chief Executive Officer

Yes. There's he primary driver. So remember, we have underlying growth as customers go live. And the vast majority of our subscriptions are fixed.

So there's too many cross currents to speak. It wouldn't be useful to speak about isolation, volume and isolation. But between new customers going live and continued ramping of existing customers, offset by select volume declines, we think that we'll be able to deliver similar subscription revenue to what we had this quarter, so similar to the $87.5 million, which would actually be 12% to 13% constant currency growth given the changes in the pound. So we think in this environment, that's pretty solid.

Andrew Schmidt -- Citi -- Analyst

Yes. That was higher than what I was expecting. So that's fair. Just a couple more, if I may.

Just on the bookings trend, pretty good bookings given the drop-off in activity in March. Could you comment? It seems like the bookings continue to be strong into April. Could you talk about maybe just whether you've seen any sort of slowdown in bookings, and maybe where you're getting the interest? And then just some might be just deals that were further along in the sales cycle. Maybe a comment on your perspective on how we should think about bookings in this environment, given that clients are obviously distracted, it seems logical that the sales cycle could be a little bit elongated.

Just any perspective on just booking trends quarter-to-date. And I know you don't normally comment on this, but given the environment, it might be helpful. And then just how we should think about the sales cycle affecting bookings going forward?

Rob Eberle -- Chief Executive Officer

Yes. So you covered a lot of great stuff in there, and I'll try and touch on each piece of it. First off, our initial response and our initial thoughts as March ended, was exactly what you said. We've got deals that are closing, bookings were really pretty solid.

But common sense says that's probably the result of activities, purchase activities and programs that have been approved, have a lot of momentum and that carry over the finish line. Actually, April was much, much stronger than that. There's a couple of things going on, which are so counterintuitive in an environment where you can't meet with anyone outside of a web conference or Zoom, which is still a different experience. And as you said, customers are very focused on their internal operations, business continuity plans and other challenges.

That being said, we're seeing a strong top-of-the-pipeline interest, the new materials, click-throughs on are different pieces of how we can manage payments and fraud as well, by the way. And we did, in fact, have a real strong April. You're right. We don't usually give our metrics on a month, but on an entirely different environment.

So we won't be doing that in the future, but we had $6.7 million of bookings for the month, which is really solid because it's not a linear business. You're always going to see a bit more — a bit less in the first month and a bit more in the future months under normal circumstances, on 11 Paymode-X deals now. So common sense tells you, wow, if everybody shut down we'll see less in bookings. But we also know that this is fundamentally changing how people are viewing the businesses.

I was on a call with a major new customer opportunity, and they were talking about how they're world had changed so much and things that they thought they could never do remotely, they're now reconsidering, and that's exactly where this plays. And this is reconsidering Paymode-X and reconsidering your whole digital transformation strategy. So a lot of common sense, say, less in a slow economy. But April was strong and activity has been real strong.

Last piece I'll say, in an extraordinarily long answer for which I apologize, is this, if ever we return to normal, there's no doubt that Bottomline is a catalyst. And this results in the acceleration of digital transformation around business payments. And we're really well positioned for that. What we're doing is not as much trying to drive every piece of booking and try to get everything out of a customer today, but to position ourselves, both from a sales standpoint and product agenda.

So we're really riding what we think will be a strong wave on the other side.

Andrew Schmidt -- Citi -- Analyst

That's helpful. I have a follow-up, but I'll jump back in the queue. Thanks a lot, guys.

Operator

Our next question comes from John Davis with Raymond James. Please state your question.

John Davis -- Raymond James -- Analyst

Good afternoon, guys. First, just wanted to maybe dive in a little bit on the comment around demand for automated AP. I think some of your private peers have noted a pretty significant uptick in demand. What channels or verticals? I guess maybe first, what channels, is that coming from? Is it through the banks or sort of through your new sales force or both? And also, are there any specific verticals that you're seeing a bigger uptick in versus others? And any other commentary you can kind of give there would be helpful.

Rob Eberle -- Chief Executive Officer

Well, on verticals, that's kind of simple. To some verticals were — one, I should say, Bottomline's not exposed to any particular vertical. So businesses of all types need to pay and get paid. So we have customers in all different types of industries.

We have a lot of the travel folks as customers, cruise lines, travel agents, those kind of payments. Of course, we've seen that off at 70%. That's a relatively small portion of our overall revenues. What we have seen in terms of channels is actually demand and interest up on all levels.

The question is whether businesses are in a position to think about what's next, or they're in survival mode, and that will vary more depending on their particular industry and the status of the business, the balance sheet and the like. But net-net, interest is up more since the virus and since the shelter-in-place requirements have come into play.

John Davis -- Raymond James -- Analyst

OK. That's helpful. And then I think you noted maybe some of your smaller peers that have been burning cash. Those properties may come for sale sooner rather than later.

Any interest or appetite. And maybe picking one of those up, I think valuation has been an issue in the past, but it feels like it could be a different situation now. So maybe just comment on that, and if there's any specific area that may be beneficial or advantageous for you going forward?

Rob Eberle -- Chief Executive Officer

Well, I would really say what fits into our overall product and innovation agenda. So it's around data, it's around insights, it's around cyber fraud. It's those types of pieces. We're doing a lot from an organic product position, around new innovations we're bringing to market.

But there's always places there's something new or something that can be an accelerant to that, providing more value to the vendors in a Paymode-X, for example, the integrated payables piece we're doing. From an M&A standpoint, I think it typically takes a little bit more time for new valuations to sink in. Sometimes those are down around valuations. So we're certainly looking across the market, seeing where those opportunities are.

And you're right, valuations have been beyond what we typically would have wanted to pay in the past, and that could come our direction. That's one of the many things that could be kind of a silver lining out of this whole event.

John Davis -- Raymond James -- Analyst

OK. Thanks. And then Rick, I'm not going to let you off the hook. So I was just pleased by the margin commentary, the longer-term post pandemic kind of '21, '22.

So just call it similar levels. Maybe just talk about the puts and takes. And if anything that's changed as you kind of see the shift in the business. Obviously, we've been waiting for a long time for kind of the catalyst to drive automation especially in business payments.

So is there any commentary there on how the margin outlook post COVID has changed, if at all, given what's happened?

Rick Booth -- Chief Financial Officer

Yes. I think what we're seeing is increased outreach and we're continuing to sign customers. But the volume is lower in the short term. So there will be some short-term pressure on margins.

But of course, you're all familiar with our high incremental margins. And so we see those continuing post pandemic. And that's really a big part of our business model. When you look at the new year over year, the moving closer to pure subscription model and continuing to expand that gross margin.

So I think although I can't say exactly when post pandemic will be. I think that the margin outlook is favorable for that in terms of our gross margins.

John Davis -- Raymond James -- Analyst

Thanks.

Operator

Our next question comes from George Sutton with Craig-Hallum. Please state your question.

Adam Kelsey -- Craig-Hallum Capital Group LLC -- Analyst

This is Adam on, for George. Rob and Rick, you talked a few times about how this will serve as an accelerator for transformation in business payments. We're obviously still in the early innings, but I was hoping you could comment a little further on how you see customer priorities changing as a result of what's happened so far?

Rob Eberle -- Chief Executive Officer

Say the very last part, I sort of got lost on the connection. How we see customer what?

Adam Kelsey -- Craig-Hallum Capital Group LLC -- Analyst

Customer priorities changing as a result of COVID-19, social distancing and the like.

Rob Eberle -- Chief Executive Officer

It's funny. We've always said internally, one of our biggest competitors has been inertia. It's something we've talked to businesses all the time, and it will be — got a tight answer. It will be something we want to do.

It's something we're going to do. This just moves it up in the priority.

Adam Kelsey -- Craig-Hallum Capital Group LLC -- Analyst

Why would a business be...

Rick Booth -- Chief Financial Officer

If you can avoid typing while Rob's talking, that will be helpful.

Rob Eberle -- Chief Executive Officer

Yes. Why would a business continue to have payments coming out of their own office facility, checks being printed in their own office, which is less secure, less efficient, all of those reasons, it just moves it up in the priority and says, yes, we really should do this. The second piece is where there have been organizations that didn't believe you could really do this. As the very large group I was talking to a couple of days ago said, this has made them rethink everything about their business, everything about their business process.

And so the comments I've made on digital acceleration of digital transformation, it's actually much broader than just business payments. I think it's going to have an impact on B2B marketing. It's going to have an impact on sales and sales interaction. It's going — you've seen the beginnings of impact on major trade conferences, and how will those come out.

But I think you've seen a world that — and it says, if we can do this digitally, there's benefits beyond just the cost and automation and efficiency, there's benefits in business continuity is one of the lessons we're getting here now. So again, we're seeing a lot of interest. And we think that, that will continue as you come out on the other side.

Adam Kelsey -- Craig-Hallum Capital Group LLC -- Analyst

Great. And in terms of being able to serve customers and go along with your go-live schedule, how has work-for-home and social distancing policies implemented those time frames?

Rob Eberle -- Chief Executive Officer

Well, the biggest challenge is actually what's going on with the customer. We have the ability to do that. Our teams have the ability to do that. Our technology can do that.

The question is, can the customer do that? And where typically, maybe you're nudging a customer long at different points or helping them or pushing them to just keep to a schedule. None of that's appropriate of where we sit in this environment. So we have to be sensitive to the other priorities and challenges, business continuity. Or maybe an organization isn't set up the way we are, to work as well from a shelter-in-place mandate.

So the biggest impact is not with Bottomline. The biggest impact is what's going on with that specific customer. And are there reasons they need to delay an implementation, they need to push it back, and we have to be real sensitive to that. This is not a time for our agenda to take precedents.

It's really a time to put customers first.

Adam Kelsey -- Craig-Hallum Capital Group LLC -- Analyst

And then final question for me. The internal sales team is obviously still new, but I was also hoping you could provide some color, what impact you've seen from having them during this period. And is there anything new from the pandemic that you expect them to do in the future?

Rob Eberle -- Chief Executive Officer

I don't know if there'd be anything new relative to the pandemic other than it's a good time to be joining because, again, we're seeing a stronger response to marketing materials than normal, we're seeing a stronger level of interest, and it's good that team and have had that team on board now, and it's a super strong team so far. So I don't think it's a unique benefit or something different, but the timing really worked out well as we're seeing more top-of-the-funnel interest.

Operator

Our next question comes from Mayank Tandon with Needham. Please state your question.

Mayank Tandon -- Needham and Company -- Analyst

Rob and Rick, maybe I wonder if you could just comment on some of the other parts of the business. Maybe I missed it, I apologize. It would be the legal side. What's your expectations are in terms of the impact from COVID and also in terms of financial messaging? Could that be an area that maybe holds up better than the Paymode-X business related to transaction revenue? Just what's your thoughts on that.

Rob Eberle -- Chief Executive Officer

What's interesting there in financial messaging, we've actually seen some increases in volume levels because of all the different banking and money movement activity that's occurred. I think we'll spend — you're right that, that is transaction-based revenue model. But if you think about the timeline that begins a litigation event, that doesn't happen in March to drive April revenue. That's a much longer cycle.

So I think any impact to that will be over time and be further out. We've seen very steady levels in March and in April in legal spend management.

Rick Booth -- Chief Financial Officer

Yes. The other thing that I want to emphasize is that from a financial decision perspective, that revenue is essentially fixed, so you've got subscriptions going on there. And as Rob noted, things are holding up well in terms of LSM volumes at least right now.

Mayank Tandon -- Needham and Company -- Analyst

Excellent. Just a few follow-ups. I wanted to also ask, Rob, maybe on competition, as you've sort of been competing for these new deals. Have you noticed any change at the margin among whether the privates or the publics, any noticeable change in the competitive climate, who's competing with you on these digital banking and business payments deals?

Rob Eberle -- Chief Executive Officer

I think there's a couple of things I'll comment, unrelated to COVID and then I'll comment related to COVID. First off, unrelated to COVID. Digital banking, we just have continued to extend our clear leadership. I think we're recognized that the investment we've made in technology, the accolades and awards from industry analysts, there was another award, which we referenced the Barlow award to our insights capability, allowing banks to understand more about their customers to learn essentially from each click that their customers make on their platforms, know more what's the next market opportunity, lesser risk of losing this customer.

So from a product leadership standpoint, we've been leaning in, in technology and that's put us in a very good position. Where I think the competitive landscape will shift as we see this environment and, on the other side, we've always seen a flight to quality. That's what occurred in 2008. That's what occurs in any downturn.

And as Rick referenced, touching on the highlights of the balance sheet. Customers will want to understand what's your financial position? Are you going to be continuing to invest in customer success and new capabilities and where do you — how is your financial position and ability to do so. And Bottomline is a public company with a strong balance sheet, really fairs well in that. So we're a trusted innovation partner.

We have the ability to continue to funnel through and that to customers. We've been reaching out to customers throughout this whole process. So I think that adds a little bit more competitive mold to either a start-up or a newer entrant or a private enterprise.

Mayank Tandon -- Needham and Company -- Analyst

Right. And then just a couple of housekeeping for Rick. Rick, did you break out the established versus digital banking piece? I didn't see that in the release. So if you had it, that would be helpful.

And then also, what kind of pound level are you using in terms of your guidance for the fourth quarter and then the long term outlook?

Rick Booth -- Chief Financial Officer

Yes. As to the split between digital banking and the remainder of the business, as we talked about on the last call, now that growth rates have converged, we'll no longer be guiding and discussing them separately, although it will be in the footnotes of our published financials. And from an FX perspective, we're assuming today's rate holds through Q4. And that's part of the reason why when we deliver roughly flat revenue for subscription, that will be a 12% to 13% growth on a constant currency basis.

Operator

Our next question comes from Peter Heckmann with Davidson. Please state your question.

Peter Heckmann -- Avondale Partners

Thank you for giving so much incremental information. It's a tough environment, but the more information we can get, the better. I assume just in an excess of caution, but it looked like you did draw on the credit facility before the end of the quarter. Was that just a precautionary measure?

Rick Booth -- Chief Financial Officer

Yes.

Peter Heckmann -- Avondale Partners

OK. And then any evidence in March that you were just trying to stretch the payment cycle and maybe you saw a little bit more activity there in April? Just trying to figure out if the effect is kind of more around the end of the month or more, could it be several months?

Rick Booth -- Chief Financial Officer

Anything on stretching the payment cycle is a bit more anecdotal than statistical, but we do believe that customers are stretching, that payers are stretching payables based on our conversations and what we can see. And then the question is how long that trend will continue.

Operator

Our next question comes from Andrew Schmidt with Citi Group. Please state your question.

Andrew Schmidt -- Citi -- Analyst

I think one of the advantages for you might be the ability to continue to invest while this weakness is occurring. I know you had some investment plans that have already been set in motion. Just wondering if you could just talk, again, maybe give us a little more flavor for the areas that you're investing in. I know in the past, you've mentioned adding more value to the Paymode-X network.

I think today, you've mentioned adding more value on the AR side, things like that. What if you could just give us a little bit more perspective in terms of where you're investing. I think it's helpful, particularly when we come out of this, just thinking about the functionality that you have for clients.

Rob Eberle -- Chief Executive Officer

Sure. So with respect to platforms, really, across all of our platforms, a big part is about data and insights. So in digital banking, and as an example, for that capability, as I referenced, a few moments ago, this ability for the bank to have a corporate customers using our online platform, every click might mean something. And we've seen an increase in activity.

We've seen a decrease in activity. We've seen a customer that looks — has an excess cash balance, that might be an investment product candidate. Or we've seen someone that's juggling payments, and there's a credit facility candidate. So next actionable items, knowledge about customer, all of those insights are one of the capabilities we're spending a lot of time investing in understanding, in providing today to customers.

The second I'd reference would be around cyber fraud. What other capabilities, what's going on? It's a sad reality that the instances of fraud have increased and not by any accident with this disruption. So we're continuing to invest in cyber fraud solutions to integrate with our payment platforms. And if they're available and can be helpful straight from that.

With respect to Paymode-X, we've broadened that platform to be full invoiced pays. So we've addressed medium and small businesses as well as larger enterprise. We've been out full integrated payable capabilities, so any payment type. And we are introducing more, and we will, in the future, introduce more capabilities for the vendor.

Any network, there has to be a value proposition on both sides. I can be a payer and try to mandate a particular type of payment network. But if there less value for the vendor, it's much, much harder. So we bring a lot of value to the vendor in Paymode-X, and we're continuing to increase that.

And then the last piece, I'll just talk about our future, which is our intelligent cash management. We've been working for a while on capabilities that really take a look at what's happening with your cash picture. Where is it today? Where is it going? How are you managing that? And not from an investment standpoint, but more from an operating standpoint. That's a product that we don't have a market yet today, but we will have in the next couple of quarters, and that's a good example of new capabilities we're bringing to market, that the timing couldn't be better for.

Operator

Thank you. Ladies and gentlemen, there are no further questions at this time. I'll turn the call back to Rob Eberle for closing remarks.

Rob Eberle -- Chief Executive Officer

Well, thank you, everyone. Thank you for your interest in Bottomline. We're, again, in a relatively fortunate position. Our priority remains the safety and well-being of our team caring for our customers, ensuring that our business is strong, and we're confident our business is going to exit this even stronger than before.

We look forward to — Rick and I both look forward to reporting on the fourth quarter in a bit of time here. And I hope you all stay healthy and safe.

Operator

[Operator signoff]

Duration: 41 minutes

Call participants:

Rob Eberle -- Chief Executive Officer

Rick Booth -- Chief Financial Officer

Andrew Schmidt -- Citi -- Analyst

John Davis -- Raymond James -- Analyst

Adam Kelsey -- Craig-Hallum Capital Group LLC -- Analyst

Mayank Tandon -- Needham and Company -- Analyst

Peter Heckmann -- Avondale Partners

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