Conference Transcript - BL 2026-06-03

Pat McElwee, Analyst — William Blair

get off here so morning everyone thank you guys for joining the black line session today I'm Pat McElwee I'm a research analyst here at William Blair covering software as a part of which I cover black line I am required to inform you that a complete list of disclosures and conflicts of interest are available at our website at williamblair.com so with that we're very excited to have the black line team back at our conference this year including chair and CEO Owen Ryan, and CFO Patrick Villanova. For those not familiar, Blackline provides a cloud-based software that automates and modernizes accounting and finance operations, particularly around financial close, reconciliations, and inter-company workflows. So that's my brief two-liner on the business, but it'd be helpful to hear it from your perspective. Owen, can you just start us off by describing Blackline's product and service offering as you see it, what that toolkit looks like and how the platform has developed over time.

Owen Ryan, CEO

Well, thank you. Good to be here again and look forward to the conversation. So we actually celebrated our 25th anniversary yesterday. So not many software companies live that long. So it was nice to be able to accomplish that milestone. You've talked a little bit about, you know, what it is that we do. I would say probably more than anything else, we're, you know, we believe we're probably the most mission critical system for the office of the CFO. Because, you know, if you sit there today, if you just take our public companies that we serve, they run about $54 trillion of market cap runs through Blackline every day. And so we're very important to sort of making sure financial statements can be reduced, management can opine on them, auditors and the regulators can sign off on them and be comfortable with what's out in the capital markets. Our business started, you know, sort of with sort of simple solutions like recs and tasks that has expanded the complete complete financial close all the way up through consolidation now and some level of reporting we also have a a vibrant growing invoice to cash business importantly we've always been sort of cloud-based one of the things that's really shifting in our business and it's been accelerating we have a solution that's part of our platforms called studio 360 which allows sort of a cfo and controller have a complete view. I think the term people often talk about like a control tower to see everything going on within the financial close, that's always been important, but that's become even increasingly important from a governance perspective with the acceleration of adoption of AI in the marketplace. Because now some of the companies are trying to build additional agents to work with black line and making sure the CFO and controller have good line of sight as to what's being built and it works, it's reliable. Importantly for us, one of the things we do spend a fair bit of time on in our business is working with the world's largest accounting and auditing firms to make sure we meet all the regulatory and accounting standards that they have to fulfill auditing standards and increasingly helping to speak with the PCAOB and the SEC and other global regulators about how to think about AI in this world for the registrants that file public statements. So that's probably a little bit of it. We've got about 4,400 customers in almost every major market in the world, certainly in the G7 countries. We typically have at least half of the larger public companies running on Blackline.

Pat McElwee, Analyst — William Blair

Yeah, thanks, Owen. And I think that's a good kind of segue into my next question. So your product's already used by 70% of the Fortune 100. That's what you have in your investor deck. And I think roughly three quarters of that ARR comes from enterprise clientele. So can you help us frame how you think about your growth levers? is it is it deeper penetration within that enterprise opportunity you know your deeper penetration within your existing customer base new lands further down market or just in general how do you think about the next new business

Owen Ryan, CEO

versus and Patrick and I've become pretty good at tag-teaming so we'll do that on this question as well but I think you know so first of all we still have plenty of white space in in our existing customer base so as is if you If you look at some of our most successful customers, they could be 10 times as large as some of their peers. So you could take our best oil and gas companies, you know, $5 million, one of their competitors would be 500,000. So we're trying to get those customers to expand using much more of a black line across their whole organization. We still have plenty of large companies to pursue. We have about 60% of the Fortune 500. So think of it this way, there's still 240 large companies there. and in all the global markets, there continues to be plenty of opportunity. We have recently been building out our FedRAMP capabilities, and so you're starting to see some good traction with that. Obviously, it's a little bit we'll expect to see this year in the third quarter, the so-called killing season in the federal ramp marketplace. I'm not sure I like that terminology, but that's what they call it. And then certainly more in 27. And then strategically, we're aligning to places where SAP has been very successful and because of the SAP Blackline partnership trying to invest in those markets. So, for example, Saudi Arabia seemed like a good idea last year. It still is a good idea despite some of the challenges in the marketplace, but that will work out very well for us as we move forward. So those are some of the bigger things, but you've got a whole list that

Patrick Villanova, CFO

you go through. Yeah, yeah. Well, you hit on a lot of them, Owen, but maybe you want to double click on our existing customer base and the opportunities that present there. You know, Owen used an example, But, you know, without putting precise numbers behind it, some of our top, best adopted, best implemented customers spend millions of dollars a year with us. And customers of a similar size, also in the Fortune 50, Fortune 25, spend a couple hundred thousand. There's an opportunity there with those customers that are spending a couple hundred thousand to bring them to the level of adoption, the level of implementation, the level of automation that some of our top customers have. So how are we going to go about doing that or how are we doing that? and maybe to put some maybe math behind what Owen and where he kicked this off, we have four solutions overall as an organization where we started with financial close and then we expand it into intercompany and then further into invoice the cash and then finally financial reporting and analytics. That's how we serve the entire office of the CFO. Historically, as recently as two years ago, they were four independent solutions and what we rolled out last year is our platform, Studio 360. Think of it as it's a connective fiber between all four of our solutions linked by a single data layer. So what does that mean? It's a single source of truth. All the data organically flows between our solutions and that opens the doors up for rapid expansion into our customer base. It breaks down barriers between our four solutions. It turns four solutions into one platform. That's great for a CIO when you're having that conversation. I'm part of the GTM Motion a lot. I'm a user as a former CAO, now I'm the CFO. And so a CIO loves to hear, this is one platform that he or she has to maintain, not four independent solutions. Then you pivot and have the same conversation with a CFO or a controller. They love to hear, and I can personally attest to this, you just want one single source of truth. You don't want APIs, you don't want connectors between our four solutions. You want one source of truth where you can release technology into that and feel good about the accuracy of the data flowing from solution to solution so this is opening up rapid cross-sell opportunities within our base the second phase of this which is probably where this conversation is leading we are now releasing agents we have designed agents as we become more of an ai native company ai-led company we're leaning into that and for an agent to work in our world it has to work off one data source so these companies that might be designing their own agents and have 50 erps or a financial ecosystem with 100 systems that agent's going to return 50 to 100 different answers in black line when you release an agent into our ecosystem it's one data source it responds with one answer and that answer is right because the input the data we know is accurate reconciled and socks compliant so that was a long answer but i'm personally very excited about the opportunity where we're going as an organization, product led with innovation into our own customer base.

Pat McElwee, Analyst — William Blair

Yeah, that's great. Thank you both for the color there. So I think that leads nicely into another kind of key concern in the software sector right now, which is pricing models. So as you guys have evolved into kind of a truer platform with Studio 360, you've made some changes to your pricing model with platform pricing now growing as a portion of the overall revenue base. so can you just talk through how that dynamic works as you evolve into this platform yeah so

Patrick Villanova, CFO

platform pricing think of it very simply there are three monetization levers that we're seeing with platform pricing and i touched on a couple of them there but first and foremost if you want access as a customer or a new customer existing customer to the agents i just referred to agents that are bringing levels of automation to the industry and to this company never seen before you have to be on our platform you have to be on studio 360 this is a product led initiative when you move to the platform what we're experiencing or seeing and we have data points to prove this out we're seeing about a 10 to 40 percent uplift in your baseline subscription right out of the gates day one 13% of our ARR eligible ARR is already on platform so we have a pretty good sample size proving out customers are willing to pay substantially more just to have access to this. The second monetization event that happens after you move to the platform is actually attrition mitigation. So what does that mean? For the 25 years of our history, our number one source of attrition has been user reductions. The better customers get at using our product, the less accountants, the less finance professionals they need on our product. So it's kind of counterintuitive. The better customers get, the less users they need. So by moving on to the platform you have unlimited users your fee is fixed it's no longer seat based we're moving away from that and we're moving aggressively and so that takes away a source of attrition which was our top headwind for revenue growth in this company's history third what I just mentioned earlier and this is the biggest piece of this of these three monetization monetization levers the agents are going to be performing accounting and finance functions on a transaction basis. The more transactions they perform on your behalf, fingers off the keyboard, the more your price goes up. It's more revenue for us, it's a higher ROI to the customer, it removes more finance and accounting professionals from doing the rote manual work, it drives efficiency, it drives accuracy, and it's literally hands off the keyboard. So it starts with the day one uplift, then user attrition mitigation, and then eventually the third lever is consumption and that's how our pricing model works and it's a notable tailwind

Pat McElwee, Analyst — William Blair

to to our overall growth story. Patrick, have you guys framed how substantial that uplift can be from the seat base of the platform and then under consumption? So as I know we're seeing 10 to 40%

Patrick Villanova, CFO

uplift just to get access to this technology and that that's right out of the gates. We have some early data points on consumption levels, it's early, but But we are seeing that rapidly increase. We release these agents into the platform during the second half of last year. Something to take note of, we give you a sample of agents for free, transactions for free as part of the uplift. That enables a customer to test them, make sure that that agent is doing exactly what an accountant or a finance professional would do, to make sure that internal and external audits sign off on the work performed by that agent, to make sure that agent is compliant with that company's internal policy and procedures. That typically, in a public company setting, takes a couple quarters to validate. But once you prove that agent is doing the identical work that you normally done by a human or normally done manually, that's when the hands off the keyboard begins. You take the work out of the human. You put it into the hands of the agent, proverbially speaking. And then that's when transactions increase. We're seeing that increase now, and that represents the biggest opportunity in our AI roadmap.

Pat McElwee, Analyst — William Blair

So typically we have more of a generalist audience here at the Growth Stock Conference. So Blockline has been a long-standing partner of SAP. Can you just help everyone understand what that relationship looks like and how it has evolved over time? And then also if their cloud transition, the cloud transitions of these large ERP players as a whole, if that has any implications for your business?

Owen Ryan, CEO

Yeah, so we've had a long-standing relationship with SAP. We have a special relationship, what they call their solution extension or Solex partnership with them. We do about 26% of our revenue comes through working with them together in the marketplace through the Solex relationship. Now, we do have other SAP customers that are not Solex. So what do we do together? There's a couple things that are critical. One is we do a lot of product roadmap together. If you go on the SAP website, you'll see something called the Golden Architecture, and almost right in the center of the SAP ERP world is Blackline. Because what goes on in the ERP, then, you know, where the transactions are processed, then eventually it has to be reconciled, matched, and things of that nature and controlled. And that's where Blackline then fits in together with all that. So that's one piece. The second one is we have a good, large, joint go-to-market team. So within Blackline, we call it our SAP catalyst team. So the folks are dedicated to working with SAP in the marketplace. We also have joint customer success teams that work together. That's something relatively new where the SAP professionals and the Blackline professionals work together and are incented to make sure that the right kind of adoption takes place of the Blackline platform within SAP. One of the reasons we had to do this is, you know, if you're an SAP, you've got a, you've got a big bag of things you can carry. And a lot of times the rep didn't necessarily care whether it was Blackline or something else, as long as that, you know, they, they had revenue. Sometimes they would switch out products. And so they weren't as focused on getting Blackline as well implemented. That's, that's all changed. There's really good, strong top to top relationships. I think over the next, uh, next four to six weeks, we had three or four more product roadmap meetings again, sort of figure out the way forward. We have a joint approach to AI so that SAP has something called Joule. We have something called Verity. We've been working together through a memorandum of understanding how we develop our AI solutions in the marketplace. That works pretty well. The swim lanes are relatively clear. It doesn't mean that there's not some overlap at periods of time. But the critical thing is we work really well together to work through those issues to make sure that we're focused on what the customer is looking for. So it's a great partnership. We're the only partnership they have in the office of the CFO that does this. And we are going to continue to invest and support that because it's a great relationship from our vantage point.

Pat McElwee, Analyst — William Blair

Because of this cloud transition, does that increase?

Owen Ryan, CEO

It's helped. It's helped the skills at all. Yeah, listen, I think as SAP is sort of shutting down its on-prem capabilities, there's obviously going to be a migration. I think one of the things where it's a benefit to Blackline, and we certainly saw this at ExxonMobil, where if you just move from on-prem to the cloud in your ERP, there's not a whole lot of value that comes out of that. It's a big number, it's a cost, but there's not necessarily a tremendous benefit. but I think what we figured out jointly is if you start with finance first, if you start with Blackline, there's much more of an uplift. And it's about a year ago when the CFO of ExxonMobil talked on her earnings call about the implementation of Blackline as part of the SAP migration and how much value they achieved as an organization. I couldn't have had a better commercial from that. And Delta was another world-class example of that. So yes, there is uplift I think it's you know it's very real it never seems to happen as quickly as we would like because today if you're gonna spend a hundred million or a billion dollars migrating your ERP you better be able to show that you can get a real good return on investment it will be interesting as SAP closes that window of you know no longer supporting on-prem whenever that might be that

Pat McElwee, Analyst — William Blair

certainly should be even more of a catalyst. Okay great so as we think about those large customers, we look at the numbers a little bit more, you guys have been driving really impressive growth across your size cohorts with customers over a million in ARR growing nearly 20% last year and they grew faster than customers over 250k in ARR and so forth. So my question is what specific products or capabilities are resonating with those large customers and in supporting that growth at the high end and how, if at all, have you optimized

Owen Ryan, CEO

your sales motion to do that? And I think Patrick and I will tag-team on this one again because he's in the market almost as much as i am talking with customers um you know i think a lot of this has been around client selection you know pat in the past i would have said we would have sold software to anybody anywhere anytime and and we've been paying for that in some of the lower you know mid-market churn and attrition over the last couple years as we pulled away from that so we do a much better job of having upfront qualifying the customer and truly understanding, are they willing, are they committed to a digital finance transformation journey? If the answer to that is yes, then we can sell to them and deliver that much more value across the platform. I think what you see, and I think we reported in the first quarter, 90 plus percent of our new customers went right out with the platform, ran out of the box, because in those conversations, it's very clear what they're trying to accomplish, and they recognize that Blackline is the right customer to go on that journey with. I think as you look at the traditional products for some of our existing customers who are going through some level of transition to the platform, they're still sometimes buying additional parts of the suite versus buying the whole thing at this particular point in time. Mostly that's just because of their own bandwidth and how quickly they think they can go through the transition. but you're living with the product team quite a bit and the go-to-market team as well.

Patrick Villanova, CFO

So what are you seeing? Playing off my answer that I said before, what I'm personally seeing out there is kind of what I talked about, the momentum that we're seeing in the market, the excitement that we have in our growth story. Studio 360 has really broken down those barriers from having four independent solutions to having one platform. That's huge. If you're using just one black line solution in all likelihood, you're probably not a seven-figure customer. Probably not. But if you're using three or more solutions, you're almost guaranteed to be a seven-figure customer. So that cross-sell motion that I mentioned earlier, the growth that was just mentioned in terms of our million-dollar customers plus, that's largely being driven by cross-sell. Customers that are not just using financial clothes, but they're pairing it with our intercompany solution and our invoice-to-cash solution. They're seeing more value from that. It's covering more of the office of the CFO, invoice to cash is more operational, intercompany is tax and treasury, financial closes like core accounting, it's covering more of the overall office of the CFO footprint, higher ROI for our customers, more revenue for us. And that's what we're seeing evolve as our technology is joined by a single data layer and Studio 360.

Pat McElwee, Analyst — William Blair

Okay, and Owen, you touched on this a little bit with your answer there, but as you kind to make this transition to these larger a focus on these larger customers you've seen some smaller customers churn off the platform and we've seen that a little bit in the recent retention rates so can you just talk about how you see that cohort you know how long that effect might be in play and what we

Owen Ryan, CEO

might see it kind of an inflection so so strategic so I'm sitting in this chair just a little bit over three years now and one of the things that our founder and my co-CEO at the time, we were looking at the customer base, and we had just sold software to companies where we probably shouldn't have. It was like, people bought a Ducati, and they needed a tricycle. And so it just wasn't a good match. And so we made the conscious decision in probably August or September of 23 that we would sort of wind down that part of the portfolio. Many of those customers had three-year deals. So you're starting to see the fall off of that now. And that will, you know, we expect to see that, you know, lower middle market attrition be substantially done by the end of the year. And over the last couple of years, we've done a much better job of, you know, those customers that were coming on the platform, making sure they were getting value out of Blackline. So we're working our way through it. It is a drag a little bit on customer account, but, and then, you know, Patrick or Matt will keep me honest here. But, you know, the size of of new customers is substantially larger than customers that are going out the door, which is good because then we can invest in the relationship, support them the right way, work with their partner, their implementation partner to really drive expansion of those accounts over time. because as blackline continues to innovate we're we're innovating more now than we ever have as a company there's that much more for our customers that they'll be able to do i was telling one of the groups this morning so we're in business 25 years um as at the end of the year we had written about 20 million lines of code in our first 24 years and seven months and in the last five months we've written five million lines of code um now you can imagine how that's happening right it's all through you know our our engineers now using ai in a different way but it's just accelerating that much more that we can can bring to the marketplace and most of our innovation is done with our customers so we know it's not on a whim we know it's what the marketplace wants which

Pat McElwee, Analyst — William Blair

we're very excited about okay great and it wouldn't be a complete discussion if we didn't touch a little bit more on ai so patrick touched i think a little bit on the upside in terms of the verity offering and how that's you know supporting growth within the platform can you talk about any of the real or perceived risks that ai poses to the platform and you know in any way you'd like to

Owen Ryan, CEO

address that in particular yeah look i think um so first of all you know we have the large language models that are out there and you see you know they they can in theory do everything um probably not true um and so we have to answer those questions for our customers and we get questions like well i have a contract with pick your favorite large language model and why can't i just build my agent there versus having to run on black line and we walk them through a very thoughtful here's a build versus a buy and then here's all the things that you might not necessarily understand because it's great and patrick will tell you anybody can produce a a model or reconciliation one time through an agent but it's the ability to get that done a million times correctly a million times with the right kind of control environment that the auditors are going to sign off on that the regulators are going to accept and when you start to walk customers through that and you know i joke but tokenization has become a four-letter curse word for many cfos because they are spending tons of money not getting a lot of roi and so pretty quickly people then begin to say hey you know we should go with the purpose-built software where we have a great partner that will help us through some kind of forward deployed advisor to continue to innovate what is different in the market now you have a lot of the system integrators the bpos who are all feeling pressure on their own business models like hey why can't we to create agents um for you and so one of the things that will be different for us is opening up our platform even more than we have to those partners and bpos that they can build on on blackline and it's sort of going to feel like if you go to the app store where anything gets on an app store it's got to meet all the rigorous standards that's what we're starting to explore with our partners and bpos now how do we go through that that model so when you have a finna finna operating system agent that works with blackline that you know it's going to be reliable trustworthy that the orders can accept it and things of that nature so you know there's there'll be noise you've got obviously some you know native ai startups that can you know they can reconcile a checking account that's great but that's not the market that we serve um i think it'll put more pressure candidly on the lower end of the middle market than it will on on our customer base any anytime soon that said we're going to keep an eye on on that there's one thing that you know coming out of a consulting background that i've always learned is if you didn't create it you should be a really fast follower if it makes sense and so we have our eyes and ears on the marketplace seeing what's happening in the market what are our customers telling us what are they asking for to make sure we're either being responsive proactive or even better being anticipatory as we move

Pat McElwee, Analyst — William Blair

forward okay great and so as we kind of wrap things up you guys have been alluding to reacceleration in the top line for a little while now and you know we just talked through a lot of the growth levers that follow us in that thought process whether it's the platform pricing the enterprise opportunity, you know, the opportunity to upsell with Verity. As a whole, can you just kind of wrap things up and tell us why you have confidence in that re-acceleration at the top line, all those

Owen Ryan, CEO

things considered? Yeah, and again, we'll probably tag team this just a little bit, but for me, there's a couple things I'm looking at that give me confidence. So one is we've got seven or eight quarters now in a row where our pipeline just continues to increase. So we see the interest interest from our customers. And so it's nice to have pipeline growth. Then what I'm looking at is when you start to have five, six, ten meetings with enterprise customers and they bring 10, 15, 20 people to a meeting, you know they're serious, right? Because they're not doing that just for fun. So that's one of the things we really look at that gives me a lot of confidence. And the other thing that I focus on is RPO. And one of the things, you know, you don't implement Blackline and go, I'm done, right? Because it's a constant journey of continuing to innovate and evolve. And so one of the things that I've been very encouraged by is the growth in our RPO, which shows the commitment that our customers are having to go to longer duration deals because they're signing up for the transformation. They like what they're seeing from an AI perspective. They know we're like really reliable as an organization from a customer support, customer success, product innovation. And so those are the two things that give me the greatest confidence. And then the last piece, which you may or may not agree with, is one of the things I track is a regrettable turnover. So who's leaving my organization that I don't want to leave? And our benchmark is 5%. And that's been running 2% to 3% now for the last couple of years. So that tells me that the people we want to stay in the organization are committed. And I said on one of of the earnings calls. We have 1800 people roughly stagnant over the last three years. 70 plus percent of those people are new and 25% of them are in now low cost jurisdiction. So we've completely changed the profile of the people in the organization and the people we have here are the people we want and are sticking with it. And that to me is a pretty good testament. So those are the three things. You like that answer? I think it's spot on.

Patrick Villanova, CFO

I could put numbers behind it, but yeah, I mean, look, just real quickly, we saw a pipeline generation spike in the second half of 2024, and the rate of that growth indicated that our bookings over the next year would probably grow by 20 plus percent. That's exactly what happened in 2025. Throughout 2025, our pipeline build continued at that same rate, which then builds even more confidence that at even equal conversion rates, which are improving, we're going to grow 20 plus percent in bookings for 2026. That all yields a revenue growth rate in 2027 in the low teens. Those are numbers that you can prove out factually showing that pipeline is a leading indicator holding all else constant of a certain growth rate. And to Owen's point, RPO is huge. This whole AI narrative really started to evolve at the end of last, probably summer of last year. And in Q4, our RPO grew 23%. In Q1, it grew 18%. So there's this narrative out there that AI is going to do X, Y, and Z, yet our customers are signing up at rates for longer contracts, more revenue durability. Our RPO is over a billion dollars for the first time in history. That's guaranteed revenue, guaranteed future revenue. So, putting real factual finance data points behind our company's performance is why we feel confident in the growth model.

Pat McElwee, Analyst — William Blair

We went over, yeah, sorry about that. No, that's great. Thank you guys so much. So good to be with you again. Thank you. Congratulations on your role.