Blackline, Inc. (BL) September 9, 2026 Conference Transcript

Well, thanks, everybody. Thanks, everybody, for joining us today for the afternoon of day two of City's Global TMT Conference. I'm Steve Vendors, part of the software research team here at City and here for this session. Very glad to have the team from from from Blackline here. So I want to thank you both for for joining us today. Thank you. Thank you. Maybe just to start, you know, I think there's been a lot of changes with with Blackline over the past past couple of years. Maybe we can just start with kind of what the core story is today and, you know, how you're kind of viewing the opportunity to invest in Blackline over the next, you know, three to five years.

So, thanks, Steve. So, we have been on a rapid journey to transform the business, you know, three years ago, roughly, when we stepped into the role. We did a complete refresh of our strategy where we wanted to go focus on certain parts of the market to really be more selective about the customers we chose to do business with, the industries, the geographies, the ERP partners, the system integrators. And so we did a lot of what I would call choices in and choices out. That served us pretty well as we moved through the last couple of years. We really got our innovation back in motion when we brought our founder back into the business who drove a lot of that, including stuff around Studio 360 and then expanding the platform to be even more complete around financial close. I think we were smart that we had some insight as to the possibilities of AI and what that could bring for us. And so in some ways, we were ahead of the curve. In other ways, the markets move so quick. We're still trying to make sure that we're the relevant player in that. And importantly, one of the big things that we'll be sharing at our Beyond the Black conference in November, and we sort of hinted at it already a little bit, is our financial control console, which will really provide, you know, sort of complete governance around AI in the office of the CFO, which is something that our customers and our partners and the BPO partners have been talking to us about, like how can we help to orchestrate and manage all that workflow, not only for what Blackline builds, but for what maybe some of our partners and our customers also build. So that's some big things that are coming. We've got a lot to share, but we feel pretty good about the position that we have in the marketplace.

Okay, that's great to hear and definitely excited to see what comes out of that in November, I believe. So yeah, definitely looking forward to that. Maybe we can dig a little bit into just the demand environment today. You know, I think you called out some deal delays in the past quarter. I think there's more friction tied to evaluating AI. Can you just maybe give us a better sense of the dynamics that are at play here? You know, how are you expecting or, you know, baking in the deal cycles into the guide for the rest of the year? And then, you know, I guess as we think about the other side of that, what do you kind of feel like are the levers that are in your control to try to, you know, improve deal cycles moving forward?

So there's a lot to unpack there. So first of all, you know, our pipeline's never been more robust. And so, and our pipeline is more robust at the upper end of the market. So mega enterprise enterprise upper end of the mid market, which are the places that we're really trying to, to drive, you know, our success. So we feel good about this, the situation with opportunities. Our deal cycle has always been relatively long. 12 months is not uncommon for what we do. It has elongated in the first seven plus months of the year. Part of that was driven first by build versus buy. All of a sudden, everybody had bought a lot of tokens last year at the end of the year, and they were trying to figure out, well, can I just vibe code my financial close preparation my financial statement and so there was a lot of what do we do around that so for us we spent more time with cios and cfos controllers and their teams talking about you know the pros and cons of trying to build versus buy you've now seen a lot more in the marketplace around when you should build versus when you should buy which stacks up well for us because you shouldn't really be trying to to build you know financial close and consolidation capability so So that certainly was a big piece. And then the other thing that's really happened is, you know, companies are afraid of AI at a certain level. They want to embrace it, but they're also a bit unsure of how to unleash it in their organization. And so, you know, CIOs certainly played a bigger role. Chief legal officer is much more involved in conversations beyond the normal, you know, sort of agreements that we get into. we've run into a number of bigger companies now have AI czars who are trying to figure out what that role is we've been asked to to provide much more clarity around our own AI governance how we build things and making sure that you know we're not going to build something that gets unleashed in our customs customer systems and goes so it goes crazy and so all that is added to the complexity of getting deals done so then what do we do to try to respond to that right so So, like in the first quarter, we were sort of, okay, what does this all mean? We did a lot of work educating our people on build versus buy. The second quarter, which is really now into the third quarter, you know, much more work around talking to our customers early on. Like, hey, here's what we're seeing. Here's the questions you should be asking. So we have the answers for it, right? So don't wait for them to try to figure it out. Go be very proactive early on in talking about AI governance. And so we now have much more standard answers that we go into proactively. We're trying to engage some of the people who come later in the deal cycle earlier because, you know, again, the deal cycle, if we're going to shorten it, then we're going to go We have to go down multiple parallel paths. We can't just sort of the linear typical procurement. You do this, check the box. You get to the next milestone, check the box. And so there's a lot of work that we've done to try to change that. Now, that said, some of these big companies, they're not going to change their procurement processes just to accommodate black line. And so there's some of that push-pull that we're working our way through. But the things that we can do to shorten time to value, we have focused on. We've gotten better. I think Patrick would say in the first quarter, we had a fair number of deals that rolled into the second quarter. Many of them closed sort of prior to the end of the second quarter. the second quarter deals that now extended most of them have now you know closed so we've shortened that up a little bit and i think if we think about the first half of the year we still have one really large deal that hasn't closed but basically all the other seven figure deals at this point point have closed i think from from our vantage point we're not losing it's just being delayed so these questions of if versus when is you know um you know good for us because it's just a timing issue. Okay.

And then Patrick, I guess, what are you kind of assuming in the outlook right now?

So everything Owen just said is factored into the current guide and stole a little of my thunder there. But the way I'm looking at it from a data-driven, fact-driven, numbers-driven analysis is those large deals at the end of Q1 that slipped took X number of months to close. It took several months towards the end of Q2. Even some of them slipped in the Q3. And the reason for that was education. It was our customers understanding what's the art of the possible of AI. Back in February, when this all started, or this narrative started, at least, AI was the panacea for everything, and companies are learning that's not true. And so they're getting smarter, but we're getting smarter too. To Owen's point, our sales team is much more enabled on messaging, not just our sales team, but our customer success managers and how they engage our customers and educate them. And so then we look at Q2. We had slip deals again, but those deals closed in about a month or so, all but one of them. So the slippage rate is compressing. Now, is the deal cycle the same as it was this time last year? No, but it's getting better. And so that's been factored into the guide. We think a couple more quarters of this, education, getting the message out there, word of mouth, seeing what the art of the possible is and realizing that black line is your first and only choice and trying to vibe code your financial close is not the path you want to go as a CFO. So that has been factored in, and that's how we're evaluating it from a data and days-to-close analysis.

And so it seems like the changes that you've made are starting to have an impact and at least are starting to change things. You know, I guess any read-throughs, I guess, so far through 3Q, at least for net new things kind of extending or anything?

They never let me answer anything because I say things I'm not supposed to, so I'm going to look at him. Go ahead, Patrick. Keep me out of trouble.

Anything new we're seeing for Q3?

I guess, yeah, I guess asking, like, you know, you saw the deals slip from 2Q. Like, are you seeing, you know, I guess the closure rates in 3Q or anything? Are the changes you're having having an impact in terms of, like, stemming the tide there?

Yes, it continues to improve. We're getting much sharper on build versus buy. We're getting much sharper in understanding the risk of trying to build. And now we're putting some real numbers behind it. There are studies out there saying where you should use AI, where you should not use AI. Was it RBC, Deloitte, a couple of other studies saying this is your total cost of ownership if you try to build something like this in your financial system ecosystem? And the short answer is for a CFO, the ROI doesn't justify trying to build something So it's not just us out there messaging it. There's now third parties. There's experts in the field that are out there validating what we've known. And that's very important when we go out there and compress those deal cycles.

No, that's great to hear and very clear there. Maybe it's a good opportunity to talk about your own AI capabilities and what you're putting out there with Verity.

I guess as you look across those agents and you look across what you're doing with 360, you know just what have you seen so far from adoption trends and customer interest and I guess what's kind of resonating at this time as you as you talk to customers with those solutions so a couple things to that are important so one is almost all of our innovation we do through the lens of our customer and our partners right so there's you know we talk to them about what they want to see built and we then build it sort of almost in conjunction with them there's a lot of prototyping um before we go to early adopter and then general release and then you know those customers become pretty good good advocates for us i think the the thing that you know um we saw is you know originally we had sort of a um an opt-in model for ai we switched that to opt out and we had conversations with you know all of our customers about that very few customers have opted out of our ai capabilities we're starting to see and we saw certainly from the first quarter to the second quarter are now early indications in the third quarter really positive trends of our customers using things more and more um and so we feel really good and confident about that it'll be interesting to see when we cross those thresholds where they start paying for consumption because they're getting more productivity out of of using our ai um all of our products now have all parts of the platform have our ai enabled um our ai native at this point in time we'll have a lot more again to share and announce um in november but i i am blown away by what our product and tech team has been able to do i mean they really have taken the the challenge um to sort of reimagine rethink the way blackline you know builds its products but brings it to market um And our ability to innovate has been, you know, just, you know, shockingly good to me. I mean, I've really been blown away by it.

I guess, you know, great to hear that the products are resonating. When do we start to see that kind of flow into monetization? And when does that, you know, upside on the usage actually drive new revenue for you all?

So we're already seeing it. you know, the proof is always in the numbers and we're just seeing phase one right now. So let me explain what that means. You can't separate the AI story from the platform story. So we signaled at the beginning of this year, we ended 2025 at 11% of eligible ARR on the platform. We target it and set a goal of 25% by the end of this year. And we have a very clear line of sight for that 25%. We feel very confident in that. And that is a product-led initiative. And so just to recap, just a quick, you know, brief history here. When we launched this platform pricing initiative and started researching it in 2024, it was about unlimited users. That was the value proposition. And in 2025, we started with that. And we saw a great uptake, 90% plus, with our new logos. But we didn't quite see that uptake in our existing customer base because most of them had already optimized the number of users that they needed. As we built Studio 360 and developed it and also then start building agents that operate within Studio 360, it went from an unlimited user story last year to a product-led story. And what I mean by that is if you're a customer and you want access to our agents, you have to be on the platform. That's why we're seeing the acceleration in terms of the percent of ARR on platform. we're going to go from 11 to at least 25 that's 14 percent this year we're going to enter what i would call the the s curve of adoption next year and see that accelerate even more that's very important because that acceleration that rate of conversion is generate will generate at least two points of incremental arr growth or revenue growth above and beyond our current run rate so our current run rate is nine and a half percent ish add two points to that we're at eleven and a half percent next year on a guide of 13 percent before we even factor in FedRAMP, KSA, our other products and several other growth levers that we have. So that's why we feel confident not just about where we are now but where we're going for 2027 and that's step one of the monetization. Now step two, each customer that adopts our platform gets a certain number of transactions for free And that's very important. We don't sell tokens to customers because people like me, a CFO, doesn't want to buy tokens. I have no line of sight on the amount of token usage. I don't know what outcome that generates. I don't know what that does for my business. I don't know how it affects my strategy. You need to sell people like me an outcome. What do I mean by that? Okay, how many reconciliations is an agent going to perform now on your behalf? How many journals is it going to book? How many phone calls is it going to make the delinquent customers on your behalf? Those are metrics every CFO knows inside and out. That's an outcome. There's a real cost to that. There's a real value to that. That's what a CFO is willing to pay. So we give these agents in a small sample size as part of the platform uplift, and that allows CFOs and controllers to test the agents to make sure that they work. It's a requirement if you're a public company. That typically takes a couple quarters to get your internal and external auditors comfortable, meaning you have the agent running over here. You have your historical manual process over here. The outcome has to be identical for all transactions. Once you prove that on a sandbox or sampling basis, then you can release that agent into your entire population, your entire ecosystem. That drives up consumption. That drives up transactions. That's when you go through that free tier of agents that we provide to our customers. Once you go through that, it becomes tiered pricing, and that's round two or level two of our monetization. First, you get the uplift. A couple quarters later, you start driving AI-based consumption revenue that we've never done before. That's why we feel so good about 2027 and thereafter in terms of our AI story and our innovation.

I guess to your point there, I mean, you know, as a CFO, you know, you worry about incremental costs coming through and I guess a consumption-based model. Like when you have these solutions, is this more about becoming an outcome-oriented model that is, I guess, underpinned by the consumption and you're selling, you know, a million reconciliations or, you know, whatever the number is and that's the point of it versus, you know, driving the consumption?

It has to be. That's the only way you're going to effectively sell this because a CFO needs cost assuredness. You have to have control over it. You have to have a line of sight of it. And selling somebody like me tokens does not work because I don't know what that means. I have no visibility into it. So every CFO knows how much time his or her team spends on booking journal entries, doing reconciliations, right down the line of all the financial close and financial reporting process. That time is money. That money is value. And so that's the outcome that you're selling when you sell these agents. I'm going to come in and this agent's going to perform this many reconcilations, et cetera, et cetera. I can immediately as a buyer associate a cost and value to that. And that's what I'm willing to pay for it. So that's how we're going to market. And it's really resonating.

Okay. No, that's great to hear. I guess maybe on that kind of similar line of thinking, you know, when you start rolling out these products, these solutions, how do you think about the value capture that, you know, should kind of come to Blackline versus, you know, what accrues to the customer, what accrues to, you know, some of the other, you know, underlying model vendors and things like that? Do you have a framework to kind of think through, you know, how you capture that ROI?

From a selling standpoint? Yes, from a selling standpoint. So, yes, we have a very good idea in terms of, you know, we right now, Legacy Blackline, you know, I'm putting example numbers out there because experiences are different for every customer, depending upon if they're mid-market or enterprise or multinational or domestic only. But long and short of it is, we know the level of automation our customers experience without AI. And we know what incremental level of automation these agents deliver. That incremental amount, let's say it's 30, 40, 50, 80%. That's the incremental value. So the willingness to pay above what we are currently charging them is a number less than that, right? Because we both want to benefit. We want more revenue, but they're not going to pay for every single dollar of incremental They want to see benefit too. We find that equilibrium. We have a very well-sought-out model for that. We know inside out how our customers are using our product, and that's how we price it to our customers. We know, okay, based upon how you're using Blackline, we can deliver a 50% compression on this cycle, and we know how much that's worth to you. We'll raise your price 20% or 30%, so we both win.

Okay, that makes sense. I want to pause there and see if there's any questions in the room here. Okay, maybe shifting gears on maybe talking a little bit on the go-to-market side. Maybe we can focus on SAP and the relationship there.

I guess to start just kind of where are we in terms of, you know, that, you know, that in terms of them pulling you into incremental deals and, you know, is there more things that need to be done from an operational perspective to make that relationship, you know, closer and tighter in it moving forward? so you know in so many ways it's a it's it's a wonderful relationship but right and so um look i think when i go back to when i was over there in november of 24 talking with their leadership about trying to reset the relationship with a number of key things that we've laid out prior earnings calls and the things that we said we would do around product roadmaps customer success go to market launching into different geographies things of that nature in so many ways you know both sides could sit there and say check check check i mean probably the most significant thing is if you look on you know sap's website they have a golden architecture which in the heart of it is black line and how that all fits together and that's a really big deal the work that we've been able to do with sap jewel and black line verity has been been incredible we feel really good about all that. That said, you know, it's still not moving the number the way that we certainly would like from a black line perspective. So as you guys all know, we've got about 26% of our revenue comes from deals with SAP. And despite all of our best efforts, we're still at about 20, 26%. So next month, when I go over to go visit with their leaders, that's really one of the topics we want to understand because we've made so much investment in the product side the customer side you know trying to go to market together more so why isn't it showing up i mean we have some pretty good viewpoints which is you know their customers typically the cio ours is somewhere sitting in the office of the cfo and there's just you they just speak different languages that they We all speak different languages to each other and where our comfort zones are. And so we've got to get better at figuring out how to get into the same rooms where you get a CIO, CFO, Blackline, and SAP, and maybe an SI in the room together. I do think AI actually is going to be a facilitator of that because, you know, we've had a lot of good success. What we've built from an AI perspective, I think that's been well acknowledged by, you know, the sap leadership and so how do we work with the cio and the sap account rep to sort of bring more black line ai to the table and do we have the incentives aligned the right way to drive drive more of that so you know when i think about like the upcoming meetings we'll have we'll focus on you know the product roadmap what are we doing there then how do we really monetize that so that it performs better than the rest of black line does on a standalone basis and then you know continuing to focus just on the innovation and the things we're going to reveal in November at Beyond the Black or those things that we'll talk to them privately about what we're driving towards. So again, I feel very fortunate and blessed that it's the relationship we have. From our vantage point, we just would like to get more penetration out of it.

I mean, I guess to that point, I mean, considering it's you know been pretty locked in at that level still seeing the growth acceleration come through feels like it's a pretty good validation of everything else that's kind of going around going right around around black line so like do you feel like if you get that right that's an that's a big incremental unlock that should drive you know a further acceleration versus the 11 and a half 13 percent i do um but you know again it's we just got to keep pushing on it and as i and i have to remind myself of this so it's interesting in some ways the closer we get to sap headquarters the worse we do um and and that's just you know it's almost

counterintuitive but our greatest success with that organization is in north america and then it's in england and in france and then the closer we get to you know the dac region and the nordics it just has proven to be a little bit harder and so for us we've just changed out a bunch of our leadership in in those markets brought in some fresh folks trying to sort of reinvigorate and drive that that relationship you know forward and so there's no reason we shouldn't be able to do more there but we just we just have not gotten it gotten it right at this particular point in time and that said there's still plenty of opportunity for us sitting here domestically um you know you'd be surprised still how many accounts sap is in that black line's not there yet so we you know

it's it's tens of thousands okay um okay that makes uh that makes sense i guess as you think about the go-to-market you know moving forward here um you know what do you where are you kind of like placing your bets for you know incremental spend to to drive the the go-to-market and kind of what do you feel like are the biggest incremental areas of build-out that you still need to uh still need to do from here yeah so um like every organization probably you know we're continuing to you know figure out how to get more boots on the street to to carry a bag to sell black line and then how do we pay for that by cutting what goes on in the back office through the use of

technology or the use of offshore resources or combination of the two so so when i look at what are the opportunities you know certainly upper end of the mid-market enterprise mega enterprise is is a target rich environment for us and we see the the the net rip and replace we have from from those customers so that's that's one two is driving greater outcomes with our existing customers one of the things that you know i think we were you know disappointed in the first half is we want to hire you know growth in our existing customer base that's 70 of our portfolio so we need to do better there um we do want to get more boots on the ground in central europe um so when i say central now i think again the nordics germany france um spain which is not exactly central but um i sound like an american with that map um but sort of you know sort of uh thinking about that there um we're continuing to invest in the federal government space um we've seen a nice uptick in opportunities there that's a very long cycle but you know we knew and we spent a lot of money building our capabilities to be fed ramp compliant currently aisle two on our way you know hopefully matt dial four sometime next year and then you know one of the bets we put on the board that hasn't paid off was the middle east um so we had big aspirations for you know saudi arabia we still do but obviously you know middle east conflict um has has put a damper on that but that's just a timing issue from my vantage point, and that'll pay itself off.

Okay. Yeah, hopefully that happens sooner rather than later.

A whole host of reasons, yes.

Yeah. Maybe on the Fed opportunity, you know, there has been a newer area for you. I know this is a big, you know, Fed quarter just in general, but, you know, how are you kind of viewing that opportunity right now?

So it was, I said to my board in my note I wrote to them over the weekend was, We're excited about the Fed opportunity, but, you know, this is our first big year in it, and so our ability to forecast, we don't have any experience, so we're not really sure what to expect from it. The good news is I think we've gotten a lot of good airtime in front of critical agencies. I think we've shown well as an organization auditability that the government is trying to drive towards is certainly to our advantage. I know Doge probably didn't unfold the way many people thought it would unfold, but there's opportunities from an automation perspective. Interestingly, and Matt would tell me this matters are head of investor relations, you know, inter-government accounting. So what they transfer payments from one agency to the other is quite the challenge. So that was sort of an unintended thing that we found in the process that we're going through. And our software was built to comply with federal government accounting as a cash basis. And as Patrick would say, we do accrual or cash accounting. And so it winds up very, very well. And I do know that one thing that has been important is our security capabilities, the government's been very impressed with, and then the volume of transaction activity that we can handle has exceeded all their expectations. So we'll see where it plays itself out. you know, I think for us, federal government is just a timing issue now. And then importantly, one of the markets we're really trying to explore is because of the way Europe is beginning to decouple from the U.S. or the U.S. is decoupling from Europe or whatever way you want to describe that. Some of the things we're dealing around data sovereignty in Europe, which we'll talk about more in November, sets us up potentially well to work with some of their more sensitive industries, and also government in Europe is something that we're really looking at.

Okay. That's great to hear. In the last few minutes here, I do want to ask a little bit about 27. I know you gave some initial indications. We talked a little bit earlier about some of the platform and AI assumptions that are being made to drive that acceleration. But yeah, just maybe can you walk us through the overall assumptions that are underpinning that you know that that growth excel and and how do we think about you know never tension improving the install base you know converting to to platform verity monetization and i guess also mid-market kind of rolling off as a as a headwind that's that's that's in there too yeah i mean you you hit on many of them but you know if you want to build it up starting maybe at the 11.5 percent where i left off that's the nine and a half ish percent run rate that we're now plus two points from platform conversions now that's just the conversion that's the initial 10 to 40 percent uplift upon renewal that gets you to 11 and a half so you build from there

we do have some fed ramp in there we're getting much smarter there as own just noted we have we're having very meaningful dialogue now with notable opportunities so that that is a building block and there it's called called about a half point to a point at least in addition to that we We have KSA, we're hedging our bets there based upon some of the geopolitical matters going over there right now, but that has a significant up potential in terms of that market. These are in no particular order. Consumption of our agents, that is not part of that 10 to 40%. That's a monetization of something that we've never monetized before. Right now, if you buy our product under user-based pricing, you get unlimited reconciliations, unlimited cash. Now, these agents, as they perform the work, of accounting and finance professionals, we're monetizing that on a transaction level. That's another half point to a point at least. So just seeing the building block. And then, of course, we've had a lower mid-market story here for about three years in terms of the churn that we're experiencing. We stopped selling into that market three years ago. We're seeing that dissipate. We're at the tail end of that. And going into 27, that will go away as well. So then lastly, overall, in terms of how our customer success managers, how our solution consultants are engaging our customers, we are continuing to see an improvement overall of churn and attrition. Our platform is stickier. Our product is stickier. We're seeing better rates of consumption. And the more you consume, the less likely you are to churn and attrit. And that's part of the growth story, too. It's not just all bookings, but it's also the mitigation of the existing ARR base, the erosion of that ARR base as well.

Okay, perfect. In the last minute here, maybe we can just touch on, you know, Beyond the Black coming up in November. You know, what should we kind of look forward to going into that event?

Yeah, a lot of product innovation, some announcements with some of our design partners for what we call Blackline 3.0 and some of the things that they're doing, building on top of Blackline. um and then i think you're going to you know see some real interesting stories around how our customers are using our ai and then building on top of black line with their own ai capability so i think those are probably you know the bigger things that uh i'm thinking about and obviously the other one is just again as we started earlier on with the financial control console and how you govern ai across the office of the cfo so those are probably the biggest things that we'll be, we'll be talking about and showing there. And, you know, there's a couple other, maybe a little surprises we'll have for you guys.

All right. Perfect. That's great to, great to hear, but Owen, Patrick, I want to thank you so much for, for joining us today. Great to have Blockline here. Thank you.