Good day, ladies and gentlemen. And welcome to the First Quarter 2017 BlackLine Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. [Operator Instructions] As a reminder, today's program is being recorded. I would now like to introduce your host for today's program, Christine Greany of The Blueshirt Group.

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. Welcome to BlackLine's third official earnings call. In our first quarter of the year, BlackLine executed well on the major initiatives that we set for 2017. We are happy to report that total GAAP revenue reached $39 million, reflecting a year-over-year growth rate of 45%. This is a great start, particularly in a seasonally slower quarter, when many accountants are focused on their year-end financial close rather than investing in software. They are at their busiest, closing their books for the year completing and filing their financial reports working through audits, and frankly doing most of it manually. BlackLine is changing the way finance and accounting works one company at a time. In our last two earnings calls, I've asked our participants who invest in, analyze or work with other companies, to think about how those companies might be helped by BlackLine. I am happy to report that several of you have taken action. We've had referrals from several investors. We even had one person send us a list of companies that had gotten into trouble with their internal controls. So I very much appreciate the evangelism, and would like to encourage more of you to ask the CFOs that you know, how they close their books; is the process 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 in our website at blackline.com. And thank you so much for spreading the word and helping us grow. Now, on to the highlights. Our broad and diverse customer-base grew to more than 1,800 customers around the world. We had 92 net new customers in both enterprise and mid-market across multiple industries and geographies. In…

Thank you, Therese, and good afternoon, everyone. I'll quickly mention that during my remarks today with the exception of total revenue all numbers are non-GAAP. We are pleased to begin the year with strong first quarter results. Total revenue increased 45% year-over-year to $39 million, reflecting strong global demand for our solutions and solid performance against our 2017 initiatives and growth plans. We added 92 net new customers in Q1, which brings our total customer count to 1,850 at March 31. This represents year-over-year growth of 31% and includes a healthy and consistent mix of enterprise and mid-market customers. International revenue continued to grow in Q1, representing 19% of the total, up from 15% in the first quarter of 2016. We achieved a net revenue retention rate of 117%, as our existing customers are consistently expanding their footprint with BlackLine over time. This is thanks to product upsells, user expansion, and continued price increases along with strong renewal rates. We continue to add finance and accounting professionals, who rely on us to make their daily lives easier. In Q1, the total number of BlackLine users grew to over 171,000. This user growth is an increase of 25% versus a year-ago and came from new and existing customers that are expanding their footprint on our platform. It's important to note that we are also beginning to sell an increasing number of products that are not based on number of users, which may result in some variability in our user growth rates. First quarter gross margin remained strong, exceeding 81% and reflecting our consistent mix of high subscription revenue of 96%. In Q1, we accelerated our investments and continued to, first, expand our global marketing and sales force capacity; second, invest in R&D to build our strategic products capabilities; and third, invest…

[Operator Instructions] Our first question comes from the line of Jesse Hulsing from Goldman Sachs. Your question, please.

Yes. Thank you. I wanted to drill a little bit more into Intercompany Hub. And, I guess, I'm curious, one, how are your expectations for that product trending versus where you started the year. And two, if you look at, I guess, deal sizes for that product. How are those coming in versus or shaping up versus what your expectations were, which I think was $150,000 to $250,000 per customer or something in that range? Thank you.

Hi, Jesse. It's Therese. And what we mentioned at our last earnings call is that we are seeing an upward trend with the ICH price point, that continues to be so. And what we're not doing right now is releasing that number, because we keep - we haven't seen the ceiling on it yet, okay. So I'm not going to - I will say, you have to - if I'm happy with the trending and the demand, I am very happy with both the pipeline and the demand that we're seeing for ICH.

Great, fantastic. And, Mark, just really quickly, on the user growth, I mean, if you look at kind of net adds quarter-over-quarter and year-over-year growth there were some de-sal [ph] there. It sounds like, that's because you're moving towards more consumption-based purchasing plan. So maybe - is user growth the right metric to look at. Is that going to become increasingly detached, I guess, from underlying bookings trends in revenue growth? Thanks, guys.

Yes, Jesse, thanks. I think it was more pronounced for those reasons in Q1, because we were off the mark, pretty successful in strategic products. My view was in talking to you guys that we would be facing this issue beginning in 2018. I think the detachment starts occurring this year. So as we go through the year, we'll be pointing out the nature of that user growth. Having said that, Q1 is traditionally a seasonal quarter for us, as Therese said, and we're happy with that number. We had a strong Q1 from mid-market. Mid-market traditionally has lower user count. So I don't want to make too much out of it at this point. But it's certainly the variability we'll be looking at for the reasons that you mentioned.

Does that answer your question? Okay. Our next question comes from the line of Bhavan Suri from William Blair. Your question, please.

Thanks, thanks for taking my questions, and nice job obviously there. I just want to touch a little bit on the mid-market here. You obviously had a solid quarter for mid-market. Do the partners have the same positive impact in mid-market or is that sort of much more a direct sales approach on your side to capture those customers? Just some color on how does that market is different and, obviously, the large market where you've got the large accounting firms up and that may be helping. How do we think about the go-to-market in the mid-market?

You know, Bhavan, that's actually very interesting question. It's Therese. Hi, by the way and thank you. We actually have more than 30 or 40 different partners and many of them actually do focus on mid-market. Now, because the mid-market in general, the deal sizes are smaller, the names are not quite as flashy tends to be missed sometimes. But we also have a very active partner network for that particular group as well.

That's really helpful, Therese, and, hi. And then one quick one for me, when you look at the partners and their ramp up, Intercompany Hub, it's the one we're tracking, because obviously it's a bigger product, bigger deal sizes, you're seeing bigger wins because of it. How the partners shaping up around that particular product?

We view the partners to be really instrumental with the Intercompany product, simply because the product itself is great software, but it requires a company to many times, not always, but many times transform how they operate with intercompany transactions. And partners are a perfect way to get that transformation to actually happen, so I love the partnerships that we're developing right now. And if you saw in Deloitte's press release today, they mentioned the Intercompany product pretty heavily.

Great. Therese, that was really helpful. Thanks for taking my questions, guys, and congrats again.

Thanks, Bhavan.

Thanks, Bhavan.

Thank you. Our next question comes from the line of Rob Oliver for Baird. Your question, please.

Hey, guys. Thanks very much.

Hi, Rob.

Hi, how are you? So, Therese, a question for you, and then quick follow-up for Mark. Therese, can you talk a little bit about the deal-sizing environment this quarter? I know you mentioned that you had closed one of your largest deals ever. So just generally deal sizes, I mean, it what otherwise would have been a very busy quarter for your customers? And then, Intercompany Hub and whether that would have been included in that sort of a deal?

Yes. Rob, they are growing very nicely. I'm watching my garden grow. And Intercompany Hub was about half of that largest deal to date.

Okay, it's great. Thanks. And, Mark, just on the - and just a follow-up to Jesse's question on the customer count number, not to make too much of it, but just so I understand. It does sound like as Intercompany Hub and Insights and some of these new products get traction, there might be tendency to read that new customer number as not as good, but actually seem starts like it might be an indicator of traction with these products, just want to make sure we're understanding that properly? Thank you, guys.

Yes. No problem, Rob. Thanks for that. So just to be clear, it's the user count that you mean. And for us in Q1 in particular as a data point, we had really good momentum in uptake in the existing accounts on the non-user based strategic products, as Therese mentioned. And we have more of those today than we have had previously. And so, you won't see that show up in the user count. Separately in Q1, we had more mid-market momentum and mid-market isn't as user - it's not as many users. So as we go forward, what we're doing is triangulating the business, like in Q1 where you had an uptick to 117% from the revenue retention rate. You see that being sold and driven by strategic products. Those aren't driving the user count. And you also see that customer base was up nicely, over 30% in the quarter as well in the seasonal quarter. And the user count, you can see hangs there for the reasons that I mentioned related to strategic products that aren't based on users. So in future quarters, when you see a number in users, we will be balancing strategic products with user base products. And so that number will get more variable. And we'll just be drilling down on that each quarter as we go through 2017.

Great. Thank you, guys, very much for taking my questions.

Thanks, Rob.

Thank you. Your next question comes from the line of Terry Tillman from Raymond James. Your question, please.

Hi, good afternoon. Hi, Therese and Mark. Great job in the quarter.

Hi, Terry. Thanks.

Hi, Terry.

First question is just related to maybe an update specifically on the SAP relationship. Historically, you guys have had a nice growing in relationship. And so how is that playing out? And then, kind of related to that though, you get a lot of questions about ERP vendors, friend versus foe. Maybe talk about kind of how that balances at this point.

Okay. We have a terrific relationship with SAP. This quarter, revenue from SAP was 18% and it's in line with our expectations. We enjoyed working with them. That continues to be the case. Now in terms of other ERPs that you mentioned, most tend to be very neutral. Of course, Oracle has had a competing product for some time now, but it really hasn't impacted our business. And everybody else seems to be very neutral.

Got it. And then Mark, a quick question in terms of - I know you don't guide the billings, and we need to be careful with that metric. But are you suggesting that there was something outlier like from the acquired business in the first quarter or maybe you could be quantifying that, and then should that become more of a headwind that we should think about into the second quarter? And again, congratulations.

Great. Yes, thanks, Terry. Yes, that's exactly what I was doing in my comment, because I don't generally talk about implied billings. But in the last three quarters, we've had specific or unique circumstances related to the Runbook acquisition that affected deferred revenue and our implied billings calculation. In Q1 as an example, we had maintenance billing, we concentrated and built all in the first quarter as a result of their customer-cycle. That added 10 points to the billing growth rate - implied billings growth rate. And so what I want you to know is that those - is for us to be completely transparent about the last several quarters, and what was driven by Runbook, and that those don't continue on. You'd see a more normalized billings rate going forward.

Thanks.

Okay.

Thank you. Our next question comes from the line of Mark Murphy from J.P. Morgan. Your question, please.

Hi, good afternoon. Thank you. This is Matt Coss on for Mark Murphy. Therese, you talked about a couple of large customers you won this quarter that had been using other vendors. And is it typical that when organizations switch to BlackLine they tend to be large. And are they ever moving off of multiple products, when they switch to you?

Well, that's an interesting question, Matt. Rarely do they move from multiple products, okay. Unless - well, that could happen, if they've used the competing products in different areas, perhaps, usually if they've tried it one area and it hasn't been terribly successful. And so, when they want to do a global rollout, they will typically go with BlackLine. We have switches both at the mid-market level as well as the enterprise level. Of course, the enterprise level is where you kind of get excited, but we see it across the board.

Sure, thank you. And then sort of just going through your 10-K, it looks like your backlog grew 61% last year, as of the end of the year, although we don't have much in the way of historical backlog for comparison. How do you view that? How would you view the current business trajectory relative to that strong growth you had last year? And does it continue, I mean, is everything you saw last year that sort of persisted into this year regarding pipeline and your sales funnel and all of that?

Yes. Thanks, Matt. I think, you're talking about the - in the 10-K the contract backlog for a multiyear deals that aren't - haven't been built. And the composition of that is that we sign multiyear deals. Today, a growing percentage of our businesses are on multiyear term deals. Now, we bill annually and that's consistent. And so you see that rise in by virtue of just growth in the business and sales, but also in growth in multi-year deals. So we don't - I wouldn't draw any direct lines from that, I would simply focus on the guidance that we give.

Thanks very much.

Thanks, Matt.

Thank you. [Operator Instructions] Our next question comes from the line of Brent Bracelin from Pacific Crest Securities. Your question, please.

Thanks for taking the question here. Therese, let's start with Deloitte. Obviously, want to walk through some scenarios here. Is this an exclusive, does this preclude you from working with the other big four vendors out there. And then, if you look at Deloitte's Lloyd's just customer base, I think they have 80% of the Fortune 500 over 6,000 kind of mid-market kind of companies that they service. Have you looked at the overlap between kind of your customer base and their customer base? Just provide us a little more color on that Deloitte opportunity, is it exclusive or not, and what it means to the business?

Well, first off, Brent. We don't do exclusive partnerships. And I don't believe that Deloitte does either, right, because if you do that then you lose some level of independence. And so on that, we don't do exclusive partnerships. I will say however that we are the only vendor in this space that Deloitte has that partnership with, okay. So read what you might into that. And I don't think they have any other press releases out there that are quite as nice as the one that they did for us today. So that is great. We have a great working relationship with them. We are of course looking at who their customers are, and where there are synergies that we can leverage across the board. We enjoy working with them. We also have very good partnerships in place with other big four, right, not completely commercialized, yet. But we have good working relationships with them as well.

Fair enough. And then, how is that, what's the go-to-market going to be like? Is this reference selling? Is this Deloitte going to have a bigger presence at your BlackLine events? Walk us through kind of how that relationship potentially could evolve over time.

One of the nice things about this partnership is that it does now allow us to go-to-market together. And that you are absolutely spot-on, when you say things like a bigger presence at our user conference, joint go-to-market activities, going out and working together to help companies transform their financial processes. That's all part of it. And that's one of the reasons that we're sort of happy about getting it actually finally down on paper.

Very helpful, thank you. And then second question for me is really around the Runbook, Smart Close product. Is that kind of tracking in line with your expectations, any update there?

We're not breaking it out separately right now, but it is absolutely meeting my expectations. It is a super solid, really high-performing product that really brings the reality of robotic process automation to our customers. They see incredible benefits from it, and it's in place in a lot of different very large companies and working very well. So I'm very pleased with that acquisition, in spite of the blurbs in the financials that it keeps giving Mark.

Well, one more question for you, Therese, here and Mark. I'd love to ask you a question, but the bet things are pretty clean on the financial front. My last question for you, Therese, early is on kind of Intercompany Hub here. I know that product has been out there. It's had fits and starts for the last kind of - first year of its existence, the last two quarters it just sounds like it's really starting to build some momentum here. So walk me through kind of why is there so much appeal for that product. What is it addressing from a pain-point standpoint? And I know we do want to get ahead of ourselves here. But it definitely feels like there's some momentum building on that product. I'm just trying to understand why, why now?

Yes. Thank you, you're almost asking me to do an Intercompany Hub commercial, I'm so excited. Okay, there are a number of initiatives that are happening right now. There is something called the Bef [ph] initiative. And that's where there is - how you did the transactions that cross borders, okay. Another words, let's say that you're England and I'm in France. And, we move some money back and forth, because we have some services, right. If you don't have good accounting around that, both countries can claim that as income and tax it. Okay. Now if you don't even track it, if you don't even book it to the right account, then you're going to have taxing authorities from both countries going after the full amounts. And the reality is most companies don't have good accounting around this. They have very, very manual processes. That's one area. We're seeing within the United States, the IRS is revising the code to require companies to better account for intercompany loans, what does that actually mean. Let's say that you're one division, and you don't have any money in your bank, doesn't really matter you're part of a bigger company, right. But that roll forwards more than a month or two, it suddenly becomes an intercompany loan, the IRS wants to know about it. Again, if you've got very manual processes in place and you're not tracking this. The penalties that you can be subject to are massive. So we're seeing this across the board and we are seeing it actually dropdown at a fairly lower level. These types of issues are just sort of the - some of the risk mitigations, but there are others. There's a ton of manual labor that goes into this, okay. Let me give you an example, settlement process. Let's say you're a company with 100 different entities. Those 100 different entities may all be able to trade with each other. At the end of the month, you've got to manually create a matrix of who owes who what. So it gets very, very complicated, and adds for a lot of manual hours. Lots of reasons. I hope that helped.

Very helpful.

Yes. And we are seeing, as Therese mentioned. This is Mark. And I'm sure, you expected me to say this. But the momentum and demand and interest we see there. we're guiding to a long-term market opportunity there, bright future, and not material to this financial year on the revenue.

Thanks for the color.

Thank you for asking.

Thank you. And this does conclude the question-and-answer session of today's program. I'd like to hand the program back to management for any further remarks.

Hey, thanks everybody for joining. And we look forward to our next quarter's earning call. Thank you.

Thank you.

Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.