BlackLine, Inc.

Good day, and thank you for standing by. Welcome to the Black Line Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speakers today.

Good afternoon and thank you for joining us today. With me on the call are Owen Ryan and Therese Tucker, Co-Chief Executive Officers of Blackline, as well as 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 Q2 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 this 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 a periodic report 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. Finally, 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'll turn the call over to BlackLine's Co-Chief Executive Officer, Owen Ryan. Owen?

Thank you, Matt, and good afternoon, everyone. Thank you for joining us today. It has been almost two months since Teresa and I assumed the co-CEO roles at BlackLine. Together, we have spent considerable time meeting with customers, partners, and employees around the world, validating the strength of our business and reviewing our strategic direction. I want to discuss several of these key strengths that reflect our solid foundation and the excitement this creates at Blackline. We are in a strong position as the industry leader with a large and growing market that remains underserved and under-penetrated. Our focus on the customer has not relented. As the leader, we invest more into our customer than any other company in our market. We value and invest in each customer's success surrounding our products with the services, security, and training that drive engagement, trust, and ultimately their desired outcomes. Our competitive positioning is strong. We do not take our leadership role lightly, and we remain sufficiently paranoid as we further extend our technological advantages. Our strategic direction affords us a unique place within the office of the CFO as we inhabit prime real estate. And importantly, our corporate culture remains strong despite the impacts and challenges that COVID presented. This is largely a result of the hard work and efforts of our fellow Blackliners across the globe. As we look to build upon these key strengths, we remain laser focused in our efforts to drive relentless and maniacal focus on execution across our business. While we will be appropriately attentive to near-term execution, our perspective and focus remains on the long term with an understanding that the decisions made today are those that are expected to strengthen our business over the next few years. That being said, my focus is on these five areas. First, Relentless execution across our business operations. Second, Blackline's market message and brand. Third, ensuring that customers receive the value of the Blackline promise. Fourth, building our distribution network. And fifth, customer retention. On execution, Blackline has operated at a high level and achieved significant growth in recent years. We have expanded our position within the Office of the CFO through the introduction of innovative new solutions and the entry into new markets and geographies. Looking ahead, we recognize that further rigor and discipline around our processes will serve to strengthen our business and set the stage for long-term profitable growth. My second area of focus is to improve our market messaging and reinforce our brand promise. We know that the solutions we offer and deliver are critical to our customers. By partnering with Blackline, customers can not only become better accountants, but can also become better leaders, strategists, and stewards within their own organizations. They frequently acknowledge this, and in fact, I remain impressed by how rabid a fan base we have at Blackline. Now let me turn to delivering value. the world is changing rapidly for our customers. We have moved from a world where COVID dominated a company's agenda and then quickly pivoted to a growth at all cost mentality. More recently, customers have become increasingly focused on managing costs and margin improvement, especially with concerns of a potential recession. The turmoil that customers have been going through demands partners who are not just trusted, but agile and quick to provide meaningful solutions that solves tomorrow's problems today. This is where Blackline must excel even more to deliver our brand promise. My fourth priority centers on the potential of our large distribution network and how it can be leveraged more efficiently and effectively. Specifically, we have a tremendous opportunity to accelerate the adoption of our strategic product portfolio through both direct and partner channels, and the opportunity to do so is front and center. We can achieve this through a more strategic approach with our partners to elevate our position within the office of the CFO. Our large, globally distributed partner ecosystem is still at an early stage of maturity. We are intent on ensuring that there is a greater sense of partnership across these channels. We will be clearer in our messaging about what our partners can expect from us and what Blackline expects in return. We expect to fulfill these commitments in order to build a more robust ecosystem. My fifth point is to highlight that we have a strong renewal rate, but recognize that there are opportunities to do even better. I want to ensure that customers coming in the front door never go out the back door. Our customers must achieve the returns on their investment and realize the value we promise. Over the past few years, Blackline has invested heavily in our customer success teams. We have brought to bear enhanced implementation support, best practices along with robust customer and partner feedback channels in order to drive more engagement and drive adoption. Our customers reward these investments by serving as references and rating us highly in satisfaction. However, we can and expect to do more to raise our intensity and execution as our customer focus will only continue to grow. This customer centricity is something that both Teresa and I know is at the core of everything we do. I have spoken about what we are seeing inside our organization and where we can do even better. But I want to focus for a moment on what we delivered in the first quarter and the current market environment. What we are experiencing today is quite different than it was a year ago. I recognize that this is not a unique view and the impacts are not specific to Blackline. We are still seeing extended deal cycles as customers and prospects contend with the various challenges they presently face in their own businesses. Some of these are specific to the industries they operate in, and others are influenced by the geographies they serve. For example, we have seen signs of strength in APAC, particularly in Japan. Our enterprise business remains a steady performer, while the middle market remains softer with relatively subdued deal activity. From a financial perspective, we've performed slightly above our expectations in Q1 with revenue of $139 million, up 16%, operating margin of approximately 11%, and non-GAAP net income margin of over 18%. At the end of the quarter, we had 49 customers that generated $1 million or more in annual recovering revenue, up 23%. I briefly spoke of Japan, but wanted to again call out this business's notable performance over the past few quarters. We had a record quarter from a new customer wind perspective, many of which are coming through our Solex partnership. For example, companies like Aeon Delight, KK Ashisuto, Kiyosan Electric Manufacturing, and Liat Company, which represent a variety of industries, have all signed on as new Blackline customers. Our Japan business is still relatively small, but growing very well thanks to the investments we have made and the leadership in place. We have grown penetration to nearly 14% of the Japan-based Forbes 2000 companies in a very short period of time. And looking ahead, we see a building pipeline of opportunities that could expand our penetration into this growing market. In Solex, we saw strength this quarter, and our performance here led to a number of new global customers beginning their transformation journeys with Blackline, while coming from a diverse set of industries, from energy to manufacturing to consumer. This partnership remains an important part of our growth strategy and will become a greater focus of mine going forward. Before I turn it over to Therese to discuss her perspective and the opportunities that she sees, allow me to briefly summarize my thoughts. I wake up every morning energized by the people, partners, and customers of Blackline. it is clear to see the tremendous opportunity across our business to drive better performance through a relentless focus on execution and our customers. Much of my time is spent on our go-to-market strategy, from sales to customers to partners, to accelerate the growth at Blackline and deliver on our medium-term targets. With that in mind, some of the measures of success and KPIs that are the most important going forward are revenue and ARR growth, gross and net revenue retention rates, percentage of sales attributed to strategic products, partner participation rate and influence, international growth and penetration, and of course, our progression against the medium-term targets we outlined last November. With that, I will turn it over to our founder and my fellow CEO, Therese, to discuss her thoughts. Therese?