Attached files

file filename
EX-23.1 - EX-23.1 - BOTTOMLINE TECHNOLOGIES INCd220707dex231.htm
EX-32.2 - EX-32.2 - BOTTOMLINE TECHNOLOGIES INCd220707dex322.htm
EX-32.1 - EX-32.1 - BOTTOMLINE TECHNOLOGIES INCd220707dex321.htm
EX-31.2 - EX-31.2 - BOTTOMLINE TECHNOLOGIES INCd220707dex312.htm
EX-31.1 - EX-31.1 - BOTTOMLINE TECHNOLOGIES INCd220707dex311.htm
EX-21.1 - EX-21.1 - BOTTOMLINE TECHNOLOGIES INCd220707dex211.htm
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 10-K

 

 

(Mark One)

 

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2016

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     .

Commission file number 0-25259

 

 

BOTTOMLINE TECHNOLOGIES (de), INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Delaware   02-0433294

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

325 Corporate Drive

Portsmouth, New Hampshire

  03801
(Address of Principal Executive Offices)   (Zip Code)

Registrant’s telephone number, including area code: (603) 436-0700

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class:

 

Name of each exchange on which registered:

Common Stock, $.001 par value per share   The NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x    No  ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

  Large Accelerated Filer  x    Accelerated Filer  ¨
  Non-Accelerated Filer  ¨    Smaller Reporting Company  ¨

(Do not check if a smaller reporting company)

  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):    Yes  ¨    No  x

The aggregate market value of the voting stock held by non-affiliates of the registrant, based on the last sale price of the registrant’s common stock at the close of business on December 31, 2015 was $1,177,292,421 (reference is made to Part II, Item 5 herein for a statement of assumptions upon which this calculation is based). The registrant has no non-voting stock.

There were 41,043,205 shares of common stock, $.001 par value per share, of the registrant outstanding as of August 19, 2016.

DOCUMENTS INCORPORATED BY REFERENCE

Items 10, 11, 12, 13 and 14 of Part III (except for information required with respect to our executive officers, which is set forth under “Part I—Executive Officers and Other Key Employees of the Registrant”) have been omitted from this report, as we expect to file with the Securities and Exchange Commission, not later than 120 days after the close of our fiscal year ended June 30, 2016, a definitive proxy statement for our 2016 annual meeting of stockholders. The information required by Items 10, 11, 12, 13 and 14 of Part III of this report, which will appear in our definitive proxy statement, is incorporated by reference into this report.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

Item

        Page  
PART I   

1.

   Business      3   

1A.

   Risk Factors      12   

1B.

   Unresolved Staff Comments      24   

2.

   Properties      24   

3.

   Legal Proceedings      24   

4.

   Mine Safety Disclosures      25   
   Executive Officers and Other Key Employees of the Registrant      25   
PART II   

5.

   Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities      27   

6.

   Selected Financial Data      29   

7.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations      30   

7A.

   Quantitative and Qualitative Disclosures About Market Risk      48   

8.

   Financial Statements and Supplementary Data      50   

9.

   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure      50   

9A.

   Controls and Procedures      50   

9B.

   Other Information      50   
PART III   

10.

   Directors, Executive Officers and Corporate Governance      51   

11.

   Executive Compensation      51   

12.

   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters      51   

13.

   Certain Relationships and Related Transactions, and Director Independence      51   

14.

   Principal Accountant Fees and Services      51   
PART IV   

15.

   Exhibits and Financial Statement Schedules      52   
   Signatures      96   

 

2


Table of Contents

PART I

This Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties. Any statements (including statements to the effect that we believe, expect, anticipate, plan, and similar expressions) that are not statements relating to historical matters should be considered forward-looking statements. Our actual results may differ materially from the results discussed in the forward-looking statements as a result of numerous important factors, including those discussed in Item 1A. Risk Factors.

 

Item 1. Business

Our Company

We help businesses pay and get paid. We make complex business payments simple, secure and seamless by providing a trusted and easy-to-use set of cloud-based business payment, digital banking, fraud prevention, payment and financial document solutions. We offer hosted or Software as a Service (SaaS) solutions, as well as software designed to run on-site at the customer’s location. The majority of our revenues are derived from offerings sold as SaaS-based solutions and paid for on a subscription and transaction basis.

We operate a cloud-based network that facilitates the exchange of electronic payments between businesses and their vendors. We offer hosted and on-premise solutions that banks use to provide payment, cash management and treasury capabilities to their business customers, as well as solutions that banks and credit unions use to facilitate customer acquisition and growth. We offer financial messaging solutions for banks and corporations around the world, via solutions that leverage the SWIFT global messaging network. We also offer legal spend management solutions that help manage and determine the right amount to pay for legal services and claims vendor expenditures for insurance companies and other large corporate consumers of outside legal services. Our corporate customers rely on our solutions to automate their payment and accounts payable processes and to streamline and manage the production and retention of electronic documents. Our healthcare customers use our solutions to streamline financial processes, particularly the patient enrollment process. Our document automation solutions are used by organizations to automate paper-intensive processes for the generation of transactional and supply chain documents. We also offer comprehensive cyber fraud and risk management solutions that are designed to non-invasively monitor and analyze user behavior to flag behavioral and data anomalies and other suspicious activity.

Our solutions are designed to complement, leverage and extend our customers’ existing information systems, accounting applications and banking relationships so that they can be deployed quickly and efficiently. To help our customers realize the maximum value from our products and meet their specific business requirements, we also provide professional services for installation, training, consulting and product enhancement.

Bottomline was originally organized as a New Hampshire corporation in 1989 and was reincorporated as a Delaware corporation in August 1997. We maintain our corporate headquarters in Portsmouth, New Hampshire and our international headquarters in Reading, England. We maintain a website at www.bottomline.com. Our website includes links to our Code of Business Conduct and Ethics, and the charters of our Audit Committee, Leadership Development and Compensation Committee, and Nominations and Corporate Governance Committee. We are not including the information contained on our website as part of, or incorporating it by reference into, this Annual Report on Form 10-K. We make available free of charge, through our website, our annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission (SEC).

Unless the context requires otherwise, references to we, us, our, Bottomline and the Company refer to Bottomline Technologies (de), Inc. and its subsidiaries.

 

3


Table of Contents

Our Strategy

Our objective is to be the leading global provider of business payment, digital banking, cash management, invoice, document automation software and cyber fraud and risk management solutions and services. Key elements of our strategy include the following:

 

   

providing solutions that allow businesses to make the complex and fragmented payment process simple, seamless and secure;

 

   

providing solutions which enable banks of all sizes to offer their business customers leading cash management and treasury capabilities;

 

   

developing innovative new technologies that will allow us to broaden our market footprint, enhance our competitive position in our current markets and capitalize on new market opportunities;

 

   

delivering an increasingly broad set of solutions via the cloud to provide ease of deployment and efficiency for our customers and increased recurring revenue to us;

 

   

continuing to add customers and functionality to our growing Paymode-X, legal spend management and financial messaging networks;

 

   

providing an intuitive, easy-to-use/easy-to-navigate experience, accessible via a variety of technology platforms including mobile devices;

 

   

attracting and retaining exceptional technical, industry and management talent who have experience in our markets and the capability to grow our business;

 

   

continuing to develop and broaden strategic relationships that enhance our global position; and

 

   

pursuing strategic acquisitions that expand our geographical footprint and market share or extend our product functionality.

Our Products and Services

Payment Network

Paymode-X is a cloud-based payment network that operates as a digital registry to allow businesses to easily transition from paper to electronic payments, maximizing cost-savings, efficiency and security. With more than 330,000 enrolled businesses, new Paymode-X customers gain immediate benefits because many of their vendors are already part of the Paymode-X network—ready to be paid electronically on day one. Our vendor enrollment process leverages our Intelligent Engagement Model which includes predictive analytics tools and proprietary processes designed to maximize vendor adoption. As a complete payment automation solution, customers can easily optimize working capital and their payment mix by making card, ACH, wire and check payments with a single integrated payment file. We continually invest in features and services that add value and ease of use of Paymode-X, including: electronic payments and remittance delivery, online access to payment detail and reports, online payment approvals, electronic invoice delivery, and turnkey vendor enrollment and support. We partner with Visa to offer Paymode-X with Visa Payables.

Digital Banking

We offer payments, cash management and online banking solutions to financial institutions, including banks and credit unions. Our solutions enable banks of all sizes to offer their customers a host of capabilities including ACH and BACS payments, wires, international payments, check production, customer acquisition, balance and information reporting and other features that facilitate enterprise-wide cash management and interaction with their customers. Our web payment fraud module integrates with our hosted payments and cash management platforms, providing real time security monitoring and automated transaction blocking for fraudulent activity. Our solutions allow our bank customers to attract and service a full range of client segments from small

 

4


Table of Contents

businesses to multi-nationals. These solutions feature an intuitive user interface designed to simplify all aspects of payments and cash management for customers of all sizes and sophistication, through both browser-based and mobile channels.

Legal Spend Management

Our cloud-based legal spend management solutions and services integrate with claims management and time and billing systems to automate legal invoice management processes and to provide insight into all areas of a company’s outside legal spend. The combination of automated invoice routing and a sophisticated rules engine allows corporate legal and insurance claims departments to create more efficient processes for managing invoices generated by outside law firms and other service providers, while offering insight into important legal spend factors including expense monitoring and outside counsel performance. We continue to expand the capabilities of these offerings to leverage predictive analytics to forecast claim settlement and litigation expense, facilitate the selection and retention of counsel and augment the management and budgeting of litigation matters.

Cyber Fraud and Risk Management

Our cyber fraud and risk management solutions (CFRM) non-invasively monitor, replay and analyze user behavior to flag and even stop suspicious activity in real time. The solutions are highly configurable and create accountability by recording and analyzing each application interaction and screen view, reducing the risk of theft, information leakage, internal fraud and payments fraud, as well as decreasing the cost of regulatory compliance. Case management capabilities centralize risk management, speed investigations, and facilitate compliance with regulations pertaining to Anti Money Laundering (AML), the Health Insurance Portability and Accountability Act (HIPAA), and Know Your Customer (KYC).

Financial Messaging Solutions

Our cloud-based financial messaging solutions leverage the SWIFT global messaging network to allow corporations to exchange financial information including payment instructions, cash reporting and other messages related to financial transactions with their banks and counterparties around the world. Our solutions allow banks and corporations to achieve lower costs, rapid implementation, greater security and improved risk management while avoiding costly internal infrastructure.

Payment and Document Automation

Our payment automation solutions can generate a wide variety of domestic and international payment instructions along with consolidated bank reporting of cash activity. Our web fraud and security module is designed to identify and track fraudulent activity that occurs in a customer’s platform. Our solutions can reduce administrative expenses and strengthen compliance and anti-fraud controls. Users are able to gather and access data via the web related to payment and bank account information, including account totals and detailed transaction data, providing improved workflow, financial reporting and bank communications.

To help augment financial document workflow and delivery, we also offer a number of solutions designed to automate a wide variety of business documents and supply chain processes as well as related web-based delivery and document archive. Our products offer advanced design, output formatting and delivery capabilities to replace paper-based forms, as well as automating the labor-intensive accounts payable processing of invoices.

Healthcare Solutions

Our solutions for patient registration, electronic signature, mobile document and payments allow healthcare organizations to improve business efficiencies, reduce costs and improve care quality. Leveraging our extensive experience optimizing document-driven processes, our solutions are utilized across the acute care hospital enterprise and broader healthcare systems, accelerating the paper-to-electronic transition while helping our customers streamline data flows.

 

5


Table of Contents

We also extend our CFRM platform to provide privacy and data security for healthcare organizations enabling them to better protect themselves and their patients’ data from the growing threat posed by the misuse of valid user credentials. Combining our healthcare domain experience with the use of user behavior analytics, profiling and a powerful risk scoring engine allows healthcare organizations to more effectively detect user behavior changes, showing the shift from appropriate use to inappropriate reconnaissance with data collection and alerting in real-time.

Professional Services

Our teams of service professionals draw on extensive experience to provide consulting, project implementation and training services to our customers. By easing the implementation of our products, these services help our customers accelerate the time to value. By improving the overall customer experience, these services help us retain customers and drive future revenue-generating arrangements from existing customers.

Our Customers

Our customers are in diverse industries including financial services, insurance, healthcare, technology, retail, communications, education, media, manufacturing and government. Our customers include leading organizations such as Bank of America Merrill Lynch, BBVA Compass, British Airways, Catholic Health Initiatives, Cedars-Sinai Medical Center, Cigna Corporation, Franklin Templeton, Fidelity, Lloyds Bank, Capital One, Deere and Company, Target Corporation, Johnson Controls, Inc., State Farm Insurance, Sutter Health, Vodafone and Zurich American Insurance Company.

Our Competition

The markets in which we participate are highly competitive. We believe our ability to compete depends on factors within and beyond our control, including:

 

   

our ability to develop new, innovative technology solutions that meet the evolving needs of our customers and the shifting dynamics of the markets we participate in;

 

   

our ability to attract and retain employees with the requisite domain knowledge and technical skill set necessary to develop and support our products;

 

   

the performance, reliability, features, ease-of-use and price of our offerings as compared to competitor alternatives;

 

   

our industry knowledge and expertise;

 

   

the execution of our sales and services organizations; and

 

   

the timing and market acceptance of new products as well as enhancements to existing products, by us and by our current and future competitors.

For our Paymode-X solutions, our principal competitors include AvidXchange, American Express and Wells Fargo in addition to ACH capabilities offered by banks.

For our digital banking payments and cash management solutions, we primarily compete with companies such as ACI Worldwide, Fiserv, FIS, Q2, Jack Henry, Backbase, Digital Insight, Online Banking Solutions, Infosys, D+H Corporation, MeridianLink, nCino, Bill.com, IBM, SAP, Oracle, Polaris, Avoka, Intellect Design Arena, Wipro and Patni, that offer a wide range of financial services, including electronic banking applications. We also encounter competition in our digital banking customer acquisition offerings from MeridianLink and D+H Corporation.

For our legal spend management solutions, we compete with a number of companies, including Wolters Kluwer ELM Solutions, LexisNexis and Computer Sciences Corporation (CSC).

 

6


Table of Contents

Our cyber fraud and risk management products compete with NICE Actimize, Norkom-Deitca, SAS, Guardian Analytics and FairWarning, among others.

For our financial messaging solutions, our principal competitors are D+H Corporation, Eastnets, SunGard and SWIFT.

For our healthcare solutions, our primary competitors are Access, FairWarning, FormFast, Iatric Systems and Standard Register.

Our payment and document automation products compete primarily with products from companies that provide solutions to create, publish, manage and archive electronic documents and companies that offer payments software and services. Our products also compete with companies that provide a diverse array of accounts payable automation and workflow capabilities. We also compete with providers of enterprise resource planning (ERP) solutions and providers of traditional payment products, including check stock and check printing software and services. In addition, some financial institutions compete with us as outsourced check printing and electronic payment service providers.

Although we believe that we compete favorably in each of the markets in which we participate, the markets for our products and services are intensely competitive and characterized by rapid technological change and a number of factors could adversely affect our ability to compete in the future, including those discussed in Item 1A. Risk Factors.

Our Segments

Operating segments are the components of our business for which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Our chief operating decision maker is our chief executive officer. Our operating segments are generally organized by the type of product or service offered and by geography.

During the fiscal year ended June 30, 2016, we re-examined the aggregation of our operating segments and reclassified our cyber fraud and risk management and healthcare operating segments from the “Payments and Transactional Documents” reportable segment into the new “Other” reportable segment. To ensure a consistent presentation of the measurement of segment revenues and profit or loss, these changes are reflected for all periods presented.

Similar operating segments have been aggregated into four reportable segments as follows:

Payments and Transactional Documents. Our Payments and Transactional Documents segment is a supplier of software products that provide a range of financial business process management solutions including making and collecting payments, sending and receiving invoices, and generating and storing business documents. This segment also includes our payments automation software for direct debit and receivables management and provides a range of standard professional services and equipment and supplies that complement and enhance our core software products. Revenue associated with the aforementioned products and services is typically recorded upon delivery. This segment also incorporates certain other solutions that are licensed on a subscription basis, revenue for which is typically recorded on a subscription or transaction basis, or ratably over the expected life of the customer relationship.

Hosted Solutions. Our Hosted Solutions segment provides customers predominately with SaaS technology offerings that facilitate electronic payment, electronic invoicing, and spend management. Our legal spend management solutions, which enable customers to create more efficient processes for managing invoices generated by outside law firms while offering insight into important legal spend factors such as expense monitoring and outside counsel performance, are included within this segment. This segment also incorporates our global financial messaging and Paymode-X solutions. Revenue within this segment is generally recognized on a subscription or transaction basis or ratably over the estimated life of the customer relationship.

 

7


Table of Contents

Digital Banking. Our Digital Banking segment provides solutions to banking and financial institution customers. Our Digital Banking products are now sold almost entirely on a subscription basis which has the effect of contributing to recurring subscription and transaction revenue and the revenue predictability of future periods, but which also delays revenue recognition over a longer period.

Other. Our Other segment consists of our healthcare and cyber fraud and risk management operating segments. Our cyber fraud and risk management solutions non-invasively monitor, replay and analyze user behavior to flag and even stop suspicious activity in real time. Our healthcare solutions for patient registration, electronic signature, mobile document and payments allow healthcare organizations to improve business efficiencies, reduce costs and improve care quality. When licensed on a perpetual license basis, revenue for our cyber fraud and risk management and healthcare products is typically recorded upon delivery, with the exception of software maintenance which is normally recorded ratably over a twelve month period. When products are licensed on a subscription basis, revenue is normally recorded ratably over the subscription period.

Periodically a sales person in one operating segment will sell products and services that are typically sold within a different operating segment. In such cases, the transaction is generally recorded by the operating segment to which the sales person is assigned. Accordingly, segment results can include the results of transactions that have been allocated to a specific segment based on the contributing sales resources, rather than the nature of the product or service. Conversely, a transaction can be recorded by the operating segment primarily responsible for delivery to the customer, even if the sales person is assigned to a different operating segment.

Our chief operating decision maker assesses segment performance based on a variety of factors that normally include segment revenue and a segment measure of profit or loss. Each segment’s measure of profit or loss is on a pre-tax basis and excludes stock compensation expense, acquisition and integration related expenses (including acquisition related contingent consideration), amortization of acquired intangible assets, restructuring related charges, minimum pension liability adjustments, non-core charges related to our convertible notes, global ERP system implementation costs, charges related to reserves established or released against our deferred tax assets and other non-core or non-recurring gains and losses that arise from time to time. There are no inter-segment sales; accordingly, the measure of segment revenue and profit or loss reflects only revenues from external customers. The costs of certain corporate level expenses, primarily general and administrative expenses, are allocated to our operating segments based on a percentage of the segment’s revenues.

We do not track or assign our assets by operating segment.

The following represents a summary of our reportable segments.

 

     Fiscal Year Ended June 30,  
     2016     2015     2014  
     (in thousands)  

Segment revenue:

      

Payments and Transactional Documents

   $ 115,213      $ 116,685      $ 118,098   

Hosted Solutions

     138,641        126,178        107,360   

Digital Banking

     70,747        77,184        67,769   

Other

     18,673        10,842        7,358   
  

 

 

   

 

 

   

 

 

 

Total segment revenue

   $ 343,274      $ 330,889      $ 300,585   
  

 

 

   

 

 

   

 

 

 

Segment measure of profit:

      

Payments and Transactional Documents

   $ 34,225      $ 36,010      $ 37,249   

Hosted Solutions

     23,380        15,329        8,344   

Digital Banking

     5,696        12,440        7,045   

Other

     (1,795     (2,870     212   
  

 

 

   

 

 

   

 

 

 

Total measure of segment profit

   $ 61,506      $ 60,909      $ 52,850   
  

 

 

   

 

 

   

 

 

 

 

8


Table of Contents

A reconciliation of the measure of segment profit to our GAAP loss before income taxes is as follows:

 

     Fiscal Year Ended June 30,  
     2016     2015     2014  
     (in thousands)  

Total measure of segment profit

   $ 61,506      $ 60,909      $ 52,850   

Less:

      

Amortization of acquired intangible assets

     (28,978     (30,383     (26,242

Stock-based compensation expense

     (30,279     (27,025     (22,821

Acquisition and integration related expenses

     (741     (2,835     (4,563

Restructuring expenses

     (850     (1,297     (1,371

Minimum pension liability and related adjustments

     (203     (56     (331

Other non-core income (expense)

     246        (76     —     

Global ERP system implementation costs

     (4,252     —          —     

Other expense, net

     (15,312     (15,553     (14,544
  

 

 

   

 

 

   

 

 

 

Loss before income taxes

   $ (18,863   $ (16,316   $ (17,022
  

 

 

   

 

 

   

 

 

 

Financial Information About Geographic Areas

We have presented geographic information about our revenues below. This presentation allocates revenue based on the point of sale, not the location of the customer. Accordingly, we derive revenues from geographic locations based on the location of the customer that would vary from the geographic areas listed here; particularly with respect to financial institution customers located in Australia for which the point of sale was the United States and customers located in Africa for which the point of sale was Israel.

 

     Fiscal Year Ended June 30,  
     2016     2015     2014  
     (in thousands)  

North America

   $ 199,765         58.2   $ 193,286         58.4   $ 171,641         57.1

United Kingdom

     96,244         28.0     93,735         28.3     96,719         32.2

Continental Europe

     38,849         11.3     38,053         11.5     29,047         9.7

Asia-Pacific and Middle East

     8,416         2.5     5,815         1.8     3,178         1.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total revenues from unaffiliated customers

   $ 343,274         100.0   $ 330,889         100.0   $ 300,585         100.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Long-lived assets, excluding deferred tax assets and intangible assets, which are based on geographical location, were as follows:

 

     Fiscal Year Ended
June 30,
 
     2016      2015  
     (in thousands)  

Long-lived assets:

     

North America

   $ 56,885       $ 45,350   

United Kingdom

     8,499         8,573   

Continental Europe

     1,924         2,390   

Asia-Pacific and Middle East

     2,080         2,280   
  

 

 

    

 

 

 

Total long-lived assets

   $ 69,388       $ 58,593   
  

 

 

    

 

 

 

A significant percentage of our revenues are generated by our international operations and our future growth rates and success are in part dependent on continued growth and success in international markets. As is the case with most international operations, the success and profitability of these operations is subject to numerous risks

 

9


Table of Contents

and uncertainties including exchange rate fluctuations. We do not currently hedge against exchange rate fluctuations. A number of other factors could also have a negative effect on our business and results from operations outside the US, including different regulatory and industry standards and certification requirements, reduced protection for intellectual property rights in some countries, import or export licensing requirements, the complexities of foreign tax jurisdictions and difficulties and costs of staffing and managing our foreign operations.

Sales and Marketing

As of June 30, 2016, we employed 334 sales and marketing employees worldwide, of whom 204 were focused on North American markets, 113 were focused on the United Kingdom and continental Europe markets and 17 were focused on Asia-Pacific and Middle East markets. We market and sell our products directly through our sales force and indirectly through a variety of channel partners and reseller relationships. We market and sell our products domestically and internationally, with an international focus on the United Kingdom and continental Europe. We also maintain an inside sales group which provides a cost effective channel into maintaining existing customers and expanding our customer base.

Product Development and Engineering

Our product development and engineering organization includes employees as well as strategic development partners who provide a flexible supplement to our internal resources. We have three primary development groups: product design and user experience, software engineering, and quality assurance. We expensed $47.4 million, $47.2 million, and $39.7 million in product development and engineering costs in fiscal years 2016, 2015 and 2014, respectively.

Our product design and user experience team is extensively involved in the design of all of our products, driving the user-centered design process to ensure elegant, engaging, and easy-to-use products. Part of this process is user experience testing that is conducted to provide additional productivity gains for the end user.

Our software engineers have substantial experience in advanced software development techniques as well as extensive knowledge of the complex processes involved in business document workflow, cash management, payment, and invoicing applications. They maintain extensive knowledge of software development trends and best practices. Our technology focuses on providing business solutions utilizing industry standards, providing a path for extendibility and scalability of our products. Security, control and fraud prevention, as well as performance, data management and resource efficiencies are priorities in the technology we develop and deploy.

Our quality assurance engineers have extensive knowledge of our products and expertise in software quality assurance techniques. The quality assurance team participates in all phases of our product development processes. Members of the quality assurance group make use of both manual and automated software testing techniques to ensure high-quality software is being delivered to our customers. The quality assurance group members participate in alpha and beta releases, testing of new product releases, and performance and security testing for our products.

Backlog

At the end of fiscal year 2016, our backlog was $215.6 million, including deferred revenues of $93.4 million. At the end of the fiscal year ended June 30, 2015, our backlog was $153.9 million, including deferred revenues of $88.0 million. We do not believe that backlog is a meaningful indicator of revenues that can be expected for any future period, and there can be no assurance that backlog at any point in time will translate into revenue in any specific subsequent period.

 

10


Table of Contents

Proprietary Rights

We use a combination of patents, copyrights, trademarks and trade secret laws to help establish and protect our proprietary rights in our technology and products. During fiscal year 2016, we did not add any newly issued patents to our portfolio. In total, we currently hold 27 US patents as well as nine foreign equivalent patents in Europe, Israel and India. We expect to receive other patents, as we have more than 20 applications pending before the US Patent and Trademark Office. Two of our patents expired in July 2015 and the earliest year of expiration of any of our remaining patents is 2019.

We intend to continue to file patent applications as we identify patentable technology. There can be no assurance, however, that our existing patent applications, or any others that we may file in the future, will issue or will be of sufficient scope and strength to provide meaningful protection of our technology or any commercial advantage to us, or that the issued patents will not be challenged, invalidated or circumvented. In addition, we rely upon a combination of copyright and trademark laws and non-disclosure and other intellectual property contractual arrangements to help protect our proprietary rights. Given the rapidly changing nature of the industry’s technology, the creative abilities of our development, marketing and service personnel may be as or more important to our competitive position as are the legal protections and rights afforded by patents. We also enter into agreements with our employees and clients that seek to limit and protect our intellectual property and the distribution of proprietary information. However, there can be no assurance that the steps we have taken to protect our intellectual property will be adequate to deter misappropriation of proprietary information, and we may not be able to detect unauthorized use and take appropriate steps to enforce our proprietary rights.

Government Regulation

Our US-based banking and financial institution customers are typically regulated by the Federal Financial Institutions Examination Council (FFIEC) or one or more of their member agencies, which include the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the National Credit Union Association. Our non US-based banking and financial institution customers are normally subject to a similar regulatory oversight in their country of domicile. We are subject to periodic examination by the FFIEC in our capacity as a technical service provider, during which our operating practices are risk-assessed and compared against applicable laws and regulations. If we, as part of such an examination, were to receive a sufficiently unfavorable review from the FFIEC, our customers may be advised by the regulators to reassess their commercial relationships with us, including the continued use of our products.

Each of our operating segments provides services or products that may be subject to various federal, state or foreign laws or regulations, particularly in the area of data security and privacy. These laws and regulations govern the collection, processing, storage, use and disclosure of personal information as well as notification requirements in the event of security breaches. The legal and regulatory framework in these areas is complex and continually evolving, particularly with respect to data security, payment technology and payment methodologies. We may become subject to new or increased regulation in the future, and the cost of complying with current or future regulatory requirements could exceed our estimates. Our products and services must be designed to work effectively within this legal framework.

Employees

As of June 30, 2016, we had approximately 1,600 full-time employees. None of our employees are represented by a labor union. We have not experienced any work stoppages and we believe that employee relationships are good. Our future success will depend in part on our continued ability to attract, retain and motivate highly-qualified technical and managerial personnel in a highly competitive market.

 

11


Table of Contents
Item 1A. Risk Factors

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below before making an investment decision involving our common stock. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties may also impact our business operations.

If any of the following risks actually occur, our business, financial condition or results of operations would likely suffer. In that case, the trading price of our common stock could fall, and you may lose all or part of the money you paid to buy our common stock.

Risks Related To Owning Our Common Stock

Our common stock has experienced and may continue to undergo significant market price fluctuations

The market price of our common stock has recently experienced and may continue to experience significant fluctuations due to a variety of factors, including:

 

   

general and industry-specific business, economic and market conditions;

 

   

changes in or our failure to meet analysts’ or investors’ estimates or expectations;

 

   

actual or anticipated fluctuations in our operating results;

 

   

public announcements concerning us, our competitors or our industry;

 

   

acquisitions, divestitures, strategic partnerships, joint ventures, or capital commitments by us or our competitors;

 

   

adverse developments in patent or other proprietary rights; and

 

   

announcements of technological innovations by our competitors.

If our revenues are below anticipated levels or if our operating results are below analyst or investor expectations, the market price of our common stock could be adversely affected

A significant percentage of our expenses, particularly personnel and facilities costs, are relatively fixed and based in part on anticipated revenue levels which can be difficult to predict. A decline in revenues without a corresponding and timely slowdown in expense growth could adversely affect our business. Significant revenue shortfalls in any quarter may cause significant declines in operating results since we may be unable to reduce spending in a timely manner.

Quarterly or annual operating results that are below the expectations of public market analysts could adversely affect the market price of our common stock. Factors that could cause fluctuations in our operating results include:

 

   

a change in customer demand for our products, which is highly dependent on our ability to continue to offer innovative technology solutions in very competitive markets;

 

   

overall economic conditions, which may affect our customers’ and potential customers’ budgets for information technology expenditures;

 

   

foreign exchange rate volatility, which can have a significant effect on our total revenues and costs when our foreign operations are translated to US dollars;

 

   

the timing of customer orders;

 

   

the timing of product implementations, which are highly dependent on customers’ resources and discretion;

 

12


Table of Contents
   

the incurrence of costs relating to the integration of software products and operations in connection with acquisitions of technologies or businesses; and

 

   

the timing and market acceptance of new products or product enhancements by either us or our competitors.

Our mix of products and services could have a significant effect on our results of operations and the market price of our common stock

The gross margins for our products and services vary considerably. Our software license revenues generally yield significantly higher gross margins than do our subscriptions and transactions, service and maintenance and other revenue streams. If software license revenues or our recurring revenues significantly decline in any future period, or if the mix of our products and services in any given period does not match our expectations, our results of operations and the market price of our common stock could be significantly adversely affected.

Risks Related To Our Business

The voting result of the Referendum of the United Kingdom’s Membership of the European Union (EU) (referred to as Brexit), advising for the exit of the United Kingdom (UK) from the European Union, could cause disruptions to and create uncertainty surrounding our business, including affecting our relationships with our existing and future customers, suppliers and employees, which could have an adverse effect on our business, financial results and operations.

As a result of the Referendum, it is expected that the British government will begin negotiations to determine the future terms of the UK’s relationship with the EU, including the terms of trade between the UK and the EU. The ultimate effects of Brexit will depend on any agreements the UK makes to retain access to EU markets either during a transitional period or more permanently. The measures could potentially disrupt the markets we serve and the tax jurisdictions in which we operate, adversely change tax benefits or liabilities in these or other jurisdictions, and may cause us to lose customers, suppliers, and employees in the UK and other countries. In addition, Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the UK determines which EU laws to replace or replicate.

The announcement of Brexit caused significant volatility in global stock markets and currency exchange rate fluctuations that resulted in the strengthening of the US dollar against foreign currencies in which we conduct business, particularly the British Pound Sterling which decreased to the lowest exchange levels seen since 1985. Any strengthening of the US dollar relative to other foreign currencies affects our results of operations in a number of ways, including:

 

   

Our international sales are predominately denominated in currencies other than US dollars. A decrease of foreign currency exchanges rates will have the effect of decreasing our overall revenues upon translation to US dollars;

 

   

Any significant devaluation of foreign currencies may impact the purchasing power of our customers and potential customers and could affect the demand for our products; and

 

   

EU member countries could make it more difficult for our UK subsidiary or us to trade effectively or competitively in those regions.

The announcement of Brexit may also create global economic uncertainty or consequences that are not yet clear given the unprecedented nature of the event.

The markets in which we compete are extremely competitive and we may not be able to compete effectively

The markets in which we compete are intensely competitive and characterized by rapid technological change. There is no assurance that we will be able to maintain our current market share or our customer base.

 

13


Table of Contents

We compete with a wide range of companies ranging from small start-up enterprises with limited resources, which we compete with principally on the basis of technology features or specific customer relationships, to large companies which can leverage significantly larger customer bases and greater financial resources. Many of our competitors have longer operating histories, significantly greater financial, technical, and sales and marketing resources, greater brand recognition and a larger customer base than we do. We anticipate that the markets in which we compete will continue to attract new competitors and new technologies and we may not be able to compete successfully with them.

To compete successfully, we need to maintain a successful research and development function. If we fail to enhance our current products and develop new, innovative solutions or if we fail to bring new solutions to market quickly enough, our products could become less competitive or obsolete.

We continue to make significant investments in our existing products and our new product offerings, which may adversely affect our operating results or may not be successful

Given the highly competitive and rapidly evolving technology environment we operate within, we believe that it is important to constantly enhance our existing product offerings as well as to develop new product offerings to meet strategic opportunities as they evolve. This includes developing and enhancing our products to include what we believe is necessary to meet the future needs of our customers.

Our operating results have been affected by increases in product development expenses in recent years as we have continued to make investments in a number of our products, and as we have funded new product development based on market opportunities. We expect to continue to make these investments and we may at any time, based on product need or marketplace demand, decide to significantly increase our product development expenditures in these or other products.

Investments in existing products and new product offerings can have a negative impact on our operating results and any new product enhancement or offering may not be accepted in the marketplace or generate material revenues for us.

Acquisitions could disrupt our business and harm our financial condition

An active acquisition program is an important element of our corporate strategy. We have been a highly acquisitive company historically, and we expect to continue to make acquisitions in the future. Any acquisition or strategic investment we have made or may make in the future may entail numerous risks, including the following:

 

   

difficulties integrating acquired operations, personnel, technologies or products;

 

   

entrance into markets and operating geographies in which we have no or limited prior experience or knowledge;

 

   

failure to realize anticipated revenue increases for any number of reasons, including if a larger than expected number of acquired customers decline to renew software maintenance contracts or subscription based contracts, if we are unsuccessful in selling the acquired products into our existing customer base or if the terms of the acquired contracts do not permit us to recognize revenue on a timely basis;

 

   

costs incurred to combine the operations of companies we acquire, such as integrations costs, transitional employee expenses and employee retention or relocation expenses may be higher than expected;

 

   

write-offs related to existing or acquired assets such as deferred tax assets, goodwill or other intangible assets;

 

14


Table of Contents
   

inability to retain key personnel of the acquired company;

 

   

inadequacy of existing operating, financial and management information systems to support the combined organization, including the difficulty in integrating an acquired company’s accounting, financial reporting and other administrative systems to permit effective management;

 

   

difficulties implementing controls, procedures and policies appropriate for a public company at companies that, prior to the acquisition, may have lacked such controls, policies and procedures;

 

   

in the case of foreign acquisitions, challenges integrating operations across different cultures and languages and addressing the particular regulatory, economic, currency and political risks associated with different countries or regions;

 

   

diversion of management’s focus from our core business concerns;

 

   

dilution to existing stockholders and our earnings per share;

 

   

incurrence of substantial debt;

 

   

exposure to litigation from third parties, including claims related to intellectual property or other assets acquired or liabilities assumed; and

 

   

failure to realize anticipated benefits of the transaction due to the above factors or other factors.

Any such difficulties encountered as a result of any merger, acquisition or strategic investment could have a material adverse effect on our business, operating results and financial condition.

As a result of our acquisitions, we could be subject to significant future write-offs with respect to intangible assets, which may adversely affect our future operating results

The carrying value of our intangible assets, including goodwill, represents a significant portion of our total assets. We periodically review our goodwill and our other intangible assets for impairment and could, in any future period, be subject to impairment charges with respect to these assets or intangible assets arising as a result of acquisitions in future periods. Any such charges, to the extent occurring, would likely have a material adverse effect on our operating results.

The failure of our cyber fraud and risk management products to prevent a security breach or detect a cyber fraud, or the failure of our customers to take action based on the risks identified by these products could harm our reputation and adversely impact our operating results

Our cyber fraud and risk management products provide our customers the ability to configure a multitude of settings and establish certain rule-based alerts and it is possible that a customer could misconfigure these products or fail to configure these products in an optimal manner, which could cause threats to go undetected. Similarly, if our cyber fraud and risk management products detect threats or otherwise alert a customer to suspicious activity but the customer does not take action to investigate those threats or alerts, customers may erroneously believe that our products were not effective.

Any real or perceived defects, errors or vulnerabilities in our cyber fraud and risk management products or any failure of these products to prevent, detect or alert a customer to a threat could result in:

 

   

a loss of customers or potential customers;

 

   

delayed or lost revenue and harm to our financial condition and results or operations;

 

   

a delay in attaining, or the failure to attain, market acceptance for our cyber fraud and risk management solutions;

 

   

an increase in warranty claims;

 

15


Table of Contents
   

harm to our reputation;

 

   

litigation, regulatory inquiries, or investigations that may be expensive and that would further harm our reputation.

Weakness or deterioration in domestic and global economic conditions could have a significant adverse impact on our business, financial condition and operating results

Our business, financial condition and operating results are significantly affected by general economic conditions. The US and global economies have experienced deterioration in the recent past and prospects for sustained economic recovery remain uncertain. Prolonged economic weakness or any further downturn in the US and global economies could result in a variety of risks to our business, including:

 

   

increased volatility in our stock price;

 

   

increased volatility in foreign currency exchange rates;

 

   

delays in, or curtailment of, purchasing decisions by our customers or potential customers either as a result of continuing economic uncertainty or as a result of their inability to access the liquidity necessary to engage in purchasing initiatives;

 

   

pricing pressures for our products and services, including reductions in the duration or renewal rates for our subscription contracts and software maintenance contracts;

 

   

increased credit risk associated with our customers or potential customers, particularly those that may operate in industries or geographic regions most affected by the economic downturn; and

 

   

impairment of our goodwill or other assets.

To the extent that economic conditions remain uncertain or deteriorate, or any of the above risks occur, our business and operating results could be significantly and adversely affected.

We face risks associated with our international operations that could harm our financial condition and results of operations

A significant percentage of our revenues have been generated by our international operations and our future growth rates and success are in part dependent on our continued growth and success in international markets. As is the case with most international operations, the success and profitability of these operations are subject to numerous risks and uncertainties that include, in addition to the risks our business as a whole faces, the following:

 

   

currency exchange rate fluctuations, particularly with the British Pound Sterling, the Swiss Franc, the European Euro, the Israeli Shekel and the Australian Dollar;

 

   

difficulties and costs of staffing and managing foreign operations;

 

   

differing regulatory and industry standards and certification requirements;

 

   

the complexities of tax laws in foreign jurisdictions;

 

   

the complexities of foreign data privacy laws and regulations;

 

   

reduced protection for intellectual property rights in some countries; and

 

   

import or export licensing requirements.

We are subject to the political, economic and security conditions in Israel

In January 2015 we acquired Intellinx, Ltd. (Intellinx), which is headquartered in Tel Aviv, Israel. Since the establishment of the State of Israel, a number of armed conflicts have taken place between Israel and its neighbors. During the past several years, Israel has experienced periodic armed conflicts which have involved missile strikes into Israel and which at times have disrupted day-to-day civilian activity in Israel.

 

16


Table of Contents

There can be no assurance that future attacks will not occur and that such attacks will not hit our premises or major infrastructure and transport facilities in the country, which could have an adverse effect on our ability to conduct business in Israel. In addition, acts of terrorism, armed conflicts or political instability in the region could negatively affect global as well as local economic conditions and adversely impact our operating results.

Our business and operating results are subject to fluctuations in foreign currency exchange rates

We conduct a substantial portion of our operations outside of the US, principally in the United Kingdom and in continental Europe and, to a lesser extent, in the Asia-Pacific and Middle East regions. During the twelve months ended June 30, 2016, approximately 42% of our revenues and 44% of our operating expenses were attributable to customers or operations located outside of North America. During the twelve months ended June 30, 2016 as compared to the twelve months ended June 30, 2015, the foreign currency exchange rates of the British Pound Sterling to the US Dollar decreased. Future appreciation of the US Dollar against the British Pound Sterling, Swiss Franc, European Euro or Australian Dollar will have the impact of reducing both our revenues and operating expenses associated with our operations in those regions.

We may have larger than anticipated tax liabilities

The determination of our provision for income taxes requires significant judgment and estimation and there are many transactions and calculations where the ultimate tax determination is uncertain. We are subject to tax in multiple US and foreign tax jurisdictions and the determination of our tax liability is always subject to audit and review by the applicable domestic or foreign taxing authority. In light of fiscal challenges in US federal and state governments and in many international locations, taxing authorities are increasingly focused on ways to increase revenues which may make resolving tax disputes more difficult. While we have established tax reserves using assumptions and estimates that we believe to be reasonable, these reserves may prove insufficient in the event that a taxing authority asserts a tax position that is contrary to our position.

A significant percentage of our revenues to date have come from our payment and document management offerings and our future performance will depend on continued market acceptance of these solutions

A significant percentage of our revenues to date have come from the license and maintenance of our payment and document management offerings and sales of associated products and services. Any significant reduction in demand for our payment and document management offerings could have a material adverse effect on our business, operating results and financial condition. Our future performance could depend on the following factors:

 

   

retaining and expanding our software maintenance and subscriptions and transactions customer bases, which are significant sources of our recurring revenue;

 

   

continued market acceptance of our payment and document management offerings;

 

   

our ability to demonstrate the value of our solutions as compared to solutions from other vendors such as enterprise resource planning software vendors that offer a broader enterprise application solution; and

 

   

our ability to introduce enhancements to meet the market’s evolving needs for secure payments and cash management solutions.

Our future financial results will be affected by our success in selling our products in a subscription and transaction model, which carries with it certain risks

A substantial portion of our revenues and profitability were historically generated from perpetual software license revenues; however, we are offering a growing number of our products, including our newer cyber fraud and risk management products, under a subscription and transaction based revenue model. We believe a

 

17


Table of Contents

subscription based revenue model has certain advantages over a perpetual license model, including better predictability of revenue; however, it also presents a number of risks to us, including the following:

 

   

arrangements entered into on a subscription basis generally delay the timing of revenue recognition and can require the incurrence of up-front costs, which may be significant;

 

   

subscription based revenue arrangements often include specific performance requirements or service levels that we may be unable to consistently achieve, subjecting us to penalties or other costs. A material breach of these arrangements by us, such as a persistent failure to achieve required service levels, might permit the customer to exit the contract prior to its expiration, without additional compensation to us;

 

   

customer retention is critical to our future growth rates. Customers in a subscription arrangement may elect not to renew their contract upon expiration, or they may attempt to renegotiate pricing or other contractual terms at the point of (or prior to) renewal on terms that are less favorable to us; and

 

   

there is no assurance that the solutions we offer on a subscription basis, including new revenue models or new products that we may introduce, will receive broad marketplace acceptance.

Because we recognize subscription revenue from our customers over the term of their agreements, downturns or upturns in sales of our subscription based offerings will not be immediately reflected in our operating results and may adversely affect revenue in the future

We recognize subscription revenue over the term of our customer agreements. As a result, most of our subscription revenue arises from agreements entered into during previous periods. A shortfall in orders for our subscription based solutions in any one period would most likely not significantly reduce our subscription revenue for that period, but could adversely affect revenue in future periods. In addition, we may be unable to quickly reduce our cost structure in response to a decrease in these orders. Accordingly, the effect of downturns in sales of our subscription based solutions will not be fully reflected in our operating results until future periods. A subscription revenue model also makes it difficult for us to rapidly increase our revenue through additional subscription sales in any one period, as revenue is generally recognized over the applicable customer term.

Large and complex customer contracts, or contracts that involve the delivery of services over contractually committed periods, can delay the timing of our revenue recognition and, in the short-term, may adversely affect our operating results, financial condition and the market price of our stock

Large and complex customer contracts can delay the timing of our revenue recognition. These arrangements require significant implementation work, product customization and modification, systems integration and user acceptance testing. This results in the recognition of revenue over the period of project completion which normally spans several quarters. Delays in revenue recognition on these contracts, including delays that result from customer decisions to halt or slow down a long-term project due to their own staffing or other challenges, could adversely affect our operating results, financial condition and the market price of our common stock. Large customer opportunities are very competitive and take significant time and effort to consummate. When competing for these customer opportunities, we face greater sales costs, longer sales cycles and less predictability with respect to these orders than with orders in other areas of our business. If we are unable to continue to generate new large orders on a regular basis, our business operating results and financial condition could be adversely affected.

If our products and services do not comply with laws, regulations and industry standards to which we and our customers are subject, our business could be adversely affected

Our software products and SaaS offerings facilitate the transmission of cash, business documents and confidential information including, in some cases, personally identifiable information related to individuals and corporations. Our software products and certain of our SaaS offerings store and transmit this data electronically,

 

18


Table of Contents

and therefore our products must operate within the laws, regulations and industry standards regarding security, data protection and electronic commerce. While we believe that our products comply with current regulatory requirements, the interpretation and application of these requirements continues to evolve and may evolve in ways that we cannot predict; so there can be no assurance that future legal or regulatory actions will not adversely impact us. To the extent that current or future regulatory or legal developments mandate a change in any of our products or services, require us or our customers to comply with any industry specific licensing or compliance requirements, alter the demand for or the competitive environment of our products and services or require us to make material changes to how we operate our business, including any changes to our internal operating, financial or management information systems, we might not be able to respond to such requirements in a timely or cost effective manner. If this were to occur, our business, operating results and financial condition could be materially adversely affected.

Security or data breaches could have an adverse effect on our business

In the course of providing services to our customers, we collect, store, process and transmit highly sensitive and confidential information. Certain of our solutions also facilitate the actual transfer of cash or transmit instructions that initiate cash transfer. Our products and services, particularly our SaaS and Web-based offerings, may be vulnerable to unauthorized access, computer viruses, cyber-attacks, distributed denial of service attacks and other disruptive problems which could result in the theft, destruction or misappropriation of confidential information. Security risks in recent years have increased significantly given the increased sophistication and activities of hackers, organized crime and other external parties. We may need to spend significant capital or allocate significant resources to ensure effective ongoing protection against the threat of security breaches or to address security related concerns. Despite our efforts, a security breach or computer virus could still occur which could have a significant negative impact on our business, including reputational harm, the loss of customers and material financial liability to us.

Defects or disruptions in our products or services could diminish demand for our solutions and have a material adverse effect on our future financial results

Our software products are complex. Despite testing prior to their release and throughout the lifecycle of a product or service, software and SaaS offerings can contain undetected errors or defects that can impact their function, performance and security. Any unanticipated performance problems or defects in our products or services could result in additional development costs, diversion of technical and other resources from our other development efforts, service disruptions for our SaaS offerings, negative publicity and reputational harm to us and our products and exposure to potential liability claims. As a result, any error or defect in our products or services could adversely affect our future financial results.

We rely on certain third-party hardware and software which could cause errors, interruptions or failures to our solutions or be difficult to replace

We rely on third party hardware and software to deliver certain of our solutions. These third party products may not continue to be available to us on commercially reasonable terms, or at all. The loss of the right to use any of these products could result in delays in our ability to provide our solutions until equivalent technology is either developed by us or acquired from another third party, if available, which may not be possible on a cost effective basis. In addition, errors or defects in third-party products used in conjunction with our solutions could adversely affect the operation of our products.

Catastrophic events may disrupt our business, including our third party data centers

We are a highly automated business and we rely on our network infrastructure, various software applications and many internal technology systems and data networks for our customer support, development, sales and marketing and accounting and finance functions. Further, our SaaS offerings provide services to our

 

19


Table of Contents

customers from third party data center facilities in different US and international locations over which we have no control. A disruption or failure of these systems or data centers in the event of a natural disaster, telecommunications failure, power outage, cyber-attack, war, terrorist attack, or other catastrophic event could cause system interruptions, reputational harm, delays in product development, breaches of data security and loss of critical data. Such an event could also prevent us from fulfilling customer orders or maintaining certain service level requirements, particularly in respect of our SaaS and hosted offerings. While we have developed certain disaster recovery plans and maintain backup systems to reduce the potentially adverse effect of such events, a catastrophic event that resulted in the destruction or disruption of any of our data centers or our critical business or information technology systems could severely affect our ability to conduct normal business operations and, as a result, our business, operating results and financial condition could be adversely affected.

We could incur substantial costs resulting from warranty claims or product liability claims

Our product agreements typically contain provisions that afford customers a degree of warranty protection in the event that our products fail to conform to written specifications. These agreements normally contain provisions intended to limit the nature and extent of our risk of warranty and product liability claims. A court, however, might interpret these terms in a limited way or conclude that part or all of these terms are unenforceable. Furthermore, some of our agreements are governed by non-US law and there is a risk that foreign law might provide us less or different protection. While we maintain general liability insurance, including coverage for errors and omissions, we cannot be sure that our existing coverage will continue to be available on reasonable terms or will be available in amounts sufficient to cover one or more large claims.

Although we have not experienced any material warranty or product liability claims to date, a warranty or product liability claim, whether or not meritorious, could harm our reputation, result in substantial financial costs or divert management’s attention, which could have an adverse effect on our business, operating results and financial condition.

We could be adversely affected if we are unable to protect our proprietary technology and could be subject to litigation regarding intellectual property rights, which could cause serious harm to our business

We rely upon a combination of patent, copyright and trademark laws and non-disclosure and other intellectual property contractual arrangements to protect our proprietary rights. However, there is no assurance that our patents, pending applications for patents that may issue in the future, or other intellectual property will be of sufficient scope and strength to provide meaningful protection for our technology or any commercial advantage to us. Further, we cannot be certain that our patents will not be challenged, invalidated or circumvented. We enter into agreements with our employees and customers that seek to limit and protect the distribution of proprietary information. Despite our efforts to safeguard and maintain our proprietary rights, there is no assurance that such rights will remain protected or that we will be able to detect unauthorized use and take appropriate steps to enforce our intellectual property rights.

Litigation involving patents and other intellectual property rights is common in the United States and in other countries where we operate. We may be a party to litigation in the future to protect our intellectual property rights or as a result of an alleged infringement of the intellectual property rights of others. Any such claims, whether or not meritorious, could result in reputational harm to us, require us to spend significant sums in litigation costs or damages, delay product implementations, or require us to develop non-infringing intellectual property or acquire licenses to intellectual property that is the subject of the infringement claim. In addition, under many of our customer contracts, we are required to indemnify our customers for third-party intellectual property infringement claims, which would increase the costs to us of any such claims. These claims could have a material adverse effect on our business, operating results and financial condition.

 

20


Table of Contents

Our ability to attract and retain qualified employees is critical to the success of our business and failure to do so could adversely affect our operating results

Our success depends upon the efforts and abilities of our executive officers and technical and sales employees who are skilled in e-commerce, payment methodology and regulation, business banking technologies, and web, database and network technologies. Our success and future growth depends to a significant degree on the skills and continued services of our management team. Our current key employees and employees whom we seek to hire in order to support our growth are in high demand within the marketplace and many competitors, customers and industry organizations are able to offer considerably higher compensation packages than we currently provide, including base salary, bonus and equity incentives. The loss of one or more of our key employees or our failure to consistently attract and retain sufficient qualified employees to grow our operations could have a material adverse effect on our business. We do not maintain key man life insurance policies on any of our employees and our employees are generally free to terminate their employment with us at any time. The loss of the services of any of our executive officers or other key employees could have a material adverse effect on our business, operating results and financial condition.

We engage off-shore development resources which may not be successful and which may put our intellectual property at risk

In order to optimize our research and development capabilities and to meet development timeframes, we contract with off-shore third-party vendors for certain development activities. While our experience to date with these resources has been positive, there are a number of risks associated with off-shore development activities including:

 

   

less efficient and less accurate communication and information flow as a consequence of time, distance and language barriers between our primary development organization and the off-shore resources, resulting in delays or deficiencies in development efforts;

 

   

disruption due to political or military conflicts;

 

   

misappropriation of intellectual property, which we may not readily detect; and

 

   

currency exchange rate fluctuations that could adversely impact the cost advantages intended from these agreements.

To the extent that these or unforeseen risks occur, our operating results and financial condition could be adversely impacted.

Changes in financial accounting standards may cause unexpected financial reporting fluctuations and affect our reported results of operations

Changes in accounting standards or practices could adversely affect our reported results of operations. New accounting pronouncements, such as the upcoming changes in US GAAP related to revenue recognition, accounting for lease arrangements and accounting for share-based compensation arrangements, and varying interpretations of accounting pronouncements, have occurred and will occur in the future. Changes to existing accounting rules or practices may adversely affect our reported results of operations or the way we conduct our business in future periods.

If we fail to maintain appropriate and effective internal control over financial reporting, our ability to produce accurate and timely financial statements could be impaired, which could result in a loss of investor confidence in our financial reports and have an adverse effect on our stock price

Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that we re-

 

21


Table of Contents

evaluate regularly. Our internal controls over financial reporting are designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. However, despite our efforts, any failure to maintain or implement the necessary internal controls could cause us to fail to meet our financial reporting obligations or result in misstatements in our financial statements, either of which could cause investors to lose confidence in our reported financial information and lead to a decline in the trading price of our common stock.

Certain anti-takeover provisions contained in our charter and under Delaware law could hinder a takeover attempt

We are subject to the provisions of Section 203 of the General Corporation Law of the State of Delaware prohibiting, under some circumstances, publicly-held Delaware corporations from engaging in business combinations with some stockholders for a specified period of time without the approval of the holders of substantially all of our outstanding voting stock. Such provisions could delay or impede the removal of incumbent directors and could make more difficult a merger, tender offer or proxy contest involving us, even if such events could be beneficial, in the short term, to the interests of our stockholders. In addition, such provisions could limit the price that some investors might be willing to pay in the future for shares of our common stock. Our certificate of incorporation and bylaws contain provisions relating to the limitation of liability and indemnification of our directors and officers, dividing our board of directors into three classes of directors serving three-year terms and providing that our stockholders can take action only at a duly called annual or special meeting of stockholders.

Risks Related to our Indebtedness

In December 2012, we issued, at par value, $189.8 million aggregate principal amount of 1.50% convertible senior notes due in December 2017. In connection with the pricing of the notes, we purchased convertible note hedge transactions with a strike price equal to the initial conversion price of the notes and we sold warrants with a strike price of $40.04 per share with certain counterparties. The note hedges and the warrants each cover approximately 6.3 million shares of our common stock.

Servicing the notes or future indebtedness will require a significant amount of cash, and we may not have sufficient cash flow from our business to pay our obligations under the notes or future indebtedness, resulting in a default under such indebtedness

Our ability to make scheduled payments of interest and, upon maturity or early conversion, the principal balance of the notes, depends on our future performance which is subject to economic, financial, competitive and other factors beyond our control. Our business may not continue to generate cash flow from operations in the future sufficient to service our debt. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional debt or equity financing on terms that may not be favorable to us or available to us at all. Our ability to refinance the notes will depend on the capital markets and our financial condition at that time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on the notes or future indebtedness.

Our level of indebtedness may limit our financial flexibility

Our level of indebtedness affects our operations in several ways, including:

 

   

a portion of our cash flows from operating activities must be used to service our indebtedness and is not available for other purposes;

 

   

we may be at a competitive disadvantage as compared to similar companies that have less debt; and

 

   

additional financing in the future for working capital, capital expenditures, acquisitions, general corporate or other purposes may have higher costs and contain restrictive covenants, or may not be available to us.

 

22


Table of Contents

The factors that will affect our ability to obtain additional financing may be beyond our control and include financial market conditions, the value of our assets and our performance at the time we need financing.

The accounting for the notes will result in our having to recognize interest expense significantly more than the stated interest rate of the notes and may result in volatility to our consolidated statement of operations

Upon issuance of the notes we were required to establish a separate initial value for the conversion option and to bifurcate this value from the value attributable to the balance of the notes, or the debt component. As a result, for accounting purposes, we were required to treat the notes as having been issued with a discount to their face principal amount, which is referred to as an original issue discount. We are accreting the original issue discount to interest expense ratably over the term of the notes, which results in an effective interest rate in our consolidated statement of operations that is in excess of the stated coupon rate of the notes. This will reduce our earnings and could adversely affect the price at which our common stock trades, but will have no effect on the amount of cash interest paid to holders or on our cash flows.

Certain derivative instruments issued in connection with the notes were classified within stockholders’ equity at June 30, 2016. However, if we do not continue to satisfy all of the criteria required for equity classification, these instruments would be reclassified out of equity and be subject to re-measurement at fair value. Changes in fair value resulting from any such re-measurement would be reflected in earnings which could have a material impact on our financial statements.

The conditional conversion feature of the notes, if triggered, and the requirement to repurchase the notes upon a fundamental change may adversely affect our financial condition and operating results

In the event the conditional conversion feature of the notes is triggered, holders of notes will be entitled to convert the notes at their option during specified periods. If one or more holders elect to convert their notes, we would be required to settle the principal portion of the notes in cash. Additionally, if we undergo a fundamental change, (as described in the Indenture), subject to certain conditions, holders of the notes may require us to repurchase for cash all or part of their notes at a price equal to 100% of the principal amount of the notes, plus accrued and unpaid interest. Either of these events could adversely affect our liquidity. Even if holders do not elect to convert their notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal balance of the notes to a current rather than long-term liability, which would result in a material reduction of our working capital.

We may be subject to significant future write-offs with respect to intangible assets or deferred tax assets

Certain of our assets, such as intangible assets and deferred tax assets, are subject to periodic tests of recoverability based on a variety of factors. Those factors typically include, at a minimum, projections of future income levels and cash flows. The accounting for the notes will result in the recognition of a significant level of interest expense as the carrying value of debt is accreted to par value and as we amortize our debt issue costs, including the underwriters’ discount. During the fiscal year ended June 30, 2015, we established a reserve against a portion of our US-based deferred tax assets, resulting in an expense charge of $16.0 million. We could be subject to future impairment charges with respect to these assets which would have a material adverse effect on our consolidated statement of operations.

The convertible note hedge and warrant transactions may affect the value of the notes and our common stock

The outstanding warrants could have a dilutive effect on our earnings per share to the extent that the market price per share of our common stock exceeds the applicable strike price of the warrants. However, subject to certain conditions, we may elect to settle the warrants in cash.

 

23


Table of Contents

From time to time, the counterparties to the convertible note hedge transactions or their affiliates may modify their respective hedge positions by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions (and are likely to do so during any observation period related to a conversion of notes). This activity could cause or avoid an increase or a decrease in the market price of our common stock or the notes.

 

Item 1B. Unresolved Staff Comments.

None.

 

Item 2. Properties.

The following table sets forth the location, the reportable segment(s) and approximate square footage of each of the principal properties used by us during fiscal year 2016. Our Portsmouth, New Hampshire facility serves as our corporate headquarters and is used by employees associated with all of our reportable segments in addition to our management, administrative, sales and marketing and customer support teams. All properties, except as noted below, are leased under operating leases.

 

Location

  

Reportable Segment(s)

   Approximate
Square Feet
 

North America:

     

Alpharetta, Georgia

  

Payments and Transactional Documents, Digital Banking and Other

     26,000   

Englewood Cliffs, New Jersey

  

Payments and Transactional Documents and Other

     4,000   

Garden City, New York

  

All segments

     9,000   

Marlton, New Jersey

  

Hosted Solutions

     7,000   

Morrisville, North Carolina

  

Payments and Transactional Documents and Other

     8,000   

Portland, Maine

  

Hosted Solutions

     27,000   

Portsmouth, New Hampshire

  

All segments

     85,000   

Providence, Rhode Island

  

Digital Banking

     11,000   

Wilton, Connecticut

  

Hosted Solutions

     13,000   

Europe:

     

Geneva, Switzerland

  

Hosted Solutions

     16,000   

Hertford, England

  

Payments and Transactional Documents

     12,000   

London, England

  

All segments

     6,000   

Reading, England (1)

  

All segments

     28,000   

Asia-Pacific and Middle East:

     

Melbourne, Australia

  

Payments and Transactional Documents and Digital Banking

     2,000   

Sydney, Australia

  

Payments and Transactional Documents

     2,000   

Or-Yehuda, Israel

  

Other

     9,000   

 

(1) We own 16,000 square feet in Reading, England currently used as our European headquarters.

 

Item 3. Legal Proceedings.

We are, from time to time, a party to legal proceedings and claims that arise in the ordinary course of our business. We do not believe that there are claims or proceedings pending against us for which the ultimate resolution would have a material effect on, or require disclosure in, our financial statements.

 

24


Table of Contents
Item 4. Mine Safety Disclosures.

Not applicable

Executive Officers and Other Key Employees of the Registrant

Our executive officers and other key employees and their respective ages as of August 28, 2016, are as follows:

 

Name

   Age     

Positions

Robert A. Eberle

     55       President, Chief Executive Officer and Director

Richard D. Booth

     47       Chief Financial Officer and Treasurer

Karen S. Brieger

     44       Vice President, Human Resources

Norman J. DeLuca

     55       Managing Director, Digital Banking

Paul J. Fannon

     48       Group Sales Director, Europe

John F. Kelly

     58       General Manager, Legal Solutions

John J. Mason

     46       Chief Information Officer

Brian S. McLaughlin

     52       Vice President of Product Design and User Experience

Andrew J. Mintzer

     54       Executive Vice President, Product Strategy and Customer Delivery

Jessica Pincomb Moran

     42       General Manager, Cloud Payment Solutions

Eric K. Morgan

     46       Senior Vice President, Global Controller

Christine M. Nurnberger

     37       Chief Marketing Officer

Nigel K. Savory

     49       Managing Director, Europe

David G. Sweet

     53       Executive Vice President, Strategy and Corporate Development

Basilios E. Tsingos

     48       Vice President and General Counsel

Robert A. Eberle has served as a director since September 2000, as President since August 2004 and as Chief Executive Officer since November 2006.

Richard D. Booth has served as Chief Financial Officer and Treasurer since April 2015. Mr. Booth served as Vice President and Corporate Controller at Sapient Corporation from January 2014 to March 2015. From November 2012 through January 2014, Mr. Booth served as Vice President Financial Planning and Analysis at Nuance Communications and as Vice President and Assistant Corporate Controller from July 2009 through November 2012.

Karen S. Brieger has served as Vice President, Human Resources since August 2010 and as Director, Human Resources from February 2008 through July 2010.

Norman J. DeLuca has served as Managing Director, Digital Banking since November 2011. From October 2009 through October 2011, Mr. DeLuca served as Managing Partner at NMD Investments. From January 2008 through October 2009, Mr. DeLuca served as Chief Executive of RBS Global Transaction Services, Americas. From January 2007 through January 2008, Mr. DeLuca served as Vice Chairman, RBS Citizens Financial Group.

Paul J. Fannon has served as Group Sales Director, Europe since October 2008.

John F. Kelly has served as General Manager, Legal Solutions since April 2011. From January 2006 through April 2011, Mr. Kelly served as Chief Executive Officer of Allegient Systems, Inc.

John J. Mason has served as Chief Information Officer since June 2010. From March 2009 through June 2010, Mr. Mason served as Vice President of Information Technology at Anacomp, Inc.

Brian S. McLaughlin has served as Vice President of Product Design and User Experience since February 2011. From 2009 through February 2011, Mr. McLaughlin served as Director of User Experience at CashStar, Inc.

 

25


Table of Contents

Andrew J. Mintzer has served as Executive Vice President, Product Strategy and Delivery since July 2013 and as Senior Vice President, Product Strategy and Delivery from November 2007 through June 2013.

Jessica Pincomb Moran has served as General Manager, Cloud Payment Solutions since June 2015 and Vice President, Client Services from June 2011 through May 2015. From February 2008 through May 2011, Ms. Moran served as Vice President, Corporate Services.

Eric K. Morgan has served as Controller since September 2000.

Christine M. Nurnberger has served as Chief Marketing Officer since September 2014. Ms. Nurnberger served as Vice President, Marketing for SunGard Availability Services from January 2012 until August 2014 and as Vice President, Global Marketing Operations for Info Global Solutions from November 2005 until January 2012.

Nigel K. Savory has served as Managing Director, Europe since December 2003.

David G. Sweet has served as Executive Vice President, Strategy and Corporate Development since March 2013. From October 2010 through October 2012, Mr. Sweet served as a strategy and business development executive for IBM’s Enterprise Marketing Management group. From April 2005 through October 2010, Mr. Sweet served as Senior Vice President of Corporate Development at Unica Corporation.

Basilios E. Tsingos has served as Vice President and General Counsel since February 2016. Mr. Tsingos was Vice President and General Counsel of Plymouth Rock Assurance Corporation from August 2007 to June 2015.

 

26


Table of Contents

PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our common stock is traded on The NASDAQ Global Select Market under the symbol EPAY. The following table sets forth, for the periods indicated, the high and low sale prices of our common stock, as quoted on The NASDAQ Global Select Market.

 

Period

   High      Low  

Fiscal Year 2015

     

First quarter

   $ 30.83       $ 25.65   

Second quarter

   $ 30.78       $ 22.14   

Third quarter

   $ 29.42       $ 21.01   

Fourth quarter

   $ 29.42       $ 25.61   

Fiscal Year 2016

     

First quarter

   $ 28.64       $ 24.28   

Second quarter

   $ 31.58       $ 21.64   

Third quarter

   $ 31.41       $ 25.06   

Fourth quarter

   $ 31.52       $ 20.44   

As of August 19, 2016, there were approximately 643 holders of record of our common stock. Because many of the shares are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of individual stockholders represented by these holders of record.

The closing price for our common stock on August 19, 2016 was $19.09. For purposes of calculating the aggregate market value of the shares of our common stock held by non-affiliates, as shown on the cover page of this report, it has been assumed that all the outstanding shares were held by non-affiliates except for the shares beneficially held by our directors and executive officers. However, there may be other persons who may be deemed to be affiliates of ours.

We have never paid dividends on our common stock. We do not anticipate paying any cash dividends on our common stock for the foreseeable future.

The following table provides information about purchases by us of our common stock during the quarter ended June 30, 2016:

 

Period

   Total Number of
Shares Purchased (1)
     Average Price Paid
per Share
     Total Number of
Shares Purchased
as Part of  Publicly
Announced Plans
or Programs
     Approximate Dollar
Value of
Shares that May Yet
be Purchased
Under the
Plans or Programs
 

April 1, 2016 – April 30, 2016

     47,500       $ 23.54         47,500       $ 18,881,840   

May 1, 2016 – May 31, 2016

     762,234       $ 24.77         762,234       $ —     

June 1, 2016 – June 30, 2016

     —         $ —           —         $ —     
  

 

 

       

 

 

    

 

 

 

Total

     809,734       $ 24.70         809,734       $ —   (2) 
  

 

 

       

 

 

    

 

 

 

 

(1) On November 19, 2015, our board of directors announced that it had authorized a repurchase program of our common stock for an aggregate repurchase price not to exceed $20 million. Although this program expires on November 19, 2017, the activity noted above represents the completion of the $20 million repurchase program.
(2) On July 8, 2016 our board of directors authorized a repurchase program of our common stock for an aggregate repurchase price not to exceed $60 million. This program expires on July 8, 2018.

 

27


Table of Contents

Stock Performance Graph

The stock performance graph below compares the percentage change in cumulative stockholder return on our common stock for the period from June 30, 2011 through June 30, 2016, with the cumulative total return on The NASDAQ Stock Market (U.S.) and the NASDAQ Computer & Data Processing Index.

This graph assumes the investment of $100.00 in our common stock (at the closing price of our common stock on June 30, 2011), the NASDAQ Stock Market (U.S.) and the NASDAQ Computer & Data Processing Index on June 30, 2011, and assumes dividends, if any, are reinvested.

The stock price performance shown on the following graph is not necessarily indicative of future price performance.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*

Among Bottomline Technologies (de), Inc., the NASDAQ Composite Index

and the NASDAQ Computer & Data Processing Index

 

 

LOGO

 

* $100 invested on 6/30/11 in stock or index, including reinvestment of dividends.

Fiscal year ending June 30.

 

     6/11      6/12      6/13      6/14      6/15      6/16  

Bottomline Technologies (de), Inc.

     100.00         73.05         102.35         121.08         112.55         87.13   

NASDAQ Composite

     100.00         108.58         128.19         169.08         192.10         187.57   

NASDAQ Computer & Data Processing

     100.00         106.63         129.03         175.05         194.57         221.88   

The information included under the heading Stock Performance Graph in Item 5 of this Annual Report on Form 10-K is furnished and not filed and shall not be deemed to be soliciting material or subject to Regulation 14A, shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended (the Securities Act).

 

28


Table of Contents

Recent Sales of Unregistered Securities

None.

 

Item 6. Selected Financial Data.

You should read the following consolidated financial data in conjunction with the Financial Statements, including the related notes, and Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations. The results shown herein are not necessarily indicative of the results to be expected for any future periods.

SELECTED CONSOLIDATED FINANCIAL DATA

 

     Fiscal Year Ended June 30,  
     2016     2015     2014     2013     2012  
     (in thousands, expect per share data)  

Revenues:

          

Subscriptions and transactions

   $ 195,187      $ 171,361      $ 141,103      $ 118,016      $ 85,005   

Software licenses

     20,826        21,907        20,769        22,546        17,562   

Service and maintenance

     120,292        130,183        131,531        106,389        113,832   

Other

     6,969        7,438        7,182        7,823        7,885   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     343,274        330,889        300,585        254,774        224,284   

Cost of revenues:

          

Subscriptions and transactions

     87,775        79,397        69,220        64,101        41,266   

Software licenses

     1,030        1,583        1,602        2,399        2,082   

Service and maintenance

     53,236        53,094        54,463        46,788        51,559   

Other

     5,059        5,367        5,383        5,998        6,280   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenues

     147,100        139,441        130,668        119,286        101,187   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     196,174        191,448        169,917        135,488        123,097   

Operating expenses:

          

Sales and marketing

     84,068        80,151        72,707        62,825        49,902   

Product development and engineering

     47,355        47,185        39,725        32,974        28,687   

General and administrative

     39,324        34,492        33,721        27,076        21,495   

Amortization of intangible assets

     28,978        30,383        26,242        19,549        15,753   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     199,725        192,211        172,395        142,424        115,837   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     (3,551     (763     (2,478     (6,936     7,260   

Other expense, net

     (15,312     (15,553     (14,544     (11,357     41   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     (18,863     (16,316     (17,022     (18,293     7,301   

Income tax provision (benefit)

     785        18,364        2,082        (3,898     5,596   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (19,648   $ (34,680   $ (19,104   $ (14,395   $ 1,705   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic net income (loss) per share:

   $ (0.52   $ (0.92   $ (0.52   $ (0.41   $ 0.05   

Diluted net income (loss) per share:

   $ (0.52   $ (0.92   $ (0.52   $ (0.41   $ 0.05   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Shares used in computing basic net income (loss) per share:

     37,957        37,806        36,834        35,444        34,268   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Shares used in computing diluted net income (loss) per share:

     37,957        37,806        36,834        35,444        35,244   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

29


Table of Contents
     Fiscal Year Ended June 30,  
     2016      2015      2014      2013      2012  
     (in thousands)  

Balance Sheet Data:

              

Cash and cash equivalents

   $ 97,174       $ 121,163       $ 167,673       $ 283,552       $ 124,801   

Marketable securities

     35,209         23,225         23,805         9,525         61   

Working capital

     104,479         122,799         172,384         280,563         118,365   

Total assets

     652,887         688,484         700,343         585,522         392,371   

Long-term debt (1)

     171,534         159,760         148,795         138,582         —     

Total stockholders’ equity

     294,787         348,538         387,426         356,749         314,186   

 

(1) Our long-term debt as of June 30, 2016, 2015, 2014 and 2013 consists of our convertible notes. The convertible notes are shown on our consolidated balance sheets at their carrying value which represents the principal balance of $189.8 million less unamortized discount.

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Selected Consolidated Financial Data and the financial statements and notes thereto appearing elsewhere in this Annual Report on Form 10-K. This Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties. The statements contained in this Annual Report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). Without limiting the foregoing, the words may, will, should, could, expects, plans, intends, anticipates, believes, estimates, predicts, potential and similar expressions are intended to identify forward-looking statements. All forward-looking statements included in this Annual Report on Form 10-K are based on information available to us up to and including the date of this report, and we assume no obligation to update any such forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth in Management’s Discussion and Analysis of Financial Condition and Results of Operations and Risk Factors and elsewhere in this Form 10-K. You should carefully review those factors and also carefully review the risks outlined in other documents that we file from time to time with the Securities and Exchange Commission.

In the management discussion that follows we have highlighted those changes and operating factors that were the primary factors affecting period to period fluctuations. The remainder of the change in period to period fluctuations from that which is specifically discussed is arising from various individually insignificant items.

Overview

We help businesses pay and get paid. We make complex business payments simple, secure and seamless by providing a trusted and easy-to-use set of cloud-based business payment, digital banking, fraud prevention, payment and financial document solutions. We offer hosted or Software as a Service (SaaS) solutions, as well as software designed to run on-site at the customer’s location. The majority of our revenues are derived from offerings sold as SaaS-based solutions and paid for on a subscription and transaction basis.

We operate a cloud-based network that facilitates the exchange of electronic payments between businesses and their vendors. We offer hosted and on-premise solutions that banks use to provide payment, cash management and treasury capabilities to their business customers, as well as solutions that banks and credit unions use to facilitate customer acquisition and growth. We offer financial messaging solutions for banks and corporations around the world, via solutions that leverage the SWIFT global messaging network. We also offer legal spend management solutions that help manage and determine the right amount to pay for legal services and claims vendor expenditures for insurance companies and other large corporate consumers of outside legal services. Our corporate customers rely on our solutions to automate their payment and accounts payable

 

30


Table of Contents

processes and to streamline and manage the production and retention of electronic documents. Our healthcare customers use our solutions to streamline financial processes, particularly the patient enrollment process. Our document automation solutions are used by organizations to automate paper-intensive processes for the generation of transactional and supply chain documents. We also offer comprehensive cyber fraud and risk management solutions that are designed to non-invasively monitor and analyze user behavior to flag behavioral and data anomalies and other suspicious activity.

Our solutions are designed to complement, leverage and extend our customers’ existing information systems, accounting applications and banking relationships so that they can be deployed quickly and efficiently. To help our customers realize the maximum value from our products and meet their specific business requirements, we also provide professional services for installation, training, consulting and product enhancement.

Financial Highlights

For fiscal year 2016, our revenue increased to $343.3 million from $330.9 million in the prior year. This revenue increase was attributable to revenue increases in our Hosted Solutions segment ($12.5 million) and Other segment ($7.8 million), partially offset by revenue decreases in our Digital Banking segment ($6.4 million) and our Payments and Transactional Documents segment ($1.5 million). The revenue increase in our Hosted Solutions segment was primarily due to increased revenue from our Paymode-X solutions and to a lesser extent, increased revenue from our legal spend management and financial messaging solutions. The revenue increase in our Other segment is due to a full year’s revenue contribution from Intellinx, which we acquired in January 2015. The revenue decrease in our Digital Banking segment was the result of the intentional de-emphasis of large, highly customized banking projects in lieu of standard product deployments and our cloud-based solutions. The transition of our delivery model in our Digital Banking segment has had the near term impact of delaying revenue recognition but, over the longer term, we believe will result in significantly greater revenue contribution. The revenue decrease in our Payments and Transactional Documents segment occurred as a result of lower North American revenue from our payment and document automation products. Our revenue for fiscal year 2016 was unfavorably impacted by $8.1 million due to the impact of foreign currency exchange rates primarily related to the British Pound Sterling which depreciated against the US Dollar as compared to the prior year.

We had a net loss of $19.6 million in the fiscal year ended June 30, 2016 compared to a net loss of $34.7 million in the prior year. Our fiscal year 2016 net loss reflects the impact of increased operating expenses of $7.5 million, partially offset by increased gross margins of $4.7 million. The increases in our operating expenses were due primarily to increased employee related costs, as we continued to grow our business, the operating impact of our recent acquisitions and global ERP implementation costs of $4.3 million. The increase in our gross margin was driven primarily by increases in our subscription and transaction revenues. Our fiscal year 2015 net loss included the impact of income tax expense of $16.0 million to establish a reserve against certain US-based deferred tax assets.

In fiscal year 2016, we derived approximately 42% of our revenue from customers located outside of North America, principally in the United Kingdom, continental Europe and the Asia-Pacific and Middle East regions. Our customers operate in many different industries, a diversification that we believe helps us in a challenging economic climate. Additionally, we believe that our recurring and subscription revenue base helps position us defensively against any short term economic downturn. While we believe that we continue to compete favorably in all of the markets we serve, ongoing or worsening economic stresses could negatively impact our business in the future.

Over the past several years we have made strategic investments in innovative new technology offerings that we believe will extend our leadership position, help us win new business, drive accelerated subscription revenue growth and expand our operating margins. We believe that these initiatives have positioned us effectively for accelerated revenue growth in future years.

 

31


Table of Contents

Revenue Sources

Our revenues are derived from multiple sources and are reported under the following classifications:

 

   

Subscriptions and Transactions Fees. We derive subscription and transaction fees from a number of sources, principally our SaaS offerings. Subscription revenues are typically recognized on a ratable basis over the subscription period. Transaction revenues are typically recorded at the time transactions are processed. Some of our SaaS products require customers to pay non-refundable set up or installation fees. In these cases, since the up-front fees do not represent a separate revenue earnings process, these fees are deferred and recognized as revenue over the estimated life of the customer relationship, which is generally between five and ten years. A significant part of our focus remains on growing the revenue contribution from our SaaS offerings and subscriptions and transactions based revenue streams.

 

   

Software License Fees. Software license revenues, which we derive from our software applications, are generally based on the number of software applications and user licenses purchased. Fees from the sale of perpetual software licenses are generally recognized upon delivery of the software to the customer, assuming that payment from the customer is probable and there are no extended payment terms. However, certain of our software arrangements, particularly those related to financial institution customers, are recognized on a percentage of completion basis over the life of the project because they require significant customization and modification and involve extended implementation periods. Recently however, the number of percentage of completion arrangements we enter into has declined as we have continued to de-emphasize large, highly customized projects in lieu of standard product deployments and our cloud-based solutions.

 

   

Service and Maintenance Fees. Our service and maintenance revenues consist of professional services fees and customer support and maintenance fees. Revenues relating to professional services not associated with highly customized software solutions are normally recognized at the time services are rendered. Professional services revenues associated with software license arrangements that include significant customization and modification are generally recognized on a percentage of completion basis over the life of the project. Software maintenance fees are recognized as revenue ratably over the respective maintenance period, which is typically one year.

 

   

Other Revenues. We derive other revenues from the sale of printers, check paper and magnetic ink character recognition toners. These revenues are normally recognized at the time of delivery.

Critical Accounting Policies and Significant Judgments and Estimates

We believe that several accounting policies are important to understanding our historical and future performance. We refer to these policies as critical because these specific areas generally require us to make judgments and estimates about matters that are uncertain at the time we make the estimate, and different estimates—which also would have been reasonable—could have been used. These critical accounting policies and estimates relate to revenue recognition, the valuation of goodwill and intangible assets, the valuation of acquired deferred revenue and income taxes. These critical policies and our procedures related to these policies are discussed below. In addition, refer to Note 2 to the accompanying consolidated financial statements for a discussion of all of our significant accounting policies.

Revenue Recognition

Software Arrangements

We recognize revenue on our software license arrangements when four basic criteria are met: persuasive evidence of an arrangement exists, delivery of the product has occurred, the fee is fixed and determinable and collectability is probable. We consider a fully executed agreement or a customer purchase order to be persuasive evidence of an arrangement. Delivery is deemed to have occurred upon transfer of the product to the customer or

 

32


Table of Contents

the completion of services rendered. We consider the arrangement fee to be fixed and determinable if it is not subject to adjustment and if the customer has not been granted extended payment terms. Excluding our long term contract arrangements for which revenue is recorded on a percentage of completion basis, extended payment terms are deemed to be present when any portion of the software license fee is due in excess of 90 days after the date of product delivery. In arrangements that contain extended payment terms, software revenue is recorded as customer payments become contractually due, assuming all other revenue recognition criteria have been met. We consider the arrangement fee to be probable of collection if our internal credit analysis indicates that the customer will be able to pay contractual amounts as they become due.

Our software arrangements often contain multiple revenue elements, such as software licenses, professional services and post-contract customer support. For multiple element software arrangements which qualify for separate element treatment, revenue is recognized for each element when each of the four basic criteria is met which, excluding post-contract customer support, is typically upon delivery. Revenue for post-contract customer support agreements is recognized ratably over the term of the agreement, which is generally one year. Revenue is allocated to each element, excluding the software license, based on vendor specific objective evidence (VSOE). VSOE is limited to the price charged when the element is sold separately or, for an element not yet being sold separately, the price established by management having the relevant authority. We do not have VSOE for our software licenses since they are seldom sold separately. Accordingly, revenue is allocated to the software license using the residual value method. Under the residual value method, revenue equal to VSOE of each undelivered element is recognized upon delivery of that element. Any remaining arrangement fee is then allocated to the software license. This has the effect of allocating any sales discount inherent in the arrangement to the software license fee.

Certain of our software arrangements require significant customization and modification and involve extended implementation periods. These arrangements do not qualify for separate element revenue recognition treatment as described above, and instead must be accounted for under contract accounting. Under contract accounting, companies must select from two generally accepted methods of accounting: the completed contract method and the percentage of completion method. The completed contract method recognizes revenue and costs upon contract completion, and all project costs and revenues are reported as deferred items in the balance sheet until that time. The percentage of completion method recognizes revenue and costs on a contract over time, as the work progresses.

We use the percentage of completion method of accounting for our long-term contracts, as we believe that we can make reasonably reliable estimates of progress toward completion. Progress is measured based on labor hours, as measured at the end of each reporting period, as a percentage of total expected labor hours. Accordingly, the revenue we record in any reporting period for arrangements accounted for on a percentage of completion basis is dependent upon our estimates of the remaining labor hours that will be incurred in fulfilling our contractual obligations. Our estimates at the end of any reporting period could prove to be materially different from final project results, as determined only at subsequent stages of project completion. To mitigate this risk, we solicit the input of our project professional staff on a monthly basis, as well as at the end of each financial reporting period, for purposes of evaluating cumulative labor hours incurred and verifying the estimated remaining effort to completion; this ensures that our estimates are always based on the most current projections available.

Non-Software Arrangements

For arrangements governed by general revenue recognition literature, such as with our SaaS offerings or equipment and supplies only sales, we recognize revenue when four basic criteria are met. These criteria are similar to those governing software transactions: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the arrangement fee is fixed or determinable and collectability is reasonably assured. For our SaaS offerings, revenue is generally recognized on a subscription or transaction basis over the period of performance.

 

33


Table of Contents

For arrangements consisting of multiple elements, revenue is allocated to each element based on a selling price hierarchy. The selling price of each element is based on VSOE if available, third-party evidence (TPE) if VSOE is not available or estimated selling price (ESP) if neither VSOE nor TPE are available. The residual method of allocation in a non-software arrangement is not permitted and, instead, arrangement consideration is allocated at the inception of the arrangement to all deliverables using the relative selling price method. The relative selling price method allocates any discount in the arrangement proportionately to each deliverable based on the proportion of each deliverable’s selling price to the total arrangement fee. We are typically unable to establish TPE, which is based on the selling price charged by unrelated third-party vendors for similar deliverables when they are sold separately, as we are generally unable to obtain sufficient information on actual vendor selling prices to substantiate TPE. The objective of ESP is to estimate the price at which we would transact if the deliverable were sold separately rather than as part of a multiple element arrangement. Our determination of ESP considers several factors including actual selling prices for similar transactions, gross margin expectations and our ongoing pricing strategy. We formally analyze our ESP determinations on at least an annual basis.

Goodwill and Acquired Intangible Assets

Goodwill and acquired intangible assets are initially recorded at fair value and measured periodically for impairment. We performed our annual impairment test of the carrying value of our goodwill for fiscal year 2016 during our fourth quarter, which is consistent with the historic timing of our annual goodwill impairment review. Our analysis of goodwill impairment was performed at the reporting unit level, which requires an estimate of the fair value of each reporting unit.

Coming in to our fourth quarter, we had identified our Intellinx reporting unit as being at a heightened risk of impairment, as preliminary estimates of fiscal year 2017 revenues were below the revenue estimates we made at the time of the acquisition (January 2015). Based on our impairment review, the excess of fair value over the carrying value of goodwill for the Intellinx reporting unit was 14%.

Based on the results of our review, we concluded that there was no goodwill impairment in any of our reporting units. However, there can be no assurance that there will not be impairment charges in subsequent periods as a result of our future impairment reviews. To the extent that future impairment charges occur, it would have a material impact on our financial results. At June 30, 2016, the carrying value of goodwill for all of our reporting units was approximately $202.0 million.

In addition to our annual goodwill impairment review, we also perform periodic reviews of the carrying value and amortization periods of our other acquired intangible assets. These acquired intangible assets consist primarily of acquired customer related assets and acquired core technology. In evaluating potential impairment of these assets we specifically consider whether any indicators of impairment are present, including:

 

   

whether there has been a significant adverse change in the business climate that affects the value of an asset;

 

   

whether there has been a significant change in the extent or manner in which an asset is used; and

 

   

whether there is an expectation that the asset will be sold or disposed of before the end of its originally estimated useful life.

If indicators of impairment are present, an estimate of the undiscounted cash flows that the specific asset is expected to generate must be made to ensure that the carrying value of the asset can be recovered. These estimates involve significant subjectivity. At June 30, 2016, the carrying value of our acquired intangible assets, excluding goodwill, was approximately $153.2 million. As a result of our fiscal year 2016 impairment review, we concluded that none of these assets were impaired.

Valuation of Acquired Intangible Assets and Acquired Deferred Revenue

In connection with our acquisitions, we have recorded acquired intangible assets relating principally to customer related assets, acquired technology and acquired contractual rights that include favorable economic terms as compared to overall market rates at the date of acquisition. The valuation process used to calculate the

 

34


Table of Contents

values assigned to these acquired intangible assets is complex and involves significant estimation relative to our financial projections. The principal component of the valuation process is the determination of discounted future cash flows, and there are a number of variables that we consider for purposes of projecting these future cash flows. There is inherent uncertainty involved with this estimation process and, while our estimates are consistent with our internal planning assumptions, the ultimate accuracy of these estimates is only verifiable over time. Further, the projections required for the valuation process generally utilize at least a ten-year forecast, which exceeds our normal internal planning and forecasting timeline. The particularly sensitive components of these estimates include, but are not limited to:

 

   

the selection of an appropriate discount rate;

 

   

the required return on all assets employed by the valued asset to generate future income streams;

 

   

our projected overall revenue growth and mix of revenue;

 

   

our gross margin estimates (which are highly dependent on our mix of revenue);

 

   

our technology and product life cycles;

 

   

the attrition rate of our customers, particularly those who contribute to our recurring revenue streams, such as software maintenance;

 

   

the determination of third party market rates for leases or other contractual rights we acquire, for purposes of assessing whether we have acquired a favorable, unfavorable or at-market contract;

 

   

our planned level of operating expenses; and

 

   

our effective tax rate.

Additionally, we are required to estimate the acquisition date fair value of acquired deferred revenue that we assume as part of any acquisition. The acquisition date fair value of deferred revenue is estimated based on the costs we expect to incur in fulfilling the obligations, plus a normal profit margin. These cost estimates exclude amounts relating to any selling effort, since those costs would have been incurred by the predecessor company rather than by us. In the case of acquired software maintenance contracts, the cost estimates also exclude any ongoing research and development expenses associated with product upgrades since these amounts typically do not represent a legal obligation that we assume at the time of acquisition.

Income Taxes

We are subject to the income tax laws of the United States (including its states and municipalities) as well as the tax laws of the foreign jurisdictions in which we operate. Our annual tax rate is determined based on our income, statutory tax rates and the tax impact of items treated differently for tax purposes than for financial statement purposes. The income tax expense we record in any interim period is based on our estimated tax rate for the full fiscal year, which requires us to estimate our annual pretax income and tax expense by jurisdiction. This process is inherently subjective and requires us to make estimates relative to our business plans, tax planning opportunities and operating results. An interim tax rate is subject to adjustment if, in later periods, there are changes to our estimate of total tax expense or pretax income, including income by jurisdiction. We update these estimates on a quarterly basis, so that our interim financial statements reflect our most current projections for the full fiscal year.

Our income tax expense consists of two components: current and deferred. Current tax expense represents our estimate of taxes to be paid for the current period, including income tax expense arising from uncertain tax positions. Deferred tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets and liabilities arise due to differences between when certain transactions are reflected in our financial statements and when those same items are included in a tax return. Deferred tax assets generally reflect the impact of a tax deduction, tax credit or operating loss carryforward that we have available for use in future year tax returns. Deferred tax liabilities generally reflect the impact of a deduction or expenditure that we have already taken in a tax return but that we have not yet reflected in our financial statements.

 

35


Table of Contents

We record a deferred tax asset if we believe that it is more likely than not that we will realize a future tax benefit. Ultimate realization of any deferred tax asset is dependent on our ability to generate sufficient future taxable income in the appropriate tax jurisdiction before the expiration of carryforward periods, if any. Our assessment of deferred tax asset recoverability considers many different factors including historical and projected operating results, the reversal of existing deferred tax liabilities that provide a source of future taxable income, the impact of current tax planning strategies and the availability of future tax planning strategies. We establish a valuation allowance against any deferred tax asset for which we are unable to conclude that recoverability is more likely than not. This is inherently judgmental, since we are required to assess many different factors and evaluate as much objective evidence as we can in reaching an overall conclusion. The particularly sensitive component of our evaluation is our projection of future operating results since this relies heavily on our estimates of future revenue and expense levels by tax jurisdiction.

In making our assessment of US deferred tax asset recoverability at June 30, 2015, we concluded that it was more likely than not that a portion of our US deferred tax assets may not be recovered. As a result, we increased our valuation allowance in fiscal year 2015 and recorded income tax expense in the amount of $16.0 million. The recognition of a valuation allowance has no effect on our ability to use the underlying deferred tax assets to reduce cash tax payments in the future to the extent that we generate US taxable income.

We establish reserves to remove some or all of the tax benefit we would have otherwise recorded if a tax position is uncertain. In evaluating whether a tax position is uncertain, we base our assessment on existing tax legislation, case law and legal statute. We also presume that the tax position will be examined by the relevant taxing authority that has full knowledge of all relevant information. We recognize tax benefits related to uncertain tax positions at the largest amount deemed more likely than not will be realized upon tax examination. We review our tax positions quarterly and adjust the balances as necessary.

Recent Accounting Pronouncements

For information with respect to recent accounting pronouncements and the impact of these pronouncements on our consolidated financial statements, see Note 2 of Notes to Consolidated Financial Statements.

Results of Operations

Fiscal Year Ended June 30, 2016 Compared to Fiscal Year Ended June 30, 2015

Segment Information

Operating segments are components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance.

Our operating segments are organized principally by the type of product or service offered and by geography. Similar operating segments have been aggregated into four reportable segments: Payments and Transactional Documents, Hosted Solutions, Digital Banking and Other.

During fiscal year 2016, we re-examined the aggregation of our operating segments and reclassified our cyber fraud and risk management and healthcare operating segments from the “Payments and Transactional Documents” reportable segment into the new “Other” reportable segment. To ensure a consistent presentation of the measurement of segment revenues and profit or loss, these changes are reflected for all periods presented.

 

36


Table of Contents

The following tables represent our segment revenues and our segment measure of profit:

 

     Fiscal Year Ended
June 30,
    Increase  (Decrease)
    Between Periods    
  2016  compared to 2015  
 
     2016     2015    
     (in thousands)         %      

Segment revenue:

        

Payments and Transactional Documents

   $ 115,213      $ 116,685        (1,472     (1.3

Hosted Solutions

     138,641        126,178        12,463        9.9   

Digital Banking

     70,747        77,184        (6,437     (8.3

Other

     18,673        10,842        7,831        72.2   
  

 

 

   

 

 

   

 

 

   

Total segment revenue

   $ 343,274      $ 330,889      $ 12,385        3.7   
  

 

 

   

 

 

   

 

 

   

Segment measure of profit:

        

Payments and Transactional Documents

   $ 34,225      $ 36,010        (1,785     (5.0

Hosted Solutions

     23,380        15,329        8,051        52.5   

Digital Banking

     5,696        12,440        (6,744     (54.2

Other

     (1,795     (2,870     1,075        37.5   
  

 

 

   

 

 

   

 

 

   

Total measure of segment profit

   $ 61,506      $ 60,909      $ 597        1.0   
  

 

 

   

 

 

   

 

 

   

A reconciliation of the measure of segment profit to our GAAP loss before the provision for income taxes is as follows:

 

     Fiscal Year Ended
June 30,
 
     2016      2015  
     (in thousands)  

Total measure of segment profit

   $ 61,506       $ 60,909   

Less:

     

Amortization of acquired intangible assets

     (28,978      (30,383

Stock-based compensation expense

     (30,279      (27,025

Acquisition and integration related expenses

     (741      (2,835

Restructuring expenses

     (850      (1,297

Minimum pension liability and related adjustments

     (203      (56

Other non-core income (expense)

     246         (76

Global ERP system implementation costs

     (4,252      —     

Other expense, net

     (15,312      (15,553
  

 

 

    

 

 

 

Loss before income taxes

   $ (18,863    $ (16,316
  

 

 

    

 

 

 

Payments and Transactional Documents. The slight revenue decrease for the fiscal year ended June 30, 2016 compared to the prior fiscal year includes the unfavorable effect of foreign exchange rates of approximately $4.8 million primarily associated with the British Pound Sterling, which depreciated against the US Dollar when compared to the prior fiscal year. The decreased revenue, inclusive of the unfavorable effect of foreign exchange rates, was primarily attributable to decreases in services and maintenance revenues of $2.9 million, software license revenue of $2.8 million, and other revenue of $0.4 million, partially offset by an increase in subscription and transaction revenue of $4.6 million. The revenue decreases were primarily attributable to decreased North American software license and service and maintenance revenue. The segment profit decrease of $1.8 million for the fiscal year ended June 30, 2016 compared to the prior fiscal year, including an unfavorable impact of foreign currency exchange rates of $1.5 million, was primarily due to the decrease in revenue as discussed above. We expect revenue and profit for the Payments and Transactional Documents segment to increase in the fiscal year ending June 30, 2017 as a result of increased sales of our payment and document automation solutions, continued improvement of gross margins and a slight decrease in operating expenses.

 

37


Table of Contents

Hosted Solutions. The revenue increase in our Hosted Solutions segment for the fiscal year ended June 30, 2016 compared to the prior fiscal year was due to increased Paymode-X, financial messaging solutions and legal spend management revenue. The increased revenue includes the unfavorable effect of foreign exchange rates of approximately $2.9 million when compared to the prior fiscal year. The segment profit increase of $8.1 million for the fiscal year ended June 30, 2016 compared to the prior fiscal year, inclusive of an unfavorable impact of foreign currency exchange rates of $0.7 million, arose from improved gross margins of $7.9 million as a result of the increased revenue and improved subscriptions and transactions gross margins from our Paymode-X and financial messaging solutions. We expect revenue and profit for the Hosted Solutions segment to increase in fiscal year 2017 as a result of increased revenue from our legal spend management, financial messaging and Paymode-X solutions.

Digital Banking. The revenue decrease in our Digital Banking segment for the fiscal year ended June 30, 2016 compared to the prior fiscal year was primarily due to a decrease of $10.2 million in professional services revenue as a result of the continued de-emphasis of large, highly customized banking projects in lieu of standard product deployments and our cloud-based solutions, partially offset by an increase in subscription and transaction revenue of $3.2 million. The segment profit decrease of $6.7 million for the fiscal year ended June 30, 2016 compared to the prior fiscal year was primarily attributable to the decreased revenue and increased operating expenses of $1.1 million, mainly arising from an increase in sales and marketing expenses. We expect revenue for the Digital Banking segment to increase in fiscal year 2017 as a result of the contribution of revenue from our customer acquisition and cash management solutions. We expect profit to decrease as a result of our continued investment in certain of our newer digital banking solutions.

Other. The revenue increase in our Other segment for the fiscal year ended June 30, 2016 compared to the prior fiscal year was primarily due the full year impact of the January 2015 Intellinx acquisition. The segment profit increase of $1.1 million for the fiscal year ended June 30, 2016 compared to the prior fiscal year was primarily the result of the increased revenue described above. We expect segment revenue and profit to increase in fiscal year 2017 principally as the result of sales of our cyber fraud and risk management products.

Revenues by Category

 

     Fiscal Year Ended
June 30,
     Increase (Decrease)
Between Periods
 
     2016      2015      2016 Compared
to 2015
 
     (in thousands)         %      

Revenues:

          

Subscriptions and transactions

   $ 195,187       $ 171,361       $ 23,826        13.9   

Software licenses

     20,826         21,907         (1,081     (4.9

Service and maintenance

     120,292         130,183         (9,891     (7.6

Other

     6,969         7,438         (469     (6.3
  

 

 

    

 

 

    

 

 

   

Total revenues

   $ 343,274       $ 330,889       $ 12,385        3.7   
  

 

 

    

 

 

    

 

 

   

Subscriptions and Transactions. Revenues for the fiscal year ended June 30, 2016 were unfavorably impacted by $2.6 million due to the impact of foreign currency exchange rates. The overall increase in subscriptions and transactions revenues was due to an increase in the revenue contribution from our Hosted Solutions segment of $14.5 million, our Payments and Transactional Documents segment of $4.6 million, our Digital Banking segment of $3.2 million and our Other segment of $1.5 million. The Hosted Solutions segment revenue increases were driven primarily by our Paymode-X solution and, to a lesser extent, from our legal spend management and financial messaging solutions. We expect subscriptions and transactions revenues to increase in fiscal year 2017 primarily as a result of the revenue contribution from our Digital Banking segment and our financial messaging, legal spend management and Paymode-X solutions.

 

38


Table of Contents

Software Licenses. The decrease in software license revenues was attributable to decreases in North American revenues within our Payments and Transactional Documents segment, offset in part by increased revenue in our cyber fraud and risk management solutions and certain European solutions. Software license revenue for the fiscal year ended June 30, 2016 was unfavorably impacted by $0.7 million due to the impact of foreign currency exchange rates primarily associated with the British Pound Sterling which depreciated against the US Dollar when compared to the prior fiscal year. We expect software license revenues to increase in fiscal year 2017 in our payments and transactional documents products and our cyber fraud and risk management solutions.

Service and Maintenance. Revenues for the fiscal year ended June 30, 2016 were unfavorably impacted by $4.4 million due to the impact of foreign currency exchange rates. The overall decrease in service and maintenance revenues was primarily the result of decreases in professional services revenue of $10.2 million in our Digital Banking segment as we continued to de-emphasize large and highly customized banking projects in lieu of standard product deployments and our cloud-based solutions. This decrease was partially offset by an increase in revenue from our cyber fraud and risk management solutions primarily related to the full year impact of our January 2015 Intellinx acquisition. We expect that service and maintenance revenues will decrease slightly in fiscal year 2017.

Other. Other revenues decreased slightly in fiscal year 2016 as compared to fiscal year 2015 and we expect that other revenues will decrease slightly in fiscal year 2017.

Cost of Revenues

 

     Fiscal Year Ended
June 30,
     Increase (Decrease)
Between Periods
 
     2016      2015        2016 Compared  
to 2015
 
     (in thousands)         %      

Cost of revenues:

          

Subscriptions and transactions

   $ 87,775       $ 79,397       $ 8,378        10.6   

Software licenses

     1,030         1,583         (553     (34.9

Service and maintenance

     53,236         53,094         142        0.3   

Other

     5,059         5,367         (308     (5.7
  

 

 

    

 

 

    

 

 

   

Total cost of revenues

   $ 147,100       $ 139,441       $ 7,659        5.5   
  

 

 

    

 

 

    

 

 

   

Gross profit

   $ 196,174       $ 191,448       $ 4,726        2.5   
  

 

 

    

 

 

    

 

 

   

Subscriptions and Transactions. Subscriptions and transactions costs decreased slightly to 45% of subscriptions and transactions revenues for the fiscal year ended June 30, 2016 as compared to 46% of subscriptions and transactions revenues in the fiscal year ended June 30, 2015. We expect that subscriptions and transactions costs will continue to decrease as a percentage of subscriptions and transactions revenue in fiscal year 2017 as we continue to grow our revenues from our hosted offerings.

Software Licenses. Software license costs decreased to 5% of software license revenues for the fiscal year ended June 30, 2016 as compared to 7% of software license revenues in the fiscal year ended June 30, 2015. We expect that software license costs will remain relatively consistent as a percentage of software license revenues in fiscal year 2017.

Service and Maintenance. Service and maintenance costs increased to 44% of service and maintenance revenues for the fiscal year ended June 30, 2016 as compared to 41% for the fiscal year ended June 30, 2015. The increase in costs as a percent of service and maintenance revenues was driven by a decrease in professional services revenues and gross margins in our Digital Banking segment as we continued to de-emphasize large, highly customized banking projects in lieu of standard deployments. We expect that service and maintenance costs will increase slightly as a percentage of service and maintenance revenues in fiscal year 2017.

 

39


Table of Contents

Other. Other costs remained consistent at 73% of other revenues for the fiscal year ended June 30, 2016 compared to 72% of other revenues for the prior fiscal year. We expect that other costs will remain relatively consistent as a percentage of other revenues in fiscal year 2017.

Operating Expenses

 

     Fiscal Year Ended
June 30,
     Increase (Decrease)
Between Periods
 
     2016      2015          2016 Compared    
to 2015
 
     (in thousands)         %      

Operating expenses:

          

Sales and marketing

   $ 84,068       $ 80,151       $ 3,917        4.9   

Product development and engineering

     47,355         47,185         170        0.4   

General and administrative

     39,324         34,492         4,832        14.0   

Amortization of intangible assets

     28,978         30,383         (1,405     (4.6
  

 

 

    

 

 

    

 

 

   

Total operating expenses

   $ 199,725       $ 192,211       $ 7,514        3.9   
  

 

 

    

 

 

    

 

 

   

Sales and Marketing. Sales and marketing expenses increased $3.9 million in the fiscal year ended June 30, 2016 as compared to the fiscal year ended June 30, 2015 principally due to an increase in headcount related costs. This increase was generally due to the operating costs of our fiscal year 2015 acquisitions and the impact of resources we hired to sell and promote our newer products. We expect sales and marketing expenses will remain relatively consistent as a percentage of revenue in fiscal year 2017.

Product Development and Engineering. The increase in product development and engineering expenses of $0.2 million in the fiscal year ended June 30, 2016 as compared to the fiscal year ended June 30, 2015 was primarily a result of an increase in employee and professional services related costs. We expect product development and engineering expenses will remain relatively consistent as a percentage of revenue in fiscal year 2017.

General and Administrative. The increase in general and administrative expenses of $4.8 million in the fiscal year ended June 30, 2016 as compared to the fiscal year ended June 30, 2015 was principally attributable to an increase in costs associated with global internal system implementations and an increase in employee related costs, partially attributable to our recent acquisitions, offset in part by a decrease in acquisition and integration related expenses. We expect general and administrative expenses will increase slightly during fiscal year 2017, primarily as a result of our global internal system implementations.

Amortization of Intangible Assets. We amortize our acquired intangible assets in proportion to the estimated rate at which the asset provides economic benefit to us. Accordingly, amortization expense rates are often higher in the earlier periods of an acquired asset’s estimated life. The decrease in amortization expense for the fiscal year ended June 30, 2016 as compared to the prior fiscal year occurred as a result of amortization rates decreasing over the underlying assets lives. We expect amortization expense for acquired intangible assets to be approximately $24.4 million for fiscal year 2017.

Other Income (Expense), Net

 

     Fiscal Year Ended
June 30,
    Increase (Decrease)
Between Periods
 
     2016     2015       2016 Compared  
to 2015
 
           (in thousands)               %      

Interest income

   $ 533      $ 499      $ 34        6.8   

Interest expense

     (15,539     (14,765     (774     (5.2

Other expense, net

     (306     (1,287     981        76.2   
  

 

 

   

 

 

   

 

 

   

Other expense, net

   $ (15,312   $ (15,553   $ 241        1.5   
  

 

 

   

 

 

   

 

 

   

 

40


Table of Contents

Other Income (Expense), Net. For the fiscal year ended June 30, 2016 as compared to the prior fiscal year, interest income increased slightly. Interest expense increased slightly due to increased amortization of our debt discount. Other expense in fiscal year 2016 was primarily the result of foreign exchange losses. We expect that interest income and other expense, net will remain relatively minor components of our overall operations during fiscal year 2017.

Provision for Income Taxes

We recorded income tax expense of $0.8 million for the fiscal year ended June 30, 2016 compared to income tax expense of $18.4 million for the fiscal year ended June 30, 2015. The tax expense in fiscal year 2016 was principally due to tax expense associated with our US and UK operations, which was offset in part by a tax benefit associated with our Swiss and Israeli operations. Our tax expense in fiscal year 2016 was offset in part by a discrete tax benefit of approximately $0.2 million from the enactment of legislation that decreased UK income tax rates. The US income tax expense was principally due to an increase in deferred tax liabilities for goodwill that is deductible for tax purposes but not amortized for financial reporting purposes. The tax expense in fiscal year 2015 was predominantly due to $16.0 million of tax expense arising from a reserve we established against a portion of our US deferred tax assets. To a lesser extent in fiscal year 2015, we also recorded tax expense associated with our US and UK operations, offset in part by an income tax benefit associated with our Swiss and Israeli operations.

Fiscal Year Ended June 30, 2015 Compared to Fiscal Year Ended June 30, 2014

Segment Information

During fiscal year 2016, we re-examined the aggregation of our operating segments and reclassified our cyber fraud and risk management and healthcare operating segments from the “Payments and Transactional Documents” reportable segment into the new “Other” reportable segment. To ensure a consistent presentation of the measurement of segment revenues and profit or loss, these changes are reflected for all periods presented.

The following tables represent our segment revenues and our segment measure of profit:

 

     Fiscal Year Ended
June 30,
     Increase (Decrease)
Between Periods
 
     2015     2014      2015 compared to 2014  
     (in thousands)      (in thousands)     %  

Segment revenue:

         

Payments and Transactional Documents

   $ 116,685      $ 118,098         (1,413     (1.2

Hosted Solutions

     126,178        107,360         18,818        17.5   

Digital Banking

     77,184        67,769         9,415        13.9   

Other

     10,842        7,358         3,484        47.4   
  

 

 

   

 

 

    

 

 

   

Total segment revenue

   $ 330,889      $ 300,585       $ 30,304        10.1   
  

 

 

   

 

 

    

 

 

   

Segment measure of profit:

         

Payments and Transactional Documents

   $ 36,010      $ 37,249         (1,239     (3.3

Hosted Solutions

     15,329        8,344         6,985        83.7   

Digital Banking

     12,440        7,045         5,395        76.6   

Other

     (2,870     212         (3,082     (1453.8
  

 

 

   

 

 

    

 

 

   

Total measure of segment profit

   $ 60,909      $ 52,850       $ 8,059        15.2   
  

 

 

   

 

 

    

 

 

   

 

41


Table of Contents

A reconciliation of the measure of segment profit to our GAAP loss before the provision for income taxes is as follows:

 

     Fiscal Year Ended
June 30,
 
     2015     2014  
     (in thousands)  

Total measure of segment profit

   $ 60,909      $ 52,850   

Less:

    

Amortization of acquired intangible assets

     (30,383     (26,242

Share-based compensation expense

     (27,025     (22,821

Acquisition and integration related expenses

     (2,835     (4,563

Restructuring expense

     (1,297     (1,371

Minimum pension liability and related adjustments

     (56     (331

Other non-core expenses

     (76     —     

Other expense, net

     (15,553     (14,544
  

 

 

   

 

 

 

Loss before income taxes

   $ (16,316   $ (17,022
  

 

 

   

 

 

 

Payments and Transactional Documents. The revenue decrease for the fiscal year ended June 30, 2015 compared to the prior fiscal year was primarily attributable to decreases in services and maintenance revenues of $2.0 million, subscription and transactions revenue of $0.2 million and other revenue of $0.1 million partially offset by an increase in software license revenue of $0.8 million. The revenue decreases were primarily attributable to decreased European service and maintenance and subscription and transaction revenue and decreased revenue from our North American document automation products. The decreased revenue includes the unfavorable effect of foreign exchange rates of approximately $3.1 million primarily associated with the British Pound Sterling which depreciated against the US Dollar when compared to the prior fiscal year. The segment profit decrease of $1.2 million for the fiscal year ended June 30, 2015 compared to the prior fiscal year, inclusive of an unfavorable impact of foreign currency exchange rates of $1.1 million, was due to increased operating expenses primarily related to increased sales and marketing and product development costs.

Hosted Solutions. The revenue increase in our Hosted Solutions segment for the fiscal year ended June 30, 2015 compared to the prior fiscal year was primarily due to increased financial messaging revenue of $12.6 million and, to a lesser extent, from revenue increases in our legal spend management and Paymode-X solutions. The increased revenue includes the unfavorable effect of foreign exchange rates of approximately $2.2 million when compared to the prior fiscal year. The segment profit increase of $7.0 million for the fiscal year ended June 30, 2015 compared to the prior fiscal year arose from improved gross margins of $12.7 million as a result of the increased revenue and improved subscriptions and transactions gross margins from our financial messaging solution, offset in part by increased operating expenses of $5.8 million.

Digital Banking. The revenue increase in our Digital Banking segment for the fiscal year ended June 30, 2015 compared to the prior fiscal year was primarily due to an increase of $14.3 million in subscriptions and transactions revenue, partially offset by a decrease of $5.3 million in professional services revenue as a result of the de-emphasis of certain large, highly customized banking projects in lieu of standard product deployments and our cloud-based solutions. The increased subscriptions and transactions revenue was attributable to the full year impact of our acquisition of Andera. The segment profit increase of $5.4 million for the fiscal year ended June 30, 2015 compared to the prior fiscal year was primarily attributable to the increased revenue and overall improved gross margins, which offset increased operating expenses of $3.5 million, that mainly arose from an increase in sales and marketing expenses.

Other. The revenue increase in our Other segment for the fiscal year ended June 30, 2015 compared to the prior fiscal year was primarily due to revenue from our Intellinx acquisition which we acquired in January 2015. The segment profit decrease of $3.1 million was primarily attributable to increased operating expenses of $3.5 million due to the impact of our Intellinx acquisition.

 

42


Table of Contents

Revenues by Category

 

     Fiscal Year Ended
June 30,
     Increase
Between  Periods
 
     2015      2014      2015 Compared
to 2014
 
            (in thousands)            %  

Revenues:

          

Subscriptions and transactions

   $ 171,361       $ 141,103       $ 30,258        21.4   

Software licenses

     21,907         20,769         1,138        5.5   

Service and maintenance

     130,183         131,531         (1,348     (1.0

Other

     7,438         7,182         256        3.6   
  

 

 

    

 

 

    

 

 

   

Total revenues

   $ 330,889       $ 300,585       $ 30,304        10.1   
  

 

 

    

 

 

    

 

 

   

Subscriptions and Transactions. The increase in subscriptions and transactions revenues was primarily due to an increase in the revenue contribution from our Hosted Solutions segment of $15.6 million and our Digital Banking segment of $14.3 million. The Hosted Solutions segment revenue increases were driven primarily by our financial messaging solutions and, to a lesser extent, from our legal spend management and Paymode-X solutions. The Digital Banking segment revenue increase was driven primarily by the full year impact of our acquisition of Andera. Subscriptions and transactions revenue for the fiscal year ended June 30, 2015 was unfavorably impacted by $1.4 million due to the impact of foreign currency exchange rates primarily associated with the British Pound Sterling which depreciated against the US Dollar when compared to the prior fiscal year.

Software Licenses. The increase in software license revenues was attributable to increases in North American revenues within our Payments and Transactional Documents segment and in our Digital Banking segment, offset in part by decreased revenue in certain European solutions. Software license revenue for the fiscal year ended June 30, 2015 was unfavorably impacted by $0.5 million due to the impact of foreign currency exchange rates primarily associated with the British Pound Sterling which depreciated against the US Dollar when compared to the prior fiscal year.

Service and Maintenance. The decrease in service and maintenance revenues was primarily the result of service revenue decreases of $5.3 million in our Digital Banking segment as we continued to de-emphasize large and highly customized banking projects, partially offset by increases in our financial message solutions and cyber fraud and risk management solutions. Service and maintenance revenue for the fiscal year ended June 30, 2015 was unfavorably impacted by $3.5 million due to the impact of foreign currency exchange rates primarily associated with the Euro and the British Pound Sterling which depreciated against the US Dollar when compared to the prior fiscal year.

Other. Other revenues increased slightly for the fiscal year ended June 30, 2015 as compared to fiscal year ended June 30, 2014.

 

43


Table of Contents

Cost of Revenues

 

     Fiscal Year Ended
June 30,
     Increase
Between Periods
 
     2015      2014      2015 Compared
to 2014
 
            (in thousands)            %  

Cost of revenues:

          

Subscriptions and transactions

   $ 79,397       $ 69,220       $ 10,177        14.7   

Software licenses

     1,583         1,602         (19     (1.2

Service and maintenance

     53,094         54,463         (1,369     (2.5

Other

     5,367         5,383         (16     (0.3
  

 

 

    

 

 

    

 

 

   

Total cost of revenues

   $ 139,441       $ 130,668       $ 8,773        6.7   
  

 

 

    

 

 

    

 

 

   

Gross profit

   $ 191,448       $ 169,917       $ 21,531        12.7   

Subscriptions and Transactions. Subscriptions and transactions costs decreased to 46% of subscriptions and transactions revenues for the fiscal year ended June 30, 2015 as compared to 49% of subscriptions and transactions revenues in the fiscal year ended June 30, 2014. The decrease in subscriptions and transactions costs as a percentage of revenue was due to revenue increases in our Hosted Solutions and Digital Banking segments.

Software Licenses. Software license costs remained consistent at 7% of software license revenues for the fiscal year ended June 30, 2015 as compared to 8% of software license revenues in the fiscal year ended June 30, 2014.

Service and Maintenance. Service and maintenance costs remained consistent at 41% of service and maintenance revenues for the fiscal years ended June 30, 2015 and June 30, 2014.

Other. Other costs remained consistent at 72% of other revenues for the fiscal year ended June 30, 2015 compared to 75% of other revenues for the prior fiscal year.

Operating Expenses

 

     Fiscal Year Ended
June 30,
     Increase
Between Periods
 
     2015      2014      2015 Compared
to 2014
 
            (in thousands)             %  

Operating expenses:

           

Sales and marketing

   $ 80,151       $ 72,707       $ 7,444         10.2   

Product development and engineering

     47,185         39,725         7,460         18.8   

General and administrative

     34,492         33,721         771         2.3   

Amortization of intangible assets

     30,383         26,242         4,141         15.8   
  

 

 

    

 

 

    

 

 

    

Total operating expenses

   $ 192,211         172,395       $ 19,816         11.5   
  

 

 

    

 

 

    

 

 

    

Sales and Marketing. Sales and marketing expenses increased $7.4 million in the fiscal year ended June 30, 2015 as compared to the fiscal year ended June 30, 2014 principally due to an increase in headcount related costs of $6.3 million, equipment and software expense of $0.3 million and advertising expenses of $0.2 million. The increases were generally due to the operating costs of our fiscal year 2015 acquisitions and the impact of resources we hired to sell and promote our newer products.

Product Development and Engineering. The increase in product development and engineering expenses of $7.5 million in the fiscal year ended June 30, 2015 as compared to the fiscal year ended June 30, 2014 was primarily a result of an increase in employee and professional services related costs.

 

44


Table of Contents

General and Administrative. The increase in general and administrative expenses of $0.8 million in the fiscal year ended June 30, 2015 as compared to the fiscal year ended June 30, 2014 was principally attributable to an increase in employee related costs, partially attributable to our recent acquisitions, offset in part by a decrease in acquisition and integration related expenses.

Amortization of Intangible Assets. We amortize our acquired intangible assets in proportion to the estimated rate at which the asset provides economic benefit to us. Accordingly, amortization expense rates are often higher in the earlier periods of an acquired asset’s estimated life. The increase in amortization expense for the fiscal year ended June 30, 2015 as compared to the prior fiscal year occurred as a result of increased expense from acquired intangible assets associated with our recent acquisitions.

Other Income (Expense), Net

 

     Fiscal Year Ended
June 30,
    Increase
Between Periods
 
     2015     2014     2015 Compared
to 2014
 
           (in thousands)           %  

Interest income

   $ 499      $ 667      $ (168     (25.1

Interest expense

     (14,765     (14,222     (543     (3.8

Other expense, net

     (1,287     (989     (298     (30.1
  

 

 

   

 

 

   

 

 

   

Other expense, net

   $ (15,553   $ (14,544   $ (1,009     (6.9
  

 

 

   

 

 

   

 

 

   

Other Income (Expense), Net. For the fiscal year ended June 30, 2015 as compared to the prior fiscal year, interest income decreased slightly as a result of a lower average cash balance in the fiscal year ended June 30, 2015. Interest expense increased slightly due to increased amortization of debt discount. Other expense in fiscal 2015 was primarily the result of foreign exchange losses.

Provision for Income Taxes

We recorded income tax expense of $18.4 million for the fiscal year ended June 30, 2015 compared to income tax expense of $2.1 million for the fiscal year ended June 30, 2014. The tax expense in fiscal year 2015 was predominantly due to $16.0 million of tax expense arising from a reserve we established against a portion of our US deferred tax assets. In making our assessment of US deferred tax asset recoverability at June 30, 2015, we considered our historical financial results, our projected future financial results, the planned reversal of existing deferred tax liabilities and the impact of certain planning actions that were largely completed during fiscal 2015. Based on the weighting of both positive and negative evidence we concluded that it was more likely than not that a portion of our US deferred tax assets would not be recovered. To a much lesser extent, we also recorded tax expense associated with our US and UK operations, offset in part by an income tax benefit associated with our Swiss and Israeli operations. The tax expense in fiscal year 2014 was predominantly due to expense associated with our US, UK, and Asia Pacific operations, offset in part by an income tax benefit associated with our Swiss operations. The excess of our effective tax rate over statutory tax rates was primarily due to our inability to utilize certain foreign tax credits as a reduction to foreign income that is included in our US tax return. This has the effect of taxing certain income twice, resulting in a higher overall tax rate (or a decrease in the overall US tax benefit).

Liquidity and Capital Resources

We have financed our operations primarily from cash provided by operating activities and the sale of our common stock and, with the issuance of our convertible notes in December 2012, with debt proceeds. We have generated positive operating cash flows in each of our last fifteen completed fiscal years. Accordingly, we believe that the cash generated from our operations and the cash and cash equivalents we have on hand will be sufficient to meet our operating requirements for the foreseeable future.

 

45


Table of Contents

In addition to our operating cash requirements, we will require cash to pay interest on the notes and to make principal payments on the notes at maturity or upon conversion. While the principal balance of the notes must be satisfied in cash, we are permitted to settle any conversion obligation under the notes in excess of the principal balance in either cash, shares of our common stock or a combination of cash and shares of our common stock, at our election. We intend to satisfy any conversion premium by issuing shares of our common stock. We believe that the cash generated from our operations and the cash and cash equivalents we have on hand will be sufficient to meet our future obligations. If our existing cash resources along with cash generated from operations is insufficient to satisfy our funding requirements we may need to sell additional equity or debt securities or seek other financing arrangements. Although we believe based on our operations today that we would be successful in obtaining additional financing, we cannot be certain that financing alternatives will be available in amounts or at terms that are acceptable to us, or available to us at all.

In fiscal year 2016 we spent $5.8 million on acquisitions and investments in businesses.

One of our goals is to maintain and improve our capital structure. The key metrics we focus on in assessing the strength of our liquidity and a summary of our cash activity for the years ended June 30, 2016 and 2015 are summarized in the tables below:

 

     June 30,      June 30,  
     2016      2015  
     (in thousands)  

Cash and cash equivalents

   $ 97,174       $ 121,163   

Marketable securities

     35,209         23,225   

Long-term Debt (1)

     171,534         159,760   

 

(1) Our long-term debt consists of our convertible notes. The convertible notes are shown on our consolidated balance sheets at their carrying value, which represents the principal balance of $189.8 million less unamortized discount.

 

     June 30,  
     2016      2015  
     (in thousands)  

Cash provided by operating activities

   $ 67,157       $ 62,700   

Cash used in investing activities

     (45,759      (91,152

Cash used in financing activities

     (40,170      (10,817

Effect of exchange rates on cash

     (5,217      (7,241

Cash, cash equivalents and marketable securities. At June 30, 2016 our cash and cash equivalents of $97.2 million consisted primarily of cash deposits held at major banks and money market funds. The $24.0 million decrease in cash and cash equivalents at June 30, 2016 from June 30, 2015 was primarily due to cash generated from operations of $67.2 million, offset by cash used to repurchase shares of our common stock for $44.0 million, for capital expenditures including capitalized software development costs of $27.7 million, to purchase marketable securities of $12.3 million and due to the unfavorable effect of exchange rates of $5.2 million.

At June 30, 2016 our marketable securities of $35.2 million consisted primarily of US treasury notes, residential mortgage-backed securities, and U.S. corporate debt securities.

At June 30, 2016, approximately $39.8 million of our cash and cash equivalents was held by our foreign subsidiaries. Our current intention is to reinvest these amounts in the growth of our foreign operations. If our reinvestment plans change based on future events and we decide to repatriate these amounts to fund our domestic operations, the amounts would generally become subject to tax in the US to the extent there were cumulative profits in the foreign subsidiary from which the distribution to the US was made.

 

46


Table of Contents

Operating Activities. Cash generated from operating activities primarily relates to our net loss, less the impact of non-cash expenses and changes in working capital. Cash generated from operations increased by $4.5 million to $67.2 million in the fiscal year ended June 30, 2016 versus the prior fiscal year. The increase in cash generated from operations was primarily due to a decrease in cash used by accrued expenses of $3.2 million, an increase in cash provided by deferred revenue of $2.8 million, a decrease in cash used by accounts payable of $2.5 million and a decrease in our net loss of $15.0 million. The increase was partially offset by an increase in cash used for prepaid expenses and other assets of $2.6 million and $4.6 million, respectively, a decrease in cash provided by other liabilities of $2.1 million and a decrease of non-cash expenses of $9.5 million.

At June 30, 2016, we had US net operating loss carryforwards of $83.3 million, which expire at various times through fiscal year 2036 and foreign net operating loss carryforwards of $13.0 million, primarily in Europe, which have no statutory expiration date. We also have approximately $5.4 million of research and development tax credit carryforwards available which expire at various points through fiscal year 2036. Our operating losses and tax credit carryforwards may be subject to limitations under provisions of the Internal Revenue Code.

At June 30, 2016, the deferred tax assets associated with our US and Australian operations and a portion of the deferred tax assets associated with our UK and continental European operations have been reserved since, given the available evidence, it was deemed more likely than not that these deferred tax assets would not be realized.

During the fiscal year ended June 30, 2016, we contributed approximately $1.7 million to our Swiss defined benefit pension plan.

Investing Activities. The decrease in net cash used in investing activities for the fiscal year ended June 30, 2016 versus the prior fiscal year was primarily due to the $68.0 million in cash used to fund prior year acquisitions as compared to the $5.8 million of cash used to fund acquisitions and investments in businesses during fiscal year 2016. The cash used to fund acquisitions during fiscal years 2016 and 2015 was as follows:

2016 Asset Acquisition and Other Investment

 

   

During the fiscal year ended June 30, 2016, we completed an asset acquisition through which we acquired core technology for $1.5 million.

 

   

In December 2015, we made a $3.5 million investment in preferred stock of a privately held, early-stage technology company.

2015 Acquisition Activity

 

   

In July 2014, we acquired Litco for a cash payment of $0.7 million and 4,999 shares of our common stock.

 

   

In November 2014, we acquired Arian Software Limited for a cash payment of £2.2 million (approximately $3.5 million, net of cash acquired, based on exchange rates in effect at the acquisition date) and 60,000 shares of our common stock.

 

   

In January 2015, we acquired Intellinx Ltd. for a cash payment of $63.8 million, net of cash acquired and 774,000 shares of our common stock.

Financing Activities. The increase in cash used by financing activities for the fiscal year ended June 30, 2016 was predominantly due to our repurchase of our common stock of $44.0 million.

 

47


Table of Contents

Contractual Obligations

Following is a summary of future payments that we are required to make under existing contractual obligations as of June 30, 2016:

 

     Payment Due by Fiscal Year  
     2017      2018-2019      2020-2021      Thereafter      Total  
     (in thousands)  

Long-term debt:

              

Principal payment

   $ —         $ 189,750       $ —         $ —         $ 189,750   

Interest payments

     2,846         1,423         —           —           4,269   

Operating leases

     5,297         9,333         7,506         9,280         31,416   

Purchase commitments

     6,936         8,817         678         —           16,431   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total contractual obligations

   $ 15,079       $ 209,323       $ 8,184       $ 9,280       $ 241,866   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Purchase orders are not included in the table above. Our purchase orders represent authorizations to purchase rather than binding agreements. The contractual obligation amounts in the table above are associated with agreements that are enforceable and legally binding and that specify all significant terms, including: fixed or minimum services to be used; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Obligations under contract that we can cancel without a significant penalty are not included in the table above.

Our estimate of unrecognized tax benefits for which cash settlement may be required, in the amount of $1.3 million, has been excluded from the table above. These amounts have been excluded because, as of June 30, 2016, we are unable to estimate the timing of future cash outflows, if any, associated with these liabilities as we do not currently anticipate settling any of these tax positions with cash payment in the foreseeable future.

The contractual obligations table above also excludes our estimate of the contributions we will make to our Swiss defined benefit pension plan in fiscal year 2017 which is $1.6 million. We are unable to estimate contribution amounts for periods after fiscal year 2017.

Off-Balance Sheet Arrangements

During the fiscal year ended June 30, 2016 we did not have any off-balance sheet arrangements.

 

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

Interest rate risk

Our exposure to financial risk, including changes in interest rates, relates primarily to our cash and cash equivalents and marketable securities. We have not entered into any interest rate swap agreements or other instruments to minimize our exposure to interest rate fluctuations. Our cash and cash equivalents typically consist of demand deposit accounts, money market mutual funds and U.S. Treasury securities. Based on our current average balances of cash and cash equivalents, a significant change in interest rates could have a material effect on our operating results. Based on our average cash and cash equivalents balance, average actual interest rates and actual interest income during the respective annual periods, a 100 basis point increase in interest rates would result in a hypothetical increase of approximately $1.1 million, $1.4 million and $1.8 million for the fiscal years ended 2016, 2015 and 2014, respectively, in our results of operations and cash flows. A 100 basis point decrease in interest rates would reduce our interest income to zero.

Our marketable securities are held in government and US corporate debt securities with maturities of less than three years. A 100 basis point change in interest rates would not have had a significant impact on our income from marketable securities for the fiscal years ended June 30, 2016, 2015 and 2014.

 

48


Table of Contents

Our convertible notes are at a fixed rate of interest.

Foreign currency exchange rate risk

We have significant operations located in the United Kingdom, where the functional currency is British Pound Sterling and in Switzerland, where the functional currency is the Swiss Franc. We also have operations in Australia, where the functional currency is the Australian dollar, in Germany and France, where the functional currency is the European Euro and in Canada, where the functional currency is the Canadian Dollar. We have not entered into any foreign currency hedging transactions or other instruments to minimize our exposure to foreign currency exchange rate fluctuations nor do we presently plan to in the future.

Foreign currency translation risk

The following sensitivity analysis is based on a hypothetical 10 percent increase or decrease in foreign currency exchange rates and presents the impact that such an increase or decrease would have had on our cash balances as of June 30, 2016 and 2015:

 

     Effect of a 10% Increase or Decrease in Average
Exchange Rates
 
     Cash and cash equivalents  
         2016              2015      
     (in thousands)  

Between US Dollar and:

     

British Pounds Sterling (+/-)

   $ 3,974       $ 1,789   

Swiss Franc (+/-)

   $ 993       $ 1,566   

European Euro (+/-)

   $ 192       $ 138   

Australian Dollar (+/-)

   $ 278       $ 298   

A 10% increase or decrease in the exchange rate between the Israeli Shekel and the US Dollar or the Canadian Dollar and the US Dollar would not have had a significant impact on our cash and cash equivalents at June 30, 2016 or June 30, 2015.

The following sensitivity analysis is based on a hypothetical 10 percent increase or decrease in foreign currency exchange rates and presents the impact that such an increase or decrease would have had on our revenue and net loss for the years ended June 30, 2016, 2015 and 2014:

 

     Effect of a 10% Increase or Decrease in Average  Exchange Rates  
                 Revenue                               Net loss               
         2016          2015          2014          2016          2015          2014      
     (in thousands)  

Between US Dollar and:

                 

British Pounds Sterling (+/-)

   $ 9,624       $ 9,374       $ 9,672       $ 754       $ 934       $ 1,165   

Swiss Franc (+/-)

   $ 3,467       $ 3,298       $ 2,537       $ 197       $ 629       $ 815   

European Euro (+/-)

   $ 420       $ 515       $ 481       $ 27       $ 34       $ 32   

Australian Dollar (+/-)

   $ 299       $ 375       $ 293       $ 2       $ 22       $ 4   

Israeli Shekel (+/-)

   $ 542       $ 206       $ —         $ 1,046       $ 31       $ —     

A 10% increase or decrease in the average exchange rate between the Canadian Dollar and the US Dollar would not have had a significant impact on our revenue or net income for the years ended June 30, 2016, 2015 or 2014.

 

49


Table of Contents

Foreign currency transaction risk

Foreign currency transaction gains and losses are generally not significant and our financial results would not be significantly impacted in the event of a 10% increase or decrease in the average exchange rates between the US dollar and the respective functional currencies of our international subsidiaries.

Derivative instruments risk

We are party to various derivative instruments related to the issuance of our convertible notes. At June 30, 2016, all of our derivative instruments qualified for classification within stockholders’ equity. We are required, however, for the remaining term of the notes, to assess whether we continue to meet the stockholders’ equity classification requirements and if in any future period we fail to satisfy those requirements we would need to reclassify these instruments out of stockholders’ equity and back into a derivative asset or liability; at which point we would again be required to record any changes in fair value through earnings.

 

Item 8. Financial Statements and Supplementary Data.

The information required by this item is included in Item 15 of Part IV of this Annual Report on Form 10-K and incorporated herein by reference. Reference is made to the Index to Financial Statements, Financial Statements and Supplementary Data, which appear within Item 15.

 

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

 

Item 9A. Controls and Procedures.

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2016. The term disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based on the evaluation of our disclosure controls and procedures as of June 30, 2016, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Management’s report on internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) and the independent registered public accounting firm’s related audit report are included in Item 8 of this Form 10-K and are incorporated herein by reference.

No change in our internal control over financial reporting occurred during the fiscal quarter ended June 30, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

Item 9B. Other Information.

Not applicable.

 

50


Table of Contents

PART III

 

Item 10. Directors, Executive Officers and Corporate Governance.

See Executive Officers and Other Key Employees of the Registrant in Part I of this Annual Report on Form 10-K. We will furnish to the Securities and Exchange Commission a definitive Proxy Statement (the Proxy Statement) not later than 120 days after the close of the fiscal year ended June 30, 2016. The information required by this item is incorporated herein by reference to the information contained under the captions Proposal I—Election of Class III Directors, Section 16(a) Beneficial Ownership Reporting Compliance and Corporate Governance of the Proxy Statement.

We have adopted a Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The text of our Code of Business Conduct and Ethics is posted in the Corporate Governance section of our website, www.bottomline.com. We intend to disclose on our website any amendments to, or waivers from, our Code of Business Conduct and Ethics that are required to be disclosed pursuant to the disclosure requirements of Item 5.05 of Form 8-K.

 

Item 11. Executive Compensation.

The information required by this item is incorporated herein by reference to the information contained under the captions Executive Compensation, Director Compensation, Compensation Committee Interlocks and Insider Participation, Compensation Committee Report, and Employment and Other Agreements and Potential Payments Upon Termination or Change in Control of the Proxy Statement.

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by this item is incorporated herein by reference to the information contained under the captions Security Ownership of Certain Beneficial Owners and Management and Equity Compensation Plan Information of the Proxy Statement.

 

Item 13. Certain Relationships and Related Transactions, and Director Independence.

The information required by this item is incorporated herein by reference to the information contained under the captions Employment and Other Agreements and Potential Payments Upon Termination or Change in Control, Proposal I—Election of Class III Directors, Corporate Governance and Certain Relationships and Related Transactions of the Proxy Statement.

 

Item 14. Principal Accountant Fees and Services.

The information required to be disclosed by this item is incorporated herein by reference to the information contained under the caption Principal Accounting Fees and Services and Pre-Approval Policies and Procedures of the Proxy Statement.

 

51


Table of Contents

PART IV

 

Item 15. Exhibits and Financial Statement Schedules.

(a) Financial Statements, Financial Statement Schedule and Exhibits

 

          Page  

(1)

   Financial Statements—see Index to Consolidated Financial Statements      54   

(2)

  

Financial Statement Schedule for the Years Ended June 30, 2016, 2015 and 2014:

 

Schedule II—Valuation and Qualifying Accounts

     53   
   Financial statement schedules not included have been omitted because of the absence of conditions under which they are required or because the required information, where material, is shown in the financial statements or notes.   

(3)

   Exhibits:   
   Exhibits filed as part of this Annual Report on Form 10-K are listed on the Exhibit Index immediately preceding such exhibits, which is incorporated herein by reference      97   

 

52


Table of Contents

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

ALLOWANCE FOR DOUBTFUL ACCOUNTS

Years Ended June 30, 2016, 2015 and 2014

 

     Activity  

Year Ended

   Balance at
Beginning
of Year
     (Charged to
Revenue,
Costs and
Expenses)
     Additions and
Recoveries (1)
     Deductions (2)      Balance at
End of
Year
 
     (in thousands)  

June 30, 2016

   $ 924         415         39         396       $ 982   

June 30, 2015

   $ 862         248         79         265       $ 924   

June 30, 2014

   $ 769         214         53         174       $ 862   

 

(1) Additions primarily represent increases to the allowance for doubtful accounts balance as a result of the impact of increases in foreign currency exchange rates.
(2) Deductions are principally write-offs as well as the impact of decreases in foreign currency exchange rates.

 

53


Table of Contents

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

     Page  

Management’s Annual Report on Internal Control Over Financial Reporting

     55   

Report of Independent Registered Public Accounting Firm

     56   

Consolidated Balance Sheets as of June 30, 2016 and 2015

     58   

Consolidated Statements of Comprehensive Loss for the years ended June 30, 2016, 2015 and 2014

     59   

Consolidated Statements of Stockholders’ Equity for the years ended June  30, 2016, 2015 and 2014

     60   

Consolidated Statements of Cash Flows for the years ended June 30, 2016, 2015 and 2014

     61   

Notes to Consolidated Financial Statements

     62   

 

54


Table of Contents

Management’s Annual Report on Internal Control Over Financial Reporting

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

 

   

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

 

   

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

 

   

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of June 30, 2016. In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013 framework).

Based on our assessment, management concluded that, as of June 30, 2016, the Company’s internal control over financial reporting is effective based on those criteria.

The Company’s independent registered public accounting firm has issued an audit report on the Company’s internal control over financial reporting. This report appears on page 56.

 

55


Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

Bottomline Technologies (de), Inc.

We have audited Bottomline Technologies (de), Inc.’s internal control over financial reporting as of June 30, 2016, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Bottomline Technologies (de), Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Bottomline Technologies (de), Inc. maintained, in all material respects, effective internal control over financial reporting as of June 30, 2016, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Bottomline Technologies (de), Inc. as of June 30, 2016 and 2015, and the related consolidated statements of comprehensive loss, stockholders’ equity and cash flows for each of the three years in the period ended June 30, 2016 of Bottomline Technologies (de), Inc. and our report dated August 29, 2016 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Boston, Massachusetts

August 29, 2016

 

56


Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

Bottomline Technologies (de), Inc.

We have audited the accompanying consolidated balance sheets of Bottomline Technologies (de), Inc. as of June 30, 2016 and 2015, and the related consolidated statements of comprehensive loss, stockholders’ equity and cash flows for each of the three years in the period ended June 30, 2016. Our audits also included the financial statement schedule listed in the index at Item 15(a)(2). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Bottomline Technologies (de), Inc. at June 30, 2016 and 2015, and the consolidated results of its operations and its cash flows for each of the three years in the period ended June 30, 2016, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Bottomline Technologies (de), Inc.’s internal control over financial reporting as of June 30, 2016, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated August 29, 2016 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Boston, Massachusetts

August 29, 2016

 

57


Table of Contents

CONSOLIDATED BALANCE SHEETS

Bottomline Technologies (de), Inc.

Condensed Consolidated Balance Sheets

 

     June 30,     June 30,  
     2016     2015  
     (in thousands)  

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 97,174      $ 121,163   

Marketable securities

     35,209        23,225   

Accounts receivable net of allowances for doubtful accounts of $982 at June 30, 2016 and $924 at June 30, 2015

     61,773        65,140   

Deferred tax assets

     6,244        5,388   

Prepaid expenses and other current assets

     16,141        14,325   
  

 

 

   

 

 

 

Total current assets

     216,541        229,241   

Property and equipment, net

     51,029        47,579   

Goodwill

     202,028        215,360   

Intangible assets, net

     164,930        185,290   

Other assets

     18,359        11,014   
  

 

 

   

 

 

 

Total assets

   $ 652,887      $ 688,484   
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

Current liabilities:

    

Accounts payable

   $ 10,218      $ 11,623   

Accrued expenses

     27,512        24,436   

Deferred revenue

     74,332        70,383   
  

 

 

   

 

 

 

Total current liabilities

     112,062        106,442   

Convertible senior notes

     171,534        159,760   

Deferred revenue, non-current

     19,086        17,624   

Deferred income taxes

     28,147        35,542   

Other liabilities

     27,271        20,578   
  

 

 

   

 

 

 

Total liabilities

     358,100        339,946   

Stockholders’ equity

    

Preferred Stock, $.001 par value:

    

Authorized shares—4,000; issued and outstanding shares-none

     —          —     

Common Stock, $.001 par value:

    

Authorized shares—100,000; issued shares—41,602 at June 30, 2016 and 40,337 at June 30, 2015; outstanding shares—37,770 at June 30, 2016 and 38,105 at June 30, 2015

     42        40   

Additional paid-in-capital

     591,800        560,083   

Accumulated other comprehensive loss

     (37,668     (13,511

Treasury stock: 3,832 shares at June 30, 2016 and 2,232 shares at June 30, 2015, at cost

     (75,832     (34,167

Accumulated deficit

     (183,555     (163,907
  

 

 

   

 

 

 

Total stockholders’ equity

     294,787        348,538   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 652,887      $ 688,484   
  

 

 

   

 

 

 

See accompanying notes.

 

58


Table of Contents

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

 

     Year Ended June 30,  
     2016     2015     2014  
     (in thousands, except per share data)  

Revenues:

      

Subscriptions and transactions

   $ 195,187      $ 171,361      $ 141,103   

Software licenses

     20,826        21,907        20,769   

Service and maintenance

     120,292        130,183        131,531   

Other

     6,969        7,438        7,182   
  

 

 

   

 

 

   

 

 

 

Total revenues

     343,274        330,889        300,585   

Cost of revenues:

      

Subscriptions and transactions

     87,775        79,397        69,220   

Software licenses

     1,030        1,583        1,602   

Service and maintenance

     53,236        53,094        54,463   

Other

     5,059        5,367        5,383   
  

 

 

   

 

 

   

 

 

 

Total cost of revenues

     147,100        139,441        130,668   
  

 

 

   

 

 

   

 

 

 

Gross profit

     196,174        191,448        169,917   

Operating expenses:

      

Sales and marketing

     84,068        80,151        72,707   

Product development and engineering

     47,355        47,185        39,725   

General and administrative

     39,324        34,492        33,721   

Amortization of intangible assets

     28,978        30,383        26,242   
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     199,725        192,211        172,395   
  

 

 

   

 

 

   

 

 

 

Loss from operations

     (3,551     (763     (2,478

Interest income

     533        499        667   

Interest expense

     (15,539     (14,765     (14,222

Other expense, net

     (306     (1,287     (989
  

 

 

   

 

 

   

 

 

 

Other expense, net

     (15,312     (15,553     (14,544
  

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (18,863     (16,316     (17,022

Income tax provision

     785        18,364        2,082   
  

 

 

   

 

 

   

 

 

 

Net loss

   $ (19,648   $ (34,680   $ (19,104
  

 

 

   

 

 

   

 

 

 

Basic and diluted net loss per share:

   $ (0.52   $ (0.92   $ (0.52
  

 

 

   

 

 

   

 

 

 

Shares used in computing basic and diluted net loss per share:

     37,957        37,806        36,834   
  

 

 

   

 

 

   

 

 

 

Other comprehensive loss, net of tax:

      

Unrealized gain (loss) on available for sale securities

     55        (10     24   

Minimum pension liability adjustments

     (6,198     (3,032     272   

Foreign currency translation adjustments

     (18,014     (17,285     16,980   
  

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net of tax:

     (24,157     (20,327     17,276   
  

 

 

   

 

 

   

 

 

 

Comprehensive loss

   $ (43,805   $ (55,007   $ (1,828
  

 

 

   

 

 

   

 

 

 

See accompanying notes.

 

59


Table of Contents

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

 

   

 

Common Stock

    Additional
Paid-in
Capital
    Accumulated
Other
Comprehensive
Income (Loss)
   

 

Treasury Stock

    Accumulated
Deficit
    Total
Stockholders’
Equity
 
  Shares     Amount         Shares     Amount      
    (in thousands)  

Balance at June 30, 2013

    37,903      $ 38      $ 499,182      $ (10,460     1,858      $ (21,888   $ (110,123   $ 356,749   

Issuance of common stock for employee stock purchase plan and upon exercise of stock options

    255          3,796          (111     1,309          5,105   

Vesting of restricted stock awards

    952        1        (1             —     

Stock compensation expense

        22,821                22,821   

Capitalized stock compensation expense

        48                48   

Issuance of common stock in connection with acquisitions

    114          3,746                3,746   

Tax benefit associated with non qualified stock option exercises and forfeitures

        560                560   

Fair value of equity awards assumed in acquisition

        225                225   

Minimum pension liability adjustments, net of tax

          272              272   

Net income

                (19,104     (19,104

Unrealized loss on available for sale securities, net of tax

          24              24   

Foreign currency translation adjustment

          16,980              16,980   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2014

    39,224      $ 39      $ 530,377      $ 6,816        1,747      $ (20,579   $ (129,227   $ 387,426   

Issuance of common stock for employee stock purchase plan and upon exercise of stock options

    136          2,638        —          (109     1,453          4,091   

Vesting of restricted stock awards

    977        1        (1             —     

Stock compensation expense

        27,025                27,025   

Amortization of previously capitalized stock compensation expense

        (48             (48

Repurchase of common stock to be held in treasury

            594        (15,041       (15,041

Tax benefit associated with non qualified stock option exercises and forfeitures

        92                92   

Minimum pension liability adjustments, net of tax

          (3,032           (3,032

Net income

                (34,680     (34,680

Unrealized loss on available for sale securities, net of tax

          (10           (10

Foreign currency translation adjustment

          (17,285           (17,285
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2015

    40,337      $ 40      $ 560,083      $ (13,511     2,232      $ (34,167   $ (163,907   $ 348,538   

Issuance of common stock for employee stock purchase plan and upon exercise of stock options

    92        1        1,229        —          (125     2,297          3,527   

Vesting of restricted stock awards

    1,173        1        (1             —     

Stock compensation expense

        30,279                30,279   

Repurchase of common stock to be held in treasury

            1,725        (43,962       (43,962

Tax benefit associated with non qualified stock option exercises and forfeitures

        210                210   

Minimum pension liability adjustments, net of tax

          (6,198           (6,198

Net income

                (19,648     (19,648

Unrealized loss on available for sale securities, net of tax

          55              55   

Foreign currency translation adjustment

          (18,014           (18,014
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2016

    41,602      $ 42      $ 591,800      $ (37,668     3,832      $ (75,832   $ (183,555   $ 294,787   

See accompanying notes.

 

60


Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

     Fiscal Year Ended June 30,  
     2016     2015     2014  
     (in thousands)  

Operating activities:

      

Net loss

   $ (19,648   $ (34,680   $ (19,104

Adjustments to reconcile net loss to net cash provided by operating activities:

      

Amortization of acquired intangible assets

     28,978        30,383        26,242   

Stock compensation expense

     30,279        27,025        22,821   

Depreciation and other amortization

     13,489        10,507        8,250   

Deferred income tax benefit

     (3,111     12,173        (5,781

Provision for allowances on accounts receivable

     415        248        214   

Excess tax benefits associated with stock compensation

     (265     (133     (560

Amortization of debt issuance costs

     1,184        1,184        1,184   

Amortization of debt discount

     11,774        10,965        10,213   

Amortization of premium on investments

     338        388        366   

Loss on disposal of equipment

     24        4        54   

Write down of fixed assets

     17        —          —     

Loss on foreign exchange

     171        (2     35   

Changes in operating assets and liabilities:

      

Accounts receivable

     (543     (310     (5,690

Prepaid expenses and other current assets

     (2,449     180        (1,853

Other assets

     (4,412     222        (898

Accounts payable

     (682     (3,193     1,535   

Accrued expenses

     1,835        (1,333     (2,253

Deferred revenue

     10,361        7,561        14,915   

Other liabilities

     (598     1,511        2,531   
  

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     67,157        62,700        52,221   

Investing activities:

      

Acquisition of businesses and assets, net of cash acquired

     (1,763     (68,017     (153,491

Purchases of cost-method investments

     (4,010     —          —     

Purchases of held-to-maturity securities

     (168     (96     (78

Proceeds from sales of held-to-maturity securities

     168        96        55   

Purchase of available-for-sale securities

     (28,113     (15,185     (28,453

Proceeds from sales of available-for-sale securities

     15,836        15,347        13,873   

Capital expenditures, including capitalization of software costs

     (27,717     (23,297     (12,652

Proceeds from disposal of property and equipment

     8        —          113   
  

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (45,759     (91,152     (180,633

Financing activities:

      

Repurchase of common stock

     (43,962     (15,041     —     

Proceeds from exercise of stock options and employee stock purchase plan

     3,527        4,091        5,105   

Excess tax benefits associated with stock compensation

     265        133        560   
  

 

 

   

 

 

   

 

 

 

Net cash used in financing activities

     (40,170     (10,817     5,665   

Effect of exchange rate changes on cash

     (5,217     (7,241     6,868   
  

 

 

   

 

 

   

 

 

 

Decrease in cash and cash equivalents

     (23,989     (46,510     (115,879

Cash and cash equivalents at beginning of period

     121,163        167,673        283,552   
  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 97,174      $ 121,163      $ 167,673   
  

 

 

   

 

 

   

 

 

 

Supplemental disclosure of cash flow information:

  

 

Cash paid during the year for:

      

Interest, net of amounts capitalized

   $ 2,847      $ 2,854      $ 2,792   

Income taxes

   $ 4,771      $ 7,507      $ 5,023   

Non-cash investing and financing activities:

      

Issuance of common stock in connection with acquisition of business

   $