Okay. Should we get started? Hey, everyone, I'm Pinjalim Bora, Small Cap software analyst at JP Morgan. I'm delighted to have here with us Therese Tucker, Founder and Co-CEO of BlackLine, Owen Ryan, Co-CEO of BlackLine, and Mark Partin, CFO of BlackLine as well. Guys, welcome to the conference.
Thank you.
Thank you.
Thank you.
Why don't we start with a little bit of an introduction, across the board, just a little bit about yourself, and maybe whoever wants to talk a little bit about BlackLine.
Yeah. Why don't I go first? I'm Mark Partin. I'm the Chief Financial Officer. This is my second time working for Therese Tucker. I've been with the company a little over eight years as the Chief Financial Officer. Helped take the company public a number of years ago. One of the things that I really love about my job is that we are in our own way really changing the lives of the accounting industry in what we do. We continue to transform that, and it's something very near and dear to my heart as a mission. I'm happy to have my two new CEOs back at the company.
Hi, everyone. I'm Therese Tucker. I'm the founder of BlackLine. Back in 2001, I was BlackLine's CEO for 2001 through 2020. Stepped down for a couple of years and have just recently gone back to being the CEO again. During the two years that I was not the CEO, I got to do fun things and build out a new product. Since we're doing the, you know, my interest, my passion.
Mm-hmm.
I would say my passion is actually applying technology to solve real business problems. I love it when our customers get value out of what we do. Owen?
Sure. Hi, Owen Ryan. I've been with BlackLine on the board for over five years, and then for the last couple of months, serving as the co-CEO with Therese. Most of my career I spent at a professional services firm called Deloitte. My last eight years there was the CEO of their advisory business. I fell in love with BlackLine five years ago when Therese and I were talking about potentially joining the board. Interesting, when I was at Deloitte, I wrote the check to become a partner with BlackLine 'cause we saw the potential way back then. It's been a blast all along the way, and my passion really is around customers as well. That's why Therese and I align so well together.
Awesome. Let's start with first question to you, Therese. I was at your conference in November. I thought it was a fabulous conference. There was a couple of product announcements. Two things that we heard from partners. BlackLine is finally organically innovating, right? That was one comment. Then the second one was, "I can see Therese's fingerprints all over these product announcements." More recently, a couple of partners I spoke to said, "Therese coming back will re-energize the product teams in BlackLine." I have to ask you, when you stepped down in 2020, did you expect at that time that you'll be back? What kind of brought you back?
I did not expect to come back really. I have never lost my passion for the company. When we, you know, really, as a board, looked at where we wanted the company to go long term, what our goals were, what we wanted to accomplish, that really seemed to be best accomplished by the team that we have here now. You know, I'd never been inactive as a board member, and of course, I was off building product, which is very fun. It, it was a nice break before stepping back into kind of leading the company again. I'm very, very happy to have Owen as my Co-CEO. I get to do the things that I enjoy, and Owen actually finds enjoyable the things that I find to be a lot of work.
Let's double-click into that. Maybe talk a little bit about that co-CEO role, the differences in what you are focusing on. Maybe talk about that, Owen, as well.
Yeah, sure. I mean, if you don't know it, Therese is really terrific on the product and technology side. She's been very innovative, and I can say, having sat in the boardroom when we were asking her to come back, it was about, you know, reigniting that energy around product development, which was critical to our organic strength. Then from my background, what really been focusing on is building our relationships with our SI partners, as well as helping to help our sales team play at a higher level because of the nature of our product portfolio now. We're dealing much more with CFO types as well as the technology function and helping to raise our game to talk to those kind of buyers of what BlackLine has to offer.
Yeah. Understood. Therese, now that you're back, and as you look forward in the coming years, and where the company is today, what are you seeing as kind of the strongest opportunities, going forward, right? Is there any kind of big challenge that is facing BlackLine as you kind of look forward?
You know, in terms of challenges, I think, one of the things that's most important to both Owen and myself is the customer centricity. Of just, reminding every partner, every employee of BlackLine that the reason that we exist, the reason that we are successful, is because we've always been a customer-centric company. Sort of bringing everybody's attention back to that has been where we've been primarily focused. You know, some of that might be time to value, some of that might be how our products work together. Really, you know, does it serve the customer well? Is what you're doing serve your customer well, is sort of the question that is asked on every single action that we're taking right now.
What about the biggest opportunity looking forward?
Biggest opportunity. We've got some great growth levers in front of us. Our SAP partnership is still one that's under-penetrated. SAP has approximately 10,000 customers that have more than $1 billion in revenue, so 10,000 enterprise customers. We've maybe gained 1,000 of those. Our SolEx partnership is huge opportunity for us. I think both new and both organic and inorganic acquired customers present an enormous opportunity to upsell into our current client base. We have something like, I think 49 is the number that we've published, of customers that pay us more than $1 million a year. What's interesting about those customers is that they are just standard enterprise companies. They are not particularly unusual, all right? They're not in a particular industry. They're not of a particular ERP.
They're very, very similar to our other 2,000 enterprise customers. We see tremendous upsell opportunity into our enterprise base.
Yep, understood. Therese, since you're here, I have to ask you about Accounting Studio. That product came out, and it seemed very unique. It almost seems to me kind of you're aspiring to become an underlying fabric of the office of the CFO, connecting not only just BlackLine products, but outside of BlackLine as well.
Yes.
Maybe talk about the long-term vision around that product.
Sure. The Accounting Studio is a product that we introduced at our user conference in November with general availability later this year, okay? What's interesting about this, underlying is one way of putting it. Maybe, another way might be as a command and control center. In other words, it allows our customers to document their processes inside of BlackLine's Accounting Studio, with then utilizing the APIs to actually have updates in real time of the status of those processes. It's based on a concept that we sort of really loved back in 2016 when we acquired a company called Runbook that had a product called Smart Close.
That is basically a workflow engine inside of SAP that allowed you to create work streams, document what those work streams were doing, and subsequently see, you know, and branch based on the results of each step. Imagine that same sort of workflow stream, only a level up and in the cloud. That's the Accounting Studio. With the idea of not only can you see what's happening with your work streams inside of SAP, but also other ERPs that are out there, other systems that are out there, as well as BlackLine's suite of products. It's a pretty powerful concept because what we've learned from our customers is that the systems landscape, the process landscape that currently lives inside of finance and accounting is pretty convoluted and complex across many different systems with a lot of band-aids in place.
The ability to actually have a singular command and control center from the cloud for all of these different systems and processes is something that's enormously appealing to our customer base.
For it to be a command and control center, would there be a data flow in, inward and outward outside of BlackLine?
Absolutely, and that's part of being a platform. You've gotta have a very smooth data ingestion and data exporting functionality to be a true platform, but that's kinda table stakes for any platform that's out there. You know, you've gotta have good data ingestion. You've gotta have data massaging and transformation because you might have, you know, Therese Tucker in one system and Tucker comma Therese in another, and you need to be able to do proper transformation in order to have the right flow. You've got the flow of data, and then you've got the reporting of the data out. All of those are table stakes in any platform that you're working with.
Yeah. It's not GA yet. It's coming out, later on. Have you disclosed how are you thinking about pricing it? It sounds like will it be more applicable to the larger companies that have multiple ERPs than a mid-market company?
You know, like a couple of our products, we're actually seeing a lot of interest from the mid-market as well on this. I mean, people like. Even if you look at, for example, BlackLine's system landscape in finance and accounting, it's pretty complex. There's a lot of different systems out there that we're using. There is appeal to the mid-market as well. We are still trying to figure out how to best roll it out and best price it. You know, we like. The best pricing in a SaaS world is not seat-based, it's getting paid back of value of what you bring to the customer. In order to do that, you have to be able to measure that value. That's one of the things that we're working through with our beta partners right now. We don't have final pricing on that yet.
likely not a seat-based, but something else?
Yeah. Not seat-based.
Right. Okay. Got it. Moving on to the most common topic that across software nowadays, the two-letter word, AI. You know, BlackLine is an automation kind of software, right?
Yes.
How are you thinking about kind of the generative AI, changing the space, right? Do you feel like it's going to supercharge the automation that BlackLine does or in the space overall?
I don't know about supercharge. Okay, you have to understand the space that we operate in, our buyer is extraordinarily risk-averse, okay? If we were to go to our average customer and say, "We just introduced AI, and it's gonna present you with some decisions that you should make based on our mathematical model, which you don't understand," they would reject that out of hand, okay? I do believe that there's tremendous possibilities in utilizing generative AI to present information to our customers that helps them with risk mitigation, okay? For example, if you have 100,000 reconciliations each month, and I could present you the top 10 or 50 or 100 that were, you know, maybe not done well or maybe had a hint of fraud to them or, right? Just things that represent risk.
You would really love that because now we would be using AI in a way that aligns to our buyer profile, which is, how do I reduce risk? Rather than, you know, we're going to throw all software out and let AI do everything, which would make all accountants immediately suspicious and crazy and not happy, you know, how do we use it instead in such a way that aligns to their values? That's how we're approaching it, and I think it can have a really nice impact, maybe in a way that the last round of buzzwords did not, right? You know, buzzword bingo and all of that. I do think that this is different than some of the other waves that have gone on in the past, I don't think it's going to.
I think you have to use it properly.
You do have, I think you had introduced something called Intelligent Matching in between.
Yes. Yes.
We never heard much about it.
Our AR tool actually uses machine learning.
Okay
to get smarter and smarter as people are using the matching tool. We have incorporated that, and our customers love it. There's, you know, things that we do around creditworthiness on the AR side that are very, very useful. Again, if you think about it's around sort of the making work easier, mitigating risk, not replacing a human brain.
Yeah.
I'm not sure accountants will ever buy into that.
Yeah. Definitely, I can, I can see that. Maybe, maybe I can bring Partin. I'm trying to bring him into the conversation. Maybe talk about macro, right? I mean, macro has been a topic of discussion. I'm sure, and I'm not just putting you on the spotlight, I mean, Therese or Owen, please feel free to chime in as well. I'm sure you have spoken to customers after you have reported, what's your kind of sense of the macro environment at this point? How, how's kind of the demand environment, the kind of the business confidence among customers when you're talking to them?
Sure. Over the last several quarters, we view the office of the CFO as being the one who, particularly inside the enterprise, who is acting with uncertainty in front of them. We've seen our share of elongated sales cycles, we've seen our share of additional approvals and aging sales deals. Coming into this year, that's how we guide it and that's what we know is sitting on a lot of our customers' minds is some of the economic uncertainty. Now, having said that, we also see a lot of excitement at the top end of the funnel. We see customer conferences sold out across the globe, from the UK to Australia, to our own here in North America back in November.
There's a lot of understanding that this is a when. When is this going to happen versus if. It's the conversion at the bottom end of the funnel, and that's what we have typically seen in the past around a macro issue. It is a headwind. It is in our guidance as a headwind. But the strength of the business, the customer conversation and energy exists for us, particularly in our customer base. 4,000 customers today, 2,000 large enterprises and 2,000 mid-market, many of whom are involved in their own digital transformation project where they're continuing to buy more of our product and expand. We see that, and it's a big part of our growth profile.
In fact, in the last couple quarters, it's been a great driver of our growth, selling and cross-selling additional products into our own customer base.
Yeah. Understood. Top of the funnel seems healthy. Going into this year, I think one of your strategy is strategy is to lean in on strategic products, right? We have heard this in the Analyst Day as well that you had.
Is there any particular product that you think might actually do better? AR seems like the attach rates on AR is a little bit higher than some of the other ones.
Pinjalim, who you looking at? 'Cause you got three people with all very different opinions.
Okay.
Why don't we let Therese take that first?
Let's hear it then.
Well-
You can start.
Look, I love the Intercompany product because I started my career as an auditor back in 1985, and I still remember putting four pages of 16-column together, trying to eliminate all my client's intercompany transactions. Fast-forward to 2022, 2023, the world still hasn't changed much. In fact, it's just gotten more complicated, in particular because of the way intercompany transactions are now being viewed by regulators all around the world so that they can sort of track revenue and profit in a specific geography. It's become much more of a real issue with real tangible consequences. 'Cause in the past it used to be, "Well, let's just get to zero," and that's all that mattered, if everything netted.
Now it's about have you gotten your revenue and your profits in the right geographies to make sure that you're paying only what you should be paying for taxes. Because guess what? When the authorities come in and make an adjustment in jurisdiction A, you don't all of a sudden get to take a credit in jurisdiction B. It's got real financial implications, and it touches so much more of an organization because it deals with legal, it deals with tax, it deals with finance, internal audit, you name it. That to me is I think, a huge opportunity because these issues are very real for our customer base. Now you can say why the other products are better.
Yeah. No, I think that's right. For those that might be new to the story, we've got a number of strategic products. IFM is Intercompany Financial Management is the one that we think is leading the charge in this near-term year. Just behind that Pinjalim would be Transaction Matching and Accounts Receivable. Places where we've invested or acquired capabilities that we now have can and are selling into our own customer base. Our growth profile is 60% of our sales today come from our existing customers buying more from BlackLine because we are there, we have the relationship and have proven the value of these additional products.
For us, that is a growth lever because these are deep accounting automation, high ROI that can sell into the teeth of a macro headwind. It's a big part of our growth profile with IFM leading the charge. Another one I'll add to that is that the intercompany really is a great opportunity for our partner ecosystem to get involved and to generate their own economy around consulting and implementation. That's also a big part of this year's growth profile. Yeah.
You want-
We're okay. Do you want me to talk about FRA?
Please.
I don't know. What's your favorite?
Yes.
Well, Financial Reporting Analytics is something our customers have been asking for for years. The ability to generate a balance sheet or an income statement with the click of a button, with drill-down transparency into precisely how those numbers were arrived at. We launched that. It's an organic product. We launched it in mid-November, and it's had a faster uptake than anything else that we've ever released. Yeah, it is a bit of my baby at the moment. I think Mark will tell you it's not meaningful to the bottom line in 2023. I'm trying to prove him wrong on that.
Mm.
I actually have heard good things about FRA from your partners too.
Oh, it's so awesome!
... the fact that it actually pulls in variance module as well seems like resonating well. I want to ask you, maybe Mark Partin or anybody, I guess. This point about the strategic products as a percentage of your overall business has been pretty consistent at about call it 20%-24%. I think your target is 15%-20%. You have been around that range somewhere, right? Do you expect that range to move higher as you lean in on it? When we had the Analyst Day, there was a slide in there, right? You had shown some of the attach rate. Transaction Matching was the highest at 26. Rest of them were single digits, right?
AR, I guess, was the newer one, but it has, I wanna say, 9%. I might be wrong completely, but I'm going my memory. The rest of them were like 1%, 2%, 3%, right? What has to be done differently, you know, to drive that motion, you know, forward in a better, kind of-
Yes
... deliberate way?
Yeah. A year ago, 15%-20% of bookings was the target for the strategic product portfolio. This year, 20%-25%. We're moving up each year gradually. In our Analyst Day materials, we laid out what the embedded TAM is for the strategic portfolio in our own customer base, the 2,000 enterprise and the 2,000 mid-market. We value that, or we size that at over $1 billion to sell the products that we already have in market to the customers that we already have for BlackLine. The opportunity is very large. As Pinjalim stated, the, the penetration rate in most of those are in the single digits. How do we leverage up? I think you're looking at two of the ways that we do that.
When Therese and Owen have started, part of what they've laid out is raising the level of conversation within the office of the CFO. If you think about these products as high automation strategic, they really do raise the conversation to include IT, to include other areas of the office of the CFO beyond just the controller in the accounts receivable and in the tax departments. Being able to come to the table with the right messaging and the right solution to these very large problems is one of the ways that we are leveraging that up. The partners, the messaging, and the ability to speak to the CFO at a much higher level. Those are things that we are, and they are, focused on.
Yep, understood. Therese, maybe I'll ask you this question. We are hearing a little bit of a growing level of noise around competition in the field, right? There is a set of companies, one particularly in the enterprise, that is making a little bit of noise. There are some companies in the mid-market as well. How do you view kind of the competitive landscape now that you're back, you know, versus when in maybe 2020 or before? You know, what does BlackLine need to do to kinda maintain that competitive edge?
Well, you know, I think noise is the right word. You can say anything as a private company, all right? That being said, the counter to that is you should always be paranoid. I mean, that's very important. Our competitive landscape has not changed a great deal. Where we are at is, you know, we want to deliver value to our customers and give them a wide breadth of things that they can actually adopt and use as a platform for their digital transformation. I think that's our best approach to anything that's out there. I don't know that anybody else out there has got a platform like we do that is built by accountants for accountants that, you know, can really take them through a true transformation process. Do you wanna add anything to that, either of you?
No. Well, I come out of an industry where competition was brutal and fierce every day. I'm thrilled that Therese and Mark and others in this organization are not gonna get caught sleeping on where the competition moves to. I do think that for us, as I've watched our organization, learning how to compete a little bit differently, because there's sort of a BlackLine way of what, you know, the value that we bring. Also being able to understand and articulate the differences between the value we bring and what others might be saying in the marketplace is something that's important. I'm very confident in sitting here and telling you, by what we believe is a wide margin, we have the best products in the marketplace.
We believe that we have the best client roster. We've got an exceptional team. Being able to demonstrate not only the strength of the product, but all the customer care that we've invested in to help our customers be successful, all the investments that we've made on the cyber side to protect, you know, our clients' information and data is a thing, again, that some of our competitors don't do. In fact, we know we spend more, for example, on product development than some of our competitors you're referencing even have as revenue. I think we feel pretty confident, but we won't be caught sleeping as we move forward.
Let me see if anybody else in the audience has any questions. Feel free to raise your hand. I think we have a mic at the back. I don't see any questions. I want to ask you about Accounts Receivable Automation, which is basically the Rimilia acquisition. We have heard from partners that matching cash payments to customer balances is a very manual process, and there's a need for automation in that space. Talk about that opportunity. Is that mainly an enterprise opportunity or a mid-market opportunity, or would you say it's broad-based? Because I also hear that in the enterprise, some of the ERP companies might be having some of those capabilities already.
I'm not sure if it is, you know, how to think of that opportunity in broad terms.
The first part of the question was cash?
Yeah.
Yeah, for cash management.
Yeah. Okay, cash management, right. We, we entered the cash management, liquidity management space two years ago through an acquisition of a company called Rimilia. Think of the cash cycle that we operate in as being cash application, cash collection, cash intelligence, knowing how to speak to your customers, what you're collecting, and then liberating that cash from the balance sheet through proper application. Very, very manual. Still today, AR has been one of the most stubborn areas for software to automate. Think of AP, a much more mature market versus AR.
We've got a couple hundred very happy customers that have been able to improve their liquidity, been able to have a more efficient cash conversion cycle, which, as you know, these days is much more important than ever in this debt environment and in this interest rate environment. It for us, was sort of skating to where the puck is, the same way Intercompany Financial Management is, right? In foundational accounting and in provincial accounting. We think these are places where accountants will eventually catch up. The enterprise today, most people would think the banks solve this or that it can be done by outsourced labor in other parts of the world, but, you know, globalization has an impact on that.
What we see in our customers is the ability to have a greater, a better, more efficient conversation with their customer through a greater liquidity management on the balance sheet, and we're just beginning in that market. We've through our own development and through the acquisition, have just begun to invest there. We think we're one of the leaders in this space, and over time could want to continue to invest in that position.
Yep, understood. Let me see if any hands are going up. Nope. Mark Partin, since you are in the panel, I'll ask you an organic growth question.
Yeah.
BlackLine is operating in a large market, which is gaining relevance. You know, that you have new products that are launching, you have the opportunity with your strategic products to sell within the base. There is a little bit of noise on the competition side. Taking all that into consideration, how do you kind of think of the organic growth profile of the business? Now, this year growth has taken a step down because of macro, would you say there's an opportunity to kind of accelerate growth into the mid-twenties at some point? Do you feel like the, you know, the maturity of the business is that maybe the sustainable, you know, zone is a little bit lower?
Yeah. Yeah. Thank you. Well, first I'll start by saying that the three of us feel like that, you know, we are not happy with where revenue growth is today, and largely that's a macro headwind. We're very focused on driving growth, and we've laid out back in November a number of growth initiatives. At the front end of that is the strategic portfolio. This is a way we believe that we can really help our customers drive transformation in the office of the CFO. We have one of the best positions there. We're a leader in the office of the CFO, and we've got a number of products with great market opportunities. That's one of our great growth initiatives.
The second is our partnership with one of the largest ERPs, SAP, who is a go-to-market partner for us that can help sell globally and expand our growth potential. Our view, as we laid out back in our Analyst Day, is that this, as a leader in the market with our growth levers, can achieve a 20%-25% growth rate with a target operating model of 20% operating margin. We've got good visibility towards that. We've got a number of growth initiatives that we're investing in, and we've got a very large market in the AR intercompany and financial close space that we think can support a leader at that growth rate.
That's what we're all three here to do, to drive that growth at that responsible growth at that sort of profitable margin that we laid out.
I guess the follow-up to that is could this year be kind of the trough, from a growth rate perspective, given if macro-.
Yeah
... kind of sorts itself out?
Yeah, tough to grow in a straight line with this kind of a macro environment, frankly. Since the beginning of COVID, we saw a pullback in demand and then a surge in demand. We think in this macro environment, another pullback. We're in the office of the CFO, we think that's an extra sensitive place to be in the macro. That needs to sort out. The business is executing well. The leadership position is, you know, being maintained, and we're continuing to invest. While being profitable at a 10% operating margin, we're continuing to invest in scaling the business in growth initiatives. It's a nice... We think it's the nice or rep-responsible balance to get back to a three to five year midterm model that we laid out from Analyst Day.
That's sort of the timing that we wanted to give ourselves in this, in this macro environment.
Awesome. I think we're almost done.
Yeah.
Over with time. My asking another question would probably take 20 seconds. Thank you so much for all the insights.
Thank you.