BlackLine Inc. Q1 2023 Earnings Call

[music].

Okay.

Good day, and thank you for standing by and welcome to the Black line earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question during this session.

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I'd now like to hand, the conference over to your speakers today.

Yeah.

Good afternoon, and thank you for joining us today with me on the call are Owen Ryan injury Tucker co Chief Executive officers, a black line.

Well as Mark Partin, Chief Financial Officer.

Before 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.

In particular, our guidance for Q2 and full year 2023 are forward looking statements within the meaning of the private Securities Litigation Reform Act of 90 95.

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.

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 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 about here unless otherwise noted.

Finally, unless otherwise stated all 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 <unk> com.

Or in our form 8-K filed with the SEC today.

Now I'll turn the call over to Black lines are Chief Executive Officer.

Owen Ryan Cohen.

Thank you, Matt and good afternoon, everyone.

Thank you for joining us today.

It has been almost two months since two recent I assumed the co CEO roles at Black line.

Together, we have spent considerable time meeting with customers partners and employees around the world.

Validating the strength of our business and reviewing our strategic direction.

I want to discuss several of these key strengths that reflect our solid foundation and the excitement this creates at Blackhawk.

We are in a strong position as the industry leader.

With a large and growing market that remains underserved and underpenetrated.

Our focus on the customer has not related.

As the leader, we invest more into our customer than any other company in our market.

We value and invest in each customer success.

Surrounding our products with the services security and training that drive engagement trust and ultimately their desired outcomes.

Our competitive positioning is strong.

We do not take our leadership role lightly and we remain sufficiently paranoid as we further extend our technological advantages.

Our strategic direction affords us a unique place within the office of the CFO as we inhabit prime real estate.

And importantly, our corporate culture remains strong despite the impacts and challenges that COVID-19 presented.

This is largely a result of the hard work and efforts of our fellow black liners across the globe.

As we look to build upon these key strengths we remain laser focused in our efforts to drive relentless and maniacal focus on execution across our business.

While we will be appropriately attentive to near term execution, our perspective and focus remains on the long term with an understanding that the decisions made today are those that are expected to strengthen our business over the next few years.

That being said my focus is on these five areas first relentless execution across our business operations.

Second flatlined market message and brand.

Third ensuring our customers receive the value of the black line promise.

For building, our distribution network and fifth customer retention.

On execution Black Knight has operated at a high level and achieved significant growth in recent years.

We have expanded our position within the office of the CFO through the introduction of innovative new solutions.

And the entry into new markets and geographies.

Looking ahead, we recognize that further rigor and discipline around our processes will serve to strengthen our business and set the stage for long term profitable growth.

My second area of focus is to improve our market messaging and reinforce our brand promise.

We know that the solutions, we offer and deliver are critical to our customers.

By partnering with Black line customers can not only become better accountants that can also become better leaders strategist and stewards within their own organizations.

Okay frequently acknowledged this and in fact I remain impressed by how rabid fan base, we have at Black line.

Now, let me turn to delivering value.

The world is changing rapidly for our customers.

We have moved from a world where COVID-19 dominated the company's agenda, and then quickly pivoted to a growth at all cost mentality.

More recently customers have become increasingly focused on managing cost and margin improvement, especially with concerns of a potential recession.

The turmoil that customers have been going through demand partners, who are not just trusted, but agile and quick to provide meaningful solutions that solve tomorrow's problems today.

This is where Blackrock I must excel, even more to deliver our brand promise.

By fourth priority centers on the potential of our large distribution network and how it can be leveraged more efficiently and effectively.

Specifically, we have a tremendous opportunity to accelerate the adoption of our strategic product portfolio through both direct and partner channels and the opportunity to do so with price et cetera.

We can achieve this through a more strategic approach with our partners to elevate our positioning within the office of the CFO .

Our large globally distributed partner ecosystem is still at an early stage of maturity.

We are intent on ensuring that there was a greater sense of partnership across these channels.

We will be clearer in our messaging about what our partners can expect from us what black line expected in return.

We expect to fulfill these commitments in order to build a more robust ecosystem.

Okay.

At this point is to highlight that we have a strong renewal rates, but recognize that there are opportunities to do even better.

I want to ensure that customers coming in the front door never go out the back door.

Our customers must achieve the returns on their investment and realize the value we promise.

Over the past few years Black line has invested heavily in our customer success teams.

We have brought to bear enhanced implementation support best practices, along with robust customer and partner feedback channels in order to drive more engagement and drive adoption.

Our customers reward these investments by serving as references and rating is highly and satisfaction.

However, we can and expect to do more to raise our intensity and execution as our customer focus will only continue to grow.

This customer Centricity is something that both to recent I know is that the core of everything we do.

I have spoken about what we are seeing inside our organization and where we can do even better.

But I want to focus for a moment on what we delivered in the first quarter and the current market environment.

What we are experiencing today is quite different than it was a year ago I.

I recognize that this is not a unique view and the impacts are not specific to black line.

We are still seeing extended deal cycles as customers and prospects contending with the various challenges they presently face in their own businesses.

Some of these are specific to the industries they operate in and others are influenced by the geographies they serve.

For example, we have seen signs of strength in APAC, particularly in Japan.

Our enterprise business remains a steady performer, while the middle market remains softer with relatively subdued deal activity.

From a financial perspective, we performed slightly above our expectation in Q1 with revenue of $139 million.

Up 16%.

Operating margin of approximately 11% and.

And non-GAAP net income margin of over 18%.

At the end of the quarter, we had 49 customers that generated $1 million or more in annual recurring revenue up 23%.

I briefly spoke of Japan, but wanted to get call out. This business is notable performance over the past few quarters.

We had a record quarter from a new customer win perspective, many of which are coming through our <unk> partnership.

For example companies like Aon delight.

Archie Suto Tsi electric manufacturing and Leah company, which represent a variety of industries have all signed on a new black line customers.

Our Japan business is still relatively small, but growing very well thanks to the investments we have made in the leadership in place.

We have grown penetration to nearly 14% of the Japan based Forbes 2000 companies in a very short period of time.

And looking ahead, we see a building pipeline of opportunities that could expand our penetration into this growing market.

Yes.

In <unk>, we saw strength this quarter and our performance here led to a number of new global customers beginning their transformation journeys with black line coming from a diverse set of industries from energy to manufacturing to consumer.

This partnership remains an important part of our growth strategy and will become a greater focus of mine going forward.

Before I turn it over to Teresa to discuss her perspective, and the opportunities that <unk> allow me to briefly summarize my thoughts.

I wake up every morning energized by the people partners and customers of Black line.

It is clear to see the tremendous opportunity across our business to drive better performance through a relentless focus on execution and our customers.

Much of my time is spent on our go to market strategy from sales to customers to partners to.

To accelerate the growth at Black line and deliver on our medium term targets.

With that in mind some of the measures of success and Kpis that are the most important going forward our.

Revenue in <unk> growth.

Gross and net revenue retention rates.

Percentage of sales attributed to strategic products.

And our participation rate in influence.

International growth in penetration.

And of course, our progression against the medium term targets, we outlined last November .

With that I will turn it over to our founder and my fellow CEO Teresa to discuss her thoughts Gary.

Thank you Ellen many of you have asked why I chose to come back to Black line is a co CEO after stepping down two and a half years ago.

To put it simply it's passion.

<unk> for our customers and passion to continue building great solutions with great people.

And now as co CEO with Owen I get the channel this passion into something truly wonderful.

When I founded the company and up through my time, as CEO and now as co CEO .

Sure that every block liner notes that the customer is the reason why we exist and is central to everything we do.

We want to solve their most complicated challenges and support them as they grow.

Enabling our customers to close their books faster and more accurately frees up valuable time for them to focus on the strategic while automating the transactional.

We love the markets, we serve and help our customers build world class Finance and accounting organization. This is something that no other company does today.

The black line.

When we speak to our customers we regularly fine that the demands placed on their teams.

Pace, the tools and capabilities at their disposal.

The processes in place are in adequate to support modern accounting, while the financial systems landscape remains antiquated and help together with legacy technology and patchwork solutions. So how do you solve for that.

For one it's automation and process improvement things that black line at its core does very well, but also it's about changing the way companies think about accounting and their role within the office of the CFO .

Only more accountants of the problem doesn't necessarily solve the structural issues that have been building.

That has been tried for years, it's unsustainable and the problems in technical debt only continue to build.

For the Bureau of Labor Statistics, and the Wall Street Journal. The accountant said of all levels are leaving their jobs, primarily due to job dissatisfaction a lack of strategic work long hours and manual repetitive work there has been a 17% decline in the number of <unk>.

At companies over the past two years driven by some of these issues.

Students and young professionals are entering the county today at the pace that they were in the past in part due to a lack of interest in transactional work, but also due to the allure of finance or technology work elsewhere.

Partly because of these catalyzing trends companies are increasingly forced to pay more and aggressively compete to attract talent from a shrinking pool.

Last year for example, starting salaries increased 13% alone for entry level accountants far outpacing inflation.

So when I consider all of these factors I can't help but get excited about the opportunity we have at black line to help our customers navigate and overcome these issues.

Also solving some very complex and unique business challenges.

Okay.

And speaking of our customers.

We're fortunate just spent several days with customers in March at our beyond the Black conference in EMEA.

We saw very strong participation from customers prospects and partners all of whom are enthusiastic to learn more about how our solutions can positively impact their daily processes, and frankly make their jobs easier and more rewarding echoing many of the themes that I just.

Touched on we had a fantastic opportunity to lay out our vision of accounting automation, while introducing our new Black line accounting studio and financial reporting analytics solutions to our EMEA based audience.

The reception to the black Clenney counting studio, which incorporates our vision of comprehensive visibility into accounting operations has been very favorable we're seeing more and more early adopter customers sign up as they contemplate and map out the next steps in their transformation journey.

Any.

Pipeline momentum gives us comfort that the investments, we've made and expect to make will strengthen and differentiate our position in the market.

Financial reporting analytics is seen very strong demand and resonating, particularly well across our customer base.

And more and more customers since its launch late last year with names such as <unk> and cable one.

The sales cycle for this solution has been very quick which speaks to the value that customers are placing on it and their desire to leverage its capabilities to date.

We expect to expand the capabilities of FRE going forward and enhance its value proposition for customers.

I'd be remiss, if I didn't touch on or accounts receivable automation suite of solutions, especially given the increasing importance. The companies are placing on working capital management in a rising interest rate environment more than just applying cash we've spent considerable time developing.

And adding unique capabilities.

Leveraging the power of AI and machine learning.

So even further and provide actionable intelligence to our customers.

Our solutions provide detailed insights and analytics about their customer bases.

Allowing for proactive and improved risk management, and an enhanced ability to forecast payment activity.

This gives our customers the tools they need to make strategic decisions that can ultimately improve operational performance across their businesses.

<unk> seen success here recently with customers like higher up and Pirelli tyres in Australia, Watson gloves, and Canada, plus apparel in the U K and one of my favorites Peet's coffee in the U S.

Before I close.

I want to reiterate some of the items that Owen touched on and give you my perspective as well.

Yeah.

We will continue to put the customer at the center of what we do.

In our DNA and ingrained within the Black line culture.

Our product to platform transition is vital to our long term strategy and will be a key area of investment and focus for the organization going forward.

Accounting studios just the beginning of this and we are excited by the response so far.

I plan to spend much of my time focused on ensuring that we leverage what we have today and efficiently build what we need for tomorrow to support our strategy.

To close I'm so.

Proud and happy to be a black line working with great teams and great markets and with amazing customers.

Look forward to sharing more as we move forward and of course appreciate the hard work of our employees the fierce loyalty from our customers and partners and the trust from our investors.

With that I'll turn it over to Mark Barton to discuss the details of our financial performance and our outlook.

Thank you Teresa and good afternoon, everyone.

Black line financial performance this quarter highlights our ability to execute in an uncertain macro environment.

We delivered further margin expansion, despite elongated deal cycles and delayed purchasing decisions from customers.

As <unk> mentioned earlier, we will remain focused on driving operational execution across the business as we navigate this period and position the business for long term profitable growth.

Now, let's review financial highlights from the first quarter.

Total revenue grew to 139 billion up 16% slightly ahead of our expectation.

We anticipated that the first quarter would be our highest growth quarter. This year as services revenue growth is expected to normalize for the remainder of the year.

We'll cover this in more detail as we discuss our Q2 and fiscal year revenue guidance shortly.

Calculated billings growth of 14% versus last year remaining performance obligations or Rps was up 17% with current RPI growing 18%.

We closed the quarter with total annual recurring revenue or <unk>.

$550 million up 14%.

We added 48 net new customer in the seasonal Q1, bringing our total customer count at the end of the quarter to 4236.

Our renewal rate was 95% in the quarter net revenue retention rate was 106% as customer expansion activity reflects the macro environment.

Strategic product performance remained solid and represented 26% of sales driven by market demand for high automation solution by accounts receivable and intercompany where momentum continues to build.

Partners were involved in 66% of large deals this quarter driving both net new and expansion deals globally.

So that was a highlight again this quarter with solid bookings and revenue performance across market.

The <unk> relationship Athene success, and strategic product attach rate, particularly in intercompany.

In Q1, our SAP partnership represented 25% of total revenue.

Turning to margins non-GAAP overall gross margin was 79% with non-GAAP subscription gross margin of 82%.

In services our teams again delivered strong results led by higher than expected services utilization.

non-GAAP operating margin was 11% in the quarter driven by a combination of efficiency and productivity gains across sales and marketing and G&A.

non-GAAP net income attributable to black line with $25 1 million in Q1, representing.

Representing an 18% non-GAAP net income margin.

Our performance here was driven by strong operating income performance combined with interest income from our investment portfolio.

We generated $22 9 million in operating cash flow in $2014 3 million and free cash flow in the quarter.

For the free cash flow margin of 10%.

And finally, we ended the year with $1 $1 billion in cash cash equivalents and marketable securities of $40 us great flexibility to invest in our business through all market cycles.

Now on guidance.

We continue to expect the broader macro uncertainty will be a headwind to year over year revenue growth.

System with our expectations coming into 2023.

As such we are reiterating our full year revenue guidance, while raising our full year non-GAAP net income guidance.

For the second quarter, we expect total GAAP revenues to be in the range of $143 million to $145 million.

Representing approximately 11% to 13% growth compared to the second quarter of 2022.

We expect to report non-GAAP net income attributable to the Black line in the range of $20 million to $22 million or 27% to 29 on a per share basis.

Our share count will be approximately $74 7 million diluted weighted average shares.

And for the full year 2023, we continue to expect total GAAP revenue in the range of $586 million to $596 million.

Representing 12% to 14% growth compared to full year 2022.

On the bottom line, we expect to report non-GAAP net income attributable to Black line in the range of $92 million to $96 million or $1 23 to $1.29 on a per share basis.

Our share count will be approximately $74 6 million diluted weighted average shares.

To close Blackrock remains focused on near term execution, while delivering against our targets as we navigate this uncertain period.

Now I'll ask the operator to open the discussion to your question.

Thank you.

At this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.

Yeah.

So our first question, we have Rob Oliver with Baird go ahead with your question.

Great Hi, Thank you very much for taking my question fallen welcome and.

Nice to speak with you again in March.

So my question over to Teresa After your World Tour here in March I'd be curious to know when you mentioned in one of your comments on the road about.

And to get the message for Black line.

Away from just the accountant up to the broader.

CFO suite and obviously you guys now have.

Our platform of products to address that but I'd be curious what.

Addressing that problem in particular.

What did you hear from customers on the road.

Some of the takeaways.

How you can crushed our.

Our bridge bridge that chasm, and then I had a follow up for Mark Martin. Thank you.

And Rob Thank you and pleasure to meet you.

So I think Theres, a couple of things as <unk> been out on the road first of all the customers love how our roadmap has been laid out how we've added products to our portfolio because they are looking for us to be able to provide more of an integrated suite platform. If you will to help them achieve.

Achieve what they are looking to achieve and the fact that we're going into this with such a strong reputation already for the products that we have delivered and so I think the expectation from our customers is that we continue to deliver at the high end.

Historically done.

Certainly providing and taking advantage of the customer support team that we have built out as well as continuing to work very closely with our partners. Those are all the key things that our customers are talking to us about.

Yeah.

Great. Thanks, I appreciate it.

Mark one for you, obviously a tremendous job.

The bottom line you really laid out I think going back to the analyst day, a path for you to continue to drive improved margins youre doing not noticeably.

When you look at.

What what what you have internally to work with in terms of driving further margin improvement what are some of the areas of leverage that you still have available to you and maybe give us a sense of.

Where we might expect that to come from thank you very much.

Thanks, Rob.

You are right, we did lay out a path one of the benefits. We have is a high recurring revenue business and a high gross margin and that makes.

The levers we have inside the business greater where we've seen some of the leverage come from so far this year and through the remainder of the year the ones that we.

We see having the greatest impact is this longer term financial strategy of hiring up the capacity inside the company the sales capacity mature in that capacity, enabling them with training them and.

And focused on retaining them, that's a high productivity more ramped sales force, which gives us a greater more efficient productive salesforce. There are a number of areas inside the business that Teresa myself and <unk> and are focused on around how to get greater alignment greater discipline and those things are underway now.

We will see those in the G&A and then the product section to come more and just as importantly in the product section, we're starting to see some of the multi year investments in our initiatives in the text.

Like the DCP.

Migration.

Like in some of the products that we're bringing to market. These investments and initiatives are now starting to mature and starting to burn and we're starting to see productivity coming out of that.

Out of that group. So those are areas, we've seen so far and we will continue to work on those to get to that mid term target model, which we're very close to now and a couple of key areas like sales and marketing and R&D.

Great very helpful. Thank you Mark.

Thank you.

Okay, great for our next question.

I will bring up to us to age.

Standby. Please we have Alex Sklar with Raymond James Go ahead with your question Alex.

Great. Thank you maybe for <unk>.

Mark here on the demand environment I think you said consistent with what you. What you saw spoke to in February I know a lot of changes kind of executing the business.

When the business exiting the year can you just talk about the linearity of sales cycles bookings you saw in Q1 and into April .

Sure Yeah look we continue to see strength in that.

And the pipeline.

But the pipelines moving and Thats, a result of longer sales cycles in some of these decisions that are being pushed off so as we head into the second half of the year, which is.

Our guidance assumes a second half more loaded year in our in our demand environment.

We've seen consistent to our expectations coming out of Q4 into Q1 and into Q2 the same.

<unk> sales cycles.

Longer decision points.

Okay, Great and then Owen and three it seems like I appreciate all the color in your prepared remarks about your focus areas. I think you both highlighted customer centricity and retention I know those have always been a focus.

For Black line, but can you talk about what may have changed in this regard over the last couple of quarters. The renewal rate I think this quarter was 95%.

And what specific efforts youre working on there. Thank you.

Yeah Alex.

The renewal rate I think is also impacted a bit by the macro environment I just wanted to start with that.

Customer Centricity is something that we are always focused on and just the ability to streamline the process. The black line journey that our customers go on and make that a little more seamless and.

Give them a blueprint for what their transformation journey should look like.

Really been an area that we are.

Pretty closely focused and aligned them.

Okay, great. Thank you.

Great standby for our next question.

The next tab.

Matt Stotler with William Blair Go ahead, Matt.

Hey, everybody. This is Alex <unk> on for Matt Thanks for taking my questions.

Two from me.

So and I apologize if this has been asked earlier.

Jumping around a little bit, but regarding billings and the puts and takes there you guys previously mentioned in the fourth quarter that some deals had slipped.

Did those end up closing in the first quarter and looking ahead should we expect more slippage from any deals in the first quarter to the second in particular as it relates to SCB and maybe the regional banking stress.

Yes, it's tough to connect the dots between the banking stress and some of the decision points along the way, we've got a pretty diverse broad customer base and prospect base.

I can say im sure it didn't help but we can't see where its made a major impact the bigger issue for us.

And the demand environment continues to be delayed purchasing decisions and longer sales cycles, and we saw that in the first quarter.

Heading into the second quarter and that is consistent with what we expected.

Sort of the uncertainty that exists today in our space.

Got it makes sense and then maybe on the competitive environment.

Has there been any notable changes of late and competitive behavior.

And that you would call out as particularly interesting.

So our view of the competitive landscape really hasnt changed and is remaining fairly consistent.

I think for US we continue to focus on driving further innovation, which which Teresa highlighted and that really just continues to strengthen our market leadership.

And the reference of our customers to us for future prospects as you know where the premium provider in the marketplace. I think we have built a really good boat and I think that's something again that get wider and deeper as we continue to make the investments in the products that we have while we continue to see a little bit of pricing.

On the fringe edges of the marketplace.

We choose where we're going to compete particularly in the middle market and we win where we want to win.

So we're going to just keep doing what we need to do about building out our platform and building that long term competitive advantage.

Okay.

Got it awesome, thanks for that I'll pass it on.

Thank you for your great.

We'll go on to our next question.

Next we have.

Brent to Breslin with Piper Sandler go ahead with your question Brian .

Thank you good afternoon Teresa great to hear your voice again.

I wanted to start with you just given.

Automation has been kind of core to black line from day, one and now we're kind of entering a new era, where there is this gen AI optionality out there and we're all trying to assess what it means so I guess for me on one hand, it seems like accounting complexity is a natural edge.

For you to apply Gen AI, but as we all know.

Accounts are risk averse and you've tried to automate accounting for the better part of the last 20 years. So walk me through your view given your expertise.

What role Jenny I could have in the accounting landscape.

Well I Love your question.

We've always been an accounting automation company and we do focus on making processes more efficient more accurate and we really want to enable account to be more strategic we've already been using AI and machine learning and our HR suite. Okay. We go beyond just supply.

Cash and we deliver intelligence and analytics.

Theres a number of other areas, where we are exploring where AI could make sense to improve our operations for customers.

To your point. However, it is an area where accountants are conservative you mean, you need to make sure that any application of AI is something that is within the framework of what is acceptable in terms of risk right.

<unk> got it you've got to make sure that it is explainable that it's useful and then it minimizes risk as opposed to increasing risk. So as we do when any new technologies come out we explore them, we learn about them and we figure out how they can best be applied to the field of finance and accounting.

Super Helpful. Color, then just one quick follow up for Mark if I could it looks like.

Net retention.

It did downtick a little bit I was wondering if you could talk about.

Any sort of change in gross it was gross.

Churn consistent in and most of the downtick in <unk> is just a reduction in seat expansion any color on the trend there would be super helpful. Thanks.

Yes, Thanks, Brian look I think you asked and answered that too you've got it right the user growth expansion.

Within the account was one of the lower quarters, we've had and we feel thats a function of the demand environment inside our customer base. For example, we saw good progress on the strategic product upsell motion. So the willingness for customers to look at the automation products and expand what's there but the glow.

<unk> Rollouts and further user expansion certainly was a setback for us on the DB MLR in Q1, the renewal rate of 95% is within range as we've seen over the last three to five years, it's on the lower end of the range.

And then it goes between 95 and 98% so for US as Teresa mentioned likely a function of the macro and we would expect that to start to come back up.

In the future quarters, Nevertheless, DBM IRR downtick again in Q1 was mostly a result of.

The macro demand inside our customer base.

That's helpful color. Thank you.

Thank you. Thank you.

Great. We'll now go to our next question.

We're going to bring a pendulum fora with J P. Morgan pendulum go ahead.

Hey, Thank you for taking the question.

Two quick ones here.

I wanted to ask you if you are.

As we think about the strategy for this year I think the initial plan was kind of delivering on strategic product I believe there was a new quarter.

Sales guys as well has there been any kind of a tweak on the sales compensation side.

At this point.

As you look into the year.

So youre right just to reiterate that for.

For your question this that when when we entered the year, we allocated strategic products quota to our sales reps we've got.

A lot of pipeline and demand and interest coming from our customer base and wanted to follow that through to the end line and so at this stage.

Sales reps are continuing with that strategic products quota and expected to it for the remainder of the year.

Yes.

Got it understood okay.

One question for you great to see the EPS guidance come up.

Since the interest income number has been a.

A little bit ahead of consensus I wanted to ask you. What are you can be in for I should say interest income net interest income.

Underlying the guidance that you put out.

Yes.

You are right, we have been earning interest income, which is part of the beat on the non-GAAP net income line.

Between $8 million to $9 million per quarter, and we have in our guidance assumed that would continue through the remainder of the year.

Got it thank you very much.

Yeah.

Okay great.

Our next question here.

Next we have Daniel Jester with BMO capital markets go ahead with your question.

Hi, This is Kyle <unk> on for Dan Jester. Thanks for taking my question could you dig a bit more into your regional go to market strategy strategy a bit more any color on the strategy head count growth a partnership growth would be helpful. Thank you.

As you can imagine that SAP is one of our most important relationships and this is one of the areas that not only recent myself marketing leadership team are focused on but we are trying to drive that message throughout.

The organization, we certainly have had.

Good progress across North America.

We highlighted a little bit what's been happening in Japan, but we also have work to do.

Across the rest of the globe and the key thing is for us to continue to build those relationships in the local markets and that's what we're intending to do along with our partners and I think that we're going to be in a really great great shape too.

Further expand and drive that relationship with SAP in particular because of.

How our products work, well with theirs and and the symbiotic nature of that relationship.

Great. Thank you.

Thank you.

Okay great.

Next question will come up.

Okay.

Next we have.

Koji Ikeda I apologize, if I mispronounced with Bofa securities.

No you got it you good thank you.

Welcome back <unk>.

And Martin pleasure.

Pleasure as always.

Wanted to go back to a prior question and dig in a little bit more on the generative AI front and.

Every day, there seems like there is news and debates out there on the implications in the back office. So.

And maybe more directed to you to trees. How do you think about Gen AI and the office of the CFO and more specifically on over the long term do you think it's a tam expander or shrink or and maybe why or why not.

Oh, that's a really good question Koji Okay sure.

Here's the thing about AI whenever you don't have visibility into how a decision has arrived at you.

You have potential risk.

Okay. So, let's say the ear finance and accounting organization and you use AI and it tells you to make a business decision and you make that business decision and it's wrong.

Who's responsible whose fault is it okay. So there has to be some theory when you utilize a tool like AI and an area, where you need precision like accounting and finance you have to have a pretty good understanding.

Yes.

Where those decisions are coming from who's buying into them and what happens if they're wrong.

So even though AI is making some really good strides forward. There is still a governance aspect around AI that is still very immature and there is actually it's super interesting. There is actually some firms out there that are starting to try to put governance around AI.

Which will make it much more interesting to the field of finance and accounting over the next coming months and years now.

To your second question about whether or not that is a tam increase or decrease.

Don't know that its either and curious why if you think about black line being an accounting automation company.

You could you could say the same question there are we.

We automate things so does that mean less accountants or more and typically the way our customers have utilized this is to redeploy accountants to do things that are more street treats more strategic and more value added to the business I think it's very similar with the application of AI.

Got it no. Thank you curious for that that's a really good answer.

And maybe just a follow up for mark or Owen.

Looking at the guidance.

It was pointed out earlier that the net income.

Significantly raised this year and just thinking about the dialing back of the investments and operations to achieve that.

My question is more so how do you think of the ability to pivot back when demand comes back stronger if demand comes back stronger than anticipated because it seems intuitively, it's much easier to slow.

Investments, but it takes time for those investments to really bear fruit. So how do you think about that pivot back to demand.

Great. Thanks Koji. This is this is mark.

2023.

I guess Fortunately for US is on the back end of a number of major investment initiatives that we've made over the last three years. So we're sort of hitting the backend of getting the benefit out of these early cost investments that we've made and let me give you. Some examples we made two acquisitions, both intentionally dilutive to bring them onto our <unk>.

Platform in the last three years, we've invested in a DCP migration, which had a headwind for a number of years and that's a key partnership which had a near term headwind for a long term payoff and then finally, we increased our sales capacity and the demand environment with the intention to get the higher ramp higher.

Trained and tenured reps, which as of Q1 is the highest capacity we've ever had in the marketplace. Today in this environment. So when you think about that I wouldn't I wouldn't.

Say that out that we're pulling back I would say what we're doing is we're very targeted in the level of investment we're making in the demand environment.

We are continuing to invest in the R&D for that roadmap and to push that advantage. We're just happen to be doing it at a slower pace in some places or optimizing it in India and other places to building bandwidth at a higher efficiency. So as we go into the second half of this year and into next year.

We look for the demand signals, we have got good ramp time to be in a position to capture the demand as it comes back.

Got it thanks, guys. Thank you so much for taking my questions.

Okay, we have a couple of more questions.

Standby.

Next we have Adam Hotchkiss with Goldman Sachs go ahead with your question.

Great. Thanks for taking my questions you mentioned beyond the black EMEA would be great to get a little more color on your broader customer conversations there have the pinpoint to hear about it at existing solutions changed at all now that companies are needing to preserve cash flow rather than the growth at all costs mentality and then how do you and your.

<unk> evolve your messaging around that and get folks over the finish line to combat this lower volume environment.

In our market Adam I don't know that accountants have ever spent to have growth at all cost okay.

No.

Pushback, a little bit on that our buyers have always been pretty conservative.

Round the offerings and they do a lot of vetting to make sure that they make sense. The multiple products is actually something that we.

I've seen a great.

Receptivity to we've spent many years building up our brand.

And by doing a great job for our customers we've ended up.

Having permission to bring them other markets are there other products in the market.

Yes.

Mike.

Sorry, I was just going to add I think my experience with our customers.

I just would echo with reset I mean, they really do depreciate the build out of our platform. They understand the commitment. They know the level of investment that we've made in product and technology. They know the level of investment we've made in customer support they understand how careful we guard their information by building our own protections around cyber for them and so I think it was all very positive.

I remember sitting with Teresa.

In London, I said, Yeah, you talked to account just like the shoemakers kids right they'll help spend money everywhere else, but they'll spend it in their own organization last and so thats fiscal prudence with that part of an organization is very real that we overcome.

Great. That's really helpful. Thanks, and then we noticed the partner influenced deals step down this quarter from a percentage basis anything to call out on that front.

No not necessarily like we we're always careful to talk about this in a range that theres not a specific success benchmark because if you if you know.

Many of our customers have the resources internally to do digital transformation they've made the choice to one that is core to have the consultancy and the teams and the transformation teams inside so so not having a partner on those engagement isn't a sign of success or not so we look for.

60% to 80% and have range very much close to 70%.

And I think that's more indicative of the market versus whether or not we've partnered successfully at the high end of the customer base.

Great really helpful. Thanks, so much.

Thank you.

Okay, Great we have one more question.

And next question is coming from Matthew then, but with BT AIG.

Go ahead with your question.

Alright, great. Thank you for taking my question and welcome back row and welcome to the side.

Of the business as well.

I guess when Youre looking at how the macro is impacting the overall demand environment curious if youre seeing any kind of a mix shift across your own platform of what customers are maybe willing or wanting to buy upfront and what maybe they are putting off.

Are things like the cash application to get a little bit more visibility, maybe a little more timely than than a broader intercompany deployment or things of that nature any any additional color around what customers are really fixated on today would be very helpful.

Yes. Thanks. This is mark I'll answer. This question I think in terms of the number of deals in the pipeline and the conversations we had.

Dating back even to our North American BTB event in November and then some of the uptake that we've seen in some of the new products, but we hadn't really from a from not just a unit volume, but also a dollar volume really good success in these strategic product portfolio, which are high automation right.

It's a high ROI, it's provable ROI and a lot of cases, you have the CFO involved in the in the buying decision and these really resonate when youre talking about.

<unk> like.

Intercompany or like transaction matching or even.

Which solves really big problems in this type of environment. So we've seen good success on uptake there.

In the macro the macro is really.

At both happens right at the mid market in EMEA, we see the impact, but also large digital transformation global rollouts commitment to multiyear projects. These things have also become part of the sort of macro headwind.

They're there, but they're just taking the extra time.

And then maybe a quick follow up on the second part of your answer there.

The <unk> partnership.

How tight do those additional deals for black line being added there.

Sort of rely on maybe a broader ERP modernization or other big projects that go through the SAP ecosystem.

Or do you come in as maybe a follow up sale or even maybe a pre sales for something like that so.

Or are you to the demand environment around those bigger projects.

I don't know that we are tied to in terms of sequencing we have customers that are.

Start before they do a large.

ERP upgrade they will bring black line and to help with that process. Okay. So we see many of those situations, where getting everything into a single centralized location being able to manage the change over a period of years.

That's actually a really strong set of skills that we bring to that table. However.

We have seen others, where if it's a.

Post ERP implementation. They may have already started that they've got to get it done before they can focus the resources. So black line could be a post add on but generally we're not really tied to the ERP demand environment. In fact in some cases, we've seen where the ERP upgrade is.

Put up but they continue with their black line, because they know theyre going to get some short term value out of it that could take years on some other project.

Alright, great. Thank you for taking my questions.

Thank you. Thank you.

At this time I will turn it back over to Owen Ryan for some closing comments.

Thank you <unk>, Mark and I want to thank you for your time today, we greatly appreciate our chance to speak with you. We look forward to talking again very soon and have a great day, everyone take care.

Thank you all for your participation in today's conference. This does conclude the program and you may now disconnect.

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