Earnings Call Transcript - BL Q1 2023

Operator, Operator

Good day, and thank you for standing by. Welcome to the BlackLine Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speakers today.

Unidentified Company Representative, Company Representative

Good afternoon, and thank you for joining us today. With me on the call are Owen Ryan, Therese Tucker, Co-Chief Executive Officers of BlackLine; as well as 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 Q2 and full year 2023 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 made during this call are reasonable, actual results could differ materially as these 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. All comparisons we make on the call today relate to the corresponding period of last year, unless otherwise noted. Finally, unless otherwise stated, our financial measures disclosed on this call will be non-GAAP. A discussion of these non-GAAP financial measures and information regarding reconciliations of our historical GAAP versus non-GAAP results is currently available in our earnings release, which may be found on our Investor Relations website at investors.blackline.com or on our Form 8-K filed with the SEC today. Now I'll turn the call over to BlackLine's Co-Chief Executive Officer, Owen Ryan. Owen?

Owen Ryan, Co-CEO

Thank you, and good afternoon, everyone. Thank you for joining us today. It has been almost two months since Therese and I assumed the co-CEO roles at BlackLine. Together, we have spent considerable time meeting with customers, partners, and employees around the world validating the strength of our business and reviewing our strategic direction. I want to discuss several of these key strengths that reflect our solid foundation and the excitement this creates at BlackLine. We are in a strong position as the industry leader with a large and growing market that remains underserved and underpenetrated. Our focus on the customer has not relented. As the leader, we invest more into our customers than any other company in our market. We value and invest in each customer's success surrounding our products with the services, security, and training that drive engagement, trust, and ultimately their desired outcomes. Our competitive positioning is strong. We do not take our leadership role lightly, and we remain sufficiently paranoid as we further extend our technological advantages. Our strategic direction affords us a unique place within the office of the CFO as we inhabit prime real estate. And importantly, our corporate culture remains strong despite the impacts and challenges that COVID presented. This is largely a result of the hard work and efforts of our fellow BlackLiners across the globe. As we look to build upon these key strengths, we remain laser-focused in our efforts to drive a relentless and maniacal focus on execution across our business. While we will be appropriately attentive to near-term execution, our perspective and focus remain on the long-term, with an understanding that the decisions made today are those that are expected to strengthen our business over the next few years. That being said, my focus is on these five areas: first, relentless execution across our business operations; second, BlackLine's market message and brand; third, ensuring that customers receive the value of the BlackLine promise; fourth, building our distribution network, and fifth, customer retention. On execution, BlackLine has operated at a high level and achieved significant growth in recent years. We have expanded our position within the office of the CFO through the introduction of innovative new solutions and the entry into new markets and geographies. Looking ahead, we recognize that further rigor and discipline around our processes will serve to strengthen our business and set the stage for long-term profitable growth. My second area of focus is to improve our market messaging and reinforce our brand promise. We know that the solutions we offer and deliver are critical to our customers. By partnering with BlackLine, customers can not only become better accountants but can also become better leaders, strategists, and stewards within their own organizations. They frequently acknowledge this, and in fact, I remain impressed by how rapid a fanbase we have at BlackLine. Now let me turn to delivering value. The world is changing rapidly for our customers. We have moved from a world where COVID dominated a company's agenda and then quickly pivoted to a growth-at-all-cost mentality. More recently, customers have become increasingly focused on managing costs and margin improvement, especially with concerns of a potential recession. The turmoil that customers have been going through demands partners who are not just trusted but agile and quick to provide meaningful solutions that solve tomorrow's problems today. This is where BlackLine must excel even more to deliver our brand promise. My fourth priority centers on the potential of our large distribution network and how it can be leveraged more efficiently and effectively. Specifically, we have a tremendous opportunity to accelerate the adoption of our strategic product portfolio through both direct and partner channels, and the opportunity to do so is front and center. We can achieve this through a more strategic approach with our partners to elevate our position within the office of the CFO. Our large, globally distributed partner ecosystem is still at an early stage of maturity. We are intent on ensuring that there is a greater set of partnerships across these channels. We will be clear in our messaging about what our partners can expect from us and what BlackLine expects in return. We expect to fulfill these commitments to build a more robust ecosystem. My fifth point is to highlight that we have a strong renewal rate, but recognize that there are opportunities to do even better. I want to ensure that customers coming in the front door never go out the back door. Our customers must achieve their returns on their investment and realize the value we promise. Over the past few years, BlackLine has invested heavily in our customer success teams. We have brought to bear enhanced implementation support, best practices along with robust customer and partner feedback channels in order to drive more engagement and drive adoption. Our customers reward these investments by serving as references and rating us highly in satisfaction. However, we can and expect to do more to raise our intensity and execution, as our customer focus will only continue to grow. This customer centricity is something that both Therese and I know is at the core of everything we do. I have spoken about what we are seeing inside our organization and where we can do even better, but I want to focus for a moment on what we delivered in the first quarter and the current market environment. What we are experiencing today is quite different than it was a year ago. I recognize that this is not a unique view and the impacts are not specific to BlackLine. We are still seeing extended deal cycles as customers and prospects contend with the various challenges they presently face in their own businesses. Some of these are specific to the industries they operate in, and others are influenced by the geographies they serve. For example, we have seen signs of strength in APAC, particularly in Japan. Our enterprise business remains a steady performer, while the middle market remains softer with relatively subdued deal activity. From a financial perspective, we performed slightly above our expectations in Q1 with revenue of $139 million, up 16%, operating margin of approximately 11%, and non-GAAP net income margin of over 18%. At the end of the quarter, we had 49 customers that generated $1 million or more in annual recurring revenue, up 23%. I briefly spoke of Japan but wanted to again call out this business's notable performance over the past few quarters. We had a record quarter from a new customer win perspective, many of which are coming through our SolEx partnership. For example, companies like AEON DELIGHT, K.K., Ashisuto, Kisan Electric Manufacturing, and Liaz Company, which represent a variety of industries, have all signed on as new BlackLine customers. Our Japan business is still relatively small but growing very well thanks to the investments we have made and the leadership in place. We have grown penetration to nearly 14% of the Japan-based Forbes 2000 companies in a very short period. And looking ahead, we see a building pipeline of opportunities that could expand our penetration into this growing market. In SolEx, we saw strength this quarter and our performance here led to a number of new global customers beginning their transformation journeys with BlackLine, while coming from a diverse set of industries from energy to manufacturing to consumer. This partnership remains an important part of our growth strategy and will become a greater focus of mine going forward. Before I turn it over to Therese to discuss her perspective and the opportunities that she sees, allow me to briefly summarize my thoughts. I wake up every morning energized by the people, partners, and customers of BlackLine. It is clear to see the tremendous opportunity across our business to drive better performance through a relentless focus on execution and our customers. Much of my time is spent on our go-to-market strategy from sales to customers to partners to accelerate the growth at BlackLine and deliver on our medium-term targets. With that in mind, some of the measures of success in KPIs that are the most important going forward are: revenue and ARR growth, gross and net revenue retention rates, percentage of sales attributed to strategic products, partner participation rate and influence, international growth and penetration, and of course, our progression against the medium-term targets we outlined last November. With that, I will turn it over to our Founder, and my fellow CEO, Therese, to discuss her thoughts.

Therese Tucker, Co-CEO

Thank you, Owen. Many of you have asked, why I chose to come back to BlackLine as a co-CEO after stepping down 2.5 years ago. To put it succinctly, it's passion, passion for our customers and passion to continue building great solutions with great people. And now, as co-CEO with Owen, I get to channel this passion into something truly wonderful. When I founded the company, and up through my time as CEO and now as co-CEO, I ensure that every BlackLiner knows that the customer is the reason why we exist and is central to everything we do. We want to solve their most complicated challenges and support them as they grow, enabling our customers to close their books faster and more accurately; this frees up valuable time for them to focus on the strategic while automating the transactional. We love the markets we serve and help our customers build world-class finance and accounting organizations. This is something that no other company does today and is unique to BlackLine. When we speak to our customers, we regularly find that the demands placed on their teams far outpaced the tools and capabilities at their disposal. The processes in place are inadequate to support modern accounting, while the financial systems landscape remains antiquated and held together with legacy technology and patchwork solutions. So how do you solve for this? For one, it's automation and process improvement. Things that BlackLine does very well are at its core. But also, it's about changing the way companies think about accounting and their role within the office of the CFO. Throwing more accountants at the problem doesn't necessarily solve the structural issues that have been building. That's been tried for years. It's unsustainable, and the problems and technical debt only continue to build. According to the Bureau of Labor Statistics and the Wall Street Journal, accountants of all levels are leaving their jobs primarily due to job dissatisfaction, a lack of strategic work, long hours, and manual repetitive work. There has been a 17% decline in the number of accountants at companies over the past two years, driven by some of these issues. Students and young professionals aren't entering accounting today at the pace that they were in the past, in part due to a lack of interest in transactional work but also due to the allure of finance or technology work elsewhere. Partly because of these catalyzing trends, companies are increasingly forced to pay more and aggressively compete to attract talent from a shrinking pool. Last year, for example, starting salaries increased 13% alone for entry-level accountants, far outpacing inflation. So when I consider all of these factors, I can't help but get excited about the opportunity we have at BlackLine to help our customers navigate and overcome these issues while also solving some very complex and unique business challenges. Speaking of our customers, Owen and I were fortunate to spend several days with customers in March at our Beyond the Black conference in EMEA. We saw very strong participation from customers, prospects, and partners, all of whom are enthusiastic to learn more about how our solutions can positively impact their daily processes, and frankly, make their jobs easier and more rewarding, echoing many of the themes that I just touched on. We had a fantastic opportunity to lay out our vision of accounting automation while introducing our new BlackLine Accounting Studio and Financial Reporting analytics solutions to our EMEA-based audience. The reception to the BlackLine Accounting Studio, which incorporates our vision of comprehensive visibility into accounting operations, has been very favorable. We're seeing more and more early adopter customers sign up as they contemplate and map out the next steps in their transformation journey. The pipeline momentum gives us comfort that the investments we've made and expect to make will strengthen and differentiate our position in the market. Financial Reporting analytics is seeing very strong demand and resonating particularly well across our customer base. We've signed more and more customers since its launch late last year with names such as SLP and Cable One. The sales cycle for this solution has been very quick, which speaks to the value that customers are placing on it and their desire to leverage its capabilities today. We expect to expand the capabilities of FRS going forward and enhance its value proposition for customers. I'd be remiss if I didn't touch on our accounts receivable automation suite of solutions, especially given the increasing importance that companies are placing on working capital management in a rising interest rate environment. More than just applying cash, we spent considerable time developing and adding unique capabilities, leveraging the power of AI and machine learning to go even further and provide actionable intelligence to our customers. Our solutions provide detailed insights and analytics about their customer bases, allowing for proactive and improved risk management and an enhanced ability to forecast payment activity. This gives our customers the tools they need to make strategic decisions that can ultimately improve operational performance across their businesses. We've seen success here recently with customers like Higher Up and Pirelli Tyres in Australia, Watson Gloves in Canada, Prospero in the UK, and one of my favorites, Peet's Coffee in the US. Before I close, I want to reiterate some of the items that Owen touched on and give you my perspective as well. We will continue to put the customer at the center of what we do. It's in our DNA and ingrained within the BlackLine culture. Our product-to-platform transition is vital to our long-term strategy and will be a key area of investment and focus for the organization going forward; Accounting Studio is just the beginning of this, and we are excited by the response so far. I plan to spend much of my time focused on ensuring that we leverage what we have today and efficiently build what we need for tomorrow to support our strategy. To close, I'm so proud and happy to be at BlackLine, working with great teams in great markets and with amazing customers. I look forward to sharing more as we move forward and of course, appreciate the hard work of our employees, the fierce loyalty from our customers and partners, and the trust from our investors. With that, I'll turn it over to Mark Partin to discuss the details of our financial performance and our outlook.

Mark Partin, CFO

Thank you, Therese and good afternoon everyone. BlackLine's financial performance this quarter highlights our ability to execute in an uncertain macro environment. We delivered further margin expansion despite elongated deal cycles and delayed purchasing decisions from customers. As Owen and Therese mentioned earlier, we will remain focused on driving operational execution across the business as we navigate this period and position the business for long-term profitable growth. Now, let's review financial highlights from the first quarter. Total revenue grew to $139 million, up 16%, slightly ahead of our expectations. We anticipated that the first quarter would be our highest growth quarter this year as services revenue growth is expected to normalize for the remainder of the year. We'll cover this in more detail as we discuss our Q2 and fiscal year revenue guidance shortly. Calculated billings growth was 14% versus last year. Remaining performance obligations or RPO was up 17% with current RPO growing 18%. We closed the quarter with total annual recurring revenue or ARR of $550 million, up 14%. We added 48 net new customers in the seasonal Q1, bringing our total customer count at the end of the quarter to 4236. Our renewal rate was 95% in the quarter. Net revenue retention rate was 106% as customer expansion activity reflects the macro environment. Strategic product performance remained solid and represented 26% of sales, driven by market demand for high automation solutions like accounts receivable and intercompany where momentum continues to build. Partners were involved in 66% of large deals this quarter, driving both net new and expansion deals globally. SolEx was a highlight again this quarter with solid bookings and revenue performance across markets. The SolEx relationship is seeing success and strategic product attach rate, particularly in intercompany. In Q1, our SAP partnership represented 25% of total revenue. Turning to margins, non-GAAP overall gross margin was 79% with non-GAAP subscription gross margin of 82%. In services, our teams again delivered strong results led by higher-than-expected services utilization. Non-GAAP operating margin was 11% in the quarter, driven by a combination of efficiency and productivity gains across sales and marketing and G&A. Non-GAAP net income attributable to BlackLine was $25.1 million in Q1, representing an 18% non-GAAP net income margin. Our performance here was driven by strong operating income performance combined with interest income from our investment portfolio. We generated $22.9 million in operating cash flow and $14.3 million in free cash flow in the quarter with a free cash flow margin of 10%. And finally, we ended the year with $1.1 billion in cash, cash equivalents, and marketable securities, affording us great flexibility to invest in our business through all market cycles. Now on guidance. We continue to expect the broader macro uncertainty will be a headwind to year-over-year revenue growth, consistent with our expectations coming into 2023. As such, we are reiterating our full year revenue guidance while raising our full year non-GAAP net income guidance. For the second quarter, we expect total GAAP revenues to be in the range of $143 million to $145 million, representing approximately 11% to 13% growth compared to the second quarter of 2022. We expect to report non-GAAP net income attributable to BlackLine in the range of $20 million to $22 million or $0.27 to $0.29 on a per-share basis. Our share count will be approximately 74.7 million diluted weighted average shares. And for the full year 2023, we continue to expect total GAAP revenue in the range of $586 million to $596 million, representing 12% to 14% growth compared to full year 2022. On the bottom line, we expect to report non-GAAP net income attributable to BlackLine in the range of $92 million to $96 million or $1.23 to $1.29 on a per-share basis. Our share count will be approximately 74.6 million diluted weighted average shares. To close, BlackLine remains focused on near-term execution while delivering against our targets as we navigate this uncertain period. Now I'll ask the operator to open the discussion to your questions.

Operator, Operator

Thank you. At this time we will conduct a question-answer session. For our first question, we have Rob Oliver with Baird. Go ahead with your question.

Rob Oliver, Analyst

Great. Hi. Thank you very much for taking my question. Owen, welcome and Therese nice to speak with you again and Mark. So question Owen to Therese. After your world tour here in March, I'd be curious to know, Owen you mentioned in one of your comments on the road about trying to get the message for BlackLine away from just the accountant up to the broader CFO suite. And obviously, you guys now have a platform of products to address that. But I'd be curious, what addressing that problem in particular, what did you hear from customers on the road? And what are some of the takeaways as to how you can cross or bridge that chasm? And then I had a follow-up for Mark Partin. Thank you.

Owen Ryan, Co-CEO

And Rob, thank you and pleasure to meet you. So I think there's a couple of things as Therese and I have been out on the road. First of all, the customers love how our roadmap has been laid out, how we've added products to our portfolio because they're looking for us to be able to provide more of an integrated suite platform, if you will, to help them achieve what they're looking to achieve. And the fact that we're going into this with such a strong reputation already for the products that we have delivered. And so I think the expectation from our customers is that we continue to deliver at the high end that we have historically done, certainly providing and taking advantage of the customer support team that we have built out as well as continuing to work very closely with our partners. Those are all the key things that our customers are talking to us about.

Rob Oliver, Analyst

Great. Thanks. Appreciate it. And Mark Partin, one for you. Obviously, a tremendous job on the bottom line and you really laid out, I think going back to the Analyst Day, a path for you to continue to drive improved margins. You're doing that noticeably. When you look at what you have internally to work with in terms of driving further margin improvements, what are some of the areas of leverage that you still have available to you? And maybe give us a sense of where we might expect that to come from. Thank you very much.

Mark Partin, CFO

Thank you, Rob. You're correct that we established a clear path. One of our advantages is our high recurring revenue and gross margin, which amplifies our internal capabilities. So far this year, and looking ahead, we anticipate the biggest impacts from our long-term financial strategy focused on increasing our sales capacity, developing that capacity, training, and retaining talent. This leads to a more productive and efficient sales force. Therese, Owen, and I are concentrating on achieving greater alignment and discipline within several areas of the business, and we are already making progress. This will be evident in our general and administrative expenses and in our product section moving forward. Additionally, we are beginning to see positive results from our multiyear investments in technology initiatives, like the GCP migration and the new products we are launching. These investments are now maturing and starting to yield productivity. We will continue to advance these efforts to reach our midterm targets, which we are nearing in key areas such as sales and marketing as well as research and development.

Rob Oliver, Analyst

Great. Very helpful. Thank you, Mark.

Operator, Operator

Okay, great. For our next question, I'll bring up to the stage Standby please. We have Alex Sklar with Raymond James. Go ahead with your question, Alex.

Alex Sklar, Analyst

Thank you. Mark, regarding the demand environment, you mentioned it’s consistent with what was discussed in February. With the various changes in the business as we approached the end of the year, can you elaborate on the linearity of sales cycles and bookings you experienced in Q1 and into April? Thank you.

Mark Partin, CFO

Sure, yes. Look, we continue to see strength in the pipeline. But the pipeline is moving and that's a result of longer sales cycles and some of these decisions that are being pushed off. So as we head into the second half of the year, which is our guidance assumes a second half more loaded year in our demand environment. We've seen consistent to our expectations, coming out of Q4 into Q1 and into Q2 the same elongated sales cycles and longer decision points.

Alex Sklar, Analyst

Okay. Great. Owen and Therese, I appreciate the insights you've shared about your focus areas. You both emphasized customer centricity and retention, which have always been important for BlackLine. Could you discuss any changes in these areas over the past few quarters? I believe the renewal rate this quarter was around 95 percent. What specific initiatives are you pursuing related to this? Thank you.

Therese Tucker, Co-CEO

Yeah. Alex, the renewal rate, I think is also impacted a bit by the macro environment. I just want to start with that. Customer centricity is something that we are always focused on. And just the ability to streamline the process, the BlackLine journey that our customers go on and make that a little more seamless and give them a blueprint for what their transformation journey should look like has really been an area that we are pretty close focused and realigned on.

Alex Sklar, Analyst

Okay, great. Thank you.

Operator, Operator

Great. Standby for our next question. We next have Matt Stotler with William Blair. Go ahead, Matt.

Alex Vasti, Analyst

Hey everyone, this is Alex Vasti filling in for Matt. I appreciate the opportunity to ask my question. I have two inquiries. I apologize if these have already been addressed, as we've been moving around a bit. Regarding billings and the factors influencing them, you mentioned in the fourth quarter that some deals had slipped. Did those deals close in the first quarter? As we look ahead, should we anticipate more delays from any deals transitioning from the first quarter to the second, particularly concerning SCB and possibly the regional banking stress? Thank you.

Mark Partin, CFO

Yeah. It's tough to connect the dots between the banking stress and some of the decision points along the way. We've got a pretty diverse broad customer base and prospect base. I can say, I'm sure it didn't help but we can't see where it's made a major impact. The bigger issue for us in the demand environment continues to be delayed purchasing decisions and longer sales cycles. And we saw that in the first quarter heading into the second quarter, and that is consistent with what we expected. That's the sort of the uncertainty that exists today in our space.

Alex Vasti, Analyst

Got it. Makes sense. And then maybe on the competitive environment, has there been any notable changes of late in competitive behavior that you would call out as particularly interesting?

Owen Ryan, Co-CEO

So our view of the competitive landscape, it really hasn't changed and is remaining fairly consistent. And I think for us, we continue to focus on driving further innovation, which Therese highlighted. And that really just continues to strengthen our market leadership and the referencing of our customers to us for future prospects. As you know, we're the premium provider in the marketplace. I think we have built a really good boat, and I think that's only going to get wider and deeper as we continue to make the investments in the products that we have, while we continue to see a little bit of pricing on the fringe edges of the marketplace. We choose where we're going to compete, particularly in the middle market, and we win where we want to win. And so we're going to just keep doing what we need to do about building out our platform and building that long-term competitive advantage.

Alex Vasti, Analyst

Got it. Awesome. Thanks for that. I’ll pass it on.

Operator, Operator

Great. We’ll go onto our next question. Next we have Brent Bracelin with Piper Sandler. Go ahead with your question, Brent.

Brent Bracelin, Analyst

Thank you. Good afternoon. Therese, it's great to hear your voice again. I want to start with you just given the automation has been core to BlackLine from day one, and now we're entering a new era where there's this GenAI optionality out there and we're all trying to assess what it means. So I guess for me on one hand, it seems like accounting complexity is a natural area to apply GenAI. But as we all know, accountants are risk averse and you've tried to automate accounting for the better part of the last 20 years. So walk me through your view, given your expertise, what role GenAI could have in the accounting landscape?

Therese Tucker, Co-CEO

Well, I love your question. We've always been an accounting automation company. And we do focus on making processes more efficient, more accurate and we really want to win accountants to be more strategic. We've already been using AI and machine learning in our AR suite. We go beyond just applying cash and we deliver intelligence and analytics. And there's a number of other areas where we are exploring where AI could make sense to improve our offerings for customers. To your point, however, it is an area where accountants are conservative. You need to make sure that any application of AI is something that is within the framework of what is acceptable in terms of risk. I mean, you've got to make sure that it's explainable, that it's useful and then it minimizes risk as opposed to increasing risk. So as we do when any new technologies come out, we explore them, we learn about them, and we figure out how they can best be applied to the field of finance and accounting.

Brent Bracelin, Analyst

Super helpful color. And then just one quick follow-up for Mark, if I could. It looks like net retention did downtick a little bit. I was wondering if you could talk about any sort of change in gross. It was gross churn consistent and most of the downtick in NRR is just a reduction in seat expansions? Any color on the trend there would be super helpful.

Mark Partin, CFO

Yeah. Thanks, Brent. Look, I think you asked and answered that too. You've got it right. The user growth expansion within the account was one of the lower quarters we've had, and we feel that's a function of the demand environment inside our customer base. For example, we saw good progress on the strategic product upsell motion. So the willingness for customers to look at the automation products and expand with there. But the global rollouts and further user expansion certainly was a setback for us on the DBNRR in Q1. The renewal rate at 95% is within range as we've seen over the last three to five years. It's on the lower end of the range. It goes between 95% and 98%. So for us, as Therese mentioned, this is likely a function of the macro and we would expect that to start to come back up in the future quarters. Nevertheless, DBNRR downtick again in Q1 was mostly a result of the macro demand inside our customer base.

Brent Bracelin, Analyst

Perfect. Helpful color. Thank you.

Mark Partin, CFO

Thank you.

Therese Tucker, Co-CEO

Thank you.

Operator, Operator

Great. We'll now go to our next question. We're going to bring out Pinjalim Bora with JPMorgan. Pinjalim, go ahead.

Pinjalim Bora, Analyst

Thank you for taking the question. I have two quick inquiries. As you consider the strategy for this year, I understand the initial plan was to focus on strategic products. I believe there was also a new quota set for the sales team. Have there been any adjustments to the sales compensation at this point as you look ahead?

Mark Partin, CFO

So you're right. Just to reiterate that for your question is that, when we entered the year, we allocated strategic products quota to our sales reps. We've got a lot of pipeline and demand and interest coming from our customer base and wanted to follow that through to the end line. And so at this stage, the sales reps are continuing with that strategic products quota and expect it to through the remainder of the year.

Pinjalim Bora, Analyst

Got it. Understood. Okay, Mark, I have a question for you. It's great to see the EPS guidance improve. Since the interest income number has been slightly above consensus, could you share what you are factoring in for net interest income that supports the guidance you provided?

Mark Partin, CFO

Yes. You're right, we've been earning interest income which is part of the beat on the non-GAAP net income line of between $8 million to $9 million per quarter. And we have in our guidance assumed that would continue through the remainder of the year.

Pinjalim Bora, Analyst

Got it. Thank you very much.

Operator, Operator

Okay. Great. We'll have our next question here. Next we have Daniel Jester with BMO Capital Markets. Go ahead with your question.

Kyle Aberasturi, Analyst

Hi. This is Kyle Aberasturi on for Dan Jester. Thanks for taking the question. Could you dig a bit more into your regional SAP go-to-market strategy a bit more? Any color on the strategy headcount growth or partnership growth would be helpful. Thank you.

Owen Ryan, Co-CEO

As you can imagine that SAP is one of our most important relationships, and this is one of the areas that not only Therese and myself, Mark and the leadership team are focused on but we are trying to drive that message throughout the organization. We certainly have had good progress across North America. We highlighted a little bit what's been happening in Japan. But we also have work to do across the rest of the globe. And the key thing is for us to continue to build those relationships in the local markets and that's what we're intending to do along with our partners. And I think that we are going to be in a really great shape to further expand and drive that relationship with SAP, in particular because of how our products work well with theirs and the symbiotic nature of that relationship.

Kyle Aberasturi, Analyst

Great. Thank you.

Owen Ryan, Co-CEO

Thank you.

Operator, Operator

Okay, great Kyle. Our next question will come up. Next we have Koji Ikeda with BofA Securities.

Koji Ikeda, Analyst

Thank you. Welcome back, Therese, Owen, and Mark. It's always a pleasure. I wanted to revisit a previous question and explore the topic of Generative AI further. It seems like there's constant news and debates regarding its implications in the back office. Therese, how do you perceive GenAI in the office of the CFO? Specifically, do you believe it will expand or shrink the total addressable market over the long term, and could you explain your reasoning?

Therese Tucker, Co-CEO

That's a great question, Koji. Here's the issue with AI. When you lack insight into how a decision is made, there's a risk involved. For instance, if you work in finance and accounting and use AI to guide a business decision, and that decision turns out to be incorrect, who is accountable? So, when employing AI in critical areas like accounting and finance, it's essential to understand the origin of those decisions, who supports them, and the consequences of mistakes. Although AI is progressing well, there's still an immature governance aspect surrounding it. Interestingly, some firms are beginning to establish governance around AI, which will significantly impact the finance and accounting sector in the coming months and years. Regarding your second question about whether this represents a TAM increase or decrease, I believe it's neither. Consider BlackLine as an accounting automation company; you could ask the same question about us. While we automate processes, does that mean fewer accountants or more? Typically, our customers use automation to reallocate accountants to more strategic and valuable tasks. I think the same principle applies to AI.

Koji Ikeda, Analyst

Got it. Thank you, Therese, for that. That's a really good answer. Maybe just a follow-up for Mark or Owen. Looking at the guidance, it was noted earlier that net income has significantly increased this year, and I'm considering the reduction in operational investments to achieve that. My question is about how you view the ability to pivot back when demand increases, especially if it comes back stronger than expected. It seems that while it’s easier to slow down investments, it takes time for those investments to yield results. How do you approach the pivot back to demand?

Mark Partin, CFO

Great. Thanks, Koji. This is Mark. You know, 2023 I guess fortunately for us is on the back end of a number of major investment initiatives that we've made over the last three years. So we're sort of hitting the back end of getting the benefit out of these early cost investments that we've made and let me give you some examples. We made two acquisitions, both intentionally dilutive to bring them onto our platform in the last three years. We've invested in a GCP migration which had a headwind for a number of years; an SAP partnership, which had a near-term headwind for a long-term payoff; and then finally we increased our sales capacity in the demand environment with the intention to get the higher ramp, higher trend and tenured reps which as of Q1 is the highest capacity we've ever had in the marketplace today in this environment. So when you think about that, I wouldn't say that we're pulling back. I would say what we're doing is we are very targeted in the level of investment we're making in the demand environment. We are continuing to invest in the R&D for that roadmap and to push that advantage, which just happens to be doing it at a slower pace in some places or optimizing it in India and other places building bandwidth at a higher efficiency. So as we go into the second half of this year and into next year, we look for the demand signals. We've got good ramp time to be in a position to capture the demand as it comes back.

Koji Ikeda, Analyst

Got it. Thanks, guys. Thank you so much for taking my questions.

Operator, Operator

Okay. We have a couple more questions. Standby. Next we have Adam Hotchkiss with Goldman Sachs. Go ahead with your question.

Adam Hotchkiss, Analyst

Great. Thanks for taking my questions. You mentioned BeyondTheBlack EMEA, it would be great to get a little more color on your broader customer conversations there. Have the pain points you hear about at existing solutions changed at all now that companies are needing to preserve cash flow rather than the growth-at-all-cost mentality? And then, how do you and your partners evolve your messaging around that and get folks over the finish line to combat the slower buying environment?

Therese Tucker, Co-CEO

In our market, Adam, I don't know that accountants have ever spent to have growth at all costs. Okay? And I'll push back a little bit on that. Our buyers have always been pretty conservative on the offerings and they do a lot of vetting to make sure that they make sense. The multiple products are actually something that we have seen a great receptivity to. We've spent many years building up our brand, and by doing a great job for our customers, we've ended up having permission to bring them other products in the market.

Owen Ryan, Co-CEO

Yes, I want to add to what Therese said. My experience with our customers shows that they really appreciate the development of our platform. They recognize our commitment and the significant investment we've made in product, technology, and customer support. They also see how carefully we protect their information with our own cybersecurity measures. Overall, I think the feedback has been very positive. I remember discussing with Therese in London how organizations often prioritize spending elsewhere before addressing their own needs, which reflects a common fiscal caution that we need to navigate.

Adam Hotchkiss, Analyst

Great. That's really helpful. Thanks. And then, we noticed the partner influence deals stepped down this quarter from a percentage basis. Anything to call out on that front?

Mark Partin, CFO

No, not necessarily. We always approach this with a range since there isn't a specific success benchmark. Many of our customers have the internal resources to handle digital transformation themselves and have chosen to keep that as a core competency with their own consultancy and transformation teams. Therefore, not having a partner involved in those engagements doesn't indicate success or failure. We aim for a range of 60% to 80%, and we've been very close to 70%. This figure is more indicative of the market rather than whether we've partnered successfully with the higher-end customers.

Adam Hotchkiss, Analyst

Great. Really helpful. Thanks so much.

Mark Partin, CFO

Thank you.

Operator, Operator

Okay. Great. We have one more question. And this question is coming from Matthew VanVliet with BTIG. Go ahead with your question.

Matthew VanVliet, Analyst

All right. Great. Thank you for taking the question. Therese, welcome back. Owen, welcome to the team.

Therese Tucker, Co-CEO

Thank you.

Matthew VanVliet, Analyst

I guess when you're looking at how the macro is impacting the overall demand environment, curious if you're seeing any kind of a mix shift across your own platform of what customers are maybe willing or wanting to buy upfront and what maybe they're putting off? Are things like the cash application to get a little bit more visibility maybe a little more timely than a broader intercompany deployment or things of that nature? Any additional color around what customers are really fixated on today would be very helpful.

Mark Partin, CFO

Yes. Thanks. This is Mark. I'll answer this question. I think in terms of the number of deals and the pipeline and the conversations we had dating back even to our North American BTB event in November and then some of the uptake that we've seen in some of the new products. Look, we had really from not just the unit volume, but also a dollar volume really good success in these strategic product portfolio, which are high automation, right? It's a high ROI, it's provable ROI. In a lot of cases, you have the CFO involved in the buying decision. And these really resonate when you're talking about a product like intercompany or like transaction matching or even AR, which solves really big problems in this type of environment. So we've seen good success and uptake there. In the macro, the macro is really at both at right the mid-market in EMEA we see the impact, but also large digital transformation global rollout commitment to multiyear projects. These things have also become part of that sort of macro headwind. They're there, but they're just taking the extra time.

Matthew VanVliet, Analyst

And then maybe a quick follow-up on the second part of your answer there. With the SolEx partnership, how tied do those additional deals for BlackLine being additive there sort of rely on maybe a broader ERP modernization or other big projects that go through the SAP ecosystem, or do you come in as maybe a follow-up sale or even maybe a presales to something like that? So how tight are you to the demand environment around those bigger projects?

Therese Tucker, Co-CEO

I don't know that we are tied to in terms of sequencing. We have customers that start before they do a large ERP upgrade; they will bring BlackLine in to help with that process. Okay, so we see many of those situations where getting everything into a single centralized location being able to manage the change over a period of years. That's actually a really strong set of skills that we bring to that table. However, we have seen others where if it's a post-ERP implementation, they may have already started that; they've got to get it done before they can focus the resources. So BlackLine could be post add-on. But generally, we're not really tied to the ERP demand environment. In fact, in some cases, we've seen where the ERP upgrade is put off but they continue with their BlackLine because they know they're going to get some short-term value out of it that take years on some other projects.

Matthew VanVliet, Analyst

Right. Great. Thank you for taking my questions.

Therese Tucker, Co-CEO

Thank you.

Mark Partin, CFO

Thank you.

Operator, Operator

At this time, I'll turn it back over to Owen Ryan for some closing comments.

Owen Ryan, Co-CEO

Thank you. Therese, Mark and I want to thank you for your time today. We greatly appreciate our chance to speak with you. We look forward to talking to you again very soon and have a great day everyone. Take care.

Operator, Operator

Thank you all for your participation in today's conference. This does conclude the program, and you may now disconnect.