Q4 2022 Blackline Inc Earnings Call
Okay.
One.
Good day and welcome to the Q4 2022 Black line earnings Conference call. At this time, all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need to press star one one on your telephone you will then hear.
Automated message advising that your hand is raised to withdraw your question. Please press star one one again please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker, Mr. Matt Humphrey Vice President of Investor Relations, Sir you may begin.
Good afternoon, and thank you for joining us today with me on this call is Marc Huffman, Chief Executive Officer Black line.
And Mark Partin, Chief Financial Officer.
Before we get started I'd like to note that certain statements made during this conference call that are not historical facts, including those regarding our future plans objectives and expected performance in.
In particular, our guidance for Q1 and full year 2023.
Our forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095.
These forward looking statements represent our outlook only as of the date of this call.
While we believe any forward looking statements made during the call are reasonable.
Actual results could differ materially as these statements are based on our current expectations as of today.
And are subject to risks and uncertainties, including those stated in our periodic reports filed with the Securities and Exchange Commission in.
In particular, our Form 10-K and Form 10-Q.
We do not undertake and expressly disclaim any obligation to update or alter our forward looking statements.
Whether as a result of new information future events or otherwise, except as required by applicable law.
All comparisons we make on the call today relate to the corresponding period last year unless otherwise noted.
And also unless otherwise stated our financial measures disclosed on this call will be non-GAAP .
A discussion of these non-GAAP financial measures and information regarding reconciliations of our historical GAAP versus non-GAAP results is currently available in our earnings release, which may be found on our Investor Relations website at investors Black line Dot com or.
We're in a form 8-K filed with the SEC today.
Now I will turn the call over to Black line, Chief Executive Officer, Marc Hoffman.
Mark.
Thank you, Matt and good afternoon, everyone. Thank you for joining us today.
Black line delivered solid financial results for Q4, rounding out a year of demonstrated profitable growth.
We reported fourth quarter total revenue of $140 million up 21% and for the full year $523 million up 23%.
We also delivered further margin expansion in the quarter due to operating efficiencies combined with disciplined and sustainable expense management, giving us confidence in our ability to achieve the medium term targets laid out at our recent investor day.
Turning to an update on the macro environment and our sales performance in Q4.
We're still seeing elongated deal cycles, which we noted on our prior earnings calls as customer buying behavior reflects ongoing market uncertainty.
While strong competitive win rates and healthy demand signals at top of funnel reinforced our long term confidence in our business. We expect near term demand to be influenced by delayed decision, making and ongoing budget re prioritization.
Our lower than expected bookings performance in Q4 reflects these conditions and underpins the assumptions, we've embedded into our 2023 revenue guidance, which mark will speak to shortly.
We're pleased that many of you listening today, we're able to participate in our beyond the black customer conference in November .
As part of the event, we hosted some of the largest global enterprises and unveiled a series of new solutions and programs that enable enhance and transform accounting.
Specifically, we announced innovative new solutions and capabilities, such as financial reporting analytics or FRE.
Black line accounting studio.
We also expanded our modern accounting playbook to our cash application solution and unveiled a new Microsoft dynamics 365 connector.
Additionally, we added new services and support offerings to drive greater value for our customers, enabling them to accelerate the adoption and time to value of our industry leading solution.
Following the event, we received very positive feedback from our customers and prospects, which directly resulted in a number of customer wins in Q4.
In the weeks following the conference in the fourth quarter, and we signed multiple <unk> deals above our expectations.
While we are still early the fact that customers Trust Black line and are speaking with their wallets reinforces our confidence that the innovative solutions, we are delivering differentiates us further in the market and supports the long term growth opportunities ahead for Blackrock.
Furthermore, we are tracking towards general availability for Black line accounting studio later this summer.
Note, we have already signed a number of early adopter customers seeking to accelerate their digital transformation journey with Black line.
These recent successes.
And the additional innovation, we have planned over the next few years serve to demonstrate black lines focused on becoming the platform company for the office of the CFO .
Moving to progress in our strategic product portfolio. We're pleased to announce that we recently completed the PQ process for SAP.
For our inter company financial management non trade solution.
Through our SSP solar partnership our teams are now moving forward to actively sell this traditional solution to customers and prospects globally.
Standing our reach and expanding our ability to capture the large and Underpenetrated inter company market.
And finally, we recently extended our relationship with Colfax, a global leader in intelligence automation, adding globally compliant electronic invoicing capabilities to our accounts receivable automation solutions.
This expanded alliance strengthens and extends Black line Bay, our solutions, ensuring customers remain compliant with rapidly changing electronic invoicing requirements around the world and B to B receipts.
Our go to market strategy continues to evolve as we strengthened the alignment between our strategy.
Product portfolio and the market opportunity.
As you saw in December we announced an action that was largely driven by macro uncertainty and our near term goal of optimizing our existing capacity to market demand.
As part of this we made several changes to our go to market strategy, we introduced the strategic product quota for all quota carrying reps aligning the sales forces incentives with our product portfolio and the market opportunity.
Additionally, we have largely removed the overlay component in our sales teams, which we expect to improve sales efficiency reduce friction and enable quicker wins with customers.
While still early in this natural evolution. This is a key part of ensuring alignment of our sales force with black lines goal of growing strategic products and driving higher sales efficiency.
Now, let's take a moment to review, our Q4 results and highlights from the quarter and a bit more detail.
And our markets APAC was a strong performer and delivered a record sales quarter led by some important wins in Japan.
Our North American business remained relatively consistent with some great new logos and expansion deals.
As expected EMEA remained relatively soft as the macro and geopolitical environment continues to weigh on business activity in that region.
On the customer side, we saw some relative strength in our new customer bookings this quarter, especially in our enterprise driven by our <unk> partnership.
Additionally, average deal sizes increased this quarter up 8% year over year to 127000.
And finally, we had 48 customers that generate $1 million or more.
<unk> up 33%.
Despite the ongoing uncertainty in the market, we still see examples of strong wins, including the signing of several deals with new and existing airline customers, such as Alaska Airlines and Qantas.
For reference Black line serves many of the largest global airlines, we leveraged our solution and customer teams to drive automation and efficiencies across their businesses.
And a great net new solar deal, we signed one of the world's largest airlines, who was looking to move away from a competitor that lacked many of the modern features and functionality needed to successfully execute against their digital transformation goals as part of.
Our engagement leveraging the strength of our SAP partnership and our global consulting partner network. We were successful in demonstrating how black clients best in class solutions can be leveraged to support their future growth.
Additionally, we signed a record so let's deal with the largest north American energy and chemicals producer leveraging the capabilities of our core financial close solution combined with our innovative and high automation intercompany solutions.
As part of a larger digital transformation project that includes a cloud transition. This customer was focused on ensuring that key processes remain sustainable and efficient as they grew while also resolving a growing set of complex intercompany challenges.
Finally in EMEA, we signed renewal a leading European automobile manufacturer as part of our solar partnership.
This new customer was embarking on a complex and large scale digital transformation process to support their ambitions of becoming a leading electronic vehicle manufacturer.
As part of this they are re imagining their financial processes to better execute their digital transformation and an efficient.
<unk> and compliant manner.
Having black line as a strategic partner, who has a clear choice and we look forward to growing this partnership over time.
And our automation, we saw a notable acceleration in deal activity in the quarter as we continuously work to refine our target customer profile, while enhancing and expanding our offerings.
Furthermore, we are seeing more and more customers selecting our broader <unk> platform instead of solely choosing our cash application solution setting the stage for long term success in this business.
Notably we saw record payment value from our <unk> business this year up 33% to over $327 billion.
We signed multiple new and existing global customers, who see the benefits of automating the order to cash process, thereby unlocking working capital to support their business in today's uncertain environment.
And one example, we were able to leverage our recently announced modern accounting playbook for cash application and sign a growing Canadian customer who is looking to purchase an AAR solution to drive automation and support future growth and improve their working capital profile.
As part of this competitive process, we demonstrated the value of modern.
Platform can deliver and how these work hand in hand with other strategic tools Black line offers such as transaction matching.
This combined <unk> and matching deal is exactly the type of deal that delivers exceptional value for customers and for Black line.
And another competitive instance, we leveraged our platform to expand with a leading U K provider of financial market data.
As an existing customer they were seeking to move away from manual and unsustainable cash collection processes and ensure they had robust inefficient solutions in place that met global regulatory requirements.
In another great win an opportunity to deliver tangible value to customers.
In closing, while we see uncertainty ahead in the markets the value that we deliver and the trust of our customers remains clear and where.
Confident black line is well positioned for long term value creation, we remain.
<unk> focused on executing against our go to market strategy as we align our business with near term market conditions, while investing appropriately for future growth.
I want to thank our employees around the world for their dedication and determination during these uncertain times.
With that I'll turn it over to Mark to discuss the details of our financial performance and our outlook.
Thank you Mark and good afternoon, everyone.
<unk> reported solid top line growth and further margin expansion as we closed out the year driven by further efficiencies and productivity across the business.
Expanding on what Mark mentioned earlier, we saw lower than expected bookings performance in Q4 as market uncertainty continues to influence deal cycles and customer buying behavior.
This was most evident in the last few weeks of the quarter, especially in EMEA and in the middle market as deals that were expected to close in Q4 slipped into future periods.
Despite this.
We continue to focus our efforts on what we can control in the near term while positioning the business for long term success as such we see multiple factors that give us confidence to deliver against our targets in 2023.
As Mark mentioned, we recently took action to better align capacity to near term demand, while further refining and enhancing our go to market strategy.
Second we're entering 2023 with a more seasoned and efficient sales force as we lap a period of heavy hiring and unwrap and sales capacity.
Third we continue to RMR salesforce with innovative new solutions and capabilities like foray.
Black line accounting studio to drive customer engagement support top of funnel activity and ultimately deliver incremental revenue.
Fourth we continued to develop build and expand our global partner network to expand our reach and capabilities.
And finally, we continue to see healthy competitive win rates across our markets.
Now, let's review some highlights for Q4.
Total revenue grew to $140 million up 21% compared to the fourth quarter of 2021 note FX was a one point headwind to revenue growth in the quarter.
Also stronger than expected demand for professional services resulted in 41% growth versus the prior year as customers' desire to unlock the embedded value of our solutions drove higher utilization.
Calculated billings growth was 17% versus last year, despite a two point headwind from FX.
Remaining performance obligation or <unk> was up 30% with current RPI growing 23% year over year.
Closed the quarter with total annual recurring revenue or <unk> of over $533 million.
19% increase year over year.
We added 128 net new customers in Q4, bringing our total customer count at the end of the year to 4188.
Net revenue retention was 107% in the quarter and it includes a one five point headwind from FX.
Gross revenue retention remained strong and picked up to 98% in Q4.
Strategic product performance remained healthy and represented 27% of sales driven by demand for high automation and high ROI solutions for the full year strategic products represented 25% of sales up two points from 23% last year and at the upper end of our target range.
Partners were involved in 67% of large deals as we leverage our growing partner network to drive additional opportunities.
As expected we saw strong performance from our <unk> relationship leading to our record net new sales quarter as we signed several large multi product deals globally.
In Q4, SAP partnership represented 24% of total revenue.
Shifting to margin non-GAAP overall gross margin came in above our expectations at 80%.
With non-GAAP subscription gross margin of 83%.
In services, our teams delivered impressive performance in the quarter due to higher utilization and additional productivity gains.
non-GAAP operating margin was 13% in the quarter, marking a notable five point improvement over Q3, and an eight point improvement versus last year.
The improvement here was driven by a combination of gross margin outperformance operating efficiency and disciplined expense management.
non-GAAP net income attributable to Black line was $25 5 million in Q4 represented an 18% non-GAAP net income margin.
Up sharply versus both the prior year and Q3.
We generated $25 8 million in operating cash flow and $20 3 million and free cash flow in the quarter with a free cash flow margin of 14% representing two points of expansion over the prior quarter.
And finally, we ended the year with $1 $1 billion in cash cash equivalents and marketable securities providing great financial flexibility as we look towards 2023 and beyond.
Now turning to guidance, we anticipate the uncertain market environment, we experienced in Q4 and the second half of 'twenty two to persist through 2023, we expect deal cycle length to remain extended.
Customer decision, making processes remain centralized and deliberate resulting in longer lead times and extended approval processes.
Additionally, we are expecting an approximate one point headwind to full year revenue growth from FX, which is embedded in our guidance. All in we believe our guidance appropriately reflects these factors while also considering our goals of driving further operating efficiencies across the business.
For the first quarter, we expect total GAAP revenue to be in the range of 137% to $139 million representing.
Approximately 14% to 16% growth compared to the first quarter of 2022.
We expect to report non-GAAP net income attributable to black line in the range of $11 million to $13 million or 15% to 17 on a per share basis.
Our share count will be approximately $74 6 million diluted weighted average shares.
And for the full year 2023, we expect total GAAP revenue in the range of $586 million to $596 million.
Representing 12% to 14% growth compared to the full year 2022.
On the bottom line, we expect to report non-GAAP net income attributable to Black line in the range of $66 million to $70 million or 89% to 94.
On a per share basis.
Our share count will be approximately $74 4 million diluted weighted average shares.
Before we turn to Q&A I want to thank all of our Black line employees for their efforts and their hard work in 2022 as well as our customers who continue to acknowledge our leadership and our innovation.
We expect ongoing market uncertainty in the near term we remain confident in the long term opportunities ahead, and our ability to drive profitable growth.
Now I'll ask the operator to open the discussion to take your questions.
Thank you as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced.
Your question. Please press star one one again.
While we compile the Q&A roster.
Okay.
Okay.
Jim will come from the line of Rob Oliver with Baird. Your line is open.
Great. Good evening can you guys hear me okay.
Yes, Hey, Rob.
Oh, Great, Hey, Mark Hey, Mark.
Just a couple.
For me, Thanks, Marc Hoffman I'll start I'll start with you.
It sounds like Doug.
December was just a tough time period for deals.
So closed.
But it does sound like you guys had.
So continued success.
In Asia, I know, Japan has been a strong area for you.
EMEA.
<unk> North America, it sounds like it's tough from a geographic perspective can you talk about how the year closed and then may be how the full year guidance for 2003.
Contemplates kind of the geographic breakdown.
Relative to kind of where we are right now and then I had a quick follow up.
Sure I'll start and then Mark can talk about guidance.
I would describe what we saw in Q4 is a continuance of what we've been describing in terms of uncertainty and deal elongation.
<unk> got it right there was strength in a PGA in Japan, specifically.
Some strength in some industries energy travel hospitality, and then softness broadly in Europe , new business and mid market in terms of the guidance I think it is very similar we look at as a marker going into this year our strength in pipeline in the <unk>.
And we would carry forward what we're seeing in EMEA AP.
APAC and also as part of North America. So in the first half of the year, we believe that that's going to continue.
Great. Thanks.
And then.
You mentioned some of the sales changes that youre, making.
And the strategic products quota can you just talk about strategic products.
How they are performing now and I don't think I heard you guys talk about <unk> at all on the call.
Sure.
I know, we're still early in <unk>.
I think actually you may have mentioned that you got approval on the SAP <unk>, but just wanted to get a sense for.
For the set up for strategic products.
For this year thanks.
Yes overall last year for the year were up to 25% Q4 is 27% of bookings in strategic products.
I would say that the end of the year.
Our <unk> business had some nice wins, we took a number of customers live and AAR, we continued to perform well across a variety of the components that we would call strategic products.
<unk>, if I just talk about it as ISN.
<unk> talked about this real significant sole X win.
Which had multi product element to it is the largest solar X when we have.
And the history of the relationship that had <unk> in it. So we continue to exhibit strength and inter company, but by and large all of those things still subject to the same continuance of that macro uncertainty and some of the elongation of the cycles. As you did note we did achieve one of them.
Primary product objectives for the year with the integration of <unk>, which was to get the.
Intercompany non trade.
<unk> also led to the PQ.
PQ process, which we did achieve in the quarter.
Okay, great. Thanks, guys I appreciate it.
Thank you Rodney Thanks, Sean one moment, our next question.
And we will come from the line of Matthew Van Suite with BTG. Your line is open.
Hey, good afternoon, thanks for taking the question.
Maybe wanted to dig in a little bit on the mid market performance.
How much in the prepared comments, although Mark I think you just mentioned that was on a little bit of the weaker side.
Did you see the maybe the reaction to the macro and some of the overarching theme as you see there just.
I guess bubble up a little quicker.
Have a greater impact there or anything else you might point to.
Around your mid market performance and anything that youre sort of altering into 'twenty three to help jumpstart that.
Yes.
Sure.
If you look backwards in the several quarters mid market was an area of acceleration high execution strong demand.
It actually took longer for it to exhibit some of the macro behaviors, but we did exhibit that in Q4, we did observe that in Q4.
I would say interest in the top of funnel is still healthy.
In all markets and Geos.
Interest in mid market included but the uncertainty there has really affected the velocity through the funnel itself in terms of how.
I will respond to that are our observation of win rates remained steady there.
Things that go to conclusion decisions to that <unk>.
Lastly in the final challenge is down a bit.
We continue to sort of study, making sure we win the ones we want to win in the markets in the spaces that we play.
As we see some pressure in the in the mid market to the macro uncertainty.
Okay helpful. And then as you as you look at a number of.
Reductions in head count across some very large companies, especially in tech, but in other industries as well.
How do you feel like Thats impacting either the sales pipeline or any sort of renegotiations or renewal types of business with some of your existing customers as they look towards the future and maybe operating a slightly smaller company.
The impact on initial deal sizes potentially.
As you look ahead at that thanks.
Yes.
Good question.
There's a few things that we observed I think in Q4.
We had a very strong user expansion number in the fourth quarter, so our ability.
Two.
Land and expand inside the accounting Controller's office continued.
The important.
But go forward, it's going to be where the cuts taking place. So the front end of the house and the enterprises or the back end of the house I think we would have some indications that.
Strengthening the backend in accounting and finance continues to be a fairly.
Stable environment.
I'll also add that.
User.
Users are not a part of our pricing strategy and strategic product. So we're able to drive value for the customer through value realization through that strategic portfolio, which I think was part of the rationale moving forward for pricing strength.
Yes, and I wouldn't say, we observed any headwinds in pipeline regarding any reductions that are out there obviously you've got.
A high awareness to it in our organization as well as many other organizations, particularly concentrated in tech.
I think the uncertainty more broadly impacted.
Bookings performance.
Not anything to do with the reduction.
Alright, great. Thank you.
Thanks, Matt one moment our next question.
That will come from the line of Matt Stotler with William Blair. Your line is open.
Hey, Mark and Mark Thanks for taking the questions. Maybe just first to start with one on guidance. So very very clear and I. Appreciate the color in terms of what youre seeing from a macro perspective sounds like a lot of the same things you were talking about last quarter. When I look at initial guidance for top line for 2023, and then put that next to Curt RPM growth.
AOR growth billings growth in the exit rate for 2022.
Seems like there's a little bit of a disparity there at a little bit of a gap and so if you could just double click on.
Maybe maybe help bridge that gap double click on what Youre seeing what's embedded in 2023 versus what you what you're seeing exiting Q2 and into the first couple of months here 23 would be helpful.
Yes, Thanks, I appreciate that yes.
Maybe to reiterate some of our philosophy around guidance has to do with being very pragmatic, particularly at a time like today, where there is uncertainty in the macro environment that we're operating in.
Our guidance philosophy continues to be that we want to provide a range. We have high conviction that we can deliver against particularly in these times.
If and when demand changes or accelerates, we feel that we're in a good position to execute on that and build from.
When I look at the.
The question that you have around the disparity of some strong signals coming out of Q4, I think it's important to realize that.
We had a decelerating or lower than expected bookings growth.
The second half, particularly in the later stages of Q4.
And.
Trailing 12 month billings as a good example of that and that was due to the macro environment. We're also lapping some tough comps, particularly related to the inorganic contribution from <unk> last year, which I think is important and then as we also stated we have a near term sort of FX headwind that we're working through that as part of that number.
So that's really how we got to that range.
From where we jump off and.
December in Q4.
That's very clear very helpful. Thank you.
And then maybe just one follow up.
Obviously, it was a very exciting announcement.
Black line accounting studio.
Beyond the black last year.
Any early feedback you've gotten from the beta for for that offering.
What are you hearing for customers is that resonating and then an update on the timeline I think you previously said Q2, it sounds like if I heard you correctly you were talking about over the summer so an update at the time when there would be helpful too.
Starting with the timeline I think summer is the right way to think about it.
Kind of the border of Q2, and Q3 interest high which I think tells you that.
Larger organizations that have a bunch of complexity and theyre in complexity being multiple ERP systems multiple different processes distributed across workers around the globe the ability to orchestrate that tie all those systems together create standard business processes through account.
Really resonates with people and so I would say, Matt too early to say anything more about it. It's an early adopter phase we keep tabs on how its going there and we.
We think thats obviously.
Long term value driver towards our vision of creating a platform that's really indispensable to.
The office of the Comptroller and broadly to the CFO .
Got it thanks again.
Thank you thanks, Matt.
Thank you one moment for our next question.
Will come from the line of pendulum Bora with Jpmorgan Chase. Your line is now open.
Hey, Hey, guys. Thank you for taking the question.
Continuing on the accounting studio line.
Mark can you help us understand maybe.
It seems like.
Maybe how applicable is accounting studio to do the 4000, plus 4000 customers that you have and I know, it's very early but what kind of uplift.
Would you see that might drive over the next year.
Yes, I think it's way premature to be thinking about.
<unk> uplift.
Firstly in the time.
A box you just put on a pendulum.
I appreciate the nature of the question.
I think it applies to.
At least.
50% to 60% of our customers based on the size demographics and complexity of them and the complexity and the workloads that we do for them.
The accounting studio itself is one component and it's the first component of our broader platform strategy that we have and we talked about at Investor day.
How it comes to impact.
Over time, we will have some direct.
I would say direct impact from our ability to bill in charge for it and then some.
The indirect in terms of net revenue retention expansion and making the ability to some of the multi product solutions high automation things really come to life for some of these customers that they are better integrating their data sources in these complex business processes that they do have.
Yes understood got it thank you.
And my pardon one for you on the guidance.
Well Glenn to understand since you are also driving sales.
Changes trying to understand if you have layered in maybe a little bit more conservatism than usual you said there has been a little bit of a tweak.
In the guidance philosophy going into this year, given given the heightened uncertainty.
I think somebody I understand the question, it's a fairly consistent philosophy that we've had in previous years, which given our business model. The predictability of the base. The recurring revenue nature of the small percentage of services, we've got a fairly high confidence in.
Forward forecast the key is that we took what we saw in the last couple of quarters learned from Ed from everything from closure rates to deal timing and cycle timing.
And extrapolate that forward without trying to be too exact on the return of the demand environment.
Built our forward forecast.
Range.
Very similar to what we've done in the past, it's pragmatic theres high conviction in our ability to execute and if and when or actually when demand returns, we feel like we're able to improve upon and build off of what we've what we've provided.
Got it thank you very much.
Okay.
Thank you one moment for our next question.
And that will come from the line of Joseph mirrors with <unk>. Your line is open.
Great. Thanks, so much for taking the questions is actually Bobby <unk> on for Jim.
Starting off to a great to hear about the strength with <unk>, but I'm curious if there are any updates to the recently signed partnership with Accenture.
<unk>, new logo wins or additions to the pipeline there and then I had one follow up thanks.
Yes.
Starting with your to your point about <unk>.
Very productive quarter, and obviously we announced.
Big win with them so.
Albeit we all.
We feel like we should be doing more through that partnership pleased with the performance in Q4 for its still real early with Accenture and without being able to name exact names it did contribute to our results.
They are influencing some new customer sales they are building pipeline with us.
Sure.
Seeing some of our existing customers that they have embedded relationships with.
Yes.
And that's a global phenomenon, we have examples and in Germany. We had examples in North America and more broadly in mainland Europe that they've had.
Create influence on so still early but I'd say it's.
Off to a real productive start.
That's great I appreciate the color there.
And then switching gears, a little bit I'm curious, how many ERP integrations.
The black.
Client platform excuse me currently has and how many do you plan to expand that by in 2023, I think based on some of our recent conversations with customers. It seems to be a pretty important effort and I think I'll talk last quarter about a 5% and our argues from tank utilization last quarter. Thanks.
Yeah Yeah.
I guess in some ways tier one I'm not sure I can quantify it for you Bobby.
Mount of ERP integrations, we have very specific and purpose built with use cases embedded.
Connectors.
So we have those for all the big names that you would expect and they support our strategy.
Sort of land and expand strategy with those SAP.
SAP Oracle et cetera.
We announced recently the Microsoft.
Connector as well then as a part of our platform.
And the Black line accounting studio the integration platform itself as an important part of the strategy keeping in mind, we get a higher net revenue retention from those connectors people, who use connectors or our Apis and so one.
Unleashing the ability to write to Api's has become really really.
I think strategic we've had a number of.
Large customers sort of utilizing those who landed last year and are now coming live providing some great feedback on it and so with the advent of the API theoretically even if you had <unk>.
Item that was at the longest tail of the list of ERP companies out there you could theoretically right to our Apis and Craigs connectivity. So I can't really quantify how many but as you can tell excited about the potential think it's strategic and will continue to invest in that.
That's great I appreciate the detail.
Thank you one moment for our next question.
And that will come from the line of Alex Sklar with Raymond James Your line is open.
Great. Thanks, I don't know who wants to take this one but two part question on reiterating in the medium term growth targets. So first any color if the December head count changes impact the expected timing of the return to those growth levels.
And with that I think you said the top of funnel growth was still performing really well in the quarter can you directionally quantify if the pipeline growth currently support those medium term targets.
Yes. Thank you I think I can start the question with.
The action we took in December does not extend out the timeline in fact.
As we look at our medium term targets for <unk>.
Both growth and our rule of 40 operating efficiency, we feel like we're making traction, particularly.
Around our ability to execute in the Salesforce and the GT and the go to market areas.
With more product to more opportunities for them too.
You can drive accountability.
And then for the second part of the question, Yes in terms of the transition between our annual plan and the ability to meet the objectives this year, which I feel like we have.
Adequate pipeline to meet the 2023 objectives.
Hard to translate that into the 24 month view of pipeline.
I wouldn't suspect that anything with regard to the action we took has.
Detrimental impact to that we are paying close attention to the signals to make sure that we're bringing back capacity as it becomes required to build the 2024 capacity model to meet those mid term objectives Alex.
Okay great.
That's helpful context, I guess, Mark Barton, but it's one follow up for you on the first quarter guide.
There anything onetime in nature kind of driving the quarter over quarter decline versus fourth quarter or is that just services timing anything you'd call out there.
Yeah.
Right so.
14% to 16 coming off of Q4, I think I would remind you we had <unk>.
Inorganic and last year last September one.
Lee is Q1 of last year was one of our strongest quarters of the year, we came out of a very strong.
2021 into a strong Q1 of last year Q1s are typically seasonal so last year's Q1 strength was extra special and that also sets up a tough tougher comp for this quarter.
Okay. Thank you both.
Yes, Thanks, Alex.
Thank you one moment for our next question.
And that will come from the line of Koji Ikeda with Bank of America. Your line is open.
Hey, Mark Partin, and Marc Hoffman. Thanks, Thanks for taking the questions just a couple from me.
I wanted to go back to the guidance.
And ask a question there maybe a little bit more directly and I. Appreciate all the commentary that you had thinking about it pragmatically and high visibility, but I guess more directly does the guidance assume the macro gets worse and if it does how are you thinking about maybe some of the key metrics that you might be flexing down whether it would be.
Net revenue retention or or sales cycles or deal sizes or anything of that nature. Just curious to understand if if the guidance does assume macro maybe gets a little worse from here.
Yes, I appreciate that.
Look our guidance takes what we've seen.
In the best case that we can take what we've seen in the last couple of quarters in terms of closure rates closure rates sales cycle and timing and extrapolate that through the first half of this year.
For that seems the most pragmatic way to look at it Q1 is a seasonal quarter where in it now.
We have I think with a couple two or three quarters now consistently seen closure rates being impacted and decisions being impacted by the macro and so moving in the early part of this year that is the right approach to sort of extrapolate that for us.
With regard to other metrics, we don't guide on other metrics, but our view is that.
The base.
Customers that we have in our ability to drive strategic products in this environment is.
Notwithstanding the macro is a.
As a point of emphasis and priority for us.
And so that's.
At the end of last year, we saw our growth profile move closer to $65 35, where the growth coming from the base.
And we would expect that to be the early part of this year too.
We also I think mentioned that the FX has.
<unk> had some damage as a headwind both in revenue and in building and in the <unk> numbers and we expect that to be the early part of this year too. So that's our sort of current working assumption as to extrapolate what we've seen in the last half of these quarters and put that into the first half of this year.
Got it thanks, Mark and just a follow up for you if I may here.
Typically don't ask questions on the numbers on the press release getting in the weeds, but I saw kind of in the non-GAAP reconciliation and impairment of cloud computing implementation costs could you maybe walk us through what that is this a one time for this quarter or is this something that we can anticipate something more on a quarterly basis going forward.
Yes for sure it look.
We recently in the fourth quarter, we decided to shift our focus from.
What had been a fairly lengthy third party implementation of our quote to cash tools that wasn't delivering the benefits that we were expecting so.
As part of that we wrote off the implementation costs from the past what had been sort of a three year on and off project worth about $5 million and so that's what you saw in that reconciliation.
And so we've moved on from that and Thats in our fourth quarter as the charge offs.
Got it got it. Thank you for that clarification. Thanks for taking my question guys I appreciate it.
You're welcome Thanks James.
Thank you one moment for our next question.
And that will come from the line of Brent bracelet with Piper Sandler Your line is open.
Hi, This is Mario jumping on for Brian just two questions from us.
So the first part of my question is on the strategic product attach rates.
I think at the Analyst day, you called out single digit attach rates for most of the product.
Noteworthy changes to call out in terms of how those products closed out the year and then as you think about the full year guide what are you contemplating in terms of the mix of strategic products and overall revenue mix for the year.
Well I'll start with the first one.
The view that we have in terms of the attach rate.
Sort of Tam to go get there, we don't refresh on a quarterly basis, So I don't know that.
At the top of our head could come up with like for like for you there nor do we sort of got a report on that I would say.
In the quarter.
Some strong performance largely on the back of a real large opportunity in.
As I mentioned previously.
Ah.
At the end of the year had a nice uptick.
Including new customer wins, some expansion and then we took a number of customers live and we continue to see strong throughput on our platform in terms of how.
How much cash actually gets applied in process 327 billion in payments via our platform.
And then lastly, we and our strategy continues with the additional strategic products like journal entries smart close out a strong quarter for us.
On the second part of that question, we've guided within five point increments in the past where for the full year, we would want to see it.
<unk> mix of 20% to 25% in previous years in this past year 'twenty. Two we had a goal of 25% to 30% and I think going into this upcoming year, 25% to 30% continues to be the right range.
And the reason for that is balance right.
Managing a global core financial close along with a strategic portfolio, along with new products and the right balance here for us would be 25 to 30, and then to try to hit the top end of that target for this year. So that's what we're planning and thinking toward.
Got it. Thank you that's very helpful. And then last one from US is just around EMEA and the mid market has there been any changes in win rates there or has the softness just kind of remained a function of deal slippage and then maybe just more broadly have there been any changes in the competitive environment that you would call out. Thank you.
So.
EMEA and mid market.
The phenomenon that we're observing there is actually.
No.
A declination of deals that.
So the decision so sort of a deferment, if you will when rates steady.
Steady, meaning they toggle by one or two points. So immaterial in my opinion over the course of time and the biggest phenomenon is less deals reaching conclusion there.
Thank you one moment our next question.
The next question will come from the line of Daniel Jester with BMO. Your line is open.
Hey, great. Thanks for taking my question and apologies if there's some background noise just one for me.
I appreciate all the color you gave on the consumption metrics and how much that's improved for the strategic products can you just remind us like how deeply penetrated within your customers that have these strategic products are and if you think about this consumption metrics as they grow is it solely going to be new clients and new products or can you get deeper penetration within your.
Customers that have already adopted them. Thank you.
Great question look.
Transaction matching and continues to be our highest penetrated in that still.
Out of 4000 customers that number is still in the one hundreds.
And the other products from.
The cash in.
To <unk> those.
Those still continue to be nascent in the single digits. So the opportunity there is.
For.
To sell into that base to your question around can strategic products land and expand within a single customer the answer is yes.
Way the pricing works and the way we've.
Modularized, we can absolutely land and expand our strategic products to build within further penetration on the account.
Great. Thank you.
Yes, Thanks Danielle.
Yes.
Thank you one moment for our next question.
Come from the line of Josh Beck with Keybanc capital markets. Your line is open.
Hey, guys. This is matti on for Josh. Thanks for taking my question. My first one higher level. Just wondering how you guys are thinking about budget.
Budget changes in 2023, and where you fit in that prioritization.
And then my follow up is.
Obviously, you called out lower bookings than expected in Q4, just wondering if some of those deals would trickle into Q1, then we might get better bookings unexpected. Thanks.
Yes. Thank you so on that last question about deal slippage.
<unk>.
It's tough to predict that particularly as we move from Q4 into Q1 and then this macro so.
The right way.
Think about that is those are not pipeline deals that we have lost they continue to be in some form of our pipeline and funnel.
Mark mentioned earlier, our competitive win rates continue to be stable or interest levels.
<unk> to be strong and trying to close that gap for closure rates is where we see the macro.
Impact.
Whether or not it's Q1 or continues forward I think is a lot to do with that macro uncertainty within many of these regions and customers.
Moving to the first question.
<unk>.
First question.
Alright, yes, Dan in the budget presentation exactly thank you.
The market that we serve and the CFO and controllers market, particularly when it has to do with digital transformation and you see it budgets and Cio's can get involved certainly in those areas. We do have a thesis around.
Those budgets, which is there is.
Within the office of the CFO Youll see in the early stages of uncertainty and macro.
And recessions and other issues Youll see a retraction re prioritization.
But then you will see a greater need.
As Mark said in his earlier.
Re prioritize because to drive efficiency and automation and either a war for talent or a more pressure on margin and margin expansion.
<unk> controllers, obviously doing more with less so we think being a high ROI product that we said in the first budget prioritization out of the gate when they are ready to start spending.
So from that environment going into this year.
Tough to know the timing, but that's how we feel.
How we think about them.
The market.
Very helpful. Thank you guys.
One moment for our next question.
And that will come from the line of Andrew de Gasperi with Dan Burke. Your line is open.
Hi, This is Stephanie on for Andrew Thank you for taking the question.
Wondering if you could elaborate a little bit on your new customers added this quarter and what the mix was between the customers. If you have that and whether there are specific products driving this new customer growth or that are popular with no customer. Thank you.
Yes interesting Mike.
We have for a little over 4000 customers today about half of them are enterprise. Some a company we would describe as over $750 million and then the other half are mid market below $750 million and we often see.
In any given quarter, the velocity or the expansion of the customer number is in the mid market space as you might imagine theres more.
There is more mid market customers coming onto the platform.
But the enterprise or at a much larger size.
So we would think of the.
Again, each quarter on average to be mostly.
Mid market and the customer number, but mostly enterprise in the IRR growth number and.
So to your question around is there a specific driver in each can.
Case.
Answer to that that as not necessarily.
It's hard to put a particular product or driver on those most of our customers today begin and start with our financial close and then they build up from there and Thats just an average.
Okay. That's helpful. Thank you.
Thank you one moment for our next question.
And that will come from the line of friendly with credit Suisse. Your line is open.
Hey, gentlemen, thanks for squeezing me in and good to see the margin protection in a tough selling environment.
Another question regarding macro and just to clarify would you say macro deteriorated quarter deteriorated quarter to quarter was it equally as difficult as Q3, and then just a follow up.
Yes.
I would call it.
Continuity.
I would describe it didn't improve nor did it degrade.
Continuity of our observation.
Okay. Okay and then my second question is how should we think about the outperformance of services and the demand that we saw there I mean.
The company posted some of the highest services margins in recent history.
That leads to incremental subscription demand is consumed kind of identify opportunities how should we think about that.
Potentially.
What I think.
As it occurred there is one it was a strong execution.
And the inflationary time, we spent a lot of time focused on how we can drive improved rate.
<unk> have proven that out and as that rate burns through.
Burning hours in these engagements that turns into revenue.
Focus and execution across rate improvement.
<unk>.
Utilization.
Utilization rates.
And then some level of demand in our installed base for additional services, which we continue to focus on how we monetize existing investments that we have in services and make them available I think led to that performance.
Alright, great and actually one last one for Mark Carden.
Accounts receivable, so big cash outflow in the quarter, the public's greater than normal seasonal can you talk a little bit about what's happening underneath there.
Yes.
I'll tell you what I will do that in a follow up with you in our call Tonight I think.
There is nothing out of the ordinary so we'll spend a little bit of time looking at that it's possible that.
If youre looking at cash flows it could just be our investments we have a $1 billion on the balance sheet, we're investing that in safe secure investments and earn a return on that so its possible thats, what youre looking at but all of them.
Have a more detailed answer for you on our next follow up call.
Alright sounds good thank you very much.
Thank you one moment for our next question.
Okay.
And that will come from the line of Steve Enders with Citi. Your line is open.
Okay, great. Thanks, Ron Thanks for taking the question here I guess just on the on the outlook I just want to get a better sense of how youre thinking about further.
Further investments through the through the year end.
Yes, I guess in particular with the.
A little bit of the reorganization on the sales side, how youre thinking about.
Some some some changes.
Putting more dollars to work to build out the sales capacity there. Thanks.
Yes, the sales capacity has been one of the stories over the last couple of years as we talked about at analyst day is that during.
<unk>.
During the early days of Covid, we took a lot of the slack out of the system and then as demand has started to increase we re hydrated with a great deal of hiring and putting talent out in the streets and so when we started 2022 our capacity was very high what we seen is we've adjusted that.
Or stayed in an area, where the capacity going into 'twenty three is sufficient for the demand that we're expecting.
Mark talked about some of the changes within that go to market organization to help drive efficiency and effectiveness on the streets and so those are the changes that you're seeing for us our investment profile is that we feel we've made very good early investments in the <unk>.
Team and some automation in the backend and then some.
Sort of customer focused team members. So that we're in a good position going into this year without having to add.
More incremental costs beyond what our revenue growth is expected to be.
Okay got it I appreciate it.
Paul.
Yes.
Okay.
Thank you one moment for our next question.
And that will come from the line of Adam Hotchkiss with Goldman Sachs. Your line is open.
Good afternoon. Thanks for taking the questions could you guys dig a little bit deeper on some of the places that you are finding efficiencies outside of the December workforce reduction that you announced and sort of what's left to go there I think the discipline there seemed relatively broad based from what we've seen in the performance relative to the first half on fairly comparable gross margin.
<unk> is pretty noteworthy so any color there would be helpful.
Yes. Thank you I think you start with the gross margin where.
Each quarter last year, we saw an uptick to finally in the fourth quarter getting to 80% and thats been through just very.
<unk> performance in the services organization to drive a higher operating margin.
Their business from higher rates higher utilization and higher quality work as well as a better balanced and.
Thoughtful migration on the GDP in that number is still is creating a one five to two point headwind. They were still able to operate effectively so I think thats the key.
Part of the leverage.
Throughout the P&L, though we've had on all cases on all fronts. As you said it fairly broad based efficiencies and as well as cost discipline.
So in addition to just belt tightening key areas of efficiency in G&A, we've had built out the infrastructure to support our growth over the past few years and now we're moderating these investments and we feel like we're in a good place.
For example in areas of recruiting.
And in areas of automation.
And the sales and marketing organization.
As I mentioned earlier, we have better sales rep productivity in the second half of the year coming out of the year more of our sales force now based on the timing of when we hired our ramped.
Coming out of the year and then we are obviously, given a lot more product and opportunity more up sell of strategic products. So theres more of a of.
A flywheel motion with our ecosystem and with our product set.
Finally in the product and Tech organization.
<unk> been a great beneficiary of.
Things like moderating our investments improved efficiency through consolidation of vendors.
Vendors.
Offshoring some developments in building a center of excellence for our development teams driving efficiency for our engineers through better tooling and.
And consolidation of that.
Those tool so a number of places where the management teams across the company globally have done a very good job of getting focused on how to drive costs out of the business yet still be investing for the future.
And have efficiency.
Great. That's really helpful and I know this may be looking a bit forward, but what's your process like once you see accelerating demand signals for building the cost base into that growth, especially as you think about your medium term targets is that a lot more challenging given the variability in the macro and how quickly things can change.
It's interesting we've seen that now twice and I think that's one of our strengths frankly is the agility or the ability to see those demand signals are a great example is that.
We have a very strong base of partners and a very strong base of customer team and salespeople and so we're able to get coverage in the markets, where we're seeing demand if demand for example increases in our existing base, we've got plenty of coverage with our account managers with our.
Our customer success teams to be able to flood the zone, if you will or to get to that that demand opportunity.
The tough part is you as you are alluding to is when you have long lead times with sales are high.
<unk>, how do you get that capacity on board, we're able to manage that given sort of our capacity management.
Where we are today and so looking into 'twenty, three and 'twenty four Mark mentioned will be sort of.
Looking very closely at those signals so that we're prepared for it.
Really helpful. Thanks Margaret.
Thanks, Dan.
Thank you one moment for our next question.
And that will come from the line of Patrick Wall Ravens with JMP Securities. Your line is now open.
Oh, great. Thank you and first of all let me wish everyone, a happy Valentine's day, and I Hope you guys and many times, it's not quite as high.
Pardon.
Okay.
Yes.
So mark is there a shortage of accountants and and if so what are the challenges and translating that into.
Closing deals for software that should make accounts market about this.
Is there a shortage of accountants.
Yes, I think so there's a shortage of great account and sort of the shortage of all accountants.
Our market has got about 13 $5 million to $14 million accountants around the world.
That are doing some something along what we help them do and are challenged to reach the accountants has always been the same the accountants I think.
There.
<unk>.
It's a nurse.
The unwillingness to change its risk that comes from changing.
And so what we are.
Sort of always focused on and what we're great at is talking to the accountants and what we're focused on is how to turn that level of need and into opportunity Pat So thats I think.
That's obvious.
And then my follow up is that there'll be a 1 billion people are going to ask you. This later, so we might as well get it on the transcript.
You are a month and a half through the quarter.
How has it gone so far.
It's early in the quarter and it is.
Seasonal quarter for us.
It's about what we expected at this stage again, it's early in the quarter, Yes, I would say it's a continuity.
We've got a month's worth of experience just happens to be the most seasonal months of the year for us given that a lot of our clients are busy closing their annual books. So.
Just use the same kind of words.
Continuation of what we've been experiencing thus far.
Okay, great. Thanks very much.
Thank you.
Thank you and speakers I'm showing no further questions in the queue. At this time I would now like to turn the call back over to Mr. Marc Hoffman for any closing remarks.
Thank you again for your interest in Black line.
On behalf of the management team would like to thank our employees throughout the world as well as our customers and encourage you that you interact with your clients and.
In the investment world, where they need efficiencies in their finance and accounting operations to send them the black line.
Have a great day.
Thank you all for participating. This concludes today's program you may now disconnect.
The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.
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