Good afternoon. Thank you for joining us. We have the next Fireside Chat will be with BlackLine. We have Owen Ryan, the co-CEO, Chairman of the Board, Mark Partin, CFO. Thank you both for joining us in Nashville.
Pleasure to be here.
Thank you.
Awesome. So listen, our thesis on BlackLine, we've covered the company for quite some time now, is really this idea that accountants are risk-averse, and really the last to move to cloud. They've been hesitant for a while. We are seeing some early signs that SAP, Oracle products, could finally, maybe, be in a modernization cycle here. Maybe, Owen, we'll start with you. This idea that SAP ECC has an end of support coming in 2027. As you think about your engagements on the SAP ecosystem, are you seeing any sort of signs here that point to maybe a pickup in activity around modernization, driven by some of these compliance catalysts?
So the short answer is yes. It's still early in some ways, but I certainly would say the conversations we have with the C-suite at SAP, as well as the senior level executives of the large SIs, and how we're sort of working with them, that the conversations have started to get better. Obviously, last year was a lot of change and transition within BlackLine, but when I start to think about the second and third quarter and the nature of the conversations, the meetings we're having, which tend to triangulate with, you know, the SAP team, and SI, and BlackLine, it all feels like there's some momentum. That said, you know, the sales cycle is very long, and so it doesn't happen overnight.
While the incoming conversations are encouraging, we also recognize that all the good work that we're sort of doing and seeing and experiencing today really doesn't probably begin to show up until the middle of next year.
Not uncommon for a large ECC implementation to take 24 months, 18 months.
Easily.
These are very complex projects. Most large enterprises don't have one ERP either, so these are very complex things. But maybe walk me through the scenario where... or different scenarios, where and how BlackLine would be involved in a migration.
Yeah. I think the thing that we're experiencing so earlier this week, so one of the things that we've been working on is building our relationship with one of the two largest SI implementers of SAP, and it's taken us a little bit of time to build that relationship, but it's gotten increasingly productive. One of the things that, you know, they're saying, which is what we kind of knew, is that they're using BlackLine as almost the tip of the spear to show demonstrable value about the art of the possible of digital finance transformation. Because changing your ERP is not really finance transformation, but using the solution like a BlackLine actually is.
And so what you're starting to see in those conversations is where maybe a few years ago, BlackLine would have been the tail on the dog. Now we're a bit more of the nose to, to sort of work with those customers to get BlackLine implemented early, to show success, to show wins, to show return on investment, that allows then the program to continue. Because, as you know, there's a lot of work that goes on in these big ERPs, and you don't know that you're gonna get any value till you finally flip the switch, and 24 months or 36 months is a long time to wait to see if it's actually gonna work.
Mark, maybe for you, pivoting here, just on the SAP SolEx relationship, maybe walk us through how that's evolved. Like, that's in the last three years, and then maybe in the last six to nine months, have there been changes?
Yeah, yeah. So we're ERP-agnostic. We operate in environments where there are multiple ERPs, Oracle, SAP, Workday. These are our customers. That's the value of the sort of standalone business. Many, many years ago, SAP acknowledged that this was a weakness in their sort of enterprise resource planning, and they put their arm around BlackLine and went to market with us as a partner, but it was always on our paper. Back in 2018, we went on to a SolEx relationship as a reseller. Both of us have a lot of opportunity in that type of a relationship. And it has, at times, been a greater grower than the overall business, and our market share for the SAP in different regions around the world has increased.
Today, our SAP partnership revenue is about 25% of the whole. We think SAP represents somewhere between 30% and 35% of the markets where we operate. So there's still some room for us to keep moving with that partnership. And over the last several years, there are, you know, equal parts frustration, because the opportunity is so large, and also equal parts excitement. And so, some examples of those recently is that, you know, the, SAP will tell you a metric. We've got about a little over 1,000 SAP customers today. They've got well over 10,000 customers with greater than $1 billion in revenue. So we have a very small percentage, so the opportunity and the headroom there is, is large.
Maybe you could tell about your recent relationship building and-
Yeah, so I think to Mark's point, recently, Therese, my co-CEO, and I, we spent time with Christian Klein, the CEO of SAP, to really talk about where we wanted to head in 2025. Very, very productive conversation. I was looking at my calendar last night. I've got five meetings with different SAP executives starting next week in Europe. When I'm over there to meet with them, trying to focus on different geographies, 'cause they're a big, large organization, and all the relationships, you got to build them one by one, so Mark talked about the highs and the lows. The challenges are, you know, when they choose to do a reduction in force and let 8,000 people go at the beginning of the year, that had an impact on a number of relationships that we had.
When, you know, one of their executives left recently to go be the CEO of NICE, that had an impact on us. One of their executives left, you know, last couple of weeks that we were building some work, you know, relationship with on the product and tech side. So, you know, it's always, you know, it feels like two, two and a half steps forward, but occasionally there's that one step back. But I think the commitment to each other of the art of the possible is really good. And it's not just on the go-to-market side, but it's also on the product side. So recently, you know, BlackLine's been building its financial reporting and analytics and consolidation capabilities.
Whether you know, your perspective on, you know, SAP solution there is gonna be whatever it is, but the market has sort of said they really like what BlackLine has to offer. So SAP accelerated the approval of our product to be sold on their paper in the marketplace, and we think that's a real good signal for how we're sort of co-creating or using the best of what either can bring to the table to help satisfy the needs of a customer.
On that product relationship, the expansion there, what's the price point on that for a large SAP customer? Would it be equal to maybe a financial close? Is it like a smaller add-on? How would you frame the new product on the analytics side that you just they're now gonna start to resell?
Yeah. So probably the largest one we sold was for $750,000.
Okay.
The smaller end of that, you know, 10% of that. So it is a little bit of a range, depending on the size of the enterprise that we're doing work with.
It's a nice add-on.
It's a nice add-on, and candidly, when you look at the size of the SAP numbers relative to the size of the BlackLine numbers, it's always a little bit easier to maybe get a little bit more pricing power in that conversation.
So I get the question, obviously, you have this great relationship with SAP. They had an inferior product before. Has that changed at all as you think about S/4HANA? Do they have an internal competing financial close solution, or are you still kind of their go-to partner?
I mean, yeah. I mean, they certainly have something. It doesn't feel to us like that is their priority. I think they've kind of thought about, you know, build, buy, partner. They like the partnership arrangement. Again, there's a lot greater transparency around what we're doing on the product side, so I think they've been more encouraging in that. That does not mean that some of the people in their organization occasionally wanna push their own version of an intercompany or what they call their cockpit solution and stuff like that. It tends to show up a bit more in the relationships where BlackLine is not as well established.
You don't typically see that happening in the U.S., or the U.K., or Australia, but, you know, you go into, you know, Greece, where we don't have the same kind of a footprint, then you sometimes run into the local reps, maybe doing things a little bit, you know, more off the reservation, if you will.
So clearly, we're very focused on this. We're starting to hear from SAP partners about the whole SAP ecosystem.
Mm-hmm.
Oracle has a Hyperion installed base that has end of support in 2031. So it feels like we've talked about finance modernization for a long time, Mark, but it does feel like that maybe within the next three to five years, we have some incremental, we're hoping, compliance tailwinds that help. Owen, you joined the company obviously in the co-CEO role. Maybe take a step back and remind us, what were the biggest internal changes that you made, and maybe an update on where we're at?
So, there's a couple things that I would say that Therese and I, and Mark, and others sort of worked on. One is, we brought the leadership team together. We really tried to step back and look at what was the market opportunity, what were the strengths of BlackLine, and what should be the strategy that came out of that? So we spent, you know, if... I don't wanna rewind time completely, but if you went from March of last year through May, I think Therese and I worked with Mark and others to figure out, what did we have?
Yep.
Once we figured out what we had, we then went to the board and said, "We like this company. We think there's a lot to do here." May through August, we completely revamped the strategy of the organization, and to think about, rather than point solutions, what the platform could be around our record to report capabilities, as well as our invoice to cash. Then, when we got to October, August through October, we revamped our operating model because we were a much more global company. There were a lot of things we needed to think about from an industry perspective, geographic focus, what we wanted to do with partners, what we wanted to do with ERP partners. And so we went through all the things that we needed to do to set that up, and then we went live with that in January of this year.
And so it's really like we're kind of into it now for eight, nine months, although the first quarter of the year, many of our customers don't want to talk to us because they're closing their books. So we really started to see a bit more of the benefit of what we're trying to do in the first two quarters, or excuse me, second and third quarter of this year. The big changes that have come out of that, one is a greater sense of purpose and urgency around innovation. One of the things that I love working with Therese on is she's just creative, and she thinks of things, and she listens to customers, and she asks them questions that allow us to sort of think about where our product should go.
So I'm very proud of the work we're doing to bring, you know, that platform solution together with our customers. The second thing is, one of the hidden gems within BlackLine was its customer base. I mean, we have a who's who roster of companies that anybody would wanna do business with, and we dominate in a number of those industries. And so I like to use the oil and gas example. We serve nine of the top ten largest oil and gas majors around the world. We start to get those groups together, and we understand how they use BlackLine. None of them have taken the same journey in the same direction. It's fascinating. They all go their own different way, but you bring them together, you start talking, you're comparing notes, and you can figure out what the art of the possible is.
So one of the reasons I'm heading over to Europe on Sunday this week is to go to an orals for that tenth one. And so, you know, I think we feel pretty good about, you know, what we can share with that prospect about what we can do. So we've moved our industry program along quite well. We've made a number of changes around our partners. We've had over 150 partners last year. We cut that to 75 at the beginning of the year, and there's, you know, affectionately, what I call the CEO dozen, which is 13 partners that really make the most sense, and they probably do 90% of the business that we do with partners. So focus where it moves the needle, that's been a really good choice.
Geographies, you know, we're very careful, you know, we used to call it EMEA, now we just call it Europe, and we're really focused on Central and Western Europe. You know, the Middle East, Africa, they're great markets, but not now for us. So we've tried to provide a lot more discipline around where we go and what we pursue and how we're gonna build that out. And so those are just some of the examples that we've put in place so far. Others you would add?
No, no, I think that's right, and I would say in this period of time, you know, you were early on the thesis of the office of the CFO, and you were right. It is still for us, the opportunity is that CFOs and CIOs are more engaged and involved in all aspects of the software buying inside their office. It didn't always used to be that way, right, but this sort of macro environment really raises the bar for companies that are operating either in cloud, but certainly inside the office of the CFO. And what you see from the initiatives we've done, either from our execution or from our strategy, is to raise the level of discussion inside that office of the CFO. Nobody speaks to accountants, controllers, this highly regulated, highly compliant environment better than BlackLine.
We have this great real estate in deep accounting automation. And what we're doing is improving our ability to raise our profile so that the CFO and the CIO realize that as a strategic cloud provider that's secure, that is scalable, we're the... Really, we think, the only choice. And, and so as we see capital, competition coming and moving in different directions, we're doing the same thing. We're moving in the, we think, in the right directions.
You're nine months in to this kind of new plan.
Mm-hmm.
What's the one of those, you know, four different, five different areas that you've focused that you'd say you're most pleased with? I mean, surprised or pleased with the progress so far. I get the sense maybe it's on the partner side, but you tell me, which are the ones-
None of them.
You're not pleased?
No, no, no, I'm not pleased, but none of what I just told you. So on day one, Therese and I got together with our team, and I won't say my exact words, but something to the effect is: If you want a job, BlackLine is the place you do not wanna be. If you want a career, BlackLine is the place you wanna be. And so what I've been most pleased by is the number of people who have signed up and said, "I want a career, and I wanna drive the organization forward." And so to me, that has been really encouraging and exciting to sort of see what I would call that entrepreneurial gusto in the organization, trying to move things forward. It's not always easy.
Have a lot of people that are sort of, I'll use the word wounded, who wanna help, but they're not exactly sure. But I think our leadership team is doing a nice job of helping them figure out their role and the place that they can make a contribution where we can truly take advantage of their talent. So maybe a little bit different than you would have thought as the answer, but to me is... Listen, the leadership team is great, but you need the rank and file to really wanna make something happen, and that's what I'm most pleased with.
Mark, you did a software primer. He'll appreciate this, looking at the industry, and I feel like as we've got accustomed to really good growth in cloud.
Mm.
First decade of cloud, you saw hypergrowth. Second decade of cloud, you still saw north of 30% industry growth. We're kinda in this third decade of cloud. The cloud industry, look at the 100 largest cloud software publics, we're gonna grow about 13% this year.
Mm.
It feels like we've hit a little bit of a SaaS maturity wall.
Yeah.
Now, the good news is, you're part of the segment of the application stack that hasn't yet fully moved to cloud, so there's some opportunities there. But let's talk about the growth of your business. What are the macro challenges, the budgetary challenges that are pressuring growth here to call it 8% in the second half?
Yeah. I think, you know, there are definitely some headwinds associated with uncertainty. The office of the CFO is, I think, the most selfless office. We'll give to the front of the enterprise, we'll give to the sales and the HR teams and the marketing teams before we'll take for ourselves, but honestly, I think digital transformation is 15%-20% in the office of the CFO, and within our 4,000 customers, that's pretty consistent, so there's a really large opportunity for our CFOs and our controller companies to transform their systems, still manual, believe it or not, still working on archaic systems. So that's the opportunity, and the reason that's important is because that's the growth engine.
It's 70% of our growth profile in a given year is expansion within accounts, not just in our strategic product portfolio, not just in global rollouts, but in our innovation capability to build this platform in each of these customers. And we have many, many proven customers that are mature on our platforms, that are paying us millions of dollars a year, and that's the opportunity that we see in the near term. So yes, it's challenged by growth in this SaaS environment, but at the same time, we're getting sharp on proving value. There's a great business case. It's a sticky product, still in the low- to mid-90s on the renewal rate. We like to operate in the high 90s, but we can keep the customers. We can prove the value, and that's the growth opportunity.
And that's before we get to new logos. That's before we get to companies that are sitting on the sidelines trying to decide if AI is gonna replace software or augment it. Trying to decide if the ERP refresh is taking the wind out of the sails or gonna put it in the sails. So those are the things I think our CFOs today are really grappling with as they go through their own business planning, is we've got a big need, we see big projects in our pipeline and the conversations that Owen is having, these real opportunities, but it's timing. I'm not a good predictor of timing, but I'm a good, I have a good sense that the market opportunity for us is just growing, as the office of the CFO looks to transform.
I think Mark nailed it. You know, and I wouldn't say that CFOs are selfless, but they're like the shoemaker's kids. But look, we've got to recognize, we sell to a cost center, and so, you know, it's the last place that companies typically want to invest, and they're always, "Well, can I make it work for six more months or nine more months or 12 more months?" And so that's the thing in this environment that we're still working our way through. So it's not an if, in my view, and in Mark's view, I think it's just a when. And I think those conversations, again, that we're starting to have seem encouraging, but whether it's first half of 2025, second half of 2025, 2026, I can't tell you any better than anybody else.
Yeah, and you're... Go ahead.
As you look at that, the two parts of the business, expansion's a big part of the business, and then you have the net new logos. Obviously, you've made a lot of changes. You have a cultural buy-in now. You're almost nine months in. Do you think next year you could-- what's more likely, you'd see a, a, hopefully, a lift on the net new business because of what you can control, and then wait for the macro to help improve expansions, or is that the right way to think about, like, the trajectory going forward?
We put a lot of effort and time, particularly in the last 9-12 months, in the expansion model, right?
Okay.
Think about our strategic product portfolio. It's high automation, high ROI, and it's a customer journey. So from the talent to the process to the messaging, our ability to not just have the customer who's spending a few hundred thousand, but to see them on a journey that will take them five years. Our customers are ten-year-lifed and longer customers today, right? They're just long tenure, customers. And so you need to show them how they can really achieve transformation and ROI. Partners are a piece of that. The strategic portfolio is a piece of that. So new logos, the market's wide open. SAP helps drive really large strategic new logos, competitive win rates, improved in our last quarter, and our ability to compete in a world that before wasn't as competitive. It's getting a little more competitive.
And so, sharpening our sword around new logos, they're there.
Owen, as we think about the opportunity, nine months into this new set, reset, what are you most excited about looking out next year?
I think it sort of just ties to what Mark just talked about. I think when you go through our customer base, there's so much still we can do for them, so I was giving an example to one of you here this morning that, so we're doing a ton of work with either the largest or second largest retailer in the world, and they are a phenomenal customer in the United States. We're now trying to help them south of the border, well, it's almost like selling to a completely brand new company with a different audience, because the CFO and the local CEO and the local management team, they all get to do what they want, and you don't necessarily see the parent mandating things.
And so there's, like, three conversations I've had in the last week, you know, with a large European automobile manufacturer, where we do great in Europe, but we don't do anything in North America and Asia Pac. A large Canadian bank, where we've got a nice foothold in one major country in South America, but, you know, I wound up talking to 10 other country managers earlier this week to try to convince them how to use our product in their particular geography. So to me, I think where I'm most interested and excited is we do a really pretty good job of taking care of our customers and helping them to have success, and you see that in retention.
But there's still so much in front of us, and I think having those conversations about the opportunities to fill in these massive global organizations and what we can do for them. It's kind of cool.
Okay. Last question for you.
Yeah.
In that evaluation of software companies, we saw 15% growers on average, five of them that were great stocks, and part of the reason why they had leverage.
Yeah.
They went from a median profit margin of 23% 10 years ago to 39%.
Yeah.
How do you think about balancing your ability to drive a rebound and expansion and fund these initiatives while still showing kind of leverage?
Yeah. We're for those who have been following the story, we've gotten an incredible amount of increasing leverage, and we will continue to do that towards our operating model. He hasn't heard me say this before, but one of the things Owen has done for the organization when he first got here was, he would say he gets more out of people than they knew they could get out of themselves. That was one of his superpowers, and I think he's proven that. Our company, in terms of our productivity per rep, is higher than, you know, before. Our revenue per FTE is higher. Our sharpness and the productivity that we have throughout our organization for all those people that raised their hand, is where you'd want it to be as an investor in the company.
And so that sort of has sharpened us a lot, and I think that's part of an operating leverage. But if you add to that partner ecosystem, which helps us drive business and efficiently, and the fact that our growth profile is on an existing customer base of four thousand of the best companies in the world, and our ability to renew high recurring revenue with low services, is really a powerful part of this operating model. Not to mention some of the other things we think we can do in the gross margin. But I hear people clapping, not for us, but.
The red button down there.
The red button is blinking.
Yeah. Okay.
Our time is up.
The world has ended.
Thank you so much.
Thank you.