BlackLine Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 7, 2024

There are 12 speakers on the call.

Operator

Good afternoon and thank you for joining us today. With me on the call are Owen Ryan and Therese Tucker, Co Chief Executive Officers of BlackLine as well as Mark Parton, Chief Financial Officer. Before we get started, I would like to note that certain statements made during this conference call that are not historical facts, including those regarding our future plans, objectives and expected performance, in particular, our guidance for Q2 and full year 2024, are forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward looking statements represent our outlook only as of the date of this call. While we believe any forward looking statements made during the call are reasonable, actual results could differ materially as these statements are based on our current expectations as of today and are subject to risks and uncertainties, including those stated in our periodic reports filed with the Securities and Exchange Commission, in particular, our Form 10 ks and Form 10 Q.

Operator

We do not undertake and expressly disclaim any obligation to update or alter our forward looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. All comparisons we make on the call today relate to the corresponding period of last year, unless otherwise noted. Finally, unless otherwise stated, our financial measures disclosed on this call will be non GAAP. A discussion of these non GAAP financial measures and information regarding reconciliations of our historical GAAP versus non GAAP results is currently available in our earnings release, which may be found on our Investor Relations website at investors. Blackline.com or in our Form 8 ks filed with the SEC today.

Operator

Now, I will turn the call over to BlackLine's Co Chief Executive Officer, Owen Ryan. Owen?

Speaker 1

Thank you, Matt, and good afternoon, everyone. Thank you all for joining us today. BlackLine exceeded revenue and profitability expectations in the Q1 with $157,000,000 in total revenue, a 17% non GAAP operating margin and $40,000,000 in non GAAP net income. While we are still in the early stages of implementing our new operating model, we are pleased with the progress we are seeing. I will review this progress, highlighting areas of early success and identifying those areas that require a bit more time to achieve operational maturity.

Speaker 1

Regarding execution, we are seeing an uptick in activity at the top end of our sales funnel. While the volume of deals is still lower than we want, this improvement in activity gives us some early indications of demand stabilization. In the Q1 specifically, we encountered several instances where larger multi solution deals pushed out. As part of this, we still see customers and prospects maintaining their prudent and thoughtful purchasing behavior. Going forward, we expect to aggressively pursue these opportunities either directly or jointly with our partners.

Speaker 1

Next, efforts around elevating our market message and brand are progressing well. We are receiving positive feedback from both customers and partners indicating that our message, particularly around artificial intelligence and our industry focused strategy is generating favorable interest. On AI, this was evident during our recent Beyond the Black event in London, where innovation in AI dominated discussions among attendees. We believe that our innovation here, which Therese will detail shortly, is beginning to stand as a meaningful differentiator with the opportunity to drive and accelerate even deeper accounting and finance automation for our customers. We are also seeing signs that our industry approach is resonating strongly with our customers, partners and prospects.

Speaker 1

Who see numerous opportunities to address their industry specific challenges. In fact, because our approach has garnered such positive reception, we accelerating and broadening our deployment schedule. Our commitment to delivering on the BlackLine promise remains steadfast with progress being made. While external metrics reflecting these efforts are still evolving, we see progress across our customer base, particularly in areas like adoption and engagement, but also with respect to customer experience. With additional innovation being embedded within our solutions along with a refined and streamlined approach to pricing, which we expect to move forward with later this year, we see opportunities to enhance the value and ROI that customers receive, while simultaneously making it easier to do business with BlackLine.

Speaker 1

Next, we are seeing notable progress in our distribution efforts as we transition towards a more partner powered model. Globally, we are experiencing more comprehensive engagement with our partners, especially within our solution pillars. For instance, within Invoice TO Cash, partners are expressing interest in expanding their practices and collaborating with BlackLine, particularly in light of competitors shifting strategies or unmet promises. Also, we are seeing a building interest among our partners with our electronic invoicing presentment and payment offering. Partners are also actively seeking out leaders in the AI space to align for mutual growth opportunities.

Speaker 1

We are confident that our focus on innovating for the office of the CFO will not only align with our collective objectives, but also stand to support our differentiation and market leadership. On retention, we are advancing various programmatic initiatives aimed at enhancing customer adoption and stickiness. These initiatives gained momentum late last year and have further accelerated with the implementation of our new operating model. As an example, we know that there are significant benefits from partner engagement at the start of a customer journey, including better adoption and elevated value delivery. As such, we have taken steps to more closely integrate our partners and customers at the outset of that process.

Speaker 1

While our Q1 retention rates fell slightly below expectations, we believe there is tangible progress being made. Our key focus on customer adoption underscores its significance as one of my top priorities. As testament to our commitment here, we recently appointed industry veteran, Jimmy Dewan as our new Chief Customer Officer to spearhead these efforts and ensure that additional focus, scrutiny and partner engagement remain paramount across our company. Turning to deal activity in the Q1. While our net customer additions are not where we would like, mostly due to changes to our lower middle market targeting, we were pleased to see that many of our new logos were influenced or driven by partners, including SAP.

Speaker 1

In one example, we signed a federally owned electric utility company that was burdened by too many manual processes and an outdated ERP. Through the combination of BlackLine, SAP and a key partner, we were able to offer a better way forward, one that offered modern technology, robust automation and trusted partners to support their transformation journey. Notably, this is our 2nd customer within the federal government space. In Europe, we signed a competitive multi solution deal against leveraging our SolEx partnership with a global biotechnology company. As part of an ERP replacement, BlackLine was selected to standardize, automate and govern their critical finance and accounting processes serving as a key partner during a multi year transformation.

Speaker 1

As part of a phased approach, this deal provides us additional opportunities to support their needs as they grow. Also in Europe, we signed a net new deal with a leading chemical manufacturer as part of an ERP migration. Historically, the customer has leveraged Excel as their primary tool to support their accounting and finance processes, which had become unsustainable and lacked a proper global controls framework. Further, the customer understood that there were real benefits to both attracting and retaining talent by modernizing their financial technology landscape, in effect, alleviating many executive level concerns by choosing to partner with BlackLine. In Invoice to Cash, which remains a very topical set of solutions in today's interest rate environment, we saw some solid wins and customer expansions as well.

Speaker 1

Specifically, we expanded with an existing customer, a multinational food products company, success with their initial purchase, they chose to expand even further and add our complete invoice to cash offering to additional geographies and business lines. We expect that over time, our relationship with this customer will continue to grow. In the middle market, we saw a number of competitive replacements driven by an interest in a more modern approach to both their close and consolidation processes. In one instance, a North American Financial Institutions sought to replace an incumbent vendor due to a poor experience with a lack of real transformation in the office of the CFO. BlackLine's close and consolidation solutions were exactly what the customer was looking for and gave the customer the confidence to partner with a trusted leader.

Speaker 1

With that, I will turn it over to Therese to discuss how we are continuing to drive and deliver meaningful innovation for our customers. Therese?

Speaker 2

Thank you, Owen. As the demands and challenges within the office of the CFO continue to evolve, there's a critical need for innovative solutions that deliver tangible results and drive business outcomes. We firmly believe that artificial intelligence will be pivotal in meeting these needs and will rapidly become integral to modern finance and accounting operations. As leaders in the market who are committed to providing an AI driven strategy. This entails not only integrating AI into our platform, but also introducing new AI powered solutions to better serve customers.

Speaker 2

To bring this to light, I want to outline how we are doing this today and what we plan to release over the coming quarters to support our customers and greatly enhance the value that they receive from BlackLine. In our financial close pillar, we've recently introduced a new solution aimed at identifying and mitigating risks within the journal entry process. Our journal risk analyzer utilizes generative AI to visually present accounting teams with key trends, insights and anomaly detection related to manual journal entries. This solution efficiently captures and assesses journal entries from various ERPs and sub ledger systems, providing dynamic actionable insights for customers to proactively address potential areas of fraud and policy violations. Given the large volumes of data spread across our customers' technology landscape, generative AI serves as an invaluable tool to empower informed decision making and minimize compliance and audit risk.

Speaker 2

Currently available to early adopters, we anticipate making this solution generally available later this year. Next, within both our financial close and consolidation and financial analytics pillars, we are launching BlackLine's document description summarizer. Integrated seamlessly into our current solutions, this represents a productivity enhancement to our customers' workflows and processes. This feature streamlines repetitive tasks involved in account reconciliations and during consolidations by autonomously scanning supporting documentation of any type and generating concise summaries of their contents. As a result, our customers can significantly cut down on preparation time for their close, while strengthening their controls and potentially mitigating audit risks.

Speaker 2

Furthermore, within our consolidation and financial analytics pillar, we're developing a comprehensive and cohesive suite of AI powered enhancements aimed at delivering even more value to our customers. Initially, we plan to unveil a financial statement summarizer and footnote generator capable of automatically summarizing financial statement data and providing key insights. This empowers customers to proactively analyze account behavior at a consolidated level and conduct comparisons across different time periods. Additionally, it will facilitate the creation of financial statement footnotes to annotate material items. Looking forward, we plan to introduce a variance automation feature in the latter half of the year.

Speaker 2

This feature will identify account fluctuations, utilize these AI generated footnotes and offer automated explanations for accounting and finance teams to quickly identify and explain drivers of financial performance. Lastly, within our Invoice to Cash pillar, we're gearing up to unveil an upgraded AI powered payment forecasting tool for our customers. The enhanced payment forecasting tool empowers customers to convert accounts receivable data into actionable insights, significantly enhancing collection forecast accuracy by up to 40% compared to our previous version. Further, we are also working to release a predictive guidance tool that features natural language processing to produce visual responses for our accounting and finance teams based on natural language queries. The ability to transform data into insights and drive business decisions is a powerful and real use case for modern technologies like AI.

Speaker 2

Undoubtedly, AI stands as a powerful enabler capable of accelerating automation and delivering additional efficiency within any organizational framework. However, it's equally undeniable that apprehension often accompanies the unfamiliar, especially when it comes to integrating AI into core financial operations. Recognizing this, we are committed to a deliberate and responsible deployment of this technology. Our strategy aims not only to instill confidence, but also fosters familiarity and most importantly, cultivates deeper trust with our customers. Through this, we seek to bridge the gap between technological advancement and human adoption, ensuring a balanced approach that aligns with our customers' willingness and ability to adopt AI.

Speaker 2

Shifting to broader platform innovation, we're excited to announce the long awaited release of the BlackLine Accounting Studio. This updated solution has been enhanced to offer unparalleled visibility, control and orchestration for finance and accounting processes that span disparate ERP and 3rd party systems. At its core, the BlackLine Accounting Studio is a user friendly solution that helps visualize and orchestrate processes efficiently, ensuring that dependencies are captured order. One of its key strengths is its versatility in integrating with various systems, both within BlackLine and externally, leveraging our integration platform and extensive API library. This gives customers the unique ability to visualize and control their workflows across their entire financial technology landscape, something that doesn't exist in the market today.

Speaker 2

With this solution, we can become the indispensable partner for the office of the CFO and one that supports customers through every stage of their transformation journey regardless of how their technology, teams or strategy evolves. As Owen mentioned earlier, we are moving rapidly to deploy our industry focused go to market strategy. To support this from an innovation perspective, we have 3 initiatives in flight. 1st, we are building a community of users within industries to identify current challenges and opportunities that are unique. 2nd, leveraging the configurable nature of our software, we are highlighting customer specific use cases that can benefit others in the industries, maximizing industries.

Speaker 2

For example, we are developing a high frequency account reconciliation solution tailored specifically for the financial services and retail industries. This targeted approach demonstrates our commitment to addressing the unique needs of these industries while also strengthening our broader go to market efforts. And last, but certainly not least, we recently announced that we hired a new Chief Technology Officer, Jeremy Ong, who is charged with leading and supporting many of these efforts. Jeremy and I will partner closely to drive our innovation agenda faster and further than before. 1 of the benefits of hiring a like minded leader is that I can spend more time on customer centric innovation, helping customers progress on adopting and using technology like AI, on exploring further use cases for the BlackLine Accounting Studio and on our industry specific innovation.

Speaker 2

Before I close, I would like to say that I am immensely proud of our team's achievements thus far. And I'm even more excited about the opportunities that we have ahead to reshape how accounting and finance work gets done. With that, I'd like to turn it over to Mark Parton, who will review our financial results and updated financial guidance. Mark?

Speaker 3

Thank you, Tareed. Our financial results this quarter highlight our disciplined approach as we navigate both the current market environment as well as our ongoing business transition. Despite this, we expect to continue to invest into strategic parts of our business to support our long term growth drivers, especially innovation. Further, we remain committed to aggressively pursuing opportunities to drive even higher levels of efficiency and productivity across the business. With that in mind, let's review the financial results for the Q1 in a bit more detail.

Speaker 3

Total revenue grew to 157,000,000 dollars up 13% with subscription revenue growing 15%. Services revenue declined 7%, primarily due to progress on our partner driven services delivery model. Calculated billings growth was 6%, with trailing 12 month billings growth of 11%. As Owen mentioned, we experienced a number of larger deals slip this quarter, which was a driver of the lower than expected billings performance. Remaining performance obligations or RPO was up 7% with current RPO growing 10%.

Speaker 3

We closed the quarter with total annual recurring revenue or ARR of $605,000,000 up 10%. Net new customers increased by 13 in the quarter, bringing our total customer count to 4,411. As discussed previously, our strategy to become more targeted in the middle market is expected to influence this metric in the near term. Our revenue renewal rate in the Q1 was 93%. We are still seeing recurring themes here such as vendor consolidation and cost discipline from customers, especially within the enterprise.

Speaker 3

Net retention rate or NRR was 105% and in line with our expectations, driven primarily by modest account growth and user adds this quarter. Strategic product performance represented 20% of sales and came in below our target range of 25 percent to 30%. This was influenced by large deal slippage this quarter as many of these were multi solution deals with strategic products attached, particularly intercompany. Partners were involved in 75% of large new and expansion deals this quarter with a higher mix of partner involvement in new deals, giving us some early but positive indications that our partner powered approach is gaining traction. SolEx performance was below expectations driven primarily by deal slippage.

Speaker 3

In Q1, SAP Partnership revenue represented 26% of total revenue, a slight increase versus last year. Turning to margin. Our non GAAP gross margin was 79% with non GAAP subscription gross margin of 82%, benefiting from leverage on cloud spend this quarter. Non GAAP operating margin was 17% due to better than expected revenue performance along with efficiency and productivity gains, especially within our product and technology teams who continue to drive agility across the organization. Non GAAP net income attributable to BlackLine was $40,000,000 representing a 25% non GAAP net income margin.

Speaker 3

Operating income outperformance combined with favorable net interest income drove bottom line strength yet again. We generated $50,000,000 in operating cash flow and $44,000,000 in free cash flow in the quarter, with a free cash flow margin of 28%. Record cash collections this quarter was a key driver of our better than expected cash flow performance. Finally, we ended the quarter with $1,200,000,000 in cash, cash equivalents and marketable securities. Our strong financial position affords us the ability to invest strategically while also addressing our near term convertible maturities.

Speaker 3

On this point, we expect to retire our 2024 convertible notes in cash when they mature on August 1 this year. Now on guidance, I want to remind everyone that we continue to take a disciplined and thoughtful approach considering the recent rollout of our operating model, broader economic factors and our performance in the Q1. As such, we are raising the midpoint of our full year revenue guidance, while also raising our full year non GAAP operating margin and non GAAP net income ranges. Finally, we continue to expect that services revenue will be at approximate 1 point headwind to our full year revenue growth rate. Now for the Q2 of 2024, we expect total GAAP revenue to be in the range of $157,000,000 to $159,000,000 representing approximately 9% to 10% growth.

Speaker 3

We expect non GAAP operating margin to be in a range of 16.5% to 17.5%. And we expect non GAAP net income attributable to BlackLine to be in a range of $37,000,000 to $39,000,000 or $0.49 to $0.51 on a per share basis. Our share count is expected to be approximately 76,000,000 diluted weighted average shares. And for the full year 2024, our updated guidance is as follows. We expect total GAAP revenue to be in a range of $641,500,000 to $649,500,000 representing 9% to 10% growth.

Speaker 3

We expect non GAAP operating margin to be in a range of 17.5% to 18.5%. And we expect non GAAP net income attributable to BlackLine to be in a range of $158,000,000 to $168,000,000 or $2.12 to $2.26 on a per share basis. Our share count is expected to be approximately 74,500,000 diluted weighted average shares. With that, I'll now ask the operator to open the discussion and take your questions.

Speaker 4

The first question comes from the line of Rob Oliver of Baird. Rob, please go ahead.

Speaker 5

Yes, great. Hi, thanks guys. Thanks for taking my question. Mark, my first one is for you. Just on the deal slippage in the quarter, can you talk a little bit about I mean Q1 is never traditionally the strongest quarter for you guys.

Speaker 5

So I was wondering if you could give us a little bit deeper insight into how much of this is just sort of general macro and confidence that deals are going to close versus incremental weakness and or less spending from some of your customers or less partner pull through say from SAP? And then I had a quick follow-up.

Speaker 3

Remainder of the year and staying focused on them. The fact that they're in the pipeline, we are actively working with our customers and our sales team on driving those deals, that's where we are now. So for your question is that those deals continue to move through the pipeline today.

Speaker 5

Great. Thanks. I'm not sure if it was me. I apologize, I missed the first part of your answer, could have been me. And then Owen, just want to step back a little bit.

Speaker 5

As we've anniversaried now your arrival and I wanted to just talk a little bit about some of your strategic initiatives. When you look at the kind of the things that you laid out, whether it be go to market and revamping sales, the SAP partnership and some of the work you're doing with the SIs and stuff. Where do you feel you've made the most progress and where we could see that manifest in activity as we move through this year versus where you still have maybe more work to do? Thank you.

Speaker 1

Sure. Thanks, Rob. A couple of things. I think one is we feel like we've made a tremendous amount of progress with our partners over the last year. As I think we've shared with you, we've rationalized the number that we have.

Speaker 1

The partners that we're working with are really all in. I'll share a story from the script. 1 of our partners who we have not done as much work with in one of our strategic products has basically taken 50 of its offshore resources recently and redeployed them to working on the BlackLine solution versus a competitor. That will take time for itself to work its way through the system. But again, I think it's a good indication of our partners being really committed and focused to what we're trying to do.

Speaker 1

So I'd say that's probably been the area where I feel like we've made really the greatest amount of success so far. I think second would be the progress we continue to make with SAP. The relationship continues to grow in the marketplace around the product roadmap, the opportunities to really improve our win rates together, which is just terrific. And then the last thing would be industry and Therese touched on it a little bit, Mark touched on it. We knew we had something in industry when we really started to dive in and look at our customer portfolio and recognize that we have a very compelling story.

Speaker 1

And again, maybe I'm sorry to keep telling stories, but I'll give you another one. So you may all I'm sure you all know that most big firms, companies when they're going out for an RFP, they hire a third party to write the RFP for typically. And so not too long ago, Therese and I were overseas and we were meeting with one of these consulting firms who was writing the RFP for a major company, probably top 50 global enterprise. And we spent probably an hour going through the industry and helping this service provider sort of prepare to write the RFP and telling the story about how BlackLine helps its customers in this particular industry in a way that was I think eye opening for this consulting firm. And as I sit here today, I have a very high degree of confidence when the RP comes out and the winner gets selected, whether it's in the Q4 of this year or the 1st two quarters of next year, the way that we were able to articulate for this firm, how BlackLine can help a customer through all aspects of what a company needs to do when it's a particular industry is going to be a differentiator.

Speaker 1

We're starting to speak we are speaking the language of our customers in their industry language, which is making a big difference for what we're trying to accomplish.

Speaker 5

Really helpful. Appreciate the stories. Thanks. Okay.

Speaker 4

One moment for your next question. The next question comes from the line of Chris Quintero of Morgan Stanley. Chris, please go ahead.

Speaker 6

Hey, everyone. Thanks for taking our questions here. Owen, you mentioned you're taking a more streamlined approach to pricing that will go live later this year. Do I have that right? And if so, what changes are you making?

Speaker 6

And what do you expect the impact of these changes to be? And then I've got a follow-up.

Speaker 1

Yes, a couple of things. So we've completed most of the pricing study work at this particular point in time. We'll be rolling that out over the course of this year and as renewals come up over the succeeding years. I think a couple of things that were important for us to sort of step back and think about is with our fuller platform of what we offer, some of them are more sort of user based, some are more usage based and we had gotten feedback from our customers asking for us to make it a bit easier and simpler for us to go ahead and price and do work with them. So that's a lot of what we have been focused on trying to drive.

Speaker 1

I think overall, we feel pretty good about the results of that work. We've tested it with several 100 customers and prospects to sort of validate what we were seeing and experiencing. And so we'll get that rolled out again very, very soon. Obviously, change management with these things are important. And we're also doing it in an environment where we still have to compete against certain companies as we go up against them in the marketplace.

Speaker 1

But overall, we like the work that's been done. We feel good about the outcome. And ultimately, you do this so you can charge more for the product that you're delivering and that's ultimately we expect to be able to do. I think we've learned a lot about how to articulate our value to our customers, and that's based upon the feedback from our customers. So we'll make sure

Speaker 6

we get that done. Got it. That's really helpful. And then maybe for Mark, really great to see the free cash flow margin of 28%. Is there anything one time in nature impacting that number?

Speaker 6

And how should we think about free cash flow conversion for the rest of the year?

Speaker 3

Yes. I think, the team did an excellent job in Q1 collecting AR. That was really a great effort from everyone. As we move through the year, I think we'll see free cash flow margin at or around our operating margin rate. So I don't expect our cash generation from AR to continue like that.

Speaker 3

So it'll calm down here through the remainder of the year.

Speaker 6

Excellent. Thank you so much.

Speaker 4

One moment for our next question. The next question comes from the line of Pendulum Bora from JPMorgan. Pendulum, please go ahead.

Speaker 6

Great. Thanks for taking the question. This is Jaden Patel on for Pendulum. ARR came in a little bit below expectations. You mentioned that there was large deals that got pushed out.

Speaker 6

Is there any way to quantify those deals? And of those, do you think there's a certain percentage that will close in Q2? Thanks.

Speaker 3

Thanks, Pinchlum.

Speaker 1

Yes, we will close some

Speaker 3

of those deals and already have in Q2. Yes, we'll continue to work them through the remainder of the year. It's not uncommon to have slip deals from quarter to quarter. We saw more in Q1 around the large deals. And in some ways, I think in our earlier remarks, we talked about those related to being macro as well as our ability to get our arms around them with our new operating model has strengthened as we move through the year on our new operating model.

Speaker 3

So, quantifying it, I think, would be difficult at the moment.

Operator

So thanks.

Speaker 6

Great. Thanks for the question. Yes.

Speaker 4

One moment for our next question. Our next question comes from the line of Adam Hochkis of Goldman Sachs. Adam, please go ahead.

Speaker 7

Great. Thanks for taking the questions. And I guess to start, could you just give us an update on the product education aspect of your customer success efforts? I know this is something that's been a focus for you in the past, in particular around cross sell opportunities and platform usage within your existing base. But I'm just curious how you think about that within the context of some of the things you're doing with AI and AI being such a focus for folks in the office of the CFO.

Speaker 7

Does that allow you to get your foot in the door around continuing to educate customers and drive more usage of the platform? Thanks.

Speaker 2

Thanks, Adam. We have spent a lot of time in the last year making sure that our entire organization is extremely customer centric and focused on the value that BlackLine can actually deliver. As a result of that, we've got a number of different training programs that are really being extremely well received by our customers. They include a number of recurring webinars on new features to make sure that our customers know what the roadmap is entailing, as well as bottom line events that have been going on in person where we get both prospects and customers together. And there's a fair amount of education that happens during those.

Speaker 2

And then there's also the BlackLine Academy with its corresponding consulting events where we actually will take different accounting practices processes and help them transform them. Because when people really use BlackLine well, the result is digital finance transformation. And so these are hands on workshops that our customers can attend to really get deep knowledge on how to use BlackLine to transform their organizations. So it has been a big push of ours over the last year and it's been very well received by our customers.

Speaker 7

Okay, great. That's really helpful, Therese. Thank you. And then within that context, how are you broadly thinking about monetizing some of these AI investments, particularly as you think about seat or usage based pricing within the context of the productivity improvements that AI might bring your customers? How you ensure that you're going to be extracting the value you think some of these investments have been worth?

Speaker 2

Well, one of the best things about including productivity enhancements is that the software becomes more sticky. People cannot imagine giving it up for something that's free, okay. So I love the stickiness factor. And for me, that's worth more than sort of extracting another dollar out of somebody. And that's really for the places where we are embedding AI.

Speaker 2

I think it was Rob Kugel of Ventana who said productivity by 1,000 cuts. Loved it, right? Just like everywhere where people are doing things manually, where can you introduce AI to really make their jobs go faster and be more accurate. So in the embedding part, I think it just becomes part of the fabric of what we offer to our customers and makes them delighted. In terms of new products, we're still sort of learning our way here.

Speaker 2

We just came out with the journals risk analyzer and that we've already got more than 20 early adopters signed up for that. And we're going to use them to help us determine what the value that they are receiving is. And that will help us determine how to price it. Okay.

Speaker 7

That's really helpful color. Thanks, Therese.

Speaker 4

Yes. One moment for your next question. The next question comes from the line of Brent Bracklin of Piper Sandler. Brent, please go ahead.

Speaker 8

Thank you. Good afternoon, all. Mark, wanted to start with you around the pipeline build today versus 3 months ago. I get there are some deals that slipped not uncommon in Q1. But can you just characterize visibility in

Speaker 9

the pipeline and how much build

Speaker 8

you saw in the last 3 months?

Speaker 3

I can. Thank you, Brent. We've got a handful of new great leaders in the company. One of them is running marketing and has been instrumental in already beginning to accelerate our pipeline coming out of Q1 and into Q2. So what I would say about the pipeline is that in Q1, we talked about the top end of the funnel being strong, big deals, multi product having really good influence with partners.

Speaker 3

Our ability to close those deals in Q1 was challenged. As we move into Q2, our ability to hold on to those, nurture them and get them over the finish line is part of where we're spending a lot of time. And then creating new accounts, new logos, new customers and expanding into our customer base across the globe is a concerted effort now with Emily and the rest of the sales team. And that has actually picked up quite nicely heading here into the sort of middle to the end of Q2.

Speaker 8

Helpful color. And then maybe Therese for you. If I go back a couple of years ago, the pandemic clearly drove a higher spend priority around some of these finance transformation projects. Obviously, in the last year and a half, we've seen the priority go down as people focused on kind of economic macro headwinds. We are now looking at S4HANA end of life in 2027.

Speaker 8

I know SAP is starting to get a little more excited about some migrations to the cloud. Do you think that could be the next catalyst that could drive maybe an increased priority around finance transformation? Just trying to think through the tailwind you saw in the pandemic, some of the headwinds you've been challenged with on the macro side and just thinking through maybe that is a potential catalyst or not for increasing priority around these financial transformation projects? Thanks.

Speaker 2

Well, we do certainly see the potential that the SAP partnership could bring us, especially with the migrations to S4HANA. But Brent, you raise a really interesting point and it's one that we wrestle with as well. Companies, the CFOs in particular have been very focused on digital finance transformation. But at the same time, they've not always gotten sort of the results that they had hoped for. And it's really been one of our focuses is how can we actually deliver that kind of value in a way that makes people want to continue that journey with BlackLine and invest more.

Speaker 2

So I think that part of it is how do we communicate better with our customers and with our prospects on how to have effective digital finance transformation as opposed to a result that disappoints. So we have been internally thinking about that a lot and that's really driving a lot of the work that we're doing around case studies, around the academy, around different trainings. Even the product roadmap itself is how do we deliver digital finance transformation in a way that's going to keep people engaged and keep them on that journey. So I think we're hoping for the macro to get better. That's disappointing in and of itself.

Speaker 2

We certainly do appreciate the value proposition to our customers. Okay. And then I think there's work that we ourselves can do to better prove out the value proposition to our customers.

Speaker 8

Helpful color. Thanks for the update.

Speaker 2

Thank you.

Speaker 4

One moment for our next question. The next question comes from the line of Koji Ikeda of Bank of America. Koji, please go ahead.

Speaker 6

Yes. Hey, everyone. Thanks for taking the questions. I got 2. So the first one, big picture question on Accounting Studio.

Speaker 6

Congrats on the long awaited release there. I know that's quite a milestone. So the question is around, is the platform such a meaningful change to what BlackLine has offered in the past, that it could require your partners and the buyers out there to really digest all the new innovation, that I assume is packed into this new accounting studio before they're really ready to buy it?

Speaker 2

We've been working with partners as part of the process of getting a really cool product out there, Koji. And so I don't know that they're going to need a ton of time for digestion. I think with the accounting studio, one of our plans for it is that our partners who are experts at process transformation will have the opportunity to embed their very specific intellectual property into a library of potential templates, okay? Now in order to turn that on and actually utilize it, of course, they would have to work with the partner. And so it's really the idea of the accounting studio is to really give our partners a forum for bringing their expertise to a lot of customers very quickly.

Speaker 2

Now that may take some planning and some work on their part to actually detail out the steps and the various APIs necessary. But I think overall, we've been keeping them informed as we go.

Speaker 6

Got it. Got it. And maybe another question for you, Therese or Owen or Mark is really around how ready the end market is for generative AI. I've found over the years that your end market and really kind of the accountants out there that I've spoken with can be very loyal to their software vendors, but also can be very resistant to change at the same time. And it does sound like some of the demand can be pinned to how ready the end market is ready to adopt generative AI.

Speaker 6

So just curious on your thoughts on the overall acceptance of generative AI out there. Thank you.

Speaker 2

Boy, I am so familiar with our market and our buyers and they don't love change. That is 100% true. It's why we're taking the approach that we are with the embedding of different features that are just incredibly useful. And by the way, they all have flags that allow you to turn them off. We're going to use that as a way of building trust in generative AI with our customer base.

Speaker 2

So in other words, we're taking them on that journey. We're a little here, a little there, a little more, build the trust, make them familiar. And then over time, we can increase their productivity by embedding it more and more and more. So I would say that you're correct. People do change slowly.

Speaker 2

But if you take them on a journey with you and show them the benefits as they go, they'll be much more apt to adopt overall.

Speaker 1

Yes. I think Therese, just adding to that. If you think about we rolled out an executive sponsored program at the end of last year. And so talk about our top 100 customers. So a number of us as executives are out meeting with the CFOs and the corporate controllers of our largest customers.

Speaker 1

And I think there's a couple of things that come out at it. One is they're under pressure to use AI in some way, shape or form, trying to figure it out. They've got some budget set aside for it, but not sure exactly where and how to use it. And I think the conversations that we're engaging with them in would sort of help us pinpoint the places where they'll be most comfortable, most comfortable where their auditors will be as well because they have to sign off. And so that's what we're trying to drive.

Speaker 1

And I think as we look at it and there was a question to Mark a couple of moments ago, one of the encouraging things that we've seen, at least I've seen in the 1st couple of months of the year, particularly March April now that I think about it, is going out and talking with customers about their roadmap. And they've got a black line roadmap that goes out 24 to 30 months of the different products that they're sort of thinking about when they would bring them in to start working with them. And I think we've shared in the past that the way buyers behave today is different. These big bang projects that tended to have a much higher likelihood of failure are not the way customers are doing it any longer. They're chunking it all piece by piece, making sure it works, can demonstrate value to others in the organization and then they go on to the next piece.

Speaker 1

And so the good news for us is the horizon looks very nice because of these opportunities and where we sit on their roadmaps. The challenge always is you wish it all would happen sooner, but that's just not the way the world is going to operate for the foreseeable future from our vantage point.

Speaker 6

Thank you very much.

Speaker 4

One moment for our next question. The next question comes from the line of George Kurosawa from Citi. George, please go ahead.

Speaker 10

Hi, thanks for taking the questions. I'm on for Steve Enders. Owen, wanted to ask about kind of the changes to the go to market organization. It sounds like those are playing out well so far. Maybe you could talk about what seems to be working and what changes are left to

Speaker 5

be made?

Speaker 1

Yes, it's funny. I had a meeting with some of our top producers this morning about what else we need to be doing in the marketplace. And it was a really great session on ideation of things that we could do together, how we continue to tell our story in the marketplace. The short version of this is we feel very good about the changes into the marketing leadership team. You might have all seen yesterday we announced the new Chief Customer Officer.

Speaker 1

I mean, we knew he was going to be great. I've been following all the plaudits he's been getting on LinkedIn. He's clearly an executive Jimmy Dwan that is going to bring a lot of value to our customers. We're making much more progress in helping them ensure that our customers get both well implemented as well as adopted. And that handoff is going more smoothly than maybe sometimes in the past that it occurred.

Speaker 1

I think we're getting better around our collateral and differentiating. The things that matter to buyers are not just the product, but it's everything else that also goes along with it. It's that customer experience. It's their confidence with security. It's when you think about it, BlackLine, I think it's 5 of the top 7 accounting firms in the world.

Speaker 1

Not only do they sell BlackLine sort of as a provider, they use it in their own firms. That's a pretty damn compelling story when you sort of want to think about things like that. And so we're trying to make sure that when we're going out there, we're continuing to tell the story not just about the great product we have and all the innovation we have, but also the other things that may make a difference. And I think the one thing that's still it's still early, but there's a huge opportunity for us is to accelerate that story of what we can do for customers around industry. And the use cases in connecting those people to each other those customers to each other as well as prospects because that is proving to be a significant differentiator for us so far.

Speaker 10

Yes. Go ahead, please. Go ahead.

Speaker 2

I was going

Operator

to say we're going to continue to try to make ours easier

Speaker 1

to do business with and we're going to just keep driving real hard.

Speaker 10

That's great color. And one quick follow-up if I may. The new user metric came in a little below what we'd penciled in. Maybe if you could just double click on kind of the trends you're seeing underneath the hood and it's kind of the shift to the pricing strategy. To what extent are you guys even managing the business to seat counts?

Speaker 10

Thank you.

Speaker 3

Yes. Seat counts is a proxy for one aspect of growth of our business and it did not do well in Q1. We do expect that to pick back up in the coming years. But recall that a lot of our pricing, particularly in the strategic products and some of the big ticket items are not seat priced. So you're right about your Q1 number.

Speaker 3

And it still again is a great opportunity for us to expand in the financial close and the core platform, which we intend to do moving forward.

Speaker 10

Great. Thanks for taking the questions.

Speaker 4

Yeah. One moment for our next question. The next question comes from the line of Pat Walravens of Citizens JMP. Pat, please go ahead.

Speaker 6

Okay, great. Thank you. So let me apologize if I ask this is a tough question, but I think it's important to ask. So I mean, on April 11, OneStream put out a press release saying that they're at $450,000,000 in ARR and they grew 34% in Q1. And they also say they target the office of the CFO.

Speaker 6

So what's why is there this divergence

Speaker 1

in the results? Is it the part

Speaker 6

of the office of the CFO you're targeting

Speaker 1

or is it something else? What would you say? Yes, Pat, I think you just nailed it. It's where in the office of the CFO the opportunities are. And so there's been a lot of spend as you might see and it's not just with 1Stream, priorities seem to be based upon the office of the CFO and CPMs is right now number 1.

Speaker 1

It doesn't mean that finance transformation where we are in the financial close and intercompany and consolidation and invoice to cash doesn't matter. It's just that particular space right now is a bit hotter that's where a little bit more of the spend is going and we see it and we know it. But that's really what it is. It's where in the office of CFO priorities are.

Speaker 6

Okay, great. Is there any plan on your part to get more exposure there?

Speaker 1

We're always looking at our platform and that will never stop. And we were we always are talking with our customers what they want, where they need. So last week, Therese, Mark and I hosted a customer advisory board. It was a phenomenal day of a lot of insight and the things that they would like us to continue to focus on and build out. So just stay tuned as we continue to evolve the platform.

Speaker 6

Okay, great. Thank you.

Speaker 4

One moment for your next question. The next question comes from the line of Alex Sklar from Raymond James. Alex, please go ahead.

Speaker 5

Hi, thanks for taking the question. This is John Massena on for Alex. I wanted to start with product innovation. Therese, you have several big product roadmap launches in 2024, Accounting Studio, The Financial Close, Central Command, the Journal Risk Analyzer, just name a few. It's a 2 part question here.

Speaker 5

Of the new products you're rolling out, which do you think has the most potential to play the biggest swing factor to drive more near term adoption? And if the answer is different, which are you most excited for long term?

Speaker 2

Okay. Well, there's actually yes, you're right about the innovation roadmap. It's really been a focus of mine over the last year. And it's not just the accounting studio or the journals risk analyzer, it's also the new combined version of the intercompany financial management product. And there's a lot of other things that we're doing as well in terms of FRA and consolidation.

Speaker 2

So, it's sort of like asking me which one is my favorite child, John. I think probably the one that I'm the most excited about right now, so it could change next week, is probably the accounting studio, okay. The ability to visually orchestrate all of the different processes that are going on inside of the office of the CFO is pretty exciting. And the visibility that you get into where the roadblocks are or how ridiculously complicated sometimes people make things is pretty game changing, okay. Expanding that so it includes our library of process transformations so that people can get real transformation in a very, very tangible results driven way is pretty cool, because I'm very much about let's show the value.

Speaker 2

And so I think that one probably has the most show the value factor to it. Although the journal's risk analyzer is also pretty cool because today auditors are asking for a full set of manual journals in order to run analytics on those and being able to get ahead of that game and know ahead of time where the anomalies are, where the key trends are, where the out of policy violations are, that's also a level of visibility that people don't have today. So those are probably my top 2. But if you give me another 10 minutes, I can extol the virtues of the others.

Speaker 1

I appreciate the color there.

Speaker 4

The next question comes from the line of Ryan Krieger from Wolfe Research. Ryan, please go ahead.

Speaker 9

Hey, guys. Thanks for sneaking me in here at the end. Just two quick ones for me. On the customer side, if we look at the $1,000,000 cohort, it's a little surprising to see that number actually go down this quarter. So anything to call out there?

Speaker 9

And then on the gross retention side, can you just break down how gross retention shook out from an enterprise versus mid market perspective and maybe how that compared to last quarter or the last couple of

Speaker 3

quarters? Thanks. Yes. Thank you. On that number that you mentioned, we had a fairly material impact on ARR in Q1 related to FX impact.

Speaker 3

And so as a result, you see a number of the over $1,000,000 customers slide back as a result of that FX calculation. Otherwise, it was flat on a year over year basis. On your second question, you might need to repeat that for us. We've had in we're having some technical difficulties, it looks like on both sides.

Speaker 1

Yes, go ahead. Sorry.

Speaker 9

If we look at the number, how did it break down on an enterprise versus mid market basis? And how did that compare to the last quarter or the last couple of quarters?

Speaker 3

Thank you. Yes, mid market is hanging in the low 90s and that's pretty typical for us. It even ticked up a little bit in Q1. Where we saw a bit of a step back is on the enterprise side in Q1 and we've talked a little bit about those in the prepared remarks that had hit us in both Q4 and Q1.

Speaker 10

Thank you.

Speaker 4

One moment for our final question. The last question comes from the line of Matt Van Fleet from BTIG. Matt, please go ahead.

Speaker 11

Yes. Thanks for taking the question here. Just to be quick, I guess, as you're looking at the headcount over the next year plus here, now that you've backfilled a lot of the open senior positions? What is the general headcount? And how should we think about opportunities and go to market to either add headcount or add sort of sales support to improve efficiency and productivity there?

Speaker 3

Thank you. Yes. Where we are today, we feel we've got really strong and adequate sales capacity for not just where the market demand is today and coming out of the 1st part of this year, but well into the second half. So we don't expect to have to hire or build a lot of QCR capacity. In fact, we have one of the most tenured and ramped rep forces we've ever had and we find that to be a competitive and differentiated strategy as we're in the market with some of these great new innovative projects.

Speaker 3

So we're really proud of that team and expect to get productivity as we move through this year. With the remainder of the company, our goal at least in the near term and to hit our midterm target models is to continue to grow different areas of the company, keep our pedal on the metal our metal on the pedal in the R and D as we invest in some of the initiatives that Therese is talking about and you see that already in the numbers. And then as we move forward, we'll work to drive continued operating leverage in other aspects of the business. And we've talked about where some of those are including not just our cloud and our data centers, but in G and A as well.

Speaker 11

All right, great. Thank you.

Speaker 4

That does conclude, the Q and A portion. I would now like to hand the call back over to Owen Bryan.

Speaker 1

Thank you, operator, and thank you everyone for joining the call today. We appreciate your questions and following us as a company. We look forward to talking to you soon. Have a great rest of the day. Take care.

Speaker 1

Thank you. Bye bye.

Speaker 4

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Remove Ads
Powered by Quartr
Earnings Conference Call
BlackLine Q1 2024
00:00 / 00:00
Remove Ads