Q3 2020 Blackline Inc Earnings Call
Hi, gentlemen, thank you for standing by and welcome to the Black line third quarter 2020 earnings Conference call.
At this time all participants are in listen only mode. After.
The speakers presentation, there will be a question and answer session.
To ask a question during the session you meet the press star one on your telephone keypad.
If you require any further assistance during the conference. Please press star zero and an operator will be happy to assist you.
I would now like to hand, the conference over to Alexandra Geller, Vice President of Investor Relations. Thank you and please go ahead ma'am.
Good afternoon, and thank you for your participation today with me on the call is treat Tucker founder and Chief Executive Officer of Blackberry, Marc Hoffman, President and Chief operating Officer, and Mark Martin Chief Financial Officer.
Well, we get started I would like to note that certain statements made during this conference call that are not historical facts.
Including those regarding our future plans objectives and expected performance.
Particular, our guidance for Q4, and the full year Oh, we're looking statements like in the meaning of the private Securities Litigation Reform Act of 1990.
These forward looking statements represent our outlook only address the date of this call. While we believe any forward looking statements we may make a reasonable.
Actual results could differ materially because the statements are based.
<unk> expectations as of today and are subject to risks and uncertainties, including the stated in our periodic reports filed with the Securities and Exchange Commission in particular, our form 10-K form 10-Q.
Yeah.
Okay.
We disclaim any obligation to update or alter our forward looking statements, whether as a result of new information future events or otherwise except as required by applicable law also unless otherwise stated all financial measures disclosed on this call will be non-GAAP.
A discussion of why we use non-GAAP financial measures and information regarding reconciliation to GAAP versus non-GAAP results currently available in our press release, which may be found on our investor.
Mr Relations website at investors Aflac line, <unk> and our form 8-K filed with the FTC today.
Now I will turn the call over to tree to begin.
Good afternoon, everyone and thank you for joining us today I am pleased to report that the demand environment has steadily improved and we have seen increasing activity and momentum throughout the third quarter driving another quarter of solid results.
The momentum we have experienced is validation that finance transformation is mission critical and climbing to the top of the Cfos priority list. We believe black line is well positioned to capitalize on this demand environment.
As the leader in this space, we have and will continue to invest in our markets to support our growth initiatives and best serve our customers.
At the start of the pandemic, we needed this strategic decision to stay the course with investments in key areas such as organizational leadership R&D customer success and our partner ecosystem. We believe our strong results validate these investments.
Earlier this month, we announced the acquisition of Amelia a leading provider of accounts receivable automation solutions.
We got to know the Vermillion team over the last year and I am thrilled to welcome them into the Black line family their culture and values are very much aligned with ours and we look forward to a successful combination of our two companies.
The acquisition expands our core customer capabilities to automate another big problem for the modern day controller. This 10 billion dollar untapped market opportunity. It's top of mind for most companies, we talk where we.
We are very excited about this next step, which mark will speak to in more detail shortly.
Before I turn it over to Mark I wanted to provide an update on the future for finance and accounting nearly nine months into the pandemic companies around the world are rethinking their physical footprint as employees continue to embrace the benefits of working from home.
We believe the future of work for finance and accounting has been eerie bulk doubly all true.
Some of our customers are already shifting to a permanent remote close because they have found a greater efficiency using the black line platform and we expect more customers will make flexible work arrangements permanent as well.
We are very pleased that black line customers have been successful in this environment. However, we serve less than 2% of our addressable market. There was a very large untapped opportunity for the majority of companies struggling with manual and unsustainable accounting processes, we bill.
Leave these market dynamics will continue to favor our value proposition and we are ready to meet the needs of customers accelerating their digital transformation spend.
Existing projects and we feel good about the pipeline for future quarters.
We had another quarter of strong account growth.
Global customer teams frequently engage with and lead our customers and in turn Q3 had a number of large deal expansions and continued adoption of our strategic projects.
The simplicity of our modern accounting playbook or map offering and it's immediate ROI continues to resonate with Midmarket cfo's.
In Q3 map drove a strong quarter for the mid market with a record volume of new logos, including some international ones.
So Lex also delivered another strong quarter with twice as many new logos as the prior year. So.
So, let's deals where global and included wins and a P J as well as a meal.
Given S. A PS seasonal Q4, and a growing so lex pipeline.
We believe we have a positive set up going into the end of the year.
I'm very pleased with the success of our implementation teams, who have driven increasing services revenue throughout the year.
These teams haven't skipped a beat as they continue to engage with customers around the world for remote implementations, resulting in our strongest services quarter yet.
And we further enhanced are competitive positioning in the corner with strong when rates and a number of competitive takeaways.
These positive indicators gives us confidence that financial backing automation will remain a priority and potentially accelerate when the economy begins to recover.
No I don't Wanna sure. Just one example of a black line customer who is realize significant return on investment through Black line in finance transformation.
There are many reasons C F o's and controllers will buy black line. However, in today's economic climate R Y becomes a critical part of the buying decision.
Red Wing Shoe company is a great example of an established manufacturing and retail company, who has been working with black lines since 2017 to streamline a drive efficiencies in their accounting operations.
Based on a recent assessment by nucleus research, which Analysed Redwings total investment in Black line over that three year period. They.
They determined the annual R. O Y was 379% with a payback period of 4.8 months and a savings valued at more than $1.2 million per year.
In addition to the rapid payback period Red wing realized positive cash flows and all three years as well as better organizational visibility and improved standardization and controls over their accounting workflows.
Beyond the favorable cost benefit analysis, redwing realized increase productivity from reduced workloads and time savings from streamlined tasks.
Our account reconciliations product reduce the volume of reconciliations by over 7000 reconciliations per month saving account into the corporate office over 3500 work hours every month and shortening their retail store cash reconciliation process from an average of 40 days to for that.
Journal entry product reduce the cycle time of each journal entry by over 33% and save their staff managers and directors a total of 1500 hours per year.
Red wing is only part way through their finance transformation journey with Black line, but they're impressive returns one them the 2020th nucleus Research R. O Y a award for their Black line deployment.
We would like to congratulate the Red wing team on this honor and if you haven't already I highly recommend you review the nucleus research case study in the press release section of our Investor Relations website to hear more about the story.
Our ability to serve our customers and commitment to customer success, our founding principles, a black line and the values that I plan to maintain and prioritize as in coming C E O over.
Over the past several years. It has also been our strategy to find more places where we can serve the controller ship.
Our acquisition of Roumelia is this strategic investment that grows or tan and strengthens our product capabilities.
And today's Macroclimate managing cash on a corporate balance sheets has become an urgent priority.
It's estimated that more than one trillion dollars, it's tied up and balance sheets around the world. This money cannot be used by those businesses to fund their growth or pay their vendors. It's just sitting in unallocated cash accounts on worldwide corporate balance sheets.
That's where roumelia comes in.
<unk> customers have told US that this software has helped them unlocked they're working capital.
Amelia software automates, the collection and allocation of customer cash in real time, reducing days sales outstanding and releasing working capital.
This ability to unlock working capital and manage liquidity helps C F o's and controllers reduced risk and make better decisions for their business.
With the acquisition of Roumelia Black line has extended its platform into adjacent market, which has become increasingly relevant.
In addition, black line has strengthened its position with the office of the Comptroller by driving and and automation of the cash lifecycle, and it's showing greater data integrity.
And the month since we announced the acquisition the reaction from customers has been overwhelmingly positive, which further validates our view that the accounts receivable market is a compelling space to enter.
One of the things that excites us most about <unk> is their shared passion for finance and accounting transformation too intelligent automation.
Vermillion AI powered accounts receivable automation has created great value for it's more than 100 customers.
Similar to the financial closed market. The accounts receivable market is largely on penetrated with the majority of companies using legacy manual processes to manage their ordered a cash process.
According to independent third party analysis.
It's estimated that the total addressable market for accounts receivable software is approximately 10 billion.
And it's early and they're competitive space is highly fragmented.
We are very excited to enter this new and increasingly relevant market that increases black lines combined Tam to more than 28 billion.
We're happy to welcome the over 101 million employees headquartered in the U K with employees around the world to join our team and to learn from their great depth of knowledge and expertise.
We look forward to sharing their leading practices with our existing customer base and building on the momentum that they have established today, we will be highlighting roumelia at beyond the black our largest customer event of the year, which already has more than 8500 people registered.
In addition to the acquisition, we've continued to invest in our own customer success.
So we increased R&D and product innovation.
We've made significant investments in our product and technology teams and leadership with nearly 100, new tech hires in the last 12 months.
We've also made great strides towards modernization of our platform and we'll be in a position to share more have beyond the black and November.
Moving forward, we believe improve demand environment in Q3 will continue and thank you for.
We're pleased with the recent activity and the momentum that we've seen and what it means for black lines path ahead.
And now with the acquisition of Roumelia expand our Tan and add another growth lover.
We are in the early innings of a significant market opportunity and believe this market will accrue to the leader over the long term.
As we maintain our focus on customer success and continue to invest in our long term initiatives. We firmly believe that black time will be a beneficiary accelerated digital transformation and.
And with that I'll turn the call over to Mark pardon.
Thank you Mark and and to recent good afternoon, everyone.
We are pleased to report better than expected Q3 results and revenue profitability and cash flow.
Total revenue grew 21% in the quarter driven by strong sales execution and record services revenue.
As you heard from Theresa Mark This performance was driven by another consecutive quarter of improvement and the demand environment, which benefited sales productivity and clothes rates in the quarter.
Digging into revenue a bit deeper our international business grew to 25% of total revenue up from 22% in the prior year.
Revenue from our S. E. P partnership total 23% of total revenue in line with the prior year strategic products represented 17% of sales for the quarter in line with our anticipated range of 15% to 20%.
Approximately 60% of large deals and a quarter involved a partner.
And as we predicted despite a strong renewal of 97% or dollar based on that revenue retention rate came down slightly from one O 82171 O seven due to current demand and risk impacting our expansion efforts.
The bottom line continue to benefit from cost savings related to the mandatory work from home regulations, including lower T N a rent facility related costs and virtual marketing.
Combined with higher than expected revenue, we generated net income attributable to black line of $15.1 million.
We continue to invest in the business and you can see R&D as a percent of sales increased by 200 basis points in the quarter, where we are accelerating our investments.
I'm very pleased with our team's ability to manage cost effectively while also advancing an hour long term initiatives in the face of this pandemic.
We generated a record $22 million, an operating cash flow and $18 million in free cash flow for the quarter due to a focused effort from our accounting team to solve for aging and a R.
Like many companies we have prioritized cash management in this environment. We finished the quarter was approximately $526 million in cash equivalents and marketable securities, which excludes the hundred and $20 million of cash pay to acquire Roumelia, which was transferred on the last day of Q.
Three two affect the transaction in queue for.
While we continue to work with customers on Covid related relief programs as necessary they were not material to our queue. Three results. We feel we are generally out of the woods related to these programs on her cautiously optimistic that we will start to see the benefits from these relief efforts as the economy Big.
<unk> to recover.
As mentioned earlier, we completed the acquisition of Vermilya for a purchase price of 150 million of which 120 million was payable at the clothes and the remaining 30 million will be paid over a two year period and subject to certain earn out provisions.
The acquisition was funded by existing cash on hand, and did not result in any material impact to RQ three financial results.
For the fourth quarter, we expect the revenue from Roumelia to be immaterial. We also expect the transaction will be dilutive can that income and have a short term headwind to gross margin and free cashflow due to investments and integration and spend to support future growth and you can see that dilutive impac.
And our queue for it net income guidance.
Turning now to guidance for the fourth quarter of 2020, which includes the impact of the familiar acquisition.
Total gap revenue is expected to be in the range of $91 million to $92 million.
On the bottom line, we expect to report net income attributable to Black line in the range of $4 million to $5 million or six to eight cents on a per share basis.
Our share count will be approximately 61.6 million diluted weighted average chairs.
For the full year, 20th 20 total gap revenue is expected to be in the range of $347.4 million to $348.4 million.
On the bottom line, we expect to report net income attributable to Black line in the range of $37 million to $38 million or 61 to 63 cents on a per share basis.
Sure Count will be approximately 60.7 million diluted weighted average chairs.
In summary, we are very pleased to see demand returning in the market. The strong execution from all members of the company and a better than expected to three performance.
As a C F O I think the Amelia acquisition will be a great opportunity for our sales team to expand our strategic footprint inside are large and expanding customer base.
I know we were all excited to work with Kevin Kimber and his incredible team to drive great results as we move into 2021.
We remain focused on capitalizing on the opportunities for finance transformation and driving further momentum in our business.
And now we will take your questions.
As a reminder, ladies and gentlemen, if you have a question at this time, please pet star on the number one on your Touchtone telephone.
If your question has been answered or you wish to a move yourself on the account. Please <unk>.
First question comes from the line I'll, Rob Oliver with an airline is okay [noise].
Great. Good afternoon, everybody. Thank you very much for taking my question I had one for more Kaufman and then a quick follow up for you Theresa. That's okay. Mark you know your comments were were quite sanguine on the on the outlook for cute for and I think you mentioned, so lex as well. So I was just wondering given the reason you know negative bringing out some for my.
It's a P. I know you guys have to a certain extent you know somewhat limited visibility to that channel, but you did sound quite optimistic relative to the seasonality in queue for it. So I was wondering if you could maybe reconcile those and talk a little bit about that.
Yeah. So thanks from.
You know I think this.
Somewhat proves that.
That's a P performance.
There's not a great proxy for black on his performance, it's an incredibly important partnership to US we've got some great joint customers and success together.
As evidenced by our performance and the remarks, we've made about strong quarter twice as many new logos as a priority or you can see it's working and.
And it's building.
But S. A P as a as a part of our entire customer base from which ERP system. They use is only a portion of our business and so we have a fairly diverse uhm portfolio companies.
Different European system, we serve all of them and we serve all of them really really well.
Great. That's that's helpful. Thanks, Mark and then Teresa one for you I know you know you are you're you're getting towards the end here and.
You made a comment in your prepared remarks about you know how accounting and it is sweet transformation is rising to a C. F. I broke the C. F O priority and I know you know going back to the I P. O in Pryor that that was always kind of a holy Grail and I know you guys have been getting there, but that comment struck me and I was wondering if you know that.
Must be gratifying to and I was wondering if you could talk a little bit about what makes you say that what's your <unk>, what you're seeing where this is now rising to Ah kind of C. F O level of priority. Thank you.
Absolutely and Rob you know I'm actually hopeful that I'm not coming to the N.
This you know I'm transitioning to a different role, which I'm super excited about but still very supported are black line and supportive of Mister has been here. So I'm not I'm not a fan downright yeah, yet, but regarding the C. F. L. I think that this is.
Is that a trend you're right. It is very gratifying, we've really been witnessing over the last year or so even with the pandemic.
Companies are really embracing cfos's are really embracing the concept of digital transformation and they actually really believe in the benefits that they are going to realize and you know it's one of the reasons that we spoke about the R O y aboard that our customer <unk>.
<unk> got and so you know we are seen just this focus on digital transformation. It is at the level of the CFL both because it is incredible impact on their operation and secondly, because it's typically a high dollars then so both of those things the the potential.
Impact for how to modernize and actually do things a lot better plus the fact that they're going to invest in it is really getting their attention.
Great. Thank you very much you guys appreciate it thanks.
Thanks, Rob Thanks ROM.
Thank you and our next question comes from the line.
Oh Gee Aikido with Oppenheimer. Your line is okay.
Hi, guys. This is Chad shining on for Koji. Thanks for taking my questions I actually have a question here on the competitive environment and what you guys are sitting out there in terms of competitive bids for new deals you did mention strong wasn't raised in the corner I'm just wondering if that activity in terms of competition.
As picked up at all over the last six to nine months and.
On that topic as well are there any new players in the space that seem to be popping up as you guys are competing for good deals.
<unk>.
Well thank.
Thank you Chad.
What's picking up is I would say the demand environment and so just like our performance and the visibility that we have every month since we entered pandemic time.
We've got a little smarter more efficient and are.
Our business has become even more performance so that sort of tied of things also probably applies to demand environment, meaning that everybody seeing a little more activity and maybe the tide is rising underneath a lot of both.
In terms of new competitors, not really a difference in the competitive make up the biggest competitive scenario that continues to exist for us as inertia people stuck in legacy manual unsustainable counting processes and the reticence to invest in finance digital.
Finance transformation I can tell you that we feel like we are seeing improve when rates an increased do you have lost the specifically around where is where we've got our modern accounting playbook.
I play, it's really well received specifically mid market cfo's.
Very tight time to value quick R. Y. So we feel like we're still in a battle against the nurture and pretty happy with our competitive positioning right now.
Super helpful. Thank you.
Thank you and our next question comes from the line of Matt <unk> with D. T. I G airline is okay.
Great. Thanks for taking my question in a nice job of Mcwhorter, you know I guess as as you look at you know you've added to the the portfolio here with with the familiar acquisition and you're really covering a lot more of the office of a finance and accounting here has it changed kind of the overall.
Sales process, maybe who your initial contact is are you, making your way up sort of up your chart a little bit more maybe just help us think about kind of as you broaden your your capabilities here uhm, how much that the impacting themselves pipeline.
Hey Man I'm, sorry to do this to you could you rephrase. The question four summarize we just had a quick blip in our phone.
Yep <unk>, Yeah, I guess, just as the product portfolio has expanded given about the acquisition and some internal development are you moving up sort of who your initial appointment contact is you know has the buyer changed and maybe what the whole sales process has evolved over the last several months or your.
Oh got it thank you so.
No not substantially we have been laser focused on the controller specific to the the category or the place that we pioneer.
Pioneered and created and where the leader in that automation of the closed process. The addition of Roumelia gives us additional uhm area, but we have incredible value that we can bring to that same by your persona the controller and I think what we're seeing play out here is a good realisation of our <unk>.
Strategy of a multiyear growth initiative, we put in place.
Two years ago, where we really focused on account management, making sure. We had the fully uhm funded and developed set of offerings through account management and other expertise that we have in our service and customer teams. So that we can help people identify where they can get good R y and.
Make sort of more strategic uses of our software that is growing the footprint and I think contributing to the fact that we have so many clients paying us such a large ticket now.
And then just fallen up I'm I'm sort of the overall deal momentum you're saying through throughout the year here, but I wonder if if the conversation sort of early on in the Covid send everyone home environment was let's not rock the boat it'll let's let's try to make what we what we have here is is you know.
Useful as possible now is the.
Prospect of getting into a year and clothes and and starting a new year's happening you know <unk> has there been an acceleration in and sort of conversations with customers, saying, we need something in place because this is gonna be you know.
So stay longer and more difficult. Then we then we thought we were anticipating me back in our offices by now and it's just not happening.
So.
There's a lot of variability do the answer for that.
You know some of it comes through experiences in our sales team and services have team have related and then our own personal interactions with various see if oz and controllers. It really depends on their environment what industry, they're in the shape of their business and so some people who had finance transformation strategies.
Either way they took a breath and they've returned to funding those as they've sort of become more comfortable and understood. The this is gonna be a longer more sustained impact they should continue and fund those things you've got other areas where people have had to substantially remediate. These really manual processes that where they were.
In a.
Quite a blind spot if you will earlier in the pandemic and they needed to get base use cases put in and we've seen some of that drive some of the adoption for so I I would say, it's sort of all over the map depending on each individual businesses impact of the pandemic in their environment.
Alright, great. Thank you.
Thank you and our next question comes from the line of Matt Stotler with William Blair. Your line is open.
Alright. Thank you for taking my questions I guess, just first on the on the familiar acquisition. So you you've obviously spoken especially it's Teresa would be the the mood that you're making spoken about expanding black lines value in the office of the Comptroller makes a ton of sense.
But there are a lot of.
Uhm accounts receivable automation players in the market so we'd love to understand the differentiation of the asset or what rationale allergic to pick Roumelia and then what was the reason for going this direction in the context of that larger goal.
Well, so obviously, it's pretty compelling for us to be able to expand our our Tam by 10 10 billion Uhm and you could see that this is a growth strategy for US. We think that this is so adjacent to the buyer and there's a lot of potential with the way that they use their artist.
Artificial intelligence to provide intelligent matching around that that we think of them apply to our entire tech stac. Eventually we think there's a lot of synergies and the data models themselves, but uhm realistically. If we just get back to the purity of our mission serving that controller. This is such such a.
Good space to be there's an enduring nature of cash there's so much of it that sits unallocated and can't really be realized in operationalized that we can help with we've got I just love the brands of the size and shape of the customers that we have and we've got this great distribution organization, which.
If you look at one of the rationales for why this particular company asset.
They've got good tech.
In Europe, they've got great Brandon customers. They don't have much in terms of distribution in North America, and we happen to have a great distribution organization here. So those are some of the real important reasons why we were with familiar yeah. A couple of other things too is that we met them a year ago and it was really important that.
They serve the enterprise market their product scale to the very large companies and that culturally we think it's a good fit a good complementary culture and value based company and we spoke about that earlier, but you can't uhm.
Uhm as a <unk> a strong competitor in this market in in large measure it's not just attack it's that people too.
So you can see these guys already feel strongly about it I don't think I have anything to add to that mat.
Alright now this is very helpful. I appreciate the color and then it is follow up just on the strategic products front. So we'll have to give us an update in terms of what you are saying a pipeline, they're gonna last quarter, you talked about some some strong demand your for transaction matching ica's, specifically uhm, but nobody saw kind of a step down in terms of the overall revenue contribution understand things.
It can be lumpy. So we'd love to just you know kind of better understand the the trends in that market or and those products in the pipeline and what drove that contribution <unk>. Thank you.
Yeah of course, it looked at the pipeline for strategic products has been robust over the last six nine months and what what.
Had been driving that pre Covid, what was large digital transformation projects and we saw those freeze earlier in the year and as we continue to see momentum and larger deals we see that pick up year to date or strategic product contribution to our sales has been about 12.
Percent.
And record and cute too and within a range in Q3, So we will see that attached to these large deals and we're seeing that momentum.
And it's across all three products that includes ICA, it's smart clothes and transaction matching and and moving forward, we'll have vermilya as part of our strategic portfolio as well. So we're excited about that part of the business.
Great. Thanks again, yeah.
Yeah, you bet. Thank you.
Thank you and the next question comes from a line of Brian Peterson with mine and change your line is often.
Hi, everyone. Thanks for taking my question. So a big one for for my apartment just on the margins they've been much better than expected over the course of the year. Just curious is there anything in terms of efficiencies that that you guys are game. This year I'm really looking to hone in on the on the go to Margaret I've only seen some stripes in the mid market, but we're just curious what what's driving the Morgan expensive.
Yeah, that's right thanks, Brian.
Interestingly Q3 was the strongest gross margin quarter, we've ever had in both subscriptions and services and we are undergoing a public cloud transition with Google with TCP and and that will begin in earnest you know as we move forward in going into next year and so we.
Been talking about that potential drag on the gross margin shot so I should throw that out there, but what we see in the last two quarters is that we've really benefited from a lot of the work from home we are not spending as much on TNT and.
And rent and so that's dropping directly to the bottom line, we have some I would call. It just really well managed efficiency and the sales and marketing where we have maintained you know the the same level that we came into this pandemic with.
Which is given us some margin opportunity. There we have continued actually increase our R&D investment which has been.
An increase in R&D as a percentage of revenue and then of course and G&A, we're seeing some real sort of operating leverage as we scale and get bigger. So the margin is really benefiting over the last couple of quarters from work from home and as long as that last we believe we're going to take some some value from that to the bottom.
The line.
Got it thanks, Mark it maybe maybe I'll follow up you're just on the on the idea of of build versus buy obviously familiar to get back into the fold out I'm curious.
How are you thinking about adding to the product portfolio organically you through them at all both of them.
Well so.
We're <unk>, we're looking at the categories and places that we want to play and then again, there's back to our purity admission we think the opportunity for us given our experience is in digital finance transformation.
Since the processes that come and go you know in an ordinary time when you're in the office all of those things or people walking in and out of the controller's office.
And so we're going to maintain a laser like focus on that.
We're gonna serve our customers across the.
Clothes automation, we're going to serve our cause of the customers now across cash application in counts receivable automation and where we find great opportunities to continue to automate other processes that are really nearby there and those people are walking in and out of the door the controller be it build it or buy it.
We're gonna play there.
Great. Thanks, a lot.
Your next question comes from the line of Josh back with keeping tabs on your line as often.
Thank you all for taking my question when it also ask about the the acquisition I don't know if there's any other color you can provide but how their revenue model works between subscription and transactional or maybe how to compare there.
Our our versus yours or a C V. Just just I'm not sure. If there's anything you can share with the mechanics of of the model.
Yeah, I'll I'll give you a shot at it. It's you know a a millions about a 10 million dollar business. When we when we bought it and the the business model is very similar to ours in terms of very high renewal rates, particularly in the enterprise segment, which dominates most of their.
Customer base high nineties, they have a greater than 100% something close to hours in terms of our retention rate. So it's a super sticky product they they land and then expand.
The vast majority is subscription revenue they have a small amount of services something similar to our.
Revenue mix.
And so look it's a it's a growing business, which is one of the things that really excited us and we think with our distribution. It can continue to grow it will be as I mentioned from a business model it'll be dilutive to to our business model in the fourth quarter and moving forward for a short time.
And that's in large measure because we're investing in in.
In their products and then go to market.
Very helpful and I think you had mentioned something like 100 customers. It's certainly sound like they have a little bit of enterprise and and European Flair to them do you find most of those customers came from perhaps they were using a module though.
Was hanging off of.
P and it just really didn't meet their standards or do you find that maybe they had tried other kind of modern solutions around the idea of of invoice automation just any context, you can share on where those those customers have come from for them.
Uh-huh.
Yeah.
Not surprisingly uhm.
A lot of these companies.
Are still applying cash very manually. This is another area that you just you it's.
It's there's a treasure trove I guess, you would say of these kinds of processes that exist with spreadsheets labor <unk> stuck in and it was just a different time frame that we feel like we can continue to help companies Ottoman and this is just another example of them.
Big teams of people, taking data files and trying to find <unk>, it's like.
I'm looking for a needle in the haystack trying to apply a payment that has no other identification to it to some other place that you can apply and then make use of that cash they do a really good job of using artificial intelligence to learn about how to match those things that make those agents, even more and more effective and honestly a lot of <unk>.
Is this is still do this very very manually yeah and enter their ERP you know they have they have a good set of <unk>.
<unk>, including.
They've sold in.
Something similar to our customer installed base with us as a percentage. We also have some overlap we were able to do some.
Research on our own in their customers really loved their product and there's a little bit of complementary overlap. So they have a installed base that we think will be very complimentary to our our ability to work with our customers.
Okay that that makes it tough sets of if I could just maybe sneaking one more with with some of the commentary around the relief programs. It certainly sounds like there's really a lot of health in the customer base and just think about the the net revenue dollar retention I mean does that mean that were maybe approaching a trough.
Here, just any context or maybe you can talk about how it perhaps exited the quarter just any color you can share there.
Yeah, well it looks like if a customer relief program, we were really geared up to offer a lot more than ultimately was needed or requested and so there was a decreasing impact on our financial results in Q3, and we think it will be even lower in queue for based on where we.
See and stand today the dollar based on that retention rate is a couple of things not only is it that is it that relief, which impacts it in ways on it but it's also just the overall demand environment. While it is improving it had come down and that's a 12 month right and so.
I don't I I wouldn't say Q3 is a trough on that right because it does respond to a 12 month, you know formula So as demand and proves that right can in the future start to pick back up but it's again the stickiness of the customer.
<unk> was solid the relief was less than we thought it's really about getting the demand environment to continue improving.
Really helpful. Thanks, everyone.
Thank you.
Our next question comes from the line of Crystal, Maryland with Goldman Sachs. Your line is open.
Okay. Thanks, so much for taking my question I wanted to ask about Roumelia as well yeah. It sounds like the product today. It it's already being sold the enterprise I mean are there any other investments you feel like you need to make or or is it sort of ready to go in terms of your ability to start selling is into your your larger enterprise customers and then separately.
How should we think about the period ramp up of getting a sales force to start to start initiating dialogues on this end, maybe when we might start to see.
Some impact and that retention as as you make progress on the new products. Thank you.
Yeah, great. Thanks, Chris book, our our intention is to invest pretty heavily in this market and then this company for a number of reasons. It is a large market opportunity. They have a wonderful time in moment, given the prioritization of cash management and the ability to drive that demand starting with our customers.
Him or event in the fourth quarter and moving into next year as we solidify or go to market. So our investment will be and they're in maturing their product portfolio. They have other products that will continue to invest in and and bring them along as well.
We think that the what they have today scales to the largest organization. So with respect to that it'll it'll be sort of instantly ready to go into our market.
But we want to invest in the people in the space and the product over the course of the next year. So we intend to do that.
Yeah, and I think the timing is really good for US you know, we're coming to the end of our fiscal year.
And so what we're doing in queue for for US is sort of trying to get our team just laser focused on executing against the opportunity in front of them. They had their existing sales team, albeit smaller than ours, who has a robust pipeline. Those people are realizing the benefit of investing in those opportunities where you have.
Them really focused on those things we've got behind the scenes integration teams focused on coming in to January really humming on a plan that we think we can execute and meet our financial goals on the products that are on the priceless right now with them. We have some other areas Mark mentioned that we are investing in that business to bring some additional.
Capabilities that can be even uhm further realized in terms of our growth initiatives.
And then lastly were really really excited to be able to highlight this new capability to the entire universe around black line that are beyond the Black conference.
Which is being produced right now and delivered in November here very very closely.
Alright, thanks, so much.
Thanks, Chris.
Thank you and our next question comes from the line of Mark Murphy with J P. Morgan Your line is okay.
Hey, good afternoon. This is Matt costs on behalf of Murphy could you talk about your hiring transfer the rest of the year.
Over the last four or five to six quarters, it's been pretty steady in about 20% to 25% year over year growth rate account does that change it all in Q3, and you expect changing that in Q4.
Yeah, Hi, Matt you know you're right. It has been pretty steady across the board primarily around 20% a little higher than that over 30% in the tech and R&D organization for obvious reasons.
And then with the addition of 100 employees from Roumelia, you know that adds to the overall employee population as we head into this end of this year and go into the next year or view is it that will remain relatively steady. We we started the year with two record quarters of hiring.
Slightly lower than Q3, just given that's typical and seasonal and that's usually what happens in queue for as well and then it Rams backup starting again in the beginning of next year, that's our typical sort of.
Rhythm within normal company anyway.
That's helpful. Thank you and I heard that press release that mentioned.
<unk>.
Getting a dominoes business and the iron in the UK I'm pretty sure. They already use based customer as you think about so that when the number of global customers that you have.
That's something that you well it is that something that you keep them elsewhere, but do you look at your customer base and see so the large opportunity for those.
Global expansion.
Anyway with a dog.
Yeah. So it's clearly one of our multi your growth initiatives.
Fully.
<unk> in account management, so our sales leadership brought a playbook into play here that fully investment account management fully funds the customer teams around process experts and other things that allow these multinational companies.
To understand how to operate in these environments at scale distributed across the world and now increasingly in a world where.
You don't get to come and see each other in the office and so you'll continue to see I think these large distributed organizations continue to roll out and succeed with Black line.
Thanks very much.
Thank you Thanks man.
Our next question comes from the line of Perry Tilman with <unk> choice security. So your line is open.
Hi, guys. This is actually Nick on for Terry Thanks for taking my question.
Related to a large element I mean, you guys to talk to a large deal momentum continuing and three queue and they'll having more than 20 customers with 1 million plus and they are.
Yes. My question would be you know are you seeing a common identifiable pattern of adoption then expansion would be larger customers that you can continue to repeat moving forward or is it really very on a case by case basis.
A majority of these customers initially source the reporters just trying to understand the adoption and an expansion will pays for these customers. Thank you.
Oh, the attribution I'll leave to Mark pardon, but in terms of the pattern yeah <unk>. When you start to see these patterns identify partly because we've been fairly purpose pulling Howard doing that so we were trying to land. These customers on a set of well known.
To use cases, so think of those as our leading practices. If you were gonna start and you were gonna move from manual and unsustainable into modern accounting you would do these three or four things really really well.
And we get those ironed out and then we sort of build momentum with them and then on a case by case basis, Sir largely depending on their needs and priorities as well as their industry. We start to introduce additional use cases that leverage the experience we have with nearly 3200 companies.
Who do something like that and they can benefit from that experience that we have and so that's sort of this accounting journey that we take them on and and overtime that they gained momentum with that and I think that's what's really driving a lot of strategic product out on a high amount of.
Use cases around our matching engine.
And like I said previously I think that's that's how some we have so many companies now uhm paying quite a bit for black line getting great value for it yeah and this is really had been an exciting part of our business and and one of the big differences is that when we went public and 16, we had to customers over a million dollars and.
Those customers were five years old and took him five years to get there today customers can get to that point much faster. They can land there and that's in large measure due to the capability of the account management team that Mark mentioned, the ecosystem and partners that we've now engaged that become part of that solution overall solution that has been.
And delivered and the partnership which can and does spring large strategic deals two black line. So uhm large transactions for us. The average has been in a little over 100000 in the enterprise so see in companies that can and do scale to over.
A million dollars footprint is very exciting.
That's really helpful. Thanks, guys.
Thank you and I left my last question will come from the line of Brian bracelet with papers <unk> nine is open.
Hello, It's quite Jeff resolved for Brent first question on map good to hear that another room, a record number of been market logos.
Even after the implementation promotion that is there a plan for success or go to market choice that you're making a specifically resonating with these midmarket cfo's.
I think that.
The <unk>.
Yeah.
Well I'm Gonna say the term and it doesn't sound that appealing, but it's actually very appealing foresee a frozen controllers will provide people a well worn path towards this digital finance transformation.
Our expertise sort of bundled in package together with our software and delivered really efficiently.
That's giving people live in very quickly and getting them, our library and that seems to really really resonate.
Yeah.
Great and I apologize for hitting the competitive landscape question again, but it has come up you have a club based ear can your provider that released the major accounting upgrade today and it had some customers talking about a virtual clothes last quarter. You know is this really just an indication of the market has grown overnight or or how should we do you think.
About this.
A cloud based ERP provider <unk> the E. R P companies.
Are primarily interested in selling ERP and this <unk> maybe.
And have continued to play on the margins of this space.
But there's a significant difference and what we deliver in terms of value for clients across the entire closed process. Another accounting process visit where I'm able to automate for people than being able to deliver and manage I'm sort of controls and a checklist that you can apply to close your books on there was a big.
Big Big gap between those two things and we're really focused on the ladder.
And I think the market is sort of more interested in the more comprehensive solution to that.
Great. Thank you.
Thank you and I will now turn the call back over to Theresa for closing remarks.
Thank you everyone for joining us today and thank you for your continued support you require of please keep them coming it's helping us grow. Thank you.
Ladies and gentlemen, does that conclude the program. Thank you for participating and have a great day.
[music].