Conference Transcript - BL 2026-03-03

Operator

So look, why don't we go ahead and get started. We are just delighted to have Blackline join us. How many years in a row has Blackline done this? You guys have been really good.

Owen Ryan, CEO

I don't know, but I started this three years ago with you. Yeah, it's been really good.

Operator

It's been really good. And what we talked about. Well, first of all, Patrick is the CFO on the far left, and Owen is the CEO. Oh, and how long has it been that you've been in this role?

Owen Ryan, CEO

It'll be three years this week.

Operator

Coming up on three years. And you were on the board for how long before that?

Patrick Villanova, CFO

Four and a half years before that.

Operator

Four and a half years before that. And Patrick, how long has it been?

Patrick Villanova, CFO

I've been at Blackline 10 years, CFO one year. How's it going so far? It's been great.

Operator

Yeah, good, good, good, good. All right, let's start at the top. How's business? What would you say?

Owen Ryan, CEO

Business is pretty good. we ended the year very strongly which we had sort of been anticipating based upon what we're seeing happening in the business and you know it's still early in the quarter for us but the momentum has continued we're always a little bit odd in the sense that most of our customers don't want to talk to us till March 1st because they have to all get their 10 case file through February 28th so a little bit more quiet than maybe some other companies are so but we expect that you know the conversations to continue pipeline still building we feel like we've got some good momentum as we head into 2026 yeah and what's the what's the big deal pipeline look like big deal pipeline is is good and strong around the world I think as you know that's been a focus of ours to continue to try to move upstream into even more of the larger enterprises the mega enterprises the ability for us to offer a more fulsome platform and getting away from you know point solutions the last couple years to certainly change the outlook for for the size of the deals that we're seeing I think the other thing that's been very encouraging is we have really focused on the ideal customer selection from our end you know those customers that really want to go on a journey you see that in not only the size of the acv but also the tcv because of the length of the contracts that customers are are willing to enter into because we're having those good upfront conversations about are you you're really looking to do a finance transformation effort if the answer is yes then black line is a great a great partner for you if you're looking to automate one or two things and you know there's other alternatives that maybe you could pursue out in market yeah um product market fit so important right it really is so important and has a black line consistently gotten their product market fit right over the last uh five years no no where where where was the mismatch i think a few years ago when covid hit and we were just trying to sell software to anybody and everybody that that wanted something um we went too far down in the lower middle market um that was something that we changed three years ago and that has been some of the the challenges we've seen in the churn nutrition for the last couple years is those accounts winding themselves off and we'll see the end of that sometime this year and so you know starting back in um well three years ago two and a half years ago actually was when we really started changing the the guidelines of what was the right kind of customer that could come to blackline so we've become much more selective and i think that's worked out well for us as we as we move forward yeah I think so too and often in our checks often they just never even got it that just the implementation process for some of these small businesses was just more than so like they came to the renewal it wasn't that they were unhappy with the software they never got it up and running right I think that's that's why we spent so much time in the last 18 months really figuring out how to drive time to value for our customers how much more they could do themselves without necessarily having to rely on a black line or a partner because ultimately and I know Wall Street evaluates us based on the software we sell but the reality is it's the outcomes we drive for our customers is what keeps them sticky and growing with us and so that's what we really have fixated on and some of the things we've just released recently with AI solutions to help further accelerate time to value has been really critical

Operator

for us in the marketplace yeah we'll get to the AI stuff in a second so Patrick if you look at last quarter mmm growth was eight percent flat with the quarter before but the RPO number was through the roof right so the RPO was up 23 percent how do we look at that is that just because the contracts were longer what does that 23 percent mean no well that's a major component so to reiterate the fourth quarter of last year was 2025 was our highest bookings quarter ever and last year overall was our highest bookings year ever so it was a record year for the quarter as well as for the full year.

Patrick Villanova, CFO

Now that culminates in, you know, in RPO by the end of the year. But more importantly, what we saw happen in the fourth quarter was that we were landing larger deals that were longer term on our platform. So when you combine those three things, it drives up the overall term of the deal. It drives up the ACV or ARR, and it drives up the TCV which shows up an overall RPO that was a really positive message really positive story and that will appear in revenue over the next several years so that there's a great story there in terms of what's driving RPO to a lesser extent but also important we are working diligently with our existing customer base to move them to three-year renewals a majority an overwhelming majority of our customer base just one year ago we're on one-year renewals Well, that's kind of counter to finance transformation. That's counter to stickiness. So that's driving up our RPO number overall and driving down the risk of churn and attrition.

Operator

The majority was one-year renewals. That's crazy. Not dollar-weighted, but based on the number of customers.

Patrick Villanova, CFO

Both.

Operator

Wow. That's surprising. And the mid-market part, I get it. I get why in the mid-market that would have happened. But with your enterprise customers, that's pretty surprising. How did that happen?

Owen Ryan, CEO

It was a policy that was in place, and we've changed it.

Operator

No one really thought about it. I did. Yeah, good for you.

Patrick Villanova, CFO

Yeah, that seems like a good one.

Operator

Okay, can we talk about SAP? So first of all, what's the health of that relationship like? Last quarter was 26% of revenue, was it? So 26% of revenue came from SAP. What's going on with your SAP relationship?

Owen Ryan, CEO

Couldn't be stronger. I think there's we're really starting to hit on all cylinders on the product side a lot of things that we're working through with them we did get as we announced at the end of the year studio 360 approved to be part of their platform which was a big big deal for us we continue to do a lot of work with them was that recent what was this December 29th December 30th right at the end of the year we got that approved so that was a big deal for us and it allowed you know studio 360 to be sold through all their their customers through the solex relationship we continue to do a lot of work with them on the ai front i think the things that that we've been able to sort of get into the market the things that we've been sort of sharing with them have generated a lot of enthusiasm on the partnership of what we can do together there so very encouraged by that the on the go-to-market side continuing to make really good progress both on the sales side for net new but also in the existing account expansion and then very importantly on the customer success side to make sure that black line is fully implemented and value is really achieved for the customers in that front and then sort of the top to top relationships continue to we think grow and prosper and we don't expect that to slow down as SAP is wanting to do every year they do sort of some reorganization this time of the year last year was pretty significant and had a you know an impact on us this year they've you know again made some announcements with some leadership in the product as well as on the go-to-market side but I think we're in really good position to make sure we don't lose any momentum as we head into the second quarter which is their second busiest quarter of the year and so very encouraged by that wall yeah so as I was coming in someone told me that there is some news of SAP like a couple weeks ago what did I miss well so they they've announced some changes in their product and tech leadership someone that we work very closely with the good news is we've got very deep relationships from where we were 18 months ago and throughout the product and tech organization and so that individual is planning to leave in 2027 has been announced and then they put a lot of the the go-to-market under one leader a gentlemen that we work very closely with and so um uh from us i it's sort of a i think it'll be a non-event for us but obviously whenever there's changes there's always new things that come out of that yeah yeah and is christian still super responsive before you're like it's amazing he responds yeah he's i listen i wish i had the energy of that guy and uh um you know but i think he feels to me like he works 20 hours a day you know who else does it i just don't know how he does it Bill McDermott is the most incredibly responsive person and okay

Operator

so that's good and then I don't you know to the extent that you can comment on it because obviously there's there's issues there but when is the stockholders meeting do we have a date yet it's not set but it's typically in May for us okay I would anticipate it we shouldn't change by much so we have a stockholders meeting coming up in May and there's there's sort of a proxy battle right here what I don't know what what sort of principles govern the way board management approaches this and how do we think about what's the best way to drive you know long-term shareholder yeah so it's not really a management issue so yeah you all know we have a strategic committee that handles that and so David

Owen Ryan, CEO

Henshaw who's our lead independent director and the committee handle all the interactions and things of that nature we've done a pretty good job I think of keeping the management team out of that from the day to day because our job as management is just to focus on running the business and that's what we'll continue to do and then you know again from a what are we trying to do as an organization feel like the management team has very strong support for the strategic plan how we're progressing against that And that's what, you know, we're focused on, and the board will listen to, you know, outside shareholders, as they should do, as part of good governance.

Operator

Okay, let's talk AI. So, I guess, first of all, lay the groundwork for us in terms of the application of agents and AI in accounting in general, and then let's talk about what you guys are working on. okay so then we should tear team on this just a little bit but you know I think the question we get I'm so I'm going to reframe your question just a little bit if you don't mind right so you know the death of software is greatly exaggerated or whatever is the statement that's out there last time 65% have you seen this data I put together so if you look at the top 20 software companies from the year 2000 65% of them didn't make it nobody went bankrupt right but you know number one was Microsoft they did just fine number two everyone forgets Sun Microsystems had something called Solaris which every global 2000 company right used to run on spark servers right Sun Microsystems limped along for the next 10 years and then got bought by Oracle for 0.6 times revenue right so there's a you know so anyways last time 65% of them didn't really make it through it's it's tough transitions are tough yeah I think I think you know I tell people I in my prior life I served the Berkshire Hathaway account from when

Owen Ryan, CEO

I was with Deloitte and there's a couple things you remember from that and you all would have heard these right so one is when the tide goes out you figure out who's wearing a bathing suit and who's not I can assure you we are well clad uh to handle things as they move forward got a couple chuckles in the audience from that um and two and this is really for the people in the room here berkshire hathaway would make all their money from my vantage point in times of uncertainty and turmoil and i think for everybody that's sitting in this room or listening in there are going to be to your point very clear winners and clear losers in this marketplace we actually believe um wholeheartedly that we're going to be winners and it's because of the unique role that we play in the office of the CFO and I know people get tired of hearing about moats and this thing no no we don't we like that's like the number one thing we want to hear about it so our vantage point like we sit here and we say all right first of all we are a mission critical system for the office of CFO you can't close your books and records without black line I don't know the exact number because the markets are going down a bit today as I understand it but there's about 60 trillion dollars of market cap that runs through black line every day not an insignificant number 60 with a t t t okay um we're a system of record but more importantly we're a system of control we've got 25 years it's our 25th anniversary so i was curious when you're using the 25 year date um today this this year june 2nd i think is our 25th anniversary um of of information and data that we use very specifically that's proprietary to us to help our customers you know close their their books and records and create their financial statements I mean again another thing people get you know bothered by deterministic versus probabilistic I'll use the word precision is what matters in the financial clothes and that's what we deliver for our customers liability So a CEO, CFO, controller sign a rep letter every quarter where they take on substantial personal liability for the accuracy of their financial statements from that highly regulated environment. We make sure that they have peace of mind when they're going through things. The Studio 360 truly is a platform that has tremendous interconnectedness throughout various systems, throughout the office of CFO, and that just keeps growing as we move forward. The auditing profession relies and trusts Blackline. What you may not know, Pat, is many of our customers have given licenses to their auditors while they do the audit. Yeah, I'm just blinded by the... It's intense. Okay, sorry about that. Look, most of our innovation comes from the voice of our customers, the BPOs we work with, the system integrators, and the auditors. So we're doing things that they want, that they're comfortable with at the pace that they're looking to do things. and you know Patrick talks about the pull of our AI into our customers we've been embedding AI into our platform for some time but Teresa and I sat here with you the first time she talked about three years ago that if a company had 20,000 accountants our job was to eliminate 18,000 of them and we are we've seen that in the way that we've moved forward with the automation we're able to deliver with our customers now even being further empowered by are powered by AI you know when you when you look at us and we went from having 50% the fortune 103 years ago to now serving 70% those are all rips and replace for people that are coming out the black line platform for it's a fortune 100 fortune 100 70% so you added 20 fortune 100 companies yes and then you just get into the cost of maintenance the auditor cost of trying to to do this yourself or rely on some native you know startup I mean we're seeing it already where some of these ai companies are coming to blackline because they can't sell their product into these companies because they have no brand permission they don't understand the security they don't understand how it all works they understand a piece of of a financial close but truly don't understand all of how it fits together and so those are all the things that we're seeing that that give us confidence that collectively when you put all that together and there's more that no one comes even close to rivaling what what we're doing and that's why we're seeing the successes we are seeing particularly with publicly traded companies all around the world right because they just don't want that risk they're not publicly traded yet but do any of the big ai labs use you guys we'll talk a little bit more about that coming up at the end of the first quarter so um but we'll just keep going but we're working closely with a lot of big organizations that um that we're very proud to be associated with i gotta write that down that was really interesting. Okay. I just realized you're a lefty.

Operator

I am a lefty. I'm a sell pop. Me too. Yeah, I'm a lefty. You had a quote that I loved. You said, we are not in the business of selling software. Yeah. Right? We are not in the business of selling software. We are in the business of delivering outcomes. Yes.

Owen Ryan, CEO

Let's talk more about that because other people are saying something slightly different, but you know, like we had Sierra up here yesterday and they're trying to price on outcomes right so what tell me more about that about that quote we're not in the business of selling software we are in the business of delivering outcomes look and this comes from really my my consulting background more than anything else if you don't delight your customer they don't stay yeah and so you know earlier we talked about you know some of the customers we sold software to in the mid-market that never got the value out of it and so from my vantage point listen we can sell software we're proving that we showed the strength of what we had last year and what we're expecting to see this year but ultimately that renewal that three-year commitment that Patrick's talking about these customers they want to know that we're helping them achieve the value so the the the business case that gets put together when we start working with our customers and it takes you know our sales cycle is very long right so that ability to deliver the promise to the office of the CFO and to the board and others that are looking at it that's all the outcome yeah and and so that's that's our measure of success and we don't get to expand that relationship if we don't deliver and so that's the mindset and mentality that we have driven into the organization the last few years that our customer success becomes our success it can't be mutually exclusive and so it's it's just the mantra that we're living by and we think it's it's the right thing to do um you know and we've talked about this in our numbers right we thought we had peak churn and attrition at the end of last year because of the progress we're making in in driving better outcomes from our customers whether we're doing it our partners are doing it or we're doing it together with them yeah okay cool let's take a couple questions from our audience yes sir uh just a clarification you were talking about Oh, hold on.

Operator

There's a mic coming, and then we won't have to repeat the question.

Operator

Yeah. You're talking about the AI companies coming. They don't know anything about how this all comes together, which I do believe, but it does kind of raise the question, are you showing them how it works, or they have intentions to make it work? Could you clarify what you meant by that comment?

Owen Ryan, CEO

What I'm talking about is there's a lot of smaller AI companies that will come in and say they can do a prepaid analysis or a payroll analysis or a accrual analysis or a revenue recognition, and they're trying to build a business around that. But what's missing in all of that is, okay, you can get to some kind of probabilistic outcome by using some large language model that is not based on the underlying information and data and think that that's close enough and good enough. But then what you have to be able to do is also understand completely how the control environment works, right? Because the way audits get conducted is through, you know, not just for the quantitative testing, but it's also the control testing to make sure that things are going to work the right way. And so many of them don't really have an appreciation of the complexity of that and how it all fits together. And that's what Blackline's been doing for 25 years now. And honing that day after day after day with our customers, the BPO partners, and importantly, the auditing firms to make sure that we can withstand the scrutiny that goes along with that work that gets done so you can publish your 10Q or your 10K. So hopefully that's responsive to your question. You should answer, you know, any more to that given what you do.

Patrick Villanova, CFO

Yeah, I mean, too, I mean, Owen had a, you know, pretty good list here of all the reasons why, you know, we're going to be one of those 35% winners. to use that statistic you used earlier. But maybe another way to articulate this as a current and former accountant, some of these up-and-coming AI companies, they don't have context. Some, many, don't have subject matter expertise. They don't have the data, the architecture, the infrastructure. And so without that, if you let AI loose into an environment without guardrails, without that architecture, without that system of control, that AI is going to return an answer that may be close. And I'm going to use my quote that no one uses more than me, but in the accounting world, the financial close world, the office of CFO, if you're 95% accurate, you're 100% wrong. That's a known number. That's an SEC number. If you're 5% off, that's a restatement. That's a material weakness. that's the end of your career so somebody like me or a controller CAO when they're out there making buying decisions are you going to look at this up-and-coming AI company without guardrails without history without a system in control without context to the market and try to save a little bit of money and put your career your market cap and your company in jeopardy so that is really what defines and separates us we have that in place now and we're prudently injecting AI because I'm willing to bet also Pat there's 35% of companies that emerged over that time they're doing exactly what we did they knew their market they invest it they leaned into innovation and they embraced technology and that's everything that we're doing right now and that's what's separating us from maybe our competition, as well as new competition.

Operator

Awesome. All right. Well, why don't we stop there? You guys, thank you, Patrick and Owen. Thank you so much for joining us. It was really great to have you here.

Patrick Villanova, CFO

Have me back next time.