BlackLine (NASDAQ:BL) held its first-quarter earnings conference call on Tuesday. Below is the complete transcript from the call.
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Summary
BlackLine reported a 10% increase in total revenue to $183 million, with subscription revenue growing 10% and service revenue increasing by 11%.
The company introduced various AI-driven products such as Verity Prepare, Verity Match, and Verity Collect, which demonstrated significant efficiency improvements and sparked strong customer interest.
Future outlook includes a full year revenue guidance of $765 to $769 million, anticipating 9.2% to 9.8% growth, with non-GAAP operating margins expected to be between 24% and 24.5%.
Operational highlights include a 9% year-over-year increase in ARR, reaching $712 million, and an 18% growth in RPO to $1.1 billion.
Management emphasized the strategic importance of their SAP partnership and expanding customer base, notably in enterprise sectors, while handling mid-market churn effectively.
Full Transcript
OPERATOR
Are now actively using these tools, a 285% increase in adoption quarter over quarter. In Q1 alone, unique users grew 68% and total usage grew 183%. What this tells us is that AI is moving beyond experimentation for our customers and into their day to day workflows. As they embed these capabilities into how they operate, it deepens their relationship with Blackline over time, we expect that to support both stronger retention and additional consumption under our platform pricing model. Verity Prepare, our AI powered reconciliation agent, is now available to customers and is deployed with several mega enterprise customers. The validated outcomes customers are seeing are significant over 90% reduction in reconciliation processing time. One customer that had been spending three hours manually executing certain reconciliations has seen that fall to 10 minutes and 95% time savings. Based on their experience, they are now ready to enable Verity Prepare broadly across their business. That progression from pilot to enterprise wide rollout is exactly the adoption pattern we are building toward. Early usage data shows the cost to serve is efficient at current scale with clear paths to optimize further as adoption grows. Our multimodal architecture allows us to deliver meaningful customer value at margins consistent with our financial targets. Verity Match is now in its early adopter phase. Our existing matching solution is a powerful capability as it handles high volume complex data sets across multiple ERPs and source systems and delivers strong automation rates for our customers. Verity Match builds on that foundation by applying AI to the long tail of complex exceptions like combined vendor payments, transposed invoice numbers, missing remittance details. Rules based systems have historically left these for accountants to resolve manually. In early customer testing we see a 64% reduction in transactions requiring manual investigation and by running our models on NVIDIA GPUs we can process matches up to 25 times more cost efficiently and faster than on prior architectures, improving both the customer experience and unit economics as this scales. Verity Collect will launch this quarter and the demand signal has been stronger than expected. We had to close our early adopter program because customer demand exceeded our planned capacity. The value proposition is direct predicting payment delinquency before an invoice becomes past due and autonomously managing the collections outreach across voice, email and digital channels. For CFOs, this translates directly to working capital improvement which in the current macro environment is a top priority. While it is still early, we believe the initial proof points are compelling. In one early adopter scenario, our AI agent completed collections outreach activities in under 30 minutes. That would have taken a human team approximately 45 hours. That kind of efficiency gain, freeing collection teams to focus on high value accounts and complex disputes is exactly what is driving the demand we are seeing. We expect Verity Collect to be a meaningful accelerant to our broader invoice to cash momentum as it scales Verity Accruals is seeing a significant acceleration in customer interest and pipeline growth as its value proposition resonates in the market, anchored by initial successes including closed deals and proof of concepts with key targets in both the enterprise and mid market. These are largely existing customers looking to expand their footprint which validates the cross sell motion we have been building. Customers land on Studio360 and then adopt additional Verity Agents as they see results. One advantage worth highlighting is that our customers do not need to build a new governance framework to deploy Verity. Blackline already is that framework. Verity Agents operate within the same SOX-compliant controls, audit trails and approval workflows our customers have relied on for years. Customers can begin deploying AI within a controlled environment they and their auditors already trust, which we believe lowers the barrier to adoption and supports a faster path from pilot to broader rollout. Turning to how this strategy aligns with our Q1 execution, our platform and AI approach is showing consistent progress in the enterprise. This sustained focus is reflected in our metrics. First, we saw an increase in customers with over $1 million in ARR. We closed the first quarter with 86 customers at this level, an increase of 9% year over year along 14% growth in our $250,000 plus customer cohort. Second, this strategy is driving deeper adoption and additional cross sell across our portfolio. Our strategic products represented 37% of sales in Q1, up from 33% last quarter and 27% in the prior year. This proves that when we lead with value and outcomes, customers invest more deeply in Blackline, adopting more solutions with less friction. And third, you can see the strategy in action and key wins from the quarter. Within our existing customer base we saw significant validation for our AI offerings, particularly Verity Accruals. We secured a major renewal and expansion with a leading billing company demonstrating their deep loyalty to Blackline and strong interest in our AI capabilities. We saw similar momentum with a leading global mobility and car sharing company which also expanded its footprint with a strategic win for Verity Accruals. Our upmarket motion and governance thesis also continues to resonate strongly in highly regulated and complex environments. This quarter we welcomed one of the nation’s largest healthcare providers as a new logo, replacing an ERP competitor, which is a powerful validation of our trusted control framework and innovation. We also saw significant expansion within our enterprise base, including a premier global construction services company that added our invoice to cash solution. Additionally, we executed a major rip and replace at a leading fintech provider, successfully displacing multiple competitors to consolidate their financial operations onto Blackline, adopting Studio 360 Journals, reconciliations and transaction matching last, we delivered highly strategic wins, particularly among companies at the forefront of the AI revolution. We secured a net new agreement with a global leader in memory and data storage for AI, successfully migrating their processes off an ERP competitor and onto blackline. Through that same channel, we also expanded our footprint with one of the world’s premier data and AI platform companies. The fact that organizations building the future of AI rely on blackline for their own financial governance speaks to the strength and trust of our platform. We believe our customer base is healthier than our headline retention metrics suggest, suggest and it is getting stronger. The lower mid market churn we have discussed in prior quarters is running through a finite and shrinking pool of at risk accounts. At the same time, the changes we have made platform pricing, which creates thicker customer relationships, a broader solution footprint per customer, increasing multi year renewal commitments and a redesigned customer success model are fundamentally improving the quality of our installed base. We expect the cumulative effect of these changes to become more visible in our retention metrics as we move throughout the year and into next. Finally, our partner ecosystem and our SAP relationship continue to be meaningful contributors to growth. Our integration with SAP’s advanced financial close is now generating pipeline as we were able to sell into SAP’s installed base of AFC customers. Our Joule Verity proof of concept is also progressing toward a commercial framework and we are actively working to launch platform pricing within Solex. We are also seeing acceleration in our public sector business through SAP. With several active deals in the pipeline. We see our partner ecosystem as a force multiplier across demand generation, delivery and customer success and is critical to scaling our growth. In closing, our path forward is clear. AI is creating more financial activity across the enterprise, not less. All of it must be governed, reconciled and audited. We are the system of record and control that makes this possible. Our customers are telling us they want to move fast with AI, but they also tell us that trust, reliability and security are non negotiables. This is exactly what 25 years of Blackline expertise delivers. With that, let me turn it over to Patrick for a detailed review of our financial results and our guidance.
Patrick
Thank you Owen. As discussed, our strategy is building clear Momentum and our Q1 financial results reflect that progress. We delivered solid top line growth, demonstrate the quality and durability of that growth through our key strategic metrics and showed significant leverage in our operating model. Let me walk you through the details. Total revenue was $183 million up 10% with subscription revenue growing 10% and service revenue growing 11%. The acceleration in services reflects the faster implementation timelines and go live activity we are driving through. Our delivery engine Annual Recurring Revenue (ARR) reached $712 million up 9% reflecting the bookings momentum we saw in Q4 carrying forward and continued strength in platform and strategic product adoption. Importantly, we believe the quality of predictability of our future revenue growth is strengthening. This is best illustrated by our RPO which grew 18% to $1.1 billion fueled by larger deal sizes and longer contract terms inherent to our platform model. Similarly, the health of our near term pipeline is also reflected in our current RPO growth of 12% which underscores the solid market demand for our solutions. This momentum is directly linked to the steady adoption of platform pricing which reached 13% of Annual Recurring Revenue (ARR) at quarter end up from 11% in Q4. Calculated billings growth was 9% in the quarter. Our trailing twelve month billings growth which helps normalize for quarterly variations improved to 9%. Turning to the health of our customer base, our key metrics remain solid. Across our 4300 customers, net revenue retention was 105% which includes an approximate 1 point headwind from FX. Underlying expansion within our installed base remains solid driven by two dynamics customers migrating to platform pricing which naturally expands the scope of their relationship with us and strong attach rates for our strategic products which represented 37% of sales this quarter. Customers are investing more broadly in blackline and our platform model is making that expansion easier and faster. On retention, our revenue renewal rate was 93%. Enterprise renewal rates remained strong at 96% consistent with the durability we have seen in this segment. The lower mid market headwind we have discussed in prior quarters continued to weigh on the overall rate. Though the remaining at risk pool is finite and shrinking, we expect this drag to diminish as we move through the year. Our Solax channel delivered one of its strongest new bookings quarters as our joint go to market with SAP continues to mature. SAP customers now account for over 26% of our total revenue and we see further opportunity ahead as our broader platform strategy opens new avenues into SAP’s installed base of commercial and public sector customers. Now let me turn to profitability and cash flow. Our non GAAP subscription gross margin improved to 83%. Our non GAAP gross margin improved to 80.2% in line with our expectations, non GAAP operating margin was 21.6%, reflecting the continued productivity improvements we are driving across the business. We are seeing meaningful efficiency gains from our own adoption of AI and automation in areas like customer onboarding, implementation, delivery and internal operations. This enables us to grow revenue faster than expenses while maintaining our investment in innovation. Non GAAP net income attributable to Blackline was $40 million, representing a 22% non GAAP net income margin, with adjusted earnings per share growing 14% to 56 cents. We delivered operating cash flow of $46 million and free cash flow of $36 million for a 20% free cash flow margin. After paying off our 2026 convertible notes in March, we have approximately $525 million in cash, cash equivalents and marketable securities versus $667 million in debt. Finally, we continue to execute our capital allocation strategy. In the quarter, we returned approximately $47 million to shareholders through the purchase of 1.2 million shares. Before I get into guidance, I want to step back and frame where we are against our multiyear financial targets. We entered the year with a clear objective continue accelerating revenue growth toward double digits, expand operating margin and do both while increasing our pace of innovation. Q1 demonstrated progress on all three fronts. Revenue growth accelerated, margins expanded and the pace of our product delivery has never been faster. These results give us confidence to raise our full year outlook. On the specifics, I want to call out a few dynamics that are important for modeling purposes. The first quarter’s top line performance included about a $1 million benefit from certain items related to specific customer deployments and timing. These are nonrecurring in nature. Looking ahead, we anticipate a modest revenue headwind of roughly $1 million to $2 million over the balance of the year due to FX. After accounting for both of these dynamics, our Q2 and full year guidance reflect continued acceleration in our underlying revenue growth rate as we move through the year. On the macro, we are not immune to the external environment and we have built our guidance with that in mind. That said, the financial close is a regulatory obligation, not a discretionary spend item. Our customers cannot defer compliance and the complexity of their financial operations is increasing, not decreasing. Combined with our growing rpo, strong multi year renewal trends and an expanding enterprise pipeline, we have good visibility into the rest of the year. Our raised guidance reflects both that visibility and an appropriate level of prudence given the uncertainty in the broader environment. With that context, for the second quarter we expect total GAAP revenue to be in the range of 186 to $188 million, representing 8.1 to 9.3% growth. We expect non GAAP operating margin to be in the range of 21.5 to 22.5%. And we expect non GAAP net income attributable to the Blackline to be in a range of $40 to $42 million or 57 to 59 cents on a per share basis. Our share count is expected to be about 73.3 million diluted weighted average shares. And for the full year 2026, we expect total GAAP revenue to be in the range of 765 to $769 million, representing 9.2% to 9.8% growth. We expect non GAAP operating margin to be in the range of 24 to 24.5%. And finally, we expect our non GAAP net income attributable to Blackline to be 174 to $182 million, or $2.42 to $2.53 on a per share basis. Our share count is expected to be 74.4 million diluted weighted average …
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