Blackline, Inc. Q3 FY2020 Earnings Call

Ladies and gentlemen, thank you for standing by, and welcome to the BlackLine Third Quarter 2020 Earnings Conference Call. At this time all participants are in a listen only mode. After the speakers presentation there will be a question-and-answer session. I would now like to hand the conference over to Alexandra Geller, Vice President of Investor Relations. Thank you, and please go ahead, ma'am.

Good afternoon, and thank you for your participation today. With me on the call is Therese Tucker, Founder and Chief Executive Officer of BlackLine; Marc Huffman, President and Chief Operating Officer; and Mark Partin, Chief Financial Officer. Before we get started, I would like to note that certain statements made during this conference call that are not historical facts, including those regarding our future plans, objectives and expected performance, in particular, our guidance for Q4 and the full year are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent our outlook only as of the date of this call. While we believe any forward-looking statements we may make are reasonable, actual results could differ materially because the statements are based on our current expectations as of today and are subject to risks and uncertainties, including those stated in our periodic reports filed with the Securities and Exchange Commission, in particular, our Form 10-K and Form 10-Q. We do not undertake and expressly disclaim any obligation to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. Also, unless otherwise stated, all financial measures disclosed on this call will be non-GAAP. A discussion of why we use non-GAAP financial measures and information regarding reconciliations of our GAAP versus non-GAAP results is currently available in our press release which may be found on our Investor Relations website. Now I will turn the call over to Therese to begin.

Good afternoon, everyone, and thank you for joining us today. I am pleased to report that the demand environment has steadily improved, and we have seen increasing activity and momentum throughout the third quarter driving another quarter of solid results. The momentum we have experienced is validation that finance transformation is mission-critical and climbing to the top of the CFO's priority list. We believe BlackLine is well positioned to capitalize on this demand environment. As the leader in this space, we have and will continue to invest in our market to support our growth initiatives and best serve our customers. At the start of the pandemic, we made a strategic decision to stay the course with investments in key areas, such as organizational leadership, R&D, customer success and our partner ecosystem. We believe our strong results validate these investments. Earlier this month, we announced the acquisition of Rimilia, a leading provider of accounts receivable automation solutions. We got to know the Rimilia team over the last year, and I am thrilled to welcome them into the BlackLine family. Their culture and values are very much aligned with ours, and we look forward to a successful combination of our two companies. The acquisition expands our core customer capabilities to automate another big problem for the modern-day controller. This $10 billion untapped market opportunity is top of mind for most companies we talk with. We are very excited about this next step, which Mark will speak to in more detail shortly. Before I turn it over to Mark, I wanted to provide an update on the future for finance and accounting. Nearly nine months into the pandemic, companies around the world are rethinking their physical footprint, as employees continue to embrace the benefits of working from home. We believe the future of work for finance and accounting has been irrevocably altered. Some of our customers are already shifting to a permanent remote close because they have found greater efficiencies and using the BlackLine platform, and we expect more customers will make flexible work arrangements permanent as well. We are very pleased that BlackLine customers have been successful in this environment. However, we serve less than 2% of our addressable market. There is a very large untapped opportunity for the majority of companies struggling with manual and unsustainable accounting processes. We believe these market dynamics will continue to favor our value proposition, and we are ready to meet the needs of customers accelerating their digital transformation spending. And last but not least, I would be remiss if I didn't mention how proud I am of our team's ability to support and lead our customers while also continuing to execute during this pandemic. Just last month, BlackLine was awarded a 2020 Tech Cares Award from TrustRadius, for going above and beyond with our quick response to the COVID-19 pandemic to help companies close their books in the face of unprecedented challenges. I am so pleased with what we have been able to accomplish as a company through these difficult times. And now, I'll turn it over to Mr. Huffman to discuss our recent business performance and the acquisition of Rimilia in more detail.

Thank you, Therese, and good afternoon, everyone. As Therese mentioned, we've seen continued improvement in the demand environment with each month stronger than the one before. As a result, Q3 performance came in ahead of our expectations with solid execution across the business. These results highlight the progress we are making on our multi-year growth initiatives. For instance, the large deal momentum we experienced in Q2 continued in Q3, and we now have more than 20 customers with $1 million or more in annual recurring revenue. The conversations we are having with these customers are very positive. The companies who have invested in digital transformation are moving forward with their existing projects, and we feel good about the pipeline for future quarters. We had another quarter of strong account growth. Our global customer teams frequently engaged with and led our customers. And in turn, Q3 had a number of large deal expansions and continued adoption of our strategic projects. The simplicity of our modern accounting playbook or MAP offering and its immediate ROI continues to resonate with mid-market CFOs. In Q3, MAP drove a strong quarter for the mid-market, with a record volume of new logos, including some international ones. SOLEX also delivered another strong quarter with twice as many new logos as the prior year. SOLEX deals were global and included wins in APJ as well as EMEA. Given SAP's seasonal Q4 and a growing SOLEX pipeline, we believe we have a positive setup going into the end of the year. I'm very pleased with the success of our implementation teams who have driven increasing services revenue throughout the year. These teams haven't skipped a beat as they continue to engage with customers around the world for remote implementations, resulting in our strongest services quarter yet. And we further enhanced our competitive positioning in the quarter with strong win rates and a number of competitive takeaways. These positive indicators give us confidence that financial back-end automation will remain a priority and potentially accelerate when the economy begins to recover. Now I want to share just one example of a BlackLine customer who has realized significant return on investment through BlackLine and finance transformation. Red Wing Shoe Company is a great example of an established manufacturing and retail company, which has been working with BlackLine since 2017 to streamline and drive efficiencies in their accounting operations. Based on a recent assessment by Nucleus Research, which analyzed Red Wing's total investment in BlackLine over that three-year period, they determined the annual ROI was 379%, with a payback period of 4.8 months and a savings valued at more than $1.2 million per year. In addition to the rapid payback period, Red Wing realized positive cash flows in all three years as well as better organizational visibility and improved standardization and controls over their accounting workflows. Beyond the favorable cost-benefit analysis, Red Wing realized increased productivity from reduced workloads and time savings from streamlined tasks. Our account reconciliations product reduced the volume of reconciliations by over 7,000 reconciliations per month, saving accountants at the corporate office over 3,500 work hours every month and shortening their retail store cash reconciliation process from an average of 40 days to four. The journal entry product reduced the cycle time of each journal entry by over 33% and saved their staff managers and directors a total of 1,500 hours per year. Red Wing is only partway through their finance transformation journey with BlackLine, but their impressive returns won them the 2020 Nucleus Research ROI award for their BlackLine deployment. We would like to congratulate the Red Wing team on this honor. And if you haven't already, I highly recommend you review the Nucleus Research case study in the press release section of our Investor Relations website to hear more about the story. Our ability to serve our customers and commitment to customer success are founding principles of BlackLine and the value that I plan to maintain and prioritize as incoming CEO. Over the past several years, it has also been our strategy to find more places where we can serve the controllership. Our acquisition of Rimilia is a strategic investment that grows our TAM and strengthens our product capabilities. In today's macro climate, managing cash on a corporate balance sheet has become an urgent priority. It's estimated that more than $1 trillion is tied up in balance sheets around the world. This money cannot be used by those businesses to fund their growth or pay their vendors. It's just sitting in unallocated cash accounts on worldwide corporate balance sheets. That's where Rimilia comes in. Rimilia customers have told us that this software has helped them unlock their working capital. Rimilia software automates the collection and allocation of customer cash in real time, reducing days sales outstanding and releasing working capital. This ability to unlock working capital and manage liquidity helps CFOs and controllers reduce risk and make better decisions for their business. With the acquisition of Rimilia, BlackLine has extended its platform into adjacent markets, which has become increasingly relevant. In addition, BlackLine has strengthened its position with the office of the controller by driving end-to-end automation of the cash life cycle and ensuring greater data integrity. In the months since we announced the acquisition, the reaction from customers has been overwhelmingly positive, which further validates our view that the accounts receivable market is a compelling space to enter. One of the things that excites us most about Rimilia is their shared passion for finance and accounting transformation through intelligent automation. Rimilia's AI-powered accounts receivable automation has created great value for its more than 100 customers. Similar to the financial close market, the accounts receivable market is largely unpenetrated with the majority of companies using legacy manual processes to manage their order-to-cash process. According to independent third-party analysis, it's estimated that the total addressable market for accounts receivable software is approximately $10 billion, and it's early, and their competitive space is highly fragmented. We are very excited to enter this new and increasingly relevant market that increases BlackLine's combined TAM to more than $28 billion. We're happy to welcome the over 100 Rimilia employees headquartered in the U.K. with employees around the world to join our team and to learn from their great depth of knowledge and expertise. We look forward to sharing their leading practices with our existing customer base and building on the momentum that they have established to date. We will be highlighting Rimilia at Beyond the Black, our largest customer event of the year, which already has more than 8,500 people registered. In addition to the acquisition, we've continued to invest in our own customer success through increased R&D and product innovation. We've made significant investments in our product and technology teams and leadership with nearly 100 new tech hires in the last 12 months. We've also made great strides towards modernization of our platform, and we'll be in a position to share more Beyond the Black in November. Moving forward, we believe the improved demand environment in Q3 will continue into Q4. We're pleased with the recent activity and the momentum that we've seen and what it means for BlackLine's path ahead. And now with the acquisition of Rimilia, we expand our TAM and add another growth lever. We are in the early innings of a significant market opportunity and believe this market will accrue to the leader over the long-term. As we maintain our focus on customer success and continue to invest in our long-term initiatives, we firmly believe that BlackLine will be a beneficiary of accelerated digital transformation.

Thank you, Marc, and Therese, and good afternoon, everyone. We are pleased to report better-than-expected Q3 results in revenue, profitability, and cash flow. Total revenue grew 21% in the quarter, driven by strong sales execution and record services revenue. As you heard from Therese and Marc, this performance was driven by another consecutive quarter of improvement in the demand environment, which benefited sales productivity and close rates in the quarter. Digging into revenue a bit deeper, our international business grew to 25% of total revenue, up from 22% in the prior year. Revenue from our SAP partnership totaled 23% of total revenue in line with the prior year. Strategic products represented 17% of sales for the quarter, in line with our anticipated range of 15% to 20%. Approximately 60% of large deals in the quarter involved a partner. And as we predicted, despite a strong renewal of 97%, our dollar-based net revenue retention rate came down slightly from 108% to 107% due to current demand and risks impacting our expansion efforts. The bottom line continued to benefit from cost savings related to the mandatory work-from-home regulations, including lower T&E, rent, facility-related costs and virtual marketing. Combined with higher-than-expected revenue, we generated net income attributable to BlackLine of $15.1 million. We continue to invest in the business, and you can see R&D as a percent of sales increased by 200 basis points in the quarter, where we are accelerating our investment. I'm very pleased with our team's ability to manage costs effectively while also advancing our long-term initiatives in the face of this pandemic. We generated a record $22 million in operating cash flow and $18 million in free cash flow for the quarter due to a focused effort from our accounting team to solve for aging and AR. Like many companies, we have prioritized cash management in this environment. We finished the quarter with approximately $526 million in cash equivalents and marketable securities, which excludes the $120 million of cash paid to acquire Rimilia, which was transferred on the last day of Q3 to effect the transaction in Q4. While we continue to work with customers on COVID-related relief programs as necessary, they were not material to our Q3 results. We feel we are generally out of the woods related to these programs and are cautiously optimistic that we will start to see the benefits from these relief efforts as the economy begins to recover. As mentioned earlier, we completed the acquisition of Rimilia for a purchase price of $150 million, of which $120 million was payable at the close, and the remaining $30 million will be paid over a 2-year period and subject to certain earn-out provisions. The acquisition was funded by existing cash-on-hand and did not result in any material impact to our Q3 financial results. For the fourth quarter, we expect the revenue from Rimilia to be immaterial. We also expect the transaction will be dilutive to net income and have a short-term headwind to gross margin and free cash flow due to investments in integration and spend to support future growth, and you can see that dilutive impact in our Q4 net income guidance. Turning now to guidance for the fourth quarter of 2020, which includes the impact of the Rimilia acquisition, total GAAP revenue is expected to be in the range of $91 million to $92 million. On the bottom line, we expect to report net income attributable to BlackLine in the range of $4 million to $5 million or $0.06 to $0.08 on a per-share basis. Our share count will be approximately 61.6 million diluted weighted average shares. For the full year 2020, total GAAP revenue is expected to be in the range of $347.4 million to $348.4 million. On the bottom line, we expect to report net income attributable to BlackLine in the range of $37 million to $38 million or $0.61 to $0.63 on a per-share basis. Our share count will be approximately 60.7 million diluted weighted average shares. In summary, we are very pleased to see demand returning in the market, the strong execution from all members of the company and a better-than-expected Q3 performance. As a CFO, I think the Rimilia acquisition will be a great opportunity for our sales team to expand our strategic footprint inside our large and expanding customer base. I know we are all excited to work with Kevin Kimber and his incredible team to drive great results as we move into 2021. We remain focused on capitalizing on the opportunities for finance transformation and driving further momentum in our business. And now we will take your questions.

Our first question comes from the line of Rob Oliver with Baird. Your line is open.

Great. Good afternoon everybody. Thank you very much for taking my question. I had one for Marc Huffman and then a quick follow-up for you, Therese, if that's okay. Marc, your comments were quite sanguine on the outlook for Q4. And I think you mentioned SOLEX as well. So, I was just wondering, given the recent negative pre-announcement from SAP. I know you guys have, to a certain extent, somewhat limited visibility into that channel, but you did sound quite optimistic relative to the seasonality in Q4. So, I was wondering if you could maybe reconcile those and talk a little bit about that.

Yes, thanks Rob. I think this highlights that SAP's performance is not a reliable indicator of BlackLine's performance. Our partnership is extremely valuable, and we have achieved significant success with our joint customers. This is reflected in our strong quarter, with twice as many new logos as last year. It shows that our approach is effective and growing. However, SAP is just one part of our overall customer base regarding the ERP systems they use, and we cater to a diverse range of companies with different ERP solutions. We are able to effectively serve all of them.

Great, that's helpful. Thanks, Marc. Therese, I have a question for you. I know we're nearing the end of the call, and you mentioned in your prepared remarks that accounting and suite transformation is becoming a priority for CFOs. Reflecting back to the IPO and earlier discussions, this has always been seen as a significant goal. I know you've made progress in this area, and that comment really caught my attention. It must be rewarding for you. Could you share a bit more about what you mean by that, what you're observing, and why this is now becoming a priority at the CFO level? Thank you.

Absolutely. Rob, I'm actually hopeful that I'm not coming to the end. I'm transitioning to a different role, which I'm really excited about, but I remain very supportive of BlackLine and Mr. Huffman. So, I'm not done yet. Don't write me off. Regarding the CFO, you're right that this has been a trend, and it's very gratifying. Over the last year or so, even amid the pandemic, companies are truly embracing digital transformation. CFOs genuinely believe in the benefits they will gain. This is one reason we mentioned the ROI award that our customer Red Wing received. We are observing a focus on digital transformation at the CFO level, as it has a significant impact on operations and is typically a substantial investment. Both the potential for modernization and the willingness to invest are capturing their attention.

Great. Thanks very much. Appreciate it.

Thanks Rob.

Thanks Rob.

Thank you. Our next question comes from the line of Koji Ikeda with Oppenheimer. Your line is open.

Hi, guys. This is Chad Schoening on for Koji. Thanks for taking my questions. Actually, I have a question here on the competitive environment and what you guys are seeing out there in terms of competitive bids for new deals. You did mention strong win rates in the quarter. I'm just wondering if that activity in terms of competition has picked up at all over the last six to nine months. And on that topic as well, are there any new players in the space that seem to be popping up as you guys are competing for new deals? Thanks.

Well, thank you, Chad. What's picking up is, I would say, the demand environment. And so just like our performance and the visibility that we have; every month since we entered pandemic time, we've got a little smarter and a little more efficient, and our business has become even more performing. And so that sort of tide of things also probably applies to the demand environment, meaning that everybody is seeing a little more activity, and maybe that tide is rising underneath a lot of boats. In terms of new competitors, not really a difference in the competitive makeup. The biggest competitive scenario that continues to exist for us is inertia, people stuck in legacy manual, unsustainable accounting processes and the reticence to invest in finance digital finance transformation. I can tell you that we feel like we are seeing improved win rates and increased deal velocity, specifically around where we've got our modern accounting playbook at play, it's really well received, specifically by mid-market CFOs with a very tight time to value and quick ROI. So we feel like we're still in a battle against inertia and are pretty happy with our competitive positioning right now.

Super helpful. Thank you.

Thank you. And our next question comes from the line of Matt VanVliet with BTIG. Your line is open.

Hi. Thanks for taking my question. Great job in the quarter. With the Rimilia acquisition, you've expanded your portfolio and are now covering more ground in the finance and accounting office. Has this changed your overall sales process? Perhaps in terms of who your initial contact is? Are you moving up the hierarchy a bit more? Can you share how broadening your capabilities is affecting the sales pipeline?

Matt, I'm sorry to do this to you. Could you rephrase the question for us or summarize? We just had a quick blip in our phone.

Yes. No worries. Yes, I guess just as the product portfolio has expanded, given both acquisition and some internal development, are you moving up sort of who your initial point of contact is? Has the buyer changed and maybe what the whole sales process has evolved over the last several months or year?

Got it. Thank you. So not substantially. We have been laser-focused on the controller. Specific to the category or the place that we pioneered and created and we're the leader in that automation of the closed process. The addition of Rimilia gives us additional area where we have incredible value that we can bring to that same buyer persona, the controller. And I think what we're seeing play out here is a good realization of our strategy, a multi-year growth initiative we put in place two years ago, where we really focused on account management. Making sure we had the fully funded and developed set of offerings through account management and other expertise that we have in our service and customer teams so that we can help people identify where they can get good ROI and make sort of more strategic uses of our software that is growing the footprint. And I think contributing to the fact that we have so many clients paying us such a large ticket now.

And then just following up on sort of the overall deal momentum you're seeing throughout the year here. But I wonder if the conversation sort of early on in the COVID-19 scenario was, let's not rock the boat. Let's try to make what we have here as useful as possible. And now as the prospect of getting into a year-end close and starting a new year is happening. Has there been an acceleration in sort of conversations with customers saying, we need something in place because this is going to be sustained longer and more difficult than we thought. We're anticipating being back in our offices by now, and it's just not happening.

There's a lot of variability to the answer for that. Some of it comes through experiences that our sales team and services teams have relayed. And then, our own personal interactions with various CFOs and controllers; it really depends on their environment, what industry they're in, the shape of their business. Some people who had finance transformation strategies underway took a breath. And they've returned to funding those, as they've sort of become more comfortable and understood that this is going to be a longer, more sustained impact, they should continue and fund those things. You've got other areas where people have had to substantially remediate these really manual processes that they were in quite a blind spot, if you will, earlier in the pandemic, and they needed to get base use cases put in, and we've seen some of that drive some of the adoption for us. So I would say, it's sort of all over the map, depending on each individual business's impact to the pandemic in their environment.

All right. Great. Thank you.

Thank you. And our next question comes from the line of Matt Stotler with William Blair. Your line is open.

Hey. Thank you for taking my questions. I guess, just first on the Rimilia acquisition. So you've obviously spoken about how you're making a move that you're making, spoken about expanding BlackLine’s value in the office of the controller, which makes a ton of sense. But there are a lot of accounts receivable automation players in the market. So would love to understand the differentiation of the asset or what rationale led you to pick Rimilia? And then what was the reason for going this direction in the context of that larger goal?

It's clear that expanding our total addressable market by $10 billion is very appealing for us. This aligns with our growth strategy, as the opportunity is closely related to our buyers. We see significant potential in using artificial intelligence for intelligent matching, which we believe will ultimately benefit our entire technology stack. There are numerous synergies within the data models as well. However, if we focus on our core mission of serving the controller, this market is very promising. There's a substantial amount of unallocated cash that we can help operationalize. I genuinely appreciate the brands and the diverse customer base we have, along with our excellent distribution organization. One of the key reasons for acquiring Rimilia is that while they possess strong technology and a reputable brand in Europe, they lack distribution in North America, which we have. These factors contribute significantly to our decision to partner with Rimilia.

Yes. We met them a year ago, and it was crucial for them to serve the enterprise market. Their product can scale to very large companies, and we believe their culture is a good fit for ours. It's a complementary culture and values-driven company. We discussed this earlier, but they are a strong competitor in this market, and it's not just about the technology; it's also about the people.

So you can see these guys already feel strongly about it. I don't think I have anything to add to that, Matt.

I appreciate the information. As a follow-up, I would like an update on the strategic products. Last quarter, you mentioned strong demand for transaction matching and ICH specifically. However, we noticed a decline in overall revenue contribution, understanding that things can fluctuate. I would like to better understand the trends in that market, particularly regarding those products in the pipeline and what influenced that contribution this quarter. Thank you.

Yes, of course. Look, the pipeline for strategic products has been robust over the last six to nine months. And what had been driving that pre-COVID was large digital transformation projects. And we saw those freeze earlier in the year. And as we continue to see momentum in larger deals, we see that pick up. Year-to-date, our strategic product contribution to our sales has been about 20%, record in Q2 and within our range in Q3. So we will see that attached to these large deals, and we're seeing that momentum. And it's across all three products. It includes ICH, smart close, and transaction matching. And moving forward, we'll have Rimilia as part of our strategic portfolio as well. So we're excited about that part of the business.

Great. Thanks, again.

Yes, you bet.

Thank you.

Thank you. Our next question comes from the line of Brian Peterson with Raymond James. Your line is open.

Hi, everyone. Thanks for taking the questions. So maybe one for Mark Partin. Just on the margins, they've been much better-than-expected over the course of the year. Just curious, is there anything in terms of efficiencies that you guys have gained this year? And I'm looking to hone in on the go to market. I know we've seen some strength in the mid-market. But just curious, what's driving the margin expansion?

Yes. That's right. Thanks, Brian. Interestingly, Q3 was the strongest gross margin quarter we've ever had in both subscriptions and services. And we are undergoing a public cloud transition with Google, with GCP, and that will begin in earnest as we move forward and going into next year. And so we've been talking about that potential drag on the gross margin. So I should throw that out there. But what we see in the last two quarters is that we've really benefited from a lot of the work from home. We are not spending as much on T&E in rent. And so that's dropping directly to the bottom line. We have some, I would call it, just really well-managed efficiency in the sales and marketing where we have maintained the same level that we came into this pandemic with, which has given us some margin opportunity there. We have continued to actually increase our R&D investment, which has been an increase in R&D as a percentage of revenue. And then, of course, in G&A, we're seeing some real sort of operating leverage as we scale and get bigger. So the margin is really benefiting over the last couple of quarters from work from home. And as long as that lasts, we believe we're going to take some value from that to the bottom line.

Got it. Thanks, Mark. And maybe a follow-up. Just on the idea of build versus buy, obviously, Rimilia is getting added to the fold. I'm curious, how are you thinking about adding to the product portfolio organically or through M&A? Thanks, guys.

We are examining the categories and areas we want to operate in, keeping our core mission in mind. We believe our opportunity lies in digital finance transformation. This includes the typical processes that occur in the office, such as people interacting with the controller's office. Therefore, we will maintain a strong focus on this. We will assist our customers with close automation and expand our offerings in cash application and accounts receivable automation. Additionally, we will seek opportunities to automate other nearby processes where there is movement in and out of the controller's office, whether that involves building ourselves or acquiring solutions.

Great. Thank, Marc.

Our next question comes from the line of Josh Beck with KeyBanc Capital. Your line is open.

Thank you all for taking the question. I wanted to also ask about the acquisition. I don't know if there's any other color you can provide on the revenue model works between subscription and transactional or maybe how to compare their ARR versus yours or ACV? I'm not sure if there's anything you can share with the mechanics of the model.

Yes. I'll give you a shot at it. Rimilia is about a $10 million business when we bought it. And the business model is very similar to ours in terms of very high renewal rates, particularly in the enterprise segment, which dominates most of their customer base, high 90s. They have a greater than 100%, something close to hours in terms of retention rate. So it's a super sticky product. They land and then expand. The vast majority is subscription revenue. They have a small amount of services, something similar to our revenue mix. And so look, it's a growing business, which is one of the things that really excited us. And we think with our distribution, it can continue to grow. It will be, as I mentioned, from a business model, it will be dilutive to our business model in the fourth quarter and moving forward for a short time. And that's in large measure because we're investing in their products and in go-to-market.

Very helpful. And I think you had mentioned something like 100 customers. It certainly sounds like they have a little bit of an enterprise and European player to them. Do you find most of those customers came from perhaps they were using a module that was hanging off of an ERP, and it just really didn't meet their standards? Or do you find that maybe they had tried other kind of modern solutions around the idea of invoice automation. Just any context you can share on where those customers have come from for them?

Many companies are still handling cash manually. There are numerous processes involving spreadsheets and labor that are outdated, and we believe we can help these companies automate. For instance, large teams are tasked with processing data files, searching for payments that lack identification, and figuring out where to allocate those funds. They effectively utilize our artificial intelligence to improve how they match payments, making their operations increasingly efficient. However, many businesses still perform these tasks in a very manual way.

Yes. And to the ERP, they have a good set of ERPs, including SAP. They sold in something similar to our customer installed base with SAP as a percentage. We also have some overlap. We were able to do some research on our own and their customers really love their product, and there's a little bit of complementary overlap. So they have an installed base that we think will be very complementary to our ability to work with our customers.

Okay. That makes a tough sense. And if I could just maybe sneak in one more, with some of the commentary around the relief programs, it certainly sounds like there's really a lot of health in the customer base. And just when I think about the net revenue dollar retention, I mean, does that mean that we're maybe approaching a trough here? Just any context or maybe you can talk about how it perhaps exited the quarter? Just any color you can share there.

We were prepared to offer more under the customer relief program than was ultimately necessary or requested. Consequently, the impact on our financial results in Q3 was reduced, and we expect it to decrease further in Q4 based on our current observations. The dollar-based net retention rate is affected by this relief, but it is also influenced by the overall demand environment. While improvement is noted, there has been a decline, and this is a 12-month rate. I wouldn’t categorize Q3 as the lowest point for that rate since it follows a 12-month formula. As demand improves, that rate could start to increase in the future. However, the customer retention remains strong, the relief was less than anticipated, and the focus is on enhancing the demand environment.

Really helpful. Thanks, everyone.

Thank you.

Our next question comes from the line of Chris Merwin with Goldman Sachs. Your line is open.

Okay. Thanks so much for taking my question. I wanted to ask about Rimilia as well. Yes, it sounds like the product today, it's already being sold to enterprise. I mean, are there any other investments you feel like you need to make? Or is this sort of ready to go in terms of your ability to start selling this into your larger enterprise customers? And then separately, how should we think about the period of ramp-up of getting the sales force to start initiating dialogues on this and maybe when we might start to see some impact in net retention as you make progress on the new products? Thank you.

Yes. Thanks, Chris. Our intention is to invest significantly in this market and in this company for several reasons. It presents a large market opportunity. They are well-positioned at this time due to the focus on cash management and the ability to stimulate demand, starting with our customer event in the fourth quarter and continuing into next year as we refine our go-to-market strategy. We plan to invest in maturing their product portfolio; they have other products we will also support and develop. We believe what they currently offer is scalable to the largest organizations. Therefore, it will be readily integrated into our market. However, we want to invest in the people, the space, and the product throughout the next year. We are committed to doing this.

Yes, I believe the timing is very favorable for us as we approach the end of our fiscal year. In the fourth quarter, our goal is to ensure our team remains focused on capitalizing on the opportunities available to them. Their existing sales team, while smaller, possesses a strong pipeline. These individuals are beginning to see the advantages of investing in these focused opportunities. We have integration teams working diligently to prepare a plan that we are confident will enable us to achieve our financial goals with the products currently listed. Additionally, as Mark mentioned, we are investing in the business to enhance capabilities that will support our growth initiatives. Lastly, we are very excited to showcase this new capability to our broader audience through our Beyond the Black conference, which is being prepared for delivery in November.

Thanks so much.

Thanks Chris.

Thank you. Our next question comes from the line of Mark Murphy with JPMorgan. Your line is open.

Hi, good afternoon. This is Matt Coss on behalf of Mark Murphy. Can you talk about your hiring trends for the rest of the year? Over the last sort of 5 to 6 quarters, it's been pretty steady at about 20-ish to 25% year-over-year growth rate in head count. Has that changed at all in Q3? And do you expect a change in that in Q4?

Yes, hi Matt. You're right. It has been pretty steady across the board, primarily around 20%, a little higher than that, over 30% in the tech and R&D organization for obvious reasons. And then with the addition of 100 employees from Rimilia, that adds to the overall employee population. As we head into this end of this year and going into next year, our view is that, that will remain relatively steady. We started the year with 2 record quarters of hiring, slightly lower in Q3, just given that's typical and seasonal, and that's usually what happens in Q4 as well. And then it ramps back up starting again at the beginning of next year. That's our typical rhythm with a normal company anyway.

That's helpful. And I read the press release that mentioned Domino's, getting the Domino's business in Ireland and the U.K., and I'm pretty sure they're already a U.S.-based customer. As you think about sort of that win and the number of global customers that you have, is that something that you've been doing elsewhere, but do you look at your customer base and see sort of the large opportunity for those global expansions?

Yes. So it's clearly one of our multiyear growth initiatives, fully invested in account management. So our sales leadership brought a playbook into play here that fully invests in account management, fully funds the customer teams around process experts and other things that allow these multi-national companies to understand how to operate in these environments at scale, distributed across the world. And now increasingly, in a world where you don't get to come and see each other in the office. And so you'll continue to see, I think, these large distributed organizations continue to roll out and succeed with BlackLine.

Thanks very much.

Thank you.

Thanks, Matt.

Our next question comes from the line of Terrell Tillman with Truist Securities. Your line is open.

Hi, guys. This is actually Nick on for Terry. Thanks for taking our question. So kind of related to the large deal momentum. You guys have talked about large deal momentum continuing in Q3 and now having more than 20 customers with one million plus in ARR. I guess our question would be, are you seeing a common identifiable pattern of adoption and expansion with these larger customers that you can continue to repeat moving forward? Or does it really vary on a case-by-case basis? And I guess a majority of these customers initially sourced through partners? Just trying to understand the adoption and expansion pace with these customers.

Well, the attribution, I'll leave to Mark Partin. But in terms of the pattern, yes, you start to see these patterns identify partly, because we've been fairly purposeful in how we're doing that. So we're trying to land these customers on a set of well-known best use cases. So think of those as our leading practices. If you were going to start and you're going to move from manual and unsustainable into modern accounting, you would do these three or four things really, really well. We get those ironed out, and then we sort of build momentum with them. And then on a case-by-case basis, largely depending on their needs and priorities as well as their industry, we start to introduce additional use cases that leverage the experience we have with nearly 3,200 companies who do something like that, and they can benefit from that experience that we have. And so that's sort of this accounting journey that we take them on, and over time, they gain momentum with that. And I think that's what's really driving a lot of strategic product add-on, high amount of use cases around our matching engine. And like I said previously, I think that's how we have so many companies now paying quite a bit for BlackLine, getting great value for it.

Yes. And this has really been an exciting part of our business. And one of the big differences is that when we went public in 2016, we had two customers over $1 million, and those customers were five years old. It took them five years to get there. Today, customers can get to that point much faster. They can land there. And that's in large measure due to the capability of the account management team that Marc mentioned. The ecosystem and partners that we've now engaged that become part of that solution, the overall solution that's being delivered and the SAP partnership, which can and does bring large strategic deals to BlackLine. So large transactions for us, the average has been in a little over 100,000 in the enterprise. So seeing companies that can and do scale to over $1 million footprint is very exciting.

Got it. That's very helpful. Thanks guys.

And our last question will come from the line of Brent Bracelin with Piper Sandler. Your line is open.

Hello. It's Claude Jeffries on for Brent. First question on MAP. Good to hear that another record number of mid-market logos, even after the implementation and promotion, and is there a plan for success or go-to-market choice that you're making that's specifically resonating with these mid-market CFOs.

I think the term may not sound appealing at first, but it's actually very attractive for CFOs and controllers. We offer a clear path for digital finance transformation. Our expertise is combined with our software and delivered efficiently, allowing people to go live quickly and see a rapid return on investment. This approach really seems to resonate.

Great. And I apologize for getting the competitive landscape question again, but it has come up. You have a cloud-based ERP provider that released a major accounting upgrade today, and I've had some customers talking about a virtual close last quarter. Is this really just an indication the market has grown overnight? Or how should we be thinking about this?

A cloud-based ERP provider is mainly focused on selling ERP solutions. They have operated on the edges of this space, but we offer a distinct value to clients throughout the entire closing process and in automating various accounting procedures. We can provide and manage controls through checklists for closing books. There is a significant difference between what we offer and what others provide, and we are concentrating on the latter. I believe the market is more inclined towards a more comprehensive solution.

Great. Thank you.

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Ladies and gentlemen, this does conclude the program. Thank you for participating, and have a great day.