SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
Bottomline Technologies (de), Inc.
(Exact name of Registrant as Specified in Its Charter)
Delaware 02-0433294
- -------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
155 Fleet Street, Portsmouth, New Hampshire 03801
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(Address of principal executive offices)
Registrant's telephone number, including area code: (603) 436-0700
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 [ ]
The number of shares outstanding of the registrant's common stock as of April
30, 2000 was 10,868,326.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Bottomline Technologies (de), Inc.
Condensed Balance Sheets
(in thousands)
MARCH 31, 2000 JUNE 30, 1999
---------------------------------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $18,366 $39,699
Short-term investments 9,144 0
Accounts receivable, net of allowance for doubtful accounts of 12,372 11,631
1,324 at March 31, 2000 and 1,073 at June 30, 1999
Other current assets 3,738 1,358
------------------------------------
Total current assets 43,620 52,688
Property and equipment, net 4,436 2,392
Other assets, principally intangible assets 8,920 66
------------------------------------
Total assets $56,976 $55,146
====================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 5,618 $ 4,854
Deferred revenue and deposits 5,023 3,467
Other current liabilities 0 657
------------------------------------
Total current liabilities 10,641 8,978
Deferred income taxes payable 253 253
Stockholders' equity
Common stock 11 10
Additional paid-in-capital 42,376 39,429
Accumulated comprehensive loss (18) 0
Retained earnings 3,713 6,476
------------------------------------
Total stockholders' equity 46,082 45,915
------------------------------------
Total liabilities and stockholders' equity $56,976 $55,146
====================================
See accompanying notes to unaudited condensed financial statements.
1
Bottomline Technologies (de), Inc.
Condensed Statements of Operations
(in thousands, except per share amounts)
(unaudited)
THREE MONTHS ENDED MARCH 31,
2000 1999
--------------------------------
Revenues:
Software licenses $ 5,951 $ 4,157
Service and maintenance 5,796 3,551
Equipment and supplies 2,374 2,719
--------------------------------
Total revenues 14,121 10,427
Cost of revenues:
Software licenses 90 70
Service and maintenance 2,684 1,514
Equipment and supplies 1,780 1,944
--------------------------------
Total cost of revenues 4,554 3,528
--------------------------------
Gross profit 9,567 6,899
Operating expenses:
Sales and marketing 3,504 2,910
Product development and engineering 2,456 1,016
General and administrative 2,283 1,107
Amortization of intangible assets 824 0
--------------------------------
Total operating expenses 9,067 5,033
--------------------------------
Income from operations 500 1,866
Interest income, net 424 221
--------------------------------
Income before provision for income taxes 924 2,087
Provision for income taxes 370 835
--------------------------------
Net income $ 554 $ 1,252
================================
Earnings per share available to common stockholders:
Basic $0.05 $0.14
================================
Diluted $0.05 $0.13
================================
Shares used in computing earnings per share available
to common stockholders:
Basic 10,758 8,553
================================
Diluted 11,914 9,859
================================
See accompanying notes to unaudited condensed financial statements.
2
Bottomline Technologies (de), Inc.
Condensed Statements of Operations
(in thousands, except per share amounts)
(unaudited)
NINE MONTHS ENDED MARCH 31,
2000 1999
----------------------------
Revenues:
Software licenses $11,293 $11,625
Service and maintenance 15,243 8,878
Equipment and supplies 7,184 8,060
----------------------------
Total revenues 33,720 28,563
Cost of revenues:
Software licenses 181 224
Service and maintenance 7,170 3,970
Equipment and supplies 5,374 5,759
----------------------------
Total cost of revenues 12,725 9,953
----------------------------
Gross profit 20,995 18,610
Operating expenses:
Sales and marketing 9,566 7,790
Product development and engineering 5,522 2,921
General and administrative 6,561 3,508
Acquired in-process research and development 3,900 0
Amortization of intangible assets 1,431 0
----------------------------
Total operating expenses 26,980 14,219
----------------------------
Income (loss) from operations (5,985) 4,391
Interest income, net 1,381 260
----------------------------
Income (loss) before provision (benefit) for income taxes (4,604) 4,651
Provision (benefit) for income taxes (1,841) 1,861
----------------------------
Net income (loss) $(2,763) $ 2,790
============================
Earnings (loss) per share available to common stockholders:
Basic $(0.26) $0.38
============================
Diluted $(0.26) $0.33
============================
Shares used in computing earnings (loss) per share
available to common stockholders:
Basic 10,676 7,166
============================
Diluted 10,676 8,323
============================
See accompanying notes to unaudited condensed financial statements.
3
Bottomline Technologies (de), Inc.
Condensed Statements of Cash Flows
(in thousands)
(unaudited)
NINE MONTHS ENDED MARCH 31,
2000 1999
---------------------------
Cash provided by operating activities $ 1,660 $ 4,754
Investing activities
Purchases of property and equipment, net (2,944) (1,043)
Purchases of short-term investments, net of proceeds (9,144) 0
Acquisition of products and businesses, net of cash acquired (13,835) 0
---------------------------
Net cash used in investing activities (25,923) (1,043)
Financing activities
Repayments on notes payable 0 (75)
Proceeds from sale of common stock, net 0 35,916
Proceeds from exercise of stock options and stock warrants 2,930 150
---------------------------
Net cash provided by financing activities 2,930 35,991
---------------------------
Increase (decrease) in cash and cash equivalents (21,333) 39,702
Cash and cash equivalents at beginning of period 39,699 1,362
---------------------------
Cash and cash equivalents at end of period $ 18,366 $41,064
===========================
See accompanying notes to unaudited condensed financial statements.
4
Bottomline Technologies (de), Inc.
Notes to Unaudited Condensed Financial Statements
(in thousands, except per share data)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals and adjustments) considered necessary for a fair
presentation of the interim financial information have been included. Operating
results for the three and nine months ended March 31, 2000 are not necessarily
indicative of the results that may be expected for the year ended June 30, 2000.
For further information, refer to the financial statements and footnotes thereto
included in the company's Annual Report on Form 10-K as filed with the
Securities and Exchange Commission.
NOTE 2 - ACQUISITIONS
In July 1999, the company acquired certain software and related proprietary
intellectual property from the Northern Trust Company for $3,700,000 in cash.
This software product, called NetTransact, allows for the electronic presentment
of bills and related dispute resolution in a business-to-business environment.
In connection with this product acquisition, the Company recorded a $1,300,000
charge for acquired in-process research and development and a $2,500,000
intangible asset which is being amortized over a five year period.
In October 1999, the company acquired substantially all of the assets and
assumed certain liabilities of Integrated Cash Management Services, Inc. (ICM)
for $8,500,000 in cash. ICM is a leading software development company
specializing in web access to complex back-office applications for financial
institutions and their customers. In connection with this acquisition, the
Company recorded a $2,600,000 charge for acquired in-process research and
development and various intangible assets of $6,400,000 that are being amortized
over periods ranging from one to five years.
5
NOTE 3 - EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted earnings
(loss) per share:
THREE MONTHS ENDED MARCH 31, NINE MONTHS ENDED MARCH 31,
2000 1999 2000 1999
---------------------------------------------------------------
Numerator:
Net income (loss) $ 554 $1,252 $(2,763) $2,790
Accretion to redemption value on redeemable
common stock 0 (14) 0 (70)
---------------------------------------------------------------
Numerator for basic and diluted earnings (loss)
per share available to common stockholders $ 554 $1,238 $(2,763) $2,720
===============================================================
Denominator:
Denominator for basic earnings (loss) per share
available to common stockholders -
weighted-average shares outstanding 10,758 8,553 10,676 7,166
Effect of employee stock options, warrants and
redeemable common stock 1,156 1,306 0 1,157
---------------------------------------------------------------
Denominator for diluted earnings (loss) per share
available to common stockholders 11,914 9,859 10,676 8,323
===============================================================
Earnings (loss) per share available to common
stockholders:
Basic $ 0.05 $ 0.14 $ (0.26) $ 0.38
===============================================================
Diluted $ 0.05 $ 0.13 $ (0.26) $ 0.33
===============================================================
The effect of stock options is excluded from the calculation of diluted
earnings per share for the nine months ended March 31, 2000 as their effect
would be anti-dilutive.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion contains forward-looking statements that involve
risks and uncertainties, including those relating to the company's ability to
develop new and enhanced payment management software and services and on the
market acceptance of the company's payment management software and services.
Actual results may differ materially from the results predicted and reported
results should not be considered as an indication of future performance. See
"Certain Factors That May Affect Future Results" for additional information
about potential factors that could affect the company's business and financial
results.
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
REVENUES
Total revenues increased by $3.7 million to $14.1 million in the three months
ended March 31, 2000 from $10.4 million in the three months ended March 31,
1999, an increase of 35%.
Software Licenses. Software license fees increased by $1.8 million to $6.0
million in the three months ended March 31, 2000 from $4.2 million in the three
months ended March 31, 1999, an increase of 43%. Software license fees
represented 42% of total revenues in the three months ended March 31, 2000
compared to 40% of total revenues for the three months ended March 31, 1999. We
believe the increase in software license fees was due primarily to the
introduction of our NetTransact product.
Service and Maintenance. Service and maintenance fees increased by $2.2
million to $5.8 million in the three months ended March 31, 2000 from $3.6
million in the three months ended March 31, 1999, an increase of 63%. Service
and maintenance fees represented 41% of total revenues in the three months ended
March 31, 2000 compared to 34% of total revenues in the three months ended March
31, 1999. The increase in service and maintenance fees was due primarily to a
large service contract during the quarter.
Equipment and Supplies. Equipment and supplies sales decreased by $345,000 to
$2.4 million in the three months ended March 31, 2000 from $2.7 million in the
three months ended March 31, 1999, a decrease of 13%. Equipment and supplies
sales represented 17% of total revenues in the three months ended March 31, 2000
compared to 26% of total revenues in the three months ended March 31, 1999. The
percentage decrease is the result of the overall increase in software license
fees and service and maintenance fees.
COST OF REVENUES
Software Licenses. Software license costs increased by $20,000 to $90,000 in
the three months ended March 31, 2000 from $70,000 in the three months ended
March 31, 1999, an increase of 29%. Software license costs represented 2% of
software license fees in the three months ended March 31, 2000 and 1999.
7
Service and Maintenance. Service and maintenance costs increased by $1.2
million to $2.7 million in the three months ended March 31, 2000 from $1.5
million in the three months ended March 31, 1999, an increase of 77%. Service
and maintenance costs were 46% of service and maintenance revenues in the three
months ended March 31, 2000 compared to 43% of service and maintenance revenues
in the three months ended March 31, 1999. Service and maintenance costs
increased primarily due to the large service contract completed during the
quarter ended March 31, 2000.
Equipment and Supplies. Equipment and supplies costs decreased by $164,000 to
$1.8 million in the three months ended March 31, 2000 from $1.9 million in the
three months ended March 31, 1999, a decrease of 8%. Equipment and supplies
costs were 75% of equipment and supplies sales in the three months ended March
31, 2000 compared to 72% of equipment and supplies sales in the three months
ended March 31, 1999.
OPERATING EXPENSES
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries and other related costs for sales and marketing personnel, sales
commissions, travel, public relations and marketing materials and trade shows.
Sales and marketing expenses increased by $594,000 to $3.5 million in the three
months ended March 31, 2000 from $2.9 million in the three months ended March
31, 1999, an increase of 20%. Sales and marketing expenses were 25% of total
revenues in the three months ended March 31, 2000 compared to 28% of total
revenues in the three months ended March 31, 1999. The dollar increase was due
primarily to additional sales and marketing expenses associated with our ICM
acquisition, the NetTransact product and increases in staffing and personnel
related costs.
Product Development and Engineering. Product development and engineering
expenses consist primarily of personnel costs to support product development.
Product development and engineering expenses increased by $1.5 million to $2.5
million in the three months ended March 31, 2000 from $1.0 million in the three
months ended March 31, 1999, an increase of 142%. Product development and
engineering expenses were 17% of total revenues in the three months ended March
31, 2000 compared to 10% of total revenues in the three months ended March 31,
1999. The increase was due primarily to additional product development and
engineering expenses associated with our investment in the NetTransact product
and our acquisition of ICM, and increases in staffing and personnel related
costs to support our broadening product line.
General and Administrative. General and administrative expenses consist
primarily of salaries and other related costs for operations and finance
employees and legal and accounting services. General and administrative expenses
increased by $1.2 million to $2.3 million in the three months ended March 31,
2000 from $1.1 million in the three months ended March 31, 1999, an increase of
106%. General and administrative expenses were 16% of total revenues in the
three months ended March 31, 2000 compared to 11% of total revenues in the three
months ended March 31, 1999. The increase was due primarily to additional
general and administrative expenses related to our acquisition of ICM and
increases in staffing and personnel related costs.
8
Amortization of Intangible Assets. Amortization expense on intangible assets
related to our acquisitions was $824,000 for the three months ended March 31,
2000. There was no comparable amount for the three months ended March 31, 1999
since all the acquisitions occurred in fiscal 2000.
Interest Income, Net. Interest income, net consists of interest income and
interest expense. Interest income, net increased by $203,000 to $424,000 in the
three months ended March 31, 2000 from $221,000 in the three months ended March
31, 1999. The increase was due to interest earned on the proceeds of our initial
public offering.
Provision for Income Taxes. The provision for income taxes was $370,000 in
the three months ended March 31, 2000 compared with $835,000 in the three months
ended March 31, 1999. The effective tax rate in the three months ended March 31,
2000 and 1999 was 40%. The effective tax rate in each of the three month periods
ended March 31, 2000 and 1999 differed from the federal statutory rate due
principally to the effect of state income taxes.
NINE MONTHS ENDED MARCH 31, 2000 COMPARED TO NINE MONTHS ENDED MARCH 31, 1999
REVENUES
Total revenues increased by $5.2 million to $33.7 million in the nine months
ended March 31, 2000 from $28.6 million in the nine months ended March 31, 1999,
an increase of 18%.
Software Licenses. Software license fees decreased by $332,000 to $11.3
million in the nine months ended March 31, 2000 from $11.6 million in the nine
months ended March 31, 1999, a decrease of 3%. Software license fees represented
34% of total revenues in the nine months ended March 31, 2000 compared to 41% of
total revenues for the nine months ended March 31, 1999. We believe the decrease
in software license fees was due primarily to a slow down in customer decisions
to install new software during the first six months of the fiscal year because
of their concerns related to Year 2000 issues.
Service and Maintenance. Service and maintenance fees increased by $6.3
million to $15.2 million in the nine months ended March 31, 2000 from $8.9
million in the nine months ended March 31, 1999, an increase of 72%. Service and
maintenance fees represented 45% of total revenues in the nine months ended
March 31, 2000 compared to 31% of total revenues in the nine months ended March
31, 1999. The increase in service and maintenance fees was due primarily to
several large service contracts during the period.
Equipment and Supplies. Equipment and supplies sales decreased by $876,000 to
$7.2 million in the nine months ended March 31, 2000 from $8.1 million in the
nine months ended March 31, 1999, a decrease of 11%. Equipment and supplies
sales represented 21% of total revenues in the nine months ended March 31, 2000
compared to 28% of total revenues in the nine months ended March 31, 1999. We
believe the decrease in equipment and supplies sales was due primarily to a slow
down in customer decisions to purchase new systems during the first six months
of the fiscal year because of their concerns related to Year 2000 issues.
9
COST OF REVENUES
Software Licenses. Software license costs decreased by $43,000 to $181,000 in
the nine months ended March 31, 2000 from $224,000 in the nine months ended
March 31, 1999, a decrease of 19%. Software license costs represented 2% of
software license fees in the nine months ended March 31, 2000 and 1999.
Service and Maintenance. Service and maintenance costs increased by $3.2
million to $7.2 million in the nine months ended March 31, 2000 from $4.0
million in the nine months ended March 31, 1999, an increase of 81%. Service and
maintenance costs were 47% of service and maintenance revenues in the nine
months ended March 31, 2000 compared to 45% of service and maintenance revenues
in the nine months ended March 31, 1999.
Equipment and Supplies. Equipment and supplies costs decreased by $385,000 to
$5.4 million in the nine months ended March 31, 2000 from $5.8 million in the
nine months ended March 31, 1999, a decrease of 7%. Equipment and supplies costs
were 75% of equipment and supplies sales in the nine months ended March 31, 2000
compared to 71% of equipment and supplies sales in the nine months ended March
31, 1999.
OPERATING EXPENSES
Sales and Marketing. Sales and marketing expenses increased by $1.8 million
to $9.6 million in the nine months ended March 31, 2000 from $7.8 million in the
nine months ended March 31, 1999, an increase of 23%. Sales and marketing
expenses were 28% of total revenues in the nine months ended March 31, 2000
compared to 27% of total revenues in the nine months ended March 31, 1999. The
increase was due primarily to additional sales and marketing expenses associated
with our ICM acquisition, the NetTransact product and increases in staffing and
personnel related costs.
Product Development and Engineering. Product development and engineering
expenses increased by $2.6 million to $5.5 million in the nine months ended
March 31, 2000 from $2.9 million in the nine months ended March 31, 1999, an
increase of 89%. Product development and engineering expenses were 16% of total
revenues in the nine months ended March 31, 2000 compared to 10% of total
revenues in the nine months ended March 31, 1999. The increase was due primarily
to additional product development and engineering expenses associated with our
investment in the NetTransact product and our acquisition of ICM, and increases
in staffing and personnel related costs to support our broadening product line.
General and Administrative. General and administrative expenses increased by
$3.1 million to $6.6 million in the nine months ended March 31, 2000 from $3.5
million in the nine months ended March 31, 1999, an increase of 87%. General and
administrative expenses were 19% of total revenues in the nine months ended
March 31, 2000 compared to 12% of total revenues in the nine months ended March
31, 1999. The increase was due primarily to additional general and
administrative expenses related to our acquisition of ICM and increases in
staffing and personnel related costs.
10
Acquired In-Process Research and Development and Amortization of Intangible
Assets. In-process research and development of $3,900,000 represents one-time
charges related to the NetTransact and ICM acquisitions for acquired in-process
research and development. In connection with these acquisitions, intangible
assets were recorded and are being amortized over periods ranging from 1 to 5
years, yielding amortization expense of $1.4 million for the nine months ended
March 31, 2000. There were no comparable amounts for the nine months ended
March 31, 1999 since the acquisitions occurred in fiscal 2000.
Interest Income, Net. Interest income, net consists of interest income and
interest expense. Interest income, net increased by $1.1 million to $1.4 million
in the nine months ended March 31, 2000 from $260,000 in the nine months ended
March 31, 1999. The increase was due to interest earned on the proceeds of our
initial public offering.
Provision (benefit) for Income Taxes. The benefit for income taxes was $1.8
million in the nine months ended March 31, 2000 compared with a provision of
$1.9 million in the nine months ended March 31, 1999. The effective tax rate in
the nine months ended March 31, 2000 and 1999 was 40%. The effective tax rate in
each of the nine month periods ended March 31, 2000 and 1999 differed from the
federal statutory rate due principally to the effect of state income taxes.
Net Loss. The net loss for the nine months ended March 31, 2000 was $2.8
million. The income tax benefit of $1.1 million associated with the operating
loss is classified as a component of other current assets. The realization of
the operating loss is more likely than not since we are able to carry back these
losses to actual income taxes paid in prior years.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations primarily from cash provided by operating
activities and the sale of common stock. We had net working capital of $33.0
million at March 31, 2000, including cash and cash equivalents totaling $18.4
million.
Net cash provided by operating activities was $1.7 million in the nine months
ended March 31, 2000. Net cash provided by operating activities during the nine
months ended March 31, 2000 was primarily the result of the net income after
excluding acquisition related charges and the decrease in accounts receivable,
net of the receivables acquired in the ICM acquisition.
Net cash used in investing activities was $25.9 million in the nine months
ended March 31, 2000. Cash was primarily used during this period for
acquisitions and purchase of short-term investments. Additionally, cash was used
during this period to acquire computer equipment and software for internal use.
We currently have no significant capital spending or purchase commitments, but
expect to continue to engage in capital spending and incur purchase commitments
in the ordinary course of business.
Net cash provided by financing activities was $2.9 million in the nine months
ended March 31, 2000. Net cash provided by financing activities was the result
of the net proceeds from the exercise of employee stock options.
11
We believe that the cash and cash equivalents on hand will be sufficient to
meet our working capital requirements for the foreseeable future.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The following important factors, among others, could cause actual results to
differ materially from those indicated by forward-looking statements made in
this Quarterly Report on Form 10-Q and presented elsewhere by management from
time to time.
A SIGNIFICANT PERCENTAGE OF OUR REVENUES TO DATE HAVE COME FROM OUR PAYMENT
MANAGEMENT OFFERINGS AND OUR PERFORMANCE WILL DEPEND ON CONTINUED MARKET
ACCEPTANCE OF THESE OFFERINGS
A significant percentage of our revenues to date have come from the license
and maintenance of our payment management offerings and sales of related
products and services. Any reduction in demand for our payment management
solutions, or lack of meaningful growth in the market for electronic and payment
management solutions could have a material adverse effect on our business,
operating results and financial condition. Our PayBase software products are
designed to provide a single platform to control, manage and issue all payments,
whether paper-based or electronic, across an enterprise. Our future performance
will depend to a large degree upon the market acceptance of PayBase as a payment
management solution. Our prospects will also depend upon enterprises seeking to
enhance their payment functions to integrate electronic payment capabilities. In
addition, our future results will depend on the continued market acceptance of
desktop software for use in a departmental setting, including our LaserCheck
solution, as well as our ability to introduce enhancements to meet the market's
evolving needs for secure, payment management solutions.
OUR FUTURE RESULTS WILL DEPEND UPON MARKET ACCEPTANCE OF OUR NEW BILL
PRESENTMENT AND CASH MANAGEMENT PRODUCTS
Our objective is to be the leading provider of software solutions that enable
businesses and financial institutions to create an automated e-business
infrastructure to enable, implement and manage movements of cash resources. Part
of that strategy is the successful implementation of our NetTransact bill
presentment software. We acquired NetTransact from The Northern Trust Company, a
financial institution, in July 1999. General availability of the NetTransact
product was announced in February 2000. Another part of that strategy is the
successful implementation of our web-based BankQuest cash management software.
We acquired the BankQuest software in our acquisition of Integrated Cash
Management Services, Inc. in October 1999. Commercial introduction of BankQuest
occurred during April 2000. If either of these products has any unanticipated
performance problems or bugs, or does not enjoy wide commercial success, our
long-term business strategy would be adversely affected.
12
OUR FIXED COSTS MAY LEAD TO FLUCTUATIONS IN OPERATING RESULTS IF OUR REVENUES
ARE BELOW EXPECTATIONS
A significant percentage of our expenses, particularly personnel costs and
rent, are relatively fixed, and based in part on expectations of future
revenues. We may be unable to reduce spending in a timely manner to compensate
for any significant fluctuations in revenues. Accordingly, shortfalls in
revenues may cause significant variations in operating results in any quarter.
Factors that could cause these fluctuations include the following:
. The timing of orders and longer sales cycles, particularly due to increased
average selling prices of our payment solutions;
. the timing and market acceptance of new products or product enhancements by
either us or our competitors;
. the timing of product implementations, which are highly dependent on
customers' resources and discretion;
. the incurrence of costs relating to the integration of software products
and operations in connection with acquisitions of technologies or
businesses;
. delivery interruptions relating to equipment and supplies purchased from
third-party vendors, which could delay system sales; and
. economic conditions which may affect our customers' and potential
customers' budgets for technological expenditures.
Because of these factors, we believe that period to period comparisons of our
results of operations are not necessarily meaningful. In addition, it is
possible that in some future quarters our results of operations will be below
the expectations of public market analysts and investors, and in that case the
price of our common stock could be materially adversely affected.
OUR SUCCESS DEPENDS ON OUR ABILITY TO DEVELOP NEW AND ENHANCED SOFTWARE,
SERVICES AND RELATED PRODUCTS
The bill presentment, payment and cash management software markets are
subject to rapid technological change and our success is dependent on our
ability to develop new and enhanced software, services and related products.
Trends which could have a critical impact on us include:
. rapidly changing technology that could require us to make our products
compatible with new database or network systems;
. evolving industry standards and mandates, such as those mandated by the
National Automated Clearing House Association and by the Debt Collection
Improvement Act of 1996; and
. developments and changes relating to the Internet that we must address as
we introduce Internet-capable products.
13
If we are unable to develop and introduce new products, or enhancements to
existing products, in a timely and successful manner, our business, operating
results and financial condition could be materially adversely affected.
WE ARE SUBJECT TO RISKS ASSOCIATED WITH THE INTERNET
Our future success will in large part depend upon the willingness of
businesses and financial institutions to adopt the Internet as a medium of e-
commerce. There are critical issues involved in the commercial use of the
Internet which are not yet fully resolved, including concerns regarding the
Internet's:
. security;
. reliability;
. ease of access; and
. quality of services.
The adoption of the use of the Internet by enterprises which have
historically relied on traditional means of commerce and communication will
require them to accept a new medium for conducting business and exchanging
information. These entities will probably accept this new medium only if the
Internet provides substantially greater efficiency and enhances their
competitiveness. To the extent that any of these issues inhibit or limit the
continued adoption of the Internet for e-commerce, our business prospects could
be adversely affected.
OUR BUSINESS CAN BE ADVERSELY AFFECTED BY PROBLEMS WITH THIRD-PARTY HARDWARE
In a prior fiscal year, we experienced a significant problem with a third-
party printer that we were then reselling which had a material adverse effect on
our operating results. We revised and enhanced our quality assurance control
programs and now utilize multiple printers and printer vendors. However, any
repetition of these or similar problems with third party hardware could have a
material adverse effect on our business, operating results and financial
condition.
INCREASED COMPETITION MAY RESULT IN PRICE REDUCTIONS AND DECREASED DEMAND FOR
OUR PRODUCTS AND SERVICES
The market for payment management, electronic bill presentment and cash
management software is intensely competitive and characterized by rapid
technological change. Growing competition may result in price reductions of our
products and services, reduced revenues and gross margins and loss of market
share, any one of which could have a material adverse effect on our business,
operating results and financial condition. Some competitors in our market have
longer operating histories, significantly greater financial, technical,
marketing and other resources, greater brand recognition and a larger installed
customer base than we do. In addition, current and potential competitors may
make strategic acquisitions or establish cooperative relationships to expand
their product offerings and to offer more comprehensive solutions. We also
expect to face additional competition as other established and emerging
companies enter the market for payment management solutions.
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RAPID GROWTH COULD STRAIN OUR PERSONNEL, SYSTEMS AND CONTROLS
In the past, rapid growth has strained our managerial and other resources.
Our ability to manage any future growth will depend in part on our ability to
continue to enhance our operating, financial and management information systems.
We cannot assure you that our personnel, systems and controls will be adequate
to support any future growth. If we are not able to manage growth effectively,
should it occur, the quality of our services, our ability to retain key
personnel and our business, operating results and financial condition could be
materially adversely affected.
WE DEPEND ON A FEW KEY EMPLOYEES WHO ARE SKILLED IN E-COMMERCE, PAYMENT
METHODOLOGY AND INTERNET AND OTHER TECHNOLOGIES
Our success depends upon the efforts and ability of our executive officers
and key technical employees who are skilled in e-commerce, payment methodology
and regulation, and Internet, database and network technologies. We currently do
not maintain ``key man'' life insurance policies on any of our employees. While
some of our executive officers have employment agreements with us, 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 MUST ATTRACT AND RETAIN HIGHLY SKILLED PERSONNEL WITH KNOWLEDGE OF ELECTRONIC
PAYMENTS AND BILL PRESENTMENT AND THE BANKING INDUSTRY
We are dependent upon the ability to attract, hire, train and retain highly
skilled technical, sales and marketing, and support personnel, particularly with
expertise in electronic payment and bill presentment technology and knowledge of
the banking industry. Competition for qualified personnel is intense. In
addition, our corporate headquarters location in Portsmouth, New Hampshire may
limit our access to skilled personnel. Any failure to attract, hire or retain
qualified personnel could have a material adverse effect on our business,
operating results and financial condition. In addition, we plan to expand our
sales and marketing and customer support organizations. Based on our experience,
it takes an average of nine months for a salesperson to become fully productive.
We cannot assure you that we will be successful in increasing the productivity
of our sales personnel, and the failure to do so could have a material adverse
effect on our business, operating results and financial condition.
UNDETECTED BUGS IN OUR SOFTWARE COULD ADVERSELY AFFECT THE PERFORMANCE OF OUR
SOFTWARE AND DEMAND FOR OUR PRODUCTS
Our software products could contain errors or ``bugs'' that we have not
been able to detect which could adversely affect their performance and reduce
demand for our products. Additionally, we regularly introduce new releases and
periodically introduce new versions of our software products. Any defects or
errors in new products, such as NetTransact or BankQuest, or enhancements could
result in adverse customer reactions and negative publicity regarding us and our
products and could have a material adverse effect on our business, operating
results and financial condition.
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OUR BUSINESS COULD BE SUBJECT TO PRODUCT LIABILITY CLAIMS
Our software and hardware products are designed to provide critical payment
management functions and to limit the risk of fraud or loss in effecting such
transactions. As a result, our products are critical to our customers and there
is the potential for significant product liability claims. Our license
agreements with customers typically place the responsibility for use of the
system on the customer and contain provisions intended to limit our exposure to
product liability claims. However, these limitation provisions may not preclude
all potential claims. We have not experienced any product liability claims to
date. However, a product liability claim brought against us, even if not
successful, would likely be time consuming and costly. A successful liability
claim could have a material adverse effect on our business, operating results
and financial condition.
WE INTEND TO PURSUE STRATEGIC ACQUISITIONS AND OUR BUSINESS COULD BE MATERIALLY
ADVERSELY AFFECTED IF WE FAIL TO ADEQUATELY INTEGRATE ACQUIRED BUSINESSES
As part of our overall business strategy, we pursue strategic acquisitions
that would provide us with additional product or service offerings, additional
industry expertise, a broader client base or an expanded geographic presence.
Any acquisition could result in the use of significant amounts of cash,
potentially dilutive issuances of equity securities, or the incurrence of debt
or amortization expenses related to goodwill and other intangible assets, any of
which could materially adversely affect our business, operating results and
financial condition. In addition, acquisitions involve numerous risks,
including:
. difficulties in the assimilation of the operations, technologies, products
and personnel of the acquired company;
. the diversion of management's attention from other business concerns;
. risks of entering markets in which we have no or limited prior experience;
and
. the potential loss of key employees of the acquired company.
From time to time, we engage in discussions with third parties concerning
potential acquisitions of product lines, technologies and businesses.
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OUR BUSINESS COULD BE ADVERSELY AFFECTED IF WE ARE UNABLE TO PROTECT OUR
PROPRIETARY TECHNOLOGY
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, we cannot assure you that our patents, pending
applications that may be issued in the future, or other intellectual property
will be of sufficient scope and strength to provide meaningful protection of our
technology or any commercial advantage to us, or that the patents will not be
challenged, invalidated or circumvented. We enter into agreements with our
employees and clients that seek to limit and protect the distribution of
proprietary information. We cannot assure you that the steps we have taken to
protect our property rights, however, 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 intellectual property rights.
OTHERS COULD CLAIM THAT WE INFRINGE THEIR INTELLECTUAL PROPERTY
Although we believe that our products and services do not infringe upon the
intellectual property rights of others and that we have all rights necessary to
utilize the intellectual property employed in our business, we are subject to
the risk of claims alleging infringement of third-party intellectual property
rights. These claims could require us to spend significant sums in litigation,
pay damages, delay product installments, develop non-infringing intellectual
property or acquire licenses to intellectual property that is the subject of the
infringement claim. Therefore, these claims could have a material adverse effect
on our business, operating results and financial condition.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time we may be named in claims arising in the ordinary course
of business. Currently, no legal proceedings or claims are pending.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Changes in Rights and Classes of Stock
None.
Sales of Unregistered Securities and Use of Proceeds
None.
Use of Proceeds of Initial Public Offering
Proceeds of our initial public offering in the amount of $8.5 million were
used during the period between July 1, 1999 and March 31, 2000 to acquire
Integrated Cash Management Services, Inc.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of our stockholders, through the
solicitation of proxies or otherwise, during the third quarter of fiscal year
2000.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
None.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Bottomline Technologies (de), Inc.
Date: May 15, 2000 By: /s/ Robert A. Eberle
Robert A. Eberle
Executive Vice President,
Chief Financial Officer and Treasurer
(Principal Financial and Accounting
Officer)
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