Good day, ladies and gentlemen, and welcome to the Q4 2017 BlackLine Earnings Conference Call. At this time all participants are in a listen-only mode [Operator Instructions]. As a reminder this conference is being recorded. I would now like to introduce your host for today's conference Ms. Maria Riley with Investor Relations. Ms. Riley, you may now begin.

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 will turn the call over to Therese to begin.

Good afternoon everyone and happy New Year, and thank you for joining us today. I'm very pleased with the progress that we made on our initiatives in Q4 and 2017. It was a strong finish to a good year and we were able to accomplish much of what we set out to do in the year. I'm proud of our employees and their tremendous efforts in 2017 and as I look back on the year I feel good about what we have achieved. I would like to share with you a few key highlights. We achieved 40% revenue growth for the quarter with positive net income and positive free cash flow. For the full year 2017, revenue grew 43% and we managed the business near breakeven for the full year. We added 117 enterprise and mid market customers from broad and diverse industries across the globe. I'm pleased to report that we now serve over 2,200 customers globally. We continued our trend of land in larger initial deals and in Q4 we closed the largest new core platform deal in company history. This is the fourth quarter out of the last six where we have seen that trend. We saw a good success in the quality, strength and closure rates of our pipeline in the second half of the year, thanks to our rebalancing efforts. Bringing two new products to market is challenging and we feel that we are in a better position with the right attention and resources to meet core demands while still pursuing opportunities for our strategic products. We had a very good quarter for strategic products. We have been working hard to convert the strong demand for these products in the closed deals and we saw good progress in Q4 for sales of both the Intercompany…

Thanks, Therese, and good afternoon everyone. As a quick reminder, all numbers mentioned during my remarks today are non-GAAP. Additionally, while we ended fiscal year ’17 on the historical revenue accounting standard, ASC 605 as required, we have adopted the new revenue standard, ASC 606 affective January 1, 2018. So I’ll discuss our Q4 and full year 2017 results on this call according to the historical revenue recognition standard, ASC 605, but we’ll provide forward-looking guidance according to the new standard. We do not expect the new standard to have a material impact to our revenue results, but it will benefit our earnings going forward at ASC 606 requires capitalization of certain sales commission. We will publish a full retrospective for comparison purposes in Q1. Moving to our results. For the full year 2017, total non-GAAP revenue grew 43% to $177 million. Gross margins were consisted at 81% and we delivered steady improvement in our operating loss margin moving from a loss of 10% to 2% of revenue. Additionally, we generated over 6 million in cash from operation. We delivered a strong fourth quarter achieving better than expected revenue and bottom-line results. Additionally, I’m pleased to announce that we will portfolio and free cash flow positive in the quarter, which had been our stated goal since our IPO in 2016. Total fourth quarter non-GAAP revenue grew 40% year-over-year to reach $50 million, driven by continued strong global demand for our solutions. Many factors contributed to our better than expected top-line results including accelerated deal time larger deal sizes, a pick-up and strategic product and strength once again in our European market. Key financial highlights include the following. We added 117 net new customers globally across both enterprise and mid-market. This brings our total customer count to 2,228 at December 31st…

[Operator Instructions] Our first question comes from Bhavan Suri with William Blair.

I guess I want to dive in first on the strategic partnership announced and you announced a couple and you announced one obviously at the user conference, you had one with another large Global 4 SI accounting shop before, as you see sort of those relationships mature, I don’t understand sort of what sort of inbound activity they driving for you. Both in the core reconciliation offering, I mean also on a more strategic offerings. Just in terms of sort of how are those developing and sort of they obviously will be valuable in time, but you're starting to see some of the fruits bare today or in the pipeline at least show up in the pipeline?

Bhavan, that’s a great question. One of the things that I mentioned today is that already in Q1. We've got eight marketing events set up with E&Y, actually learned a few minutes ago that it's actually nine. Okay, now when we are able to do marketing events with our partners there is a couple of things that happen. They will typically spread the word out to their customers, their relationship and we do as well, right. And then that collaboration together usually will add a customer and mix as well. But that collaboration together is a very potent combination to people that is actually thinking about how they can run there finance and accounting better. And so, it might be via a webinar, it might be via a certain in person events. But them tap into their network while we tap in to ours has really helped us in building our pipeline, and I think one of the other things we did mentioned is it in Q4, 9 out of 10 is the largest deals, where actually we were working with partners on. So we're seeing the fruit of that and I think that there is -- I think there is still a lot more that we can do.

Great and then a quick follow-up obviously, congrats on having Marc joined too. I think a great additional compliment to your team. But I would love to sort of understand obviously, there has been a process while and now he's one board. Just how is he and how you guys thinking about potential changes to sales territory, sales team? Has he thought about sort of restructuring or is he going to run status quo for little while? How is that sort of playing out maybe near-term but also more important sort of longer term?

Bhavan, the thing that I like a lot about Marc is, it is a very measured individual and I think sort of the Marc somebody who is an experienced executive, is if they come in, they would evaluate, they look for where things can be improved but they don’t do anything stupid or off the cup. And I would anticipate that Marc would follow that pattern.

Thank you. Our next question comes from Brent Bracelin with KeyBanc Capital.

One for Therese and one for Mark, if I could. Therese, let's start on the product footprints side, you talked about expanding that obviously you did that this year, now you have a even growing number of partners talking about expanding it further. Walk you through the philosophy on new product introductions and launches? And how you're balancing that both internally? And then externally you also evaluating potential add on kind of acquisitions to help augment your internal efforts?

Thanks Bren, let’s see. So we went through a process last year where we kind got out of balance, right we focus too much strategic products and in some cases the markets were just not mature. So around the less part of the year, I think we got much better at rebalancing and that’s really sort of a terrific lessons learned for us that our core market is massive, all right. Our largest feel today is core platform only. Largest initial deal today is core platform only, all right. So we as a company are not going to make the mistake of forgetting again that our core market is huge and that we should focus most of our effort on that area. Now that being said, I always have to temper my enthusiasm for some our strategic products, especially when we had a very nice quarter like we did in Q4. So I think that their contribution in 2018 will continue to grow, but I'll let Mark speak to numbers of our math because he would tell me if I do.

But I think, yes, you have a question for me as well Brent.

Exactly, let's start with the revenue guide for '18 Mark, I'm obviously it's encouraging to hear Therese talk about focusing on the core I would tend to agree that a big, big large opportunity out there just in the core business encouraging by the largest deal in the company's history as she coming from the core as well. But if I just apply historical revenue retention rates it does look like there's a healthy dose of conservatism to the 2018 revenue growth guide and I was just trying to understand is this excludes the contribution of large deals which are I know difficult to predict on the timing side that just bake in a more material slowdown on pro services as you ramp up some of these partners just trying to understand the level of conservatism around the guide for 2018 and how should we be thinking about the growth profile this business in the '19?

So let me start by saying that we were actually really pleased with the Q4 result and that momentum that we saw on the initiatives. Having said that, our philosophy for guide on revenue haven't changed, I wouldn't say conservatives Brent I would say that we have a prudent approach to guidance we want to guide in range that we feel confident that we can execute on. And at this point early in the year we believe that that growth range with the midpoint of around 25% is the right one, it's appropriate for us now. Now, there is a couple of questions I think you tapered in there. So first is around the balance, our view is that what we saw last year in terms of contribution with the core and strategic products we would like to maintain somewhere over around or over 80% of growth this year coming from core and the remainder coming from the strategic product. So you can see that they the majority coming from core and that’s the right balance and we think in '18 and that also that in order to be in that range we need to execute and continue to do so on these strategic products. I'll also add that as Therese mentioned we are investing in this large market where we are doing what we think is the right thing for the long term. We are investing in these ecosystems and the new products and the sales expansion just to name a few and if we focus on those in '18 focus on the long term the rest will take care of itself.

Last one for me Mark on just billings if I exclude the differed revenue contribution from Runbook last year, it does look like billings growth reaccelerate here in Q4. Was that just seasonality contributions of large deals? What drove that we reacceleration in calculated billings growth adjusted for rent book?

Yes, you are absolutely right. We are -- without the Runbook one-time headwind it's 42% 43% did reaccelerate. We were pleased with that. That came from a variety of things you know we land and we lead larger deal and those strategic deals that we talk about in Q2 and we were able to move those forward with all the effort from the team. We saw some good deal activity in Europe once again, which is been a nice trend for us. And so a combination of those things really led to a good quarter.

Our next question comes from Brian Peterson with Raymond James.

So I wanted to get on the partner deal. So you mentioned 9 of the largest 10 deals this quarter were partnering influenced. Any help on how much the bookings or the revenue overall come from partners. And as they maybe become a bigger part of the go-to-market motion, how should we think about cadence of bookings or deal sizes? Anything you can help with there?

I think first part of that question, thanks for that. So what I can say over the last four or five quarters the acceleration of partner deals where we have the assistance or partners or they’ve going to part of it has really accelerated. And we use to give number, it’s kind of generally in the 30%, 40%, we’ve now gone past that close to half of the deals in Q4 where partner assisted or partners with us. And you heard that 90% of the top deal, it’s a big deal, where I think really a lot of value for us they were there for 90% of those.

And maybe, Mark, another high level on for you, but it’s interesting out at the user conference. A lot of your customers talk about the additional models that they purchased overtime. I’m just curious, if you look at your customer based broadly and said that they have this amount of products today. How penetrated are we across the customer base into what that potential would be overtime?

It’s a great question. I remember this from the Analyst Day and when we talk about product, it’s between one into -- I think that’s what is purchase, that’s what being used and that’s on the core platform that has fixed, and that’s not to mentioned that we have such small uptake and we’re still early in the strategic products like ICH and Smart Close. When you add those in, we believe that the penetration within the account is obviously nascent early.

Our next question comes from Mark Murphy with JP Morgan.

This is Albert Chi on for Mark Murphy. So it sounds like a lot of companies have started to get over the hump of adopting ASC 606, which sounds like it’s taken a lot of focus away from the accounting department. I wanted to ask, when do you think is the time when companies are going to start paying a little bit more attention to, for buyers start looking at account, accounting-type solutions, BlackLine-type solutions?

Yes, great question. We also talk about that at the Analyst Day. I think it’s a time we said the same thing and I can tell now. It is really hard for us to draw straight line between that level of effort and that regulation even though it’s massive to any particular sort of climate of buying. So we know it’s on CFO’s minds, we know that accounting departments are struggling with it. We’ve been working and putting a ton of our own effort into it for ourselves. So I wouldn’t and we don’t expect or model any particular headwind or tailwind from this

And my last question is really around robotic process automation and maybe something you touched on also from the Analyst Day, but when you look at areas of accounting that are right for RPA, what would you say they are? And when you look at your customers, who it sounds like they built lot of internal solutions what sort of perhaps they are unsustainable, and maybe you could talk a little bit about that?

Yes, RPA is, I’ll take this on Mark. RPA is a super interesting area and there are sort of different ways to approach that. We have had some of our customer take an approach where they simply do the equivalent of recording macro key strokes. The difficulty was sort of that very, very low level automation of a process is it's the old adage garbage in, garbage out, all right. However, if you look at our Smart Close product, that is the epitome of intelligent RPA. It's actually taking the processes that companies run, month after month, quarter after quarter, year after year like typically, manually inside of their ERP and automating those processes. I had a Fortune 50 customer tell me that, it used to take them a week or more to do a single entity close. They were able to do it in 15 minutes with the Smart Close product. So there are different approaches to RPA. I think that the kind of RPA that’s been implemented with our BlackLine Smart Close product is precisely the kind of company should be focusing on.

Thank you. Our next question comes from Rob Oliver with Baird.

So two quick questions, hey, Mark. First for you, Therese, and then a quick follow up for Mark. Therese, you hinted in this might be more my interpretation, but you hinted at the Analyst Day that you guys might be sort of rethinking the large ICH-type deals and may be starting to break those apart a little bit, not to draw attention away from the strong performance and the core. But, you guys did sign ICH deal this quarter, which you've cited in your prepared remarks, and I just wanted to ask. If in fact you guys were thinking about the go-to-market and ICH a little bit differently and maybe trying to get away from a much larger clearly more participatory type of sale where you need to get a lot more body to sign off on it and rather going to maybe something a little bit smaller that might help drive adoption?

By the way Rob, we had multiple ICH deals in this quarter just saying. Yes, I know. Okay, so I think there is three areas for ICH that have helped us get momentum, we call them the three P, packaging, pricing and partners okay and packaging is a bit of how we've approach so that people can adopt a more phased approach. The pricing takes into account the size of the organization and then of course the partner network has been very, very helpful and influential on the sales process for ICH deals. So those three together I think are the fine tuning that we done there is definitely going in the right direction.

Great that’s helpful color. And then Mark, I apologies if I miss this. In the past I think you've mentioned clearly in our work we picked up that partnerships have been a real key focus for you guys and partners want to get closer to you. I think you have broken out the SAP portion of that in the past that I'm not sure you did this quarter or maybe I missed it, I apologize if you want to break that out.

Yes, you bet. Thanks for that, you did not miss it I didn’t say it, its 20% for SAP and in the fourth quarter and that's up from a year ago 18%, and as you saw through the year it picks up about a point to quarter.

Our next question comes from Terry Tillman with SunTrust.

A lot of questions have been answered, but don’t worry I still have a lot more questions.

I know I would be disappointed if you didn’t.

No, we need seven from you I think was your original first quarter.

But in terms of -- it does sound very positive in terms of just all the partner influencing and the ecosystem build out. Does that change any of your strategic thinking or multiyear planning in terms of sales capacity whether its enterprise or the mid market or international? Does it change the pace of hiring you have to do because you do get some help from third parties? Or does it really not have an impact on how you are thinking about your sales capacity growth?

I don’t think it has an impact Terry and here is why, because even though we really appreciate the influence and the wealth of knowledge that our partners bring to the process there is still a process and we still have to work through that. So there is still very much a sales force that’s involved. I think our scaling and our plan has taken into account the partnerships that we are building.

Yes, that’s right, I'll just add to that too is that our strategic velocity has been teaming around the sales person as we get into strategic and into large deals. So it doesn’t change the fact that we need them they just need more resources they need customer engagement people they need the partners to get these larger and more complex cycles done.

And Mark since I've got you there, in term of free cash flow you've committed previously to be free cash flow positive. It is good to see in the quarter, but you said you would be free cash flow positive for the full year 18. Is that also where you will be free cash flow positive each quarter of the year? And is there anything about seasonality we should think about on how we make sure our models are accurate?

Great question because we still do see some I wouldn’t say it's seasonality it's more business specific things that occur through the quarter. So for example in Q1 where we have a corporate bonus in Q4 where we have a large conference or things like that that can move it. So our cash flow by quarter in '18 will be similar to what we thought in '17, it will drive upward through the year. I also want to say I'm going to insert just here. I know it wasn’t your question, but I want to talk a bit about ASC 606 as well because this is having an impact for people, if they are thinking about their models. And for us our guidance for Q1 in 2018 is based on the new standards. It does not have a meaningful impact on the revenue that we have given. But it does benefit us on the earnings going forward because it requires us to capitalize more sales commissions. And we are still working on that. We will have more details out in our next filings, but at a high-level we expect the impact to be around $5 million to $7 million of an expense benefit in 2018 and then something very similar in 2017. And then that’s approximately a $1 million to $2 million benefit in just Q1 of 2018. So it’s important to keep that in mind as we go into ’18 as well that's how we’ve guided.

But Mark is that just -- is that an income statement dynamic with the sales and marketing and capitalizing? Or is there also a cash flow dynamic?

It doesn’t change cash flow because we’re still paying the commission.

And our last question is from Pat Walravens with JMP Securities.

So, with all that Therese, what’s your top priority for 2018?

Always the customer journey making sure that our customers are using and getting value from what they’re buying from us, and making sure that we continue to expand our relationships there. Now I would say on the next couple Pat, it’s, Mark and I might be slightly different. I’m always sort of interested in what we’re doing with the product. And I think Mark really likes the things that we’re doing with the partner ecosystem and scaling the sales. And of course, I am again really focused on the people and the culture that we have here. So, we’ve got -- there might be some small differences between us, but we’ve sort of manage to work it out.

Okay. Well, this is Therese and I want to thank all of you for your ongoing support and especially your evangelism of BlackLine. It continues to bring us new referrals and customers. Please keep it up. We look forward to sharing our success with you in 2018 and beyond. Thank you.

Thank you.

Thank you, ladies and gentlemen. Thank you for participating in today’s conference. This does conclude the program. You may all disconnect and have a wonderful day.