Good day ladies and gentlemen. Welcome to the BlackLine Fourth Quarter 2016 Financial Results Conference Call. At this time all participant lines are in a listen-only mode to reduce background noise but later will be holding question-and-answer session after the prepared remarks and instructions will follow at that time. [Operator Instructions] As a reminder, today’s conference call is being recorded. I would now like to introduce your first speaker for today Christine Grinney, you have the floor.

Good afternoon and thank you for your participation today. With me on the call is Therese Tucker, Founder and Chief Executive Officer of BlackLine and Mark Partin, 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, 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 conference call. While we believe any forward-looking statements we have made are reasonable, actual results could differ materially because the statements are based on our current expectations and are subject to risks and uncertainties. We do not undertake and expressly disclaim any obligation to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. Also unless otherwise stated all financial measures discussed on this call will be non-GAAP. A discussion of why we use non-GAAP financial measures and a reconciliation schedule showing GAAP versus non-GAAP results is currently available in our press release, which may be found on our Investor Relations website at investors.blackline.com or on our Form 8-K filed with the SEC today. Now I'd like to turn the call over to Therese to begin.

Good afternoon everyone and thank you for joining us today. I am very pleased with BlackLine’s Q4 and the overall very busy year of 2016. We executed well and gained momentum in some key areas. Our total non-GAAP revenue reached 124 million for fiscal 2016 reflecting a year-over-year growth rate of 48%. For me one of the primary benefits of being public is my ability to create more BlackLine evangelist. So if you are on this call and invest in, analyze or work with other companies I'd like for you to ask their CFOs how they close their books and how they produce their financial reporting results. Is it manual and labor intensive? Have they ever heard of BlackLine? Are they interested in efficient, accurate, cost effective controlled results? They can learn more about us at blackline.com and questions can either be directed to myself or the general mailbox at info@blackline.com. Now on to the highlights, our customer base grew to more than 1,700 customers around the world. That's up 31% from 2015. For the year, we added 420 new customers in both enterprise and midmarket across multiple industries and geographies. Notable wins include Allianz France, Aramark, First Data Corporation, GoPro, Houghton Mifflin Harcourt, Marathon Petroleum, Reynolds Consumer Products, The Humane Society, Thermo Fisher Scientific and Roku. Now I enjoy competition and this might be my favorite highlight. In Q4 alone, we had five new large enterprise customers that are switching from a competing product. Because of the complexity both technical and political around making a vendor change especially for a larger company these types of wins not only confirm BlackLine’s leadership position but also speak to the breadth and depth of value that our solutions deliver. We are also seeing larger deal sizes which Mark will talk about shortly.…

Thanks Therese and good afternoon everyone. I'll quickly mention that during my remarks today unless I specify otherwise all numbers are non-GAAP. We are proud to report a strong fourth quarter and another great year. For the full-year 2016, total revenue grew 48% to $124 million. Gross margins were strong at 81% and we delivered substantial improvement in our operating loss margin moving from a negative 21% in 2015 to a negative 10% in 2016. In fact, 2016 was yet another year with positive operating cash flow after taking into account a $6.4 million accrued picked interest payment related to the early retirement of our debt. In the fourth quarter, total revenue increased 47% year over year to $36 million as overall global demand for our core platform was strong and we had good performance in all areas of the business. We landed 133 net new customers if Q4. That brings our total customer count to 1,758 representing growth of 31% year over year. We added both large and midsized customers during the quarter resulting in a revenue mix of approximately 80% enterprise and 20% mid-market. Also, our international revenue is up a point from 2015 finishing 2015 at 17% of the total. Our new logo deals continued to get larger generally after landing with an initial deal, the customer footprint expands over time. However, in Q4, we continued our recent trend of signing customers with larger deal sizes. We believe we are getting more share of wallet upfront on new customers for a few reasons. First, some of these deals are takeaways from competitors where we are replacing a large deal they previously had. Second, some customers are buying more products in their initial deal and the innovative pricing on products like Intercompany Hub and Transaction Matching are driving…

[Operator Instructions] We’ll be taking our first question from the line of Terry Tillman from Raymond James. Your line is open. Mr. Tillman I’m not getting any audio from your line. Mr. Tillman, please check your mute button. Last call for Terry Tillman.

Yes, can you hear me?

Loud and clear sir.

I guess Mark just quick financial question. So for Run Book, the $4 million in license, you said that you would have booked or build that I don't know if both or one of the other, I may have that confused but how do we think about that $4 million was that multi-year - multiple years of license and then how does that spread out or what kind of impact we see on that in 2017?

Yeah, great question. Hi, Terry. And if you're going to do seven questions this time, let us know. So Runbook was built in a perpetual license. So the $4 million is a one-time upfront bill. However, due to the accounting rules and the nature of the contracts from Runbook, we are going to amortize that revenue over future periods. It will be, in some cases, long periods, multiple years. And in other cases, it will be over short periods of time. So it does create a bit of a lumpy revenue rack for that $4 million, but it's not material to the overall business. So it won't be that significant. But it's important to say that in Q4, it does show up in the billing. It will be amortized over a long period of time and it’s one-time. And then starting January, in case this is your next question, we are converting sales of Smart Close that Runbook product into subscription contracts that are more consistent with Blackline rev-rec contracts.

Okay. And I definitely am going to be under 7 questions, but just kind of closing the loop at least from my perspective on Runbook, I mean just any education for us on $4 million worth of business in terms of, are we talking dozens of customers, a few customers? I know they had signed some big deals in the past, just would love to get some perspective on what we're talking about there?

Yeah, great question. If you recall, we acquired between 80 and 90 customers and those customers had follow-on purchases to expand their footprint with Runbook and that was in the pipeline, those deals were in flight. So what we did was close about $5 million of those deals, 1 million came in Q3 if you recall and then 4 million in Q4. So we closed out sales to existing customers. So we didn't expand the customer base, just expanded the customers.

And I'm just going to jump in Terry, we did do however two deals in Q4 that were combined Blackline Smart Close deals, two new customers. That’s not in the 4 million.

Okay. Well, Therese, so in terms of just kind of the cadence of business in the fourth quarter. It sounded like you're seeing good trends, larger transactions, intercompany hubs being sold and some deals that's good, even some Smart Close business, but did you see any kind of change in linearity because of the election or then post the election or how was the tone of business throughout the three months? Thanks a lot.

Thank you for that question, Terry. We have seen no evidence that politics affects our business at all.

Are you ready for the next question? Our next question comes from the line of Mark Murphy from JP Morgan. Your line is open.

Yes, thank you. And I’ll also echo my congratulations. So, Therese, would you say that in Q4 alone, you had five new enterprise customers that are switching from a competing product. I guess, I'm just curious is that five customers all switching off the same single competing products or are they each kind of moving off of different various products?

Okay. Mark, as long as we don’t name names, yes. Same product.

Okay. And so can I just ask you, is there something, is that highly unusual, it sounds unusual, it sounds like you have one key competitor that’s certainly having considerable problems. But I mean have you had other quarters where you've taken a comparable number of customers away from that competitor?

Well, I don't want to speak to how other people are handling their business, whether that's good or bad. So I’m not going to agree with your problem statement. I will say that there were a couple of things that were notable about this quarter. The recognizability of the names that switched the size of the deals and yeah, it might have been on the high end in terms of the actual number. We generally do see some switches from other products, but it's not usually the bulk of our business. It’s not the bulk of our business here, but these were some very large, very recognizable names.

Okay. And then as well, Mark, I wanted to ask you when we think about the spread between your user growth, which I believe came in at 30% and then revenue growth, call it, 47%, can you help us a little bit to bridge the gap between those two numbers just in terms of what you think is chiefly driving that, is it favorable adoption of more product modules, is it other types of price uplift or something else that’s coming into the picture there?

Yeah. Thank you. You answered it for me. It's those things. It is, in particular though, I'll add Runbook did add a few points to revenue in the fourth quarter, but we have multiple levers of growth. And users is one. Customers is another. But also our ability to sell product in to customer and expand the customer and we have consistently and historically seen deal sizes in both enterprise and mid-market expand over time and we saw that same level of growth in Q4 and through the full year. So when you think about growth lever, users is one of those. We also have product, we have products today that we sell that aren't user base.

Yes. And I was just going to add to what Mark was saying about the transaction matching and the intercompany hub are not per user priced and so it might slightly look a little odd if user growth doesn't keep up with revenue for that reason.

Okay. Got it. One last question, Therese, I'm just curious when you look at the systems that your customers are connecting to in terms of their general ledgers and other systems, do you see those tipping over to the cloud providers like NetSuite and Workday Financials. Just I’m wondering how are those looking in terms of your new bookings mix.

Honestly Mark, I think our customers have spent - I think that it is moving towards the cloud. I think that that movement is still relatively slow, given the cost and time that it takes to replace an ERP.

Thank you. Our next question comes from the line of Matt Lemenager from Robert W. Baird. Your line is open.

Great. Thank you. Hi, Therese. Hi, Mark. I had a question on the mid-market and it's kind of a newer focus. Can you talk about how the reconciliation volume of customers that you're seeing in the mid-market compares to enterprise and then on that, can you talk about the size of the organizations in the mid-market, how low are we going down that pyramid?

Well, Matt, we typically, Matt, yes, it is Matt, we typically focus on companies in the mid-market that are 50 million or greater in revenue. Now that being said, we do have sometimes incoming inquiries from companies that are smaller than that, but it's not a segment that we actively pursue. So we view the mid-market as 50 million to 500 million. We're seeing very strong demand there. Reconciliation volume, now, do you mean, when we talk about that, what's actually very interesting there is we see a lot more usage of the transaction matching in the mid-market than even maybe an enterprise. Okay. And the reason for that is, it really translates directly to body counts. If somebody is doing a lot of work in Excel spreadsheets matching, they really can't scale up their operations without either hiring more people or adding software. So we do see quite a bit of usage on individual transaction reconciliation. On account reconciliation, obviously, enterprise companies have larger numbers of balance sheet accounts typically because they do their reconciliation by entity. Was that so much -

No. That's helpful. And then just one second one I had was on the margins, they saw nice leverage again this quarter. It looks like the second quarter in a row that sales productivity was nicely up. Can you give just any more color around sales productivity and then the R&D expense grew 3% to 4% for the second quarter you talked about investing in the product and intercompany hub. So would that be more of a stepped up effort as we go into 2017?

Thanks, Matt. Sales and marketing, we accelerated investment in the global scale of our sales teams and partnerships in ‘15 and ‘16 and what you're seeing in ‘16 and then again in ‘17 is more around which equals more productivity coming from the sales force. So that's the first thing. The second thing is we're getting the benefits of scale in some of the areas that we go into internationally. With R&D, yes, we also accelerated R&D investment in ‘15 and in ‘16 and ‘17, we’ll begin to get the benefits of scale, continuing to invest, but year-over-year, we'll see operating leverage in that part of the business as well.

And just a follow-up on Mark's comment, we will continue to invest in our intercompany hub. I don't know that it's really a stepped up function, but we're very, very committed to that and we're committed to learning everything about this market and making sure that our customers are successful using our ICH product.

Thank you. Our next question comes from the line of Bhavan Suri from William Blair. Your line is open.

Hey, guys. Nice job. Can you hear me okay?

We can. Hi, Bhavan. I noticed you were first on the call.

Anyway, now you’ve broken my chain of thought. Let's jump in for a quick second. So intercompany hub obviously just seems like an interesting opportunity. When you look at the partners, especially now the formalized relationships with the three big accounting firms, I felt like a lot of that was for the core reconciliation product and everything else, are the partners getting intercompany hub, do they get how to sell that, do you need to educate them further. Or are they already involved with their clients in discussions around potentially implementing intercompany hub?

I love that question. They are already involved with their clients, discussing intercompany needs and why Blackline can help address those.

Great. And so when you look at the strategic nature of that, there's lots of accounts coming due reconciliation, as the conversation with intercompany is happening and you have to work through the ROI, would you give us some color know for the deals you had, what is the type of ROI guys are getting, from being able to do hedging better or whatever it is from a value prop perspective?

I can't give you that right now. Okay. And there's a couple of reasons for that. First off, we’re adjusting the price of the intercompany hub almost in real time, because we've seen such terrific demand, all right. Secondly, one of the reasons, one of the big reasons that our customers are really needing this, the ICH, is because of risk issues around taxes, around different taxing border authorities, around accounting requirements that are changing and so it becomes very much a risk and compliance issue. And for example, if you have transactions between two countries and both countries claim that they get the tax to full amount, you've got incredible exposure. Okay. And you need to very clearly show transactions going back and forth. So it's a little bit difficult to measure the ROI of what doesn't happen when you have the intercompany hub. But the things that are happening are scaring the daylights out of some of our customers.

Got it. So that’s helpful. And then one quick one for Mark, just on the customer count, you guys are an enterprise company and then, as you sort of head down markets, it feels like ARPU could tick down, but customer count obviously would increase from a growth perspective, because there is just lots more smaller customers buying at smaller amount. Is that a thing you're seeing because you also talk about larger deals in the mid-market, I'm just trying to see the puts and takes that sort of gets you as we look forward to what that might look like?

Yeah. Look, I think that's fair. These are levers of growth. So we get velocity on customers in the mid-market and we get big footprints and large deal sizes in the enterprise. So we don't give guidance on customer numbers and user numbers, but what we saw in the last half of the year was upsize deals in enterprise and in mid-market and that's driven by product and the larger deal size for us was great, right, because it's just one of the levers of growth that we saw. In 2017, it's our expectation in the guidance that we gave that it will be very consistent with what we're doing now. It would be business as usual in terms of the levers of growth.

And to Mark's point, it's great to have multiple levers because they tend to balance each other out.

Yeah. And then one last one from me, just on the net dollar expansion rate, obviously very healthy still, but if you're signing larger deals, right, so the ability for those guys to expand next year versus smaller deals where the expansion possibility is larger, just so that we're all on the same page, is there a chance that net dollar expansion rate trends down as you’re actually capturing a lot of share of wallet in that initial first deal?

Yeah. Bhavan, I think that's a great question. Here's what we'll say about the net dollar retention rate is that our tools today for driving greater penetration into the accounts have never been greater from our sales teams to our new products to our ability to expand platform footprint within the account already and we're continuing to get price increases. And I should add our dollar revenue renewal rate maintains very high, very consistent. So the tools are there for us. And we're firm believers not just that this is a massive unpenetrated market, but that our existing customers remain unpenetrated. So there's opportunity there.

Thank you. Our next question comes from the line of Jesse Hulsing from Goldman Sachs. Your line is open.

Thanks for taking my question. I have a couple of questions. Mark, the first one is for you. When you think about, I guess, sales and marketing resource deployment for ‘17, where are you adding more incremental capacity? Is it in the enterprise, is it in the mid-market, is it in your account management team, what's your plan for the year there?

Yeah. Thanks, Jess. It’s all of those. You look at the growth initiatives and the strategic plan for this year, we still see and are continuing to see great demand in all of those areas and we've built good infrastructure in scale both for mid-market and enterprise and for international and for the domestic. So we’re going to put incremental sales capacity to work in all of those areas and I would add one more, we've said that we're enhancing and continuing to improve our ecosystem. I think that's one in this year that we're also investing further in our partners and their ability to help us with these new strategic products. So it's sales capacity in all the areas where we see demand.

Got you. And then this one maybe is for Therese, on Runbook, I think one element of the geologic, that acquisition was that it could be a catalyst for your European business. I'm wondering if you're starting to see any signs of that or is it too early to make a call there.

Well, actually, we've seen strong demand for Runbook Smart Close products, both in Europe and here domestically, which is best case that you could hope for, right. So their customers absolutely love what Runbook does and we're seeing terrific demand basically everywhere. So I’m happy about that really.

Yeah. Are you seeing that help your mainline Blackline business now that you have a stronger European footprint?

Have we seen that, Mark?

It might be too early to tell.

Yeah. It might be too early to tell. I do think that the Runbook people that we acquired are absolutely terrific and so very highly talented. So I can't see how they won't help us, right.

[Operator Instructions] We will be taking our next question from the line of Brent Bracelin from Pacific Crest Securities. Your line is open.

Hi. This is actually Liz on for Brent. So one of my first questions is, it seems like you have a pretty strong focus on the Smart Close. I was hoping you could kind of run down kind of the changes you’ve made to the product, since you've kind of acquired Runbook and like how much more you think you have to go and kind of this idea of robotic process automation and what exactly that means to for us in kind of layman terms?

Yes. Well, what's really interesting about that is that robotic process automation is basically meant much of what we already do. And somebody decided that if you can give the computer instructions to do a whole series of things by itself, then you can call that robotic process automation and get a really terrific ROI, all right, which is precisely what the Smart Close product does, it actually allows you to set up all of these different jobs and work streams where the results of one job or batch feed in to the next and based on the results will cause different logic and it allows for a completely automated close inside of the ERP from a systems perspective, right. It is almost the epitome of robotic process automation. And so Smart Close, when we acquired that product, they already do that and their customers already have this live, all right, which is why it's been very appealing. So this is sort of a case where marketing is actually catching up to functionality that already exists. Okay, and put a nice sexy label on it. And so at this point, the Smart Close product is a very complete, very mature product. What we have done over the last few months is we've been working on Phase 1 of the integration of the Smart Close product and the exchange of information with the Blackline platform. Okay. And so I actually explained this in our Q3 earnings call that this is Phase 1 of multiple phases where we bring the results of all of these different work streams in to Blackline. And Phase 2 will be where we actually send information back and Phase 3 will most likely be where we look at taking that same type of framework and applying that same approach to essentially controlling the work streams in an ERP to other ERPs besides SAP. Again, I probably just gave you way too much detail.

No. It’s actually perfect. That helped a lot. And then my other question was, you talked about landing larger initial deals and from the competitive, picking up from competitors, that made sense, but I kind of wanted to dig into the reason why an initial customer would decide to add on more product than I assume a new customer would have a year ago, is that kind of a function of your strategy, your brand recognition, like what's kind of driving that?

I would say both of those things. You just hit the words right out of my mouth. One, it is certainly a strategy of ours. Right. I mean it works for us. But secondly, in early days, when customers didn't know who Blackline was, it was more of try it and if it works, add more. We're really seeing that go away, right. We’ve established that we are clearly the leader. We are clearly capable of addressing their needs. Many times, the buyer will be a previous buyer from another company and so companies are more willing to commit to us on the front end. That's one. Number two is we're seeing that the intercompany hub commands a significantly larger price tag as well and more and more of our deals are including that as one of the products.

[Operator Instructions] I'm showing no other questioners in the queue at this time. So, I’d like to turn the call back over to management for closing comments.

So this is Therese and Mark and thank you everybody for joining us today and we appreciate your attention.

Thank you.

Ladies and gentlemen, thank you again for your participation in today's conference. This now concludes the program and you may now disconnect at this time. Everyone, have a great day.