Q3 2021 Blackline Inc Earnings Call
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Website at investors Dot Black mine dot com or on our form 8-K filed with the S. C. C. Today now I will turn the call over to Mark to begin.
Good afternoon, everyone.
Thank you for joining us today.
Q3 marked another strong quarter, there's demand for digital transformation within the C. F. O's outlets continue to increase we've.
We've seen improving demand over five consecutive quarters, and and now exceeds the prepandemic levels of 2019.
Companies are emerging from the pandemic with a greater sense of urgency to upgrade outdated back office systems and we believe this is the beginning of a long term investment cycle to modernize financial and accounting systems.
Within this environment our team delivered another great quarter of execution cause we helped our customers modernise their back office to thrive in an increasingly challenging work environment.
Let me describe our ability to meet the customer demands and needs across T segments and geographies.
To serve our current customers were continuing to innovate on our platform and invest in our customer facing teams.
We were driving greater customer engagement and further expanding the capabilities of our market leading platform.
As a result, we're seeing accelerated expansion from our installed base of over 3700 global customers.
And two three Barnett dollar retention rate kicked up to 108% compared to 107% a year ago.
Organizations around the World continues to serve as both a competitive differentiator and a durable growth lever for black line.
Our experience with a large north American pharmaceutical company illustrates our ability to resolve challenges within the enterprise market.
This new customer was seeking to improve efficiency and accuracy across the record to report processes and had been delayed by numerous acquisitions and evaluations of their existing ERP ecosystem.
Their desire was to replace their existing technology with the solution that would integrate seamlessly with any ERP without interrupting the close process.
The controller selected our platform because of our best in class feature set ongoing platform evolution busy.
Business relationship building strategic planning efforts and educational resources we.
We were able to inspire confidence in the controller.
<unk> services and it organizations as the trusted solution for their finance and accounting teams the.
The pharmaceutical company has focused on automated reconciliation unified cash management, Configurable dashboards and our SAP connector.
Mid market companies continue to have a healthy demand for financing accounting automation.
Our modern accounting playbook or map program produced another strong quarter for mid market, new logos and expansion deals.
Our map program outlines financial transformation path for midsized companies. So black line can deliver purpose built solution based on leading practices to unify processes automate work and drive visibility.
The solutions for the mid market are starting to resonate outside of North America with increasing traction in certain key markets in EMEA.
The addition of our automation helps to further differentiate our offerings and the combined value proposition is driving more competitive wins.
Overall, we are experiencing increased mid market sales activity.
Another exciting our automation win in the mid market was a contract catering and services company based in the U K that was challenged by a highly manual accounts receivable and financial close function that hindered their productivity and greatly impacted overall visibility.
Given this company is in the hospitality space they were severely impacted by the pandemic.
As they forecasted a return to pre COVID-19 demand they became acutely aware that their current manual processes would not scale.
In Q2, this company became a black line customer by purchasing our modern accounting playbook with cash application to resolve these time sensitive challenges are the start of Q4 2021.
And to future proof their business.
This initial purchase will generate immediate results, including a reduction in manual processes by 85% rich.
The reduction in days sales outstanding by five to 10 days and reduction in their days to close to five days or fewer.
Presented as one solution, our combined financial close and automation offering is a critical solution to the office of the Comptroller and another key differentiator of our value proposition.
Such this win represented our largest mid market land thus far.
And key international markets, our momentum continued in the third quarter.
Both the European and Asia Pacific regions delivered strong growth and a healthy mix of new logos and expansion.
So for the back office.
The increased partner engagement is evident as our partners were involved in 82% of large deals in the quarter up from 69% a year ago.
The customers planned investment in back office system has driven an improving demand environment.
These customer wins story and our results are strong proof points that we are in the early innings of a long term growth opportunity fueled by the digital transformation tailwind.
We believe that demand will continue to support long term growth for black line.
As we look to capitalize on these favorable market conditions, we are accelerating our investments in three key levers for growth.
First we are investing to increase customer engagement and customer success.
Black line customer engagement is a core tenet of our culture.
Our customer engagement team includes over 100 experts specialized in training and educating our customers to better leverage our platform.
We believe each of our 3700 plus customers is in one way or another on a journey to transform and improve their financial and accounting processes.
While some customers will move faster than others, we're committed to helping each of them achieved success in their businesses.
Third area of investment is two expanding our international presence.
And each of the last three quarters, we've accelerated our international revenue growth rate.
There is still significant upside available abroad.
As it currently stands our international presence is predominantly in EMEA with a small but growing presence in APAC.
Over the last few quarters, we've seen large strategic deals in key regions in EMEA and APAC and we believe those success stories will cultivate additional large wins for the region.
Our traction in the international markets.
<unk> is also benefiting from our partner ecosystem, specifically, our select relationship where we have our products on Sap's price list with their global distribution channel.
We've recently enhanced our APAC leadership by hiring a new general manager.
We will continue to invest in our teams abroad and leverage our direct and indirect channels to capitalize on the significant international opportunity.
These are the pillars of our long term strategy.
We've seen early success in these strategic areas.
Such as enhanced customer value proposition extended market leadership and expanded global presence.
Our performance throughout the year gives us increasing confidence in these multiyear growth levers and our ability to execute on them.
Quarter resurgence in market demand and we expect this to continue into 2022.
In response to this demand we are investing to further prioritize the areas of customer engagement and success platform innovation and international growth as part of our forward planning.
For the fourth quarter of 2021 total GAAP revenue is expected to be in the range of $113 million to $114 million.
On the bottom line, we expect to report non-GAAP net income attributable to Black line in the range of five five to $7 $5 million or 9% to 12 cents on a per share basis.
Our share count will be approximately $62 4 million diluted weighted average shares.
For the full year 2021 total GAAP revenue is expected to be in the range of 423, five to $424 $5 million.
On the bottom line, we expect to report non-GAAP net income attributable to Black line in the range of $37 million to $39 million or 59% to 62 cents on a per share basis.
Our share count will be approximately $62 5 million diluted weighted average shares.
In summary, we are very pleased with our strong execution, we delivered in Q3.
And the improving demand environment for finance transformation, we are in the early innings of a significant market opportunity and we 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 line is well positioned to capitalize on this trend of accelerated digital transformation and capture the tremendous opportunity ahead of us.
And now we'll take your questions.
Ladies and gentlemen, if you have a question or comment at this time. Please press. The Star then the one key on your Touchtone telephone. If your question has been answered or you wish to move yourself from the queue. Please press the pound key.
First question comes from Rob Oliver with Baird.
Yeah.
Great. Thank you guys very much appreciate it I had one for Marc Hoffman and then a follow up for Mark pardon So Marc Hoffman.
Just I wanted to drill down into both your comments and Marc Marty's comments about the the large enterprise deals and the record number of new large deals this quarter.
Can you talk about.
What drove those.
And I think your commentary you suggested we are now through the Covid impact.
Entirely I just wanted to make sure I understood that properly and.
Looking at the user attitude would strike me that maybe some of those deals had strategic attach as well so maybe talk about what the components of those large deals were and what the drivers were and then I had a quick follow up thanks.
Sure. Thanks, Rob.
Yes.
A lot of this is demand related and we had what I believe is a great quarter and it's widespread.
Some of that.
Enterprise work is good execution, coupled with the demand environment our message.
Experience, our brand strength of our customer success focus.
Being leveraged in creating demand in those environments and then from a demand side it appears that.
We're in the midst of a wave of investment and arguably the first and I don't know how long where money is actually flowing into the accounting department.
And we think that that's.
The backdrop for some investments we want to make in the future.
When you think that this five quarter trend is going to continue and we're positioned really well to capitalize on it.
Okay.
Got it thank you.
Great and then.
Mark Martin just with one for you.
Net revenue retention starting to flow through nicely up Europe.
We expect that.
That would continue if you know as you guys are seeing this expansion within your accounts.
Additionally, combination is resonating with your customer base more broadly and and then I have a quick follow up after that.
Yeah, Thanks, Matt Uhm.
Obviously, followed us as we announced acquisition about this time last year and we were very bullish on that acquisition space plus some things that we alluded to in terms of the product pipeline the traction and Kashyap was good the demand was strong we're able to highlight that with our <unk>.
<unk> customers, we had some nice.
Nice wins in new customers and found in some segments. There's a combination of they are plus black line was really very competitive.
Cause we look in and the investment they had some things underway that we're innovative that were completing the platform than we added to that and really focused on it. This past year. So we go from having Kashyap as you mentioned.
With some success to that spring release of Air Intelligence, which has a great attach right right now too.
To having the <unk> released though we just issued which will be one of the highlight of products sections of our upcoming user conference in November.
It comes from Koji Akita with Bank of America.
Hey, Mark Hofmann and Mr Parton, nice quarter and congrats on the five year as a public company Mark I actually think that in today's software market and that makes black line of public market Ah Ah dinosaur. So so congrats on that on the five years a couple of questions for me a couple of questions for me here number one.
Great job on the new deal account the net new deal account and more so I think on the size of the new deals that's driving that growth. There. We see in the model you know I guess thinking about the future is Q3, a good example of how we should be thinking about deal volumes and overall size from here.
Yeah, I I can start with that because that that's where we're really investing to get that kind of a profile. We have for the majority of our history been solving the biggest problems for the biggest companies and now we continue to build out the platform.
Be able to give our customers the opportunity.
To build and stay on our platform and grow into a very large customers for a very long period of time. So the Q3, despite being a typically seasonal quarter for us was indicative of strong demand at the very high end of the enterprise, where our ecosystem, including the consultant.
Including.
Yeah.
Yes, I would say.
For that I'd say, we are.
Early innings still we have some legacy par.
Partners debt.
From the Roumelia company as an independent organization that has nicely spilled over into those practices building expertise on black lines close press process automation.
Sweet as well and then we have early signs of.
Practice building all the typical activities you would see at the onset enablement education awareness skill building et cetera, with our mainstream partners.
In the various practices that focus on operational and record to report areas like.
<unk>.
That's helpful and maybe just a follow up I just wanted to ask a little bit about some of the recent customer success initiatives you've put in place.
Typically extending the map program.
The co-operative accounting experience and optimization Academy, what sort of impact that had on their sales cycle of larger deals implementing implementation plans or anything else that we should be thinking about.
It's too early to have specific metrics on that.
So there are signs that is having a meaningful impact on a variety of things customer satisfaction.
<unk> strategic products.
Some some some really nice volume.
Volume like large scale volume consumption now being driven in some customers across the real strategic products.
But it is still pretty it's still fairly early.
In terms of the time that it takes for these things to impact the practitioners in our customers' them to plan funding.
Percent involving a third partner there and that's just a nice steady kind of mid 20% growth business for some time.
Well I'll answer that two ways like we have an aspirational view that their installed base of over 9000 billion dollar plus customers most of which are not yet our customers is a great installed base for them. When they are activated to be able to sell and they're operating in.
Many global markets, some of where we support and assist in somewhere we don't and so when we originally signed this deal several years ago. We knew it would take some time out of the gate to launch and get ramped and build the kind of momentum within a very large partner like that that it would take.
To get acceleration, we're starting to see that over the last three quarters and so where we operated in Q3 is a great profile for us to move forward, but the opportunity to expand that is their nevertheless, the other answer for that is it's very difficult to move.
A company like that.
In terms of getting our product in the priority at the front of the stack and so we see some great initiatives from them. We're very active we've had an incredible engagement model over the last several quarters. So we're going to be cautiously optimistic that <unk> will continue to be a growth engine to.
Bring us up and start to accelerate our growth rate as well.
Alright very helpful. There and then on the strategic part products side.
As you continue to get a larger and larger customer base.
Should we expect that to continue to see the cross sell opportunities.
Really kind of accelerated like they did this quarter.
Are you putting in programs in place to really highlight and stress the value of those.
Or does it really still come down to the individual salespeople really highlighting those benefits to each individual situation.
No. It's one of our key strategies towards this.
Indispensable platform.
We're working to build.
To support our customers in their modernization. So there is a collaborative accounting experience.
Operator.
Just that it's leading practices.
Proven methods.
Okay for you do you see it as a competition at times and.
Do you envision building R. P. A cable is in house or <unk>, mainly partner.
There's a lot there so I'll try I'll try my best to get two at all.
My first reaction to that is.
The <unk>.
<unk> the the way you described it in terms of transformation I think the RP vendors are trying to take some liberty with the word transformation in what they're doing some some of what they're doing is quite complementary to what we're doing there taking a repetitive task.
In ranges, where we've seen the last several quarters, because we do expect the demand at the at the very high end, especially to be there and so when you are at the high end and you are working with large customers and large deals that will have a single quarter impact, but over the long term it will it will start to flow.
And drive growth.
Understood very helpful. Thank you.
Thank you.
Our next question comes from Terry Tillman with true Securities.
Hey, guys. This is connor on for Terry Thanks for taking the question and congrats on the quarter. Just one for me tried to touch on our international performance. So in terms of international performance, It's really great to hear about the success here I'm just curious as to what you're hearing from customers abroad, and maybe what emerging trends youre seeing in terms of adoption from specifically.
Regions. Thanks, guys.
We've seen that acceleration and subscription revenue what is driving that not just in Q3, but in previous quarters, our large deal.
Large deals coming from digital transformation projects that are picking up strategic products on a year to date at around 18% of sales.
Record user expansion in those same customers in the last two quarters, which is driving that retention rate up two points from 106 to 108 coming out of the pandemic and it is honestly.
We had a very healthy robust growth across all aspects of the business International Midmarket and enterprise and so it was a very.
Exciting quarter for us and Thats, what will drive that subscription revenue up.
Great got it and then secondly, John stated that we look at <unk> with some large enterprises like Apple that might be looking to transform their global finance functions and.
And it would be great to get some color on what the pipeline the pipeline for enterprise customers look like and then when it comes to these larger fortune 100 companies.
It would be the primary competitors that you see there. Thank you.
Well.
<unk>.
We have a great share of the fortune 100.
Really strong share.
And so in terms of companies that have not yet standardize on our platform.
Oftentimes we're in their sole source.
With that we get our fair share of well funded fast growing companies that are grooming themselves or organizing themselves in a way for more scrutiny like the public markets or other <unk>.
<unk> and that's clearly a draw.
River for us as well.
Perfect. Thank you very much.
Thank you.
Our next question comes from Walgreens with JMP.
Okay.
Oh, great. Thank you.
Hey, So mark is.
As you guys get ready for 2022.
What are the top two or three priorities.
That mark wouldn't this has to get done and the sales org.
Well, specifically the three biggest thing that I am focused on I am sorry to take liberties with your question Pat.
Alright, either way.
And then they were in my prepared remarks, but we're investing in our business. We think the macro environment is just ripe for investment in growth and in capitalizing on our leadership position. So we're focused on customer success innovation on our platform in international if I were to take it down to Mark <unk>.
He is adding capacity is adding distribution capacity to capitalize on that.
Specifically to leverage.
Couple of things, we believe we've got a great opportunity and strategic products.
Specifically, the AAR products combined with the rest of our platform. So it is making some nice investments in there making sure that we capitalize on those things and he is also heavily invested in international growth.
Okay.
And so on the AUR side does it require a different skill set a different type of.
Rep.
What does it require.
Well we.
We have.
We have people in our organization, who are clearly capable of selling there.
Solution, we have augmented our distribution organization by having product expertise.
Both from.
Higher from competitors, taking people, who have sold in that environment into our environment and then on top of that.
Part of the secret sauce in Black line is having professionals, who actively has transacted and worked in the environments that we're in sort of modernizing and so much like we have.
Bunch of expertise in our pre sales organization, our distribution organization that have close the books or work for an auditor or something we have started to acquire accounts receivable transaction related expertise. So people can sort of show people what its like to move from manual.
100 <unk>.
Great. Thank you.
Thank you.
I'm not showing any further questions at this time I'd like to turn the call back over to Mr. Mark Kaufmann CEO for closing remarks.
Thank you.
First of all I'd like to thank our employees, we had a great quarter in Q3 and we've had.
Several quarters of great execution, they've stayed focused on one another and they've stayed focus on our customers and we're all very appreciative of the work that they do for us.
I want to remind everyone that we will host our 2021.
Digital version of beyond the Black event on November 16th through the 18th.
The three day event will include keynote breakout sessions, consisting of more than 50 hours of content to help users resolve some of the challenges of digital finance transformation.
And although the event is primarily for our customers and prospects. There are certain session there will be particularly interesting to the financial community.
We appreciate everyones ongoing supported black line and as established by our founder <unk> adapted to remind you all to refer your portfolio companies or companies that you come in contact with who are looking to modernize their environments to send them to black line. We're excited about the future opportunities of our business and accounting.
Transformation and we look forward to talking with you later on thank you.
Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
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