Q2 2023 BlackLine Inc Earnings Call
Good day, and thank you for standing by.
Welcome to the queue to 2023 Black line earnings Conference call. At this time, all participants are in a listen only mode. After.
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Please be advised that today's conference is being recorded.
Now like the hand, the conference over to your Speaker today, Mad Humphreys, Vice President Vice President of Investor Relations. Please go ahead.
Good afternoon. Thank you for joining us today with me on the caller Owen Ryan and Theresa Tucker co Chief Executive officers of Lifeline, as well as more cart and Chief Financial Officer before we get started I would like to note that certain statements made during the conference call that are not historical facts, including those regarding the future plan objectives and expected.
Performance in particular are guidance for Q3, and four year 2023, or four looking statements within the meaning of the private securities litigation format of 1995.
Forward looking statements represent around with only as of the Beatles call.
While we believe any forward looking statements made during the call are reasonable actual results could differ materially of your statements are based on current expectations as of today and are subject to risks and uncertainties, including.
Including those seated in a periodic report filed with the Securities and Exchange Commission.
In particular Form 10-K inForm 10-Q.
Do not undertaken expressly disclaim any obligation to update or author or forward looking statements.
As a result of new information future events or otherwise, except as required by have to pull up.
Comparisons, we make them call today relate to the corresponding period of last year unless otherwise noted.
Finally, unless otherwise stated our financial measures, which was gonna call <unk> <unk>.
<unk> measures and information regarding reconciliation of our historical gap versus non-GAAP results is currently available in our earnings release.
Which may be found on our Investor Relations website, an investor stuff online dot com.
For me to file will be assist you today.
Now I'll turn the call over to Black line coaches Executive Officer O'brien Owen.
Thank you, Matt and good afternoon.
Thank you for joining us today.
With a solid quarter for black line.
Even at the market environment for enterprise software remains uncertain.
We were able to exceed our revenue in non-GAAP net income targets this quarter and.
I took some key steps as we look to strengthen and expand our market leadership and competitive positioning.
Specifically, we deliver total revenue of $145 million.
non-GAAP net income of $31 million.
Approximately 70% of sales disorder came from existing customers underscoring our commitment to expand and go deeper with our customer base.
As part of this the number of customers with 1 million or more in annual recurring revenue increased to 53 this quarter up 23%.
If you recall there are five key area diet focused on in my role.
These are one relentless execution across our business operations too.
Black market message and brand.
Three.
Customers received the value of the Black line promise.
Sure.
Building and optimizing our distribution network and five customer retention.
Given these I will walk through each area and provide some insights on how we are addressing each driving even higher operating efficiency going forward.
An execution, we delivered against our revenue in non-GAAP net income targets this quarter despite market uncertainty.
Living up to these promises is of great importance.
There is more work to be done to generate even more consistent effective and efficient execution across black one.
Specifically, we are thoroughly analyzing and refining the structure of our organization to ensure we have the right people and the right roles and working to ensure that accountability and ownership of lines are strategic goals.
For example, we recently moved our business development teams from marketing to sales.
This change as important as the <unk>.
Generation and the seamless creation of quality pipeline is vital to our continued success.
By integrating our business development teams into sales and more importantly, under the same leadership, we can assure that alignment in ownership drive our desired outcomes, while avoiding inefficient activities.
Additionally, we are beginning to leverage our teeth industry expertise in transition from an industry nasty go to market model to a more industry equipped approach.
With a long history and a strong presence in key sectors like manufacturing retail and financial services, we believe that the combination of domain expertise in accounting and finance automation.
Along with industry experience can accelerate our growth and provide our customers with additional value.
Is the Premier brand and clear leader in finance and accounting automation for the office of the CFO .
Having a consistent market message and brand promise is critical.
Actively working to better align our global messaging to speak to our customers and one voice.
This quarter, we hosted numerous events across the world, including are beyond the black event in Australia and numerous local events.
And it has become clear that our customers challenges and priorities are very similar across markets.
By optimizing at a lining our message globally, we will speak to the customer with one voice and make it easier for them to understand the value of Black line delivers.
This has the added benefit of creating a better customer experience and in turn makes it easier and more efficient to do business with black line.
The black one I promise, we offer to customer hold a men's value and we expect to deliver even greater time to value, while extending our market leadership and competitive positioning.
As part of these efforts, we announced a new five implementation program, specifically tailored for Midmarket customers.
This program is designed to be the starting point of our customers longterm journey with Black line.
It allows customers to accelerate their time to value by leveraging our core financial closed solutions.
Such as account reconciliations.
Management and transaction matching.
We already have a number of customers that have successfully completed the five day implementation program.
Some even did so right before they moved into a monthly or quarter and clothes.
Innovative offerings like this are important to our customers is implementation challenges are one of the top drivers of customer dissatisfaction, which can ultimately lead to churn of nutrition.
And how come we are driven to eliminate.
Moving to distribution, we see opportunity and reshaping and optimizing our global partner network to deliver more consistent performance and further profitable growth.
We are working to drive greater accountability and alignment are crossed our partners.
Clearly defining what we expect from them and what they can expect from black line in return.
Importantly, we are accelerating the transition of partners from enablement to commercialization.
As part of these efforts, we recently entered into a reseller agreement with a blue chip global consulting firm and current partner.
This partnership holds great potential for both parties.
It provides an appropriate framework for new customer acquisition and expansion the across cell and up sell of our strategic product portfolio to our existing customers.
As you're aware it is all about the customer Black line, we take great pride in how we enable our customers and support them as they grow.
We only succeed if they succeed.
What are the key metrics, we use tractors is renewal race.
While they are very strong relative to our broader software parakou, we're not satisfied with current levels.
As such we plan to place a more disciplined focus on our existing customers.
For example, we are moving quickly to standardise, our processes internally, removing friction and realigning resources to deliver a seamless customer experience from sales to onboarding to implementation and through renewal.
We plan to introduce new engagement programs that are prioritize digital transformation for customers.
Leveraging best practices backed by years of Blackburn customer data. These programs are designed to accelerate our customer success in time to value.
And his new customers come to Black line, we expect to co create customer blueprints to drive digital transformation in their business.
Along with milestones in touch points to ensure adoption and satisfaction remains high.
Despite market uncertainty, we are seeing greater customer wins and competitive takeaways across both the enterprise and the middle market.
At the enterprise level.
Kind of competitive expansion deal with a leading software and workflow company.
Who also has an existing partnerships with one of our direct enterprise competitors.
Despite this the customer recognize their existing set of homegrown solutions and what their partner offered were not sufficient to support the growth they envision.
Further they recognize that the ability to seamlessly leveraged key data from the E. R. P. Two black line via connectors was vital to deliver the level of automation they demanded.
We also signed a leading financial services technology and payments company and a direct compete with a known consolidation provider.
The customer recognize the power of accounting automation and the benefits that can accrue from removing inefficient and manual work.
Further expected R y.
Time to value and focus on governance and security resonated strongly and we believe far exceeds anything else in the market.
Additionally, we signed a number of intercompany deals this quarter with customers like shift for a leading integrated payment provider.
And N O V a provider of equipment technology and services to the global energy industry.
We also signed our largest middle market deal on record driven by the need for modern innovative solutions for complex intercompany processes.
Finally, so let's deal activity remained helping this quarter with a number of new customer wins globally.
For example companies like restaurant Holdings in Japan, and Anglo American in Europe are just beginning their blackline journey.
We remain excited about the long term opportunity with S. A P and our senior leadership team will drive the broadening deepening of this partnership.
With that I will turn it over to our founder and my fellow CEO Theresa to discuss her thoughts Theresa.
Thank you Owen.
Now I've recently.
Technology officer wrong on an interim basis.
I'm not sure given my past experience sounding black line and building up our product and technology.
So let's talk about what I see is the opportunity is selling for rain and where we can build upon our strength.
First and foremost the talent, we have any organization is truly incredible.
Everyday in the product.
Customers with a line.
But I see that the structure, we have in place today would likely not the one most appropriate to support our crowd going forward, we need to be able to move even faster with my journey.
Delivering innovation as we go out we moving south created barriers and in magenta plan and efficiency inside our product and technology.
It is crucial two hours the task.
That I am.
Yeah.
Speaking of account with a more and more consumption across our product.
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44% increase.
Payment value.
$112 billion.
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Back when you have more than 2 million a P. I calls alone this quarter.
19%.
Wyoming.
For a company.
We need to ensure that the info.
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Well no early we are in the market for a new Chief information officer, who can really focused on infrastructure.
While I insurance focused on our product and platform roadmap.
Now, let's try the product.
For a moment.
We recently just the latest expansion of the financial reporting analytic solution.
Do you recall.
We were able to provide customers with a real time income statements and balance sheet based off of their accounting data.
This is resonating well with our customers and is expected.
Asking for even more.
This is in a cast for a statement.
They'll be asked quickly can take your advice several customers allows realtime disability, which real down capabilities across all three interconnected financial statement.
Our customers a complete picture uhm, where their business is at any given period of time and a consolidated view with comparisons to other period budget numbers and.
Consolidation symptom.
This level of real time analysis.
Dash oriented consolidation symptom.
The ZIP code the lobby based on the market and our roadmap for additional email date of new cases, and enhanced <unk> Bye bye.
Yeah, I'd like to discuss generative a eye for a moment and what that means for black line, our customers and our market.
E exciting opportunity to add value to our existing financial close strategic product.
<unk>.
Part of our effort, we continue to uncover interesting.
Cases that have the potential to drive further assistance while.
While minimising risks for our customers.
Our customer department that can bear.
Interested in our approach.
<unk> I'll go forward application given the inherent challenge is related to the governance and security.
Delivering value on the finance, while increasing risks on the back end, it's not about the pay per month term fix that.
And we're here to win the game.
Shortly we believe black line plan permission combined with our commitment and governance and security surrounding sensitive customer data should be a key differentiator in our Martin.
I expect that you will hear and see more per month.
Coming beyond the Black user conference in September So I hope that you can plan.
Turning to our strategic product portfolio, we are delivering unique and differentiated innovation into these large and underpenetrated market in inner company. For example, we recently released multiple Nancy including company intelligence using the a four mention a I.
K P map and Ian voicing support for a non trade mantra.
In the coming months, we also plan to introduce <unk> in your company.
This new <unk> is designed to solve complex challenges the customer that upgrade an industry dominated by inventory and physical bread.
The lack of cables modern automation <unk> only reinforces our view on the large instead of opportunities for in our company.
And finally in accounts receivable automation, we're working on customer driven and innovation.
Hance, our <unk> our management Martha.
And the innovative solutions to be offered.
Importantly, our own account finance documentation.
<unk>, a number of our own accounts receivable person and we named spot.
Channels customer driven innovation.
Okay.
We are.
Better articulate and deliver the value the customers can achieve by partnering with Black line, whether it's taking the first steps in modernizing their finance and accounting operations or moving forward with digital transformation customers can be confident knowing that they have a.
The guide them on this journey.
With that I'll turn it over to Mark curtains to discuss the details of our financial performance.
<unk>.
Thank you <unk>.
Slash financial performance this quarter highlights our ability to balance growth and profitability in an uncertain market.
That's all I wanted to reach mentioned previously.
This remains on driving a higher level of operational efficiency in order to strengthen our position and drive to sustainable level of long-term profitable growth.
Mind, Let's review our financial highlights from the second quarter in more detail.
Total revenue grew to 145 million.
13%.
Expectations.
Calculate billions growth.
Seven per cent this quarter due to a combination of lower services growth combined with lower net new customer bookings.
Remaining performance obligation or R. P. O was up 14% with current R. P O growing 16 per cent.
We closed the quarter with total annual recurring revenue or a R. R.
$556 million.
Two per cent.
We added 43 net new customers in the quarter, bringing our total customer account at the end of the quarter to 4200.
79.
Our revenue renewal right with <unk> with the prior quarter at 95%.
And a small number of enterprise customers impacting a renewal rate period.
Net revenue retention remained stable at 106 per cent as we continue to experience a lower velocity.
Number expansion activity due to <unk> macro uncertainty.
Strategic chronic performance represented 20 per cent of sales.
Partners were involved in 80 per cent of large deals this quarter driving both net new.
<unk> deals globally.
We continue to enable train and drive higher level a partner activity.
Select performance in the second quarter remains solid wood.
Several new deals closing the crossword global market.
Q2 R. S. A P partnership represented 25 per cent of total revenue to dispute with the previous quarter.
Turning to Martin.
<unk> gross margin with 79% with non-GAAP subscription gross margin of 82 per cent.
Line with our expectations.
non-GAAP operating margin was 13% a quarter driven by consistent operating discipline across sales and marketing and G&A.
non-GAAP net income attributable to Black line was $30.7 million, representing a 21% non-GAAP net income margin.
Are operating income outperformance.
Bind with interest income from our healthy cash position.
[noise] result on the bottom line.
Regenerated 24.6 million in operating cash flow and $18 million in free cash flow in the corner with a <unk> with a free cash flow margin of 12%.
Finally, we ended the quarter with $1.1 billion in cash cash equivalent and marketable securities provides considerable financial flexibility to execute across our strategic priority.
A valuating opportunistic M&A and ultimately manage our capital structure.
Most notably are 2024 notes coming due next August .
No. The 2024 notes become current this month.
As we entered 2023, we expected.
A slight improvement in market demand in the back half of the year.
However, as we close out the second quarter and based on current trends, we now see a slightly flatter demand profile for the back half of the year.
As such we are taking the high end of our previous range off the table and adjusting our full year revenue expectations to reflect this.
Positively we are seeing continued margin strength and will again be raising our full year non-GAAP net income guidance.
For the third quarter, we expect total gap revenue to be in the range of $149 million to $151 million.
Representing approximately 11 to 30 per cent growth compared to the third quarter of 2022.
We expect to report non-GAAP net income attributable to Black line in the range of $24 million to $26 million or 32 to 35 cents on a per share basis.
Account is expected to be approximately 74.5 million diluted weighted average shares.
And for the full year 2023.
<unk> total gap revenue to be in the range of 586, two $591 million.
Representing 12 to 13 per cent growth compared to pull your 22.
On the bottom line, we are again, raising our guidance for non-GAAP net income attributable to black line to $108 million to $112 million or $1.45 to $1.51 cents on a per share basis.
To your account is expected to be approximately 74.4 million diluted weighted average chairs.
<unk> do you expect to drive further operating efficiency across our business as we navigate your term period.
Part of this we will ensure that we have the appropriate level of capacity to match market demand.
No longterm growth objectives.
I will now ask the operator to open the discussion to take your questions.
Thank you we will know conduct a question and answer session. As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again, please stand by while we compile the Q&A roster.
Our first question comes from the line of Rob Oliver a bird. Please proceed with your question.
Great. Good afternoon folks I have two questions Oh, and one for you and that I had a follow up for Mark.
You mentioned in your prepared remarks around what essentially sounded like a move towards vertical sales, which sounds exciting because you know in some of the vertical. So you guys have mentioned you have some really big fish with some great reference customers would be curious to know does this involve a sales Rio Rick where are we right now in that process and when should we begin to see <unk>.
<unk> took that effort.
Sure. Thanks Robin good to hear from you. So I think one of the things that's become very apparent is Teresa leadership team of digging into our business is the strength that we have in all the industry verticals and you can start that for example, broadly, let's say financial services, where we have a tremendous.
Clientele, and then you can drill down further and you could take that into the insurance industry. And then you can take that down to life insurance or property and casualty, our agents and brokers and what I find remarkable is that we have so much depth of knowledge in the organization from those experiences with those customers. So when our customers are speaking with a as they taught broadly about our.
Domain expertise.
As as we engage with them, but then the ability to go would have really meaty conversations with them in their in their unique issues Uhm I think it's something that is quite a differentiator for us. So we're just in the early stages of of of of starting that we're working very closely with all parts of our organization to make sure we're aligned to go to.
Market to to attract that but there'll be more to come but that's.
Directly where we are heading.
Mmm.
Okay, Great I appreciate that and then Mark one for you.
You closed your remarks by talking about you know the operating leverage obviously the results. So far really speak for themselves you guys enter D or I think it was shady 90, 94 and your chicken out.
Two per cent or so roughly above that number right now. So I guess can you just help US understand you you were fairly clearly on that there was some low hanging fruit you know in terms of infrastructure costs and others.
Should we feel about the continued opportunities to find leverage in the business, particularly relative to some of the branding marketing and sales initiatives that may cause some money. Thank you.
Yeah. Thanks for what can I think from the comments from Theresa Owen earlier.
You can see the intensity for which they're focused and we all are on.
Driving productivity driving operating leverage on efficiency, most of which is sustainable in our business model. One of the areas is over the last several years like a lot of companies keep an eye on.
Going ahead of the curve, particularly we've talked about this scenario sales capacity and then they go to market unit. So as we meet the level of demand. It means we're hiring lasted in the current environment and that you know as we move forward and weaves began again at some point to see the the demand environment start to increase.
There'll be areas that we'll rehydrate, but for the most part we're finding operating leverage across the business sales and marketing product in tech and in the G. N a side of this.
Been working very hard to help deliver that so we're really very proud.
To be able to deliver these kinds of efficiencies and result, given all of the other growth initiatives and things that were currently focused on.
Great. Thanks, Mark Thanks, guys.
Very much.
Thank you.
Thank you please stand by for our next question.
Our next question comes from the line of Alex Sklar of Raymond James. Please proceed with your questions.
Great. Thank you I'm <unk> I have a two part question for mortgage Theresa strategic products I guess first Mark I wanted to ask you about how the quota attainment for strategic products basket trending I know you you put it in that specific level for your sales force and if you've made any changes bear and then.
Second <unk> I appreciate all the prepared remarks comments on the F. R a tracking.
And is it pretty consolidation solution can you just elaborate a little bit more on whether that opens up any ancillary areas for black line to expand into thank you.
Yeah, I'll I'll start as you know we did put a sales quota for strategic products on the sales team and now along with everyone else in the company.
Got a skin in the game to deliver a strategic products to the base and so at this point in the year, we have not made changes to any of the quotas around us which is sort of reinforcing hour drive to sell into the base strategic products, which we know <unk>.
Very valuable opportunity for our customers to in this digital transformation age and this sort of margin enhancement H for them could be of great value. So we're all still at the moment are very focused on strategic products.
Alex Thanks for asking about S. Alright, you know, it's a great example of customer driven innovation and our customers have been asking for this type of solution for quite a while and we have delivered a very rich product and we think it delivers some real value to them we and.
See here, you're exactly right and where you're going we do think that the F. R. A solution is a bigger platform. Then we may have initially thought.
And it's got some very interesting use cases for our customers, particularly in the mid market, where they have less tools and less automation to really help them with some of their you know clothes and period N processes and reporting so there will be more to follow up on this at the on the black.
And as much as I would love to take about an hour to tell you more I know that Mark and Owen when shut me down.
[laughter] alright, that's that's a great color and look forward to hearing more about it next month then one follow up for you Owen on the five day implementation program. It seems like a really great natural extension for what you were already doing with math.
Can you just help frame, though what percent of kind of the main market target customers. If you think that expedited implementation can make sense for and then if partners are gonna be enabled to sell this. Thank you yeah, well. So let me start and then I'm also gonna ask Teresa way, because she's been a little bit closer to all parts of the five day implementation I think what we've seen so far is.
As we've been talking with customers with our partners with prospects. That's the idea of being able to do something as quickly as important I don't know what the percentage will be but it's probably higher than we might have originally estimated we certainly would like to see others be enabled where it's appropriate and so we're trying to work through that right now.
Theresa I said, it's been a lot closer to all the day to day pieces of this so do you want to pick up from the absolutely. So first off just to be clear.
Implementing black line can be very straightforward like this five day or it can be more involved depending on the type of products at someone purchases or the size and reach of the customer. So <unk> for example, and intercompany implementation across 50 different global entities is going to be very different than you.
Account rack spread small mid market company. So the five day implementation is specific right now <unk> mid market companies that are coming through our map process alright, and the idea with this it's very interesting because we come on site alright, we've already gotten a.
Files from our customers and we have enabled the instances and we basically work through all the things that you know if they're busy with other things then they could take months to actually happen.
We end up not only getting them up and running in fact in one instance, we did it in four days Alright, we also get them trained and.
So after that comes hyper care to get them through their first couple of closes but it really it just sets the standard for immediate value going to the customer.
And it increases their appetite to do more it gets some very early success and they go. Okay. This works what else can we do with Black line. So the other thing that I like about this Alex is that it really helps us build relationships with our customers. Okay. When you are face to face in the car.
Conference room with them for eight hours a day five days straight you get to know them.
And again, we like having good relationships with our customers. So we're very pleased with how that initiatives going and I do think to Owens point, I think it's going to expand far bigger than what we initially thought.
Alright, great. Thank you both for the color of their.
Thank you.
One moment for our next question.
Our next question comes from the line of speed and there is a city. Please proceed with your question.
Okay, great. Thanks for thanks for taking my question here.
Maybe to start I just want to ask on what is exactly change in the macro situation.
To the the lowered outlook here are things changing on pipeline.
Pipeline development sales cycles or anything any kind of mid market enterprise I guess, what is exactly different today than than maybe you got into getting to you before.
Yeah like I I don't know that I would sit here and say that the macro has changed tremendously from where we were that I think that you know, we're still sitting there watching our customers and prospects think about how they prioritize their spend how decision making is happening. There certainly are a few more people around the table now weighing in.
The conversation. So every time, you add a little bit more to that it takes just a little bit longer so what I look at the top of the final will look at the top of the final together as a leadership team, we still feel pretty good about those things that are that are coming in but again like everything else. That's how you get them through the funnel and how quickly that takes place in so.
Only seeing C. F. O is more involved in the process. The C I O or involved in the process and so we're continuing to work our way.
Through that with them I think in some ways, while it it doesn't feel great that it's taking a little bit longer today. The positive from a black light perspective is the more time, our prospects and customers spend with us I think the better they feel about the value proposition that black like and bring to them and so it's a little bit of a timing issue for us we're working our way through it but I.
Don't think that I would sit here and say anything has changed that dramatically on the macro I do think we were hoping by the third quarter of this year that I would've cleared up a little bit that quite hasn't happened yet as as as you all know.
Okay Nope, that's that's helpful contacts there.
<unk>, maybe switching gears a little bit just on the management changes that happen again this past quarter.
I guess what kind of.
Air on higher looking <unk> those areas.
Is there any kind of changing the strategy going forward now for for both of those another you've highlighted some changes already but I guess any any kind of further changing the strategy that we should be thinking about here as well.
Yeah, that's a really good question and let me start with I think as we've talked as a leadership team one of the hardest things to do in business is to fix something that isn't broken but you know that it's not good enough to get you where to where you want to go and so we are very very busy disrupting ourselves right now.
And it's taking a great deal of our our time and energy and passion to drive the execution on that vision, but that's what we are that's what we are committed to we will be sharing more about some of the strategic choices that were making around beyond the black, but I think one of the things that the leadership team will all feels good about we've been very clear about.
The choices, we Wanna make around all aspects of our strategy, whether it's partners product customer segmentation things of that nature geographic footprint in so we're going to be very clear and relentless in how we execute as we move forward, but I think there's a lot of optimism in the organization about what we're trying to do.
Alright, perfect. Thanks for taking my question.
Thank you one moment for our next question.
Our next question.
<unk> comes from the line of Java Bureau of J P. Morgan. Please proceed with your question.
Oh, great Hey, Thanks for taking the questions I wanted to go back to the macro point and ask you. If there's any difference that you're seeing.
The different segments between mid market.
Kind of improve or seems like it's.
Might've been kind of famous last quarter.
Yeah, I wouldn't say that it's it's changed dramatically quarter over quarter at a high level I would say the theme see all pretty similar as I said, you know deals or taken a little bit longer there's more approvals required more scrutiny from our buyers.
But I think if you were looking at the mid market, our enterprise I'm not sure that I would sit there and say it's it's it's that different certainly we still see parts of the world that are lagging from where we would like them to be particularly western Europe , but that's you know something that will just continue to work our way through but Conversely, we're very optimistic about.
Japan, we have far beyond the black event coming up in just a couple of weeks, where we have 2500 prospects and customers registered which is just unbelievable from my vantage points and so we're excited about where things might be heading but it also takes time to get there and so we're just gonna keep executing as relentlessly as.
We can to to move forward.
Got it one question on the industrial Uhm industry Verticalization Unplug. The Salesforce are you thinking of Verticalizing kind of products as well or is that purely a failed.
I'm, sorry <unk> of of products.
Three I'll turn this over to to reset a second but is Teresa and I and the leadership being we've been talking.
Things that are very unique to specific industries, and we Wanna make sure working with our partners in our customers that we help customize our solutions to meet those particular.
Unique aspects of of what they need and so we've been very busy talking to customers about that over the last four or five months at this particular through six months almost together now five plus months and so we're gonna continue to to look at that with our partners and customers, but I think that there is a belief that there's more.
We can do to help them with their particular unique issues and it it.
It transcends the industry. If you will so the same issues you might deal with an automobile manufacturer in Germany are the same as one in Japan is the same as the U S auto manufacturers as well. So that's what we're looking to make sure we do but to reset how you're spending a lot of time thinking about this absolutely. So you asked if it was just sales motion or sales motion plus product.
And the answer is the latter there are definitely uhm functionality and features that we are focused on building that will be more valuable to some industries more than others. Okay. So for example banking has some pretty specific required.
<unk> that are kind of cool, but those some of those same requirements actually fit nicely into retail. So what we wanted to when we do make enhancements to our product offerings, we want to make sure that we can take what we have make it highly configurable not customer.
<unk> and if it can apply to more than one industry. Then that's a win so there will be some product modifications in order to make sure that we can address the specific needs of different industries. However, we do want to re purpose, we want to make sure it's very configurable and flexible and that's how you get them when hope.
That helps.
Yeah definitely thank you very much.
One moment for our next question.
Our next question comes from the line of code <unk> Qaeda.
<unk> Bank of America. Please proceed with your question.
Hey, Teresa <unk>. Thanks, so much for taking the question.
I wanted to ask.
The the triangulation of ragged revenue guidance and billing performance in the second quarter.
Really.
How to think about the billings growth trend for the rest of the year.
Really trying to hone in on what that fourth quarter retzer exit right could be so any sort of quantitative or qualitative color there would be helpful either from.
Revenue perspective, or renewal cadence or anything else anything else, we should be thinking about with respect to billings.
Yeah. Thanks, Thanks for <unk>.
Given what we're seeing in the leading indicators in the business and kind of where we are in the year. It wouldn't be are we would most likely expect to see for the balance of the year.
A similar trend coming out of Q2 that we sent.
And that's really sort of this macro environment manifesting.
Oh and talked about it sort of impact in many parts of the business, including in Europe in mid market, but also it's a very high and large deals digital transformations. Those are the ones that move the needle and so as we sort of take a pragmatic view heading into the end of the year. We don't guide on buildings, but I think based on the revenue guidance that we've got.
And you'd see that our expectation is to is to probably see a flat environment to the remainder of the year.
Ah that's super helpful. Thank you for that and just one follow up here on Con S. A P. When.
When we look at the growth rate.
[noise] partnership revenue, it's been bouncing around a little bit you know a little bit above 20 per cent 20 per cent little bit below 20 per cent over the past several quarters I mean, how do we think about this channel and what needs to happen to drive sustained 20 per cent plus grew up there cause it just yeah. Let me let me start yeah yeah.
Yeah, Thanks, sorry, I interrupted but let me just start with your comment you know the.
The S. A P gross trend actually was a bit ahead of the overall company even in this last quarter.
It's not uncommon as you know to see pretty material fluctuations on a quarterly basis, where they can be very back end loaded. They also carry the large.
A large part of our large deal digital transformation. So those are the very strategic parts of our of our business pipeline.
So I think he is.
Oh, it's gonna talk in a minute about driving the essay P partnership, but it it has actually performed.
Quite well at least in this environment compared to other parts of the business and sell from a partnership standpoint, beginning with what we saw at the end of last year and again in this last quarter, it's holding up nicely.
Oh, and you wanted to say something about it.
Oh look I think as you can imagine the S. A P. Port partnership is critical to to all of us at that Black line and Theresa Mark myself and other leaders are spending a significant amount of time to make sure that we execute against this top priority.
The big thing for Us to do is to get more consistent experience around the world as we work with with S. A P.
And so we're gonna make sure that that we do that and in fact in a short order Theresa Mark and I will be in a number of European countries, making sure. We continue to deepen that that footprint, but also we want to make sure. We're leveraging our other partners that have strong relationships with S. A P. As well so we talked about this power three which is S. A P ourselves.
And a partner and we're gonna continue to to work that but it is absolutely critical as we move forward that we continue to to work together to achieve the full potential of this relationship.
Thanks, guys. Thanks, so much for taking the questions.
Thank you thanks cushy.
One moment for our next question.
The next question comes from the line of Matt <unk> B T. I G. Please proceed with your question.
Yeah. Good afternoon. Thanks for taking my question I wanted to see if I could get a little bit more color on the blue chip outside partner the talked about expanding to a reseller agreement any additional details you can help us with kind of what the discussions were there how much they have sort of invested in the black line ecosystem.
And and whether this is reflective of potential other expansion deals with some of your other partners or is there any kind of <unk> exclusivity or just kind of preference here because of their past investments. Thanks.
Yeah. So thank you and as you know I came from the consulting World and I believe that I have a pretty good understanding of what's important to our partners and how best to sort of build those relationships and partners in a way that they are structured in a line and actually getting executed against so I think for black line as we move forward.
We're trying to make sure that we have the right partners with the right incentives to to to drive our mutual success and you heard in the prepared remarks, we've been come very clear with our partners of what they can expect from Black line and what we expect and <unk> return.
In this particular relationship this as a partner that's had a long standing relationship with us they've invested quite a bit around the world and it's sort of the next stage in their in their own evolution as many of these consultancies lomu uhm from not just doing the implementation, but to doing a business.
Business process outsourcing I think many of them called their own operate business as well as being resellers in various parts of the world. So I don't want to predict that there'll be more arrangements like this but we are certainly making sure that for those partners, who we choose to <unk> to do business with a choose to do business with us that we take full advantage of all of those firms capabilities with what.
All that black line <unk>.
Has to offer so we'll keep moving forward with this and certainly we're engaging quite frequently with our partners to make sure that we have comprehensive plans and it has as we can move forward with them and that will be everything from how we govern our relationship to the plans we create together to how do we make sure the professionals on their side.
Or certify to deliver black line offerings, how we train them.
Co invest in things together says a whole myriad of things we're doing to make sure that this partner relationship. This partner channel for US works the right way.
Okay, you're very helpful. And then you talked about.
Hi, Hi renewal rates for for overall software comparisons, but you know not not enough for for your own liking at this point, so curious what kind of.
Programs are incentives are you putting in place internally to improve that further.
And then there was sort of off of that should we expect to potentially see some improvements on the note dollar retention rate uhm.
Presumably or you may be spending a little more time engaging with your customers on a frequent basis and with that maybe upselling has more potential.
Okay. Thank you and that's a really good question look I think from from our perspective, we've invested strategically into Arkansas customer success teams over the years and and candidly I think we've had good results from both a retention and expansion perspective, but from my view not good enough.
And so you fight really hard to get a customer in the front door and there's no way in Hell I want them to go out the back door and so we're gonna make sure that we do everything we have to to make sure that those customers that come the black line achieve all that we have to offer it to them and so Theresa Mark the rest of the leader leadership.
We are intent on driving even better results for our customers. So we talked about the five day implementation as an example, but there are other things that we're doing we're consolidating some of our customer support team to make sure. They align much more closely with her account management organization to again make sure we're driving success for our cause.
Customers and we're not waiting for the phone to ring to call was we're proactively engaging with those customers much more aggressively over the last couple of months to make sure that we are delivering on the black line promised. So we're working really hard on that and then also for the new customers that are coming through the door, we want to make sure that they're getting.
The full value from day, one and so it's a big effort for what we're trying to do but we think it's the right thing to do for our customers that will allow us to that only land a customer, but the delight them and then to expand that relationship overdone, Yeah Mathie renewal rate. In addition to what <unk> Oh, and just said is 97% for the enterprise and.
Driving that higher will absolutely have an impact on the dollar retention rate, but the biggest impact we can have on the retention rate of course is the expansion within those accounts.
The ability to show the customer and help them digitally transform using our strategic product portfolio and to fully.
Adopting penetrate globally inside their companies. So those are the big sort of additions to the rates.
Alright, great. Thank you.
Thank you.
Moment for next question.
Our next question comes from the line of Joseph Mirrors, a truth security. Please proceed with your question.
Great. Thanks for taking the questions. This is Bobby down for Joe Uhm regarding five day fast track implementations. You know is there any early evidence that reducing implementation time can actually reaccelerate customer ads and then I had one follow up thank you.
Oh, well I do think it's a competitive differentiator Bobby D.
I mean.
Ability to get there get it up and running and then they see immediate value and then having customers and you may have seen our press release I Miss having customers that are willing to talk about that is certainly building enthusiasm with our prospects.
Awesome sounds great.
And then yeah, just just one quick follow up on a on an earlier question, but how our strategic product sales trending and are those accretive suits and are currently thank you.
Yeah, our our strategic product sales has been very strong over the last year or.
Or to even and we've seen them typically range and the 25% to 30% of total bookcases in any quarter, that's our target range and what we'd like to see given that portfolio and that it's expanded and that it is a big part of customers transformation, we would like to see that at the 25 to 30 per cent range. So at 20 per cent in Q T Q.
To where it landed not where we want it to be or needed to be so we're working through many of these things at Owens described to drive greater adoption and penetration and sales of those products.
One moment <unk>.
Our next question comes from the line of Andrew tickets Berry Bear Inbox. Please proceed with your question.
Thanks for taking my question just wanted to maybe ask a big picture question you gave out some midterm target checked your investigative last year and I.
Obviously, you've had some sizable changes within the organization over the last few months I'm just wondering in terms, particularly as it pertains to revenue growth.
No the window there for returning of 2025 was three to five years.
Yes, just in terms of those numbers are you still confident you can reach them.
And and would you plant them, maybe I'm paying us in a month or so after being on the block.
Yeah. So as you know we put out the targets literally literally less than a year ago and we still believe that there are multiple levers that we have at our disposal to achieve those targets whether is our partner channel working with S. A P. The strategic product portfolio as well as a new innovation. So all of these.
Items support the future growth, we envision for the business and we're taking steps to make sure we deliver on that so we feel good about the foundation and we're focused on Reaccelerating our growth going forward.
Thanks, Mark and then lastly on the gross margin side I mean.
When do you think the runway is to expand that to 383 plus percent is that.
He'll likely I mean, we've not seen a dividend check coming through that why not.
That's right Yeah, we have not gotten that back to first we've got a migration taken place that'll take us into 2024 and onto the public cloud and so until we complete that for all customers were substantially I think over at Lee or at least over halfway through it.
We have a number of customers. This year next year to get through and then we can start to move or migrate to a higher gross margin. So that's sort of our longer term target our midterm target as well.
Great. Thank you.
One moment for our next question.
Our next question comes from the line of Matt Statler of William Blair. Please proceed with your question.
Hey, there. Thank you for taking the questions couple of a couple of strategic products here a follow up in terms of inter company. I mean, you mentioned intercompany intelligence, obviously continuing to take a more holistic approach to intercompany financial management around that core C. H would love to just get some some color and if that's you're seeing that make a difference.
The the pace of adoption for for I C. H for intercompany, obviously, you know adjusting for kind of the the near term macro challenges given those are big deals and then you think forward what other levers do you think that you have to drive further adoption of those products specifically.
Mmm, specifically I at them or all strategic products, just asking which are you asking about.
You.
You know it.
It is it is ideally suited for large complex multinational organizations and these customers really are focused on continuing to drive efficiencies in their business and you know adopt high automation. It is still a fairly long involve.
The process.
Because it's something that you know you've gotta get by and across multiple areas of the business. You've gotta have people that have an appetite for change and for transformation and I wish I I wish I knew how to.
Goose acceleration around digital transformation, because that's really what we do so very very well, but it really is just part of a journey that accompany <unk>. We did have a number of great I F. M deals this quarter and we still really expect it to be a key contributor to our longer term growth.
That's helpful.
A follow up on the go to market.
Discuss removing the overly fills came for associated products and introducing.
General quotas, there yeah, I would love to just touch with what you're saying that have any effect on Joe momentum.
Top of the funny in any sense of you'll get you would consider that to be running at a full productivity in terms of showing she products or if your social drink to go on that front as well.
Yeah, there's still room to go you know year to date I think uhm, we continue to be sort of in N. Our target range at the low end.
Strategic products, we continue to see customers interest level at the top of the funnel, but for us to close out this year and for the salespeople to to participate we need to convert and move these products and these deals through the through the pipeline. So we are.
<unk> focused on programs and customer communication and sales performance that will do just that so we know that the strategic products, particularly Teresa gave some fascinating growth figures and.
Not just in the product, where we know that the customers that are using our products are getting incredible value for it and that they're accelerating their usage of those products. So it's really getting it into those hands and closing out those deals. So the strategic product quota. This year was a good idea. We're still early in the year. We were back end loaded company, we've got pipeline.
For strategic products, and we're working hard to get those closed.
Very helpful. Thank you.
Our next question.
Our next question comes from the lineup, Chris Quintero of Morgan Stanley . Your line is now open.
Hey, Thanks for squeezing me in here.
Want to ask about the changes you're making to the global partner network are there any specific if you can give on how you expect to drive bear accountability and some of the commercial changes you're looking to make their.
So the question is how are we looking to drive greater accountability and the global partnership network is that what I thought I heard you say.
Yes.
Yeah look I think that.
From my experience as being on both sides of this over many many years.
Lots of people sign up to be partners without very clear understanding of what you would sort of call. Your wedding vows to make sure that each party understands what in fact, they're committed to and so best practices are to be very clear about that and so that's a process that we are going through with all of our part.
<unk> at this particular point in time, and we will have that completed over the next six eight weeks now we have Ah at beyond the black they have a big partner summit and I expect that those that are willing to commit and that we're committing to those those relationships will get brought.
Broader and deeper and more productive for everyone and then I expect a number of partners to fall by the wayside, because they're not going to be able to make the commitments that we need from them and and so uhm rather than prolong something in name only we're gonna we'll move on from those and so that's that's what we're working our way towards all around the globe at this point.
Nine.
Excellent. Thank you.
One moment for our next question.
Our next question comes from the line of Adam Hotchkiss of Goldman Sachs. Please proceed with your question.
Great. Thanks, so much for taking the questions would be great to get an update on how you're thinking about capital allocation here I think there had been a couple of cases on the public and private side Remninbi activity has picked up in the space just curious with profitability coming in better than the 26 confirmed pretty far down the curve here uhm, how you're thinking about opportunities to.
Continue to expand the portfolio inorganically or other capital allocation opportunities.
Yeah. Thank you with a billion dollars on our balance sheet and as you mentioned some some maturity is that a fairly decent ways out.
A couple of things that we view that's a it's a very strong weapon and our own market as a competitor where we've got the balance sheet. Uhm second is we've got a number of deals that we continue to prove and validate our thesis surround our strategy our ability to move around inside the office of the CFO and race.
Level of conversation to get inside the strategic transformations.
Just as a reminder of the office of the CFO transformation is still very early so black lines ability to play in those spaces Yeah continue.
Continues to validate as we as we have done these deals and proven it. So look our view is that we can and will be opportunistic and very targeted but we'll be looking at M&A, where we can make a difference and buy capabilities for our customers that are important to them that will not just drive revenue growth but drive.
Real value inside 4000 of the biggest best companies in the World and so we're we're sort of leaning forward at the moment and our ability to use M&A as a growth strategy.
Okay, Great. That's really helpful. Thanks, and then I appreciate the color around strategic sales quotas, but just zooming out on sales productivity more broadly would be great to get a sense for how you're thinking about you know where you're at from our current productivity perspective, and how that's informing your view on optimal head count you know any thoughts on incremental hiring things like that would be helpful.
Thanks.
Yeah, we had the benefit of <unk> and.
An aggressive or at least an assertive hiring into the market demand last year and so we've been able to decelerate on hiring on the demand side of the business really focus on programs such as.
Uhm incentives and alignment and even reorienting some of it go to market groups to be more efficient.
And those are giving us the opportunity to drive productivity into what is now one of the most ramped you know sales head counts that we've had and so as we move forward, we will be able to to be agile and adapt to the market demand environment at the moment that demand.
Flat are hiring is flat and so we're gonna continue to sort of modulate that way.
Great really helpful. Thanks, a lot.
Thank you.
One moment our next question.
Our last question comes from the line of Daniel gesture at BMO Capital markets. Please proceed with your question.
Hi, This is carlee <unk> gesture. Thanks for squeezing outside I appreciate the color on the fast track of a mutation program furniture companies.
Just wondering what was the catalyst put this program together.
You know, we know that mid market companies are 10 strained when it comes to both the county and I T resources. Okay. So this was really about serving that contingency even better and so anything that could get.
Them up and running more quickly and have them see time to value shortened was we considered a win now the interesting thing is you know over the longer term I think this program will probably expand to even larger companies because people really enjoy the focused attention.
And being able to get something done very rapidly and they actually enjoy building the relationships with the people that black line. Because then they feel like their journey is going to be supportive supported and they also feel like there's more to come right. If you can get something up and running in five days.
Yep.
For goodness sakes, they certainly want to look at more products at that point.
Thank you I would now like to turn the conference back to Owen Ryan Co C E O for closing remarks.
Thank you and.
On behalf of all Black liners. Thank you so much for your interest in in support of our company. Please have a great day talk show.
This concludes today's conference call. Thank you for participating you may now disconnect.
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