Good to go?
Oh, wow.
All right. Awesome. Well, thanks everybody for joining us today for the afternoon of day two of Citi's Global TMT Conference. I'm Steve Enders, part of the software research team here at Citi, and here for this session. Very glad to have the team from BlackLine here. I want to thank you both for joining us today.
Thank you.
Thank you.
Maybe just to start, I think there's been a lot of changes with BlackLine over the past couple of years. Maybe we can just start with what the core story is today and how you're viewing the opportunity to invest in BlackLine over the next three to five years.
Yeah. Thanks, Steve. We have been on a rapid journey to transform the business. Three years ago, roughly, when I stepped into the role, we did a complete refresh of our strategy, where we wanted to go, focus on certain parts of the market to really be more selective about the customers we chose to do business with, the industries, the geographies, the ERP partners, the system integrators. We did a lot of what I would call choices in and choices out. That served us pretty well as we moved through the last couple of years. We really got our innovation back in motion when we brought our founder back into the business, who drove a lot of that, including stuff around Studio360 and then expanding the platform to be even more complete around financial close.
I think we were smart that we had some insight as to the possibilities of AI and what that could bring for us. In some ways, we were ahead of the curve. In other ways, the market's moved so quick, we're still trying to make sure that we're the relevant player in that. Importantly, one of the big things that we'll be sharing at our BeyondTheBlack conference in November, and we've sort of hinted at it already a little bit, is our Finance Control Console, which will really provide sort of complete governance around AI in the office of the CFO, which is something that our customers and our partners and the BPO partners have been talking to us about.
Like how can we help to orchestrate and manage all that workflow, not only for what BlackLine builds, but for what maybe some of our partners and our customers also build. So that's some big things that are coming. We've got a lot to share. But we feel pretty good about the position that we have in the marketplace.
Okay. That's great to hear and definitely excited to see what comes out of that in November, I believe. So, yeah, definitely looking forward to that. Maybe we can dig a little bit into just the demand environment today. I think you called out some deal delays in the past quarter. I think there's more friction tied to evaluating AI. Can you just maybe give us a better sense of the dynamics that are at play here? How are you expecting or baking in the deal cycles into the guide for the rest of the year? And then, I guess as we think about the other side of that, what do you kind of feel like are the levers that are in your control to try to improve deal cycles moving forward?
There's a lot to unpack there.
Yeah.
First of all, our pipeline's never been more robust. And our pipeline is more robust at the upper end of the market. So mega enterprise, upper end of the mid-market, which are the places that we're really trying to drive our success. So we feel good about the situation with opportunities. Our deal cycle has always been relatively long. 12 months is not uncommon for what we do. It has elongated in the first seven-plus months of the year. Part of that was driven first by build versus buy. All of a sudden, everybody had bought a lot of tokens last year at the end of the year, and they were trying to figure out, "Well, can I just buy code, my financial close, preparation of my financial statements?" And so there was a lot of what do we do around that.
For us, we spent more time with CIOs and CFOs, controllers, and their teams talking about the pros and cons of trying to build versus buy. You have now seen a lot more in the marketplace around when you should build versus when you should buy, which stacks up well for us because you shouldn't really be trying to build financial close and consolidation capability. That certainly was a big piece. The other thing that's really happened is companies are afraid of AI at a certain level. They want to embrace it, but they're also a bit unsure of how to unleash it in their organization. CIOs certainly played a bigger role. Chief legal officer is much more involved in conversations beyond the normal sort of agreements that we get into.
We have run into a number of bigger companies now have AI czars who are trying to figure out what that role is. We have been asked to provide much more clarity around our own AI governance, how we build things, and making sure that we're not going to build something that gets unleashed in our customer's systems and goes crazy. All that has added to the complexity of getting deals done. What do we do to try to respond to that, right? In the first quarter, we were sort of, "Okay, what does this all mean?" We did a lot of work educating our people on build versus buy. The second quarter, which is really now into the third quarter, much more work around talking to our customers early on like, "Hey, here's what we're seeing.
Here's the questions you should be asking." So we have the answers for it, right?
Don't wait for them to try to figure it out. Go be very proactive early on in talking about AI governance. We now have much more standard answers that we go into proactively. We're trying to engage some of the people who come later in the deal cycle earlier because, again, the deal cycle, if we're going to shorten it, then we have to go down multiple parallel paths. We can't just sort of the linear typical procurement. You do this, check the box. You get to the next milestone, check the box. There's a lot of work that we have done to try to change that. That said, some of these big companies, they're not going to change their procurement processes just to accommodate BlackLine. There's some of that push-pull that we're working our way through.
The things that we can do to shorten time to value, we have focused on, we've gotten better. I think Patrick would say in the first quarter, we had a fair number of deals that rolled into the second quarter. Many of them closed prior to the end of the second quarter. The second quarter deals that extended, most of them have now closed. So we've shortened that up a little bit. I think if we think about the first half of the year, we still have one really large deal that hasn't closed, but basically all the other seven-figure deals at this point have closed. I think from our vantage point, we're not losing, it's just being delayed. So these questions of if versus when is good for us because it's just a timing issue.
Okay. Then Patrick, I guess, what are you assuming in the outlook right now?
So everything Owen just said is factored into the current guide and stole a little of my thunder there. The way I'm looking at it from a data-driven, fact-driven, numbers-driven analysis is, those large deals at the end of Q1 that slipped took X number of months to close. It took several months towards the end of Q2. Even some of them slipped into Q3. The reason for that was education. It was our customers understanding what's the art of the possible with AI. Back in February when this all started, or this narrative started, at least, AI was the panacea for everything, and companies are learning that's not true. So they're getting smarter, but we're getting smarter, too. To Owen's point, our sales team is much more enabled on messaging.
Not just our sales team, but our customer success managers, and how they engage our customers and educate them. Then we look at Q2. We had slipped deals again, but those deals closed in about a month or so. All but one of them. So the slippage rate is compressing. Now, is the deal cycle the same as it was this time last year? No, but it's getting better, and so that's been factored into the guide. We think a couple more quarters of this education, getting the message out there, word of mouth, seeing what the art of the possible is and realizing that BlackLine is your first and only choice, and trying to vibe code your financial close is not the path you want to go as a CFO.
That has been factored in, and that's how we're evaluating it from a data and days to close analysis.
Okay. It seems like the changes you've made are starting to have an impact and at least are starting to-
Of course.
To change things. I guess any read-throughs, I guess, so far through 3Q, at least for net new things extending or anything?
They never let me answer anything because I say things I am not supposed to, so I am going to look at him. Go ahead, Patrick. Keep me out of trouble.
Anything new we are seeing for Q3?
Yeah, I guess asking, you saw the deals slip from 2Q. Are you seeing the closure rates in 3Q or anything? Are the changes you are having an impact in terms of stemming the tide there?
Yes, it continues to improve.
Okay.
We are getting much sharper on build versus buy. We are getting much sharper in understanding the risk of trying to build, and now we are putting some real numbers behind it. There are studies out there saying where you should use AI, where you should not use AI. What is it? RBC, Deloitte, a couple of other studies saying this is your total cost of ownership if you try to build something like this in your financial system ecosystem. The short answer is, for a CFO, the ROI doesn't justify trying to build something like this. It is not just us out there messaging it. There are now third parties, there are experts in the field that are out there validating what we have known, and that is very important when we go out there and compress those deal cycles.
Okay. No, that is great to hear and very clear there. Maybe this is a good opportunity to talk about your own AI capabilities and what you are putting out there with Verity. I guess as you look across those agents and you look across what you are doing with 360, just what have you seen so far from adoption trends and customer interest, and I guess what is resonating at this time as you talk to customers with those solutions?
A couple of things that are important. One is almost all of our innovation we do through the lens of our customer and our partners, right? We talk to them about what they want to see built, and we then build it sort of almost in conjunction with them. There is a lot of prototyping before we go to early adopter and then general release, and then those customers become pretty good advocates for us. I think the thing that we saw is originally we had sort of an opt-in model for AI. We switched that to opt-out, and we had conversations with all of our customers about that, and very few customers have opted out of our AI capabilities.
We are starting to see, and we saw certainly from the first quarter to the second quarter, now early indications in the third quarter, really positive trends of our customers using things more and more. We feel really good and confident about that, and it will be interesting to see when we cross those thresholds where they start paying for consumption because they are getting more productivity out of using our AI. All of our products now have, all parts of the platform are AI-enabled or AI native at this point in time. We will have a lot more again to share and announce in November. I am blown away by what our product and tech team has been able to do. They really have taken the challenge to sort of reimagine, rethink the way BlackLine builds its products, brings it to market.
Our ability to innovate has been just shockingly good to me. I really have been blown away by it.
Okay. I guess, great to hear that the products are resonating. When do we start to see that kind of flow into monetization, and when does that upside on the usage actually drive new revenue for you all?
We're already seeing it. The proof is always in the numbers, and we're just seeing phase one right now. Let me explain what that means. You can't separate the AI story from the platform story. We signaled at the beginning of this year, we ended 2025 at 11% of eligible ARR on the platform. We targeted and set a goal of 25% by the end of this year, and we have a very clear line of sight for that 25%. We feel very confident in that. That is a product-led initiative. Just to recap, just a quick brief history here. When we launched this platform pricing initiative and start researching it in 2024, it was about unlimited users. That was the value proposition. In 2025, we started with that, and we saw great uptake, 90% + with our new logos.
But we didn't quite see that uptake in our existing customer base because most of them had already optimized the number of users that they needed. As we built Studio360 and developed it, and also then started building agents that operate within Studio360, it went from an unlimited user story last year to a product-led story. What I mean by that is, if you're a customer and you want access to our agents, you have to be on the platform. That's why we're seeing the acceleration in terms of the percent of ARR on platform. We're going to go from 11 to at least 25. That's 14% this year. We're going to enter what I would call the S curve of adoption next year and see that accelerate even more.
That's very important because that acceleration, that rate of conversion, will generate at least 2 points of incremental ARR growth or revenue growth above and beyond our current run rate. Our current run rate is 9.5% ish. Add 2 points to that, we're at 11.5% next year on a guide of 13% before we even factor in FedRAMP, KSA, our other products, and several other growth levers that we have. That's why we feel confident not just about where we are now, but where we're going for 2027. That's step one of the monetization. Now, step two, each customer that adopts our platform gets a certain number of transactions for free, and that's very important. We don't sell tokens to customers because people like me, a CFO, doesn't want to buy tokens. I have no line of sight on the amount of token usage.
I don't know what outcome that generates. I don't know what that does for my business. I don't know how it affects my strategy. You need to sell people like me an outcome. What do I mean by that? How many reconciliations is an agent going to perform now on your behalf? How many journals is it going to book? How many phone calls is it going to make to delinquent customers on your behalf? Those are metrics every CFO knows inside and out. That's an outcome. There's a real cost to that. There's a real value to that. That's what a CFO is willing to pay. We give these agents in a small sample size as part of the platform uplift, and that allows CFOs and controllers to test the agents to make sure that they work. It's a requirement if you're a public company.
That typically takes a couple quarters to get your internal and external auditors comfortable, meaning you have the agent running over here, you have your historical manual process over here. The outcome has to be identical for all transactions. Once you prove that on a sandbox or sampling basis, then you can release that agent into your entire population, your entire ecosystem. That drives up consumption. That drives up transactions. That's when you go through that free tier of agents that we provide to our customers. Once you go through that, it becomes tiered pricing, and that's round two or level 2 of our monetization. First, you get the uplift. A couple quarters later, you start driving AI-based consumption revenue that we've never done before. That's why we feel so good about 2027 and thereafter in terms of our AI story and our innovation.
I guess to your point there, as a CFO, you worry about incremental costs coming through and I guess a consumption-based model. When you have these solutions, is this more about becoming an outcome-oriented model that is, I guess, underpinned by the consumption and you're selling 1 million reconciliations or whatever the number is, and that's the point of it versus driving the consumption?
It has to be. That's the only way you're going to effectively sell this because a CFO needs cost assuredness.
Yeah.
You have to have control over it. You have to have a line of sight of it. Selling somebody like me tokens does not work because I don't know what that means. I have no visibility into it. Every CFO knows how much time his or her team spends on booking journal entries, doing reconciliations, right down the line of all the financial close and financial reporting process. That time is money. That money is value. That's the outcome that you're selling when you sell these agents. I'm going to come in, and this agent's going to perform this many reconciliations, et cetera. I can immediately, as a buyer, associate a cost and value to that, and that's what I'm willing to pay for it. That's how we're going to market, and it's really resonating.
Okay. No, that's great to hear. I guess maybe on that kind of similar line of thinking, when you start rolling out these products, these solutions, how do you think about the value capture that should kind of come to BlackLine versus what accrues to the customer, what accrues to some of the other underlying model vendors and things like that? Do you have a framework to kind of think through how you capture that ROI?
From a selling standpoint?
Yes, from a selling standpoint.
Yes, we have a very good idea in terms of, we right now, Legacy BlackLine, I am putting example numbers out there because experiences are different for every customer, depending upon if they are mid-market or enterprise or multinational or domestic only. Long and short of it is, we know the level of automation our customers experience without AI, and we know what incremental level of automation these agents deliver. That incremental amount, let us say it is 30%, 40%, 50%, 80%, that is the incremental value. The willingness to pay above what we are currently charging them is a number less than that, right? Because we both want to benefit. We want more revenue, but they are not going to pay for every single dollar of incremental value. They want to see benefit, too. We find that equilibrium. We have a very well-thought-out model for that.
We know inside and out how our customers are using our product, and that is how we price it to our customers. We know, okay, based upon how you are using BlackLine, we can deliver a 50% compression on this cycle, and we know how much that is worth to you. We will raise your price 20% or 30%, so we both win.
Okay. That makes sense. I want to pause there and see if there is any questions in the room here. Okay. Maybe shifting gears on maybe talking a little bit on the go-to-market side. Maybe we can focus on SAP and the relationship there. I guess to start, just where are we in terms of that, in terms of them pulling you into incremental deals, is there more things that need to be done from an operational perspective to make that relationship closer and tighter and moving forward?
In so many ways, it's a wonderful relationship.
Yeah.
I think when I go back to when I was over there in November of 2024, talking with their leadership about trying to reset the relationship with a number of key things that we've laid out in prior earnings calls and the things that we said we would do around product roadmaps, customer success, go to market, launching into different geographies, things of that nature. In so many ways, both sides could sit there and say, "Check, check." Probably the most significant thing is if you look on SAP's website, they have a golden architecture, which in the heart of it is BlackLine, and how that all fits together, and that's a really big deal. The work that we've been able to do with SAP Joule and BlackLine Verity has been incredible. We feel really good about all that.
That said, it's still not moving the number the way that we certainly would like from a BlackLine perspective. As you guys all know, we got about 26% of our revenue comes from deals with SAP. Despite all of our best efforts, we're still at about 26%. Next month, when I go over to go visit with their leaders, that's really one of the topics we want to understand because we've made so much investment in the product side, the customer side, trying to go to market together more. Why isn't it showing up? We have some pretty good viewpoints, which is, their customer is typically the CIO. Ours is somewhere sitting in the office of the CFO. They just speak different languages, and that we all speak different languages to each other and where our comfort zones are.
We've got to get better at figuring out how to get into the same rooms where you get a CIO, CFO, BlackLine, and SAP, and maybe an SI in the room together. I do think AI actually is going to be a facilitator of that because we've had a lot of good success, what we've built from an AI perspective. I think that's been well acknowledged by the SAP leadership. How do we work with a CIO and the SAP account rep to sort of bring more BlackLine AI to the table? Do we have the incentives aligned the right way to drive more of that?
When I think about the upcoming meetings we will have, we will focus on the product roadmap, what are we doing there, then how do we really monetize that so that it performs better than the rest of BlackLine does on a standalone basis? Then continuing to focus just on the innovation and the things we are going to reveal in November at BeyondTheBlack or those things that we will talk to them privately about what we are driving towards. Again, I feel very fortunate and blessed that it is the relationship we have. From our vantage point, we just would like to get more penetration out of it.
I guess at that point, considering it has been pretty locked in at that level, still seeing the growth acceleration come through feels like it is a pretty good validation of everything else that is going right around BlackLine. Do you feel like if you get that right, that is a big incremental unlock that should drive a further acceleration versus the 11.5%-13% that we are talking about?
I do.
Okay.
But again, we just got to keep pushing on it. As I say, and I have to remind myself of this, it is interesting. In some ways, the closer we get to SAP headquarters, the worse we do. That is just, it is almost counterintuitive, but our greatest success with that organization is in North America, and then it is in England and in France, and then the closer we get to the DACH region and the Nordics, it just has proven to be a little bit harder. For us, we have just changed out a bunch of our leadership in those markets, brought in some fresh folks, trying to sort of reinvigorate and drive that relationship forward. There is no reason we should not be able to do more there, but we just have not gotten it right at this particular point in time.
And that said, there's still plenty of opportunity for us sitting here domestically. You'd be surprised still how many accounts SAP is in that BlackLine's not there yet. So, it's tens of thousands.
Okay. That makes sense. I guess as you think about the go to market, moving forward here, where are you placing your bets for incremental spend to drive the go to market and what do you feel like are the biggest incremental areas of build-out that you still need to do from here?
Yeah. So, like every organization probably, we're continuing to figure out how to get more boots on the street to carry a bag to sell BlackLine. And then how do we pay for that? By cutting what goes on in the back office through the use of technology or the use of offshore resources, or a combination of the two. So, when I look at what are the opportunities, certainly upper end of the mid-market enterprise, mega enterprise is a target-rich environment for us, and we see the net rip and replace we have from those customers. So that's one. Two is driving greater outcomes with our existing customers. One of the things that I think we were disappointed in the first half is we want higher growth in our existing customer base. That's 70% of our portfolio, so we need to do better there.
We do want to get more boots on the ground in Central Europe. So when I say central now, think again, the Nordics, Germany, France, Spain, which is not exactly central, but does I sound like an American with that map? But sort of thinking about that there. We're continuing to invest in the federal government space. We've seen a nice uptick in opportunities there. That's a very long cycle, but we knew and we've spent a lot of money building our capabilities to be FedRAMP compliant. Currently IL2 on our way, hopefully Matt at IL4 sometime next year. And then, one of the bets we put on the board that hasn't paid off was the Middle East. So we had big aspirations for Saudi Arabia.
We still do, but obviously, Middle East conflict has put a damper on that, but that's just a timing issue from my vantage point, and that'll pay itself off.
Okay. Yeah, hopefully that happens sooner rather than later.
For a whole host of reasons, yes.
Yeah. Maybe on the Fed opportunity, that has been a newer area for you. I know this is a big Fed quarter just in general.
Yeah
how are you viewing that opportunity right now?
It was, I said to my board in my note I wrote to them over the weekend, we're excited about the Fed opportunity, but this is our first big year in it, and so our ability to forecast, we don't have any experience.
Sure.
We're not really sure what to expect from it. The good news is I think we've gotten a lot of good air time in front of critical agencies. I think we've shown well as an organization. Auditability that the government is trying to drive towards is certainly to our advantage. I know DOGE probably didn't unfold the way many people thought it would unfold, but there are opportunities from an automation perspective. Interestingly, and Matt would tell me this, Matt is our head of investor relations, inter-government accounting, so what they transfer payments from one agency to the other is quite the challenge. So that was sort of an unintended thing that we found in the process that we're going through. Our software was built to comply with federal government accounting.
It's a cash basis, and as Patrick would say, we do accrual or cash accounting, and so it lines up very well. I do know the one thing that has been important is our security capabilities the government's been very impressed with, and then the volume of transaction activity that we can handle has exceeded all their expectations. So we'll see where it plays itself out. I think for us, federal government is just a timing issue now.
And then importantly, one of the markets we are really trying to explore is, because of the way Europe is beginning to decouple from the U.S. or the U.S. is decoupling from Europe or whatever way you want to describe that, some of the things we are doing around data sovereignty in Europe, which we will talk about more in November, sets us up potentially well to work with some of their more sensitive industries. Also government in Europe is something that we are really looking at.
Okay. No, that is great to hear. In the last few minutes here, I do want to ask a little bit about 2027. I know you gave some initial indications. We talked a little bit earlier about some of the platform and AI assumptions that are being made to drive that acceleration. But yeah, just maybe can you walk us through the overall assumptions that are underpinning that growth excel, and how do we think about net retention improving, the install base converting to platform, Verity monetization, and I guess also mid-market rolling off as a headwind that is in there too?
Yeah, you hit on many of them. But if you want to build it up, starting maybe at the 11.5% where I left off
Sure
That is the 9.5-ish percent run rate that we are at now, plus 2 points from platform conversions. Now, that is just the conversion. That is the initial 10% - 40% uplift upon renewal. That gets you to 11.5%. So you build from there. We do have some FedRAMP in there. We are getting much smarter there, as Owen just noted. We are having very meaningful dialogue now with notable opportunities, so that is a building block. It is called about a half point to a point at least. In addition to that, we have KSA. We are hedging our bets there based upon some of the geopolitical matters going over there right now, but that has a significant up potential in terms of that market. These are in no particular order. Consumption of our agents, that is not part of that 10% - 40%.
That's a monetization of something that we never monetized before. Right now, if you buy our product under user-based pricing, you get unlimited reconciliations. Now, these agents, as they perform the work of accounting and finance professionals, we're monetizing that on a transaction level. That's another half point to a point at least. Just seeing the building block. Then, of course, we've had a lower mid-market story here for about three years in terms of the churn that we're experiencing. We stopped selling into that market three years ago. We're seeing that dissipate. We're at the tail end of that, and going into 2027, that will go away as well. So that's a growth through a reduction in churn.
Lastly, overall, in terms of how our customer success managers, how our solution consultants are engaging our customers, we are continuing to see an improvement overall of churn and attrition. Our platform is stickier, our product is stickier. We're seeing better rates of consumption, and the more you consume, the less likely you are to churn and attrit. That's part of the growth story, too. It's not just all bookings, but it's also the mitigation of the existing ARR base, the erosion of that ARR base as well.
Okay, perfect. In the last minute here, maybe we can just touch on BeyondTheBlack coming up in November. What should we look forward to going into that event?
Yeah. A lot of product innovation, some announcements with some of our design partners for what we call BlackLine 3.0 and some of the things that they're doing, building on top of BlackLine. Then I think you're going to see some real interesting stories around how our customers are using our AI and then building on top of BlackLine with their own AI capability. So I think those are probably the bigger things that I'm thinking about. Obviously, the other one is just, again, as we started earlier on with the Finance Control Console and how you govern AI across the office of the CFO. So those are probably the biggest things that we'll be talking about and showing there. There's a couple other maybe little surprises we'll have for you guys.
All right, perfect. That's great to hear. Owen, Patrick, I want to thank you so much for joining us today. Great to have BlackLine here.
Thank you.
Great.
Thanks.
Thank you.