Thanks, everyone, for joining here in person, and for those that are listening over the webcast. Before we kick things off, my name is Jake Roberge. I'm the analyst at William Blair that covers BlackLine. For a full list of our research disclosures, please visit our website at williamblair.com. With that, really excited to have co-CEO Owen Ryan and Chief Financial Officer Patrick Villanova here with us today digging into this story. Thanks for coming out.
Good to be here again.
I guess just to kick things off before we dive into things, for those that may be newer to the story, Owen, can you give us just kind of the history of the company, what products, what are kind of the key product areas that you serve, and the key markets that you're looking to expand into?
Sure. Great. And thanks again for being here. We're actually in our 25th year, so 25th anniversary coming up. Our core products, really, I would say, are in a couple of areas. One is across the whole record-to-report stream. For us, that's everything around financial close. When you think about financial close, you think about the posting of sort of transactions, matching journal entries, task management, reconciliations, intercompany accounting, pre-consolidation, and consolidation. You start sort of at the headwater of a river, and you think about that from the perspective of everything that starts a transaction all the way right through the consolidation process, what comes out from a reporting perspective. That's one part of our business. It's the largest part of our business. The second piece of our business is in the invoice-to-cash stream.
We cover most aspects of everything you need to do around the whole accounts receivable life cycle. The third business that we have is a platform that we released last year, something called Studio 360, which basically serves as the underpinning of everything we do across financial close and invoice-to-cash, and allows us to connect to all different ERPs and subledgers and systems. We have a new relationship with Snowflake that allows their data lake to sort of tie very closely to what our systems do to allow our customers to use and manipulate the bedwater and accounting. Use our information in a way that allows them to really get more out of the information that they use in their business. We operate in all the major markets around the world.
We tend to have roughly 50% or greater market share on all the largest publicly traded companies on stock exchanges. We continue to grow and have a great future in front of us.
Yeah, that's a helpful background there. You recently took over the co-CEO role with Therese. What are some of the key changes that you all have done at BlackLine since you took over? Maybe talk about kind of the successes to date and some of the changes you've made, as well as some of the priorities moving forward.
Yeah. When Therese and I were asked to step into these roles in March of 2023, the first thing we really did was take a hard look at the strategy of the company and figure out what we needed to do to sort of really get us back on the path that we wanted to. We made a lot of strategic choices of both things that we would and would not do. When you're sort of a growing enterprise, sometimes you tend not to sort of bite off more than you can chew. There were a lot of things we said, we're not going to do those any longer, and really tried to focus.
That focus was around the geographies we would play in, the customer segmentation, the industries, the ERPs we would work with, the partners we would work with, and how we would innovate and grow our platform as we move forward. That was a good portion of the work we did in 2023. Over the course of 2024, we replaced pretty much everybody on the management team. There is only one person that survived the changes that we want to put in place. Not that they were bad people, but the people that we had were not going to be able to take us to that next level. What we really did was brought in everything new from Chief Marketing Officer, Chief Commercial Officer, people running product and tech, to CIO for our own internal use of technology, new CFO.
All that was really brought together across 2024 into 2025. We had to rechange or change our operating model to sort of reflect the realities of what we were trying to do as an organization. That combination of a new operating model in 2024 and a new leadership team throughout 2024 is now really taking root, what we're trying to accomplish in 2025 and beyond. We feel very good about the leaders we have in place. I describe them as a lunch bucket crowd, i.e., they show up in overalls with a lunch bucket and a shovel and work, because that's what we wanted to build culturally in the organization and make sure we're working really hard for our shareholders and for each other to drive success.
That's helpful. That is a lot of the go-to-market, the leadership. You've also expanded the breadth of the platform quite a bit over the last two years with solutions like Studio 360 and a deeper push into AI and some of the strategic product offerings. Which of those solution areas are you seeing the most traction with, and where are you looking to dig deeper into moving forward?
I'd like for us to piggyback, because he understands sort of from a user perspective a lot of the great things that we're trying to do. I think the immediate opportunity for us is in Studio 360. We're in the market with it. It's getting a lot of receptivity. In the first quarter of the year, we had 400 of our customers sort of looking at what Snowflake brought to Studio 360 platform. We're seeing a lot of interest and uptake in that. A number of large enterprises have gone live with it very early in the process. We're really encouraged by what that all can mean. We've got our Beyond the Black conference coming up in September.
I do not want to front-run where we are, but we have a number of significant announcements that we plan to make around what we are doing with artificial intelligence. The one thing that is important to think about and understand for the use of AI in finance and accounting, there is tremendous opportunity that is there, but they also have to make sure there is an audit trail. It is transparent, because you cannot get a preparer to be comfortable without not understanding what is going on, a reviewer, a controller, a CFO, your internal auditor, your external auditor, the PCAOB, the SEC. Everybody wants to see and understand a trail. It is different than you might see in other parts of the marketplace, because you just cannot have a black box with results coming out. We are seeing that in the marketplace as we work.
A lot of our innovation is with and through our customers and with and through our partners. When you serve like we do, most of the world's leading auditing firms rely on BlackLine, run on BlackLine, and implement BlackLine. When you have that, you can bring that to the conversations with your customers. I think that what we'll be rolling out will be meaningful. It will drive real efficiency and accuracy and insight for our customers, but it will also withstand the rigors of whatever body comes to look at what's underlying all that. I know you're living in this as well.
Yeah. I mean, just as a little background, while I'm newer to the CFO role, I've been with BlackLine for almost 10 years. I'm a trained accountant by nature. So I've been using our solution that entire time. I guess maybe where I see similar to what Owen was talking about, just to elaborate on it, though, and where we're going and the announcements we're going to make, we have four solutions, as Owen indicated. We started with financial close 25 years ago. About five years ago, we branched into invoice-to-cash and then intercompany. Recently, we built an FRA solution, which is pre-consolidation analytics, and basically takes all the information that's coming out of your financial close and provides different levels of information, reporting, and insights to finance and accounting. Studio 360 is the foundation for the next phase of our innovation.
What I mean by that is it's really not a product. It's a platform. It's a platform powered by Snowflake that connects all four of the solutions that I just mentioned together. That is critical, because what that does is that it allows data to flow seamlessly from solution to solution. What does that mean? The key to have a successful AI strategy starts with data. You have to have data that is sanitized, that is clean, that is accurate, and that has a single source of truth. You cannot have four different data sets and four different solutions. You have to have one data set.
By launching Studio 360 in the last year, we are enabling our customers to use the same data in all four solutions, which sets the foundation to start to use AI within that platform, because AI will be analyzing the same data set throughout. Now, we're going to do it prudently, because as an accountant is saying I use a lot, is 99% accurate in the accounting industry is 100% failure. You have to be 100% accurate. You don't have the benefit of rounding errors or forecasting errors. It has to be accurate. We're going to be prudent about how we release this technology. Having that platform in place with clean data is the foundation for the future of that innovation. To Owen's point, we will have an audit trail. We'll have transparency. We'll have that visibility. That's a key word.
You have to have visibility in terms of what the technology is doing. That not only builds comfort with a CFO and a CAO and people that sign those attestations every quarter, but it's critical for auditors, for the SEC, for the PCAOB, for our regulators that they can see that as well. That's the next phase that we're heading to from an innovation standpoint.
That's helpful. Patrick, sticking with you, how are you measuring this? You made a lot of operational changes. You made a lot of changes with the product. How are you measuring the success of those strategic changes? What KPIs should we be focused on? When considering your medium-term growth rate and kind of that growth outlook for 13%-16%, how should we think about some of the building blocks that should help drive that acceleration and growth?
Yeah. I guess there are three or four questions in that one. I guess to start, in terms of is this working? Is everything that Owen just talked about strategically, all the changes we make, are they working? We signaled in February, as well as in May, that we expect to see an inflection point in our growth trajectory in the second half of this year. Now, what gives us that confidence, or why do we feel that way? We have seen several quarters now of pipeline build or demand generation. That is in large part in terms of our innovation, the marketing we are doing out in the market, our industry approach, our partner approach. All that is generating more demand. That pipeline build converts anywhere in six, 12, 18 months, depending upon the size of the opportunity, into a booking.
In our industry, revenue is a trailing indicator. You would want to look towards leading indicators in the second half of this year. That would be things like CRPO. That would be billings growth. That would be ARR growth. Those leading indicators would be the best data or metrics to look to to show that the strategy that has been implemented in the last year or two is working. That turns into revenue in 2026 and beyond. To answer the second part of your question, the way we approached our target model, this is the target model we shared with investors back in November. This is a three- to five-year plan of how we are going to get back to 13%-16% revenue growth. What we did was we took a portfolio approach to how we invest and deploy our capital internally.
Investing in ourselves is still the number one thing we invest in as a company. We have called eight-10 major investments that we're making now and in the near future that's going to drive or be a lever for growth. In no particular, and let me be clear, there's no one investment that represents like 90% of potential. These are evenly distributed, just like you would in a standard investment portfolio. Over time, some may overperform, some may underperform, but we have a great investment thesis for each. In no particular order, things that we're investing in, we have a new pricing model, which we expect. By the way, each one of these, we expect half a point, maybe a point plus in growth.
It accumulates upon where we are today, six-eight, and in three- five years, get to 13-16. We have a new pricing model. We have the innovation that Owen and I just talked about. We have an industry approach where we're really driving down and selling by industry. We have a stronger partner approach, not just with SAP, but we have about 75 other partners that we sell with around the world. We are also now making investments in the federal space. Those are investments we're making this year that we expect to manifest and materialize in 2026 and beyond. Those are five or six of the most critical investments that we're making. They each build upon themselves from a growth perspective.
I guess maybe one other thing I want to highlight, we have a significant opportunity internationally, notably in mainland Europe and Asia, where these are markets that are underpenetrated. We are making investments there as well. When you add all those up, you can plot a very clear, confident path to growth over the next three to five years. Each one of these growth levers build upon one another.
That's helpful. Then shifting back over to Studio 360 and that new platform release, Owen, can you maybe talk about some of the feedback that you've received from customers on that new product? Then Patrick, to kind of tie the bow on the Studio 360, maybe could you dig a little bit deeper into those pricing changes that are resulting from Studio 360 and why you think that will be so much of a lever over the next few years?
Yeah. I think the early reaction to Studio 360 has actually been quite positive. I think that what we shared at Beyond the Black, how customers have sort of really begun engaging, there's a fair number of inbound calls compared to what we might normally receive. Our reps that are in the field, our partners that are talking with customers and prospects, all that's been very, very positive. There was a little bit of skepticism because we had tried to launch something a couple of years ago. It did not take off the way we wanted. There are some questions we got, like what's different? Why is it better? Why is it more powerful? We've dealt with that. There was a little bit of explaining for some small segment of the market, but we did have to do that. Overall, receptivity and interest has been quite high.
That ability to have sort of that Snowflake partnership with Studio 360 so our customers can use information and data even more powerfully, I think, has become very compelling. I know you're talking to the front lines every day as well, so.
Yeah. From an overall platform perspective, the receptivity has been good. It is early, but our customers are seeing the benefit of it. I guess to pivot to the second part of your question related to pricing, maybe to zoom out for a minute, Studio 360 alone is not driving the pricing model or pricing strategy changes that we implemented earlier this year, but it is a catalyst. The reason for that is to have the pricing conversation, you have to have the product conversation. What I mean by that is, and maybe just to back up, this was a decision a long time in the making, a lot of research went into it. In 2024, we hired third-party experts on pricing and engaged them in terms of where we could take our pricing strategy.
We reached out to all of our customers and actually some of our former customers to gauge their interest in going to a platform-based pricing model and moving away from seat base. Now, obviously, to go to a platform-based model, you have to have a platform. Studio 360 was part of that conversation. What we learned during that analysis was that an overwhelming majority of our customers had interest in a platform-based pricing model and getting away from users. We did see if I had to look at a cohort that did not have the same level of interest as all of our customers, it would be lower mid-market. These are customers that maybe have $100 million-$200 million of revenue, maybe five accountants. That is not a conversation you typically have about platforms and finance transformation, and we are OK with that.
We launched our new pricing strategy in the first quarter of this year in North America. Now, in the second quarter, we're introducing it to the rest of the world. What we've seen so far is that the receptivity is in line, if not slightly above, what our thesis statement was based upon what we did in 2024. Customers are very interested in getting away from the conversation around how many accountants do you have and how many users do you have. Now we're having more meaningful conversations with CFOs and CAOs about delivering a platform, about getting your entire organization onto that platform for a flat fee, about driving a cultural change in terms of how you interact with BlackLine, rather than just having pockets of accountants throughout your org logging in.
You have an entire office of the CFO logging in, understanding the power of the platform. That is a much, much different conversation. To elaborate on that in terms of where is that taking us, where is that taking the conversation? Now, rather than talking about how many users we have, we're talking about we're delivering a platform and how much are you consuming of that platform. This is the most critical element. This is why it's been embraced so much. This is why the tax rate is where it is. Rather than talking about users, we're now having a conversation of your platform fee is based upon your revenue as a customer. If your revenue grows, and there's about 25 tiers, so it's not every percent, but as your revenue grows, your platform fee goes up.
Our revenue goes up if your revenue goes up. It's a great handshake in business. On the right side of this pricing placemat, and it's very simple, very digestible, which is critical in the pricing world, ease of digestion, ease of understanding, is all of our consumption-based products. Right now, those products represent about one-third of our revenue. That's, for example, matching, automated journals, automatic cash application, automatic intercompany. And then some of the agentic AI that we'll be talking about more B2B in a few months. Those consumption-based products, as you use more, your price goes up. However, your per-unit price goes down. Again, a great conversation to have with controllers, CFOs, and CAOs, because more revenue for us means a higher level of automation and a higher per-unit ROI for you.
We got away from these conversations of how many accountants and users do you have to let's talk at the C-suite and board level. Let's talk about if you win, we win. If you have a higher ROI, we have more revenue. It is a great pricing strategy, great business relationship to be in where both parties are benefiting at the same rate. That is why we are seeing the attach rate that we are. That is why we have this built into our midterm model or target model in terms of a notable growth lever as we work through our 4,400 existing customers and introduce this to new logos.
That's helpful. Then thinking about one of the catalysts for your business is ERP migrations. I think one of the more attractive things about selling into the office of the CFO is just how early it is in the digitization process. I think still 70% plus of ERP systems are in an on-prem environment. What are you seeing on that front? What are some catalysts that could cause those migrations to pick up? How does BlackLine benefit from the migration activity?
Really good question. I think we're still, as you point out, in the very early innings of this. I think where BlackLine is going to benefit is as companies have been thinking about the migration and as some of the big ERP players are shutting down, saying they're going to shut their customers off from being on-prem solutions in a number of years. One of the challenges that the ERP houses are having is showing and demonstrating what's the value. Why am I getting anything out of this lift and shift from on-prem into the cloud? Candidly, it's not an easy argument to make. In fact, when you're spending $10 million, $50 million, $100 million or more just on sort of the software before you even hire the SIs to put it in, it's not a particularly compelling value proposition.
Where that changes is when you start with finance first. In particular, you start with BlackLine. What we're seeing in the market, and if you, I'm going to guess this group doesn't follow the oil and gas industry, but if you were listening to the CFO of ExxonMobil this quarter, she talked about the power of what BlackLine has done for them as an organization. It's an interesting customer because Christian Klein from SAP happens to be the executive sponsor for SAP on their account. I happen to be the executive sponsor for Exxon from a BlackLine perspective. I think for the first time, not for the first time, for a very obvious time, you can now see the power of starting with finance first if you're in the SAP world.
Because historically, we were always battling sort of like how do you start with BlackLine versus being on the tail end of the train. That was just really eye-opening, I think, for a lot of people. Those stories start to get told. If you were at Sapphire in the last couple of weeks, you would have heard that story being told and an example of Delta Air Lines and what all that means. We think we're very encouraged because we're starting to see lots of conversations where these teams, the reps in the field, forget the leadership now, the reps in the field are saying, hey, I need to start with BlackLine to have a more compelling story to move forward.
I think where that opportunity really embeds itself even more with places like in SAP in particular, where we used to sort of be the last item on a bill of material, and it was like an opt-in. Now it's more of an opt-out. We're much higher up because of the criticality of what we do for them. I'm very encouraged by what we're seeing and people now understanding BlackLine is a true differentiator in helping you achieve value and a better transition from on-prem to the cloud. I know you've had to answer this question now for quite a lot over the last two days, but maybe just bring it to life for this group so they can understand why it matters to go with finance first.
Yeah. As a trained accountant, I like to do things by example. Talking about the sales motion that used to happen versus that's happening now. To Owen's point, what used to happen is an SAP rep would go to one of their 30,000 customers and say, you have an on-prem solution that by 2030, we're no longer going to support. That sounds like a far time away, but anybody that's been through an ERP implementation or rip out and replace, it takes several years. If you're not thinking about that now, if you're an on-prem SAP customer, you're already behind the process. What used to happen is, oh, we're going to take you from on-prem to the cloud. We're going to charge you $10 million, $50 million, $100 million depending upon how big you are, and nothing's going to change.
While that might sound good to a CFO or CIO, like, oh, great, you know I want my new reporting to look identical to my old reporting, it's also not a very strong value proposition that you're spending millions and millions of dollars and nothing's going to change. The second problem with that statement is things actually do change. While the technology is moving from on-prem to the cloud, what's critical in that process is the transfer of data between those two systems. It's not just the raw data, but it's how that data comes through and how it's sorted. What I mean by that is how does it come through by legal entity? How does it come through by segment? How does it come through by dimension? How does it come through for internal reporting?
Internal reporting is at least 10x external reporting when dealing with an ERP, how you report to your own management team. What happens or what has happened is that transfer of data, data gets lost. It gets leaked. It gets manipulated. What we are now doing is, and I guess let me be clear, when that happens, what happens? They call BlackLine and say, hey, our new reporting does not look like our old reporting. What happened? They implement BlackLine at the end of this multi-year ERP implementation, and we are in a cleanup process. We normally fix it, actually, almost always fix it, but it is expensive, it is late, and that is not the proper way to run an ERP conversion to the cloud. Now we are starting with BlackLine. What do we do? First and foremost, BlackLine is identical in any ERP instance. We are ERP agnostic.
We look identical for an SAP on-prem ERP as we do for a cloud ERP. That is a critical first element to this conversation. We extract data from the decades-old SAP ERP. We reconcile it, we cleanse it, we ensure it's completely accurate, and we map it by legal entity, by account, by region. We can map it multidimensionally. Once you do that, we bring automation to your close process and efficiency. The value proposition that we bring on the front end is assurance that your data is going to come over correctly. It's going to come over accurately. It's going to come over in the proper dimensions, for lack of a better term. It's going to come over with a close process that's more efficient than it used to be.
Now, if you just visualize this, you're moving from an on-prem ERP to a cloud ERP. BlackLine's sitting over here, and it's sitting over here identically. It comes up out of the on-prem over to here and then back down into the cloud ERP. It builds confidence in the process. It lets CAOs and CFOs like me sleep at night that no data is lost or manipulated or contorted. I know that what I land with is a cloud ERP and a closed process that's more efficient than it was before. That's why you start with finance and not why you end with finance. That change in the paradigm, that change in go-to-market motion is a notable opportunity over the next five years for BlackLine. We're the only company in town that can do that.
Yeah. Very, very big opportunity. Nice to hear you're getting involved earlier and earlier in the cycle. When you think about that digitization wave and how tight your partnership is with SAP, it'll be interesting to see how that goes moving forward. I guess just taking a step back, I think we have time for one more question here. The macro environment, obviously a big conversation topic with a lot of investors. What are you seeing in the macro? What are you hearing from customers on the ground? That would be great to kind of flesh that out.
You know, obviously, everybody wakes up every morning and wonders what Truth Social or Twitter post or email might have sent out or phone call, whatever it is. I think over the medium to long term, we feel very good. When I say medium term, over the balance of the year. I think the demand that we've seen from our customers is strong. I think they're, I don't want to say they're immune to the shocks of whatever the latest post is that comes out. I think the more, the more, I don't want to use the word insanity, but that's the only word I can come up with right now. The more there is volatility of what's being communicated, I think people just become a little bit more immune to it.
They begin to realize they've got to make decisions to move forward with what information they have. I think we had the benefit in the first quarter of April 2nd and April 9th coming after March 31st. All the news around tariffs happened. We had a really good close to the first quarter, which was encouraging because some others said they saw demand slack. We did not see that. We continue to see our pipeline growing very nicely with what we believe is high-quality pipeline. I think over the balance of the year, we feel good. The tightening relationship with Workday and SAP is very encouraging. A lot of their business takes place in the fourth quarter. I think we feel really good.
What worries me the most is the last two weeks of June, if I'm sitting here being honest, because July 2nd, July 4th, and July 9th all come after June 30th this time. You have what's going to happen with the tariffs, what's supposed to happen with the big beautiful bill. Those are things that may cause some customers to sit there and say, well, let me get a little bit more clarity just as we get closer to it. I don't think it changes what we expect to happen over the year. In the really short term, that's what causes me to worry. I worry about everything, as you know, Jake. I don't sleep, or I sleep with one eye open worrying about things. That's where we're at. I think customers know they've got to go on this journey. They understand it.
Medium to long term, no real worries fr
om our perspective. Next 25 days, I worry about a bit more.
That makes sense. Thanks very much. Thanks, Owen. Thanks, Patrick. Appreciate all the investors in the room. For those that want to dig deeper into the story, we will be hosting a breakout session in Jenny B upstairs in about 10 minutes. Thanks, everyone.
Nice. Thank you.
Thank you.
Thank you.
Well done.