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For Bottomline Technologies, AI and ML May Not be Enough

Posted on Friday, Aug 23rd 2019

According to a McKinsey report, the global payments market is estimated to grow from $1.9 trillion in 2017 at 9% CAGR to $2.9 trillion by 2022. Portsmouth-based Bottomline Technologies (Nasdaq: EPAY) is a leading player in the B2B world of digital payments.

Bottomline’s Offerings

Bottomline Technologies was set up in 1999 to provide enterprise-wide payment solutions to address the need to migrate enterprises away from pre-printed, paper checks as a payment solution. Since then, the company has come a long way. Its product suite is aimed at providing organizations with access to a single platform that can control, manage, and issue all payments across an enterprise.

Today, Bottomline Technologies helps companies manage and define a business payments strategy that helps simplify the process of business payments. Its solutions help businesses migrate to an electronic secure payments process. Its Paymode-X Payment service helps convert fraud-prone checks to secure electronic payments, allowing organizations to transform their accounts payables segment into a profit center.

It also offers a cyber fraud and risk management solution; a digital banking suite that offers a customer engagement platform coupled with cash management services and analytical tools; an automated invoice processing solution; and a secure financial messaging platform. Overall, its tools help improve payments and cash management processes globally. It also offers solutions focused on the healthcare and legal industry to help manage invoicing, payments, and documentation, all in a secure environment.

Bottomline does not seem to have a lot of competitors. There are several other smaller competitors that offer a limited range of services. For instance, Nvoicepay, an Oregon-based player focuses on the invoice payment process. San Francisco-based Fundbox is focused on the B2B sector but offers a revolving line of credit to help SMBs manage their payments process.

Bottomline’s Financials

Bottomline recently reported its fourth quarter earnings. Revenues for the quarter grew 2% over the year to $108.24 million, ahead of the market’s estimated $106.2 million. EPS was $0.34, ahead of the Street’s forecast of $0.33.

By segment, Subscriptions and transaction revenues grew 11% to $79.1 million. Software license revenues grew 12% to $2.4 million. Service and maintenance revenues declined 13% to $25.8 million and revenues from other sources declined 75% to $908 million.

Revenues for the year grew 7% to $422 million. Subscription and transaction revenues for the year grew 13% to $295.6 million. Net income was $9.4 million compared to a net income of $9.3 million recorded a year ago. On an adjusted basis, EPS grew from $1.27 a year ago to $1.35 for the year.

For the current quarter, Bottomline expects to deliver revenues of $105-$107 million with an EPS of $0.25-$0.29. The market was expecting revenues of $109.6 million with an EPS of $0.32.

Bottomline’s Growth

Bottomline continues to invest in emerging technologies of Machine Learning and Artificial Intelligence to improve the payments solutions. These technologies are already being leveraged by it in Paymode-X. Bottomline processes nearly $200 billion in payments through Paymode-X. It is using the data produced by these transactions to gather basic and unique insights to payers. The data helps collate a network payment score for each payment by bearing in mind variables such as vendor details, history of payments from others in the network, and whether the amount the payer is paying is consistent with what others have paid that vendor. It analyzes this data and uses new and unknown vendors’ payments to fight fraud.

It is also using machine learning for bill review and Law Firm Analytics. The platform observes and learns as bill adjustments are made and automates the process that it identifies as repeated patterns. Users can use simple thumbs-up, thumbs-down, feedback or comments buttons to refine this machine-driven process. The solution will get more accurate as the number of transactions on the platform increases.

Another platform-based product launched recently is the digital banking DBIQ suite, that consists of an integrated payments and cash management, fraud and risk management, account opening and onboarding, customer insights and relationship management, in a standard-based API, Open Banking platform. The solution empowers banks to engage intelligently with customers, deliver unified experience and acquire, deepen, and grow profitable relationships.

Bottomline’s Acquisitions

Since being set up, Bottomline has grown through acquisitions. It has made 25 acquisitions so far of various sizes across the globe. The acquisitions have helped it expand its product offering and market reach. But acquisitions have slowed down in the recent past. It had last acquired Decillion Group, a Singapore-based provider of financial messaging solutions in 2017 for $6.2 million. Decillion’s funding sand financial details at the time of acquisition are not known. Decillion was known for operating a SaaS-based solution for financial messaging solutions in the Asia-Pacific region.

Prior to Decillion, Bottomline had acquired IntellinX, a Tel Aviv-based company, for $667 million. IntellinX’s solutions provided behavior tracking capabilities. It was used for tracking end-user activity in internal business applications in multiple platforms, including legacy systems. It helped organizations manage insider threats, while complying with regulations and collecting forensic audit trail of authorized user activities. Prior to the acquisition, IntellinX had raised $4 million in funding and was operating at annual revenues of $5 million.

Bottomline’s recent AI and ML-based product enhancements don’t appear to appease the investors. It perhaps needs to revisit its acquisition strategy to drive that next level of growth. Its stock is currently trading at $44.09 with a market capitalization of $1.9 billion. It had climbed to a 52-week high of $74.05 in September last year and fallen to a 52-week low of $43.62 in July this year.

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