BlackLine, Inc. (BL) Q1 2023 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the 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] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speakers today.

Good afternoon, and thank you for joining us today. With me on the call are Owen Ryan, Therese Tucker, Co-Chief Executive Officers of BlackLine; as well as 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 and full year 2023 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 made during this call are reasonable, actual results could differ materially as these 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. All comparisons we make on the call today relate to the corresponding period of last year, unless otherwise noted. Finally, unless otherwise stated, our financial measures disclosed on this call will be non-GAAP. A discussion of these non-GAAP financial measures and information regarding reconciliations of our historical GAAP versus non-GAAP results is currently available in our earnings 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'll turn the call over to BlackLine's Co-Chief Executive Officer, Owen Ryan. Owen?

Thank you, Matt and good afternoon, everyone. Thank you for joining us today. It has been almost two months since Therese and I assumed the co-CEO roles at BlackLine. Together we have spent considerable time meeting with customers’, partners and employees around the world validating the strength of our business and reviewing our strategic direction. I want to discuss several of these key strengths that reflect our solid foundation and the excitement this creates at BlackLine. We are in a strong position as the industry leader with a large and growing market that remains underserved and underpenetrated. Our focus on the customer has not relented. As the leader, we invest more into our customers than any other company in our market. We value and invest in each customer's success surrounding our products with the services, security and training that drive engagement, trust and ultimately their desired outcomes. Our competitive positioning is strong. We do not take our leadership role lightly and we remain sufficiently paranoid as we further extend our technological advantages. Our strategic direction affords us a unique place within the office of the CFO as we inhabit prime real estate. And importantly, our corporate culture remains strong despite the impacts and challenges that COVID presented. This is largely result of the hard work and efforts of our fellow BlackLiners across the globe. As we look to build upon these key strengths, we remain laser-focused in our efforts to drive relentless and maniacal focus on execution across our business. While we will be appropriately attentive to near-term execution, our perspective and focus remains on the long-term, with an understanding that the decisions made today, are those that are expected to strengthen our business over the next few years. That being said, my focus is on these five areas: first, relentless execution across our business operations; second, BlackLine's market message and brand; third, ensuring that customers receive the value of the BlackLine promise; fourth, building our distribution network and fifth, customer retention. On execution, BlackLine has operated at a high level and achieved significant growth in recent years. We have expanded our position within the office of the CFO through the introduction of innovative new solutions, and the entry into new markets and geographies. Looking ahead, we recognize that further rigor and discipline around our processes, will serve to strengthen our business and set the stage for long-term profitable growth. My second area of focus is to improve our market messaging and reinforce our brand promise. We know that the solutions we offer and deliver are critical, to our customers. By partnering with BlackLine, customers can not only become better accountants, but can also become better leaders, strategists and stewards within their own organizations. They frequently acknowledge this and in fact, I remain impressed by how rapid a fanbase we have at BlackLine. Now let me turn, to delivering value. The world is changing rapidly for our customers. We have moved from a world where COVID dominated a company's agenda and then quickly pivoted, to a growth at all cost mentality. More recently, customers have become increasingly focused on managing costs and margin improvement, especially with concerns of a potential recession. The turmoil that customers have been going through demand partners, who are not just trusted, but agile and quick to provide meaningful solutions that solve tomorrow's problems today. This is where BlackLine must excel even more, to deliver our brand promise. My fourth priority, centers on the potential of our large distribution network and how it can be leveraged more efficiently and effectively. Specifically, we have a tremendous opportunity to accelerate the adoption of our strategic product portfolio, through both direct and partner channels, and the opportunity to do so is front and center. We can achieve this through a more strategic approach with our partners to elevate our position, within the office of the CFO. Our large, globally distributed partner ecosystem, is still at an early stage of maturity. We are intent on ensuring that there is a greater set of partnership across these channels. We will be clear in our messaging, about what our partners can expect from us, and what BlackLine expects in return. We expect to fulfill these commitments in order to build a more robust ecosystem. My fifth point is to highlight that we have a strong renewal rate, but recognize that there are opportunities to do even better. I want to ensure that customers coming in the front door, never go out the back door. Our customers must achieve their returns on their investment and realize the value we promise. Over the past few years, BlackLine has invested heavily in our customer success teams. We have brought to bear enhanced implementation support, best practices along with robust customer and partner feedback channels, in order to drive more engagement and drive adoption. Our customers reward these investments by serving as references and rating us highly in satisfaction. However, we can and expect to do more to raise our intensity and execution as our customer focus will only continue to grow. This customer centricity is something that both Therese and I know is at the core of everything we do. I have spoken about what we are seeing inside our organization and where we can do even better, but I want to focus for a moment on what we delivered in the first quarter and the current market environment. What we are experiencing today is quite different than it was a year ago. I recognize that this is not a unique view and the impacts are not specific to BlackLine. We are still seeing extended deal cycles as customers and prospects contended with the various challenges they presently face in their own businesses. Some of these are specific to the industries they operate in and others are influenced by the geographies they serve. For example, we have seen signs of strength in APAC particularly in Japan. Our enterprise business remains a steady performer, while middle market remains softer with relatively subdued deal activity. From a financial perspective, we performed slightly above our expectations in Q1 with revenue of $139 million, up 16%, operating margin of approximately 11%, and non-GAAP net income margin of over 18%. At the end of the quarter, we had 49 customers that generated $1 million or more in annual recurring revenue, up 23%. I briefly spoke of Japan, but wanted to again call out this business's notable performance over the past few quarters. We had a record quarter from a new customer win perspective many of which are coming through our SolEx partnership. For example, companies like AEON DELIGHT, K.K.Ashisuto, Kisan electric manufacturing and Liaz [ph] company which represent a variety of industries have all signed on as new BlackLine customers. Our Japan business is still relatively small but growing very well thanks to the investments we have made and the leadership in place. We have grown penetration to nearly 14% of the Japan-based Forbes 2000 companies in a very short period of time. And looking ahead, we see a building pipeline of opportunities that could expand our penetration into this growing market. In SolEx, we saw strength this quarter and our performance here led to a number of new global customers beginning their transformation journeys with BlackLine, while coming from a diverse set of industries from energy to manufacturing to consumer. This partnership remains an important part of our growth strategy and will become a greater focus of mine going forward. Before I turn it over to Therese to discuss her perspective and the opportunities that she sees allow me to briefly summarize my thoughts. I wake up every morning energized by the people, partners and customers of BlackLine. It is clear to see the tremendous opportunity across our business to drive better performance through a relentless focus on execution and our customers. Much of my time is spent on our go-to-market strategy from sales to customers to partners to accelerate the growth at BlackLine and deliver on our medium-term targets. With that in mind, some of the measures of success in KPIs that are the most important going forward are: revenue and ARR growth, gross and net revenue retention rates, percentage of sales attributed to strategic products, partner participation rate and influence, international growth and penetration and of course, our progression against the medium-term targets we outlined last November. With that, I will turn it over to our Founder, and my fellow CEO, Therese, to discuss her thoughts. Therese?

Thank you, Owen. Many of you have asked, why I chose to come back to BlackLine as a co-CEO after stepping down 2.5 years ago, to put it succinctly, its passion, passion for our customers and passion to continue building great solutions with great people. And now as co-CEO with Owen, I get to channel this passion into something truly wonderful. When I founded the company, and up through my time as CEO and now as co-CEO, I ensure that every BlackLiner knows that the customer is the reason why we exist and is central to everything we do. We want to solve their most complicated challenges and support them as they grow, enabling our customers to close their books faster and more accurately, frees up valuable time for them to focus on the strategic while automating the transactional. We love the markets we serve, and help our customers build world-class finance and accounting organizations. This is something that no other company does today and is unique to BlackLine. When we speak to our customers, we regularly find that the demands placed on their teams far outpaced the tools and capabilities at their disposal. The processes in place are inadequate to support modern accounting, while the financial systems landscape remains antiquated and held together with Legacy Technology and Patchwork Solutions. So how do you solve for this? For one, it's automation and process improvement. Things at BlackLine at its core, does very well. But also, it's about changing the way companies think about accounting and their role within the office of the CFO. Throwing more accountants at the problem, doesn't necessarily solve the structural issues that have been building. That's been tried for years. It's unsustainable. And the problems and technical debt only continue to build. For the Bureau of Labor Statistics and the Wall Street Journal, accountants of all levels are leaving their jobs, primarily due to job dissatisfaction, a lack of strategic work, long hours and manual repetitive work. There has been a 17% decline in the number of accountants at companies over the past two years, driven by some of these issues. Students and young professionals aren't entering accounting today at the pace that they were in the past, in-part, due to a lack of interest in transactional work, but also due to the allure of finance or technology work elsewhere. Partly because of these catalyzing trends, companies are increasingly forced to pay more and aggressively compete to attract talent from a shrinking pool. Last year, for example, starting salaries increased 13% alone, for entry-level accountants, far outpacing inflation. So when I consider all of these factors, I can't help, but get excited about the opportunity we have at BlackLine to help our customers navigate and overcome these issues while also solving some very complex and unique business challenges. And speaking of our customers, Owen and I were fortunate to spend several days with customers in March at our Beyond the Black conference in EMEA. We saw very strong participation from customer's prospects and partners, all of whom are enthusiastic to learn more about how our solutions can positively impact their daily processes, and frankly, make their jobs easier and more rewarding echoing many of the themes that I just touched on. We had a fantastic opportunity to lay out our vision of accounting automation, while introducing our new BlackLine Accounting Studio and Financial Reporting analytics solutions to our EMEA-based audience. The reception to the BlackLine Accounting Studio, which incorporates our vision of comprehensive visibility into accounting operations has been very favorable. We're seeing more and more early adopter customers sign up as they contemplate and map out the next steps in their transformation journey. The pipeline momentum gives us comfort that the investments, we've made and expect to make will strengthen and differentiate our position in the market. Financial reporting analytics is seeing very strong demand and resonating particularly well across our customer base. We've signed more and more customers since its launch late last year with names such as SLP and Cable One. The sales cycle for this solution has been very quick, which speaks to the value that customers are placing on it and their desire to leverage its capabilities today. We expect to expand the capabilities of FRS going forward and enhance its value proposition for customers. I'd be remiss, if I didn't touch on our accounts receivable automation suite of solutions, especially given the increasing importance that companies are placing on working capital management in a rising interest rate environment. More than just applying cash, we spent considerable time developing and adding unique capabilities, leveraging the power of AI and machine learning, to go even further and provide actionable intelligence to our customers. Our solutions provide detailed insights and analytics about their customer bases, allowing for proactive and improved risk management and an enhanced ability to forecast payment activity. This gives our customers the tools they need to make strategic decisions that can ultimately improve operational performance across their businesses. We've seen success here recently with customers like Higher Up and Pirelli Tyres in Australia, Watson Gloves in Canada, Prospero in the UK, and one of my favorites Peet's Coffee in the US. Before I close, I want to reiterate some of the items that Owen touched on and give you my perspective as well. We will continue to put the customer at the center of what we do. It's in our DNA and ingrained within the BlackLine culture. Our product to platform transition is vital to our long-term strategy and will be a key area of investment and focus for the organization going forward accounting studios just the beginning of this and we are excited by the response so far. I plan to spend much of my time focused on ensuring that we leverage what we have today and efficiently build what we need for tomorrow to support our strategy. To close, I'm so proud and happy to be at BlackLine, working with great teams in great markets and with amazing customers. I look forward to sharing more as we move forward and of course, appreciate the hard work of our employees, the fierce loyalty from our customers and partners, and the trust from our investors. With that, I'll turn it over to Mark Partin to discuss the details of our financial performance and our outlook.

Thank you, Therese and good afternoon everyone. BlackLine's financial performance this quarter highlights our ability to execute in an uncertain macro environment. We delivered further margin expansion despite elongated deal cycles and delayed purchasing decisions from customers. As Owen and Therese mentioned earlier, we will remain focused on driving operational execution across the business as we navigate this period and position the business for long-term profitable growth. Now, let's review financial highlights from the first quarter. Total revenue grew to $139 million, up 16% slightly ahead of our expectations. We anticipated that the first quarter would be our highest growth quarter this year as services revenue growth is expected to normalize for the remainder of the year. We'll cover this in more detail as we discuss our Q2 and fiscal year revenue guidance shortly. Calculated billings growth was 14% versus last year. Remaining performance obligations or RPO was up 17% with current RPO growing 18%. We closed the quarter with total annual recurring revenue or ARR of $550 million up 14%. We added 48 net new customers in the seasonal Q1, bringing our total customer count at the end of the quarter to 4236. Our renewal rate was 95% in the quarter. Net revenue retention rate was 106% as customer expansion activity reflects the macro environment. Strategic product performance remained solid and represented 26% of sales, driven by market demand for high automation solutions like accounts receivable and intercompany where momentum continues to build. Partners were involved in 66% of large deals this quarter, driving both net new and expansion deals globally. SolEx was a highlight again this quarter with solid bookings and revenue performance across markets. The SolEx relationship is seeing success and strategic product attach rate, particularly in intercompany. In Q1, our SAP partnership represented 25% of total revenue. Turning to margins, non-GAAP overall gross margin was 79% with non-GAAP subscription gross margin of 82%. In services our teams again delivered strong results led by higher-than-expected services utilization. Non-GAAP operating margin was 11% in the quarter, driven by a combination of efficiency and productivity gains across sales and marketing and G&A. Non-GAAP net income attributable to BlackLine was $25.1 million in Q1, representing an 18% non-GAAP net income margin. Our performance here was driven by strong operating income performance combined with interest income from our investment portfolio. We generated $22.9 million in operating cash flow and $14.3 million in free cash flow in the quarter with a free cash flow margin of 10%. And finally, we ended the year with $1.1 billion in cash, cash equivalents and marketable securities, affording us great flexibility to invest in our business through all market cycles. Now on guidance. We continue to expect the broader macro uncertainty will be a headwind to year-over-year revenue growth, consistent with our expectations coming into 2023. As such, we are reiterating our full year revenue guidance while raising our full year non-GAAP net income guidance. For the second quarter, we expect total GAAP revenues to be in the range of $143 million to $145 million, representing approximately 11% to 13% growth compared to the second quarter of 2022. We expect to report non-GAAP net income attributable to BlackLine in the range of $20 million to $22 million or $0.27 to $0.29 on a per share basis. Our share count will be approximately 74.7 million diluted weighted average shares. And for the full year 2023, we continue to expect total GAAP revenue in the range of $586 million to $596 million, representing 12% to 14% growth compared to full year 2022. On the bottom line, we expect to report non-GAAP net income attributable to BlackLine in the range of $92 million to $96 million or $1.23 to $1.29 on a per share basis. Our share count will be approximately 74.6 million diluted weighted average shares. To close, BlackLine remains focused on near-term execution, while delivering against our targets, as we navigate this uncertain period. Now I'll ask the operator to open the discussion to your questions.

Thank you. At this time we will conduct a question-answer session. [Operator Instructions] For our first question we have Rob Oliver with Baird. Go ahead with your question.

Great. Hi. Thank you very much for taking my question. Owen, welcome and Therese nice to speak with you again and Mark. So question Owen to Therese after your world tour here in March. I'd be curious to know, Owen you mentioned in one of your comments on the road about trying to get the message for BlackLine away from just the accountant up to the broader CFO suite. And obviously, you guys now have a platform of products to address that. But I'd be curious, what addressing that problem in particular, what did you hear from customers on the road? And what are some of the takeaways as to how you can cross or bridge that chasm? And then I had a follow-up for Mark Partin. Thank you.

And Rob, thank you and pleasure to meet you. So I think there's a couple of things as Theresa I have been out on the road. First of all, the customers love how our road map has been laid out, how we've added products to our portfolio because they're looking for us to be able to provide more of an integrated suite platform if you will to help them achieve what they're looking to achieve. And the fact that we're going into this with such a strong reputation already for the products that we have delivered. And so I think the expectation from our customers is that we continue to deliver at the high end that we have historically done, certainly providing and taking advantage of the customer support team that we have built out as well as continuing to work very closely with our partners. Those are all the key things that our customers are talking to us about.

Great. Thanks. Appreciate it. And Mark Partin, one for you obviously, a tremendous job on the bottom line and you really laid out, I think going back to the Analyst Day, a path for you to continue to drive improved margins. You're doing that noticeably. When you look at what you have internally to work with in terms of driving further margin improvements. What are some of the areas of leverage that you still have available to you? And maybe give us a sense of, where we might expect that to come from. Thank you very much.

Thanks, Rob. Yes, you're right, we did lay out a path. One of the benefits we have, is a high recurring revenue business and a high gross margin and that makes the levers, we have inside the business greater. Where we've seen some of the leverage come from so far this year, and through the remainder of the year, the ones that we see having the greatest impact, is this longer-term financial strategy of hiring up the capacity inside the company the sales capacity, maturing that capacity enabling them, training them and focused on retaining them. That's a high productivity, more ramped sales force, which gives us a greater more efficient productive sales force. There are a number of areas inside the business that Therese, myself and Owen are focused on, around how to get greater alignment, greater discipline, and those things are underway now. We'll see those in the G&A and in the product section to come. More -- and just as importantly, in the product section, we're starting to see some of the multiyear investments in our initiatives in the tech like the GCP migration, like in some of the products that we're bringing to market. These investments and initiatives are now starting to mature, and starting to earn and we're starting to see productivity coming out of that crew. So those are areas, we've seen so far and we'll continue to work on those to get to that midterm target model, which we're very close to now in a couple of key areas like sales and marketing and like R&D.

Great. Very helpful. Thank you, Mark.

Thank you.

Okay, great. For our next question I'll bring up to the stage Standby please. We have Alex Sklar with Raymond James. Go ahead with your question, Alex. Q – Alex Sklar: Great. Thank you. Maybe for Mark, here. On the demand environment, I think you said, consistent with what you saw -- spoke to in February. I know a lot of changes kind of in the business -- when the business exiting the year, can you just talk about the linearity of sales cycles bookings you saw in Q1 and into April? Thank you.

Sure, yes. Look, we continue to see strength in the pipeline. But the pipeline is moving and that's a result of longer sales cycles and some of these decisions, that are being pushed off. So as we head into the second half of the year, which is our guidance assumes a second half more loaded year in our demand environment. We've seen consistent to our expectations, coming out of Q4 into Q1 and into Q2 the same elongated sales cycles and longer decision points. Q – Alex Sklar: Okay. Great. And then, Owen and Therese, it seems like -- I appreciate all the color in your prepared remarks, about your focus areas. I think you both highlighted customer centricity and retention. I know those have always been a focus for BlackLine, but can you talk about what may have changed in this regard over the last couple of quarters, the renewal rate I think this quarter was 95-ish percent. And what specific efforts, you're working on there? Thank you.

Yeah. Alex the renewal rate, I think is also impacted a bit by the macro environment. I just want to start with that. Customer centricity is something that we are always focused on. And just the ability to streamline the process, the BlackLine journey that our customers go on and make that a little more seamless and give them a blueprint for what their transformation journey should look like has really been an area that we are pretty close focused and realigned on.

Okay, great. Thank you.

Great. Standby for our next question. We next have Matt Stotler with William Blair. Go ahead, Matt.

Hey everybody. This is Alex Vasti on for Matt. Thanks for taking my question. I have two for me. So -- and I apologize if this has been asked earlier, we've been jumping around a little bit. But regarding billings and the puts and takes there, you guys previously mentioned in the fourth quarter that some deals had slipped. Did those end up closing in the first quarter? And looking ahead, should we expect more slippage from any deals in the first quarter to the second in particular as it relates to SCB and maybe the regional banking stress? Thanks.

Yeah. It's tough to connect the dots between the banking stress and some of the decision points along the way. We've got a pretty diverse broad customer base and prospect base. I can say, I'm sure it didn't help but we can't see where it's made a major impact. The bigger issue for us in the demand environment continues to be delayed purchasing decisions and longer sales cycles. And we saw that in the first quarter heading into the second quarter and that is consistent with what we expected. That's the sort of the uncertainty that exists today in our space.

Got it. Makes sense. And then maybe on the competitive environment has there been any notable changes of late in competitive behavior that you would call out as particularly interesting?

So our view of the competitive landscape, it really hasn't changed and is remaining fairly consistent. And I think for us we continue to focus on driving further innovation, which Therese highlighted. And that really just continues to strengthen our market leadership and the referencing of our customers to us for future prospects. As you know we're the premium provider in the marketplace. I think we have built a really good boat. And I think that's only going to get wider and deeper as we continue to make the investments in the products that we have, while we continue to see a little bit of pricing on the fringe edges of the marketplace. We choose where we're going to compete particularly in the middle market and we win where we want to win. And so we're going to just keep doing what we need to do about building out our platform and building that long-term competitive advantage.

Got it. Awesome. Thanks for that. I’ll pass it on.

Thank you.

Great. We’ll go onto our next question. Next we have Brent Bracelin with Piper Sandler. Go ahead with your question, Brent.

Thank you. Good afternoon. Therese it's great to hear your voice again. I want to start with you just given the automation has been core to BlackLine from day one, and now we're entering a new era where there's this GenAI optionality out there and we're all trying to assess what it means. So I guess for me on one hand, it seems like accounting complexity, is a natural area to apply GenAI. But as we all know accounts are risk averse and you've tried to automate accounting for the better part of the last 20 years. So walk me through your view given your expertise what role GenAI could have in the accounting landscape?

Well, I love your question. We've always been an accounting automation company. And we do focus on making processes more efficient, more accurate and we really want to win accountants to be more strategic. We've already been using AI and machine learning in our AR suite. Okay. We go beyond just applying cash and we deliver intelligence and analytics. And there's a number of other areas where we are exploring where AI could make sense to improve our offerings for customers. To your point however, it is an area where accountants are conservative. You need to make sure that any application of AI is something that is within the framework of what is acceptable in terms of risk, right? I mean you've got to make sure that it's explainable, that it's useful and then it minimizes risk as opposed to increasing risk. So as we do when any new technologies come out, we explore them, we learn about them and we figure out how they can best be applied to the field of finance and accounting.

Super helpful color. And then just one quick follow-up for Mark if I could. It looks like net retention did downtick a little bit. I was wondering if you could talk about any sort of change in gross. It was gross churn consistent and most of the downtick in NRR is just a reduction in seat expansions? Any color on the trend there would be super helpful.

Yeah. Thanks, Brent. Look I think you asked and answered that too. You've got it right. The user growth expansion within the account was one of the lower quarters we've had and we feel that's a function of the demand environment inside our customer base. For example, we saw good progress on the strategic product upsell motion. So the willingness for customers to look at the automation products and expand with there. But the global rollouts and further user expansion certainly was a setback for us on the DBNRR in Q1. The renewal rate at 95% is within range as we've seen over the last three to five years. It's on the lower end of the range. And that -- it goes between 95% and 98%. So for us, as Therese mentioned likely a function of the macro and we would expect that to start to come back up in the future quarters. Nevertheless, DBNRR downtick again in Q1 was mostly a result of the macro demand inside our customer base.

Perfect. Helpful color. Thank you.

Thank you.

Thank you.

Great. We'll now go to our next question. We're going to bring out Pinjalim Bora with JPMorgan. Pinjalim, go ahead.

Hey, thank you for taking the question. Two quick ones here. I want to ask you if you are -- as you think about the strategy for this year, I think the initial plan was kind of to lean in on strategic product. I believe there was a new quota for the sales guys as well. Has there been any kind of a tweak on the sales compensation side at this point as you look into the year?

So you're right. Just to reiterate that for your question is that, when we entered the year, we allocated strategic products quota to our sales reps. We've got a lot of pipeline and demand and interest coming from our customer base and wanted to follow that through to the end line. And so at this stage the sales reps are continuing with that strategic products quota and expect it to through the remainder of the year.

Got it. Understood. Okay. Mark one question for you. Great to see the EPS guidance come up. I want -- since the interest income number has been a little bit ahead of consensus. I wanted to ask you what are you kind of baking in for -- I should say interest income -- net interest income, underlying the guidance that you put out?

Yes. It's -- you're right, we've been earning interest income, which is part of the beat on the non-GAAP net income line of between $8 million to $9 million per quarter. And we have in our guidance assume that would continue through the remainder of the year.

Got it. Thank you very much.

Okay. Great. We'll have our next question here. Next we have Daniel Jester with BMO Capital Markets. Go ahead with your question.

Hi. This is Kyle Aberasturi on for Dan Jester. Thanks for taking the question. Could you dig a bit more into your regional SAP go-to-market strategy a bit more? Any color on the strategy headcount growth or partnership growth would be helpful. Thank you.

As you can imagine that SAP is one of our most important relationships, and this is one of the areas that not only Therese and myself, Mark and the leadership team are focused on but we are trying to drive that message throughout the organization. We certainly have had good progress across North America. We highlighted a little bit what's been happening in Japan. But we also have work to do across the rest of the globe. And the key thing is for us to continue to build those relationships in the local markets and that's what we're intending to do along with our partners. And I think that we are going to be in a really good -- great shape to further expand and drive that relationship with SAP, in particular because of how our products work well with theirs and the symbiotic nature of that relationship.

Great. Thank you.

Thank you.

Okay, great Kyle. Our next question will come up. Next we have Koji Ikeda. I apologize if I mispronounced with BofA Securities.

No, you got it. Good. Thank you. Welcome back Therese, Owen and Mark. Pleasure -- pleasure as always. I wanted to go back to a prior question and dig in a little bit more on the Generative AI front. And every day there seems like there's news and debates out there on the implications in the back office. So, maybe more directed to you to Therese, how do you think about GenAI in the office of the CFO? And more specifically on over the long term do you think it's a TAM expander or a shrinker and maybe why or why not?

Oh, that's a really good question, Koji. Okay. Here's the thing about AI. Whenever you don't have visibility into how a decision is arrived at, you have potential risk, okay? So let's say, that you're a finance and accounting organization and you use AI, and it tells you to make a business decision and you make that business decision and it's wrong, who's responsible? Whose fault is it? Okay. So there has to be some very -- when you utilize a tool like AI in an area where you need precision like accounting and finance you have to have a pretty good understanding of where those decisions are coming from who is buying into them and what happens if they're wrong. So even though AI is making some really good strides forward there's still a governance aspect around AI that is still very immature. And there's actually -- it's super interesting. There's actually some firms out there that are starting to try to put governance around AI, which will make it much more interesting to the field of finance and accounting over the next coming months and years. Now to your second question about whether or not that is a TAM increase or decrease. I don't know that it's either and here's why. If you think about BlackLine being an accounting automation company, you could say the same question there. Are we – we automate things so does that mean less accountants or more. And typically, the way our customers have utilized this is to redeploy accountants to do things that are more strategic and more value added to the business. I think it's very similar with the application of AI.

Got it. No -- thank you, Therese for that. That's a really good answer. And maybe just a follow-up for Mark or Owen. Looking at the guidance it was pointed out earlier that the net income significantly raised this year and just thinking about the dialing back of the investments in operations to achieve that. I guess my question is more so of how do you think of the ability to pivot back when demand comes back stronger -- if demand comes back stronger than anticipated because it seems intuitively it's much easier to slow investments, but it takes time for those investments to really bear fruit. So how do you think about that pivot back to demand?

Great. Thanks, Koji. This is Mark. You know, 2023 I guess fortunately for us is on the back end of a number of major investment initiatives that we've made over the last three years. So we're sort of hitting the back end of getting the benefit out of these early cost investments that we've made and let me give you some examples. We made two acquisitions both intentionally dilutive to bring them on to our platform in the last three years. We've invested in a GCP migration which had a headwind for a number of years an SAP partnership, which had a near-term headwind for a long-term payoff and then finally we increased our sales capacity in the demand environment with the intention to get the higher ramp, higher trend and tenured reps which as of Q1 is the highest capacity we've ever had in the marketplace today in this environment. So when you think about that I wouldn't say that we're pulling back. I would say what we're doing is we are very targeted in the level of investment we're making in the demand environment. We are continuing to invest in the R&D for that road map and to push that advantage, which just happen to be doing it at a slower pace in some places or optimizing it in India and other places building bandwidth at a higher efficiency. So as we go into the second half of this year and into next year, we look for the demand signals. We've got good ramp time to be in a position to capture the demand as it comes back.

Got it. Thanks, guys. Thank you so much for taking my questions.

Okay. We have a couple more questions. Standby. Next we have Adam Hotchkiss with Goldman Sachs. Go ahead with your question.

Great. Thanks for taking my questions. You mentioned BeyondTheBlack EMEA, it would be great to get a little more color on your broader customer conversations there. Have the pain points you hear about it at existing solutions change at all now that companies are needing to preserve cash flow rather than the growth at all cost mentality? And then, how do you and your partners evolve your messaging around that and get folks over the finish line to combat the slower buying environment?

In our market, Adam, I don't know that accountants have ever spent to have growth at all costs, okay? And I'll push back a little bit on that. Our buyers have always been pretty conservative on the offerings and they do a lot of vetting to make sure that they make sense. The multiple products is actually something that we have seen a great receptivity to. We've spent many years building up our brand and by doing a great job for our customers, we've ended up having permission to bring them other markets -- other products in the market.

Yes. I think that, my experience -- Sorry, I was just going to add. I think my experience with our customers, I just would echo what Therese said. I mean, they really did appreciate the build-out of our platform. They understand the commitment. They know the level of investment that we've made in product and technology. They know the level of investment we've made in customer support. They understand how carefully we guard their information by building our own protections around cyber for them. And so, I think it was all very positive. And I do remember sitting with Therese in London, I said, you talk to accounts it's like the shoemaker's kids, right? They'll help spend money everywhere else, but they'll spend it in their own organization last. And so, that fiscal prudence with that part of an organization is very real that we overcome.

Great. That's really helpful. Thanks. And then, we noticed the partner influence deals stepped down this quarter from a percentage basis. Anything to call out on that front?

No, not necessarily. Like, we're always careful to talk about this in a range that there's not a specific success benchmark, because if you know -- many of our customers have the resources internally to do digital transformation. They've made the choice to own that as core to have the consultancy and the teams and the transformation teams inside. So not having a partner on those engagement isn't a sign of success or not. So we look for 60% to 80% and have ranged very much close to 70%. And I think that's more indicative of the market versus whether or not we've partnered successfully at the high end of the customer base.

Great. Really helpful. Thanks so much.

Thank you.

Okay. Great. We have one more question. And this question is coming from Matthew VanVliet with BTIG. Go ahead with your question.

All right. Great. Thank you for taking the question. And Theresa, welcome back. Owen welcome to the side --

Thank you.

-- of the business as well. I guess when you're looking at how the macro is impacting the overall demand environment, curious if you're seeing any kind of a mix shift across your own platform of what customers are maybe willing or wanting to buy upfront and what maybe they're putting off? Are things like the cash application to get a little bit more visibility maybe a little more timely than a broader intercompany deployment or things of that nature? Any additional color around what customers are really fixated on today would be very helpful.

Yes. Thanks. This is Mark. I'll answer this question. I think in terms of the number of deals and the pipeline and the conversations we had dating back even to our North American BTB event in November and then some of the uptake that we've seen in some of the new products. Look we had really from not just the unit volume, but also a dollar volume really good success in these strategic product portfolio, which are high automation, right? It's a high ROI, it's provable ROI. In a lot of cases you have the CFO involved in the buying decision. And these really resonate when you're talking about a product like intercompany or like transaction matching or even AR, which solves really big problems in this type of environment. So we've seen good success and uptake there. In the macro, the macro is really at both at right the mid-market in EMEA we see the impact, but also large digital transformation global rollout commitment to multiyear projects. These things have also become part of that sort of macro headwind. They're there but they're just taking the extra time.

And then maybe a quick follow-up on the second part of your answer there. With the SolEx partnership how tied do those additional deals for BlackLine being additive there sort of rely on maybe a broader ERP modernization or other big projects that go through the SAP ecosystem, or do you come in as maybe a follow-up sale or even maybe a presales to something like that? So how tight are you to the demand environment around those bigger projects?

I don't know that we are tied to in terms of sequencing. We have customers that start before they do a large ERP upgrades they will bring BlackLine in to help with that process. Okay. So we see many of those situations, where getting everything into a single centralized location being able to manage the change over a period of years. That's actually a really strong set of skills that we bring to that table. However, we have seen others where if it's a post-ERP implementation they may have already started that. They've got to get it done before they can focus the resources. So BlackLine could be post add-on. But generally, we're not really tied to the ERP demand environment. In fact, in some cases, we've seen where the ERP upgrade is put off but they continue with their BlackLine, because they know they're going to get some short-term value out of it that take years on some other projects.

Right. Great. Thank you for taking my questions.

Thank you.

Thank you.

At this time, I'll turn it back over to Owen Ryan for some closing comments.

Thank you. Therese, Mark and I want to thank you for your time today. We greatly appreciate our chance to speak with you. We look forward to talking to you again very soon and have a great day everyone. Take care.

Thank you all for your participation in today's conference. This does conclude the program and you may now disconnect.