BlackLine, Inc. (BL) Q4 2021 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the BlackLine Fiscal Year 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to your speaker host, Barry Hutton from The Blueshirt Group. Please go ahead.

Good afternoon and thank you for your participation today. With me on the call is Marc Huffman, 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, in particular, our guidance for Q1 and the full year 2022 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 periodic reports filed with the Securities and Exchange Commission, in particular, our Form 10-K and Form 10-Q. We do not undertake and expressly disclaim any obligation to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. 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 Marc Huffman to begin.

Good afternoon, everyone, and thank you for joining us today. I’m excited to discuss our record performance in Q4 and 2021 and review our plans for 2022. I’m very pleased with our Q4 results, which represented a strong close to a year of increasing demand and consistent execution from the team. Our Q4 performance came in ahead of our expectations as we earned total revenue of $115 million, up 20% over the prior year. On a macro level, we continue to see strong demand across global markets from all customer segments as both new and existing customers continue to invest in back-office digital transformation. We see a significant opportunity in front of us and plan to invest in the long-term growth of our business. We previously outlined three areas of focus to better serve our customers and drive our growth. In Q4, we continued to execute against these three priorities, customer engagement and success, platform innovation and expansion and growing our international presence. A few highlights from the quarter include our renewal rate finished the year strong at 98%, and our net dollar retention rate continued to climb to 109%. We were pleased with this result. The increase was driven largely by the strong levels of demand from our existing customers for our strategic products, our investments in customer success and execution from our go-to-market teams. Our strategic products, which include accounts receivable automation, Intercompany Hub and transaction matching finished at 32% of total sales for the quarter, which was a new record, and well above our expected range. Sales from our SAP SolEx partnership finished the year with one of the strongest quarters since its launch in 2018. At the end of 2021, our SAP partnership revenue made up 25% of total revenue. We are pleased with the partnership’s pace of ramp and its momentum going into 2022. Sales in EMEA and APAC continued to help drive our revenue growth in the quarter. As of year-end 2021, international revenue reached 30% of our total business, up from 26% a year ago. This increased share resulted from accelerated investment in our global partner ecosystem and go-to-market capacity. Additionally, the SAP partnership and the Rimilia acquisition we completed in late 2020 helped us further penetrate both new and existing global markets. Some examples of International Select and accounts receivable deals include the following. In the fourth quarter, we added a large multinational beverage company in EMEA through the SolEx partnership. They were looking to BlackLine to help them automate their manual spreadsheet-based accounting processes and remove complexity in managing global audit compliance. This SolEx deal also replaced a competitor solution. Another exciting fourth quarter deal came from an existing enterprise customer. This global multibillion-dollar media and advertising conglomerate has been a BlackLine customer since 2013, and has leveraged the financial close suite to help accelerate their financial close and automate their journal entry process. This quarter, they scaled their BlackLine platform deployment by adding the cash application and AR intelligence to provide much-needed aggregated visibility across business units and improve unapplied cash levels. Today, we provide our customers with more capabilities than ever before. Our 2021 product priorities included platform modernization and scale public cloud deployment. We are in a leadership position in our market, and we continue to have a heightened focus on measures of operational excellence, such as controls, quality, security and uptime. In 2021, we were also focused on bringing new products and functionality in the market, such as an upgraded user interface, a mobile user experience that has driven more journals adoption and a complete suite of AR solutions, just to name a few. We believe this pace of customer-focused innovation is why our customers view us as an indispensable partner to the controller’s office. We’ve made platform enhancements and recently closed an important strategic acquisition that will offer expanded solutions to our existing financial operations management platform. During the quarter, we announced our enhanced accounts receivable automation platform. This suite provides traditional cash management automation, along with credit and risk management, collections management, dispute and deductions management as well as AR Intelligence. As an example of the scale of the platform, we have a global logistics company that apply $8 million payments representing $6.2 billion in 2021 and is projected to apply $22 million payments by the end of this year. The relevance and timeliness of accounts receivable automation drew record demand in our marketing events and sales pipeline, which contributed to the strong quarter and AR customer sales. In January, we announced our acquisition of 4Q, which represents another important expansion of our platform capabilities. With 4Q, our expanded intercompany financial management product will help multinational companies reduce intercompany complexity and design and govern global tax strategies. I’ll discuss this acquisition more in just a moment. As part of further developing our financial operations and management platform, we’ve also formed strategic partnerships to help companies accelerate their finance transformation. Through our agreement with Microsoft, we are collaborating on joint selling actions and solution integration to help mid-market and enterprise-sized customers gain control over critical areas such as their financial close, accounts receivable and intercompany accounting processes. This partnership will offer a better customer experience with enhanced connectivity and integration. And recently, we announced an expansion of our partnership with Google to conduct joint selling and go-to-market activities designed to accelerate the customer journey to digital finance transformation and modern accounting. Notably, we believe this agreement will better enable our customers to deploy BlackLine solutions built on Google’s secure cloud platform. As a result, customers will be able to easily integrate data and automate traditional manual accounting processes and offer more capacity to free up time and resources to do more strategic work. Last year, we continued to emphasize our commitment to customer success. During the year, we hosted several events and activities for all of our 3,800-plus customers, including some of the largest enterprises in the world to guide them on their unique path to financial transformation. Our subject matter experts with deep accounting and BlackLine expertise offer leading practices to adopt modern accounting. These experts meet customers where they are in their journey and provide a path to greater adoption and automation. This is done through one-to-one coaching session and one-to-many optimization workshops. Both methods help customers to automate end-to-end accounting processes like amortization, accruals, sub-ledgers, suspense and clearing, just to name a few. Our customer success program ensures a greater platform adoption, resulting in higher rates of retention and expanded use of our strategic products. One of our greatest opportunities to focus on customers is through our annual user conference BeyondTheBlack, which we hosted in November. This conference provided three days of content and educational sessions to further prove the power of our platform and customer success. This year’s event had significant customer engagement from over 19,000 virtual attendees representing over 5,700 organizations, both prospects and current customers. Of note, during the conference was the level of participation and interest in large digital transformation, driven by our product vision for financial operations management, which resonated with our customers and prospects. And we were very excited to see the level of increased customer interest in our intercompany financial management session, which drew thousands of attendees with 4x more individuals than the previous year. Intercompany financial management is an especially attractive market for BlackLine. The global trends, increasing M&A, trade and evolving tax regulations create large volumes of complex intercompany transactions. We launched our Intercompany Hub solution over five years ago to provide valuable solutions in this area. Yet we’ve only just begun to reach the total addressable market in intercompany financial management. Over the past several years, the market has continued to evolve. And in the recent quarters, we’ve seen momentum building in this part of our business. Our recent acquisition of FourQ, which we announced, January 27 is a great example of our commitment to expanding our platform and investing in the long-term growth. I’m very excited about this deal and what it means for BlackLine’s future. The acquisition of FourQ builds on our recent success and is complementary to our existing capabilities. It expands our team by adding over 130 employees to the BlackLine family and increases our value to the broader office of the CFO. By integrating our existing solutions with FourQ’s capabilities, we will further reduce complexity and deliver several benefits to customers, including optimized tax and transfer price modeling, reduced foreign currency risk, enhanced regulatory compliance, rapid M&A integration and our unmatched domain expertise. Since announcing the deal, we received favorable feedback from our customers that are looking for additional solutions to resolve their intercompany challenges. As I look back on 2021, I’m pleased with the progress we made on our strategic initiatives. As we move into 2022, I’m excited about the recent trends in the market, and I’m very confident in our team, our ability to execute and our positioning. We are in the early innings of a large growing market, and we are seeing the demand for digital transformation across the back office continue to expand. Our focus will be to continue to serve our customers, accelerate growth in our combined markets and scale the business to support our expanding reach. We remain committed to executing our multiyear strategy to drive long-term sustainable growth and advancing BlackLine’s position as a market leader. I’ll now turn it over to Mark Partin to discuss our financial performance and our financial outlook for 2022.

Thank you, Marc, and good afternoon, everyone. As Marc mentioned, we are very pleased with how we finished the year. 2021 was a year of solid performance, and we feel good about our opportunity for 2022 and beyond. During Q4, we continued to execute on our business plan and generated strong results across key financial and business metrics. For the full year 2021, total revenue grew 21% to $426 million. In the fourth quarter, total revenue grew to $115 million, representing 20% growth compared to the fourth quarter of 2020. Led by sustained success in our international markets, our continued ability to close large and strategic deals, the ongoing productivity of our partners and further expansion of our existing customers. In addition, to Marc’s comments earlier, highlights for the quarter include, we added 121 net new customers in the quarter, bringing our total to 3,825 new customers that continue to adopt our solution to reduce their operational challenges. We showed strength in the enterprise market by signing a record number of large deals with the help of our partners and by leveraging our strategic product portfolio. Partners were involved in 88% of large deals in the quarter, showcasing the power of our valuable partner ecosystem. And revenue from our SAP partnership totaled 25% of revenue, up from 24% in the prior year, maintaining the positive trend of this relationship. In Q4, non-GAAP overall gross margin was 78% and subscription gross margin was 82%. For the full year, total gross margin was 80%, and subscription gross margins were 84%, which is within our targeted range and reflects the ongoing transition of our customers to the Google Cloud and increased investments in ramping our customer service and success activities. In Q4, we generated non-GAAP net income attributable to BlackLine of $4.8 million. We generated $22.1 million in operating cash flow and $15.3 million in free cash flow. Net income was impacted by our ramp in targeted investments as well as a onetime charge related to the cancellation of sales and marketing events resulting from the pandemic. We finished the year with approximately $1.2 billion in cash equivalents and marketable securities. Over the past several years, we have consistently improved our net income, achieving operating leverage across all areas of our business. In 2021, we earned a non-GAAP net income margin above 8%, which was an increase from 1% in 2017. We achieved this while increasing strategic investments in our customer success, technology, product road map and integrating the Rimilia acquisition. During 2021, we saw the demand environment for digital transformation across the office of the CFO continue to accelerate and build momentum. This favorable market environment offers us a unique opportunity to invest in accelerating our long-term revenue growth rate and advancing our leadership position. Given the market opportunity in front of us, we intend to make targeted investments in our go-to-market team, our public cloud infrastructure and the integration of our recent acquisition. The impact of FourQ to overall revenue in 2022 is not expected to be material, but it will be dilutive to our overall margins in the year as we ramp our investments to support the integration. We are expecting to see a return of travel and in-person events in 2022. And while this remains uncertain in our overall business globally, modeling the cost at this point gives us appropriate flexibility as the year develops. The Q1 net loss guidance includes the ramping of investments, the normal step-up in annual operating expenses driven by salary increases, payroll tax reset and annual kickoff events, plus the dilutive impact from the FourQ acquisition and its related costs. We expect to generate operating leverage and additional margin throughout the year as we execute on the top line. Turning now to guidance. Our expectations for the first quarter of 2022 include: Total GAAP revenue is expected to be in the range of $119 million to $120 million, representing 20% to 21% growth compared to the first quarter of 2021. On the bottom line, we expect to report non-GAAP net loss attributable to BlackLine in the range of negative $6 million to negative $4 million or a loss of $0.10 to $0.07 on a per share basis. Our share count will be approximately 59.2 million diluted weighted average shares. For the full year 2022, we expect total GAAP revenue in the range of $520 million to $525 million, representing 22% to 23% growth compared to the full year 2021. On the bottom line, we expect to report non-GAAP net income attributable to BlackLine in the range of $5 million to $7 million or $0.08 to $0.11 on a per share basis. Our share count will be approximately 63 million diluted weighted average shares. In closing, I want to thank all our BlackLine employees for their effort and hard work in 2021. We had a strong finish to the year and continue to see healthy customer demand as more and more companies scale and invest in their back office digital transformation. We’re excited to continue to support customers in that journey by expanding our platform with our FourQ acquisition. As we head into 2022, our strong customer demand and platform momentum gives us the confidence to continue to invest strategically in our long-term growth as we build on our innovation, our market leadership and pursue the attractive growth opportunity in front of us. Now I’ll ask the operator to open the discussion, and we can take your questions.

[Operator Instructions] Now the first question coming from the line of Matt Stotler with William Blair. Your line is open.

Thanks for taking the questions. I guess, first, I would like to maybe dig into the FourQ acquisition a little bit more. Obviously, very interesting in terms of the kind of specific additive capabilities that you mentioned but would like to maybe better understand how it complements what you have with ICH and maybe some of the kind of key things that are additive there or is meant to replace some things that you had previously offered ICH. And then obviously, with ICH the ramp there has been relatively gradual over time, high value in terms of value-add for customers, but just given the sales process, the number of stakeholders, et cetera, has been kind of gradual to layer in. And how would you expect FourQ to contribute going forward?

Yes. Thanks for the question, Matt. I’ll start just maybe broadly, intercompany accounting. We believe it’s a large space. TAM is large. It’s strategic to us, and it’s a great greenfield hence our investment several years ago that you referencing Intercompany Hub. Those transactions are complex, and they go on in some of the largest, most complex accounting landscapes in the world. And a lot of it is still done very, very manually. To really simplify the sort of additive value of it, BlackLine very closely coupled to what we do in the financial close helped identify and then remediate the transactions that were, let’s call them, out of balance or broken that got created in intercompany accounting. FourQ started at the very opposite end of the challenge in the creation and planning side of transactions. So as you think about this complex landscape that has significant tax implications, significant foreign exchange implications, transfer of pricing and regulatory concerns, they are upstream focusing on the planning and creation of transactions that flow through the entire accounting process, we were really focused on identifying those transactions, remediating them, completing the close. And we think these two things are highly complementary, and our customers will be the significant beneficiaries of this in the future.

That’s super helpful. And I appreciate the color there. And maybe one for other Mark on gross margins. Subscription gross margins took another a little bit of a step down in the quarter. I know there’s a bunch of things going on from an investment perspective, especially with the move to new GCP and all that. Maybe just touch on – just refresh us on some of the dynamics there, get an update and then how we should think about that as we move through 2022?

Yes. Yes, thanks. Our gross margin finished the quarter at 78% has been trending in that direction related to two things. We’ve been talking about it for a few quarters, and that’s related to our investment in the Google Cloud, we believe that was about a 1 to 2 point impact and then similarly investing in our customer service and success team ramping that effort as our company and our product mix moves forward. We think that those were really well-received investments with our customer base. In the Google Cloud migration, we think that’s another 18 to 24 months. We’ll see the impact of that in 2022 similar to where we finished up the year and longer-term confidence in our ability to return back to a gross margin in the 80-plus percent.

Very helpful. Thanks again.

Our next question coming from the line of Matt VanVliet with BTIG. Your line is open.

Yes. Thanks for taking the question. I guess first, Mark Partin, can you help us understand kind of what the revenue contribution is for FourQ that you’re building into the guidance? And then how much of, I guess, compression on margins is that expected to have over the year?

Yes. So I’ll start by saying that our guidance philosophy for 2022 is very consistent with what we’ve done in the past. We feel confident that we can execute in that range in 2022. The impact of FourQ, the transaction was closed in January. We’ll start to see it as early as Q1 and through this year. Impact to revenue, we estimate included in our guidance between 1 and 2 points. And at the bottom line, it will be dilutive to the overall company for the full year as we invest and integrate the business.

Okay. Helpful. And then as you look at the international growth, I know you made a lot of investments both with direct go-to-market team and expanding a lot of the partnerships there. Where do you feel like you’re at in terms of the overall investment cycle? Are we at a point now where the returns from the last couple of years sort of self-fund the additional growth going forward? Are we still in maybe a final investment year to the point of continuing to ramp up that growth and continuing to see the success you saw in the fourth quarter?

Yes. International is one of the areas that we’ve been really excited about for the last 12 to 18 months coming out of the pandemic, it lagged the U.S. slightly, but then has really started to get back to the pre-pandemic levels. It’s a growth lever that’s been driving our overall growth. Major markets in EMEA and APAC, where we operate today, consistent with our partner ecosystem, like SAP and some of the consultants that are helping drive business in those markets. Our investments in our Japan partnership early on that after a period of time is now starting to come online. So we will continue to invest there, and the return continues to be great for us. And we think that there’s opportunity in those markets to keep driving and therefore, we’ll keep accelerating. In fact, in 2022, one of the major areas of investment for us is in capacity and in sales and marketing around our international markets to invest into that growth demand that we see.

All right. Great. Thanks for taking the questions.

Our next question is coming from the line of Joe Myers with Truist. Your line is open.

Thanks so much for taking the question. Last quarter, you guys noted that the customer engagement team was above 100 in headcount. And with your increased investment initiative here, I was wondering if that grew sequentially? And then just more broadly, how are you guys doing with hiring across the company in the currently tough hiring environment.

Yes. Thank you. I’ll start with the hiring bid. And going back to customer success it’s an area that we continue to invest, and we think it’s really important in the near-term operational metrics, the net revenue retention should reflect how we’re investing in those areas. Obviously, our retention rate and the account growth, having people get better usage and learn about additional use cases will affect the future performance of our strategic products. And in this particular quarter, it was a very strong strategic product result so we’ll continue to invest there. As far as overall hiring goes, we – I believe we were – we’re not immune to the great resignation. However, I think we fared better than many companies. Our brand and our culture, strength for us. Overall, I believe last year, our headcount grew by about 18%. And as we hit in the very tail end of the year, we are accelerating that through the investments that we plan to capitalize on the demand environment that we’re seeing right now.

That’s super helpful, especially the color on the acceleration. So thanks for that. Kind of more question about international. What’s the game plan? Can you just remind us of the game plan to expand in APAC and how that may be similar or different from the strategy that you’ve used to expand your presence in EMEA?

It’s not dissimilar to the strategy that we’ve used in EMEA with the exception if we include our Japan business in there, that’s obviously a partnership that we’re really, really pleased with the progress that we’re seeing in Japan. We’ve recently added leadership, a proven leadership in the APAC region that I think is going to help benefit us in terms of scale, but it’s a mix of our growth initiatives, which include SolEx, very performant for us in Asia Pacific, land and expand motions, utilizing now the modern accounting playbook, in some locations and then investing in customer success and things that drive enhanced usage, which should bring the tail of – and drag in strategic products. And like we’ve mentioned, the international growth overall is accelerating, and we’re pleased with the performance in our investments in those areas.

Excellent.

And our next question coming from the line of Alex Sklar with Raymond James. Your line is open.

Great. Thanks. I had a couple of questions on FourQ as well. Mark Partin, first, does that 1 to 2 points of revenue contribution factor deferred revenue haircut?

It does. It factors in what we think the impact at this stage in the year, what we think the impact will be in our guide, we put 1 to 2 points in that number.

Okay. Great. And then Marc Hoffman, the way you were describing the FourQ solution seems like it’s a product that can really help outside of the traditional financial close period. Can you talk about that controllership opportunity kind of outside of financial close more broadly and then you’re kind of growth rate expectations for FourQ?

Well, first of all, I hope you can sense I’m excited about the opportunity. Just again, starting with the space itself, how strategic the large orders that we see and just how much help that we can provide to some of these organizations who suffer through these high-risk areas. The – they come with an existing pipeline of opportunities, and we’ve been really, really aware of the fact that people might be confused in what our offerings are traditionally with Intercompany Hub versus what their FourQ offerings were, and we are finding them very complementary and getting great feedback. So we have – I would say, ambitious plans, but I understand that it will take time to communicate the value of the joint solution work through creating a really seamless and highly scalable experience for our customers that leverages both the plan and create side and the remediation side of the entire intercompany space.

Okay. Great. Thank you.

Our next question coming from line Andrew DeGasperi with Berenberg Capital. Your line is open.

Hi. This is [indiscernible] on for Andrew. Thanks for taking our questions. So we are wondering if there is room for the relationship with SAP to even further improve, particularly as that company continues to execute on its rollout of its cloud-based ERP solution?

Well, we were having a little trouble with the audio. So I hope I’m getting this right. The questions regarding SAP and SolEx. One of the best quarters that we’ve had in the relationship since inception, highly performant for us and accelerating growth engine for us. Adds some benefit to our international expansion, which is driving the performance that we’ve seen is a greater share of our revenue. In addition to that, it has led to some of the net customer add strength that we had in a strong quarter. And then the other big attribute of the quarter was a strong larger deal contribution, which is also on the back of SolEx. So highly performant relationship for us right now.

Okay. Thanks. Sorry about the connectivity issues.

And our next question coming from the line of Josh Beck with KeyBanc. Your line open.

This is Maddie on for Josh. Thanks for taking my question I have a couple and then a follow-up. Modeling-wise, I wanted to know how you’re thinking about NRR trends throughout the year and 2022? And then what type of macro and sales cycle assumptions you’re embedding into guidance?

Right. Yes. Thank you. Let me start with sort of the first – sorry, the latter part of that question around the macro environment. We – just to take a step back, we have seen now six quarters of increasing demand in our space. And heading into 2022, we believe that that demand is continuing in our conversations and the strength that we see in our pipeline and are really positive on the demand curve that we see across our global markets. Our guidance philosophy has always been practical, pragmatic that we want to be able to execute within the range within a high level of visibility and then execute through the year on that guide. And we’ve done that similarly. I think your second question was about the dollar-based net revenue retention rate, which is actually accelerated a bit quicker than we had even expected. We were really pleased with the strong fourth quarter. We got that uplift from record sales of our strategic products into our base, our record of user sales into our base and really strong momentum. Our view is that our investments in the customer engagement and success efforts and the account management team and the go-to-market team. Our expansion of that product portfolio gives us more levers than we’ve ever had to raise the profile with inside our customers and drive that net dollar retention rate. And all of that continuing to be built on a high retention rate of 98%, a renewal rate of 98%. And so as we move forward, we – our goal is to invest to drive that rate. And prior to the pandemic, it was up above where we are and we think we can continue to move it up.

Awesome. And yes, just my follow-up, could you describe a bit about the demand environment for back office digital transformation compared to pre-COVID levels, specifically between mid-market and enterprise customers?

Yes, it’s strong. I believe in Q4, we were talking about it exceeding pandemic levels. And it’s now been six quarters of an increasing demand environment. And I believe that is why we had a record quarter, and most all of our initiatives were very performant for us in the quarter, primarily because of the demand flowing through our systems. That’s in mid-market where our messaging and our deliverables are resonating as well as in larger organizations and increasingly a large focus in the demand environment on things like intercompany, which again, we’re very excited about the incremental nature of this acquisition as well as our opportunity ahead of us in 2022.

And if I could just sneak one last one in here. What has the reception been so far on AR automation? And what kind of market synergies are you seeing with the Rimilia acquisition?

Yes, great question. I appreciate you asking that for some reason with all of the other excitement we forgot to touch on that, very performant. AR automation in the strategic products performance that we had in Q4, it’s well above the high end of the range that we usually expect. So we’re pleased with the performance of that business in the year, especially in Q4. It is leading to new customer lands in mid-market and enterprise segments. It’s also leading to the cross-sell that we’re seeing within the BlackLine customer installed base. And it’s also starting to drive pretty significant transaction volumes and that’s a great indication of the value it’s creating for large organizations.

Thank you. Very helpful.

Our next question coming from the line of Brent Bracelin [ph] with Piper Sandler. Your line is open.

Hi, this is Mauro on for Brent. Thanks for taking our questions here. So one thing that stood out here is a bit of a ramp-up that we saw in your go-to-market and R&D spend during the quarter. It would be really helpful to get some more color on what kind of initiatives you’re investing behind on those fronts? And then maybe what kind of – what the pace of investment we should expect going into the rest of this year? And then I’ll have one follow-up.

Right. Yes. Thanks for the question. And you’re speaking of Q4, we ramped our R&D and sales and marketing investments, a choice we made as we move through the year and into Q4 as we saw the demand increasing in all areas of the business and put some wood behind the arrow, so to speak. And as we described it, it is international capacity, it’s sales hiring and capacity around the globe, including in the U.S. and customer-facing teams. When the pandemic hit, we were more inclined to hold our hiring in sales flat during the decline in demand. And then as it started to pick up, we started to accelerate that investment out of Q3 and into Q4. And then as we move into this year, we’ve talked about that being included in our guide. Additionally, we’ve made investments in the R&D efforts and into the Google Cloud migration. All of those on track and those investments will continue into 2022.

Got it. Yes, that’s helpful. And then as it relates to the revenue from strategic products, it’s quite notable to see it jump up to over 30% of the mix. And we’re just wondering, is that a signal of a trend that we should expect to see continue going forward? Or is that more of a deviation from what you’d expect to give the norm? Thanks.

Right. Well, it’s certainly a spike in the quarter when you have that kind of record performance so above the range when all three of the four products operated at record performance, AR transaction matching and intercompany. It is indicative of what we’ve been seeing in the demand environment that we’ve been discussing. For the full year, the strategic products ranged – were approximately 23% of our sales that was up from the prior year, up from the prior year. So we would expect, on an annual basis that these will continue to increase. Those are the investments that we’re making into our business and into that portfolio. But on a quarterly basis, it will vary.

And our next question coming from the line of Pinjalim Bora with J.P. Morgan. Your line is open.

Great. Congrats on the quarter. It seems like a good bookings quarter from what I hear. I wanted to dig in into the Microsoft partnership, how should investors think about this opportunity around the partnership? And any preliminary feedback that you’re hearing from customers?

It’s a real recent announcement that we’ve made. We also announced that Google partnership as well, very similar things, co-selling arrangements, primarily focused on mid-market and enterprise companies or the divisions and subsidiaries of enterprise companies. Microsoft continues to have great traction, brand and reach in that space. It will also allow us to further develop technology synergies to allow our systems to better interoperate in a complex accounting technology landscape. It’s way too early, and I don’t expect a material impact in the next couple of quarters, but I think it will be something that we should pay attention to as we round the year and our performance in sort of the Microsoft ERP landscape.

Yes. Understood. Okay, thank you for that. Another question on NRR. We saw a nice sequential uptick. Could you maybe parse through that, was there any kind of a tailwind from the normalization of spend from existing customers? And the second part to that is, as you fold, I guess, Rimilia, since you have lapped it now. Is there anything to remember in terms of the effect of Rimilia being layered on top of NRR?

I’m sorry, I didn’t hear that last question, but let me talk about the drivers of the retention rate. When – prior to the pandemic, we were at around 110% to 111% and then the pandemic dropped that down. And for the last several quarters, we’ve had three quarters of sequential increases to get back to where we are. The drivers of that are the investments that we’re making into our customer success and account management teams that are really focused on our customers’ journey to uptake and buy into our strategic products. And so that’s been one of the great growth levers that’s moving that needle. Another one is we’ve had a couple of record quarters of user expansion now also coming from global rollouts within our customer base. And then all of that on a higher price lever, every year, we have annual price increases within our customer base. And we also have a very high renewal rate, particularly in the enterprise. And so that’s been the driver and will continue to be so with the strategic products also giving us some uplift.

Got it. The other part of the question that I think you misheard or didn’t hear is Rimilia. Wouldn’t Rimilia kind of layer into net retention going forward? And does that have any good or bad effect?

Yes. Great question. Yes, you were right. I heard the first part of this that we – in the fourth quarter, we lapped the Rimilia acquisition, and so you can see that in the comp numbers year-over-year. And Rimilia now are BlackLine’s cash and AR automation solution has become part of our strategic portfolio and that’s being sold into our base, and that gets calculated into that retention rate and is now driving it. And we saw that in Q4 with a record performance from Rimilia. When we bought the company, we talked about the impact in growth being in the second year and beyond, and that’s pretty much what has happened.

Understood. Okay. Thank you.

And our next question coming from the line of Koji Ikeda with Bank of America. Your line is open.

Hi, this is Tameka [ph] on for Koji. Thanks for taking our question. We were hoping to gain more color on the competitive landscape, what you’re seeing out there, specifically as mid-market and international demand for finance and automation increases? Thank you.

Thank you. No material change in the competitive landscape that we see. We still continue to see some level of competitive takeaways that we’re able to perform. But primarily, it’s companies coming off unsustainable and manual or spreadsheet-based environments that they’re working in. We continue to focus on expanding the capabilities of our platform. The AR capabilities, now our enhanced intercompany capabilities. We feel like expands our moat, gives us more capabilities than anyone else in our space. And although the market demand I believe, is likely filling many boats. A lot of the value is accruing to us as the leader in the category.

Thank you.

Thank you.

And our next question coming from the line of Rob Oliver with Baird. Your line is open.

Hey, thanks. This is Shrenik on for Rob. So I had a question on – just following on the mid-market. So the product MAP, just wanted to get a sense of where it’s kind of really gaining traction. What’s really going well? What’s not? Just some color around that.

Yes. Mid-market was performant last year in the quarter. I believe a lot of it driven by great leadership and the efficacy of our approach, the modern accounting playbook. It’s a well-warned path for controllers and CFOs of mid-market companies who want to drive not only visibility but automation into their accounting landscape, it delivers a very quick time to value and very specific use cases that we believe are the best use cases to land a new customer with to put them on a path of continued expansion. It’s pervasive in our mid-market sales. The delivery is being very well executed and we’re getting great feedback from customers on the value it’s creating for them.

Got it. Really helpful. Thanks. And just one quick follow-up on SAP. So SAP contribution came in at the higher end of your typical range at 25%, international is super strong. So just wanted to get a sense of – regarding SAP, what are the kind of drivers around the pipeline. We are seeing some bigger budget type of deals kind of related to digital transformation as opposed to just accounting and so forth.

Sure. I can start off because I think part of your question was about the success traction and drivers in the SAP SolEx program, which is now in that reseller partnership with them about three years old. And in Q4, we saw a continuation of a trend where we believe that SAP as a partner is really on trend and on traction with us. The programs from the RISE initiative a year ago to the efforts from our direct sales and customer training efforts have really paid off. SAP SolEx has continued to validate the partnership, which are large strategic global deals, sometimes in the markets where we operate and sometimes outside of those markets and bringing us customers that we would not have seen without them. We operate at a very high level, most of the time in a digital transformation project, and that gives us not just a great strategic partnership but a great long-term lifetime value customer. So that fourth quarter with SAP has been one of our best, and we believe this trend can continue into 2022.

Got it, thanks a lot. Appreciate it.

I’m not showing any further questions at this time. I would now like to turn the call back over to Mr. Huffman for any closing remarks.

We thank you all for attending today and your interest and support of BlackLine. We’re very pleased to share the results of a record quarter and our vision for the future and like to continue the precedent set by our founder and encourage you all who follow us – refer us to your portfolio clients so we can help give them a great experience. Thank you and we’ll see you soon.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.