Ladies and gentlemen, thank you for standing by and welcome to the First Quarter 2022 BlackLine 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] Please be advised that today's conference is being recorded. [Operator Instructions]. I would now like to turn the conference over to your speaker for today, Barry Hutton you may begin.

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 call that are not historical facts including those regarding our future plans, objectives and expected performance, in particular, our guidance for Q2 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. We kicked off the year with a great quarter and I'm pleased with our consistent execution and solid results. Our revenue for the quarter was $120 million, which was ahead of our expectations, up 22% year-over-year marking an acceleration in growth from the last quarter. We believe our strong Q1 performance further validates our investment goals for 2022 as we work towards continued acceleration in our top line growth and executing on our long-term operating goals. At a macro level, we saw healthy demand across global markets and industries in Q1 as back office digital transformation continues to drive significant software spend. We stand to directly benefit from these ongoing transformations as customers turn to BlackLine to solve, automate and bring greater transparency control to their financial and accounting operations. Today many accounting departments are still fundamentally relying on manual and time-consuming accounting tasks. And the opportunity for us is greater than ever, with what we believe is a $28 billion plus total addressable market and the opportunity to serve as the industry leader in modernizing and automating the office of the controller. The combination of this robust demand environment alongside our proven ability to execute and grow our team points to an exciting path ahead for BlackLine. Our strong momentum reflects the investments that we've made thus far to grow our customer engagement and success teams and we're encouraged to see our approach play out in our Q1 results as we continue to invest into our longer-term growth opportunity. I'll cover three areas on today's call: first, key highlights from the quarter and drilling down on what drove our Q1 performance; second, sharing more about why customers choose BlackLine and the efficiency, automation and success they're seeing with our…

Thank you, Marc, and good afternoon everyone. As Marc mentioned, Q1 was another strong quarter for BlackLine, with continued customer demand and consistent execution on key growth initiatives. We saw strength in global markets, continued expansion in existing customer accounts, healthy uptake of strategic products and solid performance from FourQ. Turning now to some of the key results and highlights for Q1. Total revenue grew to $120 million, representing 22% growth compared to the first quarter of 2021, with subscription revenue growing to $114 million up 24% compared to last year. We continue to add new customers in Q1, with 72 net new additions bringing our total customer count to 3,897. Strategic products were within our expected range at 21% of sales and performed well in Q1 driven by healthy uptake and up-selling activity as well as solid team execution. We had record intercompany sales aided by both 4Q and our own Intercompany Hub performance. Partners were involved in 76% of large deals, consistent with Q1 of last year. This showcases the continued power of our valuable partner ecosystem, an additional growth lever that they provide in driving further enterprise penetration. Revenue from our SAP partnership remained steady representing 24% of revenue in Q1. In Q1, non-GAAP overall gross margin was 78% and subscription gross margin was 82%, which was within our expectations and continues to reflect the ongoing transition of our customers to the Google Cloud, and increased investment in ramping our customer success initiatives. Our operating expenses increased by 28% versus the prior year reflecting our stated investment goals and increasing capacity to meet the greater levels of demand driving product innovation and accelerating and sustaining revenue growth over the long term. As a result in Q1, we saw a 31% year-over-year increase in net new employees aided…

Thank you. [Operator Instructions] Our first question comes from the line of Koji Ikeda with Bank of America. Your line is open.

Hey, Marc and Mark. Thanks for taking my questions here. Just a couple from me. Okay. So the rev guidance, it definitely looks like the second half you guys are implying the second half is going to grow faster than the first half by a couple of points. And it sounds like the commentary from big deal activity all pretty good. But I guess my one question is when I look at the model over here the billings on the first quarter. It looks like it came in a little bit -- a little bit below 20%. So I guess first question is that below 20% correct? And then I guess from a deeper perspective, what are you seeing in the pipeline or maybe from a demand perspective that's giving you this confidence for this growth acceleration in the second half of this year?

Yes. Great. Thanks, Koji. You're right with your numbers for this year. We do have high confidence in the demand environment continuing and our ability to execute on this guide. We see variability in billings from quarter-to-quarter, particularly in a quarter like Q1 which is a seasonal quarter for us. Going back in the trailing 12 months when we look at billings, we are pleased with what we're seeing and that we're able to drive that number and that is helping to fuel our growth moving forward. There's also a shift, a mix shift in bookings from quarter-to-quarter now where we're getting more on expansion account growth. And that will have a near term or an impact in this quarter reducing the billings number because you're not billing the full year. And then it sort of spring loads the future on the billings for that on renewal so you get the benefit of that full year when it renews.

Got it. Got it. Super helpful. And then I just had a follow-up question here on the headcount comment. It looks like you guys have increased it by 31%. Maybe could you break that down a little bit kind of by the business units? I guess where I'm going out was specifically on the sales organization. Did that headcount expand higher or lower than 30% and how should we be thinking about the sales capacity ramp from here? Thanks, guys.

Yes. That was the most significant part of the business that increased. It was close to 30% for the quarter. We added in 4Q employees. Those were across the board in both R&D GTM and in G&A. And then we have accelerated our hiring in the customer-facing team and on the sales capacity. So those are -- most of that is in the high-20s and 30% year-over-year.

Got it. Thank you so much for taking my questions.

Thank you. Next question comes from the line of Pinjalim Bora with JPMorgan. Your line is open.

Great. Thank you. I just wanted to ask the macro question. I guess it seems like you talked about the resiliency of the business. It sounds like you're not seeing anything, but can you help us understand in the various geos the tiers that you have, are you hearing any kind of change in tone in customer conversations or any signs coming from Europe due to the geopolitical uncertainties there?

Thanks Pinjalim. The performance in Q1 and our observations and interactions with customers thus far pointed to the broad performance that we've seen all geographies, all industries across our multiple initiatives. We are watching for those signals like I'm sure many of our colleagues in the industry are. But as of right now we're not seeing any signals that are telling us that it will be a diminishing interest in people's investing in accounting digital transformation thus far. That's based on the observations in our own pipeline, as well as customer conversations about their continued desire to invest in their businesses.

Understood. And one follow-up just a high-level question that I have gotten and I would love to hear your perspective. When I look at -- I guess I don't know what your international growth was this quarter. But when I look at the divergence in growth between US and international going back it seems like international growth kind of snapped back from pre-COVID -- to pre-COVID levels already by the end of 2021, but US business has not. Any way to understand the factors driving that? And how should we think of that growth trend in those segments going forward?

Yes. Thank you. In Europe and Asia Pac, we have seen accelerated growth going into and then now coming out of COVID and that's in the 30% and 40% growth rate. But we've also seen -- and this includes Q1 that the flywheel for North American growth is in strategic products and account expansion in record user rollouts with our U.S.-based customers. We're seeing really robust growth sort of across the globe. And Q1 was a strong U.S. growth market. And I think that's very much in line with our strategy. We have a very strong base of large enterprise customers in North America. We're able to grow those customers at an accelerated rate particularly large deals through our ecosystem and now our strategic product portfolio. And that's the real flywheel for North American growth and we are seeing that we saw it in Q1. And then the addition of FourQ which has started as more North American-based and that we'll begin to take that more to our international customers which will help us there as well.

Understood. I was thinking one more if I may. FourQ, it seems like it's doing pretty well. What was -- any -- can you help us understand the contribution in Q1? And are you still expecting 1% to 2% for the year? Or are you ratcheting that higher?

Yes. Our overall strategic product portfolio we expect to be between 20% to 25% of total sales in each quarter and for this year. And in Q1 we saw it at 21%. And so we're within that range. And that was fueled by the sales -- record sales of intercompany both from FourQ and from our own existing intercompany product, which now moving forward we'll be operating more and more together. So we had a very strong sales quarter in Q1 and that revenue will start to roll out this year.

Understood. I’ll leave the floor. Thank you.

Thank you.

Thank you. Next question comes from the line of Rob Oliver with Baird. Your line is open.

Great. Good afternoon. Can you guys hear me okay?

Yes.

You're loud and clear Rob.

Okay. Great. Hey, Marc. Hey, Mark. Thanks so much. Only two for me. So, first one, Mark Partin on that strategic product flywheel, which you just discussed. Historically, the strategic products growth ran at cross current to the user growth, but they both appear now to be a firing on all cylinders. So I was wondering if you could talk a little bit about that. Are the strategic products still in aggregate not seat-based and talk a little bit about that dynamic? And as a follow-up unless I missed it and I apologize if I did there wasn't any comment about Rimilia. It sounds like FourQ is off to a great start and I'm sure if Therese has listened to this she's probably really happy with ICH coming to fruition now. But I'd be interested to hear what you guys are seeing in terms of attach rates on the cash side with Rimilia now that we're I think 1.5 years or so after the acquisition. Thank you.

Yes. Great. Thanks Rob. I'll go first with the question around user adds and strategic product both growth levers over this last several quarters have really been hitting on all cylinders. And we've invested as you know in the customer success team. That team is driven to help our customers engage more with the products engage with what they own and getting full value out of the products that they have. And then that allows our account management teams to sell more of our new -- of our strategic product portfolio. And so we've been seeing great uplift. And in Q1 21% of strategic products of total sales was a great lift. It is not sold on users. But you're right in Q1, we saw our third sort of record user add quarters. In fact it was an 84% increase year-over-year against Q1 of a year ago. And so we're selling and rolling out more and more users on our existing customers in the core platform in the financial close. And so those are two growth levers that have been really working well and that's a direct result of our investment in the customer success and engagement teams.

And then, Rob, to your question about Rimilia AR, what we observed is broad performance across geographies, customer size, industries and initiatives. And as you've been following BlackLine for some time, you've experienced this. We've broadened the amount of capabilities that we've had and the initiatives. And so it's sort of like -- it's hard to call them all out and something like that. Pleased with the performance in the AR business, some nice wins, some really strong expansion that we were seeing from some existing customers who were getting incredibly high match rates and great value from the cash application and the additional products there. So, pleased with it. But just like everything else, sort of, broad performance and when we have a record intercompany performance like that, it sort of was the big, big highlight of the strategic products. And you can -- rest assure that Therese is listening and pleased with the intercompany performance.

Okay. Thank you, guys, very much. Appreciate it.

Thank you.

Thank you. Our next question comes from the line of Matt Stotler with William Blair. Your line is open.

Yes. Hey. Thanks, guys. Appreciate you guys taking the questions. I guess, just starting off, I would love to just get some more color around, kind of, what you're seeing with the partner channels specifically outside of SAP. You, obviously, have some really interesting and some new relationships there. Microsoft, Google, maybe some that are kind of more nontraditional versus what we think of. So any update on the development of these relationships influencing the business and how you expect that to trend going forward?

Yes. So some of them are still relatively new and growing and we continue to invest in those things. We think they're long term and strategic, some of the ones that we've recently rolled out. We'll have some spillover into the demand side of things in that -- these are organizations that influence people who are in the market for digital transformation, hard to really perfectly quantify that. And then, there are other things that we invest in, that are sort of environmental, if you will, allowing us and our solutions to create great value with customers to give them a better experience, which makes us sticky and really easily digested into a complex financial accounting landscape. So some of the partnerships that we've had out there have been designed to do just that. Really, pleased with that. And that showed us -- that shows up in customer satisfaction renewal rates usability, which leads to the growth in our net revenue retention. So it shows up in a lot of places and I would just describe that we're pleased with the progress continuing to invest in that ecosystem partnerships.

Got it. That's helpful. And then, as you think about, kind of, the product road map and investments there going forward, obviously, a lot of opportunity with the AR portfolio, which is in focus, but you've been -- with FourQ and everything, you've made this interesting move, kind of, look at upstream from a data perspective. So, kind of, would love some commentary on how you think about that forward product road map organically inorganically, but what's -- I guess, what's next as you think about that broader strategy there for product expansion?

Well, we always have our eyes on opportunities and, sort of, the view towards what is organic versus inorganic and partner-led, through the lens of our long-term strategy and dispensability and modernizing accounting, specifically, targeted the controller and the processes and the beneficiaries that those people serve. And so, I would -- from a what's next standpoint we're going to continue to be laser-focused on customers. And we're going to bring great value to customers through our core products, the AR suite, the intercompany capabilities that we've just added to, and then, the next iteration of our platform, financial operations management. So if you're sort of looking into the future, as to where we're going, well, near the end of the year, in our releases, there we’ll be focused on financial operations management, integrating, orchestrating and automating complete accounting processes, making our technology and our capabilities even more digestible into these complex landscapes. And we'll share that with you as we get closer.

Looking forward to it. Thanks for the color.

Thanks, Matt.

Our next question comes from the line of Andrew DeGasperi with Berenberg. Your line is open.

Hi. This is Ali Yaseen on for Andrew. Thanks so much for taking my questions. So last quarter you had mentioned that there might be some confusion between BlackLine's traditional offerings with intercompany versus what FourQ offerings were? And how this communication with customers been so far in terms of explaining how they complement each other in the joint value of the solution. And you said it was a record quarter of sales of the product, but just if you have any more color on customer response so far?

Yes. So in the description of confusion when you buy a product that is adjacent or in the same space you always have to make sure that your messaging is really clear. And so I think we did a nice job in customer and prospect communications about the complementary nature of FourQ's capabilities to the existing BlackLine intercompany capabilities. I think the team did a nice job of that. The customer feedback has been really, really strong. Some of those have accelerated in our pipeline throughout the rest of the year. We were obviously pleased with the record intercompany performance in Q1 and we're excited about the potential to deliver great value to our customers in that space. It's a space that there's very few organizations focused on this with technology and know-how like we have. And we think that the demand will continue to sustain in that area as businesses evolve.

Thanks. That’s helpful.

Thank you. Our next question comes from the line of Matt VanVliet with BTIG. Your line is open.

Hello, guys. Thanks for taking my question. I appreciate it. I guess when you look at the overall competitive landscape out there you've added quite a bit to your portfolio to sort of appeal beyond just accounting and maybe really kind of targeting the office of the CFO more broadly. But as you step into some of those opportunities it feels like some of your competitors from other locks of life are sort of encroaching on your core accounting capabilities. So curious how you're seeing in terms of -- are there new competitors popping up? Are the conversations still drilling down to your really detailed focused on helping the controller and all that you've been doing over the years? And maybe just how holistically are the buyers looking at other platforms versus best-of-breed solutions for each use case.

Yes. I'll tell you that competitive environment has not materially changed. The notion that people are moving into our core I'm sure over time some of that will happen. We're the clear leader nearing 4,000 customers. We've got arguably the largest mid-market accounting automation business in the world. And we've got a clear lead in the enterprise in this space. It's very sticky in terms of the value that it creates for clients and how it plugs into these complex architecture. Really pleased with the moat that we've established in that core part of our business. And then as we press our investments, we've probably invested nearly $200 million in R&D over the course of the past 24 months that accrues to various parts of our business and customers. And as we are able to have these conversations about the coming financial operations management and the bringing together of the more broad capabilities that we do offer the company especially in enterprises it's a very compelling thing and they're very receptive.

All right. That's very helpful. And then when you look at the overall inflation across the economy looking at the different tools you have in the bag to sort of offset that do you have much -- have you thought much about kind of how you're going to balance price increases versus using cross-sell to kind of get more revenue per customer and other opportunities that you might have to offset what's rising costs seemingly across every portion of the business?

Yes. So, the first premise Matt will be laser-focused on customers and the value we create for them and making them successful. And we think that's a bigger priority than trying to opportunistically turn on the inflationary scenarios. We -- when -- we have clearly established great value for clients and we have the ability to pass along some of those costs increase that many businesses do, we'll take advantage of that. But our focus remains the basic culture and value that we have in serving customers making sure they're successful making sure they leverage from our expertise. And so it just tends to be more focused on customer outcomes than our BlackLine outcomes.

All right, great. Thank you.

Thank you.

Thank you. Our next question comes from Mauro Molina with Piper Sandler. Your line is open.

Great. Thanks for taking our questions here. So, as it relates to 4Q, is there any color you can give around how the pace of integration has gone so far relative to your initial expectations? And I think you said last quarter you'd be adding around 130 employees. So, it'd be great to hear about how things are going on that front in terms of layering in the platform. And then I'll have one follow-up.

Yes. We just passed 90 days of the integration. So clearly early overall in the grand scheme of things but really pleased with it. The most critical thing you buy a company like this is a combination of IP and capabilities human capabilities. And so I think the handling of the human aspects of this making sure people understand what's expected of them giving them the tools to work properly, getting the paperwork so they understand what's like to be inside BlackLine and the benefits. And all of the things that we all may take for granted it's really a big priority. So, I'm pleased with where we are with the progress on that. I think we've got the team focused have a nice plan have objectives around the product and technology both from an integration standpoint and a commercial standpoint. I think we have a good sales plan. So we're happy with the progress and happy with the intercompany results that we saw clearly.

Great. Yes, that's very helpful. And then it was great to hear about the hiring momentum that you've seen so far and the investments you're making in growing headcount. And again I'm just wondering what's resonating most with job seekers out looking to pursue new opportunities about BlackLine's messaging that's allowed you to kind of hit that record hiring level?

Well, I mean we take good pride in our culture and our leadership position. So, a lot of feedback we get is about that. So strong brand. Strong brand in the industry -- the space that we serve our culture remains strong and committed to customers and employees. And I think that employees see the -- just the potential with the continued investment people are making in digital transformation in the space that we're in the back office and specifically accounting, which we have said for a long time has been overlooked in terms of the disruptive nature of automation technology. And I think people feel like it's a great opportunity for them to grow their careers in a space that's going to have durability to it.

Helpful color. Thank you.

Thank you.

[Operator Instructions] Our next question comes from the line of Alexander Sklar with Raymond James. Your line is open.

Hi thanks for taking the question. This is John on for Alex. Just one from us. How should we think about the contribution from new logos versus expansion as we look towards the remainder of 2022? Thank you.

Yes. Thank you. We've had a long history of a very balanced growth profile half of our growth each quarter and year comes from new logos and half comes from account expansion. And then in the last 18 months, we started to see that our growth is skewing towards account growth. And it's the direct result of a number of things, positive things, trends including investment in our customer success and engagement team and our account management team that are now able to grow and engage with customers in a much bigger deeper broader level. Second thing is that we've invested in our product portfolio we've invested a significant amount of money in our strategic products and acquisitions and in organic innovation. And then the third part of this really is a result of digital transformation trends that have really been accelerating through the large enterprise. And the large enterprise, we believe and we've identified it in previous calls has a significant headroom to continue to expand both in users and in product capability and sales. And so those are the major trends that are pushing us towards a 60-plus percent of our growth profile coming from account growth and then the remainder from new logo. And that we think that balance will be good for us to continue to take market share, drive on our investments with our ecosystem and our partners like SAP and our mid-market velocity and acceleration and then balance that with our ability to continue to sell into our customer base. So it's a very positive trend that we're excited about moving forward. We think it will continue that way.

Thank you very much.

Thank you. I'm showing no other questions in the queue. I would now like to turn the call back over to Marc Huffman for closing remarks.

Thank you. As mentioned in our remarks, we're really pleased with the quarter good, broad performance and that's a reflection of all the BlackLine employees who are very, very customer focused. Many of you interact with businesses and you can see and hear them talking about their legacy accounting processes that are not sustainable. And when you see those we'd appreciate them being sent to BlackLine. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.