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Operator
Good day and thank you for standing by. Welcome to the second quarter 2022 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 the session, you will need to press star 11 on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Matt Humphreys, Vice President of Investor Relations. Please go ahead.
Matt Humphreys
Good afternoon, and thank you for joining us today.
spk06
With me on the call is Mark Huffman, Chief Executive Officer of Blackline, and Mark Parton, 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 Q3 and full year 2022, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent our outlook only as of the date of this call. While we believe any forward-looking statements we make are reasonable, actual results could differ materially because the 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. Also, unless otherwise stated, our financial measures disclosed on this call will be non-GAAP. A discussion of these non-GAAP financial measures and information regarding reconciliations of our GAAP versus non-GAAP results is currently available in our earnings release. which may be found on our investor relations website at investors.blackline.com, or in our form AK filed with the SEC today. Now, I'll turn the call over to Blackline's Chief Executive Officer, Mark Huffman. Mark?
Mark Huffman
Thank you, Matt, and good afternoon, everyone. Thank you for joining us today. We saw solid performance across the business this quarter, even in the face of rising global economic volatility. Our teams executed well and delivered revenue of 129 million, representing a year-over-year growth of 26% and acceleration from last quarter. Additionally, we ended the quarter at $500 million in annual recurring revenue. This strong quarterly performance was driven by the strategic investments we've made across the business centered around our top three priorities, customer engagement and success, platform innovation and expansion, and growing our international presence. All three continue to play a critical role in driving long-term growth. Taking a step back from our Q2 performance, we recognize that businesses around the world, again, are experiencing a challenging operating environment due to a variety of macroeconomic and geopolitical circumstances. These challenges manifest themselves acutely within the back office, where manual legacy processes still dominate. Over the past few quarters, we've seen an acceleration in digital transformation initiatives. There are still far too many businesses running manual processes, which create unnecessary friction, limit strategic decision-making, and expose companies to unnecessary risk and missed opportunities. Taking all of this together, the cost of doing nothing is rapidly rising. For Blackline specifically, the demand environment for back office automation software remains resilient, albeit with pockets of noise. Through ongoing customer interactions, prospect conversations, and partner insights, we receive real-time insight into where the market is, where it's going, and the challenges our customers are facing. As a result of these conversations, we expect that near-term growth may be influenced by broader market conditions, including the possibility of lengthened sales cycles. Despite these potential conditions, our confidence in the longer-term opportunity remains strong. Our go-to-market and customer success teams are fully engaged with our customers, prospects and partners, focusing on the value that our solutions provide and how they can be leveraged quickly during volatile periods like today. In one such case this quarter, a middle market North American reinsurance customer was having serious challenges with their financial close, audit, and statutory reporting processes. These challenges were exacerbated by staffing shortfalls and a heavy reliance on manual work. We were able to demonstrate the value of our core financial close products and how they could leverage these quickly through our MAP program, improving close efficiency and accuracy while enhancing their control environment through automation, saving countless person hours, and freeing up staff to focus on strategic work. Our expansive customer footprint across industries and geographies provides a level of natural resiliency and diversity to our business, which is especially important when faced with a more uncertain operating environment. This in turn gives us confidence in our pipeline as we consider a range of macro environments that could occur in the second half of this year. Though we haven't seen any material changes to our business or the demand environment thus far, we are taking a pragmatic approach to how we are positioning the business for late 2022. Our updated guidance is an output of our approach, and Mark will walk through this with you shortly. To that end, we are placing additional rigor on the scope of investments we are making. We do not plan to slow down or reduce investments into our strategic initiatives, particularly those that drive long-term growth and extend our competitive positioning, like our GCP migration, which remains very much on track and the ongoing innovation of our platform. We are, however, enhancing the rigor and discipline around other planned investments. Our ability to toggle these investment choices without impacting our long-term strategy is vital to our success and gives us a level of financial flexibility that many others may not have. Our proven ability to invest through various market cycles and deliver continued innovation to the market is a key differentiator and further strengthens the trust customers and partners have in Blackline. Looking ahead, We remain focused on hiring talented individuals that can accelerate our growth globally. We've seen time and time again companies that lack discipline and reduce investment and capacity during periods of uncertainty only to come out on the other side unprepared to capture growth in an economic recovery. Our goal is to balance this approach with targeted hiring across the business and in geographies that we feel will accelerate our long-term growth profile. To sum it up, we expect to maintain a responsible level of investment into our business and our people. We expect to generate further operational efficiencies from these investments as we move through the back half of this year and into next. And we will position ourselves such that when the global macroeconomic environment becomes a bit clearer, we will be executing from a position of strength. With these considerations in mind, let's review our Q2 highlights and dive deeper into our results. Total revenue in the second quarter was $129 million, up 26% versus the prior year with net revenue retention at 110% up four points versus last year and steady versus Q1 of 2022. Customer expansion growth and further upsell of our strategic products drove higher average deal sizes. For reference, our average deal size increased to 125,000 this quarter, up from 112,000 in Q2 of 2021. Additionally, we now have 43 customers that generate $1 million or more in ARR, up 48% year over year. Revenue performance from our enterprise business was in line with our expectations and delivered solid year over year growth across geographies. However, bookings were slightly lower than expected as a few larger deals that we expected to close at the end of the quarter were delayed. We are actively pursuing these deals and remain engaged with the customers and partners involved to close them in a timely manner. Our middle market business showed strength once again, reflecting the key investments that we've made across our go-to-market teams and into our strategic partner network, especially in EMEA and Asia Pacific. New logo growth in the middle market was healthy, bringing our middle market customer count to over 2,000. We're seeing a higher average deal sizes and very healthy competitive win rates globally. Strategic products had another strong quarter, led by the demand for innovative solutions solving some of the most complex customer problems. We saw some great wins this quarter in intercompany, including a large global consumer company who chose to deepen their relationship with BlackLine. As part of their multi-year financial transformation project, this customer realized that there were significant risks in their existing intercompany processes and had no clear solution nor roadmap to resolve these. Leaning on our go-to-market and solutions team while leveraging our existing partner network, we were able to deliver an accretive solution that adds strategic value to the company while minimizing the risk that they face every day. This ability to expand within our existing customer base and cross-sell with market-leading strategic products is a key tenet of our long-term growth agenda and is evident in our recent NRR results. You should expect us to focus resources here to drive customer penetration higher. We also saw some notable wins in competitive takeaways in AR automation. In one example, a new customer who is a leading logistics and transportation operator focused on global supply chains, was looking to replace their existing AR solution. Over the past few years, they had recurring challenges across basic collection tasks, delaying internal processing timelines, which lead to missed deadlines, and as a result, poor customer experiences. Our go-to-market teams were able to drive home the value that Blackline's modern AR solution provides while offering additional solutions that the customer could leverage as they grow and expand their own business. Being a strategic partner to customers is critical, especially in today's environment. Also important are the partners we leverage globally to help us expand our reach and win new business. And this quarter, we saw some great wins where we leveraged our extensive partner network to solve complex requirements for customers around the world. In one such instance, we leveraged our SAP Solex partnership to land one of Europe's largest telecommunication providers that was running multiple legacy systems as a part of their reconciliation processes. They wanted to simplify their existing technology footprint while improving efficiency, visibility, automation, and control across the business. They also wanted to operate more strategically, proactively managing their business and enhancing their control environment. With our partners, we were able to provide a comprehensive set of solutions that align to their objectives and their technology roadmap while delivering an attractive ROI and much lower TCO than their previous experience. All in a great example of how we leverage our partners to expand our reach into new customers and markets. And another example, working with our partners again, we were able to land one of Europe's largest automobile manufacturers. The customer was embarking on a multi-year digital transformation process and had a very clear strategy for their back office of the future. Not only were they looking for more advanced reconciliation capabilities, but were intent on driving further efficiency through process automation. Through a very consultative RFP, we were able to build trust in our relationship and exceed their complex requirements. We also offered additional solutions to outdated and poorly designed processes that were above and beyond the current scope, paving the way for a much deeper relationship over time. To close, I'm proud of what our teams accomplished this quarter in the face of elevated market uncertainty. Our results were solid, and we believe the investments we're making will continue to drive favorable results in the business. The near term may be punctuated by further uncertainty across our customers and markets. We recognize this and are taking a pragmatic approach to position our business appropriately while laying the foundation for our long-term growth. We expect to update you on our long-term growth views at our planned investor day in November, which will run concurrently with our Beyond the Black customer conference. As part of this, we'll provide an update on our product and solutions positioning and and how that positioning drives our long-term growth. We also plan to discuss our go-to-market strategy and take a deeper dive into our strategic product portfolio, especially intercompany. With that, I'll turn it over to Mark Pardon to discuss the details of our financial performance and our outlook.
Matt
Thank you, Mark, and good afternoon, everyone. Our second quarter financial results were solid led by the continued execution against our growth initiative. Further customer expansion and upsell of strategic products continues to reinforce the long-term opportunity that we see. Additionally, we saw incremental improvements in operating efficiency across key parts of the business and remained disciplined on managing costs in the quarter. As Mark mentioned, We did see a few slip deals in very late Q2. While the number was small, the deal sizes were larger. Given the nature and scope of these deals, we expect them to close in the near future. Now let's review some key results and highlights for Q2. Total revenue grew to 129 million, representing 26% growth compared to the second quarter of 2021. With subscription revenue growing to 121 million, up 27% compared to last year. Notably, we ended Q2 with $500 million in annual recurring revenue. In the quarter, non-GAAP overall gross margin was 79% and non-GAAP subscription gross margin was 82%. We added 106 net new customers in the quarter, bringing our total customer count to 4,003. We have 43 customers that generate $1 million or more in ARR, up 48% year over year. Strategic product performance was strong, especially in intercompany and transaction matching, and came in above our expected range at 26% of sales. Performance here was driven by further upselling activity and execution from our go-to-market teams combined with solid market demand. Partners were involved in 65% of large deals, up slightly versus last year, and consistent with the first quarter. Our partner ecosystem continues to be a powerful growth lever, providing opportunities to win new logos and expand further into our customer base. Revenue from our SAP partnership remained steady, representing 24% of revenue in Q2. Non-GAAP operating expenses increased by 37% versus the prior year, as we continue to invest in strategic initiatives and product innovation that fuels our long-term growth, combined with continued hiring within our go-to-market and customer success teams. Our hiring plan coming into the year was designed to be front-end loaded with lower levels of hiring activity in the second half. Given that we've achieved our hiring targets and have an appropriate level of capacity to sustain our growth, we expect to see a lower velocity of hiring in the back half of the year. Further, we've been able to leverage our cost base to drive sustainable efficiencies that improve our margin profile. In services, for example, we're leveraging our partner network to take on more onboarding and implementation opportunities. Despite lower services revenue contributions in the near term, we see multiple benefits from this. First, we're able to push out lower margin services work, driving higher margins for the company overall. And second, these opportunities provide incentives for our partners to expand and grow their black line practices, giving us further opportunities to capture. Additionally, we're seeing incremental improvements in our sales efficiency metrics. We've focused much of our recent hiring these past three to four quarters in our sales teams, And as they ramp and mature within the organization, we're able to drive leverage off this cost base. We expect to see continued improvements in these going forward and as a consideration in our updated financial guidance. Given the operational improvements mentioned, along with cost discipline, we delivered non-GAAP net income attributable to Blackline of $5 million, above our prior guidance range. We generated $5.9 million in operating cash flow and a minus $5.1 million in free cash flow. Free cash flow in the period was influenced by higher CapEx related to infrastructure build-out as well as product and technology spend. We expect that going forward, this outlay will normalize lower in line with the historical trend and drive continued improvement in our free cash flow profile. We finished the quarter with approximately $1 billion in cash equivalents and marketable securities, giving us the financial flexibility to continue to invest through the cycle and with the long-term in mind. Now, before we walk through our updated financial guidance, I'd like to provide some thoughts on how we are approaching the back half of the year and the considerations we've incorporated. As you know, we have a highly predictable subscription model with very strong renewal rates. which gives us great visibility and high confidence into how our revenue growth trends over time. However, broader market conditions such as today's macro environment requires us to consider additional factors that could influence our full year revenue expectations. Specifically, the rapid appreciation of the US dollar is expected to be a one point headwind to revenue growth for the full year. Also, we feel it prudent to assume that we will see some elongated sales cycles in the back half of this year and, as such, are underwriting another point headwind to full-year revenue growth. Finally, we discussed earlier the continued shift of certain services-related work to our partners, leading to higher margins for the business. The impact to full-year revenue growth due to this continued shift is also expected to be one point. We expect that the operational efficiencies we're generating will continue to drive further margin improvement in the back half of the year and are reflected in our updated full-year non-GAAP net income guidance. Putting this all together, for the third quarter of 2022, total GAAP revenue is expected to be in the range of $133 to $135 million, representing approximately 22 to 23% growth compared to the third quarter of 2021. We expect to report non-GAAP net income attributable to Blackline in the range of $6 to $7 million, or 8 to 10 cents on a per share basis. Our share count will be approximately 73.2 million diluted weighted average shares. And for the full year 2022, we continue to expect total GAAP revenue in the range of $524 to $528 million. representing 23% to 24% growth compared to the full year 2021. On the bottom line, we expect to report non-GAAP net income attributable to Blackbine in the range of $18 to $20 million, or 25 to 27 cents on a per share basis. Our share count will be approximately 73 million diluted weighted average shares. To close, I want to emphasize that we remain focused on our long-term growth ambition. Market demand for back-office automation software remains resilient, and our market leadership, diverse customer base, and financial position will serve us well as we navigate this volatile period. And of course, the disciplined efforts and execution from our employees globally underpin our success and is a key asset that we will continue to leverage as we grow. Now I ask the operator to open the discussion to take your questions.
Operator
Thank you. And as a reminder to ask a question, simply press star 1 1 on your telephone. Please stand by while we compile the Q&A roster. Our first question comes from Brent Bracelin with Piper Sandler. Please go ahead.
Brent Bracelin
Great. Good afternoon, and thank you for taking my question here. While I totally understand large deals are now taking longer to close, we're seeing that largely across most of the software space. You did see a pretty healthy uptick in million-dollar deals, up 48% year-over-year relative to the number of customers now crossing that threshold. So maybe could you just take a step back and maybe walk us through what's driving larger deal sizes. It looks like user expands were also very strong in the quarter. Is the bundle kind of our customers taking larger bundles? Is it larger initial lands that expands larger? Just walk us through the momentum you're seeing in those million-dollar ARR customers, given they are growing about 2x faster than overall revenue? Thanks.
Mark Huffman
Yeah, thanks, Brent. You know, if you look back in time, when we IPO-ed, the company had one $1 million client. In 2018, when I joined, we had seven. And since then, we've had this as part of our growth initiatives, the theory being what we do is so mission-critical for these customers who have so much complexity that we should be investing in how we grow this base. And so this has been part of our growth initiatives all the way back to 2018, causing us to invest in things like proper account management, customer success investments that we reference consistently as our top growth initiatives, the process expertise that we have focused on how we create a journey Equally as impressive in my mind is the growth in the $250,000 or greater a year spend that we have for my customer portfolio. And the way I think about it is we land them, and our average sales price upon landing has increased over the last several years. That $250,000 or greater population are those that are beginning a journey with us and going through a journey. And at a million dollars, you're thinking big transformation there.
Brent Bracelin
and customers who are really strategic force so it's been purposeful speaks to the nature of the criticality of what we do for customers and our extreme focus on it helpful and then i guess just one quick follow-up for for mark p as you think about the current environment um clearly still facing kind of labor shortages out there it's still a tight labor market um Is the narrative of automation resonating with some of these customers, or are they leading in on either AR automation, accounting automation as a means to address some of the shortage they're having? Is cost one of the narratives, cost savings a narrative that is resonating? Any sort of shift maybe you've seen there in the last couple of quarters would be helpful to hear. Thanks.
Matt
Yeah, thanks, Brent. Look, I would turn to my CFO peers. and to a number of our customers, many of which we've been talking to recently, about high ROI products in the CFO's office continuing to get priority. And I think we see that in a couple ways. One is we've had a couple record strategic product quarters, and strategic products are the real ROI payback, high automation, things like in our company and and AR and smart clothes and transaction matching. These are ways that companies can really drive greater capability out of reduced capacity. Talent management, retention of accountants continues to be one of the largest problems in the accounting's office, and that's not going to go away anytime soon, so they have to make a fundamental shift. Over the last 24 months, it went from hybrid working environment to talent management as part of being able to automate within the accountant's office. And I think we're better positioned today with our overall product portfolio and the team that can help lead accountants through the decisions on how to implement automation. I think it's as good as it's ever been.
Brent Bracelin
Very helpful to cover there. Thank you.
Operator
Thank you. One moment for our next question. Our next question comes from Matthew VanVleet with VTIG. Please go ahead.
Matthew VanVleet
Yeah, good afternoon. Thanks for taking the question. I guess first on sort of the broader partner community and then maybe more specifically on SAP SOLX as well. You know, anything that you're seeing there that's gaining more traction is the strategic product section really bringing a lot more of those partners in and having them invest in the practice, knowing that not only are you, you know, bringing more of the services work to them, but these projects can be very substantial and, you know, the ability to push into million dollar plus deals is very tangible now. So maybe just talk about kind of which of the strategic products maybe are attracting the most attention from those partners?
Mark Huffman
Sure. You know, at onset, when you land a new customer, and, you know, we continue to observe people who are living in a very manual world, and so that initial land and then setup of the base use case, in itself, it's really critical for us, but it's not as unique and exciting for a partner who basically monetizes a consulting practice. And so as we get into that journey and the higher automation, higher value, more strategic products, it clearly is a motivator for partner organizations to build on their practices. The matching volume and engine that we have, the journal entry engine, intercompany, are three great examples where we see a lot of traction within the partner communities, which we have spent a great deal of time training up and educating on the value of those products over the course of the last year or so. So that's, I think, the more strategic products which have the most traction. And the last one I would really highlight, intercompany is an area that the most significant most complex organizations in the world who already have these really big embedded relationships with these large consulting organizations, there's a lot of momentum around in our company in the marketplace from an interest standpoint that we expect or we believe will transfer to demand in the future.
Matthew VanVleet
And then when you look at a few of the large deals that you talked about slipping out of the quarter here, is there anything that you can point to that's maybe a correlation across those and maybe digging in one layer deeper, do you feel like you've already been selected potentially as a vendor and it's a more matter of timing, getting sort of everything lined up on the signatures and budget, or is there a risk that some of those deals maybe end up going to a competitor given that the sales cycle is elongated?
Mark Huffman
Yeah, I'll remind, it's a great question, I'll remind people that the largest statistical competitor is the status quo, and so in most every case on the top of our list, you know, watch list of opportunities that have elongated, if you will, from a decision process, we've already been selected, and it's an elongation of approval process and the complexity around that, which tends to change. They happen to be a handful of the larger. I think Mark referenced that in his script. A couple of those were tied up in Solex. You know, that Solex relationship is productive. It's seasonal in nature. It's got some variability to it. And we just experienced a little of that.
Mark
All right, great. Thank you.
Operator
One moment for our next question. Our next question is from Rob Oliver with RW Bird. Your line is open.
Rob Oliver
Great. Hey, guys, good afternoon. Thanks for taking my question. So a lot of focus here so far on the call on strategic products, and I think, rightfully so, it seems like a really big success story for you guys, and with nice attach rates, which you called out on both Remilia and 4Q. Actually, you called out ICH, not 4Q, and that was my question was, you know, particularly with that large global consumer company where you guys already were embedded and where the decision, uh, Mark Huffman was to go with you guys for ICH is 4Q already impacting those decisions. And if so, how is it, you know, relative to your expectations, um, for, for, for the year and then, uh, had a followup from Mark Parton.
Mark Huffman
Sure. So with regard to that, I start to refer to this now as just our inner company. We'll start, uh, talking about it in our user conference in Investor Day as IFM, Intercompany Financial Management. And it's the combined organizations, which we're looking at as a business unit. Just as a data point for you, we had more bookings through the halfway point in the year of 2022 thus far than all of 2021. And both of the assets that were in there, the capabilities, have been contributing to that success. So very pleased with it, very pleased with where we are on progress on the integration, product roadmap and planning, the distribution strategy thus far with our intercompany business. Great.
Rob Oliver
Okay, thanks. And then, Mark Barton, for you, obviously you talked about some of the levers that you can pull on the cost side depending on different scenarios, and certainly profitability outlook is markedly higher, but can you just – You guys laid out some of the untouchables, such as the Google Cloud transition and others. Can you just remind us, what are some of the things you can't touch or you do have control over, which are more variable costs that you can play with, depending upon which of the outcome scenarios that we see in the economy? Thanks.
Matt
Yeah, yeah, great. Rob, thanks for the question. You know, we did expect to be more profitable this year if we could execute, and we are, and so our revenue will drop to the bottom line, and that helps us on the profitability. With respect to our levers of growth, there's a few that really make a difference. I called out one of them earlier in the sales and marketing where over the last three or four quarters, we have been hiring and investing in our sales capacity, and that's been one of our stated goals. And then we ramp up typically at the beginning of the year, and then we have today one of the greatest sort of investments and unramped potential that we've had in our business in many years. And so that production will come online over the next several quarters, and we'll start to see the sales efficiency coming from that. So that's a large one in the second half. Another one is around this – gross margin impact that we mentioned from services, where we're able to drive in Q2, we had a 20% gross margin, and we're seeing a high efficiency, good pricing power, and also an effective and efficient use of the partner ecosystem. Others are belt tightening in GNA, which we are doing. It also includes in our GCP migration The cost optimization and work that that team is doing to maintain a stable and consistent margin while maintaining that customer experience and migration is really great. We're on schedule and we're finding ways to de-lever on the cost side there. So those are the big contributors to the second half of the year.
Rob Oliver
Really helpful. Okay, thanks a lot, guys. Appreciate it. Have a good evening. Thank you.
Operator
One moment for our next question, please. from Pinjalin Bora with JP Morgan. Please go ahead.
Pinjalin Bora
Hey, thank you for taking the questions. I wanted to ask you about the macro. It seems like You said you're not seeing material changes, but it seems like you do expect kind of a potential elongation of sales cycles. Are those conversations manifesting at this point in time in some of the discussions? And are you seeing any discussions where people are reassessing their 2023 budgets at this point and thinking of cutting that or maintaining it? How should people think about that?
Mark Huffman
Yeah, so I would agree with your assertion about our commentary on the impact thus far from the macro environment. I do believe that much of this comes through customer conversation. We reiterate and inquire with our prospects and customers as to their priorities. In the recent interactions that I've had with customers, we remain a priority and a multi-year strategic priority in their rollout of Blackline. Again, these are some of the largest, most complex organizations in the world going through global rollouts and modernizing their financial system. So their commitment stays high to that. I do see that people are taking a moment to evaluate what the forward-looking priorities are. and making sure that they're investing in allocating capital properly. I think that's an ordinary course that affects our sector as well as the broader economy in terms of what businesses are prioritizing their spend on.
Pinjalin Bora
Understood. The other question, I think you kind of answered it, but I want to ask you one more time. The inorganic contribution in the 10Q seems like was a little bit higher for Q1 than we had expected. And I understand it's a single unit. Maybe you don't want to break it out at this point. They're both doing well. But I think investors are trying to understand kind of the organic growth of the business. How should we go about thinking about the organic growth at this point?
Matt
Yeah, thanks. You know, when we set out our annual guidance for the year with respect to 4Q, our guidance was that the impact of the inorganic for the full year would be 2% to 3% on revenue in our guide. And after Q2, we are executing to the high end of that range as of Q2 and sort of year to date. So when you think about the numbers, that's probably the the right way to disaggregate it.
Pinjalin Bora
Just to be sure, you said 2% to 3% was baked into the guide as of Q4?
Matt
That's right. And we're executing to the high end of that range.
Pinjalin Bora
OK, understood. Thank you.
Operator
Yeah. One moment for our next question, please. It comes from Alex Carr with Raymond James. Please proceed.
Mark
Great. Thanks. Mark Hoffman, after you bought Remilia, it's almost been two years now, but we saw you really expand some of the functionality into a broader AR suite. It sounds like more of the same to come within our company now after 4Q. Can you talk about if either of those kind of business units are becoming a tip of the spear offering for you, or are those still more cross-sells?
Mark Huffman
I think our experience, to the latter question there, Alex, thank you. You know, we've landed new customers through the AR suite and cash apps specifically. We've been pleased with the progress in our mid-market sector, specifically on some of that new customer motion. We've got, I think, So momentum there. In terms of our strategy with 4Q, intercompany, and IFM, yes, we are helping bring those assets together for a complete set of functionality. We're executing well on our product roadmap such that we have complete trade, non-trade, netting and settlement, the real important portions of intercompany management. We're starting to work on interoperability with the important systems of the world, like materials management systems, that the trade business really depends upon so we can fit into a really complex global architecture. And we remain on track for getting our products through the PQ process for Solex. All of those to say that we continue to invest. We're staying on track for the broadening of intercompany capabilities, and that will be our strategy there.
Mark
Got it. Okay. That's real helpful. And I assume more to come at In the Black. But on SAP, they talked about a nice quarter of the RISE initiative. You talked about some traction this quarter, but noted some seasonality. I'm curious, kind of, if you could just kind of parse out how that SAP-SOLEX partnership is going year-to-date versus plans.
Mark Huffman
Yeah, I'd say that we're pleased with the partnership. That RISE initiative continues to be one of the elements that is driving progress, both from an actual standpoint and an interest and demand gen conversation standpoint. So that, I would say, is a benefit. Some of the slipped deals that I referred to were specifically larger in nature and things that were partnered with SAP through SOLEX that have yet to complete and become part of the Q2 actual such that, you know, that put us, I would say, just slightly behind where I would want us to be at the halfway point in SOLEX.
Mark
Okay, thanks, Dr. Culler.
Operator
One moment for our next question, please. Matt Stottler with William Blair. Please proceed.
Matt Stottler
Thanks for taking the questions. Maybe first one, just another one on strategic products. That's something we've talked about, especially with ICH. for a while, right? And that product's been around for many years. But clearly this year, there's a lot of strong momentum behind, you know, ICH and kind of the portfolio in general. I would love to just, you know, kind of dig down into what's driving that, right? I mean, is it more, you know, customer readiness to adopt these types of solutions? Is it more, hey, you know, we now have, you know, more of the pieces in place, right? We require 4Q on the inter-company side and are adding capabilities. And so now that, you know, these products are more ready to really fit, you know, the breadth of customer needs? Who would adopt these? Is this, you know, more on the internal go-to-market front in terms of, you know, you guys kind of getting that motion really, you know, kind of banging away on all cylinders this year? Is this, you know, more partner buy-in and, you know, kind of any elevation of a partner participation in the last, you know, several quarters? Or is it a combination of all those, right? I mean, it seems like these are kind of converging on the strategic products. I'd love to kind of get some thoughts there.
Mark Huffman
Yeah, it's a great question. I think it's the latter. It's a maturity scenario where you've got market receptivity. There hasn't been a large focus. You know, oftentimes vendors bring education to potential solutions to these challenges, and Blackline was leading the way on that. 4Q was an emerging company focused on that. And so I think there's a maturity model in the interest and demand and readiness Clearly, there's a need for it out there. If you talk to any of these large companies, every single one of the meetings I'm in, we talk about their intercompany challenges, and they're vast. It's a more completeness in our capabilities upstream in planning and executing transactions, downstream in sort of more completeness around the trade and non-trade. So there's a maturity that's going on there. And then, you know, through the acquisitions, We bring in roughly 100 heads, really capable people, great team, who are some of the best intercompany experts in the world. So I think all of those things combined to get us where we are today and really the excitement that we have in the potential future.
Matt Stottler
Right, right. It's helpful. And then maybe just one on kind of the international business, right? Obviously, SAP is doing well, but outside of kind of that portion of the international business, we'd love to get any sort of updates or if you're seeing any different trends or behaviors internationally versus domestic markets, any color on the progress with your initiatives there would be helpful.
Mark Huffman
Yeah, you know, if we look at the halfway point of the year, the international performance was good. You know, we hadn't yet, there's all this, you know, obviously discussion and volatility in the market, and it wasn't apparent to us or material that it was going to be a drag on the international. Now, that said, we have some of those slip deals we refer to that, of course, are international in nature, but We had good performance internationally. We're happy with our progress and the investments that we've made internationally. We continue to grow our presence. We talked about taking the modern accounting playbook globally, and we continue to drive growth in mid-market. We continue to drive some growth through Solex internationally, as well as our own direct efforts into the non-SAP world.
Matt Stottler
That's helpful. Thanks again.
Operator
Thank you. One moment for our next question. It comes from Andrew De Gasperi with Barenberg. Please proceed.
Andrew De Gasperi
Thanks. Just one on the full year guide. Thanks for quantifying the impacts that you've laid out. Just the one follow-up I have is on the one percentage point you laid out for deals getting pushed out. I was just wondering, Clearly you quantified it and I'm just trying to understand if this is due to the Q2 deals getting pushed out or you're assuming some other potential weakness in the back half as well. And then I have a follow up.
Matt
Yeah, thank you. It's both. So it's Q2 and the timing delay that creates revenue recognition delay. And then it's an assumption around Q3 and Q4 as well that there will be some similar impact, albeit to a lesser extent.
Andrew De Gasperi
That's helpful. And then in terms of the margin guide, and thanks for laying out the assumption there as well, I was just wondering, when you mentioned the belt tightening on GMA, And did I misunderstand, but you didn't mention sales and marketing. Is that continuing to be invested as originally planned earlier in the year?
Matt
Yes, thank you. So sales and marketing has been accelerating its hiring, as well as customer team, for the last three to four quarters. We began in earnest of Q3 last year. We started to see the accelerating demand in the markets. We talked about the need to hire and build capacity to meet that demand in key areas of the business, including international, account management, and mid-market. And so we did that over that three or four quarters. Salespeople in our business take a while to ramp to get to a full-time production. And so the... The original plan was hire early and then taper in the second half of the year. That's sort of the rhythm of hiring in that group. So we'll get the efficiency out of that in the second half. Great. Thank you. Yeah.
Operator
Thank you. And I will turn the call back to Mr. Mark Hoffman for final remarks.
Mark Huffman
I just want to thank everybody for tuning in today. And on behalf of the management team, just thank our employees who are working very, very hard to serve our customers, serve each other, our customers and our partner for their continued belief and faith in Blackline's ability. We'll see you next time. Thank you very much, everyone.
Operator
Thank you. And with that, ladies and gentlemen, we conclude our conference call. Thank you for participating, and you may now
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