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Operator
Good day and welcome to the Q4 2022 Black Line Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand this conference over to your speaker, Mr. Matt Humphreys, Vice President of Investor Relations. Sir, you may begin.
Matt Humphreys
Good afternoon, and thank you for joining us today. With me on this call is Mark Huffman, Chief Executive Officer of Blackline, and Mark Parton, Chief Financial Officer. Before we get started, I'd like to note that certain statements made during this conference call that are not historical facts, including those regarding our future plans, objectives, and expected performance, in particular our guidance for Q1 and full year 2023, 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 made during the call are reasonable, actual results could differ materially as these statements are based on our current expectations as of today. and are subject to risks and uncertainties, including those stated in our periodic reports filed with the Securities and Exchange Commission. In particular, our Form 10-K and Form 10-Q. We do not undertake and expressly disclaim any obligation to update or alter our forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable law. All comparisons we make on the call today relate to the corresponding period of last year, unless otherwise noted. And also, unless otherwise stated, our financial measures disclosed on this call will be non-GAAP. A discussion of these non-GAAP financial measures and information regarding reconciliations of our historical GAAP versus non-GAAP results is currently available in our earnings release, which may be found on our investor relations website at investors.blackline.com or in our form 8K filed with the SEC today. Now, I will turn the call over to Blackline's Chief Executive Officer, Mark Huffman. Mark.
Mark Huffman
Thank you, Matt, and good afternoon, everyone.
Matt
Thank you for joining us today. Blackline delivered solid financial results for Q4, rounding out a year of demonstrated profitable growth. We reported fourth quarter total revenue of $140 million, up 21%, and for the full year, $523 million, up 23%. We also delivered further margin expansion in the quarter, due to operating efficiencies combined with discipline and sustainable expense management, giving us confidence in our ability to achieve the medium-term targets laid out at our recent investor day. Turning to an update on the macro environment and our sales performance in Q4, we're still seeing elongated deal cycles, which we noted on our prior earnings calls, as customer buying behavior reflects ongoing market uncertainty. While strong competitive win rates and healthy demand signals at top of funnel reinforce the long-term confidence in our business, we expect near-term demand to be influenced by delayed decision making and ongoing budget reprioritization. Our lower than expected bookings performance in Q4 reflects these conditions and underpins the assumptions we've embedded into our 2023 revenue guidance, which Mark Pardon will speak to shortly. We're pleased that many of you listening today were able to participate in our Beyond the Black customer conference in November. As part of the event, we hosted some of the largest global enterprises and unveiled a series of new solutions and programs that enable, enhance, and transform accounting. Specifically, we announced innovative new solutions and capabilities, such as financial reporting analytics, or FRA, and Blackline Accounting Studio. We also expanded our modern accounting playbook to our cash application solution and unveiled a new Microsoft Dynamics 365 connector. Additionally, we added new services and support offerings to drive greater value for our customers, enabling them to accelerate the adoption and time to value of our industry-leading solution. Following the event, we received very positive feedback from our customers and prospects, which directly resulted in a number of customer wins in Q4. In the weeks following the conference and before quarter end, we signed multiple FRA deals above our expectations. While we are still early, the fact that customers trust Blackline and are speaking with their wallets reinforces our confidence that the innovative solutions we're delivering differentiates us further in the market and supports the long-term growth opportunities ahead for Blackline. Furthermore, we are tracking towards general availability for Blackline Accounting Studio later this summer. Of note, we've already signed a number of early adopter customers seeking to accelerate their digital transformation journey with Blackline. These recent successes and the additional innovation we've planned over the next few years serve to demonstrate Blackline's focus on becoming the platform company for the Office of the CFO. Moving to progress in our strategic products portfolio, we're pleased to announce that we recently completed the PQ process for SAP for our intercompany financial management non-trade solution. Through our SAP SOLEX partnership, our teams are now moving forward to actively sell this additional solution to SAP customers and prospects globally extending our reach and expanding our ability to capture the large and unpenetrated intercompany market. And finally, we recently extended our relationship with Kofax, a global leader in intelligence automation, adding globally compliant electronic invoicing capabilities to our accounts receivable automation solutions. This expanded alliance strengthens and extends BlackLine AR solutions, ensuring customers remain compliant with rapidly changing electronic invoicing requirements around the world and B2B receipts. Our go-to-market strategy continues to evolve as we strengthen the alignment between our strategy, product portfolio and the market opportunity. As you saw in December, we announced an action that was largely driven by macro uncertainty and our near-term goal of optimizing our existing capacity to market demand. As part of this, we made several changes to our go-to-market strategy. We introduced a strategic product quota for all quota-carrying reps, aligning the Salesforce's incentives with our product portfolio and the market opportunity. Additionally, we have largely removed the overlay component in our sales teams, which we expect to improve sales efficiency, reduce friction, and enable quicker wins with customers. While still early in this natural evolution, This is a key part of ensuring alignment of our sales force with Blackline's goal of growing strategic products, ARR, and driving higher sales efficiency. Now let's take a moment to review our Q4 results and the highlights from the quarter in a bit more detail. In our markets, APAC was a strong performer and delivered a record sales quarter led by some important wins in Japan. Our North American business remained relatively consistent with some great new logos and expansion deals. As expected, EMEA remained relatively soft as the macro and geopolitical environment continues to weigh on business activity in that region. On the customer side, we saw some relative strength in the new customer bookings this quarter, especially in our enterprise driven by our Solex partnership. Additionally, average deal sizes increased this quarter, up 8% year over year to 127,000. And finally, we had 48 customers that generate $1 million or more in ARR, up 33%. Despite the ongoing uncertainty in the market, we still see examples of strong winds, including the signing of several deals with new and existing airline customers such as Alaska Airlines and Qantas. For reference, Blackline serves many of the largest global airlines who leverage our solution and customer teams to drive automation and efficiencies across their businesses. In a great net new Solex deal, we signed one of the world's largest airlines who was looking to move away from a competitor that lacked many of the modern features and functionality needed to successfully execute against their digital transformation goals. As part of our engagement, leveraging the strength of our SAP partnership and our global consulting partner network, we were successful in demonstrating how Blackline's best-in-class solutions can be leveraged to support their future growth. Additionally, we signed a record Solex deal with the largest North American energy and chemicals producer, leveraging the capabilities of our core financial closed solution combined with our innovative and high automation intercompany solutions. As part of a larger digital transformation project that includes a cloud transition, this customer was focused on ensuring that key processes remain sustainable and efficient as they grew while also resolving a growing set of complex intercompany challenges. Finally, in EMEA, We signed Renault, a leading European automobile manufacturer, as part of our Solex partnership. This new customer was embarking on a complex and large-scale digital transformation process to support their ambitions of becoming a leading electronic vehicle manufacturer. As part of this, they are reimagining their financial processes to better execute their digital transformation in an efficient, automated, and compliant manner. Having Blackline as a strategic partner was a clear choice and we look forward to growing this partnership over time. In AR automation, we saw a notable acceleration in deal activity in the quarter as we continuously work to refine our target customer profile while enhancing and expanding our offerings. Furthermore, we are seeing more and more customers selecting our broader AR platform instead of solely choosing our cash application solution, setting the stage for long-term success in this business. Notably, we saw record payment value from our AR business this year up 33% to over $327 billion. We find multiple new and existing global customers who see the benefits of automating the order-to-cash process, thereby unlocking working capital to support their business in today's uncertain environment. In one example, we were able to leverage our recently announced modern accounting playbook for cash application and find a growing Canadian customer who is looking to purchase an AR solution to drive automation, support future growth, and improve their working capital profile. As part of this competitive process, we demonstrated the value a modern AR platform can deliver and how these work hand-in-hand with other strategic tools Blackline offers. such as transaction matching. This combined AR and matching deal is exactly the type of deal that delivers exceptional value for customers and for Blackline. In another competitive instance, we leveraged our AR platform to expand with a leading UK provider of financial market data. As an existing customer, they were seeking to move away from manual and unsustainable cash collection processes and ensure they had robust and efficient solutions in place that met global regulatory requirements. All in, another great win and opportunity to deliver tangible value to customers. In closing, while we see uncertainty ahead in the markets, the value that we deliver and the trust of our customers remains clear. And we're confident Blackline is well positioned for long-term value creation. We remain focused on executing against our go-to-market strategy as we align our business with near-term market conditions while investing appropriately for future growth. I want to thank our employees around the world for their dedication and determination during these uncertain times. With that, I'll turn it over to Mark Parton to discuss the details of our financial performance and our outlook.
Mark Pardon
Thank you, Mark, and good afternoon, everyone. Blackline reported solid top line growth and further margin expansion as we closed out the year, driven by further efficiencies and productivity across the business. Expanding on what Mark mentioned earlier, we saw lower than expected bookings performance in Q4, as market uncertainty continues to influence deal cycles and customer buying behavior. This was most evident in the last few weeks of the quarter, especially in EMEA and in the middle market, as deals that were expected to close in Q4 flipped into future periods. Despite this, we continue to focus our efforts on what we can control in the near term while positioning the business for long-term success. As such, we see multiple factors that give us confidence to deliver against our targets in 2023. First, as Mark mentioned, we recently took action to better align capacity to near-term demand while further refining and enhancing our go-to-market strategy. Second, We're entering 2023 with a more seasoned and efficient Salesforce as we lap a period of heavy hiring and unramp sales capacity. Third, we continue to arm our Salesforce with innovative new solutions and capabilities like FRA and Blackline Accounting Studio that drive customer engagement, support top of funnel activity, and ultimately deliver incremental revenue. Fourth, We continue to develop, build, and expand our global partner network to expand our reach and capabilities. And finally, we continue to see healthy competitive win rates across our markets. Now, let's review some highlights for Q4. Total revenue grew to $140 million, up 21% compared to the fourth quarter of 2021. Note, FX was a one-point headwind to revenue growth in the quarter. Also, Stronger-than-expected demand for professional services resulted in 41% growth versus the prior year, as customers' desire to unlock the embedded value of our solutions drove higher utilization. Calculated billions growth was 17% versus last year, despite a two-point headwind from FX. Remaining performance obligation, or RPO, was up 30%, with current RPO growing 23% year-over-year. We closed the quarter with total annual recurring revenue, or ARR, of over $533 million, a 19% increase year-over-year. We added 128 net new customers in Q4, bringing our total customer count at the end of the year to 4,188. Net revenue retention was 107% in the quarter, and it includes a 1.5-point headwind from FX. Gross revenue retention remained strong and picked up to 98% in Q4. Strategic product performance remained healthy and represented 27% of sales, driven by demand for high automation and high ROI solutions. For the full year, strategic products represented 25% of sales, up two points from 23% last year and at the upper end of our target range. Partners were involved in 67% of large deals as we leverage our growing partner network to drive additional opportunities. As expected, we saw strong performance from our Solex relationship, leading to a record net new sales quarter as we signed several large multi-product deals globally. In Q4, SAP partnership represented 24% of total revenue. Shifting to margin, Non-GAAP overall gross margin came in above our expectations at 80%, with non-GAAP subscription gross margin of 83%. In services, our teams delivered impressive performance in the quarter due to higher utilization and additional productivity gains. Non-GAAP operating margin was 13% in the quarter, marking a notable five-point improvement over Q3 and an eight-point improvement versus last year. Improvement here was driven by a combination of gross margin outperformance, operating efficiency, and disciplined expense management. Non-GAAP net income attributable to BlackLine was $25.5 million in Q4, represented an 18% non-GAAP net income margin, up sharply versus both the prior year and Q3. We generated $25.8 million in operating cash flow and 20.3 million in free cash flow in the quarter, with a free cash flow margin of 14% representing two points of expansion over the prior quarter. And finally, we ended the year with 1.1 billion in cash, cash equivalents, and marketable securities, providing great financial flexibility as we look towards 2023 and beyond. Now, turning to guidance, We anticipate the uncertain market environment we experienced in Q4 and the second half of 22 to persist through 2023. We expect deal cycle lengths to remain extended as customer decision-making processes remain centralized and deliberate, resulting in longer lead times and extended approval processes. Additionally, we are expecting an approximate one-point headwind to full-year revenue growth from FX, which is embedded in our guidance. All in, we believe our guidance appropriately reflects these factors while also considering our goals of driving further operating efficiencies across the business. For the first quarter, we expect total GAAP revenue to be in the range of $137 to $139 million, representing approximately 14 to 16% growth compared to the first quarter of 2022. We expect to report non-GAAP net income attributable to Blackline in the range of $11 to $13 million, or 15 to 17 cents on a per share basis. Our share count will be approximately 74.6 million diluted weighted average shares. And for the full year, 2023, we expect total GAAP revenue in the range of $586 to $596 million, representing 12 to 14% growth compared to the full year 2022. On the bottom line, we expect to report non-GAAP net income attributable to Blackline in the range of $66 to $70 million, or 89 to 94 cents on a per share basis. Our share count will be approximately 74.4 million diluted weighted average shares. Before we turn to Q&A, I want to thank all of our Blackline employees for their efforts and their hard work in 2022, as well as our customers who continue to acknowledge our leadership and our innovation. While we expect ongoing market uncertainty in the near term, we remain confident in the long-term opportunities ahead and our ability to drive profitable growth.
Mark Huffman
Now I'll ask the operator to open the discussion to take your questions.
Operator
Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. One moment while we compile the Q&A roster. Question will come from the line of Rob Oliver with Baird. Your line is open.
Rob Oliver
Great. Good evening. Can you guys hear me okay? Hey, Rob. Great. Hey, Mark. Just a couple questions for me. Thanks. Mark Hoffman, I'll start with you. It sounds like late December was just a tough time period for deals to close, but it does sound like you guys had some continued success in Asia. I know Japan's been a strong area for you. EMEA, a struggle. North America, it sounds like it's tough. From a geographic perspective, can you talk about how the year closed and then maybe how the full year guidance for 23 contemplates kind of the geographic breakdown relative to kind of where we are right now? And then I had a quick follow-up.
Matt
Sure. I'll start and then Mark can talk about guidance. I would describe what we saw in Q4 as a continuance of what we have been describing in terms of uncertainty and deal elongation. I think you got it right. There was strength in APJ and Japan specifically. Some strength in some industries, energy, travel, hospitality, and then softness broadly in Europe, new business, and mid-market. In terms of the guidance,
Mark Pardon
You know, I think it's very similar. We look at, as a marker going into this year, our strength and pipeline and the demand, and we would carry forward what we're seeing in EMEA, APAC, and also as part of North America. So in the first half of the year, we believe that that's going to continue.
Rob Oliver
Great. Thanks. And then you mentioned some of the sales changes that you're making in the strategic products. Can you just talk about strategic products, you know, how they're performing now? And I don't think I heard you guys talk about 4Q at all on the call. And, you know, I know we're still early in 4Q. I think actually you may have mentioned that you got approval on the SAP pipe, but just wanted to get a sense for the setup for strategic products for this year. Thanks.
Matt
Yeah, overall, last year, for the year, we were up two points, 25%. Q4 is 27% of bookings in strategic products. I would say that the end of the year, our AR business had some nice wins. We took a number of customers live in AR. We continued to perform well across a variety of the components that we would call strategic products. 4Q, if I just talk about it, is IFM. We talked about this real significant Solex win, which had a multi-product element to it. It's the largest Solex win we have in the history of the relationship. That had IFM in it. So we continue to exhibit strength in intercompany, but by and large, all of those things still subject to the same continuance of that macro uncertainty and some of the elongation of cycles. As you did note, we did achieve one of the primary product objectives for the year with the integration of 4Q, which was to get the intercompany non-trade element on Solex through the PQ process, which we did achieve in the quarter. Okay, great. Thanks, guys.
Mark Huffman
Appreciate it. Thank you, Rob. Thank you.
Operator
One moment for our next question. We'll come from the line of Matthew Van Vliet with BTIG. Your line is open.
Matthew Van Vliet
Hey, good afternoon. Thanks for taking the question. Maybe you wanted to dig in a little bit on the mid-market performance. Didn't hear much in the prepared comments, although, Mark, I think you just mentioned that was on a little bit of the weaker side. Did you see maybe the reaction to the macro and some of the overarching themes you see there just, I guess, bubble up a little quicker and have a greater impact there? Or anything else you might point to around your mid-market performance and anything that you're sort of altering into 23 to help jumpstart that?
Matt
Yeah. If you look backwards in the several quarters, mid-market was an area of acceleration, high execution, strong demand. It actually took longer for it to exhibit some of the macro behaviors, but we did exhibit that in Q4, or we did observe that in Q4. I would say interest in the top of funnel is still healthy in all markets and geos, but interest in mid-market included, but the uncertainty there has really affected the velocity through the funnel itself. In terms of how we respond to that, our observation of win rates remains steady there. Things that go to conclusion decisions through that velocity in the funnel challenge is down a bit. So we continue to sort of just study making sure we win the ones that we want to win in the markets and the spaces that we play as we see some pressure in the mid-market to the macro uncertainty.
Matthew Van Vliet
Okay, helpful. And then as you look at a number of reductions in headcount across some very large companies, especially in tech, but in other industries as well, how do you feel like that's impacting companies either the sales pipeline or any sort of renegotiations or renewal types of business with some of your existing customers as they look towards the future and maybe operating a slightly smaller company, any impact on initial deal sizes potentially as you look ahead at that? Thanks.
Mark Pardon
Yeah, it's a good question. You know, there's a few things that we observed, I think in Q4, We had a very strong user expansion number in the fourth quarter, so our ability to land and expand inside the accounting and controller's office continued. The important go forward is going to be where the cut's taking place, so the front end of the house and the enterprises or the back end of the house. I think we would have some indications that strengthening the back end and accounting and finance continues to be a fairly stable environment. I'll also add that users are not a part of our pricing strategy and strategic products, so we're able to drive value for the customer through value realization through that strategic portfolio, which I think was part of the rationale moving forward for pricing strength.
Matt
Yeah, and I wouldn't say we observed any headwinds in pipeline regarding any reductions that are out there. Obviously, you've got a high awareness to it in our organization as well as many other organizations, particularly concentrated in tech. I think the uncertainty more broadly impacted Booking's performance, not anything to do with the reduction.
Mark Huffman
All right, great. Thank you.
Operator
Thanks, ma'am. One moment for our next question. That will come from the line of Matt Stotler with William Blair. Your line is open.
Matt Stotler
Hey, Mark and Mark. Thanks for taking the questions. Maybe just first to start with one on guidance. So very, very clear and appreciate the color in terms of what you're seeing from a macro perspective. Sounds like a lot of the same things you were talking about last quarter. When I look at initial guidance for top line for 2023 and then put that next to, you know, current RPO growth, ARR growth, buildings growth, and the exit rate for 2022. It seems like there's a little bit of a disparity there, right, a little bit of a gap. And so, if you could just double-click on, you know, maybe help bridge that gap, double-click on what you're seeing, what's embedded in 2023 versus what you've seen exiting 2022, and into the kind of first couple months here, 2023 would be helpful.
Mark Pardon
Yeah, thanks. I appreciate that. Yeah, just a – You know, maybe to reiterate, some of our philosophy around guidance has to do with being very pragmatic, particularly in a time like today where there's uncertainty in the macro environment that we're operating in. Our guidance philosophy continues to be that we want to provide a range. We have high conviction that we can deliver against, particularly in these times. If and when demand changes or accelerates, we feel that we're in a good position to execute on that and build from When I look at the question that you have around the disparity of some strong signals coming out of Q4, I think it's important to realize that we had a decelerating or lower than expected bookings growth in the second half, particularly in the later stages of Q4. And trailing 12-month billing is a good example of that, and that was due to the macro environment. We're also lapping some tough comps. particularly related to the inorganic contribution from 4Q last year, which I think is important. And then as we also stated, we have a near-term sort of FX headwind that we're working through that is a part of that number. So that's really how we got to that range from where we jump off in December and Q4.
Matt Stotler
That's very clear, very helpful. Thank you. And then maybe just one follow-up, you know, obviously it was a very exciting announcement, the Blackline Accounting Studio at Beyond the Black last year. Any early feedback you've gotten from maybe the beta for that offering and what you're hearing from customers, is that resonating? And then an update on the timeline. I think you previously said Q2, and it sounds like, if I heard you correctly, you were talking about over the summer, so an update on the timeline there would be helpful, too.
Matt
Starting with the timeline, I think summer is the right way to think about it. That's kind of the border of Q2 and Q3. Interest high, which I think tells you that large organizations that have a bunch of complexity in there, and complexity being multiple ERP systems, multiple different processes distributed across workers around the globe, the ability to orchestrate that tie all those systems together, create standard business processes through accounting really resonates with people. And so I would say, Matt, too early to say anything more about it. It's in early adopter phase. We keep good tabs on how it's going there. And we think that's obviously a long-term value driver towards our vision of creating a platform that's really indispensable to the office of the controller and broadly to the CFO.
Matt Stotler
Got it. Thanks again.
Matt
Thank you.
Matt Stotler
Thanks, Matt.
Operator
Thank you. One moment for our next question. We'll come from the line of Pendulum Bora with JP Morgan Chase. Your line is open.
Pendulum Bora
Hey, guys. Thank you for taking the question. Continuing on the accounting studio line, Mark, can you help us understand maybe seems like or maybe how applicable is accounting studio to the 4,000 plus 4,000 customers that you have? And I know it's very early, but what kind of ARR uplift would you say that might drive over the next year?
Matt
Yeah, I think it's way premature to be thinking about the ARR uplift, especially in the time box you just put on a pendulum. I appreciate the nature of the question. I think it applies to at least 50% to 60% of our customers based on the size, demographics, and complexity of them and the complexity in the workloads that we do for them. The accounting studio itself is one component, and it's the first component of a broader platform strategy that we have and we talked about at Investor Day. How it comes to impact the ARR over time will have some direct impact from an ability to bill and charge for it, and then some indirect impact. in terms of net revenue retention, expansion, and making the ability of some of the multi-product solutions, high automation things really come to life for some of these customers that they're better integrating their data sources in these complex business processes that they do have.
Pendulum Bora
Yeah, understood. Got it, thank you. And Mark Parton, one for you on the guidance. Well, trying to understand, since you're also driving some of the sales changes, trying to understand if you have layered in maybe a little bit more conservatism than usual. Would you say there has been a little bit of a tweak in the guidance philosophy going into this year, given the heightened uncertainty?
Mark Pardon
I understand the question. It's a fairly consistent philosophy that we've had in previous years, which given our business model, the predictability of the base, the recurring revenue nature, the small percentage of services, we've got a fairly high confidence in a forward forecast. The key is that we took what we saw in the last couple quarters, learned from it, from everything from closure rates to deal timing and cycle timing, and extrapolated that forward. Without trying to be too exact on the return of the demand environment, we've built our forward forecast range very similar to what we've done in the past. It's pragmatic. There's high conviction in our ability to execute. And if and when, or actually when, demand returns, we feel like we're able to improve upon and build off of what we've provided.
Pendulum Bora
Got it. Thank you very much. Okay.
Operator
Thank you. One moment for our next question. And that will come from the line of Joseph Mears with Truist. Your line is open.
Joseph Mears
Great. Thanks so much for taking the questions. This is actually Bobby Dion for Joe Mears tonight. Starting off, you're great to hear about the strength with Solex, but I'm curious, are there any updates to the recently signed partnership with Accenture? You know, has that led to any new logo wins or additions to the pipeline there? And then I had one follow-up. Thanks.
Matt
Yeah. Starting with your point about Solex, it was a very productive quarter, and obviously we announced a big win with them. So, albeit we always feel like we should be doing more through that partnership, pleased with the performance in Q4. Still real early with Accenture, and without being able to name exact names, they did contribute to our results. They are influencing some new customer sales. They are building pipeline with us. They are influencing some of our existing customers that they have embedded relationships with, and that's a global phenomenon. We have examples in Germany. We had examples in North America and more broadly mainland Europe that they've had great influence on. So still early, but I'd say it's off to a real productive start.
Joseph Mears
That's great. Appreciate the color there. Then switching gears a little bit, I'm curious how many ERP integrations the Blackline platform, excuse me, currently has, and how many do you plan to expand that by in 2023? I think based on some of our recent conversations with customers, it seems to be a pretty important effort. And I think y'all talked last quarter about a 5% NRR boost from connector utilization last quarter. Thanks.
Matt
Yeah. I guess in some ways, one, I'm not sure I can quantify for you, Bobby, the amount of ERP integrations. We have very specific and purpose-built with use cases embedded connectors. And so we have those for all the, you know, big names that you would expect. And they support our strategy and sort of land and expand strategy with those like SAP, Oracle, et cetera. We announced recently the Microsoft connector as well. Then we've, as a part of our platform and the Blackline Accounting Studio, The integration platform itself is an important part of the strategy, keeping in mind we get a higher net revenue retention from those connectors, people who use connectors or our APIs. And so unleashing the ability to write to APIs has become really, really, I think, strategic. We've had a number of large customers sort of utilizing those who landed last year and and are now coming live, providing some great feedback on it. And so with the advent of the API, theoretically, even if you had the item that was at the longest tail of the list of ERP companies out there, you could theoretically write to our APIs and create connectivity. So I can't really quantify how many, but as you can tell, excited about the potential, think it's strategic, and we'll continue to invest in that.
Mark Huffman
That's great. Appreciate the detail.
Operator
Thank you. One moment for our next question. And that will come from the line of Alex Sklar with Raymond James. Your line is open.
Alex Sklar
Great, thanks. I don't know who wants to take this one, but a two-part question on reiterating the medium-term growth targets. So first, any color if the December headcount changes impact the expected timing to return to those growth levels? And with that, I think you said the top of funnel growth was still performing really well in the quarter. Can you directionally quantify if the pipeline growth currently supports those medium term targets? Thanks.
Mark Pardon
Yeah, thank you. I think I can start the question with the action we took in December does not extend out the timeline. In fact, as we look at our medium term targets for both growth and rule of 40 operating efficiency, We feel like we're making traction, particularly around our ability to execute in the Salesforce and the GT in the go-to-market areas with more product, more opportunities for them to drive accountability. And then for the second part of the question.
Matt
Yeah, in terms of the transition between our annual plan and the ability to meet the objectives this year, which I feel like we have adequate pipeline to meet the 2023 objectives, Sort of hard to translate that into the 24-month view of pipeline. I wouldn't suspect that anything with regard to the action we took has a detrimental impact to that. We are paying close attention to the signals to make sure that we're bringing back capacity as it becomes required to build the 2024 capacity model to meet those midterm objectives, Alex.
Alex Sklar
Okay, great. That's helpful context. I guess, Mark Barton, just one follow-up for you on the first quarter guide. Is there anything one time in nature that's kind of driving the quarter-over-quarter decline versus fourth quarter? Is that just services timing? Anything you'd call out there?
Mark Pardon
Right. So it's a 14 to 16 coming off of Q4. I think I would remind you we had 4Q in the inorganic in last year. Last quarter, That's number one. Secondly, Q1 of last year was one of our strongest quarters of the year. We came out of a very strong 2021 into a strong Q1 of last year. Q1s are typically seasonal, so last year's Q1 strength was extra special, and that also sets up the tougher comp for this quarter.
Mark Huffman
Okay. Thank you, Wilson.
Operator
Thank you. One moment for our next question. And that will come from the line of Koji Aikido with Bank of America. Your line is open.
spk03
Hey, Mark Parton and Mark Huffman. Thanks for taking the questions. Just a couple from me. I wanted to go back to the guidance and ask a question there maybe a little bit more directly. I appreciate all the commentary that you had, thinking about it pragmatically and high visibility. But I guess more directly, does the guidance assume the macro gets worse? And if it does, how are you thinking about maybe some of the key metrics that you might be flexing down, whether it be net revenue retention or sales cycles or deal sizes or anything of that nature? Just curious to understand if the guidance does assume macro maybe gets a little worse.
Mark Pardon
Yeah, I appreciate that. Look, our guidance takes what we've seen in the best case that we can, takes what we've seen in the last couple quarters in terms of closure rates, sales cycle, and timing, and extrapolates that through the first half of this year. That seems the most pragmatic way to look at it. Q1 is a seasonal quarter. We're in it now. We have I think with a couple, two or three quarters now consistently seeing closure rates being impacted and decisions being impacted by the macro. And so moving in the early part of this year, that is the right approach to sort of extrapolate that for us. With regard to other metrics, we don't guide on other metrics, but our view is that the base customers that we have and our ability to drive strategic products in this environment is notwithstanding the macro is a point of emphasis and priority for us and so that's a group at the end of last year we saw our growth profile move closer to 65 35 where the growth coming from the base is And we would expect that to be the early part of this year, too. We also, I think, mentioned that the FX has had some damage as a headwind, both in revenue and in billing and in the ARR numbers. And we expect that to be the early part of this year, too. So that's our sort of current working assumption, is to extrapolate what we've seen in the last half of these quarters and put that into the first half of this year.
spk03
Got it. Thanks, Mark. And just a follow-up for you, if I may, here. Typically, I don't ask questions on numbers on the press release getting in the weeds, but I saw, you know, kind of in the non-gap reconciliation and impairment of cloud computing implementation costs. Could you maybe walk us through, you know, what that is? Is this the one time for this quarter, or is this something that we can anticipate, you know, something more on a quarterly basis going forward?
Mark Pardon
Yeah, for sure. Look, We recently, in the fourth quarter, we decided to shift our focus from what had been a fairly lengthy third-party implementation of a quote to cash tool that wasn't delivering the benefits that we were expecting. And so as part of that, we wrote off the implementation costs from the past, what had been sort of a three-year on and off project worth about $5 million. And so that's what you saw in that reconciliation. And so we've moved on from that, and that's in our fourth quarter as a charge-off.
spk03
Got it, got it. Thank you for that clarification. Thanks for taking my question, guys. Appreciate it.
Mark Huffman
You're welcome. Thanks, Oji.
Operator
Thank you. One moment for our next question. And that will come from the line of Brent Braceland with Piper Sandler. Your line is open.
Piper Sandler
Hi, this is Mauro jumping on for Brent. Just two questions from us. So the first part of my question is on the strategic product attach rates. You know, I think at the analyst that you called out single digit attach rates for most of the product. Any noteworthy changes to call out in terms of how those products closed out the year? And then as you think about the full year guide, what are you contemplating in terms of the mix of strategic products and overall revenue mix for the year?
Matt
Well, I'll start with the first one. The view that we have in terms of the attach rate and the sort of TAM to go get there, we don't refresh on a quarterly basis. So I don't know that we, off the top of our head, could come up with like for like for you there, nor do we sort of guide a report on that. I would say in the quarter, some strong performance, largely on the back of a real large opportunity in IFM. As I mentioned previously, A.R., at the end of the year had a nice uptick, including new customer wins, some expansion, and then we took a number of customers live. And we continue to see, you know, strong throughput on our platform in terms of how much cash actually gets applied and processed, $327 billion in payments via our platform. And then lastly, you know, our strategy continues with the additional strategic products like journal entries, smart closets, strong quarter for us?
Mark Pardon
On the second part of that question, you know, we've guided within five point increments in the past where for the full year, we would want to see a product mix of 20 to 25% in previous years. In this past year, 22, we had a goal of 25 to 30%. And I think going into this upcoming year, 25 to 30% continues to be the right range. And the reason for that is balance, right? We're managing a global core financial close along with a strategic portfolio along with new products. And the right balance here for us would be 25 to 30 and then to try to hit the top end of that target for this year. So that's what we're planning and thinking toward.
Piper Sandler
Got it. Thank you. That's very helpful. And then the last one from us is just around EMEA and the mid-market. Have there been any changes in win rates there, or has the softness just kind of remained a function of deal slippage? And then maybe just more broadly, have there been any changes in the competitive environment that you'd call out? Thank you.
Matt
So EMEA and mid-market, the phenomenon that we are observing there is actually a declination of deals that go to decision, so sort of a deferment. if you will. Win rates steady, steady meaning they toggle by one or two points, so immaterial, in my opinion, over the course of time. And the biggest phenomenon is less deals reaching conclusion there.
spk01
Thank you. One moment for our next question.
Operator
Our next question will come from the line of Daniel Jester with BMO. Your line is open.
Daniel Jester
Hey, great. Thanks for taking my question. Apologies if there's some background noise. Just one for me. Appreciate sort of all the color you gave on the consumption metrics and how much that's improved for the strategic products. Can you just remind us, like, how deeply penetrated within your customers that have these strategic products are? If you think about those consumption metrics as they grow, is it solely going to be new clients and new products, or can you get deeper penetration within your customers that have already adopted them? Thank you.
Mark Pardon
Great question. Look, you know, transaction matching continues to be our highest penetrated, and that's still, out of 4,000 customers, that number is still in the hundreds. And the other products from the cash industry and AR to IFM, those still continue to be nascent in the single digits. So the opportunity there is to sell into that base. So your question around can strategic products land and expand within a single customer, the answer is yes. The way the pricing works and the way we've modularized we can absolutely land and expand our strategic products to build within further penetration on account.
Pat
Great. Thank you.
Mark Huffman
Thanks, Daniel.
Operator
Thank you. One moment for our next question. We'll come from the line of Josh Beck with KeyBank Capital Markets. Your line is open.
Josh Beck
Hey, guys. This is Maddie on for Josh. Thanks for taking my question. My first one's higher level. Just wondering how you guys are thinking about IT budget changes in 2023 and where you fit in that prioritization. And then my follow-up is obviously you called out lower bookings than expected in Q4. Just wondering if some of those deals would trickle into Q1 and we might get better bookings than expected. Thanks.
Mark Pardon
Oh, yes, thank you. So on that last question about deal slippage, you know, we've, it's tough to predict that, particularly as we move from a Q4 into a Q1 and in this macro. So I think the right way to think about that is those are not pipeline deals that we've lost. They continue to be in some form of our pipeline funnel. Mark mentioned earlier our competitive win rates continue to be stable, our interest levels continue to be strong, and trying to close that gap for closure rates is where we see the macro impact. So whether or not it's Q1 or continues forward, I think, is a lot to do with that macro uncertainty within many of these regions and customers. Moving to the first question,
Mark Huffman
First question was? We're staying in the IT budget.
Mark Pardon
IT budget. Yeah, exactly. Thank you. So the market that we serve is in the CFO and controllers market, particularly when it has to do with digital transformation. And you see IT budgets and CIOs can get involved certainly in those areas. We do have a thesis around those budgets, which is there's Within the office of the CFO, you'll see in the early stages of uncertainty and macro and recessions and other issues, you'll see a retraction, reprioritization. But then you'll see a greater need, as Mark said earlier, to reprioritize because to drive efficiency and automation, in either a war for talent or a more pressure on margin and margin expansion, CFOs and controllers obviously doing more with less. So we think being a high ROI product that we sit in the first budget prioritization out of the gate when they're ready to start spending. And so from that environment going into this year, tough to know the timing, but that's how we...
Mark Huffman
how we think about the market.
spk01
Very helpful. Thank you, guys.
Operator
Thank you. One moment for our next question. And that will come from the line of Andrew De Gasperi with Barenburg. Your line is open.
Andrew De Gasperi
Hi, this is Stephanie. I'm for Andrew. Thank you for taking the question. I'm wondering if you could elaborate a little bit on your new customers added this quarter and what the mix was between the customers, if you have that, and whether there are specific products driving this new customer growth or that are popular with new customers. Thank you.
Mark Pardon
Yeah, interesting. We have a little over 4,000 customers today. About half of them are enterprise, a company we would describe as over $750 million, and then the other half are mid-market below $750 million. And we often see in any given quarter the velocity or the expansion of the customer number is in the mid-market space, as you might imagine. There's more mid-market customers coming onto the platform, but the enterprise are at a much larger size. So we would think of the They gain each quarter on average to be mostly mid-market in the customer number, but mostly enterprise in the ARR growth number. And so to your question around is there a specific driver in each case, the answer to that is not necessarily.
Matt
Yeah.
Mark Pardon
hard to put a particular product or driver on those. Most of our customers today begin and start with a financial close, and then they build up from there, and that's just an average.
Andrew De Gasperi
Okay, that's helpful. Thank you.
Operator
Thank you. One moment for our next question. And that will come from the line of Fred Lee with Credit Suisse. Your line is open.
Fred Lee
Hey, gentlemen, thanks for squeezing me in, and good to see the margin protection in a tough selling environment. Another question regarding macro, and just to clarify, would you say macro deteriorated quarter to quarter, or was it equally as difficult as Q3? And then just to follow up.
Matt
Yeah, I would call it a continuity thing. I think I would describe it didn't improve, nor did it degrade. It was a continuity of our observation
Mark Huffman
Okay.
Fred Lee
Okay. And then my second question is, how should we think about the outperformance of services and the demand that we saw there? I mean, the company posted some of the highest services margins in recent history. Shouldn't that lead to incremental subscription demand as consultants kind of identify opportunities? How should we think about that?
Matt
Potentially. You know, what I think has occurred there is, one, it was strong execution. In the inflationary time, we spent a lot of time focused on how we can drive improved rate, and we have proven that out. And as that rate burns through burning hours in these engagements, that turns into revenue. So focus and execution across rate improvement, the utilization rates, and then, you know, some level of demand in our install base for additional services which we continue to focus on how we monetize existing investments that we have in services and make them billable, I think led to that performance.
Fred Lee
All right, great. Actually, one last one for Mark Parton. Accounts receivable saw a big cash outflow in the quarter. That looks greater than normal seasonal. Can you talk a little bit about what's happening underneath there?
Mark Pardon
Yeah, I'll tell you what, I will do that in a follow-up with you in our call tonight. I think there's nothing out of the ordinary, so we'll spend a little bit of time looking at that. It's possible that if you're looking at cash flows, it could just be our investments. We have a billion dollars on the balance sheet. We're investing that in safe, secure investments and earning a return on that. So it's possible that that's what you're looking at. But I'll have a more detailed answer for you in our next follow-up call. All right, sounds good. Thank you very much, Jim.
Operator
Thank you. One moment for our next question. And that will come from the line of Steve Enders with Citi. Your line is open.
Steve Enders
Okay, great. Thanks for taking the question here. I guess just on the outlook, I just want to get a better sense of how you're thinking about further research you know, further investments through the year. And, you know, I guess in particular with a little bit of the reorganization on the sales side, how you're thinking about, you know, some changes or putting more dollars to work to build out the sales capacity there. Thanks.
Mark Pardon
Yeah, the sales capacity has been one of the sort of stories over the last couple of years, as we talked about at Analyst Days, that during – During the early days of COVID, we took a lot of the slack out of the system. And then as demand started to increase, we rehydrated with a great deal of hiring and putting talent out in the streets. And so when we started 2022, our capacity was very high. What we've seen is we've adjusted that or stayed in an area where the capacity going into 23 is sufficient for the demand that we're expecting. Mark talked about some of the changes within that go-to-market organization to help drive efficiency and effectiveness on the streets. And so those are the changes that you're seeing. For us, our investment profile is that we feel we've made very good early investments in the team, in some automation in the back end, and in some, you know, sort of customer-focused team members so that we're in a good position going into this year without having to add more incremental costs beyond what our revenue growth is expected to be.
Mark Huffman
Okay, gotcha. Appreciate it. That's helpful. Yeah.
spk01
Thank you. One moment for our next question.
Operator
And that will come from the line of Adam Hotchkiss with Golden Snacks. Your line is open.
Adam Hotchkiss
Good afternoon. Thanks for taking the questions. Could you guys dig a little bit deeper on some of the places that you're finding efficiencies outside of the December workforce reduction that you announced and sort of what's left to go there? I think the discipline there seemed relatively broad-based from what we've seen, and the performance relative to the first half on fairly comparable gross margins is pretty noteworthy. So any color there would be helpful.
Mark Pardon
Yeah, thank you. I think you start with the gross margin where each quarter last year we saw an uptick to finally in the fourth quarter getting to 80%. And that's been through just very impressive performance in the services organization to drive a higher operating margin in their business from higher rates, higher utilization and higher quality work, as well as a better balanced and thoughtful migration on the GCP, which in that number still is creating a one and a half to two point headwind. They were still able to operate effectively. So I think that's the sort of key part of the leverage. Throughout the P&L, though, we've had on all cases, on all fronts, as you said, a fairly broad base deficiencies and as well as cost discipline. So in addition to just belt tightening, key areas of efficiency are in G&A, we've had built out the infrastructure to support our growth over the past few years, and now we're moderating these investments, and we feel like we're in a good place to, for example, in areas of recruiting and in areas of automation. In the sales and marketing organization, as I mentioned earlier, we have better sales rep productivity in the second half of the year, coming out of the year. More of our sales force now, based on the timing of when we hired, are ramped. coming out of the year. And then we are obviously giving a lot more product and opportunity, more upsell of strategic products. So there's more of a flywheel motion with our ecosystem and with our product set. Finally, in the product and tech organization, that's been a great beneficiary of things like moderating our investments, improved efficiency through consolidation of vendors, offshoring some development and building a center of excellence for our development teams, driving efficiency for our engineers through better tooling and consolidation of those tools. So a number of places where the management teams across the company globally have done a very good job of getting focused on how to drive costs out of the business, yet still be investing for the future and have efficiency.
Adam Hotchkiss
Great. Yeah, that's really helpful. And I know this may be looking a bit forward, but what's your process like once you see accelerating demand signals for building the cost base into that growth, especially as you think about your medium-term targets? Is that a lot more challenging given the variability in the macro and how quickly things can change?
Mark Pardon
You know, it's interesting. We've seen that now twice. And I think that's one of our strengths, frankly, is the agility or the ability to see those demand signals. A great example is that We have a very strong base of partners and a very strong base of customer team and sales people. And so we're able to get coverage in the markets where we're seeing demand. If demand, for example, increases in our existing base, we've got plenty of coverage with our account managers, with our customer success teams to be able to sort of flood the zone, if you will, or to get to that demand opportunity. The tough part, as you're alluding to, is when you have long lead times with sales hires, how do you get that capacity on board? We're able to manage that given sort of our capacity management where we are today. And so looking into 23 and 24, Mark mentioned, we'll be sort of looking very closely at those signals so that we're prepared for it.
Adam Hotchkiss
Really helpful. Thanks, Mark. Thank you, Dan.
Operator
Thank you. Thank you. One moment for our next question. And that will come from the line of Patrick Walravens with JMP Securities. Your line is open.
Pat
Oh, great. Thank you. And first of all, let me wish everyone a happy Valentine's Day, and I hope you guys end up having time to spend. Likewise, Pat. So, Mark, is there a shortage of accountants? And if so, what are the challenges in translating that into closing deals for software that should make accounts more productive?
Mark Pardon
Is there a shortage of accountants? Yeah, I think so. There's a shortage of great accountants. There's a shortage of all accountants. We think our market's got about 13.5 to 14 million accountants around the world that are doing something along what we call you know, help them do. And our challenge to reach the accountant has always been the same. The accountants, I think, they're, you know, it's inertia, it's the unwillingness to change, it's, you know, risk that comes from changing. And so what we are sort of always focused on and what we're great at is talking to the accountant. And what we're focused on is how to turn that level of need And into opportunity, Pat. So that's, I think, you know, that's obvious.
Pat
And then my follow up is, and this will be a million people are going to ask you this later, so we might as well get it on the transcript. You know, you're a month and a half through the quarter. How's it gone so far?
Mark Pardon
It's early in the quarter and it's a seasonal quarter for us. And it's about, you know, what we expected at this stage. Again, it's early in the quarter.
Matt
Yeah, I would say it's a continuity. You know, we've got a month's worth of experience. It just happens to be the most season month of the year for us, given that a lot of our clients are busy closing their annual books. So I would just use the same kind of word. It's a continuation of what we've been experiencing thus far.
Pat
Okay, great. Thanks very much. Thank you. Thanks, Pat.
Operator
Thank you. And speakers, I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. Mark Huffman for any closing remarks.
Matt
Thank you again for your interest in Blackline. On behalf of the management team, I'd like to thank our employees throughout the world as well as our customers and encourage you as you interact with your clients in the investment world where they need efficiencies in their finance and accounting operations to send them to Blackline. Have a great day.
Operator
Thank you all for participating. This concludes today's program. You may now disconnect.
Andrew De Gasperi
The conference will begin shortly. To raise and lower your hand during Q&A, you can dial star 11.
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