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Operator
Good day and thank you for standing by. Welcome to the Q2 2023 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 speaker today, Matt Humphreys, Vice President of Investor Relations. Please go ahead.
Matt Humphreys
Matt Humphreys 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'd like to note that certain statements made during this conference that are not historical facts, including those regarding our future plans, objectives, and expected performance in particular. Our guidance for Q3 and full year 2023 are forward-looking statements within the meaning of the private securities litigation format 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. Finally, unless otherwise stated, our financial measures disclosed on this call will be non-gassed. the 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 AP file of the SEC today. Now I'll turn the call over to Blackline's Co-Chief Executive Officer, Owen Ryan. Owen?
Matt Humphreys Good
Thank you, Matt, and good afternoon. Thank you for joining us today. This was a solid quarter for Blackline. even as the market environment for enterprise software remains uncertain. We were able to exceed our revenue and non-GAAP net income targets this quarter and took some key steps as we look to strengthen and expand our market leadership and competitive positioning. Specifically, we delivered total revenue of $145 million and non-GAAP net income of $31 million. Approximately 70% of sales this quarter came from existing customers, underscoring our commitment to expand and go deeper with our customer base. As part of this, the number of customers with one million or more in annual recurring revenue increased to 53 this quarter, up 23%. If you recall, there are five key areas that I am focused on in my role. These are, one, relentless execution across our business operations, two, Blackline's market message and brand. Three, ensuring customers receive the value of the Blackline promise. Four, building and optimizing our distribution network. And five, customer retention. Given these, I will walk through each area and provide some insights on how we are addressing each while driving even higher operating efficiency going forward. On execution, We delivered against our revenue and non-GAAP net income targets this quarter despite market uncertainty. While living up to these promises is of great importance, there is more work to be done to generate even more consistent, effective, and efficient execution across Blackline. Specifically, we are thoroughly analyzing and refining the structure of our organization to ensure we have the right people in the right roles and working to ensure that accountability and ownership align with our strategic goals. For example, we recently moved our business development teams from marketing to sales. This change is important as demand generation and the seamless creation of quality pipeline is vital to our continued success. By integrating our business development teams into sales, and more importantly, under the same leadership, we can ensure that alignment and ownership drive our desired outcomes while avoiding inefficient activities. Additionally, we are beginning to leverage our deep industry expertise and transition from an industry-agnostic go-to-market model to a more industry-equipped approach. With a long history and a strong presence in key sectors like manufacturing, retail, and financial services, We believe that the combination of domain expertise in accounting and financial automation, along with industry experience, can accelerate our growth and provide our customers with additional value. As the premier brand and clear leader in finance and accounting automation for the Office of the CFO, having a consistent market message and brand promise is critical. we are actively working to better align our global messaging to speak to our customers in one voice. This quarter, we hosted numerous events across the world, including our Beyond the Black event in Australia and numerous local events. And it has become clear that our customers' challenges and priorities are very similar across markets. By optimizing and aligning our message globally, we will speak to the customer with one voice and make it easier for them to understand the value Blackline delivers. This has the added benefit of creating a better customer experience and in turn, makes it easier and more efficient to do business with Blackline. The Blackline promise we offer to customer holds immense value and we expect to deliver even greater time to value while extending our market leadership and competitive positioning. As part of these efforts, we announced a new five-day implementation program specifically tailored for mid-market customers. This program is designed to be the starting point of a customer's long-term journey with Blackline. It allows customers to accelerate their time to value by leveraging our core financial close solutions, such as account reconciliations, task management, and transaction matching. We already have a number of customers that have successfully completed the five-day implementation program. Some even did so right before they moved into a monthly or quarter-end close. Innovative offerings like this are important to our customers as implementation challenges are one of the top drivers of customer dissatisfaction, which can ultimately lead to churn and attrition, an outcome we are driven to eliminate. Moving to distribution, we see opportunity in reshaping and optimizing our global partner network to deliver more consistent performance and further profitable growth. We are working to drive greater accountability and alignment across our partners and clearly defining what we expect from them and what they can expect from Blackline in return. Importantly, we are accelerating the transition of partners from enablement to commercialization. As part of these efforts, we recently entered into a reseller agreement with a blue chip global consulting firm and current partner. This partnership holds great potential for both parties as it provides an appropriate framework for new customer acquisition and expansion via cross-sell and up-sell of our strategic product portfolio to our existing customers. As you are aware, it is all about the customer black line. We take great pride in how we enable our customers and support them as they grow. We only succeed if they succeed. One of the key metrics we use to track this is renewal rates. While they are very strong relative to our broader software peer group, we are not satisfied with current levels. As such, we plan to place a more disciplined focus on our existing customers. For example, we are moving quickly to standardize our processes internally, removing friction and realigning resources to deliver seamless customer experience from sales to onboarding to implementation and through renewal. We plan to introduce new engagement programs that prioritize digital transformation for customers. Leveraging best practices backed by years of Blackline customer data, these programs are designed to accelerate our customer success and time to value. And as new customers come to Blackline, We expect to co-create customer blueprints to drive digital transformation in their business, along with milestones and touch points to ensure adoption and satisfaction remains high. Despite market uncertainty, we are seeing greater customer wins and competitive takeaways across both the enterprise and the middle market. At the enterprise level, we signed a competitive expansion deal with a leading software and workflow company. who also has an existing partnership with one of our direct enterprise competitors. Despite this, the customer recognized their existing set of homegrown solutions and what their partner offered were not sufficient to support the growth they envisioned. Further, they recognized that the ability to seamlessly leverage key data from their ERP to Blackline Viya connectors was vital to deliver the level of automation they demanded. We also signed a leading financial services technology and payments company in a direct compete with a known consolidation provider. The customer recognized the power of accounting automation and the benefits that can accrue from removing inefficient and manual work. Further, the expected ROI, time to value, and focus on governance and security resonated strongly, and we believe far exceeds anything else in the market. Additionally, we signed a number of intercompany deals this quarter with customers like Shift4, a leading integrated payment provider, and NOV, a provider of equipment, technology, and services to the global energy industry. We also signed our largest middle market deal on record, driven by the need for modern innovative solutions for complex intercompany processes. Finally, Solex deal activity remained healthy this quarter with a number of new customer wins globally. For example, companies like Restar Holdings in Japan and Anglo American in Europe are just beginning their black line journey. We remain excited about the long-term opportunity with SAP and our senior leadership team will drive the broadening and deepening of this partnership. With that, I will turn it over to our founder and my fellow CEO, Therese, to discuss her thoughts.
Matt
Therese?
Teresa Wayne
Thank you, Owen. As many listening know, I recently assumed the Chief Technology Officer role on an interim basis, a natural fit given my past experience founding Blackline and building out our product and technology footprint. So let's talk about what I see as the opportunities going forward and where we can build upon our strengths. First and foremost, the talent we have in the organization is truly incredible. I see it every day in the products we build and in the customers we delight. But I see that the structure we have in place today is likely not the one most appropriate to support our growth going forward. We need to be able to move even faster with more agility while delivering innovation as we grow. Removing self-created barriers and enhancing the discipline and efficiency inside our product and technology team is crucial to our success and something that I am intense on driving as we scale. Speaking of scale, we're seeing more and more consumption across our product sets, like accounts receivable. In Q2 alone, we saw a 24% increase and payment value, up to nearly $112 billion. Across our solutions, we also see tremendous growth in API usage from our customers. In fact, we had more than 14 million API calls alone this quarter, up 219%. While these stats are impressive for a company of our size, we need to ensure that the infrastructure in place can continue to support this growth profitably while also providing the flexibility to add new features and functionality. While still early, we are in the market for a new chief information officer who can really focus on infrastructure for scale while I, in turn, focus on our product and platform roadmap. Now, let's turn to product specifics for a moment. We recently shipped our latest expansion of the financial reporting analytics solution. If you recall, we previously were able to provide customers with a real-time income statement and balance sheet based off of their accounting data. This has resonated well with our customers and, as expected, has left them asking for even more. The addition of cash flow statements already enthusiastically configured by several customers allows real-time visibility with drill-down capabilities across all three interconnected financial statements. This gives our customers a complete picture on where their business is at any given period of time and a consolidated view with comparisons to other periods, budget numbers, and external consolidation systems. This level of real-time analysis is unavailable in batch-oriented consolidation systems. We expect that this will be well-received in the market, and our roadmap for additional innovative use cases and enhancements remains robust. Now, I want to discuss generative AI for a moment and what that means for BlackLine, our customers, and our market. We see exciting opportunity ahead to add value to our existing financial clothes and strategic products by leveraging generative AI. As part of our efforts, we continue to uncover interesting and unique use cases that have the potential to drive further efficiency while minimizing risk for our customers. Our customers and partners have been very interested in our approach but are appropriately cautious on go-forward applications given the inherent challenges related to governance and security. Delivering value on the front end while increasing risk on the back end is not a recipe for long-term success with generative AI. And we're here to win the long game. Fortunately, we believe Blackline's brand permission, combined with our commitment to governance and security surrounding sensitive customer data should be a key differentiator in our market. I expect that you will hear and see more from us at our upcoming Beyond the Black User Conference in September, so I hope that you can attend. Turning to our strategic product portfolio, we are delivering unique and differentiated innovation into these large and under-penetrated markets. In intercompany, for example, We recently released multiple new features, including intercompany intelligence using the aforementioned AI, chat peat maps, and e-invoicing support for our non-trade module. In the coming months, we also plan to introduce a new trade module for our intercompany solutions. This new module is designed to solve complex challenges for customers that operate in industries dominated by inventory and physical goods. The lack of capable modern automation solutions here only reinforces our view on the large embedded opportunities for intercompany ahead of us. And finally, in accounts receivable automation, we're working on customer driven innovation to enhance our AR management module and expand the innovative solutions we offer. Importantly, our own internal finance organization has just finished implementing a number of our own accounts receivable solutions and remains one of our important channels for customer-driven innovation and feedback. To close, we are driven to better articulate and deliver the value that customers can achieve by partnering with Blackline. Whether it's taking the first steps in modernizing their finance and accounting operations or moving forward with full digital transformation, customers can be confident knowing that they have a trusted partner to guide them on this journey. With that, I'll turn it over to Mark Parton to discuss the details of our financial performance and our outlook.
Owen
Thank you, Therese. Blackline's financial performance this quarter highlights our ability to balance growth and profitability in an uncertain market. As Owen and Therese mentioned previously, our focus remains on driving a higher level of operational efficiency in order strengthen our position, and drive a sustainable level of long-term profitable growth. With that in mind, let's review our financial highlights from the second quarter in more detail. Total revenue grew to $145 million, up 13% slightly ahead of our expectations. Calculated billions growth was 11% this quarter due to a combination of lower services growth combined with lower net new customer bookings. Remaining performance obligation, or RPO, was up 14%, with current RPO growing 16%. We closed the quarter with total annual recurring revenue, or ARR, of $556 million, up 13%. We added 43 net new customers in the quarter, bringing our total customer count at the end of the quarter to 4,279. Our revenue renewal rate was consistent with the prior quarter at 95%, as a small number of enterprise customers impacted our renewal rate in periods. Net revenue retention remained stable at 106% as we continued to experience a lower velocity of customer expansion activity due to persistent macro uncertainty. Strategic product performance represented 20% of sales. Partners were involved in 80% of large deals this quarter, driving both net new and expansion deals globally. as we continue to enable, train, and drive higher levels of partner activity. Select performance in the second quarter remains solid, with several new deals closing across our global market. In Q2, our SAP partnership represented 25% of total revenue, consistent with the previous quarter. Turning to margin, non-GAAP gross margin was 79%, with non-GAAP subscription gross margin of 82%, in line with our expectation. Non-GAAP operating margin was 13% this quarter, driven by consistent operating discipline across sales and marketing and G&A. Non-GAAP net income attributable to Blackline was $30.7 million, representing a 21% non-GAAP net income margin. Our operating income outperformance combined with interest income from our healthy cash position drove our results on the bottom line. We generated $24.6 million in operating cash flow and $18 million in free cash flow in the quarter with a free cash flow margin of 12%. Finally, we ended the quarter with $1.1 billion in cash, cash equivalents, and marketable securities, providing considerable financial flexibility to execute across our strategic priorities, evaluate opportunistic M&A, and optimally manage our capital structure. Most notably, 2024 note coming due next august of note the 2024 notes become current this month as we entered 2023 we expected to see a slight improvement in market demand in the back half of the year however as we closed out the second quarter and based on current trends we now see a slightly flatter demand profile for the back half of the year as such we are taking the high end of our previous range off the table and adjusting our full year revenue expectations to reflect this. Positively, we are seeing continued margin strength and will again be raising our full year non-GAAP net income guidance. For the third quarter, we expect total GAAP revenue to be in the range of 149 to 151 million, representing approximately 11 to 13% growth compared to the third quarter of 2022. we expect to report non-GAAP net income attributable to Blackline in the range of $24 to $26 million or 32 to 35 cents on a per share basis. Our share count is expected to be approximately 74.5 million diluted weighted average shares. And for the full year 2023, we expect total GAAP revenue to be in the range of 586 to $591 million, representing 12 to 13% growth compared to full year 22. On the bottom line, We are again raising our guidance for non-GAAP net income attributable to Blackline to $108 to $112 million, or $1.45 to $1.51 on a per share basis. Our share count is expected to be approximately 74.4 million diluted weighted average shares. In closing, we expect to drive further operating efficiency across our business as we navigate this near-term period. As part of this, we will ensure that we have the appropriate level of capacity to match market demand while supporting our long-term growth objectives. I'll now ask the operator to open the discussion to take your questions.
Operator
Thank you. We will now conduct the question and answer session. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the lines of Rob Oliver of Baird. Please proceed with your question.
Rob Oliver
Hi, Greg. Good afternoon, folks. I had two questions, Owen, one for you, and then I had a follow-up for Mark. Owen, you mentioned in your prepared remarks around what essentially sounded like a move towards vertical sales, which sounds exciting because, you know, in some of the verticals you guys have mentioned, you have some really big fish and some great reference customers. I just would be curious to know, does this involve a sales reorg? Where are we right now in that process, and when should we begin to see kind of results of that effort?
Matt Humphreys Good
Sure. Thanks, Robin. Good to hear from you. So I think one of the things that's become very apparent as Teresa and I and the leadership team have been digging into our business is the strength that we have in all the industry verticals. And you can start that, for example, broadly, let's say financial services where we have a tremendous clientele. And then you can drill down further and you can take that into the insurance industry. And then you can take that down to life insurance or property and casualty or agents and brokers. And what I find remarkable is is that we have so much depth of knowledge in the organization from those experiences with those customers. So when our customers are speaking with us, they talk broadly about our domain expertise as we engage with them, but then the ability to go and have really meaty conversations with them in their unique issues, I think is something that is quite a differentiator for us. So we're just in the early stages of starting that. We're working very closely with all parts of our organization to make sure we're aligned to go to market to track that. But there'll be more to come, but that's directly where we are heading.
Rob Oliver
Okay, great. Appreciate that. And then, Mark, one for you, you know, you closed your remarks by talking about, you know, the operating leverage. Obviously, the results so far really speak for themselves. You guys entered the year, I think it was 89 to 94, and you're shaking out 60% or so, roughly above that number right now. So I guess, can you just help us understand, you were fairly clear early on that there was some low-hanging fruit, you know, in terms of infrastructure costs and others. How should we feel about the continued opportunities to find leverage in the business, particularly relative to some of the, you know, branding, marketing, and sales initiatives that may cost some money? Thank you.
Owen
Yeah, thanks, Rob. Look, I think from the comments from Teresa and Owen earlier, you can see the intensity for which they're focused, and we all are, on driving productivity, driving operating leverage and efficiency, most of which is sustainable in our business model. One of the areas is over the last several years, like a lot of companies, we've been hiring ahead of the curve. Particularly, we've talked about this in the area of sales capacity and in the go-to-market unit. So as we meet the level of demand, it means we're hiring less in the current environment and that, you know, as we move forward and we begin again at some point to see the demand environment start to increase, there'll be areas that will rehydrate. But for the most part, we're finding operating leverage across the business, sales and marketing, product and tech, and in the GNA side of this. The team's been working very hard to help deliver this, and so we're really very proud to be able to deliver these kinds of efficiencies and results, given all of the other growth initiatives and things that we're currently focused on.
Rob
Great. Thanks, Mark. Thanks, guys, very much. Thank you. Thank you. Please stand by for our next question.
Operator
Our next question comes from the line of Alex Sklar of Raymond James. Please proceed with your question.
Raymond James
Great. Thank you. I have a two-part question for Mark and Carissa on strategic products. I guess first, here for Mark, I want to ask about how the quota attainment for strategic products, baskets, trending, I know you put in that specific level for your sales force and if you've made any changes there. And then second for Therese, I appreciate all the prepared remarks, comments on the FRA traction and as a pre-consolidation solution. Can you just elaborate a little bit more on whether that opens up any ancillary areas for Blackline to expand into? Thank you.
Owen
Yeah, I'll start. As you know, we did put a sales quota for strategic products on the sales team. And now along with everyone else in the company, they've got skin in the game to deliver strategic products to the base. And so at this point in the year we have not made changes to any of the quotas around this, which is sort of reinforcing our drive to sell into the base strategic products, which we know are a very valuable opportunity for our customers to, in this digital transformation age and this sort of margin enhancement age for them, could be of great value. So we're all still at the moment, very focused on strategic products.
Teresa Wayne
And Alex, thanks for asking about FRA. You know, it's a great example of customer-driven innovation, and our customers have been asking for this type of solution for quite a while, and we have delivered a very rich product, and we think it delivers some real value to them. And you're exactly right in where you're going. We do think that the FRA solution, is a bigger platform than we may have initially thought. And it's got some very interesting use cases for our customers, particularly in the mid-market, where they have less tools and less automation to really help them with some of their close and period end processes and reporting. So there will be more to follow on this at Beyond the Black. And as much as I would love to take about an hour to tell you more, I know that Mark and Owen would shut me down.
Raymond James
That's great, Keller, and look forward to hearing more about it next month. Then one follow-up for you, Owen. On the five-day implementation program, it seems like a really great natural extension for what you were already doing with MAPS. Can you just help frame, though, what percent of kind of the mid-market target customers you think that expedited implementation can make sense for, and then if partners are going to be enabled to sell this? Thank you.
Matt Humphreys Good
Yeah, so let me start, and then I'm also going to ask Teresa Wayne, because she's been a little bit closer to all parts of the five-day implementation. I think what we've seen so far is, as we've been talking with customers, with our partners, with prospects, that the idea of being able to do something this quickly is important. I don't know what the percentage will be, but it's probably higher than we might have originally estimated. We certainly would like to see others be enabled where it's appropriate, and so we're trying to work through that right now. Therese, like I said, has been a lot closer to all the day-to-day pieces of this, so do you want to pick up from there?
Teresa Wayne
Absolutely. So first off, just to be clear, implementing Blackline can be very straightforward, like this five-day, or it can be more involved. depending on the type of products that someone purchases or the size and reach of the customer. So for example, an intercompany implementation across 50 different global entities is going to be very different than, you know, account racks for a small mid-market company. So the five-day implementation is specific right now to mid-market companies that are coming through our MAP process, all right? And the idea with this, it's very interesting because we come on site, all right? We've already gotten the files from our customers, and we've enabled the instances, and we basically work through all the things that, you know, if they're busy with other things, then they could take months to actually happen. But we end up not only getting them up and running. In fact, in one instance, we did it in four days, all right? We also get them trained. And so after that comes hyper care to get them through their first couple of closes. But it really, it just sets the standard for immediate value going to the customer. And it increases their appetite to do more. It gets them a very early success. And they go, okay, this works. What else can we do with black lines? So the other thing that I like about this, Alex, is that it really helps us build relationships with our customers. Okay, when you are face-to-face in the conference room with them for eight hours a day, five days straight, you get to know them. And again, we like having good relationships with our customers. So we're very pleased with how that initiative's going. And I do think, to Owen's point, I think it's going to expand far bigger than what we initially thought.
Raymond James
All right, great. Thank you both for the color there.
Teresa Wayne
Thank you.
Operator
One moment for our next question. Our next question comes from the line of Steve Enders of Citi. Please proceed with your question.
Steve Enders
Okay, great. Thanks for taking the question here. Maybe to start, I just want to ask on, you know, what is exactly changing in the macro situation that's leading the lowered outlook here. Are things changing on pipeline development, sales cycles, or anything kind of mid-market versus enterprise? I guess, what is exactly different today than maybe you were getting to before?
Matt Humphreys Good
Yeah, look, I don't know that I would sit here and say that the macro has changed tremendously from where we were. that I think that we're still sitting there watching our customers and prospects think about how they prioritize their spend, how decision-making is happening. There certainly are a few more people around the table now weighing in on the conversation. So every time you add a little bit more to that, it takes just a little bit longer. So when I look at the top of the funnel, when we look at the top of the funnel together as a leadership team, we still feel pretty good about those things that are coming in. But again, like everything else, it's how you get them through the funnel and how quickly that takes place. And so we're certainly seeing CFOs more involved in the process, the CIO more involved in the process. And so we're continuing to work our way through that with them. I think in some ways, while it doesn't feel great that it's taking a little bit longer today, the positive from a Blackline perspective is the more time our prospects and customers spend with us, I think the better they feel about the value proposition that Blackline can bring to them And so it's a little bit of a timing issue for us. We're working our way through it. But I don't think that I would sit here and say anything has changed that dramatically on the macro. I do think we were hoping by the third quarter of this year that it would have cleared up a little bit. That quite hasn't happened yet, as you all know.
Steve Enders
Okay. That's helpful context there. Maybe switching gears a little bit, just on some of the management changes that happened again this past quarter, I guess, what's kind of the update on how you're looking to backfill those areas? Is there any kind of change in the strategy going forward now for both of those? I know that you've highlighted some changes already, but any kind of further change in the strategy that we should be thinking about here as well?
Matt Humphreys Good
Yeah, that's a really good question. And let me start with, I think, as we've talked as a leadership team, one of the hardest things to do in business is to fix something that isn't broken. But you know that it's not good enough to get you where you want to go. And so we are very, very busy disrupting ourselves right now. And it's taking a great deal of our time and energy and passion to drive the execution on that vision. But that's what we are That's what we are committed to. We will be sharing more about some of the strategic choices that we're making around Beyond the Black, but I think one of the things that the leadership team all feels good about, we've been very clear about the choices we want to make around all aspects of our strategy, whether it's partners, product, customer segmentation, things of that nature, geographic footprint. We're going to be very clear and relentless in how we execute as we move forward, but I think there's a lot of optimism in the organization about what we're trying to do.
Matt
All right, perfect. Thanks for taking the question. Thank you.
Operator
One moment for our next question. Our next question comes from the line of Pinjalum Bora of J.P. Morgan. Please proceed with your question.
Pinjalum Bora
Oh, great. Hey, thanks for taking the questions. I want to go back to the macro point and ask you if there's any difference that you're seeing in the different segments between mid-market and enterprise. I remember, I think last time you said mid-market was lagging a bit, enterprise was more steady. Did that kind of improve or seems like it's or might have been kind of the same as last quarter?
Matt Humphreys Good
Yeah, I wouldn't say that it's changed dramatically quarter over quarter. At a high level, I would say the themes feel pretty similar. As I said, deals are taking a little bit longer. There's more approvals required, more scrutiny from our buyers. But I think if you're looking at the mid-market or enterprise, I'm not sure that I would sit there and say it's that different. Certainly, we still see parts of the world that are lagging from where we would like them to be, particularly Western Europe. But that's, you know, something that we'll just continue to work our way through. But conversely, we're very optimistic about Japan. We have our Beyond the Black event coming up in just a couple of weeks where we have 2,500 prospects and customers registered, which is just unbelievable from my vantage point. And so we're excited about, you know, where things might be heading, but it also takes time to get there. And so we're just going to keep executing as relentlessly as we can to move forward.
Pinjalum Bora
Got it. One question on the industry or the verticalization of the sales force. Are you thinking of verticalizing kind of products as well or is that purely a sales motion?
Matt Humphreys Good
I'm sorry, a product? Yeah. I'll turn this over to Teresa in a second, but as Teresa and I and the leadership team have been talking, there are things that are very unique to specific industries and we want to make sure working with our partners and our customers that we help customize our solutions to meet those particular unique aspects of what they need. And so we've been very busy talking to customers about that over the last four or five months at this particular, three, six months almost together now, five plus months. And so we're going to continue to look at that with our partners and customers, but I think that there is a belief that there's more that we can do to help them with their particular unique issues. And it transcends the industry, if you will. So the same issues you might deal with an automobile manufacturer in Germany are the same as one in Japan is the same as the U.S. auto manufacturers as well. And so that's what we're looking to make sure we do. But, Teresa, I know you're spending a lot of time thinking about this.
Teresa Wayne
Yeah, absolutely. So you asked if it was just sales motion or sales motion plus product. The answer is the latter. There are definitely functionalities and features that we are focused on building that will be more valuable to some industries more than others. For example, banking has some pretty specific requirements that are kind of cool, but some of those same requirements actually fit nicely into retail. So what we want to do when we do make enhancements to our product offerings, we want to make sure that we can take what we have, make it highly configurable, not customizable, and if it can apply to more than one industry, then that's a win. So there will be some product modifications in order to make sure that we can address the specific needs of different industries. However, we do want to repurpose products We want to make sure it's very configurable and flexible, and that's how you get a win. Hope that helps.
Pinjalum Bora
Yeah, definitely. Thank you very much.
Operator
One moment for our next question. Our next question comes from the line of Koji Aikeda of Bank of America. Please proceed with your question.
Owen
Hey, Therese, Owen, and Mark. Thanks so much for taking the question. I wanted to ask, KIND OF THE TRIANGULATION OF REVENUE GUIDANCE AND BILLING PERFORMANCE IN THE SECOND QUARTER, AND REALLY HOW TO THINK ABOUT THE BILLINGS GROWTH TREND FOR THE RISK OF THE YEAR. YOU KNOW, REALLY TRYING TO HONE IN ON WHAT THAT FOURTH QUARTER EXIT RATE COULD BE. SO ANY SORT OF QUANTITATED OR QUALITATIVE COLOR THAT WOULD BE HELPFUL, EITHER FROM A DEFERRED REVENUE PERSPECTIVE OR RENEWAL CADENCE OR ANYTHING ELSE WE SHOULD BE THINKING ABOUT IN RESPECT TO BILLINGS.
Owen
YEAH. YEAH, THANKS. THANKS, CODY. Given what we're seeing in the leading indicators in the business and kind of where we are in the year, it wouldn't be, or we would most likely expect to see for the balance of the year, a similar trend coming out of Q2 that we've seen. And that's really sort of this macro environment manifesting. Owen talked about it sort of impacting many parts of the business, including Europe and mid-market, but also at the very high end, large deals, digital transformations. Those are the ones that move the needle. And so as we sort of take a pragmatic view heading into the end of the year, we don't guide on billings, but I think based on the revenue guidance that we've given, you'd see that our expectation is to probably see a flat environment through the remainder of the year.
Owen
That's super helpful, Mark. Thank you for that. And just one follow-up here on SAP. When we look at the growth rate on the partnership revenue, it's been bouncing around a little bit. a little bit above 20 percent you know at 20 a little bit below 20 over the past several quarters i mean how do we think about this channel and what needs to happen to drive sustained 20 plus growth there is it just the part yeah let me let me start yeah yeah thank you yeah uh thanks coach sorry i interrupted but let me just start with your comment you know the the sap growth trend actually was a bit ahead of the overall company even in this last quarter
Owen
It's not uncommon, as you know, to see pretty material fluctuations on a quarterly basis where they can be very back-end loaded. They also carry the large part of our large deal digital transformations. Those are the very strategic parts of our business pipeline. And so I think Owen's going to talk in a minute about driving the SAP partnership, but it has actually performed well. quite well, at least in this environment, compared to other parts of the business. And so from a partnership standpoint, beginning with what we saw at the end of last year and again in this last quarter, it's holding up nicely. Owen, you wanted to say something about that?
Matt Humphreys Good
No, look, I think, as you can imagine, the SAP partnership is critical to all of us at that black line. Therese, Mark, myself, and other leaders are spending a significant amount of time to make sure that we execute against this top priority. I think the big thing for us to do is to get that more consistent experience around the world as we work with SAP. And so we're going to make sure that we do that. In fact, in the short order, Therese, Mark, and I will be in a number of European countries making sure we continue to deepen that footprint. but also we want to make sure we're leveraging our other partners that have strong relationships with SAP as well. So we talked about this power of three, which is SAP, ourselves, and a partner, and we're going to continue to work that. But it is absolutely critical as we move forward that we continue to work together to achieve the full potential of this relationship. Got it. Thanks, guys. Thanks so much for taking the questions.
Matt
Thank you. Thank you.
Matt Humphreys Good
Thanks, Koji.
Operator
One moment for our next question. Next question comes from the line of Matt VanVleet of BTIG. Please proceed with your question.
Matt VanVleet
Yeah, good afternoon. Thanks for taking the question. I wanted to see if we could get a little bit more color on the Blue Chip SI partner that you talked about expanding to a reseller agreement. You know, any additional details you can help us with, kind of what the discussions were there, how much they've sort of invested in the BlackLine ecosystem, and and whether this is reflective of potential other expansion deals with some of your other partners, or is there any kind of, you know, whether it's exclusivity or just kind of preference here because of their past investments? Thanks.
Matt Humphreys Good
Yeah. So thank you. And as you know, I came from the consulting world and I believe that I have a pretty good understanding of what's important to our partners and and how best to sort of build those relationships and partners in a way that they're structured and aligned and actually getting executed against. So I think for Blackline, as we move forward, we're trying to make sure that we have the right partners with the right incentives to drive our mutual success. And you heard in the prepared remarks, we've become very clear with our partners of what they can expect from Blackline and what we expect in return. In this particular relationship, this is a partner that's had a longstanding relationship with us. They've invested quite a bit around the world, and it's sort of the next stage in their own evolution as many of these consultancies will move from not just doing implementation, but to doing business process outsourcing. I think many of them call it their own operate business, as well as being resellers in various parts of the world. So I don't want to predict that there'll be more arrangements like this, but we are certainly making sure that for those partners who we choose to do business with and choose to do business with us, that we take full advantage of all of those firms' capabilities with what all that black line has to offer. So we'll keep moving forward with this, and certainly we're engaging quite frequently with our partners to make sure that we have comprehensive plans as we can move forward with them, and that will be everything from how we govern our relationship to the plans we create together to how do we make sure the professionals on their side are certified to deliver black line offerings, how we train them, how we co-invest in things together. So there's a whole myriad of things we're doing to make sure that this partner relationship, this partner channel for us works the right way.
Matt VanVleet
Okay, very helpful. And then you talked about high renewal rates for overall software comparisons, but, you know, not enough for your own liking at this point. So curious, you know, what kind of programs or incentives are you putting in place internally to improve that further? And then, you know, sort of off of that, should we expect to potentially see some improvements on the net dollar retention rate as presumably you're maybe spending a little more time engaging with your customers on a frequent basis. And with that, maybe upselling is more potential.
Matt Humphreys Good
Thank you. And that's a really good question. Look, I think from our perspective, we've invested strategically into our customer success teams over the years. And And candidly, I think we've had good results from both a retention and expansion perspective, but from my view, not good enough. And so you fight really hard to get a customer in the front door and there's no way in hell I want them to go out the back door. And so we're going to make sure that we do everything we have to, to make sure that those customers that come the black line achieve all that we have to offer to them. And so Therese, Mark, the rest of the leadership team, we are intent on driving even better results for our customers. We talked about the five-day implementation as an example, but there are other things that we are doing. We're consolidating some of our customer support teams to make sure they align much more closely with our account management organization to, again, make sure we're driving success for our customers. And we're not waiting for the phone to ring to call us. We're proactively engaging with those customers much more aggressively over the last couple of months to make sure that we are delivering on the black line promise. So we're working really hard on that. And then also for the new customers that are coming through the door, we want to make sure that they're getting the full value from day one. And so it's a big effort for what we're trying to do, but we think it's the right thing to do for our customers that will allow us to not only land the customer, but to delight them and then to expand that relationship over time.
Owen
Yeah, Matt, the renewal rate, in addition to what Owen just said, is 97% for the enterprise. And driving that higher will absolutely have an impact on the dollar retention rate. But the biggest impact we can have on the retention rate, of course, is the expansion within those accounts. The ability to show the customer and help them digitally transform using our strategic product portfolio and to fully... adopt and penetrate globally inside their companies. So those are the big sort of additions to the rates. All right, great. Thank you.
Matt
Thank you.
Operator
One moment for our next question. Our next question comes from the line of Joseph Mears of Truist Security. Please proceed with your question.
Joseph Mears
Great. Thanks for taking the questions. This is Bobby Dion for Joe. Regarding five-day fast-track implementations, is there any early evidence that reducing implementation time can actually re-accelerate customer ads? And then I had one follow-up. Thank you.
Teresa Wayne
Well, I do think it's a competitive differentiator, Bobby D., right? I mean... The ability to get there, get it up and running, and then they see immediate value. And then having customers, you may have seen our press release on this, having customers that are willing to talk about that is certainly building enthusiasm with our prospects.
Joseph Mears
Awesome. Sounds great. And then just one quick follow-up on an earlier question. but how are strategic product sales trending, and are those accretive to NRR currently? Thank you.
Owen
Yeah, our strategic product sales has been very strong over the last year or two even, and we've seen them typically range in the 25% to 30% of total bookings in any quarter. That's our target range and what we like to see. Given that portfolio and that it's expanded and that it is a big part of customers' transformation, We would like to see that at the 25% to 30% range. So at 20% in Q2 where it landed, not where we want it to be or need it to be. So we're working through many of these things that Owen has described to drive greater adoption and penetration and sales of those products.
Rob
One moment for our next question.
Operator
Our next question comes from the line of Andrew De Gasperi of Varenberg. Please proceed with your question.
Andrew De Gasperi
Thanks for taking my question. I just wanted to maybe ask a big picture question. You gave out some mid-term targets at your investor day last year, and obviously you've had some sizable changes within the organization over the last few months. I'm just wondering, particularly as it pertains to revenue growth, I know the window there for returning to 2025 was three to five years. I guess just in terms of those numbers, are you still confident you can reach them? And do you plan on maybe updating us in a month or so beyond the block?
Matt Humphreys Good
Yes. So, as you know, we put out the targets literally less than a year ago, and we still believe that there are multiple levers that we have at our disposal to achieve those targets, whether it's our partner channel working with SAP, the strategic product portfolio, as well as new innovation. So all of these items support the future growth we envision for the business, and we're taking steps to make sure we deliver on that. So we feel good about the foundation, and we're focused on reaccelerating our growth going forward.
Andrew De Gasperi
Thanks, Mark. And then lastly, on the gross margin side, I mean, do you – wouldn't you think the runaway is to expand that to the 83-plus percent? Is that still likely? I mean, we've not seen the dividends yet coming through that line item.
Owen
That's right. Yeah, we have not gotten that back to – well, first, we've got a migration taking place that will take us into 2024 and onto the public cloud. And so until we complete that for all customers, we're substantially, I think, over – or at least we're over halfway through it. We have a number of customers this year and next year to get through. And then we can start to move or migrate to a higher gross margin. So that's sort of our longer-term target or our mid-term target as well.
Andrew De Gasperi
Great. Thank you.
Operator
One moment for our next question. Our next question comes from the line of Matt Stotler of William Blair. Please proceed with your question.
Matt Stotler
Thank you for taking the questions. A couple of strategic products here, follow-ups. In terms of intercompany, I mean, you mentioned intercompany intelligence, obviously continuing to take a more holistic approach to intercompany financial management around that core ICH. We'd love to just get some color in if you're seeing that make a difference in the pace of adoption for ICH, for intercompany. Obviously, adjusting for kind of the near-term macro challenges, given those are big deals. And then if you think forward, you know, what other levers do you think that you have to drive further adoption of those products specifically?
Teresa Wayne
Specifically IFM or all strategic products? Just asking. Which are you asking about?
Matt
Specific to IFM. Specific to IFM.
Teresa Wayne
Well, you know, it is ideally suited for large, complex, multinational organizations, and it these customers really are focused on continuing to drive efficiencies in their business and, you know, adopt high automation. It is still a fairly long involved process because it's something that, you know, you've got to get buy-in across multiple areas of the business. You've got to have people that have an appetite for change and for transformation. And I wish I knew how to goose acceleration around digital transformation, because that's really what we do so very, very well, but it really is just part of a journey that a company goes on. We did have a number of great IFM deals this quarter, and we still really expect it to be a key contributor to our longer-term growth.
Matt Stotler
That's helpful. A follow-up on the go-to-market. Obviously, you guys have discussed removing the overlay sales team for strategic products and introducing the general quotas there. We'd love to just touch on if you're seeing that have any impact on deal momentum or top of the funnel and any sense of if you would consider that to be running at full productivity in terms of selling strategic products or if there's still some room to go on that front as well.
Owen
Yeah, there's still room to go. You know, year to date, I think we continue to be sort of in our target range at the low end on strategic products. We continue to see customers' interest level at the top of the funnel. But for us to close out this year and for the salespeople to to participate, we need to convert and move these products and these deals through the pipeline. So we're intently focused on programs and customer communication and sales performance that will do just that. So we know that the strategic products, particularly, Therese gave some fascinating growth figures not just in the AR product, where we know that the customers that are using our products are getting incredible value for it and that they're accelerating their usage of those products. So it's really getting it into those hands and closing out those deals. So the strategic products quota this year was a good idea. We're still early in the year. We're a back-end loaded company. We've got pipelines for strategic products, and we're working hard to get those closed.
Matt
Very helpful. Thank you.
Operator
Thank you. Our next question comes from the line of Chris Quintero of Morgan Stanley. Your line is now open.
Chris Quintero
Hey, thanks for squeezing me in here. Owen, I wanted to ask about the changes you're making to the Global Partner Network. Are there any specifics you can give on how you expect to drive greater accountability and some of the commercial changes you're looking to make there?
Matt Humphreys Good
So the question is, how are we looking to drive greater accountability in the global partnership network? Is that what I thought I heard you say?
Chris Quintero
Correct, yes.
Matt Humphreys Good
Yeah, look, I think that from my experiences being on both sides of this over many, many years, lots of people sign up to be partners without very clear understanding of what you would sort of call your wedding vows to make sure that each party understands what In fact, they're committed to. And so best practices are to be very clear about that. And so that's a process that we are going through with all of our partners at this particular point in time. And we'll have that completed over the next six, eight weeks. We have a, at Beyond the Black, we have a big partner summit. And I expect that those that are willing to commit and that we're committing to, those relationships will get broader and deeper and more productive for everyone. And then I expect a number of partners to fall by the wayside because they're not going to be able to make the commitments that we need from them. And so rather than prolong something and name only, we'll move on from those. And so that's what we're working our way towards all around the globe at this point in time.
Chris Quintero
Excellent. Thank you.
Operator
One moment for our next question. Our next question comes from the line of Adam Hotchkiss of Goldman Sachs. Please proceed with your question.
Adam Hotchkiss
Great. Thanks so much for taking the questions. Would be great to get an update on how you're thinking about capital allocation here. I think there have been a couple of cases on the public and private side where M&A activity has picked up in the space. Just curious with profitability coming in better and the 26 convert pretty far down the curve here. how you're thinking about opportunities to continue to expand the portfolio inorganically or other capital allocation opportunities.
Owen
Yeah, thank you. With a billion dollars on our balance sheet, and as you mentioned, some maturities that are fairly decent ways out, a couple of things that we view, it's a very strong weapon in our own market as a competitor where we've got the balance sheet. Second is we've got a number of deals that we continue to prove and validate our thesis around our strategy, our ability to move around inside the office of the CFO and raise that level of conversation to get inside these strategic transformations. Just as a reminder, the office of the CFO transformation is still very early. And so Blackline's ability to play in those spaces continues to validate as we have done these deals and proven it. So look, our view is that we can and will be opportunistic, very targeted, but we'll be looking at M&A where we can make a difference and buy capabilities for our customers that are important to them that will not just drive revenue growth, but drive real value inside 4,000 of the biggest, best companies in the world. And so we're sort of leaning forward at the moment in our ability to use M&A as a growth strategy.
Adam Hotchkiss
Okay, great. That's really helpful. Thanks. And then appreciate the color around strategic sales quotas. But just zooming out on sales productivity more broadly would be great to get a sense for how you're thinking about you know, where you're at from a current productivity perspective and how that's informing your view on optimal headcount. You know, any thoughts on incremental hiring, things like that would be helpful. Thanks.
Owen
Yeah, we had the benefit of a, an aggressive or at least an assertive hiring into the market demand last year. And so we've been able to decelerate on hiring on the demand side of the business, really focus on programs such as incentives and alignment and even reorienting some of the go-to-market groups to be more efficient. And those are giving us the opportunity to drive productivity into what is now one of the most ramped you know, sales headcounts that we've had. And so as we move forward, we will be able to be agile and adapt to the market demand environment. At the moment, that demand is flat. Our hiring is flat. And so we're going to continue to sort of modulate that way.
Adam Hotchkiss
Great. Really helpful. Thanks a lot.
Matt
Thank you.
Operator
One moment for our next question. Our last question comes from the line of Daniel Jester of BMO Capital Markets. Please proceed with your question.
Daniel Jester
Hi, this is Kyle Ibarastri. I'm for Dan Jester. Thanks for squeezing us in. I appreciate the color on the fast track implementation program for midsize companies. I was just wondering, what was the catalyst to put this program together?
Teresa Wayne
Thank you. You know, we know that mid-market companies are constrained when it comes to both accounting and IT resources. Okay, so this was really about serving that contingency even better. And so anything that could get them up and running more quickly and have them see time to value shortened was we considered a win. Now the interesting thing is, you know, over the longer term, I think this program will probably expand to even larger companies because people really enjoy the focused attention and being able to get something done very rapidly. And they actually enjoy building the relationships with the people at Blackline because then they feel like their journey is going to be supportive, supported. And they also feel like there's more to come, right? If you can get something up and running in five days, you for goodness sakes, they certainly want to look at more products at that point.
Rob
Thank you.
Operator
I would now like to turn the conference back to Owen Ryan, co-CEO, for closing remarks.
Matt Humphreys Good
Thank you. And on behalf of all Blackliners, thank you so much for your interest in and support of our company. Please have a great day. Talk soon.
Operator
This concludes today's conference call. Thank you for participating. You may now disconnect.
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