Therese Tucker - Founder, Chief Executive Officer Marc Huffman - President, Chief Operating Officer Mark Partin - Chief Financial Officer Alexandra Geller - Vice President of Investor Relations

Ladies and gentlemen, thank you for standing by and welcome to the First Quarter 2020 BlackLine 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. [Operator Instructions.] As a reminder, today's program is being recorded. And now I’d like to introduce your host for today’s program Alexandra Geller, Vice President of Investor Relations. Please go ahead.

Good afternoon and thank you for your participation today. With me on the call is Therese Tucker, Founder and Chief Executive Officer of BlackLine; Marc Huffman, President and Chief Operating Officer; 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, in particular our guidance for Q2 are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent our outlook only as of the date of this call. While we believe any forward-looking statements we may make are reasonable, actual results could differ materially because the statements are based on our current expectations as of today and are subject to risks and uncertainties, including those stated in our report filed with the Securities and Exchange Commission, as well as risk related to the ongoing COVID-19 pandemic and the related responses by government and private industry, including macro and regional economic risks. 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 disclosed on this call will be non-GAAP. A discussion of why we use non-GAAP financial measures and information regarding reconciliations of our 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 thank you for joining us today. Let me start off by saying that our thoughts and prayers are with everyone affected by the coronavirus pandemic. At BlackLine our top priority has been and will continue to be ensuring the health and safety of our employees, customers and partners around the world. BlackLine responded quickly to the pandemic by creating an executive task force to monitor the COVID-19 situation daily. We immediately restricted nonessential travel and enabled work-from-home protocol. Shortly thereafter and in line with the guidance provided by government agencies and international World Health Organization we have restricted all travel, mandated a work-from-home policy across our global workforce and moved all in-person customer facing events to virtual one. To enable collaboration, we have frequent team check-ins and utilize collaboration tools. I'm pleased to report that BlackLine was able to rapidly shift to a distributed work environment with minimal disruption to our business operations. We have continued to provide strong customer service and support levels consistent with our unique BlackLine culture. With the onset of the pandemic, many accounting and finance organizations suddenly found themselves shifting to a remote workforce for the first time. Most of these teams are in the office daily and even a small handful of staff offsite or unable to work could have an adverse impact on closing the books. To further complicate matters, tax incentives and other regulatory items are changing frequently, sometimes on a daily basis, which is impacting key business assumptions and forecast. Last, but not least, audit must now be conducted remotely as well. This situation becomes exponentially more complex for large multinational organizations who are managing the close manually. Throughout this time, our commitment to serve our customers has grown stronger than ever. At BlackLine we wanted to…

Thank you, Therese, and good afternoon everyone. I'd like to begin with a quick overview of Q1 performance. I’ll then address the changes we made in our go-to-market strategy, followed by the trend as our sales leadership has seen in the market from the early March through today. Starting with the quarter, sales activity was very strong in January and February and we were operating above plan. However, we began to see purchasing decisions being deferred in early March due to COVID-19. Globally our new logo business was off to a good start in the first two months, but was hit the hardest near the end of the quarter. In EMEA we saw a meaningful decline in deals closing before the end of the quarter. We experienced delay in large deals and we saw a slowdown in the mid-market in North America. Our SOLEX performance was also strong at the start of the quarter and then saw deals get postponed in March. On a positive note, business within our installed base remained resilient throughout the quarter for both account growth and renewals. In addition, there was minimal disruption to our implementation work with projects in flight, continuing to progress as scheduled and generating record services revenue. Our go-to-market teams were quick to respond to the impacts of COVID-19. In early March we adopted a virtual sales motion. Our sales team is no longer able to meet with customers in person, but they continue to build and maintain relationships with customers and prospects through virtual meetings and calls. We shifted to a fully remote implementation strategy. Our teams are accustomed to doing remote implementation, so there was minimal disruption to our implementation operation. At the same time we reallocated our marketing resources to focus on digital engagements and events, digital lead…

Thank you, Therese and Marc, and good afternoon everyone. Before I moved to our financial performance for the quarter, I wanted to address how this pandemic has impacted the role of the CFO. Today's CFO is playing a central role in stabilizing their businesses in the near term, while also positioning it to thrive when conditions improve. To keep my team operational and productive in this distributed environment, we have further embraced digitization. As a result, we were able to beat our own internal record on closing and reporting; thanks in-part to our BlackLine software. We are seeing the same dynamic across our customer base, where digital initiatives are now deemed business critical to ensure accurate reporting, informed decision making and business continuity in the current crisis and into the next normal. As we think about what that new normal looks like, we believe this climate is a long term accelerator for digital transformation. But first, we all have to get through the uncertainty of this current climate and that is exactly what we intend to do. For the majority of Q1, we were operating well above plan on all key metrics. Throughout the quarter we hired a record number of employees and in January the company hosted one of its largest and most influential company kickoff events yet, as we transitioned from a strong 2019 to a plan of acceleration in 2020. Despite the strong start, the impact of COVID-19 caused a number of deals to push out of the quarter or delay indefinitely, which impacted sales by roughly 20% to 25% in the quarter. We saw the greatest impact to EMEA sales, the mid-market and large digital transformation deals. Our current operating model and guidance for Q2 will be informed by what we have experienced since this began…

Certainly. [Operator Instructions] Our first question comes from the line of Rob Oliver from Baird; your question please.

Great! Thank you guys very much for taking my questions, I really appreciate it. First one is for Marc Huffman. Marc, I appreciate your commentary and good to hear you on the call. I wanted to just ask about the ways in which your sales team has shifted its behaviors, particularly how the handoff from marketing under the new marketing funnel creation given the digital events is happening, how you guys are qualifying leads and how they're able to go after customers in this environment. If you could provide some color around that, and then I had a brief follow-up.

Sure, thanks Rob. So we like most companies have had to shift to a virtual sales motion. You know historically good portions of sales activities for a lot of organizations have been done electronically or via the telephone and then there's obviously some parts of it that are done in person. That shift has gone really seamlessly for us. With the exception of a period of time in the early infancy of the change in the pandemic and guidance, there are certain parts of the world and buyers that were hard to reach. That sort of cleared itself up over time and so it's sort of a new norm; we’re able to function very well there. We’ve adjusted our marketing accordingly. As you mentioned, we've shifted how we view our events, but we've historically been very heavy in in-person events. We feel like we've got a great deal of expertise to offer people in the events and the way that we do that. We’ve had really good success transitioning those to virtual events and starting to drive a lot of attendance, which we’re pretty pleased about in the interests and you know what we offer to people and think over the long term this is going to drive more eyeballs to us.

And just a follow-up; I know you provided a little bit of detail, but you know what gives you the confidence that current customers will be any less impacted than in terms of deal closures than new logos. In other words, this is a rapidly evolving situation. I know you guys are going to allocate resources to your current customers and clearly you're doing a lot of that. But just, you know if budgets are going to come under pressure and things are going to be on hold, why wouldn't that also impact your existing customers. Thank you guys.

Well, none of us have a crystal ball, so we don't know that. But what we do know is, customer success and the intimacy that we maintain with our customers through the investments that we've made over the past several years in those customers and our staffing levels and how we thought about allocating those resources is like a core value of BlackLine, and so we are able to interact with them, understanding what they're going through and then where we have the ability to serve them or excess capacity that may exist in our model, we are able to really react quickly and deliver value to them.

And if I could just jump in, I mean this is – we have a lot of customers that are now finding how valuable BlackLine is, because they are trying to close their books remotely.

Thanks guys.

Thank you.

Thank you. Our next question comes from the line of Terry Tillman from SunTrust. Your question please.

Hi folks, thanks for taking my question. This is David Unger filling in for Terry Tillman. I hope everyone is doing well tonight. In respect to your free offering rollout that you gave back in late March, I think you might have mentioned some data points related to customers signing up for the Task Management and Reporting six month free trial. Are there any insights so far that suggest to you that this is an underserved tool and it's a must have? And if so, could you size that revenue opportunity over the next one to two years based on the data you're seeing since the rollout.

Well, you know Dave, this is Theresa. I always believe that our products are underutilized, because I think everybody should have all of our products. However, you know the fact that our customers are really starting to value the ability to login remotely 24/7 to get their work done, to manage their close checklist; I think we have a number of customers that are really starting to value that. I think that in general we are going to come out of this stronger. We don't know when that's going to be. I don't think anybody's got that foresight and so therefore I could not size that opportunity at this time, but I do feel like it's a great example for BlackLine to shine.

And David if I might add, its Marc Huffman, you know that Task Management piece, there's multiple use cases that it supports, and we have a lot of expertise as I mentioned, that we're able to turn around and provide back to customers. And so you'll continue to see us deliver some of that expertise in the coming weeks, geared at customers around different use cases for something like tasks.

That's great! And if I could just have one follow-up, I’d appreciate it. So I'm just curious when thinking about you know the work-from-home era and understanding the time that it took for BlackLine existing customers to close the books this year versus last year, and if there are any notable differences that you can site based on customer size and industries that we serve? Just trying to get a good grasp on how efficient you know things were this period versus last year. Thank you.

Yeah, for sure. You know we have some great examples internally with our customer success and our automation teams that talk to our customers about how much working-from-home and how successful those companies have been in this environment. We are a great example. I mentioned that earlier that we – in this environment we had a record close period. Our accountants all began working from home. They closed the quarter and even this earnings call is earlier than usual and I think that experience from what I hear from my CFO, customers and what we hear up through our customer success team, says that this has been a real blessing to have a tool that works in this collaborative environment, that has transparency, that can close these mission critical functions you know in this environment. So really good, good feedback and I do think Therese is right, that this is going to be a real wake-up call for a lot of companies that don't use something and even for those that do, they'll see the benefit of this, a new-new.

Thank you very much for answering my questions. I appreciate it guys. Have a great night! Thank you.

Thank you. Our next question comes from a line of Mark Murphy from JP Morgan; your question please.

Hi, good afternoon. This is Matt Coss on behalf of Mark Murphy. Thanks for taking my questions. I'm not sure if you guys know this one off the top of your head, but if you look at your total bookings mix in any given quarter, what percentage would you say are achieved from a sort of inside or teller sales, sales motion versus in person.

Yeah, I think we probably know that number internally. We don't share that externally. We think of our mid-market sales team as you know at different ranges within the mid-market. Remember it's a wide dispersion; it's a $50 million company to a $500 million company, and so for many years we can be successful in selling to a certain customer in that range. So we never really marketed that number, but it was enough that when we got to this point, we had experience that we could sort of roll that out to the rest of the globe and not just on mid-market, but also enterprise.

Okay, understood. And it's great to hear that you'll be continuing to invest in R&D. I think that's the right thing to do at these times. And have you been able to identify any product area or particular needs that might be more pressing in six months or a year’s time from now that you can spend time. So thinking about it now and then sort of ready to go with it, when we're all sort of in a more normal state?

Well actually, I would put it a little differently Matt. We have a long term product strategy. We have a road map that goes over a three year time frame. Part of it is moving to the public cloud, part of it is utilizing some of the machine learning tools that are available. I mean it’s all part of a longer plan, and really what we were trying to express in our remarks is that that plan is proceeding as we think that is the best thing to do for the company. So it's not necessarily impacted by this COVID-19 crisis at all in terms of what we're doing.

Very good. Thank you very much.

Thank you. Our next question comes from the line of Koji Ikeda from Oppenheimer. Your question please.

Great! Thank you for taking my question. Hey everyone! I had a question here on the SAP segment of the business. According to our model, it looks like it grew right around 30% in the first quarter. So I guess hypothetically speaking, if the crisis didn't occur, would it be safe to assume that the ex-SAP portion of the business probably had a good chance to grow in the mid-30’s or even better in the first quarter.

So, it's a great question. We called out our revenue growth as being very good and then also talked about things that worked against Q1 revenue. And yes, there would be a three on the revenue growth rate if not for those things COVID related. So to answer your question, I would just say it starts with a three.

Got it, thank you for that. And just want to be absolutely clear on the exposure to some of the troubled verticals out there. The 25% exposure, is it travel, hospitality, retail and oil and gas or are there any other verticals that we should be aware of in that exposure.

Yeah, great, I appreciate that question. The 25% is spread out amongst a number of industries, Mark mentioned some of them. There are a couple other; there’s retail, energy, food and beverage, hospitality, transportation, entertainment, and within any of those industries, we're spread out amongst a number of companies and don't forget, we are a large enterprise company 80% of global large enterprises. So we're just taking a very thoughtful and pragmatic approach about those impacted industries as we work through our business in this economic climate.

Got it, and then just one quick housekeeping question. Mark, the RPO number, did I completely miss that or could we get that if we didn’t hear it.

Yeah, it's $368.7 million at the end of the quarter and it is 61% to be recognized in the next 12 months.

Got it! Thank you for taking my questions. I appreciate it.

You're welcome.

Thank you. Our next question comes from a line of Brent Bracelin from Piper Sandler; your question please.

Thank you. I'll start here with Therese. Good afternoon! So on one hand it definitely sounds like you have 25% of the business exposed to some challenged customers, you have budget uncertainty that's now emerging as a new headwind, but there are also some tailwinds here. You're talking about the remote audit, virtual close, that oversubscribed EY event. It certainly sounds like there is a lot of appetite. I guess my question here is, as you think about remote audits and virtual close, what is it going to take for that to evolve from kind of a nice to have to kind of a must have? It seems like it's a nice to have today, but you know is there an opportunity to promote that and move that to a kind of a must have?

Well, I think that's exactly the opportunity that we see in all of this, is that people that – companies that currently close with spreadsheets and paper and carrying things from one desk to another, that's not something that they can do either efficiently or in an environment that makes any sense. So we do think that that's the opportunity in front of us and we are going to maximize that in every way possible. Marc?

Brent, just you know playing back on some of my prior experience with the company that I was at as we went through the global financial crisis, obviously that's a crisis as a financial nature doesn't involve the pandemic and the human loss, but you know that organization was trying to move financial systems to the cloud at the time. And the impact that that sort of period had as we came out of it was really a big accelerant, and so we are looking at this event in terms of how this might be an accelerant for us in the future in the same very way. Hopefully we’d take this time to invest in our business based on our relative strength and we come out of this as a catalyst for future growth.

Great! And just a follow-up Marc Huffman on that, how much of the sales resources have been shifted away from those impacted industries? And as you think about those large transformational deals, have you been able to repurpose those sale resources to kind of other areas or customer success. Just how quickly have you kind of made a turn? Is all of that kind of done now or is there still more work to do relative to reallocation of sales resources?

Yeah, a good question and thank you, and multiple parts to that. So we have a geographic coverage model per se in our enterprise space. So you don't necessarily pivot resources away from one to the other. You sort of think about the top end of the funnel and where you are spending your money, and so that starts with marketing, planning and how we are you know going after a market to create top of funnel motion there. In terms of the rest of your question there, it’s mostly a pipeline and a progression question and what you see is a lengthening of some cycles depending on industries of cycle times lengthening, depending on which industry and how impacted they are. There are still large transformation opportunities that are in our pipeline. Some of them are just sort of being recast across time as people reassess the depth and length of the economic impact on their business.

Totally makes sense. Last question here for Mark, you talked about net customer additions dropping off in March. I guess the first question here, last one for me; did anything change in April as you think about some of the changes to marketing efforts and sales?

Yeah look, thanks. April’s been consistent with what we saw at the end of March. It is as Marc describe, you know we're using as much data as we can, but April’s still early. It's early in the quarter and we're watching metrics and activity as we move through it, but we are seeing something similar to what we saw at the end of March.

Thank you.

Thank you. Our next question comes from a line of Pat Walravens from JMP Securities; your question please.

Great, thank you. This is Joey on for Pat, I appreciate it. Marc I was wondering, how are you approaching these upsell and renewal conversations. And then also, cab you just give us an update on the competitive side? Have you seen anything change at all? Thank you so much.

Okay, so why don’t – first we’ll start with the competitive thing. Thank you Joey for the question. So we are really fortunate to be in the position where we are with our customers and in these types of moments when there's economic doubt and things are going on, people who have had the best focus on customers in my opinion succeed the best, and that’s really what our brand is based upon. And so we were quickly able to take as Therese mentioned in her comments, resources that we had and expertise that we had and pivot that out towards our customers on an advisory basis, offering some free software and really invest in those things. And from a competitive standpoint we were first to market on all those things and we saw some of our competitors follow us in that regard. But you know we really think of ourselves as a leader. We are worried about what we're doing and what we're doing is focused on our customers. In terms of that, your second question about how we're approaching those upsell conversations, you know we have such great customer centricity and good coverage and relationships that are based on more than a commercial activity. They still come fairly naturally, especially in unaffected industries. These companies took a pause in terms of the work they were doing for a finite amount of time. A lot of those things have returned to normal right now and people are continuing their finance transformations and having dialogue with us about how they can progress, you know their rollouts of BlackLine to get quicker time to value better ROI in a short amount of time and so there's still some positive things happening in the up-sell side of our business.

Thank you so much.

Thank you. Our next question comes from the line of Chris Merwin from Goldman Sachs; your question please.

Hi! This is Kevin on for Chris. Thanks for taking my question. I had one about the mid-market segment. I believe it's roughly 20% of your business. Can you talk a bit about what you're seeing here in terms of deal activity in renewals and is the weakest [ph] more broad based or is it more segmented to kind of the highly impacted industries?

Yeah, thanks for that, I appreciate it. Our mid-market, you're right it's about 20%. We saw the same sort of percentage at the end of Q1. The weakness that Mark has talked about is broad based, so there's nothing particular about the mid-market. On the renewals however, I can tell you that our renewals experienced through the first quarter were strong and also through April to this point also strong, even in the impacted industries. We are having conversations with companies where appropriate, but our experience has been so far and it's early, have been pretty positive.

Great! Thanks for the color.

Thank you. Our next question comes from the line of Brian Peterson from Raymond James; your question please.

Hi everyone, thanks for taking the question. I hope you and your families are all safe. These are kind of crazy times.

Thanks Brian.

So maybe just following-up on that last question. It sounds like up-sales is kind of a bit of point of shrink. I’m curious, as we go through a remote close type of process, as you look at your customers, are there some that use more or kind of went all-in on BlackLine that actually did a lot better than those that maybe only had one or two modules. And is there a natural kind of up-sell motion for people that you already have into the pool.

Well, you know – this is Therese and we definitely have had our customers expressed the sentiment, that they cannot imagine trying to close not using BlackLine at all or using less of BlackLine. And I think we're also seeing a good validation of that when we offered out the task module, the number of different things, the additional training, the coaching sessions, all of that has been extremely well received. So I think that we’ll see – right now we are very focused on just helping people get through this time and into their new normal, but I do think over the long term it will help with the strength in the up-sell. And there is a big difference between those that use it fully and those that maybe are just checking a box.

Understood! Thank Therese. And maybe just for those that aren’t using BlackLine and obviously paper is going to be hard in this environment, but I'm just – I’m imagining sitting here in my office trying to close books with my dog barking at me and frankly that that sounds pretty bleak. So I'm curious, are you already seeing potential prospects kind of come in in the top of the funnel or when do you think that would potentially start? Understanding that there's budget pressures, but for those that are seen this complexity real time, I would assume that has an impact on the top of the funnel. Thanks guys.

Yeah, that's a great question, and so I would say interest continues. We continue to build pipeline. Interest continues and in fact you can see by EY example we gave you, other areas of our business and our partnerships, there's a high degree of interest. The economic concern still remains the same and so their access to their budgets and what they want to turn to actualize those things is a constraint. You can imagine a period where people have gone through this and in the future when they have a budget in place, their headcount and human capital necessary to pull-off the change, that is going to be a driver for us.

Understood. Thanks Marc.

Thank you. Our final question today comes from the line of Matt Stotler from William Blair; your question please.

Hey guys, thanks for taking my question. Just a couple of quick ones for me. First, you know obviously on the SAP SOLEX side, you know you spoke about some of those deals getting pushed out. We’ll look to get update in terms of what traction you were seeing pre-COVID, January and February, that partnership. And then any traction with the COVID specific kind of offerings that you mentioned where SAP is featuring BlackLine there?

Hey, thanks for the question. So as our normal business was in January February, the SAP relationship was quite strong also in the early part of the quarter, and so now you've got a scenario where just like the rest of our business that sort of is being recast across time and some of those opportunities. What we are actually seeing is that the interest level in SOLEX and the conversations with customers, prospects, partners and then most importantly the SAP Account Executives, that our distribution strategy there is on the rise. There is a higher degree of interest in learning more about BlackLine. Some of the programs that we’ve launched recently for continued enablement and awareness of our solution in conjunction with SAP's have been oversubscribed, and so I think that this is going to strengthen the relationship and the partnership over time, much like the other interests, the thing that stands in the way of the economic climate and uncertainty.

Right, right, that's helpful. And then just one more. You know just on the – you spoke a little about the spending within the installed base itself, and seeing implementation accelerated, seeing results very strong, which is encouraging. The dollar based net expansion, also pretty stable as it’s been for the six, seven quarters this point, any thoughts on the stability?

Yeah, thanks for the question.

The stability of that going forward and you know kind of how – how much confidence you have in continued growth and spend in that installed base over the next – you know in the foreseeable future. Thank you.

Yeah, I think that’s a timing question. So in the future, on the other side of this, we’ve been talking at length about how we think this can be an accelerant for digital transformation and companies. We have a lot of resources invested in that. I think here in the short term particularly, let's just take Q2, I think the impact – I think that it will be impacted by the things that we've talked about with respect to demand. And also frankly I do think there is a bit of risk planning that more subscription companies like us are doing right now for impacted industries, for attrition within accounts and customer relief programs. I do think those things are at work to favor a long term customer loyalty program and long term customer success and that number can be impacted negatively by those things, particularly in the short term. But the long term is that we still believe these opportunities to sell more products like we talked about earlier and accelerate in this environment is strong.

Right, absolutely. Thank you for taking my questions.

Thank you.

Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Therese Tucker, Founder and CEO.

It’s Therese Tucker. I want to thank all of you for your ongoing support and give a very special thank you to our employees. During these challenging times our employees have banded together to look after one another, while remaining true to our values to serve our customers and to serve each other. We believe that BlackLine is built to last and we will weather this storm together. 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!