Q1 2020 Earnings Call

With Black line subject matter experts.

No.

[noise].

Well.

Well.

[noise] [noise] practices me a marked another 1400 Midmarket company [laughter], we also offering complementary implementations.

Limited time convenient burden on midsize companies, who have less excess capital in these difficult time.

So we've got you that flatline unveiled its resource hub store closing virtually to help finance and accounting professionals worldwide navigate the challenges surrounding this pandemic. The resource hub is available to all finance and accounting professionals, regardless of whether they are a black line customer or not.

It provides insight guidance and lean practices from both Black line and our partners to enable companies to close with confidence in this new virtual world.

The response to these mainly measures has been very strong we've had nearly 300 CPH enrolling more than 700, CPD classes and that number continues to grow on a weekly basis.

More than 30 of our customers and taking advantage of our three tests management and reporting products with have already implemented and realizing value from the addition of those products.

In the mid market, we've seen interest in our map solution and have already drilled 25% of the capacity for our complementary math implementations.

Lastly relief efforts are really resonating with our customers and many of provided feedback on how appreciative. They are do you have the support of Black line and this time of uncertainty.

Im very pleased to share that we're working on additional customer relief efforts and plans to roll them out as quickly as we can to support our customers.

Likewise, we know that we are part of a larger community and I was incredibly proud of the number of Black line employees, who volunteered in their local communities to help the decoded 19 crisis from food banks to donations to checking in our neighbors and vulnerable individuals Vince outreach.

Further reinforces blackline core value to serve.

While these clients are trying for all of US we're confident that our customers and black line will emerge stronger and we're working hard to ensure that I'm really proud of our leadership team their dedication to our customers and their focus on the safety of our employees.

And with that I'm going to turn it over to Mark softened to discuss our recent business performance.

Thank you to release and good afternoon, everyone.

I'd like to begin with a quick overview of Q1 performance I will then address the changes we made in our go to market strategy followed by the trend is our sales leadership has seen in the market from the early March through today.

Starting with the quarter sales activity was very strong in January February and we were operating above plan.

However, we began to see purchasing decisions being deferred in early March due to covert 19.

Notably our new logo business was off to a good start in the first two months what was hit the hardest near the end of the quarter.

In EMEA, we saw meaningful declining deals closing before the end of the quarter, we experienced delays large deals and we saw a slowdown in the mid market in North America.

Our Solex performance was also strong at the start of the quarter and then saw deals get postponed in March.

On a positive note business within our installed base remain resilient throughout the quarter for both the account growth and renewals.

In addition, there was minimal disruption to our implementation work with projects in slide continuing to progress as scheduled and generating record services revenue.

Our data market teams were quick to respond to the impacts of covered 19 in early March we adopted a virtual sales motion.

Our sales team is no longer able to meet with customers and person, but they continue to build and maintain relationships with customers and prospects to virtual meeting calls.

We shifted to a fully remote implementation strategy.

Teaser accustomed to doing remote implementations. So there was minimal disruption to our implementation operation.

At this same time, we reallocated, our marketing resources to focus on digital engagement and events digital lead generation and tools to help our sales reps connect with prospects in a virtual world.

As part of this effort, we shifted our in the Black London event to a virtual that within a weeks' time.

Despite additional turnaround time, we were able to deliver double the participation rate than our plan in person event and we received rave reviews from our attendees.

For the Solex partnership, we created a marketing and sales campaign to better position Sep for success in a virtual world with remote deployments in faster time to value using black line.

These quick wins include shorter sales cycle smaller deployments faster time to value and preparing sep customers for future moved to ask Ron.

We strengthened our relationships with Deloitte CYI, KPMG and RSM by hosting more partner enablement session additional certifications virtual sales engagement and featured our partners prominent thought leaders in our resource.

Together, we created and launched join offers in response to cope with 19, focusing on faster delivery and time to value.

We also for protocols in place with planned redundancies and activities and staff rules as well as plans to reallocate some of our existing resources to better support future capacity needs if they experienced a slowdown.

One example of this is shifting implementation resources into customer success roles.

Now I'd like to address the trends our sales leadership has seen in the market in the past several weeks.

The biggest changes the result of covered 19 is in the impact accompany budget.

Prospects and customers still want to invest in modern accounting some even more so in these challenging times, but they have less access to capital and are fighting for budget. Among a long list of other mission critical priorities.

This is even more true for prospects and customers impacted industries, such as travel hospitality retail and oil and gas.

We believe those deals have been delayed indefinitely and then new logo acquisition will be more challenged in this climate.

Historically large transformational deals have been significant drivers of our performance in previous quarters.

Over the past two years. This has been an area of strength for us.

As we continue to grow our largest accounts with the addition of strategic products as well as landfill large new deals.

In this current comment we have seen our large strategic deals get pushed and we expect that will continue as long as budgets are constrained.

We expect these covis 19 related changes to meaningfully impact our sales performance in Q2.

As a result, we've adjusted our expectations for the quarter, which more parts and will speak about shortly.

What has not changed their black line is our commitment to support our customer success.

Given the recent release efforts articulated by to raise our customer success teams has been busier than ever.

They quickly mobilized to address the urgent needs within our customer base with outbound effort spanning coaching sessions business review discussion success reviews and adoption and expansion downloads.

We believe this is a moments of black lines customer success teams to shine to stay engaged and be supportive across our global customer base.

As a result, our customers were able to seamlessly transition to work from home model with consistent uses our platform two weeks immediately following global shelter in place orders.

We also received multiple customer testimonials, including one who told their customer success manager coal. We are so glad that you led us to where we are today with black line, our month and close with smooth, we didnt Miss a beat I can't imagine what month and must be light for companies that don't have black.

And growth.

Over the last two years, we have heavily invested in global resources around account management and we believe we can capture expansion within our existing accounts, our marketing sales and support change of align their strategy and messaging around customer teams.

To help our customers adapted to be successful in this new reality.

We believe we are well positioned to drive growth within our installed base for customers in the verticals less impacted by covered 19.

For our customers in impacted industries, our success and support teams are available to serve in these trying times.

Another differentiator for Black line is a change we made to our accounting transformation specialists unrelated to this pandemic.

In Q4 last year, they shifted to an optimization blips model that breaks the strategic transformation project into multiple smaller projects that are easier to sell cheaper quicker to implement and faster to generate ROI.

The idea behind this model is to help accountants manage a large time consuming project knowing they would have the step away from that project to prioritize the mountain close for at least one week per month.

Customers still gets the same and result of digital transformation over a longer timeframe, but the smaller projects make it easier for them to manage and easier for us to serve them.

With the exception of one hospitality customer all of our large strategic customers engaged in these optimization Blitz models are pushing straight ahead on their digital transformation journey.

In this current climate, we anticipate that some implementation projects will get pushed.

We think this model can keep customers engaged successful and on track for continued progress towards their long term goal of finance transformation.

Moving to our partner ecosystem, we are hearing from our partners safety included that there is a clear demand for guidance around business continuity, including the financial close as well as strong interest in virtual close.

To put that into perspective, Eli hosted a webinars to prepare companies for their first remote financial close in late March and the event was oversubscribed at more than 19000 attendees.

We're also hearing that there is partner appetite for deals with faster time to value, particularly as ERP providers are seeing larger digital transformation initiatives being postponed.

With partners involved in a majority of black lines largest deals. We believe the current climbing has created an opportunity to partner smarter within this ecosystem and we're focused on working together to support our customers and drive more mutual business.

We grew this ecosystem in Q1 with the addition of cap Gemini as a new global Alliance partner.

Our partners have quickly adapted to this new model of fast first transformation second divest support customers in today's climate.

As these partners anticipate potential softness and their utilization levels. We believe we can use that time to growth with a number of active and certified Blackline consultants.

While this hasn't impacted pipeline year partners are very excited about working with us to stay productive and drive revenue.

As it pertains to Solex Sep has included Blackline solutions as part of its coded Nike in response to its customers to help with quick wins and continued progress towards as forehand and transformation.

No the economic landscape is continually evolving in response to the impact of covered 19.

While this creates uncertainty blackline remains at the center of massive long term market opportunities across modern accounting digital transformation.

We will endeavour to manage the company for the long term, while we navigate through his environment.

For us that means first maintaining or goodwill and loyalty with employees and customers.

Second strengthening our brand as a category leader now for customer advocacy.

Third investing in product innovation, and Modernising, our technology infrastructure and for evaluating the broader market for opportunities.

And with that alternative call over to Mark pardon.

Thank you Theresa and Mark and good afternoon, everyone.

<unk> I moved to our financial performance of the quarter I wanted to address how this pandemic has impacted the role of the C.I. folk.

Today, C.F.O.s, playing a central role in stabilizing their businesses in the near term.

I'll also position in it to thrive when conditions improve.

To keep my team operational and productive and this distributed environment, we have further embraced digitization.

As a result, we were able to beat our own internal record on closing and reporting thanks in part to our Black line software.

We're seeing the same dynamic across our customer base, where digital initiatives are now.

Deemed business critical to ensure accurate reporting informed decision, making and business continuity and the current crisis and into the next normal.

As we think about what that new normal looks like we believe this climate is a long term accelerator for digital transformation.

But first we all have to get through the uncertainty of this current climate and that is exactly what we intend to do.

For the majority of Q1, we were operating well above plan on all key metrics throughout the quarter, we hired record number of employees and in January the company hosted one of its largest and most influential company kick off events, yet as we transitioned from a strong 2019 to a plan of.

Acceleration in 2020.

Despite the strong start the impact of covert 19.

Caused the number of deals to push out of the quarter or delayed indefinitely.

Which impacted sales by roughly 20 to 25 per cent in the quarter.

We saw the greatest impact to EEMEA sales the mid market enlarged digital transformation deals.

Our current operating model and guidance for you too will be informed about what we have experienced since this began in mid March through today.

Total first quarter revenue grew 29% year over year to reach $82.6 million.

Bite the strong performance Q1 revenue was negatively impacted by lower bookings the impact of effects volatility and an increase in our estimated revenue reserves related to customers that are in an impacted industries.

A few other notes on revenue include.

Services revenue delivered at strongest quarter ever at $5.6 million or 7% of total revenue.

This represents 95% growth year over year.

Our international business represented 24% of total revenue in Q1 up from 22% and the prior year.

Revenue from R.S.A.P. partnership with 24% of total revenue in Q1 compared to 25% into prior year.

More than 75 per cent of our large deals and a quarter included a partner and strategic products represented 20 per cent of sales for the quarter.

We are fortunate to have a well balanced land and expand business model, where historically half of our growth comes from customer expansion and the other half from new logo acquisition.

And Q1, we saw resiliency and customer expansion with a strong renewal rate of 97%.

Dollar Bayes net revenue retention rate remained steady at 110% as Mark mentioned, we did not see a material impact to these metrics and Q1.

Helping support these metrics is our 23 month average contract length, which lessons the number of contracts up for renewal in any given quarter.

One metric, where we were negatively impacted however was our net customer ads.

We only added 32 net new customers in the quarter for a total of 3056 customers.

This metric was disappointing and well below our expectations due to a drop off in new customers for the month of March which typically represents two thirds of new customer additions in the quarter.

We also saw fewer large deals and sold X. deals, which are generally three years in term.

And Q1, we generate a net income attributable to black line of $6 million, which was driven by higher revenue.

We realized nominal cost savings in the quarter from our restricted travel policy and expect to capture the benefit from those savings and upcoming quarters.

Regenerated eight and a half million dollars and operating cash flow and $4.9 million and free cash flow for the quarter.

We finished a quarter with approximately $614 million in cash cash <unk> and marketable securities.

We believe our strong cash position will enable us to continue to support and retain our customers as well as drive our long term strategic initiatives that Mark mentioned earlier.

Before I moved <unk> outlook I want it to speak to how this climate has impacted our near term growth trends and overall investment strategy.

We feel confident in the core secular trends in our industry and believe these will get stronger on the other side of this crisis. We also feel good about our ability to execute on our priorities and long term initiative until that demands strengthens.

That's sad timing is everything and until we have better visibility. We will proceed with a great deal of pragmatism.

You heard Mark highlight a number of measures we have taken to protect the top line.

Mentioned, we expect many of the trends we saw in the last several weeks of Q1 and through today will continue into the second quarter of 2020 and impact growth.

Our assumptions for Q2 or not dependent on closing any new large transformational or strategic deals and we have reduced our expectations from the soul Lex partnership.

Additionally, we expect services revenue to decrease sequentially as we complete existing work and new implementation projects are delayed.

Approximately 25% of our revenue comes from customers in the verticals most impacted by covert 19.

Black line has a strong liquidity position and we intend to use that straight to provide relief programs to customers in impacted industries that may request extended billing and payment terms in q. too and in certain situations reduced billing.

Our plan is to meet that demand where appropriate to keep our customers operational create goodwill over the long term and reduce turn at attrition.

We expect these relief effort.

Impact free cash flow and cute too.

As well as other key metrics, such as revenue and calculate a building.

We believe churn attrition risk is mitigated by the long term duration of our contracts the sticky Ness and mission critical nature of our product and our willingness to provide relief programs to our customers in impacted industries.

On the bottom line, we have confidence that are high recurring revenue model will smooth the impact of reduced sales in the near term many of our expenses have naturally adjusted which helped protect cash income margins in the short term without hurting the business over the long term for example, teeny has been nearly eliminated.

Virtual marketing events or less costly and highly efficient and sales and service is hiring downshifted.

On these costs lovers, we plan to be balanced nimble and disciplined in the near term, but still long term oriented so that we are well positioned once markets begin to recover.

The areas of the business, where investments are not expected to change in light of the pandemic include R. and D. product and public cloud infrastructure, such that we can accelerate our road map and technology initiatives and hiring.

We also plan to redeploy resources and excess capacity as available toward our large existing customer base. We believe we are well positioned to execute on these goals and emerge from this crisis within even stronger business.

Turning now to guidance for the second quarter of 2020.

<unk> <unk> is expected to be in the range of $80 million to $82 million with services revenue in the range of $3 million to $4 million.

On the bottom line, we expect to report net income attributable to Black line in the range of $5 million to $8 million or eight to 13 cents on a per share basis.

Our share count will be approximately 60.5 million diluted weighted average shares.

For the full year, despite our high level of recurring revenue.

Due to the uncertainties surrounding the ongoing impact of covert 19, we are withdrawing the full year 2020 outlook.

And now we will take your questions.

Certainly ladies and gentlemen, if you how big question at this time, Please press star than one on your touch tone telephone. If your question has been answered and you'd like to remove yourself from the Q. Please press the pound key our first question comes from the line of Rob Oliver from Baird. Your question. Please.

Great. Thank you guys very much for taking my question really appreciate it [noise] first one is for Mark Hoffman Mark appreciate your commentary and good to hear you on the call.

Wanted to just ask about the ways in which your sales team has shifted its behaviors.

Particularly you know how the hand off from marketing under the new marketing funnel creation given the digital events is happening How're you guys are qualifying leads and and how they're able to go after customers in this environment could provide some color around data that I had a brief follow up.

Sure. Thanks from.

Yeah. So.

We like most companies haven't had to switch to a virtual sales motion.

You know historically good portions of sales activities for a lot of organizations have been done electronically or via the telephone and then there's obvious some parts of it that are done in person. That's shift is gone really seamlessly for us.

With the exception of a period of time in the early infancy of these changing the pandemic and guides, there's certain parts of the world and buyers that were hard to reach that sort of cleared itself up over time, and so it's sort of a new norm were able to function very well there we've adjusted our marketing.

Accordingly, as you mentioned, we've shifted how we view or events. So we.

We've been very heavy in in person events, we feel like we've got a great deal expertise to offer people in the events or the way that we do that we've had really good success transitioning those two virtual events.

And started to drive a lot of attendance, which pretty pleased about the interest in you know what we offered to people and think over the long term. This is going to drive more eyeballs to us.

It just to follow up I know you provided a little bit of detail, but you know what what gives you the confident that.

Current customers will be any.

S. Impacted then you know in terms of you'll closures then the new logos in other words you know this is a rapidly evolving situation. I know you guys are going to allocate resources to your current customers and clearly you're doing you know a lot of that but just you know if if budgets are going to come under pressure and and and things are going to be on.

Why wouldn't that also impact your existing customers. Thank you guys.

Well and we.

We none of us out of a crystal ball. So we don't know that but what we do know is customer six in the intimacy that we maintain with our customers through the investment that we've made over the past several years in those customers in our staffing levels and how we thought about allocating those resources is like a core value of of black on it.

So.

Able to interact with them understanding what they're going through and then where we have.

The ability to serve them or excess capacity that may exist in our motto were able to really react quickly and deliver value to them.

And if I could just jump in I mean this is we on a lot of customers that are now finding how valuable blackline is because they are trying to close their books remotely.

<unk>.

Thank you. Thank you are next question comes in the line of Terry Tilman from Sun Trust. Your question. Please.

I folks. Thanks for taking my question is is actually David hunger filling in for a tarrytown that help everyone's doing well Tonight.

I'm in respect to your to your free offering roll out that you that you gave back in and late March I think you might have mentioned some some data points related to customers signing up for the test management in the reporting six month retrial.

Are there any insights so far that suggest to you that this isn't under Sir tool and some must have and if so could you size that rather than you opportunity over the next one to two years based on the data you're saying since the roll out.

Well you know <unk> I always believed that our products are under utilized because I think everybody should have all of our products. However, you know the fact that our customers are really starting to evaluate the ability to log in remotely 24 seven to get.

There were done to manage their clothes checklist I think we have a number of customers that are really starting to value that.

I think that in general we are going to come out of this stronger we don't know when that's going to be I don't think anybody's got that you know foresight and so therefore I could not size that opportunity at this time, but I do feel like it's a great example for black line to shine.

Even if I might add it's Mark Hoffman, you know that task management piece, there's multiple use cases that support.

And we have a lot of expertise as I mentioned that we're able to turn around and and and provide back to customers and so you'll continue to see deliver some of that expertise in the coming weeks geared at customers around different use cases for something like task.

That's great if I could just have one follow up but I appreciate it.

So I'm just curious when thinking about you know the work from home era.

Understanding the time that it took for a black line existing customers to close the Bucks this versus.

Last year and if there any notable difference is that you can site based on customer side and industries that were served just trying to get a get a good grasp on how.

You know things, where this period versus last year. Thank you.

Yeah for sure you know we have we have some great examples internally with our customer success in our.

Or a automation teams that talk to our customers about how much working from home and how successful those companies have been in this environment. We're a great example, I mentioned it earlier that we in in this environment, we had a record close period our accountants.

All began working from home they closed the quarter and even this earnings call his earlier than usual and and I think that experience from what I hear from my C. C.F. <unk> customers and you know what we hear up through our.

Customer success teams is that that this has been a real blessing to have a a tool that works and the collaborative environment that has transparency that can close these mission critical.

Functions you know in this environment. So really good good feedback and I I do think theresa's right that this is going to be a real wakeup call for a lot of companies that don't use something and even for those that do they'll see the benefit you know of this and new new.

Thank you very much for answering my questions. Appreciate it guys have a great and I. Thank you.

Thank you aren't next question comes from the lined up Mark Murphy from J.P. Morgan Your question. Please.

Hi, Good afternoon. This is Matt costs on behalf of Mark Murphy, Thanks for taking my questions.

I'm not sure if you guys no. This one off off the top your head, but if you look at your total bookings mix in any given quarter.

What percentage would you say are achieved from a sort of insider telesales sales motion versus in person.

Yeah, I think I think we probably know that number internally, we don't share an x. journalese, we think of our mid market sales team as you know at different ranges within the mid market remember, it's a wide dispersion. It's a 50 million dollar company to a 500 million dollar company.

And so for many years, we can be successful and sell into a certain customer in that range.

So we we've never really marketed that number.

But it was enough that when we got to this point, we had a experienced that we could sort of role that out to the rest of of the globe and not just on mid market, but also enterprise.

Okay, I understood and it's great to hear that you'll be continuing to invest in r. and D. I think that's great thing to do at these times and have you been able to identify any product area or particular need that might be more pressing you know in six months or years in time from now that.

You can spend time sort of thinking about now and then sort of of ready to go with it.

When we're all sort of in a more normal state.

Well actually I would put it a little differently. Matt you know we have a long term product strategy. We have a road map that goes over a three year timeframe part of it is moving to the public cloud part of it is utilizing some of the machine learning tools that are available I mean, it's all part of a longer plan.

And really but we were trying to express in our remarks is it that plan is proceeding as we think that is the best thing to do for the company. So it's not necessarily impacted by this covert 19 crisis at all in terms of what we're doing.

Very good thank you very much.

They do you are next question comes from the line of code. She Akita from Oppenheimer. Your question. Please.

Oh, great. Thank you for taking my question everyone. How to question here on the X.S.C.P. segment of the business. According to our model looks like.

It around 30% on the first quarter.

So I guess hypothetically thinking if they're quite it didn't occur would it be safe to assume that the X.S.A.P. portion of the business probably had a good chance to grow in the mid thirties, or even better and the first call.

So good it's a great question you know, we called out our revenue growth as being very good and then also talked about things that worked again Q1 revenue and yes, there would be a three on the revenue growth rate if not for those things.

<unk> related so.

To answer your question I would just say it starts with a three.

Got it thank you for that and just wants to be absolutely clear on the exposure to some of these troubled verticals out there the 25 per cent exposure.

Travel hospitality retail and oil and gas or are there any other verticals that we should be aware of and that exposure.

Oh, great that I appreciate that question.

25% is spread out amongst the number of industries Mark mentioned some of them. There are a couple other retail energies food and beverage hospitality transportation Entertainment.

And within any of those industries, we're spread out amongst a number of companies and don't forget we are a large enterprise company 80 per cent of global large enterprises. So we're just taking a very thoughtful and pragmatic approach about those impacted industries as.

We worked through our business in this economic climate.

Got it there's just one quick housekeeping question.

E.R.P.O. and number today.

We get that if we didn't here.

Yeah, it's $368.7 million at the end of the quarter.

And it is 61% to be recognized in the next 12 months.

Got it. Thank you for taking my question is appreciated your.

You're welcome.

Thank you are next question comes from the line up Brent Brison free some from Piper Sandler Your question. Please.

Thank you I'll start here with the trees.

Good afternoon. So one on one hand, it definitely sounds like you have you know 25% of the business exposed to some challenged customers yeah budget uncertainty that's now emerging as a as a new headwind.

But there are also some tailwinds here, you're talking about the remote audits virtual close that oversubscribed E.Y. event, certainly sounds like there is a lot of appetite I guess my question here is as you think about remote <unk> audits in virtual close.

What is it going to take for that to evolve from kind of a a nice to have two kind of a a must have it seems like it's a nice to have today, but you know is there an opportunity to.

To to promote that and and and move that to kind of a must have.

Well I think that's exactly the opportunity that we see and all of this.

Is that people that companies that currently close this spreadsheets and paper and you know carrying things from one just to another that's not something that they can do.

Either efficiently orienting environment that makes any sense. So we didn't think that that's the opportunity in front of us and we are going to maximize that in every way possible.

<unk> if I just you know playing back onto the my prior experience with the company that I was that when we went through the global financial crisis.

That's a crisis is financial nature doesn't involve a pandemic in human loss.

But you you know that organization you know was trying to move financial systems to the cloud at the time.

And the impact of that sort of period had.

Came out of it was really a big seller rent and so we're looking at this event in terms of.

Oh this might be an accelerate for us in the future in the same very way hopefully would take this time to invest in our business based on our relatives string and we come out of this as a as a catalyst for future growth.

Create than just to follow up Mark Hoffman on that how much of the sales resources have been shifted away from those impacted industries.

And as you think about this large transformational deals have you been able to read purpose those sale resources to kind of other areas or Custer's access just just how quickly via kind of made a turn is that is that there's all that kind of done now or is there still more work to do relative to the reallocation of sales resources.

Good question and thank you.

There's in multiple parts to that so.

You know we have a geographic coverage model per se in our enterprise space. So not you don't necessarily pivoted resources away from one to the other you sort of think about the top into the funneling, where you're spending your money and so that starts with marketing planning and I were you know going after a market to create topic funnel.

Emotion there in terms of the rest of your question. There. That's most mostly a pipeline in a progression question then what you see is.

A link thing of some cycles, depending on industries to cycle time, lengthening, depending on which industry and how impacted they aren't there are still large transformation opportunities that are in our pipeline.

Some of them are just sort of.

Recast across time as people reassess.

Adept in length of the economic impact on their business.

[noise] pull it makes sense last question here for Mark you talked about met customer additions dropping off in March.

I guess they the the first question here last one for me did any change in April as you think about some of the changes to marketing efforts in sales.

Yeah look think April been consistent with what we saw at the end of March it as a as Mark described you know we're using as much data as we can but April still early it's early in the corridor and we're watching metrics an activity as we move through it but we're seeing.

Similar to what we thought the end of March.

Thank you.

Thank you are next question comes from a line of Pat Walravens from J.M.P. Securities. Your question. Please.

Great. Thank you. This is joey on for Pat I. Appreciate it Mark I was wondering how are you approaching the upscale and renewal conversations and then also can you just have it on the competitive side have you seen anything change at all.

How much.

Okay. So <unk> well first of all start with the competitive thing. Thank you Joe for the question So <unk>.

<unk>, we're really fortunate to be in a position, where we are with our customers and in these types of moments. When you know there's economic down and things are going on people that have the best focus on customers in my opinion succeed the best.

Yeah, that's really what our brand is based upon and so we were quickly able to take his Teresa mentioned to her comments resources that we had and expertise that we had and vivid that out towards our customers on an advisory basis offering some free software really invest in those things in from a competitive standpoint, we.

Refers to mark it on all those things and we saw some of our competitors follow us in that regard, but you know, we really think of ourselves as leader, we worried about what we're doing and what we're doing is focused on our customers.

Terms of that your your second question about you know how we're approaching those up so conversations you.

We have such great customer Syntricity and good coverage and you know relationships that are based on more than a commercial activity.

Companies still come fairly naturally, especially in on affected industries. These companies took pause in terms of.

The work they were doing for a finite amount of time a lot of those things have returned to normal right now and people are continuing their finance transformations and having dialog with us.

And how they can progress you know their role lots of Black line.

To get quicker time, devalue better our align the shorter amount of time and so there's still some positive things happening in up sell side of our business.

Thank you so much.

They q. Our next question comes from wind up Chris Marwin from Goldman Sachs. Your question. Please.

Good.

This is Kevin on for Chris. Thanks for taking my question I had one about the mid market segment I believe it's roughly 20% of your business can you talk a bit about what you're seeing here in terms of deal activity in renewals and it is is the weakness more broad base or is it is it more segmented to kind of near the highway impacted industries.

Yeah. Thanks for that appreciate it our mid market you're right. It's about 20%. We saw the same sort of percentage in at the end of Q1, the weakness that Mark has talked about is broadbased. So there's nothing particular about the mid market.

On the renewal. However, I can tell you that are renewals experience through the first quarter were strong and and also through April to this point also strong even in the impacted industries, we are having conversations with companies where appropriate but our experience has been so far.

It's really have been a pretty positive.

Great. Thanks for the color.

Thank you are next question comes from the line of Brian Peterson from Raymond James Your question. Please.

Hi, everyone. Thanks for taking the question and I Hope you and your families are all sick, it's kinda crazy times, but dogs. So.

Maybe just followed up on on that last question. It sounds like Upsells is kind of been appointed shrank I'm curious as we go through a remote close type reprocess. If you look at your customers or there's some that use more are kind of with all lean on black line that actually get a lot better than those that maybe only had one or two modules and is there and.

<unk> up still motion for for people that you already have into the pool.

Well you know this is Theresa and we definitely have had our customers express the sentiment that they cannot imagine trying to close with not using black line of dollar using less of black line.

And I think we're also seeing as good validation of that when we offered out the tasks module that <unk> you know the number of different things. The additional training. The coaching sessions. All of that is then extremely well received so I think that we'll see now right now.

We're very focused on just helping people get through this time and into their new normal, but I do think over the long term it will help but to strengthen the upset and there is a big difference between those that use it fully and those that maybe I'll just check in a box.

Understood. It takes three in in maybe just for those that are using black line in it you know obviously paper is gonna be hard in this environment, but I'm just I'm imagine imagining you know sitting here in my office try to close books with my My Dog Barking at me and frankly that that sounds pretty pretty bleak. So I'm curious are you already seen.

<unk>.

Potential prospects kind of <unk>. When do you think that would potentially start understanding that there's budget pressures, but look for those that are seen as complexity real time I would assume that has an impact on the top of the bottle. Thanks.

Yeah, that's a great question and so I would say interest continues we continue to build pipeline interest continues in fact, you can see by the you. Why example, we give you other areas where business in our partnerships, there's a high degree of interest.

The economic concerns still remains the same and so their access to their budgets and what they want to turn to actualize. Those things is a constraint you can imagine a period where people have gone through this.

And in the future when they have much is in place or head count in the human capital necessary to pull up to change that it's going to be a driver for us.

Oh this.

Thank you. Our final question today comes to mind of Matt Stop me from William Blair. Your question. Please.

Hey, I'm going to say my question just a couple of quick ones for me first you know obviously on the yes. If you saw like side. You know you spoke about some of those bills getting pushed out well, let's get an update you know in terms of what tracking your <unk> January February that partnership and then any traction with the Kobe specific kinda offerings that you mention.

<unk>, whereas if you just featuring buckle under.

Hey, Thanks for the question.

So.

<unk> as our normal business was in January February then I say P. relationship was quite strong also in the early parts of the quarter and so now you've got a scenario where.

Just like the rest of our business that sort of it.

Being recast across time and some of those opportunities what we're actually seeing is it the interest level in selects and the conversations with customers.

Prospects partners and and most importantly, the S.A.P. account executives or distribution.

Strategy. There has is on the rise there's a higher degree of interest in learning more about black on some of the programs that we've launched recently for continue to enable them in an awareness of our solution in conjunction with S.A.P.S. had been oversubscribed.

So I think that this is going to strengthen the relationship and the and and.

And the partnership.

Much like the other interests.

Yeah, the thing that stands in a way as the economic climate an uncertainty.

Right right.

And then just one more you're just on me you spoke to hold about spending within the installed base. So.

And seeing.

Patiently accelerated seeing renewal very strongly encouraging the <unk> the television that expansion also pretty stable in Spain for the last six seven whereas at this point.

Thoughts on disability.

Yeah, yeah. Thanks.

Yeah.

The ability of that going forward and and you know kind of how how was talking with you haven't you know continued growth and spend with that install base over the next you know in the foreseeable future.

Yeah, Yeah, I think that the timing a question so in the in the future on the other side of this we we've been talking you know at length about how we think this can be in accelerant for digital transformation and companies. We have a a lot of resources invested in that I think here on the short term, particularly let's just take cute too.

I think the impact <unk> I think that it will be impacted by the things that we've talked about with respect to demand and also frankly I do think there's a bit of risk planning that more subscription companies like us are doing right now for impacted industries.

For attrition with the N. accounts and customer relief programs I I do think those things are at work to favor a long term customer loyalty programs and and long-term customer success.

And that number can be impacted negatively by those things, particularly here in the short term, but the long term if that we still believe these opportunities to sell more products like we talked about earlier and accelerate in this environment is strong.

Right absolutely. Thank you for taking my questions. Thank you.

Thank you. This doesn't include be question and answer session of today's program I'd like to hand, the program back to Teresa Tucker Thunder and see you.

It's true Tucker I want to think all of you for your ongoing support and give a very special. Thank you do our employees. During these challenging times our employees have banded together to look after one another.

Intrude on the values to serve our customers and just sort of each other we believe that black line is built to last and we were whether there's still am together thinking.

Thank you ladies and gentlemen few participation in today's conference. This does include the program you may now disconnect good day.

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Ladies and gentlemen, thank you for standing by welcome to the first quarter 2020 Black line earnings Conference call.

At this time all participants are in listen only mode. After the speakers presentation. There will be question answer session to ask a question. During this session you'll need to press star one on your telephone as a reminder, taste program is being recorded and now I'd like to introduce your host for today's program Alexandra Geller, Vice President of Investor Relations. Please go ahead good afternoon.

And thank you for your participation today with me on the call. It treats Tucker founder and Chief Executive Officer Black line, Marc Hoffman, President and Chief operating Officer, and Mark Pardon Chief Financial Officer before we get started I would like to note that certain statements made during this conference call that.

Not historical facts, including those regarding our future plans objectives and expected performance in particular, our guidance for Q2 forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.

These forward looking statements represent our outlook call me I love the date of this call.

While we believe any forward looking statements, we make a reasonable actual results could differ materially because the statements based on our current expectations as of today and are subject to risks and uncertainties, including those stated now reports filed with the Securities and Exchange Commission.

Well as risks related to the ongoing opened 19 in Dallas and their related responded by government and private industry, including macro and regional economic threat.

We do not undertake and expressly disclaims any obligation to update or alter our forward looking statements, whether as a result of new information future events, where otherwise except as required by applicable law.

Oh, so unless otherwise stated all financial Maggert disclosed on this call well. These non-GAAP discussion of why we use non-GAAP financial measure and information regarding reconciliation of our GAAP versus non-GAAP result.

Let me available in our press release, which may be found on our Investor Relations website and investors that Black line Dot Com War on our form 8-K filed with the FCC.

Good afternoon, everyone and thanks for joining US today, let me start off by saying that our thoughts and prayers are with everyone affected by the Corona virus pandemic at Black line, our top priority has been and we'll continue to be ensuring that health and safety of our employees customers and.

Nurse around the world.

Well I find responded quickly to the pandemics like creating an executive task force to monitor the coated 19 situations daily.

We immediately restricted nonessential travel and enabled work from home protocols.

Certainly thereafter and in line with the guidance provided by government agencies and International World Health organization, we restricted all travel mandated to work from home policy across our global workforce and moved all increased person customer facing events to virtual one.

To enable collaboration we have pretty quick teams check in and utilized collaboration tool.

I'm pleased to report the Black line was able to rapidly shift to a distributed work environment with minimal disruption to our business operations.

Has continued to provide strong customer service and support levels consistent with our unique black line culture.

With the onset of the pandemic, many accounting and finance organization suddenly found themselves shifting to a remote workforce for the first time.

Most of these teams are in the office daily and even a small handful of staff oxide or unable to work, but didn't have an adverse impact on closing the books.

The further complicate matters tax incentive and other regulatory items are changing frequently sometimes on a daily basis, which is impacting keep business assumptions and forecasts.

Last but not least bought it must now be conducted remotely as well this situation becomes exponentially more complex for large multinational organizations or managing the close manually.

At this time, our commitment to serve our customers has grown stronger than ever that Black line. We wanted to do more to help our community of global accounting and finance professionals in these challenging time and we quickly responded with Cobiz 19 customer release program.

The first was announced on March 24th when we granted free access to our entire train library. This includes C. P. E eligible courses. So CPH can keep their accreditations current at no cost saving accounting professionals, hundreds or even thousands of dollars.

We added a new curriculum with life virtual training focused on closing in a remote workforce environment.

From a product perspective, we also offered the task management and reporting complementary for six months to existing customers to enable a more effective remote close.

In addition, we announced cost when the entry wanted one coaching sessions with Black line subject matter experts so customers can optimize their existing block like instance, in this challenging environment.

The following week, we formally launched our modern accounting playbook or map to help midmarket companies get up and running quickly on Black line map incorporates all of the best practices, we have learned from over 1400 Midmarket companies.

We also offered complementary implementations for a limited time to reduce the burden on mid sized companies, who have less access to capital in these difficult time.

The we capture that Black line unveiled its resource hub store closing virtually to help finance and accounting professionals worldwide navigate the challenges surrounding just pandemic. The resource hub is available to all finance and accounting professionals, regardless of whether they're a black line customer or not.

It provides insight guidance and leading practices from both black line and our partners to enable companies to close with confidence in this new virtual world.

The response to these relief measures has been very strong we've had nearly 300 CPH enroll in more than 700 C. P E classes and that number continues to grow on a weekly basis.

More than 30 of our customers have taken advantage of our free cash management and reporting product would help already implemented and realizing value from the addition of those products.

In the mid market, we've seen interest in our map solution and have already built 25% of the capacity for our complementary math implementations.

Lastly relief efforts are really resonating with our customers and many of provided feedback of how appreciative. They are they have to support a black line and this time of uncertainty.

I'm very pleased to share that we're working on additional customer relief efforts and plans to roll them out as quickly as we can to support our customers.

Lastly, we know that we're part of a larger community and I was incredibly proud of the number of black white employees, who volunteered and their local communities to hope that the Coca 19 crisis.

From food banks to donations to checking in on neighbors and vulnerable individuals. This outreach further reinforces black line core value to serve.

Well. These times are trying for all of US we have confidence that our customers and black line will emerge stronger and we're working hard to ensure that I am really proud of our leadership team their dedication to our customers and their focus on the safety of our employees.

And with that I'm going to turn it over to Mark Kaufmann to discuss our recent business performance.

Thank you to race and good afternoon, everyone.

I'd like to begin with a quick overview of Q1 performance well then address the changes we made in our go to market strategy followed by the trend is our sales leadership has seen in the market from the early March through today.

Starting with the quarter sales activity was very strong in January and February.

We were operating above plan. However, we began to see purchasing decisions being deferred in early March due to covert Nike.

Globally, our new logo business was off to a good start in the first two months.

It was hit the hardest near the end of the quarter in India. We saw a meaningful decline in deals closing before the end of the quarter experienced delays large deals and we saw a slowdown in the mid market in North America.

Our so much performance was also strong at the start of the quarter and then saw deals get postponed in March.

On a positive note business within our installed base remained resilient throughout the quarter for both account growth again renewals.

In addition, there was minimal disruption to our implementation work with projects in flight continuing to progress as scheduled and generating record services revenue.

Well go to market teams were quick to respond to the effects of covered 19 in early March we adopted at virtual sales motion.

Our sales team is no longer able to meet with customers and person, but they continue to build and maintain relationships with customers and prospects to virtual meetings and calls.

We shifted to a fully remote implementation strategy.

Our teams are accustomed to doing remote implementation. So there was minimal disruption to our implementation operation.

At the same time, we reallocated, our marketing resources to focus on digital engagement and events digital lead generation and tools to help our sales reps connect with prospects hit a virtual world.

As part of this effort, we shifted our in the Black London event to a virtual that within a weeks' time.

In spite of the short turnaround time, we were able to deliver double the participation rate than our plant in person event and we received rave reviews from our attendees.

For the Solex partnership we created in marketing and sales campaign to better position S&P for success.

Actual world with remote deployments and faster time to value using Blackwell.

These quick wins include shorter sales cycle smaller deployments.

Extra time to value and preparing sep customers for a future moved to Esperanza.

We strengthened our relationships with the Lloyd you why KPMG Pandora, Sam by hosting more partner enablement session additional certifications virtual sales engagement and featured our partners as prominent thought leaders in our resource.

Together, we created and launched join offers in response to cobot, Nigeria, focusing on faster delivery and time to value.

We also put protocols in place with planned redundancies and activities and staff rules as well as plans to reallocate some of our existing resources to better support future capacity needs if they experience a slowdown.

One example of this is shifting implementation resources into customer success roles.

Now I'd like to address the trends our sales leadership has seen in the market in the past several weeks.

The biggest change as a result of covert 19 is in the impact to companies budget.

Prospects and customers still want to invest in water and accounting so I'm, even more so when these challenging times, but they have less access to capital and are fighting for budget. Among a long list of other mission critical priorities.

This is even more true for prospects and customers it impacted industries, such as travel hospitality retail and oil and gas.

We believe those deals have been delayed indefinitely and that new logo acquisition will be more challenged in this climate.

Historically large transformational deals have been significant drivers of our performance in previous quarters.

Over the past two years. This has been an area of strength for us.

As we've continued to grow our largest accounts with the addition of strategic products as well as landfill large new deals.

In this current climate, we've seen our large strategic deals get pushed and we expect that will continue as long as budgets are constrained.

We expect these cobot 19 related changes to meaningfully impact our sales performance in Q2.

As a result, we've adjusted our expectations for the quarter, which Mark parks and will speak about shortly.

What has not changed that black line is our commitment to support our customer success.

Given the recent release after its articulated by two rigs or customer success teams have been busier than ever.

They quickly mobilize to address the urgent needs within our customer base with outbound effort spanning coaching session business review discussions success reviews and adoption and expansion demos.

We believe this is a moment for black lives customer success teams to shine to stay engaged and be supportive across our global customer base.

As a result, our customers were able to seamlessly transition to a work from home model with consistent uses our platform. The weeks immediately following global shelter in place orders.

We also received multiple customer testimonials, including one who told their customer success manager quote. We are so glad that you led us to where we are today with blacklist, our month and close with smooth, we didnt Miss a beat I can't imagine what month and must be like for companies that don't have black.

And cool.

Over the last two years, we have heavily invested in global resources around account management and we believe we can capture expansion within our existing accounts, our marketing sales and support change of align their strategy and messaging around customer change.

Help our customers adapt and be successful in this new reality.

We believe we're well positioned to drive growth within our installed base for customers and the verticals less impacted by covert 19.

For our customers in impacted industries, our success and support teams are available to serve in these trying times.

Another differentiator for Black line does it change we made to our accounting transformation specialists unrelated to this pandemic.

In Q4 of last year, they shifted to an optimization, let's model that breaks the strategic transformation project into multiple smaller projects that are easier to sell cheaper quicker to implement and faster to generate ROI.

The idea behind this model is to help accountants manage a large time consuming project knowing they would have to step away from that project to prioritize the month and close for at least one week per month.

The customer still gets the same and result of digital transformation over a longer timeframe, but the smaller projects make it easier for them to manage and easier for us to serve them.

With the exception of one hospitality customer all of our large strategic customers engaged in these optimization Blitz models are pushing straight ahead on their digital transformation journeys.

In this current climate, we anticipate that some implementation projects will get pushed.

We think this model can keep customers engaged successful and on track for continued progress towards their long term goal of finance transformation.

Moving to our partner ecosystem, we're hearing from our partners SH T. included that there is a clear demand for guidance around business continuity, including the financial close as well as strong interest in virtual close.

To put that into perspective, you why hosted a webinars to prepare companies for their first remote financial close in late March and the event was oversubscribed at more than 19000 attendees.

We're also hearing that there is partner appetite for deals with faster time to value, particularly as ERP providers are seeing larger digital transformation initiatives being postponed.

With partners involved in a majority of black lines largest deals. We believe the current climbing has created an opportunity to partner smarter within this ecosystem and we're focused on working together to support our customers and drive more mutual business.

Our partners have quickly adapted to this new model of fast first transformation second to best support customers in today's climate.

As these partners anticipate potential softness and their utilization levels. We believe we can use that time to growth with a number of active and certified black line consultants.

Well this hasn't impacted pipeline yet partners are very excited about working with us to stay productive and drive revenue.

As it pertains to Solex Sep has included Blackhornet solutions as part of its cobot Nike in response to its customers to help with quick wins and continued progress towards as forehand and transformation.

This approach is brand new and although we are hearing that S&P account executives are very interested in working with black line to help their customers. During this crisis. We expect this will take time to develop.

Despite this near term disruption we believe this further strengthens our relationship in mind share with Us 80.

These are the latest trends, we're seeing in the business, but please note the economic landscape is continually evolving in response the impact of covert 19.

Well this creates uncertainty black line remains at the center of massive long term market opportunities across modern accounting digital transformation.

We will endeavor to manage the company for the long term goal, we navigators environment.

For us that means first maintaining our goodwill and loyalty with employees and customers.

Second strengthening our brand as the category leader known for customer advocacy.

Third investing in product innovation, and modernizing our technology infrastructure and fourth evaluating the broader market for opportunities.

And with that I'll turn the call over to Mark pardon.

Thank you to recent Denmark, and good afternoon, everyone.

Before I move to our financial performance for the quarter I wanted to address how this pandemic has impacted the role of the CFO.

Today, CFO is playing a central role in stabilizing their businesses in the near term.

While also positioning it to thrive when conditions improve.

But keep my team operational and productive and this distributed environment, we have further embrace digitization.

As a result, we were able to beat our own internal record on closing and reporting thanks in part to our Black line software.

We're staying the same dynamic across our customer base, where digital initiatives are now.

Deemed business critical to ensure accurate reporting informed decision, making and business continuity in the current crisis and into the next normal.

As we think about what that new normal looks like we believe this climate is a long term accelerator for digital transformation.

But first we all have to get through the uncertainty at this current climate and that is exactly what we intend to do.

For the majority of Q1, we were operating well above plan on all key metrics throughout the quarter, we hired a record number of employees and in January the company hosted one of its largest and most influential company kickoff events, yet as we transitioned from a strong 2019 to a plan of.

Acceleration in 2020.

Despite the strong start the impact of covert 19.

Caused a number of deals to push out of the quarter or delayed indefinitely.

Which impacted sales by roughly 20% to 25% in the quarter.

We saw the greatest impact to EMEA sales, the midmarket and large digital transformation deals.

Our current operating model and guidance for Q2 will be informed by what we have experienced since this began in mid March through today.

Total first quarter revenue grew 29% year over year to reach $82.6 million.

Despite the strong performance Q1 revenue was negatively impacted by lower bookings the impact of FX volatility at an increase in our estimated revenue reserves related to customers that are in impacted industries.

A few other notes on revenue include.

Services revenue delivered its strongest quarter ever at $5.6 million or 7% of total revenue.

This represents 95% growth year over year.

Our international business represented 24% of total revenue in Q1 up from 22% in the prior year.

Revenue from our S&P partnership was 24% of total revenue in Q1 compared to 25% in the prior year.

More than 75% of our large deals in the quarter included a partner and strategic products represent a 20% of sales for the quarter.

We are fortunate to have a well balanced land and expand business model, where historically half of our growth comes from customer expansion.

The other half from new logo acquisition.

In Q1, we saw resiliency and customer expansion with a strong renewal rate of 97%.

And dollar based net revenue retention rate remained steady at 110% as Mark mentioned, we did not see a material impact to these metrics in Q1.

Helping support these metrics because our 23 month average contract length, which lessens the number of contracts up for renewal in any given quarter.

One metric, where we were negatively impacted however, it was our net customer ads.

We only added 32 net new customers in the quarter for a total of 3056 customers.

This metric was disappointing and well below our expectations due to a drop off and new customers for the month of March which typically represents two thirds of new customer additions in the quarter.

We also saw fewer large deals and solex deals, which are generally three years in term.

In Q1, we generated net income attributable to black line up $6 million, which was driven by higher revenue.

We realized nominal cost savings in the quarter from our restricted travel policy and expect to capture the benefit from those savings in upcoming quarters.

We generated eight and a half million dollars in operating cash flow and $4.9 million and free cash flow for the quarter.

We finished the quarter with approximately $614 million in cash cash equivalents and marketable securities.

We believe our strong cash position will enable us to continue to support and retain our customers as well as drive our long term strategic initiative that Mark mentioned earlier.

Before I move to our outlook I want it to speak to how this climate has impacted our near term growth trends and overall investment strategy.

We feel confident in the core secular trends in our industry and believe these will get stronger on the other side of this crisis. We also feel good about our ability to execute on our priorities and long term initiative until that demand strengthens.

With that said timing is everything and until we have better visibility. We will proceed with a great deal of pragmatism.

You heard Mark highlight a number of measures we have taken to protect the topline.

As he mentioned we expect many of the trends we saw in the last several weeks of Q1 and through today will continue into the second quarter of 2020 and impact growth.

Our assumptions for Q2 or not dependent on closing any new large transformational or strategic deals and we have reduced our expectations from the selects partnership.

Additionally, we expect services revenue decreased sequentially as we complete existing work and new implementation projects are delayed.

Approximately 25% of our revenue comes from customers in the verticals most impacted by covert 19.

Black line has a strong liquidity position and we intend to use that straight to provide relief programs to customers and impacted industries that may request extended billing and payment terms in Q2 and in certain situations reduced Billy.

Our plan is to meet that demand where appropriate to keep our customers operational create goodwill over the long term and reduce churn at attrition.

We expect these relief efforts to impact free cash flow in Q2, as well as other key metrics such as revenue and calculated billings.

We believe churn on attrition rescue has mitigated by the long term duration of our contracts the stickiness and mission critical nature of our product and our willingness to provide relief programs to our customers and impacted industries.

On the bottom line, we have confidence that our high recurring revenue model will smooth the impact of reduced sales in the near term many of our expenses have naturally adjusted which help protect cash and income margins in the short term without hurting the business over the long term for example, teeny has been nearly eliminated.

Virtual marketing events are less costly and highly efficient and sales and service is hiring downshifted.

On these cost levers, we plan to be balanced nimble and disciplined in the near term, but still long term oriented so that we are well positioned once markets begin to recover.

The areas of the business, where investments are not expected to change in light of the pandemic include R&D product and public cloud infrastructure, such that we can accelerate our roadmap and technology initiatives and hiring.

We also plan to redeploy resources and excess capacity as available toward our large existing customer base.

We believe we are well positioned to execute on these goals and emerge from this crisis with an even stronger business.

Turning now to guidance for the second quarter of 2020.

Total GAAP revenue is expected to be in the range of $80 million to $82 million what services revenue in the range of $3 million to $4 million.

On the bottom line, we expect to report net income attributable to Black line in the range of $5 million to $8 million or eight to 13 cents on a per share basis.

Our share count will be approximately 60.5 million diluted weighted average shares.

For the full year, despite our high level of recurring revenue due to the uncertainty surrounding the ongoing impact of covert 19, we are withdrawing the full year 2020 outlook.

And now we will take your questions.

[noise] certainly ladies and gentlemen, if you have a question at this time. Please press Star then one on your Touchtone telephone. If your question has been answered and you'd like to remove yourself from the Q. Please press the pound key our first question comes from the line of Rob Oliver from Baird. Your question. Please.

Great. Thank you guys very much for taking my question really appreciate it.

First one is for Mark Kaufmann Mark appreciate your commentary and good to hear you on the call.

Wanted to just ask about the ways in which your sales team has shifted its behaviors.

Particularly you know how the handoff from marketing under the new marketing funnel creation given the digital events is happening how do you guys are qualifying leads and and how they're able to go after customers in this environment.

It could provide some color around that and then I had a brief follow up.

Sure. Thanks, Rob.

Yes so.

We like most companies have had to suit shift to a virtual sales motion.

You know historically good portions of sales activities for a lot of organizations have been done electronically or via the telephone and then there's.

Obviously, some parts of it that are done in person that's shift has gone really seamlessly for us.

With the exception of a period of time in the early infancy of these change in the pandemic and guidance.

Certain parts of the world and buyers that were hard to reach that sort of cleared itself up overtime and so it's sort of a new norm, we're able to function very well there we've adjusted our marketing.

Accordingly, as you mentioned Weve shifted how we view our events. We've historically been very heavy in person events, we feel like we've got a great deal expertise to offer people in the events or the way that we do that we've had really good success transitioning those to virtual event.

And started to drive a lot of attendance, which we're pretty pleased about the interest and you know what we offered to people in thanks.

Over the long term this is going to drive more eyeballs to us.

And just to follow up I know you provided a little bit of detailed but what gives you the confidence that.

Current customers will be any less impacted than you know in terms of deal closures than the new logos in other words you know this is a rapidly evolving situation. I know you guys are going to allocate resources to your current customers and clearly you're doing.

A lot of that but just.

If budgets are gonna come under pressure and and things are going to be on hold why wouldn't that also impact your existing customers. Thank you guys.

Well, it isn't where none of us have a crystal ball. So we don't know that the what we do know is customer success.

The intimacy that we maintained with our customers through the investment that we've made over the past several years in those customers and our staffing levels and how we thought about allocating those resources is like a core value of of Black line and so we're able to interact with them understanding what they're going through and then where we have.

The ability to serve them or excess capacity that may exist in our model, we're able to really react quickly and deliver value to them.

And if I could just jump in I mean this is we had a lot of customers that are now find in how valuable Black line is because they are trying to close their books remotely.

Thanks, guys.

Thank you. Thank you. Our next question comes from the line of Terry Tillman from Suntrust. Your question. Please.

Hi folks. Thanks for taking my question. This is actually David younger filling in for a Terry Tillman help everyone's doing well Tonight.

In respect to your to your free offering rollout that you that you gave back in late March I think you might have mentioned some awesome data points.

Related to customer signing up for the test management reporting six month three trial.

Are there any insights so far that suggest to you that this is an underserved tool and is a must have.

And if so could you size that revenue opportunity over the next one to two years based on the data you're saying since the rollout.

Well you know Dave This is Terry I always believed that our products are underutilized because I think everybody should have all of our products. However.

The fact that our customers are really starting to value the ability to login remotely 20.7 to get their work done to manage their clothes checklist I think on we have a number of customers that are really starting to value that.

I think that in general this we are going to come out of this stronger we don't know when that's going to be I don't think anybody's got that you know foresight and so therefore I could not size that opportunity at this time, but I do feel like it's a great example for black line to shine.

Hey, David if I might add its Marc Hoffman that task management piece, there's multiple use cases that supports.

And Oh, we have a lot of expertise as I mentioned that we're able to turnaround and provide back to customers and so you'll continue to see a.

Deliver some of that expertise.

In the coming weeks geared at customers around different use cases for something like tasks.

That's great if I could just have one follow up I appreciate it.

I'm just curious when thinking about the work from home era.

And understanding the time that talk for a black line existing customers to close the books this current versus.

Last year and if there any notable differences that you can site.

Based on customer size and industries that were serve just trying to get to get to the grass bond how efficient things, where this period versus last year. Thank you.

Yeah for sure Yeah, we have we have some great examples internally with our.

Customer success in our.

Our automation team that talk to our customers about how much.

Working from home and how successful those companies have been in this environment.

We're a great example, I mentioned that earlier that.

We are in this environment, we had a record close period.

Our accountant.

Ill began working from home they closed the quarter and even this earnings call is earlier than usual and and I think that experience from what I hear from my seat CFO.

Customers than what we hear up through our.

Customer success team says that that this has been a real blessing to have a.

Tool that works and that collaborative environment that has transparency.

It could close these mission critical.

Functions you know in this environment. So really good good feedback and I do think theresa's right that this is going to be a real wakeup call for a lot of companies that don't use something and then even for those that do they'll say the benefit.

You know of this new new.

Thank you very much for answering my questions. Appreciate it guys have a great night. Thank you.

Thank you aren't next question comes from the lined up Mark Murphy from JP Morgan Your question. Please.

Hi, Good afternoon. This is Matt costs on behalf of Mark Murphy, Thanks for taking my questions.

I'm not sure. If you guys know this one off the top your had but if you looked at your total bookings mix in any given quarter.

What percentage would you say are achieved from a sort of inside or telesales sales motion versus in person.

Yeah, I think I think we probably know that number internally.

We don't share it externally, we think of our Midmarket sales team.

As you know at different ranges within the Midmarket remember, it's a wide dispersion, it's a $50 million company to a $500 million company and so for many years, we can be successful and sell into certain customer in that range.

So we we've never really marketed that number.

But it was enough that when we got to this point, we had experience that we could sort of.

Roll that out to the rest of the globe and not just on mid market, but also enterprise.

Okay understood and it's great to hear that you'll be continuing to invest in R&D I think thats the right thing to get these times.

And have you been able to identify any product area or particular need that might be more pressing and.

In six months or years time from now that.

You can spend time sort of thinking about now and then sort of ready to go with that.

When we're all sort of in a more normal state.

Well actually I would put it a little differently. Matt you know we have a long term product strategy. We have a roadmap that goes over a three year timeframe part of it is moving to the public cloud part of it is utilizing some of the machine learning tools that are available I mean, it's all part of a longer plan.

And really what we were trying to expressed in our remarks is it that plan is proceeding as we think that is the best thing to do for the company. So it's not necessarily impacted by this.

Cool that 19 crisis at all in terms of what we're doing.

Very good thank you very much.

Thank you. Our next question comes from the line of Koji Akita from Oppenheimer. Your question. Please.

Great. Thank you for taking my question Hey, everyone had a question here on the S&P segment of the business.

Our model looks like it grew right around 30% on the first quarter. So I guess hypothetically thinking at the crisis Didnt occur would it be safe to assume that the S&P portion of the business probably had a good chance to grow in the mid thirtys or even better and the first quarter.

So good it's a great question.

You know we called out our.

Revenue growth has been very good and then also talked about things that worked against Q1 revenue and yes, there would be a three on the revenue growth rate.

If not for those things coated related so.

So your question I would just say it starts with a three.

Got it thank you for that and just want to be absolutely clear on the exposure to some of these.

<unk> verticals out there the 25% exposure isn't it.

Hobble hospitality.

Retail and oil and gas or are there any other verticals that we should be aware and that exposure.

Yeah, great that I appreciate that question.

The 25% is spread out amongst the number of industries Mark mentioned some of them.

There are a couple others retail energy food and beverage hospitality transportation Entertainment.

And within any of those industries.

We are spread out amongst a number of companies and don't forget we are at large enterprise company, 80% of.

Global large enterprises. So we're just taking a very thoughtful and pragmatic approach about those impacted industries as we work through our business in this economic climate.

Got it just one quick housekeeping question.

Smart ARPU number today include the miss that or could we get that if we didnt here.

Yeah it.

$368.7 million at the end of the quarter.

And it is 61% to be recognized in the next 12 months.

Got it thank you for taking my questions appreciate it.

Welcome.

Thank you. Our next question comes from the line up Brent Bracelin breaks on from Piper Sandler Your question. Please.

Thank you I'll stop here without trees.

Good afternoon, so on one hand, it definitely sounds like you have.

25% of the business exposed to some challenged customers you have budget uncertainty that's now emerging as a as a new headwind.

But there are also some tailwinds here, you're talking about the remote audits virtual close that oversubscribed you why event.

Certainly sounds like there is a lot of appetite I guess my question here is as you think about remote audits and virtual close.

What is there going to take for that to evolve from kind of a nice to have to kind of a must have it seems like it's a nice to have today, but is there an opportunity to.

To to promote that in and move that to kind of a must have.

Well I think that's exactly the opportunity that we see in all of this.

Is that people that companies that currently close with spreadsheets and paper and carrying things from one does to another that's not something that they can do.

Neither efficiently or in an environment that makes any sense. So we do think that that's the opportunity in front of us and we are going to maximize that in every way possible.

Brent if I just.

Playing back on some of my prior experience, where the company that was that when we went through the global financial crisis.

Obviously, that's a crisis is up but financial nature. It doesn't involve the pandemic in the human loss.

But you know that organization.

I was trying to move financial systems to the cloud at the time.

The.

Impact is that sort of period had we came out of it was really a big accelerant and so we're looking at this event in terms of.

This might be an accelerate for us in the future in the same very way hopefully would take this time to invest in our business based on our relative strength and we come out of this is that as a catalyst for future growth.

Great and just to follow up Marc Hoffman on that.

How much of the sales resources have been shifted away from those impacted industries and as you think about those large transformational deals have you been able to re purpose those sale resources to kind of other areas or customer success. Just just how quickly have you kind of made a turn as that is that there.

All that kind of done now or is there still more work to do relative to the reallocation of sales resources.

Yes. Good question. Thank you.

There's and multiple parts to that so.

You know we have a geographic coverage model per se in our enterprise space. So you don't necessarily pivot resources away from one to the other you sort of think about the top into the funnel and where you're spending your money and so that starts with marketing planning and how we're going after market to create top of funnel.

Motion there.

In terms of the rest of your question. There. That's most of the mostly a pipeline and the progression question and what you see it.

A lengthening of some cycles, depending on industries to cycle time, lengthening, depending on what industry and how impacted they are there are still large transformation opportunities that are in our pipeline.

Some of them or just sort of.

The recast across time as people reassess the depth and length of the economic impact on their business.

From an expense last question here for Mark.

You talked about net customer additions dropping off in March.

I guess, but the first question here last one for me did anything change in April as you think about some of the changes to marketing efforts and sales.

Yeah look thanks.

April been consistent with what we saw at the end of March. It is as Mark described we're using as much data as we can but April still early it's early in the quarter.

And we are watching metrics in activity as we move through it but we're seeing something similar to what we thought the on the March.

Thank you.

Thank you. Our next question comes from the line of Pat Walravens from JMP Securities. Your question. Please.

Great. Thank you. This is Joe Younker Pat I appreciate it Mark I was wondering how are you approaching these upscale and renewal conversations and then also can you just have nothing on the competitive side have you seen anything changed at all.

Thank you so much.

Okay. So I'm wondering well first of all start with the competitive thing. Thank you Joe for the question. So.

Yeah, we're really fortunate to be in a position, where we are with our customers and in these types of moments when.

There is economic doubt and things are going on people and have the best focus on customers in my opinion succeed the best.

Yeah, that's really what our brand is based upon and so we were quickly able to take as trees mentioned in her comments resources that we had an expertise that we had and pivot that out towards our customers on an advisory basis offering some spree software really invest in those things and from a competitive standpoint, we.

Were first to market on all those things that we saw some of our competitors follow.

US in that regard, but we really think of ourselves as the leader we worried about what we're doing and what we're doing is focused on our customers.

In terms of that your second question about how we're approaching.

Those upsell conversations.

We have such great customer centricity and good coverage and relationships that are based on more than a commercial activity because they still come fairly naturally, especially in the on affected industries.

These companies.

Took a pause in terms of.

The work they were doing for a finite amount of time a lot of those things have returned to normal right now and people are continuing their finance transformation and having dialogue with us about how they can progress.

You know there rollouts of Black line.

To get quicker time to value better ROI in a short amount of time and so there's still some positive things happening in the up sell side of our business.

Thank you so much.

Thank you. Our next question comes on line of Chris Merwin from Goldman Sachs. Your question. Please.

Good.

This is Kevin on for Chris. Thanks for taking my question I had one about the mid market segment.

I believe it's roughly 20% of your business can you talk a bit about what you're seeing here in terms of deal activity and renewals and is the weakness more broad base or is it more segment did to kind of the highway impacted industries.

Yeah. Thanks for that appreciate it.

Our mid market you're right. It's about 20% we saw the same sort of percentage and at the end of Q1.

The weakness that Mark has talked about is broad based so there's nothing particular about the mid market.

On the renewal however, I can tell you that our renewals experience.

Through the first quarter were strong and and also through April to this point.

Also strong even in the impacted industries, we are having conversations with.

Companies, where appropriate but our experience has been so far and its early have been.

The positive.

Great. Thanks for the color.

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

Hi, everyone. Thanks for taking the question and I Hope you in your families are all states, it's kind of crazy types, but dogs, Brian so.

Maybe just following up on that last question. It sounds like Upsells is kind of been appointed shrank I'm curious as we go through a remote close type of process. As you look at your customers are there some that use more are kinda with all in on Black line that actually did a lot better than those that maybe you only had one or two modules and is there and.

Natural caught up sell motion for people that you already have into the fold.

Well you know this is trees and Ah we definitely have had our customers express the sentiment that they cannot imagine trying to close with not using black line at all or using less of Black line and I think we're also seeing a good validation of that.

When we offered out the task module that you know the number of different things. The additional training coaching sessions all of that is going extremely well received so I think that well see no right. Now we're very focused on just helping people get through this time and into their new.

Normal, but I do think over the long term it will help but to strengthen the upsells and there is a big difference between those that use it Foley and those that maybe are just checking the box.

Understood. Thanks race in maybe just for those that are using black line. In obviously paper is going to be hard in this environment, but I'm just I would imagine imagining sit here my office try to close books with my my dog market at me and frankly that that sounds pretty pretty bleak. So I'm curious are you already see.

Being potential prospects kind of come in in the top of funnel or when do you think that would potentially start understanding that there's budget pressures, but look for those that are seeing its complexity real time I would assume that has an impact on the top of the funnel. Thanks guys.

Yeah, that's a great question and so I would say interest continues we continue to build pipeline interest continues in fact, you can see by the you. Why example, we gave you other areas of our business in our partnerships, there's a high degree of interest.

The economic concerns still remains the same and so their access to their budgets and what they want to turn to actualize. Those things is a constraint you can imagine a period where people have gone through this.

And in the future when they have a bunch of in place their head count in the human capital necessary to pull up the change that it's going to be a driver for us.

Understood. Thanks Mark.

Thank you. Our final question today comes from lined up Matt Stotler from William Blair. Your question. Please.

Hey, guys. Thanks for taking my question just a couple of quick ones for me first obviously on the yes. If you saw like side. You know you spoke about some of those deals getting pushed out well look to get an update.

In terms of what traction you're seeing in pre Cogan January February that partnership and then any traction with the covert specific kind offerings that you mentioned were whereas if you just featuring black lender.

Hey, Thanks for the question.

Our so.

As our normal business was in January February.

Say p. relationship was quite strong also in early parts.

The quarter and so now you've got a scenario where.

Just like the rest of our business that sort of this.

Being recast across time and some of those opportunities what we're actually seeing is it the interest level and so lex and the conversations with customers.

Prospects partners and then most importantly, the S&P account executives our distribution.

Strategy. There has is on the rise there's a higher degree of interest in learning more about black line. Some of the programs that we've launched recently for continued enablement an awareness of our solution in conjunction with has a piece has been oversubscribed.

And so I think that this is going to strengthen the relationship in the and and the.

Partnership overtime much like the other interests.

The thing that stands in the way as the economic climate and uncertainty.

Right right. That's helpful. And then just one more just on the you spoke a little about the spending within the installed base. So.

Seeing no implementations accelerated seeing renewals very strongly encouraging.

The revenue the deleverage that expansion.

Also pretty stable it has been for the last six seven quarters at this point any thoughts on the stability [noise].

[noise] yeah, yeah. Thanks.

Hi.

Like the stability of that going forward and kind of how how much confidence you haven't.

Genuine growth and spend within that installed base over the next.

We will feature.

Yeah, Yeah, I think Thats a timing question so in the in the future on the other side as well we've been talking.

At length about how we think this can be an accelerant for digital transformation and companies. We have a lot of resources invested in that I think here in the short term, particularly let's just take Q2 I think the impact.

I think that it will be impacted by the things that we've talked about.

With respect to demand.

And also frankly, I do think there's a bit of risk planting that more subscription companies like us are doing right now for impacted industries.

For attrition with an account and customer relief programs I do think those things are at work.

To favor a long term customer loyalty programs and and long term customer success.

And.

That number can be impacted negatively by those things, particularly on the short term, but the long term if that we still believe these opportunities to sell more products like we talked about earlier and accelerate in this environment is strong.

Right absolutely. Thank you for taking my questions.

Thank you.

Thank you. This does conclude be question and answer session of today's program I'd like to hand, the program back to Teresa Tucker founder and CEO.

Chris Tucker I want to thank you for your ongoing support and give us very special Thank you to our employees. During these challenging times our employees of banded together to look after one another while remaining true to our values to serve our customers and to serve each other we believe the black line is built to last and we will weather.

This storm together thank you.

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