Okay. Great. Great. Thank you. Good afternoon. Thank you for joining us for Day One at Baird's Global Consumer Technology and Services Conference. My name is Rob Oliver, and I follow the application software, software as a service space. It is a pleasure to have the management of BlackLine here with us this afternoon. To my immediate left, Owen Ryan, who is the co-CEO. Next to him, Patrick Villanova, who is the CFO. Some of you may not have met Patrick yet. He is new to the CFO role, although not at all new to BlackLine. Then to his left, Matt Humphries, who is the SVP of IR. This can be an interactive session, so please do not hesitate to email at the email address session4@rwbaird.com, and I'll try to get as many questions in as possible. Owen, let me start with you.
Thank you so much for joining us today. It was a pleasure to see you. It's been a little over a couple of years since you came down from the board level into the operational role as co-CEO of the company. At the time, you outlined, after a brief kind of figuring some things out, you outlined a bunch of changes that you felt needed to be made in order to eventually drive revenue growth and other things. I was hoping we could just start with maybe stepping back and having you give a little bit of perspective on kind of like where we are now compared to where we were when you first got here, and then we can dive into some more specifics.
Okay. Sure. Good to see you again. I think when Therese and I stepped into the co-CEO roles, one of the things we really tried to figure out was what was the strategic direction of where this company should go. We went through a pretty thorough process to decide, importantly, what we would do, but more importantly, even what we wouldn't do. We made choices about industries, customer segmentation, geographies, relationships with ERPs, relationships with SIs, where we would take the product roadmap, and then decided those things, and then decided what we would not be doing in those particular areas. That was the easy part because you're figuring this out where you want to go. The next big piece was figuring out, did we have the right team to get us to where we needed to go?
Over the last, I guess it's 20 months or so, everybody on the management team except for our Chief Legal Officer, Chief Administrative Officer, has been replaced. There's a whole new leadership team. The last addition actually came in February of this year when we named a new Chief Commercial or Chief Revenue Officer, whatever terminology you prefer. What is really now where we're at is when I think about 2023 was sort of the year of figuring out strategically where we would go. 2024 was putting the team in place to get things done. 2025 has now been all about execution. We feel really good about the progress we're making in every aspect of what we're trying to do as an organization. What we need to be doing to continue to improve and upgrade the product has just been fantastic.
We've got a number of really cool announcements we'll make at our Beyond the Black conference in September, particularly around AI. The things we need to be doing in go-to-market, we've seen a lot of good progress across all aspects of that, from marketing to how we bring in net new to how we serve existing customers, our own professional services team, how we work with our partners in delivering those things, all really critical. The rollout of our industry program, and then a big piece of our business, for those of you who know, is tied to working with SAP. That was a relationship that we, and I'll use my word, we went through a reset last year. We feel really good about where we are on that journey.
For those of you who might have just gone to the Sapphire conference in Orlando and/or Madrid, you would have seen a lot of really top-notch stories of, for example, ExxonMobil and Delta talking about the power of BlackLine with SAP. Those are sort of just some of the highlights of the things. I think Therese and I would both say we feel really great about the leadership team we have around us. We understand exactly what we're doing, and we're focused every day on that. I would tell you, I think that just about every BlackLiner, if you asked them what the strategy was for BlackLine, they could tell you what we're trying to do and what their role is in trying to accomplish that.
You mentioned Beyond the Black, and I attended the end of last year. You guys laid out a pretty ambitious plan at that event to go after the broader office of the CFO opportunity. Right towards the end of the initial presentation, I went up to one of your board members, David Henshall, who I've known for years because he was the CFO of Citrix. I said, "This is a pretty ambitious plan." He said, "Rob, it's all about the data. We've got the best data here." Tell me, is that enough to win? Talk about that plan because you've got the office of the CFO, you've got FP&A providers, you've got accounting providers, you've got workload providers. It seems like everybody wants a piece of this.
Yet you called out a couple of ExxonMobil and Delta Air Lines others where the data has mattered a lot. Talk about the importance of that data and your ability to get that to resonate at the office of the CFO level.
Yeah. I think Patrick and I will probably tag team on this a little bit. We have been a SaaS company for a really long time. We have tons of customer information and data. What has been important for us in the last two years is we have actually now really started to use that in ways that we had historically not. Our ability to take the top 10 oil and gas companies, eight of which run on BlackLine, and then show them each how they can use our solution that much better, or go to the two that we do not serve and talk about the art of the possible. It is not about cash or suspense accounts. It is about what do you do midstream, upstream, downstream?
What do you do in distribution, retail, hedging, and all the details that you get into in real, very specific use cases that show what that data can, when you have that data and it's clear, clean, reliable, usable, how you bring that to bear. What BlackLine's unique position is, and I've used this analogy before, if you think about a river, we are at the headwater, right? Everything that goes through finance starts and works its way right through BlackLine. Yes, there's a lot of FP&A players downstream, a lot of SAP players and all that, but nobody has what we have. What we're really beginning to do is exploit that in a way that maybe we hadn't done in the past. Patrick, you live this every day.
Yeah. I'd say, Owen, to elaborate on that, if you think about how we're strategically positioned in an area better than our competitors, it starts with data. If you think about where we're going as an industry, you can't have a conversation without talking about AI. This is the next step of what Owen was just talking about. AI is only effective if you are releasing it into an environment of clean and consistent data. If you maybe look at where some of our competitors operate and exist or how they exist, some of them operate within consolidations. That is a very high level of data. That is aggregated data. That is at a trial balance level for those accountants in the room. Some of our competitors work by uploading information from Excel into the cloud.
The limitation on that data goes only as far as the person that put that Excel file together, a human being. We operate at the transaction level. We operate at the headwaters. We operate at the journal entry level, the initial transaction, the banking transaction, the most granular form of data that exists in an ERP or in a financial systems ecosystem. When you have that data and it is clean and it is complete and it is accurate, that presents an unbelievable market opportunity to unleash the next generation of technology within the financial system ecosystem.
One of the things that struck me, but I didn't raise my hand, but I did attend SAP Sapphire. One of the things that struck me was what you mentioned, Owen, which was Delta and Exxon. And of course, those who follow BlackLine know that ExxonMobil is a customer because they called you guys out on their earnings call, which is always a nice endorsement. But Delta, I learned a lot more about. And both of these companies talked about the importance of data through their ERP migration processes. I guess it's probably a two-part question here. One, how important is that as we get through the process of ERP migrations, which is in front of us now over the next five years, how compelling of a case is that for BlackLine?
Does this create an opportunity for BlackLine to not only win along with these migrations, but to get larger within those accounts as well?
Yeah. Again, we'll probably tag team here just a little bit.
Please.
Look, if you go from an on-prem solution to the cloud and that's all you've done, there's no real value. It's hard for a CFO to justify spending $100 million and nothing's really changed. I think that's why you're seeing this conversation of finance first and the power of what BlackLine can bring on the front end of these migrations, because then you get clear, reliable, actionable information, data to drive your business forward. I think it's been a little bit of an aha moment for some of the big ERPs that we work with, because it's hard to make that case unless you're going to get more out of it. We've seen a big shift in mindset as we talk to these ERPs that we work with.
Remember, we're ERP agnostic, even though we have a very deep relationship with SAP, but it's the same across the board. When you start to get into when Patrick starts to talk to these customers or these reps that are helping these customers or the SI partners to figure it out, this is where I think it gets interesting. You want to maybe talk a little bit about it?
Yeah. And Owen, one thing you left out just from a sizing of opportunity perspective. We have a little over 1,000 SAP customers. There are about 30,000 upper mid-market and enterprise SAP customers that are going to be part of this supercycle over the next five years between now and 2030. Now, five years sounds like a lot of time, but if you are a multi-billion dollar multinational customer that is looking at that date of 2030, you better be talking about or starting your ERP migration now. It takes that long to properly plan it and go out. Now let's talk about the planning process. And Owen hinted at this in one element of it's funny.
If you're an existing ERP customer that's on-prem and you have to move to the cloud, as a CFO, as a practitioner, or as CAO, the selling point that SAP comes forward with, you're going to spend $10 million, $50 million, $100 million to go from on-prem to the cloud, and nothing's going to change. That kind of in one way says, "Okay, that gives me a little more confidence as a user, as somebody that has to sign off on this, that the new reporting is going to look like the old reporting." In the same breath, to spend that much money and nothing changes, that's not a very compelling sales pitch. The problem is things do change.
Somebody that has been through ERP, somebody has done this in a previous lifetime, ERP migrations, as the end user, maybe not at the executive level, but the way you interface with the system changes, the user interface changes. The way that data is mapped into the cloud is different than on-prem. The dimensions of the data, and by dimensions, I mean your segment reporting, your legal entities, your regional reporting, your internal reporting, all this reporting you have built for decades in your on-prem system, it changes. There are changes that occur, and change, you have to mitigate that. You have to mitigate the risks associated with it. That is where BlackLine comes in. The benefit of BlackLine and Finance First and BlackLine First, when you go through this five-year supercycle, is that we are truly ERP agnostic of every version of SAP.
BlackLine looks identical sitting on top of a 20-year-old on-prem SAP ERP as it does sitting on top of a brand new cloud-based SAP ERP. We are identical in both environments. That is key. Because if you're entering this process and you're a CFO that has to sign off on this or a CIO, you want the assuredness that the data that's been sitting in this decade-old or older ERP is going to come over completely. It's going to come over accurately. It's going to come over in the correct fields. It's going to come over into the correct legal entities. How do you do that? You lead with BlackLine. You extract all that data. You cleanse it. You reconcile it. You organize it. You automate it. That is where you start the supercycle. That is where you start the conversion to the cloud.
You initiate the actual project, the actual implementation. The information that's sitting over here in BlackLine comes seamlessly over here into the same BlackLine because it's identical in the cloud as it is on an ERP system. That's the value proposition. If you're spending $10 million, $50 million, $100 million, your number one risk in any ERP migration is data. We provide that assuredness. We provide that confidence to a CFO or CIO that the data over here is going to look identical to the data that's sitting in your old ERP. That's why you lead with Finance First. Always present the alternative. What if you don't do this? I can tell you, because for some of the migrations that have occurred, BlackLine came last. What happened there was the new reporting in the cloud didn't look like the old reporting in on-prem.
You have a needle in a haystack exercise. You implement BlackLine and you start reconciling everything in the new system, and then you have to trace it back to the old system. It's possible. We can fix it, but that is not an efficient way to approach the process. It's not a good way to mitigate risk. You want to take care of this on the front end and start with BlackLine, start with Finance First. That's the clear value proposition to the buyers of our product like me.
Great. Compelling setup here relative to SAP. Now let's talk a little bit about your preparedness to meet that moment. I know, Owen, you called out last year there were some changes within the SAP ranks and SAP North America, which created some friction, not just for BlackLine, by the way, for others. We noticed them because a lot of SAP people went to ServiceNow to follow Bill McDermott. It created some disruption in the partner network. You also mentioned how you now have a management team that is turned over. One commonality I'm noticing is that enterprise readiness, whether it be Stewart, who we can talk about, or you with your background and everything. Let's talk about the preparedness of BlackLine to meet this moment with SAP. Where are you guys relative to that opportunity? Are you in a good spot?
Is the phone ringing when it comes to these deals? Talk about Solex and the relationship there.
Yeah. I think you've just nailed it, right? I think for a while, it felt like we were having to lean in, push hard to crack open the door a little bit. There's a number of changes that we have been able to work through with SAP that were critical. We have now what we call one-joint golden architecture. You can sort of see on one piece of paper how SAP and BlackLine fit together and work together, which was very important from our vantage point. In essence, if there's an SAP rep selling a new ERP system, BlackLine is, in essence, an opt-out versus an opt-in. We're really part of the core of what they're trying to offer.
The compensation systems are aligned better so that it's now incentive for the SAP rep to sort of think about BlackLine in a different way than maybe in the past. For me, listen, it's great to have alignment at the top of the organization, but that's not really where success comes from. It comes on the front lines. I think if anything that you would sort of see coming out of a Sapphire conference, our booth was overrun by SAP reps, which is a really good sign, who wanted to learn and understand more. That wasn't necessarily the case in the prior year. I think there's a big difference. That same thing happened in Madrid. I think that that is a positive thing.
Obviously, adding Stewart into our organization with the relationships he has, Stewart came from SAP, very, very important because of the nature of the relationships he had where he was driving spend, which was sort of analogous to what we're trying to do in the office of the CFO. All those things are lined up really well. I think the hard part is they're just still so much bigger than we are and trying to pick and choose the right places to go and pursue opportunities together. We feel a whole lot better today than we did a year ago about where we are.
Got it. Matt, I want to work you into the conversation if I can. Since you wear a few hats at BlackLine in addition to doing IR, you also, as a veteran, thank you for your service. You oversee some aerospace defense vertical sales. It is an area where I think you guys have had some success as a firm in specific verticals. I am curious if you could just talk a little bit about, I guess, two parts to it. One is some of the challenges and opportunities within the Beltway, whether it be aerospace and defense and others. Then perhaps talk a little bit about the government opportunity as well, which I know you were pursuing.
Yeah. Great setup. I spend a lot of time working with our sales reps in the aerospace and defense industry. We have a who's who, as you would expect, of customers across the spectrum and in different stages of adoption of BlackLine solutions. As a parallel, we are building out a public sector practice. We talked about it last year. There are a lot of steps involved, as you would expect, in terms of ensuring that there is a compliant instance of your offering to sell to the federal space, to make sure that it's been third-party tested, to have a sponsor, to have allocated budget from that particular department, agency, or sub-agency. We have been doing a lot of work on the public sector to get all that lined up as we look at 2026 and beyond and those longer-term targets.
That sort of helps me on the aerospace and defense side because traditionally, in aerospace and defense, we have served the commercial portions of those business, just to take one industry as an example. If you look at some of our customers, sometimes 20%, 30% of their revenue comes from the commercial side. The balance comes from a mix of consulting or serving in a contractor capacity with the DOD. Being able to kind of parallel a lot of the success that we expect to have over the next few months and quarters in the public sector and take that in turn and go open up a new opportunity in the aerospace and defense is really not a primary motion from the industry perspective, but a sort of tangential benefit that comes as we continue to mature and build out that process.
We started with a couple key industries last year, maybe five. We rolled that out more holistically this year across pretty much our entirety of the primary industries we serve. A lot of our deal activity in Q1 was a direct result of some of the industry motion that we put into flight last year. It is important. I do not want to speak for Stewart or Owen, but Stewart recognizes that it is an important part of our long-term strategy. One of our key go-to-market partners and a lot of our SIs that serve both public sector and aerospace and defense often bucket it in the same category of regulated industries. Aerospace, public sector, utilities. There is a lot of opportunity to kind of leverage what others have done in the past.
They have sort of trailblazed for us to kind of go forth and do more, either net new with the public sector or alternatively expand with existing A&D customers.
Got it. Helpful. Question from the audience on pricing. You guys did announce that you were raising prices at the start of the year. I think those prices are now rolling in, if I understand, upon renewal. If that's correct. No? Is it?
Finish the question. Then I'll answer.
Yes. I'm not afraid to be corrected.
That's okay.
I had a question on that. I'm going to try to combine it with the one from the audience, which is about essentially customer receptivity to new pricing models at this time when there's so many moving parts from a buyer's perspective, whether it be generative AI and how to price it, whether it be buying-based pricing versus seat-based pricing. I'd love to hear your view on that, Patrick.
Yeah. Thanks, Rob. Just to point of clarity, we were not raising prices at the beginning of the year. We launched a new pricing model, which took us from a user or seat-based model to an unlimited user model. That is a very important distinction in terms of how we are rolling out our pricing. Just a quick background. In 2024, we did run a pretty robust project using third-party consultants to develop this new pricing strategy. As part of that project, we talked to all of our existing customers or reached out to all of them. We reached out to former customers and developed a strategy and a thesis statement or theory about the receptivity of unlimited user-based pricing or a platform-based fee. That analysis conveyed that a strong majority of our customers would welcome a pricing model like this.
While it's still early, we did roll this out in January in North America, and it slightly exceeded our expectations for the preliminary rollout. We're rolling it out now internationally. To your point, Rob, we're introducing it to all new logo customers, and we're introducing it to our renewals base over the next three years. That said, we would expect that a strong majority of that renewals base will be touched or reached out to in the next year or two as word of mouth goes out there. We're already receiving inbound inquiries about how this model works and interest in it. To be clear, there was one market segment that we did not think would have the same level of receptivity, and that's the lower-bid market.
That's a market that we have largely, unless there's an IPO opportunity or a pre-existing relationship, it's a market that we're largely moving away from, or if they churn out, we don't continue to pursue. We are investing in upper-mid market and enterprise. That's where our major opportunities exist. In those markets, upper-mid market and enterprise, we have slightly exceeded the adoption rate that we were planning for. With that said, we're not forcing customers onto this model. I want to be very clear with that. You can stay on a user-based model, but what we're finding and what we believe is that most CFOs and CEOs don't want to stay on that user-based model.
It's not really a good finance transformation conversation to take an office of the CFO org and try to narrow it down to a handful of users within your GL team or revenue team or what have you that use BlackLine. The conversation we're having now is much more positive, and that's why we're seeing the receptivity that we are. We are approaching CFOs, CIOs, and saying, "We now offer a platform through Studio 360." Studio 360, which we haven't talked about yet, connects our four solutions and allows data to flow between those four solutions seamlessly. Rather than talking about the number of users, let's get everyone within the office of the CFO logged in, unlimited users. Let's get them on the platform. That's how you drive culture change. That's how you drive finance transformation.
You have everybody on the platform consuming it, which leads to the next part of the conversation that we're having, which is why it's being embraced. The pricing is very straightforward and simple. On the left side, you have about 25 revenue bands, and that's the revenue of the customer. That's where we land. That's your platform fee. Your price only goes up if your revenue goes up. Our revenue goes up, your revenue goes up. It's a great handshake with CIOs and CFOs. That's how your fee goes up. Over here on the right side of the placemat are all of our consumption-based products, whether it's I2C, intercompany journals, automated matching. The more people that you have using this or consuming these products, yes, your price goes up, but your per-unit price goes down. It's more revenue for us, and it's a higher ROI for you.
It's changed the entire conversation to the positive, which is why CFOs and CIOs are willing to pay a little bit more and land on a higher price point. They're willing to pay more than your standard inflationary uplift because we're now having a platform and transformation conversation and not a user conversation.
Do those ROI numbers include a vendor that they might not need? You guys now, because of all of that that you're providing, they may need fewer resources?
Yes. One-stop shop is big for a lot of CIOs. What this is doing, what this platform and pricing is enabling, is introducing all of our solutions at once. Rather than starting with reps and tasks and users, we're bringing our entire platform, which then eliminates the needs for other vendors that might operate in I2C or consolidation or analytics or intercompany.
Great. I've got to squeeze in two questions in three and a half minutes. I guess the first one, Patrick, for you on margins. You guys have done a phenomenal job, you and your predecessor, Mark Partin, of ramping margins. I guess as you guys now have a target model out there of re-accelerating revenue growth pretty markedly over the next few years, how should we think about margins relative to that? You guys put out margin targets as well, but can you do this with the current expense realm? Can you continue to be the profitability machine that you guys have been in a very impressive way while accelerating revenue growth and going after the opportunity?
Absolutely. It's that simple. We feel very confident in our ability to expand margins. I know we have two questions left, but just to really succinctly put it, it's coming from three places, essentially. It's coming out of gross margin, which is part of our Google Cloud optimization. We've been on a multi-year migration to the cloud, and that drives some redundancy with your infrastructure as you move from some on-prem and other cloud solutions to one singular cloud solution. That'll be completed in early 2026, and that redundancy goes away. Second element, we're using AI almost throughout the entire P&L. And what I mean by that is in terms of customer support, we're starting to introduce AI because 80%-90% of all support tickets are pretty straightforward and not complex.
Login issues, stuff like that, that AI can address more efficiently and more effectively than a human being answering the phone. We are also migrating a lot of support and engineering to lower-cost locations. We are coupling that support and lower-cost locations with better AI tooling for more efficient programming. We are getting a better salary and price point on the talent, and that talent is generating and operating more effectively and efficiently using this tooling. The third element, we have a new CIO who's fantastic, and he's now introduced a lot of AI into the back office, eliminating a lot of need for data entry for the transfer of information. We are seeing efficiencies throughout the P&L.
All those efficiencies are allowing us to make the investments we've talked about here today to drive growth and have it not just drop to the bottom line, but also expand. The only part of the P&L or the only part of our business that is remaining indexed to revenue is investment in our product. It's P&T. That stays consistent throughout the entire model because we know you have to continue to invest in your product to maintain the lead and competitive advantage.
Got it. We've got 30 seconds. Thanks, Patrick. Owen, so AI, is it driving adoption, or is it stalling the market right now, or is it neither? I think ultimately it probably drives adoption, but I'd be curious right now if it's causing people to kind of wait and see a little bit.
I think we do get a fair number of questions about how BlackLine can use AI and our solutions to help our customers. Again, remember this, we play in a different part of the P&L, if you will, or in the office of the CFO compared to FP&A, right? We can't be 95% or 99% accurate. We need to be 100%. Our customers want to make sure that they can understand the trail, the transparency of what's going on as how we use AI. There can be no black box, right? The CFO has got to sign a rep letter with the CEO that says, "We didn't use AI in the preparation of our financial statements or in our control structure." There are things that are starting to come to bear.
One of the things that you should know is the way we're building out AI is in partnership with our customers and our implementation partners. We know what we're moving forward with is going to be embraced by the market versus doing it without sort of that point of reference. I know we're out of time, so I'm going to stop talking.
No, super helpful.
There is more to come at Beyond the Black in September, so hopefully you guys will be there.
Great. Yeah. Look forward to seeing you in September and sooner. Please join me in thanking the management of BlackLine. Thanks, guys. Appreciate it.