Barrington On Bottomline Tech: New Shareholders Starting To Understand Business, Old Sticking With

Due to the impact of the transition of Bottomline Technologies’ EPAY business model, the company has lowered its FY16 and FY17 guidance.

Barrington Research’s Gary Prestopino maintained an Outperform rating on the company, with a price target of $30.

Gaining A Better Understanding

Following meetings with CFO Rick Booth and institutional investors of Bottomline Technologies in Milwaukee, Prestopino mentioned that a majority of the meetings focused on the company’s transition from license to SaaS-based sales and the consequent impact on profitability during 4Q16 and FY17.

“We believe that the majority of investors were able to develop a better understanding of the situation once all of the moving parts were presented. Our sense is that EPAY’s longer-term investors will stick with the stock as they realize the long-term benefits to shareholder value from this transition,” the analyst stated.

Reduced Guidance

Due to the impact of the business model transition and the three large new business awards in Digital Banking, management lowered the revenue and EPS guidance for 4Q16 and FY17.

The guidance is now below consensus, Prestopino pointed out, while explaining, “reduction in guidance came as a result of success in selling larger and more customized Digital Banking platform deals that are taking longer to implement with upfront expenses without corresponding offsetting revenues.”

The analyst believes that this would be a long term positive for Bottomline Technologies, which is currently being masked by the increased expenses associated with the new business awards.

“Versus a license sale transaction, the gross margin impact from a large Digital Banking SaaS sale is negative in year 1 and year 2 of the deal and begins to turn positive in year 3,” Prestopino said.